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Acquisitions and Dispositions | 9 Months Ended
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Sep. 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 Consolidated Statement of Operations for the nine month period ended September 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 nine month period ended September 30, 2014, our revenues, depreciation and amortization, and income before taxes included $25.3 million, $1.1 million, and $4.7 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 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. 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 nine months ended September 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. 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 CSI, a Delaware corporation, for $825.0 million cash (the CSI Acquisition). The purchase price is subject to a potential adjustment based on working capital. CSI owns one of the largest fleets of natural gas compressor packages in the United States. Headquartered in Midland, Texas, CSI fabricates, sells, and maintains natural gas compressors and provides a full range of compression products and services that covers compression needs throughout the entire natural gas production and transportation cycle to natural gas and oil producing clients. CSI derives revenues through three primary business lines: service operations, equipment sales, and aftermarket services. Strategically, the acquisition is expected to afford the Compression Division the opportunity to capture significant synergies associated with its product and service offerings and its fabrication operations, to further penetrate new and existing markets, and to achieve administrative efficiencies and other strategic benefits. 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) at a public offering price of $23.50 per common unit (the Offering Price) 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. In connection with 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 Offering Price of $23.50 per common unit, less the underwriting discount. On August 11, 2014, the underwriters exercised their option and purchased all 2,292,000 additional common units for $23.50 resulting in additional net proceeds of $51.7 million ($53.9 million gross proceeds less underwriting discount). Compressco Partners used the additional net proceeds generated from the exercise of this option to repay a portion of the amount outstanding under the New Partnership Credit Facility. Following the underwriters' purchase of the 2,292,000 additional units, the total amount of common units issued by Compressco Partners in the equity offering was 17,572,000. Additionally, Compressco Partners GP Inc. contributed an additional approximately $1.1 million following the issuance of the additional common units upon the exercise of the underwriters' option in order to maintain its approximately 2% general partner interest in Compressco Partners. Following the CSI Acquisition, the completion of the offering of the additional 17,572,000 common units, and the contribution by Compressco Partners GP Inc., our aggregate ownership percentage in Compressco Partners was reduced to approximately 44% from approximately 82%. Through our Compressco Partners GP Inc. subsidiary, we continue to manage and control Compressco Partners, and, accordingly, we 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 contributions, we borrowed $40.0 million under our credit facility. Our preliminary allocation of the purchase price to the estimated fair value of the CSI net assets is as follows (in thousands):
Current assets | $ | 104,456 |
Property and equipment | 570,500 |
Intangible assets | 59,672 |
Goodwill | 169,984 |
Total assets acquired | 904,612 |
Current liabilities | 79,612 |
Total liabilities assumed | 79,612 |
Net assets acquired | $ | 825,000 |
This allocation of the purchase price to CSI’s net tangible assets and liabilities and identifiable intangible assets as of August 4, 2014, is preliminary and subject to revisions to the fair value calculations for the identifiable assets and liabilities. The final purchase price allocation could differ materially from the preliminary allocation noted in the summary above. The preliminary allocation of purchase price includes approximately $170.0 million allocated to nondeductible goodwill recorded to our Compression segment, and is supported by the strategic benefits discussed above 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. Buildings are depreciated using useful lives of 15 to 40 years. Machinery and equipment is depreciated using useful lives of 2 to 20 years; Automobiles and trucks are depreciated using useful lives of 4 years. The acquired intangible assets represent approximately $32.4 million for the trademark/trade name, approximately $15.0 million for customer relationships, and approximately $12.3 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 2 to 10 years. These identified intangible assets are recorded net of approximately $1.5 million of accumulated amortization as of September 30, 2014. For the three and nine month periods ended September 30, 2014, our revenues, depreciation and amortization, and pretax earnings included $61.0 million, $9.6 million, and $6.4 million, respectively, associated with the CSI Acquisition after the closing on August 4, 2014. In addition, CSI Acquisition-related costs of approximately $2.1 million and $3.0 million were incurred during the three and nine month periods ended September 30, 2014, respectively, consisting of external legal fees and due diligence costs. These costs have been recognized in general and administrative expenses in the consolidated statements of operations. Approximately $15.7 million of deferred financing costs related to the CSI Acquisition were incurred and included in other assets as of September 30, 2014, and will be amortized over the term of the related debt. An additional $9.3 million of interim financing costs related to the CSI Acquisition were incurred and reflected in other expense during the three months ended September 30, 2014. 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 acquisition of the remaining 50% interest in TETRA Arabia as well as the CSI acquisition and financing costs charged to earnings during the 2014 periods. 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 September 30, |  | Nine Months Ended September 30,
| 2014 |  | 2013 |  | 2014 |  | 2013
| (In Thousands, Except Per Share Amounts)
Revenues | $ | 343,920 |  |  | $ | 324,296 |  |  | $ | 971,209 |  |  | $ | 971,627 |
Depreciation, depletion, amortization, and accretion | $ | 41,601 |  |  | $ | 35,843 |  |  | $ | 105,966 |  |  | $ | 104,832 |
Gross profit | $ | 41,801 |  |  | $ | 73,055 |  |  | $ | 166,367 |  |  | $ | 172,122 |
Net income (loss) | $ | (5,433 | ) |  | $ | 10,434 |  |  | $ | (18,274 | ) |  | $ | 9,528 |
Net income (loss) attributable to TETRA stockholders | $ | (6,518 | ) |  | $ | 9,483 |  |  | $ | (23,382 | ) |  | $ | 5,167 |
Per share information: |  |  |  |  |  |  |
Net income (loss) attributable to TETRA stockholders |  |  |  |  |  |  |
Basic | $ | (0.08 | ) |  | $ | 0.12 |  |  | $ | (0.30 | ) |  | $ | 0.07 |
Diluted | $ | (0.08 | ) |  | $ | 0.12 |  |  | $ | (0.30 | ) |  | $ | 0.07 |

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