Notes to Consolidated Financial Statements
(Unaudited)
NOTE A
– BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
We are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, water management, frac flowback, production well testing and offshore rig cooling services, and compression services and equipment. We were incorporated in Delaware in 1981. Following the acquisition and disposition transactions that closed during the three month period ended
March 31, 2018
, we reorganized our reporting segments and are now composed of
three
divisions –
Completion Fluids & Products, Water & Flowback Services, and Compression
. Unless the context requires otherwise, when we refer to “we,” “us,” and “our,” we are describing TETRA Technologies, Inc. and its consolidated subsidiaries on a consolidated basis.
Our consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. Operating results for the period ended
March 31, 2018
are not necessarily indicative of results that may be expected for the twelve months ended
December 31, 2018
.
We consolidate the financial statements of CSI Compressco LP and its subsidiaries ("CCLP") as part of our Compression Division, as we determined that CCLP is a variable interest entity and we are the primary beneficiary. We control the financial interests of CCLP and have the ability to direct the activities of CCLP that most significantly impact its economic performance through our ownership of its general partner. The share of CCLP net assets and earnings that is not owned by us is presented as noncontrolling interest in our consolidated financial statements. Our cash flows from our investment in CCLP are limited to the quarterly distributions we receive on our CCLP common units and general partner interest (including incentive distribution rights) and the amounts collected for services we perform on behalf of CCLP, as TETRA's capital structure and CCLP's capital structure are separate, and do not include cross default provisions, cross collateralization provisions, or cross guarantees.
The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission ("SEC") and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in connection with the financial statements for the year ended
December 31, 2017
, and notes thereto included in our Annual Report on Form 10-K, which
we filed with the SEC on
March 5, 2018
.
We have reviewed our financial forecasts as of
May 10, 2018
for the subsequent twelve month period, which consider the impact of the current distribution levels from CCLP. Based on our financial forecasts, which reflect certain operating and other business assumptions that we believe to be reasonable as of
May 10, 2018
, we believe that we will have adequate liquidity, earnings, and operating cash flows to fund our operations and debt obligations and maintain compliance with our debt covenants through May 10, 2019.
In March 2018, CCLP closed an offering of CCLP senior secured notes in the aggregate amount of
$350.0 million
, and a portion of the proceeds were used to repay and terminate CCLP's bank revolving credit facility (as amended, the "CCLP Credit Agreement"). (See
Note D
- Long-Term Debt and Other Borrowings.) Based on its financial forecasts that reflect the current level of distributions and certain operating and other business assumptions that CCLP believes to be reasonable as of
May 10, 2018
, CCLP believes that it will have adequate liquidity, earnings, and operating cash flows to fund its operations and debt obligations and maintain compliance with its debt covenants through May 10, 2019.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could be
material.
Reclassifications
Certain previously reported financial information has been reclassified to conform to the current period’s presentation. For a discussion of the reclassification of the financial presentation of our Offshore Division as discontinued operations, see
Note C
- Discontinued Operations.
Cash Equivalents
We consider all highly liquid cash investments with a maturity of three months or less when purchased to be cash equivalents.
Restricted Cash
Restricted cash is classified as a current asset when it is expected to be repaid or settled in the next twelve month period. Restricted cash as of
March 31, 2018
consists of cash used to secure outstanding letters of credit of our Compression Division.
Inventories
Inventories are stated at the lower of cost or net realizable value. Except for work in progress inventory discussed below, cost is determined using the weighted average method. Components of inventories as of
March 31, 2018
and
December 31, 2017
are as follows:
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|
March 31, 2018
|
|
December 31, 2017
|
|
|
(In Thousands)
|
|
Finished goods
|
$
|
67,283
|
|
|
$
|
66,377
|
|
|
Raw materials
|
3,692
|
|
|
4,027
|
|
|
Parts and supplies
|
36,584
|
|
|
33,632
|
|
|
Work in progress
|
20,366
|
|
|
11,402
|
|
|
Total inventories
|
$
|
127,925
|
|
|
$
|
115,438
|
|
Finished goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling. Recycled brines are recorded at cost, using the weighted average method. Work in progress inventory consists primarily of new compressor packages located in the CCLP fabrication facility in Midland, Texas. The cost of work in progress is determined using the specific identification method. We write down the value of inventory by an amount equal to the difference between its cost and its estimated net realizable value.
Net Income (Loss) per Share
The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income (loss) per common and common equivalent share:
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Three Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
|
(In Thousands)
|
|
Number of weighted average common shares outstanding
|
117,598
|
|
|
114,197
|
|
|
Assumed exercise of equity awards and warrants
|
—
|
|
|
107
|
|
|
Average diluted shares outstanding
|
117,598
|
|
|
114,304
|
|
For the
three
month period ended
March 31, 2018
, the average diluted shares outstanding excludes the impact of all outstanding equity awards and warrants, as the inclusion of these shares would have been anti-dilutive due to the net losses recorded during the periods. In addition, for the
three
month periods ended
March 31, 2018
and
March 31, 2017
, the calculation of diluted earnings per common share excludes the impact of the CCLP
Preferred Units, as the inclusion of the impact from conversion of the CCLP Preferred Units into CCLP common units would have been anti-dilutive.
Foreign Currency Translation
We have designated the euro, the British pound, the Norwegian krone, the Canadian dollar, the
Brazilian real, the Argentine peso, and the
Mexican peso, respectively, as the functional currency for our operations in Finland and Sweden, the United Kingdom, Norway, Canada, Brazil, Argentina,
and certain of our operations in Mexico. The U.S. dollar is the designated functional currency for all of our other foreign operations. The cumulative translation effects of translating the applicable accounts from the functional currencies into the U.S. dollar at current exchange rates are included as a separate component of
equity. Foreign currency exchange gains and (losses) are included in other (income) expense, net and totaled
$0.9 million
and
$(0.6) million
during the
three
month periods ended
March 31, 2018
and
March 31, 2017
, respectively.
Income Taxes
Our consolidated provision for income taxes during the first
three
months of 2017 and
2018
is primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the
three
month period ended
March 31, 2018
of negative
5.6%
was primarily the result of losses generated in entities for which no related tax benefit has been recorded. The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. At March 31, 2018 and December 31, 2017, we had not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we made reasonable estimates of the effects and recorded provisional amounts. We will continue to make and refine our calculations as additional analysis is completed. We recognized an income tax expense of
$54.1 million
in the fourth quarter of 2017 associated with the impact of the Act in our 2017 filing. This income tax expense was fully offset by a decrease in the valuation allowance previously recorded on our net deferred tax assets. As such, the Act resulted in no net tax expense in the fourth quarter of 2017. We have considered in our estimated annual effective tax rate for 2018, the impact of the statutory changes enacted by the Act, including reasonable estimates of those provisions effective for the 2018 tax year. Our provisional estimate on Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion and Anti-Abuse Tax (“BEAT”), and IRC Section 163(j) interest limitation do not impact our effective tax rate for the three months ended March 31, 2018. The accounting for the tax effects of the Act will be completed in 2018 as provided by the U.S. Securities and Exchange Commission’s SAB No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.
Asset Retirement Obligations
We operate facilities in various U.S. and foreign locations that are used in the manufacture, storage, and sale of our products, inventories, and equipment. These facilities are a combination of owned and leased assets. The values of our asset retirement obligations for these properties were
$11.9 million
and
$11.7 million
as of
March 31, 2018
and
December 31, 2017
, respectively. We are required to take certain actions in connection with the retirement of these assets. Asset retirement obligations are recorded in accordance with FASB ASC 410, "Asset Retirement and Environmental Obligations," whereby the estimated fair value of a liability for asset retirement obligations is recognized in the period in which it is incurred and in which a reasonable estimate can be made. Such estimates are based on relevant assumptions that we believe are reasonable. We have reviewed our obligations in this regard in detail and estimated the cost of these actions. The associated asset retirement costs are capitalized as part of the carrying amount of these long-lived assets and are depreciated on a straight-line basis over the life of the assets.
The changes in the values of our asset retirement obligations during the
three
month period ended
March 31, 2018
, are as follows:
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Three Months Ended March 31, 2018
|
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(In Thousands)
|
|
Beginning balance for the period, as reported
|
$
|
11,738
|
|
|
Activity in the period:
|
|
|
Accretion of liability
|
159
|
|
|
Revisions in estimated cash flows
|
32
|
|
|
Ending balance
|
$
|
11,929
|
|
We review the adequacy of our asset retirement obligation liabilities whenever indicators suggest that the estimated cash flows underlying the liabilities have changed.
Fair Value Measurements
Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that may differ from the transaction price or market price of the asset or liability.
Under U.S. generally accepted accounting principles ("GAAP"), the fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value. Fair value measurements should maximize the use of observable inputs and minimize the use of unobservable inputs, where possible. Observable inputs are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs may be needed to measure fair value in situations where there is little or no market activity for the asset or liability at the measurement date and are developed based on the best information available in the circumstances, which could include the reporting entity’s own judgments about the assumptions market participants would utilize in pricing the asset or liability.
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized on a recurring basis in the determination of the carrying value of the liability for the warrants to purchase
11.2 million
shares of our common stock (the "Warrants") and CCLP Preferred Units (as herein defined). We also utilize fair value measurements on a recurring basis in the accounting for our foreign currency derivative contracts. For these fair value measurements, we utilize the quoted value as determined by our counterparty financial institution (a level 2 fair value measurement). Fair value measurements are also utilized on a nonrecurring basis, such as in the allocation of purchase consideration for acquisition transactions to the assets and liabilities acquired, including intangible assets and goodwill (a level 3 fair value measurement), the initial recording of our asset retirement obligations, and for the impairment of long-lived assets, including goodwill (a level 3 fair value measurement). The fair value of certain of our financial instruments, which include cash, restricted cash, accounts receivable, accounts payable, short-term borrowings, and long-term debt pursuant to our bank credit agreement, approximate their carrying amounts. The aggregate fair values of our long-term
11%
Senior Note at
March 31, 2018
and
December 31, 2017
, were approximately
$128.5 million
and
$130.8 million
, respectively, based on current interest rates on those dates, which were different from the stated interest rate on the
11%
Senior Note. Those fair values compare to face amounts of the
11%
Senior Note of
$125.0 million
both at
March 31, 2018
and
December 31, 2017
. The fair values of the publicly traded CCLP
7.25%
Senior Notes (as herein defined) at
March 31, 2018
and
December 31, 2017
, were approximately
$277.4 million
and
$279.7 million
, respectively. Those fair values compare to a face amount of $
295.9 million
both at
March 31, 2018
and
December 31, 2017
. The fair value of the publicly traded CCLP 7.50% Senior Secured Notes at
March 31, 2018
was approximately
$353.5 million
. This fair value compares to aggregate principal amount of such notes at
March 31, 2018
of
$350.0 million
. We calculated the fair values of our
11%
Senior Note as of
March 31, 2018
and
December 31, 2017
internally, using current market conditions and average cost of debt (a level 2 fair value measurement). We based the fair values of the CCLP 7.25% Senior Notes and the CCLP 7.50% Senior Secured Notes as of
March 31, 2018
on recent trades for these notes (a level 1 fair value measurement). See
Note D
- Long-Term Debt and Other Borrowings, for further discussion.
The CCLP Preferred Units are valued using a lattice modeling technique that, among a number of lattice structures, includes significant unobservable items (a Level 3 fair value measurement). These unobservable items include (i) the volatility of the trading price of CCLP's common units compared to a volatility analysis of equity prices of CCLP's comparable peer companies, (ii) a yield analysis that utilizes market information related to the debt yields of comparable peer companies, and (iii) a future conversion price analysis. The fair valuation of the CCLP Preferred Units liability is increased by, among other factors, projected increases in CCLP's common unit price and by increases in the volatility and decreases in the debt yields of CCLP's comparable peer companies. Increases (or decreases) in the fair value of CCLP Preferred Units will increase (decrease) the associated liability and result in future adjustments to earnings for the associated valuation losses (gains). During the
three
months ended
March 31, 2018
, the fair value of the CCLP Preferred Units increased by
$1.4 million
, which was charged to earnings in the consolidated statement of operations.
The Warrants are valued either by using their traded market prices (a level 1 fair value measurement) or, for periods when market prices are not available, by using the Black Scholes option valuation model that includes estimates of the volatility of the Warrants implied by their trading prices (a level 3 fair value measurement). As of
March 31, 2018
and
December 31, 2017
, the fair valuation methodology utilized for the Warrants was a level 3 fair value measurement, as there were no available traded market prices to value the Warrants. The fair valuation of the Warrants liability is increased by, among other factors, increases in our common stock price, and by increases in the volatility of our common stock price. Increases (or decreases) in the fair value of the Warrants will increase (decrease) the associated liability and result in future adjustments to earnings for the associated valuation losses (gains). During the
three
months ended
March 31, 2018
, the fair value of the Warrants liability decreased by
$2.0 million
, which was credited to earnings in the consolidated statement of operations.
During the third quarter of 2017 and the first quarter of 2018, we issued stand-alone, cash-settled stock appreciation rights awards to an executive officer. These awards are valued by using the Black Scholes option valuation model and such fair value is recognized based on the portion of the requisite service period satisfied as of each valuation date. The fair valuation of the stock appreciation rights liability is increased by, among other factors, increases in our common stock price, and by increases in the volatility of our common stock price. This stock appreciation rights awards are reflected as an accrued liability in our consolidated balance sheet. Increases (or decreases) in the fair value of the stock appreciation rights awards will increase (decrease) the associated liability and result in future adjustments to earnings for the associated valuation losses (gains).
A summary of these fair value measurements as of
March 31, 2018
and
December 31, 2017
, is as follows:
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Fair Value Measurements Using
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Total as of
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
|
Description
|
March 31, 2018
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
(In Thousands)
|
|
CCLP Series A Preferred Units
|
$
|
(54,214
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(54,214
|
)
|
|
Warrants liability
|
(11,207
|
)
|
|
—
|
|
|
—
|
|
|
(11,207
|
)
|
|
Cash-settled stock appreciation rights
|
(142
|
)
|
|
—
|
|
|
—
|
|
|
(142
|
)
|
|
Asset for foreign currency derivative contracts
|
104
|
|
|
—
|
|
|
104
|
|
|
—
|
|
|
Liability for foreign currency derivative contracts
|
(264
|
)
|
|
—
|
|
|
(264
|
)
|
|
—
|
|
|
Net liability
|
$
|
(65,723
|
)
|
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|
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|
|
|
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|
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Fair Value Measurements Using
|
|
|
Total as of
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
|
Description
|
December 31, 2017
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
(In Thousands)
|
|
CCLP Series A Preferred Units
|
$
|
(61,436
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(61,436
|
)
|
|
Warrants liability
|
(13,202
|
)
|
|
—
|
|
|
—
|
|
|
(13,202
|
)
|
|
Cash-settled stock appreciation rights
|
(97
|
)
|
|
—
|
|
|
—
|
|
|
(97
|
)
|
|
Asset for foreign currency derivative contracts
|
241
|
|
|
—
|
|
|
241
|
|
|
—
|
|
|
Liability for foreign currency derivative contracts
|
(378
|
)
|
|
—
|
|
|
(378
|
)
|
|
—
|
|
|
Net liability
|
$
|
(74,872
|
)
|
|
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|
|
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|
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers." This ASU supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") 605, "Revenue Recognition", and most industry-specific guidance. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those years, under either full or modified retrospective adoption.
In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" to clarify the guidance on principal versus agent considerations. This ASU does not change the effective date or adoption method under ASU 2014-09 which is noted above.
In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing" to clarify the guidance on identifying performance obligations and the licensing implementation guidance. This ASU does not change the effective date or adoption method under ASU 2014-09, which is noted above.
Additionally, in May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients." This ASU addresses and amends several aspects of ASU 2014-09, but does not change the core principle of the guidance. This ASU does not change the effective date or adoption method under ASU 2014-09 which is noted above.
On January 1, 2018, we adopted ASU 2014-09 and all related amendments ("ASU 2014-09"). We utilized the modified retrospective method of adoption. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also provides a five-step model for determining revenue recognition for arrangements that are within the scope of the standard: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASU 2014-09, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for revenues, see Note J - Revenue from Contracts with Customers.
The impact from the adoption of ASU 2014-09 to our January 1, 2018 consolidated balance sheet, our
March 31, 2018
consolidated balance sheet, and our consolidated results of operations for the three months ended
March 31, 2018
was immaterial. The adoption of ASU 2014-09 had no impact to cash provided by operating, financing, or investing activities in our consolidated statement of cash flows. We do not expect the adoption of the new revenue standard to have a material impact to our net income on an ongoing basis.
In February 2016, the FASB issued ASU 2016-02, "Leases" (Topic 842) to increase comparability and transparency among different organizations. Organizations are required to recognize lease assets and lease liabilities on the balance sheet and disclose key information about the leasing arrangements and cash flows. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods, under a modified retrospective adoption with early adoption permitted. We are currently assessing the potential effects of these changes to our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses. ASU 2016-13, which has an effective date of the first quarter of fiscal 2022, also applies to employee benefit plan accounting. We are currently assessing the potential effects of these changes to our consolidated financial statements and employee benefit plan accounting.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" to reduce diversity in practice in classification of certain transactions in the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted, under a retrospective transition adoption. We adopted this ASU during the three month period ended March 31, 2018, with no material impact to our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory" which requires companies to account for the income tax effects of intercompany transfers of assets other than inventory when the transfer occurs. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted, under a modified retrospective transition adoption. We adopted this ASU during the three month period ended March 31, 2018. The adoption of this standard did not have a material impact to our consolidated financial statements due to a previously recorded valuation allowance on our net deferred tax assets.
Additionally, in November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted, under a retrospective transition adoption. We adopted this ASU during the three month period ended March 31, 2018, resulting in restricted cash being classified with cash and cash equivalents in our consolidated statement of cash flows.
In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. The ASU is effective for annual periods beginning after December 15, 2020, and interim periods within those annual periods, with early adoption permitted, under a prospective adoption. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting" to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted. We adopted this ASU during the three month period ended March 31, 2018, with no material impact to our consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, "Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception" to consider “down round” features when determining whether certain equity-linked financial
instruments or embedded features are indexed to an entity’s own stock. Entities that present EPS under ASC 260 will recognize the effect of a down round feature in a freestanding equity-classified financial instrument only when it is triggered. The effect of triggering such a feature will be recognized as a dividend and a reduction to income available to common shareholders in basic EPS. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. We are currently assessing the potential effects of these changes to our consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" to change how companies account for and disclose hedges. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. We are currently assessing the potential effects of these changes to our consolidated financial statements.
NOTE B
– ACQUISITIONS AND DISPOSITIONS
Acquisition of SwiftWater Energy Services
On
February 28, 2018
, pursuant to a purchase agreement dated February 13, 2018 (the "SwiftWater Purchase Agreement"), we purchased all of the equity interests in SwiftWater Energy Services, LLC ("SwiftWater"), which is engaged in the business of providing water management and water solutions to oil and gas operators in the Permian Basin market of Texas. Strategically, the acquisition of SwiftWater enhances our position as one of the leading integrated water management companies, providing water transfer, storage, and treatment services, along with proprietary automation technology and numerous other water-related services.
Under the terms of the SwiftWater Purchase Agreement, consideration of
$42.0 million
of cash, subject to a working capital adjustment, and
7,772,021
shares of our common stock (valued at
$28.2 million
) were paid at closing. The sellers will also have the right to receive contingent consideration payments, in an aggregate amount of up to
$15.0 million
, calculated on EBITDA and revenue (each as defined in the SwiftWater Purchase Agreement) of the water management business of SwiftWater and all of our pre-existing operations in the Permian Basin in respect of the period from January 1, 2018 through December 31, 2019. The contingent consideration may be paid in cash or shares of our common stock, at our election.
As of March 31, 2018, our preliminary allocation of the SwiftWater purchase price is as follows (in thousands):
|
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|
|
|
|
|
|
Current assets
|
$
|
16,880
|
|
|
Property and equipment
|
10,999
|
|
|
Intangible assets
|
42,032
|
|
|
Goodwill
|
15,220
|
|
|
Total assets acquired
|
85,131
|
|
|
|
|
|
Current liabilities
|
7,189
|
|
|
Total liabilities assumed
|
7,189
|
|
|
Net assets acquired
|
$
|
77,942
|
|
The above allocation of the purchase price to the SwiftWater net tangible assets and liabilities considers approximately
$6.7 million
of estimated fair value for the liabilities associated with the contingent purchase price consideration. The fair value of the obligation to pay the contingent purchase price consideration was calculated based on the anticipated EBITDA and revenue for our water management business comprised of SwiftWater and all of our pre-existing operations in the Permian Basin and could increase (to
$15.0 million
) or decrease (to
$0
) depending on the actual earnings from these operations going forward. Increases or decreases in the value of the anticipated contingent purchase price consideration liability due to changes in the amounts paid or expected to be paid will be charged or credited to earnings in the period in which such changes occur. The allocation of the purchase price to the SwiftWater net tangible assets and liabilities and identifiable intangible assets, as well as the contingent consideration liabilities, as of February 28, 2018, is preliminary and subject to revisions to the fair value
calculations for certain of the tangible and identified intangible assets as well as the fair value calculation of the contingent purchase price consideration liability. The final purchase price allocation could differ materially from the preliminary allocation noted in the summary above. The preliminary allocation of purchase price includes approximately
$15.2 million
of deductible goodwill allocated to our
Water & Flowback Services
segment, and is supported by the strategic benefits discussed above and expected to be generated from the acquisition. The acquired property and equipment is stated at fair value, and depreciation on the acquired property and equipment is computed using the straight-line method over the estimated useful lives of each asset. Machinery and equipment is depreciated using useful lives of
3
to
15
years; and automobiles and trucks are depreciated using useful lives of
3
to
4
years. The acquired intangible assets represent approximately
$3.3 million
for the trademark/tradename, approximately
$37.2 million
for customer relationships, and approximately
$1.5 million
of other intangible assets that are stated at estimated fair value and are amortized on a straight-line basis over their estimated useful lives, ranging from
5
to
16
years. These identified intangible assets are recorded net of approximately
$0.2 million
of accumulated amortization as of
March 31, 2018
.
For the three month period ended March 31, 2018, our revenues, depreciation and amortization, and pretax earnings included
$8.1 million
,
$0.5 million
, and
$1.8 million
, respectively, associated with the SwiftWater acquisition after the closing on February 28, 2018. In addition, SwiftWater acquisition-related costs of approximately
$0.4 million
were incurred during the three month period ended
March 31, 2018
, consisting of external legal fees, transaction consulting fees, and due diligence costs. These costs have been recognized in general and administrative expenses in the consolidated statement of operations.
The pro forma information presented below has been prepared to give effect to the SwiftWater acquisition as if the transaction had occurred at the beginning of the periods presented. The pro forma information includes the impact from the allocation of the acquisition purchase price on depreciation and amortization. The pro forma information also excludes the SwiftWater acquisition-related costs charged to earnings during the 2018 period. The pro forma information is presented for illustrative purposes only and is based on estimates and assumptions we deemed appropriate. The following pro forma information is not necessarily indicative of the historical results that would have been achieved if the acquisition transaction had occurred in the past, and our operating results may have been different from those reflected in the pro forma information below. Therefore, the pro forma information should not be relied upon as an indication of the operating results that we would have achieved if the transaction had occurred at the beginning of the periods presented or the future results that we will achieve after the transaction.
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Three Months Ended March 31,
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|
2018
|
|
2017
|
|
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(In Thousands)
|
|
Revenues
|
$
|
213,531
|
|
|
$
|
170,933
|
|
|
Depreciation, amortization, and accretion
|
$
|
26,951
|
|
|
$
|
27,051
|
|
|
Gross profit
|
$
|
32,432
|
|
|
$
|
23,659
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
(21,437
|
)
|
|
$
|
(5,411
|
)
|
|
Net income (loss) attributable to TETRA stockholders
|
$
|
(12,322
|
)
|
|
$
|
3,378
|
|
|
|
|
|
|
Sale of Offshore Division
On March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division. Pursuant to an Asset Purchase and Sale Agreement (the "Maritech Asset Purchase Agreement") with Orinoco Natural Resources, LLC ("Orinoco"), Orinoco purchased certain remaining offshore oil, gas and mineral leases and related assets of Maritech (the "Maritech Properties"). Immediately thereafter, we closed the transactions contemplated by a Membership Interest Purchase and Sale Agreement (the "Maritech Equity Purchase Agreement") with Orinoco, whereby Orinoco purchased all of the equity interests of Maritech (the "Maritech Equity Interests"). Immediately thereafter, we closed the transactions contemplated by an Equity Interest Purchase Agreement (the "Offshore Services Purchase Agreement") with Epic Offshore Specialty, LLC, an affiliate of Orinoco ("Epic Offshore"), whereby Epic Offshore (the "Offshore Services Sale") purchased all of the equity interests in the wholly owned subsidiaries that comprised our Offshore Services segment operations (the "Offshore Services Equity Interests").
Under the terms of the Maritech Asset Purchase Agreement, the Maritech Equity Purchase Agreement, and the Offshore Services Purchase Agreement, the consideration delivered by Orinoco and Epic Offshore for the Maritech Properties, the Maritech Equity Interests and the Offshore Services Equity Interests consisted of (i) the assumption by Orinoco of substantially all of the liabilities and obligations relating to the ownership, operation and condition of the Maritech Properties and the provision of certain indemnities by Orinoco to us under the Maritech Asset Purchase Agreement, (ii) the assumption by Orinoco of substantially all of the liabilities of Maritech and the provision of certain indemnities by Orinoco under the Maritech Equity Purchase Agreement, (iii) the assumption by Epic Offshore of substantially all of the liabilities of the Offshore Services Equity Interests relating to the periods following the closing of the Offshore Services Sale and the provision of certain indemnities by Epic Offshore under the Offshore Services Purchase Agreement, (iv) cash in the amount
$3.1 million
, (v) a promissory note in the original principal amount of
$7.5 million
payable by Epic Offshore to us in full, together with interest at a rate of
1.52%
per annum, on December 31, 2019, (vi) performance by Orinoco under a Bonding Agreement executed in connection with the Maritech Asset Purchase Agreement and the Maritech Equity Purchase Agreement whereby Orinoco provided at closing non-revocable performance bonds in an amount equal to
$46.8 million
to cover the performance by Orinoco and Maritech of the asset retirement obligations of Maritech, to be replaced within 90 days of the closing with non-revocable performance bonds, meeting certain requirements, in the sum of
$47.0 million
, and (vii) the delivery of a personal guaranty agreement from Thomas M. Clarke and Ana M. Clarke guaranteeing the payment obligations of Orinoco under the Bonding Agreement (collectively, the "Transaction Consideration").
As a result of these transactions, we have effectively exited the businesses of our Offshore Services and Maritech segments, and these operations are reflected as discontinued operations in our consolidated financial statements. See
Note C
- "Discontinued Operations" for further discussion. Our consolidated pre-tax results of operations for the three month period ending March 31, 2018 included a loss on the disposal of our Offshore Division of
$31.5 million
, net of tax, including transaction costs of
$1.4 million
, during the three month period ended March 31, 2018.
NOTE C
– DISCONTINUED OPERATIONS
As discussed in
Note B
- "Acquisitions and Dispositions," on March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division. As a result, we have accounted for our Offshore Division, consisting of our Offshore Services and Maritech segments, as discontinued operations and have revised prior period financial statements to exclude these businesses from continuing operations. A summary of financial information related to our discontinued operations is as follows:
Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations
(in thousands)
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Three Months Ended March 31, 2018
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Three Months Ended March 31, 2017
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Offshore Services
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|
Maritech
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Total
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|
Offshore Services
|
|
Maritech
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|
Total
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Major classes of line items constituting pretax loss from discontinued operations
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|
|
|
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|
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Revenue
|
$
|
4,477
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|
|
$
|
186
|
|
|
$
|
4,663
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|
|
$
|
8,361
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|
|
$
|
231
|
|
|
$
|
8,592
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|
|
Cost of revenues
|
11,123
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|
|
238
|
|
|
11,361
|
|
|
10,740
|
|
|
287
|
|
|
11,027
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|
Depreciation, amortization, and accretion
|
1,856
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|
|
213
|
|
|
2,069
|
|
|
2,584
|
|
|
370
|
|
|
2,954
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General and administrative expense
|
1,253
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|
|
186
|
|
|
1,439
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|
|
1,468
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|
|
237
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|
|
1,705
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Other (income) expense, net
|
39
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|
|
—
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|
39
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|
|
(96
|
)
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|
—
|
|
|
(96
|
)
|
|
Pretax loss from discontinued operations
|
(9,794
|
)
|
|
(451
|
)
|
|
(10,245
|
)
|
|
(6,335
|
)
|
|
(663
|
)
|
|
(6,998
|
)
|
|
Pretax loss on disposal of discontinued operations
|
|
|
|
|
(33,788
|
)
|
|
|
|
|
|
—
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|
|
Total pretax loss from discontinued operations
|
|
|
|
|
(44,033
|
)
|
|
|
|
|
|
(6,998
|
)
|
|
Income tax benefit
|
|
|
|
|
(2,327
|
)
|
|
|
|
|
|
9
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|
|
Total loss from discontinued operations
|
|
|
|
|
$
|
(41,706
|
)
|
|
|
|
|
|
$
|
(7,007
|
)
|
Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)
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|
March 31, 2018
|
|
December 31, 2017
|
|
|
Offshore Services
|
|
Maritech
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|
Total
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|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Carrying amounts of major classes of assets included as part of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
$
|
6,474
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|
|
$
|
1,433
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|
|
$
|
7,907
|
|
|
$
|
27,385
|
|
|
$
|
1,542
|
|
|
$
|
28,927
|
|
|
Inventories
|
—
|
|
|
—
|
|
|
—
|
|
|
4,616
|
|
|
—
|
|
|
4,616
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|
|
Property, plant, and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
85,873
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|
|
—
|
|
|
85,873
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|
|
Other assets
|
—
|
|
|
—
|
|
|
—
|
|
|
1,674
|
|
|
44
|
|
|
1,718
|
|
|
Total major classes of assets of the discontinued operations
|
$
|
6,474
|
|
|
$
|
1,433
|
|
|
$
|
7,907
|
|
|
$
|
119,548
|
|
|
$
|
1,586
|
|
|
$
|
121,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts of major classes of liabilities included as part of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
6,509
|
|
|
228
|
|
|
6,737
|
|
|
13,942
|
|
|
87
|
|
|
14,029
|
|
|
Accrued liabilities
|
5,328
|
|
|
2,222
|
|
|
7,550
|
|
|
8,905
|
|
|
2,278
|
|
|
11,183
|
|
|
Decommissioning and other asset retirement obligations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,662
|
|
|
46,662
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|
|
Total major classes of liabilities of the discontinued operations
|
$
|
11,837
|
|
|
$
|
2,450
|
|
|
$
|
14,287
|
|
|
$
|
22,847
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|
|
$
|
49,027
|
|
|
$
|
71,874
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|
NOTE D
– LONG-TERM DEBT AND OTHER BORROWINGS
We believe TETRA's capital structure and CCLP's capital structure should be considered separately, as there are no cross default provisions, cross collateralization provisions, or cross guarantees between CCLP's debt and TETRA's debt.
Consolidated long-term debt as of
March 31, 2018
and
December 31, 2017
, consists of the following:
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|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
|
|
(In Thousands)
|
|
TETRA
|
|
Scheduled Maturity
|
|
|
|
|
Bank revolving line of credit facility (presented net of the unamortized deferred financing costs of $1.3 million as of March 31, 2018)
|
|
September 30, 2019
|
$
|
73,143
|
|
|
$
|
—
|
|
|
11.0% Senior Note, Series 2015 (presented net of the unamortized discount of $3.7 million as of March 31, 2018 and $3.9 million as of December 31, 2017 and net of unamortized deferred financing costs of $3.3 million as of March 31, 2018 and $3.4 million as of December 31, 2017)
|
|
November 5, 2022
|
118,008
|
|
|
117,679
|
|
|
TETRA total debt
|
|
|
191,151
|
|
|
117,679
|
|
|
Less current portion
|
|
|
—
|
|
|
—
|
|
|
TETRA total long-term debt
|
|
|
$
|
191,151
|
|
|
$
|
117,679
|
|
|
|
|
|
|
|
|
|
CCLP
|
|
|
|
|
|
|
CCLP Bank Credit Facility (presented net of the unamortized deferred financing costs of $4.0 million as of December 31, 2017), terminated March 22, 2018
|
|
August 4, 2019
|
—
|
|
|
223,985
|
|
|
CCLP 7.25% Senior Notes (presented net of the unamortized discount of $2.7 million as of March 31, 2018 and $2.8 million as of December 31, 2017 and net of unamortized deferred financing costs of $4.7 million as of March 31, 2018 and $5.0 million as of December 31, 2017)
|
|
August 15, 2022
|
288,588
|
|
|
288,191
|
|
|
CCLP 7.50% Senior Secured Notes (presented net of unamortized deferred financing costs of $6.2 million as of March 31, 2018)
|
|
March 22, 2025
|
343,826
|
|
|
—
|
|
|
CCLP total debt
|
|
|
632,414
|
|
|
512,176
|
|
|
Less current portion
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Consolidated total long-term debt
|
|
|
$
|
823,565
|
|
|
$
|
629,855
|
|
As of
March 31, 2018
, TETRA (excluding CCLP) had a
$74.4 million
outstanding balance and
$6.1 million
in letters of credit
against its Credit Agreement, leaving a net availability of
$119.5 million
. Availability under the TETRA Credit Agreement is subject to compliance with the covenants and other provisions in the credit agreement that may limit borrowings thereunder. The CCLP Credit Agreement was terminated in March 2018.
As described below, we and CCLP are in compliance with all covenants of our respective debt and senior note agreements as of
March 31, 2018
.
Our Long-Term Debt
Our Credit Agreement
.
At
March 31, 2018
, our consolidated leverage ratio was
2.62
to 1 (compared to a 4.75 to 1 maximum allowed under the Credit Agreement) and our fixed charge coverage ratio was
2.54
to 1 (compared to a 1.25 to 1 minimum required under the Credit Agreement).
CCLP Long-Term Debt
CCLP Senior Secured Notes
.
On March 8, 2018
, CCLP, and its wholly owned subsidiary, CSI Compressco Finance Inc. (together with CCLP, the "CCLP Issuers") entered into the Purchase Agreement (the “Purchase Agreement”) with Merrill Lynch, Pierce, Fenner & Smith Incorporated as representative of the initial purchasers listed in Schedule A thereto (collectively, the “Initial Purchasers”), pursuant to which the CCLP
Issuers agreed to issue and sell to the Initial Purchasers $350 million aggregate principal amount of the CCLP Issuers’ 7.50% Senior Secured First Lien Notes due 2025 (the "CCLP Senior Secured Notes")
(the "CCLP Offering")
pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act").
The CCLP Issuers closed the Offering on March 22, 2018. The
CCLP Senior Secured Notes
were issued at par for net proceeds of approximately
$344.1 million
, after deducting certain financing costs. CCLP used the net proceeds to repay in full and terminate its existing bank Credit Agreement and for general partnership purposes, including the expansion of its compression fleet. The
CCLP Senior Secured Notes
are jointly and severally, and fully and unconditionally, guaranteed (the "Guarantees" and, together with the CCLP Senior Secured Notes, the "CCLP Senior Secured Note Securities")
on a senior secured basis initially by each of CCLP's domestic restricted subsidiaries (other than CSI Compressco Finance Inc., certain immaterial subsidiaries and certain other excluded domestic subsidiaries) and are secured by a first-priority security interest in substantially all of the CCLP Issuers' and the Guarantors' assets (other than certain excluded assets) (the "Collateral") as collateral security for their obligations under the CCLP Senior Secured Notes, subject to certain permitted encumbrances and exceptions. On the closing date, CCLP entered into an indenture (the "Indenture") by and among the Obligors and U.S. Bank National Association, as trustee with respect to the Securities. The
CCLP Senior Secured Notes
accrue interest at a rate of 7.50% per annum. Interest on the
CCLP Senior Secured Notes
is payable semi-annually in arrears on April 1 and October 1 of each year, beginning October 1, 2018. The
CCLP Senior Secured Notes
are scheduled to mature on April 1, 2025. During the three months ended March 31, 2018, CCLP incurred total financing costs of
$6.2 million
related to the
CCLP Senior Secured Notes
. These costs are deferred, netting against the carrying value of the amount outstanding.
On and after April 1, 2021, CCLP may redeem all or a part of the
CCLP Senior Secured Notes
, from time to time, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon to, but not including, the applicable redemption date, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the 12-month period beginning on April 1 of the years indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Price
|
|
2021
|
|
105.625
|
%
|
|
2022
|
|
103.750
|
%
|
|
2023
|
|
101.875
|
%
|
|
2024
|
|
100.000
|
%
|
In addition, any time or from time to time before April 1, 2021, CCLP may, at its option, redeem all or a portion of the
CCLP Senior Secured Notes
at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium (as defined in the Indenture) with respect to the
CCLP Senior Secured Notes
plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date, subject to the rights of holders of
the
CCLP Senior Secured Notes
on the relevant record date to receive interest due on the relevant interest payment date.
Prior to April 1, 2021, CCLP may on one or more occasions redeem up to 35% of the principal amount of the
CCLP Senior Secured Notes
with an amount of cash not greater than the amount of the net cash proceeds from one or more equity offerings at a redemption price equal to 107.500% of the principal amount of the
CCLP Senior Secured Notes
to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the date of redemption, subject to the right of holders of record on the relevant record date to receive interest due on the
relevant interest payment date, provided that (a) at least 65% of the aggregate principal amount of the
CCLP Senior Secured Notes
originally issued on the issue date (excluding notes held by CCLP and its subsidiaries) remains outstanding after each such redemption; and (b) the redemption occurs within 180 days after the date of the closing of the equity offering.
If CCLP experiences certain kinds of changes of control, each holder of the
CCLP Senior Secured Notes
will be entitled to require CCLP to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess of $2,000) of that holder’s
CCLP Senior Secured Notes
pursuant to an offer on the terms set forth in the Indenture. CCLP will offer to make a cash payment equal to 101% of the aggregate principal amount of the
CCLP Senior Secured Notes
repurchased plus accrued and unpaid interest, if any, on the
CCLP Senior Secured Notes
repurchased to the date of repurchase, subject to the rights of holders of the
CCLP Senior Secured Notes
on the relevant record date to receive interest due on the relevant interest payment date.
The Indenture contains customary covenants restricting CCLP's ability and the ability of CCLP restricted subsidiaries to: (i) pay distributions on, purchase or redeem CCLP common units or purchase or redeem CCLP subordinated debt; (ii) incur or guarantee additional indebtedness or issue certain kinds of preferred equity securities; (iii) create or incur certain liens securing indebtedness; (iv) sell assets, including dispositions of the Collateral; (v) consolidate, merge or transfer all or substantially all of its assets; (vi) enter into transactions with affiliates; and (vii) enter into agreements that restrict distributions or other payments from its restricted subsidiaries to CCLP. These covenants are subject to a number of important limitations and exceptions, including certain provisions permitting CCLP, subject to the satisfaction of certain conditions, to transfer assets to certain of CCLP's unrestricted subsidiaries. Moreover, if the
CCLP Senior Secured Notes
receive an investment grade rating from at least two rating agencies and no default has occurred and is continuing under the Indenture, many of the restrictive covenants in the Indenture will be terminated. The Indenture also contains customary events of default and acceleration provisions relating to such events of default, which provide that upon an event of default under the Indenture, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding
CCLP Senior Secured Notes
may declare all of the
CCLP Senior Secured Notes
to be due and payable immediately
.
On March 22, 2018, CCLP, the grantors named therein, the Trustee and U.S. Bank National Association, as the collateral trustee (the “Collateral Trustee”), entered into a collateral trust agreement (the “Collateral Trust Agreement”) pursuant to which the Collateral Trustee will receive, hold, administer, maintain, enforce and distribute the proceeds of all of its liens upon the collateral for the benefit of the current and future holders of the
CCLP Senior Secured Notes
and any future priority lien obligations, if any.
CCLP Bank Credit Facilities.
On March 22, 2018, in connection with the closing of the CCLP Offering, CCLP repaid all outstanding borrowings and obligations under its existing CCLP Credit Agreement with a portion of the net proceeds from the CCLP Offering, and terminated the CCLP Credit Agreement. As a result of the termination of the CCLP Credit Agreement, associated unamortized deferred financing costs of
$3.5 million
were charged to other (income) expense, net, during the three month period ended March 31, 2018.
NOTE E
– CCLP SERIES A CONVERTIBLE PREFERRED UNITS
During 2016, CCLP entered into Series A Preferred Unit Purchase Agreements (the “CCLP Unit Purchase Agreements”) with certain purchasers to issue and sell in private placements (the "Initial Private Placement" and "Subsequent Private Placement," respectively) an aggregate of
6,999,126
of CSI Compressco LP Series A Convertible Preferred Units representing limited partner interests in CCLP (the “CCLP Preferred Units”) for a cash purchase price of
$11.43
per CCLP Preferred Unit (the “Issue Price”), resulting in total 2016 net proceeds to CCLP, after deducting certain offering expenses, of
$77.3 million
. We purchased
874,891
of the CCLP Preferred Units in the Initial Private Placement at the aggregate Issue Price of
$10.0 million
.
We and the other holders of CCLP Preferred Units (each, a “CCLP Preferred Unitholder”) receive quarterly distributions, which are paid in kind in additional CCLP Preferred Units, equal to an annual rate of
11.00%
of the Issue Price (
$1.2573
per unit annualized), subject to certain adjustments. The rights of the CCLP Preferred Units include certain anti-dilution adjustments, including adjustments for economic dilution resulting from the issuance of CCLP common units in the future below a set price.
A ratable portion of the CCLP Preferred Units has been, and will continue to be, converted into CCLP common units on the eighth day of each month over a period of thirty months that began in March 2017 (each, a “Conversion Date”), subject to certain provisions of the Second Amended and Restated CCLP Partnership Agreement that may delay or accelerate all or a portion of such monthly conversions. On each Conversion Date, a portion of the CCLP Preferred Units will convert into CCLP common units representing limited partner interests in CCLP in an amount equal to, with respect to each CCLP Preferred Unitholder, the number of CCLP Preferred Units held by such CCLP Preferred Unitholder divided by the number of Conversion Dates remaining, subject to adjustment described in the Second Amended and Restated CCLP Partnership Agreement, with the conversion price (the "Conversion Price") determined by the trading prices of the common units over the prior month, among other factors, and as otherwise impacted by the existence of certain conditions related to the CCLP common units. Based on the number of CCLP Preferred Units outstanding as of
March 31, 2018
, the maximum aggregate number of CCLP common units that could be required to be issued pursuant to the conversion provisions of the CCLP Preferred Units is approximately
30.0 million
CCLP common units; however, CCLP may, at its option, pay cash, or a combination of cash and common units, to the CCLP Preferred Unitholders instead of issuing common units on any Conversion Date, subject to certain restrictions as described in the Second Amended and Restated CCLP Partnership Agreement. The total number of CCLP Preferred Units outstanding as of
March 31, 2018
was
5,241,563
, of which we held
658,281
.
Because the CCLP Preferred Units may be settled using a variable number of CCLP common units, the fair value of the CCLP Preferred Units, net of the units we purchased, is classified as long-term liabilities on our consolidated balance sheet in accordance with ASC 480 "Distinguishing Liabilities and Equity." The fair value of the CCLP Preferred Units as of
March 31, 2018
was
$54.2 million
. Changes in the fair value during each quarterly period, including the
$1.4 million
and
$1.6 million
net
increase
s in fair value during the
three
month period ended
March 31, 2018
and 2017, respectively, are charged or credited to earnings in the accompanying consolidated statements of operations. Based on the conversion provisions of the CCLP Preferred Units, and using the Conversion Price calculated as of
March 31, 2018
, the theoretical number of CCLP common units that would be issued if all of the outstanding CCLP Preferred Units were converted on
March 31, 2018
on the same basis as the monthly conversions would be approximately
8.6 million
CCLP common units, with an aggregate market value of
$62.6 million
. A $1 decrease in the Conversion Price would result in the issuance of
1.4 million
additional CCLP common units pursuant to these conversion provisions.
NOTE F
– MARKET RISKS AND DERIVATIVE CONTRACTS
We are exposed to financial and market risks that affect our businesses. We have concentrations of credit risk as a result of trade receivables owed to us by companies in the energy industry. We have currency exchange rate risk exposure related to transactions denominated in foreign currencies as well as to investments in certain of our international operations. As a result of our variable rate bank credit facility, we face market risk exposure related to changes in applicable interest rates. Our financial risk management activities may at times involve, among other measures, the use of derivative financial instruments, such as swap and collar agreements, to hedge the impact of market price risk exposures.
Derivative Contracts
Foreign Currency Derivative Contracts
.
We and CCLP each enter into 30-day foreign currency forward derivative contracts with third parties as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. As of
March 31, 2018
, we and CCLP had the following foreign currency derivative contracts outstanding relating to portions of our foreign operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
US Dollar Notional Amount
|
|
Traded Exchange Rate
|
|
Settlement Date
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Forward sale Euro
|
|
$
|
1,117
|
|
|
1.24
|
|
4/18/2018
|
|
Forward purchase pounds sterling
|
|
5,624
|
|
|
1.41
|
|
4/18/2018
|
|
Forward sale Canadian dollar
|
|
5,925
|
|
|
1.30
|
|
4/18/2018
|
|
Forward purchase Mexican peso
|
|
1,653
|
|
|
18.76
|
|
4/18/2018
|
|
Forward sale Norwegian krone
|
|
3,782
|
|
|
7.75
|
|
4/18/2018
|
|
Forward sale Mexican peso
|
|
6,760
|
|
|
18.79
|
|
4/18/2018
|
Under this program, we and CCLP may enter into similar derivative contracts from time to time. Although contracts pursuant to this program will serve as an economic hedge of the cash flow of our currency exchange risk exposure, they are not formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period.
The fair values of foreign currency derivative instruments are based on quoted market values as reported to us by our counterparty (a level 2 fair value measurement). The fair values of our and CCLP's foreign currency derivative instruments as of
March 31, 2018
and
December 31, 2017
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative instruments
|
Balance Sheet Location
|
|
Fair Value at March 31, 201
8
|
|
Fair Value at December 31, 2017
|
|
|
|
|
|
(In Thousands)
|
|
Forward purchase contracts
|
|
Current assets
|
|
$
|
48
|
|
|
$
|
111
|
|
|
Forward sale contracts
|
|
Current assets
|
|
56
|
|
|
130
|
|
|
Forward sale contracts
|
|
Current liabilities
|
|
(259
|
)
|
|
(255
|
)
|
|
Forward purchase contracts
|
|
Current liabilities
|
|
(6
|
)
|
|
(113
|
)
|
|
Net asset (liability)
|
|
|
|
$
|
(161
|
)
|
|
$
|
(127
|
)
|
None of the foreign currency derivative contracts contain credit risk related contingent features that would require us to post assets or collateral for contracts that are classified as liabilities. During the
three
month periods ended
March 31, 2018
and
March 31, 2017
, we recognized
$28,000
and
$0.7 million
of net gains (losses), respectively, reflected in other (income) expense, net, associated with our foreign currency derivative program.
NOTE G
– EQUITY
Changes in equity for the
three
month periods ended
March 31, 2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2018
|
|
2017
|
|
|
TETRA
|
|
Non-
controlling
Interest
|
|
Total
|
|
TETRA
|
|
Non-
controlling
Interest
|
|
Total
|
|
|
(In Thousands)
|
|
Beginning balance for the period
|
$
|
208,080
|
|
|
$
|
144,481
|
|
|
$
|
352,561
|
|
|
$
|
233,523
|
|
|
$
|
166,943
|
|
|
$
|
400,466
|
|
|
Net income (loss)
|
(53,648
|
)
|
|
(9,115
|
)
|
|
(62,763
|
)
|
|
(2,463
|
)
|
|
(8,789
|
)
|
|
(11,252
|
)
|
|
Foreign currency translation adjustment
|
1,668
|
|
|
(385
|
)
|
|
1,283
|
|
|
2,052
|
|
|
141
|
|
|
2,193
|
|
|
Comprehensive Income (loss)
|
(51,980
|
)
|
|
(9,500
|
)
|
|
(61,480
|
)
|
|
(411
|
)
|
|
(8,648
|
)
|
|
(9,059
|
)
|
|
Issuance of common stock, net
|
28,115
|
|
|
—
|
|
|
28,115
|
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
|
Conversions of CCLP Series A Preferred
|
—
|
|
|
10,103
|
|
|
10,103
|
|
|
—
|
|
|
2,388
|
|
|
2,388
|
|
|
Distributions to public unitholders
|
—
|
|
|
(4,358
|
)
|
|
(4,358
|
)
|
|
—
|
|
|
(7,248
|
)
|
|
(7,248
|
)
|
|
Equity-based compensation
|
1,434
|
|
|
(655
|
)
|
|
779
|
|
|
1,513
|
|
|
956
|
|
|
2,469
|
|
|
Treasury stock and other
|
(224
|
)
|
|
(35
|
)
|
|
(259
|
)
|
|
(36
|
)
|
|
(42
|
)
|
|
(78
|
)
|
|
Ending balance as of March 31
|
$
|
185,425
|
|
|
$
|
140,036
|
|
|
$
|
325,461
|
|
|
$
|
234,578
|
|
|
$
|
154,349
|
|
|
$
|
388,927
|
|
Activity within the foreign currency translation adjustment account during the periods includes no reclassifications to net income (loss).
NOTE H
– COMMITMENTS AND CONTINGENCIES
Litigation
We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.
On March 18, 2011, we filed a lawsuit in the Circuit Court of Union County, Arkansas, asserting claims of professional negligence, breach of contract and other claims against the engineering firm we hired for engineering design, equipment, procurement, advisory, testing and startup services for our El Dorado, Arkansas chemical production facility. The engineering firm disputed our claims and promptly filed a motion to compel the matter to arbitration. After a lengthy procedural dispute in Arkansas state court, arbitration proceedings were initiated on November 15, 2013. Ultimately, on December 16, 2016, the arbitration panel ruled in our favor, declared us as the prevailing party, and awarded us a total net amount of
$12.8 million
. We received full payment of the
$12.8 million
final award on January 5, 2017, and this amount was credited to earnings in the accompanying consolidated statement of operations for the
three
months ended
March 31, 2017
.
Other Contingencies
During 2011, in connection with the sale of a significant majority of Maritech's oil and gas producing properties, the buyers of the properties assumed the associated decommissioning liabilities pursuant to the purchase and sale agreements. In March 2018, we closed the Maritech Asset Purchase Agreement with Orinoco that provided for the purchase by Orinoco of the Maritech Properties. Also in March 2018, we finalized the Maritech Equity Purchase Agreement with Orinoco, that provided for the purchase by Orinoco of the Maritech Equity Interests. As a result of these transactions, we have effectively exited the businesses of our Offshore Services and Maritech segments and Orinoco has assumed all of Maritech's remaining abandonment and decommissioning obligations.
NOTE I
– INDUSTRY SEGMENTS
Following the transactions closed during the three month period ended
March 31, 2018
, we reorganized our reporting segments and now manage our operations through
three
Divisions:
Completion Fluids & Products, Water & Flowback Services, and Compression
. Our Completion Fluids & Products Division was previously reported as our Fluids Division, and included our water management services operations. Following the acquisition of SwiftWater in February 2018, our expanded water management operations are now included with our production testing operations as part of our Water & Flowback Services Division. The operations of our previous Offshore Division, consisting of our previous Offshore Services and Maritech, are now reported as discontinued operations following their disposal in March 2018.
Our
Completion Fluids & Products Division
manufactures and markets clear brine fluids, additives, and associated products and services to the oil and gas industry for use in well drilling, completion, and workover operations in the United States and in certain countries in Latin America, Europe, Asia, the Middle East, and Africa. The division also markets liquid and dry calcium chloride products manufactured at its production facilities or purchased from third-party suppliers to a variety of markets outside the energy industry.
Our
Water & Flowback Services Division
provides domestic onshore oil and gas operators with comprehensive water management services. The division also provides frac flowback, production well testing, offshore rig cooling, and other associated services in many of the major oil and gas producing regions in the United States, Mexico, and Canada, as well as in basins in certain regions in South America, Africa, Europe, the Middle East, and Australia.
The
Compression Division
is a provider of compression services and equipment for natural gas and oil production, gathering, transportation, processing, and storage. The
Compression Division
's equipment sales business includes the fabrication and sale of standard compressor packages, custom-designed compressor packages, and oilfield pump systems designed and fabricated at the division's facilities. The
Compression Division
's aftermarket services business provides compressor package reconfiguration and maintenance services as well as
providing compressor package parts and components manufactured by third-party suppliers. The
Compression Division
provides its services and equipment to a broad base of natural gas and oil exploration and production, midstream, transmission, and storage companies operating throughout many of the onshore producing regions of the United States as well as in a number of foreign countries, including Mexico, Canada, and Argentina.
We generally evaluate the performance of and allocate resources to our segments based on profit or loss from their operations before income taxes and nonrecurring charges, return on investment, and other criteria. Transfers between segments and geographic areas are priced at the estimated fair value of the products or services as negotiated between the operating units. “Corporate overhead” includes corporate general and administrative expenses, corporate depreciation and amortization, interest income and expense, and other income and expense.
Summarized financial information concerning the business segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
|
(In Thousands)
|
|
Revenues from external customers
|
|
|
|
|
|
|
Product sales
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
51,057
|
|
|
$
|
52,211
|
|
|
Water & Flowback Services Division
|
1,250
|
|
|
6,113
|
|
|
Compression Division
|
23,646
|
|
|
9,654
|
|
|
Consolidated
|
$
|
75,953
|
|
|
$
|
67,978
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
2,049
|
|
|
$
|
4,016
|
|
|
Water & Flowback Services Division
|
59,603
|
|
|
31,510
|
|
|
Compression Division
|
61,776
|
|
|
55,905
|
|
|
Consolidated
|
$
|
123,428
|
|
|
$
|
91,431
|
|
|
|
|
|
|
|
Interdivision revenues
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
(2
|
)
|
|
$
|
1
|
|
|
Water & Flowback Services Division
|
222
|
|
|
556
|
|
|
Compression Division
|
—
|
|
|
—
|
|
|
Interdivision eliminations
|
(220
|
)
|
|
(557
|
)
|
|
Consolidated
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
53,104
|
|
|
$
|
56,228
|
|
|
Water & Flowback Services Division
|
61,075
|
|
|
38,179
|
|
|
Compression Division
|
85,422
|
|
|
65,559
|
|
|
Interdivision eliminations
|
(220
|
)
|
|
(557
|
)
|
|
Consolidated
|
$
|
199,381
|
|
|
$
|
159,409
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
2,449
|
|
|
$
|
19,473
|
|
|
Water & Flowback Services Division
|
6,548
|
|
|
(1,265
|
)
|
|
Compression Division
|
(14,018
|
)
|
|
(14,333
|
)
|
|
Interdivision eliminations
|
—
|
|
|
(167
|
)
|
|
Corporate Overhead
(1)
|
(14,912
|
)
|
|
(7,872
|
)
|
|
Consolidated
|
$
|
(19,933
|
)
|
|
$
|
(4,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
(In Thousands)
|
|
Total assets
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
303,157
|
|
|
$
|
293,507
|
|
|
Water & Flowback Services Division
|
224,570
|
|
|
139,771
|
|
|
Compression Division
|
895,979
|
|
|
784,745
|
|
|
Corporate Overhead and eliminations
|
(23,351
|
)
|
|
(30,501
|
)
|
|
Assets of discontinued operations
|
7,907
|
|
|
121,092
|
|
|
Consolidated
|
$
|
1,408,262
|
|
|
$
|
1,308,614
|
|
|
|
|
|
(1)
|
Amounts reflected include the following general corporate expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
|
(In Thousands)
|
|
General and administrative expense
|
$
|
12,598
|
|
|
$
|
9,555
|
|
|
Depreciation and amortization
|
151
|
|
|
91
|
|
|
Interest expense
|
4,007
|
|
|
3,774
|
|
|
Warrants fair value adjustment
|
(1,994
|
)
|
|
(5,976
|
)
|
|
Other general corporate (income) expense, net
|
150
|
|
|
428
|
|
|
Total
|
$
|
14,912
|
|
|
$
|
7,872
|
|
NOTE J
– REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations.
Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. Generally this occurs with the transfer of control of our products or services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services to our customers. For a general discussion of the nature of the goods and services that we provide, see
Note I
- Industry Segments.
Product Sales.
Product sales revenues are recognized at a point in time when we transfer control of our product offerings to our customers, generally when we ship products from our facility to our customer. The product sales for our Completion Fluid & Products Division consist primarily of clear brine fluids, additives, and associated manufactured products. Product sales for our Water & Flowback Services Division are typically attributed to specific performance obligations within certain production testing service arrangements. Parts and equipment sales comprise the product sales for the Compression Division.
Services
. Service revenues represent revenue recognized over time, as our customer arrangements typically provide agreed upon day-rates (monthly service rates for compression services) and we recognize service revenue based upon the number of days services have been performed. Service revenue recognized over time is associated with a majority of our Water & Flowback Services Division arrangements, compression service and aftermarket service contracts within our Compression Division, and a small portion of Completion Fluids & Products Division revenue that is associated with completion fluid service arrangements.
With the exception of the initial terms of the compression services contracts for medium- and high-horsepower compressor packages of our Compression Division, our customer contracts are generally for terms of one year or less. The majority of the service arrangements in the Water & Flowback Services Division are for a period of 90 days or less. Within our Compression Division service revenue,
most aftermarket service revenues are recognized at a point in time when we transfer control of our products and complete the delivery of services to our customers.
We receive cash equal to the invoice price for most product sales and services and payment terms typically range from 30 to 60 days from the date we invoice our customer.
Since the period between when we deliver products or services and when the customer pays for products or services are not expected to exceed one year, we have elected not to calculate or disclose a financing component for our customer contracts.
Depending on the terms of the arrangement, we may also defer the recognition of revenue for a portion of the consideration received because we have to satisfy a future performance obligation. For example, consideration received from customers during the fabrication of new compressor packages is typically deferred until control of the compressor package is transferred to our customer. For any arrangements with multiple performance obligations, we use management's estimated selling price to determine the stand-alone selling price for separate performance obligations. For revenue associated with mobilization of service equipment as part of a service contract arrangement, such revenue, if significant, is deferred and amortized over the estimated service period. As of March 31, 2018, we had
$6.6 million
of remaining performance obligations related to our compression service contracts. As a practical expedient, this amount does not reflect revenue for compression service contracts whose original expected duration is less than 12 months an
d does not consider the effects of the time value of money
. The remaining performance obligations are expected to be recognized through 2022 as follows (in thousands):
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2018
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2019
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2020
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2021
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2022
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Total
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(In Thousands)
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|
Compression service contracts remaining performance obligations
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$
|
1,732
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|
|
$
|
1,929
|
|
|
$
|
1,740
|
|
|
$
|
702
|
|
|
$
|
546
|
|
|
$
|
6,649
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|
Sales taxes, value added taxes, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost for freight and shipping costs as part of cost of product sales when control over our products (i.e. delivery) has transferred to the customer.
Use of Estimates. C
ontracts where the amount of revenue that will ultimately be realized is subject to uncertainties not fully known as of the time revenue is recognized are known as variable consideration arrangements. In recognizing revenue for these arrangements, the amount of variable consideration recognized is limited so that it is probable that significant amounts of revenues will not be reversed in future periods when the
uncertainty is resolved. For products returned by the customer, we estimate the expected returns based on an analysis of historical experience. For volume discounts earned by the customer, we estimate the discount (if any) based on our estimate of the total expected volume of products sold or services to be provided to the customer during the discount period. In certain contracts for the sale of clear brine fluids, we may agree to issue credits for the repurchase of reclaimable used fluids from certain customers at an agreed price that is based on the condition of the fluids. For sales of clear brine fluids, we adjust the revenue recognized in the period of shipment by the estimated amount of the credit expected to be issued to the customer, and this estimate is based on historical experience. As of March 31, 2018 and December 31, 2017, the amount of remaining credits expected to be issued for the repurchase of reclaimable used fluids was
$0.6 million
and
$2.8 million
, respectively, that were recorded in inventory (right of return asset) and accounts payable. For
the three month period ended
March 31, 2018
, there were no material differences between amounts recognized compared to estimates made in a prior period from these variable consideration arrangements.
Contract Assets and Liabilities.
Contract assets arise when we transfer products or perform services in fulfillment of a contract obligation but must perform other performance obligations before being entitled to payment. Generally, once we have transferred products or performed services for the customer pursuant to a contract, we recognize revenue and trade accounts receivable, as we are entitled to payment that is unconditional. Any contract assets, along with billed and unbilled accounts receivable, are included in Trade Accounts Receivable in our consolidated balance sheets.
Contract liabilities arise when we receive consideration, or consideration is unconditionally due, from a customer prior to transferring products or services to the customer under the terms of a sales contract. We classify contract liabilities as Deferred Revenue in our consolidated balance sheets. Such deferred revenue typically results from advance payments received on sales of compressor equipment prior to when it is completed and transferred to the customer in accordance with the customer contract.
As of March 31, 2018 and December 31, 2017, contract assets were immaterial. The following table reflects the changes in our contract liabilities during the three month period ended
March 31, 2018
:
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March 31, 2018
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December 31, 2017
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Increase (Decrease)
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|
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(In Thousands)
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Contract liabilities
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|
|
|
|
|
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Deferred revenue
|
$
|
35,929
|
|
|
$
|
17,050
|
|
|
$
|
18,879
|
|
Bad debt expense on accounts receivables and contract assets was
$0.2 million
and
$0.6 million
du
ring the three month periods ended
March 31, 2018
and 2017, respectively. During the three months ended
March 31, 2018
, contract liabilities increased due to deferred revenue for consideration received on new compressor equipment being fabricated. During the three months ended
March 31, 2018
,
$17.8 million
of deferred revenue as of December 31, 2017 was recognized as product sales revenue, primarily associated w
ith deliveries of compression equipment.
Contract Costs.
When costs are incurred to obtain contracts, such as professional fees and sales bonuses, such costs are deferred and amortized over the expected period of benefit. Costs of mobilizing service equipment necessary to perform under service contracts, if significant, are deferred and amortized over the estimated service period, which is generally a few weeks. As of
March 31, 2018
, such contract costs were immaterial. Where applicable, we establish provisions for estimated obligations pursuant to product warranties by accruing for estimated future product warranty cost in the period of the product sale. Such estimates are based on historical warranty loss experience. Major components of fabricated compressor packages have manufacturer warranties that we pass through to the customer.
Disaggregation of Revenue.
We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our three reportable segments in
Note I
. In addition, we disaggregate revenue from contracts with customers by geography based on the following table below.
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|
March 31, 2018
|
|
March 31, 2017
|
|
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(In Thousands)
|
|
Completion Fluids & Products
|
|
|
|
|
U.S.
|
27,909
|
|
|
40,802
|
|
|
International
|
25,195
|
|
|
15,426
|
|
|
|
53,104
|
|
|
56,228
|
|
|
Water & Flowback Services
|
|
|
|
|
U.S.
|
47,038
|
|
|
24,140
|
|
|
International
|
14,037
|
|
|
14,039
|
|
|
|
61,075
|
|
|
38,179
|
|
|
Compression
|
|
|
|
|
U.S.
|
76,980
|
|
|
57,968
|
|
|
International
|
8,442
|
|
|
7,591
|
|
|
|
85,422
|
|
|
65,559
|
|
|
Interdivision eliminations
|
|
|
|
|
U.S.
|
2
|
|
|
(1
|
)
|
|
International
|
(222
|
)
|
|
(556
|
)
|
|
|
(220
|
)
|
|
(557
|
)
|
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Total Revenue
|
|
|
|
|
U.S.
|
151,929
|
|
|
122,909
|
|
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International
|
47,452
|
|
|
36,500
|
|
|
|
199,381
|
|
|
159,409
|
|