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EX-32.1 - EXHIBIT 32.1 - Nuverra Environmental Solutions, Inc.nes_20180930xex321.htm
EX-31.2 - EXHIBIT 31.2 - Nuverra Environmental Solutions, Inc.nes_20180930xex312.htm
EX-31.1 - EXHIBIT 31.1 - Nuverra Environmental Solutions, Inc.nes_20180930xex311.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, 2018
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
_________________________________
nesimagea10.jpg
__________________________________
Delaware
26-0287117
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
6720 N. Scottsdale Road, Suite 190, Scottsdale, AZ 85253
(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 every Interactive Data File required to be submitted 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 such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
x
Smaller reporting company
x
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed all the documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan of confirmation by a court. Yes  x    No  ¨
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 31, 2018 was 12,233,087.




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 

2



Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q (“Quarterly Report”) 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:
the expected benefits of our completed restructuring under chapter 11 of the United States Bankruptcy Code (“the Bankruptcy Code”) to improve our long-term capital structure;
future financial performance and growth targets or expectations;
market and industry trends and developments, including, but not limited to, statements regarding fluctuations in oil and natural gas prices and third-party projections for the markets in which we operate; and
the potential benefits of our completed and any future merger, acquisition, disposition, restructuring, and financing transactions.
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,” “might,” “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, among others:
the effects of our completed restructuring on the Company and the interests of various constituents;

risks and uncertainties associated with the restructuring process, including the outcome of a pending appeal of the order confirming the plan of reorganization and our ability to execute the requirements of the plan of reorganization subsequent to the effective date;

the loss of one or more of our larger customers;

our ability to attract and retain key executives and qualified employees in key areas of our business;

our ability to attract and retain a sufficient number of qualified truck drivers in light of industry-wide driver shortages and high-turnover;

risks associated with our indebtedness, including changes to interest rates, decreases in our borrowing availability, our ability to manage our liquidity needs and to comply with covenants under our credit facilities, including the requirement to conduct a rights offering;

the availability of less favorable credit and payment terms due to changes in industry condition or our financial condition, which could constrain our liquidity and reduce availability under our revolving credit facility;

difficulties in successfully executing our growth initiatives, including identifying and completing acquisitions and divestitures, successfully integrating acquired business operations, and identifying and managing risks inherent in acquisitions and divestitures, as well as differences in the type and availability of consideration or financing for such acquisitions and divestitures;

higher than forecasted capital expenditures to maintain and repair our fleet of trucks, equipment and disposal wells;
control of costs and expenses;
risks associated with the limited trading volume of our common stock on the NYSE American Stock Exchange, including potential fluctuations in the trading prices of our common stock;

3



risks associated with the reliance on third-party analyst and expert market projections and data for the markets in which we operate;
risks associated with changes in industry practices and operational technologies and the impact on our business;
present and possible future claims, litigation or enforcement actions or investigations;
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, transportation costs, 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;
changes in customer drilling, completion and production activities, operating methods and capital expenditure plans, including impacts due to low oil and/or natural gas prices or the economic or regulatory environment;
risks associated with our customers’ access to sufficient capital to fund their business operations in the areas in which we operate, including unforeseen reductions in customer budget or capital availability, depletion of unallocated customer capital over the course of the applicable budget period, or redeployment of customer capital into different geographic areas;
risks associated with the operation, construction, development and closure of saltwater disposal wells, solids and liquids treatment and transportation assets, landfills and pipelines, including access to additional locations and rights-of-way, environmental remediation obligations, 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;
the potential impact of changes in governmental trade policies, including the imposition of tariffs and taxes, which may increase costs or otherwise negatively impact our business or the business of our customers;
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;
the unknown future 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;
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 natural gas extraction businesses, particularly relating to water usage, and the disposal, transportation and treatment of liquid and solid wastes;
natural disasters, such as hurricanes, earthquakes and floods, or acts of terrorism, or extreme weather conditions, that may impact our business locations, assets, including wells or pipelines, distribution channels, or which otherwise disrupt our or our customers’ operations or the markets we serve; 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.
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)
(Unaudited)
 
Successor
 
September 30,
 
December 31,
 
2018
 
2017
 
 
 
 
Assets
 
 
 
Cash and cash equivalents
$
15,077

 
$
5,488

Restricted cash
1,850

 
1,296

Accounts receivable, net of allowance for doubtful accounts of $1.8 million and $1.9 million at September 30, 2018 and December 31, 2017, respectively
29,706

 
30,965

Inventories
3,651

 
4,089

Prepaid expenses and other receivables
2,748

 
8,594

Other current assets
869

 
226

Assets held for sale
3,172

 
2,765

Total current assets
57,073

 
53,423

Property, plant and equipment, net of accumulated depreciation of $64.5 million and $35.8 million at September 30, 2018 and December 31, 2017, respectively
184,975

 
229,874

Equity investments
40

 
48

Intangibles, net
429

 
547

Goodwill
27,139

 
27,139

Deferred income taxes
73

 
84

Other assets
133

 
207

Total assets
$
269,862

 
$
311,322

Liabilities and Shareholders’ Equity
 
 
 
Accounts payable
$
7,102

 
$
7,946

Accrued liabilities
15,724

 
13,939

Current contingent consideration
500

 
500

Current portion of long-term debt
4,526

 
5,525

Derivative warrant liability
154

 
477

Total current liabilities
28,006

 
28,387

Long-term debt
31,088

 
33,524

Other long-term liabilities
6,763

 
6,438

Total liabilities
65,857

 
68,349

Shareholders’ equity:
 
 
 
   Common stock
117

 
117

   Additional paid-in capital
302,243

 
290,751

   Accumulated deficit
(98,355
)
 
(47,895
)
Total shareholders’ equity
204,005

 
242,973

Total liabilities and shareholders’ equity
$
269,862

 
$
311,322

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)

 
Successor
 
 
Predecessor
 
Three Months Ended
 
Two Months Ended
 
 
One Month Ended
 
September 30, 2018
 
September 30, 2017
 
 
July 31, 2017
Revenue:
 
 
 
 
 
 
Service revenue
$
45,694

 
$
30,620

 
 
$
13,608

Rental revenue
3,962

 
3,138

 
 
1,514

Total revenue
49,656

 
33,758

 
 
15,122

Costs and expenses:
 
 
 
 
 
 
Direct operating expenses
39,753

 
26,110

 
 
11,896

General and administrative expenses
5,849

 
4,928

 
 
1,326

Depreciation and amortization
10,018

 
17,321

 
 
4,003

    Impairment of long-lived assets
100

 
2,404

 
 

Other, net
49

 

 
 

Total costs and expenses
55,769

 
50,763

 
 
17,225

Operating loss
(6,113
)
 
(17,005
)
 
 
(2,103
)
Interest expense, net
(1,241
)
 
(778
)
 
 
(3,246
)
Other income, net
169

 
294

 
 
7

Reorganization items, net
137

 
530

 
 
229,198

(Loss) income before income taxes
(7,048
)
 
(16,959
)
 
 
223,856

Income tax (expense) benefit
(69
)
 
(34
)
 
 
304

Net (loss) income
$
(7,117
)
 
$
(16,993
)
 
 
$
224,160

 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
Net (loss) income per basic common share
$
(0.61
)
 
$
(1.45
)
 
 
$
1.48

 
 
 
 
 
 
 
Net (loss) income per diluted common share
$
(0.61
)
 
$
(1.45
)
 
 
$
1.42

 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
Basic
11,696

 
11,696

 
 
150,951

Diluted
11,696

 
11,696

 
 
157,394

The accompanying notes are an integral part of these statements.

6



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

 
Successor
 
 
Predecessor
 
Nine Months Ended
 
Two Months Ended
 
 
Seven Months Ended
 
September 30, 2018
 
September 30, 2017
 
 
July 31, 2017
Revenue:
 
 
 
 
 
 
Service revenue
$
136,541

 
$
30,620

 
 
$
86,564

Rental revenue
11,732

 
3,138

 
 
9,319

Total revenue
148,273

 
33,758

 
 
95,883

Costs and expenses:
 
 
 
 
 
 
Direct operating expenses
120,449

 
26,110

 
 
81,010

General and administrative expenses
31,183

 
4,928

 
 
22,552

Depreciation and amortization
36,731

 
17,321

 
 
28,981

    Impairment of long-lived assets
4,563

 
2,404

 
 

Other, net
1,117

 

 
 

Total costs and expenses
194,043

 
50,763

 
 
132,543

Operating loss
(45,770
)
 
(17,005
)
 
 
(36,660
)
Interest expense, net
(3,695
)
 
(778
)
 
 
(22,792
)
Other income, net
683

 
294

 
 
4,247

Reorganization items, net
(1,609
)
 
530

 
 
223,494

(Loss) income before income taxes
(50,391
)
 
(16,959
)
 
 
168,289

Income tax (expense) benefit
(69
)
 
(34
)
 
 
322

Net (loss) income
$
(50,460
)
 
$
(16,993
)
 
 
$
168,611

 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
Net (loss) income per basic common share
$
(4.31
)
 
$
(1.45
)
 
 
$
1.12

 
 
 
 
 
 
 
Net (loss) income per diluted common share
$
(4.31
)
 
$
(1.45
)
 
 
$
0.97

 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
Basic
11,696

 
11,696

 
 
150,940

Diluted
11,696

 
11,696

 
 
174,304




7



NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
 
Successor
 
 
Predecessor
 
Nine Months Ended
 
Two Months Ended
 
 
Seven Months Ended
 
September 30, 2018
 
September 30, 2017
 
 
July 31,
2017
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
Net (loss) income
$
(50,460
)
 
$
(16,993
)
 
 
$
168,611

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
 
 
 
 
 
 
   Depreciation and amortization
36,731

 
17,321

 
 
28,981

   Amortization of debt issuance costs, net

 

 
 
2,135

   Accrued interest added to debt principal
119

 
177

 
 
11,474

   Stock-based compensation
11,492

 
181

 
 
457

   Impairment of long-lived assets
4,563

 
2,404

 
 

   Gain on sale of UGSI
(75
)
 
(76
)
 
 

   (Gain) loss on disposal of property, plant and equipment
(919
)
 
687

 
 
(258
)
   Bad debt (recoveries) expense
(164
)
 
41

 
 
788

   Change in fair value of derivative warrant liability
(323
)
 
140

 
 
(4,025
)
   Deferred income taxes
11

 
34

 
 
(337
)
   Other, net
541

 
152

 
 
(11,295
)
   Reorganization items, non-cash

 

 
 
(218,600
)
   Changes in operating assets and liabilities:
 
 
 
 
 
 
      Accounts receivable
1,423

 
(5,349
)
 
 
(4,528
)
      Prepaid expenses and other receivables
487

 
(528
)
 
 
472

      Accounts payable and accrued liabilities
1,028

 
(1,111
)
 
 
3,682

      Other assets and liabilities, net
(234
)
 
(152
)
 
 
3,494

Net cash provided by (used in) operating activities
4,220

 
(3,072
)
 
 
(18,949
)
Cash flows from investing activities:
 
 
 
 
 
 
   Proceeds from the sale of property, plant and equipment
19,066

 
1,623

 
 
3,083

   Purchases of property, plant and equipment
(9,687
)
 
(404
)
 
 
(3,149
)
   Proceeds from the sale of UGSI
75

 
76

 
 

Net cash provided by (used in) investing activities
9,454

 
1,295

 
 
(66
)
Cash flows from financing activities:
 
 
 
 
 
 
   Proceeds from Predecessor revolving credit facility

 

 
 
106,785

   Payments on Predecessor revolving credit facility

 

 
 
(129,964
)
   Proceeds from Predecessor term loan

 

 
 
15,700

   Proceeds from debtor in possession term loan

 

 
 
6,875

   Proceeds from Successor First and Second Lien Term Loans

 

 
 
36,053

   Payments on Successor First and Second Lien Term Loans
(2,132
)
 
(442
)
 
 

   Proceeds from Successor revolving facility
172,336

 
28,020

 
 

   Payments on Successor revolving facility
(172,336
)
 
(28,020
)
 
 

   Payments for debt issuance costs

 

 
 
(1,053
)
   Payments on vehicle financing and other financing activities
(1,399
)
 
(1,773
)
 
 
(2,797
)
Net cash (used in) provided by financing activities
(3,531
)
 
(2,215
)
 
 
31,599

Change in cash, cash equivalents and restricted cash
10,143

 
(3,992
)
 
 
12,584

Cash and cash equivalents, beginning of period
5,488

 
7,193

 
 
994

Restricted cash, beginning of period
1,296

 
7,805

 
 
1,420

Cash, cash equivalents and restricted cash, beginning of period
6,784

 
14,998

 
 
2,414

Cash and cash equivalents, end of period
15,077

 
3,248

 
 
7,193

Restricted cash, end of period
1,850

 
7,758

 
 
7,805

Cash, cash equivalents and restricted cash, end of period
$
16,927

 
$
11,006

 
 
$
14,998

 
 
 
 
 
 
 

8



 
Successor
 
 
Predecessor
 
Nine Months Ended
 
Two Months Ended
 
 
Seven Months Ended
 
September 30, 2018
 
September 30, 2017
 
 
July 31,
2017
 
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
   Cash paid for interest
$
2,835

 
$
218

 
 
$
1,568

   Cash paid for taxes, net
390

 
23

 
 
193


The accompanying notes are an integral part of these statements.
 

9



NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)



 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Total
Shares
 
Amount
 
 
 
Balance at January 1, 2018 (Successor)
 
11,696

 
$
117

 
$
290,751

 
$
(47,895
)
 
$
242,973

Stock-based compensation
 

 

 
10,978

 
$

 
$
10,978

Net loss
 

 

 

 
(32,167
)
 
(32,167
)
Balance at March 31, 2018 (Successor)
 
11,696

 
$
117

 
$
301,729

 
$
(80,062
)
 
$
221,784

Stock-based compensation
 

 

 
416

 
$

 
$
416

Net loss
 

 

 

 
(11,176
)
 
(11,176
)
Balance at June 30, 2018 (Successor)
 
11,696

 
$
117

 
$
302,145

 
$
(91,238
)
 
$
211,024

Stock-based compensation
 

 

 
98

 

 
98

Net loss
 

 

 

 
(7,117
)
 
(7,117
)
Balance at September 30, 2018 (Successor)
 
11,696

 
$
117

 
$
302,243

 
$
(98,355
)
 
$
204,005


10



NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)



 
 
Common Stock
 
Additional
Paid-In
Capital
 
Treasury Stock
 
Accumulated
Deficit
 
Total
Shares
 
Amount
 
Shares
 
Amount
 
 
Balance at January 1, 2017 (Predecessor)
 
152,433

 
$
152

 
$
1,407,867

 
(1,514
)
 
$
(19,807
)
 
$
(1,557,278
)
 
$
(169,066
)
Stock-based compensation
 

 

 
309

 

 

 

 
309

Issuance of common stock to employees
 
32

 

 

 

 

 

 

Treasury stock acquired through surrender of shares for tax withholding
 

 

 

 
(12
)
 
(2
)
 

 
(2
)
Issuance of common stock for warrants exercised
 
2

 

 

 

 

 

 
 
Net loss
 

 

 

 

 

 
(35,962
)
 
(35,962
)
Balance at March 31, 2017 (Predecessor)
 
152,467

 
$
152

 
$
1,408,176

 
(1,526
)
 
$
(19,809
)
 
$
(1,593,240
)
 
$
(204,721
)
Stock-based compensation
 

 

 
112

 

 

 

 
112

Net loss
 

 

 

 

 

 
(19,587
)
 
(19,587
)
Balance at June 30, 2017 (Predecessor)
 
152,467

 
$
152

 
$
1,408,288

 
(1,526
)
 
$
(19,809
)
 
$
(1,612,827
)
 
$
(224,196
)
Stock-based compensation
 

 

 
36

 

 

 

 
36

Issuance of common stock for warrants exercised
 
13

 

 

 

 

 

 

Net income
 

 

 

 

 

 
224,160

 
224,160

Balance at July 31, 2017 (Predecessor)
 
152,480

 
$
152

 
$
1,408,324

 
(1,526
)
 
$
(19,809
)
 
$
(1,388,667
)
 
$

Implementation of Plan and Application of Fresh Start Accounting:
Cancellation of Predecessor equity
 
(152,480
)
 
(152
)
 
(1,408,324
)
 
1,526

 
19,809

 
1,388,667

 

Issuance of Successor common stock and warrants
 
11,696

 
117

 
290,074

 

 

 

 
290,191

Balance at August 1, 2017 (Successor)
 
11,696

 
$
117

 
$
290,074

 

 
$

 
$

 
$
290,191

Stock-based compensation
 

 

 
181

 

 

 

 
181

Net loss
 

 

 

 

 

 
(16,993
)
 
(16,993
)
Balance at September 30, 2017 (Successor)
 
11,696

 
$
117

 
$
290,255

 

 
$

 
$
(16,993
)
 
$
273,379




11



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, 2017, 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, 2017, filed with the SEC on March 16, 2018 (as amended on April 19, 2018, the “2017 Annual Report on Form 10-K”).
All dollar and share amounts in the footnote tabular presentations are in thousands, except per share amounts and unless otherwise noted.
On May 1, 2017, the Company and certain of its material subsidiaries (collectively with the Company, the “Nuverra Parties”) filed voluntary petitions under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to pursue prepackaged plans of reorganization (together, and as amended, the “Plan”). On July 25, 2017, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan. The Plan became effective on August 7, 2017 (the “Effective Date”), when all remaining conditions to the effectiveness of the Plan were satisfied or waived. On June 22, 2018, the Bankruptcy Court issued a final decree and order closing the chapter 11 cases, subject to certain conditions as set forth therein.

Upon emergence, we elected to apply fresh start accounting effective July 31, 2017, to coincide with the timing of our normal accounting period close. As a result of the application of fresh start accounting, as well as the effects of the implementation of the Plan, a new entity for financial reporting purposes was created, and as such, the condensed consolidated financial statements on or after August 1, 2017, are not comparable with the condensed consolidated financial statements prior to that date.

References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to July 31, 2017. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on and prior to July 31, 2017.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (or “FASB”) issued Accounting Standards Update (or “ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this update will be added to the Account Standards Codification (“ASC”) as ASC 606, Revenue from Contracts with Customers, and replaces the guidance in ASC 605, Revenue Recognition. The new guidance in ASC 606 requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services.

On January 1, 2018, we adopted the guidance in ASC 606 and all the related amendments (the “new revenue standard”) and applied the new revenue standard to all contracts using the modified retrospective method. The impact of the new revenue standard was not material and there was no adjustment required to the opening balance of retained earnings. We expect the impact of the adoption of the new revenue standard to be immaterial to our net income on an ongoing basis. See Note 3 for further information on the new standard.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) related to the classification of certain cash receipts and cash payments on the statement of cash flows. The pronouncement provides clarification and guidance on eight specific cash flow presentation issues that have developed due to diversity in practice. The issues include, but are not limited to, debt prepayment or extinguishment costs, settlement of zero-coupon debt, proceeds from the settlement of insurance claims, and contingent consideration payments made after a business combination. The pronouncement is effective for fiscal years, and for interim periods within those fiscal

12



years, beginning after December 15, 2017, with early adoption permitted. We adopted this pronouncement for our fiscal year beginning January 1, 2018, which did not have a significant impact on the consolidated statement of cash flows.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). This guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. As a result, restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and is to be applied retrospectively. The adoption of this guidance as of January 1, 2018 did not have a significant impact on our consolidated statement of cash flows, other than the classification of restricted cash within the beginning-of-period and end-of-period totals on the consolidated statement of cash flows, as opposed to being excluded from these totals. We have adjusted the prior year period to reflect this new presentation as well.

There have been no other material changes or developments in our significant accounting policies or evaluation of accounting estimates and underlying assumptions or methodologies from those disclosed in our 2017 Annual Report on Form 10-K.

Note 2 - Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet. This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, using a modified retrospective approach. Early adoption of ASU 2016-02 is permitted. We are nearing the completion of our assessment of the impact ASU 2016-02 will have on our consolidated financial statements. Based upon the work performed thus far, we expect the primary change upon adoption to be the recognition, on a discounted basis, of our minimum commitments under non-cancellable operating leases on our consolidated balance sheets resulting in the recording of right of use assets and lease obligations. We have also reviewed the various practical expedients that have been approved by the FASB for ASU 2016-02 and have selected which ones we plan to adopt when we implement the new standard effective January 1, 2019.

Note 3 - Revenues

On January 1, 2018, we adopted the guidance in ASC 606, including all related amendments, and applied the new revenue standard to all contracts using the modified retrospective method. The impact of the new revenue standard was not material and there was no adjustment required to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under ASC 605, or the accounting guidance in effect for those periods.

Revenue Recognition

Revenues are generated upon the performance of contracted services under formal and informal contracts with customers. Revenues are recognized when the contracted services for our customers are completed in an amount that reflects the consideration we expect to be entitled to in exchange for those services. Sales and usage-based taxes are excluded from revenues. Payment is due when the contracted services are completed in accordance with the payment terms established with each customer prior to providing any services. As such, there is no significant financing component for any of our revenues.

Some of our contracts with customers involve multiple performance obligations as we are providing more than one service under the same contract, such as water transfer services and disposal services. However, our core service offerings are capable of being distinct and also are distinct within the context of contracts with our customers. As such, these services represent separate performance obligations when included in a single contract. We have standalone pricing for all of our services which is negotiated with each of our customers in advance of providing the service. The contract consideration is allocated to the individual performance obligations based upon the standalone selling price of each service, and no discount is offered for a bundled services offering.


13



The following tables present our revenues disaggregated by revenue source for each reportable segment for the three months ended September 30, 2018, two months ended September 30, 2017, and one month ended July 31, 2017:

 
Successor
 
For the Three Months Ended September 30, 2018
 
Rocky Mountain
 
Northeast
 
Southern
 
Corp/Other
 
Total
Water Transfer Services
$
21,809

 
$
9,243

 
$
3,682

 
$

 
$
34,734

Disposal Services
5,235

 
1,329

 
1,234

 

 
7,798

Other Revenue
2,471

 
615

 
76

 

 
3,162

    Total Service Revenue
29,515

 
11,187

 
4,992

 

 
45,694

 
 
 
 
 
 
 
 
 
 
Rental Revenue
3,884

 
60

 
18

 

 
3,962

 
 
 
 
 
 
 
 
 
 
Total Revenue
$
33,399

 
$
11,247

 
$
5,010

 
$

 
$
49,656


 
Successor
 
For the Two Months Ended September 30, 2017
 
Rocky Mountain
 
Northeast
 
Southern
 
Corp/Other
 
Total
Water Transfer Services
$
13,573

 
$
5,830

 
$
4,708

 
$

 
$
24,111

Disposal Services
2,325

 
400

 
890

 

 
3,615

Other Revenue
1,935

 
892

 
67

 

 
2,894

    Total Service Revenue
17,833

 
7,122

 
5,665

 

 
30,620

 
 
 
 
 
 
 
 
 
 
Rental Revenue
2,734

 
37

 
367

 

 
3,138

 
 
 
 
 
 
 
 
 
 
Total Revenue
$
20,567

 
$
7,159

 
$
6,032

 
$

 
$
33,758


 
Predecessor
 
For the One Month Ended July 31, 2017
 
Rocky Mountain
 
Northeast
 
Southern
 
Corp/Other
 
Total
Water Transfer Services
$
5,878

 
$
2,777

 
$
2,697

 
$

 
$
11,352

Disposal Services
980

 
308

 
311

 

 
1,599

Other Revenue
325

 
297

 
35

 

 
657

    Total Service Revenue
7,183

 
3,382

 
3,043

 

 
13,608

 
 
 
 
 
 
 
 
 
 
Rental Revenue
1,319

 
42

 
153

 

 
1,514

 
 
 
 
 
 
 
 
 
 
Total Revenue
$
8,502

 
$
3,424

 
$
3,196

 
$

 
$
15,122




14



The following tables present our revenues disaggregated by revenue source for each reportable segment for the nine months ended September 30, 2018, two months ended September 30, 2017 and seven months ended July 31, 2017:

 
Successor
 
For the Nine Months Ended September 30, 2018
 
Rocky Mountain
 
Northeast
 
Southern
 
Corp/Other
 
Total
Water Transfer Services
$
65,036

 
$
25,492

 
$
16,807

 
$

 
$
107,335

Disposal Services
13,387

 
3,061

 
3,551

 

 
19,999

Other Revenue
7,715

 
1,231

 
261

 

 
9,207

    Total Service Revenue
86,138

 
29,784

 
20,619

 

 
136,541

 
 
 
 
 
 
 
 
 
 
Rental Revenue
11,196

 
182

 
354

 

 
11,732

 
 
 
 
 
 
 
 
 
 
Total Revenue
$
97,334

 
$
29,966

 
$
20,973

 
$

 
$
148,273


 
Successor
 
For the Two Months Ended September 30, 2017
 
Rocky Mountain
 
Northeast
 
Southern
 
Corp/Other
 
Total
Water Transfer Services
$
13,573

 
$
5,830

 
$
4,708

 
$

 
$
24,111

Disposal Services
2,325

 
400

 
890

 

 
3,615

Other Revenue
1,935

 
892

 
67

 

 
2,894

    Total Service Revenue
17,833

 
7,122

 
5,665

 

 
30,620

 
 
 
 
 
 
 
 
 
 
Rental Revenue
2,734

 
37

 
367

 

 
3,138

 
 
 
 
 
 
 
 
 
 
Total Revenue
$
20,567

 
$
7,159

 
$
6,032

 
$

 
$
33,758


 
Predecessor
 
For the Seven Months Ended July 31, 2017
 
Rocky Mountain
 
Northeast
 
Southern
 
Corp/Other
 
Total
Water Transfer Services
$
38,844

 
$
17,118

 
$
15,764

 
$

 
$
71,726

Disposal Services
6,506

 
1,284

 
1,522

 

 
9,312

Other Revenue
2,975

 
2,240

 
311

 

 
5,526

    Total Service Revenue
48,325

 
20,642

 
17,597

 

 
86,564

 
 
 
 
 
 
 
 
 
 
Rental Revenue
8,221

 
109

 
989

 

 
9,319

 
 
 
 
 
 
 
 
 
 
Total Revenue
$
56,546

 
$
20,751

 
$
18,586

 
$

 
$
95,883



Water Transfer Services

The majority of our revenues are from the removal and disposal of flowback and produced saltwater originating from oil and natural gas wells or the transportation of fresh water and saltwater to customer sites for use in drilling and hydraulic fracturing activities by trucks or through temporary or permanent water transport pipelines. Water transfer rates for trucking are generally based upon a fixed fee per barrel of disposal water, but in certain circumstances may be based upon an hourly rate. Revenue is

15



recognized once the water has been transferred, or over time, based upon the number of barrels transported or disposed of, or at the agreed upon hourly rate, depending upon the customer contract. Contracts for the use of our disposal water pipeline are priced at a fixed fee per disposal barrel transferred, with revenues recognized over time from when the water is injected into our pipeline until the transfer is complete. Water transfer services are all generally completed within 24 hours with no remaining performance obligation outstanding at the end of each month.

Disposal Services

Revenues for disposal services are generated through fees charged for disposal of oilfield wastes in our landfill and disposal of fluids in our disposal wells. Disposal rates are generally based on a fixed fee per barrel of disposal water, or on a per ton basis for landfill disposal, with revenues recognized once the disposal has occurred. The performance obligation for disposal services is considered complete once the disposal occurs. Therefore, disposal services revenues are recognized at a point in time.

Other Revenue

Other revenue primarily includes revenues from the sale of “junk” or “slop” oil obtained through the skimming of disposal water. Under the new revenue standard, revenue is recognized for “junk” or “slop” oil at a point in time once the goods are transferred.

Other revenue also historically included small-scale construction or maintenance projects, however we exited that business during the three months ended June 30, 2018. Under the new revenue standard, revenue for construction and maintenance projects, which generally spanned approximately two to three months, was recognized over time under the milestone method which is considered an output method. Since our construction contracts were short term in nature, the contractual milestone dates occurred close together over time such that there was no risk that we would not recognize revenue for goods or services transferred to the customer. All construction costs were expensed as incurred.

Rental Revenue

We generate rental revenue from the rental of various equipment used in wellsite services. Rental rates are based upon negotiated rates with our customers and revenue is recognized over the rental service period. Revenues from rental equipment are not within the scope of the new revenue standard, but rather are recognized under ASC 840, Leases. When ASC 842, Leases, becomes effective on January 1, 2019, the Company will continue to recognize the revenues from rental equipment under this new standard as a lessor.

Practical Expedients

The new revenue standard requires the transaction price to exclude amounts collected on behalf of third parties. However, the new revenue standard also provides a practical expedient to allow entities to make an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority. Upon implementing the new revenue standard we adopted this practical expedient and have excluded sales and usage-based taxes from the transaction price, rather than making a jurisdiction-by-jurisdiction assessment.

Note 4 - Earnings Per Common Share
Net (loss) income 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, 2018, and the two months ended September 30, 2017, no shares of common stock underlying stock options, restricted stock or warrants were included in the computation of diluted earnings per common share because the inclusion of such shares would be anti-dilutive based on the net losses reported for those periods.

16



The following table presents the calculation of basic and diluted net (loss) income per common share, as well as the anti-dilutive stock-based awards that were excluded from the calculation of diluted loss per share for the periods presented:
 
Successor
 
 
Predecessor
 
Three Months Ended
 
Two Months Ended
 
 
One Month Ended
 
September 30, 2018
 
September 30, 2017
 
 
July 31, 2017
Numerator:
 
 
 
 
 
 
Net (loss) income
$
(7,117
)
 
$
(16,993
)
 
 
$
224,160

 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
Weighted average shares—basic
11,696

 
11,696

 
 
150,951

Common stock equivalents

 

 
 
6,443

Weighted average shares—diluted
11,696

 
11,696

 
 
157,394

 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
Net (loss) income per basic common share
$
(0.61
)
 
$
(1.45
)
 
 
$
1.48

 
 
 
 
 
 
 
Net (loss) income per diluted common share
$
(0.61
)
 
$
(1.45
)
 
 
$
1.42

 
 
 
 
 
 
 
Anti-dilutive stock-based awards excluded:
1,210

 
828

 
 
576

 
Successor
 
 
Predecessor
 
Nine Months Ended
 
Two Months Ended
 
 
Seven Months Ended
 
September 30, 2018
 
September 30, 2017
 
 
July 31, 2017
Numerator:
 
 
 
 
 
 
Net (loss) income
$
(50,460
)
 
$
(16,993
)
 
 
$
168,611

 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
Weighted average shares—basic
11,696

 
11,696

 
 
150,940

Common stock equivalents

 

 
 
23,364

Weighted average shares—diluted
11,696

 
11,696

 
 
174,304

 
 
 
 
 
 
 
Earnings per common share:
 
 
 
Net (loss) income per basic common share
$
(4.31
)
 
$
(1.45
)
 
 
$
1.12

 
 
 
 
 
 
 
Net (loss) income per diluted common share
$
(4.31
)
 
$
(1.45
)
 
 
$
0.97

 
 
 
 
 
 
 
Anti-dilutive stock-based awards excluded:
1,227

 
828

 
 
593


17



Note 5 - Intangible Assets

Intangible assets consist of the following:
 
Successor
 
September 30, 2018
 
Gross Carrying Amount
 
Additions/(Disposals)
 
Accumulated Amortization
 
Net
 
Remaining Useful Life (Years)
Disposal permits
$
594

 
$
(13
)
 
$
(152
)
 
$
429

 
5.5
Total intangible assets
$
594

 
$
(13
)
 
$
(152
)
 
$
429

 
5.5
 
 
 
 
 
 
 
 
 
 
 
Successor
 
December 31, 2017
 
Gross Carrying Amount
 
Additions/(Disposals)
 
Accumulated Amortization
 
Net
 
Remaining Useful Life (Years)
Disposal permits
$
594

 
$

 
$
(47
)
 
$
547

 
6.2
Total intangible assets
$
594

 
$

 
$
(47
)
 
$
547

 
6.2
 
 
 
 
 
 
 
 
 
 

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 6 - Assets Held for Sale and Impairment
During the three months ended March 31, 2018, management approved a plan to sell certain assets located in the Southern division as a result of exiting the Eagle Ford Shale area. As a result, we began to actively market these assets, which we expect to sell within one year. See Note 11 for additional details on the exit of the Eagle Ford Shale area. In addition, during the three months ended March 31, 2018, management approved the sale of certain assets, primarily frac tanks, located in the Northeast division, that are expected to sell within one year. In accordance with applicable accounting guidance, the assets were recorded at the lower of net book value or fair value less costs to sell and reclassified to “Assets held for sale” on the condensed consolidated balance sheet during the three months ended March 31, 2018. Upon reclassification we ceased to recognize depreciation expense on the assets. As the fair value of the assets reclassified as held for sale was lower than its net book value, we recorded an impairment charge of $4.1 million during the three months ended March 31, 2018. Of the $4.1 million recorded, $4.0 million related to the Southern division for the Eagle Ford exit and $0.1 million related to the Northeast division, and is included in “Impairment of long-lived assets” on our condensed consolidated statements of operations.

During the three months ended June 30, 2018, we recorded an impairment charge of $0.3 million for the Corporate division to “Impairment of long-lived assets” on our condensed consolidated statements of operations related to the sale of certain real property in Texas as the fair value was lower than the net book value. The real property was approved to be sold as part of the Eagle Ford closure.

During the three months ended September 30, 2018, we recorded an impairment charge of $0.1 million in the Southern division for the further write-down of buildings and land held for sale as a result of exiting the Eagle Ford Shale area due to updated market pricing. The $0.1 million is included in “Impairment of long-lived assets” on our condensed consolidated statements of operations.

During the two months ended September 30, 2017, management approved plans to sell certain underutilized assets located in the Rocky Mountain and Southern divisions. As the fair value of the assets reclassified as held for sale during the quarter was lower than its net book value, an impairment charge of $2.4 million was recognized during the two months ended September 30, 2017, and is included in “Impairment of long-lived assets” on our condensed consolidated statements of operations. Of the $2.4 million recorded during the two months ended September 30, 2017, $2.2 million related to the Rocky Mountain division and $0.2 million related to the Southern division.


18



Note 7 - 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:
 
Successor
 
September 30, 2018
 
December 31, 2017
Derivative warrant liability
$
154

 
$
477

Contingent consideration
500

 
500

Derivative Warrant Liability
Upon emergence from chapter 11 on the Effective Date, all existing warrants outstanding under the Predecessor Company were canceled under the Plan. Additionally, on the Effective Date, pursuant to the Plan we issued to the holders of our pre-Effective Date 9.875% Senior Notes due 2018 (the “2018 Notes”) and holders of certain claims relating to the rejection of executory contracts and unexpired leases 118,137 warrants with an exercise price of $39.82 and a term expiring seven years from the Effective Date. Each warrant is exercisable for one share of our common stock, par value $0.01. The warrants issued by the Successor Company were determined to be derivative liabilities.
Our derivative warrant liability is adjusted to reflect the estimated fair value at each quarter end, with any decrease or increase in the estimated fair value recorded in “Other (income) expense, net” in the condensed consolidated statements of operations. We used Level 3 inputs for the valuation methodology of the derivative liabilities. The estimated fair values were computed using a Monte Carlo simulation model. The key inputs in determining our derivative warrant liability typically include our stock price, the volatility of our stock price, and the risk free interest rate. Future changes in these factors could have a significant impact on the computed fair value of the derivative warrant liability. As such, we expect future changes in the fair value of the warrants could vary significantly from quarter to quarter.
The following table provides a reconciliation of the beginning and ending balances of the Successor “Derivative warrant liability” presented in the condensed consolidated balance sheet during the nine months ended September 30, 2018, and the five months ended December 31, 2017.
 
Successor
 
Nine Months Ended
 
Five Months Ended
 
September 30, 2018
 
December 31, 2017
Balance at beginning of period
$
477

 
$

Issuance of warrants

 
717

Adjustments to estimated fair value
(323
)
 
(240
)
Balance at end of period
$
154

 
$
477


19



Contingent Consideration
We are liable for contingent consideration payments in connection with an acquisition. The fair value of the contingent consideration obligation 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 performance measurements upon which the obligation is based.
On June 28, 2017, certain of the Nuverra Parties filed a motion with the Bankruptcy Court seeking authorization to resolve unsecured claims related to the $8.5 million contingent consideration from the Ideal Oilfield Disposal LLC acquisition (the “Ideal Settlement”). On July 11, 2017, the Bankruptcy Court entered an order authorizing the Ideal Settlement. Pursuant to the approved settlement terms, the $8.5 million contingent claim was replaced with an obligation on the part of the applicable Nuverra Party to transfer $0.5 million to the counterparties to the Ideal Settlement upon emergence from chapter 11, and $0.5 million when the Ideal Settlement counterparties deliver the required permits and certificates necessary for the issuance of the second special waste disposal permit. The $0.5 million due upon emergence from chapter 11 was paid during the five months ended December 31, 2017. The remaining $0.5 million due when the counterparties deliver the required permits and certificates necessary for the issuance of the second special waste disposal permit has been classified as current, as these permits and certificates are expected to be received within one year.

Changes to the fair value of contingent consideration are recorded as “Other (income) expense, net” in the condensed consolidated statements of operations. 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, 2018, and five months ended December 31, 2017, were as follows:

 
 
Successor
 
 
Nine Months Ended
 
Five Months Ended
 
 
September 30, 2018
 
December 31, 2017
Balance at beginning of period
 
$
500

 
$
1,000

Cash payments
 

 
(500
)
Balance at end of period
 
500

 
500

Less: current portion
 
(500
)
 
(500
)
Long-term contingent consideration
 
$

 
$


Note 8 - Accrued Liabilities
Accrued liabilities consisted of the following at September 30, 2018 and December 31, 2017:
 
Successor
 
September 30, 2018
 
December 31, 2017
Accrued payroll and employee benefits
$
5,829

 
$
3,304

Accrued insurance
2,573

 
2,701

Accrued legal
718

 
1,749

Accrued taxes
2,228

 
2,362

Accrued interest
327

 
161

Accrued operating costs
3,719

 
2,663

Accrued other
330

 
999

Total accrued liabilities
$
15,724

 
$
13,939



20



Note 9 - Debt
Debt consisted of the following at September 30, 2018 and December 31, 2017:
 
 
 
 
 
Successor
 
 
 
 
 
September 30, 2018
 
December 31, 2017
 
Interest Rate
 
Maturity Date
 
Fair Value of Debt (d)
 
Carrying Value of Debt
 
Carrying Value of Debt
Successor Revolving Facility (a)
7.36%
 
Aug. 2020
 
$

 
$

 
$

Successor First Lien Term Loan (b)
9.36%
 
Aug. 2020
 
12,679

 
12,679

 
14,285

Successor Second Lien Term Loan (b)
11.00%
 
Feb 2021
 
20,592

 
20,592

 
21,000

Vehicle financings (c)
5.31%
 
Various
 
2,343

 
2,343

 
3,764

Total debt
 
 
 
 
$
35,614

 
35,614

 
39,049

Less: current portion of long-term debt
 
 
(4,526
)
 
(5,525
)
Long-term debt
 
 
 
 
 
 
$
31,088

 
$
33,524

_____________________
(a)
The interest rate presented represents the interest rate on the $30.0 million Successor Revolving Facility as of September 30, 2018.
(b)
Interest on the Successor First Lien Term Loan accrues at an annual rate equal to the LIBOR Rate plus 7.25%. Interest on the Successor Second Lien Term Loan accrues at both an annual rate equal to 11.0%, with 5.5% payable in cash and 5.5% payable in kind prior to February 7, 2018, and on or after February 7, 2018, at an annual rate equal to 11.0%, payable in cash, in arrears, on the first day of each month.
(c)
Vehicle financings consist of capital lease arrangements related to fleet purchases with a weighted-average annual interest rate of approximately 5.31%, which mature in varying installments between 2018 and 2020.
(d)
Our Successor Revolving Facility, Successor First Lien Term Loan, Successor Second Lien Term Loan, and vehicle financings bear interest at rates commensurate with market rates and therefore their respective carrying values approximate fair value.
For a discussion of material changes and developments in our debt and its principal terms, see our discussion below.
Indebtedness
As of September 30, 2018, we had $35.6 million of indebtedness outstanding, consisting of $12.7 million under the Successor First Lien Term Loan (as defined herein), $20.6 million under the Successor Second Lien Term Loan (as defined herein), and $2.3 million of capital leases for vehicle financings.
See the “Bridge Term Loan Credit Agreement, Guaranty Agreement, and Subordination Agreement” discussion in Note 18 for details on the Bridge Term Loan Credit Agreement.
First Lien Credit Agreement
On the Effective Date, pursuant to the Plan, the Company entered into a $45.0 million First Lien Credit Agreement (the “Credit Agreement”) by and among the lenders party thereto (the “Credit Agreement Lenders”), ACF FinCo I, LP, as administrative agent (the “Credit Agreement Agent”), and the Company. Pursuant to the Credit Agreement, the Credit Agreement Lenders agreed to extend to the Company a $30.0 million senior secured revolving credit facility (the “Successor Revolving Facility”) and a $15.0 million senior secured term loan facility (the “Successor First Lien Term Loan”) (i) to repay obligations outstanding under the Predecessor asset-based lending facility and debtor in possession asset-based lending facility, (ii) to make certain payments as provided in the Plan, (iii) to pay costs and expenses incurred in connection with the Plan, and (iv) for working capital, transaction expenses, and other general corporate purposes. The Credit Agreement also contains an accordion feature that provides for an increase in availability of up to an additional $20.0 million, subject to the satisfaction of certain terms and conditions contained in the Credit Agreement.
The Successor Revolving Facility and the Successor First Lien Term Loan mature on August 7, 2020, at which time the Company must repay the outstanding principal amount of the Successor Revolving Facility and the Successor First Lien Term Loan, together with interest accrued and unpaid thereon. The Successor Revolving Facility may be repaid and, subject to the

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terms and conditions of the Credit Agreement, reborrowed at any time during the term of the Credit Agreement. The principal amount of the Successor First Lien Term Loan shall be repaid in installments of $178.6 thousand beginning on September 1, 2017 and the first day of each calendar month thereafter prior to maturity. Interest on the Successor Revolving Facility accrues at an annual rate equal to the LIBOR Rate (as defined in the Credit Agreement) plus 5.25%, and interest on the Successor First Lien Term Loan accrues at an annual rate equal to the LIBOR Rate plus 7.25%; however, if there is an Event of Default (as defined in the Credit Agreement), the Credit Agreement Agent, in its sole discretion, may increase the applicable interest rate at a per annum rate equal to three percentage points above the annual rate otherwise applicable thereunder.
The Credit Agreement also contains certain affirmative and negative covenants, including a fixed charge coverage ratio covenant, as well as other terms and conditions that are customary for revolving credit facilities and term loans of this type. As of September 30, 2018, we were in compliance with all covenants.
See the “Amendment to First Lien Credit Agreement and Joinder to First Lien Guaranty and Security Agreement” discussion in Note 18 for details on the First Amendment to the Credit Agreement.

Second Lien Term Loan Credit Agreement
On the Effective Date, pursuant to the Plan, the Company also entered into a Second Lien Term Loan Credit Agreement (the “Second Lien Term Loan Agreement”) by and among the lenders party thereto (the “Second Lien Term Loan Lenders”), Wilmington Savings Fund Society, FSB, as administrative agent (the “Second Lien Term Loan Agent”) and the Company. Pursuant to the Second Lien Term Loan Agreement, the Second Lien Term Loan Lenders agreed to extend to the Company a $26.8 million second lien term loan facility (the “Successor Second Lien Term Loan”), of which $21.1 million was advanced on the Effective Date and up to an additional $5.7 million (“Delayed Draw Term Loan”) is available at the request of the Company after the closing date subject to the satisfaction of certain terms and conditions specified in the Second Lien Term Loan Agreement. The Second Lien Term Loan Lenders extended the Successor Second Lien Term Loan, among other things, (i) to repay obligations outstanding under the Predecessor asset-based lending facility and debtor in possession asset-based revolving facility, (ii) to make certain payments as provided in the Plan, (iii) to pay costs and expenses incurred in connection with the Plan, and (iv) for working capital, transaction expenses and other general corporate purposes.
The Successor Second Lien Term Loan matures on February 7, 2021, at which time the Company must repay all outstanding obligations under the Successor Second Lien Term Loan. The principal amount of the Successor Second Lien Term Loan shall be repaid in installments of $263.2 thousand beginning on October 1, 2017, and the first day of each fiscal quarter thereafter prior to maturity, with such amount to be proportionally increased as the result of the incurrence of a Delayed Draw Term Loan. Interest on the Successor Second Lien Term Loan accrues at an annual rate equal to 11.0%, with 5.5% payable in cash and 5.5% payable in kind prior to February 7, 2018 (or such later date as the Company may select in accordance with the terms of the Second Lien Term Loan Agreement) and, on or after February 7, 2018 (or such later date) at an annual rate equal to 11.0%, payable in cash, in arrears, on the first day of each month. However, upon the occurrence and during the continuation of an Event of Default (as defined in the Second Lien Term Loan Agreement) due to a voluntary or involuntary bankruptcy filing, automatically, or any other Event of Default, at the election of the Second Lien Term Loan Agent, the Successor Second Lien Term Loan and all obligations thereunder shall bear interest at an annual rate equal to three percentage points above the annual rate otherwise applicable thereunder.
The Second Lien Term Loan Agreement also contains certain affirmative and negative covenants, including a fixed charge coverage ratio covenant, as well as other terms and conditions that are customary for term loans of this type. As of September 30, 2018, we were in compliance with all covenants.
See the “Amendment to Second Lien Credit Agreement and Joinder to Second Lien Guaranty and Security Agreement” discussion in Note 18 for details on the First Amendment to the Second Lien Term Loan Agreement.

Note 10 - Derivative Warrants
Predecessor Warrants
During the year ended December 31, 2016, we issued 26.4 million warrants, with 17.5 million warrants for the exchange of the 2018 Notes for new 12.5%/10.0% Senior Secured Second Lien Notes due 2021 (the “2021 Notes”), 0.1 million warrants for the exchange of the 2018 Notes for common stock, and 8.8 million warrants to the lenders under the Predecessor Term Loan. All warrants were issued with an exercise price of $0.01 and had a term of ten years.

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Upon emergence from chapter 11 on the Effective Date, all existing warrants outstanding under the Predecessor Company were canceled under the Plan. The following table shows the Predecessor warrant activity for the seven months ended July 31, 2017:
 
 
Predecessor
 
 
Seven Months Ended
 
 
July 31, 2017
Outstanding at the beginning of the period
 
25,283

Issued
 

Exercised
 
(16
)
Canceled due to emergence from chapter 11
 
(25,267
)
Outstanding at the end of the period
 


Successor Warrants

Pursuant to the Plan, on the Effective Date, we issued to the holders of the 2018 Notes and holders of certain claims relating to the rejection of executory contracts and unexpired leases warrants to purchase an aggregate of 118,137 shares of common stock, par value $0.01, at an exercise price of $39.82 per share and with a term expiring seven years from the Effective Date.
The following table shows the Successor warrant activity for the nine months ended September 30, 2018:
 
 
Successor
 
 
Nine Months Ended
 
 
September 30, 2018
Outstanding at the beginning of the period
 
118

Issued
 

Exercised
 

Outstanding at the end of the period
 
118

Fair Value of Warrants
We account for warrants in accordance with the accounting guidance for derivatives, which sets forth a two-step model to be applied in determining whether a financial instrument is indexed to an entity’s own stock which would qualify such financial instruments for a scope exception. This scope exception specifies that a contract that would otherwise meet the definition of a derivative financial instrument would not be considered as such if the contract is both (i) indexed to the entity’s own stock and (ii) classified in the shareholders’ equity section of the entity’s balance sheet. We determined that the Predecessor warrants were ineligible for equity classification due to the anti-dilution provisions in the contract and were recorded as derivative liabilities at fair value in the condensed consolidated balance sheet. The Successor warrants are also ineligible for equity classification as the warrants are not indexed to our common stock and are recorded as derivative liabilities at fair value in the condensed consolidated balance sheets. The Successor warrants are classified as a current liability in the condensed consolidated balance sheets as they could be exercised by the holders at any time.
As discussed previously in Note 7, the fair value of the derivative warrant liability is estimated using a Monte Carlo simulation model on the date of issue and is re-measured at each quarter end until expiration or exercise of the underlying warrants with the resulting fair value adjustment recorded in “Other (income) expense, net” in the condensed consolidated statements of operations.


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The fair value of the derivative warrant liability as of September 30, 2018 and December 31, 2017 was estimated using the following model inputs:
 
 
Successor
 
 
As of September 30,
 
As of December 31,
 
 
2018
 
2017
Exercise price
 
$
39.82

 
$