10-Q 1 spn-20190331x10q.htm 10-Q spn-20190331 10Q Q1_Taxonomy2018

    

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





 

 



 

 



FORM 10-Q

 



 

 



(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2019



or



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the Transition Period from          to



Commission File No. 001-34037



 

 



 

 



SUPERIOR ENERGY SERVICES, INC.



(Exact name of registrant as specified in its charter)



 

 



 

 







 

 

 

 



Delaware

 

75-2379388

 



(State or other jurisdiction of

 

(I.R.S. Employer

 



incorporation or organization)

 

Identification No.)

 



 

 

 

 



1001 Louisiana Street, Suite 2900

 

77002

 



Houston, TX

 

(Zip Code)

 



(Address of principal executive offices)

 

 

 



Registrant’s telephone number, including area code: (713) 654-2200



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   No



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

 

Large accelerated filer   

 

Accelerated filer                            

Non-accelerated filer     

 

Smaller reporting company           



 

Emerging growth company           



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  



The number of shares of the registrant’s common stock outstanding on April 19, 2019 was 155,956,938.



 

 

 


 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q for

the Quarterly Period Ended March 31, 2019



TABLE OF CONTENTS





 

 



 

 



 

Page

PART I.

FINANCIAL INFORMATION

 



 

 

Item 1.

Condensed Consolidated Financial Statements and Notes

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

20 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

24 

Item 4.

Controls and Procedures

24 



 

 

PART II.

OTHER INFORMATION

 



 

 

Item 1

Legal Proceedings

25 

Item 1A.

Risk Factors

25 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25 

Item 6.

Exhibits

25 

 



2

 


 



PART I.  FINANCIAL INFORMATION



Item 1. Condensed Consolidated Financial Statements and Notes





 

 

 

 

 



 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

March 31, 2019 and December 31, 2018

(in thousands, except share data)

(unaudited)





3/31/2019

 

12/31/2018

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

151,568 

 

$

158,050 

Accounts receivable, net of allowance for doubtful accounts of $13,512 and

 

 

 

 

 

$12,080 at March 31, 2019 and December 31, 2018, respectively

 

420,811 

 

 

447,353 

Prepaid expenses

 

52,241 

 

 

45,802 

Inventory and other current assets

 

127,646 

 

 

121,700 

Total current assets

 

752,266 

 

 

772,905 



 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation and depletion of
$2,697,409 and $2,640,344 at March 31, 2019 and December 31, 2018, respectively

 

1,061,357 

 

 

1,109,126 

Operating lease right-of-use assets

 

103,082 

 

 

 -

Goodwill

 

137,495 

 

 

136,788 

Notes receivable

 

64,993 

 

 

63,993 

Restricted cash

 

2,722 

 

 

5,698 

Intangible and other long-term assets, net of accumulated amortization of $78,723
and $76,358 at March 31, 2019 and December 31, 2018, respectively

 

125,420 

 

 

127,452 

Total assets

$

2,247,335 

 

$

2,215,962 



 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

120,549 

 

$

139,325 

Accrued expenses

 

229,225 

 

 

219,180 

Income taxes payable

 

1,043 

 

 

734 

Current portion of decommissioning liabilities

 

3,565 

 

 

3,538 

Total current liabilities

 

354,382 

 

 

362,777 



 

 

 

 

 

Long-term debt, net

 

1,283,862 

 

 

1,282,921 

Decommissioning liabilities

 

128,062 

 

 

126,558 

Operating lease liabilities

 

78,384 

 

 

 -

Other long-term liabilities

 

154,579 

 

 

152,967 



 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock of $0.01 par value.  Authorized - 5,000,000 shares; none issued

 

 -

 

 

 -

Common stock of $0.001 par value

 

 

 

 

 

Authorized - 250,000,000, Issued and Outstanding - 155,956,600 at March 31, 2019
Authorized - 250,000,000, Issued and Outstanding - 154,885,418 at December 31, 2018

 

156 

 

 

155 

Additional paid in capital

 

2,739,083 

 

 

2,735,125 

Accumulated other comprehensive loss, net

 

(72,104)

 

 

(73,177)

Retained deficit

 

(2,419,069)

 

 

(2,371,364)

Total stockholders’ equity

 

248,066 

 

 

290,739 

Total liabilities and stockholders’ equity

$

2,247,335 

 

$

2,215,962 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



 

 

 

 

 















 

 

 

 

 

3

 


 



 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2019 and 2018

(in thousands, except per share data)

(unaudited)



 



2019

 

2018

Revenues:

 

 

 

 

 

Services

$

376,139 

 

$

399,768 

Rentals

 

91,037 

 

 

82,550 

Total revenues

 

467,176 

 

 

482,318 

Costs and expenses:

 

 

 

 

 

Cost of services (exclusive of depreciation, depletion, amortization and accretion)

 

288,476 

 

 

311,139 

Cost of rentals (exclusive of depreciation, depletion, amortization and accretion)

 

41,687 

 

 

32,321 

Depreciation, depletion, amortization and accretion - services

 

66,776 

 

 

87,747 

Depreciation, depletion, amortization and accretion - rentals

 

15,663 

 

 

17,972 

General and administrative expenses

 

73,845 

 

 

75,820 

Loss from operations

 

(19,271)

 

 

(42,681)



 

 

 

 

 

Other expense:

 

 

 

 

 

Interest expense, net

 

(25,121)

 

 

(24,887)

Other expense

 

(1,612)

 

 

(1,735)

Loss from continuing operations before income taxes

 

(46,004)

 

 

(69,303)

Income taxes

 

1,701 

 

 

(9,355)

Net loss from continuing operations

 

(47,705)

 

 

(59,948)

Loss from discontinued operations, net of income tax

 

 -

 

 

224 

Net loss

$

(47,705)

 

$

(59,724)



 

 

 

 

 

Basic and diluted loss per share

$

(0.31)

 

$

(0.39)



 

 

 

 

 



 

 

 

 

 

Weighted average shares outstanding

 

155,777 

 

 

154,121 

 









 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

Three Months Ended March 31, 2019 and 2018

(in thousands)

(unaudited)





2019

 

2018

Net loss

$

(47,705)

 

$

(59,724)

Change in cumulative translation adjustment, net of tax

 

1,073 

 

 

4,388 

Comprehensive loss

$

(46,632)

 

$

(55,336)



 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 





4

 


 





 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2019 and 2018

(in thousands)

(unaudited)





 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(47,705)

 

$

(59,724)

Adjustments to reconcile net loss to net cash provided by (used in) operating
  activities:

 

 

 

   

 

 

Depreciation, depletion, amortization and accretion

 

 

82,439 

 

 

105,719 

Deferred income taxes

 

 

 -

 

 

(12,285)

Stock based compensation expense

 

 

8,453 

 

 

8,197 

Other reconciling items, net

 

 

(3,986)

 

 

(987)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

26,590 

 

 

(44,692)

Inventory and other current assets

 

 

(5,941)

 

 

(15,620)

Accounts payable

 

 

(8,172)

 

 

16,810 

Accrued expenses

 

 

(17,709)

 

 

(14,501)

Other, net

 

 

(6,590)

 

 

(7,875)

Net cash provided by (used in) operating activities

 

 

27,379 

 

 

(24,958)



 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Payments for capital expenditures

 

 

(41,160)

 

 

(65,734)

Proceeds from sales of assets

 

 

5,066 

 

 

12,135 

Net cash used in investing activities

 

 

(36,094)

 

 

(53,599)



 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of short-term debt

 

 

 -

 

 

744 

Tax withholdings for vested restricted stock units

 

 

(1,667)

 

 

(5,155)

Other

 

 

 -

 

 

(304)

Net cash used in financing activities

 

 

(1,667)

 

 

(4,715)

Effect of exchange rate changes on cash

 

 

924 

 

 

1,812 

Net change in cash, cash equivalents, and restricted cash

 

 

(9,458)

 

 

(81,460)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

163,748 

 

   

192,483 

Cash, cash equivalents, and restricted cash at end of period

 

$

154,290 

 

$

111,023 



 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



 

5

 


 



 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2019 and 2018

(in thousands, except share data)

(unaudited)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 



 

Common

 

 

 

 

Additional

 

other

 

 

 

 

 



 

stock

 

Common

 

paid-in

 

comprehensive

 

Retained

 

 

 



 

shares

 

stock

 

capital

 

loss, net

 

deficit

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2018

 

154,885,418 

 

$

155 

 

$

2,735,125 

 

$

(73,177)

 

$

(2,371,364)

 

$

290,739 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(47,705)

 

 

(47,705)

Foreign currency translation adjustment

 

 -

 

 

 -

 

 

 -

 

 

1,073 

 

 

 -

 

 

1,073 

Stock-based compensation expense,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 net of forfeitures

 

 -

 

 

 -

 

 

5,625 

 

 

 -

 

 

 -

 

 

5,625 

Restricted stock units vested

 

1,503,046 

 

 

 

 

(1)

 

 

 -

 

 

 -

 

 

 -

Shares withheld and retired

 

(431,864)

 

 

 -

 

 

(1,666)

 

 

 -

 

 

 -

 

 

(1,666)

Balances, March 31, 2019

 

155,956,600 

 

$

156 

 

$

2,739,083 

 

$

(72,104)

 

$

(2,419,069)

 

$

248,066 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2017

 

153,263,097 

 

$

153 

 

$

2,713,161 

 

$

(67,427)

 

$

(1,513,458)

 

$

1,132,429 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(59,724)

 

 

(59,724)

Foreign currency translation adjustment

 

 -

 

 

 -

 

 

 -

 

 

4,388 

 

 

 -

 

 

4,388 

Stock-based compensation expense,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 net of forfeitures

 

 -

 

 

 -

 

 

6,229 

 

 

 -

 

 

 -

 

 

6,229 

Restricted stock units vested

 

1,431,646 

 

 

 

 

(1)

 

 

 -

 

 

 -

 

 

 -

Shares withheld and retired

 

(457,481)

 

 

 -

 

 

(5,153)

 

 

 -

 

 

 -

 

 

(5,153)

Balances, March 31, 2018

 

154,237,262 

 

$

154 

 

$

2,714,236 

 

$

(63,039)

 

$

(1,573,182)

 

$

1,078,169 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

















6

 


 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Three Months Ended March 31, 2019



(1)Basis of Presentation



Certain information and footnote disclosures normally in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC); however, management believes the disclosures that are made are adequate to make the information presented not misleading.  These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Superior Energy Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018, and Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.



The financial information of Superior Energy Services, Inc. and its subsidiaries (the Company) for the three months ended March 31, 2019 and 2018 has not been audited.  However, in the opinion of management, all adjustments necessary to present fairly the results of operations for the periods presented have been included therein.  The results of operations for the first three months of the year are not necessarily indicative of the results of operations that might be expected for the entire year. 



Due to the nature of the Company’s business, the Company is involved, from time to time, in routine litigation or subject to disputes or claims regarding its business activities. Legal costs related to these matters are expensed as incurred.  In management’s opinion, none of the pending litigation, disputes or claims is expected to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.



The Company evaluates events that occur after the balance sheet date but before the financial statements are issued for potential recognition or disclosure.  Based on the evaluation, the Company determined that there were no material subsequent events for recognition or disclosure.

 



(2)Revenue



Revenue Recognition



Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration the Company expects to be entitled to in exchange for services rendered or rentals provided.  Taxes collected from customers and remitted to governmental authorities and revenues are reported on a net basis in the Company’s financial statements.



Performance Obligations



A performance obligation arises under contracts with customers to render services or provide rentals, and is the unit of account under Topic 606.  The Company accounts for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on its own or with other resources that are readily available to the customer.  A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.  A contract’s standalone selling prices are determined based on the prices that the Company charges for its services rendered and rentals provided.  The majority of the Company’s performance obligations are satisfied over time, which is generally represented by a period of 30 days or less.  The Company’s payment terms vary by the type of products or services offered.  The term between invoicing and when the payment is due is typically 30 days.



Services revenue primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service.  Rates for these services vary depending on the type of services provided and can be based on a per job, per hour or per day basis.



Rentals revenue is, primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for use of the Company’s rental equipment over the term of the rental period, which is generally less than twelve months.



The Company expenses sales commissions when incurred because the amortization period would have been one year or less.



7

 


 

Disaggregation of revenue



The following table presents the Company’s revenues by segment disaggregated by geography (in thousands):







 

 

 

 

 



 

 

 

 

 



Three Months Ended March 31,



 

2019

 

 

2018

U.S. land

 

 

 

 

 

    Drilling Products and Services

$

48,217 

 

$

40,717 

    Onshore Completion and Workover Services

 

205,038 

 

 

231,489 

    Production Services

 

40,666 

 

 

52,457 

    Technical Solutions

 

11,920 

 

 

6,833 

Total U.S. land

$

305,841 

 

$

331,496 



 

 

 

 

 

U.S. offshore

 

 

 

 

 

    Drilling Products and Services

$

29,067 

 

$

20,989 

    Onshore Completion and Workover Services

 

 -

 

 

 -

    Production Services

 

19,272 

 

 

17,500 

    Technical Solutions

 

20,933 

 

 

37,562 

Total U.S. offshore

$

69,272 

 

$

76,051 



 

 

 

 

 

International

 

 

 

 

 

    Drilling Products and Services

$

23,795 

 

$

23,496 

    Onshore Completion and Workover Services

 

 -

 

 

 -

    Production Services

 

43,512 

 

 

30,760 

    Technical Solutions

 

24,756 

 

 

20,515 

Total International

$

92,063 

 

$

74,771 

Total Revenues

$

467,176 

 

$

482,318 



 

 

 

 

 





The following table presents the Company’s revenues by segment disaggregated by type (in thousands):







 

 

 

 

 



 

 

 

 

 



Three Months Ended March 31,



 

2019

 

 

2018

Services

 

 

 

 

 

    Drilling Products and Services

$

31,121 

 

$

24,005 

    Onshore Completion and Workover Services

 

194,417 

 

 

221,347 

    Production Services

 

94,848 

 

 

94,614 

    Technical Solutions

 

55,753 

 

 

59,802 

Total services

$

376,139 

 

$

399,768 



 

 

 

 

 

Rentals

 

 

 

 

 

    Drilling Products and Services

$

69,958 

 

$

61,197 

    Onshore Completion and Workover Services

 

10,621 

 

 

10,142 

    Production Services

 

8,602 

 

 

6,103 

    Technical Solutions

 

1,856 

 

 

5,108 

Total rentals

$

91,037 

 

$

82,550 

Total Revenues

$

467,176 

 

$

482,318 



 

 

 

 

 



Impact of adoption of Accounting Standards Update (ASU) 2016-02, Leases (Topic 842)



Services revenue:



In connection with adoption of Topic 842, the Company determined that certain of its services revenue contracts contain a lease component.  The Company elected to adopt a practical expedient available to lessors, which allows the Company to combine the lease and non-lease components and account for the combined component in accordance with the accounting treatment for the predominant

8

 


 

component.  Therefore, the Company combined the lease and service components for certain of the Company’s service contracts and continues to account for the combined component under Topic 606, Revenue from Contracts with Customers.



Rentals revenue:



The Company determined that its rentals revenue contracts represent short-term operating leases.  Therefore, the adoption of the ASU 2016-02 did not result in any changes in the timing or method of revenue recognition for the Company’s rental revenues.

   



(3)Inventory



Inventories are stated at the lower of cost or net realizable value.  The Company applies net realizable value and obsolescence to the gross value of the inventory.  Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process.  Supplies and consumables primarily consist of products used in our services provided to customers.  The components of the inventory balances are as follows (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31, 2019

 

December 31, 2018

Finished goods

 

$

54,931 

 

$

54,144 

Raw materials

 

 

17,358 

 

 

16,795 

Work-in-process

 

 

7,992 

 

 

5,544 

Supplies and consumables

 

 

34,064 

 

 

30,822 

Total

 

$

114,345 

 

$

107,305 



 

 

 

 

 

 

 



(4)Notes Receivable



Notes receivable consist of a commitment from the seller of an oil and gas property acquired by the Company related to costs associated with the abandonment of the acquired property.  Pursuant to an agreement with the seller, the Company will invoice the seller an agreed upon amount at the completion of certain decommissioning activities.  The gross amount of this obligation totals $115.0 million and is recorded at present value using an effective interest rate of 6.58%.  The related discount is amortized to interest income based on the expected timing of completion of the decommissioning activities.  The Company recorded interest income related to notes receivable of $1.0 million for each of the three months ended March 31, 2019 and 2018.

 



(5)Debt



The Company’s outstanding debt is as follows (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31, 2019

 

December 31, 2018



 

Long-term

 

Long-term

Senior unsecured notes due September 2024

 

$

500,000 

 

$

500,000 

Senior unsecured notes due December 2021

 

 

800,000 

 

 

800,000 

Total debt, gross

 

 

1,300,000 

 

 

1,300,000 

Unamortized debt issuance costs

 

 

(16,138)

 

 

(17,079)

Total debt, net

 

$

1,283,862 

 

$

1,282,921 



Credit Facility



The Company has an asset-based revolving credit facility which matures in October 2022.  The borrowing base under the credit facility is calculated based on a formula referencing the borrower’s and the subsidiary guarantors’ eligible accounts receivable, eligible inventory and eligible premium rental drill pipe less reserves.  Availability under the credit facility is the lesser of (i) the commitments, (ii) the borrowing base and (iii) the highest principal amount permitted to be secured under the indenture governing the 7 1/8% senior unsecured notes due 2021.  At March 31, 2019, the borrowing base was $240.8 million and the Company had $73.2 million of letters of credit outstanding that reduced its borrowing availability under the revolving credit facility.  The credit agreement contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, merger, consolidations, dispositions of assets and other provisions customary in similar types of agreements.

   

9

 


 

Senior Unsecured Notes



The Company has outstanding $500 million of 7 3/4% senior unsecured notes due September 2024.  The indenture governing the 7 3/4% senior unsecured notes due 2024 requires semi-annual interest payments on March 15 and September 15 of each year through the maturity date of September 15, 2024.



The Company also has outstanding $800 million of 7 1/8% senior unsecured notes due December 2021.  The indenture governing the 7 1/8% senior unsecured notes due 2021 requires semi-annual interest payments on June 15 and December 15 of each year through the maturity date of December 15, 2021. 

 









(6)Decommissioning Liabilities



The Company’s decommissioning liabilities associated with an oil and gas property and its related assets include liabilities related to the plugging of wells, removal of the related platform and equipment, and site restoration.  The Company reviews the adequacy of its decommissioning liabilities whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially.  The Company had decommissioning liabilities of $131.6 million and $130.1 million at March 31, 2019 and December 31, 2018, respectively.





(7)  Leases



Adoption of ASU 2016-02, Leases



The Company adopted the new standard on January 1, 2019 and used the effective date as the date of initial application.  Therefore, prior period financial information has not been adjusted and continues to be reflected in accordance with the Company’s historical accounting policy.  The standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.



The standard provides a number of optional practical expedients in transition.  The Company elected the “package of practical expedients,” which, among other things, allows the Company to carry forward its historical lease classification.



The adoption of this standard resulted in the recording of operating lease assets and operating lease liabilities of approximately $100.0 million as of January 1, 2019, with no related impact on the Company’s condensed consolidated statement of equity or condensed consolidated statement of operations.  Short-term leases have not been recorded on the balance sheet.



Accounting Policy for Leases



The Company determines if an arrangement is a lease at inception.  All of the Company’s leases are operating leases and are included in ROU assets, accounts payable and operating lease liabilities in the condensed consolidated balance sheet.



ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make lease payments arising from the lease.  Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.  The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.  The Company’s lease terms may include options to extend or terminate the lease.



Overview



The Company’s operating leases are primarily for real estate, machinery and equipment, and vehicles.  The terms and conditions for these leases vary by the type of underlying asset.  Total operating lease expense was $15.7 million and $13.5 million for the three months ended March 31, 2019 and 2018, respectively.  For the three months ended March 31, 2019, a portion of the total operating lease expense relating to short-term leases was $5.4 million.























10

 


 



Supplemental Balance Sheet Information

 

Operating leases at March 31, 2019 were as follows (in thousands):









 

 



 

 



March 31, 2019

Operating lease ROU assets

$

103,082 



 

 

Accrued expenses

$

27,589 

Operating lease liabilities

 

78,384 

Total operating lease liabilities

$

105,973 



 

 

Cash paid for operating leases

$

8,742 

ROU assets obtained in exchange for lease obligations

$

6,877 



 

 

Weighted average remaining lease term

 

8 years

Weighted average discount rate

 

6.75%



 

 



Maturities of operating lease liabilities at March 31, 2019 are as follows (in thousands):







 



 

Remainder of 2019

$       24,890

2020

27,169 

2021

20,317 

2022

11,847 

2023

7,341 

Thereafter

48,535 

Total lease payments

140,099 

Less imputed interest

(34,126)

Total

$     105,973



 



At December 31, 2018, future minimum lease payments under long-term leases for the five years ending December 31, 2019 through 2023 and thereafter are as follows:  $30.8 million, $24.3 million, $16.6 million, $9.8 million and $6.9 million and $37.8 million, respectively.





(8)  Fair Value Measurements



Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable.  The three input levels of the fair value hierarchy are as follows.  



Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.



Level 2: Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets; or model-derived valuations or other inputs that can be corroborated by observable market data.



Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.



11

 


 

The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 



 

Fair Value at March 31, 2019



 

Level 1

 

Level 2

 

Level 3

 

Total

Intangible and other long-term assets, net:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation assets

 

$

 -

 

$

14,183 

 

$

 -

 

$

14,183 

Accounts payable:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

 -

 

$

1,329 

 

$

 -

 

$

1,329 

Other long-term liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

 -

 

$

20,961 

 

$

 -

 

$

20,961 

Total debt

 

$

1,141,127 

 

$

 -

 

$

 -

 

$

1,141,127 



 

 

 

 

 

 

 

 

 

 

 

 



 

Fair Value at December 31, 2018



 

Level 1

 

Level 2

 

Level 3

 

Total

Intangible and other long-term assets, net:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation assets

 

$

376 

 

$

12,930 

 

$

 -

 

$

13,306 

Accounts payable:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

 -

 

$

1,138 

 

$

 -

 

$

1,138 

Other long-term liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

 -

 

$

19,766 

 

$

 -

 

$

19,766 

Total debt

 

$

1,084,711 

 

$

 -

 

$

 -

 

$

1,084,711 



The Company’s non-qualified deferred compensation plans allow officers, certain highly compensated employees and non-employee directors to defer receipt of a portion of their compensation and contribute such amounts to one or more hypothetical investment funds.  These investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent Levels 1 and 2, respectively, in the fair value hierarchy. 



The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short maturities.  The fair value of the debt instruments is determined by reference to the market value of the instrument as quoted in an over-the-counter market.



(9)  Segment Information



Business Segments



The Drilling Products and Services segment rents and sells premium drill pipe, bottom hole assemblies, tubulars and specialized equipment for use with onshore and offshore oil and gas well drilling, completion, production and workover activities.  It also provides on-site accommodations and machining services.  The Onshore Completion and Workover Services segment provides pressure pumping services used to complete and stimulate production in new oil and gas wells, fluid handling services and well servicing rigs that provide a variety of well completion, workover and maintenance services.  The Production Services segment provides intervention services such as coiled tubing, cased hole and mechanical wireline, hydraulic workover and snubbing, production testing and optimization, and remedial pumping services.  The Technical Solutions segment provides services typically requiring specialized engineering, manufacturing or project planning, including well containment systems, stimulation and sand control services, well plug and abandonment services and the production and sale of oil and gas. 



The Company evaluates the performance of its reportable segments based on income or loss from operations excluding corporate expenses.  The segment measure is calculated as follows: segment revenues less segment operating expenses, depreciation, depletion, amortization and accretion expense and reduction in value of assets.  The Company uses this segment measure to evaluate its reportable segments because it is the measure that is most consistent with how the Company organizes and manages its business operations.  Corporate and other costs primarily include expenses related to support functions, salaries and benefits for corporate employees and stock-based compensation expense.















12

 


 

Summarized financial information for the Company’s segments is as follows (in thousands): 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Onshore

 

 

 

 

 

 

 

 

 

 

 

 



 

Drilling

 

Completion

 

 

 

 

 

 

 

 

 

 

 



 

Products and

 

and Workover

 

Production

 

Technical

 

Corporate and

 

Consolidated



 

Services

 

Services

 

Services

 

Solutions

 

Other

 

Total

Revenues

 

$

101,079 

 

$

205,038 

 

$

103,450 

 

$

57,609 

 

$

 -

 

$

467,176 

Cost of services and rentals (exclusive of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depreciation, depletion, amortization and accretion)

 

 

42,205 

 

 

171,799 

 

 

79,881 

 

 

36,278 

 

 

 -

 

 

330,163 

Depreciation, depletion, amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  and accretion

 

 

23,026 

 

 

37,743 

 

 

14,140 

 

 

6,310 

 

 

1,220 

 

 

82,439 

General and administrative expenses

 

 

14,569 

 

 

10,575 

 

 

7,812 

 

 

15,937 

 

 

24,952 

 

 

73,845 

Income (loss) from operations

 

 

21,279 

 

 

(15,079)

 

 

1,617 

 

 

(916)

 

 

(26,172)

 

 

(19,271)

Interest income (expense), net

 

 

 -

 

 

 -

 

 

 -

 

 

1,018 

 

 

(26,139)

 

 

(25,121)

Other expense

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,612)

 

 

(1,612)

Income (loss) from continuing operations 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  before income taxes

 

$

21,279 

 

$

(15,079)

 

$

1,617 

 

$

102 

 

$

(53,923)

 

$

(46,004)









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Onshore

 

 

 

 

 

 

 

 

 

 

 

 



 

Drilling

 

Completion

 

 

 

 

 

 

 

 

 

 

 

 



 

Products and

 

and Workover

 

Production

 

Technical

 

Corporate and

 

Consolidated



 

Services

 

Services

 

Services

 

Solutions

 

Other

 

Total

Revenues

 

$

85,202 

 

$

231,489 

 

$

100,717 

 

$

64,910 

 

$

 -

 

$

482,318 

Cost of services and rentals (exclusive of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depreciation, depletion, amortization and accretion)

 

 

35,070 

 

 

180,651 

 

 

85,936 

 

 

41,803 

 

 

 -

 

 

343,460 

Depreciation, depletion, amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  and accretion

 

 

29,641 

 

 

47,655 

 

 

19,280 

 

 

7,730 

 

 

1,413 

 

 

105,719 

General and administrative expenses

 

 

12,524 

 

 

13,226 

 

 

9,593 

 

 

14,060 

 

 

26,417 

 

 

75,820 

Income (loss) from operations

 

 

7,967 

 

 

(10,043)

 

 

(14,092)

 

 

1,317 

 

 

(27,830)

 

 

(42,681)

Interest income (expense), net

 

 

 -

 

 

 -

 

 

 -

 

 

956 

 

 

(25,843)

 

 

(24,887)

Other expense

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,735)

 

 

(1,735)

Income (loss) from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  before income taxes

 

$

7,967 

 

$

(10,043)

 

$

(14,092)

 

$

2,273 

 

$

(55,408)

 

$

(69,303)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Identifiable Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Onshore

 

 

 

 

 

 

 

 

 

 

 

 



 

Drilling

 

Completion

 

 

 

 

 

 

 

 

 

 

 



 

Products and

 

and Workover

 

Production

 

Technical

 

Corporate and

 

Consolidated



 

Services

 

Services

 

Services

 

Solutions

 

Other

 

Total

March 31, 2019

 

$