Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data, Unaudited)
Note 1—General
Nature of Business
Clean Energy Fuels Corp., together with its majority and wholly owned subsidiaries (hereinafter collectively referred to as the "Company," unless the context or the use of the term indicates or requires otherwise) is engaged in the business of selling natural gas as an alternative fuel for vehicle fleets and related natural gas fueling solutions to its customers, primarily in the United States and Canada.
The Company's principal business is supplying renewable natural gas ("RNG"), compressed natural gas (“CNG”) and liquefied natural gas (“LNG”) for light, medium and heavy-duty vehicles and providing operation and maintenance ("O&M") services for natural gas fueling stations. As a comprehensive solution provider, the Company also designs, builds, operates, and maintains fueling stations; manufactures, sells and services non-lubricated natural gas fueling compressors and other equipment used in CNG stations and LNG stations; offers assessment, design and modification solutions to provide operators with code-compliant service and maintenance facilities for natural gas vehicle fleets; transports and sells CNG and LNG to industrial and institutional energy users who do not have direct access to natural gas pipelines; procures and sells RNG; sells tradable credits it generates by selling natural gas and RNG as a vehicle fuel, including credits under the California and the Oregon Low Carbon Fuel Standards (collectively, "LCFS Credits") and Renewable Identification Numbers ("RIN Credits" or "RINs") under the federal Renewable Fuel Standard Phase 2; helps its customers acquire and finance natural gas vehicles; and obtains federal, state and local credits, grants and incentives.
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position, results of operations, comprehensive loss and cash flows as of and for the
three and nine
months ended
September 30, 2016
and
2017
. All intercompany accounts and transactions have been eliminated in consolidation. The
three and nine
month periods ended
September 30, 2016
and
2017
are not necessarily indicative of the results to be expected for the year ending
December 31, 2017
or for any other interim period or for any future year.
Certain information and disclosures normally included in the notes to the financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), but the resultant disclosures contained herein are in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) as they apply to interim reporting. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended
December 31, 2016
that are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2017.
Reclassifications
Certain prior period line items in the condensed consolidated statements of operations have been reclassified to conform to the classifications used to prepare the condensed consolidated financial statements for the period ended
September 30, 2017
. These reclassifications had no material impact on the Company’s financial position, results of operations, or cash flows as previously reported.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying unaudited condensed consolidated financial statements and these notes. Actual results could differ from those estimates and may result in material effects on the Company’s operating results and financial position.
Note
2
—Asset Impairments, Other Charges, and Inventory Valuation Provision
In light of continuing low oil prices and the current state of natural gas vehicle adoption, during the three months ended September 30, 2017, the Company undertook an evaluation of its operations with the intent of minimizing and eliminating assets it believes are underperforming. As a result of this evaluation, the Company identified certain of its fueling stations where the current and projected natural gas volume and profitability levels are not expected to be sufficient to support the Company’s investment in the fueling station assets, and the Company decided to close these stations by the end of 2017. The Company also reduced its workforce and took other steps to reduce overhead costs in the three months ended September 30, 2017 as a result of this evaluation, in an effort to lower its operating expenses going forward. In addition, this evaluation resulted in a strategic shift in how the Company viewed its natural gas compressor business, Clean Energy Compression Corp. ("CECC").The Company determined to seek a strategic partner for CECC and to position CECC to benefit from consolidation in the natural gas compressor sector, in an effort to increase CECC’s scale and reach and improve the financial prospects of the Company’s investment in CECC. As a result of these decisions and the steps taken to implement them, the Company incurred
, on a pre-tax basis, aggregate cash and non-cash charges of
$60,666
related to asset impairments and other charges in addition to a
$13,158
non-cash inventory valuation charge (see Note
9
for more information), during the
three and nine
months ended
September 30, 2017
.
The following table summarizes these charges:
|
|
|
|
|
|
Three and Nine Months Ended
September 30, 2017
|
Workforce reduction and related charges
|
$
|
3,057
|
|
CECC asset impairments
|
32,274
|
|
Station closures and related charges
|
25,335
|
|
Total asset impairments and other charges
|
$
|
60,666
|
|
Inventory valuation provision
|
13,158
|
|
Total charges
|
$
|
73,824
|
|
Workforce Reduction and Related Charges
As a result of the workforce reduction, severance of
$2,757
was incurred for terminated employees and
$300
in stock-based compensation expense was incurred for the acceleration of certain stock options and awards.
Impairments of Long-Lived Assets
The Company reviews the carrying value of its long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Events that could result in an impairment review include, among others, a significant decrease in the operating performance of a long-lived asset or the decision to close a fueling station. Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its carrying amount. If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, if any, to be recognized. An impairment loss is recognized to the extent that the carrying amount of the asset or asset group exceeds its fair value. The fair value of the asset or asset group is based on estimated discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk. The estimate of future cash flows requires management to make assumptions and to apply judgment, including forecasting future sales and expenses and estimating useful lives of the assets. These estimates can be affected by a number of factors, including, among others, future results, demand, and economic conditions, many of which can be difficult to predict.
CECC: Asset Impairment Charges
Due to the continued low global demand for compressors, and the decision to seek a strategic partner for CECC, the Company’s management determined that an impairment indicator was present for the long-lived assets of CECC. Recoverability was tested using future cash flow projections based on management’s long-term estimates of market conditions. Based on the results of this test, the sum of the undiscounted future cash flows was less than the carrying value of the CECC asset group. As a result, these long-lived assets were written down to their respective fair values, resulting in an impairment charge of
$32,274
. Fair value was based on expected future cash flows using Level 3 inputs under the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 820. The cash flows are those expected to be generated by market participants, discounted at an appropriate rate for the risks inherent in those cash flow projections. If actual results, market and economic conditions, including interest rates, and other factors are not consistent with management’s estimates and assumptions used in these calculations, the Company may be exposed to additional impairment losses.
The following table represents intangible assets of CECC as of
December 31, 2016
and
September 30, 2017
, respectively, as well as their useful lives, which continued to be appropriate and were not changed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
September 30,
2017
|
|
Remaining Useful Life (Years)
|
Technology
|
|
$
|
29,060
|
|
|
$
|
3,151
|
|
|
13
|
Customer relationships
|
|
2,239
|
|
|
117
|
|
|
1
|
Trademark and trade names
|
|
1,842
|
|
|
201
|
|
|
3
|
Total
|
|
$
|
33,141
|
|
|
$
|
3,469
|
|
|
|
Station Closures and Related Charges
In the three months ended September 30, 2017, the Company decided to close
42
fueling stations by December 31, 2017 which are performing below management’s expectations based on volume and profitability levels. As a result, these station assets, which had an aggregate carrying value of $
23,270
were written down to their respective fair values of $
2,886
on an aggregate basis, resulting in charges of $
20,384
. The fair values of these assets were determined using the cost approach.
Due to these stations being closed before their initially intended date the Company's management assessed whether impairment indicators were present for the long-lived assets of the remaining stations. The Company determined there were no indicators of impairment present amongst the remaining stations and no further steps were required for evaluation.
In addition, certain of these station closures triggered related other charges totaling $
4,951
, which consists of write-offs for any deferred losses, lease termination fees, and an increase in asset retirement obligations ("AROs").
Inventory Valuation Provision
Inventory consists of raw materials and spare parts, work in process and finished goods and is stated at the lower of cost (first-in, first-out) or market. The Company writes down the carrying value of its inventory to net realizable value for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and its estimated realizable value based upon assumptions about future demand and market conditions, among other factors.
As a result of the Company's valuation process to minimize and eliminate under-performing station assets, the Company determined that
$27,198
of certain station parts which historically were classified as construction in progress within Land, property, and equipment, net in the condensed consolidated balance sheets, are now reported as Inventory as they will primarily be used for stations to be sold. Subsequently, the Company determined a lower of cost or market non-cash charge of
$7,804
for these station parts. Additionally, in conjunction with its decision to seek a strategic partner for CECC, the Company incurred a lower of cost or market non-cash charge of
$5,354
for the inventory of CECC. The aggregate amount of $
13,158
is reported as Inventory valuation provision in the condensed consolidated statements of operations during the
three and nine
months ended
September 30, 2017
.
Cash Related Charges
The following table summarizes the total charges that will be settled with cash payments and their related liability balances as of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
|
|
Cash Payments Made in the Three Months Ended September 30, 2017
|
Balance as of September 30, 2017
|
Employee severance
|
|
$
|
2,757
|
|
|
$
|
(2,547
|
)
|
$
|
210
|
|
Lease termination fees and AROs for station closures
|
|
3,861
|
|
|
—
|
|
3,861
|
|
|
|
$
|
6,618
|
|
|
|
$
|
4,071
|
|
Goodwill
As a result of the asset impairments described above, the Company determined that sufficient indicators of potential impairment existed to require an interim goodwill test of its one reporting unit prior to the annual test performed in the fourth quarter of 2017. The goodwill test is performed by computing the fair value of the reporting unit and comparing it to the carrying value.
Based on the results of this test, the Company has determined that it continues to be a single reporting unit and, based upon step one of the two-step goodwill test, has concluded it is more likely than not that the fair value of its reporting unit exceeds its carrying amount and thus no further
quantitative analysis was warranted.
Note
3
—Acquisitions and Divestitures
On February 27, 2017, Clean Energy Renewable Fuels ("Renewables"), a subsidiary of the Company, entered into an asset purchase agreement (the “APA”) with BP Products North America, Inc. (“BP”), pursuant to which Renewables agreed to sell to BP certain assets relating to its RNG production business (the “Asset Sale”), consisting of Renewables’
two
existing RNG production facilities, Renewables’ interest in the RNG Ventures (as defined in Note
11
) and Renewables’ third-party RNG supply
contracts (the “Assets”). The Asset Sale was completed on March 31, 2017 for a sale price of $
155,511
, plus BP assumed the obligations under the Canton Bonds (as defined in Note
13
), which totaled
$8,820
as of March 31, 2017.
On March 31, 2017 BP paid Renewables
$30,000
in cash and delivered to Renewables a promissory note with a principal amount of
$123,487
(the "BP Note") which was paid in full on April 3, 2017. In addition, as a result of the determination of certain post-closing adjustments, (i) BP paid Renewables an additional
$2,010
on June 22, 2017, and (ii) the gain recorded from the Asset Sale was reduced by
$762
. Pursuant to the APA, the valuation date of the Asset Sale was January 1, 2017, and as a result, the APA included certain adjustments to the purchase price to reflect a determination of the amount of cash accumulated by Renewables from the valuation date to the closing date, net of permitted cash outflows. Control of the Assets was not transferred until the Asset Sale was completed on March 31, 2017. Accordingly, the full operating results of Renewables are included in the condensed consolidated statement of operations through the three months ended March 31, 2017.
In addition, under the APA, BP is required, following the closing of the Asset Sale, to pay Renewables up to an additional
$25,000
in cash over a
five
-year period if certain performance criteria relating to the Assets are met.
The Company incurred
$3,695
in transaction fees in connection with the Asset Sale, and subsequent to March 31, 2017, the Company paid
$8,605
in cash and issued
770,269
shares of the Company's common stock, collectively valued at
$1,964
, to holders of options to purchase membership units in Renewables. The net proceeds from the Asset Sale, net of $
1,007
cash transferred to BP, were
$142,190
.
Following completion of the Asset Sale, Renewables and the Company are continuing to procure RNG from BP under a long-term supply contract and from other RNG suppliers, and resell such RNG through the Company's natural gas fueling infrastructure as Redeem™, the Company's RNG vehicle fuel. The Company also collects royalties from BP on gas purchased from BP and sold as Redeem™ at the Company's stations, which royalty is in addition to any payment obligation of BP under the APA.
The Asset Sale resulted in a total gain of
$69,886
that was recorded in gain from sale of certain assets of subsidiary in the Company's condensed consolidated statement of operations for the
nine
months ended September 30,
2017
. Included in the determination of the total gain is goodwill of
$26,576
that was allocated to the disposed assets based on the relative fair values of the assets disposed and the portion of the reporting unit that was retained.
The Company determined that the Asset Sale did not meet the definition of a discontinued operation because the disposal did not represent a significant disposal nor was the disposal a strategic shift in the Company's strategy.
Note
4
—Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less on the date of acquisition to be cash equivalents. The Company places its cash and cash equivalents with high credit quality financial institutions.
At times, such investments may be in excess of the Federal Deposit Insurance Corporation (“FDIC”), Canadian Deposit Insurance Corporation (“CDIC”) and other foreign insurance limits. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. The amounts in excess of FDIC, CDIC and other foreign insurance limits were approximately
$34,439
and
$43,200
at
December 31, 2016
and
September 30, 2017
, respectively.
Note
5
—Restricted Cash
The Company classifies restricted cash as short-term and a current asset if the cash is expected to be used in operations within a year or to acquire a current asset. Otherwise, the restricted cash is classified as long-term. Short-term restricted cash at
December 31, 2016
and
September 30, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
September 30,
2017
|
Short-term restricted cash:
|
|
|
|
|
|
Standby letters of credit
|
$
|
1,753
|
|
|
$
|
1,463
|
|
Canton Bonds (see Note 13)
|
3,665
|
|
|
—
|
|
Held in escrow
|
1,578
|
|
|
—
|
|
Total short-term restricted cash
|
$
|
6,996
|
|
|
$
|
1,463
|
|
Note
6
—Investments
Available-for-sale securities are carried at fair value, inclusive of unrealized gains and losses. Unrealized gains and losses are included in other comprehensive income (loss), net of applicable income taxes. Gains or losses on sales of available-for-sale securities are recognized on the specific identification basis. All of the Company's short-term investments are classified as available-for-sale securities.
The Company reviews available-for-sale securities for other-than-temporary declines in fair value below their cost basis each quarter and whenever events or changes in circumstances indicate that the cost basis of an asset may not be recoverable. This evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below its cost basis and adverse conditions related specifically to the security, including any changes to the credit rating of the security. As of
September 30, 2017
, the Company believes its carrying values for its available-for-sale securities are properly recorded.
Short-term investments as of
December 31, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized
Losses
|
|
Estimated Fair
Value
|
Municipal bonds and notes
|
$
|
8,791
|
|
|
$
|
(4
|
)
|
|
$
|
8,787
|
|
Corporate bonds
|
21,517
|
|
|
(7
|
)
|
|
21,510
|
|
Certificate of deposits
|
43,421
|
|
|
—
|
|
|
43,421
|
|
Total short-term investments
|
$
|
73,729
|
|
|
$
|
(11
|
)
|
|
$
|
73,718
|
|
Short-term investments as of
September 30, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized
Losses
|
|
Estimated Fair
Value
|
Municipal bonds and notes
|
$
|
21,470
|
|
|
$
|
(73
|
)
|
|
$
|
21,397
|
|
Zero coupon bonds
|
69,192
|
|
|
(59
|
)
|
|
69,133
|
|
Corporate bonds
|
39,596
|
|
|
(13
|
)
|
|
39,583
|
|
Certificate of deposits
|
21,408
|
|
|
—
|
|
|
21,408
|
|
Total short-term investments
|
$
|
151,666
|
|
|
$
|
(145
|
)
|
|
$
|
151,521
|
|
Note
7
—Fair Value Measurements
The Company follows the authoritative guidance for fair value measurements with respect to assets and liabilities that are measured at fair value on a recurring basis and non-recurring basis. Under the standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy consists of the following three levels: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly; Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
As of
September 30, 2017
, the Company's financial instruments consisted of available-for-sale securities, liability-classified warrants, and debt instruments. The Company’s available-for-sale securities are classified within Level 2 because they are valued using the most recent quoted prices for identical assets in markets that are not active and quoted prices for similar assets in active markets. The liability-classified warrants are classified within Level 3 because the Company uses the Black-Scholes option pricing model to estimate the fair value based on inputs that are not observable in any market. The fair values of the Company's debt instruments approximated their carrying values as of
December 31, 2016
and
September 30, 2017
. See Note
13
for more information about the Company's debt instruments. There were no transfers of assets between Level 1, Level 2, or Level 3 of the fair value hierarchy as of
December 31, 2016
and
September 30, 2017
, respectively.
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis as of
December 31, 2016
and
September 30, 2017
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale securities(1):
|
|
|
|
|
|
|
|
|
Municipal bonds and notes
|
|
$
|
8,787
|
|
|
$
|
—
|
|
|
$
|
8,787
|
|
|
$
|
—
|
|
Corporate bonds
|
|
21,510
|
|
|
—
|
|
|
21,510
|
|
|
—
|
|
Certificate of deposits
|
|
43,421
|
|
|
—
|
|
|
43,421
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Warrants(2)
|
|
581
|
|
|
—
|
|
|
—
|
|
|
581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
September 30, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale securities(1):
|
|
|
|
|
|
|
|
|
Municipal bonds and notes
|
|
$
|
21,397
|
|
|
$
|
—
|
|
|
$
|
21,397
|
|
|
$
|
—
|
|
Zero coupon bonds
|
|
69,133
|
|
|
—
|
|
|
69,133
|
|
|
—
|
|
Corporate bonds
|
|
39,583
|
|
|
—
|
|
|
39,583
|
|
|
—
|
|
Certificate of deposits
|
|
21,408
|
|
|
—
|
|
|
21,408
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Warrants(2)
|
|
543
|
|
|
—
|
|
|
—
|
|
|
543
|
|
(1) Included in short-term investments in the condensed consolidated balance sheets. See Note
6
for more information.
(2) Included in accrued liabilities and other long-term liabilities in the condensed consolidated balance sheets.
Non-Financial Assets
During the three and
nine
months ended
September 30, 2017
, long-lived assets held and used with a carrying value of $
59,367
were written down to their fair value of $
6,709
, resulting in charges of $
52,658
. The fair value of these assets was determined using Level 3 inputs. See Note
2
for more information.
No impairments were incurred during 2016.
Note
8
—Other Receivables
Other receivables as of
December 31, 2016
and
September 30, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
September 30,
2017
|
Loans to customers to finance vehicle purchases
|
$
|
7,416
|
|
|
$
|
6,896
|
|
Accrued customer billings
|
4,308
|
|
|
6,328
|
|
Fuel tax credits
|
6,358
|
|
|
—
|
|
Other
|
3,852
|
|
|
3,029
|
|
Total other receivables
|
$
|
21,934
|
|
|
$
|
16,253
|
|
Note
9
—Inventory
Inventory consists of raw materials and spare parts, work in process and finished goods and is stated at the lower of cost (first-in, first-out) or market. The Company writes down the carrying value of its inventory to net realizable value for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and its estimated realizable value based upon assumptions about future demand and market conditions, among other factors.
Inventories as of
December 31, 2016
and
September 30, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
September 30,
2017
|
Raw materials and spare parts (1)
|
$
|
24,843
|
|
|
$
|
42,487
|
|
Work in process
|
845
|
|
|
806
|
|
Finished goods
|
3,856
|
|
|
1,331
|
|
Total inventories
|
$
|
29,544
|
|
|
$
|
44,624
|
|
|
|
(1)
|
As of
September 30, 2017
, this amount also includes
$19,394
for certain station parts which historically were classified as construction in progress within Land, property, and equipment, net, that are now reported in Inventory in the condensed consolidated balance sheets because they will primarily be used for stations to be sold. See Note
2
for more information.
|
Note
10
—Land, Property and Equipment
Land, property and equipment as of
December 31, 2016
and
September 30, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
September 30,
2017
|
Land
|
$
|
2,858
|
|
|
$
|
2,858
|
|
LNG liquefaction plants
|
94,634
|
|
|
94,633
|
|
RNG plants (1)
|
47,545
|
|
|
—
|
|
Station equipment (2)
|
341,605
|
|
|
298,681
|
|
Trailers
|
54,985
|
|
|
59,312
|
|
Other equipment (2)
|
93,118
|
|
|
94,389
|
|
Construction in progress (2) (3)
|
117,662
|
|
|
79,366
|
|
|
752,407
|
|
|
629,239
|
|
Less: accumulated depreciation
|
(268,484
|
)
|
|
(265,466
|
)
|
Total land, property and equipment, net
|
$
|
483,923
|
|
|
$
|
363,773
|
|
(1) The RNG plants were sold in the Asset Sale (see Note
3
for more information).
|
|
(2)
|
Certain of these assets were written down during the three months ended September 30, 2017 (see Note
2
for more information).
|
|
|
(3)
|
As of
September 30, 2017
,
$19,394
of certain station parts which historically were classified as construction in progress within Land, property, and equipment, net, that are now reported in Inventory in the condensed consolidated balance sheets because they will primarily be used for stations to be sold.
|
Included in land, property and equipment are capitalized software costs of
$25,728
and
$27,056
as of
December 31, 2016
and
September 30, 2017
, respectively. The accumulated amortization of the capitalized software costs is
$17,237
and
$20,371
as of
December 31, 2016
and
September 30, 2017
, respectively.
The Company recorded amortization expense related to the capitalized software costs of
$824
and
$1,140
during the three months ended
September 30, 2016
and
2017
, respectively, and
$2,609
and
$3,134
during the
nine
months ended
September 30, 2016
and
2017
, respectively.
As of
September 30, 2016
and
2017
,
$4,139
and
$2,007
, respectively, are included in accounts payable and accrued liabilities balances, which amounts are related to purchases of property and equipment. These amounts are excluded from the condensed consolidated statements of cash flows as they are non-cash investing activities.
Note
11
— Investments in Other Entities and Noncontrolling Interest in a Subsidiary
RNG Ventures
In November 2016, Renewables entered into agreements to form joint ventures with Aria Energy Operating LLC ("Aria"), a developer of RNG production facilities, to develop RNG production facilities at a Republic Services landfill in Oklahoma City, Oklahoma and an Advanced Disposal landfill near Atlanta, Georgia. These joint ventures are referred to as the "RNG Ventures." Renewables' interest in the RNG Ventures was transferred to BP upon completion of the Asset Sale (see Note
3
for more information); however, Renewables retained the right to purchase
100%
of the RNG that will be produced by the production facilities to be developed by the RNG Ventures for the vehicle fuels market. The Company accounted for its interest in the RNG Ventures using the equity method of accounting as the Company had the ability to exercise significant influence over these
operations. The Company had an investment balance of
$833
and
$0
in the RNG Ventures as of
December 31, 2016
and
September 30, 2017
, respectively.
MCEP
On September 16, 2014, the Company formed a joint venture with Mansfield Ventures LLC (“Mansfield”) called Mansfield Clean Energy Partners LLC (“MCEP”), which is designed to provide natural gas fueling solutions to bulk fuel haulers in the United States. The Company and Mansfield each have a
50%
ownership interest in MCEP. The Company accounts for its interest in MCEP using the equity method of accounting, as the Company has the ability to exercise significant influence over MCEP’s operations. The Company recorded loss from this investment of
$13
and
$30
for the
three months ended September 30,
2016
and
2017
, respectively, and
$20
and
$100
for the
nine
months ended
September 30, 2016
and
2017
, respectively. Additionally, on June 28, 2016, the Company received a return of capital of
$3,031
with no change in ownership interest. The Company has an investment balance of $
1,642
and
$1,542
at
December 31, 2016
and
September 30, 2017
, respectively.
NG Advantage
On October 14, 2014, the Company entered into a Common Unit Purchase Agreement (“UPA”) with NG Advantage, LLC (“NG Advantage”) for a
53.3%
controlling interest in NG Advantage. NG Advantage is engaged in the business of transporting CNG in high-capacity trailers to industrial and institutional energy users, such as hospitals, food processors, manufacturers and paper mills that do not have direct access to natural gas pipelines. The Company viewed the acquisition as a strategic investment in the expansion of the Company’s initiative to deliver natural gas to industrial and institutional energy users. The results of NG Advantage’s operations have been included in the Company’s consolidated financial statements since October 14, 2014.
On July 14, 2017, the Company contributed to NG Advantage all of its right, title and interest in and to a CNG station located in Milton, Vermont. The Company had purchased this CNG station from NG Advantage in October 2014 in connection with the UPA, and at that time, the Company entered into a lease agreement with NG Advantage to lease the station back to NG Advantage. This lease agreement was terminated contemporaneously with the contribution of the station to NG Advantage in July 2017. As consideration for the contribution, NG Advantage issued to the Company Series A Preferred Units with an aggregate value of
$7,500
. The Series A Preferred Units provide for an accrued return in the event of a liquidation event with respect to NG Advantage and will convert into common units of NG Advantage if and when it completes a future equity financing that satisfies certain specified conditions, but the Series A Preferred Units do not, in themselves, increase the Company's controlling interest in NG Advantage. As a result, following the contribution, the Company's controlling interest in NG Advantage remains at
53.3%
.
The Company recorded a loss from the noncontrolling interest in NG Advantage of
$391
and
$747
for the
three months ended September 30,
2016
and
2017
, respectively, and
$1,317
and
$1,813
for the
nine
months ended
September 30, 2016
and
2017
, respectively. The noncontrolling interest was
$24,822
and
$23,009
as of
December 31, 2016
and
September 30, 2017
, respectively.
Note
12
—Accrued Liabilities
Accrued liabilities as of
December 31, 2016
and
September 30, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
September 30,
2017
|
Accrued alternative fuels incentives (1)
|
$
|
9,840
|
|
|
$
|
2,270
|
|
Accrued employee benefits
|
4,317
|
|
|
3,999
|
|
Accrued interest
|
1,849
|
|
|
39
|
|
Accrued gas and equipment purchases
|
11,657
|
|
|
10,220
|
|
Accrued property and other taxes
|
4,572
|
|
|
4,164
|
|
Salaries and wages (2)
|
12,293
|
|
|
8,636
|
|
Other (3)
|
8,073
|
|
|
12,662
|
|
Total accrued liabilities
|
$
|
52,601
|
|
|
$
|
41,990
|
|
|
|
(1)
|
Includes the amount of RINs and LCFS Credits and, as of December 31, 2016, the amount of a federal alternative fuels tax credit ("VETC") payable to third parties. VETC expired as of December 31, 2016, and as a result, no VETC amounts were accrued as of
September 30, 2017
(see Note
18
for more information about VETC).
|
|
|
(2)
|
The amount as of
September 30, 2017
includes severance accruals related to a workforce reduction during the three months ended
September 30, 2017
(see Note
2
for more information).
|
|
|
(3)
|
The amount as of
September 30, 2017
also includes lease termination fees and AROs related to closure of certain fueling stations (see Note
2
for more information).
|
Note
13
—Debt
Debt and capital lease obligations as of
December 31, 2016
and
September 30, 2017
consisted of the following and are further discussed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Principal Balances
|
|
Unamortized Debt Financing Costs
|
|
Balance, Net of Financing Costs
|
7.5% Notes (1)
|
$
|
150,000
|
|
|
$
|
274
|
|
|
$
|
149,726
|
|
5.25% Notes
|
110,450
|
|
|
1,088
|
|
|
109,362
|
|
Plains Credit Facility
|
23,500
|
|
|
—
|
|
|
23,500
|
|
Canton Bonds
|
9,520
|
|
|
373
|
|
|
9,147
|
|
Capital lease obligations
|
6,028
|
|
|
—
|
|
|
6,028
|
|
NG Advantage debt
|
13,068
|
|
|
237
|
|
|
12,831
|
|
Other debt
|
1,782
|
|
|
—
|
|
|
1,782
|
|
Total debt and capital lease obligations
|
314,348
|
|
|
1,972
|
|
|
312,376
|
|
Less amounts due within one year
|
(6,126
|
)
|
|
(183
|
)
|
|
(5,943
|
)
|
Total long-term debt and capital lease obligations
|
$
|
308,222
|
|
|
$
|
1,789
|
|
|
$
|
306,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Principal Balances
|
|
Unamortized Debt Financing Costs
|
|
Balance Net of Financing Costs
|
7.5% Notes (1)
|
$
|
125,000
|
|
|
$
|
155
|
|
|
$
|
124,845
|
|
5.25% Notes
|
110,450
|
|
|
609
|
|
|
109,841
|
|
Capital lease obligations
|
868
|
|
|
—
|
|
|
868
|
|
NG Advantage debt
|
18,070
|
|
|
236
|
|
|
17,834
|
|
Other debt
|
1,456
|
|
|
—
|
|
|
1,456
|
|
Total debt and capital lease obligations
|
255,844
|
|
|
1,000
|
|
|
254,844
|
|
Less amounts due within one year
|
(29,305
|
)
|
|
(58
|
)
|
|
(29,247
|
)
|
Total long-term debt and capital lease obligations
|
$
|
226,539
|
|
|
$
|
942
|
|
|
$
|
225,597
|
|
(1) Includes
$65,000
and $
40,000
in principal amount held by T. Boone Pickens ("Mr. Pickens"), as of
December 31, 2016
and
September 30, 2017
, respectively, which is classified as “Long-term debt, related party” on the condensed consolidated balance sheet. See the description below for more information.
7.5%
Notes
On July 11, 2011, the Company entered into a loan agreement (the “CHK Agreement”) with Chesapeake NG Ventures Corporation (“Chesapeake”), an indirect wholly owned subsidiary of Chesapeake Energy Corporation, whereby Chesapeake agreed to purchase from the Company up to
$150,000
of debt securities pursuant to the issuance of
three
convertible promissory notes over a
three
-year period, each having a principal amount of
$50,000
(each a “CHK Note” and collectively the “CHK Notes” and, together with the CHK Agreement and other transaction documents, the “CHK Loan Documents”). The first CHK Note was issued on July 11, 2011 and the second CHK Note was issued on July 10, 2012.
On June 14, 2013 (the “Transfer Date”), Mr. Pickens and Green Energy Investment Holdings, LLC ("GEIH"), an affiliate of Leonard Green & Partners, L.P. (collectively, the “Buyers”), and Chesapeake entered into a note purchase agreement (“Note Purchase Agreement”) pursuant to which Chesapeake sold the outstanding CHK Notes (the “Sale”) to the Buyers. Chesapeake assigned to the Buyers all of its right, title and interest under the CHK Loan Documents (the “Assignment”), and each Buyer severally assumed all of the obligations of Chesapeake under the CHK Loan Documents arising after the Sale and the Assignment including, without limitation, the obligation to advance an additional
$50,000
to the Company in June 2013 (the “Assumption”). The Company also entered into the Note Purchase Agreement for the purpose of consenting to the Sale, the Assignment and the Assumption.
Contemporaneously with the execution of the Note Purchase Agreement, the Company entered into a loan agreement with each Buyer (collectively, the “Amended Agreements”). The Amended Agreements have the same terms as the CHK Agreement, other than changes to reflect the new holders of the CHK Notes. Immediately following execution of the Amended Agreements, the Buyers delivered
$50,000
to the Company in satisfaction of the funding requirement they had assumed from Chesapeake (the “2013 Advance”). In addition, the Company canceled the existing CHK Notes and issued replacement notes, and the Company also issued notes to the Buyers in exchange for the 2013 Advance (the replacement notes and the notes issued in exchange for the 2013 Advance are referred to herein as the “
7.5%
Notes”).
The
7.5%
Notes have the same terms as the original CHK Notes, other than changes to reflect their different holders. They bear interest at the rate of
7.5%
per annum and are convertible at the option of the holder into shares of the Company’s common stock at a conversion price of
$15.80
per share (the “
7.5%
Notes Conversion Price”). Upon written notice to the Company, each holder of a
7.5%
Note has the right to exchange all or any portion of the principal and accrued and unpaid interest under its
7.5%
Notes for shares of the Company’s common stock at the
7.5%
Notes Conversion Price.
Additionally, subject to certain restrictions, the Company can force conversion of each
7.5%
Note into shares of its common stock if, following the second anniversary of the issuance date of a
7.5%
Note, such shares trade at a
40%
premium to the
7.5%
Notes Conversion Price for at least
20
trading days in any consecutive
30
trading day period.
The entire principal balance of each
7.5%
Note is due and payable
seven years
following its issuance and the Company may repay each
7.5%
Note at maturity in shares of its common stock (with a value determined by the per share volume weighted-average price for the
20
trading days prior to the maturity date) or cash. All of the shares issuable upon conversion of the
7.5%
Notes have been registered for resale by their holders pursuant to a registration statement that has been filed with and declared effective by the Securities and Exchange Commission.
The Amended Agreements provide for customary events of default which, if any of them occurs, would permit or require the principal of, and accrued interest on, the
7.5%
Notes to become, or to be declared, due and payable. No events of default under the
7.5%
Notes had occurred as of
September 30, 2017
.
On August 27, 2013, GEIH transferred
$5,000
in principal amount of its
7.5%
Notes to certain third parties.
On February 9, 2017, the Company purchased from Mr. Pickens, his
7.5%
Note due July 2018 having an outstanding principal amount of
$25,000
held by Mr. Pickens for a cash purchase price of
$21,750
. The Company's repurchase of this
7.5%
Note resulted in a total gain of
$3,191
for the
three and nine
months ended
September 30, 2017
.
On February 21, 2017, GEIH transferred an additional
$11,800
in principal amount of its
7.5%
Notes to a third party.
As a result of the foregoing transactions, as of
September 30, 2017
, (i) Mr. Pickens held
7.5%
Notes in the aggregate principal amount of
$40,000
, (ii) GEIH held
7.5%
Notes in the aggregate principal amount of
$68,200
, and (iii) other third parties held
7.5%
Notes in the aggregate principal amount of
$16,800
.
5.25%
Notes
In September 2013, the Company completed a private offering of
$250,000
in principal amount of
5.25%
Convertible Senior Notes due 2018 (the “
5.25%
Notes”) and entered into an indenture governing the
5.25%
Notes (the “Indenture”).
The net proceeds from the sale of the
5.25%
Notes after the payment of certain debt issuance costs of
$7,805
were
$242,195
. The Company has used the net proceeds from the sale of the
5.25%
Notes to fund capital expenditures and for general corporate purposes. The
5.25%
Notes bear interest at a rate of
5.25%
per annum, payable semi-annually in arrears on October 1 and April 1 of each year, beginning on April 1, 2014. The
5.25%
Notes will mature on October 1, 2018, unless purchased, redeemed or converted prior to such date in accordance with their terms and the terms of the Indenture.
Holders may convert their
5.25%
Notes, at their option, at any time prior to the close of business on the business day immediately preceding the maturity date of the
5.25%
Notes. Upon conversion, the Company will deliver a number of shares of its common stock, per $1 principal amount of
5.25%
Notes, equal to the conversion rate then in effect (together with a cash payment in lieu of any fractional shares). The initial conversion rate for the
5.25%
Notes is
64.1026
shares of the Company’s common stock per $1 principal amount of
5.25%
Notes (which is equivalent to an initial conversion price of approximately
$15.60
per share of the Company’s common stock). The conversion rate is subject to adjustment upon the occurrence of certain specified events as described in the Indenture. Upon the occurrence of certain corporate events prior to the maturity date of the
5.25%
Notes, the Company will, in certain circumstances, in addition to delivering the number of shares of the Company’s common stock deliverable upon conversion of the
5.25%
Notes based on the conversion rate then in effect (together with a cash payment in lieu of any fractional shares), pay holders that convert their
5.25%
Notes a cash make-whole payment in an amount as described in
the Indenture. The Company may, at its option, irrevocably elect to settle its obligation to pay any such make-whole payment in shares of its common stock instead of in cash.
The amount of any make-whole payment, whether it is settled in cash or in shares of the Company’s common stock upon the Company’s election, will be determined based on the date on which the corporate event occurs or becomes effective and the stock price paid (or deemed to be paid) per share of the Company’s common stock in the corporate event, as described in the Indenture.
The Company may not redeem the
5.25%
Notes prior to October 5, 2016. On or after October 5, 2016, the Company may, at its option, redeem for cash all or any portion of the
5.25%
Notes if the closing sale price of the Company’s common stock for at least
20
trading days (whether or not consecutive) during any
30
consecutive trading day period ending on, and including, the trading day immediately preceding the date on which notice of redemption is provided, exceeds
160%
of the conversion price on each applicable trading day. In the event of the Company’s redemption of the
5.25%
Notes, the redemption price will equal
100%
of the principal amount of the
5.25%
Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
No
sinking fund is provided for in the
5.25%
Notes.
If the Company undergoes a fundamental change (as defined in the Indenture) prior to the maturity date of the
5.25%
Notes, subject to certain conditions as described in the Indenture, holders may require the Company to purchase, for cash, all or any portion of their
5.25%
Notes at a repurchase price equal to
100%
of the principal amount of the
5.25%
Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date.
The Indenture contains customary events of default with customary cure periods, including, without limitation, failure to make required payments or deliveries of shares of the Company’s common stock when due under the Indenture, failure to comply with certain covenants under the Indenture, failure to pay when due or acceleration of certain other indebtedness of the Company or certain of its subsidiaries, and certain events of bankruptcy and insolvency of the Company or certain of its subsidiaries. The occurrence of an event of default under the Indenture will allow either the trustee or the holders of at least
25%
in principal amount of the then-outstanding
5.25%
Notes to accelerate, or upon an event of default arising from certain events of bankruptcy or insolvency of the Company, will automatically cause the acceleration of, all amounts due under the
5.25%
Notes. No events of default under the
5.25%
Notes had occurred as of
September 30, 2017
.
The
5.25%
Notes are senior unsecured obligations of the Company and rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the
5.25%
Notes; equal in right of payment to the Company’s unsecured indebtedness that is not so subordinated; effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness (including trade payables) of the Company’s subsidiaries.
During the year ended
December 31, 2016
, the Company paid an aggregate of
$84,344
in cash to repurchase and retire
$114,550
in aggregate principal amount of the
5.25%
Notes, together with
$1,546
in accrued and unpaid interest thereon. Additionally, pursuant to a privately negotiated exchange agreement with certain holders of the
5.25%
Notes, on May 4, 2016, the Company issued
6,265,829
shares of its common stock in exchange for an aggregate principal amount of
$25,000
of
5.25%
Notes held by such holders and accrued and unpaid interest thereon. The value of the shares of the Company's common stock issued to the holders of the
5.25%
Notes in the exchange has been excluded from the Company's condensed consolidated statements of cash flows as it is a non-cash financing activity. The Company's repurchase and exchange of
5.25%
Notes for the year ended
December 31, 2016
resulted in a total gain of
$35,239
recorded during the period. All repurchased and exchanged
5.25%
Notes have been surrendered to the trustee for such notes and canceled in full and the Company has no further obligations under such notes.
Plains Credit Facility
On February 29, 2016, the Company entered into a Loan and Security Agreement (the “Plains LSA”) with PlainsCapital Bank (“Plains”), pursuant to which Plains agreed to lend the Company up to
$50,000
on a revolving basis from time to time for a term of
one
year (the “Credit Facility”). All amounts advanced under the Credit Facility were due and payable on February 28, 2017. Simultaneously, the Company drew
$50,000
under this Credit Facility, which the Company repaid in full on August 31, 2016. On October 31, 2016, the Plains LSA was amended solely to extend the Credit Facility's maturity date from February 28, 2017 to September 30, 2018. On December 22, 2016, the Company drew
$23,500
under the Credit Facility, which the Company repaid in full on March 31, 2017. As a result, the Company had no amounts outstanding under the Credit Facility as of
September 30, 2017
.
The Credit Facility is evidenced by a promissory note the Company issued on February 29, 2016 in favor of Plains (the “Plains Note”). Interest on the Plains Note is payable monthly and accrues at a rate equal to the greater of (i) the then-current LIBOR rate plus
2.30%
or (ii)
2.70%
. As collateral security for the prompt payment in full when due of the Company's obligations
to Plains under the Plains LSA and the Plains Note, the Company pledged to and granted Plains a security interest in all of its right, title and interest in the cash and corporate and municipal bonds rated AAA, AA or A by Standard & Poor’s Rating Services that the Company holds in an account at Plains. In connection with such pledge and security interest granted under the Credit Facility, on February 29, 2016, the Company entered into a Pledged Account Agreement with Plains and PlainsCapital Bank - Wealth Management and Trust (the “Pledge Agreement” and collectively with the Plains LSA and the Plains Note, the “Plains Loan Documents”).The Plains Loan Documents include certain covenants of the Company and also provide for customary events of default, which, if any of them occurs, would permit or require, among other things, the principal of, and accrued interest on, the Credit Facility to become, or to be declared, due and payable. Events of default under the Plains Loan Documents include, among others, the occurrence of certain bankruptcy events, the failure to make payments when due under the Plains Note and the transfer or disposal of the collateral under the Plains LSA. No events of default under the Plains Loan Documents had occurred as of
September 30, 2017
.
Canton Bonds
On March 19, 2014, Canton Renewables, LLC (“Canton”), a former subsidiary of the Company, completed the issuance of Solid Waste Facility Limited Obligation Revenue Bonds (Canton Renewables, LLC — Sauk Trail Hills Project) Series 2014 in the aggregate principal amount of
$12,400
(the “Canton Bonds”).
The Canton Bonds were issued by the Michigan Strategic Fund (the “Issuer”) and the proceeds of such issuance were loaned by the Issuer to Canton pursuant to a loan agreement that became effective on March 19, 2014.
On March 31, 2017, Canton was sold to BP in the Asset Sale (see Note
3
). As a result, the Canton Bonds became the obligation of BP as of such date.
NG Advantage Debt
On May 12, 2016 and January 24, 2017, respectively, NG Advantage entered into a Loan and Security Agreement (the “Commerce LSA”) with Commerce Bank & Trust Company (“Commerce”), pursuant to which Commerce agreed to lend NG Advantage
$6,300
and
$6,150
, respectively. The proceeds were primarily used to fund the purchases of CNG trailers and equipment. Interest and principal for both loans are payable monthly in
84
equal monthly installments at an annual rate of
4.41%
and
5.0%
, respectively. As collateral security for the prompt payment in full when due of NG Advantage's obligations to Commerce under the Commerce LSA, NG Advantage pledged to and granted Commerce a security interest in all of its right, title and interest in the CNG trailers and equipment purchased with the proceeds received under the Commerce LSA.
On November 30, 2016, NG Advantage entered into a Loan and Security Agreement (the "Wintrust LSA") with Wintrust Commercial Finance (“Wintrust”), pursuant to which Wintrust agreed to lend NG Advantage
$4,695
. The proceeds were primarily used to fund the purchases of CNG trailers and equipment. Interest and principal is payable monthly in
72
equal monthly installments at an annual rate of
5.17%
. As collateral security for the prompt payment in full when due of NG Advantage's obligations to Wintrust under the Wintrust LSA, NG Advantage pledged to and granted Wintrust a security interest in all of its right, title and interest in the CNG trailers and equipment purchased with the proceeds received under the Wintrust LSA.
NG Advantage has other debt for trailers and equipment due at various dates through
2021
bearing interest at rates up to
6.01%
, with weighted -average interest rates of
5.51%
and
5.56%
, and outstanding principal balance of
$2,598
and
$3,222
as of
December 31, 2016
and
September 30, 2017
, respectively.
Other Debt
The Company has other debt due at various dates through
2023
bearing interest at rates up to
19.69%
with weighted -average interest rates of
5.72%
and
6.35%
as of
December 31, 2016
and
September 30, 2017
, respectively.
Note
14
—Net Loss Per Share
Basic net loss per share is computed by dividing the net loss attributable to Clean Energy Fuels Corp. by the weighted-average number of common shares outstanding and common shares issuable for little or no cash consideration during the period. Diluted net loss per share is computed by dividing the net loss attributable to Clean Energy Fuels Corp. by the weighted-average number of common shares outstanding and common shares issuable for little or no cash consideration during the period and potentially dilutive securities outstanding during the period, and therefore reflects the dilution from common shares that may be issued upon exercise or conversion of these potentially dilutive securities, such as stock options, warrants, convertible notes and restricted stock units. The dilutive effect of stock awards and warrants is computed under the treasury stock method. The dilutive effect of convertible notes and restricted stock units is computed under the if-converted method. Potentially dilutive securities are excluded from the computations of diluted net loss per share if their effect would be antidilutive.
The information required to compute basic and diluted net loss per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
Weighted-average common shares outstanding
|
130,436,038
|
|
|
150,927,825
|
|
|
112,819,041
|
|
|
150,128,204
|
|
|
The following potentially dilutive securities have been excluded from the diluted net loss per share calculations because their effect would have been antidilutive. Although such securities were antidilutive for the respective periods, they could be dilutive in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
2016
|
|
2017
|
2016
|
|
2017
|
Stock Options
|
11,582,091
|
|
|
9,648,613
|
|
11,582,091
|
|
|
9,648,613
|
|
Convertible Notes
|
21,006,491
|
|
|
14,991,521
|
|
21,006,491
|
|
|
14,991,521
|
|
Restricted Stock Units
|
2,432,930
|
|
|
2,403,266
|
|
2,432,930
|
|
|
2,403,266
|
|
Total
|
35,021,512
|
|
|
27,043,400
|
|
35,021,512
|
|
|
27,043,400
|
|
At-The-Market Offering Program
On May 31, 2017, the Company terminated its equity distribution agreement (the “Sales Agreement”) with Citigroup Global Markets Inc. (“Citigroup”), as sales agent and/or principal. The Sales Agreement was terminable at will upon written notification by the Company with no penalty. Pursuant to the Sales Agreement, the Company was entitled to issue and sell, from time to time, through or to Citigroup, shares of its common stock having an aggregate offering price of up to
$200,000
in an “at-the-market” offering program (the “ATM Program”). The ATM Program commenced on November 11, 2015 when the Company and Citigroup entered into the original equity distribution agreement, which was amended and restated on September 9, 2016 and again on December 21, 2016 prior to its termination.
The following table summarizes the activity under the ATM Program for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Three Months Ended September 30,
|
|
Nine Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in 000s, except per-share amounts)
|
2016
|
|
2017
|
|
2016
|
|
2017
|
Gross proceeds
|
$
|
16,066
|
|
|
$
|
—
|
|
|
$
|
69,113
|
|
|
$
|
10,767
|
|
Fees and issuance costs
|
386
|
|
|
—
|
|
|
1,728
|
|
|
311
|
|
Net proceeds
|
$
|
15,680
|
|
|
$
|
—
|
|
|
$
|
67,385
|
|
|
$
|
10,456
|
|
Shares issued
|
3,824,144
|
|
|
—
|
|
|
21,325,587
|
|
|
3,802,500
|
|
Note
15
—Stock-Based Compensation
The following table summarizes the compensation expense and related income tax benefit related to the Company's stock-based compensation arrangements recognized in the condensed consolidated statements of operations during the periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
Stock-based compensation expense, net of $0 tax in 2016 and 2017 (1)
|
$
|
2,077
|
|
|
$
|
2,216
|
|
|
$
|
6,533
|
|
|
$
|
6,904
|
|
|
(1) $
300
of stock-based compensation expense for the
three and nine
months ended
September 30, 2017
is recorded in asset impairments and other charges in the condensed consolidated statements of operations and is reported in non-cash portion of asset impairments and other charges in the condensed consolidated statements of cash flows. See Note
2
for more information.
At
September 30, 2017
, there was
$7,194
of total unrecognized compensation costs related to non-vested shares subject to outstanding stock options and restricted stock units, which is expected to be expensed over a weighted-average period of approximately
1.60
years.
Note
16
—Income Taxes
The Company’s income tax benefit (expense) was $
(416)
and
$44
for the three months ended
September 30, 2016
and
2017
, respectively, and
$(1,229)
and
$2,183
for the
nine
months ended
September 30, 2016
and
2017
, respectively. Tax benefit (expense) for all periods was comprised of taxes due on the Company’s U.S. and foreign operations. The increase in the Company’s income tax benefit for the three months ended
September 30, 2017
as compared to the three months ended
September 30, 2016
was primarily due to a decrease in the deferred tax expense attributed to the reduction of goodwill amortization following the Asset Sale (see Note
3
). The increase in the Company's income tax benefit for the
nine
months ended
September 30, 2017
as compared to the
nine
months ended
September 30, 2016
was primarily due to a deferred tax benefit from the Asset Sale. The effective tax rates for the
three and nine
months ended
September 30, 2016
and
2017
are different from the federal statutory tax rate primarily as a result of losses for which no tax benefit has been recognized.
Following the Asset Sale, the Company also benefited from the utilization of federal and state net operating loss ("NOL") carryovers that offset all of the Company's federal and the majority of its state taxes. In addition to the decrease in its deferred tax liability of
$2,493
attributed to the reduction in goodwill following the Asset Sale, the utilization of NOLs also resulted in a decrease of
$29,768
in the Company's deferred tax assets attributed to NOLs and a corresponding decrease in the Company's deferred tax asset valuation allowance.
The Company did not record a change in its liability for unrecognized tax benefits or penalties in the
three and nine
months ended
September 30, 2016
or
2017
. The net interest incurred was immaterial for both the
three and nine
months ended
September 30,
2016
and
2017
, respectively.
Note
17
—Commitments and Contingencies
Environmental Matters
The Company is subject to federal, state, local and foreign environmental laws and regulations. The Company does not anticipate any expenditures to comply with such laws and regulations that would have a material impact on the Company's consolidated financial position, results of operations or liquidity. The Company believes that its operations comply, in all material respects, with applicable federal, state, local and foreign environmental laws and regulations.
Litigation, Claims and Contingencies
The Company may become party to various legal actions that arise in the ordinary course of its business. The Company is also subject to audit by tax and other authorities for varying periods in various federal, state, local and foreign jurisdictions, and disputes may arise during the course of these audits. It is impossible to determine the ultimate liabilities that the Company may incur resulting from any of these lawsuits, claims, proceedings, audits, commitments, contingencies and related matters or the timing of these liabilities, if any. If these matters were to ultimately be resolved unfavorably, it is possible that such an outcome could have a material adverse effect upon the Company’s consolidated financial position, results of operations, or liquidity. The Company, does not, however, anticipate such an outcome and it believes the ultimate resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.
Note
18
—Alternative Fuels Excise Tax Credit
In December 2015, the U.S. Congress passed the Consolidated Appropriations Act, which included an alternative fuels tax credit referred to in these condensed consolidated financial statements as "VETC." The credit was made retroactive to January 1, 2015 and extended through December 31, 2016, except that the alternative fuels tax credit for LNG sold as a vehicle fuel in 2016 was based on the diesel gallon equivalent of LNG sold, rather than the liquid gallon of LNG sold as it was in 2015. As a result, the Company was eligible to receive a credit of
$0.50
per gasoline gallon equivalent of CNG sold as a vehicle fuel in 2016 and
$0.50
per diesel gallon equivalent of LNG sold as a vehicle fuel in 2016.
Based on the service relationship with its customers, either the Company or its customers claimed the credit. The Company records its VETC credits, if any, as revenue in its condensed consolidated statements of operations because the credits are fully payable and do not need to offset income tax liabilities to be received. As such, the credits are not deemed income tax credits under the accounting guidance applicable to income taxes.
VETC revenue for the
three and nine
months ended
September 30, 2016
was
$6,693
and
$19,609
, respectively. VETC ceased to be available after it expired on December 31, 2016 and may not be available for any subsequent period.
Note
19
—Recently Issued and Adopted Accounting Standards
In May 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-09,
Compensation - Stock Compensation (Topic 718): Scope Modification Accounting
. This ASU allows entities to make certain changes to awards without accounting for them as modifications. It does not change the accounting for modifications. Specifically, an entity will not apply modification accounting if all of the following are the same immediately before and after the change: (1) the award's fair value (or calculated value or intrinsic value if those measurement methods are used), (2) the award's vesting conditions, and (3) the award's classification as an equity or liability instrument. The new standard is effective for fiscal years beginning after December 15, 2017, which for the Company is the first quarter of 2018. The Company does not expect the adoption of the guidance to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-03,
Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings
. This ASU requires registrants to disclose the effect that ASU 2014-09 (
Revenue from Contracts with Customers (Topic 606
), ASU 2016-02 (
Leases (Topic 842
), and ASU 2016-13 (
Financial Instruments--Credit Losses
(
Topic 326
) will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, additional qualitative disclosures should be considered to assist the reader in assessing the significance of the standard’s impact on its financial statements. This guidance was effective upon issuance and other than enhancements to the qualitative disclosures regarding the future adoption of the referenced ASUs above, adoption of this ASU is not expected to have any impact on the Company’s consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
Under the new standard, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or liability, as well as the related deferred tax benefit or expense, upon purchase or receipt of the asset. The Company early adopted the standard as of January 1, 2017. This election was implemented under the modified retrospective approach, resulting in a
$302
increase in accumulated deficit representing the cumulative recognition of the income tax consequences of intra-entity transfers of assets other than inventory that occurred before the adoption date.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payments Accounting
. The new standard was issued to simplify the accounting for share-based payment transactions, including income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The Company adopted the standard as of January 1, 2017 and in connection with the adoption, the Company elected to recognize forfeitures when they occur. Previously, the Company estimated a forfeiture rate in accordance with prior guidance. This election was implemented under the modified retrospective approach with a cumulative effect of an increase in accumulated deficit of
$194
, net of tax. This adjustment represents the cumulative additional compensation expense that would have been amortized through the date of adoption had this accounting policy election been in place. This ASU also eliminates the requirement to defer recognition of an excess tax benefit until the benefit is realized through a reduction to taxes payable. As a result, the Company’s deferred tax asset relating to its net operating loss carryovers increased by
$8,600
with a corresponding increase in the deferred tax asset valuation allowance. The Company also adopted, on a prospective basis, (1) the classification of excess tax benefits as an operating activity in the condensed consolidated statements of cash flows and (2) the exclusion of the amount of excess tax benefits when applying the treasury stock method for the Company’s diluted loss per share calculation. Neither of these adoptions had a material impact on the Company's cash flows or diluted loss per share calculation for the
nine
months ended
September 30, 2017
. Additionally, the Company continues to (1) classify cash paid by the Company for directly withholding shares for tax withholding purposes as a financing activity in the condensed consolidated statements of cash flows and (2) withhold the statutory minimum taxes for participants in the Company’s stock-based compensation plans.
In May 2014, the FASB issued ASU 2014-09 related to revenue from contracts with customers, which, along with amendments issued in 2015, 2016, and 2017 will provide a single, comprehensive revenue recognition model for all contracts with customers. The underlying principle is to recognize revenue when promised goods or services are transferred to customers in amounts that reflect the consideration that is expected to be received for those goods or services. The new standard also requires entities to enhance disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This ASU, as amended, will be effective for annual reporting periods after December 15, 2017, which for the Company is the first quarter of 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption ("modified retrospective basis"). The Company expects to adopt this ASU on a modified retrospective basis and is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures. While the Company has not yet identified any material changes in the timing of revenue recognition for our various revenues streams, our evaluation is ongoing and not complete.
Note
20
—Subsequent Events
On October 23, 2017, the Company paid
$5,486
to settle an obligation to deliver LCFS Credits to a third party. The Company took this action because it did not at that time have access to LCFS Credits it generates due to restrictions imposed on the Company's LCFS Credit account pending completion of an ongoing administrative review by the California Air Resources Board ("CARB"). If CARB's administrative review results in the retirement of any of the Company's LCFS Credits, such that the Company cannot recover any portion of its cash payment through sales of such credits, then the Company may be required to recognize a charge equal to the value of the portion of its cash payment that cannot be recovered.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) should be read together with the unaudited condensed consolidated financial statements and the related notes included in this report. For additional context with which to understand our financial condition and results of operations, refer to the MD&A for the fiscal year ended
December 31, 2016
included in our Annual Report on Form 10-K for our fiscal year ended
December 31, 2016
, which was filed with the Securities and Exchange Commission (“SEC”) on March 7, 2017, as well as the audited consolidated financial statements and notes included therein (collectively, our “2016 Form 10-K”). Unless the context indicates otherwise, all references to “Clean Energy,” the “Company,” “we,” “us,” or “our” in this MD&A and elsewhere in this report refer to Clean Energy Fuels Corp. together with its majority and wholly owned subsidiaries.
Cautionary Statement Regarding Forward Looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) and other sections of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events or circumstances or our future financial performance and are based upon our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following words: “if,” “may,” “might,” “shall,” “will,” “can,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “goal,” “objective,” “initiative,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “forecast,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although the absence of these words does not mean that a statement is not forward-looking. We believe the statements we make in this MD&A about our future financial and operating performance, our growth strategies and anticipated trends in our industry and our business are forward-looking by their nature. Although the forward-looking statements in this MD&A reflect our good faith judgment, based on currently available information, they are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Factors that might cause or contribute to such differences include, among others, those discussed under “Risk Factors” in this report and in our 2016 Form 10-K. As a result of these and other potential risk factors, the forward-looking statements in this MD&A may not prove to be accurate. All forward-looking statements in this MD&A are made only as of the date of this document and, except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, including to conform these statements to actual results or to changes in our expectations.
Overview
We are the leading provider of natural gas as an alternative fuel for vehicle fleets in the United States and Canada, based on the number of stations operated and the amount of gasoline gallon equivalents ("GGEs") of renewable natural gas ("RNG"), compressed natural gas ("CNG") and liquefied natural gas ("LNG") delivered. Our principal business is supplying RNG, CNG and LNG (RNG can be delivered in the form of CNG or LNG) for light, medium and heavy-duty vehicles and providing operation and maintenance ("O&M") services for vehicle fleet customer stations. As a comprehensive solution provider, we also design, build, operate and maintain fueling stations; manufacture, sell and service non-lubricated natural gas fueling compressors and other equipment used in CNG stations and LNG stations; offer assessment, design and modification solutions to provide operators with code-compliant service and maintenance facilities for natural gas vehicle fleets; transport and sell CNG and LNG to industrial and institutional energy users who do not have direct access to natural gas pipelines; procure and sell RNG; sell tradable credits we generate by selling natural gas and RNG as a vehicle fuel, including credits under the California and Oregon Low Carbon Fuel Standards (collectively, "LCFS Credits") and Renewable Identification Numbers ("RIN Credits" or "RINs") under the federal Renewable Fuel Standard Phase 2; help our customers acquire and finance natural gas vehicles; and obtain federal, state and local tax credits, grants and incentives.
We serve fleet vehicle operators in a variety of markets, including heavy-duty trucking, airports, refuse, public transit, government fleets, and industrial and institutional energy users. We believe these fleet markets will continue to present a growth
opportunity for natural gas vehicle fuel for the foreseeable future. As of
September 30, 2017
, we serve nearly
1,000
fleet customers operating over
46,000
natural gas vehicles, and we currently own, operate or supply more than 575 natural gas fueling stations in
42
states in the United States and four provinces in Canada (although we will close certain underperforming stations) by the end of 2017, as discussed under “Recent Developments” below and Note
2
to the condensed consolidated financial statements included in this report).
Performance Overview
The following performance overview discusses matters on which our management focuses in evaluating our financial condition and operating performance and results.
Sources of Revenue
The following table represents our sources of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in millions)
|
|
Three Months
Ended
September 30,
2016
|
|
Three Months
Ended
September 30,
2017
|
|
Nine Months
Ended
September 30,
2016
|
|
Nine Months
Ended
September 30,
2017
|
Volume -Related (1)
|
|
$
|
71.3
|
|
|
$
|
63.1
|
|
|
$
|
210.8
|
|
|
$
|
200.0
|
|
Compressor Sales
|
|
5.3
|
|
|
5.9
|
|
|
22.4
|
|
|
17.6
|
|
Station Construction Sales
|
|
13.7
|
|
|
12.5
|
|
|
48.0
|
|
|
34.1
|
|
VETC (2)
|
|
6.7
|
|
|
—
|
|
|
19.6
|
|
|
—
|
|
Other
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.6
|
|
Total
|
|
$
|
97.0
|
|
|
$
|
81.8
|
|
|
$
|
300.8
|
|
|
$
|
252.3
|
|
|
|
(1)
|
Our volume-related revenue primarily consists of sales of CNG, LNG and RNG fuel, sales of RINs and LCFS Credits and performance of O&M services.
|
|
|
(2)
|
Represents a federal alternative fuels tax credit that we refer to as "VETC," which expired December 31, 2016.
|
Key Operating Data
In evaluating our operating performance, our management focuses primarily on: (1) the amount of CNG, LNG and RNG gasoline gallon equivalents delivered (which we define as (i) the volume of gasoline gallon equivalents we sell to our customers, plus (ii) the volume of gasoline gallon equivalents dispensed at facilities we do not own but where we provide O&M services on a per-gallon or fixed fee basis, plus (iii) our proportionate share of the gasoline gallon equivalents sold as CNG by our joint venture with Mansfield Ventures, LLC called Mansfield Clean Energy Partners, LLC (“MCEP”), plus (iv) our proportionate share (as applicable) of the gasoline gallon equivalents of RNG produced and sold as pipeline quality natural gas by the RNG production facilities we owned or operated), (2) our station construction cost of sales, (3) our gross margin (which we define as revenue minus cost of sales), and (4) net loss attributable to us. The following tables, which should be read in conjunction with the condensed consolidated financial statements and notes included in this report and the consolidated financial statements and notes included in our 2016 Form 10-K, present our key operating data for the years ended December 31, 2014, 2015, and 2016 and for the
three and nine
months ended
September 30, 2016
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline gallon equivalents
delivered (in millions)
|
|
Year Ended
December 31,
2014
|
|
Year Ended
December 31,
2015
|
|
Year Ended
December 31,
2016
|
|
Three Months
Ended
September 30,
2016
|
|
Three Months
Ended
September 30,
2017
|
|
Nine Months
Ended
September 30,
2016
|
|
Nine Months
Ended
September 30,
2017
|
CNG (1)
|
|
182.6
|
|
|
229.2
|
|
|
259.2
|
|
|
66.7
|
|
|
73.5
|
|
|
191.7
|
|
|
213.1
|
|
RNG (2)
|
|
12.2
|
|
|
8.8
|
|
|
3.0
|
|
|
0.7
|
|
|
0.7
|
|
|
2.3
|
|
|
1.9
|
|
LNG
|
|
70.3
|
|
|
70.5
|
|
|
66.8
|
|
|
17.1
|
|
|
17.3
|
|
|
50.9
|
|
|
50.0
|
|
Total
|
|
265.1
|
|
|
308.5
|
|
|
329.0
|
|
|
84.5
|
|
|
91.5
|
|
|
244.9
|
|
|
265.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline gallon equivalents
delivered (in millions)
|
|
Year Ended
December 31,
2014
|
|
Year Ended
December 31,
2015
|
|
Year Ended
December 31,
2016
|
|
Three Months
Ended
September 30,
2016
|
|
Three Months
Ended
September 30,
2017
|
|
Nine Months
Ended
September 30,
2016
|
|
Nine Months
Ended
September 30,
2017
|
O&M
|
|
137.3
|
|
|
159.3
|
|
|
176.6
|
|
|
45.7
|
|
|
53.2
|
|
|
130.4
|
|
|
150.2
|
|
Fuel (1)
|
|
108.2
|
|
|
130.1
|
|
|
128.5
|
|
|
32.3
|
|
|
32.3
|
|
|
96.8
|
|
|
96.7
|
|
Fuel and O&M (3)
|
|
19.6
|
|
|
19.1
|
|
|
23.9
|
|
|
6.5
|
|
|
6.0
|
|
|
17.7
|
|
|
18.1
|
|
Total
|
|
265.1
|
|
|
308.5
|
|
|
329.0
|
|
|
84.5
|
|
|
91.5
|
|
|
244.9
|
|
|
265.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating data (in millions)
|
|
Year Ended
December 31,
2014
|
|
Year Ended
December 31,
2015
|
|
Year Ended
December 31,
2016
|
|
Three Months
Ended
September 30,
2016
|
|
Three Months
Ended
September 30,
2017
|
|
Nine Months
Ended
September 30,
2016
|
|
Nine Months
Ended
September 30,
2017
|
Station construction cost of sales
|
|
$
|
56.3
|
|
|
$
|
32.3
|
|
|
$
|
57.0
|
|
|
$
|
12.3
|
|
|
$
|
11.6
|
|
|
$
|
41.3
|
|
|
$
|
31.3
|
|
Gross margin (4) (5)
|
|
$
|
120.2
|
|
|
$
|
125.8
|
|
|
$
|
147.1
|
|
|
$
|
35.2
|
|
|
$
|
8.5
|
|
|
$
|
111.0
|
|
|
$
|
60.8
|
|
Net loss attributable to Clean Energy Fuels. Corp (4)
|
|
$
|
(89.7
|
)
|
|
$
|
(134.2
|
)
|
|
$
|
(12.2
|
)
|
|
$
|
(12.6
|
)
|
|
$
|
(94.1
|
)
|
|
$
|
(8.3
|
)
|
|
$
|
(50.9
|
)
|
(1) As noted above, amounts include our proportionate share of the GGEs sold as CNG by our joint venture MCEP. GGEs sold by this joint venture were 0.0 million, 0.4 million, and 0.5 million, for the years ended December 31, 2014, 2015, and 2016, respectively,
0.1 million
and
0.1 million
for the three months ended
September 30, 2016
and
2017
, respectively, and
0.4 million
and
0.4 million
for the
nine
months ended
September 30, 2016
and
2017
, respectively.
(2) Represents RNG sold as non-vehicle fuel. RNG sold as vehicle fuel, also known as Redeem™, is included in CNG and LNG.
|
|
(3)
|
Represents gasoline gallon equivalents at stations where we provide both fuel and O&M services.
|
|
|
(4)
|
Includes the following amounts of VETC: $28.4 million, $31.0 million, and $26.6 million for the years ended December 31, 2014, 2015, and 2016, respectively,
$6.7 million
and
$0.0
million for the three months ended
September 30, 2016
and
2017
, respectively, and
$19.6 million
and
$0.0 million
for the
nine
months ended
September 30, 2016
and
2017
, respectively. See the discussion under “Recent Developments—VETC Expiration” below.
|
|
|
(5)
|
For the three months ended September 30,
2017
, gross margin includes an inventory valuation provision of
$13.2 million
. See Recent Developments and Note
2
for more details.
|
Recent Developments
Asset Impairments, Other Charges, and Inventory Valuation Provision.
During the three months ended September 30, 2017, we undertook an evaluation of our operations with the intent of minimizing and eliminating assets we believe are underperforming. As a result of this evaluation, we identified
42
fueling stations where the current and projected natural gas volume and profitability levels are not expected to be sufficient to support our investment in the fueling station assets, and we determined to close these stations by the end of 2017. We also reduced our workforce and took other steps to reduce overhead costs in the third quarter of 2017 as a result of this evaluation, in an effort to lower our operating expenses going forward. In addition, we are seeking a strategic partner and position our compressor business, Clean Energy Compression Corp. ("CECC"), to benefit from consolidation in the natural gas compressor sector, in an effort to increase its scale and reach and improve the financial prospects of our investment.
As a result of these decisions and the steps taken to implement them, we determined that impairment indicators were present for CECC’s assets and the closed station assets, and we recorded asset impairment charges of
$32.3 million
related to CECC and
$20.4 million
related to the station closures in the three and nine months ended September 30, 2017. We also recorded during these periods an additional $4.9 million of other charges relating to the station closures, consisting of lease termination fees, write-offs of deferred losses, and an increase in asset retirement obligations. In addition, we incurred
$3.0 million
during these periods related to our workforce reduction and
$13.2 million
during these periods related to a non-cash inventory valuation provision. As a result of these steps, we incurred, on a pre-tax basis, aggregate cash and non-cash charges of
$73.8 million
during the three and nine months ended September 30, 2017. For more information, see Note
2
to the condensed consolidated financial statements included in this report.
Purchase of Natural Gas Heavy -Duty Trucks.
On July 25, 2017, we entered into an arrangement to purchase used natural gas heavy -duty trucks by December 29, 2017, with the intention of selling the trucks to our customers. As of
September 30, 2017
, this arrangement represented an outstanding commitment to purchase
136
natural gas heavy -duty trucks valued at $
8.8 million
.
NG Advantage.
In June 2017, our subsidiary NG Advantage, LLC (“NG Advantage”) entered into an arrangement with one of its customers for the purchase, sale and transportation of CNG over a five-year period. The arrangement is customary and ordinary course, and provides for the payment by the customer of a nonrefundable amount of $13.36 million to reserve a specified
volume of CNG transportation capacity under the arrangement. This amount was paid to NG Advantage in two installments, with $8.35 million paid on July 3, 2017 and $5.01 million paid on October 2, 2017.
Contribution of Milton CNG Station.
On July 14, 2017, we contributed to NG Advantage all of its right, title and interest in and to a CNG station located in Milton, Vermont. We had purchased this CNG station from NG Advantage in October 2014 in connection with our initial investment in NG Advantage, and at that time, we entered into a lease agreement with NG Advantage to lease the station back to NG Advantage. This lease agreement was terminated contemporaneously with the contribution of the station to NG Advantage in July 2017. As consideration for the contribution, NG Advantage issued to us Series A Preferred Units with an aggregate value of $7.5 million. The Series A Preferred Units provide for an accrued return in the event of a liquidation event with respect to NG Advantage and will convert into common units of NG Advantage if and when it completes a future equity financing that satisfies certain specified conditions, but the Series A Preferred Units do not, in themselves, increase our controlling interest in NG Advantage. As a result, following the contribution, our controlling interest in NG Advantage remains at 53.3%.
Termination of ATM Program.
On May 31, 2017, we terminated our equity distribution agreement (the “Sales Agreement”) with Citigroup Global Markets Inc. (“Citigroup”), as sales agent and/or principal. The Sales Agreement was terminable at will upon written notification by us with no penalty. Pursuant to the Sales Agreement, we were entitled to issue and sell, from time to time, through or to Citigroup shares of our common stock having an aggregate offering price of up to $200.0 million in an “at-the-market” offering program (the “ATM Program”). The ATM Program commenced on November 11, 2015 when we and Citigroup entered into the original equity distribution agreement, which was amended and restated on September 9, 2016 and again on December 21, 2016 prior to its termination.
Asset Sale
. On February 27, 2017, Clean Energy Renewable Fuels ("Renewables"), our subsidiary, entered into an asset purchase agreement (the “APA”) with BP Products North America, Inc. (“BP”), pursuant to which Renewables agreed to sell to BP certain assets relating to its RNG production business (the “Asset Sale”), consisting of Renewables’ two existing RNG production facilities, Renewables’ interest in the RNG Ventures and Renewables’ third-party RNG supply contracts (the “Assets”). The Asset Sale was completed on March 31, 2017 for a sale price of
$155.5 million
, plus BP assumed the obligations under the Canton Bonds (as defined in Note
13
to the condensed consolidated financial statements included in this report) which totaled
$8.8 million
as of March 31, 2017.
On March 31, 2017, BP paid Renewables
$30.0 million
in cash and delivered to Renewables a promissory note with a principal amount of
$123.5 million
, which was paid in full on April 3, 2017. In addition, on June 22, 2017, BP paid Renewables an additional
$2.0 million
related to the determination of certain post-closing adjustments. Renewables recognized a gain of
$69.9 million
as of
September 30, 2017
from the Asset Sale. Pursuant to the APA, the valuation date of the Asset Sale was January 1, 2017, and the APA included certain adjustments to the purchase price to reflect a determination of the amount of cash accumulated by Renewables from the valuation date to the closing date, net of permitted cash outflows. Control of the Assets was not transferred until the Asset Sale was completed on March 31, 2017. Accordingly, the full operating results of Renewables are included in the condensed consolidated statement of operations through March 31, 2017.
In addition, under the APA, BP is required, following the closing of the Asset Sale, to pay Renewables up to an additional
$25.0 million
in cash over a five-year period if certain performance criteria relating to the Assets are met.
We incurred
$3.7 million
in transaction fees in connection with the Asset Sale, and paid all such fees in the nine months ended
September 30, 2017
. Also, we paid
$8.6 million
in cash and issued
770,269
shares of common stock to holders of Renewables Option Awards (as defined and discussed below). The net proceeds from the Asset Sale, net of
$1.0 million
cash transferred to BP were
$142.2 million
.
Following completion of the Asset Sale, we are continuing to procure RNG from BP under a long-term supply contract and from other RNG suppliers, and resell such RNG through our natural gas vehicle fueling infrastructure as Redeem™, our RNG vehicle fuel. We collect royalties from BP on gas purchased from BP and sold as Redeem™ at our stations, which royalty is in addition to any payment obligation of BP under the APA.
Renewables Options.
In September 2013, Renewables established the 2013 Unit Option Plan (the “Renewables Plan”) and granted unit option awards thereunder (the “Renewables Option Awards”) to certain of its service providers. In connection with the closing of the Asset Sale, all holders of outstanding Renewables Option Awards entered into a surrender agreement with us and Renewables, pursuant to which (i) all Renewables Option Awards held by holders who were not members of Renewables’ Board of Managers were surrendered and canceled in full in exchange for, upon the closing of the Asset Sale and Renewables’ receipt of any future cash payment pursuant to the terms of the APA, a cash payment in an amount determined based on such holder’s percentage ownership of Renewables following a cashless “net exercise” of such holder’s Renewables Option Awards, and (ii) all Renewables Option Awards held by members of Renewables’ Board of Managers were surrendered and canceled in
full in exchange for, upon the closing of the Asset Sale and Renewables’ receipt of any future cash payment pursuant to the terms of the APA, awards of shares of our common stock (the “Company Stock Awards”). The number of shares of our common stock subject to each Company Stock Award was calculated by dividing the cash payment to which the applicable holder would have been entitled as described in (i) above by the closing price of our common stock on March 31, 2017, the closing date of the Asset Sale. All Company Stock Awards were granted under our 2016 Performance Incentive Plan and are fully vested upon grant, and the shares subject to such awards are freely tradable upon issuance, subject to applicable securities laws relating to shares held by our affiliates.
Debt Repurchase.
In February 2017, we purchased from one of our directors and significant stockholders, T. Boone Pickens ("Mr. Pickens"), the 7.5% Convertible Note due July 2018 having an outstanding principal amount of $25.0 million held by Mr. Pickens for a cash purchase price of $21.75 million. See Note
13
to the condensed consolidated financial statements included in this report for more information about our outstanding debt.
VETC Expiration.
On December 31, 2016, the VETC alternative fuels tax credit expired and ceased to be available and may not be available in any subsequent period. Under VETC, we were eligible to receive credits of $0.50 per gasoline gallon equivalent of CNG and $0.50 per diesel gallon equivalent of LNG that we sold as a vehicle fuel from January 1, 2016 through December 31, 2016.
Business Risks and Uncertainties
Our business and prospects are exposed to numerous risks and uncertainties. For more information, see “Risk Factors” in Part II, Item 1A of this report.
Key Trends
Market for Natural Gas.
CNG and LNG are generally less expensive than gasoline and diesel on an energy equivalent basis. Additionally, according to studies conducted by the California Air Resources Board ("CARB") and Argonne National Laboratory, a research laboratory operated by the University of Chicago for the U.S. Department of Energy, CNG and LNG are cleaner than gasoline and diesel fuel. According to the U.S. Energy Information Administration, demand for natural gas fuels in the United States has increased in recent years and is expected to continue to increase. We believe this growth in demand is attributable primarily to the higher prices of gasoline and diesel relative to CNG and LNG, increasingly stringent environmental regulations affecting vehicle fleets and increased supply of natural gas.
Since approximately mid-2014, however, the prices of oil, gasoline, diesel and natural gas have been significantly lower and volatile, and these trends of lower prices and volatility may continue. We believe these conditions have contributed to slower and more limited growth in the demand for natural gas as a vehicle fuel, both in general and in certain of our key markets, such as heavy-duty trucking, because the pricing advantage when comparing natural gas prices to diesel and gasoline prices has decreased. We believe this decreased pricing advantage has also contributed to our lower revenue levels in recent periods. In addition, these conditions have also caused us to reduce the prices we have been charging our customers for CNG and LNG in some instances, which has reduced our profit margins. Further, to the extent these conditions have contributed to curtailed demand or slowed growth in the market for natural gas as a vehicle fuel, we believe they have also contributed to decreases in compressor sales and station construction activity in certain periods, as the success of these aspects of our operations is dependent upon the success of the natural gas vehicle fuels market generally. Due to these and other factors, during the three months ended September 30, 2017, we identified for closure certain underperforming stations in our fueling station network, which resulted in an impairment of the associated assets and certain other cash and non-cash charges, and we also determined the assets related to our compressor business were impaired. See "Our Performance" below for more information. In addition, we believe these factors have materially contributed to the volatility and overall decline in our stock price and market capitalization in recent years, which has and could in the future lead to decreased cash flows and/or indications of asset or goodwill impairment. If these volatile and low price conditions and other uncertainties persist, our financial results and stock price may continue to be adversely affected.
Our Performance.
In light of continuing low oil prices and the current state of natural gas vehicle adoption as described above, during the three months ended September 30, 2017, we took steps to minimize and eliminate assets we believe are underperforming in an effort to better align our activities with current and anticipated natural gas fueling demand, and to try to lower our operating expenses going forward by streamlining our operations. These steps included a workforce reduction and other measures to reduce overhead costs, which resulted in cash severance costs and certain non-cash stock-based compensation charges; our decision to close certain of our natural gas fueling stations by the end of 2017, which resulted in an impairment of these station assets and certain other cash and non-cash charges; a determination that the assets of CECC, which operates our natural gas fueling compressor business, were impaired, which resulted in a non-cash charge; and positioning CECC to benefit from consolidation in the natural gas compressor sector. See "Recent Development" above and Note
2
to the condensed consolidated financial statements included in this report for more information.
Our gross revenue mostly consists of volume -related revenue, compressor and other equipment sales, station construction sales, and historically, VETC revenue. Our revenue can vary between periods due to a variety of factors, including, among others, the amount and timing of station construction sales, sales of RINs and LCFS Credits, recognition of any other government credits and, compressor and other equipment sales; fluctuations in commodity costs; and natural gas prices and sale activity. Our volume-related revenue, which is further discussed below, increased from 2014 to 2016 due largely to the increase in gallons delivered across this period; however, volume-related revenue declined in the three and
nine
months ended
September 30, 2017
compared to the same periods in 2016, primarily due to decreased revenue from sales of RINs and LCFS Credits as a result of the Asset Sale. We expect this trend to continue.
Our cost of sales can also vary between periods due to a variety of factors, including fluctuations in commodity, station construction and labor costs, fluctuations in compressor equipment costs; and the other factors that impact our revenue levels described above.
In addition, our performance in certain recent periods has been materially affected by certain non-cash gains relating to particular transactions or events. For example, our results for the
nine
months ended
September 30, 2016
and
2017
were positively affected by gains related to repurchases and retirements of our outstanding convertible debt, and our results for the
nine
months ended
September 30, 2017
were also positively affected by the gain from the Asset Sale. These or other gains or losses may not recur regularly, in the same amounts or at all in future periods and, with respect to non-cash gains and losses, do not impact our liquidity.
See "Results of Operations" below for a further discussion of our performance.
Volume-Related Revenue.
The amount of CNG, LNG and RNG GGEs we delivered increased by
24.1%
from
2014
to
2016
and by
8.2%
from the first
nine
months of
2016
compared to the same period in
2017
.
In particular, the amount of RNG we sell for vehicle fuel, which is delivered in the form of CNG or LNG and is distributed under the name Redeem™, has experienced rapid growth in recent years, increasing by 190.1% from 20.2 million GGEs in
2014
to 58.6 million GGEs in
2016
, and by
22.7%
from
43.7 million
GGEs in the first
nine
months of
2016
to
53.6 million
GGEs for the same period in
2017
.
We believe demand for Redeem™ is largely attributable to the lower greenhouse gas emissions that it produces relative to gasoline and diesel, and we expect our Redeem™ business will continue to grow.
When we sell natural gas and RNG for use as a vehicle fuel, we are eligible to generate RINs and LCFS Credits, which we then seek to sell to third parties. The following table summarizes our revenue from sales of RINs and LCFS Credits in the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(In millions)
|
2016
|
|
2017
|
|
2016
|
|
2017
|
RIN Credits
|
$
|
7.0
|
|
|
$
|
3.8
|
|
|
$
|
20.0
|
|
|
$
|
17.2
|
|
LCFS Credits (1)
|
4.3
|
|
|
—
|
|
|
15.2
|
|
|
2.9
|
|
Total
|
$
|
11.3
|
|
|
$
|
3.8
|
|
|
$
|
35.2
|
|
|
$
|
20.1
|
|
(1)
We recognized no revenue from sales of LCFS Credits during the three months ended September 30, 2017 primarily because the majority of the LCFS Credits we had generated were sold to BP pursuant to the APA and we temporarily stopped sales of our remaining LCFS Credits due to restrictions imposed on our credit account pending completion of ongoing administrative review by CARB. We continue to generate LCFS Credits and we expect to recognize revenue from sales of such credits during the three months ending December 31, 2017. However, if CARB’s administrative review results in the retirement of any of our LCFS Credits or is otherwise unfavorable, we may be required to recognize a charge equal to the value of the retired credits or we may experience other negative effects.
Although we continue to generate revenue from the sale of RINs and LCFS Credits in connection with our continued sales of CNG, LNG and our Redeem™ RNG vehicle fuel, the amount of revenue we receive from sales of these credits has decreased as a result of our sale of certain of our former RNG assets in the Asset Sale, which has adversely affected our results of operations, in particular our volume -related revenue, and reduced our effective price per gallon. Pursuant to the terms of the APA, $5.1 million of revenue attributable to sales of RINs and LCFS Credits in the first quarter of 2017 served as an adjustment to the purchase price and was recorded as a reduction of the gain from the Asset Sale (see Note
3
to the condensed consolidated financial statements included in this report).
The markets for RINs and LCFS Credits have historically been volatile, and the prices for these credits have been subject to significant fluctuations. Additionally, the value of RINs and LCFS Credits, and consequently the revenue levels we may receive from our sale of these credits, may be adversely affected by changes to the federal and state programs under which such credits are generated and sold. In addition, our ability to generate revenue from sales of these credits depends upon our strict compliance with these federal and state programs, which are complex and can involve a significant degree of judgment. If the agencies that administer and enforce these programs disagree with our judgments, otherwise determine we are not in compliance or conduct reviews of our activities, then our ability to generate or sell these credits could be temporarily restricted pending completion of reviews or as a penalty, permanently limited or lost entirely, and we could also be subject to fines or other sanctions, any of which could force us to purchase credits in the open market to cover any credits we have contracted to sell, retire credits we may have generated but not yet sold, or eliminate or reduce a significant revenue stream.
Anticipated Future Trends
Although natural gas continues to be less expensive than gasoline and diesel in most markets, the price of natural gas vehicle fuel has been closer to the prices of gasoline and diesel in recent years due in part to lower oil prices, thereby reducing the price advantage of natural gas as a vehicle fuel. We anticipate that, over the long term, the prices for gasoline and diesel will continue to be higher than the price of natural gas as a vehicle fuel and will increase overall, which would improve the cost savings of natural gas compared to gasoline and diesel. This belief is based in large part on the growth in recent years of natural gas production in the United States, as well as increasingly stringent environmental regulations affecting vehicle fleets, which we believe drives the market for alternative vehicle fuels generally.
It is uncertain, however, whether and when the prices for gasoline and diesel will increase, and we expect that adoption of natural gas as a vehicle fuel and growth in our customer base and revenue will be negatively affected while oil and diesel prices remain low. Other factors also create potential uncertainties about the future market for natural gas as a vehicle fuel, including growing favor by lawmakers, regulators, other policymakers, environmental organizations or other powerful groups for non-natural gas fuels and vehicles, including long-standing support for gasoline and diesel-powered vehicles and growing favor for electric and/or hydrogen-powered vehicles, and the availability and effect on our business of environmental and other regulations, programs or incentives. These and other factors make it challenging to accurately predict natural gas vehicle fuel demand, in general and in any specific geographic and customer markets. As a result, our timing and level of investment in particular markets may not be consistent with any growth in demand in these markets.
We have made efforts we believe will better align our activities and assets with current and anticipated market demand. For instance, we plan to close
42
natural gas fueling stations by the end of 2017 and are positioning our compressor business to benefit from consolidation in the natural gas sector. We expect these actions will have a number of effects on our financial condition and performance, including primarily decreased revenue and decreased costs from the closed assets and our related operations in the near term. We also anticipate the measures we implemented in the third quarter of 2017 to reduce our operating costs, including a workforce reduction and other measures to reduce overhead costs, will contribute to decreased expenses going forward, particularly selling, general and administrative expenses.
We believe natural gas fuels are well-suited for use by vehicle fleets that consume high volumes of fuel, refuel at centralized locations or along well-defined routes and/or are increasingly required to reduce emissions. As a result, we believe there will be growth in the consumption of natural gas as a vehicle fuel among vehicle fleets, and our goal is to capitalize on this trend if and when it materializes. Our business plan calls for expanding our sales of natural gas vehicle fuel in the markets in which we operate, including heavy-duty trucking, airports, refuse, public transit, government fleets and industrial and institutional energy users, and pursuing additional markets as opportunities arise. Additionally, we expect that the lower greenhouse gas emissions associated with our Redeem™ vehicle fuel will result in increased demand for this fuel, resulting in our delivery of increasing volumes of Redeem™ to our vehicle fleet customers. If these projections materialize and our business grows as we anticipate, then our operating costs and capital expenditures could increase. We also may pursue strategic partnerships or similar arrangements or seek to invest in or acquire assets and/or businesses that are in the natural gas fueling infrastructure, which may require us to spend additional capital.
We expect competition in the market for natural gas vehicle fuel to remain steady in the near-term, but we expect competition in the vehicle fuels market generally to increase. Any such increased competition may reduce our customer base and revenue and may lead to amplified pricing pressure, reduced operating margins and fewer expansion opportunities.
Several factors create potential uncertainties relating to the future market for natural gas as a vehicle fuel. These factors include growing favor by lawmakers, regulators, other policymakers, environmental organizations or other powerful groups for non-natural gas fuels and vehicles, including long-standing for gasoline and diesel-powered vehicles and growing favor for electric and/or hydrogen-powered vehicles, and the availability and effect on our business of environmental and other regulations, programs
or incentives. Subsequent to December 31, 2016, our stock price has declined due to adverse macroeconomic conditions surrounding the energy industry which could also lead to decreased cash flows which may indicate the carrying value of our goodwill or long lived assets is impaired. As a result of the recent volatility of our market capitalization and possible decrease in cash flows, it is possible that our goodwill or long lived assets could become impaired, which could result in a material charge and adversely affect our results of operations. See “Risk Factors” in Part II, Item 1A of this report for additional information.
Debt Compliance
Certain of the agreements governing our outstanding debt, which are discussed in Note
13
to our condensed consolidated financial statements included in this report, have certain non-financial covenants with which we must comply. As of
September 30, 2017
, we were in compliance with all of these covenants.
Risk Management Activities
Our risk management activities are discussed in the MD&A of our
2016
Form 10-K. In the
nine
months ended
September 30, 2017
, there were no material changes to our risk management activities.
Critical Accounting Policies
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.
|
|
•
|
Impairment of goodwill and long-lived assets;
|
Our critical accounting policies and estimates are discussed in the MD&A of our
2016
Form 10-K. For the
nine
months ended
September 30, 2017
, there were no material changes to our critical accounting policies.
Recently Issued and Adopted Accounting Standards
For a description of recently issued and adopted accounting standards, see Note
19
to the condensed consolidated financial statements included in this report.
Results of Operations
Three Months Ended
September 30, 2016
Compared to Three Months Ended
September 30, 2017
The table below presents our results of operations as a percentage of total revenue and the narrative that follows provides a detailed discussion of certain line items for the periods presented.
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2016
|
|
2017
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Product revenue
|
87.1
|
%
|
|
82.7
|
%
|
|
Service revenue
|
12.9
|
|
|
17.3
|
|
|
Total revenue
|
100.0
|
|
|
100.0
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown separately below):
|
|
|
|
|
|
|
Product cost of sales
|
57.2
|
|
|
64.7
|
|
|
Service cost of sales
|
6.6
|
|
|
8.9
|
|
|
Inventory valuation provision
|
—
|
|
|
16.1
|
|
|
Selling, general and administrative
|
26.7
|
|
|
30.3
|
|
|
Depreciation and amortization
|
15.3
|
|
|
17.2
|
|
|
Asset impairments and other charges
|
—
|
|
|
74.2
|
|
|
Total operating expenses
|
105.8
|
|
|
211.4
|
|
|
Operating loss
|
(5.8
|
)
|
|
(111.4
|
)
|
|
Interest expense
|
(6.6
|
)
|
|
(5.2
|
)
|
|
Interest income
|
0.1
|
|
|
0.6
|
|
|
Other income (expense), net
|
(0.1
|
)
|
|
0.0
|
|
|
Loss from equity method investments
|
0.0
|
|
|
0.0
|
|
|
Gain (loss) from extinguishment of debt
|
(0.7
|
)
|
|
—
|
|
|
Gain from sale of certain assets of subsidiary
|
—
|
|
|
—
|
|
|
Loss before income taxes
|
(13.1
|
)
|
|
(116.0
|
)
|
|
Income tax benefit (expense)
|
(0.4
|
)
|
|
0.1
|
|
|
Net loss
|
(13.5
|
)
|
|
(115.9
|
)
|
|
Loss attributable to noncontrolling interest
|
0.4
|
|
|
0.9
|
|
|
Net loss attributable to Clean Energy Fuels Corp.
|
(13.1
|
)%
|
|
(115.0
|
)%
|
|
Revenue.
Revenue decreased by
$15.2 million
to
$81.8 million
in the
three months ended September 30,
2017
, from
$97.0 million
in the
three months ended September 30, 2016
. This decrease was primarily due to the expiration of VETC in addition to lower volume -related revenue and station construction sales partially offset by an increase in compressor revenue.
Volume -related revenue decreased by
$8.2 million
between periods primarily due to reduced revenue received from sales of RINs and LCFS Credits, due in large part to the effects of the Asset Sale and, for the three months ended
September 30, 2017
, the impact of temporarily stopping sales of LCFS Credits due to restrictions imposed on our LCFS Credit account. See "Key Trends" and Note
3
to the condensed consolidated financial statements included in this report for more information about RINs and LCFS Credits and the Asset Sale, respectively. The decrease in volume -related revenue between periods was partially offset by an increase of
7.0 million
gallons delivered.
This increase in gallons delivered was due to a
6.8 million
and
0.2 million
gallon increase in CNG and LNG gallons delivered, respectively, which was primarily attributable to 26 new refuse customers and nine new transit customers. Our effective price per gallon charged was
$0.69
for the three months ended
September 30, 2017
, a
$0.16
per gallon decrease from
$0.85
per gallon for the three months ended
September 30, 2016
. Our effective price per gallon is defined as revenue generated from selling CNG, LNG, RNG, and any related RINs and LCFS Credits and providing O&M services to our vehicle fleet customers at stations
we do not own and for which we receive a per-gallon or fixed fee, all divided by the total GGEs delivered less GGEs delivered by non-consolidated entities, such as entities that are accounted for under the equity method. The decrease in our effective price per gallon between periods was primarily due to lower revenue from sales of RINs and LCFS Credits.
Compressor revenue from CECC, remained relatively comparable between periods, with an increase of
$0.6 million
.
Station construction sales decreased by
$1.2 million
between periods, principally due to fewer station upgrade projects.
VETC revenue decreased by
$6.7 million
between periods due to the expiration of VETC on December 31, 2016.
Cost of sales.
Cost of sales increased by $
11.4 million
to $
73.3 million
in the three months ended
September 30, 2017
, from $
61.9 million
in the three months ended
September 30, 2016
. This increase was primarily due to a
$13.2 million
inventory valuation provision recorded in the three months ended September 30, 2017 which comprised of
$7.8 million
related to station construction inventory and
$5.4 million
related to compressor inventory (see "Recent Developments" and Note
2
to the condensed consolidated financial statements included in this report). This increase was partially offset by a
$0.6 million
decrease in between periods in station construction cost due to lower construction sales and a
$1.6 million
decrease between periods primarily due to reduced costs of natural gas delivered from our facilities.
Our effective cost per gallon decreased by
$0.06
per gallon between periods, to
$0.46
per gallon in the three months ended
September 30, 2017
from
$0.52
per gallon in the three months ended
September 30, 2016
, excluding the
$7.8 million
inventory valuation provision discussed above. Our effective cost per gallon is defined as the total costs associated with delivering natural gas, including gas commodity costs, transportation fees, liquefaction charges, and other site operating costs, plus the total cost of providing O&M services at stations that we do not own and for which we receive a per-gallon or fixed fee, including direct technician labor, indirect supervisor and management labor, repair parts and other direct maintenance costs, all divided by the total GGEs delivered less GGEs delivered by non-consolidated entities, such as entities that are accounted for under the equity method. The decrease in our effective cost per gallon was primarily due to the sale of Renewables’
two
RNG production facilities in the Asset Sale, resulting in no costs to operate these facilities incurred in the three months ended
September 30, 2017
.
Selling, general and administrative.
Selling, general and administrative expenses decreased by $
1.1 million
to $
24.8 million
in the three months ended
September 30, 2017
, from $
25.9 million
in the three months ended
September 30, 2016
. This decrease was primarily driven by continued cost reduction efforts and reduced administrative costs due to the Asset Sale in 2017.
Depreciation and amortization.
Depreciation and amortization decreased by $
0.7 million
to $
14.1 million
in the three months ended
September 30, 2017
, from $
14.8 million
in the three months ended
September 30, 2016
, primarily due to the sale of Renewables’
two
RNG production facilities in the Asset Sale.
Asset impairments and other charges.
During the three months ended September 30, 2017, we recorded employee terminations, asset impairments and other charges of
$60.7 million
related to our station closures and our natural gas fueling compressor business. For more information, see "Recent Developments" and Note
2
to the condensed consolidated financial statements included in this report.
Interest expense.
Interest expense decreased by $
2.1 million
to $
4.3 million
in the three months ended
September 30, 2017
, from $
6.4 million
in the three months ended
September 30, 2016
. This decrease was primarily due to a reduction of outstanding indebtedness between periods.
Income tax benefit (expense)
. Income tax benefit (expense) increased by
$0.5 million
between periods, which was primarily attributable to the reduction of goodwill amortization following the Asset Sale.
Loss from noncontrolling interest.
During the three months ended
September 30, 2016
and 2017, we recorded a
$0.4 million
and $
0.7 million
loss, respectively, for the noncontrolling interest in the net loss of NG Advantage. The noncontrolling interest in NG Advantage represents a 46.7% minority interest that was held by third parties during the applicable periods.
Gain from extinguishment of debt.
In the
three months ended September 30, 2016
, we recorded a gain of
$0.7 million
related to the extinguishment of debt. We recorded no comparable gain in the
three months ended September 30,
2017
.
Nine Months Ended
September 30, 2016
Compared to Nine Months Ended
September 30, 2017
The table below presents our results of operations as a percentage of total revenue and the narrative that follows provides a detailed discussion of certain line items for the periods presented.
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2017
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Product revenue
|
87.5
|
%
|
|
83.9
|
%
|
|
Service revenue
|
12.5
|
|
|
16.1
|
|
|
Total revenue
|
100.0
|
|
|
100.0
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown separately below):
|
|
|
|
|
|
|
Product cost of sales
|
56.8
|
|
|
62.7
|
|
|
Service cost of sales
|
6.3
|
|
|
8.0
|
|
|
Inventory valuation provision
|
—
|
|
|
5.2
|
|
|
Selling, general and administrative
|
25.5
|
|
|
28.5
|
|
|
Depreciation and amortization
|
14.9
|
|
|
17.3
|
|
|
Asset impairments and other charges
|
—
|
|
|
24.0
|
|
|
Total operating expenses
|
103.5
|
|
|
145.7
|
|
|
Operating loss
|
(3.5
|
)
|
|
(45.7
|
)
|
|
Interest expense
|
(7.9
|
)
|
|
(5.3
|
)
|
|
Interest income
|
0.2
|
|
|
0.5
|
|
|
Other income (expense), net
|
0.0
|
|
|
0.0
|
|
|
Loss from equity method investments
|
0.0
|
|
|
0.0
|
|
|
Gain (loss) from extinguishment of debt
|
8.4
|
|
|
1.3
|
|
|
Gain from sale of certain assets of subsidiary
|
—
|
|
|
27.7
|
|
|
Loss before income taxes
|
(2.8
|
)
|
|
(21.5
|
)
|
|
Income tax benefit (expense)
|
(0.4
|
)
|
|
0.9
|
|
|
Net loss
|
(3.2
|
)
|
|
(20.6
|
)
|
|
Loss attributable to noncontrolling interest
|
0.4
|
|
|
0.7
|
|
|
Net loss attributable to Clean Energy Fuels Corp.
|
(2.8
|
)%
|
|
(19.9
|
)%
|
|
Revenue.
Revenue decreased by
$48.5 million
to
$252.3 million
in the
nine
months ended
September 30, 2017
, from
$300.8 million
in the
nine
months ended
September 30, 2016
. This decrease was primarily due to the expiration of VETC in addition to lower volume -related revenue, compressor revenue and station construction sales.
Volume -related revenue decreased by
$10.8 million
between periods, primarily due to reduced revenue received from sales of RINs and LCFS Credits, due in large part to the effects of the Asset Sale and, for the three months ended
September 30, 2017
, the impact of temporarily stopping sales of LCFS Credits due to restrictions imposed on our LCFS Credit account. See "Key Trends" and Note
3
to the condensed consolidated financial statements included in this report for more information about RINs and LCFS Credits and the Asset Sale, respectively. The decrease in volume -related revenue between periods was partially offset by an increase of
20.1 million
gallons delivered.
This increase in gallons delivered was due to a
21.4 million
gallon increase in CNG gallons delivered, which was primarily attributable to 29 new refuse customers, 16 new transit customers, and two new trucking customers. This increase was partially offset by a
0.9 million
decrease in LNG gallons delivered as non-vehicle fuel and a
0.4 million
decrease in RNG gallons delivered as non-vehicle fuel. Our effective price per gallon charged was
$0.76
for the
nine
months ended
September 30, 2017
, a
$0.10
per gallon decrease from
$0.86
per gallon for the
nine
months ended
September 30, 2016
. The decrease in our effective price per gallon between periods was primarily due to lower revenue from sales of RINs and LCFS Credits.
Compressor revenue from CECC, decreased by
$4.8 million
between periods due to lower compressor sales, which we believe was primarily due to continued low global demand.
Station construction sales decreased by
$13.9 million
between periods, principally due to a decrease in large, full -station projects and station upgrade projects.
VETC revenue decreased by
$19.6 million
between periods due to the expiration of VETC on December 31, 2016.
Cost of sales.
Cost of sales increased by
$1.7 million
to
$191.5 million
in the
nine
months ended
September 30, 2017
, from
$189.8 million
in the
nine
months ended
September 30, 2016
. This increase was primarily due to a
$4.6 million
increase in cost of sales primarily due to increased natural gas volumes delivered between periods and a
$13.2 million
inventory valuation provision charge recorded in the nine months ended September 30, 2017 which comprised of
$7.8 million
related to station construction inventory and
$5.4 million
related to compressor inventory (see "Recent Developments" and Note
2
to the condensed consolidated financial statements included in this report). This increase was offset by a
$10.0 million
decrease between periods in station construction costs due to lower station construction sales and a
$6.1 million
decrease between periods in compressor costs due to lower compressor sales.
Our effective cost per gallon decreased by
$0.02
per gallon between periods, to
$0.49
per gallon in the
nine
months ended
September 30, 2017
from
$0.51
per gallon in the
nine
months ended
September 30, 2016
, excluding the
$7.8 million
inventory valuation provision discussed above. The decrease in our effective cost per gallon was primarily due to the sale of Renewables’
two
RNG production facilities in the Asset Sale, resulting in no costs to operate these facilities incurred in the last six months of the nine months ended
September 30, 2017
.
Selling, general and administrative.
Selling, general and administrative expenses decreased by
$4.8 million
to
$71.9 million
in the
nine
months ended
September 30, 2017
, from
$76.7 million
in the
nine
months ended
September 30, 2016
. This decrease was primarily driven by continued cost reduction efforts and reduced administrative costs due to the Asset Sale in 2017.
Depreciation and amortization.
Depreciation and amortization decreased by
$0.9 million
to
$43.8 million
in the
nine
months ended
September 30, 2017
, from
$44.7 million
in the
nine
months ended
September 30, 2016
, primarily due to the sale of Renewables’
two
RNG production facilities in the Asset Sale.
Asset impairments and other charges.
During the nine months ended September 30, 2017, we recorded employee terminations, asset impairments and other charges of
$60.7 million
related to our station closures and our natural gas fueling compressor business. For more information, see "Recent Developments" and Note
2
to the condensed consolidated financial statements included in this report.
Interest expense.
Interest expense decreased by
$10.3 million
to
$13.5 million
in the
nine
months ended
September 30, 2017
, from
$23.8 million
in the
nine
months ended
September 30, 2016
. This decrease was primarily due to a reduction of outstanding indebtedness between periods.
Income tax benefit (expense)
. Income tax benefit (expense) increased by
$3.4 million
to
$2.2 million
of tax benefit in the
nine
months ended
September 30, 2017
, compared to
$(1.2) million
of tax expense in the
nine
months ended
September 30, 2016
. The increase in income tax benefit was primarily due to the deferred tax benefit attributable to the reduction of goodwill amortization following the Asset Sale.
Loss from noncontrolling interest.
During the
nine
months ended
September 30, 2016
and 2017, we recorded a
$1.3 million
and
$1.8 million
loss, respectively, for the noncontrolling interest in the net loss of NG Advantage. The noncontrolling interest in NG Advantage represents a 46.7% minority interest that was held by third parties during the applicable periods.
Gain from extinguishment of debt.
Gain from extinguishment of debt decreased by
$22.2 million
to
$3.2 million
in the
nine
months ended
September 30, 2017
, from
$25.4 million
in the
nine
months ended
September 30, 2016
. This decrease was primarily due to our repurchase of a lower principal amount of debt at higher prices in the
nine
months ended
September 30, 2017
compared to the comparable 2016 period.
Gain from sale of certain assets of subsidiary.
In the
nine
months ended
September 30, 2017
, we recorded a gain of
$69.9 million
related to the Asset Sale. We recorded no comparable gain in the
nine
months ended
September 30, 2016
.
Seasonality and Inflation
To some extent, we experience seasonality in our results of operations. Natural gas vehicle fuel amounts consumed by some of our customers tend to be higher in summer months when buses and other fleet vehicles use more fuel to power their air conditioning systems. Natural gas commodity prices tend to be higher in the fall and winter months due to increased overall demand for natural gas for heating during these periods.
Historically, inflation has not significantly affected our operating results; however, costs for construction, repairs, maintenance, electricity and insurance are all subject to inflationary pressures, which could affect our ability to maintain our stations adequately, build new stations, expand our existing facilities or pursue additional facilities, and could materially increase our operating costs.
Liquidity and Capital Resources
Liquidity
Liquidity is the ability to meet present and future financial obligations through operating cash flows, the sale or maturity of investments or the acquisition of additional funds through capital management. Our financial position and liquidity are, and will continue to be, influenced by a variety of factors, including the level of our outstanding indebtedness and the principal and interest we are obligated to pay on our indebtedness, our capital expenditure requirements and any merger, divestiture or acquisition activity, as well as our ability to generate cash flows from our operations. We expect cash provided by our operating activities to fluctuate as a result of a number of factors, including our operating results, and the timing and amount of our billing, collections and liability payments, completion of our station construction projects and receipt of government grants and tax and other fuel credits.
Cash Flows
Cash used in operating activities was
$(4.9) million
in the
nine
months ended
September 30, 2017
, compared to
$44.2 million
provided by operating activities in the comparable
2016
period. The
$49.1 million
decrease in cash provided by operating activities was primarily due to payment of transaction fees related to the Asset Sale and a reduction in operating results due to the decreased revenue from sales of RINs and LCFS Credits, as discussed under "Key Trends" and "Results of Operations" above and the expiration of VETC.
Cash provided by investing activities was
$57.2 million
in the
nine
months ended
September 30, 2017
, compared to
$9.5 million
provided by investing activities in the comparable
2016
period. The
$47.7 million
increase in cash provided by investing activities was primarily attributable to
$154.5 million
in cash received, net of cash transferred, in connection with the Asset Sale (see "Recent Developments" and Note
3
to the condensed consolidated financial statements included in this report for more information) and an
$8.4 million
payment made to NG Advantage related to an arrangement with one of its customers for the purchase, sale and transportation of CNG over a five-year period (see "Recent Developments" for more information). The increase was partially offset by incremental purchases of short-term investments, net of maturities, of
$103.4 million
in the
nine
months ended
September 30, 2017
, compared to the comparable 2016 period and a
$10.9 million
increase in purchases of equipment, primarily related to deposits by NG Advantage for CNG trailers and equipment.
Cash used in financing activities in the
nine
months ended
September 30, 2017
was
$43.9 million
, compared to
$57.2 million
used in financing activities in the comparable
2016
period. The
$13.3 million
decrease in cash used in financing activities was primarily due to a
$79.3 million
decrease in cash used in debt repurchases, net of borrowings. This decrease was partially offset by a
$57.4 million
decrease in cash provided by the ATM Program, net of fees, which was terminated on May 31, 2017, and an
$8.6 million
payment to holders of Renewables Option Awards associated with the Asset Sale in the
nine
months ended
September 30, 2017
.
Capital Expenditures and Other Uses of Cash
We require cash to fund our capital expenditures, operating expenses and working capital requirements, including costs associated with fuel sales, outlays for the design and construction of new fueling stations, additions or other modifications to existing fueling stations, debt repayments and repurchases, purchases of CNG tanker trailers and natural gas heavy-duty trucks, maintenance of LNG production facilities, manufacturing natural gas fueling compressors and other equipment , mergers and acquisitions (if any), financing natural gas vehicles for our customers and general corporate purposes, including geographic expansion (domestically and internationally), pursuing new customer markets and supporting our sales and marketing activities, including supporting legislative and regulatory initiatives.
Our business plan called for approximately
$29.0 million
in capital expenditures for all of
2017
, although as of
September 30, 2017
we estimate actual capital expenditures will approximate
$23.0 million
for
2017
. Our capital expenditures primarily relate to the construction of CNG and LNG fueling stations, additional investments in fueling stations to add CNG fueling, the purchase of natural gas heavy-duty trucks, the purchase of additional CNG trailers and equipment by NG Advantage to support its transport and sale of CNG to industrial and institutional energy users, and LNG plant maintenance costs.
In addition, NG Advantage planned to spend
$24.0 million
to purchase other equipment to support a customer arrangement established in June 2017. As of
September 30, 2017
, NG Advantage has spent
$13.6 million
related to this customer arrangement.
We had total indebtedness of approximately
$255.8 million
in principal amount as of
September 30, 2017
, of which approximately
$1.2 million
,
$139.5 million
,
$53.7 million
,
$53.8 million
,
$3.3 million
and
$4.3 million
is expected to become due in
2017
,
2018
,
2019
,
2020
,
2021
and thereafter, respectively. Additionally, we expect our total interest payment obligations relating to our indebtedness to be approximately
$20.0 million
in
2017
,
$14.4 million
of which had been paid when due as of
September 30, 2017
. We generally intend to make payments under our various debt instruments when due and pursue opportunities for earlier repayment and/or refinancing if and when these opportunities arise.
We may also elect to invest additional amounts in companies, assets or joint ventures in the natural gas fueling infrastructure, vehicle or services industries or use capital for other activities or pursuits, in addition to those described above.
Sources of Cash
Historically, our principal sources of liquidity have consisted of cash on hand, cash provided by our operations, including, if available, grants, VETC and other credits, cash provided by financing activities and sales of assets. As of
September 30, 2017
, we had total cash and cash equivalents and short-term investments of $
196.8 million
, compared to $
109.8 million
at
December 31, 2016
.
We expect cash provided by our operating activities to fluctuate depending on our operating results, which can be affected by the amount and timing of station construction sales, sales of RINs and LCFS Credits and recognition of any other government credits and, compressor and other equipment sales; fluctuations in commodity costs and natural gas prices and sale activity; and the amount and timing of our billing, collections and liability payments, among other factors. See "Risk Factors\" in Part II, Item 1A of this report for more information.
From the commencement of the ATM Program in November 2015 until our termination of the Sales Agreement on May 31, 2017, we received aggregate net proceeds of
$117.9 million
from sales of our common stock under the Sales Agreement.
The following table summarizes the activity under the ATM Program for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
Inception through May 31,
|
|
(in millions)
|
|
2016
|
|
2017
|
|
2017
|
|
Gross proceeds
|
|
$
|
69.1
|
|
|
$
|
10.8
|
|
|
$
|
121.3
|
|
|
Fees and issuance costs
|
|
1.7
|
|
|
0.3
|
|
|
3.4
|
|
|
Net proceeds
|
|
$
|
67.4
|
|
|
$
|
10.5
|
|
|
$
|
117.9
|
|
|
Shares issued
|
|
21.3
|
|
|
3.8
|
|
|
36.4
|
|
|
On February 29, 2016, we entered into a loan and security agreement with, and issued a related promissory note to PlainsCapital Bank ("Plains"), pursuant to which Plains agreed to lend us up to $50.0 million on a revolving basis for a term of one year (the "Credit Facility"). Simultaneously, we drew $50.0 million under the Credit Facility, which we repaid in full on August 31, 2016. On October 31, 2016, the Credit Facility's maturity date was extended from February 28, 2017 to September 30, 2018. On December 22, 2016, we drew $23.5 million under the Credit Facility, which we repaid in full on March 31, 2017.
See Note
13
to the condensed consolidated financial statements included in this report for more information about our outstanding debt.
On March 31, 2017, Renewables completed the Asset Sale. The net proceeds to us from the Asset Sale were approximately
$142.2 million
. See “Recent Developments” and Note
3
to the condensed consolidated financial statements included in this report for more information.
We believe our current cash and cash equivalents and short-term investments and cash provided by our operating and financing activities will satisfy our business requirements for at least the 12 months following the date of this report; however, we would need to raise additional capital to fund any planned or unanticipated capital expenditures, investments or debt repayments that we cannot fund through available cash, cash provided by our operations or other sources, such as with our common stock.
The timing and necessity of any future capital raise would depend on various factors, including our rate and volume of natural gas sales and other volume-related activity, new station construction, debt repayments (either prior to or at maturity) and any potential merger, acquisition, investment or divestiture activity, as well as the other factors that affect our revenue levels.
We may seek to raise additional capital through one or more sources, including, among others, selling assets, obtaining new or restructuring existing debt, obtaining equity capital, or any combination of these or other potential sources of capital. We may not be able to raise capital when needed, on terms that are favorable to us or our stockholders or at all. Any inability to raise necessary capital may impair our ability to develop natural gas fueling infrastructure, maintain our stations, invest in strategic transactions or acquisitions or repay our outstanding indebtedness and may reduce our ability to build our business and generate sustained or increased revenue.
Off-Balance Sheet Arrangements
As of
September 30, 2017
, we had the following off-balance sheet arrangements that had, or are reasonably likely to have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources:
|
|
•
|
Outstanding surety bonds for construction contracts and general corporate purposes totaling
$28.9 million
;
|
|
|
•
|
Two
long-term take-or-pay contracts for the purchase of natural gas;
|
|
|
•
|
An outstanding commitment to purchase
136
natural gas heavy -duty trucks valued at $
8.8 million
; and
|
|
|
•
|
Operating leases where we are the lessee.
|
We provide surety bonds primarily for construction contracts in the ordinary course of our business, as a form of guarantee. No liability has been recorded in connection with our surety bonds as we do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these arrangements for which we will not be reimbursed.
We have
two
long-term take-or-pay contracts that require us to purchase minimum volumes of natural gas at index based prices which expire in March 2020 and December 2020, respectively.
We have entered into an arrangement to purchase
136
used natural gas heavy-duty trucks valued at $
8.8 million
by December 31, 2017, with the intention of selling the trucks to our customers.
We have entered into operating lease arrangements for certain equipment and for our office and field operating locations in the ordinary course of our business. The terms of our leases expire at various dates through 2038. Additionally, in November 2006, we entered into a ground lease for 36 acres in California on which we built our California LNG liquefaction plant. The lease is for an initial term of 30 years and requires payments of $0.2 million per year, plus up to $0.1 million per year for each 30 million gallons of production capacity utilized, subject to adjustment based on consumer price index changes. We must also pay a royalty to the landlord for each gallon of LNG produced at the facility, as well as a fee for certain other services that the landlord provides.
Item 3.—Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of our business, we are exposed to various market risks, including commodity price risks and risks related to foreign currency exchange rates.
Commodity Price Risk
We are subject to market risk with respect to our sales of natural gas, which have historically been subject to volatile market conditions. Our exposure to market risk is heightened when we have a fixed-price sales contract with a customer that is not covered by a futures contract, or when we are otherwise unable to pass through natural gas price increases to customers. Natural gas prices and availability are affected by many factors, including, among others, drilling activity, supply, weather conditions, overall economic conditions and foreign and domestic government regulations.
Natural gas costs represented $72.8 million of our cost of sales in
2016
and
$62.9 million
of our cost of sales for the
nine
months ended
September 30, 2017
.
To reduce price risk caused by market fluctuations in natural gas, we may enter into exchange traded natural gas futures contracts. These arrangements expose us to the risk of financial loss in situations where the other party to the contract defaults on the contract or there is a change in the expected differential between the underlying price in the contract and the actual price of natural gas we pay at the delivery point. We did not have any natural gas futures contracts outstanding at
September 30, 2017
.
Foreign Currency Exchange Rate Risk
Because we have foreign operations, we are exposed to foreign currency exchange gains and losses. Since the functional currency of our foreign subsidiaries is their local currency, the currency effects of translating the financial statements of those foreign subsidiaries, which operate in local currency environments, are included in the accumulated other comprehensive loss component of consolidated equity in our consolidated financial statements and do not impact earnings. Foreign currency transaction gains and losses not in our subsidiaries’ functional currency, however, do impact earnings and resulted in approximately
$0.2
million of losses in the
nine
months ended
September 30, 2017
. In this period, our primary exposure to foreign currency exchange rates related to our Canadian operations that had certain outstanding accounts receivable and accounts payable denominated in the U.S. dollar, which were not hedged.
We have prepared a sensitivity analysis to estimate our exposure to market risk with respect to our monetary transactions denominated in a foreign currency. If the exchange rates on these assets and liabilities were to fluctuate by 10% from the rates as of
September 30, 2017
, we would expect a corresponding fluctuation in the value of the assets and liabilities of approximately
$1.0 million
.