The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
The
interim unaudited condensed consolidated financial statements of RigNet, Inc. (the Company or RigNet) include all adjustments which, in the opinion of management, are necessary for a fair presentation of the Companys financial position and
results of operations. All such adjustments are of a normal recurring nature. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and
Rule 10-01 of Regulation S-X. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Estimates and assumptions
about future events and their effects cannot be perceived with certainty. Estimates may change as new events occur, as more experience is acquired, as additional information becomes available and as the Companys operating environment changes.
Actual results could differ from estimates. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2015 included in the Companys Annual Report on
Form 10-K filed with the Securities and Exchange Commission on February 29, 2016.
Subsequent to the issuance of the Companys
September 30, 2015 condensed consolidated financial statements, the Company identified a misclassification in the presentation of operating expenses between selling and marketing expense and general and administrative expense in the Condensed
Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2015. This error resulted in the understatement of selling and marketing expense of $0.5 million and $2.0 million for the three and nine months
ended September 30, 2015, respectively, and an offsetting overstatement of general and administrative expense, in the same amounts. The prior period amounts have been revised to reflect the correct classification. The correction had no impact
on total expenses or net loss for the three and nine months ended September 30, 2015.
Significant Accounting Policies
Please refer to RigNets Annual Report on Form 10-K for fiscal year 2015 for information regarding the Companys accounting policies.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from
Contracts with Customers (Topic 606). The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued Accounting Standards Update No. 2015-14 (ASU 2015-14), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. In March 2016,
the FASB issued Accounting Standards Update No. 2016-08 (ASU 2016-08), Revenue from Contracts with Customers: Principal versus Agent Considerations. The amendments are intended to improve the operability and understandability of the implementation
guidance on principal versus agent considerations. In April and May of 2016, the FASB issued Accounting Standards Update No. 2016-10 (ASU 2016-10) and Accounting Standards Update No. 2016-12 (ASU 2016-12), Revenue from Contracts with Customers
(Topic 606), respectively, that provide scope amendments, performance obligations clarification and practical expedients. These ASUs are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that
reporting period, with early adoption permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently in the process of evaluating the impact the adoption of
this ASU will have on the Companys condensed consolidated financial statements.
In April 2015, the FASB issued Accounting Standards
Update No. 2015-03 (ASU 2015-03), Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (Topic 835), which requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as
a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. In August 2015, the FASB issued Accounting Standards Update No. 2015-15 (ASU 2015-15), in which the SEC staff clarified its position on
presenting and measuring debt issuance costs in connection with line of credit arrangements. The SEC staff would not object to deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs
ratably over the term of the line of credit arrangement. ASU 2015-03 became effective for annual and interim periods for fiscal years beginning after December 15, 2015. Early adoption was permitted. The Company adopted ASU 2015-03 as of January 1,
2016. The adoption of ASU 2015-03 did not have any impact on the Companys condensed consolidated financial statements.
In September
2015, the FASB issued Accounting Standards Update No. 2015-16 (ASU 2015-16), Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This new standard specifies that an acquirer should recognize adjustments
to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, eliminating the current requirement to retrospectively account for these adjustments. Additionally, the
full
7
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts should be recognized in the same period as the
adjustments to the provisional amounts. The Company adopted ASU 2015-16 as of January 1, 2016. The adoption of ASU 2015-16 did not have any impact on the Companys condensed consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases. This ASU is effective for annual reporting
periods beginning after December 15, 2018. This ASU introduces a new lessee model that generally requires reflection of leases on the balance sheet. The Company is currently in the process of evaluating the impact the adoption of this ASU will have
on the Companys condensed consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09
(ASU 2016-09), Share Based Compensation. The new ASU simplifies several aspects of share based compensation including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. This ASU is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company adopted ASU 2016-09 in the second quarter of 2016 and have applied the guidance as of January 1, 2016. The adoption of
this ASU did not have a material impact on the Companys condensed consolidated financial statements.
In August 2016, the FASB
issued Accounting Standards Update No. 2016-15 (ASU 2016-15), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new ASU reduces diversity of practice in how certain cash receipts and cash payments
are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics, including the treatment of contingent consideration payments made after a business combination. This ASU is effective for annual
and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on the Companys condensed consolidated financial
statements.
Note 2 Business Combinations
TECNOR
On February
4, 2016, RigNet completed its acquisition of Orgtec S.A.P.I. de C.V., d.b.a. TECNOR (TECNOR) for an estimated aggregate purchase price of $11.4 million. Of this aggregate purchase price, RigNet paid $4.8 million in cash in February 2016, paid $0.1
million in escrow for final net working capital and expected to pay a $6.5 million contingent consideration earn-out, estimated as of the date of acquisition. The estimate of the earn-out payable is preliminary and subject to change based on the
achievement of certain post-closing performance targets under the acquisition agreement. The maximum earn-out is $21.3 million. TECNOR provides telecommunications solutions for remote sites on land, sea and air, including a wide array of equipment,
voice and data services, satellite coverage and bandwidth options in Mexico. These services are provided to industrial, commercial and private users in diverse activity segments including mission critical military and government applications, oil
and gas operations, commercial fishing and leisure. TECNOR is based in Monterrey, Mexico.
The assets and liabilities of TECNOR have
been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill.
The Companys allocation of the purchase price is preliminary as the amounts are still being finalized.
The earn-out for TECNOR is
measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Income (Loss) in each reporting period. As of September 30, 2016, the fair value of the earn-out was
$5.6 million. There was a $1.3 million reduction in fair value to the TECNOR earn-out for the three and nine months ended September 30, 2016 recorded as a reduction of other liabilities and a decrease to general and administrative expense in the
Corporate segment. The change in fair value was due to a change in forecast of TECNORs future achievement of the post-closing performance targets. Additionally, during the three and nine months ended September 30, 2016, RigNet recognized
accreted interest expense on the TECNOR earn-out liability of $0.2 million and $0.4 million, respectively, with corresponding increases to other liabilities.
The goodwill of $6.5 million arising from the acquisition consists largely of synergies and other benefits that the Company believes will
result from combining the operations of the Company and TECNOR, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. None of the goodwill recognized is
expected to be deductible for income tax purposes. The acquisition of TECNOR, including goodwill, is included in the Companys condensed consolidated financial statements as of the acquisition date and is reflected in the Western Hemisphere
segment.
8
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Estimated Useful
Life (Years)
|
|
|
Fair Market Values
|
|
|
|
|
|
|
(in thousands)
|
|
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
$
|
2,672
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
1,280
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
|
|
809
|
|
Backlog
|
|
|
2.0
|
|
|
|
366
|
|
|
|
|
|
Customer Relationships
|
|
|
7.0
|
|
|
|
2,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
|
|
|
|
|
|
|
|
|
2,576
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
6,465
|
|
Accounts Payable
|
|
|
|
|
|
|
|
|
|
|
(1,914
|
)
|
Accrued Expenses
|
|
|
|
|
|
|
|
|
|
|
(494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
|
|
|
|
|
|
|
|
$
|
11,394
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes $0.1 million of escrow for final net working capital adjustments and a $6.5 million contingent consideration earn-out, estimated as of the date of acquisition.
|
For the nine months ended September 30, 2016, RigNet incurred $0.2 million of acquisition-related costs, which are reported as general and
administrative expense in the Companys Condensed Consolidated Statements of Comprehensive Income (Loss).
Actual and Pro Forma
Impact of the TECNOR Acquisition
TECNORs revenue and net loss were $2.0 million and $0.7 million for the three months ended
September 30, 2016. TECNORs revenue and net loss were $7.1 million and $0.1 million, respectively, for the period from February 4, 2016 to September 30, 2016.
The following table represents supplemental pro forma information as if the TECNOR acquisition had occurred on January 1, 2015. Pro forma
adjustments include:
|
|
|
Adjusting interest expense to remove interest on a debt instrument previously held by TECNOR; and
|
|
|
|
Removing nonrecurring transaction costs incurred in 2015 prior to acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Revenue
|
|
$
|
50,612
|
|
|
$
|
70,985
|
|
|
$
|
168,899
|
|
|
$
|
228,244
|
|
Expenses
|
|
|
52,060
|
|
|
|
80,817
|
|
|
|
176,267
|
|
|
|
233,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,448
|
)
|
|
$
|
(9,832
|
)
|
|
$
|
(7,368
|
)
|
|
$
|
(4,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to RigNet, Inc. common stockholders
|
|
$
|
(1,658
|
)
|
|
$
|
(9,897
|
)
|
|
$
|
(7,539
|
)
|
|
$
|
(5,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to RigNet, Inc. common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.09
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 Business and Credit Concentrations
The Company is exposed to various business and credit risks including interest rate, foreign currency, credit and liquidity risks.
Interest Rate Risk
The Company has significant interest-bearing liabilities at variable interest rates which generally price monthly. The Companys variable
borrowing rates are tied to LIBOR resulting in interest rate risk (see Note 6 Long-Term Debt). The Company presently does not hedge these risks, but evaluates financial risk on a regular basis and may utilize financial instruments in the
future if deemed necessary.
Foreign Currency Risk
The Company has exposure to foreign currency risk, as a portion of the Companys activities are conducted in currencies other than U.S.
dollars. Currently, the Norwegian kroner, the British pound sterling and the Australian dollar are the currencies that could materially impact the Companys financial position and results of operations. The Company presently does not hedge
these risks, but evaluates financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. Foreign currency translations are reported as accumulated other comprehensive income (loss) in the Companys
condensed consolidated financial statements.
Credit Risk
Credit risk, with respect to accounts receivable, is due to the limited number of customers concentrated in the oil and gas industry. The
Company mitigates the risk of financial loss from defaults through defined collection terms in each contract or service agreement and periodic evaluations of the collectability of accounts receivable. The Company provides an allowance for doubtful
accounts which is adjusted when the Company becomes aware of a specific customers inability to meet its financial obligations or as a result of changes in the overall aging of accounts receivable.
Liquidity Risk
The Company maintains cash and cash equivalent balances with major financial institutions which, at times, exceed federally insured limits. The
Company monitors the financial condition of the financial institutions and has not experienced losses associated with these accounts during 2016 or 2015. Liquidity risk is managed by continuously monitoring forecasted and actual cash flows and by
matching the maturity profiles of financial assets and liabilities (see Note 6 Long-Term Debt).
Note 4 Goodwill and Intangibles
Goodwill
Goodwill
resulted from prior acquisitions as the consideration paid for the acquired businesses exceeded the fair value of acquired identifiable net tangible and intangible assets. Goodwill is reviewed for impairment at least annually with additional
evaluations being performed when events or circumstances indicate that the carrying value of these assets may not be recoverable.
The
Company acquired $6.5 million of goodwill in the TECNOR acquisition completed on February 4, 2016 (see Note 2 Business Combinations).
The Company performs its annual impairment test on July 31
st
of each year, with the
most recent annual test being performed as of July 31, 2016. The July 2016 annual test resulted in no impairment as the fair value of each reporting unit exceeded the carrying value plus goodwill of that reporting unit. No impairment indicators
have been identified through September 30, 2016.
The July 2015 annual test resulted in a full $10.9 million impairment of goodwill in the
North America Land reporting unit, which reports through the Western Hemisphere segment. This impairment resulted from reduced internal cash flow projections for the North America Land reporting unit which has been adversely impacted by a
significant decline in U.S. land rig counts since December 2014. The July 2015 annual test resulted in no impairment to the remaining goodwill as the fair value of each other reporting unit continued to exceed the carrying value plus goodwill.
As of September 30, 2016 and December 31, 2015, goodwill was $22.8 million and $18.1 million, respectively. In addition to additions from
acquisition, goodwill increases or decreases in value due to the effect of foreign currency translation.
10
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Intangibles
Intangibles consist of customer relationships (acquired as part of the Nessco, Inmarsats Enterprise Energy business unit and TECNOR
acquisitions), as well as trade name (acquired as part of the Nessco acquisition), backlog (acquired as part of the TECNOR acquisitions), licenses (acquired primarily as part of the Inmarsats Enterprise Energy business unit acquisition) and
internal-use software. The Companys intangibles have useful lives ranging from 1.7 to 9.0 years and are amortized on a straight-line basis. Impairment testing is performed when events or circumstances indicate that the carrying value of the
assets may not be recoverable.
In June 2016, the Company identified a triggering event for a license in Kazakhstan associated with a
decline in cash flow projections. In June 2016, the Company conducted an intangibles impairment test and as a result of such test, recognized a $0.4 million impairment of licenses in the Corporate segment, which was the full amount of the
Companys intangibles within Kazakhstan.
In July 2015, the Company identified a triggering event in the North America Land reporting
unit associated with a significant decline in U.S. land rig counts since December 2014. This circumstance resulted in a reduction in the Companys cash flow projections during the revision of internal forecasts. In July 2015, the Company
conducted an intangibles impairment test and as a result of such test, recognized a $1.7 million impairment of customer relationships, the full amount of intangibles within the North America Land reporting unit, which reports through the Western
Hemisphere segment.
Except as noted above, no other impairment indicators have been identified in any reporting unit as of September 30,
2016.
As of September 30, 2016 and December 31, 2015, intangibles were $17.5 million and $19.0 million, respectively. During the three
months ended September 30, 2016 and 2015, the Company recognized amortization expense of $1.3 million. During the nine months ended September 30, 2016 and 2015, the Company recognized amortization expense of $3.9 million and $4.2 million,
respectively.
The following table sets forth expected amortization expense of intangibles for the remainder of 2016 and the following
years (in thousands):
|
|
|
|
|
2016
|
|
|
1,113
|
|
2017
|
|
|
4,454
|
|
2018
|
|
|
4,301
|
|
2019
|
|
|
3,295
|
|
2020
|
|
|
2,366
|
|
Thereafter
|
|
|
2,006
|
|
|
|
|
|
|
|
|
$
|
17,535
|
|
|
|
|
|
|
Note 5 Restricted Cash
As of September 30, 2016 and December 31, 2015, the Company had restricted cash of $0.1 million and $0.5 million in current assets,
respectively. The restricted cash in current assets as of September 30, 2016 is primarily escrow for the TECNOR acquisition final working capital adjustment. The restricted cash in current assets as of December 31, 2015 is primarily used to
collateralize outstanding performance bonds for Nesscos telecoms systems integration projects which were in effect prior to RigNet acquiring Nessco.
As of September 30, 2016, the Company had restricted cash of $1.5 million in long-term assets. The restricted cash in long-term assets is
primarily used to collateralize a performance bond in the Eastern Hemisphere segment (see Note 6 Long-Term Debt).
11
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Long-Term Debt
As of September 30, 2016 and December 31, 2015, the following credit facilities and long-term debt arrangements with financial institutions
were in place:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Term loan, net of unamortized deferred financing costs
|
|
$
|
36,147
|
|
|
$
|
42,536
|
|
Revolving loan
|
|
|
32,000
|
|
|
|
35,000
|
|
Capital lease
|
|
|
458
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,605
|
|
|
|
77,659
|
|
Less: Current maturities of long-term debt
|
|
|
(8,393
|
)
|
|
|
(8,421
|
)
|
Current maturities of capital lease
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,090
|
|
|
$
|
69,238
|
|
|
|
|
|
|
|
|
|
|
Term Loan
The Company has a term loan (Term Loan) issued under the amended and restated credit agreement with four participating financial institutions
(credit agreement). On October 3, 2013, the Company amended its Term Loan, which increased the principal balance to $60.0 million from $54.6 million and extended the maturity of the loan from July 2017 to October 2018.
The amended Term Loan bears an interest rate of LIBOR plus a margin ranging from 1.5% to 2.5% based on a ratio of funded debt to Consolidated
EBITDA, a non-GAAP financial measure as defined in the credit agreement. Interest is payable monthly along with quarterly principal installments of $2.1 million, with the balance due October 2018. The weighted average interest rate for the
three months ended September 30, 2016 and 2015 was 2.5% and 2.0%, respectively. The weighted average interest rate for the nine months ended September 30, 2016 and 2015 was 2.4% and 2.0%, respectively, with an interest rate of 2.5% at
September 30, 2016.
The Term Loan is secured by substantially all the assets of the Company. As of September 30, 2016, the Term
Loan had an outstanding principal balance of $36.5 million.
Revolving Loans
Under the credit agreement, the Company maintains a $125.0 million revolving credit facility, which includes a $15 million sublimit for the
issuance of standby letters of credit. As of September 30, 2016, $32.0 million in draws remain outstanding. The revolving credit facility matures in October 2018 with any outstanding borrowings then payable.
Borrowings under the revolving credit facility bear an interest rate of LIBOR plus a margin ranging from 1.5% to 2.5% based on a ratio of
funded debt to Consolidated EBITDA, a non-GAAP financial measure as defined in the credit agreement. The weighted average interest rate for the three months ended September 30, 2016 and 2015 was 2.5% and 2.0%, respectively. The weighted average
interest rate for the nine months ended September 30, 2016 and 2015 was 2.4% and 2.0%, respectively, with an interest rate of 2.5% at September 30, 2016.
Performance Bonds
On September 14, 2012, NesscoInvsat Limited, a subsidiary of RigNet, secured a performance bond facility with a lender in the amount of
£4.0 million, or $5.2 million. This facility has a maturity date of June 30, 2017. As of September 30, 2016, the amount available under this facility was £1.6 million or $2.1 million.
In June 2016, the Company secured a performance bond facility with a lender in the amount of $1.5 million for its Eastern Hemisphere segment.
This facility has a maturity date of June 2021. The Company maintains restricted cash on a dollar for dollar basis to secure this facility.
Covenants and Restrictions
The Companys credit agreement contains certain covenants and restrictions, including restricting the payment of cash dividends under
default and maintaining certain financial covenants such as a ratio of funded debt to Consolidated EBITDA, a non-GAAP
12
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
financial measure as defined in the credit agreement, of less than or equal to 2.5 to 1.0 and a fixed charge coverage ratio of not less than 1.25 to 1.0 as of September 30, 2016. If any default
occurs related to these covenants, the unpaid principal and any accrued interest shall be declared immediately due and payable. As of September 30, 2016 and December 31, 2015, the Company believes it was in compliance with all covenants.
In February 2016, the Company amended its credit agreement with the most significant changes being the definition of Consolidated EBITDA,
the calculation of the fixed charge coverage ratio and the timing associated with delivery of financial statements and compliance certificates to the administrative agent.
Debt Maturities
The following table sets forth the aggregate principal maturities of long-term debt, net of deferred financing cost amortization for the
remainder of 2016 and the following years (in thousands):
|
|
|
|
|
2016
|
|
$
|
2,126
|
|
2017
|
|
|
8,636
|
|
2018
|
|
|
57,767
|
|
2019
|
|
|
76
|
|
|
|
|
|
|
Total debt, including current maturities
|
|
$
|
68,605
|
|
|
|
|
|
|
Note 7 Fair Value Disclosures
The Company uses the following methods and assumptions to estimate the fair value of financial instruments:
|
|
|
Cash and Cash Equivalents
Reported amounts approximate fair value based on quoted market prices (Level 1).
|
|
|
|
Restricted Cash
Reported amounts approximate fair value.
|
|
|
|
Accounts Receivable
Reported amounts, net of the allowance for doubtful accounts, approximate fair value due to the short term nature of these assets.
|
|
|
|
Accounts Payable, Including Income Taxes Payable and Accrued Expenses
Reported amounts approximate fair value due to the short term nature of these liabilities.
|
|
|
|
Long-Term Debt
The carrying amount of the Companys floating-rate debt approximates fair value since the interest rates paid are based on short-term maturities and recent quoted rates from
financial institutions. The estimated fair value of debt was calculated based upon observable (Level 2) inputs regarding interest rates available to the Company at the end of each respective period.
|
The Companys non-financial assets, such as goodwill, intangibles and property, plant and equipment, are measured at fair value, based on
level 3 inputs, when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.
The
earn-out for TECNOR is measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Income (Loss) in each reporting period. As of September 30, 2016, the fair value
of the earn-out was $5.6 million. There was a $1.3 million reduction in fair value to the TECNOR earn-out for the three and nine months ended September 30, 2016 recorded as a reduction of other liabilities and a decrease to general and
administrative expense in the Corporate segment. The change in fair value was due to a change in forecast of TECNORs future achievement of the post-closing performance targets. Additionally, during the three and nine months ended September 30,
2016, RigNet recognized accreted interest expense on the TECNOR earn-out liability of $0.2 million and $0.4 million, respectively, with corresponding increases to other liabilities. (see Note 2 Business Combinations).
Note 8 Income Taxes
The
Companys effective income tax rate was (59.5)% for the three months ended September 30, 2016. The Companys effective income tax rate was (54.7)% for the nine months ended September 30, 2016. The Companys effective tax rate for the
three and nine months ended September 30, 2015 is not meaningful due to the impact of $12.6 million of impairment to goodwill and intangibles and $7.5 million of restructuring charges recorded primarily in domestic operations which significantly
decreased the Companys consolidated pre-tax book income and thus increased the valuation allowance recognized in the period ending September 30, 2015. The Companys effective tax rate is affected by factors including changes in valuation
allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.
13
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company has computed the provision for taxes for the current and comparative periods
using the actual year-to-date effective tax rate. The Companys financial projections for those periods did not provide the level of detail necessary to calculate a forecasted effective tax rate.
The Company believes that it is reasonably possible that a decrease of up to $0.8 million in unrecognized tax benefits, including related
interest and penalties, may be necessary within the coming year due to lapse in statute of limitations. If the tax benefits were recognized the impact to the tax provision would be $0.6 million, which would affect the effective tax rate.
The IRS finalized an audit of the Companys 2013 income tax return in March 2016. There were no assessments or material impact to the
Condensed Consolidated Financial Statements as a result the audit.
Note 9 Stock-Based Compensation
During the nine months ended September 30, 2016, the Company granted a total of 616,897 restricted stock units (RSUs) to certain directors,
officers and employees of the Company under the 2010 Omnibus Incentive Plan (2010 Plan). Of these, the Company granted (i) 316,017 RSUs to certain officers and employees that generally vest over a four year period of continued employment, with 25%
of the RSUs vesting on each of the first four anniversaries of the grant date, (ii) 156,430 RSUs to certain officers and employees that generally cliff vest on the third anniversary of the grant date, subject to continued employment, (iii) 65,084
RSUs to outside directors that vest in May 2017, and (iv) 79,366 performance based RSUs to certain officers that generally cliff vest on the third anniversary of the grant date and are subject to continued employment and certain performance based
targets. The ultimate number of performance based RSUs issued is based on a multiple determined by certain performance based targets.
The fair value of restricted stock units is determined based on the closing trading price of the Companys common stock on the grant date
of the award. Compensation expense is recognized on a straight-line basis over the requisite service period of the entire award.
During the nine months ended September 30, 2016, the Company also granted 100,000 stock options with an exercise price of $12.60 to an officer
of the Company under the 2010 Plan. Options granted have a contractual term of ten years and vest over a four year period of continued employment, with 25% of the options vesting on each of the first four anniversaries of the grant date.
The fair value of each stock option award is estimated on the grant date using a Black-Scholes option valuation model, which uses certain
assumptions as of the date of grant. The assumptions used for the stock option grants made during the nine months ended September 30, 2016 and 2015, were as follows:
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
|
2015
|
Expected volatility
|
|
|
49
|
%
|
|
44%
|
Expected term (in years)
|
|
|
7
|
|
|
7
|
Risk-free interest rate
|
|
|
1.7
|
%
|
|
1.9% - 2.0%
|
Dividend yield
|
|
|
|
|
|
|
Based on these assumptions, the weighted average grant date fair value of stock options granted during the
nine months ended September 30, 2016 and 2015 was $6.46 and $13.08 per option.
During the nine months ended September 30, 2016, 44,262
shares of restricted stock, 127,318 RSUs and 309,759 stock options were forfeited.
Stock-based compensation expense related to the
Companys stock-based compensation plans for the nine months ended September 30, 2016 and 2015 was $2.7 million and $3.0 million, respectively. As of September 30, 2016, there was $8.7 million of total unrecognized compensation cost related to
unvested options and restricted stock expected to vest. This cost is expected to be recognized over a remaining weighted-average period of 2.5 years.
Note 10 Related Party Transactions
The Company utilized a consulting vendor, KKR Capstone, which performs services exclusively for portfolio companies of Kohlberg Kravis Roberts
& Co. L.P. (KKR). KKR is a significant stockholder of the Company. The Company purchased no
14
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
consulting services from KKR Capstone in the three and nine months ended September 30, 2016. The Company purchased consulting services in the ordinary course of business totaling $0.3 and $0.5
million from KKR Capstone during the three and nine months ended September 30, 2015, respectively.
Note 11 Income (loss) per Share
Basic earnings (loss) per share (EPS) are computed by dividing net loss attributable to RigNet common stockholders by the number of basic
shares outstanding. Basic shares equal the total of the common shares outstanding, weighted for the average days outstanding for the period. Basic shares exclude the dilutive effect of common shares that could potentially be issued due to the
exercise of stock options or vesting of restricted stock and RSUs. Diluted EPS is computed by dividing net loss attributable to RigNet common stockholders by the number of diluted shares outstanding. Diluted shares equal the total of the basic
shares outstanding and all potentially issuable shares, other than antidilutive shares, if any, weighted for the average days outstanding for the period. The Company uses the treasury stock method to determine the dilutive effect. In periods when a
net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported, basic and dilutive loss
per share are the same.
For the three and nine months ended September 30, 2016, there were approximately 1,919,696 and 1,228,397
potentially issuable shares, respectively, excluded from the Companys calculation of diluted EPS of which 1,033,052 and 1,012,025, respectively, were excluded due to the antidilutive position of the security. The remaining 886,644 and
216,372, respectively, were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive, meaning the loss per share would be reduced.
For the three and nine months ended September 30, 2015, there were approximately 648,143 and 547,793, potentially issuable shares,
respectively, excluded from the Companys calculation of diluted EPS. Of these, 350,024 and 189,925 shares, respectively, were excluded due to the antidilutive position of the security. The remaining 298,119 and 357,868 shares,
respectively, were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive, meaning the loss per share would be reduced.
Note 12 Commitments and Contingencies
Litigation
The
Company, in the ordinary course of business, is a claimant or a defendant in various legal proceedings, including proceedings as to which the Company has insurance coverage and those that may involve the filing of liens against the Company or its
assets. The Company does not consider its exposure in these proceedings, individually or in the aggregate, to be material.
Contractual Dispute Settlement
The Companys Telecoms Systems Integration (TSI) business reached a settlement in the first quarter of 2016 related to a contract dispute
associated with a percentage of completion project. The dispute related to the payment for work related to certain change orders. After the settlement, the Company recognized $2.3 million of gain in the nine months ended September 30, 2016. After
the aforementioned settlement and gain, the Company has an accrued loss of $12.0 million for this project, which represents the total evident probable and estimable loss expected to be incurred over the life of this project. In the third quarter of
2016, the Company received the final acceptance certificate from the customer acknowledging completion of the project with the exception of certain final punch list items. The Company expects remaining estimated project completion costs of $0.4
million, which includes costs to complete the final punch list items.
The Company has incurred legal expenses of $0.2 million in
connection with the dispute for the nine months ended September 30, 2016.
Regulatory Matter
In 2013, RigNets internal compliance program detected potential violations of U.S. sanctions by one of its foreign subsidiaries in
connection with certain of its customers rigs that were moved into the territorial waters of countries sanctioned by the United States. The Company estimates that it received total revenue of approximately $0.1 million during the period
related to the potential violations. The Company has voluntarily self-reported the potential violations to the U.S. Treasury Departments Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce Bureau of Industry and
Security (BIS) and retained outside counsel who conducted an investigation of the matter under the supervision of the Companys Audit Committee and submitted a report to OFAC and BIS.
15
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company incurred legal expenses of $0.1 million in connection with the investigation for
the nine months ended September 30, 2016 and 2015.
In the third quarter of 2016, the Company received a letter from BIS notifying
the Company that it had concluded its investigation. BIS assessed no fines or penalties on the Company in connection with the matter. The Company does not anticipate any penalties or fines will be assessed as a result of the matter. As such, the
Company has released the previously accrued estimated liability of $0.8 million resulting in a decrease of general and administrative expense for the three and nine months ended September 30, 2016 in the Eastern Hemisphere segment.
Operating Leases
The Company leases office space under lease agreements expiring on various dates through 2020. For the three months ended September 30, 2016
and 2015, the Company recognized expense under operating leases of $1.2 million and $1.1 million, respectively. For the nine months ended September 30, 2016 and 2015, the Company recognized expense under operating leases of $3.4 million and $2.7
million, respectively.
As of September 30, 2016, future minimum lease obligations for the remainder of 2016 and future years were as
follows (in thousands):
|
|
|
|
|
2016
|
|
|
1,134
|
|
2017
|
|
|
3,121
|
|
2018
|
|
|
1,253
|
|
2019
|
|
|
544
|
|
2020
|
|
|
313
|
|
|
|
|
|
|
|
|
$
|
6,365
|
|
|
|
|
|
|
On June 30, 2016, the Company provided notice of early termination of its lease with Hartman Ashford Crossing,
LLC for office space located at 1880 S. Dairy Ashford, Houston, TX 77077. In accordance with the terms of that lease, the Company exercised its option for early termination, effective February 28, 2017. The total amount of lease termination fees was
$0.4 million, which has been paid. The Company has been reimbursed in the third quarter of 2016 by the landlord for construction costs and tenant improvements in the amount of $0.5 million.
In the quarter ended September 30, 2016, the Company assigned the lease for the Companys former facility located at 309 Apollo Road,
Scott, LA 70583. In accordance with the terms of the lease assignment, RigNet has paid $0.1 million in the third quarter of 2016 and will pay $0.1 million in the first quarter of 2017. The Company reversed $0.7 million of a previously accrued
liability for lease exit costs and decreased cost of service for $0.7 million in the Corporate segment as a result of assigning this lease contract.
16
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Commercial Commitments
The Company enters into contracts for satellite bandwidth and other network services with certain providers.
As of September 30, 2016, the Company had the following commercial commitments related to satellite and network services for the remainder of
2016 and the future years thereafter (in thousands):
|
|
|
|
|
2016
|
|
$
|
9,360
|
|
2017
|
|
|
22,358
|
|
2018
|
|
|
13,495
|
|
2019
|
|
|
16,003
|
|
2020
|
|
|
30,160
|
|
Thereafter
|
|
|
13,500
|
|
|
|
$
|
104,876
|
|
|
|
|
|
|
RigNet has agreed, under certain conditions, to purchase up to $65.0 million of capacity from the
high-throughput Inmarsats Global Xpress (GX) network during the five years after it becomes operational. The Company expects to utilize GX across RigNets legacy operations as well as the operations acquired from Inmarsat. The
portion of this agreement expected to be committed through 2021, assuming the GX network is commercially available in 2016, is reflected in the table above.
Note 13 Segment Information
Segment information is prepared consistent with the components of the enterprise for which separate financial information is available and
regularly evaluated by the chief operating decision-maker for the purpose of allocating resources and assessing performance.
Certain
operating segments are aggregated into one segment based on similar economic characteristics. Accordingly, RigNet considers its business to consist of three segments:
|
|
|
Eastern Hemisphere
. The Eastern Hemisphere segment provides remote communications services for offshore and onshore drilling rigs and production facilities, as well as, support vessels and other remote
sites. The Eastern Hemisphere segment services are primarily performed out of the Companys Norway, United Kingdom, Qatar, UAE, and Singapore based offices for customers and rig sites located on the eastern side of the Atlantic Ocean primarily
off the coasts of the United Kingdom, Norway, West Africa, around the Indian Ocean in Qatar and Saudi Arabia, around the Pacific Ocean near Australia, and within the South China Sea.
|
|
|
|
Western Hemisphere
. The Western Hemisphere segment provides remote communications services for offshore and onshore drilling rigs and production facilities, as well as, support vessels and other remote
sites. The Western Hemisphere segment services are primarily performed out of the Companys United States, Mexico and Brazil based offices for onshore and offshore customers and rig sites located on the western side of the Atlantic Ocean
primarily in the United States, Canada, Mexico and Brazil, and within the Gulf of Mexico.
|
|
|
|
Telecoms Systems Integration (TSI)
. The TSI segment designs, assembles, installs and commissions turn-key solutions for customer telecommunications systems. TSI segment solutions are custom designed and
engineered turn-key solutions based on the customers specifications, as well as, international industry standards and best practices. TSI projects include consultancy services, design, engineering, project management, procurement, testing,
installation, commissioning and after-sales service.
|
Corporate and eliminations primarily represents unallocated corporate
office activities, interest expenses, income taxes and eliminations.
17
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Companys business segment information as of and for the three and nine months ended
September 30, 2016 and 2015, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
|
|
Eastern
Hemisphere
|
|
|
Western
Hemisphere
|
|
|
Telecoms
Systems
Integration
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
Total
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
27,000
|
|
|
$
|
20,205
|
|
|
$
|
3,407
|
|
|
$
|
|
|
|
$
|
50,612
|
|
Cost of revenue (excluding depreciation and amortization)
|
|
|
14,603
|
|
|
|
10,849
|
|
|
|
2,911
|
|
|
|
1,497
|
|
|
|
29,860
|
|
Depreciation and amortization
|
|
|
4,011
|
|
|
|
2,705
|
|
|
|
631
|
|
|
|
958
|
|
|
|
8,305
|
|
Selling, general and administrative
|
|
|
1,593
|
|
|
|
2,976
|
|
|
|
499
|
|
|
|
7,132
|
|
|
|
12,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
6,793
|
|
|
$
|
3,675
|
|
|
$
|
(634
|
)
|
|
$
|
(9,587
|
)
|
|
$
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
1,299
|
|
|
|
637
|
|
|
|
|
|
|
|
|
|
|
|
1,936
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
|
|
|
Eastern
Hemisphere
|
|
|
Western
Hemisphere
|
|
|
Telecoms
Systems
Integration
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
Total
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
36,235
|
|
|
$
|
24,578
|
|
|
$
|
5,505
|
|
|
$
|
|
|
|
$
|
66,318
|
|
Cost of revenue (excluding depreciation and amortization)
|
|
|
18,103
|
|
|
|
12,184
|
|
|
|
5,819
|
|
|
|
2,085
|
|
|
|
38,191
|
|
Depreciation and amortization
|
|
|
3,682
|
|
|
|
2,892
|
|
|
|
791
|
|
|
|
729
|
|
|
|
8,094
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
12,592
|
|
|
|
|
|
|
|
|
|
|
|
12,592
|
|
Selling, general and administrative
|
|
|
3,027
|
|
|
|
3,454
|
|
|
|
467
|
|
|
|
8,719
|
|
|
|
15,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
11,423
|
|
|
$
|
(6,544
|
)
|
|
$
|
(1,572
|
)
|
|
$
|
(11,533
|
)
|
|
$
|
(8,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
3,415
|
|
|
|
1,974
|
|
|
|
61
|
|
|
|
621
|
|
|
|
6,071
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
|
Eastern
Hemisphere
|
|
|
Western
Hemisphere
|
|
|
Telecoms
Systems
Integration
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
Total
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
87,581
|
|
|
$
|
64,264
|
|
|
$
|
16,019
|
|
|
$
|
|
|
|
$
|
167,864
|
|
Cost of revenue (excluding depreciation and amortization)
|
|
|
46,742
|
|
|
|
36,058
|
|
|
|
11,781
|
|
|
|
4,831
|
|
|
|
99,412
|
|
Depreciation and amortization
|
|
|
11,890
|
|
|
|
8,142
|
|
|
|
2,127
|
|
|
|
3,402
|
|
|
|
25,561
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
|
|
397
|
|
Selling, general and administrative
|
|
|
7,580
|
|
|
|
9,432
|
|
|
|
2,141
|
|
|
|
25,799
|
|
|
|
44,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
21,369
|
|
|
$
|
10,632
|
|
|
$
|
(30
|
)
|
|
$
|
(34,429
|
)
|
|
$
|
(2,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
120,407
|
|
|
|
93,332
|
|
|
|
26,139
|
|
|
|
4,800
|
|
|
|
244,678
|
|
Capital expenditures
|
|
|
8,511
|
|
|
|
1,854
|
|
|
|
|
|
|
|
1,146
|
|
|
|
11,511
|
|
|
|
|
|
Nine Months Ended September 30, 2015
|
|
|
|
Eastern
Hemisphere
|
|
|
Western
Hemisphere
|
|
|
Telecoms
Systems
Integration
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
Total
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
113,291
|
|
|
$
|
79,360
|
|
|
$
|
26,423
|
|
|
$
|
|
|
|
$
|
219,074
|
|
Cost of revenue (excluding depreciation and amortization)
|
|
|
54,737
|
|
|
|
37,852
|
|
|
|
21,607
|
|
|
|
7,664
|
|
|
|
121,860
|
|
Depreciation and amortization
|
|
|
11,642
|
|
|
|
8,872
|
|
|
|
2,329
|
|
|
|
1,558
|
|
|
|
24,401
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
12,592
|
|
|
|
|
|
|
|
|
|
|
|
12,592
|
|
Selling, general and administrative
|
|
|
10,219
|
|
|
|
12,334
|
|
|
|
2,903
|
|
|
|
31,436
|
|
|
|
56,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
36,693
|
|
|
$
|
7,710
|
|
|
$
|
(416
|
)
|
|
$
|
(40,658
|
)
|
|
$
|
3,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
151,942
|
|
|
|
121,597
|
|
|
|
43,756
|
|
|
|
(41,834
|
)
|
|
|
275,461
|
|
Capital expenditures
|
|
|
11,117
|
|
|
|
7,013
|
|
|
|
227
|
|
|
|
3,870
|
|
|
|
22,227
|
|
18
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents revenue earned from the Companys domestic and
international operations for the three and nine months ended September 30, 2016 and 2015. Revenue is based on the location where services are provided or goods are sold. Due to the mobile nature of RigNets customer base and the services
provided, the Company works closely with its customers to ensure rig or vessel moves are closely monitored to ensure location of service information is properly reflected.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Domestic
|
|
$
|
11,555
|
|
|
$
|
21,840
|
|
|
$
|
43,783
|
|
|
$
|
65,356
|
|
International
|
|
|
39,057
|
|
|
|
44,478
|
|
|
|
124,081
|
|
|
|
153,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,612
|
|
|
$
|
66,318
|
|
|
$
|
167,864
|
|
|
$
|
219,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents long-lived assets, net of accumulated depreciation, for the Companys
domestic and international operations as of September 30, 2016 and December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Domestic
|
|
$
|
30,706
|
|
|
$
|
36,506
|
|
International
|
|
|
72,390
|
|
|
|
73,073
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
103,096
|
|
|
$
|
109,579
|
|
|
|
|
|
|
|
|
|
|
Note 14 Restructuring Costs Cost Reduction Plans
During the three months ended September 30, 2016, the Company incurred a net pre-tax restructuring expense of $0.8 million reported as general
and administrative expense in the Corporate segment consisting of $1.8 million of expense associated with the reduction of 73 employees partially offset by a net $1.0 million reversal of previously accrued restructuring charges for real estate exit
expense not incurred.
During the nine months ended September 30, 2016, the Company incurred net pre-tax restructuring expense of $1.3
million reported as general and administrative expense in the Corporate segment consisting of $2.7 million associated with the reduction of 115 employees partially offset by a net $1.4 million reversal of previously accrued restructuring charges for
employees that the Company did not release and real estate exit expense not incurred. The Company anticipates that it will substantially complete the plan by December 31, 2016.
During the nine months ended September 30, 2015, the Company instituted certain resource reallocation and additional cost reduction plans to
vacate and eliminate redundant facilities and eliminate certain positions in response to deteriorating oil and gas industry market conditions including declining oil and gas prices, increased stacking and scrapping of rigs and declines in the Baker
Hughes U.S. Land Rig Count.
During the nine months ended September 30, 2015, the Company incurred pre-tax expense of approximately $7.5
million in the Corporate segment. The restructuring costs include $3.7 million associated with the reduction of 102 employees, of which $2.7 million and $1.0 million were reported as general and administrative expense and cost of revenue,
respectively, in the Condensed Consolidated Statements of Comprehensive Income (Loss). The restructuring costs also include $3.8 million associated with ceasing the use of and vacating six Company facilities, of which $2.3 million and $1.5 million
are reported as general and administrative expense and cost of revenue, respectively, in the Condensed Consolidated Statements of Comprehensive Income (Loss).
The Company undertook these plans in 2015 and 2016 to reduce costs and improve the Companys competitive position.
19
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 15 Executive Departure costs
Marty Jimmerson, the Companys former CFO, served as Interim CEO and President from January 7, 2016 to May 31, 2016, to replace Mark
Slaughter, the prior CEO and President. Mr. Jimmerson departed the Company on June 1, 2016. In connection with the departure of Mr. Slaughter, in the first quarter of 2016 the Company incurred a pre-tax executive departure expense of $1.9 million in
the Corporate segment. On May 31, 2016, Steven E. Pickett was named Chief Executive Officer (CEO) and President of the Company.
20