Great Lakes Dredge & Dock Corporation
Great Lakes Dredge & Dock CORP (Form: 10-Q, Received: 11/02/2016 16:04:47)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission file number: 001-33225

Great Lakes Dredge & Dock Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-5336063

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2122 York Road, Oak Brook, IL

 

60523

(Address of principal executive offices)

 

(Zip Code)

(630) 574-3000

(Registrant’s telephone number, including area code)

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer

 

 

Accelerated Filer

 

 

 

 

 

 

 

 

Non-Accelerated Filer

 

  (Do not check if a smaller reporting company)

 

Smaller reporting company

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

As of October 28, 2016, 60,940,829 shares of the Registrant’s Common Stock, par value $.0001 per share, were outstanding.

 

 

 

 


 

Great Lakes Dredge & Dock Corporation and Subsidiaries

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period ended September 30, 2016

INDEX

 

 

 

 

 

Page

 

 

 

 

 

 

 

Part I Financial Information (Unaudited)

 

3

 

 

 

 

 

Item 1

 

Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2016 and December 31, 2015

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2016 and 2015

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months ended September 30, 2016 and 2015

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Equity for the Nine Months Ended September 30, 2016 and 2015

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

 

 

 

Item 4

 

Controls and Procedures

 

39

 

 

 

 

 

 

 

Part II Other Information

 

40

 

 

 

 

 

Item 1

 

Legal Proceedings

 

40

 

 

 

 

 

Item 1A

 

Risk Factors

 

40

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

40

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

40

 

 

 

 

 

Item 5

 

Other Information

 

40

 

 

 

 

 

Item 6

 

Exhibits

 

41

 

 

 

 

 

 

 

Signature

 

42

 

 

 

 

 

 

 

Exhibit Index

 

43

 

 

 

2


 

P ART I — Financial Information

Item 1.

Financial Statements.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except per share amounts)  

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,595

 

 

$

14,184

 

Accounts receivable—net

 

 

115,753

 

 

 

130,777

 

Contract revenues in excess of billings

 

 

75,843

 

 

 

81,195

 

Inventories

 

 

35,734

 

 

 

35,963

 

Prepaid expenses and other current assets

 

 

78,341

 

 

 

67,614

 

Total current assets

 

 

319,266

 

 

 

329,733

 

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT—Net

 

 

436,691

 

 

 

430,210

 

GOODWILL AND OTHER INTANGIBLE ASSETS—Net

 

 

85,314

 

 

 

86,004

 

INVENTORIES—Noncurrent

 

 

48,706

 

 

 

41,646

 

INVESTMENTS IN JOINT VENTURES

 

 

5,791

 

 

 

3,761

 

OTHER

 

 

8,366

 

 

 

6,770

 

TOTAL

 

$

904,134

 

 

$

898,124

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

109,255

 

 

$

118,846

 

Accrued expenses

 

 

57,365

 

 

 

72,277

 

Billings in excess of contract revenues

 

 

9,677

 

 

 

7,061

 

Revolving credit facility

 

 

60,000

 

 

 

 

Current portion of long term debt

 

 

11,745

 

 

 

7,506

 

Total current liabilities

 

 

248,042

 

 

 

205,690

 

 

 

 

 

 

 

 

 

 

7 3/8% SENIOR NOTES

 

 

272,748

 

 

 

271,998

 

REVOLVING CREDIT FACILITY

 

 

 

 

 

20,000

 

NOTES PAYABLE

 

 

45,012

 

 

 

53,792

 

DEFERRED INCOME TAXES

 

 

73,753

 

 

 

74,006

 

OTHER

 

 

10,002

 

 

 

20,465

 

Total liabilities

 

 

649,557

 

 

 

645,951

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 9)

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

Common stock—$.0001 par value; 90,000 authorized, 61,215 and 60,709 shares issued; 60,937 and 60,431 shares outstanding at September 30, 2016 and December 31, 2015, respectively.

 

 

6

 

 

 

6

 

Treasury stock, at cost

 

 

(1,433

)

 

 

(1,433

)

Additional paid-in capital

 

 

286,266

 

 

 

283,247

 

Accumulated deficit

 

 

(28,858

)

 

 

(27,664

)

Accumulated other comprehensive loss

 

 

(1,404

)

 

 

(1,983

)

Total equity

 

 

254,577

 

 

 

252,173

 

TOTAL

 

$

904,134

 

 

$

898,124

 

 

See notes to unaudited condensed consolidated financial statements.

3


 

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenues

 

$

198,869

 

 

$

220,802

 

 

$

554,180

 

 

$

634,236

 

Costs of contract revenues

 

 

178,824

 

 

 

196,717

 

 

 

489,889

 

 

 

567,182

 

Gross profit

 

 

20,045

 

 

 

24,085

 

 

 

64,291

 

 

 

67,054

 

General and administrative expenses

 

 

7,187

 

 

 

15,277

 

 

 

47,027

 

 

 

48,768

 

Impairment of goodwill

 

 

 

 

 

 

 

 

 

 

 

2,750

 

(Gain) loss on sale of assets—net

 

 

(2

)

 

 

(884

)

 

 

675

 

 

 

(887

)

Operating income

 

 

12,860

 

 

 

9,692

 

 

 

16,589

 

 

 

16,423

 

Interest expense—net

 

 

(4,819

)

 

 

(7,293

)

 

 

(16,443

)

 

 

(18,490

)

Equity in earnings (loss) of joint ventures

 

 

6

 

 

 

(2,051

)

 

 

19

 

 

 

(5,765

)

Other income (expense)

 

 

(637

)

 

 

706

 

 

 

(1,918

)

 

 

(353

)

Income (loss) before income taxes

 

 

7,410

 

 

 

1,054

 

 

 

(1,753

)

 

 

(8,185

)

Income tax (provision) benefit

 

 

(2,850

)

 

 

(742

)

 

 

559

 

 

 

2,831

 

Net income (loss)

 

$

4,560

 

 

$

312

 

 

$

(1,194

)

 

$

(5,354

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.08

 

 

$

 

 

$

(0.02

)

 

$

(0.09

)

Basic weighted average shares

 

 

60,811

 

 

 

60,496

 

 

 

60,676

 

 

 

60,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$

0.08

 

 

$

 

 

$

(0.02

)

 

$

(0.09

)

Diluted weighted average shares

 

 

61,526

 

 

 

60,841

 

 

 

60,676

 

 

 

60,411

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

4


 

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

4,560

 

 

$

312

 

 

$

(1,194

)

 

$

(5,354

)

Currency translation adjustment—net of tax (1)

 

 

39

 

 

 

(639

)

 

 

596

 

 

 

(1,394

)

Net unrealized gain on derivatives—net of tax (2)

 

 

(17

)

 

 

 

 

 

(17

)

 

 

 

Other comprehensive income (loss)—net of tax

 

 

22

 

 

 

(639

)

 

 

579

 

 

 

(1,394

)

Comprehensive income (loss)

 

$

4,582

 

 

$

(327

)

 

$

(615

)

 

$

(6,748

)

 

(1)

Net of income tax (provision) benefit of $(25) and $422 for the three months ended September 30, 2016 and 2015, respectively and $(395) and $922 for the nine months ended September 30, 2016 and 2015, respectively.

(2)

Net of income tax benefit of $11 for the three and nine months ended September 30, 2016, respectively.

See notes to unaudited condensed consolidated financial statements.

 

 

5


 

Gr eat Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares   of

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

Common

 

 

Treasury

 

 

Treasury

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Stock

 

 

Stock

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE—January 1, 2016

 

 

60,709

 

 

$

6

 

 

 

(278

)

 

$

(1,433

)

 

$

283,247

 

 

$

(27,664

)

 

$

(1,983

)

 

$

252,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

126

 

 

 

 

 

 

 

 

 

 

 

 

2,276

 

 

 

 

 

 

 

 

 

2,276

 

Vesting of restricted stock units, including impact of shares withheld for taxes

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

(162

)

 

 

 

 

 

 

 

 

(162

)

Exercise of options and purchases from employee stock plans

 

 

309

 

 

 

 

 

 

 

 

 

 

 

 

905

 

 

 

 

 

 

 

 

 

905

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,194

)

 

 

 

 

 

(1,194

)

Other comprehensive income—net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

579

 

 

 

579

 

BALANCE—September 30, 2016

 

 

61,215

 

 

$

6

 

 

 

(278

)

 

$

(1,433

)

 

$

286,266

 

 

$

(28,858

)

 

$

(1,404

)

 

$

254,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

Common

 

 

Treasury

 

 

Treasury

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Stock

 

 

Stock

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE—January 1, 2015

 

 

60,170

 

 

$

6

 

 

 

 

 

$

 

 

$

278,166

 

 

$

(21,475

)

 

$

(734

)

 

$

255,963

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

124

 

 

 

 

 

 

 

 

 

 

 

 

2,897

 

 

 

 

 

 

 

 

 

2,897

 

Vesting of restricted stock units, including impact of shares withheld for taxes

 

 

98

 

 

 

 

 

 

 

 

 

 

 

 

(265

)

 

 

 

 

 

 

 

 

(265

)

Exercise of options and purchases from employee stock plans

 

 

268

 

 

 

 

 

 

 

 

 

 

 

 

1,356

 

 

 

 

 

 

 

 

 

1,356

 

Excess income tax benefit from share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

(13

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

(213

)

 

 

(1,107

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,107

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,354

)

 

 

 

 

 

(5,354

)

Other comprehensive loss—net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,394

)

 

 

(1,394

)

BALANCE—September 30, 2015

 

 

60,660

 

 

$

6

 

 

 

(213

)

 

$

(1,107

)

 

$

282,141

 

 

$

(26,829

)

 

$

(2,128

)

 

$

252,083

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

6


 

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,194

)

 

$

(5,354

)

Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

45,692

 

 

 

47,747

 

Equity in earnings of joint ventures

 

 

(6,313

)

 

 

(3,402

)

Cash distributions from joint ventures

 

 

3,234

 

 

 

2,500

 

Deferred income taxes

 

 

152

 

 

 

(3,031

)

(Gain) loss on sale of assets

 

 

675

 

 

 

(887

)

Impairment of goodwill

 

 

 

 

 

2,750

 

Gain on adjustment of contingent consideration

 

 

(8,940

)

 

 

(8,444

)

Amortization of deferred financing fees

 

 

1,879

 

 

 

2,126

 

Unrealized net gain from mark-to-market valuations of derivatives

 

 

(5,285

)

 

 

(1,479

)

Unrealized foreign currency gain

 

 

(213

)

 

 

(1,076

)

Share-based compensation expense

 

 

2,276

 

 

 

2,897

 

Excess income tax benefit from share-based compensation

 

 

 

 

 

13

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

14,163

 

 

 

(31,819

)

Contract revenues in excess of billings

 

 

5,712

 

 

 

14,328

 

Inventories

 

 

(6,831

)

 

 

(3,761

)

Prepaid expenses and other current assets

 

 

(6,839

)

 

 

(6,727

)

Accounts payable and accrued expenses

 

 

(26,317

)

 

 

(9,896

)

Billings in excess of contract revenues

 

 

2,593

 

 

 

1,657

 

Other noncurrent assets and liabilities

 

 

(1,466

)

 

 

(2,039

)

Cash provided by (used in) operating activities

 

 

12,978

 

 

 

(3,897

)

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(58,842

)

 

 

(53,394

)

Proceeds from dispositions of property and equipment

 

 

10,455

 

 

 

1,167

 

Cash used in investing activities

 

 

(48,387

)

 

 

(52,227

)

 

7


 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Deferred financing fees

 

 

(332

)

 

 

(29

)

Repayments of long term note payable

 

 

(803

)

 

 

(488

)

Taxes paid on settlement of vested share awards

 

 

(162

)

 

 

(265

)

Repayments of term loan facility

 

 

(3,750

)

 

 

(3,750

)

Repayments of equipment debt

 

 

(1,064

)

 

 

(853

)

Proceeds from equipment debt

 

 

 

 

 

410

 

Exercise of options and purchases from employee stock plans

 

 

905

 

 

 

1,356

 

Excess income tax benefit from share-based compensation

 

 

 

 

 

(13

)

Treasury stock

 

 

 

 

 

(1,107

)

Borrowings under revolving loans

 

 

133,000

 

 

 

146,000

 

Repayments of revolving loans

 

 

(93,000

)

 

 

(118,000

)

Net cash provided by financing activities

 

 

34,794

 

 

 

23,261

 

Effect of foreign currency exchange rates on cash and cash equivalents

 

 

26

 

 

 

(105

)

Net decrease in cash and cash equivalents

 

 

(589

)

 

 

(32,968

)

Cash and cash equivalents at beginning of period

 

 

14,184

 

 

 

42,389

 

Cash and cash equivalents at end of period

 

$

13,595

 

 

$

9,421

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

23,846

 

 

$

23,645

 

Cash paid (refunded) for income taxes

 

$

(226

)

 

$

987

 

 

 

 

 

 

 

 

 

 

Non-cash Investing and Financing Activities

 

 

 

 

 

 

 

 

Property and equipment purchased but not yet paid

 

$

14,511

 

 

$

4,981

 

Property and equipment purchased on capital leases and equipment notes

 

$

 

 

$

2,190

 

Property and equipment purchased on notes payable

 

$

 

 

$

15,569

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

8


 

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

 

 

1.

Basis of presentation

The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Great Lakes Dredge & Dock Corporation and Subsidiaries (the “Company” or “Great Lakes”) and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly the Company’s financial position as of September 30, 2016, and its results of operations for the three and nine months ended September 30, 2016 and 2015 and cash flows for the nine months ended September 30, 2016 and 2015 have been included.

The components of costs of contract revenues include labor, equipment (including depreciation, maintenance, insurance and long-term rentals), subcontracts, fuel, supplies, short-term rentals and project overhead. Hourly labor is generally hired on a project-by-project basis. Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized.

The Company’s cost structure includes significant annual equipment-related costs, including depreciation, maintenance, insurance and long-term rentals. These costs have averaged approximately 21% of total costs of contract revenues over the prior three years. During the year, both equipment utilization and the timing of fixed cost expenditures fluctuate significantly. Accordingly, the Company allocates these fixed equipment costs to interim periods in proportion to revenues recognized over the year, to better match revenues and expenses. Specifically, at each interim reporting date the Company compares actual revenues earned to date on its dredging contracts to expected annual revenues and recognizes equipment costs on the same proportionate basis. In the fourth quarter, any over or under allocated equipment costs are recognized such that the expense for the year equals actual equipment costs incurred during the year.

The Company has two operating segments: dredging and environmental & infrastructure, previously referred to as environmental & remediation, which are also the Company’s two reportable segments. The Company has determined that dredging, Terra Contracting Services, LLC (“Terra”) and Great Lakes Environmental & Infrastructure, LLC (“GLEI”) are the Company’s three reporting units.

The Company performed its most recent annual test of impairment as of July 1, 2016 with no indication of impairment as of the test date. The Company will perform its next scheduled annual test of goodwill in the third quarter of 2017. Due to a decline in the overall financial performance and declining cash flows in the Terra reporting unit, the Company concluded there was a triggering event that required an interim impairment test for the reporting unit in the second quarter of 2015 and recorded a goodwill impairment charge of $2,750 during the quarter ended June 30, 2015. This impairment of goodwill is discussed in Note 6.

The condensed consolidated results of operations and comprehensive income for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.

Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2016-15 (“ASU 2016-15”), Classification of Certain Cash Receipts and Cash Payments which amends FASB’s standards for reporting cash flows in general-purpose financial statements. The amendments address the diversity in practice related to the classification of certain cash receipts and payments.  The guidance is effective for fiscal years beginning after December 15, 2017.  The Company is currently evaluating the impact of ASU 2016-15 on its consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Compensation – Stock Compensation (Topic 718) . ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement

9


 

of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016, and inte rim periods within those annual periods. The Company is currently evaluating the impact of ASU 2016-09 on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standard Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842) . The Board issued this update to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. The Company is currently evaluating the impact of ASU 2016-02 on its financial statements.

In November 2015, the FASB issued Accounting Standard Update No. 2015-17 (“ASU 2015-17”), Income Taxes: Balance Sheet Classifications of Deferred Taxes (Topic 740) which simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in the balance sheet. The update is effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. The guidance may be adopted prospectively or retrospectively and early adoption is permitted. As of December 31, 2015, the Company elected to early adopt this ASU 2015-17 on a prospective basis and therefore, prior years were not retrospectively adjusted.

In April 2015, the FASB issued Accounting Standard Update No. 2015-03 (“ASU 2015-03”), Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This update is effective for fiscal years beginning after December 15, 2015, and is required to be applied retrospectively. The Company adopted this standard in the first quarter of 2016 on a retrospective basis. As a result, the Company presented $3,502 of unamortized debt issuance costs that had been included in other assets in the consolidated balance sheet as of December 31, 2015 as direct deductions from the carrying amounts of the related debt liabilities.

In May 2014, the FASB issued Accounting Standard Update No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606) , which supersedes the existing revenue recognition requirements. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of 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. ASU 2014-09 has been deferred to be effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, which will be its first quarter of fiscal 2018. Although early adoption is permitted in fiscal 2017, the Company expects to adopt ASU 2014-09 in first quarter of 2018. The Company is currently evaluating the impact of ASU 2014-09 on its consolidated financial statements.

 

 

 

2.

Earnings per share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similarly to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. For the nine months ended September 30, 2016 and 2015, the dilutive effect of 576 thousand and 462 thousand stock options and restricted stock units, respectively, were excluded from the diluted weighted-average common shares outstanding as the Company incurred a loss during these periods. For the three and nine months ended September 30, 2016, 1,594 thousand and 1,603 thousand stock options and restricted stock units were excluded from the calculation of diluted earnings per share based on the application of the treasury stock method, as such stock options and restricted stock units were determined to be anti-dilutive. Similarly, for the three months ended September 30, 2015, 1,170 thousand stock options and restricted stock units were excluded from the calculation of diluted earnings per share based on the application of the treasury stock method.

10


 

The computations for basic and diluted earnings (loss) per share are as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(shares in thousands)