UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________

FORM 10-Q

___________________________________________________



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

For the Quarterly Period Ended July 31, 2017



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

For the transition period from to

Commission File Number: 333-181780

___________________________________________________

BAKERCORP INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

___________________________________________________



Delaware		13-4315148
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7800 N. Dallas Parkway, Suite 500, Plano, Texas		75024
(Address of principal executive offices)		(Zip Code)

(888) 882-4895

(Registrant’s telephone number, including area code)

___________________________________________________

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

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

There is no public market for the registrant’s common stock. There were 100 shares of the registrant’s common stock, par value $0.01 per share, outstanding on September 13, 2017.

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TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Condensed Consolidated Balance Sheets as of July 31, 2017 (unaudited) and January 31, 2017 (audited)	1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2017 and 2016 (unaudited)	2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended July 31, 2017 and 2016 (unaudited)	3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2017 and 2016 (unaudited)	4
Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3. Quantitative and Qualitative Disclosures about Market Risk	51
Item 4. Controls and Procedures	52
PART II. OTHER INFORMATION	53
Item 1. Legal Proceedings	53
Item 1A. Risk Factors	53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3. Defaults upon Senior Securities	53
Item 4. Mine Safety Disclosures	53
Item 5. Other Information	53
Item 6. Exhibits	53

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

BakerCorp International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)



	July 31, 2017			January 31, 2017
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,595		$	44,563
Accounts receivable, net of allowance for doubtful accounts of $5,511 and $5,152, respectively	61,193			52,478
Inventories, net	3,970			3,721
Prepaid expenses and other assets	3,461			4,145
Total current assets	93,219			104,907
Property and equipment, net	320,495			320,707
Goodwill	54,836			49,918
Other intangible assets, net	347,407			354,418
Other assets	2,151			590
Total assets	$	818,108		$	830,540
Liabilities and shareholder’s equity
Current liabilities:
Accounts payable	$	15,926		$	17,697
Accrued expenses	20,318			21,855
Current portion of long-term debt (net of deferred financing costs of $3,162 and $3,080, respectively)	1,000			1,082
Total current liabilities	37,244			40,634
Long-term debt, net of current portion (net of deferred financing costs of $3,414 and $4,183, respectively)	633,083			634,395
Deferred tax liabilities, net	102,444			110,114
Share-based compensation liability	35			66
Other long-term liabilities	2,770			2,936
Total liabilities	775,576			788,145
Commitments and contingencies
Shareholder’s equity:
Common stock, $0.01 par value; 100,000 shares authorized; 100 shares issued and outstanding on July 31, 2017 and January 31, 2017	—			—
Additional paid-in capital	393,399			393,094
Accumulated other comprehensive loss	(28,545		)	(41,537		)
Accumulated deficit	(322,322		)	(309,162		)
Total shareholder’s equity	42,532			42,395
Total liabilities and shareholder’s equity	$	818,108		$	830,540

See Accompanying Notes

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BakerCorp International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)

(In thousands)



	Three Months Ended July 31,						Six Months Ended July 31,
	2017			2016			2017			2016
Revenue:
Rental revenue	$	54,654		$	51,444		$	105,467		$	103,765
Sales revenue	5,230			3,762			9,928			8,696
Service revenue	8,317			7,994			15,945			15,771
Total revenue	68,201			63,200			131,340			128,232
Operating expenses:
Employee related expenses	24,033			24,267			48,973			48,957
Rental expenses	8,812			6,840			17,569			14,350
Repair and maintenance	3,441			2,874			6,609			5,187
Cost of goods sold	3,416			2,300			6,559			5,362
Facility expenses	6,851			6,649			13,683			13,605
Professional fees	689			1,126			2,048			2,218
Other operating expenses	3,568			3,398			7,588			6,982
Depreciation and amortization	14,748			15,075			29,469			30,184
Gain on sale of equipment	(606		)	(976		)	(1,726		)	(1,634		)
Impairment of goodwill and other intangible assets	1,000			—			1,000			84,046
Impairment of long-lived assets	96			439			296			439
Total operating expenses	66,048			61,992			132,068			209,696
Income (loss) from operations	2,153			1,208			(728		)	(81,464		)
Other expenses:
Interest expense, net	10,210			10,626			20,192			21,149
Foreign currency exchange (gain) loss, net	(303		)	731			(143		)	238
Other income, net	(10		)	(12		)	(10		)	(12		)
Total other expenses, net	9,897			11,345			20,039			21,375
Loss before income tax benefit	(7,744		)	(10,137		)	(20,767		)	(102,839		)
Income tax benefit	(2,795		)	(2,252		)	(7,607		)	(23,141		)
Net loss	$	(4,949	)	$	(7,885	)	$	(13,160	)	$	(79,698	)

See Accompanying Notes

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BakerCorp International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (loss) (unaudited)

(In thousands)



	Three Months Ended July 31,						Six Months Ended July 31,
	2017			2016			2017			2016
Net loss	$	(4,949	)	$	(7,885	)	$	(13,160	)	$	(79,698	)
Other comprehensive income (loss), net of tax:
Unrealized gain on interest rate swap agreements, net of tax expense of $184 and $365 for the three and six months ended July 31, 2016	—			292			—			586
Foreign currency translation adjustments	10,902			(3,216		)	12,992			3,220
Other comprehensive income (loss)	10,902			(2,924		)	12,992			3,806
Total comprehensive income (loss)	$	5,953		$	(10,809	)	$	(168	)	$	(75,892	)

See Accompanying Notes

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BakerCorp International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(In thousands)



	Six Months Ended July 31,
	2017			2016
Operating activities
Net loss	$	(13,160	)	$	(79,698	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Provision for doubtful accounts	486			435
Provision for excess and obsolete inventory, net	(6		)	—
Share-based compensation	305			(39		)
Gain on sale of equipment	(1,726		)	(1,634		)
Depreciation and amortization	29,469			30,184
Amortization of deferred financing costs	1,509			1,432
Deferred income taxes	(8,308		)	(24,326		)
Amortization of above-market lease	(76		)	(76		)
Impairment of goodwill and other intangible assets	1,000			84,046
Impairment of long-lived assets	296			439
Changes in assets and liabilities:
Accounts receivable	(8,167		)	4,571
Inventories	(235		)	4,070
Prepaid expenses and other assets	681			(384		)
Accounts payable and other liabilities	(4,739		)	(6,264		)
Net cash (used in) provided by operating activities	(2,671		)	12,756
Investing activities
Purchases of property and equipment	(16,874		)	(24,679		)
Proceeds from sale of equipment	503			2,514
Net cash used in investing activities	(16,371		)	(22,165		)
Financing activities
Repayment of long-term debt	(2,081		)	(2,081		)
Return of capital to BakerCorp International Holdings, Inc.	—			(8		)
Net cash used in financing activities	(2,081		)	(2,089		)
Effect of foreign currency translation on cash	1,155			381
Net decrease in cash and cash equivalents	(19,968		)	(11,117		)
Cash and cash equivalents, beginning of period	44,563			44,754
Cash and cash equivalents, end of period	$	24,595		$	33,637

Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest	$	18,653		$	19,731
Income taxes	$	1,887		$	1,191
Non-cash financing and investing activities:
Return of capital to BakerCorp International Holdings, Inc. related to a settlement of options for shares of common stock in BakerCorp International Holdings Inc.	$	—		$	8

See Accompanying Notes

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BakerCorp International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1. Organization, Description of Business, and Basis of Presentation

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

Basis of Presentation

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

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

Principles of Consolidation

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

Use of Estimates

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

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Note 2. Accounting Pronouncements

Recently Issued Accounting Pronouncements

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

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

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

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

In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): “Improvements to Employee Share-Based Payment Accounting” (“ASU No. 2016-09”). ASU No. 2016-09 simplifies several aspects of the accounting for share-based payments transactions, including income tax consequences, classification of awards as either liability or equity, and classification on the statement of cash flows. The standard is effective for non-public entities for annual periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. We are currently assessing the impact the adoption of ASU No. 2016-09 will have on our condensed consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU No. 2016-02”). This amendment requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC 840 “Leases” and increases the disclosure requirements surrounding these leases. For non-public business entities, ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. We are currently assessing the impact the adoption of ASU No. 2016-02 will have on our condensed consolidated financial statements.

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

Note 3. Changes in Accumulated Other Comprehensive Loss

The following table includes the change in foreign currency translation adjustments to the components of accumulated other comprehensive loss, for the three months ended July 31, 2017:



(In thousands)
Balance as of April 30, 2017	$	(39,447	)
Other comprehensive income before reclassifications	10,902
Net other comprehensive income	10,902
Balance as of July 31, 2017	$	(28,545	)

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



(In thousands)	Unrealized (Loss) Gain on Interest Rate Swap Agreements⁽¹⁾			Change in Foreign Currency Translation Adjustments			Total
Balance as of April 30, 2016	$	(292	)	$	(32,645	)	$	(32,937	)
Other comprehensive income (loss) before reclassifications	292			(3,216		)	(2,924		)
Net other comprehensive income (loss)	292			(3,216		)	(2,924		)
Balance as of July 31, 2016	$	—		$	(35,861	)	$	(35,861	)


(1)	Unrealized income on interest rate swap agreements is net of tax expense of $184 for the three months ended July 31, 2016.

The following table includes the change in foreign currency translation adjustments to the components of accumulated

other comprehensive loss, for the six months ended July 31, 2017:



(In thousands)
Balance as of January 31, 2017	$	(41,537	)
Other comprehensive income before reclassifications	12,992
Net other comprehensive income	12,992
Balance as of July 31, 2017	$	(28,545	)

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



(In thousands)	Unrealized (Loss) Gain on Interest Rate Swap Agreements⁽¹⁾			Change in Foreign Currency Translation Adjustments			Total
Balance as of January 31, 2016	$	(586	)	$	(39,081	)	$	(39,667	)
Other comprehensive income before reclassifications	586			3,220			3,806
Net other comprehensive income	586			3,220			3,806
Balance as of July 31, 2016	$	—		$	(35,861	)	$	(35,861	)

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

Note 4. Inventories

Inventories, net consisted of the following:



(In thousands)	July 31, 2017			January 31, 2017
Components	$	1,279		$	1,237
Work-in-process	189			627
Finished goods	3,484			2,845
Less: inventory reserve	(982		)	(988		)
Inventories, net	$	3,970		$	3,721

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Note 5. Property and Equipment, Net

Property and equipment, net consisted of the following as of July 31, 2017:



(In thousands)	Cost		Accumulated Depreciation			Net Carrying Amount
Assets held for rent:
Spill protection berms	$	3,514	$	(2,530	)	$	984
Boxes	31,857		(15,581		)	16,276
Filtration	15,013		(7,824		)	7,189
Generators and light towers	513		(245		)	268
Pipes, hoses and fittings	8,467		(5,946		)	2,521
Non-steel containment	11,766		(5,302		)	6,464
Pumps	62,828		(38,903		)	23,925
Shoring	5,682		(3,895		)	1,787
Steel containment	329,364		(94,939		)	234,425
Tank trailers	1,870		(1,729		)	141
Construction in progress	3,626		—			3,626
Total assets held for rent	474,500		(176,894		)	297,606
Assets held for use:
Leasehold improvements	4,415		(2,800		)	1,615
Machinery and equipment	45,983		(32,042		)	13,941
Office furniture and equipment	6,114		(4,455		)	1,659
Software	14,499		(9,605		)	4,894
Construction in progress	780		—			780
Total assets held for use	71,791		(48,902		)	22,889
Total	$	546,291	$	(225,796	)	$	320,495

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Property and equipment, net consisted of the following as of January 31, 2017:



(In thousands)	Cost		Accumulated Depreciation			Net Carrying Amount
Assets held for rent:
Spill protection berms	$	3,487	$	(2,497	)	$	990
Boxes	31,128		(14,357		)	16,771
Filtration	14,303		(6,820		)	7,483
Generators and light towers	518		(235		)	283
Pipes, hoses and fittings	11,196		(8,479		)	2,717
Non-steel containment	10,309		(5,031		)	5,278
Pumps	58,021		(35,761		)	22,260
Shoring	4,681		(3,444		)	1,237
Steel containment	324,267		(88,996		)	235,271
Tank trailers	1,881		(1,685		)	196
Construction in progress	2,081		—			2,081
Total assets held for rent	461,872		(167,305		)	294,567
Assets held for use:
Leasehold improvements	3,949		(2,572		)	1,377
Machinery and equipment	44,379		(29,673		)	14,706
Office furniture and equipment	5,937		(4,071		)	1,866
Software	13,889		(8,324		)	5,565
Construction in progress	2,626		—			2,626
Total assets held for use	70,780		(44,640		)	26,140
Total	$	532,652	$	(211,945	)	$	320,707

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) are less than the carrying value, a write-down would be recorded to reduce the related carrying value of the asset to its estimated fair value.

During the three months ended April 30, 2017 and July 31, 2017, certain assets that were on long-term rentals were returned in a condition beyond repair. We determined that the net book value of these assets exceeded the assets’ estimated fair value. The fair value was determined utilizing the discounted cash flow method income approach (a non-recurring Level 3 fair value measurement). As a result, during the three months ended April 30, 2017 and July 31, 2017, we recorded an impairment charge of $0.2 million and $0.1 million, respectively, resulting in a $0.3 million impairment charge in our North American segment during the six months ended July 31, 2017.

During the three months ended July 31, 2016, certain assets that were on long-term rentals were returned in a condition beyond repair. We determined that the net book value of these assets exceeded the assets’ estimated fair value. As a result, during the three and six months ended July 31, 2016, we recorded an impairment charge of $0.4 million in our North American segment.

Included in machinery and equipment are assets under capital leases with a cost of $5.1 million and $4.7 million as of July 31, 2017 and January 31, 2017, respectively, and accumulated depreciation of $1.6 million and $1.2 million as of July 31, 2017 and January 31, 2017, respectively.

Depreciation expense related to property and equipment for the three months ended July 31, 2017 and 2016 was $10.7 million and $11.0 million, respectively. Depreciation and amortization expense related to property and equipment for the six months ended July 31, 2017 and 2016 was $21.4 million and $22.1 million, respectively.

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Note 6. Goodwill and Other Intangible Assets, Net

Goodwill

Changes in the carrying amount of the European reporting unit goodwill was as follows:



(In thousands)	Total
Balance as of January 31, 2017	$	49,918
Foreign currency translation	4,918
Balance as of July 31, 2017	$	54,836

For the six months ended July 31, 2017

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

The North American goodwill was written down to zero as of January 31, 2017 and there were no indicators of impairment to our European reporting unit as of July 31, 2017.

For the six months ended July 31, 2016

During the quarter ended April 30, 2016, we encountered a reduction in our operating results in comparison to our forecast, primarily due to greater weakness in upstream oil and gas than anticipated, slower recovery in our construction business, and the delay of capital projects by refinery and power plants which can be seen through our lower volume of work with industrial service customers. As a result of the decline in demand for our products and services, we re-assessed our revenue and EBITDA forecast beginning with the fiscal year ended January 31, 2017 using a bottoms-up approach, having conversations with our key customers, and performing an analysis on current market conditions and industry spending behavior. Based on our assessment, we noted that despite the recent stabilization of oil prices, there will be continued uncertainty in the energy market resulting in a slow-down in capital spend. As a result, we updated our projections to reflect the decline in activity, adjusted our forecast for the outer years to maintain similar growth rates as our previous forecast, and performed the first step of the goodwill impairment test.

Under the first step of the impairment test, we determined the carrying value of the North American reporting unit exceeded fair value. We then performed the second step of the impairment test for the North American reporting unit and calculated the implied fair value of goodwill, which was less than its carrying value. Based on our analysis, we recorded a non-cash goodwill impairment charge of $65.7 million in our North American reporting unit. This impairment charge, which is included under the caption “Impairment of goodwill and other intangible assets” in our condensed consolidated statements of operations for the six months ended July 31, 2016, did not impact our operations, compliance with our debt covenants or our cash flows. For the European reporting unit, the fair value exceeded the carrying value, suggesting no indication of potential goodwill impairment.

In calculating the fair value of our North American reporting unit under the first step, we gave equal weight to the income approach, which analyzed projected discounted cash flows, and the market approach, which considered comparable public companies as well as comparable industry transactions.

Under the income approach, we estimate future capital expenditures required to maintain our rental fleet under normalized operations and utilize the following Level 3 estimates and assumptions in the discounted cash flow analysis:


•	Long-term EBITDA margin range of 25.8% to 30.5%, reflecting our historical and forecasted profit margins;


•	Long-term revenue growth rate range of 3.0% to 8.0% based on long-term nominal growth rate potential;


•	A discount rate of 10% based on our weighted average cost of capital;

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

Other Intangible Assets, Net

The components of other intangible assets, net were the following as of:



	July 31, 2017							January 31, 2017
(In thousands)	Gross (1)		Accumulated Amortization			Net		Gross (1)		Accumulated Amortization			Net
Carrying amount:
Customer relationships (25 years)	$	402,157	$	(99,198	)	$	302,959	$	400,455	$	(90,770	)	$	309,685
Customer backlog (2 years)	200		(200		)	—		200		(200		)	—
Developed technology (11 years)	1,657		(550		)	1,107		1,634		(467		)	1,167
Trade name (Indefinite)(1)	43,341		—			43,341		43,566		—			43,566
Total carrying amount	$	447,355	$	(99,948	)	$	347,407	$	445,855	$	(91,437	)	$	354,418

(1) Amounts are stated gross, net of impairment charges to trade name of $1.0 million and $18.3 million for the six months ended July 31, 2017 and the fiscal year ended January 31, 2017, respectively.

We evaluate the carrying value of our indefinite-lived intangible asset (trade name) annually during the fourth quarter of each fiscal year and more frequently if we believe indicators of impairment exist. To test our indefinite-lived intangible asset for impairment, we compare the fair value of our indefinite-lived intangible asset to carrying value. We estimate the fair value using an income approach and using the asset’s projected discounted cash flows. We recognize an impairment loss when the estimated fair value of the indefinite-lived intangible asset is less than the carrying value.

We assess the impairment of definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The asset is impaired if its carrying value exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the asset. In assessing recoverability, we must make assumptions regarding estimated future cash flows and other factors. The impairment loss is the amount by which the carrying value of the asset exceeds its fair value. We estimate fair value utilizing the projected discounted cash flow method and a discount rate determined by our management to be commensurate with the risk inherent in our current business model. When calculating fair value, we must make assumptions regarding estimated future cash flows, discount rates and other factors. During the three months ended July 31, 2017, an indicator of impairment to our indefinite-lived intangible asset (trade name) was identified in our North American reporting unit due to a reduction in our forecast due to a slower than expected recovery in our maintenance and oil and gas customers. Based on our analysis, we concluded that the carrying value of our trade name indefinite-lived intangible asset exceeded its fair value and we recorded an impairment charge of $1.0 million.

Due to certain indicators of impairment identified during our April 30, 2016 interim impairment test of goodwill, we assessed our indefinite and definite-lived intangible assets for impairment. Based on our analysis, we concluded that the carrying value of our indefinite-lived intangible asset (trade name) exceeded its fair value and recorded an impairment charge of $18.3 million in our North American reporting unit. This impairment charge, which is included under the caption “Impairment of goodwill and other intangible assets” in our condensed consolidated statements of operations for the six months ended July 31, 2016, does not impact our operations, compliance with our debt covenants or our cash flows. We estimated the fair value of our trade name using the relief-from-royalty method, which uses several significant assumptions, including an estimate of useful life and revenue projections that consider historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. The following estimates and assumptions were also used in the relief-from-royalty method:


•	Royalty rate of 1.5% based on market observed royalty rates; and


•	A discount rate of 12.0% based on the required rate of return for the trade name asset.

As of July 31, 2017 there was no impairment recorded of our definite-lived intangible assets.

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Amortization expense related to intangible assets for the three months ended July 31, 2017 and 2016 was $4.1 million and $4.0 million, respectively. Amortization expense related to intangible assets for the six months ended July 31, 2017 and 2016 was $8.1 million for each of the six months ended July 31, 2017 and 2016, respectively. Estimated amortization expense for the fiscal periods ending January 31 is as follows:



(In thousands)
Remainder of the fiscal year ending January 31, 2018	$	8,118
2019	16,237
2020	16,237
2021	16,237
2022	16,237
Thereafter	231,000
Total	$	304,066

Note 7. Accrued Expenses

Accrued expenses consists of the following as of:



(In thousands)	July 31, 2017		January 31, 2017
Accrued compensation	$	9,444	$	11,488
Accrued insurance	881		793
Accrued interest	3,296		3,257
Accrued professional fees	262		459
Accrued taxes	4,847		3,852
Capital lease - current	680		545
Other accrued expenses	908		1,461
Total accrued expenses	$	20,318	$	21,855

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Note 8. Debt

Debt consists of the following:



(In thousands)	July 31, 2017			January 31, 2017
Senior term loan (LIBOR margin of 3.0%, and interest rate of 4.25%)	$	400,659		$	402,740
Senior unsecured notes	240,000			240,000
Total debt	640,659			642,740
Less: deferred financing costs	(6,576		)	(7,263		)
Total debt less deferred financing costs	634,083			635,477
Less: current portion (net of current portion of deferred financing costs of $3,162 and $3,080, respectively)	(1,000		)	(1,082		)
Long-term debt, net of current portion (net of long-term portion of deferred financing costs of $3,414 and $4,183, respectively)	$	633,083		$	634,395

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

Credit Facility

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

On November 13, 2013, we entered into a second amendment to our Credit Facility (the “Second Amendment”). Pursuant to the Second Amendment, the Company borrowed $35.0 million of incremental term loans (the “Incremental Term Loan”), which may be used for general corporate purposes, including to finance permitted acquisitions. The terms applicable to the Incremental Term Loans are the same as those applicable to the term loans under the Credit Facility.

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

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

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

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As of July 31, 2017, we did not have an outstanding balance on the revolving loan; and therefore, we were not subject to a leverage test. Additionally, as of July 31, 2017, we were in compliance with all of our requirements and covenant tests under the Credit Facility, as amended.

Senior Unsecured Notes Due 2019

On June 1, 2011, we issued $240.0 million of fixed rate 8.25% notes due June 1, 2019. We may redeem all or any portion of the Notes at the redemption prices set forth in the applicable indenture, plus accrued and unpaid interest. Upon a change of control, we are required to make an offer to redeem all of the Notes from the holders at a redemption price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of the repurchase. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by our direct and indirect existing and future wholly-owned domestic restricted subsidiaries.

Interest and Fees

Costs related to debt financing are deferred and amortized to interest expense over the term of the underlying debt instruments utilizing the straight-line method for our revolving credit facility and the effective interest method for our senior term and incremental term loan facilities. As of July 31, 2017 and January 31, 2017, deferred financing costs of $6.6 million and $7.3 million, respectively, are reflected as a reduction of the underlying debt. We amortized $0.8 million and $0.7 million of deferred financing costs during the three months ended July 31, 2017 and 2016, respectively. We amortized $1.5 million and $1.4 million of deferred financing costs during the six months ended July 31, 2017 and 2016, respectively.

Interest and fees related to our Credit Facility and the Notes are as follows:



	Three Months Ended July 31,				Six Months Ended July 31,
(In thousands)	2017		2016		2017		2016
Credit Facility interest and fees⁽¹⁾	$	4,777	$	4,867	$	9,636	$	9,637
Notes interest and fees ⁽²⁾	5,304		5,274		10,600		10,541
Total interest and fees	$	10,081	$	10,141	$	20,236	$	20,178

(1) Interest on the Amended Term Loan is payable quarterly based upon an interest rate of 4.25%.

(2) Interest on the Notes is payable semi-annually based upon a fixed annual rate of 8.25%.

Principal Payments on Debt

As of July 31, 2017, the schedule of minimum required principal payments on our debt for each of the fiscal years ending January 31 are due according to the table below:



(In thousands)
Remainder of the fiscal year ending January 31, 2018	$	2,082
2019	4,163
2020	634,414
Total	$	640,659

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Note 9. Income Taxes

The income tax benefit for the three and six months ended July 31, 2017 and 2016 is based on the estimated effective tax rate for the entire fiscal year. The estimated effective tax rate is subject to adjustment in subsequent quarterly periods as our estimates of pre-tax income and loss for the year fluctuate, including changes in the geographic mix of pre-tax income and loss.

The effective income tax rates for the three and six months ended July 31, 2017 were a benefit of 36.0% and 36.6%, respectively compared to a benefit for the three and six months ended July 31, 2016 of 22.2% and 22.5%, respectively. The effective tax rate differ from the U.S. federal statutory rate primarily due to income taxed in foreign jurisdictions, state taxes, non-deductible meals and entertainment expenses, non-deductible goodwill impairment, and discrete items. The difference in effective income tax rates for the six months ended July 31, 2017 and 2016 primarily relates to a change in the estimated forecast of pre-tax book income and loss for each respective jurisdiction, which includes an impairment of non-deductible goodwill recorded during the six months ended July 31, 2016. Discrete items related primarily to excess shortfalls associated with the cancellation and expiration of stock options recorded during the six months ended July 31, 2017.

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. A valuation allowance is recorded for deferred income tax assets when management determines it is more likely than not that such assets will not be realized. Our deferred tax assets primarily relate to federal net operating loss carry-forwards. Management believes we will realize the benefit of existing deferred tax assets based on the scheduled reversal of U.S. deferred tax liabilities, related to depreciation and amortization expenses not deductible for tax purposes, which is ordinary income and therefore of the same character as the temporary differences giving rise to the deferred tax assets. This reversal will occur in substantially similar time periods and in the same jurisdictions as the deferred tax assets. As such, the deferred tax liabilities are considered a source of income sufficient to support our U.S. deferred tax assets; therefore, a valuation allowance is not required as of July 31, 2017.

We recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Tax benefits recognized from such a position are measured based on whether the benefit has a greater than 50% likelihood of being realized upon ultimate resolution. It is reasonably possible that an additional $0.9 million of uncertain tax positions will decrease within the next 12 months due to the expiration of the net operating loss carryforwards associated with such positions.

We believe our income tax contingencies are adequate for all outstanding issues in all jurisdictions and all open years. However, due to the risk that audit outcomes and the timing of audit settlements are subject to significant uncertainty and as we continue to evaluate such uncertainties in light of current facts and circumstances, our current estimate of the total amounts of unrecognized tax benefits could increase or decrease for all open tax years.

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Note 10. Shareholder’s Equity

Share-Based Compensation

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

The following table summarizes stock option activity during the six months ended July 31, 2017:



	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)⁽¹⁾		Weighted Average Term Remaining (in years)	Weighted Average Grant Date Fair Value
Outstanding, January 31, 2017	766,348		$	83.47	$	—	6.5
Granted	—		$	—				$	—
Exercised	—		$	—	$	—
Forfeited/canceled/expired	(33,328	)	$	39.12
Outstanding, July 31, 2017	733,020		$	83.92	$	—	6.1
Vested and expected to vest, July 31, 2017	78,344		$	74.90	$	—	3.5
Exercisable, July 31, 2017	78,344		$	74.90	$	—	2.1

(1)

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

As of July 31, 2017, there was $16.5 million of unrecognized pre-tax share-based compensation expense related to non-vested stock options of which $0.6 million we expect to recognize over a weighted average period of 0.7 years. We expect to recognize the remaining $15.9 million, which includes $8.1 million of unrecognized share-based compensation expense for the CEO’s options, upon a Change in Control or initial public offering (“IPO”) as defined in the 2011 Plan. During the six months ended July 31, 2017, we did not recognize any share-based compensation expense related to the CEO’s options.

No options vested during the three and six months ended July 31, 2017. The total fair value of options vested during the three and six months ended July 31, 2016 was zero and $0.1 million, respectively.

The share-based compensation expense included within employee related expenses in our condensed consolidated statement of operations was the following:



	Three Months Ended July 31,				Six Months Ended July 31,
(In thousands)	2017		2016		2017		2016
Non-cash share-based compensation expense (income)	$	167	$	233	$	305	$	(39	)

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



	Six Months Ended July 31,
	2017		2016
Expected volatility	56	%	56	%
Expected dividends	—	%	—	%
Expected term	7.2 years		7.2 years
Risk-free interest rate	1.5	%	1.5	%

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Liability Awards

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



	Six Months Ended July 31,
	2017		2016
Expected volatility	60	%	60	%
Expected dividends	—	%	—	%
Expected term	0.8 years		1.1 years
Risk-free interest rate	0.5	%	0.5	%

Note 11. Segment Reporting

We conduct our operations through entities located in the United States, Canada, France, Germany, the United Kingdom and the Netherlands. We transact business using the local currency within each country where we perform the service or provide the rental equipment.

Our operating and reportable segments are North America and Europe. Within each operating segment, there are common customers, common pricing structures, the ability and history of sharing equipment and resources, operational compatibility, commonality among regulatory environments, and relative geographic proximity. Our operating segments consist of the following:


•	the North American segment consisting of branches located in the United States and Canada that provide equipment and services suitable across these North American countries.


•	the European segment consisting of branches located in France, Germany, the United Kingdom and the Netherlands that provide equipment and services to customers in a number of European countries.

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Selected statement of operations information for our reportable segments are the following:



	Three Months Ended July 31,						Six Months Ended July 31,
(In thousands)	2017			2016			2017			2016
Revenue
North America	57,273			52,737			111,451			109,211
Europe	10,928			10,463			19,889			19,021
Total revenue	$	68,201		$	63,200		$	131,340		$	128,232
Depreciation and amortization
North America	$	13,284		$	13,852		$	26,674		$	27,761
Europe	1,464			1,223			2,795			2,423
Total depreciation and amortization	$	14,748		$	15,075		$	29,469		$	30,184
Interest expense (income), net
North America	$	10,210		$	10,627		$	20,203		$	21,143
Europe	—			(1		)	(11		)	6
Total interest expense, net	$	10,210		$	10,626		$	20,192		$	21,149
Income tax (benefit) expense
North America	$	(3,484	)	$	(3,072	)	$	(8,730	)	$	(24,417	)
Europe	689			820			1,123			1,276
Total income tax benefit	$	(2,795	)	$	(2,252	)	$	(7,607	)	$	(23,141	)
Net (loss) income
North America ⁽¹⁾	$	(6,444	)	$	(9,933	)	$	(15,629	)	$	(82,775	)
Europe ⁽¹⁾	1,495			2,048			2,469			3,077
Total net loss	$	(4,949	)	$	(7,885	)	$	(13,160	)	$	(79,698	)


(1)	During the three and six months ended July 31, 2017 and 2016, we included $1.0 million and $0.9 million, respectively, and $1.8 million and $1.7 million of intersegment expense allocations from North America to Europe.

Total assets and property and equipment, net information by reportable segment consists of the following:



(In thousands)	July 31, 2017		January 31, 2017
Total assets
North America	690,845		716,640
Europe	127,263		113,900
Total assets	$	818,108	$	830,540
Property and Equipment, net
North America	271,584		276,136
Europe	48,911		44,571
Total property and equipment, net	$	320,495	$	320,707

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Note 12. Related Party Transactions

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

Pursuant to a professional services agreement between us and Permira Advisers L.L.C. (the “Sponsor”), we agreed to pay the Sponsor an annual management fee of $0.5 million, payable quarterly, plus reasonable out-of-pocket expenses, in connection with the planning, strategy, and oversight support provided to management. We recorded $0.1 million for each of three months ended July 31, 2017 and 2016, and $0.3 million for each of the six months ended July 31, 2017 and 2016 in aggregate management fees and expenses to the Sponsor. Management fees payable to the Sponsor totaled $0.04 million as of July 31, 2017 and January 31, 2017. Management fees are included in professional fees in the condensed consolidated statement of operations.

Note 13. Commitments and Contingencies

Litigation

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

Note 14. Condensed Consolidating Financial Information

Our Notes are guaranteed by all of our U.S. subsidiaries (the “guarantor subsidiaries”). This indebtedness is not guaranteed by BCI Holdings or our foreign subsidiaries (together, the “non-guarantor subsidiaries”). The guarantor subsidiaries are all one hundred percent owned, and the guarantees are made on a joint and several basis and are full and unconditional (subject to subordination provisions and subject to customary release provisions and a standard limitation, which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). The following condensed consolidating financial information presents the financial position, results of operations, and cash flows of the parent, guarantors, and non-guarantor subsidiaries of the Company and the eliminations necessary to arrive at the information on a consolidated basis for the periods indicated. The parent referenced in the condensed consolidating financial statements is BakerCorp International, Inc., the issuer.

We conduct substantially all of our business through our subsidiaries. To make the required payments on our Notes and other indebtedness, and to satisfy other liquidity requirements, we will rely, in large part, on cash flows from these subsidiaries, mainly in the form of dividends, royalties, and advances, or payments of intercompany loan arrangements. The ability of these subsidiaries to make dividend payments to us will be affected by, among other factors, the obligations of these entities to their creditors, requirements of corporate and other law, and restrictions contained in agreements entered into by or relating to these entities.

The parent and the guarantor subsidiaries have each reflected investments in their respective subsidiaries under the equity method of accounting. There are no restrictions limiting the transfer of cash from guarantor subsidiaries and non-guarantor subsidiaries to the parent.

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Condensed Consolidating Balance Sheet

July 31, 2017 (unaudited)

(In thousands)



	Parent			Guarantors			Non- Guarantor Subsidiaries			Eliminations			Total
Assets
Current assets
Cash and cash equivalents	$	—		$	8,132		$	16,463		$	—		$	24,595
Accounts receivable, net	—			47,385			13,808			—			61,193
Inventories, net	—			3,815			155			—			3,970
Prepaid expenses and other assets	59			2,278			1,124			—			3,461
Total current assets	59			61,610			31,550			—			93,219
Property and equipment, net	—			258,243			62,252			—			320,495
Goodwill	—			—			54,836			—			54,836
Other intangible assets, net	—			324,306			23,101			—			347,407
Other assets	—			1,878			273			—			2,151
Investment in subsidiaries	299,270			128,159			(821		)	(426,608		)	—
Total assets	$	299,329		$	774,196		$	171,191		$	(426,608	)	$	818,108
Liabilities and shareholder’s equity
Current liabilities:
Accounts payable	$	23		$	13,977		$	1,926		$	—		$	15,926
Accrued expenses	3,296			13,251			3,771			—			20,318
Current portion of long-term debt (net of deferred financing costs of $3,162)	1,000			—			—			—			1,000
Intercompany balances	(337,292		)	302,385			34,907			—			—
Total current liabilities	(332,973		)	329,613			40,604			—			37,244
Long-term debt, net of current portion (net of deferred financing costs of $3,414)	633,905			(822		)	—			—			633,083
Deferred tax liabilities, net	(44,135		)	138,986			7,593			—			102,444
Share-based compensation liability	—			35			—			—			35
Other long-term liabilities	—			2,607			163			—			2,770
Total liabilities	256,797			470,419			48,360			—			775,576
Total shareholder’s equity	42,532			303,777			122,831			(426,608		)	42,532
Total liabilities and shareholder’s equity	$	299,329		$	774,196		$	171,191		$	(426,608	)	$	818,108

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Condensed Consolidating Balance Sheet

January 31, 2017

(In thousands)



	Parent			Guarantors		Non- Guarantor Subsidiaries		Eliminations			Total
Assets
Current assets
Cash and cash equivalents	$	—		$	30,607	$	13,956	$	—		$	44,563
Accounts receivable, net	—			41,902		10,576		—			52,478
Inventories, net	—			3,622		99		—			3,721
Prepaid expenses and other current assets	35			3,201		909		—			4,145
Total current assets	35			79,332		25,540		—			104,907
Property and equipment, net	—			264,194		56,513		—			320,707
Goodwill	—			—		49,918		—			49,918
Other intangible assets, net	—			333,033		21,385		—			354,418
Other long-term assets	—			452		138		—			590
Investment in subsidiaries	297,137			109,766		—		(406,903		)	—
Total assets	$	297,172		$	786,777	$	153,494	$	(406,903	)	$	830,540
Liabilities and shareholder’s equity
Current liabilities:
Accounts payable	$	56		$	15,839	$	1,802	$	—		$	17,697
Accrued expenses	3,258			14,377		4,220		—			21,855
Current portion of long-term debt (net of deferred financing costs of $3,080)	1,082			—		—		—			1,082
Intercompany balances	(341,847		)	310,812		31,035		—			—
Total current liabilities	(337,451		)	341,028		37,057		—			40,634
Long-term debt, net of current portion (net of deferred financing costs of $4,183)	634,395			—		—		—			634,395
Deferred tax liabilities, net	(42,166		)	145,806		6,474		—			110,114
Share-based compensation liability	—			66		—		—			66
Other long-term liabilities	—			2,739		197		—			2,936
Total liabilities	254,778			489,639		43,728		—			788,145
Total shareholder’s equity	42,394			297,138		109,766		(406,903		)	42,395
Total liabilities and shareholder’s equity	$	297,172		$	786,777	$	153,494	$	(406,903	)	$	830,540

Table of Contents

Condensed Consolidating Statement of Operations

For the Three Months Ended July 31, 2017 (unaudited)

(In thousands)



	Parent			Guarantors			Non- Guarantor Subsidiaries		Eliminations			Total
Revenue	$	—		$	55,239		$	12,962	$	—		$	68,201
Operating expenses:
Employee related expenses	3			20,615			3,415		—			24,033
Rental expense	—			7,446			1,366		—			8,812
Repair and maintenance	—			3,127			314		—			3,441
Cost of goods sold	—			3,184			232		—			3,416
Facility expense	3			6,126			722		—			6,851
Professional fees	15			528			146		—			689
Other operating expenses	150			1,687			1,731		—			3,568
Depreciation and amortization	—			13,005			1,743		—			14,748
Gain on sale of equipment	—			(614		)	8		—			(606		)
Impairment of goodwill and other intangible assets	—			1,000			—		—			1,000
Impairment of long-lived assets	—			87			9		—			96
Total operating expenses	171			56,191			9,686		—			66,048
(Loss) income from operations	(171		)	(952		)	3,276		—			2,153
Other expenses (income):
Interest expense, net	10,170			38			2		—			10,210
Foreign currency exchange loss (gain), net	—			(532		)	229		—			(303		)
Other income, net	—			(10		)	—		—			(10		)
Total other expenses (income), net	10,170			(504		)	231		—			9,897
(Loss) income before income tax (benefit) expense	(10,341		)	(448		)	3,045		—			(7,744		)
Income tax (benefit) expense	(1,004		)	(2,607		)	816		—			(2,795		)
(Loss) income before equity in net earnings of subsidiaries	(9,337		)	2,159			2,229		—			(4,949		)
Equity in net earnings of subsidiaries	4,388			2,229			—		(6,617		)	—
Net (loss) income	$	(4,949	)	$	4,388		$	2,229	$	(6,617	)	$	(4,949	)

Table of Contents

Condensed Consolidating Statement of Operations

For the Three Months Ended July 31, 2016 (unaudited)

(In thousands)



	Parent			Guarantors			Non- Guarantor Subsidiaries			Eliminations			Total
Revenue	$	—		$	51,107		$	12,093		$	—		$	63,200
Operating expenses:
Employee related expenses	14			21,169			3,084			—			24,267
Rental expense	—			5,822			1,018			—			6,840
Repair and maintenance	—			2,642			232			—			2,874
Cost of goods sold	—			2,133			167			—			2,300
Facility expense	3			5,971			675			—			6,649
Professional fees	9			921			196			—			1,126
Other operating expenses	136			1,614			1,648			—			3,398
Depreciation and amortization	—			13,561			1,514			—			15,075
Gain on sale of equipment	—			(969		)	(7		)	—			(976		)
Impairment of long-lived assets	—			439			—			—			439
Total operating expenses	162			53,303			8,527			—			61,992
(Loss) income from operations	(162		)	(2,196		)	3,566			—			1,208
Other expenses:
Interest expense, net	10,614			12			—			—			10,626
Foreign currency exchange loss	—			205			526			—			731
Other income, net	—			(12		)	—			—			(12		)
Total other expenses	10,614			205			526			—			11,345
(Loss) income before income tax (benefit) expense	(10,776		)	(2,401		)	3,040			—			(10,137		)
Income tax (benefit) expense	(1,070		)	(1,947		)	765			—			(2,252		)
(Loss) income before equity in net earnings of subsidiaries	(9,706		)	(454		)	2,275			—			(7,885		)
Equity in net earnings of subsidiaries	1,821			2,275			—			(4,096		)	—
Net (loss) income	$	(7,885	)	$	1,821		$	2,275		$	(4,096	)	$	(7,885	)

Table of Contents

Condensed Consolidating Statement of Operations

For the Six Months Ended July 31, 2017 (unaudited)

(In thousands)



	Parent			Guarantors			Non- Guarantor Subsidiaries			Eliminations			Total
Revenue	$	—		$	108,035		$	23,305		$	—		$	131,340
Operating expenses:
Employee related expenses	7			42,337			6,629			—			48,973
Rental expense	—			15,085			2,484			—			17,569
Repair and maintenance	—			6,068			541			—			6,609
Cost of goods sold	—			6,064			495			—			6,559
Facility expense	9			12,188			1,486			—			13,683
Professional fees	25			1,765			258			—			2,048
Other operating expenses	310			3,930			3,348			—			7,588
Depreciation and amortization	—			26,067			3,402			—			29,469
Gain on sale of equipment	—			(1,695		)	(31		)	—			(1,726		)
Impairment of goodwill and other intangible assets	—			1,000			—			—			1,000
Impairment of long-lived assets	—			287			9			—			296
Total operating expenses	351			113,096			18,621			—			132,068
(Loss) income from operations	(351		)	(5,061		)	4,684			—			(728		)
Other expenses (income):
Interest expense, net	20,144			55			(7		)	—			20,192
Foreign currency exchange loss (gain), net	—			(314		)	171			—			(143		)
Other income, net	—			(10		)	—			—			(10		)
Total other expenses (income), net	20,144			(269		)	164			—			20,039
(Loss) income before income tax (benefit) expense	(20,495		)	(4,792		)	4,520			—			(20,767		)
Income tax (benefit) expense	(1,969		)	(6,814		)	1,176			—			(7,607		)
(Loss) income before equity in net earnings of subsidiaries	(18,526		)	2,022			3,344			—			(13,160		)
Equity in net earnings of subsidiaries	5,366			3,344			—			(8,710		)	—
Net (loss) income	$	(13,160	)	$	5,366		$	3,344		$	(8,710	)	$	(13,160	)

Table of Contents

Condensed Consolidating Statement of Operations

For the Six Months Ended July 31, 2016 (unaudited)

(In thousands)



	Parent			Guarantors			Non- Guarantor Subsidiaries			Eliminations		Total
Revenue	$	—		$	106,169		$	22,063		$	—	$	128,232
Operating expenses:
Employee related expenses	46			42,553			6,358			—		48,957
Rental expense	—			12,536			1,814			—		14,350
Repair and maintenance	—			4,774			413			—		5,187
Cost of goods sold	—			5,088			274			—		5,362
Facility expense	11			12,226			1,368			—		13,605
Professional fees	61			1,828			329			—		2,218
Other operating expenses	294			3,551			3,137			—		6,982
Depreciation and amortization	—			27,194			2,990			—		30,184
Gain on sale of equipment	—			(1,617		)	(17		)	—		(1,634		)
Impairment of goodwill and other intangible assets	—			84,046			—			—		84,046
Impairment of long-lived assets	—			439			—			—		439
Total operating expenses	412			192,618			16,666			—		209,696
(Loss) income from operations	(412		)	(86,449		)	5,397			—		(81,464		)
Other expenses (income):
Interest expense, net	21,131			12			6			—		21,149
Foreign currency exchange loss (gain), net	—			(404		)	642			—		238
Other income, net	—			(12		)	—			—		(12		)
Total other expenses (income), net	21,131			(404		)	648			—		21,375
(Loss) income before income tax (benefit) expense	(21,543		)	(86,045		)	4,749			—		(102,839		)
Income tax (benefit) expense	(2,153		)	(22,172		)	1,184			—		(23,141		)
(Loss) income before equity in net earnings of subsidiaries	(19,390		)	(63,873		)	3,565			—		(79,698		)
Equity in net earnings of subsidiaries	(60,308		)	3,565			—			56,743		—
Net (loss) income	$	(79,698	)	$	(60,308	)	$	3,565		$	56,743	$	(79,698	)

Table of Contents

Condensed Consolidating Statement of Comprehensive (Loss) Income

For the Three Months Ended July 31, 2017 (unaudited)

(In thousands)



	Parent			Guarantors		Non- Guarantor Subsidiaries		Eliminations			Total
Net (loss) income	$	(4,949	)	$	4,388	$	2,229	$	(6,617	)	$	(4,949	)
Other comprehensive income:
Foreign currency translation adjustments	—			—		10,902		—			10,902
Other comprehensive income	—			—		10,902		—			10,902
Total comprehensive (loss) income	$	(4,949	)	$	4,388	$	13,131	$	(6,617	)	$	5,953

Table of Contents

Condensed Consolidating Statement of Comprehensive (Loss) Income

For the Three Months Ended July 31, 2016 (unaudited)

(In thousands)



	Parent			Guarantors		Non- Guarantor Subsidiaries			Eliminations			Total
Net (loss) income	$	(7,885	)	$	1,821	$	2,275		$	(4,096	)	$	(7,885	)
Other comprehensive income, net of tax:
Unrealized gain on interest rate swap agreements, net of tax expense of $184	292			—		—			—			292
Foreign currency translation adjustments	—			—		(3,216		)	—			(3,216		)
Other comprehensive income, net of tax	292			—		(3,216		)	—			(2,924		)
Total comprehensive (loss) income	$	(7,593	)	$	1,821	$	(941	)	$	(4,096	)	$	(10,809	)

Table of Contents

Condensed Consolidating Statement of Comprehensive (Loss) Income

For the Six Months Ended July 31, 2017 (unaudited)

(In thousands)



	Parent			Guarantors		Non- Guarantor Subsidiaries		Eliminations			Total
Net (loss) income	$	(13,160	)	$	5,366	$	3,344	$	(8,710	)	$	(13,160	)
Other comprehensive income:
Foreign currency translation adjustments	—			—		12,992		—			12,992
Other comprehensive income	—			—		12,992		—			12,992
Total comprehensive (loss) income	$	(13,160	)	$	5,366	$	16,336	$	(8,710	)	$	(168	)

Table of Contents

Condensed Consolidating Statement of Comprehensive (Loss) Income

For the Six Months Ended July 31, 2016 (unaudited)

(In thousands)



	Parent			Guarantors			Non- Guarantor Subsidiaries		Eliminations		Total
Net (loss) income	$	(79,698	)	$	(60,308	)	$	3,565	$	56,743	$	(79,698	)
Other comprehensive income, net of tax:
Unrealized gain on interest rate swap agreements, net of tax expense of $365	586			—			—		—		586
Foreign currency translation adjustments	—			—			3,220		—		3,220
Other comprehensive income, net of tax	586			—			3,220		—		3,806
Total comprehensive (loss) income	$	(79,112	)	$	(60,308	)	$	6,785	$	56,743	$	(75,892	)

Table of Contents

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended July 31, 2017 (unaudited)

(In thousands)



	Parent			Guarantors			Non- Guarantor Subsidiaries			Eliminations			Total
Operating activities
Net (loss) income	$	(13,160	)	$	5,366		$	3,344		$	(8,710	)	$	(13,160	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Provision for doubtful accounts	—			443			43			—			486
Provision for excess and obsolete inventory	—			(6		)	—			—			(6		)
Share-based compensation expense	7			298			—			—			305
Gain on sale of equipment	—			(1,695		)	(31		)	—			(1,726		)
Depreciation and amortization	—			26,067			3,402			—			29,469
Amortization of deferred financing costs	1,509			—			—			—			1,509
Deferred income taxes	(1,969		)	(6,820		)	481			—			(8,308		)
Amortization of above market lease	—			(76		)	—

Large accelerated filer

Accelerated filer

Non-accelerated filer

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Smaller reporting company

Emerging growth company

BakerCorp International, Inc. 10-Q