UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-35281
Forbes Energy Services Ltd.
(Exact name of registrant as specified in its charter)
Texas | 98-0581100 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
3000 South Business Highway 281 Alice, Texas |
78332 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code:
(361) 664-0549
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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). ¨ Yes x No
Shares outstanding of each of the registrants classes of common stock as of August 10, 2012:
Class |
Outstanding as of August 10, 2012 | |
Common Stock, $.04 par value | 21,151,749 |
FORBES ENERGY SERVICES LTD. AND SUBSIDIARIES (a/k/a the Forbes Group)
TABLE OF CONTENTS
Page | ||||||
Item 1. |
4 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
33 | ||||
Item 3. |
40 | |||||
Item 4. |
41 | |||||
Item 1. |
43 | |||||
Item 1A. |
43 | |||||
Item 2. |
43 | |||||
Item 3. |
43 | |||||
Item 4. |
43 | |||||
Item 5. |
43 | |||||
Item 6. |
44 | |||||
46 |
2
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and any oral statements made in connection with it include certain forward-looking statements within the meaning of the federal securities laws. You can generally identify forward-looking statements by the appearance in such a statement of words like anticipate, believe, continue, could, estimate, expect, intend, may, plan, potential, predict, project or should or other comparable words or the negative of these words. When you consider our forward-looking statements, you should keep in mind the risk factors we describe and other cautionary statements we make in this Quarterly Report on Form 10-Q. Our forward-looking statements are only predictions based on expectations that we believe are reasonable. Our actual results could differ materially from those anticipated in, or implied by, these forward-looking statements as a result of known risks and uncertainties set forth below and elsewhere in this Quarterly Report on Form 10-Q. These factors include or relate to the following:
| supply and demand for oilfield services and industry activity levels; |
| potential for excess capacity; |
| spending by the oil and natural gas industry given the continuing worldwide economic downturn; |
| our level of indebtedness in the current market; |
| possible impairment of our long-lived assets; |
| our ability to maintain stable pricing; |
| competition; |
| substantial capital requirements; |
| significant operating and financial restrictions under our indenture and revolving credit facility; |
| technological obsolescence of operating equipment; |
| dependence on certain key employees; |
| concentration of customers; |
| substantial additional costs of compliance with reporting obligations, the Sarbanes-Oxley Act and indenture covenants; |
| material weaknesses in internal controls over financial reporting; |
| seasonality of oilfield services activity; |
| collection of accounts receivable; |
| environmental and other governmental regulation, including potential climate change legislation; |
| the potential disruption of business activities caused by the physical effects, if any, of climate change; |
| risks inherent in our operations; |
| market response to global demands to curtail use of oil and natural gas; |
| ability to fully integrate future acquisitions; |
| variation from projected operating and financial data; |
| variation from budgeted and projected capital expenditures; |
| volatility of global financial markets; and |
| the other factors discussed under Risk Factors beginning on page 9 of the Annual Report on Form 10-K for the year ended December 31, 2011. |
We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. To the extent these risks, uncertainties and assumptions give rise to events that vary from our expectations, the forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement.
3
Item 1. Condensed Consolidated Financial Statements
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Balance Sheets (unaudited)
June 30, 2012 |
December 31, 2011 |
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Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 9,806,995 | $ | 36,600,091 | ||||
Accounts receivable - trade, net of allowance of $5.1 and $6.4 million for 2012 and 2011, respectively |
105,231,897 | 132,024,147 | ||||||
Accounts receivable - related parties |
463,987 | 1,573,132 | ||||||
Accounts receivable - other |
433,986 | 3,324,759 | ||||||
Prepaid expenses |
5,344,424 | 8,974,168 | ||||||
Other current assets |
1,134,632 | 1,310,477 | ||||||
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|
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Total current assets |
122,415,921 | 183,806,774 | ||||||
Property and equipment, net |
354,418,149 | 285,944,684 | ||||||
Other intangible assets, net |
29,445,791 | 30,876,389 | ||||||
Deferred financing costs, net of accumulated amortization of $1.4 million and $0.7 million for 2012 and 2011, respectively |
8,751,688 | 9,403,817 | ||||||
Restricted cash |
16,545,523 | 16,150,433 | ||||||
Other assets |
3,869,088 | 30,876 | ||||||
Noncurrent assets held for sale |
| 24,210,080 | ||||||
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|
|||||
Total assets |
$ | 535,446,160 | $ | 550,423,053 | ||||
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Liabilities and Shareholders Equity |
||||||||
Current liabilities |
||||||||
Current portions of long-term debt |
$ | 5,987,887 | $ | 10,517,232 | ||||
Accounts payable - trade |
31,636,096 | 50,569,454 | ||||||
Accounts payable - related parties |
7,445,291 | 1,219,928 | ||||||
Accrued dividends |
61,259 | 61,259 | ||||||
Deposit on assets held for sale |
| 13,700,000 | ||||||
Accrued interest payable |
1,180,027 | 1,220,316 | ||||||
Accrued expenses |
13,226,802 | 19,752,868 | ||||||
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|
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Total current liabilities |
59,537,362 | 97,041,057 | ||||||
Long-term debt |
291,331,979 | 285,633,042 | ||||||
Deferred tax liability |
33,914,414 | 27,491,812 | ||||||
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|
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Total liabilities |
384,783,755 | 410,165,911 | ||||||
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|
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Commitments and contingencies (Note 10) |
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Temporary equity |
||||||||
Series B senior convertible preferred shares |
14,497,525 | 14,476,783 | ||||||
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|
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Shareholders equity |
||||||||
Common stock, $.04 par value, 112,500,000 shares authorized, 21,068,417 and 20,918,417 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively |
842,737 | 836,737 | ||||||
Additional paid-in capital |
190,457,873 | 187,885,293 | ||||||
Accumulated other comprehensive loss |
(634,690 | ) | (1,077,678 | ) | ||||
Accumulated deficit |
(54,501,040 | ) | (61,863,993 | ) | ||||
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Total shareholders equity |
136,164,880 | 125,780,359 | ||||||
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Total liabilities and shareholders equity |
$ | 535,446,160 | $ | 550,423,053 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Statements of Operations (unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues |
||||||||||||||||
Well servicing |
$ | 51,314,385 | $ | 42,034,263 | $ | 103,554,199 | $ | 78,448,693 | ||||||||
Fluid logistics and other |
68,470,373 | 68,783,378 | 147,715,139 | 127,030,201 | ||||||||||||
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Total revenues |
119,784,758 | 110,817,641 | 251,269,338 | 205,478,894 | ||||||||||||
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Expenses |
||||||||||||||||
Well servicing |
37,452,713 | 34,387,657 | 76,541,120 | 64,149,205 | ||||||||||||
Fluid logistics and other |
49,354,319 | 50,690,794 | 104,210,101 | 92,913,371 | ||||||||||||
General and administrative |
8,074,710 | 13,106,901 | 18,744,461 | 18,796,604 | ||||||||||||
Depreciation and amortization |
12,465,442 | 9,541,539 | 23,886,158 | 19,216,212 | ||||||||||||
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Total expenses |
107,347,184 | 107,726,891 | 223,381,840 | 195,075,392 | ||||||||||||
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Operating income |
12,437,574 | 3,090,750 | 27,887,498 | 10,403,502 | ||||||||||||
Other income |
||||||||||||||||
Interest income |
16,304 | 13,460 | 50,136 | 26,358 | ||||||||||||
Interest expense |
(6,857,120 | ) | (6,813,321 | ) | (13,763,136 | ) | (13,754,478 | ) | ||||||||
Loss on early extinguishment of debt |
| (35,414,833 | ) | | (35,414,833 | ) | ||||||||||
Other income, net |
| 68,204 | | 69,104 | ||||||||||||
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Income (loss) from continuing operations before taxes |
5,596,758 | (39,055,740 | ) | 14,174,498 | (38,670,347 | ) | ||||||||||
Income tax expense (benefit) |
2,950,257 | (12,489,453 | ) | 6,317,008 | (12,191,067 | ) | ||||||||||
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Income (loss) from continuing operations |
2,646,501 | (26,566,287 | ) | 7,857,490 | (26,479,280 | ) | ||||||||||
Income from discontinued operations, net of tax expense (benefit) of ($0.4 million), $1.2 million, $0.4 million, $2.0 million, respectively |
(1,626,158 | ) | 1,871,585 | (494,537 | ) | 3,689,096 | ||||||||||
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Net income (loss) |
1,020,343 | (24,694,702 | ) | 7,362,953 | (22,790,184 | ) | ||||||||||
Preferred stock dividends |
(194,139 | ) | 1,084,271 | (388,278 | ) | 201,687 | ||||||||||
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Net income (loss) attributable to common shareholders |
$ | 826,204 | $ | (23,610,431 | ) | $ | 6,974,675 | $ | (22,588,497 | ) | ||||||
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Income (loss) per share of common stock from continuing operations (Note 12) |
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Basic |
$ | 0.12 | $ | (1.22 | ) | $ | 0.36 | $ | (1.26 | ) | ||||||
Diluted |
$ | 0.10 | $ | (1.22 | ) | $ | 0.30 | $ | (1.26 | ) | ||||||
Income (loss) per share of common stock from discontinued operations (Note 12) |
||||||||||||||||
Basic |
$ | (0.08 | ) | $ | 0.09 | $ | (0.02 | ) | $ | 0.18 | ||||||
Diluted |
$ | (0.06 | ) | $ | 0.09 | $ | (0.02 | ) | $ | 0.18 | ||||||
Income (loss) per share of common stock (Note 12) |
||||||||||||||||
Basic |
$ | 0.04 | $ | (1.13 | ) | $ | 0.33 | $ | (1.08 | ) | ||||||
Diluted |
$ | 0.04 | $ | (1.13 | ) | $ | 0.28 | $ | (1.08 | ) | ||||||
Weighted average number of shares outstanding (Note 12) |
||||||||||||||||
Basic |
21,055,642 | 20,918,400 | 21,020,628 | 20,918,400 | ||||||||||||
Diluted |
26,625,452 | 20,918,400 | 26,621,044 | 20,918,400 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net income (loss) |
$ | 1,020,343 | $ | (24,694,702 | ) | $ | 7,362,953 | $ | (22,790,184 | ) | ||||||
Other comprehensive income (loss) |
||||||||||||||||
Foreign currency translation adjustments |
88,873 | 27,364 | 442,988 | (434,222 | ) | |||||||||||
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Comprehensive income (loss) |
$ | 1,109,216 | $ | (24,667,338 | ) | $ | 7,805,941 | $ | (23,224,406 | ) | ||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Statements of Changes in Shareholders Equity (unaudited)
Preferred Shares | Common Stock | Additional Paid-In |
Accumulated Other Comprehensive |
Accumulated | Total Shareholders |
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Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||
Balance: December 31, |
588,059 | $ | 14,476,783 | 20,918,417 | $ | 836,737 | $ | 187,885,293 | $ | (1,077,678 | ) | $ | (61,863,993 | ) | $ | 125,780,359 | ||||||||||||||||
Share-based compensation |
| | | | 2,896,858 | | | 2,896,858 | ||||||||||||||||||||||||
Net income |
| | | | | | 7,362,953 | 7,362,953 | ||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | 442,988 | | 442,988 | ||||||||||||||||||||||||
Common shares issued under stock plan: |
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Exercise of stock options |
| | 25,000 | 1,000 | 64,000 | | | 65,000 | ||||||||||||||||||||||||
Issuance of restricted stock |
| | 125,000 | 5,000 | | | | 5,000 | ||||||||||||||||||||||||
Preferred shares dividends and accretion |
| 20,742 | | | (388,278 | ) | | | (388,278 | ) | ||||||||||||||||||||||
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Balance: June 30, 2012 |
588,059 | $ | 14,497,525 | 21,068,417 | $ | 842,737 | $ | 190,457,873 | $ | (634,690 | ) | $ | (54,501,040 | ) | $ | 136,164,880 | ||||||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, | ||||||||
2012 | 2011 | |||||||
Cash flows from operating activities: |
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Net income (loss) |
$ | 7,362,953 | $ | (22,790,184 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation expense |
22,455,560 | 18,681,709 | ||||||
Amortization expense |
1,430,598 | 1,430,598 | ||||||
Amortization of Second Priority Notes OID |
| 324,306 | ||||||
Share-based compensation |
3,637,608 | 1,348,278 | ||||||
Deferred tax benefit |
6,767,064 | (11,386,772 | ) | |||||
Loss on disposal of assets, net |
187,957 | 803,145 | ||||||
Loss on early extinguishment of debt |
| 10,403,237 | ||||||
Gain on disposal of discontinued operations, net |
(3,546,583 | ) | | |||||
Bad debt expense |
376,906 | 510,469 | ||||||
Amortization of deferred financing cost |
733,196 | 913,076 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
30,921,742 | (34,136,263 | ) | |||||
Accounts receivable - related party |
1,109,145 | (552,893 | ) | |||||
Prepaid expenses and other current assets |
(4,784,985 | ) | (2,900,970 | ) | ||||
Accounts payable trade |
(19,278,858 | ) | 18,218,301 | |||||
Accounts payable - related party |
6,225,363 | (9,480,916 | ) | |||||
Accrued expenses |
(8,615,681 | ) | 13,260,569 | |||||
Income taxes payable |
| (195,724 | ) | |||||
Accrued interest payable |
(40,289 | ) | (7,371,826 | ) | ||||
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Net cash provided by (used in) operating activities |
44,941,696 | (22,921,860 | ) | |||||
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Cash flows from investing activities: |
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Proceeds from sale of property and equipment |
| 527,102 | ||||||
Purchases of property and equipment |
(89,571,226 | ) | (23,678,077 | ) | ||||
Proceeds from sale of assets included in discontinued operations |
14,284,764 | | ||||||
Change in restricted cash |
(395,090 | ) | (7,085,210 | ) | ||||
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Net cash used in investing activities |
(75,681,552 | ) | (30,236,185 | ) | ||||
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Cash flows from financing activities: |
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Payments for debt issuance costs |
(81,067 | ) | (2,557,308 | ) | ||||
Retirement of First and Second Priority Notes |
| (212,500,000 | ) | |||||
Proceeds from issuance of Senior Notes |
| 280,000,000 | ||||||
Payments for debt issuance costs |
| (7,418,175 | ) | |||||
Proceeds from the exercise of stock options |
65,000 | | ||||||
Proceeds from issuance of restricted stock |
5,000 | | ||||||
Proceeds from revolving credit facility |
6,000,000 | | ||||||
Repayments of other debt |
(1,947,107 | ) | | |||||
Dividends paid on Series B Senior Convertible Preferred Shares |
(367,536 | ) | | |||||
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Net cash provided by financing activities |
3,674,290 | 57,524,517 | ||||||
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Effect of currency translation on cash and cash equivalents |
272,470 | 94,435 | ||||||
Net increase (decrease) in cash and cash equivalents |
(26,793,096 | ) | 4,460,907 | |||||
Cash and cash equivalents: |
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Beginning of period |
36,600,091 | 30,458,457 | ||||||
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End of period |
$ | 9,806,995 | $ | 34,919,364 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
8
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Notes to Condensed Consolidated Financial Statements
1. Organization and Nature of Operations
Nature of Business
Forbes Energy Services Ltd. (FES Ltd) is an independent oilfield services contractor that provides a wide range of well site services to oil and natural gas drilling and producing companies to help develop and enhance the production of oil and natural gas. These services include fluid hauling, fluid disposal, well maintenance, completion services, workovers and recompletions, plugging and abandonment, and tubing testing. Our operations are concentrated in the major onshore oil and natural gas producing regions of Texas, with additional locations in Mississippi, in Pennsylvania and, prior to the disposition of our Mexican assets in January 2012, which is discussed in Note 17 below, in Mexico. We believe that our broad range of services, which extends from initial drilling, through production, to eventual abandonment, is fundamental to establishing and maintaining the flow of oil and natural gas throughout the life cycle of our customers wells.
As used in these condensed consolidated financial statements, the Company, the Forbes Group, we, and our mean FES Ltd and its direct and indirect subsidiaries, except as otherwise indicated.
2. Risk and Uncertainties
As an independent oilfield services contractor that provides a broad range of drilling-related and production-related services to oil and natural gas companies, primarily onshore in Texas, our revenue, profitability, cash flows and future rate of growth are substantially dependent on our ability to (1) maintain adequate equipment utilization, (2) maintain adequate pricing for the services we provide, and (3) maintain a trained work force. Failure to do so could adversely affect our financial position, results of operations, and cash flows.
Because our revenues are generated primarily from customers who are subject to the same factors generally impacting the oil and natural gas industry, our operations are also susceptible to market volatility resulting from economic, cyclical, weather related or other factors related to such industry. Changes in the level of operating and capital spending in the industry, decreases in oil and natural gas prices, or industry perception about future oil and natural gas prices could materially decrease the demand for our services, adversely affecting our financial position, results of operations and cash flows.
3. Basis of Presentation
Interim Financial Information
The unaudited condensed consolidated financial statements of the Forbes Group are prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP for interim financial reporting. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. Therefore, these condensed consolidated financial statements should be read along with the annual audited consolidated financial statements and notes thereto included in Forbes Groups Annual Report on Form 10-K for the year ended December 31, 2011. In managements opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented. Interim results for the three and six months ended June 30, 2012 may not be indicative of results that will be realized for the full year ending December 31, 2012. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the condensed consolidated financial statements.
9
Foreign Currency Gains and Losses
The functional currency at our Mexican subsidiary is the Mexican Peso. On January 12, 2012, we completed the disposition of substantially all of our assets and business located in Mexico. Nevertheless, we continue to collect accounts receivables related to these prior operations in Mexico and a significant portion of these accounts receivable is in pesos. Assets and liabilities are translated using the spot rate on the balance sheet date, while income and expense items are translated at average rates of exchange during the period. The resulting gains or losses arising from the translation of accounts from the functional currency to the U.S. dollar are included as a separate component of shareholders equity in other comprehensive income (loss). Transactions that are denominated in a currency other than the functional currency are re-measured into the functional currency each reporting period. Transaction gains and losses that arise from exchange rate fluctuations on transactions and balances denominated in a currency other than the functional currency are included in the results of operations and cash flows as incurred.
Share Consolidation
As of August 12, 2011, FES Ltd discontinued its existence in Bermuda and converted into a Texas corporation. In connection with and immediately prior to this Texas conversion, FES Ltd effected a 4-to-1 share consolidation, or the Share Consolidation. All references included in these financial statements and accompanying notes to the number of shares, par value and per share amounts of the common stock of FES Ltd prior to the Share Consolidation have been retroactively adjusted to give effect to the Share Consolidation.
Recent Accounting Pronouncements
In September 2011, the FASB issued ASU No. 2011-08, Intangibles Goodwill and Other (ASU 2011-08). ASU 2011-08 allows a qualitative assessment of whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the two-step goodwill impairment test. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the two-step impairment test for that reporting unit would be performed. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. We adopted the provisions of ASU 2011-08 during the first quarter of 2012.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (ASU 2011-11). The standard amends and expands disclosure requirements about balance sheet offsetting and related arrangements. ASU 2011-11 becomes effective for Forbes on January 1, 2013. We do not anticipate any impact to our results of operations, financial position or liquidity when the guidance becomes effective.
4. Other Intangible Assets
Other intangible assets are subject to amortization for the period of time which the assets are expected to contribute directly or indirectly to future cash flows under the guidance of ASC 350.
Our major classes of intangible assets subject to amortization under ASC 350 consist of our customer relationships, trade names, safety training program, dispatch software, and other. The Company expenses costs associated with extensions or renewals of intangibles assets. There were no such extensions or renewals in the three and six months ended June 30, 2012 or June 30, 2011. Amortization expense is calculated using the straight-line method over the period indicated. Amortization expense for the three months ended June 30, 2012 and June 30, 2011 from continuing operations was $0.7 million and for the six months ended June 30, 2012 and June 30, 2011 was $1.4 million. Estimated amortization expense for each of the five succeeding fiscal years is $2.9 million per year. The weighted average amortization period remaining for intangible assets is 10.3 years.
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The following sets forth the identified intangible assets by major asset class:
As of June 30, 2012 | As of December 31, 2011 | |||||||||||||||||||||||||||
Useful Life (years) |
Gross Carrying Value |
Accumulated Amortization |
Net Book Value |
Gross Carrying Value |
Accumulated Amortization |
Net Book Value |
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Customer relationships |
15 | $ | 31,895,919 | $ | 9,568,776 | $ | 22,327,143 | $ | 31,895,919 | $ | 8,505,578 | $ | 23,390,341 | |||||||||||||||
Trade names |
15 | 8,049,750 | 2,414,925 | 5,634,825 | 8,049,750 | 2,146,600 | 5,903,150 | |||||||||||||||||||||
Safety training program |
15 | 1,181,924 | 354,577 | 827,347 | 1,181,924 | 315,180 | 866,744 | |||||||||||||||||||||
Dispatch software |
10 | 1,135,282 | 510,877 | 624,405 | 1,135,282 | 454,112 | 681,170 | |||||||||||||||||||||
Other |
10 | 58,300 | 26,229 | 32,071 | 58,300 | 23,316 | 34,984 | |||||||||||||||||||||
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$ | 42,321,175 | $ | 12,875,384 | $ | 29,445,791 | $ | 42,321,175 | $ | 11,444,786 | $ | 30,876,389 | |||||||||||||||||
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5. Share-Based Compensation
Stock Options
From time to time, the Company grants stock options, restricted stock or other awards to its employees, including executive officers and directors. Prior to July 9, 2012, these awards were granted pursuant to the Companys 2008 Incentive Compensation Plan, or the 2008 Plan. On July 9, 2012, at the Companys 2012 Annual Meeting of Shareholders, the Companys shareholders approved the Companys 2012 Incentive Compensation Plan, or the 2012 Plan. No further awards will be made under the 2008 Plan, however, outstanding awards granted under the 2008 Plan will remain subject to the terms and conditions of the 2008 Plan. Any shares of common stock that are available to be granted under the 2008 Plan but which are not subject to outstanding awards under the 2008 Plan, including shares that become available due to the future lapse or forfeiture of outstanding awards, will be added to the 1,022,500 shares of common stock authorized for issuance under the 2012 Plan. As of June 30, 2012, no awards had been issued under the 2012 Plan.
Stock options issued in 2008 under the 2008 plan originally vested over a three-year period. On August 11, 2011, however, the Company exchanged 667,500 of these options, which constituted all of the outstanding options issued in 2008, in a 0.72 to 1 exchange for 480,600 options issued under the 2008 plan (the Exchange Options). These Exchange Options vest one-third every four months from the exchange date and the Company will recognize $0.1 million of compensation expense for this exchange over a 12 month period. With respect to the stock options issued in 2010, the standard option vests over a two year period with one fourth vesting every six months, until fully vested. With respect to options, unrelated to the Exchange Options issued in August 2011, vesting took place over a three-year period, with approximately one third vesting on the first, second and third anniversaries of the date of grant. For most grantees, vested options expire at the earlier of either one year after the termination of grantees employment by reason of death, disability or retirement, 90 days after termination of the grantees employment other than upon grantees death, disability or retirement, provided, however, that the Company may elect to extend the expiration beyond this 90-day period, or ten years after the date of grant.
The following table presents a summary of the Companys stock option activity for the six months ended June 30, 2012.
Shares | Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term |
Aggregate Intrinsic Value |
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Options outstanding at December 31, 2011 |
2,285,425 | $ | 7.49 | 8.79 years | $ | 2,297,344 | ||||||||||
Stock options: |
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Granted |
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Exercised |
(25,000 | ) | 2.60 | |||||||||||||
Forfeited |
(262,500 | ) | 8.87 | |||||||||||||
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Options outstanding at June 30, 2012 |
1,997,925 | $ | 7.51 | 8.23 years | $ | 1,077,563 | ||||||||||
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Vested and expected to vest at June 30, 2012 |
703,444 | $ | 5.64 | 7.23 years | $ | 808,172 | ||||||||||
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Exercisable at June 30, 2012 |
703,444 | $ | 5.64 | 7.23 years | $ | 808,172 | ||||||||||
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During the three months ended June 30, 2012 and June 30, 2011 the Company recorded total stock based compensation expense from continuing operations of $1.1 million and $0.6 million, respectively. During the six months ended June 30, 2012 and June 30, 2011 the Company recorded total stock based compensation expense of $2.9 million and $1.3 million, respectively, from restricted stock and stock options. No stock-based compensation costs were capitalized for the periods ended
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June 30, 2012 or June 30, 2011. As of June 30, 2012, total unrecognized stock-based compensation costs amounted to $7.4 million (net of estimated forfeitures); and is expected to be recorded over a weighted-average period of 2.0 years. During the three and six months ended June 30, 2012 an additional $0.4 million and $0.7 million was recorded to accrue for the executive stock bonuses per the newly implemented, performance based, management bonus plan and is reflected as a current liability in our consolidated financial statements.
At June 30, 2012, after taking into account the amendments to the 2008 incentive compensation plan approved by the companys shareholders at their special and general annual meeting on June 27, 2011, the subsequent Exchange Options issued August 11, 2011, new awards issued on August 15, 2011, restricted stock grants in first quarter of 2012 (as discussed in the Restricted Stock paragraph below), and 198,511 shares (calculated using the closing price of the common stock on June 30, 2012) reserved for the equity portion of the executive performance incentive compensation plan there were 547,732 shares available for future grants under the 2008 Plan. All of which will be added to the 1,022,500 shares of common stock authorized for issuance under the 2012 Plan approved by the Shareholders in July 2012.
Restricted Stock
In March of 2012, we granted 83,332 shares of restricted stock with a vesting period of one year. The aggregate fair value of this restricted stock is $497,117 which will be amortized over the next twelve months. In addition, we granted 125,000 shares of restricted stock with an aggregate fair value of $720,000 included in total stock-based compensation in February of 2012, which vested immediately and was expensed in the first quarter of 2012.
Grants Outside of the 2008 Incentive Compensation Plan
On August 23, 2010, the Company granted 65,000 stock options in an issuance outside the 2008 Incentive Compensation Plan. These options vest twenty-five percent on each six-month anniversary from the date of grant, and will become fully vested over a two year period.
6. Property and Equipment
Property and equipment consisted of the following:
Estimated Life in Years |
June 30, 2012 |
December 31, 2011 |
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Well servicing equipment |
3-15 years | $ | 376,820,736 | $ | 317,883,278 | |||||||
Autos and trucks |
5-10 years | 105,260,177 | 95,667,664 | |||||||||
Disposal wells |
5-15 years | 30,397,527 | 11,957,960 | |||||||||
Building and improvements |
5-30 years | 9,146,325 | 7,842,246 | |||||||||
Furniture and fixtures |
3-10 years | 3,114,329 | 2,426,219 | |||||||||
Land |
989,219 | 257,425 | ||||||||||
Other |
3-15 years | 161,429 | 44,204 | |||||||||
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525,889,742 | 436,078,996 | |||||||||||
Accumulated depreciation |
(171,471,593 | ) | (150,134,312 | ) | ||||||||
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$ | 354,418,149 | $ | 285,944,684 | |||||||||
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Depreciation expense from continuing operations was $11.8 million and $22.5 million for the three and six months ended June 30, 2012 and $9.2 million and $18.4 million for the three and six months ended June 30, 2011, respectively.
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7. Long-Term Debt
Long-term debt at June 30, 2012 and December 31, 2011 consisted of the following:
June 30, 2012 |
December 31, 2011 |
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9% Senior Notes |
$ | 280,000,000 | $ | 280,000,000 | ||||
Revolving credit facility |
6,000,000 | | ||||||
Insurance note |
2,365,972 | 7,119,310 | ||||||
3rd party equipment notes |
8,953,894 | 9,030,964 | ||||||
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297,319,866 | 296,150,274 | |||||||
Less: Current portion |
(5,987,887 | ) | (10,517,232 | ) | ||||
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$ | 291,331,979 | $ | 285,633,042 | |||||
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9% Senior Notes
On June 7, 2011, FES Ltd issued $280.0 million in principal amount of 9% Senior Notes due 2019 (the 9% Senior Notes). The proceeds of the 9% Senior Notes were used to purchase and redeem 100% of the First Priority Notes and the outstanding Second Priority Notes (described below)issued by two of FES Ltds subsidiaries, Forbes Energy Services LLC and Forbes Energy Capital Inc. The 9% Senior Notes mature on June 15, 2019, and require semi-annual interest payments, in arrears, at an annual rate of 9% on June 15 and December 15 of each year until maturity commencing December 15, 2011. No principal payments are due until maturity.
The 9% Senior Notes are guaranteed by the current domestic subsidiaries (the Guarantor Subs) of FES Ltd, which includes FES LLC, C.C. Forbes, LLC (CCF), TX Energy Services, LLC (TES), Superior Tubing Testers, LLC (STT) and Forbes Energy International, LLC (FEI LLC). All of the Guarantor Subs are 100% owned. Each guarantee of the Guarantor Subs is on a full and unconditional and joint and several basis, subject to customary release provisions. Prior to January 12, 2012, FES Ltd had two 100% owned indirect Mexican subsidiaries or the Non-Guarantor Subs that had not guaranteed the 9% Senior Notes. In January 2012, one of those two Mexican subsidiaries was sold along with the business and substantially all of our long-lived assets located in Mexico. The Guarantor Subs represent the majority of the Companys operations. On or after June 15, 2015, the Company may, at its option, redeem all or part of the 9% Senior Notes from time to time at specified redemption prices and subject to certain conditions required by the indenture governing the 9% Senior Notes (the 9% Senior Indenture). The Company is required to make an offer to purchase the notes and to repurchase any notes for which the offer is accepted at 101% of their principal amount, plus accrued and unpaid interest, if there is a change of control. The Company is required to make an offer to repurchase the notes and to repurchase any notes for which the offer is accepted at 100% of their principal amount, plus accrued and unpaid interest, following certain asset sales.
The Company is permitted under the terms of the 9% Senior Indenture to incur additional indebtedness in the future, provided that certain financial conditions set forth in the 9% Senior Indenture are satisfied. The Company is subject to certain covenants contained in the 9% Senior Indenture, including provisions that limit or restrict the Companys and certain future subsidiaries abilities to incur additional debt, to create, incur or permit to exist certain liens on assets, to make certain dispositions of assets, to make payments on certain subordinated indebtedness, to pay dividends or certain other payments to equity holders, to engage in mergers, consolidations or other fundamental changes, to change the nature of its business or to engage in transactions with affiliates. As of June 30, 2012, we are in compliance with all covenants in the indenture.
Second Priority Notes
On February 12, 2008, FES LLC and FES CAP issued $205 million in principal amount of 11% senior secured notes due 2015 (together with notes issued in exchange therefore, the Second Priority Notes). In May 2011, we commenced a cash tender offer to purchase any and all of the Second Priority Notes then outstanding. In connection with that tender offer, we successfully solicited consents to and implemented amendments that eliminated most of the restrictive covenants and event of default provisions contained in the Indenture governing the Second Priority Notes the Second Priority Indenture. In June 2011, pursuant to this tender offer, we purchased 99.8% of the outstanding principal amount of the Second Priority Notes. On June 27, 2011, the Company commenced the redemption of the remaining outstanding Second Priority Notes which closed on July 27, 2011. As a result, the Second Priority Indenture was discharged and all liens relating thereto were released.
First Priority Notes
On October 2, 2009, FES LLC and FES CAP issued to Goldman, Sachs & Co. $20 million in aggregate principal amount of First Lien Floating Rate Notes due 2014 (the First Priority Notes), in a private placement in reliance on an exemption from registration under the Securities Act of 1933, as amended. On June 7, 2011, FES Ltd used a portion of the proceeds of the offering of the 9% Senior Notes to purchase all of the aggregate principal amount of the First Priority Notes outstanding at which time the indenture governing the First Priority Notes was discharged and the liens related thereto were released.
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Revolving Credit Facility
On September 9, 2011, FES Ltd and its current domestic subsidiaries entered into a loan and security agreement with Regions Bank, SunTrust Bank, CIT Bank and Capital One Leverage Finance Corp., as lenders, and Regions Bank, as agent for the secured parties, or the Agent. The loan and security agreement provides for an asset based revolving credit facility with a maximum initial borrowing credit of $75.0 million, subject to borrowing base availability. As of June 30, 2012, $69.0 million was available under this new credit facility. The loan and security agreement has a stated maturity of September 9, 2016. The proceeds of this credit facility can be used for the purchase of well services equipment, permitted acquisitions, general operations, working capital and other general corporate purposes. There was $6.0 million outstanding under this facility at June 30, 2012 and no borrowings outstanding at August 10, 2012. As of August 10, 2012, there were $1.7 million in letters of credit outstanding against this facility.
Under the loan and security agreement, our borrowing base at any time is equal to (i) 85% of eligible accounts, which are determined by Agent in its reasonable discretion, plus (ii) the lesser of 85% of the appraised value, subject to certain adjustments, of our well services equipment that has been properly pledged and appraised, is in good operating condition and is located in the United States, or 100% of the net book value of such equipment, minus (iii) any reserves established by the Agent in its reasonable discretion.
At our option, borrowings under this new credit facility will bear interest at a rate equal to either (i) the LIBOR rate plus an applicable margin of between 2.25% to 2.75% based on borrowing availability or (ii) a base rate plus an applicable margin of between 1.25% to 1.75% based on borrowing availability, where the base rate is equal to the greater of the prime rate established by Regions Bank, the overnight federal funds rate plus 0.5% or the LIBOR rate for a one month period plus 1%.
In addition to paying interest on outstanding principal under the facility, a fee of 0.375% per annum will accrue on unutilized availability under the credit facility. We are required to pay a fee of between 2.25% to 2.75%, based on borrowing availability, with respect to the principal amount of any letters of credit outstanding under the facility. We are also responsible for certain other administrative fees and expenses. In connection with the execution of the loan and security agreement, we paid the lenders an upfront fee of $0.5 million.
FES LLC, FEI LLC, TES, CCF and STT are the borrowers under the loan and security agreement. Their obligations have been guaranteed by one another and by FES Ltd. Subject to certain exceptions and permitted encumbrances, including the exemption of real property interests from the collateral package, the obligations under this facility are secured by a first priority security interest in all of our assets.
We are able to voluntarily repay outstanding loans at any time without premium or penalty (subject to the fees discussed above). If at anytime our outstanding loans under the credit facility exceed the availability under our borrowing base, we may be required to repay the excess. Further, we are required to use the net proceeds from certain events, including certain judgments, tax refunds or insurance awards to repay outstanding loans; however, we may reborrow following such repayments if the conditions to borrowing are met.
The loan and security agreement contains customary covenants for an asset-based credit facility, which include (i) restrictions on certain mergers, consolidations and sales of assets; (ii) restrictions on the creation or existence of liens; (iii) restrictions on making certain investments; (iv) restrictions on the incurrence or existence of indebtedness; (v) restrictions on transactions with affiliates; (vi) requirements to deliver financial statements, report and notices to the Agent and (vii) a springing requirement to maintain a consolidated fixed charge coverage ratio (which is defined in the loan and security agreement) of 1.1:1.0 in the event that our excess availability under the credit facility falls below the greater of $11.3 million or 15% of our maximum credit under the facility for sixty consecutive days; provided that, the restrictions described in (i)(v) above are subject to certain exceptions and permissions limited in scope and dollar value. The loan and security agreement also contains customary representations and warranties and event of default provisions. As of June 30, 2012, we are in compliance with all covenants in the loan and security agreement.
The company recently entered into an amendment to the loan agreement governing our new credit facility, or the Second Amendment. Similar to the first amendment to the Loan Agreement, this Second Amendment modifies certain provisions of the Loan Agreement to, among other things, provide more flexibility on the Borrower Subsidiaries ability to enter into equipment leases, purchase money financings and insurance financing transactions. This amendment was effective on July 6, 2012 after the payment of an amendment fee.
Third Party Equipment Notes
During the past few years, the Forbes Group financed the purchase of certain vehicles and equipment through commercial loans with Paccar Financial Group, Mack Financial Services, and Enterprise Fleet Management with aggregate principal amounts outstanding as of June 30, 2012 and December 31, 2011 of approximately $9.0 million. These loans are repayable in a range of 42 to 60 monthly installments with the maturity dates ranging from May 2013 to August 2016. Interest
14
accrues at rates ranging from 4.7% to 7.6% and is payable monthly. The loans are collateralized by equipment purchased with the proceeds of such loans. The Forbes Group paid total principal payments of approximately $1.1 million and $4.3 million for the three months ended June 30, 2012 and year ended December 31, 2011, respectively.
Insurance Notes
During 2011, the Forbes Group entered into a promissory note with First Insurance Funding for the payment of insurance premiums during the period of insurance coverage with an aggregate principal amount outstanding as of June 30, 2012 and December 31, 2011 of approximately $2.4 million and $7.1 million, respectively. This note is payable in 12 monthly installments with maturity date of September 15, 2012. Interest accrues at a rate of approximately 3.6% and is payable monthly. The amount outstanding could be substantially offset by the cancellation of the related insurance coverage.
8. Fair Value of Financial Instruments
The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of June 30, 2012 and December 31, 2011. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The carrying amounts of cash and cash equivalents, accounts receivable-trade, accounts receivable-related parties, accounts receivable other, prepaid expenses, other current assets, accounts payable trade, accounts payable related parties, insurance notes, deposits on assets held for sale, and accrued expenses approximate fair value because of the short maturity of these instruments. The fair values of third party notes and equipment notes, which approximate their carrying values, are based on current market rates at which the company could borrow funds with similar maturities.
June 30, 2012 | December 31, 2011 | |||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
(dollars in thousands) | ||||||||||||||||
9.0% Senior Notes |
$ | 280,000 | $ | 260,400 | $ | 280,000 | $ | 261,800 |
9. Related Party Transactions
The Company and its subsidiaries enter into transactions with related parties in the normal course of conducting business. References in this section to the Company include the Companys subsidiaries, unless the context indicates otherwise. Accounts receivable related parties and accounts payable related parties result from the transactions with related parties, which the company believes are on terms consistent with those available to third-party customers from third-party vendors.
Messrs. John E. Crisp and Charles C. Forbes, Jr., executive officers and directors of FES Ltd, are also owners and managers of Alice Environmental Holdings, LLC or AEH, and indirect owners and managers of Alice Environmental Services, LP, or AES. The Company has entered into the following transactions with AES and AEH:
| AEH owns aircraft that the Company uses on a regular basis. |
| The Company entered into long-term operating leases with AES for well service rigs, vacuum trucks and related equipment and has subsequently purchased these assets from AES. |
| The Company entered into long-term real property leases, disposal well leases and disposal well operating agreements with AES and has subsequently purchased all but one of these leased disposal wells. |
In June 2011, the Company purchased from AES certain workover rigs, trucks, tanks, swab units and other well servicing equipment being leased pursuant to two operating leases, as well as certain other frac tank equipment being rented from AES on a month-to-month basis. The Company paid AES and aggregate purchase price of approximately $18.0 million, plus a payment for estimated sales tax of $1.7 million.
The Company had been leasing the workover rigs that it purchased in June 2011 pursuant to a five-year operating lease entered into with AES in October 2008. The gross lease amount of this agreement was approximately $15.2 million with monthly payments of approximately $0.3 million.
The Company had been leasing certain other well servicing equipment purchased in June 2011 pursuant to an operating lease it entered into with AES effective January 2010. Prior to January 2010, this equipment was being rented month-to-month. The gross agreement amount was approximately $3.2 million with monthly payments of approximately $67,000.
In March 2012, the Company purchased ten vacuum trucks and trailers from AES for an aggregate purchase price of approximately $1.1 million.
15
Expenses paid to AES related to equipment and aircraft rental were approximately $0.3 million and $0.6 million for the three and six months ended June 30, 2012 and $0.7 million and $1.3 million for the three and six months ended June 30, 2011, respectively.
The Company entered into a waste water disposal operating agreement dated January 1, 2007, with AES pursuant to which AES leased its rights in a certain well bore and receives payments in the form of a minimum fee of $5,000 per month plus $0.15 per barrel injected over 50,000 barrels. Under this agreement, AES also received a skim oil payment of 20% of the amount realized by the Company for all oil and hydrocarbons removed from liquids injected into the premises. The agreement term was for three years and was automatically renewed on January 1, 2010 for a three year term. Beginning in January 2008, the Company began paying AES for the use of three additional disposal wells, on a month-to-month basis, without a written contract. The terms of this rental arrangement was on a usage basis. In April 2012, these four disposal wells were purchased by the Company for $14.5 million. The Company paid $7.5 million in April 2012 and the remainder will be paid in October 2012.
The Company continues to operates one additional disposal well from AES pursuant to a waste water disposal lease agreement with AES dated April 1, 2007. Under this agreement, the Company is entitled to use leased land for the disposal of waste water for a term of five years with three successive three year renewal periods. The Company pays a monthly rental of $2,500 per month plus $0.05 per barrel for any barrel over 50,000 barrels of waste water injected per month. Additionally, the Company pays an amount equal to 10% of all oil or other hydrocarbons removed from the liquids injected into the premises. The Company also pays AES to dispose of a portion of the solid waste products generated from its salt water disposal wells.
Expenses paid to AES related to salt water disposal wells were approximately $0.6 million and $1.2 million related to the disposal of waste water for the three and six months ended June 30, 2012 and $0.4 million and $0.7 million for the three and six months ended June 30, 2011, respectively.
The Company has thirteen separate rental or lease agreements with AES for separate parcels of land and buildings. Ten of the leases were entered into at various dates subsequent to December 31, 2006. Ten of the leases are written and three are oral. Each written lease has a five-year term with the Company having the option to extend from between one and five years. Aggregate amounts paid for the thirteen rentals and leases were $0.3 million and $0.7 million for the three and six months ended June 30, 2012 and $0.3 million and $0.7 million for the three and six months ended June 30, 2011, respectively.
For the three months ended June 30, 2012 and 2011 the Company recognized no revenue from AES, total expenses of approximately $1.2 million and $2.6 million, respectively, and capital expenditures of $7.5 million and $17.2 million, respectively. For the six months ended June 30, 2012 and 2011, the Company recognized no revenues, expense of approximately $2.5 million and $5 million, and capital expenditures of approximately $8.6 million and $17.2 million, respectively. Accounts payable to AES as of June 30, 2012 and December 31, 2011 resulting from such transactions were $7.2 million and $0.6 million, respectively. The Company had accounts receivable of $0.4 million from AES as of June 30, 2012 and December 31, 2011.
CJ Petroleum Service LLC, or CJ Petroleum, is a company that owns salt water disposal wells and is owned by Messrs. Crisp and Forbes, two sons of Mr. Crisp, and Janet Forbes, a director of the FES Ltd. In 2010, we began paying CJ Petroleum to use their three disposal wells. The Company recognized no revenue, expenses of approximately $0.2 million, and no capital expenditures for the three months ended June 30, 2012 and June 30, 2011. The Company recognized no revenue, approximate expenses of $0.3 million ,and no capital expenditures for the six months ended June 30, 2012 and June 30, 2011. We had no accounts receivable from CJ Petroleum as of June 30, 2012 and December 31, 2011, respectively. We had accounts payable of approximately $0.1 million to CJ Petroleum as of June 30, 2011 and December 31, 2011.
Dorsal Services, Inc. is a trucking service provider that provides services to the Company. Mr. Crisp, an executive officer and director of FES, Ltd, and Denyce Crisp, the ex-wife of John Crisp, are partial owners of Dorsal Services, Inc. The Company recognized no revenues, expenses of approximately $50,000 and $0.1 million and no capital expenditures to Dorsal Services Inc. for the three months ended June 30, 2012 and June 30, 2011, respectively. The company recognized no revenues, expenses of approximately $0.1 million and $0.3 million for the six months ended June 30, 2012 and June 30, 2011, respectively. The Company had accounts payable to Dorsal Services, Inc. of $2,000 and $12,000 as of June 30, 2012 and December 31, 2011 respectively. The Company had accounts receivable from and accounts payable to Dorsal Services, Inc. of approximately $0.1 million as of June 30, 2012 and December 31, 2011.
Tasco Tool Services, Inc. is a down-hole tool company that is partially owned and managed by a company that is owned by Mr. Forbes, both an executive officer and director of FES Ltd., along with Robert Jenkins, a manager of one of the subsidiaries of FES Ltd. Tasco rents and sells tools to the Company from time to time. The Company had no revenues from Tasco and recognized expenses of approximately $34,000 and $51,000 and no capital expenditures related to transactions with Tasco for the three months ended June 30, 2012 and June 30, 2011, respectively. For the six months ended June 30, 2012 and June 30, 2011 the company had no revenues, expenses of approximately $49,000 and $0.1 million, and no capital expenditures. The Company had no accounts receivable and accounts payable to Tasco as of June 30, 2012 and December 31, 2011 were $0 and $0.1 million, respectively resulting from these transactions.
16
FCJ Management, LLC or FCJ, is an entity that leases land and facilities to the Company and is owned by Messrs. Crisp and Forbes and Robert Jenkins, a manager of one of the subsidiaries of FES Ltd. The Company recognized expenses of $9,000 for the three months ended June 30, 2012 and June 30, 2011. The Company had expenses of $18,000 for the six months ended June 30, 2012 and June 30, 2011. No revenues have been recognized from FCJ for any period. The Company had no accounts receivable from or accounts payable to FCJ as of June 30, 2012 and December 31, 2011.
C&F Partners, LLC is an entity that is owned by Messrs. Crisp and Forbes. The Company recognized no revenues, expenses of approximately $36,000 and $0.1 million and no capital expenditures for the three months ended June 30, 2012 and June 30, 2011, respectively. All expenses are related to aircraft rental. The Company recognized no revenues, expenses of approximately $0.2 million and no capital expenditures for the six months ended June 30, 2012 and June 30, 2011. There were no accounts receivable or accounts payable as of June 30, 2012 and December 31, 2011, respectively. As of April 2012, the Company has no further transactions with this entity.
Resonant Technology Partners is a computer networking group that provides services to the Company. Travis Burris, a director of the Company has a noncontrolling interest in the computer networking company. The company recognized expenses of approximately $0.2 million and $0.1 million and capital expenditures of approximately $0.1 million and $0 for the three months ended June 30, 2012 and June 30, 2011, respectively. The company recognized expenses of $0.3 million and $0.1 million and capital expenditures of approximately $0.2 million and $0 million for the six months ended June 30, 2012 and June 30, 2011, respectively. The Company had accounts payable of approximately $0.2 million and $0.1 million as of June 30, 2012 and December 31, 2011, respectively.
Wolverine Construction, Inc. is an entity that is owned by two sons and a brother of Mr. Crisp, an executive officer and director of FES Ltd., and a son of Mr. Forbes, an executive officer and director of FES Ltd. During the time when Wolverine was engaged by the Company to provide construction and site preparation services to certain customers of the Company, the sons and brother of Mr. Crisp were full time employees of the Company. The Company provided additional services to customers that were sub-contracted to Wolverine beginning in the fiscal year 2010 until June 2011 when the Company ceased offering such services.
The Company recognized no capital expenditures, no revenues and expenses of less than $0.1 million and approximately $3 million, for the three months ended June 30, 2012 and June 30, 2011, respectively. The company had no revenues and expenses of approximately $31,000 and $5 million for the six months ended June 30, 2012 and June 30, 2011, respectively. The Company had no accounts receivable from Wolverine as of June 30, 2012 and approximately $1.1 million as of December 31, 2011. The Company had accounts payable due Wolverine of approximately $0.1 million and $7,000 as of June 30, 2012 and December 31, 2011 respectively.
JITSU Services, LLC, or JITSU, is a financial leasing company that, since October 2010, provides services to the Company. The Company currently leases ten vacuum trucks from JITSU. Janet Forbes and Mr. Crisp are owners of JITSU. For the three months ended June 30, 2012 and June 30, 2011, the Company recognized no revenues and expenses of approximately $0.1 million and no capital expenditures from transactions with JITSU. The Company recognized no revenues, expenses of approximately $0.2 million, and no capital transactions for the six months ended June 30, 2012 and June 30, 2011. As of June 30, 2012 and December 31, 2011, the company had no accounts receivable from or accounts payable to JITSU.
Texas Quality Gate Guard Services, LLC, or Texas Quality Gate Guard Services, is an entity owned by Messrs. Crisp and Forbes and a son of Mr. Crisp, an executive officer and director of FES Ltd., which said son during that time was also a full time employee of the Company. Since October 2010, Texas Quality Gate Guard Services has provided security services to the Company. The Company bills its customers for these services without a markup. For the three months ended June 30, 2012 and June 30, 2011, the Company recognized no revenues, expenses of approximately $0.1 million and $0.1 million and no capital expenditures from transactions with Texas Quality Gate Guard Services. The Company recognized no revenues, expenses of approximately $0.3 million and $0.1 million, and no capital expenditures for the six months ended June 30, 2012 and June 30, 2011, respectively. As of June 30, 2012 and December 31, 2011, the company had no accounts receivable and accounts payable to Texas Quality Gate Guard of approximately $0 and $0.1 million, respectively.
Animas Holdings, LLC, or Animas, is a property and disposal company that is owned by the two sons of Mr. Crisp and three children of Mr. Forbes and Ms. Forbes. As of April 26, 2010, TES entered into a waste water disposal operating agreement with Animas whereby TES agrees to pay a monthly operational fee of $4,000 per month, plus $0.08 per barrel over 50,000 barrels per month. Animas agrees to pay TES ten percent of all skim oil payments obtained from this waste water disposal. The Company also has an oral agreement with Animas for the rental of two truck yards. The Company pays Animas $8,500 per month for the use of the two properties. For the three months ended June 30, 2012 and June 30, 2011, the Company
17
recognized no revenues; expenses of approximately $0 and $0.1 million and no capital expenditures from transactions with Animas Holding, LLC. For the six months ended June 30, 2012 and June 30, 2011, the Company recognized no revenues; expenses of $26,000 and $0.2 million, and no capital expenditures, respectively. As of June 30, 2012 and December 31, 2011, the Company had no accounts receivable and accounts payable of $0 and $31,000 to Animas Holding, LLC.
The Company has a relationship with Texas Champion Bank. Travis Burris, one of the directors of FES Ltd., is also the President, Chief Executive Officer, and director of Texas Champion Bank. Mr. Crisp, our President and Chief Executive Officer, serves on the board of directors of Texas Champion Bank. As of June 30, 2012 and December 31, 2011, the Company had $0.6 million and $2.4 million, respectively, on deposit with this bank.
Daniel Crisp, a son of John E. Crisp, the Chief Executive Officer of the Company, was employed as a manager by C.C. Forbes, LLC and TX Energy Services, LLC, both subsidiaries of the Company, until March 2012. Daniel Crisp received salary compensation of $199,831 in 2011 and $99,000 during the portion of 2012 when he was working for the Company. Daniel Crisp received an option to purchase 200,000 shares of common stock at $28.00 per share in May 2008, which award vested over three years. He received an option to purchase 25,000 shares of common stock at $2.60 per share in August 2010, which award vests over two years. Daniel Crisp tendered his May 2008 options in the previously discussed 2011 Option Exchange and received new options to purchase 36,000 shares of common stock, at an exercise price of $9.32 per share, which award vests over one year. On August 15, 2011, Daniel Crisp received options to purchase 214,000 shares of common stock, at an exercise price of $9.16 per share, which award vests over three years. When Daniel Crisp ceased working for the Company all unvested options were for forfeited. Daniel Crisp exercised 18,750 stock options on June 1, 2012 and the remaining vested options were forfeited on June 6, 2012.
Marcus Crisp, a brother of John E. Crisp, is employed as the West Texas Fluids Manager by C.C. Forbes, LLC and TX Energy Services, LLC, both subsidiaries of the Company. Marcus Crisp received salary compensation of $171,567 in 2011 and $121,644 during for the first half of 2012. Marcus Crisp received an option to purchase 12,500 shares of common stock at $28.00 per share in May 2008, which award vested over three years. He received an option to purchase 18,750 shares of common stock at $2.60 per share in August 2010, which award vests over two years. Marcus Crisp tendered his May 2008 options in the previously discussed 2011 Option Exchange and received new options to purchase 9,000 shares of common stock, at an exercise price of $9.32 per share. In August 2011, Marcus Crisp received options to purchase 125,000 shares of common stock, at an exercise price of $9.16 per share, which award vests over three years. In February 2012, Marcus Crisp was granted a restricted stock award in the amount of 41,666 shares, vesting one year from the date of grant.
Messrs. Crisp and Forbes are directors and shareholders of Brush Country Bank, an institution with which the Company conducts business. As of June 30, 2012 and December 31, 2011, the Company had $0.1 million and $0.9 million on deposit with this bank.
10. Commitments and Contingencies
Concentrations of Credit Risk
Financial instruments which subject the Forbes Group to credit risk consist primarily of cash balances maintained in excess of federal depository insurance limits and trade receivables. All of our non-interest bearing cash balances were fully insured at June 30, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and our non-interest bearing cash balances may again exceed federally insured limits. The Forbes Group restricts investment of temporary cash investments to financial institutions with high credit standings. The Forbes Groups customer base consists primarily of multi-national and independent oil and natural gas producers. The Forbes Group does not require collateral on its trade receivables. For the three months ended June 30, 2012 the Company's largest customer, five largest customers, and ten largest customers constituted 9.5%, 38.2%, and 58.9% of revenues, respectively. For the six months ended June 30, 2012 the Company's largest customer, five largest customers, and ten largest customers constituted 11.5%, 39.3%, 58.0% and of revenues, respectively. The loss of any one of our top five customers would have a negative impact on the revenues and profits of the company. Further, our trade accounts receivable are from companies within the oil and natural gas industry and as such the Forbes Group is exposed to normal industry credit risks. The Forbes Group continually evaluates its reserves for potential credit losses and establishes reserves for such losses.
Self-Insurance
The Forbes Group is self-insured under its Employee Group Medical Plan for the first $125,000 per individual plus a $235,000 aggregate specific deductible. Incurred and unprocessed claims as of June 30, 2012 and December 31, 2011 amount to approximately $4.7 and $3.9 million, respectively. These claims are unprocessed and therefore their values are estimated and included in accrued expenses in the accompanying condensed consolidated balance sheets.
18
Litigation
The Forbes Group is subject to various other claims and legal actions that arise in the ordinary course of business. We do not believe that any of these claims and actions, separately or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or cash flows, although we cannot guarantee that a material adverse effect will not occur.
Off-Balance Sheet Arrangements
We are often party to certain transactions that require off-balance sheet arrangements such as performance bonds, guarantees, operating leases for equipment, and bank guarantees that are not reflected in our condensed consolidated balance sheets. These arrangements are made in our normal course of business and they are not reasonably likely to have a current or future material adverse effect on our financial condition, results of operations, liquidity or cash flows.
11. Supplemental Cash Flow Information
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Cash paid for |
||||||||||||||||
Interest |
$ | 12,815,820 | $ | 11,359,783 | $ | 13,009,848 | $ | 24,268,829 | ||||||||
Income tax |
$ | 225,025 | $ | | $ | 450,025 | $ | | ||||||||
Supplemental schedule of non-cash investing and financing activities |
||||||||||||||||
Changes in accounts payable related to capital expenditures |
$ | (8,822,182 | ) | $ | 1,078,562 | $ | (241,392 | ) | $ | 1,792,137 | ||||||
Capital leases on equipment |
$ | 1,067,111 | $ | 2,045,638 | $ | 1,947,107 | $ | 2,557,308 | ||||||||
Preferred shares dividends and accretion costs |
$ | 10,371 | $ | 1,084,271 | $ | 20,742 | $ | 201,687 | ||||||||
Adjustment to reclass dividends payable from temporary equity to liabilities |
$ | | $ | 612,565 | $ | | $ | 612,565 |
12. Earnings per Share
Basic earnings per share (EPS) is computed by dividing net income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue common shares, such as warrants, options and convertible preference shares, were exercised and converted into common shares. Potential common stock equivalents that have been issued by the Forbes Group relate to outstanding stock options and restricted stock which are determined using the treasury stock method, and the Series B Senior Convertible Preferred Shares (the Series B Preferred Shares), which are determined using the if converted method. In applying the if-converted method, conversion is not assumed for purposes of computing diluted EPS if the effect would be antidilutive. As of June 30, 2012 and June 30, 2011, there were 2.0 million and 1.3 million options to purchase common shares outstanding, respectively and 588,059 Series B Senior Convertible Preferred Shares. The preferred stock is convertible at a rate of nine common shares to one Series B Preferred Share.
The Company has determined that the Series B Preferred Shares are participating securities under ASC 260. Under ASC 260, a security is considered a participating security if the security may participate in undistributed earnings with common stock, whether that participation is conditioned upon the occurrence of a specified event or not. In accordance with ASC 260, a company is required to use the two-class method when computing EPS when a company has a security that qualifies as a participating security. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. A participating security is included in the computation of basic EPS using the two-class method. Under the two-class method, basic EPS for the Companys common shares is computed by dividing net income applicable to common shares by the weighted-average common shares outstanding during the period. Under the certificate of designation for our Series B Preferred Shares (the Series B Certificate of Designation), if at any time the Company declares a dividend in cash which is greater in value than five percent on a cumulative basis over the previous twelve month period of the then current Common Share Fair Market Value, as that term is defined in the Series B Certificate of Designation, the Series B Preferred Shares will be entitled to receive a dividend payable in cash equal to the amount in excess of five percent of the then Common Share Fair Market Value per common share they would have received if all outstanding Series B Preferred Shares had been converted into common shares. There were no earnings allocated to the Series B Preferred Shares for the quarter ended June 30, 2012 since
19
earnings for the quarter were not in excess of amounts prescribed by the Series B Certificate of Designation for our Series B Preferred Shares. Diluted EPS for the Companys common shares is computed using the more dilutive of the two-class method or the if-converted method. The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Weighted average shares outstanding |
21,055,642 | 20,918,400 | 21,020,628 | 20,918,400 | ||||||||||||
Dilutive effect of stock options and restricted stock |
277,279 | | 307,885 | | ||||||||||||
Dilutive effect of preferred shares |
5,292,531 | | 5,292,531 | | ||||||||||||
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|
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|
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|
|
|||||||||
Diluted weighted average shares outstanding |
26,625,452 | 20,918,400 | 26,621,044 | 20,918,400 | ||||||||||||
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|
|
There were 1,997,925 shares subject to outstanding stock options and 83,332 restricted stock units outstanding as of June 30, 2012, and 5,292,531 common share equivalents underlying the Series B Preferred Shares that were included in the calculation of diluted EPS for the three and six months ended June 30, 2012. There were 1,305,000 million stock options outstanding as of June 30, 2011 and 5,292,531 common share equivalents underlying the Series B Preferred Shares that were not included in the calculation of diluted EPS for the three and six months ended June 30, 2011 because their effect would have been antidilutive.
The following table sets forth the computation of basic and diluted earnings per share:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Basic: |
||||||||||||||||
Net income (loss) |
$ | 1,020,343 | $ | (24,694,702 | ) | $ | 7,362,953 | $ | (22,790,184 | ) | ||||||
Preferred stock dividends and accretion |
(194,139 | ) | 1,084,271 | (388,278 | ) | 201,687 | ||||||||||
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|
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|||||||||
Net income attributable to common stockholders |
826,204 | (23,610,431 | ) | 6,974,675 | (22,588,497 | ) | ||||||||||
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Weighted-average common shares |
21,055,642 | 20,918,400 | 21,020,628 | 20,918,400 | ||||||||||||
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|
|||||||||
Basic income per share |
$ | 0.04 | $ | (1.13 | ) | $ | 0.33 | $ | (1.08 | ) | ||||||
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Diluted: |
||||||||||||||||
Net income |
$ | 1,020,343 | $ | (24,694,702 | ) | $ | 7,362,953 | $ | (22,790,184 | ) | ||||||
Preferred stock dividends and accretion |
| 1,084,271 | | 201,687 | ||||||||||||
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|||||||||
Net income attributable to common stockholders |
1,020,343 | (23,610,431 | ) | 7,362,953 | (22,588,497 | ) | ||||||||||
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Weighted-average common shares |
26,625,452 | 20,918,400 | 26,621,044 | 20,918,400 | ||||||||||||
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Diluted income per share |
$ | 0.04 | $ | (1.13 | ) | $ | 0.28 | $ | (1.08 | ) | ||||||
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13. Income Taxes
The Companys tax expense from application of the effective tax rate for the six months ended June 30, 2012 was estimated to be 44.6% based on pre-tax income of $14.2 million. For the six months ended June 30, 2011, the Companys effective tax rate was 31.5%. The difference between the effective rate and 35.0% statutory rate is primarily related to changes in forecast, Texas Margins Tax and other non-deductible expenses.
The Forbes Group is subject to the Texas Margins Tax. The Texas Margins Tax is a tax equal to one percent of Texas-sourced revenue reduced by the greater of (a) cost of goods sold (as defined by Texas law), (b) compensation (as defined by Texas law) or (c) thirty percent of the Texas-sourced revenue. The Forbes Group accounts for the revised Texas Franchise tax in accordance with ASC 740, as the tax is derived from a taxable base that consists of income less deductible expenses. As of June 30, 2012, the estimated annual franchise tax expense is estimated to be approximately $0.8 million for 2012.
20
14. Business Segment Information
The Forbes Group has determined that it has two reportable segments organized based on its products and serviceswell servicing and fluid logistics and other. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
Well Servicing
The well servicing segment consists of operations in the U.S. that provides (i) well maintenance, including remedial repairs and removal and replacement of down-hole production equipment, (ii) well workovers, including significant down-hole repairs, re-completions and re-perforations, (iii) completion and swabbing activities, and (iv) plugging and abandoning services. In addition, the Forbes Group has tubing testing units that are used to conduct pressure testing of oil and natural gas production tubing.
Fluid Logistics and Other
The fluid logistics and other segment consists of operations in the U.S., which provide, transport, store and dispose of a variety of drilling and produced fluids used in and generated by oil and natural gas production activities. These services are required in most work-over and completion projects and are routinely used in daily producing well operations. In the fiscal year 2010, the Company began providing site preparation services which were complementary to the traditional services offered by the Company. Wolverine Construction, Inc., a related party, was sub-contracted to complete such services. The Company ceased offering these services in June 2011. The following table sets forth certain financial information from continuing operations with respect to the Companys reportable segments in (000)s for the three and six months ended June 30, 2012 and June 30, 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
Well Servicing |
Fluid Logistics |
Consolidated | Well Servicing |
Fluid Logistics |
Consolidated | |||||||||||||||||||
2012 |
||||||||||||||||||||||||
Operating revenues |
$ | 51,315 | $ | 68,470 | $ | 119,785 | $ | 103,554 | $ | 147,715 | $ | 251,269 | ||||||||||||
Direct operating costs |
37,453 | 49,354 | 86,807 | 76,541 | 104,210 | 180,751 | ||||||||||||||||||
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|
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Segment profits |
$ | 13,862 | $ | 19,116 | $ | 32,978 | $ | 27,013 | $ | 43,505 | $ | 70,518 | ||||||||||||
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|
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Depreciation and amortization |
$ | 5,689 | $ | 6,776 | $ | 12,465 | $ | 11,271 | $ | 12,615 | $ | 23,886 | ||||||||||||
Capital expenditures |
7,437 | 30,134 | 37,571 | 18,122 | 73,219 | 91,341 | ||||||||||||||||||
Total assets |
505,676 | 443,135 | 948,811 | 505,676 | 443,135 | 948,811 | ||||||||||||||||||
2011 |
||||||||||||||||||||||||
Operating revenues |
$ | 42,035 | $ | 68,783 | $ | 110,818 | $ | 78,449 | $ | 127,030 | $ | 205,479 | ||||||||||||
Direct operating costs |
34,388 | 50,690 | 85,078 | 64,149 | 92,913 | 157,062 | ||||||||||||||||||
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Segment profits |
$ | 7,647 | $ | 18,093 | $ | 25,740 | $ | 14,300 | $ | 34,117 | $ | 48,417 | ||||||||||||
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Depreciation and amortization |
$ | 5,053 | $ | 4,489 | $ | 9,542 | $ | 10,247 | $ | 8,969 | $ | 19,216 | ||||||||||||
Capital expenditures |
15,980 | 7,485 | 23,465 | 20,399 | 7,673 | 28,072 | ||||||||||||||||||
Total assets |
398,079 | 315,436 | 713,515 | 398,079 | 315,436 | 713,515 |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Reconciliation of the Forbes Group Operating Income As Reported: |
||||||||||||||||
Segment profits |
$ | 32,978 | $ | 25,740 | $ | 70,518 | $ | 48,417 | ||||||||
General and administrative expense |
8,075 | 13,107 | 18,745 | 18,797 | ||||||||||||
Depreciation and amortization |
12,465 | 9,542 | 23,886 | 19,216 | ||||||||||||
Operating income |
12,438 | 3,091 | 27,887 | 10,404 | ||||||||||||
Other income and expenses, net |
(6,841 | ) | (42,147 | ) | (13,713 | ) | (49,074 | ) | ||||||||
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Income from continuing operations before income taxes |
$ | 5,597 | $ | (39,056 | ) | $ | 14,174 | $ | (38,670 | ) | ||||||
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21
June 30, 2012 | December 31, 2011 | |||||||
Reconciliation of the Forbes Group Assets As Reported: |
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Total reportable segments |
$ | 948,811 | $ | 859,869 | ||||
Elimination of internal transactions |
(1,399,449 | ) | (1,280,509 | ) | ||||
Parent |
986,084 | 971,063 | ||||||
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Total assets |
$ | 535,446 | $ | 550,423 | ||||
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15. Guarantor and Non-Guarantor Condensed Consolidating Financial Statements
Prior to January 12, 2012, when the Company completed the disposition of its business and substantially all of its assets in Mexico, the Company had certain foreign significant subsidiaries that did not guarantee the 9% Senior Notes discussed in Note 7 and is required to present the following condensed consolidating financial information pursuant to Rule 3-10 of Regulation S-X. These schedules are presented using the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the Companys share in the subsidiaries cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.
There are no significant restrictions on FES Ltds ability or the ability of any guarantor to obtain funds from its subsidiaries by such means as a dividend or loan.
Supplemental financial information for Forbes Energy Services Ltd., the parent and issuer, our combined subsidiary guarantors and our non-guarantor subsidiaries is presented below.
22
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Balance Sheets (unaudited)
As of June 30, 2012
Parent/Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 940,156 | $ | 8,866,839 | $ | | $ | | $ | 9,806,995 | ||||||||||
Accounts receivable |
1,176,189 | 105,317,279 | | (363,598 | ) | 106,129,870 | ||||||||||||||
Other current assets |
450,000 | 6,029,056 | | | 6,479,056 | |||||||||||||||
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Total current assets |
2,566,345 | 120,213,174 | | (363,598 | ) | 122,415,921 | ||||||||||||||
Property and equipment, net |
| 354,418,149 | | | 354,418,149 | |||||||||||||||
Investments in affiliates |
63,597,849 | 208,166,568 | | (271,764,417 | ) | | ||||||||||||||
Intercompany receivables |
328,711,659 | | 10,972,799 | (339,684,458 | ) | 0 | ||||||||||||||
Intercompany note receivable |
| | | | | |||||||||||||||
Other intangible assets, net |
| 29,445,791 | | | 29,445,791 | |||||||||||||||
Deferred financing costsnet |
6,560,714 | 2,190,974 | | | 8,751,688 | |||||||||||||||
Restricted cash |
| 16,545,523 | | | 16,545,523 | |||||||||||||||
Other assets |
3,000 | 3,866,088 | | | 3,869,088 | |||||||||||||||
Noncurrent assets held for sale |
| | | | | |||||||||||||||
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Total assets |
$ | 401,439,567 | $ | 734,846,267 | $ | 10,972,799 | $ | (611,812,473 | ) | $ | 535,446,160 | |||||||||
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Liabilities and Shareholders Equity |
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Current liabilities |
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Current portions of long-term debt |
$ | | $ | 5,987,887 | $ | | $ | | $ | 5,987,887 | ||||||||||
Trade accounts payable |
16,450 | 39,428,535 | | (363,598 | ) | 39,081,387 | ||||||||||||||
Accrued dividends |
61,259 | | | | 61,259 | |||||||||||||||
Other liabilities |
351,610 | 14,055,219 | | | 14,406,829 | |||||||||||||||
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Total current liabilities |
429,319 | 59,471,641 | | (363,598 | ) | 59,537,362 | ||||||||||||||
Long-term debtnet |
280,000,000 | 11,331,979 | | | 291,331,979 | |||||||||||||||
Intercompany payables |
| 326,490,716 | 13,193,741 | (339,684,457 | ) | | ||||||||||||||
Intercompany notes payable |
| | | | | |||||||||||||||
Deferred tax liability |
(29,652,157 | ) | 63,627,640 | (61,069 | ) | | 33,914,414 | |||||||||||||
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Total liabilities |
250,777,162 | 460,921,976 | 13,132,672 | (340,048,055 | ) | 384,783,755 | ||||||||||||||
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Series B convertible shares |
14,497,525 | | | | 14,497,525 | |||||||||||||||
Shareholders equity: |
136,164,880 | 273,924,291 | (2,159,873 | ) | (271,764,418 | ) | 136,164,880 | |||||||||||||
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|||||||||||
Total liabilities and equity |
$ | 401,439,567 | $ | 734,846,267 | $ | 10,972,799 | $ | (611,812,473 | ) | $ | 535,446,160 | |||||||||
|
|
|
|
|
|
|
|
|
|
23
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Balance Sheets
As of December 31, 2011
Parent/Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 15,565,491 | $ | 20,988,105 | $ | 46,495 | $ | | $ | 36,600,091 | ||||||||||
Accounts receivable |
29,566,358 | 106,853,245 | 1,493,791 | (991,356 | ) | 136,922,038 | ||||||||||||||
Other current assets |
10,599 | 10,274,046 | | | 10,284,645 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
45,142,448 | 138,115,396 | 1,540,286 | (991,356 | ) | 183,806,774 | ||||||||||||||
Property and equipment, net |
| 285,944,684 | | | 285,944,684 | |||||||||||||||
Investments in affiliates |
26,209,153 | 163,532,443 | | (189,741,596 | ) | | ||||||||||||||
Intercompany receivables |
335,660,170 | | 11,502,122 | (347,162,292 | ) | | ||||||||||||||
Intercompany note receivable |
1,024,301 | | | (1,024,301 | ) | | ||||||||||||||
Other intangible assets, net |
| 30,876,389 | | | 30,876,389 | |||||||||||||||
Deferred financing costsnet |
6,976,241 | 2,427,576 | | | 9,403,817 | |||||||||||||||
Restricted cash |
| 16,150,433 | | | 16,150,433 | |||||||||||||||
Other assets |
14,890 | 11,482 | 4,504 | | 30,876 | |||||||||||||||
Noncurrent assets held for sale |
2,138,704 | 21,572,656 | 498,720 | | 24,210,080 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 417,165,907 | $ | 658,631,059 | $ | 13,545,632 | $ | (538,919,545 | ) | $ | 550,423,053 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and Shareholders Equity |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Current portions of long-term debt |
$ | | $ | 10,517,233 | $ | | $ | | $ | 10,517,233 | ||||||||||
Trade accounts payable |
10,684,760 | 41,120,820 | (16,198 | ) | | 51,789,382 | ||||||||||||||
Accrued dividends |
61,259 | | | | 61,259 | |||||||||||||||
Other liabilities |
22,237,502 | 10,870,949 | 1,564,732 | | 34,673,183 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
32,983,521 | 62,509,002 | 1,548,534 | | 97,041,057 | |||||||||||||||
Long-term debtnet |
280,000,000 | 5,633,042 | | | 285,633,042 | |||||||||||||||
Intercompany payables |
| 334,959,907 | 13,193,742 | (348,153,649 | ) | | ||||||||||||||
Intercompany notes payable |
| | 1,024,301 | (1,024,301 | ) | | ||||||||||||||
Deferred tax liability |
(36,074,758 | ) | 63,627,638 | (61,069 | ) | | 27,491,811 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
276,908,763 | 466,729,589 | 15,705,508 | (349,177,950 | ) | 410,165,910 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Series B convertible shares |
14,476,783 | | | | 14,476,783 | |||||||||||||||
Shareholders equity: |
125,780,361 | 191,901,470 | (2,159,876 | ) | (189,741,595 | ) | 125,780,360 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 417,165,907 | $ | 658,631,059 | $ | 13,545,632 | $ | (538,919,545 | ) | $ | 550,423,053 | |||||||||
|
|
|
|
|
|
|
|
|
|
24
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Statement of Operations (unaudited)
For the three months ended June 30, 2012
Parent/Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenue |
||||||||||||||||||||
Well servicing |
$ | | $ | 51,514,002 | $ | | $ | (199,617 | ) | $ | 51,314,385 | |||||||||
Fluid logistics and other |
| 68,538,846 | | (68,473 | ) | 68,470,373 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
| 120,052,848 | | (268,090 | ) | 119,784,758 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Expenses |
||||||||||||||||||||
Well servicing |
279,085 | 37,242,101 | | (68,473 | ) | 37,452,713 | ||||||||||||||
Fluid logistics and other |
| 49,553,936 | | (199,617 | ) | 49,354,319 | ||||||||||||||
General and administrative |
1,224,833 | 6,849,877 | | | 8,074,710 | |||||||||||||||
Depreciation and amortization |
| 12,465,442 | | | 12,465,442 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total expenses |
1,503,918 | 106,111,356 | | (268,090 | ) | 107,347,184 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
(1,503,918 | ) | 13,941,492 | | | 12,437,574 | ||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense - net |
(6,517,019 | ) | (323,797 | ) | | | (6,840,816 | ) | ||||||||||||
Equity in income of affiliates |
13,617,695 | | | (13,617,695 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before taxes |
5,596,758 | 13,617,695 | | (13,617,695 | ) | 5,596,758 | ||||||||||||||
Income tax expense |
2,950,257 | | | | 2,950,257 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income from continuing operations |
2,646,501 | 13,617,695 | | (13,617,695 | ) | 2,646,501 | ||||||||||||||
Net loss from discontinued operations, net of tax expense |
(1,626,158 | ) | | | | (1,626,158 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 1,020,343 | $ | 13,617,695 | $ | | $ | (13,617,695 | ) | $ | 1,020,343 | |||||||||
|
|
|
|
|
|
|
|
|
|
25
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Statement of Operations (unaudited)
For the three months ended June 30, 2011
Parent/Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenue |
||||||||||||||||||||
Well servicing |
$ | | $ | 42,034,263 | $ | | $ | | $ | 42,034,263 | ||||||||||
Fluid logistics and other |
| 68,783,378 | | | 68,783,378 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
| 110,817,641 | | | 110,817,641 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Expenses |
||||||||||||||||||||
Well servicing |
758,199 | 33,629,458 | | | 34,387,657 | |||||||||||||||
Fluid logistics and other |
| 50,690,794 | | | 50,690,794 | |||||||||||||||
General and administrative |
8,333,651 | 4,773,250 | | | 13,106,901 | |||||||||||||||
Depreciation and amortization |
| 9,541,539 | | | 9,541,539 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total expenses |
9,091,850 | 98,635,041 | | | 107,726,891 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
(9,091,850 | ) | 12,182,600 | | | 3,090,750 | ||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense - net |
(6,674,763 | ) | (125,098 | ) | | | (6,799,861 | ) | ||||||||||||
Other income (expense) - net |
(35,415,733 | ) | 69,104 | | | (35,346,629 | ) | |||||||||||||
Equity in income of affiliates |
12,126,606 | | | (12,126,606 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before taxes |
(39,055,740 | ) | 12,126,606 | | (12,126,606 | ) | (39,055,740 | ) | ||||||||||||
Income tax benefit |
(12,489,453 | ) | | | | (12,489,453 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) from continuing operations |
(26,566,287 | ) | 12,126,606 | | (12,126,606 | ) | (26,566,287 | ) | ||||||||||||
Net income from discontinued operations, net of tax expense |
1,871,585 | | | | 1,871,585 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (24,694,702 | ) | $ | 12,126,606 | $ | | $ | (12,126,606 | ) | $ | (24,694,702 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
26
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Statement of Operations (unaudited)
For the six months ended June 30, 2012
Parent/Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenue |
||||||||||||||||||||
Well servicing |
$ | | $ | 103,753,816 | $ | | $ | (199,617 | ) | $ | 103,554,199 | |||||||||
Fluid logistics and other |
| 147,783,612 | | (68,473 | ) | 147,715,139 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
| 251,537,428 | | (268,090 | ) | 251,269,338 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Expenses |
||||||||||||||||||||
Well servicing |
911,676 | 75,697,917 | | (68,473 | ) | 76,541,120 | ||||||||||||||
Fluid logistics and other |
| 104,409,718 | | (199,617 | ) | 104,210,101 | ||||||||||||||
General and administrative |
2,761,413 | 15,983,048 | | | 18,744,461 | |||||||||||||||
Depreciation and amortization |
| 23,886,158 | | | 23,886,158 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total expenses |
3,673,089 | 219,976,841 | | (268,090 | ) | 223,381,840 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
(3,673,089 | ) | 31,560,587 | | | 27,887,498 | ||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense - net |
(13,032,528 | ) | (680,472 | ) | | | (13,713,000 | ) | ||||||||||||
Equity in income of affiliates |
30,880,115 | | | (30,880,115 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before taxes |
14,174,498 | 30,880,115 | | (30,880,115 | ) | 14,174,498 | ||||||||||||||
Income tax expense |
6,317,008 | | | | 6,317,008 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income from continuing operations |
7,857,490 | 30,880,115 | | (30,880,115 | ) | 7,857,490 | ||||||||||||||
Net loss from discontinued operations, net of tax expense |
(494,537 | ) | | | | (494,537 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 7,362,953 | $ | 30,880,115 | $ | | $ | (30,880,115 | ) | $ | 7,362,953 | |||||||||
|
|
|
|
|
|
|
|
|
|
27
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Statement of Operations (unaudited)
For the six months ended June 30, 2011
Parent/Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenue |
||||||||||||||||||||
Well servicing |
$ | | $ | 78,448,693 | $ | | $ | | $ | 78,448,693 | ||||||||||
Fluid logistics and other |
| 127,030,201 | | | 127,030,201 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
| 205,478,894 | | | 205,478,894 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Expenses |
||||||||||||||||||||
Well servicing |
1,293,876 | 62,855,329 | | | 64,149,205 | |||||||||||||||
Fluid logistics and other |
| 92,913,371 | | | 92,913,371 | |||||||||||||||
General and administrative |
10,628,283 | 8,168,321 | | | 18,796,604 | |||||||||||||||
Depreciation and amortization |
| 19,216,212 | | | 19,216,212 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total expenses |
11,922,159 | 183,153,233 | | | 195,075,392 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
(11,922,159 | ) | 22,325,661 | | | 10,403,502 | ||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense - net |
(13,234,231 | ) | (493,889 | ) | | | (13,728,120 | ) | ||||||||||||
Other income (expense) - net |
(35,414,833 | ) | 69,104 | | | (35,345,729 | ) | |||||||||||||
Equity in income of affiliates |
21,900,876 | | | (21,900,876 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before taxes |
(38,670,347 | ) | 21,900,876 | | (21,900,876 | ) | (38,670,347 | ) | ||||||||||||
Income tax benefit |
(12,191,067 | ) | | | | (12,191,067 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) from continuing operations |
(26,479,280 | ) | 21,900,876 | | (21,900,876 | ) | (26,479,280 | ) | ||||||||||||
Net income from discontinued operations, net of tax expense |
3,689,096 | | | | 3,689,096 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (22,790,184 | ) | $ | 21,900,876 | $ | | $ | (21,900,876 | ) | $ | (22,790,184 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
28
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Statement of Cash Flows (unaudited)
For the six months ended June 30, 2012
Parent/Issuer | Guarantors | Non-Guarantors | Consolidated | |||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net cash provided by (used in) operating activities |
$ | (20,600,269 | ) | $ | 65,588,460 | $ | (46,495 | ) | $ | 44,941,696 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||||||
Proceeds from sale of property and equipment |
| 14,284,764 | | 14,284,764 | ||||||||||||
Change in restricted cash |
| (395,090 | ) | | (395,090 | ) | ||||||||||
Purchases of property and equipment |
| (89,571,226 | ) | | (89,571,226 | ) | ||||||||||
Change in deposits on assets held for sale |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
| (75,681,552 | ) | | (75,681,552 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from financing activities: |
||||||||||||||||
Payments on debt |
| (1,947,107 | ) | | (1,947,107 | ) | ||||||||||
Proceeds from revolving credit facility |
6,000,000 | | | 6,000,000 | ||||||||||||
Other |
(297,536 | ) | (81,067 | ) | | (378,603 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in financing activities |
5,702,464 | (2,028,174 | ) | | 3,674,290 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of currency translation |
272,470 | | | 272,470 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net decrease in cash |
(14,625,335 | ) | (12,121,266 | ) | (46,495 | ) | (26,793,096 | ) | ||||||||
Cash and cash equivalents |
||||||||||||||||
Beginning of period |
15,565,491 | 20,988,105 | 46,495 | 36,600,091 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 940,156 | $ | 8,866,839 | $ | | $ | 9,806,995 | ||||||||
|
|
|
|
|
|
|
|
29
Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)
Condensed Consolidated Statement of Cash Flows (unaudited)
For the six months ended June 30, 2011
Parent/Issuer | Guarantors | Non-Guarantors | Consolidated | |||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net cash provided by (used in) operating activities |
$ | (34,161,267 | ) | $ | 11,305,357 | $ | (65,950 | ) | $ | (22,921,860 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||||||
Proceeds from sale of property and equipment |
| 527,102 | | 527,102 | ||||||||||||
Change in restricted cash |
(23,213,666 | ) | 16,128,456 | | (7,085,210 | ) | ||||||||||
Purchases of property and equipment |
| (23,678,077 | ) | | (23,678,077 | ) | ||||||||||
Change in deposits on assets held for sale |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) investing activities |
(23,213,666 | ) | (7,022,519 | ) | | (30,236,185 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from financing activities: |
||||||||||||||||
Payments on debt |
| (2,557,308 | ) | | (2,557,308 | ) | ||||||||||
Retirement of Second Priority Notes |
(212,500,000 | ) | | | (212,500,000 | ) | ||||||||||
Proceeds from issuance of Senior Notes |
280,000,000 | | | 280,000,000 | ||||||||||||
Other |
(7,418,175 | ) | | | (7,418,175 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in financing activities |
60,081,825 | (2,557,308 | ) | | 57,524,517 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of currency translation |
94,435 | | | 94,435 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net decrease in cash |
2,801,327 | 1,725,530 | (65,950 | ) | 4,460,907 | |||||||||||
Cash and cash equivalents |
||||||||||||||||
Beginning of period |
8,954,723 | 21,388,712 | 115,022 | 30,458,457 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 11,756,050 | $ | 23,114,242 | $ | 49,072 | $ | 34,919,364 | ||||||||
|
|
|
|
|
|
|
|
16. Equity Securities
Common Stock
Holders of common stock have no pre-emptive, redemption, conversion, or sinking fund rights. Holders of common stock are entitled to one vote per share on all matters submitted to a vote of holders of common stock. Unless a different majority is required by law or by the bylaws, resolutions to be approved by holders of common stock require approval by a simple majority of votes cast at a meeting at which a quorum is present. In the event of the liquidation, dissolution, or winding up of the Company, the holders of common stock are entitled to share equally and ratably in the Companys assets, if any, remaining after the payment of all of its debts and liabilities, subject to any liquidation preference on any issued and outstanding preferred stock.
Series B Senior Convertible Preferred Stock
Under our Certificate of Designation, we are authorized to issue 825,000 shares of Series B Senior Convertible Preferred Stock (the Series B Preferred Shares), par value $0.01 per share. On May 28, 2010 the Company completed a private placement of 580,800 Series B Preferred Stock at a price per share of CAD $26.37 for an aggregate purchase price in the amount of USD $14,520,000 based on the exchange rate between U.S. dollars and Canadian dollars then in effect of $1.00 to CDN $1.0547. The Company received net proceeds of USD $13,828,205 after closing fee paid to investors of $290,400 and legal fees and other offering costs of $401,395. This is presented as temporary equity on the balance sheet. The common stock into which the Series B Preferred Stock is convertible has certain demand and piggyback registration rights.
The Company paid a closing fee to the Investors of $290,400 which is netted with the proceeds from the sale of the Series B Preferred Stock in temporary equity on the consolidated balance sheet. The value of the Series B Preferred Stock, for accounting purposes, is being accreted up to redemption value from the date of issuance to the earliest redemption date of the instrument using the effective interest rate method. If the Series B Preferred Stock had been redeemed as of June 30, 2012 and December 31, 2011, the redemption amount would have been approximately $14.5 million in each instance.
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Dividends
The Series B Preferred Stock is entitled to receive preferential dividends equal to five percent (5%) per annum of the original issue price per share, payable quarterly in February, May, August and November of each year. Such dividends may be paid by the Company in cash or in kind (in the form of additional shares of Series B Preferred Stock). In the event that the payment in cash or in kind of any such dividend would cause the Company to violate a covenant under its debt agreements, the obligation to pay, in cash or in kind, will be suspended until the earlier to occur of (i) and only to the extent any restrictions under the debt agreements lapse or are no longer applicable or (ii) February 16, 2015. During any such suspension period, the preferential dividends shall continue to accrue and accumulate. As shares of the Series B Preferred Stock are convertible into shares of our common stock, each dividend paid in kind will have a dilutive effect on our shares of common stock.
Preferred stock dividends are recorded at their fair value. If paid in cash, the amount paid represents fair value. If paid in kind, the fair value of the preferred stock dividends is determined using valuation techniques that include a component representing the intrinsic value of the dividends (which represents the fair value of the common stock into which the preferred stock could be converted) and an option component (which is determined using a Black-Scholes Option Pricing Model). Dividends and accretion for the three and six months ended June 30, 2012 were $0.2 million and $0.4 million. Dividends for the quarterly periods ended November 28, 2011, February 28, 2011, and May 28, 2011 were not paid on the Series B preferred shares. Amounts were accrued representing the fair value of shares expected to be paid in kind.The Company had not paid these dividends in cash at that time due to certain restrictions in the indentures governing the Second Priority Notes and the First Priority Notes, and had not paid these dividends in-kind because the Toronto Stock Exchange had taken the position that, in light of the market price of the Companys common shares, the issuance of additional shares of Series B Preferred Stock as a dividend in-kind would violate Toronto Stock Exchange rules regarding the issuance of discounted shares, unless the Company received shareholder approval for such an issuance (which we subsequently received). After the extinguishment of the Second Priority Notes and the First Priority Notes, the Company was no longer restricted from paying cash dividends as the indenture governing the 9% Senior Notes specifically allowed cash dividends on the Series B Preferred Stock up to specific levels. During the quarter ended June 30, 2011, cumulative preferred dividends were remeasured using the contractual 5% rate. An adjustment of $1.1 million and $0.2 million was reflected as a component of preferred shares dividends in the statement of operations for the three and six months ended June 30, 2011. Since then, quarterly dividends have been paid in cash. The Company currently intends to pay all future dividends in cash.
17. Discontinued Operations
On January 12, 2012, the Company completed the previously announced sale of substantially all of its assets located in Mexico, as well as its equity interests in Forbes Energy Services México Servicios de Personal, S. de R.L. de C.V., for aggregate cash consideration of approximately $30 million (excluding amounts paid to cover certain Mexican taxes). The Company recognized a gain on disposal of approximately $3.5 million on this transaction.
The Company has retained a small office in Mexico, which will operate on a temporary basis while the Company collects outstanding receivables from PEMEX. In connection with the expiration of its contract with PEMEX, the Company expects the release of the performance bond posted in connection with such contract, which should result in approximately $13.6 million being released from restricted cash.
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The following table presents the results of discontinued operations:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Revenues |
$ | | $ | 16,236 | $ | 2,787 | $ | 28,538 | ||||||||
Expenses |
||||||||||||||||
Direct costs |
| 11,930 | 3,683 | 20,777 | ||||||||||||
General and administrative |
2,173 | 801 | 2,887 | 1,028 | ||||||||||||
Depreciation and amortization |
| 461 | | 895 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
2,173 | 13,192 | 6,570 | 22,700 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
(2,173 | ) | 3,044 | (3,783 | ) | 5,838 | ||||||||||
Interest income |
| 7 | | 13 | ||||||||||||
Interest expense |
| (2 | ) | (1 | ) | (4 | ) | |||||||||
Other income (expense) |
| | | | ||||||||||||
Gain on sale of assets |
121 | 1 | 3,668 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
(2,052 | ) | 3,050 | (116 | ) | 5,847 | ||||||||||
Income tax expense (benefit) |
(426 | ) | 1,178 | 379 | 2,158 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | (1,626 | ) | $ | 1,872 | $ | (495 | ) | $ | 3,689 | ||||||
|
|
|
|
|
|
|
|
18. Subsequent Events
Subsequent events have been evaluated through the filing date of this 10-Q.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the audited consolidated financial statements for the year ended December 31, 2011 included in our Annual Report on Form 10-K. Any forward-looking statements made by or on our behalf are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements involve risks and uncertainties in that the actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ include risks set forth in the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011.
Overview
Forbes Energy Services Ltd., or FES Ltd, is an independent oilfield services contractor that provides a wide range of well site services to oil and natural gas drilling and producing companies to help develop and enhance the production of oil and natural gas. These services include fluid hauling, fluid disposal, well maintenance, completion services, workovers and recompletions, plugging and abandonment, and tubing testing. Our operations are concentrated in the major onshore oil and natural gas producing regions of Texas, with additional locations in Mississippi, in Pennsylvania and, prior to the disposition of our Mexican assets in January 2012, which is discussed below, in Mexico. We believe that our broad range of services, which extends from initial drilling, through production, to eventual abandonment, is fundamental to establishing and maintaining the flow of oil and natural gas throughout the life cycle of our customers wells. Our headquarters and executive offices are located at 3000 South Business Hwy 281, Alice, Texas 78332. We can be reached by phone at (361) 664-0549.
As used in this Quarterly Report on Form 10-Q, the Company, the Forbes Group, we, and our mean FES Ltd and its subsidiaries, except as otherwise indicated. Unless otherwise indicated, all financial or operational data presented herein relates to our continuing operations, excluding our operations in Mexico, which were sold in January 2012.
We currently provide a wide range of services to a diverse group of companies. Through the six months ended June 30, 2012, we provided services to over 550 companies. Our blue-chip customer base includes Anadarko Petroleum Corporation, Chesapeake Energy Corporation, ConocoPhillips Company, Rosetta Resources, Inc., and Shell Oil Company, among others. John E. Crisp, Charles C. Forbes, and our senior management team, have cultivated deep and ongoing relationships with these customers during their average of over 35 years of experience in the oilfield services industry. For the three and six months ended June 30, 2012, we generated consolidated revenues of approximately $119.8 million and $251.3 million.
We currently conduct our operations through the following two business segments:
| Well Servicing. Our well servicing segment comprised 42.8% and 41.2% of consolidated revenues for the three and six months ended June 30, 2012. At June 30, 2012, our well servicing segment utilized our modern fleet of 162 owned well servicing rigs, which included 152 workover rigs, 10 swabbing rigs, and related assets and equipment. These assets are used to provide (i) well maintenance, including remedial repairs and removal and replacement of downhole production equipment, (ii) well workovers, including significant downhole repairs, re-completions and re-perforations, (iii) completion and swabbing activities, and (iv) plugging and abandoning services. In addition, we have a fleet of nine tubing testing units that are used to conduct pressure testing of oil and natural gas production tubing. |
| Fluid Logistics and Other. Our fluid logistics and other segment comprised 57.2% and 58.8% of consolidated revenues for the three and six months ended June 30, 2012. Our fluid logistics segment utilized our fleet of owned or leased fluid transport trucks and related assets, including specialized vacuum, high-pressure pump and tank trucks, frac tanks, water wells, salt water disposal wells and facilities, and related equipment. These assets are used to provide, transport, store, and dispose of a variety of drilling and produced fluids used in, and generated by, oil and natural gas production. These services are required in most workover and completion projects and are routinely used in daily operations of producing wells. Beginning in the fiscal year 2010, the Company began providing additional services in which Wolverine Construction, Inc., a related party, completed such services as a sub-contractor. These services involved site preparation and were complementary to the traditional services offered by the Company. The Company ceased offering these services in June 2011. Prior to such termination, we would pay Wolverine for their services and materials and then would bill the cost to the customer with a margin of approximately 5%. There was no revenue associated with the sub-contractor work for the three or six months ending June 30, 2012 and $2.0 million and $5.2 million for the three and six months ending June 30, 2011, respectively. |
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We believe that our two business segments are complementary and create synergies in terms of selling opportunities. Our multiple lines of service allow us to capitalize on our existing customer base to grow within existing markets, generate more business from existing customers, and increase our operating profits. By offering our customers the ability to reduce the number of vendors they use, we believe we help improve our customers efficiency. This is demonstrated by the fact that 81.6% and 80.5% of our revenues for the three and six months ended June 30, 2012 , respectively, were from customers that utilized services from both of our business segments. Further, by having multiple service offerings that span the life cycle of the well, we believe we have a competitive advantage over smaller competitors offering more limited services.
Factors Affecting Results of Operations
Oil and Natural Gas Prices
Demand for well servicing and fluid logistics services is generally a function of the willingness of oil and natural gas companies to make operating and capital expenditures to explore for, develop and produce oil and natural gas, which in turn is affected by current and anticipated levels of oil and natural gas prices. Exploration and production spending is generally categorized as either operating expenditures or capital expenditures. Activities by oil and natural gas companies designed to add oil and natural gas reserves are classified as capital expenditures, and those associated with maintaining or accelerating production, such as workover and fluid logistics services, are categorized as operating expenditures. Operating expenditures are typically more stable than capital expenditures and are less sensitive to oil and natural gas price volatility. In contrast, capital expenditures by oil and natural gas companies for drilling are more directly influenced by current and expected oil and natural gas prices and generally reflect the volatility of commodity prices.
Workover Rig Rates
Our well servicing segment revenues are dependent on the prevailing market rates for workover rigs. Rates and utilization for workover rigs increased in March 2010 through the third quarter of 2011, then rates and utilization stabilized in the fourth quarter 2011 and have continued through the first half of 2012.
Fluid Logistics Rates
Our fluid logistics and other segment revenues are dependent on the prevailing market rates for fluid transport trucks and the related assets, including specialized vacuum, high-pressure pump and tank trucks, frac tanks and salt water disposal wells. Pricing and utilization increased in the latter portion of the first quarter 2010 and have generally continued, although at a slower rate of increase in recent quarters. In fact, rates stabilized during the second half of 2011 and through the first half of 2012.
Operating Expenses
Utilization and demand increased in 2010 and 2011 and the first half of 2012, we have experienced cost pressures in areas such as labor where we have incurred additional cost increases primarily in the form of increased pay rates. So far, we have been able to cover these increased costs through rate increases passed on to our customers. Future earnings and cash flows will be dependent on our ability to manage our overall cost structure and either maintain our existing prices or obtain price increases from our customers as our operating costs increase.
Equipment rental cost continues to be a significant component of our operating expenses. As described in the following paragraph, we made certain capital expenditures in the first half of 2012 that are intended to replace certain leased or rented equipment. Nevertheless, we expect that we will continue to meet certain equipment needs through rental or leasing arrangements and, to that end, in the first half of 2012, we entered into operating leases with respect to 70 additional vacuum trucks, 11 vacuum trailers, 17 support trucks and a transport trailer for the coiled tubing units.
Capital Expenditures
During the first half of 2012 we purchased three 550 horsepower well service rig and related equipment, four pump-down units, 1,235 frac tanks, eight vacuum trucks and eight salt water disposal wells. capital expenditures for the six months ended june 30, 2012 were $91.3 million. Certain of these purchased assets are intended either to take the place of equipment that the Company had been leasing or renting or to allow the Company to provide services to customers that it had previously offered through third party contractors. Other purchases were made to increase the Companys overall capacity. In addition to the assets purchased in the first half of 2012, as of July, the Company has also placed orders for additional equipment, including five coil tubing spreads and related equipment that should be delivered in the third and fourth quarters of 2012, the first of which was received in July. The aggregate purchase price of this additional equipment on order is approximately $32 million. Other than equipment on order that has not yet been delivered, the Company does not plan on making any further significant capital expenditures in the immediate future.
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We plan to finance some of the remaining equipment on order, including four additional coil tubing units, pursuant to an agreement with Regions Equipment Finance Corporation and Regions Commercial Equipment Finance, LLC, collectively, Regions Finance, discussed in further detail below. However, this agreement does not constitute a commitment to finance any additional operating lease or loan schedules. Nevertheless, we believe that our cash flows from operations and availability under our $75 million revolving credit facility, on their own, will be sufficient to fund or otherwise satisfy the obligations related to this equipment on order.
Operating Income Margins
We have experienced less margin pressure on our fluid logistics and other segment, which resulted in more favorable margins in that segment relative to the well servicing segment and this continues through the current period. A significant portion of the additional activity in the fluid logistics and other segment relates to expanded fracing operations in our market areas.
Presentation
The following discussion and analysis is presented on a consolidated basis to reflect the results of continuing operations and financial condition of the Forbes Group. The financial information as of and for the three and six months ended June 30, 2012 and June 30, 2011 is presented on a consolidated basis for FES Ltd and its subsidiaries. Unless otherwise indicated, all financial or operational data presented herein relates to our continuing operations, excluding our operations in Mexico, which were sold in January 2012. Notwithstanding the foregoing, financial information regarding cash flows presented herein includes cash flows from our discontinued operations.
Results of Operations
The following discussion, as well as the discussion found under Liquidity and Capital Resources, compares our consolidated financial information for the three and six months ended June 30, 2012 to the three and six months ended June 30, 2011.
Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011
Consolidated Revenues. For the three months ended June 30, 2012, revenues increased by $9.0 million, or 8.1%, to $119.8 million when compared to the same period in the prior year. This is a direct result of increased utilization in our well servicing segment in 2012 as compared to 2011.
Well ServicingRevenues from the well servicing segment increased by $9.3 million for the period, or 22.1% to $51.3 million compared to the corresponding period in the prior year. Of this increase, approximately 23.3% was due to increased prices and 76.7% was due to increased rig hours for well services. We utilized 162 well service rigs as of June 30, 2012 and 2011. The average rate charged per hour during the three months ended June 30, 2012 as compared to the same period in 2011 increased approximately 4.4%. Average utilization of our well service rigs during the three months ended June 30, 2012 and June 30, 2011 was 91.0% and 80.4%, respectively, based on a twelve hour day, working five days a week, except holidays in the U.S.
Fluid Logistics and OtherRevenues from the fluid logistics segment and other for the three months ended June 30, 2012 decreased by $0.3 million, or 0.5%, to $68.5 million compared to the prior year primarily due to the cessation of the other contract services performed in the second quarter of 2011, but not in the second quarter of 2012. This decrease was offset by an increase in revenues from our core operating activities, in line with general industry trends. Our principal fluid logistics assets at June 30, 2012 and June 30, 2011 were as follows:
June 30 | % Increase |
|||||||||||
2012 | 2011 | (Decrease) | ||||||||||
Fluid logistics and other segment: |
||||||||||||
Vacuum trucks |
475 | 356 | 33.4 | % | ||||||||
High-pressure pump trucks |
21 | 19 | 10.5 | % | ||||||||
Other heavy trucks |
84 | 61 | 37.7 | % | ||||||||
Frac tanks |
3,114 | 1,400 | 122.4 | % | ||||||||
Salt water disposal wells |
23 | 15 | 53.3 | % |
Consolidated Operating ExpensesOur operating expenses increased to $86.8 million for the three months ended June 30, 2012, from $85.1 million for the three months ended June 30, 2011, an increase of $1.7 million, or 2.0%, due to
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increases in utilization. Operating expenses as a percentage of revenues were 72.5% for the three months ended June 30, 2012, compared to 76.8% for the three months ended June 30, 2011. The decrease in operating expense as a percentage of our revenues is generally attributable to increases in utilization.
Well ServicingOperating expenses from the well servicing segment increased by $3.1 million, or 8.9%, to $37.5 million. Well servicing operating expenses as a percentage of well servicing revenues were 73.0% for the three months ended June 30, 2012, compared to 81.8% for the three months ended June 30, 2011, a decrease of 8.8%. This increase in operating expense as a percentage of revenue was due to an increase in utilization to 91.0% for the three months ended June 30, 2012 from 80.4% for the three months ended June 30, 2011, which allowed the Company to spread its fixed costs over greater revenues, thereby increasing the gross margin. The large portion of the increase in expenses was due to the increase in employee count and resulted in an increase in labor of $3.6 million, or 23.2% to $19.4 million. The employee count at June 30, 2012 was 1,106, compared to 961 employees as of June 30, 2011. Fuel expense increased by $1.1 million or 45.3% due to an increase rig hours. These increases were partially offset by a decrease in the rental of equipment of $1.7 million or 79.0% due to the rigs purchased from AES, a related party, that were previously leased. The remaining $0.1 million is related to various expenses and is in line with managements expectations.
Fluid Logistics and OtherOperating expenses from the fluid logistics and other segment decreased by $1.3 million, or 2.6%, to $49.4 million. Fluid logistics operating expenses as a percentage of fluid logistics revenues were 72.1% for the three months ended June 30, 2012, compared to 73.7% for the three months ended June 30, 2011. The decrease in fluid logistics and other operating expenses of $1.3 million was partially due to a decrease in contract services cost of $6.7 million, or 78.3% to $1.9 million, when compared to the same period in the prior year. Rent equipment expense decreased $1.7 million or 27.3%, to $4.4 million. Both of these expenses decreased due to the acquisition of additional equipment to satisfy customer demand and decreasing the need to utilize outside services. The decrease in contract services also includes the Company terminating services in June of 2011 where Wolverine Construction, Inc., a related party, completed services as a sub-contractor. This decrease in contract services was partially offset by the increase in labor costs of $4.1 million, or 29.7% to $18.0 million as a direct result of workforce headcount increases. The employee count at June 30, 2012 was 1,217, as compared with 941 employees as of June 30, 2011. Supplies and parts expense increased $0.6 million or 629.7%, to $0.7 million. Fuel costs increased $0.5 million, or 6.6% to $8.6 million. Insurance costs increased $0.5 million, or 46.7% to $1.5 million. The remaining $1.4 million relates to various expenses in line with managements expectations.
General and Administrative Expenses. General and administrative expenses from the consolidated operations decreased by approximately $5.0 million, or 38.4%, to $8.1 million for the three months ended June 30, 2012. General and administrative expense as a percentage of revenues was 6.7% and 11.8% for the three months ended June 30, 2012 and June 30, 2011, respectively. The decrease of $5.0 million was due to additional expense of $6.9 million associated with a litigation settlement and the related legal fees incurred in 2011, which was offset by a net increase in compensation expense of approximately $1.6 million. Compensation expense for the current quarter included discretionary management bonuses of approximately $0.3 million and an accrual of approximately $0.6 million to reflect an estimate of the quarterly expense related to a newly implemented, performance based, management bonus plan.
Depreciation and Amortization. Depreciation and amortization expenses increased by $2.9 million, or 30.6%, to $12.5 million. The additional depreciation expense resulted from capital expenditures, including those incurred for the three months ended June 30, 2012 which were $37.6 million compared to $23.4 million for the three months ended June 30, 2011.
Interest and Other Expenses. Interest and other expenses decreased by approximately $35.4 million from the three months ended June 30, 2011 to the current quarter due to the loss on early extinguishment of debt resulting from the retirement of the First and Second Priority Notes. This financing cost was comprised of a penalty on the early redemption of the First Priority Notes of $0.6 million, total unamortized deferred financing charges written off in connection with the redemption of First and Second Priority Notes of $10.4 million and tender purchase price premium and consent fee related to the Second Priority Notes of $24.4 million.
Income Taxes. We recognized an income tax expense of $3.0 million and a benefit of $12.5 million for the three months ended June 30, 2012 and June 30, 2011, respectively. Our effective tax rate for the three months ended June 30, 2012 is 52.7% due to higher earnings in the quarter, non-deductible expenses, and related Texas margins tax.
Discontinued OperationsWe recorded a net loss from discontinued operations of $1.6 million for the three months ended June 30, 2012, compared to net income from discontinued operations of $1.9 million for the three months ended June 30, 2011. The decrease in net income relates mainly to the winding down of operations in Mexico including bad debt expense of approximately $1.5 million. See Note 17
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Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011
Consolidated Revenues. For the six months ended June 30, 2012, revenues increased by $45.8 million, or 22.3%, to $251.3 million when compared to the same period in the prior year. This is a result of increased utilization in both our well servicing and fluid logistics segments in 2012 as compared to 2011.
Well ServicingRevenues from the well servicing segment increased by $25.1 million for the six month period, or 32.0% to $103.6 million compared to the corresponding period in the prior year. Of this increase, approximately 27.4% was due to increased prices and 72.6% was due to increased rig hours for well services. We utilized 162 well service rigs as of June 30, 2012 and 172 well service rigs as of June 30, 2011. The average rate charged per hour during the six months ended June 30, 2012 as compared to the same period in 2011 increased approximately 7.3%. Average utilization of our well service rigs during the six months ended June 30, 2012 and June 30, 2011 was 93.4% and 76.2% , respectively, based on a twelve hour day, working five days a week, except holidays in the U.S.
Fluid Logistics and OtherRevenues from the fluid logistics segment and other for the six months ended June 30, 2012 increased by $20.7 million, or 16.3%, to $147.7 million compared to the prior year, as a result of the general industry increase in pricing and activity. Our revenue increased $20.7 million due to an increase in rates of approximately 1.2% in the six months ended June 2012 compared to the six months ended June 2011 and the remainder was due to an increase in hours offset in part by the cessation of the other contract services performed in the first half of 2011, but not in the first half of 2012.
Consolidated Operating ExpensesOur operating expenses increased to $180.8 million for the six months ended June 30, 2012, from $157.1 million for the six months ended June 30, 2011, an increase of $23.7 million, or 15.1%, due to increases in utilization. Operating expenses as a percentage of revenues were 71.9% for the six months ended June 30, 2012, compared to 76.4% for the six months ended June 30, 2011. The decrease in operating expense as a percentage of our revenues is generally attributable to increases in utilization and pricing. The Company was able to increase customer rates in amounts adequate to offset additional operating cost as well as increase margins.
Well ServicingOperating expenses from the well servicing segment increased by $12.4 million, or 19.3%, to $76.5 million. Well servicing operating expenses as a percentage of well servicing revenues were 73.9% for the six months ended June 30, 2012, compared to 81.8% for the six months ended June 30, 2011, a decrease of 7.9%. The large portion of the increase in expenses was due to the increase in employee count and resulted in an increase in labor of $9.1 million, an increase in insurance premiums of $1.2 million, and an increase in safety expense of $0.4 million. The employee count at June 30, 2012 was 1,106 compared to 961 employees as of June 30, 2011. Fuel expense increased by $2.1 million or 44.2% due to an increase in rig hours in conformity with increased activity levels for the industry. These increases were partially offset by a decrease in the rental of equipment of $1.7 million or 58.9% due to the rigs purchased from AES, a related party, that were previously leased. The contract labor expense increased $1.3 million or 341.2% due to increase in rig count, rig hours and labor hours for the P & A division.
Fluid Logistics and OtherOperating expenses from the fluid logistics and other segment increased by $11.3 million, or 12.2%, to $104.2 million. Fluid logistics operating expenses as a percentage of fluid logistics revenues were 70.5% for the six months ended June 30, 2012, compared to 73.1% for the six months ended June 30, 2011. The increase in fluid logistics and other operating expenses of $11.5 million was partially due to an increase in labor costs of $9.4 million, or 36.2% to $35.5 million as a direct result of workforce headcount increases. The employee count at June 30, 2012 was 1,217, as compared with 941 employees as of June 30, 2011. Contract services cost decreased $7.4 million, or 47.8% to $8.1 million, when compared to the same period in the prior year due to the acquisition of additional equipment to satisfy customer demand and decreasing the need to utilize outside services. The decrease in contract services also includes the Company terminating services in June of 2011 where Wolverine Construction, Inc., a related party, completed services as a sub-contractor. Fuel costs increased $2.4 million, or 16.5% to $17.2 million for the six months ended June 30, 2012, due to fuel price increase of 4.9% and higher activity in drilling and well services when compared to the same period in the prior year. Repairs and maintenance cost increased $1.9 million, or 19.8% to $11.5 million as a result of activity increases. Insurance cost increased $1.3 million, or 70.5% to $3.3 million for the six months ended June 30, 2012, when compared to the same period in the prior year due to headcount increases and acquisition of additional equipment. Tire cost increased $1.1 million, or 59.0% to $2.9 million also due to acquisition of additional equipment. Supplies and parts costs increased $0.8 million, or 551.7% to $1.0 million. The remaining $2.0 million change is related to various expenses that were consistent with the activity of the business.
General and Administrative Expenses. General and administrative expenses from consolidated operations decreased by approximately $0.1 million, or 0.3%, to $18.7 million for the six months ended June 30, 2012. General and administrative expense as a percentage of revenues was 7.5% and 9.1% for the six months ended June 30, 2012 and June 30, 2011, respectively. The decrease of $0.1 million was due to a decrease litigation, settlement, and legal fees of $6.9 million, which was offset by an increase in compensation expense of approximately $5.6 million in the first half of 2012 related mainly to discretionary management bonuses of approximately $2.1 million, expense of approximately $1.3 million related to a newly implemented, performance based, management bonus plan and stock compensation expense of $1.8 million due to the issuance of stock options and restricted stock. The balance of the increase was in line with the normal growth of the business.
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Depreciation and Amortization. Depreciation and amortization expenses increased by $4.7 million, or 24.3%, to $23.9 million. Capital expenditures incurred for the six months ended June 30, 2012 were $91.3 million compared to $27.9 million for the six months ended June 30, 2011.
Interest and Other Expenses. Interest and other expenses decreased by approximately $35.4 million due to the loss of $35.4 million on early extinguishment of debt due to the retirement of the First and Second Priority Notes and was comprised of a penalty on the early redemption of the First Priority Notes of $0.6 million, total unamortized deferred financing charges written off in connection with the redemption of First and Second Priority Notes of $10.4 million and tender purchase price premium and consent fee related to the Second Priority Notes of $24.4 million.
Income Taxes. We recognized an income tax expense of $6.3 million and a benefit of $12.2 million for the six months ended June 30, 2012 and June 30, 2011, respectively. Our effective tax rate for the six months ended June 30, 2012 is 44.6% due to higher earnings in the quarter, non-deductible expenses, and related Texas margins tax.
Discontinued OperationsWe recorded a net loss from discontinued operations of $0.5 million for the six months ended June 30, 2012, compared to a net income from discontinued operations of $3.7 million for the six months ended June 30, 2011. The decrease in net income relates to the winding down of operations in Mexico. See Note 17
Liquidity and Capital Resources
Overview
In June 2011, we issued $280.0 million aggregate principal amount of 9% Senior Notes. We used a substantial portion of the proceeds from such offering to purchase or redeem all outstanding Second Priority Notes and First Priority Notes.
On September 9, 2011, we entered into a loan and security agreement with certain lenders and Regions Bank, as agent for the secured parties, or the Agent. The loan and security agreement provides for an asset based revolving credit facility with a maximum initial credit of $75.0 million, subject to, as described in more detail in our annual report on Form 10-K for the year ended December 31, 2011, borrowing base availability, any reserves established by the facility agent in its discretion and, if availability under the facility falls below certain thresholds, compliance with certain financial covenants. As of June 30, 2012, $67.3 million was available under this new credit facility.
Two subsidiaries of FES Ltd, TX Energy Services, LLC and C.C. Forbes, LLC, entered into that certain Master Agreement dated as of June 6, 2012 with Regions Equipment Finance Corporation and Regions Commercial Equipment Finance, LLC, collectively, Regions Finance. Subsequently, these subsidiaries have entered into various operating lease and loan schedules under this Master Agreement to finance recent acquisitions of a coil tubing unit, trucks, trailers and other related equipment. Concurrently with the funding of each of these schedules, Regions Finance provided notice to the TES and CCF that they had assigned their rights and obligations thereunder to a third party. These operating lease or loan schedules have been assigned to CapitalSource Bank, NewStar Equipment Finance I, LLC, CIT Bank, CapitalSource Bank and the United States Life Insurance Company in the City of New York. FES Ltd has agreed to guaranty the obligations under these schedules pursuant to that certain Guaranty Agreement dated as of June 6, 2012, between the Company and Regions Finance.
The term for both the operating lease and loan schedules varies from 48 months to 60 months, with the term for the operating leases automatically extending for consecutive additional two-month periods unless either party provides notice of termination. Further, under the operating lease schedules, we have the right to purchase the property subject to each lease schedule at fair market value, which is determined by a formula set forth in each schedule. The aggregate amount funded under all the loan schedules pursuant to the Master Agreement is approximately $3.8 million and the aggregate lease payments under all the operating lease schedules pursuant to the Master Agreement is approximately $8.1million.
The indenture governing the 9% Senior Notes and the loan agreement governing our senior secured revolving credit facility impose significant restrictions on us and increase our vulnerability to adverse economic and industry conditions that could limit our ability to obtain additional or replacement financing. For example, the indenture governing the 9% Senior Notes only allows us to incur indebtedness, other than certain specific types of permitted indebtedness, if such indebtedness is unsecured and if the Fixed Charge Coverage Ratio (as defined in each indenture) for the most recently completed four full fiscal quarters is at least 2.0 to 1.0. We are currently able to incur indebtedness under this ratio. Our new credit facility only allows us to incur specific types of permitted indebtedness, which includes a $40.0 million basket of permitted indebtedness for capital leases, mortgage financings or purchase money obligations incurred for the purpose of installation or improvement of property, plant or equipment.
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Our inability to satisfy our obligations under the indenture governing the 9% Senior Notes, the loan agreement governing our credit facility and any future debt agreements we may enter into could constitute an event of default under one or more of such agreements. Further, due to cross-default provisions in our debt agreements, a default and acceleration of our outstanding debt under one debt agreement may result in the default and acceleration of outstanding debt under the other debt agreements. Accordingly, an event of default could result in all or a portion of our outstanding debt becoming immediately due and payable. If this should occur, we might not be able to obtain waivers or secure alternative financing to satisfy all of our obligations simultaneously. Given the state of global events, our ability to access the capital markets or to consummate any asset sales might be restricted at a time when we would like or need to raise capital. These events could have a material adverse effect on our business, financial position, results of operations and cash flows and our ability to satisfy our obligations.
Within certain constraints, we can conserve capital by reducing or delaying capital expenditures, deferring non-regulatory maintenance expenditures and further reducing operating and administrative costs.
We have historically funded our operations, including capital expenditures, with bank borrowings, vendor financings, cash flow from operations, the issuance of senior notes, and the proceeds from our Canadian initial public equity offering and simultaneous U.S. private placement, our October 2008 and December 2009 common stock offerings, and our May 2010 Series B Preferred Stock private placement.
As of June 30, 2012, we had $297.3 million in total outstanding debt. As of June 30, 2012, we had 588,059 outstanding Series B Senior Convertible Preferred Shares which is reflected in the balance sheet as temporary equity in an amount of $14.5 million. The preferred stock is redeemable for cash or common stock at 95% of the fair market value of the common stock as determined in accordance with the certificate of designation of the Series B Preferred Stock in May 2017.
As of June 30, 2012, we had $9.8 million in cash and cash equivalents, $291.3 million in long-term debt outstanding, $6.0 million in short-term debt outstanding, and $14.8 million of short-term equipment vendor financings for well servicing rigs and other equipment included in accounts payable. Our $6.0 million of short-term debt consisted of $3.6 million payable to equipment lenders under various installment notes, and $2.4 million payable related to financing of our insurance premiums over the term of the insurance coverage. We incurred $37.6 million for capital equipment acquisitions during the three months ended June 30, 2012 as compared to $23.5 million during the three months ended June 30, 2011. Capital equipment added for the six months ended June 30, 2012 includes three well service rigs and related equipment, four pump down units, 1,235 frac tanks, eight vacuum trucks, and eight salt water disposal wells. These items were funded from cash flows from operations and financing.
Although additional equipment will be received through the second half 2012 based on outstanding orders, in May 2012 management stopped making further orders for vacuum trucks, trailers, and frac tanks based on a review of customer demand relative to the current levels of equipment the Company has available for servicing these customers. The Company has five coil tubing spreads on order. The first coil tubing spread arrived in July 2012 and the remaining four will be received before year end. There are no other significant capital expenditures anticipated for 2012.
We project that cash flows from operations, the Regions equipment Master Agreement, and availability under our revolving credit facility will be adequate to meet our operating needs and working capital requirements over the next twelve months.
Cash Flows
Our cash flows depend, to a large degree, on the level of spending by oil and gas companies development and production activities. Sustained increases or decreases in the price of natural gas or oil could have a material impact on these activities, and could also materially affect our cash flows. Certain sources and uses of cash, such as the level of discretionary capital expenditures, purchases and sales of investments, issuances and repurchases of debt and of our common shares are within our control and are adjusted as necessary based on market conditions.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $44.9 million for the six months ended June 30, 2012, compared to net cash used in operating activities of $22.9 million for the six months ended June 30, 2011.
The increase in cash provided by operating activities was $67.9 million for the six months ending June 30, 2012 primarily due to an increase in net income of $30.2 million due to a general improvement in industry conditions, a decrease in the change in accounts receivable of $66.7 million due in part to the sale of our Mexico operations, and a decrease in the deferred tax benefit of $18.2 million. These increased cash flows from operting activities were offset by a decrease in the change in accounts payable of $21.8 million as the company reduced the amount of equipment in accounts payable and a decrease in the change in accrued expenses of $21.9 million mainly resulting from the sale of our Mexico operations.
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Cash Flows Used in Investing Activities
Net cash flows used in investing activities was $75.7 million for the six months ending June 30, 2012 compared to $30.2 million for the same period in 2011. The change was primarily related to a change in the purchase of property and equipment which increased $65.9 million from the six months ended June 30, 2011 to the current period. The increased capital expenditures were offset by $14.3 million in cash received in the current period related to hte sale of our Mexico operations and other miscellaneous pieces of equipment. The Company purchased three well service rigs and related equipment, four pump down units, 1,235 frac tanks, eight vacuum trucks, and eight salt water disposal wells during the first half of 2012.
Cash Flows Used in Financing Activities
Cash flows provided by financing activities for the six months ended June 30, 2012 was $3.7 million compared to $57.5 million for the six months ended June 30, 2011. The primary reasons for these changes were due to the payoff of the first and second priority notes and the proceeds from the issuance of the Senior Notes and their issuance costs in the second quarter of 2011 and the proceeds from borrowings on the revolving credit facility in the second quarter of 2012 of $6.0 million.
Cash Flows From Discontinued Operations
Cash flows used in discontinued operations for the six months ended June 30, 2012 amounted to $6.5 million, compared to $0.9 for the six months ended June 30, 2011. This increase was due to the expenses associated with the winding down of our operations in Mexico, bad debt expense, and the payment of outstanding payables and other liabilities.
Off-Balance Sheet Arrangements
We are often party to certain transactions that require off-balance sheet arrangements such as performance bonds, guarantees, operating leases for equipment, and bank guarantees that are not reflected in our condensed consolidated balance sheets. These arrangements are made in our normal course of business and they are not reasonably likely to have a current or future material adverse effect on our financial condition, results of operations, liquidity or cash flows.
Contractual Obligations and Financing
On May 28, 2017, the Company is required to redeem any of its Series B Preferred Shares then outstanding. Such mandatory redemption may, at the Companys election, be paid in cash or Common Shares (valued for such purpose at 95% of the then fair market value of the Common Shares). As of June 30, 2012 we had 588,059 Series B Preferred Shares outstanding.
Seasonality
Our operations are impacted by seasonal factors. Historically, our business has been negatively impacted during the winter months due to inclement weather, fewer daylight hours, and holidays. Our well servicing rigs are mobile, and we operate a significant number of oilfield vehicles. During periods of heavy snow, ice or rain, we may not be able to move our equipment between locations, thereby reducing our ability to generate rig or truck hours. In addition, the majority of our well servicing rigs work only during daylight hours. In the winter months when daylight time becomes shorter, this reduces the amount of time that the well servicing rigs can work and, therefore, has a negative impact on total hours worked. Finally, during the fourth quarter, we historically have experienced significant slowdowns during the Thanksgiving and Christmas holiday seasons.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the applicable reporting periods. On an ongoing basis, management reviews its estimates, particularly those related to depreciation and amortization methods, useful lives and impairment of long-lived assets, and asset retirement obligations, using currently available information. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those estimates.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
In addition to the risks inherent in our operations, we are exposed to financial, market and economic risks. Changes in interest rates may result in changes in the fair market value of our financial instruments, interest income and interest expense. Our financial instruments that are exposed to interest rate risk are long-term borrowings. The following discussion provides information regarding our exposure to the risks of changing interest rates and fluctuating currency exchange rates.
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Our primary debt obligations are the outstanding 9% Senior Notes and the new credit facility. Changes in interest rates do not affect interest expense incurred on our 9% Senior Notes as such notes bear interest at a fixed rate. However, changes in interest rates would affect their fair values. In general, the fair market value of debt with a fixed interest rate will increase as interest rates fall. Conversely, the fair market value of debt will decrease as interest rates rise. A hypothetical change in interest rates of 10% relative to interest rates as of June 30 2012 would have no impact on our interest expense for the 9% Senior Notes.
Our revolving credit facility has a variable interest rate and, therefore, is subject to interest rate risk. As of August 10, 2012, we had no amounts drawn on this facility. For this reason, a 100 basis point increase in interest rates on our variable rate debt would not result in significant additional annual interest expense.
Historically, we have not been exposed to significant foreign currency fluctuation; however, during 2010 our Mexican operations changed its functional currency from the U.S. dollar to the Mexican peso. This exposed us to certain risks typically associated with foreign currency fluctuation as our operations in Mexico collected revenues and paid expenses in Mexico. On January 12, 2012, we completed the disposition of substantially all of our assets and business located in Mexico. Nevertheless, we continue to collect receivables from our operations previous in Mexico. As of June 30, 2012, a 10% unfavorable change in the Mexican peso-to-U.S. dollar exchange rate would not materially impact our consolidated balance sheet. To date, we have not taken any action to hedge against any foreign currency rate fluctuations and, as we have sold our operations in Mexico, we do not expect we will be subject to material foreign currency risk in the near future.
We have not entered into any derivative financial instrument transactions to manage or reduce market risk or for speculative purposes.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2012. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2012, our chief executive officer and chief financial officer concluded that, as of such date, our internal control over financial reporting and disclosure controls and procedures were not effective. See Material Weakness below.
Change in Internal Control over Financial Reporting
Other than the remediation measure described below under Remediation no change in our internal control over financial reporting (as defined in Rules 13a- 15(f) and 15d- 15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Material Weakness
In connection with the preparation of the Forbes Groups consolidated financial statements for the year ended December 31, 2011, we identified control deficiencies that constitute a material weakness in the design and operation of our internal control over financial reporting. The following material weakness was present at December 31, 2011 and continues to exist.
| We did not design or maintain effective controls over the billing process to ensure timely recognition of revenue. Specifically, we identified field tickets, which represented completed but unbilled revenue that had not been entered resulting in a post-closing adjustment. |
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This control deficiency could result in a future material misstatement to the annual or interim combined financial statements that would not be prevented or detected. Accordingly, we have determined that the above control deficiency represents a material weakness.
Remediation
As mentioned above, we have identified a material weakness that existed as of June 30, 2012 in our internal control over the billing cycle.
We have modified the design of our information system, processes and procedures which we believe addresses the material weakness. The new processes and procedures have been communicated to senior management and to the field personnel. Testing will begin in the third quarter to monitor compliance.
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Item 1. | Legal Proceedings |
There are no pending material legal proceedings, and the Forbes Group is not aware of any material threatened legal proceedings, to which the Forbes Group is a party or to which its property is subject.
There were no material changes from the risk factors previously disclosed in the registrants Annual Report on Form 10-K for the year ended December 31, 2011 in response to Item 1A. Risk Factors to Part II of Form 10-Q.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Default Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
None
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Number |
Description of Exhibits | |||
2.1 |
| Agreement and Plan of Reorganization effective January 1, 2008 among Forbes Energy Services LLC and the respective members of C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC (incorporated by reference to Exhibit 2.1 to the Companys Registration Statement on Form S-4/A filed June 27, 2008, Registration No. 333-150853). | ||
2.2 |
| Agreement and Plan of Reorganization effective May 29, 2008 among Forbes Energy Services Ltd. and the members of Forbes Energy Services LLC (incorporated by reference to Exhibit 2.2 to the Companys Registration Statement on Form S-4/A filed June 27, 2008, Registration No. 333-150853). | ||
2.3 |
| Plan of Conversion of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 2.1 to the Companys Registration Statement on Form 8-A filed August 12, 2011). | ||
2.4 |
| Certificate of Conversion of Forbes Energy Services, Ltd (incorporated by reference to exhibit 2.2 to the Companys Registration Statement on Form 8-A filed August 12, 2011) | ||
3.1 |
| Memorandum of Association of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.11 to the Companys Registration Statement on Form S-4/A filed June 27, 2008, Registration No. 333-150853). | ||
3.2 |
| Amended and Restated Bye-laws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.12 to the Companys Registration Statement on Form S-4/A filed June 27, 2008, Registration No. 333-150853). | ||
3.3 |
| Certificate of Formation of Forbes Energy Services Ltd. (including the certificates of designation for the Companys Series A Preferred Stock and Series B Preferred Stock attached as appendices thereto) (incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form 8-A filed August 12, 2011). | ||
3.4 |
| Amended and Restated Bylaws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.2 to the Companys Registration Statement on Form 8-A filed August 12, 2011). | ||
4.10 |
| Rights Agreement dated as of May 19, 2008 between Forbes Energy Services Ltd. and CIBC Mellon Trust Company, as Rights Agent, which includes as Exhibit A the Certificate of Designations of Series A Junior Participating Preferred Shares, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights to Purchase Shares (incorporated by reference to Exhibit 4.8 to the Companys Registration Statement on Form S-4/A filed June 27, 2008, Registration No. 333-150853). | ||
4.11 |
| Certificate of Designation of the Series B Senior Convertible Preferred Shares (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed May 28, 2010). | ||
4.13 |
| Indenture, dated June 7, 2011 among Forbes Energy Services Ltd., as issuer, the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated June 7, 2011). | ||
4.17 |
| Amended and Restated Certificate of Designation of the Series B Senior Convertible Preferred Shares (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed January 25, 2011). |
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4.18 |
| Specimen Certificate for the Companys common stock, $0.04 par value (incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form 8-A filed August 12, 2011). | ||
10.1 |
| Second Amendment to Loan and Security Agreement dated as of July 3, 2012, by and among Forbes Energy Services LLC, Forbes Energy International, LLC, TX Energy Services, LLC, C.C. Forbes, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services Ltd., as guarantor, certain lenders party thereto, and Regions Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on July 10, 2012). | ||
10.2 |
| 2012 Incentive Compensation Plan of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed on July 10, 2012). | ||
10.3* |
| Master Agreement dated June 6, 2012 among TX Energy Services, LLC, C.C. Forbes, LLC, Regions Equipment Finance Corporation and Regions Commercial Equipment Finance, LLC, including the First Amendment to Master Agreement dated as of July 12, 2012. | ||
10.4* |
| Continuing Guaranty Agreement dated June 6, 2012 among Forbes Energy Services Ltd., TX Energy Services, LLC, C.C. Forbes, LLC, Regions Equipment Finance Corporation and Regions Commercial Equipment Finance, LLC. | ||
31.1* |
| Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). | ||
31.2* |
| Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). | ||
32.1* |
| Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2* |
| Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101* |
| Interactive Data Files |
* | Filed herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FORBES ENERGY SERVICES LTD. | ||||||
August 14, 2012 | By: | /s/ JOHN E. CRISP | ||||
John E. Crisp Chairman, Chief Executive Officer and President (Principal Executive Officer) | ||||||
August 14, 2012 | By: | /S/ L. MELVIN COOPER | ||||
L. Melvin Cooper Senior Vice President, Chief Financial Officer and Assistant Secretary (Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
Number |
Description of Exhibits | |||
2.1 |
| Agreement and Plan of Reorganization effective January 1, 2008 among Forbes Energy Services LLC and the respective members of C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC (incorporated by reference to Exhibit 2.1 to the Companys Registration Statement on Form S-4/A filed June 27, 2008, Registration No. 333-150853). | ||
2.2 |
| Agreement and Plan of Reorganization effective May 29, 2008 among Forbes Energy Services Ltd. and the members of Forbes Energy Services LLC (incorporated by reference to Exhibit 2.2 to the Companys Registration Statement on Form S-4/A filed June 27, 2008, Registration No. 333-150853). | ||
2.3 |
| Plan of Conversion of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 2.1 to the Companys Registration Statement on Form 8-A filed August 12, 2011). | ||
2.4 |
| Certificate of Conversion of Forbes Energy Services, Ltd (incorporated by reference to exhibit 2.2 to the Companys Registration Statement on Form 8-A filed August 12, 2011) | ||
3.1 |
| Memorandum of Association of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.11 to the Companys Registration Statement on Form S-4/A filed June 27, 2008, Registration No. 333-150853). | ||
3.2 |
| Amended and Restated Bye-laws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.12 to the Companys Registration Statement on Form S-4/A filed June 27, 2008, Registration No. 333-150853). | ||
3.3 |
| Certificate of Formation of Forbes Energy Services Ltd. (including the certificates of designation for the Companys Series A Preferred Stock and Series B Preferred Stock attached as appendices thereto) (incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form 8-A filed August 12, 2011). | ||
3.4 |
| Amended and Restated Bylaws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.2 to the Companys Registration Statement on Form 8-A filed August 12, 2011). | ||
4.10 |
| Rights Agreement dated as of May 19, 2008 between Forbes Energy Services Ltd. and CIBC Mellon Trust Company, as Rights Agent, which includes as Exhibit A the Certificate of Designations of Series A Junior Participating Preferred Shares, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights to Purchase Shares (incorporated by reference to Exhibit 4.8 to the Companys Registration Statement on Form S-4/A filed June 27, 2008, Registration No. 333-150853). | ||
4.11 |
| Certificate of Designation of the Series B Senior Convertible Preferred Shares (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed May 28, 2010). | ||
4.13 |
| Indenture, dated June 7, 2011 among Forbes Energy Services Ltd., as issuer, the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated June 7, 2011). | ||
4.17 |
| Amended and Restated Certificate of Designation of the Series B Senior Convertible Preferred Shares (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed January 25, 2011). | ||
4.18 |
| Specimen Certificate for the Companys common stock, $0.04 par value (incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form 8-A filed August 12, 2011). | ||
10.1 |
| Second Amendment to Loan and Security Agreement dated as of July 3, 2012, by and among Forbes Energy Services LLC, Forbes Energy International, LLC, TX Energy Services, LLC, C.C. Forbes, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services Ltd., as guarantor, certain lenders party thereto, and Regions Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on July 10, 2012). | ||
10.2 |
| 2012 Incentive Compensation Plan of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed on July 10, 2012). | ||
10.3* |
| Master Agreement dated June 6, 2012 among TX Energy Services, LLC, C.C. Forbes, LLC, Regions Equipment Finance Corporation and Regions Commercial Equipment Finance, LLC, including the First Amendment to Master Agreement dated as of July 12, 2012. | ||
10.4* |
| Continuing Guaranty Agreement dated June 6, 2012 among Forbes Energy Services Ltd., TX Energy Services, LLC, C.C. Forbes, LLC, Regions Equipment Finance Corporation and Regions Commercial Equipment Finance, LLC. | ||
31.1* |
| Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). | ||
31.2* |
| Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). | ||
32.1* |
| Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2* |
| Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101* |
| Interactive Data Files |
* | Filed herewith. |
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MASTER AGREEMENT
THIS MASTER AGREEMENT, dated as of June 6, 2012 (this Master Agreement), is among: (a) TX Energy Services, LLC, a Delaware limited liability company, file number 4379582, and C.C. Forbes, LLC, a Delaware limited liability company, file number 4379586, (each a Company and collectively, the Companies), each with a principal place of business at 3000 South Business Highway 281, Alice, Texas and (b) REGIONS EQUIPMENT FINANCE CORPORATION, an Alabama corporation (REFCO), and REGIONS COMMERCIAL EQUIPMENT FINANCE, LLC, an Alabama limited liability company (RCEF) both with an office at 1900 Fifth Avenue North, Suite 2400, Birmingham, Alabama 35203. Certain definitions and constructions of terms used in this Master Agreement are provided in Section XIV hereof.
I. General Provisions. This Master Agreement contains provisions under which REFCO, RCEF or one of their Affiliates will from time to time lease to the Companies, or provide financing for the Companies to acquire, fixed assets that are secured by liens in such fixed assets (collectively, the Equipment and each individually, an Item). This Equipment shall be described on each equipment schedule incorporating the terms of this Master Agreement (each, a Schedule). Schedules may document a true lease pursuant to which REFCO, RCEF or an Executing Affiliate (as defined below) will be the owner of the Equipment for all purposes. Schedules may document a financing whereby a Company will be the owner of the Equipment and REFCO, RCEF or an Executing Affiliate will be granted a security interest in the Equipment as collateral for a Companys obligations and those transactions may be documented either as leases intended as security or as equipment financing agreements. Each Schedule shall constitute a separate agreement and the terms Agreement or this Agreement refer to each Schedule and this Master Agreement as incorporated therein. Except to the extent otherwise expressly provided herein, the term Regions shall mean: (a) REFCO with respect to all Schedules executed by REFCO; (b) RCEF with respect to all Schedules executed by RCEF; and (c) the applicable Executing Affiliate with respect to all Schedules executed by such Executing Affiliate. One or more Schedules incorporating the terms of this Master Agreement may be executed by one or more Affiliates (including subsidiaries) of Regions Bank (each such Affiliate executing a Schedule shall hereinafter be referred to as an Executing Affiliate). For the purposes of avoiding any doubt as to the intention of the parties: (i) the terms of this Master Agreement and any and all addenda, amendments or other modifications hereto shall apply to each Schedule executed by such Executing Affiliate as if such Executing Affiliate were a party to this Master Agreement; provided, however, that, except with respect to the provisions of Section XV regarding liens as to which this Master Agreement shall govern, the express terms of any Schedule shall supersede any contrary terms in this Master Agreement; and (ii) any reference herein to a Schedule or an Agreement shall include each Schedule executed by an Executing Affiliate which incorporates this Master Agreement, together with this Master Agreement and any and all addenda, amendments or other modifications thereto, to the extent related to such Schedules executed by such Executing Affiliate. This Master Agreement is not a legal commitment to enter into any Schedule and, after executing a Schedule, Regions shall have no obligation to purchase or finance any Equipment until receipt by Regions of all documentation requested by Regions. Each Agreement may be terminated or prepaid only if and as expressly provided therein.
II. Term, Payment and Late Charges; Quiet Enjoyment. The term of the Agreement (the Term) as to each Item shall be the period specified in the Schedule for such Item. The Term shall commence on the date set forth in the Schedule for such Item as the Commencement Date. Each Company acknowledges that certain of its duties hereunder begin before the Commencement Date and/or continue past the expiration or termination of this Agreement. The Companies shall pay to Regions periodic payments of rent or principal and interest, as applicable, without invoice or other written demand as more fully set forth in the Schedule (Periodic Payments) and any and all other payments required to be paid by the Companies hereunder (Other Payments and collectively with Periodic Payments, Payments). All payments by the Companies to Regions under each Agreement shall be in legal tender of the United States of America in immediately available funds. The Companies obligation to pay all Payments and other amounts due under each Agreement is absolute and unconditional under any and all circumstances, shall be paid and performed by Company without notice or demand and without any abatement, reduction, diminution, setoff, defense, counterclaim or recoupment whatsoever, including any past, present or future claims that the Companies may have against Regions, any Supplier or any other person or entity whatsoever. To the fullest extent permissible under applicable law, the Companies hereby waives demand, diligence, presentment, protest, notice of dishonor, notice of nonpayment and notices and rights of every kind. If any Payment is not received when due, the Companies, shall pay a late charge equal to, at Regions election and to the extent allowed by law, either: (a) five percent (5%) of such delinquent Payment or (b) interest at a rate of one and one-half percent (1.5%) per month on such delinquent Payment calculated from the date such Payment was due. Regions covenants that during the Term and so long as no Event of Default shall have occurred under any Agreement, Regions shall not interrupt the Companies peaceful and quiet enjoyment, possession and use of the Equipment.
III. Selection Delivery and Acceptance; Disclaimer of Warranties. The Companies acknowledge and agree that: (a) it has selected the Equipment and has not relied on any representation or warranty by Regions or any of its Affiliates in connection with such selection; and (b) none of Regions nor any of its Affiliates is an agent or Affiliate of any Supplier and no Supplier is an agent of Regions or any of Regions Affiliates or otherwise authorized to bind Regions or any of its Affiliates to any representation, warranty or agreement. Regions shall have no obligation to deliver or install any Item and the Companies shall be solely responsible for all site preparation and delivery. To the extent it has the right to inspect and accept any Item upon or prior to delivery, Regions appoints the Companies to act as its agent for such purpose. Any acceptance of Equipment hereunder will be for purposes of this Agreement only and will be without prejudice to any rights that Regions or the Companies may have against any Supplier or other person. REGIONS DOES NOT MAKE, HAS NOT MADE, SHALL NOT BE DEEMED TO MAKE, AND HEREBY DISCLAIMS ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY USE OR PURPOSE, THE DESIGN, COMPLIANCE WITH SPECIFICATIONS, OPERATION OR CONDITION OF THE EQUIPMENT, OR AS TO TITLE TO THE EQUIPMENT, OR ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT (EITHER UPON DELIVERY THEREOF TO COMPANY, REGIONS OR OTHERWISE), it being agreed that all such risks, as between Regions and the Companies, are to be borne by the Companies. Regions shall have no responsibility or liability to the Companies or any other person with respect to any of the following, regardless of any active or passive negligence of Regions, other than gross negligence: (i) any liability, loss or damage to the Companies or any third party caused or alleged to be caused directly or indirectly by any Item, any inadequacy thereof or deficiency or defect therein or by any other circumstance in connection therewith, including the delivery, transportation, ownership, possession, use, operation, performance, servicing, maintenance, storage, repair, improvement, replacement, reconstruction or return of any Item or any risks relating thereto; or (ii) any interruption of service, loss of business or anticipated profits or consequential damages.
IV. Use and Maintenance of Equipment. (a) Each Company covenants and agrees that: (i) it will use the Equipment only for its originally-intended business purpose as described by the Companies to Regions in requesting Regions to enter into this Agreement and it will not use the Equipment for consumer, personal, family, farming or household use; (ii) the Equipment will at all times be used, operated, maintained, serviced and repaired in substantial compliance with (A) all acts, rules, regulations and orders of any judicial, legislative or regulatory body having power to supervise or regulate the use, operation or maintenance of the Equipment, including license, permits and registration requirements applicable to the Equipment; (B) all instructions, warranty provisions, or operating manuals prepared or released by the Supplier and by any maintenance organization providing maintenance
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of such Equipment; (C) all requirements of any insurance maintained hereunder; and (D) the prudent practice of other similar companies in the same business as the Companies, but in any event, to no lesser standard than that employed by the Companies for comparable equipment owned or leased by it; (iii) the Equipment will be operated only by employees or authorized agents of the Companies and each Company will obtain and make available to all users of the Equipment all safety and operating manuals available from the Supplier of the Equipment; (iv) each Company shall obtain Regions prior written consent before using the Equipment to ship, store, process, create or use any materials regulated under the Hazardous Materials or Substances Transportation Act, 49 U.S.C. 1801 et seq; the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq, or the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq, as amended by the Superfund Amendments and Reauthorization Act; (v) without in any way limiting the restrictions contained in Section IV(a)(iv) above, each Company shall comply with all acts, rules, regulations and orders of any state, federal or local judicial, legislative or regulatory body, including any license, permit or registration requirement relating to environmental protection or remediation; (vi) each Company shall not attach or incorporate the Equipment to or in any other item of equipment in such a manner that the Equipment may be deemed to have become an accession to or part of such other item of equipment; and (vii) without in any way limiting the foregoing, each Company shall maintain and use the Equipment, at its sole cost and expense, in good and safe operating order, in like new condition excepting only the following (Reasonable Wear and Tear): the results of normal use of the Equipment as originally intended assuming (A) use and maintenance in substantial compliance with the Suppliers recommendations; (B) the complete absence of any casualty, misuse, abuse, abandonment, improper care, accident, negligence or similar occurrence with respect to the Equipment, whether or not the Equipment is in use at the time of said occurrence; and (C) use that does not, in any way, impair the function of the Equipment or prevent the Equipment from immediately being placed into use. Each Company will give prompt oral and written notice to Regions of its receipt of any demand, notice, summons, complaint or legal proceeding relating to any Item including any violation of any law, regulation or standard covered by this Section.
(b) All replacement parts for the Equipment shall be purchased from sources capable of providing parts in substantial compliance with the recommendations of the Supplier, according to its specifications and generally consistent with the requirements of any and all warranties and service agreements. It is the intention of the parties hereto that the Equipment shall consist solely of personal property and that the same shall not constitute fixtures under the laws of the states where the Equipment is located. The parties acknowledge and agree that the Equipment is and shall remain removable from, and not essential to, the premises where the Equipment is located and Company hereby covenants and agrees not to affix or install any Item to or in any real property in such a manner that may cause it to be a fixture. Provided that no Event of Default has occurred and is continuing, the Companies may, at its sole cost and expense, make any alterations, additions, modifications or attachments (Improvements) to the Equipment that do not violate the terms of this Agreement provided that Company notifies Regions of such action in writing and provided further that such Improvements: (i) do not reduce the value or general usefulness of the Equipment; (ii) do not impair the certification, performance, safety, quality, capability, use or character of the Equipment or alter the purpose for which such Equipment was leased or financed under this Agreement; (iii) are not inconsistent with applicable laws or any warranty or service agreement; (iv) do not expose Regions or any of the Equipment to any Lien or other adverse interest or circumstance; (v) do not adversely affect insurance coverage benefiting Regions hereunder; and (vi) are of a kind that customarily are made by lessees or owners of equipment similar to the Equipment.
V. Inspection and Reports. Regions, or any inspector designated by Regions may at any time with reasonable notice enter upon any of the Companies premises to inspect any Item and all of the Companies books and records, insofar as they relate to the Equipment leased or financed hereunder, and to make copies of such books and records, provided that Regions is not obligated to do so and provided, further, that no notice is required if a default or Event of Default shall have occurred and then be continuing. The Companies will deliver to Regions: (a) within forty-five (45) days after the close of each first, second and third quarter of Forbes Energy Services Ltd., the ultimate parent of the Companies (the Guarantor, and together with the Companies, the Loan Parties), a copy of the Guarantors unaudited consolidated quarterly financial statements and such other information as Regions may require from time to time, certified by the Guarantors chief financial officer to present fairly in all material respects (subject to footnotes and year-end audit adjustments) the Guarantors consolidated financial position and the consolidated results of the Guarantors operations at the date and for the periods indicated therein; and (b) within ninety (90) days after the close of each fiscal year of the Guarantor, consolidated year-end financial statements of Guarantor which shall be at Regions election either (i) certified and audited by the Guarantors certified public accounting firm (the Approved Accountants); or (ii) compiled or reviewed by the Approved Accountants. For the purpose of satisfying the Companies obligations under this Section V, the Guarantors filing of annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K shall constitute delivery to Regions by the Companies.
VI. Loss of Equipment; Damage to Equipment. As between the Companies and Regions, the Companies shall bear the entire risk of theft, taking (including any condemnation, seizure, or requisition of title), damage to, or loss or destruction of, each Item commencing on the earlier of the Commencement Date or the placement of such Item in transit for shipment from the Supplier to the Companies and continuing until all of the Companies obligations are performed in full with respect to the Schedule for such Item. No such theft, taking, damage, loss or destruction shall relieve the Companies from its obligations to make Payments except as expressly provided in this Section. In the event that any Item is missing, taken or has been damaged in any significant way, the Companies shall promptly (and in any event within ten business (10) days) give Regions written notice and details of any such event and the Companies plans regarding the same. If any Item is in Regions judgment stolen, taken or damaged in any material respect (each, a Casualty Occurrence), the Companies shall promptly at Regions election, either: (a) place such Items in good repair and working order; or (b) promptly pay to Regions an amount calculated by Regions on the date when the next Periodic Payment is due (the Payment Date) to be equal to the Casualty Value for such Items as set forth on the applicable Schedule. In addition to the repair of any Items, or the payment of the Casualty Value, the Companies shall also pay any costs and expenses (including Attorneys Fees) incurred by Regions in connection with its exercise or protection of its rights and interests hereunder. Upon the payment of Casualty Value with respect to any Item and the payment of any and all other amounts due and payable to Regions hereunder, the Companies Payment obligations hereunder for such Item shall terminate and Regions shall release its security interest in said Items or transfer (without recourse, representation or warranty, AS IS, WHERE IS) to the Companies or the Companies insurer, any right, title or interest Regions may have in such Item; provided that the Companies obligations with respect to taxes, indemnities and reimbursements hereunder shall survive with respect to all periods prior to such payment. In the event of damage to any Item which is not a Casualty Occurrence, the Companies shall promptly place such items in good repair and working order, Reasonable Wear and Tear excepted. Any proceeds other than insurance proceeds (including proceeds of condemnation or requisition) received by Regions or the Companies as the result of a Casualty Occurrence with respect to any Item shall be applied at Regions election, in whole or in part, to (a) repair or replace such Item or any part thereof, or (b) satisfy any obligation of the Companies to Regions hereunder or under any Agreement.
VII. Insurance. (a) The Companies shall, at its own expense, commencing with the delivery of any Item to the Companies premises and continuing until all of the Companies obligations are performed in full with respect to the Schedule covering said Item, keep the Equipment insured for such amounts and against such hazards as Regions may from time to time require; provided, that, the Companies present insurance coverage and coverage reasonably consistent with that coverage existing on the date hereof shall be considered acceptable by Regions. Without limiting the foregoing, each Company shall
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maintain insurance that includes: (i) special form replacement cost insurance for damage to the Equipment (or any portion thereof), which insurance amount shall not be less than the Casualty Value of each Item; (ii) commercial general liability insurance insuring against liability for property damage, death and bodily injury resulting from the transportation, ownership, possession, use, operation, performance, maintenance, storage, repair or reconstruction of the Equipment, which insurance as to an Item under any Schedule shall not be less than the amount set forth in the applicable Schedule (or of which Regions otherwise notifies the Companies in writing thereafter); and (iii) if reasonably requested by Regions, other or additional coverage, including motor vehicle coverage. In addition, the Companies shall, at no expense to Regions cause the Equipment to be covered by the insurance specified above commencing upon the placement thereof in transit for shipment of such Item from the Supplier to the Companies.
(b) All such policies shall be with companies and on terms satisfactory from time to time to Regions and all insurance policies shall: (i) name Regions as sole loss payee and additional insured with respect to the Equipment leased or financed hereunder; (ii) provide that the policies will not be invalidated as against Regions because of any violation of a condition or warranty of the policy or the application therefor by any Company; (iii) provide that the policies may be materially altered or canceled by the insurer only after at least thirty (30) days prior written notice to Regions and to any and all of Regions assignees; and (iv) provide for a Lenders loss payable endorsement in Regions favor and any other endorsements related to the Equipment leased or financed hereunder which Regions may require from time to time. Each comprehensive physical loss or damage insurance policy shall also provide that any proceeds payable by said insurer with respect to any loss or destruction of, or damage to, any Item, shall be payable solely to Regions. The Companies agree to inform Regions immediately in writing of any notices from, or other communications with, any insurers that may in any way adversely affect the insurance policies being maintained pursuant to this Section VII. No insurance related to the Equipment leased or financed hereunder shall be subject to any co-insurance clause. Any deductibles and retentions shall be subject to Regions approval. All insurance premiums shall be prepaid by the Companies. The Companies hereby appoint Regions as the Companies attorney-in-fact with respect to claims relating to this Agreement or the Equipment under policies of insurance maintained in accordance with the terms hereof. The Companies agree to deliver to Regions evidence of compliance with this Section VII satisfactory to Regions, including any requested copies of policies, certificates and endorsements, with premium receipts therefor, on or before the date of execution by the Companies of the applicable Schedule and thereafter within five (5) business days after Regions request.
VIII. Negative Covenants of the Companies. No Company shall: (a) sell, assign, lease or otherwise transfer (including by operation of law) any Item or any of its interest in or rights under this Agreement or as to any Item, without Regions prior written consent; (b) change Companys legal name, state of organization, organizational structure (by merger or otherwise) or organizational identification number, without providing Regions with written notice five (5) business days in advance; (c) mortgage, pledge, grant a security interest in or otherwise permit, suffer or cause any Lien to exist or remain on any Item except Permitted Liens; (d) record or attempt to record a termination statement under Article 9 of the UCC, without Regions prior written consent; or (e) fail to promptly provide Regions with any notice required hereunder. For the purpose of this Section VIII, Permitted Lien shall mean any Lien for impositions, liens of mechanics, materialmen, or suppliers and similar liens arising by operation of law, provided that any such lien is incurred by Company in the ordinary course of business, for sums that are not yet delinquent or are being contested in good faith and with due diligence, by negotiations or by appropriate proceedings which suspend the collection thereof and, in Regions reasonable discretion, (i) do not involve any substantial danger of the sale, forfeiture or loss of the Equipment or any interest therein, and (ii) for the payment of which adequate assurances or security have been provided to Regions. If for any reason Regions determines that any Lien is not a Permitted Lien, Company will pay within five (5) business days after receipt of notice from Regions, the Casualty Value of the Equipment affected by such Lien.
IX. Events of Default. An Event of Default shall be deemed to have occurred hereunder if: (a) any Company fails to pay any Payment within five (5) business days when due (in good, collected and indefeasible funds), fails to return any Item to Regions to the extent required by this Agreement, fails to maintain insurance as required by this Agreement or breaches any of the covenants contained in Section VIII hereof; (b) any representation or warranty of any Company or the Guarantor to Regions is false in any material respect when made; (c) any Company or the Guarantor breaches any representation, warranty, term, condition or covenant in any Agreement, any Guaranty, any other present or future agreement between any Company or the Guarantor and Regions or an Affiliate of Regions; (d) any Company or the Guarantor becomes insolvent, dissolves or ceases to do business as a going concern, makes an offer of settlement, extension or composition to its unsecured creditors generally, makes an assignment for the benefit of its creditors, or files a petition for an order for relief under the United States Bankruptcy Code or any similar federal or state law, or has such a petition filed against it which is not dismissed within sixty (60) days; (e) all or a material part of the property of any Company or the Guarantor is attached or a trustee, receiver or other custodian is appointed for any Company or such property; (f) a majority of the board of directors of the Guarantor are not Continuing Directors; (g) the occurrence of any event (whether in one or more transactions) which results in the transfer of all or substantially all of the assets of Company or Guarantor, except to another Loan Party provided that the Companies provide notice of such a transfer to another Loan Party to Regions within thirty (30) days of such transfer; (h) the occurrence of any event (whether in one or more transactions) which results in the acquisition by a person or group, other than to Permitted Holders, of more than fifty percent (50%) of the beneficial ownership, directly or indirectly, of the voting power of the total outstanding equity interests of Company or Guarantor; (i) the default under any agreement to which any Company or the Guarantor is party or to which any of their properties are bound relating to indebtedness in excess of $5,000,000, which default continues for more than the applicable cure period, if any, with respect thereto; (j) any Company attempts to repudiate this Agreement or revoke acceptance of any Item; or (k) the Guarantor attempts to repudiate, revoke, rescind, withdraw or cancel a Guaranty. The Companies acknowledge that an Event of Default under any Agreement shall constitute an Event of Default under all Agreements. For purposes of this Article IX, Permitted Holders shall mean John E. Crisp, Charles C. Forbes, Janet L. Forbes, and any family member of any of them and Continuing Directors shall mean any member of the board of directors of the Guarantor that was a member of the board as of the date of the Master Agreement and any director who was nominated for election or appointed or elected to the board of directors with the approval or ratification of a majority of the Continuing Directors who were members of the board of directors at the time of such nomination or election.
X. Rights and Remedies upon Default. (a) Upon the occurrence of an Event of Default, Regions shall have any and all rights and remedies existing at law or in equity and shall have the right, at its sole election, at any time to exercise any or all of such remedies concurrently, successively or separately, without notice to the Companies (unless specifically stated in this Agreement). Without limiting the foregoing, upon the occurrence of an Event of Default, Regions may at its election declare any or all Schedules to be in default and exercise any and all rights and remedies specified in the applicable Schedule(s) as well as the following rights and remedies: (i) proceed at law or in equity to enforce specifically the Companies performance or to recover damages; (ii) require the Companies to immediately assemble, make available and if requested by Regions return the Equipment (or, if so requested, any Items designated by Regions) to Regions at a time and place designated by Regions; (iii) enter any premises where any Item may be located and repossess, disable or take possession of such Item (and/or any attached or unattached parts) by self-help, summary proceedings or otherwise without liability for rent, costs, damages or otherwise; (iv) use the Companies premises for storage without rent or liability; (v) sell, lease or otherwise dispose of the Equipment or such Items at private or public sale, in bulk or in parcels, with or without notice except to the extent required by applicable law, and without having the Equipment or such Items present at the place of sale; (vi) disable or keep idle all or part of the Equipment or such Items; or (vii) accelerate the Companies obligations and recover from the Companies an amount equal to the sum of the following (the Required Default Amount): (A) the Base Default
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Amount set forth in the applicable Schedule; (B) all costs and expenses incurred by Regions in any repossession, transportation, recovery, storage, refurbishing, advertising, repair, sale, re-lease, or other disposition of the Equipment or Regions enforcement of its rights hereunder, including Attorneys Fees and any brokers or similar fees or any other fees, costs or expenses resulting from the Event of Default; plus (C) interest on the amounts due in Sections X(a)(vii) (A) and (B) from the date due until paid at a rate of eighteen percent (18%) per annum or the highest rate allowed by law, whichever is lower. Notwithstanding the foregoing, upon the occurrence of an Event of Default under Section IX(d) or (e) above, the Companies obligations hereunder shall automatically accelerate and the Companies shall be deemed to immediately owe to Regions, without notice or demand from Regions, the Required Default Amount. The Companies expressly acknowledge that this Agreement sets forth a reasonable amount and reasonable formula for calculation of liquidated damages in light of the anticipated harm caused by any default by the Companies hereunder and that such harm would otherwise be difficult or impossible to calculate or ascertain.
(b) In the event the Companies pay to Regions the Required Default Amount and any and all other amounts due and payable to Regions hereunder as a result of the Event of Default (in good, collected and indefeasible funds) prior to the date Regions enters into a contract or otherwise determines that it is obligated to a third party with respect to the disposition of the Equipment, Regions shall release its security interest in the Equipment or transfer to the Companies (without recourse, representation or warranty, AS IS, WHERE IS) any right, title or interest Regions may have in such Equipment. In the event Regions disposes of the Equipment, it shall apply the Net Proceeds (as hereinafter defined) to the Companies obligations in the order Regions determines. As used herein, the term Net Proceeds shall mean: (i) in the case of a purchase of the Equipment in immediately available funds by the purchaser, the amount received by Regions from said purchaser; or (ii) in the case of a purchase of the Equipment which Regions finances pursuant to a lease intended as security or other equipment finance arrangement or in the case of a disposition pursuant to a true lease (any such leases or finance agreements being referred to hereinafter as a Replacement Agreement), an amount equal to the sum of all non-cancellable periodic payments and any purchase election, purchase requirement or balloon payment set forth in the Replacement Agreement, discounted to present value at the implicit rate of the Replacement Agreement as determined by Regions.
(c) With respect to any exercise by Regions of its right to dispose of the Equipment or any Items, Company acknowledges and agrees that Regions shall have no obligation, subject to any legal requirements of commercial reasonableness, to clean-up or otherwise prepare the Equipment or any Items for disposition; Regions may comply with any state or federal law requirements that Regions deems to be applicable or prudent to follow in connection with any such disposition; and any actions taken in connection therewith shall not be deemed to have adversely affected the commercial reasonableness of any such disposition. If Equipment delivered to or picked up by Regions contains goods or other property not constituting of Equipment, Company agrees that Regions may take such other goods or property, provided that Regions makes reasonable efforts to make such goods or property available to Company after repossession upon Companys written request.
(d) If, after an Event of Default, this Agreement is placed in the hands of an attorney, collection agent or other professional for collection of Payments or enforcement of any other right or remedy of Regions, the Companies shall pay all Attorneys Fees and associated costs and expenses. Forbearance as to any Event of Default shall not be deemed a waiver, all waivers to be enforceable only if specifically provided in writing by Regions, and waiver of any Event of Default shall not be a waiver of any other or subsequent Event of Default. To the fullest extent permitted by applicable law, the Companies hereby waive any rights now or hereafter conferred by statute or otherwise that may require Regions to sell, lease or otherwise use any Equipment in mitigation of Regions damages set forth in this Agreement or that may otherwise limit or modify any of Regions rights or remedies set forth in this Agreement.
XI. Indemnification. The Companies hereby agree to defend, indemnify and hold REFCO, RCEF, each Executing Affiliate and each other Affiliate, including Regions Bank (and at Regions election, any and all employees, agents, directors, partners, shareholders, officers, members of the foregoing and any assignee or secured party of Regions), harmless from and against: (a) all claims, allegations, demands, suits, actions, and legal proceedings incurred incident to, arising out of, or in any way connected with, this Agreement, any Schedule, any Item, or the transactions contemplated hereby, whether civil, criminal, administrative, investigative or otherwise, including arbitration, mediation, bankruptcy and appeal and including any claims, demands, suits and legal proceedings arising out of (i) the actual or alleged manufacture, purchase, financing, ownership, delivery, rejection, non-delivery, possession, use, transportation, storage, operation, maintenance, repair, return or other disposition of the Equipment; (ii) the existence of latent and other defects (whether or not discoverable by the Companies or Regions); (iii) patent, trademark or copyright infringement; or (iv) any alleged or actual default by any Company (all of the foregoing are referred to as Actions); and (b) any and all penalties, losses, liabilities (including the liability of the Companies or Regions for negligence, tort and strict liability, but excluding the gross negligence of Regions), damages, costs, court costs, harms, judgments and any and all other expenses (including Attorneys Fees, judgments and amounts paid in settlement and other legal and non-legal expenses incurred investigating or defending any Action) incurred incident to, arising out of or in any way connected with any Actions, this Agreement, any Schedule, any Items, or any other instrument, document or agreement executed in connection with or contemplated by any of the foregoing (collectively, Losses). The Companies agree to give Regions prompt notice of any claim or liability hereby indemnified against. The Companies shall, at Regions election, appear and defend any Action and/or pay the cost of the defense of any Action brought against Regions, either alone or in conjunction with others. The Companies shall satisfy, pay and discharge any and all Losses that may be, incurred by, or recovered against, Regions in connection with any Action. The foregoing Indemnities are continuing indemnities and shall survive expiration or termination of this Agreement for any reason.
XII. Representations and Warranties. Each Company represents, warrants, covenants and agrees that: (a) it is duly organized, validly existing and in good standing under the laws of Delaware; it is qualified to do business and in good standing under the laws of each state in which its use and possession of any Item would require such qualification and has the organizational identification number listed in first paragraph on page 1 of this Master Agreement (the Preamble), if any; (b) its name listed in the Preamble is its correct legal name; (c) it has the requisite limited liability company power and authority to execute, deliver and perform all its obligations under this Agreement; (d) this Agreement has been duly authorized by all necessary limited liability company action of such Company, duly executed on behalf of such Company and constitutes a valid and legally binding obligation of such Company, enforceable in accordance with its terms; (e) the execution and performance by such Company of this Agreement and the validity hereof, do not require the consent or approval of, giving of notice to, registration with, or taking of any other action in respect of, any state, federal or other governmental authority or agency, any shareholders, partners, members, trustees or holders of any indebtedness of such Company; or if any such consent, approval, notice, registration or action is required, it has been obtained, given or taken, and evidence thereof has been delivered to Regions or will be delivered concurrently with the execution of this Agreement; (f) the execution, delivery or performance by such Company of its obligations under this Agreement shall not contravene, in any material respect (i) any law; (ii) any provision in such Companys certificate of formation and limited liability company agreement; (iii) any provision in any material existing mortgage, indenture, loan or credit agreement, or other contract or agreement binding on such Company; or (iv) any judgment, decree, order, franchise or permit applicable to such Company; (g) neither the execution and delivery of this Agreement nor the fulfillment of, or compliance with, the terms and provisions hereof, will result in the creation of any Lien upon all or any portion of the Equipment (other than under this Agreement); (h) such Company is not a party to any agreement or instrument, or subject to any chartering or governing document, or
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other corporate or business restriction, materially and adversely affecting its business, properties, assets, operations or condition (financial or otherwise), and such Company is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any material agreement for borrowed money or other material agreement or instrument to which it is a party or by which it may be bound in any manner; (i) all annual or quarterly balance sheets, profit and loss statements, statements of income or other financial statements of the Guarantor, heretofore or hereinafter delivered to Regions, have been prepared in accordance with generally accepted accounting principles and fairly present the financial position of the Guarantor, on a consolidated basis, on and as of the date thereof and the results of its operations for the period or periods covered thereby (subject to footnotes and year-end audit adjustments), and since the date of the latest such balance sheet, profit and loss statements of income or other financial statements, there has been no material adverse change in the financial position of the Guarantor; (j) such Company is not in default under this Agreement; (k) there are no pending or threatened actions or proceedings before any court, administrative agency or other tribunal or body or judgments which may materially and adversely affect such Companys financial position or results of operations; and (l) such Company shall notify Regions in writing within five (5) business days after any Lien shall attach to any Item, and any such notice shall specify the location of such Item on the date of such notification, the amount and circumstances of any claim giving rise to such Lien and the identity and address of the lienholder.
XIII. Further Assurances; Power of Attorney. The Companies will, upon demand of Regions and at the Companies sole cost and expense, do and perform any other act and will execute, deliver, file or record any and all further writings or records reasonably requested by Regions to protect Regions rights hereunder, including financing statements, applications for certificates of title or other records under the UCC or other applicable law as currently in force or as subsequently revised, enacted or re-enacted. The Companies further authorize Regions or its designee, and irrevocably appoints Regions and any such designee as the Companies attorney-in-fact (coupled with an interest) to enter the Commencement Date and any other information that does not materially change the terms of this Agreement on this Master Agreement and any Schedule or other writing executed in connection with this Agreement, or any Item, to execute applications for certificates of title or notice of Lien relating to any Item, to file or record financing statements, amendments to financing statements and continuations or to execute and deliver or otherwise authenticate and communicate any writing or record and take any other actions that Regions reasonably deems necessary or desirable to protect Regions interest under this Agreement. The Companies further authorize Regions and its designee to transmit and file any such statements, ministerial changes and other items by electronic means. If the Companies shall fail to provide any insurance, remove any Lien, pay any Tax, provide any indemnity, or otherwise perform any obligation hereunder that may be performed or satisfied by the payment of money, Regions may, in addition to and without waiver of any other right or remedy herein provided, pay such sum for the Companies account. In such event, the Companies shall reimburse Regions immediately upon demand for all such sums, together with interest at one and one-half percent (1.5%) per month or the highest rate allowable under applicable law, whichever is lower. The Companies acknowledge that any default described in this paragraph is a monetary default.
XIV. Definitions and Rules of Construction. As used in this Agreement: (a) unless otherwise stated herein, all references in the Master Agreement to Sections shall be to Sections of the Master Agreement; (b) the terms herein or hereunder or like terms shall be deemed to refer to this Agreement as a whole and not to a particular section; (c) terms include or including shall mean include or including, as the case may be, without limiting the generality of any description or word preceding such term; (d) the expression satisfactory to Regions, determined by Regions in Regions judgment, at Regions election or similar words which grant Regions the right to choose between alternatives or to express its opinion, shall mean that the satisfaction, judgment, choices and opinions are to be made in Regions reasonable discretion; (e) the term Affiliate of a person or entity means any person or entity which directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting stock or other interest of such person or entity or directly or indirectly controls, is controlled by, or is under common control with such person where the term control means the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting securities, by contract, or otherwise; (f) the term Attorneys Fees shall include reasonable attorneys fees incurred by Regions incident to, arising out of or in any way connected with Regions interests in or defense of any Action (as defined in Section XI) or Regions enforcement of its rights and interests under this Agreement, including attorneys fees incurred by Regions to collect sums due, during any work-out, with respect to settlement negotiations, or in any bankruptcy proceeding (including attorneys fees incurred in connection with any motion for relief from the automatic stay and any motion to assume or reject any Agreement); (g) the term Equipment includes all items of personal property described on each Schedule including all inventory, fixtures or other property leased or financed under such Schedule, and only to the extent permitted under the language of subsection (6) of the definition of Permitted Liens as set forth in the Indenture (as in effect as of the date hereof, without giving effect to any subsequent amendment, discharge or termination) and the language of subsection (f) of the definition of Permitted Encumbrances as set forth under the Loan Agreement (as in effect as of the date hereof, without giving effect to any subsequent amendment, discharge or termination), any related software (embedded or otherwise) and any and all general intangibles, replacements, repairs, additions, attachments, accessories and accessions thereto whether or not furnished by the Supplier; (h) the term Guaranty shall mean any guaranty executed by a Guarantor for the benefit of Regions or any of its Affiliates; (i) the term Lien means any mortgage, pledge, security interest, hypothecation, assignment, encumbrance, lien (statutory or other, including tax and materialmens liens), privilege, or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever; (j) the term material shall have the meaning generally ascribed to it by courts of competent jurisdiction applying the laws of the governing jurisdiction set forth herein; (k) the term Supplier means any supplier, manufacturer or other person or entity from whom the Equipment is purchased; (l) the term Supply Contract means the contract under which the Equipment was purchased from the Supplier or purchase order therefor; (m) the UCC means the Uniform Commercial Code as enacted in the State of New York; (n) Article 9 of the UCC means Article 9 of the Uniform Commercial Code as enacted in the State of New York; (o) the term Indenture means that certain indenture dated as of June 7, 2011 among the Parent, the guarantors named therein and Wells Fargo Bank, National Association, as trustee, as now in effect without regard to any future amendment; and the term Loan Agreement means that certain Loan and Security Agreement dated September 9, 2011 by and among the Parent, the Companies, certain other subsidiaries of the Parent, certain lenders named therein and Regions Bank, as agent for the secured parties, as amended by that certain First Amendment dated as of December 13, 2011 and that certain Second Amendment dated as of [ ], as now in effect without regard to any future amendment. The captions or headings in this Agreement are made for convenience and general reference only and shall not be construed to describe, define or limit the scope or intent of the provisions of this Agreement. As used herein all singular terms include the plural form thereof, and vice versa. The exhibits annexed hereto are incorporated herein by this reference and made a part hereof as if contained in the body of this Agreement. All references to sections hereunder shall be deemed to refer to sections of this Agreement, unless otherwise expressly provided, whether or not hereof, above, below or like words are used. Any use of the term Equipment herein shall be deemed to refer equally to all Items and each Item, it being the understanding of the parties that any reference to Equipment shall not be deemed to prejudice any rights or remedies of Regions, or obligations of the Companies, hereunder with respect to each Item and that any reference to Item shall not be deemed to prejudice any rights or remedies of Regions, or obligations of the Companies, with respect to all of the Equipment. This Agreement has been drafted by counsel for Regions as a convenience to the parties only and shall not, by reason of such action, be construed against Regions or any other party. The Companies acknowledge and agree that they have had full opportunity to review this Agreement and have had access to counsel of their choice to the extent it deems necessary in order to interpret the legal effect hereof. The Companies agree that Regions may request and review credit reports regarding any Company and the Guarantor. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. This Agreement and exhibits hereto constitute the entire agreement of
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the parties with respect to the subject matter hereof. Any Schedule to this Master Agreement may, by its express terms, supplement or amend this Master Agreement as it applies to said Schedule and other Schedules to this Master Agreement to, among other things, add additional Events of Default or covenants.
XV. Miscellaneous. (a) Any notice or other communication required or desired to be given shall be in writing and shall be sent by certified mail (return receipt requested), by a nationally recognized express courier service (such as FedEx) or personally served. Each such notice shall be deemed to be duly given when deposited in any depository maintained by the United States Post Office, when deposited with a nationally recognized express courier service or when personally served. Each such notice shall be addressed to the Companies at the address set forth in the first paragraph of the first page hereof or to Regions at the addresses set forth below its signature until any Schedule is executed, and, thereafter, at the address specified in such Schedule, if different, or to any other address as may be specified by a party by a notice given as provided herein. Notwithstanding the foregoing, any notice, request or demand made by the Companies pursuant to any statutory rights granted the Companies under the UCC (as currently in force or as subsequently revised or re-enacted) shall be effective only upon receipt of a copy of said notice, request or demand by Regions at the address set forth in the first paragraph of the first page hereof with the following caption: Attn: Manager, Equipment Finance Operations.
(b) As additional security for the Companies obligations under each Schedule, the Companies grant to Regions, to the extent permitted under the language of subsection (6) of the definition of Permitted Liens as set forth in the Indenture (as in effect as of the date hereof, without giving effect to any subsequent amendment, discharge or termination) and under the language of subsection (f) of the definition of Permitted Encumbrances as set forth in the Loan Agreement (as in effect as of the date hereof, without giving effect to any subsequent amendment, discharge or termination), a security interest in: (i) all of the Equipment leased or financed pursuant to each and every other Schedule (the Other Schedules) irrespective of whether REFCO, RCEF or an Executing Affiliate is Regions under such Other Schedules; (ii) without limitation of the restrictions set forth in Section VIII, any leases, subleases, chattel paper, accounts, security deposits and proceeds relating to any Equipment leased or financed pursuant to said Schedule or any Other Schedules; and (iii) all proceeds of the foregoing described collateral. Anything herein to the contrary notwithstanding: (A) the security interests granted pursuant to Section XV(b) shall be (1) for the benefit of any assignee of Regions that is not an Affiliate of Regions so long as but only to the extent that such assignee is the lessor or lender of one or more Other Schedules; and (2) for the benefit of REFCO, RCEF, any Executing Affiliate and any assignee that is an Affiliate of any of them only to the extent and so long as any of REFCO, RCEF, such Executing Affiliate or any other such Affiliate is the lessor or lender of one or more Other Schedules, it being the intention of the parties that all Schedules with REFCO, RCEF, any Executing Affiliate or any such other Affiliate shall be cross collateralized notwithstanding the fact that different entities are the lessor or lender of any such Schedules. Notwithstanding anything to the contrary herein, including the Commencement Date, any security interest granted pursuant to this Agreement shall become effective between the parties with respect to each Item as soon as a Company receives possession thereof. In addition to, and without limiting the foregoing, the Companies hereby further agree that any security interests granted in this Master Agreement, any Schedule or any other document, instrument or agreement executed in connection with the foregoing shall also secure all obligations of the Companies to each Affiliate of Regions (including the Companies obligations under or in connection with any existing and future swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time) with Regions or any of its Affiliates), provided, however, that such security interest shall be for the benefit of any assignee of Regions or any such Affiliates so long as but only to the extent that such assignee is also an Affiliate of Regions.
(c) Regions may assign this Agreement and any and all Schedules hereto, as well as all of its right, title and interest hereunder, to any person or entity whatsoever without notice to or consent of the Companies. In such event, Regions assignee shall have all of the rights, but none of the obligations, of Regions hereunder and each Company agrees that it will not assert against any assignee of Regions any defense, counterclaim or offset that the Company may have against Regions with respect to this Agreement or any other matter. Each Company acknowledges that any assignment or transfer by Regions, in whole or in part, does not materially change the Companies duties or obligations under this Agreement nor materially increase the burdens or risks imposed on the Companies. Only Regions original counterpart of each Schedule constitutes Chattel Paper for purposes of the UCC, and no security interest can be perfected by possession of any other duplicate original or counterpart, whether or not signed by the parties.
(d) Timeliness of the Companies payment and other performance is of the essence of this Agreement. The provisions of this Agreement shall be severable and if any provision shall be invalid, void or unenforceable in whole or in part for any reason, the remaining provisions shall remain in full force and effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns (subject nevertheless to restrictions against assignment provided in Section VIII). All representations, warranties and agreements made herein by any of the parties hereto shall survive consummation of the transactions contemplated hereby. The Companies obligations as to events or conditions occurring during the Term shall survive termination, cancellation or expiration of this Agreement as to any Item. Regions failure at any time to require strict performance by the Companies with any of the provisions hereof shall not waive or diminish Regions right thereafter to demand strict compliance therewith. Nothing herein shall be deemed to provide or imply that Regions is a merchant as to any Item within the meaning of the UCC as currently in force or as subsequently revised or re-enacted. The Companies acknowledges that Regions approval of any Equipment, Supplier or other parties or documentation relating to any Agreement will be solely for the protection of Regions interests in the Equipment and under such Agreement and under no circumstances shall be construed to impose any responsibility or liability of any nature whatsoever on Regions.
(e) Federal law requires all financial institutions to obtain, verify and record information regarding customers. Regions has or will obtain and will keep on file information complying with 31 CFR Part 103.121 regarding the Companies, including the Companies name, address and copies of various identifying documents.
(f) Intentionally omitted
(g) Neither this Master Agreement nor any Agreement shall become effective unless and until accepted by execution by an officer of Regions in Birmingham, Alabama. This Master Agreement and each Agreement shall be governed in all respects by, and construed and enforced in accordance with, the laws of the State of New York, excluding conflicts-of-law principles. Each of the Companies and Regions hereby waives all rights to trial by jury in any litigation arising under this Agreement or regarding the Equipment. For purposes of any action or proceeding involving this Agreement, each party hereby expressly submits to the jurisdiction and venue of all federal and state courts located in the State of New York, New York County, and consents to be served with any process on paper by registered mail or by personal service within or without said state and county in accordance with applicable law, provided a reasonable time for appearance is allowed. Each party hereby waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of any such action or proceeding. Nothing in this paragraph shall affect the right of any party to serve legal process in any other manner permitted by law or affect the right of any party to bring any action or proceeding in the courts of any other jurisdiction. Following expiration or termination of all Schedules, if the Companies are not then in default, either party may terminate
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this Master Agreement by written notice to the other party. The terms of any letter of intent or proposal are superseded hereby and declared null and void. The parties intend and agree that a carbon copy, photocopy or facsimile of this Agreement or any document executed in connection herewith with their signature thereon and all counterparts when taken together, shall be deemed to be as binding, valid, genuine, and authentic as an original-signature document for all purposes, including all matters of evidence and the best evidence rules. No variation or modification of this Agreement or any term or provision hereof, or waiver, discharge, cancellation or termination of any of its provisions or conditions, shall be valid unless in a writing and signed by an authorized representative of the party against whom the enforcement of such variation, modification, waiver, discharge, cancellation or termination is sought. The Companies acknowledge having read this Section XV(g). INITIAL HERE: /s/ LMC .
[Signature Page to Follow]
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Company: | TX Energy Services, LLC | WITNESS | /s/ Petra Alfaro | |||
By: | /s/ L. Melvin Cooper |
Print Name: | Petra Alfaro | |||
Print Name: | L. Melvin Cooper | Signature | ||||
Title: | Senior Vice President, Chief Financial Officer and Assistant Secretary | |||||
Company: | C. C. Forbes, LLC | WITNESS | /s/ Petra Alfaro | |||
By: | /s/ L. Melvin Cooper |
Print Name: | Petra Alfaro | |||
Print Name: | L. Melvin Cooper | Signature | ||||
Title: | Senior Vice President, Chief Financial Officer and Assistant Secretary | |||||
Accepted by Regions in Birmingham, Alabama, this the 6th day of June, 2012. | ||||||
RCEF: | REGIONS COMMERCIAL EQUIPMENT FINANCE, LLC | REFCO | REGIONS EQUIPMENT FINANCE CORPORATION | |||
By: | /s/ Scott McClain |
By: | /s/ Scott McClain | |||
Title: | Senior Vice President | Title: | Senior Vice President |
Addresses:
REGIONS EQUIPMENT FINANCE CORPORATION
Attn: Manager, Equipment Finance Operations
P. O. Box 2545
Birmingham, AL 35202
Addresses:
REGIONS COMMERCIAL EQUIPMENT FINANCE, LLC
Attn: Manager, Equipment Finance Operations
P. O. Box 2545
Birmingham, AL 35202
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FIRST AMENDMENT TO MASTER AGREEMENT
THIS FIRST AMENDMENT TO MASTER AGREEMENT (this Amendment) is entered into as of July 12, 2012 (the Effective Date), by and among: (a) TX Energy Services, LLC, a Delaware limited liability company, file number 4379582, and C.C. Forbes, LLC, a Delaware limited liability company, file number 4379586, (each a Company and collectively, the Companies), each with a principal place of business at 3000 South Business Highway 281, Alice, Texas and (b) Regions Equipment Finance Corporation, an Alabama corporation (REFCO), and Regions Commercial Equipment Finance, LLC, an Alabama limited liability company (RCEF), both with an office at 1900 Fifth Avenue North, Suite 2400, Birmingham, Alabama 35203.
R E C I T A L S:
WHEREAS, the Companies, REFCO and RCEF entered into that certain Master Agreement, dated June 6, 2012 (the Master Agreement);
WHEREAS, the Companies, REFCO and RCEF desire to amend certain terms and provisions of the Master Agreement;
A G R E E M E N T:
NOW, THEREFORE, in consideration of the terms and provisions of this Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Existing Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the meanings set forth in the Master Agreement.
2. Amendment to the Master Agreement.
(a) Effective July 12, 2012, the Master Agreement is hereby amended to delete subsection (o) of Section XIV in its entirety and replace it with the following:
(o) the term Indenture means that certain indenture dated as of June 7, 2011 among the Parent, the guarantors named therein and Wells Fargo Bank, National Association, as trustee, as now in effect without regard to any future amendment; and the term Loan Agreement means that certain Loan and Security Agreement dated September 9, 2011 by and among the Parent, the Companies, certain other subsidiaries of the Parent, certain lenders named therein and Regions Bank, as agent for the secured parties, as amended by that certain First Amendment to Loan and Security Agreement dated as of December 13, 2011, and as further amended by that certain Second Amendment to Loan and Security Agreement dated as of July 3, 2012, as now in effect without regard to any future amendment.
(b) Effective July 12, 2012, the Master Agreement is hereby amended to delete subsection (b) of Section XV in its entirety and replace it with the following:
(b) Subject to, and to the extent permitted under the language of subsection (6) of the definition of Permitted Liens as set forth in the Indenture (as in effect as of the date hereof, without giving effect to any subsequent amendment, discharge or termination) and under the language of subsection (f) of the definition of Permitted Encumbrances as set forth in the Loan Agreement (without giving effect to any subsequent amendment, discharge or termination), the parties agree that:
As additional security for the Companies obligations under each Schedule, the Companies grant to Regions a security interest in: (i) all of the Equipment leased or financed pursuant to each and every other Schedule (the Other Schedules) irrespective of whether REFCO, RCEF or an Executing Affiliate is Regions under such Other Schedules; (ii) without limitation of the restrictions set forth in Section VIII, any leases, subleases, chattel paper, accounts, security deposits and proceeds relating to any Equipment leased or financed pursuant to said Schedule or any Other Schedules; and (iii) all proceeds of the foregoing described collateral. Anything herein to the contrary notwithstanding: (A) the security interests granted pursuant to Section XV(b) shall be (1) for the benefit of any assignee of Regions that is not an Affiliate of Regions so long as but only to the extent that such assignee is the lessor or lender of one or more Other Schedules; and (2) for the benefit of REFCO, RCEF, any Executing Affiliate and any assignee that is an Affiliate of any of them only to the extent and so long as any of REFCO, RCEF, such Executing Affiliate or any other such Affiliate is the lessor or lender of one or more Other Schedules, it being the intention of the parties that all Schedules with REFCO, RCEF, any Executing Affiliate or any such other Affiliate shall be cross collateralized notwithstanding the fact that different entities are the lessor or lender of any such Schedules. Notwithstanding anything to the contrary herein, including the Commencement Date, any security interest granted pursuant to this Agreement shall become effective between the parties with respect to each Item as soon as a Company receives possession thereof. In addition to, and without limiting the foregoing, the Companies hereby further agree that any security interests granted in this Master Agreement, any Schedule or any other document, instrument or agreement executed in connection with the foregoing shall also secure all obligations of the Companies to each Affiliate of Regions (including the Companies obligations under or in connection with any existing and future swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time) with Regions or any of its Affiliates), provided, however, that such security interest shall be
for the benefit of any assignee of Regions or any such Affiliates so long as but only to the extent that such assignee is also an Affiliate of Regions.
3. Reference to and Effect on the Master Agreement.
(a) On and after the date hereof, each reference in the Master Agreement to this Agreement, hereunder, hereof, herein or words of like import, shall mean and be a reference to the Master Agreement as amended hereby.
(b) Except as specifically amended above, the Master Agreement and the Schedules thereof shall remain in full force and effect and are hereby ratified and confirmed.
4. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument.
5. Facsimile Documents and Signatures. For purposes of negotiating and finalizing this Amendment, if this document or any document executed in connection with it is transmitted by facsimile machine, it shall be treated for all purposes as an original document. Additionally, the signature of any party on this document transmitted by way of a facsimile machine shall be considered for all purposes as an original signature. Any such faxed document shall be considered to have the same binding legal effect as an original document. At the request of any party, any faxed document shall be re-executed by each signatory party in an original form.
6. Final Agreement. THIS WRITTEN AMENDMENT OF THE MASTER AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Signature Pages to Follow]
IN WITNESS WHEREOF, each of the parties has signed this Amendment as of the day and year first above written.
COMPANIES: | ||
TX ENERGY SERVICES, LLC | ||
By: | /s/ L. Melvin Cooper | |
Name: | L. Melvin Cooper | |
Title: | SVP & CFO |
C.C. FORBES, LLC | ||
By: | /s/ L. Melvin Cooper | |
Name: | L. Melvin Cooper | |
Title: | SVP & CFO |
RCEF: | ||
REGIONS COMMERCIAL EQUIPMENT FINANCE, LLC | ||
By: | /s/ Scott McClain | |
Name: | B. Scott McClain | |
Title: | Senior Vice President |
REFCO: | ||
REGIONS EQUIPMENT FINANCE CORPORATION | ||
By: | /s/ Scott McClain | |
Name: | B. Scott McClain | |
Title: | Senior Vice President |
[Signatures Continued on Following Page]
Signature Page to First Amendment to Master Agreement
Agreed and Acknowledged to by CapitalSource Bank (CapitalSource) pursuant to the terms of that certain Notice and Acknowledgment of Assignment dated July 6, 2012, by and among CapitalSource, RCEF, Forbes Energy Services Ltd. and each Company. | ||
CAPITALSOURCE BANK | ||
By: | /s/ Robert S. Wille | |
Name: | Robert S. Wille | |
Title: | Senior Vice President |
Agreed and Acknowledged to by NewStar Equipment Finance I, LLC (NewStar) pursuant to the terms of that certain Notice and Acknowledgement of Assignment dated July 11, 2012, by and among NewStar, RCEF, Forbes Energy Services, Ltd. and each Company | ||
NEWSTAR EQUIPMENT FINANCE I, LLC | ||
By: | /s/ Stephen OLeary | |
Name: | Stephen J. OLeary | |
Title: | Managing Director |
Signature Page to First Amendment to Master Agreement
REGIONS EQUIPMENT FINANCE
CONTINUING GUARANTY AGREEMENT
(the Guaranty)
COMPANIES: TX ENERGY SERVICES, LLC AND C.C. FORBES, LLC
MASTER AGREEMENT
DATED: JUNE 6, 2012 (the Master Agreement)
WHEREAS, the undersigned (hereinafter referred to as the Guarantor) has agreed to guarantee the payment of all credit heretofore or hereafter extended and all advances heretofore or hereafter made by Regions Equipment Finance Corporation (REFCO) and/or Regions Commercial Equipment Finance, LLC (RCEF) to TX ENERGY SERVICES, LLC and C.C. FORBES, LLC (hereinafter referred to individually as a Company and collectively as the Companies), and of all other Liabilities (as hereinafter defined) of the Company to REFCO and/or RCEF (REFCO and RCEF are hereinafter collectively referred to as Regions) under the Master Agreement referenced above and all Schedules thereto (collectively, the Agreement).
NOW, THEREFORE, because the Guarantor will be benefited by the success of the Companies and in consideration of the premises, the entering into of the Agreement (as hereinafter defined), in order to induce Regions to extend to the Companies from time to time such extensions of credit, advances and forbearances as Regions in its sole discretion may deem prudent and wise; and for other good and valuable consideration, the adequacy, sufficiency and receipt of which are hereby acknowledged, the Guarantor agrees as follows: the Guarantor unconditionally and absolutely hereby guarantees the due and punctual payment to Regions when and as the same shall become due and payable (whether by acceleration or otherwise) of the following (collectively, the Liabilities): all indebtedness, obligations and liabilities of the Company to REFCO and/or RCEF of every kind, character and description whatsoever, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, contracted or arising, joint or several, liquidated or unliquidated under the Agreement, and regardless whether incurred as maker, drawer, endorser, surety, guarantor or otherwise, and all other leases or financings entered into by the Company and Regions under the Agreement, and any and all extensions and renewals of all or any part of the same.
The Guarantor further agrees that, in the event Regions grants to any Company one or more extensions or renewals of any of the Liabilities, or any part thereof, or permits or requires any other modification in any of the terms of the Liabilities, or any part thereof, in any manner which may be acceptable to Regions, with or without notice to the Guarantor, this Guaranty shall, and is hereby made to extend to and cover such extended, renewed or modified Liabilities, on whatever terms and conditions the same may be extended, renewed or modified, and without regard to the number of times or the manner in which the same may have been or shall be extended, renewed or modified.
The Guarantor further agrees (a) to pay any and all of the Liabilities upon demand at any time after maturity thereof (whether by acceleration or otherwise), including, without limitation, all rent or periodic payments due under the Agreement and all other obligations for payments to, or for the benefit of, Regions under the Agreement; (b) to be bound by all of the terms and provisions appearing on the face of any instrument or agreement evidencing, securing, guaranteeing, or executed in connection with any of the Liabilities and of any renewal instrument or agreement (collectively, the Documents) (including any terms waiving notice and agreeing to pay costs and expenses of collection in the event of default) just as though the Guarantor had signed such instrument or agreement; (c) that Regions will not be required first to resort to any Company or any other maker, endorser, surety or guarantor (Company and each such company, maker, endorser, surety or guarantor being hereinafter individually called an Obligor) or to the security pledged or granted to Regions by any instrument or agreement, or otherwise assigned or conveyed to it, but in case of default in the payment of any of the Liabilities Regions may forthwith look to the Guarantor for payment under the provisions hereof; and (d) that Regions enforcement of the Guarantors obligations hereunder shall not be stayed or otherwise delayed by any claim (including without limitation, a counterclaim) that any Obligor may have against Regions.
The Guarantor hereby further agrees that the obligations of the Guarantor hereunder are absolute, unconditional, present and continuing guaranties of payment and not of collectibility, and shall not be subject to any counterclaim, recoupment, set-off, reduction or defense based upon any claim that the Guarantor may have against any Company, the Obligors or Regions and shall not be discharged, impaired, modified or otherwise affected by (a) the unenforceability, non-existence, invalidity or non-perfection of (i) any of the Liabilities, (ii) any Documents, (iii) any renewal instrument or agreement or (iv) any lien, pledge, assignment, security interest or conveyance given as security therefor; (b) any understanding or agreement that any other person, firm or corporation was or is to execute this Guaranty or any other document evidencing, guaranteeing or securing the Liabilities, or any part thereof; (c) Regions resort or failure or refusal to resort to any other security or remedy for the collection of the Liabilities, or any part thereof; (d) the sale, exchange, release, surrender, or impairment of any collateral or other security for the Liabilities, or any part thereof; (e) the insolvency or bankruptcy of any Obligor or the failure of Regions to file a claim against such bankrupt Obligor for such Obligors liability or obligation to Regions; (f) any modification, amendment, supplement, or change in the status or terms of any of the Liabilities or any collateral or other security for the Liabilities, or any part thereof; (g) any default by the Company in payment of any of the Liabilities; (h) any compromise, settlement, release, discharge, termination, waiver, or extension of time for payment, performance, or observance of, any obligation of any Obligor with respect to any of the Liabilities; (i) the application of any payments, proceeds of collateral or other sums to any of the Liabilities in such order as Regions may elect; (j) any exercise or non-exercise of any right, remedy, power, or privilege of Regions with respect to any of the Liabilities or any collateral or other security therefor; (k) any failure, omission, delay, or lack of diligence on the part of Regions to enforce, assert, or exercise any such right, power, privilege, or remedy; (l) any claim (including, but not limited to, a counterclaim) that any Obligor may have against Regions; or (m) any other event, circumstance or condition, whether or not the Guarantor shall have notice or knowledge thereof.
The Guarantor further agrees that it shall not be necessary for Regions to give the Guarantor notice of or to obtain consent or approval of the Guarantor in connection with, (a) the making of any advances or any extensions of credit or the terms thereof, or of any renewal or extension of or other modification with respect to the Liabilities, or any part thereof; (b) any of the matters described in clauses (a) through (m) of the preceding paragraph; or (c) Regions acceptance of and reliance on this Guaranty. The terms hereof shall inure to the benefit of the successors and assigns of Regions and shall be binding, jointly and severally, upon the Guarantor, its successors and assigns.
Neither any failure nor any delay on the part of Regions in exercising any right, power or privilege under this Guaranty shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege. No modification, amendment or waiver of any provision of this Guaranty shall be effective unless in writing and signed by a duly authorized officer of Regions, and then the same shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Guarantor in any case shall entitle the Guarantor to any other or further notice or demand in the same, similar or other circumstances.
The Guarantor hereby agrees to indemnify and hold Regions harmless against any loss or expense, including reasonable attorneys fees and disbursements, that may result from any failure of any Obligor to pay any of the Liabilities when and as due and payable or that may be incurred by or on behalf of Regions in enforcing payment of any of the Liabilities against any of the Guarantor or any of the Obligors.
The Guarantors to the extent it now is or hereafter becomes an insider, as defined in 11 U.S.C. §101 (or any amendment or successor thereto or replacement thereof), of any Company hereby waives and relinquishes all rights (including, without limitation, rights of subrogation) that the Guarantor now has or hereafter may have to recover from or be reimbursed by the Companies or the Companies property, or from any person, firm, or corporation that may now or hereafter have such a right to recover from or be reimbursed by any Company or the Companies property, any amounts paid by the Guarantor to satisfy, in whole or in part, the Liabilities. The provisions of this paragraph are made for the express benefit of the Companies as well as Regions and may be enforced independently by any Company.
The Guarantor further agrees that this Guaranty shall remain in full force and effect until revoked or terminated by a written instrument, signed by the Guarantor and delivered to Regions and acknowledged in writing by Regions, and even after any such revocation or termination, shall be and remain effective as to any Liabilities then outstanding; and that this Guaranty shall not be construed as being terminated by payment in full of the Liabilities to Regions, if, thereafter, in the absence of written revocation or termination by the Guarantor acknowledged by Regions, the Company obtains or incurs additional or new Liabilities. Notwithstanding the foregoing sentence, this Guaranty and the Guarantors obligations hereunder shall continue to be effective or be automatically reinstated, as the case may be, any time payment of all or any part of the Liabilities is recovered (a Recovered Payment) from Regions as a result of a preference or other claim made under any bankruptcy, insolvency, dissolution, liquidation, reorganization, receivership, or similar law or otherwise. The collateral, if any, securing this Guaranty may be held by Regions until it is satisfied that all time periods during which the payment of all or any part of the Liabilities may be recovered from Regions as a result of a preference or other claim under any bankruptcy, insolvency, dissolution, liquidation, reorganization, receivership, or similar law or otherwise have elapsed. The Guarantor will notify Regions immediately and in writing if Guarantors mailing address changes.
Any act or circumstance that shall toll any statute of limitations applicable to the Liabilities, or any of them, shall also toll the statute of limitations applicable to the Guarantors liability for the Liabilities under this Guaranty.
The term Guarantor as used herein refers to Forbes Energy Services Ltd. The Guarantor is prohibited from assigning this Guaranty, or their obligations and duties hereunder, without the advance written approval of Regions.
This Guaranty shall be governed by, and construed in accordance with, the laws of the State of New York. THE GUARANTOR HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING UNDER THIS GUARANTY. For purposes of any action or proceeding involving this Guaranty, the Guarantor hereby expressly submits to the jurisdiction and venue of all federal and state courts located in the State of New York, New York County, and consents to be served with any process on paper by registered mail or by personal service within or without said state and county in accordance with applicable law, provided a reasonable time for appearance is allowed. The Guarantor, to the fullest extent it may effectively do so, waives the defense of an inconvenient forum of any such action or proceeding. Nothing in this paragraph shall affect the right of Regions to serve legal process in any other manner permitted by law or affect the right of any party to bring any action or proceeding in the courts of any other jurisdiction. The provisions of this Guaranty shall be severable and if any provision shall be invalid, void or unenforceable in whole or in part for any reason, the remaining provisions shall remain in full force and effect.
This Guaranty and the other Documents contain the entire understanding and agreement between the Guarantor and Regions with respect to the obligations of the Guarantor hereunder and supersede any prior agreements, understandings, promises, and statements with respect to such obligations.
Witness the signature of the undersigned on the day and year first written above.
NOTICE TO SIGNERS
You are being asked to guarantee all obligations and liabilities of the Company to Regions, including all future obligations of the Company entered into with Regions prior to the time you revoke or terminate this Guaranty in writing as set forth in this Guaranty and including all payment or other performance due under the Companys Agreement or Documents with Regions whether or not any equipment or other personal property leased or financed thereunder is satisfactory. Think carefully before you do. If the Company doesnt pay the obligations, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the obligations if the Company does not pay. You may also have to pay late fees or collection costs, which increase this amount.
Regions can collect the obligations from you without first trying to collect from the Company or any other party. Regions can use the same collection methods against you that can be used against the Company.
This notice is not part of the contract and does not vary or add to the terms of the Guaranty.
CAUTION - IT IS IMPORTANT THAT YOU THOROUGHLY READ THIS CONTRACT BEFORE YOU SIGN IT.
Witness: | Name: | FORBES ENERGY SERVICES LTD. | ||||
Elfida Williams | By: | /s/ L. Melvin Cooper | ||||
Printed Name: | /s/ Elfida Williams |
Authorized Officer | ||||
Title |
SVP & Chief Financial Officer | |||||
Tax ID: | 98-0581100 |
Address of Guarantor:
3000 SOUTH BUSINESS HIGHWAY 281
ALICE, TX 78332
Exhibit 31.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
I, John E. Crisp, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Forbes Energy Services Ltd.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ John E. Crisp |
John E. Crisp |
Chairman, Chief Executive Officer and President |
(Principal Executive Officer) |
Date: August 14, 2012
Exhibit 31.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
I, L. Melvin Cooper, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Forbes Energy Services Ltd.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ L. Melvin Cooper |
L. Melvin Cooper |
Senior Vice President |
Chief Financial Officer and Assistant Secretary |
(Principal Financial and Accounting Officer) |
Date: August 14, 2012
Exhibit 32.1
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
In connection with this Quarterly Report of Forbes Energy Services Ltd. filed on Form 10-Q (the Company) for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John E. Crisp, Chairman, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ John E. Crisp |
John E. Crisp |
Chairman, Chief Executive Officer and President |
Date: August 14, 2012 |
Exhibit 32.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Forbes Energy Services Ltd. filed on Form 10-Q (the Company) for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, L. Melvin Cooper, Senior Vice President, Chief Financial Officer and Assistant Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ L. Melvin Cooper |
L. Melvin Cooper |
Senior Vice President |
Chief Financial Officer and Assistant Secretary |
Date: August 14, 2012
Intangible Assets (Details Textual) (USD $)
|
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
|
Intangible Assets (Textual) [Abstract] | |||
Amortization expenses | $ 700,000 | $ 700,000 | $ 1,400,000 |
Estimated amortization expenses for intangible assets year 1 | 2,900,000 | 2,900,000 | |
Estimated amortization expenses for intangible assets year 2 | 2,900,000 | 2,900,000 | |
Estimated amortization expenses for intangible assets year 3 | 2,900,000 | 2,900,000 | |
Estimated amortization expenses for intangible assets year 4 | 2,900,000 | 2,900,000 | |
Estimated amortization expenses for intangible assets year 5 | 2,900,000 | 2,900,000 | |
Weighted average amortization period remaining for intangible assets | 10 years 3 months 18 days | ||
Other Intangible Assets Cost Incurred To Renew | $ 0 |
Business Segment Information (Details) (USD $)
|
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
Dec. 31, 2011
|
|
Financial information with respect to the company's reportable segments | |||||
Depreciation and amortization | $ 12,465,442 | $ 9,541,539 | $ 23,886,158 | $ 19,216,212 | |
Reconciliation of the Forbes Group Operating Income as reported | |||||
General and administrative | 8,074,710 | 13,106,901 | 18,744,461 | 18,796,604 | |
Depreciation and amortization | 12,465,442 | 9,541,539 | 23,886,158 | 19,216,212 | |
Operating income (Loss) | 12,437,574 | 3,090,750 | 27,887,498 | 10,403,502 | |
Reconciliation of the Forbes Group Assets as Reported: | |||||
Total assets | 535,446,160 | 535,446,160 | 550,423,053 | ||
Well Servicing [Member]
|
|||||
Financial information with respect to the company's reportable segments | |||||
Operating revenues | 51,315,000 | 42,035,000 | 103,554,000 | 78,449,000 | |
Direct operating costs | 37,453,000 | 34,388,000 | 76,541,000 | 64,149,000 | |
Segment profits | 13,862,000 | 7,647,000 | 27,013,000 | 14,300,000 | |
Depreciation and amortization | 5,689,000 | 5,053,000 | 11,271,000 | 10,247,000 | |
Capital expenditures | 7,437,000 | 15,980,000 | 18,122,000 | 20,399,000 | |
Total assets | 505,676,000 | 398,079,000 | 505,676,000 | 398,079,000 | |
Reconciliation of the Forbes Group Operating Income as reported | |||||
Segment profits | 13,862,000 | 7,647,000 | 27,013,000 | 14,300,000 | |
Depreciation and amortization | 5,689,000 | 5,053,000 | 11,271,000 | 10,247,000 | |
Fluid Logistics [Member]
|
|||||
Financial information with respect to the company's reportable segments | |||||
Operating revenues | 68,470,000 | 68,783,000 | 147,715,000 | 127,030,000 | |
Direct operating costs | 49,354,000 | 50,690,000 | 104,210,000 | 92,913,000 | |
Segment profits | 19,116,000 | 18,093,000 | 43,505,000 | 34,117,000 | |
Depreciation and amortization | 6,776,000 | 4,489,000 | 12,615,000 | 8,969,000 | |
Capital expenditures | 30,134,000 | 7,485,000 | 73,219,000 | 7,673,000 | |
Total assets | 443,135,000 | 315,436,000 | 443,135,000 | 315,436,000 | |
Reconciliation of the Forbes Group Operating Income as reported | |||||
Segment profits | 19,116,000 | 18,093,000 | 43,505,000 | 34,117,000 | |
Depreciation and amortization | 6,776,000 | 4,489,000 | 12,615,000 | 8,969,000 | |
Segment, Continuing Operations [Member]
|
|||||
Financial information with respect to the company's reportable segments | |||||
Operating revenues | 119,785,000 | 110,818,000 | 251,269,000 | 205,479,000 | |
Direct operating costs | 86,807,000 | 85,078,000 | 180,751,000 | 157,062,000 | |
Segment profits | 32,978,000 | 25,740,000 | 70,518,000 | 48,417,000 | |
Depreciation and amortization | 12,465,000 | 9,542,000 | 23,886,000 | 19,216,000 | |
Capital expenditures | 37,571,000 | 23,465,000 | 91,341,000 | 28,072,000 | |
Total assets | 948,811,000 | 713,515,000 | 948,811,000 | 713,515,000 | |
Reconciliation of the Forbes Group Operating Income as reported | |||||
Segment profits | 32,978,000 | 25,740,000 | 70,518,000 | 48,417,000 | |
General and administrative | 8,075,000 | 13,107,000 | 18,745,000 | 18,797,000 | |
Depreciation and amortization | 12,465,000 | 9,542,000 | 23,886,000 | 19,216,000 | |
Operating income (Loss) | 12,438,000 | 3,091,000 | 27,887,000 | 10,404,000 | |
Other income and expenses, net | (6,841,000) | (42,147,000) | (13,713,000) | (49,074,000) | |
Income before income taxes | 5,597,000 | (39,056,000) | 14,174,000 | (38,670,000) | |
Reportable Segment [Member]
|
|||||
Reconciliation of the Forbes Group Assets as Reported: | |||||
Total assets | 948,811,000 | 948,811,000 | 859,869,000 | ||
Intersegment Elimination [Member]
|
|||||
Reconciliation of the Forbes Group Assets as Reported: | |||||
Total assets | (1,399,449,000) | (1,399,449,000) | (1,280,509,000) | ||
Parent [Member]
|
|||||
Reconciliation of the Forbes Group Assets as Reported: | |||||
Total assets | $ 986,084,000 | $ 986,084,000 | $ 971,063,000 |
Commitments and Contingencies (Details) (USD $)
|
3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | ||
---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2012
Largest Customer [Member]
|
Jun. 30, 2012
Largest Customer [Member]
|
Jun. 30, 2012
Five Largest Customers [Member]
|
Jun. 30, 2012
Five Largest Customers [Member]
|
Jun. 30, 2012
Ten Largest Customers [Member]
|
Jun. 30, 2012
Ten Largest Customers [Member]
|
Jun. 30, 2012
Employee Group Medical Plan [Member]
|
Dec. 31, 2011
Employee Group Medical Plan [Member]
|
|
Gain Contingencies [Line Items] | |||||||||
Contribution to revenues | 9.50% | 11.50% | 38.20% | 39.30% | 58.90% | 58.00% | |||
Employee Group Medical Plan Per Individual | $ 125,000 | ||||||||
Aggregate specific deductible | 235,000 | ||||||||
Unprocessed claims | 4,700,000 | 3,900,000 | |||||||
Commitments and Contingencies (Textual) [Abstract] | |||||||||
Insurance Coverage | $ 250,000 |
Fair Value of Financial Instruments (Details) (USD $)
|
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Summary of the carrying amounts and estimated fair values of financial instruments | ||
Carrying amount | $ 297,319,866 | $ 296,150,274 |
9.0% Senior Notes [Member]
|
||
Summary of the carrying amounts and estimated fair values of financial instruments | ||
Carrying amount | 280,000 | 280,000 |
Fair value | $ 260,400 | $ 261,800 |
Supplemental Cash Flow Information (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
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Supplemental cash flow information |
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Discontinued Operations
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Jun. 30, 2012
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations |
17. Discontinued Operations On January 12, 2012, the Company completed the previously announced sale of substantially all of its assets located in Mexico, as well as its equity interests in Forbes Energy Services México Servicios de Personal, S. de R.L. de C.V., for aggregate cash consideration of approximately $30 million (excluding amounts paid to cover certain Mexican taxes). The Company recognized a gain on disposal of approximately $3.5 million on this transaction. The Company has retained a small office in Mexico, which will operate on a temporary basis while the Company collects outstanding receivables from PEMEX. In connection with the expiration of its contract with PEMEX, the Company expects the release of the performance bond posted in connection with such contract, which should result in approximately $13.6 million being released from restricted cash. The following table presents the results of discontinued operations:
|
Earnings per Share (Details)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Reconciliation of weighted average and diluted weighted average shares outstanding | ||||
Weighted-average common shares | 21,055,642 | 20,918,400 | 21,020,628 | 20,918,400 |
Dilutive effect of stock options | 277,279 | 307,885 | ||
Dilutive effect of preferred shares | 5,292,531 | 5,292,531 | ||
Diluted weighted average shares outstanding | 26,625,452 | 20,918,400 | 26,621,044 | 20,918,400 |
Property and Equipment (Details) (USD $)
|
6 Months Ended | 6 Months Ended | 6 Months Ended | 6 Months Ended | 6 Months Ended | 6 Months Ended | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Dec. 31, 2011
|
Jun. 30, 2012
Well servicing equipment [Member]
|
Dec. 31, 2011
Well servicing equipment [Member]
|
Jun. 30, 2012
Well servicing equipment [Member]
Maximum [Member]
|
Jun. 30, 2012
Well servicing equipment [Member]
Minimum [Member]
|
Jun. 30, 2012
Autos and trucks [Member]
|
Dec. 31, 2011
Autos and trucks [Member]
|
Jun. 30, 2012
Autos and trucks [Member]
Maximum [Member]
|
Jun. 30, 2012
Autos and trucks [Member]
Minimum [Member]
|
Jun. 30, 2012
Disposal wells [Member]
|
Dec. 31, 2011
Disposal wells [Member]
|
Jun. 30, 2012
Disposal wells [Member]
Maximum [Member]
|
Jun. 30, 2012
Disposal wells [Member]
Minimum [Member]
|
Jun. 30, 2012
Building and improvements [Member]
|
Dec. 31, 2011
Building and improvements [Member]
|
Jun. 30, 2012
Building and improvements [Member]
Maximum [Member]
|
Jun. 30, 2012
Building and improvements [Member]
Minimum [Member]
|
Jun. 30, 2012
Furniture and fixtures [Member]
|
Dec. 31, 2011
Furniture and fixtures [Member]
|
Jun. 30, 2012
Furniture and fixtures [Member]
Maximum [Member]
|
Jun. 30, 2012
Furniture and fixtures [Member]
Minimum [Member]
|
Jun. 30, 2012
Land [Member]
|
Dec. 31, 2011
Land [Member]
|
Jun. 30, 2012
Other [Member]
|
Dec. 31, 2011
Other [Member]
|
Jun. 30, 2012
Other [Member]
Maximum [Member]
|
Jun. 30, 2012
Other [Member]
Minimum [Member]
|
|
Summary of Property and equipment | ||||||||||||||||||||||||||||
Property, Plant and Equipment, Useful Life | 15 years | 3 years | 10 years | 5 years | 15 years | 5 years | 30 years | 5 years | 10 years | 3 years | 15 years | 3 years | ||||||||||||||||
Property and Equipment, Total | $ 525,889,742 | $ 436,078,996 | $ 376,820,736 | $ 317,883,278 | $ 105,260,177 | $ 95,667,664 | $ 30,397,527 | $ 11,957,960 | $ 9,146,325 | $ 7,842,246 | $ 3,114,329 | $ 2,426,219 | $ 989,219 | $ 257,425 | $ 161,429 | $ 44,204 | ||||||||||||
Accumulated depreciation | (171,471,593) | (150,134,312) | ||||||||||||||||||||||||||
Property and Equipment, Net | $ 354,418,149 | $ 285,944,684 |
Discontinued Operations (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of discontinued operations |
The following table presents the results of discontinued operations:
|
Earnings per Share (Details Textual)
|
3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2012
|
Dec. 31, 2011
|
Jun. 30, 2012
Series B [Member]
|
Jun. 30, 2011
Series B [Member]
|
Jun. 30, 2012
Series B Preferred Stock [Member]
Rate
|
Jun. 30, 2011
Series B Preferred Stock [Member]
|
Jun. 30, 2012
Series B Preferred Stock [Member]
Rate
|
Jun. 30, 2011
Series B Preferred Stock [Member]
|
|
Earning Per Share (Textual) [Abstract] | |||||||||
Purchase of common shares outstanding | 2,000,000 | 1,305,000 | 2,000,000 | 1,305,000 | |||||
Convertible Preferred Shares outstanding | 588,059 | 588,059 | |||||||
Preferred stock convertible rate to common shares | 9 | 9 | |||||||
Stock options outstanding | 1,997,925 | 1,997,925 | 2,285,425 | 1,997,925 | 1,997,925 | ||||
Antidilutive stocks excluded from computation of EPS | 5,292,531 | 5,292,531 | |||||||
Restricted stock units outstanding | 83,332 | 83,332 | |||||||
Incremental Common Shares Attributable to Conversion of Preferred Stock | 5,292,531 | 5,292,531 | 5,292,531 | 5,292,531 |
Related Party Transactions (Details) (USD $)
|
2 Months Ended | 6 Months Ended | 1 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Feb. 29, 2012
|
Jun. 30, 2012
|
Jun. 01, 2012
|
Mar. 31, 2012
|
Dec. 31, 2011
|
Oct. 31, 2008
AES [Member]
|
Jun. 30, 2012
AES [Member]
|
Jun. 30, 2011
AES [Member]
|
Jun. 30, 2012
AES [Member]
|
Jun. 30, 2011
AES [Member]
|
Dec. 31, 2011
AES [Member]
|
Jun. 30, 2012
Dorsal Services [Member]
|
Jun. 30, 2011
Dorsal Services [Member]
|
Jun. 30, 2012
Dorsal Services [Member]
|
Jun. 30, 2011
Dorsal Services [Member]
|
Dec. 31, 2011
Dorsal Services [Member]
|
Jun. 30, 2012
Tasco Tool Services [Member]
|
Jun. 30, 2011
Tasco Tool Services [Member]
|
Jun. 30, 2012
Tasco Tool Services [Member]
|
Jun. 30, 2011
Tasco Tool Services [Member]
|
Dec. 31, 2011
Tasco Tool Services [Member]
|
Jun. 30, 2012
FCJ Management [Member]
|
Jun. 30, 2011
FCJ Management [Member]
|
Jun. 30, 2012
FCJ Management [Member]
|
Jun. 30, 2011
FCJ Management [Member]
|
Dec. 31, 2011
FCJ Management [Member]
|
Jun. 30, 2012
C&F Partners [Member]
|
Jun. 30, 2011
C&F Partners [Member]
|
Jun. 30, 2012
C&F Partners [Member]
|
Jun. 30, 2011
C&F Partners [Member]
|
Dec. 31, 2011
C&F Partners [Member]
|
Jun. 30, 2012
Resonant Technology Partners [Member]
|
Jun. 30, 2011
Resonant Technology Partners [Member]
|
Jun. 30, 2012
Resonant Technology Partners [Member]
|
Jun. 30, 2011
Resonant Technology Partners [Member]
|
Dec. 31, 2011
Resonant Technology Partners [Member]
|
Jun. 30, 2011
Wolverine Construction Inc [Member]
|
Jun. 30, 2012
Wolverine Construction Inc [Member]
|
Jun. 30, 2011
Wolverine Construction Inc [Member]
|
Dec. 31, 2011
Wolverine Construction Inc [Member]
|
Jun. 30, 2012
CJ Petroleum Service [Member]
|
Jun. 30, 2011
CJ Petroleum Service [Member]
|
Jun. 30, 2012
CJ Petroleum Service [Member]
|
Jun. 30, 2011
CJ Petroleum Service [Member]
|
Dec. 31, 2011
CJ Petroleum Service [Member]
|
Jun. 30, 2012
JITSU INC [Member]
|
Jun. 30, 2011
JITSU INC [Member]
|
Jun. 30, 2012
JITSU INC [Member]
|
Jun. 30, 2011
JITSU INC [Member]
|
Dec. 31, 2011
JITSU INC [Member]
|
Jun. 30, 2012
Texas Quality Gate Guard Inc [Member]
|
Jun. 30, 2011
Texas Quality Gate Guard Inc [Member]
|
Jun. 30, 2012
Texas Quality Gate Guard Inc [Member]
|
Jun. 30, 2011
Texas Quality Gate Guard Inc [Member]
|
Dec. 31, 2011
Texas Quality Gate Guard Inc [Member]
|
Jun. 30, 2012
Animas Holding Inc [Member]
|
Jun. 30, 2011
Animas Holding Inc [Member]
|
Jun. 30, 2012
Animas Holding Inc [Member]
|
Jun. 30, 2011
Animas Holding Inc [Member]
|
Dec. 31, 2011
Animas Holding Inc [Member]
|
Apr. 26, 2010
Animas Holding Inc [Member]
|
Sep. 30, 2011
Texas Champion Bank [Member]
|
Dec. 31, 2010
Texas Champion Bank [Member]
|
Jun. 30, 2012
Brush Country Bank [Member]
|
Dec. 31, 2011
Brush Country Bank [Member]
|
Jun. 30, 2012
Daniel Crisp [Member]
|
Dec. 31, 2011
Daniel Crisp [Member]
|
Aug. 15, 2011
Daniel Crisp [Member]
|
Aug. 31, 2010
Daniel Crisp [Member]
|
Dec. 31, 2008
Daniel Crisp [Member]
|
May 31, 2008
Daniel Crisp [Member]
|
Jun. 30, 2012
Marcus Crisp [Member]
|
Dec. 31, 2011
Marcus Crisp [Member]
|
Aug. 31, 2011
Marcus Crisp [Member]
|
Aug. 31, 2010
Marcus Crisp [Member]
|
May 31, 2008
Marcus Crisp [Member]
|
Jun. 30, 2012
Waste Water Disposal Operating Agreement [Member]
|
Jan. 01, 2007
Waste Water Disposal Operating Agreement [Member]
bbl
|
Apr. 01, 2007
Waste Water Disposal Lease Agreement [Member]
|
Jun. 30, 2012
Maximum [Member]
Dorsal Services [Member]
|
Jun. 30, 2011
Maximum [Member]
Dorsal Services [Member]
|
Dec. 31, 2011
Maximum [Member]
Dorsal Services [Member]
|
Jun. 30, 2012
Maximum [Member]
Wolverine Construction Inc [Member]
|
Dec. 31, 2011
Maximum [Member]
CJ Petroleum Service [Member]
|
Jun. 30, 2011
Maximum [Member]
CJ Petroleum Service [Member]
|
Apr. 01, 2007
Maximum [Member]
Waste Water Disposal Lease Agreement [Member]
bbl
|
Apr. 26, 2010
Minimum [Member]
Animas Holding Inc [Member]
bbl
|
|
Related Party Transactions (Textual) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross lease amount of disposal well operating agreements | $ 15,200,000 | $ 3,200,000 | $ 3,200,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Monthly payment of lease amount of disposal well operating agreements | 300,000 | 67,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of Vacuum trucks and trailers | 1,100,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aggregate purchase price paid to AES | 18,000,000 | 18,000,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aggregate amounts paid for the thirteen rentals and leases | 1,300,000 | 700,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payment For Estimated Sales Tax | 1,700,000 | 1,700,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum Fee received | 5,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payment of monthly rentals in lease agreement | 2,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rate Per Barrel | 0.08 | 0.15 | 0.05 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maximum number of barrels | 50,000 | 50,000 | 50,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional Receipt or Payment as a Percentage | 20.00% | 10.00% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of Four Disposal wells | 14,500,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Expenses | 300,000 | 300,000 | 700,000 | 700,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses related to disposal of waste water | 600,000 | 400,000 | 1,200,000 | 700,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payment of Monthly Operational Fee | 4,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payment for the use of the two properties | 8,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses | 1,200,000 | 2,600,000 | 2,500,000 | 5,000,000 | 50,000 | 100,000 | 100,000 | 300,000 | 34,000 | 51,000 | 49,000 | 0.1 | 9,000 | 9,000 | 18,000 | 18,000 | 36,000 | 100,000 | 200,000 | 200,000 | 200,000 | 300,000 | 100,000 | 3,000,000 | 31,000 | 5,000,000 | 200,000 | 200,000 | 300,000 | 200,000 | 100,000 | 100,000 | 200,000 | 200,000 | 100,000 | 100,000 | 300,000 | 100,000 | 0 | 100,000 | 26,000 | 200,000 | (100,000) | ||||||||||||||||||||||||||||||||||||||||||||
Accounts payable - related parties | 7,445,291 | 1,219,928 | 7,200,000 | 7,200,000 | (600,000) | 2,000 | 2,000 | 12,000 | 0 | 0 | 1,000,000 | 0 | 0 | 0 | 0 | 0 | 0 | 200,000 | 200,000 | 100,000 | 100,000 | 7,000 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 31,000 | 100,000 | 100,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts receivable - related parties | 463,987 | 1,573,132 | 400,000 | 400,000 | 400,000 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1,100,000 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 100,000 | 100,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital expenditure | 7,500,000 | 17,200,000 | 8,600,000 | 17,200,000 | 0 | 0 | 0 | 0 | 100,000 | 0 | 200,000 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits with bank | 600,000 | 2,400,000 | 100,000 | 900,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Salary Compensation | 99,000 | 199,831 | 121,644 | 171,567 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Option to purchase common shares | 18,750 | 214,000 | 25,000 | 200,000 | 125,000 | 18,750 | 12,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rate per share | $ 9.16 | $ 2.60 | $ 9.32 | $ 28.00 | $ 9.32 | $ 9.16 | $ 2.60 | $ 28.00 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of shares purchased in exchange of shares already acquired | 36,000 | 9,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock granted | 41,666 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repayment of amount | $ 7,500,000 |
Organization and Nature of Operations
|
6 Months Ended |
---|---|
Jun. 30, 2012
|
|
Organization and Nature of Operations [Abstract] | |
Organization and Nature of Operations |
1. Organization and Nature of Operations Nature of Business Forbes Energy Services Ltd. (“FES Ltd”) is an independent oilfield services contractor that provides a wide range of well site services to oil and natural gas drilling and producing companies to help develop and enhance the production of oil and natural gas. These services include fluid hauling, fluid disposal, well maintenance, completion services, workovers and recompletions, plugging and abandonment, and tubing testing. Our operations are concentrated in the major onshore oil and natural gas producing regions of Texas, with additional locations in Mississippi, in Pennsylvania and, prior to the disposition of our Mexican assets in January 2012, which is discussed in Note 17 below, in Mexico. We believe that our broad range of services, which extends from initial drilling, through production, to eventual abandonment, is fundamental to establishing and maintaining the flow of oil and natural gas throughout the life cycle of our customers’ wells. As used in these condensed consolidated financial statements, the “Company,” the “Forbes Group,” “we,” and “our” mean FES Ltd and its direct and indirect subsidiaries, except as otherwise indicated. |