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Acquisitions and Dispositions | 6 Months Ended
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Jun. 30, 2014
Notes to Financial Statements [Abstract] |
Acquisitions and Dispositions | NOTE B – ACQUISITIONS Acquisition of Limited Liability Company Interest On January 16, 2014, we finalized the purchase of the 50% ownership interest of Ahmad Albinali & TETRA Arabia Company Ltd. (TETRA Arabia, a Saudi Arabian limited liability company) that we did not previously own for consideration of $25.2 million. The closing of this transaction was pursuant to the terms of the Share Sale and Purchase Agreement entered into as of October 1, 2013, with the other shareholder in TETRA Arabia. TETRA Arabia is a provider of production testing services, offshore rig cooling services, and clear brine fluids products and related services to its customer in Saudi Arabia. The acquisition of the other 50% interest of TETRA Arabia results in the Production Testing and Fluids segments owning a 100% interest in their Saudi Arabian operations, which they will operate directly through the TETRA Arabia entity. Prior to the transaction, our 50% ownership interest in TETRA Arabia was accounted for under the equity method of accounting, whereby our investment was classified as Other Assets in our consolidated balance sheets, and our share of TETRA Arabia's earnings was classified as other income in the consolidated statements of operations. Following the acquisition, TETRA Arabia is consolidated as a wholly owned subsidiary. The $25.2 million purchase price for the 50% ownership interest includes $15.0 million in cash that was paid at closing, and an additional $10.2 million in cash that was paid on July 16, 2014. As a result of the purchase of the remaining 50% ownership interest of TETRA Arabia during the first quarter of 2014, we remeasured the fair value of our existing investment carrying value in TETRA Arabia based on estimated future cash flows which resulted in a calculated fair value of approximately $21.8 million (a level 3 measurement). We allocated this calculated fair value to the applicable consolidated balance sheet line items and recorded a remeasurement gain of approximately $5.7 million. Additionally, we recorded a charge to earnings of approximately $2.9 million associated with a similar fair value measurement related to the termination of our previous relationship with the other shareholder. The charge to earnings and the remeasurement gain were included in other (income) expense in the accompanying Consolidated Statement of Operations for the six month period ended June 30, 2014. We allocated the purchase price as well as the remeasured value of our existing investment based on the fair values of the assets and liabilities acquired or remeasured, which consisted of a total of approximately $18.5 million of net working capital, $1.3 million of property, plant, and equipment, approximately $22.5 million of certain intangible assets (primarily a customer relationship asset), $4.5 million of deferred tax liabilities, and approximately $6.3 million of nondeductible goodwill (allocated between the Fluids and Production Testing segments). For the six month period ended June 30, 2014, our revenues, depreciation and amortization, and income before taxes included $14.5 million, $0.8 million, and $1.5 million, respectively, associated with the acquired operations of TETRA Arabia after the closing in January 2014. Acquisition of TD Water Transfer On January 29, 2014, we acquired the assets and operations of WIT Water Transfer, LLC (doing business as TD Water Transfer) for a cash purchase price of $15.0 million. In addition, contingent consideration ranging from $0 to $8.0 million in cash may be paid, depending on a defined measure of earnings over each of the two twelve month periods subsequent to closing. TD Water Transfer is a provider of water management services to oil and gas operators in the South Texas and North Dakota regions, and the acquisition represented a strategic geographic expansion of our Fluids segment operations, allowing it to serve customers in additional basins in the U.S. We allocated the purchase price to the fair value of the assets and liabilities acquired, which consisted of approximately $7.3 million of property, plant and equipment, approximately $3.4 million of certain intangible assets, approximately $6.5 million of nondeductible goodwill, and approximately $2.3 million of liabilities associated with the contingent purchase price consideration. The fair value of the obligation to pay the contingent purchase price consideration was calculated based on the anticipated earnings for our water management services operations in the South Texas and North Dakota regions over each of the two twelve month periods subsequent to the closing and could increase (to $8.0 million) or decrease (to $0) depending on actual and expected earnings in these regions going forward. Increases or decreases in the value of the anticipated contingent purchase price consideration liability due to changes in the amounts paid or expected to be paid will be charged or credited to earnings in the period in which such changes occur. During the three months ended June 30, 2014, the liability associated with the contingent consideration was adjusted downward by approximately $1.1 million, and this amount was credited to earnings (depreciation, amortization, and accretion) during the period. The $6.5 million of goodwill recorded to the Fluids segment as a result of the TD Water Transfer acquisition is supported by the expected strategic benefits discussed above to be generated from the acquisition. This allocation of the purchase price to TD Water Transfer’s net assets and liabilities is preliminary, and subject to the potential identification of additional assets and contingencies or revisions to the fair value calculations. During the second quarter of 2014, the allocated value to goodwill decreased from $8.9 million to $6.5 million due to adjustments to the purchase price allocation to the acquired assets and liabilities. These fair value calculations and allocations are expected to be finalized later in 2014, and could result in adjustments to the calculated depreciation and amortization of the tangible and intangible assets, respectively. Acquisition of Compressor Systems, Inc. On August 4, 2014, pursuant to a stock purchase agreement dated July 20, 2014, a subsidiary of Compressco Partners acquired all of the outstanding capital stock of Compressor Systems, Inc. (CSI), a Delaware corporation, for $825.0 million cash (the CSI Acquisition). The total consideration payable is subject to an adjustment based on working capital. CSI owns one of the largest fleets of natural gas compression equipment in the U.S. Headquartered in Midland, Texas, CSI fabricates, sells, and maintains natural gas compressors and provides a full range of products and compression services that cover a wide range of the natural gas production and transportation cycle to a broad customer base. CSI derives revenues through three primary business lines: service operations, unit sales, and aftermarket services. The CSI Acquisition purchase price was funded from (i) the issuance of the 7.25% Senior Notes due 2022 in the aggregate principal amount of $350.0 million by Compressco Partners and its subsidiary, Compressco Finance, Inc. (the Compressco Senior Notes) resulting in net proceeds of $337.8 million ($350.0 million aggregate face amount) (ii) Compressco Partners' issuance of 15,280,000 common units (the New Units) in an underwritten public offering resulting in the net proceeds of $346.0 million ($359.1 million gross proceeds less commissions), and (iii) a portion of $210.0 million borrowed under Compressco Partners' new $400.0 million bank revolving credit facility (the New Partnership Credit Facility). A subsidiary of our Compressco Partners GP Inc. subsidiary purchased 1,391,113 of the New Units. Additionally, Compressco Partners GP Inc. contributed approximately $7.3 million to Compressco Partners in order to maintain its approximately 2% general partner interest in Compressco Partners. Following the CSI Acquisition and the completion of the offering of the New Units and the contribution by Compressco Partners GP Inc., our aggregate ownership percentage in Compressco Partners was reduced to approximately 47% from approximately 82%. Through our Compressco Partners GP Inc. subsidiary, we will continue to manage Compressco Partners, and, accordingly, we will continue to consolidate the results of Compressco Partners as part of our consolidated results of operations. To fund our purchase of New Units and the additional general partner contribution, we borrowed $40.0 million under our credit facility. In connection with the CSI Acquisition and Compressco Partners' issuance of the New Units, Compressco Partners granted an option to the underwriters (subject to certain terms and conditions as set forth in the Underwriting Agreement) to purchase up to an additional 2,292,000 common units at the public offering price of $23.50 per common unit, less the underwriting discount. This option expires August 23, 2014. Our preliminary allocation of the purchase price to the estimated fair value of the CSI net assets is as follows (in thousands):
Current assets | $ | 112,147 |
Property and equipment | 559,507 |
Intangible and other assets | 236,738 |
Total assets acquired | 908,392 |
Current liabilities | 83,392 |
Long-term debt | — |
Other long-term liabilities | — |
Total liabilities assumed | 83,392 |
Net assets acquired | $ | 825,000 |
The actual allocation of the CSI Acquisition purchase price will be based on the CSI balance sheet as of the August 4, 2014, closing date and the finalization of fair value measurements. The final purchase price allocation could differ materially from the above summary. Actual purchase price allocation amounts will be disclosed in subsequent filings. Pro Forma Financial Information The pro forma information presented below has been prepared to give effect to the acquisition of the remaining 50% ownership interest of TETRA Arabia and the acquisition of CSI as if each of the transactions had occurred at the beginning of the periods presented. The pro forma information includes the impact from the allocation of the acquisition purchase price for each acquisition on depreciation and amortization. The pro forma information also excludes the impact of the remeasurement gain and charge to earnings recorded in connection with the 50% interest in TETRA Arabia during the 2014 period. The pro forma information is presented for illustrative purposes only and is based on estimates and assumptions we deemed appropriate. The impact of the acquisition of TD Water Transfer is not significant and is therefore not included in the pro forma information below. The following pro forma information is not necessarily indicative of the historical results that would have been achieved if the acquisition transactions 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 transactions had occurred at the beginning of the periods presented or the future results that we will achieve after the transactions.
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2014 |  | 2013 |  | 2014 |  | 2013
| (In Thousands, Except Per Share Amounts)
Revenues | $ | 320,374 |  |  | $ | 315,189 |  |  | $ | 627,856 |  |  | $ | 637,431 |
Depreciation, depletion, amortization, and accretion | $ | 36,653 |  |  | $ | 34,900 |  |  | $ | 74,223 |  |  | $ | 68,131 |
Gross profit | $ | 63,881 |  |  | $ | 63,983 |  |  | $ | 119,538 |  |  | $ | 139,435 |
Net income (loss) | $ | (3,445 | ) |  | $ | (1,698 | ) |  | $ | (9,238 | ) |  | $ | 5,846 |
Net income (loss) attributable to TETRA stockholders | $ | (4,353 | ) |  | $ | (2,121 | ) |  | $ | (10,989 | ) |  | $ | 4,626 |
Per share information: |  |  |  |  |  |  |
Net income (loss) attributable to TETRA stockholders |  |  |  |  |  |  |
Basic | $ | (0.06 | ) |  | $ | (0.03 | ) |  | $ | (0.14 | ) |  | $ | 0.06 |
Diluted | $ | (0.06 | ) |  | $ | (0.03 | ) |  | $ | (0.14 | ) |  | $ | 0.06 |

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