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OFFON

SUPERIOR ENERGY SERVICES, INC.

(SPNR)
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2021 Management Incentive Plan

10/29/2021 | 04:39pm EST

On June 1, 2021, our Board of Directors (the "Board") and the Compensation Committee of the Board (the "Compensation Committee") approved and adopted our Incentive Plan, which provides for the grant of share-based and cash-based awards and, in connection therewith, the issuance from time to time of up to 1,999,869 shares of our Class B common stock, par value $0.01 per share.


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Restricted Stock Grants

On June 1, 2021, the Board and the Compensation Committee approved the forms of restricted stock award agreements for (i) employee participants (the "Employee Restricted Stock Award Agreement") and (ii) non-employee directors (the "Director Restricted Stock Award Agreement").

On June 1, 2021, the Board and the Compensation Committee approved, pursuant to the applicable Employee Restricted Stock Award Agreements and Director Restricted Stock Award Agreements, the issuance of 113,840 restricted shares (76,269 restricted shares after giving effect to tax withholding) of Class B common stock under the Incentive Plan to certain of our non-employee directors and officers (the "Restricted Stock Grants"). The Restricted Stock Grants will vest over a period of three years, subject to earlier vesting and forfeiture on terms and conditions set forth in the applicable award agreement. The fair value of the restricted shares was estimated to be $39.53 per share as of the date of grant.

(17) Income Taxes

The effective tax rate for the Current Predecessor Period, the Successor Quarter and the Successor Period was 18.2%, 5.2% and 9.3%, respectively, on income from continuing operations. The tax rate in the Current Predecessor Period is different from the blended federal and state statutory rate of 22.5% primarily from the adoption of fresh start accounting during the period. The cancellation of indebtedness income resulting from the restructuring has significantly reduced our US tax attributes, including but not limited to NOL carryforwards. We experienced an ownership change under Sec. 382 of the Internal Revenue Code of 1986, as amended (the "Code"), which is anticipated to limit certain remaining tax attributes. The tax rate in the Successor Quarter and the Successor Period is different from the blended federal and state statutory rate of 22.5% primarily from non-deductible items and foreign losses for which no tax benefit is being recorded.

The effective tax rate for Prior Predecessor Quarter and Prior Predecessor Period was 8.6% and 15.6%, respectively, on income from continuing operations. The tax rate is different from the blended federal and state statutory rate of 22.5% primarily from foreign losses for which no tax benefit was recorded.

The Successor had $14.7 million of unrecognized tax benefits as of June 30, 2021 and the Predecessor had $13.2 million of unrecognized tax benefits as of December 31, 2020, all of which would impact our effective tax rate if recognized. It is our policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.

As of June 30, 2021, we have a deferred tax liability of $43.2 million and a valuation allowance of $96.0 million recorded against our deferred tax assets that relate to US foreign tax credits, US state net operating losses and other non-US deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the carryforward period. We assess the realizability of deferred tax assets quarterly and consider carryback availability, the scheduled reversal of deferred tax liabilities, and tax planning strategies in making this assessment.

(18) Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the denominator is increased to include the number of additional shares of common stock that could have been outstanding assuming the exercise of stock options and the conversion of restricted stock units.

Diluted earnings per share for the Successor Period, Successor Quarter, Prior Predecessor Period and Prior Predecessor Quarter do not include any potentially dilutive shares as these periods reflected a net loss.

(19) Contingencies

Due to the nature of our business, we are involved, from time to time, in various routine litigation or subject to disputes or claims or actions, including those commercial in nature, regarding our business activities in the ordinary course of business. Legal costs related to these matters are expensed as incurred. Management is of the opinion that none of the claims and actions will have a material adverse impact on our financial position, results of operations or cash flows.

A subsidiary of ours is involved in legal proceedings with two former employees regarding the payment of royalties for a patentable product paid for by the subsidiary and developed while they worked for the subsidiary. On April 2, 2018, the former employees and their corporation filed a lawsuit (the "First Case) in the Harris County District Court (the "District Court") alleging that the royalty payments they had invoiced at 25% and for which they received payments since 2010, should have been paid at a rate of 50%. In May 2019, the jury issued a verdict in favor of the plaintiffs. On October 25, 2019, the court issued a final judgment against us, which we have fully secured with a bond. We strongly disagree with the verdict and believe the District Court committed several legal errors that should result in a reversal or remand of the case by the Court of Appeals.


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A second case (the "Second Case") was filed in District Court against the same subsidiary of ours bringing the same claims and seeking damages post judgment from the First Case until discontinuation of the sale of the product at issue by the subsidiary. In December 2020, the Court entered a final judgement for the Plaintiffs' and the Second Case was stayed for the duration of our bankruptcy. We have filed an appeal and a Motion to Abate the Second Case pending the appeal of the First Case. The Motion to Abate the Second Case was granted on October 26, 2021 by the Court of Appeals. As of June 30, 2021, we have reserved $7.0 million for the judgements in the First Case and Second Case.

An Indian subsidiary of the Company had entered into a contract with an Indian oil and gas company to provide an off-shore vessel for various types of work. A dispute arose over the performability of the terms of the contract. The potential loss of this possible onerous contract is approximately $7.3 million.

Commencement of the Chapter 11 Cases automatically stayed certain proceedings and actions against the Predecessor. These cases have continued after the Emergence Date.

(20) Discontinued Operations

On December 10, 2019, Pumpco Energy Services, Inc ("Pumpco") completed its existing hydraulic fracturing field operations and was determined to discontinue, wind down and exit its hydraulic fracturing operations. The financial results of Pumpco's operations have historically been included in the Predecessor's North America segment. The Successor continued to sell Pumpco's fixed assets as of June 30, 2021.

During the second quarter of 2021, we signed a Letter of Intent ("LOI") with Select Energy Services, Inc. ("Select") to sell all of the issued and outstanding equity of Complete Energy Services, Inc. ("Complete") which would also include Superior Well Services ("SPW") flowback and well testing businesses, including the associated assets, liabilities and working capital. The financial results of Complete and SPW operations have historically been included in our Onshore Completion and Workover Services segment. Discontinuing Complete and SPW is aligned with our overall strategic objective to divest assets and service lines that do not compete for investment in the current market environment. Net proceeds from the sale of Complete and any remaining assets from SPW will be used to fund current operations, reinvest in other of the Company's service lines, or return capital to investors. In connection with these pending dispositions, during the second quarter of 2021, we recognized a reduction in value of assets related to Complete for approximately $12.4 million. We expect to complete the sale of the remaining assets of SPW within the next 12 months.


The following tables summarizes the components of our discontinued operations,
net of tax (in thousands):

                                                    Successor            Predecessor
                                                   Three Months
                                                  Ended June 30,     Three Months Ended
                                                       2021             June 30, 2020
Revenues                                       $        45,114       $            32,485
Cost of services                                        35,459                    36,450
Depreciation, depletion, amortization and
accretion                                               18,581                     8,034
General and administrative expenses                      3,623                     3,505
Reduction in value of assets                            12,430                     3,003
Loss from operations                                  (24,979)                  (18,507)
Other income (expense)                                    (53)                         8
Loss from discontinued operations before tax          (25,032)                  (18,499)
Income tax benefit (expense)                             5,632                     (915)
Loss from discontinued operations, net of
income tax                                     $      (19,400)       $          (19,414)


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                                            Successor                     Predecessor
                                         For the Period        For the Period
                                        February 3, 2021       January 1, 2021
                                        through June 30,      through February    Six Months Ended
                                              2021                 2, 2021         June 30, 2020
Revenues                                $          68,366     $          10,719   $        119,996
Cost of services                                   55,481                10,398            116,081
Depreciation, depletion, amortization
and accretion                                      31,356                 2,141             17,206
General and administrative expenses                 6,218                 1,119             17,475
Reduction in value of assets                       12,430                     -             49,361
Loss from operations                             (37,119)               (2,939)           (80,127)
Other income (expense)                               (50)                 2,485                 15
Loss from discontinued operations
before tax                                       (37,169)                 (454)           (80,112)
Income tax benefit (expense)                        8,363                   102             12,024
Loss from discontinued operations,
net of income tax                       $        (28,806)     $           (352)   $       (68,088)


The following summarizes the assets and liabilities related to assets held for
sale (in thousands):



                                      Successor          Predecessor
                                    June 30, 2021     December 31, 2020
Current assets:
Accounts receivable, net           $        35,853   $            25,448
Prepaid expenses                             5,154                 4,881
Other current assets                         7,443                12,076
Total current assets                        48,450                42,405

Property, plant and equipment, net         106,425               179,380
Operating lease ROU assets                  13,549                16,958
Other assets                                 1,770                 3,361
Total assets held for sale         $       170,194   $           242,104

Current liabilities:
Accounts payable                   $         6,075   $             2,830
Accrued expenses                            11,391                11,153
Total current liabilities                   17,466                13,983

Operating lease liabilities                 13,562                21,987
Decommissioning liabilities                  4,156                 8,311
Other liabilities                              546                 2,095
Total liabilities                  $        35,730   $            46,376

Significant operating non-cash items relating to assets held for sale and cash flows from investing activities were as follows (in thousands):

© Edgar Online, source Glimpses

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