e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2006
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from
to
Commission file number: 1-32693
Basic Energy Services, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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54-2091194
(I.R.S. Employer Identification No.) |
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400 W. Illinois, Suite 800
Midland, Texas
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79701
(Zip code) |
(Address of principal executive offices) |
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(432) 620-5500
(Registrants telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Act). (Check one)
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
33,827,105 shares of the registrants Common Stock were outstanding as of August 7, 2006.
BASIC ENERGY SERVICES, INC.
Index to Form 10-Q
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain statements that are, or may be deemed to be, forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based
these forward looking statements largely on our current expectations and projections about future
events and financial trends affecting the financial condition of our business. These
forward-looking statements are subject to a number of risks, uncertainties and assumptions,
including, among other things, the risk factors discussed in this report and other factors, most of
which are beyond our control.
The words believe, may, estimate, continue, anticipate, intend, plan, expect
and similar expressions are intended to identify forward-looking statements. All statements other
than statements of current or historical fact contained in this report are forward
looking-statements. Although we believe that the forward-looking statements contained in this
report are based upon reasonable assumptions, the forward-looking events and circumstances
discussed in this report may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.
Important factors that may affect our expectations, estimates or projections include:
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a decline in, or substantial volatility of, oil and gas prices, and any related changes
in expenditures by our customers; |
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the effects of future acquisitions on our business; |
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changes in customer requirements in markets or industries we serve; |
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competition within our industry; |
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general economic and market conditions; |
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our access to current or future financing arrangements; |
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our ability to replace or add workers at economic rates; and |
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environmental and other governmental regulations. |
Our forward-looking statements speak only as of the date of this report. Unless otherwise
required by law, we undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
1
Basic Energy Services, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
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June 30, |
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December 31, |
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2006 |
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2005 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
|
$ |
37,540 |
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$ |
32,845 |
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Trade accounts receivable, net of allowance of $3,373 and $2,775, respectively |
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117,139 |
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86,932 |
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Accounts receivable related parties |
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190 |
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65 |
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Inventories |
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2,007 |
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|
1,648 |
|
Prepaid expenses |
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|
3,960 |
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|
3,112 |
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Other current assets |
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2,309 |
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|
2,060 |
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Deferred tax assets |
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7,783 |
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|
6,020 |
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|
|
|
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Total current assets |
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170,928 |
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|
132,682 |
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Property and equipment, net |
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424,720 |
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309,075 |
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Deferred debt costs, net of amortization |
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6,491 |
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4,833 |
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Goodwill |
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80,965 |
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|
48,227 |
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Other assets |
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2,634 |
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|
|
2,140 |
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|
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$ |
685,738 |
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$ |
496,957 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
12,291 |
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$ |
13,759 |
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Accrued expenses |
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44,833 |
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|
33,548 |
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Income taxes payable |
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|
3,126 |
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|
7,210 |
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Current portion of long-term debt |
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9,025 |
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|
7,646 |
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Other current liabilities |
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2,840 |
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|
1,124 |
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Total current liabilities |
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72,115 |
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63,287 |
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Long-term debt |
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245,037 |
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119,241 |
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Deferred income |
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10 |
|
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17 |
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Deferred tax liabilities |
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61,745 |
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|
53,770 |
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Other long-term liabilities |
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2,892 |
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2,067 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock; $.01 par value; 80,000,000 shares authorized; 33,931,935 shares issued;
33,815,405 shares outstanding at June 30, 2006 and 33,785,359 shares outstanding at
December 31, 2005, respectively |
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|
339 |
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|
339 |
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Additional paid-in capital |
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236,415 |
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|
239,218 |
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Deferred compensation |
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(7,341 |
) |
Retained earnings |
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70,195 |
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28,654 |
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Treasury stock, 116,530 shares at June 30, 2006, and 146,576 shares
at December 31, 2005, respectively, at cost |
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(3,010 |
) |
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(2,531 |
) |
Accumulated other comprehensive income |
|
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236 |
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Total stockholders
equity |
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303,939 |
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258,575 |
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$ |
685,738 |
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$ |
496,957 |
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See accompanying notes to consolidated financial statements.
2
Basic Energy Services, Inc.
Consolidated Statements of Operations and Comprehensive Income
(Dollars in thousands, except per share amounts)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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(Unaudited) |
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(Unaudited) |
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Revenues: |
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Well servicing |
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$ |
81,154 |
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$ |
53,852 |
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$ |
154,619 |
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$ |
98,650 |
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Fluid services |
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48,861 |
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31,536 |
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91,982 |
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60,839 |
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Drilling and completion services |
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40,939 |
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13,512 |
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68,394 |
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24,276 |
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Well site construction services |
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12,879 |
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10,918 |
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23,144 |
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19,866 |
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Total revenues |
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183,833 |
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|
109,818 |
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338,139 |
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203,631 |
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Expenses: |
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Well servicing |
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45,521 |
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33,273 |
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87,131 |
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61,464 |
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Fluid services |
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29,343 |
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19,881 |
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55,648 |
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|
39,119 |
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Drilling and completion services |
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|
19,180 |
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|
6,871 |
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|
33,034 |
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|
12,731 |
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Well site construction services |
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8,820 |
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|
7,555 |
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|
16,463 |
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14,663 |
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General and administrative, including stock-based compensation
of $875 and $768 in three months ended in 2006 and 2005, and
$1,633 and $1,359 in six months ended in 2006 and 2005, respectively |
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20,144 |
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|
13,372 |
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|
38,149 |
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|
26,463 |
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Depreciation and amortization |
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|
15,122 |
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|
8,771 |
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|
27,959 |
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|
16,818 |
|
(Gain) loss on disposal of assets |
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|
927 |
|
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|
(152 |
) |
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727 |
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(50 |
) |
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|
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Total expenses |
|
|
139,057 |
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|
|
89,571 |
|
|
|
259,111 |
|
|
|
171,208 |
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|
|
|
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|
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|
|
|
|
|
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Operating income |
|
|
44,776 |
|
|
|
20,247 |
|
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|
79,028 |
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|
|
32,423 |
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|
|
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|
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Other income (expense): |
|
|
|
|
|
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|
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|
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|
|
|
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Interest expense |
|
|
(4,649 |
) |
|
|
(3,140 |
) |
|
|
(7,787 |
) |
|
|
(6,201 |
) |
Interest income |
|
|
555 |
|
|
|
98 |
|
|
|
914 |
|
|
|
199 |
|
Loss on early extinguishment of debt |
|
|
(2,705 |
) |
|
|
|
|
|
|
(2,705 |
) |
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|
|
|
Other income |
|
|
28 |
|
|
|
62 |
|
|
|
55 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income from continuing operations before income taxes |
|
|
38,005 |
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|
|
17,267 |
|
|
|
69,505 |
|
|
|
26,558 |
|
Income tax expense |
|
|
(13,518 |
) |
|
|
(6,520 |
) |
|
|
(25,337 |
) |
|
|
(10,010 |
) |
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|
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|
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Net income |
|
$ |
24,487 |
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|
$ |
10,747 |
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|
$ |
44,168 |
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$ |
16,548 |
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Earnings per share of common stock: |
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|
|
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|
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Basic |
|
$ |
0.73 |
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$ |
0.38 |
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$ |
1.32 |
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|
$ |
0.58 |
|
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|
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|
|
|
|
|
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|
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Diluted |
|
$ |
0.64 |
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|
$ |
0.33 |
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|
$ |
1.15 |
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|
$ |
0.51 |
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|
|
|
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Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
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Net income |
|
$ |
24,487 |
|
|
$ |
10,747 |
|
|
$ |
44,168 |
|
|
$ |
16,548 |
|
Unrealized gains (losses) on hedging activities |
|
|
(236 |
) |
|
|
(54 |
) |
|
|
(236 |
) |
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Comprehensive Income: |
|
$ |
24,251 |
|
|
$ |
10,693 |
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|
$ |
43,932 |
|
|
$ |
16,808 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
See accompanying notes to consolidated financial statements.
3
Basic Energy Services, Inc.
Consolidated Statements of Stockholders Equity
(in thousands, except share data)
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Accumulated |
|
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Additional |
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Other |
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Total |
|
|
|
Common Stock |
|
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Paid-In |
|
|
Deferred |
|
|
Treasury |
|
|
Retained |
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|
Comprehensive |
|
|
Stockholders |
|
|
|
Shares |
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|
Amount |
|
|
Capital |
|
|
Compensation |
|
|
Stock |
|
|
Earnings |
|
|
Income |
|
|
Equity |
|
Balance December 31,
2005 |
|
|
33,931,935 |
|
|
$ |
339 |
|
|
$ |
239,218 |
|
|
$ |
(7,341 |
) |
|
$ |
(2,531 |
) |
|
$ |
28,654 |
|
|
$ |
236 |
|
|
$ |
258,575 |
|
Adoption of Statement
of
Financial Accounting
Standards No. 123R |
|
|
|
|
|
|
|
|
|
|
(7,341 |
) |
|
|
7,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
deferred
compensation |
|
|
|
|
|
|
|
|
|
|
1,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,633 |
|
Unrealized gain on
interest
rate swap agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
51 |
|
Settlement of interest
rate
swap agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(287 |
) |
|
|
(287 |
) |
Offering costs |
|
|
|
|
|
|
|
|
|
|
(161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161 |
) |
Purchase of treasury
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,218 |
) |
|
|
|
|
|
|
|
|
|
|
(3,218 |
) |
Exercise of stock
options |
|
|
|
|
|
|
|
|
|
|
3,066 |
|
|
|
|
|
|
|
2,739 |
|
|
|
(2,627 |
) |
|
|
|
|
|
|
3,178 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,168 |
|
|
|
|
|
|
|
44,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2006
(Unaudited) |
|
|
33,931,935 |
|
|
$ |
339 |
|
|
$ |
236,415 |
|
|
$ |
|
|
|
$ |
(3,010 |
) |
|
$ |
70,195 |
|
|
$ |
|
|
|
$ |
303,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
Basic Energy Services, Inc.
Consolidated Statements of Cash Flows
( in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
44,168 |
|
|
$ |
16,548 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
27,959 |
|
|
|
16,818 |
|
Accretion on asset retirement obligation |
|
|
43 |
|
|
|
18 |
|
Change in allowance for doubtful accounts |
|
|
598 |
|
|
|
900 |
|
Non-cash interest expense |
|
|
549 |
|
|
|
527 |
|
Non-cash compensation |
|
|
1,633 |
|
|
|
1,359 |
|
Loss on early extinguishment of debt |
|
|
2,705 |
|
|
|
|
|
(Gain) loss on disposal of assets |
|
|
727 |
|
|
|
(50 |
) |
Deferred income taxes |
|
|
(5,388 |
) |
|
|
8,274 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(24,728 |
) |
|
|
(11,222 |
) |
Inventories |
|
|
(140 |
) |
|
|
(211 |
) |
Prepaid expenses and other current assets |
|
|
(874 |
) |
|
|
1,325 |
|
Other assets |
|
|
(204 |
) |
|
|
(201 |
) |
Accounts payable |
|
|
(2,682 |
) |
|
|
(1,103 |
) |
Excess tax benefits from exercise of employee stock options |
|
|
(3,066 |
) |
|
|
|
|
Income tax payable |
|
|
(2,607 |
) |
|
|
1,681 |
|
Deferred income and other liabilities |
|
|
1,312 |
|
|
|
(167 |
) |
Accrued expenses |
|
|
10,949 |
|
|
|
10,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
50,954 |
|
|
|
44,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(48,827 |
) |
|
|
(35,488 |
) |
Proceeds from sale of assets |
|
|
1,737 |
|
|
|
877 |
|
Payments for other long-term assets |
|
|
(4,393 |
) |
|
|
(858 |
) |
Payments for businesses, net of cash acquired |
|
|
(98,988 |
) |
|
|
(9,885 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(150,471 |
) |
|
|
(45,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from debt |
|
|
305,041 |
|
|
|
294 |
|
Payments of debt |
|
|
(195,715 |
) |
|
|
(5,836 |
) |
Offering costs related to initial public offering |
|
|
(161 |
) |
|
|
|
|
Purchase of treasury stock |
|
|
(3,218 |
) |
|
|
|
|
Exercise of
employee stock options |
|
|
112 |
|
|
|
|
|
Excess tax benefits from exercise of employee stock options |
|
|
3,066 |
|
|
|
|
|
Deferred loan costs and other financing activities |
|
|
(4,913 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
104,212 |
|
|
|
(5,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and equivalents |
|
|
4,695 |
|
|
|
(6,081 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period |
|
|
32,845 |
|
|
|
20,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period |
|
$ |
37,540 |
|
|
$ |
14,066 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
1. Basis of Presentation and Nature of Operations
Basis of Presentation
The accompanying unaudited consolidated financial statements of Basic Energy Services, Inc.
and subsidiaries (Basic or the Company) have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial reporting. Accordingly,
they do not include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have been made in the
accompanying unaudited financial statements.
Nature of Operations
Basic provides a range of well site services to oil and gas drilling and producing companies,
including well servicing, fluid services, drilling and completion services and well site
construction services. These services are primarily provided by Basics fleet of equipment. Basics
operations are concentrated in the major United States onshore oil and gas producing regions in
Texas, New Mexico, Oklahoma and Louisiana, and the Rocky Mountain states.
6
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Basic and its
wholly-owned subsidiaries. Basic has no interest in any other organization, entity, partnership, or
contract that could require any evaluation under FASB Interpretation No. 46R or Accounting Research
Bulletin No. 51. All intercompany transactions and balances have been eliminated.
Revenue Recognition
Well Servicing Well servicing consists primarily of maintenance services, workover services,
completion services and plugging and abandonment services. Basic recognizes revenue when services
are performed, collection of the relevant receivables is probable, persuasive evidence of an
arrangement exists and the price is fixed or determinable. Basic prices well servicing by the hour
of service performed.
Fluid Services Fluid services consists primarily of the sale, transportation, storage and
disposal of fluids used in drilling, production and maintenance of oil and natural gas wells. Basic
recognizes revenue when services are performed, collection of the relevant receivables is probable,
persuasive evidence of an arrangement exists and the price is fixed or determinable. Basic prices
fluid services by the job, by the hour or by the quantities sold, disposed of or hauled.
Drilling and Completion Services Basic recognizes revenue when services are performed,
collection of the relevant receivables is probable, persuasive evidence of an arrangement exists
and the price is fixed or determinable. Basic prices drilling and completion services by the hour,
day, or project depending on the type of service performed. When Basic provides multiple services
to a customer, revenue is allocated to the services performed based on the fair values of the
services.
Well Site Construction Services Basic recognizes revenue when services are performed,
collection of the relevant receivables is probable, persuasive evidence of an arrangement exists
and the price is fixed or determinable. Basic prices well site construction services by the hour,
day, or project depending on the type of service performed.
Impairments
In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144), long-lived assets, such as property,
plant, and equipment, and purchased intangibles subject to amortization, are reviewed for
impairment at a minimum annually, or whenever, in managements judgment events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
such assets to estimated undiscounted future cash flows expected to be generated by the assets.
Expected future cash flows and carrying values are aggregated at their lowest identifiable level.
If the carrying amount of such assets exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of such assets exceeds the fair value of
the assets. Assets to be disposed of would be separately presented in the consolidated balance
sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no
longer depreciated. The assets and liabilities, if material, of a disposed group classified as held
for sale would be presented separately in the appropriate asset and liability sections of the
consolidated balance sheet.
Goodwill and intangible assets not subject to amortization are tested annually for impairment,
and are tested for impairment more frequently if events and circumstances indicate that the asset
might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds
the assets fair value.
Basic had no impairment expense in the six months ended June 30, 2006 or 2005.
7
Deferred Debt Costs
Basic capitalizes certain costs in connection with obtaining its borrowings, such as lenders
fees and related attorneys fees. These costs are being amortized to interest expense using the
straight line method, which approximates the effective interest method over the terms of the
related debt.
Deferred
debt costs of approximately $6.8 million at June 30, 2006 and $7.0 million at
December 31, 2005, respectively, represent debt issuance costs and are recorded net of accumulated
amortization of approximately $300,000, and $2.2 million at June 30, 2006 and December 31, 2005,
respectively. Amortization of deferred debt costs totaled approximately $238,000 and $264,000 for
the three months ended June 30, 2006 and 2005, respectively. For the six months ended June 30,
2006 and 2005, amortization of deferred debt costs totaled approximately $549,000 and $527,000,
respectively.
Goodwill
Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142) eliminates the amortization of goodwill and other intangible assets with
indefinite lives. Intangible assets with lives restricted by contractual, legal, or other means
will continue to be amortized over their useful lives. Goodwill and other intangible assets not
subject to amortization are tested for impairment annually or more frequently if events or changes
in circumstances indicate that the asset might be impaired. SFAS No. 142 requires a two-step
process for testing impairment. First, the fair value of each reporting unit is compared to its
carrying value to determine whether an indication of impairment exists. If impairment is indicated,
then the fair value of the reporting units goodwill is determined by allocating the units fair
value to its assets and liabilities (including any unrecognized intangible assets) as if the
reporting unit had been acquired in a business combination. The amount of impairment for goodwill
is measured as the excess of its carrying value over its fair value. Basic completed its assessment
of goodwill impairment as of the date of adoption and completed a subsequent annual impairment
assessment as of December 31 each year thereafter. The assessments did not result in any
indications of goodwill impairment.
Basic has identified its reporting units to be well servicing, fluid services, drilling and
completion services and well site construction services. The goodwill allocated to such reporting
units as of June 30, 2006 is $13.8 million, $32.6 million, $30.9 million and $3.7 million,
respectively. The change in the carrying amount of goodwill for the six months ended June 30, 2006
of $32.7 million relates to goodwill from acquisitions and payments pursuant to contingent earn-out
agreements, with approximately $3.9 million, $12.0 million and $16.8 million of goodwill additions
relating to the well servicing, fluid services and drilling and completion units, respectively.
Stock-Based Compensation
On January 1, 2006, Basic adopted Statement of Financial Accounting Standards No. 123 (revised
2004) Share-Based Payment (SFAS No. 123R). Prior to January 1, 2006, the Company accounted for
share-based payments under the recognition and measurement provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock issued to Employees (APB No. 25) which was permitted
by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123).
Basic adopted SFAS No. 123R using both the modified prospective method and the prospective
method as applicable to the specific awards granted. The modified prospective method was applied to
awards granted subsequent to the Company becoming a public company. Awards granted prior to the
Company becoming public and which were accounted for under APB No. 25 were adopted by using the
prospective method. The results of prior periods have not been restated. Compensation expense cost
of the unvested portion of awards granted as a private company and outstanding as of January 1,
2006 will continue to be based upon the intrinsic value method calculated under APB No. 25.
Under SFAS No. 123R, entities using the minimum value method and the prospective application
are not permitted to provide the pro forma disclosures (as was required under Statement of
Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation (SFAS No. 123))
subsequent to adoption of SFAS No.
8
123R since they do not have the fair value information required by SFAS No. 123R. Therefore,
in accordance with SFAS No. 123R, Basic will no longer include pro forma disclosures that were
required by SFAS No. 123.
Asset Retirement Obligations
Basic owns and operates salt water disposal sites, brine water wells, gravel pits and land
farm sites, each of which is subject to rules and regulations regarding usage and eventual closure.
The following table reflects the changes in the liability during the six months ended June 30, 2006
(in thousands):
|
|
|
|
|
Balance, December 31, 2005 |
|
$ |
569 |
|
|
|
|
|
|
Additional asset retirement obligations recognized through acquisitions |
|
|
193 |
|
Accretion Expense |
|
|
43 |
|
Increase in asset retirement obligations due to change in estimate |
|
|
447 |
|
|
|
|
|
|
Balance, June 30, 2006 (unaudited) |
|
$ |
1,252 |
|
|
|
|
|
Environmental
Basic is subject to extensive federal, state and local environmental laws and regulations.
These laws, which are constantly changing, regulate the discharge of materials into the environment
and may require Basic to remove or mitigate the adverse environmental effects of disposal or
release of petroleum, chemical and other substances at various sites. Environmental expenditures
are expensed or capitalized depending on the future economic benefit. Expenditures that relate to
an existing condition caused by past operations and that have no future economic benefits are
expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental
assessment and/or remediation is probable and the costs can be reasonably estimated.
Litigation and Self-Insured Risk Reserves
Basic estimates its reserves related to litigation and self-insured risks based on the facts
and circumstances specific to the litigation and self-insured claims and its past experience with
similar claims in accordance with Statement of Financial Accounting Standard No. 5 Accounting for
Contingencies. Basic maintains accruals in the consolidated balance sheets to cover self-insurance
retentions (See note 6).
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R. As discussed
under Note 2, Stock-Based Compensation, Basic adopted the provisions of SFAS No. 123R on January
1, 2006.
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
Accounting for Income Taxes. The interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken, in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties accounting in interim periods, disclosure and transition.
The interpretation is effective for fiscal years beginning after December 15, 2006. The Company has
not determined the effects that adoption of FIN 48 will have on the Companys financial position,
cash flows and results of operations.
9
3. Acquisitions
In 2006 and 2005, Basic acquired either substantially all of the assets or all of the
outstanding capital stock of each of the following businesses, each of which were accounted for
using the purchase method of accounting (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Paid (net |
|
|
|
Closing Date |
|
of cash acquired) |
|
R & R Hot Oil Service |
|
January 5, 2005 |
|
$ |
1,702 |
|
Premier Vacuum Service, Inc. |
|
January 28, 2005 |
|
|
1,009 |
|
Spencers Coating Specialist |
|
February 9, 2005 |
|
|
619 |
|
Marks Well Service |
|
February 25, 2005 |
|
|
579 |
|
Max-Line, Inc. |
|
April 28, 2005 |
|
|
1,498 |
|
MD Well Service, Inc. |
|
May 17, 2005 |
|
|
4,478 |
|
179 Disposal, Inc. |
|
August 4, 2005 |
|
|
1,729 |
|
Oilwell Fracturing Services, Inc. |
|
October 11, 2005 |
|
|
13,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2005 |
|
|
|
|
|
$ |
25,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LeBus Oil Field Services Co. |
|
January 31, 2006 |
|
$ |
24,508 |
|
G&L Tool, Ltd. |
|
February 28, 2006 |
|
|
58,000 |
|
Arkla Cementing, Inc. |
|
March 27, 2006 |
|
|
5,012 |
|
Globe Well Service, Inc. |
|
May 30, 2006 |
|
|
11,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2006 |
|
|
|
|
|
$ |
98,988 |
|
|
|
|
|
|
|
|
|
Contingent Earn-out Arrangements and Final Purchase Price Allocations
Contingent earn-out arrangements are generally arrangements entered in certain acquisitions to
encourage the owner/manager to continue operating and building the business after the purchase
transaction. The contingent earn-out arrangements of the related acquisitions are generally linked
to certain financial measures and performance of the assets acquired in the various acquisitions.
All amounts paid or reasonably accrued for related to the contingent earn-out payments are
reflected as increases to the goodwill associated with the acquisition.
On February 28, 2006, Basic acquired substantially all of the assets of G&L Tool for $58.0
million plus a contingent earn-out payment not to exceed $21.0 million. The contingent earn-out
payment will be equal to fifty percent of the amount by which the annual EBITDA earned by Basic
exceeds an annual targeted EBITDA. There is no guarantee or assurance that the targeted EBITDA will
be reached. This acquisition provided a platform to expand into the fishing and rental tool market
operations. The cost of the G&L acquisition was allocated $43.8 million to property and equipment,
$14.1 million to goodwill, and $51,000 to non-compete agreements. Revisions to the fair values,
which may be significant, will be recorded by the Company as further adjustments to the purchase
price allocations.
The following unaudited pro-forma results of operations have been prepared as though the G&L
Tool acquisition had been completed on January 1, 2005. Pro forma amounts are based on the
preliminary purchase price allocations of the significant acquisitions and are not necessarily
indicative of the results that may be reported in the future (in thousands, except per share data).
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
(Unaudited) |
|
2006 |
|
2005 |
Revenues |
|
$ |
347,632 |
|
|
$ |
220,582 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
46,630 |
|
|
$ |
19,866 |
|
|
|
|
|
|
|
|
|
|
Earnings per common share basic |
|
$ |
1.40 |
|
|
$ |
0.70 |
|
Earnings per common share diluted |
|
$ |
1.21 |
|
|
$ |
0.61 |
|
10
Basic does not believe the pro-forma effect of the remainder of the acquisitions
completed in 2005 or 2006 is material, either individually or when aggregated, to the reported
results of operations.
4. Property and Equipment
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
|
|
|
Land |
|
$ |
2,119 |
|
|
$ |
1,902 |
|
Buildings and improvements |
|
|
11,562 |
|
|
|
8,634 |
|
Well service units and equipment |
|
|
239,431 |
|
|
|
199,070 |
|
Fluid services equipment |
|
|
76,965 |
|
|
|
59,104 |
|
Brine and fresh water stations |
|
|
7,953 |
|
|
|
7,746 |
|
Frac/test tanks |
|
|
44,592 |
|
|
|
31,475 |
|
Pressure pumping equipment |
|
|
55,406 |
|
|
|
31,101 |
|
Construction equipment |
|
|
25,699 |
|
|
|
24,224 |
|
Disposal facilities |
|
|
23,633 |
|
|
|
16,828 |
|
Vehicles |
|
|
29,459 |
|
|
|
23,329 |
|
Rental equipment |
|
|
33,695 |
|
|
|
6,519 |
|
Aircraft |
|
|
3,236 |
|
|
|
3,236 |
|
Other |
|
|
8,675 |
|
|
|
8,602 |
|
|
|
|
|
|
|
|
|
|
|
562,425 |
|
|
|
421,770 |
|
|
Less accumulated depreciation and amortization |
|
|
137,705 |
|
|
|
112,695 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
424,720 |
|
|
$ |
309,075 |
|
|
|
|
|
|
|
|
Basic is obligated under various capital leases for certain vehicles and equipment that
expire at various dates during the next five years. The gross amount of property and equipment and
related accumulated amortization recorded under capital leases and included above consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
|
|
|
Light vehicles |
|
$ |
21,364 |
|
|
$ |
17,912 |
|
Well service units and equipment |
|
|
201 |
|
|
|
|
|
Fluid services equipment |
|
|
18,557 |
|
|
|
14,011 |
|
Pressure pumping equipment |
|
|
288 |
|
|
|
|
|
Construction equipment |
|
|
3,231 |
|
|
|
1,300 |
|
|
|
|
|
|
|
|
|
|
|
43,641 |
|
|
|
33,223 |
|
Less accumulated amortization |
|
|
10,850 |
|
|
|
8,474 |
|
|
|
|
|
|
|
|
|
|
$ |
32,791 |
|
|
$ |
24,749 |
|
|
|
|
|
|
|
|
Amortization of assets held under capital leases of approximately $2,376,000 and $858,000
for the six months ended June 30, 2006 and 2005 and $1,315,000 and $377,000 for the three months
ended June 30, 2006 and 2005, respectively, is included in depreciation and amortization expense in
the consolidated statements of operations.
11
5. Long-Term Debt
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
|
|
|
Credit Facilities: |
|
|
|
|
|
|
|
|
Term B Loan |
|
$ |
|
|
|
$ |
90,000 |
|
Revolver |
|
|
|
|
|
|
16,000 |
|
7.125% Senior Notes |
|
|
225,000 |
|
|
|
|
|
Capital leases and other notes |
|
|
29,062 |
|
|
|
20,887 |
|
|
|
|
|
|
|
|
|
|
|
254,062 |
|
|
|
126,887 |
|
Less current portion |
|
|
9,025 |
|
|
|
7,646 |
|
|
|
|
|
|
|
|
|
|
$ |
245,037 |
|
|
$ |
119,241 |
|
|
|
|
|
|
|
|
Senior Notes
On April 12, 2006 the Company issued $225.0 million of 7.125% Senior Notes due April 2016 in a
private placement. Proceeds from the sale of the Senior Notes were used to retire the outstanding balance
on the $90.0 million Term B Loan and to pay down approximately
$96.0 million under the revolving
credit facility, which amounts may be reborrowed to fund future acquisitions or for general
corporate purposes. Interest payments on the Senior Notes are due semi-annually, on April 15 and October
15, commencing on October 15, 2006. The Senior Notes are non-convertible, unsecured and guaranteed by all
the subsidiaries of the Company. Under the terms of the sale of the Senior Notes, the Company was
required to take appropriate steps to offer to exchange other Senior Notes with the same terms that have
been registered with the Securities and Exchange Commission for the private placement Senior Notes. The
Company anticipates completing the exchange offer under the terms of the sale.
The Senior Notes are redeemable at the option of the Company on or after April 15, 2011 at the
specified redemption price as described in the Indenture. Prior to April 15, 2011, the Company may
redeem, in whole or in part, at a redemption price equal to 100% of the principal amount of the
Senior Notes redeemed plus the Applicable Premium as defined in the Indenture. Prior to April 15, 2009
the Company may redeem up to 35% of the Senior Notes with the proceeds of certain equity offerings
at a redemption price equal to 107.125% of the principal amount of the 7.125% Senior Notes, plus accrued
and unpaid interest and liquidated damages, if any, to the date of redemption. This redemption
must occur less than 90 days after the date of the closing of any such Qualified Equity Offering.
Following a change of control, as defined in the Indenture, the Company will be required to
make an offer to repurchase all or any portion of the 7.125% Senior Notes at a purchase price of
101% of the principal amount, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of repurchase.
During any period of time that the Senior Notes have a Moodys rating of Baa3 or higher or an
S&P rating of BBB- or higher (each, an Investment Grade Rating) and no default has occurred, the
Company is not subject to covenants that limit the ability of the Company and its restricted
subsidiaries to, among other things: Incur additional debt, incur layered debt, consolidate or
merge with or into other companies, comply with limitations on asset sales, limitations on restricted payments,
limitations on dividends and other restrictions, limitations on transactions with affiliates, and
additional note guarantees. The restrictive covenants are subject to a number of important
exemptions and qualifications set forth in the Indenture. As of June 30, 2006, the Senior Notes do not
satisfy the rating requirements. Basic is in compliance with the restrictive covenants at June 30,
2006.
As
part of the issuance of the above-mentioned Senior Notes, the Company incurred debt issuance costs
of approximately $4.6 million, which are being amortized to interest expense using the
straight line method, which approximates the effective interest method over the term of the Senior
Notes.
12
2005 Credit Facility
On December 15, 2005, Basic entered into a $240 million Third Amended and Restated Credit
Agreement with a syndicate of lenders (2005 Credit Facility), which refinanced all of its then
existing credit facilities. The 2005 Credit Facility, as amended effective March 28, 2006, provides
for a $90 million Term B Loan (2005 Term B Loan) and a $150 million revolving line of credit
(Revolver). The commitment under the Revolver allows for (a) the borrowing of funds (b) issuance
of up to $30 million of letters of credit and (c) $2.5 million of swing-line loans (next day
borrowing). The amounts outstanding under the 2005 Term B Loan require quarterly amortization at
various amounts during each quarter with all amounts outstanding on December 15, 2011 being due and
payable in full. All the outstanding amounts under the Revolver are due and payable on December 15,
2010. The 2005 Credit Facility is secured by substantially all of Basics tangible and intangible
assets. Basic incurred approximately $1.8 million in debt issuance costs in obtaining the 2005
Credit Facility.
At Basics option, borrowings under the 2005 Term B Loan bear interest at either the (a)
Alternative Base Rate (i.e. the higher of the banks prime rate or the federal funds rate plus
..5% per annum) plus 1% or (b) the LIBOR rate plus 2.0%. At
June 30, 2006, Basic had paid outstanding
borrowings under the Term B Loan in full; therefore, a Term B Loan weighted average interest rate
was not calculated. However, at December 31, 2005, Basics weighted average interest rate on its
Term B Loan was 6.4%.
At Basics option, borrowings under the 2005 Revolver bear interest at either the (a)
Alternative Base Rate (i.e. the higher of the banks prime rate or the federal funds rate plus
..5% per annum) plus a margin ranging from .50% to 1.25% or (b) the LIBOR rate plus a margin ranging
from 1.5% to 2.25%. The margins vary depending on Basics leverage ratio. At March 31, 2006,
Basics margin on Alternative Base Rates and LIBOR tranches was .75% and 1.75%, respectively. Fees
on the letters of credit are due quarterly on the outstanding amount of the letters of credit at a
rate ranging from 1.5% to 2.25% for participation fees and .125% for fronting fees. A commitment
fee is due quarterly on the available borrowings under the Revolver at rates ranging from .375% to
..5%.
At June 30, 2006, Basic, under its Revolver, had no outstanding borrowings and $9.6 million of
letters of credit and no amounts outstanding in swing-line loans. At June 30, 2006 and December 31,
2005 Basic had availability under its Revolver of $140.4 million and $124.4 million, respectively.
Pursuant to the 2005 Credit Facility, Basic must apply proceeds to reduce principal
outstanding under the 2005 Term B Revolver from (a) individual assets sales greater than $2 million
or $7.5 million in the aggregate on an annual basis, and (b) 50% of the proceeds from any equity
offering. The 2005 Credit Facility required Basic to enter into an interest rate hedge, through May
28, 2006 on at least $65 million of Basics then outstanding indebtedness. The March 28, 2006
amendment deletes this requirement upon payoff of the Term B Loans. In April 2006, Basic paid off
all outstanding borrowings under the Term B Loan. Paydowns on the 2005 Term B Loan may not be
reborrowed.
The 2005 Credit Facility contains various restrictive covenants and compliance requirements,
which include (a) limiting of the incurrence of additional indebtedness, (b) restrictions on
mergers, sales or transfers of assets without the lenders consent, (c) limitation on dividends and
distributions and (d) various financial covenants, including (1) a maximum leverage ratio of 3.5 to
1.0 reducing over time to 3.25 to 1.0, (2) a minimum interest coverage ratio of 3.0 to 1.0 and (e)
limitations on capital expenditures in any period of four consecutive quarters in excess of 20% of
Consolidated Net Worth unless certain criteria are met. At June 30, 2006 and December 31, 2005,
Basic was in compliance with its covenants.
Other Debt
Basic has a variety of other capital leases and notes payable outstanding that are generally
customary in its business. None of these debt instruments are material individually or in the
aggregate.
13
Basics interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
Cash payments for interest |
|
$ |
3,193 |
|
|
$ |
5,600 |
|
Commitment and other fees paid |
|
|
321 |
|
|
|
|
|
Amortization of debt issuance costs |
|
|
550 |
|
|
|
527 |
|
Accrued interest on senior notes |
|
|
3,518 |
|
|
|
|
|
Other |
|
|
205 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
$ |
7,787 |
|
|
$ |
6,201 |
|
|
|
|
|
|
|
|
Losses on Extinguishment of Debt
In April of 2006, Basic recognized a loss on the early extinguishment of debt. Basic wrote
off unamortized debt issuance costs of approximately $2.7 million, which related to the prepayment
of the Term B Loan.
6. Commitments and Contingencies
Environmental
Basic is subject to various federal, state and local environmental laws and regulations that
establish standards and requirements for protection of the environment. Basic cannot predict the
future impact of such standards and requirements which are subject to change and can have
retroactive effectiveness. Basic continues to monitor the status of these laws and regulations.
Management believes that the likelihood of the disposition of any of these items resulting in a
material adverse impact to Basics financial position, liquidity, capital resources or future
results of operations is remote.
Currently, Basic has not been fined, cited or notified of any environmental violations that
would have a material adverse effect upon its financial position, liquidity or capital resources.
However, management does recognize that by the very nature of its business, material costs could be
incurred in the near term to bring Basic into total compliance. The amount of such future
expenditures is not determinable due to several factors including the unknown magnitude of possible
contamination, the unknown timing and extent of the corrective actions which may be required, the
determination of Basics liability in proportion to other responsible parties and the extent to
which such expenditures are recoverable from insurance or indemnification.
Litigation
From time to time, Basic is a party to litigation or other legal proceedings that Basic
considers to be a part of the ordinary course of business. Basic is not currently involved in any
legal proceedings that it considers probable or reasonably possible, individually or in the
aggregate, to result in a material adverse effect on its financial condition, results of operations
or liquidity.
Self-Insured Risk Accruals
Basic is self-insured up to retention limits as it relates to workers compensation and
medical and dental coverage of its employees. Basic, generally, maintains no physical property
damage coverage on its workover rig fleet, with the exception of certain of its 24-hour workover
rigs and newly manufactured rigs. Basic has deductibles per occurrence for workers compensation
and medical and dental coverage of $150,000 and $125,000, respectively. Basic has lower deductibles
per occurrence for automobile liability and general liability. Basic maintains accruals in the
accompanying consolidated balance sheets related to self-insurance retentions by using third-party
data and claims history.
14
At June 30, 2006 and December 31, 2005, self-insured risk accruals, net of related
recoveries/receivables totaled approximately $12.4 million and $9.5 million, respectively.
7. Stockholders Equity
Common Stock
In February 2002, a group of related investors purchased a total of 3,000,000 shares of
Basics common stock at a purchase price of $4 per share, for a total purchase price of $12
million. As part of the purchase, 600,000 common stock warrants were issued in connection with this
transaction, the fair value of which was approximately $1.2 million (calculated using an option
valuation model). The warrants allow the holder to purchase 600,000 shares of Basics common stock
at $4 per share. The warrants are exercisable in whole or in part after June 30, 2002 and prior to
February 13, 2007.
In February 2004, Basic granted certain officers and directors 837,500 restricted shares of
common stock. The shares vest 25% per year for four years from the award date and are subject to
other vesting and forfeiture provisions. The estimated fair value of the restricted shares was $5.8
million at the date of the grant and was recorded as deferred compensation, a component of
stockholders equity. This amount is being charged to expense over the respective vesting period
and totaled approximately $315,000 and $409,000 for the three months ended June 30, 2006 and 2005,
respectively. For the six months ended June 30, 2006 and 2005, the amount charged to expense over
the respective vesting period totaled approximately $694,000 and $818,000, respectively.
In December 2005, Basic issued 5,000,000 shares of common stock during the Companys Initial
Public Offering to a group of investors for $100 million or $20 per share. After deducting fees,
this resulted in net proceeds to Basic totaling approximately $91.5 million.
In March 2006, Basic issued 148,720 shares of common stock from treasury stock for the
exercise of stock options.
In June 2006, Basic issued 28,100 shares of common stock from treasury stock for the exercise
of stock options.
8. Incentive Plan
In May 2003, Basics board of directors and stockholders approved the Basic 2003 Incentive
Plan (as amended effective April 22, 2005), (the Plan) which provides for granting of incentive
awards in the form of stock options, restricted stock, performance awards, bonus shares, phantom
shares, cash awards and other stock-based awards to officers, employees, directors and consultants
of Basic. The Plan assumed awards of the plans of Basics successors that were awarded and remained
outstanding prior to adoption of the Plan. The Plan provides for the issuance of 5,000,000 shares.
The Plan is administered by the Plan committee, and in the absence of a Plan committee, by the
Board of Directors, which determines the awards, and the associated terms of the awards and
interprets its provisions and adopts policies for implementing the Plan. The number of shares
authorized under the Plan and the number of shares subject to an award under the Plan will be
adjusted for stock splits, stock dividends, recapitalizations, mergers and other changes affecting
the capital stock of Basic.
On March 15, 2006, the board of directors granted various employees options to purchase
418,000 shares of common stock of Basic at an exercise price of $26.84 per share. All of the
418,000 options granted in 2006 vest over a five-year period and expire 10 years from the date they
were granted. Option awards are generally granted with an exercise price equal to the market price
of the Companys stock at the date of grant.
The fair value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option-pricing model that uses the subjective assumptions noted in the
following table. Since the Company has only been public since December 2005, expected volatilities
are based upon a peer group. When the Company has sufficient historical data to calculate expected
volatility, the Company will use its own historical data to calculate expected volatility. The
expected term of options granted represents the period of time that options granted are expected to
be outstanding. The risk-free rate for periods within the contractual life of the options is based
on the U.S. Treasury
15
yield curve in effect at the time of grant. The estimates involve inherent uncertainties and
the application of management judgment. In addition, we are required to estimate the expected
forfeiture rate and only recognize expense for those options expected to vest. Compensation expense
related to share-based arrangements was approximately $875,000 and $768,000 during the three months
ended June 30, 2006 and 2005, respectively. For compensation
expense recognized during the three months ended June 30, 2006
and 2005, Basic recognized a tax benefit of approximately $311,000
and $290,000, respectively. During the six months ended June 30, 2006 and 2005,
compensation expense related to share-based arrangements was approximately $1,633,000 and
$1,359,000, respectively. For compensation expense recognized during
the six months ended June 30, 2006 and 2005, Basic recognized a
tax benefit of approximately $595,000 and $512,000, respectively.
The fair value of each option award accounted for under SFAS No. 123R is estimated on the date
of grant using the Black-Scholes-Merton option-pricing model that uses the assumptions noted in the
following table:
|
|
|
|
|
|
|
Six Months |
|
|
Ended June 30, |
|
|
2006 |
Risk-free interest rate |
|
|
4.7 |
% |
Expected term |
|
|
6.65 |
|
Expected volatility |
|
|
47.0 |
% |
Expected dividend yield |
|
|
|
|
Options granted under the Plan expire 10 years from the date they are granted, and
generally vest over a three to five year service period.
The following table reflects the summary of stock options outstanding for the six months ended
June 30, 2006 and the changes during the six months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Aggregate |
|
|
Number of |
|
Average |
|
Instrinsic |
|
|
Options |
|
Exercise |
|
Value |
|
|
Granted |
|
Price |
|
(000s) |
Non-statutory stock
options: |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period |
|
|
2,445,800 |
|
|
$ |
5.44 |
|
|
|
|
|
Options granted |
|
|
418,000 |
|
|
$ |
26.84 |
|
|
|
|
|
Options forfeited |
|
|
(56,000 |
) |
|
$ |
7.33 |
|
|
|
|
|
Options exercised |
|
|
(176,820 |
) |
|
$ |
4.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of
period |
|
|
2,630,980 |
|
|
$ |
8.89 |
|
|
$ |
57,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of
period |
|
|
1,249,813 |
|
|
$ |
4.16 |
|
|
$ |
33,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest,
end of period |
|
|
1,346,469 |
|
|
$ |
12.82 |
|
|
$ |
23,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about Basics stock options outstanding and
options exercisable at June 30, 2006:
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
Range |
|
Number of |
|
Weighted |
|
Weighted |
|
Number of |
|
Weighted |
|
Weighted |
of |
|
Options |
|
Average |
|
Average |
|
Options |
|
Average |
|
Average |
Exercise |
|
Outstanding at |
|
Remaining |
|
Exercise |
|
Outstanding at |
|
Remaining |
|
Exercise |
Prices |
|
June 30, 2006 |
|
Contractual Life |
|
Price |
|
June 30, 2006 |
|
Contractual Life |
|
Price |
$ 4.00 |
|
|
1,076,480 |
|
|
|
5.94 |
|
|
$ |
4.00 |
|
|
|
1,076,480 |
|
|
|
5.94 |
|
|
$ |
4.00 |
|
$ 5.16 |
|
|
310,000 |
|
|
|
7.98 |
|
|
$ |
5.16 |
|
|
|
173,333 |
|
|
|
7.87 |
|
|
$ |
5.16 |
|
$ 6.98 |
|
|
790,000 |
|
|
|
8.67 |
|
|
$ |
6.98 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$21.01 |
|
|
37,500 |
|
|
|
9.46 |
|
|
$ |
21.01 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$26.84 |
|
|
417,000 |
|
|
|
9.71 |
|
|
$ |
26.84 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,630,980 |
|
|
|
|
|
|
|
|
|
|
|
1,249,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of share options granted during the six months
ended June 30, 2006 and 2005 was $14.47 and $8.12, respectively. The total intrinsic value of
share options exercised during the six months ended June 30, 2006 and 2005 was approximately $4.2
million and $0, respectively.
A summary of the status of the Companys non-vested share grants at June 30, 2006 and changes
during the six months ended June 30, 2006 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Number of |
|
Grant Date Fair |
Nonvested Shares |
|
Shares |
|
Value Per Share |
Nonvested at beginning
of period |
|
|
591,875 |
|
|
$ |
6.98 |
|
Granted during period |
|
|
|
|
|
|
|
|
Vested during period |
|
|
(230,625 |
) |
|
|
6.98 |
|
Forfeited during period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of period |
|
|
361,250 |
|
|
$ |
6.98 |
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006, there was $11.1 million of total unrecognized compensation related
to non-vested share-based compensation grant date arrangements granted under the Plan. That cost is expected
to be recognized over a weighted-average period of 3.53 years. The total grant date fair value of
share-based awards vested during the six months ended June 30, 2006 and 2005 was
approximately $3.2 million and $2.9 million, respectively.
Cash
received from share option exercises under the incentive plan was
approximately $112,000 and $0 for the six months
ended June 30, 2006 and 2005, respectively. The actual tax benefit realized for the tax deductions
from option exercise is $3.1 million and $0, respectively, for the six months ended June 30, 2006
and 2005.
The
Company has a history of issuing Treasury shares to satisfy share
option exercises.
9. Related Party Transactions
Basic had receivables from employees of approximately $190,000 and $65,000 as of June 30, 2006
and December 31, 2005, respectively. During the year, Basic entered into a lease agreement with
Darle Vuelta Cattle Co., LLC, an affiliate of the Chief Executive Officer, for approximately
$69,000. The term of the lease is five years and will continue on a year-to-year basis unless
terminated by either party.
10. Earnings Per Share
Basic presents earnings per share information in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128). Under SFAS No.
128, basic earnings per common share are determined by dividing net earnings applicable to common
stock by the weighted average number of common shares actually outstanding during the year. Diluted
earnings per common share is based on the increased number of shares that would be outstanding assuming conversion of dilutive
outstanding securities using the as if converted method. The following table sets forth the
computation of basic and diluted earnings per share:
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(in thousands, except share data): |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Numerator (both basic and diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
24,487 |
|
|
$ |
10,747 |
|
|
$ |
44,168 |
|
|
$ |
16,548 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share |
|
|
33,434,486 |
|
|
|
28,328,315 |
|
|
|
33,347,512 |
|
|
|
28,406,935 |
|
|
Stock options |
|
|
1,079,806 |
|
|
|
738,126 |
|
|
|
1,080,834 |
|
|
|
621,937 |
|
Unvested restricted stock |
|
|
213,262 |
|
|
|
603,125 |
|
|
|
233,824 |
|
|
|
525,000 |
|
Common stock warrants |
|
|
3,798,320 |
|
|
|
3,113,766 |
|
|
|
3,739,045 |
|
|
|
2,921,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share |
|
|
38,525,874 |
|
|
|
32,783,332 |
|
|
|
38,401,215 |
|
|
|
32,475,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
$ |
0.73 |
|
|
$ |
0.38 |
|
|
$ |
1.32 |
|
|
$ |
0.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
$ |
0.64 |
|
|
$ |
0.33 |
|
|
$ |
1.15 |
|
|
$ |
0.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Business Segment Information
Basics reportable business segments are well servicing, fluid services, drilling and
completion services and well site construction services. The following is a description of the
segments:
Well Servicing: This business segment encompasses a full range of services performed with a
mobile well servicing rig, including the installation and removal of downhole equipment and
elimination of obstructions in the well bore to facilitate the flow of oil and gas. These services
are performed to establish, maintain and improve production throughout the productive life of an
oil and gas well and to plug and abandon a well at the end of its productive life. Basic well
servicing equipment and capabilities are essential to facilitate most other services performed on a
well.
Fluid Services: This segment utilizes a fleet of trucks and related assets, including
specialized tank trucks, storage tanks, water wells, disposal facilities and related equipment.
Basic employs these assets to provide, transport, store and dispose of a variety of fluids. These
services are required in most workover, drilling and completion projects as well as part of daily
producing well operations.
Drilling and Completion Services: This segment focuses on a variety of services designed to
stimulate oil and gas production or to enable cement slurry to be placed in or circulated within a
well. These services are carried out in niche markets for jobs requiring a single truck and lower
horsepower.
Well Site Construction Services: This segment utilizes a fleet of power units, dozers,
trenchers, motor graders, backhoes and other heavy equipment. Basic employs these assets to provide
services for the construction and maintenance of oil and gas production infrastructure, such as
preparing and maintaining access roads and well locations, installation of small diameter gathering
lines and pipelines and construction of temporary foundations to support drilling rigs.
Basics management evaluates the performance of its operating segments based on operating
revenues and segment profits. Corporate expenses include general corporate expenses associated with
managing all reportable operating segments. Corporate assets consist principally of working capital
and debt financing costs.
18
The following table sets forth certain financial information with respect to Basics
reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and |
|
|
Well Site |
|
|
|
|
|
|
|
|
|
Well |
|
|
Fluid |
|
|
Completion |
|
|
Construction |
|
|
Corporate |
|
|
|
|
|
|
Servicing |
|
|
Services |
|
|
Services |
|
|
Services |
|
|
and Other |
|
|
Total |
|
Three Months Ended June 30,
2006 (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
81,154 |
|
|
$ |
48,861 |
|
|
$ |
40,939 |
|
|
$ |
12,879 |
|
|
$ |
|
|
|
$ |
183,833 |
|
Direct operating costs |
|
|
(45,521 |
) |
|
|
(29,343 |
) |
|
|
(19,180 |
) |
|
|
(8,820 |
) |
|
|
|
|
|
|
(102,864 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits |
|
$ |
35,633 |
|
|
$ |
19,518 |
|
|
$ |
21,759 |
|
|
$ |
4,059 |
|
|
$ |
|
|
|
$ |
80,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
6,886 |
|
|
$ |
4,022 |
|
|
$ |
2,708 |
|
|
$ |
961 |
|
|
$ |
545 |
|
|
$ |
15,122 |
|
Capital expenditures,
(excluding acquisitions) |
|
$ |
10,917 |
|
|
$ |
6,377 |
|
|
$ |
4,293 |
|
|
$ |
1,524 |
|
|
$ |
863 |
|
|
$ |
23,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
2005 (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
53,852 |
|
|
$ |
31,536 |
|
|
$ |
13,512 |
|
|
$ |
10,918 |
|
|
$ |
|
|
|
$ |
109,818 |
|
Direct operating costs |
|
|
(33,273 |
) |
|
|
(19,881 |
) |
|
|
(6,871 |
) |
|
|
(7,555 |
) |
|
|
|
|
|
|
(67,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits |
|
$ |
20,579 |
|
|
$ |
11,655 |
|
|
$ |
6,641 |
|
|
$ |
3,363 |
|
|
$ |
|
|
|
$ |
42,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
4,552 |
|
|
$ |
2,447 |
|
|
$ |
622 |
|
|
$ |
690 |
|
|
$ |
460 |
|
|
$ |
8,771 |
|
Capital expenditures,
(excluding acquisitions) |
|
$ |
10,070 |
|
|
$ |
5,412 |
|
|
$ |
1,376 |
|
|
$ |
1,528 |
|
|
$ |
1,019 |
|
|
$ |
19,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
2006 (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
154,619 |
|
|
$ |
91,982 |
|
|
$ |
68,394 |
|
|
$ |
23,144 |
|
|
$ |
|
|
|
$ |
338,139 |
|
Direct operating costs |
|
|
(87,131 |
) |
|
|
(55,648 |
) |
|
|
(33,034 |
) |
|
|
(16,463 |
) |
|
|
|
|
|
|
(192,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits |
|
$ |
67,488 |
|
|
$ |
36,334 |
|
|
$ |
35,360 |
|
|
$ |
6,681 |
|
|
$ |
|
|
|
$ |
145,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
12,731 |
|
|
$ |
7,436 |
|
|
$ |
5,007 |
|
|
$ |
1,777 |
|
|
$ |
1,008 |
|
|
$ |
27,959 |
|
Capital expenditures,
(excluding acquisitions) |
|
$ |
22,215 |
|
|
$ |
12,976 |
|
|
$ |
8,736 |
|
|
$ |
3,100 |
|
|
$ |
1,800 |
|
|
$ |
48,827 |
|
Identifiable assets |
|
$ |
207,535 |
|
|
$ |
145,556 |
|
|
$ |
107,997 |
|
|
$ |
31,316 |
|
|
$ |
193,334 |
|
|
$ |
685,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
2005 (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
98,650 |
|
|
$ |
60,839 |
|
|
$ |
24,276 |
|
|
$ |
19,866 |
|
|
$ |
|
|
|
$ |
203,631 |
|
Direct operating costs |
|
|
(61,464 |
) |
|
|
(39,119 |
) |
|
|
(12,731 |
) |
|
|
(14,663 |
) |
|
|
|
|
|
|
(127,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits |
|
$ |
37,186 |
|
|
$ |
21,720 |
|
|
$ |
11,545 |
|
|
$ |
5,203 |
|
|
$ |
|
|
|
$ |
75,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
8,727 |
|
|
$ |
4,691 |
|
|
$ |
1,193 |
|
|
$ |
1,324 |
|
|
$ |
883 |
|
|
$ |
16,818 |
|
Capital expenditures,
(excluding acquisitions) |
|
$ |
18,399 |
|
|
$ |
9,889 |
|
|
$ |
2,515 |
|
|
$ |
2,791 |
|
|
$ |
1,894 |
|
|
$ |
35,488 |
|
Identifiable assets |
|
$ |
147,956 |
|
|
$ |
93,141 |
|
|
$ |
28,569 |
|
|
$ |
25,012 |
|
|
$ |
112,232 |
|
|
$ |
406,910 |
|
19
The following table reconciles the segment profits reported above to the operating income
as reported in the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Segment profits |
|
$ |
80,969 |
|
|
$ |
42,238 |
|
|
$ |
145,863 |
|
|
$ |
75,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
(20,144 |
) |
|
|
(13,372 |
) |
|
|
(38,149 |
) |
|
|
(26,463 |
) |
Depreciation and amortization |
|
|
(15,122 |
) |
|
|
(8,771 |
) |
|
|
(27,959 |
) |
|
|
(16,818 |
) |
Gain (loss) on disposal of assets |
|
|
(927 |
) |
|
|
152 |
|
|
|
(727 |
) |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
44,776 |
|
|
$ |
20,247 |
|
|
$ |
79,028 |
|
|
$ |
32,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Supplemental Schedule of Cash Flow Information:
The
following table reflects non-cash financing and investing activity
during (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2006 |
|
2005 |
Capital leases issued for equipment |
|
$ |
12,136 |
|
|
$ |
3,580 |
|
Asset retirement obligation additions |
|
$ |
640 |
|
|
$ |
|
|
Exercise of stock options |
|
$ |
2,627 |
|
|
$ |
|
|
Basic paid income taxes of approximately $31.6 million and $0 during the six
months ended June 30, 2006 and 2005, respectively.
13. Subsequent Events
On July 6, 2006, Basic acquired substantially all of the operating assets of Hydro-Static
Tubing Testers, Inc. for total consideration of $1.2 million cash. This acquisition will operate
in Basics well servicing line of business in the Northern Rocky Mountain region.
On August 1, 2006, Basic acquired all of the outstanding capital stock of Hennessey Rental
Tools, Inc. for an acquisition price of $8.5 million, subject to adjustments. This acquisition
will operate in both Basics well servicing and rental and fishing tools lines of business in the
Mid-Continent region.
On August 1, 2006, Basic acquired substantially all of the operating assets of Stimulation
Services for total consideration of $4.5 million cash. This acquisition will operate in Basics
drilling and completion line of business in the Ark-La-Tex region.
20
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Managements Overview
We provide a wide range of well site services to oil and gas drilling and producing companies,
including well servicing, fluid services, drilling and completion services and well site
construction services. Our results of operations since the beginning of 2002 reflect the impact of
our acquisition strategy as a leading consolidator in the domestic land-based well services
industry during this period. Our acquisitions have increased our breadth of service offerings at
the well site and expanded our market presence. In implementing this strategy, we have purchased
businesses and assets in 12 separate acquisitions from January 1, 2005 to June 30, 2006. Our
weighted average number of well servicing rigs has increased from 303 in the second quarter of 2005
to 341 in the second quarter of 2006, and our weighted average number of fluid service trucks has
increased from 447 to 568 in the same period.
Our operating revenues from each of our segments, and their relative percentages of our total
revenues, consisted of the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2006 |
|
2005 |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well servicing |
|
$ |
154.6 |
|
|
|
46 |
% |
|
$ |
98.6 |
|
|
|
48 |
% |
Fluid services |
|
|
92.0 |
|
|
|
27 |
% |
|
|
60.8 |
|
|
|
30 |
% |
Drilling and completion services |
|
|
68.4 |
|
|
|
20 |
% |
|
|
24.3 |
|
|
|
12 |
% |
Well site construction services |
|
|
23.1 |
|
|
|
7 |
% |
|
|
19.9 |
|
|
|
10 |
% |
|
|
|
|
|
Total revenues |
|
$ |
338.1 |
|
|
|
100 |
% |
|
$ |
203.6 |
|
|
|
100 |
% |
|
|
|
|
|
Our core businesses depend on our customers willingness to make expenditures to produce,
develop and explore for oil and gas in the United States. Industry conditions are influenced by
numerous factors, such as the supply of and demand for oil and gas, domestic and worldwide economic
conditions, political instability in oil producing countries and merger and divestiture activity
among oil and gas producers. The volatility of the oil and gas industry, and the consequent impact
on exploration and production activity, could adversely impact the level of drilling and workover
activity by some of our customers. This volatility affects the demand for our services and the
price of our services. In addition, the discovery rate of new oil and gas reserves in our market
areas also may have an impact on our business, even in an environment of stronger oil and gas
prices.
We derive a majority of our revenues from services supporting production from existing oil and
gas operations. Demand for these production-related services, including well servicing and fluid
services, tends to remain relatively stable, even in moderate oil and gas price environments, as
ongoing maintenance spending is required to sustain production. As oil and gas prices reach higher
levels, demand for all of our services generally increases as our customers engage in more well
servicing activities relating to existing wells to maintain or increase oil and gas production from
those wells. Because our services are required to support drilling and workover activities, we are
also subject to changes in capital spending by our customers as oil and gas prices increase or
decrease.
We believe that the most important performance measures for our lines of business are as
follows:
|
|
|
Well Servicing rig hours, rig utilization rate, revenue per rig hour and segment
profits as a percent of revenues; |
|
|
|
|
Fluid Services revenue per truck and segment profits as a percent of revenues; |
|
|
|
|
Drilling and Completion Services segment profits as a percent of revenues; and |
|
|
|
|
Well Site Construction Services segment profits as a percent of revenues. |
Segment profits are computed as segment operating revenues less direct operating costs. These
measurements provide important information to us about the activity and profitability of our lines
of business. For a detailed analysis of these indicators for our company, see below in - Segment
Overview.
21
We intend to continue growing our business through selective acquisitions, continuing a
newbuild program and/or upgrading our existing assets. Our capital investment decisions are
determined by an analysis of the projected return on capital employed of each of those
alternatives, which is substantially driven by the cost to acquire existing assets from a third
party, the capital required to build new equipment and the point in the oil and gas commodity price
cycle. Based on these factors, we make capital investment decisions that we believe will support
our long-term growth strategy. While we believe our costs of integration for prior acquisitions
have been reflected in our historical results of operations, integration of acquisitions may result
in unforeseen operational difficulties or require a disproportionate amount of our managements
attention. As discussed below in - Liquidity and Capital Resources, we also must meet certain
financial covenants in order to borrow money under our existing credit agreement to fund future
acquisitions.
Recent Strategic Acquisitions and Expansions
During 2005, we continued to direct our focus for growth more on the integration and expansion
of our existing businesses, through capital expenditures and to a lesser extent, acquisitions.
During the first six months of 2006, we completed four additional acquisitions, one of which was
significant.
We discuss the aggregate purchase prices and related financing issues below in - Liquidity
and Capital Resources and present the pro-forma effects of the material acquisition in the
financial statements included with this report.
Selected 2005 Acquisitions
During 2005, we made several acquisitions that complement our existing lines of business.
These included, among others:
MD Well Service, Inc.
On May 17, 2005, we completed the acquisition of MD Well Service, Inc., a well servicing
company operating in the Rocky Mountain region. This transaction was structured as an asset
purchase for a total purchase price of $6.0 million.
Oilwell Fracturing Services, Inc.
On October 10, 2005, we completed the acquisition of Oilwell Fracturing Services, Inc., a
pressure pumping services company that provides acidizing and fracturing services with operations
in central Oklahoma. This acquisition will strengthen the presence of our drilling and completion
services segment in our Mid Continent division. This transaction was structured as a stock purchase
for a total purchase price of approximately $16.1 million. The assets acquired in the acquisition
included approximately $2.3 million in cash. The cash used to acquire Oilwell Fracturing Services
was primarily from borrowings under our senior credit facility.
Selected 2006 Acquisitions
During 2006, we made acquisitions that complement our existing lines of business and increased
our presence in the rental tool business. These included, among others:
LeBus Oil Field Service Co.
On January 31, 2006, we acquired all of the outstanding capital stock of LeBus Oil Field
Service Co. (LeBus) for an acquisition price of $26 million, subject to adjustments. The
acquisition will operate in our fluid services line of business in the Ark-La-Tex division. The
cash used to acquire LeBus was primarily from borrowings under our senior credit facility.
22
G&L Tool, Ltd.
On February 28, 2006, we acquired substantially all of the operating assets of G&L Tool, Ltd.
(G&L) for total consideration of $58 million cash. This acquisition will operate in our drilling
and completion line of business. The purchase agreement also contained an earn-out agreement based
on annual EBITDA targets. The cash used to acquire G&L was primarily from borrowings under our
senior credit facility.
Segment Overview
Well Servicing
During the first six months of 2006, our well servicing segment represented 46% of our total
revenues. Revenue in our well servicing segment is derived from maintenance, workover, completion
and plugging and abandonment services. We provide maintenance-related services as part of the
normal, periodic upkeep of producing oil and gas wells. Maintenance-related services represent a
relatively consistent component of our business. Workover and completion services generate more
revenue per hour than maintenance work due to the use of auxiliary equipment, but demand for
workover and completion services fluctuates more with the overall activity level in the industry.
We typically charge our customers for services on an hourly basis at rates that are determined
by the type of service and equipment required, market conditions in the region in which the rig
operates, the ancillary equipment provided on the rig and the necessary personnel. Depending on the
type of job, we may also charge by the project or by the day. We measure our activity levels by the
total number of hours worked by all of the rigs in our fleet. We monitor our fleet utilization
levels, with full utilization deemed to be 55 hours per week per rig.
The following is an analysis of our well servicing operations for each of the quarters ended
December 31, 2005 and the quarters ended March 31, 2006 and June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
|
|
Average |
|
|
|
|
|
Rig |
|
|
|
|
|
Profits |
|
|
|
|
Number of |
|
Rig |
|
Utilization |
|
Revenue Per |
|
Per Rig |
|
Segment |
|
|
Rigs |
|
Hours |
|
Rate |
|
Rig Hour |
|
Hour |
|
Profits % |
2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
291 |
|
|
|
175,300 |
|
|
|
84.30 |
% |
|
$ |
255 |
|
|
$ |
94 |
|
|
|
37.10 |
% |
Second Quarter |
|
|
303 |
|
|
|
192,400 |
|
|
|
88.80 |
% |
|
$ |
280 |
|
|
$ |
107 |
|
|
|
38.20 |
% |
Third Quarter |
|
|
311 |
|
|
|
198,000 |
|
|
|
89.00 |
% |
|
$ |
299 |
|
|
$ |
108 |
|
|
|
36.00 |
% |
Fourth Quarter |
|
|
316 |
|
|
|
195,000 |
|
|
|
86.30 |
% |
|
$ |
329 |
|
|
$ |
134 |
|
|
|
40.70 |
% |
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
327 |
|
|
|
209,000 |
|
|
|
89.4 |
% |
|
$ |
352 |
|
|
$ |
152 |
|
|
|
43.40 |
% |
Second Quarter |
|
|
341 |
|
|
|
221,800 |
|
|
|
91.0 |
% |
|
$ |
366 |
|
|
$ |
161 |
|
|
|
43.90 |
% |
We gauge activity levels in our well servicing segment based on rig utilization rate, revenue
per rig hour and segment profits per rig hour.
Improving market conditions since the first quarter of 2005 have created increased demand for
our services. Rig hours have increased due to a combination of the improved utilization of our well
servicing rigs and the expansion of our well servicing fleet as a result of our newbuild rig
program.
We have been able to increase our revenue per rig hour from $280 in the second quarter of 2005
to $366 in the second quarter of 2006 mainly as a result of this higher utilization, which has
contributed to our improved segment profits.
Fluid Services
During the first six months of 2006, our fluid services segment represented 27% of our
revenues. Revenues in our fluid services segment are earned from the sale, transportation, storage
and disposal of fluids used in the drilling, production and maintenance of oil and gas wells. The
fluid services segment has a base level of business consisting
23
of transporting and disposing of salt water produced as a by-product of the production of oil
and gas. These services are necessary for our customers and generally have a stable demand but
typically produce lower relative segment profits than other parts of our fluid services segment.
Fluid services for completion and workover projects typically require fresh or brine water for
making drilling mud, circulating fluids or frac fluids used during a job, and all of these fluids
require storage tanks and hauling and disposal. Because we can provide a full complement of fluid
sales, trucking, storage and disposal required on most drilling and workover projects, the add-on
services associated with drilling and workover activity enable us to generate higher segment
profits contributions. The higher segment profits are due to the relatively small incremental labor
costs associated with providing these services in addition to our base fluid services segment. We
typically price fluid services by the job, by the hour or by the quantities sold, disposed of or
hauled.
The following is an analysis of our fluid services operations for each of the quarters ended
December 31, 2005 and the quarters ended March 31, 2006 and June 30, 2006 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
|
|
Weighted |
|
|
|
|
|
Profits |
|
|
|
|
Average |
|
|
|
|
|
Per |
|
|
|
|
Number of |
|
Revenue Per |
|
Fluid |
|
|
|
|
Fluid Service |
|
Fluid Service |
|
Service |
|
Segment |
|
|
Trucks |
|
Truck |
|
Truck |
|
Profits % |
2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
435 |
|
|
$ |
67 |
|
|
$ |
24 |
|
|
|
34.30 |
% |
Second Quarter |
|
|
447 |
|
|
$ |
71 |
|
|
$ |
26 |
|
|
|
37.00 |
% |
Third Quarter |
|
|
465 |
|
|
$ |
74 |
|
|
$ |
28 |
|
|
|
38.60 |
% |
Fourth Quarter |
|
|
472 |
|
|
$ |
79 |
|
|
$ |
31 |
|
|
|
39.80 |
% |
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
529 |
|
|
$ |
82 |
|
|
$ |
32 |
|
|
|
39.00 |
% |
Second Quarter |
|
|
568 |
|
|
$ |
86 |
|
|
$ |
34 |
|
|
|
39.90 |
% |
We gauge activity levels in our fluid services segment based on revenue and segment profits
per fluid service truck.
The majority of the increase in revenue per fluid services truck from $71,000 in the second
quarter of 2005 to $86,000 in the second quarter of 2006 is due to the revenues derived from the
expansion of our frac tank fleet and disposal facilities as well as increases in prices charged for
our services. Our segment profits per fluid services truck have increased because of these factors
and increased utilization of our equipment.
Drilling and Completion Services
During the first six months of 2006, our drilling and completion services segment represented
20% of our revenues. Revenues from our drilling and completion services segment are generally
derived from a variety of services designed to stimulate oil and gas production or place cement
slurry within the wellbores. Our drilling and completion services segment includes pressure
pumping, cased-hole wireline services, underbalanced drilling and fishing and rental tool
operations.
Our pressure pumping operations concentrate on providing single-truck, lower horsepower
cementing, acidizing and fracturing services in selected markets. We entered the fishing and rental
tool business through our acquisition of G&L in the first quarter of 2006.
In this segment, we generally derive our revenues on a project-by-project basis in a
competitive bidding process. Our bids are generally based on the amount and type of equipment and
personnel required, with the materials consumed billed separately. During periods of decreased
spending by oil and gas companies, we may be required to discount our rates to remain competitive,
which would cause lower segment profits.
24
The following is an analysis of our drilling and completion services for each of the quarters
ended December 31, 2005 and the quarters ended March 31, 2006 and June 30, 2006 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
Revenues |
|
Profits % |
2005 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
10,764 |
|
|
|
45.60 |
% |
Second Quarter |
|
$ |
13,512 |
|
|
|
49.10 |
% |
Third Quarter |
|
$ |
15,883 |
|
|
|
48.20 |
% |
Fourth Quarter |
|
$ |
19,673 |
|
|
|
49.50 |
% |
2006 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
27,455 |
|
|
|
49.50 |
% |
Second Quarter |
|
$ |
40,939 |
|
|
|
53.10 |
% |
We gauge the performance of our drilling and completion services segment based on the
segments operating revenues and segment profits. Improved market conditions since the first
quarter of 2005 have enabled us to increase our pricing for these services, contributing to the
improved segment profits as a percentage of segment revenues.
Well Site Construction Services
During the first six months of 2006, our well site construction services segment represented
7% of our revenues. Revenues from our well site construction services segment are derived primarily
from preparing and maintaining access roads and well locations, installing small diameter gathering
lines and pipelines, constructing foundations to support drilling rigs and providing maintenance
services for oil and gas facilities. These services are independent of our other services and,
while offered to some customers utilizing other services, are not offered on a bundled basis.
Within this segment, we generally charge established hourly rates or competitive bid for
projects depending on customer specifications and equipment and personnel requirements. This
segment allows us to perform services to customers outside the oil and gas industry, since
substantially all of our power units are general purpose construction equipment. However, the
majority of our current business in this segment is with customers in the oil and gas industry. If
our customer base has the demand for certain types of power units that we do not currently own, we
generally purchase or lease them without significant delay.
The following is an analysis of our well site construction services for each of the quarters
ended December 31, 2005 and the quarters ended March 31, 2006 and June 30, 2006 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
Revenues |
|
Profits % |
2005 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
8,948 |
|
|
|
20.6 |
% |
Second Quarter |
|
$ |
10,918 |
|
|
|
30.8 |
% |
Third Quarter |
|
$ |
11,367 |
|
|
|
31.6 |
% |
Fourth Quarter |
|
$ |
14,414 |
|
|
|
33.6 |
% |
2006 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
10,265 |
|
|
|
25.50 |
% |
Second Quarter |
|
$ |
12,879 |
|
|
|
31.50 |
% |
We gauge the performance of our well site construction services segment based on the segments
operating revenues and segment profits. While we monitor our levels of idle equipment, we do not
focus on revenues per piece of equipment. To the extent we believe we have excess idle power units,
we may be able to divest ourselves of certain types of power units.
Operating Cost Overview
Our operating costs are comprised primarily of labor, including workers compensation and
health insurance, repair and maintenance, fuel and insurance. A majority of our employees are paid
on an hourly basis. With a reduced pool of workers in the industry, it is possible that we will
have to raise wage rates to attract workers from other fields and retain or expand our current work
force. We believe we will be able to increase service rates to our
25
customers to compensate for wage rate increases. We also incur costs to employ personnel to
sell and supervise our services and perform maintenance on our fleet. These costs are not directly
tied to our level of business activity. Compensation for our administrative personnel in local
operating yards and in our corporate office is accounted for as general and administrative
expenses. Repair and maintenance is performed by our crews, company maintenance personnel and
outside service providers. Insurance is generally a fixed cost regardless of utilization and
relates to the number of rigs, trucks and other equipment in our fleet, employee payroll and safety
record.
Critical Accounting Policies and Estimates
Our consolidated financial statements are impacted by the accounting policies used and the
estimates and assumptions made by management during their preparation. A complete summary of these
policies is included in note 2 of the notes to our historical unaudited consolidated financial
statements included in this report. The following is a discussion of our critical accounting
policies and estimates.
Critical Accounting Policies
We have identified below accounting policies that are of particular importance in the
presentation of our financial position, results of operations and cash flows and which require the
application of significant judgment by management.
Property and Equipment. Property and equipment are stated at cost, or at estimated fair value
at acquisition date if acquired in a business combination. Expenditures for repairs and maintenance
are charged to expense as incurred.
Impairments. We review our assets for impairment at a minimum annually, or whenever, in
managements judgment, events or changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recovered over its remaining service life. Provisions for asset
impairment are charged to income when the sum of the estimated future cash flows, on an
undiscounted basis, is less than the assets carrying amount. When impairment is indicated, an
impairment charge is recorded based on an estimate of future cash flows on a discounted basis.
Self-Insured Risk Accruals. We are self-insured up to retention limits with regard to workers
compensation and medical and dental coverage of our employees. We generally maintain no physical
property damage coverage on our workover rig fleet, with the exception of certain of our 24-hour
workover rigs and newly manufactured rigs. We have deductibles per occurrence for workers
compensation and medical and dental coverage of $150,000 and $125,000 respectively. We have lower
deductibles per occurrence for automobile liability and general liability. We maintain accruals in
our consolidated balance sheets related to self-insurance retentions by using third-party data and
historical claims history.
Revenue Recognition. We recognize revenues when the services are performed, collection of the
relevant receivables is probable, persuasive evidence of the arrangement exists and the price is
fixed and determinable.
Income Taxes. We account for income taxes based upon Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS No. 109). Under SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using statutory tax rates
expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rate is recognized in the period that includes the statutory enactment date. A valuation allowance
for deferred tax assets is recognized when it is more likely than not that the benefit of deferred
tax assets will not be realized.
Critical Accounting Estimates
The preparation of our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires management to make
certain estimates and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet
date and the amounts of revenues and expenses recognized during the reporting period. We analyze
our estimates based on historical experience and various other assumptions that we
26
believe to be reasonable under the circumstances. However, actual results could differ from
such estimates. The following is a discussion of our critical accounting estimates.
Depreciation and Amortization. In order to depreciate and amortize our property and equipment
and our intangible assets with finite lives, we estimate the useful lives and salvage values of
these items. Our estimates may be affected by such factors as changing market conditions,
technological advances in industry or changes in regulations governing the industry.
Impairment of Property and Equipment. Our impairment of property and equipment requires us to
estimate undiscounted future cash flows. Actual impairment charges are recorded using an estimate
of discounted future cash flows. The determination of future cash flows requires us to estimate
rates and utilization in future periods and such estimates can change based on market conditions,
technological advances in industry or changes in regulations governing the industry.
Allowance for Doubtful Accounts. We estimate our allowance for doubtful accounts based on an
analysis of historical collection activity and specific identification of overdue accounts. Factors
that may affect this estimate include (1) changes in the financial positions of significant
customers and (2) a decline in commodity prices that could affect the entire customer base.
Litigation and Self-Insured Risk Reserves. We estimate our reserves related to litigation and
self-insure risk based on the facts and circumstances specific to the litigation and self-insured
risk claims and our past experience with similar claims. The actual outcome of litigated and
insured claims could differ significantly from estimated amounts. As discussed in - Self-Insured
Risk Accruals above with respect to our critical accounting policies, we maintain accruals on our
balance sheet to cover self-insured retentions. These accruals are based on certain assumptions
developed using third-party data and historical data to project future losses. Loss estimates in
the calculation of these accruals are adjusted based upon actual claim settlements and reported
claims.
Fair Value of Assets Acquired and Liabilities Assumed. We estimate the fair value of assets
acquired and liabilities assumed in business combinations, which involves the use of various
assumptions. These estimates may be affected by such factors as changing market conditions,
technological advances in industry or changes in regulations governing the industry. The most
significant assumptions, and the ones requiring the most judgment, involve the estimated fair value
of property and equipment, intangible assets and the resulting amount of goodwill, if any. Our
adoption of SFAS No. 142 on January 1, 2002 requires us to test annually for impairment the
goodwill and intangible assets with indefinite useful lives recorded in business combinations. This
requires us to estimate the fair values of our own assets and liabilities at the reporting unit
level. Therefore, considerable judgment, similar to that described above in connection with our
estimation of the fair value of acquired company, is required to assess goodwill and certain
intangible assets for impairment.
Cash Flow Estimates. Our estimates of future cash flows are based on the most recent available
market and operating data for the applicable asset or reporting unit at the time the estimate is
made. Our cash flow estimates are used for asset impairment analyses.
Stock-Based Compensation.
On January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123R, Share-Based Payment (SFAS No. 123R). Prior to January 1, 2006,
we accounted for share-based payments under the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock issued to Employees (APB No.
25) which was permitted by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123).
We adopted SFAS No. 123R using both the modified prospective method and the prospective method
as applicable to the specific awards granted. The modified prospective method was applied to awards
granted subsequent to the Company becoming a public company. Awards granted prior to the Company
becoming public and which were accounted for under APB No. 25 were adopted by using the prospective
method. The results of prior periods have not been restated. Compensation expense cost of the
unvested portion of awards granted as a private
27
company and outstanding as of January 1, 2006 will continue to be based upon the intrinsic
value method calculated under APB No. 25.
The fair value of common stock for options granted from July 1, 2004 through September 30,
2005 was estimated by management using an internal valuation methodology. We did not obtain
contemporaneous valuations by an unrelated valuation specialist because we were focused on internal
growth and acquisitions and because we had consistently used our internal valuation methodology for
previous stock awards.
We used a market approach to estimate our enterprise value at the dates on which options were
granted. Our market approach uses estimates of EBITDA and cash flows multiplied by relevant market
multiples. We used market multiples of publicly traded energy service companies that were supplied
by investment bankers in order to estimate our enterprise value. The assumptions underlying the
estimates are consistent with our business plan. The risks associated with achieving our forecasts
were assessed in the multiples we utilized. Had different multiples been utilized, the valuations
would have been different.
Income Taxes. The amount and availability of our loss carryforwards (and certain other tax
attributes) are subject to a variety of interpretations and restrictive tests. The utilization of
such carryforwards could be limited or lost upon certain changes in ownership and the passage of
time. Accordingly, although we believe loss carryforwards are available to us, no assurance can be
given concerning the realization of such loss carryforwards, or whether or not such loss
carryforwards will be available in the future.
Asset Retirement Obligations. SFAS No. 143 requires us to record the fair value of an asset
retirement obligation as a liability in the period in which it incurs a legal obligation associated
with the retirement of tangible long-lived assets and to capitalize an equal amount as a cost of
the asset, depreciating it over the life of the asset. Subsequent to the initial measurement of the
asset retirement obligation, the obligation is adjusted at the end of each quarter to reflect the
passage of time, changes in the estimated future cash flows underlying the obligation, acquisition
or construction of assets, and settlement of obligations.
Results of Operations
The results of operations between periods will not be comparable, primarily due to the
significant number of acquisitions made and their relative timing in the year acquired. See note 3
of the notes to our historical consolidated financial statements for more detail.
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
Revenues. Revenues increased 67% to $183.8 million during the second quarter of 2006 from $109.8
million during the same period in 2005. This increase was primarily due to the internal expansion
of our business segments, particularly well servicing and fluid services, and in part due to
acquisitions. The pricing and utilization of our services, and thus related revenues, improved due
to the increase in well maintenance and drilling activity caused by higher oil and gas prices.
Well servicing revenues increased 51% to $81.2 million during second quarter of 2006 compared to
$53.9 million during the same period in 2005. This increase was due primarily to the internal
growth of this segment as well as an increase in our revenue per rig hour of approximately 31%,
from $280 per hour to $366 per hour. Our weighted average number of rigs increased to 341 during the
second quarter in 2006 compared to 303 in the same period in 2005, an increase of approximately
13%. In addition, the utilization rate of our rig fleet increased to 91.0% during the second
quarter of 2006 compared to 88.8% in the same period in 2005.
Fluid services revenues increased 55% to $48.9 million during the second quarter of 2006
compared to $31.5 million in the same period in 2005. The increase in revenue was due primarily to
our internal growth of this segment. Our weighted average number of fluid service trucks increased
to 568 during the second quarter in 2006 compared to 447 in the same period in 2005, an increase of
approximately 27%. The increase in weighted average number of fluid service trucks is primarily due to
internal expansion as well as the trucks added from the LeBus acquisition. During the second quarter of 2006, our average revenue per fluid service truck was approximately $86,000 as compared
to approximately $71,000 in the same period in 2005. The increase in average revenue per fluid
service
28
truck reflects the expansion of our frac tank fleet and saltwater disposal operations, and
increases in prices charged for our services.
Drilling and completion services revenue increased 203% to $40.9 million during second quarter
of 2006 as compared to $13.5 million in the same period in 2005. The increase in revenue between these
periods was primarily the result of internal expansion, the acquisition of Oilwell Fracturing
Services in October 2005, the acquisition of G&L during February 2006 and improved pricing and
utilization of our services.
Well-site construction services revenue increased 18% to $12.9 million during second quarter
of 2006 as compared to $10.9 million during the same period in 2005.
Direct Operating Expenses. Direct operating expenses, which primarily consist of labor,
including workers compensation and health insurance, and maintenance and repair costs, increased
52% to $102.9 million during the second quarter of 2006 from $67.6 million in the same period in
2005 primarily as a result of additional rigs and trucks, as well as higher utilization of our
equipment. Operating expenses decreased to 56% of revenue for the second quarter of 2006 from 62% in
the same period in 2005, as fixed operating costs such as field supervision, insurance and vehicle
expenses were spread over a higher revenue base. We also benefited from higher utilization and
increased pricing of our services.
Direct operating expenses for the well servicing segment increased 37% to $45.5 million in the
second quarter of 2006 compared to $33.3 million in the same period in 2005 primarily due to the
internal growth of this segment. Segment profits for this segment increased to 43.9% of revenues
during the second quarter of 2006 compared to 38.2% in the same period in 2005 primarily due to the
improved pricing and higher utilization of our equipment.
Direct operating expenses for the fluid services segment increased 48% to $29.3 million in the
second quarter of 2006 compared to $19.9 million in the same period in 2005 primarily due to increased
activity and expansion of our fluid services fleet. Segment profits for this segment increased to
39.9% of revenues during the second quarter of 2006 compared to 37.0% in the same period in 2005
primarily due to the expansion of our frac tank fleet and saltwater disposal operations, and
increases in prices charged for our services.
Direct operating expenses for the drilling and completion services segment increased 179% to
$19.2 million during the second quarter of 2006 compared to $6.9 million in the same period in 2005
primarily due to the increased activity and expansion of our services and equipment, including the
G&L acquisition. Segment profits for this segment increased to 53.1% of revenues during the second
quarter of 2006 compared to 49.1% in the same period in 2005.
Direct operating expenses for the well-site construction services segment increased 17% to
$8.8 million during the second quarter of 2006 compared to $7.6 million in the same period in 2005.
Segment profits for this segment increased to 31.5% of revenues during the second quarter
of 2006
compared to 30.8% in the same period in 2005.
General and Administrative Expenses. General and administrative expenses increased 51% to
$20.1 million during the second quarter of 2006 from $13.4 million in the same period in 2005. The
increase primarily reflects higher salary and office expenses related to the expansion of our
business as well as additional staffing to enhance internal controls as a public company.
Depreciation and Amortization Expenses. Depreciation and amortization expenses were $15.1
million during the second quarter of 2006 and $8.8 million in the same period in 2005, reflecting the
increase in the size and investment in our asset base. We invested $11.5 million for acquisitions
and an additional $24.0 million for capital expenditures, including capital leases, during the
second quarter of 2006.
Interest Expense. Interest expense was $4.6 million during the second quarter of 2006 compared
to $3.1 million in the same period in 2005.
Loss on Early Extinguishment of Debt.
Loss on early extinguishment of debt was $2.7 million during the three months ended June 30, 2006 compared to $0 in the same period in 2005. The loss was related to the payment in full of the
Term B Loan.
Income Tax Expense (Benefit). Income tax expense was $13.5 million during the second quarter
of 2006 compared to $6.5 million in the same period in 2005, reflecting the improvement in our
profitability. Our effective tax rate for the three months ended June 30, 2006 and 2005 was
approximately 36% and 38%, respectively.
29
Net Income. Our net income increased to $24.5 million during the second quarter of 2006 from
$10.7 million in the same period in 2005. This improvement was due primarily to the factors
described above, including our increased asset base and related revenues, higher utilization rates
and increased revenues per rig and fluid service truck, and higher operating margins on our
drilling and completion services equipment.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Revenues. Revenues increased 66% to $338.1 million in the first six months in 2006 from $203.6
million during the same period in 2005. This increase was primarily due to the internal expansion
of our business segments, particularly well servicing and fluid services, and in part due to
acquisitions. The pricing and utilization of our services, and thus related revenues, improved due
to the increase in well maintenance and drilling activity caused by higher oil and gas prices.
Well servicing revenues increased 57% to $154.6 million during the first six months in 2006
compared to $98.7 million during the same period in 2005. This increase was due primarily to the
internal growth of this segment as well as an increase in our revenue per rig hour of approximately
34%, from $268 per hour to $359 per hour. Our weighted average number of rigs increased to
336 during the first six months in 2006 compared to 298 in the same period in 2005, an increase of
approximately 13%. In addition, the utilization rate of our rig fleet increased to 89.7% during the
first six months of 2006 compared to 86.3% in the same period in 2005.
Fluid services revenues increased 51% to $92.0 million during the first six months in 2006 as
compared to $60.8 million in the same period in 2005. The increase in revenue was due primarily to
our internal growth of this segment. Our weighted average number of fluid service trucks increased
to 559 during the first six months in 2006 compared to 443 in the same period in 2005, an increase
of approximately 26%. The increase in weighted average number of fluid service trucks is primarily due to
internal expansion as well as the trucks added from the LeBus acquisition. During the first six
months in 2006, our average revenue per fluid service truck was approximately $165,000 as compared
to approximately $137,000 in the same period in 2005. The increase in average revenue per fluid
service truck reflects the expansion of our frac tank fleet and saltwater disposal operations, and
increases in prices charged for our services.
Drilling and completion services revenue increased 182% to $68.4 million during the first six
months in 2006 as compared to $24.3 million in the same period in 2005. The increase in revenue
between these periods was primarily the result of internal expansion, the acquisition of Oilwell
Fracturing Services in October 2005, the acquisition of G&L during February 2006 and improved
pricing and utilization of our services.
Well-site construction services revenue increased 17% to $23.1 million during the first six
months in 2006 as compared to $19.9 million during the same period in 2005.
Direct Operating Expenses. Direct operating expenses, which primarily consist of labor,
including workers compensation and health insurance, and maintenance and repair costs, increased
50% to $192.3 million during the first six months of 2006 from $128.0 million in the same period in
2005 primarily as a result of additional rigs and trucks, as well as higher utilization of our
equipment. Operating expenses decreased to 57% of revenue for the first six months of 2006 from 63%
in the same period in 2005, as fixed operating costs such as field supervision, insurance and
vehicle expenses were spread over a higher revenue base. We also benefited from higher utilization
and increased pricing of our services.
Direct operating expenses for the well servicing segment increased 42% to $87.1 million in the
first six months of 2005 compared to $61.5 million in the same period in 2005 primarily due to the
internal growth of this segment. Segment profits for this segment increased to 43.6% of revenues
during the first six months of 2006 compared to 37.7% in the same period in 2005 primarily due to
the improved pricing and higher utilization of our equipment.
Direct operating expenses for the fluid services segment increased 42% to $55.6 million in the
first six months of 2006 compared to $39.1 million in the same period in 2005 primarily due to
increased activity and expansion of our fluid services fleet. Segment profits for this segment
increased to 39.5% of revenues during the first six months of 2006 compared to 35.7% in the same
period in 2005 primarily due to the expansion of our frac tank fleet and saltwater disposal
operations, and increases in prices charged for our services.
30
Direct operating expenses for the drilling and completion services segment increased 159% to
$33.0 million during the first six months of 2006 compared to $12.7 million in the same period in
2005 primarily due to the increased activity and expansion of our services and equipment, including
the G&L acquisition. Segment profits for this segment increased to 51.7% of revenues during the
first six months of 2006 compared to 47.6% in the same period in 2005.
Direct operating expenses for the well-site construction services segment increased 12% to
$16.5 million during the first six months of 2006 compared to $14.7 million in the same period in
2005. Segment profits for this segment increased to 28.9% of revenues during the first six months
of 2006 compared to 26.2% in the same period in 2005.
General and Administrative Expenses. General and administrative expenses increased 44% to
$38.1 million during the first six months of 2006 from $26.5 million in the same period in 2005.
The increase primarily reflects higher salary and office expenses related to the expansion of our
business as well as additional staffing to enhance internal controls as a public company.
Depreciation and Amortization Expenses. Depreciation and amortization expenses were $28.0
million for the first six months of 2006 and $16.8 million in the same period in 2005, reflecting
the increase in the size and investment in our asset base. We invested $99.0 million for
acquisitions and an additional $48.8 million for capital expenditures, including capital leases, in
the first six months in 2006.
Interest Expense. Interest expense was $7.8 million during the first six months of 2006
compared to $6.2 million in the same period in 2005.
Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt
was $2.7 million during the six months ended June 30, 2006 compared to $0
in same period in 2005. The loss related to the payment in full of the Term B Loan.
Income Tax Expense (Benefit). Income tax expense was $25.3 million during the first six months
of 2006 compared to $10.0 million in the same period in 2005, reflecting the improvement in our
profitability. Our effective tax rate in the first six months of 2006 and 2005 was approximately
36% and 38%.
Net Income. Our net income increased to $44.2 million during the first six months of 2006 from
$16.6 million in the same period in 2005. This improvement was due primarily to the factors
described above, including our increased asset base and related revenues, higher utilization rates
and increased revenues per rig and fluid service truck, and higher operating margins on our
drilling and completion services equipment.
Liquidity and Capital Resources
Our primary capital resources are currently net cash flows from our operations, utilization of
capital leases as allowed under our credit facility and availability under our credit facility, of
which approximately $140.4 million was available at June 30, 2006. Also, we issued $225.0 million
of senior notes in April of 2006. As of June 30, 2006, we had cash and cash equivalents of $37.5
million compared to $14.1 million as of June 30, 2005. We have utilized, and expect to utilize in
the future, bank and capital lease financing and sales of equity to obtain capital resources. When
appropriate, we will consider public or private debt and equity offerings and non-recourse
transactions to meet our liquidity needs.
Net Cash Provided by Operating Activities
Cash flow from operating activities was $51.0 million during the first six months of 2006 as
compared to $44.8 million during the same period in 2005. The increase in operating cash flows in
the first six months of 2006 over the same period in 2005 was primarily due to expansion of our
fleet and improvements in the segment profits, utilization of our equipment.
Capital Expenditures
Capital expenditures are the main component of our investing activities. Cash capital
expenditures (including for acquisitions) for the first six months of 2006 were $147.8 million as
compared to $45.4 million for the same period in 2005. In 2006 and 2005, the majority of our
capital expenditures were for the expansion of our fleet. We also added assets through our capital
lease program of approximately $12.1 million during the first six months of 2006 compared to $3.6
million in the same period in 2005.
31
For 2006, we currently have planned approximately $93 million in cash capital expenditures,
none of which is planned for acquisitions. We do not budget acquisitions in the normal course of
business, but we completed four acquisitions for total consideration paid of $99.0 million, net of
cash acquired, during the first six months of 2006 and expect to make additional acquisitions in
2006. The $93 million of capital expenditures planned for property and equipment is primarily for
(1) purchase of additional equipment to expand our services, (2) continued refurbishment of our
well servicing rigs and (3) replacement of existing equipment. We have taken delivery of 54
newbuild will servicing rigs since October 2004 as part of a 102-rig newbuild commitment. The
remainder of these newbuilds is scheduled to be delivered to us prior to the end of December 2007.
As of June 30, 2006, we had three executed letters of intent. The executed letters of intent related to
acquisitions completed in July of 2006 and August of 2006 for approximately $14.2 million.
We regularly engage in discussions related to potential acquisitions related to the well
services industry. At present, we have not entered into any agreement, commitment or understanding
with respect to any significant acquisition as significant is defined under SEC rules.
Capital Resources and Financing
Our current primary capital resources are cash flow from our operations, the ability to enter
into capital leases of up to an additional $20.9 million at June 30, 2006, the availability under
our credit facility of $140.4 million at June 30, 2006 and a cash balance of $37.5 million at June
30, 2006. During the first six months of 2006, we financed activities in excess of cash flow from
operations primarily through the use of bank debt and capital leases.
At June 30, 2006, of the $150.0 million in financial commitments under the revolving line of
credit under our senior credit facility, there was only $140.4 million of available capacity due to
the outstanding balance of $9.6 million of outstanding standby letters of credit. In the normal
course of business, we have performance obligations which are supported by surety bonds and letters
of credit. These obligations primarily cover various reclamation and plugging obligations related
to our operations, and collateral for future workers compensation and liability retained losses.
Our ability to access additional sources of financing will be dependent on our operating cash
flows and demand for our services, which could be negatively impacted due to the extreme volatility
of commodity prices.
Senior Notes
In April 2006, the Company completed a private offering for $225,000,000 aggregate principal
amount of 7.125% Senior Notes due April 15, 2016 (Senior Notes). The net proceeds from the offering
were used to retire the outstanding Term B Loan balance and to pay down the outstanding balance
under the revolving credit facility. Remaining proceeds were used for general corporate purposes,
including acquisitions.
2005 Credit Facility
Under our Third Amended and Restated Credit Agreement with a syndicate of lenders (the 2005
Credit Facility), as amended effective March 28, 2006, Basic Energy Services, Inc. is the sole
borrower and each of our subsidiaries is a subsidiary guarantor. The 2005 Credit Facility provided
for a $90 million Term B Loan (Term B Loan), which outstanding balance was repaid in April 2006,
and provides for a $150 million revolving line of credit (Revolver). The 2005 Credit Facility
includes provisions allowing us to request an increase in commitments of up to $75 million at any
time.
The commitment under the Revolver provides for (1) the borrowing of funds, (2) the issuance of
up to $30 million of letters of credit and (3) $2.5 million of swing-line loans. The amounts
outstanding under the Term B Loan required quarterly amortization at various amounts during each
quarter with all amounts outstanding being due and payable in full on December 15, 2011. All the
outstanding amounts under the Revolver are due and payable on December 15, 2010. The 2005 Credit
Facility is secured by substantially all of our tangible and intangible assets.
32
At our option, borrowings under the Term B Loan bear interest at either (1) the Alternative
Base Rate (i.e., the higher of the banks prime rate or the federal funds rate plus .50% per year)
plus 1.0% or (2) the London Interbank Offered Rate (LIBOR) rate plus 2.0%.
At our option, borrowings under the Revolver bear interest at either (1) the Alternative Base
Rate plus a margin ranging from 0.50% to 1.25% or (2) the LIBOR rate plus a margin ranging from
1.50% to 2.25%. The margins vary depending on our leverage ratio. Fees on the letters of credit are
due quarterly on the outstanding amount of the letters of credit at a rate ranging from 1.50% to
2.25% for participation fees and 0.125% for fronting fees. A commitment fee is due quarterly on the
available borrowings under the Revolver at rates ranging from 0.375% to 0.50%.
At June 30, 2006, we had no outstanding borrowings under the Term B Loan or Revolver.
Pursuant to the 2005 Credit Facility, we must apply proceeds from certain specified events to
reduce principal outstanding under the Term B Loan, to the extent outstanding, and then to the
Revolver, including:
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assets sales greater than $2.0 million individually or $7.5 million in the aggregate on an annual basis; |
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50% of the proceeds from any equity offering; |
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proceeds of any issuance of debt not permitted by the 2005 Credit Facility; |
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proceeds of permitted unsecured indebtedness, such as the Senior Notes, without
reducing commitments under the revolver; and |
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proceeds in excess of $2.5 million from casualty events. |
Prior to the date on which all Term B Loans were paid in April 2006, the 2005 Credit Facility
required us to enter into an interest rate hedge, acceptable to the lenders, until May 28, 2006 on
at least $65 million of our then-outstanding indebtedness.
The 2005 Credit Facility contains various restrictive covenants and compliance requirements,
including the following:
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limitations on the incurrence of additional indebtedness; |
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restrictions on mergers, sales or transfer of assets without the lenders consent; |
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limitation on dividends and distributions; |
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limitations on capital expenditures; and |
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various financial covenants, including: |
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a maximum leverage ratio of 3.50 to 1.00 reducing to 3.25 to 1.00, and |
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a minimum interest coverage ratio of 3.00 to 1.00. |
The 2005 Credit Facility contains customary events of default, which are subject to customary
grace periods and materiality standards, including, among others, events of default upon the
occurrence of: (1) non-payment of any amounts payable under the 2005 Credit Facility when due; (2)
any representation or warranty made in connection with the 2005 Credit Facility being incorrect in
any material respect when made or deemed made; (3) default in the observance or performance of any
covenant, condition or agreement contained in the 2005 Credit Facility or related loan documents
and such default shall continue unremedied or shall not be waived for 30 days; (4) failure to make
payments on other indebtedness involving in excess of $1.0 million; (5) voluntary or involuntary
bankruptcy, insolvency or reorganization of us or any of our subsidiaries; (6) entry of fines or
judgments against us for payment
33
of an amount in excess of $2.5 million; (7) an ERISA event which could reasonably be expected
to cause a material adverse effect or the imposition of a lien on any of our assets; (8) any
security agreement or document under the 2005 Credit Facility ceases to create a lien on any assets
securing the 2005 Credit Facility; (9) any guarantee ceases to be in full force and effect; (10)
any material provision of the 2005 Credit Facility ceases to be valid and binding or enforceable;
(11) a change of control as defined in the 2005 Credit Agreement; of (12) any determination,
ruling, decision, decree or order of any governmental authority, which prohibits or restrains Basic
and its subsidiaries from conducting business and that could reasonably be expected to cause a
material adverse effect.
Other Debt
We have a variety of other capital leases and notes payable outstanding that is generally
customary in our business. None of these debt instruments are material individually or in the
aggregate. As of June 30, 2006, we had total capital leases of approximately $29.1 million.
Credit Rating Agencies
Effective November 22, 2005, we received credit ratings of Ba3 from Moodys and B+ from
Standard & Poors for the 2005 Credit Facility.
We received initial credit ratings of B1 from Moodys and B from Standard & Poors for the
Senior Notes issued in April 2006.
None of our debt or other instruments is dependent upon our credit ratings. However, the
credit ratings may affect our ability to obtain financing in the future.
Other Matters
Net Operating Losses
We used all of our then-available net operating losses for federal income tax purposes when we
completed a recapitalization in December 2000, which included a significant amount of debt
forgiveness. In 2002, our profitability suffered and, when combined with a significant level of
capital expenditures, we ended 2002 with a net operating loss, or NOL, of $30.4 million. In 2003,
we returned to profitability, but we again made significant investments in existing equipment,
additional equipment and acquisitions. Due to these events, we again reported a tax loss in 2003
and ended the year with a $50.7 million NOL, including $7.0 million that was included in the
purchase of FESCO. As of December 31, 2005, we had approximately $4.9 million of NOL carryforwards
related to the pre-acquisition period of FESCO, which is subject to an annual limitation of
approximately $900,000. The carryforwards begin to expire in 2017.
Recent Accounting Pronouncements
See discussion above in Critical Accounting Estimates and note 2 of the notes to the
unaudited consolidated financial statements included under Item 1 of this quarterly report
regarding Statement of Financial Accounting Standard 123 (revised 2004) Share-based Payment and
Financial Interpretation No. 48 (FIN No. 48) Accounting for Uncertainty in Income Taxes.
Impact of Inflation on Operations
Management is of the opinion that inflation has not had a significant impact on our business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2006,
we had no outstanding borrowings subject to variable interest
rate risk. In April 2006, we completed a private offering for $225,000,000 aggregate
principal amount of 7.125% Senior Notes. The net proceeds from the offering were used to retire the
outstanding Term B Loan balance and to pay down
34
the outstanding balance under the revolving credit facility.
When the Term B Loan was
retired, we settled an existing interest rate swap agreement and realized a gain on settlement of $287,000.
However, we do have
available borrowing capacity under the revolving credit facility, and we will be subject to variable interest rate
risk in the event we have outstanding borrowings
under the revolving credit facility in the future.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Based on their
evaluation as of the end of the period covered by this report, our principal
executive officer and principal financial officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to
ensure that information required to be disclosed in reports that we file or submit under the
Exchange Act are recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms.
Internal Control Over Financial Reporting
During the most recent fiscal quarter, there have been no changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
35
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 3, 2004, David Hudson, Jr. et al commenced a civil action against us in the
District Court of Panola County, Texas, 123rd Judicial District, David Hudson, Jr., et al v. Basic
Energy Services Company, Cause No. 2004-A-137. The complaint alleged that our operation of a
saltwater disposal well has contaminated both the groundwater and the soil in the surrounding area.
The relief requested in the complaint was monetary damages, injunctive relief, environmental
remediation and a court order requiring us to provide drinking water to the community. This matter
was settled in April 2006 for an immaterial amount.
On October 18, 2005, Clifford Golden et al. commenced a civil action against us in the 123rd
Judicial District Court of Panola County, Texas, Clifford Golden et al. v. Basic Energy Services,
LP. The factual basis for this complaint and relief are similar to the Hudson litigation, including
claims that our operation of a saltwater disposal well has contaminated both the groundwater and
the soil in the surrounding area. In addition, this complaint alleges a wrongful death and personal
injuries to unspecified persons. In response to this complaint, we have retained counsel and intend
to defend ourselves vigorously in this action.
We are subject to other claims in the ordinary course of business. However, we believe that
the ultimate dispositions of the above mentioned and other current legal proceedings will not have
a material adverse effect on our financial condition or results of operations.
Neither Basic, nor any entity required to be consolidated with Basic for purposes of this
report, has been required to pay a penalty to the Internal Revenue Service for failing to make
disclosures required with respect to certain transactions that have been identified by the Internal
Revenue Service as abusive or that have a significant tax avoidance.
ITEM 1A. RISK FACTORS
The
following reflects the material changes from the information
previously reported under Item 1A of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2005. The
information presented below updates, and should be read in
conjunction with, the risk factors and other information contained in
our Annual Report on Form 10-K.
Our
2005 Credit Facility and the indenture governing our Senior Notes
impose restrictions on us that may affect our ability to successfully
operate our business.
Our
2005 Credit Facility and the indenture governing our Senior Notes
limit our ability to take various actions, such as:
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limitations on the incurrence of additional indebtedness; |
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restrictions on mergers, sales or transfer of assets without the lenders consent; and |
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limitation on dividends and distributions. |
In
addition, our 2005 Credit Facility requires us to maintain certain
financial ratios and to satisfy certain financial conditions and
covenants, several of which become more restrictive over time and may
require us to reduce our debt or take some other action in order to
comply with them. The failure to comply with any of these financial
conditions, financial ratios or covenants would cause a default under
our 2005 Credit Facility. A default, if not waived, could result in
acceleration of the outstanding indebtedness under our 2005 Credit
Facility, in which case the debt would become immediately due and
payable. In addition, a default or acceleration of indebtedness under
our 2005 Credit Facility could result in a default or acceleration of
our Senior Notes or other indebtedness with cross-default or
cross-acceleration provisions. If this occurs, we may not be able to
pay our debt or borrow sufficient funds to refinance it. Even if new
financing is available, it may not be available on terms that are
acceptable to us. These restrictions could also limit our ability to
obtain future financings, make needed capital expenditures, withstand
a downturn in our business or the economy in general, or otherwise
conduct necessary corporate activities. We also may be prevented from
taking advantage of business opportunities that arise because of the
limitations imposed on us by the restrictive covenants under our 2005
Credit Facility. Please read Managements Discussion and
Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources 2005 Credit Facility for
a discussion of our 2005 Credit Facility.
36
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
None during the three months ended June 30, 2006.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None during the three months ended June 30,
2006.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our Annual Meeting of Stockholders (the Annual Meeting) on May 9, 2006 in Midland,
Texas to elect three directors to serve until the Annual Meeting of Stockholders in 2009 and to
approve the ratification of the appointment of KPMG LLP as our independent auditor for fiscal year
2006. A total of 30,238,679 shares of our common stock were present at the meeting in person or by
proxy, which represented 89.5% of the outstanding shares of our common stock as of March 30, 2006,
the record date for the Annual Meeting.
Director nominees were elected at the Annual Meeting based on the following vote tabulation:
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Votes in Favor |
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Votes Withheld |
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Sylvester P. Johnson, IV |
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29,211,663 |
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1,027,016 |
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Steven A. Webster |
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23,414,700 |
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6,823,979 |
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H. H. Wommack, III |
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23,818,987 |
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6,419,692 |
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The directors with terms of office continuing after the Annual Meeting are as follows:
Directors with terms expiring in 2007
William E. Chiles
Robert F. Fulton
Directors with terms expiring in 2008
James S. DAgostino
Kenneth V. Huseman
Thomas P. Moore, Jr.
Stockholders approved the ratification of the appointment of KPMG LLP as our independent
auditor for fiscal year 2006 at the Annual Meeting based on the following vote tabulation:
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For 30,161,988
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Against 58,977
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Abstentions 17,714
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37
ITEM 6. EXHIBITS
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Exhibit |
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No. |
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Description |
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3.1* |
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Amended and Restated Certificate of Incorporation of the Basic Energy Services,
Inc. (the Company), dated September 22, 2005. (Incorporated by reference to
Exhibit 3.1 of the Companys Registration Statement on Form S-1 (SEC File No.
333-127517), filed on September 28, 2005) |
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3.2* |
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Amended and Restated Bylaws of the Company, dated December 14, 2005.
(Incorporated by reference to Exhibit 3.1 to the Companys Current Report on
Form 8-K (SEC File No. 001-32693), filed on December 14, 2005) |
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4.1* |
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Specimen Stock Certificate representing common stock of the Company.
(Incorporated by reference to Exhibit 3.1 of the Companys Registration
Statement on Form S-1 (SEC File No. 333-127517), filed on November 4, 2005) |
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4.2* |
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Indenture dated April 12, 2006, among Basic Energy Services, Inc., the
guarantors party thereto, and The Bank of New York Trust Company, N.A., as
trustee. (Incorporated by reference to Exhibit 4.1 of the Companys Current
Report on Form 8-K (SEC File No. 001-32693), filed on April 13, 2006) |
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4.3* |
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Form of 7.125% Senior Note due 2016. (Incorporated by reference to Exhibit 4.2
of the Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on
April 13, 2006) |
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4.4* |
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First
Supplemental Indenture dated as of July 14, 2006 to Indenture
dated as of April 12, 2006 among the Company, as Issuer, the
Subsidiary Guarantors named therein and The Bank of New York Trust
Company, N.A., as trustee. (Incorporated by reference to
Exhibit 4.1 of the Companys Current Report on
Form 8-K (SEC File No. 001-32693), filed on July 20, 2006) |
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10.1* |
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Amendment No. 1 to Third Amended and Restated Credit Agreement, dated March 28,
2006, by and among the Company, the subsidiary guarantors party thereto, and
UBS Loan Finance LLC, Bank of America, N.A., Hibernia National Bank, BNP
Paribas, UBS AG, Stamford Branch, as administrative agent, and the lenders
party thereto. (Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K (SEC File No. 001-32693), filed on April 3, 2006) |
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10.2* |
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Purchase Agreement dated April 7, 2006, among the Company, the guarantors party
thereto and the initial purchasers party thereto. (Incorporated by reference to
Exhibit 10.1 of the Companys Current Report on Form 8-K (SEC File No.
001-32693), filed on April 13, 2006) |
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10.3* |
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Registration Rights Agreement dated April 12, 2006, among the Company, the
guarantors party thereto and the initial purchasers party thereto.
(Incorporated by reference to Exhibit 10.2 of the Companys Current Report on
Form 8-K (SEC File No. 001-32693), filed on April 13, 2006) |
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31.1 |
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Certification by Chief Executive Officer required by Rule 13a-14(a) and
15d-14(a) under the Exchange Act |
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31.2 |
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Certification by Chief Financial Officer required by Rule 13a-14(a) and
15d-14(a) under the Exchange Act |
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32.1 |
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Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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* |
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Incorporated by reference |
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Management contract or compensatory plan or arrangement |
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BASIC ENERGY SERVICES, INC. |
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By: |
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/s/ Kenneth
V. Huseman |
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Name:
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Kenneth
V. Huseman |
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Title:
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President, Chief Executive |
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Officer and Director |
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(Principal Executive Officer) |
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By: |
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/s/ Alan
Krenek |
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Name:
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Alan
Krenek |
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Title:
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Senior Vice President, Chief Financial |
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Officer and Treasurer |
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(Principal Financial Officer and |
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Principal Accounting Officer) |
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Date: |
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August 11, 2006 |
39
Exhibit Index
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Exhibit |
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No. |
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Description |
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3.1* |
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Amended and Restated Certificate of Incorporation of the Basic Energy Services,
Inc. (the Company), dated September 22, 2005. (Incorporated by reference to
Exhibit 3.1 of the Companys Registration Statement on Form S-1 (SEC File No.
333-127517), filed on September 28, 2005) |
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3.2* |
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Amended and Restated Bylaws of the Company, dated December 14, 2005.
(Incorporated by reference to Exhibit 3.1 to the Companys Current Report on
Form 8-K (SEC File No. 001-32693), filed on December 14, 2005) |
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4.1* |
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Specimen Stock Certificate representing common stock of the Company.
(Incorporated by reference to Exhibit 3.1 of the Companys Registration
Statement on Form S-1 (SEC File No. 333-127517), filed on November 4, 2005) |
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4.2* |
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Indenture dated April 12, 2006, among Basic Energy Services, Inc., the
guarantors party thereto, and The Bank of New York Trust Company, N.A., as
trustee. (Incorporated by reference to Exhibit 4.1 of the Companys Current
Report on Form 8-K (SEC File No. 001-32693), filed on April 13, 2006) |
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4.3* |
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Form of 7.125% Senior Note due 2016. (Incorporated by reference to Exhibit 4.2
of the Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on
April 13, 2006) |
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4.4* |
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First
Supplemental Indenture dated as of July 14, 2006 to Indenture
dated as of April 12, 2006 among the Company, as Issuer, the
Subsidiary Guarantors named therein and The Bank of New York Trust
Company, N.A., as trustee. (Incorporated by reference to
Exhibit 4.1 of the Companys Current Report on
Form 8-K (SEC File No. 001-32693), filed on July 20, 2006) |
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10.1* |
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Amendment No. 1 to Third Amended and Restated Credit Agreement, dated March 28,
2006, by and among the Company, the subsidiary guarantors party thereto, and
UBS Loan Finance LLC, Bank of America, N.A., Hibernia National Bank, BNP
Paribas, UBS AG, Stamford Branch, as administrative agent, and the lenders
party thereto. (Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K (SEC File No. 001-32693), filed on April 3, 2006) |
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10.2* |
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Purchase Agreement dated April 7, 2006, among the Company, the guarantors party
thereto and the initial purchasers party thereto. (Incorporated by reference to
Exhibit 10.1 of the Companys Current Report on Form 8-K (SEC File No.
001-32693), filed on April 13, 2006) |
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10.3* |
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Registration Rights Agreement dated April 12, 2006, among the Company, the
guarantors party thereto and the initial purchasers party thereto.
(Incorporated by reference to Exhibit 10.2 of the Companys Current Report on
Form 8-K (SEC File No. 001-32693), filed on April 13, 2006) |
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31.1 |
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Certification by Chief Executive Officer required by Rule 13a-14(a) and
15d-14(a) under the Exchange Act |
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31.2 |
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Certification by Chief Financial Officer required by Rule 13a-14(a) and
15d-14(a) under the Exchange Act |
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Exhibit |
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No. |
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Description |
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32.1 |
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Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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* |
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Incorporated by reference |
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Management contract or compensatory plan or arrangement |