Company Quick10K Filing
Resolute Energy
Price37.52 EPS-1
Shares23 P/E-27
MCap869 P/FCF6
Net Debt707 EBIT-10
TEV1,576 TEV/EBIT-159
TTM 2018-09-30, in MM, except price, ratios
10-Q 2018-09-30 Filed 2018-11-05
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-03-12
10-Q 2017-09-30 Filed 2017-11-06
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-03
10-K 2016-12-31 Filed 2017-03-13
10-Q 2016-09-30 Filed 2016-11-07
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-09
10-K 2015-12-31 Filed 2016-03-07
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-05
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-10
10-Q 2013-09-30 Filed 2013-11-05
10-Q 2013-06-30 Filed 2013-08-05
10-Q 2013-03-31 Filed 2013-05-06
10-Q 2012-06-30 Filed 2012-08-06
10-Q 2012-03-31 Filed 2012-05-08
10-Q 2011-09-30 Filed 2011-11-07
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-15
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-12
10-Q 2010-03-31 Filed 2010-05-11
10-K 2009-12-31 Filed 2010-03-30
8-K 2019-03-01
8-K 2019-02-22
8-K 2019-02-14
8-K 2019-02-11
8-K 2018-11-19
8-K 2018-11-18
8-K 2018-10-11
8-K 2018-09-30
8-K 2018-09-14
8-K 2018-06-30
8-K 2018-06-19
8-K 2018-06-11
8-K 2018-05-15
8-K 2018-05-09
8-K 2018-04-05
8-K 2018-03-31
8-K 2018-03-16
8-K 2018-03-12
8-K 2018-02-26
8-K 2018-02-13
8-K 2018-02-08
8-K 2018-01-01

REN 10Q Quarterly Report

Note 1 - Organization and Nature of Business
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Note 3 - Acquisitions and Divestitures
Note 4 - Earnings per Share
Note 5 - Long Term Debt
Note 6 - Income Taxes
Note 7 - Stockholders' Equity and Long-Term Employee Incentive Plan
Note 8 - Asset Retirement Obligation
Note 9 - Derivative Instruments
Note 10 - Commitments and Contingencies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitive and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 ren-ex101_177.htm
EX-31.1 ren-ex311_201506307.htm
EX-31.2 ren-ex312_201506309.htm
EX-32.1 ren-ex321_201506306.htm

Resolute Energy Earnings 2015-06-30

Balance SheetIncome StatementCash Flow
1.71.30.90.40.0-0.42013201520172019
Assets, Equity
0.20.10.0-0.0-0.1-0.22013201520172019
Rev, G Profit, Net Income
0.30.20.0-0.1-0.3-0.42013201520172019
Ops, Inv, Fin

10-Q 1 ren-10q_20150630.htm 10-Q ren-10q_20150630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-34464

 

RESOLUTE ENERGY CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

27-0659371

(State or other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

1700 Lincoln Street, Suite 2800 Denver, CO

 

80203

(Address of Principal Executive Offices)

 

(Zip Code)

(303) 534-4600

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ    No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

¨

 

Accelerated filer

 

þ

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

 

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   ¨    No  þ

As of July 31, 2015, 77,511,951 shares of the Registrant’s $0.0001 par value Common Stock were outstanding.

 

 

 

 

 


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The use of any statements containing the words “anticipate,” “intend,” “believe,” “estimate,” “project,” “expect,” “plan,” “should” or similar expressions are intended to identify such statements. Forward-looking statements included in this report relate to, among other things, our production and cost guidance for 2015; anticipated capital expenditures in 2015 and the sources of such funding; availability of alternative oil purchase markets and oil takeaway systems; our financial condition and management of the Company in the current commodity price environment; future financial and operating results; our intention to evaluate and pursue de-levering transactions, including joint ventures and asset sales; liquidity and availability of capital including projections of free cash flow; additional future potential full cost ceiling impairments; future downward adjustments in estimated proved reserves as a result of low commodity prices; future borrowing base adjustments and the effect thereof; future production, reserve growth and decline rates; production rates, decline rates and estimated ultimate recoveries of oil and gas; our plans and expectations regarding our development activities including drilling, deepening, recompleting, fracing and refracing wells, the number of such potential projects, locations and productive intervals, and the resource potential of such projects; and the prospectivity of our properties and acreage. Although we believe that these statements are based upon reasonable current assumptions, no assurance can be given that the future results covered by the forward-looking statements will be achieved. Forward-looking statements can be subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. The forward-looking statements in this report are primarily, although not exclusively, located under the heading “Risk Factors.” All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement. Factors that could cause actual results to differ materially from our expectations include, among others, those factors referenced in the “Risk Factors” section of this report, if any, in our Annual Report on Form 10-K for the year ended December 31, 2014, and such things as:

·

volatility of oil and gas prices, including extended periods of depressed prices that would adversely affect our revenue, income, cash flow from operations and liquidity and the discovery, estimation and development of, and our ability to replace oil and gas reserves;

·

a lack of available capital and financing, including the capital needed to pursue our production and other plans for our properties, on acceptable terms, including as a result of a reduction in the borrowing base under our revolving credit facility;

·

risks related to our level of indebtedness;

·

our ability to fulfill our obligations under our revolving credit facility, secured term loan facility, the senior notes and any additional indebtedness we may incur;

·

constraints imposed on our business and operations by our revolving credit facility, senior notes and secured debt may limit our ability to execute our business strategy;

·

future write downs of the carrying value of our oil and gas properties;

·

our future cash flow, liquidity and financial position;

·

the success of our business and financial strategy, derivative strategies and plans;

·

risks associated with all of our Aneth Field oil production being purchased by a single customer and connected to such customer with a pipeline that we do not own or control;

·

inaccuracies in reserve estimates;

·

operational problems, or uninsured or underinsured losses affecting our operations or financial results;

·

the amount, nature and timing of our capital expenditures, including future development costs;

·

anticipated CO2 supply, which is currently sourced exclusively from Kinder Morgan CO2 Company, L.P.;

·

the effectiveness and results of our CO2 flood program at Aneth Field;

·

our relationship with the Navajo Nation, the local community in the area where we operate Aneth Field, and Navajo Nation Oil and Gas Company, as well as certain purchase rights held by Navajo Nation Oil and Gas Company;

·

the impact of any U.S. or global economic recession;

·

the success of the development plan for and production from our oil and gas properties;

·

the timing and amount of future production of oil and gas;

·

the completion, timing and success of drilling on our properties;


·

availability of, or delays related to, drilling, completion and production, personnel, supplies and equipment;

·

risks and uncertainties in the application of available horizontal drilling and completion techniques;

·

uncertainty surrounding occurrence and timing of identifying drilling locations and necessary capital to drill such locations;

·

our ability to fund and develop our estimated proved undeveloped reserves;

·

the effect of third party activities on our oil and gas operations, including our dependence on gas gathering and processing systems;

·

our operating costs and other expenses;

·

our success in marketing oil and gas;

·

the impact and costs related to compliance with, or changes in, laws or regulations governing our oil and gas operations, including changes in Navajo Nation laws, and the potential for increased regulation of drilling and completion techniques, underground injection or fracing operations;

·

our relationship with the local communities in the areas where we operate;

·

the availability of water and our ability to adequately treat and dispose of water while and after drilling and completing wells;

·

acquisitions and other business opportunities (or lack thereof) that may be presented to and pursued by us, and the risk that any opportunity currently being pursued will fail to consummate or encounter material complications;

·

our ability to achieve the growth and benefits we expect from our acquisitions;

·

risks associated with unanticipated liabilities assumed, or title, environmental or other problems resulting from, our acquisitions;

·

the concentration of our producing properties in a limited number of geographic areas;

·

potential changes to regulations affecting derivatives instruments;

·

environmental liabilities under existing or future laws and regulations;

·

the impact of weather and the occurrence of disasters, such as fires, explosions, floods and other events and natural disasters;

·

competition in the oil and gas industry;

·

developments in oil and gas producing countries;

·

loss of senior management or key technical personnel;

·

timing of issuance of permits and rights of way, including the effects of any government shut-downs;

·

potential power supply limitations in the electrical infrastructure serving Aneth Field;

·

timing of installation of gathering infrastructure in areas of new exploration and development;

·

potential breakdown of equipment and machinery relating to the Aneth compression facility;

·

losses possible from pending or future litigation;

·

risks related to our common stock including potential delisting from the NYSE, complication of “penny stock” rules and potential declines in our stock prices and dilution to stockholders;

·

risk factors discussed or referenced in this report; and

·

other factors, many of which are beyond our control.

Additionally, the Securities and Exchange Commission (“SEC”) requires oil and gas companies, in filings made with the SEC, to disclose proved reserves, which are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, under existing economic conditions, operating methods and governmental regulations. The SEC permits the optional disclosure of “probable” and “possible” reserves. From time to time, we may elect to disclose probable reserves and possible reserves, excluding their valuation, in our SEC filings, press releases and investor presentations. The SEC defines “probable” reserves as “those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are likely as not to be recovered.” The SEC defines “possible” reserves as “those additional reserves that are less certain to be recovered than probable reserves.” The Company


applies these definitions when estimating probable and possible reserves. Statements of reserves are only estimates and may not correspond to the ultimate quantities of oil and gas recovered. Any reserves estimates or potential resources disclosed in our public filings, press releases and investor presentations that are not specifically designated as being estimates of proved reserves may include estimated reserves not necessarily calculated in accordance with, or contemplated by, the SEC’s reserves reporting guidelines.

The SEC’s rules prohibit us from including resource estimates in our public filings with the SEC. Our potential resource estimations include estimates of hydrocarbon quantities for (i) new areas for which we do not have sufficient information to date to classify as proved, probable or possible reserves, (ii) other areas to take into account the level of certainty of recovery of the resources and (iii) uneconomic proved, probable or possible reserves. Potential resource estimates do not take into account the certainty of resource recovery and are therefore not indicative of the expected future recovery and should not be relied upon for such purpose. Potential resources might never be recovered and are contingent on exploration success, technical improvements in drilling access, commerciality and other factors. In our press releases and investor presentations, we sometimes include estimates of quantities of oil and gas using certain terms, such as “resource,” “resource potential,” “EUR,” “oil in place,” or other descriptions of volumes of reserves, which terms include quantities of oil and gas that may not meet the SEC definition of proved, probable and possible reserves. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to substantially greater risk of being recovered by Resolute. The Company believes its potential resource estimates are reasonable, but such estimates have not been reviewed by independent engineers. Furthermore, estimates of potential resources may change significantly as development provides additional data, and actual quantities that are ultimately recovered may differ substantially from prior estimates.

Finally, 24 hour peak IP rates and 30 day peak IP rates for both our wells and for those wells that are operated by others are limited data points in each well’s productive history and not necessarily indicative or predictive of future production rates, EUR or economic rates of return from such wells and should not be relied upon for such purpose. Equally, the way we calculate and report 24 hour and 30 day peak IP rates and the methodologies employed by others may not be consistent, thus the values reported may not be directly and meaningfully comparable.

You are urged to consider closely the disclosure in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2014, in particular the factors described under “Risk Factors.”

 

 

 


TABLE OF CONTENTS

 

PART I -

  

FINANCIAL INFORMATION

  

 

 

 

 

 

 

Item 1.

  

Financial Statements

  

1

 

 

 

 

 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

17

 

 

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

27

 

 

 

 

 

Item 4.

  

Controls and Procedures

  

29

 

 

 

 

 

PART II -

  

OTHER INFORMATION

  

 

 

 

 

 

 

Item 1.

  

Legal Proceedings

  

30

 

 

 

 

 

Item 1 A.

  

Risk Factors

  

30

 

 

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

30

 

 

 

 

 

Item 3.

  

Defaults Upon Senior Securities

  

30

 

 

 

 

 

Item 4.

  

Mine Safety Disclosures

  

30

 

 

 

 

 

Item 5.

  

Other Information

  

30

 

 

 

 

 

Item 6.

  

Exhibits

  

31

 

 

 

 

 

Signatures

  

32

 

 

 


RESOLUTE ENERGY CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share amounts)

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

329

 

 

$

4,352

 

Accounts receivable

 

43,173

 

 

 

57,909

 

Derivative instruments

 

53,094

 

 

 

72,753

 

Prepaid expenses and other current assets

 

4,976

 

 

 

1,858

 

Total current assets

 

101,572

 

 

 

136,872

 

Property and equipment, at cost:

 

 

 

 

 

 

 

Oil and gas properties, full cost method of accounting

 

 

 

 

 

 

 

Unproved

 

224,886

 

 

 

270,375

 

Proved

 

1,744,808

 

 

 

1,706,847

 

Other property and equipment

 

10,042

 

 

 

9,994

 

Accumulated depletion, depreciation and amortization

 

(1,231,283

)

 

 

(744,220

)

Net property and equipment

 

748,453

 

 

 

1,242,996

 

Other assets:

 

 

 

 

 

 

 

Restricted cash

 

21,495

 

 

 

19,858

 

Deferred income taxes

 

17,976

 

 

 

869

 

Derivative instruments

 

21,142

 

 

 

39,799

 

Other assets

 

155

 

 

 

182

 

Total assets

$

910,793

 

 

$

1,440,576

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

7,991

 

 

$

25,781

 

Accrued expenses

 

45,531

 

 

 

65,799

 

Accrued interest payable

 

5,795

 

 

 

5,739

 

Asset retirement obligations

 

806

 

 

 

327

 

Deferred income taxes

 

17,976

 

 

 

23,223

 

Secured term loan facility

 

2,000

 

 

 

1,494

 

Total current liabilities

 

80,099

 

 

 

122,363

 

Long term liabilities:

 

 

 

 

 

 

 

Revolving credit facility

 

157,407

 

 

 

231,936

 

Secured term loan facility

 

180,362

 

 

 

133,199

 

Senior notes

 

395,462

 

 

 

394,807

 

Asset retirement obligations

 

30,925

 

 

 

31,013

 

Other long term liabilities

 

1,369

 

 

 

640

 

Total liabilities

 

845,624

 

 

 

913,958

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding

 

 

 

 

 

Common stock, $0.0001 par value; 225,000,000 shares authorized; issued and outstanding

   77,538,199 and 77,634,737 shares at June 30, 2015 and December 31, 2014, respectively

 

8

 

 

 

8

 

Additional paid-in capital

 

652,618

 

 

 

646,738

 

Accumulated deficit

 

(587,457

)

 

 

(120,128

)

Total stockholders’ equity

 

65,169

 

 

 

526,618

 

Total liabilities and stockholders’ equity

$

910,793

 

 

$

1,440,576

 

 

See notes to condensed consolidated financial statements

 

 

 

-1-


RESOLUTE ENERGY CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

$

43,539

 

 

$

79,920

 

 

$

79,883

 

 

$

160,525

 

Gas

 

3,416

 

 

 

6,175

 

 

 

7,230

 

 

 

14,161

 

Natural gas liquids

 

1,441

 

 

 

2,364

 

 

 

2,416

 

 

 

4,651

 

Total revenue

 

48,396

 

 

 

88,459

 

 

 

89,529

 

 

 

179,337

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating

 

19,416

 

 

 

29,390

 

 

 

39,772

 

 

 

58,044

 

Production and ad valorem taxes

 

6,396

 

 

 

10,015

 

 

 

12,286

 

 

 

20,613

 

Depletion, depreciation, amortization, and asset retirement

   obligation accretion

 

26,602

 

 

 

31,625

 

 

 

58,514

 

 

 

63,533

 

Impairment of proved oil and gas properties

 

210,000

 

 

 

 

 

 

430,000

 

 

 

 

General and administrative

 

7,530

 

 

 

10,497

 

 

 

14,841

 

 

 

19,140

 

Restricted cash awards

 

347

 

 

 

 

 

 

347

 

 

 

 

Total operating expenses

 

270,291

 

 

 

81,527

 

 

 

555,760

 

 

 

161,330

 

Income (loss) from operations

 

(221,895

)

 

 

6,932

 

 

 

(466,231

)

 

 

18,007

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(15,854

)

 

 

(7,577

)

 

 

(27,011

)

 

 

(15,373

)

Commodity derivative instruments gain (loss)

 

(21,266

)

 

 

(22,164

)

 

 

3,644

 

 

 

(30,098

)

Other income (loss)

 

(92

)

 

 

8

 

 

 

(85

)

 

 

9

 

Total other expense

 

(37,212

)

 

 

(29,733

)

 

 

(23,452

)

 

 

(45,462

)

Loss before income taxes

 

(259,107

)

 

 

(22,801

)

 

 

(489,683

)

 

 

(27,455

)

Income tax benefit

 

 

 

 

6,681

 

 

 

22,354

 

 

 

7,787

 

Net loss

$

(259,107

)

 

$

(16,120

)

 

$

(467,329

)

 

$

(19,668

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

$

(3.46

)

 

$

(0.22

)

 

$

(6.26

)

 

$

(0.27

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

74,826

 

 

 

73,843

 

 

 

74,612

 

 

 

73,692

 

 

See notes to condensed consolidated financial statements

 

 

 

-2-


RESOLUTE ENERGY CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of January 1, 2015

 

77,635

 

 

$

8

 

 

$

646,738

 

 

$

(120,128

)

 

$

526,618

 

Issuance of stock, restricted stock and share-based compensation

 

160

 

 

 

 

 

 

6,036

 

 

 

 

 

 

6,036

 

Redemption of restricted stock for employee income tax and

  restricted stock forfeitures

 

(257

)

 

 

 

 

 

(156

)

 

 

 

 

 

(156

)

Net loss

 

 

 

 

 

 

 

 

 

 

(467,329

)

 

 

(467,329

)

Balance as of June 30, 2015

 

77,538

 

 

$

8

 

 

$

652,618

 

 

$

(587,457

)

 

$

65,169

 

 

See notes to condensed consolidated financial statements

 

 

 

-3-


RESOLUTE ENERGY CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

Six Months Ended June 30,

 

 

2015

 

 

2014

 

Operating activities:

 

 

 

 

 

 

 

Net loss

$

(467,329

)

 

$

(19,668

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depletion, depreciation, amortization and asset retirement obligation accretion

 

58,514

 

 

 

63,533

 

Impairment of proved oil and gas properties

 

430,000

 

 

 

 

Amortization of deferred financing costs and long-term debt premium and discount

 

3,114

 

 

 

1,188

 

Share-based compensation

 

5,962

 

 

 

7,342

 

Commodity derivative instruments loss (gain)

 

(3,644

)

 

 

30,098

 

Commodity derivative settlement gains (losses)

 

42,178

 

 

 

(12,053

)

Deferred income tax benefit

 

(22,354

)

 

 

(7,787

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

14,812

 

 

 

28,634

 

Other current assets

 

(983

)

 

 

258

 

Accounts payable and accrued expenses

 

(19,933

)

 

 

(858

)

Accrued interest payable

 

56

 

 

 

1,045

 

Net cash provided by operating activities

 

40,393

 

 

 

91,732

 

Investing activities:

 

 

 

 

 

 

 

Oil and gas exploration and development expenditures

 

(50,137

)

 

 

(90,502

)

Proceeds from sale of oil and gas properties and other

 

40,654

 

 

 

4,728

 

Purchase of other property and equipment

 

(48

)

 

 

(1,710

)

Restricted cash

 

(1,637

)

 

 

(1,638

)

Other

 

27

 

 

 

152

 

Net cash used in investing activities

 

(11,141

)

 

 

(88,970

)

Financing activities:

 

 

 

 

 

 

 

Proceeds from bank borrowings

 

104,000

 

 

 

227,000

 

Repayments of borrowings

 

(179,875

)

 

 

(227,000

)

Proceeds from issuance of term loans

 

46,500

 

 

 

Payment of financing costs

 

(3,744

)

 

 

Redemption of restricted stock for employee income taxes

 

(156

)

 

 

(1,546

)

Net cash used in financing activities

 

(33,275

)

 

 

(1,546

)

Net increase (decrease) in cash and cash equivalents

 

(4,023

)

 

 

1,216

 

Cash and cash equivalents at beginning of period

 

4,352

 

 

 

19

 

Cash and cash equivalents at end of period

$

329

 

 

$

1,235

 

 

See notes to condensed consolidated financial statements

 

 

 

-4-


RESOLUTE ENERGY CORPORATION

Notes to Condensed Consolidated Financial Statements

 

Note 1 — Organization and Nature of Business

Resolute Energy Corporation (“Resolute” or the “Company”), is an independent oil and gas company engaged in the exploitation, development, exploration for and acquisition of oil and gas properties. The Company’s asset base is comprised primarily of properties in Aneth Field located in the Paradox Basin in southeast Utah (the “Aneth Field Properties” or “Aneth Field”), the Permian Basin in west Texas and southeast New Mexico and the Big Horn and Powder River basins in Wyoming. The Company conducts all of its activities in the United States of America.

Resolute Energy Corporation, the stand-alone parent entity, has insignificant independent assets and no operations. There are no restrictions on the Company’s ability to obtain cash dividends or other distributions of funds from its subsidiaries, except those imposed by applicable law.

 

Note 2 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include Resolute and its subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and Regulation S-X for interim financial reporting. Except as disclosed herein, there has been no material change in our basis of presentation from the information disclosed in the notes to Resolute’s consolidated financial statements for the year ended December 31, 2014. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation of the interim financial information have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. All significant intercompany transactions have been eliminated upon consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation.

In connection with the preparation of the condensed consolidated financial statements, Resolute evaluated subsequent events that occurred after the balance sheet date, through the date of filing.

Significant Accounting Policies

The significant accounting policies followed by Resolute are set forth in Resolute’s consolidated financial statements for the year ended December 31, 2014. These unaudited condensed consolidated financial statements are to be read in conjunction with the consolidated financial statements appearing in Resolute’s Annual Report on Form 10-K and related notes for the year ended December 31, 2014.

Recent Accounting Pronouncements

In April 2015, the FASB issued new authoritative guidance related to the presentation of deferred financing costs. This authoritative guidance is effective for the annual period beginning after December 15, 2015, including interim reporting periods within that reporting period. The new guidance prescribes that the application be applied retrospectively.  The Company elected to early-adopt this guidance in the first quarter of 2015. Accordingly, the Company has reclassified all deferred financing costs to a direct deduction from the carrying amounts of debt for the balance sheets at June 30, 2015, and December 31, 2014 (See Note 5 to the condensed consolidated financial statements).

In August 2014, the FASB issued new authoritative accounting guidance related to management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern. This authoritative accounting guidance is effective for the annual period beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

Assumptions, Judgments and Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make various assumptions, judgments and estimates to determine the reported amounts of assets, liabilities, revenue and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events. Accordingly, actual results could differ from amounts previously established.

-5-


Significant estimates with regard to the condensed consolidated financial statements include proved oil and gas reserve volumes and the related present value of estimated future net cash flows used in the ceiling test applied to capitalized oil and gas properties; asset retirement obligations; valuation of derivative assets and liabilities; share-based compensation expense; depletion, depreciation and amortization; accrued liabilities; revenue and related receivables and income taxes.

Oil and Gas Properties

The Company uses the full cost method of accounting for oil and gas operations. Accounting rules require Resolute to perform a quarterly “ceiling test” calculation to test its oil and gas properties for possible impairment. The primary components affecting this calculation are commodity prices, reserve quantities added and produced, overall exploration and development costs and depletion expense. If the net capitalized cost of the Company’s oil and gas properties subject to amortization (the “carrying value”) exceeds the ceiling limitation, the excess is charged to expense. The ceiling limitation is equal to the sum of the present value discounted at 10% of estimated future net cash flows from proved reserves, the cost of properties not being amortized, the lower of cost or estimated fair value of unproven properties included in the costs being amortized, and all related tax effects.

For the three and six months ended June 30, 2015, the Company recorded a non-cash impairment of the carrying value of its oil and gas properties of $210 million and $430 million, respectively, as a result of the ceiling test limitation. The Company recorded no ceiling test impairment during the comparable prior year periods. If in future periods a negative impact continues on one or more of the components of the calculation, including market prices of oil and gas (based on a trailing twelve-month unweighted average of the oil and natural gas prices in effect on the first day of each month), differentials from posted prices, future drilling and capital plans, operating costs or expected production, the Company may incur further full cost ceiling impairment related to its oil and gas properties in such periods.

 

Note 3 — Acquisitions and Divestitures

Sale of Howard and Martin County Properties

During the period ended June 30, 2015, the Company sold its Howard and Martin County properties in the Permian Basin for approximately $42 million. A portion of the purchase price ($2.1 million) has been escrowed and classified as an other current asset at June 30, 2015, in connection with post-closing indemnification rights under the purchase and sale agreement. The sale was consummated on May 1, 2015 with an effective date of March 1, 2015.

 

Note 4 — Earnings per Share

The Company computes basic net income (loss) per share using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of shares of common stock and, if dilutive, potential shares of common stock outstanding during the period. Potentially dilutive shares consist of the incremental shares and options issuable under the Company’s 2009 Performance Incentive Plan (the “Incentive Plan”). The treasury stock method is used to measure the dilutive impact of potentially dilutive shares.

The following table details the potential weighted average dilutive and anti-dilutive securities for the periods presented (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Potential dilutive restricted stock

 

1,630

 

 

 

3,598

 

 

 

1,936

 

 

 

3,214

 

Anti-dilutive securities

 

4,663

 

 

 

36,639

 

 

 

4,384

 

 

 

36,255

 

 

-6-


The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the periods presented (in thousands, except per share amounts):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net loss

$

(259,107

)

 

$

(16,120

)

 

$

(467,329

)

 

$

(19,668

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

74,826

 

 

 

73,843

 

 

 

74,612

 

 

 

73,692

 

Add: dilutive effect of non-vested restricted stock

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

74,826

 

 

 

73,843

 

 

 

74,612

 

 

 

73,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

$

(3.46

)

 

$

(0.22

)

 

$

(6.26

)

 

$

(0.27

)

 

 

Note 5 — Long Term Debt

As of the dates indicated, the Company’s long-term debt consisted of the following (in thousands):

 

 

Principal

 

 

Unamortized premium/

(discount)

 

 

Unamortized deferred financing costs

 

 

June 30, 2015

 

Revolving credit facility

$

160,000

 

 

$

 

 

$

(2,593

)

 

$

157,407

 

Secured term loan facility

 

199,125

 

 

 

(12,762

)

 

 

(4,001

)

 

 

182,362

 

8.50% senior notes

 

400,000

 

 

 

1,349

 

 

 

(5,887

)

 

 

395,462

 

Total

$

759,125

 

 

$

(11,413

)

 

$

(12,481

)

 

$

735,231

 

Current portion of secured term loan facility

 

 

 

 

 

 

 

 

 

 

 

 

 

2,000

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

$

733,231

 

 

 

Principal

 

 

Unamortized premium/

(discount)

 

 

Unamortized deferred financing costs

 

 

December 31, 2014

 

Revolving credit facility

$

235,000

 

 

$

 

 

$

(3,064

)

 

$

231,936

 

Secured term loan facility

 

150,000

 

 

 

(10,500

)

 

 

(4,807

)

 

 

134,693

 

8.50% senior notes

 

400,000

 

 

 

1,461

 

 

 

(6,654

)

 

 

394,807

 

Total

$

785,000

 

 

$

(9,039

)

 

$

(14,525

)

 

$

761,436

 

Current portion of secured term loan facility

 

 

 

 

 

 

 

 

 

 

 

 

 

1,494

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

$

759,942

 

For the three months ended June 30, 2015 and 2014, the Company incurred interest expense on long-term debt of $15.9 million and $7.6 million, respectively. For the six months ended June 30, 2015 and 2014, the Company incurred interest expense on long-term debt of $27.0 million and $15.4 million, respectively. The Company capitalized $0.5 million and $4.0 million of interest expense during the three months ended June 30, 2015 and 2014, respectively. The Company capitalized $5.0 million and $7.8 million of interest expense during the six months ended June 30, 2015 and 2014, respectively.

Revolving Credit Facility

Resolute’s revolving credit facility is with a syndicate of banks led by Wells Fargo Bank, National Association, as Administrative Agent, and Bank of Montreal, as Syndication Agent (the “Revolving Credit Facility”) with Resolute as the borrower. The Revolving Credit Facility specifies a maximum borrowing base as determined by the lenders. The determination of the borrowing base takes into consideration the estimated value of Resolute’s oil and gas properties in accordance with the lenders’ customary practices for oil and gas loans. The borrowing base is redetermined semi-annually, and the amount available for borrowing could be increased or decreased as a result of such redeterminations. Under certain circumstances, either Resolute or the lenders may request an interim redetermination. The Revolving Credit Facility matures in March 2018.

In December 2014 Resolute entered into the Eleventh Amendment to the amended and restated Revolving Credit Facility agreement that set the borrowing base at $330 million, eliminated the total debt-to-EBITDA covenant and conformed the covenant package in the Revolving Credit Facility to that of the Secured Term Loan Facility (defined below). The covenants require, among other things, maintenance of certain ratios, measured on a quarterly basis, as follows: (i) secured debt to EBITDA of no more than 3.5

-7-


to 1.0, (ii) PV-10 of total proved reserves to total secured debt of at least 1.1 to 1.0, rising over time to 1.5 to 1.0, and (iii) PV-10 of proved developed reserves to total secured debt of at least 1.0 to 1.0. Our Revolving Credit Facility and our Secured Term Loan Facility also require us to enter into derivative agreements covering at least 70% of our anticipated production from proved properties on a rolling twenty four month basis, but prohibit us from entering into derivative arrangements for more than (i) 85% of our anticipated production from proved properties in the next two years and (ii) the greater of 75% of our anticipated production from proved properties or 85% of our production from projected proved developed producing reserves using economic parameters specified in our Revolving Credit Facility.

In April 2015 Resolute entered into the Twelfth Amendment to the amended and restated Revolving Credit Facility agreement which set the borrowing base at $275 million effective April 15, 2015, and included a provision for the sale of the oil and gas properties in Howard and Martin counties, Texas (which was consummated May 1, 2015), subject to a $5 million automatic reduction in the borrowing base upon the closing of such sale. Furthermore, the amendment extended the deadline for incurring up to $50 million of additional loans under the Secured Term Loan Agreement (discussed below) to May 31, 2015, amended the claw back provision related thereto such that the borrowing base was reduced automatically upon such incurrence by an amount equal to 20% of the principal amount of such additional loans (rather than the 90% claw back provision previously in effect) and modified the maximum first lien leverage ratio covenant so that the ratio level will not step down to 2.0 to 1.0 until the aggregate outstanding principal balance of the second lien debt exceeds $200 million (rather than when it equals or exceeds $200 million).

In May 2015 Resolute borrowed an additional $50 million of second lien term debt (discussed below). As a result, the Company’s borrowing base under the Revolving Credit Facility was automatically reduced by $10 million to $260 million.

Each base rate borrowing under the Revolving Credit Facility accrues interest at either (a) the London Interbank Offered Rate (“LIBOR”), plus a margin which varies from 1.50% to 2.50% or (b) the alternative Base Rate defined as the greater of (i) the Administrative Agent’s Prime Rate (ii) the Federal Funds effective Rate plus 0.5% or (iii) an adjusted London Interbank Offered Rate plus a margin which ranges from 0.50% to 1.50%. Each such margin is based on the level of utilization under the borrowing base.

As of June 30, 2015, outstanding borrowings under the Revolving Credit Facility were $160 million, under a borrowing base of $260 million. The borrowing base availability had been reduced by $3.1 million in conjunction with letters of credit issued at June 30, 2015. To the extent that the borrowing base, as adjusted from time to time, exceeds the outstanding balance, no repayments of principal are required prior to maturity. However, should the borrowing base be set at a level below the outstanding balance, Resolute would be required to eliminate that excess over 120 days following that determination. The Revolving Credit Facility is guaranteed by all of Resolute’s subsidiaries and is collateralized by substantially all of the proved oil and gas assets of Resolute Aneth, LLC, Resolute Wyoming, Inc. and Resolute Natural Resources Southwest, LLC, which are wholly-owned subsidiaries of the Company.

As of June 30, 2015, the weighted average interest rate on the outstanding balance under the Revolving Credit Facility was 2.19%. The fair value of the Revolving Credit Facility approximates its principal amount because the interest rate of the Revolving Credit Facility is variable over the term of the loan.

The Revolving Credit Facility includes customary terms and covenants that place limitations on certain types of activities, the payment of dividends, and require satisfaction of certain financial tests. Resolute was in compliance with all material terms and covenants of the Revolving Credit Facility at June 30, 2015.

Secured Term Loan Agreement

On December 30, 2014, Resolute and certain of its subsidiaries, as guarantors, entered into a second lien Secured Term Loan Agreement with Bank of Montreal, as administrative agent, and the lenders party thereto, pursuant to which the Company borrowed $150 million (the “Secured Term Loan Facility”). Initial funding of the Secured Term Loan Facility occurred on December 31, 2014, with net proceeds of approximately $135 million after payment of transaction-related fees, expenses and discounts. Net proceeds were used to repay amounts outstanding under the Revolving Credit Facility. The Secured Term Loan Facility will mature on the date that is six months after the maturity of the Company’s existing Revolving Credit Facility, but in no event later than November 1, 2019.

 

On May 18, 2015, Resolute and certain of its subsidiaries, as guarantors, entered into an Amendment to the Secured Term Loan Agreement and Increased Facility Activation Notice-Incremental Term Loans (the “Amendment”) with Bank of Montreal, as administrative agent, and the lenders party thereto, pursuant to which the Company borrowed an additional $50 million of second lien term debt (the “Incremental Term Loans”) under its Secured Term Loan Agreement dated December 30, 2014.  Funding of the Incremental Term Loans occurred on May 19, 2015.  The Incremental Term Loans have the same terms as the existing second lien borrowings under the Secured Term Loan Agreement, adjusted for the date of the closing. The $50 million of Incremental Term Loans was placed with the same lenders that participated in the initial $150 million second lien closing in December 2014. Net proceeds from the Incremental Term Loans of approximately $46 million after payment of transaction-related fees, expenses and discounts, were used to repay amounts outstanding under the Revolving Credit Facility.

-8-


  

Obligations under the Secured Term Loan Facility are guaranteed by certain of the Company’s subsidiaries and secured by second priority liens on substantially all of the assets of the Company and its subsidiaries that serve as collateral under the Revolving Credit Facility.

Borrowings under the Secured Term Loan Facility will generally bear interest at adjusted LIBOR plus 10%, with a 1% LIBOR floor. The covenants in the Secured Term Loan Facility require, among other things, maintenance of certain ratios, measured on a quarterly basis, as follows: (i) secured debt to EBITDA of no more than 3.5 to 1.0, (ii) PV-10 of total proved reserves to total secured debt of at least 1.1 to 1.0, rising over time to 1.5 to 1.0, and (iii) PV-10 of proved developed reserves to total secured debt of at least 1.0 to 1.0.

The Company may prepay all or a portion of the Secured Term Loan Facility at any time. The Secured Term Loan Facility is subject to mandatory prepayments of 75% of the net cash proceeds from asset sales after any mandatory repayment of first lien debt, subject to a limited right to reinvest proceeds in oil and gas activities. Prepayments made out of proceeds from asset sales are not subject to prepayment premiums. Mandatory repayments are required of 100% of the net cash proceeds of certain debt or equity issuances. Such prepayments are subject to a premium of between 10% declining to 2% during the first 36 months after closing. To the extent not otherwise achieved, aggregate repayments that substantially pay off principal amounts under the second lien facility shall include an additional payment sufficient to ensure that the lenders achieve a 1.25 to 1.0 minimum multiple of their invested capital. However, in connection with the Twelfth Amendment to the amended and restated Revolving Credit Facility agreement described above, the mandatory prepayment of Secured Term Loan Facility debt under the Howard and Martin County properties sale was waived.

Due to the lack of an active market, quoted market prices for the Company’s Secured Term Loan Facility or similar debt are not available.  The Company used valuation techniques that relied on unobservable inputs, current information including LIBOR interest rates and the specific terms of the Secured Term Loan Facility to estimate the fair value (a Level 3 fair value measurement).  The fair value of the Company’s Secured Term Loan Facility at June 30, 2015, was estimated to be $186.4 million, which approximates its carrying value (as defined as principal less the unamortized discount).

Senior Notes

In April 2012 the Company consummated a private placement of senior notes with a principal amount of $250 million, and in December 2012 placed a follow-on issuance of senior notes with a principal amount of $150 million (the “Senior Notes”). The Senior Notes are due May 1, 2020, and bear an annual interest rate of 8.50% with the interest on the Senior Notes payable semiannually in cash on May 1 and November 1 of each year.

The Senior Notes were issued under an Indenture (the “Indenture”) among the Company, the Company’s existing subsidiaries (the “Guarantors”) and U.S. Bank National Association, as trustee (the “Trustee”) in a private transaction not subject to the registration requirements of the Securities Act of 1933. In March 2013, the Company registered the Senior Notes with the Securities and Exchange Commission by filing an amendment to the registration statement on Form S-4 enabling holders of the Senior Notes to exchange the privately placed Senior Notes for publically registered Senior Notes with substantially identical terms. The Indenture contains affirmative and negative covenants that, among other things, limit the Company’s and the Guarantors’ ability to make investments, incur additional indebtedness or issue preferred stock, create liens, sell assets, enter into agreements that restrict dividends or other payments by restricted subsidiaries, consolidate, merge or transfer all or substantially all of the assets of the Company, engage in transactions with the Company’s affiliates, pay dividends or make other distributions on capital stock or prepay subordinated indebtedness and create unrestricted subsidiaries. The Indenture also contains customary events of default. Upon occurrence of events of default arising from certain events of bankruptcy or insolvency, the Senior Notes shall become due and payable immediately without any declaration or other act of the Trustee or the holders of the Senior Notes. Upon the occurrence of certain other events of default, the Trustee or the holders of the Senior Notes may declare all outstanding Senior Notes to be due and payable immediately. The Company was in compliance with all financial covenants under its Senior Notes as of June 30, 2015.

The Senior Notes are general unsecured senior obligations of the Company and guaranteed on a senior unsecured basis by the Guarantors. The Senior Notes rank equally in right of payment with all existing and future senior indebtedness of the Company, will be subordinated in right of payment to all existing and future senior secured indebtedness of the Guarantors, will rank senior in right of payment to any future subordinated indebtedness of the Company and will be fully and unconditionally guaranteed by the Guarantors on a senior basis.

The Senior Notes are redeemable by the Company on or after May 1, 2016, on not less than 30 or more than 60 days’ prior notice, at redemption prices set forth in the Indenture. The Senior Notes may be redeemed at any time prior to May 1, 2016, at the option of the Company at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed plus the applicable premium, and accrued and unpaid interest and additional interest, if any, to the applicable redemption date as set forth in the Indenture. If a change of control occurs, each holder of the Senior Notes will have the right to require that the Company purchase all

-9-


of such holder’s Senior Notes in an amount equal to 101% of the principal of such Senior Notes, plus accrued and unpaid interest, if any, to the date of the purchase.

The fair value of the Senior Notes at June 30, 2015, was estimated to be $242.5 million based upon data from independent market makers (Level 2 fair value measurement).

 

Note 6 — Income Taxes

Income tax benefit (expense) during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income (loss), plus any significant unusual or infrequently occurring items that are recorded in the interim period. The provision for income taxes for the three and six months ended June 30, 2015 and 2014, differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of 35% to income before income taxes. The lower effective rate in 2015 relates to the valuation allowance placed on the net deferred tax asset in 2015, in addition to state income taxes and estimated permanent differences.

The following table summarizes the components of the provision for income taxes (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Current income tax benefit (expense)

$

 

 

$

 

 

$

 

 

$

 

Deferred income tax benefit

 

 

 

 

6,681

 

 

 

22,354

 

 

 

7,787

 

Total income tax benefit

$

 

 

$

6,681

 

 

$

22,354

 

 

$

7,787

 

 

The Company had no reserve for uncertain tax positions as of June 30, 2015. The Company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The Company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. As a result of the Company’s analysis, it was concluded that as of June 30, 2015, a valuation allowance should be established against the Company’s net deferred tax asset. The Company recorded a valuation allowance as of June 30, 2015 of $155.7 million on its long-term deferred tax asset. There was no valuation allowance established as of June 30, 2014. The Company will continue to monitor facts and circumstances in the reassessment of the likelihood that the deferred tax assets will be realized.

 

Note 7 — Stockholders’ Equity and Long-term Employee Incentive Plan

Preferred Stock

The Company is authorized to issue up to 1,000,000 shares of preferred stock, par value $0.0001 with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. No shares were issued and outstanding as of June 30, 2015, or December 31, 2014.

Common Stock

The authorized common stock of the Company consists of 225,000,000 shares. The holders of the common shares are entitled to one vote for each share of common stock. In addition, the holders of the common stock are entitled to receive dividends when, as and if declared by the Board of Directors. At June 30, 2015, and December 31, 2014, the Company had 77,538,199 and 77,634,737 shares of common stock issued and outstanding, respectively.

Long-term Employee Incentive Plan

The Company accounts for share-based compensation in accordance with FASB ASC Topic 718, Stock Compensation.

On July 31, 2009, the Company adopted the Incentive Plan, providing for long-term share-based awards intended as a means for the Company to attract, motivate, retain and reward directors, officers, employees and other eligible persons through the grant of awards and incentives for high levels of individual performance and improved financial performance of the Company. The share-based awards are also intended to further align the interests of award recipients and the Company’s stockholders. The maximum number of shares of common stock that may be issued under the Incentive Plan is 12,257,744 (which includes the additional 3,100,000 shares under Amendment No. 2 to the Incentive Plan approved by the shareholders on June 8, 2015).

On May 5, 2015, the Board and its Compensation Committee approved a long-term incentive program for 2015 under the Incentive Plan consisting of grants of (i) options to purchase shares of common stock of the Company, vesting in equal annual installments on each of the first three anniversaries of the date of grant, with an exercise price of $1.35 per share and a ten year term,

-10-


(ii) time-vested restricted cash awards of $5.2 million, vesting in equal annual installments on each of the first three anniversaries of the date of grant, and (iii) performance-vested restricted cash awards of $2.9 million, as described below.

For the three and six months ended June 30, 2015 and 2014, the Company recorded expense related to the Incentive Plan as follows (in thousands):

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Stock option awards

$

84

 

 

$

 

 

$

84

 

 

$

 

Time-based restricted stock awards

 

2,121

 

 

 

3,165

 

 

 

4,402

 

 

 

5,692

 

Stock appreciation awards

 

11

 

 

 

60

 

 

 

22

 

 

 

119

 

TSR awards

 

710

 

 

 

1,212

 

 

 

1,412

 

 

 

1,515

 

Time-based restricted cash awards

 

224

 

 

 

 

 

 

224

 

 

 

 

Performance-based restricted cash awards

 

123

 

 

 

 

 

 

123

 

 

 

 

Total Incentive Plan compensation expense

$

3,273

 

 

$

4,437

 

 

$

6,267

 

 

$

7,326

 

As of June 30, 2015, the Company held unrecognized share-based compensation expense (in thousands) which is expected to be recognized over a weighted-average period as follows:

 

 

 

 

 

Weighted

 

 

Unrecognized

 

 

Average

 

 

Compensation

 

 

Years

 

 

Expense

 

 

Remaining

 

Stock option awards

$

1,566

 

 

 

2.8

 

Time-based restricted stock awards

 

9,668

 

 

 

1.3

 

Stock appreciation awards

 

21

 

 

 

0.5

 

TSR awards

 

3,097

 

 

 

1.3

 

Total unrecognized compensation expense

$

14,352

 

 

 

 

 

Equity Awards

Equity awards consist of service-based and performance-based restricted stock units and stock options under the Incentive Plan.

Stock Option Awards

Options issued on May 5, 2015 to employees to purchase shares of common stock vest in three equal annual installments at specified dates based on continued employment, with an exercise price of $1.35 per share and a ten year term. The compensation expense to be recognized for the option awards was measured based on the Company’s estimated fair value at the date of grant using a Black-Scholes pricing model as well as an estimated forfeiture rate of 10% which will be updated periodically based on actual employee turnover. During the six months ended June 30, 2015, the Company granted 1,895,496 options to employees to purchase shares of common stock, pursuant to the Incentive Plan.

The following table summarizes the changes in non-vested option awards for the six months ended June 30, 2015:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested, beginning of period

 

 

 

$

 

Granted

 

1,895,496

 

 

 

0.97