Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2018
OR
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from _________________________ to _________________________
Commission file number: 001-36246
Civeo Corporation
 
(Exact name of registrant as specified in its charter)
British Columbia, Canada
98-1253716
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
 
Three Allen Center, 333 Clay Street, Suite 4980,
77002
Houston, Texas
(Zip Code)
(Address of principal executive offices)
 
(713) 510-2400
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X]
NO [  ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
YES [X]
NO [  ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "accelerated filer," "large accelerated filer," "smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large Accelerated Filer [  ]
Accelerated Filer [X]
Emerging Growth Company [  ]
 
 
 
Non-Accelerated Filer [  ]  
Smaller Reporting Company [  ]
 

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

The Registrant had 167,970,631 common shares outstanding as of October 22, 2018.



CIVEO CORPORATION
INDEX
 
Page No.
Part I -- FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements:
 
 
 
Consolidated Financial Statements
 
Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017 
3

Unaudited Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2018 and 2017
4

Consolidated Balance Sheets – September 30, 2018 (unaudited) and December 31, 2017
5

Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2018 and 2017
6

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 
7

Notes to Unaudited Consolidated Financial Statements
8–24

 
 
Cautionary Statement Regarding Forward-Looking Statements
25

 
 
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
25-41

 
 
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
42

 
 
Item 4.   Controls and Procedures
42

 
 
 
 
Part II -- OTHER INFORMATION
 
 
 
Item 1.     Legal Proceedings
43

 
 
Item 1A.  Risk Factors
43

 
 
Item 6.     Exhibits
44

 
 
(a) Index of Exhibits
44

 
 
Signature Page
45



2


PART I -- FINANCIAL INFORMATION
 
ITEM 1. Financial Statements

CIVEO CORPORATION
 
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Service and other
$
118,262

 
$
95,564

 
$
341,152

 
$
274,438

Product
2,229

 
1,925

 
11,020

 
6,490

 
120,491

 
97,489

 
352,172

 
280,928

Costs and expenses:
 
 
 
 
 
 
 
Service and other costs
79,513

 
62,668

 
238,762

 
179,044

Product costs
2,240

 
2,859

 
9,056

 
7,639

Selling, general and administrative expenses
17,328

 
15,871

 
56,754

 
44,141

Depreciation and amortization expense
34,468

 
32,700

 
99,502

 
97,083

Impairment expense

 
4,360

 
28,661

 
4,360

Other operating expense (income)
(163
)
 
375

 
348

 
1,104

 
133,386

 
118,833

 
433,083

 
333,371

Operating loss
(12,895
)
 
(21,344
)
 
(80,911
)
 
(52,443
)
 
 
 
 
 
 
 
 
Interest expense
(6,404
)
 
(5,441
)
 
(19,329
)
 
(15,697
)
Loss on extinguishment of debt

 

 
(748
)
 
(842
)
Interest income
16

 
49

 
92

 
69

Other income
412

 
517

 
2,923

 
1,247

Loss before income taxes
(18,871
)
 
(26,219
)
 
(97,973
)
 
(67,666
)
Income tax benefit
5,330

 
4,011

 
29,386

 
9,875

Net loss
(13,541
)
 
(22,208
)
 
(68,587
)
 
(57,791
)
Less: Net income attributable to noncontrolling interest
97

 
123

 
341

 
343

Net loss attributable to Civeo Corporation
(13,638
)
 
(22,331
)
 
(68,928
)
 
(58,134
)
Less: Dividends attributable to Class A preferred shares
612

 

 
49,100

 

Net loss attributable to Civeo common shareholders
$
(14,250
)
 
$
(22,331
)
 
$
(118,028
)
 
$
(58,134
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Share Data (see Note 10) 
 
 
 
 
 
 
 
Basic net loss per share attributable to Civeo Corporation common shareholders
$
(0.09
)
 
$
(0.17
)
 
$
(0.76
)
 
$
(0.46
)
 
 
 
 
 
 
 
 
Diluted net loss per share attributable to Civeo Corporation common shareholders
$
(0.09
)
 
$
(0.17
)
 
$
(0.76
)
 
$
(0.46
)
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
165,855

 
130,889

 
154,411

 
127,512

Diluted
165,855

 
130,889

 
154,411

 
127,512

The accompanying notes are an integral part of these financial statements.


3


CIVEO CORPORATION
 
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net loss
$
(13,541
)
 
$
(22,208
)
 
$
(68,587
)
 
$
(57,791
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of taxes of zero
(1,343
)
 
14,343

 
(25,598
)
 
38,691

Total other comprehensive income (loss)
(1,343
)
 
14,343

 
(25,598
)
 
38,691

 
 
 
 
 
 
 
 
Comprehensive loss
(14,884
)
 
(7,865
)
 
(94,185
)
 
(19,100
)
Less: Comprehensive income attributable to noncontrolling interest
100

 
126

 
342

 
667

Comprehensive loss attributable to Civeo Corporation
$
(14,984
)
 
$
(7,991
)
 
$
(94,527
)
 
$
(19,767
)
The accompanying notes are an integral part of these financial statements.


4


CIVEO CORPORATION
 
CONSOLIDATED BALANCE SHEETS
(In Thousands)
 
 
September 30, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
4,540

 
$
32,647

Accounts receivable, net
85,238

 
66,823

Inventories
6,543

 
7,246

Prepaid expenses
15,693

 
14,481

Other current assets
13,910

 
1,553

Assets held for sale
12,318

 
9,462

Total current assets
138,242

 
132,212

 
 
 
 
Property, plant and equipment, net
708,455

 
693,833

Goodwill
119,444

 

Other intangible assets, net
130,497

 
22,753

Other noncurrent assets
1,998

 
5,114

Total assets
$
1,098,636

 
$
853,912

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
32,787

 
$
27,812

Accrued liabilities
20,057

 
22,208

Income taxes
513

 
1,728

Current portion of long-term debt
28,146

 
16,596

Deferred revenue
4,415

 
5,442

Other current liabilities
4,406

 
1,843

Total current liabilities
90,324

 
75,629

 
 
 
 
Long-term debt, less current maturities
392,161

 
277,990

Deferred income taxes
22,875

 

Other noncurrent liabilities
30,035

 
23,926

Total liabilities
535,395

 
377,545

 
 
 
 
Commitments and contingencies (Note 14)

 

 
 
 
 
Shareholders’ Equity:
 
 
 
Preferred shares (Class A Series 1, no par value; 50,000,000 shares authorized, 9,679 shares and zero shares issued and outstanding, respectively; aggregate liquidation preference of $97,754,916 as of September 30, 2018)
55,791

 

Common shares (no par value; 550,000,000 shares authorized, 168,327,857 shares and 132,427,885 shares issued, respectively, and 167,970,631 shares and 132,262,434 shares outstanding, respectively)

 

Additional paid-in capital
1,558,901

 
1,383,934

Accumulated deficit
(696,747
)
 
(579,113
)
Common shares held in treasury at cost, 357,226 and 165,451 shares, respectively
(990
)
 
(358
)
Accumulated other comprehensive loss
(353,812
)
 
(328,213
)
Total Civeo Corporation shareholders’ equity
563,143

 
476,250

Noncontrolling interest
98

 
117

Total shareholders’ equity
563,241

 
476,367

Total liabilities and shareholders’ equity
$
1,098,636

 
$
853,912

The accompanying notes are an integral part of these financial statements.


5


CIVEO CORPORATION
 
UNAUDITED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
(In Thousands)
 
 
Attributable to Civeo
 
 
 
 
 
Preferred
Shares
 
Common
Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount
 
Par Value
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interest
 
Total
Shareholders’
Equity
Balance, December 31, 2016
$

 
$

 
$
1,311,226

 
$
(472,764
)
 
$
(65
)
 
$
(362,930
)
 
$
523

 
$
475,990

Net income (loss)

 

 

 
(58,134
)
 

 

 
343

 
(57,791
)
Currency translation adjustment

 

 

 

 

 
38,367

 
324

 
38,691

Dividends paid

 

 

 

 

 

 
(1,066
)
 
(1,066
)
Cumulative effect of implementation of ASU 2016-09

 

 
636

 
(636
)
 

 

 

 

Equity offering

 

 
64,817

 

 

 

 

 
64,817

Share-based compensation

 

 
5,481

 

 
(293
)
 

 

 
5,188

Balance, September 30, 2017
$

 
$

 
$
1,382,160

 
$
(531,534
)
 
$
(358
)
 
$
(324,563
)
 
$
124

 
$
525,829

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
$

 
$

 
$
1,383,934

 
$
(579,113
)
 
$
(358
)
 
$
(328,213
)
 
$
117

 
$
476,367

Net income (loss)

 

 

 
(68,928
)
 

 

 
341

 
(68,587
)
Currency translation adjustment

 

 

 

 

 
(25,599
)
 
1

 
(25,598
)
Dividends paid

 

 

 

 

 

 
(361
)
 
(361
)
Cumulative effect of implementation of ASU 2014-09

 

 

 
394

 

 

 

 
394

Issuance of shares for acquisitions
6,972

 

 
166,882

 

 

 

 

 
173,854

Dividends attributable to Class A preferred shares (Note 12)
48,819

 

 
281

 
(49,100
)
 

 

 

 

Share-based compensation

 

 
7,804

 

 
(632
)
 

 

 
7,172

Balance, September 30, 2018
$
55,791

 
$

 
$
1,558,901

 
$
(696,747
)
 
$
(990
)
 
$
(353,812
)
 
$
98

 
$
563,241

 
Preferred
Shares (in
thousands)
 
Common
Shares (in
thousands)
Balance, December 31, 2017

 
132,262

Stock-based compensation

 
1,579

Issuance of shares for acquisitions
9,679

 
34,130

Balance, September 30, 2018
9,679

 
167,971

The accompanying notes are an integral part of these financial statements.


6


CIVEO CORPORATION
 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 
 
Nine Months Ended
 
September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net loss
$
(68,587
)
 
$
(57,791
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
99,502

 
97,083

Impairment charges
28,661

 
4,360

Loss on extinguishment of debt
748

 
842

Deferred income tax benefit
(29,272
)
 
(11,026
)
Non-cash compensation charge
7,804

 
5,481

Gains on disposals of assets
(2,714
)
 
(1,193
)
Provision for loss on receivables, net of recoveries
(106
)
 
8

Other, net
3,959

 
3,307

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
89

 
(2,845
)
Inventories
1,342

 
(1,507
)
Accounts payable and accrued liabilities
(10,787
)
 
5,910

Taxes payable
939

 
9,928

Other current assets and liabilities, net
(5,716
)
 
(7,032
)
Net cash flows provided by operating activities
25,862

 
45,525

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(8,666
)
 
(8,020
)
Payments related to acquisitions, net of cash acquired
(181,589
)
 

Proceeds from disposition of property, plant and equipment
4,038

 
1,625

Other, net
111

 
548

Net cash flows used in investing activities
(186,106
)
 
(5,847
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common shares, net

 
64,817

Revolving credit borrowings
289,450

 
44,525

Revolving credit repayments
(134,040
)
 
(84,462
)
Term loan repayments
(18,177
)
 
(12,214
)
Debt issuance costs
(2,742
)
 
(1,795
)
Other, net
(632
)
 
(293
)
Net cash flows provided by financing activities
133,859

 
10,578

 
 
 
 
Effect of exchange rate changes on cash
(1,722
)
 
1,961

Net change in cash and cash equivalents
(28,107
)
 
52,217

Cash and cash equivalents, beginning of period
32,647

 
1,785

 
 
 
 
Cash and cash equivalents, end of period
$
4,540

 
$
54,002

 
 
 
 
Non-cash investing activities:
 
 
 
Value of common shares issued as consideration for acquisitions
$
119,797

 
$

Value of preferred shares issued as consideration for acquisition
$
54,821

 
$

 
 
 
 
Non-cash financing activities:
 
 
 
Preferred dividends paid-in-kind
$
971

 
$

The accompanying notes are an integral part of these financial statements.


7

CIVEO CORPORATION
 
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS



1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
 
Description of the Business
 
We are one of the largest integrated providers of workforce accommodations, logistics and facility management services to the natural resource industry. Our scalable modular facilities provide long-term and temporary accommodations where traditional accommodations and related infrastructure is insufficient, inaccessible or not cost effective. Once facilities are deployed in the field, we also provide catering and food services, housekeeping, laundry, facility management, water and wastewater treatment, power generation, communications and redeployment logistics. Our accommodations support our customers’ employees and contractors in the Canadian oil sands and in a variety of oil and natural gas drilling, mining and related natural resource applications as well as disaster relief efforts, primarily in Canada, Australia and the United States. We operate in three principal reportable business segments – Canada, Australia and U.S.
 
Basis of Presentation
 
Unless otherwise stated or the context otherwise indicates: (i) all references in these consolidated financial statements to “Civeo,” “us,” “our” or “we” refer to Civeo Corporation and its consolidated subsidiaries; and (ii) all references in this report to “dollars” or “$” are to U.S. dollars.
 
The accompanying unaudited consolidated financial statements of Civeo have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) has been condensed or omitted pursuant to those rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which Civeo considers necessary for a fair presentation of the results of operations for the interim periods covered and for the financial condition of Civeo at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year.
 
The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures 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. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, actual amounts may differ from those included in the accompanying consolidated financial statements.
 
The financial statements included in this report should be read in conjunction with our audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2017.

2.
RECENT ACCOUNTING PRONOUNCEMENTS
 
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards or other guidance updates, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.
 
In January 2017, the FASB issued Accounting Standards Update (ASU) 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. Effective with our quarterly report on Form 10-Q for the quarter ended March 31, 2018, we have adopted this standard effective January 1, 2018.

In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The standard simplifies the accounting for goodwill impairment by requiring a goodwill impairment to be measured using a single step impairment model, whereby the impairment equals the difference between the carrying amount

8

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


and the fair value of the specified reporting units in their entirety. This eliminates the second step of the current impairment model that requires companies to first estimate the fair value of all assets in a reporting unit and measure impairments based on those fair values and a residual measurement approach. It also specifies that any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective prospectively for public business entities for annual reporting periods beginning after December 15, 2019, and early adoption is permitted. We will adopt this new standard no later than January 1, 2020. The impact of the new standard will be dependent on the specific facts and circumstances of future individual goodwill impairments, if any.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (ASU 2016-13). This new standard changes how companies will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 is effective for financial statements issued for reporting periods beginning after December 15, 2019 and interim periods within the reporting periods. We are currently evaluating the impact of this new standard on our consolidated financial statements.
 
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), which replaces the existing guidance for lease accounting, Leases (Topic 840).  ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for all leases with terms longer than 12 months.  The guidance is effective for financial statements issued for reporting periods beginning after December 15, 2018 and interim periods within the reporting periods.  We anticipate adopting ASU 2016-02 and all related amendments as of January 1, 2019 and will elect the new optional transition method, which allows us to recognize a cumulative-effect adjustment to the opening balance of retained earnings as of the adoption date.  We have determined that certain of our accommodation contracts could contain a lease component and will elect the new practical expedient for lessors, when certain criteria are met, which allows us to combine the lease and non-lease components of revenues for presentation purposes. We are currently evaluating the impact of this new standard on our consolidated financial statements.  We have finalized our implementation plan and are in the process of analyzing our lease portfolio. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population and analyzing the available practical expedients in order to determine the best implementation strategy. We expect the adoption of this new standard will result in an increase on our consolidated balance sheet for right-of-use assets and corresponding lease liabilities.
 
In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers” (ASC 606).  ASC 606 establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services and requires significantly enhanced revenue disclosures.  The standard is effective for annual and interim reporting periods beginning after December 15, 2017.  Effective with our quarterly report on Form 10-Q for the quarter ended March 31, 2018, we have adopted this standard effective January 1, 2018 using the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. As a result, financial information for reporting periods beginning after January 1, 2018 is presented under ASC 606, while comparative financial information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy for revenue recognition prior to the adoption of ASC 606. Upon adoption of this standard, we recognized a cumulative effect adjustment of $0.4 million to accumulated deficit in the accompanying unaudited consolidated balance sheet as of September 30, 2018. We expect the impact of the adoption of the new standard to be immaterial to our consolidated financial statements on an ongoing basis. 

3.
REVENUE
 
We generally recognize accommodation, mobile facility rental and catering and other services revenues over time as our customers simultaneously receive and consume benefits as we serve our customers because of continuous transfer of control to the customer. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We transfer control and recognize a sale based on a periodic (usually daily) room rate each night a customer stays in our rooms or when the services are rendered. In some contracts, rates may vary over the contract term. In these cases, revenue may be deferred and recognized on a straight-line basis over the contract term. A limited portion of our revenue is recognized at a point in time when control transfers to the customer related to small modular construction and manufacturing contracts, minor catering arrangements and optional purchases our customers make for incidental services offered at our accommodation and mobile facilities.
 
For significant projects, manufacturing revenues are recognized over time with progress towards completion measured using the cost based input method as the basis to recognize revenue and an estimated profit. Billings on such contracts in excess

9

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


of costs incurred and estimated profits are classified as deferred revenue. Costs incurred and estimated profits in excess of billings on these contracts are recognized as unbilled receivables. Management believes this input method is the most appropriate measure of progress to the satisfaction of a performance obligation on larger modular construction and manufacturing contracts. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to projected costs and revenue and are recognized in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. Factors that may affect future project costs and margins include weather, production efficiencies, availability and costs of labor, materials and subcomponents. These factors can significantly impact the accuracy of our estimates and materially impact our future reported earnings.
 
The following table disaggregates our revenue by our three reportable segments: Canada, Australia and U.S., and major categories for the periods indicated (in thousands):

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Canada
 
 
 
 
 
 
 
Accommodation revenues
$
72,991

 
$
60,018

 
$
204,258

 
$
169,885

Mobile facility rental revenues
135

 
579

 
9,283

 
1,381

Catering and other services revenues
3,627

 
3,037

 
11,082

 
9,126

Manufacturing revenues

 
198

 
2,038

 
1,614

Total Canada revenues
76,753

 
63,832

 
226,661

 
182,006

 
 
 
 
 
 
 
 
Australia
 
 
 
 
 
 
 
Accommodation revenues
$
30,679

 
$
27,541

 
$
88,343

 
$
83,164

Catering and other services revenues
411

 

 
1,199

 

Total Australia revenues
31,090

 
27,541

 
89,542

 
83,164

 
 
 
 
 
 
 
 
United States
 
 
 
 
 
 
 
Accommodation revenues
$
5,010

 
$
2,619

 
$
13,353

 
$
7,163

Mobile facility rental revenues
6,256

 
2,388

 
14,366

 
5,505

Manufacturing revenues
1,330

 
1,061

 
8,123

 
2,968

Catering and other services revenues
52

 
48

 
127

 
122

Total United States revenues
12,648

 
6,116

 
35,969

 
15,758

 
 
 
 
 
 
 
 
Total revenues
$
120,491

 
$
97,489

 
$
352,172

 
$
280,928

 
Because of control transferring over time, the majority of our revenue is recognized based on the extent of progress towards completion of the performance obligation. At contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promise to transfer our customers a good or service (or bundle of goods or services) that is distinct. Our customers typically contract for accommodation services under take-or-pay contracts with terms that most often range from several months to three years. Our contract terms generally provide for a rental rate for a reserved room and an occupied room rate that compensates us for services provided. We typically contract our facilities to our customers on a fee per day basis where the goods and services promised include lodging and meals. To identify the performance obligations, we consider all of the goods and services promised in the context of the contract and the pattern of transfer to our customers.
 
Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when our performance obligations are satisfied is not significant. Payment terms are generally within 30 days. We do not have significant financing components or significant payment terms.
 
Revenues exclude taxes assessed based on revenues such as sales or value added taxes.
 

10

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)



As of September 30, 2018, for contracts that are greater than one year, the table below discloses the estimated revenues related to performance obligations that are unsatisfied (or partially unsatisfied) and when we expect to recognize the revenue (in thousands):

 
For the years ending December 31,
 
2018
 
2019
 
2020
 
Thereafter
 
Total
Revenue expected to be recognized as of September 30, 2018
$
34,880

 
$
89,755

 
$
46,698

 
$
1,802

 
$
173,135


4.
FAIR VALUE MEASUREMENTS
 
Our financial instruments consist of cash and cash equivalents, receivables, payables and debt instruments. We believe that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values.
 
As of September 30, 2018 and December 31, 2017, we believe the carrying value of our floating-rate debt outstanding under our term loans and revolving credit facilities approximates fair value because the terms include short-term interest rates and exclude penalties for prepayment. We estimated the fair value of our floating-rate term loan and revolving credit facilities using significant other observable inputs, representative of a Level 2 fair value measurement, including terms and credit spreads for these loans.
 
During the first quarter of 2018 and the third quarter of 2017, we wrote down certain long-lived assets to fair value. Our estimates of fair value required us to use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future circumstances that might directly impact each of the relevant asset groups’ operations in the future and are therefore uncertain. These assumptions with respect to future circumstances included future oil, coal and natural gas prices, anticipated spending by our customers, the cost of capital, and industry and/or local market conditions. During the third quarter of 2017, our estimates of fair value of certain undeveloped land positions in British Columbia were based on appraisals from third parties. Please see Note 6 – Impairment Charges for further information.
 
During the first and second quarter of 2018, we acquired certain assets and businesses and recorded them at fair value. Determining the fair value of assets acquired and liabilities assumed requires the exercise of significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The cash flows employed in the valuation are based on our best estimates of future sales, earnings and cash flows after considering factors such as general market conditions, expected future customer orders, contracts with suppliers, labor costs, changes in working capital, long term business plans and recent operating performance. Please see Note 7 – Acquisitions for further information. 

5.
DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
 
Additional information regarding selected balance sheet accounts at September 30, 2018 and December 31, 2017 is presented below (in thousands):
 
 
September 30, 2018
 
December 31, 2017
Accounts receivable, net:
 
 
 
Trade
$
57,560

 
$
46,692

Unbilled revenue
28,896

 
20,555

Other
14

 
914

Total accounts receivable
86,470

 
68,161

Allowance for doubtful accounts
(1,232
)
 
(1,338
)
Total accounts receivable, net
$
85,238

 
$
66,823



11

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


 
September 30, 2018
 
December 31, 2017
Inventories:
 
 
 
Finished goods and purchased products
$
2,930

 
$
2,211

Work in process
2,618

 
4,096

Raw materials
995

 
939

Total inventories
$
6,543

 
$
7,246

 
 
Estimated
Useful Life
(in years)
 
September 30, 2018
 
December 31, 2017
Property, plant and equipment, net:
 
 
 
 
 
 
 
 
 
Land
 
 
 
 
 
 
$
47,452

 
$
40,567

Accommodations assets
3
 
 
15
 
1,723,641

 
1,658,867

Buildings and leasehold improvements
5
 
 
20
 
25,721

 
24,181

Machinery and equipment
4
 
 
15
 
10,422

 
8,848

Office furniture and equipment
3
 
 
7
 
54,826

 
53,688

Vehicles
3
 
 
5
 
14,513

 
13,869

Construction in progress
 
 
 
 
 
 
5,179

 
2,770

Total property, plant and equipment
 
 
 
 
 
 
1,881,754

 
1,802,790

Accumulated depreciation
 
 
 
 
 
 
(1,173,299
)
 
(1,108,957
)
Total property, plant and equipment, net
 
 
 
 
 
 
$
708,455

 
$
693,833

 
 
September 30, 2018
 
December 31, 2017
Accrued liabilities:
 
 
 
Accrued compensation
$
17,753

 
$
20,424

Accrued taxes, other than income taxes
2,027

 
1,224

Accrued interest
24

 
15

Other
253

 
545

Total accrued liabilities
$
20,057

 
$
22,208

 
6.
IMPAIRMENT CHARGES
 
Quarter ended March 31, 2018. During the first quarter of 2018, we identified an indicator that certain assets used in the Canadian oil sands may be impaired due to market developments, including expected customer commitments, occurring in the first quarter of 2018. For purposes of our impairment assessment, we separated two lodges that were previously treated as a single asset group due to the lodges no longer being used together to generate joint cash flows. We assessed the carrying value of the asset group to determine if it continued to be recoverable based on estimated future cash flows.  Based on the assessment, the carrying value was determined to not be fully recoverable, and we proceeded to compare the estimated fair value of the asset group to its respective carrying value.  Accordingly, the value of a Canadian lodge was written down to its estimated fair value of zero. As a result of the analysis described above, we recorded an impairment expense of $28.7 million.

Quarter ended September 30, 2017. During the third quarter of 2017, we made the decision to vacate an open camp facility in Canada and relocated the assets to a newly awarded contract for a Canadian mobile camp. We assessed the carrying value of the remaining assets to determine if they continued to be recoverable based on their estimated future cash flows. Based on the assessment, the carrying values of certain leasehold improvements were determined to not be fully recoverable, and we proceeded to compare the estimated fair value of those assets to their respective carrying values. Accordingly, the value of the remaining leasehold improvements was written down to their fair value of zero. As a result of the analysis described above, we recorded an impairment expense of $3.2 million associated with our leased properties in Canada. 


12

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


7.
ACQUISITIONS

Noralta
 
Description of Transaction.  On April 2, 2018, we acquired the equity of Noralta Lodge Ltd. (Noralta), located in Alberta, Canada (the Noralta Acquisition).  The total consideration, which is subject to adjustment in accordance with the terms of the definitive agreement, included (i) C$207.7 million (or approximately US$161.2 million) in cash, of which C$43.5 million is held in escrow by Alliance Trust Company (the Escrow Agent) to cover purchase price adjustments related to any closing date working capital shortfall and to support the sellers’ indemnification obligations under the definitive agreement and certain obligations of the sellers to compensate us for certain increased employee compensation costs that are expected to be incurred as a result of the recent union certification of certain classes of Noralta employees, (ii) 32.8 million of our common shares, of which (a) 13.5 million shares are held in escrow by the Escrow Agent and will be released based on certain conditions related to Noralta customer contracts remaining in place and (b) 2.4 million shares are held in escrow by the Escrow Agent and will be released based on the employee compensation cost increases described above, and (iii) 9,679 Class A Series 1 Preferred Shares (the Preferred Shares) with an initial liquidation preference of $96.8 million, of which 692 shares are held in escrow by the Escrow Agent and will be released based on the employee compensation cost increases described above.  As a result of the Noralta Acquisition, we expanded our existing accommodations business in the Canadian oil sands market. We funded the cash consideration with cash on hand and borrowings under the Amended Credit Agreement (as defined in Note 11). During the third quarter 2018, $3.6 million in cash was released to us from escrow to cover purchase price adjustments related to a working capital shortfall at closing.    
 
The Noralta Acquisition was accounted for in accordance with the acquisition method of accounting for business combinations and, accordingly, the results of operations of Noralta were reported in our financial statements as part of our Canadian reportable business segment beginning on  April 2, 2018, the date of acquisition. During the three and nine months ended September 30, 2018, we recorded approximately $31.1 million and $63.1 million of revenue and $12.2 million and $25.6 million of gross margin, respectively, in the accompanying unaudited consolidated statements of operations related to the Noralta Acquisition.
 
Calculation of Purchase Consideration. The total purchase consideration received by the Noralta shareholders was based on the cash consideration and fair value of our common shares and Preferred Shares issued on April 2, 2018. The purchase consideration below reflects the fair value of common shares issued, which is based on the closing price on March 29, 2018 (the last business day prior to April 2, 2018) of our common shares of $3.77 per share and the estimated fair value of Preferred Shares issued, which are valued at 61% of the initial liquidation preference of the Preferred Shares of $96.79 million.
 
A portion of the consideration paid, $11.6 million cash, 2.4 million common shares and 692 Preferred Shares, is currently being held in escrow to support certain obligations of the sellers to compensate us for certain increased employee compensation costs that are expected to be incurred as a result of the recent union certification of certain classes of Noralta employees.  As of April 2, 2018, we expected the escrowed amounts to be released to us within 12 months, and therefore, a receivable of $11.6 million related to the cash expected to be released has been established.  Additionally, no fair value has been allocated to such common shares or Preferred Shares portion of the consideration.

13

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)



The purchase consideration and estimated fair value of Noralta’s net assets acquired as of April 2, 2018 is presented as follows:
 
(In thousands, except per share data)
 
 
 
Common shares issued
32,791

 
 
Common share price as of March 29, 2018
$
3.77

 
 
Common share consideration
 
 
$
123,622

Cash consideration (1)
 
 
157,539

Preferred Share consideration
 
 
59,042

Total purchase consideration
 
 
$
340,203

Less: Common shares held in escrow, expected to be released to Civeo
 
 
(8,825
)
Less: Cash held in escrow, expected to be released to Civeo
 
 
(11,607
)
Less: Preferred Shares held in escrow, expected to be released to Civeo
 
 
(4,221
)
Total purchase consideration
 
 
$
315,550


(1)Net of $3.6 million in cash released to us to cover purchase price adjustments related to a working capital shortfall at closing.
 
At the time the Preferred Shares were issued, we determined that a beneficial conversion feature existed because the fair value of the securities into which the Preferred Shares were convertible was greater than the effective conversion price on the issuance date. Accordingly, we recorded a beneficial conversion feature of $47.8 million. The beneficial conversion feature was recorded as an increase to additional paid-in capital with the offset recorded as a discount on the Preferred Shares. For further discussion of the Preferred Shares, including dividends on the Preferred Shares, please see Note 12 – Preferred Shares.

Purchase Price Allocation. The application of purchase accounting under ASC 805 requires that the total purchase price be allocated to the fair value of assets acquired and liabilities assumed based on their fair values at April 2, 2018, with amounts exceeding the fair values being recorded as goodwill. The allocation process requires an analysis of acquired fixed assets, contracts, and contingencies to identify and record the fair value of all assets acquired and liabilities assumed. Our allocation of the purchase price to specific assets and liabilities is based, in part, upon outside appraisals using customary valuation procedures and techniques. The purchase price allocation is preliminary, as we are finalizing our valuation of tangible and intangible assets acquired. We expect to complete our purchase price allocation by the end of 2018. However, the differences between the final and preliminary purchase price allocations, if any, are not expected to have a material effect on our financial position or results of operations. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at April 2, 2018 (in thousands): 
Cash and cash equivalents
$
24

Accounts receivable (1)
21,456

Inventories
839

Other current assets
4,131

Property, plant and equipment
132,966

Goodwill
119,972

Intangible assets
114,383

Total assets acquired
393,771

 
 
Accounts payable and accrued liabilities
15,032

Income taxes payable
1,038

Other current liabilities
2,027

Deferred income taxes
53,066

Other noncurrent liabilities
7,058

Total liabilities assumed
78,221

Net assets acquired
$
315,550


(1)
The aggregate fair value of the acquired accounts receivable approximated the aggregate gross contractual amount.

14

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


 
Goodwill has been recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired. The goodwill is primarily attributable to synergies expected to arise from the Noralta Acquisition. The goodwill is not expected to be deductible for tax purposes. The fair value of the assets acquired and liabilities assumed were determined using income, market and cost valuation methodologies. The fair value measurements were estimated using significant inputs that are not observable in the market and thus represent a Level 3 measurement. Fair values of property, plant and equipment, excluding land, were determined using the cost approach. The cost approach estimates value by determining the current cost of replacing an asset with another of equivalent economic utility. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation. Fair values of land were determined using the market approach. The market approach is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable assets. The income approach was used to value the intangible assets, consisting primarily of customer contracts, trade name and favorable/unfavorable lease contracts. The income approach indicates value for an asset or liability based on present value of cash flows projected to be generated over the remaining economic life of the asset or liability being measured. Projected cash flows are discounted at a required market rate of return that reflects the relative risk of achieving the cash flows and the time value of money.
 
The purchase price allocation to the identifiable intangible assets and liabilities is as follows (in thousands):
 
 
Fair Value at
April 2, 2018
Amortizable Intangible Assets
 

Trade name
$
1,474

Contracts
110,413

Favorable lease contract
2,496

Total amortizable intangible assets
$
114,383

 
 
Amortizable Intangible Liabilities
 
Unfavorable lease contracts
$
2,456

Total amortizable intangible liabilities
$
2,456

 
 
Net intangible assets
$
111,927

 
The contracts acquired consist of accommodations contracts with two major investment grade oil sands producers which are subject to amortization over an estimated useful life of 20 years at the time of acquisition. The trade name was assigned to Noralta’s name recognition with an estimated useful life of 9 months at the time of acquisition. The favorable/unfavorable intangible contracts are related to leases that will be amortized over the remaining lease terms, which range from 3.8 years to 9.3 years at the time of acquisition. The unfavorable contracts are included in other noncurrent liabilities in the accompanying unaudited consolidated balance sheet.
 
Supplemental Pro Forma Financial Information. The following unaudited pro forma supplemental financial information presents the consolidated results of operations of the Company and Noralta as if the Noralta Acquisition had occurred on January 1, 2017. We have adjusted historical financial information to give effect to pro forma items that are directly attributable to the Noralta Acquisition and are expected to have a continuing impact on the consolidated results. These items include adjustments to record the incremental amortization and depreciation expense related to the increase in fair values of the acquired assets, interest expense related to borrowings under the Amended Credit Agreement to fund the Noralta Acquisition and to reclassify certain items to conform to our financial reporting presentation. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of Noralta. The unaudited pro forma results do not purport to be indicative of the results of operations had the transaction occurred on the date indicated or of future results for the combined entities (in thousands, except per share data):
 

15

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


 
Three Months Ended September 30, (Unaudited)
 
Nine Months Ended September 30, (Unaudited)
 
(Actual)
 
(Pro forma)
 
(Pro forma)
 
(Pro forma)
 
2018
 
2017
 
2018
 
2017
Revenues
$
120,491

 
$
128,663

 
$
386,755

 
$
363,774

Net loss attributable to Civeo Corporation common shareholders
(14,250
)
 
(17,893
)
 
(116,096
)
 
(45,096
)
 
 
 
 
 
 
 
 
Basic net loss per share attributable to Civeo Corporation common shareholders
$
(0.09
)
 
$
(0.11
)
 
$
(0.75
)
 
$
(0.28
)
 
 
 
 
 
 
 
 
Diluted net loss per share attributable to Civeo Corporation common shareholders
$
(0.09
)
 
$
(0.11
)
 
$
(0.75
)
 
$
(0.28
)
 
Included in the pro forma results above are certain adjustments due to the following: (i) increases in depreciation and amortization expense due to acquired intangibles and the increased recorded value of property, plant and equipment, and (ii) increases in interest expense due to additional credit facility borrowings to fund the Noralta Acquisition, and (iii) decreases due to the exclusion of transaction costs.
 
Transaction Costs. During the three months ended September 30, 2018, we recognized $0.5 million of costs in connection with the Noralta Acquisition that are included in Service and other costs ($0.2 million) and Selling, general and administrative (SG&A) expenses ($0.3 million), respectively. During the nine months ended September 30, 2018, we recognized $7.0 million of costs in connection with the Noralta Acquisition that are included in Service and other costs ($0.3 million) and SG&A expenses ($6.7 million).
 
Acadian Acres
 
On February 28, 2018, we acquired the assets of Lakeland, L.L.C. (Lakeland), located near Lake Charles, Louisiana, for total consideration of $28.0 million, composed of $23.5 million in cash and $4.5 million of our common shares. The asset purchase agreement also includes potential future earn-out payments through December 2020 of up to 1.2 million Civeo common shares, based upon satisfaction of certain future revenue targets. The acquisition included a 400 room accommodations facility, 40 acres of land and related assets. We funded the cash consideration with cash on hand. Lakeland’s operations are reported as a new open camp location, Acadian Acres, in our U.S. reportable business segment.
 
Intangible assets acquired in the Acadian Acres acquisition totaled $8.2 million and consisted of a customer contract. The customer contract intangible is being amortized over the remaining contract term, which was 16 months at the time of acquisition.
 
This acquisition was accounted for as an asset acquisition based on the principles described in ASC 805, which provides a screen to determine when a set of transferred assets is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similarly identifiable assets, the set of transferred assets is not a business. Accordingly, we allocated the excess consideration over the fair value of the assets acquired to the acquired assets, pro rata, on the basis of relative fair values to increase the related assets acquired. 

8.
ASSETS HELD FOR SALE
 
During the fourth quarter of 2017, we made the decision to dispose of our modular construction and manufacturing plant near Edmonton, Alberta, Canada due to changing geographic and market needs. Accordingly, the facility met the criteria of held for sale. Its estimated fair value less the cost to sell exceeded its carrying value. Additionally, we have discontinued depreciation of the facility. Depreciation expense related to the facility totaled approximately $0.1 million and $0.4 million during the three and nine months ended September 30, 2017, respectively. The facility is part of our Canadian reportable business segment. 
 
Certain undeveloped land positions in the British Columbia LNG market in our Canadian segment previously met the criteria of held for sale. These assets were recorded at the estimated fair value less costs to sell of approximately $4.2 million.
 

16

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


In addition, as a result of the Noralta Acquisition, Noralta’s corporate offices located in Nisku, Alberta, Canada were closed and are being held for sale. The related assets are recorded at the estimated fair value less costs to sell of approximately $3.3 million and was the same value used in the purchase price allocation.
 
The following table summarizes the carrying amount as of September 30, 2018 and December 31, 2017 of the major classes of assets from the modular construction and manufacturing plant, undeveloped land positions and Noralta’s corporate offices we classified as held for sale (in thousands):
 
 
September 30, 2018
 
December 31, 2017
Assets held for sale:
 
 
 
Property, plant and equipment, net
$
12,318

 
$
9,418

Inventories

 
44

Total assets held for sale
$
12,318

 
$
9,462


9.
GOODWILL AND OTHER INTANGIBLE ASSETS
 
Changes in the carrying amount of goodwill from December 31, 2017 to September 30, 2018 are as follows (in thousands):
 
 
Canadian
 
Australian
 
U.S.
 
Total
Balance as of December 31, 2017
$

 
$

 
$

 
$

Noralta Acquisition (1)
119,972

 

 

 
119,972

Foreign currency translation
(528
)
 

 

 
(528
)
Balance as of September 30, 2018
$
119,444

 
$

 
$

 
$
119,444


(1)
Please see Note 7 – Acquisitions for further information.
 
The following table presents the total amount of other intangible assets and the related accumulated amortization for major intangible asset classes as of September 30, 2018 and December 31, 2017 (in thousands):
 
 
September 30, 2018
 
December 31, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amortizable Intangible Assets
 
 
 
 
 
 
 
Customer relationships
$
42,606

 
$
(34,587
)
 
$
45,209

 
$
(33,997
)
Trade name
1,468

 
(971
)
 

 

Contracts / agreements
153,588

 
(33,983
)
 
38,362

 
(26,853
)
Favorable lease contract
2,485

 
(139
)
 

 

Noncompete agreements
675

 
(675
)
 
675

 
(675
)
Total amortizable intangible assets
$
200,822

 
$
(70,355
)
 
$
84,246

 
$
(61,525
)
 
 
 
 
 
 
 
 
Indefinite-Lived Intangible Assets Not Subject to Amortization
 
 
 
 
 
 
 
Licenses
30

 

 
32

 

Total indefinite-lived intangible assets
30

 

 
32

 

Total intangible assets
$
200,852

 
$
(70,355
)
 
$
84,278

 
$
(61,525
)
 
The weighted average remaining amortization period for all intangible assets, other than indefinite-lived intangibles, was 16.5 years as of September 30, 2018 and 3.1 years as of December 31, 2017. Please see Note 7 – Acquisitions for further information.
 

17

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


As of September 30, 2018, the estimated remaining amortization of our amortizable intangible assets was as follows (in thousands):
 
 
Year Ending
December 31,
2018 (remainder of the year)
$
5,156

2019
15,676

2020
12,714

2021
5,948

2022
5,948

Thereafter
85,025

Total
$
130,467


10.
EARNINGS PER SHARE
 
The calculation of earnings per share attributable to Civeo is presented below for the periods indicated (in thousands, except per share amounts):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Basic Loss per Share
 
 
 
 
 
 
 
Net loss attributable to Civeo common shareholders
$
(14,250
)
 
$
(22,331
)
 
$
(118,028
)
 
$
(58,134
)
Less: undistributed net income to participating securities

 

 

 

Net loss attributable to Civeo common shareholders - basic
$
(14,250
)
 
$
(22,331
)
 
$
(118,028
)
 
$
(58,134
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
165,855

 
130,889

 
154,411

 
127,512

 
 
 
 
 
 
 
 
Basic loss per share
$
(0.09
)
 
$
(0.17
)
 
$
(0.76
)
 
$
(0.46
)
 
 
 
 
 
 
 
 
Diluted Loss per Share
 
 
 
 
 
 
 
Net loss attributable to Civeo common shareholders - basic
$
(14,250
)
 
$
(22,331
)
 
$
(118,028
)
 
$
(58,134
)
Less: undistributed net income to participating securities

 

 

 

Net loss attributable to Civeo common shareholders - diluted
$
(14,250
)
 
$
(22,331
)
 
$
(118,028
)
 
$
(58,134
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
165,855

 
130,889

 
154,411

 
127,512

Effect of dilutive securities (1)

 

 

 

Weighted average common shares outstanding - diluted
165,855

 
130,889

 
154,411

 
127,512

 
 
 
 
 
 
 
 
Diluted loss per share
$
(0.09
)
 
$
(0.17
)
 
$
(0.76
)
 
$
(0.46
)
 
(1)
When an entity has a net loss from continuing operations, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, we have utilized the basic shares outstanding amount to calculate both basic and diluted loss per share for the three and nine months ended September 30, 2018 and 2017. In the three months ended September 30, 2018 and 2017, we excluded from the calculation 4.1 million and 2.2 million share based awards, respectively, since the effect would have been anti-dilutive. In the nine months ended September 30, 2018 and 2017, we excluded from the calculation 3.7 million and 2.1 million share based awards, respectively, since the effect would have been anti-dilutive. In the three and nine months ended September 30, 2018, we excluded from the calculation the impact of converting the Preferred Shares into 29.6 million common shares, since the effect would have been anti-dilutive.

18

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


11.
DEBT
 
As of September 30, 2018 and December 31, 2017, long-term debt consisted of the following (in thousands):
 
 
September 30, 2018
 
December 31, 2017
Canadian term loan, which matures on November 30, 2020; 2.50% of aggregate principal repayable per quarter; weighted average interest rate of 5.3% for the nine-month period ended September 30, 2018
$
270,157

 
$
297,623

 
 
 
 
U.S. revolving credit facility, which matures on November 30, 2020, weighted average interest rate of 7.0% for the nine-month period ended September 30, 2018

 

 
 
 
 
Canadian revolving credit facility, which matures on November 30, 2020, weighted average interest rate of 6.0% for the nine-month period ended September 30, 2018
135,574

 

 
 
 
 
Australian revolving credit facility, which matures on November 30, 2020, weighted average interest rate of 5.4% for the nine-month period ended September 30, 2018
17,347

 

 
423,078

 
297,623

Less: Unamortized debt issuance costs
2,771

 
3,037

Total debt
420,307

 
294,586

Less: Current portion of long-term debt, including unamortized debt issuance costs, net
28,146

 
16,596

Long-term debt, less current maturities
$
392,161

 
$
277,990

 
We did not have any capitalized interest to net against interest expense for either of the three or nine months ended September 30, 2018 or 2017.
 
Amended Credit Agreement
 
As of December 31, 2017, our Credit Agreement, as then amended to date, provided for: (i) a $275.0 million revolving credit facility scheduled to mature on May 28, 2019, allocated as follows: (A) a $40.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (B) a $90.0 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; (C) a $60.0 million senior secured revolving credit facility in favor of Civeo, as borrower; and (D) a $85.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a $350.0 million term loan facility scheduled to mature on May 28, 2019 in favor of Civeo.
 
On April 2, 2018, the Amended and Restated Syndicated Facility Agreement (the Amended Credit Agreement) became effective, which, among other things:
 
provided for the reduction by $35.5 million of the aggregate revolving loan commitments under the Amended Credit Agreement, to a maximum principal amount of $239.5 million, allocated as follows: (1) a $20.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (2) a $159.5 million senior secured revolving credit facility, after combining the commitments of the previously existing two tranches of the Canadian revolving credit facility into one tranche, in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; and (3) a $60.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower;

extended the maturity date by 18 months, from May 30, 2019 to November 30, 2020;

adjusted the maximum leverage ratio financial covenant, as follows:


 

19

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


Period Ended
Maximum Leverage Ratio
September 30, 2018
4.25

 
:
 
1.00
December 31, 2018
3.75

 
:
 
1.00
March 31, 2019 & thereafter
3.50

 
:
 
1.00
; and

provided for other technical changes and amendments to the Credit Agreement.
 
As a result of the Amended Credit Agreement, we recognized a loss during the second quarter of 2018 of approximately $0.7 million related to unamortized debt issuance costs, which is included in Loss on extinguishment of debt on the unaudited consolidated statements of operations.
 
On October 26, 2018, we amended the Amended Credit Agreement, which, among other things:
 
increased amortization on the term loan facility from 10% per annum to 12.5% per annum beginning at December 31, 2018 through maturity;

adjusted the maximum leverage ratio financial covenant, as follows:

Period Ended
Maximum Leverage Ratio
December 31, 2018
4.50

 
:
 
1.00
March 31, 2019
4.75

 
:
 
1.00
June 30, 2019
4.50

 
:
 
1.00
September 30, 2019
4.00

 
:
 
1.00
December 31, 2019 & thereafter
3.50

 
:
 
1.00
; and

provided for other technical changes and amendments to the Credit Agreement.

U.S. dollar amounts outstanding under the facilities provided by the Amended Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 2.25% to 4.00%, or a base rate plus 1.25% to 3.00%, in each case based on a ratio of our total leverage to EBITDA (as defined in the Amended Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to the Canadian Dollar Offered Rate plus a margin of 2.25% to 4.00%, or a base rate plus a margin of 1.25% to 3.00%, in each case based on a ratio of our consolidated total leverage to EBITDA. Australian dollar amounts outstanding under the Amended Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 2.25% to 4.00%, based on a ratio of our consolidated total leverage to EBITDA.
 
The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict: (i) subsidiary indebtedness, liens and fundamental changes; (ii) asset sales; (iii) acquisitions of margin stock; (iv) specified acquisitions; (v) certain restrictive agreements; (vi) transactions with affiliates; and (vii) investments and other restricted payments, including dividends and other distributions. In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 4.25 to 1.0 (as of September 30, 2018).  As noted above, the permitted maximum leverage ratio changes over time.  Each of the factors considered in the calculations of these ratios are defined in the Amended Credit Agreement.  EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization, amortization of intangibles and other non-cash charges.  We were in compliance with our covenants as of September 30, 2018.
 
Borrowings under the Amended Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries. The obligations under the Amended Credit Agreement are guaranteed by our significant subsidiaries. As of September 30, 2018, we have 9 lenders that are parties to the Credit Agreement, with commitments ranging from $24.9 million to $110.6 million


20

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


12.
PREFERRED SHARES
 
As further discussed in Note 7 – Acquisitions, on April 2, 2018, we issued 9,679 Preferred Shares as part of the Noralta Acquisition. The Preferred Shares have an initial liquidation preference of $10,000 per share. Holders of the Preferred Shares will be entitled to receive a 2% annual dividend on the liquidation preference, subject to increase to up to 3% in certain circumstances, paid quarterly in cash or, at our option, by increasing the Preferred Shares’ liquidation preference or any combination thereof.
 
The Preferred Shares are convertible into our common shares at a conversion price of US$3.30 per Preferred Share, subject to certain anti-dilution adjustments (the Conversion Price). We have the right to elect to convert the Preferred Shares into our common shares if the 15-day volume weighted average price of our common shares is equal to or exceeds the Conversion Price. Holders of the Preferred Shares will have the right to convert the Preferred Shares into our common shares at any time after two years from the date of issuance, and the Preferred Shares mandatorily convert after five years from the date of issuance. The Preferred Shares also convert automatically into our common shares upon a change of control of Civeo. We may, at any time and from time to time, redeem any or all of the Preferred Shares for cash at the liquidation preference, plus accrued and unpaid dividends.
 
The Preferred Shares do not have voting rights, except as statutorily required.
 
During the three and nine months ended September 30, 2018, we recognized preferred dividends on the Preferred Shares as follows (in thousands):
 
 
Three
Months Ended
 
Nine
Months Ended
 
September 30,
 
September 30,
 
2018
 
2018
Deemed dividend on beneficial conversion feature at April 2, 2018
$

 
$
47,849

In-kind dividend
486

 
970

Deemed dividend on beneficial conversion feature related to in-kind dividend
126

 
281

Total preferred dividends
$
612

 
$
49,100

 
As noted in Note 7 - Acquisitions, at the time the Preferred Shares were issued, we determined that a beneficial conversion feature existed as the fair value of the securities into which the Preferred Shares were convertible was greater than the effective conversion price on the issuance date. Accordingly, we recorded a beneficial conversion feature of $47.8 million. The beneficial conversion feature was recorded as an increase to additional paid-in capital with the offset recorded as a discount on the Preferred Shares.  The increase to additional paid-in capital of the beneficial conversion feature is included in the $166.9 million increase due to issuance of shares for acquisitions on the unaudited consolidated statements of changes in shareholders’ equity.  Similarly, the discount to Preferred Shares of the beneficial conversion feature is netted in the $7.0 million increase due to issuance of shares for acquisitions on the unaudited consolidated statements of changes in shareholders’ equity.  
 
As the Preferred Shares do not have a stated redemption date, the discount is required to be recognized as a dividend over the minimum period from the date of issuance through the date of earliest conversion. Because the 15-day volume weighted average price of our common shares was greater than $3.30 on April 2, 2018, the earliest conversion date was determined to be April 2, 2018. Accordingly, we recorded a deemed dividend on April 2, 2018 totaling the discount of $47.8 million.
 
The Board of Directors elected to pay the dividend due on June 30, 2018 and September 30, 2018, which totaled $49.44 and $50.25 per Preferred Share, respectively, through an increase in the liquidation preference rather than in cash. The paid-in-kind dividend of $0.5 million and $1.0 million is included in Preferred dividends on the unaudited consolidated statement of operations for the three and nine months ended September 30, 2018, respectively.
 
In addition, at the time the dividend was deemed to be paid-in-kind, the fair value of the securities into which the Preferred Shares were convertible was greater than the effective conversion price on the deemed payment date. Accordingly, we recorded a beneficial conversion feature of $0.1 million and $0.3 million for the three and nine months ended September 30, 2018, respectively. The beneficial conversion feature was recorded as an increase to additional paid-in capital with the offset recorded as a discount on the Preferred Shares. As the Preferred Shares do not have a stated redemption date, the discount is

21

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


required to be recognized as a dividend over the minimum period from the date of issuance through the date of earliest conversion. Because the 15-day volume weighted average price of our common shares was greater than $3.30 on September 30, 2018, the earliest conversion date was determined to be September 30, 2018. Accordingly, we recorded a deemed dividend on September 30, 2018 totaling the discount of $0.1 million

13.
INCOME TAXES
 
Our operations are conducted through various subsidiaries in a number of countries throughout the world. We have provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned.
 
We operate primarily in three jurisdictions, Canada, Australia and the U.S., where statutory tax rates range from 21% to 30%. Our effective tax rate will vary from period to period based on changes in earnings mix between these different jurisdictions.
 
We compute our quarterly taxes under the effective tax rate method by applying an anticipated annual effective rate to our year-to-date income, except for significant unusual or extraordinary transactions.  As of September 30, 2018, Australia and the U.S. are loss jurisdictions for tax accounting purposes, therefore Australia and the U.S. have been removed from the annual effective tax rate computation for purposes of computing the interim tax provision.  Income taxes for any significant and unusual or extraordinary transactions are computed and recorded in the period in which the specific transaction occurs.
 
As part of the acquisition of Noralta as described in Note 7 – Acquisitions, the purchase price allocation included $53 million of deferred tax liabilities in Canada.  The addition of these deferred tax liabilities resulted in Canada no longer being considered a loss jurisdiction.  Accordingly, a benefit of $4.9 million was recorded in the second quarter of 2018 to reverse a valuation allowance against the Canadian net deferred tax asset and Canadian pre-tax results have been included in the annual effective tax rate.
 
Our income tax benefit for the nine months ended September 30, 2018 totaled $29.4 million, or 30.0% of pretax loss, compared to a benefit of $9.9 million, or 14.6% of pretax loss, for the nine months ended September 30, 2017.  Our effective tax rate for the nine months ended September 30, 2018 was reduced approximately 5% by the exclusion of Australia and the U.S. for purposes of computing the interim tax provision since they are considered loss jurisdictions for tax accounting purposes. This reduction was offset by an increase of approximately 5%, related to the valuation allowance release noted above. Our effective tax rate for the nine months ended September 30, 2017 was reduced approximately 13% by the exclusion of Australia and the U.S. for purposes of computing the interim tax provision since they are considered loss jurisdictions for tax accounting purposes.  
 
Our income tax benefit for the three months ended September 30, 2018 totaled $5.3 million, or 28.2% of pretax loss, compared to a benefit of $4.0 million, or 15.3% of pretax loss, for the three months ended September 30, 2017.  The difference between the effective rate in 2018 and 2017 is due to the change in the relative mix of losses between Canada, Australia and the U.S., as Australia and the U.S., for purposes of computing the interim tax provision, are considered loss jurisdictions for tax accounting purposes.

14.
COMMITMENTS AND CONTINGENCIES
 
We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims as a result of our products or operations. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. 


22

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


15.
ACCUMULATED OTHER COMPREHENSIVE LOSS
 
Our accumulated other comprehensive loss increased $25.6 million from $328.2 million at December 31, 2017 to $353.8 million at September 30, 2018, as a result of foreign currency exchange rate fluctuations. Changes in other comprehensive loss during the first nine months of 2018 were primarily driven by the Australian dollar and Canadian dollar decreasing in value compared to the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets totaled approximately C$0.3 billion and A$0.4 billion, respectively, at September 30, 2018. 

16.
SHARE BASED COMPENSATION
 
Our employees and non-employee directors participate in the Amended and Restated 2014 Equity Participation Plan of Civeo Corporation (the Civeo Plan). The Civeo Plan authorizes our Board of Directors and the Compensation Committee of our Board of Directors to approve grants of options, awards of restricted shares, performance awards and dividend equivalents, awards of deferred shares, and share payments to our employees and non-employee directors. No more than 18.7 million Civeo common shares may be awarded under the Civeo Plan.
 
Outstanding Awards
 
Options. Compensation expense associated with options recognized in the three months ended September 30, 2018 and 2017 totaled zero and less than $0.1 million, respectively. Compensation expense associated with options recognized in the nine months ended September 30, 2018 and 2017 totaled less than $0.1 million during both periods. At September 30, 2018, unrecognized compensation cost related to options was zero.
 
Restricted Share / Deferred Share Awards. On February 20, 2018, we granted 2,018,990 restricted share awards and deferred share awards under the Civeo Plan, which vest in three equal annual installments beginning on February 20, 2019. On May 10, 2018, we granted 265,153 restricted share awards to our outside directors, which vest in their entirety on May 10, 2019.
 
Compensation expense associated with restricted share awards and deferred share awards recognized in the three months ended September 30, 2018 and 2017 totaled $1.6 million and $0.9 million, respectively. Compensation expense associated with restricted share awards and deferred share awards recognized in the nine months ended September 30, 2018 and 2017 totaled $4.4 million and $3.2 million, respectively. The total fair value of restricted share awards and deferred share awards that vested during the three months ended September 30, 2018 and 2017 was de minimis. The total fair value of restricted share awards and deferred share awards that vested during the nine months ended September 30, 2018 and 2017 was $3.4 million and $2.4 million, respectively.    
 
At September 30, 2018, unrecognized compensation cost related to restricted share awards and deferred share awards was $9.8 million, which is expected to be recognized over a weighted average period of 1.9 years.
 
Phantom Share Awards. During the three months ended September 30, 2018 and 2017, we recognized compensation expense associated with phantom shares totaling $2.1 million and $2.4 million, respectively. During the nine months ended September 30, 2018 and 2017, we recognized compensation expense associated with phantom shares totaling $8.2 million and $6.6 million, respectively. At September 30, 2018, unrecognized compensation cost related to phantom shares was $4.3 million, as remeasured at September 30, 2018, which is expected to be recognized over a weighted average period of 0.7 years.
 
Performance Awards. On February 20, 2018, we granted 848,830 performance awards under the Civeo Plan, which cliff vest in three years on February 20, 2021. These awards will be earned in amounts between 0% and 200% of the participant’s target performance share award, based on the payout percentage associated with Civeo’s relative total shareholder return rank among a peer group that includes 17 other companies.  
 
During the three months ended September 30, 2018 and 2017, we recognized compensation expense associated with performance awards totaling $1.2 million and $0.8 million, respectively. During the nine months ended September 30, 2018 and 2017, we recognized compensation expense associated with performance awards totaling $3.4 million and $2.3 million, respectively. At September 30, 2018, unrecognized compensation cost related to performance shares was $6.2 million, which is expected to be recognized over a weighted average period of 1.8 years.
 

23

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)



17.
SEGMENT AND RELATED INFORMATION
 
In accordance with current accounting standards regarding disclosures about segments of an enterprise and related information, we have identified the following reportable segments: Canada, Australia and U.S., which represent our strategic focus on workforce accommodations.
 
Financial information by business segment for each of the three and nine months ended September 30, 2018 and 2017 is summarized in the following table (in thousands):
 
 
Total
Revenues
 
Depreciation
and
amortization
 
Operating
income
(loss)
 
Capital
expenditures
 
 
Total assets
Three months ended September 30, 2018
 
 
 
 
 
 
 
 
 
Canada
$
76,753

 
$
19,198

 
$
(7,129
)
 
$
1,198

 
$
870,701

Australia
31,090

 
8,842

 
472

 
958

 
301,340

United States
12,648

 
3,015

 
(1,349
)
 
270

 
58,574

Corporate and eliminations

 
3,413

 
(4,889
)
 
297

 
(131,979
)
Total
$
120,491

 
$
34,468

 
$
(12,895
)
 
$
2,723

 
$
1,098,636

 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2017
 
 
 
 
 
 
 
 
 
Canada
$
63,832

 
$
18,402

 
$
(11,691
)
 
$
679

 
$
579,593

Australia
27,541

 
11,561

 
(3,667
)
 
756

 
391,520

United States
6,116

 
1,165

 
(3,941
)
 
422

 
31,161

Corporate and eliminations

 
1,572

 
(2,045
)
 
126

 
(72,524
)
Total
$
97,489

 
$
32,700

 
$
(21,344
)
 
$
1,983

 
$
929,750

 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2018
 
 
 
 
 
 
 
 
 
Canada
$
226,661

 
$
54,954

 
$
(53,777
)
 
$
3,679

 
$
870,701

Australia
89,542

 
30,608

 
(3,793
)
 
2,028

 
301,340

United States
35,969

 
7,482

 
(6,445
)
 
2,168

 
58,574

Corporate and eliminations

 
6,458

 
(16,896
)
 
791

 
(131,979
)
Total
$
352,172

 
$
99,502

 
$
(80,911
)
 
$
8,666

 
$
1,098,636

 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2017
 
 
 
 
 
 
 
 
 
Canada
$
182,006

 
$
54,374

 
$
(26,283
)
 
$
2,195

 
$
579,593

Australia
83,164

 
34,614

 
(8,284
)
 
2,211

 
391,520

United States
15,758

 
3,549

 
(10,347
)
 
1,058

 
31,161

Corporate and eliminations

 
4,546

 
(7,529
)
 
2,556

 
(72,524
)
Total
$
280,928

 
$
97,083

 
$
(52,443
)
 
$
8,020

 
$
929,750


18.
SUBSEQUENT EVENT
 
On October 26, 2018, we amended our Amended Credit Agreement. Please see Note 11 - Debt for further information.

24



Cautionary Statement Regarding Forward-Looking Statements
 
This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. The forward-looking statements can be identified by the use of forward-looking terminology including “may,” “expect,” “anticipate,” “estimate,” “continue,” “believe” or other similar words. The forward-looking statements in this report include, but are not limited to, the statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” relating to our expectations about the macroeconomic environment and industry conditions, including factors expected to impact supply and demand, as well as our expectations about capital expenditures in 2018 and beliefs with respect to liquidity needs. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of known material factors that could affect our results, please refer to “Risk Factors,” “Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2017 and our subsequent SEC filings. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Our management believes these forward-looking statements are reasonable. However, you should not place undue reliance on these forward-looking statements, which are based only on our current expectations and are not guarantees of future performance. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any of them in light of new information, future events or otherwise, except to the extent required by applicable law.
 
In addition, in certain places in this quarterly report, we refer to reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our shareholders and in an effort to provide information available in the market that will assist our investors in a better understanding of the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.
 
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q.
 
Noralta Acquisition
 
On April 2, 2018, we completed our previously announced acquisition of Noralta Lodge Ltd. (Noralta). The consideration for the acquisition totaled (i) C$207.7 million (or approximately US$161.1 million) in cash, subject to customary post-closing adjustments for working capital, indebtedness and transaction expenses; (ii) 32.8 million of our common shares, and (iii) 9,679 shares of our Class A Series 1 Preferred Shares with an initial liquidation preference of US$96.79 million and initially convertible into 29.3 million of our common shares. We funded the cash consideration with cash on hand and borrowings under the Amended Credit Agreement. Please see Note 7 – Acquisitions to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further information.
 
Amended Credit Agreement
 
On April 2, 2018 and October 26, 2018, we amended our Amended Credit Agreement. Please see Note 11 – Debt to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further information.

Macroeconomic Environment