NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
(Unaudited)
The accompanying unaudited consolidated financial statements of CARBO Ceramics Inc. have been prepared in accordance with
United States generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
notes required for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of the interim periods
presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year. The consolidated balance sheet as of December 31, 2015 has been derived from the audited financial statements at that
date. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2015 included in the annual report on Form 10-K of CARBO Ceramics Inc. for the
year ended December 31, 2015.
The consolidated financial statements include the accounts of CARBO Ceramics Inc. and its operating
subsidiaries (the Company). All significant intercompany transactions have been eliminated.
In late 2014 and early 2015, a
severe decline in oil and natural gas prices led to a significant decline in oil and natural gas industry drilling activities and capital spending. Beginning in early 2015, the Company implemented a number of initiatives to preserve cash and lower
costs, including: (1) reducing workforce across the organization, (2) lowering production output levels in order to align with lower demand, (3) limiting capital expenditures and (4) reducing dividends. As a result of these
measures, the Company temporarily idled production and furloughed employees at alternating manufacturing plants. The Company continues to depreciate these assets. During 2016, the Company also implemented programs that allow it to further reduce
cash compensation. Further, the Company recently idled the majority of the production activities at its New Iberia, Louisiana plant and its Toomsboro, Georgia facility until such time as market conditions warrant bringing them back online.
Additionally, the construction projects relating to the second production line at Millen, Georgia and the second phase of the retrofit of an
existing plant with the new KRYPTOSPHERE
®
technology remain suspended. As of March 31, 2016, the value of the temporarily suspended assets relating to these two projects totaled
approximately 90% of the Companys total construction in progress, and both projects are over 90% complete.
Lower of Cost or Market Adjustments
During the three-month period ended March 31, 2015, the Company reviewed the carrying values of all inventories and concluded
that certain inventories in China had been impacted by changes in market conditions. Current market prices had fallen below carrying costs for certain inventories. Consequently, during the three-month period ended March 31, 2015, the Company
recognized a $4,372 loss in cost of sales, primarily to adjust finished goods and raw materials carrying values to the lower market prices on inventories inside China. The adjustments were based on current market prices for these or similar
products, as determined by actual sales, bids, and/or quotes from third parties. As of March 31, 2016, the Company reviewed the carrying values of all inventories and concluded that no adjustments were warranted for finished goods and raw
materials intended for use in the Companys manufacturing process.
7
Manufacturing Production Levels Below Normal Capacity
As a result of the Company substantially reducing manufacturing production levels, including by idling certain facilities, certain production
costs have been expensed instead of being capitalized into inventory. The Company expenses fixed production overhead amounts in excess of amounts that would have been allocated to each unit of production at normal production levels. For the three
months ended March 31, 2016 and 2015, the Company expensed $9,707 and $8,421, respectively, in production costs.
Long-lived and other noncurrent
assets impairment considerations
As noted, the Company temporarily idled production at various manufacturing facilities throughout the
quarter ended March 31, 2016. The Company does not necessarily assess temporarily idled assets for impairment unless events or circumstances indicate that the carrying amounts of those assets may not be recoverable. Short-term stoppages of
production for less than one year may significantly impact the long-term expected cash flows of the idled facility. As of March 31, 2016, as a result of changes in the planned usage of certain long-term bauxite raw materials, the Company
evaluated the carrying value of those bauxite raw materials. Based upon this evaluation, during the three months ended March 31, 2016, the Company recognized an impairment charge of $1,065 on these bauxite raw material inventories. As of
March 31, 2016, the Company concluded that there were no events or circumstances that would indicate that carrying amounts of other long-lived and other noncurrent assets might be further impaired. However, the Company continues to monitor
market conditions closely. Further deterioration of market conditions could result in impairment charges being taken on these and/or other long-lived and other noncurrent assets, including the Companys manufacturing plants, goodwill and
intangible assets. The Company will evaluate long-lived and other noncurrent assets for impairment at such time that events or circumstances indicate that carrying amounts might be impaired.
The following table sets forth the computation of basic and diluted loss per share under the two-class method:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator for basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,684
|
)
|
|
$
|
(28,602
|
)
|
Effect of reallocating undistributed earnings of participating securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available under the two-class method
|
|
$
|
(24,684
|
)
|
|
$
|
(28,602
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic loss per shareweighted-average shares
|
|
|
23,062,560
|
|
|
|
22,974,880
|
|
Effect of dilutive potential common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted loss per shareadjusted weighted-average shares
|
|
|
23,062,560
|
|
|
|
22,974,880
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(1.07
|
)
|
|
$
|
(1.24
|
)
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(1.07
|
)
|
|
$
|
(1.24
|
)
|
|
|
|
|
|
|
|
|
|
3.
|
Common Stock Repurchase Program
|
On January 28, 2015, the Companys Board of Directors authorized the repurchase of up to two million shares of the
Companys common stock. Shares are effectively retired at the time of purchase. As of March 31, 2016, the Company had not repurchased any shares under the plan.
4.
|
Natural Gas Derivative Instruments
|
Natural gas is used to fire the kilns at the Companys domestic manufacturing plants. In an effort to mitigate
potential volatility in the cost of natural gas purchases and reduce exposure to short-term spikes in the price of this commodity, from time to time, the Company enters into contracts to purchase a portion of the anticipated monthly natural gas
requirements at specified prices. Contracts are geographic by plant location. As a result of the Companys significantly reducing production levels and not taking delivery of all of the contracted natural gas quantities, the Company accounts
for relevant contracts as derivative instruments.
8
Derivative accounting requires the natural gas contracts to be recognized as either assets or
liabilities at fair value with an offsetting entry in earnings. The Company uses the income approach in determining the fair value of these derivative instruments. The model used considers the difference, as of each balance sheet date, between the
contracted prices and the New York Mercantile Exchange (NYMEX) forward strip price for each contracted period. The estimated cash flows from these contracts are discounted using a discount rate of 5.5%, which reflects the nature of the
contracts as well as the timing and risk of estimated cash flows associated with the contracts. The discount rate had an immaterial impact on the fair value of the contracts for the three months ended March 31, 2016. The last of these natural
gas contract will expire in December 2018. As a result, during the three months ended March 31, 2016, the Company recognized a loss on derivative instruments of $227 in cost of sales. The cumulative present value of the losses on these natural
gas derivative contracts as of March 31, 2016 are presented as current and long-term liabilities, as applicable, in the Consolidated Balance Sheet.
At March 31, 2016, the Company had contracted for delivery a total of 7,020,000 MMBtu of natural gas at an average price of $4.46 per
MMBtu through December 31, 2018. Contracts covering 5,850,000 MMBtu are subject to accounting as derivative instruments. Future decreases in the NYMEX forward strip prices will result in additional derivative losses while future increases in
the NYMEX forward strip prices will result in derivative gains. Future gains or losses will approximate the change in NYMEX natural gas prices relative to the total quantity of natural gas under contracts now subject to accounting as derivatives.
The historical average NYMEX natural gas contract settlement prices for the three months ended March 31, 2016 and 2015 were $2.09 per MMBtu and $2.98 per MMBtu, respectively.
5.
|
Fair Value Measurements
|
The Companys derivative instruments are measured at fair value on a recurring basis. U.S. GAAP establishes a fair
value hierarchy that has three levels based on the reliability of the inputs used to determine the fair value. These levels include: (1) Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or
liabilities; (2) Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and (3) Level 3, defined as unobservable inputs for use when little or no market data
exists, therefore requiring an entity to develop its own assumptions.
The Companys natural gas derivative instruments are included
within Level 2 of the fair value hierarchy (see Note 4 herein for additional information on the derivative instruments). The following table sets forth by level within the fair value hierarchy the Companys assets and liabilities that were
accounted for at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of March 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
|
|
|
|
(10,371
|
)
|
|
|
|
|
|
|
(10,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
$
|
|
|
|
$
|
(10,371
|
)
|
|
$
|
|
|
|
$
|
(10,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
|
|
|
|
(11,155
|
)
|
|
|
|
|
|
|
(11,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
$
|
|
|
|
$
|
(11,155
|
)
|
|
$
|
|
|
|
$
|
(11,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2016, the fair value of the Companys bank borrowings approximated the carrying value.
6.
|
Stock Based Compensation
|
The 2014 CARBO Ceramics Inc. Omnibus Incentive Plan (the 2014 Omnibus Incentive Plan) provides for the granting
of cash-based awards, stock options (both non-qualified and incentive) and other equity-based awards (including stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, deferred share units or
share-denominated performance units) to employees and non-employee directors. As of March 31, 2016, 318,506 shares were available for issuance under the 2014 Omnibus Incentive Plan.
9
Although the 2009 CARBO Ceramics Inc. Omnibus Incentive Plan (the 2009 Omnibus Incentive Plan) has expired, certain nonvested restricted shares granted under that plan remain
outstanding in accordance with its terms. Additionally, certain units of phantom stock remain outstanding under the 2009 Omnibus Incentive Plan, as described below.
A summary of restricted stock activity and related information for the three months ended March 31, 2016 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
Per Share
|
|
Nonvested at January 1, 2016
|
|
|
266,152
|
|
|
$
|
51.39
|
|
Granted
|
|
|
234,412
|
|
|
$
|
17.27
|
|
Vested
|
|
|
(99,855
|
)
|
|
$
|
59.44
|
|
Forfeited
|
|
|
(11,541
|
)
|
|
$
|
32.71
|
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2016
|
|
|
389,168
|
|
|
$
|
29.32
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016, there was $9,968 of total unrecognized compensation cost related to restricted
shares granted under both the expired 2009 Omnibus Incentive Plan and the 2014 Omnibus Incentive Plan. That cost is expected to be recognized over a weighted-average period of 2.4 years. The total fair value of shares vested during the three months
ended March 31, 2016 was $5,935.
The Company made market-based cash awards to certain executives of the Company pursuant to the 2014
Omnibus Incentive Plan. As of March 31, 2016, the total target award outstanding was $2,077. The payout of awards can range from 0% to 200% based on the Companys Relative Total Shareholder Return calculated over a three year period
beginning January 1 of the year each grant was made.
The Company also made phantom stock awards to key international employees
pursuant to the expired 2009 Omnibus Incentive Plan prior to its expiration and pursuant to the 2014 Omnibus Incentive Plan. The units subject to a phantom stock award vest and cease to be forfeitable in equal annual installments over a three-year
period. Participants awarded units of phantom stock are entitled to a lump sum cash payment equal to the fair market value of a share of Common Stock on the vesting date. In no event will Common Stock of the Company be issued with regard to
outstanding phantom stock awards. As of March 31, 2016, there were 18,180 units of phantom stock granted under the expired 2009 Omnibus Incentive Plan, of which 13,737 have vested and 3,954 have been forfeited. As of March 31, 2016, there
were 11,115 units of phantom stock granted under the 2014 Omnibus Incentive Plan, of which 1,302 have vested and 2,292 have been forfeited. As of March 31, 2016, nonvested units of phantom stock under the 2009 Omnibus Incentive Plan and the
2014 Omnibus Incentive Plan had a total value of $114, a portion of which is accrued as a liability within Accrued Payroll and Benefits.
The Company maintains a credit agreement, which until April 2016 included a revolving line of credit, with a bank lender. As
of January 31, 2016, February 29, 2016 and March 31, 2016, the Company failed to comply with the asset coverage ratio covenant in such credit agreement. In connection with entering into Agreement and Amendment No. 7 to the Credit
Agreement referred to below (the Amended Credit Agreement), the bank lender waived non-compliance with the asset coverage ratio for the months of January, February and March 2016.
As of March 31, 2016, the Companys outstanding debt under its prior revolving line of credit was $65,000, of which $12,349 was
classified as current and $52,651 was classified as long-term. As of March 31, 2016, the weighted average interest rate was 4.719% based on LIBOR-based rate borrowings. The Company had $9,355 and $8,875 in standby letters of credit issued as of
March 31, 2016 and December 31, 2015, respectively, primarily as collateral relating to our natural gas commitments. As of December 31, 2015, the Companys outstanding debt under the credit agreement was $88,000, of which $33,000
was classified as current and $55,000 was classified as long-term. As of December 31, 2015, the weighted average interest rate was 4.664% based on LIBOR-based rate borrowings. Interest cost for the three months ended March 31, 2016 and
2015 was $980 and $306, respectively, of which $80 and $165 was capitalized into the cost of property, plant and equipment in the three months ended March 31, 2016 and 2015, respectively.
10
In April 2016, the Company restructured its revolving credit agreement by entering into the
Amended Credit Agreement, as it is reasonably likely the Company would have been unable to comply with certain financial covenants under the prior credit agreement. The Amended Credit Agreement consists of a $65,000 fully drawn term loan, which
replaced the previous $90,000 revolving line of credit, and up to $15,000 in standby letters of credit (approximately $9,000 of which has been drawn). The Companys obligations under the Amended Credit Agreement are secured by a pledge of
substantially all of the Companys domestic assets and guaranteed by its two domestic operating subsidiaries. Such obligations bear interest at a floating rate of LIBOR plus 7.00%. Under the Amended Credit Agreement, all of the cash of the
Company, including any of the subsidiary guarantors that is held in U.S. banks must be deposited into accounts at the administrative agent and therefore will be subject to set-off in the event, and to the extent, CARBO Ceramics Inc. or any of the
subsidiary guarantors is unable to satisfy its obligations under the Amended Credit Agreement. The Amended Credit Agreement requires minimum quarterly repayments of principal of $3,033 during each of the three remaining quarters in 2016, and $3,250
per quarter thereafter until its maturity on December 31, 2018. The Amended Credit Agreement eliminates the financial covenants contained in the prior credit agreement, but instead requires the Company to maintain minimum cash amounts held with
the administrative agent at the end of each calendar month commencing August 2016 as follows: $40,000 from August 2016 until March 2017; $30,000 from April 2017 until December 2017; and $25,000 thereafter. The Company is required
to use proceeds from the sale of certain assets to repay principal amounts outstanding under the Amended Credit Agreement.
As of
April 28, 2016, the Companys outstanding debt under the Amended Credit Agreement was $65,000.
As of March 31, 2016, the Companys net investment that is subject to foreign currency fluctuations totaled
$16,649, and the Company has recorded a cumulative foreign currency translation loss of $36,259, all related to Russia. This cumulative translation loss is included in and is the only component of accumulated other comprehensive loss within
shareholders equity. No income tax benefits have been recorded on these losses as a result of the uncertainty about recoverability of the related deferred income tax benefits.
9.
|
New Accounting Pronouncements
|
In March 2016, the FASB issued ASU No. 2016-09,
Compensation Stock Compensation (Topic 718)
,
which amends and simplifies the accounting for stock compensation. The guidance addresses various stock compensation aspects including accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures,
minimum statutory tax withholding requirements, and classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes, among other things. In order to simplify the accounting for
stock-based compensation, the Company made a change in accounting policy to account for forfeitures when they occur, and as a result, the Company recognized a $697 cumulative-effect reduction to retained earnings under the modified retrospective
approach. The Company elected prospective transition for the requirement to classify excess tax benefits as an operating activity. Additionally, as a result of the new guidance requirements, on a prospective basis, the Company now recognizes all
excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement as a discrete item in the period in which restricted shares vest. During the three months ended March 31, 2016, the Company recognized $1,634, or
$0.07 per share, in tax deficiencies, which reduced our income tax benefit. The Company adopted this guidance as of January 1, 2016. The adoption did not have a material impact on the Companys financial position, results of operations or
cash flows, other than the cumulative-effect reduction to retained earnings and income tax benefit effect.
In February 2016, the FASB
issued ASU No. 2016-02,
Leases (Topic 842)
, which amends current lease guidance. This guidance requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the
commencement date: (1) a lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessees
right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements. The new guidance will be effective for the interim and annual periods beginning after December 15, 2018 with early adoption permitted. The Company is currently evaluating the potential impact of adopting
this new guidance on the consolidated financial statements and related disclosures.
11
In November 2015, the FASB issued ASU No. 2015-17,
Income Taxes (Topic 740)
Balance Sheet Classification of Deferred Taxes
, (ASU 2015-17), which requires that deferred tax liabilities and assets be classified as noncurrent in the balance sheet. The Company adopted this guidance as of January 1,
2016 on a prospective basis. The Companys deferred tax liabilities and assets for prior periods were not retrospectively adjusted. The Company has changed its accounting principle to present deferred taxes as noncurrent in order to simplify
the accounting for income taxes and to comply with ASU 2015-17.
In August 2015, the FASB issued ASU No. 2015-14,
Revenue
from Contracts with Customers (Topic 606) Deferral of the Effective Date
, which revises the effective date of ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, (ASU 2014-09) to
interim and annual periods beginning after December 15, 2017, with early adoption permitted no earlier than interim and annual periods beginning after December 15, 2016. In May 2014, the FASB issued ASU 2014-09, which amends current
revenue guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. The Company is currently evaluating the potential impact, if any, of adopting this new guidance on the consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330),
(ASU 2015-11), which amends and
simplifies the measurement of inventory. The main provisions of the standard require that inventory be measured at the lower of cost and net realizable value. Prior to the issuance of the standard, inventory was measured at the lower of cost or
market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin). ASU 2015-11 will be effective for the interim and annual periods beginning after
December 15, 2016 with early adoption permitted. The Company is currently evaluating the potential impact, if any, of adopting this new guidance on the consolidated financial statements and related disclosures.
In April 2015, the FASB issued ASU No. 2015-03,
Interest Imputation of Interest (Subtopic 835-30),
(ASU
2015-03), which amends and simplifies the presentation of debt issuance costs. The main provisions of the standard require that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from
the carrying amount of that debt liability, and amortization of the debt issuance costs must be reported as interest expense. In August 2015, the FASB issued ASU No. 2015-15,
Presentation and Subsequent Measurement of Debt Issuance
Costs Associated with Line-of-Credit Arrangements Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update),
which clarified that the SEC (as defined below) staff will not object to
an entity presenting the costs of securing line-of-credit arrangements as an asset. The Company adopted this guidance as of January 1, 2016. The adoption did not have a material impact on the Companys financial position, results of
operations or cash flows.
In January 2015, the FASB issued ASU No. 2015-01,
Income Statement Extraordinary and
Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items
, (ASU 2015-01), which eliminates the concept of extraordinary items from U.S. GAAP. The Company
adopted this guidance as of January 1, 2016. The adoption did not have a material impact on the Companys financial position, results of operations or cash flows.
In June 2014, the FASB issued ASU No. 2014-12,
Compensation Stock Compensation (Topic 718): Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force)
, (ASU 2014-12), which amends current guidance for
stock compensation tied to performance targets. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and apply existing guidance in
Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. The Company adopted this guidance as of January 1, 2016. The adoption did not have a material impact on the Companys financial
position, results of operations or cash flows.
The Company is subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the
outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Companys consolidated financial position, results of operations, or
cash flows.
12
In April 2016, the Company received an income tax refund of $37,397 related to the carryback of its 2015 net operating loss
to its 2013 and 2014 income tax returns.
In April 2016, the Company restructured its revolving credit agreement by entering into the
Amended Credit Agreement, as it is reasonably likely the Company would have been unable to comply with certain financial covenants under the prior credit agreement. The Amended Credit Agreement consists of a $65,000 fully drawn term loan, which
replaced the previous $90,000 revolving line of credit, and up to $15,000 in standby letters of credit (approximately $9,000 of which has been drawn). The Companys obligations under the Amended Credit Agreement are secured by a pledge of
substantially all of the Companys domestic assets and guaranteed by its two domestic operating subsidiaries. Such obligations bear interest at a floating rate of LIBOR plus 7.00%. Under the Amended Credit Agreement, all of the cash of the
Company, including any of the subsidiary guarantors that is held in U.S. banks must be deposited into accounts at the administrative agent and therefore will be subject to set-off in the event, and to the extent, CARBO Ceramics Inc. or any of the
subsidiary guarantors is unable to satisfy their obligations under the Amended Credit Agreement. The Amended Credit Agreement requires minimum quarterly repayments of principal of $3,033 during each of the three remaining quarters in 2016, and
$3,250 per quarter thereafter until its maturity on December 31, 2018. The Amended Credit Agreement eliminates the financial covenants contained in the prior credit agreement, but instead requires the Company to maintain minimum cash amounts
held with the administrative agent at the end of each calendar month commencing August 2016 as follows: $40,000 from August 2016 until March 2017; $30,000 from April 2017 until December 2017; and $25,000 thereafter. In connection
with the Amended Credit Agreement, the lender waived non-compliance with the asset coverage ratio for the months of January, February, and March 2016. The Company is required to use proceeds from the sale of certain assets to repay principal amounts
outstanding under the Amended Credit Agreement.
13