UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
R |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016
or
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-22664
Patterson-UTI Energy, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE |
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75-2504748 |
(State or other jurisdiction of |
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(I.R.S. Employer |
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450 GEARS ROAD, SUITE 500 HOUSTON, TEXAS |
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77067 |
(Address of principal executive offices) |
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(Zip Code) |
(281) 765-7100
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R 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 (section 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). Yes R 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer |
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R |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ |
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Smaller reporting company |
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¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
147,732,339 shares of common stock, $0.01 par value, as of July 28, 2016
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page |
ITEM 1. |
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3 |
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4 |
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Unaudited condensed consolidated statements of comprehensive income |
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5 |
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Unaudited condensed consolidated statement of changes in stockholders’ equity |
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6 |
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7 |
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Notes to unaudited condensed consolidated financial statements |
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8 |
ITEM 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
ITEM 3. |
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35 |
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ITEM 4. |
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35 |
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ITEM 1. |
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36 |
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ITEM 2. |
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36 |
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ITEM 5 |
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36 |
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ITEM 6. |
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38 |
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39 |
PART I — FINANCIAL INFORMATION
The following unaudited condensed consolidated financial statements include all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share data)
|
June 30, |
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December 31, |
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2016 |
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2015 |
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ASSETS |
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Current assets: |
|
|
|
|
|
|
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Cash and cash equivalents |
$ |
209,627 |
|
|
$ |
113,346 |
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Accounts receivable, net of allowance for doubtful accounts of $3,191 and $3,545 at June 30, 2016 and December 31, 2015, respectively |
|
128,551 |
|
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219,672 |
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Federal and state income taxes receivable |
|
36,671 |
|
|
|
33,454 |
|
Inventory |
|
11,532 |
|
|
|
14,716 |
|
Deferred tax assets, net |
|
28,487 |
|
|
|
65,121 |
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Other |
|
40,855 |
|
|
|
40,227 |
|
Total current assets |
|
455,723 |
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|
|
486,536 |
|
Property and equipment, net |
|
3,640,894 |
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|
|
3,920,708 |
|
Goodwill and intangible assets |
|
90,788 |
|
|
|
92,609 |
|
Deposits on equipment purchases |
|
17,970 |
|
|
|
22,367 |
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Other |
|
6,096 |
|
|
|
7,264 |
|
Total assets |
$ |
4,211,471 |
|
|
$ |
4,529,484 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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|
|
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Current liabilities: |
|
|
|
|
|
|
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Accounts payable |
$ |
66,343 |
|
|
$ |
82,771 |
|
Accrued expenses |
|
139,922 |
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|
161,611 |
|
Current portion of long-term debt, net of debt issuance cost of $529 and $483 at June 30, 2016 and December 31, 2015, respectively |
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85,721 |
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63,267 |
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Total current liabilities |
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291,986 |
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|
307,649 |
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Long-term debt, net of debt issuance cost of $2,581 and $3,350 at June 30, 2016 and December 31, 2015, respectively |
|
741,169 |
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|
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787,900 |
|
Deferred tax liabilities, net |
|
768,556 |
|
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|
863,833 |
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Other |
|
7,930 |
|
|
|
8,971 |
|
Total liabilities |
|
1,809,641 |
|
|
|
1,968,353 |
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Commitments and contingencies (see Note 9) |
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Stockholders' equity: |
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Preferred stock, par value $.01; authorized 1,000,000 shares, no shares issued |
|
— |
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— |
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Common stock, par value $.01; authorized 300,000,000 shares with 191,112,033 and 190,374,801 issued and 147,735,741 and 147,167,561 outstanding at June 30, 2016 and December 31, 2015, respectively |
|
1,911 |
|
|
|
1,904 |
|
Additional paid-in capital |
|
1,023,001 |
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|
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1,011,811 |
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Retained earnings |
|
2,284,520 |
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2,458,554 |
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Accumulated other comprehensive income (loss) |
|
3,054 |
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|
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(4,093 |
) |
Treasury stock, at cost, 43,376,292 and 43,207,240 shares at June 30, 2016 and December 31, 2015, respectively |
|
(910,656 |
) |
|
|
(907,045 |
) |
Total stockholders' equity |
|
2,401,830 |
|
|
|
2,561,131 |
|
Total liabilities and stockholders' equity |
$ |
4,211,471 |
|
|
$ |
4,529,484 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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Operating revenues: |
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|
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|
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Contract drilling |
$ |
115,235 |
|
|
$ |
288,321 |
|
|
$ |
283,894 |
|
|
$ |
689,799 |
|
Pressure pumping |
|
73,950 |
|
|
|
176,624 |
|
|
|
170,263 |
|
|
|
426,345 |
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Oil and natural gas |
|
4,722 |
|
|
|
7,816 |
|
|
|
8,689 |
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|
|
14,316 |
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Total operating revenues |
|
193,907 |
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|
|
472,761 |
|
|
|
462,846 |
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|
|
1,130,460 |
|
Operating costs and expenses: |
|
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|
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|
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Contract drilling |
|
63,803 |
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|
|
153,848 |
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|
|
144,701 |
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366,658 |
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Pressure pumping |
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69,546 |
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142,756 |
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157,359 |
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355,481 |
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Oil and natural gas |
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1,650 |
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|
2,779 |
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|
3,740 |
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|
|
5,577 |
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Depreciation, depletion, amortization and impairment |
|
170,975 |
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181,924 |
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347,745 |
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357,306 |
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Selling, general and administrative |
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17,087 |
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19,216 |
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|
35,059 |
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|
39,753 |
|
Other operating (income) expense, net |
|
(4,822 |
) |
|
|
(2,998 |
) |
|
|
(6,167 |
) |
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6,346 |
|
Total operating costs and expenses |
|
318,239 |
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|
497,525 |
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|
|
682,437 |
|
|
|
1,131,121 |
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Operating loss |
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(124,332 |
) |
|
|
(24,764 |
) |
|
|
(219,591 |
) |
|
|
(661 |
) |
Other income (expense): |
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|
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|
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|
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|
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Interest income |
|
100 |
|
|
|
318 |
|
|
|
210 |
|
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|
601 |
|
Interest expense, net of amount capitalized |
|
(10,678 |
) |
|
|
(9,249 |
) |
|
|
(21,478 |
) |
|
|
(17,790 |
) |
Other |
|
17 |
|
|
|
- |
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33 |
|
|
|
- |
|
Total other expense |
|
(10,561 |
) |
|
|
(8,931 |
) |
|
|
(21,235 |
) |
|
|
(17,189 |
) |
Loss before income taxes |
|
(134,893 |
) |
|
|
(33,695 |
) |
|
|
(240,826 |
) |
|
|
(17,850 |
) |
Income tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Current |
|
(2,000 |
) |
|
|
1,705 |
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|
|
(25,814 |
) |
|
|
32,225 |
|
Deferred |
|
(47,027 |
) |
|
|
(16,425 |
) |
|
|
(58,643 |
) |
|
|
(40,225 |
) |
Total income tax benefit |
|
(49,027 |
) |
|
|
(14,720 |
) |
|
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(84,457 |
) |
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|
(8,000 |
) |
Net loss |
$ |
(85,866 |
) |
|
$ |
(18,975 |
) |
|
$ |
(156,369 |
) |
|
$ |
(9,850 |
) |
Net loss per common share: |
|
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Basic |
$ |
(0.58 |
) |
|
$ |
(0.13 |
) |
|
$ |
(1.06 |
) |
|
$ |
(0.07 |
) |
Diluted |
$ |
(0.58 |
) |
|
$ |
(0.13 |
) |
|
$ |
(1.06 |
) |
|
$ |
(0.07 |
) |
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
|
145,944 |
|
|
|
145,300 |
|
|
|
145,857 |
|
|
|
145,142 |
|
Diluted |
|
145,944 |
|
|
|
145,300 |
|
|
|
145,857 |
|
|
|
145,142 |
|
Cash dividends per common share |
$ |
0.02 |
|
|
$ |
0.10 |
|
|
$ |
0.12 |
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$ |
0.20 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
|
Three Months Ended |
|
|
Six Months Ended |
|
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|
June 30, |
|
|
June 30, |
|
||||||||||
|
2016 |
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2015 |
|
|
2016 |
|
|
2015 |
|
||||
Net loss |
$ |
(85,866 |
) |
|
$ |
(18,975 |
) |
|
$ |
(156,369 |
) |
|
$ |
(9,850 |
) |
Other comprehensive income (loss), net of taxes of $0 for all periods: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
469 |
|
|
|
3,033 |
|
|
|
7,147 |
|
|
|
(5,545 |
) |
Total comprehensive loss |
$ |
(85,397 |
) |
|
$ |
(15,942 |
) |
|
$ |
(149,222 |
) |
|
$ |
(15,395 |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
|
|
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|
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Accumulated |
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
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Other |
|
|
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|||||||
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Number of |
|
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|
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Paid-in |
|
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Retained |
|
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Comprehensive |
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Treasury |
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|
|
|
|
|||||
|
Shares |
|
|
Amount |
|
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Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Stock |
|
|
Total |
|
|||||||
Balance, December 31, 2015 |
|
190,375 |
|
|
$ |
1,904 |
|
|
$ |
1,011,811 |
|
|
$ |
2,458,554 |
|
|
$ |
(4,093 |
) |
|
$ |
(907,045 |
) |
|
|
2,561,131 |
|
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(156,369 |
) |
|
|
— |
|
|
|
— |
|
|
|
(156,369 |
) |
Foreign currency translation adjustment |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,147 |
|
|
|
— |
|
|
|
7,147 |
|
Issuance of restricted stock |
|
749 |
|
|
|
7 |
|
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Vesting of restricted stock units |
|
15 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeitures of restricted stock |
|
(27 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
14,192 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,192 |
|
Tax expense related to stock- based compensation |
|
— |
|
|
|
— |
|
|
|
(2,995 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,995 |
) |
Payment of cash dividends |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,665 |
) |
|
|
— |
|
|
|
— |
|
|
|
(17,665 |
) |
Purchase of treasury stock |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,611 |
) |
|
|
(3,611 |
) |
Balance, June 30, 2016 |
|
191,112 |
|
|
$ |
1,911 |
|
|
$ |
1,023,001 |
|
|
$ |
2,284,520 |
|
|
$ |
3,054 |
|
|
$ |
(910,656 |
) |
|
$ |
2,401,830 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
Six Months Ended |
|
|||||
|
June 30, |
|
|||||
|
2016 |
|
|
2015 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net loss |
$ |
(156,369 |
) |
|
$ |
(9,850 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation, depletion, amortization and impairment |
|
347,745 |
|
|
|
357,306 |
|
Dry holes and abandonments |
|
— |
|
|
|
114 |
|
Deferred income tax benefit |
|
(58,643 |
) |
|
|
(40,225 |
) |
Stock-based compensation expense |
|
14,192 |
|
|
|
13,831 |
|
Net gain on asset disposals |
|
(7,267 |
) |
|
|
(5,914 |
) |
Tax expense on stock-based compensation |
|
(2,995 |
) |
|
|
— |
|
Amortization of debt issuance costs |
|
723 |
|
|
|
522 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
91,559 |
|
|
|
330,176 |
|
Income taxes receivable/payable |
|
(2,329 |
) |
|
|
93,527 |
|
Inventory and other assets |
|
3,795 |
|
|
|
11,555 |
|
Accounts payable |
|
(25,738 |
) |
|
|
(108,424 |
) |
Accrued expenses |
|
(21,658 |
) |
|
|
(1,894 |
) |
Other liabilities |
|
(1,088 |
) |
|
|
(63 |
) |
Net cash provided by operating activities |
|
181,927 |
|
|
|
640,661 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
(51,834 |
) |
|
|
(463,633 |
) |
Proceeds from disposal of assets |
|
12,350 |
|
|
|
10,728 |
|
Net cash used in investing activities |
|
(39,484 |
) |
|
|
(452,905 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
Purchases of treasury stock |
|
(3,611 |
) |
|
|
(8,010 |
) |
Dividends paid |
|
(17,665 |
) |
|
|
(29,352 |
) |
Tax benefit related to stock-based compensation |
|
— |
|
|
|
1,129 |
|
Debt issuance costs |
|
— |
|
|
|
(1,979 |
) |
Proceeds from long-term debt |
|
— |
|
|
|
200,000 |
|
Repayment of long-term debt |
|
(25,000 |
) |
|
|
(10,000 |
) |
Proceeds from borrowings under revolving credit facility |
|
— |
|
|
|
54,000 |
|
Repayment of borrowings under revolving credit facility |
|
— |
|
|
|
(357,000 |
) |
Net cash used in financing activities |
|
(46,276 |
) |
|
|
(151,212 |
) |
Effect of foreign exchange rate changes on cash |
|
114 |
|
|
|
(3,050 |
) |
Net increase in cash and cash equivalents |
|
96,281 |
|
|
|
33,494 |
|
Cash and cash equivalents at beginning of period |
|
113,346 |
|
|
|
43,012 |
|
Cash and cash equivalents at end of period |
$ |
209,627 |
|
|
$ |
76,506 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
Net cash (paid) received during the period for: |
|
|
|
|
|
|
|
Interest, net of capitalized interest of $286 in 2016 and $3,343 in 2015 |
$ |
(20,252 |
) |
|
$ |
(16,506 |
) |
Income taxes |
$ |
19,603 |
|
|
$ |
63,740 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
Net increase (decrease) in payables for purchases of property and equipment |
$ |
9,283 |
|
|
$ |
(50,487 |
) |
Net decrease in deposits on equipment purchases |
$ |
4,397 |
|
|
$ |
64,638 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Consolidation and Presentation
The unaudited interim condensed consolidated financial statements include the accounts of Patterson-UTI Energy, Inc. (the “Company”) and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Except for wholly-owned subsidiaries, the Company has no controlling financial interests in any entity which would require consolidation.
The unaudited interim condensed consolidated financial statements have been prepared by management of the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes the disclosures included either on the face of the financial statements or herein are sufficient to make the information presented not misleading. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair statement of the information in conformity with accounting principles generally accepted in the United States of America have been included. The Unaudited Condensed Consolidated Balance Sheet as of December 31, 2015, as presented herein, was derived from the audited consolidated balance sheet of the Company, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The results of operations for the six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year.
The U.S. dollar is the functional currency for all of the Company’s operations except for its Canadian operations, which uses the Canadian dollar as its functional currency. The effects of exchange rate changes are reflected in accumulated other comprehensive income, which is a separate component of stockholders’ equity.
During the first quarter of 2016, the Company determined that certain income and expense items should be classified as “other operating (income) expense, net” in the condensed consolidated statements of operations. This caption now includes gains and losses on asset disposals and expenses related to certain legal settlements. Gains and losses on asset disposals were previously presented as a separate line in the condensed consolidated statements of operations. Expenses related to legal settlements were previously included in operating costs of the respective operating segment or in selling, general and administrative expense. For comparative purposes, all such prior period amounts were reclassified to conform to the current presentation, including the Company’s previously disclosed $12.3 million legal settlement that was previously included within selling, general and administrative expense for the six months ended June 30, 2015.
The Company provides a dual presentation of its net income (loss) per common share in its unaudited condensed consolidated statements of operations: Basic net income (loss) per common share (“Basic EPS”) and diluted net income (loss) per common share (“Diluted EPS”).
Basic EPS excludes dilution and is computed by first allocating earnings between common stockholders and holders of non-vested shares of restricted stock. Basic EPS is then determined by dividing the earnings attributable to common stockholders by the weighted average number of common shares outstanding during the period, excluding non-vested shares of restricted stock.
Diluted EPS is based on the weighted average number of common shares outstanding plus the dilutive effect of potential common shares, including stock options, non-vested shares of restricted stock and restricted stock units. The dilutive effect of stock options and restricted stock units is determined using the treasury stock method. The dilutive effect of non-vested shares of restricted stock is based on the more dilutive of the treasury stock method or the two-class method, assuming a reallocation of undistributed earnings to common stockholders after considering the dilutive effect of potential common shares other than non-vested shares of restricted stock.
8
The following table presents information necessary to calculate net loss per share for the three and six month periods ended June 30, 2016 and 2015 as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding because their inclusion would have been anti-dilutive (in thousands, except per share amounts):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
||||||||||
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
BASIC EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(85,866 |
) |
|
$ |
(18,975 |
) |
|
$ |
(156,369 |
) |
|
$ |
(9,850 |
) |
Adjust for loss attributed to holders of non-vested restricted stock |
|
846 |
|
|
|
198 |
|
|
|
1,526 |
|
|
|
109 |
|
Loss attributed to other common stockholders |
$ |
(85,020 |
) |
|
$ |
(18,777 |
) |
|
$ |
(154,843 |
) |
|
$ |
(9,741 |
) |
Weighted average number of common shares outstanding, excluding non-vested shares of restricted stock |
|
145,944 |
|
|
|
145,300 |
|
|
|
145,857 |
|
|
|
145,142 |
|
Basic net loss per common share |
$ |
(0.58 |
) |
|
$ |
(0.13 |
) |
|
$ |
(1.06 |
) |
|
$ |
(0.07 |
) |
DILUTED EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributed to other common stockholders |
$ |
(85,020 |
) |
|
$ |
(18,777 |
) |
|
$ |
(154,843 |
) |
|
$ |
(9,741 |
) |
Weighted average number of common shares outstanding, excluding non-vested shares of restricted stock |
|
145,944 |
|
|
|
145,300 |
|
|
|
145,857 |
|
|
|
145,142 |
|
Add dilutive effect of potential common shares |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Weighted average number of diluted common shares outstanding |
|
145,944 |
|
|
|
145,300 |
|
|
|
145,857 |
|
|
|
145,142 |
|
Diluted net loss per common share |
$ |
(0.58 |
) |
|
$ |
(0.13 |
) |
|
$ |
(1.06 |
) |
|
$ |
(0.07 |
) |
Potentially dilutive securities excluded as anti-dilutive |
|
9,370 |
|
|
|
8,208 |
|
|
|
9,370 |
|
|
|
8,208 |
|
2. Stock-based Compensation
The Company uses share-based payments to compensate employees and non-employee directors. The Company recognizes the cost of share-based payments under the fair-value-based method. Share-based awards consist of equity instruments in the form of stock options, restricted stock or restricted stock units and have included service and, in certain cases, performance conditions. The Company’s share-based awards also included share-settled performance unit awards. Share-settled performance unit awards are accounted for as equity awards. The Company issues shares of common stock when vested stock options are exercised, when restricted stock is granted and when restricted stock units and share-settled performance unit awards vest.
Stock Options — The Company estimates the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of the Company’s common stock over the most recent period equal to the expected term of the options as of the date the options are granted. The expected term assumptions are based on the Company’s experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options are granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields. Weighted-average assumptions used to estimate the grant date fair values for stock options granted for the three and six month periods ended June 30, 2016 and 2015 follow:
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
||||||||||
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
Volatility |
|
34.87 |
% |
|
|
37.91 |
% |
|
|
35.13 |
% |
|
|
37.95 |
% |
Expected term (in years) |
|
5.00 |
|
|
|
5.00 |
|
|
|
5.00 |
|
|
|
5.00 |
|
Dividend yield |
|
2.16 |
% |
|
|
1.97 |
% |
|
|
2.19 |
% |
|
|
2.00 |
% |
Risk-free interest rate |
|
1.40 |
% |
|
|
1.35 |
% |
|
|
1.42 |
% |
|
|
1.37 |
% |
9
Stock option activity from January 1, 2016 to June 30, 2016 follows:
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Underlying |
|
|
Exercise Price |
|
||
|
Shares |
|
|
Per Share |
|
||
Outstanding at January 1, 2016 |
|
6,307,250 |
|
|
$ |
21.68 |
|
Granted |
|
894,900 |
|
|
$ |
18.35 |
|
Exercised |
|
— |
|
|
$ |
- |
|
Cancelled |
|
— |
|
|
$ |
- |
|
Expired |
|
(50,000 |
) |
|
$ |
29.24 |
|
Outstanding at June 30, 2016 |
|
7,152,150 |
|
|
$ |
21.21 |
|
Exercisable at June 30, 2016 |
|
5,666,148 |
|
|
$ |
21.48 |
|
Restricted Stock — For all restricted stock awards to date, shares of common stock were issued when the awards were made. Non-vested shares are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Non-forfeitable dividends are paid on non-vested shares of restricted stock. The Company uses the straight-line method to recognize periodic compensation cost over the vesting period.
Restricted stock activity from January 1, 2016 to June 30, 2016 follows:
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average Grant |
|
|
|
|
|
|
|
Date Fair Value |
|
|
|
Shares |
|
|
Per Share |
|
||
Non-vested restricted stock outstanding at January 1, 2016 |
|
1,432,250 |
|
|
$ |
24.56 |
|
Granted |
|
748,825 |
|
|
$ |
20.66 |
|
Vested |
|
(670,987 |
) |
|
$ |
24.53 |
|
Forfeited |
|
(26,626 |
) |
|
$ |
24.76 |
|
Non-vested restricted stock outstanding June 30, 2016 |
|
1,483,462 |
|
|
$ |
22.60 |
|
Restricted Stock Units — For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest. Restricted stock units are subject to forfeiture for failure to fulfill service conditions. Non-forfeitable cash dividend equivalents are paid on certain non-vested restricted stock units. The Company uses the straight-line method to recognize periodic compensation cost over the vesting period.
Restricted stock unit activity from January 1, 2016 to June 30, 2016 follows:
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average Grant |
|
|
|
|
|
|
|
Date Fair Value |
|
|
|
Shares |
|
|
Per Share |
|
||
Non-vested restricted stock units outstanding at January 1, 2016 |
|
41,686 |
|
|
$ |
26.22 |
|
Granted |
|
18,350 |
|
|
$ |
21.71 |
|
Vested |
|
(15,033 |
) |
|
$ |
27.30 |
|
Forfeited |
|
(7,668 |
) |
|
$ |
24.83 |
|
Non-vested restricted stock units outstanding June 30, 2016 |
|
37,335 |
|
|
$ |
23.86 |
|
Performance Unit Awards. The Company has granted stock-settled performance unit awards to certain executive officers (the “Performance Units”) on an annual basis since 2010. The Performance Units provide for the recipients to receive a grant of shares of stock upon the achievement during a specified period of certain performance goals established by the Compensation Committee. The performance period for the Performance Units is the three year period commencing on April 1 of the year of grant, except that for the Performance Units granted in 2013 the performance period has been extended pursuant to its terms, as described below.
10
The performance goals for the Performance Units are tied to the Company’s total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee. These goals are considered to be market conditions under the relevant accounting standards and the market conditions were factored into the determination of the fair value of the respective performance units. Generally, the recipients will receive a target number of shares if the Company’s total shareholder return during the performance period is positive and, when compared to the peer group, is at the 50th percentile. If the Company’s total shareholder return during the performance period is positive and, when compared to the peer group, is at the 75th percentile or higher, then the recipients will receive two times the target number of shares. If the Company’s total shareholder return during the performance period is positive, and, when compared to the peer group, is at the 25th percentile, then the recipients will only receive one-half of the target number of shares. If the Company’s total shareholder return during the performance period is positive and, when compared to the peer group, achievement is between the 25th and 75th percentile, then the shares to be received by the recipients will be determined on a pro-rata basis. For the Performance Units awarded prior to 2016, there is no payout unless the Company’s total shareholder return is positive and, when compared to the peer group, is at or above the 25th percentile.
For the Performance Units granted in April 2016, if the Company’s total shareholder return is negative, and, when compared to the peer group is at or above the 25th percentile, then the recipients will receive one-half of the number of shares they would have received if the Company’s total shareholder return had been positive.
In respect of the 2013 Performance Units, the performance period ended March 31, 2016, the Company’s total shareholder return for the performance period was negative, the Company’s total shareholder return for the performance period when compared to the peer group was above the 75th percentile, and there was no payout; provided, however, that pursuant to the terms of those 2013 awards, if, during the two-year period ending March 31, 2018, the Company’s total shareholder return for any 30 consecutive day period equals or exceeds 18 percent on an annualized basis from April 1, 2013 through the last day of such 30 consecutive day period, and the recipient is actively employed by the Company through the last day of the extended performance period, then the Company will issue to the recipient the number of shares equal to the amount the recipient would have been entitled to receive if the Company’s total shareholder return had been positive during the initial three year performance period.
The total target number of shares with respect to the Performance Units for the awards in 2012-2016 is set forth below:
|
2016 |
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||||
|
Performance |
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
|||||
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|||||
Target number of shares |
|
185,000 |
|
|
|
190,600 |
|
|
|
154,000 |
|
|
|
236,500 |
|
|
|
192,000 |
|
Because the performance units are stock-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant using a Monte Carlo simulation model. The fair value of the Performance Units is set forth below (in thousands):
|
2016 |
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||||
|
Performance |
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
|||||
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|||||
Fair value at date of grant |
$ |
3,854 |
|
|
$ |
4,052 |
|
|
$ |
5,388 |
|
|
$ |
5,564 |
|
|
$ |
3,065 |
|
These fair value amounts are charged to expense on a straight-line basis over the performance period. Compensation expense associated with the Performance Units is shown below (in thousands):
|
2016 |
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||||
|
Performance |
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
|||||
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|||||
Three months ended June 30, 2015 |
NA |