10-Q 1 a10312017bakercorpform10-q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
 FORM 10-Q
___________________________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 2017
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: 333-181780
 ___________________________________________________
BAKERCORP INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
___________________________________________________
Delaware
 
13-4315148
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
7800 N. Dallas Parkway, Suite 500, Plano, Texas
 
75024
(Address of principal executive offices)
 
(Zip Code)

(888) 882-4895
(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  ý*

* The registrant is a voluntary filer of reports required to be filed by certain companies under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required during the preceding 12 months, had it been subject to such filing requirements.

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 
¨
  
Accelerated filer
 
¨
Non-accelerated filer
 
x  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Emerging growth company
 
x
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

There is no public market for the registrant’s common stock. There were 100 shares of the registrant’s common stock, par value $0.01 per share, outstanding on December 12, 2017.
 



TABLE OF CONTENTS
 



PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

BakerCorp International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)

 
October 31,
2017
 
January 31,
2017
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
28,565

 
$
44,563

Accounts receivable, net of allowance for doubtful accounts of $5,914 and $5,152, respectively
69,240

 
52,478

Inventories, net
4,326

 
3,721

Prepaid expenses and other assets
3,047

 
4,145

Total current assets
105,178

 
104,907

Property and equipment, net
313,570

 
320,707

Goodwill
54,251

 
49,918

Other intangible assets, net
343,103

 
354,418

Other assets
1,295

 
590

Total assets
$
817,397

 
$
830,540

Liabilities and shareholder’s equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
20,049

 
$
17,697

Accrued expenses
24,983

 
21,855

Current portion of long-term debt (net of deferred financing costs of $3,210 and $3,080, respectively)
953

 
1,082

Total current liabilities
45,985

 
40,634

Long-term debt, net of current portion (net of deferred financing costs of $1,768 and $4,183, respectively)
633,687

 
634,395

Deferred tax liabilities, net
98,687

 
110,114

Share-based compensation liability
35

 
66

Other long-term liabilities
2,492

 
2,936

Total liabilities
780,886

 
788,145

Commitments and contingencies


 


Shareholder’s equity:
 
 
 
Common stock, $0.01 par value; 100,000 shares authorized; 100 shares issued and outstanding as of October 31, 2017 and January 31, 2017

 

Additional paid-in capital
393,534

 
393,094

Accumulated other comprehensive loss
(30,277
)
 
(41,537
)
Accumulated deficit
(326,746
)
 
(309,162
)
Total shareholder’s equity
36,511

 
42,395

Total liabilities and shareholder’s equity
$
817,397

 
$
830,540


See Accompanying Notes
        

1


BakerCorp International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(In thousands)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
Rental revenue
$
60,042

 
$
55,592

 
$
165,508

 
$
159,357

Sales revenue
4,468

 
4,327

 
14,396

 
13,023

Service revenue
9,279

 
8,393

 
25,225

 
24,164

Total revenue
73,789

 
68,312

 
205,129

 
196,544

Operating expenses:
 
 
 
 
 
 
 
Employee related expenses
24,620

 
23,458

 
73,593

 
72,415

Rental expenses
9,827

 
9,032

 
27,396

 
23,382

Repair and maintenance
3,691

 
2,973

 
10,300

 
8,160

Cost of goods sold
2,492

 
2,431

 
9,051

 
7,793

Facility expenses
7,203

 
6,417

 
20,886

 
20,022

Professional fees
3,208

 
758

 
5,256

 
2,976

Other operating expenses
4,537

 
3,519

 
12,125

 
10,501

Depreciation and amortization
15,000

 
15,018

 
44,469

 
45,202

Gain on sale of equipment
(964
)
 
(1,003
)
 
(2,690
)
 
(2,637
)
Impairment of goodwill and other intangible assets

 

 
1,000

 
84,046

Impairment of long-lived assets
859

 
3,933

 
1,155

 
4,372

Total operating expenses
70,473

 
66,536

 
202,541

 
276,232

Income (loss) from operations
3,316

 
1,776

 
2,588

 
(79,688
)
Other expenses:
 
 
 
 
 
 
 
Interest expense, net
10,281

 
10,121

 
30,473

 
31,270

Foreign currency exchange gain, net
167

 
720

 
24

 
958

Other income, net
(5
)
 
(5
)
 
(15
)
 
(17
)
Total other expenses, net
10,443

 
10,836

 
30,482

 
32,211

Loss before income tax benefit
(7,127
)
 
(9,060
)
 
(27,894
)
 
(111,899
)
Income tax benefit
(2,703
)
 
(2,604
)
 
(10,310
)
 
(25,745
)
Net loss
$
(4,424
)
 
$
(6,456
)
 
$
(17,584
)
 
$
(86,154
)

See Accompanying Notes



2


BakerCorp International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (loss) (unaudited)
(In thousands)
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
Net loss
$
(4,424
)
 
$
(6,456
)
 
$
(17,584
)
 
$
(86,154
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain on interest rate swap agreements, net of tax expense of $365 for the nine months ended October 31, 2016

 

 

 
586

Foreign currency translation adjustments
(1,732
)
 
(2,553
)
 
11,260

 
667

Other comprehensive income (loss)
(1,732
)
 
(2,553
)
 
11,260

 
1,253

Total comprehensive loss
$
(6,156
)
 
$
(9,009
)
 
$
(6,324
)
 
$
(84,901
)

See Accompanying Notes



3


BakerCorp International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
 
Nine Months Ended October 31,
 
2017
 
2016
Operating activities
 
 
 
Net loss
$
(17,584
)
 
$
(86,154
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Provision for doubtful accounts
914

 
887

Provision for excess and obsolete inventory, net
74

 

Share-based compensation
446

 
135

Gain on sale of equipment
(2,690
)
 
(2,637
)
Depreciation and amortization
44,469

 
45,202

Amortization of deferred financing costs
2,285

 
2,168

Deferred income taxes
(11,960
)
 
(27,426
)
Amortization of above-market lease
(114
)
 
(114
)
Impairment of goodwill and other intangible assets
1,000

 
84,046

Impairment of long-lived assets
1,155

 
4,372

Changes in assets and liabilities:
 
 
 
Accounts receivable
(16,828
)
 
1,378

Inventories
(676
)
 
3,517

Prepaid expenses and other assets
1,133

 
(573
)
Accounts payable and other liabilities
4,661

 
612

Net cash provided by operating activities
6,285

 
25,413

Investing activities
 
 
 
Purchases of property and equipment
(24,149
)
 
(29,771
)
Proceeds from sale of equipment
3,898

 
3,784

Changes in restricted cash

 
(1,096
)
Net cash used in investing activities
(20,251
)
 
(27,083
)
Financing activities
 
 
 
Repayment of long-term debt
(3,122
)
 
(3,122
)
Return of capital to BakerCorp International Holdings, Inc.

 
(15
)
Net cash used in financing activities
(3,122
)
 
(3,137
)
Effect of foreign currency translation on cash
1,090

 
586

Net decrease in cash and cash equivalents
(15,998
)
 
(4,221
)
Cash and cash equivalents, beginning of period
44,563

 
44,754

Cash and cash equivalents, end of period
$
28,565

 
$
40,533

 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
23,182

 
$
24,333

Income taxes
$
2,585

 
$
1,889

Non-cash financing and investing activities:
 
 
 
Return of capital to BakerCorp International Holdings, Inc. related to a settlement of options for shares of common stock in BakerCorp International Holdings Inc.
$

 
$
8


See Accompanying Notes


4


BakerCorp International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1. Organization, Description of Business, and Basis of Presentation
We are a provider of liquid and solid containment solutions, operating within a specialty sector of the broader industrial services industry. Our revenue is generated by providing rental equipment, customized solutions, and services to our customers. We provide a wide variety of steel and polyethylene temporary storage tanks, roll-off containers, pumps, filtration, pipes, hoses and fittings, shoring, and related products to a broad range of customers for a number of applications. Tank and roll-off container applications include the storage of water, chemicals, waste streams, and solid waste. Pump applications include the pumping of groundwater, municipal waste, and other fluids. Filtration applications include the separation of various solids from liquids. We serve a variety of industries, including industrial and environmental remediation, refining, environmental services, construction, chemicals, transportation, power, municipal works, and oil and gas. We have branches within 23 states in the United States as well as branches in Canada, France, Germany, the Netherlands and the United Kingdom. As used herein, the terms “Company,” “we,” “us,” and “our” refer to BakerCorp International, Inc. and its subsidiaries, unless the context indicates to the contrary.

Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended January 31, 2017, included in our 2017 Annual Report on Form 10-K filed with the SEC on April 26, 2017. Certain amounts previously reported have been reclassified to conform to the current year financial presentation.

The interim condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary for a fair statement of our results of operations and financial position for the interim periods. The results of operations for the three and nine months ended October 31, 2017 are not necessarily indicative of the results to be expected for future quarters or the full year.

Principles of Consolidation
The accompanying condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany accounts and transactions with our subsidiaries have been eliminated.

Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, judgments and assumptions including those related to revenue recognition, allowances for doubtful accounts, inventory valuation, customer rebates, sales returns and allowances, medical insurance claims, litigation accruals, impairment of long-lived assets, intangible assets and goodwill, depreciation and amortization, contingencies, income taxes, share-based compensation (expense and liability), and derivatives. Our estimates, judgments, and assumptions are based on historical experience, future expectations, and other factors which we believe to be reasonable. Actual results could materially differ from those estimates.



5


Note 2. Accounting Pronouncements


Recently Issued Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12, “Targeted Improvements to Accounting for Hedging Activities”. ASU No. 2017-12 amends the current hedge accounting model and requires certain new or modified disclosures to enable entities to better portray the economics of their risk management activities in their financial statements. For public business entities, the amendments in ASU No. 2017-12 are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments in ASU No. 2017-12 are effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. We are currently assessing the impact the adoption of ASU No. 2017-12 will have on our condensed consolidated financial statements.


In May 2017, the FASB issued ASU No. 2017-09, “Compensation-Stock Compensation (Topic 718)”. The guidance clarifies how an entity should account for effects of a modification of a share-based payment. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017. We are currently assessing the impact the adoption of ASU No. 2017-09 will have on our condensed consolidated financial statements.
    

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 23), Restricted Cash". The guidance will require restricted cash and cash equivalents to be included with cash and cash equivalents on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. We expect to adopt this guidance when effective, and do not expect the guidance to have a significant impact on our condensed consolidated financial statements based upon our current procedures for tracking restricted cash and cash equivalents.

In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets other than Inventory". The guidance will require companies to recognize the income tax effects of intra-entity sales and transfers of assets other than inventory in the period in which the transfer occurs. The new guidance will be effective for fiscal years and interim periods beginning after December 15, 2017 and early adoption is permitted. The guidance requires modified retrospective adoption. We expect to adopt this guidance when effective, and do not expect the guidance to have a significant impact on our condensed consolidated financial statements based upon our current procedures for tracking the transfer and sale of intra-entity assets.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU No. 2016-15”). ASU No. 2016-15 clarifies the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The standard is effective for non-public entities for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. We are currently assessing the impact the adoption of ASU No. 2016-15 will have on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): “Improvements to Employee Share-Based Payment Accounting” (“ASU No. 2016-09”). ASU No. 2016-09 simplifies several aspects of the accounting for share-based payments transactions, including income tax consequences, classification of awards as either liability or equity, and classification on the statement of cash flows. The standard is effective for non-public entities for annual periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. We are currently assessing the impact the adoption of ASU No. 2016-09 will have on our condensed consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU No. 2016-02”). This amendment requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC 840 “Leases” and increases the disclosure requirements surrounding these leases. For non-public business entities, ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. We are currently assessing the impact the adoption of ASU No. 2016-02 will have on our condensed consolidated financial statements.

6


During May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU No. 2014-09”). ASU No. 2014-09 will require companies to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU No. 2014-09 creates a five-step model that requires companies to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. ASU No. 2014-09 allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements. A decision about which method to use will affect a company’s implementation plans. The standard and multiple clarifying standard updates are effective for non-public entities for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. We are currently assessing the impact the adoption of ASU No. 2014-09 will have on our condensed consolidated financial statements.
  
Note 3. Changes in Accumulated Other Comprehensive Loss

The following table includes the change in foreign currency translation adjustments to the components of accumulated other comprehensive loss:
 
Three Months Ended October 31,
(In thousands)
2017
 
2016
Balance, beginning of period
$(28,545)
 
$
(35,861
)
Other comprehensive loss before reclassifications
(1,732)
 
(2,553
)
Net other comprehensive income
(1,732)
 
(2,553
)
Balance, end of period
$
(30,277
)
 
$
(38,414
)

The following table includes the change in foreign currency translation adjustments to the components of accumulated
other comprehensive loss, for the nine months ended October 31, 2017:
(In thousands)
 
 
Balance as of January 31, 2017
 
$
(41,537
)
Other comprehensive income before reclassifications
 
11,260

Net other comprehensive income
 
11,260

Balance as of October 31, 2017
 
$
(30,277
)

The following table includes the components of accumulated other comprehensive loss, net of tax, for the nine months ended October 31, 2016:

(In thousands)
Unrealized (Loss)
Gain on Interest
Rate Swap
Agreements (1)
 
Change in
Foreign
Currency
Translation
Adjustments
 
Total
Balance as of January 31, 2016
$
(586
)
 
$
(39,081
)
 
$
(39,667
)
Other comprehensive income before reclassifications
586

 
667

 
1,253

Net other comprehensive income
586

 
667

 
1,253

Balance as of October 31, 2016
$

 
$
(38,414
)
 
$
(38,414
)
(1)     Unrealized income on interest rate swap agreements is net of tax expense of $365 for the nine months ended October 31, 2016.


7


Note 4. Inventories

Inventories, net consists of the following:
(In thousands)
October 31,
2017
 
January 31,
2017
Components
$
1,289

 
$
1,237

Work-in-process
211

 
627

Finished goods
3,805

 
2,845

Less: inventory reserve
(979
)
 
(988
)
Inventories, net
$
4,326

 
$
3,721


Note 5. Property and Equipment, Net

Property and equipment, net consisted of the following as of October 31, 2017:
(In thousands)
Cost
 
Accumulated
Depreciation
 
Net
Carrying Amount
Assets held for rent:
 
 
 
 
 
Spill protection berms
$
3,563

 
$
(2,474
)
 
$
1,089

Boxes
31,752

 
(16,223
)
 
15,529

Filtration
16,281

 
(8,364
)
 
7,917

Generators and light towers
529

 
(259
)
 
270

Pipes, hoses and fittings
8,736

 
(5,853
)
 
2,883

Non-steel containment
11,806

 
(5,435
)
 
6,371

Pumps
64,014

 
(40,564
)
 
23,450

Shoring
5,696

 
(4,101
)
 
1,595

Steel containment
327,727

 
(97,795
)
 
229,932

Tank trailers
1,870

 
(1,757
)
 
113

Construction in progress
3,211

 

 
3,211

Total assets held for rent
475,185

 
(182,825
)
 
292,360

Assets held for use:
 
 
 
 
 
Leasehold improvements
4,415

 
(2,849
)
 
1,566

Machinery and equipment
45,967

 
(33,133
)
 
12,834

Office furniture and equipment
6,165

 
(4,623
)
 
1,542

Software
14,745

 
(10,257
)
 
4,488

Construction in progress
780

 

 
780

Total assets held for use
72,072

 
(50,862
)
 
21,210

Total
$
547,257

 
$
(233,687
)
 
$
313,570


8


    
Property and equipment, net consisted of the following as of January 31, 2017:
(In thousands)
Cost
 
Accumulated
Depreciation
 
Net
Carrying Amount
Assets held for rent:
 
 
 
 
 
Spill protection berms
$
3,487

 
$
(2,497
)
 
$
990

Boxes
31,128

 
(14,357
)
 
16,771

Filtration
14,303

 
(6,820
)
 
7,483

Generators and light towers
518

 
(235
)
 
283

Pipes, hoses and fittings
11,196

 
(8,479
)
 
2,717

Non-steel containment
10,309

 
(5,031
)
 
5,278

Pumps
58,021

 
(35,761
)
 
22,260

Shoring
4,681

 
(3,444
)
 
1,237

Steel containment
324,267

 
(88,996
)
 
235,271

Tank trailers
1,881

 
(1,685
)
 
196

Construction in progress
2,081

 

 
2,081

Total assets held for rent
461,872

 
(167,305
)
 
294,567

Assets held for use:
 
 
 
 
 
Leasehold improvements
3,949

 
(2,572
)
 
1,377

Machinery and equipment
44,379

 
(29,673
)
 
14,706

Office furniture and equipment
5,937

 
(4,071
)
 
1,866

Software
13,889

 
(8,324
)
 
5,565

Construction in progress
2,626

 

 
2,626

Total assets held for use
70,780

 
(44,640
)
 
26,140

Total
$
532,652

 
$
(211,945
)
 
$
320,707

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) are less than the carrying value, a write-down would be recorded to reduce the related carrying value of the asset to its estimated fair value.
During the nine months ended October 31, 2017, we identified certain assets within our North American segment that were on long-term rentals and returned in a condition beyond repair. We determined that the net book value of these assets exceeded the assets’ estimated fair value. The fair value was determined utilizing the discounted cash flow method income approach (a non-recurring Level 3 fair value measurement). As a result, during the nine months ended October 31, 2017, we recorded an impairment charge of $1.2 million. Additionally, during three months ended October 31, 2017, we determined that the limited sales volume for certain aged property and equipment was a potential indicator of impairment. We determined that the net book value of these assets exceeded the assets’ estimated value. As a result, during three months ended October 31, 2017, we recorded an impairment charge of $0.9 million in our North American segment.
During the nine months ended October 31, 2016, we determined that the limited sales volume for certain aged property and equipment was a potential indicator of impairment. We determined that the net book value of these assets exceeded the assets’ estimated fair value. As a result, during the nine months ended October 31, 2016, we recorded an impairment charge of $3.9 million in our North American segment. Additionally, certain assets that were on long-term rentals were returned in a condition beyond repair. We determined that the net book value of these assets exceeded the assets’ estimated fair value. As a result, during the nine months ended October 31, 2016, we recorded an impairment charge of $0.4 million in our North American segment.

Included in machinery and equipment are assets under capital leases with a cost of $5.1 million and $4.7 million as of October 31, 2017 and January 31, 2017, respectively, and accumulated depreciation of $1.8 million and $1.2 million as of October 31, 2017 and January 31, 2017, respectively.
Depreciation expense related to property and equipment for the three months ended October 31, 2017 and 2016 was $10.9 million and $11.0 million, respectively. Depreciation and amortization expense related to property and equipment for the nine months ended October 31, 2017 and 2016 was $32.3 million and $33.1 million, respectively.

9


Note 6. Goodwill and Other Intangible Assets, Net

Goodwill

Changes in the carrying amount of the European reporting unit goodwill was as follows:
(In thousands)
Total
Balance as of January 31, 2017
$
49,918

Foreign currency translation
4,333

Balance as of October 31, 2017
$
54,251


For the nine months ended October 31, 2017

We evaluate the carrying value of goodwill annually during the fourth quarter of each fiscal year and more frequently if we believe indicators of impairment exist. We elected to early adopt ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350)-Simplifying the Test for Goodwill Impairment” (“ASU No. 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment. The standard removes Step 2 of the goodwill impairment test. Instead we perform our annual, or interim goodwill impairment test by comparing the estimated fair value of a reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount. We will record an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. We estimate the fair value of our reporting units based on income and market approaches.
The North American goodwill was written down to zero as of January 31, 2017 and there were no indicators of impairment to our European reporting unit as of October 31, 2017.

For the nine months ended October 31, 2016,
During the quarter ended April 30, 2016, we encountered a reduction in our operating results in comparison to our forecast, primarily due to greater weakness in upstream oil and gas than anticipated, slower recovery in our construction business, and the delay of capital projects by refinery and power plants which can be seen through our lower volume of work with industrial service customers. As a result of the decline in demand for our products and services, we re-assessed our revenue and EBITDA forecast beginning with the fiscal year ended January 31, 2017 using a bottoms-up approach, having conversations with our key customers, and performing an analysis on current market conditions and industry spending behavior. Based on our assessment, we noted that despite the recent stabilization of oil prices, there will be continued uncertainty in the energy market resulting in a slow-down in capital spend. As a result, we updated our projections to reflect the decline in activity, adjusted our forecast for the outer years to maintain similar growth rates as our previous forecast, and performed the first step of the goodwill impairment test.
Under the first step of the impairment test, we determined the carrying value of the North American reporting unit exceeded fair value. We then performed the second step of the impairment test for the North American reporting unit and calculated the implied fair value of goodwill, which was less than its carrying value. Based on our analysis, we recorded a non-cash goodwill impairment charge of $65.7 million in our North American reporting unit. This impairment charge, which is included under the caption “Impairment of goodwill and other intangible assets” in our condensed consolidated statements of operations for the nine months ended October 31, 2016, did not impact our operations, compliance with our debt covenants or our cash flows. For the European reporting unit, the fair value exceeded the carrying value, suggesting no indication of potential goodwill impairment.
In calculating the fair value of our North American reporting unit under the first step, we gave equal weight to the income approach, which analyzed projected discounted cash flows, and the market approach, which considered comparable public companies as well as comparable industry transactions.
Under the income approach, we estimate future capital expenditures required to maintain our rental fleet under normalized operations and utilize the following Level 3 estimates and assumptions in the discounted cash flow analysis:
Long-term EBITDA margin range of 25.8% to 30.5% , reflecting our historical and forecasted profit margins;
Long-term revenue growth rate range of 3.0% to 8.0%, based on long-term nominal growth rate potential;
A discount rate of 10%, based on our weighted average cost of capital;

10


Under the market approach, we used other significant observable market inputs including various peer company comparisons and industry transaction data, which resulted in revenue and EBITDA market multiples of 1.75x to 2.00x and 6.00x to 7.50x, respectively. In evaluating our market multiples, we placed higher consideration on peer companies that were experiencing similar oil and gas pressures. Changes in the estimates utilized under the income and market approaches could materially affect the determination of fair value and the conclusions of the step one analysis for the reporting unit.
    
Other Intangible Assets, Net

The components of other intangible assets, net were the following as of:
 
October 31, 2017
 
 
January 31, 2017
(In thousands)
Gross (1)
 
Accumulated
Amortization
 
Net
 
 
Gross (1)
 
Accumulated
Amortization
 
Net
Carrying amount:
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships (25 years)
$
401,954

 
$
(103,168
)
 
$
298,786

 
 
$
400,455

 
$
(90,770
)
 
$
309,685

Customer backlog (2 years)
200

 
(200
)
 

 
 
200

 
(200
)
 

Developed technology (11 years)
1,654

 
(586
)
 
1,068

 
 
1,634

 
(467
)
 
1,167

Trade name (Indefinite)(1)
43,249

 

 
43,249

 
 
43,566

 

 
43,566

Total carrying amount
$
447,057

 
$
(103,954
)
 
$
343,103

 
 
$
445,855

 
$
(91,437
)
 
$
354,418

(1)     Amounts are stated gross, net of impairment charges to trade name of $1.0 million and $18.3 million for the nine months ended October 31, 2017 and the fiscal year ended January 31, 2017, respectively.
We evaluate the carrying value of our indefinite-lived intangible asset (trade name) annually during the fourth quarter of each fiscal year and more frequently if we believe indicators of impairment exist. To test our indefinite-lived intangible asset for impairment, we compare the fair value of our indefinite-lived intangible asset to its carrying value. We estimate the fair value using an income approach and using the asset’s projected discounted cash flows. We recognize an impairment loss when the estimated fair value of the indefinite-lived intangible asset is less than the carrying value.
We assess the impairment of definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The asset is impaired if its carrying value exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the asset. In assessing recoverability, we must make assumptions regarding estimated future cash flows and other factors. The impairment loss is the amount by which the carrying value of the asset exceeds its fair value. We estimate fair value utilizing the projected discounted cash flow method and a discount rate determined by our management to be commensurate with the risk inherent in our current business model. When calculating fair value, we must make assumptions regarding estimated future cash flows, discount rates and other factors. During the three months ended July 31, 2017, an indicator of impairment to our indefinite-lived intangible asset (trade name) was identified in our North American reporting unit due to a reduction in our forecast due to a slower than expected recovery in our maintenance and oil and gas customers. Based on our analysis, we concluded that the carrying value of our trade name indefinite-lived intangible asset exceeded its fair value and we recorded an impairment charge of $1.0 million. No indicators of impairment existed to our North American trade name during the three months ended October 31, 2017.
Due to certain indicators of impairment identified during our April 30, 2016 interim impairment test of goodwill, we assessed our indefinite and definite-lived intangible assets for impairment. Based on our analysis, we concluded that the carrying value of our indefinite-lived intangible asset (trade name) exceeded its fair value and recorded an impairment charge of $18.3 million in our North American reporting unit. This impairment charge, which is included under the caption “Impairment of goodwill and other intangible assets” in our condensed consolidated statements of operations for the nine months ended October 31, 2016, does not impact our operations, compliance with our debt covenants or our cash flows. We estimated the fair value of our trade name using the relief-from-royalty method, which uses several significant assumptions, including an estimate of useful life and revenue projections that consider historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. The following estimates and assumptions were also used in the relief-from-royalty method:
Royalty rate of 1.5% based on market observed royalty rates; and
A discount rate of 12.0% based on the required rate of return for the trade name asset.
As of October 31, 2017 there was no impairment recorded of our definite-lived intangible assets.


11


Amortization expense related to intangible assets for the three months ended October 31, 2017 and 2016 was $4.1 million and $4.0 million, respectively. Amortization expense related to intangible assets for the nine months ended October 31, 2017 and 2016 was $12.2 million and $12.1 million, respectively. Estimated amortization expense for the fiscal periods ending January 31 is as follows:
(In thousands)
 
Remainder of the fiscal year ending January 31, 2018
$
4,057

2019
16,228

2020
16,228

2021
16,228

2022
16,228

Thereafter
230,885

Total
$
299,854



Note 7. Accrued Expenses
Accrued expenses consists of the following as of:
(In thousands)
October 31,
2017
 
January 31,
2017
Accrued compensation
$
8,756

 
$
11,488

Accrued insurance
763

 
793

Accrued interest
8,281

 
3,257

Accrued professional fees
344

 
459

Accrued taxes
5,560

 
3,852

Capital lease - current
687

 
545

Other accrued expenses
592

 
1,461

Total accrued expenses
$
24,983

 
$
21,855


Note 8. Debt

Debt consists of the following:
(In thousands)
October 31,
2017
 
January 31,
2017
Senior term loan (LIBOR margin of 3.0%, and interest rate of 4.31% and 4.25%, respectively)
$
399,618

 
$
402,740

Senior unsecured notes
240,000

 
240,000

Total debt
639,618

 
642,740

Less: deferred financing costs
(4,978
)
 
(7,263
)
Total debt less deferred financing costs
634,640

 
635,477

Less: current portion (net of current portion of deferred financing costs of $3,210 and $3,080, respectively)
(953
)
 
(1,082
)
Long-term debt, net of current portion (net of long-term portion of deferred financing costs of $1,768 and $4,183, respectively)
$
633,687

 
$
634,395


On June 1, 2011, we (i) entered into a $435.0 million senior secured credit facility (the “Credit Facility”), consisting of a $390.0 million term loan facility (the “Senior Term Loan”) and a $45.0 million revolving credit facility (the “Revolving Credit Facility”) and (ii) issued $240.0 million in aggregate principal amount of fixed rate 8.25% senior unsecured notes due June 1, 2019 (the “Notes”).

12



Credit Facility
On February 7, 2013, we entered into a first amendment to refinance our Credit Facility (the “First Amendment”), to refinance a like amount of term loans (the “Original Term Loan”) under the Credit Facility. Borrowings under the Credit Facility bear interest at a rate equal to LIBOR plus an applicable margin, subject to a LIBOR floor of 1.25%. The LIBOR margin applicable to the Amended Senior Term Loan is 3.00%, which is 0.75% less than the LIBOR margin applicable to the Original Term Loan. In addition, pursuant to the First Amendment, among other things, (i) the Senior Term Loan maturity date was extended to February 7, 2020, provided that the maturity will be March 2, 2019 if the Notes are not repaid or refinanced on or prior to March 2, 2019, (ii) the Revolving Credit Facility maturity date was extended to February 7, 2018, and (iii) we obtained increased flexibility with respect to certain covenants and restrictions relating to our ability to incur additional debt, make investments, debt prepayments, and acquisitions. Principal on the Senior Term Loan is payable in quarterly installments of $1.0 million. Furthermore, the excess cash flow prepayment requirement is in effect until the maturity date.
On November 13, 2013, we entered into a second amendment to our Credit Facility (the “Second Amendment”). Pursuant to the Second Amendment, the Company borrowed $35.0 million of incremental term loans (the “Incremental Term Loan”), which may be used for general corporate purposes, including to finance permitted acquisitions. The terms applicable to the Incremental Term Loans are the same as those applicable to the term loans under the Credit Facility.

On November 3, 2016, we entered into a third amendment to our Credit Facility (the “Third Amendment”) to amend the Revolving Credit Facility. The amendment (i) extends the Revolving Credit Facility maturity date from February 7, 2018 to November 7, 2019 (provided that such maturity date will be accelerated to January 30, 2019 unless the Notes are repaid in full or extended or refinanced on or prior to January 30, 2019) and (ii) reduces the revolver commitment from $45.0 million to $40.0 million in addition to certain other amendments to the original terms.

The Credit Facility, as amended, in February 2013, November 2013 and November 2016, places certain limitations on our (and all of our U.S. subsidiaries’) ability to incur additional indebtedness, pay dividends or make other distributions, repurchase capital stock, make certain investments, enter into certain types of transactions with affiliates, utilize assets as security in other transactions, and sell certain assets or merge with or into other companies. In addition, we may be required to satisfy and maintain a total leverage ratio if there is an outstanding balance on the Revolving Credit Facility of 25% or more of the committed amount on any quarter end.

    
The Third Amendment was accounted for as a debt modification. Costs incurred in connection with the Third Amendment have been deferred and are being amortized over the term of the amended Revolving Credit Facility. In addition, any unamortized deferred costs related to the old arrangement were written off in proportion to the decrease in borrowing capacity. During the fiscal year ended January 31, 2017, we recorded $0.5 million of deferred costs related to the Third Amendment.

As of October 31, 2017, we did not have an outstanding balance on the revolving loan; and therefore, we were not subject to a leverage test. Additionally, as of October 31, 2017, we were in compliance with all of our requirements and covenant tests under the Credit Facility, as amended.
 
Senior Unsecured Notes Due 2019
On June 1, 2011, we issued the Notes. We may redeem all or any portion of the Notes at the redemption prices set forth in the applicable indenture, plus accrued and unpaid interest. Upon a change of control, we are required to make an offer to redeem all of the Notes from the holders at a redemption price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of the repurchase. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by our direct and indirect existing and future wholly-owned domestic restricted subsidiaries.


13


Interest and Fees
Costs related to debt financing are deferred and amortized to interest expense over the term of the underlying debt instruments utilizing the straight-line method for our revolving credit facility and the effective interest method for our senior term and incremental term loan facilities. As of October 31, 2017 and January 31, 2017, deferred financing costs of $5.0 million and $7.3 million, respectively, are reflected as a reduction of the underlying debt. We amortized $0.8 million of deferred financing costs during each of the three months ended October 31, 2017 and 2016, respectively. We amortized $2.3 million and $2.2 million of deferred financing costs during the nine months ended October 31, 2017 and 2016, respectively.
Interest and fees related to our Credit Facility and the Notes are as follows:
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(In thousands)
2017
 
2016
 
2017
 
2016
Credit Facility interest and fees
$
4,821

 
$
4,859

 
$
14,457

 
$
14,496

Notes interest and fees (1)
5,312

 
5,281

 
15,912

 
15,822

Total interest and fees
$
10,133

 
$
10,140

 
$
30,369

 
$
30,318

 
 
 
 
 
 
 
 
Credit Facility interest rate
4.31
%
 
4.25
%
 
4.25
%
 
4.25
%
(1)    Interest on the Notes is payable semi-annually based upon a fixed annual rate of 8.25%.

Principal Payments on Debt
As of October 31, 2017, the schedule of minimum required principal payments on our debt for each of the fiscal years ending January 31 are due according to the table below:
(In thousands)
 
Remainder of the fiscal year ending January 31, 2018
$
1,041

2019
4,163

2020
634,414

Total
$
639,618


Note 9. Income Taxes
The income tax benefit for the three and nine months ended October 31, 2017 and 2016 is based on the estimated effective tax rate for the entire fiscal year. The estimated effective tax rate is subject to adjustment in subsequent quarterly periods as our estimates of pre-tax income and loss for the year fluctuate, including changes in the geographic mix of pre-tax income and loss.
 
The effective income tax rates for the three and nine months ended October 31, 2017 were a benefit of 37.9% and 36.9%, respectively compared to a benefit for the three and nine months ended October 31, 2016 of 28.7% and 23.0%, respectively. The effective tax rate differs from the U.S. federal statutory rate primarily due to income taxed in foreign jurisdictions, state taxes, non-deductible meals and entertainment expenses, non-deductible goodwill impairment, and discrete items. The difference in effective income tax rates for the nine months ended October 31, 2017 and 2016 primarily relates to a change in the estimated forecast of pre-tax book income and loss for each respective jurisdiction, which includes an impairment of non-deductible goodwill recorded during the nine months ended October 31, 2016. Discrete items related primarily to excess shortfalls associated with the cancellation and expiration of stock options recorded during the nine months ended October 31, 2017.
 
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. A valuation allowance is recorded for deferred income tax assets when management determines it is more likely than not that such assets will not be realized. Our deferred tax assets primarily relate to federal net operating loss carry-forwards. Management believes we will realize the benefit of existing deferred tax assets based on the scheduled reversal of U.S. deferred tax liabilities, related to depreciation and amortization expenses not deductible for tax purposes, which is ordinary income and therefore of the same character as the temporary differences giving rise to the deferred tax assets. This reversal will occur in substantially similar time periods and in the same jurisdictions as the deferred tax assets.

14


As such, the deferred tax liabilities are considered a source of income sufficient to support our U.S. deferred tax assets; therefore, a valuation allowance is not required as of October 31, 2017.
 
We recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Tax benefits recognized from such a position are measured based on whether the benefit has a greater than 50% likelihood of being realized upon ultimate resolution. It is reasonably possible that an additional $0.9 million of uncertain tax positions will decrease within the next 12 months due to the expiration of the net operating loss carryforwards associated with such positions.
 
We believe our income tax contingencies are adequate for all outstanding issues in all jurisdictions and all open years. However, due to the risk that audit outcomes and the timing of audit settlements are subject to significant uncertainty and as we continue to evaluate such uncertainties in light of current facts and circumstances, our current estimate of the total amounts of unrecognized tax benefits could increase or decrease for all open tax years.

Note 10. Shareholder’s Equity

Share-Based Compensation
During June 2011, BCI Holdings adopted a share-based compensation plan, The BakerCorp International Holdings, Inc. 2011 Equity Incentive Plan (the “2011 Plan”). Subsequent to the adoption of the 2011 Plan, on September 12, 2013, the BCI Holdings’ Board of Directors amended the 2011 Plan by resolution to increase the number of shares of BCI Holdings common stock authorized for issuance under the 2011 Plan to 1,001,339 shares. As of October 31, 2017, there were 260,170 shares available for grant. The amended 2011 Plan permits the granting of BCI Holdings stock options, nonqualified stock options and restricted stock to eligible employees and non-employee directors and consultants.

The following table summarizes stock option activity during the nine months ended October 31, 2017:
 
Number of
Options
 
Weighted
Average
Exercise 
Price
 
Aggregate
Intrinsic 
Value
(in thousands)(1)
 
Weighted
Average 
Term
Remaining
(in years)
 
Weighted
Average 
Grant
Date Fair 
Value
Outstanding, January 31, 2017
766,348

 
$
83.47

 
$

 
6.5
 
 
Granted

 
$

 
 
 
 
 
$

Exercised

 
$

 
$

 
 
 
 
Forfeited/canceled/expired
(33,328
)
 
$
39.12

 
 
 
 
 
 
Outstanding, October 31, 2017
733,020

 
$
83.92

 
$

 
5.8
 
 
Vested and expected to vest, October 31, 2017
78,344

 
$
74.90

 
$

 
3.2
 
 
Exercisable, October 31, 2017
78,344

 
$
74.90

 
$

 
1.7
 
 
 
(1)
Aggregate intrinsic value in the table above represents the total pre-tax value that option holders would have received had all stock option holders exercised their options as of October 31, 2017. The aggregate intrinsic value is the difference between the estimated fair market value of the BCI Holdings common stock at the end of the period and the stock option exercise price, multiplied by the number of in-the-money options. This amount will change based on the fair market value of the BCI Holdings common stock.

As of October 31, 2017, there was $16.4 million of unrecognized pre-tax share-based compensation expense related to non-vested stock options of which $0.5 million we expect to recognize over a weighted average period of 0.6 years. We expect to recognize the remaining $15.9 million, which includes $8.1 million of unrecognized share-based compensation expense for the CEO’s options, upon a Change in Control or initial public offering (“IPO”) as defined in the 2011 Plan. During the nine months ended October 31, 2017, we did not recognize any share-based compensation expense related to the CEO’s options.
No options vested during the three and nine months ended October 31, 2017. The total fair value of options vested during the three and nine months ended October 31, 2016 was zero and $0.1 million, respectively.


15


The share-based compensation expense included within employee related expenses in our condensed consolidated statement of operations was the following:
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(In thousands)
2017
 
2016
 
2017
 
2016
Non-cash share-based compensation expense (1)
$
141

 
$
174

 
$
446

 
$
135

(1)
We remeasured certain options classified as liability awards and recorded decreases to non-cash share-based compensation expense of $0.0 million and $0.7 million during the three and nine months ended October 31, 2016, respectively.

The fair value of BCI Holdings stock options issued and classified as equity awards was determined using the Black-Scholes options pricing model utilizing the following weighted-average assumptions for each respective period:

 
Nine Months Ended October 31,
 
2017
 
2016
Expected volatility
56
%
 
56
%
Expected dividends
%
 
%
Expected term
7.2 years

 
7.2 years

Risk-free interest rate
1.5
%
 
1.5
%


Liability Awards
We account for certain option awards as liability awards, as we determined cash settlement upon exercise is probable. The expiration of certain options classified as liability awards resulted in a decrease to non-cash share-based compensation expense of $0.03 million during the nine months ended October 31, 2017. We remeasured the fair value of these options during the fiscal year ended January 31, 2017, resulting in a decrease to our non-cash share-based compensation expense of $0.7 million. As of October 31, 2017 and January 31, 2017 the fair value of our share-based compensation liability awards totaled $35,000 and $66,000, respectively. Our share-based compensation liability is fair valued using level 3 inputs which are based on internal valuations and considering input from third parties and utilizing the following assumptions:

 
Nine Months Ended October 31,
 
2017
 
2016
Expected volatility
60
%
 
60
%
Expected dividends
%
 
%
Expected term
0.8 years

 
1.1 years

Risk-free interest rate
0.5
%
 
0.5
%

Note 11. Segment Reporting

We conduct our operations through entities located in the United States, Canada, France, Germany, the United Kingdom and the Netherlands. We transact business using the local currency within each country where we perform the service or provide the rental equipment.
Our operating and reportable segments are North America and Europe. Within each operating segment, there are common customers, common pricing structures, the ability and history of sharing equipment and resources, operational compatibility, commonality among regulatory environments, and relative geographic proximity. Our operating segments consist of the following:

the North American segment, consisting of branches located in the United States and Canada that provide equipment and services suitable across these North American countries.
the European segment, consisting of branches located in France, Germany, the United Kingdom and the Netherlands that provide equipment and services to customers in a number of European countries.


16



Selected statement of operations information for our reportable segments are the following:
 
Three Months Ended October 31,
 
 
Nine Months Ended October 31,
(In thousands)
2017
 
2016
 
 
2017
 
2016
Revenue
 
 
 
 
 
 
 
 
North America
63,017

 
59,314

 
 
174,468

 
168,525

Europe
10,772

 
8,998

 
 
30,661

 
28,019

Total revenue
$
73,789

 
$
68,312

 
 
$
205,129

 
$
196,544

Depreciation and amortization
 
 
 
 
 
 
 
 
North America
$
13,446

 
$
13,784

 
 
$
40,120

 
$
41,545

Europe
1,554

 
1,234

 
 
4,349

 
3,657

Total depreciation and amortization
$
15,000

 
$
15,018

 
 
$
44,469

 
$
45,202

Interest expense, net
 
 
 
 
 
 
 
 
North America
$
10,267

 
$
10,112

 
 
$
30,470

 
$
31,255

Europe
14

 
9

 
 
3

 
15

Total interest expense, net
$
10,281

 
$
10,121

 
 
$
30,473

 
$
31,270

Income tax (benefit) expense
 
 
 
 
 
 
 
 
North America
$
(3,660
)
 
$
(3,002
)
 
 
$
(12,390
)
 
$
(27,419
)
Europe
957

 
398

 
 
2,080

 
1,674

Total income tax benefit
$
(2,703
)
 
$
(2,604
)
 
 
$
(10,310
)
 
$
(25,745
)
Net (loss) income
 
 
 
 
 
 
 
 
North America (1)
$
(9,301
)
 
$
(7,285
)
 
 
$
(24,930
)
 
$
(90,060
)
Europe (1)
4,877

 
829

 
 
7,346

 
3,906

Total net loss
$
(4,424
)
 
$
(6,456
)
 
 
$
(17,584
)
 
$
(86,154
)
 
(1)
During the three and nine months ended October 31, 2017 and October 31, 2016, we included $0.9 million and $1.2 million, respectively, and $2.7 million and $2.6 million of intersegment expense allocations from North America to Europe.
    
Total assets and property and equipment, net information by reportable segment consists of the following:
(In thousands)
October 31,
2017
 
January 31,
2017
Total assets
 
 
 
United States
$
680,597

 
$
707,701

Canada
9,405

 
8,939

North America
690,002

 
716,640

Europe
127,395

 
113,900

Total assets
$
817,397

 
$
830,540

Property and Equipment, net
 
 
 
United States
$
253,269

 
$
264,194

Canada
12,535

 
11,942

North America
265,804

 
276,136

Europe
47,766

 
44,571

Total property and equipment, net
$
313,570

 
$
320,707


Note 12. Related Party Transactions

From time to time, we enter into transactions in the normal course of business with related parties. The accounting policies that we apply to our transactions with related parties are consistent with those applied in transactions with independent third parties.


17


Pursuant to a professional services agreement between us and Permira Advisers L.L.C. (the “Sponsor”), we agreed to pay the Sponsor an annual management fee of $0.5 million, payable quarterly, plus reasonable out-of-pocket expenses, in connection with the planning, strategy, and oversight support provided to management. We recorded $0.1 million for each of three months ended October 31, 2017 and 2016, and $0.4 million for each of the nine months ended October 31, 2017 and 2016 in aggregate management fees and expenses to the Sponsor. Management fees payable to the Sponsor totaled $0.04 million as of October 31, 2017 and January 31, 2017. Management fees are included in professional fees in the condensed consolidated statement of operations.

Note 13. Commitments and Contingencies
Litigation
We are involved in various legal actions arising in the ordinary course of conducting our business. These include claims relating to (i) personal injury or property damage involving equipment rented or sold by us, (ii) motor vehicle accidents involving our vehicles and our employees, (iii) employment-related matters, and (iv) environmental matters. We do not believe that the ultimate disposition of these matters will have a material adverse effect on our condensed consolidated financial position, results of operations, or cash flow. We expense legal fees in the period in which they are incurred.

Note 14. Condensed Consolidating Financial Information
Our Notes are guaranteed by all of our U.S. subsidiaries (the “guarantor subsidiaries”). This indebtedness is not guaranteed by BCI Holdings or our foreign subsidiaries (together, the “non-guarantor subsidiaries”). The guarantor subsidiaries are all one hundred percent owned, and the guarantees are made on a joint and several basis and are full and unconditional (subject to subordination provisions and subject to customary release provisions and a standard limitation, which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). The following condensed consolidating financial information presents the financial position, results of operations, and cash flows of the parent, guarantors, and non-guarantor subsidiaries of the Company and the eliminations necessary to arrive at the information on a consolidated basis for the periods indicated. The parent referenced in the condensed consolidating financial statements is BakerCorp International, Inc., the issuer.
We conduct substantially all of our business through our subsidiaries. To make the required payments on our Notes and other indebtedness, and to satisfy other liquidity requirements, we will rely, in large part, on cash flows from these subsidiaries, mainly in the form of dividends, royalties, and advances, or payments of intercompany loan arrangements. The ability of these subsidiaries to make dividend payments to us will be affected by, among other factors, the obligations of these entities to their creditors, requirements of corporate and other law, and restrictions contained in agreements entered into by or relating to these entities.
The parent and the guarantor subsidiaries have each reflected investments in their respective subsidiaries under the equity method of accounting. There are no restrictions limiting the transfer of cash from guarantor subsidiaries and non-guarantor subsidiaries to the parent.    



18



Condensed Consolidating Balance Sheet
October 31, 2017 (unaudited)
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
11,333

 
$
17,232

 
$

 
$
28,565

Accounts receivable, net

 
54,271

 
14,969

 

 
69,240

Inventories, net

 
4,212

 
114

 

 
4,326

Prepaid expenses and other assets
49

 
2,105

 
893

 

 
3,047

Total current assets
49

 
71,921

 
33,208

 

 
105,178

Property and equipment, net

 
253,269

 
60,301

 

 
313,570

Goodwill

 

 
54,251

 

 
54,251

Other intangible assets, net

 
320,442

 
22,661

 

 
343,103

Other assets

 
1,071

 
224

 

 
1,295

Investment in subsidiaries
301,148

 
122,551

 

 
(423,699
)
 

Total assets
$
301,197

 
$
769,254

 
$
170,645

 
$
(423,699
)
 
$
817,397

Liabilities and shareholder’s equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
38

 
$
17,683

 
$
2,328

 
$

 
$
20,049

Accrued expenses
8,281

 
13,090

 
3,612

 

 
24,983

Current portion of long-term debt (net of deferred financing costs of $3,210)
953

 

 

 

 
953

Intercompany balances
(333,116
)
 
298,565

 
34,551

 

 

Total current liabilities
(323,844
)
 
329,338

 
40,491

 

 
45,985

Long-term debt, net of current portion (net of deferred financing costs of $1,768)
633,687

 

 

 

 
633,687

Deferred tax liabilities, net
(45,157
)
 
136,334

 
7,510

 

 
98,687

Share-based compensation liability

 
35

 

 

 
35

Other long-term liabilities

 
2,399

 
93

 

 
2,492

Total liabilities
264,686

 
468,106

 
48,094

 

 
780,886

Total shareholder’s equity
36,511

 
301,148

 
122,551

 
(423,699
)
 
36,511

Total liabilities and shareholder’s equity
$
301,197

 
$
769,254

 
$
170,645

 
$
(423,699
)
 
$
817,397


19



Condensed Consolidating Balance Sheet
January 31, 2017
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
30,607

 
$
13,956

 
$

 
$
44,563

Accounts receivable, net

 
41,902

 
10,576

 

 
52,478

Inventories, net

 
3,622

 
99

 

 
3,721

Prepaid expenses and other current assets
35

 
3,201

 
909

 

 
4,145

Total current assets
35

 
79,332

 
25,540

 

 
104,907

Property and equipment, net

 
264,194

 
56,513

 

 
320,707

Goodwill

 

 
49,918

 

 
49,918

Other intangible assets, net

 
333,033

 
21,385

 

 
354,418

Other long-term assets

 
452

 
138

 

 
590

Investment in subsidiaries
297,137

 
109,766

 

 
(406,903
)
 

Total assets
$
297,172

 
$
786,777

 
$
153,494

 
$
(406,903
)
 
$
830,540

Liabilities and shareholder’s equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
56

 
$
15,839

 
$
1,802

 
$

 
$
17,697

Accrued expenses
3,258

 
14,377

 
4,220

 

 
21,855

Current portion of long-term debt (net of deferred financing costs of $3,080)
1,082

 

 

 

 
1,082

Intercompany balances
(341,847
)
 
310,812

 
31,035

 

 

Total current liabilities
(337,451
)
 
341,028

 
37,057

 

 
40,634

Long-term debt, net of current portion (net of deferred financing costs of $4,183)
634,395

 

 

 

 
634,395

Deferred tax liabilities, net
(42,166
)
 
145,806

 
6,474

 

 
110,114

Share-based compensation liability

 
66

 

 

 
66

Other long-term liabilities

 
2,739

 
197

 

 
2,936

Total liabilities
254,778

 
489,639

 
43,728

 

 
788,145

Total shareholder’s equity
42,394

 
297,138

 
109,766

 
(406,903
)
 
42,395

Total liabilities and shareholder’s equity
$
297,172

 
$
786,777

 
$
153,494

 
$
(406,903
)
 
$
830,540


20



Condensed Consolidating Statement of Operations
For the Three Months Ended October 31, 2017 (unaudited)
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Revenue
$

 
$
61,034

 
$
12,755

 
$

 
$
73,789

Operating expenses:
 
 
 
 
 
 
 
 
 
Employee related expenses
3

 
21,083

 
3,534

 

 
24,620

Rental expense

 
8,436

 
1,391

 

 
9,827

Repair and maintenance

 
3,320

 
371

 

 
3,691

Cost of goods sold

 
2,409

 
83

 

 
2,492

Facility expense
2

 
6,148

 
1,053

 

 
7,203

Professional fees
7

 
3,104

 
97

 

 
3,208

Other operating expenses
153

 
2,530

 
1,854

 

 
4,537

Depreciation and amortization

 
13,099

 
1,901

 

 
15,000

Gain on sale of equipment

 
(889
)
 
(75
)
 

 
(964
)
Impairment of goodwill and other intangible assets

 

 

 

 

Impairment of long-lived assets

 
846

 
13

 

 
859

Total operating expenses
165

 
60,086

 
10,222

 

 
70,473

(Loss) income from operations
(165
)
 
948

 
2,533

 

 
3,316

Other expenses (income):
 
 
 
 
 
 
 
 


Interest expense, net
10,226

 
39

 
16

 

 
10,281

Foreign currency exchange loss (gain), net

 
225

 
(58
)
 

 
167

Other income, net

 
(5
)
 

 

 
(5
)
Total other expenses (income), net
10,226

 
259

 
(42
)
 

 
10,443

(Loss) income before income tax (benefit) expense
(10,391
)
 
689

 
2,575

 

 
(7,127
)
Income tax (benefit) expense
(1,022
)
 
(2,647
)
 
966

 

 
(2,703
)
(Loss) income before equity in net earnings of subsidiaries
(9,369
)
 
3,336

 
1,609

 

 
(4,424
)
Equity in net earnings of subsidiaries
4,945

 
1,609

 

 
(6,554
)
 

Net (loss) income
$
(4,424
)
 
$
4,945

 
$
1,609

 
$
(6,554
)
 
$
(4,424
)

21



Condensed Consolidating Statement of Operations
For the Three Months Ended October 31, 2016 (unaudited)
(In thousands)
 
 
Parent
 
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Revenue
$

 
$
56,785

 
$
11,527

 
$

 
$
68,312

Operating expenses:
 
 
 
 
 
 
 
 
 
Employee related expenses
4

 
20,297

 
3,157

 

 
23,458

Rental expense

 
7,741

 
1,291

 

 
9,032

Repair and maintenance

 
2,732

 
241

 

 
2,973

Cost of goods sold

 
1,747

 
684

 

 
2,431

Facility expense
9

 
5,705

 
703

 

 
6,417

Professional fees
10

 
610

 
138

 

 
758

Other operating expenses
169

 
1,751

 
1,599

 

 
3,519

Depreciation and amortization

 
13,499

 
1,519

 

 
15,018

Gain on sale of equipment

 
(1,014
)
 
11

 

 
(1,003
)
Impairment of goodwill and other intangible assets

 

 

 

 

Impairment of long-lived assets

 
3,829

 
104

 

 
3,933

Total operating expenses
192

 
56,897

 
9,447

 

 
66,536

(Loss) income from operations
(192
)
 
(112
)
 
2,080

 

 
1,776

Other expenses:
 
 
 
 
 
 
 
 
 
Interest expense, net
10,092

 
19

 
10

 

 
10,121

Foreign currency exchange loss

 
147

 
573

 

 
720

       Other income, net

 
(5
)