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Integrated Drilling Equipment Holdings Corp
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10-K
Apr 10, 10:16 AM ET
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Integrated Drilling Equipment Holdings Corp 10-K
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Contents
259
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2014
Integrated Drilling Equipment Holdings Corp.
25311 I-45 North Woodpark Business Center, Bldg 6 Spring, Texas 77380 281-465-9393
None
Title of Class
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I.
Item 1. Business
General
The Merger
Business Overview
Products and Services
Complete Drilling Rig Manufacturing
Offshore
Rig Services
IEC — Rig Electrical and Control Systems
Sales and Marketing
Customers
Sales by Region
Suppliers and Materials
Intellectual Property
Competition
Industry Background
Drilling Industry Dynamics
Land Drilling Rig Types
Land Rig Equipment Market
Environmental Matters
Employees
Item 1A. RISK FACTORS
Our failure to comply with restrictive covenants under our credit facilities or the ability to amend these facilities could trigger prepayment obligations.
Our ability to finance our business activities will require us to generate substantial cash flow.
Demand for our products and services depends on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices.
Our international business operations expose us to potentially rapid changes in economic and political conditions and other risks inherent in operating internationally, which could result in a material adverse effect on our operations or financial condition.
We do business in countries with regulatory and compliance regimes that differ from those in the United States. Our business may suffer because our efforts to comply with United States laws and regulations could restrict our ability to effectively compete with companies that are not subject to United States laws and regulations.
The Company has received notices from PEMEX terminating its four purchase agreements for modular drilling units and may be liable for liquidated damages.
Our inability to deliver our products to customers on time could affect our future sales and profitability and our relationships with our customers.
If we are unable to successfully manage our anticipated future growth, we may not be able to maintain or increase our revenues and profitability and our business reputation could be harmed.
If we do not develop and commercialize new products or expand our service offerings, our revenues may decline.
We plan to pursue acquisitions and joint ventures that by their nature present risks and that may not be successful.
We derive a significant portion of our revenues from a small number of customers. The loss of any of our major customers may cause significant declines in our revenues.
We may lose money on fixed-price contracts.
We may experience fluctuations in our quarterly operating results.
We may be required to recognize a charge against current earnings because of percentage-of-completion accounting.
Our businesses and our customers’ businesses are subject to environmental laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations.
The adoption of climate change legislation or regulations restricting emissions of greenhouse gases could increase our operating costs or reduce demand for our products.
Uninsured or underinsured claims or litigation or an increase in our insurance premiums could adversely impact our results.
We could be subject to substantial liability claims that could harm our financial condition.
We may be faced with product liability claims.
The loss of the services of one or more of our executive officers or key employees could harm our business. We are a small company that relies upon a few key employees to ensure our business operates efficiently.
Being a public company could place a strain on our management.
The oil and gas industry is undergoing continuing consolidation that may impact our results of operations.
We must successfully compete for the services of highly-trained technical or trade personnel.
The intense competition in our industry could result in our reduced profitability and loss of market share.
The high cost or unavailability of materials, equipment, supplies and personnel could adversely affect our ability to execute our operations on a timely basis.
We depend on third-party suppliers for timely deliveries of raw materials at a reasonable cost. Our results of operations could be adversely affected if we are unable to obtain adequate supplies in a timely manner.
If our existing arrangements with our suppliers were adversely affected, our equipment sales and parts and service businesses may suffer.
New regulations related to conflict-free minerals may force us to incur additional expenses and may materially adversely affect our financial condition and business operations.
Our business may be adversely affected by severe weather.
Our information systems may experience an interruption or breach in security.
Future forecasts of earnings are inherently uncertain and subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause our actual results to differ materially from such forecasts.
Although we are required to use our best efforts to have an effective registration statement covering the issuance of the shares of common stock underlying the warrants at the time that our warrant holders exercise their warrants, a registration statement may not be effective, in which case our warrant holders may not be able to exercise their warrants and therefore the warrants could expire worthless.
As a smaller reporting company, we are subject to scaled disclosure requirements that may make it more challenging for investors to analyze our results of operations and financial prospects.
We intend to list our common stock on the New York Stock Exchange (“NYSE”) or on the Nasdaq Stock Market (“Nasdaq”). Upon listing on either the NYSE or Nasdaq, we would expect to be a controlled company within the meanings of the NYSE or Nasdaq rules and, as a result, would qualify for, and intend to rely on, exemptions from certain corporate governance requirements that may not provide as many protections as those afforded to stockholders of other public companies.
Our officers, directors and their affiliates may in the future become affiliated with entities engaged in business activities that are similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Our securities are quoted on the OTC Bulletin Board, which may limit the liquidity and price of our securities more than if our securities were quoted or listed on a national securities exchange.
An active market for our securities may not develop, which would adversely affect the liquidity and price of our securities.
We incurred substantial debt to complete our initial business transaction, which may adversely affect our financial condition and results of operations.
Our Sponsor, officers and directors control a substantial interest in us and thus may influence certain actions requiring a stockholder vote.
We may choose to redeem our outstanding public warrants at a time that is disadvantageous to our public warrant holders.
An investor will only be able to exercise a Public Warrant if the common stock issuable upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the Public Warrants.
With the approval of 65% of the holders of the then outstanding Public Warrants, we may amend the terms of our Public Warrants in a manner that may be adverse to some holders.
Provisions in our certificate of incorporation and bylaws and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our shares of common stock and could entrench management.
Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.
We have granted registration rights to our Sponsor, officers and directors and other third parties, and the future exercise of such rights may adversely affect the market price of our common stock.
PART II.
Market Information
Holders
Dividends
Sales of Unregistered Securities
Shares of Common Stock and Units Issued to Our Sponsor and Our Initial Stockholders
PrinceRidge Unit Purchase Option
Preferred Stock
Elm Park Warrants
Shares of Common Stock Issued In Merger
Placement Warrant Exchange Shares
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Overview
Consolidated Results of Operations
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Revenues
Cost of Sales
Selling, General and Administration Expenses
Depreciation and Amortization Expense
Income from Operations
Other (Income) Expense and Income Taxes
Segment Results of Operations
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Liquidity and Capital Resources
Preferred Stock Purchase Agreements
Cash Flows for the Years Ended December 31, 2014 and 2013
Contractual Obligations
Payments by Period(in thousands)
Critical Accounting Policies and Management Estimates
Revenue Recognition
Allowance for Doubtful Accounts
Inventories
Recent Accounting Pronouncements
Off-Balance Sheet Arrangements
Integrated Drilling Equipment Holdings Corp. Index December 31, 2014 and 2013
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Integrated Drilling Equipment Holdings Corp. Consolidated Balance Sheets December 31, 2014 and 2013
Integrated Drilling Equipment Holdings Corp. Consolidated Statements of Operations December 31, 2014 and 2013
Integrated Drilling Equipment Holdings Corp. Consolidated Statements of Stockholders’ Deficit December 31, 2014 and 2013
Integrated Drilling Equipment Holdings Corp. Consolidated Statements of Cash Flows December 31, 2014 and 2013
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
1. Nature of Business
2. Revision of Previously Issued Financial Statements
3. Company Financing
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
3. Company Financing – (continued)
4. PEMEX Contract Termination
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
4. PEMEX Contract Termination – (continued)
5. Summary of Significant Accounting Policies
Basis of Presentation
Use of Estimates
Cash and Cash Equivalents
Restricted Cash
Fair Value of Financial Instruments
Accounts Receivable
Inventories
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
5. Summary of Significant Accounting Policies – (continued)
Intangibles
Property, Equipment and Improvements
Deferred Financing Costs
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
5. Summary of Significant Accounting Policies – (continued)
Revenue Recognition
Loss Per Share
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
5. Summary of Significant Accounting Policies – (continued)
Advertising Costs
Income Taxes
Concentration of Credit Risks
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
5. Summary of Significant Accounting Policies – (continued)
Capital Resource Risks
Contingencies
Reclassifications
6. Accounts Receivable
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
7. Uncompleted Contracts
8. Inventories
9. Intangibles
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
10. Property, Equipment and Improvements
11. Debt and Redeemable Preferred Stock
$2.5 Million Redeemable Preferred Stock
$0.5 Million Redeemable Preferred Stock
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
11. Debt and Redeemable Preferred Stock – (continued)
$0.5 Million Redeemable Preferred Stock
$20.0 Million Revolving Credit Facility
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
11. Debt and Redeemable Preferred Stock – (continued)
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
11. Debt and Redeemable Preferred Stock – (continued)
$20.0 Million Term Loan Facility
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
11. Debt and Redeemable Preferred Stock – (continued)
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
11. Debt and Redeemable Preferred Stock – (continued)
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
11. Debt and Redeemable Preferred Stock – (continued)
$2.1 Million Promissory Note
$0.4 Million Promissory Note
Compliance with Debt Covenants
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
12. Income Taxes
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
12. Income Taxes – (continued)
13. Defined Contribution Plans
14. Related Party Transactions
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
14. Related Party Transactions – (continued)
15. Commitments and Contingencies
Self-Insured Health Program
Legal Proceedings
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
15. Commitments and Contingencies – (continued)
Leases
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
15. Commitments and Contingencies – (continued)
Employment Agreements
16. Segment Information
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
16. Segment Information – (continued)
Revenues by Geographic Area:
Assets by Geographic Area:
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
17. Common Stock and Warrants
Common Stock
Common Stock Warrants
Integrated Drilling Equipment Holdings Corp. Notes to Consolidated Financial Statements December 31, 2014 and 2013
17. Common Stock and Warrants – (continued)
Unit Purchase Option
Sponsor Placement Units
18. Subsequent Events
Legal Proceedings
Amendments to Credit Facilities
Disclosure Controls and Procedures
Management’s Report on Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting
PART III.
Biographies of Directors and Executive Officers
Board of Directors
Classes of Directors
Director Independence
Board Committees and Meetings
Audit Committee
Compensation Committee
Section 16(a) Beneficial Ownership Reporting Compliance
Code of Conduct
Summary Compensation Table
Outstanding Equity Awards at Fiscal Year-End
Potential Payments upon Termination or Change-In-Control
Director Compensation
Directors and Named Executive Officers
Five Percent Holders
Equity Compensation Plan Information
Certain Relationships and Related Transactions
Sale of Common Stock to Sponsor, Officers and Directors
Sale of Placement Units to Sponsor
Sponsor Registration Rights Agreement
Loans From Directors and Officers
Merger
Preferred Stock Purchase Agreements
Intellectual Property
Leases and Lease Amendments
Merger Lock-up Agreements
IDE Registration Rights Agreement
Voting Agreement
Settlement Agreement and Related Agreements
Director Independence
Principal Accounting Firm Fees
Pre-Approval Policy and Procedures
PART IV.
Financial Statements
Financial Statement Schedules
Exhibits
Integrated Drilling Equipment Holdings Corp.Schedule II — Valuation and Qualifying Accounts(In thousands)
EXHIBIT INDEX
SIGNATURES
Contents
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