Nuverra Environmental Solutions (NYSE AMEX:NES)

Third Quarter and Recent Highlights

 

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Record revenues from Heckmann Water Resources (“HWR”) of $47.8 million, compared with $1.9 million in the third quarter of 2010.

 

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Net income from continuing operations grew to $2.6 million, or $0.02 per share, compared with a net loss of $2.2 million, or ($0.02) per share, in the third quarter of 2010.

 

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Adjusted EBITDA from continuing operations improved to $11.0 million, compared with $(0.5) million in the third quarter of 2010.

 

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Completed the divestiture of the current operations of China Water & Drinks, Inc. to focus Company resources on growth opportunities among its core U.S. water solutions business.

 

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Increased produced water pipeline production to 30,000 average barrels of water per day from 17,000 last quarter.

 

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Added another senior executive with significant experience in the water business: W. Christopher Chisholm named Executive Vice President and Chief Financial Officer, effective November 15, 2011

Noitce that HEK's commitment not to tap equity markets is less direct:

Previous statmentin 2010 10K

The Company believes that its cash, cash equivalents and investments will be sufficient to fund operations, facilitate plant expansions and complete any acquisitions it may undertake for the foreseeable future.

Current statement in the 2011 third quarter filings

We believe that our cash, cash equivalents, investments and availability on our revolving line of credit will be sufficient to facilitate planned capital expenditures that we may undertake this year.

HONG KONG, Oct. 3, 2011 /PRNewswire/ -- Pacific Water & Drinks (HK) Group Limited, owned by Jon Olafsson, co-founder and Chairman of Icelandic Water Holdings Ltd, announced today it has completed the acquisition of certain current operations of China Water & Drinks which consists of nine companies in the People's Republic of China and Hong Kong from Heckmann Corporation (NYSE: HEK, HEK.WS).  China Water & Drinks currently has operations in East and Southeast China.  The new acquisition builds on Pacific Water & Drinks commitment to the Chinese market as the company now holds operations in strategic regions in Greater China, such as Hong Kong, Shanghai, Guangzhou and Xian.

"We are extremely pleased to announce our recent acquisition of China Water & Drinks," says Jon Olafsson.  "This is a central component to Pacific Water & Drinks, and combined with our seasoned distribution and bottling experience, this will allow us to capitalize on the extraordinary opportunities that are available in the Chinese markets."

China Water & Drinks will continue to operate and build on their ongoing success in China by combining with Pacific Water & Drinks Group's diversified experience in the beverage market worldwide.  Current customers of China Water & Drinks include beverage giants such as Coca Cola, Uni-President as well as local retail and foodservice customers.

Richard J. Heckmann, Chairman and Chief Executive Officer of Heckmann Corporation, stated, "We have built a solid platform with great potential and believe Jon Olafsson and Pacific Water & Drinks have the right ingredients to develop it further. The sale of these operations is a good match for Jon, and one which enables us to turn our focus exclusively on our U.S. water operations growth opportunity."

As a leader in one of the world's largest and fastest growing beverage markets, Pacific Water & Drinks (HK) Group Limited will have an extensive footprint.  The new acquisition will provide total production capacity of over 1.3 billion bottles per year and employ over 1,150 people in peak season.

On September 7, 2011, Heckmann Corporation (“HEK”), and its current Heckmann Water Resources (HWR) subsidiaries entered into a senior secured U.S. $160 million Credit Agreement (the “Credit Agreement”) with Regions Bank, as administrative and collateral agent, RBS Citizens Bank, N.A. and First National Bank of Pennsylvania, as co-syndication agents, Wells Fargo Bank, National Association, as documentation agent, Regions Capital Markets and RBS Citizens Bank, N.A., as joint lead arrangers and joint book managers and certain other lenders party thereto. The Credit Agreement consists of a $70 million term loan facility and a $90 million revolving credit facility.

• Revenues for the first quarter ended March 31, 2011 totaled $23.8 million compared with $8.6 million for the same year-ago period.

• Net income for the first quarter of 2011 was $0.3 million, or $0.01 on an adjusted per share basis, based on 108.5 million weighted shares outstanding, compared with a net loss of $(0.3) million, or adjusted break-even, based on 108.8 million weighted shares outstanding for the first quarter of 2010.

“The first quarter of 2011 marks the realization of many months of hard work, perseverance and commitment by this management team to build a world-class enterprise focused exclusively on providing water solutions, particularly those that support energy development,” said Richard J. Heckmann, Chairman and CEO of Heckmann Corporation. “After addressing the challenges in China that began in March of 2009, we have established a U.S. energy business designed to scale rapidly in order to address the enormous opportunities available to the only fully integrated, one-stop-shop water service provider to the producers of natural gas.”

“While the Company’s growth to date and outlook for this year is dramatic, we have significant room to grow before we maximize the revenue and earnings potential from the operations we currently own. Having added seasoned executives with substantial water and energy experience to our corporate infrastructure, our industry relationships and early entry into this market give us a head-start advantage as we continue to pursue attractive opportunities for organic and acquisitive growth. As our country moves toward a long-term goal of energy independence, the potential within the domestic energy industry is staggering – and all energy producers must address water issues. Our Company will continue to invest aggressively to expand our fully integrated scope of water services to support shale oil and natural gas production.”

The legal actions between the sellers and former managers of China Water and Drinks and the Company have been settled and dismissed. The significant legal expenses associated with those actions are expected to conclude during the current quarter ending June 30, 2011. Two and a half years ago, Heckmann Corporation issued or agreed to issue approximately 29 million shares to the China Water management group at the completion of the transaction in November of 2008. When the case was dismissed, the aggregate settlement included the purchase by the Company of approximately 14.0 million shares at $1.31 per share, the cancellation of approximately 3.4 million shares, and the elimination of approximately 3.5 million contingently returnable shares as disclosed in the Company’s previous filings. The balance of the shares (totaling approximately 7.7 million), which had been frozen by the Delaware Court, was released to the sellers and has been sold into the market. At the current share price, the recovery value to the Company totaled over $110.0 million.

Our primary strategy is to grow by expansion and acquisition. The Company believes that its cash, cash equivalents and investments will be sufficient to fund operations, facilitate plant expansions and complete any acquisitions it may undertake for the foreseeable future.

This Form 8-K is being filed to confirm that Heckmann Corporation (the “Company”) has concluded that the financial statements of China Water and Drinks, Inc. (“China Water”), as and for the six months ended June 30, 2008, as provided by China Water’s former management and included in Heckmann Corporation’s Form S-4 Registration Statement No. 333-151670, should not be relied upon by investors.

Although this formal conclusion is made as of the date hereof, the Company notes that it has filed several periodic and other reports with the United States Securities and Exchange Commission (“SEC”) that alerted investors to the lack of reliability relating to the China Water 2008 financial statements. In addition, concurrently with the filing of this Form 8-K, the Company is filing a Form 10-K/A for the period ended December 31, 2009 that includes, among other things, the results of an independent audit of the financial statements of China Water for and as of the ten months ended October 29, 2008, the date when the Company acquired China Water. The audited China Water financial statements included in the 2009 10-K/A reflect substantially different financial results with respect to China Water from the results provided by China Water’s former management as reported in various periodic and other reports filed with the SEC by China Water, certain of which were included in the Company’s Form S-4 dated as recently as October 1, 2008, including the following:

  •   China Water’s revenues for 2008 have been materially reduced from those reported by prior China Water management, to $9.8 million for the audited period from January 1, 2008 to October 29, 2008. Former management of China Water reported revenues for the six months ended June 30, 2008 of approximately $48 million and revenues for the ten month period ended October 29, 2008 of over $85 million.  

  •   China Water’s total operating expenses have been materially increased from those reported by prior China Water Management, to $112.5 million for the audited period from January 1, 2008 to October 29, 2008. Former management of China Water reported total operating expense for the six months ended June 30, 2008 of approximately $32.4 million.  

  •   China Water’s net loss has been materially increased from the net loss reported by prior China Water management, to $(121.0) million for the audited period from January 1, 2008 to October 29, 2008. Former management of China Water reported a net loss for the six months ended June 30, 2008 of approximately $(22.0) million.
 

Fourth Quarter Results:

• Revenues for the fourth quarter ended December 31, 2010 totaled $14.3 million compared with $8.7 million for the same year-ago period.
• Net income for the fourth quarter of 2010 was $236,000 or $0.00 per share based on 108.8 million weighted shares outstanding, compared with net income of $77,000, or $0.00 based on 108.8 million weighted shares outstanding for the fourth quarter of 2009.
• Adjusted EBITDA for the three months ended December 31, 2010 totaled $1.6 million, compared with adjusted EBITDA of $0.1 million for the fourth quarter of 2009.

Richard J. Heckmann, Chairman and CEO of Heckmann Corporation, stated, "Heckmann Water Resources has made outstanding progress in its expansion in four of the highest producing shale plays in the U.S. Last year was a highly productive period in the Company’s development, and to date, 2011 has been equally active, as we have established a strong and highly competitive presence in the Haynesville Shale area and a developing presence in the Marcellus Shale, Eagle Ford Shale and Barnett Shale areas. In the past 90 days we have moved forward on five acquisitions and have begun discussions on several more. Combined revenues of these five privately held companies are expected to exceed $45.0 million for the remainder of 2011. Upon closing of the slated acquisitions, our all-inclusive water solutions platform for unconventional oil and gas exploration and production will offer total treatment and disposal capacity of approximately 300,000 barrels per day through an extensive network of fresh and produced water transport pipeline, other transport assets, disposal wells, and treatment and terminal facilities."

Company currently expects 2011 revenues in excess of $150 million and 2011 EBITDA of approximately $40 million.

The Company will make a presentation at the Robert W. Baird & Co. 2010 Clean Technology Conference being held at the Four Seasons Hotel in San Francisco, California from November 30, 2010 to December 1, 2010. Representatives from the Company will make their presentation on November 30, 2010 at 8:30 a.m. Pacific time.

Third Quarter 2010 Financial Results

• Revenues for the third quarter ended September 30, 2010 totaled $11.1 million compared with $11.2 million for the same year-ago period, although as reported above, three China Water facilities were either closed or deconsolidated prior to the third quarter of 2010.

• Net loss for the third quarter of 2010 was $(1.8) million or $(0.02) on a per share basis compared with a net loss of $(210.6) million, or $(1.93) for the third quarter of 2009. The net loss for the third quarter of 2010 included $590,000 of pipeline start up and commissioning expenses associated with HWR’s Haynesville Shale operations.

Mr. Richard J. Heckmann, Chairman and CEO of Heckmann Corporation, stated, “The third quarter of 2010 was by far the most productive period in our company’s history. With the appointments of Chuck Gordon as President and Chief Operating Officer and director Robert Simonds as Vice Chairman, we added extensive water industry expertise and recognition to our management team, allowing us to move forward with even greater momentum in our produced water business. Bob and Chuck are now engaged in all aspects of our domestic businesses and China Water President John Cheng continues to grow our China operations.

“Our planned acquisition of Complete Vacuum and Rental Inc. (“CVR”) announced yesterday positions us as a leader in the disposal of produced water in the Haynesville Shale region. The combined platform integrates HWR’s pipeline with the water handling needs that the region’s oil and gas exploration and production (E&P) customers require for all-inclusive water transport and disposal. We now supply everything from tanks and trucks to tractors and trailers to pipeline and deep injection disposal wells – a full service model that can be economically replicated in other shale gas regions. We should see the positive financial impact of the CVR acquisition beginning in the current quarter, and we have already begun expansion of the combined operations into the Eagle Ford and Barnett Shale areas.

“In the Marcellus Shale,” Mr. Heckmann continued, “Energy Transfer Water Solutions’ placement of our first mobile treatment unit for a paid demonstration test marks an important step forward in establishing the value of that evolving technology for recycling frac and produced waters for reuse as frac solutions. We have established an agreement with one of Pennsylvania’s major producers and continue to design and develop other pipeline opportunities across the Marcellus distribution region.

“With our considerable entry into the U.S. water sector so far this year, we look forward to continuing the expansion and growth in this part of our business. We will begin 2011 with expected annual revenues well in excess of $100 million and an impressive industry platform operating in the most productive shale regions in the country.”

Earn out terms associated with a stock purchase agreement on November 8, 2010:

For each of fiscal years 2011, 2012 and 2013 in which CVR achieves targeted EBITDA of $20.0 million (as described in the Purchase Agreement), the Company will pay Shareholders an additional $2 million plus one-half of the amount by which EBITDA exceeds $20.0 million for the relevant fiscal year (the “Earn-Out Payments”).

On November 8, 2010, Heckmann Corporation entered into a stock purchase agreement with Complete Vacuum and Rental, Inc., a Texas corporation (“CVR”); Steven W. Kent, II and Jana S. Kent (together the “Shareholders”). Under the terms of the Purchase Agreement, the Company will purchase 100% of the outstanding equity interests of CVR.

CVR operates an oilfield waste disposal business from headquarters in Carthage, Texas, with trucking terminals located in northwest Louisiana and central Arkansas and a network of six deep injection disposal wells located in east Texas. CVR transports waste water produced by its customers in their oil and gas operations using a fleet of vacuum trucks, winch trucks and frac tanks; separates oil or gas from the oilfield waste water it transports and sells it for its own account; disposes of oilfield waste water in its deep injection wells; and rents transportation equipment to its customers for use in their own operations. Mr. Kent currently serves as the President and Chief Executive Officer of CVR and the Company anticipates that he will continue in that role after the acquisition.

The purchase price is $64.0 million, subject to various adjustments, and includes: (i) up to $38.0 million to pay off or assume existing indebtedness of CVR, (ii) $5.0 million in cash to retire certain related party indebtedness, and (iii) approximately $21.0 million to Shareholders, of which approximately $15.0 million (70%) will be paid in cash and $6 million (30%) will be paid in the Company’s common stock. The Company also has agreed to pay two key CVR employees an aggregate amount of $2.0 million in cash and stock, one-half of which to be paid at closing and the balance to be paid, subject to certain restrictions, on January 1, 2012. The Company will make additional payments to Shareholders upon the achievement of certain EBITDA targets, as described below. In addition, the Company will assume up to an additional $5.0 million of indebtedness incurred to expand CVR’s operations in key geographies. The Company’s common stock paid at closing will be valued on a per share basis at the average of the closing sales price on the New York Stock Exchange for the ten trading days immediately preceding the public announcement of the Purchase Agreement

Mr. Richard J. Heckmann, Chairman and CEO of Heckmann Corporation, stated, “2009 presented its share of issues for our management but we have successfully turned the corner in China and will continue to maximize shareholder value through growth and expansion there."

Source: Business Wire (March 11, 2010)

“China Water and Drinks’ sales for the first quarter of 2009 were soft reflecting not only the seasonally slow first quarter but also the economic slowdown across most sectors in China. We also experienced collection issues and a general lack of liquidity in our non-OEM customer base. Additionally, we discovered what we believe was financial misconduct and the diversion of cash deposits by former management of China Water. We have not only removed them from the organization, but as indicated above, moved to cancel all of their shares in Heckmann Corporation and are pursuing other remedies. With the share cancellations we will have reduced our shares issued in the China Water transaction by 48% and our outstanding share count by 23% overall. Through these determined actions, we feel that we are in a better position than we started from which to effectively manage and grow this business, and overall, our stockholders have captured more value out of their holdings. We remain confident in the prospects for China Water to expand market share in key regions in China over both the near and long term.

Source: Business Wire (May 8, 2009)

On June 3, 2009, Xu Hong Bin, the former Chief Executive Officer of China Water and Drinks Inc. and his affiliated entity, Kotex Development Corp.  served a complaint filed June 1, 2009 in the Court of Chancery for the State of Delaware making various claims against Heckmann Corporation and/or our directors and certain of our executive officers, which claims allegedly arise out of the Company’s alleged cancellation of approximately 5.3 million shares of Company common stock held by Xu and/or Kotex.

Specifically, Xu and Kotex allege that the Company’s purported cancellation of their shares is a breach of the Escrow Resolution and Transition Agreement between them and the Company, which was filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2008.

Heckmann Corp believes Xu’s and Kotex’s claims are without merit and intend to vigorously contest this litigation. In addition, we intend to expand our claims against Xu and Kotex and seek appropriate remedies for misappropriation of corporate assets, financial misconduct, and misrepresentations concerning the strength of the business of China Water.

Source: SEC Form 8K (June 3, 2009)

Based on current capacity levels, business trends, and anticipated acquisitions, China Water’s management projects revenue in 2008 to be approximately $220.0 million and net income in 2008 to be approximately $70.0 million, including the addition of five acquisitions currently under contract or in negotiations. This guidance assumes that the acquisitions currently under contract or in negotiations closed on January 1, 2008 and thus reflects the full-year impact.

The company has not disclosed the tax assumption in the guidance.

(Source: Press, May 20, 2008)