As filed with the Securities and Exchange
Commission on June 29, 2011
Registration No. 333-173188
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 4
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
C&J Energy Services,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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1389
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20-5673219
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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10375 Richmond Avenue, Suite 2000
Houston, Texas 77042
(713) 260-9900
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Theodore R. Moore
Vice President-General Counsel
C&J Energy Services, Inc.
10375 Richmond Avenue, Suite 2000
Houston, Texas 77042
(713) 260-9900
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Jeffery K. Malonson
Vinson & Elkins L.L.P.
1001 Fannin Street, Suite 2500
Houston, Texas 77002
(713) 758-2222
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 check the
following
box. þ
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
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. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities and it is not soliciting an offer
to buy these securities in any jurisdiction where the offer or
sale is not permitted.
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Subject to Completion, Dated
June 29, 2011
PRELIMINARY PROSPECTUS
C&J Energy
Services, Inc.
28,768,000 shares
Common Stock
The selling stockholders are offering 28,768,000 shares of
our common stock, which the selling stockholders acquired
pursuant to a private placement between us and the selling
stockholders. All of these shares of common stock are being sold
by the selling stockholders named in this prospectus, or their
respective transferees, pledgees, donees or
successors-in-interest.
The selling stockholders will receive all proceeds from the sale
of the shares of our common stock being offered in this
prospectus. We will not receive any proceeds from the sale of
shares by the selling stockholders.
There is no public market for our common stock. We have applied
to list our common stock on the New York Stock Exchange under
the symbol CJES.
Once our common stock is listed on the New York Stock Exchange
or another national securities exchange, the selling
stockholders may sell the shares of common stock being offered
by them from time to time on the New York Stock Exchange, in
market transactions, in negotiated transactions or otherwise,
and at prices and terms that will be determined by the then
prevailing market price for the shares of common stock or at
negotiated prices directly or through a broker or brokers, who
may act as agent or as principal or by a combination of such
methods of sale. For additional information on the methods of
sale, you should refer to the section entitled Plan of
Distribution beginning on page 101 of this prospectus.
Investing in our common stock involves risks. Please read
Risk Factors beginning on page 5 of this
prospectus.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved of these securities,
or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Prospectus
dated ,
2011.
TABLE OF
CONTENTS
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Prospectus
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F-1
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EX-23.1 |
You should rely only on the information contained in this
prospectus and any free writing prospectus prepared by or on
behalf of us or to which we have referred you. Neither we nor
the selling stockholders have authorized anyone to provide you
with information different from that contained in this
prospectus and any free writing prospectus. The selling
stockholders are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in
jurisdictions where offers and sales are permitted. The
information in this prospectus is accurate only as of the date
of this prospectus, regardless of the time of delivery of this
prospectus or any sale of common stock.
We have not taken any action to permit a public offering of the
shares of common stock outside the United States or to permit
the possession or distribution of this prospectus outside the
United States. Persons outside the United States who come
into possession of this prospectus must inform themselves about
and observe any restrictions relating to the offering of the
shares of common stock and the distribution of this prospectus
outside the United States.
Industry and
Market Data
The market data and certain other statistical information used
throughout this prospectus are based on independent industry
publications, government publications or other published
independent sources. Some data is also based on our good-faith
estimates.
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PROSPECTUS
SUMMARY
This summary provides a brief overview of information
contained elsewhere in this prospectus. Because it is
abbreviated, this summary does not contain all of the
information that you should consider before investing in our
common stock. You should read the entire prospectus carefully
before making an investment decision, including the information
presented under the headings Risk Factors beginning
on page 5 of this prospectus, Cautionary Note
Regarding Forward-Looking Statements on page 16 of
this prospectus, Managements Discussion and Analysis
of Financial Condition and Results of Operations beginning
on page 20 of this prospectus, and the historical
consolidated financial statements and related notes thereto
included elsewhere in this prospectus.
In this prospectus, unless the context otherwise requires,
the terms C&J, we, us,
our, and our company refer to C&J
Energy Services, Inc. and its subsidiaries C&J Spec-Rent
Services, Inc., or Spec-Rent, and Total E&S, Inc., or
Total.
Our
Company
Overview
We are a rapidly growing independent provider of premium
hydraulic fracturing and coiled tubing services with a focus on
complex, technically demanding well completions. We provide our
services in conjunction with both conventional and
unconventional well completions as well as workover and
stimulation operations for existing wells. We compete with a
limited number of service companies for what we believe to be
the most complex hydraulic fracturing projects, which are
typically characterized by long lateral segments and multiple
fracturing stages in high-pressure formations. We believe
service providers are selected for these complex projects
primarily based on technical expertise, fleet capability and
experience rather than solely on price. We also provide pressure
pumping services and other related well stimulation services in
connection with our well completion and production enhancement
operations.
We have historically operated in what we believe to be some of
the most geologically challenging basins in South Texas, East
Texas/North Louisiana and Western Oklahoma. The customers we
serve are primarily large exploration and production companies
with significant unconventional resource positions, including
EOG Resources, EXCO Resources, Anadarko Petroleum, Plains
Exploration, Penn Virginia, Petrohawk, El Paso, Apache and
Chesapeake. We are in the process of acquiring additional
hydraulic fracturing fleets and are evaluating opportunities
with existing and new customers to expand our operations into
new areas throughout the United States with similarly demanding
completion and stimulation requirements.
We operate four modern, 15,000 pounds per square inch, or psi,
pressure rated hydraulic fracturing fleets with an aggregate
142,000 horsepower, and we currently have on order four
additional hydraulic fracturing fleets, which, upon delivery,
will increase our aggregate horsepower to 270,000 by the end of
2012. Our hydraulic fracturing equipment is specially designed
to handle well completions with long lateral segments and
multiple fracturing stages in high-pressure formations. We also
operate a fleet of 14 coiled tubing units, 16 double-pump
pressure pumps and nine single-pump pressure pumps.
Our hydraulic fracturing fleets and coiled tubing units are
currently deployed in the Eagle Ford Shale of South Texas, the
Haynesville Shale of East Texas/North Louisiana and the Granite
Wash of Western Oklahoma. Recent advances in horizontal drilling
and hydraulic fracturing technologies have lowered unit recovery
costs in these basins and increased the potential for long-term
oil and natural gas development. Additionally, the increase in
the number of drilling permits awarded in the Eagle Ford,
Haynesville and Granite Wash regions, coupled with the
increasing complexity and technical completion requirements for
many wells in these regions, are expected to drive growth in
demand for
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our well completion services for the foreseeable future. We have
and plan to continue to focus on basins with technically
demanding hydraulic fracturing requirements.
Our
Services
We provide hydraulic fracturing, coiled tubing, pressure pumping
and other related well stimulation services to our customers
under a single operating segment. We have traditionally used our
coiled tubing and pressure pumping services to extend our
hydraulic fracturing services into new markets.
Hydraulic Fracturing. Our customers
utilize our hydraulic fracturing services to enhance the
production of oil and natural gas from formations with low
permeability, which restricts the natural flow of hydrocarbons.
The fracturing process consists of pumping a fluid into a cased
well at sufficient pressure to fracture the producing formation.
Sand, bauxite or synthetic proppants are suspended in the fluid
and are pumped into the fracture to prop the fracture open. The
extremely high pressure required to stimulate wells in the
regions in which we operate presents a challenging environment
for achieving a successfully fractured horizontal well. As a
result, an important element of the services we provide to
producers is designing the optimum well completion, which
includes determining the proper fluid, proppant and injection
specifications to maximize production. Our engineering staff
also provides technical evaluation, job design and fluid
recommendations for our customers as an integral element of our
fracturing service.
Coiled Tubing. Our customers utilize
our coiled tubing services to perform various functions
associated with well-servicing operations and to facilitate
completion of horizontal wells. Coiled tubing services involve
the insertion of steel tubing into a well to convey materials
and equipment to perform various applications on either a
completion or workover assignment. We believe coiled tubing has
become a preferred method of well completion, workover and
maintenance projects due to speed, ability to handle heavy-duty
jobs across a wide spectrum of pressure environments, safety and
ability to perform services without having to shut in a well. We
have successfully leveraged our existing relationships with
coiled tubing customers to expand our fracturing business.
Pressure Pumping. Our customers utilize
our pressure pumping services primarily in connection with
completing new wells and remedial and production enhancement
work on existing wells. Our pressure pumping services are
routinely performed in conjunction with our coiled tubing
services. Our pressure pumping services include well injection,
cased-hole testing, workover pumping, mud displacement, wireline
pumpdowns and pumping-down coiled tubing. Our pressure pumping
services often provide us with advance knowledge of a
customers need for coiled tubing services.
Recent
Developments
Preliminary Results for Second Quarter Ended June 30,
2011. We are in the process of finalizing our
results of operations and other financial and operating data for
the three months ended June 30, 2011. While full financial
information and operating data as of and for such period is not
available, based on managements preliminary estimates from
currently available information, we expect that for the three
months ended June 30, 2011 our total revenues were between
$ million and
$ million, compared to
$127.2 million for the three months ended March 31,
2011, and our net income was between
$ million and
$ million, compared to
$29.1 million for the three months ended March 31,
2011.
Because the three months ended June 30, 2011 has recently
ended, the unaudited financial information presented above for
the three months ended June 30, 2011 reflects estimates based
only upon preliminary information available to us as of the date
of this prospectus, is not a comprehensive statement of our
financial results or position as of or for the three months
ended June 30, 2011, and has not been audited or reviewed
by our independent registered public accounting firm. Our
consolidated financial statements and operating data as of and
for the three months ended June 30, 2011 will not be
available until after this offering is completed and may vary
from the preliminary
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financial information we have provided. Such variation may be
material; accordingly, you should not place undue reliance on
these preliminary estimates. The estimates as of and for the
three months ended June 30, 2011 are not necessarily
indicative of any future period and should be read together with
Risk Factors, Cautionary Note Regarding
Forward-Looking Statements, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Selected Consolidated Financial
Data and our consolidated financial statements and related
notes included elsewhere in this prospectus.
Acquisition of Total E&S, Inc. On
April 28, 2011, we acquired Total E&S, Inc., or Total,
a manufacturer of hydraulic fracturing, coiled tubing, pressure
pumping and other equipment used in the energy services industry
and one of our largest suppliers of machinery and equipment.
Total is constructing the hydraulic fracturing pumps for all
four of our on-order fleets. The aggregate purchase price of
approximately $32.9 million included $23.0 million in
cash to the sellers and $9.9 million in repayment of the
outstanding debt of Total. In exchange for the consideration
transferred, we acquired net working capital assets with an
estimated value of approximately $6.9 million, including
$5.4 million in cash and cash equivalents. We funded
$25.0 million of the purchase price and debt repayment with
borrowings under our credit facility and funded the remainder
with cash on hand. Total is located in Granbury, Texas.
We believe the acquisition of a key supplier provides several
strategic advantages, including a significant reduction in our
exposure to third-party supply chain constraints, shorter cycle
times for the delivery of new equipment and replacement parts, a
reduction in and greater control of the cost of new equipment,
and enhanced operational control of our service offering, each
of which should help facilitate our continued growth.
Furthermore, the Total acquisition is expected to help minimize
downtime by enhancing our capabilities for maintenance and
repair of our hydraulic fracturing equipment.
Following our acquisition of Total, we acquired approximately
ten acres of adjacent property and began construction of an
approximate 36,000 square feet manufacturing facility. We
currently expect our new facility to be operational by December
2011. The total cost of construction of the facility is expected
to be approximately $1.3 million. By significantly
increasing Totals manufacturing capacity, we expect to
further increase its ability to service us and existing and
future third-party customers.
For more information regarding our historical relationship with
Total, please read Certain Relationships and Related Party
Transactions Acquisition of Total beginning on
page 77 of this prospectus.
Corporate
Information
We are a Delaware corporation. Our principal executive offices
are located at 10375 Richmond Avenue, Suite 2000, Houston,
Texas 77042 and our main telephone number is
(713) 260-9900.
Our website is available
at .
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The
Offering
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Common stock offered by the Selling Stockholders |
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shares |
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Common stock to be outstanding after this offering(1) |
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Use of Proceeds |
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We will not receive any proceeds from the sale of shares by the
selling stockholders. |
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Risk Factors |
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Investing in our common stock involves a high degree of risk.
For a discussion of factors you should consider before making an
investment, please read Risk Factors beginning on
page 5 of this prospectus. |
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Proposed New York Stock Exchange Symbol |
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CJES |
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(1)
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The number of outstanding shares as of June 28, 2011
excludes (i) 5,744,589 shares of common stock issuable
upon exercise of options to be outstanding immediately after
this offering, of which 1,925,653 currently are exercisable, and
(ii) an aggregate of approximately 1,862,618 shares of
common stock reserved and available for future issuance under
the C&J Energy Services, Inc. 2010 Stock Option Plan, or
the 2010 Plan. For additional information regarding the 2010
Plan, please read Executive Compensation and Other
Information Components of Executive Compensation
Program Stock Options on page 64 of this
prospectus.
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Risk
Factors
An investment in shares of our common stock involves risks.
Below is a summary of certain key risk factors that you should
consider in evaluating an investment in shares of our common
stock. This list is not exhaustive. Please read the full
discussion of these risks and other risks described under
Risk Factors beginning on page 5 of this
prospectus as well as other factors described in this prospectus.
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Our business depends on the oil and natural gas industry and
particularly on the level of exploration, development and
production of oil and natural gas in the United States. Our
markets may be adversely affected by industry conditions that
are beyond our control.
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Because the oil and gas industry is cyclical, our operating
results may fluctuate.
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Delays in delivery of our new fracturing fleets or future orders
of specialized equipment from suppliers could harm our business,
results of operations and financial condition.
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Delays in deliveries of key raw materials or increases in the
cost of key raw materials could harm our business, results of
operations and financial condition.
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There is potential for excess capacity in our industry.
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Federal legislation and state legislative and regulatory
initiatives relating to hydraulic fracturing could result in
increased costs and additional operating restrictions or delays
as well as adversely affect our support services.
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We participate in a capital-intensive industry. We may not be
able to finance future growth of our operations or future
acquisitions.
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RISK
FACTORS
You should carefully consider each of the following risk
factors and all of the other information set forth in this
prospectus before deciding to invest in our common stock. The
risks and uncertainties described below are not the only ones we
face. If any of the following risks actually occur, our
business, financial condition and results of operations could be
harmed and we may not be able to achieve our goals. If that
occurs, the value of our common stock could decline and you
could lose some or all of your investment.
Risks Relating to
Our Business
Our business
depends on the oil and natural gas industry and particularly on
the level of exploration, development and production of oil and
natural gas in the United States. Our markets may be adversely
affected by industry conditions that are beyond our
control.
We depend on our customers willingness to make operating
and capital expenditures to explore for, develop and produce oil
and natural gas in the United States. If these expenditures
decline, our business may suffer. Our customers
willingness to explore, develop and produce depends largely upon
prevailing industry conditions that are influenced by numerous
factors over which our management has no control, such as:
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the supply of and demand for oil and natural gas, including
current natural gas storage capacity and usage;
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the prices, and expectations about future prices, of oil and
natural gas;
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the supply of and demand for hydraulic fracturing and other well
service equipment in the United States;
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the cost of exploring for, developing, producing and delivering
oil and natural gas;
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public pressure on, and legislative and regulatory interest
within, federal, state and local governments to stop,
significantly limit or regulate hydraulic fracturing activities;
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the expected rates of decline of current oil and natural gas
production;
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lead times associated with acquiring equipment and products and
availability of personnel;
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regulation of drilling activity;
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the discovery rates of new oil and natural gas reserves;
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available pipeline and other transportation capacity;
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weather conditions, including hurricanes that can affect oil and
natural gas operations over a wide area;
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political instability in oil and natural gas producing countries;
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domestic and worldwide economic conditions;
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technical advances affecting energy consumption;
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the price and availability of alternative fuels; and
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merger and divestiture activity among oil and natural gas
producers.
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The level of activity in the oil and natural gas exploration and
production industry in the United States is volatile. In
2009, our industry experienced an unprecedented decline in
drilling activity in the United States as rig counts dropped by
approximately 57% from 2008 highs. Correlating with this
decline, the Henry Hub spot price for natural gas decreased from
an average of $8.90 per mcf in 2008 to $4.16 per mcf in 2009. As
of June 24, 2011, the Henry Hub spot price for natural gas
was $4.23 per mcf. Unexpected material declines in oil and
natural gas prices, or drilling or completion
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activity in the southern United States oil and natural gas shale
regions, could have a material adverse effect on our business,
financial condition, results of operations and cash flows. In
addition, a decrease in the development rate of oil and natural
gas reserves in our market areas may also have an adverse impact
on our business, even in an environment of stronger oil and
natural gas prices.
The
cyclicality of the oil and natural gas industry in the United
States may cause our operating results to
fluctuate.
We have experienced in the past, and may experience in the
future, significant fluctuations in operating results as a
result of the reactions of our customers to actual and
anticipated changes in oil and natural gas prices in the United
States. For example, in 2009, due to fluctuations in our
operating results caused largely by the volatility of commodity
prices, we faced potential payment and covenant defaults under
our then-existing subordinated term loan agreement. In
connection with such potential defaults, we obtained a waiver
from our lenders to extend the maturity date and amend certain
payment terms and maintenance covenants under such facility. If
our operating results are adversely impacted by actual or
anticipated changes in oil and natural gas prices, or for any
other reason, then we may be in default under our debt
arrangements and be required to seek a waiver from our lenders
in the future, and such measures may not be successful.
There is
potential for excess capacity in our industry, which could
adversely affect our business and operating
results.
Currently, the demand for hydraulic fracturing services exceeds
the availability of fracturing equipment and crews across the
industry and in our operating areas in particular. The
accelerated wear and tear of hydraulic fracturing equipment due
to its deployment in unconventional, as opposed to conventional,
oil and natural gas fields characterized by longer lateral
lengths and larger numbers of fracturing stages has further
amplified this equipment and crew shortage. As a result, we and
our competitors have ordered additional fracturing equipment to
meet existing and projected long-term demand. We currently have
four hydraulic fracturing fleets on order. If demand for
fracturing services decreases or the supply of fracturing
equipment and crews continues to increase, then the increase in
supply relative to demand may result in lower prices and
utilization of our services and could adversely affect our
business and results of operations.
Our inability
to acquire or delays in the delivery of our new fracturing
fleets or future orders of specialized equipment from suppliers
could harm our business, results of operations and financial
condition.
We expect to take delivery of two new fracturing fleets during
2011, Fleet 5 in July 2011 and Fleet 6 in the fourth quarter of
2011. We expect to take delivery of another two hydraulic
fracturing fleets during 2012, Fleet 7 in the first half of 2012
and Fleet 8 in the second half of 2012. The delivery of Fleets
5, 6, 7 and 8 or any other fracturing fleets we may order in the
future could be materially delayed or not delivered at all.
Total is constructing our hydraulic fracturing pumps for all
four of our on-order fleets. The overall number of hydraulic
fracturing equipment suppliers in the industry is limited, and
there is high demand for such equipment, which may increase the
risk of delay or failure to deliver and limit our ability to
find alternative suppliers. Any material delay or failure to
deliver new fleets could defer or substantially reduce our
revenue from the deployment of these fracturing fleets.
Additionally, if the delivery of Fleet 5 is materially delayed
or not delivered, we may be unable to fulfill our term
fracturing contract relating to this fleet. In the event that we
were unable to commence service under our contract relating to
Fleet 5 (due to equipment delivery delay or otherwise) by a
specified date, the customer has the right to terminate the
contract without penalty.
Delays in
deliveries of key raw materials or increases in the cost of key
raw materials could harm our business, results of operations and
financial condition.
We have established relationships with a limited number of
suppliers of our raw materials and finished products. Should any
of our current suppliers be unable to provide the necessary raw
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materials (such as proppant, chemicals or coiled tubing) or
finished products (such as fluid-handling equipment) or
otherwise fail to deliver the products in a timely manner and in
the quantities required, any resulting delays in the provision
of services could have a material adverse effect on our
business, financial condition, results of operations and cash
flows. During 2008, our industry faced sporadic proppant
shortages associated with pressure pumping operations requiring
work stoppages, which adversely impacted the operating results
of several competitors. We may not be able to mitigate any
future shortages of raw materials, including proppants.
Federal
legislation and state legislative and regulatory initiatives
relating to hydraulic fracturing could result in increased costs
and additional operating restrictions or delays as well as
adversely affect our support services.
The federal Safe Drinking Water Act, or SDWA, regulates the
underground injection of substances through the Underground
Injection Control, or the UIC program. Hydraulic fracturing
generally is exempt from regulation under the UIC program, and
the hydraulic fracturing process is typically regulated by state
oil and gas commissions. The United States Environmental
Protection Agency, or EPA, has recently taken the position that
hydraulic fracturing with fluids containing diesel fuel are
subject to regulation under the UIC program, specifically as
Class II UIC wells. At the same time, the EPA
has commenced a study of the potential environmental impacts of
hydraulic fracturing activities, and a committee of the
U.S. House of Representatives recently concluded an
investigation of hydraulic fracturing practices. As part of
these studies, both the EPA and the House committee have
requested that certain companies provide them with information
concerning the chemicals used in the hydraulic fracturing
process. These studies, depending on their results, could spur
initiatives to regulate hydraulic fracturing under the SDWA or
otherwise. Legislation, which has not passed, has been
introduced before Congress in the last few sessions to provide
for federal regulation of hydraulic fracturing and to require
disclosure of the chemicals used in the fracturing process. If
similar federal legislation is introduced and becomes law in the
future, the legislation could establish an additional level of
regulation at the federal level that could lead to operational
delays or increased operating costs, making it more difficult to
perform hydraulic fracturing and increasing our costs of
compliance and doing business.
In addition, various state and local governments have
implemented, or are considering, increased regulatory oversight
of hydraulic fracturing through additional permit requirements,
operational restrictions, disclosure requirements and temporary
or permanent bans on hydraulic fracturing in certain
environmentally sensitive areas such as certain watersheds.
Texas has adopted legislation that requires the disclosure of
information regarding the substances used in the hydraulic
fracturing process to the Railroad Commission of Texas and the
public. This legislation and any implementing regulation could
increase our costs of compliance and doing business. Moreover,
the availability of information regarding the constituents of
hydraulic fracturing fluids could make it easier for third
parties opposing the hydraulic fracturing process to initiate
legal proceedings based on allegations that specific chemicals
used in the fracturing process could adversely affect
groundwater. Disclosure of our proprietary chemical formulas to
third parties or to the public, even if inadvertent, could
diminish the value of those formulas and could result in
competitive harm to us.
The adoption of new laws or regulations imposing reporting
obligations on, or otherwise limiting, the hydraulic fracturing
process could make it more difficult to complete natural gas
wells in shale formations, increase our costs of compliance and
adversely affect the hydraulic fracturing services that we
render for our exploration and production customers. In
addition, if hydraulic fracturing becomes regulated at the
federal level as a result of federal legislation or regulatory
initiatives by the EPA, fracturing activities could become
subject to additional permitting requirements, and also to
attendant permitting delays and potential increases in cost,
which could adversely affect our business and results of
operations.
7
Our executive
officers and certain key personnel are critical to our business
and these officers and key personnel may not remain with us in
the future.
Our future success depends upon the continued service of our
executive officers and other key personnel, particularly Joshua
E. Comstock, our Chief Executive Officer, President and
Chairman. If we lose the services of Mr. Comstock, our
other executive officers or other key personnel, our business,
operating results and financial condition could be harmed.
Additionally, proceeds from the key person life insurance on
Mr. Comstock would not be sufficient to cover our losses in
the event we were to lose his services.
Reliance upon
a few large customers may adversely affect our revenues and
operating results.
Our top five customers accounted for approximately 81.0%, 67.4%
and 61.1% of our revenue for the years ended December 31,
2010, 2009 and 2008, respectively. Our top ten customers
represented approximately 90.2%, 90.6% and 79.9% of our revenue
for the years ended December 31, 2010, 2009 and 2008,
respectively. For the three months ended March 31, 2011, our top
five customers accounted for 89.8% of our revenues and our top
ten customers accounted for 97.2% of our revenues. It is likely
that we will continue to derive a significant portion of our
revenue from a relatively small number of customers in the
future. If a major customer fails to pay us or decides not to
continue to use our services, revenue could decline and our
operating results and financial condition could be harmed.
We may not be
able to renew our term contracts on attractive terms or at all,
which could adversely impact our results of operations,
financial condition and cash flows.
A significant amount of our revenue is currently derived from
term contracts. For the three months ended March 31, 2011,
we derived 53.6% of our total revenues from our term contracts.
The term of these contracts ranges from one to three years. Once
these contracts expire, we may not be able to extend the
contracts, enter into additional term contracts on favorable
terms or at all or deploy our hydraulic fracturing fleets in the
spot market on attractive terms. If we are not able to do so,
our results of operations, financial condition and cash flows
could be adversely impacted.
We are
vulnerable to the potential difficulties associated with rapid
growth, acquisitions and expansion.
We have grown rapidly over the last several years. For example,
from the year ended December 31, 2008 through the year
ended December 31, 2010, our Adjusted EBITDA increased
$62.7 million from $19.9 million to
$82.6 million, our revenues increased $181.8 million
from $62.4 million to $244.2 million, and our net
income increased $31.2 million from $1.1 million to
$32.3 million. We believe that our future success depends
on our ability to manage the rapid organic growth that we have
experienced and are expected to experience upon delivery of our
four on-order hydraulic fracturing fleets and the demands from
increased responsibility on our management personnel. The
following factors could present difficulties to us:
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lack of sufficient executive-level personnel;
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increased administrative burden;
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long lead times associated with acquiring additional equipment,
including potential delays with respect to our four on-order
fracturing fleets; and
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ability to maintain the level of focused service attention that
we have historically been able to provide to our customers.
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In addition, we recently completed the acquisition of Total and
may in the future seek to grow our business through acquisitions
that enhance our existing operations. The success of any
completed acquisition, including our acquisition of Total, will
depend on our ability to integrate effectively the
8
acquired business into our existing operations. The process of
integrating acquired businesses may involve unforeseen
difficulties and may require a disproportionate amount of our
managerial and financial resources. Our operating results could
be adversely affected if we do not successfully manage these
potential difficulties.
We may be
unable to employ a sufficient number of skilled and qualified
workers.
The delivery of our services and products requires personnel
with specialized skills and experience who can perform
physically demanding work. As a result of the volatility in the
energy service industry and the demanding nature of the work,
workers may choose to pursue employment in fields that offer a
more desirable work environment. Our ability to be productive
and profitable will depend upon our ability to employ and retain
skilled workers. In addition, our ability to expand our
operations depends in part on our ability to increase the size
of our skilled labor force. The demand for skilled workers in
our geographic area of operations is high, and the supply is
limited. A significant increase in the wages paid by competing
employers could result in a reduction of our skilled labor
force, increases in the wage rates that we must pay, or both. If
either of these events were to occur, our capacity and
profitability could be diminished and our growth potential could
be impaired.
Our operations
are subject to hazards inherent in the energy services
industry.
Risks inherent to our industry, such as equipment defects,
vehicle accidents, explosions and uncontrollable flows of gas or
well fluids, can cause personal injury, loss of life, suspension
of operations, damage to formations, damage to facilities,
business interruption and damage to, or destruction of property,
equipment and the environment. These risks could expose us to
substantial liability for personal injury, wrongful death,
property damage, loss of oil and natural gas production,
pollution and other environmental damages. The existence,
frequency and severity of such incidents will affect operating
costs, insurability and relationships with customers, employees
and regulators. In particular, our customers may elect not to
purchase our services if they view our safety record as
unacceptable, which could cause us to lose customers and
substantial revenues.
Our operational personnel have experienced accidents which have,
in some instances, resulted in serious injuries. Our safety
procedures may not always prevent such damages. Our insurance
coverage may be inadequate to cover our liabilities. In
addition, we may not be able to maintain adequate insurance in
the future at rates we consider reasonable and commercially
justifiable or on terms as favorable as our current
arrangements. The occurrence of a significant uninsured claim, a
claim in excess of the insurance coverage limits maintained by
us or a claim at a time when we are not able to obtain liability
insurance could have a material adverse effect on our ability to
conduct normal business operations and on our financial
condition, results of operations and cash flows.
We participate
in a capital-intensive industry. We may not be able to finance
future growth of our operations or future
acquisitions.
Historically, we have funded the growth of our operations and
equipment purchases from bank debt, capital contributions from
our equity sponsors and cash generated by our business. If we do
not generate sufficient cash from operations to expand our
business, our growth could be limited unless we are able to
obtain additional capital through equity or debt financings or
bank borrowings. Our inability to grow our business may
adversely impact our ability to sustain or improve our profits.
Our industry
is highly competitive and we may not be able to provide services
that meet the specific needs of oil and natural gas exploration
and production companies at competitive prices.
Our industry is highly competitive. The principal competitive
factors in our markets are generally technical expertise, fleet
capability and experience. We compete with large national and
multi-national companies that have longer operating histories,
greater financial resources and greater name recognition than we
do and who can operate at a loss in the regions in which we
operate. Several of
9
our competitors provide a broader array of services and have a
stronger presence in more geographic markets. In addition, there
are several smaller companies capable of competing effectively
on a regional or local basis. Our competitors may be able to
respond more quickly to new or emerging technologies and
services and changes in customer requirements. As a result of
competition, we may lose market share or be unable to maintain
or increase prices for our present services or to acquire
additional business opportunities, which could have a material
adverse effect on our business, financial condition, results of
operations and cash flows. In addition, competition among
oilfield service and equipment providers is affected by each
providers reputation for safety and quality. Our
reputation for safety and quality may not be sufficient to
enable us to maintain our competitive position.
Covenants in
our debt agreement restrict our business in many
ways.
Our credit facility contains restrictive covenants and requires
us to maintain a debt coverage ratio, to maintain a fixed charge
coverage ratio and to satisfy other financial condition tests.
Our ability to meet those financial requirements can be affected
by adverse industry conditions and other events beyond our
control, and we cannot be certain that we will meet those
requirements. In addition, our credit facility contains a number
of additional restrictive covenants, including a covenant
limiting, subject to certain exceptions, our ability to make
capital expenditures in excess of $100.0 million in any
fiscal year, provided that up to $50.0 million of such
amount in any fiscal year may be rolled over to the subsequent
fiscal year and up to $50.0 million of such amount may also
be pulled forward from the subsequent fiscal year. The capital
expenditure restrictions do not apply to capital expenditures
financed with proceeds from the issuance of common equity
interests or to maintenance capital expenditures.
A breach of any of these covenants could result in a default
under our credit facility. Upon the occurrence of an event of
default under our credit facility, the lenders could elect to
declare all amounts outstanding to be immediately due and
payable and terminate all commitments to extend further credit.
If we were unable to repay those amounts, the lenders under our
credit facility could proceed against the collateral granted to
them to secure that indebtedness.
We have pledged a significant portion of our and our
subsidiaries assets as collateral under our credit
facility. If the lenders under our credit facility accelerate
the repayment of borrowings, we may not have sufficient assets
to repay indebtedness under such facilities and our other
indebtedness. Please read Managements Discussion and
Analysis of Financial Condition and Results of
Operations Description of Our Indebtedness
beginning on page 32 of this prospectus for additional
information regarding our credit facility.
Energy
Spectrum and Citigroup/Stepstone will continue to have
significant influence over us, including influence over
decisions that require stockholder approval, which could limit
your ability to influence the outcome of key transactions,
including a change in control.
Energy Spectrum Partners IV LP, whom we refer to in this
prospectus as Energy Spectrum, holds approximately 16.3% of our
outstanding common stock, and StepStone Capital Partners II
Onshore, L.P., StepStone Capital Partners II Cayman
Holdings, L.P., 2006 Co-Investment Portfolio, L.P. and Citigroup
Capital Partners II Employee Master Fund, L.P., whom we
collectively refer to in this prospectus as Citigroup/StepStone
hold approximately 14% of our outstanding common stock. In
addition, pursuant to our Amended and Restated
Stockholders Agreement, each of Citigroup/StepStone and
Energy Spectrum, collectively referred to in this prospectus as
our Sponsors, has the right to name one director to our board of
directors for so long as each holds 10% of our common stock. As
a result, our Sponsors have significant influence over our
decisions to enter into any corporate transaction regardless of
whether others believe that the transaction is in our best
interests. Please read Certain Relationships and Related
Party Transactions Amended and Restated
Stockholders Agreement beginning on page 75 of
this prospectus.
10
As long as our Sponsors continue to hold a large portion of our
outstanding common stock, they will have the ability to
influence the vote in any election of directors and over
decisions that require stockholder approval. In addition, the
concentration of ownership may have the effect of delaying,
preventing or deterring a change in control of our company,
could deprive stockholders of an opportunity to receive a
premium for their common stock as part of a sale of our company
and might ultimately affect the market price of our common stock.
Our Sponsors are also in the business of making investments in
companies and may from time to time acquire and hold interests
in businesses that compete directly or indirectly with us. Our
Sponsors may also pursue acquisition opportunities that are
complementary to our business, and, as a result, those
acquisition opportunities may not be available to us.
Failure to
establish and maintain effective internal control over financial
reporting could have a material adverse effect on our business,
operating results and the trading price of our common
stock.
As a privately held company, we are not currently required to
comply with Sections 302 and 404 of the Sarbanes-Oxley Act
of 2002, and are therefore not required to make a formal
assessment of the effectiveness of our internal control over
financial reporting for that purpose. Following the
effectiveness of the registration statement of which this
prospectus forms a part, we will be a public company and be
required to comply with Sections 302 and 404 of the
Sarbanes-Oxley Act of 2002, which will require our management to
certify financial and other information in our quarterly and
annual reports and provide an annual management report on the
effectiveness of our internal control over financial reporting.
We will not be required to make our first assessment of our
internal control over financial reporting until the year
following our first annual report required to be filed with the
SEC. To comply with the requirements of being a public company,
we will need to upgrade our systems, including information
technology, implement additional financial and management
controls, reporting systems and procedures and hire additional
accounting, finance and legal staff. Implementing these
requirements may occupy a significant amount of time of our
board of directors and management and significantly increase our
costs and expenses.
Our efforts to develop and maintain our internal controls may
not be successful, and we may be unable to maintain effective
controls over our financial processes and reporting in the
future and comply with the certification and reporting
obligations under Sections 302 and 404 of the
Sarbanes-Oxley Act of 2002. Any failure to maintain effective
controls, or any difficulties encountered in our implementation
or improvement of our internal controls over financial reporting
could result in material misstatements that are not prevented or
detected on a timely basis, which could potentially subject us
to sanctions or investigations by the SEC, the New York Stock
Exchange, or NYSE, or other regulatory authorities. Ineffective
internal controls could also cause investors to lose confidence
in our reported financial information.
Weather
conditions could materially impair our business.
Our operations in Louisiana and parts of Texas may be adversely
affected by hurricanes and tropical storms, resulting in reduced
demand for our well completion services. Adverse weather can
also directly impede our own operations. Repercussions of severe
weather conditions may include:
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curtailment of services;
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weather-related damage to facilities and equipment, resulting in
suspension of operations;
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inability to deliver equipment, personnel and products to job
sites in accordance with contract schedules;
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increase in the price of insurance; and
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loss of productivity.
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These constraints could also delay our operations, reduce our
revenues and materially increase our operating and capital costs.
Climate change
legislation or regulations restricting emissions of greenhouse
gases could result in increased operating costs and reduced
demand for our services.
On December 15, 2009, the EPA published its findings that
emissions of carbon dioxide, methane and other greenhouse gases,
or GHGs, present an endangerment to public health and welfare
because emissions of such gases are, according to the EPA,
contributing to the warming of the earths atmosphere and
other climate changes. Based on these findings, the EPA has
begun to adopt and implement regulations that would restrict
emissions of GHGs under existing provisions of the federal Clean
Air Act, or the CAA. The EPA recently adopted two sets of rules
regulating greenhouse gas emissions under the CAA, one of which
requires a reduction in emissions of greenhouse gases from motor
vehicles and the other of which will require that certain large
stationary sources obtain permits for their emissions of
greenhouse gases, effective January 2, 2011. The EPA has
also adopted rules requiring the reporting of greenhouse gas
emissions from specified large greenhouse gas emission sources,
on an annual basis, beginning in 2011 for emissions occurring
after January 1, 2010, as well as certain oil and natural
gas production facilities, on an annual basis, beginning in 2012
for emissions occurring in 2011.
In addition to the EPA, both houses of Congress have actively
considered legislation to reduce emissions of GHGs, and more
than one-third of the states have already taken legal measures
to reduce emissions of GHGs, primarily through the planned
development of GHG emission inventories
and/or
regional GHG cap and trade programs. Most of these cap and trade
programs work by requiring either major sources of emissions or
major producers of fuels to acquire and surrender emission
allowances, with the number of allowances available for purchase
reduced each year until the overall GHG emission reduction goal
is achieved.
Any new federal, regional or state restrictions on emissions of
carbon dioxide or other GHGs that may be imposed in areas in
which we conduct business could result in increased compliance
costs or additional operating restrictions on our customers.
Such legislation could potentially make our customers
products more expensive and thus reduce demand for them, which
could have a material adverse effect on the demand for our
services and our business. Finally, some scientists have
concluded that increasing concentrations of GHGs in the
earths atmosphere may produce climate changes that have
significant physical effects, such as increased frequency and
severity of storms, droughts, and floods and other climatic
events. If any such effects were to occur, they could have an
adverse effect on our results of operations. Please read
Business Environmental Matters beginning
on page 47 of this prospectus for a more detailed
description of our climate-change related risks.
We are subject
to extensive and costly environmental, health and safety laws,
rules and regulations that may require us to take actions that
will adversely affect our results of operations.
Our business is significantly affected by stringent and complex
federal, state and local laws and regulations governing the
discharge of substances into the environment or otherwise
relating to protection of the environment or human health and
safety. As part of our business, we handle, transport, and
dispose of a variety of fluids and substances used by our
customers in connection with their oil and natural gas
exploration and production activities. We also generate and
dispose of hazardous waste. The generation, handling,
transportation, and disposal of these fluids, substances, and
waste are regulated by a number of laws, including the Resource
Recovery and Conservation Act; the Comprehensive Environmental
Response, Compensation, and Liability Act; the Clean Water Act;
the Safe Drinking Water Act; and analogous state laws. Failure
to properly handle, transport or dispose of these materials or
otherwise conduct our operations in accordance with these and
other environmental laws could expose us to liability for
governmental penalties, third-party claims, cleanup
12
costs associated with releases of such materials, damages to
natural resources, and other damages, as well as potentially
impair our ability to conduct our operations. We could be
exposed to liability for cleanup costs, natural resource damages
and other damages under these and other environmental laws as a
result of our conduct that was lawful at the time it occurred or
the conduct of, or conditions caused by, prior operators or
other third parties. Environmental laws and regulations have
changed in the past, and they are likely to change in the
future. If existing regulatory requirements or enforcement
policies change, we may be required to make significant
unanticipated capital and operating expenditures.
Any failure by us to comply with applicable environmental,
health and safety laws, rules and regulations may result in
governmental authorities taking actions against our business
that could adversely impact our operations and financial
condition, including the:
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issuance of administrative, civil and criminal penalties;
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modification, denial or revocation of permits or other
authorizations;
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imposition of limitations on our operations; and
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performance of site investigatory, remedial or other corrective
actions.
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The effect of environmental laws and regulations on our business
is discussed in greater detail under Business
Environmental Matters beginning on page 47 of this
prospectus.
More stringent
trucking regulations may increase our costs and negatively
impact our results of operations.
As part of the services we provide, we operate as a motor
carrier and therefore are subject to regulation by the United
States Department of Transportation, or the DOT, and by other
various state agencies. These regulatory authorities exercise
broad powers, governing activities such as the authorization to
engage in motor carrier operations and regulatory safety, and
hazardous materials labeling, placarding and marking. There are
additional regulations specifically relating to the trucking
industry, including testing and specification of equipment and
product handling requirements. The trucking industry is subject
to possible regulatory and legislative changes that may affect
the economics of the industry by requiring changes in operating
practices or by changing the demand for common or contract
carrier services or the cost of providing truckload services.
Some of these possible changes include increasingly stringent
environmental regulations, changes in the hours of service
regulations which govern the amount of time a driver may drive
in any specific period, onboard black box recorder devices or
limits on vehicle weight and size.
Interstate motor carrier operations are subject to safety
requirements prescribed by the DOT. To a large degree,
intrastate motor carrier operations are subject to state safety
regulations that mirror federal regulations. Such matters as
weight and dimension of equipment are also subject to federal
and state regulations.
From time to time, various legislative proposals are introduced,
including proposals to increase federal, state or local taxes,
including taxes on motor fuels, which may increase our costs or
adversely impact the recruitment of drivers. We cannot predict
whether, or in what form, any increase in such taxes applicable
to us will be enacted.
New technology
may hurt our competitive position.
The energy service industry is subject to the introduction of
new completion techniques and services using new technologies,
some of which may be subject to patent protection. As
competitors and others use or develop new technologies or
technologies comparable to ours in the future, we may lose
market share or be placed at a competitive disadvantage.
Further, we may face competitive pressure to implement or
acquire certain new technologies at a substantial cost. Some of
our competitors have greater financial, technical and personnel
resources than we do, which may allow
13
them to gain technological advantages or implement new
technologies before we can. Additionally, we may be unable to
implement new technologies or products at all, on a timely basis
or at an acceptable cost. Limits on our ability to effectively
use or implement new technologies may have a material adverse
effect on our business, financial condition and results of
operations.
Our senior
executive officers and several of our directors may not be able
to organize and effectively manage a publicly traded company,
which could adversely affect our business, financial condition
and results of operations.
We completed our initial public offering
on 2011,
and became a publicly traded company. Some of our senior
executive officers or directors have not previously organized or
managed a publicly traded company, and our senior executive
officers and directors may not be successful in doing so. The
demands of organizing and managing a publicly traded company are
much greater as compared to a private company and some of our
senior executive officers and directors may not be able to meet
those increased demands. Failure to organize and effectively
manage us could adversely affect our business, financial
condition and results of operations.
Risks Related to
Our Common Stock
We do not
anticipate paying any dividends on our common stock in the
foreseeable future.
For the foreseeable future, we intend to retain earnings to grow
our business. Payments of dividends, if any, will be at the
discretion of our board of directors and will depend on many
factors, including general economic and business conditions, our
strategic plans, our financial results and condition, legal
requirements and other factors as our board of directors deems
relevant. Our credit facility restricts our ability to pay cash
dividends on our common stock and we may also enter into credit
agreements or borrowing arrangements in the future that will
restrict our ability to declare or pay cash dividends on our
common stock.
We will incur
increased costs as a result of being a public
company.
As a privately held company, we have not been responsible for
the corporate governance and financial reporting practices and
policies required of a publicly traded company. We completed our
initial public offering
on 2011,
and became a publicly traded company. As a public company with
listed equity securities, we will need to comply with new laws,
regulations and requirements, certain corporate governance
provisions of the Sarbanes-Oxley Act of 2002, related
regulations of the SEC and the requirements of the NYSE with
which we are not required to comply with as a private company.
Complying with these laws, regulations and requirements will
occupy a significant amount of time of our board of directors
and management and will significantly increase our costs and
expenses. We will need to:
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institute a more comprehensive compliance function;
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design, establish, evaluate and maintain a system of internal
controls over financial reporting in compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act of
2002 and the related rules and regulations of the SEC and the
Public Company Accounting Oversight Board, or PCAOB;
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comply with rules promulgated by the NYSE;
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prepare and distribute periodic public reports in compliance
with our obligations under the federal securities laws;
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establish new internal policies, such as those relating to
disclosure controls and procedures and insider trading;
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involve and retain to a greater degree outside counsel and
accountants in the above activities; and
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establish an investor relations function.
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In addition, we also expect that being a public company subject
to these rules and regulations will require us to accept less
director and officer liability insurance coverage than we desire
or to incur substantial costs to obtain coverage. These factors
could also make it more difficult for us to attract and retain
qualified members of our board of directors, particularly to
serve on our Audit Committee, and qualified executive officers.
Future
issuances by us of common stock or convertible securities could
lower our stock price and dilute your ownership in
us.
We may issue additional shares of common stock or securities
convertible into shares of our common stock in public offerings
or privately negotiated transactions following this offering. As
of June 28, 2011, we had 47,499,074 shares of common
stock outstanding. We are currently authorized to issue up to
100,000,000 shares of common stock and
20,000,000 shares of preferred stock with terms designated
by our board. The potential issuance of additional shares of
common stock or convertible securities could lower the trading
price of our common stock and may dilute your ownership interest
in us.
Provisions in
our organizational documents and under Delaware law could delay
or prevent a change in control of our company, which could
adversely affect the price of our common stock.
The existence of some provisions in our organizational documents
and under Delaware law could delay or prevent a change in
control of our company that a stockholder may consider
favorable, which could adversely affect the price of our common
stock. The provisions in our amended and restated certificate of
incorporation and amended and restated bylaws that could delay
or prevent an unsolicited change in control of our company
include board authority to issue preferred stock without
stockholder approval, and advance notice provisions for director
nominations or business to be considered at a stockholder
meeting. In addition, once our Sponsors beneficial
ownership percentage drops below 25% of the outstanding shares
of common stock, we will be governed by Section 203 of the
Delaware General Corporation Law, or DGCL. These provisions may
also discourage acquisition proposals or delay or prevent a
change in control, which could harm our stock price. Please read
Description of Capital Stock Anti-Takeover
Effects of Provisions of Our Certificate of Incorporation, Our
Bylaws and Delaware Law beginning on page 92 of this
prospectus.
Future
offerings of debt securities and preferred stock, which would
rank senior to our common stock upon liquidation, may adversely
affect the market value of common stock.
In the future, we may attempt to increase our capital resources
by making offerings of debt or additional offerings of equity
securities, including commercial paper, medium-term notes,
senior or subordinated notes and classes of preferred stock.
Upon liquidation, holders of our debt securities and preferred
stock and lenders with respect to other borrowings will receive
a distribution of our available assets prior to the holders of
our common stock. Our preferred stock, which may be issued
without stockholder approval, if issued, could have a preference
on liquidating distributions or a preference on dividend
payments that would limit amounts available for distribution to
holders of our common stock. Because our decision to issue
securities in any future offering will depend on market
conditions and other factors beyond our control, we cannot
predict or estimate the amount, timing or nature of our future
offerings. Thus, holders of our common stock bear the risk that
our future offerings may reduce the market value of our common
stock.
15
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this prospectus, including those
that express a belief, expectation or intention, as well as
those that are not statements of historical fact, are
forward-looking statements. These forward-looking statements may
include projections and estimates concerning the timing and
success of specific projects, our future revenues, income and
capital spending and our strategy. Our forward-looking
statements are generally accompanied by words such as
estimate, project, predict,
believe, expect, anticipate,
potential, plan, goal or
other words that convey the uncertainty of future events or
outcomes. The forward-looking statements in this prospectus
speak only as of the date of this prospectus; we disclaim any
obligation to update these statements unless required by law,
and we caution you not to rely on them unduly. We have based
these forward-looking statements on our current expectations and
assumptions about future events. While our management considers
these expectations and assumptions to be reasonable, they are
inherently subject to significant business, economic,
competitive, regulatory and other risks, contingencies and
uncertainties, most of which are difficult to predict and many
of which are beyond our control. These and other important
factors, including those discussed under Risk
Factors beginning on page 5 of this prospectus and
Managements Discussion and Analysis of Financial
Condition and Results of Operations beginning on
page 20 of this prospectus, may cause our actual results,
performance or achievements to differ materially from any future
results, performance or achievements expressed or implied by
these forward-looking statements. These risks, contingencies and
uncertainties include, but are not limited to, the following:
|
|
|
|
|
a sustained decrease in domestic spending by the oil and natural
gas exploration and production industry;
|
|
|
|
a decline in or substantial volatility of crude oil and natural
gas commodity prices;
|
|
|
|
delay in or failure of delivery of our new fracturing fleets or
future orders of specialized equipment;
|
|
|
|
the loss of or interruption in operations of one or more key
suppliers;
|
|
|
|
overcapacity and competition in our industry;
|
|
|
|
the incurrence of significant costs and liabilities in the
future resulting from our failure to comply, or our compliance
with, new or existing environmental regulations or an accidental
release of hazardous substances into the environment;
|
|
|
|
the loss of, or inability to attract new, key management
personnel;
|
|
|
|
the loss of, or failure to pay amounts when due by, one or more
significant customers;
|
|
|
|
unanticipated costs, delays and other difficulties in executing
our long-term growth strategy;
|
|
|
|
a shortage of qualified workers;
|
|
|
|
operating hazards inherent in our industry;
|
|
|
|
accidental damage to or malfunction of equipment;
|
|
|
|
an increase in interest rates;
|
|
|
|
the potential inability to comply with the financial and other
covenants in our debt agreements as a result of reduced revenues
and financial performance or our inability to raise sufficient
funds through assets sales or equity issuances should we need to
raise funds through such methods;
|
|
|
|
the continued influence of our Sponsors;
|
|
|
|
the potential failure to establish and maintain effective
internal control over financial reporting; and
|
|
|
|
our inability to operate effectively as a publicly traded
company.
|
16
USE OF
PROCEEDS
We will not receive any of the proceeds from the sale of shares
of our common stock by the selling stockholders.
DIVIDEND
POLICY
For the foreseeable future, we intend to retain earnings to grow
our business. Payments of dividends, if any, will be at the
discretion of our board of directors and will depend on many
factors, including general economic and business conditions, our
strategic plans, our financial results and condition, legal
requirements and other factors that our board of directors deems
relevant. Our credit facility restricts our ability to pay cash
dividends on our common stock, and we may also enter into credit
agreements or other borrowing arrangements in the future that
will restrict our ability to declare or pay cash dividends on
our common stock. Please read Managements Discussion
and Analysis of Financial Condition and Results of
Operations Description of Our Indebtedness
beginning on page 32 of this prospectus.
17
SELECTED
CONSOLIDATED FINANCIAL DATA
The following table presents our summary historical financial
data for the periods and as of the dates indicated. The selected
consolidated statement of operations data and statement of cash
flows data for the years ended December 31, 2008, 2009 and
2010 and the selected consolidated balance sheet data as of
December 31, 2009 and 2010 are derived from our audited
consolidated financial statements and the notes thereto included
elsewhere in this prospectus. The selected consolidated
statement of operations data and statement of cash flows data
for the periods ended December 31, 2007 and 2006 and
October 16, 2006 and the selected consolidated balance
sheet data as of December 31, 2008, 2007 and 2006 and
October 16, 2006 were audited by Flackman
Goodman & Potter, P.A., or Flackman, an accounting
firm not registered with the PCAOB, and are considered
unaudited for purposes of the registration statement
of which this prospectus is a part. The unaudited consolidated
statement of operations data and unaudited statement of cash
flows data for the three months ended March 31, 2011 and
2010 and the selected unaudited consolidated balance sheet data
as of March 31, 2011 are derived from our unaudited
consolidated financial statements and the notes thereto included
elsewhere in this prospectus. The unaudited financial data has,
in our opinion, been prepared on a basis consistent with the
audited consolidated financial statements and notes thereto and
includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of this
information.
Historical results are not necessarily indicative of the results
we expect in future periods. The information presented below
should be read in conjunction with, and is qualified in its
entirety by reference to, Managements Discussion and
Analysis of Financial Condition and Results of Operations
beginning on page 20 of this prospectus and our
consolidated financial statements and the notes thereto included
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from October
|
|
|
January 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17, 2006 (Inception
|
|
|
to October 16,
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
Date) to December
|
|
|
2006
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
31, 2006
|
|
|
(Predecessor)1
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
244,157
|
|
|
$
|
67,030
|
|
|
$
|
62,441
|
|
|
$
|
28,022
|
|
|
$
|
6,677
|
|
|
$
|
22,088
|
|
|
$
|
127,204
|
|
|
$
|
32,636
|
|
Cost of sales
|
|
|
154,297
|
|
|
|
54,242
|
|
|
|
42,401
|
|
|
|
14,227
|
|
|
|
2,504
|
|
|
|
7,226
|
|
|
|
70,048
|
|
|
|
23,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
89,860
|
|
|
|
12,788
|
|
|
|
20,040
|
|
|
|
13,795
|
|
|
|
4,173
|
|
|
|
14,862
|
|
|
|
57,156
|
|
|
|
9,460
|
|
Selling, general and administrative expenses
|
|
|
17,998
|
|
|
|
9,533
|
|
|
|
8,950
|
|
|
|
7,427
|
|
|
|
2,283
|
|
|
|
4,691
|
|
|
|
8,825
|
|
|
|
2,867
|
|
Loss (gain) on sale/disposal of assets
|
|
|
1,571
|
|
|
|
920
|
|
|
|
397
|
|
|
|
129
|
|
|
|
96
|
|
|
|
29
|
|
|
|
(90
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
70,291
|
|
|
|
2,335
|
|
|
|
10,693
|
|
|
|
6,239
|
|
|
|
1,794
|
|
|
|
10,142
|
|
|
|
48,421
|
|
|
|
6,609
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9
|
|
|
|
4
|
|
|
|
5
|
|
|
|
50
|
|
|
|
15
|
|
|
|
81
|
|
|
|
1
|
|
|
|
|
|
Interest expense
|
|
|
(17,350
|
)
|
|
|
(4,712
|
)
|
|
|
(6,913
|
)
|
|
|
(5,786
|
)
|
|
|
(1,055
|
)
|
|
|
(2,742
|
)
|
|
|
(1,959
|
)
|
|
|
(2,998
|
)
|
Lender fees
|
|
|
(322
|
)
|
|
|
(391
|
)
|
|
|
(511
|
)
|
|
|
(341
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
(53
|
)
|
Other income
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
18
|
|
|
|
13
|
|
|
|
102
|
|
Other expense
|
|
|
(150
|
)
|
|
|
(52
|
)
|
|
|
(68
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(17,650
|
)
|
|
|
(5,151
|
)
|
|
|
(7,487
|
)
|
|
|
(6,094
|
)
|
|
|
(1,153
|
)
|
|
|
(2,643
|
)
|
|
|
(1,970
|
)
|
|
|
(2,950
|
)
|
Income (loss) before income taxes
|
|
|
52,641
|
|
|
|
(2,816
|
)
|
|
|
3,206
|
|
|
|
145
|
|
|
|
641
|
|
|
|
7,499
|
|
|
|
46,451
|
|
|
|
3,659
|
|
Provision (benefit) for income taxes
|
|
|
20,369
|
|
|
|
(386
|
)
|
|
|
2,085
|
|
|
|
868
|
|
|
|
199
|
|
|
|
2,999
|
|
|
|
17,366
|
|
|
|
1,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
32,272
|
|
|
$
|
(2,430
|
)
|
|
$
|
1,121
|
|
|
$
|
(723
|
)
|
|
$
|
442
|
|
|
$
|
4,500
|
|
|
$
|
29,085
|
|
|
$
|
2,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.70
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
0.04
|
|
|
$
|
0.61
|
|
|
$
|
0.05
|
|
Diluted net income (loss) per share
|
|
$
|
0.67
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
0.04
|
|
|
$
|
0.60
|
|
|
$
|
0.05
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from October
|
|
|
January 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17, 2006 (Inception
|
|
|
to October 16,
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
Date) to December
|
|
|
2006
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
31, 2006
|
|
|
(Predecessor)1
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
44,473
|
|
|
$
|
4,301
|
|
|
$
|
21,526
|
|
|
$
|
30,152
|
|
|
$
|
9,282
|
|
|
$
|
11,360
|
|
|
$
|
29,784
|
|
|
$
|
2,515
|
|
Cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
44,723
|
|
|
|
12,056
|
|
|
|
8,611
|
|
|
|
8,377
|
|
|
|
855
|
|
|
|
6,240
|
|
|
|
19,716
|
|
|
|
3,086
|
|
Investing activities
|
|
|
(43,818
|
)
|
|
|
(4,254
|
)
|
|
|
(20,673
|
)
|
|
|
(30,054
|
)
|
|
|
(108,760
|
)
|
|
|
(7,538
|
)
|
|
|
(27,442
|
)
|
|
|
(2,490
|
)
|
Financing activities
|
|
|
734
|
|
|
|
(6,733
|
)
|
|
|
11,921
|
|
|
|
21,305
|
|
|
|
106,700
|
|
|
|
1,000
|
|
|
|
6,965
|
|
|
|
(1,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
October 16,
|
|
|
As of
|
|
|
|
As of December 31,
|
|
|
December
|
|
|
2006
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
31, 2006
|
|
|
(Predecessor)1
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,817
|
|
|
$
|
1,178
|
|
|
$
|
109
|
|
|
$
|
250
|
|
|
$
|
622
|
|
|
$
|
1,827
|
|
|
$
|
2,056
|
|
Accounts receivable, net
|
|
|
44,354
|
|
|
|
12,668
|
|
|
|
13,362
|
|
|
|
4,409
|
|
|
|
5,557
|
|
|
|
4,842
|
|
|
|
71,769
|
|
Inventories, net
|
|
|
8,182
|
|
|
|
2,463
|
|
|
|
861
|
|
|
|
581
|
|
|
|
440
|
|
|
|
450
|
|
|
|
14,459
|
|
Property, plant and equipment, net
|
|
|
88,395
|
|
|
|
65,404
|
|
|
|
71,441
|
|
|
|
57,991
|
|
|
|
31,593
|
|
|
|
22,999
|
|
|
|
117,277
|
|
Total assets
|
|
|
226,088
|
|
|
|
150,231
|
|
|
|
155,212
|
|
|
|
133,711
|
|
|
|
111,467
|
|
|
|
56,455
|
|
|
|
285,358
|
|
Accounts payable
|
|
|
13,084
|
|
|
|
10,598
|
|
|
|
6,519
|
|
|
|
1,705
|
|
|
|
690
|
|
|
|
773
|
|
|
|
26,652
|
|
Long-term debt and capital lease obligations, excluding current
portion
|
|
|
44,817
|
|
|
|
60,668
|
|
|
|
25,041
|
|
|
|
56,773
|
|
|
|
51,700
|
|
|
|
28,755
|
|
|
|
49,067
|
|
Total stockholders equity
|
|
|
109,446
|
|
|
|
65,799
|
|
|
|
68,099
|
|
|
|
66,797
|
|
|
|
56,265
|
|
|
|
24,173
|
|
|
|
140,663
|
|
|
|
|
(1) |
|
The statement of operations and statement of cash flows data for
the period from January 1, 2006 through October 16,
2006, and the balance sheet data as of October 16, 2006,
are the statement of operations and statement of cash flows of
our predecessor company, C&J Spec-Rent Services, Inc. |
19
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 Selected Consolidated Financial
Data beginning on page 18 of this prospectus and our
financial statements and related notes appearing elsewhere in
this prospectus. This discussion contains forward-looking
statements based on our current expectations, estimates and
projections about our operations and the industry in which we
operate. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a
variety of risks and uncertainties, including those described in
this prospectus under Cautionary Note Regarding
Forward-Looking Statements on page 16 of this
prospectus and Risk Factors beginning on page 5
of this prospectus. We assume no obligation to update any of
these forward-looking statements.
Overview
We are a rapidly growing independent provider of premium
hydraulic fracturing and coiled tubing services with a focus on
complex, technically demanding well completions. We have
historically operated in what we believe to be some of the most
geologically challenging basins in South Texas, East Texas/North
Louisiana and Western Oklahoma. We are in the process of
acquiring additional hydraulic fracturing fleets and are
evaluating opportunities with existing and new customers to
expand our operations into new areas throughout the United
States with similarly demanding completion and stimulation
requirements.
How We Generate
Our Revenues
We have completed thousands of fracturing stages and more than
9,000 coiled tubing projects. During the three months ended
March 31, 2011, we completed 633 fracturing stages and 638
coiled tubing projects. We seek to differentiate our services
from those of our competitors by providing customized solutions
for our customers most challenging well completions. We
believe our customers value the experience, technical expertise,
high level of customer service and demonstrated operational
efficiencies that we bring to projects.
We have entered into term contracts with EOG Resources (executed
April 2010), Penn Virginia (executed May 2010), Anadarko
Petroleum (executed August 2010), EXCO Resources (executed
August 2010), and Plains Exploration (executed March 2011) for
the provision of hydraulic fracturing services. We began service
under the Penn Virginia, EOG Resources, Anadarko Petroleum and
EXCO Resources contracts in July 2010, August 2010, February
2011 and April 2011, respectively. We anticipate beginning
service under the Plains Exploration contract in August 2011.
Our existing hydraulic fracturing fleets (Fleets 1, 2, 3 and
4) are dedicated through mid-2012, mid-2012, early 2013 and
mid-2014, respectively, to producers operating in the Eagle
Ford, Haynesville and Granite Wash basins. We are scheduled to
take delivery of Fleet 5 in July 2011 for deployment in July
2011 in the spot market and deployment in August 2011 under
a two-year term contract. We are scheduled to take delivery of
Fleets 6, 7 and 8 in the fourth quarter of 2011, the first half
of 2012 and the second half of 2012, respectively. We expect
that each of these new fleets will be deployed under term
contracts similar to our existing term contracts.
Our revenues are derived from two sources:
|
|
|
|
|
monthly payments for the committed hydraulic fracturing fleets
under term contracts as well as prevailing market rates for spot
market work, together with associated charges or handling fees
for chemicals and proppants that are consumed during the
fracturing process; and
|
|
|
|
prevailing market rates for coiled tubing, pressure pumping and
other related well stimulation services, together with
associated charges for stimulation fluids, nitrogen and coiled
tubing materials.
|
Hydraulic Fracturing. Approximately 80%
of our revenues for the three months ended March 31, 2011
were derived from hydraulic fracturing services. Our term
contracts generally range
20
from one year to three years. Under the term contacts, our
customers are obligated to pay us on a monthly basis for a
specified number of hours of service, whether or not those
services are actually utilized. To the extent customers utilize
more than the specified contract minimums, we will be paid a
pre-agreed amount for the provision of such additional services.
Our current term contracts restrict the ability of the customer
to terminate or require our customers to pay us a lump-sum early
termination fee, generally representing all or a significant
portion of the remaining economic value of the contracts to us.
Although our term contracts provide us some visibility on
anticipated future minimum asset utilization, our term contracts
do not provide us with sufficient certainty to present backlog
information on an ongoing basis. Unlike long-term contracts for
equipment or services at fixed prices or on a day rate or
turnkey basis, where future revenue or earnings can be reliably
forecasted based on the dollar amount of backlog believed to be
firm, future revenues generated from our term contracts are
subject to a number of variables that prevent us from providing
similar information with any degree of certainty. Under our term
contracts, we derive revenues from:
|
|
|
|
|
mandatory monthly payments for a specified minimum number of
hours of service per month;
|
|
|
|
pre-agreed amounts for each hour of service in excess of the
contracted minimum number of hours of service per month; and
|
|
|
|
pre-agreed service charges for chemicals and proppant materials
that are consumed during the fracturing process.
|
Given these variables, revenues from our term contracts vary
substantially from
customer-to-customer
and from
month-to-month
depending on the number of hours of services actually provided
and chemicals and proppant materials consumed. Generally, when
we exceed the number of hours of service included in our base
monthly rate, we consume more chemicals and proppants and
provide additional pumping and related services to complete the
project, each of which will significantly impact our revenues.
Mandatory monthly payments under our term contracts have
historically accounted for less than half of our total revenues.
Although we have entered into term contracts for each of our
hydraulic fracturing fleets, we also have the flexibility to
pursue spot market projects. Our term contracts allow us to
supplement monthly contract revenue by deploying equipment on
short-term spot market jobs on those days when the contract
customer does not require our services or is not entitled to our
services under the applicable term contract. We charge
prevailing market prices per hour for spot market work. We may
also charge fees for set up and mobilization of equipment
depending on the job. Generally, these fees and other charges
vary depending on the equipment and personnel required for the
job and market conditions in the region in which the services
are performed. We also source chemicals and proppants that are
consumed during the fracturing process and we charge our
customers a fee for materials consumed in the process, or we
charge our customers a handling fee for chemicals and proppants
supplied by the customer. Materials charges reflect the cost of
the materials plus a markup and are based on the actual quantity
of materials based on the actual quantity of materials used in
the fracturing process. We believe our ability to provide
services in the spot market allows us to take advantage of any
favorable pricing that may exist in this market and allows us to
develop new customer relationships.
Coiled Tubing and Pressure Pumping. Our
coiled tubing, pressure pumping and other related well
stimulation services are provided in the spot market at
prevailing prices per hour. We may also charge fees for set up
and mobilization of equipment depending on the job. The
set-up
charges and hourly rates are determined by a competitive bid
process and vary with the type of service to be performed, the
equipment and personnel required for the job and market
conditions in the region in which the service is performed. We
also charge customers for the materials, such as stimulation
fluids, nitrogen and coiled tubing materials, that we use in
each job. Materials charges reflect the cost of the materials
plus a markup and are based on the actual quantity of materials
used for the project.
21
How We Manage
Costs and Maintain Our Equipment
The principal expenses involved in conducting our business are
product and material costs, the costs of acquiring, maintaining
and repairing our equipment, labor expenses and fuel costs.
Additionally, we incur freight costs to deliver and stage our
hydraulic fracturing fleets to the worksite. We maintain and
repair all equipment we use in our operations. We purchase our
equipment, including engines, transmissions, radiators, motors
and pumps, from third-party vendors.
Depreciation costs represented approximately 4.0% of our
revenues for the year ended December 31, 2010 and 2.6% of
our revenues for the three months ended March 31, 2011.
Direct labor costs represented approximately 10.7% of our
revenues for the year ended December 31, 2010 and 9.4% of
our revenues for the three months ended March 31, 2011.
Other costs, including sand, chemical and freight costs,
represented approximately 34.7% of our revenues for the year
ended December 31, 2010 and 31.1% of our revenues for the
three months ended March 31, 2011. We also incur
significant fuel costs in connection with the operation of our
hydraulic fracturing fleets and the transportation of our
equipment and products.
How We Manage Our
Operations
Our management team uses a variety of tools to monitor and
manage our operations in the following four areas:
(1) asset utilization; (2) equipment maintenance
performance; (3) customer satisfaction; and (4) safety
performance.
Asset Utilization. We measure our
activity levels by the total number of jobs completed by each of
our hydraulic fracturing fleets and coiled tubing units on a
monthly basis. By consistently monitoring the activity level,
pricing and relative performance of each of our fleets and
units, we can more efficiently allocate our personnel and
equipment to maximize revenue generation. During the three
months ended March 31, 2011, we completed 69 fracturing
jobs and 633 fracturing stages, and we generated average revenue
per fracturing job of $1.5 million and average revenue per
fracturing stage of $165,717. Additionally, our hydraulic
fracturing fleets were nearly 100% utilized during the quarter,
based on available working days per month, which excludes
scheduled maintenance days. During the three months ended
March 31, 2011, we completed 638 coiled tubing jobs, and we
generated average revenue per job of $27,337.
Equipment Maintenance
Performance. Preventative maintenance on our
equipment is an important factor in our profitability. If our
equipment is not maintained properly, our repair costs may
increase and, during periods of high activity, our ability to
operate efficiently could be significantly diminished due to
having trucks and other equipment out of service. Our
maintenance crews perform regular inspections and preventative
maintenance on each of our trucks and other mechanical
equipment. Our management monitors the performance of our
maintenance crews at each of our service centers by reviewing
ongoing inspection and maintenance activity and monitoring the
level of maintenance expenses as a percentage of revenue. These
repair and maintenance costs represented approximately 6.3% of
our revenues for the year ended December 31, 2010 and 6.0%
of our revenues for the three months ended March 31, 2011.
A rising level of maintenance expenses as a percentage of
revenue at a particular service center can be an early
indication that our preventative maintenance schedule is not
being followed. In this situation, management can take
corrective measures to help reduce maintenance expenses as well
as ensure that maintenance issues do not interfere with
operations.
Customer Satisfaction. Upon completion
of each job, we encourage our customers to provide feedback on
their satisfaction level. Customers evaluate our performance
under various criteria and comment on their overall satisfaction
level. This feedback gives our management valuable information
from which to identify performance issues and trends. Our
management also uses this information to evaluate our position
relative to our competitors in the various markets in which we
operate.
22
Safety Performance. Maintaining a
strong safety record is a critical component of our operational
success. Many of our larger customers have safety standards we
must satisfy before we can perform services for them. We
maintain a safety database so that our customers can review our
historical safety record. Our management also uses this safety
database to identify negative trends in operational incidents so
that appropriate measures can be taken to maintain and enhance
our safety standards.
Our
Challenges
We face many challenges and risks in the industry in which we
operate. Although many factors contributing to these risks are
beyond our ability to control, we continuously monitor these
risks, and we have taken steps to mitigate them to the extent
practicable. In addition, we believe that we are well positioned
to capitalize on the current growth opportunities available in
the hydraulic fracturing market. However, we may be unable to
capitalize on our competitive strengths to achieve our business
objectives and, consequently, our results of operations may be
adversely affected. Please read Risk Factors
beginning on page 5 of this prospectus, for additional
information about the risks we face.
Equipment Supply. The overall number of
hydraulic fracturing equipment suppliers in the industry in
which we operate is limited, and there has historically been
high demand for such equipment. This limited capacity of supply
increases the risk of delay and failure to timely deliver both
our on-order equipment and any future equipment that may be
necessary in the growth of our business. We currently expect to
take delivery of two new hydraulic fracturing fleets during
2011, Fleet 5 in July 2011 and Fleet 6 in the fourth quarter of
2011. We expect to take delivery of another two hydraulic
fracturing fleets during 2012, Fleet 7 in the first half of 2012
and Fleet 8 in the second half of 2012. If the delivery of Fleet
5 is materially delayed, then we may be unable to commence
service under our term contract relating to this fleet, and, in
turn, the customer may terminate the contract without penalty.
To mitigate the risk of a potential delay in equipment delivery,
we actively monitor the progression of the production schedule
of our on-order equipment. Our recent acquisition of Total, a
significant supplier of our new order hydraulic fracturing
equipment, has provided us with added monitoring capabilities
and control over access to, and delivery of, fracturing
equipment.
Hydraulic Fracturing
Legislation. Legislation has been introduced
before Congress in the last few sessions to provide for federal
regulation of hydraulic fracturing and to require disclosure of
the chemicals used in the fracturing process. Although the
federal legislation did not pass, if similar federal legislation
is introduced and becomes law in the future, the legislation
could establish an additional level of regulation that could
lead to operational delays or increased operating costs. In
addition, various state and local governments have implemented,
or are considering, increased regulatory oversight of hydraulic
fracturing and the Texas has adopted legislation that requires
disclosure of information regarding the substances used in the
hydraulic fracturing process to the Railroad Commission of Texas
and the public.
The adoption of new laws or regulations imposing reporting
obligations on, or otherwise limiting, the hydraulic fracturing
process could make it more difficult to complete oil and natural
gas wells in shale formations, increase our costs of compliance,
and adversely affect the hydraulic fracturing services that we
render for our exploration and production customers. In
addition, if hydraulic fracturing becomes regulated at the
federal level as a result of federal legislation or regulatory
initiatives by the EPA, fracturing activities could become
subject to additional permitting requirements, and also to
attendant permitting delays and potential increases in cost,
which could adversely affect our business and results of
operations.
Financing Future Growth. Historically,
we have funded our growth through bank debt, capital
contributions from our Sponsors and cash generated from our
business. The successful execution of our growth strategy
depends on our ability to raise capital as needed to, among
other things, finance the purchase of additional hydraulic
fracturing fleets. If we are unable to generate sufficient cash
flows or to obtain additional capital on favorable terms or at
all, we may be unable to sustain or increase
23
our current level of growth in the future. However, we believe
we are well positioned to finance our future growth. On
April 19, 2011, we entered into a new five-year
$200.0 million senior secured revolving credit facility,
which increased the amount of funds we are permitted to borrow
by $48.3 million and increased the amount of borrowings we
can incur in a given fiscal year for capital expenditures by
$60.0 million. We intend to repay in full all amounts
outstanding under our credit facility with the proceeds of this
offering. In addition, our cash flows from operations have
continued to increase dramatically, with cash flows from
operations during the three months ended March 31, 2011
increasing by $16.6 million from the same period in 2010.
After giving effect to this offering, we believe that our cash
flows from operations and available borrowings under our credit
agreement will be sufficient to allow us to sustain or increase
our current growth through at least 2012.
Outlook
Demand for hydraulic fracturing services has increased
significantly over the last two years in the markets in which we
operate and we have made substantial investments in the
acquisition of additional fracturing fleets in order to
capitalize on the market opportunity, which has led to
significant growth in our business. We believe the following
trends impacting our industry have increased the demand for our
services and will continue to support the sustained growth that
we have experienced to date:
|
|
|
|
|
increased drilling in unconventional resource basins,
particularly liquids-rich formations, through the application of
horizontal drilling and completion technologies;
|
|
|
|
|
|
improved drilling efficiencies increasing the number of
horizontal feet per day requiring completion services;
|
|
|
|
|
|
an increase in hydraulic fracturing intensity, particularly with
increasingly longer laterals and a greater number of fracturing
stages, in more demanding and technically complex
formations; and
|
|
|
|
|
|
tight supply of hydraulic fracturing equipment resulting from
increased attrition of existing equipment and supply chain
constraints.
|
Results of
Operations
Our results of operations are driven primarily by four
interrelated variables: (1) drilling and stimulation
activities of our customers; (2) the prices we charge for
our services; (3) cost of products, materials and labor;
and (4) our service performance. Because we typically pass
the cost of raw materials such as proppants, sand and chemicals
onto our customers in our term contracts, our profitability is
not materially impacted by changes in the costs of such
materials. To a large extent, the pricing environment for our
services will dictate our level of profitability. To mitigate
the volatility in utilization and pricing for the services we
offer, we have entered into term contracts covering each of our
four existing fleets and one of our two on-order hydraulic
fracturing fleets.
In the near term, we expect that our revenues and results of
operations will be positively impacted by: (i) the addition
and deployment of Fleet 2 in July 2010; (ii) the addition
and deployment of Fleet 3 in January 2011; (iii) the
addition and deployment of Fleet 4 in April 2011 and
(iv) the scheduled delivery and deployment of Fleet 5 in
July 2011. We also expect to take delivery and deploy Fleets 6,
7 and 8 in the fourth quarter of 2011, the first half of 2012
and the second half of 2012, respectively. Each of our fleets
is, or is expected to be, deployed under a term contract. We
expect that our results of operations in 2011 compared to 2010
will be significantly impacted by the dramatic growth of our
asset base over the last twelve months.
24
Results for
the Three Months Ended March 31, 2011 Compared to the Three
Months Ended March 31, 2010
The following table summarizes the dollar changes for our
results of operations for the three months ended March 31,
2011 when compared to the three months ended March 31, 2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
|
(unaudited)
|
|
|
|
|
|
Revenue
|
|
$
|
127,204
|
|
|
$
|
32,636
|
|
|
$
|
94,568
|
|
Cost of sales
|
|
|
70,048
|
|
|
|
23,176
|
|
|
|
46,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
57,156
|
|
|
|
9,460
|
|
|
|
47,696
|
|
Selling, general and administrative expenses
|
|
|
8,825
|
|
|
|
2,867
|
|
|
|
5,958
|
|
Loss on sale/disposal of assets
|
|
|
(90
|
)
|
|
|
(16
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
48,421
|
|
|
|
6,609
|
|
|
|
41,812
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Interest expense
|
|
|
(1,959
|
)
|
|
|
(2,998
|
)
|
|
|
1,039
|
|
Lender fees
|
|
|
(25
|
)
|
|
|
(53
|
)
|
|
|
28
|
|
Other income
|
|
|
13
|
|
|
|
102
|
|
|
|
(89
|
)
|
Other expense
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(1,970
|
)
|
|
|
(2,950
|
)
|
|
|
980
|
|
Income (loss) before income taxes
|
|
|
46,451
|
|
|
|
3,659
|
|
|
|
42,792
|
|
Provision (benefit) for income taxes
|
|
|
17,366
|
|
|
|
1,416
|
|
|
|
15,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
29,085
|
|
|
$
|
2,243
|
|
|
$
|
26,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Revenue increased $94.6 million, or 290%, to
$127.2 million for the three months ended March 31,
2011 compared to $32.6 million for the same period in 2010.
This increase was primarily due to the deployment of additional
hydraulic fracturing equipment. Fleet 2, which was deployed
in the third quarter of 2010, contributed $29.3 million of
revenue in the first quarter of 2011 and Fleet 3, which was
deployed early in the first quarter of 2011, contributed
$28.1 million of revenue in the first quarter of 2011. In
addition, we experienced increased utilization of our equipment
across all service lines as well as improved pricing for our
services. We continued to benefit from increased horizontal
drilling and completion related activity in unconventional
resource plays, which enabled us to obtain higher revenues for
our hydraulic fracturing services due to the complexity of the
work performed in these areas.
Cost of
Sales
Cost of sales increased $46.9 million, or 202%, to
$70.0 million for the three months ended March 31,
2011 compared to $23.2 million for the same period in 2010.
As a percentage of revenue, cost of sales decreased to 55% for
the three months ended March 31, 2011 from 71% for the same
period in 2010 due primarily to the significant increase in
revenue in the first quarter of 2011 compared to the same period
in the prior year.
Selling, General
and Administrative Expenses (SG&A)
SG&A increased $6.0 million, or 208%, to
$8.8 million for the three months ended March 31, 2011
compared to $2.9 million for the same period in 2010. The
increase primarily relates to $2.6 million in higher
long-term and short-term incentive costs and $1.8 million
in higher payroll and related personnel costs associated with
the continued hiring of personnel to support our growth. We
25
also incurred $0.6 million in additional costs associated
with our marketing and promotional efforts and $0.2 million
in increased professional fees.
Interest
Expense
Interest expense decreased by $1.0 million, or 35%, to
$2.0 million for the three months ended March 31, 2011
compared to $3.0 million for the same period in 2010. This
decrease was due primarily to charges of $1.5 million
incurred in the first quarter of 2010 in connection with the
change in fair value of our warrant liability. The warrants were
exercised in December 2010. Partially offsetting the decrease
was higher interest expense of approximately $0.2 million
related to higher average outstanding debt balances and
$0.2 million of increased amortization of deferred
financing costs during the first quarter of 2011 as compared to
the same period in 2010.
Income
Taxes
We recorded a tax provision of $17.4 million for the three
months ended March 31, 2011, at an effective rate of 37.4%,
compared to a tax provision of $1.4 million for the three
months ended March 31, 2010, at an effective rate of 38.7%.
Results for
the Year Ended December 31, 2010 Compared to the Year Ended
December 31, 2009
The following table summarizes the dollar changes for our
results of operations for the year ended December 31, 2010
when compared to the year ended December 31, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
Revenue
|
|
$
|
244,157
|
|
|
$
|
67,030
|
|
|
$
|
177,127
|
|
Cost of sales
|
|
|
154,297
|
|
|
|
54,242
|
|
|
|
100,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
89,860
|
|
|
|
12,788
|
|
|
|
77,072
|
|
Selling, general and administrative expenses
|
|
|
17,998
|
|
|
|
9,533
|
|
|
|
8,465
|
|
Loss on sale/disposal of assets
|
|
|
1,571
|
|
|
|
920
|
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
70,291
|
|
|
|
2,335
|
|
|
|
67,956
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9
|
|
|
|
4
|
|
|
|
5
|
|
Interest expense
|
|
|
(17,350
|
)
|
|
|
(4,712
|
)
|
|
|
(12,638
|
)
|
Lender fees
|
|
|
(322
|
)
|
|
|
(391
|
)
|
|
|
69
|
|
Other income
|
|
|
163
|
|
|
|
|
|
|
|
163
|
|
Other expense
|
|
|
(150
|
)
|
|
|
(52
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(17,650
|
)
|
|
|
(5,151
|
)
|
|
|
(12,499
|
)
|
Income (loss) before income taxes
|
|
|
52,641
|
|
|
|
(2,816
|
)
|
|
|
55,457
|
|
Provision (benefit) for income taxes
|
|
|
20,369
|
|
|
|
(386
|
)
|
|
|
20,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
32,272
|
|
|
$
|
(2,430
|
)
|
|
$
|
34,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Revenue increased $177.1 million, or 264%, to
$244.2 million for the year ended December 31, 2010
compared to $67.0 million for the same period in 2009. This
increase was due primarily to increased utilization of our
hydraulic fracturing and coiled tubing equipment and, to a
lesser extent, improved pricing for our services and the
deployment of Fleet 2 in the third quarter of 2010, which
contributed $67.6 million of revenue during the year. We
continued to benefit from increased horizontal drilling and
completion related activity in unconventional resource plays,
which enabled us
26
to obtain higher revenues for our hydraulic fracturing services
due to the complexity of the work performed in these areas.
Cost of
Sales
Cost of sales increased $100.1 million, or 184%, to
$154.3 million for the year ended December 31, 2010
compared to $54.2 million for the same period in 2009. As a
percentage of revenue, cost of sales decreased to 63% for the
year ended December 31, 2010 from 81% for the same period
in 2009 due primarily to the significant increase in our
revenues from 2009 to 2010.
Selling, General
and Administrative Expenses (SG&A)
SG&A increased $8.5 million, or 89%, to
$18.0 million for the year ended December 31, 2010
compared to $9.5 million for the same period in 2009. The
increase primarily relates to $4.0 million in higher
long-term and short-term incentive costs and $2.3 million
in higher payroll and related personnel costs associated with
the continued hiring of personnel to support our growth. We also
incurred $0.7 million in additional costs associated with
our marketing and promotional efforts and $0.5 million in
increased professional fees.
Interest
Expense
Interest expense increased by $12.6 million, or 268%, to
$17.4 million for the year ended December 31, 2010
compared to $4.7 million for the same period in 2009. This
increase was due primarily to $10.1 million in increased
charges incurred in 2010 in connection with the change in fair
value of our warrant liability during the year. Also
contributing to the increase in interest expense was
approximately $2.2 million related to higher average
interest rates during 2010 as compared to 2009.
Income
Taxes
We recorded a tax provision of $20.4 million for the year
ended December 31, 2010, at an effective rate of 38.7%,
compared to a benefit of $386,000 for the year ended
December 31, 2009, at an effective rate of 13.7%. For the
year ended December 31, 2009, we incurred intangible
amortization expense for book purposes that was non-deductible
for federal income tax purposes, giving way to a lower effective
benefit rate during the year.
27
Results for
the Year Ended December 31, 2009 Compared to the Year Ended
December 31, 2008
The following table summarizes the dollar changes for our
results of operations for the year ended December 31, 2009
when compared to the year ended December 31, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
Revenue
|
|
$
|
67,030
|
|
|
$
|
62,441
|
|
|
$
|
4,589
|
|
Cost of sales
|
|
|
54,242
|
|
|
|
42,401
|
|
|
|
11,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
12,788
|
|
|
|
20,040
|
|
|
|
(7,252
|
)
|
Selling, general and administrative expenses
|
|
|
9,533
|
|
|
|
8,950
|
|
|
|
583
|
|
Loss on sale/disposal of assets
|
|
|
920
|
|
|
|
397
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,335
|
|
|
|
10,693
|
|
|
|
(8,358
|
)
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4
|
|
|
|
5
|
|
|
|
(1
|
)
|
Interest expense
|
|
|
(4,712
|
)
|
|
|
(6,913
|
)
|
|
|
2,201
|
|
Lender fees
|
|
|
(391
|
)
|
|
|
(511
|
)
|
|
|
120
|
|
Other (expense) income
|
|
|
(52
|
)
|
|
|
(68
|
)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(5,151
|
)
|
|
|
(7,487
|
)
|
|
|
2,336
|
|
Net (loss) income before (benefit) provision for income taxes
|
|
|
(2,816
|
)
|
|
|
3,206
|
|
|
|
(6,022
|
)
|
(Benefit) provision for income taxes
|
|
|
(386
|
)
|
|
|
2,085
|
|
|
|
(2,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(2,430
|
)
|
|
$
|
1,121
|
|
|
$
|
(3,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Revenue increased $4.6 million, or 7%, to
$67.0 million for the year ended December 31, 2009
compared to $62.4 million for the same period in 2008. This
increase was primarily due to a full year of operation of our
hydraulic fracturing services and East Texas operations, which
began in late 2007 and gradually ramped up throughout 2008.
Partially offsetting this increase, however, were decreases in
revenue from our coiled tubing and pressure pumping services,
which were negatively impacted in 2009 due to a significant
decline in investment by our customers in oil and gas
exploration and development activities. Towards the end of 2009,
we began experiencing increases in revenue across all service
lines, as drilling and completion activity began to rise with
higher commodity prices and growing interest in the Eagle Ford
Shale resource play.
Cost of
Sales
Cost of sales increased $11.8 million, or 28%, to
$54.2 million for the year ended December 31, 2009,
compared to $42.4 million for the same period in 2008. As a
percentage of revenue, cost of sales increased to 81%for the
year ended December 31, 2009 from 68% for the same period
in 2008. The overall decline in the oil and gas industry, which
began in late 2008 and continued throughout most of 2009,
resulted in lower utilization of our equipment and services and,
to a lesser extent, pricing pressure from our competitors.
Selling, General
and Administrative Expenses (SG&A)
SG&A increased $0.6 million, or 7%, to
$9.5 million for the year ended December 31, 2009
compared to $8.9 million for the same period in 2008. The
increase primarily relates to $0.9 million in higher costs
incurred for professional fees, property taxes and
office-related costs, $0.4 million in higher payroll and
related personnel costs, and $0.2 million in increased
costs for other SG&A-related expenses. Partially offsetting
the increase were lower costs of $0.9 million due to the
elimination of our short-term incentive program for 2009.
28
Interest
Expense
Interest expense decreased by $2.2 million, or 32%, to
$4.7 million for the year ended December 31, 2009
compared to $6.9 million for the same period in 2008. A
lower average effective interest rate during 2009 contributed
approximately $1.9 million to the decrease and lower
average outstanding debt balances contributed approximately
$0.4 million to the decrease. An increase in interest
expense of $0.3 million related to the initial valuation of
our warrant liability partially offset the overall decrease in
interest expense in 2009 compared to 2008.
Income
Taxes
We recorded a tax benefit of $386,000 for the year ended
December 31, 2009 at an effective rate of 13.7%, compared
to a tax provision of $2.1 million at an effective rate of
65%, for the year ended December 31, 2008. The primary
cause for the disparity in effective rates year over year was
amortization expense on our intangible assets that is
non-deductible for federal income tax purposes, and, to a lesser
extent, permanent
book-to-tax
differences generated in 2008 in connection with real estate
lease incentives.
Liquidity and
Capital Resources
Our primary sources of liquidity to date have been capital
contributions and borrowings from stockholders, borrowings under
our credit facilities and cash flows from operations. Our
primary use of capital has been the acquisition and maintenance
of equipment. During 2009, we spent significantly less on
capital expenditures than we had in previous years. Our capital
expenditures increased in 2010 and we anticipate capital
expenditures will continue to increase in 2011. We have ordered
four new hydraulic fracturing fleets, Fleets 5, 6, 7 and 8,
which are scheduled for delivery in July 2011, the fourth
quarter of 2011, the first half of 2012 and the second half of
2012, respectively. Fleet 5 has an aggregate cost of
approximately $22.4 million, of which approximately
$4.1 million has been funded. Fleet 6 has an aggregate cost
of approximately $23.8 million, of which approximately
$1.0 million has been funded. Fleet 7 has an aggregate cost
of approximately $24.7 million, of which approximately $1.0
million has been funded. Fleet 8 has an aggregate cost of
approximately $24.7 million, of which approximately $0.4
million has been funded. We intend to fund the remaining costs
of Fleet 5 with proceeds from our initial public offering and
borrowings under our credit facility and we intend to fund
Fleets 6, 7 and 8 through a combination of cash flows from
operations and borrowings under our credit facility.
On April 19, 2011, we entered into a five-year
$200.0 million revolving credit facility, which we refer to
in this prospectus as the credit facility. As of June 28,
2011, approximately $110.0 million was drawn under the
credit facility. Proceeds from the closing of the credit
facility were used to repay $49.6 million of indebtedness
outstanding under our previous revolving credit facility and
$29.9 million of indebtedness, accrued interest and early
termination penalties under our subordinated term loan.
We continually monitor potential capital sources, including
equity and debt financings, in order to meet our planned capital
expenditures and liquidity requirements. Our ability to fund
operating cash flow shortfalls, if any, and to fund planned 2011
and 2012 capital expenditures will depend upon our future
operating performance, and more broadly, on the availability of
equity and debt financing, which will be affected by prevailing
economic conditions in our industry and financial, business and
other factors, some of which are beyond our control. Based on
our existing operating performance, we believe our cash flows
and existing capital as well as borrowings available under our
credit facility are adequate to meet operational and capital
expenditure needs for the next 12 months.
Our credit facility contains covenants that require us to
maintain an interest coverage ratio, to maintain a leverage
ratio and to satisfy certain other conditions. These covenants
are subject to a number of exceptions and qualifications set
forth in the credit agreement that evidences such credit
facility. Please read Description of Our
Indebtedness beginning on page 32 of this prospectus.
In addition, our credit facility contains covenants that limit
our ability to make capital expenditures in
29
excess of $100.0 million in any fiscal year, provided that
up to $50.0 million of such amount in any fiscal year may
be rolled over to the subsequent fiscal year, and up to
$50.0 million of such amount may also be pulled forward
from the subsequent fiscal year, and the capital expenditure
restrictions do not apply to capital expenditures financed with
proceeds from the issuance of common equity interests or to
maintenance capital expenditures. The credit facility also
restricts our ability to incur additional debt or sell assets,
make certain investments, loans and acquisitions, guarantee
debt, grant liens, enter into transactions with affiliates,
engage in other lines of business and pay dividends and
distributions.
Capital
Requirements
The energy services business is capital-intensive, requiring
significant investment to expand, upgrade and maintain
equipment. Our capital requirements have consisted primarily of,
and we anticipate will continue to be:
|
|
|
|
|
growth capital expenditures, such as those to acquire additional
equipment and other assets or upgrade existing equipment to grow
our business; and
|
|
|
|
maintenance capital expenditures, which are capital expenditures
made to extend the useful life of partially or fully depreciated
assets.
|
We continually monitor new advances in hydraulic fracturing
equipment and down-hole technology, as well as technologies that
may complement our existing businesses, and commit capital funds
to upgrade and purchase additional equipment to meet our
customers needs. During 2010, we spent $44.5 million
on capital expenditures. Assuming the timely delivery of Fleet 5
and Fleet 6, we expect our total 2011 capital expenditure budget
to be approximately $107.0 million, of which
$29.8 million has been spent as of March 31, 2011.
Historically, we have grown through organic expansion. We plan
to continue to monitor the economic environment and demand for
our services and adjust our business as necessary.
Financial
Condition and Cash Flows
The following table sets forth historical cash flows information
for each of the years ended December 31, 2010, 2009 and
2008 and for the three months ended March 31, 2011 and 2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Years Ended December 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
44,723
|
|
|
$
|
12,056
|
|
|
$
|
8,611
|
|
|
$
|
19,716
|
|
|
$
|
3,086
|
|
Investing activities
|
|
|
(43,818
|
)
|
|
|
(4,254
|
)
|
|
|
(20,673
|
)
|
|
|
(27,442
|
)
|
|
|
(2,490
|
)
|
Financing activities
|
|
|
734
|
|
|
|
(6,733
|
)
|
|
|
11,921
|
|
|
|
6,965
|
|
|
|
(1,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
$
|
1,639
|
|
|
$
|
1,069
|
|
|
$
|
(141
|
)
|
|
$
|
(761
|
)
|
|
$
|
(1,044
|
)
|
Cash Provided by
Operating Activities
Net cash provided by operating activities increased
$16.6 million for the three months ended March 31,
2011 compared to the same period in 2010. This increase was
primarily due to higher net income and deferred tax expense,
partially offset by a decrease related to working capital
changes. The significant changes in working capital related to
accounts receivable and accounts payable which were higher due
to the increase in activity levels. Net cash provided by
operating activities increased $32.7 million for the year
ended December 31, 2010 compared to the year ended
December 31,
30
2009, and increased $3.4 million for the year ended
December 31, 2009 compared to the year ended
December 31, 2008. The increase in operating cash flows for
the year ended December 31, 2010 compared to the year ended
December 31, 2009 was primarily due to an increase in net
income of $34.7 million. The significant changes in working
capital requirements in both periods primarily related to
accounts receivable, corresponding to changes in revenues. The
increase in operating cash flows for the year ended
December 31, 2009 compared to the year ended
December 31, 2008 was primarily due to working capital
improvements, offset by lower profitability.
Cash Flows Used
in Investing Activities
Net cash used in investing activities increased
$25.0 million for the three months ended March 31,
2011 compared to the same period in 2010. This increase was due
to higher capital expenditures related to the growth of our
hydraulic fracturing services. A substantial amount of the cost
for Fleet 4 was incurred during the first quarter of 2011.
Partially offsetting the increase were proceeds received from
disposals of equipment during the first quarter of 2011. Net
cash used in investing activities increased $39.6 million
for the year ended December 31, 2010 compared to the year
ended December 31, 2009, and decreased $16.4 million
for the year ended December 31, 2009 compared to the year
ended December 31, 2008. The increase in cash used for
investing activities for the year ended December 31, 2010
to the year ended December 31, 2009 was due to higher
capital expenditures related to the growth of our hydraulic
fracturing services. The decrease in cash used for investing
activities for the year ended December 31, 2009 to the year
ended December 31, 2008 was due to a reduction in the funds
used for capital equipment, which was $4.3 million for the
year ended December 31, 2009 compared to $21.5 million
for the year ended December 31, 2008. Our overall capital
expenditures plan in 2009 was decreased due to the decline in
commodity prices and the resultant decline in activity levels.
Cash Flows
Provided by (Used in) Financing Activities
Net cash provided by financing activities was $7.0 million
for the three months ended March 31, 2011 compared to net
cash used in financing activities of $1.6 million for the
same period in 2010. The increase was primarily due to net
borrowings under our credit facility during the first quarter of
2011 to fund working capital requirements and capital
expenditures. Net cash provided by financing activities was
$0.7 million for the year ended December 31, 2010
compared to net cash used in financing activities of
$6.7 million for the year ended December 31, 2009 and
net cash provided by financing activities of $11.9 million
for the year ended December 31, 2008. The increase in cash
provided by financing activities for the year ended
December 31, 2010 compared to the prior year was largely
due to the increased borrowings under our credit facility during
2010, primarily to fund working capital requirements and capital
expenditures, partially offset by debt repayments in the first
half of 2010 to our previous lenders. During the year ended
December 31, 2009, we repaid long-term borrowings under our
debt facilities totaling $8.7 million and raised
$2.0 million in borrowings from our Sponsors and
management. The sources of cash for financing activities for the
year ended December 31, 2008 were $11.9 million of net
borrowings under our debt facilities. Borrowings were used to
fund capital expenditures and for general corporate purposes.
31
Contractual
Obligations
The following table summarizes our contractual cash obligations
as of December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual Cash
Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Credit facility(1)(4)
|
|
$
|
49,408
|
|
|
$
|
28,946
|
|
|
$
|
20,462
|
|
|
$
|
|
|
|
$
|
|
|
Subordinated term loan(2)(4)
|
|
|
36,958
|
|
|
|
3,500
|
|
|
|
7,000
|
|
|
|
26,458
|
|
|
|
|
|
Operating leases
|
|
|
19,750
|
|
|
|
4,722
|
|
|
|
10,387
|
|
|
|
3,994
|
|
|
|
647
|
|
Hydraulic fracturing fleet purchase obligations(3)
|
|
|
48,763
|
|
|
|
48,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equipment purchase obligations
|
|
|
2,273
|
|
|
|
2,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
157,152
|
|
|
$
|
88,204
|
|
|
$
|
37,849
|
|
|
$
|
30,452
|
|
|
$
|
647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes estimated interest under the credit facility, assuming
an interest rate of 5.0%. |
|
(2) |
|
Includes estimated interest under the subordinated term loan,
assuming an interest rate of 14.0%. |
|
(3) |
|
Includes the remaining purchase obligations associated with
Fleet 3, Fleet 4 and Fleet 5 as of December 31,
2010. |
|
|
|
(4) |
|
On April 19, 2011, we entered into a new five-year
$200.0 million senior secured revolving credit agreement
maturing on April 19, 2016. As of June 28, 2011,
approximately $110.0 million was drawn under the new
facility, bearing interest at 2.9%. Our existing senior credit
facility and subordinated term loan were terminated and all
amounts outstanding, including accrued and unpaid interest and
early termination penalties, were paid in full. Please read
Description of Our Indebtedness below
for further discussion. |
For additional discussion related to our short and long-term
obligations, please read Note 2 to the unaudited
consolidated financial statements for the three months ended
March 31, 2011 included elsewhere in this prospectus.
Off-Balance Sheet
Arrangements
We had no off-balance sheet arrangements as of March 31,
2011.
Description of
Our Indebtedness
The following is a summary description of our outstanding
indebtedness. This summary is not a description of all of the
terms of such indebtedness and is qualified in its entirety by
reference to our credit facility, which has been filed as an
exhibit to the registration statement of which this prospectus
forms a part.
Senior Secured Credit Agreement. On
April 19, 2011, we entered into a new five-year
$200.0 million senior secured revolving credit agreement
with Bank of America, N.A., as administrative agent, swing line
lender and L/C issuer, Comerica Bank, as L/C issuer and
syndication agent, Wells Fargo Bank, National Association, as
documentation agent, and various lenders. Our obligations under
our credit facility are guaranteed by our subsidiaries Spec-Rent
and Total. Our credit facility enables us to borrow funds on a
revolving basis for working capital needs and also provides for
the issuance of letters of credit. In addition, we may request
additional commitments up to $75.0 million through an
incremental facility upon the satisfaction of certain
conditions. As of June 28, 2011, approximately
$110.0 million was drawn under our credit facility, leaving
approximately $90.0 million available for borrowing as of
that date. Up to the entire credit facility amount may be drawn
as letters of credit, and the credit facility has a sublimit of
$15.0 million for swing line loans.
32
Loans under our credit facility are denominated in
U.S. dollars and will mature on April 19, 2016.
Outstanding loans bear interest at either LIBOR or a base rate,
at our election, plus an applicable margin which, prior to our
delivery of a compliance certificate for the quarter ending
June 30, 2011, is equal to 1.50% for base rate loans and
2.50% for LIBOR loans, and thereafter, the applicable base rate
will range from 1.25% to 2.00% and the applicable LIBOR rate
will range from 2.25% to 3.00% based upon our Leverage Ratio.
The Leverage Ratio is the ratio of funded indebtedness to EBITDA
for us and our subsidiaries on a consolidated basis. As of
June 28, 2011, the interest rate under our credit facility
was 2.9%.
All obligations under our credit facility are secured, subject
to agreed upon exceptions, by a first priority perfected
security position on all real and personal property of us and
our subsidiaries, as guarantors.
Voluntary prepayments are permitted under the terms of our
credit facility at any time without penalty or premium.
Our credit facility provides for payment of certain fees and
expenses, including (i) a fee on the revolving loan
commitments which varies depending on our Leverage Ratio,
(ii) a letter of credit fee on the stated amount of issued
and undrawn letters of credit and a fronting fee to the issuing
lender, and (iii) other customary fees, including an agency
fee.
Our credit facility contains customary affirmative covenants
including financial reporting, governance and notification
requirements. In addition, our credit facility contains, among
other things, restrictions on our and our guarantors
ability to consolidate or merge with other companies, conduct
asset sales, incur additional indebtedness, grant liens, issue
guarantees, make investments, loans or advances, pay dividends,
enter into certain transactions with affiliates and to make
capital expenditures in excess of $100.0 million in any
fiscal year, provided that up to $50.0 million of such
amount in any fiscal year may be rolled over to the subsequent
fiscal year and up to $50.0 million of such amount may also
be pulled forward from the subsequent fiscal year, and the
capital expenditure restrictions do not apply to, among other
things, capital expenditures financed solely with proceeds from
the issuance of common equity interests or to normal replacement
and maintenance capital expenditures.
Our credit facility requires us to maintain, measured on a
consolidated basis, (i) an Interest Coverage
Ratio of not less than 3.00 to 1.00 and (ii) a
Leverage Ratio of not greater than 3.00 to 1.00
prior to our initial public offering and not greater than 3.25
to 1.00 after our initial public offering, in each case as such
terms are defined in our credit facility.
Our credit facility provides that, upon the occurrence of events
of default, our obligations thereunder may be accelerated and
the lending commitments terminated. Such events of default
include, among other things, payment defaults to lenders,
failure to meet covenants, material inaccuracies of
representations or warranties, cross defaults to other
indebtedness, insolvency, bankruptcy, ERISA and judgment
defaults, and change in control, which includes (i) a
change in control under certain unsecured indebtedness issued by
us or our subsidiaries, (ii) a person or group other than
certain permitted holders becoming the beneficial owner of 35%
or more of our voting securities, or (iii) our board of
directors being comprised for a period of 18 consecutive
months of individuals who were neither members at the beginning
of such period nor approved by individuals who were members at
the beginning of such period.
Each loan and issuance of a letter of credit under the credit
facility is subject to the conditions that the representations
and warranties in the loan documents remain true and correct in
all material respect and no default or event of default shall
have occurred or be continuing at the time of or immediately
after such borrowing or extension of a letter of credit.
Inflation
Inflation in the United States has been relatively low in recent
years and did not have a material impact on our results of
operations for the years ended December 31, 2010, 2009 and
2008. Although
33
the impact of inflation has been insignificant in recent years,
it is still a factor in the U.S. economy and we tend to
experience inflationary pressure on the cost of energy services
and equipment as increasing oil and natural gas prices increase
activity in our areas of operations.
Quantitative and
Qualitative Disclosures About Market Risks
Market risk is the risk of loss arising from adverse changes in
market rates and prices. The principal market risk to which we
are exposed is the risk related to interest rate fluctuations.
To a lesser extent, we are also exposed to risks related to
increases in the prices of fuel and raw materials consumed in
performing our services. We do not engage in commodity price
hedging activities.
Interest Rate Risk. We are exposed to
changes in interest rates as a result of our floating rate
borrowings under our credit facility, which has variable
interest rates. The impact of a 1% increase in interest rates on
our outstanding debt as of December 31, 2010, 2009 and 2008
and March 31, 2011 would have resulted in an increase in
interest expense and a corresponding decrease in net income of
approximately $0.7 million, $0.7 million,
$0.7 million and $0.2 million, respectively.
Concentration of Credit
Risk. Substantially all of our customers are
engaged in the oil and gas industry. This concentration of
customers may impact overall exposure to credit risk, either
positively or negatively, in that customers may be similarly
affected by changes in economic and industry conditions. Our top
ten customers accounted for approximately 97.2% of our revenues
for the three months ended March 31, 2011. Our top ten
customers accounted for approximately 90.2%, 90.6% and 79.9% of
our revenues for the years ended December 31, 2010, 2009
and 2008, respectively. During the three months ended
March 31, 2011, sales to Anadarko Petroleum, EOG Resources,
Plains Exploration and Penn Virginia represented 27.7%, 23.8%,
15.6% and 14.3%, respectively, of our total sales. In 2010,
sales to EOG Resources, Penn Virginia, Anadarko Petroleum and
Apache represented 32.5%, 17.9%, 16.4% and 9.7%, respectively,
of our total sales. In 2009, sales to Penn Virginia, Anadarko
Petroleum and EnCana represented 25.9%, 11.7% and 11.0%,
respectively, of our total sales. In 2008, sales to Penn
Virginia, El Paso Production Oil & Gas and EOG
Resources represented 24.0%, 14.4% and 10.1%, respectively, of
our total sales.
Commodity Price Risk. Our fuel and
material purchases expose us to commodity price risk. Our
material costs primarily include the cost of inventory consumed
while performing our stimulation services such as fracturing
sand, fracturing chemicals, coiled tubing and fluid supplies.
Our fuel costs consist primarily of diesel fuel used by our
various trucks and other motorized equipment. The prices for
fuel and the raw materials in our inventory are volatile and are
impacted by changes in supply and demand, as well as market
uncertainty and regional shortages. Historically, we were
generally able to pass along price increases to our customers;
however, we may be unable to do so in the future.
Critical
Accounting Policies
The selection and application of accounting policies is an
important process that has developed as our business activities
have evolved and as the accounting standards have developed.
Accounting standards generally do not involve a selection among
alternatives, but involve the implementation and interpretation
of existing standards, and the use of judgment applied to the
specific set of circumstances existing in our business. We make
every effort to properly comply with all applicable standards on
or before their adoption, and we believe the proper
implementation and consistent application of the accounting
standards are critical.
Our discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the U.S. The
preparation of these consolidated financial statements requires
us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, expenses and related
disclosures. We base our estimates and assumptions on historical
experience and on various other factors that we believe to be
reasonable under the circumstances. We evaluate our estimates
and assumptions on an ongoing basis. The results of our analysis
form the basis for
34
making assumptions about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Our actual results may differ from these estimates under
different assumptions or conditions.
We believe the following critical accounting policies involve
significant areas of managements judgments and estimates
in the preparation of our consolidated financial statements.
Property, Plant and
Equipment. Property, plant and equipment is
recorded at cost less accumulated depreciation. Certain
equipment held under capital leases are classified as equipment
and the related obligations are recorded as liabilities.
Maintenance and repairs, which do not improve or extend the life
of the related assets, are charged to operations when incurred.
Refurbishments and renewals are capitalized when the value of
the equipment is enhanced for an extended period. When property
and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation account are
relieved, and any gain or loss is included in operating income.
The cost of property and equipment currently in service is
depreciated over the estimated useful lives of the related
assets, which range from five to twenty-five years. Depreciation
is computed on a straight-line basis for financial reporting
purposes. Capital leases are amortized using the straight-line
method over the estimated useful lives of the assets and lease
amortization is included in depreciation expense. Depreciation
expense charged to operations was $3.3 million for the
three months ended March 31, 2011. Depreciation expense
charged to operations was $9.7 million, $8.8 million
and $7.6 million for the years ended December 31,
2010, 2009 and 2008, respectively.
Goodwill, Intangible Assets and
Amortization. Goodwill and other intangible
assets with infinite lives are not amortized, but tested for
impairment annually or more frequently if circumstances indicate
that impairment may exist. Intangible assets with finite useful
lives are amortized either on a straight-line basis over the
assets estimated useful life or on a basis that reflects
the pattern in which the economic benefits of the intangible
assets are realized. The impairment test requires the allocation
of goodwill and all other assets and liabilities to reporting
units. We have one reporting unit and perform impairment tests
on the carrying value of goodwill at least annually. Our annual
impairment tests involve the use of different valuation
techniques, including a combination of the income and market
approach, to determine the fair value of the reporting unit.
Determining the fair value of a reporting unit is a matter of
judgment and often involves the use of significant estimates and
assumptions. If the fair value of the reporting unit is less
than its carrying value, an impairment loss is recorded to the
extent that the implied fair value of the reporting units
goodwill is less than its carrying value. For the three months
ended March 31, 2011, and the years ended December 31,
2010, 2009 and 2008, no impairment write-down was deemed
necessary. Significant and unanticipated changes to these
assumptions could require an additional provision for impairment
in a future period.
Impairment of Long-Lived Assets. We
assess the impairment of our long-lived assets whenever events
or changes in circumstances indicate that the carrying value may
not be recoverable. Such indicators include changes in our
business plans, a change in the physical condition of a
long-lived asset or the extent or manner in which it is being
used, or a severe or sustained downturn in the oil and natural
gas industry.
Recoverability is assessed by using undiscounted future net cash
flows of assets grouped at the lowest level for which there are
identifiable cash flows independent of the cash flows of other
groups of assets. If the undiscounted future net cash flows are
less than the carrying amount of the asset, the asset is deemed
impaired. The amount of the impairment is measured as the
difference between the carrying value and the fair value of the
asset.
We make estimates and judgments about future undiscounted cash
flows and fair values. Although our cash flow forecasts are
based on assumptions that are consistent with our plans, there
is a significant degree of judgment involved in determining the
cash flows attributable to a long-lived asset over its estimated
remaining useful life. Our estimates of anticipated cash flows
could be reduced significantly in the future and as a result,
the carrying amounts of our long-lived assets could be subject
to impairment charges in the future.
35
Revenue Recognition. All revenue is
recognized when persuasive evidence of an arrangement exists,
the service is complete, the amount is fixed or determinable and
collectability is reasonably assured, as follows:
Hydraulic Fracturing Revenue. We enter into
arrangements with our customers to provide hydraulic fracturing
services, which can be either on a spot market basis or under
term contracts. We only enter into arrangements with customers
for which collectability is reasonably assured. Revenue is
recognized and customers are invoiced upon the completion of
each job, which can consist of one or numerous fracturing
stages. Once the job has been completed to the satisfaction of
the customer, a field ticket is written that includes charges
for the service performed and the chemicals and proppants
consumed during the course of the service. The field ticket will
also include charges for the mobilization of the equipment to
location, additional equipment used on the job, if any, and
other miscellaneous consumables. Rates for services performed on
a spot market basis are based on the
agreed-upon
hourly spot market rate. With respect to services performed
under term contracts, customers are invoiced a monthly mandatory
payment based on a specified minimum number of hours of service
per month as defined in the contract, upon the earlier of the
passage of time or completion of the job. To the extent
customers utilize more than the contracted minimum number of
hours of service per month, they are invoiced for the excess at
rates defined in the contract upon the completion of each job.
Coiled Tubing and Pressure Pumping Revenue. We
enter into arrangements to provide coiled tubing and pressure
pumping services to only those customers for which
collectability is reasonably assured. These arrangements are
typically short-term in nature and each job can last anywhere
from a few hours to multiple days. Coiled tubing and pressure
pumping revenue is recognized upon completion of each days
work based upon a completed field ticket. The field ticket
includes charges for the mobilization of the equipment to
location, the service performed, the personnel on the job,
additional equipment used on the job, if any, and miscellaneous
consumables used throughout the course of the service. We
typically charge the customer on an hourly basis for these
services at agreed upon spot market rates.
Materials Consumed While Performing
Services. We generate revenue from chemicals and
proppants that are necessarily consumed while performing
hydraulic fracturing services. We charge fees to our customers
based on the amount of chemicals and proppants used in providing
these services. In addition, ancillary to coiled tubing and
pressure pumping revenue, we generate revenue from various
fluids and supplies that are necessarily consumed during those
processes. We do not sell or otherwise charge a fee separate and
apart from the services we provide for any of the materials
consumed while performing hydraulic fracturing services or
coiled tubing and pressure pumping services.
Accounts Receivable and Allowance for Doubtful
Accounts. Accounts receivable are stated at
the amount billed to customers and are ordinarily due upon
receipt. We provide an allowance for doubtful accounts, which is
based upon a review of outstanding receivables, historical
collection information and existing economic conditions.
Provisions for doubtful accounts are recorded when it becomes
evident that the customer will not make the required payments at
either contractual due dates or in the future. At March 31,
2011, the allowance for doubtful accounts totaled
$0.6 million. At December 31, 2010 and 2009, the
allowance for doubtful accounts totaled $0.5 million and
$0.3 million, respectively. Bad debt expense was $67,500
for the three months ended March 31, 2011. Bad debt expense
was $0.5 million, $0.2 million and $0.1 million
for the years ended December 31, 2010, 2009 and 2008,
respectively.
Stock-Based Compensation. We recognize
compensation expense related to share-based awards, based on the
grant date estimated fair value. We amortize the fair value of
stock options on a straight-line basis over the requisite
service period of the award, which is generally the vesting
period. The determination of the fair value of stock options was
estimated using the Black-Scholes option-pricing model and
required the use of highly subjective assumptions. The
Black-Scholes option-pricing
36
model requires inputs such as the expected term of the grant,
expected volatility and risk-free interest rate. Further, the
forfeiture rate also affects the amount of aggregate
compensation that we are required to record as an expense.
We estimate our forfeiture rate based on an analysis of our
actual forfeitures and will continue to evaluate the
appropriateness of the forfeiture rate based on actual
forfeiture experience, analysis of employee turnover and other
factors. Quarterly changes in the estimated forfeiture rate can
have a significant effect on reported stock-based compensation
expense, as the cumulative effect of adjusting the rate for all
expense amortization is recognized in the period the forfeiture
estimate is changed. If a revised forfeiture rate is higher than
the previously estimated forfeiture rate, an adjustment is made
that will result in a decrease to the stock-based compensation
expense recognized in the consolidated financial statements. If
a revised forfeiture rate is lower than the previously estimated
forfeiture rate, an adjustment is made that will result in an
increase to the stock-based compensation expense recognized in
the consolidated financial statements.
We will continue to use judgment in evaluating the expected
term, volatility and forfeiture rate related to our stock-based
compensation on a prospective basis and will incorporate these
factors into our option-pricing model.
Each of these inputs is subjective and generally requires
significant management judgment. If, in the future, we determine
that another method for calculating the fair value of our stock
options is more reasonable, or if another method for calculating
these input assumptions is prescribed by authoritative guidance,
and, therefore, should be used to estimate expected volatility
or expected term, the fair value calculated for our employee
stock options could change significantly. Higher volatility and
longer expected terms generally result in an increase to
stock-based compensation expense determined at the date of grant.
Income Taxes. Income taxes are provided
for the tax effects of transactions reported in financial
statements and consist of taxes currently due plus deferred
taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date.
Deferred income tax expense represents the change during the
period in the deferred tax assets and deferred tax liabilities.
The components of the deferred tax assets and liabilities are
individually classified as current and non-current based on
their characteristics. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred
tax assets will not be realized.
Effective January 1, 2009, we adopted guidance issued by
the Financial Accounting Standards Board, or FASB, in accounting
for uncertainty in income taxes. This guidance clarifies the
accounting for income taxes by prescribing the minimum
recognition threshold an income tax position is required to meet
before being recognized in the financial statements and applies
to all income tax positions. Each income tax position is
assessed using a two step process. A determination is first made
as to whether it is more likely than not that the income tax
position will be sustained, based upon technical merits, upon
examination by the taxing authorities. If the income tax
position is expected to meet the more likely than not criteria,
the benefit recorded in the financial statements equals the
largest amount that is greater than 50% likely to be realized
upon its ultimate settlement. We did not recognize any uncertain
tax positions upon adoption of the guidance and had no uncertain
tax positions as of March 31, 2011, and December 31,
2010 and 2009. Management believes there are no tax positions
37
taken or expected to be taken in the next twelve months that
would significantly change our unrecognized tax benefits.
We will record income tax related interest and penalties, if
applicable, as a component of the provision for income tax
expense. However, there were no amounts recognized relating to
interest and penalties in the consolidated statements of
operations for the three months ended March 31, 2011, and
for the years ended December 31, 2010, 2009 and 2008. The
tax years that remain open to examination by the major taxing
jurisdictions to which we are subject range from 2007 to 2009.
We have identified our major taxing jurisdictions as the United
States of America and Texas. None of our federal or state tax
returns are currently under examination.
We are subject to the Texas Margin Tax, which is determined by
applying a tax rate to a base that considers both revenue and
expenses. It is considered an income tax and is accounted for in
accordance with the provisions of the FASB Accounting Standards
Codification, or ASC, Topic 740, Income Taxes.
Recently Adopted
Accounting Pronouncements
In December 2010, the FASB issued ASU
No. 2010-09,
Business Combinations: Disclosure of Supplementary Pro
Forma Information for Business Combinations or ASU
2010-29. ASU
2010-29
addresses diversity in the interpretation of pro forma revenue
and earnings disclosure requirements for business combinations.
If a public entity presents comparative financial statements,
the entity should disclose revenue and earnings of the combined
entity as though the business combination that occurred during
the current year had occurred as of the beginning of the
comparable prior annual reporting period only. The Company
adopted ASU
2010-29 on
January 1, 2011. This update had no impact on our financial
position, results of operations or cash flows.
38
BUSINESS
Overview
We are a rapidly growing independent provider of premium
hydraulic fracturing and coiled tubing services with a focus on
complex, technically demanding well completions. We provide our
services in conjunction with both conventional and
unconventional well completions as well as workover and
stimulation operations for existing wells. We compete with a
limited number of service companies for what we believe to be
the most complex hydraulic fracturing projects, which are
typically characterized by long lateral segments and multiple
fracturing stages in high-pressure formations. We believe
service providers are selected for these complex projects
primarily based on technical expertise, fleet capability and
experience rather than solely on price. We also provide pressure
pumping services and other related well stimulation services in
connection with our well completion and production enhancement
operations.
We have historically operated in what we believe to be some of
the most geologically challenging basins in South Texas, East
Texas/North Louisiana and Western Oklahoma. The customers we
serve are primarily large exploration and production companies
with significant unconventional resource positions, including
EOG Resources, EXCO Resources, Anadarko Petroleum, Plains
Exploration, Penn Virginia, Petrohawk, El Paso, Apache and
Chesapeake. We are in the process of acquiring additional
hydraulic fracturing fleets and are evaluating opportunities
with existing and new customers to expand our operations into
new areas throughout the United States with similarly demanding
completion and stimulation requirements.
We operate four modern, 15,000 pounds per square inch, or psi,
pressure rated hydraulic fracturing fleets with an aggregate
142,000 horsepower, and we currently have on order four
additional hydraulic fracturing fleets, which, upon delivery,
will increase our aggregate horsepower to 270,000 by the end of
2012. Our hydraulic fracturing equipment is specially designed
to handle well completions with long lateral segments and
multiple fracturing stages in high-pressure formations. We also
operate a fleet of 14 coiled tubing units, 16 double-pump
pressure pumps and nine single-pump pressure pumps.
Our hydraulic fracturing fleets and coiled tubing units are
currently deployed in the Eagle Ford Shale of South Texas, the
Haynesville Shale of East Texas/North Louisiana and the Granite
Wash of Western Oklahoma. Recent advances in horizontal drilling
and hydraulic fracturing technologies have lowered unit recovery
costs in these basins and increased the potential for long-term
oil and natural gas development. Additionally, the increase in
the number of drilling permits awarded in the Eagle Ford,
Haynesville and Granite Wash regions, coupled with the
increasing complexity and technical completion requirements for
many wells in these regions, are expected to drive growth in
demand for our well completion services for the foreseeable
future. We have and plan to continue to focus on basins with
technically demanding hydraulic fracturing requirements.
Industry
Overview
The energy services industry provides hydraulic fracturing and
other well stimulation services to oil and natural gas
exploration companies. Fracturing involves pumping a fluid down
a well casing or tubing under high pressure to cause the
underground formation to crack, allowing the oil or natural gas
to flow more freely. A propping agent, or proppant, is suspended
in the fracturing fluid and keeps open the cracks (fractures)
created by the fracturing process in the underground formation.
Proppants generally consist of sand, resin-coated sand or
ceramic particles and other engineered proprietary materials.
The total size of the hydraulic fracturing market, based on
revenue, was estimated to be approximately $10.8 billion in
2009 and approximately $15.7 billion in 2010 based on data
from Spears & Associates.
A recent trend that has increased the demand for hydraulic
fracturing services in the United States has been the
development of unconventional resources, such as natural gas
shales and oil
39
shales. According to the EIA, the amount of technically
recoverable natural gas found in shales is 827 trillion cubic
feet, which is over 35 times the amount of total dry gas
produced in the United States in 2009. According to the EIA,
U.S. production of natural gas from shales is projected to
increase from approximately 16% of production in 2009 to 47% in
2035. According to the EIA, oil production from shale oil is
also expected to rise significantly in the next 25 years,
specifically from areas such as the Eagle Ford Shale, the Bakken
Shale, and other unconventional oil resources.
Two technologies which are critical to the recovery of natural
gas and oil from unconventional resources are horizontal
drilling and hydraulic fracturing. Horizontal drilling is used
to provide greater access to the hydrocarbons trapped in the
producing formation by exposing the well to more of the
producing formation. Hydraulic fracturing unlocks the
hydrocarbons trapped in formations by opening fractures in the
rock and allowing hydrocarbons to flow from the formation into
the well. In addition, horizontal wells have become longer and
more complex, resulting in an increase in the number of
fracturing stages per well, higher demand for horsepower per
well and per job, and an increased amount of proppant and
chemicals used per well.
The increased level of horizontal drilling is illustrated by the
growing number of horizontal rigs active in United States over
the past three years. This increased activity level has largely
targeted unconventional resources and shale plays. The following
table highlights the increase in the horizontal rig count in the
United States.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
June 24,
|
|
|
As of December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Horizontal U.S. Rig Count(1)
|
|
|
1,081
|
|
|
|
947
|
|
|
|
571
|
|
|
|
587
|
|
As a Percentage of Total U.S. Rigs
|
|
|
57.4
|
%
|
|
|
55.9
|
%
|
|
|
48.0
|
%
|
|
|
34.1
|
%
|
|
|
|
(1) |
|
Estimate of activity as measured by Baker Hughes Incorporated. |
We believe investment in domestic unconventional resources,
including shale plays, has accelerated over the past five years.
In recent years, well-capitalized producers have leased large
acreage positions in shale plays, including those in the Eagle
Ford Shale and Haynesville Shale, using short-term leases (three
years or less) which require producers to drill wells to retain
the acreage. To help fund their drilling program in these areas,
a number of producers have also entered into joint venture
transactions with large international operators and private
equity sponsors. Typically, the joint venture partner will agree
to fund a significant portion of the near-term drilling capital
budget in exchange for an equity interest in the joint venture.
These producers and their joint venture partners have committed
significant capital to the development of unconventional
resources, which we believe will result in sustained drilling
activity.
We have observed increased bidding activity in our areas of
operations, a growing backlog of fracturing projects, full
equipment utilization and substantial pricing power for
fracturing service providers. We currently expect these factors
to continue to persist and the market for fracturing services to
continue to be tight.
Growth in horizontal drilling has also resulted in increased
demand for coiled tubing services and pressure pumping services.
However, we believe the increases have not been as significant
as in the hydraulic fracturing business.
Trends Impacting
Our Business
Ongoing Development of Existing and Emerging
Unconventional Resource Basins. Over the past
decade, exploration and production companies have focused on
exploiting the vast resource potential available across many of
North Americas unconventional resource plays through the
application of new horizontal drilling and completion
technologies, including multi-stage hydraulic fracturing. We
believe long-term capital for the continued development of these
basins will be provided
40
in part by the participation of large well-capitalized domestic
oil and gas companies that have made significant investments, as
well as international oil and gas companies that continue to
make significant capital commitments through joint ventures and
direct investments in North Americas unconventional
basins. We believe these investments indicate a long-term
commitment to development, which should mitigate the impact of
short-term changes in oil and natural gas prices on the demand
for our services.
Increased Horizontal Drilling and Greater Service
Intensity in Unconventional Basins. As a
result of the higher specification equipment and increased
services associated with horizontal drilling, we view the
horizontal rig count as a reliable indicator of the overall
increase in the demand for our services. According to Baker
Hughes Incorporated, the U.S. horizontal rig count has
risen from approximately 335 at the beginning of 2007 to 1,081
as of June 24, 2011, and now represents 57% of the total
U.S. rig count. Development of horizontal wells has evolved
to feature increasingly longer laterals and more fracturing
stages, which has increased the requirement for advanced
hydraulic fracturing and stimulation services. Furthermore, we
believe operators have become more efficient at drilling
horizontal wells and have reduced the number of days required to
reach total depth, which has increased the number of wells
drilled and the number of fracturing stages completed in a year.
Increased Demand for Expertise to Execute Complex
Completions. We believe exploration and
production companies have shown a strong preference for a
customized approach to completing complex wells in
unconventional basins. As the fleet specifications and
capability to execute complex well completions have increased,
the required attention and experience to complete the most
difficult fracturing jobs has also increased. Accordingly, we
believe that technical expertise, fleet capability and
experience are the primary differentiating factors within the
industry.
High Levels of Asset Utilization and Constrained Supply
Growth. Asset utilization in the hydraulic
fracturing industry has meaningfully increased due to the
elevated levels of horizontal drilling. Advances such as pad
drilling and zipper-fracs, whereby an operator drills two offset
wells for simultaneous completion, have led to more wells being
drilled per rig and, thus, have increased levels of asset
utilization in the hydraulic fracturing industry. At the same
time, manufacturers have had difficulty keeping pace with the
demand for new hydraulic fracturing equipment and parts.
Furthermore, the higher pressures required for more complex
applications combined with higher levels of asset utilization
are resulting in increased attrition of existing hydraulic
fracturing equipment. We believe that these trends will continue
to keep supply tight in our industry for the foreseeable future.
The Spread of Unconventional Drilling and Completion
Techniques to the Redevelopment of Conventional
Fields. Oil and natural gas companies have
begun to apply the knowledge gained through the extensive
development of unconventional resource plays to their existing
conventional basins. Many of the techniques applied in
unconventional development, when applied to conventional wells
either through workover or recompletion, have the potential to
enhance overall production or enable production from previously
unproductive horizons and improve overall field economics. We
believe that there are thousands of older conventional wells
with the potential for the application of unconventional
completion techniques in close proximity to the regions in which
we operate. Many of our customers have begun to experiment with
such techniques.
Our
Services
We provide hydraulic fracturing, coiled tubing, pressure pumping
and other related well stimulation services to our customers
under a single operating segment. We have traditionally used our
coiled tubing and pressure pumping services to extend our
hydraulic fracturing services into new markets.
Hydraulic Fracturing. Our customers
utilize our hydraulic fracturing services to enhance the
production of oil and natural gas from formations with low
permeability, which restricts the natural flow of hydrocarbons.
The fracturing process consists of pumping a fluid into a cased
well at sufficient pressure to fracture the producing formation.
Sand, bauxite or synthetic proppants are suspended in the fluid
and are pumped into the fracture to prop the fracture open. The
extremely high pressure required to stimulate wells in the
regions in which we operate presents a challenging environment
for
41
achieving a successfully fractured horizontal well. As a result,
an important element of the services we provide to producers is
designing the optimum well completion, which includes
determining the proper fluid, proppant and injection
specifications to maximize production. Our engineering staff
also provides technical evaluation, job design and fluid
recommendations for our customers as an integral element of our
fracturing service.
Coiled Tubing. Our customers utilize
our coiled tubing services to perform various functions
associated with well-servicing operations and to facilitate
completion of horizontal wells. Coiled tubing services involve
the insertion of steel tubing into a well to convey materials
and equipment to perform various applications on either a
completion or workover assignment. We believe coiled tubing has
become a preferred method of well completion, workover and
maintenance projects due to speed, ability to handle heavy-duty
jobs across a wide spectrum of pressure environments, safety and
ability to perform services without having to shut in a well. We
have successfully leveraged our existing relationships with
coiled tubing customers to expand our fracturing business.
Pressure Pumping. Our customers utilize
our pressure pumping services primarily in connection with
completing new wells and remedial and production enhancement
work on existing wells. Our pressure pumping services are
routinely performed in conjunction with our coiled tubing
services. Our pressure pumping services include well injection,
cased-hole testing, workover pumping, mud displacement, wireline
pumpdowns and pumping-down coiled tubing. Our pressure pumping
services often provide us with advance knowledge of a
customers need for coiled tubing services.
Sales and
Marketing
Our sales and marketing activities typically are performed
through our local operations in each geographical region. We
believe our local field sales personnel have an excellent
understanding of region-specific issues and customer operating
procedures and, therefore, can effectively target marketing
activities. We also have multiple corporate sales
representatives that supplement our field sales efforts and
focus on large accounts and selling technical services. Our
sales representatives work closely with our local managers and
field sales personnel to target market opportunities. We
facilitate teamwork among our sales representatives by basing a
portion of their compensation on aggregate company sales targets
rather than individual sales targets. We believe this emphasis
on teamwork allows us to successfully expand our customer base
and better serve our existing customers. Additionally, recently
we have experienced an increase in unsolicited inquiries to our
corporate headquarters about our services, several of which have
led to hydraulic fracturing and coiled tubing jobs.
Customers
Our customers include EOG Resources, EXCO Resources, Anadarko
Petroleum, Plains Exploration, Penn Virginia, Petrohawk,
El Paso, Apache and Chesapeake. Our top ten customers
accounted for approximately 90.2%, 90.6% and 79.9% of our
revenues for the years ended December 31, 2010, 2009 and
2008, respectively, and 97.2% of our revenues for the three
months ended March 31, 2011. In 2008, sales to Penn
Virginia, El Paso and EOG Resources represented 24.0%,
14.4% and 10.1%, respectively, of our total sales. In 2009,
sales to Penn Virginia, Anadarko Petroleum and EnCana
represented 25.9%, 11.7% and 11.0%, respectively, of our total
sales. In 2010, sales to EOG Resources, Penn Virginia, Anadarko
Petroleum and Apache accounted for 32.5%, 17.9%, 16.4% and 9.7%,
respectively, of our total sales. The majority of our revenues
are generated from our fracturing services. We currently own
four fracturing fleets. We are in the process of purchasing four
additional fracturing fleets. Due to the large percentage of our
revenues derived from our fracturing services and the limited
number of fracturing fleets we possess, our customer
concentration has historically been high. We believe our
continued efforts to increase the number of fracturing fleets we
operate will allow us to serve a larger number of customers and
reduce customer concentration.
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Seasonality
Our results of operations have not historically reflected any
material seasonal tendencies and we currently do not believe
that seasonal fluctuations will have a material impact on us in
the foreseeable future.
Competition
The markets in which we operate are highly competitive. To be
successful, a company must provide services and products that
meet the specific needs of oil and natural gas exploration and
production companies and drilling services contractors at
competitive prices.
We provide our services and products across South Texas, East
Texas/North Louisiana and Western Oklahoma, and we compete
against different companies in each service we offer. Our
competition includes many large and small oilfield service
companies, including the largest integrated oilfield services
companies.
Our major competitors for our fracturing services include
Halliburton, Schlumberger, Baker Hughes, Weatherford
International, RPC, Inc., Pumpco, an affiliate of Complete
Production Services, and Frac Tech. Our major competitors for
our coiled tubing services include Halliburton, Schlumberger,
Baker Hughes and a significant number of regional businesses. We
believe that the principal competitive factors in the market
areas that we serve are technical expertise, fleet capability
and experience. While we must be competitive in our pricing, we
believe our customers select our services and products based on
a high level of technical expertise, local leadership and shale
knowledge that our personnel use to deliver quality services and
products.
Safety
In the oilfield services industry, an important competitive
factor in establishing and maintaining long-term customer
relationships is having an experienced and skilled work force.
In recent years, many of our larger customers have placed an
emphasis not only on pricing, but also on safety records and
quality management systems of contractors. We believe that these
factors will gain further importance in the future. We have
directed substantial resources toward employee safety and
quality management training programs, as well as our employee
review process. Our reputation for safety has allowed us to earn
work certification from several industry leaders with what we
believe to be some of the most demanding safety requirements,
including ConocoPhillips, Exxon Mobil Corporation and Royal
Dutch Shell.
Suppliers
We purchase the materials used in our services, such as
fracturing sand, fracturing chemicals, coiled tubing and fluid
supplies, from various suppliers. Please read Certain
Relationships and Related Party Transactions
Supplier Agreements beginning on page 77 of this
prospectus for additional information on our related party
suppliers. Where we currently source materials from a single
supplier, we believe that we will be able to make satisfactory
alternative arrangements in the event of interruption of supply.
However, given the limited number of suppliers of certain of our
raw materials, we may not always be able to make alternative
arrangements should one of our suppliers fail to deliver
or timely deliver our materials. During the year ended
December 31, 2010, we purchased 5% or more of our materials
or equipment from each of Economy Polymers &
Chemicals, Total, SPM and Sintex Minerals & Services,
Inc. During the three months ended March 31, 2011, we
purchased 5% or more of our materials and equipment from Economy
Polymers & Chemicals and Total.
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Equipment
We operate four modern, 15,000 psi pressure rated hydraulic
fracturing fleets with an aggregate 142,000 horsepower, and we
currently have on order four additional hydraulic fracturing
fleets, which, upon delivery, will increase our aggregate
horsepower to 270,000 by the end of 2012. Our hydraulic
fracturing equipment is specially designed to handle well
completions with long lateral segments and multiple fracturing
stages in high-pressure formations. We also operate a fleet of
14 coiled tubing units, 16 double-pump pressure pumps and nine
single-pump pressure pumps. The number of pressure pumps and
related horsepower of each hydraulic fracturing fleet is
currently as follows:
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Fleet 1: consists of 17 pressure pumps
representing 34,000 horsepower of capacity.
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Fleet 2: consists of 12 pressure pumps
representing 24,000 horsepower of capacity.
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Fleet 3: consists of 21 pressure pumps
representing 42,000 horsepower of capacity.
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Fleet 4: consists of 21 pressure pumps
representing 42,000 horsepower of capacity.
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Fleet 5 (on order): consists of 15
pressure pumps representing 30,000 horsepower of capacity.
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Fleet 6 (on order): consists of 17
pressure pumps representing 34,000 horsepower of capacity.
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Fleet 7 (on order): consists of 16
pressure pumps representing 32,000 horsepower of capacity.
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Fleet 8 (on order): consists of 16
pressure pumps representing 32,000 horsepower of capacity.
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Each hydraulic fracturing fleet also includes the necessary
blending units, manifolds, data vans and other ancillary
equipment. We have the flexibility to allocate pressure pumps
and other equipment among our fleets as needed to satisfy
customer demand.
We purchase the majority of our hydraulic fracturing equipment
from Total, whom we recently acquired, and Stewart &
Stevenson. Please read Prospectus Summary
Recent Developments Acquisition of Total E&S,
Inc. beginning on page 3 of this prospectus. Although
we believe that we will be able to make satisfactory alternative
arrangements in the event of interruption of supply from either
of these companies, we cannot be certain.
We believe that our equipment is rigorously maintained and
suitable for our current operations. Most of our hydraulic
fracturing fleets are serviced by our own mechanics who work
onsite or at one of our facilities. We regularly perform
preventative maintenance on our equipment in order to avoid any
major equipment failures which could result in extended
equipment downtime.
We have entered into operating leases with financial
institutions covering approximately $15.0 million of
equipment consisting of one blender, one chemical additions
truck, four fracturing sanders, twelve trailer-mounted
fracturing pumps, eight freightliners and seven tractors. The
operating leases terminate on August 1, 2014 and both
operating leases may be extended at our election subject to
certain terms and conditions. Pursuant to the operating leases,
we have the option to purchase all of the leased equipment.
Principal
Properties
Our corporate headquarters are located at 10375 Richmond Avenue,
Suite 2000, Houston, Texas 77042. We lease
24,365 square feet of general office space at our corporate
headquarters. The
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lease expires on January 31, 2017. As of March 31,
2011, we owned or leased the following additional principal
properties:
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Leased or
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Expiration of
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Location
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Type of Facility
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Size
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Owned
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Lease
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500 North Shoreline Blvd., Suite 350 Corpus Christi, Texas
78401
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general office space
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7,685 square feet of building space
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Leased
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July 31, 2015
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5604 Medco Drive Marshall, Texas 75672
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general office space, warehouse and maintenance center
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14 acres, 37,000 square of building space
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Land Leased
Building Owned
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December 18, 2011
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214 W. 13th Street Elk City, Oklahoma 73644
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general office space, warehouse and repair facility
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1.85 acres, 9,000 square feet of building space
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Leased
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January 14, 2012
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4460 Highway 77 Robstown, Texas 78380
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general office space, warehouse and maintenance center
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14.6 acres, 61,000 square feet of building space
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Owned
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We also lease several smaller facilities, which leases generally
have terms of one to three years. We believe that our existing
facilities are adequate for our operations and their locations
allow us to efficiently serve our customers in the South Texas,
East Texas/North Louisiana and Western Oklahoma regions. We do
not believe that any single facility is material to our
operations and, if necessary, we could readily obtain a
replacement facility.
Risk Management
and Insurance
Our operations are subject to hazards inherent in the oil and
gas industry, including accidents, blowouts, explosions,
craterings, fires, oil spills and hazardous materials spills.
These conditions can cause:
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personal injury or loss of life;
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damage to, or destruction of property, equipment, the
environment and wildlife; and
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suspension of operations.
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In addition, claims for loss of oil and natural gas production
and damage to formations can occur in the well services
industry. If a serious accident were to occur at a location
where our equipment and services are being used, it could result
in us being named as a defendant in lawsuits asserting large
claims.
Because our business involves the transportation of heavy
equipment and materials, we may also experience traffic
accidents which may result in spills, property damage and
personal injury.
Despite our efforts to maintain high safety standards, we from
time to time have suffered accidents, and there is a risk that
we will experience accidents in the future. In addition to the
property and personal losses from these accidents, the frequency
and severity of these incidents affect our operating costs and
insurability, and our relationship with customers, employees and
regulatory agencies. Any significant increase in the frequency
or severity of these incidents, or the general level of
compensatory payments, could adversely affect the cost of, or
our ability to obtain, workers compensation and other
forms of insurance, and could have other material adverse
effects on our financial condition and results of operations.
We maintain insurance coverage of types and amounts that we
believe to be customary in the industry including workers
compensation, employers liability, sudden &
accidental pollution, umbrella, comprehensive commercial general
liability, business automobile, property and equipment physical
45
damage insurance. Our insurance coverage may be inadequate to
cover our liabilities. In addition, we may not be able to
maintain adequate insurance in the future at rates we consider
reasonable and commercially justifiable or on terms as favorable
as our current arrangements.
We enter into Master Service Agreements (MSAs) with
each of our customers. Our MSAs delineate our and our
customers respective indemnification obligations with
respect to the services we provide. With respect to our
hydraulic fracturing services, our MSAs typically provide for
knock-for-knock
indemnification for all losses, which means that we and our
customers assume liability for damages to or caused by our
respective personnel and property. For catastrophic losses, our
MSAs generally include industry-standard carve-outs from the
knock-for-knock
indemnities, pursuant to which our customers (typically the
exploration and production company) assume liability for
(i) damage to the hole, including the cost to re-drill;
(ii) damage to the formation, underground strata and the
reservoir; (iii) damages or claims arising from loss of
control of a well or a blowout; and (iv) allegations of
subsurface trespass. Additionally, our MSAs typically provide
that we can be held responsible for events of catastrophic loss
only if they arise as a result of our willful misconduct.
Our MSAs provide for industry-standard pollution indemnities,
pursuant to which we assume liability for surface pollution
associated with our equipment and resulting from our negligent
actions, and our customer assumes (without regard to fault)
liability arising from all other pollution, including, without
limitation, underground pollution and pollution emanating from
the wellbore as a result of an explosion, fire or blowout.
The description of our insurance and our indemnification
provisions set forth above is a summary of their material terms.
Future MSAs or insurance policies may change as a result of
market and other conditions.
Legal
Proceedings
We are subject to various legal proceedings and claims arising
in the ordinary course of our business. Our management does not
expect the outcome in any of these known legal proceedings,
individually or collectively, to have a material adverse effect
on our financial condition or results of operations.
Government
Regulations
We operate under the jurisdiction of a number of regulatory
bodies that regulate worker safety standards, the handling of
hazardous materials, the possession and handling of radioactive
materials, the transportation of explosives, the protection of
the environment, and motor carrier operations. Regulations
concerning equipment certification create an ongoing need for
regular maintenance, which is incorporated into our daily
operating procedures. The oil and gas industry is subject to
environmental regulation pursuant to local, state and federal
legislation.
Among the services we provide, we operate as a motor carrier and
therefore are subject to regulation by the DOT and by various
state agencies. These regulatory authorities exercise broad
powers, governing activities such as the authorization to engage
in motor carrier operations; regulatory safety; hazardous
materials labeling, placarding and marking; financial reporting;
and certain mergers, consolidations and acquisitions. There are
additional regulations specifically relating to the trucking
industry, including testing and specification of equipment and
product handling requirements. The trucking industry is subject
to possible regulatory and legislative changes that may affect
the economics of the industry by requiring changes in operating
practices or by changing the demand for common or contract
carrier services or the cost of providing truckload services.
Some of these possible changes include increasingly stringent
environmental regulations, changes in the hours of service
regulations which govern the amount of time a driver may drive
in any specific period, onboard black box recorder devices or
limits on vehicle weight and size.
46
Interstate motor carrier operations are subject to safety
requirements prescribed by DOT. To a large degree, intrastate
motor carrier operations are subject to safety regulations that
mirror federal regulations. Such matters as weight and dimension
of equipment are also subject to federal and state regulations.
DOT regulations mandate drug testing of drivers.
From time to time, various legislative proposals are introduced,
including proposals to increase federal, state or local taxes,
including taxes on motor fuels, which may increase our costs or
adversely impact the recruitment of drivers. We cannot predict
whether, or in what form, any increase in such taxes applicable
to us will be enacted.
Some of our operations utilize equipment that contains sealed,
low-grade radioactive sources. Our activities involving the use
of radioactive materials are regulated by the United States
Nuclear Regulatory Commission, or NRC, and state regulatory
agencies under agreement with the NRC. Standards implemented by
these regulatory agencies require us to obtain licenses or other
approvals for the use of such radioactive materials. We believe
that we have obtained these licenses and approvals when
necessary and that we are in substantial compliance with these
requirements.
Environmental
Matters
Our operations are subject to numerous foreign, federal, state
and local environmental, health and safety laws, rules and
regulations including those governing the release
and/or
discharge of materials into the environment or otherwise
relating to environmental protection. Numerous governmental
agencies issue regulations to implement and enforce these laws,
for which compliance is often costly and difficult. The
violation of these laws and regulations may result in the denial
or revocation of permits, issuance of corrective action orders,
assessment of administrative and civil penalties, and even
criminal prosecution. We believe that we are in substantial
compliance with applicable environmental laws and regulations.
Further, we do not anticipate that compliance with existing
environmental laws and regulations will have a material effect
on our consolidated financial statements. It is possible,
however, that substantial costs for compliance or penalties for
non-compliance may be incurred in the future. Moreover, it is
possible that other developments, such as the adoption of
stricter environmental laws, regulations, and enforcement
policies, could result in additional costs or liabilities that
we cannot currently quantify.
We generate wastes, including hazardous wastes, which are
subject to the federal Resource Conservation and Recovery Act,
or RCRA, and comparable state statutes. The EPA, the NRC, and
state agencies have limited the approved methods of disposal for
some types of hazardous and nonhazardous wastes. Some oil and
natural gas exploration and production wastes handled by us in
our field service activities currently are exempt from
regulation as hazardous wastes. There is no guarantee, however,
that the EPA or individual states will not adopt more stringent
requirements for the handling of nonhazardous waste or
categorize some nonhazardous waste as hazardous in the future.
Any such change could result in an increase in our costs to
manage and dispose of waste, which could have a material adverse
effect on our results of operations and financial position.
The federal Comprehensive Environmental Response, Compensation,
and Liability Act, which we refer to herein as CERCLA or the
Superfund law, and comparable state statutes impose liability,
without regard to fault or legality of the original conduct, on
classes of persons that are considered to have contributed to
the release of a hazardous substance into the environment. Such
classes of persons include the current and past owners or
operators of sites where a hazardous substance was released, and
companies that disposed or arranged for disposal of hazardous
substances at offsite locations such as landfills. Under CERCLA,
these persons may be subject to joint and several liability for
the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural
resources, and it is not uncommon for neighboring landowners and
other third parties to file claims for personal injury and
property damage allegedly caused by the hazardous substances
released into the environment. We currently own, lease, or
operate numerous properties and facilities that for many years
have been used for industrial activities, including oil and
natural gas
47
production operations. Hazardous substances, wastes, or
hydrocarbons may have been released on or under the properties
owned or leased by us, or on or under other locations where such
substances have been taken for disposal. In addition, some of
these properties have been operated by third parties or by
previous owners whose treatment and disposal or release of
hazardous substances, wastes, or hydrocarbons, was not under our
control. These properties and the substances disposed or
released on them may be subject to CERCLA, RCRA and analogous
state laws. Under such laws, we could be required to remove
previously disposed substances and wastes (including substances
disposed of or released by prior owners or operators), remediate
contaminated property (including groundwater contamination,
whether from prior owners or operators or other historic
activities or spills), or perform remedial plugging of disposal
wells or pit closure operations to prevent future contamination.
These laws and regulations may also expose us to liability for
our acts that were in compliance with applicable laws at the
time the acts were performed.
In the course of our operations, some of our equipment may be
exposed to naturally occurring radiation associated with oil and
natural gas deposits, and this exposure may result in the
generation of wastes containing naturally occurring radioactive
materials, or NORM. NORM wastes exhibiting trace levels of
naturally occurring radiation in excess of established state
standards are subject to special handling and disposal
requirements, and any storage vessels, piping, and work area
affected by NORM may be subject to remediation or restoration
requirements. Because many of the properties presently or
previously owned, operated, or occupied by us have been used for
oil and natural gas production operations for many years, it is
possible that we may incur costs or liabilities associated with
elevated levels of NORM.
The Federal Water Pollution Control Act, or the Clean Water Act,
and applicable state laws impose restrictions and strict
controls regarding the discharge of pollutants into state waters
or waters of the United States. The discharge of pollutants into
jurisdictional waters is prohibited unless the discharge is
permitted by the EPA or applicable state agencies. In addition,
the Oil Pollution Act of 1990 imposes a variety of requirements
on responsible parties related to the prevention of oil spills
and liability for damages, including natural resource damages,
resulting from such spills in waters of the United States. A
responsible party includes the owner or operator of a facility.
The Federal Water Pollution Control Act and analogous state laws
provide for administrative, civil and criminal penalties for
unauthorized discharges and, together with the Oil Pollution
Act, impose rigorous requirements for spill prevention and
response planning, as well as substantial potential liability
for the costs of removal, remediation, and damages in connection
with any unauthorized discharges.
SDWA, regulates the underground injection of substances through
the UIC program. Hydraulic fracturing generally is exempt from
regulation under the UIC program, and the hydraulic fracturing
process is typically regulated by state oil and gas commissions.
The EPA recently has taken the position that hydraulic
fracturing with fluids containing diesel fuel are subject to
regulation under the UIC program, specifically as
Class II UIC wells. We do not utilize diesel in
our fracturing services, and we do not expect this change to
have a material impact on our operations. At the same time, the
EPA has commenced a study of the potential environmental impacts
of hydraulic fracturing activities, and a committee of the
U.S. House of Representatives recently concluded an
investigation of hydraulic fracturing practices. As part of
these studies, both the EPA and the House committee have
requested that certain companies provide them with information
concerning the chemicals used in the hydraulic fracturing
process. These studies, depending on their results, could spur
initiatives to regulate hydraulic fracturing under the SDWA or
otherwise. Legislation has been introduced before Congress in
the last few sessions to provide for federal regulation of
hydraulic fracturing and to require disclosure of the chemicals
used in the fracturing process. Although the federal legislation
did not pass, if similar federal legislation is introduced and
becomes law in the future, the legislation could establish an
additional level of regulation at the federal level that could
lead to operational delays or increased operating costs, making
it more difficult to perform hydraulic fracturing and increasing
our costs of compliance and doing business.
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In addition, various state and local governments have
implemented, or are considering, increased regulatory oversight
of hydraulic fracturing through additional permit requirements,
operational restrictions, disclosure requirements and temporary
or permanent bans on hydraulic fracturing in certain
environmentally sensitive areas such as certain watersheds.
Texas has adopted legislation that requires the disclosure of
information regarding the substances used in the hydraulic
fracturing process to the Railroad Commission of Texas and to
the public. This legislation and any implementing regulations
could increase our costs of compliance and doing business.
Moreover, the availability of information regarding the
constituents of hydraulic fracturing fluids could make it easier
for third parties opposing the hydraulic fracturing process to
initiate legal proceedings based on allegations that specific
chemicals used in the fracturing process could adversely affect
groundwater. Disclosure of our proprietary chemical formulas to
third parties or to the public, even if inadvertent, could
diminish the value of those formulas and could result in
competitive harm to us.
The adoption of new laws or regulations imposing reporting
obligations on, or otherwise limiting, the hydraulic fracturing
process could make it more difficult to complete natural gas
wells in shale formations, increase our costs of compliance and
adversely affect the hydraulic fracturing services that we
render for our exploration and production customers. In
addition, if hydraulic fracturing becomes regulated at the
federal level as a result of federal legislation or regulatory
initiatives by the EPA, fracturing activities could become
subject to additional permitting requirements, and also to
attendant permitting delays and potential increases in cost,
which could adversely affect our business.
There have been no material incidents or citations related to
our hydraulic fracturing operations in the past five years.
During that period we have not been involved in any litigation
over alleged environmental violations, have not been ordered to
pay any material monetary fine or penalty with respect to
alleged environmental violations, and are not currently facing
any type of governmental enforcement action or other regulatory
proceeding involving alleged environmental violations related to
our hydraulic fracturing operations. In addition, pursuant to
our MSAs, we are generally liable for only surface pollution,
not underground or flowback pollution, which our customers are
generally liable for and for which we are typically indemnified
by our customers.
We maintain insurance against some risks associated with
underground contamination that may occur as a result of well
services activities. However, this insurance is limited to
activities at the wellsite and may not continue to be available
or may not be available at premium levels that justify its
purchase. The occurrence of a significant event not fully
insured or indemnified against could have a materially adverse
effect on our financial condition and results of operations.
Some of our operations also result in emissions of regulated air
pollutants. The federal Clean Air Act and analogous state laws
require permits for facilities that have the potential to emit
substances into the atmosphere that could adversely affect
environmental quality. These laws and their implementing
regulations also impose generally applicable limitations on air
emissions and require adherence to maintenance, work practice,
reporting and recordkeeping, and other requirements. Many of
these regulatory requirements, including New Source
Performance Standards and Maximum Achievable Control
Technology standards, are expected to be made more
stringent as a result of more stringent ambient air quality
standards and other air quality protection goals adopted by the
EPA. Failure to obtain a permit or to comply with permit or
other regulatory requirements could result in the imposition of
substantial administrative, civil and even criminal penalties.
In addition, we or our customers could be required to shut down
or retrofit existing equipment, leading to additional expenses
and operational delays.
More stringent laws and regulations relating to climate change
and GHGs may be adopted in the future and could cause us to
incur additional operating costs or reduce the demand for our
services. On December 15, 2009, the EPA published its
findings that emissions of carbon dioxide, methane, and other
GHGs present an endangerment to public health and welfare
because emissions of such gases are, according to the EPA,
contributing to the warming of the earths atmosphere and
other climate changes. Based on these findings, EPA has begun to
adopt and implement regulations that would restrict emissions of
GHGs under existing provisions of the CAA. The EPA recently
adopted two sets of rules regulating GHG emissions under the
CAA, one of which requires a reduction in
49
emissions of GHGs from motor vehicles and the other of which
will require that certain large stationary sources obtain
permits for their emissions of GHGs, effective January 2,
2011. The EPA has also adopted rules requiring the reporting of
GHG emissions from specified large GHG sources, on an annual
basis, beginning in 2011 for emissions occurring after
January 1, 2010, as well as certain oil and natural gas
production facilities, on an annual basis, beginning in 2012 for
emissions occurring in 2011. We do not believe our operations
are currently subject to these requirements, but our business
could be affected if our customers operations become
subject to these or other similar requirements. These
requirements could increase the cost of doing business for us
and our customers, reduce the demand for the oil and gas our
customers produce, and thus have an adverse effect on the demand
for our products and services.
In addition, both houses of Congress have actively considered
legislation to reduce emissions of GHGs, and more than one-third
of the states have already taken legal measures to reduce
emissions of GHGs, primarily through the planned development of
GHG emission inventories
and/or
regional GHG cap and trade programs. Most of these cap and trade
programs work by requiring either major sources of emissions or
major producers of fuels to acquire and surrender emission
allowances, with the number of allowances available for purchase
reduced each year until the overall GHG emission reduction goal
is achieved. Although it is not possible at this time to predict
how legislation or new regulations that may be adopted to
address GHG emissions would impact our business, any new
federal, regional or state restrictions on emissions of carbon
dioxide or other GHGs that may be imposed in areas in which we
conduct business could result in increased compliance costs or
additional operating restrictions on our customers. Such
restrictions could potentially make our customers products
more expensive and thus reduce demand for them, which could have
a material adverse effect on the demand for our services and our
business. Finally, it should be noted that some scientists have
concluded that increasing concentrations of GHGs in the
Earths atmosphere may produce climate changes that have
significant physical effects, such as increased frequency and
severity of storms, droughts, and floods and other climatic
events; if any such effects were to occur, they could have an
adverse effect on our assets and operations.
We are also subject to the requirements of the federal
Occupational Safety and Health Act, or OSHA, and comparable
state statutes that regulate the protection of the health and
safety of workers. In addition, the OSHA hazard communication
standard requires that information be maintained about hazardous
materials used or produced in operations and that this
information be provided to employees, state and local government
authorities and the public. We believe that our operations are
in substantial compliance with the OSHA requirements, including
general industry standards, record keeping requirements and
monitoring of occupational exposure to regulated substances.
Employees
As of June 28, 2011, we had 788 employees, 162 of whom
were full-time salaried personnel. Most of the remaining
employees are hourly personnel. We will hire additional
employees for certain large projects and, subject to local
market conditions, additional crew members are generally
available for hire on relatively short notice. Our employees are
not represented by any labor unions. We consider our relations
with our employees to be good.
Formation
We were initially formed as a partnership in 1997 pursuant to
the laws of the State of Texas. In 2005, the assets of the
partnership were purchased by C&J Spec-Rent Services, Inc.
In 2006, we reorganized as a corporation by merging C&J
Spec-Rent Services, Inc. with and into a newly-formed Texas
corporation, pursuant to a merger agreement between us, C&J
Merger Sub, Inc., and C&J Spec-Rent Services, Inc.
Concurrent with the reorganization, we named the company
C&J Energy Services, Inc. In 2010, we converted from a
Texas corporation to a Delaware corporation. C&J
Spec-Rent
Services, Inc. is a wholly-owned subsidiary of our company and
owns most of our assets. Our remaining assets are held by Total.
50
MANAGEMENT
Executive
Officers and Directors
Our board of directors is comprised of the following seven
members: Joshua E. Comstock, as Chairman of the board; Randall
C. McMullen; Darren Friedman; James P. Benson; Michael Roemer;
H. H. Tripp Wommack, III and C. James
Stewart, III. Messrs. Benson and Friedman were
appointed pursuant to the Amended and Restated
Stockholders Agreement. Please read Certain
Relationships and Related Party Transactions Amended
and Restated Stockholders Agreement beginning on
page 75 of this prospectus. Under the terms of the Amended
and Restated Stockholders Agreement, subject to retaining
certain ownership thresholds:
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Energy Spectrum is entitled to appoint one director, currently
Mr. Benson; and
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Citigroup/StepStone is entitled to appoint one director,
currently Mr. Friedman.
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Set forth below are the names, ages and positions of our
executive officers and directors as of June 28, 2011. All
directors are elected for a term of one year and serve until
their successors are elected and qualified or upon earlier of
death, resignation or removal. All executive officers hold
office until their successors are elected and qualified or upon
earlier of death, resignation or removal.
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Name
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Age
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Position with Our
Company
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Joshua E. Comstock
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President, Chief Executive Officer and Chairman of the Board of
Directors
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Randall C. McMullen, Jr.
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Executive Vice President, Chief Financial Officer, Treasurer and
Director
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Bretton W. Barrier
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Chief Operating Officer
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Theodore R. Moore
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Vice President General Counsel and Corporate
Secretary
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Brandon D. Simmons
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Vice President Coiled Tubing
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John D. Foret
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Vice President Coiled Tubing
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William D. Driver
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Vice President Hydraulic Fracturing
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J. P. Pat Winstead
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Vice President Sales and Marketing
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Darren M. Friedman
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Director
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James P. Benson
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Director
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Michael Roemer
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Director
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H. H. Tripp Wommack, III
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Director
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C. James Stewart, III
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Director
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Joshua E. Comstock Mr. Comstock
has served as our Chief Executive Officer and as one of our
directors since 1997. Mr. Comstock was given the additional
title of President in December 2010 and the title of Chairman of
the Board in February 2011. In 1997, Mr. Comstock was a
founder of C&J. Mr. Comstock is responsible for
general oversight of our company. Mr. Comstock began
working as a foreman on several specialized natural gas pipeline
construction projects. Through this experience,
Mr. Comstock gained extensive knowledge and understanding
of the gathering and transporting of natural gas. In January
1990, Mr. Comstock began working for J4 Oilfield Service, a
test pump services company. His primary responsibility was
working in natural gas production as a service contractor for
Exxon.
As a founder of our company, Mr. Comstock is one of the
driving forces behind us and our success to date. Over the
course of our history, Mr. Comstock has successfully grown
us through his leadership skills and business judgment and for
this reason we believe Mr. Comstock is a valuable asset to
our board and is the appropriate person to serve as Chairman of
the board.
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Randall C. McMullen, Jr.
Mr. McMullen has served as our Executive Vice President,
Chief Financial Officer and Treasurer and director since joining
us in August 2005. Prior to joining our company,
Mr. McMullen held various positions with Credit Suisse
First Boston, the GulfStar Group and Growth Capital Partners.
Mr. McMullen graduated magna cum laude from Texas A&M
University with a B.B.A. in Finance.
During Mr. McMullens tenure with us, we have grown
rapidly. Mr. McMullens financial and investment
banking expertise have been invaluable to us in our efforts to
continue our growth through raising additional capital. For this
reason, we believe Mr. McMullen is well suited to serve on
our board of directors.
Bretton W. Barrier Mr. Barrier
has served in multiple positions since joining us in January
2007, including Vice President Hydraulic Fracturing,
and, most recently, Chief Operating Officer. Mr. Barrier
has over 20 years of experience in the oil and gas
industry. He is responsible for all of our Fracturing
Operations, including management of teams at each operating
location, customer and vendor management and health and safety
matters. Prior to joining us, Mr. Barrier worked for
El Paso/Coastal
from July 2000 to January 2007, where he oversaw production,
completions and workovers for all South Texas operations, as
well as supervised over 60% of that divisions fracturing
treatments from 2003 to 2007. Prior to working at
El Paso/Coastal, Mr. Barrier worked for Halliburton
from August 1990 to July 2000, where he served in various
positions including equipment operator, service supervisor and
service leader.
Theodore R. Moore Mr. Moore has
served as our Vice President General Counsel and
Corporate Secretary since February 2011. Prior to that time,
Mr. Moore practiced corporate law at Vinson &
Elkins L.L.P. from 2002 through January 2011. Mr. Moore
represented public and private companies and investment banking
firms in numerous capital markets offerings and mergers and
acquisitions, primarily in the oil and gas industry.
Mr. Moore received a B.A. in Political Economy from Tulane
University and a J.D. from Tulane Law School.
Brandon D. Simmons Mr. Simmons
has been with our company since 2001, primarily as an
operational manager of our coiled tubing unit. Mr. Simmons
has served as our Vice President Coiled Tubing since
2005. Mr. Simmons operated the first Stewart &
Stevenson coiled tubing unit ever built and has a complete
mechanical knowledge of coiled tubing units and supporting
equipment. Mr. Simmons has been heavily involved in the
design of our coiled tubing units. Prior to joining our company,
Mr. Simmons spent eight years with Superior Energy and
Preeminent Coiled Tubing Services operating coiled tubing units.
John D. Foret Mr. Foret has been
with our company since 2001. Mr. Foret has served as our
Vice President Coiled Tubing since 2008.
Mr. Foret has 25 years of experience in the oil and
gas industry and currently is responsible for our coiled tubing
operations. Prior to joining us, Mr. Foret was a workover
supervisor for Cudd Energy Services, covering various
geographical areas, including the Southern United States, Gulf
of Mexico, Norway, Scotland, India and South America.
William D. Driver Mr. Driver has
served as our Vice President Hydraulic Fracturing
since joining us in August 2007. Mr. Driver has
20 years of experience in the oil and gas industry. Along
with Mr. Barrier, he is responsible for our companys
Fracturing Operations. Prior to joining our company,
Mr. Driver worked for Halliburton in the capacity of
equipment operator, service supervisor, field service quality
coordinator, operations manager and camp manager from August
1990 to August 2007.
J.P. Pat Winstead
Mr. Winstead has served as our Vice President
Sales and Marketing since 2008. Mr. Winsteads primary
role at our company is to oversee our sales and marketing
efforts. Mr. Winstead also managed and will continue to
manage our expansion into new regions, specifically East
Texas/North Louisiana and Western Oklahoma. Prior to joining our
company, Mr. Winstead spent the last 25 years working
in various sales and marketing roles for several companies,
including Ainsworth Trucking and SUNDANCE Cattle Co.
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Darren M. Friedman Mr. Friedman
is a Partner of StepStone Group LLC, focusing on private equity
partnership, equity and mezzanine investments. Prior to joining
StepStone, Mr. Friedman was a Managing Partner of Citi
Private Equity, managing over $10 billion of capital across
three private equity investing activities. Mr. Friedman
sits or has sat on the boards or advisory boards of several
portfolio companies, funds and a number of Investment
Committees. Prior to joining Citi Private Equity,
Mr. Friedman worked in the Investment Banking division at
Salomon Smith Barney. Mr. Friedman received an M.B.A. from
the Wharton School at the University of Pennsylvania and a B.S.
in Finance from the University of Illinois.
Mr. Friedman brings extensive business, financial and
banking expertise to our board of directors from his background
in investment banking and private equity fund management.
Mr. Friedman also brings extensive prior board service
experience to our board from his service on numerous other
boards/limited partnership advisory boards.
James P. Benson Mr. Benson is a
founding shareholder and a Managing Partner of Energy Spectrum,
which manages private equity through institutional partnerships
styled as Energy Spectrum Partners and Energy
Trust Partners, and also manages a Financial Advisory
business focused on energy mergers and acquisitions and
institutional financings named Energy Spectrum Advisors, Inc.
Energy Spectrum was established in 1996. Prior to Energy
Spectrum, Mr. Benson was a Managing Director of Reid
Investments, Inc., a private investment banking firm focused on
energy mergers and acquisitions and financial advisory services,
joining the firm in mid-1987. He started his career at
InterFirst Bank Dallas, and was a credit officer focused on
energy lending and energy work-out. Mr. Benson graduated
from the University of Kansas with a B.S. in Finance and earned
his M.B.A. with a concentration in Finance from Texas Christian
University.
Mr. Bensons extensive financial and banking
experience in the energy industry from his over 20 years of
experience working at private equity firms specializing in the
energy industry make him well qualified to serve on our board.
Michael Roemer Mr. Roemer has
served as the Chief Financial Officer of Hammond, Kennedy,
Whitney & Co., a private equity group, and a partner
in several affiliate funds of Hammond, Kennedy since 2000. Prior
to joining Hammond, Kennedy, Mr. Roemer served as a
Shareholder and Vice President of Flackman, Goodman &
Potter, P.A. from 1988 to 2000. Mr. Roemer is a licensed
CPA with over 20-five years experience, and is a member of the
American Institute of Certified Public Accountants and the New
Jersey Society of Certified Public Accountants. Mr. Roemer
received his B.S. in Accounting from the University of Rhode
Island.
Mr. Roemers extensive background in public accounting
from his over 20 years of experience as a licensed CPA
combined with his subsequent experience as the chief financial
officer of a private equity firm make him well qualified to
serve on our board.
H.H. Tripp
Wommack, III Mr. Wommack is
currently the Chairman and CEO of Saber Oil and Gas Ventures,
LLC, an oil and gas company that focuses on acquisition and
exploitation efforts in the Permian Basin of West Texas and
Southeast New Mexico. Mr. Wommack has served in this
position since August 2008. Mr. Wommack also serves as the
Chairman of Cibolo Creek Partners, LLC, which specializes in
commercial real estate investments, and Globe Energy Services,
LLC, an energy services company in the Permian Basin. Prior to
his current positions, Mr. Wommack was Chairman, President
and CEO of Southwest Royalties, Inc. from August 1983 to August
2004 and Saber Resources from July 2004 until August 2008.
Additionally, Mr. Wommack was the Founder, Chairman and CEO
of Basic Energy Services (formerly Sierra Well Services, Inc.),
and following its initial public offering, Mr. Wommack
continued to serve on the board of Basic Energy Services through
June 2009. Mr. Wommack graduated with a B.A. from the
University of North Carolina, Chappell Hill, and earned a J.D.
from the University of Texas.
Mr. Wommack adds extensive executive and management
expertise to us from his background as chairman
and/or chief
executive officer of numerous companies. In addition, we believe
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Mr. Wommacks knowledge from serving as chairman and
chief executive officer of a company that went through an
initial public offering will be valuable to us in our
registration process. For these reasons, we believe
Mr. Wommack to be an asset to our board.
C. James Stewart III
Mr. Stewart is currently the Chairman of
Stewart & Sons Holding Co., a position he has held
since 2003. From 1972 to 2003, Mr. Stewart worked at
Stewart & Stevenson in multiple capacities, including
serving as Executive Vice President and Director from 1999 to
2003. Mr. Stewart received a B.S. from Texas Christian
University.
We believe Mr. Stewarts extensive business and
marketing experience at a large oil field services company make
him a valuable member of our board of directors.
Board of
Directors
The number of members of our board of directors is determined
from
time-to-time
by resolution of the board of directors. Currently, our board of
directors consists of seven persons.
Board Diversity. The board seeks
independent directors who represent a mix of backgrounds and
experiences that will enhance the quality of the boards
deliberations and decisions. In evaluating directors, we
consider diversity in its broadest sense, including persons
diverse in perspectives, personal and professional experiences,
geography, gender, race and ethnicity. This process has resulted
in a board that is comprised of highly qualified directors that
reflect diversity as we define it.
Board Independence. We are not
currently required to comply with the corporate governance rules
of any stock exchange and, as a private company, we are not
currently subject to the Sarbanes-Oxley Act of 2002 and related
SEC rules, collectively, Sarbanes-Oxley. However, upon the
effectiveness of the registration statement of which this
prospectus forms a part, we will become subject to
Sarbanes-Oxley and, upon the listing of our common stock on the
NYSE, we will become subject to the listing rules of the NYSE.
Our board of directors has affirmatively determined that no
member of our board, other than Mr. Comstock,
Mr. McMullen and Mr. Stewart, has a material
relationship with us and therefore the remaining members of our
board are independent as defined under the
NYSEs listing standards. Please read Certain
Relationships and Related Party Transactions
Supplier Agreements beginning on page 77 of this
prospectus for additional information regarding
Mr. Stewarts relationship with one of our suppliers.
Executive Sessions of Our Board of
Directors. Our independent directors are
provided the opportunity to meet in executive session at each
regularly scheduled meeting of our board. Messrs. Friedman
and Benson preside over such meetings.
Risk Oversight. The board is actively
involved in oversight of risks that could affect us. This
oversight function is conducted primarily through committees of
our board, as disclosed in the descriptions of each of the
committees below and in the charters of each of the committees,
but the full board retains responsibility for general oversight
of risks. Our Audit Committee, which was formed in February
2011, will be charged with oversight of our system of internal
controls and risks relating to financial reporting, legal,
regulatory and accounting compliance. Our board will continue to
satisfy its oversight responsibility through full reports from
our Audit Committee chair regarding the committees
considerations and actions, as well as through regular reports
directly from officers responsible for oversight of particular
risks within our company. In addition, we have internal audit
systems in place to review adherence to policies and procedures,
which are supported by a separate internal audit department.
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Committees of the
Board
Our board has established three standing committees to assist it
in discharging its responsibilities: an Audit Committee, a
Compensation Committee and a Nominating and Governance
Committee. The following chart reflects the current membership
of each committee:
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Nominating and
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Compensation
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Governance
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Audit Committee
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Committee
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Committee
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Joshua E. Comstock
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Randall C. McMullen, Jr.
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Darren M. Friedman
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James P. Benson
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Michael Roemer
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H. H. Tripp Wommack, III
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C. James Stewart, III
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*
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Each of these committees has a charter, which will be available
no later than the closing of this offering on our website
at
and stockholders may obtain printed copies, free of charge, by
sending a written request to C&J Energy Services, Inc.,
10375 Richmond Avenue, Suite 2000, Houston, Texas 77042,
Attn: Corporate Secretary.
Audit Committee. Our Audit Committee is
responsible for oversight of our risks relating to accounting
matters, financial reporting and legal and regulatory compliance.
In particular, our Audit Committee has the following purposes
pursuant to its charter:
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oversee the quality, integrity and reliability of the financial
statements and other financial information we provide to any
governmental body or the public;
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oversee our compliance with legal and regulatory requirements;
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retain our independent registered public accounting firm;
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oversee the qualifications, performance and independence of our
independent registered public accounting firm;
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oversee the performance of our internal audit function;
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oversee our systems of internal controls regarding finance,
accounting, legal compliance and ethics that our management and
board have established;
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provide an open avenue of communication among our independent
registered public accounting firm, financial and senior
management, the internal auditing department, and our board,
always emphasizing that the independent registered public
accounting firm is accountable to our Audit Committee; and
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perform such other functions as our board may assign to our
Audit Committee from time to time.
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Our Audit Committee was established in February 2011. Going
forward, our Audit Committee, in connection with these purposes
and to satisfy its oversight responsibilities, will annually
select, engage and evaluate the performance and ongoing
qualifications of, and determine the compensation for, our
independent registered public accounting firm, review our annual
and quarterly financial statements, and confirm the independence
of our independent registered public accounting firm. Our Audit
Committee will meet with our management and independent
registered public accounting firm
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regarding the adequacy of our financial controls and our
compliance with legal, tax and regulatory matters and our
significant policies. In particular, our Audit Committee will
separately meet regularly with our chief financial officer,
corporate controller, director of internal audit, our
independent registered public accounting firm and other members
of management. Our Audit Committee chair will routinely meet
between formal committee meetings with our chief financial
officer, corporate controller, director of internal audit and
our independent registered public accounting firm. The committee
will also receive regular reports regarding issues such as the
status and findings of audits being conducted by the internal
and independent auditors, accounting changes that could affect
our financial statements and proposed audit adjustments.
While our Audit Committee has the responsibilities and powers
set forth in its charter, it is not the duty of our Audit
Committee to plan or conduct audits, to determine that our
financial statements are complete and accurate, or to determine
that such statements are in accordance with accounting
principles generally accepted in the United States and other
applicable rules and regulations. Our management is responsible
for the preparation of our financial statements in accordance
with accounting principles generally accepted in the United
States and our internal controls. Our independent registered
public accounting firm is responsible for the audit work on our
financial statements. It is also not the duty of our Audit
Committee to conduct investigations or to assure compliance with
laws and regulations and our policies and procedures. Our
management is responsible for compliance with laws and
regulations and compliance with our policies and procedures.
Since its inception in February 2011, our Audit Committee has
met twice and consists of Mr. Roemer (Chairman),
Mr. Friedman and Mr. Wommack. Subject to a one-year
phase-in period, Sarbanes-Oxley and the listing standards of the
NYSE require an audit committee consisting of at least three
members, each of whom must meet certain independence standards.
These rules will apply to us upon the effectiveness of the
registration statement of which this prospectus forms a part.
Our board has determined that all members of our Audit Committee
are independent as that term is defined in the New York Stock
Exchanges listing standards and by
Rule 10A-3
promulgated under the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Our board has determined that each
member of our Audit Committee is financially literate and that
Mr. Roemer has the necessary accounting and financial
expertise to serve as Chairman. Our board has also determined
that Mr. Roemer is an audit committee financial
expert following a determination that Mr. Roemer met
the criteria for such designation under the SECs rules and
regulations.
Compensation Committee. Our
Compensation Committee is responsible for risks relating to
employment policies and our compensation and benefits systems.
Pursuant to its charter, the purposes of our Compensation
Committee are to:
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review, evaluate, and approve our agreements, plans, policies,
and programs to compensate our corporate officers;
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review and discuss with our management the Compensation
Discussion and Analysis to be included in our proxy statement
for the annual meeting of stockholders and to determine whether
to recommend to our board that the Compensation Discussion and
Analysis be included in the proxy statement, in accordance with
applicable rules and regulations;
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produce our Compensation Committee Report for inclusion in the
proxy statement, in accordance with applicable rules and
regulations;
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otherwise discharge our boards responsibility relating to
compensation of our corporate officers; and
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perform such other functions as our board may assign to our
Compensation Committee from time to time.
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In connection with these purposes, our board has delegated to
our Compensation Committee the overall responsibility for
establishing, implementing and monitoring the compensation for
our corporate officers. Our Compensation Committee was
established in February 2011. Going forward, our Compensation
Committee will review and approve the compensation of our
corporate officers and make appropriate adjustments based on our
performance, achievement of predetermined goals and changes in
an officers duties and responsibilities. Our Compensation
Committee will also approve all employment agreements related to
the executive team and approve recommendations regarding equity
awards for all employees. Together with management, and any
counsel or other advisors deemed appropriate by our Compensation
Committee, our Compensation Committee will review and discuss
the particular executive compensation matter presented and make
a final determination, with the exception of compensation
matters relating to our Chief Executive Officer. In the case of
our Chief Executive Officer, our Compensation Committee
will review and discuss the particular compensation matter
(together with our management and any counsel or other advisors
deemed appropriate) and formulate a recommendation. Our
Compensation Committees chairman then will report our
Compensation Committees recommendation for approval by the
full board or, in certain cases, by the independent directors.
Under its charter, our Compensation Committee has the sole
authority to retain and terminate any compensation consultant to
be used to assist in the evaluation of the compensation of our
corporate officers and directors and also has the sole authority
to approve the consultants fees and other retention terms.
All members of our Compensation Committee, other than
Mr. Stewart, are independent as that term is defined in the
NYSEs listing standards. Our Compensation Committee will
be fully independent within one year of our initial public
offering. Our Compensation Committee, consisting of
Mr. Wommack (Chairman), Mr. Friedman, Mr. Benson,
Mr. Roemer and Mr. Stewart, has held one meeting since
its formation in February 2011.
Nominating and Governance
Committee. Our Nominating and Governance
Committee is responsible for oversight relating to management
and board succession planning, and stockholder responses to our
ethics and business practices. Pursuant to its charter, the
purposes of our Nominating and Governance Committee are to:
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assist our board by identifying individuals qualified to become
members of our board and recommend director nominees to our
board for election at the annual meetings of stockholders or for
appointment to fill vacancies;
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recommend director nominees to our board for each of its
committees;
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advise our board about the appropriate composition of our board
and its committees;
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advise our board about and recommend to our board appropriate
corporate governance practices and assist our board in
implementing those practices;
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lead our board in its annual review of the performance of our
board and its committees;
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direct all matters relating to the succession of our Chief
Executive Officer;
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review and make recommendations to our board with respect to the
form and amount of director compensation; and
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perform such other functions as our board may assign to our
Nominating and Governance Committee from time to time.
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Our Nominating and Governance Committee was formed in February
2011. In connection with these purposes, our Nominating and
Governance Committee will actively seek individuals qualified to
become members of our board, seek to implement the independence
standards required by law, applicable listing standards, our
amended and restated certificate of incorporation and our
amended and restated bylaws, and identify the qualities and
characteristics necessary for an effective Chief Executive
Officer.
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Our Nominating and Governance Committee is responsible for
establishing criteria for selecting new directors and actively
seeking individuals to become directors for recommendation to
our board. In considering candidates for our board, our
Nominating and Governance Committee will consider the entirety
of each candidates credentials. There is currently no set
of specific minimum qualifications that must be met by a nominee
recommended by our Nominating and Governance Committee, as
different factors may assume greater or lesser significance at
particular times and the needs of our board may vary in light of
its composition and our Nominating and Governance
Committees perceptions about future issues and needs.
However, while our Nominating and Governance Committee does not
maintain a formal list of qualifications, in making its
evaluation and recommendation of candidates, our Nominating and
Governance Committee may consider, among other factors,
diversity, age, skill, experience in the context of the needs of
our board, independence qualifications and whether prospective
nominees have relevant business and financial experience, have
industry or other specialized expertise, and have high moral
character.
Our Nominating and Governance Committee may consider candidates
for our board from any reasonable source, including from a
search firm engaged by our Nominating and Governance Committee
or stockholder recommendations. Our Nominating and Governance
Committee does not intend to alter the manner in which it
evaluates candidates based on whether the candidate is
recommended by a stockholder. However, in evaluating a
candidates relevant business experience, our Nominating
and Governance Committee may consider previous experience as a
member of our board.
In addition, our board has delegated to our Nominating and
Governance Committee the responsibility for establishing,
implementing and monitoring the compensation for our directors.
In the future, our Nominating and Governance Committee will
establish, review and approve the compensation of our directors
and make appropriate adjustments based on our performance,
duties and responsibilities and competitive environment. Our
Nominating and Governance Committees primary objectives in
establishing and implementing director compensation are to:
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ensure the ability to attract, motivate and retain the talent
necessary to provide qualified board leadership; and
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use the appropriate mix of long-term and short-term compensation
to ensure high
board/committee
performance.
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All members of our Nominating and Governance Committee, other
than Mr. Stewart, are independent as defined under the
NYSEs listing standards. Our Nominating and Governance
Committee will be fully independent within one year of our
initial public offering. Our Nominating and Governance Committee
consists of Mr. Benson (Chairman), Mr. Roemer and
Mr. Stewart. Since its formation in February 2011, our
Nominating and Governance Committee has not held a meeting.
Compensation
Committee Interlocks and Insider Participation
Mr. Wommack (Chairman), Mr. Friedman, Mr. Benson,
Mr. Roemer and Mr. Stewart have served on our
Compensation Committee since its inception in February 2011.
None of these directors has ever served as one of our officers
or employees. None of our executive officers has served as a
director or member of the compensation committee (or other
committee performing similar functions) of any other entity of
which an executive officer served on our board or our
Compensation Committee.
Financial Code of
Ethics for Chief Executive Officer, Chief Financial Officer,
Controller and Certain Other Senior Financial Officers
Prior to the completion of our initial public offering, our
board will adopt a Financial Code of Ethics for our Chief
Executive Officer, our Chief Financial Officer, our Controller
and other senior financial and accounting officers. Following
the closing of our initial public offering, any change to, or
waiver from, the Financial Code of Ethics will be disclosed on
our website within two business days
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after such change or waiver. Among other matters, the Financial
Code of Ethics will require each of these officers to:
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act ethically with honesty and integrity, including the ethical
handling of actual or apparent conflicts of interest between
personal and professional relations;
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avoid conflicts of interest and disclose any material
transactions or relationships that reasonably could be expected
to give rise to a conflict of interest;
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work to ensure that we fully, fairly and accurately disclose
information in a timely and understandable manner in all reports
and documents that we file with the SEC and in other public
communications made by us;
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comply with applicable governmental laws, rules and
regulations; and
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report any violations of the Financial Code of Ethics to the
chairman of our Audit Committee.
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Corporate Code of
Business Conduct and Ethics
Prior to the closing of this offering, our board will adopt a
Corporate Code of Business Conduct and Ethics, which will set
forth the standards of behavior expected of our directors,
officers and other employees. Among other matters, the Corporate
Code of Business Conduct and Ethics will be designed to deter
wrongdoing and to promote:
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honest and ethical dealing with each other, with our clients and
vendors, and with all other third parties;
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respect for the rights of fellow employees and all third parties;
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equal opportunity, regardless of age, race, gender, sexual
orientation, religion, national origin, marital status,
citizenship status, veteran status or disability;
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fair dealing with the Companys customers, suppliers,
competitors and employees;
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avoidance of conflicts of interest;
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compliance with all applicable laws and regulations;
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the protection and proper use of our assets; and
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the reporting of any violations of the Corporate Code of
Business Conduct and Ethics to the appropriate personnel.
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EXECUTIVE
COMPENSATION AND OTHER INFORMATION
Compensation
Discussion and Analysis
Our Sponsors and certain members of our senior management have
historically been responsible for implementing and administering
our executive compensation program. As a private company, our
executive compensation program has not historically consisted of
formal policies or procedures. Instead, compensation decisions
were made either (1) in accordance with the terms of
existing employment agreements with our executive officers, or
(2) on an ad hoc basis and at the discretion of our
Sponsors and certain members of our senior management after
considering the overall performance of our company, the
employees contribution to our overall performance, and the
employees total compensation package relative to other
employees.
In February 2011, however, our board of directors established a
Compensation Committee that has the authority to oversee our
executive compensation program and to implement any formal
equity-based compensation plans or policies that the committee
deems appropriate for our employees, including our named
executive officers. As we move to a more structured approach to
compensation, we anticipate that our Compensation Committee will
continue to consult with certain of our executive officers
regarding our compensation and benefit programs, other than with
respect to such executive officers own compensation and
benefits. Our Compensation Committee will also have the
authority to engage a compensation consultant at any time if the
committee determines that it would be appropriate to consider
the recommendations of an independent outside source. Each of
our Sponsors has the right to appoint one member to our
Compensation Committee for so long as such Sponsor holds 10% of
our common stock.
We expect that future compensation of our employees, including
our named executive officers, will include a significant
component of incentive compensation based on our performance. We
expect that our Compensation Committee will pursue a
compensation philosophy that emphasizes
pay-for-performance
based on a combination of our overall performance (primarily,
our operating and financial performance, risk management,
execution on our growth strategy, and safety record) and the
individual employees contribution to our overall
performance. We expect that a pay-for-performance compensation
philosophy will place the majority of each of our executive
officers compensation packages at risk should we fail to
meet our overall performance objectives. We expect that
performance metrics and targets will be selected in a manner
designed to minimize risk to our company and our shareholders,
while aggressively pursuing the successful execution of our
business objectives.
We believe implementing a
pay-for-performance
approach generally aligns the interests of our executive
officers and other employees with our shareholders
interests and, at the same time, enables us to maintain a lower
level of base compensation should our operating and financial
performance fail to meet expectations. We expect that our
Compensation Committee will design our executive compensation
policies in a manner that allows us to continue to attract and
retain individuals with the background and skills necessary to
successfully execute our business strategy in a demanding
environment, to motivate those individuals to reach near-term
and long-term goals in a way that aligns their interests with
our shareholders, and to reward individual and overall success
in reaching such goals.
In designing our executive compensation program, we expect that
our Compensation Committee will rely on three primary elements
of compensation (in addition to other benefits)
salary, cash bonus and long-term equity incentive awards. We
anticipate that the performance-driven elements of our
compensation philosophy will consist of cash bonuses and
long-term equity incentives, as opposed to salary. We believe
that annual cash bonuses and equity-incentive awards are
flexible in application and can be tailored to meet our
compensation objectives. The determination of an employees
cash bonus will reflect our Compensation Committees
assessment of the employees relative contribution to
achieving or exceeding our annual, near-term goals. We
anticipate that the
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determination of an employees long-term equity incentive
awards will be based, in large part, on the employees
demonstrated and expected contribution to our longer term
performance objectives.
Objectives of Our
Executive Compensation Program
The objectives of our compensation program are to keep
compensation consistent with our strategic business and
financial objectives and competitive within our industry, and to
assure that we attract, motivate, and retain talented executive
personnel.
Key Components of Our Executive Compensation
Programs. Our compensation and benefits
programs have historically consisted of the following key
components, which are described in greater detail under
Components of Our Executive Compensation
Program:
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Base salary;
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Bonus awards;
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Stock options;
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Severance and change in control benefits; and
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Other benefits.
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We maintain employment agreements with certain of our named
executive officers that will continue to provide each of these
compensation elements in the future, and we anticipate that our
Compensation Committee will provide other executives with
compensation packages that include some or all of the above
elements for 2011.
Setting 2010
Executive Compensation
The following officers constituted our named executive officers
for 2010:
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Joshua E. Comstock, Chief Executive Officer, President and
Chairman
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Randall C. McMullen, Jr., Executive Vice President, Chief
Financial Officer and Treasurer
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Bretton W. Barrier, Chief Operations Officer
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J. P. Pat Winstead, Vice President Sales
and Marketing
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John D. Foret, Vice President Coiled Tubing
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We anticipate that our named executive officers for the year
ended December 31, 2011 will include Theodore R.
Moore, who became our Vice President General Counsel
and Corporate Secretary effective February 1, 2011.
Mr. Moore was not employed by us at the end of 2010.
During 2010, Messrs. Comstock and McMullen received
compensation and benefits pursuant to the employment agreements
that governed their employment relationship with us at that
time. Our board of directors, after consultation with our chief
executive officer, determined the appropriate compensation and
benefits for Messrs. Barrier, Foret and Winstead.
Components of
Executive Compensation Program
The employment agreements that we maintained with
Messrs. Comstock and McMullen prior to December 23,
2010, which we refer to in this prospectus as the Previous
Employment Agreements, contained provisions that set base
salary, bonuses, and other benefits. The Previous Employment
Agreements also provided for certain severance payments in
connection with a termination of the executives employment
under certain conditions.
In anticipation of our initial public offering, we elected to
enter into new employment agreements with Messrs. Comstock
and McMullen in December 2010 to establish agreements that
reflect the increased responsibilities associated with being the
Chief Executive Officer and Chief Financial Officer
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of a publicly traded company. Additionally, our significant
growth over the last few years resulted in a dramatic increase
in Mr. Barriers duties and responsibilities and our
initial public offering is expected to further expand his role
within our company. As a result, our board of directors
determined it was appropriate to enter into an employment
agreement with Mr. Barrier at the same time we entered into
new agreements with Messrs. Comstock and McMullen. Our
initial public offering and recent growth are not currently
expected to appreciably expand the duties and responsibilities
of Messrs. Foret and Winstead. Therefore, our Compensation
Committee elected not to enter into employment agreements with
Messrs. Foret and Winstead at this time.
Base
Salary
Each named executive officers base salary is a fixed
component of compensation and does not vary depending on the
level of performance achieved by us. We generally do not adjust
base pay for our named executive officers based on our
performance. As such, base pay functions as an important
counterbalance to incentive, discretionary, and equity
compensation, all of which are contingent on our performance.
The determination as to the reasonableness of a named executive
officers base salary has been made by our board of
directors and Chief Executive Officer based on their extensive
experience in the energy industry. We review the base salaries
for each named executive annually as well as at the time of any
promotion or significant change in job responsibilities, and in
connection with each review consider individual and company
performance over the course of that year. The total base salary
received by each named executive for 2010 is reported in the
Summary Compensation Table beginning on page 66 of this
prospectus.
Effective December 23, 2010, our named executive
officers base salaries were as follows: Mr. Comstock,
$625,000; Mr. McMullen, $450,000; Mr. Barrier,
$325,000; Mr. Foret, $187,425 and Mr. Winstead,
$165,900. These base salaries were set at levels that reflect
the increase in duties and responsibilities of our named
executive officers resulting from the continued growth of our
company and this offering.
Bonus
Awards
Annual Cash Bonus. Both Messrs. Comstock
and McMullens Previous Employment Agreements provided that
their annual cash bonuses for fiscal year 2010 were to be based
on the level of achievement of the EBITDA Target for fiscal year
2010, which was $24.9 million. Under their Previous
Employment Agreements, Messrs. Comstock and McMullen would
not receive any bonus if we did not achieve at least 85% of the
EBITDA Target for the applicable year. If we achieved at least
85% of the EBITDA Target (as set forth in our annual budget for
fiscal year 2010) then Messrs. Comstock and McMullen
were to receive a cash bonus equal to an increasing percentage
of the total EBITDA, as defined in our previous revolving credit
facility, for the fiscal year 2010.
Mr. Comstocks Previous Employment Agreement provided
that (i) if the EBITDA for fiscal year 2010 was at least
85% but less than 90% of the EBITDA Target, his bonus would
equal 1.5% of actual EBITDA; (ii) if the EBITDA for fiscal
year 2010 was at least 90% but less than 100% of the EBITDA
Target, his bonus would equal 1.75% of actual EBITDA; and
(iii) if the EBITDA for fiscal year 2010 was at least 100%
of the EBITDA Target, his bonus would equal 2.125% of actual
EBITDA.
Mr. McMullens Previous Employment Agreement provided
that (i) if the EBITDA for fiscal year 2010 was at least
85% but less than 90% of the EBITDA Target, his bonus would
equal 0.25% of actual EBITDA; (ii) if the EBITDA for fiscal
year 2010 was at least 90% but less than 95% of the EBITDA
Target, his bonus would equal 0.50% of actual EBITDA;
(iii) if the EBITDA for fiscal year 2010 was at least 95%
but less than 100% of the EBITDA Target, his bonus would equal
0.75% of actual EBITDA; and (iv) if the EBITDA for fiscal
year 2010 was at least 100% of the EBITDA Target, his bonus
would equal 1.00% of actual EBITDA.
The EBITDA used to calculate the bonus awards, which is defined
in our previous revolving credit facility, was
$84.0 million. This bonus calculation of EBITDA differs
from Adjusted EBITDA
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disclosed in Summary Consolidated Financial Data
primarily because it adds back $0.8 million of non-routine
advisor and attorney fees and $0.6 million of share-based
compensation expense.
Based upon our EBITDA achieved in 2010, Mr. Comstock
received a cash bonus of $1,785,000 and Mr. McMullen
received a cash bonus of $840,000. The total cash bonus earned
by each of our named executive officers for 2010 is reported in
the Summary Compensation Table beginning on page 66 of this
prospectus.
The 2011 Employment Agreements for Mr. Comstock,
Mr. McMullen and Mr. Barrier provide for annual cash
bonuses so long as we achieve certain performance targets
established by our Compensation Committee. For 2011, our
Compensation Committee intends to award annual cash bonuses to
Messrs. Comstock, McMullen and Barrier based upon its
assessment of our overall performance at the end of 2011 and
each executive officers contribution to our overall
performance. Mr. Comstocks target bonus range will be
from 150% to 200% of his base salary. Mr. McMullens
target bonus range will be from 100% to 150% of his base salary.
Mr. Barriers target bonus range will be from 75% to
100% of his base salary.
Registration Statement
Bonus. Messrs. Comstock and McMullens
2011 Employment Agreements provide for the payment of a cash
bonus to each of them in the amount of $125,000 if a
registration statement is declared effective by the SEC on or
prior to June 29, 2011. Any such bonus will be paid as soon
as practicable following the effectiveness of the registration
statement, but in no event later than 30 days following the
effective date of the registration statement. These bonuses are
intended to reward the achievement of a milestone for our
company on a timeline specified by our Compensation Committee to
achieve parallel business goals. The registration statement
bonus opportunity was made available only to
Messrs. Comstock and McMullen because their extraordinary
individual contributions will be the largest driver of the
timely achievement of this milestone and they have more control
over the factors that will contribute to the achievement of this
goal than our other named executive officers.
Discretionary Bonus. In addition to the annual
bonuses and registration statement bonuses, our Compensation
Committee has the authority to award additional incentive bonus
compensation to our named executive officers. For 2010, our
named executive officers, excluding Mr. Comstock, received
one-time transaction bonuses funded primarily by our Sponsors in
connection with the successful completion of the private
placement of our common stock in December 2010. These bonuses
were largely set and determined at the discretion of our
Sponsors, with recommendations from Mr. Comstock regarding
individual recipients and amounts based on his assessment of
each individuals contribution to the success of the
private placement. We and our Sponsors paid out a total of
approximately $3,592,547 in transactional bonuses to executive
officers, excluding Mr. Comstock, approximately $1,534,462
of which was received by our named executive officers during
2010 and $2,058,085 in February 2011. Individual transactional
bonuses provided to our named executive officers are included in
the Summary Compensation Table beginning on page 66 of this
prospectus and further described in Certain Relationships
and Related Party Transactions One-Time 2010
Bonuses on page 77.
Our board of directors elected not to award additional incentive
bonus compensation to our named executive officers for 2010
after concluding that the transaction bonus paid to our named
executive officers in December 2010 provided sufficient
compensation to reward the achievement of our strategic business
and financial objectives, as well as the contributions of each
of our named executive officers to the achievement of those
objectives. Our board of directors determined, however, that the
registration statement bonuses provided in Messrs. Comstock
and McMullens 2011 Employment Agreements should be
increased to adequately compensate them for the additional work
required to complete this offering. Our board of directors
increased these bonuses by awarding additional discretionary
bonuses in the amounts of $200,000 and $100,000 for
Messrs. Comstock and McMullen, respectively, contingent
upon the successful completion of our initial public offering. A
discretionary bonus of $50,000 was also awarded to
Mr. Barrier for the additional work to complete our initial
public offering.
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Stock
Options
We grant options because options compensate our named executive
officers only in the event of an increase in the market value of
our common stock, thus aligning the interests of our named
executive officers with those of our shareholders. We believe
the three year vesting period typically associated with these
stock option awards will mitigate any risk that they would be
incentivized to take actions that may not be in the long-term
interest of our shareholders in order to increase our share
price in the near-term. Finally, we prefer to issue stock
options because the compensation cost to us associated with
options is generally fully deductible. Please read
Tax Deductibility of Executive
Compensation on page 65 of this prospectus.
Prior to December 23, 2010, all options granted to our
named executive officers were granted under the C&J Energy
Services, Inc. 2006 Stock Option Plan, or the 2006 Plan. The
2006 Plan provided for awards of incentive stock options,
non-statutory stock options, restricted stock, and other stock
based awards to employees, officers, directors, consultants and
advisors. As of the end of fiscal year 2010, our named executive
officers have been awarded only non-qualified stock options, and
no other stock-based awards have been made under the 2006 Plan.
Non-statutory stock options granted to our named executive
officers vested 20% on the date of grant and another 20% on each
of the first four anniversaries of the grant date. On
December 23, 2010, the 2006 Plan was amended to provide
that (i) no additional awards will be granted under the
2006 Plan, (ii) all awards outstanding under the 2006 Plan
will continue to be subject to the terms of the 2006 Plan, and
(iii) options to purchase all 237,927 shares awarded
under the 2006 Plan vested and became exercisable in connection
with the completion of the private placement of our common stock
in December 2010. Additionally, on December 23, 2010, we
granted the remaining 35,000 shares available for issuance
under the 2006 Stock Option Plan as follows: 17,500 options were
granted to each of Messrs. Comstock and McMullen, which
were fully vested on the date of grant and have an exercise
price of $10.00 per share.
On December 23, 2010, we adopted the C&J Energy
Services, Inc. 2010 Stock Option Plan, or the 2010 Plan. We will
use the 2010 Plan to grant equity awards to our employees,
consultants, and outside directors. We have reserved 5,699,889
shares for issuance under the 2010 Plan. The 2010 Plan allows us
to grant non-statutory stock options and incentive stock
options. On December 23, 2010, we granted non-statutory
stock options under the 2010 Plan to Messrs. Comstock,
McMullen, and Barrier in the amounts of 1,662,468, 1,187,477 and
474,991, respectively. The size of each award was determined by
our board of directors based on each executives duties and
responsibilities and each executives contribution to our
overall performance in 2010. All of the December 23, 2010
stock option awards to our named executive officers
(i) have an exercise price equal to the fair market value
of our shares on the date of grant, (ii) vest equally on
each of the first, second, and third anniversaries of the grant
date and (iii) expire ten years following the grant date.
Severance and
Change in Control Benefits
We believe it is important that Messrs. Comstock, McMullen
and Barrier focus their attention and energy on our business
without any distractions regarding the effects of a termination
that is beyond their control or our change in control.
Therefore, Messrs. Comstock, McMullen and Barriers
employment agreements provide that they will be entitled to
receive severance benefits and accelerated vesting of their
options in the event their employment is terminated under
certain circumstances. Specifically, all payment obligations to
Messrs. Comstock, McMullen and Barrier associated with a
change in control are double trigger payments, which
require termination of employment within the two years following
a change in control to receive the benefit. Our Compensation
Committee believed that a double trigger payment was more
appropriate than a single trigger payment (where a payment is
made upon the occurrence of a change in control alone) because
it financially protects the employee if he is terminated
following a change in control transaction, without providing a
potential windfall if the employee is not terminated. For more
detailed information regarding our severance and change in
control benefits, please read Potential Payments
Upon Termination or Change in Control beginning on
page 69 of this prospectus.
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Other
Benefits
Each of our named executive officers is provided with certain
perquisites, including the use of a company-owned vehicle or an
annual automobile allowance, related automobile insurance
coverage, and a health care subsidy. In connection with
relocating our corporate headquarters to Houston, Texas at the
beginning of this year, we also reimbursed certain employees for
the cost of relocating to Houston. Other benefits received by
each of our named executive officers for the fiscal year ended
December 31, 2010 are disclosed in the Summary Compensation
Table beginning on page 66 of this prospectus.
We do not maintain a defined benefit or pension plan for our
executive officers or other employees because we believe such
plans primarily reward longevity rather than performance.
Nevertheless, we recognize the importance of providing our
employees with assistance in saving for their retirement. We,
therefore, maintain a retirement plan, or the 401(k) Plan, that
is qualified under Section 401(k) of the Internal Revenue
Code of 1986, as amended, or the Code. We offer matching
contributions for each of our employees, including our named
executive officers, up to 4% of their qualifying compensation
each year, subject to certain limitations imposed by the Code.
Amounts of the matching contributions to the 401(k) Plan during
2010 on behalf of our named executive officers are disclosed in
the Summary Compensation Table beginning on page 66 of this
prospectus.
Stock Ownership
Guidelines
Stock ownership guidelines have not been implemented for our
named executive officers or directors at this time. We will
continue to periodically review best practices and reevaluate
our position with respect to stock ownership guidelines.
Tax Deductibility
of Executive Compensation
Limitations on deductibility of compensation may occur under
Section 162(m) of the Internal Revenue Code. An exception
applies to this deductibility limitation for a limited period of
time in the case of companies that become publicly traded. In
addition, following such limited period of time, an exception to
the $1 million limit applies with respect to certain
performance-based compensation.
Although deductibility of compensation is preferred, tax
deductibility is not a primary objective of our compensation
programs. We believe that achieving our compensation objectives
is more important than the benefit of tax deductibility of
compensation, and prefer to maintain flexibility in how we
compensate our executive officers that may result in limited
deductibility of amounts of compensation from time to time.
Relation of
Compensation Policies and Practices to Risk Management
We anticipate that our compensation policies and practices will
be designed to provide rewards for short-term and long-term
performance, both on an individual basis and at the entity
level. In general, optimal financial and operational
performance, particularly in a competitive business, requires
some degree of risk-taking. Accordingly, the use of compensation
as an incentive for performance can foster the potential for
management and others to take unnecessary or excessive risks to
reach performance thresholds that qualify them for additional
compensation, primarily cash bonuses.
From a risk-management perspective, our policy will be to
conduct our commercial activities within pre-defined risk
parameters that are closely monitored and are structured in a
manner intended to control and minimize the potential for
unwarranted risk-taking. We also routinely monitor and measure
the execution and performance of our projects and acquisitions
relative to expectations.
We expect our compensation arrangements to contain a number of
design elements that serve to minimize the incentive for taking
unwarranted risk to achieve short-term, unsustainable results.
Those elements include delaying the rewards and subjecting such
rewards to forfeiture for terminations related to violations of
our risk management policies and practices.
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In combination with our risk-management practices, we do not
believe that risks arising from our compensation policies and
practices for our employees, including our named executive
officers, are reasonably likely to have a material adverse
effect on us.
Actions Taken
After the 2010 Fiscal Year
As noted above, we have entered into an employment agreement
with Mr. Moore effective February 1, 2011.
Mr. Moores employment agreement is substantially
similar to the agreement we maintain with Mr. Barrier, and
includes base salary, bonus, equity compensation, severance and
employee benefit provisions. Because we anticipated that
Mr. Moores contribution to our initial public
offering and assistance managing our legal and business concerns
following the public offering would be substantial, we concluded
that it was appropriate to formalize his employment relationship
with us, and to provide him with a compensation package that is
comparable to the compensation packages received by other
members of our senior management team.
In February 2011, our board of directors concluded that the
overall compensation package of certain of our employees,
including Mr. Winstead and Mr. Foret, relative to our
other named executive officers, was insufficient to meet our
objective to retain talented executive personnel by providing
both short-term and long-term incentive compensation. As a
result, we awarded stock options to these employees under the
2010 Plan. We granted 40,000 options to Mr. Winstead
and 40,000 options to Mr. Foret. The amount of each grant
was determined by our board of directors based on each
executives duties and responsibilities and each
executives contribution to our overall performance in
2010. All of the February 2011 stock option awards to employees
(i) have an exercise price equal to the fair market value
of our shares on the date of grant, (ii) vest equally on
each of the first, second, and third anniversaries of the grant
date and (iii) expire ten years following the grant date.
Summary
Compensation Table
The table below sets forth the annual compensation earned during
the 2010 fiscal year by our named executive officers:
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|
|
|
|
|
|
|
Option
|
|
|
All Other
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary(1)
|
|
|
Bonus(2)
|
|
|
Awards(3)
|
|
|
Compensation(4)
|
|
|
Total
|
|
|
Joshua E. Comstock.
|
|
|
2010
|
|
|
$
|
284,750
|
|
|
$
|
1,785,000
|
|
|
$
|
11,149,535
|
|
|
$
|
23,195
|
|
|
$
|
13,242,480
|
|
Chief Executive Officer, President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall C. McMullen, Jr.
|
|
|
2010
|
|
|
$
|
190,564
|
|
|
$
|
1,725,000
|
|
|
$
|
7,997,137
|
|
|
$
|
18,816
|
|
|
$
|
9,931,517
|
|
Executive Vice President, Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bretton W. Barrier
|
|
|
2010
|
|
|
$
|
187,824
|
|
|
$
|
187,424
|
|
|
$
|
3,152,399
|
|
|
$
|
24,595
|
|
|
$
|
3,552,242
|
|
Chief Operations Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.P. Pat Winstead.
|
|
|
2010
|
|
|
$
|
163,584
|
|
|
$
|
2,141,035
|
|
|
|
|
|
|
$
|
24,595
|
|
|
$
|
2,329,214
|
|
Vice President Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John D. Foret.
|
|
|
2010
|
|
|
$
|
184,809
|
|
|
$
|
187,424
|
|
|
|
|
|
|
$
|
19,908
|
|
|
$
|
392,141
|
|
Vice President Coiled Tubing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts in this column reflect
the base salaries earned by each of the named executive officers
during the 2010 fiscal year rather than the base salaries that
were in effect at the end of the 2010 fiscal year. These amounts
are calculated based on a base salary of $267,750, $178,500,
$178,500, $158,000 and $178,500 from January 1, 2010
through April 17, 2010; a base salary of $281,137,
$187,425, $187,425, $165,900 and $187,425 from April 18,
2010 through December 23, 2010; and a base salary of
$625,000, $450,000, $325,000, $165,900 and $187,425 from
December 24, 2010 through December 31, 2010, for
Messrs Comstock, McMullen, Barrier, Winstead and Foret,
respectively.
|
|
(2)
|
|
The amounts in this column reflect
amounts earned for the 2010 fiscal year but which were paid
during the 2011 year. The bonus amount for
Mr. Comstock reflects the bonus provided for within his
Previous Employment Agreement; amounts for Mr. McMullen
include $840,000 provided for within his Previous Employment
Agreement and a transactional bonus of $885,000; amounts for
Mr. Barrier include $93,712 with respect to his
discretionary bonus and a transactional bonus of
|
66
|
|
|
|
|
$93,712; amounts for
Mr. Winstead include $82,950 with respect to his
discretionary bonus and $2,058,085 with respect to his
transactional bonus; and amounts for Mr. Foret include
$93,712 with respect to his discretionary bonus and $93,712 with
respect to his transactional bonus.
|
|
(3)
|
|
The amounts in this column
represent the grant date fair value of each stock option award
granted under our 2006 and 2010 Plans, computed in accordance
with FASB ASC Topic 718. Please read Note 9 to our
consolidated financial statements for the fiscal year ended
December 31, 2010 included elsewhere in this prospectus for
a discussion of the assumptions used in determining the grant
date fair value of these awards.
|
|
(4)
|
|
The amounts in this column reflect
payments to each of the named executive officers in the amount
of $6,995 for company subsidized health care benefits and $9,800
for company matching contributions to each of the
executives 401(k) Plan account. For Mr. Comstock,
amounts also include a $6,400 payment for a monthly automobile
allowance during the months of January to May of 2010 and for
the use of a company-owned vehicle and associated automobile
insurance and maintenance costs for the remainder of the year.
For Messrs. McMullen and Foret, amounts include $2,020 and
$3,113, respectively, for the use of a company-owned vehicle and
associated automobile insurance and maintenance costs, and for
Messrs. Barrier and Winstead, $7,800 each for an automobile
allowance during the 2010 year.
|
Grants of
Plan-Based Awards for the 2010 Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
Grant
|
|
|
|
|
Awards:
|
|
Exercise
|
|
Date Fair
|
|
|
|
|
Number of
|
|
or Base
|
|
Value of
|
|
|
|
|
Securities
|
|
Price of
|
|
Stock and
|
|
|
Grant
|
|
Underlying
|
|
Option
|
|
Option
|
Name
|
|
Date
|
|
Options
|
|
Awards(1)
|
|
Awards
|
|
Joshua E. Comstock
|
|
|
12/23/2010
|
(2)
|
|
|
1,662,468
|
|
|
$
|
10.00
|
|
|
$
|
11,033,392
|
|
|
|
|
12/23/2010
|
(3)
|
|
|
17,500
|
|
|
$
|
10.00
|
|
|
$
|
116,143
|
|
Randall C. McMullen, Jr.
|
|
|
12/23/2010
|
(2)
|
|
|
1,187,477
|
|
|
$
|
10.00
|
|
|
$
|
7,880,993
|
|
|
|
|
12/23/2010
|
(3)
|
|
|
17,500
|
|
|
$
|
10.00
|
|
|
$
|
116,143
|
|
Bretton W. Barrier
|
|
|
12/23/2010
|
(2)
|
|
|
474,991
|
|
|
$
|
10.00
|
|
|
$
|
3,152,399
|
|
Pat Winstead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John D. Foret
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The exercise price for the stock
options granted December 23, 2010 was based upon the per
share offering price that we used for our common stock offering
in December 2010.
|
|
(2)
|
|
The stock option awards reflected
in these columns were granted under the 2010 Plan.
|
|
(3)
|
|
The stock option awards reflected
in these columns were granted under the 2006 Plan.
|
The stock option awards that were granted to
Messrs. Comstock, McMullen and Barrier from our 2010 Plan
on December 23, 2010 are governed by individual stock
option agreements. Each of the awards were granted with a
ten-year expiration date, measured from the grant date for the
awards. The stock options are subject to forfeiture prior to
vesting, which will occur in three equal installments on each of
the yearly anniversaries of the grant date. Vesting for the
options will accelerate upon certain terminations of employment,
however, as described in greater detail below in the
Potential Payments Upon Termination or Change
in Control.
The stock option awards granted to Messrs. Comstock and McMullen
under our 2006 Plan were fully vested at the time the awards
were granted.
67
Outstanding
Equity Awards at 2010 Fiscal Year-End
The following table provides information on the current stock
option and stock award holdings by the named executive officers.
This table includes unexercised options. The vesting dates for
each award are shown in the accompanying footnotes. There were
no other outstanding equity awards as of December 31, 2010
other than options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Expiration
|
Name
|
|
Exercisable(1)
|
|
Unexercisable(2)
|
|
Price
|
|
Date
|
|
Joshua E. Comstock
|
|
|
17,500
|
|
|
|
1,662,468
|
|
|
$
|
10.00
|
|
|
|
12/23/2020
|
|
|
|
|
105,000
|
|
|
|
|
|
|
$
|
1.43
|
|
|
|
11/11/2018
|
|
|
|
|
525,000
|
|
|
|
|
|
|
$
|
1.43
|
|
|
|
11/1/2016
|
|
Randall C. McMullen, Jr.
|
|
|
17,500
|
|
|
|
1,187,477
|
|
|
$
|
10.00
|
|
|
|
12/23/2020
|
|
|
|
|
161,000
|
|
|
|
|
|
|
$
|
1.43
|
|
|
|
11/11/2018
|
|
|
|
|
87,500
|
|
|
|
|
|
|
$
|
1.43
|
|
|
|
11/1/2016
|
|
Bretton W. Barrier
|
|
|
|
|
|
|
474,991
|
|
|
$
|
10.00
|
|
|
|
12/23/2020
|
|
|
|
|
157,500
|
|
|
|
|
|
|
$
|
1.43
|
|
|
|
1/30/2017
|
|
Pat Winstead
|
|
|
42,000
|
|
|
|
|
|
|
$
|
1.43
|
|
|
|
11/11/2018
|
|
|
|
|
35,000
|
|
|
|
|
|
|
$
|
1.43
|
|
|
|
11/1/2016
|
|
John D. Foret
|
|
|
7,000
|
|
|
|
|
|
|
$
|
1.43
|
|
|
|
11/11/2018
|
|
|
|
|
70,000
|
|
|
|
|
|
|
$
|
1.43
|
|
|
|
11/1/2016
|
|
|
|
|
(1)
|
|
Each of the stock options reflected
in this column were granted from the 2006 Plan and became fully
vested on December 23, 2010.
|
|
(2)
|
|
Each of the stock options reflected
in this column were granted on December 23, 2010 and will
vest in equal installments on each of December 23, 2011,
December 23, 2012, and December 23, 2013.
|
Option Exercises
in the 2010 Fiscal Year
None of our named executive officers exercised a stock option
award in 2010.
Pension
Benefits
While we provide our employees with the 401(k) Plan, we do not
currently maintain a defined benefit pension plan. Please read
Components of Executive Compensation
Program Other Benefits on page 65 of this
prospectus.
Nonqualified
Deferred Compensation
We do not provide a nonqualified deferred compensation plan for
our employees at this time.
Stock Option
Plans and Agreements
The stock option agreements for the 2010 Plan grants to our
named executive officers (which are the only unvested stock
options outstanding for such officers as of the end of
2010) state that if any of the executives cease to provide
services to us (other than because of their death or
disability), then their options that were previously vested but
unexercised will terminate at the end of the 90th day
following the date of their termination of service. Further, if
any of our named executive officers experiences a termination of
employment (i) by us without cause, (ii) because we
decide not to renew the executives employment agreement,
or (iii) by the executive for good reason, then any
unvested options awarded to that executive under the 2010 Plan
will immediately become fully vested and exercisable. If a named
executive officer experiences a termination of employment other
than of a type described in (i), (ii), or (iii) of the
immediately preceding sentence, then upon such a termination all
unvested options will be forfeited. Finally, the stock option
agreements provide that if a named executive officers
employment is terminated by us for cause then all options
granted to them under the 2010 Plan are forfeited upon the
effective date of such termination.
68
Potential
Payments Upon Termination or Change in Control
The employment agreements between us and Messrs. Comstock,
McMullen and Barrier contain certain severance provisions. We
believe that severance provisions should be included in
employment agreements as a means of attracting and retaining
executives and to provide replacement income if their employment
is terminated because of a termination that may be beyond the
executives control, except in certain circumstances such
as when there is cause.
If we terminate Messrs. Comstock, McMullen or
Barriers employment for cause, or if such an executive
resigns without good reason, then that executive will be paid
(i) (A) that executives base salary earned through
the date of termination and (B) any accrued but unpaid
vacation pay due to the executive ((A) and (B) together,
the accrued obligations) and (ii) unreimbursed expenses.
If Messrs. Comstock, McMullen or Barriers employment
is terminated by the executive for good reason or by us other
than for cause, because of death or disability, or because we
choose not to renew the executives employment agreement
(in each case, other than during a change in control period),
then the named executive officer will be entitled to receive:
(i) payment of the accrued obligations and any unreimbursed
expenses, (ii) any unpaid bonuses owed to the executive for
a completed calendar year that have yet to be paid,
(iii) if the executives termination is after
June 30, then a pro-rata payment of his annual bonus for
the year of his termination (but no longer than two years from
the date of termination), (iv) immediate vesting of all
unvested stock options awarded to the executive under any plan,
(v) salary continuation severance payments based on the
executives base salary in effect on the date of
termination continuing for the longer of (A) the remainder
of the term of the executives employment agreement and
(B) one year from the date of termination, and (vi) a
lump-sum payment of an amount equal to all Consolidated Omnibus
Budget Reconciliation Act, or COBRA, premiums that would be
payable during the period described in (v). Notwithstanding
(v) in the prior sentence, if the termination occurs
because we choose not to renew the executives employment
agreement then the period in (v) shall instead be twelve
(12) months if the term of the employment agreement ends on
the third anniversary of the effective date of the employment
agreement, six (6) months if the term of the agreement ends
on the fourth anniversary of the effective date of the
employment agreement, and three (3) months (or such longer
time as may be provided under our severance policies generally)
if the term of the employment agreement ends on or after the
fifth anniversary of the effective date of the employment
agreement. Our obligation to pay the executive items
(iii) through (vi) of this paragraph is subject to the
executives execution of a release of claims against us
within 50 days after the date of his termination of
employment.
If a named executive officers employment is terminated by
reason of death or disability, the employment agreements provide
that the executive will be entitled to: (i) payment of the
Accrued Obligations, (ii) payment of any unreimbursed
expenses, (iii) any unpaid bonuses owed to the executive
for a completed calendar year that have yet to be paid,
(iv) if the executives termination is after
June 30, then a pro-rata payment of his annual bonus for
the year of his termination, and (v) the payment of any and
all benefit obligations due to the named executive officer or
his estate (as the case may be) available in which the executive
participated.
If, during the two years following a change in control (as
defined in the named executive officers employment
agreements), we terminate a named executive officers
employment without cause, such executive resigns for good
reason, or we choose not to renew the executives
employment agreement, then the named executive officer will be
entitled to receive: (i) payment of the Accrued Obligations
and any unreimbursed expenses, (ii) any unpaid bonuses owed
to the executive for a completed calendar year that have yet to
be paid, (iii) if the executives termination is after
June 30, then a pro-rata payment of his annual bonus for
the year of his termination, (iv) immediate vesting of all
unvested stock options awarded to the executive under any plan,
(v) salary continuation severance payments based on the
executives base salary in effect on the date of
termination continuing for the longer of (A) the remainder
of the term of the executives employment agreement and
(B) two years from the date of termination, and (vi) a
lump-sum payment of an amount equal to all COBRA premiums that
would be payable during the period described in (v). Our
obligation to pay the executive items
69
(iii) through (vi) of this paragraph is subject to the
executives execution of a release of claims against us
within 50 days after the date of his termination of
employment.
If any portion of the payments under this agreement, or under
other agreements with the named executive officers, would
constitute excess parachute payments and would
result in the imposition of an excise tax on the executive, then
the payments made to the named executive officer will either be
(i) delivered in full, or (ii) reduced in accordance
with the executives employment agreement until no portion
of the payments are subject to an excise tax, whichever results
in the receipt by the named executive officer of the greatest
benefit on an after-tax basis.
All payments of the accrued obligations and unreimbursed
expenses would be paid to the named executive officer within
thirty (30) days after the date of the executives
termination of employment. So long as (i) the named
executive officer signs a release on or before the
50thday
following the executives termination of employment and
(ii) the executive complies with the confidentiality,
noncompetition, non-disclosure, and non-solicitation provisions
of the executives employment agreement, all salary
continuation payments will begin, and all lump-sum COBRA
payments will be made, on the
60th day
following the executives termination of employment. In
general, breach by a named executive officer of the
confidentiality, noncompetition, non-disclosure, and
non-solicitation provisions of the executives employment
agreement may result in (A) the termination of severance
payments to the executive at the boards discretion and
(B) if a court finds that the executive has breached the
employment agreement in this way, the repayment by the executive
of all severance payments previously made.
All payments of deferred compensation paid upon a termination of
employment will be paid on the second day following the sixth
month after the named executives termination of employment
if so required by Section 409A of the Code.
We do not currently maintain any employment agreements or
severance agreements with Messrs. Foret or Winstead that
would provide them with severance or termination benefits.
The following table quantifies the amounts that each of our
named executive officers could be expected to receive upon a
termination or a change in control, assuming that such an event
occurred on December 31, 2010. Such amounts can not be
determined with any certainty outside of the occurrence of an
actual termination or change in control event, and we have
assumed that our common stocks fair market value of $10.00
per share on December 31, 2010 would be the value of any
accelerated equity upon such a hypothetical termination or
change in control event. Due to the fact that the exercise price
of the outstanding 2010 Plan stock option awards held by
Messrs. Comstock, McMullen and Barrier as of
December 31, 2010 and the fair market value of our common
stock on December 31, 2010 was the same, there is no value
associated with the acceleration of equity awards to report in
the table below. We have also assumed for purposes of the table
below that all accrued obligations and other similar expenses
were paid current as of December 31, 2010. Any actual
payments that may be made pursuant to the agreements described
above are dependent on various factors, which may or may not
exist at the time a change in control
70
actually occurs
and/or the
named executive officer is actually terminated. Therefore, such
amounts and disclosures should be considered
forward-looking
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without Cause or
|
|
|
|
|
|
|
Good Reason
|
|
Without Cause or
|
|
|
|
|
Termination,
|
|
Good Reason
|
|
|
|
|
or Non-Renewal
|
|
Termination,
|
|
|
|
|
outside of
|
|
or Non-Renewal
|
|
|
|
|
a Change
|
|
in connection with
|
|
Termination Due to
|
Name and Principal Position
|
|
in Control(1)
|
|
Change in Control
|
|
Death or Disability
|
|
Joshua E. Comstock
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and Bonus
|
|
$
|
3,035,000
|
|
|
$
|
3,035,000
|
|
|
$
|
1,785,000
|
|
Continued Medical
|
|
|
20,350
|
|
|
|
20,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,055,350
|
|
|
$
|
3,055,350
|
|
|
$
|
1,785,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall C. McMullen, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and Bonus
|
|
$
|
1,740,000
|
|
|
$
|
1,740,000
|
|
|
$
|
840,000
|
|
Continued Medical
|
|
|
20,350
|
|
|
|
20,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,760,350
|
|
|
$
|
1,760,350
|
|
|
$
|
840,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bretton W. Barrier
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and Bonus
|
|
$
|
837,424
|
|
|
$
|
837,424
|
|
|
$
|
187,424
|
|
Continued Medical
|
|
|
20,350
|
|
|
|
20,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
857,774
|
|
|
$
|
857,774
|
|
|
$
|
187,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Amounts reflected in the
Salary and Bonus line of this column were calculated
by using the base salary of each executive officer on
December 31, 2010, and the full amount of the bonus that
each of the executives received for the 2010 year due to
the fact that a termination on the last day of the year would
not have resulted in a pro-rata bonus but rather a bonus for the
entire 2010 year. However, the salary continuation amounts
that are shown above are applicable only to a termination by us
without cause, or for a termination by the executive for good
reason; in the event that we did not renew the executives
employment agreement outside of a change in control protection
period, the amounts in the Salary and Bonus line of
this column would instead be lowered to the following amounts:
$2,410,000 for Mr. Comstock, $1,290,000 for
Mr. McMullen and $512,424 for Mr. Barrier.
|
Director
Compensation
Our directors did not receive compensation for their service on
our board during the year ended December 31, 2010.
Beginning on February 3, 2011, the individuals that serve
on our board of directors that are not also employees will
receive compensation for services they provide to us. The
employee-directors,
Messrs. Comstock and McMullen, will not receive additional
compensation for their services as directors. All compensation
that Messrs. Comstock and McMullen received for their
services to us during 2010 as employees has been described in
the Compensation Discussion and Analysis and disclosed in the
Summary Compensation Table above.
The remaining non-employee directors will be compensated for
their service on the board of directors with an annual fee of
$35,000, a fee of $2,000 per board meeting attended in person or
telephonically, as well as a $1,000 meeting fee for personal or
telephonic attendance at committee meetings for any committee on
which that director serves.
Non-employee directors will also receive compensation for
serving as the chairman of certain committees. Our Audit
Committee chairman will receive an annual fee of $15,000, while
our Nominating and Governance Committee chairman and our
Compensation Committee chairman will each be eligible to receive
an annual fee of a $10,000. Currently, Mr. Roemer serves as
the chairman of our Audit Committee, Mr. Benson serves as
the chairman of our Nominating and Governance Committee, and
Mr. Wommack serves as the chairman of our Compensation
Committee.
Equity awards in the form of stock options will also be granted
to our non-employee directors on an annual basis. The value of
the annual equity award will be approximately $25,000 on the
grant date, based on a Black-Scholes valuation model. As of
December 31, 2010, our directors did not hold any
outstanding equity awards.
71
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of our common
stock by (a) 5% stockholders, (b) other selling
stockholders, (c) current directors, (d) executive
officers, and (e) executive officers and directors as a
group, as of June 28, 2011. All information with respect to
beneficial ownership has been furnished by the respective
selling stockholders, directors, officers or 5% or more
stockholders, as the case may be. This table does not reflect
information as to persons or entities who may become 5%
stockholders as a result of purchasing shares of common stock in
this offering. Unless otherwise indicated in the footnotes to
this table, each of the stockholders named in this table has
sole voting and investment power with respect to the shares
indicated as beneficially owned. Other than as specifically
noted below, the mailing address for each executive officer and
director is in care of C&J Energy Services, Inc., 10375
Richmond Avenue, Suite 2000, Houston, Texas 77042. The
percentages of ownership are based on 47,499,074 shares of
common stock outstanding as of June 28, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
Amount and
|
|
Common
|
|
|
Nature or
|
|
Stock
|
|
|
Beneficial
|
|
Beneficially
|
Name of Beneficial Owner
|
|
Ownership(1)
|
|
Owned(1)
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
StepStone Capital Partners II Onshore, L.P.(2)
|
|
|
1,038,462
|
|
|
|
2.2
|
%
|
StepStone Capital Partners II Cayman Holdings, L.P.(3)
|
|
|
1,301,233
|
|
|
|
2.7
|
|
2006 Co-Investment Portfolio, L.P.(4)
|
|
|
2,047,787
|
|
|
|
4.3
|
|
Citigroup Capital Partners II Employee Master Fund, L.P.(5)
|
|
|
2,300,241
|
|
|
|
4.8
|
|
Energy Spectrum Partners IV LP(6)
|
|
|
7,720,501
|
|
|
|
16.3
|
|
Passport Capital, LLC(7)
|
|
|
3,130,000
|
|
|
|
6.6
|
|
MSD Energy Partners, L.P.(8)
|
|
|
2,500,000
|
|
|
|
5.3
|
|
Scopia Management, Inc.(9)
|
|
|
2,500,000
|
|
|
|
5.3
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
Joshua E. Comstock(10)
|
|
|
4,038,500
|
|
|
|
8.4
|
|
Randall C. McMullen, Jr.(11)
|
|
|
493,500
|
|
|
|
1.0
|
|
John D. Foret(12)
|
|
|
287,000
|
|
|
|
*
|
|
Bretton W. Barrier(13)
|
|
|
166,600
|
|
|
|
*
|
|
Brandon D. Simmons(14)
|
|
|
255,500
|
|
|
|
*
|
|
William D. Driver(15)
|
|
|
122,500
|
|
|
|
*
|
|
J. P. Pat Winstead(16)
|
|
|
112,000
|
|
|
|
*
|
|
Theodore R. Moore
|
|
|
|
|
|
|
|
|
Darren M. Friedman(17)
|
|
|
3,667
|
|
|
|
*
|
|
James P. Benson(18)
|
|
|
7,724,168
|
|
|
|
16.3
|
|
Michael Roemer(19)
|
|
|
3,667
|
|
|
|
*
|
|
H. H. Wommack, III(20)
|
|
|
3,667
|
|
|
|
*
|
|
C. James Stewart III(21)
|
|
|
3,667
|
|
|
|
*
|
|
Executive Officers and Directors as a Group (13 persons)
|
|
|
13,214,436
|
|
|
|
27.0
|
|
|
|
|
(1) |
|
Beneficial ownership is a term broadly defined by
the SEC in
Rule 13d-3
under the Exchange Act and includes more than the typical forms
of stock ownership, that is, stock held in the persons
name. For the purpose of this table, a person or group of
persons is deemed to have beneficial ownership of
any shares as of June 28, 2011, if that person or group has
the right to acquire shares within 60 days after such date. |
72
|
|
|
(2) |
|
The address of StepStone Capital Partners II Onshore, L.P.
is
c/o StepStone
Group LLC, 4350 La Jolla Village Drive, Suite 800,
San Diego, CA 92122. StepStone Co-Investment Funds GP, LLC,
which is a wholly owned subsidiary of StepStone Group LLC, is
the general partner of StepStone Capital Partners II
Onshore, L.P., and each may be considered a beneficial owner,
with shared voting and dispositive power of
1,038,462 shares. StepStone Group LLC is the investment
advisor to StepStone Capital Partners II Onshore, L.P. |
|
(3) |
|
The address of StepStone Capital Partners II Cayman
Holdings, L.P. is 4350 La Jolla Village Drive,
Suite 800, San Diego, CA 92122. StepStone
Co-Investment Funds GP, LLC, which is a wholly owned subsidiary
of StepStone Group LLC, is the general partner of StepStone
Capital Partners II Cayman Holdings, L.P., and each may be
considered a beneficial owner, with shared voting and
dispositive power of 1,301,233 shares. StepStone Group LLC
is the investment advisor to StepStone Capital Partners II
Cayman Holdings, L.P. |
|
(4) |
|
The address of 2006 Co-Investment Portfolio, L.P. is 4350
La Jolla Village Drive, Suite 800, San Diego, CA
92122. StepStone Co-Investment Funds GP, LLC, which is a wholly
owned subsidiary of StepStone Group LLC, is the general partner
of 2006 Co-Investment Portfolio, L.P., and each may be
considered a beneficial owner, with shared voting and
dispositive power of 2,047,787 shares. StepStone Group LLC
is the investment advisor to 2006 Co-Investment Portfolio, L.P. |
|
(5) |
|
The address of Citigroup Capital Partners II Employee
Master Fund, L.P. is 485 Lexington Avenue, 17th Floor,
New York, NY 10017. A wholly owned subsidiary of Citigroup
Inc. is the general partner of Citigroup Private Equity LP,
which is the general partner of Citigroup Capital
Partners II Employee Master Fund, L.P., and each may be
considered a beneficial owner, with shared voting and
dispositive power of 2,300,241 shares. Citigroup
Alternative Investments LLC is the investment advisor to
Citigroup Capital Partners II Employee Master Fund, L.P. |
|
(6) |
|
The address of Energy Spectrum Partners IV LP is 5956
Sherry Lane, Suite 900, Dallas, Texas 75225. |
|
|
|
(7) |
|
The address of Passport Capital, LLC is 30 Hotaling Place,
Suite 300, San Francisco, CA 94111. The beneficial
owners of common shares of Passport Capital, LLC are Blackwell
Partners, LLC, or Blackwell, Passport Energy Master
Fund SPC Ltd for an on behalf of Portfolio A
Energy Strategy, or Energy, Passport Global Master Fund for and
on behalf of Portfolio A Global Strategy, or Global,
and Passport Special Opportunities Master Fund, LP, or Special
Ops. Passport Plus, LLC, or Plus, serves as general partner to
Special Ops. Passport Capital, LLC serves as investment manager
to Blackwell, Energy, Global and Special Ops and as sole
managing member to Plus. John H. Burbank III, or Burbank, serves
as sole managing member of Passport. As a result, each of
Passport, Plus, and Burbank may be considered to share voting
and dispositive power of the 3,130,000 shares beneficially
owned by Blackwell, Energy, Global and Special Ops. |
|
|
|
(8) |
|
The address of MSD Energy Partners, L.P. or, MSD Energy
Partners, is c/o MSDC Management, L.P., 645 Fifth Avenue,
21st Floor, New York, NY 10022. MSDC Management, L.P. is the
investment manager of MSD Energy Partners and may be deemed to
have or share voting and/or dispositive power over, and/or
beneficially own, the 2,500,000 common shares held by MSD Energy
Partners. Each of Glenn R. Fuhrman, John C. Phelan, Marc R.
Lisker and Marcello Liguori is a managing director of MSDC
Management, L.P. and may be deemed to have or share voting
and/or dispositive power over, and/or beneficially own, the
2,500,000 common shares beneficially owned by MSDC Management,
L.P. Each of Mr. Fuhrman, Mr. Phelan, Mr. Lisker
and Mr. Liguori disclaim beneficial ownership of such
common shares, except to the extent of the pecuniary interest of
such person in such shares. |
|
|
|
(9) |
|
The address of Scopia Management, Inc. is 152 West 57th Street,
33rd Floor, New York, NY 10019. The beneficial owners of common
shares of Scopia Management, Inc. are Scopia PX, LLC, or Scopia
PX, Scopia PX International Limited (or Scopia PX
International), Scopia International Limited, or Scopia
International, Windermere JUP FD US FOC Pool, or Windermere, and
Highmark Ltd Seq Acct US EQ1, or Highmark. Scopia Management,
Inc. is the investment manager of Scopia PX, and in such
capacity may be deemed to have shared voting and dispositive
power over the 670,306 common shares owned by Scopia PX. Scopia
Management, Inc. is the investment manager of Scopia PX
International, and in such capacity may be deemed to have shared
voting and dispositive power over the 1,361,705 common shares |
73
|
|
|
|
|
owned by Scopia PX International. Scopia Management, Inc. is
the investment manager of Scopia International, and in such
capacity may be deemed to have shared voting and dispositive
power over the 318,215 common shares owned by Scopia
International. Scopia Management, Inc. is the investment manager
of Windermere, and in such capacity may be deemed to have shared
voting and dispositive power over the 16,857 common shares owned
by Windermere. Scopia Management, Inc. is the investment manager
of Highmark, and in such capacity may be deemed to have shared
voting and dispositive power over the 132,917 common shares
owned by Highmark. |
|
|
|
(10) |
|
Included in the shares indicated as beneficially owned by
Mr. Comstock are 1,309,000 shares owned by
Mr. Comstock in his individual capacity,
966,000 shares owned by a trust for the benefit of
Mr. Comstock, 966,000 shares owned by a trust for the
benefit of Rebecca A. Comstock, of which
Mr. Comstock is a co-trustee of and has shared voting power
of and which he may be deemed to be the beneficial owner,
150,000 shares owned by JRC Investments, LLC, of which
Mr. Comstock has sole voting power of and of which he may
be deemed to be the beneficial owner in his capacity as the sole
member of JRC Investments, LLC, 105,000 options owned by
Mr. Comstock in his individual capacity which are
exercisable within 60 days and 542,500 options owned by a
trust for the benefit of Mr. Comstock which are exercisable
within 60 days of June 28, 2011. |
|
|
|
(11) |
|
Included in the shares indicated as beneficially owned by
Mr. McMullen are 227,500 shares and 266,000 options
which are exercisable within 60 days of June 28, 2011. |
|
|
|
(12) |
|
Included in the shares indicated as beneficially owned by
Mr. Foret are 210,000 shares and 77,000 options which
are exercisable within 60 days of June 28, 2011. |
|
|
|
(13) |
|
Included in the shares indicated as beneficially owned by
Mr. Barrier are 9,100 shares and 157,500 options which
are exercisable within 60 days of June 28, 2011. |
|
|
|
(14) |
|
Included in the shares indicated as beneficially owned by
Mr. Simmons are 178,500 shares and 77,000 options
which are exercisable within 60 days of June 28, 2011. |
|
|
|
(15) |
|
Included in the shares indicated as beneficially owned by
Mr. Driver 122,500 options which are exercisable within
60 days of June 28, 2011. |
|
|
|
(16) |
|
Included in the shares indicated as beneficially owned by
Mr. Winstead are 35,000 shares and 77,000 options
which are exercisable within 60 days of June 28, 2011. |
|
|
|
(17) |
|
Included in the shares indicated as beneficially owned by
Mr. Friedman are 3,667 options which are exercisable within
60 days of June 28, 2011. |
|
|
|
(18) |
|
Included in the shares indicated as beneficially owned by
Mr. Benson are 7,720,501 shares owned directly by
Energy Spectrum Partners IV LP and 3,667 options owned by
Mr. Friedman in his individual capacity which are
exercisable within 60 days of June 28, 2011.
Mr. Benson serves as a Managing Partner of Energy Spectrum
Partners IV LP. As such, Mr. Benson may be deemed to
have beneficial ownership of such shares owned by Energy
Spectrum Partners IV LP. Mr. Benson disclaims
beneficial ownership of such shares. |
|
|
|
(19) |
|
Included in the shares indicated as beneficially owned by
Mr. Roemer are 3,667 options which are exercisable within
60 days of June 28, 2011. |
|
|
|
(20) |
|
Included in the shares indicated as beneficially owned by
Mr. Wommack are 3,667 options which are exercisable within
60 days of June 28, 2011. |
|
|
|
(21) |
|
Included in the shares indicated as beneficially owned by
Mr. Stewart are 3,667 options which are exercisable within
60 days of June 28, 2011. |
74
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Private Equity
Investments
On October 16, 2006, we, Energy Spectrum Partners IV
LP, Citigroup Capital Partners II 2006 Citigroup
Investment, L.P., or CCP II 2006, Citigroup Capital
Partners II Onshore, L.P., or CCP II Onshore, Citigroup
Capital Partners II Cayman Holdings, L.P., or CCP II
Cayman, and Citigroup Capital Partners II Employee Master
Fund, L.P., or CCP II Employee, and with CCP II 2006, CCP II
Onshore and CCP II Cayman, CCP II, entered into a Contribution
Agreement, or the Contribution Agreement. Pursuant to the
Contribution Agreement, Energy Spectrum Partners IV LP and
CCP II each acquired 2,500,000 shares of our common stock
for $25.0 million. In connection with the Contribution
Agreement, we, Energy Spectrum Partners IV LP, CCP II and
certain of our other stockholders entered into a
Shareholders Agreement dated October 16, 2006, which
we refer to herein as the 2006 Shareholders Agreement.
On October 7, 2007, C&J Energy Services, Inc., Energy
Spectrum Partners IV LP, CCP II and certain of our other
stockholders named therein entered into a Share Purchase
Agreement, or the Share Purchase Agreement. Pursuant to the
Share Purchase Agreement, Energy Spectrum Partners IV LP
and CCP II each purchased 500,000 shares of our common
stock for an aggregate $10.0 million. Energy Spectrum
Partners IV LP and CCP II were granted the right to
purchase such shares pursuant to their preemptive rights set
forth in the 2006 Shareholders Agreement.
On September 30, 2010, StepStone Group LLC became the
investment adviser to, and an affiliate of StepStone Group LLC
became the general partner of, CCP II 2006, CCP II Onshore and
CCP II Cayman. In connection with the transaction, CCP II 2006
was renamed 2006 Co-Investment Portfolio, L.P., CCP II Onshore
was renamed StepStone Capital Partners II Onshore, L.P. and
CCP II Cayman was renamed StepStone Capital Partners II
Cayman Holdings, L.P.
Amended and
Restated Stockholders Agreement
In December 2010, the Sponsors, we and certain of our other
stockholders entered into an Amended and Restated
Stockholders Agreement, which was amended on May 12,
2011, as amended, the Amended and Restated Stockholders
Agreement. The following members of our management are a party
to the Amended and Restated Stockholders Agreement: Joshua
E. Comstock, John D. Foret, Aaron Larson, Randall C.
McMullen, Jr., James Moore, Brandon D. Simmons, Michael
Thorn, Bretton W. Barrier and J.P. Pat
Winstead. The Amended and Restated Stockholders Agreement
amends and restates the 2006 Shareholders Agreement. The
following summary of the Amended and Restated Stockholders
Agreement does not purport to be complete and is qualified in
its entirety by reference to the provisions of the Amended and
Restated Stockholders Agreement, which along with its
amendment, are filed as exhibits to the registration statement
of which this prospectus is a part.
Management Rights. As long as Energy
Spectrum owns 10% or more of our outstanding common stock then
entitled to vote, we have agreed to take all action within our
power required to cause the board of directors at all times to
include at least one member designated by Energy Spectrum. As
long as Citigroup/StepStone collectively own 10% or more of our
outstanding common stock then entitled to vote, we have agreed
to take all action within our power required to cause the board
of directors at all times to include at least one member
designated by Citigroup/StepStone.
Demand Registration Rights. Under the
Amended and Restated Stockholders Agreement, from and
after the earlier of (i) 180 days following a
qualified public offering or (ii) the effective date of the
shelf registration statement relating to the common stock sold
in the 2010 Private Placement, each of Energy Spectrum and
Citigroup/StepStone, assuming such Sponsor holds at least 5% of
our fully diluted common stock have the right to demand on three
occasions, and non-Sponsor stockholders, assuming all
non-Sponsor stockholders collectively hold at least 5% of our
fully diluted common stock have the right to demand on two
occasions, that we effect a registration under the
75
Securities Act for the sale of all or part of their registrable
securities so long as the registrable securities proposed to be
sold on an individual registration statement have an aggregate
gross offering price of at least $20 million, unless we
otherwise agree to a lesser amount, which we refer to herein as
a Demand Registration. Holders of registrable securities may not
require us to effect more than one Demand Registration in any
six-month period. After such time that we become eligible to use
Form S-3
(or a comparable form) for the registration under the Securities
Act of any of its securities, any demand request by a Sponsor
with a reasonably anticipated aggregate offering price of
$50 million may be for a shelf registration
statement pursuant to Rule 415 under the Securities Act.
Piggyback Registration Rights. If we
propose to file a registration statement under the Securities
Act relating to an offering of our common stock, such as the
registration statement of which this prospectus is a part,
subject to certain exceptions, upon the written request of
holders of registrable securities, we will use our commercially
reasonable efforts to include in such registration, and any
related underwriting, all of the Sponsor and non-Sponsor
stockholders registrable securities included in such
requests, subject to customary cutback provisions.
Certain of the selling stockholders are participating in this
offering pursuant to piggyback rights under the Amended and
Restated Stockholders Agreement.
Registration Procedures and
Expenses. The Amended and Restated
Stockholders Agreement contains customary procedures
relating to underwritten offerings and the filing of
registration statements. We have agreed to pay all registration
expenses incurred in connection with any registration, including
all registration and filings fees, printing expenses, accounting
fees, our legal fees, reasonable fees of one counsel to the
holders of registrable securities, blue sky fees and expenses
and the expense of any special audits incident to or required by
any such registration. All underwriting discounts and selling
commissions and stock transfer taxes applicable to securities
registered by holders and fees of counsel to any such holder
(other than as described above) will be payable by holders of
registrable securities.
The proceeding summary of the Amended and Restated
Stockholders Agreement does not purport to be complete and
is qualified in its entirety by the provisions of the Amended
and Restated Stockholders Agreement, which is filed as an
exhibit to the registration statement of which this prospectus
is a part.
Warrants
The fluctuations in our operating results during 2009 led to
entry into negotiations with Guggenheim Corporate Funding LLC,
or Guggenheim, the administrative agent under our subordinated
term loan facility, and certain lenders in order to extend the
maturity date and amend certain payment terms and covenants
contained in the previously existing Guggenheim Term Loan
Agreement to avoid potential payment and covenant defaults. In
connection with such negotiations, we obtained a waiver from
such parties and issued the warrants described below and certain
promissory notes. Please read Promissory
Notes on page 78 of this prospectus for additional
information on the promissory notes issued in connection with
the Guggenheim Term Loan Agreement waiver.
On June 22, 2010, Sands Point Funding Ltd., Copper River
CLO Ltd., Kennecott Funding Ltd., Midland National Life
Insurance Company and North American Life Insurance Company for
Life and Health Care Insurance, collectively, the Holders, us
and Guggenheim, as administrative agent, entered into an Amended
and Restated Warrant Agreement, or the Warrant Agreement. The
Warrant Agreement was entered into in connection with the
assignment and amendment of the Amended and Restated Term Loan
Agreement, dated September 30, 2009 between C&J
Spec-Rent Services, Inc., Guggenheim Corporate Funding, LLC and
the lenders a party thereto, or the Guggenheim Term Loan
Agreement. Pursuant to the terms of the Warrant Agreement, we
issued warrants to the Holders.
76
We, the Holders and Guggenheim entered into a Warrant Exercise
and Termination Agreement, dated as of November 21, 2010,
pursuant to which the Holders exercised their warrants
concurrent with the closing of the 2010 Private Placement. In
addition, pursuant to the agreement, the Holders sold and we
bought shares of our common stock issued in connection with the
exercise of the warrants concurrent with the closing of the 2010
Private Placement, at which point the Holders no longer held any
of our warrants or shares of our commons stock.
2010 Private
Placement
Mr. Comstock, as the sole member of JRC Investments, LLC, a
Delaware limited liability company which we refer to herein as
JRC Investments, agreed to purchase 150,000 shares of
common stock in the 2010 Private Placement, which were issued in
the name of JRC Investments and funded with the proceeds of a
loan from FBR Capital Markets LT, Inc., an affiliate of FBR
Capital Markets & Co. The shares were purchased at the
offering price of $10.00 per share, the same price paid by all
investors participating in the 2010 Private Placement.
One-Time 2010
Bonuses
In connection with the closing of the 2010 Private Placement,
Energy Spectrum, Citigroup/StepStone and entities affiliated
with Guggenheim paid an aggregate $3.1 million to certain
members of our management team, excluding Mr. Comstock, for
their extraordinary efforts. Such amount was paid by such
stockholders on a pro rata basis based on the number of shares
held by each such stockholder that were redeemed by us in the
2010 Private Placement.
Acquisition of
Total
We purchase a significant portion of machinery and equipment
from Total. On April 28, 2011, we acquired Total. The
aggregate purchase price of approximately $32.9 million
included $23.0 million in cash to the sellers and
$9.9 million in repayment of the outstanding debt of Total.
In exchange for the consideration transferred, we acquired net
working capital assets with an estimated value of approximately
$6.9 million, including $5.4 million in cash and cash
equivalents. Our Chief Executive Officer, Joshua E.
Comstock, owned 12% of Totals outstanding equity and
served on its board of directors until March 2011.
Supplier
Agreements
For the years ended December 31, 2010, 2009 and 2008, fixed
asset purchases from Total were $22.2 million,
$1.5 million and $8.7 million, respectively, and
$17.9 million for the three months ended March 31,
2011. Deposits with Total on equipment to be purchased at
December 31, 2010, 2009 and 2008 were $4.2 million,
$0, and $94,500, respectively, and $2.4 million for the
three months ended March 31, 2011. Amounts payable to Total
at December 31, 2010, 2009 and 2008 were $73,783, $293,083
and $59,484, respectively, and $2.1 million for the three
months ended March 31, 2011, and were included in accounts
payable. As of March 31, 2011, we had $22.3 million in
purchase commitments for Total.
HKW Capital Partners, II, L.P., or HKW, owned a controlling
interest in Total. Mr. Comstock is a limited partner in an
HKW-related party, HKW Capital Partners III, L.P., or HKW III.
Mr. Comstock committed $2.0 million to HKW III. From
March 2007 through the closing date, Total paid management
fees to HKW in the amount of $180,000 per year. Additionally,
Total has built and sold coiled tubing and hydraulic fracturing
equipment to us during such period.
Mr. Comstock is a co-investor in FURminator, Inc., a
portfolio company of HKW III, through his ownership of
500,000 shares of its common stock. Mr. Roemer, an HKW
officer, is a member of our board.
We have purchased controls and instrumentation equipment from
Supreme Electrical Services, Inc., or Supreme, in an aggregate
amount of approximately $1.0 million over the last year. In
addition,
77
Supreme has acted as a supplier to our recently acquired
subsidiary, Total. Supreme was wholly owned by
Stewart & Sons Holding Co., which in turn was wholly
owned by C. James Stewart, III. Mr. Stewart is a
member of our board. Recently, Stewart & Sons Holding Co.
reorganized its subsidiaries such that it owns 50% of Supreme
with Mr. Stewarts son owning 40% and unaffiliated third
parties owning the remaining 10%. We plan to continue our
purchasing relationship with Supreme for the foreseeable future.
Promissory
Notes
In October and December 2009, we issued an aggregate of
approximately $1.8 million of subordinated promissory notes
to affiliates of Citi Private Equity and Northern Trust, N.A.,
whose notes were secured by affiliates of Energy Spectrum, and
an aggregate $182,000 of subordinated promissory notes to
Mr. Comstock. The subordinated promissory notes were due on
October 1, 2014 and interest on the notes was payable
quarterly, at a rate of prime plus 0.50%. On October 28,
2010, we repaid all outstanding amounts with cash on hand,
consisting of $2.1 million of principal and accrued
interest under these promissory notes in connection with the
amendment of our credit facilities.
Registration
Rights Agreement
In connection with the 2010 Private Placement, we entered into a
Registration Rights Agreement with purchasers in the private
placement. Please read Shares Eligible for Future
Sale Registration Rights beginning on
page 95 of this prospectus for additional information on
the terms of the Registration Rights Agreement.
Other
Transactions
JRC Investments, of which Mr. Comstock is the sole member,
owns a personal aircraft that Mr. Comstock uses for
personal travel and business travel. When Mr. Comstock uses
the aircraft for business travel, we reimburse JRC Investments
for the hourly engine maintenance and airframe maintenance
program costs or we pay such costs directly to the pilot, as the
manager of the plane, without reimbursement to JRC Investments.
For the year ended December 31, 2010, we paid approximately
$54,396 to reimburse JRC Investments for business travel on the
aircraft, and we paid the pilot, as the manager of the plane,
$90,897 to cover costs billed directly to JRC Investments. These
reimbursement costs and third party payments are included in
selling, general and administrative expenses in our consolidated
statement of operations. We believe that the costs and expenses
associated with these reimbursements and third party payments
were substantially less than what we could have obtained in an
arms-length transaction.
Policies and
Procedures
We review all relationships and transactions in which we, our
control persons and our directors and executive officers or
their immediate family members are participants to determine
whether such persons have a direct or indirect material
interest. Pursuant to the Related Persons Transactions Policy we
intend to adopt prior to the closing of this offering, our
General Counsel will be primarily responsible for developing and
implementing procedures and controls to obtain information from
the directors and executive officers with respect to related
person transactions and for subsequently determining, based on
the facts and circumstances disclosed to them, whether we or a
related person has a direct or indirect material interest in the
transaction.
We will adopt a Code of Business Conduct and Ethics prior to the
closing of this offering, which will discourage all conflicts of
interest and provide guidance with respect to conflicts of
interest. Under the planned Code of Business Conduct and Ethics,
conflicts of interest will occur when private or family
interests interfere in any way, or even appear to interfere,
with our interests. Our restrictions on conflicts of interest
under the Code of Business Conduct and Ethics will include
related person transactions.
78
Prior to the closing of this offering, we will have multiple
processes for reporting conflicts of interests, including
related person transactions. Under our planned Code of Business
Conduct and Ethics, all employees will be required to report any
actual or apparent conflicts of interest, or potential conflicts
of interest, to their supervisors. This information will then
reviewed by our Audit Committee, our board or our independent
registered public accounting firm, as deemed necessary, and
discussed with management. Going forward, as part of this
review, the following factors will generally be considered:
|
|
|
|
|
the nature of the related persons interest in the
transaction;
|
|
|
|
material terms of the transaction, including, without
limitation, the amount and type of transaction;
|
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|
|
the importance of the transaction to the related person;
|
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|
|
the importance of the transaction to us;
|
|
|
|
whether the transaction would impair the judgment of a director
or executive officer to act in the best interest of our
company; and
|
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|
any other matters deemed appropriate with respect to the
particular transaction.
|
Ultimately, all such transactions will be required to be
approved or ratified by our board in accordance with our planned
Related Persons Transactions Policy. Any member of our board who
is a related person with respect to a transaction will be
recused from the review of the transaction.
In addition, we will annually distribute a questionnaire to our
executive officers and members of our board requesting certain
information regarding, among other things, their immediate
family members, employment and beneficial ownership interests.
This information is then reviewed for any conflicts of interest
under the planned Code of Business Conduct and Ethics. At the
completion of the annual audit, our Audit Committee and our
independent registered public accounting firm will review with
management, insider and related person transactions and
potential conflicts of interest.
Historically, related party transactions were reviewed by our
board without any formal policies or procedures being in place.
We believe the more detailed process for identifying, reviewing
and assessing related party transactions required by our planned
Code of Business Conduct and Ethics is a preferable process for
dealing with related party transactions as a public company
going forward. Because we have not yet adopted our Code of
Business Conduct and Ethics, all of the related party
transactions described above were approved under our previous
practices for assessing related party transactions.
79
SELLING
STOCKHOLDERS
The following table and related footnotes set forth certain
information regarding the selling stockholders. To our
knowledge, each of the selling stockholders has sole voting and
investment power as to the shares shown, except as disclosed in
this prospectus or to the extent this power may be shared with a
spouse. Except as noted in this prospectus, none of the selling
stockholders is a director, officer or employee of ours or an
affiliate of such person.
|
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|
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|
|
|
|
|
|
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|
|
|
|
|
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Shares Beneficially
|
|
Shares
|
|
Shares Beneficially
|
|
|
Owned Prior to
|
|
Offered
|
|
Owned After
|
|
|
the Offering
|
|
Hereby
|
|
the Offering
|
Selling Stockholder:
|
|
Number
|
|
Percentage(1)
|
|
Number
|
|
Number
|
|
Percentage(1)
|
|
2006 Co-Investment Portfolio, L.P.(2)
|
|
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2,047,787
|
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|
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|
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%
|
Adage Capital Partners L.P.(3)
|
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800,000
|
|
|
|
|
|
|
|
800,000
|
|
|
|
800,000
|
|
|
|
*
|
|
Austin I, LLC(4)
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500,000
|
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|
|
|
|
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|
500,000
|
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|
|
500,000
|
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|
*
|
|
Binker of 5th Avenue LLC(5)
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6,000
|
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|
|
|
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6,000
|
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|
|
6,000
|
|
|
|
*
|
|
Black Marlin Investments, LLC(6)
|
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250,000
|
|
|
|
|
|
|
|
250,000
|
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|
250,000
|
|
|
|
*
|
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Bryson, Phillip(7)
|
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70,000
|
|
|
|
|
|
|
|
70,000
|
|
|
|
70,000
|
|
|
|
*
|
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Calm Waters Partnership(8)
|
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1,400,000
|
|
|
|
|
|
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|
1,400,000
|
|
|
|
1,400,000
|
|
|
|
*
|
|
Commonwealth Global Share Fund 12(9)
|
|
|
58,000
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|
|
|
|
|
|
|
58,000
|
|
|
|
58,000
|
|
|
|
*
|
|
DellIsola, Paul(10)
|
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|
7,500
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|
|
|
|
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|
7,500
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|
7,500
|
|
|
|
*
|
|
Deutsche(11)
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|
1,932,500
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|
|
|
|
|
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|
1,932,500
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|
|
|
1,932,500
|
|
|
|
*
|
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Dow Employees Pension Plan(12)
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|
88,000
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|
|
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|
88,000
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|
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|
88,000
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|
|
|
*
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Emerson, J. Steven(13)
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40,000
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|
|
|
|
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40,000
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40,000
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*
|
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Energy Spectrum Partners IV LP(14)
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7,720,501
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Fidelity Advisor Series I: Fidelity Advisor Balanced
Fund(15)
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18,600
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18,600
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|
|
|
18,600
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|
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|
*
|
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Fidelity Advisor Series I: Fidelity Advisor Value
Strategies Fund(16)
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541,500
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|
|
|
|
|
|
|
386,786
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|
|
|
386,786
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|
|
|
*
|
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Fidelity Devonshire Trust: Fidelity
Series All-Sector
Equity Fund(17)
|
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319,800
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|
|
|
|
|
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319,800
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|
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319,800
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|
|
|
*
|
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Fidelity Puritan Trust: Fidelity Balanced Fund(18)
|
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374,800
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|
|
|
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374,800
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|
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|
374,800
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|
|
|
*
|
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Formula Growth Fund(19)
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100,000
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|
|
|
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|
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100,000
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|
|
|
100,000
|
|
|
|
*
|
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Geosphere Directional Master Fund, Ltd.(20)
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147,216
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147,216
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|
|
|
147,216
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|
|
|
*
|
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Geosphere Master Fund, Ltd.(21)
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445,184
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|
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|
445,184
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|
|
|
445,184
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|
|
|
*
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Goff Family Investments, LP(22)
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20,000
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|
|
|
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
*
|
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Goff, John C.(23)
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165,000
|
|
|
|
|
|
|
|
165,000
|
|
|
|
165,000
|
|
|
|
*
|
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Hartford Small Company HLS Fund(24)
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|
154,000
|
|
|
|
|
|
|
|
154,000
|
|
|
|
154,000
|
|
|
|
*
|
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Highline A Master Fund, LLC(25)
|
|
|
57,210
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|
|
|
|
|
|
|
57,210
|
|
|
|
57,210
|
|
|
|
*
|
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Highline Capital International, Ltd.(26)
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616,710
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|
|
|
|
|
|
|
616,710
|
|
|
|
616,710
|
|
|
|
*
|
|
Highline Capital Partners, L.P.(27)
|
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|
46,330
|
|
|
|
|
|
|
|
46,330
|
|
|
|
46,330
|
|
|
|
*
|
|
Highline Capital Partners QP, LP(28)
|
|
|
285,750
|
|
|
|
|
|
|
|
285,750
|
|
|
|
285,750
|
|
|
|
*
|
|
Investor Company ITF Adaly Opportunity Fund(29)
|
|
|
61,400
|
|
|
|
|
|
|
|
61,400
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|
|
|
61,400
|
|
|
|
*
|
|
Investor Company ITF The Strategic Retirement Fund(30)
|
|
|
23,900
|
|
|
|
|
|
|
|
23,900
|
|
|
|
23,900
|
|
|
|
*
|
|
J. Steven Emerson IRA R/O II(31)
|
|
|
175,000
|
|
|
|
|
|
|
|
175,000
|
|
|
|
175,000
|
|
|
|
*
|
|
J. Steven Emerson ROTH IRA(32)
|
|
|
215,000
|
|
|
|
|
|
|
|
215,000
|
|
|
|
215,000
|
|
|
|
*
|
|
Kulik Partners LP(33)
|
|
|
15,000
|
|
|
|
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
*
|
|
Likewise Family Financial(34)
|
|
|
6,000
|
|
|
|
|
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
*
|
|
LKCM Investment Partnership, L.P.(35)
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
*
|
|
LKCM Investment Partnership II, L.P.(36)
|
|
|
4,800
|
|
|
|
|
|
|
|
4,800
|
|
|
|
4,800
|
|
|
|
*
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
Shares
|
|
Shares Beneficially
|
|
|
Owned Prior to
|
|
Offered
|
|
Owned After
|
|
|
the Offering
|
|
Hereby
|
|
the Offering
|
Selling Stockholder:
|
|
Number
|
|
Percentage(1)
|
|
Number
|
|
Number
|
|
Percentage(1)
|
|
LKCM Long-Short Master Fund, L.P.(37)
|
|
|
4,000
|
|
|
|
|
|
|
|
4,000
|
|
|
|
4,000
|
|
|
|
*
|
|
LKCM Micro-Cap Partnership, L.P.(38)
|
|
|
3,000
|
|
|
|
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
*
|
|
LKCM Private Discipline Master Fund, SPC(39)
|
|
|
113,200
|
|
|
|
|
|
|
|
113,200
|
|
|
|
113,200
|
|
|
|
*
|
|
Lockheed Martin Corporation Master Retirement Trust(40)
|
|
|
144,500
|
|
|
|
|
|
|
|
144,500
|
|
|
|
144,500
|
|
|
|
*
|
|
MSD and SLD Charitable Trusts Investing Partnership(41)
|
|
|
500,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
*
|
|
MSD Energy Partners, L.P.(42)
|
|
|
2,500,000
|
|
|
|
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
|
|
Mulholland Fund LP(43)
|
|
|
25,000
|
|
|
|
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
*
|
|
Northwestern Mutual Capital Strategic Equity Fund II,
L.P.(44)
|
|
|
235,600
|
|
|
|
|
|
|
|
235,600
|
|
|
|
235,600
|
|
|
|
*
|
|
Oregon Public Employees Retirement Fund(45)
|
|
|
212,000
|
|
|
|
|
|
|
|
212,000
|
|
|
|
212,000
|
|
|
|
*
|
|
Radian Group Inc.(46)
|
|
|
42,000
|
|
|
|
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
*
|
|
RBC Dominion Securities ITF The Strategic Opportunities Master
Fund(47)
|
|
|
118,700
|
|
|
|
|
|
|
|
118,700
|
|
|
|
118,700
|
|
|
|
*
|
|
Reiss Capital Management LLC(48)
|
|
|
25,000
|
|
|
|
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
*
|
|
Simmons, Christopher(49)
|
|
|
175,000
|
|
|
|
|
|
|
|
131,250
|
|
|
|
131,250
|
|
|
|
*
|
|
Steelhead Navigator Master, L.P.(50)
|
|
|
1,500,000
|
|
|
|
|
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
|
*
|
|
StepStone Capital Partners II Cayman Holdings, L.P.(51)
|
|
|
1,301,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
StepStone Capital Partners II Onshore, L.P.(52)
|
|
|
1,038,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Roth(53)
|
|
|
6,000
|
|
|
|
|
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
*
|
|
Talvest Global Small Cap Fund(54)
|
|
|
5,200
|
|
|
|
|
|
|
|
5,200
|
|
|
|
5,200
|
|
|
|
*
|
|
The Hartford Small Company Fund(55)
|
|
|
78,000
|
|
|
|
|
|
|
|
78,000
|
|
|
|
78,000
|
|
|
|
*
|
|
The Northwestern Mutual Life Insurance Company(56)
|
|
|
1,614,400
|
|
|
|
|
|
|
|
1,614,400
|
|
|
|
1,614,400
|
|
|
|
*
|
|
The Northwestern Mutual Life Insurance Company for its Group
Annuity Separate Account(57)
|
|
|
150,000
|
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
*
|
|
The Strategic Investment Fund USA LP(58)
|
|
|
2,600
|
|
|
|
|
|
|
|
2,600
|
|
|
|
2,600
|
|
|
|
*
|
|
Thom, Brian David(59)
|
|
|
5,000
|
|
|
|
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
*
|
|
Union Carbide Employees Pension Plan(60)
|
|
|
36,000
|
|
|
|
|
|
|
|
36,000
|
|
|
|
36,000
|
|
|
|
*
|
|
Vantagepoint Discovery Fund(61)
|
|
|
94,000
|
|
|
|
|
|
|
|
94,000
|
|
|
|
94,000
|
|
|
|
*
|
|
Variable Insurance Products Fund II: Contrafund
Portfolio(62)
|
|
|
482,300
|
|
|
|
|
|
|
|
482,300
|
|
|
|
482,300
|
|
|
|
*
|
|
Variable Insurance Products Fund III: Value Strategies
Portfolio(63)
|
|
|
158,500
|
|
|
|
|
|
|
|
113,214
|
|
|
|
113,214
|
|
|
|
*
|
|
Vermeer Investments, LLC(64)
|
|
|
250,000
|
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
*
|
|
Wellington Management Portfolios (Dublin) plc Global
Smaller Companies Equity Portfolio(65)
|
|
|
48,500
|
|
|
|
|
|
|
|
48,500
|
|
|
|
48,500
|
|
|
|
*
|
|
Euram International Inc.(66)
|
|
|
3,000
|
|
|
|
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
*
|
|
Belmont, Francis E.(67)
|
|
|
3,000
|
|
|
|
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
29,687,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
(1) |
|
For each individual, this percentage is determined by assuming
the named stockholder exercises all options which the
stockholder has the right to acquire within 60 days of
June 28, 2011, but that no other person exercises any
options. |
|
|
|
(2) |
|
StepStone Co-Investment Funds GP, LLC, which is a wholly owned
subsidiary of StepStone Group LLC, is the general partner of
2006 Co-Investment Portfolio, L.P. StepStone Group LLC is the
investment advisor to 2006 Co-Investment Portfolio, L.P. Darren
Friedman is a Partner of StepStone Group LLC. StepStone
Co-Investment Funds GP, LLC, StepStone Group LLC, and
Mr. Friedman each may be deemed beneficial owners, with
shared voting and dispositive power of the shares owned by 2006
Co-Investment Portfolio, L.P. |
|
|
|
(3) |
|
Robert Atchinson and Phillip Gross, as Managing Directors of
Adage Capital Partners GP, LLC, and Adage Capital Partners GP,
LLC, as general partner of Adage Capital Partners, L.P., have
voting and investment power over the shares owned by Adage
Capital Partners, L.P. |
|
|
|
(4) |
|
Each of Glenn R. Fuhrman and John C. Phelan is a manager of
Austin I LLC and may be deemed to have or share voting and/or
dispositive power over, and beneficially own, the common shares
owned by Austin I LLC. Michael S. Dell may be deemed to
beneficially own securities owned by Austin I LLC. Each of
Mr. Dell, Mr. Fuhrman and Mr. Phelan disclaim
beneficial ownership of such common shares, except to the extent
of the pecuniary interest of such person in such shares. |
|
|
|
(5) |
|
Michael Salzhauer, as manager of Binker of
5th
Avenue LLC, has voting and investment power over the shares
owned by Binker of
5th
Avenue LLC. |
|
|
|
(6) |
|
John C. Phelan is the sole manager of Black Marlin Investments,
LLC and may be deemed to have voting and dispositive power over,
and/or beneficially own, the common shares held by Black Marlin
Investments, LLC. Mr. Phelan disclaims beneficial ownership
of such common shares, except to the extent of his pecuniary
interest therein. |
|
|
|
(7) |
|
Phillip Bryson has sole voting and investment power. |
|
|
|
(8) |
|
Richard S. Strong, as managing partner of Calm Waters
Partnership, has voting and investment power over the shares
owned by Calm Waters Partnership. |
|
|
|
(9) |
|
Wellington Management Company, LLP (Wellington) is
an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Wellington, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
|
|
|
(10) |
|
Mr. DellIsola, as Senior Managing Director and
Co-Head of Capital Markets, is an associated person of FBR
Capital Markets, Inc., a broker-dealer registered under
Section 15 of the Exchange Act. Mr. DellIsola
has represented to us that he is not acting as an underwriter in
this offering, he purchased the units he is offering under this
prospectus in the ordinary course of business, and at the time
of such purchase, he had no agreement or understanding, directly
or indirectly, with any person to distribute the securities.
Mr. DellIsola has sole voting and investment power
over his shares. |
|
|
|
(11) |
|
Deutsche Bank Securities Inc. is a registered broker-dealer and,
accordingly, may be deemed to be an underwriter. The shares of
common stock held by Deutsche Bank Securities Inc. were acquired
in the ordinary course of its investment business and not for
the purpose of resale or distribution. Deutsche Bank Securities
Inc. has not participated in the distribution of the shares on
behalf of the issuer. Deutsche Bank AG, of which Deutsche Bank
Securities Inc. is an indirect, wholly-owned subsidiary, is a
widely held company. Scott Martin, Charles Lanktree,
Ray Costa, Nick Pappas and Mikel Curreri, as managing
directors, may be deemed to share voting and investment power
over the shares owned by Deutsche Bank Securities Inc. |
|
|
|
(12) |
|
Wellington Management Company, LLP (Wellington) is
an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Wellington, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
|
|
|
(13) |
|
J. Steven Emerson has sole voting and investment power. |
82
|
|
|
(14) |
|
James P. Benton, as managing partner of Energy Spectrum
Partners IV LP, has voting and investment power over the
shares owned by Energy Spectrum Partners IV LP. |
|
|
|
(15) |
|
Fidelity Advisor Series 1: Fidelity Advisor Balanced Fund
is an investment company registered under Section 8 of the
Investment Company Act of 1940 (the Fund) advised by
Fidelity Management & Research Company
(Fidelity), 82 Devonshire Street, Boston,
Massachusetts 02109, a wholly-owned subsidiary of FMR LLC and an
investment adviser registered under Section 203 of the
Investment Advisers Act of 1940. Edward C. Johnson 3d and FMR
LLC, through its control of Fidelity, and the Fund each has sole
power to dispose of the securities owned by the Fund. Ford
ONeil, Robert Stansky, John Avery, Matthew Friedman, Adam
Hetnarski, Steven Kaye, Robert Lee, John Roth, Douglas Simmons,
Pierre Sorel and Nathan Strik, employees of Fidelity, are the
current portfolio managers for the Fund and have investment
discretion with respect to the Funds assets. |
|
|
|
|
|
Members of the family of Edward C.
Johnson 3d, Chairman of FMR LLC, are the predominant owners,
directly or through trusts, of Series B voting common
shares of FMR LLC, representing 49% of the voting power of FMR
LLC. The Johnson family group and all other Series B
shareholders have entered into a shareholders voting
agreement under which all Series B voting common shares
will be voted in accordance with the majority vote of
Series B voting common shares. Accordingly, through their
ownership of voting common shares and the execution of the
shareholders voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940,
to form a controlling group with respect to FMR LLC. |
|
|
|
Neither FMR LLC nor Edward C. Johnson
3d, Chairman of FMR LLC, has the sole power to vote or direct
the voting shares owned directly by the Fund, which power
resides with the Funds Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines
established by the Funds Boards of Trustees |
|
|
|
The Fund is an affiliate of a
broker-dealer registered under Section 15 of the Exchange
Act. The Fund has represented to us that it is not acting as an
underwriter in this offering, it purchased the units it is
offering under this prospectus in the ordinary course of
business, and at the time of such purchase, it had no agreement
or understanding, directly or indirectly, with any person to
distribute the securities. |
|
|
|
(16) |
|
Fidelity Advisor Series 1: Fidelity Value Advisor
Strategies Fund is an investment company registered under
Section 8 of the Investment Company Act of 1940 (the
Fund) advised by Fidelity Management &
Research Company (Fidelity), 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR
LLC and an investment adviser registered under Section 203
of the Investment Advisers Act of 1940. Edward C. Johnson 3d and
FMR LLC, through its control of Fidelity, and the Fund each has
sole power to dispose of the securities owned by the Fund.
Thomas Soviero, an employee of Fidelity, is the current
portfolio manager for the Fund and has investment discretion
with respect to the Funds assets. |
|
|
|
|
|
Members of the family of Edward C.
Johnson 3d, Chairman of FMR LLC, are the predominant owners,
directly or through trusts, of Series B voting common
shares of FMR LLC, representing 49% of the voting power of FMR
LLC. The Johnson family group and all other Series B
shareholders have entered into a shareholders voting
agreement under which all Series B voting common shares
will be voted in accordance with the majority vote of
Series B voting common shares. Accordingly, through their
ownership of voting common shares and the execution of the
shareholders voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940,
to form a controlling group with respect to FMR LLC. |
|
|
|
Neither FMR LLC nor Edward C. Johnson
3d, Chairman of FMR LLC, has the sole power to vote or direct
the voting shares owned directly by the Fund, which power
resides with the Funds Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines
established by the Funds Boards of Trustees |
83
|
|
|
|
|
The Fund is an affiliate of a
broker-dealer registered under Section 15 of the Exchange Act.
The Fund has represented to us that it is not acting as an
underwriter in this offering, it purchased the units it is
offering under this prospectus in the ordinary course of
business, and at the time of such purchase, it had no agreement
or understanding, directly or indirectly, with any person to
distribute the securities. |
|
|
|
(17) |
|
Fidelity Devonshire Trust: Fidelity
Series All-Sector
Equity Fund is an investment company registered under
Section 8 of the Investment Company Act of 1940 (the
Fund) advised by Fidelity Management &
Research Company (Fidelity), 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR
LLC and an investment adviser registered under Section 203
of the Investment Advisers Act of 1940. Edward C. Johnson 3d and
FMR LLC, through its control of Fidelity, and the Fund each has
sole power to dispose of the securities owned by the Fund. John
Avery, Matthew Friedman, Adam Hetnarski, Steven Kaye, Robert
Lee, Peter Saperstone, Douglas Simmons, Pierre Sorel, Robert
Stansky and Nathan Strik, employees of Fidelity, are the current
portfolio managers for the Fund and have investment discretion
with respect to the Funds assets. |
|
|
|
|
|
Members of the family of Edward C.
Johnson 3d, Chairman of FMR LLC, are the predominant owners,
directly or through trusts, of Series B voting common
shares of FMR LLC, representing 49% of the voting power of FMR
LLC. The Johnson family group and all other Series B
shareholders have entered into a shareholders voting
agreement under which all Series B voting common shares
will be voted in accordance with the majority vote of
Series B voting common shares. Accordingly, through their
ownership of voting common shares and the execution of the
shareholders voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940,
to form a controlling group with respect to FMR LLC. |
|
|
|
Neither FMR LLC nor Edward C. Johnson
3d, Chairman of FMR LLC, has the sole power to vote or direct
the voting shares owned directly by the Fund, which power
resides with the Funds Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines
established by the Funds Boards of Trustees. |
|
|
|
The Fund is an affiliate of a
broker-dealer registered under Section 15 of the Exchange Act.
The Fund has represented to us that it is not acting as an
underwriter in this offering, it purchased the units it is
offering under this prospectus in the ordinary course of
business, and at the time of such purchase, it had no agreement
or understanding, directly or indirectly, with any person to
distribute the securities. |
|
|
|
(18) |
|
Fidelity Puritan Trust: Fidelity Balanced Fund is an investment
company registered under Section 8 of the Investment
Company Act of 1940 (the Fund) advised by Fidelity
Management & Research Company (Fidelity),
82 Devonshire Street, Boston, Massachusetts 02109, a
wholly-owned subsidiary of FMR LLC and an investment adviser
registered under Section 203 of the Investment Advisers Act
of 1940. Edward C. Johnson 3d and FMR LLC, through its control
of Fidelity, and the Fund each has sole power to dispose of the
securities owned by the Fund. John Avery, George Fischer,
Matthew Friedman, Adam Hetnarski, Steven Kaye, Robert Lee, Peter
Saperstone, Douglas Simmons, Pierre Sorel, Robert Stansky,
Nathan Strik, employees of Fidelity, are the current portfolio
managers for the Fund and have investment discretion with
respect to the Funds assets. |
|
|
|
|
|
Members of the family of Edward C.
Johnson 3d, Chairman of FMR LLC, are the predominant owners,
directly or through trusts, of Series B voting common
shares of FMR LLC, representing 49% of the voting power of FMR
LLC. The Johnson family group and all other Series B
shareholders have entered into a shareholders voting
agreement under which all Series B voting common shares
will be voted in accordance with the majority vote of
Series B voting common shares. Accordingly, through their
ownership of voting common shares and the execution of the
shareholders voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940,
to form a controlling group with respect to FMR LLC. |
84
|
|
|
|
|
Neither FMR LLC nor Edward C. Johnson
3d, Chairman of FMR LLC, has the sole power to vote or direct
the voting shares owned directly by the Fund, which power
resides with the Funds Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines
established by the Funds Boards of Trustees |
|
|
|
The Fund is an affiliate of a
broker-dealer registered under Section 15 of the Exchange Act.
The Fund has represented to us that it is not acting as an
underwriter in this offering, it purchased the units it is
offering under this prospectus in the ordinary course of
business, and at the time of such purchase, it had no agreement
or understanding, directly or indirectly, with any person to
distribute the securities. |
|
|
|
(19) |
|
Michael Gentile, Randy Kelly and Tony Staples, as portfolio
managers of Formula Growth Fund, share voting and investment
power over the shares owned by Formula Growth Fund. |
|
|
|
(20) |
|
Arvind Sanger, as managing member of Geosphere Capital
Management, LLC and Geosphere Capital Management, LLC, as
investment manager to Geosphere Directional Master Fund, Ltd.,
have voting and investment power over the shares owned by
Geosphere Directional Master Fund, Ltd. |
|
|
|
(21) |
|
Arvind Sanger, as managing member of Geosphere Capital
Management, LLC and Geosphere Capital Management, LLC, as
investment manager to Geosphere Master Fund, Ltd., having voting
and investment power over the shares owned by Geosphere Master
Fund, Ltd. |
|
|
|
(22) |
|
John Goff, as principal to Goff Family Investments, LP, has
voting and investment power over the shares owned by Goff Family
Investments, LP. |
|
|
|
(23) |
|
John C. Goff has sole voting and investment power. |
|
|
|
(24) |
|
Wellington Management Company, LLP (Wellington) is
an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Wellington, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
|
|
|
(25) |
|
Jacob Doft, as portfolio manager to Highline A Master
Fund LLC, has voting and investment power over the shares
owned by Highline A Master Fund LLC. |
|
|
|
(26) |
|
Jacob Doft, as portfolio manager to Highline Capital
International, Ltd., has voting and investment power over the
shares owned by Highline Capital International, Ltd. |
|
|
|
(27) |
|
Jacob Doft, as portfolio manager to Highline Capital Partners,
L.P., has voting and investment power over the shares owned by
Highline Capital Partners, L.P. |
|
|
|
(28) |
|
Jacob Doft, as portfolio manager to Highline Capital Partners
QP, LP, has voting and investment power over the shares owned by
Highline Capital Partners QP, LP. |
|
|
|
(29) |
|
Martin G. Braun, as director of the general partner of Adaly
Opportunity Fund L.P., has voting and investment power over
the shares owned by Adaly Opportunity Fund. |
|
|
|
(30) |
|
Martin G. Braun, as President and advisor to the fund, has
voting and investment power over the shares owned by The
Strategic Retirement Fund. |
|
|
|
(31) |
|
J. Steven Emerson, as sole beneficiary of a self directed IRA,
has sole voting and investment power over the shares owned by J.
Steven Emerson IRA R/O II. |
|
|
|
(32) |
|
J. Steven Emerson, as sole beneficiary of a self directed IRA,
has sole voting and investment power over the shares owned by J.
Steven Emerson ROTH IRA. |
|
|
|
(33) |
|
John Goff, as principal of Kulik Partners LP, has voting and
investment power over the shares owned by Kulik Partners LP. |
|
|
|
(34) |
|
Michael Salzhauer, as the President of Likewise Family Financial
Inc., has voting and investment power over the shares owned by
Likewise Family Financial Inc. |
|
|
|
(35) |
|
J. Luther King, Jr., as the President of LKCM Investment
Partnership GP, LLC, which is the general partner of LKCM
Investment Partnership, L.P., has voting and investment power of
the shares owned by LKCM Investment Partnership, L.P. |
85
|
|
|
(36) |
|
J. Luther King, Jr., as the President of LKCM Investment
Partnership GP, LLC, which is the general partner of LKCM
Investment Partnership II, L.P., has voting and investment power
of the shares owned by LKCM Investment Partnership II, L.P. |
|
|
|
(37) |
|
J. Luther King, Jr., and J. Bryan King, as the controlling
members of LKCM Capital Group, LLC, which is the sole member of
LKCM Alternative Management, LLC, which is the general partner
of LKCM Long-Short Management, L.P., which is the managing
general partner of LKCM Long-Short Master Fund, L.P., share
voting and investment power over the shares owned by LKCM
Long-Short Master Fund, L.P. |
|
|
|
(38) |
|
J. Luther King, Jr., and J. Bryan King, as the controlling
members of LKCM Capital Group, LLC, which is the sole member of
LKCM Alternative Management, LLC, which is the general partner
of LKCM Micro-Cap Management, L.P., which is the general partner
of LKCM Micro-Cap Partnership, L.P., share voting and investment
power over the shares owned by LKCM Micro-Cap Partnership, L.P. |
|
|
|
(39) |
|
J. Luther King, Jr., and J. Bryan King, as the controlling
members of LKCM Capital Group, LLC, which is the sole member of
LKCM Alternative Management, LLC, which is the general partner
of LKCM Private Discipline Management, L.P., which is the holder
of the management shares of LKCM Private Discipline Master Fund,
SPC, share voting and investment power over the shares owned by
LKCM Private Discipline Master Fund, SPC. |
|
|
|
(40) |
|
Wellington Management Company, LLP (Wellington) is
an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Wellington, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
|
|
|
(41) |
|
Glenn R. Fuhrman and John C. Phelan are the partnership managers
of MSD and SLD Charitable Trusts Investing Partnership and may
be deemed to have or share voting and/or dispositive power over,
and beneficially own, the common shares owned by MSD and SLD
Charitable Trusts Investing Partnership. Each of
Mr. Fuhrman and Mr. Phelan disclaim beneficial
ownership of such common shares, except to the extent of the
pecuniary interest of such person in such shares. |
|
|
|
(42) |
|
MSDC Management, L.P. is the investment manager of MSD Energy
Partners, L.P. and may be deemed to have or share voting and/or
dispositive power over, and/or beneficially own, the common
shares held by MSD Energy Partners, L.P. Each of Glenn R.
Fuhrman, John C. Phelan, Marc R. Lisker and Marcello Liguori is
a managing director of MSDC Management, L.P. and may be deemed
to have or share voting and/or dispositive power over, and/or
beneficially own, the common shares beneficially owned by MSDC
Management, L.P. Each of Mr. Fuhrman, Mr. Phelan,
Mr. Lisker and Mr. Liguori disclaim beneficial
ownership of such common shares, except to the extent of the
pecuniary interest of such person in such shares. |
|
|
|
(43) |
|
Thomas J. Laird, as managing partner of Mulholland Capital Mgmt,
which is the general partner of Mulholland Fund LP, has
voting and investment power over the shares owned by Mulholland
Fund LP. |
|
|
|
(44) |
|
Northwestern Mutual Capital Strategic Equity Fund II, L.P.
is an affiliate of each of (i) Northwestern Mutual
Investment Services, LLC, (ii) Russell Implementation
Services, Inc. and (iii) Russell Financial Services, Inc.,
each of which is broker dealer registered under Section 15
of the Exchange Act. Northwestern Mutual Capital Strategic
Equity Fund II, L.P. has represented to us that it is not
acting as an underwriter in this offering, it purchased the
units it is offering under this prospectus in the ordinary
course of business, and at the time of such purchase, it had no
agreement or understanding, directly or indirectly, with any
persons to distribute securities. Northwestern Investment
Management Company, LLC (NIMC) is the investment
adviser to Northwestern Mutual Capital Strategic Equity
Fund II, L.P. with respect to the Registrable Shares.
Jerome R. Baier is a portfolio manager for NMIC and manages the
portfolio which holds the Registrable Shares and therefore may
be deemed to be an indirect beneficial owner with shared voting
power/investment power with respect to such securities. However,
pursuant to
Rule 13d-4
under the Securities Exchange Act of 1934 (the Act),
the immediately |
86
|
|
|
|
|
preceding sentence shall not be construed as an admission that
Mr. Baier is, for the purposes of Section 13(d) or
13(g) of the Act, the beneficial owner of any securities covered
by the statement. |
|
|
|
(45) |
|
Wellington Management Company, LLP (Wellington) is
an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Wellington, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
|
|
|
(46) |
|
Wellington Management Company, LLP (Wellington) is
an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Wellington, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
|
|
|
(47) |
|
Martin G. Braun, as fund advisor to the Strategic Opportunities
Master Fund, has voting and investment power of the shares owned
by the Strategic Opportunities Master Fund. |
|
|
|
(48) |
|
Richard Reiss Jr., as managing member of Reiss Capital
Management LLC, has voting and investment power over the shares
owned by Reiss Capital Management LLC. |
|
|
|
(49) |
|
Mr. Simmons has sole voting and investment power over his
shares. |
|
|
|
(50) |
|
Greg Stevenson, as President of Steelhead Partners, LLC and J.
Michael Johnston and Brian Klein, as Members of Steelhead
Partners, LLC, which is the sole beneficial owner of the general
partner of Steelhead Navigator Master, L.P., share voting and
investment power over the shares owned by Steelhead Navigator
Master, L.P. Each of Steelhead Partners, LLC, Mr. Johnston,
Mr. Klein and Mr. Stevenson expressly disclaims
beneficial ownership in these securities, except to the extent
of their respective pecuniary interests therein. Each individual
has the sole power to act on behalf of Steelhead Partners, LLC. |
|
|
|
(51) |
|
StepStone Co-Investment Funds GP, LLC, which is a wholly owned
subsidiary of StepStone Group LLC, is the general partner of
StepStone Capital Partners II Cayman Holdings, L.P.
StepStone Group LLC is the investment advisor to StepStone
Capital Partners II Cayman Holdings, L.P. Darren Friedman
is a Partner of StepStone Group LLC. StepStone Co-Investment
Funds GP, LLC, StepStone Group LLC, and Mr. Friedman each
may be deemed beneficial owners, with shared voting and
dispositive power of the shares owned by StepStone Capital
Partners II Cayman Holdings, L.P. |
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(52) |
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StepStone Co-Investment Funds GP, LLC, which is a wholly owned
subsidiary of StepStone Group LLC, is the general partner of
StepStone Capital Partners II Onshore, L.P. StepStone Group
LLC is the investment advisor to StepStone Capital
Partners II Onshore, L.P. Darren Friedman is a Partner of
StepStone Group LLC. StepStone Co-Investment Funds GP, LLC,
StepStone Group LLC, and Mr. Friedman each may be deemed
beneficial owners, with shared voting and dispositive power of
the shares owned by StepStone Capital Partners II Onshore,
L.P. |
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(53) |
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Michael Salzhauer, as attorney in fact for Steven Roth, has
voting and investment power over the shares owned by Steven Roth. |
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(54) |
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Wellington Management Company, LLP (Wellington) is
an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Wellington, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
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(55) |
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Wellington Management Company, LLP (Wellington) is
an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Wellington, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
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(56) |
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The Northwestern Mutual Life Insurance Company is an affiliate
of each of (i) Northwestern Mutual Investment Services,
LLC, (ii) Russell Implementation Services, Inc. and
(iii) Russell Financial Services, Inc., each of which is a
broker dealer registered under Section 15 of the Exchange
Act. The Northwestern Mutual Life Insurance Company has
represented to us that it is not acting as an underwriter in
this offering, it purchased the units it is offering under this
prospectus in the ordinary course of business, and at the time
of such purchase, it had no agreement or understanding, directly
or indirectly, with any persons to distribute securities.
Northwestern Investment Management Company, LLC
(NIMC), a wholly owned company of |
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The Northwestern Mutual Life Insurance Company, is the
investment adviser to The Northwestern Mutual Life Insurance
Company with respect to the Registrable Shares. Jerome R. Baier
is a portfolio manager for NMIC and manages the portfolio which
holds the Registrable Shares and therefore may be deemed to be
an indirect beneficial owner with shared voting power/investment
power with respect to such securities. However, pursuant to
Rule 13d-4
under the Securities Exchange Act of 1934 (the Act),
the immediately preceding sentence shall not be construed as an
admission that Mr. Baier is, for the purposes of
Section 13(d) or 13(g) of the Act, the beneficial owner of
any securities covered by the statement. |
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(57) |
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The Northwestern Mutual Life Insurance Company for its Group
Annuity Separate Account is an affiliate of each of
(i) Northwestern Mutual Investment Services, LLC,
(ii) Russell Implementation Services, Inc. and
(iii) Russell Financial Services, Inc., each of which is a
broker dealer registered under Section 15 of the Exchange
Act. The Northwestern Mutual Life Insurance Company for its
Group Annuity Separate Account has represented to us that it is
not acting as an underwriter in this offering, it purchased the
units it is offering under this prospectus in the ordinary
course of business, and at the time of such purchase, it had no
agreement or understanding, directly or indirectly, with any
persons to distribute securities. Northwestern Investment
Management Company, LLC (NIMC), a wholly owned
company of The Northwestern Mutual Life Insurance Company, is
the investment adviser to The Northwestern Mutual Life Insurance
Company for its Group Annuity Separate Account with respect to
the Registrable Shares. Jerome R. Baier is a portfolio manager
for NMIC and manages the portfolio which holds the Registrable
Shares and therefore may be deemed to be an indirect beneficial
owner with shared voting power/investment power with respect to
such securities. However, pursuant to
Rule 13d-4
under the Securities Exchange Act of 1934 (the Act),
the immediately preceding sentence shall not be construed as an
admission that Mr. Baier is, for the purposes of
Section 13(d) or 13(g) of the Act, the beneficial owner of
any securities covered by the statement. |
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(58) |
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Martin G. Braun, as the president Adaly Investment Management
Corp, an adviser of the Strategic Investment Fund USA LP,
and the partner of S-US GP LLC, the general partner of Strategic
Investment Fund USA LP, has voting and investment power
over the shares owned by Strategic Investment Fund USA LP. |
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(59) |
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Brian David Thom is an affiliate of FBR Investment Bank, which
is a broker dealer registered under Section 15 of the
Exchange Act. Mr. Thom has represented to us that he is not
acting as an underwriter in this offering, he purchased the
units he is offering under this prospectus in the ordinary
course of business, and at the time of such purchase, he had no
agreement or understanding, directly or indirectly, with any
persons to distribute securities. Mr. Thom has sole voting
and investment power over his shares. |
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(60) |
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Wellington Management Company, LLP (Wellington) is
an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Wellington, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
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(61) |
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Wellington Management Company, LLP (Wellington) is
an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Wellington, in such capacity, may be
deemed to share beneficial ownership over the shares held by its
client accounts. |
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(62) |
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Variable Insurance Products Fund II: Contrafund Portfolio
is an investment company registered under Section 8 of the
Investment Company Act of 1940 (the Fund) advised by
Fidelity Management & Research Company
(Fidelity), 82 Devonshire Street, Boston,
Massachusetts 02109, a wholly-owned subsidiary of FMR LLC and an
investment adviser registered under Section 203 of the
Investment Advisers Act of 1940. Edward C. Johnson 3d and FMR
LLC, through its control of Fidelity, and the Fund each has sole
power to dispose of the securities owned by the Fund. Robert
Stansky, John Avery, Matthew Friedman, Adam Hetnarski, Steven
Kaye, Robert Lee, Peter Saperstone, Douglas Simmons, Pierre
Sorel and Nathan Strik, |
88
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employees of Fidelity, are the current portfolio managers for
the Fund and have investment discretion with respect to the
Funds assets. |
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Members of the family of Edward C.
Johnson 3d, Chairman of FMR LLC, are the predominant owners,
directly or through trusts, of Series B voting common
shares of FMR LLC, representing 49% of the voting power of FMR
LLC. The Johnson family group and all other Series B
shareholders have entered into a shareholders voting
agreement under which all Series B voting common shares
will be voted in accordance with the majority vote of
Series B voting common shares. Accordingly, through their
ownership of voting common shares and the execution of the
shareholders voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940,
to form a controlling group with respect to FMR LLC. |
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Neither FMR LLC nor Edward C. Johnson
3d, Chairman of FMR LLC, has the sole power to vote or direct
the voting shares owned directly by the Fund, which power
resides with the Funds Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines
established by the Funds Boards of Trustees. |
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The Fund is an affiliate of a
broker-dealer registered under Section 15 of the Exchange
Act. The Fund has represented to us that it is not acting as an
underwriter in this offering, it purchased the units it is
offering under this prospectus in the ordinary course of
business, and at the time of such purchase, it had no agreement
or understanding, directly or indirectly, with any person to
distribute the securities. |
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(63) |
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Variable Insurance Products Fund III: Value Strategies
Portfolio is an investment company registered under
Section 8 of the Investment Company Act of 1940 (the
Fund) advised by Fidelity Management &
Research Company (Fidelity), 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR
LLC and an investment adviser registered under Section 203
of the Investment Advisers Act of 1940. Edward C. Johnson 3d and
FMR LLC, through its control of Fidelity, and the Fund each has
sole power to dispose of the securities owned by the Fund.
Thomas Soviero, an employee of Fidelity, is the current
portfolio manager for the Fund and has investment discretion
with respect to the Funds assets. |
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Members of the family of Edward C.
Johnson 3d, Chairman of FMR LLC, are the predominant owners,
directly or through trusts, of Series B voting common
shares of FMR LLC, representing 49% of the voting power of FMR
LLC. The Johnson family group and al other Series B
shareholders have entered into a shareholders voting
agreement under which all Series B voting common shares
will be voted in accordance with the majority vote of
Series B voting common shares. Accordingly, through their
ownership of voting common shares and the execution of the
shareholders voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940,
to form a controlling group with respect to FMR LLC. |
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Neither FMR LLC nor Edward C. Johnson
3d, Chairman of FMR LLC, has the sole power to vote or direct
the voting shares owned directly by the Fund, which power
resides with the Funds Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines
established by the Funds Boards of Trustees |
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The Fund is an affiliate of a
broker-dealer registered under Section 15 of the Exchange
Act. The Fund has represented to us that it is not acting as an
underwriter in this offering, it purchased the units it is
offering under this prospectus in the ordinary course of
business, and at the time of such purchase, it had no agreement
or understanding, directly or indirectly, with any person to
distribute the securities. |
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(64) |
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Glenn R. Fuhrman is the sole manager of Vermeer Investments, LLC
and may be deemed to have voting and dispositive power over,
and/or beneficially own, the common shares held by Vermeer
Investments, LLC. Mr. Fuhrman disclaims beneficial
ownership of such common shares, except to the extent of his
pecuniary interest therein. |
89
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(65) |
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Wellington Management Portfolios (Dublin) PLC-Global Smaller
Companies Equity Portfolio may be deemed to be an affiliate of
Wellington Management Advisers, Inc., which is a broker dealer
registered under Section 15 of the Exchange Act. Wellington
Management Portfolios (Dublin) PLC-Global Smaller Companies
Equity Portfolio has represented to us that it is not acting as
an underwriter in this offering, it purchased the units it is
offering under this prospectus in the ordinary course of
business, and at the time of such purchase, it had no agreement
or understanding, directly or indirectly, with any persons to
distribute securities. Wellington Management Company, LLP
(Wellington) is an investment adviser registered
under the Investment Advisers Act of 1940, as amended.
Wellington, in such capacity, may be deemed to share beneficial
ownership over the shares held by its client accounts. |
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(66) |
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Grace M. Lovret, as the Treasurer/Director of Euram
International Inc., has voting and investment power of the
shares owned by Euram International Inc. |
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(67) |
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Grace M. Lovret, as the P.O.A. of Frances E. Belmont, has voting
and investment power of the shares owned by Mr. Belmont. |
90
DESCRIPTION OF
CAPITAL STOCK
The authorized capital stock of C&J Energy Services, Inc.
consists of 100,000,000 shares of common stock,
$0.01 par value per share, of which 47,499,074 shares
are issued and outstanding, and 20,000,000 shares of
preferred stock, $0.01 par value per share, of which no
shares are issued and outstanding. Additionally, as of
June 28, 2011, 5,744,589 shares of our common stock
were issuable upon exercise of outstanding options, 1,925,653 of
which were exercisable, and an aggregate of approximately
1,862,618 shares of common stock are reserved and available
for future issuance under the 2010 Plan. Currently, none of our
common stock is subject to any warrants to purchase nor are
there any outstanding securities convertible into our common
stock.
The following summary of the capital stock, the amended and
restated certificate of incorporation and the amended and
restated bylaws of C&J Energy Services, Inc. does not
purport to be complete and is qualified in its entirety by
reference to the provisions of applicable law and to our amended
and restated certificate of incorporation and amended and
restated bylaws, which are filed as exhibits to the registration
statement of which this prospectus is a part.
Common
Stock
Except as provided by law or in a preferred stock designation,
holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the
stockholders, will have the exclusive right to vote for the
election of directors and do not have cumulative voting rights.
Except as otherwise required by law, holders of common stock, as
such, are not entitled to vote on any amendment to the amended
and restated certificate of incorporation (including any
certificate of designations relating to any series of preferred
stock) that relates solely to the terms of any outstanding
series of preferred stock if the holders of such affected series
are entitled, either separately or together with the holders of
one or more other such series, to vote thereon pursuant to the
amended and restated certificate of incorporation (including any
certificate of designations relating to any series of preferred
stock) or pursuant to the General Corporation Law of the State
of Delaware. Subject to preferences that may be applicable to
any outstanding shares or series of preferred stock, holders of
common stock are entitled to receive ratably such dividends
(payable in cash, stock or otherwise), if any, as may be
declared from time to time by our board of directors out of
funds legally available for dividend payments. All outstanding
shares of common stock are fully paid and non-assessable, and
the shares of common stock to be issued upon completion of this
offering will be fully paid and non-assessable. The holders of
common stock have no preferences or rights of conversion,
exchange, pre-emption or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common
stock. In the event of any liquidation, dissolution or
winding-up
of our affairs, holders of common stock will be entitled to
share ratably in our assets that are remaining after payment or
provision for payment of all of our debts and obligations and
after liquidation payments to holders of outstanding shares of
preferred stock, if any.
Preferred
Stock
Our amended and restated certificate of incorporation authorizes
our board of directors, subject to any limitations prescribed by
law, without further stockholder approval, to establish and to
issue from time to time one or more classes or series of
preferred stock covering up to an aggregate of
20,000,000 shares. Each class or series of preferred stock
will cover the number of shares and will have the powers,
preferences, rights, qualifications, limitations and
restrictions determined by the board of directors, which may
include, among others, dividend rights, liquidation preferences,
voting rights, conversion rights, preemptive rights and
redemption rights. Except as provided by law or in a preferred
stock designation, the holders of preferred stock will not be
entitled to vote at or receive notice of any meeting of
stockholders.
91
Anti-Takeover
Effects of Provisions of Our Certificate of Incorporation, Our
Bylaws and Delaware Law
Some provisions of Delaware law, and our amended and restated
certificate of incorporation and our amended and restated bylaws
described below, contain provisions that could make the
following transactions more difficult: acquisitions of us by
means of a tender offer, a proxy contest or otherwise; or
removal of our incumbent officers and directors. These
provisions may also have the effect of preventing changes in our
management. It is possible that these provisions could make it
more difficult to accomplish or could deter transactions that
stockholders may otherwise consider to be in their best interest
or in our best interests, including transactions that might
result in a premium over the market price for our shares.
These provisions, summarized below, are expected to discourage
coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to
acquire control of us to first negotiate with us. We believe
that the benefits of increased protection and our potential
ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging these proposals because, among
other things, negotiation of these proposals could result in an
improvement of their terms.
Certificate of Incorporation and
Bylaws. Among other things, our amended and
restated certificate of incorporation
and/or
amended and restated bylaws:
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establish advance notice procedures with regard to stockholder
proposals relating to the nomination of candidates for election
as directors or new business to be brought before meetings of
our stockholders. These procedures provide that notice of
stockholder proposals must be timely given in writing to our
corporate secretary prior to the meeting at which the action is
to be taken. Generally, to be timely, notice must be received at
our principal executive offices not less than 90 days nor
more than 120 days prior to the first anniversary date of
the annual meeting for the preceding year. Our amended and
restated bylaws specify the requirements as to form and content
of all stockholders notices. These requirements may
preclude stockholders from bringing matters before the
stockholders at an annual or special meeting;
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provide our board of directors the ability to authorize
undesignated preferred stock. This ability makes it possible for
our board of directors to issue, without stockholder approval,
preferred stock with voting or other rights or preferences that
could impede the success of any attempt to change control of us.
These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in control or management
of our company;
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provide that the authorized number of directors may be changed
only by resolution of the board of directors;
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provide that all vacancies, including newly created
directorships, may, except as otherwise required by law, be
filled by the affirmative vote of a majority of directors then
in office, even if less than a quorum;
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provide that any action required or permitted to be taken by the
stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent
in writing in lieu of a meeting of such stockholders, subject to
the rights of the holders of any series of preferred stock;
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provide that directors may be removed only for cause and only by
the affirmative vote of holders of at least 80% of the voting
power of our then outstanding common stock;
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provide our amended and restated certificate of incorporation
and amended and restated bylaws may be amended by the
affirmative vote of the holders of at least two-thirds of our
then outstanding common stock;
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provide that special meetings of our stockholders may only be
called by the board of directors, the chief executive officer or
the chairman of the board; and
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provide that our amended and restated bylaws can be amended or
repealed at any regular or special meeting of stockholders or by
the board of directors.
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Opt-Out of Section 203 of the
DGCL. We have expressly elected not to be
governed by the Business Combination provisions of
Section 203 of the DGCL. At any time after the Sponsors no
longer beneficially own at least 25% of the outstanding shares
of our common stock, such election shall be automatically
withdrawn and we will thereafter be governed by the
Business Combination provisions of Section 203
of the DGCL. Section 203 prohibits a person who acquires
more than 15% but less than 85% of all classes of our
outstanding voting stock without the approval of our board from
thereafter merging or combining with us for a period of three
years, unless such merger or combination is approved by both a
two-thirds vote of the shares not owned by such person and our
board. These provisions would apply even if the proposed merger
or acquisition could be considered beneficial by some
stockholders.
Limitation of
Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the
liability of our directors for monetary damages for breach of
their fiduciary duty as directors, except for liability that
cannot be eliminated under the DGCL. Delaware law provides that
directors of a company will not be personally liable for
monetary damages for breach of their fiduciary duty as
directors, except for liabilities:
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for any breach of their duty of loyalty to us or our
stockholders;
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for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
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for unlawful payment of dividend or unlawful stock repurchase or
redemption, as provided under Section 174 of the
DGCL; or
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for any transaction from which the director derived an improper
personal benefit.
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Any amendment, repeal or modification of these provisions will
be prospective only and would not affect any limitation on
liability of a director for acts or omissions that occurred
prior to any such amendment, repeal or modification.
Our amended and restated certificate of incorporation and
amended and restated bylaws also provide that we will indemnify
our directors and officers to the fullest extent permitted by
Delaware law. Our amended and restated certificate of
incorporation and amended and restated bylaws also permit us to
purchase insurance on behalf of any officer, director, employee
or other agent for any liability arising out of that
persons actions as our officer, director, employee or
agent, regardless of whether Delaware law would permit
indemnification. We have entered into indemnification agreements
with each of our current directors and executive officers and
expect to enter into indemnification agreements with each of our
future directors and executive officers. These agreements
require us to indemnify these individuals to the fullest extent
permitted under Delaware law against liability that may arise by
reason of their service to us, and to advance expenses incurred
as a result of any proceeding against them as to which they
could be indemnified. We believe that the limitation of
liability provision in our amended and restated certificate of
incorporation and the indemnification agreements facilitates our
ability to continue to attract and retain qualified individuals
to serve as directors and officers.
Corporate
Opportunity
Our amended and restated certificate of incorporation provides
that, to the fullest extent permitted by applicable law, we
renounce any interest or expectancy in, or in being offered an
opportunity to participate in, any business opportunity that may
be from time to time presented to Citigroup Capital
Partners II Employee Master Fund, L.P., certain private
funds advised or managed
93
by StepStone Group LLC, Energy Spectrum Partners IV LP or
their affiliates or any of their respective officers, directors,
agents, shareholders, members, partners, affiliates and
subsidiaries (other than us and our subsidiaries) or business
opportunities that such parties participate in or desire to
participate in, even if the opportunity is one that we might
reasonably have pursued or had the ability or desire to pursue
if granted the opportunity to do so, and no such person shall be
liable to us for breach of any fiduciary or other duty, as a
director or officer or controlling stockholder or otherwise, by
reason of the fact that such person pursues or acquires any such
business opportunity, directs any such business opportunity to
another person or fails to present any such business
opportunity, or information regarding any such business
opportunity, to us unless, in the case of any such person who is
our director or officer, any such business opportunity is
expressly offered to such director or officer solely in his or
her capacity as our director or officer.
Amended and
Restated Stockholders Agreement
For a description of the Amended and Restated Stockholders
Agreement that was entered into in December 2010 and amended on
May 12, 2011, please read Certain Relationships and
Related Party Transactions Amended and Restated
Stockholders Agreement beginning on page 75 of
this prospectus.
Transfer Agent
and Registrar
American Stock Transfer & Trust Company, LLC acts
as the transfer agent and registrar for our common stock.
Listing; Public
Market
There is no established market for our shares of common stock.
We have applied to list on the NYSE under the ticker symbol
CJES, subject to completion of the offering and
compliance with certain conditions. The development and
maintenance of a public market for our common stock, having the
desirable characteristics of depth, liquidity and orderliness,
depends on the existence of willing buyers and sellers, the
presence of which is not within our control or that of any
market maker. The number of active buyers and sellers of shares
of our common stock at any particular time may be limited, which
may have an adverse effect on the price at which shares of our
common stock can be sold.
Special Election
Meeting
Our amended and restated certificate of incorporation provides
that in the event this shelf registration statement we filed on
March 30, 2011 has not been declared effective and such
shares have not been listed for trading on a national securities
exchange 180 days following March 30, 2011, a special
meeting of our stockholders will be called to solely consider
the removal of each of our then-serving directors and the
subsequent election of new directors to fill the then-created
vacancies. The removal of any director requires the affirmative
vote of a majority of the holders of registrable shares under
our Registration Rights Agreement, excluding executive officers.
Directors appointed by our Sponsors are not subject to removal
at such a special meeting, subject to certain exceptions. The
requirement to hold this special meeting may be waived by
holders of
2/3
of the registrable securities under our Registration Rights
Agreement, excluding executive officers. Please read our amended
and restated certificate of incorporation (including portions of
the Registration Rights Agreement incorporated by reference
therein), which is an exhibit to the registration statement of
which this prospectus forms a part.
94
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
common stock. Future sales of our common stock in the public
market, or the availability of such shares for sale in the
public market, could adversely affect prevailing market prices
of our common stock from time to time. As described below, an
undetermined number of shares will be available for sale shortly
after this offering, subject to contractual and legal
restrictions on resale. Sales of a substantial number of shares
of our common stock in the public market after such restrictions
lapse, or the perception that those sales may occur, could
adversely affect the prevailing market price of our common stock
at such time and our ability to raise equity-related capital at
a time and price we deem appropriate.
Sales of
Restricted Shares
Upon the closing of this offering, we will have outstanding an
aggregate
of shares
of common stock. We issued 14,408,224 shares to our
Sponsors in certain private placements, 5,744,589 options to
purchase shares issued to our employees, former employees and
nonemployee directors under compensatory plans or arrangements,
4,322,850 shares purchased by our employees, former
employees and family members of employees and
28,768,000 shares issued pursuant to the 2010 Private
Placement. The majority of the shares outstanding prior to this
offering are subject to the resale limitations of the
Registration Rights Agreement as described below under
Registration Rights. In addition, shares
held by our directors and officers, certain of our principal
stockholders and the selling stockholders are subject to the
Lock-Up
Agreements described below under
Lock-Up
Agreements. Because each of the securities outstanding
prior to this offering were issued and sold in private
placements, such shares are eligible for resale only if
registered under the Securities Act or if they qualify for an
exemption from registration under Rule 144, Rule 701,
Regulation S or another exemption from registration under
the Securities Act.
As a result of the
Lock-Up
Agreements and the Registration Rights Agreement, shares of our
common stock (excluding the shares to be sold in this offering)
that will be available for sale in the public market shortly
after this offering, assuming registration of such shares under
the Securities Act or when permitted under Rule 144,
Rule 701, Regulation S or another exemption from
registration under the Securities Act, are as follows:
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shares
subject to the
Lock-Up
Agreements will not be eligible for sale for 180 days from
the date of this prospectus, subject to certain exceptions.
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shares
subject to the Registration Rights Agreement will not be
eligible for sale for at least 60 days following the
closing of this offering, if the owner of such shares elected
not to participate in this offering.
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Lock-up
Agreements
We, all of our directors and officers, the Sponsors and certain
other selling stockholders have agreed not to sell or otherwise
transfer or dispose of any common stock for a period of
180 days from the date of our initial public offering
prospectus, subject to certain exceptions and extensions.
Registration
Rights
In December 2010, in connection with the closing of the 2010
Private Placement, we entered into a registration rights
agreement among us, certain of our stockholders and FBR Capital
Markets & Co., or the Registration Rights Agreement.
Under the Registration Rights Agreement, we agreed, at our
expense, to file with the SEC, in no event later than
March 31, 2011, a shelf registration statement registering
for resale the 28,768,000 shares of our common stock sold
in the 2010 Private Placement plus any additional shares of
common stock issued in respect thereof whether by stock
dividend, stock distribution, stock split, or otherwise, and to
cause such registration statement to be declared effective by
the SEC as soon as practicable but in any event within
180 days after the initial filing of
95
such registration statement. The registration statement of
which this prospectus is a part is a shelf registration
statement required to be filed pursuant to the Registration
Rights Agreement.
We are required to use our commercially reasonable efforts to
cause the shelf registration statement to become effective under
the Securities Act as soon as practicable after the filing and,
subject to certain blackout periods, to continuously maintain
the effectiveness of the shelf registration statement under the
Securities Act until the first to occur of:
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the sale of all of the shares of common stock covered by the
shelf registration statement in accordance with the intended
distribution of such common stock;
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none of the shares of common stock with rights under the
registration rights agreement remain outstanding; or
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the first anniversary of the initial effective date of the shelf
registration statement, subject to certain conditions and
extension periods, as applicable.
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The preceding summary of certain provisions of the Registration
Rights Agreement is not intended to be complete, and is subject
to, and qualified in its entirety by reference to, all of the
provisions of the Registration Rights Agreement and you should
read this summary together with the complete text of the
Registration Rights Agreement, which is filed as an exhibit to
the registration statement of which this prospectus is a part.
Rule 144
In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated) who is not deemed to
have been an affiliate of ours at any time during the three
months preceding a sale, and who has beneficially owned
restricted securities within the meaning of Rule 144 for at
least six months (including any period of consecutive ownership
of preceding non-affiliated holders) would be entitled to sell
those shares, subject only to the availability of current public
information about us. A non-affiliated person who has
beneficially owned restricted securities within the meaning of
Rule 144 for at least one year would be entitled to sell
those shares without regard to the provisions of Rule 144.
A person (or persons whose shares are aggregated) who is deemed
to be an affiliate of ours and who has beneficially owned
restricted securities within the meaning of Rule 144 for at
least six months would be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding shares of our
common stock or the average weekly trading volume of our common
stock reported through the NYSE during the four calendar weeks
preceding the filing of notice of the sale. Such sales are also
subject to certain manner of sale provisions, notice
requirements and the availability of current public information
about us.
Rule 701
Employees, directors, officers, consultants or advisors who were
issued shares in connection with a compensatory stock or option
plan or other written compensatory agreement in accordance with
Rule 701 before the effective date of the registration
statement of which this prospectus is a part are entitled to
sell such shares 90 days after the effective date of the
registration statement of which this prospectus is a part in
reliance on Rule 144 without having to comply with the
holding period requirement of Rule 144 and, in the case of
non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of
Rule 144. The SEC has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange
Act, along with the shares acquired upon exercise of such
options, including exercises after the date of this prospectus.
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Regulation S
Regulation S generally permits offers and sales of
securities to
non-U.S. persons
that occur outside the United States within the meaning of and
in accordance with regulation S under the Securities Act.
To qualify as a
non-U.S. person
under Regulation S, the proposed transferee must
(a) have his, her or its principal address outside the
United States, (b) be located outside the United States at
the time any offer to buy the shares was made to the proposed
transferee and at the time that the buy order was originated by
the proposed transferee, and (c) not be a
U.S. person (as defined in Rule 902(k)
under the Securities Act). In general, the shares we issued in
the 2010 Private Placement pursuant to Regulation S will be
freely tradable one year from the date on which they were issued.
Stock Issued
Under Employee Plans
We intend to file a registration statement on
Form S-8
under the Securities Act to register stock issuable under the
2010 Plan. This registration statement is expected to be filed
following the effective date of the registration statement of
which this prospectus is a part and will be effective upon
filing. Accordingly, shares registered under such registration
statement will be available for sale in the open market
following the effective date, unless such shares are subject to
vesting restrictions with us, Rule 144 restrictions
applicable to our affiliates, the Registration Rights Agreement
restrictions described above or the
lock-up
restrictions described above.
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CERTAIN U.S.
FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-UNITED
STATES HOLDERS
The following is a general discussion of certain
U.S. federal income tax consequences of the ownership and
disposition of our common stock by a
non-U.S. holder.
As used in this discussion, the term
non-U.S. holder
means a beneficial owner of our common stock that is not, for
U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States;
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a corporation (including any entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia;
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an estate whose income is subject to U.S. federal income
taxation regardless of its source; or
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a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one
or more United States persons (as defined under the Code) have
authority to control all substantial decisions of the trust, or
if it has a valid election in effect under applicable
U.S. Treasury Regulations to be treated as a United States
person.
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An individual may generally be treated as a resident of the
United States in any calendar year for U.S. federal income
tax purposes, by, among other ways, being present in the United
States for at least 31 days in that calendar year and for
an aggregate of at least 183 days during a three-year
period ending in the current calendar year. For purposes of the
183-day
calculation, all of the days present in the current year,
one-third of the days present in the immediately preceding year
and
one-sixth of
the days present in the second preceding year are counted.
Residents are taxed for U.S. federal income tax purposes as
if they were U.S. citizens.
This summary is based upon provisions of the Code, and Treasury
regulations, administrative rulings and judicial decisions, all
as of the date hereof. Those authorities may be changed, perhaps
retroactively, so as to result in U.S. federal income tax
consequences different from those summarized below. This summary
does not address all aspects of U.S. federal income
taxation and does not deal with U.S. federal estate tax
laws or foreign, state, local or other tax considerations that
may be relevant to
non-U.S. holders
in light of their personal circumstances. In addition, this
summary does not address tax considerations applicable to
investors that may be subject to special treatment under the
U.S. federal income tax laws, such as (without limitation):
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certain former U.S. citizens or residents;
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shareholders that hold our common stock as part of a straddle,
constructive sale transaction, synthetic security, hedge,
conversion transaction or other integrated investment or risk
reduction transaction;
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shareholders that acquired our common stock through the exercise
of employee stock options or otherwise as compensation or
through a tax-qualified retirement plan;
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shareholders that are partnerships or entities treated as
partnerships for U.S. federal income tax purposes or other
pass-through entities or owners thereof;
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financial institutions;
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insurance companies;
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tax-exempt entities;
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dealers in securities or foreign currencies; and
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traders in securities that use a
mark-to-market
method of accounting for U.S. federal income tax purposes.
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If a partnership (including an entity treated as a partnership
for U.S. federal income tax purposes) holds our common
stock, the tax treatment of a partner generally will depend upon
the status of the partner and the activities of the partnership.
If you are a partner of a partnership
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(including an entity treated as a partnership for
U.S. federal income tax purposes) holding our common stock,
you should consult your tax advisor.
Investors considering the purchase of common stock should
consult their tax advisors regarding the application of the
U.S. federal income tax laws to their particular situations
as well as any tax consequences arising under U.S. estate
tax laws and under the laws of any state, local or foreign
taxing jurisdiction or under any applicable tax treaty.
Distributions on
Common Stock
We do not expect to pay any cash distributions on our common
stock in the foreseeable future. However, in the event we do
make such cash distributions, these distributions generally will
constitute dividends for U.S. federal income tax purposes
to the extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax
principles. If any such distribution exceeds our current and
accumulated earnings and profits, the excess will be treated as
a non-taxable return of capital to the extent of the
non-U.S. holders
tax basis in our common stock and thereafter as capital gain
from the sale or exchange of such common stock. Please read
Gain on Disposition of Common Stock.
Dividends paid to a
non-U.S. holder
of our common stock that are not effectively connected with the
non-U.S. holders
conduct of a trade or business within the United States will be
subject to U.S. withholding tax at a 30% rate, or if an
income tax treaty applies, a lower rate specified by the treaty.
In order to receive a reduced treaty rate, a
non-U.S. holder
must provide to the withholding agent Internal Revenue Service,
or the IRS,
Form W-8BEN
(or applicable substitute or successor form) properly certifying
eligibility for the reduced rate.
Dividends that are effectively connected with a
non-U.S. holders
conduct of a trade or business in the United States and, if an
income tax treaty so requires, are attributable to a permanent
establishment maintained by the
non-U.S. holder
in the United States, are taxed on a net income basis at the
regular graduated rates and in the manner applicable to United
States persons (as defined under the Code). In that case, we
will not have to withhold U.S. federal withholding tax if
the
non-U.S. holder
complies with applicable certification and disclosure
requirements (which may generally be met by providing an IRS
Form W-8ECI).
In addition, a branch profits tax may be imposed at
a 30% rate, or a lower rate specified under an applicable income
tax treaty, on dividends received by a foreign corporation that
are effectively connected with its conduct of a trade or
business in the United States.
Gain on
Disposition of Common Stock
Subject to the discussion below regarding backup withholding, a
non-U.S. holder
generally will not be subject to U.S. federal income tax on
gain recognized on a disposition of our common stock unless:
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the gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States and, if
required by an applicable tax treaty, is attributable to a
permanent establishment maintained by the
non-U.S. holder
in the United States, in which case, the gain will be taxed on a
net income basis at the rates and in the manner applicable to
United States persons (as defined under the Code), and if the
non-U.S. holder
is a foreign corporation, the branch profits tax described above
may also apply;
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the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of the disposition and
meets other requirements, in which case, the
non-U.S. holder
will be subject to a flat 30% tax on the gain derived from the
disposition, which may be offset by U.S. source capital
losses; or
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we are or have been a United States real property holding
corporation, or USRPHC, for U.S. federal income tax
purposes at any time during the shorter of the five-year period
ending on the date of disposition or the period that the
non-U.S. holder
held our common stock.
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Generally, a corporation is a USRPHC if the fair market value of
its United States real property interests equals or exceeds 50%
of the sum of the fair market value of its worldwide real
property
99
interests and its other assets used or held for use in a trade
or business. We believe that we are not currently, and we do not
anticipate becoming in the future, a USRPHC for
U.S. federal income tax purposes. If we were to become a
USRPHC and our common stock were considered to be
regularly traded on an established securities market
for U.S. federal income tax purposes, the tax relating to
stock in a USRPHC generally would not apply to a
non-U.S. holder
whose actual and constructive stock holdings of our common stock
constituted 5% or less of our common stock at all times during
the applicable period described in the third bullet point above.
Information
Reporting and Backup Withholding Tax
Dividends paid to you will generally be subject to information
reporting and may be subject to U.S. backup withholding.
You will be exempt from backup withholding if you properly
provide a
Form W-8BEN
certifying under penalties of perjury that you are a
non-U.S. holder
or otherwise meet documentary evidence requirements for
establishing that you are a
non-U.S. holder,
or you otherwise establish an exemption. Copies of the
information returns reporting such dividends and the tax
withheld with respect to such dividends also may be made
available to the tax authorities in the country in which you
reside.
The gross proceeds from the disposition of our common stock may
be subject to information reporting and backup withholding. If
you receive payments of the proceeds of a disposition of our
common stock to or through a U.S. office of a broker, the
payment will be subject to both U.S. backup withholding and
information reporting unless you properly provide an IRS
Form W-8BEN
certifying under penalties of perjury that you are a
non-U.S. person
(and the payor does not have actual knowledge or reason to know
that you are a United States person, as defined under the Code)
or you otherwise establish an exemption. If you sell your common
stock outside the United States through a
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to you outside the United
States, then the U.S. backup withholding and information
reporting requirements generally will not apply to that payment.
However, U.S. information reporting, but not backup
withholding, will generally apply to a payment of sales
proceeds, even if that payment is made outside the United
States, if you sell your common stock through a
non-U.S. office
of a broker that has certain relationships with the
United States unless the broker has documentary evidence in
its files that you are a
non-U.S. person
and certain other conditions are met, or you otherwise establish
an exemption.
Backup withholding is not an additional tax. You may obtain a
refund or credit of any amounts withheld under the backup
withholding rules that exceed your U.S. federal income tax
liability, if any, provided the required information is timely
furnished to the IRS.
Additional
Withholding Requirements
Under recently-enacted legislation, the relevant withholding
agent may be required to withhold 30% of any dividends and the
proceeds of a sale or other disposition of our common stock paid
after December 31, 2012 to (i) a foreign financial
institution (as specifically defined under those rules) unless
such foreign financial institution agrees to verify, report and
disclose its U.S. account holders and meets certain other
requirements or (ii) a non-financial foreign entity that is
the beneficial owner of the payment unless such entity certifies
that it does not have any substantial United States owners or
provides the name, address and taxpayer identification number of
each substantial United States owner and such entity meets
certain other requirements.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND
SHOULD NOT BE VIEWED AS TAX ADVICE. INVESTORS CONSIDERING THE
PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL
INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, ESTATE OR FOREIGN TAX
LAWS AND TAX TREATIES.
100
PLAN OF
DISTRIBUTION
The selling stockholders may, from time to time, sell, transfer
or otherwise dispose of any or all of their shares or interests
in the shares on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. Once
our common stock listed on the NYSE and an active market for our
common stock develops, the selling stockholders may sell their
shares of common stock from time to time at the prevailing
market price or in privately negotiated transactions.
The selling stockholders may use any one or more of the
following methods when disposing of shares or interests therein:
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ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
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block trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
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an exchange distribution in accordance with the rules of the
applicable exchange;
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privately negotiated transactions;
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short sales effected after the date the registration statement
of which this prospectus is a part is declared effective by the
SEC;
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through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
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broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per
share; and
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a combination of any such methods of sale.
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The selling stockholders also may resell all or a portion of the
shares in open market transactions in reliance upon
Rule 144 under the Securities Act, provided that they meet
the criteria and conform to the requirements of that rule.
The selling stockholders may, from time to time, pledge or grant
a security interest in some or all of our shares owned by them
and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell
the shares, from time to time, under this prospectus, or under
an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the
list of selling stockholders to include the pledgee, transferee
or other successors in interest as selling stockholders under
this prospectus. The selling stockholders also may transfer the
shares in other circumstances, in which case the transferees,
pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In connection with the sale of our shares or interests therein,
the selling stockholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may
in turn engage in short sales of the shares in the course of
hedging the positions they assume. The selling stockholders may
also sell shares short and deliver these securities to close out
their short positions, or loan or pledge the shares to
broker-dealers that in turn may sell these securities. The
selling stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions
or the creation of one or more derivative securities which
require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares
such broker-dealer or other financial institution may resell
pursuant to this prospectus (as supplemented or amended to
reflect such transaction).
The aggregate proceeds to the selling stockholders from the sale
of the shares offered by them will be the purchase price of the
shares less discounts or commissions, if any. Each of the
selling
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stockholders reserves the right to accept and, together with
their agents from time to time, to reject, in whole or in part,
any proposed purchase of shares to be made directly or through
agents. We will not receive any of the proceeds from this
offering.
Broker-dealers engaged by the selling stockholders may arrange
for other broker-dealers to participate in sales. Broker-dealers
may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the
purchase of shares, from the purchaser) in amounts to be
negotiated. The maximum commission or discount to be received by
any FINRA member or independent broker-dealer will not be
greater than eight percent for the sale of any shares or
interests therein being registered pursuant to SEC Rule 415.
The broker-dealers or agents that participate in the sale of the
shares or interests therein and the selling stockholders who are
affiliates of broker-dealers may be underwriters
within the meaning of Section 2(11) of the Securities Act.
Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and
commissions under the Securities Act. Selling stockholders who
are underwriters within the meaning of
Section 2(11) of the Securities Act will be subject to the
prospectus delivery requirements of the Securities Act. We know
of no existing arrangements between any of the selling
stockholders and any other stockholder, broker, dealer,
underwriter, or agent relating to the sale or distribution of
the shares, nor can we presently estimate the amount, if any, of
such compensation. Please read Selling Stockholders
for description of any material relationship that a stockholder
has with us and the description of such relationship.
In order to comply with the securities laws of some states, if
applicable, the shares may be sold in these jurisdictions only
through registered or licensed brokers or dealers. In addition,
in some states, the shares may not be sold unless it has been
registered or qualified for sale or an exemption from
registration or qualification requirements is available and is
complied with.
We have advised the selling stockholders that the
anti-manipulation rules of Regulation M under the Exchange
Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. In
addition, we will make copies of this prospectus (as it may be
supplemented or amended from time to time) available to the
selling stockholders for the purpose of satisfying the
prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares
against certain liabilities, including liabilities arising under
the Securities Act.
We have agreed to pay certain fees and expenses incurred by us
incident to the registration of the shares. We have agreed to
indemnify the selling stockholders against liabilities,
including liabilities under the Securities Act and state
securities laws, relating to the registration of the shares
offered by this prospectus.
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LEGAL
MATTERS
The validity of the shares of our common stock offered by this
prospectus will be passed upon for us by Vinson & Elkins
L.L.P., Houston, Texas. Any underwriters will be advised about
other issues relating to any offering by their own legal counsel.
EXPERTS
The consolidated financial statements of C&J Energy
Services, Inc. as of December 31, 2010 and 2009, and the
related consolidated statements of operations, changes in
shareholders equity and cash flows for each of the three
years in the period ended December 31, 2010 included in
this prospectus have been audited by UHY LLP, or UHY,
independent registered public accounting firm, as stated in
their report appearing herein, and are included herein in
reliance on the authority of that firm as experts in accounting
and auditing.
CHANGE IN
ACCOUNTANTS
Our financial statements for the years ended December 31,
2008 and 2009 were audited by Flackman Goodman &
Potter, P.A., or Flackman, an independent public accounting
firm. At the time that Flackman performed audit services for us,
we were not a public company and were not subject to SEC
regulations, including the requirement for our auditors to be a
PCAOB registered accounting firm. In preparation for this
offering, on December 17, 2010, we released Flackman and
engaged UHY, an independent PCAOB registered public accounting
firm, to audit our financial statements as of and for the year
ended December 31, 2010 and to re-audit our financial
statements as of December 31, 2009 and for the years ended
December 31, 2008 and 2009. These financial statements,
including UHYs audit report thereon, are included in this
prospectus and in the registration statement. The engagement of
UHY was approved by our board of directors.
Neither of Flackmans reports on the financial statements
for the years ended December 31, 2008 and 2009 contained an
adverse opinion or disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope, or accounting
principles. During such time period, there were no disagreements
between us and Flackman on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope
or procedure.
We have provided Flackman with a copy of the disclosure
contained in the registration statement of which this prospectus
is a part, which was received by Flackman on March 30,
2011. Flackman has furnished a letter addressed to the SEC and
filed as an exhibit to our registration statement stating its
agreement with the statements made in the registration statement
of which this prospectus is a part.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
(including the exhibits, schedules and amendments thereto) under
the Securities Act, with respect to the shares of our common
stock offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further
information with respect to us and the common stock offered
hereby, we refer you to the registration statement and the
exhibits and schedules filed therewith. Statements contained in
this prospectus as to the contents of any contract, agreement or
any other document are summaries of the material terms of that
contract, agreement or other document. With respect to each of
these contracts, agreements or other documents filed as an
exhibit to the registration statement, reference is made to the
exhibits for a more complete description of the matter involved.
A copy of the registration statement, and the exhibits and
schedules thereto, may be inspected without charge at the public
reference facilities maintained by the SEC at
100 F Street NE, Washington, D.C. 20549. Copies
of these materials may be obtained, upon payment of a
duplicating fee, from the Public Reference Section of the SEC at
103
100 F Street NE, Washington, D.C. 20549. Please
call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
facility. The SEC maintains a website that contains reports,
proxy and information statements and other information regarding
registrants that file electronically with the SEC, including us.
The address of the SECs website is
http://www.sec.gov.
After we have completed this offering, we will file annual,
quarterly and current reports, proxy statements and other
information with the SEC. We maintain a website
at and
we expect to make our periodic reports and other information
filed with or furnished to the SEC available, free of charge,
through our website, as soon as reasonably practicable after
those reports and other information are electronically filed
with or furnished to the SEC. Information on our website or any
other website is not incorporated by reference into this
prospectus and does not constitute a part of this prospectus.
You may read and copy any reports, statements or other
information on file at the public reference rooms. You can also
request copies of these documents, for a copying fee, by writing
to the SEC, or you can review these documents on the SECs
website, as described above. In addition, we will provide
electronic or paper copies of our filings free of charge upon
request.
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F-1
To the Board of Directors and Shareholders of
C&J Energy Services, Inc.
We have audited the accompanying consolidated balance sheets of
C&J Energy Services, Inc. and Subsidiary (collectively, the
Company) as of December 31, 2010 and 2009, and
the related consolidated statements of operations, changes in
shareholders equity and cash flows for each of the three
years in the period ended December 31, 2010. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of C&J Energy Services,
Inc. and Subsidiary as of December 31, 2010 and 2009, and
the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America.
Houston, Texas
February 15, 2011
F-2
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
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|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,816,734
|
|
|
$
|
1,178,275
|
|
Accounts receivable, net of allowance for doubtful accounts of
$509,717 and $311,324, respectively
|
|
|
44,354,381
|
|
|
|
12,668,069
|
|
Inventories, net
|
|
|
8,181,903
|
|
|
|
2,462,935
|
|
Prepaid expenses and other current assets
|
|
|
3,767,614
|
|
|
|
347,206
|
|
Deferred tax assets
|
|
|
265,000
|
|
|
|
167,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
59,385,632
|
|
|
|
16,823,485
|
|
PROPERTY, PLANT AND EQUIPMENT, net
|
|
|
88,395,494
|
|
|
|
65,404,436
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
60,338,653
|
|
|
|
60,338,653
|
|
Intangible assets, net of accumulated amortization of $4,498,183
and $3,429,308
|
|
|
5,767,817
|
|
|
|
6,836,692
|
|
Deposits on equipment under construction
|
|
|
8,413,009
|
|
|
|
578,205
|
|
Deferred financing costs, net of accumulated amortization of
$505,560 and $1,010,591, respectively
|
|
|
3,190,215
|
|
|
|
241,286
|
|
Other
|
|
|
597,571
|
|
|
|
8,479
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER ASSETS
|
|
|
78,307,265
|
|
|
|
68,003,315
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
226,088,391
|
|
|
$
|
150,231,236
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13,084,316
|
|
|
$
|
10,598,159
|
|
Revolving credit facility
|
|
|
|
|
|
|
4,125,000
|
|
Current portion of long-term debt and capital leases
|
|
|
27,222,222
|
|
|
|
2,540,697
|
|
Accrued expenses
|
|
|
8,179,351
|
|
|
|
1,470,859
|
|
Accrued taxes
|
|
|
6,525,100
|
|
|
|
271,000
|
|
Warrants
|
|
|
|
|
|
|
335,967
|
|
Deferred revenue
|
|
|
4,033,000
|
|
|
|
33,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
59,043,989
|
|
|
|
19,374,682
|
|
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
|
|
|
44,816,961
|
|
|
|
60,668,298
|
|
LONG-TERM DEFERRED REVENUE
|
|
|
723,250
|
|
|
|
756,250
|
|
DEFERRED TAX LIABILITIES
|
|
|
12,058,000
|
|
|
|
3,633,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
116,642,200
|
|
|
|
84,432,230
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Common stock, par value of $.01, 100,000,000 shares
authorized, 47,499,074 and 46,322,850 issued and outstanding,
respectively
|
|
|
474,991
|
|
|
|
463,229
|
|
Additional paid-in capital
|
|
|
78,288,578
|
|
|
|
66,925,222
|
|
Retained earnings (accumulated deficit)
|
|
|
30,682,622
|
|
|
|
(1,589,445
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
109,446,191
|
|
|
|
65,799,006
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
226,088,391
|
|
|
$
|
150,231,236
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
REVENUE
|
|
$
|
244,157,215
|
|
|
$
|
67,029,969
|
|
|
$
|
62,441,238
|
|
COST OF SALES
|
|
|
154,297,372
|
|
|
|
54,241,544
|
|
|
|
42,401,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
89,859,843
|
|
|
|
12,788,425
|
|
|
|
20,040,049
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
17,998,125
|
|
|
|
9,533,223
|
|
|
|
8,949,638
|
|
LOSS ON SALE/DISPOSAL OF ASSETS
|
|
|
1,571,033
|
|
|
|
920,078
|
|
|
|
397,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
70,290,685
|
|
|
|
2,335,124
|
|
|
|
10,693,173
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
8,841
|
|
|
|
3,661
|
|
|
|
4,890
|
|
Interest expense
|
|
|
(17,349,346
|
)
|
|
|
(4,712,077
|
)
|
|
|
(6,913,606
|
)
|
Lender fees
|
|
|
(322,205
|
)
|
|
|
(390,664
|
)
|
|
|
(510,733
|
)
|
Other income
|
|
|
162,661
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
(149,659
|
)
|
|
|
(51,923
|
)
|
|
|
(67,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER EXPENSE
|
|
|
(17,649,708
|
)
|
|
|
(5,151,003
|
)
|
|
|
(7,487,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
52,640,977
|
|
|
|
(2,815,879
|
)
|
|
|
3,206,031
|
|
PROVISION (BENEFIT) FOR INCOME TAXES
|
|
|
20,368,910
|
|
|
|
(386,000
|
)
|
|
|
2,085,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
32,272,067
|
|
|
$
|
(2,429,879
|
)
|
|
$
|
1,121,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.70
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
Diluted
|
|
$
|
0.67
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46,351,853
|
|
|
|
46,322,850
|
|
|
|
46,322,850
|
|
Diluted
|
|
|
47,850,728
|
|
|
|
46,322,850
|
|
|
|
46,603,816
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Equity
|
|
|
Balance at January 1, 2008
|
|
|
46,322,850
|
|
|
$
|
463,229
|
|
|
$
|
66,614,044
|
|
|
$
|
(280,571
|
)
|
|
$
|
66,796,702
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
181,727
|
|
|
|
|
|
|
|
181,727
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,121,005
|
|
|
|
1,121,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
46,322,850
|
|
|
|
463,229
|
|
|
|
66,795,771
|
|
|
|
840,434
|
|
|
|
68,099,434
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
129,451
|
|
|
|
|
|
|
|
129,451
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,429,879
|
)
|
|
|
(2,429,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
46,322,850
|
|
|
|
463,229
|
|
|
|
66,925,222
|
|
|
|
(1,589,445
|
)
|
|
|
65,799,006
|
|
Exercise of warrants
|
|
|
1,176,224
|
|
|
|
11,762
|
|
|
|
10,728,943
|
|
|
|
|
|
|
|
10,740,705
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
634,413
|
|
|
|
|
|
|
|
634,413
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,272,067
|
|
|
|
32,272,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
47,499,074
|
|
|
$
|
474,991
|
|
|
$
|
78,288,578
|
|
|
$
|
30,682,622
|
|
|
$
|
109,446,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
32,272,067
|
|
|
$
|
(2,429,879
|
)
|
|
$
|
1,121,005
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
9,675,130
|
|
|
|
8,758,915
|
|
|
|
7,647,812
|
|
Amortization expense
|
|
|
1,068,875
|
|
|
|
1,068,875
|
|
|
|
1,188,227
|
|
Provision for doubtful accounts receivable, net of write-offs
|
|
|
504,245
|
|
|
|
200,000
|
|
|
|
145,000
|
|
Share-based compensation expense
|
|
|
634,413
|
|
|
|
129,451
|
|
|
|
181,727
|
|
Loss on change in fair value of warrant liability
|
|
|
10,403,058
|
|
|
|
335,967
|
|
|
|
|
|
Deferred income taxes
|
|
|
8,327,000
|
|
|
|
(624,000
|
)
|
|
|
1,689,000
|
|
Loss on sale/disposal of assets
|
|
|
1,571,033
|
|
|
|
920,078
|
|
|
|
397,238
|
|
Non cash paid in kind interest expense
|
|
|
277,564
|
|
|
|
293,298
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
746,846
|
|
|
|
319,344
|
|
|
|
319,344
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(32,190,557
|
)
|
|
|
494,371
|
|
|
|
(9,098,455
|
)
|
Inventories
|
|
|
(5,718,968
|
)
|
|
|
(1,602,368
|
)
|
|
|
(279,275
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,707,584
|
)
|
|
|
164,632
|
|
|
|
(437,419
|
)
|
Accounts payable
|
|
|
2,486,157
|
|
|
|
4,078,869
|
|
|
|
4,814,744
|
|
Accrued liabilities
|
|
|
6,708,492
|
|
|
|
73,080
|
|
|
|
645,228
|
|
Accrued taxes
|
|
|
6,254,100
|
|
|
|
(125,000
|
)
|
|
|
284,874
|
|
Deferred revenue
|
|
|
4,000,000
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(589,092
|
)
|
|
|
|
|
|
|
(8,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
44,722,779
|
|
|
|
12,055,633
|
|
|
|
8,610,571
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of and deposits on property, plant and equipment
|
|
|
(44,472,780
|
)
|
|
|
(4,300,897
|
)
|
|
|
(21,526,076
|
)
|
Proceeds from MEDCO Incentive
|
|
|
|
|
|
|
|
|
|
|
819,500
|
|
Proceeds from sale/disposal of property, plant and equipment
|
|
|
654,931
|
|
|
|
47,292
|
|
|
|
33,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(43,817,849
|
)
|
|
|
(4,253,605
|
)
|
|
|
(20,672,736
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings (repayment) of revolving credit facilities, net
|
|
|
(34,500,000
|
)
|
|
|
(6,150,000
|
)
|
|
|
17,000,000
|
|
Proceeds from long-term debt
|
|
|
75,887,850
|
|
|
|
2,000,000
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(36,919,529
|
)
|
|
|
(2,500,000
|
)
|
|
|
(5,000,000
|
)
|
Repayments of capital lease obligations
|
|
|
(40,697
|
)
|
|
|
(82,873
|
)
|
|
|
(78,742
|
)
|
Financing costs
|
|
|
(3,695,775
|
)
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
1,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
733,529
|
|
|
|
(6,732,873
|
)
|
|
|
11,921,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
1,638,459
|
|
|
|
1,069,155
|
|
|
|
(140,907
|
)
|
CASH AND CASH EQUIVALENTS, beginning of year
|
|
|
1,178,275
|
|
|
|
109,120
|
|
|
|
250,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year
|
|
$
|
2,816,734
|
|
|
$
|
1,178,275
|
|
|
$
|
109,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
5,795,578
|
|
|
$
|
4,094,823
|
|
|
$
|
6,168,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (net of refunds received)
|
|
$
|
5,747,710
|
|
|
$
|
395,929
|
|
|
$
|
111,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
DECEMBER 31, 2010, 2009 AND 2008
|
|
Note 1
|
Nature of
Business and Summary of Significant Accounting
Policies
|
Organization of
Business: C&J Energy Services, Inc.
(the Company) was incorporated in Texas in 2006 and
re-incorporated in Delaware in 2010. The Company provides
specialty equipment services for oil and natural gas exploration
and production companies in the Texas, Louisiana, and Oklahoma
regions of the United States of America.
The nature of operations and the regions in which the Company
operate are subject to changing economic, regulatory and
political conditions. The Company is vulnerable to near-term and
long-term changes in the demand for and prices of oil and
natural gas and the related demand for oilfield service
operations.
Use of Estimates: The
preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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 financial statements, and the reported amounts of revenues
and expenses during the reporting period. Estimates are used
for, but are not limited to, determining the following:
allowance for doubtful accounts, recoverability of long-lived
assets and intangibles, useful lives used in depreciation and
amortization, income taxes and valuation allowances. The
accounting estimates used in the preparation of the consolidated
financial statements may change as new events occur, as more
experience is acquired, as additional information is obtained
and as the Companys operating environment changes.
Basis of Presentation: The
Company presents its financial statements in accordance with
generally accepted accounting principles in the United States.
Principles of Consolidation: The
consolidated financial statements include the accounts of
C&J Energy Services, Inc. and its wholly-owned subsidiary,
C&J Spec-Rent Services, Inc. (the Subsidiary).
All significant inter-company transactions and accounts have
been eliminated upon consolidation.
Cash and Cash Equivalents: For
purposes of the statement of cash flows, cash is defined as cash
on-hand and balances in operating bank accounts, amounts due
from depository institutions, interest-bearing deposits in other
banks, and money market accounts. The Company considers all
highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful
Accounts: Accounts receivable are stated
at the amount billed to customers and are ordinarily due upon
receipt. The Company provides an allowance for doubtful
accounts, which is based upon a review of outstanding
receivables, historical collection information and existing
economic conditions. Provisions for doubtful accounts are
recorded when it becomes evident that the customer will not make
the required payments at either contractual due dates or in the
future. At December 31, 2010 and 2009, the allowance for
doubtful accounts totaled $509,717 and $311,324, respectively.
Bad debt expense was $504,245, $200,000 and $145,000 for the
years ended December 31, 2010, 2009 and 2008, respectively.
Inventories: Inventories,
consisting of spare parts to be used in maintaining equipment
and general supplies and materials for the Companys
operations, are stated at the lower of cost
(first-in,
first-out basis) or market (net realizable value). Appropriate
consideration is given to deterioration, obsolescence and other
factors in evaluating net realizable value. At December 31,
2010 and 2009, the inventory reserve totaled $37,318.
F-7
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property, Plant and
Equipment: Property, plant and equipment
is recorded at cost less accumulated depreciation. Certain
equipment held under capital leases are classified as equipment
and the related obligations are recorded as liabilities.
Maintenance and repairs, which do not improve or extend the life
of the related assets, are charged to operations when incurred.
Refurbishments and renewals are capitalized when the value of
the equipment is enhanced for an extended period. When property
and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation account are
relieved, and any gain or loss is included in operating income.
The cost of property and equipment currently in service is
depreciated over the estimated useful lives of the related
assets, which range from five to twenty-five years. Depreciation
is computed on a straight-line basis for financial reporting
purposes. Capital leases are amortized using the straight-line
method over the estimated useful lives of the assets and lease
amortization is included in depreciation expense. Depreciation
expense charged to operations was $9,675,130, $8,758,915 and
$7,647,812 for the years ended December 31, 2010, 2009 and
2008, respectively.
Goodwill, Intangible Assets and
Amortization: Goodwill and other
intangible assets with infinite lives are not amortized, but
tested for impairment annually or more frequently if
circumstances indicate that impairment may exist. Intangible
assets with finite useful lives are amortized either on a
straight-line basis over the assets estimated useful life
or on a basis that reflects the pattern in which the economic
benefits of the intangible assets are realized.
The impairment test requires the allocation of goodwill and all
other assets and liabilities to reporting units. The Company has
one reporting unit and performs impairment tests on the carrying
value of goodwill at least annually. The Companys annual
impairment tests involve the use of different valuation
techniques, including a combination of the income and market
approach, to determine the fair value of the reporting unit.
Determining the fair value of a reporting unit is a matter of
judgment and often involves the use of significant estimates and
assumptions. If the fair value of the reporting unit is less
than its carrying value, an impairment loss is recorded to the
extent that the implied fair value of the reporting units
goodwill is less than its carrying value. For the years ended
December 31, 2010, 2009 and 2008, no impairment write-down
was deemed necessary. Significant and unanticipated changes to
these assumptions could require an additional provision for
impairment in a future period.
Deferred Financing Costs: Costs
incurred to obtain financing are capitalized and amortized on a
straight-line basis over the term of the loan, which
approximates the effective interest method. These costs are
classified within interest expense on the accompanying
consolidated statements of operations and approximated $746,846,
$319,344 and $319,344 for the years ended December 31,
2010, 2009 and 2008, respectively. Estimated future amortization
expense relating to deferred financing costs is as follows:
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2011
|
|
$
|
1,165,208
|
|
2012
|
|
|
1,165,208
|
|
2013
|
|
|
859,799
|
|
|
|
|
|
|
|
|
$
|
3,190,215
|
|
|
|
|
|
|
Impairment of Long-Lived
Assets: Long-lived assets, which include
property, plant and equipment, are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is
recorded in the period in which it is determined that the
carrying amount is not recoverable. The determination of
recoverability is made
F-8
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
based upon the estimated undiscounted future net cash flows,
excluding interest expense. The impairment loss is determined by
comparing the fair value, as determined by a discounted cash
flow analysis, with the carrying value of the related assets.
For the years ended December 31, 2010, 2009 and 2008, no
impairment write-down was deemed necessary.
Revenue Recognition: All revenue
is recognized when persuasive evidence of an arrangement exists,
the service is complete, the amount is fixed or determinable and
collectability is reasonably assured, as follows:
Hydraulic Fracturing Revenue. The Company
enters into arrangements with its customers to provide hydraulic
fracturing services, which can be either on a spot market basis
or under term contracts. The Company only enters into
arrangements with customers for which collectability is
reasonably assured. Revenue is recognized and customers are
invoiced upon the completion of each job, which can consist of
one or numerous fracturing stages. Once the job has been
completed to the satisfaction of the customer, a field ticket is
written that includes charges for the services performed and the
chemicals and proppants consumed during the course of the
service. The field ticket will also include charges for the
mobilization of the equipment to location, additional equipment
used on the job, if any, and other miscellaneous consumables.
Rates for services performed on a spot market basis are based on
the
agreed-upon
hourly spot market rate. With respect to services performed
under term contracts, customers are invoiced a monthly mandatory
payment based on a specified minimum number of hours of service
per month as defined in the contract, upon the earlier of the
passage of time or completion of the job. To the extent
customers utilize more than the contracted minimum number of
hours of service per month, they are invoiced for the excess at
rates defined in the contract upon the completion of each job.
Coiled Tubing and Pressure Pumping
Revenue. The Company enters into arrangements to
provide coiled tubing and pressure pumping services to only
those customers for which collectability is reasonably assured.
These arrangements are typically short-term in nature and each
job can last anywhere from a few hours to multiple days. Coiled
tubing and pressure pumping revenue is recognized upon
completion of each days work based upon a completed field
ticket. The field ticket includes charges for the mobilization
of the equipment to location, the service performed, the
personnel on the job, additional equipment used on the job, if
any, and miscellaneous consumables used throughout the course of
the service. The Company typically charges the customer on an
hourly basis for these services at agreed upon spot market rates.
Materials Consumed While Performing
Services. The Company generates revenue from
chemicals and proppants that are necessarily consumed while
performing hydraulic fracturing services. The Company charges
fees to its customers based on the amount of chemicals and
proppants used in providing these services. In addition,
ancillary to coiled tubing and pressure pumping revenue, the
Company generates revenue from various fluids and supplies that
are necessarily consumed during those processes. The Company
does not sell or otherwise charge a fee separate and apart from
the services it provides for any of the materials consumed while
performing hydraulic fracturing services or coiled tubing and
pressure pumping services.
Share-Based Compensation: The
Company accounts for share-based compensation cost based on the
fair value at grant date by utilizing a Black-Scholes
option-pricing model. The Company recognizes share-based
compensation cost on a straight-line basis over the requisite
service period. Further information regarding share-based
compensation can be found in Note 9, Share-Based
Compensation.
Income Taxes: Income taxes are
provided for the tax effects of transactions reported in
financial statements and consist of taxes currently due plus
deferred taxes. Deferred tax assets and
F-9
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred income tax expense
represents the change during the period in the deferred tax
assets and deferred tax liabilities.
The components of the deferred tax assets and liabilities are
individually classified as current and non-current based on
their characteristics. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred
tax assets will not be realized.
Effective January 1, 2009, the Company adopted guidance
issued by the Financial Accounting Standards Board
(FASB) in accounting for uncertainty in income
taxes. This guidance clarifies the accounting for income taxes
by prescribing the minimum recognition threshold an income tax
position is required to meet before being recognized in the
financial statements and applies to all income tax positions.
Each income tax position is assessed using a two step process. A
determination is first made as to whether it is more likely than
not that the income tax position will be sustained, based upon
technical merits, upon examination by the taxing authorities. If
the income tax position is expected to meet the more likely than
not criteria, the benefit recorded in the financial statements
equals the largest amount that is greater than 50% likely to be
realized upon its ultimate settlement. The Company did not
recognize any uncertain tax positions upon adoption of the
guidance and had no uncertain tax positions as of
December 31, 2010 and 2009. Management believes there are
no tax positions taken or expected to be taken in the next
twelve months that would significantly change the Companys
unrecognized tax benefits.
The Company will record income tax related interest and
penalties, if applicable, as a component of the provision for
income tax expense. However, there were no amounts recognized
relating to interest and penalties in the consolidated
statements of operations for the years ended December 31,
2010, 2009 and 2008. The tax years that remain open to
examination by the major taxing jurisdictions to which the
Company is subject range from 2007 to 2009. The Company has
identified its major taxing jurisdictions as the United States
of America and Texas. None of the Companys federal or
state tax returns are currently under examination.
The Company is subject to the Texas Margin Tax, which is
determined by applying a tax rate to a base that considers both
revenue and expenses. It is considered an income tax and is
accounted for in accordance with the provisions of the FASB
Accounting Standards Codification (ASC) Topic 740,
Income Taxes.
Fair Value of Financial
Instruments: The Companys financial
instruments consist of cash and cash equivalents, accounts
receivable, accounts payable, accrued warrants, notes payable
and long-term debt. The recorded values of cash and cash
equivalents, accounts receivable, and accounts payable
approximate their fair values based on their short-term nature.
The carrying values of notes payable and long-term debt
approximate their fair values, as interest approximates market
rates. See Note 6 for further information regarding fair
value of warrants.
Earnings per Share: Basic
earnings (loss) per share have been based on the weighted
average number of ordinary shares outstanding during the
applicable period. Diluted earnings (loss) per share has been
computed based on the weighted average number of ordinary shares
and ordinary share equivalents outstanding in the applicable
period, as if all potentially dilutive securities were converted
into ordinary shares (using the treasury stock method).
F-10
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of basic and diluted earnings (loss) per share
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributed to common shareholders
|
|
$
|
32,272,067
|
|
|
$
|
(2,429,879
|
)
|
|
$
|
1,121,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
46,351,853
|
|
|
|
46,322,850
|
|
|
|
46,322,850
|
|
Effect of potentially dilutive common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and stock options
|
|
|
1,498,875
|
|
|
|
|
|
|
|
280,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and assumed
conversions
|
|
|
47,850,728
|
|
|
|
46,322,850
|
|
|
|
46,603,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.70
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.67
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities excluded as anti-dilutive
|
|
|
243,146
|
|
|
|
254,381
|
|
|
|
26,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications: Certain
reclassifications have been made to the prior years
financial statements to conform to the current year
presentation. These reclassifications had no effect on
previously reported results of operations or retained earnings
(accumulated deficit).
Recent Accounting
Pronouncements: In June 2009, the FASB
issued authoritative guidance that eliminates the qualifying
special purpose entity concept, changes the requirements for
derecognizing financial assets and requires enhanced disclosures
about transfers of financial assets. The guidance also revises
earlier guidance for determining whether an entity is a variable
interest entity, requires a new approach for determining who
should consolidate a variable interest entity, changes when it
is necessary to reassess who should consolidate a variable
interest entity, and requires enhanced disclosures related to an
enterprises involvement in variable interest entities. The
Company adopted this guidance effective January 1, 2010,
which did not have a material effect on the consolidated
financial statements.
In January 2010, the FASB issued authoritative guidance that
changes the disclosure requirements for fair value measurements.
Specifically, the changes require a reporting entity to disclose
separately the amounts of significant transfers in and out of
Level 1 and Level 2 fair value measurements and
describe the reasons for the transfers. The changes also clarify
existing disclosure requirements related to how assets and
liabilities should be grouped by class and valuation techniques
used for recurring and nonrecurring fair value measurements. The
Company adopted this guidance in the first quarter 2010, which
did not have a material effect on the consolidated financial
position, results of operations or cash flows.
F-11
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2
|
Property, Plant
and Equipment
|
Major classifications of property, plant and equipment and their
respective useful lives are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
December 31,
|
|
|
|
Useful Lives
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
Indefinite
|
|
$
|
395,400
|
|
|
$
|
395,400
|
|
Machinery and equipment
|
|
5-10 years
|
|
|
79,380,054
|
|
|
|
76,455,371
|
|
Building and leasehold improvements
|
|
5-25 years
|
|
|
5,092,456
|
|
|
|
4,910,127
|
|
Transportation equipment
|
|
5 years
|
|
|
4,773,372
|
|
|
|
2,375,368
|
|
Office furniture, fixtures and equipment
|
|
5-10 years
|
|
|
1,004,764
|
|
|
|
839,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,646,046
|
|
|
|
84,975,892
|
|
Less: accumulated depreciation
|
|
|
|
|
(27,712,337
|
)
|
|
|
(19,571,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,933,709
|
|
|
|
65,404,436
|
|
Assets not yet placed in service
|
|
|
|
|
25,461,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
$
|
88,395,494
|
|
|
$
|
65,404,436
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
December 31,
|
|
|
|
Period
|
|
2010
|
|
|
2009
|
|
|
Trade name
|
|
15 years
|
|
$
|
3,675,000
|
|
|
$
|
3,675,000
|
|
Customer relationship
|
|
8 years
|
|
|
6,591,000
|
|
|
|
6,591,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,266,000
|
|
|
|
10,266,000
|
|
Less: accumulated amortization
|
|
|
|
|
(4,498,183
|
)
|
|
|
(3,429,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
$
|
5,767,817
|
|
|
$
|
6,836,692
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense for the years ended December 31,
2010, 2009 and 2008 totaled $1,068,875, $1,068,875 and
$1,188,227, respectively.
Estimated amortization expense for each of the next five years
is as follows:
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2011
|
|
$
|
1,068,875
|
|
2012
|
|
|
1,068,875
|
|
2013
|
|
|
1,068,875
|
|
2014
|
|
|
897,234
|
|
2015
|
|
|
245,000
|
|
Thereafter
|
|
|
1,418,958
|
|
|
|
|
|
|
|
|
$
|
5,767,817
|
|
|
|
|
|
|
F-12
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4
|
Long-Term Debt
and Capital Lease Obligations
|
Debt and capital lease obligations consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Senior credit facility with a financial institution maturing on
June 1, 2013 with maximum allowable indebtedness of
$126,666,667; a principal installment of $3,333,333 paid on
December 15, 2010, principal installments of $1,111,111 to
be paid on January 1, 2011 and February 1, 2011 and
then monthly in the amount of $2,500,000, with any remaining
balance due at maturity; interest payable monthly at a variable
interest rate determined from a pricing scale based on
debt/EBITDA ratio, where the LIBOR floor is 1.5% (weighted
average approximate rate of 5.0% at December 31,
2010).
|
|
$
|
47,039,183
|
|
|
$
|
|
|
$25,000,000 subordinated term loan with a financial institution
due in a lump sum on June 30, 2014; interest payable
monthly, at a rate of LIBOR plus 13%, where the LIBOR floor is
1.0% (14% at December 31, 2010).
|
|
|
25,000,000
|
|
|
|
|
|
$37,500,000 maximum credit facility with a bank, principal
payable quarterly in varying amounts, due on January 31,
2011, interest payable quarterly, at a rate of prime plus 4% or
LIBOR plus 4%, where the LIBOR floor is 2.5%. This facility was
closed in 2010.
|
|
|
|
|
|
|
37,500,000
|
|
$35,000,000 term loan with a financial institution due on
April 30, 2011; principal payable quarterly in varying
amounts, due April 11, 2011; interest payable quarterly, at
a rate of LIBOR plus 9.0%, where the LIBOR floor is 2.5%. The
Company has the option to pay up to 4% of the interest in kind,
thereby capitalizing accrued interest by increasing the
outstanding principal. This loan was paid in full in 2010.
|
|
|
|
|
|
|
27,781,111
|
|
$909,000 of subordinated promissory notes with a group of
stockholders, due on October 1, 2012; interest payable
quarterly, at a rate of prime plus 0.50%. The Company has the
option to pay the interest in kind, thereby capitalizing accrued
interest by increasing the outstanding principal. These notes
were paid and closed in 2010.
|
|
|
|
|
|
|
914,539
|
|
$1,000,000 of subordinated promissory notes with a financial
institution due on October 1, 2012; interest payable
quarterly, at a rate of prime plus 0.50%. The Company has the
option to pay the interest in kind, thereby capitalizing accrued
interest by increasing the outstanding principal. These notes
were paid and closed in 2010.
|
|
|
|
|
|
|
914,539
|
|
$182,000 of subordinated promissory notes with a stockholder due
on October 1, 2012; interest payable quarterly, at a rate
of prime plus 0.50%. The Company has the option to pay the
interest in kind, thereby capitalizing accrued interest by
increasing the outstanding principal. These notes were paid and
closed in 2010.
|
|
|
|
|
|
|
183,109
|
|
F-13
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Capital lease payable for 77 vehicle location units; interest at
4.95%, due in monthly installments of $4,235 including interest
through October 2010. This lease was paid in full in 2010.
|
|
|
|
|
|
|
38,012
|
|
Capital lease payable for 55 vehicle location units; interest at
4.95%, due in monthly installments of $3,025 including interest
through January 2010. This lease was paid in full in 2010.
|
|
|
|
|
|
|
2,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,039,183
|
|
|
|
67,333,995
|
|
Less: amount maturing within one year
|
|
|
27,222,222
|
|
|
|
6,665,697
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations
|
|
$
|
44,816,961
|
|
|
$
|
60,668,298
|
|
|
|
|
|
|
|
|
|
|
The cost of equipment under capital leases included in the
balance sheets as property, plant and equipment was $242,417 at
December 31, 2010 and 2009. Accumulated amortization of the
leased equipment at December 31, 2010 and 2009 was $163,072
and $114,589, respectively. Amortization of assets under capital
leases is included in depreciation expense.
Debt is secured by a general assignment of all assets of the
Company. The loan agreements contain restrictive covenants
relating to net worth, fixed charge coverage, debt leverage,
capital expenditures, etc. which are to be maintained. As of
December 31, 2010, the Company was in compliance with all
of its restrictive covenants.
The carrying value of the Companys credit facility and
subordinated promissory notes approximate fair value as all
interest terms are based on variable market rates plus a small
percentage. In 2009, the $35,000,000 term loan was amended and
restated. In conjunction with this, the Company executed and
delivered a warrant agreement as further discussed in
Note 5.
Interest expense for the years ended December 31, 2010,
2009 and 2008 totaled $17,349,346, $4,712,077 and $6,913,606,
respectively. Accrued interest at December 31, 2010, 2009
and 2008 totaled $188,494, $126,090 and $457,445, respectively.
The following is a summary of scheduled debt and capital lease
maturities by year:
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2011
|
|
$
|
27,222,222
|
|
2012
|
|
|
16,816,961
|
|
2013
|
|
|
3,000,000
|
|
2014
|
|
|
25,000,000
|
|
|
|
|
|
|
|
|
$
|
72,039,183
|
|
|
|
|
|
|
|
|
Note 5
|
Derivative
Liabilities
|
The Derivatives and Hedging topic of the FASB
ASC 815, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts. The guidance provides that an
entity should use a two-step approach to evaluate whether an
equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the
instruments contingent exercise and settlement provisions.
The topic also indicates that contracts issued or held by
that reporting entity that are both (1) indexed to its own
stock and (2) classified in stockholders equity in
its statement of financial position should not be
considered derivative instruments.
F-14
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has the obligation to issue common stock warrants in
connection with a debt agreement allowing the financial
institution to exercise warrants at $.01 per share upon the
settlement of the term loan. The financial institution will earn
warrants over the life of the agreement beginning
December 31, 2009. As of December 31, 2009, the
financial institution earned warrants equating to approximately
242,900 shares of common stock.
Prior to the implementation of this topic, the warrants, when
issued, would have been classified as permanent equity because
they met the exception and all of the criteria in the FASB
guidance covering the accounting for derivative financial
instruments indexed to, and potentially settled in, a
companys own stock. However, the warrants contain
provisions such that if the Company makes certain equity
offerings in the future at a price lower than a specified price,
additional warrants would be issuable to the debt holder.
The Derivative and Hedging topic provides that an
instruments strike price or the number of shares used to
calculate the settlement amount are not fixed if its terms
provide for any potential adjustment, regardless of the
probability of such adjustment(s) or whether such adjustments
are in the entitys control. If the instruments
strike price or the number of shares used to calculate the
settlement amount are not fixed, the instrument (or embedded
feature) would still be considered indexed to an entitys
own stock if the only variables that could affect the settlement
amount would be inputs to the fair value of a
fixed-for-fixed
forward or option on equity shares. The warrants contain a
provision that changes the number of shares to be issued in the
event the Company issues additional shares at a more favorable
price than a specified price.
Under the provisions of the Derivative and Hedging topic, the
embedded conversion feature in the Companys warrants are
not considered indexed to the Companys stock because
future equity offerings (or sales) of the Companys stock
are not an input to the fair value of a
fixed-for-fixed
option on equity shares. Accordingly, as of December 31,
2009, the Companys warrants have been recognized as a
liability in the Companys consolidated balance sheet. At
the time the term loan was paid in full, 1,176,224 warrants had
been accumulated by the financial institution. The warrants were
exercised in December 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
|
Derivative not Designated
|
|
|
|
|
As of
|
|
|
As of
|
|
as Hedging Instruments
|
|
Balance Sheet Location
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Equity contracts
|
|
|
Current liabilities
|
|
|
$
|
|
|
|
$
|
335,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
$
|
335,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of derivative instruments on the consolidated
statements of operations for the years ended December 31,
2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Location of
|
|
|
Amount of Loss
|
|
|
Amount of Loss
|
|
|
|
Loss Recognized in
|
|
|
Recognized in
|
|
|
Recognized in
|
|
|
|
Operations on
|
|
|
Operations on
|
|
|
Operations on
|
|
Derivative not Designated as
Hedging Instruments
|
|
Derivative
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Equity contracts
|
|
|
Interest expense
|
|
|
$
|
10,403,058
|
|
|
$
|
335,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
10,403,058
|
|
|
$
|
335,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6
|
Fair Value of
Financial Instruments
|
The Company follows the Fair Value Measurements topic of the
FASB ASC, which defines fair value, establishes a framework for
measuring fair value under generally accepted accounting
principles and expands disclosures about fair value
measurements. The provisions of this standard apply to other
accounting pronouncements that require or permit fair value
measurements.
This guidance defines fair value as the price 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. Hierarchical levels, as defined in this
guidance and directly related to the amount of subjectivity
associated with the inputs to fair valuations of these assets
and liabilities are as follows:
|
|
|
|
|
Level 1 Unadjusted quoted prices
in active markets that are accessible at the measurement date
for identical, unrestricted assets or liabilities.
|
|
|
|
Level 2 Inputs other than quoted
prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly, including
quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or
liabilities in markets that are not active; inputs other than
quoted prices that are observable for the asset or liability
(e.g., interest rates); and inputs that are derived principally
from or corroborated by observable market data by correlation or
other means.
|
|
|
|
Level 3 Inputs that are both
significant to the fair value measurement and unobservable.
Unobservable inputs reflect the Companys judgment about
assumptions market participants would use in pricing the asset
or liability estimated impact to quoted prices markets.
|
The reported fair values for financial instruments that use
Level 3 inputs to determine fair value are based on the
Black-Scholes valuation model. Accordingly, certain fair values
may not represent actual values of our financial instruments
that could have been realized as of December 31, 2009 or
that will be realized in the future and do not include expenses
that could be incurred in an actual sale or settlement.
The Company had the following liabilities measured at fair value
on a recurring basis as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Warrants
|
|
$
|
|
|
|
$
|
|
|
|
$
|
335,967
|
|
|
$
|
335,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
335,967
|
|
|
$
|
335,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, the Company recorded
derivative liabilities on its balance sheet related to certain
warrants. As of December 31, 2009, the Company used the
Black-Scholes
valuation model to determine the fair value of these warrants
using the following assumptions: stock price of $1.44 per share,
exercise price of $0.01, risk-free discount rate of 2.69%, and
volatility of 75%.
Expected volatilities are based on comparable public company
data. The risk-free rate is based on the approximate
U.S. Treasury yield rate in effect at the time of grant.
The Companys calculation of stock price, included in the
Black Scholes valuation model, involves the use of different
valuation techniques, including a combination of an income
and/or
market approach. Determination of the fair value is a matter of
judgment and often involves the use of significant estimates and
assumptions.
F-16
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The warrants were exercised in December 2010. The final value of
the warrants, upon exercise, was determined based on the value
of the underlying common stock included in a private offering of
the Companys common stock that occurred during December
2010 (approximately $10.00 per share).
A reconciliation of the Companys liabilities measured at
fair value on a recurring basis using significant unobservable
inputs (Level 3) is as follows:
|
|
|
|
|
|
|
Level 3
|
|
|
Balance January 1, 2009
|
|
$
|
|
|
Included in earnings as interest expense
|
|
|
(335,967
|
)
|
|
|
|
|
|
Balance December 31, 2009
|
|
|
(335,967
|
)
|
Included in earnings as interest expense
|
|
|
(10,403,058
|
)
|
Reclassified to APIC
|
|
|
10,739,025
|
|
|
|
|
|
|
Balance December 31, 2010
|
|
$
|
|
|
|
|
|
|
|
The Company is not a party to any significant hedge
arrangements, commodity swap agreements or any other derivative
financial instruments.
The provision for income tax expense consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
10,502,000
|
|
|
$
|
|
|
|
$
|
30
|
|
State
|
|
|
1,539,910
|
|
|
|
238,000
|
|
|
|
395,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
12,041,910
|
|
|
|
238,000
|
|
|
|
396,026
|
|
Deferred (benefit) provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
8,327,000
|
|
|
|
(624,000
|
)
|
|
|
1,689,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred (benefit) provision
|
|
|
8,327,000
|
|
|
|
(624,000
|
)
|
|
|
1,689,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
20,368,910
|
|
|
$
|
(386,000
|
)
|
|
$
|
2,085,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the statutory tax rates to the
Companys actual tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of federal benefit
|
|
|
2.9
|
%
|
|
|
(8.5
|
)%
|
|
|
12.4
|
%
|
Non-deductible amortization expense on intangibles
|
|
|
0.0
|
%
|
|
|
(11.9
|
)%
|
|
|
11.3
|
%
|
Permanent difference on MEDCO incentive proceeds
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
7.3
|
%
|
Other
|
|
|
0.8
|
%
|
|
|
0.1
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
38.7
|
%
|
|
|
13.7
|
%
|
|
|
65.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys Federal deferred tax assets and liabilities
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets short-term
|
|
$
|
265,000
|
|
|
$
|
167,000
|
|
Deferred tax liabilities long-term
|
|
|
(12,058,000
|
)
|
|
|
(3,633,000
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(11,793,000
|
)
|
|
$
|
(3,466,000
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the Companys net operating loss
carry forwards totaled approximately $16,500,000 for Federal
purposes. The Company anticipates utilizing all of these carry
forwards in its 2010 consolidated Federal income tax return.
The Companys deferred tax assets and liabilities as of
December 31, 2010 and 2009 consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Compensation
|
|
$
|
655,000
|
|
|
$
|
421,000
|
|
Allowance for doubtful accounts
|
|
|
178,000
|
|
|
|
106,000
|
|
Inventory reserves
|
|
|
13,000
|
|
|
|
13,000
|
|
Accruals
|
|
|
73,000
|
|
|
|
48,000
|
|
Net operating losses
|
|
|
|
|
|
|
5,525,000
|
|
Contribution Carryover
|
|
|
|
|
|
|
73,000
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
919,000
|
|
|
|
6,186,000
|
|
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
919,000
|
|
|
|
6,186,000
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation on property, plant and equipment
|
|
|
(9,429,000
|
)
|
|
|
(7,056,000
|
)
|
Amortization of goodwill
|
|
|
(3,283,000
|
)
|
|
|
(2,596,000
|
)
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
(12,712,000
|
)
|
|
|
(9,652,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(11,793,000
|
)
|
|
$
|
(3,466,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Note 8
|
Employee Benefit
Plan
|
The Company maintains a contributory profit sharing plan under a
401(k) arrangement which covers all employees meeting certain
eligibility requirements. Eligible employees can make annual
contributions to the plan up to the maximum amount allowed by
current regulations. The Company matches dollar for dollar all
contributions made by eligible employees up to 4% of their gross
salary. The Companys 401(k) contributions for the years
ended December 31, 2010, 2009 and 2008 totaled $208,977,
$140,473 and $123,585, respectively.
|
|
Note 9
|
Share-Based
Compensation
|
The Companys 2006 Stock Option Plan (the 2006
Plan) permits the grant of share options to its employees
for up to 1,907,318 shares of common stock. The Company
believes that such awards better align the interests of its
employees with those of its shareholders. Option awards are
generally granted with an exercise price equal to the market
price for the Companys stock at the date of grant; those
option awards generally vest over 4 years of continuous
service with 20% on the vesting start date and 20% on each of
the first four anniversaries of the vesting start date. Two
employees have
F-18
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
been given full 100% vesting as of the vesting start date.
Certain option awards provide for accelerated vesting if there
is a change in control, as defined in the 2006 Plan. The Company
accelerated the vesting of these unvested options related to the
2006 Plan such that all outstanding options were completely
vested.
The Companys 2010 Stock Option Plan (the 2010
Plan) permits the grant of share options to its employees
for up to 5,699,889 shares of common stock. Under the 2010
Plan, option awards are generally granted with an exercise price
equal to the market price for the Companys stock at the
date of grant; those option awards generally vest over three
years of continuous service with one-third vesting on the first,
second, and third anniversaries of the options grant date.
Certain option awards provide for accelerated vesting if there
is a change in control, as defined in the 2010 Plan.
The fair value of each option award is estimated on the date of
grant using a Black-Scholes option valuation model that uses the
assumptions noted in the table below. Expected volatilities are
based on comparable public company data. The Company uses
historical data to estimate employee termination and forfeiture
rates of the options within the valuation model. The expected
term of options granted is derived using the plain
vanilla method due to the lack of history and volume of
option activity at the Company. The risk-free rate is based on
the approximate U.S. Treasury yield rate in effect at the
time of grant. The Companys calculation of stock price
involves the use of different valuation techniques, including a
combination of an income
and/or
market approach. Determination of the fair value is a matter of
judgment and often involves the use of significant estimates and
assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Expected volatility
|
|
|
75
|
%
|
|
|
*
|
|
|
|
65
|
%
|
Expected dividends
|
|
|
None
|
|
|
|
*
|
|
|
|
None
|
|
Exercise price
|
|
$
|
10.00
|
|
|
|
*
|
|
|
$
|
1.43
|
|
Expected term (in years)
|
|
|
6.00
|
|
|
|
*
|
|
|
|
6.25
|
|
Risk-free rate
|
|
|
2.1
|
%
|
|
|
*
|
|
|
|
1.87
|
%
|
The weighted-average grant-date fair value of options granted
during the year ended December 31, 2010 was $6.64.
|
|
|
* |
|
There were no options granted during the year ended
December 31, 2009. |
F-19
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of option activity under the plans for the year ended
December 31, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Life
|
|
|
Value
|
|
|
|
(In years)
|
|
|
Outstanding at January 1, 2010
|
|
|
1,872,318
|
|
|
$
|
1.43
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,359,936
|
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
5,232,254
|
|
|
$
|
6.93
|
|
|
|
8.61
|
|
|
$
|
16,048,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
1,907,318
|
|
|
$
|
1.59
|
|
|
|
6.21
|
|
|
$
|
16,048,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares at December 31, 2010, 2009 and 2008
totaled 3,324,936, 56,484 and 102,979, respectively. As of
December 31, 2010, there was $21,885,413 of total
unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under the Plan. That cost is
expected to be recognized over a weighted-average period of
3.0 years.
Share-based compensation cost that has been charged against
operations was $634,413, $129,451 and $181,727 for the years
ended December 31, 2010, 2009 and 2008, respectively. The
total income tax benefit recognized in the income statement for
share-based compensation arrangements was approximately
$222,000, $45,000 and $62,000 for the years ended
December 31, 2010, 2009 and 2008, respectively.
|
|
Note 10
|
Related Party
Transactions
|
The Company purchases a significant portion of machinery and
equipment from a vendor that is 12% owned by the Companys
chief executive officer, Mr. Comstock. For the years ended
December 31, 2010, 2009 and 2008, fixed asset purchases
from this vendor total $22,190,788, $1,490,080 and $8,692,870,
respectively. Deposits with this vendor on equipment to be
purchased at December 31, 2010 and 2009 totaled $4,198,962
and $0, respectively. Amounts payable to this vendor at
December 31, 2010 and 2009 totaled $73,783 and $293,083,
respectively, and are included in accounts payable.
The Company has subordinated promissory notes with stockholders
as discussed in Note 4. Interest for the years ended
December 31, 2010, 2009 and 2008 aggregated $63,896, $6,648
and $0, respectively, and was capitalized by increasing the
principal amount of the notes.
|
|
Note 11
|
Concentration of
Credit Risk
|
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. Concentrations of credit
risk with respect to accounts receivable are limited because the
Company performs credit evaluations, sets credit limits, and
monitors the payment patterns of its customers. Cash balances on
deposits with financial institutions, at times, may exceed
federally insured limits. The Company monitors the
institutions financial condition.
F-20
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Four customers accounted for approximately 76% of sales for the
year ended December 31, 2010. Accounts receivable balances
for these same four customers totaled approximately $29,755,201
at December 31, 2010. Three customers accounted for
approximately 49% of sales for the year ended December 31,
2009. Accounts receivable balances for these same three
customers totaled approximately $2,511,000 at December 31,
2009. Three customers accounted for approximately 46% of sales
for the year ended December 31, 2008.
|
|
Note 12
|
Commitments and
Contingencies
|
At December 31, 2010 and 2009, the Company had commitments
of approximately $51,035,792 and $886,500, respectively, for the
acquisition of machinery and equipment. The outstanding
commitments at December 31, 2010 are all expected to be
incurred in 2011.
The Company has entered into certain
take-or-pay
contracts which guarantees a minimum level of monthly revenue.
The revenue related to these contracts is recognized on the
earlier of the passage of time under terms as defined by the
respective contract or as the services are performed.
From time to time the Company may be involved in claims and
litigation arising in the ordinary course of business. Because
there are inherent uncertainties in the ultimate outcome of such
matters, it is presently not possible to determine the ultimate
outcome of any potential claims or litigation against the
Company; however, management believes that the outcome of such
matters will not have a material adverse effect upon the
Companys consolidated financial position, results of
operation or liquidity.
The Company occupies various facilities and leases certain
equipment under non-cancellable lease agreements. Lease expense
under operating leases for the years ended December 31,
2010, 2009 and 2008 totaled $2,941,879, $731,569 and $394,164,
respectively. Future minimum lease payments under operating
leases for the years subsequent to December 31, 2010 are as
follows:
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2011
|
|
$
|
4,722,005
|
|
2012
|
|
|
5,191,697
|
|
2013
|
|
|
5,195,002
|
|
2014
|
|
|
3,337,546
|
|
2015
|
|
|
656,298
|
|
Thereafter
|
|
|
646,688
|
|
|
|
|
|
|
|
|
$
|
19,749,236
|
|
|
|
|
|
|
|
|
Note 13
|
Medco
Incentive
|
In 2007, the Company and Marshall Economic Development
Corporation (MEDCO) entered into an agreement under
which MEDCO agreed to provide funds for the building of new
facilities in Marshall, Texas. MEDCO is a state funded
organization chartered to assist in the creation of
manufacturing jobs in the Marshall, Texas area by facilitating
the construction of roads and buildings for companies willing to
locate manufacturing facilities in the local area. The incentive
package offered to the Company includes 14 acres of land to
be leased to the Company for an initial three years for $1 with
the option to purchase the land at the end of the three year
term for $500,000. The Company has also been given the option to
continue to lease the land for an additional ten years under two
five year options for $1 per year. For each year after the end
of the initial three year lease, the purchase option on the land
will be reduced by $50,000 and at the end of year 13, the
purchase option price will be reduced to $0 and MEDCO will deed
the property to the Company. The incentive package also
F-21
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
allows for $825,000 to be contributed to the Company toward the
construction of a building and infrastructure on the
aforementioned land. In return for these economic incentives,
the Company will be required to maintain approximately 130 new
jobs at the new facility in Marshall, Texas over a three year
period and then maintain these jobs over the period of the lease.
During 2008, the Company completed construction of the building,
hired 45 employees and placed approximately $20,000,000 of
equipment in service at the Marshall location. Management has
treated the $825,000 received from MEDCO as deferred revenue to
be amortized over the life of the building located in Marshall,
Texas. The impact of the deferred revenue stream directly
offsets depreciation expense in the consolidated statements of
operations. This treatment was determined by management as
appropriate under the assumption that it is probable that the
Company will meet the employment target over the three year
period set forth in the MEDCO agreement and will either choose a
purchase option under the lease or remain in the facility until
such time that MEDCO will deed the property to the Company.
During 2010 and 2009, the Company has continued to meet the
employment target.
|
|
Note 14
|
Segment
Reporting
|
As defined by FASB ASC 280 Segment Reporting, the
Company has concluded that it has one operating segment with
three related service lines: hydraulic fracturing, coiled tubing
and pressure pumping. In reaching this conclusion, management
considered the following: (1) the Companys chief
operating decision maker evaluates performance and makes
resource allocation decisions as a single business as opposed to
based on discrete service lines, (2) the Companys
business relies on a single infrastructure and uses one labor
force that is available to all service lines provided,
(3) the Companys marketing efforts focus on promoting
an integrated service package rather than distinct service
offerings to discrete customers and (4) the Companys
compensation policy is determined with respect to overall
performance rather than the performance of individual services.
Each of these factors contributed to managements
conclusion that the Company operates as a single segment. This
analysis will be updated periodically to confirm its continued
applicability.
|
|
Note 15
|
Revenue by
Service Line
|
Revenue by service line for the years ended December 31,
2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Service Line
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Hydraulic fracturing
|
|
$
|
182,656,660
|
|
|
$
|
38,105,115
|
|
|
$
|
27,469,893
|
|
Coiled tubing
|
|
|
50,592,310
|
|
|
|
23,349,211
|
|
|
|
26,800,494
|
|
Pressure pumping
|
|
|
10,908,245
|
|
|
|
5,575,643
|
|
|
|
8,170,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
244,157,215
|
|
|
$
|
67,029,969
|
|
|
$
|
62,441,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 16
|
Subsequent
Events
|
The Company evaluates events and transactions occurring after
the balance sheet date, but before the financial statements are
available to be issued. The Company evaluated such events and
transactions through February 15, 2011, the date the
financial statements were available for issuance.
F-22
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,055,769
|
|
|
$
|
2,816,734
|
|
Accounts receivable, net of allowance for doubtful accounts of
$576,717 and $509,717, respectively
|
|
|
71,768,797
|
|
|
|
44,354,381
|
|
Inventories, net
|
|
|
14,459,096
|
|
|
|
8,181,903
|
|
Prepaid expenses and other current assets
|
|
|
4,654,215
|
|
|
|
3,767,614
|
|
Deferred tax assets
|
|
|
312,000
|
|
|
|
265,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
93,249,877
|
|
|
|
59,385,632
|
|
PROPERTY, PLANT AND EQUIPMENT, net
|
|
|
117,276,855
|
|
|
|
88,395,494
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
60,338,653
|
|
|
|
60,338,653
|
|
Intangible assets, net of accumulated amortization of $4,765,402
and $4,498,183
|
|
|
5,500,598
|
|
|
|
5,767,817
|
|
Deposits on equipment under construction
|
|
|
5,432,128
|
|
|
|
8,413,009
|
|
Deferred financing costs, net of accumulated amortization of
$796,862 and $505,560, respectively
|
|
|
2,961,913
|
|
|
|
3,190,215
|
|
Other
|
|
|
597,571
|
|
|
|
597,571
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER ASSETS
|
|
|
74,830,863
|
|
|
|
78,307,265
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
285,357,595
|
|
|
$
|
226,088,391
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
26,651,631
|
|
|
$
|
13,084,316
|
|
Current portion of long-term debt and capital leases
|
|
|
30,000,000
|
|
|
|
27,222,222
|
|
Accrued expenses
|
|
|
6,190,575
|
|
|
|
8,179,351
|
|
Accrued taxes
|
|
|
6,012,005
|
|
|
|
6,525,100
|
|
Deferred revenue
|
|
|
33,000
|
|
|
|
4,033,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
68,887,211
|
|
|
|
59,043,989
|
|
LONG-TERM DEBT
|
|
|
49,066,962
|
|
|
|
44,816,961
|
|
DEFERRED TAX LIABILITIES
|
|
|
25,940,000
|
|
|
|
12,058,000
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
800,401
|
|
|
|
723,250
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
144,694,574
|
|
|
|
116,642,200
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Common stock, par value of $.01, 100,000,000 shares
authorized, 47,499,074 issued and outstanding
|
|
|
474,991
|
|
|
|
474,991
|
|
Additional paid-in capital
|
|
|
80,420,248
|
|
|
|
78,288,578
|
|
Retained earnings
|
|
|
59,767,782
|
|
|
|
30,682,622
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
140,663,021
|
|
|
|
109,446,191
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
285,357,595
|
|
|
$
|
226,088,391
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-23
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
REVENUE
|
|
$
|
127,204,077
|
|
|
$
|
32,636,448
|
|
COST OF SALES
|
|
|
70,048,019
|
|
|
|
23,176,216
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
57,156,058
|
|
|
|
9,460,232
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
8,824,907
|
|
|
|
2,867,163
|
|
GAIN ON DISPOSAL OF ASSETS
|
|
|
(89,612
|
)
|
|
|
(16,197
|
)
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
48,420,763
|
|
|
|
6,609,266
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
591
|
|
|
|
179
|
|
Interest expense
|
|
|
(1,958,667
|
)
|
|
|
(2,997,689
|
)
|
Lender fees
|
|
|
(25,000
|
)
|
|
|
(53,250
|
)
|
Other income
|
|
|
13,000
|
|
|
|
101,515
|
|
Other expense
|
|
|
|
|
|
|
(1,146
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER EXPENSE
|
|
|
(1,970,076
|
)
|
|
|
(2,950,391
|
)
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
46,450,687
|
|
|
|
3,658,875
|
|
PROVISION FOR INCOME TAXES
|
|
|
17,365,527
|
|
|
|
1,415,766
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
29,085,160
|
|
|
$
|
2,243,109
|
|
|
|
|
|
|
|
|
|
|
INCOME PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.61
|
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
0.60
|
|
|
$
|
0.05
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
47,499,074
|
|
|
|
46,322,850
|
|
Diluted
|
|
|
48,696,969
|
|
|
|
46,836,469
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-24
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Equity
|
|
|
Balance at December 31, 2009
|
|
|
46,322,850
|
|
|
$
|
463,229
|
|
|
$
|
66,925,222
|
|
|
$
|
(1,589,445
|
)
|
|
$
|
65,799,006
|
|
Exercise of warrants
|
|
|
1,176,224
|
|
|
|
11,762
|
|
|
|
10,728,943
|
|
|
|
|
|
|
|
10,740,705
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
634,413
|
|
|
|
|
|
|
|
634,413
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,272,067
|
|
|
|
32,272,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
47,499,074
|
|
|
|
474,991
|
|
|
|
78,288,578
|
|
|
|
30,682,622
|
|
|
|
109,446,191
|
|
Share-based compensation expense*
|
|
|
|
|
|
|
|
|
|
|
2,131,670
|
|
|
|
|
|
|
|
2,131,670
|
|
Net income*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,085,160
|
|
|
|
29,085,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011*
|
|
|
47,499,074
|
|
|
$
|
474,991
|
|
|
$
|
80,420,248
|
|
|
$
|
59,767,782
|
|
|
$
|
140,663,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-25
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,085,160
|
|
|
$
|
2,243,109
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
3,335,589
|
|
|
|
2,249,772
|
|
Amortization expense
|
|
|
267,219
|
|
|
|
267,218
|
|
Provision for doubtful accounts receivable, net of write-offs
|
|
|
67,500
|
|
|
|
12,500
|
|
Share-based compensation expense
|
|
|
2,131,670
|
|
|
|
32,650
|
|
Loss on change in fair value of warrant liability
|
|
|
|
|
|
|
1,475,714
|
|
Deferred income taxes
|
|
|
13,835,000
|
|
|
|
150,460
|
|
Gain on disposal of assets
|
|
|
(89,612
|
)
|
|
|
(16,197
|
)
|
Non cash paid in kind interest expense
|
|
|
|
|
|
|
277,564
|
|
Amortization of deferred financing costs
|
|
|
291,302
|
|
|
|
79,836
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(27,481,916
|
)
|
|
|
(6,322,053
|
)
|
Inventories
|
|
|
(6,277,193
|
)
|
|
|
515,114
|
|
Prepaid expenses and other current assets
|
|
|
(2,599,425
|
)
|
|
|
38,729
|
|
Accounts payable
|
|
|
13,567,315
|
|
|
|
1,538,155
|
|
Accrued liabilities
|
|
|
(1,988,776
|
)
|
|
|
(721,680
|
)
|
Accrued taxes
|
|
|
(513,095
|
)
|
|
|
1,265,306
|
|
Deferred revenue
|
|
|
(4,000,000
|
)
|
|
|
|
|
Other
|
|
|
85,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
19,716,139
|
|
|
|
3,086,197
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of and deposits on property, plant and equipment
|
|
|
(29,784,282
|
)
|
|
|
(2,514,940
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
|
2,342,399
|
|
|
|
24,561
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(27,441,883
|
)
|
|
|
(2,490,379
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Repayment of revolving credit facilities
|
|
|
(1,000,000
|
)
|
|
|
(1,000,000
|
)
|
Proceeds from long-term debt
|
|
|
12,750,001
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(4,722,222
|
)
|
|
|
(625,000
|
)
|
Repayments of capital lease obligations
|
|
|
|
|
|
|
(14,969
|
)
|
Financing costs
|
|
|
(63,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
6,964,779
|
|
|
|
(1,639,969
|
)
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(760,965
|
)
|
|
|
(1,044,151
|
)
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
2,816,734
|
|
|
|
1,178,275
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
2,055,769
|
|
|
$
|
134,124
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,087,352
|
|
|
$
|
818,695
|
|
|
|
|
|
|
|
|
|
|
Income taxes (net of refunds received)
|
|
$
|
4,037,068
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-26
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
Note 1
Nature of Business and Summary of Significant Accounting
Policies
Organization of Business: C&J
Energy Services, Inc. (the Company) was incorporated
in Texas in 2006 and re-incorporated in Delaware in 2010. The
Company provides specialty equipment services for oil and
natural gas exploration and production companies in the Texas,
Louisiana, and Oklahoma regions of the United States of America.
The nature of operations and the regions in which the Company
operate are subject to changing economic, regulatory and
political conditions. The Company is vulnerable to near-term and
long-term changes in the demand for and prices of oil and
natural gas and the related demand for oilfield service
operations.
Basis of Presentation: The accompanying
consolidated financial statements include all adjustments,
comprised of normal recurring adjustments, considered necessary
by management to fairly state the Companys results of
operations, financial position and cash flows. They have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) for interim financial
information. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for
complete financial statements. Therefore, these consolidated
financial statements should be read in conjunction with the
Companys audited consolidated financial statements and
notes thereto for the year ended December 31, 2010. The
operating results for interim periods are not necessarily
indicative of results that may be expected for any other interim
period or for the full year.
Principles of Consolidation: The
consolidated financial statements include the accounts of
C&J Energy Services, Inc. and its wholly-owned subsidiary,
C&J Spec-Rent Services, Inc. (the Subsidiary).
All significant inter-company transactions and accounts have
been eliminated upon consolidation.
Use of Estimates: The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States of America 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 financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Estimates are used for, but are not
limited to, determining the following: allowance for doubtful
accounts, recoverability of long-lived assets and intangibles,
useful lives used in depreciation and amortization, income taxes
and valuation allowances. The accounting estimates used in the
preparation of the consolidated financial statements may change
as new events occur, as more experience is acquired, as
additional information is obtained and as the Companys
operating environment changes.
Accounts Receivable and Allowance for Doubtful
Accounts: Accounts receivable are stated at
the amount billed to customers and are ordinarily due upon
receipt. The Company provides an allowance for doubtful
accounts, which is based upon a review of outstanding
receivables, historical collection information and existing
economic conditions. Provisions for doubtful accounts are
recorded when it becomes evident that the customer will not make
the required payments at either contractual due dates or in the
future.
Inventories: Inventories, consisting of
spare parts to be used in maintaining equipment and general
supplies and materials for the Companys operations, are
stated at the lower of cost
(first-in,
first-out basis) or market (net realizable value). Appropriate
consideration is given to deterioration, obsolescence and other
factors in evaluating net realizable value.
F-27
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
Property, Plant and
Equipment: Property, plant and equipment is
recorded at cost less accumulated depreciation. Certain
equipment held under capital leases are classified as equipment
and the related obligations are recorded as liabilities.
Maintenance and repairs, which do not improve or extend the life
of the related assets, are charged to operations when incurred.
Refurbishments and renewals are capitalized when the value of
the equipment is enhanced for an extended period. When property
and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation account are
relieved, and any gain or loss is included in operating income.
The cost of property and equipment currently in service is
depreciated over the estimated useful lives of the related
assets, which range from five to twenty-five years. Depreciation
is computed on a straight-line basis for financial reporting
purposes.
Goodwill, Intangible Assets and
Amortization: Goodwill and other intangible
assets with infinite lives are not amortized, but tested for
impairment annually or more frequently if circumstances indicate
that impairment may exist. Intangible assets with finite useful
lives are amortized either on a straight-line basis over the
assets estimated useful life or on a basis that reflects
the pattern in which the economic benefits of the intangible
assets are realized. No impairment was recorded in the periods
presented herein.
Revenue Recognition: All revenue is
recognized when persuasive evidence of an arrangement exists,
the service is complete, the amount is fixed or determinable and
collectability is reasonably assured, as follows:
Hydraulic Fracturing Revenue. The Company
enters into arrangements with its customers to provide hydraulic
fracturing services, which can be either on a spot market basis
or under term contracts. The Company only enters into
arrangements with customers for which collectability is
reasonably assured. Revenue is recognized and customers are
invoiced upon the completion of each job, which can consist of
one or numerous fracturing stages. Once the job has been
completed to the satisfaction of the customer, a field ticket is
written that includes charges for the service performed and the
chemicals and proppants consumed during the course of the
service. The field ticket will also include charges for the
mobilization of the equipment to location, additional equipment
used on the job, if any, and other miscellaneous consumables.
Rates for services performed on a spot market basis are based on
the
agreed-upon
hourly spot market rate. With respect to services performed
under term contracts, customers are invoiced a monthly mandatory
payment based on a specified minimum number of hours of service
per month as defined in the contract, upon the earlier of the
passage of time or completion of the job. To the extent
customers utilize more than the contracted minimum number of
hours of service per month, they are invoiced for the excess at
rates defined in the contract upon the completion of each job.
Coiled Tubing and Pressure Pumping
Revenue. The Company enters into arrangements to
provide coiled tubing and pressure pumping services to only
those customers for which collectability is reasonably assured.
These arrangements are typically short-term in nature and each
job can last anywhere from a few hours to multiple days. Coiled
tubing and pressure pumping revenue is recognized upon
completion of each days work based upon a completed field
ticket. The field ticket includes charges for the mobilization
of the equipment to location, the service performed, the
personnel on the job, additional equipment used on the job, if
any, and miscellaneous consumables used throughout the course of
the service. The Company typically charges the customer on an
hourly basis for these services at agreed upon spot market rates.
Materials Consumed While Performing
Services. The Company generates revenue from
chemicals and proppants that are necessarily consumed while
performing hydraulic fracturing
F-28
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
services. The Company charges fees to its customers based on the
amount of chemicals and proppants used in providing these
services. In addition, ancillary to coiled tubing and pressure
pumping revenue, the Company generates revenue from various
fluids and supplies that are necessarily consumed during those
processes. The Company does not sell or otherwise charge a fee
separate and apart from the services it provides for any of the
materials consumed while performing hydraulic fracturing
services or coiled tubing and pressure pumping services.
Share-Based Compensation: The Company
accounts for share-based compensation cost based on the fair
value at grant date by utilizing a Black-Scholes option-pricing
model. The Company recognizes share-based compensation cost on a
straight-line basis over the requisite service period. Further
information regarding share-based compensation can be found in
Note 5, Share-Based Compensation.
Fair Value of Financial
Instruments: The Companys financial
instruments consist of cash and cash equivalents, accounts
receivable, accounts payable, accrued warrants, notes payable
and long-term debt. The recorded values of cash and cash
equivalents, accounts receivable, and accounts payable
approximate their fair values based on their short-term nature.
The carrying values of notes payable and long-term debt
approximate their fair values, as interest approximates market
rates. See Note 4 for further information regarding fair
value of warrants.
Income Taxes: Income taxes are provided
for the tax effects of transactions reported in financial
statements and consist of taxes currently due plus deferred
taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred income tax expense
represents the change during the period in the deferred tax
assets and deferred tax liabilities.
The components of the deferred tax assets and liabilities are
individually classified as current and non-current based on
their characteristics. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred
tax assets will not be realized.
Earnings per Share: Basic earnings per share
is based on the weighted average number of ordinary shares
outstanding during the applicable period. Diluted earnings per
share is computed based on the weighted average number of
ordinary shares and ordinary share equivalents outstanding in
the applicable period, as if all potentially dilutive securities
were converted into ordinary shares (using the treasury stock
method).
F-29
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
The components of basic and diluted earnings per share are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributed to common shareholders
|
|
$
|
29,085,160
|
|
|
$
|
2,243,109
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
47,499,074
|
|
|
|
46,322,850
|
|
Effect of potentially dilutive common shares:
|
|
|
|
|
|
|
|
|
Warrants and stock options
|
|
|
1,197,895
|
|
|
|
513,619
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and assumed
conversions
|
|
|
48,696,969
|
|
|
|
46,836,469
|
|
|
|
|
|
|
|
|
|
|
Income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.61
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.60
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities excluded as anti-dilutive
|
|
|
3,648,180
|
|
|
|
647,318
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements: In
December 2010, the FASB issued ASU
No. 2010-09,
Business Combinations: Disclosure of Supplementary Pro
Forma Information for Business Combinations (ASU
2010-29).
ASU 2010-29
addresses diversity in the interpretation of the pro forma
revenue and earnings disclosure requirements for business
combinations. If a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of
the combined entity as though the business combination that
occurred during the current year had occurred as of the
beginning of the comparable prior annual reporting period only.
The Company adopted ASU
2010-29 on
January 1, 2011. This update had no impact on the
Companys financial position, results of operations or cash
flows.
Debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Senior credit facility with a financial institution maturing on
June 1, 2013 with maximum allowable indebtedness of
$126,666,667; with principal installments of $2,500,000 to be
paid monthly with any remaining balance due at maturity;
interest payable monthly at a variable interest rate determined
from a pricing scale based on debt/EBITDA ratio, where the LIBOR
floor is 1.5% (weighted average approximate rate of 5.3% at
March 31, 2011)
|
|
$
|
54,066,962
|
|
|
$
|
47,039,183
|
|
$25,000,000 subordinated term loan with a financial institution
due in a lump sum on June 30, 2014; interest payable
monthly, at a rate of LIBOR plus 13%, where the LIBOR floor is
1.0% (14.0% at March 31, 2011)
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,066,962
|
|
|
|
72,039,183
|
|
Less: amount maturing within one year
|
|
|
30,000,000
|
|
|
|
27,222,222
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
49,066,962
|
|
|
$
|
44,816,961
|
|
|
|
|
|
|
|
|
|
|
Debt is secured by a general assignment of all assets of the
Company. The loan agreements contain restrictive covenants
relating to net worth, fixed charge coverage, debt leverage,
capital
F-30
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
expenditures, etc. which are to be maintained. As discussed in
Note 8, Subsequent Events, the Companys senior
credit facility and subordinated term loan were retired on
April 19, 2011.
|
|
Note 3
|
Derivative
Liabilities
|
The Derivatives and Hedging topic of the FASB
ASC 815, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts. The guidance provides that an
entity should use a two-step approach to evaluate whether an
equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the
instruments contingent exercise and settlement provisions.
The topic also indicates that contracts issued or held by
that reporting entity that are both (1) indexed to its own
stock and (2) classified in stockholders equity in
its statement of financial position should not be
considered derivative instruments.
The Company has the obligation to issue common stock warrants in
connection with a debt agreement allowing the financial
institution to exercise warrants at $.01 per share upon the
settlement of the term loan. The financial institution will earn
warrants over the life of the agreement beginning
December 31, 2009. As of March 31, 2010, the financial
institution earned warrants equating to approximately
612,000 shares of common stock.
Prior to the implementation of this topic, the warrants, when
issued, would have been classified as permanent equity because
they met the exception and all of the criteria in the FASB
guidance covering the accounting for derivative financial
instruments indexed to, and potentially settled in, a
companys own stock. However, the warrants contain
provisions such that if the Company makes certain equity
offerings in the future at a price lower than a specified price,
additional warrants would be issuable to the debt holder.
The Derivative and Hedging topic provides that an
instruments strike price or the number of shares used to
calculate the settlement amount are not fixed if its terms
provide for any potential adjustment, regardless of the
probability of such adjustment(s) or whether such adjustments
are in the entitys control. If the instruments
strike price or the number of shares used to calculate the
settlement amount are not fixed, the instrument (or embedded
feature) would still be considered indexed to an entitys
own stock if the only variables that could affect the settlement
amount would be inputs to the fair value of a
fixed-for-fixed
forward or option on equity shares. The warrants contain a
provision that changes the number of shares to be issued in the
event the Company issues additional shares at a more favorable
price than a specified price.
Under the provisions of the Derivative and Hedging topic, the
embedded conversion feature in the Companys warrants are
not considered indexed to the Companys stock because
future equity offerings (or sales) of the Companys stock
are not an input to the fair value of a
fixed-for-fixed
option on equity shares. Accordingly, as of March 31, 2010,
the warrants have been recognized as a liability in the
Companys consolidated balance sheet. The warrants were
exercised in December 2010.
F-31
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
The effect of derivative instruments on the consolidated
statements of operations for the three months ended
March 31, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Location of
|
|
|
Amount of Loss
|
|
|
Amount of Loss
|
|
|
|
Loss Recognized in
|
|
|
Recognized in
|
|
|
Recognized in
|
|
Derivative not Designated
|
|
Operations on
|
|
|
Operations on
|
|
|
Operations on
|
|
as Hedging Instruments
|
|
Derivative
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Equity contracts
|
|
|
Interest expense
|
|
|
$
|
|
|
|
$
|
1,475,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
$
|
1,475,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4
|
Fair Value of
Financial Instruments
|
The Company follows the Fair Value Measurements topic of the
FASB ASC, which defines fair value, establishes a framework for
measuring fair value under generally accepted accounting
principles and expands disclosures about fair value
measurements. The provisions of this standard apply to other
accounting pronouncements that require or permit fair value
measurements.
This guidance defines fair value as the price 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. Hierarchical levels, as defined in this
guidance and directly related to the amount of subjectivity
associated with the inputs to fair valuations of these assets
and liabilities are as follows:
|
|
|
|
|
Level 1 Unadjusted quoted prices in active
markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.
|
|
|
|
Level 2 Inputs other than quoted prices
included within Level 1 that are observable for the asset
or liability, either directly or indirectly, including quoted
prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in
markets that are not active; inputs other than quoted prices
that are observable for the asset or liability (e.g., interest
rates); and inputs that are derived principally from or
corroborated by observable market data by correlation or other
means.
|
|
|
|
Level 3 Inputs that are both significant to the
fair value measurement and unobservable. Unobservable inputs
reflect the Companys judgment about assumptions market
participants would use in pricing the asset or liability
estimated impact to quoted prices markets.
|
The reported fair values for financial instruments that use
Level 3 inputs to determine fair value are based on the
Black-Scholes valuation model. Accordingly, certain fair values
may not represent actual values of our financial instruments
that could have been realized during the periods presented.
For the three months ended March 31, 2010, the Company
recorded derivative liabilities on its balance sheet related to
the warrants discussed in Note 3, Derivative
Liabilities. The Company used the Black-Scholes valuation
model to determine the fair value of these warrants using the
following assumptions: stock price of $3.09 per share, exercise
price of $0.01, risk-free discount rate of 2.14%, and volatility
of 75%.
Expected volatilities are based on comparable public company
data. The risk-free rate is based on the approximate
U.S. Treasury yield rate in effect at the time of grant.
The Companys calculation of stock price, included in the
Black Scholes valuation model, involves the use of different
valuation techniques, including a combination of an income
and/or
market approach. Determination of the fair value is a matter of
judgment and often involves the use of significant estimates and
assumptions.
F-32
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
The warrants were exercised in December 2010. The final value of
the warrants, upon exercise, was determined based on the value
of the underlying common stock included in a private offering of
the Companys common stock that occurred during December
2010 (approximately $10.00 per share).
A reconciliation of the Companys liabilities measured at
fair value on a recurring basis using significant unobservable
inputs (Level 3) is as follows:
|
|
|
|
|
|
|
Level 3
|
|
|
Balance December 31, 2009
|
|
$
|
(335,967
|
)
|
Included in earnings as interest expense
|
|
|
(1,475,714
|
)
|
|
|
|
|
|
Balance March 31, 2010
|
|
$
|
(1,811,681
|
)
|
|
|
|
|
|
The Company is not a party to any hedge arrangements, commodity
swap agreements or any other derivative financial instruments.
|
|
Note 5
|
Share-Based
Compensation
|
The Companys 2006 Stock Option Plan (the 2006
Plan) permits the grant of share options to its employees
for up to 1,907,318 shares of common stock. The Company
believes that such awards better align the interests of its
employees with those of its shareholders. Option awards are
generally granted with an exercise price equal to the market
price for the Companys stock at the date of grant; those
option awards generally vest over 4 years of continuous
service with 20% on the vesting start date and 20% on each of
the first four anniversaries of the vesting start date. Two
employees have been given full 100% vesting as of the vesting
start date. Certain option awards provide for accelerated
vesting if there is a change in control, as defined in the 2006
Plan. The Company accelerated the vesting of these unvested
options related to the 2006 Plan such that all outstanding
options were completely vested.
The Companys 2010 Stock Option Plan (the 2010
Plan) permits the grant of share options to its employees
for up to 5,699,889 shares of common stock. Under the 2010
Plan, option awards are generally granted with an exercise price
equal to the market price for the Companys stock at the
date of grant; those option awards generally vest over three
years of continuous service with one-third vesting on the first,
second, and third anniversaries of the options grant date.
Certain option awards provide for accelerated vesting if there
is a change in control, as defined in the 2010 Plan.
The fair value of each option award is estimated on the date of
grant using a Black-Scholes option valuation model. Expected
volatilities are based on comparable public company data. The
Company uses historical data to estimate employee termination
and forfeiture rates of the options within the valuation model.
The expected term of options granted is derived using the
plain vanilla method due to the lack of history and
volume of option activity at the Company. The risk-free rate is
based on the approximate U.S. Treasury yield rate in effect
at the time of grant. The Companys calculation of stock
price involves the use of different valuation techniques,
including a combination of an income
and/or
market approach. Determination of the fair value is a matter of
judgment and often involves the use of significant estimates and
assumptions.
During the three months ended March 31, 2011, 484,335
options were granted at exercise prices ranging from $10.00 to
$11.00 per share. The key input variables used in valuing these
options were: risk-free interest of 2.2% to 2.6%; dividend yield
of zero; stock price volatility of 75%; and expected option
lives of 5 to 6 years.
During the three months ended March 31, 2010 no stock
options were granted by the Company.
F-33
C&J ENERGY
SERVICES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
As of March 31, 2011, the Company had 5,716,589 options
outstanding to employees and nonemployee directors.
|
|
Note 6
|
Concentration of
Credit Risk
|
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. Concentrations of credit
risk with respect to accounts receivable are limited because the
Company performs credit evaluations, sets credit limits, and
monitors the payment patterns of its customers. Cash balances on
deposits with financial institutions, at times, may exceed
federally insured limits. The Company monitors the
institutions financial condition.
|
|
Note 7
|
Commitments and
Contingencies
|
The Company has entered into certain
take-or-pay
contracts which guarantees a minimum level of monthly revenue.
The revenue related to these contracts is recognized on the
earlier of the passage of time under terms as defined by the
respective contract or as the services are performed.
From time to time the Company may be involved in claims and
litigation arising in the ordinary course of business. Because
there are inherent uncertainties in the ultimate outcome of such
matters, it is presently not possible to determine the ultimate
outcome of any potential claims or litigation against the
Company; however, management believes that the outcome of such
matters will not have a material adverse effect upon the
Companys consolidated financial position, results of
operation or liquidity.
|
|
Note 8
|
Subsequent
Events
|
The Company evaluates events and transactions occurring after
the balance sheet date, but before the financial statements are
available to be issued. The Company evaluated such events and
transactions through May 12, 2011, the date the financial
statements were available for issuance.
On April 19, 2011, the Company entered into a credit
agreement with a new lender providing the Company the ability to
borrow up to $200.0 million. The agreement provides for
borrowings under revolving credit loans and swing line loans and
the Company may obtain stand-by letters of credit from the
lender up to the remaining amount available under the agreement.
The agreement does contain compliance covenants to be met on a
quarterly and annual basis. The interest rate is adjustable
quarterly and is initially set at either LIBOR plus 2.5% or the
lenders prime rate plus 1.5%, depending on the borrowing.
As part of the agreement, the Companys existing senior
credit facility and subordinated term loan were both terminated.
Amounts outstanding under the senior credit facility and
subordinated term loan, including accrued and unpaid interest
and applicable early termination penalties of $4.7 million,
were paid in full.
On April 28, 2011, the Company acquired all of the
outstanding capital stock of Total E&S, Inc.
(TES) in exchange for $23.0 million in cash. In
addition, the Company made payments of $9.9 million to
retire the outstanding debt of TES. The Companys chief
executive officer, Joshua E. Comstock, owned 12% of TESs
outstanding equity and served on its board of directors until
March 2011. The Company is the largest customer of TES,
comprising more than 75% of its revenue for the year ended
December 31, 2010. TES is engaged in the manufacture and
assembly of specialized pressure pumping and coil tubing
equipment for the oilfield services industry.
F-34
C&J Energy Services,
Inc.
28,768,000 Shares
Common Stock
PROSPECTUS
Part II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other Expenses
of Issuance and Distribution
|
The following table sets forth an itemized statement of the
amounts of all expenses payable by us in connection with the
registration of the common stock offered hereby. With the
exception of the Registration Fee, FINRA Filing Fee and NYSE
Listing Fee, the amounts set forth below are estimates. The
selling stockholders will not bear any portion of such expenses.
|
|
|
|
|
SEC Registration Fee
|
|
$
|
|
|
FINRA Filing Fee
|
|
|
|
|
NYSE Listing Fee
|
|
|
|
|
Accountants Fees and Expenses
|
|
|
|
|
Legal Fees and Expenses
|
|
|
|
|
Printing and Engraving Expenses
|
|
|
|
|
Transfer Agent and Registrar Fees
|
|
|
|
|
Miscellaneous
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers
|
Our amended and restated certificate of incorporation limits the
liability of our directors for monetary damages for breach of
their fiduciary duty as directors, except for liability that
cannot be eliminated under the DGCL. Delaware law provides that
directors of a company will not be personally liable for
monetary damages for breach of their fiduciary duty as
directors, except for liabilities:
|
|
|
|
|
for any breach of their duty of loyalty to us or our
stockholders;
|
|
|
|
for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
|
|
|
|
for unlawful payment of dividend or unlawful stock repurchase or
redemption, as provided under Section 174 of the
DGCL; or
|
|
|
|
for any transaction from which the director derived an improper
personal benefit.
|
Any amendment, repeal or modification of these provisions will
be prospective only and would not affect any limitation on
liability of a director for acts or omissions that occurred
prior to any such amendment, repeal or modification.
Our amended and restated certificate of incorporation and
amended and restated bylaws also provide that we will indemnify
our directors and officers to the fullest extent permitted by
Delaware law. Our amended and restated certificate of
incorporation and amended and restated bylaws also permit us to
purchase insurance on behalf of any officer, director, employee
or other agent for any liability arising out of that
persons actions as our officer, director, employee or
agent, regardless of whether Delaware law would permit
indemnification. We have entered into indemnification agreements
with each of our current directors and executive officers and
expect to enter into indemnification agreements with each of our
future directors and executive officers. These agreements
require us to indemnify these individuals to the fullest extent
permitted under Delaware law against liability that may arise by
reason of their service to us, and to advance expenses incurred
as a result of any proceeding against them as to which they
could be indemnified. We believe that the limitation of
liability provision in our amended and restated certificate of
incorporation and the indemnification agreements facilitate our
ability to continue to attract and retain qualified individuals
to serve as directors and officers.
II-1
|
|
Item 15.
|
Recent Sales
of Unregistered Securities
|
On October 7, 2007, C&J Energy Services, Inc., Energy
Spectrum Partners IV LP, CCP II and certain of our other
stockholders named therein entered into the Share Purchase
Agreement. Pursuant to the Share Purchase Agreement, Energy
Spectrum Partners IV LP and CCP II each purchased
500,000 shares of our common stock for an aggregate
$10.0 million. We believe the issuances in this offering
were exempt from registration under Section 4(2) of the
Securities Act based upon representations made to us by the
purchasers in the Share Purchase Agreement. Energy Spectrum
Partners IV LP and CCP II were granted the right to
purchase such shares pursuant to their preemptive rights set
forth in the 2006 Shareholders Agreement.
On December 23, 2010, we completed a private placement of
28,263,000 shares of our common stock. FBR Capital
Markets & Co. acted as initial purchaser and placement
agent in the offering. We refer to this offering herein as the
2010 Private Placement. Shares of our common stock were sold to
accredited investors, qualified institutional buyers and certain
persons outside the United States in offshore transactions at a
price per share of $10.00. FBR Capital Markets &
Co.s initial purchasers discount and placement fee
was $0.70 per share, resulting in a price per share received by
us before expenses of $9.30, or $262,845,900 in aggregate
proceeds to us before expenses. On January 21, 2011, FBR
Capital Markets & Co. exercised a portion of their
over-allotment option and purchased or placed an additional
505,000 shares of our common stock. The price per share,
initial purchasers discount and placement fee per share
and price per share received by us were the same in the
over-allotment exercise as they were in the initial offering. We
received an additional $4,969,500 from the sale of the
over-allotment shares before expenses. We believe the issuances
in this offering were exempt from registration pursuant to
Section 4(2), Rule 144A, Regulation S or
Regulation D of the Securities Act based upon the
representations to us or FBR Capital Markets & Co. by
each investor or investor transferee that such investor is an
accredited investor as defined in Rule 501(a)
under the Securities Act, such investor is a non-US person and
otherwise complies with the requirements for relation of
Regulation S, or such investor is a qualified
institutional investor as defined in Rule 144A under
the Securities Act, as the case may be.
(a)
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of C&J
Energy Services, Inc. (incorporated herein by reference to
Exhibit 3.1 to the C&J Energy Services, Inc.s
Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
|
|
3
|
.2
|
|
Amended and Restated Bylaws of C&J Energy Services, Inc.
(incorporated herein by reference to Exhibit 3.2 to the
C&J Energy Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
|
|
4
|
.1
|
|
Form of Stock Certificate (incorporated herein by reference to
Exhibit 4.1 to C&J Energy Services, Inc.s
Registration Statement on Form S-1/A, dated May 12,
2011 (Registration No. 333-173177)
|
|
*5
|
.1
|
|
Opinion of Vinson & Elkins L.L.P. as to the legality
of the securities being registered
|
|
10
|
.1
|
|
C&J Energy Services, Inc. 2006 Stock Option Plan, adopted
by the Board of Directors and approved by the Shareholders on
October 16, 2006 (incorporated herein by reference to
Exhibit 10.1 to the C&J Energy Services, Inc.s
Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
|
|
10
|
.2
|
|
Amendment to the C&J Energy Services, Inc. 2006 Stock
Option Plan, dated December 23, 2010 (incorporated herein
by reference to Exhibit 10.2 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
|
II-2
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.3
|
|
C&J Energy Services, Inc. 2010 Stock Option Plan, adopted
by the Board of Directors and approved by the Shareholders on
December 15, 2010 (incorporated herein by reference to
Exhibit 10.3 to Amendment No. 2 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
|
|
10
|
.4
|
|
Master Operating Lease dated July 14, 2010, between
BB&T Equipment Finance Corporation, the C&J Spec-Rent
Services, Inc. and C&J Energy Services, Inc., as amended,
supplemented and modified from time to time, and the related
Equipment Schedules (as defined therein) (incorporated herein by
reference to Exhibit 10.4 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
|
|
10
|
.5
|
|
Master Operating Lease Agreement dated as of July 21, 2010,
between AIG Commercial Equipment Finance, Inc., and C&J
Spec-Rent Services, Inc. and C&J Energy Services, Inc., as
amended, supplemented and modified from time to time, and the
related Equipment Schedules (as defined therein) (incorporated
herein by reference to Exhibit 10.5 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
|
|
10
|
.6
|
|
Rider 1 dated as of July 21, 2010 to Master Operating Lease
Agreement dated as of July 21, 2010, between AIG Commercial
Equipment Finance, Inc., and C&J Spec-Rent Services, Inc.
and C&J Energy Services, Inc., as amended, supplemented and
modified from time to time, and the related Equipment Schedules
(as defined in the Master Operating Lease Agreement)
(incorporated herein by reference to Exhibit 10.6 to the
C&J Energy Services, Inc.s Registration
Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
|
|
10
|
.7
|
|
Amended and Restated Employment Agreement effective
December 23, 2010 between C&J Energy Services, Inc.
and Joshua E. Comstock (incorporated herein by reference to
Exhibit 10.7 to Amendment No. 2 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
|
|
10
|
.8
|
|
Amended and Restated Employment Agreement effective
December 23, 2010 between C&J Energy Services, Inc.
and Randall C. McMullen, Jr. (incorporated herein by reference
to Exhibit 10.8 to Amendment No. 2 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
|
|
10
|
.9
|
|
Amended and Restated Employment Agreement effective
December 23, 2010 between C&J Energy Services, Inc.
and Bretton W. Barrier (incorporated herein by reference to
Exhibit 10.9 to Amendment No. 2 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
|
|
10
|
.10
|
|
Employment Agreement effective February 1, 2011 between
C&J Energy Services, Inc. and Theodore R. Moore
(incorporated herein by reference to Exhibit 10.10 to
Amendment No. 2 to the C&J Energy Services,
Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
|
|
10
|
.11
|
|
Joshua E. Comstock Non-Statutory Stock Option Agreement, dated
December 23, 2010 (incorporated herein by reference to
Exhibit 10.11 to Amendment No. 2 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
|
|
10
|
.12
|
|
Randall C. McMullen, Jr. Non-Statutory Stock Option Agreement,
dated December 23, 2010 (incorporated herein by reference
to Exhibit 10.12 to Amendment No. 2 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
|
|
10
|
.13
|
|
Bretton W. Barrier Non-Statutory Stock Option Agreement, dated
December 23, 2010 (incorporated herein by reference to
Exhibit 10.13 to Amendment No. 2 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
|
II-3
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.14
|
|
Theodore R. Moore Non-Statutory Stock Option Agreement, dated
February 1, 2011 (incorporated herein by reference to
Exhibit 10.14 to Amendment No. 2 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
|
|
10
|
.15
|
|
Amended and Restated Stockholders Agreement of C&J Energy
Services, Inc. dated as of December 23, 2010 (incorporated
herein by reference to Exhibit 10.15 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
|
|
10
|
.16
|
|
First Amendment to the Amended and Restated Stockholders
Agreement of C&J Energy Services, Inc. dated as of
May 12, 2011 (incorporated herein by reference to
Exhibit 10.16 to Amendment No. 2 to the C&J
Energy Services, Incs Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177))
|
|
10
|
.17
|
|
Registration Rights Agreement, dated December 23, 2010,
among C&J Energy Services, Inc., certain of our
stockholders and FBR Capital Markets & Co.
(incorporated herein by reference to Exhibit 10.17 to the
C&J Energy Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
|
|
10
|
.18
|
|
Credit Agreement, dated as of April 19, 2011, among
C&J Energy Services, Inc. as Borrower, Bank of America,
N.A. as Administrative Agent, Swing Line Lender and L/C Issuer,
Comerica Bank as L/C Issuer and Syndication Agent, Wells Fargo
Bank, National Association as Documentation Agent, and the Other
Lenders party thereto (incorporated herein by reference to
Exhibit 10.18 to Amendment No. 1 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 12, 2011 (Registration
No. 333-173177))
|
|
**16
|
.1
|
|
Letter from Flackman Goodman & Proctor, P.A., dated
March 30, 2011
|
|
21
|
.1
|
|
List of Subsidiaries of C&J Energy Services, Inc.
(incorporated herein by reference to Exhibit 21.1 to the
C&J Energy Services, Inc.s Registration Statement on
Form S-1,
dated June 29, 2011 (Registration
No. 333-173177))
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23
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.1
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Consent of UHY LLP
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*23
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.2
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Consent of Vinson & Elkins L.L.P. (included as part of
Exhibit 5.1 hereto)
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**24
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.1
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Power of Attorney
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* |
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To be filed by amendment. |
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** |
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Previously filed. |
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Management contract or compensatory plan or arrangement. |
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-4
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each
post-effective
amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
(3) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement (i) to include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement, and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(4) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized in the City of Houston, State of Texas, on
June 29, 2011.
C&J Energy Services, Inc.
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By:
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/s/ Joshua
E. Comstock
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Joshua E. Comstock
Chief Executive Officer, President and Chairman
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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Signatures
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Title
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Date
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/s/ Joshua
E. Comstock
Joshua
E. Comstock
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Chief Executive Officer, President and Chairman of the Board of
Directors (principal executive officer)
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June 29, 2011
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/s/ Randall
C. McMullen, Jr.
Randall
C. McMullen, Jr.
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Executive Vice President, Chief Financial Officer, Treasurer and
Director (principal financial officer)
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June 29, 2011
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/s/ Mark
C. Cashiola
Mark
C. Cashiola
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Corporate Controller
(principal accounting officer)
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June 29, 2011
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*
Darren
M. Friedman
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Director
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June 29, 2011
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*
James
P. Benson
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Director
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June 29, 2011
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*
Michael
Roemer
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Director
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June 29, 2011
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*
H.
H. Tripp Wommack, III
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Director
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June 29, 2011
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*
C.
James Stewart, III
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Director
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June 29, 2011
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*By:
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/s/ Randall
C. McMullen, Jr.
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Randall C. McMullen, Jr.,
Attorney-in-fact
II-6
INDEX TO
EXHIBITS
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Exhibit
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Number
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Description
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3
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.1
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Amended and Restated Certificate of Incorporation of C&J
Energy Services, Inc. (incorporated herein by reference to
Exhibit 3.1 to the C&J Energy Services, Inc.s
Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
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3
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.2
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Amended and Restated Bylaws of C&J Energy Services, Inc.
(incorporated herein by reference to Exhibit 3.2 to the
C&J Energy Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
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4
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.1
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Form of Stock Certificate (incorporated herein by reference to
Exhibit 4.1 to C&J Energy Services, Inc.s
Registration Statement on
Form S-1/A,
dated May 12, 2011 (Registration No. 333-173177)
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*5
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.1
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Opinion of Vinson & Elkins L.L.P. as to the legality
of the securities being registered
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10
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.1
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C&J Energy Services, Inc. 2006 Stock Option Plan, adopted
by the Board of Directors and approved by the Shareholders on
October 16, 2006 (incorporated herein by reference to
Exhibit 10.1 to the C&J Energy Services, Inc.s
Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
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10
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.2
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Amendment to the C&J Energy Services, Inc. 2006 Stock
Option Plan, dated December 23, 2010 (incorporated herein
by reference to Exhibit 10.2 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
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10
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.3
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C&J Energy Services, Inc. 2010 Stock Option Plan, adopted
by the Board of Directors and approved by the Shareholders on
December 15, 2010 (incorporated herein by reference to
Exhibit 10.3 to Amendment No. 2 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
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10
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.4
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Master Operating Lease dated July 14, 2010, between
BB&T Equipment Finance Corporation, the C&J Spec-Rent
Services, Inc. and C&J Energy Services, Inc., as amended,
supplemented and modified from time to time, and the related
Equipment Schedules (as defined therein) (incorporated herein by
reference to Exhibit 10.4 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
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10
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.5
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Master Operating Lease Agreement dated as of July 21, 2010,
between AIG Commercial Equipment Finance, Inc., and C&J
Spec-Rent Services, Inc. and C&J Energy Services, Inc., as
amended, supplemented and modified from time to time, and the
related Equipment Schedules (as defined therein) (incorporated
herein by reference to Exhibit 10.5 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
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10
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.6
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Rider 1 dated as of July 21, 2010 to Master Operating Lease
Agreement dated as of July 21, 2010, between AIG Commercial
Equipment Finance, Inc., and C&J Spec-Rent Services, Inc.
and C&J Energy Services, Inc., as amended, supplemented and
modified from time to time, and the related Equipment Schedules
(as defined in the Master Operating Lease Agreement)
(incorporated herein by reference to Exhibit 10.6 to the
C&J Energy Services, Inc.s Registration
Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
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10
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.7
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Amended and Restated Employment Agreement effective
December 23, 2010 between C&J Energy Services, Inc.
and Joshua E. Comstock (incorporated herein by reference to
Exhibit 10.7 to Amendment No. 2 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
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10
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.8
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Amended and Restated Employment Agreement effective
December 23, 2010 between C&J Energy Services, Inc.
and Randall C. McMullen, Jr. (incorporated herein by reference
to Exhibit 10.8 to Amendment No. 2 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
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Exhibit
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Number
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Description
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10
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.9
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Amended and Restated Employment Agreement effective
December 23, 2010 between C&J Energy Services, Inc.
and Bretton W. Barrier (incorporated herein by reference to
Exhibit 10.9 to Amendment No. 2 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
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10
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.10
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Employment Agreement effective February 1, 2011 between
C&J Energy Services, Inc. and Theodore R. Moore
(incorporated herein by reference to Exhibit 10.10 to
Amendment No. 2 to the C&J Energy Services,
Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
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10
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.11
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Joshua E. Comstock Non-Statutory Stock Option Agreement, dated
December 23, 2010 (incorporated herein by reference to
Exhibit 10.11 to Amendment No. 2 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
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10
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.12
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Randall C. McMullen, Jr. Non-Statutory Stock Option Agreement,
dated December 23, 2010 (incorporated herein by reference
to Exhibit 10.12 to Amendment No. 2 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
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10
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.13
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Bretton W. Barrier Non-Statutory Stock Option Agreement, dated
December 23, 2010 (incorporated herein by reference to
Exhibit 10.13 to Amendment No. 2 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
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10
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.14
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Theodore R. Moore Non-Statutory Stock Option Agreement, dated
February 1, 2011 (incorporated herein by reference to
Exhibit 10.14 to Amendment No. 2 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177)
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10
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.15
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Amended and Restated Stockholders Agreement of C&J Energy
Services, Inc. dated as of December 23, 2010 (incorporated
herein by reference to Exhibit 10.15 to the C&J Energy
Services, Inc.s Registration Statement on
Form S-1/A,
dated May 12, 2011 (Registration
No. 333-173177))
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10
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.16
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First Amendment to the Amended and Restated Stockholders
Agreement of C&J Energy Services, Inc. dated as of
May 12, 2011 (incorporated herein by reference to
Exhibit 10.16 to Amendment No. 2 to the C&J
Energy Services, Incs Registration Statement on
Form S-1/A,
dated May 18, 2011 (Registration
No. 333-173177))
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10
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.17
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Registration Rights Agreement, dated December 23, 2010,
among C&J Energy Services, Inc., certain of our
stockholders and FBR Capital Markets & Co.
(incorporated herein by reference to Exhibit 10.17 to the
C&J Energy Services, Inc.s Registration Statement on
Form S-1,
dated March 30, 2011 (Registration
No. 333-173177))
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10
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.18
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Credit Agreement, dated as of April 19, 2011, among
C&J Energy Services, Inc. as Borrower, Bank of America,
N.A. as Administrative Agent, Swing Line Lender and L/C Issuer,
Comerica Bank as L/C Issuer and Syndication Agent, Wells Fargo
Bank, National Association as Documentation Agent, and the Other
Lenders party thereto (incorporated herein by reference to
Exhibit 10.18 to Amendment No. 1 to the C&J
Energy Services, Inc.s Registration Statement on
Form S-1/A,
dated May 12, 2011 (Registration
No. 333-173177))
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**16
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.1
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Letter from Flackman Goodman & Proctor, P.A., dated
March 30, 2011
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21
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.1
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List of Subsidiaries of C&J Energy Services, Inc.
(incorporated herein by reference to Exhibit 21.1 to the
C&J Energy Services, Inc.s Registration Statement on
Form S-1,
dated June 29, 2011 (Registration
No. 333-173177))
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23
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.1
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Consent of UHY LLP
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*23
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.2
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Consent of Vinson & Elkins L.L.P. (included as part of
Exhibit 5.1 hereto)
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**24
|
.1
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Power of Attorney
|
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* |
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To be filed by amendment. |
** |
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Previously filed. |
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Management contract or compensatory plan or arrangement. |