(3) Acquisitions

2013 Acquisitions

During the year ended December 31, 2013, the Company completed three acquisitions in its Shale Solutions business, including two in the Marcellus/Utica Shale and one in the Bakken Shale. In the Bakken Shale, in July 2013, the Company acquired Ideal Oilfield Disposal, LLC (“Ideal”), a greenfield oilfield waste disposal landfill site located in North Dakota. Total consideration was $24.6 million including stock valued at $6.7 million, cash of $9.8 million, and contingent consideration of approximately $8.1 million. The acquisition included land, certain land improvements and a disposal permit. See Note 11 for additional information regarding the contingent consideration related to Ideal. The Company has also agreed to pay the former owners of Ideal certain additional amounts based on future revenues of the landfill, which was determined to be appropriately expensed as revenue is incurred. Such amounts totaled $0.2 million in the year ended December 31, 2013.

The aggregate purchase price of the 2013 acquired businesses was approximately $42.9 million consisting of approximately 0.7 million shares of the Company’s common stock with an estimated fair value of approximately $24.3 million, cash consideration of approximately $10.5 million and contingent consideration of approximately $8.1 million. The results of operations of the three acquisitions were not material to our consolidated results of operations during the year ended December 31, 2013.

 

The final allocations of the combined aggregate purchase prices of the three acquisitions are summarized as follows:

 

Accounts receivable		$	753
Other current assets			13
Property, plant and equipment, including landfill of $24.0 million			41,942
Customer relationships			400
Goodwill			341
Accounts payable and accrued liabilities			(189	)
Other long-term liabilities			(302	)
Total		$	42,958

The goodwill relates to the pool of customer-qualified drivers acquired in connection with one of the Marcellus/Utica acquisitions.

2012 Acquisitions

The Company has included the information below regarding acquisitions completed in the year ended December 31, 2012. The Company’s acquisition of TFI and a subsequent small acquisition by TFI during 2012 is presented as discontinued operations (Note 20).

Power Fuels Merger

On November 30, 2012, the Company completed a merger (the “Power Fuels Merger”) with Badlands Power Fuels, LLC (collectively with its subsidiaries, “Power Fuels”) of which the Company’s Chief Executive Officer and Vice Chairman, Mark D. Johnsrud, was the sole member. Prior to the merger, Power Fuels was a privately-held North Dakota-based environmental solutions company providing delivery and disposal of environmental products, fluids transportation and handling, water sales, and equipment rental services for unconventional oil and gas exploration and production customers. As a result of the Power Fuels Merger on November 30, 2012, Power Fuels and its subsidiaries became wholly-owned subsidiaries of the Company.

The aggregate purchase price was approximately $498.8 million (net of settlement of the working capital adjustment of $2.1 million) and was comprised of the following:

 

•

9.5 million unregistered shares of the Company’s common stock, with a fair value of approximately $371.5 million, of which 1.0 million shares were placed into escrow for up to three years to pay certain potential indemnity claims; and

 

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$127.3 million in cash including adjustments for targeted versus actual debt and working capital.

The Power Fuels Merger has been accounted for as a business combination under the acquisition method of accounting. During the year ended December 31, 2013, the Company amended its original purchase price allocation to reflect settlement of the working capital adjustment and finalized appraisals and assessments of the tangible and intangible assets acquired and liabilities assumed, including related tax effects. Such adjustments resulted in a decrease in recorded goodwill of $8.7 million, primarily due to an increase in the final values assigned to property, plant and equipment and the settlement of the working capital adjustment.

 

The final allocation of the purchase price is summarized as follows:

 

Cash		$	2,111
Accounts receivable			57,484
Inventory			3,443
Other assets			3,271
Property, plant and equipment			287,818
Customer relationships			145,000
Goodwill			304,031
Accounts payable and accrued liabilities			(24,291	)
Debt			(150,367	)
Deferred income tax liabilities, net			(129,711	)
Total		$	498,789

The purchase price allocation requires subjective estimates that, if incorrect, could be material to the Company’s consolidated financial statements including the amount of depreciation and amortization expense. The most important estimates for measurement of tangible fixed assets are (a) the cost to replace the asset with a new asset and (b) the economic useful life of the asset after giving effect to its age, quality and condition. The most important estimates for measurement of intangible assets are (a) discount rates and (b) timing and amount of cash flows including estimates regarding customer renewals and cancellations. The goodwill recognized was attributable to the premium associated with the immediate entry into the Bakken Shale area where Power Fuels had an established workforce and operations.

Other 2012 Acquisitions

During the year ended December 31, 2012, the Company completed three other acquisitions in its Shale Solutions business (one in each of the first, second and third quarters of 2012). The aggregate purchase price of the acquired businesses was approximately $36.1 million consisting of 0.8 million shares of the Company’s common stock with an estimated fair value of approximately $30.5 million, cash consideration of approximately $0.4 million and approximately $5.2 million of contingent consideration.

In conjunction with the acquisition completed in Shale Solutions in the third quarter of 2012, the Company acquired a 51% interest in Appalachian Water Services, LLC (“AWS”) which owns and operates a water treatment and recycling facility in southwestern Pennsylvania, and has a call option to buy the remaining 49% at a fixed price at a stated future date, and the noncontrolling interest holder has a put option to sell the remaining 49% percent to the Company under those same terms. As such, the fixed price of the call option is equal to the fixed price of the put option. In accordance with ASC 480, “Distinguishing Liabilities from Equity” , the option contracts are viewed on a combined basis with the noncontrolling interest and accounted for as the Company’s financing of the purchase of the noncontrolling interest. Accordingly, $10.1 and $9.0 million, representing the present value of the option, was classified as other long-term obligations in the accompanying Consolidated Balance Sheets at December 31, 2013 and 2012, respectively, with the financing accreted, as interest expense, to the strike price of the option over the period until settlement.

 

The allocations of the combined aggregate purchase prices at the respective 2012 acquisition dates are summarized as follows (in thousands):

 

Accounts receivable		$	2,653
Equipment			21,108
Customer relationships			9,270
Goodwill			12,452
Other long-term obligations			(8,768	)
Other liabilities			(613	)
Total		$	36,102

Pro forma Financial Information Reflecting 2012-2013 Acquisitions

The following unaudited pro forma results of operations for the years ended December 31, 2013 and 2012, respectively, assume that all of the 2012 and 2013 acquisitions, excluding the acquisition of TFI which is presented as discontinued operations, were completed at the beginning of the periods presented. The pro forma results include adjustments to reflect additional amortization of intangibles and depreciation of assets associated with the acquired and merged businesses and additional interest expense for debt issued to consummate these transactions:

 

		Year Ended December 31,
		2013				2012				2011*
Revenue		$	529,398			$	622,853			$	454,164
Net (loss) income		$	(133,693	)		$	26,515			$	22,529
Net (loss) income per share:
Basic		$	(5.43	)		$	1.11			$	1.09
Diluted		$	(5.43	)		$	1.00			$	1.02

 

*	The 2011 pro forma financial information above includes the 2012 and 2011 acquisitions as if they had occurred as of January 1, 2011.

The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisitions been effective as of January 1 of the respective years or of future operations of the Company.