Heckmann Corporation of Palm Desert, California (NYSE: HEK, HEK.U, HEK.WS) today announced financial results for the third quarter ended September 30, 2009. The results for the third quarter reflect the operating results of the combined company, which is Heckmann Corporation and its subsidiaries, including China Water and Drinks, Inc. and its affiliated entities (“China Water”), acquired October 30, 2008, and Heckmann Water Resources Corporation (“HWR”) which was acquired on July 1, 2009.
Business Highlights
Final Series of Fundamental Changes Made to China Water Operations
- Renovation and installation of facility in Xi’an, Shaanxi Province is nearly completed and bottling operations for Coca-Cola will commence during the current quarter. The facility has long-term contracts in place for 80% of the current volume with additional expansion of the facility planned.
- Began the process of closing one facility and divesting another to improve the Company’s total regional capacity and utilization profile. Usable equipment will be moved to other facilities to expand capacity to meet demand. Currently the Company believes that the remaining eight plants are in the right markets to serve its customer base and, that as a result of the changes, production capacity will be expanded by 13% during 2010. The restructure and deconsolidation charge was taken in during the third quarter.
- Began design and formulation of an innovative enhanced water product to be introduced at the Shanghai World Exposition in the summer of 2010. The beverage is to be manufactured and sold under a China Water and Drinks label by the Company as its first differentiated product produced by its first facility in the Shanghai area. The Company is also in discussions with customers regarding two additional plant locations for 2010.
- Final series of impairments and extraordinary expenses recorded to accurately reflect current financial position and to ensure that going forward the Company’s reported results will accurately reflect its operations.
Heckmann Water Resources Corporation (“HWR”) Commenced Profitable Operations
- Construction of the new 40-mile pipeline and interconnecting lines into the Haynesville Shale in East Texas and North West Louisiana is on budget and on schedule for completion by early 2010 with revenues from the pipeline beginning this year.
- Over $60.0 million in firm multi-year disposal contracts already in place for approximately 38% of the pipeline capacity.
- Further investments will be made to acquire, permit, and operate additional disposal wells plus interconnecting pipeline into an integrated closed loop system capable of receiving and disposing up to 120,000 barrels of daily capacity, a projected 20% increase in capacity.
Continued Improvement of Capital Structure and Resources
- During August 2009, the Board of Directors approved a one-year extension of the Company’s discretionary equity buy-back plan through 2010 and an expansion of the plan to include common stock. No warrants or common shares were purchased in the three months ended September 30, 2009.
- The Company continued the share cancellation and recovery plan for 15.5 million common shares and 1.5 million underlying warrants that were issued to former China Water management and insiders including Xu Hong Bin. Xu has challenged the cancellation with a lawsuit in Delaware Chancery Court. Xu recently attempted to circumvent the emerging evidence against him with a technical motion for partial judgment. He also asked the Court for an order of specific performance of the mutual release provisions of the March 13, 2009 Escrow Resolution and Transition Agreement which, if granted, could have forced the Company to release his contested shares. The Court denied both motions. This means Xu must overcome all of the Company’s affirmative defenses and it means the Company is allowed to move forward with its counter lawsuit against Xu. There are 4 China Water founders involved in the 15.5 million share cancellation and recovery plan. Aside from Xu, one of the parties involved returned his 3,361,000 shares to the Company which were appropriately cancelled this quarter. Neither of the remaining two parties has taken any action against the Company in the seven months since they were notified of the share cancellation. $72.3 million or 41% of the third quarter non-cash impairment charge relates to the shares being contested. The value of the shares was included in the purchase price and written off in the impairment charge during the third quarter, eliminating the potential of further impact.
- Heckmann Corporation maintained a debt-free balance sheet as of September 30, 2009 with cash and cash equivalents, investments and marketable securities totaling approximately $274.0 million.
Third Quarter 2009 Financial Results
For the third quarter of 2009, Heckmann Corporation’s net sales were $11.2 million, a 36% increase over the second quarter. China Water net sales increased 16% over the second quarter. The net loss for the third quarter was ($210.5 million), or ($1.93) per share. The Company has previously announced that final adjustments to the purchase price allocation and any resulting non-cash impairment charge would be recorded at the end of the third quarter. The details of the non-cash impairment charge and other charges recorded in the third quarter can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2009. In summary, the Company has evaluated the goodwill recorded on acquisition and has reduced it to $6.3 million (Note 5 in the 10-Q) which includes a $178.5 million non-cash impairment charge for the third quarter. The Company also recorded $29.7 million of reserves and write offs in the quarter to address other post-acquisition issues with the China Water operations.
On an adjusted basis, EBITDA for the third quarter was $403,000, versus $100,000 in the second quarter.
Commentary
Mr. Richard J. Heckmann, Chairman and CEO of Heckmann Corporation, stated, “The third quarter was the period in which we accomplished all of the necessary final actions to address past issues at China Water, prepare our domestic water business for robust operations, and position the overall business for profitable growth going forward. In three quarters, we have accomplished our stated objectives to scrub financial results, improve internal controls, and prepare a sound operational structure in China and the U.S. from which to pursue growth and expansion. The stage is now set for 2010 and beyond. While 2009 has been painful and early performance at China Water has been far below what we had hoped for, we have a new management team in China, solid relationships with our customers, and several upcoming opportunities to expand and grow. We are positioned in the heart of a great growth engine in China and fully expect to achieve long-term success.
“The water business remains an excellent long-term business opportunity in Asia and presents a sizeable and growing market with attractive prospects globally. For example, our U.S.-based produced water capabilities and the potential treatment of the disposal flows have ramifications far beyond Texas and Louisiana as we complete our first pipeline and can demonstrate our approach to one of the most severe issues in the energy exploration business. With our strong balance sheet, we are continuing to actively evaluate potential acquisitions that will further diversify our interests in water resource management and infrastructure and increase the value of our company. With our clean-up challenges now behind us, we expect a very active 2010 as we begin to realize the potential across the enterprise that we have built to date.“
Conference Call Details
The Company will conduct a conference call today at 1:30 p.m. PT (4:30 p.m. ET). To participate on the conference call, please dial 888-846-5003 or 480-629-9856 and reference conference ID 4178376.
An audio replay of the conference call will be available approximately one hour after the conclusion of the call through November 16, 2009. The audio replay can be accessed by dialing 800-406-7325 or 303-590-3030 and entering access ID number 4178376.
About Heckmann Corporation
Heckmann Corporation (NYSE: HEK) is a holding company that was created to make investments in attractive businesses. The Company completed its first investment, the acquisition of China Water in October 2008, now operating as wholly-owned subsidiary, China Water & Drinks, Inc. On July 1, 2009, the Company completed its second investment, the purchase of a multi-modal salt water disposal, treatment, and pipeline transportation business in Texas, now operating as wholly-owned subsidiary, Heckmann Water Resources Corporation. The Company also makes strategic minority interest investments, such as its recent investment in Underground Solutions, Inc. (OTC: UGSI).
Interested stockholders and investors can access additional information about Heckmann on the Company’s web site at www.heckmanncorp.com, and in documents filed with the U.S. Securities and Exchange Commission, on the SEC's web site at www.sec.gov.
Forward-Looking Statements
This press release may contain “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements. Forward-looking statements include matters that involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to differ materially from results expressed or implied by this press release. These forward-looking statements inherently involve certain risks and uncertainties that are detailed in the Company’s filings with the Securities and Exchange Commission and available at www.sec.gov as well as the Company’s website at www.heckmanncorp.com . You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. All forward-looking statements are qualified in their entirety by this cautionary statement. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The equity buy-back plan discussed in this press release could result in holders selling shares of common stock or warrants back to the Company at prices that are lower or higher than later market prices, the price that holders receive for their common stock or warrants in any sale of the Company as a whole, or the price at which future shares of common stock or warrants are sold by the Company
Heckmann Corporation and Subsidiaries | ||||||
Consolidated Balance Sheets | ||||||
(In thousands, except share data) | ||||||
September 30, | December 31, | |||||
2009 | 2008 | |||||
| ASSETS | (unaudited) | |||||
| Current Assets | ||||||
| Cash and cash equivalents | $ | 153,029 | $ | 281,683 | ||
| Restricted cash | 2,000 | - | ||||
| Certificates of deposit | 10,050 | 10,000 | ||||
| Marketable securities | 13,070 | - | ||||
| Accounts receivable, net | 5,916 | 26,460 | ||||
| Inventories, net | 5,792 | 2,241 | ||||
| Prepaid expenses | 512 | 8,842 | ||||
| Other receivables | 4,366 | 1,548 | ||||
| Due from related party | 511 | 1,381 | ||||
| Income tax receivable | 699 | 969 | ||||
| Other current assets | 9 | 544 | ||||
| Total current assets | 195,954 | 333,668 | ||||
| Property, plant and equipment, net | 26,114 | 15,901 | ||||
| Marketable securities | 89,347 | 38,717 | ||||
| Deposits | 261 | 16,608 | ||||
| Investment in unconsolidated equity investee | 4,267 | 12,964 | ||||
| Investment in UGSI | 6,801 | - | ||||
| Intangible assets, net | 23,738 | 29,879 | ||||
| Goodwill | 13,600 | 315,018 | ||||
| Other | 211 | 338 | ||||
| TOTAL ASSETS | $ | 360,293 | $ | 763,093 | ||
| LIABILITIES AND EQUITY | ||||||
| Current Liabilities | ||||||
| Accounts payable | $ | 13,895 | $ | 9,550 | ||
| Deferred revenue | 4,226 | 1,209 | ||||
| Accrued expenses | 17,213 | 2,208 | ||||
| Current portion of long term debt | 790 | 36 | ||||
| Income taxes payable | 1,351 | 440 | ||||
| Due to related parties | 195 | 963 | ||||
| Deferred income taxes | 432 | 77 | ||||
| Total current liabilities | 38,102 | 14,483 | ||||
| Acquisition consideration payable | 1,910 | 1,910 | ||||
| Long-term debt, less current portion | - | 96 | ||||
| Other LT Liabilities | 3,704 | - | ||||
| TOTAL LIABILITIES | 43,716 | 16,489 | ||||
| Equity: | ||||||
| Shareholders' equity of the Company: | ||||||
| Preferred stock, $0.001 par value, 1,000,000 shares authorized; no shares issued or outstanding | - | - | ||||
| Common stock, $0.001 par value: 500,000,000 and 250,000,000 shares authorized at September 30, 2009 and December 31, 2008, respectively, 125,282,740 shares issued and 108,750,650 shares outstanding at September 30, 2009, respectively, 126,606,323 shares issued and 110,074,233 shares outstanding at December 31, 2008, respectively | 124 | 126 | ||||
| Additional paid-in capital | 745,856 | 757,720 | ||||
| Purchased warrants | (4,810) | (405) | ||||
| Treasury stock | (14,000) | - | ||||
| Accumulated deficit | (413,802) | (13,771) | ||||
| Accumulated other comprehensive income | 688 | 89 | ||||
| Total shareholders' equity of the Company | 314,056 | 743,759 | ||||
| Noncontrolling interest | 2,521 | 2,845 | ||||
| TOTAL EQUITY | 316,577 | 746,604 | ||||
| TOTAL LIABILITIES AND EQUITY | $ | 360,293 | $ | 763,093 | ||
Heckmann Corporation and Subsidiaries | ||||||||||||
Consolidated Statements of Operations | ||||||||||||
(In thousands, except share and per share data) | ||||||||||||
| Three Months Ended Sept 30, | Nine Months Ended Sept 30, | |||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||
| Revenue | $ | 11,235 | $ | - | $ | 27,315 | $ | - | ||||
| Cost of goods sold | 8,988 | - | 20,415 | - | ||||||||
| Gross profit | 2,247 | - | 6,900 | - | ||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing expenses | 791 | - | 2,218 | - | ||||||||
| General and administrative expenses | 26,753 | 460 | 37,677 | 1,248 | ||||||||
| Goodwill impairment | 178,553 | - | 362,553 | - | ||||||||
| Impairment of property, plant and equipment | 6,223 | - | 6,223 | - | ||||||||
| Total operating expenses | 212,320 | 460 | 408,671 | 1,248 | ||||||||
| Loss from operations | (210,073) | (460) | (401,771) | (1,248) | ||||||||
| Interest income, net | 863 | 2,569 | 3,048 | 9,416 | ||||||||
| Income from equity method investment | (124) | - | 211 | - | ||||||||
| Other, net | (688) | - | (407) | - | ||||||||
| (Loss) income before income taxes | (210,022) | 2,109 | (398,919) | 8,168 | ||||||||
| Income tax expense | (476) | (859) | (896) | (3,224) | ||||||||
| Net (loss) income | (210,498) | 1,250 | (399,815) | 4,944 | ||||||||
| Less: Net income attributable to the noncontrolling interest | (61) | - | (216) | - | ||||||||
| Net (loss) income attributable to the Company | (210,559) | 1,250 | (400,031) | 4,944 | ||||||||
Deferred interest income, net of taxes, attributable to common stock subject to possible redemption | - | (244) | - | (155) | ||||||||
| Net (loss) income attributable to common stockholders | $ | (210,559) | $ | 1,006 | $ | (400,031) | $ | 4,789 | ||||
| (Loss) earnings per share - basic and diluted | ||||||||||||
| (Loss) income attributable to the Company's common shareholders: | ||||||||||||
| Basic and diluted | $ | (1.93) | $ | 0.01 | $ | (3.64) | $ | 0.07 | ||||
| Weighted average number of shares outstanding, basic and diluted | 109,275,628 | 67,646,800 | 109,852,879 | 67,646,800 | ||||||||
Heckmann Corporation and Subsidiaries | |||
Adjusted EBITDA for the Three Months Ended September 30, 2009 | |||
(In millions) | |||
| Pretax income | $ | (210.0) | |
| Less: Interest income | (0.8) | ||
| Add: | |||
| Depreciation | 0.8 | ||
| Amortization | 0.2 | ||
| Non-cash goodwill impairment charge | 178.6 | ||
| China Water reserves & write-offs | 13.0 | ||
| China Water fixed assets write-offs | 6.2 | ||
| ShenYang deconsolidation | 5.3 | ||
| Xu reimbursement & legal | 5.0 | ||
| Chen Settlement | 0.8 | ||
| Beijing exit costs | 0.5 | ||
| Beijing & Shenyang Q3 losses | 0.3 | ||
| Stock based compensation | 0.2 | ||
| HWR transaction costs | 0.2 | ||
| Severance costs | 0.1 | ||
| Adjusted EBITDA | $ | 0.4 | |
Contacts:
Kristen McNally, +1 212-481-2050
heckmann@tpg-ir.com
