Bronco Drilling Company Inc. (BRNC, Financial) filed Quarterly Report for the period ended 2010-06-30.
Bronco Drilling Company Inc. has a market cap of $111.8 million; its shares were traded at around $3.93 with and P/S ratio of 1. BRNC is in the portfolios of Third Avenue Management.
Accounts Receivable—We evaluate the creditworthiness of our customers based on their financial information, if available, information obtained from major industry suppliers, current prices of oil and natural gas and any past experience we have with the customer. Consequently, an adverse change in those factors could affect our estimate of our allowance for doubtful accounts. In some instances, we require new customers to establish escrow accounts or make prepayments. We typically invoice our customers at 15-day intervals during the performance of daywork contracts and upon completion of the daywork contract. Footage contracts are invoiced upon completion of the contract. Our typical contract provides for payment of invoices in 30 days. We generally do not extend payment terms beyond 30 days. We are currently involved in legal actions to collect various overdue accounts receivable. Our allowance for doubtful accounts was $4.4 million and $3.6 million at June 30, 2010 and December 31, 2009, respectively. Any allowance established is subject to judgment and estimates made by management. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, our customer s current ability to pay its obligation to us and the condition of the general economy and the industry as a whole. We write off specific accounts receivable when they become uncollectible and payments subsequently received on such receivables reduce the allowance for doubtful accounts.
In the second quarter of 2010, management decided to sell the property and equipment of our well servicing segment. Management determined that the business was no longer consistent with our long-term strategic objectives. Since the well servicing property and equipment meets the held for sale criteria, we are required to present its property and equipment held for sale at the lower of carrying amount or fair value less cost to sell. In connection with its preparation of this quarterly report, we evaluated well servicing s respective assets held for sale for impairment. We engaged a third party independent appraisal company to determine the fair value of the well servicing assets. The analysis as of June 30, 2010 resulted in $23.4 million impairment charge ($14.3 million after tax). This charge was recorded in the second quarter of 2010 and is reflected as a component of loss from discontinued operations in our Consolidated Statements of Operations.
Stock Based Compensation—We have adopted ASC Topic 718, Stock Compensation, upon granting our first stock options on August 16, 2005. ASC Topic 718 requires a public entity to measure the costs of employee services received in exchange for an award of equity or liability instruments based on the grant-date fair value of the award. That cost will be recognized over the periods during which an employee is required to provide service in exchange for the award. Stock compensation expense was $1.3 million and $1.7 million for the three and six months ended June 30, 2010, respectively, and $857,000 and $1.6 million for the three and six months ended June 30, 2009, respectively.
Other Accounting Estimates—Our other accrued expenses as of June 30, 2010 and December 31, 2009 included accruals of approximately $3.1 million and $2.5 million, respectively, for costs under our workers compensation insurance. We have a deductible of $500 per covered accident under our workers compensation insurance. We maintain letters of credit in the aggregate amount of $11.5 million for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which may become payable under the terms of the underlying insurance contracts. The letters of credit are typically renewed annually. No amounts have been drawn under the letters of credit. We accrue for these costs as claims are incurred based on cost estimates established for each claim by the insurance companies providing the administrative services for processing the claims, including an estimate for incurred but not reported claims, estimates for claims paid directly by us, our estimate of the administrative costs associated with these claims and our historical experience with these types of claims. We also have a self-insurance program for major medical, hospitalization and dental coverage for employees and their dependents. We recognize both reported and incurred but not reported costs related to the self-insurance portion of our health insurance. Since the accrual is based on estimates of expenses for claims, the ultimate amount paid may differ from accrued amounts.
In late June, management made a decision to market the assets constituting the well servicing segment for sale and to redeploy the proceeds to reduce debt and to support the Company's core drilling business. We do not expect to have significant continuing involvement with these assets after they are sold. Since the well servicing property and equipment meets the held for sale criteria, we are required to present its property and equipment held for sale at the lower of carrying amount or fair value less cost to sell. Accordingly, in the second quarter of 2010, we evaluated well servicing s respective assets held for sale for impairment. We engaged a third party independent appraisal company to determine the fair value of the well servicing assets. The analysis as of June 30, 2010 resulted in $23.4 million impairment charge ($14.3 million after tax). This charge was recorded in the second quarter of 2010 and is reflected as a component of income (loss) from discontinued operations in the our Consolidated Statements of Operations.
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Bronco Drilling Company Inc. has a market cap of $111.8 million; its shares were traded at around $3.93 with and P/S ratio of 1. BRNC is in the portfolios of Third Avenue Management.
Highlight of Business Operations:
On July 31, 2010, the closing prices for near month delivery contracts for crude oil and natural gas as traded on the NYMEX were $78.95 per barrel and $4.92 per MMbtu, respectively. The Baker Hughes domestic land rig drilling rig count as of July 31, 2010 was 1,570. Baker Hughes is a large oil field services firm that has issued the rotary rig counts as a service to the petroleum industry since 1944.Accounts Receivable—We evaluate the creditworthiness of our customers based on their financial information, if available, information obtained from major industry suppliers, current prices of oil and natural gas and any past experience we have with the customer. Consequently, an adverse change in those factors could affect our estimate of our allowance for doubtful accounts. In some instances, we require new customers to establish escrow accounts or make prepayments. We typically invoice our customers at 15-day intervals during the performance of daywork contracts and upon completion of the daywork contract. Footage contracts are invoiced upon completion of the contract. Our typical contract provides for payment of invoices in 30 days. We generally do not extend payment terms beyond 30 days. We are currently involved in legal actions to collect various overdue accounts receivable. Our allowance for doubtful accounts was $4.4 million and $3.6 million at June 30, 2010 and December 31, 2009, respectively. Any allowance established is subject to judgment and estimates made by management. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, our customer s current ability to pay its obligation to us and the condition of the general economy and the industry as a whole. We write off specific accounts receivable when they become uncollectible and payments subsequently received on such receivables reduce the allowance for doubtful accounts.
In the second quarter of 2010, management decided to sell the property and equipment of our well servicing segment. Management determined that the business was no longer consistent with our long-term strategic objectives. Since the well servicing property and equipment meets the held for sale criteria, we are required to present its property and equipment held for sale at the lower of carrying amount or fair value less cost to sell. In connection with its preparation of this quarterly report, we evaluated well servicing s respective assets held for sale for impairment. We engaged a third party independent appraisal company to determine the fair value of the well servicing assets. The analysis as of June 30, 2010 resulted in $23.4 million impairment charge ($14.3 million after tax). This charge was recorded in the second quarter of 2010 and is reflected as a component of loss from discontinued operations in our Consolidated Statements of Operations.
Stock Based Compensation—We have adopted ASC Topic 718, Stock Compensation, upon granting our first stock options on August 16, 2005. ASC Topic 718 requires a public entity to measure the costs of employee services received in exchange for an award of equity or liability instruments based on the grant-date fair value of the award. That cost will be recognized over the periods during which an employee is required to provide service in exchange for the award. Stock compensation expense was $1.3 million and $1.7 million for the three and six months ended June 30, 2010, respectively, and $857,000 and $1.6 million for the three and six months ended June 30, 2009, respectively.
Other Accounting Estimates—Our other accrued expenses as of June 30, 2010 and December 31, 2009 included accruals of approximately $3.1 million and $2.5 million, respectively, for costs under our workers compensation insurance. We have a deductible of $500 per covered accident under our workers compensation insurance. We maintain letters of credit in the aggregate amount of $11.5 million for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which may become payable under the terms of the underlying insurance contracts. The letters of credit are typically renewed annually. No amounts have been drawn under the letters of credit. We accrue for these costs as claims are incurred based on cost estimates established for each claim by the insurance companies providing the administrative services for processing the claims, including an estimate for incurred but not reported claims, estimates for claims paid directly by us, our estimate of the administrative costs associated with these claims and our historical experience with these types of claims. We also have a self-insurance program for major medical, hospitalization and dental coverage for employees and their dependents. We recognize both reported and incurred but not reported costs related to the self-insurance portion of our health insurance. Since the accrual is based on estimates of expenses for claims, the ultimate amount paid may differ from accrued amounts.
In late June, management made a decision to market the assets constituting the well servicing segment for sale and to redeploy the proceeds to reduce debt and to support the Company's core drilling business. We do not expect to have significant continuing involvement with these assets after they are sold. Since the well servicing property and equipment meets the held for sale criteria, we are required to present its property and equipment held for sale at the lower of carrying amount or fair value less cost to sell. Accordingly, in the second quarter of 2010, we evaluated well servicing s respective assets held for sale for impairment. We engaged a third party independent appraisal company to determine the fair value of the well servicing assets. The analysis as of June 30, 2010 resulted in $23.4 million impairment charge ($14.3 million after tax). This charge was recorded in the second quarter of 2010 and is reflected as a component of income (loss) from discontinued operations in the our Consolidated Statements of Operations.
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