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EX-31.2 - EXHIBIT 31.2 - Nuverra Environmental Solutions, Inc.nes_20150930xex312.htm
EX-32.1 - EXHIBIT 32.1 - Nuverra Environmental Solutions, Inc.nes_20150930xex321.htm
EX-31.1 - EXHIBIT 31.1 - Nuverra Environmental Solutions, Inc.nes_20150930xex311.htm



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, 2015
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 October 30, 2015 was 28,100,416.




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, or the “Securities Act,” and Section 21E of the United States Securities Exchange Act of 1934, as amended, or 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; 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, changes in commodity prices or general market conditions, 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;
risks associated with our capital structure, including our ability to access necessary funding under our existing or future credit facilities, which is subject to restrictive covenants and other contractual and borrowing base limitations, and to generate sufficient operating cash flow to meet our debt service obligations;
risks associated with the maturity of our indebtedness, including our ability to pay our indebtedness when it becomes due or refinance our indebtedness on acceptable terms, or at all;
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, joint venture partners, financing sources and other parties;
our ability to attract, motivate and retain key executives and qualified employees in key areas of our business;
fluctuations in prices, transportation costs and demand for commodities such as oil and natural gas;
changes in customer drilling, completion and production 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, solids and liquids treatment assets, landfills and pipelines, including access to additional locations and 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;
risks associated with new technologies and the impact on our business;

3


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;
the impact of changes in laws and regulation on waste management and disposal activities, including those impacting the delivery, storage, collection, transportation treatment and disposal of waste products, as well as the use or reuse of recycled or treated products or byproducts;
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 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.

 

4


PART I—FINANCIAL INFORMATION
Item  1.
Financial Statements.
NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
September 30,
 
December 31,
 
2015
 
2014
 
(Unaudited)
 
(Note 1)
Assets
 
 
 
Cash and cash equivalents
$
49,387

 
$
13,367

Restricted cash
4,250

 
114

Accounts receivable, net of allowance for doubtful accounts of $4.7 and $7.6 million at September 30, 2015 and December 31, 2014, respectively
50,523

 
108,813

Inventories
2,933

 
4,413

Prepaid expenses and other receivables
5,213

 
4,147

Deferred income taxes
3,172

 
3,179

Other current assets
152

 
173

Current assets held for sale

 
20,466

Total current assets
115,630

 
154,672

Property, plant and equipment, net of accumulated depreciation of $190.0 and $155.8 million at September 30, 2015 and December 31, 2014, respectively
432,310

 
475,982

Equity investments
3,777

 
3,814

Intangibles, net
17,667

 
19,757

Goodwill

 
104,721

Other assets
13,250

 
17,688

Long-term assets held for sale

 
94,938

Total assets
$
582,634

 
$
871,572

Liabilities and Equity
 
 
 
Accounts payable
$
8,999

 
$
18,859

Accrued liabilities
40,668

 
43,395

Current portion of contingent consideration
8,770

 
9,274

Current portion of long-term debt
7,238

 
4,863

Financing obligation to acquire non-controlling interest

 
11,000

Current liabilities of discontinued operations

 
8,802

Total current liabilities
65,675

 
96,193

Deferred income taxes
3,462

 
3,448

Long-term portion of debt
514,590

 
592,455

Long-term portion of contingent consideration

 
550

Other long-term liabilities
3,770

 
3,874

Long-term liabilities of discontinued operations

 
22,105

Total liabilities
587,497

 
718,625

Commitments and contingencies

 

Common stock
30

 
29

Additional paid-in capital
1,369,447

 
1,365,537

Treasury stock
(19,799
)
 
(19,651
)
Accumulated deficit
(1,354,541
)
 
(1,192,968
)
Total equity of Nuverra Environmental Solutions, Inc.
(4,863
)
 
152,947

Total liabilities and equity
$
582,634

 
$
871,572

The accompanying notes are an integral part of these statements.
 

5


NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Non-rental revenue
$
71,000

 
$
122,474

 
$
263,540

 
$
339,617

Rental revenue
5,528

 
17,169

 
24,527

 
54,902

Total revenue
76,528

 
139,643

 
288,067

 
394,519

Costs and expenses:
 
 
 
 
 
 
 
Direct operating expenses
62,482

 
98,791

 
222,055

 
289,125

General and administrative expenses
8,705

 
9,348

 
31,102

 
48,600

Depreciation and amortization
16,687

 
21,585

 
52,465

 
63,866

    Impairment of goodwill
104,721

 
100,716

 
104,721

 
100,716

Other, net
2

 

 
1,114

 

Total costs and expenses
192,597

 
230,440

 
411,457

 
502,307

Operating loss
(116,069
)
 
(90,797
)
 
(123,390
)
 
(107,788
)
Interest expense, net
(12,097
)
 
(12,956
)
 
(37,137
)
 
(37,975
)
Other income, net
22

 
321

 
743

 
373

Loss on extinguishment of debt

 

 
(1,011
)
 
(3,177
)
Loss from continuing operations before income taxes
(128,144
)
 
(103,432
)
 
(160,795
)
 
(148,567
)
Income tax benefit
31

 
4,014

 
40

 
12,513

Loss from continuing operations
(128,113
)
 
(99,418
)
 
(160,755
)
 
(136,054
)
Income (loss) from discontinued operations, net of income taxes
350

 
(45,568
)
 
(818
)
 
(43,656
)
Net loss attributable to common stockholders
$
(127,763
)
 
$
(144,986
)
 
$
(161,573
)
 
$
(179,710
)
 
 
 
 
 
 
 
 
Net loss per common share attributable to common stockholders:
 
 
 
 
 
 
 
Basic and diluted loss from continuing operations
$
(4.61
)
 
$
(3.73
)
 
$
(5.82
)
 
$
(5.28
)
Basic and diluted income (loss) from discontinued operations
0.01

 
(1.71
)
 
(0.03
)
 
(1.70
)
Net loss per basic and diluted common share
$
(4.60
)
 
$
(5.44
)
 
$
(5.85
)
 
$
(6.98
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding used in computing net loss per basic and diluted common share
27,807

 
26,665

 
27,634

 
25,742

The accompanying notes are an integral part of these statements.


6


NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(161,573
)
 
$
(179,710
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
   (Income) loss from discontinued operations, net of income taxes
(906
)
 
43,656

   Loss on the sale of TFI
1,724

 

   Depreciation and amortization of intangible assets
52,465

 
63,866

   Amortization of deferred financing costs and debt discounts, net
3,638

 
2,930

   Stock-based compensation
1,858

 
2,305

   Impairment of goodwill
104,721

 
100,716

   Gain on disposal of property, plant and equipment
(1,198
)
 
(4,752
)
   Bad debt expense
(695
)
 
2,464

   Loss on extinguishment of debt
1,011

 
3,177

   Deferred income taxes
21

 
(11,320
)
   Other, net
364

 
1,555

   Changes in operating assets and liabilities:
 
 
 
      Accounts receivable
58,985

 
(21,675
)
      Prepaid expenses and other receivables
(1,294
)
 
5,309

      Accounts payable and accrued liabilities
(4,805
)
 
5,859

      Other assets and liabilities, net
1,342

 
(1,435
)
Net cash provided by operating activities from continuing operations
55,658

 
12,945

Net cash (used in) provided by operating activities from discontinued operations
(708
)
 
4,754

Net cash provided by operating activities
54,950

 
17,699

Cash flows from investing activities:
 
 
 
   Proceeds from the sale of TFI
78,897

 

   Proceeds from the sale of property, plant and equipment
12,339

 
9,295

   Purchases of property, plant and equipment
(16,564
)
 
(43,018
)
   Increase in restricted cash
(4,250
)
 

Net cash provided by (used in) investing activities from continuing operations
70,422

 
(33,723
)
Net cash used in investing activities from discontinued operations
(181
)
 
(2,043
)
Net cash provided by (used) in investing activities
70,241

 
(35,766
)
Cash flows from financing activities:
 
 
 
   Proceeds from revolving credit facility

 
68,725

   Payments on revolving credit facility
(81,647
)
 
(48,700
)
   Payments for deferred financing costs

 
(796
)
   Payments on vehicle financing and other financing activities
(9,468
)
 
(5,020
)
Net cash (used in) provided by financing activities from continuing operations
(91,115
)
 
14,209

Net cash used in financing activities from discontinued operations
(105
)
 

Net cash (used in) provided by financing activities
(91,220
)
 
14,209

Net increase (decrease) in cash and cash equivalents
33,971

 
(3,858
)
Cash and cash equivalents - beginning of period
15,416

 
9,212

Cash and cash equivalents - end of period
49,387

 
5,354

Less: cash and cash equivalents of discontinued operations - end of period

 
3,140

Cash and cash equivalents of continuing operations - end of period
$
49,387

 
$
2,214

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
   Cash paid for interest
$
22,775

 
$
20,611

   Cash paid for taxes, net
281

 
115


The accompanying notes are an integral part of these statements.
 

7


NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying condensed consolidated financial statements of Nuverra Environmental Solutions, Inc. and its subsidiaries (collectively, “Nuverra,” the “Company,” “we,” “us,” or “our”) are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). Our condensed consolidated balance sheet as of December 31, 2014, included herein, has been derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (or "GAAP"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In our opinion, the condensed consolidated financial statements include the normal, recurring adjustments necessary for the fair statement of the results for the interim periods. These financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, contained in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 16, 2015.
All dollar and share amounts in the footnote tabular presentations are in thousands, except per share amounts and unless otherwise noted. Unless stated otherwise, any reference to statement of operations items in these accompanying condensed consolidated financial statements refers to results from continuing operations.
Reclassifications
Certain reclassifications and adjustments have been made to prior period amounts in the accompanying condensed consolidated statements of operations and cash flows and notes thereto in order to conform to the current year’s presentation including:
Certain similar line items in the condensed consolidated statements of cash flows have been combined to present a more concise and easier to follow presentation.
As described in Note 14, we redefined our operating and reportable segments during the three months ended September 30, 2014. The prior year periods have been recast to conform to the current year segment presentation as we further refined our allocation methodology for the reportable segments since the initial change last year.
A portion of certain non-medical insurance costs previously presented as a component of “General and administrative expenses” in the condensed consolidated statement of operations have been re-allocated and are now included in the line item “Direct operating expenses” as we believe these costs are directly related to our operations. Such costs were approximately $1.8 million and $5.7 million for the three and nine months ended September 30, 2014.
In June 2015, we purchased the remaining interest in AWS, previously a 51% owned non-guarantor subsidiary, and have recast the tables in Note 16 to reflect AWS as a part of the Guarantor Subsidiaries as of December 31, 2014 and for the three and nine months ended September 30, 2014.
Significant Accounting Policies
There have been no material changes or developments in our significant accounting policies or evaluation of accounting estimates and underlying assumptions or methodologies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.
Note 2 - Recently Issued Accounting Pronouncements
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 is our reporting period starting January 1, 2017. We are reviewing the guidance in ASU 2014-09 and have not concluded the impact, if any, on our condensed consolidated financial statements and have not determined our method of adoption. However, based upon our preliminary assessment of ASU No. 2014-09, we do not believe the adoption of ASU 2014-09 will have a material impact on our condensed consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s

8


ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures than under today’s guidance. ASU 2014-15 is effective for fiscal years ending December 31, 2016, or our first quarter of 2017, with early adoption permitted. We are reviewing the guidance in ASU 2014-15 and evaluating the impact ASU 2014-15 may have on our condensed consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amends ASC Subtopic 835-30, Interest - Imputation of Interest.  The amendments in this ASU simplify the presentation of debt issuance costs and align the presentation with debt discounts. Entities will be required to present debt issuance costs as a direct deduction from the face amount of the related note, rather than as a deferred charge.  Upon adoption, the amended guidance will affect our classification of debt issuance costs, which are currently classified in "Other assets" in the condensed consolidated balance sheets.  The reclassification of debt issuance costs will effectively decrease "Other assets" and correspondingly decrease the respective long-term debt balances.  The amendments in this ASU require retrospective application, with related disclosures for a change in accounting principle.  Upon adoption, we will comply with these disclosure requirements by providing the nature and reason for the change, the transition method, a description of the adjusted prior period information and the effect of the change on the financial statement line items. For public business entities, the amendments in this ASU will be effective for financial statements issued for fiscal years beginning after December 15, 2015, and the interim periods within those fiscal years.  Early adoption is permitted; however, we expect to adopt this guidance at the beginning of 2016. Our total debt issuance costs as of September 30, 2015 were $12.9 million.
Note 3 - Earnings Per Common 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.
For the three and nine months ended September 30, 2015 and 2014, no shares of common stock underlying stock options, restricted stock, or other common stock equivalents were included in the computation of diluted earnings per common share ("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, 2015 and 2014, 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.
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,
 
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
Loss from continuing operations
(128,113
)
 
(99,418
)
 
(160,755
)
 
(136,054
)
Income (loss) from discontinued operations
350

 
(45,568
)
 
(818
)
 
(43,656
)
Net loss attributable to common stockholders
$
(127,763
)
 
$
(144,986
)
 
$
(161,573
)
 
$
(179,710
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average shares—basic
27,807

 
26,665

 
27,634

 
25,742

Common stock equivalents

 

 

 

Weighted average shares—diluted
27,807

 
26,665

 
27,634

 
25,742

 
 
 
 
 
 
 
 
Basic and diluted loss per common share from continuing operations
$
(4.61
)
 
$
(3.73
)
 
$
(5.82
)
 
$
(5.28
)
Basic and diluted income (loss) per common share from discontinued operations
0.01

 
(1.71
)
 
(0.03
)
 
(1.70
)
Net loss per basic and diluted common share
$
(4.60
)
 
$
(5.44
)
 
$
(5.85
)
 
$
(6.98
)
 
 
 
 
 
 
 
 
Anti-dilutive stock-based awards excluded
800

 
238

 
770

 
224


9


Note 4 - Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill were as follows:
Balance at December 31, 2014
$
104,721

Impairment (Note 5)
(104,721
)
Balance at September 30, 2015
$

As described in Note 5, the goodwill impairment relates to the Rocky Mountain division. As of September 30, 2015, there is no remaining goodwill on the condensed consolidated balance sheet.
Intangible Assets
Intangible assets consist of the following:
 
September 30, 2015
 
December 31, 2014
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Remaining Useful Life (Years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Remaining Useful Life (Years)
Customer relationships
$
11,731

 
$
(6,364
)
 
$
5,367

 
6.1
 
$
11,694

 
$
(5,133
)
 
$
6,561

 
6.6
Disposal permits
1,269

 
(410
)
 
859

 
5.4
 
1,269

 
(288
)
 
981

 
6.2
Customer contracts
17,352

 
(5,911
)
 
11,441

 
11.3
 
17,352

 
(5,137
)
 
12,215

 
12.0
 
$
30,352

 
$
(12,685
)
 
$
17,667

 
9.4
 
$
30,315

 
$
(10,558
)
 
$
19,757

 
9.9
The remaining weighted average useful lives shown are calculated based on the net book value and remaining amortization period of each respective intangible asset.
Note 5 - Impairment of Goodwill and Long-Lived Assets
Since late 2014, oil and gas prices have declined significantly to their lowest levels since 2009. As a result of the reduced price of oil and gas and the subsequent downturn in the oil and gas industry, we have experienced a decline in demand and pricing for our services. Additionally, similar to the market price of many others in our industry, the market price of our common stock has continued to decline. As a result of these factors, indicators of potential impairment existed as of September 30, 2015 for both goodwill and long-lived assets.
Goodwill
Goodwill is tested for impairment annually as of September 30th, or on an interim basis if events or circumstances indicate that the carrying value of goodwill may not be recoverable. 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. 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.
As of September 30, 2015, and prior to the goodwill impairment test, the entire goodwill balance of $104.7 million related to the Rocky Mountain division. Therefore, at September 30, 2015, we performed step one of the goodwill impairment test only for the Rocky Mountain division. To measure the fair value of the Rocky Mountain reporting unit, we used a combination of the discounted cash flow method and the guideline public company method. Based upon the results of the first step of the goodwill impairment test, we concluded that the fair value of the Rocky Mountain reporting unit was less than its carrying value, thereby requiring us to proceed to the second step of the goodwill impairment test. As part of the second step, we determined that for the Rocky Mountain reporting unit, the carrying value of the goodwill (or $104.7 million) exceeded the implied fair value of the reporting unit goodwill (or $0). Accordingly, during the three months ended September 30, 2015, we recognized an impairment charge of $104.7 million related to our Rocky Mountain division, thereby eliminating all remaining goodwill. This impairment charge is shown as "Impairment of goodwill" in the condensed consolidated statement of operations.
During the three months ended September 30, 2014, we recognized an impairment charge of $100.7 million related to our Southern ($66.9 million) and Northeast ($33.8 million) divisions, which is shown as "Impairment of goodwill" in the condensed consolidated statement of operations.

10


The fair values of each of the reporting units, as well as the related assets and liabilities utilized to determine both the 2015 and 2014 impairment, were measured using Level 2 and Level 3 inputs as described in Note 6.
Long-Lived Assets
Long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of such assets to the sum of the estimated undiscounted future cash flows expected to be generated by the assets. Cash flow estimates are based upon, among other things, historical results adjusted to reflect the best estimate of future market rates, utilization levels, and operating performance. Estimates of cash flows may differ from actual cash flows due to various factors, including changes in economic conditions or changes in an asset’s operating performance. Long-lived assets are grouped at the basin level for purposes of assessing their recoverability as we concluded that the basin level is the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. For assets that do not pass the recoverability test, the asset group's fair value is compared to the carrying amount.  If the asset group's fair value is less than the carrying amount, impairment losses are recorded for the amount by which the carrying amount of such assets exceeds the fair value. Our impairment review of our long-lived assets during the three months ended September 30, 2015, and September 30, 2014, concluded that the undiscounted cash flows of each asset group are greater than the carrying amount and thus were considered recoverable with no long-lived asset impairment present.
If reduced customer activity levels continue to result in decreased demand for our services for a prolonged period of time, or if we otherwise make further downward adjustments to our projections, our actual cash flows could be less than our estimated cash flows, which could result in future impairment charges for long-lived assets.

Note 6 - Fair Value Measurements
Measurements
Fair value represents an exit price 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 and the fair value hierarchy of the valuation techniques we utilized to determine such fair value included significant unobservable inputs (Level 3) and were as follows:
 
Fair Value
As of September 30, 2015
 
Assets - cost method investment
$
3,169

Liabilities:
 
Contingent consideration
8,770

Financing obligation to acquire non-controlling interest

 
 
As of December 31, 2014
 
Assets - cost method investment
$
3,169

Liabilities:
 
Contingent consideration
9,824

Financing obligation to acquire non-controlling interest
11,000



11


Contingent Consideration
We are liable for certain contingent consideration payments in connection with the performance of various acquisitions. The fair values of the contingent consideration obligations were determined using a probability-weighted income approach at the acquisition date and are 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 performance measurements upon which the obligations are based. Contingent consideration is reported as "Current portion of contingent consideration" and "Long-term portion of contingent consideration" in the condensed consolidated balance sheets. Changes to the fair value of contingent consideration are recorded as "Other income, net" in the 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 nine months ended September 30, 2015 and the year ended December 31, 2014 were as follows:
 
September 30, 2015
 
December 31, 2014
Balance at beginning of period
$
9,824

 
$
15,457

Accretion

 
476

Cash payments
(909
)
 
(1,014
)
Issuances of stock

 
(3,789
)
Changes in fair value of contingent consideration, net
(145
)
 
(1,306
)
Balance at end of period
8,770

 
9,824

Less: current portion
(8,770
)
 
(9,274
)
Long-term portion of contingent consideration
$

 
$
550

Financing Obligation to Acquire Non-Controlling Interest
The fair value of the financing obligation to acquire non-controlling interest represents the present value of our 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 our common stock. The non-controlling interest holder had a put option to sell the remaining 49% to us under the same terms beginning in January 2015. In January 2015, the non-controlling interest holder provided notice that they were exercising such put option. In June 2015, we purchased the remaining interest in AWS with a $4.0 million cash payment, included as a component of "Payments on vehicle financing and other financing activities" in our condensed consolidated statements of cash flows, and $7.4 million note payable with principal and interest due in equal quarterly installments through April 2019. If we fail to meet the payment terms of this obligation, or if any other event of default occurs, all remaining outstanding balances on the note payable would become immediately due and payable.  If such an acceleration were to occur, we would request a waiver from the non-controlling interest holder, but there can be no assurance that such waiver would be forthcoming or that we would have sufficient available liquidity to make any required repayment.
Other
In addition to our assets and liabilities that are measured at fair value on a recurring basis, we are 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 our impairment review of long-lived assets, we measure the fair value of our 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 our goodwill impairment review, we measure the fair value of our 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 our 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 our industry, and applies their trading multiples to our 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 our reporting units, considering their diversity, relative sizes and levels of complexity.

12


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 our estimates for liquidity risk.
Note 7 - Accrued Liabilities
Accrued liabilities consisted of the following at September 30, 2015 and December 31, 2014:
 
September 30, 2015
 
December 31, 2014
Accrued payroll and employee benefits
$
4,645

 
$
12,566

Accrued insurance
6,346

 
6,830

Accrued legal and environmental costs
1,097

 
1,421

Accrued taxes
2,372

 
1,477

Accrued interest
18,306

 
8,570

Amounts payable to related party (Note 13)

 
114

Accrued operating costs
4,794

 
5,685

Accrued other
3,108

 
6,732

Total accrued liabilities
$
40,668

 
$
43,395

Note 8 - Debt
Debt consisted of the following at September 30, 2015 and December 31, 2014:
 
 
 
 
 
September 30, 2015
 
December 31, 2014
 
Interest Rate
 
Maturity Date
 
Unamortized Deferred Financing Costs
 
Fair Value of Debt (f)
 
Carrying Value of Debt
 
Carrying Value of Debt
ABL Facility (a)
2.45%
 
Jan. 2018
 
$
3,354

 
$
101,832

 
$
101,832

 
$
183,065

2018 Notes (b)
9.875%
 
Apr. 2018
 
9,531

 
235,500

 
400,000

 
400,000

Vehicle financings (c)
3.86%
 
Various
 

 
13,498

 
13,498

 
14,872

Note payable (d)
4.25%
 
Apr. 2019
 

 
6,995

 
6,995

 

Total debt
 
 
 
 
$
12,885

 
$
357,825

 
522,325

 
597,937

Original issue discount (e)
 
 
 
 
 
 
 
 
(701
)
 
(874
)
Original issue premium (e)
 
 
 
 
 
 
 
 
204

 
255

Total debt, net
 
 
 
 
 
 
 
 
521,828

 
597,318

Less: current portion
 
 
 
 
 
 
 
 
(7,238
)
 
(4,863
)
Long-term portion of debt
 
 
 
 
 
 
 
 
$
514,590

 
$
592,455

_____________________
(a)
The interest rate presented represents the interest rate on the $195.0 million ABL Facility at September 30, 2015.
(b)
The interest rate presented represents the coupon rate on our 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.
(c)
Vehicle financings consist of installment notes payable and capital lease arrangements related to fleet purchases with a weighted-average annual interest rate of approximately 3.86% and which mature in varying installments between 2015 and 2017. Installment notes payable and capital lease obligations were zero and $13.5 million, respectively, at September 30, 2015 and were $0.3 million and $14.6 million, respectively, at December 31, 2014.
(d)
During the three months ended June 30, 2015, we settled our $11.0 million financing obligation to acquire the remaining 49% interest in AWS from the non-controlling interest holder with a $4.0 million cash payment and a $7.4 million note payable with principal and interest due in equal quarterly installments through April 2019.

13


(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 our 2018 Notes is based on quoted market prices as of September 30, 2015. Our ABL Facility and vehicle financings bear interest at rates commensurate with market rates and therefore their respective carrying values approximate fair value.
There have been no material changes or developments in our debt and principal terms, except as described below under ABL Facility Amendments, from Note 10 of our 2014 Annual Report on Form 10-K.
Indebtedness
We are highly leveraged and a substantial portion of our liquidity needs result from debt service requirements and from funding our costs of operations and capital expenditures, including acquisitions.
ABL Facility Amendments
In connection with the closing of the Thermo Fluids Inc. ("TFI") disposition, we entered into a Second Amendment, Consent and Release to Amended and Restated Credit Agreement (the “ABL Facility Amendment”), dated April 13, 2015, with Wells Fargo Bank, National Association, as agent, and the lenders named therein, which amends the ABL Facility. The ABL Facility Amendment reduced the maximum revolver availability from $245.0 million to $195.0 million and removed the accordion feature. Pricing of the ABL Facility remained the same other than corresponding changes reflecting the reduction of maximum revolver availability. The ABL Facility Amendment also reflects an updated appraisal for machinery and equipment that is used in the borrowing base formula. We did not incur any amendment fees associated with the ABL Facility Amendment. We wrote-off a portion of the unamortized deferred financing costs associated with our ABL Facility, or approximately $1.0 million in the three months ending June 30, 2015.
In May 2015, we entered into a Third Amendment, Consent and Release to Amended and Restated Credit Agreement for the purpose of adding four of our wholly-owned subsidiaries, consisting of Nuverra Rocky Mountain Pipeline, LLC, (or "RMP"), Nuverra Total Solutions, LLC, NES Water Solutions, LLC, and Heckmann Woods Cross, LLC (collectively, the “New Loan Parties”) to the Credit Facility Security Agreement as guarantors.

In November 2015, we entered into a Fourth Amendment, Consent and Release to Amended and Restated Credit Agreement (the "Fourth ABL Facility Amendment"). The Fourth ABL Facility Amendment reduced the maximum revolver availability from $195.0 million to $125.0 million, and institutes an 84% Eligible Equipment NOLV Advance Rate starting February 1, 2016, which falls 1% each month thereafter until the advance rate is reduced to 60%. In addition, the Fourth ABL Facility Amendment releases RMP from all obligations under the ABL Facility, including as guarantor and a grantor under the guaranty and security agreement to the ABL Facility, releases all liens on the assets of RMP and equity interests in RMP to the extent they are transferred to a third party investor and establishes a separate permitted investment basket allowing for additional aggregate investments of up to $5.0 million in RMP. The Fourth ABL Facility Amendment also reflects an updated appraisal for machinery and equipment that is used in the borrowing base formula beginning November 2, 2015. In connection with the Fourth ABL Facility Amendment we incurred consent fees and legal fees of approximately $0.3 million which will be added to deferred financing costs during the three months ended December 31, 2015. Further, we anticipate the write-off of a portion of the unamortized deferred financing costs associated with our ABL Facility, of approximately $1.1 million during the three months ended December 31, 2015. As of November 2, 2015, the date the Fourth ABL Facility Amendment was executed, we estimate our borrowing availability was less than $5 million, net of required reserves thereunder.
Financial Covenants and Borrowing Limitations
The ABL Facility, as amended, requires, and any future credit facilities will likely require, us to comply with specified financial ratios that may limit the amount we can borrow under our ABL Facility. A breach of any of the covenants under the indenture governing the 2018 Notes (the “Indenture”) or the ABL Facility, as applicable, could result in a default. Our ability to satisfy those covenants depends principally upon our ability to meet or exceed certain positive operating performance metrics including, but not limited to, earnings before interest, taxes, depreciation and amortization, or EBITDA, and ratios thereof, as well as certain balance sheet ratios. Any debt agreements we enter into in the future may further limit our ability to enter into certain types of transactions.
The ABL Facility contains certain financial covenants that require us to maintain a senior leverage ratio and, upon the occurrence of certain specified conditions, a fixed charge coverage ratio. The senior leverage ratio is calculated as the ratio of

14


senior secured debt to adjusted EBITDA (which includes net (loss) income plus certain items such as interest, taxes, depreciation, amortization, impairment charges, stock-based compensation and other adjustments as defined in the ABL Facility), and is limited to 3.0 to 1.0. Our $400.0 million of 2018 Notes and our note payable issued to acquire the remaining interest in AWS are not secured and thus are excluded from the calculation of this ratio. The fixed charge coverage ratio, which only applies if excess availability under the ABL Facility falls below 12.5% of the maximum revolver 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. The senior leverage ratio and fixed charge coverage ratio covenants could have the effect of limiting our availability under the ABL Facility, as additional borrowings would be prohibited if, after giving pro forma effect thereto, we would be in violation of either such covenant. As of September 30, 2015, we remained in compliance with our debt covenants and availability was $38.0 million; however, our ratio of adjusted EBITDA to fixed charges was less than 1.1 to 1.0 (as calculated pursuant to the ABL Facility). As such, our net availability was reduced by 12.5% of the maximum revolver amount, or $24.4 million, resulting in approximately $13.6 million of net availability as of September 30, 2015. In addition, although our ratio of senior secured debt to adjusted EBITDA was less than the maximum of 3.0 to 1.0 as of September 30, 2015, if future operating performance does not improve, we would exceed such limit during the first quarter of 2016, which would constitute an event of default. If such a violation were to occur, we would request a waiver from the lenders or may be required to repay the outstanding balance of the ABL Facility. Failure to obtain a waiver or cure the default through repayment of the facility would create an event of cross default with our senior unsecured notes. There can be no assurance that the lenders will grant a waiver, and we currently do not have sufficient liquidity, including cash on hand, to repay amounts outstanding under the ABL Facility in order to maintain compliance with such covenant.
The maximum amount we can borrow under our ABL Facility is subject to contractual and borrowing base limitations which could significantly and negatively impact our future access to capital required to operate our business. In addition to the financial covenants described above, the ABL Facility contains certain customary limitations on our 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 ABL Facility's borrowing base limitations are based upon eligible accounts receivable and equipment. If the value of our eligible accounts receivable or equipment decreases for any reason, or if some portion of our accounts receivable or equipment is deemed ineligible under the terms of its ABL Facility, the amount we can borrow under the ABL Facility could be reduced. These limitations could have a material adverse impact on our liquidity and financial condition. In addition, the administrative agent for our ABL Facility has the periodic right to perform an appraisal of the assets comprising our borrowing base. If an appraisal results in a reduction of the borrowing base, we may be required to repay a portion of the amount outstanding under the ABL Facility in order to remain in compliance with applicable borrowing limitations. There can be no assurance that we will have sufficient cash on hand or other sources of liquidity to make any such repayments.
The Indenture governing the 2018 Notes contains restrictive covenants on the incurrence of senior secured indebtedness, including incurring new borrowings under the ABL Facility, which would limit our ability to incur incremental new senior secured indebtedness in certain circumstances and access to capital if our fixed charge coverage ratio falls below 2.0 to 1.0. To the extent that the fixed charge coverage ratio (as defined in the Indenture) is below 2.0 to 1.0, the Indenture prohibits our incurrence of new senior secured indebtedness under the ABL Facility or any other secured credit facility, at that point in time, to the greater of $150.0 million and the amount of debt as restricted by the secured leverage ratio, which is the ratio of secured debt to EBITDA, of 2.0 to 1.0, as determined pursuant to the Indenture. The 2.0 to 1.0 fixed charge coverage ratio and secured leverage ratio are incurrence covenants, not maintenance covenants. The covenants do not require repayment of existing borrowings incurred previously in accordance with the covenants, but rather limits new borrowings during any such period. As a result of the Fourth ABL Facility Amendment, our ability to incur new borrowings under the ABL Facility is limited to a maximum of $125.0 million irrespective of the permitted availability of up to $150.0 million under the 2018 Notes.

The ABL Facility and Indenture covenants described above are subject to important exceptions and qualifications. The continued effect of low oil and natural gas prices will negatively impact our compliance with our covenants, and we cannot guarantee that we will satisfy those requirements. If we do not obtain a long term waiver, it would result in a default under the Indenture, ABL Facility or other debt obligations, or any future credit facilities we may enter into, which could allow all amounts outstanding thereunder to be declared immediately due and payable, subject to the terms and conditions of the documents governing such indebtedness. If we were unable to repay the accelerated amounts, our secured lenders could proceed against the collateral granted to them to secure such indebtedness. This would likely in turn trigger cross-acceleration and cross-default rights under any other credit facilities and Indentures. If the amounts outstanding under the 2018 Notes or any other indebtedness outstanding at such time were to be accelerated or were the subject of foreclosure actions, we cannot guarantee that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders.
We may also be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by such restrictive covenants. These restrictions may also limit our ability to plan for or react to market conditions, meet capital

15


needs or otherwise restrict our activities or business plans and adversely affect our ability to finance our operations, enter into acquisitions, execute its business strategy, effectively compete with companies that are not similarly restricted or engage in other business activities that would be in our interest. In the future, we may also incur debt obligations that might subject us to additional and different restrictive covenants that could affect our financial and operational flexibility. We cannot guarantee that we will be granted waivers or amendments to the Indenture governing the 2018 Notes, the ABL Facility or such other debt obligations if for any reason we are unable to comply with our obligations thereunder. Any such limitations on borrowing under our ABL Facility could have a material adverse impact on our liquidity.
Our ABL Facility and 2018 Notes come due in early 2018.  We may not have sufficient cash on hand to pay these debts when they come due under their normal maturity schedule.  Therefore, we may seek to refinance, extend or replace our ABL Facility and our 2018 Notes by borrowing debt, issuing securities in the capital markets, using cash on hand or from asset sales or any combination of the foregoing.  Any issuance of equity securities could be materially dilutive to existing stockholders. We cannot guarantee that we will be able to refinance, extend or replace our debt on acceptable terms, or at all, should we seek to do so.  If we are unable to refinance, extend or replace our debts at maturity or meet our payment obligations, our financial condition would be adversely affected.

Note 9 - Restructuring and Exit Costs
In March 2015, we initiated a plan to restructure our business in certain shale basins and reduce costs, including an exit from the Mississippian ("MidCon") shale area and the Tuscaloosa Marine Shale logistics business. Additionally, we closed certain yards within the Northeast and Southern divisions and transferred the related assets to our other operating locations, primarily in the Eagle Ford shale basin. Based on costs incurred in connection with the initial phases of the restructuring plan, we currently estimate the total costs of the plan to be approximately $1.2 million, of which $2.0 thousand and $1.1 million was recorded during the three and nine months ended September 30, 2015. Remaining costs are expected to be recorded in the fourth quarter of 2015 as they are incurred. The charges are characterized as "Other, net" in the accompanying condensed consolidated statements of operations for the three months and nine months ended September 30, 2015. Such costs consisted of the following:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2015
Severance and termination benefits
$
2

 
$
666

Contract termination costs and exit costs

 
448

Total restructuring and exit costs
$
2

 
$
1,114

Approximately $0.6 million, $0.1 million and $0.4 million of the total charge was recorded in the Southern, Northeast and Corporate operating segments, respectively. The liability totaled approximately $0.2 million as of September 30, 2015 and is included as "Accrued liabilities" in the condensed consolidated balance sheets. A rollforward of the restructuring and exit cost accruals through September 30, 2015 is as follows:
 
Employee Termination Costs (a)
 
Lease Exit Costs (b)
 
Other Exit Costs (c)
 
Total
Restructuring and exit costs accrued at December 31, 2014
$

 
$

 
$

 
$

Restructuring and exit-related costs
666

 
292

 
156

 
1,114

Cash payments
(663
)
 
(98
)
 
(148
)
 
(909
)
Restructuring and exit costs accrued at September 30, 2015
$
3

 
$
194

 
$
8

 
$
205

_____________________
(a)
Employee termination costs consist primarily of severance and related costs.
(b)
Lease exit costs consist primarily of costs that will continue to be incurred under non-cancellable operating leases for their remaining term without benefit to the Company.
(c)
Other exit costs include costs related to the movement of vehicles and rental fleet in connection with the exit from certain shale areas.

16


Note 10 - 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,
 
2015
 
2014
 
2015
 
2014
Current income tax benefit (expense)
$
51

 
$
(341
)
 
$
61

 
$
1,193

Deferred income tax (expense) benefit
(20
)
 
4,355

 
(21
)
 
11,320

Total income tax benefit
$
31

 
$
4,014

 
$
40

 
$
12,513

The effective income tax benefit rate for the three and nine months ended September 30, 2015 was near 0% which differs from the federal statutory benefit rate of 35.0% primarily due to the impact of the impairment of goodwill and the increase in the valuation allowance on deferred tax assets resulting from current year losses.
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 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.
We have significant deferred tax assets, consisting primarily of net operating losses (“NOLs”), which have a limited life, generally expiring between the years 2029 and 2035. We regularly assess 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 our continued losses, in 2014 we determined that our deferred tax liabilities (excluding deferred tax liabilities included in discontinued operations) were not sufficient to fully realize our deferred tax assets. Accordingly, a valuation allowance is required against the portion of our deferred tax assets that is not offset by deferred tax liabilities.
Note 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 Nuverra Environmental Solutions, Inc. 2009 Equity Incentive Plan (as amended, the “2009 Plan”).
The total grants awarded during the three and nine months ended September 30, 2015 and 2014 are presented in the table below:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Stock option grants
 
3

 
1

 
714

 
24

Restricted stock grants
 

 

 

 

Restricted stock unit grants
 
2

 
1

 
156

 
288

    Total grants under the 2009 Plan
 
5

 
2

 
870

 
312

The total stock-based compensation cost included in "General and administrative expenses" in the accompanying condensed consolidated statements of operations was as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Stock options
 
$
152

 
$
303

 
$
405

 
$
712

Restricted stock
 
102

 
224

 
305

 
616

Restricted stock units
 
88

 
371

 
1,148

 
977

     Total stock-based compensation expense
 
$
342

 
$
898

 
$
1,858

 
$
2,305


17


Note 12 - Legal Matters
Environmental Liabilities
We are 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. Our 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. 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.
We believe we are in material compliance with all applicable environmental protection laws and regulations in the United States and the states in which we operate. We believe that there are no unrecorded liabilities as of the periods reported herein in connection with our compliance with applicable environmental laws and regulations. The condensed consolidated balance sheets at September 30, 2015 and December 31, 2014 included accruals totaling $0.4 million and $0.7 million, respectively, for various environmental matters, including the estimated costs to comply with a Louisiana Department of Environmental Quality requirement that we 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 us, 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. We record 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.
We believe that we have valid defenses with respect to legal matters pending against us. Based on our experience, we also believe that the damage amounts claimed in the lawsuits disclosed below are not necessarily a meaningful indicator of our potential liability. Litigation is inherently unpredictable, and it is possible that our 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 us. We do not expect that the outcome of other current claims and legal actions not discussed below will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
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, which was then 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.

18


In June 2014, we 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, we 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 our insurer. The amount of the total settlement payment is confidential pursuant to the settlement agreements. These settlement agreements include all plaintiffs and our insurer and release us and all of our subsidiaries from all past and future claims or liabilities related to these matters. As a result of the settlement of these cases, we recorded expenses totaling $7.8 million during the year ended December 31, 2014, consisting of $5.5 million for the settlement payments and $2.3 million of additional related legal expenses. This case is now closed.
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 us and various of our 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, we reached an agreement in principle to settle this matter by entering into a Stipulation of Settlement with the plaintiffs, which resolved all claims asserted against us and the individual defendants in this case. Under the terms of the Stipulation of Settlement, which was subject to approval by the court, we agreed to a cash payment of $13.5 million, a portion of which came come from remaining insurance proceeds, as well as the issuance of 0.8 million shares of our common stock. We 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. We deposited into escrow in April 2014 the cash payments of $6.1 million, and the remaining $7.4 million funded from insurance proceeds. 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. On May 13, 2015 the court issued an order directing the distribution of the net settlement proceeds.
2013 Class Action
In September 2013, two separate but substantially-similar putative class action lawsuits were commenced in Federal court against us and certain of our current and former officers and directors alleging that we, along with the individual defendants, made certain material misstatements and/or omissions relating to our operations and financial condition which caused the price of our shares to fall. By order dated October 29, 2013, the two putative class actions were consolidated and a consolidated complaint was filed. Defendants filed a motion to dismiss these claims in May 2014, and such motion was granted by the Court on November 17, 2014, whereby the forgoing class action was dismissed without prejudice. Plaintiffs were permitted by the Court to file a motion to amend the complaint and did so on December 8, 2014. Defendants filed their opposition to plaintiffs' motion to amend the complaint on December 22, 2014. On March 12, 2015, the Court issued an order denying plaintiffs' motion to amend the complaint as to certain claims, but granting plaintiffs' motion as to other claims. Plantiffs filed an amended complaint on March 19, 2015, and on March 23, 2015 we filed a motion to dismiss the amended complaint for failure to comply with the court’s March 12, 2015 order. Both parties filed subsequent pleadings. On June 24, 2015, the Court granted our motion to dismiss plaintiffs' amended consolidated class action complaint and dismissed the case with prejudice. On July 24, 2015, plaintiffs filed a notice of appeal to the Ninth Circuit Court of Appeals. We believe these claims are without merit and we will continue to vigorously defend ourselves and the individual defendants in this action.
2013 Derivative Cases
In September and October 2013, three separate but substantially-similar shareholder derivative lawsuits were commenced in Federal court against us and certain of our current and former officers and directors alleging that members of our 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 our 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. In the first quarter of 2015, we received a written demand from one of the plaintiffs in the derivative lawsuits requesting that the board of directors commence an independent investigation of certain matters and take appropriate action to recover for us any damages to which we may be

19


entitled as a result of alleged breaches of fiduciary duties by certain of our current and former officers and directors. Such investigation has been commenced voluntarily by us and is ongoing.
AWS Arbitration Demand
On April 28, 2015, the holder of the non-controlling interest in AWS issued to us a Demand for Arbitration pursuant to the terms of the AWS operating agreement, relating to alleged breaches by us of certain of our obligations under the operating agreement. We entered into a settlement of this matter with the non-controlling interest holder in June 2015 whereby we purchased the remaining interest in AWS for $4.0 million in cash and a $7.4 million note payable with principal and interest due in equal quarterly installments through April 2019. If we fail to meet the payment terms of this obligation, or if any other event of default occurs, all remaining outstanding balances on the note payable would become immediately due and payable.  If such an acceleration were to occur, we would request a waiver from the non-controlling interest holder, but there can be no assurance that such waiver would be forthcoming or that we would have sufficient available liquidity to make any required repayment.
Note 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 our board of directors, and Mark D. Johnsrud, our Chief Executive Officer and Chairman of our board of directors, for the use of an aircraft, apartment rentals, purchases of fresh water for resale and use of land where certain of our saltwater disposal wells are situated as described in Note 18 to the consolidated financial statements in our 2014 Annual Report on Form 10-K.
Note 14 - Segments
We evaluate 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. During the three months ended September 30, 2014, we completed the organizational realignment of our shale solutions business into three operating divisions, which we consider to be operating and reportable segments of our 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.
As discussed in Note 9, in March of 2015, we initiated a plan to restructure our business in certain shale basins and reduce costs, including an exit from the Mississippian (or "MidCon") shale area. As a result, revenues for the MidCon shale area were included in the Southern division for the three months ended March 31, 2015, with minimal or no revenue activity in the three months ended June 30, 2015 and September 30, 2015. Costs associated with revenue generating activities of the MidCon shale area were included in the Southern division for the three months ended March 31, 2015. As a result of our restructuring in the MidCon, some remaining operating expenses for shut-down activities, as well as depreciation and amortization, were included in the Southern division during the three months ended June 30, 2015 and September 30, 2015.
Financial information for our reportable segments related to continuing operations is presented below, including our historical summary financial information for the three and nine months ended September 30, 2014, which has been recast to conform to the new segment presentation.

20


 
Rocky Mountain
 
Northeast
 
Southern
 
Corporate/ Other
 
Total
Three months ended September 30, 2015
 
 
 
 
 
 
 
 
 
Revenue
$
41,325

 
$
19,825

 
$
15,378

 
$

 
$
76,528

Direct operating expenses
30,938

 
16,414

 
15,130

 

 
62,482

General and administrative expenses
1,823

 
791

 
703

 
5,388

 
8,705

Depreciation and amortization
8,553

 
4,041

 
3,985

 
108

 
16,687

Operating loss
(104,710
)
 
(1,421
)
 
(4,441
)
 
(5,497
)
 
(116,069
)
Loss from continuing operations before income taxes
(104,811
)
 
(1,569
)
 
(4,474
)
 
(17,290
)
 
(128,144
)
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
Revenue
158,336

 
74,549

 
55,182

 

 
288,067

Direct operating expenses
115,470

 
59,906

 
46,679

 

 
222,055

General and administrative expenses
5,201

 
3,716

 
4,000

 
18,185

 
31,102

Depreciation and amortization
26,091

 
12,028

 
13,828

 
518

 
52,465

Operating loss
(93,147
)
 
(1,224
)
 
(9,923
)
 
(19,096
)
 
(123,390
)
Loss from continuing operations before income taxes
(92,909
)
 
(1,756
)
 
(10,037
)
 
(56,093
)
 
(160,795
)
 
 
 
 
 
 
 
 
 
 
As of September 30, 2015
 
 
 
 
 
 
 
 
 
Total assets excluding those applicable to discontinued operations  (a)
278,970

 
83,320

 
141,725

 
78,619

 
582,634

Total assets held for sale

 

 

 

 

 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2014
 
 
 
 
 
 
 
 
 
Revenue
87,596

 
25,759

 
26,288

 

 
139,643

Direct operating expenses
57,429

 
20,419

 
20,943

 

 
98,791

General and administrative expenses
2,955

 
1,563

 
2,226

 
2,604

 
9,348

Depreciation and amortization
13,100

 
3,863

 
4,451

 
171

 
21,585

Operating income (loss)
14,112

 
(33,917
)
 
(68,217
)
 
(2,775
)
 
(90,797
)
Income (loss) from continuing operations before income taxes
14,220

 
(33,996
)
 
(68,609
)
 
(15,047
)
 
(103,432
)
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2014
 
 
 
 
 
 
 
 
 
Revenue
246,981

 
67,418

 
80,120

 

 
394,519

Direct operating expenses
168,028

 
55,277

 
65,820

 

 
289,125

General and administrative expenses
7,554

 
7,847

 
11,597

 
21,602

 
48,600

Depreciation and amortization
38,534

 
11,691

 
13,143

 
498

 
63,866

Operating income (loss)
32,865

 
(41,227
)
 
(77,326
)
 
(22,100
)
 
(107,788
)
Income (loss) from continuing operations before income taxes
32,807

 
(39,885
)
 
(80,016
)
 
(61,473
)
 
(148,567
)
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
 
 
 
 
Total assets excluding those applicable to discontinued operations  (a)
442,784

 
102,593

 
168,191

 
42,600

 
756,168

Total assets held for sale

 

 

 
115,404

 
115,404

_____________________
(a)    Total assets exclude intercompany receivables eliminated in consolidation.

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Note 15 - Assets Held for Sale and Discontinued Operations
Our former industrial solutions operating and reportable segment, TFI, has been classified as discontinued operations since the sale process with various prospective acquirers began in fourth quarter of 2013. In February, 2015, we entered into a definitive agreement with Safety-Kleen, Inc. ("Safety-Kleen"), a subsidiary of Clean Harbors, Inc., whereby Safety-Kleen agreed to acquire TFI for $85.0 million in an all-cash transaction, subject to working capital adjustments.
On April 11, 2015, we completed the TFI disposition with Safety-Kleen as contemplated by the previously disclosed purchase agreement. Pursuant to the purchase agreement, $4.25 million of the purchase price was deposited into an escrow account to satisfy our indemnification obligations under the purchase agreement and is captured as "Restricted cash" in our condensed consolidating balance sheet. Any remaining balance in the escrow account will be released to us 18 months following the closing date. Pursuant to the purchase agreement, the purchase price paid at closing was adjusted based upon an estimated working capital adjustment, which is subject to post-closing reconciliation, to reflect TFI’s actual working capital (calculated in accordance with the purchase agreement) on the closing date. After giving effect to the indemnity escrow, the estimated working capital adjustment and the payment of transaction fees and other expenses, the amount of net cash proceeds used to reduce the outstanding balance under the ABL Facility on the closing date was approximately $74.6 million. We recorded a loss on the sale of TFI of $1.7 million as a component of "Income (loss) from discontinued operations, net of income taxes" in our consolidated statements of operations for the nine months ended September 30, 2015. The post-closing working capital reconciliation is still in process and may result in an increase or decrease in our final net cash proceeds and the final loss on the sale of TFI.
The definitive agreement for the sale was for an amount that is below the carrying value of TFI's net assets. Based on the definitive agreement with Safety-Kleen, TFI recorded charges of approximately $74.4 million in the year ended December 31, 2014, reducing the estimated net recoverable value of its net assets to approximately $84.5 million at December 31, 2014. The charges were primarily related to a reduction of goodwill in the amount of $48.0 million, $26.4 million in intangible assets, as well as estimated additional transaction costs related to the sale.
We classified TFI as discontinued operations in our condensed consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014. The assets and liabilities related to TFI are presented separately as "Assets held for sale" and "Liabilities of discontinued operations" in our condensed consolidated balance sheets at December 31, 2014.     
The following table provides selected financial information of discontinued operations related to TFI (includes TFI's results through the sale on April 11, 2015):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenue
$

 
$
30,852

 
$
19,100

 
$
88,256

 
 
 
 
 
 
 
 
(Loss) income from discontinued operations before income taxes
$

 
$
(45,897
)
 
$
1,171

 
$
(42,320
)
Income tax benefit (expense)

 
329

 
(265
)
 
(1,336
)
(Loss) income from discontinued operations - before sale
$

 
$
(45,568
)
 
$
906

 
$
(43,656
)
Income (loss) on sale of TFI
350

 

 
(1,724
)
 

Income (loss) from discontinued operations
$
350

 
$
(45,568
)
 
$
(818
)
 
$
(43,656
)

22


The carrying value of the assets and liabilities of TFI that were classified as held for sale in the accompanying condensed consolidated balance sheets as of December 31, 2014 were as follows:
 
December 31,
 
2014
Assets:
 
Cash and cash equivalents
$
2,049

Accounts receivable, net
13,592

Inventories, net
2,011

Prepaid expenses and other receivables
2,545

Other current assets
269

Total current assets held for sale
20,466

Property, plant and equipment, net
28,366

Intangible assets, net
66,572

Total long-term assets held for sale
94,938

Total assets held for sale
$
115,404

Liabilities:
 
Accounts payable
$
4,544

Accrued expenses
4,214

Current portion of long-term debt
44

Total current liabilities of discontinued operations
8,802

Long-term portion of debt
61

Long-term liabilities of discontinued operations - deferred income taxes
22,044

Total liabilities of discontinued operations
30,907

Net assets held for sale
$
84,497


Note 16 - Subsidiary Guarantors
Our obligations under the 2018 Notes are jointly and severally, fully and unconditionally guaranteed by certain of our subsidiaries. Pursuant to the terms of 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 we designate any restricted subsidiary that is a subsidiary guarantor to be an unrestricted subsidiary; or
upon legal defeasance or the discharge of our 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, we concluded that we 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”) and its 100% wholly-owned subsidiaries (the “Guarantor Subsidiaries”) as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014. In June 2015, we purchased the remaining interest in AWS, previously a 51% owned non-guarantor subsidiary, and have recast the tables to reflect AWS as a part of the Guarantor Subsidiaries as of December 31, 2014 and for the three and nine months ended September 30, 2014. These condensed consolidating financial statements have been prepared from our financial information on the same basis of accounting as our

23


condensed consolidated financial statements. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions.

CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2015
(Unaudited)

 
Parent
 
Guarantor Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
$
48,820

 
$
567

 
$

 
$
49,387

Restricted cash
4,250

 

 

 
4,250

Accounts receivable, net

 
50,523

 

 
50,523

Deferred income taxes
187

 
2,985

 

 
3,172

Other current assets
2,013

 
6,285

 

 
8,298

Total current assets
55,270

 
60,360

 

 
115,630

Property, plant and equipment, net
2,676

 
429,634

 

 
432,310

Equity investments
60,227

 
608

 
(57,058
)
 
3,777

Intangible assets, net

 
17,667

 

 
17,667

Other
423,223

 
62,440

 
(472,413
)
 
13,250

Total assets
$
541,396

 
$
570,709

 
$
(529,471
)
 
$
582,634

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Accounts payable
$
441

 
$
8,558

 
$

 
$
8,999

Accrued expenses
23,570

 
17,098

 

 
40,668

Current portion of contingent consideration

 
8,770

 

 
8,770

Current portion of long-term debt

 
7,238

 

 
7,238

Total current liabilities
24,011

 
41,664

 

 
65,675

Deferred income taxes
(32,196
)
 
35,658

 

 
3,462

Long-term portion of debt
501,336

 
13,254

 

 
514,590

Other long-term liabilities
53,108

 
423,075

 
(472,413
)
 
3,770

Total shareholders' equity
(4,863
)
 
57,058

 
(57,058
)
 
(4,863
)
Total liabilities and equity
$
541,396

 
$
570,709

 
$
(529,471
)
 
$
582,634


24


CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2014

 
Parent
 
Guarantor Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
$
13,801

 
$
(434
)
 
$

 
$
13,367

Restricted cash

 
114

 

 
114

Accounts receivable, net

 
108,813

 

 
108,813

Deferred income taxes
173

 
3,006

 

 
3,179

Other current assets
738

 
7,995

 

 
8,733

Current assets held for sale

 
20,466

 

 
20,466

Total current assets
14,712

 
139,960

 

 
154,672

Property, plant and equipment, net
3,263

 
472,719

 

 
475,982

Equity investments
249,426

 
645

 
(246,257
)
 
3,814

Intangible assets, net

 
19,757

 

 
19,757

Goodwill

 
104,721

 

 
104,721

Other
453,048

 
11,208

 
(446,568
)
 
17,688

Long-term assets held for sale

 
94,938

 

 
94,938

Total assets
$
720,449

 
$
843,948

 
$
(692,825
)
 
$
871,572

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Accounts payable
$
1,310

 
$
17,549

 
$

 
$
18,859

Accrued expenses
16,404

 
26,991

 

 
43,395

Current portion of contingent consideration

 
9,274

 

 
9,274

Current portion of long-term debt

 
15,863

 

 
15,863

Current liabilities of discontinued operations

 
8,802

 

 
8,802

Total current liabilities
17,714

 
78,479

 

 
96,193

Deferred income taxes
(33,353
)
 
36,801

 

 
3,448

Long-term portion of debt
582,446

 
10,009

 

 
592,455

Long-term portion of contingent consideration

 
550

 

 
550

Other long-term liabilities
695

 
449,747

 
(446,568
)
 
3,874

Long-term liabilities of discontinued operations

 
22,105

 

 
22,105

Total shareholders' equity
152,947

 
246,257

 
(246,257
)
 
152,947

Total liabilities and equity
$
720,449

 
$
843,948

 
$
(692,825
)
 
$
871,572


25


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2015
(Unaudited)
 
Parent
 
Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
76,528

 
$

 
$
76,528

Costs and expenses:
 
 
 
 
 
 
 
Direct operating expenses

 
62,482

 

 
62,482

General and administrative expenses
5,388

 
3,317

 

 
8,705

Depreciation and amortization
108

 
16,579

 

 
16,687

Impairment of goodwill

 
104,721

 

 
104,721

Other, net
1

 
1

 

 
2

Total costs and expenses
5,497

 
187,100

 

 
192,597

Operating loss
(5,497
)
 
(110,572
)
 

 
(116,069
)
Interest expense, net
(11,793
)
 
(304
)
 

 
(12,097
)
Other income, net

 
31

 

 
31

Loss from equity investments
(110,183
)
 
(9
)
 
110,183

 
(9
)
Loss from continuing operations before income taxes
(127,473
)
 
(110,854
)
 
110,183

 
(128,144
)
Income tax (expense) benefit
(640
)
 
671

 

 
31

Loss from continuing operations
(128,113
)
 
(110,183
)
 
110,183

 
(128,113
)
Income from discontinued operations, net of income taxes
350

 

 

 
350

Net loss attributable to common stockholders
$
(127,763
)
 
$
(110,183
)
 
$
110,183

 
$
(127,763
)


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2014
(Unaudited)
 
Parent
 
Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
139,643

 
$

 
$
139,643

Costs and expenses:
 
 
 
 
 
 
 
Direct operating expenses

 
98,791

 

 
98,791

General and administrative expenses
2,604

 
6,744

 

 
9,348

Depreciation and amortization
171

 
21,414

 

 
21,585

Impairment of goodwill

 
100,716

 

 
100,716

Total costs and expenses
2,775