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General | Filings (45) | Annual reports (5) | Stock | News

BakerCorp International, Inc. SEC Filing Form 10-Q Quartely report 2/2017, submited: 2017-06-14

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Form 10-Q

The SEC form 10-Q is a comprehensive report of a company's performance that must be submitted quarterly by all public companies to the Securities and Exchange Commission. In the 10-Q, firms are required to disclose relevant information regarding their financial position. The form must be submitted on time, and the information should be available to all interested parties.

The 10-Q is due 35 days (it used to be 45 days) after each of the first three fiscal quarters. There is no filing after the fourth quarter because that is when the 10-K is filed.

10-Q 1 a4302017bakercorpform10-q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
 FORM 10-Q
___________________________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 2017
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     
Commission File Number: 333-181780
 ___________________________________________________
BAKERCORP INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
___________________________________________________
Delaware
 
13-4315148
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
7800 N. Dallas Parkway, Suite 500, Plano, Texas
 
75024
(Address of principal executive offices)
 
(Zip Code)

(888) 882-4895
(Registrant’s telephone number, including area code)
 ___________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  ý*

* The registrant is a voluntary filer of reports required to be filed by certain companies under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required during the preceding 12 months, had it been subject to such filing requirements.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 
¨
  
Accelerated filer
 
¨
Non-accelerated filer
 
x  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Emerging growth company
 
x
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

There is no public market for the registrant’s common stock. There were 100 shares of the registrant’s common stock, par value $0.01 per share, outstanding on June 13, 2017.
 



TABLE OF CONTENTS
 
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45



PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

BakerCorp International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)

 
April 30,
2017
 
January 31,
2017
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
27,303

 
$
44,563

Accounts receivable, net of allowance for doubtful accounts of $5,676 and $5,152, respectively
58,795

 
52,478

Inventories, net
4,336

 
3,721

Prepaid expenses and other assets
3,521

 
4,145

Total current assets
93,955

 
104,907

Property and equipment, net
318,020

 
320,707

Goodwill
50,822

 
49,918

Other intangible assets, net
350,761

 
354,418

Other assets
4,215

 
590

Total assets
$
817,773

 
$
830,540

Liabilities and shareholder’s equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
14,095

 
$
17,697

Accrued expenses
24,120

 
21,855

Current portion of long-term debt (net of deferred financing costs of $3,116 and $3,080, respectively)
1,047

 
1,082

Total current liabilities
39,262

 
40,634

Long-term debt, net of current portion (net of deferred financing costs of $3,403 and $4,183, respectively)
634,134

 
634,395

Deferred tax liabilities, net
105,154

 
110,114

Share-based compensation liability
35

 
66

Other long-term liabilities
2,777

 
2,936

Total liabilities
781,362

 
788,145

Commitments and contingencies


 


Shareholder’s equity:
 
 
 
Common stock, $0.01 par value; 100,000 shares authorized; 100 shares issued and outstanding on April 30, 2017 and January 31, 2017

 

Additional paid-in capital
393,240

 
393,094

Accumulated other comprehensive loss
(39,447
)
 
(41,537
)
Accumulated deficit
(317,382
)
 
(309,162
)
Total shareholder’s equity
36,411

 
42,395

Total liabilities and shareholder’s equity
$
817,773

 
$
830,540


See Accompanying Notes
        

1


BakerCorp International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(In thousands)
 
Three Months Ended
 April 30,
 
2017
 
2016
Revenue:
 
 
 
Rental revenue
$
50,813

 
$
52,321

Sales revenue
4,698

 
4,934

Service revenue
7,628

 
7,777

Total revenue
63,139

 
65,032

Operating expenses:
 
 
 
Employee related expenses
24,940

 
24,690

Rental expenses
8,757

 
7,510

Repair and maintenance
3,168

 
2,313

Cost of goods sold
3,143

 
3,062

Facility expenses
6,832

 
6,956

Professional fees
1,359

 
1,092

Other operating expenses
4,020

 
3,584

Depreciation and amortization
14,721

 
15,109

Gain on sale of equipment
(1,120
)
 
(658
)
Impairment of goodwill and other intangible assets

 
84,046

Impairment of long-lived assets
200

 

Total operating expenses
66,020

 
147,704

Loss from operations
(2,881
)
 
(82,672
)
Other expenses:
 
 
 
Interest expense, net
9,982

 
10,523

Foreign currency exchange loss (gain), net
160

 
(493
)
Total other expenses, net
10,142

 
10,030

Loss before income tax benefit
(13,023
)
 
(92,702
)
Income tax benefit
(4,812
)
 
(20,889
)
Net loss
$
(8,211
)
 
$
(71,813
)

See Accompanying Notes



2


BakerCorp International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss (unaudited)
(In thousands)
 
 
Three Months Ended April 30,
 
2017
 
2016
Net loss
$
(8,211
)
 
$
(71,813
)
Other comprehensive income:
 
 
 
Unrealized gain on interest rate swap agreements, net of tax expense of $181 for the period ended April 30, 2016

 
294

Foreign currency translation adjustments
2,090

 
6,436

Other comprehensive income
2,090

 
6,730

Total comprehensive loss
$
(6,121
)
 
$
(65,083
)

See Accompanying Notes



3


BakerCorp International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
 
Three Months Ended April 30,
 
2017
 
2016
Operating activities
 
 
 
Net loss
$
(8,211
)
 
$
(71,813
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
Provision for doubtful accounts
600

 
312

Provision for excess and obsolete inventory, net
55

 

Share-based compensation
138

 
(272
)
Gain on sale of equipment
(1,120
)
 
(658
)
Depreciation and amortization
14,721

 
15,109

Amortization of deferred financing costs
744

 
707

Deferred income taxes
(5,049
)
 
(21,308
)
Amortization of above-market lease
(38
)
 
(38
)
Impairment of goodwill and other intangible assets

 
84,046

Impairment of long-lived assets
200

 

Changes in assets and liabilities:
 
 
 
Accounts receivable
(6,787
)
 
2,417

Inventories
(675
)
 
4,319

Prepaid expenses and other assets
565

 
(111
)
Accounts payable and other liabilities
(1,554
)
 
(2,755
)
Net cash (used in) provided by operating activities
(6,411
)
 
9,955

Investing activities
 
 
 
Purchases of property and equipment
(9,836
)
 
(21,140
)
Proceeds from sale of equipment
470

 
1,287

Net cash used in investing activities
(9,366
)
 
(19,853
)
Financing activities
 
 
 
Repayment of long-term debt
(1,041
)
 
(1,041
)
Net cash used in financing activities
(1,041
)
 
(1,041
)
Effect of foreign currency translation on cash
(442
)
 
(40
)
Net decrease in cash and cash equivalents
(17,260
)
 
(10,979
)
Cash and cash equivalents, beginning of period
44,563

 
44,754

Cash and cash equivalents, end of period
$
27,303

 
$
33,775

 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
4,198

 
$
4,920

Income taxes
$
1,178

 
$
855


See Accompanying Notes


4


BakerCorp International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1. Organization, Description of Business, and Basis of Presentation
We are a provider of liquid and solid containment solutions, operating within a specialty sector of the broader industrial services industry. Our revenue is generated by providing rental equipment, customized solutions, and services to our customers. We provide a wide variety of steel and polyethylene temporary storage tanks, roll-off containers, pumps, filtration, pipes, hoses and fittings, shoring, and related products to a broad range of customers for a number of applications. Tank and roll-off container applications include the storage of water, chemicals, waste streams, and solid waste. Pump applications include the pumping of groundwater, municipal waste, and other fluids. Filtration applications include the separation of various solids from liquids. We serve a variety of industries, including industrial and environmental remediation, refining, environmental services, construction, chemicals, transportation, power, municipal works, and oil and gas. We have branches within 23 states in the United States as well as branches in Canada, France, Germany, the Netherlands and the United Kingdom. As used herein, the terms “Company,” “we,” “us,” and “our” refer to BakerCorp International, Inc. and its subsidiaries, unless the context indicates to the contrary.

Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended January 31, 2017, included in our 2017 Annual Report on Form 10-K filed with the SEC on April 26, 2017. Certain amounts previously reported have been reclassified to conform to the current year financial presentation.

The interim condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary for a fair statement of our results of operations and financial position for the interim periods. The results of operations for the three months ended April 30, 2017 are not necessarily indicative of the results to be expected for future quarters or the full year.

Principles of Consolidation
The accompanying condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany accounts and transactions with our subsidiaries have been eliminated.

Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, judgments and assumptions including those related to revenue recognition, allowances for doubtful accounts, inventory valuation, customer rebates, sales returns and allowances, medical insurance claims, litigation accruals, impairment of long-lived assets, intangible assets and goodwill, depreciation and amortization, contingencies, income taxes, share-based compensation (expense and liability), and derivatives. Our estimates, judgments, and assumptions are based on historical experience, future expectations, and other factors which we believe to be reasonable. Actual results could materially differ from those estimates.



5


Note 2. Accounting Pronouncements
Recently Issued Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, “Compensation-Stock Compensation (Topic 718). The guidance clarifies how an entity should account for effects of a modification of a share-based payment. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017. We are currently assessing the impact the adoption of ASU No. 2017-09 will have on our condensed consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 23), Restricted Cash". The guidance will require restricted cash and cash equivalents to be included with cash and cash equivalents on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. We expect to adopt this guidance when effective, and do not expect the guidance to have a significant impact on our condensed consolidated financial statements, based upon our current procedures for tracking restricted cash and cash equivalents.

In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets other than Inventory". The guidance will require companies to recognize the income tax effects of intra-entity sales and transfers of assets other than inventory in the period in which the transfer occurs. The new guidance will be effective for fiscal years and interim periods beginning after December 15, 2017 and early adoption is permitted. The guidance requires modified retrospective adoption. We expect to adopt this guidance when effective, and do not expect the guidance to have a significant impact on our condensed consolidated financial statements, based upon our current procedures for tracking the transfer and sale of intra-entity assets.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU No. 2016-15”). ASU No. 2016-15 clarifies the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The standard is effective for non-public entities for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. We are currently assessing the impact the adoption of ASU No. 2016-15 will have on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): “Improvements to Employee Share-Based Payment Accounting” (“ASU No. 2016-09”). ASU No. 2016-09 simplifies several aspects of the accounting for share-based payments transactions, including income tax consequences, classification of awards as either liability or equity, and classification on the statement of cash flows. The standard is effective for non-public entities for annual periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. We are currently assessing the impact the adoption of ASU No. 2016-09 will have on our condensed consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU No. 2016-02”). This amendment requires the recognition of lease assets and liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC 840 “Leases” and increases the disclosure requirements surrounding these leases. For non-public business entities, ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. We are currently assessing the impact the adoption of ASU No. 2016-02 will have on our condensed consolidated financial statements.
During May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU No. 2014-09”). ASU No. 2014-09 will require companies to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU No. 2014-09 creates a five-step model that requires companies to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. ASU No. 2014-09 allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements. A decision about which method to use will affect a company’s implementation plans. The standard and multiple clarifying standard updates are effective for non-public entities for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. We are currently assessing the impact the adoption of ASU No. 2014-09 will have on our condensed consolidated financial statements.


6


  
Note 3. Changes in Accumulated Other Comprehensive Loss

The following table includes the change in foreign currency translation adjustments to the components of accumulated other comprehensive loss, for the three months ended April 30, 2017:
(In thousands)
 
 
Balance as of January 31, 2017
 
$
(41,537
)
Other comprehensive income before reclassifications
 
2,090

Net other comprehensive income
 
2,090

Balance as of April 30, 2017
 
$
(39,447
)

The following table includes the components of accumulated other comprehensive loss, net of tax, for the three months ended April 30, 2016:
(In thousands)
Unrealized (Loss)
Gain on Interest
Rate Swap
Agreements (1)
 
Change in
Foreign
Currency
Translation
Adjustments
 
Total
Balance as of January 31, 2016
$
(586
)
 
$
(39,081
)
 
$
(39,667
)
Other comprehensive income before reclassifications
294

 
6,436

 
6,730

Net other comprehensive income
294

 
6,436

 
6,730

Balance as of April 30, 2016
$
(292
)
 
$
(32,645
)
 
$
(32,937
)
(1)
Unrealized income on interest rate swap agreements is net of tax expense of $181 for the three months ended April 30, 2016.


Note 4. Inventories

Inventories, net consisted of the following:
(In thousands)
April 30,
2017
 
January 31,
2017
Components
$
1,235

 
$
2,845

Work-in-process
967

 
627

Finished goods
3,177

 
1,237

Less: inventory reserve
(1,043
)
 
(988
)
Inventories, net
$
4,336

 
$
3,721



7


Note 5. Property and Equipment, Net

Property and equipment, net consisted of the following as of April 30, 2017:
(In thousands)
Cost
 
Accumulated
Depreciation
 
Net
Carrying Amount
Assets held for rent:
 
 
 
 
 
Spill protection berms
$
3,544

 
$
(2,580
)
 
$
964

Boxes
31,485

 
(14,940
)
 
16,545

Filtration
14,507

 
(7,396
)
 
7,111

Generators and light towers
512

 
(247
)
 
265

Pipes, hoses and fittings
9,486

 
(6,906
)
 
2,580

Non-steel containment
11,464

 
(5,131
)
 
6,333

Pumps
57,954

 
(37,299
)
 
20,655

Shoring
5,492

 
(3,649
)
 
1,843

Steel containment
324,474

 
(91,592
)
 
232,882

Tank trailers
1,870

 
(1,701
)
 
169

Construction in progress
5,489

 

 
5,489

Total assets held for rent
466,277

 
(171,441
)
 
294,836

Assets held for use:
 
 
 
 
 
Leasehold improvements
4,016

 
(2,689
)
 
1,327

Machinery and equipment
44,901

 
(30,615
)
 
14,286

Office furniture and equipment
5,845

 
(4,259
)
 
1,586

Software
14,386

 
(8,939
)
 
5,447

Construction in progress
538

 

 
538

Total assets held for use
69,686

 
(46,502
)
 
23,184

Total
$
535,963

 
$
(217,943
)
 
$
318,020


8


    
Property and equipment, net consisted of the following as of January 31, 2017:
(In thousands)
Cost
 
Accumulated
Depreciation
 
Net
Carrying Amount
Assets held for rent:
 
 
 
 
 
Spill protection berms
$
3,487

 
$
(2,497
)
 
$
990

Boxes
31,128

 
(14,357
)
 
16,771

Filtration
14,303

 
(6,820
)
 
7,483

Generators and light towers
518

 
(235
)
 
283

Pipes, hoses and fittings
11,196

 
(8,479
)
 
2,717

Non-steel containment
10,309

 
(5,031
)
 
5,278

Pumps
58,021

 
(35,761
)
 
22,260

Shoring
4,681

 
(3,444
)
 
1,237

Steel containment
324,267

 
(88,996
)
 
235,271

Tank trailers
1,881

 
(1,685
)
 
196

Construction in progress
2,081

 

 
2,081

Total assets held for rent
461,872

 
(167,305
)
 
294,567

Assets held for use:
 
 
 
 
 
Leasehold improvements
3,949

 
(2,572
)
 
1,377

Machinery and equipment
44,379

 
(29,673
)
 
14,706

Office furniture and equipment
5,937

 
(4,071
)
 
1,866

Software
13,889

 
(8,324
)
 
5,565

Construction in progress
2,626

 

 
2,626

Total assets held for use
70,780

 
(44,640
)
 
26,140

Total
$
532,652

 
$
(211,945
)
 
$
320,707

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) are less than the carrying value, a write-down would be recorded to reduce the related carrying value of the asset to its estimated fair value.
During the three months ended April 30, 2017, certain assets that were on long-term rentals were returned in a condition beyond repair. We determined that the net book value of these assets exceeded the assets’ estimated fair value. As a result, during the three months ended April 30, 2017, we recorded an impairment charge of $0.2 million in our North American segment.

Included in machinery and equipment are assets under capital leases with a cost of $4.7 million as of April 30, 2017 and January 31, 2017, and accumulated depreciation of $1.4 million and $1.2 million as of April 30, 2017 and January 31, 2017, respectively.
Depreciation expense related to property and equipment for the three months ended April 30, 2017 and 2016 was $10.7 million and $11.1 million, respectively.


9


Note 6. Goodwill and Other Intangible Assets, Net

Goodwill

Changes in the carrying amount of the European goodwill are as follows:
(In thousands)
Total
Balance as of January 31, 2017
$
49,918

Foreign currency translation
904

Balance as of April 30, 2017
$
50,822


For the three months ended April 30, 2017

We evaluate the carrying value of goodwill annually during the fourth quarter of each fiscal year and more frequently if we believe indicators of impairment exist. We elected to early adopt ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350)-Simplifying the Test for Goodwill Impairment” (ASU No. 2017-04). ASU 2017-04 simplifies the accounting for goodwill impairment. The standard removes Step 2 of the goodwill impairment test. Instead we perform our annual, or interim goodwill impairment test by comparing the estimated fair value of a reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount. We will record an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. We estimate the fair value of our reporting units based on income and market approaches.
The North American goodwill was written down to zero as of January 31, 2017 and there were no indicators of impairment to our European reporting unit as of April 30, 2017.

For the three months ended April 30, 2016
During the quarter ended April 30, 2016, we encountered a reduction in our operating results in comparison to our forecast, primarily due to greater weakness in upstream oil and gas than anticipated, slower recovery in our construction business, and the delay of capital projects by refinery and power plants which can be seen through our lower volume of work with industrial service customers. As a result of the decline in demand for our products and services, we re-assessed our revenue and EBITDA forecast beginning with the fiscal year ended January 31, 2017 using a bottoms-up approach, having conversations with our key customers, and performing an analysis on current market conditions and industry spending behavior. Based on our assessment, we noted that despite the recent stabilization of oil prices, there will be continued uncertainty in the energy market resulting in a slow-down in capital spend. As a result, we updated our projections to reflect the decline in activity, adjusted our forecast for the outer years to maintain similar growth rates as our previous forecast, and performed the first step of the goodwill impairment test.
Under the first step of the impairment test, we determined the carrying value of the North American reporting unit exceeded fair value. We then performed the second step of the impairment test for the North American reporting unit and calculated the implied fair value of goodwill, which was less than its carrying value. Based on our analysis, we recorded a non-cash goodwill impairment charge of $65.7 million in our North American reporting unit. This impairment charge, which is included under the caption “Impairment of goodwill and other intangible assets” in our condensed consolidated statements of operations for the three months ended April 30, 2016, did not impact our operations, compliance with our debt covenants or our cash flows. For the European reporting unit, the fair value exceeded the carrying value, suggesting no indication of potential goodwill impairment.
In calculating the fair value of our North American reporting unit under the first step, we gave equal weight to the income approach, which analyzed projected discounted cash flows, and the market approach, which considered comparable public companies as well as comparable industry transactions.
Under the income approach, we estimate future capital expenditures required to maintain our rental fleet under normalized operations and utilize the following Level 3 estimates and assumptions in the discounted cash flow analysis:
Long-term EBITDA margin range of 25.8% to 30.5%, reflecting our historical and forecasted profit margins;
Long-term revenue growth rate range of 3.0% to 8.0% based on long-term nominal growth rate potential;
A discount rate of 10% based on our weighted average cost of capital;

10


Under the market approach, we used other significant observable market inputs including various peer company comparisons and industry transaction data, which resulted in revenue and EBITDA market multiples of 1.75x to 2.00x and 6.00x to 7.50x, respectively. In evaluating our market multiples, we placed higher consideration on peer companies that were experiencing similar oil and gas pressures. Changes in the estimates utilized under the income and market approaches could materially affect the determination of fair value and the conclusions of the step one analysis for the reporting unit.
    
Other Intangible Assets, Net

The components of other intangible assets, net were the following as of:
 
April 30, 2017
 
 
January 31, 2017
(In thousands)
Gross (1)
 
Accumulated
Amortization
 
Net
 
 
Gross (1)
 
Accumulated
Amortization
 
Net
Carrying amount:
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships (25 years)
$
400,768

 
$
(94,848
)
 
$
305,920

 
 
$
400,455

 
$
(90,770
)
 
$
309,685

Customer backlog (2 years)
200

 
(200
)
 

 
 
200

 
(200
)
 

Developed technology (11 years)
1,638

 
(506
)
 
1,132

 
 
1,634

 
(467
)
 
1,167

Trade name (Indefinite)
43,709

 

 
43,709

 
 
43,566

 

 
43,566

Total carrying amount
$
446,315

 
$
(95,554
)
 
$
350,761

 
 
$
445,855

 
$
(91,437
)
 
$
354,418

(1)     Amounts are stated Gross, net of impairment charges to trade name of $18.3 million and $23.8 million in the fiscal years ended January 31, 2017 and 2016, respectively.
We evaluate the carrying value of our indefinite-lived intangible asset (trade name) annually during the fourth quarter of each fiscal year and more frequently if we believe indicators of impairment exist. To test our indefinite-lived intangible asset for impairment, we compare the fair value of our indefinite-lived intangible asset to carrying value. We estimate the fair value using an income approach and using the asset’s projected discounted cash flows. We recognize an impairment loss when the estimated fair value of the indefinite-lived intangible asset is less than the carrying value.
We assess the impairment of definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The asset is impaired if its carrying value exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the asset. In assessing recoverability, we must make assumptions regarding estimated future cash flows and other factors. The impairment loss is the amount by which the carrying value of the asset exceeds its fair value. We estimate fair value utilizing the projected discounted cash flow method and a discount rate determined by our management to be commensurate with the risk inherent in our current business model. When calculating fair value, we must make assumptions regarding estimated future cash flows, discount rates and other factors. There were no indicators of impairment during the three months ended April 30, 2017.
Due to certain indicators of impairment identified during our April 30, 2016 interim impairment test of goodwill, we assessed our indefinite and definite-lived intangible assets for impairment. Based on our analysis, we concluded that the carrying value of our indefinite-lived intangible asset (trade name) exceeded its fair value and recorded an impairment charge of $18.3 million in our North American reporting unit. This impairment charge, which is included under the caption “Impairment of goodwill and other intangible assets” in our condensed consolidated statements of operations for the three months ended April 30, 2016, does not impact our operations, compliance with our debt covenants or our cash flows. We estimated the fair value of our trade name using the relief-from-royalty method, which uses several significant assumptions, including an estimate of useful life and revenue projections that consider historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. The following estimates and assumptions were also used in the relief-from-royalty method:
Royalty rate of 1.5% based on market observed royalty rates; and
A discount rate of 12.0% based on the required rate of return for the trade name asset.
As of April 30, 2016, there was no impairment recorded of our definite-lived intangible assets.


11


Amortization expense for other intangible assets was $4.0 million and $4.1 million for each of the three months ended April 30, 2017 and 2016, respectively. Estimated amortization expense for the fiscal periods ending January 31 is as follows:
(In thousands)
 
Remainder of the fiscal year ending January 31, 2018
$
12,135

2019
16,180

2020
16,180

2021
16,180

2022
16,180

Thereafter
230,197

Total
$
307,052



Note 7. Accrued Expenses
Accrued expenses consists of the following as of:
(In thousands)
April 30,
2017
 
January 31,
2017
Accrued compensation
$
7,593

 
$
11,488

Accrued insurance
754

 
793

Accrued interest
8,304

 
3,257

Accrued professional fees
509

 
459

Accrued taxes
4,543

 
3,852

Capital lease - current
604

 
545

Other accrued expenses
1,813

 
1,461

Total accrued expenses
$
24,120

 
$
21,855



12


Note 8. Debt

Debt consists of the following:
(In thousands)
April 30,
2017
 
January 31,
2017
Senior term loan (LIBOR margin of 3.0%, and interest rate of 4.25%)
$
401,700

 
$
402,740

Senior unsecured notes
240,000

 
240,000

Total debt
641,700

 
642,740

Less: deferred financing costs
(6,519
)
 
(7,263
)
Total debt less deferred financing costs
635,181

 
635,477

Less: current portion (net of current portion of deferred financing costs of $3,116 and $3,080, respectively)
(1,047
)
 
(1,082
)
Long-term debt, net of current portion (net of long-term portion of deferred financing costs of $3,403 and $4,183, respectively)
$
634,134

 
$
634,395


On June 1, 2011, we (i) entered into a $435.0 million senior secured credit facility (the “Credit Facility”), consisting of a $390.0 million term loan facility (the “Senior Term Loan”) and a $45.0 million revolving credit facility (the “Revolving Credit Facility”) and (ii) issued $240.0 million in aggregate principal amount of senior unsecured notes due 2019 (the “Notes”).

Credit Facility
On February 7, 2013, we entered into a first amendment to refinance our Credit Facility (the “First Amendment”), to refinance a like amount of term loans (the “Original Term Loan”) under the Credit Facility. Borrowings under the Credit Facility bear interest at a rate equal to LIBOR plus an applicable margin, subject to a LIBOR floor of 1.25%. The LIBOR margin applicable to the Amended Senior Term Loan is 3.00%, which is 0.75% less than the LIBOR margin applicable to the Original Term Loan. In addition, pursuant to the First Amendment, among other things, (i) the Senior Term Loan maturity date was extended to February 7, 2020, provided that the maturity will be March 2, 2019 if the Amended Senior Term Loan is not repaid or refinanced on or prior to March 2, 2019, (ii) the Revolving Credit Facility maturity date was extended to February 7, 2018, and (iii) we obtained increased flexibility with respect to certain covenants and restrictions relating to our ability to incur additional debt, make investments, debt prepayments, and acquisitions. Principal on the Senior Term Loan is payable in quarterly installments of $1.0 million. Furthermore, the excess cash flow prepayment requirement is in effect until the maturity date.
On November 13, 2013, we entered into a second amendment to our Credit Facility (the “Second Amendment”). Pursuant to the Second Amendment, the Company borrowed $35.0 million of incremental term loans (the “Incremental Term Loan”), which may be used for general corporate purposes, including to finance permitted acquisitions. The terms applicable to the Incremental Term Loans are the same as those applicable to the term loans under the Credit Facility.

On November 3, 2016, we entered into a third amendment to our Credit Facility (the “Third Amendment”) to amend the Revolving Credit Facility. The amendment (i) extends the Revolving Credit Facility maturity date from February 7, 2018 to November 7, 2019 (provided that such maturity date will be accelerated to January 30, 2019 unless the Company’s senior notes are repaid in full or extended or refinanced on or prior to January 30, 2019) and (ii) reduces the revolver commitment from $45.0 million to $40.0 million in addition to certain other amendments to the original terms.
    

The Credit Facility, as amended, in February 2013, November 2013 and November 2016, places certain limitations on our (and all of our U.S. subsidiaries’) ability to incur additional indebtedness, pay dividends or make other distributions, repurchase capital stock, make certain investments, enter into certain types of transactions with affiliates, utilize assets as security in other transactions, and sell certain assets or merge with or into other companies. In addition, we may be required to satisfy and maintain a total leverage ratio if there is an outstanding balance on the Revolving Credit Facility of 25% or more of the committed amount on any quarter end.

    
The Third Amendment was accounted for as a debt modification. Costs incurred in connection with the Third Amendment are being deferred and amortized over the term of the amended Revolving Credit Facility. In addition, any unamortized deferred costs related to the old arrangement were written off in proportion to the decrease in borrowing capacity. During the fiscal year ended January 31, 2017, we recorded $0.5 million of deferred costs related to the Third Amendment.

13



As of April 30, 2017, we did not have an outstanding balance on the revolving loan; and therefore, we were not subject to a leverage test. Additionally, as of April 30, 2017, we were in compliance with all of our requirements and covenant tests under the Credit Facility, as amended.
 
Senior Unsecured Notes Due 2019
On June 1, 2011, we issued $240.0 million of fixed rate 8.25% notes due June 1, 2019. We may redeem all or any portion of the Notes at the redemption prices set forth in the applicable indenture, plus accrued and unpaid interest. Upon a change of control, we are required to make an offer to redeem all of the Notes from the holders at a redemption price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of the repurchase. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by our direct and indirect existing and future wholly-owned domestic restricted subsidiaries.

Interest and Fees
Costs related to debt financing are deferred and amortized to interest expense over the term of the underlying debt instruments utilizing the straight-line method for our revolving credit facility and the effective interest method for our senior term and incremental term loan facilities. As of April 30, 2017 and January 31, 2017, deferred financing costs of $6.5 million and $7.3 million, respectively, are reflected as a reduction of the underlying debt. In addition, we amortized $0.7 million of deferred financing costs during each of the three months ended April 30, 2017 and 2016.
Interest and fees related to our Credit Facility and the Notes are as follows:
 
Three Months Ended April 30,
(In thousands)
2017
 
2016
Credit Facility interest and fees(1)
$
4,859

 
$
4,770

Notes interest and fees (2)
5,296

 
5,267

Total interest and fees
$
10,155

 
$
10,037

(1)    Interest on the Amended Term Loan is payable quarterly based upon an interest rate of 4.25%.
(2)    Interest on the Notes is payable semi-annually based upon a fixed annual rate of 8.25%.

Principal Payments on Debt
As of April 30, 2017, the schedule of minimum required principal payments on our debt for each of the fiscal years ending January 31 are due according to the table below:
(In thousands)
 
Remainder of the fiscal year ending January 31, 2018
$
3,123

2019
4,163

2020
634,414

Total
$
641,700



14


Note 9. Income Taxes
The income tax benefit for the three months ended April 30, 2017 and 2016 is based on the estimated effective tax rate for the entire fiscal year. The estimated effective tax rate is subject to adjustment in subsequent quarterly periods as our estimates of pre-tax income and loss for the year fluctuate, including changes in the geographic mix of pre-tax income and loss.
 
The effective income tax rates for the three months ended April 30, 2017 and 2016 were a benefit of 36.9% and 22.5%, respectively. The effective tax rate differ from the U.S. federal statutory rate primarily due to income taxed in foreign jurisdictions, state taxes, non-deductible meals and entertainment expenses and discrete items for the period ended April 30, 2017. The difference in effective income tax rates for the three months ended April 30, 2017 and 2016 primarily relates to a change in the estimated forecast of pre-tax book income and loss for each respective jurisdiction, which includes an impairment of non-deductible goodwill recorded during the three months ended April 30, 2016. Discrete items related primarily to excess shortfalls associated with the cancellation and expiration of stock options recorded during the three months ended April 30, 2017.
 
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. A valuation allowance is recorded for deferred income tax assets when management determines it is more likely than not that such assets will not be realized. Our deferred tax assets primarily relate to federal net operating loss carry-forwards. Management believes we will realize the benefit of existing deferred tax assets based on the scheduled reversal of U.S. deferred tax liabilities, related to depreciation and amortization expenses not deductible for tax purposes, which is ordinary income and therefore of the same character as the temporary differences giving rise to the deferred tax assets. This reversal will occur in substantially similar time periods and in the same jurisdictions as the deferred tax assets. As such, the deferred tax liabilities are considered a source of income sufficient to support our U.S. deferred tax assets; therefore, a valuation allowance is not required as of April 30, 2017.
 
We recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Tax benefits recognized from such a position are measured based on whether the benefit has a greater than 50% likelihood of being realized upon ultimate resolution. We do not believe there will be any material unrecognized tax positions over the next 12 months.
 
We believe appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years. However, due to the risk that audit outcomes and the timing of audit settlements are subject to significant uncertainty and as we continue to evaluate such uncertainties in light of current facts and circumstances, our current estimate of the total amounts of unrecognized tax benefits could increase or decrease for all open tax years. As of the date of this report, we do not anticipate that there will be any material change in the unrecognized tax benefits associated with these audits within the next twelve months.


15


Note 10. Shareholder’s Equity

Share-Based Compensation
During June 2011, BCI Holdings adopted a share-based compensation plan, The BakerCorp International Holdings, Inc. 2011 Equity Incentive Plan (the “2011Plan”). Subsequent to the adoption of the 2011 Plan, on September 12, 2013, the BCI Holdings’ Board of Directors amended the 2011 Plan by resolution to increase the number of shares of BCI Holdings common stock authorized for issuance under the 2011 Plan to 1,001,339 shares. As of April 30, 2017, there were 260,170 shares available for grant. The amended 2011 Plan permits the granting of BCI Holdings stock options, nonqualified stock options and restricted stock to eligible employees and non-employee directors and consultants.

The following table summarizes stock option activity during the three months ended April 30, 2017:
 
Number of
Options
 
Weighted
Average
Exercise 
Price
 
Aggregate
Intrinsic 
Value
(in thousands)(1)
 
Weighted
Average 
Term
Remaining
(in years)
 
Weighted
Average 
Grant
Date Fair 
Value
Outstanding, January 31, 2017
766,348

 
$
83.47

 
$

 
6.5
 
 
Granted

 
$

 
 
 
 
 
$

Exercised

 
$

 
$

 
 
 
 
Forfeited/canceled/expired
(33,328
)
 
$
39.12

 
 
 
 
 
 
Outstanding, April 30, 2017
733,020

 
$
83.92

 
$

 
6.1
 
 
Vested and expected to vest, April 30, 2017
78,344

 
$
74.90

 
$

 
3.5
 
 
Exercisable, April 30, 2017
78,344

 
$
74.90

 
$

 
2.1
 
 
 
(1)
Aggregate intrinsic value in the table above represents the total pre-tax value that option holders would have received had all stock option holders exercised their options as of April 30, 2017. The aggregate intrinsic value is the difference between the estimated fair market value of the BCI Holdings common stock at the end of the period and the stock option exercise price, multiplied by the number of in-the-money options. This amount will change based on the fair market value of the BCI Holdings common stock.

As of April 30, 2017, there was $16.8 million of unrecognized pre-tax share-based compensation expense related to non-vested stock options of which $0.9 million we expect to recognize over a weighted average period of 0.7 years. We expect to recognize the remaining $15.9 million, which includes $8.1 million of unrecognized share-based compensation expense for the CEO’s options, upon a Change in Control or initial public offering (“IPO”) as defined in the 2011 Plan. During the three months ended April 30, 2017, we did not recognize any share-based compensation expense related to the CEO’s options.
No options vested during the three months ended April 30, 2017.

The share-based compensation expense included within employee related expenses in our condensed consolidated statement of operations was the following:
 
Three Months Ended April 30,
(In thousands)
2017
 
2016
Non-cash share-based compensation expense (income)
$
138

 
$
(272
)

The fair value of BCI Holdings stock options issued and classified as equity awards was determined using the Black-Scholes options pricing model utilizing the following weighted-average assumptions for each respective period:

 
Three Months Ended April 30,
 
2017
 
2016
Expected volatility
56
%
 
45
%
Expected dividends
%
 
%
Expected term
7.2 years

 
6.1 years

Risk-free interest rate
1.5
%
 
1.4
%


16



Liability Awards
We account for certain option awards as liability awards, as we determined cash settlement upon exercise is probable. The expiration of certain options classified as liability awards resulted in a decrease to non-cash share-based compensation expense of $0.03 million during the three months ended April 30, 2017. We remeasured the fair value of these options during the fiscal year ended January 31, 2017, resulting in a decrease to our non-cash share-based compensation expense of $0.7 million. As of April 30, 2017 and 2016 the fair value of our share-based compensation liability awards totaled $35,000 and $66,000, respectively. Our share-based compensation liability is fair valued using level 3 inputs which are based on internal valuations and considering input from third parties and utilizing the following assumptions:

 
Three Months Ended April 30,
 
2017
 
2016
Expected volatility
60
%
 
55
%
Expected dividends
%
 
%
Expected term
0.8 years

 
1.2 years

Risk-free interest rate
0.5
%
 
0.6
%

Note 11. Segment Reporting

We conduct our operations through entities located in the United States, Canada, France, Germany, the United Kingdom and the Netherlands. We transact business using the local currency within each country where we perform the service or provide the rental equipment.
Our operating and reportable segments are North America and Europe. Within each operating segment, there are common customers, common pricing structures, the ability and history of sharing equipment and resources, operational compatibility, commonality among regulatory environments, and relative geographic proximity. Our operating segments consist of the following:

the North American segment consisting of branches located in the United States and Canada that provide equipment and services suitable across these North American countries.
the European segment consisting of branches located in France, Germany, the United Kingdom and the Netherlands that provide equipment and services to customers in a number of European countries.



17


Selected statement of operations information for our reportable segments are the following:
 
Three Months Ended April 30,
(In thousands)
2017
 
2016
Revenue
 
 
 
North America
54,178

 
56,474

Europe
8,961

 
8,558

Total revenue
$
63,139

 
$
65,032

Depreciation and amortization
 
 
 
North America
$
13,390

 
$
13,909

Europe
1,331

 
1,200

Total depreciation and amortization
$
14,721

 
$
15,109

Interest expense (income), net
 
 
 
North America
$
9,993

 
$
10,516

Europe
(11
)
 
7

Total interest expense, net
$
9,982

 
$
10,523

Income tax (benefit) expense
 
 
 
North America
$
(5,246
)
 
$
(21,345
)
Europe
434

 
456

Total income tax benefit
$
(4,812
)
 
$
(20,889
)
Net (loss) income
 
 
 
North America (1)
$
(10,301
)
 
$
(72,842
)
Europe (1)
2,090

 
1,029

Total net loss
$
(8,211
)
 
$
(71,813
)
 
(1)
During the three months ended April 30, 2017 and 2016, we included $1.1 million and $1.2 million, respectively, of intersegment expense allocations from North America to Europe.
    
Total assets and property and equipment, net information by reportable segment consists of the following:
(In thousands)
April 30,
2017
 
January 31,
2017
Total assets
 
 
 
North America
700,293

 
716,640

Europe
117,480

 
113,900

Total assets
$
817,773

 
$
830,540

Property and Equipment, net
 
 
 
North America
272,972

 
276,136

Europe
45,048

 
44,571

Total property and equipment, net
$
318,020

 
$
320,707



18


Note 12. Related Party Transactions

From time to time, we enter into transactions in the normal course of business with related parties. The accounting policies that we apply to our transactions with related parties are consistent with those applied in transactions with independent third parties.

Pursuant to a professional services agreement between us and Permira Advisers L.L.C. (the “Sponsor”), we agreed to pay the Sponsor an annual management fee of $0.5 million, payable quarterly, plus reasonable out-of-pocket expenses, in connection with the planning, strategy, and oversight support provided to management. We recorded $0.1 million for each of the three months ended April 30, 2017 and 2016, in aggregate management fees and expenses to the Sponsor. Management fees payable to the Sponsor totaled $0.04 million as of April 30, 2017 and January 31, 2017. Management fees are included in professional fees in the condensed consolidated statement of operations.

Note 13. Commitments and Contingencies
Litigation
We are involved in various legal actions arising in the ordinary course of conducting our business. These include claims relating to (i) personal injury or property damage involving equipment rented or sold by us, (ii) motor vehicle accidents involving our vehicles and our employees, (iii) employment-related matters, and (iv) environmental matters. We do not believe that the ultimate disposition of these matters will have a material adverse effect on our condensed consolidated financial position, results of operations, or cash flow. We expense legal fees in the period in which they are incurred.

Note 14. Condensed Consolidating Financial Information
Our Notes are guaranteed by all of our U.S. subsidiaries (the “guarantor subsidiaries”). This indebtedness is not guaranteed by BCI Holdings or our foreign subsidiaries (together, the “non-guarantor subsidiaries”). The guarantor subsidiaries are all one hundred percent owned, and the guarantees are made on a joint and several basis and are full and unconditional (subject to subordination provisions and subject to customary release provisions and a standard limitation, which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). The following condensed consolidating financial information presents the financial position, results of operations, and cash flows of the parent, guarantors, and non-guarantor subsidiaries of the Company and the eliminations necessary to arrive at the information on a consolidated basis for the periods indicated. The parent referenced in the condensed consolidating financial statements is BakerCorp International, Inc., the issuer.
We conduct substantially all of our business through our subsidiaries. To make the required payments on our Notes and other indebtedness, and to satisfy other liquidity requirements, we will rely, in large part, on cash flows from these subsidiaries, mainly in the form of dividends, royalties, and advances, or payments of intercompany loan arrangements. The ability of these subsidiaries to make dividend payments to us will be affected by, among other factors, the obligations of these entities to their creditors, requirements of corporate and other law, and restrictions contained in agreements entered into by or relating to these entities.
The parent and the guarantor subsidiaries have each reflected investments in their respective subsidiaries under the equity method of accounting. There are no restrictions limiting the transfer of cash from guarantor subsidiaries and non-guarantor subsidiaries to the parent.    



19



Condensed Consolidating Balance Sheet
April 30, 2017 (unaudited)
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
11,442

 
$
15,861

 
$

 
$
27,303

Accounts receivable, net

 
47,795

 
11,000

 

 
58,795

Inventories, net

 
4,212

 
124

 

 
4,336

Prepaid expenses and other assets
76

 
2,470

 
975

 

 
3,521

Total current assets
76

 
65,919

 
27,960

 

 
93,955

Property and equipment, net

 
260,897

 
57,123

 

 
318,020

Goodwill

 

 
50,822

 

 
50,822

Other intangible assets, net

 
329,169

 
21,592

 

 
350,761

Other assets

 
4,063

 
152

 

 
4,215

Investment in subsidiaries
295,015

 
111,771

 
(326
)
 
(406,460
)
 

Total assets
$
295,091

 
$
771,819

 
$
157,323

 
$
(406,460
)
 
$
817,773

Liabilities and shareholder’s equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
77

 
$
11,920

 
$
2,098

 
$

 
$
14,095

Accrued expenses
8,303

 
12,346

 
3,471

 

 
24,120

Current portion of long-term debt (net of deferred financing costs of $3,116)
1,047

 

 

 

 
1,047

Intercompany balances
(341,750
)
 
308,965

 
32,785

 

 

Total current liabilities
(332,323
)
 
333,231

 
38,354

 

 
39,262

Long-term debt, net of current portion (net of deferred financing costs of $3,403)
634,134

 

 

 

 
634,134

Deferred tax liabilities, net
(43,131
)
 
141,597

 
6,688

 

 
105,154

Share-based compensation liability

 
35

 

 

 
35

Other long-term liabilities

 
2,625

 
152

 

 
2,777

Total liabilities
258,680

 
477,488

 
45,194

 

 
781,362

Total shareholder’s equity
36,411

 
294,331

 
112,129

 
(406,460
)
 
36,411

Total liabilities and shareholder’s equity
$
295,091

 
$
771,819

 
$
157,323

 
$
(406,460
)
 
$
817,773


20



Condensed Consolidating Balance Sheet
January 31, 2017
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
30,607

 
$
13,956

 
$

 
$
44,563

Accounts receivable, net

 
41,902

 
10,576

 

 
52,478

Inventories, net

 
3,622

 
99

 

 
3,721

Prepaid expenses and other current assets
35

 
3,201

 
909

 

 
4,145

Total current assets
35

 
79,332

 
25,540

 

 
104,907

Property and equipment, net

 
264,194

 
56,513

 

 
320,707

Goodwill

 

 
49,918

 

 
49,918

Other intangible assets, net

 
333,033

 
21,385

 

 
354,418

Other long-term assets

 
452

 
138

 

 
590

Investment in subsidiaries
297,137

 
109,766

 

 
(406,903
)
 

Total assets
$
297,172

 
$
786,777

 
$
153,494

 
$
(406,903
)
 
$
830,540

Liabilities and shareholder’s equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
56

 
$
15,839

 
$
1,802

 
$

 
$
17,697

Accrued expenses
3,258

 
14,377

 
4,220

 

 
21,855

Current portion of long-term debt (net of deferred financing costs of $3,080)
1,082

 

 

 

 
1,082

Intercompany balances
(341,847
)
 
310,812

 
31,035

 

 

Total current liabilities
(337,451
)
 
341,028

 
37,057

 

 
40,634

Long-term debt, net of current portion (net of deferred financing costs of $4,183)
634,395

 

 

 

 
634,395

Deferred tax liabilities, net
(42,166
)
 
145,806

 
6,474

 

 
110,114

Share-based compensation liability

 
66

 

 

 
66

Other long-term liabilities

 
2,739

 
197

 

 
2,936

Total liabilities
254,778

 
489,639

 
43,728

 

 
788,145

Total shareholder’s equity
42,394

 
297,138

 
109,766

 
(406,903
)
 
42,395

Total liabilities and shareholder’s equity
$
297,172

 
$
786,777

 
$
153,494

 
$
(406,903
)
 
$
830,540


21



Condensed Consolidating Statement of Operations
For the Three Months Ended April 30, 2017 (unaudited)
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Revenue
$

 
$
52,796

 
$
10,343

 
$

 
$
63,139

Operating expenses:
 
 
 
 
 
 
 
 
 
Employee related expenses
4

 
21,722

 
3,214

 

 
24,940

Rental expense

 
7,639

 
1,118

 

 
8,757

Repair and maintenance

 
2,941

 
227

 

 
3,168

Cost of goods sold

 
2,880

 
263

 

 
3,143

Facility expense
6

 
6,062

 
764

 

 
6,832

Professional fees
10

 
1,237

 
112

 

 
1,359

Other operating expenses
160

 
2,243

 
1,617

 

 
4,020

Depreciation and amortization

 
13,062

 
1,659

 

 
14,721

Gain on sale of equipment

 
(1,081
)
 
(39
)
 

 
(1,120
)
Impairment of long-lived assets

 
200

 

 

 
200

Total operating expenses
180

 
56,905

 
8,935

 

 
66,020

(Loss) income from operations
(180
)
 
(4,109
)
 
1,408

 

 
(2,881
)
Other expenses (income):
 
 
 
 
 
 
 
 


Interest expense, net
9,974

 
17

 
(9
)
 

 
9,982

Foreign currency exchange loss (gain), net

 
218

 
(58
)
 

 
160

Total other expenses (income), net
9,974

 
235

 
(67
)
 

 
10,142

(Loss) income before income tax (benefit) expense
(10,154
)
 
(4,344
)
 
1,475

 

 
(13,023
)
Income tax (benefit) expense
(965
)
 
(4,207
)
 
360

 

 
(4,812
)
(Loss) income before equity in net earnings of subsidiaries
(9,189
)
 
(137
)
 
1,115

 

 
(8,211
)
Equity in net earnings of subsidiaries
978

 
1,115

 

 
(2,093
)
 

Net (loss) income
$
(8,211
)
 
$
978

 
$
1,115

 
$
(2,093
)
 
$
(8,211
)

22



Condensed Consolidating Statement of Operations
For the Three Months Ended April 30, 2016 (unaudited)
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Revenue
$

 
$
55,062

 
$
9,970

 
$

 
$
65,032

Operating expenses:
 
 
 
 
 
 
 
 
 
Employee related expenses
32

 
21,384

 
3,274

 

 
24,690

Rental expense

 
6,714

 
796

 

 
7,510

Repair and maintenance

 
2,132

 
181

 

 
2,313

Cost of goods sold

 
2,955

 
107

 

 
3,062

Facility expense
8

 
6,255

 
693

 

 
6,956

Professional fees
52

 
907

 
133

 

 
1,092

Other operating expenses
158

 
1,937

 
1,489

 

 
3,584

Depreciation and amortization

 
13,633

 
1,476

 

 
15,109

Gain on sale of equipment

 
(648
)
 
(10
)
 

 
(658
)
Impairment of goodwill and other intangible assets

 
84,046

 

 

 
84,046

Total operating expenses
250

 
139,315

 
8,139

 

 
147,704

(Loss) income from operations
(250
)
 
(84,253
)
 
1,831

 

 
(82,672
)
Other expenses (income):
 
 
 
 
 
 
 
 
 
Interest expense, net
10,517

 

 
6

 

 
10,523

Foreign currency exchange loss (gain), net

 
(609
)
 
116

 

 
(493
)
Total other expenses (income), net
10,517

 
(609
)
 
122

 

 
10,030

(Loss) income before income tax (benefit) expense
(10,767
)
 
(83,644
)
 
1,709

 

 
(92,702
)
Income tax (benefit) expense
(1,083
)
 
(20,225
)
 
419

 

 
(20,889
)
(Loss) income before equity in net earnings of subsidiaries
(9,684
)
 
(63,419
)
 
1,290

 

 
(71,813
)
Equity in net earnings of subsidiaries
(62,129
)
 
1,290

 

 
60,839

 

Net (loss) income
$
(71,813
)
 
$
(62,129
)
 
$
1,290

 
$
60,839

 
$
(71,813
)






 


23



Condensed Consolidating Statement of Comprehensive (Loss) Income
For the Three Months Ended April 30, 2017 (unaudited)
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Net (loss) income
$
(8,211
)
 
$
978

 
$
1,115

 
$
(2,093
)
 
$
(8,211
)
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments

 

 
2,090

 

 
2,090

Other comprehensive income

 

 
2,090

 

 
2,090

Total comprehensive (loss) income
$
(8,211
)
 
$
978

 
$
3,205

 
$
(2,093
)
 
$
(6,121
)

24



Condensed Consolidating Statement of Comprehensive (Loss) Income
For the Three Months Ended April 30, 2016 (unaudited)
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Net (loss) income
$
(71,813
)
 
$
(62,129
)
 
$
1,290

 
$
60,839

 
$
(71,813
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
Unrealized gain on interest rate swap agreements, net of tax expense of $181
294

 

 

 

 
294

Foreign currency translation adjustments

 

 
6,436

 

 
6,436

Other comprehensive income, net of tax
294

 

 
6,436

 

 
6,730

Total comprehensive (loss) income
$
(71,519
)
 
$
(62,129
)
 
$
7,726

 
$
60,839

 
$
(65,083
)







25



Condensed Consolidating Statement of Cash Flows
For the Three Months Ended April 30, 2017 (unaudited)
(In thousands)
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Operating activities
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(8,211
)
 
$
978

 
$
1,115

 
$
(2,093
)
 
$
(8,211
)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
Provision for doubtful accounts

 
578

 
22

 

 
600

Provision for excess and obsolete inventory

 
55

 

 

 
55

Share-based compensation expense
4

 
134

 

 

 
138

Gain on sale of equipment

 
(1,081
)
 
(39
)
 

 
(1,120
)
Depreciation and amortization

 
13,062

 
1,659

 

 
14,721

Amortization of deferred financing costs
744

 

 

 

 
744

Deferred income taxes
(965
)
 
(4,209
)
 
125

 

 
(5,049
)
Amortization of above market lease

 
(38
)
 

 

 
(38
)
Impairment of long-lived assets

 
200

 

 

 
200

Equity in net earnings of subsidiaries, net of taxes
(978
)
 
(1,115
)
 

 
2,093

 

Changes in assets and liabilities:
 
 
 
 
 
 
 
 

Accounts receivable

 
(6,471
)
 
(316
)
 

 
(6,787
)
Inventories

 
(646
)
 
(29
)
 

 
(675
)
Prepaid expenses and other assets
(41
)
 
757

 
(151
)
 

 
565

Accounts payable and other liabilities
5,068

 
(6,022
)
 
(567
)
 
(33
)
 
(1,554
)
Net cash (used in) provided by operating activities
(4,379
)
 
(3,818
)
 
1,819

 
(33
)
 
(6,411
)
Investing activities
 
 
 
 
 
 
 
 
 
Purchases of property and equipment

 
(9,060
)
 
(776
)
 

 
(9,836
)
Proceeds from sale of equipment

 
406

 
64

 

 
470

Net cash used in investing activities

 
(8,654
)
 
(712
)
 

 
(9,366
)
Financing activities
 
 
 
 
 
 
 
 
 
Intercompany investments and loans
5,420

 
(6,693
)
 
1,693

 
(420
)
 

Repayments of long-term debt
(1,041
)
 

 

 

 
(1,041
)
Net cash provided by (used in) financing activities
4,379

 
(6,693
)
 
1,693

 
(420
)
 
(1,041
)
Effect of foreign currency translation on cash

 

 
(895
)
 
453

 
(442
)
Net (decrease) increase in cash and cash equivalents

 
(19,165
)
 
1,905

 

 
(17,260
)
Cash and cash equivalents, beginning of period

 
30,607

 
13,956

 

 
44,563

Cash and cash equivalents, end of period
$

 
$
11,442

 
$
15,861

 
$

 
$
27,303


26



Condensed Consolidating Statement of Cash Flows
For the Three Months Ended April 30, 2016 (unaudited)
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Operating activities
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(71,813
)
 
$
(62,129
)
 
$
1,290

 
$
60,839

 
$
(71,813
)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
Provision for doubtful accounts, net

 
368

 
(56
)
 

 
312

Share-based compensation expense
32

 
(304
)
 

 

 
(272
)
(Gain) loss on sale of equipment

 
(648
)
 
(10
)
 

 
(658
)
Depreciation and amortization

 
13,633

 
1,476

 

 
15,109

Amortization of deferred financing costs
707

 

 

 

 
707

Deferred income taxes
(1,083
)
 
(20,225
)
 

 

 
(21,308
)
Amortization of above market lease

 
(38
)
 

 

 
(38
)
Impairment of goodwill and other intangible assets

 
84,046

 

 

 
84,046

Equity in net earnings of subsidiaries, net of taxes
62,129

 
(1,290
)
 

 
(60,839
)
 

Changes in assets and liabilities:
 
 
 
 
 
 
 
 

Accounts receivable

 
3,782

 
(1,365
)
 

 
2,417

Inventories

 
4,373

 
(54
)
 

 
4,319

Prepaid expenses and other current assets
(53
)
 
332

 
(390
)
 

 
(111
)
Accounts payable and other liabilities
4,916

 
(7,398
)
 
(273
)
 

 
(2,755
)
Net cash (used in) provided by operating activities
(5,165
)
 
14,502

 
618

 

 
9,955

Investing activities
 
 
 
 
 
 
 
 
 
Purchases of property and equipment

 
(19,752
)
 
(1,388
)
 

 
(21,140
)
Proceeds from sale of equipment

 
1,151

 
136

 

 
1,287

Net cash used in investing activities

 
(18,601
)
 
(1,252
)
 

 
(19,853
)
Financing activities
 
 
 
 
 
 
 
 
 
Intercompany investments and loans
6,206

 
(5,820
)
 
740

 
(1,126
)
 

Repayment of long-term debt
(1,041
)
 

 

 

 
(1,041
)
Net cash provided by (used in) financing activities
5,165

 
(5,820
)
 
740

 
(1,126
)
 
(1,041
)
Effect of foreign currency translation on cash

 

 
(1,166
)
 
1,126

 
(40
)
Net decrease in cash and cash equivalents

 
(9,919
)
 
(1,060
)
 

 
(10,979
)
Cash and cash equivalents, beginning of period

 
34,014

 
10,740

 

 
44,754

Cash and cash equivalents, end of period
$

 
$
24,095

 
$
9,680

 
$

 
$
33,775



27


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis includes historical and forward-looking information that should be read in conjunction with the accompanying condensed consolidated financial statements included in this quarterly report and our consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended January 31, 2017. The following tables