Given the status of the matters above, we concluded in the third quarter of 2018 that a
liability is probable and recorded the estimated loss of $22 million and a corresponding insurance reimbursement receivable of $20 million as of September 30, 2018.
In addition, subsequent to our announcement that certain previously filed financial statements should not be relied upon, we were contacted by
the SEC, the Financial Industry Regulatory Authority, Inc., or FINRA, and the Department of Justice, or the DOJ. The DOJ and Division of Enforcement of the SEC have commenced investigations into the events giving rise to the restatement. We have
received formal requests for documents and other information. In addition, in June 2018 two of our former employees were indicted on charges of conspiracy, securities fraud, and wire fraud as part of the ongoing DOJ and SEC investigation. We are
cooperating fully with the joint DOJ and SEC investigation. Given the status of this matter, we are unable to reasonably estimate the potential costs or range of costs at this time.
We cannot predict the outcome of these matters, or whether any other actions or proceedings will be filed against us in the future, and the
cost of defending such actions or proceedings could be material. Furthermore, defending such actions or proceedings could divert our management and key personnel from our business operations. If we are found liable in any actions or proceedings, we
may have to pay substantial damages or change the way we conduct our business, either of which may have a material adverse effect on our business, operating results, financial condition, and prospects. There may also be negative publicity associated
with litigation or regulatory proceedings that could harm our business and reputation and cause the price of our securities to decline.
The
restatement of our previously issued financial statements was time-consuming and expensive and could expose us to additional risks that could adversely affect our financial position, results of operations, and cash flows.
As described in Amendment No. 1 to our Annual Report on
Form 10-K/A
for the year ended
December 31, 2015, Amendment No. 1 to our Quarterly Reports on
Form 10-Q/A
for the quarters ended March 31, 2016, June 30, 2016, and September 30, 2016, and Note 15
Restatement of Previously Issued Financial Statements to the consolidated financial statements in our Annual Report on
Form 10-K
for the year ended December 31, 2016, we restated our
previously issued consolidated financial statements for the years ended December 31, 2015, 2014, and 2013, and each of the quarters ended March 31, 2016, June 30, 2016, and September 30, 2016, as well as the quarters in the years
ended December 31, 2015 and 2014. The restatement was time-consuming and expensive and could expose us to a number of additional risks that could adversely affect our financial position, results of operations, and cash flows.
In particular, we have incurred significant expense, including audit, legal, consulting, and other professional fees, as well as fees related
to amendments to our prior senior credit facility, the Investment Agreement, dated May 1, 2017, with funds affiliated with Elliott Management Corporation, referred to as the 2017 Investment Agreement, and our ABL Facility, in connection with
the restatement of our previously issued consolidated financial statements and the ongoing remediation of material weaknesses in our internal control over financial reporting. We have taken a number of steps, including both adding internal personnel
and hiring outside consultants, and intend to continue to take appropriate and reasonable steps to strengthen our accounting function and reduce the risk of additional misstatements in our financial statements. For more details about our remediation
plan, see Item 9A. Controls and Procedures in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2017, incorporated herein by reference. To the extent these steps
are not successful, we may have to incur additional time and expense. Our managements attention has also been, and may further be, diverted from the operation of our business in connection with the restatement and ongoing remediation of
material weaknesses in our internal controls.
We are also subject to claims, investigations, and proceedings arising out of the errors in
our previously issued financial statements, including securities class action litigation, derivative lawsuits, and government agency investigations.
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