Attached files
| file | filename |
|---|---|
| EX-99.2 - EX-99.2 - Select Energy Services, Inc. | a18-2524_1ex99d2.htm |
| EX-99.1 - EX-99.1 - Select Energy Services, Inc. | a18-2524_1ex99d1.htm |
| EX-23.1 - EX-23.1 - Select Energy Services, Inc. | a18-2524_1ex23d1.htm |
| 8-K/A - 8-K/A - Select Energy Services, Inc. | a18-2524_18ka.htm |
SELECT ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction
The following unaudited pro forma condensed combined financial statements of Select Energy Services, Inc. (“Select” or the “Company”) present the combination of the financial information of Select and Rockwater Energy Solutions, Inc. (“Rockwater”) adjusted to give effect to the transactions to be accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”).
The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2017 and for the year ended December 31, 2016 combine the consolidated statements of operations of Select and the pro forma consolidated statements of operations of Rockwater, giving effect to the mergers (as defined below) and merger-related transactions as if they had occurred on January 1, 2016. The pro forma consolidated statements of operations for Rockwater give effect to Rockwater’s issuance and sale of 8,797,500 shares of Class A-1 common stock in a private placement on March 9, 2017 and the usage of the net proceeds (the “Rockwater 144A Offering”) and Rockwater’s acquisition of Crescent Companies, LLC and its subsidiaries on March 31, 2017 (the “Crescent Acquisition”) as if they had occurred on January 1, 2016. The unaudited pro forma condensed combined statements of operations also give effect to the following equity transactions that occurred during the periods presented as if they had occurred on January 1, 2016: the issuance of 3,866,864 common units of Select’s predecessor entity and consolidated subsidiary, SES Holdings, LLC (“SES Holdings” or “the Predecessor” for periods prior to the Select 144A Offering (as defined below)); the reorganization and private placement of 16,100,000 shares of Class A-1 common stock of Select (the “Select 144A Offering”); the issuance of 10,005,000 shares of Class A common stock of Select as a result of Select’s initial public offering and the exercise of the underwriters’ over-allotment option (the “IPO”); and the conversion of shares of Select Class A-1 common stock to shares of Select Class A common stock on a one-for-one basis as a result of the effectiveness of a shelf registration statement registering such shares for resale.
The unaudited pro forma condensed combined balance sheet combines the consolidated condensed balance sheet of Select and the consolidated condensed balance sheet of Rockwater as of September 30, 2017, giving effect to the mergers and merger-related transactions as if they had occurred on September 30, 2017.
The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting with Select considered the accounting acquirer of Rockwater. Under the acquisition method of accounting, the purchase price is allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values with any excess purchase price allocated to goodwill.
The pro forma purchase price allocation is preliminary and was based on an estimate of the fair values of the tangible and intangible assets and liabilities related to Rockwater, the value of Select’s common stock exchanged, and the fair value of the Rockwater’s outstanding share-based awards attributable to pre-acquisition service. As described in Note 1, at the effective time of the corporate merger (as defined below), each outstanding share of Rockwater Class A common stock, Rockwater Class A-1 common stock and Rockwater Class B common stock, subject to certain exceptions, was converted into the right to receive a number of shares of Select Class A common stock, Select Class A-2 common stock and Select Class B common stock, respectively, each in an amount equal to the exchange ratio. At the effective time of the LLC merger, all units of Rockwater Energy Solutions, LLC (“Rockwater LLC”) were converted into the right to receive a number of units of SES Holdings in an amount equal to the exchange ratio. The “exchange ratio” is equal to 0.7652.
Furthermore, as of the effective time of the corporate merger, each outstanding and unexercised option to purchase shares of Rockwater Class A common stock was converted into an option to purchase shares of Select Class A common stock, with the same terms and conditions as in effect immediately prior to the effective time of the corporate merger, in an amount determined by multiplying the number of shares of Rockwater Class A common stock subject to such options as of immediately prior to the effective time of the corporate merger by the exchange ratio, at an exercise price per share of Select Class A common stock equal to the exercise price per share of Rockwater Class A common stock under such option divided by the exchange ratio.
Additionally, as of the effective time of the corporate merger, each outstanding restricted stock award of Rockwater Class A common stock was converted into a restricted stock award of Select Class A common stock, with the same terms and conditions as in effect immediately prior to the effective time of the corporate merger, in an amount equal to the number of shares of Select Class A common stock determined by multiplying the number of shares of Rockwater Class A common stock subject to such restricted stock award as of immediately prior to the effective time of the corporate merger by the exchange ratio.
Select’s sole material asset consists of its membership interest in SES Holdings. Each holder of Rockwater Class B common stock and Rockwater LLC units entitled to receive shares of Select Class B common stock received the right to exchange each share of Select Class B common stock and a corresponding SES Holdings unit for one share of Select Class A common stock. Upon the effectiveness of a shelf registration statement registering such shares for resale, Select’s Class A-2 common stock will automatically convert to Class A common stock. As the shares of Class A-2 common stock will automatically convert to shares of Class A common stock and Class B common stock, in tandem with a unit of SES Holdings, are convertible at any time into a share of Select Class A common stock, the per share value of Class A-2 common stock and Class B common stock are assumed, for the purposes of the pro forma analysis, to be equivalent to the value of a share of Class A common stock. Thus, the purchase price allocation is based on the closing price of Select Class A common stock as of November 1, 2017 along with the portion of the acquisition-date fair value of Rockwater’s outstanding share-based awards attributable to pre-acquisition service obligated to be exchanged as part of the mergers as described below.
Select expects to complete the purchase price allocation after considering the appraisal of Rockwater’s assets at the level of detail necessary to finalize the required purchase price allocation, which will be no later than one year from the completion of the mergers. The purchase price utilized in the allocation is based on the closing price of Select Class A common stock on the date of acquisition, November 1, 2017, as well as the portion of the fair value of Rockwater’s outstanding share-based awards attributable to pre-acquisition service that Select is obligated to replace as part of the merger agreement (as defined below). The pro forma adjustments included herein may be revised as additional information becomes available and as additional analyses are performed. The final purchase price allocation may be different than that reflected in the pro forma purchase price allocation presented herein, and this difference may be material.
The unaudited pro forma condensed combined financial statements do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies that may result from the mergers.
The unaudited pro forma condensed combined financial statements should be read in conjunction with:
· the accompanying notes to the unaudited pro forma condensed combined financial statements;
· the unaudited consolidated condensed historical financial statements of Select as of and for the nine months ended September 30, 2017 and related notes, which are included in Select’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (the “SEC”) on November 13, 2017;
· the audited historical consolidated financial statements of Select as of and for the year ended December 31, 2016 and related notes, which are included in Select’s final prospectus dated April 20, 2017 and filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 24, 2017; and
· the unaudited consolidated condensed financial statements of Rockwater as of and for the nine months ended September 30, 2017 and related notes, and the audited consolidated financial statements of Rockwater as of and for the year ended December 31, 2016 and related notes, which are included elsewhere in this current report.
SELECT ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2017
|
(in thousands, except share data) |
|
Historical |
|
Historical |
|
Pro Forma |
|
|
|
Pro Forma |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Current assets |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Cash and cash equivalents |
|
$ |
42,393 |
|
$ |
2,364 |
|
$ |
(9,393 |
) |
3(a), 3(b) |
|
$ |
35,364 |
|
|
Accounts receivable trade |
|
151,239 |
|
192,428 |
|
— |
|
|
|
343,667 |
| ||||
|
Allowance for doubtful accounts |
|
(2,867 |
) |
(5,730 |
) |
— |
|
|
|
(8,597 |
) | ||||
|
Accounts receivable, related parties |
|
433 |
|
— |
|
— |
|
|
|
433 |
| ||||
|
Inventories |
|
852 |
|
44,241 |
|
— |
|
|
|
45,093 |
| ||||
|
Prepaid expenses and other current assets |
|
13,495 |
|
5,703 |
|
(1,280 |
) |
3(a) |
|
17,918 |
| ||||
|
Income taxes receivable |
|
— |
|
2,267 |
|
— |
|
|
|
2,267 |
| ||||
|
Total current assets |
|
205,545 |
|
241,273 |
|
(10,673 |
) |
|
|
436,145 |
| ||||
|
Property and equipment |
|
815,002 |
|
473,971 |
|
(284,067 |
) |
3(c) |
|
1,004,906 |
| ||||
|
Accumulated depreciation |
|
(535,456 |
) |
(313,343 |
) |
313,343 |
|
3(c) |
|
(535,456 |
) | ||||
|
Property and equipment, net |
|
279,546 |
|
160,628 |
|
29,276 |
|
|
|
469,450 |
| ||||
|
Goodwill |
|
25,091 |
|
301,391 |
|
(53,114 |
) |
3(c) |
|
273,368 |
| ||||
|
Other intangible assets, net |
|
35,351 |
|
38,259 |
|
83,792 |
|
3(c) |
|
157,402 |
| ||||
|
Other assets |
|
7,216 |
|
920 |
|
(1,401 |
) |
3(a), 3(d) |
|
6,735 |
| ||||
|
Total assets |
|
$ |
552,749 |
|
$ |
742,471 |
|
$ |
47,880 |
|
|
|
$ |
1,343,100 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Accounts payable |
|
$ |
11,751 |
|
$ |
53,804 |
|
$ |
— |
|
|
|
$ |
65,555 |
|
|
Accounts payable and accrued expenses, related parties |
|
1,246 |
|
— |
|
— |
|
|
|
1,246 |
| ||||
|
Accrued salaries and benefits |
|
8,595 |
|
9,403 |
|
— |
|
|
|
17,998 |
| ||||
|
Accrued insurance |
|
11,008 |
|
— |
|
— |
|
|
|
11,008 |
| ||||
|
Accrued expenses and other current liabilities |
|
39,713 |
|
33,911 |
|
— |
|
|
|
73,624 |
| ||||
|
Current portion of capital leases |
|
— |
|
2,133 |
|
— |
|
|
|
2,133 |
| ||||
|
Total current liabilities |
|
72,313 |
|
99,251 |
|
— |
|
|
|
171,564 |
| ||||
|
Accrued lease obligations |
|
18,100 |
|
— |
|
— |
|
|
|
18,100 |
| ||||
|
Long-term debt |
|
— |
|
78,200 |
|
(3,200 |
) |
3(a) |
|
75,000 |
| ||||
|
Capital lease obligations |
|
— |
|
1,638 |
|
— |
|
|
|
1,638 |
| ||||
|
Deferred income taxes, net |
|
— |
|
15,751 |
|
(15,287 |
) |
3(e), 3(f) |
|
464 |
| ||||
|
Other long term liabilities |
|
8,008 |
|
2,026 |
|
645 |
|
3(c), 3(e) |
|
10,679 |
| ||||
|
Total liabilities |
|
98,421 |
|
196,866 |
|
(17,842 |
) |
|
|
277,445 |
| ||||
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Select Energy Services, Inc. Common and Preferred Stock: |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Class A-2 common stock, $0.01 par value; no shares authorized, issued or outstanding as of September 30, 2017 (actual); Class A-2 common stock, $0.01 par value; 40,000,000 shares authorized; 6,731,845 shares issued and outstanding as of September 30, 2017 (pro forma as adjusted) |
|
— |
|
— |
|
67 |
|
3(g) |
|
67 |
| ||||
|
Class A common stock, $0.01 par value; 250,000,000 shares authorized; 30,468,249 shares issued and outstanding as of September 30, 2017 (actual); Class A common stock, $0.01 par value; 350,000,000 shares authorized; 56,714,364 shares issued and outstanding as of September 30, 2017 (pro forma, as adjusted) |
|
305 |
|
— |
|
262 |
|
3(g) |
|
567 |
| ||||
SELECT ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (Continued)
AS OF SEPTEMBER 30, 2017
|
(in thousands, except share data) |
|
Historical |
|
Historical |
|
Pro Forma |
|
|
|
Pro Forma |
| ||||
|
Class B common stock, $0.01 par value; 150,000,000 shares authorized; 38,462,541 shares issued and outstanding as of September 30, 2017; Class B common stock, $0.01 par value; 150,000,000 shares authorized; 42,819,018 shares issued and outstanding as of September 30, 2017 (pro forma, as adjusted) |
|
385 |
|
— |
|
43 |
|
3(g) |
|
428 |
| ||||
|
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017 (actual); Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017 (pro forma, as adjusted) |
|
— |
|
— |
|
— |
|
|
|
— |
| ||||
|
Rockwater Energy Solutions, Inc. Common and Preferred Stock: |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Class A-1 common stock, $0.01 par value; 30,000,000 shares authorized; 8,797,500 shares issued and outstanding as of September 30, 2017 (actual); Class A-1 common stock, $0.01 par value; no shares authorized, issued or outstanding as of September 30, 2017 (pro forma, as adjusted) |
|
— |
|
88 |
|
(88 |
) |
3(g) |
|
— |
| ||||
|
Class A common stock, $0.01 par value; 250,000,000 shares authorized; 34,482,060 shares issued and outstanding as of September 30, 2017 (actual); Class A common stock, $0.01 par value; no shares authorized, issued, or outstanding as of September 30, 2017 (pro forma, as adjusted) |
|
— |
|
345 |
|
(345 |
) |
3(g) |
|
— |
| ||||
|
Class B common stock, $0.01 par value; 120,000,000 shares authorized; 5,693,258 shares issued and outstanding as of September 30, 2017 (actual); Class B common stock, $0.01 par value; no shares authorized, issued or outstanding as of September 30, 2017 (pro forma, as adjusted); |
|
— |
|
57 |
|
(57 |
) |
3(g) |
|
— |
| ||||
|
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017 (actual); Preferred stock, $0.01 par value; no shares authorized, issued or outstanding as of September 30, 2017 (pro forma, as adjusted) |
|
— |
|
— |
|
— |
|
|
|
— |
| ||||
|
Additional paid-in capital |
|
206,158 |
|
466,490 |
|
(25,625 |
) |
3(g) |
|
647,023 |
| ||||
|
Retained earnings (accumulated deficit) |
|
(8,207 |
) |
31,964 |
|
(38,528 |
) |
3(a), 3(b), 3(d), 3(g) |
|
(14,771 |
) | ||||
|
Accumulated other comprehensive loss |
|
— |
|
(19,407 |
) |
19,407 |
|
3(g) |
|
— |
| ||||
|
Total stockholders’ equity |
|
198,641 |
|
479,537 |
|
(44,864 |
) |
|
|
633,314 |
| ||||
|
Noncontrolling interests |
|
255,687 |
|
66,068 |
|
110,586 |
|
3(g) |
|
432,341 |
| ||||
|
Total equity |
|
454,328 |
|
545,605 |
|
65,722 |
|
|
|
1,065,655 |
| ||||
|
Total liabilities and equity |
|
$ |
552,749 |
|
$ |
742,471 |
|
$ |
47,880 |
|
|
|
$ |
1,343,100 |
|
The accompanying notes are an integral part of these unaudited condensed combined pro forma financial statements.
SELECT ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
|
(in thousands, except unit and per |
|
Historical |
|
Historical |
|
Pro Forma |
|
|
|
Pro Forma |
|
Pro Forma |
|
|
|
Pro Forma Select |
|
Other Pro |
|
|
|
Pro Forma |
| ||||||||
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Water solutions and related services |
|
$ |
311,275 |
|
$ |
342,529 |
|
$ |
32,608 |
|
4(a) |
|
$ |
375,137 |
|
$ |
(36,696 |
) |
4(c) |
|
$ |
649,716 |
|
$ |
— |
|
|
|
$ |
649,716 |
|
|
Accommodations and rentals |
|
38,457 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
38,457 |
|
— |
|
|
|
38,457 |
| ||||||||
|
Wellsite completion and construction services |
|
38,522 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
38,522 |
|
— |
|
|
|
38,522 |
| ||||||||
|
Oilfield chemical product sales |
|
— |
|
150,053 |
|
— |
|
|
|
150,053 |
|
— |
|
|
|
150,053 |
|
— |
|
|
|
150,053 |
| ||||||||
|
Total revenues |
|
388,254 |
|
492,582 |
|
32,608 |
|
|
|
525,190 |
|
(36,696 |
) |
|
|
876,748 |
|
— |
|
|
|
876,748 |
| ||||||||
|
Costs of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Water solutions and related services |
|
226,737 |
|
275,892 |
|
27,024 |
|
4(a) |
|
302,916 |
|
(32,733 |
) |
4(c) |
|
496,920 |
|
— |
|
|
|
496,920 |
| ||||||||
|
Accommodations and rentals |
|
30,697 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
30,697 |
|
— |
|
|
|
30,697 |
| ||||||||
|
Wellsite completion and construction services |
|
32,155 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
32,155 |
|
— |
|
|
|
32,155 |
| ||||||||
|
Oilfield chemical product sales |
|
— |
|
133,092 |
|
— |
|
|
|
133,092 |
|
— |
|
|
|
133,092 |
|
— |
|
|
|
133,092 |
| ||||||||
|
Depreciation and amortization |
|
67,144 |
|
34,786 |
|
1,405 |
|
4(a) |
|
36,191 |
|
3,565 |
|
4(d) |
|
106,900 |
|
— |
|
|
|
106,900 |
| ||||||||
|
Total costs of revenue |
|
356,733 |
|
443,770 |
|
28,429 |
|
|
|
472,199 |
|
(29,168 |
) |
|
|
799,764 |
|
— |
|
|
|
799,764 |
| ||||||||
|
Gross profit (loss) |
|
31,521 |
|
48,812 |
|
4,179 |
|
|
|
52,991 |
|
(7,528 |
) |
|
|
76,984 |
|
— |
|
|
|
76,984 |
| ||||||||
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Selling, general and administrative |
|
49,298 |
|
50,462 |
|
357 |
|
4(a) 4(b) |
|
50,819 |
|
(9,898 |
) |
4(c), 4(e), 4(i) |
|
90,219 |
|
— |
|
|
|
90,219 |
| ||||||||
|
Depreciation and amortization |
|
1,312 |
|
8,103 |
|
2,447 |
|
4(a) |
|
10,550 |
|
(181 |
) |
4(c), 4(f) |
|
11,681 |
|
— |
|
|
|
11,681 |
| ||||||||
|
Impairment of goodwill and other intangible assets |
|
— |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
— |
| ||||||||
|
Impairment of property and equipment |
|
— |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
— |
| ||||||||
|
Lease abandonment costs |
|
2,871 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
2,871 |
|
— |
|
|
|
2,871 |
| ||||||||
|
Loss on sale of Crescent Consulting |
|
— |
|
64,205 |
|
|
|
|
|
64,205 |
|
(64,205 |
) |
4(c) |
|
— |
|
— |
|
|
|
— |
| ||||||||
|
Restructuring charges |
|
— |
|
2,406 |
|
— |
|
|
|
2,406 |
|
— |
|
|
|
2,406 |
|
— |
|
|
|
2,406 |
| ||||||||
|
Loss (gain) on disposal of property and equipment |
|
— |
|
(1,093 |
) |
(85 |
) |
4(a) |
|
(1,178 |
) |
— |
|
|
|
(1,178 |
) |
— |
|
|
|
(1,178 |
) | ||||||||
|
Total operating expenses |
|
53,481 |
|
124,083 |
|
2,719 |
|
|
|
126,802 |
|
(74,284 |
) |
|
|
105,999 |
|
— |
|
|
|
105,999 |
| ||||||||
|
(Loss) income from operations |
|
(21,960 |
) |
(75,271 |
) |
1,460 |
|
|
|
(73,811 |
) |
66,756 |
|
|
|
(29,015 |
) |
— |
|
|
|
(29,015 |
) | ||||||||
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest expense, net |
|
(1,885 |
) |
(4,369 |
) |
335 |
|
4(a), 4(b) |
|
(4,034 |
) |
2,251 |
|
4(c), 4(g) |
|
(3,668 |
) |
1,885 |
|
4(j) |
|
(1,783 |
) | ||||||||
|
Foreign currency gains (losses) |
|
— |
|
464 |
|
— |
|
|
|
464 |
|
— |
|
|
|
464 |
|
— |
|
|
|
464 |
| ||||||||
|
Other income, net |
|
3,342 |
|
249 |
|
— |
|
|
|
249 |
|
— |
|
|
|
3,591 |
|
— |
|
|
|
3,591 |
| ||||||||
|
(Loss) income before tax expense |
|
(20,503 |
) |
(78,927 |
) |
1,795 |
|
|
|
(77,132 |
) |
69,007 |
|
|
|
(28,628 |
) |
1,885 |
|
|
|
(26,743 |
) | ||||||||
|
Tax benefit (expense) |
|
326 |
|
17,556 |
|
(14,407 |
) |
4(a) |
|
3,149 |
|
35 |
|
4(c), 4(h) |
|
3,510 |
|
— |
|
4(h) |
|
3,510 |
| ||||||||
|
Net (loss) income |
|
(20,177 |
) |
(61,371 |
) |
(12,612 |
) |
|
|
(73,983 |
) |
69,042 |
|
|
|
(25,118 |
) |
1,885 |
|
|
|
(23,233 |
) | ||||||||
|
Less: Net loss attributable to noncontrolling interests |
|
13,013 |
|
6,789 |
|
— |
|
|
|
6,789 |
|
— |
|
|
|
19,802 |
|
(10,414 |
) |
4(k) |
|
9,388 |
| ||||||||
|
Net loss attributable to the business |
|
$ |
(7,164 |
) |
$ |
(54,582 |
) |
$ |
(12,612 |
) |
|
|
$ |
(67,194 |
) |
$ |
69,042 |
|
|
|
$ |
(5,316 |
) |
$ |
(8,529 |
) |
|
|
$ |
(13,845 |
) |
SELECT ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
|
(in thousands, except unit and per |
|
Historical |
|
Historical |
|
Pro Forma |
|
Pro Forma |
|
Pro Forma |
|
Pro Forma Select |
|
Other Pro |
|
Pro Forma |
|
|
| |||
|
Allocation of net loss attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Class A-1 stockholders |
|
$ |
(2,679 |
) |
$ |
(9,914 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
Class A-2 stockholders |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
(1,476 |
) |
|
| |||
|
Class A stockholders |
|
(4,485 |
) |
(44,668 |
) |
|
|
|
|
|
|
|
|
|
|
(12,369 |
) |
|
| |||
|
Class B stockholders |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
| |||
|
|
|
$ |
(7,164 |
) |
$ |
(54,582 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
(13,845 |
) |
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Class A-1—Basic & Diluted |
|
9,671,795 |
|
7,249,581 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
4(m) |
| |||
|
Class A-2—Basic & Diluted |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
6,731,845 |
|
4(m) |
| |||
|
Class A—Basic & Diluted |
|
16,189,997 |
|
32,663,457 |
|
|
|
|
|
|
|
|
|
|
|
56,426,038 |
|
4(m) |
| |||
|
Class B—Basic & Diluted |
|
38,462,541 |
|
5,693,258 |
|
|
|
|
|
|
|
|
|
|
|
42,819,018 |
|
4(m) |
| |||
|
Net loss per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Class A-1—Basic & Diluted |
|
$ |
(0.28 |
) |
$ |
(1.37 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
Class A-2—Basic & Diluted |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.22 |
) |
|
|
|
Class A—Basic & Diluted |
|
$ |
(0.28 |
) |
$ |
(1.37 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
(0.22 |
) |
|
|
|
Class B—Basic & Diluted |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
The accompanying notes are an integral part of these unaudited condensed combined pro forma financial statements.
SELECT ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
|
(in thousands, except unit and |
|
Historical |
|
Historical |
|
Pro Forma |
|
|
|
Pro Forma |
|
Pro Forma |
|
|
|
Pro Forma Select |
|
Other Pro |
|
|
|
Pro Forma |
| ||||||||
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Water solutions and related services |
|
$ |
241,455 |
|
$ |
192,247 |
|
$ |
91,841 |
|
4(a) |
|
$ |
284,088 |
|
$ |
(29,447 |
) |
4(c) |
|
$ |
496,096 |
|
$ |
— |
|
|
|
$ |
496,096 |
|
|
Accommodations and rentals |
|
27,151 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
27,151 |
|
— |
|
|
|
27,151 |
| ||||||||
|
Wellsite completion and construction services |
|
33,793 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
33,793 |
|
— |
|
|
|
33,793 |
| ||||||||
|
Oilfield chemical product sales |
|
— |
|
108,831 |
|
— |
|
|
|
108,831 |
|
— |
|
|
|
108,831 |
|
— |
|
|
|
108,831 |
| ||||||||
|
Total revenues |
|
302,399 |
|
301,078 |
|
91,841 |
|
|
|
392,919 |
|
(29,447 |
) |
|
|
665,871 |
|
— |
|
|
|
665,871 |
| ||||||||
|
Costs of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Water solutions and related services |
|
200,399 |
|
171,794 |
|
78,759 |
|
4(a) |
|
250,553 |
|
(25,782 |
) |
4(c) |
|
425,170 |
|
— |
|
|
|
425,170 |
| ||||||||
|
Accommodations and rentals |
|
22,019 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
22,019 |
|
— |
|
|
|
22,019 |
| ||||||||
|
Wellsite completion and construction services |
|
29,089 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
29,089 |
|
— |
|
|
|
29,089 |
| ||||||||
|
Oilfield chemical product sales |
|
— |
|
105,394 |
|
— |
|
|
|
105,394 |
|
— |
|
|
|
105,394 |
|
— |
|
|
|
105,394 |
| ||||||||
|
Depreciation and amortization |
|
95,020 |
|
43,880 |
|
13,692 |
|
4(a) |
|
57,572 |
|
(5,093 |
) |
4(d) |
|
147,499 |
|
— |
|
|
|
147,499 |
| ||||||||
|
Total costs of revenue |
|
346,527 |
|
321,068 |
|
92,451 |
|
|
|
413,519 |
|
(30,875 |
) |
|
|
729,171 |
|
— |
|
|
|
729,171 |
| ||||||||
|
Gross profit (loss) |
|
(44,128 |
) |
(19,990 |
) |
(610 |
) |
|
|
(20,600 |
) |
1,428 |
|
|
|
(63,300 |
) |
— |
|
|
|
(63,300 |
) | ||||||||
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Selling, general and administrative |
|
34,643 |
|
37,341 |
|
11,176 |
|
4(a) |
|
48,517 |
|
(2,673 |
) |
4(c), 4(i) |
|
80,487 |
|
— |
|
|
|
80,487 |
| ||||||||
|
Depreciation and amortization |
|
2,087 |
|
8,106 |
|
9,963 |
|
4(a) |
|
18,069 |
|
(3,531 |
) |
4(c), 4(f) |
|
16,625 |
|
— |
|
|
|
16,625 |
| ||||||||
|
Impairment of goodwill and other intangible assets |
|
138,666 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
138,666 |
|
— |
|
|
|
138,666 |
| ||||||||
|
Impairment of property and equipment |
|
60,026 |
|
1,008 |
|
— |
|
|
|
1,008 |
|
— |
|
|
|
61,034 |
|
— |
|
|
|
61,034 |
| ||||||||
|
Lease abandonment costs |
|
19,423 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
19,423 |
|
— |
|
|
|
19,423 |
| ||||||||
|
Restructuring charges |
|
— |
|
8,169 |
|
— |
|
|
|
8,169 |
|
— |
|
|
|
8,169 |
|
— |
|
|
|
8,169 |
| ||||||||
|
Loss (gain) on disposal of property and equipment |
|
— |
|
(1,882 |
) |
136 |
|
4(a) |
|
(1,746 |
) |
— |
|
|
|
(1,746 |
) |
— |
|
|
|
(1,746 |
) | ||||||||
|
Total operating expenses |
|
254,845 |
|
52,742 |
|
21,275 |
|
|
|
74,017 |
|
(6,204 |
) |
|
|
322,658 |
|
— |
|
|
|
322,658 |
| ||||||||
|
(Loss) income from operations |
|
(298,973 |
) |
(72,732 |
) |
(21,885 |
) |
|
|
(94,617 |
) |
7,632 |
|
|
|
(385,958 |
) |
— |
|
|
|
(385,958 |
) | ||||||||
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest expense, net |
|
(16,128 |
) |
(7,977 |
) |
3,683 |
|
4(a), 4(b) |
|
(4,294 |
) |
2,742 |
|
4(c), 4(g) |
|
(17,680 |
) |
16,128 |
|
4(j) |
|
(1,552 |
) | ||||||||
|
Foreign currency gains (losses) |
|
— |
|
301 |
|
— |
|
|
|
301 |
|
— |
|
|
|
301 |
|
— |
|
|
|
301 |
| ||||||||
|
Other income, net |
|
629 |
|
623 |
|
— |
|
|
|
623 |
|
— |
|
|
|
1,252 |
|
— |
|
|
|
1,252 |
| ||||||||
|
(Loss) income before tax expense |
|
(314,472 |
) |
(79,785 |
) |
(18,202 |
) |
|
|
(97,987 |
) |
10,374 |
|
|
|
(402,085 |
) |
16,128 |
|
|
|
(385,957 |
) | ||||||||
|
Tax benefit (expense) |
|
524 |
|
(93 |
) |
(729 |
) |
4(a) |
|
(822 |
) |
32 |
|
4(c), 4(h) |
|
(266 |
) |
— |
|
4(h) |
|
(266 |
) | ||||||||
|
Net (loss) income |
|
(313,948 |
) |
(79,878 |
) |
(18,931 |
) |
|
|
(98,809 |
) |
10,406 |
|
|
|
(402,351 |
) |
16,128 |
|
|
|
(386,223 |
) | ||||||||
|
Less: Net loss attributable to Predecessor |
|
306,481 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
306,481 |
|
(306,481 |
) |
4(l) |
|
— |
| ||||||||
|
Less: Net loss attributable to noncontrolling interests |
|
6,424 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
6,424 |
|
152,649 |
|
4(k) |
|
159,073 |
| ||||||||
|
Net loss attributable to the business |
|
$ |
(1,043 |
) |
$ |
(79,878 |
) |
$ |
(18,931 |
) |
|
|
$ |
(98,809 |
) |
$ |
10,406 |
|
|
|
$ |
(89,446 |
) |
$ |
(137,704 |
) |
|
|
$ |
(227,150 |
) |
SELECT ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2016
|
(in thousands, except unit and |
|
Historical |
|
Historical |
|
Pro Forma |
|
|
|
Pro Forma |
|
Pro Forma |
|
|
|
Pro Forma Select |
|
Other Pro |
|
|
|
Pro Forma |
|
|
| |||
|
Allocation of net loss attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Class A-1 stockholders |
|
$ |
(844 |
) |
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
Class A-2 stockholders |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,316 |
) |
|
| |||
|
Class A stockholders |
|
(199 |
) |
(79,878 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202,834 |
) |
|
| |||
|
Class B stockholders |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
| |||
|
|
|
$ |
(1,043 |
) |
$ |
(79,878 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(227,150 |
) |
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Class A-1—Basic & Diluted |
|
16,100,000 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
4(m) |
| |||
|
Class A-2—Basic & Diluted |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,731,845 |
|
4(m) |
| |||
|
Class A—Basic & Diluted |
|
3,802,972 |
|
28,911,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,154,087 |
|
4(m) |
| |||
|
Class B—Basic & Diluted |
|
38,462,541 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,819,018 |
|
4(m) |
| |||
|
Net loss per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Class A-1—Basic & Diluted |
|
$ |
(0.05 |
) |
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
Class A-2—Basic & Diluted |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3.61 |
) |
|
|
|
Class A—Basic & Diluted |
|
$ |
(0.05 |
) |
$ |
(2.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3.61 |
) |
|
|
|
Class B—Basic & Diluted |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
The accompanying notes are an integral part of these unaudited condensed combined pro forma financial statements.
SELECT ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1—DESCRIPTION OF THE MERGERS AND MERGER-RELATED TRANSACTIONS
On November 1, 2017, Select completed its previously announced merger with Rockwater, pursuant to the closing of the transactions (“the closing”) contemplated by the Agreement and Plan of Merger (the “merger agreement”), dated July 18, 2017. Select and certain of its subsidiaries, including SES Holdings, entered into the merger agreement with Rockwater and Rockwater LLC, pursuant to which Select will merge with Rockwater in a stock-for-stock transaction. The merger agreement provides that (i) Raptor Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Select, was merged with and into Rockwater, with Rockwater continuing as the surviving entity as a wholly owned subsidiary of Select (the “corporate merger”), and (ii) Raptor Merger Sub, LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of SES Holdings, was merged with and into Rockwater LLC, with Rockwater LLC continuing as the surviving entity as an indirect wholly owned subsidiary of SES Holdings (the “LLC merger” and together with the corporate merger, the “mergers”).
Under the terms of the merger agreement and upon closing, subject to certain exceptions, (i) each share of Rockwater’s Class A common stock then outstanding was converted into the right to receive a number of shares of Select’s Class A common stock equal to the exchange ratio, (ii) each share of Rockwater’s Class A-1 common stock then outstanding was converted into the right to receive a number of shares of Select’s Class A-2 common stock equal to the exchange ratio, and (iii) each share of Rockwater’s Class B Common Stock then outstanding was converted into the right to receive a number of shares of Select’s Class B common stock equal to the exchange ratio. Under the terms of the merger agreement and upon closing of the LLC merger, subject to certain exceptions, each unit of Rockwater LLC then outstanding (including Rockwater LLC units held by Rockwater) was converted into the right to receive a number of units in SES Holdings equal to the exchange ratio. Upon the effectiveness of a shelf registration statement registering such shares for resale, Select’s newly issued Class A-2 common shares will automatically convert to Class A common stock.
Upon closing, Select shareholders owned approximately 64.9% of the combined company and former Rockwater shareholders owned approximately 35.1% of the combined company with a total of 106.3 million Select common shares outstanding.
On November 1, 2017, in connection with the closing, SES Holdings and Select Energy Services, LLC, a wholly owned subsidiary of SES Holdings (the “Borrower”), entered into a $300.0 million senior secured revolving credit facility (the “Credit Agreement”), by and among SES Holdings, as parent, the Borrower, certain of SES Holdings’ subsidiaries, as guarantors, each of the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent, issuing lender and swingline lender (the “Administrative Agent”). The Credit Agreement also has a sublimit of $40.0 million for letters of credit and a sublimit of $30.0 million for swingline loans. Subject to obtaining commitments from existing or new lenders, Select has the option to increase the maximum amount under the senior secured credit facility by $150.0 million during the first three years following the closing.
Upon closing, each outstanding option to purchase shares of Rockwater Class A common stock was converted into an option to acquire, on the same terms and conditions as were applicable to such Rockwater stock option immediately prior to the effective time of the corporate merger, the number of shares of Select Class A common stock determined by multiplying the number of shares of Rockwater Class A common stock subject to such Rockwater stock option as of immediately prior to the effective time of the corporate merger by the exchange ratio, at an exercise price per share of Select Class A
SELECT ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE 1—DESCRIPTION OF THE MERGERS AND MERGER-RELATED TRANSACTIONS (Continued)
common stock equal to the exercise price per share of Rockwater Class A common stock under such Rockwater stock option divided by the exchange ratio.
Additionally, upon closing, each outstanding restricted stock award of Rockwater Class A common stock that is outstanding immediately prior to the effective time of the corporate merger ceased to represent Rockwater Class A common stock and was converted into a new award of restricted shares, subject to the same terms and conditions as were applicable to such Rockwater restricted stock award prior to the effective time of the corporate merger, equal to the number of shares of Select Class A common stock determined by multiplying the number of shares of Rockwater Class A common stock subject to such Rockwater restricted stock award as of immediately prior to the effective time of the corporate merger by the exchange ratio. Subject to certain NYSE restrictions, the shares available under the Rockwater equity plan as of the effective time of the corporate merger (as appropriately adjusted to reflect the exchange ratio) may be used for post-transaction grants under the Select Energy Services, Inc. 2016 Equity Incentive Plan.
NOTE 2—BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combined financial statements have been prepared using and should be read in conjunction with the respective unaudited consolidated financial statements of both Select and Rockwater as of and for the nine months ended September 30, 2017, and the audited historical financial statements of Select and Rockwater as of and for the year ended December 31, 2016. The accompanying unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings due to operating efficiencies or revenue synergies that may result from the mergers.
The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2017 combines the consolidated statement of operations of Select and the consolidated statement of operations of Rockwater, as adjusted on a pro forma basis for the Rockwater 144A Offering and the Crescent Acquisition, for the nine months ended September 30, 2017, to reflect the mergers as if they had occurred on January 1, 2016. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2017 is further adjusted to give effect to the following equity transactions as if they had occurred on January 1, 2016: Select’s issuance of the Predecessor’s units; Select’s reorganization and the Select 144A Offering; the IPO; and the conversion of Select’s shares of Class A-1 common stock to shares of Class A common stock as a result of the effectiveness of a shelf registration statement registering such shares for resale.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016 combines the consolidated statement of operations of Select and the consolidated statement of operations of Rockwater, as adjusted on a pro forma basis for the Rockwater 144A Offering and the Crescent Acquisition, for the year ended December 31, 2016, to reflect the mergers as if they had occurred on January 1, 2016. The unaudited pro forma condensed combined statement of operations is further adjusted to give effect to the following equity transactions as if they had occurred on January 1, 2016: Select’s issuance of the Predecessor’s units; Select’s reorganization and the Select 144A Offering; the IPO; and the conversion of Select’s shares of Class A-1 common stock to
SELECT ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE 2—BASIS OF PRESENTATION (Continued)
shares of Class A common stock as a result of the effectiveness of a shelf registration statement registering such shares for resale.
The unaudited pro forma condensed combined balance sheet combines the consolidated balance sheet of Select and the consolidated balance sheet of Rockwater as of September 30, 2017 to reflect the mergers and merger-related transactions as if they had occurred on September 30, 2017.
The accompanying unaudited pro forma condensed combined financial statements of the combined company have been prepared in accordance with GAAP. The mergers were accounted for as a business combination, with Select treated as the “acquirer” and Rockwater treated as the “acquired” company for financial reporting purposes.
The unaudited consolidated condensed financial statements of Rockwater have been adjusted to reflect certain reclassifications in order to conform to Select’s financial statement presentation.
NOTE 3—UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENT
The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the allocation of the preliminary estimated purchase price to identifiable assets to be acquired and liabilities to be assumed, with the excess recorded as goodwill. The preliminary allocation of the consideration transferred is based on management’s estimates, judgments and assumptions. When determining the fair values of assets acquired, liabilities assumed and noncontrolling interests of the acquiree, management made significant estimates, judgments and assumptions. These estimates, judgments and assumptions are subject to change upon final valuation and should be treated as preliminary values. The purchase price allocation in these unaudited pro forma condensed combined financial statements is based upon an estimated purchase price of approximately $620.2 million and results in goodwill of approximately $248.3 million. Goodwill recognized is primarily attributable to synergies driven by expanding into new geographies and service offerings, strengthening existing service lines, acquiring an established, trained workforce, and expected cost reductions.
SELECT ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE 3—UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENT (Continued)
The purchase price was computed using the per share value of Select Class A common stock as of the closing. The following table summarizes the components of the estimated merger consideration reflected in the unaudited pro forma condensed combined financial information:
|
|
|
Preliminary Purchase |
| |
|
|
|
(in thousands, except share |
| |
|
Corporate Merger Consideration |
|
|
| |
|
Rockwater shares subject to exchange |
|
|
| |
|
Class A-1 common stock |
|
8,797,500 |
| |
|
Class A common stock(1) |
|
33,866,076 |
| |
|
Class B common stock |
|
5,693,258 |
| |
|
Total Rockwater shares subject to exchange as of September 30, 2017 |
|
48,356,834 |
| |
|
Exchange ratio |
|
0.7652 |
| |
|
Select shares issued: |
|
|
| |
|
Class A-2 common stock |
|
6,731,845 |
| |
|
Class A common stock(1) |
|
25,914,260 |
| |
|
Class B common stock |
|
4,356,477 |
| |
|
Total Select shares issued for consideration for the Corporate Merger |
|
37,002,582 |
| |
|
LLC Merger Consideration |
|
|
| |
|
Rockwater units subject to exchange as of September 30, 2017 |
|
5,693,258 |
| |
|
Exchange ratio |
|
0.7652 |
| |
|
Total SES Holdings units issued for consideration for the LLC Merger |
|
4,356,481 |
| |
|
Value per share of Select’s Class A common stock as of November 1, 2017(2) |
|
$ |
16.36 |
|
|
Total consideration for the Corporate Merger and LLC Merger |
|
|
| |
|
Class A-2 common stock |
|
$ |
110,133 |
|
|
Class A common stock |
|
423,957 |
| |
|
Class B common stock and SES Holdings common units |
|
71,272 |
| |
|
Fair value of previously held interest in Rockwater |
|
2,310 |
| |
|
Fair value of Rockwater share-based awards attributed to pre-acquisition service(3) |
|
12,529 |
| |
|
Total purchase consideration |
|
$ |
620,201 |
|
(1) Shares of Rockwater Class A common stock subject to exchange exclude 433,708 shares of Rockwater restricted stock that were converted into 331,871 shares of Select restricted stock as the consideration transferred related to these shares is included as fair value of Rockwater share-based awards attributed to pre-acquisition service.
(2) The value per share of Select’s Class A common stock has been used to approximate the value of shares of Class A-2 common stock and the value of the joint issuance of Class B common stock of Select and units of SES Holdings. Select’s management notes that shares of Class A-2 common stock will automatically convert into shares of Class A common stock upon the effectiveness of a shelf
SELECT ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE 3—UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENT (Continued)
registration statement registering such shares for resale. Additionally, each share of Class B common stock of Select and a corresponding unit of SES Holdings are exchangeable for a share of Class A common stock of Select. Due to the conversion and exchange features of these instruments, the value per share of Select’s Class A common stock was determined by Select’s management to be an appropriate proxy for the value of these instruments.
(3) The consideration transferred related to Select’s obligation to exchange Rockwater’s outstanding share-based awards was determined based on the portion of the fair value of the acquiree’s awards attributable to pre-acquisition service.
The total purchase consideration of $620.2 million was allocated to the pro forma assets acquired and liabilities assumed based on a preliminary estimate of their fair values as if the mergers had taken place on September 30, 2017.
The unaudited pro forma condensed combined balance sheet reflects the following adjustments:
3(a) Simultaneously upon closing, Select Energy Services, LLC entered into a debt commitment letter with Wells Fargo Bank, N.A. for a new senior secured credit facility to replace its current revolving credit facility. Select used cash on hand and borrowings under this new credit facility to pay off the then outstanding Rockwater debt and terminate the Rockwater credit facility. The following table summarizes the impact of these adjustments on the unaudited condensed combined pro forma balance sheet:
|
|
|
(in thousands) |
| |
|
Historical Select and Rockwater cash |
|
$ |
44,757 |
|
|
Plus: |
|
|
| |
|
Borrowings under new Select senior secured credit facility |
|
75,000 |
| |
|
Less: |
|
|
| |
|
Paydown of Rockwater senior secured credit facility |
|
(78,200 |
) | |
|
Payment of estimated debt issuance costs |
|
(3,442 |
) | |
|
Transaction costs incurred subsequent to 9/30/2017 |
|
(2,751 |
) | |
|
Pro forma Select cash |
|
$ |
35,364 |
|
|
Adjustments to expense historical Select and Rockwater debt issuance costs: |
|
|
| |
|
Prepaid expenses and other current assets |
|
$ |
(1,280 |
) |
|
Other assets |
|
(3,743 |
) | |
|
Adjustment to capitalize new debt issuance costs: |
|
|
| |
|
Other assets |
|
3,442 |
| |
3(b) Reflects adjustments to expense the payment of $2.8 million of related transaction costs incurred subsequent to September 30, 2017.
SELECT ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE 3—UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENT (Continued)
3(c) Adjustments were recorded to reflect the Rockwater assets acquired and liabilities assumed at fair value based on the preliminary allocation of purchase consideration as shown below:
|
|
|
(in thousands) |
| |
|
Total estimated consideration transferred |
|
$ |
620,201 |
|
|
Working capital |
|
$ |
142,022 |
|
|
Property and equipment(1) |
|
189,904 |
| |
|
Intangible assets(2) |
|
|
| |
|
Customer relationships |
|
87,031 |
| |
|
Trademarks and patents |
|
31,115 |
| |
|
Non-compete agreements |
|
3,808 |
| |
|
Other intangible assets |
|
97 |
| |
|
Other long-term assets |
|
920 |
| |
|
Long-term debt |
|
(78,200 |
) | |
|
Long-term capital lease obligations |
|
(1,638 |
) | |
|
Other long-term liabilities |
|
(3,135 |
) | |
|
Net assets acquired |
|
371,924 |
| |
|
Goodwill |
|
$ |
248,277 |
|
(1) The estimated useful lives for property and equipment range from 3 to 6 years.
(2) The estimated amortization periods for intangible assets are as follows: customer relationships—12 years, trademarks—indefinite-lived, patents—7 years, non-compete agreements—2 years, and other intangible assets—5 years.
3(d) As of September 30, 2017, Select owned 184,485 shares of Rockwater Class A common stock. In connection with the mergers, Select remeasured its previously held interest in Rockwater to fair value and the resulting gain of $1.2 million was included as a pro forma adjustment within retained earnings (accumulated deficit) of the unaudited pro forma condensed combined balance sheet.
|
|
|
(in thousands, |
| |
|
Shares of Rockwater Class A common stock previously held by Select |
|
184,485 |
| |
|
Exchange ratio |
|
0.7652 |
| |
|
Exchange-adjusted shares previously held |
|
141,168 |
| |
|
Value per share of Select’s Class A common stock as of November 1, 2017(1) |
|
$ |
16.36 |
|
|
Fair value of previously held interest in Rockwater |
|
2,310 |
| |
|
Less: book value of previously held interest in Rockwater |
|
1,100 |
| |
|
Gain on remeasurement of previously held interest |
|
$ |
1,210 |
|
(1) Refer to note in Purchase Consideration table above.
SELECT ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE 3—UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENT (Continued)
3(e) Reflects reclassification adjustments to separately present Select’s deferred tax liabilities of $0.5 million.
3(f) Reflects adjustments to deferred taxes to be recorded by Select as a result of the mergers. However, the tax benefits of anticipated deferred tax assets are only recorded as an asset to the extent that management assesses the utilization of such assets to be more likely than not. When the future utilization of some portion of deferred tax assets is determined not to be more likely than not, a valuation allowance is provided to reduce the recorded tax benefits from such assets. Select’s management’s assessment of additional pro forma deferred tax assets has resulted in the recording of a valuation allowance to fully offset deferred tax assets related to pro forma adjustments for the mergers. The changes resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017 are not included in these pro forma adjustments as of September 30, 2017.
3(g) Reflects adjustments to eliminate Rockwater’s historical equity in exchange for the issuance of 6,731,845 shares of Select Class A-2 common stock; 26,246,115 shares of Select Class A common stock; and 4,356,477 shares of Select Class B common stock.
NOTE 4—UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
The unaudited pro forma condensed combined statements of operations reflect the following adjustments:
Pro forma Rockwater adjustments
4(a) The following table presents the adjustments to Rockwater’s consolidated statements of operations to give pro forma effect to the Crescent Acquisition as if the acquisition had occurred on January 1, 2016, including an adjustment to eliminate the nonrecurring historical deferred income tax benefit of $14.4 million recognized upon assuming a deferred income tax liability and resulting in a reduction of the valuation allowance on Rockwater’s deferred income tax assets which was recognized as a deferred income tax benefit during the nine months ended September 30, 2017:
|
|
|
For the nine months |
|
For the year ended |
| ||
|
|
|
(in thousands) |
| ||||
|
Water solutions and related services revenue |
|
$ |
32,608 |
|
$ |
91,841 |
|
|
Water solutions and related services costs of revenue |
|
27,024 |
|
78,759 |
| ||
|
Depreciation and amortization—cost of revenue |
|
1,405 |
|
13,692 |
| ||
|
Selling, general, and administrative |
|
2,301 |
|
11,176 |
| ||
|
Depreciation and amortization—operating expense |
|
2,447 |
|
9,963 |
| ||
|
Loss (gain) on disposal of property and equipment |
|
(85 |
) |
136 |
| ||
|
Interest expense, net |
|
(530 |
) |
(2,006 |
) | ||
|
Tax expense |
|
(14,407 |
) |
(729 |
) | ||
|
Total pro forma impact on net income (loss) |
|
$ |
(15,421 |
) |
$ |
(24,620 |
) |
SELECT ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE 4—UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS (Continued)
4(b) The following table presents the adjustments to Rockwater’s consolidated statements of operations to give pro forma effect to the Rockwater 144A Offering, including the use of proceeds to repay then-outstanding debt as well as the elimination of nonrecurring transaction costs:
|
|
|
For the nine |
|
For the |
| ||
|
|
|
(in thousands) |
| ||||
|
Selling, general, and administrative |
|
$ |
(1,944 |
) |
$ |
— |
|
|
Interest expense, net |
|
865 |
|
5,689 |
| ||
|
Total pro forma impact on net income (loss) |
|
$ |
2,809 |
|
$ |
5,689 |
|
Pro forma adjustments for mergers and merger-related transactions
4(c) The following table presents the adjustments to the unaudited pro forma condensed combined statements of operations to give effect to the required sale:
|
|
|
For the nine |
|
For the |
| ||
|
|
|
(in thousands) |
| ||||
|
Water solutions and related services revenue |
|
$ |
(36,696 |
) |
$ |
(29,447 |
) |
|
Water solutions and related services costs of revenue |
|
(32,733 |
) |
(25,782 |
) | ||
|
Selling, general, and administrative |
|
(2,752 |
) |
(2,581 |
) | ||
|
Depreciation and amortization—operating expense |
|
(1,111 |
) |
(2,120 |
) | ||
|
Interest expense, net |
|
(1 |
) |
1 |
| ||
|
Tax expense |
|
35 |
|
32 |
| ||
|
Loss on sale of Crescent Consulting |
|
(64,205 |
) |
— |
| ||
|
Total pro forma impact on net income (loss) |
|
$ |
64,139 |
|
$ |
1,069 |
|
4(d) Reflects adjustments to increase depletion, depreciation and amortization (“DD&A”) directly attributable to costs of revenues of $3.6 million for the nine months ended September 30, 2017 and to reduce DD&A directly attributable to cost of revenues of $5.1 million for year ended December 31, 2016, after calculation of the estimated pro forma DD&A expense as a result of the fair value adjustments to Rockwater’s property, plant, and equipment and intangible assets.
4(e) Reflects adjustments to eliminate transaction expenses of $7.0 million recorded during the nine months ended September 30, 2017.
4(f) Reflects adjustments to increase DD&A related to operating expenses of $0.9 million for the nine months ended September 30, 2017 and to reduce DD&A related to operating expenses of $1.4 million for the year ended December 31, 2016, after calculation of the estimated pro forma
SELECT ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE 4—UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS (Continued)
DD&A expense as a result of the fair value adjustments to Rockwater’s property, plant, and equipment and intangible assets.
4(g) Reflects adjustments to eliminate interest expense of $2.3 million and $2.7 million for the nine months ended September 30, 2017 and year ended December 31, 2016, respectively, related to the paydown and elimination of Rockwater’s debt. Further, these adjustments reflect Select’s entry into and assumed drawdown of a new senior secured credit facility on a pro forma basis. Pro forma interest expense assumes a $267.8 million borrowing base under the new senior secured credit facility and the amortization of new debt issuance costs of $3.4 million. Pro forma interest expense assumes interest rates of 2.46% and 1.91% per annum for the nine months ended September 30, 2017 and year ended December 31, 2016, respectively. As a result of a 0.125% increase or decrease in interest rates, the impact on pro forma interest expense would be less than $0.1 million for the nine months ended September 30, 2017 and year ended December 31, 2016.
4(h) The pro forma adjustments within the unaudited pro forma condensed combined statements of operations related to the mergers and other pro forma adjustments related to Select’s equity transactions do not impact pro forma tax benefit (expense) as these changes to the net operating loss result in adjustments to the deferred tax asset which are offset in full by changes to the associated valuation allowance as management reduces deferred tax assets to amounts considered more likely than not to be realized. The historical blended statutory income tax rate of 37% in effect for the periods presented was assumed for these unaudited pro forma condensed combined statements of operations. The changes resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017 are not included in these pro forma adjustments.
4(i) Reflects adjustments to selling, general and administrative expenses of less than $0.1 million and $0.1 million for the nine months ended September 30, 2017 and year ended December 31, 2016, respectively, related to the amortization of unfavorable leases.
Other pro forma adjustments
4(j) Reflects adjustments to eliminate historical Select interest expense of $1.9 million and $16.1 million for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively, related to the paydown of historical outstanding debt as a result of giving pro forma effect to the above noted Select equity transactions during the periods presented.
4(k) Represents adjustments to noncontrolling interest of $(10.4) million and $152.6 million for the nine months ended September 30, 2017 and year ended December 31, 2016, respectively, as a result of adjustments to pro forma net (loss) income and adjustments related to the mergers and merger-related transactions as well as other equity-related pro forma adjustments.
4(l) Represents adjustments to eliminate the net loss attributable to the Predecessor to give pro forma effect to the Select 144A Offering.
SELECT ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE 4—UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS (Continued)
Adjustments to weighted average shares outstanding
4(m) Reflects adjustments to weighted average shares outstanding, including:
1. Adjustment to outstanding shares of Select Class A-1 common stock for the conversion of Select’s Class A-1 common stock to shares of Class A common stock as a result of the effectiveness of a shelf registration statement registering such shares for resale on a pro forma basis.
2. Adjustment to outstanding shares of Select Class A-2 common stock to reflect the issuance of shares of Class A-2 common stock to the existing shareholders of Rockwater Class A-1 common stock as a result of the mergers on a pro forma basis.
3. Adjustment to outstanding shares of Select Class A common stock for the nine months ended September 30, 2017 for issuances of shares of Class A common stock, including: the issuance of the Predecessor’s equity units, the IPO, and to the existing shareholders of Rockwater Class A common stock as a result of the mergers on a pro forma basis.
4. Adjustment to outstanding shares of Select Class A common stock for the year ended December 31, 2016 for issuances of shares of Class A common stock, including: the issuance of the Predecessor’s equity units, Select’s reorganization and the Select 144A Offering, the IPO, and to the existing shareholders of Rockwater Class A common stock as a result of the mergers on a pro forma basis.
5. Adjustment to outstanding shares of Select Class B common stock for the issuance of shares of Class B common stock to the existing shareholders of Rockwater Class B common stock as a result of the mergers on a pro forma basis.
NOTE 5—ITEMS NOT INCLUDED
The following impacts, which could be material, related to the mergers are not included or provided for in the unaudited pro forma condensed combined statements of operations or in the unaudited pro forma condensed combined balance sheet:
· Costs that may be incurred in connection with the integration of Select and Rockwater, including professional fees and consultants, would not be considered factually supportable.
· Other appropriate adjustments to the purchase price allocation which will be refined and recorded as more information becomes available.
The unaudited pro forma condensed combined statements of operations also do not reflect any revenue or cost synergies expected to be realized in connection with the mergers.