Fresh Start Accounting

6 Months Ended

Jun. 30, 2021

(3)Fresh Start Accounting

Fresh Start Accounting

In connection with the emergence from bankruptcy and in accordance with ASC 852, we qualified for and adopted fresh start accounting on the Emergence Date because (1) the holders of the then existing common shares of the Predecessor received less than 50 percent of the new common shares of the Successor outstanding upon emergence and (2) the reorganization value of the Predecessor’s assets immediately prior to confirmation of the Plan of $1,456.8 million was less than the total of all post-petition liabilities and allowed claims of $2,076.1 million.

In accordance with ASC 852, upon adoption of fresh start accounting, the reorganization value derived from the enterprise value as disclosed in the Plan was allocated to our assets and liabilities based on their fair values (except for deferred income taxes) in accordance with FASB ASC Topic No. 805 - Business Combinations (ASC 805) and FASB ASC Topic No. 820 - Fair Value Measurements (ASC 820). The reorganization value represents the fair value of the Successor’s assets before considering certain liabilities and is intended to represent the approximate amount a willing buyer would pay for our assets immediately after reorganization. The amount of deferred income taxes recorded due to the fair value adjustments to assets and liabilities was determined in accordance with FASB ASC Topic No. 740 - Income Taxes.

Reorganization Value

The reorganization value represents the fair value of the Successor’s total assets before considering certain liabilities and is intended to approximate the amount a willing buyer would pay for the Successor’s assets immediately after restructuring. The Plan confirmed by the Bankruptcy Court estimated a range of enterprise values between $710.0 million and $880.0 million.

The following table reconciles the enterprise value to the reorganization value of Successor’s assets that has been allocated to our individual assets as of the Emergence Date (in thousands):



	Emergence Date
Selected Enterprise Value within Bankruptcy Court Range	$	729,918
Plus: Cash and cash equivalents		172,768
Plus: Liabilities excluding the decommissioning liabilities		380,496
Plus: Decommissioning liabilities, including decommissioning liabilities classified as held for sale		173,622
Reorganization Value		1,456,804

Management determined the enterprise and corresponding equity value of the Successor using various valuation methods, including (i) discounted cash flow analysis (“DCF”), (ii) comparable company analysis and (iii) precedent transaction analysis. The use of each approach provides corroboration for the other approaches.

In order to estimate the enterprise value using the DCF analysis approach, management’s estimated future cash flow projections, plus a terminal value which was calculated by applying a multiple based on our internal rate of return (“IRR”) of 17.6% and a perpetuity growth rate of 3.0% to the terminal year’s projected earnings before interest, tax, depreciation and amortization (“EBITDA”). These estimated future cash flows were then discounted to an assumed present value using our estimated weighted-average cost of capital, which is represented by our IRR.

The comparable company analysis provides an estimate of our value relative to other publicly traded companies with similar operating and financial characteristics, by which a range of EBITDA multiples of the comparable companies was then applied to management’s projected EBITDA to derive an estimated enterprise value.

Precedent transaction analysis provides an estimate of enterprise value based on recent sale transactions of similar companies, by deriving the implied EBITDA multiple of those transactions, based on sales prices, which was then applied to management’s projected EBITDA.

The enterprise value and corresponding equity value are dependent upon achieving the future financial results set forth in our valuations, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we cannot assure you that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.

Valuation Process

The reorganization value was allocated to the Successor’s reporting segments using the discounted cash flow approach. The reorganization value was then allocated to the Successor’s identifiable assets and liabilities using the fair value principle as contemplated in ASC 820. The specific approach, or approaches, used to allocate reorganization value by asset class are noted below.

Inventory

The fair value of the inventory was determined by using both a cost approach and income approach. Inventory was segregated into raw materials, spare parts, work in process (“WIP”), and finished goods. Fair value of raw materials and spare parts inventory were determined using the cost approach. Fair value of finished goods and WIP inventory were determined by using the net realizable value approach. The fair value of finished goods was measured using an estimate of the costs to sell or dispose of the inventory plus a reasonable profit allowance on those efforts adjusted for holding costs. The fair value of WIP was measured using an estimate of the costs to complete and sell or consume the inventory plus a reasonable profit allowance on those efforts adjusted for holding costs.

Property, Plant and Equipment

Real Property

The fair values of real property locations were estimated using the sales comparison (market) approach and cost approach. As part of the valuation process, information was obtained on the Successor’s current usage, building type, year built, and cost history for all properties valued. In determining the fair value and remaining useful life for real property assets, functional and economic obsolescence was considered and taken as an adjustment at the asset level.

Tangible Assets Excluding Real Property and Oil and Gas Assets

The fair values of our tangible assets were calculated using either the cost or market approach. For most tangible asset categories, a cost approach was utilized relying on purchase year, historic costs, and industry/equipment based trend factors to determine replacement cost new of the assets. Readily available market transaction data was used and adjusted for current market conditions for asset categories with active secondary markets such as heavy trucks and computer equipment. In both approaches, consideration was made for the effects of physical deterioration as well as functional and economic obsolescence in determining both estimates of fair value and the remaining useful lives of the assets.

Oil and Gas Assets

The oil and gas assets were valued as of January 31, 2021, for the purposes of the February 2, 2021 condensed consolidated balance sheet, using estimates of the reserve volumes and associated income data based on escalated price and cost parameters.

Decommissioning Liabilities

In accordance with FASB ASC Topic No. 410 – Asset Retirement and Environmental Obligations (“ASC 410”), the asset retirement obligations associated with the Successor’s oil and gas assets were valued using the income approach. Estimates were used for future retirement costs and the expected time to retirement, then adjusted for an estimated inflation rate over the time period prior to retirement and discounted future cash outflows by a credit adjusted risk-free rate of 5.6%. As such, the Successor changed its presentation to consolidate the fair value of the Predecessor’s decommissioning liabilities previously recorded to other long-term liabilities into the Successor’s decommissioning liabilities.

Internally-Developed Software

Internally-developed software was valued using the cost approach in which a replacement cost was estimated based on the software developer time, materials, and other supporting services required to replicate the software.

Intangible Assets

Intangible assets were identified apart from goodwill using the guidance provided in ASC 805. Intangible assets that were identified as either separable or arose from contract or other legal rights were valued using either the cost or income approaches. The principal intangible assets identified were trademarks and patents. Trademarks and patents were valued using the relief from royalty method in which the subject intangible asset is valued by reference to the amount of royalty income it could generate if it was licensed in an arm’s length transaction to a third party.

Lease Liabilities and Right of Use Assets

The fair value of lease liabilities was measured as the present value of the remaining lease payments, as if the lease were a new lease as of the Emergence Date. The Successor used its incremental borrowing rate of 5.3% commensurate with the Successor's capital structure as the discount rate in determining the present value of the remaining lease payments.

Consolidated Successor Balance Sheet

The adjustments included in the following fresh start consolidated condensed balance sheet as of February 2, 2021 reflect the effects of the transactions contemplated by the Plan and executed by the Successor on the Emergence Date (reflected in the column Reorganization Adjustments), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column Fresh Start Adjustments). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine the fair values and significant assumptions.

The consolidated condensed balance sheet as of the Emergence Date was as follows (in thousands):



	As of February 2, 2021
	Predecessor		Reorganization Adjustments			Fresh Start Adjustments			Successor
ASSETS
Current assets:
Cash and cash equivalents	$	194,671	$	(21,903)	⁽¹⁾	$	-		$	172,768
Restricted cash - current		-		16,751	⁽²⁾		-			16,751
Accounts receivable, net of allowance for doubtful accounts		153,518		11	⁽³⁾		-			153,529
Income taxes receivable		9,146		-			(170)	⁽¹⁶⁾		8,976
Prepaid expenses		31,630		-			-			31,630
Inventory and other current assets		90,073		-			11,067	⁽¹⁷⁾		101,140
Assets held for sale		240,761		-			(20,402)	⁽¹⁸⁾		220,359
Total current assets		719,799		(5,141)			(9,505)			705,153

Property, plant and equipment, net of accumulated depreciation and depletion		401,263		-			139,587	⁽¹⁹⁾		540,850
Operating lease right-of-use assets		32,488		-			1,430	⁽²⁰⁾		33,918
Goodwill		138,934		-			(138,934)	⁽²¹⁾		-
Notes receivable		72,484		-			-			72,484
Restricted cash - non-current		80,179		-			-			80,179
Intangible and other long-term assets, net of accumulated amortization		52,264		(10,080)	⁽⁴⁾		(17,964)	⁽²²⁾		24,220
Total assets	$	1,497,411	$	(15,221)		$	(25,386)		$	1,456,804

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	51,816	$	(700)	⁽⁵⁾	$	-		$	51,116
Accrued expenses		126,768		9,042	⁽⁶⁾		1,406	⁽²³⁾		137,216
Liabilities held for sale		39,642		1,614	⁽⁷⁾		(3,992)	⁽²⁴⁾		37,264
Total current liabilities		218,226		9,956			(2,586)			225,596

Decommissioning liabilities		134,934		-			34,581	⁽²⁵⁾		169,515
Operating lease liabilities		23,584		-			(29)	⁽²⁶⁾		23,555
Deferred income taxes		4,853		3,100	⁽⁸⁾		51,569	⁽²⁷⁾		59,522
Other long-term liabilities		121,756		-			(45,826)	⁽²⁸⁾		75,930
Total non-current liabilities		285,127		3,100			40,295			328,522

Liabilities subject to compromise		1,572,772		(1,572,772)	⁽⁹⁾		-			-

Total liabilities		2,076,125		(1,559,716)			37,709			554,118
Stockholders’ equity (deficit):
Predecessor common stock $0.001 par value		16		(16)	⁽¹⁰⁾		-			-
Predecessor Additional paid-in capital		2,757,824		(2,757,824)	⁽¹¹⁾		-			-
Predecessor Treasury stock at cost		(4,290)		4,290	⁽¹²⁾		-			-
Successor Class A common stock $0.001 par value		-		200	⁽¹³⁾		-			200
Successor Additional paid-in capital		-		902,486	⁽¹⁴⁾		-			902,486
Accumulated other comprehensive loss, net		(67,532)		-			67,532	⁽²⁹⁾		-
Accumulated deficit		(3,264,732)		3,395,359	⁽¹⁵⁾		(130,627)	⁽³⁰⁾		-
Total stockholders’ equity (deficit)		(578,714)		1,544,495			(63,095)			902,686
Total liabilities and stockholders’ equity (deficit)	$	1,497,411	$	(15,221)		$	(25,386)		$	1,456,804

Reorganization Adjustments (in thousands)

(1)Changes in cash and cash equivalents included the following:


Payment of debtor in possession financing fees	(183)
Payment of professional fees at the Emergence Date	(2,649)
Payment of lease rejection damages classified as liabilities subject to compromise	(400)
Transfers from cash to restricted cash for Professional Fees Escrow and General Unsecured Creditors Escrow	(16,751)
Payment of debt issuance costs for the Credit Facility	(1,920)
Net change in cash and cash equivalents	(21,903)

(2)Changes to restricted cash - current included the following:


Transfer from cash for Professional Fee Escrow	16,626
Transfer from cash for General Unsecured Creditors Escrow	125
Net change in restricted cash - current	16,751

(3)Changes of $11 to accounts receivable reflect a receivable from the solicitor for excess proceeds received during the Rights Offering.

(4)Changes to intangibles and other long-term assets included the following:


Write-off of deferred financing costs related to the Delayed-Draw Term Loan	(12,000)
Capitalization of debt issuance costs associated with the Credit Facility	1,920
Net change in intangibles and other long-term assets	(10,080)

(5)Changes to accounts payable included the following:


Payment of professional fees at the Emergence Date	(2,649)
Professional fees recognized and payable at the Emergence Date	1,949
Net change in accounts payable	(700)

(6)Changes in accrued liabilities include the following:


Payment of debtor in possession financing fees	(183)
Accrual of professional fees	6,500
Accrual for transfer taxes	1,900
Reinstatement of lease rejection liabilities to be settled post-emergence	700
Accrual of general unsecured claims against parent	125
Net change in accrued liabilities	9,042

(7)Changes in liabilities held for sale reflect the fair value reinstatement of rejected leases claims.

(8)Changes in deferred income taxes are due to reorganization adjustments.

(9)The resulting gain on liabilities subject to compromise was determined as follows:


Prepetition 7.125% and 7.750% notes including accrued interest and unpaid interest	1,335,794
Rejected lease liability claims	4,956
Allowed Class 6 General Unsecured Claims against Parent	232,022
Liabilities subject to compromise settled in accordance with the Plan	1,572,772


Reinstatement of accrued liabilities for lease rejection claims	(700)
Reinstatement of liabilities held for sale for lease rejection claims	(1,614)
Payment to settle lease rejection claims	(400)
Cash proceeds from rights offering	963
Cash payout provided to cash opt-in noteholders	(952)
Cash Pool to settle GUCs against Parent	(125)
Issuance of common stock to prepetition noteholders, incremental to rights offering (par value)	(193)
Additional paid-in capital attributable to successor common stock issuance	(869,311)
Successor common stock issued to cash opt-out noteholders in the rights offering (par value)	(7)
Additional paid-in capital attributable to rights offering shares	(33,175)
Gain on settlement of liabilities subject to compromise	667,258

The Equity Rights Offering generated $963 in proceeds used to settle $952 in Cash Opt-in Noteholder claims. The Equity Rights Offering shares were offered at a price of $1.31/share to Cash Opt-out Noteholders. As such, the Equity Rights Offering shares generated the $963 in cash proceeds from the share issuance as well as an implied discount to the Cash Opt-in claimants of $32.2 million, recorded as a loss on share issuance in reorganization items, net. The loss on the Equity Rights Offering share

issuance is offset by the gain on share issuance of $32.2 million implied by the issuance of shares to settle Cash Opt-out Noteholder claims at a value of $46.82/share compared to the reorganization value implied share price of $45.14/share.

(10)Changes of $16 in Predecessor common stock reflect the cancellation of the Predecessor’s common stock.

(11)Changes in Predecessor additional paid-in capital (APIC) include the following:


Extinguishment of APIC related to Predecessor's outstanding equity interests	(2,758,812)
Extinguishment of RSUs for the Predecessor's incentive plan	988
Net change in Predecessor's additional paid-in capital	(2,757,824)

(12)Reflects $4.3 million cancellation of Predecessor treasury stock held at cost.

(13)Changes in the Successor’s Class A common stock include the following:


Issuance of successor Class A common stock to prepetition noteholders, incremental to rights offering (par value)	193
Successor Class A common stock issued to cash opt-out noteholders in the rights offering (par value)	7
Net change in Successor Class A common stock	200

(14)Changes in Successor additional paid-in capital include the following:


Additional paid-in capital (Successor Class A common stock)	869,311
Additional paid-in capital (rights offering shares)	33,175
Net change in Successor additional paid-in capital	902,486

(15)Changes to retained earnings (deficit) include the following:


Gain on settlement of liabilities subject to compromise	667,258
Accrual for transfer tax	(1,900)
Extinguishment of RSUs for Predecessor incentive plan	(988)
Adjustment to net deferred tax liability taken to tax expense	(3,100)
Professional fees earned and payable as a result of consummation of the Plan of Reorganization	(8,449)
Write-off of deferred financing costs related to the Delayed-Draw Term Loan	(12,000)
Extinguishment of Predecessor equity (par value, APIC, and treasury stock)	2,754,538
Net change in retained earnings (deficit)	3,395,359

Fresh Start Adjustments (in thousands)

(16)Changes of $170 in income tax receivable reflects the decrease to current deferred tax assets due to the adoption of fresh start accounting.

(17)Changes in inventory and other current assets included the following:


Fair value adjustment to inventory - Global Segment	12,137
Fair value adjustment to other current assets	(1,070)
Net change in inventory and other current assets due to the adoption of fresh start accounting	11,067

(18)Changes of $20.4 million in assets held for sale primarily reflect a fair value adjustment of $16.5 million decreasing real property and a $3.5 million decrease to Predecessor decommissioning balances due to the adoption of fresh start accounting.

(19)Changes of $139.6 million to property, plant and equipment reflect the fair value adjustment.


	Successor Fair Value	Predecessor Book Value
Land, Buildings, and Associated Improvements	117,341	205,237
Machinery and Equipment	290,593	1,103,501
Rental Services Equipment	92,861	617,762
Other Depreciable or Depletable Assets	35,143	46,403
Construction in Progress	4,912	4,912
	540,850	1,977,815
Less: Accumulated Depreciation and Depletion	-	(1,576,552)
Property, Plant and Equipment, net	540,850	401,263

(20)Reflects $1.4 million due to the fair value adjustment increasing operating lease right-of-use assets.

(21)Changes of $138.9 million to goodwill reflect the derecognition of the Predecessor’s goodwill due to the adoption of fresh start accounting.

(22)The fair value changes of $1.4 million to intangibles assets are reflected in the table below:


	Successor Fair Value	Predecessor Net Book Value
Customer Relationships	-	2,644
Trade Names	4,166	2,268
Patents	2,120	-
Intangible Assets, Net	6,286	4,912

Reduction of other long-term assets was due to the adoption of fresh start accounting and include $17.1 million in decommissioning liabilities related to Predecessor long-term assets fair valued and presented in the Successor’s property, plant, and equipment.

(23)Changes of $1.4 million to accrued expenses reflect the fair value adjustment increasing the current portion of operating lease liabilities.

(24)Reflects the $4.0 million fair value adjustment decreasing decommissioning liabilities and operating lease liabilities related to assets held for sale.

(25)Reflects the $34.6 million fair value adjustment increasing the non-current portion of decommissioning liabilities.

(26)Reflects the fair value adjustment decreasing the non-current portion of operating lease liabilities.

(27)Reflects the $70.4 million increase of deferred tax liabilities netted against an $18.8 million increase in realizable deferred tax assets due to the adoption of fresh start accounting.

(28)Changes of $45.8 million in other long-term liabilities reflects the reclassification of amounts associated with the Predecessor’s decommissioning liability balances that were fair valued and presented in the Successor’s decommissioning liabilities, as well as an increase in FIN48 liabilities of $1.5 million.

(29)Changes to accumulated other comprehensive loss reflect the elimination of Predecessor currency translation adjustment balances

due to the adoption of fresh start accounting on Predecessor currency translation adjustment balances.

(30)Changes reflect the cumulative impact of fresh start accounting adjustments discussed above and the elimination of the Predecessor’s accumulated other comprehensive loss and the Predecessor’s accumulated deficit.



Fresh start valuation adjustments	(77,376)
Adjustment to net deferred tax liability taken to tax expense	(53,251)
Net impact to accumulated other comprehensive loss and accumulated deficit	(130,627)

Reorganization Items, net

The Predecessor incurred costs associated with the reorganization, primarily unamortized debt issuance costs, expenses related to rejected leases and post-petition professional fees. In accordance with applicable guidance, costs associated with the Chapter 11 Cases have been recorded as reorganization items, net within the accompanying consolidated statement of operations for the Current Predecessor Period ended February 2, 2021. Reorganization items, net was zero for the Successor Period, with $13.7 million used in operating activities during the Successor Period. Reorganization items, net was $335.6 million for the Current Predecessor Period, with $3.1 million representing cash used in operating activities during the Current Predecessor Period, $2.7 million and $0.4 million paid for professional fees and to settle lease rejection damages, respectively.



		Predecessor
		For the Period January 1, 2021 through February 2, 2021
Gain on settlement of liabilities subject to compromise	$	667,258
Allowed claim adjustment for Class 6 claims		(232,022)
Fresh Start valuation adjustments ⁽¹⁾		(77,376)
Professional fees		(16,005)
Predecessor lease liabilities rejected per the Plan		13,347
Write off of deferred financing costs related to the Delayed-Draw Term Loan		(12,000)
Lease rejection damages		(4,956)
Extinguishment of RSU's for the Predecessor's incentive plan		(988)
Other items		(1,698)
Total reorganization items, net	$	335,560

(1) Includes approximately $16.4 million in adjustments to assets and liabilities classified as held for sale. See Note 20-Discontinued Operations.

Restructuring and other expenses

We embarked on a transformation project as part of our emergence from bankruptcy to reconfigure our operations and organization to maximize shareholder value and margin growth. The project is focused around three sequential phases:

Business Unit Review – Analyzing strategic changes that emphasize product optimization and margin enhancement to maximize the cash flow profile of our business units and focus on our core competencies;

Geographic Focus – Review our footprint and improve capital efficiency by focusing on low-risk, high reward geographies to maximize returns; and

Right Size Support – Streamline support to match optimized business units that represent our core portfolio and consolidate our operational footprint to align the size of our operations with current demand to provide a superior value proposition and exhibit capital discipline.

Transformation Project

In connection with this initiative, during 2021, we incurred costs of $7.4 million and $15.8 million in the Successor Quarter and Successor Period, respectively, and $1.3 million in the Current Predecessor Period, which primarily relate to professional fees and separation costs related to former executives and personnel. These costs are included in Restructuring and other expenses in the Condensed Consolidated Statements of Operations.

Additionally, we have disposed of certain assets with a net book value of approximately $27.0 million. Proceeds from the sales of these assets have totaled approximately $43.8 million through October 29, 2021.