Basis of Presentation

9 Months Ended

Sep. 30, 2021

Basis of Presentation [Abstract]

Basis of Presentation

(1) Basis of Presentation

Certain information and footnote disclosures normally in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”); however, management believes the disclosures that are made are adequate to make the information presented not misleading.

As used herein, the “Company,” “we,” “us”, “our” and similar terms refer to (i) prior to the Emergence Date (as defined below), SESI Holdings, Inc. (formerly known as Superior Energy Services, Inc.) (the “Former Parent”) and its subsidiaries and (ii) after the Emergence Date, Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) and its subsidiaries.

These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Superior Energy Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020 (the "Annual Report"). As described below, as a result of the application of fresh start accounting and the effects of the implementation of our Plan (as defined below), the financial statements after the Emergence Date are not comparable with the consolidated financial statements on or before that date. Refer to Note 3 – “Fresh Start Accounting” below for additional information.

In our opinion, the accompanying unaudited condensed financial statements contain all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair statement of our financial position as of September 30, 2021, and our results of operations for the three months ended September 30, 2021 and 2020, and cash flows for the periods January 1, 2021 through February 2, 2021 and February 3, 2021 through September 30, 2021 and nine months ended September 30, 2020. The condensed balance sheet at December 31, 2020, was derived from audited annual financial statements but does not contain all the footnote disclosures from the annual financial statements. See “Changes in Accounting Policies” below for further information. The year-end condensed consolidated balance sheet for the Predecessor (as defined below) was derived from audited financial statements but does not include all disclosures required by GAAP.

Effective as of February 2, 2021 (the “Emergence Date”), the entity now known as Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) became the successor reporting company to the Former Parent pursuant to Rule 15d-5 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Between December 7, 2020 (the “Petition Date”) and the Emergence Date, we operated as a debtor-in-possession under the supervision of the United States Bankruptcy Court for the Southern District of Texas Houston Division (the “Bankruptcy Court”). As used herein, the following terms refer to us and our operations:

"Predecessor"	The Company, prior to the Emergence Date
"Current Predecessor Period"	The Company's operations, January 1, 2021 - February 2, 2021
"Prior Predecessor Quarter"	The Company's operations, July 1, 2020 - September 30, 2020
"Prior Predecessor Period"	The Company's operations January 1, 2020 - September 30, 2020
"Successor"	The Company, after the Emergence Date
"Successor Quarter"	The Company's operations, July 1, 2021 - September 30, 2021
"Successor Period"	The Company's operations, February 3, 2021 - September 30, 2021

We evaluate events that occur after the balance sheet date but before the financial statements are issued for potential recognition or disclosure.

Recent Developments

Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code

On December 4, 2020, the Former Parent and certain of its direct and indirect wholly-owned domestic subsidiaries (together with the Former Parent, the “Affiliate Debtors”) entered into an Amended and Restated Restructuring Support Agreement (the “Amended RSA”) that amended and restated in its entirety the Restructuring Support Agreement, dated September 29, 2020, with certain holders of SESI, L.L.C.’s (“SESI”) outstanding (i) 7.125% senior unsecured notes due 2021 (the “7.125% Notes”) and (ii) 7.750% senior unsecured notes due 2024 (the “7.750% Notes”). The parties to the Amended RSA agreed to the principal terms of a proposed financial restructuring of the Affiliate Debtors, which was implemented through the Plan (as defined below).

On December 7, 2020, the Affiliate Debtors filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the Bankruptcy Court, and, in connection therewith, the Affiliate Debtors filed with the Bankruptcy Court the proposed Joint Prepackaged Plan of Reorganization under the Bankruptcy Code (as amended, modified or supplemented from time to time, the “Plan”).

On January 19, 2021, the Bankruptcy Court entered an order, Docket No. 289, confirming and approving the Plan. On the Emergence Date, the conditions to effectiveness of the Plan were satisfied or waived and we emerged from Chapter 11.

On the Emergence Date, we qualified for and adopted fresh start accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 852 – Reorganizations (ASC 852), which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. The application of fresh start accounting resulted in a new basis of accounting and we became a new entity for financial reporting purposes. As a result of the implementation of the Plan and the application of fresh start accounting, these unaudited condensed consolidated financial statements after the Emergence Date are not comparable to the consolidated financial statements before that date and the historical financial statements on or before the Emergence Date are not a reliable indicator of our financial condition and results of operations for any period after our adoption of fresh start accounting.

The accompanying unaudited condensed consolidated financial statements have been prepared as if we are a going concern and in accordance with ASC 852.

During the Current Predecessor Period, the Predecessor applied ASC 852 in preparing the unaudited condensed consolidated financial statements, which requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Accordingly, pre-petition liabilities that could have been impacted by the Chapter 11 Cases were classified as liabilities subject to compromise. Additionally, certain expenses, realized gains and losses and provisions for losses that were realized or incurred during and directly related to the Chapter 11 Cases, including fresh start valuation adjustments and gains on liabilities subject to compromise were recorded as reorganization items, net in the condensed consolidated statements of operations in the Current Predecessor Period. See Note 2 – “Emergence from Voluntary Reorganization under Chapter 11” for more information on the events of the Chapter 11 Cases as well as the accounting and reporting impacts of the reorganization during the Current Predecessor Period.

Use of Estimates — In preparing the accompanying financial statements, we make various estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities reported as of the dates of the balance sheets and the amounts of revenues and expenses reported for the periods shown in the income statements and statements of cash flows. All estimates, assumptions, valuations and financial projections related to fresh start accounting, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we cannot assure you that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially. For information about the use of estimates relating to fresh start accounting, see – Note 3 – “Fresh Start Accounting” below.

Due to the lack of comparability with historical financials, our unaudited consolidated condensed financial statements and related footnotes are presented with a “black line” division to emphasize the lack of comparability between amounts presented as of and after February 2, 2021 and amounts presented for all prior periods. The Successor’s financial results for future periods following the application of fresh start accounting will be different from historical trends and the differences may be material.

Changes in Accounting Policies

Accounting policies are disclosed in the Predecessor Company’s Annual Report. As of the Emergence Date, the amounts for these accounts have been recorded at fair value. After the Emergence Date, we will continue to follow the accounting policies within the Predecessor Company’s Annual Report except for the policies discussed below. As part of the adoption of fresh start accounting and effective upon emergence from bankruptcy, we have adopted new presentations for certain items within our condensed consolidated balance sheets and statement of operations. The presentation changes are described below:

The functional currency of certain international subsidiaries changed from the local currency to US dollars. This brings alignment so that our functional currency is US dollars. Management considered the economic factors outlined in FASB ASC Topic No. 830 - Foreign Currency Matters in the determination of the functional currency. Management concluded that the predominance of factors support the use of the Successor parent’s currency as the functional currency and resulted in a change in functional currency to US dollars for all international subsidiaries.

In connection with our Transformation Project, which is discussed further below, and our disposition activities, during the second quarter of 2021, we changed our reportable segments to Rentals, Well Services and Corporate and other. The reportable segments were changed to Rentals and Well Services for the Successor Quarter, Successor Period and Current Predecessor Period. Reportable segments in the

Predecessor's Annual Report were, and remain, Drilling Products and Services, Onshore Completion and Workover Services, Production Services and Technical Solutions.

The Predecessor recognized bad debt expense and gains/losses on sales of assets within general and administrative expenses. The Successor recognizes these expenses within cost of revenues. See Note 3 – “Fresh Start Accounting” for additional information.

Additional Detail of Account Balances

Restricted Cash —Restricted cash as of September 30, 2021 primarily represents cash of $76.9 million held in a collateral account for the payment and performance of secured obligations including the reimbursement of letters of credit, and $2.7 million relates to cash held in escrow to secure the future decommissioning obligations related to the sole oil and gas property.