What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-18 compared with 2021-03-31 · 115 added, 81 removed, 274 unchanged (42% of the section changed)

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Fabrication of compressors involves our purchase of engines, compressors, coolers and other components, and our assembling of these components on skids for delivery to customer locations.

These major components of our compressors are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently requires a two to three month lead time with delivery dates scheduled to coincide with our estimated production schedules.

These major components of our compressors are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently requires a a minimum three to six month lead time with delivery dates scheduled to coincide with our estimated production schedules.

Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate alternative sources available.

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These types of applications have historically been serviced by wellhead size compressors, and continue to be, but there has also been an economic move by our customers towards centralized drilling and production facilities, which have increased the market need for larger horsepower compressor packages.

We recognized this need over the past two to three years and have shifted our cash and fabrication resources towards designing, fabricating and renting gas compressor packages that range from 400 horsepower up to 1,380 horsepower.

We recognized this need in recent years and have shifted our cash and fabrication resources towards designing, fabricating and renting gas compressor packages that range from 400 horsepower up to 1,500 horsepower.

While this is a response to market conditions and trends, it also provides us with the opportunity to compete as a full-line compression provider.

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During the first quarter of 2020, we saw a substantial decline in the prices for oil and natural gas.

Activity levels of exploration and production companies have been and will be dependent not only on commodity prices, but also on their ability to generate sufficient operational cash flow to fund their activities.

Activity levels of exploration and production companies have been and will continue to be dependent not only on commodity prices, but also on their ability to generate sufficient operational cash flow to fund their activities.

Generally, though, we feel that production activities (in which we are involved) will fare better than drilling activity.

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We have identified the policies below as critical to our business operations and the understanding of our results of operations.

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting

of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States.

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting

principles generally accepted in the United States.

Actual results could differ significantly from those estimates under different assumptions and conditions.

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• accounting for income taxes;

• accounting for long-lived assets, intangible assets and goodwill;

• accounting for long-lived assets;

• accounting for inventory.

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As part of the process of preparing our financial statements, we are required to estimate our federal income taxes as well as income taxes in each of the states in which we operate.

This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting

These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet.

This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.

These differences result in deferred tax assets and liabilities, which are included in our consolidated balance

We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not probable, we must establish a valuation allowance.

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Our policy regarding income tax interest and penalties is to expense those items as other expense.

Long-Lived Assets, Intangible Assets and Goodwill

Long-Lived Assets

Rental Equipment, Property and Equipment (Including Retirement of Rental Equipment)

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An impairment loss is recognized if the future undiscounted cash flows associated with the asset (or asset group) and the estimated fair value of the asset are less than the asset's carrying value.

Goodwill (Including Impairment During 2019)

Goodwill represents the cost in excess of fair value of the identifiable net assets acquired.

Goodwill is tested annually for impairment or as needed upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired.

During the third quarter of 2019, the Company examined various qualitative factors to determine if a quantitative goodwill impairment test was needed.

As a result of our qualitative assessment, we proceeded to perform our quantitative goodwill impairment analysis, where we used an independent valuation specialist to assist us in determining the fair value of our net assets.

In this impairment analysis, the estimated fair value of our net assets was determined utilizing market and income-based approaches.

Determining fair value in this analysis required significant judgment, including judgments about appropriate comparable companies, appropriate discount rates and our estimated future cash flows, which are subject to change.

As a result of our quantitative evaluation, we recorded a goodwill impairment charge of $10.0 million in 2019.

At December 31, 2020 and 2019, NGS had intangible assets, which relate to developed technology and a trade name which was acquired in our acquisition of Screw Compression Systems in January 2005.

This asset is not being amortized as it has been deemed to have an indefinite life.

Our policy is to review intangibles that are being amortized for impairment when indicators of impairment are present.

In addition, it is our policy to review indefinite-lived intangible assets for impairment annually or when indicators of

impairment are present.

We review intangibles through an assessment of the estimated future cash flows related to such assets.

In the event that assets are found to be carried at amounts in excess of estimated undiscounted future cash flows, then the assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying assets.

Based upon our analysis, we experienced no impairment of intangible assets (excluding goodwill) during the years ended December 31, 2020 or 2019.

In addition, in conjunction with our quantitative assessment of goodwill, we used the services of an independent valuation specialist to assist us in determining the fair value of our trade name during the third quarter of 2019.

In this impairment analysis, the estimated fair value of our trade name was determined utilizing an income-based approach that required significant judgment, including those about an appropriate royalty rate and discount rate.

This analysis indicated no impairment of our trade name.

We value our total inventory (current and long-term) at the lower of the actual cost and net realizable value of the inventory.

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The Company accesses anticipated customer demand based on current and upcoming capital expenditure budgets of its major customers as well as other significant companies in the industry, along with oil and natural gas price forecasts and other factors affecting the industry.

Given its concerns about the industry backdrop, Company management determined during 2019 that an increase of its inventory allowance was necessary.

Due to the slow moving nature or obsolescence of a portion of the Company's long-term inventory and inventory related to the retirement of rental equipment, management recorded a charge of $3.8 million to write-off obsolete inventory from the balance sheet.

For the year ended December 31, 2021, inventory allowance and write-off totaled $0.2 million.

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During this time, the market began to experience a decline in oil prices in response to oil demand concerns due to the global economic impacts of COVID-19.

These developments have led to significant weakness in oil prices and ensuing reductions of exploration and production company capital and operating budgets.

With the significant decline in oil prices as well as the general economic decline caused by the impacts of COVID-19, we expect utilization to continue to decline among our smaller horsepower and medium horsepower units during the remainder of 2021 after a minimal decline during 2020.

In terms of sales, we expect minimal compressor sales for the year due to much lower capital expenditure budgets throughout the industry, including those of our major customers.

Finally, we have recently experienced and expect to continue to experience pricing pressure from our customers and competitors until industry and economic conditions improve.

We are currently experiencing no issues with potential workforce and supply chain disruptions.

In addition, our relationship with our major customer continues to be strong, and they have continued to pay our invoices in a timely, consistent manner.

These developments led to significant weaknesses in oil prices and ensuing reductions of exploration and production company capital and operating budgets.

Oil markets largely recovered in 2021, and prices have continued to rise in the early months of 2022.

With the increases in oil prices, we expect rental demand for our large and medium horsepower units to remain strong for the remainder of 2022.

In terms of sales, we expect minimal compressor sales for the year due to shifts in capital

expenditure budget concentrations throughout the industry, including those of our major customers, as many upstream producers prefer to rent compression as opposed to purchasing units as part of their capital budget allocations.

Finally, we have recently experienced and expect to continue to experience supply chain disruptions.

While we believe we have a strong vendor network that provides flexibility in sourcing needed materials, we have incurred longer than normal wait times for certain components as well as increases in costs.

Lastly, our relationship with our major customers continues to be strong, and they have continued to pay our invoices in a timely, consistent manner.

Nevertheless, if any of these circumstances change, our business could be adversely affected.

While management anticipates that the industry and economic impact of the pandemic will have a negative effect on its results of operations in 2021 and perhaps beyond, the degree to which these factors will impact our business remains uncertain.

While management anticipates that the industry and economic impact of the pandemic may have a negative effect on its results of operations in 2022 and perhaps beyond, the degree to which these factors will impact our business remains uncertain.

Please read Item 1A, Risk Factors, in this report.

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Total $ 72,420 $ 68,055

Total revenue decreased to $68.1 million from $78.4 million, or 13.2%, for the year ended December 31, 2020 compared to 2019.

This decrease was mainly a result of lower sales revenue (71.4% decrease) primarily due to decreased compressor sales partially offset by increased rental revenue (7.3% increase) primarily due to a greater number of large horsepower units being rented.

Total revenue increased to $72.4 million from $68.1 million, or 6.4%, for the year ended December 31, 2021 compared to 2020.

This increase was mainly a result of increased rental revenue (4.6% increase) primarily due to a greater number of large horsepower units being rented as well as higher sales revenue (21.7% increase) primarily due to increased parts sales partially offset by decreased compressor sales.

Rental revenue increased to $63.6 million (4.6%) from $60.8 million for the year ended December 31, 2021 compared to 2020.

As of December 31, 2021, we had 2,023 natural gas compressors in our rental fleet, down from 2,224 units at year end 2020.

Despite this decrease, the Company's total unit horsepower increased by 2.1% to 438,524 at December 31, 2020 compared to 429,650 horsepower year end 2019, which reflects the addition of 24 high horsepower compressors with 20,600 horsepower to the Company's fleet during 2020.

As of December 31, 2020, we had 1,274 natural gas compressors totaling 287,646 horsepower rented to 80 customers, compared to 1,419 natural gas compressors totaling 299,836 horsepower rented to 95 customers as of December 31, 2019.

The rental fleet had a unit utilization as of December 31, 2020 and 2019, respectively, of 57.3% and 61.6% while our horsepower utilization for the same periods, respectively, was 65.6% and 69.8%.

The decline in both utilization metrics was mainly the result of the decline in demand for our lower horsepower units.

Sales revenue decreased to $5.7 million from $19.8 million for the year ended December 31, 2020, compared to 2019.

This decrease in largely attributable to a decrease in compressor sales primarily driven by reductions in capital spending from our customers due to a weakened oil and natural gas price environment during 2020.

In addition, the Company's total unit horsepower decreased by 4.7% to 418,041 at December 31, 2021 compared to 438,524 horsepower year end 2020.

However, as of December 31, 2021, we had 1,254 natural gas compressors totaling 297,808 horsepower rented to 83 customers, compared to 1,274 natural gas compressors totaling 287,646 horsepower rented to 80 customers as of December 31, 2020.

This increase in rented horsepower reflects the addition of 25 high horsepower compressors with 10,020 horsepower to the Company's fleet during 2021.

The rental fleet had a unit utilization as of December 31, 2021 and 2020 of 62.0% and 57.3%, respectively, while our horsepower utilization for the same periods was 71.2% and 65.6%, respectively.

The increase in both utilization metrics was mainly the result of the addition and increased demand for our higher horsepower units.

Sales revenue increased to $6.9 million from $5.7 million for the year ended December 31, 2021, compared to 2020.

This increase in largely attributable to an increase in parts sales during 2021.

Sales are subject to fluctuations in timing of industry activity related to capital projects and, as such, can vary substantially between periods.

Company management routinely reviews its inventory balances for obsolescence.

Due to the slow moving nature or obsolescence of a portion of the Company's long-term inventory and inventory related to the retirement of rental equipment, management recorded an increase of $251,000 in the inventory allowance reserve for costs that may not be recoverable in the future.

Due to the slow moving nature or obsolescence of a portion of the Company's long-term inventory and inventory related to the retirement of certain rental equipment, management recorded an increase of $208,000 in the inventory allowance reserve for costs that may not be recoverable in the future.

We ended 2021 with an inventory allowance balance of $64,000.

Company management routinely reviews its rental fleet to determine which units are no longer of the type, configuration, make or model that our customers are demanding or that are not cost efficient to refurbish, maintain and/or operate.

As a result of this review, we determined 263 units should be retired from our rental fleet.

Accordingly, we recorded a $291,000 loss on retirement of rental equipment during the year ended December 31, 2020.

Operating loss decreased to $3.6 million for the year ended December 31, 2020 compared to an operating loss of $15.2 million for the year ended December 31, 2019.

The decrease in operating loss was mainly due to a $10.0 million goodwill impairment charge in 2019 as well as lower losses on inventory allowance and write-off and reduced charges related to retirement of rental units.

These decreases were partially offset by lower sales revenues.

Selling, general, and administrative expenses decreased to $10.6 million for the year ended December 31, 2020, as compared to $10.7 million for 2019.

This 1.5% decrease was primarily the result of decreases in deferred compensation expense (approximately $187,000) and expenses related to stock options (approximately $100,000) partially offset by increased insurance costs ($86,0000).

Accordingly, we recorded a $3.1 million loss on retirement of rental equipment during the year ended December 31, 2021.

Operating loss increased to $12.4 million for the year ended December 31, 2021 compared to an operating loss of $3.6 million for the year ended December 31, 2020.

The increase in operating loss was mainly due to 1) an $8.1 million increase in costs of rentals primarily related to a significant increase in repair and maintenance work on our rental fleet as well as increased costs related to newly set units which experience higher upfront costs than typical run rates and 2) a $2.8 million increase in loss related to the retirement of 263 units.

During the year ended December 31, 2021 we had 233 newly set units during the year, of which 51 units were 400 horsepower or larger.

Upon initial installation, these units require oil volumes and other materials that exceed general run rate costs.

In addition, we experienced higher than normal repair and maintenance needs for our rental fleet during the year.

Consistent with our recent shift to a higher horsepower fleet concentration, these large horsepower units are more cost intensive to repair than our legacy fleet.

While we have routine repair and maintenance requirements, we believe a large portion of these costs are one-time in nature.

These increases were partially offset by higher rental and sales revenues.

Selling, general, and administrative expenses remained relatively unchanged at $10.8 million for the year ended December 31, 2021, as compared to $10.6 million for 2020.

This 2.0% increase was primarily the result of increases in health insurance costs.

Depreciation and amortization expense increased to $25.4 million from $25.2 million, or 0.8%, for the year ended December 31, 2021, compared to 2020.

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We added 65 units (approximately 18,035 horsepower) to our fleet during the twelve-month period ended December 31, 2021.

Twenty-four of those units were 400 horsepower or larger (including 10 at 1,380 horsepower), representing approximately 89% of the horsepower added.

Income tax benefit increased to $4.8 million from $0.7 million for the year ended December 31, 2020 compared to 2019.

Twenty-five of those units were 400 horsepower or larger, representing approximately 56% of the horsepower added.

Income tax benefit decreased to $2.6 million from $4.8 million for the year ended December 31, 2021 compared to 2020.

Our effective tax rate for both years differs from the U.S.

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In addition, the Company recorded a current income tax benefit of $4.8 million on its consolidated statement of operations for the year ended December 31, 2020.

Our income tax benefit in 2019 was largely due to our net loss of $13.7 million but was largely offset by a difference in goodwill impairment for tax purposes as well as an adjustment to our state tax rates that increased our deferred income tax expense by approximately $0.8 million.

Our income tax benefit in 2021 was largely due to our net loss before income taxes of $11.8 million.

Adjusted Gross Margin Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

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(1) For a reconciliation of adjusted gross margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read "Non-GAAP Financial Measures" below.

Our overall adjusted gross margin percentage increased to 47.9% for the year ended December 31, 2020 compared to 43.5% for the year ended December 31, 2019, exclusive of depreciation and amortization.

Our increase in gross margins is mainly due to an increase in total revenue related to our rental revenue.

Our overall adjusted gross margin percentage decreased to 37.4% for the year ended December 31, 2021 compared to 47.9% for the year ended December 31, 2020, exclusive of depreciation and amortization.

Our decrease in gross margins is

mainly due to an increase in costs of rentals.

While rental revenues increased 4.6% over 2020, our costs of rentals increased 28.5% primarily driven by a significant increase in repair and maintenance work on our rental fleet as well as increased costs related to newly set units which experience higher upfront costs than typical run rates.

Rental revenues comprised 88% of our total revenues for the year ended December 31, 2021 compared to 89% of total revenues for the year ended December 31, 2020.

As our rental activity inherently realizes higher adjusted gross margins, the increase in revenue concentrations will increase our overall adjusted gross margins.

Sales margin decreased to (9.8)% in 2020 from 18.5% in 2019 due to significant declines in sales revenues (71.4%).

While rental activity inherently realizes higher adjusted gross margins, the significant increase in costs of rentals beyond the increase in rental revenues resulted in a large reduction in total gross margins.

Sales margin decreased to (13.8)% in 2021 from (9.8)% in 2020.

While sales revenues increased 21.7%, this increase was attributable to increased parts sales, which realizes a lower gross margin than compressor sales.

While many sales costs are variable, certain costs such as labor are less variable as a certain staff level is retained to meet demand when market forces shift.

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Our definition and use of Adjusted EBITDA

“Adjusted EBITDA” is a non-GAAP financial measure that we define as earnings (net (loss) income) before interest, taxes, depreciation and amortization, as well as impairment of goodwill, an increase in inventory allowance and inventory write-offs, and retirement of rental equipment.

This term, as used and defined by us, may not be comparable to similarly titled

measures employed by other companies and is not a measure of performance calculated in accordance with GAAP.

“Adjusted EBITDA” is a non-GAAP financial measure that we define as earnings (net (loss) income) before interest, taxes, depreciation and amortization, as well as an increase in inventory allowance and inventory write-offs, retirement of rental equipment and non-cash equity compensation expenses.

This term, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP.

Adjusted EBITDA should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP.

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Interest expense 65 14

Income tax (benefit) expense (4,792) (693)

Income tax benefit (2,603) (4,792)

Depreciation and amortization 25,397 25,198

Impairment of goodwill — 10,039

Inventory allowance 208 184

Retirement of rental equipment 3,096 291

Stock compensation expense 1,738 2,195

Adjusted EBITDA $ 18,718 $ 24,898

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During the year, the Company added $24.3 million in new equipment to our rental fleet and $1.4 million in other property and equipment.

Our investment in property and equipment includes any changes to work-in-progress related to our rental fleet jobs at the beginning of the year compared to the end of the year.

Our rental work-in-progress decreased by $4.0 million during 2020.

Our investment in rental equipment includes any changes to work-in-progress related to our rental fleet jobs at the beginning of the year compared to the end of the year.

Our rental work-in-progress increased by $1.4 million during 2021.

We financed our investment in rental equipment, property and other equipment with cash flows from operations during 2021.

We anticipate that our cash flows from operations as well as our borrowing capacity under our New Credit Agreement will provide ample liquidity for our planned capital expenditures during 2022 and beyond.

At December 31, 2021, we had cash and cash equivalents of $22.9 million compared to $28.9 million at year end 2020.

Our cash flow from operations of $28.5 million was partially offset by capital expenditures of $25.7 million during 2021.

We also had working capital of $61.9 million at December 31, 2020 compared to $36.9 million at December 31, 2019.

On December 31, 2020 and 2019, we had outstanding debt of $417,000, which is all related to our line of credit.

In addition, we expended $7.9 million in connection with our share repurchase program.

We also had working capital of $44.8

million at December 31, 2021 compared to $61.9 million at December 31, 2020.

We had net cash flow from operating activities of $28.5 million during 2021 compared $32.6 million during 2020.

Our cash flow from operating activities of $32.6 million was primarily the result of our rental and sales revenues partially offset by associated costs of sales as well as a federal income tax refund of approximately $4.1 million.

Our cash flow from operating activities of $28.5 million was primarily the result of our rental and sales gross margins.

At December 31, 2020, we had cash and cash equivalents of $28.9 million, working capital of $61.9 million and total debt of $417,000, under our credit agreement which was due on March 31, 2021.

Our cash and cash equivalents decreased from 2018, due to an increase on our capital program for contracted new large horsepower compressor builds and the construction of our new corporate office.

We had positive net cash flow from operating activities of approximately $32.6 million during 2020.

This was primarily from a net loss of $0.5 million and non-cash items of depreciation and amortization of $23.3 million, $2.6 million related to stock-based compensation, a decrease in deferred income taxes of $0.3 million and a decrease in cash flows related to working capital and other items of $0.2 million.

Senior Bank Borrowings

We had a senior secured revolving credit agreement the ("Amended Credit Agreement") with JP Morgan Chase Bank, N.A (the "Lender") that expired on March 31, 20201.

We have decided not to renew the Amended Credit Agreement and on March 17, 2021, we repaid the outstanding principal balance.

No further amounts or obligations are owed on the Amended Credit Agreement.

We are in the process of negotiating a new credit facility which we expect to complete by the end of April 2021, although no guarantee can be made that we will be successful in finalizing and securing a new credit facility.

Previous Credit Agreement

We had a senior secured revolving credit agreement (the "Previous Credit Agreement") with JP Morgan Chase Bank, N.A (the "Lender") that matured on March 31, 2021.

Prior to maturation, the outstanding balance of $417,000 was repaid.

The Previous Credit Agreement had an aggregate commitment of $30 million, subject to collateral availability.

New Credit Agreement

On May 11, 2021, we entered into a five-year senior secured revolving credit agreement ("New Credit Agreement") with Texas Capital Bank, National Association (the "Lender") with an initial commitment of $20 million and an accordion feature that would increase the maximum commitment to $30 million, subject to collateral availability.

We also have a right to request from the Lender, on an uncommitted basis, an increase of up to $30 million on the aggregate commitment;

provided, however, the aggregate commitment amount is not permitted to exceed $50 million.

The maturity date of the New Credit Agreement is May 11, 2026.

The obligations under the New Credit Agreement are secured by a first priority lien on a variety of our assets, including inventory and accounts receivable as well as a variable number of our leased compressor equipment.

Borrowing Base.

At any time before the maturity of the New Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above.

Generally, the borrowing base equals the sum of (a) 90% of eligible accounts receivable owed to the Company by investment grade debtors, plus (b) 85% of the eligible accounts receivable owing by non-investment grade debtors, plus (c) 50% of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $2 million, plus (d) the lesser of (i) 95% of the net book value of the compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time and (ii) 80% of the net liquidation value percentage of the net book value of the eligible compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time, plus (e) 80% of the value at cost (excluding any costs for capitalized interest or other non-cash capitalized costs) of the eligible new compressor fleet, minus (f) any required availability reserves determined by the Lender in its sole discretion.

The Lender may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral.

As of December 31, 2021, our allowable borrowing base was $20.0 million.

Interest and Fees.

Under the terms of the New Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) the Base Rate (as defined below) plus the Applicable Margin, or (b) in the case of a Eurodollar Rate Loan, the Adjusted Eurodollar Rate plus the Applicable Margin.

"Base Rate" means, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for such day;

(b) the sum of the federal funds rate for such day plus 0.50%;

and (c) the Adjusted Eurodollar Rate for such day plus 1.00%.

The Applicable Margin is determined based upon the leverage ratio as set forth in the most recent compliance certificate received by the Lender for each fiscal quarter from time to time pursuant to the New Credit Agreement.

Depending on the leverage ratio, the Applicable Margin can be 0.25% to 0.75% for Base Rate Loans (as defined in the New Credit Agreement) and 1.25% to 1.75% for Eurodollar Rate Loans and for requested letters of credit.

In addition, we are required to pay a monthly commitment fee on the daily average unused amount of the commitment while the New Credit Agreement is in effect at an annual rate equal to 0.25% of the unused commitment amount.

Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, provided that accrued interest on Eurodollar Rate Loans is payable at the end of each interest period, but in no event less frequently than quarterly.

The New Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, condition or limit our ability to incur additional indebtedness and liens;

enter into transactions with affiliates;

make acquisitions in excess of certain amounts;

pay dividends;

redeem or repurchase capital stock or senior notes;

make investments or loans;

make negative pledges;

consolidate, merge or effect asset sales;

or change the nature of our business.

In addition, we also have certain financial covenants that are applicable during certain trigger periods specified in the Credit Agreement and require us during such trigger periods to maintain a leverage ratio less than or equal to 3.00 to 1.00 as of the last day of each fiscal quarter and a fixed charge coverage ratio greater than or equal to 1.00 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration.

The New Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults;

defaults in performance of covenants or other

agreements contained in the Credit Agreement and the other transaction documents;

inaccuracies in representations and warranties;

certain defaults, termination events or similar events;

certain defaults with respect to any other Company indebtedness in excess of $1.0 million;

certain bankruptcy or insolvency events;

the rendering of certain judgments in excess of $1.0 million;

certain ERISA events;

certain change in control events and the defectiveness of any liens under the secured revolving credit agreement.

Obligations outstanding under the Credit Agreement may be accelerated upon the occurrence of an event of default.

As of December 31, 2021, we were in compliance with all financial covenants in our New Credit Agreement.

At December 31, 2021, we had no amounts outstanding under the New Credit Agreement.

Components of Our Principal Capital Expenditures

Capital expenditures for the two years ended December 31:

Capital expenditures for the years ended December 31:

Expenditure Category 2021 2020

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Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (ASC Topic 740), which simplifies accounting for income taxes by removing certain exceptions to various tax accounting principles and clarifies other existing guidance in order to improve consistency of application.

These amendments are effective for public entities for interim and annual periods beginning after December 15, 2020.

We are currently evaluating the impact of ASU 2019-12 on our consolidated financial statements and note disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate ("LIBOR").

The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships and other transactions that reference LIBOR as a benchmark rate are modified.

This guidance is effective upon issuance and expires on December 31, 2022.

We are currently evaluating the impact of the LIBOR transition and this ASU 2020-04 on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (ASC Topic 326):

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Compliance with such laws and regulations increases our overall cost of business, but has not had a material adverse effect on our operations or financial condition.

It is not anticipated, based on current laws and regulations, that we will be required in the near future to expend amounts that are material in relation to our total expenditure budget in order to comply with environmental laws and regulations but such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance.

We also could incur costs related to the cleanup of sites to which we send equipment and for damages to natural resources or other claims related to releases of regulated substances at such sites.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis