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, 2015
, 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, 2015, filed with the SEC on March 14, 2016.
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 balance sheets and notes thereto in order to conform to the current year’s presentation including:
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•
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As of January 1, 2016, and further discussed below under "Significant Accounting Policies," we retrospectively adopted, for all comparative periods presented, ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs
, and ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
. As a result,
$6.5 million
of our unamortized debt issuance costs related to our
9.875%
Senior Notes due 2018 (the "2018 Notes),
12.5%
/
10.0%
Senior Secured Second Lien Notes due 2021 (the "2021 Notes") and
$24.0 million
term loan (the "Term Loan") have been presented in “Long-term debt” on the condensed consolidated balance sheet as of
September 30, 2016
. Further,
$8.7 million
of unamortized debt issuance costs related to our 2018 Notes have been reclassified from “Other assets” to “Current portion of long-term debt” on the condensed consolidated balance sheet as of December 31, 2015. Additionally, as the debt associated with our asset-based revolving credit facility is presented as short-term, the related debt issuance costs of
$0.9 million
and
$2.2 million
as of
September 30, 2016
and December 31, 2015, respectively, have been reclassified from "Other assets" to "Other current assets" on the condensed consolidated balance sheets. The total assets for the Corporate/Other segment reported in Note 15 have been adjusted for this reclassification.
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Going Concern
Our consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the condensed consolidated financial statements, we had an accumulated deficit at
September 30, 2016
, and a net loss for the
nine months ended
September 30, 2016
and
2015
. These factors, coupled with our large outstanding debt balance, raise substantial doubt about our ability to continue as a going concern. We are attempting to generate sufficient revenues and reduce costs; however, our cash position may not be sufficient to support our daily operations if we are not successful. While we have executed a comprehensive strategy to restructure our indebtedness, improve liquidity and reduce costs, including cash interest expense, to sustain operations through the prolonged depression in oil and natural gas prices and the corresponding impact on our business operations, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to generate sufficient liquidity to meet our obligations and operating needs. While we were in compliance with our existing debt arrangements as of September 30, 2016, we recognize that absent an improvement in oil prices, it is likely that we will not have enough liquidity, including cash on hand, to service our debt, operations, and avoid covenant violations. See Note 8 on Debt and Note 18 on Subsequent Events for details on our debt restructuring in 2016, subsequent entry into the grace period to make our interest payment due October 17, 2016, near-term refinancing deadlines under our ABL Facility and discussions with our debtholders regarding strategic alternatives to improve our long-term capital structure.
The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Significant Accounting Policies
As of January 1, 2016, we retrospectively adopted, for all comparative periods presented, ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs
, and ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
. The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The current condensed consolidated balance sheet as of
September 30, 2016
presents
$6.5 million
of our unamortized debt issuance costs related to our 2018 Notes, 2021 Notes and Term Loan in “Long-term debt.” In order to conform to the current financial statement presentation,
$8.7 million
of unamortized debt issuance costs related to our 2018 Notes have been reclassified from “Other assets” to “Current portion of long-term debt” on the condensed consolidated balance sheet as of December 31, 2015. The guidance in ASU 2015-15 prescribes that deferred initial up-front commitment fees paid by a borrower to a lender represent the benefit of being able to access capital over the contractual term, and therefore, meet the definition of an asset, while debt issuance costs in the scope of ASU 2015-03 do not. As such, we will continue to present the costs associated with our asset-based revolving credit facility as an asset. Deferred issuance costs associated with our asset-based revolving credit facility of
$0.9 million
and
$2.2 million
as of
September 30, 2016
and December 31, 2015, respectively, are included in “Other current assets” on the condensed consolidated balance sheets as this debt is considered short-term.
On March 10, 2016, we entered into an amendment to our guaranty and security agreement related to our asset-based revolving credit facility ("ABL Facility"), which is described in further detail in Note 8 under "ABL Facility Amendments." This amendment implemented a daily cash sweep of our collection lockbox and certain depository accounts, the proceeds of which are required to be applied against the outstanding balance of the ABL Facility. As a result of the sweep occurring one day in arrears, we had an ending balance of
$0.7 million
in our collection lockbox and certain depository accounts on September 30, 2016, which we have classified as "Restricted cash" on the condensed consolidated balance sheet as this cash is not available for operations and was subsequently swept by the lender on October 1, 2016, and applied against the outstanding balance under the ABL Facility.
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 Annual Report on Form 10-K for the year ended December 31, 2015.
Note 2 - Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“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 which may be applied retrospectively or modified retrospectively. In August 2015, the FASB issued ASU No. 2015-14, Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective Date
("ASU 2015-14"). The guidance in ASU 2015-14 delays the effective date for the new revenue recognition guidance outlined in ASU 2014-09 to reporting periods beginning after December 15, 2017, which for us is the reporting period starting January 1, 2018. We are reviewing the guidance in ASU 2014-09 to assess the impact, if any, on our consolidated financial statements and to determine our method of adoption.
In August 2014, the FASB issued ASU No. 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 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 reporting periods beginning after December 15, 2016, with early adoption permitted. We are reviewing the guidance in ASU 2014-15 and preparing for adoption on January 1, 2017.
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 2016-09 is permitted. We are evaluating the effect that ASU 2016-02 will have on our
consolidated financial statements and related disclosures
.
Based upon the current effective date, the new guidance would first apply to our reporting period starting January 1, 2019.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09"), which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period, however early adoption is permitted. We are currently evaluating the guidance in ASU 2016-09 to determine our adoption method and the effect it will have on our consolidated financial statements when we adopt on January 1, 2017.
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 years, beginning after December 15, 2017, with early adoption permitted. We plan to adopt this pronouncement for our fiscal year beginning January 1, 2018, and are currently evaluating the effect on our consolidated financial statements.
Note 3 - Earnings Per Common Share and Equity
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, 2016
and
2015
,
no
shares of common stock underlying stock options, restricted stock, or warrants were included in the computation of diluted earnings per common share ("EPS") from continuing operations because the inclusion of such shares would be anti-dilutive based on the net losses from continuing operations reported for those periods. Accordingly, for the
nine
month periods ended
September 30, 2016
and
2015
,
no
shares of common stock underlying stock options, restricted stock, or warrants were included in the computations of diluted EPS from income 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:
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
|
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2016
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2015
|
|
2016
|
|
2015
|
Numerator:
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|
|
|
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Loss from continuing operations
|
$
|
(38,396
|
)
|
|
$
|
(128,113
|
)
|
|
(106,305
|
)
|
|
(160,755
|
)
|
Loss from discontinued operations
|
—
|
|
|
350
|
|
|
(1,235
|
)
|
|
(818
|
)
|
Net loss attributable to common shareholders
|
$
|
(38,396
|
)
|
|
$
|
(127,763
|
)
|
|
$
|
(107,540
|
)
|
|
$
|
(161,573
|
)
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|
|
|
|
|
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Denominator:
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Weighted average shares—basic
|
129,669
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|
|
27,807
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|
|
75,291
|
|
|
27,634
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|
Common stock equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
—
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|
Weighted average shares—diluted
|
129,669
|
|
|
27,807
|
|
|
75,291
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|
|
27,634
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|
|
|
|
|
|
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Net loss per common share attributable to common shareholders:
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Basic and diluted loss from continuing operations
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$
|
(0.30
|
)
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$
|
(4.61
|
)
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$
|
(1.41
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)
|
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$
|
(5.82
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)
|
Basic and diluted loss from discontinued operations
|
—
|
|
|
0.01
|
|
|
(0.02
|
)
|
|
(0.03
|
)
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Net loss per basic and diluted common share
|
$
|
(0.30
|
)
|
|
$
|
(4.60
|
)
|
|
$
|
(1.43
|
)
|
|
$
|
(5.85
|
)
|
|
|
|
|
|
|
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Anti-dilutive stock-based awards excluded
|
388
|
|
|
800
|
|
|
388
|
|
|
770
|
|
Equity Transactions Related to Restructuring
In connection with our debt restructuring, which is discussed in further detail in Note 8, at the May 20, 2016 Special Meeting of Shareholders, our shareholders approved an amendment to our Amended and Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of our common stock, par value
$0.001
per share, from
50 million
to
350 million
. The increase in our authorized shares of common stock provides us with sufficient common share capacity to issue shares of common stock in connection with our debt restructuring transactions. See the "Exchange Offer" discussion in Note 8 for the details on debt exchanged for common stock and the number of shares issued during the three months ended June 30, 2016.
Rights Offering
The planned equity rights offering (the "Rights Offering"), in which all holders of our common stock will be granted the right to participate, has been postponed indefinitely due to ongoing discussions with our debtholders regarding strategic alternatives to improve our long-term capital structure. If executed, each shareholder who participates in the Rights Offering will have the right to subscribe for a pro-rata share of
$5.0 million
of common stock exercisable at a
20%
discount to the Conversion Price (or
$0.256
). Mark D. Johnsrud, our Chairman of the Board and Chief Executive Officer, has agreed to backstop the Rights Offering by committing to purchase rights that are not exercised by other shareholders in order to ensure that the Company receives the additional liquidity, in exchange for a backstop fee of
5%
payable in the form of additional common stock issued at
$0.32
per share. On April 15, 2016, the Company and Mr. Johnsrud entered into an Escrow Agreement, pursuant to which Mr. Johnsrud deposited
$5.0 million
into an escrow account for the purpose of securing Mr. Johnsrud’s backstop obligations under the Rights Offering.
On July 29, 2016, the Company and Mr. Johnsrud entered into an amendment to the Escrow Agreement, pursuant to which the Company and Mr. Johnsrud agreed to an irrevocable early release of the
$5.0 million
in escrow securing the backstop obligation, which was used to pay down the ABL Facility. In exchange for the release of the
$5.0 million
, we deposited into an escrow account
20,312,500
shares of our common stock, which represents
19.5 million
shares underlying the subscription rights to be distributed in the Rights Offering and the
0.8 million
shares to be provided to Mr. Johnsrud for the backstop fee. The shares in the escrow account will be released to Mr. Johnsrud upon the consummation of the Rights Offering or the occurrence of other specified events, including failure to consummate the Rights Offering by November 15, 2016. The
20,312,500
shares in escrow will be deemed voted for and against any matters submitted to our shareholders in the same proportion as the vote of the common stock of the Company on any such matter.
Note 4 - Intangible Assets
Intangible assets consist of the following:
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|
|
|
|
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|
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September 30, 2016
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|
December 31, 2015
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Gross Carrying Amount
|
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Accumulated Amortization
|
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Net
|
|
Remaining Useful Life (Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Remaining Useful Life (Years)
|
Customer relationships
|
$
|
11,731
|
|
|
$
|
(7,932
|
)
|
|
$
|
3,799
|
|
|
5.7
|
|
$
|
11,731
|
|
|
$
|
(6,865
|
)
|
|
$
|
4,866
|
|
|
6.0
|
Disposal permits
|
1,269
|
|
|
(572
|
)
|
|
697
|
|
|
4.4
|
|
1,269
|
|
|
(451
|
)
|
|
818
|
|
|
5.2
|
Customer contracts
|
17,352
|
|
|
(6,943
|
)
|
|
10,409
|
|
|
10.0
|
|
17,352
|
|
|
(6,169
|
)
|
|
11,183
|
|
|
11.0
|
|
$
|
30,352
|
|
|
$
|
(15,447
|
)
|
|
$
|
14,905
|
|
|
8.6
|
|
$
|
30,352
|
|
|
$
|
(13,485
|
)
|
|
$
|
16,867
|
|
|
9.3
|
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 - Assets Held for Sale and Impairment
Assets Held for Sale
During the three months ended June 30, 2016, management approved plans to sell certain assets located in both the Northeast and Southern divisions, including trucks, tanks, and a parcel of land, and we began to actively market these assets, which we expect to sell within one year. As not all of the assets were sold during the three months ended September 30, 2016, and management approved the sale of additional assets in the Southern division under the previously approved plan, we continue to have assets presented separately as "Assets held for sale" in our condensed consolidated balance sheet as of September 30, 2016.
In accordance with applicable accounting guidance, the assets were recorded at the lower of net book value or fair value less costs to sell. Upon reclassification we ceased to recognize depreciation expense on the assets. As the fair value of the assets was lower than its net book value, an impairment charge of
$2.1 million
was recognized during the three months ended September 30, 2016, and is included in "Impairment of long-lived assets" on our condensed consolidated statements of operations. The
$2.1 million
recorded during the three months ended September 30, 2016 related to the Southern division.
As a result of classifying assets as held for sale, we recorded total impairment charges of
$4.8 million
during the nine months ended September 30, 2016, which included
$2.7 million
recorded during the three months ended June 30, 2016, with
$2.4 million
for the Northeast division and
$0.3 million
for the Southern division. The fair value of the assets was measured using third party quoted prices for similar assets (Level 3).
Impairment of 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 value of such assets may not be recoverable. Due to the recent sales of underutilized or non-core assets as a result of lower oil prices and decreased activities by our customers, in addition to lower capital spending over the last two years, there were indicators that the carrying value of our assets may not be recoverable during the three months ended September 30, 2016.
Recoverability of assets to be held and used is assessed by a comparison of the carrying value of such assets to the sum of the estimated future undiscounted 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 have 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 asset groups that do not pass the recoverability test, an impairment loss is recognized for the amount by which the carrying value exceeds fair value.
Our impairment review during the three months ended September 30, 2016 concluded that the carrying value of the Haynesville and Marcellus asset groups were not recoverable as the carrying value exceeded our estimate of future undiscounted cash flows for these two basins. As a result, we recorded an impairment charge for the Marcellus asset group (Northeast division) of
$5.7 million
during the three months ended September 30, 2016 as the carrying value exceeded fair value. No impairment charge
was necessary for the Haynesville asset group as the fair value was greater than the carrying value. The fair value of our asset groups was determined primarily using the cost and market approaches (Level 3).
If the decrease in demand for our services continues for a prolonged period of time, or if we make 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.
Impairment of Goodwill
Due to the reduced price of oil and natural gas and the resulting decrease in demand for our services, we recognized an impairment charge of
$104.7 million
related to our Rocky Mountain division during the three months ended September 30, 2015, thereby eliminating all remaining goodwill. The impairment charge is shown as "Impairment of goodwill" in the condensed consolidated statement of operations.
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:
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•
|
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:
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|
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|
Fair Value
|
As of September 30, 2016
|
|
Assets: Cost method investment
|
$
|
—
|
|
Liabilities:
|
|
Derivative warrant liability
|
4,426
|
|
Contingent consideration
|
8,500
|
|
|
|
As of December 31, 2015
|
|
Assets: Cost method investment
|
$
|
3,169
|
|
Liabilities:
|
|
Derivative warrant liability
|
—
|
|
Contingent consideration
|
8,628
|
|
Derivative Warrant Liability
In connection with our debt restructuring as described in Note 8 under "Exchange Offer" and "Term Loan," we issued warrants with derivative features during the three months ended June 30, 2016. These instruments are accounted for as derivative liabilities as described further in Note 9.
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, 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 included 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 "Derivative warrant liability" presented in the condensed consolidated balance sheet for the nine months ended September 30, 2016.
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|
September 30, 2016
|
Balance at beginning of period
|
|
$
|
—
|
|
Issuance of warrants
|
|
7,229
|
|
Exercise of warrants
|
|
(229
|
)
|
Adjustments to estimated fair value
|
|
(2,574
|
)
|
Balance at end of period
|
|
$
|
4,426
|
|
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.
As we have previously determined that it would be unlikely that the required permits and certificates necessary for the issuance of a second special waste disposal permit to Ideal Oilfield Disposal, LLC would be issued within one year, we have presented the
$8.5 million
contingent consideration liability related to the Ideal Oilfield Disposal, LLC acquisition as "Long-term contingent consideration" in the condensed consolidated balance sheet as of
September 30, 2016
. Changes to the fair value of contingent consideration are recorded as "Other income, 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, 2016
and the year ended
December 31, 2015
were as follows:
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|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Balance at beginning of period
|
$
|
8,628
|
|
|
$
|
9,824
|
|
Cash payments
|
—
|
|
|
(909
|
)
|
Changes in fair value of contingent consideration, net
|
(128
|
)
|
|
(287
|
)
|
Balance at end of period
|
$
|
8,500
|
|
|
$
|
8,628
|
|
Less: current portion
|
—
|
|
|
(8,628
|
)
|
Long-term contingent consideration
|
$
|
8,500
|
|
|
$
|
—
|
|
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, the fair value of our asset groups is determined primarily using the cost and market approaches (Level 3).
Our cost method investment in Underground Solutions Inc. (or "UGSI") was 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. UGSI was acquired during the six months ended June 30, 2016, which is discussed in further detail in Note 14.
Note 7 - Accrued Liabilities
Accrued liabilities consisted of the following at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Accrued payroll and employee benefits
|
$
|
1,402
|
|
|
$
|
5,839
|
|
Accrued insurance
|
4,546
|
|
|
5,896
|
|
Accrued legal and environmental costs
|
1,595
|
|
|
1,531
|
|
Accrued taxes (Note 11)
|
2,629
|
|
|
1,514
|
|
Accrued interest (Note 8)
|
2,040
|
|
|
8,516
|
|
Accrued operating costs
|
4,231
|
|
|
4,233
|
|
Accrued other
|
1,838
|
|
|
2,314
|
|
Total accrued liabilities
|
$
|
18,281
|
|
|
$
|
29,843
|
|
Note 8 - Debt
Debt consisted of the following at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Interest Rate
|
|
Maturity Date
|
|
Unamortized Deferred Financing Costs (i)
|
|
Fair Value of Debt (h)
|
|
Carrying Value of Debt
|
|
Carrying Value of Debt
|
ABL Facility (a)
|
4.03%
|
|
Dec. 2016
|
|
$
|
861
|
|
|
$
|
43,937
|
|
|
$
|
43,937
|
|
|
$
|
101,832
|
|
2018 Notes (b)
|
9.875%
|
|
Apr. 2018
|
|
616
|
|
|
5,434
|
|
|
40,436
|
|
|
400,000
|
|
2021 Notes (c)
|
12.50%
|
|
Apr. 2021
|
|
5,736
|
|
|
69,194
|
|
|
345,968
|
|
|
—
|
|
Term Loan (d)
|
13.00%
|
|
Apr. 2018
|
|
104
|
|
|
25,493
|
|
|
25,493
|
|
|
—
|
|
Vehicle financings (e)
|
4.32%
|
|
Various
|
|
—
|
|
|
8,863
|
|
|
8,863
|
|
|
12,303
|
|
Note payable (f)
|
4.25%
|
|
Apr. 2019
|
|
—
|
|
|
5,207
|
|
|
5,207
|
|
|
6,492
|
|
Total debt
|
|
|
|
|
$
|
7,317
|
|
|
$
|
158,128
|
|
|
469,904
|
|
|
520,627
|
|
Original issue discount and premium for 2018 Notes (g)
|
|
|
|
(32
|
)
|
|
(452
|
)
|
Original issue discount and premium for 2021 Notes (g)
|
|
|
|
(298
|
)
|
|
—
|
|
Deferred financing costs presented with debt (i)
|
|
|
|
|
|
(6,456
|
)
|
|
(8,708
|
)
|
Debt discount for issuance of warrants (j)
|
|
|
|
|
|
(6,342
|
)
|
|
—
|
|
Total debt, net
|
|
|
|
|
|
|
|
|
456,776
|
|
|
511,467
|
|
Less: current portion of long-term debt (k)(l)
|
|
|
|
(51,315
|
)
|
|
(499,709
|
)
|
Long-term debt
|
|
|
|
|
|
|
|
|
$
|
405,461
|
|
|
$
|
11,758
|
|
_____________________
|
|
(a)
|
The interest rate presented represents the interest rate on the
$85.0 million
ABL Facility at
September 30, 2016
.
|
|
|
(b)
|
The interest rate presented represents the coupon rate on our 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 on April 15 and October 15 of each year.
|
|
|
(c)
|
The interest rate presented represents the current coupon rate on our 2021 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 2021 Notes is approximately
12.4%
. Interest is paid in kind semi-annually by increasing the principal amount payable and due at maturity and/or in cash as follows: interest payable on October 15, 2016 will be paid in kind at an annual rate of
12.5%
; interest payable after October 15, 2016 but on or before April 15, 2018 will be paid at a rate of
10%
with
50%
in kind and
50%
in cash; interest payable after April 15, 2018 will be paid in cash at a rate of
10%
until maturity.
|
|
|
(d)
|
The Term Loan accrues interest at a rate of
13%
compounded monthly and which is paid in kind by increasing the principal amount payable thereunder. Principal including the paid in kind interest is due April 15, 2018.
|
|
|
(e)
|
Vehicle financings consist of capital lease arrangements related to fleet purchases with a weighted-average annual interest rate of approximately
4.32%
, which mature in varying installments between
2016
and
2020
. Capital lease obligations were
$8.9 million
and
$12.3 million
at
September 30, 2016
and
December 31, 2015
, respectively.
|
|
|
(f)
|
During the three months ended June 30, 2015, we settled our
$11.0 million
financing obligation to acquire the remaining
49%
interest in Appalachian Water Services, LLC ("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.
|
|
|
(g)
|
As discussed in greater detail in the "Exchange Offer" section below, on April 15, 2016,
$327.2 million
in principal 2018 Notes were exchanged for new 2021 Notes. The note for note exchange was accounted for as a modification, and as a result
$57.3 thousand
and
$16.8 thousand
of the original issuance discount and premium, respectively, will continue to be amortized over the remaining term of the 2018 Notes, while
$0.5 million
and
$0.1 million
of the original issuance discount and premium, respectively, will be amortized over the term of the new 2021 Notes. Further, a total of
$32.3 million
in principal 2018 Notes were exchanged for common stock and
$45.8 thousand
and
$13.4 thousand
of the original issuance discount and premium, respectively, were included in the calculation of the gain/(loss) on extinguishment.
|
|
|
(h)
|
The estimated fair value of our 2018 Notes and our 2021 Notes is based on reported trading prices as of
September 30, 2016
. Our ABL Facility, Term Loan, note payable and vehicle financings bear interest at rates commensurate with market rates and therefore their respective carrying values approximate fair value.
|
|
|
(i)
|
As discussed previously in Note 1, upon retrospective adoption of ASU 2015-03, we have presented the deferred financing costs associated with the 2018 Notes, 2021 Notes and Term Loan in the balance sheet as a direct deduction from the carrying amount of the debt liability as of
September 30, 2016
and
December 31, 2015
. In accordance with ASU 2015-15, the deferred financing costs related to the ABL Facility continue to be presented as an asset, and are included in "Other current assets" on the condensed consolidated balance sheets as of
September 30, 2016
and
December 31, 2015
. Additionally, as discussed in greater detail in the "Exchange Offer" section below, on April 15, 2016,
$327.2 million
in principal 2018 Notes were exchanged for new 2021 Notes. The note for note exchange was accounted for as a modification, and as a result
$0.8 million
of the original deferred financing costs associated with the 2018 Notes will continue to be amortized over the remaining term of the 2018 Notes, while
$6.3 million
will be amortized over the term of the new 2021 Notes. Further, a total of
$32.3 million
in principal 2018 Notes were exchanged for common stock and
$0.6 million
of the original deferred financing costs associated with the 2018 Notes were included in the calculation of the gain/(loss) on extinguishment.
|
|
|
(j)
|
The debt discount for issuance of warrants represents the initial fair value of the warrants issued in connection with the debt restructuring described in the "Exchange Offer" and "Term Loan" sections below, which will be amortized through interest expense over the terms of the new 2021 Notes and the Term Loan. As described further in Note 9, these warrants are accounted for as derivative liabilities.
|
|
|
(k)
|
As the scheduled maturity date of the ABL Facility is December 31, 2016, the carrying value of the ABL Facility is presented in current liabilities in the consolidated balance sheet as of September 30, 2016. In addition, the principal payments due within one year for the vehicle financings and note payable are also classified as current.
|
|
|
(l)
|
The carrying value of the ABL Facility and the 2018 Notes were presented as current liabilities as of December 31, 2015 due to the probability of breaching one of the financial covenants at that date. In addition, the principal payments due within one year for the vehicle financings and note payable were also classified as current.
|
For a discussion of material changes and developments in our debt and its principal terms, see our discussion below regarding the "Exchange Offer," "Term Loan," and "ABL Facility Amendments," in addition to the discussion in Note 18 on "Subsequent Events."
Indebtedness
Exchange Offer
On March 11, 2016, we entered into a Restructuring Support Agreement with holders of more than
80%
of the 2018 Notes relating to a debt restructuring and recapitalization plan (the “Restructuring”), subject to the satisfaction of certain closing conditions including shareholder approval of an amendment to our Amended and Restated Certificate of Incorporation, as amended, and minimum noteholder participation. On April 15, 2016, we closed our exchange offer (the “Exchange Offer”)
relating to our 2018 Notes as part of the comprehensive restructuring of our outstanding indebtedness pursuant to the Restructuring Support Agreement.
Pursuant to the Exchange Offer, we offered to exchange our 2021 Notes and shares of our common stock at a conversion price per share of
$0.32
(the “Conversion Price”) for any and all of our 2018 Notes validly tendered and not properly withdrawn at or prior to the expiration date, with the exception of approximately
$31.4 million
in principal 2018 Notes owned by an entity controlled by Mark D. Johnsrud, our Chairman of the Board and Chief Executive Officer. We settled the Exchange Offer on April 15, 2016 by delivering to tendering holders of the 2018 Notes (i)
$327.2 million
in aggregate principal amount of the new 2021 Notes to those tendering holders electing to exchange for 2021 Notes and
$0.9 million
in shares of common stock converted at the Conversion Price to those tendering holders electing to exchange for common stock and (ii) a pro-rata share (based on the aggregate principal amount of the 2018 Notes validly tendered) of penny warrants sufficient to purchase
10%
of shares of our common stock (the "Exchange Warrants"). In addition,
$31.4 million
in principal 2018 Notes held by an entity controlled by Mr. Johnsrud were canceled upon closing of the Exchange Offer, and converted to shares of our common stock on May 26, 2016 at the Conversion Price, following shareholder approval at the May 20, 2016 Special Meeting of Shareholders to approve an amendment to our Amended and Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of our common stock, par value
$0.001
per share, from
50 million
to
350 million
(the "Johnsrud Note Conversion"). As a result of the exchange, a total of
101,071,875
shares of common stock were issued, with
2,837,500
to tendering holders electing to exchange their 2018 Notes for common stock, and
98,234,375
for the Johnsrud Note Conversion.
The exchange of the
$327.2 million
in principal 2018 Notes for new 2021 Notes was accounted for as a debt modification, and all third party expenses related to the exchange were expensed to "General and administrative expenses" in the condensed consolidated statement of operations for the three months ended June 30, 2016. The exchange of the
$0.9 million
in principal 2018 Notes for common stock was accounted for as a debt extinguishment, which generated an immaterial loss on extinguishment recorded in "Loss on extinguishment of debt" in the condensed consolidated statement of operations for the three months ended June 30, 2016. Finally, the exchange of
$31.4 million
in principal 2018 Notes held by an entity controlled by Mr. Johnsrud for common stock was accounted as a capital transaction as Mr. Johnsrud is a related party, with the loss on extinguishment recorded in "Additional paid-in-capital" on the condensed consolidated balance sheet as of June 30, 2016. The Warrants issued in connection with the Exchange Offer are discussed in further detail in Note 9 on "Derivative Warrants."
In connection with the issuance of the new 2021 Notes, we entered into a new Indenture that governs the terms of the new 2021 Notes, dated as of April 15, 2016, between the Company, Wilmington Savings Fund Society, FSB, as Trustee, and the Guarantors party thereto. Pursuant to the new Indenture, the 2021 Notes will mature on April 15, 2021. Interest is paid in kind semi-annually by increasing the principal amount payable and due at maturity and/or in cash as follows: interest payable on October 15, 2016 is paid in kind at an annual rate of
12.5%
; interest payable after October 15, 2016 but on or before April 15, 2018 will be paid at a rate of
10%
with
50%
in kind and
50%
in cash; interest payable after April 15, 2018 will be paid in cash at a rate of
10%
until maturity. As a result, our annual cash interest payment obligations were reduced by approximately
$17.8 million
for 2016,
$17.9 million
for 2017 and
$8.6 million
through April 15, 2018. Interest on the 2021 Notes accrues from the most recent date interest has been paid, or if no interest has been paid, from and including the issue date. The 2021 Notes are secured by junior liens on the same collateral as our ABL Facility and rank equal in right of payment to all senior indebtedness and senior to all subordinated indebtedness of the Company. The 2021 Notes are guaranteed by our subsidiaries.
Upon settlement of the Exchange Offer, there remained outstanding approximately
$40.4 million
aggregate principal amount of 2018 Notes. Ongoing semi-annual interest expense with respect to the remaining 2018 Notes is approximately
$2.0 million
. In addition, based on the completion of the Exchange Offer, consents from each exchanging holder of the 2018 Notes for the waiver of certain provisions of the 2018 Notes Indenture became effective. The consents, among other things, waive substantially all of the restrictive covenants in the 2018 Notes Indenture and potential defaults arising from non-compliance with such waived covenants. See the "Deferral of Interest Payment" section in Note 18 on "Subsequent Events" for further discussion on the October 17, 2016 interest payment for the 2018 Notes.
Term Loan
Concurrent to the Exchange Offer we entered into a
$24.0 million
Term Loan funded by certain holders of the 2018 Notes that were also parties to the Restructuring Support Agreement. The Term Loan accrues interest at a rate of
13%
compounded monthly to be paid in kind by increasing the principal amount payable thereunder. Principal including the paid in kind interest is due April 15, 2018. The Term Loan is subject to a minimum EBITDA covenant that is identical in all respects to the minimum EBITDA covenant applicable to the ABL Facility. To the extent actual EBITDA (as defined by the Term Loan) falls short of the minimum EBITDA targets, the Term Loan accrues interest at a rate of
17%
. The Term Loan is secured by junior liens on the same collateral as our ABL Facility and guaranteed by our subsidiaries. In connection with the Term Loan, we entered into a warrant agreement with the lenders under the Term Loan, pursuant to which, as a commitment fee for entering into the Term Loan, the lenders received warrants to purchase up to
5%
of our then-outstanding stock at an exercise price of
$0.01
per share (the "Term Loan Warrants").
The Exchange Warrants and the Term Loan Warrants (collectively, the "Warrants") contain anti-dilution provisions which adjust the number of shares issuable upon exercise thereof in certain circumstances, including adjustments intended to preserve the proportion of outstanding common stock into which such Warrants are exercisable after giving effect to the Johnsrud Note Conversion and the Rights Offering. The Warrants are discussed in greater detail in Note 9 on "Derivative Warrants" and the Rights Offering was previously discussed in the "Rights Offering" section of Note 3.
Proceeds from the Term Loan were applied to pay down a portion of the outstanding balance of the ABL Facility and were reborrowed by us to fund the April 15, 2016 interest payment on the 2018 Notes and pay related transaction fees and expenses.
On June 30, 2016, we entered into a First Amendment to Term Loan Credit Agreement (the “Term Loan Agreement Amendment”) by and among the Required Lenders (as defined therein) and the Company, which amended the Term Loan Credit Agreement, dated as of April 15, 2016, by and among Wilmington Savings Fund Society, FSB, as administrative agent (the “Agent”), the lenders party thereto (the “Lenders”), and the Company, as borrower (the “Term Loan Agreement”).
The Term Loan Agreement Amendment amended the Term Loan Agreement by amending the minimum EBITDA financial maintenance covenant to conform to the revised minimum EBITDA financial maintenance covenant provided by the Eighth Amendment to Amended and Restated Credit Agreement (discussed below) through December 31, 2016, modifying the applicable periods for measurement and reducing the applicable amounts required to be achieved for each period. In connection with the Term Loan Agreement Amendment, we paid a non-refundable amendment fee in the amount of
$0.1 million
to the Lenders, pro-rata to their respective commitment amount under the Term Loan Agreement, which was capitalized as deferred financing costs during the three months ended June 30, 2016.
On September 22, 2016, we entered into a Second Amendment to the Term Loan Credit Agreement (the "Second Term Loan Agreement Amendment") by and among the Required Lenders and the Company, which further amended the Term Loan Agreement. The Second Term Loan Agreement Amendment further amended the Term Loan Agreement to permit the Company to reinstate Mr. Johnsrud's annual base salary to
$700,000
. Mr. Johnsrud previously agreed to a voluntary reduction in his annual base salary from
$700,000
to
$1
.
ABL Facility Amendments
On March 10, 2016, we entered into a Consent and Fifth Amendment to Amended and Restated Credit Agreement (the “Fifth ABL Facility Amendment”) and a Third Amendment to Amended and Restated Guaranty and Security Agreement (the "Third GSA Amendment") by and among Wells Fargo Bank, National Association as agent ("Agent"), the Lenders named therein (the “Lenders”), and the Company. Under the Fifth ABL Facility Amendment, the Lenders consented to the inclusion of a “going concern” qualification in the opinion from our registered public accounting firm, which is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Under the Third GSA Amendment, we consented to and implemented a daily cash sweep of our collection lockbox and depository accounts, the proceeds of which are required to be applied against the outstanding balance of the ABL Facility. The Third GSA Amendment also requires the segregation of all receipts and disbursements in separate bank accounts and limits the end of day balance in our operating bank account to an amount not to exceed
$1.0 million
.
On March 24, 2016, in connection with the Restructuring Support Agreement to implement the Restructuring, we entered into a Sixth Amendment to Amended and Restated Credit Agreement (the “Sixth ABL Facility Amendment”) by and among the Agent, the Lenders and the Company. Among other terms and conditions, the Sixth ABL Facility Amendment amended the ABL Facility as follows:
|
|
•
|
Reduced the maximum revolver commitments from
$125.0 million
to
$100.0 million
;
|
|
|
•
|
Replaced the leverage ratio financial maintenance covenant with a new minimum EBITDA financial maintenance covenant that will be tested monthly;
|
|
|
•
|
Amended the definition of “EBITDA” for purposes of the financial maintenance covenant to provide allowances for certain unusual or non-recurring fees, costs and expenses, with testing monthly beginning in April 2016;
|
|
|
•
|
Amended the definition of “Borrowing Base” (i) to set the eligible equipment advance rates based on net book value at
60%
and on Net Orderly Liquidation Value (as defined in the ABL Facility) at
80%
and (ii) to cap Borrowing Base availability attributable to eligible equipment at
75%
;
|
|
|
•
|
Increased the default rate upon the occurrence and continuation of an event of default from
2%
to
4%
;
|
|
|
•
|
Increased the applicable margin on LIBOR Rate and Base Rate Loans (each as defined in the ABL Facility) and the unused line fee;
|
|
|
•
|
Eliminated our ability to voluntarily reduce the commitments without termination of the ABL Facility;
|
|
|
•
|
Requires us to apply proceeds from the Restructuring transactions and related agreements to pay down the ABL Facility;
|
|
|
•
|
Amended the definition of “Permitted Disposition” to permit the sale of our equity investment in Underground Solutions, Inc., discussed further in Note 14, and to expand the permitted disposition general basket (which excludes the sale of machinery and equipment in the ordinary course of business) from
$5.0 million
to
$7.5 million
;
|
|
|
•
|
Applies a Permitted Disposition Reserve of
50%
against our availability for net cash proceeds in excess of
$7.5 million
made on or after March 10, 2016 for sales specifically related to the Permitted Disposition general basket; and
|
|
|
•
|
Amended certain definitions in connection with the Restructuring transactions, including “Change of Control”, “Permitted Indebtedness”, and “Permitted Liens”.
|
In addition, we agreed to certain fees that would be payable to the Lenders upon early termination of the ABL Facility as a result of acceleration, bankruptcy or otherwise, unless amounts outstanding under the ABL Facility are paid in full. In connection with the Sixth ABL Facility Amendment we incurred amendment fees of approximately
$0.6 million
which were capitalized as deferred financing costs during the three months ended March 31, 2016. Further, we wrote off a portion of the unamortized deferred financing costs associated with our ABL Facility of approximately
$0.4 million
which were included in "Loss on extinguishment of debt" in the condensed consolidated statement of operations for the three months ended March 31, 2016.
On April 15, 2016, we entered into a Seventh Amendment to Amended and Restated Credit Agreement, dated April 15, 2016 (the “Seventh ABL Facility Amendment”), by and among the Agent, the Lenders and the Company to make conforming amendments in connection with the Restructuring transactions. Among other terms and conditions, the Seventh Amendment amends the ABL Facility to: (i) require that the we apply excess proceeds from asset sales to pay down the ABL Facility; (ii) prohibit us from optionally prepaying or acquiring other indebtedness, making any payment on subordinated indebtedness, or amending certain agreements and documents; and (iii) amend certain definitions in the ABL Facility.
On June 29, 2016, we entered into an Eighth Amendment to Amended and Restated Credit Agreement (the “Eighth ABL Facility Amendment”) by and among the Agent, the Lenders, and the Company, which further amends our ABL Facility. Among other terms and conditions, the Eighth ABL Facility Amendment amended the ABL Facility as follows:
|
|
•
|
Reduced the maximum revolver commitments from
$100.0 million
to
$85.0 million
;
|
|
|
•
|
Amended the minimum EBITDA financial maintenance covenant, modifying the applicable periods for measurement and reducing the applicable amounts required to be achieved for each period;
|
|
|
•
|
Changed the scheduled maturity date of the ABL Facility from January 15, 2018 to December 31, 2016;
|
|
|
•
|
Added a covenant requiring us to refinance the ABL Facility in full on or before September 30, 2016;
|
|
|
•
|
Requires us to consummate a rights offering on or before July 29, 2016, which was subsequently waived by the Lenders on August 5, 2016, and to apply the proceeds from the rights offering to pay down the ABL Facility, which must equal
$5.0 million
(with any shortfall to be covered by the
$5.0 million
backstop funds previously placed in
|
escrow by Mark D. Johnsrud, the Company’s Chairman and Chief Executive Officer) - (see Note 18 for further updates and details on the Rights Offering);
|
|
•
|
Replaced the minimum fixed charge coverage ratio covenant with an immediate availability block in the amount of
$12.5 million
, increasing to
$15.0 million
upon receipt of the Rights Offering proceeds;
|
|
|
•
|
Establishes a Permitted Disposition Reserve equal to
50%
of the aggregate amount of net cash proceeds arising from Permitted Dispositions of any property (excluding the sale of machinery and equipment in the ordinary course of business) consummated after June 29, 2016;
|
|
|
•
|
Increased the applicable margin on LIBOR Rate and Base Rate Loans (as defined in the ABL Facility).
|
In connection with the Eighth ABL Facility Amendment we incurred amendment fees of approximately
$0.4 million
which were capitalized as deferred financing costs during the three months ended June 30, 2016. Further, we wrote off a portion of the unamortized deferred financing costs associated with our ABL Facility of approximately
$0.3 million
which were included in "Loss on extinguishment of debt" in the condensed consolidated statement of operations for the three months ended June 30, 2016.
On August 5, 2016, we entered into a Ninth Amendment (the "Ninth Amendment") to the ABL Facility by and among the Agent, the Lenders, and the Company. The Ninth Amendment amended the ABL Facility by removing the requirement to consummate the Rights Offering by a date certain, and required us to remit to Agent by August 5, 2016 the
$5.0 million
deposited into escrow by Mr. Johnsrud, securing Mr. Johnsrud's backstop obligations under the Rights Offering. In connection with the amendment to the Escrow Agreement discussed in Note 3 under "Rights Offering," the
$5.0 million
backstop obligation was released from escrow and irrevocably funded to us and we timely remitted such funds to the Agent in order to comply with the covenant under the Ninth Amendment.
On September 29, 2016, we entered into a Tenth Amendment (the "Tenth Amendment") to the ABL Facility by and among the Agent, the Lenders, and the Company. The Tenth Amendment amended the ABL Facility by (i) amending the refinancing covenant to extend the date by which we are required to refinance the ABL Facility in full from September 30, 2016 to October 14, 2016, and (ii) increasing the applicable margin on LIBOR Rate and Base Rate Loans and the Applicable Unused Line Fee Percentage (as defined in the ABL Facility). The ABL Facility was further amended to amend the refinancing covenant to extend the date by which we are required to refinance the ABL Facility. See Note 18 on Subsequent Events for further discussion on the ABL Facility refinancing.
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 and 2021 Notes (the “Indentures”), the ABL Facility, or the Term Loan, as applicable, could result in an event of 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 and Term Loan contain certain financial covenants, including a minimum EBITDA covenant. The minimum EBITDA covenant requires us to meet a stated year-to-date EBITDA target (as defined by the ABL Facility). As of
September 30, 2016
, we remained in compliance with our debt covenants and availability under the ABL Facility was
$8.3 million
, after applying the availability block and other availability restrictions.
During the three months ended March 31, 2016, the Agent for the ABL Facility commenced a borrowing base redetermination involving a valuation of the net orderly liquidation value of our eligible machinery and equipment by a third party specialist. The redetermination resulted in an approximately
$21.0 million
decline in our borrowing base and availability under the ABL Facility. Due to this decrease in our borrowing base and the implementation of the daily sweep of our lockbox and certain depository bank accounts, we made cumulative payments of
$176.4 million
during the nine months ended
September 30, 2016
, offset by borrowings of
$118.5 million
, thus reducing the amount outstanding under the ABL Facility from
$101.8 million
as of December 31, 2015 to
$43.9 million
as of
September 30, 2016
.
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 our 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 Agent for our
ABL Facility has the periodic right to commission appraisals of the assets comprising our borrowing base, and we are obligated to reimburse the cost of up to four full appraisals including two field examinations, during any 12 consecutive months. 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. At
September 30, 2016
we had
$8.3 million
of net availability under the ABL Facility. During the remainder of 2016, we expect further deterioration to our ABL borrowing base due to declining accounts receivable and downward pressure on the orderly liquidation values of our machinery and equipment. During the nine months ended
September 30, 2016
, we reduced the outstanding balance of the ABL Facility by
$57.9 million
, a portion of which was made to cover the borrowing base deterioration. There can be no assurance that we will have sufficient cash on hand or other sources of liquidity to make any such future repayments if necessary.
The Indentures contain restrictive covenants on the incurrence of senior secured indebtedness. To the extent that the fixed charge coverage ratio (as defined in the Indentures) is below
2.0
to 1.0, the Indentures prohibit 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 Indentures. 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 Eighth ABL Facility Amendment, our ability to incur new borrowings under the ABL Facility is limited to a maximum of
$85.0 million
irrespective of the permitted availability of up to
$150.0 million
under the Indentures.
The 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 for any breached covenants, such breach would result in a default under the Indentures, 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 our other credit facilities and indentures. If the amounts outstanding under the 2018 Notes and 2021 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 cannot guarantee that we will be granted waivers or amendments to the Indentures governing the 2018 Notes and 2021 Notes, the ABL Facility, the Term Loan, 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. Failure to comply with any of our debt obligations, or obtain waivers thereof, may cause us to seek relief under the United States Bankruptcy Code.
Note 9 - Derivative Warrants
On April 15, 2016, we closed our Exchange Offer relating to our 2018 Notes as part of the Restructuring, which included delivering to tendering holders of the 2018 Notes a pro rata share of penny warrants sufficient to purchase
10%
of shares of our common stock (the "Exchange Warrants"). Additionally, we entered into a warrant agreement with the lenders under the new
$24.0 million
Term Loan, pursuant to which, as a commitment fee for entering into the Term Loan, the lenders received warrants to purchase up to
5%
of our then-outstanding stock at an exercise price of
$0.01
per share (the "Term Loan Warrants"). The Exchange Warrants and the Term Loan Warrants (collectively, the "Warrants") contain anti-dilution provisions which adjust the number of shares issuable upon exercise thereof in certain circumstances, including adjustments intended to preserve the proportion of outstanding common stock into which such Warrants are exercisable after giving effect to the Johnsrud Note Conversion and the Rights Offering.
After giving effect to the anti-dilution adjustment following the Johnsrud Note Conversion, a total of
22.8 million
Warrants were issued during the three months ended June 30, 2016, with
15.1 million
Warrants for the exchange of 2018 Notes for new 2021 Notes,
0.1 million
Warrants for the exchange of 2018 Notes for common stock, and
7.6 million
Warrants for the Term Loan lenders. All Warrants were issued with an exercise price of
$0.01
and have a term of
ten
years.
The following table shows the Warrant activity for the six months ended September 30, 2016:
|
|
|
|
|
|
|
Number of Warrants
|
Outstanding as of March 31, 2016
|
|
—
|
|
Issued
|
|
22,815
|
|
Exercised
|
|
(1,117
|
)
|
Outstanding as of September 30, 2016
|
|
21,698
|
|
We accounted 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 Warrants were ineligible for equity classification due to the anti-dilution provisions set forth therein and describe above. As such, the Warrants have been recorded as derivative liabilities at fair value on the "Derivative warrant liability" line in the condensed consolidated balance sheet as of
September 30, 2016
. The Warrants are classified as a current liability in the condensed consolidated balance sheet as they can be exercised by the holders at any time.
As discussed previously in Note 6, the fair value of the derivative warrant liability was 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, net" in the condensed consolidated statement of operations.
The fair value of the derivative warrant liability was estimated using the following model inputs:
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
At Issuance
|
|
|
September 30, 2016
|
|
April 15, 2016
|
Exercise price
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
Closing stock price
|
|
$
|
0.20
|
|
|
$
|
0.37
|
|
Risk free rate
|
|
0.24
|
%
|
|
0.21
|
%
|
Expected volatility
|
|
143.9
|
%
|
|
242.0
|
%
|
Note 10 - 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 many of the related assets to our other operating locations, primarily in the Eagle Ford shale basin. The total costs of the restructuring recognized in 2015 were approximately
$7.1 million
, and included severance and termination benefits, lease exit costs, other exits costs related to the movement of vehicles and rental fleet, and an asset impairment charge.
There were
no
restructuring costs incurred during the
nine months ended
September 30, 2016
. We recorded
$2.0 thousand
and
$1.1 million
in restructuring costs during the three and
nine months ended
September 30, 2015
, which were included in "Other, net" in the accompanying condensed consolidated statements of operations. For the
nine months ended
September 30, 2015
, approximately
$0.6 million
,
$0.1 million
and
$0.4 million
of the total charge was recorded in the Southern, Northeast and Corporate/Other operating segments, respectively.
The remaining liability for the restructuring and exit costs incurred represents lease exit costs under non-cancellable operating leases and totaled approximately
$0.1 million
as of
September 30, 2016
, which is included in "Accrued liabilities" in the condensed consolidated balance sheets. A rollforward of the liability from December 31, 2015 through
September 30, 2016
is as follows:
|
|
|
|
|
|
|
|
Lease Exit Costs
|
Balance accrued at December 31, 2015
|
|
$
|
180
|
|
Cash payments
|
|
(38
|
)
|
Balance accrued at September 30, 2016
|
|
$
|
142
|
|
Note 11 - 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,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Current income tax (expense) benefit
|
$
|
(2
|
)
|
|
$
|
51
|
|
|
$
|
(782
|
)
|
|
$
|
61
|
|
Deferred income tax expense
|
(22
|
)
|
|
(20
|
)
|
|
(70
|
)
|
|
(21
|
)
|
Total income tax (expense) benefit
|
$
|
(24
|
)
|
|
$
|
31
|
|
|
$
|
(852
|
)
|
|
$
|
40
|
|
The effective income tax rate for the
three and nine months ended
September 30, 2016
was
0.1%
and
0.8%
, which differs from the federal statutory benefit rate of
35.0%
. The difference is primarily due to income from the cancellation of debt which generated a cash tax liability under the alternative minimum tax ("AMT") provisions. Under the AMT provisions, the use of net operating losses ("NOLs") is limited to
90%
of a taxpayer's AMT income, thus generating tax on the remaining income. Upon utilization of our NOLs, we will receive a credit for the AMT tax paid to be used against any current income tax obligations subsequently incurred. The AMT liability as of
September 30, 2016
was
$0.9 million
and is included in "Accrued liabilities" on the condensed consolidated balance sheet.
The effective income tax rate for the
three and nine months ended
September 30, 2015
was near
0%
, which differs from the federal statutory 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 as a result of losses.
We have significant deferred tax assets, consisting primarily of NOLs, which have a limited life, generally expiring between the years 2029 and 2036, and capital losses, which have a five year carryforward expiring in 2020. We regularly assess the positive and negative evidence available 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 ordinary losses, at
September 30, 2016
we determined that our deferred tax liabilities were not sufficient to fully realize our deferred tax assets. Accordingly, a valuation allowance has been recorded against the portion of our deferred tax assets that is not offset by deferred tax liabilities. We expect our effective income tax rate to be near
zero
for 2016.
Note 12 - 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, 2016
and
September 30, 2015
are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Stock option grants
|
|
—
|
|
|
3
|
|
|
—
|
|
|
714
|
|
Restricted stock grants
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted stock unit grants
|
|
—
|
|
|
2
|
|
|
1
|
|
|
156
|
|
Total grants under the 2009 Plan
|
|
—
|
|
|
5
|
|
|
1
|
|
|
870
|
|
The total stock-based compensation cost included in "General and administrative expenses" in the accompanying condensed consolidated statements of operations for the three and
nine months ended
September 30, 2016
and
September 30, 2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Stock options
|
|
$
|
27
|
|
|
$
|
152
|
|
|
$
|
176
|
|
|
$
|
405
|
|
Restricted stock
|
|
118
|
|
|
102
|
|
|
321
|
|
|
305
|
|
Restricted stock units
|
|
107
|
|
|
88
|
|
|
411
|
|
|
1,148
|
|
Total stock-based compensation expense
|
|
$
|
252
|
|
|
$
|
342
|
|
|
$
|
908
|
|
|
$
|
1,858
|
|
Note 13 - 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, 2016
and
December 31, 2015
included accruals totaling
$0.5 million
and
$0.3 million
, respectively, for various environmental matters.
Litigation
In the three months ended September 30, 2016, we entered into settlement discussions with a customer relating to allegations that a former employee caused substantial property damage at certain of the customer's operating locations in early 2016. We believe this matter will be resolved by offsetting amounts payable by us in settlement of the customer’s claims against amounts owed by the customer to us for services previously provided. A reserve for this anticipated offset of our trade receivables has been included in "Accrued liabilities" on the condensed consolidated balance sheet as of September 30, 2016.
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.
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 we become insolvent or declare bankruptcy, 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 14 - Related Party and Affiliated Company Transactions
Termination of Aircraft Lease Agreement
During the three months ended March 31, 2016, the aircraft lease agreement with an entity owned and controlled by Mark D. Johnsrud, our Chief Executive Officer and Chairman of our board of directors, was terminated. Additionally, during the three months ended March 31, 2016, reimbursements payable to the entity in exchange for use of the aircraft, in the aggregate amount of
$45 thousand
, were paid in full. There were
no
remaining reimbursements payable to the entity as of March 31, 2016.
There have been no significant changes to the other related party transactions with Mr. Johnsrud for 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 19 to the consolidated financial statements in our 2015 Annual Report on Form 10-K.
Cost Method Investment - Underground Solutions, Inc.
On February 18, 2016, Aegion Corporation (or "Aegion") announced the completion of the acquisition of Underground Solutions, Inc. (or "UGSI"), an entity in which we held an approximate
7%
equity interest, whereby Aegion paid approximately
$85.0 million
to acquire UGSI. Our total proceeds will be approximately
$5.2 million
. In April of 2016, we received proceeds of
$5.0 million
, which exceeded our cost basis of approximately
$3.2 million
. As such during the three months ended June 30, 2016, we recognized a net gain on the sale of approximately
$1.7 million
, including approximately
$0.1 million
in costs incurred by us in the closing. During the three months ended September 30, 2016, we received additional proceeds of
$53.0 thousand
due to adjustments to the final closing working capital statement. There still remains approximately
$0.2 million
in escrow pending the review of other final closing adjustments and indemnifications. We expect to receive these funds in August 2017, which would increase our net gain on sale by approximately
$0.2 million
.
Note 15 - 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. Our shale solutions business is comprised of
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, and Permian Basin Shale areas and (3) the Rocky Mountain division comprising the Bakken Shale area. Corporate/Other includes certain corporate costs and certain other corporate assets.
As discussed in Note 10, in March 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 and 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, with minimal or no revenue activity thereafter. As a result of our restructuring in the MidCon, some remaining operating expenses for shut-down activities, as well as depreciation and amortization, neither of which is considered material, have been included in the Southern division for the periods presented.
Financial information for our reportable segments related to continuing operations is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rocky Mountain
|
|
Northeast
|
|
Southern
|
|
Corporate/ Other
|
|
Total
|
Three months ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
19,166
|
|
|
$
|
7,877
|
|
|
$
|
8,398
|
|
|
$
|
—
|
|
|
$
|
35,441
|
|
Direct operating expenses
|
13,890
|
|
|
9,311
|
|
|
8,921
|
|
|
—
|
|
|
32,122
|
|
General and administrative expenses
|
1,211
|
|
|
346
|
|
|
455
|
|
|
4,311
|
|
|
6,323
|
|
Depreciation and amortization
|
7,554
|
|
|
3,281
|
|
|
4,121
|
|
|
63
|
|
|
15,019
|
|
Operating loss
|
(3,489
|
)
|
|
(10,733
|
)
|
|
(7,215
|
)
|
|
(4,374
|
)
|
|
(25,811
|
)
|
Loss from continuing operations before income taxes
|
(3,618
|
)
|
|
(10,384
|
)
|
|
(7,265
|
)
|
|
(17,105
|
)
|
|
(38,372
|
)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
Revenue
|
63,023
|
|
|
28,342
|
|
|
25,029
|
|
|
—
|
|
|
116,394
|
|
Direct operating expenses
|
49,680
|
|
|
29,005
|
|
|
22,337
|
|
|
—
|
|
|
101,022
|
|
General and administrative expenses
|
4,758
|
|
|
1,875
|
|
|
2,348
|
|
|
18,998
|
|
|
27,979
|
|
Depreciation and amortization
|
23,425
|
|
|
10,590
|
|
|
11,854
|
|
|
201
|
|
|
46,070
|
|
Operating loss
|
(14,840
|
)
|
|
(21,153
|
)
|
|
(13,937
|
)
|
|
(19,199
|
)
|
|
(69,129
|
)
|
Loss from continuing operations before income taxes
|
(15,088
|
)
|
|
(20,984
|
)
|
|
(14,016
|
)
|
|
(55,365
|
)
|
|
(105,453
|
)
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
|
|
|
|
|
|
|
|
Total assets (a)
|
223,370
|
|
|
48,916
|
|
|
110,161
|
|
|
5,851
|
|
|
388,298
|
|
Total assets held for sale
|
—
|
|
|
—
|
|
|
582
|
|
|
—
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2015
|
|
|
|
|
|
|
|
|
|
Total assets (a)
|
263,871
|
|
|
76,472
|
|
|
128,482
|
|
|
53,794
|
|
|
522,619
|
|
_____________________
(a) Total assets exclude intercompany receivables eliminated in consolidation.
Note 16 - Discontinued Operations
Our former industrial solutions operating and reportable segment, Thermo Fluids, Inc. ("TFI"), has been classified as discontinued operations since the sale process with various prospective acquirers began in fourth quarter of 2013.
On April 11, 2015, we completed the TFI disposition with Safety-Kleen, Inc. ("Safety-Kleen"), a subsidiary of Clean Harbors, Inc., whereby Safety-Kleen acquired TFI for
$85.0 million
in an all-cash transaction, subject to working capital adjustments. Pursuant to the purchase agreement,
$4.3 million
of the purchase price was deposited into an escrow account, and reported as "Restricted cash" on our condensed consolidated balance sheet, to satisfy our indemnification obligations under the purchase agreement. Any remaining balance in the escrow account after indemnifications and completion of the post-closing working capital reconciliation will be released to us
18
months following the closing date, unless both parties mutually agree to release the remaining balance prior to such date.
The post-closing working capital reconciliation was completed during the three months ended June 30, 2016, and as a result we recorded an additional loss on the sale of TFI of
$1.3 million
, bringing the total loss on sale to
$1.5 million
. A total of
$3.8 million
was released from escrow, of which
$2.5 million
was returned to us and
$1.3 million
was paid to Safety-Kleen for the post-closing adjustment and certain indemnification claims, leaving
$0.4 million
still in escrow for indemnification obligations. The
$0.4 million
held in escrow as of September 30, 2016, and included in "Restricted cash" on the condensed consolidated balance sheet, was released to us in October 2016 as all indemnification obligations were satisfied.
We recorded losses related to the sale of TFI of
$0.0 million
and
$0.4 million
for the three months ended
September 30, 2016
, and
September 30, 2015
, respectively, and
$1.2 million
and
$0.8 million
for the
nine months ended
September 30, 2016
, and
September 30, 2015
, respectively, as a component of "Loss from discontinued operations, net of income taxes" in our condensed consolidated statements of operations.
The following table provides selected financial information of discontinued operations related to TFI (and includes TFI's results through the sale on April 11, 2015):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,100
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations before income taxes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,171
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(265
|
)
|
(Loss) income from discontinued operations - before sale
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
906
|
|
Loss on sale of TFI
|
—
|
|
|
350
|
|
|
(1,235
|
)
|
|
(1,724
|
)
|
Loss from discontinued operations
|
$
|
—
|
|
|
$
|
350
|
|
|
$
|
(1,235
|
)
|
|
$
|
(818
|
)
|
Note 17 - Subsidiary Guarantors
Our obligations under the 2018 Notes and 2021 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, 2016
and
December 31, 2015
and for the
three and nine months ended
September 30, 2016
and
2015
. During the three months ended December 31, 2015, Nuverra Rocky Mountain Pipeline, LLC (or "RMP") was released from all obligations including as guarantor for our debt obligations.
However, because RMP's individual results are not material as there are no active contracts for new pipelines, we have not separately presented RMP as a Non-Guarantor, but rather continued to include RMP in the Guarantor Subsidiaries column. These condensed consolidating financial statements have been prepared from our financial information on the same basis of accounting as our condensed consolidated financial statements. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions.
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
591
|
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
587
|
|
Restricted cash
|
400
|
|
|
687
|
|
|
—
|
|
|
1,087
|
|
Accounts receivable, net
|
—
|
|
|
22,188
|
|
|
—
|
|
|
22,188
|
|
Other current assets
|
2,167
|
|
|
4,839
|
|
|
—
|
|
|
7,006
|
|
Assets held for sale
|
—
|
|
|
582
|
|
|
—
|
|
|
582
|
|
Total current assets
|
3,158
|
|
|
28,292
|
|
|
—
|
|
|
31,450
|
|
Property, plant and equipment, net
|
2,421
|
|
|
338,376
|
|
|
—
|
|
|
340,797
|
|
Equity investments
|
(9,759
|
)
|
|
573
|
|
|
9,759
|
|
|
573
|
|
Intangible assets, net
|
—
|
|
|
14,905
|
|
|
—
|
|
|
14,905
|
|
Other
|
400,638
|
|
|
92,596
|
|
|
(492,661
|
)
|
|
573
|
|
Total assets
|
$
|
396,458
|
|
|
$
|
474,742
|
|
|
$
|
(482,902
|
)
|
|
$
|
388,298
|
|
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
558
|
|
|
$
|
3,648
|
|
|
$
|
—
|
|
|
$
|
4,206
|
|
Accrued liabilities
|
5,174
|
|
|
13,107
|
|
|
—
|
|
|
18,281
|
|
Current portion of long-term debt
|
43,937
|
|
|
7,378
|
|
|
—
|
|
|
51,315
|
|
Derivative warrant liability
|
4,426
|
|
|
—
|
|
|
—
|
|
|
4,426
|
|
Total current liabilities
|
54,095
|
|
|
24,133
|
|
|
—
|
|
|
78,228
|
|
Deferred income taxes
|
(32,540
|
)
|
|
32,880
|
|
|
—
|
|
|
340
|
|
Long-term debt
|
398,768
|
|
|
6,693
|
|
|
—
|
|
|
405,461
|
|
Long-term contingent consideration
|
—
|
|
|
8,500
|
|
|
—
|
|
|
8,500
|
|
Other long-term liabilities
|
84,104
|
|
|
412,295
|
|
|
(492,661
|
)
|
|
3,738
|
|
Total shareholders' deficit
|
(107,969
|
)
|
|
(9,759
|
)
|
|
9,759
|
|
|
(107,969
|
)
|
Total liabilities and shareholders' deficit
|
$
|
396,458
|
|
|
$
|
474,742
|
|
|
$
|
(482,902
|
)
|
|
$
|
388,298
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
40,660
|
|
|
$
|
(1,351
|
)
|
|
$
|
—
|
|
|
$
|
39,309
|
|
Restricted cash
|
4,250
|
|
|
—
|
|
|
—
|
|
|
4,250
|
|
Accounts receivable, net
|
—
|
|
|
42,188
|
|
|
—
|
|
|
42,188
|
|
Other current assets
|
2,654
|
|
|
6,080
|
|
|
—
|
|
|
8,734
|
|
Total current assets
|
47,564
|
|
|
46,917
|
|
|
—
|
|
|
94,481
|
|
Property, plant and equipment, net
|
2,609
|
|
|
403,579
|
|
|
—
|
|
|
406,188
|
|
Equity investments
|
43,542
|
|
|
581
|
|
|
(40,373
|
)
|
|
3,750
|
|
Intangible assets, net
|
—
|
|
|
16,867
|
|
|
—
|
|
|
16,867
|
|
Other
|
404,620
|
|
|
72,137
|
|
|
(475,424
|
)
|
|
1,333
|
|
Total assets
|
$
|
498,335
|
|
|
$
|
540,081
|
|
|
$
|
(515,797
|
)
|
|
$
|
522,619
|
|
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
172
|
|
|
$
|
6,735
|
|
|
$
|
—
|
|
|
$
|
6,907
|
|
Accrued liabilities
|
13,824
|
|
|
16,019
|
|
|
—
|
|
|
29,843
|
|
Current contingent consideration
|
—
|
|
|
8,628
|
|
|
—
|
|
|
8,628
|
|
Current portion of long-term debt
|
492,671
|
|
|
7,038
|
|
|
—
|
|
|
499,709
|
|
Total current liabilities
|
506,667
|
|
|
38,420
|
|
|
—
|
|
|
545,087
|
|
Deferred income taxes
|
(32,488
|
)
|
|
32,758
|
|
|
—
|
|
|
270
|
|
Long-term debt
|
—
|
|
|
11,758
|
|
|
—
|
|
|
11,758
|
|
Other long-term liabilities
|
62,427
|
|
|
416,772
|
|
|
(475,424
|
)
|
|
3,775
|
|
Total shareholders' deficit
|
(38,271
|
)
|
|
40,373
|
|
|
(40,373
|
)
|
|
(38,271
|
)
|
Total liabilities and shareholders' deficit
|
$
|
498,335
|
|
|
$
|
540,081
|
|
|
$
|
(515,797
|
)
|
|
$
|
522,619
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenue
|
$
|
—
|
|
|
$
|
35,441
|
|
|
$
|
—
|
|
|
$
|
35,441
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Direct operating expenses
|
—
|
|
|
32,122
|
|
|
—
|
|
|
32,122
|
|
General and administrative expenses
|
4,311
|
|
|
2,012
|
|
|
—
|
|
|
6,323
|
|
Depreciation and amortization
|
63
|
|
|
14,956
|
|
|
—
|
|
|
15,019
|
|
Impairment of long-lived assets
|
—
|
|
|
7,788
|
|
|
—
|
|
|
7,788
|
|
Total costs and expenses
|
4,374
|
|
|
56,878
|
|
|
—
|
|
|
61,252
|
|
Operating loss
|
(4,374
|
)
|
|
(21,437
|
)
|
|
—
|
|
|
(25,811
|
)
|
Interest expense, net
|
(14,335
|
)
|
|
(321
|
)
|
|
—
|
|
|
(14,656
|
)
|
Other income, net
|
1,551
|
|
|
493
|
|
|
—
|
|
|
2,044
|
|
(Loss) income from equity investments
|
(21,213
|
)
|
|
(2
|
)
|
|
21,266
|
|
|
51
|
|
Loss from continuing operations before income taxes
|
(38,371
|
)
|
|
(21,267
|
)
|
|
21,266
|
|
|
(38,372
|
)
|
Income tax (expense) benefit
|
(25
|
)
|
|
1
|
|
|
—
|
|
|
(24
|
)
|
Loss from continuing operations
|
(38,396
|
)
|
|
(21,266
|
)
|
|
21,266
|
|
|
(38,396
|
)
|
Loss from discontinued operations, net of income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss attributable to common shareholders
|
$
|
(38,396
|
)
|
|
$
|
(21,266
|
)
|
|
$
|
21,266
|
|
|
$
|
(38,396
|
)
|
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) income 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
|
)
|
Gain from discontinued operations, net of income taxes
|
350
|
|
|
—
|
|
|
—
|
|
|
350
|
|
Net loss attributable to common shareholders
|
$
|
(127,763
|
)
|
|
$
|
(110,183
|
)
|
|
$
|
110,183
|
|
|
$
|
(127,763
|
)
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
NINE
MONTHS ENDED
SEPTEMBER 30, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenue
|
$
|
—
|
|
|
$
|
116,394
|
|
|
$
|
—
|
|
|
$
|
116,394
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Direct operating expenses
|
—
|
|
|
101,022
|
|
|
—
|
|
|
101,022
|
|
General and administrative expenses
|
18,998
|
|
|
8,981
|
|
|
—
|
|
|
27,979
|
|
Depreciation and amortization
|
201
|
|
|
45,869
|
|
|
—
|
|
|
46,070
|
|
Impairment of long-lived assets
|
—
|
|
|
10,452
|
|
|
—
|
|
|
10,452
|
|
Total costs and expenses
|
19,199
|
|
|
166,324
|
|
|
—
|
|
|
185,523
|
|
Operating loss
|
(19,199
|
)
|
|
(49,930
|
)
|
|
—
|
|
|
(69,129
|
)
|
Interest expense, net
|
(39,813
|
)
|
|
(861
|
)
|
|
—
|
|
|
(40,674
|
)
|
Other income, net
|
2,574
|
|
|
711
|
|
|
—
|
|
|
3,285
|
|
(Loss) income from equity investments
|
(48,374
|
)
|
|
(8
|
)
|
|
50,121
|
|
|
1,739
|
|
Loss on extinguishment of debt
|
(674
|
)
|
|
—
|
|
|
—
|
|
|
(674
|
)
|
Loss from continuing operations before income taxes
|
(105,486
|
)
|
|
(50,088
|
)
|
|
50,121
|
|
|
(105,453
|
)
|
Income tax expense
|
(819
|
)
|
|
(33
|
)
|
|
—
|
|
|
(852
|
)
|
Loss from continuing operations
|
(106,305
|
)
|
|
(50,121
|
)
|
|
50,121
|
|
|
(106,305
|
)
|
Loss from discontinued operations, net of income taxes
|
(1,235
|
)
|
|
—
|
|
|
—
|
|
|
(1,235
|
)
|
Net loss attributable to common shareholders
|
$
|
(107,540
|
)
|
|
$
|
(50,121
|
)
|
|
$
|
50,121
|
|
|
$
|
(107,540
|
)
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
NINE
MONTHS ENDED
SEPTEMBER 30, 2015
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenue
|
$
|
—
|
|
|
$
|
288,067
|
|
|
$
|
—
|
|
|
$
|
288,067
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Direct operating expenses
|
—
|
|
|
222,055
|
|
|
—
|
|
|
222,055
|
|
General and administrative expenses
|
18,185
|
|
|
12,917
|
|
|
—
|
|
|
31,102
|
|
Depreciation and amortization
|
518
|
|
|
51,947
|
|
|
—
|
|
|
52,465
|
|
Impairment of goodwill
|
—
|
|
|
104,721
|
|
|
—
|
|
|
104,721
|
|
Other, net
|
393
|
|
|
721
|
|
|
—
|
|
|
1,114
|
|
Total costs and expenses
|
19,096
|
|
|
392,361
|
|
|
—
|
|
|
411,457
|
|
Operating (loss) income
|
(19,096
|
)
|
|
(104,294
|
)
|
|
—
|
|
|
(123,390
|
)
|
Interest expense, net
|
(35,986
|
)
|
|
(1,151
|
)
|
|
—
|
|
|
(37,137
|
)
|
Other income, net
|
—
|
|
|
779
|
|
|
—
|
|
|
779
|
|
(Loss) income from equity investments
|
(103,128
|
)
|
|
(36
|
)
|
|
103,128
|
|
|
(36
|
)
|
Loss on extinguishment of debt
|
(1,011
|
)
|
|
—
|
|
|
—
|
|
|
(1,011
|
)
|
Loss from continuing operations before income taxes
|
(159,221
|
)
|
|
(104,702
|
)
|
|
103,128
|
|
|
(160,795
|
)
|
Income tax (expense) benefit
|
(628
|
)
|
|
668
|
|
|
—
|
|
|
40
|
|
Loss from continuing operations
|
(159,849
|
)
|
|
(104,034
|
)
|
|
103,128
|
|
|
(160,755
|
)
|
(Loss) income from discontinued operations, net of income taxes
|
(1,724
|
)
|
|
906
|
|
|
—
|
|
|
(818
|
)
|
Net loss attributable to common shareholders
|
$
|
(161,573
|
)
|
|
$
|
(103,128
|
)
|
|
$
|
103,128
|
|
|
$
|
(161,573
|
)
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE
MONTHS ENDED
SEPTEMBER 30, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
Net cash used in operating activities from continuing operations
|
$
|
(18,988
|
)
|
|
$
|
(334
|
)
|
|
$
|
(19,322
|
)
|
Net cash used in operating activities from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used in operating activities
|
(18,988
|
)
|
|
(334
|
)
|
|
(19,322
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
Proceeds from the sale of property and equipment
|
25
|
|
|
9,929
|
|
|
9,954
|
|
Purchase of property, plant and equipment
|
—
|
|
|
(2,613
|
)
|
|
(2,613
|
)
|
Proceeds from the sale of UGSI
|
5,032
|
|
|
—
|
|
|
5,032
|
|
Change in restricted cash
|
3,850
|
|
|
(687
|
)
|
|
3,163
|
|
Net cash provided by investing activities from continuing operations
|
8,907
|
|
|
6,629
|
|
|
15,536
|
|
Net cash used in investing activities from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
Net cash provided by investing activities
|
8,907
|
|
|
6,629
|
|
|
15,536
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from revolving credit facility
|
118,533
|
|
|
—
|
|
|
118,533
|
|
Payments on revolving credit facility
|
(176,428
|
)
|
|
—
|
|
|
(176,428
|
)
|
Proceeds from term loan
|
24,000
|
|
|
—
|
|
|
24,000
|
|
Payments for deferred financing costs
|
(1,084
|
)
|
|
—
|
|
|
(1,084
|
)
|
Issuance of stock
|
5,000
|
|
|
—
|
|
|
5,000
|
|
Payments on vehicle financing and other financing activities
|
(9
|
)
|
|
(4,948
|
)
|
|
(4,957
|
)
|
Net cash used in financing activities from continuing operations
|
(29,988
|
)
|
|
(4,948
|
)
|
|
(34,936
|
)
|
Net cash used in financing activities from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used in financing activities
|
(29,988
|
)
|
|
(4,948
|
)
|
|
(34,936
|
)
|
Net (decrease) increase in cash
|
(40,069
|
)
|
|
1,347
|
|
|
(38,722
|
)
|
Cash and cash equivalents - beginning of period
|
40,660
|
|
|
(1,351
|
)
|
|
39,309
|
|
Cash and cash equivalents - end of period
|
591
|
|
|
(4
|
)
|
|
587
|
|
Less: cash and cash equivalents of discontinued operations - end of period
|
—
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents of continuing operations - end of period
|
$
|
591
|
|
|
$
|
(4
|
)
|
|
$
|
587
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE
MONTHS ENDED
SEPTEMBER 30, 2015
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
Net cash provided by operating activities from continuing operations
|
$
|
41,911
|
|
|
$
|
13,747
|
|
|
$
|
55,658
|
|
Net cash used in operating activities from discontinued operations
|
—
|
|
|
(708
|
)
|
|
(708
|
)
|
Net cash provided by operating activities
|
41,911
|
|
|
13,039
|
|
|
54,950
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Proceeds from TFI sale
|
78,897
|
|
|
—
|
|
|
78,897
|
|
Proceeds from the sale of property and equipment
|
255
|
|
|
12,084
|
|
|
12,339
|
|
Purchase of property, plant and equipment
|
—
|
|
|
(16,564
|
)
|
|
(16,564
|
)
|
Change in restricted cash
|
(4,250
|
)
|
|
—
|
|
|
(4,250
|
)
|
Net cash provided by (used in) investing activities from continuing operations
|
74,902
|
|
|
(4,480
|
)
|
|
70,422
|
|
Net cash used in investing activities from discontinued operations
|
—
|
|
|
(181
|
)
|
|
(181
|
)
|
Net cash provided by (used in) investing activities
|
74,902
|
|
|
(4,661
|
)
|
|
70,241
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Payments on revolving credit facility
|
(81,647
|
)
|
|
—
|
|
|
(81,647
|
)
|
Payments on vehicle financing and other financing activities
|
(147
|
)
|
|
(9,321
|
)
|
|
(9,468
|
)
|
Net cash used in financing activities from continuing operations
|
(81,794
|
)
|
|
(9,321
|
)
|
|
(91,115
|
)
|
Net cash used in financing activities from discontinued operations
|
—
|
|
|
(105
|
)
|
|
(105
|
)
|
Net cash used in financing activities
|
(81,794
|
)
|
|
(9,426
|
)
|
|
(91,220
|
)
|
Net increase (decrease) in cash
|
35,019
|
|
|
(1,048
|
)
|
|
33,971
|
|
Cash and cash equivalents - beginning of period
|
13,801
|
|
|
1,615
|
|
|
15,416
|
|
Cash and cash equivalents - end of period
|
48,820
|
|
|
567
|
|
|
49,387
|
|
Less: cash and cash equivalents of discontinued operations - end of period
|
—
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents of continuing operations - end of period
|
$
|
48,820
|
|
|
$
|
567
|
|
|
$
|
49,387
|
|
Note 18 - Subsequent Events
ABL Facility Amendments
On October 13, 2016 (the “Eleventh Amendment Effective Date”), we entered into an Eleventh Amendment to Amended and Restated Credit Agreement (the “Eleventh Amendment”) by and among the Agent, the Lenders, and the Company. The Eleventh Amendment amended the ABL Facility on the Eleventh Amendment Effective Date by amending the refinancing covenant to extend the date by which we were required to refinance the ABL Facility in full from October 14, 2016 to November 4, 2016.
The Eleventh Amendment also included certain other amendments to the ABL Facility (the “Post-Eleventh Amendment Effective Date Amendments”) that would become effective subsequent to the Eleventh Amendment Effective Date if, on or prior to November 4, 2016, the Agent received the proceeds of the Additional Term Loan Debt (as defined in the ABL Facility Amendment) in an amount not less than
$10.0 million
, which proceeds were to be used to pay down the ABL Facility. The Post-Eleventh Amendment Effective Date Amendments would further amend the ABL Facility by amending the refinancing covenant to extend the date by which we are required to refinance the ABL Facility in full from November 4, 2016 to November 30, 2016. Pursuant to the Eleventh Amendment, it would constitute an immediate event of default under the ABL Facility if, on or prior to November 4, 2016, we had not incurred the Additional Term Loan Debt and used the proceeds to pay down the ABL facility.
On November 4, 2016 (the “Twelfth Amendment Effective Date”), we entered into a Twelfth Amendment to Amended and Restated Credit Agreement (the “Twelfth Amendment”) by and among the Agent, the Lenders, and the Company. The Twelfth
Amendment amended the ABL Facility on the Twelfth Amendment Effective Date by amending the refinancing covenant to extend the date by which we were required to refinance the ABL Facility in full from November 4, 2016 to November 14, 2016. In addition, the Twelfth Amendment extended the date by which we are required to incur the Additional Term Loan Debt and use the proceeds thereof, in an amount not less than
$10.0 million
, to pay down the ABL Facility, from November 4, 2016 to November 14, 2016. Pursuant to the Twelfth Amendment, it would constitute an immediate event of default under the ABL Facility if, on or prior to November 14, 2016, we do not incur the Additional Term Loan Debt and apply the proceeds as described above.
There can be no assurances that we will be able to refinance the ABL Facility by November 14, 2016, or that any such refinancing would be available to us on attractive or acceptable terms. In addition, there can be no assurances that we will be able to incur the Additional Term Loan Debt and use proceeds of not less than
$10.0 million
to pay down the ABL Facility by November 14, 2016. Any refinancing of the ABL Facility could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. If we fail to comply with our refinancing covenant or are unable to obtain the Additional Term Loan Debt and apply the proceeds as described above, 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 under our other credit facilities and indentures, including the Term Loan and the Indentures governing the 2018 Notes and 2021 Notes. There can be no assurance that the Lenders under the ABL Facility will grant a waiver of any default or that the lenders under the Term Loan will grant a waiver of, or that the holders of our 2018 Notes and 2021 Notes will consent to any waiver of, any cross default, and we currently do not have sufficient liquidity, including cash on hand, to repay the outstanding balance of the ABL Facility or our other indebtedness. In the event that we are unable to timely refinance the ABL Facility or incur the the Additional Term Loan Debt and apply the proceeds as described above, or obtain waivers thereof, or otherwise repay or refinance the ABL Facility when due, we may need to seek relief under the United States Bankruptcy Code.
Deferral of Interest Payment
On October 17, 2016, we elected to exercise our 30-day grace period and defer making the approximately
$2.0 million
in interest payments due October 17, 2016 on our outstanding
$40.4 million
principal amount of 2018 Notes. Under the 2018 Notes Indenture, we have a
30
-day grace period following the October 17, 2016 interest payment date to make the interest payment before an event of default would occur. The occurrence of an event of default under the 2018 Notes Indenture would give the trustee or the holders of at least
25%
aggregate principal amount of 2018 Notes the option to declare all of the 2018 Notes due and payable immediately.
Additionally, the occurrence of such an event of default under the 2018 Notes Indenture that would also constitute an event of default under our (i) ABL Facility, (ii) Term Loan Agreement, or (iii) the 2021 Notes Indenture governing our 2021 Notes, would allow the respective administrative agents under the ABL Facility and Term Loan Agreement to declare the principal and accrued and unpaid interest under each agreement immediately due and payable and to exercise all other rights and remedies available to the respective agents and lenders, and allow the trustee or the holders of at least
25%
aggregate principal amount of 2021 Notes under the 2021 Notes Indenture the option to declare all of the 2021 Notes due and payable immediately.
We intend to use the grace period to engage in discussions with our debtholders regarding strategic alternatives to improve our long-term capital structure; however, there can be no assurances that any of these strategies will yield sufficient funds to meet our working capital or other liquidity needs, including for payments of interest and principal on our debt in the future, and any such alternative measures may be unsuccessful or may not permit us to meet scheduled debt service obligations, which could cause us to default on our debt obligations. In the event we cannot make the interest payment on our 2018 Notes, we may need to seek relief under the United States Bankruptcy Code.