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
Note 11 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ren-ex311_7.htm
EX-31.2 ren-ex312_6.htm
EX-32.1 ren-ex321_8.htm

Resolute Energy Earnings 2016-09-30

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_20160930.htm 10-Q ren-10q_20160930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2016

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       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      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

 

 

 

 

 

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  

As of October 31, 2016, 17,567,225 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, the expected benefits of the Delaware Basin Acquisition (defined below), our production and cost guidance for 2016; anticipated capital expenditures in 2016 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 liquidity enhancing and 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; 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, the rates of return on such projects and the resource potential of such projects; the prospectivity of our properties and acreage; and the anticipated accounting treatment of various activities.  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. 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, 2015, and such things as:

 

our ability to realize the expected benefits from the interests acquired in the Delaware Basin Acquisition;

 

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 operations and other development 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, secured term loan facility and senior notes may limit our ability to execute our business strategy;

 

future write downs of reserves and 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;

 

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

 

risks associated with rising interest rates;

 

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;

 

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

 

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. under a contract with take or pay obligations;

 

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 timing and amount of future production of oil and gas;

 

the ability to sell or otherwise monetize assets at values and on terms that are advantageous to us;

 

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 third party owned 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;

 

regulation of salt water injection intended to address seismic activity;

 

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 climate change regulations on oil and gas production and demand;

 

potential changes in income tax deduction and credits currently available to the oil and gas industry;

 

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 and failure to keep pace with technological development;

 

developments in oil and gas producing countries;

 

risks relating to our joint interest partners’ and other counterparties’ inability to fulfill their contractual commitments;

 

loss of senior management or key technical personnel;

 

the impact of long-term incentive programs, including performance-based awards and stock appreciation rights;

 

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;

 

cybersecurity risks;

 

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;

 

 


 

the risk of a transaction that could trigger a change of control under our debt agreements and the higher likelihood of such a transaction occurring due to our current low stock price;

 

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;

 

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.

SEC rules prohibit us from including resource estimates in our public filings with the SEC. Our potential resource estimates 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. 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.

Production rates, including 24hour peak IP rates, 30day peak IP rates, 90day peak IP rates and 120day peak IP rates, for both our wells and for those wells that are located near to our properties are limited data points in each well’s productive history. These rates are sometimes actual rates and sometimes extrapolated or normalized rates. As such the rates for a particular well may change as additional data becomes available.  Peak production rates are 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 peak IP rates and the methodologies employed by others may not be consistent, and thus the values reported may not be directly and meaningfully comparable. Lateral lengths described are indicative only. Actual completed lateral lengths depend on various considerations such as leaseline offsets. Standard length laterals, sometimes referred to as 5,000 foot laterals, are laterals with completed length generally between 4,000 feet and 5,500 feet. Midlength laterals, sometimes referred to as 7,500 foot laterals, are laterals with completed length generally between 6,500 feet and 8,000 feet. Long laterals, sometimes referred to as 10,000 foot laterals, are laterals with completed length generally longer than 8,000 feet.

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, 2015, 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

  

20

 

 

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

32

 

 

 

 

 

Item 4.

  

Controls and Procedures

  

34

 

 

 

 

 

PART II -

  

OTHER INFORMATION

  

35

 

 

 

 

 

Item 1.

  

Legal Proceedings

  

35

 

 

 

 

 

Item 1 A.

  

Risk Factors

  

35

 

 

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

41

 

 

 

 

 

Item 3.

  

Defaults Upon Senior Securities

  

41

 

 

 

 

 

Item 4.

  

Mine Safety Disclosures

  

41

 

 

 

 

 

Item 5.

  

Other Information

  

41

 

 

 

 

 

Item 6.

  

Exhibits

  

42

 

 

 

 

 

Signatures

  

43

 

 

 

 

 


RESOLUTE ENERGY CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share amounts)

 

 

September 30,

 

 

December 31,

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

908

 

 

$

9,297

 

Accounts receivable

 

47,166

 

 

 

37,100

 

Commodity derivative instruments

 

19,957

 

 

 

92,431

 

Prepaid expenses and other current assets

 

3,788

 

 

 

1,387

 

Total current assets

 

71,819

 

 

 

140,215

 

Property and equipment, at cost:

 

 

 

 

 

 

 

Oil and gas properties, full cost method of accounting

 

 

 

 

 

 

 

Unproved

 

12,501

 

 

 

21,264

 

Proved

 

1,806,101

 

 

 

1,732,707

 

Other property and equipment

 

9,754

 

 

 

9,648

 

Accumulated depletion, depreciation and amortization

 

(1,630,809

)

 

 

(1,540,447

)

Net property and equipment

 

197,547

 

 

 

223,172

 

Other assets:

 

 

 

 

 

 

 

Restricted cash

 

23,137

 

 

 

21,497

 

Commodity derivative instruments

 

366

 

 

 

3,463

 

Other assets

 

2,002

 

 

 

2,636

 

Total assets

$

294,871

 

 

$

390,983

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

7,959

 

 

$

7,101

 

Accrued expenses

 

49,170

 

 

 

44,414

 

Accrued interest payable

 

14,364

 

 

 

5,764

 

Accrued cash-settled incentive awards

 

14,587

 

 

 

1,082

 

Asset retirement obligations

 

1,051

 

 

 

891

 

Commodity derivative instruments

 

1,476

 

 

 

 

Total current liabilities

 

88,607

 

 

 

59,252

 

Long term liabilities:

 

 

 

 

 

 

 

Secured term loan facility

 

121,319

 

 

 

118,944

 

Senior notes

 

396,891

 

 

 

396,051

 

Asset retirement obligations

 

19,520

 

 

 

18,347

 

Commodity derivative instruments

 

4,341

 

 

 

 

Other long term liabilities

 

3,334

 

 

 

1,670

 

Total liabilities

 

634,012

 

 

 

594,264

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

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

 

 

 

 

 

Common stock, $0.0001 par value; 45,000,000 shares authorized; issued and outstanding

   15,463,882 and 15,442,147 shares at September 30, 2016 and December 31, 2015, respectively

 

2

 

 

 

2

 

Additional paid-in capital

 

664,338

 

 

 

659,124

 

Accumulated deficit

 

(1,003,481

)

 

 

(862,407

)

Total stockholders’ deficit

 

(339,141

)

 

 

(203,281

)

Total liabilities and stockholders’ deficit

$

294,871

 

 

$

390,983

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

$

42,394

 

 

$

32,027

 

 

$

93,672

 

 

$

111,910

 

Gas

 

3,574

 

 

 

3,678

 

 

 

5,761

 

 

 

10,908

 

Natural gas liquids

 

1,451

 

 

 

912

 

 

 

2,377

 

 

 

3,328

 

Total revenue

 

47,419

 

 

 

36,617

 

 

 

101,810

 

 

 

126,146

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating

 

16,572

 

 

 

20,469

 

 

 

46,078

 

 

 

60,241

 

Production and ad valorem taxes

 

4,839

 

 

 

5,431

 

 

 

12,229

 

 

 

17,717

 

Depletion, depreciation, amortization, and asset retirement

   obligation accretion

 

12,474

 

 

 

21,900

 

 

 

33,700

 

 

 

80,414

 

Impairment of proved oil and gas properties

 

 

 

 

198,000

 

 

 

58,000

 

 

 

628,000

 

General and administrative

 

7,161

 

 

 

7,329

 

 

 

23,659

 

 

 

22,170

 

Cash-settled incentive awards

 

16,043

 

 

 

355

 

 

 

18,275

 

 

 

702

 

Total operating expenses

 

57,089

 

 

 

253,484

 

 

 

191,941

 

 

 

809,244

 

Loss from operations

 

(9,670

)

 

 

(216,867

)

 

 

(90,131

)

 

 

(683,098

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(13,272

)

 

 

(16,307

)

 

 

(39,330

)

 

 

(43,318

)

Commodity derivative instruments gain (loss)

 

3,972

 

 

 

50,399

 

 

 

(11,739

)

 

 

54,043

 

Other income (expense)

 

114

 

 

 

6

 

 

 

126

 

 

 

(79

)

Total other income (expense)

 

(9,186

)

 

 

34,098

 

 

 

(50,943

)

 

 

10,646

 

Loss before income taxes

 

(18,856

)

 

 

(182,769

)

 

 

(141,074

)

 

 

(672,452

)

Income tax benefit (expense)

 

 

 

 

 

 

 

 

 

 

22,354

 

Net loss

$

(18,856

)

 

$

(182,769

)

 

$

(141,074

)

 

$

(650,098

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

$

(1.24

)

 

$

(12.20

)

 

$

(9.33

)

 

$

(43.45

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

15,173

 

 

 

14,971

 

 

 

15,122

 

 

 

14,958

 

 

See notes to condensed consolidated financial statements

 

 

 

2

 


RESOLUTE ENERGY CORPORATION

Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance as of January 1, 2016

 

15,442

 

 

$

2

 

 

$

659,124

 

 

$

(862,407

)

 

$

(203,281

)

Issuance of stock, restricted stock and share-based compensation

 

93

 

 

 

 

 

 

5,235

 

 

 

 

 

 

5,235

 

Redemption of restricted stock for employee income tax and

  restricted stock forfeitures

 

(80

)

 

 

 

 

 

(73

)

 

 

 

 

 

(73

)

Exercise of employee options to purchase common stock

 

9

 

 

 

 

 

 

52

 

 

 

 

 

 

52

 

Net loss

 

 

 

 

 

 

 

 

 

 

(141,074

)

 

 

(141,074

)

Balance as of September 30, 2016

 

15,464

 

 

$

2

 

 

$

664,338

 

 

$

(1,003,481

)

 

$

(339,141

)

 

See notes to condensed consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 


RESOLUTE ENERGY CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

Operating activities:

 

 

 

 

 

 

 

Net loss

$

(141,074

)

 

$

(650,098

)

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

 

 

 

 

 

 

 

Depletion, depreciation, amortization and asset retirement obligation accretion

 

33,700

 

 

 

80,414

 

Impairment of proved oil and gas properties

 

58,000

 

 

 

628,000

 

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

 

3,922

 

 

 

4,815

 

Share-based compensation

 

5,143

 

 

 

8,979

 

Commodity derivative instruments loss (gain)

 

11,739

 

 

 

(54,043

)

Commodity derivative settlement gains

 

69,649

 

 

 

66,564

 

Deferred income tax benefit

 

 

 

 

(22,354

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(9,970

)

 

 

20,513

 

Other current assets

 

(430

)

 

 

362

 

Accounts payable and accrued expenses

 

19,416

 

 

 

(20,395

)

Accrued interest payable

 

8,600

 

 

 

8,555

 

Net cash provided by operating activities

 

58,695

 

 

 

71,312

 

Investing activities:

 

 

 

 

 

 

 

Oil and gas exploration and development expenditures

 

(98,313

)

 

 

(59,382

)

Proceeds from sale of oil and gas properties and other

 

32,962

 

 

 

40,449

 

Purchase of other property and equipment

 

(106

)

 

 

(84

)

Restricted cash

 

(1,640

)

 

 

(1,637

)

Other

 

38

 

 

 

47

 

Net cash used in investing activities

 

(67,059

)

 

 

(20,607

)

Financing activities:

 

 

 

 

 

 

 

Proceeds from bank borrowings

 

73,500

 

 

 

131,000

 

Repayments of borrowings

 

(73,500

)

 

 

(227,375

)

Proceeds from issuance of term loans

 

 

 

 

46,500

 

Payment of financing costs

 

 

 

 

(3,744

)

Redemption of restricted stock for employee income taxes

 

(73

)

 

 

(158

)

Proceeds from exercise of employee options to purchase common stock

 

48

 

 

 

 

Net cash used in financing activities

 

(25

)

 

 

(53,777

)

Net decrease in cash and cash equivalents

 

(8,389

)

 

 

(3,072

)

Cash and cash equivalents at beginning of period

 

9,297

 

 

 

4,352

 

Cash and cash equivalents at end of period

$

908

 

 

$

1,280

 

 

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 operating assets are comprised primarily of properties in the Permian Basin in west Texas and southeast New Mexico (the “Permian Properties” or “Permian Basin Properties”) and Aneth Field located in the Paradox Basin in southeast Utah (the “Aneth Field Properties” or “Aneth Field”). 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, 2015. 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, 2015. 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, 2015.

Recent Accounting Pronouncements  

In March 2016 the FASB issued new authoritative guidance related to the simplification of several aspects of accounting for share-based payment transactions. The main provisions require that all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the income statement. The adoption of this guidance in the first quarter of 2016 had no prior period effect.

In February 2016 the FASB issued new authoritative guidance related to the accounting of leases. The main provisions require that lessees recognize both a lease liability and a right-of-use asset at the commencement date. This authoritative accounting guidance is effective for the annual period beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2018. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

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, and interim periods within annual periods beginning after December 31, 2016. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

5

 


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.

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

Pursuant to full cost accounting rules, Resolute is required to perform a quarterly “ceiling test” calculation to test its oil and gas properties for possible impairment. The primary components impacting the 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 would be 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 income tax effects.

For the three and nine months ended September 30, 2016, the Company recorded non-cash impairments of the carrying value of its oil and gas properties of $0 and $58 million, respectively, as a result of the ceiling test limitation. For the three and nine months ended September 30, 2015, the Company recorded non-cash impairments of the carrying value of its oil and gas properties of $198 million and $628 million, respectively, as a result of the ceiling test limitation. 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 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

Divestiture of Midstream Assets in the Delaware Basin

In July 2016 Resolute Natural Resources Southwest, LLC (“Resolute Southwest”), a wholly owned subsidiary of Resolute, entered into a definitive Purchase and Sale Agreement (the “Mustang Agreement”) with Caprock Permian Processing LLC and Caprock Field Services LLC, as buyers (collectively, “Caprock”) pursuant to which Resolute Southwest and an existing minority interest holder (collectively, the “Sellers”) agreed to sell certain gas gathering and produced water handling and disposal systems owned by them in the Mustang project area in Reeves County, Texas, (“Mustang”) for a cash payment of $35 million, plus certain earn-out payments described below.

In July 2016 Resolute Southwest also entered into a definitive Purchase and Sale Agreement (the “Appaloosa Agreement”) with Caprock, pursuant to which Resolute Southwest agreed to sell certain gas gathering and produced water handling and disposal systems owned by Resolute Southwest in the Appaloosa project area in Reeves County, Texas, (“Appaloosa”) for a cash payment of $15 million, plus certain earn-out payments described below.

In July 2016, in connection with the Appaloosa Agreement and the Mustang Agreement, Resolute Southwest also entered into a definitive Earn-out Agreement (the “Earn-out Agreement”), pursuant to which Resolute Southwest will be entitled to receive certain earn-out payments based on drilling and completion activity in Appaloosa and Mustang through 2020 that will deliver gas and produced water into the system. Earn-out payments for each qualifying well will vary depending on the lateral length of the well and the year in which the well is drilled and completed. Aggregate earn-out payments for all wells drilled and completed in Appaloosa and Mustang over the term of the Earn-out Agreement are capped at $60 million (gross). Earn-out payments are contingent on future drilling, and therefore will be recognized when received.

In August 2016 Resolute Southwest closed the transactions contemplated by the Mustang Agreement and the Appaloosa Agreement.  Resolute Southwest received aggregate consideration of approximately $36 million (including earn-out payments earned as of the closing), of which approximately $2 million was placed in an escrow account for a period of time to secure Resolute’s indemnity obligations under the Mustang Agreement and the Appaloosa Agreement. As the sale did not significantly alter the relationship between capital costs and proved reserves, no gain or loss was recognized.

6

 


The net proceeds of the midstream sale were used to repay amounts outstanding under the Company’s revolving credit facility (as defined in Note 5) and for general corporate purposes.

In connection with the closing of the transactions contemplated by the Appaloosa Agreement and the Mustang Agreement, Resolute Southwest entered into fifteen year commercial agreements with Caprock for gas gathering services and water handling and disposal services for all current and future gas and water produced by Resolute Southwest in Mustang and Appaloosa in exchange for customary fees based on the volume of gas and water produced and delivered. Resolute Southwest has agreed to dedicate and deliver all gas and water produced from its acreage in Mustang and Appaloosa to Caprock for gathering, compression and disposal services for a term of fifteen years.

Divestiture of Gardendale Properties in the Midland Basin

In December 2015, the Company sold its Gardendale properties in the Midland Basin in Midland and Ector counties, Texas, for approximately $172 million. The sale was consummated on December 22, 2015, with an effective date of September 1, 2015. The net proceeds of the sale were used to reduce debt under the Company’s revolving credit facility and secured term loan facility (both as defined in Note 5). As part of the sale, the Company was no longer liable for asset retirement obligations of $5.6 million at December 31, 2015.

Divestiture of Hilight Field Properties in the Powder River Basin

In October 2015, the Company sold its Hilight Field Properties in the Powder River Basin for approximately $55 million. The sale was consummated on October 6, 2015, with an effective date of July 1, 2015. The net proceeds under this sale were used to pay down amounts outstanding under the revolving credit facility. As a part of the sale, the Company was no longer liable for asset retirement obligations of $8.1 million at December 31, 2015.

Divestiture of Howard and Martin County Properties

In May 2015, the Company sold its Howard and Martin County properties in the Permian Basin for approximately $42 million. The sale was consummated on May 1, 2015, with an effective date of March 1, 2015. The net proceeds under this sale were used to pay down amounts outstanding under the revolving credit facility (as defined in Note 5). As part of the sale, the Company was no longer liable for asset retirement obligations of $1.3 million at December 31, 2015.

The unaudited pro forma financial information for the three and nine months ended September 30, 2015 reflects Resolute’s results as if the Gardendale, Hilight Field, and Howard and Martin County properties were sold on January 1, 2015 (in thousands, except per share amounts):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30, 2015

 

 

September 30, 2015

 

Revenue

$

29,147

 

 

$

98,814

 

Loss from operations

 

(216,732

)

 

 

(681,734

)

Net loss

 

(179,820

)

 

 

(639,825

)

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

$

(12.01

)

 

$

(42.78

)

 

 

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

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Potential dilutive restricted stock

 

1,474

 

 

 

325

 

 

 

1,015

 

 

 

366

 

Anti-dilutive securities

 

1,474

 

 

 

1,073

 

 

 

1,386

 

 

 

943

 

7

 


 

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

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

$

(18,856

)

 

$

(182,769

)

 

$

(141,074

)

 

$

(650,098

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

15,173

 

 

 

14,971

 

 

 

15,122

 

 

 

14,958

 

Add: dilutive effect of non-vested restricted stock

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

15,173

 

 

 

14,971

 

 

 

15,122

 

 

 

14,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

$

(1.24

)

 

$

(12.20

)

 

$

(9.33

)

 

$

(43.45

)

 

 

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

 

 

September 30, 2016

 

Revolving credit facility

$

 

 

$

 

 

$

(1,414

)

 

$

(1,414

)

Secured term loan facility

 

128,303

 

 

 

(5,497

)

 

 

(1,487

)

 

 

121,319

 

8.50% senior notes

 

400,000

 

 

 

1,049

 

 

 

(4,158

)

 

 

396,891

 

Total long-term debt

$

528,303

 

 

$

(4,448

)

 

$

(7,059

)

 

$

516,796

 

 

 

Principal

 

 

Unamortized premium/

(discount)

 

 

Unamortized deferred financing costs

 

 

December 31, 2015

 

Revolving credit facility

$

 

 

$

 

 

$

(2,121

)

 

$

(2,121

)

Secured term loan facility

 

128,303

 

 

 

(7,223

)

 

 

(2,136

)

 

 

118,944

 

8.50% senior notes

 

400,000

 

 

 

1,233

 

 

 

(5,182

)

 

 

396,051

 

Total long-term debt

$

528,303

 

 

$

(5,990

)

 

$

(9,439

)

 

$

512,874

 

Unamortized deferred financing costs associated with the Revolving Credit Facility (as defined below) at September 30, 2016 and December 31, 2015, of $1.4 million and $2.1 million, respectively, have been included in other assets.

 

For the three months ended September 30, 2016 and 2015, the Company incurred interest expense on long-term debt of $13.3 million and $16.3 million, respectively. For the nine months ended September 30, 2016 and 2015, the Company incurred interest expense on long-term debt of $39.3 million and $43.3 million, respectively. The Company capitalized $0.3 million and $0.5 million of interest expense during the three months ended September 30, 2016 and 2015, respectively. The Company capitalized $1.4 million and $5.5 million of interest expense during the nine months ended September 30, 2016 and 2015, 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.

 


8

 


 

The Revolving Credit Facility includes covenants that 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 1.5 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 also requires us to enter into derivative agreements covering at least 70% of our anticipated production from proved developed producing properties on a rolling twenty-four month basis, but prohibits us from entering into derivative arrangements for more than (i) 85% of our anticipated production from proved properties in the subsequent 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 properties after such two year period, using economic parameters specified in our Revolving Credit Facility.

 

In October 2016 the Company completed its fall borrowing base redetermination, and the borrowing base was re-affirmed at $105 million. In addition, the Company made other administrative amendments to the Revolving Credit Facility. As of September 30, 2016, outstanding borrowings under the Revolving Credit Facility were $0. The borrowing base availability had been reduced by $3.6 million in conjunction with letters of credit issued at September 30, 2016.

 

In September 2016 the Company entered into the thirteenth amendment to the Revolving Credit Facility to amend the restricted payment covenant to permit the Company to pay up to $5 million annually and $20 million in aggregate in dividends on preferred stock, in addition to the existing restricted payment basket that provided for other restricted payments of up to $5 million annually and $20 million in aggregate (which two baskets may be aggregated).

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 within 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 and Resolute Natural Resources Southwest, LLC, which are wholly-owned subsidiaries of the Company.

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.

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 the terms and covenants of the Revolving Credit Facility at September 30, 2016.

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.

  

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.

 

9

 


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 1.5 to 1.0, and (iii) PV-10 of proved developed reserves to total secured debt of at least 1.0 to 1.0. Resolute was in compliance with the terms and covenants of the Secured Term Loan Facility at September 30, 2016.

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 and subject to the right of the lenders to waive prepayment. 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. During December 2015, the Company retired $70 million of the amount outstanding under the Secured Term Loan Facility following the sale of the Gardendale properties in Midland Basin on December 22, 2015.

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 September 30, 2016, was estimated to be $122.8 million, which approximates the principal less the unamortized discount.

Senior Notes

In 2012 the Company consummated two private placements of senior notes with principal totaling $400 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 and the Company’s existing subsidiaries (the “Guarantors”) 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 certain types of 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 September 30, 2016.

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 not less than 30 or more than 60 days’ prior notice, at redemption prices 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 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 September 30, 2016, was estimated to be $374.9 million based upon data from independent market makers (Level 2 fair value measurement).

 

10

 


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 nine months ended September 30, 2016 and 2015, 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. This difference relates primarily to the valuation allowance established, 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

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Current income tax benefit (expense)

$

 

 

$

 

 

$

 

 

$

 

Deferred income tax benefit (expense)

 

 

 

 

 

 

 

 

 

 

22,354

 

Total income tax benefit (expense)

$

 

 

$

 

 

$

 

 

$

22,354

 

 

 

The Company had no reserve for uncertain tax positions as of September 30, 2016. 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 September 30, 2016, a valuation allowance should be established against the Company’s net deferred tax asset. The Company recorded a valuation allowance as of September 30, 2016, of $302 million on its long-term deferred tax asset. 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 September 30, 2016, or December 31, 2015.

 

Common Stock

The authorized common stock of the Company consists of 45,000,000 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 September 30, 2016 and December 31, 2015, the Company had 15,463,882 and 15,442,147 shares of common stock issued and outstanding, respectively.

In May 2016, Resolute adopted a stockholder rights plan and in connection with such plan declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.0001 per share. The Rights trade with, and are inseparable from, the common stock until such time as they become exercisable on the Distribution Date (described below). The Rights are evidenced only by certificates that represent shares of common stock and not by separate certificates. New Rights will accompany any new shares of common stock we issue after May 27, 2016, until the earlier of the Distribution Date described below and the redemption or expiration of the rights.

 

Each Right allows its holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock (a “Preferred Share”) for $4.50, once the Rights become exercisable. Prior to exercise, the Right does not give its holder any dividend, voting or liquidation rights. The Rights will not be exercisable until 10 days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of 20% or more of our outstanding common stock, or, if earlier, 10 business days (or a later date determined by the Board before any person or group becomes an Acquiring Person) after a person or group begins a tender or exchange offer which, if completed, would result in that person or group becoming an Acquiring Person.

 

 


11

 


In June 2016 Resolute filed a certificate of amendment to its certificate of incorporation to effect the previously-announced reverse stock split of the Company’s common stock, par value $0.0001 per share, at a ratio of 1-for-5 (the “Reverse Stock Split”). The certificate of amendment also reduced the number of authorized shares of common stock from 225,000,000 to 45,000,000. The Reverse Stock Split, including the certificate of amendment, was approved by stockholders at the Company’s 2016 annual meeting of stockholders and by the Company’s Board of Directors. As a result, the Company is now in compliance with the $1.00 per share minimum price requirement of the New York Stock Exchange (the “NYSE”). All historical share amounts disclosed have been retroactively adjusted to reflect this Reverse Stock Split.

 

Resolute received notification on November 30, 2015, from the NYSE that the Company’s market capitalization was below the NYSE’s continued listing standard. The Company is considered below criteria established by the NYSE because the Company’s average market capitalization fell below $50 million over a trailing consecutive 30 trading-day period and its last reported stockholders’ equity was less than $50 million. In accordance with NYSE procedures, the Company had 45 days from the receipt of the notice to submit a business plan to the NYSE demonstrating how it intends to regain compliance with the NYSE’s continued listing standards within eighteen months. Resolute developed and submitted such a business plan within the required time frame and the NYSE accepted the plan. The Company will be subject to quarterly monitoring for compliance with the business plan and the Company’s common stock will continue to trade on the NYSE during the eighteen month period, subject to the Company’s compliance with other NYSE continued listing requirements. The NYSE may choose to shorten the usual compliance period if prior to the end of the eighteen months the Company’s market capitalization is over $50 million for two consecutive quarters.

 

Long Term Employee Incentive Plan

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

In July 2009, the Company adopted the 2009 Long Term Performance Incentive Plan (“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 3,451,548 (which includes the additional 620,000 shares under Amendment No. 2 to the incentive plan approved by the Company’s stockholders in June 2015 and the 1,000,000 shares under Amendment No. 3 in the incentive plan approved by the Company’s stockholders in May 2016).

In May 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 $6.75 per share and a ten year term, (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.

 

In September 2015 the Board and its Compensation Committee approved a grant consistent with the terms defined above of 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 $2.10 per share and a ten year term.

 

In February 2016 the Board of Directors and Compensation Committee of the Company approved long-term incentive awards to employees and non-employee directors for 2016 consisting of a combination of stock options, cash-settled stock appreciation rights and restricted cash grants under the Incentive Plan. The 2016 long-term incentive awards to employees and non-employee directors consisted of grants of (i) options to purchase 741,450 shares of common stock of the Company with a ten-year term, vesting in three equal annual installments on March 8 of 2017, 2018 and 2019, with exercise prices of $2.65 per share (as to 335,375 shares) and $2.915 per share (as to 406,075 shares), (ii) 1,702,852 cash-settled stock appreciation rights with a ten-year term, vesting in three equal annual installments on March 8 of 2017, 2018 and 2019, with a base price of $2.65 per share (as to 486,373 rights) and $2.915 per share (as to 1,216,479 rights), (iii) $5.3 million of time-vested restricted cash awards, vesting in three equal annual installments on March 8 of 2017, 2018 and 2019, and (iv) 45,148 shares of restricted stock vesting on March 8, 2017.

12

 


For the three and nine months ended September 30, 2016 and 2015, the Company recorded expense related to the Incentive Plan as follows (in thousands):

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Time-based restricted stock awards

$

938

 

 

$

2,146

 

 

$

3,657

 

 

$

6,548

 

TSR awards

 

221

 

 

 

718

 

 

 

777

 

 

 

2,130

 

Stock appreciation awards

 

 

 

 

11

 

 

 

 

 

 

33