The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Nuverra Environmental Solutions, Inc. and
its subsidiaries (collectively, Nuverra, the Company or we) have been prepared in accordance with the rules and regulations of the SEC. In the opinion of management, the consolidated financial statements include
the normal, recurring adjustments necessary for a fair statement of the information required to be set forth herein. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its
subsidiaries. All material intercompany accounts, transactions and profits are eliminated in consolidation. All dollar amounts in the footnote tabular presentations are in thousands, except per share amounts and unless otherwise noted.
The Companys condensed consolidated balance sheet as of December 31, 2013, included herein, has been derived from the audited
financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 10, 2014 (2013 Annual Report on Form 10-K). Unless stated otherwise, any reference to income
statement items in these accompanying unaudited interim condensed consolidated financial statements refers to results from continuing operations. The Company has not included a statement of comprehensive income as there were no transactions to
report in the periods presented. In addition, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been
omitted from these financial statements and related notes pursuant to the rules and regulations of the SEC. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements, including the notes
thereto, contained in the Companys 2013 Annual Report on Form 10-K as well as other information it has filed with the SEC.
Reclassifications
Certain reclassifications and adjustments have been made to prior period amounts in the accompanying condensed consolidated statements of
financial position, operations and cash flows in order to conform to the current years presentation, including recasting our Industrial Solutions business comprised of Thermo Fluids Inc. (TFI) as held-for-sale and discontinued
operations. Certain similar line items in the condensed consolidated statements of operations and cash flows have been combined to present a more concise and easier to follow presentation. Additionally, the condensed consolidated statements of
operations now contain the line items Direct operating expenses and Depreciation and amortization. Direct operating expenses was previously reported as Costs of revenues. Depreciation expense was
previously presented as a component of Costs of revenues and General and administrative expenses of approximately $21.9 million and $0.4 million, respectively, for the three months ended June 30, 2013. Depreciation
expense was previously presented as a component of Costs of revenues and General and administrative expenses of approximately $44.2 million and $0.9 million, respectively, for the six months ended June 30, 2013. The
Company also adjusted approximately $45.9 million and $7.2 million of gross carrying value of previously impaired property, plant and equipment and intangibles and accumulated depreciation and amortization, respectively, with no change to the net
balances as of December 31, 2013.
(2) Significant Accounting Policies
There have been no material changes or developments in the Companys significant accounting policies or evaluation of
accounting estimates and underlying assumptions or methodologies that are Critical Accounting Policies and Estimates as disclosed in the Companys 2013 Annual Report on Form 10-K.
In April 2014, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU)
No. 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
(ASU 2014-08). The amendments in this update will be added to Accounting Standards Codification (ASC)
Topic 205,
Presentation of Financial Stateme
nts and ASC Topic 360,
Property, Plant, and Equipment
. The standard changes the criteria for reporting discontinued operations and enhancing convergence of the FASBs and the
International Accounting Standard Boards reporting requirements for discontinued operations. The amendment adds a requirement to the threshold for items held for sale or disposed of that the discontinuation of the component of the entity
must also have a strategic shift with a major effect on operations and financial results. Additionally, an asset held for sale on acquisition will have to meet all of the held for sale criteria on the acquisition date. The amendment
removed the prohibition of significant ongoing involvement in the operations of the component of the entity. The amendments in this update are effective prospectively for reporting periods beginning after December 15, 2014, which for the
Company is the reporting period beginning January 1, 2015. The amendment does not apply to components classified as held for sale before the effective date and does not change the presentation of components previously classified as discontinued
operations. The Company does not believe the adoption of ASU 2014-08 will have a material impact on the Companys consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09). The amendments
in this update will be added to the ASC as Topic 606,
Revenue from Contracts with Customers,
and replaces the guidance in Topic 605.
8
The underlying principle of the guidance in this update is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects what it expects to receive in exchange for the goods or services. This new revenue standard also calls for more detailed disclosures and provides guidance for transactions that werent addressed completely, such as
service revenue and contract modifications. The amendments in this update are effective retrospectively or modified retrospectively for reporting periods beginning after December 15, 2016, which for the Company is the reporting period starting
January 1, 2017. The Company is reviewing the guidance in ASU 2014-09 and has not yet assessed the impact, if any, on its consolidated financial statements and has not determined its method of adoption.
(3) Earnings Per Share
Basic and diluted loss per common share from continuing operations, basic and diluted income (loss) per common share from
discontinued operations and net loss per basic and diluted common share have been computed using the weighted average number of shares of common stock outstanding during the period. Basic earnings per share (EPS) excludes dilution and is
computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is based upon the weighted average number of common shares outstanding during the period
plus the additional weighted average common equivalent shares during the period. Common equivalent shares result from the assumed exercise of outstanding warrants, restricted stock and stock options, the proceeds of which are then assumed to have
been used to repurchase outstanding shares of common stock. Inherently, stock warrants are deemed to be anti-dilutive when the average market price of the common stock during the period is less than the exercise prices of the stock warrants.
Pursuant to Accounting Standards Codification (ASC) 260-10-45-18, an entity that reports a discontinued operation in a period
shall use income (loss) from continuing operations, adjusted for preferred dividends, as the control number in determining whether potential common equivalent shares are dilutive or antidilutive. That is, the same number of potential common
equivalent shares used in computing the diluted per-share amount for income (loss) from continuing operations shall be used in computing all other reported diluted per-share amounts even if those amounts would be antidilutive to their respective
basic per-share amounts. For the three and six months ended June 30, 2014 and 2013, no shares of common stock underlying stock options, restricted stock, or other common stock equivalents were included in the computation of diluted EPS from
continuing operations because the inclusion of such shares would be antidilutive based on the net losses from continuing operations reported for those periods. Accordingly, for the three and six months ended June 30, 2014 and 2013, no shares of
common stock underlying stock options, restricted stock, or other common stock equivalents were included in the computations of diluted EPS from income (loss) from discontinued operations or diluted EPS from net loss per common share, because such
shares were excluded from the computation of diluted EPS from continuing operations for those periods based on the guidance referenced above.
The following table presents the calculation of basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(24,722
|
)
|
|
$
|
(21,665
|
)
|
|
$
|
(36,636
|
)
|
|
$
|
(25,670
|
)
|
Income from discontinued operations
|
|
|
1,453
|
|
|
|
8,816
|
|
|
|
1,912
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(23,269
|
)
|
|
$
|
(12,849
|
)
|
|
$
|
(34,724
|
)
|
|
$
|
(25,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic
|
|
|
25,524
|
|
|
|
24,241
|
|
|
|
25,273
|
|
|
|
24,042
|
|
Common stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - diluted
|
|
|
25,524
|
|
|
|
24,241
|
|
|
|
25,273
|
|
|
|
24,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share from continuing operations
|
|
$
|
(0.97
|
)
|
|
$
|
(0.89
|
)
|
|
$
|
(1.45
|
)
|
|
$
|
(1.07
|
)
|
Basic and diluted income per common share from discontinued operation
|
|
|
0.06
|
|
|
|
0.36
|
|
|
|
0.08
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per basic and diluted common share
|
|
$
|
(0.91
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(1.37
|
)
|
|
$
|
(1.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive stock-based awards excluded
|
|
|
222
|
|
|
|
318
|
|
|
|
237
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
(4) Intangible Assets
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net
|
|
Customer relationships
|
|
$
|
156,495
|
|
|
$
|
(29,624
|
)
|
|
$
|
126,871
|
|
|
$
|
156,495
|
|
|
$
|
(21,516
|
)
|
|
$
|
134,979
|
|
Disposal permits
|
|
|
1,232
|
|
|
|
(171
|
)
|
|
|
1,061
|
|
|
|
1,232
|
|
|
|
(95
|
)
|
|
|
1,137
|
|
Customer contracts
|
|
|
17,352
|
|
|
|
(4,621
|
)
|
|
|
12,731
|
|
|
|
17,352
|
|
|
|
(4,105
|
)
|
|
|
13,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
175,079
|
|
|
$
|
(34,416
|
)
|
|
$
|
140,663
|
|
|
$
|
175,079
|
|
|
$
|
(25,716
|
)
|
|
$
|
149,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) Impairment of Long-Lived Assets and Goodwill
During the year ended December 31, 2013, the Company recognized long-lived asset impairment charges totaling
$111.9 million for write-downs to the carrying values of the Companys freshwater pipeline in the Haynesville Shale basin of $27.0 million and certain other long-lived assets including customer relationships and disposal permit
intangibles totaling $4.5 million and disposal wells and equipment of $80.4 million in the Haynesville, Eagle Ford, Tuscaloosa Marine and Barnett Shale basins. Additionally, the Company recorded a goodwill impairment charge in its
Industrial Solutions business of $98.5 million during 2013.
In addition to the annual goodwill impairment test performed as of
September 30, the Company tests its goodwill and long-lived assets including other identifiable intangible assets with useful lives for impairment if and when events or changes in circumstances indicate that the carrying value of goodwill
and/or long-lived assets may not be recoverable. During the second quarter ended June 30, 2014, the Company considered a number of relevant factors which are potential indicators of impairment, including (among others) the potential impacts of
the planned organizational re-alignment of its continuing operations and the Companys current and near-term financial results as well as the fact that the market price of the Companys common stock, taking into consideration potential
control premiums, has wavered above and below its book value since the third quarter of 2013, as previously disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Report on Form 10-Q for
the three months ended March 31, 2014.
The reporting units and related long-lived assets and goodwill at June 30, 2014 and
December 31, 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Shale Solutions
|
|
|
AWS
|
|
|
Pipeline
|
|
|
Total
|
|
|
Shale Solutions
|
|
|
AWS
|
|
|
Pipeline
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
398,929
|
|
|
$
|
10,945
|
|
|
$
|
69,695
|
|
|
$
|
479,569
|
|
|
$
|
414,068
|
|
|
$
|
10,559
|
|
|
$
|
71,518
|
|
|
$
|
496,145
|
|
Intangibles, net
|
|
|
126,080
|
|
|
|
1,225
|
|
|
|
13,358
|
|
|
|
140,663
|
|
|
|
134,059
|
|
|
|
1,300
|
|
|
|
14,004
|
|
|
|
149,363
|
|
Goodwill
|
|
|
390,767
|
|
|
|
10,672
|
|
|
|
7,257
|
|
|
|
408,696
|
|
|
|
390,767
|
|
|
|
10,672
|
|
|
|
7,257
|
|
|
|
408,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
915,776
|
|
|
$
|
22,842
|
|
|
$
|
90,310
|
|
|
$
|
1,028,928
|
|
|
$
|
938,894
|
|
|
$
|
22,531
|
|
|
$
|
92,779
|
|
|
$
|
1,054,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on these factors, the Company is required to perform impairment tests and as such, is currently
conducting an analysis of both its long-lived assets and goodwill to determine whether the carrying values are fully recoverable. To the extent the Companys analysis indicates that either goodwill and/or any long-lived assets are not
recoverable, the Company will determine the fair value of its long-lived assets and reporting units and associated goodwill and recognize an impairment charge for the difference between the carrying values and respective fair values. This analysis
is expected to be completed in the quarter ended September 30, 2014 and the results will be reported at that time.
In late 2013, the
Company announced a plan to realign its Shale Solutions business into three operating divisions: (1) the Northeast Division comprising the Marcellus and Utica Shale areas (2) the Southern Division comprising the Haynesville, Eagle Ford and
Mississippian Shale areas and Permian Basin and (3) the Rocky Mountain Division comprising the Bakken Shale area. The implementation of this organizational realignment is ongoing and is expected to be completed in late 2014. In connection with
these planned organizational changes, the Company is evaluating whether the new operating divisions constitute separate operating segments and if so, whether two or more of them should be aggregated into one or more reportable segments.
Additionally, the Company will continue to evaluate the potential impact of the new organizational structure on its reporting units, which is the level of reporting at which goodwill is tested for impairment. To the extent the Company concludes the
composition of its reporting units has changed, the Company will allocate goodwill on a relative fair value basis to the new reporting units impacted by the reorganization and will test the newly-allocated goodwill for impairment. The Company may be
required to record impairment of its goodwill and other intangible assets as a result of this reallocation.
10
(6) Restructuring, Impairment and Exit Costs
In June 2013, the Company initiated a plan to restructure its business in certain shale basins and reduce costs, including a
partial exit from the Tuscaloosa Marine Shale basin. In doing so, the Company recorded a charge of approximately $5.0 million in the three months ended June 30, 2013. The charges are characterized as restructuring, impairment and exit costs in
the accompanying condensed consolidated statements of operations and consisted of the following.
|
|
|
|
|
|
|
June 30,
|
|
|
|
2013
|
|
Severance and termination benefits
|
|
$
|
944
|
|
Contract termination and exit costs
|
|
|
509
|
|
Asset impairment
|
|
|
3,499
|
|
|
|
|
|
|
Total restructuring, impairment and exit costs
|
|
$
|
4,952
|
|
|
|
|
|
|
Approximately $4.0 million of the total charge was recorded in the Shale Solutions operating segment while the
remainder was recognized at the corporate level. The liability for one-time termination benefits and contract termination costs totaled approximately $1.5 million of which $0.6 million remained in accrued expenses in the condensed consolidated
balance sheet as of December 31, 2013. No amounts remained in accrued expenses as of June 30, 2014. The asset impairment charge relates primarily to write-downs of real estate, leasehold improvements and a salt water disposal well in the
Tuscaloosa Marine shale basin.
(7) Fair Value Measurements
Measurements
Fair value represents an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. GAAP establishes a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
|
|
Level 1 Observable inputs such as quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
|
|
|
|
Level 2 Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
|
Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
Assets and liabilities measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013 and the fair value
hierarchy of the valuation techniques the Company utilized to determine such fair value used significant unobservable inputs (Level 3) and were as follows:
|
|
|
|
|
|
|
Fair Value
|
|
June 30, 2014
|
|
|
|
|
Assets - cost method investment
|
|
$
|
3,382
|
|
Liabilities:
|
|
|
|
|
Contingent consideration
|
|
|
11,385
|
|
Financing obligation to acquire non-controlling interest
|
|
|
10,394
|
|
December 31, 2013
|
|
|
|
|
Assets - cost method investment
|
|
$
|
3,382
|
|
Liabilities:
|
|
|
|
|
Contingent consideration
|
|
|
15,457
|
|
Financing obligation to acquire non-controlling interest
|
|
|
10,104
|
|
11
Contingent Consideration
The Company and its subsidiaries are liable for certain contingent consideration payments in connection with various acquisitions. The fair
value of the contingent consideration obligations was determined using a probability-weighted income approach at the acquisition date and is revalued at each reporting date or more frequently if circumstances dictate based on changes in the discount
periods and rates, changes in the timing and amount of the revenue estimates and changes in probability assumptions with respect to the likelihood of achieving the obligations. Contingent consideration is reported as a current portion of contingent
consideration and long-term portion of contingent consideration in the Companys condensed consolidated balance sheets. Changes to the fair value of contingent consideration are recorded as other income (expense), net in the Companys
condensed consolidated statements of operations. Accretion expense related to the increase in the net present value of the contingent liabilities is included in interest expense for the period. The fair value measurement is based on significant
inputs not observable in the market, which are referred to as Level 3 inputs.
Changes to contingent consideration obligations during the
six months ended June 30, 2014 and the year ended December 31, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
15,457
|
|
|
$
|
10,431
|
|
Additions related to acquisitions
|
|
|
|
|
|
|
8,141
|
|
Accretion
|
|
|
315
|
|
|
|
293
|
|
Cash payments
|
|
|
(1,014
|
)
|
|
|
(1,884
|
)
|
Issuances of stock
|
|
|
(3,789
|
)
|
|
|
(47
|
)
|
Changes in fair value of contingent consideration, net
|
|
|
416
|
|
|
|
(1,477
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
11,385
|
|
|
|
15,457
|
|
Less: current portion
|
|
|
(9,924
|
)
|
|
|
(13,113
|
)
|
|
|
|
|
|
|
|
|
|
Long-term portion of contingent consideration
|
|
$
|
1,461
|
|
|
$
|
2,344
|
|
|
|
|
|
|
|
|
|
|
Financing Obligation to Acquire Non-Controlling Interest
The fair value of the financing obligation to acquire non-controlling interest represents the present value of the Companys right to
acquire the remaining 49% interest in Appalachian Water Services, LLC (AWS) from the noncontrolling interest holder at a fixed price of $11.0 million payable in shares of the Companys common stock. The noncontrolling interest
holder has a put option to sell the remaining 49% to the Company under the same terms beginning in January 2015. In accordance with ASC 480,
Distinguishing Liabilities from Equity
, the instrument is accounted for as a financing of
the Companys purchase of the minority interest. Total accretion expense related to the Companys minority interest in AWS was $0.3 million and $0.5 million for the six months ended June 30, 2014 and 2013, respectively.
Other
In addition
to the Companys assets and liabilities that are measured at fair value on a recurring basis, the Company is required by GAAP to measure certain assets and liabilities at fair value on a nonrecurring basis after initial recognition. Generally,
assets, liabilities and reporting units are measured at fair value on a nonrecurring basis as a result of impairment reviews and any resulting impairment charge. In connection with its 2013 impairment review of long-lived assets described in Note 5,
the Company measured the fair value of its asset groups for those asset groups deemed not recoverable, based on Level 3 inputs consisting of the discounted future cash flows associated with the use and eventual disposition of the asset group. In
connection with its 2013 goodwill impairment review described in Note 5, the Company measured the fair value of its reporting units using a combination of the discounted cash flow method and the guideline public company method. The discounted cash
flow method is based on Level 3 inputs consisting primarily of the Companys five-year forecast and utilizes forward-looking assumptions and projections as well as factors impacting long-range plans such as pricing, discount rates and commodity
prices. The guideline public company method is based on Level 2 inputs and considers potentially comparable companies and transactions within the industries where the Companys reporting units participate, and applies their trading multiples to
the Companys reporting units. This approach utilizes data from actual marketplace transactions, but reliance on its results is limited by difficulty in identifying entities that are specifically comparable to the Companys reporting
units, considering their diversity, relative sizes and levels of complexity.
Cost method investments are measured at fair value on a
nonrecurring basis when deemed necessary, using observable inputs such as trading prices of the stock as well as using discounted cash flows, incorporating adjusted available market discount rate information and the Companys estimates for
liquidity risk.
12
(8) Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Accrued payroll and employee benefits
|
|
$
|
7,361
|
|
|
$
|
9,380
|
|
Accrued insurance
|
|
|
6,852
|
|
|
|
2,881
|
|
Accrued legal and environmental costs
|
|
|
32,240
|
|
|
|
33,707
|
|
Accrued taxes
|
|
|
2,131
|
|
|
|
1,239
|
|
Accrued interest
|
|
|
8,539
|
|
|
|
8,294
|
|
Amounts payable to related party (Note 13)
|
|
|
112
|
|
|
|
110
|
|
Accrued operating costs and other
|
|
|
9,150
|
|
|
|
7,820
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
66,385
|
|
|
$
|
63,431
|
|
|
|
|
|
|
|
|
|
|
Accrued legal and environmental costs include $22.3 million and $27.0 million at June 30, 2014 and
December 31, 2013, respectively, in connection with the pending settlement of the 2010 Class Action litigation. Of such amount, $17.1 million, representing the approximate market value of the shares at June 30, 2014, is expected to be
settled through the issuance of the Companys common stock upon final approval of the settlement by the court. Additionally, approximately $6.8 million in settlement costs and legal fees related to the Texas Cases is included in accrued legal
and environmental costs as of June 30, 2014 of which $5.5 million has subsequently been paid in July 2014 (Note 12).
(9) Debt
Debt consists of the following at June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
Interest
Rate
|
|
|
Maturity Date
|
|
Unamortized
Deferred
Financing Costs
|
|
|
Fair Value
of Debt (f)
|
|
|
Carrying
Value of
Debt
|
|
|
Carrying
Value of
Debt
|
|
Amended Revolving Credit Facility (a)
|
|
|
4.61
|
%
|
|
Nov. 2017
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
135,990
|
|
Asset-Based Revolving Credit Facility (b)
|
|
|
2.41
|
%
|
|
Jan. 2018
|
|
|
6,041
|
|
|
|
163,354
|
|
|
|
163,354
|
|
|
|
|
|
2018 Notes (c)
|
|
|
9.875
|
%
|
|
Apr. 2018
|
|
|
13,318
|
|
|
|
415,412
|
|
|
|
400,000
|
|
|
|
400,000
|
|
Vehicle Financings (d)
|
|
|
3.30
|
%
|
|
Various
|
|
|
|
|
|
|
17,171
|
|
|
|
17,171
|
|
|
|
19,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
|
$
|
19,359
|
|
|
$
|
595,937
|
|
|
|
580,525
|
|
|
|
555,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original issue discount (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(982
|
)
|
|
|
(1,084
|
)
|
Original issue premium (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
579,829
|
|
|
|
555,177
|
|
Less: current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,326
|
)
|
|
|
(5,464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
573,503
|
|
|
$
|
549,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The interest rate presented represents the interest rate on the $325.0 million senior secured revolving credit facility (the Amended Revolving Credit Facility) at December 31, 2013.
|
(b)
|
The interest rate presented represents the interest rate on the $245.0 million asset-based revolving credit facility (the ABL Facility) at June 30, 2014.
|
(c)
|
The interest rate presented represents the coupon rate on the Companys outstanding $400.0 million aggregate principal amounts of 9.875% Senior Notes due 2018 (the 2018 Notes), excluding the effects of
deferred financing costs, original issue discounts and original issue premiums. Including the impact of these items, the effective interest rate on the 2018 Notes is approximately 11.0%.
|
(d)
|
Vehicle financings consist of installment notes payable and capital lease arrangements related to fleet purchases with a weighted-average annual interest rate of approximately 3.30% and which mature in varying
installments between 2014 and 2017. Installment notes payable and capital lease obligations were $0.7 million and $16.5 million respectively, at June 30, 2014 and were $1.1 million and $18.8 million, respectively, at December 31, 2013.
|
(e)
|
The issuance discount represents the unamortized difference between the $250.0 million aggregate principal amount of the 2018 Notes issued in April 2012 and the proceeds received upon issuance (excluding interest and
fees). The issuance premium represents the unamortized difference between the proceeds received in connection with the November 2012 issuance of the 2018 Notes (excluding interest and fees) and the $150.0 million aggregate principal amount
thereunder.
|
(f)
|
The estimated fair value of the Companys 2018 Notes is based on quoted market prices as of June 30, 2014. The Companys ABL Facility and vehicle financings bear interest at rates commensurate with market
rates and therefore their respective carrying values approximate fair value.
|
13
Except as described below, there have been no material changes or developments in the
Companys debt and its principal terms, from Note 10 to the consolidated financial statements of the Companys 2013 Annual Report on Form 10-K.
ABL Facility
In February 2014, the
Company entered into a new asset-based revolving credit facility (ABL Facility) with Wells Fargo Bank as Administrative Agent and other lenders which amended and replaced its Amended Revolving Credit Facility. Initially, the ABL Facility
provided a maximum credit amount of $200.0 million, which could be increased to $225.0 million through a $25.0 million accordion feature. Initial borrowings under the ABL Facility were used to refinance amounts outstanding under the Amended
Revolving Credit Facility and fund certain related fees and expenses. In March 2014, the Company expanded the ABL Facility to increase the maximum availability from $200.0 million to $245.0 million and also increased the accordion feature from $25.0
million to $50.0 million. The terms and pricing of the facility remain the same and are unaffected by the upsizing of the facility size. The ABL Facility is used to support ongoing working capital needs and other general corporate purposes,
including growth initiatives, and may be used for potential isolated repurchases of a portion of the Companys currently outstanding 2018 Notes. The ABL Facility, which matures at the earlier of five years from the closing date or 90 days prior
to the maturity of other material indebtedness including the 2018 Notes, is secured by substantially all of the Companys assets.
The terms of the ABL Facility limit the amount the Company can borrow to the lesser of (a) $245.0 million or (b) 85% of the
amount of the Companys eligible accounts receivable plus the lower of (i) 95% of the net book value of the Companys eligible rental equipment, tractors and trailers, and (ii) 85% of the appraised net orderly liquidation value
of the Companys eligible rental equipment, tractors and trailers, less any customary reserves. The borrowing base is evaluated monthly. The full $245.0 million facility is available to the Company based on the borrowing base as of
June 30, 2014. The Company currently believes that eligible receivables and equipment will continue to support $245.0 million of availability under the facility. The ABL Facility includes a letter of credit sub-limit of $10.0 million and a
swingline facility sub-limit equal to 10% of the total facility size for more immediate cash needs.
Interest will accrue on outstanding
loans under the ABL Facility at a floating rate based on, at the Companys election, (i) the greater of (a) the prime lending rate as publicly announced by Wells Fargo or (b) the Federal Funds rate plus
1
/
2
% or (c) the one month LIBOR plus one percent plus an applicable margin of 0.75% to 1.50% or (ii) the LIBOR rate plus an
applicable margin of 1.75% to 2.50%. The Company is also required to pay fees on the unused commitments of the lenders under the ABL Facility, fees for outstanding letters of credit and other customary fees.
The ABL Facility contains certain financial covenants that require the Company to maintain a senior leverage ratio and, upon the occurrence of
certain specified conditions, a fixed charge coverage ratio as well as certain customary limitations on the Companys ability to, among other things, incur debt, grant liens, make acquisitions and other investments, make certain restricted
payments such as dividends, dispose of assets or undergo a change in control. The senior leverage ratio is calculated as the ratio of senior secured debt to adjusted EBITDA (as defined), and is limited to 3.0 to 1.0. The Companys $400.0
million of 2018 Notes are not secured and thus are excluded from the calculation of this ratio. The fixed charge coverage ratio, which only applies at such time the total amount drawn under the credit facility exceeds 87.5 percent of the total
facility amount, requires the ratio of adjusted EBITDA (as defined) less capital expenditures to fixed charges (as defined) to be at least 1.1 to 1.0.
Costs associated with the ABL Facility totaling approximately $3.4 million were capitalized as deferred financing costs in the three months
ended March 31, 2014, and the Company wrote-off unamortized deferred financing costs associated with its Amended Revolving Credit Facility of approximately $3.2 million in the same period.
(10) Income Taxes
The following table shows the components of the income tax (expense) benefit for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Current income tax benefit (expense)
|
|
$
|
1,534
|
|
|
$
|
(900
|
)
|
|
$
|
1,534
|
|
|
$
|
(195
|
)
|
Deferred income tax (expense) benefit
|
|
|
(1,839
|
)
|
|
|
1,724
|
|
|
|
6,965
|
|
|
|
14,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (expense) benefit
|
|
$
|
(305
|
)
|
|
$
|
824
|
|
|
$
|
8,499
|
|
|
$
|
14,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective income tax (expense) benefit rate for the three and six months ended June 30, 2014 was
(1.2%) and 18.8%, which differs from the federal statutory benefit rate of 35.0% primarily due to an increase in the valuation allowance on deferred tax assets, which decreased the effective rate by 30.8% and 16.7%, respectively, and the tax
impacts of state taxes, nondeductible expenses and income attributable to the minority shareholder of AWS.
14
The Company has significant deferred tax assets, consisting primarily of net operating losses
(NOLs), which have a limited life, generally expiring between the years 2029 and 2034. Management regularly assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use
the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative losses incurred this year and in recent years. Such objective evidence limits the ability to consider other subjective evidence such as
our projections for future taxable income.
Although the Company has incurred losses in recent years, at December 31, 2013 and
March 31, 2014 it determined that the reversal of its deferred tax liabilities (excluding deferred tax liabilities included in assets held for sale) would generate sufficient taxable income in future years to utilize its deferred tax assets
prior to the expiration of its NOLs. As of June 30, 2014, the Company determined that its deferred tax liabilities may not be sufficient to fully realize all of its deferred tax assets and accordingly, a valuation allowance is required against
a portion of its deferred tax assets. As a result, the income tax benefit for the three and six months ended June 30, 2014 has been reduced by $7.5 million to reflect an increase in the valuation allowance on deferred tax assets to record only
the portion of the deferred tax assets that are more likely than not to be realized.
The effective income tax benefit rate for the three
and six months ended June 30, 2013 was 3.7% and 36.5% which differs from the federal statutory rate of 35.0% primarily due to the tax impact of state taxes, nondeductible expenses, and income attributable to the minority shareholder of AWS and
by $1.5 million of out-of-period adjustments to deferred taxes recorded in the three months ended March 31, 2013 associated with certain acquired intangible assets.
(11) Share-based Compensation
We may grant stock options, stock appreciation rights, restricted common stock and restricted stock units, performance
shares and units, other stock-based awards and cash-based awards to our employees, directors, consultants and advisors pursuant to the Heckmann Corporation 2009 Equity Incentive Plan (as amended, the 2009 Plan).
Stock Options
The Company estimates the
fair value of stock options using a Black-Scholes option-pricing model. During the six months ended June 30, 2014 and 2013 the Company granted less than 0.1 million options pursuant to the 2009 Plan. Stock-based compensation cost is
included in general and administrative expenses in the accompanying condensed consolidated statements of operations and totaled approximately $0.4 million and $1.0 million for the six months ended June 30, 2014 and 2013, respectively.
Restricted Stock
The Company measures
the cost of employee and board of director services received in exchange for awards of restricted stock, based on the market value of the Companys common shares at the date of grant. During the six months ended June 30, 2014 the Company
did not grant any restricted stock awards. During the six months ended June 30, 2013, the Company awarded less than 0.1 million shares of restricted stock. During the six months ended June 30, 2013 the Company released less than
0.1 million shares of stock to certain employees upon the lapse of restrictions. Stock-based compensation expense for grants of restricted stock was $0.4 million and approximately $1.0 million for the six months ended June 30, 2014 and
2013, respectively, which amounts are included in general and administrative expenses in the accompanying condensed consolidated statements of operations.
Restricted Stock Units
The Company
measures the cost of employee and board of director services received in exchange for awards of restricted stock units, based on the market value of the Companys common shares at the date of grant. During the six months ended June 30,
2014 the Company granted 0.3 million restricted stock units. Stock-based compensation expense for grants of restricted stock units was $0.6 million for the six months ended June 30, 2014 which is included in general and administrative
expenses in the accompanying condensed consolidated statements of operations. During the six months ended June 30, 2013 the Company granted less than 0.1 million shares of restricted stock units and stock-based compensation expense for
such grants was $0.1 million for the six months ended June 30, 2013.
15
(12) Legal Matters
Environmental Liabilities
The Company is subject to the environmental protection and health and safety laws and related rules and regulations of the United States and of
the individual states, municipalities and other local jurisdictions where we operate. The Companys Shale Solutions business is subject to rules and regulations promulgated by the Texas Railroad Commission, the Texas Commission on
Environmental Quality, the Louisiana Department of Natural Resources, the Louisiana Department of Environmental Quality, the Ohio Department of Natural Resources, the Pennsylvania Department of Environmental Protection, the North Dakota Department
of Health, the North Dakota Industrial Commission, Oil and Gas Division, the North Dakota State Water Commission, the Montana Department of Environmental Quality and the Montana Board of Oil and Gas, among others. These laws, rules and regulations
address environmental, health and safety and related concerns, including water quality and employee safety. We have installed safety, monitoring and environmental protection equipment such as pressure sensors and relief valves, and have
established reporting and responsibility protocols for environmental protection and reporting to such relevant local environmental protection departments as required by law.
The Companys Industrial Solutions business involves the use, handling, storage and contracting for recycling or disposal of
environmentally sensitive materials, such as waste motor oil and filters, solvents, transmission fluid, antifreeze, lubricants and degreasing agents. Accordingly, the Companys Industrial Solutions business is subject to regulation by various
federal, state, and local authorities with respect to health, safety and environmental quality and standards. The Industrial Solutions business is also subject to laws, ordinances, and regulations governing the investigation and remediation of
contamination at facilities we operate or to which we send hazardous substances for treatment, recycling or disposal. In particular, the United States Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) imposes
joint, strict, and several liability on owners or operators of facilities at, from, or to which a release of hazardous substances has occurred, parties that generated hazardous substances that were released at such facilities and parties that
transported or arranged for the transportation of hazardous substances to such facilities. A majority of states have adopted statutes comparable to, and in some cases more stringent than, CERCLA. The Industrial Solutions business comprised of TFI is
classified as held-for-sale and discontinued operations.
Management believes the Company is in material compliance with all applicable
environmental protection laws and regulations in the United States and the states in which the Company operates. The Company believes that there are no unrecorded liabilities in connection with the Companys compliance with environmental laws
and regulations. The condensed consolidated balance sheets at June 30, 2014 and December 31, 2013 included accruals totaling $1.8 million and $1.5 million, respectively, for various environmental matters, including the estimated costs to
comply with a Louisiana Department of Environmental Quality requirement that the Company perform testing and monitoring at certain locations to confirm that prior pipeline spills were remediated in accordance with applicable requirements.
Litigation
There are various lawsuits,
claims, investigations and proceedings that have been brought or asserted against the Company, which arise in the ordinary course of business, including actions with respect to securities and shareholder class actions, personal injury, vehicular and
industrial accidents, commercial contracts, legal and regulatory compliance, securities disclosure, labor and employment, and employee benefits and environmental matters, the more significant of which are summarized below. The Company records a
provision for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any provisions are reviewed at least quarterly and are adjusted to reflect the impact and status of
settlements, rulings, advice of counsel and other information and events pertinent to a particular matter.
The Company believes that it
has valid defenses with respect to legal matters pending against it. Based on its experience, the Company also believes that the damage amounts claimed in the lawsuits disclosed below are not necessarily a meaningful indicator of the Companys
potential liability. Litigation is inherently unpredictable, however, and it is possible that the Companys results of operations or cash flow could be materially affected in any particular period by the resolution of one or more of the legal
matters pending against it. The most significant litigation cases are described below:
Texas Cases
On June 4, 2012, a lawsuit was commenced in the District Court of Dimmit County, Texas, alleging wrongful death in a case involving a
vehicle accident. The accident occurred in May 2012 and involved a truck owned by our subsidiary Heckmann Water Resources (CVR), Inc. (CVR) and one other vehicle. The case is captioned
Jose Luis Aguilar, Individually; Eudelia Aguilar,
Individually; Vanessa Arce, Individually; Eudelia Aguilar and Vanessa Arce, as Personal Representatives of the Estate of Carlos Aguilar; Clarissa Aguilar, as Next Friend of Carlos Aguilar, Jr., Alyssa Nicole Aguilar, Andrew Aguilar, Marcus Aguilar,
and Kaylee Aguilar; and Elsa Quinones as Next Friend of Karime and Carla Aguilar, Plaintiffs vs. Heckmann Water Resources (CVR), Inc. and Ruben Osorio Gonzalez, Defendants.
On December 5, 2013, a jury verdict was rendered against CVR in the
amount of $281.6 million,
16
which amount was subsequently reduced to $163.8 million by the Dimmit County court on January 7, 2014 and then subsequently further reduced to $105.2 million when the judgment was amended by
the Dimmit County court on April 1, 2014 following the initial round of post-trial motions. On January 29, 2014, a separate lawsuit was commenced in the District Court of Dimmit County, Texas captioned
Clarissa Aguilar, as Next Friend
of Carlos Aguilar, Jr., Alyssa Nicole Aguilar, Andrew Aguilar, Marcus Aguilar, and Kaylee Aguilar v. Zurich American Insurance Company, Heckmann Water Resources (CVR), Inc., Heckmann Water Resources Corp., and Nuverra Environmental Solutions, Inc.
f/k/a Heckmann Corp.,
Cause No. 14-01-12176-DCV, seeking a declaratory judgment that Nuverra Environmental Solutions, Inc. and Heckmann Water Resources Corp. are the alter egos of CVR, and therefore these entities are jointly and severally
liable for the judgment against CVR in the wrongful death action.
In June 2014, the Company entered into agreements to fully settle all
claims relating to the foregoing lawsuits. The settlements were approved by the Dimmit County court on July 15, 2014. In connection with the settlement of these matters, the Company agreed to fund $5.5 million of the total settlement payments
to fully resolve the matter, which was subsequently paid in July 2014, with the remainder of the total settlement payment funded by the Companys insurer. The amount of the total settlement payment is confidential per the settlement agreements.
These settlement agreements include all plaintiffs and the Companys insurer and release the Company and all of its subsidiaries from all past and future claims or liabilities related to these matters. As a result of the settlement of these
cases, the Company recorded expenses of $6.8 million in the three months ended June 30, 2014 consisting of $5.5 million related to the funding of the settlement payments and $1.3 million of additional related legal expenses.
Shareholder Litigation
2010 Class Action
On
May 21, 2010, Richard P. Gielata, an individual purporting to act on behalf of stockholders, served a class action lawsuit filed May 6, 2010 against the Company and various directors and officers in the United States District Court for the
District of Delaware captioned
In re Heckmann Corporation Securities Class Action
(Case No. 1:10-cv-00378-JJF-MPT). On March 4, 2014, the Company reached an agreement in principle to settle this matter by entering into a Stipulation
of Settlement with the plaintiffs, which will resolve all claims asserted against the Company and the individual defendants in this case. Under the terms of the Stipulation of Settlement, which was subject to approval by the court, the Company
agreed to a cash payment of $13.5 million, a portion of which will come from remaining insurance proceeds, as well as the issuance of 0.8 million shares of its common stock. The Company agreed to provide a floor value of $13.5 million on the
equity portion of the settlement; however, at the time of final court approval of the Stipulation of Settlement (described below) the equity value of the settlement consideration exceeded this amount and, as a result, the number of shares to be
issued as settlement consideration was fixed at 0.8 million. Cash payments of $6.1 million from the Company, and the remaining $7.4 million from insurance proceeds, were deposited into escrow in April 2014. The Stipulation of Settlement was approved
by the court on June 26, 2014 and will become effective (assuming no appeal is filed) on August 27, 2014. Pursuant to the courts approval order, one-third of the 0.8 million settlement shares and one-third of the cash settlement
consideration were awarded to co-lead plaintiffs counsel as attorneys fees (in addition to reimbursement of certain court-approved expenses from the cash portion of the settlement escrow). The remaining two-thirds of the 0.8 million
settlement shares are required to be deposited into escrow no later than thirty (30) days following the date settlement becomes effective. To effectively accrue for the pending settlement, the Company recorded an expense of $4.6 million in the
three months ended June 30, 2014, consisting of $3.6 million related to the increase in market value of the 0.8 million shares and $1.0 million of additional related legal expenses and defense costs. Although the number of shares to be
issued as part of the settlement is fixed at 0.8 million, the Company could incur additional non-cash charges in future periods if the market price per share of the remaining unissued 0.6 million shares exceeds $20.11 (the share price at
June 30, 2014) upon the final settlement effective date of August 27, 2014.
2013 Shareholder Litigation
In September 2013, two separate but substantially-similar putative class action lawsuits were commenced in Federal court against the Company
and certain of its current and former officers and directors alleging that the Company and the individual defendants made certain material misstatements and/or omissions relating to the Companys operations and financial condition which caused
the price of its shares to fall. By order dated October 29, 2013, the two putative class actions were consolidated and a consolidated complaint has been filed. Defendants filed a motion to dismiss these claims in May 2014. In September and
October 2013, three separate but substantially-similar shareholder derivative lawsuits were commenced in Federal court against the Company and certain of its current and former officers and directors alleging that members of the Companys board
of directors failed to prevent the issuance of certain misstatements and omissions and asserting claims for breach of fiduciary duty, waste of corporate assets and unjust enrichment. Defendants filed a motion to dismiss these claims in February
2014. Also in October 2013, two identical shareholder derivative lawsuits were commenced in Arizona state court against us and certain of the Companys current officers and directors alleging breach of fiduciary duty, waste of corporate assets
and unjust enrichment. By order dated January 28, 2014, these two actions were consolidated, and defendants filed a motion to dismiss these claims in June 2014. The Company and the individual defendants intend to vigorously defend themselves
against the claims asserted in each of these pending actions. While the Company continues to assess these claims, the Company believes they are without merit.
The Company does not expect that the outcome of other claims and legal actions not discussed above will have a material adverse effect on its
consolidated financial position, results of operations or cash flows.
17
(13) Related Party and Affiliated Company Transactions
There have been no significant changes to the related party transactions with Richard J. Heckmann, the former Executive
Chairman of the Companys board of directors, and Mark D. Johnsrud, the Companys Chief Executive Officer and Chairman of the Companys board of directors, for the use of an aircraft, apartment rentals, purchases of fresh water for
resale and use of land where certain of the Companys saltwater disposal wells are situated as described in Note 18 to the consolidated financial statements included in the Companys 2013 Annual Report on Form 10-K. The amounts paid by the
Company for these services are consistent with rates charged by non-affiliated third parties under similar arrangements and are immaterial individually and in the aggregate for the periods presented.
(14) Segments
The Company evaluates business segment performance based on income (loss) before income taxes exclusive of corporate general
and administrative costs and interest expense, which are not allocated to the segments. In the fourth quarter of 2013, the Companys board of directors approved and committed to a plan to divest TFI, which comprises its Industrial Solutions
operating and reportable segment. As a result, the Company considers TFI to be held for sale (Note 15). As such, the Companys reportable segment shown below represents the segment performance of the Companys Shale Solutions business.
Corporate/Other includes certain corporate costs and losses from discontinued operations, as well as assets held for sale and certain other corporate assets. The Companys reportable segments at June 30, 2014 represent those used by the
Companys chief operating decision maker to evaluate performance and allocate resources and are consistent with its reportable segments at December 31, 2013.
Financial information for the Companys reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shale
Solutions
|
|
|
Corporate/
Other
|
|
|
Total
|
|
Three months ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
126,862
|
|
|
$
|
|
|
|
$
|
126,862
|
|
Loss from continuing operations before income taxes
|
|
|
(1,491
|
)
|
|
|
(22,926
|
)
|
|
|
(24,417
|
)
|
Six months ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
254,876
|
|
|
$
|
|
|
|
$
|
254,876
|
|
Income (loss) from continuing operations before income taxes
|
|
|
1,290
|
|
|
|
(46,425
|
)
|
|
|
(45,135
|
)
|
As of June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets excluding those applicable to discontinued operations (a)
|
|
|
790,478
|
|
|
|
396,383
|
|
|
|
1,186,861
|
|
Total assets held for sale
|
|
|
|
|
|
|
194,688
|
|
|
|
194,688
|
|
Three months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
134,977
|
|
|
|
|
|
|
|
134,977
|
|
Loss from continuing operations before income taxes
|
|
|
(1,008
|
)
|
|
|
(21,481
|
)
|
|
|
(22,489
|
)
|
Six months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
265,624
|
|
|
|
|
|
|
|
265,624
|
|
Income (loss) from continuing operations before income taxes
|
|
|
1,389
|
|
|
|
(41,819
|
)
|
|
|
(40,430
|
)
|
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets excluding those applicable to discontinued operations (a)
|
|
|
1,154,014
|
|
|
|
67,999
|
|
|
|
1,222,013
|
|
Total assets held for sale
|
|
|
|
|
|
|
188,750
|
|
|
|
188,750
|
|
(a)
|
Total assets exclude intercompany receivables eliminated in consolidation.
|
In the fourth
quarter of 2013, the Company announced a plan to realign its Shale Solutions business into three operating divisions: (1) the Northeast Division comprising the Marcellus and Utica Shale areas, (2) the Southern Division comprising the
Haynesville, Eagle Ford, Mississippian and Permian Basin shale areas and (3) the Rocky Mountain Division comprising the Bakken Shale area. The implementation of this organizational realignment is ongoing and is expected to be completed in 2014.
In connection with these planned organizational changes, the Company is evaluating whether the new operating divisions will constitute separate operating segments and if so, whether two or more of them can be aggregated into one or more reportable
segments. As the organizational realignment progresses, the Company will continue to evaluate its potential impact on its reporting units, which is a level of reporting at which goodwill is tested for impairment. A reporting unit is defined as an
operating segment or one level below an operating segment. To the extent the Company concludes the composition of its reporting units have changed, the Company will be required to allocate goodwill on a relative fair value basis to the new reporting
units and test the newly allocated goodwill for impairment should triggering events occur.
18
(15) Assets Held for Sale and Discontinued Operations
Following an assessment of various alternatives regarding its Industrial Solutions business in the third quarter of 2013 and
a decision to focus exclusively on its Shale Solutions business, the Companys board of directors approved and committed to a plan to divest TFI, which comprises its Industrial Solutions operating and reportable segment, in the fourth quarter
of 2013. In March 2014, the Company entered into a Stock Purchase Agreement with respect to the sale of 100% of the common stock of its wholly-owned subsidiary, Thermo Fluids Inc., to VeroLube USA, Inc. (VeroLube) in exchange for $165.0
million in cash and $10.0 million in VeroLube stock. In June 2014, Nuverra and VeroLube entered into an Amended and Restated Stock Purchase Agreement, which among other items, extended the closing date. Closing of the transaction is subject to
customary closing conditions, including a buyer financing contingency. Subject to the satisfaction of closing conditions, the Amended and Restated Stock Purchase Agreement provides for a transaction closing deadline of August 29, 2014. The results
of operations of TFI are presented as discontinued operations in the Companys condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013. The assets and liabilities related to TFI are
presented separately as assets held for sale and liabilities of discontinued operations in the Companys condensed consolidated balance sheets at June 30, 2014 and December 31, 2013.
The following table details selected financial information of discontinued operations related to TFI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Revenue
|
|
$
|
29,759
|
|
|
$
|
30,557
|
|
|
$
|
57,404
|
|
|
$
|
59,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
|
$
|
1,422
|
|
|
$
|
1,302
|
|
|
$
|
3,577
|
|
|
$
|
946
|
|
Income tax benefit (expense)
|
|
|
31
|
|
|
|
7,514
|
|
|
|
(1,665
|
)
|
|
|
(757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
1,453
|
|
|
$
|
8,816
|
|
|
$
|
1,912
|
|
|
$
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of the assets and liabilities of TFI that are classified as held for sale in the
accompanying condensed consolidated balance sheets at June 30, 2014 and December 31, 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,047
|
|
|
$
|
429
|
|
Accounts receivable, net
|
|
|
17,465
|
|
|
|
15,620
|
|
Inventories, net
|
|
|
2,459
|
|
|
|
2,328
|
|
Prepaid expenses and other receivables
|
|
|
4,429
|
|
|
|
2,475
|
|
Other current assets
|
|
|
58
|
|
|
|
594
|
|
|
|
|
|
|
|
|
|
|
Total current assets held for sale
|
|
|
25,458
|
|
|
|
21,446
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
28,295
|
|
|
|
26,369
|
|
Intangible assets, net
|
|
|
92,935
|
|
|
|
92,935
|
|
Goodwill
|
|
|
48,000
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
Total long-term assets held for sale
|
|
|
169,230
|
|
|
|
167,304
|
|
|
|
|
|
|
|
|
|
|
Total assets held for sale
|
|
$
|
194,688
|
|
|
$
|
188,750
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,186
|
|
|
$
|
6,625
|
|
Accrued expenses
|
|
|
2,497
|
|
|
|
2,676
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities of discontinued operations
|
|
|
9,683
|
|
|
|
9,301
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities of discontinued operationsdeferred income taxes
|
|
|
31,719
|
|
|
|
32,389
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of discontinued operations
|
|
$
|
41,402
|
|
|
$
|
41,690
|
|
|
|
|
|
|
|
|
|
|
Net assets held for sale
|
|
$
|
153,286
|
|
|
$
|
147,060
|
|
|
|
|
|
|
|
|
|
|
19
(16) Subsidiary Guarantors
The obligations of Nuverra Environmental Solutions, Inc. under the 2018 Notes are jointly and severally, fully and
unconditionally guaranteed by certain of the Companys subsidiaries. Pursuant to the terms of the indenture governing the 2018 Notes (the Indenture), the guarantees are full and unconditional, but are subject to release under the
following circumstances:
|
|
|
in connection with any sale, disposition or transfer of all or substantially all of the assets to a person that is not the Company or a subsidiary guarantor;
|
|
|
|
in connection with any sale, disposition or transfer of all of the capital stock of that subsidiary guarantor to a person that is not the Company or a subsidiary guarantor;
|
|
|
|
if the Company designates any restricted subsidiary that is a subsidiary guarantor to be an unrestricted subsidiary; or
|
|
|
|
upon legal defeasance or the discharge of the Companys obligations under the Indenture.
|
Although the guarantees are subject to release under the above described circumstances, we have concluded they are still deemed full and
unconditional for purposes of Rule 3-10 of Regulation S-X because these circumstances are customary, and accordingly, the Company concluded that it may rely on Rule 3-10 of Regulation S-X, as the other requirements of Rule 3-10 have been met.
20
The following tables present consolidating financial information for Nuverra Environmental
Solutions, Inc. (Parent), certain 100% wholly-owned subsidiaries (the Guarantor Subsidiaries) and Appalachian Water Services, LLC, a 51% owned subsidiary (the Non-Guarantor Subsidiary), as of June 30, 2014
and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013. These condensed consolidating financial statements have been prepared from the Companys financial information on the same basis of accounting as the
Companys condensed consolidated financial statements. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,941
|
|
|
$
|
(975
|
)
|
|
$
|
381
|
|
|
$
|
|
|
|
$
|
3,347
|
|
Restricted cash
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
Accounts receivablenet
|
|
|
|
|
|
|
96,042
|
|
|
|
887
|
|
|
|
|
|
|
|
96,929
|
|
Deferred taxes
|
|
|
18,356
|
|
|
|
3,767
|
|
|
|
|
|
|
|
|
|
|
|
22,123
|
|
Other current assets
|
|
|
1,611
|
|
|
|
6,566
|
|
|
|
43
|
|
|
|
|
|
|
|
8,220
|
|
Current assets held for sale
|
|
|
|
|
|
|
25,458
|
|
|
|
|
|
|
|
|
|
|
|
25,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
23,908
|
|
|
|
130,970
|
|
|
|
1,311
|
|
|
|
|
|
|
|
156,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
3,451
|
|
|
|
468,624
|
|
|
|
10,945
|
|
|
|
|
|
|
|
483,020
|
|
Equity investments
|
|
|
712,722
|
|
|
|
650
|
|
|
|
|
|
|
|
(709,340
|
)
|
|
|
4,032
|
|
Intangible assets, net
|
|
|
|
|
|
|
139,438
|
|
|
|
1,225
|
|
|
|
|
|
|
|
140,663
|
|
Goodwill
|
|
|
|
|
|
|
398,024
|
|
|
|
10,672
|
|
|
|
|
|
|
|
408,696
|
|
Other assets
|
|
|
431,414
|
|
|
|
15,680
|
|
|
|
|
|
|
|
(427,375
|
)
|
|
|
19,719
|
|
Long-term assets held for sale
|
|
|
|
|
|
|
169,230
|
|
|
|
|
|
|
|
|
|
|
|
169,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,171,495
|
|
|
$
|
1,322,616
|
|
|
$
|
24,153
|
|
|
$
|
(1,136,715
|
)
|
|
$
|
1,381,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,758
|
|
|
$
|
20,282
|
|
|
$
|
212
|
|
|
$
|
|
|
|
$
|
23,252
|
|
Accrued liabilities
|
|
|
38,063
|
|
|
|
28,289
|
|
|
|
33
|
|
|
|
|
|
|
|
66,385
|
|
Current portion of contingent consideration
|
|
|
|
|
|
|
9,924
|
|
|
|
|
|
|
|
|
|
|
|
9,924
|
|
Current portion of long-term debt and other financing obligations
|
|
|
|
|
|
|
6,326
|
|
|
|
10,394
|
|
|
|
|
|
|
|
16,720
|
|
Current liabilities of discontinued operations
|
|
|
|
|
|
|
9,683
|
|
|
|
|
|
|
|
|
|
|
|
9,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
40,821
|
|
|
|
74,504
|
|
|
|
10,639
|
|
|
|
|
|
|
|
125,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(49,574
|
)
|
|
|
77,643
|
|
|
|
|
|
|
|
|
|
|
|
28,069
|
|
Long-term portion of debt
|
|
|
562,658
|
|
|
|
10,845
|
|
|
|
|
|
|
|
|
|
|
|
573,503
|
|
Long-term portion of contingent consideration
|
|
|
|
|
|
|
1,461
|
|
|
|
|
|
|
|
|
|
|
|
1,461
|
|
Other long-term liabilities
|
|
|
741
|
|
|
|
429,966
|
|
|
|
652
|
|
|
|
(427,375
|
)
|
|
|
3,984
|
|
Long-term liabilities of discontinued operations
|
|
|
|
|
|
|
31,719
|
|
|
|
|
|
|
|
|
|
|
|
31,719
|
|
Total shareholders equity
|
|
|
616,849
|
|
|
|
696,478
|
|
|
|
12,862
|
|
|
|
(709,340
|
)
|
|
|
616,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
1,171,495
|
|
|
$
|
1,322,616
|
|
|
$
|
24,153
|
|
|
$
|
(1,136,715
|
)
|
|
$
|
1,381,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,839
|
|
|
$
|
3,201
|
|
|
$
|
1,743
|
|
|
$
|
|
|
|
$
|
8,783
|
|
Restricted cash
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Accounts receivablenet
|
|
|
|
|
|
|
86,256
|
|
|
|
830
|
|
|
|
|
|
|
|
87,086
|
|
Deferred income taxes
|
|
|
27,167
|
|
|
|
2,905
|
|
|
|
|
|
|
|
|
|
|
|
30,072
|
|
Other current assets
|
|
|
6,642
|
|
|
|
7,466
|
|
|
|
86
|
|
|
|
|
|
|
|
14,194
|
|
Current assets held for sale
|
|
|
|
|
|
|
21,446
|
|
|
|
|
|
|
|
|
|
|
|
21,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
37,648
|
|
|
|
121,384
|
|
|
|
2,659
|
|
|
|
|
|
|
|
161,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
2,396
|
|
|
|
485,586
|
|
|
|
10,559
|
|
|
|
|
|
|
|
498,541
|
|
Equity investments
|
|
|
742,342
|
|
|
|
650
|
|
|
|
|
|
|
|
(738,960
|
)
|
|
|
4,032
|
|
Intangible assets, net
|
|
|
|
|
|
|
148,063
|
|
|
|
1,300
|
|
|
|
|
|
|
|
149,363
|
|
Goodwill
|
|
|
|
|
|
|
398,024
|
|
|
|
10,672
|
|
|
|
|
|
|
|
408,696
|
|
Other
|
|
|
410,774
|
|
|
|
120,786
|
|
|
|
|
|
|
|
(510,424
|
)
|
|
|
21,136
|
|
Long-term assets held for sale
|
|
|
|
|
|
|
167,304
|
|
|
|
|
|
|
|
|
|
|
|
167,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,193,160
|
|
|
$
|
1,441,797
|
|
|
$
|
25,190
|
|
|
$
|
(1,249,384
|
)
|
|
$
|
1,410,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,784
|
|
|
$
|
27,850
|
|
|
$
|
1,595
|
|
|
$
|
|
|
|
$
|
33,229
|
|
Accrued expenses
|
|
|
43,274
|
|
|
|
19,941
|
|
|
|
216
|
|
|
|
|
|
|
|
63,431
|
|
Current portion of contigent consideration
|
|
|
|
|
|
|
13,113
|
|
|
|
|
|
|
|
|
|
|
|
13,113
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
5,464
|
|
|
|
|
|
|
|
|
|
|
|
5,464
|
|
Current liabilities of discontinued operations
|
|
|
|
|
|
|
9,301
|
|
|
|
|
|
|
|
|
|
|
|
9,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
47,058
|
|
|
|
75,669
|
|
|
|
1,811
|
|
|
|
|
|
|
|
124,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(34,275
|
)
|
|
|
77,257
|
|
|
|
|
|
|
|
|
|
|
|
42,982
|
|
Long-term portion of debt
|
|
|
535,221
|
|
|
|
14,492
|
|
|
|
|
|
|
|
|
|
|
|
549,713
|
|
Long-term portion of contingent consideration
|
|
|
|
|
|
|
2,344
|
|
|
|
|
|
|
|
|
|
|
|
2,344
|
|
Other long-term liabilities
|
|
|
787
|
|
|
|
513,961
|
|
|
|
10,104
|
|
|
|
(510,424
|
)
|
|
|
14,428
|
|
Long-term liabilities of discontinued operations
|
|
|
|
|
|
|
32,389
|
|
|
|
|
|
|
|
|
|
|
|
32,389
|
|
Total shareholders equity
|
|
|
644,369
|
|
|
|
725,685
|
|
|
|
13,275
|
|
|
|
(738,960
|
)
|
|
|
644,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
1,193,160
|
|
|
$
|
1,441,797
|
|
|
$
|
25,190
|
|
|
$
|
(1,249,384
|
)
|
|
$
|
1,410,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
|
|
|
$
|
125,960
|
|
|
$
|
902
|
|
|
$
|
|
|
|
$
|
126,862
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
92,288
|
|
|
|
469
|
|
|
|
|
|
|
|
92,757
|
|
General and administrative expenses
|
|
|
10,575
|
|
|
|
14,063
|
|
|
|
17
|
|
|
|
|
|
|
|
24,655
|
|
Depreciation and amortization
|
|
|
164
|
|
|
|
21,009
|
|
|
|
197
|
|
|
|
|
|
|
|
21,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
10,739
|
|
|
|
127,360
|
|
|
|
683
|
|
|
|
|
|
|
|
138,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(10,739
|
)
|
|
|
(1,400
|
)
|
|
|
219
|
|
|
|
|
|
|
|
(11,920
|
)
|
Interest expense, net
|
|
|
(12,187
|
)
|
|
|
(491
|
)
|
|
|
(291
|
)
|
|
|
|
|
|
|
(12,969
|
)
|
Other income, net
|
|
|
|
|
|
|
464
|
|
|
|
1
|
|
|
|
|
|
|
|
465
|
|
Income from equity investments
|
|
|
982
|
|
|
|
7
|
|
|
|
|
|
|
|
(982
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(21,944
|
)
|
|
|
(1,420
|
)
|
|
|
(71
|
)
|
|
|
(982
|
)
|
|
|
(24,417
|
)
|
Income tax (expense) benefit
|
|
|
(1,325
|
)
|
|
|
1,020
|
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(23,269
|
)
|
|
|
(400
|
)
|
|
|
(71
|
)
|
|
|
(982
|
)
|
|
|
(24,722
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
1,453
|
|
|
|
|
|
|
|
|
|
|
|
1,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(23,269
|
)
|
|
$
|
1,053
|
|
|
$
|
(71
|
)
|
|
$
|
(982
|
)
|
|
$
|
(23,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
|
|
|
$
|
133,626
|
|
|
$
|
1,351
|
|
|
$
|
|
|
|
$
|
134,977
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
95,228
|
|
|
|
416
|
|
|
|
|
|
|
|
95,644
|
|
General and administrative expenses
|
|
|
7,581
|
|
|
|
7,802
|
|
|
|
20
|
|
|
|
|
|
|
|
15,403
|
|
Depreciation and amortization
|
|
|
203
|
|
|
|
28,064
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
28,003
|
|
Restructuring, impairment and exit costs
|
|
|
944
|
|
|
|
4,008
|
|
|
|
|
|
|
|
|
|
|
|
4,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
8,728
|
|
|
|
135,102
|
|
|
|
172
|
|
|
|
|
|
|
|
144,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(8,728
|
)
|
|
|
(1,476
|
)
|
|
|
1,179
|
|
|
|
|
|
|
|
(9,025
|
)
|
Interest expense, net
|
|
|
(12,743
|
)
|
|
|
(261
|
)
|
|
|
(252
|
)
|
|
|
|
|
|
|
(13,256
|
)
|
Other expense, net
|
|
|
(10
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
Income (loss) from equity investments
|
|
|
11,013
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
(11,013
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes
|
|
|
(10,468
|
)
|
|
|
(1,935
|
)
|
|
|
927
|
|
|
|
(11,013
|
)
|
|
|
(22,489
|
)
|
Income tax (expense) benefit
|
|
|
(2,381
|
)
|
|
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(12,849
|
)
|
|
|
1,270
|
|
|
|
927
|
|
|
|
(11,013
|
)
|
|
|
(21,665
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
8,816
|
|
|
|
|
|
|
|
|
|
|
|
8,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(12,849
|
)
|
|
$
|
10,086
|
|
|
$
|
927
|
|
|
$
|
(11,013
|
)
|
|
$
|
(12,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
|
|
|
$
|
253,770
|
|
|
$
|
1,106
|
|
|
$
|
|
|
|
$
|
254,876
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
185,584
|
|
|
|
799
|
|
|
|
|
|
|
|
186,383
|
|
General and administrative expenses
|
|
|
18,998
|
|
|
|
24,170
|
|
|
|
35
|
|
|
|
|
|
|
|
43,203
|
|
Depreciation and amortization
|
|
|
327
|
|
|
|
41,559
|
|
|
|
395
|
|
|
|
|
|
|
|
42,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
19,325
|
|
|
|
251,313
|
|
|
|
1,229
|
|
|
|
|
|
|
|
271,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(19,325
|
)
|
|
|
2,457
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
(16,991
|
)
|
Interest expense, net
|
|
|
(23,923
|
)
|
|
|
(805
|
)
|
|
|
(291
|
)
|
|
|
|
|
|
|
(25,019
|
)
|
Other income, net
|
|
|
|
|
|
|
52
|
|
|
|
1
|
|
|
|
|
|
|
|
53
|
|
Income (loss) from equity investments
|
|
|
2,758
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2,758
|
)
|
|
|
(1
|
)
|
Loss on extinguishment of debt
|
|
|
(3,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes
|
|
|
(43,667
|
)
|
|
|
1,703
|
|
|
|
(413
|
)
|
|
|
(2,758
|
)
|
|
|
(45,135
|
)
|
Income tax benefit (expense)
|
|
|
8,943
|
|
|
|
(444
|
)
|
|
|
|
|
|
|
|
|
|
|
8,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(34,724
|
)
|
|
|
1,259
|
|
|
|
(413
|
)
|
|
|
(2,758
|
)
|
|
|
(36,636
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
1,912
|
|
|
|
|
|
|
|
|
|
|
|
1,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(34,724
|
)
|
|
$
|
3,171
|
|
|
$
|
(413
|
)
|
|
$
|
(2,758
|
)
|
|
$
|
(34,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
|
|
|
$
|
263,754
|
|
|
$
|
1,870
|
|
|
$
|
|
|
|
$
|
265,624
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
186,871
|
|
|
|
785
|
|
|
|
|
|
|
|
187,656
|
|
General and administrative expenses
|
|
|
13,841
|
|
|
|
15,615
|
|
|
|
26
|
|
|
|
|
|
|
|
29,482
|
|
Depreciation and amortization
|
|
|
398
|
|
|
|
55,526
|
|
|
|
130
|
|
|
|
|
|
|
|
56,054
|
|
Restructuring, impairment and exit costs
|
|
|
944
|
|
|
|
4,008
|
|
|
|
|
|
|
|
|
|
|
|
4,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
15,183
|
|
|
|
262,020
|
|
|
|
941
|
|
|
|
|
|
|
|
278,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(15,183
|
)
|
|
|
1,734
|
|
|
|
929
|
|
|
|
|
|
|
|
(12,520
|
)
|
Interest expense, net
|
|
|
(25,643
|
)
|
|
|
(524
|
)
|
|
|
(504
|
)
|
|
|
|
|
|
|
(26,671
|
)
|
Other expense, net
|
|
|
(993
|
)
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,097
|
)
|
Income (loss) from equity investments
|
|
|
769
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
(769
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes
|
|
|
(41,050
|
)
|
|
|
964
|
|
|
|
425
|
|
|
|
(769
|
)
|
|
|
(40,430
|
)
|
Income tax benefit (expense)
|
|
|
15,569
|
|
|
|
(809
|
)
|
|
|
|
|
|
|
|
|
|
|
14,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(25,481
|
)
|
|
|
155
|
|
|
|
425
|
|
|
|
(769
|
)
|
|
|
(25,670
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(25,481
|
)
|
|
$
|
344
|
|
|
$
|
425
|
|
|
$
|
(769
|
)
|
|
$
|
(25,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net cash (used in) provided by operating activities from continuing operations
|
|
$
|
(24,791
|
)
|
|
$
|
20,146
|
|
|
$
|
764
|
|
|
$
|
|
|
|
$
|
(3,881
|
)
|
Net cash provided by operating activities from discontinued operations
|
|
|
|
|
|
|
2,880
|
|
|
|
|
|
|
|
|
|
|
|
2,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(24,791
|
)
|
|
|
23,026
|
|
|
|
764
|
|
|
|
|
|
|
|
(1,001
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of property and equipment
|
|
|
|
|
|
|
3,810
|
|
|
|
|
|
|
|
|
|
|
|
3,810
|
|
Purchase of property, plant and equipment
|
|
|
(1,188
|
)
|
|
|
(20,629
|
)
|
|
|
(2,126
|
)
|
|
|
|
|
|
|
(23,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities from continuing operations
|
|
|
(1,188
|
)
|
|
|
(16,819
|
)
|
|
|
(2,126
|
)
|
|
|
|
|
|
|
(20,133
|
)
|
Net cash used in investing activities from discontinuing operations
|
|
|
|
|
|
|
(2,262
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,188
|
)
|
|
|
(19,081
|
)
|
|
|
(2,126
|
)
|
|
|
|
|
|
|
(22,395
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
50,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,725
|
|
Payments on revolving credit facility
|
|
|
(27,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,700
|
)
|
Payments for deferred financing costs
|
|
|
(734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(734
|
)
|
Payments on notes payable and capital leases
|
|
|
|
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,700
|
)
|
Payments of contingent consideration and other financing activities
|
|
|
3,790
|
|
|
|
(4,803
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities from continuing operations
|
|
|
26,081
|
|
|
|
(7,503
|
)
|
|
|
|
|
|
|
|
|
|
|
18,578
|
|
Net cash used in financing activities from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
26,081
|
|
|
|
(7,503
|
)
|
|
|
|
|
|
|
|
|
|
|
18,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
102
|
|
|
|
(3,558
|
)
|
|
|
(1,362
|
)
|
|
|
|
|
|
|
(4,818
|
)
|
Cash and cash equivalentsbeginning of period
|
|
|
3,839
|
|
|
|
3,630
|
|
|
|
1,743
|
|
|
|
|
|
|
|
9,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsend of period
|
|
|
3,941
|
|
|
|
72
|
|
|
|
381
|
|
|
|
|
|
|
|
4,394
|
|
Less: cash and cash equivalents of discontinued operationsbeginning of period
|
|
|
|
|
|
|
(1,047
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operationsend of period
|
|
$
|
3,941
|
|
|
$
|
(975
|
)
|
|
$
|
381
|
|
|
$
|
|
|
|
$
|
3,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net cash provided by operating activities from continuing operations
|
|
$
|
13,554
|
|
|
$
|
20,315
|
|
|
$
|
477
|
|
|
$
|
|
|
|
$
|
34,346
|
|
Net cash provided by operating activities from discontinued operations
|
|
|
|
|
|
|
2,130
|
|
|
|
|
|
|
|
|
|
|
|
2,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
13,554
|
|
|
|
22,445
|
|
|
|
477
|
|
|
|
|
|
|
|
36,476
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(700
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
(738
|
)
|
Proceeds from the sale of property and equipment
|
|
|
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
477
|
|
Proceeds from acquisition-related working capital adjustment
|
|
|
|
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
2,067
|
|
Purchase of property, plant and equipment
|
|
|
(861
|
)
|
|
|
(20,518
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
(21,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities from continuing operations
|
|
|
(1,561
|
)
|
|
|
(18,012
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
(19,594
|
)
|
Net cash used in investing activities from discontinued operations
|
|
|
|
|
|
|
(1,600
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,561
|
)
|
|
|
(19,612
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
(21,194
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
|
Payments on revolving credit facility
|
|
|
(34,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,500
|
)
|
Payments for deferred financing costs
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
Payments on notes payable and capital leases
|
|
|
|
|
|
|
(2,596
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,596
|
)
|
Payments of contingent consideration and other financing activities
|
|
|
|
|
|
|
(529
|
)
|
|
|
|
|
|
|
|
|
|
|
(529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities from continuing operations
|
|
|
(17,729
|
)
|
|
|
(3,125
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,854
|
)
|
Net cash used in financing activities from discontinued operations
|
|
|
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(17,729
|
)
|
|
|
(3,525
|
)
|
|
|
|
|
|
|
|
|
|
|
(21,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(5,736
|
)
|
|
|
(692
|
)
|
|
|
456
|
|
|
|
|
|
|
|
(5,972
|
)
|
Cash and cash equivalentsbeginning of period
|
|
|
5,819
|
|
|
|
9,536
|
|
|
|
856
|
|
|
|
|
|
|
|
16,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsend of period
|
|
|
83
|
|
|
|
8,844
|
|
|
|
1,312
|
|
|
|
|
|
|
|
10,239
|
|
Less: cash and cash equivalents of discontinued operationsbeginning of period
|
|
|
|
|
|
|
(1,565
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operationsend of period
|
|
$
|
83
|
|
|
$
|
7,279
|
|
|
$
|
1,312
|
|
|
$
|
|
|
|
$
|
8,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28