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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
__________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2014
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number: 001-33816
__________________________________
__________________________________
Delaware
26-0287117
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
14624 N. Scottsdale Rd., Suite 300, Scottsdale, Arizona 85254
(602) 903-7802
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
__________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer
x
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x
The number of shares outstanding of the registrant’s common stock as of November 4, 2014 was 27,311,182.




TABLE OF CONTENTS
 
 
 
 
 
 
 
 

2


Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including, but not limited to, statements regarding:
future financial performance and growth targets or expectations;
market and industry trends and developments;
the potential benefits of our completed and any future merger, acquisition, disposition and financing transactions, including the potential sale of Thermo Fluids Inc.; and
plans to increase operational capacity, including additional trucks, saltwater disposal wells, frac tanks, landfills, processing and treatment facilities and pipeline construction or expansion.
You can identify these and other forward-looking statements by the use of words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “future,” “continue,” “ongoing,” “forecast,” “project,” “target” or similar expressions, and variations or negatives of these words.
These forward-looking statements are based on information available to us as of the date of this Quarterly Report and our current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. Future performance cannot be ensured, and actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include:
financial results that may be volatile and may not reflect historical trends due to, among other things, acquisition and disposition activities, fluctuations in consumer trends, pricing pressures, changes in raw material or labor prices or rates related to our business and changing regulations or political developments in the markets in which we operate;
risks associated with our indebtedness, including our ability to manage our liquidity needs and to comply with covenants under our credit facilities, including the indenture governing our notes;
difficulties in identifying and completing acquisitions and divestitures, and differences in the type and availability of consideration or financing for such acquisitions and divestitures;
difficulties in successfully executing our growth initiatives, including difficulties in permitting, financing and constructing pipelines and waste treatment assets and in structuring economically viable agreements with potential customers;
difficulties encountered in integrating acquired or merged assets, businesses, employees and management teams;
our ability to attract, motivate and retain key executives and qualified employees in key areas of our business;
fluctuations in prices and demand for commodities such as oil and natural gas;
changes in customer drilling and completion activities and capital expenditure plans, including impacts due to low oil and/or natural gas prices or the economic or regulatory environment;
risks associated with the operation, construction and development of saltwater disposal wells and pipelines, including access to additional disposal well locations and pipeline rights-of-way, unscheduled delays or inefficiencies and reductions in volume due to micro- and macro-economic factors or the availability of less expensive alternatives;
the effects of competition in the markets in which we operate, including the adverse impact of competitive product announcements or new entrants into our markets and transfers of resources by competitors into our markets;
changes in economic conditions in the markets in which we operate or in the world generally, including as a result of political uncertainty;
reduced demand for our services due to regulatory or other influences related to extraction methods such as hydraulic fracturing, shifts in production among shale areas in which we operate or into shale areas in which we do not currently have operations or the loss of key customers;

3


control of costs and expenses;
present and possible future claims, litigation or enforcement actions or investigations;
natural disasters, such as hurricanes, earthquakes and floods, or acts of terrorism, or extreme weather conditions, that may impact our corporate headquarters, assets, including wells or pipelines, distribution channels, or which otherwise disrupt our or our customers’ operations or the markets we serve;
the threat or occurrence of international armed conflict;
the unknown future impact on our business from the legislation and governmental rulemaking, including the Affordable Care Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules to be promulgated thereunder;
risks involving developments in environmental or other governmental laws and regulations in the markets in which we operate and our ability to effectively respond to those developments including laws and regulations relating to oil and gas extraction businesses, particularly relating to water usage, and the disposal, transportation and treatment of liquid and solid wastes; and
other risks identified in this Quarterly Report or referenced from time to time in our filings with the United States Securities and Exchange Commission (the “SEC”).
You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report. Except as required by law, we do not undertake any obligation to update or release any revisions to these forward-looking statements to reflect any events or circumstances, whether as a result of new information, future events, changes in assumptions or otherwise, after the date hereof.
Where You Can Find Other Information
Our website is www.nuverra.com. Information contained on our website is not part of this Quarterly Report on Form 10-Q. Information that we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. These reports and other information, including exhibits filed or furnished therewith, are also available at the SEC’s website at www.sec.gov. You may also obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
 

4


NUVERRA ENVIRONMENTAL SOLUTIONS, INC.
PART I—FINANCIAL INFORMATION
Item  1.
Financial Statements.
NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
September 30,
 
December 31,
 
2014
 
2013
 
(Unaudited)
 
(Note 1)
Assets
 
 
 
Cash and cash equivalents
$
2,214

 
$
8,783

Restricted cash
112

 
110

Accounts receivable, net of allowance for doubtful accounts of $6.5 and $5.5 million at September 30, 2014 and December 31, 2013, respectively
106,297

 
87,086

Inventories
4,713

 
3,328

Prepaid expenses and other receivables
5,148

 
10,457

Deferred income taxes
18,950

 
30,072

Other current assets
98

 
409

Current assets held for sale
25,008

 
21,446

Total current assets
162,540

 
161,691

Property, plant and equipment, net of accumulated depreciation of $138.9 and $137.3 million at September 30, 2014 and December 31, 2013, respectively
482,402

 
498,541

Equity investments
3,818

 
4,032

Intangibles, net
136,456

 
149,363

Goodwill
307,980

 
408,696

Other assets
18,722

 
21,136

Long-term assets held for sale
123,492

 
167,304

Total assets
$
1,235,410

 
$
1,410,763

Liabilities and Equity
 
 
 
Accounts payable
$
21,505

 
$
33,229

Accrued liabilities
58,473

 
63,431

Current portion of contingent consideration
10,034

 
13,113

Current portion of long-term debt
5,046

 
5,464

Financing obligation to acquire non-controlling interest
10,693

 

Current liabilities of discontinued operations
13,000

 
9,301

Total current liabilities
118,751

 
124,538

Deferred income taxes
20,541

 
42,982

Long-term portion of debt
571,657

 
549,713

Long-term portion of contingent consideration
1,484

 
2,344

Financing obligation to acquire non-controlling interest

 
10,104

Other long-term liabilities
3,879

 
4,324

Long-term liabilities of discontinued operations
31,808

 
32,389

Total liabilities
748,120

 
766,394

Commitments and contingencies

 

Common stock
29

 
27

Additional paid-in capital
1,363,841

 
1,341,209

Treasury stock
(19,506
)
 
(19,503
)
Accumulated deficit
(857,074
)
 
(677,364
)
Total equity of Nuverra Environmental Solutions, Inc.
487,290

 
644,369

Total liabilities and equity
$
1,235,410

 
$
1,410,763

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

5


NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Revenue:
 
 
 
 
 
 
 
Non-rental revenue
$
122,474

 
$
112,484

 
$
339,617

 
$
336,303

Rental revenue
17,169

 
19,320

 
54,902

 
61,125

Total revenue
139,643

 
131,804

 
394,519

 
397,428

Costs and expenses:
 
 
 
 
 
 
 
Direct operating expenses
97,037

 
97,038

 
283,420

 
284,694

General and administrative expenses
11,102

 
34,256

 
54,305

 
63,738

Depreciation and amortization
21,585

 
23,767

 
63,866

 
79,821

Impairment of long-lived assets

 
108,401

 

 
111,900

Impairment of goodwill
100,716

 

 
100,716

 

Restructuring and exit costs

 

 

 
1,453

Total costs and expenses
230,440

 
263,462

 
502,307

 
541,606

Loss from operations
(90,797
)
 
(131,658
)
 
(107,788
)
 
(144,178
)
Interest expense, net
(12,956
)
 
(13,459
)
 
(37,975
)
 
(40,130
)
Other income (expense), net
321

 
(4,196
)
 
373

 
(5,435
)
Loss on extinguishment of debt

 

 
(3,177
)
 

Loss from continuing operations before income taxes
(103,432
)
 
(149,313
)
 
(148,567
)
 
(189,743
)
Income tax benefit
4,014

 
51,315

 
12,513

 
66,075

Loss from continuing operations
(99,418
)
 
(97,998
)
 
(136,054
)
 
(123,668
)
Loss from discontinued operations, net of income taxes
(45,568
)
 
(95,740
)
 
(43,656
)
 
(95,551
)
Net loss attributable to common stockholders
$
(144,986
)
 
$
(193,738
)
 
$
(179,710
)
 
$
(219,219
)
 
 
 
 
 
 
 
 
Net loss per common share attributable to common stockholders:
 
 
 
 
 
 
 
Basic and diluted loss from continuing operations
$
(3.73
)
 
$
(3.94
)
 
$
(5.28
)
 
$
(5.09
)
Basic and diluted loss from discontinued operations
(1.71
)
 
(3.85
)
 
(1.70
)
 
(3.93
)
Net loss per basic and diluted common share
$
(5.44
)
 
$
(7.79
)
 
$
(6.98
)
 
$
(9.02
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding used in computing net loss per basic and diluted common share
26,665

 
24,854

 
25,742

 
24,316

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


6


NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Nine Months Ended
 
September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net loss
$
(179,710
)
 
$
(219,219
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Loss from discontinued operations, net of income taxes
43,656

 
95,551

Depreciation
50,959

 
64,292

Amortization of intangible assets
12,907

 
15,529

Amortization of deferred financing costs
2,818

 
3,446

Amortization of original issue discounts and premiums, net
112

 
106

Stock-based compensation
2,305

 
3,295

Impairment of long-lived assets

 
111,900

Impairment of goodwill
100,716

 

(Gain) loss on disposal of property, plant and equipment
(4,752
)
 
381

Bad debt expense
2,464

 
1,720

Loss on extinguishment of debt
3,177

 

Deferred income taxes
(11,320
)
 
(66,921
)
Write-down of cost method investments

 
4,300

Other, net
1,555

 
491

Changes in operating assets and liabilities, net of business acquisitions and purchase price adjustments:
 
 
 
Accounts receivable
(21,675
)
 
14,987

Prepaid expenses and other receivables
5,309

 
(191
)
Accounts payable and accrued liabilities
5,859

 
43,396

Other assets and liabilities, net
(1,435
)
 
59

Net cash provided by operating activities from continuing operations
12,945

 
73,122

Net cash provided by operating activities from discontinued operations
4,754

 
3,253

Net cash provided by operating activities
17,699

 
76,375

Cash flows from investing activities:
 
 
 
Cash paid for acquisitions, net of cash acquired

 
(10,570
)
Proceeds from the sale of property, plant and equipment
9,295

 
1,397

Purchases of property, plant and equipment
(43,018
)
 
(33,224
)
Proceeds from acquisition-related working capital adjustment

 
2,067

Net cash used in investing activities from continuing operations
(33,723
)
 
(40,330
)
Net cash used in investing activities from discontinued operations
(2,043
)
 
(2,393
)
Net cash used in investing activities
(35,766
)
 
(42,723
)
Cash flows from financing activities
 
 
 
Proceeds from revolving credit facility
68,725

 
52,001

Payments on revolving credit facility
(48,700
)
 
(84,501
)
Payments for deferred financing costs
(796
)
 
(828
)
Payments on notes payable and capital leases
(4,005
)
 
(4,007
)
Other financing activities
(1,015
)
 
(2,193
)
Net cash provided by (used in) financing activities from continuing operations
14,209

 
(39,528
)
Net cash used in financing activities from discontinued operations

 
(400
)
Net cash provided by (used in) financing activities
14,209

 
(39,928
)
Net decrease in cash and cash equivalents
(3,858
)
 
(6,276
)
Cash and cash equivalents - beginning of period
9,212

 
16,211

Cash and cash equivalents - end of period
5,354

 
9,935

Less: cash and cash equivalents of discontinued operations - end of period
3,140

 
1,895

Cash and cash equivalents of continuing operations - end of period
$
2,214

 
$
8,040

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
20,611

 
$
25,965

Cash paid for taxes, net
115

 
602

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Common stock issued for business acquisitions

 
24,286

Common stock issued for contingent consideration
3,789

 

Common stock issued for legal settlements
13,400

 
1,620

Purchases of property, plant and equipment under capital leases

 
5,774

Property, plant and equipment purchases in accounts payable
3,795

 
4,094

Restricted cash payable to former sole owner of Power Fuels
112

 
83

Conversion of accrued interest on principal debt balance
2,957

 

Deferred financing costs financed through principal debt balance
2,541

 

Deferred financing costs in accounts payable and accrued liabilities
214

 

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

7


NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
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 and share amounts in the footnote tabular presentations are in thousands, except per share amounts and unless otherwise noted.
The Company’s 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 statement of operations 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 Company’s 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 balance sheets, statements of operations and cash flows in order to conform to the current year’s presentation including:
As discussed in Note 14, the Company has recast its Industrial Solutions business comprised of Thermo Fluids Inc. (“TFI”) as held-for-sale and discontinued operations.
As described in Note 13, the Company redefined its operating and reportable segments during the three months ended September 30, 2014 and as a result, prior year periods have been recast to conform to the current year segment presentation.
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” in the amounts of $20.1 million and $0.5 million, respectively, for the three months ended September 30, 2013. Depreciation expense was previously presented as a component of “Costs of revenues” and “General and administrative expenses” in the amounts of $63.0 million and $1.3 million, respectively, for the nine months ended September 30, 2013.
The Company adjusted $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.
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.
(2) Significant Accounting Policies
There have been no material changes or developments in the Company’s significant accounting policies or evaluation of accounting estimates and underlying assumptions or methodologies that are “Critical Accounting Policies and Estimates” as disclosed in the Company’s 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 Statements and ASC Topic 360, Property, Plant, and Equipment. The standard changes the criteria for reporting discontinued operations and enhancing convergence of the FASB’s and the International Accounting Standard Board’s reporting requirements for discontinued operations. The amendment adds a requirement to the threshold for items held for sale or

8


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 Company’s 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. 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 weren’t addressed completely, such as service revenue and contract modifications. The amendments in this update may be applied retrospectively or modified retrospectively effective 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 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 antidilutive when the average market price of the common stock during the period is less than the exercise prices of the stock warrants.
Pursuant to ASC Topic 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 nine months ended September 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 nine-month periods ended September 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 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.

9


The following table presents the calculation of basic and diluted net loss per common share:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Loss from continuing operations
(99,418
)
 
(97,998
)
 
(136,054
)
 
(123,668
)
Loss from discontinued operations
(45,568
)
 
(95,740
)
 
(43,656
)
 
(95,551
)
Net loss attributable to common stockholders
$
(144,986
)
 
$
(193,738
)
 
$
(179,710
)
 
$
(219,219
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average shares—basic
26,665

 
24,854

 
25,742

 
24,316

Common stock equivalents

 

 

 

Weighted average shares—diluted
26,665

 
24,854

 
25,742

 
24,316

 
 
 
 
 
 
 
 
Basic and diluted loss per common share from continuing operations
$
(3.73
)
 
$
(3.94
)
 
$
(5.28
)
 
$
(5.09
)
Basic and diluted loss per common share from discontinued operations
(1.71
)
 
(3.85
)
 
(1.70
)
 
(3.93
)
Net loss per basic and diluted common share
$
(5.44
)
 
$
(7.79
)
 
$
(6.98
)
 
$
(9.02
)
 
 
 
 
 
 
 
 
Antidilutive stock-based awards excluded
238

 
340

 
224

 
345

(4) Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill were as follows:
Balance at December 31, 2013
$
408,696

Impairment (Note 5)
(100,716
)
Balance at September 30, 2014
$
307,980

As described in Note 5, the goodwill impairment related to the Company's Northeast and Southern divisions at September 30, 2014. The remaining goodwill balance relates to the Rocky Mountain division.
Intangible Assets
Intangible assets consist of the following:
 
September 30, 2014
 
December 31, 2013
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Customer relationships
$
156,678

 
$
(33,714
)
 
$
122,964

 
$
156,678

 
$
(21,689
)
 
$
134,989

Disposal permits
1,244

 
(225
)
 
1,019

 
1,244

 
(117
)
 
1,127

Customer contracts
17,352

 
(4,879
)
 
12,473

 
17,352

 
(4,105
)
 
13,247

 
$
175,274

 
$
(38,818
)
 
$
136,456

 
$
175,274

 
$
(25,911
)
 
$
149,363

(5) Impairment of Long-Lived Assets and Goodwill
During the nine months ended September 30, 2013, the Company recognized long-lived asset impairment charges totaling $111.9 million for write-downs to the carrying values of the Company’s 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, which is characterized as impairment of long-lived assets in the Company's condensed consolidated statement of operations. Additionally, the Company recorded a goodwill impairment charge in its Industrial Solutions business of $98.5

10


million during the three months ended September 30,     2013, which is included within the amounts reported in "Loss from discontinued operations, net of income taxes" in the Company's condensed consolidated statements of operations.
During the three months ended September 30, 2014, the Company completed the previously-announced organizational realignment of its Shale Solutions segment into three operating divisions, which the Company considers to be its new operating and reportable segments: (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. As part of this organizational realignment, the Company re-evaluated the goodwill of its reporting units, defined as an operating segment or one level below an operating segment, for impairment. The Company determined that its reporting units are the same as its new operating and reportable segments. Previously, the Shale Solutions operating segment was comprised of the Shale Solutions (excluding AWS and Pipeline) reporting unit, the AWS reporting unit and the Pipeline reporting unit. Given the change in the composition of its reporting units, the Company was required to allocate its $408.7 million of goodwill on a relative fair value basis to the new reporting units.
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 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 aforementioned organizational realignment of its continuing operations and the Company’s current and near-term financial results as well as the fact that the market price of the Company’s 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Reports on Form 10-Q for the three and six months ended March 31, 2014 and June 30, 2014. Based on these factors, the Company was required to perform impairment tests to determine whether the carrying values are fully recoverable of both its long-lived assets and goodwill. The Company began these analyses in the quarter ended June 30, 2014 and completed its review in the quarter ended September 30, 2014. The Company's impairment review of its long-lived assets concluded the fair value of such assets exceeded their carrying values and thus no impairment was indicated.
The goodwill impairment test has two steps. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount including goodwill. During the three months ended September 30, 2014, the Company performed step one of the goodwill impairment test for each of its three new reporting units: the Northeast division, Southern division and Rocky Mountain division. To measure the fair value of each new reporting unit, the Company used a combination of the discounted cash flow method and the guideline public company method. Based on the results of the step-one goodwill impairment review, the Company concluded the fair value of the Rocky Mountain division exceeded its carrying amount by approximately 14% and accordingly, the second step of the impairment test was not necessary for this reporting unit. Conversely, the Company concluded the fair values of the Northeast and Southern reporting units were less than their carrying values thereby requiring the Company to proceed to the second step of the goodwill impairment test. The second step of the goodwill impairment test, used to measure the amount of the impairment loss, compares the implied fair value of the reporting unit goodwill with its carrying amount. For both the Northeast and Southern reporting units, the carrying values of the re-allocated goodwill exceeded their implied fair values. Accordingly, the Company recognized a charge of $100.7 million ($66.9 million in the Southern division and $33.8 million in the Northeast division) during the three months ended September 30, 2014, which is characterized as "Impairment of goodwill" in the Company’s condensed consolidated statement of operations.
The fair values of each of the reporting units as well as the related assets and liabilities utilized to determine both the 2014 and 2013 impairment were measured using Level 2 and Level 3 inputs as described in Note 6.
The Company believes the assumptions used in its discounted cash flow analysis are appropriate and result in reasonable estimates of the implied fair value of each reporting unit. The Company further believes the most significant assumption used in its analysis is the expected improvement in the margins and overall profitability of its reporting units driven by improved pricing, higher activity levels and contributions from recent growth investments. However, the Company may not meet its revenue growth and profitability targets, working capital and capital investment requirements may be higher than forecast, changes in credit or equity markets may result in changes to the Company’s discount rate and general business conditions may result in changes to the Company’s terminal value assumptions for its reporting units.
In evaluating the reasonableness of the Company’s fair value estimates, the Company considers (among other factors) the relationship between its book value, the market price of its common stock and the fair value of its reporting units. At September 30, 2014 and November 4, 2014, the closing market prices of the Company’s common stock were $14.75 and $8.56 per share, respectively, compared to its book value per share of $17.85 as of September 30, 2014. The Company’s assessment assumes this relationship is temporary due to a number of factors, including uncertainty surrounding the planned sale of TFI and

11


volatility in commodity prices. If the Company’s book value per share continues to exceed its market price per share plus a control premium, this would likely indicate the occurrence of events or changes that will cause the Company to perform additional impairment analyses which could result in further revisions to its fair value estimates. While the Company believes that its estimates of fair value are reasonable, the Company will continue to monitor and evaluate this relationship.
(6) 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 September 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
September 30, 2014
 
Assets - cost method investment
$
3,169

Liabilities:
 
Contingent consideration
11,518

Financing obligation to acquire non-controlling interest
10,693

December 31, 2013
 
Assets - cost method investment
$
3,382

Liabilities:
 
Contingent consideration
15,457

Financing obligation to acquire non-controlling interest
10,104

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 "Current portion of contingent consideration" and "Long-term portion of contingent consideration" in the Company’s condensed consolidated balance sheets. Changes to the fair value of contingent consideration are recorded as "Other income (expense), net" in the Company’s 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.

12


Changes to contingent consideration obligations during the nine months ended September 30, 2014 and the year ended December 31, 2013 were as follows:
 
September 30, 2014
 
December 31, 2013
Balance at beginning of period
$
15,457

 
$
10,431

Additions related to acquisitions

 
8,141

Accretion
448

 
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
11,518

 
15,457

Less: current portion
(10,034
)
 
(13,113
)
Long-term portion of contingent consideration
$
1,484

 
$
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 Company’s right to acquire the remaining 49% interest in Appalachian Water Services, LLC (“AWS”) from the non-controlling interest holder at a fixed price of $11.0 million payable in shares of the Company’s common stock. The non-controlling 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 Company’s purchase of the minority interest. Total accretion expense related to the Company’s minority interest in AWS was $0.6 million and $0.8 million for the nine months ended September 30, 2014 and 2013, respectively.
Other
In addition to the Company’s 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 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 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 Company’s 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 Company’s reporting units participate, and applies their trading multiples to the Company’s 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 Company’s 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 Company’s estimates for liquidity risk.  

13


(7) Accrued Liabilities
Accrued liabilities consist of the following:
 
September 30, 2014
 
December 31, 2013
Accrued payroll and employee benefits
$
12,944

 
$
9,380

Accrued insurance
6,452

 
2,881

Accrued legal and environmental costs
8,838

 
33,707

Accrued taxes
2,405

 
1,239

Accrued interest
18,442

 
8,294

Amounts payable to related party (Note 12)
112

 
110

Accrued operating costs and other
9,280

 
7,820

Total accrued liabilities
$
58,473

 
$
63,431

Accrued legal and environmental costs included $27.0 million at December 31, 2013 in connection with the settlement of the 2010 Class Action litigation. As further described in Note 11, during the three months ended June 30, 2014, the cash portion of the settlement of the 2010 Class Action litigation was paid and during the three months ended September 30, 2014, the Company issued 0.8 million shares of its common stock in connection with such settlement.
(8) Debt
Debt consists of the following at September 30, 2014 and December 31, 2013:
 
 
 
 
 
September 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
 
5,760

 
161,513

 
161,513

 

2018 Notes (c)
9.875%
 
Apr. 2018
 
12,602

 
403,996

 
400,000

 
400,000

Vehicle financings (d)
3.3%
 
Various
 

 
15,847

 
15,847

 
19,956

Total debt
 
 
 
 
$
18,362

 
$
581,356

 
577,360

 
555,946

Original issue discount (e)
 
 
 
 
 
 
 
 
(928
)
 
(1,084
)
Original issue premium (e)
 
 
 
 
 
 
 
 
271

 
315

Total debt, net
 
 
 
 
 
 
 
 
576,703

 
555,177

Less: current portion
 
 
 
 
 
 
 
 
(5,046
)
 
(5,464
)
Long-term portion of debt
 
 
 
 
 
 
 
 
$
571,657

 
$
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 September 30, 2014.
(c)
The interest rate presented represents the coupon rate on the Company’s 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%. Interest payments are due semi-annually in April and October.
(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 $0.5 million and $15.3 million, respectively, at September 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

14


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 Company’s 2018 Notes is based on quoted market prices as of September 30, 2014. The Company’s ABL Facility and vehicle financings bear interest at rates commensurate with market rates and therefore their respective carrying values approximate fair value.
Except as described below, there have been no material changes or developments in the Company’s debt and its principal terms, from Note 10 to the consolidated financial statements of the Company’s 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. 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 Company’s assets.
The terms of the ABL Facility limit the amount the Company can borrow up to the lesser of (a) $245.0 million or (b) 85% of the amount of the Company’s eligible accounts receivable plus the lower of (i) 95% of the net book value of the Company’s eligible rental equipment, tractors and trailers, and (ii) 85% of the appraised net orderly liquidation value of the Company’s eligible rental equipment, tractors and trailers, less any customary reserves. The borrowing base is evaluated monthly and was in excess of $245.0 million at September 30, 2014. The Company currently believes that eligible receivables and equipment will continue to support a borrowing base in excess of $245.0 million. 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 accrues on outstanding loans under the ABL Facility at a floating rate based on, at the Company’s election, (i) the greater of (a) the prime lending rate as publicly announced by Wells Fargo, (b) the Federal Funds rate plus 0.5% or (c) the one month LIBOR plus one percent, plus, in each case, 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 Company’s 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 in the ABL Facility), and is limited to 3.0 to 1.0. The Company’s $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 in the ABL Facility) less capital expenditures to fixed charges (as defined in the ABL Facility) to be at least 1.1 to 1.0. The senior leverage ratio and fixed charge coverage ratio covenants could have the effect of limiting the Company's availability under the ABL Facility, as additional borrowings would be prohibited if, after giving pro forma effect thereto, the Company would be in violation of either such covenant. While the Company has remained in compliance with its debt covenants, the senior leverage ratio has increased and the fixed charge coverage ratio has decreased in recent quarters, in part due to the Company's funding of certain growth investments in 2014, including an oilfield solids processing facility in the Rocky Mountain division.
Costs associated with the ABL Facility totaling approximately $3.6 million were capitalized as deferred financing costs in the nine months ended September 30, 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.

15


(9) Income Taxes
The following table shows the components of the income tax benefit for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Current income tax (expense) benefit
$
(341
)
 
$
(651
)
 
$
1,193

 
$
(846
)
Deferred income tax benefit
4,355

 
51,966

 
11,320

 
66,921

Total income tax benefit
$
4,014

 
$
51,315

 
$
12,513

 
$
66,075

The effective income tax benefit rate for the three and nine months ended September 30, 2014 was 3.9% and 8.4%, which differs from the federal statutory benefit rate of 35.0% primarily due to the impairment of goodwill and an increase in the valuation allowance on deferred tax assets. These items decreased the effective tax rate by 41.7% and 27.6%, respectively.
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.
In light of the Company’s continued losses, at June 30, 2014 the Company determined that its deferred tax liabilities (excluding deferred tax liabilities included in discontinued operations) were not sufficient to fully realize its deferred tax assets prior to the expiration of its NOLs, and accordingly, a valuation allowance was required against a portion of its deferred tax assets. Accordingly, the Company has recorded a valuation allowance of approximately $29.0 million as of September 30, 2014.
The effective income tax benefit rate for the three and nine months ended September 30, 2013 was 34.4% and 34.8% 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 $1.2 million and $2.8 million of out-of-period adjustments to deferred taxes associated with fixed assets, certain acquired intangible assets and net operating loss carryforwards.
(10) 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 nine months ended September 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 $0.7 million and $1.6 million for the nine months ended September 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 Company’s common shares at the date of grant. During the nine months ended September 30, 2014 the Company did not grant any restricted stock awards. During the nine months ended September 30, 2013, the Company awarded less than 0.1 million shares of restricted stock. During the nine months ended September 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 $0.6 million and approximately $1.4 million for the nine months ended September 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 Company’s common shares at the date of grant. During the nine months ended September 30, 2014 the Company granted 0.3 million restricted stock units. Stock-based compensation expense for grants of restricted stock units was $1.0 million for the nine months ended September 30, 2014 which is included in general and

16


administrative expenses in the accompanying condensed consolidated statements of operations. During the nine months ended September 30, 2013 the Company granted less than 0.1 million shares of restricted stock units and stock-based compensation expense for such grants was $0.3 million for the nine months ended September 30, 2013.
(11) 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 Company’s continuing operations are 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. The Company has 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 Company’s 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 Company’s 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 Company’s compliance with environmental laws and regulations. The condensed consolidated balance sheets at September 30, 2014 and December 31, 2013 included accruals totaling $1.1 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 Company’s potential liability. Litigation is inherently unpredictable, however, and it is possible that the Company’s 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

17


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, which amount was subsequently reduced to $163.8 million by the Dimmit County court when the judgment was entered 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. 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 Company’s insurer. The amount of the total settlement payment is confidential pursuant to the settlement agreements. These settlement agreements include all plaintiffs and the Company’s 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 totaling $6.8 million in the three months ended June 30, 2014 consisting of $5.5 million for the settlement payments, which were subsequently paid in the three months ended September 30, 2014, 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 became effective on August 27, 2014. Pursuant to the court’s 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 were deposited into escrow on August 22, 2014. To 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. Due to a decrease in the Company's stock price at the time the settlement shares were issued, the Company recorded an adjustment of $3.7 million to reduce the accrued liability (Note 7).
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 Company’s 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. The motion is fully briefed and awaiting the Court’s decision. While the Company continues to assess these claims, the Company believes they are without merit. The Company will continue to vigorously defend itself and the individual defendants in this action.
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

18


Company’s 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. On September 15, 2014, the Court dismissed the consolidated cases following its dismissal of the consolidated complaint and plaintiffs' failure to amend. Also in October 2013, two identical shareholder derivative lawsuits were commenced in Arizona state court against us and certain of the Company’s 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. On July 22, 2014, the parties filed a joint stipulation to dismiss these cases with prejudice, which was granted by the Court on August 1, 2014, and no settlement payment was made.
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.
(12) Related Party and Affiliated Company Transactions
Except as described in the following paragraph, there have been no significant changes to the related party transactions with Richard J. Heckmann, the former Executive Chairman of the Company’s board of directors, and Mark D. Johnsrud, the Company’s Chief Executive Officer and Chairman of the Company’s 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 Company’s saltwater disposal wells are situated as described in Note 18 to the consolidated financial statements included in the Company’s 2013 Annual Report on Form 10-K.
During the three months ended September 30, 2014, the aircraft lease with an entity controlled by Mr. Heckmann was terminated and replaced with a new aircraft lease with an entity owned by Mr. Johnsrud and Heckmann Enterprises, Inc. (of which Mr. Heckmann is the controlling shareholder) under substantially the same economic and other terms.
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.
(13) 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. As described previously, during the three months ended September 30, 2014 the Company completed the organizational realignment of its Shale Solutions business into three operating divisions, which the Company considers to be operating and reportable segments of its continuing operations: (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. Corporate/Other includes certain corporate costs and losses from discontinued operations, as well as assets held for sale and certain other corporate assets.

19


Financial information for the Company’s reportable segments related to continuing operations is presented below, including the Company's historical summary financial information for the three and nine months ended September 30, 2013 and as of December 31, 2013 which has been recast to conform to the new segment presentation.
 
Northeast
 
Southern
 
Rocky Mountain
 
Corporate/ Other
 
Total
Three months ended September 30, 2014
 
 
 
 
 
 
 
 
 
Revenue
$
25,759

 
$
26,288

 
$
87,596

 
$

 
$
139,643

(Loss) income from continuing operations before income taxes
(33,996
)
 
(68,609
)
 
14,220

 
(15,047
)
 
(103,432
)
Nine months ended September 30, 2014
 
 
 
 
 
 
 
 
 
Revenue
67,418

 
80,120

 
246,981

 

 
394,519

(Loss) income from continuing operations before income taxes
(39,863
)
 
(80,038
)
 
32,807

 
(61,473
)
 
(148,567
)
As of September 30, 2014
 
 
 
 
 
 
 
 
 
Total assets excluding those applicable to discontinued operations  (a)
99,231

 
176,974

 
763,635

 
47,070

 
1,086,910

Total assets held for sale

 

 

 
148,500

 
148,500

Three months ended September 30, 2013
 
 
 
 
 
 
 
 
 
Revenue
28,205

 
28,724

 
74,875

 

 
131,804

(Loss) income from continuing operations before income taxes
(353
)
 
(113,924
)
 
4,301

 
(39,337
)
 
(149,313
)
Nine months ended September 30, 2013
 
 
 
 
 
 
 
 
 
Revenue
73,506

 
100,483

 
223,439

 

 
397,428

Income (loss) from continuing operations before income taxes
1,501

 
(128,568
)
 
18,480

 
(81,156
)
 
(189,743
)
As of December 31, 2013 (unaudited)
 
 
 
 
 
 
 
 
 
Total assets excluding those applicable to discontinued operations  (a)
136,235

 
241,937

 
772,536

 
71,305

 
1,222,013

Total assets held for sale

 

 

 
188,750

 
188,750

(a)    Total assets exclude intercompany receivables eliminated in consolidation.
(14) 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 Company’s 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 equity of TFI 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 of the transaction. In August 2014, the agreement with VeroLube was terminated pursuant to the terms of the agreement. Subsequent to the termination of the VeroLube agreement, the Company engaged in negotiations with other potential acquirers. Although the Company has not yet entered into a definitive agreement with any such prospective purchaser, on September 24, 2014, Nuverra entered into a non-binding letter of intent for the sale of 100% of the equity of TFI to a new prospective acquirer in exchange for a combination of cash and common stock of the acquirer. Closing of a transaction would be contingent upon various conditions including execution of definitive transaction documentation, purchaser due diligence, purchaser obtaining the necessary financing and various other matters.
The September 24, 2014 letter of intent for the proposed sale is for an amount that is below the carrying value of TFI's net assets. Based on the letter of intent and subsequent negotiations with the prospective purchaser, TFI recorded a charge of approximately $49.0 million, reducing the estimated net recoverable value of its net assets to approximately $103.7 million at September 30, 2014. The estimated net recoverable value was determine based on Level 2 and Level 3 inputs with respect to the value of the common stock of the prospective acquirer using an average of recent closing prices and adjusted for certain discounts. The charge was primarily related to a further reduction of goodwill in the amount of $45.5 million as well as estimated additional transaction costs related to the sale. The Company is in the process of negotiating definitive transaction documentation with the proposed purchaser, which may result in modifications to the final transaction terms (including, but not limited to, the amount and form of consideration to be paid by the prospective purchaser). To the extent that the final net sale

20


proceeds are less than the carrying value of TFI at the end of future reporting periods or at the time of sale, additional write-downs may be required.
There have been no changes in the Company's previously-announced plans to divest TFI and in light of the active sales process and discussions with the prospective purchaser, the Company continues to classify TFI as discontinued operations in its condensed consolidated statements of operations for the three and nine months ended September 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 Company’s condensed consolidated balance sheets at September 30, 2014 and December 31, 2013.
The following table provides selected financial information of discontinued operations related to TFI:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Revenue
$
30,852

 
$
30,802

 
$
88,256

 
$
90,167

Loss from discontinued operations before income taxes
$
(45,897
)
 
$
(99,340
)
 
$
(42,320
)
 
$
(98,394
)
Income tax benefit (expense)
329

 
3,600

 
(1,336
)
 
2,843

Loss from discontinued operations
$
(45,568
)
 
$
(95,740
)
 
$
(43,656
)
 
$
(95,551
)
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 September 30, 2014 and December 31, 2013 are as follows:
 
September 30,
 
December 31,
 
2014
 
2013
Assets:
 
 
 
Cash and cash equivalents
$
3,140

 
$
429

Accounts receivable, net
15,832

 
15,620

Inventories, net
2,354

 
2,328

Prepaid expenses and other receivables
3,517

 
2,475

Other current assets
165

 
594

Total current assets held for sale
25,008

 
21,446

Property, plant and equipment, net
28,020

 
26,369

Intangible assets, net
92,935

 
92,935

Goodwill
2,537

 
48,000

Total long-term assets held for sale
123,492

 
167,304

Total assets held for sale
$
148,500

 
$
188,750

Liabilities:
 
 
 
Accounts payable
$
6,281

 
$
6,625

Accrued expenses
6,719

 
2,676

Total current liabilities of discontinued operations
13,000

 
9,301

Long-term liabilities of discontinued operations - deferred income taxes
31,808

 
32,389

Total liabilities of discontinued operations
44,808

 
41,690

Net assets held for sale
$
103,692

 
$
147,060


(15) Subsidiary Guarantors
The obligations of the Company under the 2018 Notes are jointly and severally, fully and unconditionally guaranteed by certain of the Company’s 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;

21


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 Company’s 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.
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 September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013. These condensed consolidating financial statements have been prepared from the Company’s financial information on the same basis of accounting as the Company’s condensed consolidated financial statements. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions.

22


UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2014
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiary
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,046

 
$
(736
)
 
$
904

 
$

 
$
2,214

Restricted cash

 
112

 

 

 
112

Accounts receivable, net

 
105,756

 
541

 

 
106,297

Deferred income taxes
15,183

 
3,767

 

 

 
18,950

Other current assets
1,337

 
8,593

 
29

 

 
9,959

Current assets held for sale

 
25,008

 

 

 
25,008

Total current assets
18,566

 
142,500

 
1,474

 

 
162,540

Property, plant and equipment, net
3,357

 
468,299

 
10,746

 

 
482,402

Equity investments
574,529

 
649

 

 
(571,360
)
 
3,818

Intangible assets, net

 
135,268

 
1,188

 

 
136,456

Goodwill

 
307,980

 

 

 
307,980

Other
433,628

 
11,459

 

 
(426,365
)
 
18,722

Long-term assets held for sale

 
123,492

 

 

 
123,492

TOTAL ASSETS
$
1,030,080

 
$
1,189,647

 
$
13,408

 
$
(997,725
)
 
$
1,235,410

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,990

 
$
19,404

 
$
111

 
$

 
$
21,505

Accrued expenses
29,633

 
28,689

 
151

 

 
58,473

Current portion of contingent consideration

 
10,034

 

 

 
10,034

Current portion of long-term debt

 
5,046

 
10,693

 

 
15,739

Current liabilities of discontinued operations

 
13,000

 

 

 
13,000

Total current liabilities
31,623

 
76,173

 
10,955

 

 
118,751

Deferred income taxes
(50,406
)
 
70,947

 

 

 
20,541

Long-term portion of debt
560,855

 
10,802

 

 

 
571,657

Long-term portion of contingent consideration

 
1,484

 

 

 
1,484

Other long-term liabilities
718

 
429,064

 
462

 
(426,365
)
 
3,879

Long-term liabilities of discontinued operations

 
31,808

 

 

 
31,808

Total shareholders' equity
487,290

 
569,369

 
1,991

 
(571,360
)
 
487,290

TOTAL LIABILITIES AND EQUITY
$
1,030,080

 
$
1,189,647

 
$
13,408

 
$
(997,725
)
 
$
1,235,410


23


CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2013
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiary
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
3,839

 
$
3,201

 
$
1,743

 
$

 
$
8,783

Restricted cash

 
110

 

 

 
110

Accounts receivable, net

 
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
 
 
 
 
 
 
 
 
 
Accounts payable
$
3,784

 
$
27,850

 
$
1,595

 
$

 
$
33,229

Accrued expenses
43,274

 
19,941

 
216

 

 
63,431

Current portion of contingent 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


24


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2014
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiary
 
Eliminations
 
Consolidated
Revenue
$

 
$
138,766

 
$
877

 
$

 
$
139,643

Costs and expenses:
 
 
 
 
 
 
 
 
 
Direct operating expenses

 
96,532

 
505

 

 
97,037

General and administrative expenses
2,596

 
8,471

 
35

 

 
11,102

Depreciation and amortization
171

 
21,178

 
236

 

 
21,585

Impairment of goodwill

 
90,044

 
10,672

 

 
100,716

Total costs and expenses
2,767

 
216,225

 
11,448

 

 
230,440

(Loss) income from operations
(2,767
)
 
(77,459
)
 
(10,571
)
 

 
(90,797
)
Interest expense, net
(12,273
)
 
(385
)
 
(298
)
 

 
(12,956
)
Other income, net

 
321

 

 

 
321

(Loss) income from equity investments
(126,603
)
 

 

 
126,603

 

(Loss) income from continuing operations before income taxes
(141,643
)
 
(77,523
)
 
(10,869
)
 
126,603

 
(103,432
)
Income tax (expense) benefit
(3,343
)
 
7,357

 

 

 
4,014

(Loss) income from continuing operations
(144,986
)
 
(70,166
)
 
(10,869
)
 
126,603

 
(99,418
)
Loss from discontinued operations, net of income taxes

 
(45,568
)
 

 

 
(45,568
)
Net (loss) income attributable to common stockholders
$
(144,986
)
 
$
(115,734
)
 
$
(10,869
)
 
$
126,603

 
$
(144,986
)

THREE MONTHS ENDED SEPTEMBER 30, 2013
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiary
 
Eliminations
 
Consolidated
Revenue
$

 
$
129,547

 
$
2,257

 
$

 
$
131,804

Costs and expenses:
 
 
 
 
 
 
 
 
 
Direct operating expenses

 
96,361

 
677

 

 
97,038

General and administrative expenses
22,001

 
12,229

 
26

 

 
34,256

Depreciation and amortization
214

 
23,356

 
197

 

 
23,767

Impairment of goodwill

 
108,401

 

 

 
108,401

Total costs and expenses
22,215

 
240,347

 
900

 

 
263,462

(Loss) income from operations
(22,215
)
 
(110,800
)
 
1,357

 

 
(131,658
)
Interest expense, net
(12,823
)
 
(340
)
 
(296
)
 

 
(13,459
)
Other expense, net
(4,299
)
 
(80
)
 

 

 
(4,379
)
(Loss) income from equity investments
(168,184
)
 
183

 

 
168,184

 
183

(Loss) income from continuing operations before income taxes
(207,521
)
 
(111,037
)
 
1,061

 
168,184

 
(149,313
)
Income tax benefit
13,783

 
37,532

 

 

 
51,315

(Loss) income from continuing operations
(193,738
)
 
(73,505
)
 
1,061

 
168,184

 
(97,998
)
Loss from discontinued operations, net of income taxes

 
(95,740
)
 

 

 
(95,740
)
Net (loss) income attributable to common stockholders
$
(193,738
)
 
$
(169,245
)
 
$
1,061

 
$
168,184

 
$
(193,738
)


25


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2014
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiary
 
Eliminations
 
Consolidated
Revenue
$

 
$
392,536