Notes to Consolidated Financial Statements
December 31, 2018
NOTE A
—
ORGANIZATION AND OPERATIONS
We are a
geographically diversified oil and gas services company, focused on completion fluids and associated products and services, comprehensive water management, frac flowback, production well testing and offshore rig cooling services, and compression services and equipment. Prior to the March 2018 sale of our Offshore Division, our operations also included certain offshore services including well plugging and abandonment, decommissioning, and diving, as well as a limited domestic oil and gas production business.
We were incorporated in Delaware in 1981. Following the acquisition and disposition transactions described in
Note E
– "Acquisitions and Dispositions" that closed during the three month period ended March 31, 2018, we reorganized our business into
three
reporting segments –
Completion Fluids & Products
,
Water & Flowback Services
, and Compression
. Prior period financial information has been revised to reflect the change in reportable segments. See
Note T
- "Industry Segments and Geographic Information." Additionally, following the disposition of our Offshore Division, its operations have been presented as discontinued operations for all periods presented. See
Note F
- "Discontinued Operations." 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
Completion Fluids & Products Division
manufactures and markets clear brine fluids ("CBFs"), 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 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 oil and gas basins in certain regions in South America, Africa, Europe, the Middle East, and Australia.
Our
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 and custom-designed compressor packages designed and fabricated at the Division's facilities. The Compression Division's aftermarket business provides compressor package reconfiguration and maintenance services and 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 have reviewed our financial forecasts for the twelve month period subsequent to
March 4, 2019
, which consider our debt covenant requirements. Based on our financial forecasts, which are based on current market conditions and certain operating and other business assumptions that we believe to be reasonable as of
March 4, 2019
, 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 at least the next twelve months.
NOTE B
—
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Our consolidated financial statements include the accounts of our wholly owned subsidiaries. We consolidate the financial statements of 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. As of
December 31, 2018
, our consolidated balance sheet includes
$67.4 million
of restricted net assets, consisting of the consolidated net assets of CCLP. All intercompany accounts and transactions have been eliminated in consolidation.
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 year's presentation. For a discussion of the reclassification of the financial presentation of our Offshore Division as discontinued operations, see
Note F
- "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.
Financial Instruments
Financial instruments that subject us to concentrations of credit risk consist principally of trade receivables with companies in the energy industry. Our policy is to evaluate, prior to providing goods or services, each customer's financial condition and to determine the amount of open credit to be extended. We generally require appropriate, additional collateral as security for credit amounts in excess of approved limits. Our customers consist primarily of major, well-established oil and gas producers and independent oil and gas companies.
Payment terms are on a short-term basis.
We have currency exchange rate risk exposure related to transactions denominated in a foreign currency as well as to investments in certain of our international operations. Our risk management activities include the use of foreign currency forward purchase and sale derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected international operations.
We have no outstanding balances under our and CCLP's variable rate revolving credit facilities as of
December 31, 2018
. However, if we were to have outstanding balances on these variable rate bank credit facilities, we would face market risk exposure related to changes in applicable interest rates.
Allowances for Doubtful Accounts
Allowances for doubtful accounts are determined
generally and
on a specific identification basis when we believe that the
collection of specific amounts owed to us is not probable.
The changes in allowances for doubtful accounts for the three year period ended
December 31, 2018
, are as follows:
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Year Ended December 31,
|
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2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
At beginning of period
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$
|
1,286
|
|
|
$
|
3,872
|
|
|
$
|
6,279
|
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|
Activity in the period:
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Provision for doubtful accounts
|
|
2,156
|
|
|
1,428
|
|
|
2,436
|
|
|
Account (chargeoffs) recoveries
|
|
(859
|
)
|
|
(4,014
|
)
|
|
(4,843
|
)
|
|
At end of period
|
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$
|
2,583
|
|
|
$
|
1,286
|
|
|
$
|
3,872
|
|
Inventories
Inventories are stated at the lower of cost or net realizable value. Except for work in progress inventory, cost is determined using the weighted average method. The cost of work in progress is determined using the specific identification method.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Expenditures that increase the useful lives of assets are capitalized. The cost of repairs and maintenance is charged to operations as incurred. For financial
reporting purposes, we provide for depreciation using the straight-line method over the estimated useful lives of assets, which are
generally
as follows:
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Buildings
|
|
15 – 40 years
|
|
Machinery and equipment
|
|
2 – 20 years
|
|
Automobiles and trucks
|
|
3 – 4 years
|
|
Chemical plants
|
|
15 – 30 years
|
|
Compressors
|
|
12 – 20 years
|
Leasehold improvements are depreciated over the shorter of the remaining term of the associated lease or its useful life.
Depreciation expense, excluding impairments and other charges, for the years ended
December 31, 2018
,
2017
, and
2016
was
$106.9 million
,
$97.3 million
, and
$109.4 million
, respectively.
Construction in progress as of December 31, 2018 and 2017 consists primarily of equipment fabrication projects.
Intangible Assets other than Goodwill
Patents, trademarks, and other intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from
2
to
20
years.
Amortization expense of patents, trademarks, and other intangible assets was
$7.3 million
,
$6.1 million
, and
$6.8 million
for the years ended
December 31, 2018
,
2017
, and
2016
, respectively, and is included in
depreciation, amortization and accretion. The estimated future annual amortization expense of patents, trademarks, and other intangible assets is
$7.8 million
for
2019
,
$7.7 million
for
2020
,
$7.4 million
for
2021
,
$7.0 million
for
2022
, and
$6.7 million
for
2023
.
Intangible assets other than goodwill are tested for recoverability whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In such an event, we will determine the fair value of the asset using an undiscounted cash flow analysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has occurred, we will recognize a loss for the difference between the carrying value and the estimated fair value of the intangible asset. During 2018, 2017, and 2016, certain intangible assets were impaired. See "Impairments of Long-Lived Assets" section below.
Goodwill
Goodwill represents the excess of cost over the fair value of the net assets acquired in business combinations. We perform a goodwill impairment test at a reporting unit level on an annual basis or whenever indicators of impairment are present. We perform the annual test of goodwill impairment as of the last day of the fourth quarter of each year.
As of December 31, 2018, consolidated goodwill consists of
$25.9 million
attributed to our Water Management reporting unit, included as part of our Water & Flowback Services Division. The first step of the impairment test is to compare the estimated fair value with the recorded net book value (including goodwill) of our reporting units. If the estimated fair value is higher than the recorded net book value, no impairment is deemed to exist and no further testing is required. If, however, the carrying amount of the reporting unit exceeds its estimated fair value, an impairment loss is calculated by comparing the carrying amount of the reporting unit’s goodwill to our estimated implied fair value of that goodwill. Our estimates of reporting unit fair value, when required,
are based on a combination of an income and market approach. These estimates are imprecise and are subject to our estimates of the future cash flows of each business and our judgment as to how these estimated cash flows translate into each business’ estimated fair value. These estimates and judgments are affected by numerous factors, including the general economic environment at the time of our assessment, which affects our overall market capitalization. See
Note D
- "Goodwill" for additional discussion of our goodwill.
Impairments of Long-Lived Assets
Impairments of long-lived assets, including identified intangible assets, are determined periodically when indicators of impairment are present. If such indicators are present, the determination of the amount of impairment is based on our judgments as to the future undiscounted operating cash flows to be generated from these assets throughout their
remaining
estimated useful lives. If these undiscounted cash flows are less than the carrying amount of the related asset, an impairment is recognized for the excess of the carrying value over its fair value. Assets held for disposal are recorded at the lower of carrying value or estimated fair value less estimated selling costs.
During the third quarter of 2018, as a result of decreased expected future cash flows from a specific customer contract, we recorded a long-lived asset impairment of
$2.9 million
of an identified intangible asset within the Water & Flowback Services segment.
During the fourth quarter of 2017, consolidated long-lived asset impairments of approximately
$14.9 million
were recorded primarily due to the impairment of a certain identified intangible asset resulting from decreased expected future operating cash flows from a Water & Flowback Services segment customer.
During the first quarter of 2016, our Compression and
Water & Flowback Services
segments recorded impairments of approximately
$7.9 million
and
$2.8 million
, respectively, due to expected decreased demand due to current market conditions. During the fourth quarter of 2016, our Compression,
Completion Fluids & Products
, and
Water & Flowback Services
segments recorded certain consolidated impairments and other charges of approximately
$2.4 million
,
$0.5 million
, and
$3.6 million
, respectively, due to expected decreased demand due to current market conditions and equipment damage.
Asset Retirement Obligations
The values of our asset retirement obligations for properties were
$12.2 million
and
$11.7 million
as of
December 31, 2018
and
2017
, respectively. Decommissioning and asset retirement work performed for the years
2018
,
2017
, and
2016
was
$0.04 million
,
$0.4 million
, and
$0.0 million
, respectively. For a further discussion of asset retirement obligations, see
Note L
– "Asset Retirement Obligations."
Environmental Liabilities
Environmental expenditures that result in additions to property and equipment are capitalized, while other environmental expenditures are expensed. Environmental remediation liabilities are recorded on an undiscounted basis when environmental assessments or cleanups are probable and the costs can be reasonably estimated. Estimates of future environmental remediation expenditures often consist of a range of possible expenditure amounts, a portion of which may be in excess of amounts of liabilities recorded. In such an instance, we disclose the full range of amounts reasonably possible of being incurred. Any changes or developments in environmental
remediation efforts are accounted for and disclosed each quarter as they occur. Any recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable.
Complexities involving environmental remediation efforts can cause estimates of the associated liability to be imprecise. Factors that cause uncertainties regarding the estimation of future expenditures include, but are not limited to, the effectiveness of the anticipated work plans in achieving targeted results and changes in the desired remediation methods and outcomes as prescribed by regulatory agencies. Uncertainties associated with environmental remediation contingencies are pervasive and often result in wide ranges of reasonably possible outcomes. Estimates developed in the early stages of remediation can vary significantly. Normally, a finite estimate of cost does not become fixed and determinable at a specific point in time. Rather, the costs associated with environmental remediation become estimable as the work is performed and the range of ultimate cost becomes more defined. It is possible that cash flows and results of operations could be materially affected by the impact of the ultimate resolution of these contingencies.
Revenue Recognition
Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. Refer to
Note U
- "Revenue From Contracts With Customers" for further discussion.
Operating Costs
Cost of product sales includes direct and indirect costs of manufacturing and producing our products, including raw materials, fuel, utilities, labor, overhead, repairs and maintenance, materials, services, transportation, warehousing, equipment rentals, insurance, and certain taxes. In addition, cost of product sales includes oil and gas operating expense. Cost of services includes operating expenses we incur in delivering our services, including labor, equipment rental, fuel, repair and maintenance, transportation, overhead, insurance, and certain taxes. We include in product sales revenues the reimbursements we receive from customers for shipping and handling costs. Shipping and handling costs are included in cost of product sales. Amounts we incur for “out-of-pocket” expenses in the delivery of our services are recorded as cost of services. Reimbursements for “out-of-pocket” expenses we incur in the delivery of our services are recorded as service revenues. Depreciation, amortization, and accretion includes depreciation expense for all of our facilities, equipment and vehicles, amortization expense on our intangible assets, and accretion expense related to our decommissioning and other asset retirement obligations.
We include in general and administrative expense all costs not identifiable to our specific product or service operations, including divisional and general corporate overhead, professional services, corporate office costs, sales and marketing expenses, insurance, and certain taxes.
Equity-Based Compensation
We and CCLP have various equity incentive compensation plans which provide for the granting of restricted common stock, options for the purchase of our common stock, and other performance-based, equity-based compensation awards to our executive officers, key employees, nonexecutive officers, and directors. Total equity-based compensation expense, net of taxes, for the three years ended
December 31, 2018
,
2017
, and
2016
, was
$5.8 million
,
$5.0 million
, and
$9.5 million
, respectively. For further discussion of equity-based compensation, see
Note O
– "Equity-Based Compensation."
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date. A portion of the carrying value of certain deferred tax assets are subject to a valuation allowance. See
Note H
– "Income Taxes" for further discussion.
Accumulated Other Comprehensive Income (Loss)
Certain of
our international operations maintain their accounting records in the local currencies that are their functional currencies. For these operations, the functional currency financial statements are converted to United States dollar equivalents, with the effect of the foreign currency translation adjustment reflected as a component of accumulated other comprehensive income (loss). Accumulated other comprehensive income (loss) is included in partners' capital in the accompanying audited consolidated balance sheets and consists of the cumulative currency translation adjustments associated with such international operations. Activity within accumulated other comprehensive income includes no
reclassifications to net income.
Income (Loss) per Common Share
The calculation of basic earnings per share excludes any dilutive effects of equity awards or warrants. The calculation of diluted earnings per share includes the effect of equity awards and warrants, if dilutive, which is computed using the treasury stock method during the periods such equity awards and warrants were outstanding. A reconciliation of the common shares used in the computations of income (loss) per common and common equivalent shares is presented in
Note S
– "Income (Loss) Per Share."
Foreign Currency Translation
We have designated the euro, the British pound, the Norwegian krone, the Canadian dollar, the
Brazilian real, and the
Mexican peso as the functional currencies for our operations in Finland and Sweden, the United Kingdom, Norway, Canada, Brazil,
and certain of our operations in Mexico, respectively. 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
$(0.1) million
,
$(1.6) million
, and
$(0.9) million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
On June 30, 2018, we determined the economy in Argentina to be highly inflationary. As a result of this determination and in accordance with U.S. GAAP, on July 1, 2018, the functional currency of our operations in Argentina was changed from the Argentine peso to the U.S. dollar. The remeasurement did not have a material impact on our consolidated financial position or results of operations.
Fair Value Measurements
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 values of certain liabilities, including the liabilities for the warrants to purchase 11.2 million shares of our common stock (the "Warrants"), the CCLP Series A Convertible Preferred Units (the "CCLP Preferred Units"), and contingent consideration liability. We also utilize fair value measurements on a recurring basis in the accounting for our foreign currency derivative contracts. Refer to
Note R
- "Fair Value Measurements" for further discussion.
Fair value measurements are also utilized on a nonrecurring basis in certain circumstances, 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).
New Accounting Pronouncements
Standards adopted in 2018
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.
On January 1, 2018, we adopted ASU 2014-09 and all related amendments, which was codified into ASC 606. 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 ASC 606 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. ASC 606 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 ASC 606, 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 U
- "Revenue from Contracts with Customers."
The impact from the adoption of ASC 606 to our January 1, 2018 consolidated balance sheet, our December 31, 2018 consolidated balance sheet, and our consolidated results of operations for the year ended December 31, 2018 was immaterial. The adoption of ASC 606 had no impact to cash provided by operating, financing, or investing activities in our consolidated statement of cash flows.
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. We adopted this ASU during the three month period ended March 31, 2018, with no 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. 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.
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. We adopted this ASU during the three month period ended March 31, 2018, resulting in restricted cash, if any, being classified with cash and cash equivalents in our consolidated statement of cash flows.
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. We adopted this ASU during the three month period ended March 31, 2018, with no impact to our consolidated financial statements.
Standards not yet adopted
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 right-of-use lease assets and lease liabilities in the balance sheet related to the right to use the underlying asset for the lease term.
In addition, through improved disclosure requirements, ASC 842 will enable users of financial statements to further understand the amount, timing, and uncertainty of cash flows arising from leases. ASC 842 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. In July 2018, the FASB provided an additional transition method allowing for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. We plan to adopt ASC 842 effective January 1, 2019 using the optional transition method. Comparative information will continue to be reported under the accounting standards that were in effect for those periods. Based on our preliminary assessment of our portfolio of leases where we are the lessee, upon adoption of ASC 842, we will record an amount for right-to-use assets and lease obligations ranging from approximately
$60.0 million
to
$70.0 million
pursuant to the new requirements.
The July 2018 amendment also provided lessors with a practical expedient to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under ASC 606 and certain conditions are met. The amendment also provided clarification on whether ASC 842 or ASC 606 is applicable to the combined component based on determination of the predominant component. An entity that elects the lessor practical expedient also should provide certain disclosures. We evaluated the impact of the July 2018 amendment on our compression services contracts and have concluded that the services nonlease component is predominant, which results in the ongoing recognition following ASC 606.
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 the more timely recognition of losses. ASU 2016-13 has an effective date of the first quarter of fiscal 2022. We are currently assessing the potential effects of these changes to our consolidated financial statements.
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, 2019, 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 June 2018, the FASB issued ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to align the measurement and classification guidance for share-based payments to nonemployees with the guidance currently applied to employees, with certain exceptions. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods, with early adoption permitted. We are currently assessing the potential effects of these changes to our consolidated financial statements and do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
NOTE C
– INVENTORIES
Components of inventories are as follows:
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|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
(In Thousands)
|
|
Finished goods
|
|
$
|
69,762
|
|
|
$
|
66,377
|
|
|
Raw materials
|
|
3,503
|
|
|
4,027
|
|
|
Parts and supplies
|
|
47,386
|
|
|
33,632
|
|
|
Work in progress
|
|
22,920
|
|
|
11,402
|
|
|
Total inventories
|
|
$
|
143,571
|
|
|
$
|
115,438
|
|
Finished goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling. Work in progress inventory consists primarily of new compressor packages located in the CCLP fabrication facility in Midland, Texas.
NOTE D
— GOODWILL
Our Water & Flowback Services Division consists of
two
reporting units, Production Testing and Water Management. During the fourth quarter of 2018, global oil commodity prices decreased significantly. An accompanying decrease in our common stock price during the fourth quarter of 2018 has also indicated an overall reduction in our market capitalization. As part of our internal annual business outlook for each of our reporting units that we performed during the fourth quarter of 2018, we considered changes in the global economic environment that affected our stock price and market capitalization. As part of the first step of goodwill impairment testing for our Water Management reporting unit (part of our Water & Flowback Services Division), the only reporting unit with goodwill as of December 31, 2018, we updated our assessment of the future cash flows, applying expected long-term growth rates, discount rates, and terminal values that we consider reasonable for the reporting unit. We calculated a present value of the cash flows for the Water Management reporting unit to arrive at an estimate of fair value using a combination of the income approach and the market approach. Based on these assumptions, we determined that the fair value of the Water Management reporting unit exceeded its carrying value, which includes approximately
$25.9 million
of goodwill, by approximately 30%. Specific uncertainties affecting the estimated fair value of our Water Management reporting unit includes the impact of competition, prices of oil and natural gas, and future overall activity levels in the regions in which we operate, the activity levels of our significant customers, and other factors affecting the rate of future growth of this reporting unit. These factors will continue to be reviewed and assessed going forward. Negative developments with regard to these factors could have a further negative effect on the fair value of the Water Management reporting unit.
Because quoted market prices for our reporting units other than Compression are not available, our management must apply judgment in determining the estimated fair value of our reporting units for purposes of reconciling the fair values of our reporting units to our overall market capitalization. Management uses all available information to make these fair value determinations, including the present value of expected future cash flows using discount rates commensurate with the risks involved in the assets. The resultant fair values calculated for the reporting units are then compared to observable metrics for other companies in our industry or to mergers and acquisitions in our industry to determine whether those valuations, in our judgment, appear reasonable.
The accounting principles regarding goodwill acknowledge that the observed market prices of individual trades of a company’s stock (and thus its computed market capitalization) may not be representative of the fair value of the company as a whole. Substantial value may arise from the ability to take advantage of synergies and other benefits that flow from control over another entity. Consequently, measuring the fair value of a collection of assets and liabilities that operate together in a controlled entity is different from measuring the fair value of a single share of that entity’s common stock. Therefore, once the fair value of the reporting units was determined, we also added a control premium to the calculations. This control premium is judgmental and is based on observed mergers and acquisitions in our industry.
Due to the decrease in the price of our common stock and the price per common unit of CCLP during the first three months of 2016, our and CCLP's market capitalizations as of March 31, 2016, were below their respective
recorded net book values, including remaining goodwill. In addition, the continuing low oil and natural gas commodity price environment resulted in a further negative impact on demand for the products and services for each of our reporting units. As a result of these factors, we determined that it was “more likely than not” that the fair values of our
Compression
Division, which is one reporting unit, and our Production Testing reporting unit, a part of our Water & Flowback Services Division, were less than their respective carrying values as of March 31, 2016. As a result of the goodwill impairment process, we recorded impairments of goodwill of
$106.2 million
as of March 31, 2016. Following these goodwill impairments, as of
December 31, 2018
, our consolidated goodwill consists of
$25.9 million
of goodwill attributed to our Water Management reporting unit, a part of our
Water & Flowback Services Division
.
As of
December 31, 2018
, the carrying amount of goodwill for the
Completion Fluids & Products
,
Water & Flowback Services
, and
Compression
reporting segments are net of
$23.8 million
,
$111.8 million
, and
$231.8 million
, respectively, of accumulated impairment losses.
The changes in the carrying amount of goodwill by segment for the three year period ended
December 31, 2018
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water & Flowback Services
|
|
Compression
|
|
Total
|
|
|
|
(In Thousands)
|
|
Balance as of December 31, 2015
|
|
$
|
20,543
|
|
|
$
|
92,402
|
|
|
$
|
112,945
|
|
|
Goodwill adjustments
|
|
(13,907
|
)
|
|
(92,402
|
)
|
|
(106,309
|
)
|
|
Balance as of December 31, 2016
|
|
6,636
|
|
|
—
|
|
|
6,636
|
|
|
Goodwill adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance as of December 31, 2017
|
|
6,636
|
|
|
—
|
|
|
6,636
|
|
|
Goodwill acquired during the year
|
|
19,223
|
|
|
—
|
|
|
19,223
|
|
|
Goodwill adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance as of December 31, 2018
|
|
$
|
25,859
|
|
|
$
|
—
|
|
|
$
|
25,859
|
|
NOTE E
— 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. Subsequent to closing, in August 2018, a working capital adjustment of approximately
$1.0 million
was paid. The sellers 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 combined water management business of SwiftWater and 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 the February 28, 2018 closing date, our allocation of the SwiftWater purchase price is as follows (in thousands):
|
|
|
|
|
|
|
|
Current assets
|
$
|
16,880
|
|
|
Property and equipment
|
11,631
|
|
|
Intangible assets
|
41,960
|
|
|
Goodwill
|
15,560
|
|
|
Total assets acquired
|
86,031
|
|
|
|
|
|
Current liabilities
|
7,189
|
|
|
Total liabilities assumed
|
7,189
|
|
|
Net assets acquired
|
$
|
78,842
|
|
The above allocation of the purchase price to the SwiftWater net tangible assets and liabilities considers approximately
$7.6 million
of the initial estimated fair value for the liabilities associated with the contingent purchase price consideration. The initial fair value of the obligation to pay the contingent purchase price consideration was calculated based on the anticipated EBITDA and revenue as of the closing date for the operations of SwiftWater and our pre-existing operations in the Permian Basin and could have increased (to
$15.0 million
) or decreased (to
$0
) depending on the actual earnings from these operations. 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 are charged or credited to earnings in the period in which such changes occur. During the period from the closing date to
December 31, 2018
, the estimated fair value for the liabilities associated with the contingent purchase price consideration increased to
$11.0 million
, resulting in
$3.4 million
being
charged
to other (income) expense, net, during the year ended
December 31, 2018
. A
$10.0 million
portion of the liability for contingent consideration was based on EBITDA and revenue during 2018 and is classified as Accrued Liabilities as of
December 31, 2018
in the accompanying consolidated balance sheet.
The allocation of the purchase price to the SwiftWater net tangible assets and liabilities and identifiable intangible assets, as well as the initial estimated fair value for the liabilities associated with the contingent purchase price consideration, as of February 28, 2018, is final and adjustments to the purchase price allocation have been reflected in the accompanying consolidated balance sheets as of
December 31, 2018
. The allocation of purchase price includes approximately
$15.6 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
and automobiles and trucks are depreciated using useful lives of
3
to
4
years. The acquired intangible assets include
$3.3 million
for the trademark/tradename,
$37.2 million
for customer relationships, and
$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
$2.5 million
of accumulated amortization as of
December 31, 2018
.
Subsequent to the February 28, 2018 acquisition closing date, we have continued to integrate the acquired SwiftWater operations into our existing Water & Flowback Services Division in the Permian Basin in order to better serve our customers through seamless combined service offerings. With the addition of SwiftWater services, such as water treatment, we are now able to offer integrated water management services to both TETRA and SwiftWater customers that would have not been possible prior to the acquisition. Moreover, services performed for certain pre-acquisition SwiftWater customers have utilized TETRA employees and equipment. Similarly, certain pre-SwiftWater acquisition TETRA customers have utilized SwiftWater employees, equipment, and services. We have also added to SwiftWater's fleet of operating equipment through additional capital expenditures. As a result of the combined operations, the distinction of the revenue originating from SwiftWater versus TETRA is a subjective estimate. Due to these limitations, we have considered the
$95.6 million
of revenues for services performed for pre-acquisition SwiftWater customers subsequent to the closing on February 28, 2018 as the estimate of the impact from the SwiftWater acquisition on our consolidated revenues for the year ended
December 31, 2018
.
As a result of our focus since the date of the acquisition on integrating and managing SwiftWater services with our pre-existing operations in the Permian Basin, quantifying the financial impact on our consolidated earnings
of the operations specific to SwiftWater is impracticable. SwiftWater acquisition-related costs of approximately
$0.4 million
were incurred during the year ended
December 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.
Acquisition of JRGO Energy Services LLC
On December 6, 2018, we purchased JRGO Energy Services LLC (“JRGO”) for a cash purchase price of
$7.6 million
paid at closing, subject to a working capital adjustment. In addition, contingent consideration of up to
$1.5 million
is to be paid during 2019, based on JRGO's performance during the fourth quarter of 2018. JRGO specializes in delivering comprehensive water management services for oil and gas operators, as well as municipal, state and federal organizations. JRGO will be integrated into our Water & Flowback Services Division. The acquisition of JRGO broadens our footprint in the Appalachian region and is expected to provide our customers an enhanced, more efficient, diverse, and strategically positioned portfolio of integrated water management services in the Marcellus and Utica basins.
As of
December 31, 2018
, subject to completion of management's review, our preliminary allocation of the JRGO purchase price is as follows (in thousands):
|
|
|
|
|
|
|
|
Current assets
|
$
|
2,173
|
|
|
Property and equipment
|
3,413
|
|
|
Intangible assets
|
3,197
|
|
|
Goodwill
|
3,662
|
|
|
Total assets acquired
|
12,445
|
|
|
|
|
|
Current liabilities
|
2,716
|
|
|
Total liabilities assumed
|
2,716
|
|
|
Net assets acquired
|
$
|
9,729
|
|
Pro Forma Financial Information (Unaudited)
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 impact of the acquisition of JRGO is not significant and is therefore not included in the pro forma information. The pro forma information includes the impact from the allocation of the SwiftWater 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 SwiftWater 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 SwiftWater transaction had occurred at the beginning of the periods presented or the future results that we will achieve after the transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
2018
|
|
2017
|
|
|
(In Thousands)
|
|
Revenues
|
$
|
1,012,925
|
|
|
$
|
779,145
|
|
|
Depreciation, amortization, and accretion
|
$
|
115,902
|
|
|
$
|
109,484
|
|
|
Gross profit
|
$
|
169,391
|
|
|
$
|
132,239
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
(41,017
|
)
|
|
$
|
(42,329
|
)
|
|
Net income (loss) attributable to TETRA stockholders
|
$
|
(61,525
|
)
|
|
$
|
(39,570
|
)
|
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, 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"). Pursuant to the Bonding Agreement, Orinoco is required to replace, within 90 days following the closing, the initial bonds delivered at closing with non-revocable performance bonds, meeting certain requirements, in the aggregate sum of
$47.0 million
. Orinoco has not delivered such replacement bonds and we are seeking to enforce the terms of the Bonding Agreement. The non-revocable performance bonds delivered at the closing remain in effect.
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 F
- "Discontinued Operations" for further discussion. Our consolidated pre-tax results of operations for the year period ending
December 31, 2018
included a loss on the disposal of our Offshore Division of
$34.1 million
, net of tax, including transaction costs of
$1.4 million
.
NOTE F
– DISCONTINUED OPERATIONS
As discussed in
Note E
- "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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
December 31, 2018
|
|
Twelve Months Ended
December 31, 2017
|
|
Twelve Months Ended
December 31, 2016
|
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Major classes of line items constituting pretax loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
4,487
|
|
|
$
|
187
|
|
|
$
|
4,674
|
|
|
$
|
96,741
|
|
|
$
|
538
|
|
|
$
|
97,279
|
|
|
$
|
76,622
|
|
|
$
|
751
|
|
|
$
|
77,373
|
|
|
Cost of revenues
|
11,151
|
|
|
139
|
|
|
11,290
|
|
|
92,674
|
|
|
1,064
|
|
|
93,738
|
|
|
70,032
|
|
|
3,236
|
|
|
73,268
|
|
|
Depreciation, amortization, and accretion
|
1,873
|
|
|
212
|
|
|
2,085
|
|
|
10,678
|
|
|
1,428
|
|
|
12,106
|
|
|
12,164
|
|
|
1,362
|
|
|
13,526
|
|
|
General and administrative expense
|
1,917
|
|
|
187
|
|
|
2,104
|
|
|
5,705
|
|
|
783
|
|
|
6,488
|
|
|
6,451
|
|
|
1,087
|
|
|
7,538
|
|
|
Other (income) expense, net
|
(1,036
|
)
|
|
—
|
|
|
(1,036
|
)
|
|
2,453
|
|
|
(565
|
)
|
|
1,888
|
|
|
3
|
|
|
(3,092
|
)
|
|
(3,089
|
)
|
|
Pretax loss from discontinued operations
|
(9,418
|
)
|
|
(351
|
)
|
|
(9,769
|
)
|
|
(14,769
|
)
|
|
(2,172
|
)
|
|
(16,941
|
)
|
|
(12,028
|
)
|
|
(1,842
|
)
|
|
(13,870
|
)
|
|
Pretax loss on disposal of discontinued operations
|
|
|
|
|
(34,072
|
)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
Total pretax loss from discontinued operations
|
|
|
|
|
(43,841
|
)
|
|
|
|
|
|
(16,941
|
)
|
|
|
|
|
|
(13,870
|
)
|
|
Income tax provision (benefit)
|
|
|
|
|
(2,326
|
)
|
|
|
|
|
|
448
|
|
|
|
|
|
|
147
|
|
|
Total loss from discontinued operations
|
|
|
|
|
$
|
(41,515
|
)
|
|
|
|
|
|
$
|
(17,389
|
)
|
|
|
|
|
|
$
|
(14,017
|
)
|
Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Carrying amounts of major classes of assets included as part of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
$
|
—
|
|
|
$
|
1,340
|
|
|
$
|
1,340
|
|
|
$
|
27,385
|
|
|
$
|
1,542
|
|
|
$
|
28,927
|
|
|
Inventories
|
—
|
|
|
—
|
|
|
—
|
|
|
4,616
|
|
|
—
|
|
|
4,616
|
|
|
Other Current Assets
|
14
|
|
|
—
|
|
|
14
|
|
|
1,292
|
|
|
44
|
|
|
1,336
|
|
|
Current assets of discontinued operations
|
14
|
|
|
1,340
|
|
|
1,354
|
|
|
33,293
|
|
|
1,586
|
|
|
34,879
|
|
|
Property, plant, and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
85,873
|
|
|
—
|
|
|
85,873
|
|
|
Other assets
|
—
|
|
|
—
|
|
|
—
|
|
|
382
|
|
|
—
|
|
|
382
|
|
|
Long-term assets of discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
86,255
|
|
|
—
|
|
|
86,255
|
|
|
Total major classes of assets of the discontinued operations
|
$
|
14
|
|
|
$
|
1,340
|
|
|
$
|
1,354
|
|
|
$
|
119,548
|
|
|
$
|
1,586
|
|
|
$
|
121,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts of major classes of liabilities included as part of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
$
|
740
|
|
|
$
|
—
|
|
|
$
|
740
|
|
|
$
|
13,942
|
|
|
$
|
87
|
|
|
$
|
14,029
|
|
|
Accrued liabilities
|
1,330
|
|
|
2,075
|
|
|
3,405
|
|
|
8,904
|
|
|
2,278
|
|
|
11,182
|
|
|
Current portion of decommissioning liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
477
|
|
|
477
|
|
|
Current liabilities of discontinued operations
|
2,070
|
|
|
2,075
|
|
|
4,145
|
|
|
22,846
|
|
|
2,842
|
|
|
25,688
|
|
|
Decommissioning and other asset retirement obligations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,185
|
|
|
46,185
|
|
|
Other liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
2,040
|
|
|
—
|
|
|
2,040
|
|
|
Long-term liabilities of discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
2,040
|
|
|
46,185
|
|
|
48,225
|
|
|
Total major classes of liabilities of the discontinued operations
|
$
|
2,070
|
|
|
$
|
2,075
|
|
|
$
|
4,145
|
|
|
$
|
24,886
|
|
|
$
|
49,027
|
|
|
$
|
73,913
|
|
NOTE G
— LEASES
We lease some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. Certain facility storage tanks being constructed are leased pursuant to a ten year term, which is classified as a capital lease.
Capitalized costs pursuant to a capital lease are depreciated over the term of the lease.
The office, warehouse, and operating location leases, which vary from
one
to
thirty-five
year terms that expire at various dates through
2034
,
with some leases having renewal clauses of various periods, are classified as operating leases. Transportation equipment leases expire at various dates
through
2024
and
are also classified as operating leases. The office, warehouse, and operating location leases, and machinery and equipment leases generally require us to pay all maintenance and insurance costs.
Our corporate headquarters facility located in The Woodlands, Texas, was sold on December 31, 2012, pursuant to a sale and leaseback transaction. Pursuant to the transaction, we sold the building, parking garage, and land to an unaffiliated third party for a sale price of
$43.8 million
, before transaction costs and other deductions. As a condition to the consummation of the purchase and sale of the facility, the parties entered into a lease agreement for the facility having an initial lease term of 15 years, which is classified as an operating lease. Under the terms of the lease agreement, we have the ability to extend the lease for five successive five year periods at base rental rates to be determined at the time of each extension. We are responsible for the payment of all related taxes,
utilities, insurance, and certain maintenance and improvement costs. Pursuant to sale and leaseback accounting, approximately
$5.0 million
in deferral of the gain on the sale of the facility remains at December 31, 2018, to be recognized on a straight line basis over the initial lease term.
Future minimum lease payments by year and in the aggregate, under non-cancelable capital and operating leases with terms in excess of one year,
and including the headquarters facility lease discussed above,
consist of the following at
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease
|
|
Operating Leases
|
|
|
|
(In Thousands)
|
|
2019
|
|
$
|
188
|
|
|
$
|
18,466
|
|
|
2020
|
|
35
|
|
|
15,947
|
|
|
2021
|
|
27
|
|
|
10,456
|
|
|
2022
|
|
—
|
|
|
8,410
|
|
|
2023
|
|
—
|
|
|
7,441
|
|
|
After 2024
|
|
—
|
|
|
27,715
|
|
|
Total minimum lease payments
|
|
$
|
250
|
|
|
$
|
88,435
|
|
Rental expense for all operating leases was
$40.9 million
,
$27.1 million
, and
$24.8 million
for the years ended December 31,
2018
,
2017
, and
2016
, respectively. At December 31, 2018, future minimum rental receipts under a non-cancelable sublease totaled
$6.4 million
.
NOTE H
— INCOME TAXES
On December 22, 2017, the United States enacted significant changes to the U.S. tax law following the passage and signing of H.R.1, “An Act to Provide the Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Act”) (previously known as “The Tax Cuts and Jobs Act”). We applied the guidance in Staff Accounting Bulletin 118 (“SAB 118”) when accounting for the enactment-date effects of the Act. During the 4
th
quarter of 2017, we recorded our best estimate of the impact of the Act in our year-end income tax provision in accordance with our understanding of the Act and guidance available and as a result recorded income tax expense of
$54.1 million
. This income tax expense was fully offset by a decrease in the valuation allowance previously recorded on our deferred tax assets. As such, the Act resulted in no net tax expense. As of December 31, 2018, we completed our accounting analysis for all of the enactment-date income tax effects and reduced our December 31, 2017 provisional amount by
$2.5 million
. The decrease in the income tax expense was fully offset by an increase in the valuation allowance. As such, the Act resulted in no net tax expense.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period costs are both acceptable methods subject to an accounting policy election. As of December 31, 2017, we had not yet completed our assessment or elected an accounting policy to either recognize deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when incurred. After further consideration in 2018, we have elected to account for GILTI as a period cost in the year the tax is incurred.
The income tax provision (benefit) attributable to continuing operations for the years ended
December 31, 2018
,
2017
,
and
2016
,
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
(651
|
)
|
|
$
|
—
|
|
|
State
|
|
1,465
|
|
|
799
|
|
|
783
|
|
|
Foreign
|
|
5,430
|
|
|
3,943
|
|
|
3,181
|
|
|
|
|
6,895
|
|
|
4,091
|
|
|
3,964
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
(79
|
)
|
|
394
|
|
|
—
|
|
|
State
|
|
(153
|
)
|
|
(648
|
)
|
|
(610
|
)
|
|
Foreign
|
|
(364
|
)
|
|
(3,086
|
)
|
|
(1,198
|
)
|
|
|
|
(596
|
)
|
|
(3,340
|
)
|
|
(1,808
|
)
|
|
Total tax provision (benefit)
|
|
$
|
6,299
|
|
|
$
|
751
|
|
|
$
|
2,156
|
|
A reconciliation of the provision (benefit) for income taxes attributable to continuing operations, computed by applying the federal statutory rate
to income (loss) before income taxes and the reported income taxes, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
Income tax provision (benefit) computed at statutory federal income tax rates
|
|
$
|
(7,650
|
)
|
|
$
|
(15,415
|
)
|
|
$
|
(78,128
|
)
|
|
State income taxes (net of federal benefit)
|
|
55
|
|
|
1,664
|
|
|
(2,960
|
)
|
|
Impact of international operations
|
|
14,477
|
|
|
10,847
|
|
|
7,556
|
|
|
Impact of U.S. tax law change
|
|
(2,510
|
)
|
|
55,813
|
|
|
—
|
|
|
Goodwill impairments
|
|
—
|
|
|
—
|
|
|
12,990
|
|
|
Impact of noncontrolling interest
|
|
5,204
|
|
|
5,151
|
|
|
2,247
|
|
|
Valuation allowance
|
|
(7,443
|
)
|
|
(63,635
|
)
|
|
53,918
|
|
|
Other
|
|
4,166
|
|
|
6,326
|
|
|
6,533
|
|
|
Total tax provision (benefit)
|
|
$
|
6,299
|
|
|
$
|
751
|
|
|
$
|
2,156
|
|
Income (loss) before taxes and discontinued operations includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
Domestic
|
|
$
|
(44,957
|
)
|
|
$
|
(29,419
|
)
|
|
$
|
(221,609
|
)
|
|
International
|
|
8,531
|
|
|
(14,624
|
)
|
|
(1,611
|
)
|
|
Total
|
|
$
|
(36,426
|
)
|
|
$
|
(44,043
|
)
|
|
$
|
(223,220
|
)
|
A reconciliation of the beginning and ending amount of our gross unrecognized tax benefit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
Gross unrecognized tax benefits at beginning of period
|
|
$
|
530
|
|
|
$
|
857
|
|
|
$
|
1,219
|
|
|
Decreases in tax positions for prior years
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Increases in tax positions for current year
|
|
—
|
|
|
—
|
|
|
16
|
|
|
Lapse in statute of limitations
|
|
(202
|
)
|
|
(327
|
)
|
|
(378
|
)
|
|
Gross unrecognized tax benefits at end of period
|
|
$
|
328
|
|
|
$
|
530
|
|
|
$
|
857
|
|
We recognize interest and penalties related to uncertain tax positions in income tax expense. During the years ended
December 31, 2018
,
2017
, and
2016
, we
recognized
$(0.2) million
,
$(0.3) million
, and
$(0.2) million
,
respectively, of
interest and penalties to the provision for income tax. As of
December 31, 2018
and
2017
, we had
$0.5 million
and
$0.7 million
, respectively, of accrued potential interest and penalties associated with these uncertain tax positions. The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is
$0.8 million
and
$1.1 million
as of
December 31, 2018
and
2017
, respectively. We do not expect a significant change to the unrecognized tax benefits during the next twelve months.
We file tax returns in the U.S. and in various state, local, and non-U.S. jurisdictions. The following table summarizes the earliest tax years that remain subject to examination by taxing authorities in any major jurisdiction in which we operate:
|
|
|
|
|
|
Jurisdiction
|
Earliest Open Tax Period
|
|
United States – Federal
|
2012
|
|
United States – State and Local
|
2002
|
|
Non-U.S. jurisdictions
|
2011
|
We use the liability method for reporting income taxes, under which current and deferred tax assets and liabilities are recorded in accordance with enacted tax laws and rates. Under this method, at the end of each period, the amounts of deferred tax assets and liabilities are determined using the tax rate expected to be in effect when the taxes are actually paid or recovered. 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. We considered all available evidence, both positive and negative, in determining whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of our deferred tax assets. In determining the need for a valuation allowance on our deferred tax assets we placed greater weight on recent and objectively verifiable current information, as compared to more forward-looking information that is used in valuating other assets on the balance sheet. While we have considered taxable income in prior carryback years, future reversals of existing taxable temporary differences, future taxable income, and tax planning strategies in assessing the need for the valuation allowance, there can be no guarantee that we will be able to realize all of our deferred tax assets. Significant components of our deferred tax assets and liabilities as of
December 31, 2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
(In Thousands)
|
|
Net operating losses
|
|
$
|
100,910
|
|
|
$
|
88,025
|
|
|
Federal tax credits
|
|
3,441
|
|
|
19,346
|
|
|
Accruals
|
|
9,396
|
|
|
24,577
|
|
|
Depreciation and amortization for book in excess of tax expense
|
|
35,242
|
|
|
40,979
|
|
|
All other
|
|
11,140
|
|
|
3,813
|
|
|
Total deferred tax assets
|
|
160,129
|
|
|
176,740
|
|
|
Valuation allowance
|
|
(129,034
|
)
|
|
(130,453
|
)
|
|
Net deferred tax assets
|
|
$
|
31,095
|
|
|
$
|
46,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
(In Thousands)
|
|
Depreciation and amortization for tax in excess of book expense
|
|
$
|
31,999
|
|
|
$
|
48,618
|
|
|
All other
|
|
2,325
|
|
|
2,064
|
|
|
Total deferred tax liability
|
|
34,324
|
|
|
50,682
|
|
|
Net deferred tax liability
|
|
$
|
3,229
|
|
|
$
|
4,395
|
|
We believe that it is more likely than not we will not realize all the tax benefits of the deferred tax assets within the allowable carryforward period. Therefore, an appropriate valuation allowance has been provided. The valuation allowance as of December 31,
2018
and
2017
primarily relates to
federal deferred tax assets. The increase (decrease) in the valuation allowance during the years ended
December 31, 2018
,
2017
, and
2016
, were
$(1.4) million
,
$(54.8) million
, and
$58.6 million
, respectively.
At
December 31, 2018
, we had federal, state, and foreign net operating loss carryforwards/carrybacks equal to approximately
$75.3 million
,
$11.1 million
, and
$14.5 million
, respectively. In those countries and states in which net operating losses are subject to an expiration period, our loss carryforwards, if not utilized, will expire at various dates from
2019
through 2037. At
December 31, 2018
, we had
$2.9 million
of foreign tax credits available to offset future payment of federal income taxes. The foreign tax credits expire in varying amounts from
2020 through 2027. We have amended our 2012 - 2015 U.S. federal income tax returns to take a foreign tax deduction instead of a credit. This resulted in a decrease in our foreign tax credit carryforward of $16.2 million. The net impact to our deferred tax assets was a decrease of $12.8 million, offset by a corresponding increase in our valuation allowance. As such, the amended income tax returns resulted in no net tax expense. Utilization of the net operating loss and credit carryforwards may be subject to a significant annual limitation due to ownership changes that have occurred previously or could occur in the future provided by Section 382 of the Internal Revenue Code.
NOTE I
— ACCRUED LIABILITIES
Accrued liabilities are detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
(In Thousands)
|
|
Compensation and employee benefits
|
|
$
|
25,286
|
|
|
$
|
20,621
|
|
|
Accrued interest
|
|
15,158
|
|
|
9,272
|
|
|
Accrued capital expenditures
|
|
1,561
|
|
|
1,617
|
|
|
Accrued taxes
|
|
15,756
|
|
|
11,763
|
|
|
Contingent consideration, current portion
|
|
11,452
|
|
|
—
|
|
|
Other accrued liabilities
|
|
20,019
|
|
|
15,205
|
|
|
Total accrued liabilities
|
|
$
|
89,232
|
|
|
$
|
58,478
|
|
NOTE J
— LONG-TERM DEBT AND OTHER BORROWINGS
We believe our capital structure, excluding CCLP, ("TETRA") 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, net of associated deferred financing costs, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
|
|
|
(In Thousands)
|
|
TETRA
|
|
Scheduled Maturity
|
|
|
|
|
Asset-based credit agreement
|
|
September 10, 2023
|
$
|
—
|
|
|
$
|
—
|
|
|
Term credit agreement (presented net of the unamortized discount of $7.2 million and net of unamortized deferred financing costs of $10.2 million as of December 31, 2018)
|
|
September 10, 2025
|
182,547
|
|
|
—
|
|
|
Bank revolving line of credit facility, terminated September 10, 2018
|
|
|
—
|
|
|
—
|
|
|
11.0% Senior Note, Series 2015 (presented net of the unamortized discount of $3.9 million and net of unamortized deferred financing costs of $3.4 million as of December 31, 2017), terminated September 10, 2018
|
|
|
—
|
|
|
117,679
|
|
|
TETRA total debt
|
|
|
182,547
|
|
|
117,679
|
|
|
Less current portion
|
|
|
—
|
|
|
—
|
|
|
TETRA total long-term debt
|
|
|
$
|
182,547
|
|
|
$
|
117,679
|
|
|
|
|
|
|
|
|
|
CCLP
|
|
|
|
|
|
|
CCLP Prior Credit Facility (presented net of the unamortized deferred financing costs of $4.0 million as of December 31, 2017), terminated March 22, 2018
|
|
|
—
|
|
|
223,985
|
|
|
CCLP Credit Agreement
|
|
June 29, 2023
|
—
|
|
|
—
|
|
|
CCLP 7.25% Senior Notes (presented net of the unamortized discount of $2.2 million as of December 31, 2018 and $2.8 million as of December 31, 2017 and net of unamortized deferred financing costs of $3.9 million as of December 31, 2018 and $5.0 million as of December 31, 2017)
|
|
August 15, 2022
|
289,797
|
|
|
288,191
|
|
|
CCLP 7.50% Senior Secured Notes (presented net of unamortized deferred financing costs of $6.8 million as of December 31, 2018)
|
|
April 1, 2025
|
343,216
|
|
|
—
|
|
|
CCLP total debt
|
|
|
633,013
|
|
|
512,176
|
|
|
Less current portion
|
|
|
—
|
|
|
—
|
|
|
CCLP total long-term debt
|
|
|
633,013
|
|
|
512,176
|
|
|
Consolidated total long-term debt
|
|
|
$
|
815,560
|
|
|
$
|
629,855
|
|
Scheduled maturities for the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
(In Thousands)
|
|
|
|
TETRA
|
|
CCLP
|
|
Consolidated
|
|
2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2021
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2022
|
|
—
|
|
|
295,930
|
|
|
295,930
|
|
|
2023
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Thereafter
|
|
200,000
|
|
|
350,000
|
|
|
550,000
|
|
|
Total maturities
|
|
$
|
200,000
|
|
|
$
|
645,930
|
|
|
$
|
845,930
|
|
As of
December 31, 2018
, TETRA had
no
outstanding balance and
had
$6.1 million
in letters of credit against its ABL Credit Agreement (as defined below). As of
December 31, 2018
, subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings, TETRA had an availability of
$47.6 million
under this agreement. Because there was
no
outstanding balance on this ABL Credit Agreement, associated deferred financing costs of
$1.6 million
as of
December 31, 2018
, were classified as other long-term assets on the accompanying consolidated balance sheet. Because there was
no
balance outstanding under the CCLP Credit Agreement (as defined below) as of
December 31, 2018
, associated deferred financing costs of
$1.1 million
as of
December 31, 2018
, were classified as other long-term assets on the accompanying consolidated balance sheet. As of
December 31, 2018
, and subject to compliance with the covenants, borrowing base, and other provisions of the agreements that may limit borrowings under the CCLP Credit Agreement, CCLP had availability of
$27.1 million
.
As described below, TETRA and CCLP are both in compliance with all covenants of their respective credit and senior note agreements as of
December 31, 2018
.
TETRA Long-Term Debt
Asset-Based Credit Agreement
.
On September 10, 2018, TETRA, as borrower, and certain of its subsidiaries, entered into an asset-based lending credit agreement (the “ABL Credit Agreement”) with a syndicate of lenders, including JPMorgan Chase Bank, N.A., as administrative agent (collectively, the "ABL Lenders"). The ABL Credit Agreement provides for a senior secured revolving credit facility of up to
$100 million
, subject to a borrowing base to be determined by reference to the value of inventory and accounts receivable, and includes a sublimit of
$20.0 million
for letters of credit and a swingline loan sublimit of
$10.0 million
.
Borrowings under the ABL Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) London Interbank Offering Rate (“LIBOR”) plus a margin based upon a fixed charge coverage ratio or (ii) a base rate plus a margin based on a fixed charge coverage ratio. The base rate is determined by reference to the highest of (a) the prime rate of interest as announced from time to time by JPMorgan Chase Bank, N.A. (b) the Federal Funds Effective Rate (as defined in the ABL Credit Agreement) plus
0.5%
per annum and (c) LIBOR (adjusted to reflect any required bank reserves) for a one-month period on such day plus
1.0%
per annum. Borrowings outstanding have an applicable margin ranging from
1.75%
to
2.25%
per annum for LIBOR-based loans and
0.75%
to
1.25%
per annum for base-rate loans, based upon the applicable fixed charge coverage ratio. In addition to paying interest on the outstanding principal under the ABL Credit Agreement, TETRA is required to pay a commitment fee in respect of the unutilized commitments at an applicable rate ranging from
0.375%
to
0.5%
per annum, paid monthly in arrears based on utilization of the commitments under the ABL Credit Agreement. TETRA is also required to pay a customary letter of credit fee equal to the applicable margin on LIBOR-based loans and fronting fees.
The revolving loans under the ABL Credit Agreement may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to applicable breakage fees. The maturity date of the ABL Credit Agreement is September 10, 2023.
The ABL Credit Agreement contains certain affirmative and negative covenants, including covenants that restrict the ability of TETRA and certain of its subsidiaries to take certain actions including, among other things and
subject to certain significant exceptions, incurring debt, granting liens, engaging in mergers and other fundamental changes, making investments, entering into or amending transactions with affiliates, paying dividends and making other restricted payments, prepaying other indebtedness, and selling assets. The ABL Credit Agreement also contains a provision that may require a fixed charge coverage ratio (as defined in the ABL Credit Agreement) of not less than
1.00
to 1.00 in the event that certain conditions associated with outstanding borrowings and cash availability occur. As of
December 31, 2018
, such conditions have not occurred. All obligations under the ABL Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a security interest for the benefit of the ABL Lenders on substantially all of the personal property of TETRA and certain subsidiaries of TETRA, the equity interests in certain domestic subsidiaries, including CCLP, and a maximum of
65%
of the equity interests in certain foreign subsidiaries.
The ABL Credit Agreement includes customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross-default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of security interests or invalidity of loan documents, certain ERISA events, unsatisfied or unstayed judgments, and any change of control.
Proceeds of loans under the ABL Credit Agreement were used to pay certain debt of TETRA existing on the effective date of the ABL Credit Agreement and may be used for working capital needs, capital expenditures, and other general corporate purposes. The ABL Credit Agreement replaced TETRA's previous Bank Credit Agreement, as defined and discussed in further detail below. In connection with the execution of the ABL Credit Agreement,
$1.3 million
of financing costs were incurred, and deferred against the carrying value of the amount outstanding, if any.
Term Credit Agreement
On September 10, 2018, TETRA, as borrower, entered into a credit agreement (the “Term Credit Agreement”) with a syndicate of lenders (collectively, the “Term Lenders”) and Wilmington Trust, National Association, as administrative agent. The Term Credit Agreement provides an initial loan in the amount of
$200 million
(the “Initial Term Loan”) and the availability of additional loans, subject to the terms of the Term Credit Agreement, up to an aggregate amount of
$75 million
for certain acquisitions (the “Additional Term Loans,” and together with the Initial Term Loan, the “Term Loan”).
Borrowings under the Term Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) LIBOR plus a margin of
6.25%
per annum or (ii) a base rate plus a margin of
5.25%
per annum. In addition to paying interest on the outstanding principal under the Term Credit Agreement, TETRA is required to pay a commitment fee in respect of the unutilized commitments at the rate of
1.0%
per annum, paid quarterly in arrears based on utilization of the commitments under the Term Credit Agreement.
The Term Credit Agreement contains certain affirmative and negative covenants, including covenants that restrict the ability of TETRA and certain of its subsidiaries to take certain actions including, among other things and subject to certain significant exceptions, incurring debt, granting liens, engaging in mergers and other fundamental changes, making investments, entering into or amending transactions with affiliates, paying dividends and making other restricted payments, prepaying other indebtedness, and selling assets. The Term Credit Agreement also contains a requirement that the borrowers comply at the end of each fiscal quarter with a minimum Interest Coverage Ratio (as defined in the Term Credit Agreement) of
1.00
to 1.00. As of
December 31, 2018
, TETRA is in compliance with the Interest Coverage Ratio requirement.
All obligations under the Term Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a security interest for the benefit of the Term Lenders on substantially all of the personal property of TETRA and certain of its subsidiaries, the equity interests in certain domestic subsidiaries, including CCLP, and a maximum of
65%
of the equity interests in certain foreign subsidiaries.
The Term Credit Agreement includes customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross-default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of security interests or invalidity of loan documents, certain ERISA events, unsatisfied or unstayed judgments and any change of control.
Proceeds from the Initial Term Loan, net of a
2%
discount in the amount of
$4.0 million
, were used to prepay the outstanding indebtedness under the
$125.0 million
11%
Senior Secured Notes due November 5, 2022
(the “
11%
Senior Notes”) and indebtedness of TETRA under its then existing bank credit agreement. Proceeds of any Additional Term Loans may be used for acquisitions, subject to the terms of the Term Credit Agreement. The loans under the Term Credit Agreement may be voluntarily prepaid, in whole or in part, subject to applicable breakage fees. Any prepayment prior to the one-year anniversary is subject to a “make-whole” payment as set forth in the Term Credit Agreement. Thereafter, any prepayment during the period commencing after the one-year anniversary and ending on the two-year anniversary will have a premium of
3.0%
and during the period commencing after the two-year anniversary and ending on the three-year anniversary, a premium of
1.0%
. The maturity date of the Term Credit Agreement is September 10, 2025. There is no prepayment premium required after the third anniversary. In connection with the issuance of the Term Credit Agreement, TETRA incurred
$1.0 million
of financing costs,
$0.4 million
of which was charged to other (income) expense, net during the three months ended September 30, 2018 and
$0.6 million
of lender fees were deferred against the carrying value of the amount outstanding. These deferred financing costs, along with the
2%
discount, are amortized over the term of the Term Credit Agreement.
Bank Credit Agreement
On September 10, 2018, in connection with the closing of the above-described loans, TETRA repaid all outstanding borrowings and obligations under its then existing bank credit agreement dated as of January 27, 2006, as previously amended with a portion of the net proceeds from the above-described loans, and terminated the then existing bank credit agreement. As a result of the termination of the then existing bank credit agreement, during the three month period ended September 30, 2018, associated unamortized deferred financing costs of
$0.5 million
were charged to other (income) expense, net, and
$0.4 million
were deferred and will be amortized over the term of the ABL Credit Agreement. Certain ABL Lenders were lenders under the existing bank credit agreement and, accordingly, received a portion of the proceeds from the above-described loans in connection with the repayment of the outstanding borrowings under the bank credit agreement.
11% Senior Note
On September 10, 2018, in connection with the closing of the above-described loans, TETRA repaid all outstanding indebtedness under the
11%
Senior Note with a portion of the proceeds from the above-described loans, terminated its obligations under the
11%
Senior Note and related note purchase agreement. Affiliates of certain Term Lenders were holders of the
11%
Senior Note and, accordingly, received a portion of the proceeds from the Term Credit Agreement in connection with the repayment of the outstanding indebtedness under the
11%
Senior Note. In connection with the early termination of the
11%
Senior Note, TETRA paid a
$7.0 million
"make-whole" prepayment fee in accordance with the terms of the
11%
Senior Note. This prepayment fee, along with
$3.4 million
of unamortized discount and
$2.9 million
of unamortized deferred financing costs associated with the
11%
Senior Note, has been deferred and is being amortized over the term of the new Term Credit Agreement.
CCLP Long-Term Debt
CCLP Bank Credit Facility.
On March 22, 2018, in connection with the closing of the CCLP Offering (as defined below), CCLP repaid all outstanding borrowings and obligations under its then existing CCLP Prior Credit Facility with a portion of the net proceeds from the CCLP Offering, and terminated the CCLP Prior Credit Facility. As a result of the termination of the CCLP Prior Credit Facility, 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.
On June 29, 2018, CCLP and two of its wholly owned subsidiaries (collectively the "CCLP Borrowers"), and certain of its wholly owned subsidiaries named therein as guarantors (the "CCLP Credit Agreement Guarantors"), entered into a Loan and Security Agreement (the "CCLP Credit Agreement") with the lenders thereto (the "Lenders"), and Bank of America, N.A., in its capacity as administrative agent, collateral agent, letter of credit issuer, and swing line lender. All of the CCLP Borrowers' obligations under the CCLP Credit Agreement are guaranteed by certain of their existing and future domestic subsidiaries. The CCLP Credit Agreement includes a maximum credit commitment of
$50.0 million
which is available for loans, letters of credit with a sublimit of
$25.0 million
and swingline loans with a sublimit of
$5.0 million
, subject to a borrowing base to be determined by reference to the value of CCLP’s and any other borrowers’ accounts receivable. Such maximum credit commitment may be increased by
$25.0 million
in accordance with the terms and conditions of the CCLP Credit Agreement.
The CCLP Borrowers may borrow funds under the CCLP Credit Agreement to pay fees and expenses related to the CCLP Credit Agreement and for the Borrower's ongoing working capital needs and for general business purposes. The revolving loans under the CCLP Credit Agreement may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to breakage or similar costs. The maturity date of the CCLP Credit Agreement is June 29, 2023. As of
December 31, 2018
,
no
balance was outstanding under the CCLP Credit Agreement.
Borrowings under the CCLP Credit Agreement will bear interest at a rate per annum equal to, at the option of the CCLP Borrowers, either (i) the London Interbank Offered Rate (“LIBOR”) plus a margin based on average daily excess availability or (ii) a base rate plus a margin based on average daily excess availability LIBOR-based loans will have an applicable margin of
2.00%
per annum and base-rate loans will have an applicable margin of
1.00%
per annum; thereafter, the applicable margin will range between
1.75%
and
2.25%
per annum for LIBOR-based loans and
0.75%
and
1.25%
per annum for base-rate loans, according to average daily excess availability when financial statements are delivered. In addition to paying interest on outstanding principal under the CCLP Credit Agreement, the CCLP Borrowers are required to pay a commitment fee in respect of the unutilized commitments thereunder, initially at the rate of
0.375%
per annum until the delivery of the financial statements for the fiscal quarter ending
December 31, 2018
and thereafter at the applicable rate ranging from
0.250%
to
0.375%
per annum, paid quarterly in arrears based on utilization of the commitments under the CCLP Credit Agreement. The CCLP Borrowers are also required to pay a customary letter of credit fee equal to the applicable margin on revolving credit LIBOR loans and fronting fees.
The CCLP Credit Agreement contains certain affirmative and negative covenants, including covenants that restrict the ability of the CCLP Borrowers, the CCLP Credit Agreement Guarantors and certain of their subsidiaries to take certain actions including, among other things and subject to certain significant exceptions, incurring debt, granting liens, making investments, entering into or amending transactions with affiliates, paying dividends and selling assets. The CCLP Credit Agreement also contains a provision that requires compliance with a fixed charge coverage ratio (as defined in the CCLP Credit Agreement) of not less than
1.0
to
1.0
in the event that certain conditions associated with outstanding borrowings and cash availability occur. As of
December 31, 2018
, such conditions have not occurred.
All obligations under the CCLP Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a first priority security interest for the benefit of the Lenders in the CCLP Borrowers’ and the CCLP Credit Agreement Guarantors’ present and future accounts receivable, inventory and related assets and proceeds of the foregoing.
CCLP Senior Notes
The obligations under the CCLP
7.25%
Senior Notes (the "CCLP Senior Notes") are jointly and severally and fully and unconditionally, guaranteed on a senior unsecured basis by each of CCLP’s domestic restricted subsidiaries (other than CSI Compressco Finance) that guarantee CCLP’s other indebtedness (the "Guarantors" and together with the Issuers, the "Obligors"). The CCLP Senior Notes and the subsidiary guarantees thereof (together, the "CCLP Senior Note Securities") were issued pursuant to an indenture described below. As of
December 31, 2018
,
$295.9 million
in aggregate principal amount of the
7.25%
Senior Notes are outstanding.
The Obligors issued the CCLP Senior Note Securities pursuant to the Indenture dated as of August 4, 2014 (the "CCLP Senior Notes Indenture") by and among the Obligors and U.S. Bank National Association, as trustee (the "Trustee"). The CCLP Senior Notes accrue interest at a rate of
7.25%
per annum. Interest on the CCLP Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year. The CCLP Senior Notes are scheduled to mature on August 15, 2022.
The CCLP Senior Notes Indenture contains customary covenants restricting CCLP’s ability and the ability of its restricted subsidiaries to: (i) pay dividends and make certain distributions, investments and other restricted payments; (ii) incur additional indebtedness or issue certain preferred shares; (iii) create certain liens; (iv) sell assets; (v) merge, consolidate, sell or otherwise dispose of all or substantially all of its assets; (vi) enter into transactions with affiliates; and (vii) designate its subsidiaries as unrestricted subsidiaries under the CCLP Senior Notes Indenture. The CCLP Senior Notes 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 CCLP Senior
Notes Indenture, the Trustee or the holders of at least
25%
in aggregate principal amount of the CCLP Senior Notes then outstanding may declare all amounts owing under the CCLP Senior Notes to be due and payable. CCLP is in compliance with all covenants of the CCLP Senior Note Purchase Agreement as of
December 31, 2018
.
During September 2016 and October 2016, we repurchased on the open market and retired
$54.1 million
aggregate principal amount of 7.25% Senior Notes for a purchase price of
$50.9 million
, at an average repurchase price of
94%
of the principal amount of the 7.25% Senior Notes, plus accrued interest, utilizing a portion of the net proceeds of the sale of the CCLP Preferred Units. Following the repurchase of these 7.25% Senior Notes,
$295.9 million
aggregate principal amount of 7.25% Senior Notes remain outstanding. In connection with the repurchase of these 7.25% Senior Notes,
$1.4 million
of early extinguishment net gain was credited to other (income) expense, net during the year ended December 31, 2016, representing the difference between the repurchase price and the
$54.1 million
aggregate principal amount of the 7.25% Senior Notes repurchased, and
$1.8 million
of remaining unamortized deferred finance costs and discounts associated with the repurchased 7.25% Senior Notes.
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 CCLP Offering on March 22, 2018. The CCLP Senior Secured Notes were issued at par for net proceeds of approximately
$342.5 million
, after deducting certain financing costs. CCLP used a portion of the net proceeds to repay in full and terminate its existing CCLP Prior Credit Facility and plans to use the remainder for general partnership purposes, including the expansion of its compression fleet. The obligations under the CCLP Senior Secured Notes are jointly and severally, and fully and unconditionally guaranteed on a senior secured basis by each of CCLP's domestic restricted subsidiaries (other than CSI Compressco Finance) that guarantee its indebtedness (the "CCLP Senior Secured Notes Guarantors" and together with CCLP and CSI Compressco Finance Inc, the "CCLP Senior Secured Notes Obligors"). The CCLP Senior Secured Notes and the subsidiary guarantees thereof (together, the "CCLP Senior Secured Notes Securities") were issued pursuant to an indenture described below. The CCLP Senior Secured Notes Securities are secured by a first-priority security interest in substantially all of CCLP Senior Secured Notes Obligors' assets (other than certain excluded assets) (the "Collateral") as collateral security for their obligations under the CCLP Senior Secured Notes Securities, subject to certain permitted encumbrances and exceptions. On the closing date, CCLP entered into an indenture (the "CCLP Senior Secured Notes 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 year ended
December 31, 2018
, CCLP incurred total financing costs of
$7.6 million
related to the
CCLP Senior Secured Notes. These costs are deferred, netting against the carrying value of the amount outstanding.
The CCLP Senior Secured Notes Indenture contains customary covenants restricting CCLP's ability and the ability of its restricted subsidiaries to: (i) pay distributions on, purchase, or redeem CCLP common units or purchase or redeem any 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 CCLP's assets; (vi) enter into transactions with affiliates; and (vii) enter into agreements that restrict distributions or other payments from CCLP's 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 its 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 CCLP Senior Secured Notes indenture, many of the restrictive covenants in the CCLP Senior Secured Notes Indenture will be terminated. The CCLP Senior Secured Notes Indenture also contains customary events of default and acceleration provisions relating to events of default, which provide that upon an event of default under the CCLP Senior Secured Notes 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. CCLP is in compliance with all covenants of the CCLP Senior Secured Notes Indenture as of
December 31, 2018
.
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, at any time and 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 CCLP Senior Secured Notes 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 CCLP Senior Secured Notes 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.
NOTE K
— CCLP SERIES A CONVERTIBLE PREFERRED UNITS
During 2016, CCLP issued an aggregate of
6,999,126
of 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.
Unless otherwise redeemed for cash, a ratable portion of the CCLP Preferred Units has been, and will 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, at CCLP's election, cash or 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
December 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
15.6 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 and the CCLP Credit Agreement. On December 20, 2018, CCLP announced that, given the decline in its common unit price, CCLP was reducing its common unit distributions for a period of up to four quarters, beginning with the February 2019 distribution. Beginning with the January 2019 conversion date, CCLP intends to use the approximately $34 million of savings from the reduced distribution to redeem the remaining CCLP Preferred Units for cash and avoid the dilution to CCLP's common unitholders that would occur if the remaining CCLP Preferred Units were converted into CCLP common units. The total number of CCLP Preferred Units outstanding as of
December 31, 2018
was
2,732,981
, of which we held
343,232
.
Because the CCLP Preferred Units may be settled using a variable number of CCLP common units, the total fair value of the CCLP Preferred Units of
$30.9 million
, net of the fair value of the units we purchased of
$3.9 million
, is classified as long-term liabilities on our consolidated balance sheet in accordance with ASC 480 "Distinguishing Liabilities and Equity." The net fair value of the CCLP Preferred Units as of
December 31, 2018
was
$27.0 million
. Changes in the fair value during each period, resulted in
$0.7 million
net
decrease
,
$3.0 million
net
decrease
, and
$4.4 million
net
increase
in fair value during
2018
,
2017
, and
2016
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
December 31, 2018
, the theoretical number of CCLP common units that would be issued if all of the outstanding CCLP Preferred Units were converted into CCLP common units on
December 31, 2018
on the same basis as the monthly conversions would be approximately
13.9 million
CCLP common units, with an aggregate market value of
$32.2 million
. A $1 decrease in the Conversion Price would result in the issuance of
1.7 million
additional CCLP common units pursuant to these conversion provisions.
NOTE L
— 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. We are required to take certain actions in connection with the retirement of these assets. The values of our asset retirement obligations for these properties were
$12.2 million
and
$11.7 million
as of
December 31, 2018
and
2017
, respectively. Asset retirement obligations are recorded in accordance with 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 most recent two year period are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
(In Thousands)
|
|
Beginning balance for the period, as reported
|
|
$
|
11,738
|
|
|
$
|
9,912
|
|
|
Activity in the period:
|
|
|
|
|
|
|
|
Accretion of liability
|
|
563
|
|
|
624
|
|
|
Retirement obligations incurred
|
|
59
|
|
|
265
|
|
|
Revisions in estimated cash flows
|
|
(123
|
)
|
|
1,349
|
|
|
Settlement of retirement obligations
|
|
(35
|
)
|
|
(412
|
)
|
|
Ending balance
|
|
$
|
12,202
|
|
|
$
|
11,738
|
|
We review the adequacy of our asset retirement obligation liabilities whenever indicators suggest that the estimated cash flows underlying the liabilities have changed.
NOTE M
— 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 during the first quarter of 2017.
Environmental
One of our subsidiaries, TETRA Micronutrients, Inc. (TMI), previously owned and operated a production facility located in Fairbury, Nebraska. TMI is subject to an Administrative Order on Consent issued to American Microtrace, Inc. (n/k/a/ TETRA Micronutrients, Inc.) in the proceeding styled
In the Matter of American Microtrace Corporation
, EPA I.D. No. NED00610550, Respondent, Docket No. VII-98-H-0016, dated September 25, 1998 (the "Consent Order"), with regard to the Fairbury facility. TMI is liable for ongoing environmental monitoring at the Fairbury facility under the Consent Order; however, the current owner of the Fairbury facility is responsible for costs associated with the closure of that facility. While the outcome cannot be predicted with certainty, management does not consider it reasonably possible that a loss in excess of any amounts accrued has been incurred or is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.
Product Purchase Obligations
In the normal course of our Completion Fluids & Products Division operations, we enter into supply agreements with certain manufacturers of various raw materials and finished products. Some of these agreements have terms and conditions that specify a minimum or maximum level of purchases over the term of the agreement. Other agreements require us to purchase the entire output of the raw material or finished product produced by the manufacturer. Our purchase obligations under these agreements apply only with regard to raw materials and finished products that meet specifications set forth in the agreements. We recognize a liability for the purchase of
such products at the time we receive them. As of
December 31, 2018
, the aggregate amount of the fixed and determinable portion of the purchase obligation pursuant to our Completion Fluids & Products Division’s supply agreements was
approximately
$104.0 million
, including
$9.5 million
during
2019
,
$9.5 million
during
2020
,
$9.5 million
during
2021
,
$9.5 million
during
2022
,
$9.5 million
during
2023
, and
$56.5 million
thereafter, extending through 2029. Amounts purchased under these agreements for each of the years ended
December 31, 2018
,
2017
,
and
2016
,
was
$18.0 million
,
$16.1 million
, and
$13.3 million
, respectively.
Contingencies of Discontinued Operations
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. To the extent that a buyer of these properties fails to perform the abandonment and decommissioning work required, a previous owner, including Maritech, may be required to perform the abandonment and decommissioning obligation. As the former parent company of Maritech, we also may be responsible for performing these abandonment and decommissioning obligations. 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 discussed in
Note E
- "Acquisitions and Dispositions," pursuant to the Bonding Agreement, Orinoco is required to replace, within 90 days following the closing, the initial bonds delivered at closing with non-revocable performance bonds, meeting certain requirements, in the aggregate sum of
$47.0 million
. Orinoco has not delivered such replacement bonds and we are seeking to enforce the terms of the Bonding Agreement. The non-revocable performance bonds delivered at the closing remain in effect. As a result of these transactions, we have effectively exited the businesses of our Offshore Services and Maritech segments and Orinoco assumed all of Maritech's remaining abandonment and decommissioning obligations.
NOTE N
— CAPITAL STOCK AND WARRANTS
Our Restated Certificate of Incorporation, as amended during 2017, authorizes us to issue
250,000,000
shares of common stock, par value
$.01
per share, and
5,000,000
shares of preferred stock, par value
$.01
per share. As of
December 31, 2018
, we had
125,737,565
shares of common stock outstanding, with
2,717,569
shares held in treasury, and no shares of preferred stock outstanding. The voting, dividend, and liquidation rights of the holders of common stock are subject to the rights of the holders of preferred stock. The holders of common stock are entitled to one vote for each share held. There is no cumulative voting. Dividends may be declared and paid on common stock as determined by our Board of Directors, subject to any preferential dividend rights of any then outstanding preferred stock.
Issuances of Common Stock.
On February 28, 2018, we issued
7,772,021
shares of our common stock as part of the consideration paid for the acquisition of SwiftWater. For further discussion of the SwiftWater acquisition, see
Note E
- "Acquisitions and Dispositions."
On June 21, 2016, we completed an underwritten public offering of
11.5 million
shares of our common stock, which included
1.5 million
shares of common stock pursuant to an option granted to the underwriters to purchase additional shares, at a price to the public of
$5.50
per share (
$5.2525
per share net of underwriting discounts). We utilized the net offering proceeds of
$60.2 million
to repay the remaining balance outstanding of certain senior secured notes, to reduce the balance outstanding under our previous bank credit agreement, to pay offering related discounts and expenses, and for general corporate purposes. The offering was made pursuant to a shelf registration statement filed with the SEC on March 23, 2016.
On December 14, 2016, we completed a firm commitment underwritten offering of
22.3 million
shares of our common stock at a price to the public of
$5.15
per share (
$4.9183
per share net of underwriting discounts) and the Warrants to purchase
11.2 million
shares of our common stock at an exercise price of
$5.75
per share prior to the 60-month expiration date of the Warrants. The
22.3 million
shares of our common stock issued and the Warrants to purchase
11.2 million
shares of our common stock includes
2.9 million
shares of our common stock and Warrants to acquire an additional
1.5 million
shares of our common stock related to the exercise of an option granted to the underwriters. We utilized the net offering proceeds of
$109.7 million
to repay outstanding indebtedness and other offering expenses. As of
December 31, 2018
, all of the Warrants remain outstanding.
The Warrants were issued pursuant to a Warrant Agreement, dated December 14, 2016, and are exercisable immediately upon issuance and from time to time thereafter through and including the fifth year anniversary of the
initial issuance date. At the request of a holder following a change of control, we or the successor entity will exchange such Warrant for consideration in accordance with a Black Scholes option pricing model in the form of, at our election, Rights (as defined in the Warrant Agreement) or cash. Similarly, within a period of time prior to the consummation of a change of control, we have the right to redeem all of the Warrants for cash in an amount determined in accordance with a Black-Scholes option pricing model.
The Warrants are accounted for as a derivative liability in accordance with ASC 815 "Derivatives and Hedging" and accordingly are carried at their fair value, with changes in fair value included in earnings in the period of change. As of
December 31, 2018
and
2017
, the fair value of the Warrants was
$2.1 million
and
$13.2 million
, respectively. Changes in fair value during the year included a
$11.1 million
change in fair value
credited
to earnings during
2018
, a
$5.3 million
change in fair value
credited
to earnings during
2017
, and a
$2.1 million
change in fair value
charged
to earnings during
2016
. In connection with the Warrants, approximately
$0.9 million
of the
$6.5 million
total issuance costs, including underwriting discounts, associated with the December 2016 offering was charged to earnings.
A summary of the activity of our common shares outstanding and treasury shares held for the three year period ending
December 31, 2018
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares Outstanding
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
At beginning of period
|
|
115,877,704
|
|
|
114,985,072
|
|
|
80,256,544
|
|
|
Exercise of common stock options, net
|
|
65,524
|
|
|
—
|
|
|
636,937
|
|
|
Grants of restricted stock, net
|
|
2,022,316
|
|
|
892,632
|
|
|
281,591
|
|
|
Issuance of common stock
|
|
7,772,021
|
|
|
—
|
|
|
33,810,000
|
|
|
At end of period
|
|
125,737,565
|
|
|
115,877,704
|
|
|
114,985,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Shares Held
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
At beginning of period
|
|
2,638,093
|
|
|
2,536,421
|
|
|
2,281,495
|
|
|
Shares received upon exercise of common stock options
|
|
—
|
|
|
—
|
|
|
13,854
|
|
|
Shares received upon vesting of restricted stock, net
|
|
79,476
|
|
|
101,672
|
|
|
241,072
|
|
|
At end of period
|
|
2,717,569
|
|
|
2,638,093
|
|
|
2,536,421
|
|
Our Board of Directors is empowered, without approval of the stockholders, to cause shares of preferred stock to be issued in one or more series and to establish the number of shares to be included in each such series and the rights, powers, preferences, and limitations of each series. Because the Board of Directors has the power to establish the preferences and rights of each series, it may afford the holders of any series of preferred stock preferences, powers and rights, voting or otherwise, senior to the rights of holders of common stock. The issuance of the preferred stock could have the effect of delaying or preventing a change in control of the Company.
Upon our dissolution or liquidation, whether voluntary or involuntary, holders of our common stock will be entitled to receive all of our assets available for distribution to our stockholders, subject to any preferential rights of any then outstanding preferred stock.
In January 2004, our Board of Directors authorized the repurchase of up to
$20.0 million
of our common stock. During the three years ending
December 31, 2018
, we
made no purchases of our common
stock pursuant to this authorization.
NOTE O
— EQUITY-BASED COMPENSATION
We have various equity incentive compensation plans that provide for the granting of restricted common stock, options for the purchase of our common stock, and other performance-based, equity-based compensation awards to our executive officers, key employees, nonexecutive officers, and directors. Stock options are exercisable for periods
of
up to ten years. Compensation cost for all share-based payments is based on the grant date fair value and is recognized in earnings over the requisite service period. Total equity-based compensation expense, before tax, for the three years ended
December 31, 2018
,
2017
, and
2016
, was
$7.4 million
,
$7.8 million
, and
$13.7 million
, respectively, and is included in general and administrative expense. Total equity-based compensation expense, net of taxes,
for the three years ended
December 31, 2018
,
2017
, and
2016
,
was
$5.8 million
,
$5.0 million
, and
$9.5 million
, respectively.
Stock Incentive Plans
In May 2007, our stockholders approved the adoption of the TETRA Technologies, Inc. 2007 Equity Incentive Compensation Plan. In May 2008, our stockholders approved the adoption of the TETRA Technologies, Inc. Amended and Restated 2007 Equity Incentive Compensation Plan, which among other changes, resulted in an increase in the maximum number of shares authorized for issuance. In May 2010, our stockholders approved further amendments to the TETRA Technologies, Inc. Amended and Restated 2007 Equity Incentive Compensation Plan (renamed as the 2007 Long Term Incentive Compensation Plan) which, among other changes, resulted in an additional increase in the maximum number of shares authorized for issuance. Pursuant to the 2007 Long Term Incentive Compensation Plan, we are authorized to grant up to
5,590,000
shares in the form of stock options (including incentive stock options and nonqualified stock options); restricted stock; bonus stock; stock appreciation rights; and performance awards to employees, and non-employee directors. As of February 2017, no further awards may be granted under the TETRA Technologies, Inc. Amended and Restated 2007 Equity Incentive Compensation Plan.
In May 2011, our stockholders approved the adoption of the TETRA Technologies, Inc. 2011 Long Term Incentive Compensation Plan. Pursuant to this plan, we were authorized to grant up to
2,200,000
shares in the form of stock options, restricted stock, bonus stock, stock appreciation rights, and performance awards to employees, and non-employee directors. On May 3, 2013, shareholders approved the TETRA Technologies, Inc. 2011 Long Term Incentive Compensation Plan that, among other things, increased the number of authorized shares to
5,600,000
. On May 3, 2016, shareholders approved the TETRA Technologies, Inc. Third Amended and Restated 2011 Long Term Incentive Compensation Plan which, among other things, increased the number of authorized shares to
11,000,000
. As of May 2018, no further awards may be granted under the TETRA Technologies, Inc. Third Amended and Restated 2011 Long Term Incentive Compensation Plan.
In June 2011, the Compressco Partners, L.P. 2011 Long Term Incentive Plan ("CCLP Long Term Incentive Plan") was adopted by the board of directors of CCLP’s general partner. The CCLP Long Term Incentive Plan provides for grants of restricted units, phantom units, unit awards and other unit-based awards up to a plan maximum of
1,537,122
common units. On November 28, 2018, unitholders approved the CSI Compressco LP Second Amended and Restated 2011 Long Term Incentive Plan that, among other things, increased the number of authorized units to 5,037,122.
In February 2018, the board of directors adopted the 2018 Inducement Restricted Stock Plan (“2018 Inducement Plan”). The 2018 Inducement Plan provides for grants of restricted stock up to a plan maximum of 1,000,000 shares.
In May 2018, our stockholders approved the adoption of the TETRA Technologies, Inc. 2018 Equity Incentive Plan (“2018 Equity Plan”). Pursuant to this plan, we were authorized to grant up to 6,635,000 shares in the form of stock options, restricted stock, restricted stock units, bonus stock, stock appreciation rights, performance units, performance awards, other stock-based awards and cash-based awards to employees and non-employee directors.
In May 2018, our stockholders approved the adoption of the TETRA Technologies, Inc. 2018 Non-Employee Director Equity Incentive Plan (“2018 Director Plan”). Pursuant to this plan, we were authorized to grant up to 335,000 shares in the form of nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock‑based awards and cash-based awards to non-employee directors.
Grants of Equity Awards by CCLP
During each of the three years ended
December 31, 2018
, CCLP granted restricted unit, phantom unit, or performance phantom unit awards to certain employees, officers, and directors of its general partner or of our employees. Awards of restricted units and phantom units generally vest over a three year period. Awards of performance phantom units cliff vest at the end of a performance period and are settled based on achievement of related performance measures over the performance period. Phantom units are notional units that entitle the grantee to receive a common unit upon the vesting of the award. Each of the phantom unit and performance phantom unit awards includes distribution equivalent rights that enable the recipient to receive additional units equal in value to the accumulated cash distributions made on the units subject to the award from the date of grant. Accumulated distributions associated with each underlying unit are payable upon settlement of the related phantom unit award (and are forfeited if the related award is forfeited).
The following is a summary
of CCLP’s
equity award
activity for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted Average
Grant Date Fair
Value Per Unit
|
|
|
|
(In Thousands)
|
|
|
|
Nonvested units outstanding at December 31, 2017
|
|
469
|
|
|
$
|
9.31
|
|
|
Units granted
(1)
|
|
330
|
|
|
7.33
|
|
|
Units canceled
|
|
(186
|
)
|
|
8.96
|
|
|
Units vested
|
|
(121
|
)
|
|
12.37
|
|
|
Nonvested units outstanding at December 31, 2018
(2)
|
|
492
|
|
|
$
|
7.36
|
|
|
|
|
|
(1)
|
The number excludes
93,996
performance-based phantom units, which represents the additional number of common units that would be issued if the maximum level of performance under the awards is achieved.
|
(2) The number of units granted shown above excludes
15,422
performance-based phantom units, which, when combined with the
93,996
granted (net of
2018
forfeitures), represents the maximum number of common units that would be issued if the maximum level of performance under the awards is achieved. The number of units actually issued under the awards may range from zero to
218,836
.
Stock Options
The weighted average fair value of options granted during the years ended
December 31, 2018
,
2017
, and
2016
,
was
$1.88
,
$2.01
, and
$3.16
, respectively, using the Black-Scholes option valuation model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Expected stock price volatility
|
|
57%
|
|
|
53%
|
|
|
52%
|
|
|
Expected life of options
|
|
4.5 years
|
|
|
4.5 years
|
|
|
4.6 years
|
|
|
Risk free interest rate
|
|
2.6%
|
|
|
1.8%
|
|
|
1.2%
|
|
|
Expected dividend yield
|
|
—
|
|
|
—
|
|
|
—
|
|
The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the grant date for a period commensurate with the estimated expected life of the stock options. Expected volatility is based on the historical volatility of our stock over the period commensurate with the expected life of the stock options and other factors. The dividend yield is based on the current annualized dividend rate in effect during the quarter in which the grant was made. At the time of the stock option grants during each of the years ended
December 31, 2018
,
2017
and
2016
, we had not historically paid any dividends and did not expect to pay any dividends during the expected life of the stock options.
The following is a summary of stock option activity for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Under Option
|
|
Weighted Average
Option Price
Per Share
|
|
Weighted-Average Remaining Contractual Life
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
Outstanding at January 1, 2018
|
|
5,217
|
|
|
$
|
8.59
|
|
|
|
|
|
|
Options granted
|
|
791
|
|
|
3.89
|
|
|
|
|
|
|
Options canceled
|
|
(922
|
)
|
|
6.97
|
|
|
|
|
|
|
Options exercised
|
|
(66
|
)
|
|
3.78
|
|
|
|
|
|
|
Options expired
|
|
(540
|
)
|
|
$
|
21.16
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
4,480
|
|
|
$
|
6.65
|
|
|
5.9
|
|
$
|
—
|
|
|
Expected to vest at December 31, 2018
|
|
4,480
|
|
|
$
|
6.65
|
|
|
5.9
|
|
$
|
—
|
|
|
Exercisable at December 31, 2018
|
|
3,324
|
|
|
$
|
7.48
|
|
|
4.9
|
|
$
|
—
|
|
Intrinsic value is the difference between the market value of our stock option multiplied by the number of stock options outstanding for those stock options where the market value exceeds their exercise price. The total intrinsic value of stock options exercised during
December 31, 2018
,
2017
, and
2016
,
was
approximately
$0.1 million
,
$0.0 million
,
and
$0.1 million
, respectively.
At
December 31, 2018
, total unrecognized compensation cost related to unvested stock options of
$1.8 million
is expected to be recognized over a weighted-average remaining service period of
1.50
years.
Restricted Stock
Restricted stock awards are periodically granted to key employees, including grants for employment inducements, as well as to members of our Board of Directors. Employee awards provide for vesting periods ranging from three to five years. Non-employee director grants vest in full before the first anniversary of the grant. Upon vesting of these grants, shares are issued to award recipients. The following is a summary of activity for our outstanding restricted stock awards for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date Fair
Value Per Share
|
|
|
|
(In Thousands)
|
|
|
|
Nonvested restricted shares outstanding at December 31, 2017
|
|
1,036
|
|
|
$
|
5.06
|
|
|
Granted
|
|
2,509
|
|
|
3.72
|
|
|
Vested
|
|
(657
|
)
|
|
4.93
|
|
|
Canceled/Forfeited
|
|
(309
|
)
|
|
4.68
|
|
|
Nonvested restricted shares outstanding at December 31, 2018
|
|
2,579
|
|
|
$
|
3.84
|
|
Total compensation cost recognized for restricted stock awards was
$4.9 million
,
$4.0 million
, and
$8.4 million
for the years ended
December 31, 2018
,
2017
, and
2016
, respectively. Total unrecognized compensation cost at
December 31, 2018
, related to restricted stock awards is approximately
$6.9 million
which is expected to be recognized over a weighted-average remaining amortization period of
1.95
years. During the years ended
December 31, 2018
,
2017
, and
2016
, the total fair value of shares vested was
$3.2 million
,
$4.8 million
and
$8.4 million
, respectively.
During
2018
,
2017
, and
2016
, we
received
79,476
,
101,669
and
254,858
shares, respectively, of our common stock related to the vesting of certain employee restricted stock. Such surrendered shares received by us are included in treasury stock.
At
December 31, 2018
, net of options previously exercised pursuant to our various
equity compensation
plans, we have a maximum of
6,373,059
shares of common stock issuable pursuant to
awards
previously granted and outstanding and
awards
authorized to be granted in the future.
NOTE P
— 401(k) PLAN
We have a 401(k) retirement plan (the "Plan") that covers substantially all employees and entitles them to contribute up to
70%
of their annual compensation, subject to maximum limitations imposed by the Internal Revenue Code. We have historically matched
50%
of each employee’s contribution up to
6%
of annual compensation, subject to certain limitations as outlined in the Plan. Beginning in May 2016, we suspended the matching of employee contributions for an indefinite period. In August 2017, the matching of employee contributions was reinstated. Effective October 1, 2018, enhancements were made to the plan, including changing the employer match to 100% of each employee's contribution up to 4%. Additionally, participants will be 100% vested in employer match contributions after 3 years of service, instead of after 5 years of service. In addition, we can make discretionary contributions which are allocable to participants in accordance with the Plan. Total expense related to our 401(k) plan
was
$3.8 million
,
$0.9 million
, and
$1.4 million
in
2018
,
2017
, and
2016
, respectively.
NOTE Q
— DEFERRED COMPENSATION PLAN
We provide our officers, directors, and certain key employees with the opportunity to participate in an unfunded, deferred compensation program.
There were
twenty-two
participants in the program at
December 31, 2018
. Under the program, participants may defer up to 100% of their yearly total cash compensation. The amounts deferred remain our sole property, and we use a portion of the proceeds to purchase life insurance policies on the lives of certain of the participants. The insurance policies, which also remain our sole property, are payable to us upon the death of the insured. We separately contract with the participant to pay to the participant the amount of deferred compensation, as adjusted for gains or losses, invested in participant-selected investment funds. Participants may elect to receive deferrals and earnings at termination, death, or at a specified future date while still employed. Distributions while
employed must be at least three years after the deferral election. The program is not qualified under Section 401 of the Internal Revenue Code. At
December 31, 2018
, the amounts payable under the plan approximated the value of the corresponding assets we owned.
NOTE R
— 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. 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.
Financial Instruments
CCLP Preferred Units
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 years ended
December 31,
2018
,
2017
, and
2016
the changes in the fair value of the CCLP Preferred Units resulted in
$0.7 million
credited
to earnings,
$3.0 million
credited
to earnings, and
$4.4 million
charged
to earnings, respectively, in the consolidated statement of operations.
Warrants
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
December 31, 2018
and
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 years ended
December 31, 2018
,
2017
, and
2016
, the changes in the fair value of the Warrants liability resulted in
$11.1 million
credited
to earnings,
$5.3 million
credited
to earnings, and
$2.1 million
charged
to earnings, respectively, in the consolidated statement of operations.
Acquisition Contingent Consideration
As part of the purchase of SwiftWater during the first quarter of 2018, the sellers have the right to receive contingent consideration payments, in an aggregate amount of up to $15.0 million, calculated based on EBITDA and revenue of the combined water management business of SwiftWater and 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. The fair value of the contingent consideration is based on a probability simulation utilizing forecasted revenues and EBITDA of the water management business of SwiftWater and all of our pre-existing operations in the Permian Basin (a Level 3 fair value measurement). During the period from the closing date to
December 31, 2018
, the estimated fair value for the liabilities associated with the contingent purchase price consideration increased to
$11.0 million
, resulting in
$3.4 million
being
charged
to other (income) expense, net, during the year ended
December 31, 2018
. In addition, as part of the purchase of JRGO during December 2018, the sellers have the right to receive contingent consideration of up to
$1.5 million
to be paid during 2019, based on JRGO's performance during the fourth quarter of 2018. Approximately $11.5 million of the $12.5 million combined contingent consideration liability is based on actual 2018 performance, with the remaining being a fair value measurement based on a forecast of SwiftWater 2019 revenues and EBITDA.
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 debt facilities, 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. For these fair value measurements, we utilize the quoted value (a Level 2 fair value measurement).
We and CCLP each enter into short term 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
December 31, 2018
, we and CCLP had the following foreign currency derivative contracts outstanding relating to portions of our foreign operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
U.S. Dollar Notional Amount
|
|
Traded Exchange Rate
|
|
Settlement Date
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Forward purchase euro
|
|
$
|
3,571
|
|
|
1.18
|
|
|
3/15/2019
|
|
Forward purchase euro
|
|
$
|
3,585
|
|
|
1.18
|
|
3/15/2019
|
|
Forward sale euro
|
|
$
|
1,930
|
|
|
1.14
|
|
|
1/17/2019
|
|
Forward purchase pounds sterling
|
|
$
|
948
|
|
|
1.26
|
|
|
1/17/2019
|
|
Forward sale Canadian dollar
|
|
$
|
5,942
|
|
|
1.35
|
|
1/17/2019
|
|
Forward purchase Mexican peso
|
|
$
|
1,086
|
|
|
20.25
|
|
|
1/17/2019
|
|
Forward sale Norwegian krone
|
|
$
|
975
|
|
|
8.72
|
|
|
1/17/2019
|
|
Forward sale Mexican peso
|
|
$
|
4,783
|
|
|
20.07
|
|
1/17/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
British Pound
Notional Amount
|
|
Traded Exchange Rate
|
|
Settlement Date
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Forward purchase euro
|
|
£
|
1,173
|
|
|
0.90
|
|
|
1/17/2019
|
As of
December 31, 2017
, we and CCLP had the following foreign currency derivative contracts outstanding relating to a portion of our foreign operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
US Dollar Notional Amount
|
|
Traded Exchange Rate
|
|
Settlement Date
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Forward purchase euro
|
|
$
|
1,743
|
|
|
1.19
|
|
1/18/2018
|
|
Forward purchase pounds sterling
|
|
$
|
5,998
|
|
|
1.33
|
|
1/18/2018
|
|
Forward sale Canadian dollar
|
|
$
|
3,756
|
|
|
1.29
|
|
1/18/2018
|
|
Forward purchase Mexican peso
|
|
$
|
6,974
|
|
|
19.28
|
|
1/18/2018
|
|
Forward sale Norwegian krone
|
|
$
|
4,131
|
|
|
8.40
|
|
1/18/2018
|
|
Forward sale Mexican peso
|
|
$
|
6,067
|
|
|
19.28
|
|
1/18/2018
|
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 (a Level 2 fair value measurement). The fair values of our and CCLP's foreign currency derivative instruments as of
December 31, 2018
and
2017
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative instruments
|
Balance Sheet Location
|
|
Fair Value at
December 31, 2018
|
Fair Value at
December 31, 2017
|
|
|
|
|
|
(In Thousands)
|
|
Forward purchase contracts
|
|
Current assets
|
|
$
|
41
|
|
$
|
111
|
|
|
Forward sale contracts
|
|
Current assets
|
|
76
|
|
130
|
|
|
Forward sale contracts
|
|
Current liabilities
|
|
(126
|
)
|
(255
|
)
|
|
Forward purchase contracts
|
|
Current liabilities
|
|
(168
|
)
|
(113
|
)
|
|
Total
|
|
|
|
$
|
(177
|
)
|
$
|
(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 year ended
December 31, 2018
,
2017
, and
2016
, we recognized approximately $
(0.4) million
,
$(1.3) million
and
$2.0 million
of
net (gains) losses, respectively, reflected in other (income) expense, net, associated with our foreign currency derivative program.
A summary of these recurring fair value measurements by valuation hierarchy as of
December 31, 2018
and
December 31, 2017
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Dec 31, 2018
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
(In Thousands)
|
|
CCLP Series A Preferred Units
|
|
$
|
(27,019
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(27,019
|
)
|
|
Warrants liability
|
|
(2,073
|
)
|
|
—
|
|
|
—
|
|
|
(2,073
|
)
|
|
Asset for foreign currency derivative contracts
|
|
117
|
|
|
—
|
|
|
117
|
|
|
—
|
|
|
Liability for foreign currency derivative contracts
|
|
(294
|
)
|
|
—
|
|
|
(294
|
)
|
|
—
|
|
|
Acquisition contingent consideration liability
|
|
(12,452
|
)
|
|
—
|
|
|
—
|
|
|
(12,452
|
)
|
|
Total
|
|
$
|
(41,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Dec 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
|
)
|
|
Asset for foreign currency derivative contracts
|
|
241
|
|
|
—
|
|
|
241
|
|
|
—
|
|
|
Liability for foreign currency derivative contracts
|
|
(378
|
)
|
|
—
|
|
|
(378
|
)
|
|
—
|
|
|
Total
|
|
$
|
(74,775
|
)
|
|
|
|
|
|
|
During
2018
, our
Water & Flowback Services
Division recorded certain long-lived asset impairments, primarily related to an identified intangible asset resulting from decreased expected future cash flows from a
Water & Flowback Services
segment customer contract. During 2017, our
Water & Flowback Services
segment recorded certain long-lived asset impairments, primarily related to an identified intangible asset resulting from decreased expected future cash flows from a
Water & Flowback Services
segment customer contract. For further discussion, see Note B - Basis of Presentation and Significant Accounting Policies "Impairment of Long-Lived Assets." The fair values used in these impairment calculations were estimated based on discounted estimated future cash flows, which is based on significant unobservable inputs (Level 3) in accordance with the fair value hierarchy.
A summary of these nonrecurring fair value measurements during the year ended
December 31, 2018
, using the fair value hierarchy, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
or Liabilities (Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Year-to-Date
Impairment Losses
|
|
Description
|
|
Fair Value
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Water & Flowback Services intangible assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,940
|
|
|
Total
|
|
$
|
—
|
|
|
|
|
|
|
|
|
$
|
2,940
|
|
A summary of these nonrecurring fair value measurements during the year ended
December 31, 2017
, using the fair value hierarchy, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
Fair Value as of
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
or Liabilities (Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Year-to-Date
Impairment Losses
|
|
Description
|
|
Dec 31, 2017
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Water & Flowback Services equipment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
324
|
|
|
Water & Flowback Services intangible assets
|
|
3,206
|
|
|
—
|
|
|
—
|
|
|
3,206
|
|
|
14,552
|
|
|
Total
|
|
$
|
3,206
|
|
|
|
|
|
|
|
|
$
|
14,876
|
|
The fair values of cash, restricted cash, accounts receivable, accounts payable, short-term borrowings and long-term debt pursuant to TETRA's ABL Credit Agreement and Term Credit Agreement, and the CCLP Credit Agreement approximate their carrying amounts. The fair value of our long-term 11% Senior Note at December 31, 2017, was approximately
$130.8 million
, based on current interest rates on
that date, which was different from the stated interest rate on the 11% Senior Note of
$125.0 million
at December 31, 2017. The fair values of the publicly traded CCLP 7.25% Senior Notes (as herein defined) at
December 31, 2018
and
2017
, were approximately
$266.3 million
and
$279.7 million
, respectively. Those fair values compare to the face amount of
$295.9 million
both at
December 31, 2018
and
2017
. The fair value of the publicly traded CCLP 7.50% Senior Secured Notes at
December 31, 2018
was approximately
$332.5 million
. This fair value compares to aggregate principal amount of such notes at
December 31, 2018
of
$350.0 million
. We calculated the fair value of our 11% Senior Note as of 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
December 31, 2018
on recent trades for these notes. See
Note J
- "Long-Term Debt and Other Borrowings," for a complete discussion of our debt.
NOTE S
— 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 for each of the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
Number of weighted average common shares outstanding
|
|
124,101
|
|
|
114,499
|
|
|
87,286
|
|
|
Assumed exercise of equity awards and warrants
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Average diluted shares outstanding
|
|
124,101
|
|
|
114,499
|
|
|
87,286
|
|
For the years
ended December 31, 2018, 2017 and 2016, 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 year. In addition, for the years ended December 31, 2018, 2017, and 2016, 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 (as defined in
Note K
) into CCLP common units would have been anti-dilutive.
NOTE T
— INDUSTRY SEGMENTS
AND GEOGRAPHIC INFORMATION
Following the acquisition of SwiftWater and the disposition of the Offshore Division 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 segments, are now reported as discontinued operations following their disposal in March 2018.
Our
Completion Fluids & Products Division
manufactures and markets clear brine fluids ("CBFs"), 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 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 oil and gas basins in certain regions in South America, Africa, Europe, the Middle East, and Australia.
Our
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 and custom-designed compressor packages designed and fabricated at the Division's facilities. The Compression Division's aftermarket business provides compressor package reconfiguration and maintenance services and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
|
$
|
242,412
|
|
|
$
|
226,132
|
|
|
$
|
176,720
|
|
|
Water & Flowback Services Division
|
|
1,961
|
|
|
12,581
|
|
|
162
|
|
|
Compression Division
|
|
164,854
|
|
|
66,691
|
|
|
71,809
|
|
|
Consolidated
|
|
$
|
409,227
|
|
|
$
|
305,404
|
|
|
$
|
248,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
|
$
|
15,002
|
|
|
$
|
31,688
|
|
|
$
|
28,349
|
|
|
Water & Flowback Services Division
|
|
300,727
|
|
|
157,110
|
|
|
100,786
|
|
|
Compression Division
|
|
273,819
|
|
|
228,896
|
|
|
239,565
|
|
|
Consolidated
|
|
$
|
589,548
|
|
|
$
|
417,694
|
|
|
$
|
368,700
|
|
|
|
|
|
|
|
|
|
|
Interdivision revenues
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
|
$
|
(6
|
)
|
|
$
|
31
|
|
|
$
|
87
|
|
|
Water & Flowback Services Division
|
|
384
|
|
|
1,930
|
|
|
4,109
|
|
|
Compression Division
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interdivision eliminations
|
|
(378
|
)
|
|
(1,961
|
)
|
|
(4,196
|
)
|
|
Consolidated
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
|
$
|
257,408
|
|
|
$
|
257,851
|
|
|
$
|
205,156
|
|
|
Water & Flowback Services Division
|
|
303,072
|
|
|
171,621
|
|
|
105,057
|
|
|
Compression Division
|
|
438,673
|
|
|
295,587
|
|
|
311,374
|
|
|
Interdivision eliminations
|
|
(378
|
)
|
|
(1,961
|
)
|
|
(4,196
|
)
|
|
Consolidated
|
|
$
|
998,775
|
|
|
$
|
723,098
|
|
|
$
|
617,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
Depreciation, amortization, and accretion
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products
|
|
$
|
15,345
|
|
|
$
|
16,298
|
|
|
$
|
28,338
|
|
|
Water & Flowback Services
|
|
28,439
|
|
|
18,092
|
|
|
16,221
|
|
|
Compression
|
|
70,500
|
|
|
69,142
|
|
|
72,159
|
|
|
Corporate overhead
|
|
658
|
|
|
521
|
|
|
429
|
|
|
Consolidated
|
|
$
|
114,925
|
|
|
$
|
104,053
|
|
|
$
|
117,147
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products
|
|
$
|
179
|
|
|
$
|
124
|
|
|
$
|
32
|
|
|
Water & Flowback Services
|
|
5
|
|
|
6
|
|
|
42
|
|
|
Compression
|
|
52,317
|
|
|
42,309
|
|
|
38,271
|
|
|
Corporate overhead
|
|
19,565
|
|
|
15,588
|
|
|
21,639
|
|
|
Consolidated
|
|
$
|
72,066
|
|
|
$
|
58,027
|
|
|
$
|
59,984
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products
|
|
$
|
30,623
|
|
|
$
|
63,891
|
|
|
$
|
17,742
|
|
|
Water & Flowback Services
|
|
28,712
|
|
|
(12,816
|
)
|
|
(42,783
|
)
|
|
Compression
|
|
(33,797
|
)
|
|
(37,246
|
)
|
|
(136,327
|
)
|
|
Interdivision eliminations
|
|
11
|
|
|
(151
|
)
|
|
12
|
|
|
Corporate overhead
(1)
|
|
(61,975
|
)
|
|
(57,721
|
)
|
|
(61,864
|
)
|
|
Consolidated
|
|
$
|
(36,426
|
)
|
|
$
|
(44,043
|
)
|
|
$
|
(223,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products
|
|
$
|
296,129
|
|
|
$
|
293,507
|
|
|
$
|
287,347
|
|
|
Water & Flowback Services
|
|
230,442
|
|
|
139,771
|
|
|
122,973
|
|
|
Compression
|
|
869,474
|
|
|
784,745
|
|
|
816,148
|
|
|
Corporate overhead and eliminations
|
|
(11,872
|
)
|
|
(30,543
|
)
|
|
(23,939
|
)
|
|
Assets of discontinued operations
|
|
1,354
|
|
|
121,134
|
|
|
113,011
|
|
|
Consolidated
|
|
$
|
1,385,527
|
|
|
$
|
1,308,614
|
|
|
$
|
1,315,540
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products
|
|
$
|
5,259
|
|
|
$
|
3,091
|
|
|
$
|
1,629
|
|
|
Water & Flowback Services
(2)
|
|
30,175
|
|
|
16,194
|
|
|
1,484
|
|
|
Compression Division
(3)
|
|
104,002
|
|
|
25,920
|
|
|
11,568
|
|
|
Corporate overhead
|
|
809
|
|
|
932
|
|
|
472
|
|
|
Discontinued operations
|
|
1,686
|
|
|
5,786
|
|
|
5,913
|
|
|
Consolidated
|
|
$
|
141,931
|
|
|
$
|
51,923
|
|
|
$
|
21,066
|
|
|
|
|
|
(1)
|
Amounts reflected include the following general corporate expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
General and administrative expense
|
|
$
|
50,431
|
|
|
$
|
46,156
|
|
|
$
|
34,767
|
|
|
Depreciation and amortization
|
|
658
|
|
|
84
|
|
|
430
|
|
|
Interest expense, net
|
|
19,640
|
|
|
15,513
|
|
|
21,593
|
|
|
Warrants fair value adjustment (income) expense
|
|
(11,128
|
)
|
|
(5,301
|
)
|
|
2,106
|
|
|
Other general corporate (income) expense, net
|
|
2,374
|
|
|
1,269
|
|
|
4,037
|
|
|
Total
|
|
$
|
61,975
|
|
|
$
|
57,721
|
|
|
$
|
62,933
|
|
|
|
|
|
(2)
|
Amounts presented net of cost of equipment sold, including
$0.1 million
during 2018 and
$4.2 million
during 2017 for our Water and Flowback Services.
|
|
|
|
|
(3)
|
Amounts presented net of cost of equipment sold, including
$10.0 million
during 2018,
$8.5 million
during 2017, and
$6.6 million
during 2016 for our Compression Division.
|
Summarized financial information concerning the geographic areas of our customers and in which we operate at
December 31, 2018
,
2017
, and
2016
,
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(In Thousands)
|
|
Revenues from external customers:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
791,389
|
|
|
$
|
545,964
|
|
|
$
|
458,227
|
|
|
Canada and Mexico
|
|
41,524
|
|
|
36,074
|
|
|
34,594
|
|
|
South America
|
|
25,781
|
|
|
28,040
|
|
|
20,480
|
|
|
Europe
|
|
93,262
|
|
|
80,721
|
|
|
71,882
|
|
|
Africa
|
|
12,367
|
|
|
700
|
|
|
10,345
|
|
|
Asia and other
|
|
34,452
|
|
|
31,599
|
|
|
21,863
|
|
|
Total
|
|
$
|
998,775
|
|
|
$
|
723,098
|
|
|
$
|
617,391
|
|
|
Transfers between geographic areas:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Canada and Mexico
|
|
—
|
|
|
—
|
|
|
—
|
|
|
South America
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Europe
|
|
3,157
|
|
|
2,025
|
|
|
93
|
|
|
Africa
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Asia and other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Eliminations
|
|
(3,157
|
)
|
|
(2,025
|
)
|
|
(93
|
)
|
|
Total revenues
|
|
$
|
998,775
|
|
|
$
|
723,098
|
|
|
$
|
617,391
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
1,211,759
|
|
|
$
|
1,131,650
|
|
|
$
|
1,132,986
|
|
|
Canada and Mexico
|
|
59,355
|
|
|
62,537
|
|
|
64,163
|
|
|
South America
|
|
25,122
|
|
|
23,352
|
|
|
21,354
|
|
|
Europe
|
|
57,807
|
|
|
61,000
|
|
|
53,713
|
|
|
Africa
|
|
14,772
|
|
|
3,696
|
|
|
5,711
|
|
|
Asia and other
|
|
16,712
|
|
|
26,379
|
|
|
37,613
|
|
|
Total identifiable assets
|
|
$
|
1,385,527
|
|
|
$
|
1,308,614
|
|
|
$
|
1,315,540
|
|
During each of the three years ended
December 31, 2018
,
2017
, and
2016
, no single customer accounted for more than 10% of our consolidated revenues.
NOTE U
— 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 T
– "Industry Segments and Geographic Information.”
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 CBFs, 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
December 31, 2018
, we had
$29.6 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 expected to be recognized through
2023
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Total
|
|
|
(In Thousands)
|
|
Compression service contracts remaining performance obligations
|
$
|
16,980
|
|
|
$
|
8,401
|
|
|
$
|
4,236
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,617
|
|
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 CBFs, 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 CBFs, 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
December 31, 2018
, the amount of remaining credits expected to be issued for the repurchase of reclaimable used fluids was
$1.9 million
tha
t were recorded in inventory (right of return asset) and accounts payable. T
here were no material differences between amounts recognized during the year ended
December 31, 2018
, 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 Unearned Income in our consolidated balance sheets. Such deferred revenue typically results from advance payments received on orders for new compressor equipment prior to the time such equipment is completed and transferred to the customer in accordance with the customer contract.
As of
December 31, 2018
and
December 31, 2017
, contract assets were immaterial. The following table reflects the changes in our contract liabilities during the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
(In Thousands)
|
|
Unearned Income, beginning of period
|
$
|
17,050
|
|
|
Additional unearned income
|
138,684
|
|
|
Revenue recognized
|
(130,401
|
)
|
|
Unearned income, end of period
|
$
|
25,333
|
|
Bad debt expense on accounts receivables and contract assets was
$1.7 million
and
$1.1 million
du
ring the years ended
December 31, 2018
and
December 31, 2017
. During the year ended
December 31, 2018
,
$130.4 million
of unearned income was recognized as product sales revenue, primarily associated w
ith deliveries of new 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. 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 T
. In addition, we disaggregate revenue from contracts with customers by geography based on the following table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(In Thousands)
|
|
Completion Fluids & Products
|
|
|
|
|
|
|
U.S.
|
$
|
129,160
|
|
|
$
|
160,221
|
|
|
$
|
118,751
|
|
|
International
|
128,248
|
|
|
97,630
|
|
|
86,405
|
|
|
|
257,408
|
|
|
257,851
|
|
|
205,156
|
|
|
Water & Flowback Services
|
|
|
|
|
|
|
U.S.
|
261,238
|
|
|
120,463
|
|
|
68,735
|
|
|
International
|
41,834
|
|
|
51,158
|
|
|
36,322
|
|
|
|
303,072
|
|
|
171,621
|
|
|
105,057
|
|
|
Compression
|
|
|
|
|
|
|
U.S.
|
400,986
|
|
|
265,311
|
|
|
270,828
|
|
|
International
|
37,687
|
|
|
30,276
|
|
|
40,546
|
|
|
|
438,673
|
|
|
295,587
|
|
|
311,374
|
|
|
Interdivision eliminations
|
|
|
|
|
|
|
U.S.
|
5
|
|
|
(31
|
)
|
|
(87
|
)
|
|
International
|
(383
|
)
|
|
(1,930
|
)
|
|
(4,109
|
)
|
|
|
(378
|
)
|
|
(1,961
|
)
|
|
(4,196
|
)
|
|
Total Revenue
|
|
|
|
|
|
|
U.S.
|
791,389
|
|
|
545,964
|
|
|
458,227
|
|
|
International
|
207,386
|
|
|
177,134
|
|
|
159,164
|
|
|
|
$
|
998,775
|
|
|
$
|
723,098
|
|
|
$
|
617,391
|
|
NOTE V
— QUARTERLY FINANCIAL INFORMATION (Unaudited)
Summarized quarterly financial data for
2018
and
2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 2018
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
|
(In Thousands, Except Per Share Amounts)
|
|
Total revenues
|
|
$
|
199,381
|
|
|
$
|
260,072
|
|
|
$
|
256,851
|
|
|
$
|
282,471
|
|
|
Gross profit
|
|
27,983
|
|
|
47,801
|
|
|
41,330
|
|
|
45,184
|
|
|
Income (loss) before discontinued operations
|
|
(21,057
|
)
|
|
(12,132
|
)
|
|
(12,852
|
)
|
|
3,316
|
|
|
Net income (loss)
|
|
(62,763
|
)
|
|
(12,153
|
)
|
|
(12,056
|
)
|
|
2,732
|
|
|
Net income (loss) attributable to TETRA stockholders
|
|
(53,648
|
)
|
|
(5,965
|
)
|
|
(6,936
|
)
|
|
4,932
|
|
|
Net income (loss) per share before discontinued operations attributable to TETRA stockholders
|
|
$
|
(0.10
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.04
|
|
|
Net income (loss) per diluted share before discontinued operations attributable to TETRA stockholders
|
|
$
|
(0.10
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.04
|
|
|
Net income (loss) per share attributable to TETRA stockholders
|
|
$
|
(0.46
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.04
|
|
|
Net income (loss) per diluted share attributable to TETRA stockholders
|
|
$
|
(0.46
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 2017
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
|
(In Thousands, Except Per Share Amounts)
|
|
Total revenues
|
|
$
|
159,409
|
|
|
$
|
179,931
|
|
|
$
|
183,677
|
|
|
$
|
200,081
|
|
|
Gross profit
|
|
19,654
|
|
|
29,535
|
|
|
42,651
|
|
|
16,550
|
|
|
Loss before discontinued operations
|
|
(4,245
|
)
|
|
(7,966
|
)
|
|
(857
|
)
|
|
(31,726
|
)
|
|
Net loss
|
|
(11,252
|
)
|
|
(14,619
|
)
|
|
(1,338
|
)
|
|
(34,974
|
)
|
|
Net income (loss) attributable to TETRA stockholders
|
|
(2,463
|
)
|
|
(10,991
|
)
|
|
3,145
|
|
|
(28,739
|
)
|
|
Net income (loss) per share before discontinued operations attributable to TETRA stockholders
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.22
|
)
|
|
Net income (loss) per diluted share before discontinued operations attributable to TETRA stockholders
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.22
|
)
|
|
Net income (loss) per share attributable to TETRA stockholders
|
|
$
|
(0.02
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.25
|
)
|
|
Net income (loss) per diluted share attributable to TETRA stockholders
|
|
$
|
(0.02
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.25
|
)
|
Gross profit for the three months ended September 30, 2018, includes the impact of
$2.9 million
for certain impairments of long-lived assets. Gross profit for the three months ended December 31, 2017, includes the impact of
$14.9 million
for certain impairments of long-lived assets.