Notes to Unaudited Condensed Consolidated Financial Statements
(1) Basis of Presentation
Certain information and footnote disclosures normally included 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 (the “SEC”); however, management believes the disclosures that are made are adequate to make the information presented not misleading.
As used herein, “we,” “us” and similar terms refer to (i) prior to the Emergence Date (as defined below), SESI Holdings, Inc. (formerly known as Superior Energy Services, Inc.) and its subsidiaries (“Predecessor”) and (ii) after the Emergence Date, Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) and its subsidiaries (“Successor”). Due to our adoption of fresh start accounting, discussed below, our operations for the six months ended June 30, 2021 are separated by the operations which occurred from January 1, 2021 through February 2, 2021 (the “Predecessor Period”) and the operations that occurred from February 3, 2021 through June 30, 2021 (the “Successor Period”).
These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. As described below, as a result of the application of fresh start accounting and the effects of the implementation of the Plan (as defined below), the financial statements after the Emergence Date are not comparable with the consolidated financial statements on or before that date.
In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair statement of our financial position as of June 30, 2022, and our results of operations and cash flows for the three months ended June 30, 2022 and 2021. The balance sheet as of December 31, 2021, was derived from our audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.
Emergence from Voluntary Reorganization under Chapter 11
On December 7, 2020, certain of our direct and indirect wholly-owned domestic subsidiaries (the “Affiliate Debtors”) filed petitions for reorganization under the provisions of Chapter 11 of the Bankruptcy Code and, in connection therewith, filed the proposed Joint Prepackaged Plan of Reorganization (as amended, modified or supplemented from time to time, the “Plan”). On February 2, 2021 (the “Emergence Date”), the conditions to the effectiveness of the Plan were satisfied and we emerged from Chapter 11.
On the Emergence Date, we qualified for and adopted fresh start accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 852 – Reorganizations, which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. The application of fresh start accounting resulted in a new basis of accounting and we became a new entity for financial reporting purposes. As a result of the implementation of the Plan and the application of fresh start accounting, our historical financial statements on or before the Emergence Date are not a reliable indicator of our results of operations for any period after our adoption of fresh start accounting.
Use of Estimates
In preparing the accompanying financial statements, we make various estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities reported as of the dates of the balance sheets and the amounts of revenues and expenses reported for the periods shown in the income statements and statements of cash flows. All estimates, assumptions, valuations and financial projections related to fresh start accounting, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control.
10
(2) Revenue
Disaggregation of Revenue
The following table presents our revenues by segment disaggregated by geography (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
U.S. land |
|
|
|
|
|
|
Rentals |
|
$ |
43,791 |
|
|
$ |
20,789 |
|
Well Services |
|
|
4,151 |
|
|
|
6,781 |
|
Total U.S. land |
|
|
47,942 |
|
|
|
27,570 |
|
|
|
|
|
|
|
|
U.S. offshore |
|
|
|
|
|
|
Rentals |
|
|
36,331 |
|
|
|
26,890 |
|
Well Services |
|
|
32,569 |
|
|
|
26,574 |
|
Total U.S. offshore |
|
|
68,900 |
|
|
|
53,464 |
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
Rentals |
|
|
23,607 |
|
|
|
19,558 |
|
Well Services |
|
|
84,191 |
|
|
|
65,300 |
|
Total International |
|
|
107,798 |
|
|
|
84,858 |
|
Total Revenues |
|
$ |
224,640 |
|
|
$ |
165,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
For the Six Months Ended June 30, 2022 |
|
|
For the Period
February 3, 2021
through
June 30, 2021 |
|
|
|
For the Period
January 1, 2021
through
February 2, 2021 |
|
U.S. land |
|
|
|
|
|
|
|
|
|
|
Rentals |
|
$ |
77,753 |
|
|
$ |
31,898 |
|
|
|
$ |
4,917 |
|
Well Services |
|
|
8,699 |
|
|
|
8,907 |
|
|
|
|
3,379 |
|
Total U.S. land |
|
|
86,452 |
|
|
|
40,805 |
|
|
|
|
8,296 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. offshore |
|
|
|
|
|
|
|
|
|
|
Rentals |
|
|
69,084 |
|
|
|
47,293 |
|
|
|
|
8,196 |
|
Well Services |
|
|
60,890 |
|
|
|
45,995 |
|
|
|
|
7,371 |
|
Total U.S. offshore |
|
|
129,974 |
|
|
|
93,288 |
|
|
|
|
15,567 |
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
Rentals |
|
|
45,648 |
|
|
|
30,494 |
|
|
|
|
5,226 |
|
Well Services |
|
|
160,496 |
|
|
|
107,148 |
|
|
|
|
16,839 |
|
Total International |
|
|
206,144 |
|
|
|
137,642 |
|
|
|
|
22,065 |
|
Total Revenues |
|
$ |
422,570 |
|
|
$ |
271,735 |
|
|
|
$ |
45,928 |
|
11
The following table presents our revenues by segment disaggregated by type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
Services |
|
|
|
|
|
|
Rentals |
|
$ |
12,654 |
|
|
$ |
9,592 |
|
Well Services |
|
|
87,412 |
|
|
|
70,195 |
|
Total Services |
|
|
100,066 |
|
|
|
79,787 |
|
|
|
|
|
|
|
|
Rentals |
|
|
|
|
|
|
Rentals |
|
|
73,563 |
|
|
|
47,895 |
|
Well Services |
|
|
3,430 |
|
|
|
5,343 |
|
Total Rentals |
|
|
76,993 |
|
|
|
53,238 |
|
|
|
|
|
|
|
|
Product Sales |
|
|
|
|
|
|
Rentals |
|
|
17,512 |
|
|
|
9,750 |
|
Well Services |
|
|
30,069 |
|
|
|
23,117 |
|
Total Product Sales |
|
|
47,581 |
|
|
|
32,867 |
|
Total Revenues |
|
$ |
224,640 |
|
|
$ |
165,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
For the Six Months Ended June 30, 2022 |
|
|
For the Period
February 3, 2021
through
June 30, 2021 |
|
|
|
For the Period
January 1, 2021
through
February 2, 2021 |
|
Services |
|
|
|
|
|
|
|
|
|
|
Rentals |
|
$ |
23,812 |
|
|
$ |
15,856 |
|
|
|
$ |
2,005 |
|
Well Services |
|
|
167,693 |
|
|
|
107,610 |
|
|
|
|
17,229 |
|
Total Services |
|
|
191,505 |
|
|
|
123,466 |
|
|
|
|
19,234 |
|
|
|
|
|
|
|
|
|
|
|
|
Rentals |
|
|
|
|
|
|
|
|
|
|
Rentals |
|
|
138,810 |
|
|
|
76,488 |
|
|
|
|
14,082 |
|
Well Services |
|
|
5,345 |
|
|
|
8,064 |
|
|
|
|
352 |
|
Total Rentals |
|
|
144,155 |
|
|
|
84,552 |
|
|
|
|
14,434 |
|
|
|
|
|
|
|
|
|
|
|
|
Product Sales |
|
|
|
|
|
|
|
|
|
|
Rentals |
|
|
29,863 |
|
|
|
17,341 |
|
|
|
|
2,252 |
|
Well Services |
|
|
57,047 |
|
|
|
46,376 |
|
|
|
|
10,008 |
|
Total Product Sales |
|
|
86,910 |
|
|
|
63,717 |
|
|
|
|
12,260 |
|
Total Revenues |
|
$ |
422,570 |
|
|
$ |
271,735 |
|
|
|
$ |
45,928 |
|
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount or the earned amount but not yet invoiced and do not bear interest. We maintain our allowance for doubtful accounts at net realizable value. The allowance for doubtful accounts is based on our best estimate of probable uncollectible amounts in existing accounts receivable. We assess individual customers and overall receivables balances to identify amounts that are believed to be uncertain of collection. The aging of the receivable balance as well as economic factors concerning the customer factor into the judgment and estimation of allowances, which often involve significant dollar amounts. Adjustments to the allowance in future periods may be made based on changing customer conditions. Our allowance for doubtful accounts as of June 30, 2022 and December 31, 2021 was approximately $5.2 million and $2.2 million, respectively.
12
(3) Inventory
Inventories are stated at the lower of cost or net realizable value. We apply net realizable value and obsolescence to the gross value of 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 consist principally of products used in the services provided to our customers. The components of inventory balances are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
|
December 31, 2021 |
|
Finished goods |
|
$ |
31,046 |
|
|
|
$ |
26,187 |
|
Raw materials |
|
|
9,397 |
|
|
|
|
9,753 |
|
Work-in-process |
|
|
3,520 |
|
|
|
|
4,253 |
|
Supplies and consumables |
|
|
23,238 |
|
|
|
|
20,410 |
|
Total |
|
$ |
67,201 |
|
|
|
$ |
60,603 |
|
(4) Decommissioning Liability
We account for our decommissioning liability under ASC 410 – Asset Retirement Obligations. Our decommissioning liability is associated with our oil and gas property and includes costs related to the plugging of wells, decommissioning of the related platform and equipment and site restoration. We review the adequacy of our decommissioning liability whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially.
During the second quarter of 2022, we undertook an initiative to alter our decommissioning program, whereby we intend to convert the platform into an artificial reef (“reef-in-place”) and no longer expect to fully decommission the platform. The reef-in-place program would involve severing the top portion of the structure at a permitted navigation depth and placing the severed structure on the sea floor next to the base of the remaining structure.
In connection with the changes in the decommissioning program, we have revised the timing and estimates for the plugging and abandonment of the associated wells, as well as the timing to complete the decommissioning of the platform under a reef-in-place program such that we now expect all decommissioning activities to be completed by the second quarter of 2031.
The changes in estimates under a reef-in-place program resulted in a reduction in the carrying value of our decommissioning liability and related note receivable, as well as impacted the carrying value of our oil and gas producing assets. Due to the reduction in both costs and timing, our decommissioning liability was reduced by $53.0 million and the related note receivable was increased by $2.6 million. Additionally, in accordance with ASC 410, the carrying value of our oil and gas producing assets, which included capitalized oil and gas reserves and capitalized asset retirement costs, was reduced by$38.2 million, which represented the net book value of all of our oil and gas assets at the time of the reduction. In connection with these changes, we recognized a gain of approximately $17.4 million which is included in other (gains) and losses, net in our statement of operations.
The following table presents our decommissioning liability as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
Wells |
|
$ |
81,995 |
|
|
$ |
97,810 |
|
Platform |
|
|
60,745 |
|
|
|
92,570 |
|
Decommissioning Liability |
|
|
142,740 |
|
|
|
190,380 |
|
Less: Note Receivable |
|
|
(65,140 |
) |
|
|
(60,588 |
) |
Decommissioning Liability, net of Note Receivable |
|
$ |
77,600 |
|
|
$ |
129,792 |
|
Accretion expense for the three and six months ended June 30, 2022 was $2.7 million and $5.4 million respectively. Accretion expense for the three months ended June 30, 2021, the Successor Period and Predecessor Period was $1.2 million, $2.2 million and $0.5 million, respectively.
13
(5) Note Receivable
We have a decommissioning liability related to the acquisition of a single oil and gas property. Our note receivable arises from a commitment from the seller of the oil and gas property for costs associated with the abandonment of the property. Pursuant to an agreement with the seller, we invoice the seller an agreed upon amount at the completion of certain decommissioning activities.
During the second quarter of 2022, changes in estimates regarding the timing and the cost of decommissioning our oil and gas property under a reef-in-place program resulted in a reduction in the carrying value of our decommissioning liability and related note receivable, as well as impacted the carrying value of our oil and gas producing assets. Due to the reduction in both costs and timing, our decommissioning liability was reduced by $53.0 million and the related note receivable was increased by $2.6 million. Additionally, in accordance with ASC 410-20, the carrying value of our oil and gas producing assets, which included capitalized oil and gas reserves and capitalized asset retirement costs, was reduced by $38.2 million, which represented the net book value of all of our oil and gas assets at the time of the reduction. In connection with these changes, we recognized a gain of approximately $17.4 million which is included in other (gains) and losses, net in our statement of operations.
Due to the reduction in estimated costs under the reef-in-place program, the gross amount of the seller’s obligation was reduced to $106.9 million as of June 30, 2022 and was recorded at its present value, which totaled $65.1 million.
The discount on the note receivable, which is currently based on an effective interest rate of 5.6%, is amortized to interest income over the expected timing of the completion of the decommissioning activities, which are now expected to be completed during the second quarter of 2031. Interest receivable is considered paid in kind and is compounded into the carrying amount of the note.
Non-cash interest income for the three and six months ended June 30, 2022 was $1.0 million and $2.0 million respectively. Non-cash interest income for the three months ended June 30, 2021, the Successor Period and Predecessor Period was $1.2 million, $1.9 million and $0.4 million, respectively. As the interest income on the note receivable is non-cash, it is included in other reconciling items, net in the condensed consolidated statements of cash flows.
(6) Property, Plant and Equipment, Net
A summary of property, plant and equipment, net is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
Machinery and equipment |
|
$ |
368,220 |
|
|
$ |
360,353 |
|
Buildings, improvements and leasehold improvements |
|
|
77,529 |
|
|
|
75,374 |
|
Automobiles, trucks, tractors and trailers |
|
|
6,550 |
|
|
|
6,450 |
|
Furniture and fixtures |
|
|
19,707 |
|
|
|
19,668 |
|
Construction-in-progress |
|
|
5,078 |
|
|
|
6,700 |
|
Land |
|
|
28,446 |
|
|
|
28,671 |
|
Oil and gas producing assets |
|
|
- |
|
|
|
44,700 |
|
Total |
|
|
505,530 |
|
|
|
541,916 |
|
Accumulated depreciation and depletion |
|
|
(218,603 |
) |
|
|
(185,642 |
) |
Property, plant and equipment, net |
|
$ |
286,927 |
|
|
$ |
356,274 |
|
Depreciation and depletion expense associated with our property, plant and equipment for the three and six months ended June 30, 2022 was $20.4 million and $51.6 million respectively. Depreciation and depletion expense, excluding depreciation and depletion related to assets held for sale, for the three months ended June 30, 2021, the Successor Period and Predecessor Period was $57.6 million, $96.5 million and $7.8 million, respectively. Gains and losses on disposals of assets are recognized within other (gains) and losses, net in our statement of operations.
During the second quarter of 2022, changes in estimates regarding the timing and the cost of decommissioning our oil and gas property under a reef-in-place program resulted in a reduction in the carrying value of our decommissioning liability and related note receivable, as well as impacted the carrying value of our oil and gas producing assets. Due to the reduction in both costs and timing, our decommissioning liability was reduced by $53.0 million and the related note receivable was increased by $2.6 million. Additionally, in accordance with ASC 410, the carrying value of our oil and gas producing assets, which included capitalized oil and gas reserves and capitalized asset retirement costs, was reduced by $38.2 million, which represented the net book value of all of our oil and gas assets at the time of the reduction. In connection with these changes, we recognized a gain of approximately $17.4 million which is included in other (gains) and losses, net in our statement of operations.
14
(7) Debt
On the Emergence Date, pursuant to the Plan, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit (the “Credit Facility”). The issuance of letters of credit reduces availability under the Credit Facility on a dollar-for-dollar basis. The Credit Facility will mature on December 9, 2024.
As of June 30, 2022, our borrowing base, as defined in the Credit Agreement, was approximately $120.0 million, and we had $34.3 million of letters of credit outstanding that reduced the borrowing availability. We had no outstanding borrowings under the Credit Facility as of June 30, 2022.
Unless all loans are paid off and letters of credit outstanding are cash collateralized and the Credit Facility terminated, the Credit Facility requires, subject to permitted exceptions, compliance with various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. The Credit Facility also requires compliance with a fixed charge coverage ratio of 1.0 to 1.0 if (a) an event of default has occurred and is continuing or (b) availability under the Credit Facility is less than the greater of $20.0 million or 15% of the lesser of the aggregate commitments and the borrowing base. We were in compliance with all required covenants as of June 30, 2022.
(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.
The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible and other long-term assets, net |
|
$ |
- |
|
|
$ |
15,361 |
|
|
$ |
- |
|
|
$ |
15,361 |
|
Accounts payable |
|
|
- |
|
|
|
1,758 |
|
|
|
- |
|
|
|
1,758 |
|
Other long-term liabilities |
|
|
- |
|
|
|
15,513 |
|
|
|
- |
|
|
|
15,513 |
|
Investment in equity securities |
|
$ |
16,524 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
16,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible and other long-term assets, net |
|
$ |
- |
|
|
$ |
15,896 |
|
|
$ |
- |
|
|
$ |
15,896 |
|
Accounts payable |
|
|
- |
|
|
|
2,250 |
|
|
|
- |
|
|
|
2,250 |
|
Other long-term liabilities |
|
|
- |
|
|
|
19,218 |
|
|
|
- |
|
|
|
19,218 |
|
Investment in equity securities |
|
$ |
25,735 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
25,735 |
|
Our non-qualified deferred compensation plans 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 a Level 2 in the fair value hierarchy. Investment in equity securities relates to our ownership of common stock of Select Energy Services, Inc. (“Select”) and is reported at fair value based on unadjusted quoted prices which are readily determinable, which represents a Level 1 in the fair value hierarchy.
The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the consolidated balance sheets, approximates fair value due to the short maturities.
(9) Other income (expense)
15
Other income (expense) primarily relate to re-measurement gains and losses associated with our foreign currencies and realized and unrealized gains and losses on our investment in equity securities.
As of June 30, 2022, we held 2.4 million shares of Select common stock. During the three and six months ended June 30, 2022, we recognized unrealized losses of $5.9 million and unrealized gains of $0.5 million, respectively from our investment in equity securities. During the six months ended June 30, 2022, we disposed of 1.7 million shares of Select for $13.4 million, of which 0.7 million shares were disposed of for $6.0 million during the three months ended June 30, 2022. During the three and six months ended June 30, 2022, we recognized gains totaling $1.9 million and $3.6 million, respectively, in connection with these transactions.
Losses on foreign currencies during the three and six months ended June 30, 2022 were $10.5 million and $4.9 million, respectively. Gain on foreign currencies for the three months ended June 30, 2021 and the Successor Period were $2.9 million and $0.3 million, respectively. Losses on foreign currencies during the three and six months ended June 30, 2022 include an expense of $2.7 million which represents a correction of an immaterial error relating to a period prior to our emergence from bankruptcy. During the Predecessor Period, losses on foreign currencies were $2.1 million. Gains and losses on foreign currencies are primarily related to our operations in Brazil.
(10) Segment Information
Business Segments
The products and service offerings of our Rentals segment are comprised of value-added engineering and design services, rental of premium drill strings, tubing, landing strings, completion tubulars and handling accessories, manufacturing and rental of bottom hole assemblies, and rentals of accommodation units.
The products and service offerings of our Well Services segment are comprised of risk management, well control and training solutions, hydraulic workover and snubbing services, engineering and manufacturing of premium sand control tools, and onshore international production services. The Well Services segment also includes the operations of our offshore oil and gas property.
We evaluate the performance of our reportable segments based on income or loss from operations. The segment measure is calculated as segment revenues less segment operating expenses, including general and administrative expenses, depreciation, depletion, amortization and accretion expense, restructuring expenses and other gains and losses. We use this segment measure to evaluate our reportable segments as it is the measure that is most consistent with how we organize and manage our business operations. Corporate and other costs primarily include expenses related to support functions, including salaries and benefits for corporate employees.
Summarized financial information for our segments is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2022 |
|
|
|
|
Well |
|
|
Corporate and |
|
|
Consolidated |
|
|
|
Rentals |
|
|
Services |
|
|
Other |
|
|
Total |
|
Revenues |
|
$ |
103,729 |
|
|
$ |
120,911 |
|
|
$ |
- |
|
|
$ |
224,640 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
|
35,860 |
|
|
|
85,108 |
|
|
|
- |
|
|
|
120,968 |
|
Depreciation, depletion, amortization and accretion |
|
|
12,556 |
|
|
|
9,662 |
|
|
|
1,128 |
|
|
|
23,346 |
|
General and administrative expenses |
|
|
6,559 |
|
|
|
11,202 |
|
|
|
12,470 |
|
|
|
30,231 |
|
Restructuring expenses |
|
|
- |
|
|
|
- |
|
|
|
1,663 |
|
|
|
1,663 |
|
Other (gains) and losses, net |
|
|
195 |
|
|
|
(18,208 |
) |
|
|
- |
|
|
|
(18,013 |
) |
Income (loss) from operations |
|
$ |
48,559 |
|
|
$ |
33,147 |
|
|
$ |
(15,261 |
) |
|
$ |
66,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2021 |
|
|
|
|
Well |
|
|
Corporate and |
|
|
Consolidated |
|
|
|
Rentals |
|
|
Services |
|
|
Other |
|
|
Total |
|
Revenues |
|
$ |
67,237 |
|
|
$ |
98,655 |
|
|
$ |
- |
|
|
$ |
165,892 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
|
27,309 |
|
|
|
75,736 |
|
|
|
|
|
|
103,045 |
|
Depreciation, depletion, amortization and accretion |
|
|
42,083 |
|
|
|
15,213 |
|
|
|
1,722 |
|
|
|
59,018 |
|
General and administrative expenses |
|
|
6,352 |
|
|
|
13,123 |
|
|
|
12,833 |
|
|
|
32,308 |
|
Restructuring expenses |
|
|
- |
|
|
|
- |
|
|
|
7,438 |
|
|
|
7,438 |
|
Other (gains) and losses, net |
|
|
725 |
|
|
|
(191 |
) |
|
|
|
|
|
534 |
|
Income (loss) from operations |
|
$ |
(9,232 |
) |
|
$ |
(5,226 |
) |
|
$ |
(21,993 |
) |
|
$ |
(36,451 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2022 (Successor) |
|
|
|
|
Well |
|
|
Corporate and |
|
|
Consolidated |
|
|
|
Rentals |
|
|
Services |
|
|
Other |
|
|
Total |
|
Revenues |
|
$ |
192,485 |
|
|
$ |
230,085 |
|
|
$ |
- |
|
|
$ |
422,570 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
|
67,612 |
|
|
|
165,736 |
|
|
|
- |
|
|
|
233,348 |
|
Depreciation, depletion, amortization and accretion |
|
|
33,545 |
|
|
|
21,390 |
|
|
|
2,496 |
|
|
|
57,431 |
|
General and administrative expenses |
|
|
13,924 |
|
|
|
22,603 |
|
|
|
25,722 |
|
|
|
62,249 |
|
Restructuring expenses |
|
|
- |
|
|
|
- |
|
|
|
3,218 |
|
|
|
3,218 |
|
Other (gains) and losses, net |
|
|
60 |
|
|
|
(16,926 |
) |
|
|
- |
|
|
|
(16,866 |
) |
Income (loss) from operations |
|
$ |
77,344 |
|
|
$ |
37,282 |
|
|
$ |
(31,436 |
) |
|
$ |
83,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period February 3, 2021 through June 30, 2021 (Successor) |
|
|
|
|
Well |
|
|
Corporate and |
|
|
Consolidated |
|
|
|
Rentals |
|
|
Services |
|
|
Other |
|
|
Total |
|
Revenues |
|
$ |
109,685 |
|
|
$ |
162,050 |
|
|
$ |
- |
|
|
$ |
271,735 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
|
42,795 |
|
|
|
128,287 |
|
|
|
- |
|
|
|
171,082 |
|
Depreciation, depletion, amortization and accretion |
|
|
70,141 |
|
|
|
26,376 |
|
|
|
2,531 |
|
|
|
99,048 |
|
General and administrative expenses |
|
|
9,803 |
|
|
|
21,584 |
|
|
|
19,359 |
|
|
|
50,746 |
|
Restructuring expenses |
|
|
- |
|
|
|
- |
|
|
|
15,821 |
|
|
|
15,821 |
|
Other (gains) and losses, net |
|
|
560 |
|
|
|
(195 |
) |
|
|
- |
|
|
|
365 |
|
Income (loss) from operations |
|
$ |
(13,614 |
) |
|
$ |
(14,002 |
) |
|
$ |
(37,711 |
) |
|
$ |
(65,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period January 1, 2021 through February 2, 2021 (Predecessor) |
|
|
|
|
Well |
|
|
Corporate and |
|
|
Consolidated |
|
|
|
Rentals |
|
|
Services |
|
|
Other |
|
|
Total |
|
Revenues |
|
$ |
18,339 |
|
|
$ |
27,589 |
|
|
$ |
- |
|
|
$ |
45,928 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
|
7,839 |
|
|
|
21,934 |
|
|
|
- |
|
|
|
29,773 |
|
Depreciation, depletion, amortization and accretion |
|
|
4,271 |
|
|
|
3,666 |
|
|
|
421 |
|
|
|
8,358 |
|
General and administrative expenses |
|
|
2,027 |
|
|
|
4,111 |
|
|
|
4,914 |
|
|
|
11,052 |
|
Restructuring expenses |
|
|
- |
|
|
|
- |
|
|
|
1,270 |
|
|
|
1,270 |
|
Income (loss) from operations |
|
$ |
4,202 |
|
|
$ |
(2,122 |
) |
|
$ |
(6,605 |
) |
|
$ |
(4,525 |
) |
Identifiable Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
|
Corporate |
|
|
Consolidated |
|
|
|
Rentals |
|
|
Services |
|
|
and Other |
|
|
Total |
|
June 30, 2022 |
|
$ |
456,309 |
|
|
$ |
605,804 |
|
|
$ |
160,463 |
|
|
$ |
1,222,576 |
|
December 31, 2021 |
|
|
379,453 |
|
|
|
636,256 |
|
|
|
183,799 |
|
|
|
1,199,508 |
|
17
Geographic Segments
We operate in the U.S. and in various other countries throughout the world. Our international operations are primarily focused in Latin America, Asia-Pacific and the Middle East and North Africa regions. We attribute revenue to various countries based on the location where services are performed or the destination of the drilling products or equipment sold or rented. Long-lived assets consist of property, plant and equipment and are attributed to various countries based on the physical location of the asset at the end of a period.
Our revenue attributed to the U.S. and to other countries and the value of our long-lived assets by those locations are as follows (in thousands):
Revenues
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
United States |
|
$ |
116,842 |
|
|
$ |
81,034 |
|
Other countries |
|
|
107,798 |
|
|
|
84,858 |
|
Total |
|
$ |
224,640 |
|
|
$ |
165,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
For the Six Months Ended June 30, 2022 |
|
|
For the Period
February 3, 2021
through
June 30, 2021 |
|
|
|
For the Period
January 1, 2021
through
February 2, 2021 |
|
United States |
|
$ |
216,426 |
|
|
$ |
134,093 |
|
|
|
$ |
23,863 |
|
Other countries |
|
|
206,144 |
|
|
|
137,642 |
|
|
|
|
22,065 |
|
Total |
|
$ |
422,570 |
|
|
$ |
271,735 |
|
|
|
$ |
45,928 |
|
Long-Lived Assets
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
United States |
|
$ |
190,891 |
|
|
$ |
231,388 |
|
Other countries |
|
|
96,036 |
|
|
|
124,886 |
|
Total |
|
$ |
286,927 |
|
|
$ |
356,274 |
|
(11) Stock-Based Compensation Plans
Our Management Incentive Plan (“MIP”) provides the issuance of up to 1,999,869 shares of our Class B common stock, par value $0.01 per share (the “Class B Common Stock”) for the grant of share-based and cash-based awards.
Approval of Forms of Award Agreement and Equity Awards
On March 28, 2022, the Board and the Compensation Committee approved new forms of restricted stock unit (“RSU”) award agreements and forms of performance stock unit (“PSU”) award agreements (collectively, the “Award Agreements”) under the MIP, and approved a special grant of 72,050 RSUs and 288,199 PSUs which was intended to satisfy stock awards for the next three years. Additional grants will be issued for new hires and promotions.
Awards made under the forms of RSU award agreements for our employees generally vest in three equal annual installments over the three-year period, subject to terms and conditions set forth in the forms of RSU award agreements. Awards made under the forms PSU award agreements may be earned between 25% and 100% of the target award based on achievement of share price goals set forth in the forms of PSU award agreements and will vest to the extent that share price goals are achieved based on the terms and conditions set forth in the forms of PSU award agreements.
During the three and six months ended June 30, 2022, we recognized $1.0 million and $1.5 million, respectively, in compensation expense associated with grants of restricted stock awards and RSUs. During both the three months ended June 30, 2021 and the Successor Period, we recognized $1.6 million in compensation cost associated with grants of restricted stock and RSUs.
As a result of the consummation of the Plan, restricted stock units issued prior to the Emergence Date were cancelled for zero consideration. We recognized $0.9 million in compensation costs during the Predecessor Period prior to cancellation of the pre-Emergence outstanding restricted stock units.
18
(12) Income Taxes
The effective tax rate for the three and six months ended June 30, 2022 was 20.0% and 21.7%, respectively, on income from continuing operations. The effective tax rate is different from the U.S. federal statutory rate of 21% primarily from non-deductible items, foreign tax rates that differ from the U.S. federal statutory rate, the release of valuation allowance based on current period income in certain jurisdictions and foreign losses for which no tax benefit is being recorded.
In recording deferred income tax assets, we consider whether it is more likely than not some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income of the appropriate character during the periods in which those deferred income tax assets would be deductible. Our annualized effective tax rate for the six months ended June 30, 2022 includes a tax benefit of $18.8 million related to the release of a valuation allowance previously recorded against U.S. foreign tax credit carryforwards. We previously considered these credit carryforwards to be unrealizable primarily due to our cumulative history of losses in the U.S. in recent years and tax attribute utilization limits under Section 382 resulting from bankruptcy. This was significant negative evidence that outweighed positive evidence from forecasts of future taxable income. However, based on recognized built in gains that have increased our limit under Section 382, year to date income in the U.S., and certain attributes promoting use of the foreign tax credit carryovers, when combined with our view on the remaining 2022 outlook, we determined there is now significant positive evidence for our ability to utilize available U.S. foreign tax credit carryforwards in 2022. The amount of valuation allowance released in the U.S. recognizes foreign tax credit deferred tax assets that we estimate will offset U.S. taxes payable in 2022. After the valuation allowance release, we have $37.1 million of U.S. foreign tax credit deferred tax assets that continue to have a valuation allowance against them. We will continue to evaluate the realizability of our U.S. foreign tax credit carryforwards and may have additional valuation allowance releases in future periods if we achieve positive cumulative U.S. income results of appropriate character and timing to do so.
The effective tax rate for the three months ended June 30, 2021, the Successor Period and the Predecessor Period was 5.2%, 9.3% and 18.2%, respectively, on income from
continuing operations. The tax rate during the three months ended June 30, 2021 and the Successor Period is different from the U.S. federal statutory rate of 21% primarily from non-deductible items and foreign losses for which no tax benefit is being recorded. The tax rate in the Predecessor Period is different from the U.S. federal statutory rate of 21% primarily due the adoption of fresh start accounting during the period.
We had $15.7 million and $15.0 million of unrecognized tax benefits as of June 30, 2022 and December 31, 2021, respectively, all of which would impact our effective tax rate if recognized except for $1.6 million offset in deferred income taxes. It is reasonably possible $3.4 million of unrecognized tax benefits could be settled in the next twelve months due to the conclusion of tax audits or statutes of limitations expiration. It is our policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.
(13) Earnings per Share
Our common equity consists of Class A Common Stock and Class B Common Stock (the “Common Stock”).
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of Common Stock outstanding during the period plus any potentially dilutive Common Stock, such as restricted stock awards, restricted stock units, and performance-based units calculated using the treasury stock method.
The following table presents the reconciliation between the weighted average number of shares for basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
For the Three Months Ended June 30, 2022 |
|
|
For the Three Months Ended June 30, 2021 |
|
|
For the Six Months Ended June 30, 2022 |
|
|
For the Period
February 3, 2021
through
June 30, 2021 |
|
|
|
For the Period
January 1, 2021
through
February 2, 2021 |
|
Weighted-average shares outstanding - basic |
|
|
20,024 |
|
|
|
19,999 |
|
|
|
20,011 |
|
|
|
19,997 |
|
|
|
|
14,845 |
|
Potentially dilutive stock awards and units |
|
|
52 |
|
|
|
- |
|
|
|
54 |
|
|
|
- |
|
|
|
|
60 |
|
Weighted-average shares outstanding - diluted |
|
|
20,076 |
|
|
|
19,999 |
|
|
|
20,065 |
|
|
|
19,997 |
|
|
|
|
14,905 |
|
19
(14) Contingencies
Due to the nature of our business, we are involved, from time to time, in various routine litigation or subject to disputes or claims or actions, including those commercial in nature, regarding our business activities in the ordinary course of business. Legal costs related to these matters are expensed as incurred. Management is of the opinion that none of the claims and actions will have a material adverse impact on our financial position, results of operations or cash flows. Commencement of the Chapter 11 Cases automatically stayed certain proceedings and actions, and these cases have continued after the Emergence Date.
A subsidiary of ours is involved in legal proceedings with two former employees regarding the payment of royalties for a patentable product paid for by the subsidiary and developed while they worked for the subsidiary. On April 2, 2018, the former employees and their corporation filed a lawsuit (the “First Case”) in the Harris County District Court (the “District Court”) alleging that the royalty payments they had invoiced at 25% and for which they received payments since 2010, should have been paid at a rate of 50%. In May 2019, the jury issued a verdict in favor of the plaintiffs. On October 25, 2019, the court issued a final judgment against us, which we have fully secured with a bond. Oral arguments in front of the Court of Appeals took place in April 2022. We strongly disagree with the verdict and believe the District Court committed several legal errors that should result in a reversal or remand of the case by the Court of Appeals.
A second case (the “Second Case”) was filed in District Court against the same subsidiary of ours bringing the same claims and seeking damages post judgment from the First Case until discontinuation of the sale of the product at issue by the subsidiary. In December 2020, the Court entered a final judgement for the plaintiffs’ and the Second Case was stayed for the duration of our bankruptcy. We have filed an appeal and a Motion to Abate the Second Case pending the appeal of the First Case. The Motion to Abate the Second Case was granted on October 26, 2021 by the Court of Appeals. As of June 30, 2022, we have reserved $7.0 million for the judgements in the First Case and Second Case.
Our Indian subsidiary, SES Energy Services India Pvt. Ltd, entered into a contract with an Indian oil and gas company to provide an off shore vessel for well stimulation. A dispute arose over the performability of the terms of the contract. The contract was terminated by the customer. The maximum liability under the contract is capped at approximately $7.3 million, of which approximately $3.5 million has been claimed via revocation of performance bank guarantees.
20
(15) Discontinued Operations
The following table summarizes the components of discontinued operations, net of tax (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
Revenues |
|
$ |
- |
|
|
$ |
45,114 |
|
Cost of services |
|
|
- |
|
|
|
37,871 |
|
Depreciation, depletion, amortization and accretion |
|
|
- |
|
|
|
18,581 |
|
General and administrative expenses |
|
|
1,711 |
|
|
|
3,623 |
|
Other (gains) and losses, net |
|
|
750 |
|
|
|
10,018 |
|
Loss from operations |
|
|
(2,461 |
) |
|
|
(24,979 |
) |
Other income (expense) |
|
|
- |
|
|
|
(53 |
) |
Loss from discontinued operations before tax |
|
|
(2,461 |
) |
|
|
(25,032 |
) |
Income tax benefit (expense) |
|
|
517 |
|
|
|
5,632 |
|
Income (loss) from discontinued operations, net of income tax |
|
$ |
(1,944 |
) |
|
$ |
(19,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
For the Six Months Ended June 30, 2022 |
|
|
For the Period
February 3, 2021
through
June 30, 2021 |
|
|
|
For the Period
January 1, 2021
through
February 2, 2021 |
|
Revenues |
|
$ |
- |
|
|
$ |
68,366 |
|
|
|
$ |
10,719 |
|
Cost of services |
|
|
- |
|
|
|
60,393 |
|
|
|
|
10,398 |
|
Depreciation, depletion, amortization and accretion |
|
|
- |
|
|
|
31,356 |
|
|
|
|
2,141 |
|
General and administrative expenses |
|
|
5,453 |
|
|
|
6,218 |
|
|
|
|
1,119 |
|
Other (gains) and losses, net |
|
|
(5,193 |
) |
|
|
7,518 |
|
|
|
|
- |
|
Loss from operations |
|
|
(260 |
) |
|
|
(37,119 |
) |
|
|
|
(2,939 |
) |
Other income (expense) |
|
|
- |
|
|
|
(50 |
) |
|
|
|
2,485 |
|
Loss from discontinued operations before tax |
|
|
(260 |
) |
|
|
(37,169 |
) |
|
|
|
(454 |
) |
Income tax benefit (expense) |
|
|
55 |
|
|
|
8,363 |
|
|
|
|
102 |
|
Income (loss) from discontinued operations, net of income tax |
|
$ |
(205 |
) |
|
$ |
(28,806 |
) |
|
|
$ |
(352 |
) |
The following summarizes the assets and liabilities related to discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
Assets: |
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
4,809 |
|
|
$ |
7,469 |
|
Property, plant and equipment, net |
|
|
20,659 |
|
|
|
29,328 |
|
Other assets |
|
|
161 |
|
|
|
731 |
|
Total assets held for sale |
|
$ |
25,629 |
|
|
$ |
37,528 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
544 |
|
|
$ |
652 |
|
Accrued expenses |
|
|
3,433 |
|
|
|
4,268 |
|
Other liabilities |
|
|
223 |
|
|
|
687 |
|
Total liabilities held for sale |
|
$ |
4,200 |
|
|
$ |
5,607 |
|
Significant operating non-cash items and cash flows from investing activities for our discontinued operations were as follows (in thousands):
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
For the Six Months Ended June 30, 2022 |
|
|
For the Period
February 3, 2021
through
June 30, 2021 |
|
|
|
For the Period
January 1, 2021
through
February 2, 2021 |
|
Cash flows from discontinued operating activities: |
|
|
|
|
|
|
|
|
|
|
(Gain)/loss on sale of assets |
|
$ |
- |
|
|
$ |
- |
|
|
|
$ |
(43 |
) |
Other (gains) and losses, net |
|
|
(5,193 |
) |
|
|
7,518 |
|
|
|
|
- |
|
Depreciation, depletion, amortization and accretion |
|
|
- |
|
|
|
31,356 |
|
|
|
|
2,141 |
|
Cash flows from discontinued investing activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of assets |
|
|
13,861 |
|
|
|
14,894 |
|
|
|
|
486 |
|
(16) Supplemental Cash Flow Information
The table below is a reconciliation of cash, cash equivalents and restricted cash for the beginning and the end of the period for all periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
For the Six Months Ended June 30, 2022 |
|
|
For the Period
February 3, 2021
through
June 30, 2021 |
|
|
|
For the Period
January 1, 2021
through
February 2, 2021 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
314,974 |
|
|
$ |
172,768 |
|
|
|
$ |
188,006 |
|
Restricted cash-current |
|
|
- |
|
|
|
16,751 |
|
|
|
|
- |
|
Restricted cash-non-current |
|
|
79,561 |
|
|
|
80,179 |
|
|
|
|
80,178 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
$ |
394,535 |
|
|
$ |
269,698 |
|
|
|
$ |
268,184 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash, end of period |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
391,219 |
|
|
$ |
205,748 |
|
|
|
$ |
172,768 |
|
Restricted cash-current |
|
|
- |
|
|
|
- |
|
|
|
|
16,751 |
|
Restricted cash-non-current |
|
|
79,595 |
|
|
|
80,159 |
|
|
|
|
80,179 |
|
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
470,814 |
|
|
$ |
285,907 |
|
|
|
$ |
269,698 |
|
(17) New Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 - Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This update improves financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope by using the Current Expected Credit Losses (the “CECL”) model. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses on financial instruments at the time the asset is originated or acquired. This update will apply to receivables arising from revenue transactions. The new standard is effective for us beginning on January 1, 2023. We have concluded that the adoption of ASU 2016-13 will not have a material impact on our consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This update provides an optional expedient and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU No. 2021-01, which clarifies that certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments in these ASUs are effective for all entities as of March 12, 2020 through December 31, 2022. As our credit agreement allows for alternative benchmark rates to be applied to any borrowings, we do not expect the cessation of LIBOR to have a material impact on our financial position, results of operations, cash flows or disclosures.
22
(18) Subsequent Events
On July 18, 2022, our Board and Compensation Committee (the “Committee”) approved an executive chairman agreement for Michael Y. McGovern, our Executive Chairman (the “Executive Chairman Agreement”).
Executive Chairman Agreement for Mr. McGovern
Mr. McGovern’s Executive Chairman Agreement provides for an annual base salary of $750,000, with an initial one-year term that automatically extends for an additional one-year term on the first anniversary of the effective date of the Agreement (the “Extension Date”) unless either party gives 60 days’ prior written notice of non-renewal before expiration of the then-current term. Mr. McGovern’s annual base salary is subject to adjustment (upward or downward) if Mr. McGovern’s duties or commitments change during the term of the Executive Chairman Agreement. Further, in connection with his Executive Chairman Agreement, we will grant Mr. McGovern RSUs under the MIP and accelerate the vesting of Mr. McGovern’s restricted shares of Class B common stock granted under the MIP (in each case, as discussed below). In addition, Mr. McGovern’s Executive Chairman Agreement provides for a cash lump sum payment to be made within thirty (30) days of the Effective Date (as defined in the Executive Chairman Agreement) in an amount equal to $288,306.45 to account for the annual base salary Mr. McGovern would have been paid since assuming the position of Executive Chairman until the Effective Date less any payments received from us since assuming the position of Executive Chairman until the Effective Date.
If Mr. McGovern’s employment is terminated by Mr. McGovern for good reason (as defined in the Executive Chairman Agreement) or by us for any reason other than: (a) Mr. McGovern’s death or incapacity; (b) for cause (as defined in the Executive Chairman Agreement); (c) upon any non-renewal of the term of the Executive Chairman Agreement; or (d) the occurrence of a change in control (as defined in the Plan), we will pay or provide to Mr. McGovern, in addition to his base salary through the date of termination and any rights under the term of equity awards and any medical or other welfare benefits required by law (the “Accrued Amounts”):
•A lump-sum payment equal to the base salary Mr. McGovern would have been paid from the date of termination through the next Extension Date of the Executive Chairman Agreement; and
•Healthcare continuation benefits for the period between the date of termination and the next Extension Date of the Executive Chairman Agreement.
The payments and benefits described above (other than the Accrued Amounts) are subject to Mr. McGovern’s timely execution of a release of claims in our favor.
If Mr. McGovern’s employment is terminated by us for cause, by Mr. McGovern other than for good reason, due to Mr. McGovern’s death or disability, or upon the occurrence of a change in control, then we will only be required to pay to Mr. McGovern or to Mr. McGovern’s estate, as applicable, the Accrued Amounts.
Mr. McGovern will also be bound by, among other typical restrictive covenants, a 12-month post-termination non-compete covenant (unless his employment is terminated by us without cause or Mr. McGovern terminates his employment for good reason) and a 12-month post-termination non-solicitation covenant with respect to customers and employees.
Equity Awards
On July 18, 2022, the Board and the Committee approved a RSU award agreement (the “Award Agreement”) under the MIP for Mr. McGovern for 79,375 RSUs (and a number of corresponding shares of our Class B common stock).
The RSUs under the Award Agreement generally vest in three equal annual installments over a three-year period commencing on the first anniversary of January 20, 2022, subject to earlier vesting upon a change in control (as defined in the Plan) and, generally, Mr. McGovern’s continued employment through the applicable vesting date, and forfeiture on terms and conditions set forth in the Award Agreement. Notwithstanding the foregoing, in the event that Mr. McGovern’s employment is terminated by us without cause (excluding due to death or disability (as defined in the Executive Chairman Agreement)) or by Mr. McGovern for good reason, subject to subject to Mr. McGovern’s timely execution of a release of claims in our favor and continued compliance with his restrictive covenants, the tranche of RSUs due to vest on the next scheduled vesting date following the date of termination (i.e., one-third (1/3rd)) will vest.
Acceleration of Restricted Stock Grant
On July 18, 2022, the Board and the Committee approved accelerated vesting with respect to 15,642 outstanding restricted shares of our Class B common stock granted by us to Mr. McGovern on June 1, 2021.
23
