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10-K
KEY ENERGY SERVICES INC filed this Form 10-K on 02/28/2018
Entire Document
 

The U.S. enacted into law the Tax Cuts and Jobs Act (“2017 Tax Act”) on December 22, 2017. The 2017 Tax Act is comprehensive tax reform legislation that, among other things, contains significant changes to corporate taxation, including a permanent reduction of the corporate income tax rate from 35% to 21%, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, a partial limitation on the deductibility of business interest expense, a limitation on net operating losses to 80% of taxable income each year, and a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a partial territorial system (along with rules that create a new U.S. minimum tax on earnings of foreign subsidiaries). The ultimate impact of the 2017 Tax Act may differ from the estimated tax impacts recognized in the fourth quarter due to technical corrections made to the law, future Treasury Regulations, and other interpretive guidance that may impact the Company’s actions. We continue to examine the impact of this tax reform legislation, as its overall impact is uncertain.
Years Ended December 31, 2016 and 2015
 
Successor
 
 
Predecessor
 
 
 
 
 
(a)
 
 
(b)
 
(c)
 
(a) + (b) - (c)
 
 
 
Period from December 16, 2016 through December 31, 2016
 
 
Period from January 1, 2016 through December 15, 2016
 
Year Ended December 31, 2015
 
Change
 
% Change
REVENUES
$
17,830

 
 
$
399,423

 
$
792,326

 
$
(375,073
)
 
(47
)%
COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
 
 
Direct operating expenses
16,603

 
 
362,825

 
714,637

 
(335,209
)
 
(47
)%
Depreciation and amortization expense
3,574

 
 
131,296

 
180,271

 
(45,401
)
 
(25
)%
General and administrative expenses
6,501

 
 
163,257

 
202,631

 
(32,873
)
 
(16
)%
Impairment expense

 
 
44,646

 
722,096

 
(677,450
)
 
(94
)%
Operating loss
(8,848
)
 
 
(302,601
)
 
(1,027,309
)
 
715,860

 
(70
)%
Reorganization items, net

 
 
(245,571
)
 

 
(245,571
)
 
(100
)%
Interest expense, net of amounts capitalized
1,364

 
 
74,320

 
73,847

 
1,837

 
2
 %
Other (income) loss, net
32

 
 
(2,443
)
 
9,394

 
(11,805
)
 
(126
)%
Loss before income taxes
(10,244
)
 
 
(128,907
)
 
(1,110,550
)
 
971,399

 
(87
)%
Income tax (expense) benefit

 
 
(2,829
)
 
192,849

 
(195,678
)
 
(101
)%
NET LOSS
$
(10,244
)
 
 
$
(131,736
)
 
$
(917,701
)
 
$
775,721

 
(85
)%
Revenues
Our revenues for the combined year ended December 31, 2016 decreased $375.1 million, or 47.3%, to $417.3 million from $792.3 million for the year ended December 31, 2015, due to lower spending from our customers as a result of lower oil prices. These market conditions resulted in reduced customer activity and a reduction in the price received for our services. Internationally, we had lower revenue as a result of reduced customer activity in Russia and Colombia and the exit of operations in the Middle East and South America. See “Segment Operating Results — Years Ended December 31, 2016 and 2015” below for a more detailed discussion of the change in our revenues.
Direct operating expenses
Our direct operating expenses decreased $335.2 million, or 46.9%, to $379.4 million (90.9% of revenues) for the combined year ended December 31, 2016, compared to $714.6 million (90.2% of revenues) for the year ended December 31, 2015. The decrease is primarily related to a decrease in employee compensation costs, fuel expense and repair and maintenance expense as we sought to reduce our cost structure and as a result of lower activity levels. See “Segment Operating Results — Years Ended December 31, 2016 and 2015” below for a more detailed discussion of the change in our direct operating expenses.
Depreciation and amortization expense
Depreciation and amortization expense decreased $45.4 million, or 25.2%, to $134.9 million (32.3% of revenues) for the combined year ended December 31, 2016, compared to $180.3 million (22.8% of revenues) for the year ended December 31, 2015. The decrease is primarily attributable to the impairment of certain fixed assets in 2015 and decreases in capital expenditures and lower amortization expense due to the impairment of certain intangible assets.

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