UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K10-K/A
(Amendment No. 1)
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(Mark One) |
ýx | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015 or
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| o | 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 0-15071
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Steel Excel Inc.
(Exact name of Registrant as specified in its charter)
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DELAWARE (State or other jurisdiction of incorporation or organization) | 94-2748530 (I.R.S. Employer Identification No.) |
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1133 WESTCHESTER AVENUE, SUITE N222 WHITE PLAINS, NEW YORK (Address of principal executive offices) | 10604 (Zip Code) |
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Registrant's telephone number, including area code (914) 461-1300
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Registrant's telephone number, including area code (914) 461-1300
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | | Nasdaq Capital Market |
Preferred Stock Purchase Rights | | Nasdaq Capital Market |
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Securities registered pursuant to Section 12(g) of the Act: NoneCommon Stock, par value $0.001 per share; Preferred Stock Purchase Rights
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ Noý x
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ Noý x
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 xý 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 xý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one).
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Large accelerated filer o | Accelerated filer xý | Non-accelerated filer o | Smaller reporting company o |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No xý
The aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant as of June 30, 2015, the last business day of the Registrant's most recently completed second fiscal quarter, was approximately $96.8 million.
As of February 29,March 28, 2016, there were 11,347,03810,866,679 shares of Steel Excel’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
EXPLANATORY NOTE
Steel Excel Inc. (“Steel Excel”, the “Company,” “we,” “us,” “our”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to our Annual Report on Form 10-K for the year ended December 31, 2015, originally filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2016 (the “Original Filing”), to provide by amendment the information required by Items 10 11, 12, 13through 14 (Part III) of Form 10-K, and 14 of Part III will be incorporatedto update Item 15, rather than by incorporation by reference to certain portions of a definitive proxy statement for our 2016 annual meeting of stockholders. We are including new certifications by our principal executive officer and principal financial officer as exhibits to this Amendment, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Except as described above, this Amendment does not modify or update the disclosures presented in, or as exhibits to, the Original Filing in any way. This Amendment speaks as of the date of the Original Filing and does not reflect events occurring after the filing of the Original Filing. Among other things, we have not revised forward-looking statements made in the Original Filing to reflect events that occurred or facts that became known to us after the filing of the Original Filing. Therefore, you should read this Amendment in conjunction with any other documents we filed with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act subsequent to the Original Filing.
| Directors, Executive Officers and Corporate Governance |
Each of the biographies of our directors and executive officers below contains information regarding the person’s service as a director, if applicable, business experience, director positions held currently or at any time during the past five years, and, for each director, the experience, qualifications, attributes and skills that caused the Governance and Nominating Committee and the Board of Directors (the “Board”) to determine that the person should serve as a director of the Company. The following information is as of March 28, 2016.
| | | | Position With The Company | | Director Since |
| Warren G. Lichtenstein (1)(3) | | 50 | | Chairman of Steel Excel; President of Steel Sports Inc. | | 2010 |
| Jack L. Howard (1)(2)(3) | | 54 | | Vice Chairman and principal executive officer of Steel Excel | | 2007 |
| John J. Quicke | | 66 | | Director of Steel Excel; Chairman of Steel Energy | | 2007 |
| John Mutch (1)(4) | | 59 | | Director of Steel Excel | | 2007 |
| Gary W. Ullman (2)(4) | | 74 | | Director of Steel Excel | | 2011 |
| Robert J. Valentine (2)(4) | | 66 | | Director of Steel Excel | | 2012 |
| James F. McCabe, Jr. | | 53 | | Chief Financial Officer | | N/A |
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| (1) | Member of the Governance and Nominating Committee of the Board (“Governance and Nominating Committee”). |
| (2) | Member of the Compensation Committee of the Board (“Compensation Committee”). |
| (3) | Member of the Investment Committee of the Board (“Investment Committee”). |
| (4) | Member of the Audit Committee of the Board (“Audit Committee”). |
Directors
Warren G. Lichtenstein has served as a member of our Board since October 2010 and as our Chairman of the Board since May 2011. In 2011 Mr. Lichtenstein founded Steel Sports Inc., a subsidiary of the Company dedicated to building a network of participatory and experience-based sports-related businesses, with a particular emphasis on youth sports. Mr. Lichtenstein has served on the board of directors of over twenty public companies. Mr. Lichtenstein served as the Chairman of the board of the directors and Chief Executive Officer of Steel Partners Holdings GP Inc. (“Steel Holdings GP”) from July 2009 to February 2013, and has served as Executive Chairman since February 2013. Steel Holdings GP is the general partner of Steel Partners Holdings L.P. (“Steel Holdings”), a global diversified holding company that engages in multiple businesses through consolidated subsidiaries, associated companies and other interests. Mr. Lichtenstein is the Chairman and Chief Executive Officer of Steel Partners LLC (“Steel Partners”) and has been associated with Steel Partners and its affiliates since 1990. He has served as Chairman of the Board of Handy & Harman Ltd. (formerly known as WHX Corporation) (“HNH”), a NASDAQ-listed, Delaware corporation, since July 2005. Since March 2013, Mr. Lichtenstein has served as Chairman of the Board of ModusLink Global Solutions, Inc. (“ModusLink”), a NASDAQ company providing customized supply chain management services to the world’s leading high technology companies, and has served as the interim Chief Executive Officer of ModusLink since March 28, 2016. Mr. Lichtenstein has served as a director of Aerojet Rocketdyne Holdings, Inc., a NYSE-listed manufacturer of aerospace and defense products and systems with a real estate business segment, since March 2008 and has served as the Chairman of the Board since March 2013. He has served as a director of SL Industries, Inc. (“SL Industries”), a company that designs, manufactures and markets power electronics, motion control, power protection, power quality electromagnetic and specialized communication equipment that is listed on NYSE Amex, since March 2010. He previously served as a director (formerly Chairman of the Board) of SL Industries from January 2002 to May 2008 and served as Chief Executive Officer from February 2002 to August 2005.
The Board has determined that Mr. Lichtenstein’s extensive experience in corporate finance, executive management, investing and his service as a director and advisor to a diverse group of public companies enable him to assist in the management of the Company.
Jack L. Howard has served as a member of our Board since 2007, and as Vice Chairman of our Board since May 2012 and principal executive officer since March 2013. Mr. Howard has been a registered principal of Mutual Securities, Inc., a FINRA registered broker-dealer, since 1989. Mr. Howard has served as the President of Steel Holdings GP since July 2009 and has served as a director of Steel Holdings GP since October 2011. He also served as the Assistant Secretary of Steel Holdings GP from July 2009 to September 2011 and as Secretary from September 2011 to January 2012. He is the President of SP General Services LLC. He is the President of Steel Partners and has been associated with Steel Partners and its affiliates since 1993. Mr. Howard also co-founded Steel Partners II, L.P. in 1993, a private investment partnership that is now a wholly-owned subsidiary of Steel Holdings. Mr. Howard has served as a director of HNH since July 2005, Vice Chairman of the Board since March 2012 and principal executive officer since January 2013. He currently holds the securities licenses of Series 7, Series 24, Series 55 and Series 63.
The Board has determined that Mr. Howard’s managerial and investing experience in a broad range of businesses over the past 28 years, as well as his service on the boards of directors and committees of both public and private companies, which includes serving on the board of directors of a well services company, enable him to effectively lead the management of the Company.
John J. Quicke has served as a member of our Board since 2007 and as our Interim President and Chief Executive Officer from January 2010 until March 2013. From March 2013 through December 2015, he was the President and Chief Executive Officer of Steel Energy Services Ltd. (“Steel Energy”), a subsidiary of the Company, and since December 2015, he has served as Chairman of Steel Energy. Mr. Quicke was a Managing Director and operating partner of Steel Partners, a subsidiary of Steel Holdings, a position he retired from in December 2015. Mr. Quicke was associated with Steel Partners and its affiliates from September 2005 until December 2015. Mr. Quicke served as a director, President and Chief Executive Officer of DGT Holdings Corp. from September 2009 to October 2012. Mr. Quicke has served as a director of Rowan Companies, plc, an offshore contract drilling company, since January 2009. Mr. Quicke has served as a director of Aviat since February 2015. He served as a director of JPS Industries, Inc. from May 2013 to February 2015. Mr. Quicke served as a director of Angelica Corporation, a provider of health care linen management services, from August 2006 to July 2008. He served as a director of Layne Christensen Company, a provider of products and services for the water, mineral, construction and energy markets, from October 2006 to June 2007. Mr. Quicke served as a director of HNH from July 2005 to December 2010. Mr. Quicke served as a Vice President of HNH, a position he held between October 2005 and December 2015. Mr. Quicke served as a director, President and Chief Operating Officer of Sequa Corporation, a diversified industrial company, from 1993 to March 2004, and Vice Chairman and Executive Officer of Sequa from March 2004 to March 2005. As Vice Chairman and Executive Officer of Sequa, he was responsible for the Automotive, Metal Coating, Specialty Chemicals, Industrial Machinery and Other Product operating segments of the company.
The Board has determined that Mr. Quicke’s extensive experience, including board service on nine public companies over 22 years, over 23 years of significant operating experience, which includes participation in acquisition and disposition transactions and prior experience as an executive with a well services company, as well as his financial and accounting expertise, enable him to assist in the effective management of the Company.
John Mutch has served as a member of our Board since 2007. Mr. Mutch is expectedthe founder and managing partner of MV Advisors LLC, a strategic block investment firm which provides focused investment and strategic guidance to small and mid-cap technology companies, since December 2005. Mr. Mutch served as the President, Chief Executive Officer and Chairman of the Board of BeyondTrust Software, a privately held security software company focused on privilege identity management solutions sold into the Global 2000 IT infrastructure market, October 2008 to January 2014. In March 2003, Mr. Mutch was appointed by the U.S. Bankruptcy court to the Board of Peregrine Systems. He assisted that company in a bankruptcy work-out proceeding and was named President and Chief Executive Officer in July 2003. Mr. Mutch ran Peregrine Systems operating the company under an SEC consent decree and successfully restructured the company culminating in a sale to Hewlett-Packard Company in December 2005. Previous to running Peregrine Systems, Mr. Mutch served as President, Chief Executive Officer and a director of HNC Software, an enterprise analytics software provider from July 1997 to August 2002. Before HNC Software, Mr. Mutch spent seven years at Microsoft Corporation in a variety of executive sales and marketing positions. Mr. Mutch previously served on the boards of Phoenix Technology, Adaptec Inc., Edgar Online, Aspyra, Overland Storage and Brio Software. He is currently a director at Agilysys, Inc., a provider of information technology solutions, since March 2009 and serves as Chairman of the Board of Aviat Networks.
The Board has determined that Mr. Mutch’s extensive experience in restructuring and building public technology companies enable him to assist in the effective management of the Company.
Gary W. Ullman has served as a member of our Board since 2011. Mr. Ullman has served as Chairman of WebFinancial Corporation, the predecessor entity of Steel Holdings, and Chairman of API Group plc since September 2015. He is also the Chief Executive Officer of Connies Naturals, a corporation that delivers pre-made food products to sports stadiums, theme parks and the military, and he has served in such capacity since 2003. Mr. Ullman was also the Chief Executive Officer of the Intrapac Group, a producer of specialty packaging for the personal care and pharmaceutical industries, from 2003 until its sale in December 2011. From 1998 through 2003, Mr. Ullman served as President and Chief Executive Officer of Unitron Industries Ltd., a designer, manufacturer and distributor of hearing aids. From 1997 to 1998, Mr. Ullman was Chief Executive Officer of Fluid Packaging Co Inc., a contract manufacturer of pharmaceuticals and beauty products. Prior to 1996, Mr. Ullman served for 26 years in executive capacities, including President and Chief Executive Officer, of CCL Industries, Inc. and its affiliated entities. CCL Industries, Inc. is a manufacturer of consumer products, containers and labels.
The Board has determined that Mr. Ullman’s extensive executive experience, including the financial and accounting knowledge he gained during such service, as well as his turnaround experience, enable him to assist in the management of the Company.
Robert J. Valentine has served as a member of our Board since 2012. Mr. Valentine has served as the Executive Director of Athletics at Sacred Heart University since February 2013. Prior to that he was the manager of the Boston Red Sox for one year. Prior to that, he was an analyst for the Entertainment and Sports Programming Network (ESPN), a global cable television network focusing on sports-related programming, since 2009. Mr. Valentine previously managed the Chiba Lotte Marines, a professional Japanese baseball team, from 2004 to 2009, the New York Mets from 1996 to 2002 and the Texas Rangers from 1985 to 1992. He is also the owner of a chain of restaurants.
The Board has determined that Mr. Valentine’s extensive sports experience enables him to contribute to the development of the Company’s sports related business.
Non-Director Executive Officer
James F. McCabe, Jr. was appointed Chief Financial Officer in May 2013. He has served as Senior Vice President of HNH since March 2007, and Chief Financial Officer of HNH since August 2008, and holds similar positions in substantially all of HNH’s subsidiaries. Mr. McCabe has been the Chief Financial Officer of SPH Services, Inc. (“SPH Services”), a subsidiary of Steel Holdings and the parent of SP Corporate Services LLC (“SP Corporate”), since October 2011 and President since January 2012. He has served as President of SP Corporate since January 2012. Mr. McCabe served as President, Shared Services of HNH from March 2011 to December 2011. In addition, since October 2011, Mr. McCabe has served as the Chief Financial Officer of Steel Holdings GP and as an officer of certain of its affiliates. From July 2004 to February 2007, Mr. McCabe served as Vice President of Finance and Treasurer, Northeast Region, of American Water Works Company, a public water utility. From August 1991 to September 2003, he was with Teleflex Incorporated, a diversified global industrial company, where he served in senior management positions including President of Teleflex Aerospace, President of Sermatech International, Chief Operating Officer of Sermatech International, President of Airfoil Technologies International and Chief Financial Officer of Teleflex Aerospace.
The Board determined that, effective December 31, 2015, Leonard McGill, our Vice President, General Counsel and Secretary, was no longer deemed to be an executive officer.
Audit Committee
The members of our Audit Committee are John Mutch (Chair), Gary W. Ullman and Robert J. Valentine. While we are not currently subject to any corporate governance standards relating to the independence of our directors, we choose to define an “independent” director in accordance with the rules of the NASDAQ Stock Market (the “NASDAQ Market”), which include a series of objective tests, such as that a director may not be our employee or officer, and that the director has not engaged in various types of business dealings with us. Each of the members of our Audit Committee is “independent” as defined by the rules of the NASDAQ Market and meet the financial literacy requirements of the NASDAQ Market. Our Board has determined that each of Messrs. Mutch and Ullman qualifies as an “audit committee financial expert,” under applicable SEC rules and meets the NASDAQ Market financial sophistication requirement of having past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in each such director’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Stockholders should understand that this designation is a disclosure requirement of the SEC related to the experience and understanding of each of Messrs. Mutch and Ullman with respect to certain accounting and auditing matters. The designation of “audit committee financial expert” does not impose upon Messrs. Mutch or Ullman any duties, obligations or liabilities that are greater than are generally imposed on any such director as a member of the Audit Committee and the Board, and each such director’s designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liabilities of the other members of our Audit Committee or the Board.
Stockholder Nominees
There have been no changes to the procedures by which our security holders may recommend nominees to our Board since the filing of our Definitive Proxy Statement on April 29, 2015 for our 2015 annual meeting of stockholders, which was held on May 28, 2015.
Code of Conduct
We maintain a Code of Business Conduct and Ethics, which incorporates our code of ethics that is applicable to all employees, including all officers, and our independent directors with regard to their Steel Excel-related activities. The Code of Business Conduct and Ethics incorporates our guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. It also incorporates our expectations of our employees that enable us to provide accurate and timely disclosure in our filings with the SEC, and other public communications. In addition, it incorporates our guidelines pertaining to topics such as non-discrimination; fair competition and conflicts of interest. The full text of the Code of Business Conduct and Ethics is published on our website under “Investors – Corporate Governance” at www.steelexcel.com. We will post any amendments to the Code of Business Conduct and Ethics, as well as any waivers that are required to be disclosed by the rules of the SEC, on our website.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Exchange Act, requires our directors and certain of our officers, and persons who own more than 10% of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership with the SEC. SEC regulations also require these persons to furnish us with a copy of all Section 16(a) forms they file. Based solely on our review of the copies of the forms furnished to us and written representations from our officers who are required to file Section 16(a) forms and our directors, we believe that all Section 16(a) filing requirements were met during 2015 with the exception of a failure to file a Form 5 and one report on Form 4 filed by Mr. McGill reporting one late transaction.
Compensation Discussion & Analysis
Overview
This Compensation Discussion and Analysis section discusses our executive compensation philosophy, decisions and practices for 2015. As set forth in the Registrant within 120 daysSummary Compensation Table below, our named executive officers for 2015 were Jack L. Howard, Vice Chairman and principal executive officer, and James F. McCabe, Jr., Chief Financial Officer. Mr. Howard also serves as a director, and his biographical information is included in Proposal 1- Election of Directors. Effective December 31, 2015, Leonard McGill, our Vice President, General Counsel and Secretary, ceased to be deemed an executive officer.
We entered into the Management Services Agreement, effective as of August 1, 2012, with SP Corporate, an affiliate of Steel Holdings which, together with its affiliates, owns approximately 60.8% of our outstanding shares of Common Stock as of March 28, 2016. Pursuant to the Management Services Agreement, as amended, SP Corporate provides us with the services of Jack L. Howard as our principal executive officer, James F. McCabe, Jr. as our Chief Financial Officer, and certain other employees and corporate services, including, without limitation, legal, tax, accounting, treasury, consulting, auditing, administrative, compliance, environmental health and safety, human resources, marketing, investor relations and other similar services.
Notwithstanding the Management Services Agreement, we may elect to provide equity based compensation to our executive officers, key employees and other senior SP Corporate personnel providing services to us. We expect that we will make awards to provide equity based compensation after taking into account recommendations of SP Corporate. In February 2015, after considering the closerecommendation of SP Corporate, we awarded Messrs. Howard and McCabe 29,041 and 2,775 shares of restricted stock, respectively.
As the compensation of the Company’s named executive officers is provided by SP Corporate pursuant to the Management Services Agreement, the discussion that follows in this Compensation Discussion and Analysis relates only to certain discretionary equity compensation awards that have been made to all named executive officers. A description of the terms of the Management Services Agreement is set forth in Item 13 under the heading “Transactions with Related Persons-Certain Related Person Transactions”.
Compensation Philosophy
Historically, we have believed that the most effective compensation program is one that is designed to reward the achievement of our financial, strategic and corporate goals, and which aligns executives’ interests with those of our stockholders. At our 2015 Annual Meeting of Stockholders, our stockholders expressed their support of our executive compensation programs designed to achieve this objective, with approximately 99% of votes cast approving our executive compensation.
Following our entry into the Management Services Agreement, we pay a fixed fee to SP Corporate for the services of all of our executive officers, and SP Corporate is responsible for our executive officers’ compensation. The fees payable under the Management Services Agreement are subject to an annual review and such adjustments as may be agreed upon by SP Corporate and Steel Excel. We believe that this arrangement is beneficial to our stockholders because we can obtain executive officer, management and other necessary services under the Management Services Agreement that are tailored to our needs for a fixed fee, without the need to maintain benefit and other programs for the executives and other personnel performing such services. Additionally, we believe that any equity awards that we determine to award our executive officers will directly align their interests with our stockholders. For a description of the Management Services Agreement, including the services available to us thereunder, see “Transactions with Related Persons-Certain Related Person Transactions”.
Role of the Compensation Committee
Historically, the Compensation Committee ensured that our executive compensation and benefits program were consistent with our compensation philosophy and our corporate governance guidelines. Additionally, the Compensation Committee reviewed our overall compensation strategy at least annually to ensure that it promotes stockholder interests, supports our strategic and tactical objectives and provides for appropriate rewards and incentives for our named executive officers.
Upon entering into the Management Services Agreement, the Compensation Committee no longer plays a role in determining the cash compensation of our executive officers, as they are compensated directly by SP Corporate. However, the Compensation Committee may determine to provide equity based compensation to our executive officers, but expect to do so after taking into account the recommendations of SP Corporate.
In the event that SP Corporate did not provide the services of our executive officers, then the Compensation Committee would again be responsible for developing and implementing compensation programs for our executive officers that are consistent with such philosophy.
Accounting and Tax Implications of Our Compensation Policies
In designing our compensation programs, the Compensation Committee considers the financial accounting and tax consequences to us, as well as the tax consequences to employees. We account for equity compensation paid to our employees under the accounting guidance related to stock-based compensation, which requires us to estimate and record an expense over the service period of the award. The stock-based compensation cost of our equity awards is considered by management as part of its fiscal year.equity grant recommendations to the Compensation Committee.
Section 162(m) places a limit of $1 million on the amount of compensation that we may deduct for income tax purposes in any one year with respect to our principal executive officer and certain other of our most highly compensated executive officers. This limitation does not apply to compensation that is considered performance-based under applicable tax rules. In the past several years, we have not awarded any performance-based compensation to our executive officers, as none of such officers has exceeded $1 million in annual compensation paid by the Company. Instead, we have issued time-based RSUs and restricted stock awards. However, the Compensation Committee retains the right to grant performance-based compensation in the future if it deems appropriate.
2015 Compensation to our Named Executive Officers
On August 1, 2012, the Management Services Agreement became effective. Pursuant to this agreement, SP Corporate provides the services of our named executive officers, along with other services, for which the annual fee payable to SP Corporate was adjusted to $8,150,000 effective October 1, 2014. In 2015, we paid $8,150,000 to SP Corporate for such services.
With respect to the cash compensation of Messrs. McCabe, Quicke (through April 4, 2013) and Zorko (through May 7, 2013), SP Corporate has informed us that it cannot identify the portion of the compensation paid to our executive officers for service to us as it does not compensate its employees specifically for such service. Mr. Howard’s services are provided pursuant to the Management Services Agreement, although he is not compensated by SP Corporate for such services. As a result, such information is not included in the Summary Compensation Table or other compensation tables. However, information regarding the discretionary equity awards granted to Messrs. Howard, McCabe, Quicke and Zorko is included in the Summary Compensation Table.
After taking into account the recommendation of SP Corporate, the Compensation Committee made discretionary equity awards of 29,041 and 2,775 shares of restricted stock to Messrs. Howard and McCabe, respectively, under our 2004 Equity Plan. This award is subject to transfer restrictions and risk of forfeiture until it vests.
Compensation Risk Assessment
The Compensation Committee reviewed our employee compensation policies and practices and determined that such policies and practices, taken as a whole, are not likely to have a material adverse effect on us. The Compensation Committee considered that it is SP Corporate’s obligation to compensate our employees who would likely be in a position to engage in speculative behavior on our behalf. As such employees are furnished to us on a non-exclusive basis, and as indicated by SP Corporate, are not specifically compensated for their services to us, the risk of their compensation creating an incentive to engage in behavior that would jeopardize the Company is significantly lessened. The Compensation Committee does not believe that the discretionary equity awards made to Mr. McCabe have led to excessive risk taking by the recipients based upon the fact that these awards were granted in the Compensation Committee’s discretion during 2015 at the recommendation of SP Corporate, are not performance based, but instead, are service based. The Compensation Committee intends to focus on any further equity awards recommended to be awarded by SP Corporate for purposes of determining whether such awards may lead to excessive risk taking.
Executive Compensation Tables
Summary Compensation Table
The following table provides information regarding the compensation paid by us to (a) Mr. Howard, our principal executive officer since March 2013, (b) Mr. McCabe, our Chief Financial Officer since May 2013, (c) Mr. Zorko, our Chief Financial Officer until May 7, 2013, and (d) Mr. Quicke, our Interim President and Chief Executive Officer until April 4, 2013. We refer to these individuals as the “named executive officers.”
Name and Principal Position | | | Salary | | | Stock Awards | | | Total Compensation | |
| (a) | (b) | | (c) | | | (e) | | | (j) | |
| Jack. L. Howard | 2015 | | | $—(2) | | | $ | 747,484 | (3) | | $ | 747,484 | |
| Principal Executive Officer | 2014 | | | $—(2) | | | $ | 81,650 | (3) | | $ | 81,650 | |
| | 2013 | | | $—(2) | | | $ | 638,500 | (3) | | $ | 638,500 | |
| James F. McCabe, Jr. | 2015 | | | $—(2) | | | $ | 66,600 | (4) | | $ | 66,600 | |
| Chief Financial Officer and Senior Vice President | 2014 | | | $—(2) | | | $ | 74,343 | (4) | | $ | 74,343 | |
| | 2013 | | | $—(2) | | | $ | 59,400 | (4) | | $ | 59,400 | |
| Mark A. Zorko | 2013 | | | $—(2) | | | $ | — | | | $ | — | |
| Chief Financial Officer until May 7, 2013 | | | | | | | | | | | | | |
| John J. Quicke | 2013 | | | $—(2) | | | $ | 281,625 | (5) | | $ | 281,625 | |
Interim President and Chief Executive Officer until April 4, 2013; Chief Executive Officer of Steel Energy after April 4, 2013 | | | | | | | | | | | | |
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| (1) | The amounts shown in these columns do not reflect dollar amounts actually received by the named executive officer. Instead, these amounts reflect the grant date fair value for awards granted, which was determined pursuant to Accounting Standards Codification Topic 718 and do not reflect the value the named executive officer has actually realized or will realize from the awards. See Note 15 to the Company’s consolidated financial statements in the Annual Report for a description of the assumptions that the Company used to determine the fair value of the awards. |
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| (2) | The total fees paid by the Company to SP Corporate for services pursuant to the Management Services Agreement were $8,150,000 in 2015, $8,037,500 in 2014 and $3,600,000 in 2013. Pursuant to the Management Services Agreement, SP Corporate was responsible for compensating Mr. McCabe for his service to us in 2015, 2014 and 2013. SP Corporate was responsible for compensating each of Messrs. Zorko and Quicke for their service to us in 2013. Mr. Howard’s services are provided pursuant to the Management Services Agreement. |
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| (3) | Equity awards granted to Mr. Howard who is a director and which are also reflected in “Director Compensation” below. |
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| (4) | Represents awards in 2015, 2014 and 2013 of 2,775 shares, 2,270 shares and 2,200 shares, respectively, of restricted stock from our 2004 Equity Plan in order to directly align his interest with our stockholders. |
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| (5) | Equity awards granted to Mr. Quicke who is a director and which are also reflected in “Director Compensation” below. |
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Grants of Plan-Based Awards
The following table provides certain information with respect to awards and stock options that were made to named executive officers during 2015:
| Grants of Plan-Based Awards | |
| | | | | Estimated Future Payouts under Equity Incentive Plan Awards | | | | |
| | | | | | | | | | Grant Date Fair Value of Stock and Option Awards | |
| Jack L. Howard (1) | | 2/4/2015 | | | 29,041 | | | | 29,041 | | | | 29,041 | | | $ | 696,984 | |
| | | 5/28/2015 | | | 2,500 | | | | 2,500 | | | | 2,500 | | | $ | 50,500 | |
| James F. McCabe, Jr. (2) | | 2/4/2015 | | | 2,775 | | | | 2,775 | | | | 2,775 | | | $ | 66,600 | |
| (1) | Equity awards granted to Mr. Howard vest one year from the date of grant, in certain cases, or the date on which he ceases to be a member of the Board for any reason. Equity awards granted to Mr. Howard are also reflected in “Director Compensation” below. |
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| (2) | Equity award granted to Mr. McCabe vests over a three-year period, with 33% vesting after each of the first two years and 34% vesting after the third year. |
Outstanding Equity Awards at Fiscal Year End
The following table provides information with respect to unexercised stock options and unvested restricted stock and RSUs held by our named executive officers as of December 31, 2015.
Item 1. | | Option Awards | | | Stock Awards | |
| | Business | |
| Item 1A.securities underlying unexercised options (#) Exercisable | | Risk Factors | |
| Item 1B.securities underlying unexercised options (#) Unexercisable | | Unresolved Staff Comments | |
| Item 2.Exercise Price ($) | | Properties | |
| Item 3.Expiration Date | | Legal Proceedings | |
| Item 4.Shares or Units of Stock That Have Not Vested (#) | | Mine Safety Disclosures | Value of Shares or Units of Stock That Have Not Vested ($) | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |
| Jack L. Howard (1) | | 3,250 1,250 1,250 1,250 | | | | — — — — | | | | $32.80 $28.40 $32.90 $29.30 | | | | 2/7/2018 10/23/2018 12/16/2019 12/7/2020 | | | | 31,541 (2) | | | | 463,968 (4) | | | | | — |
| | | | |
| Item 5.James F. McCabe | | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | |
| Item 6.— | | Selected Financial Data | |
| Item 7. | | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 7A.— | | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 8. | | Financial Statements and Supplementary Data | |
| Item 9. | | Changes in and Disagreements With Accountants on Accounting and Financial Disclosures | |
| Item 9A. | | Controls and Procedures | |
| Item 9B.— | | Other Information | |
| 5,044 (3) | | | | 74,197 (4) | | | | | |
Part III.— | | | — | | |
| (1) | Equity awards granted to Mr. Howard who is a director and which are also reflected in “Director Compensation” below. |
| | |
| (2) | Item 10. | | Directors, Executives OfficersRepresents 29,041 shares of restricted stock that vested on March 15, 2015, and Corporate Governance | 2,500 restricted stock units that vest on May 28, 2016. |
| | Item 11. |
| (3) | | Executive Compensation | Represents (a) 748 shares of restricted stock that vested on April 8, 2016, (b) 1,521 shares of restricted stock, of which 749 shares vested on March 20, 2016, and 772 shares vest on March 20, 2017, and (c) 2,775 shares of restricted stock, of which 916 shares vested on March 15, 2016, 916 shares vest on March 15, 2017 and 943 shares vest on March 15, 2018. |
| | Item 12. |
| (4) | The market value of these shares is determined by multiplying the number of shares by $14.71, which was the closing price for our shares of Common Stock on the NASDAQ Capital Market on December 31, 2015, the last trading day of 2015. This amount does not reflect a dollar amount actually received by the named executive officers. |
Option Exercises and Stock Vested
The following table provides information regarding the vesting of restricted stock during 2015 for each of our named executive officers.
| | | Stock Awards | |
| | Number of Shares Acquired On Vesting (#) | | | Value Realized On Vesting ($) | |
| Jack L. Howard (1) | | | 2,500 | | | | | | | | 49,250 | |
| James F. McCabe, Jr. | | | 1,475 | | | | | | | | 33,173 | |
| (1) | Equity awards granted to Mr. Howard who is a director and which are also reflected in “Director Compensation” below. |
Potential Payments upon Termination or Change-in-Control
Each of Messrs. Howard and McCabe serve as executive officers of the Company pursuant to the Management Services Agreement, and are not directly employed by us. As such, the only potential payments that any such individuals may receive as a result of termination of their service as our executive officers is pursuant to the acceleration of vesting of their equity awards under our 2004 Equity Plan under the conditions described below.
Messrs. Howard and McCabe held 31,541 and 5,044 shares of restricted stock, respectively, at December 31, 2015 awarded under the 2004 Equity Plan. In the event that (i) a merger or sale of our assets occurred on December 31, 2015, and the acquiring company did not assume the obligations for the restricted stock of Messrs. Howard or McCabe, or (ii) on December 31, 2015, Messrs. Howard or McCabe died, became disabled or their status as an executive officer was terminated without “cause” (as defined in their restricted stock award agreements), then their respective restricted stock would immediately vest, and the value attributed to such immediate vesting for Messrs. Howard and McCabe would have been $463,968 and $74,197, respectively (which value is calculated based upon the number of shares of restricted stock at December 31, 2015, multiplied by $14.71, which was the closing market price of our shares of Common Stock on the NASDAQ Capital Market on December 31, 2015).
Director Compensation
Overview
Our non-employee directors receive a combination of cash and equity compensation for serving on our Board. In addition, we reimburse our directors for out-of-pocket expenses incurred in connection with attending Board and committee meetings.
Cash Compensation
Under our cash compensation policy for our non-employee directors (the “Compensation Policy”), directors were eligible to receive the following cash consideration: (1) an annual cash retainer of $50,000, paid at the rate of $12,500 at the beginning of each fiscal quarter, (2) if in excess of eight board meetings are held in any year, then additional meeting fees would be payable at the rate of $2,000 per meeting; provided, however, that the Chairman of the Board may designate a given meeting as a $1,000-reduced-fee meeting. In addition to the above compensation, (1) the non-executive Chairman is to receive an annual retainer of $15,000 per year, and (2) the Chairmen of the Audit, Compensation and Governance and Nominating Committees are each to receive an annual retainer of $15,000, $10,000, $5,000, respectively, and other members of such committees are to receive one-half of the retainer that the Chairman of such committee was entitled to. Members of the Investment Committee do not receive cash compensation for such service.
Equity Compensation
Our 2006 Director Plan is a “discretionary” plan and does not provide for automatic granting of options and other equity awards to our non-employee directors. Instead, our Board approves specific grants of equity awards. Our compensation practice for non-employee directors provides for an initial award of options to purchase 3,250 shares of our Common Stock and an award of RSUs, representing 1,625 shares of Common Stock upon becoming a member of our Board. The option grant and shares subject to the RSU vest 33.33% on the one-year anniversary of service with us and quarterly thereafter at 8.33% and are fully vested at the end of three years. Continuing directors receive an RSU representing 2,500 shares of Common Stock, which vest on the earlier of the applicable date the director ceases to be a member of our Board or on the one year anniversary of the date of grant. Initial and continuing director awards are typically made on the date of our annual meeting of stockholders. Equity awards and vesting schedules are subject to change by the Compensation Committee with approval by the Board.
Director Compensation
The following table provides information with respect to all compensation awarded to, earned by or paid to each person who served as a director for some portion or all of 2015. Other than as set forth in the table and the footnotes thereto and in the narrative above, we did not pay any fees, make any equity or non-equity awards, or pay any other compensation to our directors during 2015.
| Director Compensation | |
| Name | | Fees Earned or Paid in Cash ($) | | | Stock Awards ($)(1)(2) | | | Total ($) | |
| Warren G. Lichtenstein | | $ | 67,500 | | | $ | 921,724 | (3) | | $ | 989,224 | |
| Jack L. Howard | | $ | 60,000 | | | $ | 747,484 | (4) | | $ | 807,484 | |
| John Mutch | | $ | 67,500 | | | $ | 155,044 | (5) | | $ | 222,544 | |
| John J. Quicke | | $ | 50,000 | | | $ | 311,860 | (6) | | $ | 361,860 | |
| Gary W. Ullman | | $ | 67,500 | | | $ | 155,044 | (5) | | $ | 222,544 | |
| Robert J. Valentine | | $ | 58,750 | | | $ | 155,044 | (5) | | $ | 213,794 | |
| (1) | Represents the grant date fair value of the award calculated in accordance with ASC Topic 718. See Note 15 to our consolidated financial statements in the Annual Report for details as to the assumptions used to determine the fair value of the awards. |
| |
| (2) | The below table sets forth the number of shares of restricted stock, and shares subject to RSUs, stock options or SARs held by each of the persons serving as directors at December 31, 2015. Of the below listed directors, only Messrs. Howard and Quicke held SARs at December 31, 2015. Of the 7,000 shares indicated as subject to Options or SARs with respect to Messrs. Howard and Quicke, 3,250 of such shares of Common Stock each are subject to SARs that will settle in cash upon exercise of the SARs. |
| | Shares of Restricted Stock or Restricted Stock Unit Awards | | Number of Shares Subject to Options or SARS |
| Warren G. Lichtenstein | | 38,801 | | 28,250 |
| Jack L. Howard | | 31,541 | | 7,000 |
| John Mutch | | 6,856 | | 7,000 |
| John J. Quicke | | 13,390 | | 7,000 |
| Gary W. Ullman | | 6,856 | | 3,250 |
| Robert J. Valentine | | 6,856 | | 3,250 |
| (3) | Includes a grant of an RSU representing 2,500 shares of stock awarded on May 28, 2015 with a grant date fair value of $50,500 and an additional grant of 36,301 shares of restricted stock awarded on February 4, 2015 with a grant date fair value of $871,224. |
| |
| (4) | Includes a grant of an RSU representing 2,500 shares of stock awarded on May 28, 2015 with a grant date fair value of $50,500 and an additional grant of 29,041 shares of restricted stock awarded on February 4, 2015 with a grant date fair value of $696,984. |
| |
| (5) | Includes a grant of an RSU representing 2,500 shares of stock awarded on May 28, 2015 with a grant date fair value of $50,500 and an additional grant of 4,356 shares of restricted stock awarded on February 4, 2015 with a grant date fair value of $104,544. |
| |
| (6) | Includes a grant of an RSU representing 2,500 shares of stock awarded on May 28, 2015 with a grant date fair value of $50,500 and an additional grant of 10,890 shares of restricted stock awarded on February 4, 2015 with a grant date fair value of $261,360. |
Compensation Committee Report
The members of the Compensation Committee noted below have reviewed and discussed the Compensation Discussion and Analysis section set forth above with management and, based on such review and discussion, the members of the Compensation Committee noted below recommended to the Board that the Compensation Discussion and Analysis be included in this Amendment.
| THE COMPENSATION COMMITTEE |
|
| Gary W. Ullman, Chair |
| Jack L. Howard |
| Robert J. Valentine |
Compensation Committee Interlocks and Insider Participation
Our Compensation Committee consists of Gary W. Ullman (Chair), Jack L. Howard and Robert J. Valentine. None of the members of our Compensation Committee during 2015 served as an officer or employee of Steel Excel or was formerly an officer of Steel Excel (other than Mr. Howard, who was our principal executive officer for 2015). Mr. Howard serves on the board of Steel Holdings GP, as to which Mr. Howard and Mr. Lichtenstein are executive officers. Otherwise, none of our executive officers during 2015 served as a member of the board of directors or compensation committee of any entity that had one or more executive officers serving as a member of our Board or Compensation Committee.
Mr. Howard is an affiliate of Steel Holdings, which holds approximately 60.8% of our outstanding Common Stock as of March 28, 2016. For a description of certain related party transactions between the Company and each of Steel Holdings and its affiliates, and an affiliate of Mr. Howard, see Item 13 - “Transactions with Related Persons – Certain Related Party Transactions.”
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
| Item 13. | | Certain Relationships and Related Transactions, and Director Independence | |
| Item 14. | | Principal Accounting Fees and Services | |
| | | | |
Part IV. | | | |
| Item 15. | | Exhibits and Financial Statement Schedules | |
| | | | |
| | | Signatures | |
Certain statements contained in this annual report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended ( the “Exchange Act”). Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company’s actual results could differ materially from those set forth in the forward-looking statements. See “Risk Factors” in Item I Part 1A of this annual report on Form 10-K for a description of certain factors that might cause such differences.
PART I
Item 1. Business
General
Steel Excel Inc. and its subsidiaries (“Steel Excel”, the “Company”, “we”, “us”, “our”) currently operate in two reporting segments - Energy and Sports. Through its wholly-owned subsidiary Steel Energy Services Ltd. ("Steel Energy Services"), the Company’s Energy business provides drilling and production services to the oil and gas industry. Through its wholly-owned subsidiary Steel Sports Inc., the Company’s Sports business is a social impact organization that strives to provide a first-class youth sports experience emphasizing positive experiences and instilling the core values of discipline, teamwork, safety, respect, and integrity. The Company also makes significant non-controlling investments in entities in industries related to its reporting segments as well as entities in other unrelated industries. The Company continues to identify business acquisition opportunities in both the Energy and Sports industries as well as in other unrelated industries. Steel Partners Holdings L.P. (“Steel Partners”), an affiliate, beneficially owned approximately 58.3% of the Company’s outstanding common stock as of December 31, 2015.
Through September 2010, the Company provided enterprise-class external storage products and software to original equipment manufacturers, at which time the Company wound down its remaining business operations. At such time the Company focused on capital redeployment and identification of new business opportunities in which it could utilize existing working capital and maximize the use of net operating losses.
The Company began its Energy business in December 2011 with the acquisition of the business and assets of Rogue Pressure Services, LLC (“Rogue”). The Company expanded the business with the acquisition of the business and assets of Eagle Well Services, Inc., in February 2012 and the acquisition of Sun Well Service, Inc. ("Sun Well") in May 2012, both of which operate as Sun Well Service as a combined business. In December 2013, the Company further expanded its Energy business with the acquisition of the business and assets of Black Hawk Energy Services, Inc. (“Black Hawk”).
The Company began its Sports business in June 2011 with the acquisition of the assets of Baseball Heaven LLC (“Baseball Heaven”), a provider of a wide variety of baseball services, including tournaments, training, teams, and camps. In August 2011, the Company acquired a 75% membership in The Show, LLC (“The Show”), a provider of baseball uniforms to Little League and softball players and coaches. The Company expanded the business in November 2012 with the acquisition of a 50% interest in two Crossfit® facilities located in Torrance, CA, and Hermosa Beach, CA, and in 2014 the Company increased its ownership interest in the Torrance Crossfit® facility to approximately 86%. In January 2013, the Company acquired a 20% membership interest in Ruckus Sports LLC (“Ruckus”), an obstacle course and mass-participation events company that was controlled by the Company through its majority representation on the Ruckus board. The Company increased its membership interest in Ruckus to 45% during 2013. Also in January 2013, the Company acquired a 40% membership interest in Again Faster LLC, a fitness equipment company that is accounted for as an equity-method investment. In June 2013, the Company further expanded its Sports business with the acquisition of 80% of UK Elite Soccer, Inc. (“UK Elite”), a provider of youth soccer programs, coaching services, tournaments, tours, and camps.
In July 2012 and November 2013 the Company shut down The Show and Ruckus, respectively, after they did not meet operational and financial expectations. The Show and Ruckus are each reported as discontinued operations in the Company’s consolidated financial statements. In September 2015, the Company fully impaired its investment in Again Faster based on the state of the business and the available strategic alternatives. In January 2016, the Company exchanged its 50% interest in the Hermosa Crossfit® facility for the remaining 14% interest in the Torrance Crossfit® facility.
The Company's effected a 1-for-500 reverse stock split (the "Reverse Split") in June 2014, immediately followed by a 500-for-1 forward stock split (the "Forward Split", and together with the Reverse Split, the "Reverse/Forward Split"), of its common stock. As a result of the Reverse Split, stockholders holding fewer than 500 shares received a cash payment for all of
their outstanding shares based on a per share price equal to the closing price of the Company’s common stock on June 18, 2014, the effective date of the Reverse/Forward Split. Stockholders holding 500 or more shares as of the effective date of the Reverse/Forward Split did not receive any payments for fractional shares resulting from the Reverse Split, and therefore the total number of shares held by such holders did not change as a result of the Reverse/Forward Split.
In December 2010, we changed our fiscal year-end date from March 31 to December 31. Accordingly, we had a nine-month transition period from April 1, 2010, to December 31, 2010.
The Company was incorporated in California in 1981 under the name “Adaptec, Inc.”, and reincorporated in Delaware in March 1998. The Company subsequently changed its name to “ADPT Corporation” in June 2010 and to “Steel Excel Inc.” in October 2011. Our website is http://www.steelexcel.com. All reports we file electronically with the Securities and Exchange Commission, including annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Forms 8-K, and proxy statements along with any amendments to those reports are available, free of charge, on or through our website as soon as reasonably practicable after we file such reports with the Securities and Exchange Commission.
Segment Information
See Note 21 to the Company’s consolidated financial statements for information regarding segments.
Services
Energy business. The Energy business provides various services to exploration and production companies in the oil and gas business. The services provided include well completion and recompletion, well maintenance and workover, snubbing, flow testing, down hole pumping, plug and abatement, and rental of auxiliary equipment. Prior to the acquisition of the Black Hawk business in December 2013, the Energy business primarily provided its services to customers’ extraction and production operations in North Dakota and Montana in the Bakken basin, and to a lesser extent serviced customers in Colorado and Wyoming in the Niobrara basin. The acquisition of the Black Hawk business increased the Energy business’ heavy concentration in the Bakken basin, and expanded the business into Texas in the Permian basin and New Mexico in the San Juan basin.
Well completion services involve prepping the well for production, including running frac strings, setting production tubing, installing down hole equipment, drilling out vertical and horizontal plugs, cleaning out the wellbore, and starting production flow. Well recompletion services involve assisting in the re-stimulation of an existing well or plug-back to shut off the flow in the well from points before the plug. Well maintenance and workover services include pulling rods or tubing, installing submersible pumping equipment, repairing casing, and swabbing. Snubbing services involve installing or removing tubes to enable the customer to continue to work on a well and perform many tasks without having to stop production. Flow testing services involve separating the elements - oil, water, gas, and solids - so that the customer can maximize the quality and quantity of their product. Down hole pumping services involve pumping the necessary fluids into the wellbore. Plug and abatement services involve sealing the well and cleaning the site to reduce the potential for any pollution.
Sports business. The Sports business is focused on providing a first-class experience for all families that participate in our programs through the implementation of the Steel Coaching System. Our baseball business is focused on teams, tournaments, camps, lessons, and showcases. Baseball Heaven is equipped with four full-sized outdoor fields, three smaller youth-sized outdoor fields, and an indoor facility. Our soccer business covers a wide variety of programs, including teams, coaching services, tournaments, tours, and camps. Soccer programs are run at facilities owned by municipalities or schools and are run either in conjunction with local youth soccer leagues or as a stand-alone offering. Strength and conditioning services as well as yoga, pilates, and spin were provided at the Torrance and Hermosa Crossfit® facilities through January 2016, and are provided solely at the Torrance facility subsequently.
Customers
Our Energy business client base consists of exploration and production companies in the oil and gas industry. For the year ended December 31, 2015, revenues from Oasis Petroleum, XTO Energy, Continental Resources, and Whiting Petroleum represented 16.3%, 12.1%, 11.5%, and 10.5%, respectively, of the Company's consolidated revenues; for the year ended December 31, 2014, revenues from Oasis Petroleum and Continental Resources represented 20.7% and 20.3%, respectively, of the Company’s consolidated revenues; and for the year ended December 31, 2013, revenues from Continental Resources and XTO Energy represented 17.0% and 10.5%, respectively, of the Company’s consolidated revenues. For the years ended December 31, 2015, 2014, and 2013, revenues from the Energy business’ five largest customers represented 55.7%, 61.2%, and 51.3%, respectively, of the Company's consolidated revenues. For the years ended December 31, 2015, 2014, and 2013, the Energy business’ five largest customers represented 66.3%, 67.1%, and 56.1%, respectively, of the segment's revenues and the
fifteen largest customers represented 90.4%, 89.0%, and 88.2%, respectively, of the segment’s revenues. The loss of a significant customer could have a material adverse effect on the Energy business and Steel Excel.
Our Sports business client base consists of numerous municipalities, youth sports leagues and organizations, and individuals, none of which provide a significant percentage of the Company’s consolidated revenues. The loss of a customer would not have a material adverse effect on the Sports business or Steel Excel.
Sales and Marketing
We rely primarily on our local operations to sell and market our services. Because they have conducted business together over several years, the members of our local operations have established strong working relationships with certain of our clients. These strong client relationships provide a better understanding of region-specific issues and enable us to better address customer needs.
Competition
Energy business. The Energy business operates in a highly competitive industry that is influenced by price, capacity, reputation, and experience. When oil and natural gas prices and drilling activities are at high levels, service companies are ordering new equipment to expand their capacity as they are seeing increased demand for their services and attractive returns on investment. When oil and natural gas prices are declining, service companies may be willing to provide their services at reduced prices to be able to cover their equipment and other fixed costs. To be successful, we must provide quality services that meet the specific needs of oil and gas exploration and production companies at competitive prices. In addition, we need to maintain a safe work environment and a well-trained work force to remain competitive.
Our Energy services are affected by seasonal factors, such as inclement weather, fewer daylight hours, and holidays during the winter months. Heavy snow, ice, wind, or rain can make it difficult to operate and to move equipment between work sites, which can reduce our ability to provide services and generate revenues. These seasonal factors affect our competitors as well. Demand for services in the industry as a whole fluctuates with the supply and demand for oil and natural gas. In general, the need for our services increases when demand exceeds supply. The oil and gas exploration and production companies attempt to take advantage of a higher-priced environment when demand exceeds supply, which leads to an increased need for our services. Conversely, as supply equals or exceeds demand, the oil and gas exploration and production companies will cut back on their production resulting in a decline in their well servicing needs or seek pricing concessions from us and other service providers when the price of oil declines.
Sports business. The market for the Sports business’ baseball and soccer service offerings is very fragmented, and its competitors are primarily small local or regional operations. The market for its strength and conditioning services is fragmented, and its competitors vary from large national providers of such services to local providers of comparable or other niche services.
The baseball business and the soccer business are affected by seasonal factors, with business volume declining from late autumn through early spring as a result of colder temperatures and fewer daylight hours. In addition, inclement weather during peak seasons can have an adverse effect on the business since fields may not be available to reschedule any canceled events. In 2013, we completed the construction of an indoor baseball facility to enable us to provide year-round baseball services to partially mitigate the revenue declines experienced in non-peak months and during periods of inclement weather. In 2015, we also increased our focus on providing indoor soccer services during the non-peak months.
Government and Environmental Regulation
Our businesses are subject to multiple federal, state, and local laws and regulations pertaining to worker safety, the handling of hazardous materials, transportation standards, and the environment.
Among the various environmental laws we are subject to, the Clean Water Act established the basic structure for regulating discharges of pollutants into the waters of the United States and quality standards for surface waters. Our businesses could be required to obtain permits for the discharge of wastewater or stormwater. In addition, the Oil Pollution Act of 1990 imposed a multitude of requirements on responsible parties related to the prevention of oil spills and liability for damages resulting from such spills in the waters of the United States. These and comparable state laws provide for administrative, civil, and criminal penalties for unauthorized discharges and impose stringent requirements for spill prevention and response planning, as well as considerable potential liability for the costs of removal and damages in connection with unauthorized discharges.
The Comprehensive Environmental Response, Compensation and Liability Act, as amended, and comparable state laws (“CERCLA” or “Superfund”) impose liability without regard to fault or the legality of the original conduct on certain defined parties, including current and prior owners or operators of a site where a release of hazardous substances occurred and entities that disposed or arranged for the disposition of the hazardous substances found at the site. Under CERCLA, these parties may be subject to joint and several liability for the costs of cleaning up the hazardous substances that were released into the environment and for damages to natural resources. Further, claims may be filed for personal injury and property damages allegedly caused by the release of hazardous substances and other pollutants. We may encounter materials that are considered hazardous substances in the course of our operations. As a result, we may incur CERCLA liability for cleanup costs and be subject to related third-party claims. We also may be subject to the requirements of the Resource Conservation and Recovery Act, as amended, and comparable state statutes (“RCRA”) related to solid wastes. Under CERCLA or RCRA, we could be required to clean up contaminated property (including contaminated groundwater) or to perform remedial activities to prevent future contamination.
Our businesses are also subject to the Clean Air Act, as amended, and comparable state laws and regulations that restrict the emission of air pollutants and impose various monitoring and reporting requirements. These laws and regulations may require us to obtain approvals or permits for construction, modification, or operation of certain projects or facilities and may require use of emission controls. Various scientific studies suggest that emissions of greenhouse gases, including, among others, carbon dioxide and methane, contribute to global warming. While it is not possible to predict how legislation or new regulations that may be adopted to address greenhouse gas emissions would impact our business, any new restrictions on emissions that are imposed could result in increased compliance costs for, or additional operating restrictions on, our customers and, which could have an adverse effect on our business.
We are also subject to the Occupational Safety and Health Act, as amended, (“OSHA”) and comparable state laws that regulate the protection of employee health and safety. OSHA’s hazard communication standard requires that information about hazardous materials used or produced in our operations be maintained and provided to employees and state and local government authorities. We believe we are in substantial compliance with OSHA and comparable state law requirements, including general industry standards, record keeping requirements, and monitoring of occupational exposure to regulated substances.
We cannot predict the level of enforcement or the interpretation of existing laws and regulations by enforcement agencies in the future, or the substance of future court rulings or permitting requirements. In addition, we cannot predict what additional laws and regulations may be put in place in the future, or the effect of those laws and regulations on our business and financial condition. We believe we are in substantial compliance with applicable environmental laws and regulations. While we do not believe that the cost of compliance is material to our business or financial condition, it is possible that substantial costs for compliance or penalties for non-compliance may be incurred in the future.
Employees
As of December 31, 2015, we had 763 employees, of which 658 were full-time employees and 105 were part-time employees. All of our employees are located in the United States. We also hire additional full-time and part-time employees during peak seasonal periods. None of our employees are covered by collective bargaining agreements. We consider our employee relations to be satisfactory.
Item 1A. Risk Factors
Our business faces significant risks, including those described is this Item 1A. If any of the events or circumstances described below as possible risk factors actually occur, our business, financial condition, or results of operations could be adversely affected and could result in a decline in the trading price of our common stock. Additional risks that we are not aware of or that we currently think are immaterial may also ultimately have an adverse effect on our results of operations and financial condition.
Our Energy business is susceptible to the impact of fluctuations in energy prices, which could have an adverse effect on our results of operations. High oil and natural gas prices result in an increase in drilling activity, increasing the demand for oilfield services. Oilfield service companies invest in new equipment in such an environment to expand their capacity to take advantage of this increased activity, which could result in an increasingly competitive environment. Declining oil and natural gas prices can result in our customers reducing their drilling and work over activities, which can result in a reduced demand for our services and requests for price concessions. Oilfield service companies may be willing to provide their services at reduced prices in such an environment to be able to cover their equipment and other fixed costs. The increased competition, reduced demand, or competitive pricing pressure could lead to declines in our prices and utilization, which would have an adverse effect on our results of operations.
We are heavily dependent on the oil and gas industry in North America. Several factors affect our customers’ willingness to continue to undertake exploration and production activities, the adverse effects of any of which could have a significant adverse effect on our results of operations. Our Energy business is dependent on our customers’ willingness to continue to explore for and produce oil and natural gas in North America, primarily in the Bakken and Permian basins. Factors affecting our customers’ willingness to continue to undertake exploration and production activities include the following:
the prices for oil and natural gas and our customers’ perceptions of such prices in the future;
the supply and demand for oil and natural gas;
the cost for our customers to conduct the necessary exploration and production activities;
the discovery of new oil and gas reserves;
the availability of pipelines and other means of transportation;
increased regulation of the means of transporting oil out of the Bakken basin by rail or road;
the availability and cost of capital;
production levels and geopolitical factors in other oil and gas producing countries;
the price and availability of alternative sources of energy; and
weather conditions.
The adverse effects of any of these factors could result in a reduction in our customers’ exploration efforts, which could have a significant adverse effect on our results of operations.
We are exposed to potential litigation and unrecoverable losses that could have an adverse effect on our results of operations and financial condition. Our Energy business is subject to many hazards inherent in the industry, including blowouts, cratering, explosions, fires, loss of well control, loss of or damage to the wellbore or underground reservoir, damaged or lost drilling equipment, and damage or loss from inclement weather or natural disasters. Any of these hazards could result in personal injury or death, damage to or destruction of equipment and facilities, suspension of operations, environmental and natural resources damage, and damage to the property of others. In addition, we may be subject to litigation as a result of any of these hazards or in the normal course of business. We may be unable to obtain desired contractual indemnities for such hazards, and our insurance may not provide adequate coverage in certain instances. The occurrence of an event not fully indemnified or insured, or the failure or inability of a customer or insurer to meet its financial obligations, and resulting claims and litigation could result in substantial losses and have a significant adverse effect on our results of operations and financial condition.
Increased regulation of hydraulic fracturing could have an adverse impact on our customers. Many of our customers utilize hydraulic fracturing services, which is the process of creating or expanding cracks, or fractures, in formations underground where water, sand, and other additives are pumped under high pressure into the formation. Although we are not a provider of hydraulic fracturing services, many of our services complement the hydraulic fracturing process. Legislation for broader federal regulation of hydraulic fracturing operations and the reporting and public disclosure of chemicals used in the fracturing process could be enacted. Additionally, the United States Environmental Protection Agency has asserted federal regulatory authority over certain hydraulic fracturing activities involving diesel fuel under the Safe Drinking Water Act and is completing the process of drafting guidance documents related to this asserted regulatory authority. Our customers’ operations could be adversely affected if additional regulation or permitting requirements were to be required for hydraulic fracturing activities, which could have an adverse effect on our results of operations.
Severe weather conditions could have an adverse effect on our customers and our ability to provide our services. Our Energy business is heavily concentrated in North Dakota and Montana, where severe weather conditions could result in a curtailment of our customers’ service requirements, damage to our facilities and equipment resulting in increased repair costs and a suspension of our operations, our inability to deliver services, and an overall decline in productivity, all of which could result in an adverse effect on our results of operations. In addition, inclement weather could result in the cancellation of events and tournaments in our Sports business during peak seasons, which would have an adverse effect on our results of operations.
We may not be able to attract and retain qualified workers, which could have a significant adverse effect on our Energy business. Our Energy business operations require personnel with specialized skills and experience who can perform physically demanding work, and there is intense competition for these workers in the Bakken basin where our Energy business is concentrated. As a result workers may choose to pursue employment in fields that offer a more desirable work environment or better pay. Our inability to attract and retain such qualified workers could have an adverse effect on our productivity, the quality of our service offerings, and our ability to expand our operations, all of which could have an adverse effect on our results of operations.
We may sustain losses in our investment portfolio, which could have an adverse effect on our results of operations, financial condition, and liquidity. A substantial portion of our assets consists of investments in marketable securities that we classify as available-for-sale securities, which are adjusted to fair value each period. An adverse change in global economic conditions may result in a decline in the value of our marketable securities. Declines in the value of marketable securities may not be recognized if such unrealized losses are deemed to be temporary. However, any such declines in value will be recognized as losses upon the sale of such securities or if such declines are deemed to be other than temporary. For the year ended December 31, 2015, the Company incurred impairment charges related to its marketable securities totaling $59.8 million. Any adverse changes in the financial markets and resulting declines in value of our marketable securities may result in additional impairment charges and could have an adverse effect on our results of operations, financial condition, and liquidity.
Certain of our investments may subject us to greater risk and be less liquid than other investments in our portfolio. Our investments include significant interests in equity-method investees, participation in corporate term loans, and promissory notes. We have also entered into short sale transactions on certain financial instruments and have sold call and put options. We may continue to engage in similar investing activities in the future. Such investments may be subject to greater price fluctuations, may be more difficult to sell, and may be sold at prices that do not reflect their intrinsic value.
We may be unable to identify and acquire new businesses, which could have an adverse effect on our long term growth. Acquisitions are a key element of our business strategy. We may not be able to identify and acquire acquisition candidates on acceptable terms. Our inability to identify and acquire new businesses on acceptable terms could have an adverse effect on our long-term growth.
We may be unable to integrate new businesses, which could have an adverse effect on our results of operations, financial condition, and long-term growth. We may not be able to properly integrate acquired businesses, which could result in such businesses not performing as expected when the acquisition was consummated and possibly being dilutive to our overall operating results. Our inability to properly integrate acquired businesses could result from, among other things, the following:
our failure to retain and attract key employees;
our failure to retain and attract new customers;
our failure to develop effective sales and marketing capabilities; and
our failure to properly operate new lines of business.
Our inability to integrate new businesses could have an adverse effect on our results of operations, financial condition, and our long-term growth.
We may issue shares of our common stock in the future, which could result in dilution to existing stockholders and have an adverse effect on the price of our common stock. As part of our strategy to grow through acquisitions we may issue additional shares of common stock as consideration for such acquisitions and also may issue common stock to employees and contractors as compensation. Any such issuances of common stock will result in our existing stockholders’ equity interest being diluted. Such issuances of common stock will also increase the number of outstanding shares of common stock that will be available for sale in the open market, and those individuals receiving shares of our common stock may be more likely to sell, which could have an adverse effect on the price of our common stock.
Restrictions on the transfer of our common stock could inhibit certain transactions that may be beneficial to shareholders. In order to preserve our tax benefit carryforwards, our Certificate of Incorporation generally prohibits the transfer of our common stock and other corporate securities if such a transfer would result in (i) a party having an ownership interest of 4.9% or greater in the Company or (ii) an increased ownership interest of a party that already has an ownership interest of 4.9% or greater in the Company. This restriction, which is in effect until July 2018, could inhibit or prevent certain transactions that would otherwise be beneficial to stockholders.
We may be deemed an investment company, which could impose on us burdensome compliance requirements and restrict our activities. The Investment Company Act of 1940, as amended (the “Investment Company Act”), requires companies to register as an investment company if they are engaged primarily in the business of investing, reinvesting, owning, holding, or trading securities. Generally, companies may be deemed investment companies under the Investment Company Act if they are viewed as engaging in the business of investing in securities or they own investment securities having a value exceeding 40% of certain assets. Depending on our future activities and operations, we may become subject to the Investment Company Act. Although the Investment Company Act provides certain exemptions, we may not qualify for any of these exemptions. If we are deemed to be an investment company we may be subject to certain restrictions that may make it difficult for us to complete business combinations, including restrictions on the nature of and custodial requirements for holding our
investments and restrictions on our issuance of securities, which we may use as consideration in a business combination. In addition, if we are deemed to be an investing company we may have imposed upon us additional burdensome requirements, including the following:
having to register as an investment company;
adopting a specific form of corporate structure; and
having to comply with certain reporting, record keeping, voting, proxy, and disclosure requirements.
Such additional requirements would require us to incur additional costs and have an adverse effect on our results of operations and our ability to effectively carry out our business plan.
Our cash balances could be adversely affected by the instability of financial institutions.We maintain our cash, cash equivalents, and marketable securities with certain financial institutions at which our balances exceed the limits that are insured by the Federal Deposit Insurance Corporation. There could be an impact on our cash balances if financial institutions at which we maintain our cash and investments experience financial difficulties, which would have an adverse effect on our results of operations and financial condition.
We may not be able to fully utilize our tax benefits, which could result in increased cash payments for taxes in future periods. Net operating losses (“NOLs”) may be carried forward to offset federal and state taxable income in future years and reduce the amount of cash paid for income taxes otherwise payable on such taxable income, subject to certain limits and adjustments. If fully utilized, our NOLs and other carry-forwards could provide us with significant tax savings in future periods. Our ability to utilize these tax benefits in future years will depend upon our ability to generate sufficient taxable income and to comply with the rules relating to the preservation and use of NOLs. The potential benefit of the NOLs and other carry-forwards may be limited or permanently lost as a result of the following:
our inability to generate sufficient taxable income in future years to use such benefits before they expire;
a change in control of the Company that would trigger limitations on the amount taxable income in future years that may be offset by NOLs and other carry-forwards that existed prior to the change in control; and
examinations and audits by the Internal Revenue Service and other taxing authorities could reduce the amount of NOLs and other credit carry-forwards that are available for future years.
We maintain a full valuation allowance against our NOLs and other carry-forwards due to uncertainty regarding our ability to generate sufficient taxable income in future periods. Our inability to utilize the NOLs and other carry-forwards could result in increased cash payments for taxes in future periods.
We may be liable for additional income taxes upon examination or audit by the taxing authorities. We are subject to income and other taxes in the United States and certain foreign jurisdictions in which we formerly operated. Our tax provision reflects judgments and estimates, including settlements, that are subject to audit and redetermination by the various taxing authorities. Although we believe our estimates are reasonable, the ultimate outcome of these tax matters may differ materially from the amounts recorded in our consolidated financial statements, which could have an adverse effect on our results of operations and financial position.
Internal controls weaknesses that are currently immaterial may become material in future periods. We have identified certain deficiencies in internal controls over financial reporting as immaterial and therefore not requiring disclosure in our public filings with the Securities and Exchange Commission. Changes in circumstances could result in such deficiencies becoming material, which could result in material misstatements in our financial statements and required public disclosure if the appropriate remediation action is not undertaken.
A significant disruption in, or breach in security of, our information technology systems could adversely affect our business. We rely on information technology systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of critical business processes and activities. We also collect and store sensitive data, including confidential business information and personal data. These systems may be susceptible to damage, disruptions, or shutdowns due to attacks by computer hackers, computer viruses, employee error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes, or other unforeseen events. In addition, security breaches of our systems could result in the misappropriation or unauthorized disclosure of confidential information or personal data belonging to us or to our employees, partners, customers, or suppliers. Any such events could disrupt our operations, inhibit our ability to produce financial information, damage customer relationships and our reputation, and result in legal claims or proceedings, liability, or penalties under privacy laws, each of which could adversely affect our business and our financial statements.
We may incur impairments charges related to our long-lived assets. We periodically evaluate the carrying value of our long-lived assets, including our property and equipment, identified intangible assets, and goodwill for impairment. In performing these assessments we rely on cash flow projections based on our current operating plans, estimates, and judgments. We could incur impairment charges if our actual results are materially different from such cash flow projections, which could have a material adverse effect on our financial position and results of operations. For the years ended December 31, 2015 and 2014, the Company incurred goodwill and intangible asset impairment charges of $25.6 million and $36.7 million, respectively.
We could incur significant costs in the future to maintain regulatory compliance. Our Energy and Sports businesses are currently subject to federal, state, and local laws and regulations pertaining to worker safety, the handling of hazardous materials, transportation standards, and the environment, and may be subject to additional regulations in the future, including any regarding the emission of greenhouse gases. We may be required to obtain and maintain permits, approvals, and certificates from various authorities and incur other capital and operational costs in order to comply with such laws and regulations. Failure to comply with such laws and regulations could result in the assessment of penalties, imposition of cleanup and site restoration costs and liens, revocation of permits, or orders to limit or cease certain operations. In addition, certain such laws impose joint and several liability that could cause us to become liable for the conduct of others or for consequences of our own actions that were in compliance with all applicable laws at the time of those actions. While the cost of such compliance has not been significant in the past, new laws, regulations, and enforcement policies could become more stringent and significantly increase our compliance costs or limit our future business opportunities, which could have a material adverse effect on our results of operations and financial condition.
We are subject to certain banking regulatory requirements that could impact our investing decisions. Under Section 619 (the “Volcker Rule”) of The Dodd-Frank Wall Street Reform and Consumer Protection Act, we are a banking entity by virtue of being an affiliate of WebBank, an industrial bank owned by Steel Partners, which beneficially owned approximately 58.3% of the Company's common stock as of December 31, 2015. The Volcker Rule generally restricts certain banking entities from engaging in proprietary trading activities and owning equity in or sponsoring any private equity or hedge fund. The restrictions on proprietary trading activities went into effect on July 21, 2015. Under these restrictions and subject to certain exclusions, we are prohibited from engaging in certain trading activities, including trading for short-term resale and benefiting from short-term price movements. We generally have a long-term investment strategy, and we do not believe that our recent investing activities would have been prohibited by restrictions under the Volcker Rule, although such restrictions could prohibit us from making certain investment decisions in the future.
We may not be able to implement commercially competitive services and products, which could have an adverse effect on our results of operations. The market for our Energy business is characterized by continual technological developments to provide better and more reliable performance and services. Our inability to implement commercially competitive services and access commercially competitive products in a timely manner in response to changes in technology or our existing technologies and work processes becoming obsolete could have an adverse effect on our results of operations.
Our businesses do not have long-term contracts with their customers, which could result in customer turnover and other adverse effects to our business. Neither our Energy business nor our Sports business has long-term contracts with its customers. Both businesses rely on the quality of the service provided and established long-term relationships to retain customers. Absent such long-term contracts, customers can cease using our services for any reason with minimal notice. This can lead to us losing customers or making price concessions in order to retain customers, which could have an adverse effect on our business and results of operations.
Loss of a significant customer could have a material adverse effect on our results of operations and financial condition. The customer base of our Energy business is concentrated. For the year ended December 31, 2015, revenues from Oasis Petroleum, XTO Energy, Continental Resources, and Whiting Petroleum represented 16.3%, 12.1%, 11.5%, and 10.5%, respectively, of our consolidated revenues, and the fifteen largest customers in the Energy business represented approximately 75.9% of our consolidated revenues. The loss of a significant customer could have a material adverse effect on our results of operations and financial condition.
The beneficial ownership of our common stock by Steel Partners provides it with control, and the common management shared with other Steel Partners’ entities may result in the interests of Steel Partners differing from the interests of other shareholders. At December 31, 2015, SPH Group Holdings LLC, an indirect wholly-owned subsidiary of Steel Partners, beneficially owned approximately 58.3% of our outstanding common stock. Warren G. Lichtenstein, the chairman of our board and chairman of our Sports business, serves as executive chairman of the general partner of Steel Partners; Jack Howard, a director and our principal executive officer, serves as President and a director of the general partner of Steel Partners. In their capacities as directors and senior executive officers of the general partner of Steel Partners, Messrs. Lichtenstein and Howard generally have the ability to determine the outcome of any action requiring a stockholder vote,
including the election of our Board of Directors, the approval of amendments to our certificate of incorporation, as amended, and the approval of any proposed merger. The interests of Messrs. Lichtenstein and Howard, as well as those of Steel Partners and its affiliates in such matters may differ from the interests of our other stockholders in some respects. In addition, employees and affiliates of Steel Partners hold positions with us, including James F. McCabe, Jr., our chief financial officer, and Leonard McGill, our general counsel.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
The Energy business owns four buildings in Williston, ND, including one that serves as its headquarters and operations hub in the Bakken basin along with separate buildings with office and shop space. To support its operations in other locations, the Energy business owns shop space in Texas and leases shop space in Colorado under an arrangement that expires in November 2016. The Energy business also leases shop space and office space under month-to-month arrangements on an as needed basis, and owns and leases housing for temporary living arrangements for certain of its employees.
The Sports business has a lease for office space in Hermosa Beach, CA, that expires in April 2016, which serves as its headquarters, and a month-to-month arrangement in Sacramento, CA, for executive office space. The Sports business has a lease for approximately 27.9 acres of land in Yaphank, NY, for its baseball services operation that expires in December 2016. Under this lease the Company has two extension options and a right of first refusal to purchase the parcel. The Sports business also has a lease for 9,940 square feet for its Crossfit® facility in Torrance, CA, that expires in March 2023. In addition, the Sports business has a lease for office space in Cedar Knolls, NJ, that expires in February 2019, which serves as the headquarters for its youth soccer operation, and also has leases in various states for small administrative offices to support the soccer operation.
The Company believes that its facilities are adequate to meet its needs.
Item 3. Legal Proceedings
From time to time we are subject to litigation or claims that arise in the normal course of business. While the results of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of such matters will not have a material adverse impact on our financial position or results of operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, our business, financial condition, and results of operations could be materially and adversely affected.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity Related Stockholder Matters and Issuer Purchases of Equity SecuritiesCompensation Plan Information
On July 7, 2015, our common stock commenced trading on the Nasdaq Capital Market under the ticker symbol "SXCL". Prior to such date, our common stock traded in the over the counter market and was quoted on the OTCQB marketplace under the ticker symbol "SXCL". On March 11, 2016, the Company notified the Nasdaq Stock Market of its intention to voluntarily delist its common stock, with associated preferred stock purchase rights, from the Nasdaq Capital Market. The Company intends to cease trading on Nasdaq at the close of business on March 31, 2016. After the effective date of delisting, the Company intends to file a Form 15 with the Securities and Exchange Commission to voluntarily effect deregistration of its securities pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. The Company's obligation to file current and periodic reports with the Securities and Exchange Commission ("SEC") will be terminated the same day upon the filing of the Form 15 with the SEC. The Company is eligible to deregister its common stock, with associated preferred stock purchase rights, because it has fewer than 300 stockholders of record.
The following table sets forth the high and low closing prices for each period indicated.
|
| | | | | | | | | | | | | | | |
| | 2015 | | 2014 |
| | High | | Low | | High | | Low |
| | | | | | | | |
| Quarter Ended March 31, | $ | 25.49 |
| | $ | 21.50 |
| | $ | 33.00 |
| | $ | 29.00 |
|
| Quarter Ended June 30, | $ | 22.00 |
| | $ | 18.15 |
| | $ | 50.00 |
| | $ | 30.00 |
|
| Quarter Ended September 30, | $ | 24.00 |
| | $ | 19.26 |
| | $ | 35.35 |
| | $ | 32.00 |
|
| Quarter Ended December 31, | $ | 20.85 |
| | $ | 12.86 |
| | $ | 32.50 |
| | $ | 23.50 |
|
As of February 29, 2016, there were approximately 21 registered holders of record of our common stock, which does not include holders that have shares of common stock held for them by a broker or other nominee. No dividends have been paid on the Company’s common stock.
The following table sets forth information as of December 31, 2015 with respectregarding equity awards under our 2004 Equity Plan, 2006 Director Plan, and any amendments to the Company's equity compensation plans under which securities of the Company are authorized for issuance.such plans:
Equity Compensation Plan Information Table
| | | (a) | | | (b) | | | (c) |
| Plan Category | | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | | | Weighted- average Exercise Price of Outstanding Options, Warrants and Rights | | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in column (a)) |
| Equity compensation plans approved by security holders | | 70,750 | | $ | 23.75 | | | | 1,767,429 | (1) |
| Equity compensation plans not approved by security holders | | | | | — | | | | — | |
| Total | | 70,750 | | $ | 23.75 | | | | 1,767,429 | |
|
| | | | | | | | | | |
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| | | (a) | | (b) | | (c) |
| | | | | | | |
| Equity compensation plans approved by security holders | | 70,750 |
| | $ | 23.75 |
| | 1,767,429 |
|
| Equity compensation plans not approved by security holders | | ��� |
| | — |
| | — |
|
| (1) | Of these shares, approximately 1,386,452 shares are available for issuance under our 2004 Equity Plan, which permits the grant of stock options, stock appreciation rights (“SARs”), restricted stock, stock awards and RSUs, and approximately 380,977 shares remain available for issuance under our 2006 Director Plan of which a maximum of 27,375 shares may be issued as restricted stock or RSUs. |
On June 24, 2015, the Company's BoardStock Ownership of Directors authorized a stock repurchase program to acquire up to 500,000 shares of the Company's common stock (the "2015 Repurchase Program"). The 2015 Repurchase Program supersededPrincipal Stockholders and canceled all previously approved repurchase programs. Any repurchases under the 2015 Repurchase Program will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market in compliance with applicable laws and regulations. The 2015 Repurchase Program is expected to continue indefinitely, unless shortened by the Board of Directors. During the three months ended December 31, 2015, no repurchases were made under the 2015 Repurchase Program, but 3,973 shares were surrendered by employees to satisfy tax withholding obligations in connection with
the vesting of restricted stock awards . The maximum number of shares that may be repurchased under the 2015 Repurchase Program was 281,625 at December 31, 2015. Management
The following stock performance graph comparestable presents certain information regarding the cumulative total stockholder returnbeneficial ownership of our Common Stock as of March 28, 2016, by (a) each beneficial owner of 5% or more of our outstanding Common Stock known to us, (b) each of our directors and our director nominees, (c) each of our “named executive officers” and (d) all of our current directors and executive officers as a group.
The percentage of beneficial ownership for the table is based on 10,866,679 shares of our common stockCommon Stock outstanding as of March 28, 2016. To our knowledge, except under community property laws or as otherwise noted, the persons and entities named in the table have sole voting and sole investment power over their shares of our Common Stock. Unless otherwise indicated in the footnotes to the Russell 2000 Indextable below, each beneficial owner listed below maintains a mailing address of c/o Steel Excel Inc., 1133 Westchester Avenue, Suite N222, White Plains, New York 10604.
The number of shares beneficially owned by each stockholder is determined under SEC rules and is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of Common Stock over which the stockholder has sole or shared voting or investment power and those shares of Common Stock that the stockholder has the right to acquire within 60 days after March 28, 2016, including through the exercise of an option or vesting of a restricted stock unit, or “RSU”. The “Percentage of Shares Outstanding” column treats as outstanding all shares underlying options that are exercisable within 60 days after March 28, 2016, or vesting of an RSU held by the directors and named executive officers individually and as a group, but not shares underlying equity awards that are exercisable by other stockholders.
| | | Steel Excel Shares Beneficially Owned | |
| | | | Percentage of Shares Outstanding | |
| Directors and Named Executive Officers: | | | | | |
| Jack L. Howard | | 46,743 | | * | |
| Warren G. Lichtenstein | | 100,426 | | * | |
| James F. McCabe, Jr. (2) | | 5,443 | | * | |
| John Mutch | | 24,906 | | * | |
| John J. Quicke | | 49,015 | | * | |
| Gary W. Ullman | | 21,981 | | * | |
| Robert J. Valentine | | 19,481 | | * | |
| Directors and executive officers as a group (7 persons) | | 267,995 | | 2.5 | % |
| 5% Stockholders: | | | | | |
| SPH Group Holdings, LLC (3) | | 6,611,799 | | 60.8 | % |
| Dimensional Fund Advisors, L.P. (4) | | 817,414 | | 7.5 | % |
| GAMCO Investors, Inc. et al (5) | | 1,381,829 | | 12.7 | % |
| Wells Fargo & Company (6) | | 903,161 | | 8.3 | % |
| (1) | Includes the following shares that may be acquired upon exercise of stock options granted under our equity incentive plans: |
| | Number of Shares Subject to Options or Restricted Stock Units | |
| Jack L. Howard | | 7,000 | | |
| Warren G. Lichtenstein | | 28,250 | | |
| James F. McCabe, Jr. | | -- | | |
| John Mutch | | 7,000 | | |
| John J. Quicke | | 7,000 | | |
| Gary W. Ullman | | 3,250 | | |
| Robert J. Valentine | | 3,250 | | | |
| (2) | Includes: (a) 772 unvested shares of restricted stock issued as of March 20, 2014, pursuant to the 2004 Equity Incentive Plan, which currently have voting rights and will vest on March 20, 2017; and (b) 1,859 unvested shares of restricted stock issued as of February 4, 2015, pursuant to the 2004 Equity Incentive Plan, which currently have voting rights and will vest in approximately equal installments on each of March 15, 2017 and 2018. |
| (3) | Based on information contained in Amendment No. 39 to the Schedule 13D filed on February 17, 2016, SPH Group Holdings, LLC (“SPHG Holdings”) directly owns 6,611,799 shares of the Company's common stock. SPH Group LLC (“SPHG”) is the sole member of SPHG Holdings and Steel Holdings owns 99% of the membership interests of SPHG. Steel Holdings GP is the general partner of Steel Holdings, the managing member of SPHG and the manager of SPHG Holdings. Steel Holdings, SPHG and Steel Holdings GP disclaim beneficial ownership of the shares owned by SPHG Holdings except to the extent of their pecuniary interest therein. SPHG Holdings’ address is 590 Madison Avenue, 32 Floor, New York, New York 10022. |
| (4) | Based solely on information contained in Amendment No. 8 to the Schedule 13G filed by Dimensional Fund Advisors, L.P. a Delaware limited partnership (“Dimensional”) with the SEC on February 9, 2016. Dimensional reported that it had sole voting power with respect to 814,664 shares and sole dispositive power with respect to 817,414 shares. In its filing, Dimensional states that it is an investment adviser under Section 203 of the Investment Advisers Act of 1940, which furnishes investment advice to four investment companies registered under the Investment Company Act of 1940 and serves as investment manager to certain other commingled group trusts and separate accounts (these investment companies, trusts and accounts are collectively referred to as the “Funds”). In certain cases, subsidiaries of Dimensional may act as an adviser or sub-adviser and/or manager to certain Funds. In its role as investment adviser, sub-adviser and/or manager, neither Dimensional nor its subsidiaries possesses voting and/or investment power over the shares held by the Funds. However, all shares reported are owned by the Funds. Dimensional, on behalf of itself and its subsidiaries, disclaims beneficial ownership of the shares. Dimensional’s address is Palisades West, Building One, 6300 Bee Cave Road, Austin, Texas 78746. |
| (5) | Based solely on information contained in Amendment No. 10 to the Schedule 13D filed by GAMCO Investors, Inc. et al with the SEC on February 23, 2016. GAMCO Asset Management Inc. reported that it had sole voting and dispositive power with respect to 643,858 shares. Gabelli Funds, LLC reported that it had sole voting and dispositive power with respect to 242,000 shares. GGCP, Inc. reported that it had sole voting and dispositive power with respect to 5,000 shares. Teton Advisors, Inc. reported that it had sole voting and dispositive power with respect to 481,771 shares. Associated Capital Group, Inc. reported that it had sole voting and dispositive power with respect to 9,200 shares. The address of these parties other than GGCP is One Corporate Center, Rye, New York 10580-1435. The address of GGCP is 140 Greenwich Avenue, Greenwich, CT 06830. |
| (6) | Based solely on information contained in the Schedule 13G filed by Wells Fargo & Company et al with the SEC on January 29, 2016. Wells Fargo & Company reported that it had shared voting and dispositive power with respect to 903,161 shares. Wells Capital Management Incorporated reported that it had shared voting and dispositive power with respect to 850,961 shares. The address of Wells Fargo & Company is 420 Montgomery Street, San Francisco, CA 94104. The address of Wells Capital Management Incorporated is 525 Market St, 10th Floor, San Francisco, CA 94105. |
| Certain Relationships and Related Transactions and Director Independence |
Transactions with Related Persons
Related-Person Transactions Policy and Procedures
Any related-person transactions, excluding compensation (whether cash, equity or otherwise), which is delegated to the Compensation Committee, involving one of our directors or executive officers, must be reviewed and approved by the Audit Committee or another independent body of the Board. Any member of the Audit Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote on the approval or ratification of the transaction. However, such a director may be counted in determining the presence of a quorum at a meeting of the committee that considers the transaction. Related persons include any of our directors or executive officers, certain of our stockholders and their immediate family members. To identify any related person transactions, each year, we require our directors and executive officers to complete questionnaires identifying any transactions with us in which the executive officer or director or their family members has an interest. In addition, the Governance and Nominating Committee determines, on an annual basis, which members of our Board meet the definition of “independent” as defined in the rules of the NASDAQ Market, and reviews and discusses any relationships with a director that would potentially interfere with his or her exercise of independent judgment in carrying out the responsibilities of a director.
Certain Related Person Transactions
Management by Affiliates of Steel Holdings
As of March 28, 2016, Steel Holdings and its affiliates beneficially owned 6,611,799 shares of the Company’s Common Stock, representing approximately 60.8% of our outstanding shares of Common Stock. The power to vote and dispose of the securities held by Steel Holdings and its affiliates is controlled by Steel Holdings GP. Warren G. Lichtenstein, Chairman of our Board, is also the Executive Chairman of Steel Holdings GP. Certain other affiliates of Steel Holdings GP hold positions with the Company, including Jack L. Howard as principal executive officer and Vice Chairman and James F. McCabe, Jr. as Chief Financial Officer.
Management Services Agreement
On August 1, 2012, we entered into the Amended Management Services Agreement with SP Corporate (as amended, the “Management Services Agreement”). SP Corporate is an affiliate of Steel Holdings. Warren Lichtenstein, our Chairman of the Board, is the Chief Executive Officer of SP Corporate, Jack Howard, our principal executive officer and Vice Chairman of the Board, is Senior Vice President of SP Corporate, and James F. McCabe, Jr., our Chief Financial Officer, is President of SP Corporate. Under the Management Services Agreement, as amended, SP Corporate furnishes the services of Jack L. Howard as our principal executive officer, and James F. McCabe, Jr. as our Chief Financial Officer. Additionally, SP Corporate has agreed to furnish to us personnel to perform additional services, which include, without limitation:
| · | legal, tax accounting, treasury, environmental health and safety, human resources, marketing and investor relations; |
| · | additional executive services; |
| · | international business services; |
| · | information technology services; and |
| · | preparation of our reports for filing with the SEC, to the extent required. |
Performance of services under the Management Services Agreement by SP Corporate and its personnel are subject to the oversight of our Audit Committee, and the PHLX Oil Service Sector. The graph assumes that $100 was invested in eachauthority of SP Corporate and its personnel to incur any obligation or enter into any transaction is subject to the prior approval of the investments on December 31, 2010, with any dividends reinvested. This stock performance graph shall not be deemed “soliciting material”Audit Committee or a prior written delegation of authority of the Audit Committee delivered to be “filed” with the SecuritiesSP Corporate.
Messrs. Howard and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 (the “Exchange Act”) except to the extent that we specifically incorporate it by reference into such filing.
Item 6. Selected Financial Data
The following Selected Financial Data has been derived from our consolidated financial statements. Through September 2010, the Company provided enterprise-class external storage products and software to original equipment manufacturers (the "Predecessor Business"), at which time the Company wound down its remaining business operations. The Predecessor Business is reported as a discontinued operation in all periods presented in the Selected Financial Data. The Company began its Sports and Energy businesses in June 2011 and December 2011, respectively.
The Selected Financial Data should be read in conjunction with our financial statements and notes thereto and with “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K.
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 (A) | | 2014 (B) | | 2013 (C) | | 2012 (D) | | 2011 |
| | (in thousands, except per share data) |
| Statements of Operations Data: | | | | | | | | | |
| Net revenues | $ | 132,620 |
| | $ | 210,148 |
| | $ | 120,028 |
| | $ | 100,104 |
| | $ | 2,502 |
|
| Income (loss) from continuing operations before income taxes | $ | (88,004 | ) | | $ | (19,522 | ) | | $ | 7,911 |
| | $ | 6,467 |
| | $ | (158 | ) |
| Net income (loss) from continuing operations | $ | (97,783 | ) | | $ | (24,269 | ) | | $ | 12,867 |
| | $ | 22,179 |
| | $ | 68 |
|
| Net income (loss) from continuing operations attributable to Steel Excel Inc. per share of common stock - basic and diluted | $ | (8.50 | ) | | $ | (2.06 | ) | | 1.03 |
| | $ | 1.83 |
| | $ | 0.01 |
|
| | | | | | | | | | |
| Balance Sheet Data: | | | | | | | | | |
| Total assets | $ | 344,822 |
| | $ | 476,946 |
| | $ | 538,694 |
| | $ | 466,495 |
| | $ | 368,677 |
|
| Long-term obligations | $ | 42,666 |
| | $ | 79,242 |
| | $ | 92,400 |
| | $ | 14,397 |
| | $ | — |
|
| |
(A) | Includes marketable securities impairment charges of $59.8 million, goodwill and intangible assets impairment charges of $25.6 million, and a benefit from income taxes of $6.3 million. |
| |
(B) | Includes goodwill impairment charges of $36.7 million. |
| |
(C) | Includes a benefit from income taxes of $5.8 million. |
| |
(D) | Includes a benefit from income taxes of $15.7 million. |
No cash dividends have been paid or declared on the Company’s common stock.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Steel Excel Inc. (“Steel Excel” or the “Company”) currently operates in two reporting segments - Energy and Sports. The Energy segment focuses on providing drilling and production services to the oil and gas industry. The Sports segment is a social impact organization that strives to provide a first-class youth sports experience emphasizing positive experiences and instilling the core values of discipline, teamwork, safety, respect, and integrity. The Company also makes significant non-controlling investments in entities in industries related to its reporting segmentsMcCabe, as well as entities in other unrelated industries. Thethe persons that will render the above functions to the Company continuesare made available to identify business acquisition opportunities in bothus on a non-exclusive basis. However, pursuant to the Energy and Sports industries as well as in other unrelated industries.
The Company began its Energy business in December 2011 with the acquisitionterms of the businessManagement Services Agreement, all such persons are required to devote such time and assetseffort as is reasonably necessary to fulfill the statutory and fiduciary duties applicable to them in performing such services.
Under the Management Services Ltd. (“Rogue”). The Company expandedAgreement, the business with the acquisition of the business and assets of Eagle Well Services, Inc. ("Eagle Well"), in February 2012 and the acquisition of Sun Well Service, Inc. ("Sun Well") in May 2012, both of which operate under Sun Well as a combined business. In December 2013, the Company further expanded its Energy business with the acquisition by its wholly-owned subsidiary Black Hawk Energy Services, Ltd. ("Black Hawk Ltd.") of the business and assets of Black Hawk Energy Services, Inc. (“Black Hawk Inc.”).
The Company began its Sports business in June 2011 with the acquisition of the assets of Baseball Heaven LLC (“Baseball Heaven”), a provider of a wide variety of baseball services, including tournaments, training, teams, and camps. The Company expanded the business in November 2012 with the acquisition of a 50% interest in two Crossfit® facilities located in Torrance, CA, and Hermosa Beach, CA,annual fee payable to SP Corporate was adjusted to $8,150,000 effective October 1, 2014, and in 2014 the Company increased its ownership interest in Torrance facility2015 we paid $8,150,000 to approximately 86%. In January 2013, the Company acquired a 20% membership interest in Ruckus Sports LLC ("Ruckus"), an obstacle courseSP Corporate. This amount is subject to review and mass-participation events company that was controlledadjustment by the Company through its representation on the Ruckus board. The Company increased its membership interest in Ruckus to 45% during 2013. Also in January 2013, the Company acquired a 40% membership interest in Again Faster LLC, a fitness equipment company that is accountedagreement between ourselves and SP Corporate for as an equity-method investment. In June 2013, the Company further expanded its Sports business with the acquisition of 80% of UK Elite Soccer, Inc. (“UK Elite”), a provider of youth soccer programs, coaching services, tournaments, tours, and camps. In 2014, UK Elite acquired the business and assets of three independent providers of soccer clinics and camps.
In November 2013 the Company shut down Ruckus after it did not meet operational and financial expectations. Ruckus is reported as a discontinued operation in the Company’s consolidated financial statements. In 2015, the Company fully impaired its investment in Again Faster based on the state of the business and the available strategic alternatives.
In July 2013, Steel Energy Services Ltd. ("Steel Energy Services"), a wholly-owned subsidiary of the Company, entered into a credit agreement, as amended (the “Amended Credit Agreement”), that provides for a borrowing capacity of $105.0 million consisting of a $95.0 million secured term loan and up to $10.0 million in revolving loans. A pre-existing credit agreement at Sun Well (the “Sun Well Credit Agreement”) that had been fully repaid was terminated upon the initial closing of the Amended Credit Agreement.
During 2015, the Company identified an error related to the manner in which the change in the valuation allowance for deferred tax assets was reflected in its financial statements for all annual and quarterly periods in the years ended December 31, 2014 and 2013. The change in the valuation allowance, which resulted from a change in deferred tax liabilities related to unrealized gains on available-for-sale securities, was recognized as a component of income from continuing operations, resulting in a benefit from or provision for income taxes allocated to continuing operations in each period, with an offsetting provision for or benefit from income taxes allocated to other comprehensive income relating to unrealized gains or losses on available-for-sale securities. Upon subsequent review, the Company determined that proper intra-period allocation of the provision for income taxes would have resulted in this change in the valuation allowance being allocated to other comprehensive income, resulting in no provision or benefit for such item. In periods in which the valuation allowance decreased, the impact of this error was an overstatement of income from continuing operations and an understatement of other comprehensive income; in periods in which the valuation allowance increased, the impact of this error was an understatement of income from continuing operations and an overstatement of other comprehensive income. The correction of this error has resulted in adjustments to the Company's balance sheet at December 31, 2014, and its statement of operations, statement of comprehensive income, statement of stockholders' equity, and statement of cash flows for the year ended December 31, 2013.
In June 2014, following stockholder approval and authorization from its board of directors, the Company effected a 1-for-500 reverse stock split (the "Reverse Split"), immediately followed by a 500-for-1 forward stock split (the "Forward Split", and together with the Reverse Split, the "Reverse/Forward Split"), of its common stock effective as of the close of business on June 18, 2014. In connection with the Reverse Split, the Company paid $10.1 million in July 2014 for 295,659 shares of common stock and the return of 1,388 non-vested restricted stock awards previously awarded to employees.
The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and notes thereto.
Results of Operations
The continuing weakness in the oil services industry had an adverse effect on the results of operations of the Company's Energy segment in 2015. The decline in energy prices, particularly the significant decline in oil prices, has resulted in the Energy segment's customers, the oil and gas exploration and production companies (the "E&P Companies"), cutting back on their capital expenditures, which has resulted in reduced drilling activity. In addition, the E&P Companies have sought price concessions from their service providers to offset their drop in revenue. Such actions on the part of the E&P Companies had an adverse effect on the operations of the Energy segmentcommencing in 2015 and will further adversely impact its operations in 2016. The Energy segment has experienced a decline in rig utilization in all of its operations and prices for its services have declined. The Company has taken certain actions and instituted cost-reduction measures in an effort to mitigate these adverse effects. The Energy segment's results of operations going forward will be dependent on the price of oil in the future, the resulting well production and drilling rig count in the basins in which it operates, and the Company's ability to return to the pricing and service levels of the past as oil prices increase. The drilling rig count in North America has declined significantly, which has directly impacted the segment's rig utilization, and the pricing for the segment's services has declined. The North American drilling rig count has continued to decline in early 2016, and as a result, the Company expects the Energy segment to experience a further decline in operating income in 2016 as compared to the 2015 results. As a result of the adverse effects the decline in energy prices had on the oil services industry and the projected future results of operations of the Company's Energy segment, the Company recognized goodwill and intangible asset impairment charges of $25.6 million and $36.7 million for the years ended December 31, 2015 and 2014. At December 31, 2015, the remaining goodwill associated with the energy business was $10.6 million, all of which related to one reporting unit of the Company's Energy segment and which is at risk of future impairment if the fair value of this reporting unit declines in value.
Year ended December 31, 2015, compared with 2014
Net revenues for the year ended December 31, 2015, decreased by $77.5 million as compared to 2014. Net revenues from the Company's Energy segment decreased by $80.2 million primarily from the decline in rig utilization and the decline in prices that resulted from the adverse effects the decline in energy prices had on the oil services industry. Net revenues in the Company's Sports segmentincreased by $2.7 million from an increasein revenues of$2.1 million from UK Elite primarily as a result of operating the businesses acquired during the 2014 period for the full period in 2015 and an increase in revenues of $0.6 million from Baseball Heaven.
Gross profit for the year ended December 31, 2015, decreased by $31.4 million as compared to 2014, and as a percentage of revenue declined to 20.1% from 27.6%. Gross profit in the Energy segment decreased by $31.2 million, and as a percentage of revenue declined to 16.5% in 2015 from 25.9% in 2014. Gross profit in the Energy segment decreased as a result of the decline in revenues. Gross profit in the Sports segment in 2015 decreased by $0.3 million primarily as a result of a decrease in gross profit of $0.2 million from UK Elite.
Selling, general and administrative ("SG&A") expenses in 2015 decreased by $1.7 million as compared to 2014. SG&A expenses in the Energy segment decreased by $2.3 million primarily from cost reduction initiatives and the receipt of a purchase price adjustment of $0.5 million related to a 2013 acquisition. SG&A expenses also decreased $0.3 million from corporate and other business activities. Such decreases were partially offset by SG&A expenses in the Sports segment that increased by $0.9 million primarily from UK Elite as a result of the businesses acquired during the 2014 period and additional segment management costs.
The Company incurred an operating loss of $40.7 million in 2015 as compared to an operating loss of $23.4 million in 2014. The Company incurred goodwill and intangible asset impairment charges relating primarily to the Energy segment of $25.6 million and $36.7 million in 2015 and 2014, respectively. The operating loss before goodwill and other asset impairments was $15.0 million in 2015 as compared to operating income of $13.3 million in 2014. Operating income before goodwill and other asset impairments in the Energy segment decreased by $27.4 million primarily as a result of the decline in revenues and margins that resulted from the adverse effects the decline in energy prices had on the oil services industry. The operating loss before goodwill and other asset impairments in the Sports segment increased by $1.2 million primarily due to increased losses incurred at UK Elite of $0.6 million and additional segment management costs of $0.4 million. The operating loss frombeyond. Additionally, we reimburse SP Corporate and otherits affiliates for all reasonable and necessary business activities decreased by $0.3 million.
Amortization of intangibles in 2015 decreased by $1.4 million as compared to 2014 as a result of a declining rate of amortization for the intangible assets recognized in connection with prior period acquisitions.
The Company recognized impairment charges of $25.6 million in 2015 related to the goodwill and intangible assets primarily associated with its Energy segment. The impairments resulted from the adverse effects the decline in energy prices hadexpenses incurred on the oil services industry and the projected future results of operations of the Energy segment.
Interest expense of $2.5 million in 2015 decreased by $0.7 million as compared to 2014 primarily as a result of the repayment of long-term debt.
The Company incurred an impairment charge of $59.8 million related to its marketable securities in 2015. The impairment charge resulted from the Company's determination that certain unrealized losses in available-for-sale securities represented other-than-temporary impairments during 2015.
Other income of $14.9 million in 2015 primarily represented a gain on a non-monetary exchange of $9.3 million, investment income of $4.7 million, and realized gains on the sale of marketable securities of $5.2 million, partially offset by a loss of $2.8 million recognized upon initially accounting for an investment under the equity method of accounting at fair value, a foreign exchange loss of $0.7 million, and a loss of $0.5 million recognized on financial instrument obligations,
The Company recognized a benefit from income taxes of $6.3 million for the year ended December 31, 2015, primarily from the allowable benefit recognizable on unrealized gains on marketable securities included in other comprehensive income and from the recognition of state deferred income tax benefits.
Year ended December 31, 2014, compared with 2013
Net revenues for the year ended December 31, 2014, increased by $90.1 million as compared to 2013. Net revenues from the Company's Energy segment increased by $82.0 million as a result of an increase of $75.5 million from Black Hawk Ltd., which business was acquired in December 2013, and an increase in revenues of $6.5 million in the Energy segment's other operations due primarily to an increase in rig utilization for its snubbing services and an increase in revenues from its flow back services related to new equipment purchased in 2014. Net revenues from the Company's Sports segment increased by $8.1 million primarily as a result of an increase in revenues of $6.8 million from UK Elite, which was acquired in June 2013, and an increase in revenues of $1.1 million from Baseball Heaven.
Gross profit for year ended December 31, 2014, increased by $25.9 million as compared to 2013, and as a percentage of revenue increased to 27.6% from 26.8%. Gross profit in the Energy segment increased by $22.5 million and as a percentage of revenue increased to 25.9% in 2014 from 24.7% in 2013. Gross profit in the Energy segment increased as a result of an increase of $23.4 million from Black Hawk Ltd., partially offset bya decrease in gross profit of $0.9 million in the Energy segment's other operations. Gross profit in the Sports segment in 2014 increased by $3.4 million primarily as a result of an increase in gross profit of $2.7 million from UK Elite and an increase in gross profit of $0.6 million from Baseball Heaven.
SG&A expenses in 2014 increased by $14.3 million as compared to 2013. SG&A expenses in the Energy segment increased by $4.4 million primarily as a result of an increase of $4.0 million in costs incurred at Black Hawk Ltd. in 2014. SG&A expenses in the Sports segment increased by $3.8 million primarily as a result of costs incurred at UK Elite, including costs associated with operating the businesses acquired in the current period. SG&A expenses in corporate and other business activities increased by $6.1 million primarily as a result of increased costs incurred for services provided by affiliates of the Company and an increase in stock-based compensation expense in the 2014 period.
The Company incurred an operating loss of $23.4 million in 2014 as compared to operating income of $2.6 million in 2013 primarily as a result of the goodwill impairment charge of $36.7 million relating to the Energy segment. Operating income before goodwill impairments was $13.3 million in 2014 as compared to $2.6 million in 2013. Operating income before goodwill impairments in the Energy segment increased by $17.5 million primarily as a result of the an increase of $16.8 million from Black Hawk Ltd. The operating loss in the Sports segment increased by $0.8 million primarily due to the expected seasonal losses incurred in the first half of 2014 at UK Elite with no corresponding losses in the prior year. The operating loss from Corporate and other business activities increased by $6.1 million from increased costs incurred for services provided by affiliates of the Company and an increase in stock-based compensation expense in 2014.
Amortization of intangibles in 2014 increased by $0.9 million as compared to 2013 as a result of amortization expense on the intangible assets recognizedour behalf in connection with the businesses acquiredperformance of the services under the Management Services Agreement. During 2015, we reimbursed SP Corporate and its affiliates an aggregate of approximately $833,000 for business expenses incurred on our behalf pursuant to the Management Services Agreement.
The Management Services Agreement provides that we are to indemnify and hold harmless SP Corporate and its affiliates and employees (other than the person serving as our principal executive officer, Chief Financial Officer and other persons that may be furnished as officers to us by Black Hawk Ltd. and UK Elite, partially offsetSP Corporate to perform the above services (the “Designated Persons”)) from any claims or liabilities by a declining rate of amortization for the intangible assets recognizedthird party in connection with prior period acquisitions.activities or the rendering of services under the Management Services Agreement. Pursuant to the Management Services Agreement, we expect to enter into our customary indemnification agreement with the Designated Persons.
The Company recognized an impairment charge of $36.7 million in 2014 related to the goodwill associated with its Energy segment. The impairment resulted from the adverse effects the decline in energy prices had on the oil services industry and the projected future results of operations of the Energy segment.
Interest expense of $3.2 million in 2014 increased by $1.5 million as compared to 2013 primarily primarily as a result of the borrowings under the Amended Credit Agreement being outstanding for the full year in 2014.
Other income of $7.1 million in 2014 primarily represented investment income of $6.6 million and realized gains on the sale of marketable securities of $3.8 million, partially offset by a loss of $0.6 million recognized upon initially accounting for an investment under the equity method of accounting at fair value, a foreign exchange loss of $1.1 million, and a loss of $1.8 million recognized on financial instrument obligations,
The Company recognized a benefit from income taxes of $1.3 million for the year ended December 31, 2014, primarily as a result of a foreign tax benefit of $1.7 million recognized upon the conclusion of tax examinations by a foreign tax authority.
The results of operations for the year ended December 31, 2014, included income from discontinued operations of $0.5 million primarily related to an adjustment to the outstanding obligations of Ruckus.
Liquidity and Capital Resources
The Amended Credit Agreement entered into by Steel EnergyManagement Services in July 2013 and amended in December 2013 provides for a borrowing capacity of $105.0 million consisting of a $95.0 million secured term loan (the “Term Loan”) and up to $10.0 million in revolving loans (the “Revolving Loans”) subject to a borrowing base of 85% of the eligible accounts receivable. Of the total proceeds from the Term Loan, $70.0 million was used to partially fund a dividend of $80.0 million paid to the Company and $25.0 million was used to partially fund the acquisition of the business and substantially all of the assets of Black Hawk Inc. At December 31, 2015, the Company had $7.2 million of borrowing capacity under the Revolving Loans, all of which was available as no Revolving Loans were outstanding. As of December 31, 2015, the Company had $42.9 million outstanding under the Term Loan.
Borrowings under the Amended Credit Agreement are collateralized by substantially all the assets of Steel Energy Services and its wholly-owned subsidiaries Sun Well, Rogue, and Black Hawk Ltd., and a pledge of all of the issued and outstanding shares of capital stock of Sun Well, Rogue, and Black Hawk Ltd. Borrowings under the Amended Credit Agreement are fully guaranteed by Sun Well, Rogue, and Black Hawk Ltd.
The Amended Credit Agreement has a term that runs through July 2018, with the Term Loan amortizing in quarterly installments of $3.3 millionone year, which shall renew for successive one year periods, unless and a balloon payment due on the maturity date. In December 2015, the Company made a prepayment of $23.1 million on the Term Loan, with the prepayment applied to the next seven quarterly installments. The Company recognized a loss on extinguishment of $0.1 million in connection with the prepayment from the write off of unamortized debt issuance costs, which was reported as a component of "Other income (expense), net" in the consolidated statement of operations for the year ended December 31, 2015.
Borrowings under the Amended Credit Agreement bear interest at annual rates of either (i) the Base Rate plus an applicable margin of 1.50% to 2.25% or (ii) LIBOR plus an applicable margin of 2.50% to 3.25%. The “Base Rate” is the greatest of (i) the prime lending rate, (ii) the Federal Funds Rate plus 0.5%, and (iii) the one-month LIBOR plus 1.0%. The applicable margin for both Base Rate and LIBOR is determined based on the leverage ratio calculateduntil terminated in accordance with the Amended Creditterms set forth therein, which include, under certain circumstances, the payment by the Company of termination fees to SP Corporate. The Management Services Agreement was amended effective March 9, 2016 to have SPH Services furnish the services to the Company.
Our Audit Committee approved the entry into the Management Services Agreement. LIBOR-based borrowings are availableThe Audit Committee concluded that the engagement of SP Corporate provides a cost effective solution to the Company for interest periodsobtaining executive and other necessary services. The services provided under the Management Services Agreements were formerly provided by employees of one, three,the Company who were terminated following the sale or six months.wind down of our historical businesses or who became employees of SP Corporate. In negotiating and approving the Management Services Agreement, our Audit Committee, consisting of our “independent” directors as defined by the rules of the NASDAQ Market, considered such issues as the scope of the services to be provided by SP Corporate to the Company, the pricing of any arrangement with SP Corporate and the limits of authority for the outsourced personnel.
Equity Grants to SP Corporate Employees
During 2015, we awarded 68,030 shares of restricted stock in the aggregate to personnel of SP Corporate and its affiliates providing services to us. This amount includes awards of 29,041, 10,890 and 2,775 shares of restricted stock to Messrs. Howard, Quicke and McCabe, respectively. Our Compensation Committee approved this award after taking into account the recommendation of SP Corporate. In addition, each of Messrs. Howard and Quicke received a RSU for 2,500 shares of Common Stock in their capacity as directors pursuant to the Company is requiredpolicy of RSU grants to pay commitment feesall Board members following each annual meeting of between 0.375% and 0.50% per annum on the daily unused amount of the Revolving Loans.stockholders.
The Amended Credit Agreement contains certain financial covenants, including (i) a leverage ratio not to exceed 2.75:1 for quarterly periods through June 30, 2017, and 2.5:1 thereafter and (ii) a fixed charge coverage ratio of 1.15:1 for quarterly periods through December 31, 2016, and 1.25:1 thereafter. The Company wasDeposits at WebBank
During 2015, we closed an account in compliance with all financial covenants as of December 31, 2015.
The Amended Credit Agreement also contains standard representations, warranties, and non-financial covenants. The repayment of the Term Loan can be accelerated upon (i) a change in control, which would include Steel Energy Services owning less than 100% of the equity of Sun Well or Rogue or Steel Partners Holdings L.P. (“SPLP”) owning, directly or
indirectly, less than 35%we previously held short-term deposits at WebBank, an affiliate of Steel Energy Services or (ii) other eventsHoldings. During 2015 we recorded interest income of default, including payment failure, false representations, covenant breaches, and bankruptcy.approximately $39,000 from such deposits.
The Company finances its operations and capital expenditure requirements from its existing cash andSecurities Transactions Through Mutual Securities
We use several firms to execute trades of our marketable securities balances, which at December 31, 2015, totaled $31.7 millionand $96.2 millioncertain of our other investments. We use Mutual Securities, Inc. ("Mutual Securities"), respectively. Working capital in 2015 decreased by $41.8 million due primarily to a decrease of $10.9 million from a reclassification of current available-for-sale securities to non-current equity method investments, a decrease of $34.8 million from net investment losses, a decrease of $4.8 million from capital expenditures, a decrease of $23.1 million from the repayment of long-term debt, and a decrease of $4.6 million fromexecute certain trades, including repurchases of the Company's common stock, partially offset by an increase of $34.3 million from the receipt of marketable securities in exchange for an investment in a limited partnership that was liquidated in 2015.
Cash flows from operating activities of continuing operations decreased by $17.4 million in 2015 as compared to 2014 due primarily to a decrease in cash generated from net income of $31.1 million, an increase in payments for accounts payable and accrued expenses of $4.6 million, and an increase in payments for prepaid expenses of $1.6 million, partially offset by an increase in net collections of accounts receivable of $19.9 million.
During 2015, the Company used $5.2 million of cash for investing activities primarily for purchases of property and equipment of $4.8 million.
During 2015, the Company used $41.5 million of cash for financing activities primarily for debt repayments on the Amended Credit Facility of $36.3 million and the acquisition of treasury shares for $4.6 million.
At December 31, 2015, the Company had $127.9 million in cash and marketable securities, exclusive of $21.6 million of restricted cash related to short sale transactions on certain financial instruments for which the Company has an obligation to deliver or purchase securities at a later date.
Available-for-sale securities at December 31, 2015, included short-term deposits, corporate debt and equity instruments, and mutual funds, and were recorded on the consolidated balance sheet at fair market value, with any related unrealized gain or loss, except for other-than-temporary impairments, reported as a component of “Accumulated other comprehensive income” in stockholders’ equity. We expect to realize the full value of all our marketable securities upon maturity or sale, as we have the intent and ability to hold the securities until the full value is realized. However, we cannot provide any assurance that our invested cash and marketable securities will not be impacted by adverse conditions in the financial markets, which may require us to record an impairment charge that could adversely impact our financial results. In 2015, the Company incurred an impairment charge of $59.8 million related to its marketable securities that resulted from the Company's determination that certain unrealized losses in available-for-sale securities represented other-than-temporary impairments. In addition, we maintain our cash and marketable securities with certain financial institutions, in which our balances exceed the limits that are insured by the Federal Deposit Insurance Corporation. If the underlying financial institutions fail or other adverse events occur in the financial markets, our cash balances may be impacted.
We believe that our cash balances will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. We anticipate making additional acquisitions and investments, and we may be required to use a significant portion of our available cash balances for such acquisitions and investments or for working capital needs thereafter. The consummation of additional acquisitions, prevailing economic conditions, and financial, business and other factors beyond our control could adversely affect our estimates of our future cash requirements. As such, we could be required to fund our cash requirements by alternative financing. In these instances, we may seek to raise such additional funds through public or private equity or debt financings or from other sources. As a result, we may not be able to obtain adequate or favorable equity financing, if needed. Any equity financing we obtain may dilute existing ownership interests, and any debt financing could contain covenants that impose limitations on the conduct of our business. There can be no assurance that additional financing, if needed, would be available on terms acceptable to us or at all.
Off-balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Contractual Obligations
Our contractual obligations at December 31, 2015, were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due By Period |
| | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years |
| | (in thousands) |
| Long-term debt | $ | 42,946 |
| | $ | — |
| | $ | 42,946 |
| | $ | — |
| | $ | — |
|
Interest on long-term debt (1) | 3,409 |
| | 1,396 |
| | 2,013 |
| | — |
| | — |
|
| Operating lease obligations | 2,865 |
| | 796 |
| | 1,033 |
| | 1,036 |
| | — |
|
| Deferred compensation | 3,546 |
| | 3,546 |
| | — |
| | — |
| | — |
|
| Total | $ | 52,766 |
| | $ | 5,738 |
| | $ | 45,992 |
| | $ | 1,036 |
| | $ | — |
|
(1) Interest on variable-rate long-term debt is an estimate based on current interest rates. Interest excludes commitment fees and non-cash amortization of debt issuance costs, which are included as components of interest expense in the consolidated statements of operations.
Critical Accounting Policies
The Company’s management must make certain estimates and assumptions in preparing the financial statements. Certain of these estimates and assumptions relate to matters that are inherently uncertain as they pertain to future events. The Company’s management believes that the estimates and assumptions used in preparing the financial statements were the most appropriate at that time, although actual results could differ significantly from those estimates under different conditions.
Note 2, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements included in this Annual Report on Form 10-K provides a detailed discussion of the various accounting policies of the Company. We believe that the following accounting policies are critical since they require subjective or complex judgments that could potentially affect the financial condition or results of operations of the Company.
Allowance for Doubtful Accounts: We assess the carrying value of our accounts receivable based on management's assessment of the collectibility of specific client accounts, which includes consideration of the creditworthiness and financial condition of those specific clients. We also assess the carrying value of accounts receivable balances based on other factors, including historical experience with bad debts, client concentrations, the general economic environment, and the aging of such receivables. We record an allowance for doubtful accounts to reduce the accounts receivable balance to the amount that is reasonably believed to be collectible. Based on our estimates, we established an allowance for doubtful accounts of $38,000 at December 31, 2015; there was no allowance for doubtful accounts at December 31, 2014. A change in our assumptions, including the creditworthiness of clients and the default rate on receivables, would result in us recovering an amount of our accounts receivable that differs from the current carrying value. Such difference, either positive or negative, would be reflected as a component of SG&A expense in future periods.
Marketable Securities: Our marketable securities are classified as available-for-sale securities. Accordingly, marketable securities are reported at fair value with unrealized gains and losses, except for other-than-temporary impairments, recognized in stockholders' equity as "other comprehensive income (loss)". Declines in the fair value of securities below their amortized cost basis are evaluated to determine if the decline in value is other than temporary, with other-than-temporary declines recognized as an impairment charge. This determination requires a high degree of judgment and is based on several factors, including the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the entity, our intent and ability to hold the corporate securities for a period of time sufficient to allow for any anticipated recovery in market value, and other factors specific to the individual security. Based on our assessment of these factors, we incurred a marketable securities impairment charge of $59.8 million in 2015. A change in any one of the aforementioned factors could result in additional other-than-temporary impairment charges in future periods, which could have an adverse effect on our results of operations.
Fair Value Measurements: Certain of our assets and liabilities, primarily marketable securities, certain equity-method investments, and financial instrument obligations are reported at their estimated fair value. We estimate the fair value of such assets and liabilities based on quoted market prices (Level 1), quoted prices of similar instruments with an active market (Level
2), or prices obtained from funds statements or from third-party pricing services (Level 3). Securities valued as Level 2 and Level 3 securities consist primarily of marketable securities that are classified as “available for sale” securities, with changes in fair value recognized in stockholders' equity as "other comprehensive income (loss)". A change in our assumptions, including obtaining quoted market prices for specific securities valued as a Level 2 or Level 3 securities or obtaining quoted prices of similar securities with an active market for securities valued as a Level 3 security, would result in a fair value of such securities that differs from the previously estimated fair value. Such difference, either positive or negative, would be reflected as an increase or decrease in the carrying value of such securities.
Valuation of Long-Lived Assets: We review the carrying value of our property and equipment and other long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability is assessed by comparing the carrying value of the assets to the future undiscounted cash flows the assets are expected to generate. If it is determined that the carrying amount is not recoverable, an impairment charge is recognized equal to the amount by which the carrying value of the asset exceeds its fair market value. The adverse effect on the Energy business of declining oil prices resulted in the need for the Company to assess the recoverability of certain of its finite-lived intangible assets and property and equipment. In 2015, the undiscounted cash flows expected to be generated by such assets in one of the operations in the Energy business did not exceed their carrying value. Accordingly, the Company recognized an impairment charge on such long-lived assets of $7.4 million in 2015. For the other operations in the Energy business in 2015 and for all operations in the Energy business in 2014, the undiscounted cash flows expected to be generated by the long-lived assets exceeded their carrying value, and therefore the Company has not recognized any impairment charges on such long-lived assets. A change in the Company’s business climate in future periods, including a general downturn in one of the Company’s businesses, could lead to a required assessment of the recoverability of the Company’s long-lived assets, which may subsequently result in an impairment charge.
Impairment of Goodwill: We assess the carrying value of goodwill for impairment by comparing the carrying value of underlying businesses to their fair values. We are required to test goodwill for impairment at least annually, and more frequently if an event occurs or circumstances change to indicate that an impairment may have occurred. The Company performs its annual goodwill impairment test during the fourth quarter of each year. We estimated the fair value of the operations in our Energy business based on valuations, which relied on certain assumptions we made including projections of future revenues based on assumed long-term growth rates, estimated costs, and the appropriate discount rates. The estimates we used for long-term revenue growth and future costs are based on historical data, various internal estimates, and a variety of external sources, and were developed as part our long-range assessment of our Energy business given the recent developments in the oil services industry. Based primarily on the use of these assumptions in estimating the fair value of the operations in the Energy business, we incurred goodwill impairment charges of $18.3 million and $36.7 million in 2015 and 2014, respectively. After the impairment charges, the carrying value of the goodwill in the Energy business was $10.6 million at December 31, 2015. A change in our assumptions, including lower long-term growth rates, higher operating costs, or higher discount rates could cause a change in the estimated fair value of the operations in the Energy business, and therefore could result in an additional impairment of goodwill, which would have an adverse effect on our results of operations.
Stock-Based Compensation: The amount of stock-based compensation expense to be recognized on stock options and restricted stock granted to employees and non-employee directors is based on their fair value on the grant date. We determine the fair value of restricted stock awards based on the market price of the Company's common stock on the date of grant; we determine the fair value of stock option awards using the Black-Scholes pricing model. We must make certain assumptions in determining the fair value of the stock option awards, including the volatility of our common stock, the future dividend yield on our common stock, and the term over which equity awards will remain outstanding. In addition, we must make certain assumptions regarding the rate at which options will be forfeited to estimate the service period that will be completed by the holders of stock options. Any deviation in the actual volatility of our common stock, the actual dividend yield, and the actual early exercise behavior of holders of stock options from that assumed in estimating the fair value of the awards will not result in a change in the amount of compensation expense recognized, but will result in the actual value realized by the holder of the award to be different from the amount of compensation expense recognized. Any deviation in the actual forfeitures of non-vested stock options during the service period from that assumed will result in a change to the amount of compensation expense recognized, either as additional compensation expense or a reversal of previously recognized compensation expense in the period of change.
Income Taxes:We make certain assumptions and judgments in determining income tax expense for financial reporting purposes. These include estimates of taxable income for the current and future periods, the timing of utilization of tax benefits, the amount of business we will conduct in the jurisdictions in which we operate, and the applicable tax rates. We also must make certain judgments in assessing the likelihood that certain tax positions will be sustained upon examination, including those in foreign jurisdictions. A change in these assumptions would result in a change in our tax provision for financial reporting purposes in future periods and could result in our cash payments for taxes to be more or less than originally estimated.
We assess the recoverability of our deferred tax assets based on our historical taxable income and estimates of future taxable income. In estimating its future taxable income, we have to make various assumptions about our future operating performance, including assumptions regarding the energy industry. We believe that it was more likely than not that the benefit associated with the deferred tax assets will not be fully realized in future periods. Accordingly, a valuation allowance in the amount of $93.4 million and $78.0 million at December 31, 2015 and 2014, respectively, was established to reserve against the carrying value of certain of our deferred tax assets. A change in the assumptions, including better or worse operating performance than projected, could result in a change in the amount of deferred tax assets that will be recovered, and therefore could result in a reduction or increase to the valuation allowance established at December 31, 2015. Such an adjustment would be reflected as a component of the provision for income taxes in the period of the adjustment
Contingent Liabilities: We are subject to subject to litigation or claims that arise in the normal course of business. We are also subject to multiple federal, state, and local laws and regulations pertaining to worker safety, the handling of hazardous materials, transportation standards, and the environment. We assessed our potential exposure to legal and environmental claims based on the facts and circumstances and our knowledge of any potential exposure. Based on such assessments we have not recognized a contingent liability for environmental or legal claims. A change in assumptions could result in us being deemed liable for certain such matters, which would be result in additional expense and an increased liability.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which establishes a core principle, achieved through a five-step process, that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which deferred the effective date of ASU No. 2014-09 by one year for all entities. ASU 2014-09 is effective for public companies for annual reporting periods beginning after December 15, 2017, and for interim reporting periods within those years. Upon adoption, ASU No. 2014-09 can be applied either retrospectively to each reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. Early application is not permitted. The Company is evaluating the potential impact on its consolidated financial statements of adopting ASU No. 2014-09 and has not yet determined the implementation method to be used.
In April 2015, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update (“ASU”) No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30), 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. The recognition and measurement guidance for debt issuance costs are not affected by ASU No. 2015-03. ASU No. 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been previously issued. Upon adoption, ASU No. 2015-03 should be applied retrospectively, with the balance sheet of each individual period presented adjusted to reflect the period-specific effects of applying the standard. The Company adopted ASU No. 2015-03 in 2015 and has reflected the impact in the current and prior years in its statement of financial position.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805), which requires that adjustments to provisional amounts recognized at the time of a business combination that are identified during the measurement period be recognized in the reporting period in which the adjustment amounts are determined. ASU No. 2015-16 also requires that the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date, be recognized in the same period’s financial statements, with disclosure of the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU No. 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, and should be applied prospectively to adjustments to provisional amounts that occur after the effective date. The Company does not expect the adoption of ASU No. 2015-16 to have a material effect on its consolidated financial statements.
In November 2015, the FASB issued No. 2015-17, Income Taxes (Topic 740), which requires that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by ASU No. 2015-17. ASU No. 2015-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. A reporting entity may apply the provisions of ASU No. 2015-17 prospectively or retrospectively to all prior periods presented in the financial statements. The Company retrospectively adopted ASU No. 2015-17 in 2015 and has reflected the impact in the current and prior years in its statement of financial position.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10), which eliminates the requirement to classify equity securities with readily determinable market values as either available-for-sale securities and trading securities, and requires that equity investments, other than those accounted for under the traditional equity method of accounting, be measured at their fair value with changes in fair value recognized in net income. Equity investments that do not have readily determinable market values may be measured at cost, subject to an assessment for impairment. ASU No. 2016-01 also requires enhanced disclosures about such equity investments. ASU No. 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption prohibited. Upon adoption, a reporting entity should apply the provisions of ASU No. 2016-01 by means of a cumulative effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company is evaluating the potential impact on its consolidated financial statements of adopting ASU No. 2016-01.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires, among other things, a lessee to recognize a liability representing future lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For operating leases, a lessee will be required to recognize at inception a right-of-use asset and a lease liability equal to the net present value of the lease payments, with lease expense recognized over the lease term on a straight-line basis. For leases with a term of twelve months or less, ASU 2016-02 allows a reporting entity to make an accounting policy election to not recognize a right-of-use asset and a lease liability, and to recognize lease expense on a straight-line basis. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Upon adoption, a reporting entity should apply the provisions of ASU 2016-02 at the beginning of the earliest period presented using a modified retrospective approach, which includes certain optional practical expedients that an entity may elect to apply. The Company is evaluating the potential impact on its consolidated financial statements of adopting ASU 2016-02.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are exposed to interest rate risk in connection with our borrowings under a credit facility that aggregated $42.9 million at December 31, 2015. Interest rates on funds borrowed under the credit facility vary based on changes to the prime rate, LIBOR, or the Federal Funds Rate. A change in interest rates of 1.0% would result in an annual change in income before taxes of $0.4 million based on the outstanding balance under the credit facility at December 31, 2015.
We are also exposed to interest rate risk related to certain of our investments in marketable securities. At December 31, 2015, our marketable securities aggregated $96.2 million, of which $25.3 million represented corporate obligations that pay a fixed rate of interest and are reported at fair value. A change in interest rates would result in a change in the value of such securities in future periods. Although a change in interest rates in future periods will not affect the amount of interest income earned on the specific securities held at December 31, 2015, a change in interest rates of 1.0% would result in an annual change in income before taxes of $0.3 million in future periods if comparable amounts were invested in similar securities.
Equity Price Risk
We are exposed to equity price risk related to certain of our investments in marketable securities. At December 31, 2015, our marketable securities aggregated $96.2 million, of which $70.9 million represented corporate equities and mutual funds that are reported at fair value, and our investments in equity-method investees accounted for using the fair value option aggregated $22.0 million. In addition, our financial instrument obligations aggregated $21.6 million at December 31, 2015. A change in the equity price of the marketable securities or equity method investments or in the equity price of the securities underlying the financial instrument obligations would result in a change in value of such securities and obligations in future periods.
Foreign Currency Exchange Risk
We hold certain investments denominated in a currency other than the United States dollar. We also hold assets and have legacy obligations in foreign countries even though we no longer have any operations outside of the United States. Changes in foreign currency exchange rates can have an impact on our results of operations since we translate foreign currencies into United States dollars for financial reporting purposes. Changes in foreign currency exchange rates would also result in changes in the value received or paid in United States dollars for the assets and obligations denominated in a foreign currency.
Item 8. Financial Statements and Supplementary Data
See financial statements beginning on page F-1 of this Form 10-K
.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"), we conducted an evaluation under the supervision and with the participation of our management, includingstock. Jack Howard, our principal executive officer, is a registered principal of Mutual Securities and principal financialreceives commission payments from Mutual Securities after deductions for fees and expenses. In 2015, we paid approximately $109,000 in commissions to Mutual Securities.
Director Independence
The Board has undertaken its annual review of director independence. During this review, the Board considered all transactions and relationships between each current director and nominee for director or any member of such person’s immediate family and the Company, and its subsidiaries and affiliates. The purpose of this review is to determine whether any relationship or transaction is considered a “material relationship” that would be inconsistent with a determination that a director is independent. In assessing the independence of our directors, our Board has reviewed and analyzed the standards for independence required under the NASDAQ Listing Rules, including NASDAQ Listing Rule 5605(a)(2), which includes a series of objective tests, such as that a director may not be our employee or officer, and that the director has not engaged in various types of business dealings with us. The Board affirmatively determined that, of our current directors and director nominees, Messrs. Mutch, Ullman and Valentine qualify as “independent” in accordance with the rules of the effectivenessNASDAQ Listing Rules.
| Principal Accountant Fees and Services |
The following table presents information regarding the fees estimated and billed by BDO for the 2015 and 2014 fiscal years.
| | | | |
| Audit Fees | | $489,452 | | $504,900 |
| Audit-Related Fees | | | | |
| Total Fees | | $531,452 | | $546,400 |
Audit Fees. This category includes professional services rendered for the audit of our disclosure controlsConsolidated Financial Statements included in our Annual Report, review of our Unaudited Condensed Consolidated Financial Statements included in our Quarterly Reports on Form 10-Q and procedures asservices that were provided in connection with statutory or regulatory filings or engagements.
Audit-Related Fees. This category includes professional services rendered for the audit of the endfinancial statements of a subsidiary of the period covered by this report. Based on that evaluation, our Principal Executive OfficerCompany.
Audit Committee Pre-Approval Policies and Chief Financial Officer concluded that asProcedures
Section 10A(i)(1) of December 31, 2015, our disclosure controls and procedures are effective in ensuring that all information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported withinrelated SEC rules require that all auditing and permissible non-audit services to be performed by a company’s principal accountants be approved in advance by the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, in a manner that allows timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
ManagementAudit Committee of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting isBoard, subject to a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's consolidated financial statements for external reporting purposes in accordance with United States generally accepted accounting principles.
Under the supervision and with the participation of the Company's management, including our Principal Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the internal control over financial reporting of the Company as referred to above as of December 31, 2015, as required by Rule 13a-15(c) under the Exchange Act. In making this assessment, the Company used the criteriade minimis exception set forth in the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring OrganizationsSEC rules (the “De Minimis Exception”). Pursuant to Section 10A(i)(3) of the Treadway Commission. Based on its evaluation underExchange Act and related SEC rules, the framework in Internal Control - Integrated Framework (2013), management concluded thatAudit Committee has established procedures by which the Company's internal control over financial reporting was effective as of December 31, 2015.
BDO USA LLP, the independent registered public accounting firm, who audited the Company's 2015 consolidated financial statements included in this Annual Report on Form 10-K, has issued a report on the effectivenessChairperson of the Company's internal control over financial reportingAudit Committee may pre-approve such services provided the pre-approval is detailed as of December 31, 2015, which is included herein.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2015, the Company had a change in internal control over financial reporting by enhancing the timing and effectiveness of their review and evaluation of its annual goodwill impairment test.
Inherent Limitations on Effectiveness of Controls
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate becauseparticular service or category of changesservices to be rendered and the Chairperson reports the details of the services to the full Audit Committee at its next regularly scheduled meeting. None of the audit-related or non-audit services described above were performed pursuant to the De Minimis Exception. In fiscal 2015 and 2014, the Audit Committee followed SEC guidelines in conditions, or that the degreeapproving all services rendered by BDO.
Item 9B. Other Information
| Exhibits and Financial Statement Schedules |
(a)(3) Exhibits:
None.
PART III
Item 10. Directors, Executive OfficersThe following documents are filed as part of this Amendment, and Corporate Governancethey supplement the exhibits filed and furnished with the Original Filing:
The information with respect to directors, executive officers, and corporate governance required by this Item is incorporated herein by reference to our Definitive Proxy Statement to be filed with the Securities and Exchange Commission by April 29, 2016.
Item 11. Executive Compensation
The information with respect to executive compensation required by this Item is incorporated herein by reference to our Definitive Proxy Statement to be filed with the Securities and Exchange Commission by April 29, 2016.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information with respect to security ownership of certain beneficial owners and management and related stockholder matters required by this Item is incorporated herein by reference to our Definitive Proxy Statement to be filed with the Securities and Exchange Commission by April 29, 2016.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information with respect to certain relationships and related transactions and director independence required by this Item is incorporated herein by reference to our Definitive Proxy Statement to be filed with the Securities and Exchange Commission by April 29, 2016.
Item 14. Principal Accounting Fees and Services
The information with respect to principal accounting fees and services required by this Item is incorporated herein by reference to our Definitive Proxy Statement to be filed with the Securities and Exchange Commission by April 29, 2016.
PART IV
Item 15. Exhibits and Financial Statement Schedules
| Exhibit # | Exhibit Description |
(a)31.1 | Listed below areCertification pursuant to Section 302 of the documents filed as partSarbanes-Oxley Act of this report. |
1.Financial Statements and Reports of Independent Registered Public Accounting Firm:
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Consolidated Statements of Operations for the years ended December 31, 2015, 2014, and 2013
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014, and 2013
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the years December 31, 2015, 2014, and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
2.Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2015, 2014, and 2013
| 2002 |
3.31.2 | Exhibits:Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
See Exhibit Index beginning on page G-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| Steel Excel Inc. | |
| | | |
| By: | /s/ Jack L. Howard | |
| | Jack L. Howard | |
| | Vice Chairman | |
| Date: | March 11,April 21, 2016 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | |
| | Signature | | Title | |
| | | | |
| By: | /s/ Jack L. Howard | | Vice Chairman | |
| | Jack L. Howard | | (Principal executive officer) | |
| Date: | March 11,April 21, 2016 | | | |
| | | | | |
| By: | /s/ James F. McCabe, Jr. | | Chief Financial Officer | |
| | James F. McCabe, Jr. | | (Principal financial officer) | |
| Date: | March 11,April 21, 2016 | | | |
| | | | | |
| By: | /s/ Warren G. Lichtenstein | | Chairman of the Board | |
| | Warren G. Lichtenstein | | | |
| Date: | March 11,April 21, 2016 | | | |
| | | | | |
| By: | /s/ John J. Quicke | | Director | |
| | John J. Quicke | | | |
| Date: | March 11,April 21, 2016 | | | |
| | | | | |
| By: | /s/ John Mutch | | Director | |
| | John Mutch | | | |
| Date: | March 11,April 21, 2016 | | | |
| | | | | |
| By: | /s/ Gary Ullman | | Director | |
| | Gary Ullman | | | |
| Date: | March 11,April 21, 2016 | | | |
| | | | | |
| By: | /s/ Robert Valentine | | Director | |
| | Robert Valentine | | | |
| Date: | March 11,April 21, 2016 | | | |
| | | | | |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Steel Excel Inc.
White Plains, New York
We have audited the accompanying consolidated balance sheets of Steel Excel Inc. (the "Company") as of December 31, 2015 and 2014 and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 3 to the consolidated financial statements, the Company has restated its 2014 and 2013 consolidated financial statements.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Steel Excel Inc. at December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Steel Excel Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2016 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
New York, New York
March 11, 2016
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Board of Directors and Stockholders
Steel Excel Inc.
White Plains, New York
We have audited Steel Excel Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Steel Excel Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Steel Excel Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Steel Excel Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015, and our report dated March 11, 2016 expressed an unqualified opinion thereon.
BDO USA, LLP
New York, New York
March 11, 2016
Steel Excel Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2015 | | 2014 | | 2013 |
| | | | | | | (Revised) |
| | | (in thousands, except per-share data) |
| | | | | | | |
| Net revenues | | $ | 132,620 |
| | $ | 210,148 |
| | $ | 120,028 |
|
| | | | | | | |
| Cost of revenues | | 106,005 |
| | 152,119 |
| | 87,874 |
|
| | | | | | | |
| Gross profit | | 26,615 |
| | 58,029 |
| | 32,154 |
|
| | | | | | | |
| Operating expenses: | | | | |
| | |
|
| Selling, general and administrative expenses | | 33,449 |
| | 35,184 |
| | 20,883 |
|
| Amortization of intangibles | | 8,211 |
| | 9,582 |
| | 8,709 |
|
| Impairment of goodwill and intangible assets | | 25,622 |
| | 36,666 |
| | — |
|
| Total operating expenses | | 67,282 |
| | 81,432 |
| | 29,592 |
|
| | | | | | | |
| Operating income (loss) | | (40,667 | ) | | (23,403 | ) | | 2,562 |
|
| | | | | | | |
| Interest expense | | (2,455 | ) | | (3,177 | ) | | (1,725 | ) |
| Impairment of marketable securities | | (59,781 | ) | | — |
| | — |
|
| Other income (expense), net | | 14,899 |
| | 7,058 |
| | 7,074 |
|
| | | | | | | |
| Income (loss) from continuing operations before income taxes and equity method loss | | (88,004 | ) | | (19,522 | ) | | 7,911 |
|
| | | | | | | |
| Benefit from income taxes | | 6,323 |
| | 1,323 |
| | 5,818 |
|
| Loss from equity method investees, net of tax | | (16,102 | ) | | (6,070 | ) | | (862 | ) |
| | | | | | | |
| Net income (loss) from continuing operations | | (97,783 | ) | | (24,269 | ) | | 12,867 |
|
| | | | | | | |
| Income (loss) from discontinued operations, net of taxes | | — |
| | 506 |
| | (5,540 | ) |
| | | | | | | |
| Net income (loss) | | (97,783 | ) | | (23,763 | ) | | 7,327 |
|
| | | | | | | |
| Net loss (income) attributable to non-controlling interests in consolidated entities | | | | |
| | |
|
| Continuing operations | | 376 |
| | 235 |
| | 156 |
|
| Discontinued operations | | — |
| | (279 | ) | | 3,188 |
|
| | | | | | | |
| Net income (loss) attributable to Steel Excel Inc. | | $ | (97,407 | ) | | $ | (23,807 | ) | | $ | 10,671 |
|
| | | | | | | |
| Basic income (loss) per share attributable to Steel Excel Inc.: | | | | |
| | |
|
| Net income (loss) from continuing operations | | $ | (8.50 | ) | | $ | (2.06 | ) | | $ | 1.03 |
|
| Income (loss) from discontinued operations, net of taxes | | $ | — |
| | $ | 0.02 |
| | $ | (0.19 | ) |
| Net income (loss) | | $ | (8.50 | ) | | $ | (2.04 | ) | | $ | 0.85 |
|
| | | | | | | |
| Diluted income (loss) per share attributable to Steel Excel Inc.: | | | | |
| | |
|
| Net income (loss) from continuing operations | | $ | (8.50 | ) | | $ | (2.06 | ) | | $ | 1.03 |
|
| Income (loss) from discontinued operations, net of taxes | | $ | — |
| | $ | 0.02 |
| | $ | (0.19 | ) |
| Net income (loss) | | $ | (8.50 | ) | | $ | (2.04 | ) | | $ | 0.85 |
|
| | | | | | | |
| Shares used in computing income (loss) per share: | | | | |
| | |
|
| Basic | | 11,454 |
| | 11,678 |
| | 12,584 |
|
| Diluted | | 11,454 |
| | 11,678 |
| | 12,602 |
|
See accompanying Notes to Consolidated Financial Statements.
Steel Excel Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2015 | | 2014 | | 2013 |
| | | | | | | (Revised) |
| | | (in thousands) |
| Net income (loss) | | $ | (97,783 | ) | | $ | (23,763 | ) | | $ | 7,327 |
|
| Other comprehensive income (loss): | | |
| | |
| | |
| Foreign currency translation adjustment | | (8 | ) | | 20 |
| | (63 | ) |
| Reclassification to realized gains | | — |
| | — |
| | (361 | ) |
Net foreign currency translation adjustment (A) | | (8 | ) | | 20 |
| | (424 | ) |
| | | | | | | |
| Marketable securities: | | | | | | |
Gross unrealized gains (losses) on marketable securities, net of tax (B) | | (24,927 | ) | | (20,043 | ) | | 12,126 |
|
Reclassification to realized losses (gains), net of tax (C) | | 34,595 |
| | (5,223 | ) | | (2,608 | ) |
| Net unrealized gain (loss) on marketable securities, net of taxes | | 9,668 |
| | (25,266 | ) | | 9,518 |
|
| | | | | | | |
| Comprehensive income (loss) | | (88,123 | ) | | (49,009 | ) | | 16,421 |
|
| Comprehensive loss (income) attributable to non-controlling interest | | 376 |
| | (44 | ) | | 3,344 |
|
| | | | | | | |
| Comprehensive income (loss) attributable to Steel Excel Inc. | | $ | (87,747 | ) | | $ | (49,053 | ) | | $ | 19,765 |
|
| | | | | | | |
| (A) No tax effect on cumulative translation adjustments | | | | | | |
| (B) Tax benefit (provision) on gross unrealized gains (losses) | | $ | 13,990 |
| | $ | — |
| | $ | — |
|
| (C) Tax benefit (provision) on reclassifications to realized gains (losses) | | $ | (19,416 | ) | | $ | — |
| | $ | — |
|
See accompanying Notes to Consolidated Financial Statements.
Steel Excel Inc.
CONSOLIDATED BALANCE SHEETS
|
| | | | | | | |
| | December 31,
2015 | | December 31, 2014 |
| | | | (Revised) |
| | (in thousands. except per-share data) |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 31,707 |
| | $ | 51,910 |
|
| Restricted cash | 21,639 |
| | 21,311 |
|
| Marketable securities | 96,189 |
| | 138,457 |
|
| Receivable from securities sales not settled | 23,229 |
| | — |
|
| Accounts receivable (net of allowance for doubtful accounts of $38 in 2015) | 10,614 |
| | 28,016 |
|
| Prepaid expenses and other current assets | 3,937 |
| | 4,228 |
|
| Total current assets | 187,315 |
| | 243,922 |
|
| Property and equipment, net | 95,793 |
| | 107,187 |
|
| Goodwill | 12,594 |
| | 30,864 |
|
| Intangible assets, net | 20,219 |
| | 35,782 |
|
| Other investments | 3,555 |
| | 28,525 |
|
| Investments in equity method investees ($21,954 in 2015 and $24,355 in 2014 reported at fair value) | 24,815 |
| | 30,060 |
|
| Other long-term assets | 531 |
| | 606 |
|
| Total assets | $ | 344,822 |
| | $ | 476,946 |
|
| | | | |
| Liabilities and Stockholders' Equity: | |
| | |
|
| Current liabilities: | |
| | |
|
| Accounts payable | $ | 2,781 |
| | $ | 3,936 |
|
| Accrued expenses and other liabilities | 8,458 |
| | 8,916 |
|
| Financial instrument obligations | 21,639 |
| | 21,311 |
|
| Current portion of long-term debt (net of unamortized debt issuance costs of $57 in 2014) | — |
| | 13,157 |
|
| Current portion of capital lease obligations | — |
| | 412 |
|
| Current liabilities of discontinued operations | 450 |
| | 450 |
|
| Total current liabilities | 33,328 |
| | 48,182 |
|
| Capital lease obligations, net of current portion | — |
| | 177 |
|
| Long-term debt (net of current portion and unamortized debt issuance costs of $280 in 2015 and $575 in 2014) | 42,666 |
| | 65,496 |
|
| Deferred income taxes | 737 |
| | 1,858 |
|
| Other long-term liabilities | 236 |
| | 3,715 |
|
| Total liabilities | 76,967 |
| | 119,428 |
|
| | | | |
| Commitments and contingencies |
|
| |
|
|
| | | | |
| Stockholders' equity: | |
| | |
|
| Common stock ($0.001 par value, 18,000 shares authorized; 14,392 and 14,220 shares issued in 2015 and 2014, respectively; 11,347 and 11,406 shares outstanding in 2015 and 2014, respectively) | 14 |
| | 14 |
|
| Additional paid-in capital | 270,516 |
| | 267,444 |
|
| Accumulated other comprehensive loss | (5,546 | ) | | (15,206 | ) |
| Retained earnings | 89,229 |
| | 186,636 |
|
| Treasury stock, at cost (2015 - 3,045 shares; 2014 - 2,814 shares) | (85,967 | ) | | (81,355 | ) |
| Total Steel Excel Inc. stockholders' equity | 268,246 |
| | 357,533 |
|
| Non-controlling interest | (391 | ) | | (15 | ) |
| Total stockholders' equity | 267,855 |
| | 357,518 |
|
| | | | |
| Total liabilities and stockholders' equity | $ | 344,822 |
| | $ | 476,946 |
|
See accompanying Notes to Consolidated Financial Statements.
Steel Excel Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Steel Excel Inc. Stockholders' Equity | | | | |
| | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Non-Controlling Interest | | |
| | Shares | | Amount | | Shares | | Amount | | | | | | Total |
| | | | | | | | | | | | | | | | | | |
| Balance, January 1, 2013 | 14,365 |
| | 14 |
| | (1,458 | ) | | (41,617 | ) | | 272,786 |
| | 946 |
| | 199,772 |
| | 61 |
| | 431,962 |
|
| Net income attributable to Steel Excel Inc. (Revised) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,671 |
| | — |
| | 10,671 |
|
| Net loss attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,344 | ) | | (3,344 | ) |
| Other comprehensive income (Revised) | — |
| | — |
| | — |
| | — |
| | — |
| | 9,094 |
| | — |
| | — |
| | 9,094 |
|
| Net issuance of restricted shares | 143 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | 2,040 |
| | — |
| | — |
| | — |
| | 2,040 |
|
| Repurchases of common stock | — |
| | — |
| | (1,045 | ) | | (29,384 | ) | | — |
| | — |
| | — |
| | — |
| | (29,384 | ) |
| Non-controlling interest of acquired entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,896 |
| | 2,896 |
|
| Balance, December 31, 2013 | 14,508 |
| | $ | 14 |
| | (2,503 | ) | | $ | (71,001 | ) | | $ | 274,826 |
| | $ | 10,040 |
| | $ | 210,443 |
| | $ | (387 | ) | | $ | 423,935 |
|
| Net loss attributable to Steel Excel Inc. | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23,807 | ) | | — |
| | (23,807 | ) |
| Net loss attributable to non-controlling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 44 |
| | 44 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (25,246 | ) | | — |
| | — |
| | (25,246 | ) |
| Net issuance of restricted shares | 9 |
| | 1 |
| | — |
| | — |
| | (120 | ) | | | | | | | | (119 | ) |
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | 2,807 |
| | — |
| | — |
| | — |
| | 2,807 |
|
| Reverse/forward stock split | (297 | ) | | (1 | ) | | — |
| | — |
| | (10,069 | ) | | — |
| | — |
| | — |
| | (10,070 | ) |
| Repurchases of common stock | | | | | (311 | ) | | (10,354 | ) | | — |
| | — |
| | — |
| | — |
| | (10,354 | ) |
| Contribution from non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 328 |
| | 328 |
|
| Balance, December 31, 2014 | 14,220 |
| | $ | 14 |
| | (2,814 | ) | | $ | (81,355 | ) | | $ | 267,444 |
| | $ | (15,206 | ) | | $ | 186,636 |
| | $ | (15 | ) | | $ | 357,518 |
|
| Net loss attributable to Steel Excel Inc. | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (97,407 | ) | | — |
| | (97,407 | ) |
| Net loss attributable to non-controlling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (376 | ) | | (376 | ) |
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 9,660 |
| | — |
| | — |
| | 9,660 |
|
| Net issuance of restricted shares | 172 |
| | — |
| | — |
| | — |
| | (85 | ) | | — |
| | — |
| | — |
| | (85 | ) |
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | 3,157 |
| | — |
| | — |
| | — |
| | 3,157 |
|
| Repurchases of common stock | — |
| | — |
| | (231 | ) | | (4,612 | ) | | — |
| | — |
| | — |
| | — |
| | (4,612 | ) |
| Balance, December 31, 2015 | 14,392 |
| | $ | 14 |
| | (3,045 | ) | | $ | (85,967 | ) | | $ | 270,516 |
| | $ | (5,546 | ) | | $ | 89,229 |
| | $ | (391 | ) | | $ | 267,855 |
|
See accompanying Notes to Consolidated Financial Statements.
Steel Excel Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | | | | | (Revised) |
| | (in thousands) |
| Cash Flows From Operating Activities: | | | | | |
| Net income (loss) | $ | (97,783 | ) | | $ | (23,763 | ) | | $ | 7,327 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
| Loss (income) from discontinued operations | — |
| | (506 | ) | | 5,540 |
|
| Stock-based compensation expense | 3,157 |
| | 2,807 |
| | 2,040 |
|
| Depreciation and amortization | 23,613 |
| | 24,156 |
| | 19,185 |
|
| Impairment of goodwill and intangible assets | 25,622 |
| | 36,666 |
| | — |
|
| Impairment of marketable securities | 59,781 |
| | — |
| | — |
|
| Deferred income tax provision (benefit) | (6,547 | ) | | (198 | ) | | 1,988 |
|
| Gain on sales of marketable securities | (5,247 | ) | | (3,765 | ) | | (2,608 | ) |
| Reversal of tax reserves | 110 |
| | (45 | ) | | (7,236 | ) |
| Loss from equity-method investees | 16,102 |
| | 6,070 |
| | 862 |
|
| Loss on financial instrument obligations | 477 |
| | 1,820 |
| | — |
|
| Loss on change to equity method at fair value | 2,807 |
| | 568 |
| | — |
|
| Gain on non-monetary exchanges | (9,268 | ) | | — |
| | — |
|
| Other | 1,019 |
| | 1,116 |
| | 935 |
|
| Changes in operating assets and liabilities, net of effects of acquisitions: | |
| | |
| | |
| Accounts receivable | 17,364 |
| | (2,488 | ) | | 2,653 |
|
| Prepaid expenses and other assets | 225 |
| | 1,782 |
| | (833 | ) |
| Accounts payable and other liabilities | (4,908 | ) | | (305 | ) | | (2,044 | ) |
| Net cash used in operating activities of discontinued operations | — |
| | — |
| | (2,116 | ) |
| Net cash provided by operating activities | 26,524 |
| | 43,915 |
| | 25,693 |
|
| | | | | | |
| Cash Flows From Investing Activities: | |
| | |
| | |
| Purchases of businesses, net of cash acquired | — |
| | (517 | ) | | (61,888 | ) |
| Purchases of property and equipment | (4,785 | ) | | (15,939 | ) | | (8,932 | ) |
| Proceeds from sale of property and equipment | 171 |
| | 632 |
| | 552 |
|
| Other investments | — |
| | (3,000 | ) | | (25,000 | ) |
| Investments in equity method investees | — |
| | (144 | ) | | (9,202 | ) |
| Purchases of marketable securities | (43,426 | ) | | (111,648 | ) | | (189,268 | ) |
| Sales of marketable securities | 43,338 |
| | 116,314 |
| | 75,825 |
|
| Maturities of marketable securities | — |
| | 4,302 |
| | 145,994 |
|
| Proceeds from issuance of financial instrument obligations | 490 |
| | 385 |
| | — |
|
| Repayments of financial instrument obligations | (639 | ) | | (381 | ) | | — |
|
| Reclassification of restricted cash | (328 | ) | | (21,311 | ) | | — |
|
| Net cash used in investing activities | (5,179 | ) | | (31,307 | ) | | (71,919 | ) |
| | | | | | |
| Cash Flows From Financing Activities: | |
| | |
| | |
| Repurchases of common stock - treasury shares | (4,612 | ) | | (10,354 | ) | | (29,384 | ) |
| Repurchases of common stock - reverse/forward stock split | — |
| | (10,070 | ) | | — |
|
| Proceeds from issuance of long-term debt | — |
| | — |
| | 95,000 |
|
| Payments for debt issuance costs | — |
| | — |
| | (1,368 | ) |
| Repayments of long-term debt | (36,339 | ) | | (13,215 | ) | | (15,500 | ) |
| Other financing activities | (589 | ) | | (681 | ) | | (413 | ) |
| Net cash provided by (used in) financing activities | (41,540 | ) | | (34,320 | ) | | 48,335 |
|
| | | | | | |
| Net increase (decrease) in cash and cash equivalents | (20,195 | ) | | (21,712 | ) | | 2,109 |
|
| Effect of foreign currency translation on cash and cash equivalents | (8 | ) | | 20 |
| | (63 | ) |
| Cash and cash equivalents at beginning of period | 51,910 |
| | 73,602 |
| | 71,556 |
|
| | | | | | |
| Cash and cash equivalents at end of period | $ | 31,707 |
| | $ | 51,910 |
| | $ | 73,602 |
|
See accompanying Notes to Consolidated Financial Statements.
Steel Excel Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
1. | Organization and Basis of Presentation |
Steel Excel Inc. (“Steel Excel” or the “Company”) currently operates in two reporting segments - Energy and Sports. Through its wholly-owned subsidiary Steel Energy Services Ltd. ("Steel Energy Services"), the Company’s Energy business provides drilling and production services to the oil and gas industry. Through its wholly-owned subsidiary Steel Sports Inc., the Company’s Sports business is a social impact organization that strives to provide a first-class youth sports experience emphasizing positive experiences and instilling the core values of discipline, teamwork, safety, respect, and integrity. The Company also makes significant non-controlling investments in entities in industries related to its reporting segments as well as entities in other unrelated industries. The Company continues to identify business acquisition opportunities in both the Energy and Sports industries as well as in other unrelated industries. The Company began its Sports and Energy businesses in June 2011 and December 2011, respectively. Prior to that the Company provided enterprise-class external storage products and software to original equipment manufacturers (the "Predecessor Business"). Steel Partners Holdings L.P. (“Steel Partners”), an affiliate, beneficially owned approximately 58.3% of the Company’s outstanding common stock as of December 31, 2015.
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, and include the accounts of the Company and all of its subsidiaries. The Company consolidates entities in which it owns greater than 50% of the voting equity of an entity or otherwise is able to exert control. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
During 2015, the Company identified an error in the manner in which the provision for income taxes had been recorded for all quarterly and annual periods in the years ended December 31, 2014 and 2013. The Company's balance sheet at December 31, 2014, and its statement of operations, statement of comprehensive income, statement of stockholders' equity, and statement of cash flows for the year ended December 31, 2013, have been revised to reflect the correction of these errors (see Note 3).
The Company shut down the operations of Ruckus Sports LLC (“Ruckus”), a provider of obstacle course and mass-participation events that was part of the Company’s Sports business, in November 2013. The consolidated financial statements reflect Ruckus as a discontinued operation in all periods (see Note 5).
The Company's effected a 1-for-500 reverse stock split (the "Reverse Split") in June 2014, immediately followed by a 500-for-1 forward stock split (the "Forward Split", and together with the Reverse Split, the "Reverse/Forward Split"), of its common stock. The consolidated financial statements reflect the effects of the Reverse/Forward Split (see Note 22).
Certain other prior period amounts have been reclassified to conform to the 2015 presentation.
| |
2. | Summary of Significant Accounting Policies |
Cash and Cash Equivalents: Cash and cash equivalents include all cash balances and highly liquid investments having original maturities of three months or less.
Marketable Securities: Marketable securities are classified as available-for-sale and consist of short-term deposits, corporate debt and equity instruments, and mutual funds. The Company classifies its marketable securities as current assets based on the nature of the securities and their availability for use in current operations. Marketable securities are reported at fair value, with unrealized gains and losses recognized in stockholders’ equity as “other comprehensive income (loss)”. Declines in fair value that are determined to be other than temporary are recognized as an impairment charge. Realized gains or losses on marketable securities are determined based on specific identification of the securities sold and are recognized as “other income (loss)” at the time of sale. In 2015, the Company incurred impairment charges on its marketable securities of $59.8 million (see Note 6).
Allowance for Doubtful Accounts: The Company recognizes bad debt expense on trade receivables through an allowance account using estimates based on past experience, and writes off trade receivables against the allowance account when the Company believes it has exhausted all available means of collection. The allowance for doubtful accounts was $38,000 as of December 31, 2015; there was no allowance for doubtful accounts recognized as of December 31, 2014.
Fair Value Measurements: The Company reports certain assets and liabilities at their fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Fair values of assets and liabilities are determined based on a three-level measurement input hierarchy. Level 1 inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date. Level 2 inputs are other than quoted market prices that are observable, either directly or indirectly, for an asset or liability. Level 2 inputs can include quoted prices in active markets for similar assets or liabilities, quoted prices in a market that is not active for identical assets or liabilities, or other inputs that can be corroborated by observable market data. Level 3 inputs are unobservable for the asset or liability when there is little, if any, market activity for the asset or liability. Level 3 inputs are based on the best information available, and may include data developed by the Company.
Property and Equipment, Net: Property and equipment is stated at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which generally range from four years for certain vehicles and equipment to thirty-nine years for buildings. Leasehold improvements and assets recorded under capital leases are amortized on a straight-line basis over the shorter of their estimated useful lives or the terms of the leases.
Long-Lived Assets: The Company evaluates the recoverability of its finite-lived intangible assets and its property and equipment by comparing their carrying values to the expected future undiscounted cash flows to be generated from such assets when events or circumstances indicate that an impairment may have occurred. If the carrying values of the long-lived assets exceed the sum of the undiscounted cash flows, an impairment charge is recognized in the amount by which the carrying values exceeds their fair values. In 2015, the Company incurred an intangible asset impairment charge of $7.4 million (see Note 9).
Goodwill:Goodwill is tested for impairment on an annual basis, or more frequently if an event occurs or circumstances change to indicate that an impairment may have occurred. The Company performs its annual impairment test in the fourth quarter of each year. The goodwill impairment test involves a two-step process. The first step compares the fair value of a reporting unit with its carrying amount, including goodwill. No potential impairment exists if the carrying value of the reporting unit is less than its fair value. If the carrying value of the reporting unit exceeds its fair value, then the second step is necessary to measure the impairment. The second step compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value in excess of the implied fair value is recognized as an impairment. In 2015 and 2014, the Company incurred goodwill impairment charges of $18.3 million and $36.7 million, respectively (see Note 9).
Other Investments:Investments that do not have a readily determinable market value and in which the Company does not have a controlling financial interest are accounted for as cost-method investments or, if they Company has the ability to exert significant influence, as equity-method investments. The carrying values of equity-method investments are adjusted for either the Company’s proportionate share of the investee’s earnings, which may be reported on a lag of up to three months, or the change in fair value of the investee. Both cost-method investments and equity-method investments are monitored for indications of impairment. In 2015, the Company incurred an impairment on one of its equity-method investments of $2.5 million.
Financial Instrument Obligations: The Company recognizes a liability for short sale transactions on certain financial instruments in which the Company receives proceeds from the sale of such financial instruments and incurs obligations to deliver or purchase securities at a later date. Subsequent changes in the fair value of such obligations, determined based on the closing market price of the financial instruments, are recognized currently as gains or losses, with a comparable reclassification made between the amounts of the Company's unrestricted and restricted cash.
Contingent Liabilities: The Company recognizes a liability for certain contingencies, including those related to litigation or claims or to certain governmental laws and regulations, when it is probable that an asset has been impaired or a liability has been incurred, and the amount of the loss can be reasonably estimated.
Business Combinations:The Company allocates the fair value of the total consideration of its acquisitions to the tangible assets, liabilities, and identifiable intangible assets acquired based on their estimated fair values. The excess of the fair value of the total consideration over the fair values of these identifiable assets and liabilities is recognized as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred as a component of “selling, general, and administrative expenses.”
Revenue Recognition: The Company recognizes revenue at the time the service is provided to the customer. Revenue is recognized in the Energy business when the services are rendered. Revenue is recognized in the Sports business when the service is rendered or the event occurs. Amounts received from customers in advance of the service or event are deferred until such time the service is rendered or the event occurs.
Stock-based Compensation: The Company recognizes compensation expense for stock options and restricted stock
granted to employees and non-employee directors over the requisite service period based on the estimated fair value on the grant date. The fair value of restricted stock awards is the market price of the Company's common stock on the date of grant. The fair value of option awards is estimated using the Black-Scholes pricing model.
Advertising expenses: Advertising costs are expensed in the period in which the advertising appears in print or is broadcast. The Company's advertising expense for the years ended December 31, 2015, 2014, and 2013, was $0.2 million, $0.2 million, and $0.1 million, respectively.
Foreign Currency Translation: Although the Company no longer has current operations in foreign jurisdictions, it consolidates certain foreign-based entities associated with the Predecessor Business. Assets and liabilities of foreign entities are translated from the functional currency into United States dollars using the exchange rate in effect at the balance sheet date. Revenues and expenses of foreign operations are translated from the functional currency into United States dollars using the average exchange rate for the period. Adjustments resulting from the translation into United States dollars are recognized in stockholders’ equity as “other comprehensive income (loss)”.
Income Taxes: The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized, with changes in valuation allowances recognized in the provision for income taxes. The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.
Income (Loss) per Share: Basic net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share gives effect to all potentially dilutive common shares outstanding during the period.
Concentration of Credit Risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities, and trade receivables. The Company maintains its cash balances and marketable securities with high credit quality financial institutions. Deposits held with banks, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk. The Company limits the amount of credit exposure through diversification and management regularly monitors the composition of its investment portfolio.
The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. The Company’s clients in its Energy business are concentrated in the oil and gas industry, and are concentrated in North Dakota and Montana in the Bakken basin and in Texas in the Permian basin. The Company’s five largest customers in the Energy business provided approximately 55.7% and 61.2% of consolidated revenues for the years ended December 31, 2015 and 2014, respectively. In addition, amounts due from customers with the five largest outstanding receivable balances represented 51.8% and 65.5% of trade accounts receivable at December 31, 2015 and 2014, respectively. A significant reduction in business from a significant customer or their failure to pay outstanding trade accounts receivable could have a material adverse effect on the Company’s results of operations and financial condition.
Use of Estimates: The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions. These estimates affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.
Recently Issued Accounting Standards: In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which establishes a core principle, achieved through a five-step process, that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which deferred the effective date of ASU No. 2014-09 by one year for all entities. ASU 2014-09 is effective for public companies for annual reporting periods beginning after December 15, 2017, and for interim reporting periods within those years. Upon adoption, ASU No. 2014-09 can be applied either
retrospectively to each reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. Early application is not permitted. The Company is evaluating the potential impact on its consolidated financial statements of adopting ASU No. 2014-09 and has not yet determined the implementation method to be used.
In April 2015, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update (“ASU”) No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30), 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. The recognition and measurement guidance for debt issuance costs are not affected by ASU No. 2015-03. ASU No. 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been previously issued. Upon adoption, ASU No. 2015-03 should be applied retrospectively, with the balance sheet of each individual period presented adjusted to reflect the period-specific effects of applying the standard. The Company adopted ASU No. 2015-03 in 2015 and has reflected the impact in the current and prior years in its statement of financial position (see Note 3).
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805), which requires that adjustments to provisional amounts recognized at the time of a business combination that are identified during the measurement period be recognized in the reporting period in which the adjustment amounts are determined. ASU No. 2015-16 also requires that the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date, be recognized in the same period’s financial statements, with disclosure of the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU No. 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, and should be applied prospectively to adjustments to provisional amounts that occur after the effective date. The Company does not expect the adoption of ASU No. 2015-16 to have a material effect on its consolidated financial statements.
In November 2015, the FASB issued No. 2015-17, Income Taxes (Topic 740), which requires that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by ASU No. 2015-17. ASU No. 2015-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. A reporting entity may apply the provisions of ASU No. 2015-17 prospectively or retrospectively to all prior periods presented in the financial statements. The Company retrospectively adopted ASU No. 2015-17 in 2015 and has reflected the impact in the current and prior years in its statement of financial position (see Note 3).
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10), which eliminates the requirement to classify equity securities with readily determinable market values as either available-for-sale securities and trading securities, and requires that equity investments, other than those accounted for under the traditional equity method of accounting, be measured at their fair value with changes in fair value recognized in net income. Equity investments that do not have readily determinable market values may be measured at cost, subject to an assessment for impairment. ASU 825-10 also requires enhanced disclosures about such equity investments. ASU No. 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption prohibited. Upon adoption, a reporting entity should apply the provisions of ASU 2016-01 by means of a cumulative effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company is evaluating the potential impact on its consolidated financial statements of adopting ASU 2016-01.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires, among other things, a lessee to recognize a liability representing future lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For operating leases, a lessee will be required to recognize at inception a right-of-use asset and a lease liability equal to the net present value of the lease payments, with lease expense recognized over the lease term on a straight-line basis. For leases with a term of twelve months or less, ASU 2016-02 allows a reporting entity to make an accounting policy election to not recognize a right-of-use asset and a lease liability, and to recognize lease expense on a straight-line basis. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Upon adoption, a reporting entity should apply the provisions of ASU 2016-02 at the beginning of the earliest period presented using a modified retrospective approach, which includes certain optional practical expedients that an entity may elect to apply. The Company is evaluating the potential impact on its consolidated financial statements of adopting ASU 2016-02.
| |
3. | Revised Financial Statements |
During 2015, the Company identified an error related to the manner in which the change in the valuation allowance for deferred tax assets was reflected in its financial statements for all annual and quarterly periods in the years ended December 31, 2014 and 2013. The change in the valuation allowance, which resulted from a change in deferred tax liabilities related to unrealized gains on available-for-sale securities, was recognized as a component of income from continuing operations, resulting in a benefit from or provision for income taxes allocated to continuing operations in each period, with an offsetting provision for or benefit from income taxes allocated to other comprehensive income relating to unrealized gains or losses on available-for-sale securities. Upon subsequent review, the Company determined that proper intra-period allocation of the provision for income taxes would have resulted in this change in the valuation allowance being allocated to other comprehensive income, resulting in no provision or benefit for such item. In periods in which the valuation allowance decreased, the impact of this error was an overstatement of income from continuing operations and an understatement of other comprehensive income; in periods in which the valuation allowance increased, the impact of this error was an understatement of income from continuing operations and an overstatement of other comprehensive income.
The correction of this error has resulted in adjustments to the Company's balance sheet at December 31, 2014, and its statement of operations, statement of comprehensive income, statement of stockholders' equity, and statement of cash flows for the year ended December 31, 2013. The correction of this error did not result in any adjustments to the statement of operations, statement of comprehensive income, statement of stockholders' equity, and statement of cash flows for the year ended December 31, 2014. In addition, the Company's disclosures for the year ended December 31, 2013, related to income taxes (see Note 14), net income (loss) per share (see Note 16), and selected quarterly financial date (see Note 24) have been revised to reflect the impact of these adjustments.
The impact on the individual line items of the Company's financial statements from the adjustments to correct this error and the adjustments to reflect the adoption of ASU No. 2015-03 and ASU No. 2015-17 (see Note 2) was as follows:
Balance Sheet at December 31, 2014:
|
| | | | | | | | | | | |
| | Previously Reported | | Adjustments | | Revised |
| | (in thousands) |
| Deferred income taxes - current | $ | 1,696 |
| | $ | (1,696 | ) | | $ | — |
|
| Total current assets | $ | 245,618 |
| | $ | (1,696 | ) | | $ | 243,922 |
|
| Deferred income taxes - non-current | $ | 80 |
| | $ | (80 | ) | | $ | — |
|
| Other long-term assets | $ | 1,238 |
| | $ | (632 | ) | | $ | 606 |
|
| Total assets | $ | 479,354 |
| | $ | (2,408 | ) | | $ | 476,946 |
|
| | | | | | |
| Current portion of long-term debt | $ | 13,214 |
| | $ | (57 | ) | | $ | 13,157 |
|
| Deferred income taxes - current | $ | 85 |
| | $ | (85 | ) | | $ | — |
|
| Total current liabilities | $ | 48,324 |
| | $ | (142 | ) | | $ | 48,182 |
|
| Long-term debt | $ | 66,071 |
| | $ | (575 | ) | | $ | 65,496 |
|
| Deferred income taxes - non-current | $ | 3,549 |
| | $ | (1,691 | ) | | $ | 1,858 |
|
| Total liabilities | $ | 121,836 |
| | $ | (2,408 | ) | | $ | 119,428 |
|
| | | | | | |
| Accumulated other comprehensive income | $ | (18,730 | ) | | $ | 3,524 |
| | $ | (15,206 | ) |
| Retained earnings | $ | 190,160 |
| | $ | (3,524 | ) | | $ | 186,636 |
|
| Total stockholders' equity | $ | 357,518 |
| | $ | — |
| | $ | 357,518 |
|
| Total liabilities and stockholders' equity | $ | 479,354 |
| | $ | (2,408 | ) | | $ | 476,946 |
|
Statement of Operations for the year ended December 31, 2013:
|
| | | | | | | | | | | |
| | Previously Reported | | Adjustments | | Revised |
| | (in thousands, except per-share data) |
| Benefit for income taxes | $ | 9,342 |
| | $ | (3,524 | ) | | $ | 5,818 |
|
| Net income from continuing operations | $ | 16,391 |
| | $ | (3,524 | ) | | $ | 12,867 |
|
| Net income | $ | 10,851 |
| | $ | (3,524 | ) | | $ | 7,327 |
|
| Net income attributable to Steel Excel Inc. | $ | 14,195 |
| | $ | (3,524 | ) | | $ | 10,671 |
|
| | | | | | |
| Basic and diluted income (loss) per share attributable to Steel Excel Inc.: | | | | | |
| Net income from continuing operations | $ | 1.31 |
| | $ | (0.28 | ) | | $ | 1.03 |
|
| Net income | $ | 1.13 |
| | $ | (0.28 | ) | | $ | 0.85 |
|
Statement of Comprehensive Income for the year ended December 31, 2013:
|
| | | | | | | | | | | |
| | Previously Reported | | Adjustments | | Revised |
| | (in thousands) |
| Net income (loss) | $ | 10,851 |
| | $ | (3,524 | ) | | $ | 7,327 |
|
| Gross unrealized gains on marketable securities, net of tax | $ | 7,636 |
| | $ | 4,490 |
| | $ | 12,126 |
|
| Reclassification to realized gains, net of tax | $ | (1,642 | ) | | $ | (966 | ) | | $ | (2,608 | ) |
| Net unrealized gain on marketable securities, net of tax | $ | 5,994 |
| | $ | 3,524 |
| | $ | 9,518 |
|
| Comprehensive loss | $ | 16,421 |
| | $ | — |
| | $ | 16,421 |
|
| Comprehensive loss attributable to Steel Excel Inc. | $ | 19,765 |
| | $ | — |
| | $ | 19,765 |
|
| | | | | | |
| Tax benefit on gross unrealized gains | $ | (4,490 | ) | | $ | 4,490 |
| | $ | — |
|
| Tax benefit on reclassifications to realized gains (losses) | $ | 966 |
| | $ | (966 | ) | | $ | — |
|
Statement of Stockholders' Equity for the year ended December 31, 2013:
|
| | | | | | | | | | | |
| | Previously Reported | | Adjustments | | Revised |
| | (in thousands) |
| Net income attributable to Steel Excel Inc. | $ | 14,195 |
| | $ | (3,524 | ) | | $ | 10,671 |
|
| Other comprehensive income | $ | 5,570 |
| | $ | 3,524 |
| | $ | 9,094 |
|
Statement of Cash Flows for the year ended December 31, 2013:
|
| | | | | | | | | | | |
| | Previously Reported | | Adjustments | | Revised |
| | (in thousands) |
| Net income (loss) | $ | 10,851 |
| | $ | (3,524 | ) | | $ | 7,327 |
|
| Deferred income tax provision (benefit) | $ | (1,536 | ) | | $ | 3,524 |
| | $ | 1,988 |
|
| Cash provided by operating activities | $ | 25,693 |
| | $ | — |
| | $ | 25,693 |
|
Energy Business
On December 16, 2013, Black Hawk Energy Services Ltd. ("Black Hawk Ltd."), an indirect wholly-owned subsidiary of the Company, acquired the business and substantially all of the assets of Black Hawk Energy Services, Inc. (“Black Hawk Inc.”), a provider of drilling and production services to the oil and gas industry, for approximately $59.6 million in cash. The acquisition was funded with approximately $34.6 million from the Company's cash reserves and $25.0 million in proceeds from additional borrowings under an existing credit facility (see Note 10). The Company acquired the business of Black Hawk Inc. to further solidify its presence in North Dakota in the Bakken basin and to expand its business into other regions, including Texas and New Mexico. The results of operations of Black Hawk Ltd. have been included in the Company's results of operations since the acquisition date. Revenues and operating income from Black Hawk Ltd. included in the Company’s consolidated financial statements for the year ended December 31, 2013, totaled $2.5 million and $0.8 million respectively.
On February 9, 2012, the Company acquired the business and assets of Eagle Well Services, Inc. (“Eagle Well”), a provider of drilling and production services to the oil and gas industry, for approximately $48.1 million in cash. The Company acquired Eagle Well to expand its then nascent Energy business.
On May 31, 2012, the Company acquired all of the outstanding equity of Sun Well Service, Inc. (“Sun Well”), a provider of drilling and production services to the oil and gas industry. The total consideration aggregated $68.7 million, and consisted of 2,027,500 shares of the Company’s common stock valued at $60.8 million and $7.9 million of cash. The Company acquired Sun Well to further expand its Energy business. Steel Partners beneficially owned approximately 85% of Sun Well and approximately 40% of the Company at the time of the acquisition. Both the Company and Steel Partners appointed a special committee of independent directors to consider and negotiate the transaction because of the ownership interest held by Steel Partners in each entity (see Note 20 for related party information).
Upon the acquisition of Sun Well, the business of Eagle Well was merged with the business of Sun Well and operated as a single business. In 2015 and 2014, the Company recognized goodwill impairment charges of $18.1 million and $30.4 million, respectively, related to the goodwill from the Sun Well and Eagle Well transactions (see Note 9).
On December 7, 2011, the Company acquired the business and assets of Rogue Pressure Services, LLC (“Rogue”), a provider of drilling and production services to the oil and gas industry. Contingent consideration was recognized at the acquisition date of Rogue and was payable upon attaining certain operational performance levels in the ensuing three years. In 2012, the Company reversed $0.7 million of the contingent consideration liability based on the failure to achieve the operational performance levels in 2012 and projections of future years' performance. In 2013, the Company reversed $0.5 million of the contingent consideration liability based on the failure to achieve the operational performance levels and the projections of future years' performance. Such amount was recognized as a reduction of "Selling, general, and administrative expenses". In 2014, the Company recognized a goodwill impairment charge of $6.3 million related to the goodwill from the Rogue transaction.
Sports Business
On June 19, 2013, the Company acquired 80% of the outstanding common stock of UK Elite Soccer, Inc. ("UK Elite"), a provider of youth soccer programs, coaching services, tournaments, tours, and camps, for approximately $2.3 million in cash. The fair value of the non-controlling interest at the acquisition date was based on the amount paid by the Company for 80% of the common stock. The Company acquired UK Elite to expand its Sports business to include soccer events.
In 2014, UK Elite acquired the business and assets of three independent providers of soccer clinics and camps for a total purchase price of $1.0 million, or approximately $0.5 million net of cash acquired. In connection with these acquisitions, the Company recognized approximately $0.2 million in current assets, primarily trade receivables, approximately $0.6 million in current liabilities, primarily deferred revenue, and approximately $0.9 million in intangible assets representing customer relationships that are being amortized over a five-year period.
On November 5, 2012, the Company acquired a 50% interest in two Crossfit® facilities in located in Torrance, CA, and Hermosa Beach, CA, that provide strength and conditioning services as well as yoga, pilates, and spin. Through the provisions of the operating agreements the Company had the ability to control the operations of the Crossfit® entities. Accordingly, the Company accounted for its investments as business combinations and consolidates both entities. The Company acquired its interests in the Crossfit® entities for approximately $0.1 million in cash and a commitment to loan the Torrance facility up to $1.1 million to fund the construction of the facility and the purchase of equipment. In 2014, the
Company increased its ownership interest in the Torrance facility to approximately 86% through the contribution of loans and other advances. In 2015, the Company recognized a goodwill impairment charge of $0.2 million related to the Hermosa facility. In January 2016, the Company exchanged its 50% interest in the Hermosa facility for the remaining 14% interest in the Torrance facility.
On January 31, 2013, the Company acquired a 20% membership interest in Ruckus with an option to acquire an additional 40% membership interest in the next two years. Pursuant to an operating agreement, the Company appointed two directors on a three-member board of directors and therefore had the ability to control the operations of Ruckus. Accordingly, the Company accounted for its acquisition of its 20% membership interest as a business combination and consolidated Ruckus. The total consideration aggregated $1.0 million, and consisted of $0.9 million of cash and the contribution of a loan of $0.1 million. The Company acquired its membership interests in Ruckus to expand the health-related and entertainment services of its Sports business. In May 2013 and July 2013 the Company acquired additional membership interests in Ruckus of 10% and 15%, respectively, for cash payments aggregating $1.3 million, thereby increasing the Company's ownership interest to 45%. Such additional investments were recorded as equity transactions since Ruckus was a consolidated at the time of the investments. In November 2013, the Company shut down the operations of Ruckus after it did not meet operational and financial expectations. The Company recognized a goodwill impairment charge of $3.6 million in connection with the shutdown of the business. Ruckus is reported as a discontinued operation in the Company’s consolidated financial statements and no amounts are included in revenues or income from continuing operations.
The following unaudited pro forma financial information combines the results of operations of the Company with the results of operations of the acquisitions consummated during the year ended December 31, 2013, as if those acquisitions had occurred at the beginning of the year prior to the date of acquisition. No pro forma financial information is provided for the year ended December 31, 2014, for the businesses acquired by UK Elite in 2014 since their results of operations are not material. The pro forma financial information for the year ended December 31, 2013, does not include the results of Ruckus, which is reported as a discontinued operation in the Company's consolidated financial statements. The pro forma financial information is not necessarily indicative of what would have actually occurred had the acquisitions been consummated at the beginning of the year prior to the date of acquisition or results that may occur in the future.
|
| | | |
| | 2013 |
| | (in thousands) |
| Net revenues | $ | 182,591 |
|
| Net income from continuing operations | $ | 27,963 |
|
| Net income | $ | 22,423 |
|
| Net income attributable to Steel Excel Inc. | $ | 25,767 |
|
| Net income per share attributable to Steel Excel Inc. - basic | $ | 2.05 |
|
| Net income per share attributable to Steel Excel Inc. - diluted | $ | 2.04 |
|
| |
5. | Discontinued Operations |
The Company shut down the operations of Ruckus, which was part of the Company’s Sports business, in November 2013 after it did not meet operational and financial expectations. The results of operations of Ruckus, which are reported as a discontinued operation in the consolidated statements of operations for the years ended December 31, 2014 and 2013, were as follows:
|
| | | | | | | |
| | Year Ended December 31, |
| | 2014 | | 2013 |
| | (in thousands) |
| Revenues | $ | — |
| | $ | 1,260 |
|
| | | | |
| Income (loss) from operations of discontinued operations | $ | 506 |
| | $ | (5,540 | ) |
Income from operations for the year ended December 31, 2014, represents an adjustment to the outstanding obligations of Ruckus. The loss from operations for the year ended December 31, 2013, includes a goodwill impairment charge
of $3.6 million. There was no tax effect on any of the activity of discontinued operations for the years ended December 31, 2014, and 2013.
Marketable Securities
All of the Company's marketable securities at December 31, 2015 and 2014, were classified as "available-for-sale" securities, with changes in fair value recognized in stockholders' equity as "other comprehensive income (loss)", except for other-than-temporary impairments, which are reflected as a reduction of cost and charged to operations.
The Company's marketable securities at December 31, 2015, include investments in the common units of Steel Partners Holdings L.P. ("SPLP"), which beneficially owned approximately 58.3% of the Company's common stock as of December 31, 2015. The SPLP common units held by the Company are classified as "available-for-sale" securities. As of December 31, 2015, the Company held 936,968 SPLP common units that had a fair value of approximately $15.3 million and an unrealized loss of approximately $1.1 million.
Marketable securities at December 31, 2015, consisted of the following:
|
| | | | | | | | | | | | | | | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| | (in thousands) |
| Short-term deposits | $ | 30,118 |
| | $ | — |
| | $ | — |
| | $ | 30,118 |
|
| Mutual funds | 11,835 |
| | 2,182 |
| | — |
| | 14,017 |
|
| Corporate securities | 58,333 |
| | 250 |
| | (1,674 | ) | | 56,909 |
|
| Corporate obligations | 25,747 |
| | 98 |
| | (582 | ) | | 25,263 |
|
| Total available-for-sale securities | 126,033 |
| | 2,530 |
| | (2,256 | ) | | 126,307 |
|
| Amounts classified as cash equivalents | (30,118 | ) | | — |
| | — |
| | (30,118 | ) |
| Amounts classified as marketable securities | $ | 95,915 |
| | $ | 2,530 |
| | $ | (2,256 | ) | | $ | 96,189 |
|
Marketable securities at December 31, 2014, consisted of the following:
|
| | | | | | | | | | | | | | | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| | (in thousands) |
| Short-term deposits | $ | 42,681 |
| | $ | — |
| | $ | — |
| | $ | 42,681 |
|
| Mutual funds | 17,030 |
| | 4,262 |
| | (322 | ) | | 20,970 |
|
| United States government securities | — |
| | — |
| | — |
| | — |
|
| Corporate securities | 103,761 |
| | 7,821 |
| | (23,732 | ) | | 87,850 |
|
| Corporate obligations | 32,486 |
| | 592 |
| | (3,441 | ) | | 29,637 |
|
| Commercial paper | — |
| | — |
| | — |
| | — |
|
| Total available-for-sale securities | 195,958 |
| | 12,675 |
| | (27,495 | ) | | 181,138 |
|
| Amounts classified as cash equivalents | (42,681 | ) | | — |
| | — |
| | (42,681 | ) |
| Amounts classified as marketable securities | $ | 153,277 |
| | $ | 12,675 |
| | $ | (27,495 | ) | | $ | 138,457 |
|
Proceeds from sales of marketable securities were $43.3 million, $116.3 million, and $75.8 million for the years ended December 31, 2015, 2014, and 2013, respectively. The company determines gains and losses from sales of marketable securities based on specific identification of the securities sold. Gross realized gains and losses from sales of marketable securities, all of which are reported as a component of "Other income (expense), net" in the consolidated statements of operations, were as follows:
|
| | | | | | | | | | | | | | |
| | | | | Year Ended December 31, |
| | | | | 2015 | | 2014 | | 2013 |
| | | | | (in thousands) |
| Gross realized gains | | | | $ | 12,053 |
| | $ | 8,065 |
| | $ | 6,984 |
|
| Gross realized losses | | | | (6,806 | ) | | (4,300 | ) | | (4,376 | ) |
| Realized gains, net | |
| | $ | 5,247 |
| | $ | 3,765 |
| | $ | 2,608 |
|
The fair value of the Company’s marketable securities with unrealized losses at December 31, 2015, all of which had unrealized losses for periods of less than twelve months, were as follows:
|
| | | | | | | |
| | Fair Value | | Gross Unrealized Losses |
| | (in thousands) |
| Corporate securities | $ | 18,755 |
| | $ | (1,674 | ) |
| Corporate obligations | 13,199 |
| | (582 | ) |
| Total | $ | 31,954 |
| | $ | (2,256 | ) |
The fair value of the Company’s marketable securities with unrealized losses at December 31, 2014, all of which had unrealized losses for periods of less than twelve months, were as follows:
|
| | | | | | | |
| | Fair Value | | Gross Unrealized Losses |
| | (in thousands) |
| Corporate securities | $ | 39,869 |
| | $ | (23,732 | ) |
| Corporate obligations | 13,530 |
| | (3,441 | ) |
| Mutual funds | $ | 4,873 |
| | $ | (322 | ) |
| Total | $ | 58,272 |
| | $ | (27,495 | ) |
Gross unrealized losses primarily related to losses on corporate securities and corporate obligations, which primarily consist of investments in equity and debt securities of publicly-traded entities. Based on the Company's evaluation of such securities, it has determined that certain unrealized losses represented other-than-temporary impairments. This determination was based on several factors, including adverse changes in the market conditions and economic environments in which the entities operate. The Company recognized impairment charges of approximately $59.8 million for the year ended December 31, 2015, equal to the cost basis of such securities in excess of their fair values. The Company has determined that there was no indication of other-than-temporary impairments on its other investments with unrealized losses as of December 31, 2015. This determination was based on several factors, including the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the entity, and the Company's intent and ability to hold the corporate securities for a period of time sufficient to allow for any anticipated recovery in market value.
The amortized cost and estimated fair value of available-for-sale debt securities and marketable securities with no contractual maturities at December 31, 2015, by contractual maturity, were as follows:
|
| | | | | | | |
| | Cost | | Estimated Fair Value |
| | (in thousands) |
| Debt securities: | | | |
| Mature after one year through three years | $ | 7,414 |
| | $ | 7,512 |
|
| Mature in more than three years | 18,333 |
| | 17,751 |
|
| Total debt securities | 25,747 |
| | 25,263 |
|
| Securities with no contractual maturities | 100,286 |
| | 101,044 |
|
| Total | $ | 126,033 |
| | $ | 126,307 |
|
Financial Instrument Obligations
The Company has entered into short sale transactions on certain financial instruments in which the Company received proceeds from the sale of such financial instruments and incurred obligations to deliver or purchase securities at a later date. Upon initially entering into such short sale transactions the Company recognizes a liability equal to the fair value of the obligation, with a comparable amount of the Company's cash and cash equivalents reclassified as restricted cash. Subsequent changes in the fair value of such obligations, determined based on the closing market price of the financial instruments, are recognized currently as gains or losses, with a comparable reclassification made between the amounts of the Company's unrestricted and restricted cash. The Company's obligations for such transactions are reported as "Financial instrument obligations" with a comparable amount reported as "Restricted cash" in the Company's consolidated balance sheet. As of December 31, 2015 and 2014, the Company's financial instrument obligations consisted of the following:
|
| | | | | | | | | | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | Initial Obligation | | Estimated
Fair Value | | Initial Obligation | | Estimated
Fair Value |
| | (in thousands) |
| Corporate securities | $ | 675 |
| | $ | 1,352 |
| | $ | 666 |
| | $ | 621 |
|
| Market indices | 18,685 |
| | 20,285 |
| | 18,685 |
| | 20,451 |
|
| Covered call options | 26 |
| | 2 |
| | 7 |
| | 4 |
|
| Naked put options | — |
| | — |
| | 109 |
| | 235 |
|
| Total | $ | 19,386 |
| | $ | 21,639 |
| | $ | 19,467 |
| | $ | 21,311 |
|
For the years ended December 31, 2015 and 2014, the Company incurred losses on outstanding financial instrument obligations and settled transactions totaling $0.5 million and $1.8 million, respectively, which are included as a component of "Other income (expense), net" in the Company's consolidated statements of operations.
Equity-Method Investments
In January 2013, the Company acquired a 40% membership interest in Again Faster LLC, a fitness equipment company, for total cash consideration of $4.0 million. The Company accounts for its investment in Again Faster under the equity method as its ownership interest provides the Company with significant influence, but the Company does not have a controlling financial interest or other control over the operations of Again Faster. The Company accounts for its investment in Again Faster using the traditional method of accounting for equity-method investments, with the Company recognizing its equity in the losses of Again Faster on a one-quarter lag basis. In response to adverse developments in its business, in 2015 Again Faster began seeking out additional investors or buyers for the business and is pursuing other strategic alternatives, including liquidation. Based on the state of the business and the available strategic alternatives, in 2015 the Company fully impaired its investment in Again Faster, incurring an impairment charge of approximately $2.5 million.
On August 23, 2013, the Company acquired 1,316,866 shares of the common stock of iGo, Inc. (“iGo”), in a cash tender offer for total consideration of $5.2 million. The shares of common stock of iGo acquired by the Company represented approximately 44.7% of the issued and outstanding shares of iGo. The Company's ownership interest in iGo has increased to 45.7% as a result of changes in the number of outstanding shares of iGo. Pursuant to the Stock Purchase and Sale Agreement between the Company and iGo entered into on July 11, 2013, two members of iGo’s four-member board of directors were
replaced by two designees of the Company. The Company accounts for its investment in iGo under the equity method as the Company’s voting interest and board representation provide it with significant influence, but do not provide the Company with control over iGo’s operations. The Company accounts for its investment in iGo using the traditional method of accounting for equity-method investments, with the Company recognizing its equity in the losses of iGo on a one-quarter lag basis.
In May 2014, the Company increased its holdings of the common stock of API Technologies Corp. (“API”), a designer and manufacturer of high performance systems, subsystems, modules, and components, to 11,377,192 shares through the acquisition of 1,666,666 shares on the open market. Upon acquiring such shares, the Company held approximately 20.6% of the total outstanding common stock of API. Effective as of that date, the investment in API has been accounted for as an equity-method investment using the fair value option, with changes in fair value based on the market price of API's common stock recognized currently as income or loss from equity method investees. The Company elected the fair value option to account for its investment in API in order to more appropriately reflect the value of API in its financial statements. Prior to such time, the investment in API was accounted for as an available-for-sale security, and upon the change in classification the Company recognized a loss of approximately $0.6 million that had previously been included as a component of "accumulated other comprehensive income".
In January 2015, two members of the Company's board of directors were appointed to the eight-member board of directors of Aviat Networks, Inc. ("Aviat"), a global provider of microwave networking solutions. At the time of the appointment, the Company held 8,042,892 shares of Aviat, or approximately 12.9% of the total outstanding common stock. Effective as of the date of the appointment, the investment in Aviat has been accounted for as an equity-method investment as the Company’s voting interest and board representation provide it with significant influence over Aviat's operations. The Company elected the fair value option to account for its investment in Aviat, with changes in fair value based on the market price of Aviat's common stock recognized currently as income or loss from equity method investees, in order to more appropriately reflect the value of Aviat in its financial statements. Prior to such time the investment in Aviat was accounted for as an available-for-sale security, and upon the change in classification the Company recognized a loss of approximately $2.8 million that had previously been included as a component of "accumulated other comprehensive income".
The following table summarizes the Company's equity-method investments.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Ownership | | Carrying Value | | Income (Loss) Recognized |
| | December 31, | | December 31, | | Year Ended December 31, |
| | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | | 2013 |
| | | | | | (in thousands) | | |
| Traditional equity method | | | | | | | | | | | | | |
| Again Faster | 40.0 | % | | 40.0 | % | | — |
| | 3,105 |
| | (3,105 | ) | | (566 | ) | | (329 | ) |
| iGo | 45.7 | % | | 46.9 | % | | 2,861 |
| | 2,600 |
| | 261 |
| | (2,068 | ) | | (533 | ) |
| | | | | | | | | | | | | | |
| Fair value option | | | | | | | | | | | | | |
| API | 20.6 | % | | 20.6 | % | | 15,779 |
| | 24,355 |
| | (8,576 | ) | | (3,436 | ) | | — |
|
| Aviat | 12.9 | % | | | | 6,175 |
| | — |
| | (4,682 | ) | | — |
| | — |
|
| Total | | | | | $ | 24,815 |
| | $ | 30,060 |
| | $ | (16,102 | ) | | $ | (6,070 | ) | | $ | (862 | ) |
Based on the closing market price of iGo's publicly-traded shares, the value of the Company's investment in iGo was approximately $3.9 million at December 31, 2015.
In February 2016, API announced that it had entered into a merger agreement pursuant to which holders of its common stock will receive $2.00 for each share held. The merger is subject to certain closing conditions, including shareholder and regulatory approval. The Company and another third party, who combined hold a majority of the common stock of API, have entered into a written consent agreement approving the merger. Pursuant to the consent agreement, the Company is prohibited from selling its shares of API common stock prior to the consummation of the merger. Upon consummation of the merger, the Company would receive $22.9 million for its investment in API.
The following table presents summarized financial statement information for the Company's equity-method investees as of and for the years ended December 31, 2015 and 2014. The summarized balance sheet information is as of the most recent practicable date for equity-method investments accounted for using the fair value option and as of the date through which
Company has recognized its equity in the income of the investee for equity-method investments accounted for using the traditional method. The summarized balance sheet and income statement information is included for the periods during which such investments were accounted for as equity-method investments.
|
| | | | | | | | |
| | | 2015 | | 2014 |
| | | (in thousands) |
| Current assets | | $ | 303,544 |
| | $ | 115,532 |
|
| Non-current assets | | $ | 258,816 |
| | $ | 179,161 |
|
| Current liabilities | | $ | 180,664 |
| | $ | 42,200 |
|
| Non-current liabilities | | $ | 207,897 |
| | $ | 132,681 |
|
| Revenues | | $ | 546,765 |
| | $ | 131,290 |
|
| Gross profit | | $ | 129,419 |
| | $ | 29,841 |
|
| Loss from continuing operations | | $ | (44,640 | ) | | $ | (8,046 | ) |
| Net loss | | $ | (43,040 | ) | | $ | (8,046 | ) |
| Loss attributable to controlling interests | | $ | (43,340 | ) | | $ | (8,046 | ) |
Other Investments
The Company's other long-term investments at December 31, 2014, included a $25.0 million cost-method investment in a limited partnership that co-invested with other private investment funds in a public company. The limited partnership was liquidated in August 2015, with the Company receiving its proportionate share of the common stock of the public company investee. Upon liquidation, the Company recognized a gain on the non-monetary exchange of $9.3 million based on the fair value of the shares received of $34.3 million. The shares of common stock of the public company investee received are reported with the Company's marketable securities and are classified as "available-for-sale" securities.
The Company's other long-term investments at December 31, 2015, include investments in a venture capital fund totaling $0.5 million, preferred stock of an investee of $0.1 million, and a promissory note with an amortized cost of $3.0 million, which approximates fair value at December 31, 2015.
| |
7. | Fair Value Measurements |
Fair values of assets and liabilities are determined based on a three-level measurement input hierarchy.
Level 1 inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date.
Level 2 inputs are other than quoted market prices that are observable, either directly or indirectly, for an asset or liability. Level 2 inputs can include quoted prices in active markets for similar assets or liabilities, quoted prices in a market that is not active for identical assets or liabilities, or other inputs that can be corroborated by observable market data. The Company uses quoted prices of similar instruments with an active market to determine the fair value of its Level 2 investments.
Level 3 inputs are unobservable for the asset or liability when there is little, if any, market activity for the asset or liability. Level 3 inputs are based on the best information available, and may include data developed by the Company. The Company uses the net asset value included in quarterly statements it receives in arrears from a venture capital fund to determine the fair value of such fund. The Company determines the fair value of certain corporate securities and corporate obligations by incorporating and reviewing prices provided by third-party pricing services based on the specific features of the underlying securities.
Assets measured at fair value on a recurring basis at December 31, 2015, summarized by measurement input category, were as follows:
|
| | | | | | | | | | | | | | | |
| | Total | |
Level 1 | |
Level 2 | |
Level 3 |
| | (in thousands) |
| Assets | | | | | | | |
| Mutual funds | $ | 14,017 |
| | $ | 14,017 |
| | $ | — |
| | $ | — |
|
| Corporate securities | 56,909 |
| | 48,604 |
| | — |
| | 8,305 |
|
| Corporate obligations | 25,263 |
| | — |
| | 6,143 |
| | 19,120 |
|
| Investments in equity-method investees | 21,954 |
| | 21,954 |
| | — |
| | — |
|
Other investments(1) | 555 |
| | — |
| | — |
| | 555 |
|
| | $ | 118,698 |
| | $ | 84,575 |
| | $ | 6,143 |
| | $ | 27,980 |
|
| | | | | | | | |
| Liabilities | | | | | | | |
| Financial instrument obligations | $ | (21,639 | ) | | $ | (21,639 | ) | | $ | — |
| | $ | — |
|
(1)Reported within "Other investments."
Assets and liabilities measured at fair value on a recurring basis at December 31, 2014, summarized by measurement input category, were as follows:
|
| | | | | | | | | | | | | | | |
| | Total | |
Level 1 | |
Level 2 | |
Level 3 |
| | (in thousands) |
| Assets | | | | | | | |
| Mutual funds | $ | 20,970 |
| | $ | 20,970 |
| | $ | — |
| | $ | — |
|
| Corporate securities | 87,850 |
| | 72,798 |
| | — |
| | 15,052 |
|
| Corporate obligations | 29,637 |
| | — |
| | 10,793 |
| | 18,844 |
|
| Investments in equity-method investees | 24,355 |
| | 24,355 |
| | — |
| | — |
|
Other investments(1) | 525 |
| | — |
| | — |
| | 525 |
|
| | $ | 163,337 |
| | $ | 118,123 |
| | $ | 10,793 |
| | $ | 34,421 |
|
| | | | | | | | |
| Liabilities | |
| | |
| | |
| | |
|
| Financial instrument obligations | $ | (21,311 | ) | | $ | (21,311 | ) | | $ | — |
| | $ | — |
|
(1)Reported within "Other investments".
There were no transfers of securities among the various measurement input levels during the year ended December 31, 2015.
Changes in the fair value of assets valued using Level 3 measurement inputs during the years ended December 31, 2015 and 2014, were as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Balance, beginning of period | $ | 34,421 |
| | $ | 24,209 |
| | $ | 2,804 |
|
| Purchases | 5,183 |
| | 13,294 |
| | 45,383 |
|
| Sales | (2,953 | ) | | (5,001 | ) | | (23,034 | ) |
| Realized gain on sale | 8 |
| | (129 | ) | | 1,556 |
|
| Change in fair value | (8,679 | ) | | 2,048 |
| | (2,500 | ) |
| Balance, end of period | $ | 27,980 |
| | $ | 34,421 |
| | $ | 24,209 |
|
Realized gains and losses on the sale of investments using Level 3 measurement inputs are recognized as a component of "Other income (expense), net". Unrealized gains and losses on investments using Level 3 measurement inputs are recognized as a component of "Other comprehensive income (loss)".
The carrying value of the Company's long-term debt (see Note Note 10) is a reasonable approximation of its fair value since it is a variable-rate obligation.
| |
8. | Property and Equipment, Net |
Property and equipment at December 31, 2015 and 2014, consisted of the following:
|
| | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | (in thousands) |
| Rigs and other equipment | $ | 118,836 |
| | $ | 115,391 |
|
| Buildings and improvements | 19,319 |
| | 18,977 |
|
| Land | 1,893 |
| | 1,893 |
|
| Vehicles | 2,304 |
| | 2,197 |
|
| Furniture and fixtures | 925 |
| | 673 |
|
| Assets in progress | 108 |
| | 644 |
|
| | 143,385 |
| | 139,775 |
|
| Accumulated depreciation | (47,592 | ) | | (32,588 | ) |
| Property and equipment, net | $ | 95,793 |
| | $ | 107,187 |
|
Depreciation expense was $15.4 million, $14.6 million, and $10.5 million for the years ended December 31, 2015, 2014, and 2013, respectively, and includes the depreciation associated with assets under capital leases (see Note 11).
| |
9. | Goodwill and Other Intangible Assets |
In connection with its annual goodwill impairment tests, the Company recognized impairment charges of $18.3 million and $36.7 million in the fourth quarter of 2015 and 2014, respectively, primarily related to the goodwill associated with its Energy segment. The impairments in the Energy segment resulted from the adverse effects the decline in energy prices have had on the oil services industry and the projected future results of operations of the Energy segment. The fair values of the reporting units used in determining the goodwill impairment charges were based on valuations using a combination of the income approach (discounted cash flows) and the market approach (guideline public company method and guideline transaction method). The goodwill impairment charge in 2015 included an impairment of the goodwill at Sun Well, inclusive of the goodwill related to Eagle Well, of approximately $18.1 million. The goodwill impairment charge in 2014 consisted of an impairment of the goodwill at Sun Well of approximately $30.4 million and an impairment charge of the goodwill at Rogue of $6.3 million. No impairment charges were recognized related to the goodwill at Black Hawk. The goodwill impairment charge in 2015 also included an impairment of the goodwill related to the Hermosa Crossfit® facility of approximately $0.2 million.
In 2015, the Company recognized in impairment charge of $7.4 million related to the long-lived assets at Sun Well as a result of the adverse effects the decline in energy prices have had on the projected future results of operations. The impairment charge was equal to the carrying value of the long-lived assets in excess of their fair values, and was fully ascribed to the customer relationships intangible asset at Sun Well based on the relative fair values of the long-lived assets.
The Company's intangible assets at December 31, 2015 and 2014, all of which are subject to amortization, consisted of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net |
| | (in thousands) |
| Energy segment: | | | | | |
| | | | | | |
| Customer relationships | $ | 47,078 |
| | $ | (28,966 | ) | | $ | 18,112 |
| | $ | 54,430 |
| | $ | (21,938 | ) | | $ | 32,492 |
|
| Trade names | 4,860 |
| | (3,785 | ) | | 1,075 |
| | 4,860 |
| | (3,161 | ) | | 1,699 |
|
| Non-compete agreement | 120 |
| | (49 | ) | | 71 |
| | 120 |
| | (25 | ) | | 95 |
|
| | 52,058 |
| | (32,800 | ) | | 19,258 |
| | 59,410 |
| | (25,124 | ) | | 34,286 |
|
| | | | | | | | | | | | |
| Sports segment: | | | | | | | | | | | |
| Customer relationships | 2,089 |
| | (1,189 | ) | | 900 |
| | 2,089 |
| | (678 | ) | | 1,411 |
|
| Trade names | 122 |
| | (61 | ) | | 61 |
| | 122 |
| | (37 | ) | | 85 |
|
| | 2,211 |
| | (1,250 | ) | | 961 |
| | 2,211 |
| | (715 | ) | | 1,496 |
|
| | | | | | | | | | | | |
| Total | $ | 54,269 |
| | $ | (34,050 | ) | | $ | 20,219 |
| | $ | 61,621 |
| | $ | (25,839 | ) | | $ | 35,782 |
|
Amortization expense was $8.2 million, $9.6 million, and $8.7 million for the years ended December 31, 2015, 2014, and 2013, respectively.
Estimated aggregate amortization expense related to the intangible assets for the next five years and thereafter is as follows:
|
| | | | | | | |
| | | | | | Amount |
| | | | | | (in thousands) |
| For the year ended December 31: | | | | | |
| 2016 | | | | | $ | 5,710 |
|
| 2017 | | | | | 4,800 |
|
| 2018 | | | | | 4,167 |
|
| 2019 | | | | | 1,753 |
|
| 2020 | | | | | 1,753 |
|
| Thereafter | | | | | 2,036 |
|
| | | | | | $ | 20,219 |
|
The changes to the Company’s carrying amount of goodwill were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 | | Year Ended December 31, 2014 |
| | Energy | | Sports | | Total | | Energy | | Sports | | Total |
| | (in thousands) |
| Balance at beginning of period | $ | 28,693 |
| | $ | 2,171 |
| | $ | 30,864 |
| | $ | 65,359 |
| | $ | 2,171 |
| | $ | 67,530 |
|
| Impairments | (18,116 | ) | | (154 | ) | | (18,270 | ) | | (36,666 | ) | | — |
| | (36,666 | ) |
| Balance at end of period | $ | 10,577 |
| | $ | 2,017 |
| | $ | 12,594 |
| | $ | 28,693 |
| | $ | 2,171 |
| | $ | 30,864 |
|
At December 31, 2015, the remaining goodwill associated with the Energy segment was $10.6 million, all of which related to Black Hawk. The accumulated goodwill impairment was $60.5 million and $42.2 million at December 31, 2015 and 2014, respectively.
The components of goodwill at December 31, 2015 and 2014, were as follows:
|
| | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | (in thousands) |
| Goodwill | $ | 73,095 |
| | $ | 73,095 |
|
| Accumulated impairment | (60,501 | ) | | (42,231 | ) |
| Net goodwill | $ | 12,594 |
| | $ | 30,864 |
|
In 2013, Steel Energy Services entered into a credit agreement, as amended (the “Amended Credit Agreement”), with Wells Fargo Bank National Association, RBS Citizens, N.A., and Comerica Bank that provides for a borrowing capacity of $105.0 million consisting of a $95.0 million secured term loan (the “Term Loan”) and up to $10.0 million in revolving loans (the “Revolving Loans”) subject to a borrowing base of 85% of the eligible accounts receivable. Of the total proceeds from the Term Loan, $70.0 million was used to partially fund a dividend of $80.0 million paid to the Company and $25.0 million was used to partially fund the acquisition of the business and substantially all of the assets of Black Hawk Inc. (see Note 4). The Company incurred fees totaling approximately $1.4 million in connection with the Amended Credit Agreement that are being amortized over the life of the arrangement as a component of interest expense.
Borrowings under the Amended Credit Agreement are collateralized by substantially all the assets of Steel Energy Services and its wholly-owned subsidiaries Sun Well, Rogue, and Black Hawk Ltd., and a pledge of all of the issued and outstanding shares of capital stock of Sun Well, Rogue, and Black Hawk Ltd. Borrowings under the Amended Credit Agreement are fully guaranteed by Sun Well, Rogue, and Black Hawk Ltd. The carrying values as of December 31, 2015, of the assets pledged as collateral by Steel Energy Services and its subsidiaries under the Amended Credit Agreement were as follows:
|
| | | |
| | Amount |
| | (in thousands) |
| Cash and cash equivalents | $ | 21,812 |
|
| Accounts receivable | 8,685 |
|
| Property and equipment, net | 88,463 |
|
| Intangible assets, net | 19,258 |
|
| Total | $ | 138,218 |
|
The Amended Credit Agreement has a term that runs through July 2018, with the Term Loan amortizing in quarterly installments of $3.3 million and a balloon payment due on the maturity date. In December 2015, the Company made a prepayment of $23.1 million on the Term Loan, with the prepayment applied to the next seven quarterly installments. The Company recognized a loss on extinguishment of $0.1 million in connection with the prepayment from the write off of unamortized debt issuance costs, which was reported as a component of "Other income (expense), net" in the consolidated statement of operations for the year ended December 31, 2015.
At December 31, 2015, $42.7 million was outstanding under the Term Loan and no amount was outstanding under the Revolving Loans. Principal payments under the Amended Credit Agreement for subsequent years are as follows:
|
| | | | |
| | | Amount |
| | | (in thousands) |
| 2016 | | $ | — |
|
| 2017 | | 3,303 |
|
| 2018 | | 39,643 |
|
| Total | | 42,946 |
|
| Less current portion | | — |
|
| Less unamortized debt issuance costs | | 280 |
|
| Total long-term debt | | $ | 42,666 |
|
Borrowings under the Amended Credit Agreement bear interest at annual rates of either (i) the Base Rate plus an applicable margin of 1.50% to 2.25% or (ii) LIBOR plus an applicable margin of 2.50% to 3.25%. The “Base Rate” is the greatest of (i) the prime lending rate, (ii) the Federal Funds Rate plus 0.5%, and (iii) the one-month LIBOR plus 1.0%. The applicable margin for both Base Rate and LIBOR is determined based on the leverage ratio calculated in accordance with the Amended Credit Agreement. LIBOR-based borrowings are available for interest periods of one, three, or six months. In addition, the Company is required to pay commitment fees of between 0.375% and 0.50% per annum on the daily unused amount of the Revolving Loans. The interest rate on the borrowings under the Amended Credit Agreement was 3.1% at December 31, 2015. For the years ended December 31, 2015, 2014, and 2013, the Company incurred interest expense of $2.4 million, $3.1 million, and $1.4 million, respectively, in connection with the Amended Credit Agreement.
The Amended Credit Agreement contains certain financial covenants, including (i) a leverage ratio not to exceed 2.75:1 for quarterly periods through June 30, 2017, and 2.5:1 thereafter and (ii) a fixed charge coverage ratio of 1.15:1 for quarterly periods through December 31, 2016, and 1.25:1 thereafter. The Company was in compliance with all financial covenants as of December 31, 2015.
The Amended Credit Agreement also contains representations, warranties and non-financial covenants, including, among other things, covenants relating to (i) financial reporting and notification, (ii) payment of obligations, (iii) compliance with law, (iv) maintenance of properties and (v) payment of restricted payments. The repayment of the Term Loan can be accelerated upon (i) a change in control, which would include Steel Energy Services owning less than 100% of the equity of Sun Well, Rogue, or Black Hawk Ltd. or Steel Partners owning, directly or indirectly, less than 35% of Steel Energy Services or (ii) other events of default, including payment failure, false representations, covenant breaches, and bankruptcy.
Sun Well previously had a credit agreement (the "Sun Well Credit Agreement") with Wells Fargo Bank, National Association, that included a term loan of $20.0 million and a revolving line of credit for up to $5.0 million. All amounts due under the Sun Well Credit Agreement were fully repaid during 2013 and the facility was terminated in 2013 upon the initial closing of the Amended Credit Agreement. For the year ended December 31, 2013 , the Company incurred interest expense of $0.3 million in connection with the Sun Well Credit Agreement. Upon termination of the Sun Well Credit Agreement, the Company recognized a loss on extinguishment of $0.5 million from the write off of unamortized debt issuance costs, which was reported as a component of "Other income (expense), net" in the consolidated statements of operations for the year ended December 31, 2013.
The Company leases certain property and equipment used in its operations under agreements that are classified as both capital and operating leases. Such agreements generally include provisions for inflation-based rate adjustments and, in the case of leases for buildings and office space, payments of certain operating expenses and property taxes. In 2015, the Company fully repaid all amounts due under its capital lease obligations.
Future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year are as follows:
|
| | | |
| | Amount |
| | (in thousands) |
| For the year ended December 31, | |
| 2016 | $ | 796 |
|
| 2017 | 668 |
|
| 2018 | 365 |
|
| 2019 | 254 |
|
| 2020 | 782 |
|
| Total minimum lease payments | $ | 2,865 |
|
At December 31, 2014, assets recorded under capital leases are included in property and equipment (see Note 8) as follows:
|
| | | |
| | Amount |
| | (in thousands) |
| Rigs and other equipment | $ | 1,871 |
|
| Accumulated depreciation | (559 | ) |
| Net | $ | 1,312 |
|
Total rental expense under operating leases was $6.1 million, $7.7 million, and $3.3 million for the years ended December 31, 2015, 2014, and 2013, respectively.
“Accrued expenses and other current liabilities” consisted of the following:
|
| | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | (in thousands) |
| Tax-related | $ | 146 |
| | $ | 238 |
|
| Accrued compensation and related taxes | 2,472 |
| | 5,471 |
|
| Deferred compensation | 3,546 |
| | — |
|
| Deferred revenue | 1,510 |
| | 1,308 |
|
| Professional services | 156 |
| | 763 |
|
| Accrued fuel and rig-related charges | 107 |
| | 601 |
|
| Other | 521 |
| | 535 |
|
| | $ | 8,458 |
| | $ | 8,916 |
|
“Other long-term liabilities” consisted of the following:
|
| | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | (in thousands) |
| Deferred compensation | $ | 197 |
| | $ | — |
|
| Tax-related | — |
| | 3,709 |
|
| Other | 39 |
| | 6 |
|
| Total | $ | 236 |
| | $ | 3,715 |
|
| |
13. | Other Income (Expense), net |
“Other income (expense), net” consisted of the following:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Investment income | $ | 4,683 |
| | $ | 6,621 |
| | $ | 4,804 |
|
| Realized gain on sale of marketable securities, net | 5,247 |
| | 3,765 |
| | 2,608 |
|
| Loss on financial instrument obligations | (477 | ) | | (1,820 | ) | | — |
|
| Realized loss upon change to equity method at fair value | (2,807 | ) | | (568 | ) | | — |
|
| Realized gain on non-monetary exchange | 9,268 |
| | — |
| | — |
|
| Foreign exchange loss | (669 | ) | | (1,059 | ) | | — |
|
| Gain (loss) on sale of property and equipment | (235 | ) | | 191 |
| | 132 |
|
| Loss on extinguishment of debt | (87 | ) | | — |
| | (463 | ) |
| Other | (24 | ) | | (72 | ) | | (7 | ) |
| Other income (expense), net | $ | 14,899 |
| | $ | 7,058 |
| | $ | 7,074 |
|
The Company recognized a benefit from income taxes of $6.3 million for the year ended December 31, 2015, primarily as a result of the allowable benefit recognizable on unrealized gains on marketable securities included in other comprehensive income and from the recognition of state deferred income tax benefits. The Company recognized a benefit from income taxes of $1.3 million for the year ended December 31, 2014, primarily as a result of a foreign tax benefit of $1.7 million recognized upon the conclusion of tax examinations by a foreign tax authority. The Company recognized a benefit for income taxes of $5.8 million for the year ended December 31, 2013, primarily as a result of the reversal of reserves for foreign taxes upon the expiration of the statute of limitations.
The components of the benefit from income taxes were as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Federal: | | | | | |
| Current | $ | (152 | ) | | $ | (191 | ) | | $ | 14 |
|
| Deferred | 5,283 |
| | 105 |
| | (86 | ) |
| | 5,131 |
| | (86 | ) | | (72 | ) |
| | | | | | |
| Foreign: | | | | | |
| Current | 59 |
| | 1,719 |
| | 7,281 |
|
| Deferred | — |
| | — |
| | (1,696 | ) |
| | 59 |
| | 1,719 |
| | 5,585 |
|
| | | | | | |
| State: | | | | | |
| Current | (131 | ) | | (403 | ) | | 509 |
|
| Deferred | 1,264 |
| | 93 |
| | (204 | ) |
| | 1,133 |
| | (310 | ) | | 305 |
|
| | | | | | |
| | $ | 6,323 |
| | $ | 1,323 |
| | $ | 5,818 |
|
The components of income (loss) from continuing operations before income taxes were as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Domestic | $ | (104,106 | ) | | $ | (25,580 | ) | | $ | 6,990 |
|
| Foreign | — |
| | (12 | ) | | 59 |
|
| | $ | (104,106 | ) | | $ | (25,592 | ) | | $ | 7,049 |
|
The benefit for income taxes varied from the federal statutory income tax rate due to the following:
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | | | | | |
| Federal statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State taxes, net of federal benefit | 1.0 | % | | (0.5 | )% | | (8.1 | )% |
| Foreign losses not benefited | — | % | | — | % | | (0.3 | )% |
| Changes in tax reserves | (0.3 | )% | | 0.2 | % | | (78.6 | )% |
| Change in valuation allowance | (24.8 | )% | | 30.3 | % | | (28.1 | )% |
| Permanent differences | (4.7 | )% | | (64.6 | )% | | (1.8 | )% |
| Foreign tax refund | — | % | | 6.5 | % | | — | % |
| Other | (0.1 | )% | | (1.7 | )% | | (0.6 | )% |
| | 6.1 | % | | 5.2 | % | | (82.5 | )% |
The components of the deferred tax assets and liabilities were as follows:
|
| | | | | | | |
| | December 31, |
| | 2015 | | 2014 |
| | (in thousands) |
| Deferred tax assets | | | |
| Net operating loss carryforwards | $ | 45,296 |
| | $ | 49,096 |
|
| Research and development credits | 33,484 |
| | 33,484 |
|
| Marketable securities | 19,266 |
| | — |
|
| Compensatory and other accruals | 1,827 |
| | 2,698 |
|
| Unrealized losses on investments | — |
| | 5,265 |
|
| Intangible assets | 6,847 |
| | 819 |
|
| Foreign tax credits | — |
| | 201 |
|
| Other, net | 6,152 |
| | 3,725 |
|
| Gross deferred tax assets | 112,872 |
| | 95,288 |
|
| | | | |
| Deferred tax liabilities: | | | |
| Unrealized gains on investments | 97 |
| | — |
|
| Fixed assets | 20,073 |
| | 19,128 |
|
| Gross deferred tax liabilities | 20,170 |
| | 19,128 |
|
| | | | |
| Net deferred tax asset before valuation allowance | 92,702 |
| | 76,160 |
|
| Valuation Allowance | (93,439 | ) | | (78,018 | ) |
| | | | |
| Net deferred tax liability | $ | (737 | ) | | $ | (1,858 | ) |
The Company's deferred tax assets and deferred tax liabilities were classified in the consolidated balance sheets as non-current deferred income tax liabilities at December 31, 2015 and 2014.
At December 31, 2015, the Company had federal net operating loss carryforwards of approximately $139.1 million that expire in 2022 through 2035, and domestic state net operating loss carryforwards of approximately $156.1 million that expire in 2016 through 2035. The Company also had federal research and development credit carryforwards of approximately $30.3 million that expire in 2018 through 2029, and domestic state research and development credit carryforwards of approximately $17.7 million that do not expire. Of the total federal net operating loss carryforwards, approximately $10.5 million related to deductions for stock-based compensation, the tax benefit of which will be credited to additional paid-in capital when realized. The Company's ability to utilize its net operating loss and other credit carryforwards would be subject to limitation upon a change in control. Federal income taxes and foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries have been fully provided.
The Company established a valuation allowance to reserve its net deferred tax assets at December 31, 2015 and 2014, based on its assessment that it is more likely than not that such benefit will not be fully realized. This assessment was based on, but not limited to, the Company’s operating results for the past three years, uncertainty in the Company’s projections of taxable income, and uncertainty in general economic conditions in general and in the oil and gas industry in particular.
The changes in unrecognized tax positions were as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Balance at beginning of period | $ | 19,076 |
| | $ | 19,121 |
| | $ | 26,419 |
|
| Tax positions related to prior year: | | | | | |
| Additions | 8,269 |
| | — |
| | — |
|
| Expiration of statute of limitations | (59 | ) | | (45 | ) | | (7,298 | ) |
| Settlements | — |
| | — |
| | — |
|
| Balance at ending of period | $ | 27,286 |
| | $ | 19,076 |
| | $ | 19,121 |
|
As of December 31, 2015, the Company’s total gross unrecognized tax benefits were $27.3 million, of which $0.3 million, if recognized, would affect the provision for income taxes. In 2015, the Company reversed approximately $0.1 million of reserves for foreign taxes upon the expiration of the statute of limitations. The Company recognizes interest and penalties related to uncertain tax positions as a component of “benefit from income taxes” in its consolidated statements of operations. For the years ended December 31, 2015. 2014, and 2013, the amount of such interest and penalties recognized was immaterial.
The Company is subject to federal income tax as well as income taxes in many domestic states and foreign jurisdictions in which the Company operates or formerly operated. As of December 31, 2015, fiscal years from 1999 onward remain open to examination by the United States taxing authorities. In 2014, tax examinations were completed for fiscal years 2009 through 2013 in Singapore, resulting in a refund to the Company of $1.7 million. The Company is not currently under tax examination in any foreign jurisdictions.
15. Stock Benefit Plans
The Company grants equity-based awards to employees under its 2004 Equity Incentive Plan, as amended (the “2004 Plan”). Stock options granted under the 2004 Plan have a term of up to seven years from the grant date, with the exception of incentive stock options granted to employees who own more than 10% of the voting power of all classes of stock of the Company, which have a term of up to five years. The exercise price and vesting period of stock options granted under the 2004 Plan is determined by the board of directors or its delegates, subject to certain provisions of the 2004 Plan. The exercise price of incentive stock options granted to employees who own more than 10% of the voting power of all classes of stock of the Company shall not be less than 110% of the fair market value of the Company’s common stock on the grant date. The exercise price of incentive stock options granted to other employees shall be no less than 100% of the fair market value of the Company’s common stock on the grant date. The exercise price of non-qualified stock options granted to employees shall be no less than 100% of the fair market value of the Company’s common stock on the grant date, but in certain circumstances could be as low as 85% of the fair market value of the Company’s common stock on the grant date.
The 2004 Plan also allows for the granting of stock appreciation rights, restricted stock awards, and restricted stock units, the terms of such grants being determined by the board of directors or its delegates subject to certain provisions of the 2004 Plan. Stock appreciation rights granted under the 2004 Plan shall have a term of up to seven years and an exercise price of no less than 100% of the fair market value of the Company’s common stock on the grant date. Restricted stock awards and restricted stock units (collectively, “restricted stock”) granted under the 2004 Plan shall have a purchase price of at least $0.001 per share.
The Company grants equity-based awards to non-employee directors under its 2006 Director Plan, as amended (the "2006 Plan", and together with the “2004 Plan”, the "Equity Plans"). The terms of all stock-based awards granted under the 2006 Plan are determined by the compensation committee of the board of directors, subject to certain provisions of the 2006 Plan. All options granted under the 2006 Plan are non-qualified stock options, and shall have a term of up to ten years and an exercise price of no less than 100% of the fair market value of the Company’s common stock on the grant date. The 2006 Plan also allows for the granting of stock appreciation rights, restricted stock awards, and restricted stock units. Stock appreciation rights granted under the 2006 Plan shall have a term of up to ten years and an exercise price of no less than 100% of the fair market value of the Company’s common stock on the grant date. Restricted stock granted under the 2006 Plan shall have a purchase price equal to at least the par value of the Company’s common stock on the grant date.
There were 1,805,613 shares and 1,200,000 shares of the Company’s common stock originally reserved for the issuance of equity-based awards under the 2004 Plan and the 2006 Plan, respectively. Under the 2004 Plan, 1,386,452 shares remained available for the issuance of equity-based awards and 204,852 equity-based awards were outstanding at December
31, 2015. Under the 2006 Plan, 380,977 shares remained available for the issuance of equity-based awards and 51,318 equity-based awards were outstanding at December 31, 2015.
The Company recognizes stock-based compensation based on the estimated fair values of equity-based awards on the grant dates. Stock-based compensation is recognized ratably over the requisite service or vesting period of the equity-based awards and is adjusted for estimated forfeitures. Certain grants of restricted stock to non-employee directors vest in full when the individual ceases being a member of the board of directors for any reason. The fair value of such grants are recognized as stock-based compensation on the grant date. The fair value of restricted stock is based on the closing price of the Company’s common stock on the grant date. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options. No stock options were granted during the years ended December 31, 2015, 2014, and 2013.
Stock-based compensation expense by type of equity-based award, all of which was recognized as a component of "Selling, general, and administrative expenses" in the consolidated statements of operations for the years ended December 31, 2015, 2014, and 2013, was as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Stock options | $ | — |
| | $ | 36 |
| | $ | 91 |
|
| Restricted stock | 3,157 |
| | 2,771 |
| | 1,949 |
|
| Total stock-based compensation | $ | 3,157 |
| | $ | 2,807 |
| | $ | 2,040 |
|
There was no stock option activity under the Equity Plans during the year ended December 31, 2015. Information relating to outstanding and exercisable stock options under the Equity Plans at December 31, 2015, is summarized in the following table. All stock option grants had exercise prices equal to or greater than the market price on the grant date.
|
| | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
| | (in thousands) | | | | | | (in thousands) |
| Outstanding and exercisable, December 31, 2015 | 56 |
| | $ | 30.14 |
| | 3.2 | | $ | — |
|
Information relating to restricted stock activity in the Equity Plans for the year ended December 31, 2015, is summarized in the following table.
|
| | | | | | |
| | Shares | | Weighted Average Grant Date Fair Value |
| | (in thousands) | | |
| Non-vested stock, January 1, 2015 | 57 |
| | $ | 30.10 |
|
| Awarded | 181 |
| | $ | 23.62 |
|
| Vested | (34 | ) | | $ | 30.58 |
|
| Forfeited | (3 | ) | | $ | 26.97 |
|
| Non-vested stock, December 31, 2015 | 201 |
| | $ | 24.22 |
|
Information relating to the fair value of grants of equity awards and the fair value of restricted shares vested for the years ended December 31, 2015, 2014, and 2013 is summarized in the following table. No stock options were exercised during the years ended December 31, 2015, 2014, and 2013.
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2015 | | 2014 | | 2013 |
| | | (in thousands) |
| Fair value on grant date - restricted stock | | $ | 4,264 |
| | $ | 788 |
| | $ | 3,977 |
|
| Fair value of restricted stock vested | | $ | 1,042 |
| | $ | 2,739 |
| | $ | 2,797 |
|
Compensation expense related to equity-based awards granted under the Equity Plans that was not recognized as of December 31, 2015, totaled $2.1 million and is expected to be recognized over a weighted average period of 1.0 years. The Company did not receive any proceeds from the exercise of equity-based awards during the years ended December 31, 2015, 2014, and 2013. The Company has a policy of issuing new shares of common stock upon the exercise of stock options.
| |
16. | Net Income (Loss) Per Share |
Basic net income (loss) attributable to Steel Excel per share of common stock is computed by dividing net income (loss) attributable to Steel Excel by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share attributable to Steel Excel gives effect to all potentially dilutive common shares outstanding during the period.
Amounts used in the calculation of basic and diluted net income (loss) per share of common stock for the years ended December 31, 2015, 2014, and 2013, were as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | (in thousands, except per share data) |
| Numerators: | | | | | |
| Net income (loss) from continuing operations | $ | (97,783 | ) | | $ | (24,269 | ) | | $ | 12,867 |
|
| Non-controlling interest | 376 |
| | 235 |
| | 156 |
|
| Net income (loss) from continuing operations attributable to Steel Excel Inc. | $ | (97,407 | ) | | $ | (24,034 | ) | | $ | 13,023 |
|
| | | | | | |
| Income (loss) from discontinued operations | $ | — |
| | $ | 506 |
| | $ | (5,540 | ) |
| Non-controlling interest | — |
| | (279 | ) | | 3,188 |
|
| Income (loss) from discontinued operations attributable to Steel Excel Inc. | $ | — |
| | $ | 227 |
| | $ | (2,352 | ) |
| | | | | | |
| Net income (loss) attributable to Steel Excel Inc. | $ | (97,407 | ) | | $ | (23,807 | ) | | $ | 10,671 |
|
| | | | | | |
| Denominators: | | | | | |
| Basic weighted average common shares outstanding | 11,454 |
| | 11,678 |
| | 12,584 |
|
| Effect of dilutive securities - stock-based awards | — |
| | — |
| | 18 |
|
| Diluted weighted average common shares outstanding | 11,454 |
| | 11,678 |
| | 12,602 |
|
| | | | | | |
| Basic income (loss) per share attributable to Steel Excel Inc.: | | | | | |
| Net income (loss) from continuing operations | $ | (8.50 | ) | | $ | (2.06 | ) | | $ | 1.03 |
|
| Income (loss) from discontinued operations, net of taxes | $ | — |
| | $ | 0.02 |
| | $ | (0.19 | ) |
| Net income (loss) | $ | (8.50 | ) | | $ | (2.04 | ) | | $ | 0.85 |
|
| | | | | | |
| Diluted income (loss) per share attributable to Steel Excel Inc.: | | | | | |
| Net income (loss) from continuing operations | $ | (8.50 | ) | | $ | (2.06 | ) | | $ | 1.03 |
|
| Income (loss) from discontinued operations, net of taxes | $ | — |
| | $ | 0.02 |
| | $ | (0.19 | ) |
| Net income (loss) | $ | (8.50 | ) | | $ | (2.04 | ) | | $ | 0.85 |
|
The number of shares used in the calculation of diluted earnings (loss) per share for the years ended December 31, 2015 and 2014, excluded 15,000 incremental shares and 20,000 incremental shares, respectively, related to stock options and restricted stock. Such incremental shares were excluded from the calculation of diluted earnings (loss) per share due to their anti-dilutive effect.
| |
17. | Accumulated Other Comprehensive Income (Loss) |
Changes in the components of "Accumulated other comprehensive income (loss)" were as follows:
|
| | | | | | | | | | | |
| | Unrealized
Gain (Loss) on
Securities | | Cumulative
Translation
Adjustment | | Total |
| | (in thousands) |
| Balance, January 1, 2015 | $ | (14,821 | ) | | $ | (385 | ) | | $ | (15,206 | ) |
| | | | | | |
| Other comprehensive income (loss) before reclassifications | (24,927 | ) | | (8 | ) | | (24,935 | ) |
| Reclassifications from accumulated other comprehensive income | 34,595 |
| | — |
| | 34,595 |
|
| Current period other comprehensive income (loss) | 9,668 |
| | (8 | ) | | 9,660 |
|
| | | | | | |
| Balance, December 31, 2015 | $ | (5,153 | ) | | $ | (393 | ) | | $ | (5,546 | ) |
Amounts reclassified for realized gains or losses on marketable securities and other-than-temporary impairments of marketable securities for the year ended December 31, 2015, are reported as a component of "Other income (expense), net" and "Impairment of marketable securities", respectively, in the consolidated statement of operations.
| |
18. | Supplemental Cash Flow Information |
Cash paid for interest and income taxes and non-cash investing and financing activities for the years ended December 31, 2015, 2014, and 2013, were as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Interest paid | $ | 2,155 |
| | $ | 2,707 |
| | $ | 1,304 |
|
| Income taxes paid (refunded) - net | $ | 298 |
| | $ | (1,507 | ) | | $ | 916 |
|
| | | | | | |
| Non-cash investing and financing activities: | | | | | |
| Reclassification of available-for-sale securities to equity method investment | $ | 10,857 |
| | $ | 27,647 |
| | $ | — |
|
| Partnership interest exchanged for marketable securities | $ | 25,000 |
| | $ | — |
| | $ | — |
|
| Sales of marketable securities not settled | $ | 23,229 |
| | $ | — |
| | $ | — |
|
| Note receivable exchanged for preferred stock | $ | 75 |
| | $ | — |
| | $ | — |
|
| Securities received in exchange for financial instrument obligations | $ | 76 |
| | $ | 20,007 |
| | $ | — |
|
| Securities delivered in exchange for settlement of financial instrument obligations | $ | 76 |
| | $ | 520 |
| | $ | — |
|
| Contribution of note payable by non-controlling interest | $ | — |
| | $ | 268 |
| | $ | — |
|
| Restricted stock awards surrendered to satisfy tax withholding obligations | $ | 85 |
| | $ | 120 |
| | $ | — |
|
| Non-controlling interests recognized in connection with acquisitions | $ | — |
| | $ | — |
| | $ | 2,896 |
|
| |
19. | Commitments and Contingencies |
From time to time, we are subject to litigation or claims that arise in the normal course of business. While the results of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of such matters will
not have a material adverse impact on our financial position or results of operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, our business, financial condition, and results of operations could be materially and adversely affected.
The Company entered into agreements in connection with the sale of portions of the Predecessor Business that included certain indemnification obligations. These indemnification obligations generally required the Company to compensate the other party for certain damages and costs incurred as a result of third party claims. The Company is not aware of any claims under the indemnification provisions and no liabilities have been recognized in connection with such contingent obligations.
| |
20. | Related Party Transactions |
SPLP beneficially owned approximately 58.3% of the Company’s outstanding common stock as of December 31, 2015. The power to vote and dispose of the securities held by SPLP is controlled by Steel Partners Holdings GP Inc. (“SPH GP”). Warren G. Lichtenstein, the Chairman of the Board of Directors and chairman of the Company's Sports segment, is also the Executive Chairman of SPH GP. Certain other affiliates of SPH GP hold positions with the Company, including Jack Howard, as Vice Chairman and principal executive officer, James F. McCabe, Jr., as Chief Financial Officer, and Leonard J. McGill, as Vice President, General Counsel, and Secretary. Each of Warren G. Lichtenstein and Jack L. Howard is compensated with cash compensation and equity awards or equity-based awards in amounts that are consistent with the Company’s Non-employee Director Compensation Policy.
In June 2015, the Company's board of directors approved a plan to purchase up to 1,000,000 common units of SPLP on the open market or in private transactions with third parties. As of December 31, 2015, the Company held 936,968 SPLP common units that had a fair value of approximately $15.3 million (see Note 6).
In October 2011, the Company contracted with SP Corporate Services LLC (“SP Corporate”), a SPLP affiliate, to provide financial management and administrative services, including the services of a chief financial officer. Through July 2012, the Company paid SP Corporate $35,000 per month for the provision of such services. Effective August 2012, the services SP Corporate provided were expanded to include executive and financial management services in the areas of finance, regulatory reporting, and other administrative and operational functions. The Company paid SP Corporate $300,000 per month for these expanded services through December 31, 2013. Effective January 1, 2014, the services SP Corporate provides were further expanded, and the Company paid SP Corporate $667,000 per month for such services. Effective October 1, 2014, the fees paid the Company to SP Corporate increased to $679,000 per month to cover the costs of additional services provided to the Sports business. The services agreement with SP Corporate and subsequent amendments were approved by a committee of the Company’s independent directors. In addition, the Company reimburses SP Corporate and other SPLP affiliates for certain expenses incurred on the Company’s behalf. During the years ended December 31, 2015, 2014, and 2013, the Company incurred expenses of $9.0 million, $9.1 million, and $4.4 million, respectively, for services provided by SP Corporate and for reimbursement of expenses incurred on its behalf by SP Corporate and its affiliates. As of December 31, 2015 and 2014, the Company owed SP Corporate and other SPLP affiliates $0.1 million and $0.3 million, respectively.
The Company uses several firms to execute trades of its marketable securities and certain of its other investments. The Company uses Mutual Securities, Inc. ("Mutual Securities"), to execute certain trades, including repurchases of the Company's common stock. Jack L. Howard, the Company's principal executive officer, is a registered principal of Mutual Securities and receives commission payments from Mutual Securities after deductions for fees and expenses. During the years ended December 31, 2015, 2014, and 2013, the Company paid commissions to Mutual Securities totaling $0.1 million, $0.3 million, and $0.2 million, respectively.
In October 2013, iGo contracted with SP Corporate to provide certain executive, other employee, and corporate services for a fixed annual fee of $0.4 million. In addition, iGo will reimburse SP Corporate for reasonable and necessary business expenses incurred on iGo’s behalf. The services agreement was approved by the independent directors of iGo.
During 2015, the Company closed an account in which it previously maintained short-term deposits at WebBank, an affiliate of SPLP. Such deposits totaled $12.3 million at December 31, 2014. The Company recognized interest income on such deposits totaling $39,000 and $84,000 for the years ended December 31, 2015 and 2014, respectively.
In 2015, the Company entered into an arrangement with Pivot Marketing Agency ("Pivot"), a sports marketing agency that, through a non-ownership relationship, is affiliated with the chief executive officer of the Company's Sports segment. Pivot provides services related to obtaining sponsorships for the Sports segment's events. For the year ended December 31, 2015, the Company paid Pivot $12,000 for such services.
The Company has determined that its two reportable segments are Energy and Sports. The Energy segment provides drilling and production services to the oil and gas industry. The Sports segment is a social impact organization that strives to provide a first-class youth sports experience emphasizing positive experiences and instilling the core values of discipline, teamwork, safety, respect, and integrity.
The Company identifies its operating segments based on the services provided by its various operations and the financial information used by its chief operating decision maker to make decisions regarding the allocation of resources to and the financial performance of the operating segments. The reporting segments represent an aggregation of individual operating segments with similar economic and other characteristics. The Energy segment is an aggregation of the individual operating segments represented by Sun Well, Rogue, and Black Hawk Ltd. The Sports segment is an aggregation of the individual operating segments represented by Baseball Heaven LLC, a provider of a wide variety of baseball services, UK Elite, and the Crossfit® entities.
In 2014, the Company changed its measurement method to measure the profit or loss of its segments to be based on operating income (loss) before goodwill and other asset impairments. The measurement method had previously been operating income (loss). Operating income (loss) before goodwill and other asset impairments of the segments is determined in the same manner as operating income under generally accepted accounting principles, with the sole exception of excluding the amounts for goodwill and other asset impairments. The accounting policies used to measure operating income (loss) before goodwill and other asset impairments of the segments are the same as those used in preparing the Company’s consolidated financial statements (see Note 2).
Segment information relating to the Company's results of continuing operations was as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Revenues | | | | | |
| Energy | $ | 111,397 |
| | $ | 191,608 |
| | $ | 109,624 |
|
| Sports | 21,223 |
| | 18,540 |
| | 10,404 |
|
| Total revenues | $ | 132,620 |
| | $ | 210,148 |
| | $ | 120,028 |
|
| | | | | | |
| Operating income (loss) before goodwill and other asset impairments | | | | | |
| Energy | $ | 2,478 |
| | $ | 29,889 |
| | $ | 12,381 |
|
| Sports | (3,354 | ) | | (2,161 | ) | | (1,408 | ) |
| Total segment operating income (loss) | (876 | ) | | 27,728 |
| | 10,973 |
|
| Corporate and other business activities | (14,169 | ) | | (14,465 | ) | | (8,411 | ) |
| Impairment of goodwill and intangible assets | (25,622 | ) | | (36,666 | ) | | — |
|
| Impairment of marketable securities | (59,781 | ) | | — |
| | — |
|
| Interest expense | (2,455 | ) | | (3,177 | ) | | (1,725 | ) |
| Other income (expense), net | 14,899 |
| | 7,058 |
| | 7,074 |
|
| Income (loss) from continuing operations before income taxes | $ | (88,004 | ) | | $ | (19,522 | ) | | $ | 7,911 |
|
| | | | | | |
| Depreciation and amortization expense: | | | | | |
| Energy | $ | 21,904 |
| | $ | 22,530 |
| | $ | 18,392 |
|
| Sports | $ | 1,709 |
| | 1,626 |
| | 793 |
|
| Total depreciation and amortization expense | $ | 23,613 |
| | $ | 24,156 |
| | $ | 19,185 |
|
For the year ended December 31, 2015, revenues from the four largest customers in the Company’s Energy segment were approximately $21.6 million, $16.0 million, $15.3 million, and $14.0 million, representing 16.3%, 12.1%, 11.5%, and 10.5%, respectively, of the Company's consolidated revenues. For the year ended December 31, 2014, revenues from the two
largest customers in the Company's Energy segment were approximately $43.5 million and $42.7 million, representing 20.7% and 20.3%, respectively, of the Company’s consolidated revenues. For the year ended December 31, 2013, revenues from the two largest customers in the Company’s Energy segment were approximately $20.4 million and $12.7 million, representing 17.0% and 10.5%, respectively, of the Company’s consolidated revenues.
Segment information related to the Company's assets was as follows:
|
| | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | (in thousands) |
| Total assets | | | |
| Energy | $ | 150,437 |
| | $ | 219,630 |
|
| Sports | 14,686 |
| | 18,625 |
|
| Corporate and other business activities | 179,699 |
| | 238,691 |
|
| Total assets | $ | 344,822 |
| | $ | 476,946 |
|
| | | | |
| Capital expenditures | | | |
| Energy | $ | 4,226 |
| | $ | 15,313 |
|
| Sports | $ | 559 |
| | $ | 626 |
|
| Total capital expenditures | $ | 4,785 |
| | $ | 15,939 |
|
Total assets of Corporate and other business activities at December 31, 2015, include investments in equity-method investees of $24.8 million. Total assets of the Sports segment and Corporate and other business activities at December 31, 2014, include investments in equity-method investees of $3.1 million and $27.0 million, respectively.
In June 2014, following stockholder approval and authorization from its board of directors, the Company effected a 1-for-500 reverse stock split (the "Reverse Split"), immediately followed by a 500-for-1 forward stock split (the "Forward Split", and together with the Reverse Split, the "Reverse/Forward Split"), of its common stock effective as of the close of business on June 18, 2014. As a result of the Reverse Split, stockholders holding fewer than 500 shares received a cash payment for all of their outstanding shares based on a per share price equal to the closing price of the Company’s common stock on June 18, 2014, the effective date of the Reverse/Forward Split. Stockholders holding 500 or more shares as of the effective date of the Reverse/Forward Split did not receive any payments for fractional shares resulting from the Reverse Split, and therefore the total number of shares held by such holders did not change as a result of the Reverse/Forward Split. In connection with the Reverse Split, the Company paid $10.1 million in July 2014 for 295,659 shares of common stock and the return of 1,388 non-vested restricted stock awards previously awarded to employees.
On March 11, 2016, the Company notified the Nasdaq Stock Market of its intention to voluntarily delist its common stock, with associated preferred stock purchase rights, from the Nasdaq Capital Market. The Company intends to cease trading on Nasdaq at the close of business on March 31, 2016. After the effective date of delisting, the Company intends to file a Form 15 with the Securities and Exchange Commission to voluntarily effect deregistration of its securities pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. The Company's obligation to file current and periodic reports with the Securities and Exchange Commission ("SEC") will be terminated the same day upon the filing of the Form 15 with the SEC. The Company is eligible to deregister its common stock, with associated preferred stock purchase rights, because it has fewer than 300 stockholders of record.
| |
24. | Selected Quarterly Financial Data (Unaudited) |
|
| | | | | | | | | | | | | | | |
| | Quarter Ended: |
| | March 31 (A) | | June 30 (B) | | September 30 (C) | | December 31 (D) |
| | (in thousands, except per-share data) |
| Year Ended December 31, 2015 | | | | | | | |
| Net revenues | $ | 38,885 |
| | $ | 35,610 |
| | $ | 33,480 |
| | $ | 24,645 |
|
| Gross profit | $ | 7,245 |
| | $ | 8,602 |
| | $ | 7,344 |
| | $ | 3,424 |
|
| Net loss from continuing operations | $ | (7,613 | ) | | $ | (10,463 | ) | | $ | (14,263 | ) | | $ | (65,444 | ) |
| Net loss | $ | (7,613 | ) | | $ | (10,463 | ) | | $ | (14,263 | ) | | $ | (65,444 | ) |
| Net loss attributable to Steel Excel Inc. | $ | (7,250 | ) | | $ | (10,536 | ) | | $ | (14,474 | ) | | $ | (65,147 | ) |
| Net loss from continuing operations attributable to Steel Excel Inc. | $ | (7,250 | ) | | $ | (10,536 | ) | | $ | (14,474 | ) | | $ | (65,147 | ) |
| Net loss from continuing operations attributable to Steel Excel Inc. per share of common stock | | | | | | | |
| Basic | $ | (0.63 | ) | | $ | (0.91 | ) | | $ | (1.27 | ) | | $ | (5.74 | ) |
| Diluted | $ | (0.63 | ) | | $ | (0.91 | ) | | $ | (1.27 | ) | | $ | (5.74 | ) |
| | | | | | | | |
| Year Ended December 31, 2014 | | | | | | | |
| Net revenues | $ | 45,159 |
| | $ | 51,924 |
| | $ | 58,583 |
| | $ | 54,482 |
|
| Gross profit | $ | 10,550 |
| | $ | 15,529 |
| | $ | 17,669 |
| | $ | 14,281 |
|
| Net income (loss) from continuing operations | $ | 1,967 |
| | $ | 7,657 |
| | $ | 75 |
| | $ | (33,968 | ) |
| Net income (loss) | $ | 1,967 |
| | $ | 7,657 |
| | $ | 75 |
| | $ | (33,462 | ) |
| Net income (loss) attributable to Steel Excel Inc. | $ | 2,293 |
| | $ | 7,668 |
| | $ | (163 | ) | | $ | (33,605 | ) |
| Net income (loss) from continuing operations attributable to Steel Excel Inc. | $ | 2,293 |
| | $ | 7,668 |
| | $ | (163 | ) | | $ | (33,832 | ) |
| Net income (loss) from continuing operations attributable to Steel Excel Inc. per share of common stock | | | | | | | |
| Basic | $ | 0.19 |
| | $ | 0.64 |
| | $ | (0.01 | ) | | $ | (2.97 | ) |
| Diluted | $ | 0.19 |
| | $ | 0.64 |
| | $ | (0.01 | ) | | $ | (2.97 | ) |
(A) Includes loss from equity method investees of $2.1 million and $1.4 million in the 2015 period and 2014 period, respectively.
(B) Includes impairment of marketable securities of $22.7 million, income from equity method investees of $5.4 million, and a tax benefit of $6.3 million in the 2015 period; includes income from equity method investees of $2.9 million in the 2014 period.
(C) Includes impairment of marketable securities of $7.9 million, loss from equity method investees of $8.2 million, and a tax provision of $2.4 million in the 2015 period; includes loss from equity method investees of $4.8 million in the 2014 period.
(D) Includes impairment of marketable securities of $29.2 million, impairment of goodwill and intangible assets of $25.6 million, loss from equity method investees of $11.3 million, and a tax benefit of $2.1 million in the 2015 period; includes impairment of goodwill and intangible assets of $36.7 million, loss from equity method investees of $2.7 million, and a tax benefit of $2.4 million in the 2014 period.
Exhibit Index
|
| | | | | |
| Exhibit # | Exhibit Description | Form | File # | Exhibit | File Date |
| 2.1 | Asset Purchase Agreement between the Company and PMC-Sierra, Inc., dated as of May 8, 2010 | 10-Q | 000-15071 | 2.1 | 08/11/10 |
| 2.2 | Amended Asset Purchase Agreement between the Company and PMC-Sierra, Inc., dated as of June 8, 2010 | 10-Q | 000-15071 | 2.2 | 08/11/10 |
| 2.3 | Second Amendment to the Asset Purchase Agreement between the Company and PMC-Sierra, Inc., dated as of September 23, 2010 | 10-Q | 000-15071 | 2.1 | 11/05/10 |
| 2.4 | Stock Purchase and Sale Agreement, dated as of July 11, 2013, between Steel Excel Inc. and iGo, Inc. | SC 13-D | 005-60065
| 2 | 7/22/13 |
| 2.5 | Asset Purchase Agreement, dated as of October 29, 2013 by and among Black Hawk Acquisition, Inc., Black Hawk Energy Services, Inc. and Chris Beal, Stuart Buckingham, Kenneth Stevens, Jeff Thomas and Gregory M. Tucker. | 8-K | 000-15071 | 2.1 | 11/4/13 |
| 3.1 | Unofficial Composite Certificate of Incorporation of Steel Excel Inc. as currently in effect | 10-Q | 000-15071 | 3.1 | 11/08/12 |
| 3.2 | Certificate of Designation of Series B Preferred Stock filed with the Delaware Secretary of State on December 20, 2011 | 8-K | 000-15071 | 3.1 | 12/22/11 |
| 3.3 | Amended and Restated Bylaws of the Company, effective October 14, 2010 | 8-K | 000-15071 | 3.1 | 10/20/10 |
| 3.4 | Certificate of Amendment to the Certificate of Incorporation of Steel Excel Inc., as filed with the Secretary of State of the State of Delaware on July 24, 2015 | 8-K | 000-15071 | 3.1 | 7/29/15 |
| 4.1* | Specimen Common Stock Certificate | | | | |
| 4.2 | Tax Benefits Preservation Plan, dated December 21, 2011 | 8-K | 000-15071 | 4.1 | 12/22/11 |
| 4.3 | First Amendment to the Tax Benefits Preservation Plan, dated as of May 1, 2012, by and between Steel Excel Inc. and Registrar and Transfer Company, as Rights Agent | 10-Q | 000-15071 | 4.2 | 08/09/12 |
| 4.4 | Form of Second Amendment to the Tax Benefits Preservation Plan, dated as of May 28, 2015 | 8-K | 000-15071 | 4.1 | 6/1/15 |
| 4.5 | Third Amendment to the Tax Benefits Preservation Plan, dated as of December 8, 2015, between the Company and American Stock Transfer & Trust Company, LLC. | 8-K | 000-15071 | 4.1 | 12/10/15 |
| 10.1† | 2004 Equity Incentive Plan, as amended and restated on August 20, 2008 | Def 14A | 000-15071 | A | 09/08/08 |
| 10.2† | Amendment No. 2 to 2004 Equity Incentive Plan, dated as of November 17, 2011 | 10-Q | 000-15071 | 10.2 | 11/08/12 |
| 10.3† | Amendment No. 3 to 2004 Equity Incentive Plan, dated as of August 7, 2012 | 10-Q | 000-15071 | 10.3 | 11/08/12 |
| 10.4† | Form of Restricted Stock Award Agreement for 2004 Equity Incentive Plan, as amended August 7, 2012 | 10-Q | 000-15071 | 10.4 | 11/08/12 |
| 10.5† | Form of Stock Option Agreement under the 2004 Equity Incentive Plan | 10-Q | 000-15071 | 10.02 | 11/10/04 |
| 10.6† | Adaptec, Inc. 2006 Director Plan | Def 14A | 000-15071 | A | 07/28/06 |
| 10.7† | Amendment No. 1 to 2006 Director Plan, dated November 17, 2011 | 10-Q | 000-15071 | 10.1 | 11/08/12 |
| 10.8† | Form of Restricted Stock Award Agreement under 2006 Director Plan, as amended on August 7, 2012 | 10-Q | 000-15071 | 10.5 | 11/08/12 |
| 10.9† | Stock Option Award Agreement under 2006 Director Plan, as amended on December 7, 2010 | 10-KT | 000-15071 | 10.25 | 03/03/11 |
| 10.10† | Stock Appreciation Right Award Agreement under 2006 Director Plan as amended on February 7, 2008 | 8-K | 000-15071 | 10.03 | 02/11/08 |
| 10.11† | SNAP Appliance, Inc. 2002 Stock Option and Restricted Stock Purchase Plan, effective November 14, 2002 | S-8 | 333-118090 | 4.04 | 08/10/04 |
| 10.12† | Director Compensation Policy, dated May 25, 2011 | 10-Q | 000-15071 | 10.5 | 08/09/11 |
|
| | | | | |
| Exhibit # | Exhibit Description | Form | File # | Exhibit | File Date |
| 10.13 | Form of Indemnification Agreement entered into between the Company and its officers and directors | 10-K | 000-15071 | 10.47 | 06/06/07 |
| 10.14 | Settlement Agreement, dated as of October 26, 2007, among the Registrant, Steel Partners, L.L.C. and Steel Partners II, L.P. | 8-K | 000-15071 | 10.01 | 10/31/07 |
| 10.15 | Amended and Restated Management Services Agreement, dated as of August 1, 2012, between the Company and SP Corporate Services LLC | 8-K | 000-15071 | 10.6 | 8/10/12 |
| 10.16 | Amendment No. 1 to the Amended and Restated Management Services Agreement between Steel Excel Inc. and SP Corporate Services LLC, dated as of April 5, 2013 | 8-K | 000-15071 | 10.1 | 4/5/13 |
| 10.17 | Credit Agreement, dated as of July 3, 2013, among Steel Energy Ltd., and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender, a Revolving Lender, a Swing Line Lender and a Term Lender, RBS Citizens, N.A., as a Revolving Lender and a Term Lender and Comerica Bank, as a Revolving Lender and a Term Lender | 8-K | 000-15071 | 99.1 | 7/10/13 |
| 10.18† | Amendment No. 4 to 2004 Equity Incentive Plan, dated as of May 21, 2013 | 10-Q | 000-15071 | 10.2 | 8/7/13 |
| 10.19† | Form of Restricted Stock Unit Agreement under the 2004 Equity Incentive Plan, as amended May 21, 2013 | 10-Q | 000-15071 | 10.3 | 8/7/13 |
| 10.20 | Commitment Increase Agreement and Amendment to Credit Documents, dated as of December 17, 2013, among Steel Energy Ltd., and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender, a Revolving Lender, a Swing Line Lender and a Term Lender, RBS Citizens, N.A., as a Revolving Lender and a Term Lender and Comerica Bank, as a Revolving Lender and a Term Lender. | 8-K | 000-15071 | 10.1 | 12/20/13 |
| 10.21 | Amendment No. 2 to the Amended and Restated Management Services Agreement between Steel Excel Inc. and SP Corporate Services LLC, dated as of January 1, 2014 | 8-K | 000-15071 | 10.1 | 1/14/14 |
| 10.22 | Amendment No. 3 to the Amended and Restated Management Services Agreement between Steel Excel Inc. and SP Corporate Services LLC, dated as of October 3, 2014 | 10-Q | 000-15071 | 10.1 | 11/6/2014 |
| 10.23* | Fourth Amendment to the Amended and Restated Management Services Agreement between Steel Excel Inc. and SP Corporate Services LLC, dated as of March 9, 2016 | | | | |
| 21* | Subsidiaries of Registrant | | | | |
| 31.1* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | |
| 31.2* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | |
| 32* | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | |
| 101.INS** | XBRL Instance Document | | | | |
| 101.SCH** | XBRL Taxonomy Extension Schema Document | | | | |
| 101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | | | | |
| 101.DEF** | XBRL Taxonomy Extension Definition Linkbased Document | | | | |
| 101.LAB** | XBRL Taxonomy Extension Labels Linkbase Document | | | | |
| 101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document | | | | |
† Management contract or compensatory plan or arrangement.
‡ Confidential treatment has been granted for portions of this agreement.
* Filed herewith.
** Furnished with this Form 10-K. In accordance with Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for the purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
Steel Excel Inc.
Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 2015, 2014, and 2013
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | Additions | | | | |
| Description | | Balance at beginning of period | | Charged to costs and expenses | | Charged to other accounts | | Deductions | | Balance at end of period |
| | | | | | | | | | | |
| Allowances deducted in the balance sheet from assets to which they apply: | | | | | | | | | | |
| | | | | | | | | | | |
| For the year ended December 31, 2015: | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | — |
| | $ | 38 |
| | $ | — |
| | $ | — |
| | $ | 38 |
|
| Valuation allowance on deferred tax assets | | $ | 78,018 |
| | $ | 15,421 |
| | $ | — |
| | $ | — |
| | $ | 93,439 |
|
| | | | | | | | | | | |
| For the year ended December 31, 2014: | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Valuation allowance on deferred tax assets | | $ | 69,753 |
| | $ | 8,265 |
| | $ | — |
| | $ | — |
| | $ | 78,018 |
|
| | | | | | | | | | | |
| For the year ended December 31, 2013: | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Valuation allowance on deferred tax assets | | $ | 37,173 |
| | $ | 32,580 |
| | $ | — |
| | $ | — |
| | $ | 69,753 |
|
| | | | | | | | | | | |
