Business Context and Reporting Period
Company: Energy Services of America Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: December 12, 2012
Context: The filing discloses material impairments and exit costs related to a forbearance agreement with United Bank, Inc. The company is required to close its S T Pipeline subsidiary by December 15, 2012, and divest its assets by April 30, 2013.
Key Financial Metrics
- Goodwill Impairment Charge: $36.9 million (represents the entire amount of goodwill on the balance sheet).
- Valuation Allowance on Deferred Tax Assets: Estimated at $6.4 million.
- Cash Flow Impact: The filing states these non-cash charges will not impact cash flows or cash balances.
- Other Metrics: The filing text does not provide specific values for revenue, profit, debt, or liquidity ratios.
Material Changes and Impairments
The Board concluded on December 6, 2012, that a goodwill impairment charge was necessary, driven by continued operating losses and lender forbearance terms. The impairment relates to goodwill originating from 2008 acquisitions (C. J. Hughes, Nitro Electric, Contractors Rental Corp, and S T Pipeline). An independent third-party analysis determined the fair value of business assets was only slightly in excess of enterprise value, resulting in zero remaining goodwill.
Additionally, the company will record a valuation allowance against deferred tax assets due to continued operating losses. While the company may incur material charges for exit and disposal activities regarding the S T Pipeline divestiture, the specific amount of these losses could not be quantified at the time of filing.
Outlook, Risks, and Management Commentary
- Divestiture Timeline: S T Pipeline must close by December 15, 2012, with asset divestiture completed by April 30, 2013. Proceeds will be distributed to the lender.
- Future Impairment Risk: Management's preliminary assessment did not indicate an impairment loss on property, plant, and equipment, but further evaluation may result in impairment losses in future reporting periods.
- Cash Expenditures: Management does not expect the impairment charges to result in material future cash expenditures.
Investor Verification Checklist
- Verify the final quantified amount of exit and disposal charges for the S T Pipeline divestiture in subsequent filings.
- Confirm the status of the S T Pipeline closure and asset sale against the December 15, 2012, and April 30, 2013, deadlines.
- Monitor future reports for potential impairment losses on property, plant, and equipment.
- Review the company's ongoing operating losses and their impact on the ability to utilize net operating loss carryovers.