Annual report pursuant to Section 13 and 15(d)

Acquisition of Stingray Entities

v3.6.0.2
Acquisition of Stingray Entities
 12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
Acquisition of Stingray Entities
Acquisition of Stingray Entities
Description of the Transaction
On November 24, 2014, the Partnership acquired all ownership interests in Stingray Pressure Pumping LLC (“Pressure Pumping”) and Stingray Logistics LLC (“Logistics”). Pressure Pumping was formed March 20, 2012 and Logistics was formed November 19, 2012, as Delaware limited liability companies. Both were formed by Wexford and Gulfport. The Partnership acquired Pressure Pumping and Logistics in exchange for limited partner interests. The acquisition of the Stingray Entities added to the Company's pressure pumping segment.
At the date of acquisition, the total ownership interest in Pressure Pumping and Logistics were converted to 31.96% (9.6 million common units) and 1.21% (0.4 million common units), respectively, of the Partnership's limited partnership interest. The fair value of the Stingray entities provided as consideration was determined with the assistance of external valuation experts as of acquisition date.
At the acquisition date, the components of the consideration transferred were as follows:
 
 
 
Consideration attributable to Stringray Pressure Pumping LLC (1)
 
$
176,910,000

Consideration attributable to Stringray Logistics LLC (1)
 
6,720,000

Total consideration transferred
 
$
183,630,000

(1) 
See Summary of acquired assets and liabilities below
 
 
Pressure Pumping
Logistics
 
Total
Cash and cash equivalents
 
$
6,930,597

$
128,471

 
$
7,059,068

Accounts receivable
 
25,904,279

2,164,859

 
28,069,138

Inventories
 
1,205,059

—

 
1,205,059

Other current assets
 
2,800,125

83,892

 
2,884,017

Property, plant and equipment(1)
 
98,746,182

2,783,700

 
101,529,882

Identifiable intangible assets - customer relationships(2)
 
33,610,000

—

 
33,610,000

Identifiable intangible assets - trade names(2)
 
6,880,000

230,000

 
7,110,000

Goodwill(3)
 
82,867,545

3,175,603

 
86,043,148

Other Assets
 
207,057

4,000

 
211,057

Total assets acquired
 
$
259,150,844

$
8,570,525

 
$
267,721,369

 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
33,428,913

$
729,181

 
$
34,158,094

Income taxes payable
 
115,000

$
5,000

 
120,000

Long-term debt
 
48,696,931

$
1,116,344

 
49,813,275

Total liabilities assumed
 
$
82,240,844

$
1,850,525

 
$
84,091,369

Net assets acquired
 
$
176,910,000

$
6,720,000

 
$
183,630,000

(1) 
Property, plant and equipment fair value measurements were prepared by utilizing a combined fair market value and cost approach. The market approach relies on comparability of assets using market data information. The cost approach places emphasis on the physical components and characteristics of the asset. It places reliance on estimated replacement cost, depreciation and economic obsolescence.
(2) 
Identifiable intangible assets were measured using a combination of income approaches. Trade names were valued using a "Relief-from-Royalty" method. Contractual and non-contractual customer relationships were valued using a "Multi-period excess earnings" method. Identifiable intangible assets will be amortized over 4-10 years.
(3) 
Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recorded in connection with the acquisition is attributable to assembled workforces and future profitability based on the synergies expected to arise from the acquired entities.
Since the acquisition date, the businesses acquired have provided the following earnings activity:
 
 
2016
 
2015
 
2014
 
 
Pressure Pumping
Logistics
 
Pressure Pumping
Logistics
 
Pressure Pumping
Logistics
Revenues
 
$
123,736,030

$
4,393,991

 
$
166,869,663

$
5,922,131

 
$
17,731,317

$
635,024

Eliminations (1)
 
(4,350
)
(4,349,075
)
 
—

(5,922,131
)
 
—

(635,024
)
Revenues in consolidation
 
123,731,680

44,916

 
166,869,663

—

 
17,731,317

—

 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
(2,207,333
)
(367,927
)
 
(4,870,645
)
630,999

 
(1,612,370
)
97,525

Eliminations (2)
 
4,802,981

(4,341,053
)
 
9,013,897

(5,922,131
)
 
1,051,191

(635,024
)
Net income (loss) in consolidation
 
2,595,648

(4,708,980
)
 
4,143,252

(5,291,132
)
 
(561,179
)
(537,499
)
(1) 
Eliminations related to work performed on behalf of Stingray Pressure Pumping and Stingray Logistics
(2) 
Eliminations relate to work performed on behalf of Stingray Pressure Pumping in addition to services provided by other Mammoth affiliates.  
The following table presents unaudited 2014 pro forma information for the Company as if the acquisition had occurred as of January 1, 2014:
 
 
2014
Revenues
 
$
381,868,708

Net loss
 
(9,438,437
)

The historical financial information was adjusted to give effect to the pro forma events that were directly attributable to the acquisition. For the year ended December 31, 2014, there were no transaction related costs expensed. The unaudited pro forma consolidated results are not necessarily indicative of what the consolidated results of operations actually would have been had the merger been completed on January 1, 2014. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the Company.
Acquisition of Lantern Rigs
On January 29, 2014, Bison acquired five drilling rigs (“Rigs”) directly from the financial institutions that leased the Rigs to the previous owner, Lantern Drilling Company (“Lantern”). The Company has treated the acquisition of these assets as a business combination because the assets included a workforce and contract arrangements. The acquisition of these Rigs enhanced the Company's contract land and directional drilling segment. At the date of acquisition, the five rigs were valued at $47,225,000. The assets are classified in property, plant and equipment, net in the Consolidated Balance Sheets. After tax the total cash consideration paid for the assets was $50,557,053. The outflow of cash is presented in purchases of property and equipment in the Consolidated Statements of Cash Flow.
Since the acquisition date, the businesses acquired have provided the following earnings activity:
 
 
2016
 
2015
 
2014
Revenues
 
$
16,069,976

 
$
24,262,672

 
$
34,698,597

Net income (loss)
 
(7,409,865
)
 
609,069

 
6,873,499


The following table presents unaudited 2014 pro forma information for the Company as if the acquisition had occurred as of January 1, 2014:
 
 
2014
Revenues
 
$
262,461,809

Net loss
 
(966,952
)

The historical financial information was adjusted to give effect to the pro forma events that were directly attributable to the acquisition. For the year ended December 31, 2014, there were no transaction related costs expensed. The unaudited pro forma consolidated results are not necessarily indicative of what the consolidated results of operations actually would have been had the merger been completed on January 1, 2014. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the Company.