Company Quick10K Filing
FTS International
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 110 $630
10-Q 2019-11-05 Quarter: 2019-09-30
10-Q 2019-07-31 Quarter: 2019-06-30
10-Q 2019-05-09 Quarter: 2019-03-31
10-K 2019-02-28 Annual: 2018-12-31
10-Q 2018-10-30 Quarter: 2018-09-30
10-Q 2018-08-01 Quarter: 2018-06-30
10-Q 2018-05-01 Quarter: 2018-03-31
10-K 2018-03-09 Annual: 2017-12-31
8-K 2020-02-12 Earnings, Exhibits
8-K 2020-01-31 Regulation FD, Exhibits
8-K 2019-12-12 Officers, Exhibits
8-K 2019-11-04 Earnings, Exhibits
8-K 2019-09-26 Officers, Exhibits
8-K 2019-07-30 Earnings, Exhibits
8-K 2019-05-16 Officers, Shareholder Vote, Exhibits
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-05-03 Regulation FD
8-K 2019-04-25 Regulation FD
8-K 2019-02-27 Earnings, Exhibits
8-K 2019-02-11 Earnings, Exhibits
8-K 2018-12-28 Officers, Exhibits
8-K 2018-10-29 Earnings, Exhibits
8-K 2018-09-26 Officers
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-04-30 Earnings, Exhibits
8-K 2018-04-25 Officers, Exhibits
8-K 2018-03-01 Earnings, Exhibits
8-K 2018-02-22 Enter Agreement, Leave Agreement, Off-BS Arrangement, Other Events, Exhibits
FTSI 2019-09-30
Part 1 – Financial Information
Item 1.Financial Statements
Note 1 — Basis of Presentation
Note 2 — Joint Venture
Note 3 — Indebtedness and Borrowing Facility
Note 4 — Leases
Note 5 — Share Repurchase
Note 6 — Revenue
Note 7 — Impairments and Other Charges
Note 8 — Income Taxes
Note 9 — Earnings per Share
Note 10 — Commitments and Contingencies
Item 2.Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ftsi-20190930ex311ba8589.htm
EX-31.2 ftsi-20190930ex31268a653.htm
EX-32.1 ftsi-20190930ex321789b9c.htm

FTS International Earnings 2019-09-30

FTSI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
SEMG 930 6,258 4,952 2,488 676 -5 383 3,201 27% 8.4 -0%
CJ 824 1,330 298 2,070 403 -313 -73 710 19% -9.8 -24%
NESR 750 515 0 0 32 32 1,020 32.1 -3,182,254,400%
FRAC 737 1,065 600 1,895 423 10 319 959 22% 3.0 1%
FTSI 630 722 664 1,031 250 27 116 943 24% 8.1 4%
NINE 519 1,098 473 915 214 -40 68 902 23% 13.3 -4%
TUSK 298 1,109 346 1,106 321 155 430 373 29% 0.9 14%
KLXE 237 733 337 580 100 -2 54 387 17% 7.1 -0%
NGS 207 305 42 70 0 1 24 177 0% 7.4 0%
SPN 191 2,146 1,966 2,016 503 -891 -913 1,254 25% -1.4 -42%

10-Q 1 ftsi-20190930x10q.htm 10-Q ftsi_Current_Folio_10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

OR

☐       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to        

Commission file number 001-38382


 

FTSI_Logo_Horiz_4C.png

 

 

 

FTS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


 

 

 

 

Delaware

 

30-0780081

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

777 Main Street, Suite 2900, Fort Worth, Texas

(Address of principal executive offices)

 

76102

(Zip Code)

(817) 862-2000

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,  a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large Accelerated Filer

 

Accelerated Filer

Non-accelerated Filer 

 

Smaller Reporting Company ☒ 

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

 

 

 

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

FTSI

 

New York Stock Exchange

 

As of November 1, 2019, the registrant had 107,215,035 shares of common stock, $0.01 par value, outstanding.

 

 

FTS INTERNATIONAL, INC.

TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

 

Cautionary Statement Regarding Forward-Looking Statements

3

 

 

 

PART I  -

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

4

 

  Consolidated Statements of Operations

4

 

  Consolidated Balance Sheets

5

 

  Consolidated Statements of Cash Flows

6

 

  Consolidated Statements of Stockholders’ Equity (Deficit)

7

 

  Notes to Consolidated Financial Statements

8

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4. 

Controls and Procedures

22

 

 

 

PART II  -

OTHER INFORMATION

 

Item 1. 

Legal Proceedings

23

Item 1A. 

Risk Factors

23

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 3. 

Defaults Upon Senior Securities

23

Item 4. 

Mine Safety Disclosures

23

Item 5. 

Other Information

23

Item 6. 

Exhibits

24

 

Signatures

25

 

 

 

2

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. Forward-looking statements may be identified by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “likely,” “may,” “project,” “potential,” “seek,” “should,” “will,” “would” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operational performance or other events. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect and, therefore, investors should not unduly rely on such statements. The risks that could cause these forward-looking statements to be inaccurate include but are not limited to:

·

a decline in domestic spending by the onshore oil and natural gas industry;

·

volatility in oil and natural gas prices;

·

the effect of a loss of, financial distress of, or decline in activity levels of, one or more significant customers;

·

actions of the Organization of the Petroleum Exporting Countries, or OPEC, its members and other state-controlled oil companies relating to oil price and production controls;

·

our inability to employ a sufficient number of key employees, technical personnel and other skilled or qualified workers;

·

the price and availability of alternative fuels and energy sources;

·

the discovery rates of new oil and natural gas reserves;

·

the availability of water resources, suitable proppant and chemicals in sufficient quantities and pricing for use in hydraulic fracturing fluids;

·

uncertainty in capital and commodities markets and the ability of oil and natural gas producers to raise equity capital and debt financing;

·

ongoing and potential securities litigation and other litigation and legal proceedings, including arbitration proceedings; and

·

a deterioration in general economic conditions or a weakening of the broader energy industry.

See the “Risk Factors” included in Item 1A of our annual report on Form 10-K for a more complete discussion of the risks and uncertainties mentioned above and for  a discussion of other risks and uncertainties we face that could cause our forward-looking statements to be inaccurate. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this quarterly report and hereafter in our other filings with the Securities and Exchange Commission and other public communications.

We caution that the risks and uncertainties identified by us may not be all of the factors that are important to investors. Furthermore, the forward-looking statements included in this quarterly report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

3

PART 1 – FINANCIAL INFORMATION

Item 1.Financial Statements

 

 

FTS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(In millions, except per share amounts)

  

2019

  

2018

  

2019

  

2018

Revenue

 

 

   

 

 

   

 

 

   

 

 

   

Revenue

 

$

186.0

 

$

324.4

 

$

633.4

 

$

1,202.3

Revenue from related parties

 

 

 —

 

 

10.0

 

 

0.9

 

 

92.9

Total revenue

 

 

186.0

 

 

334.4

 

 

634.3

 

 

1,295.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

   

 

 

   

 

 

   

 

 

   

Costs of revenue (excluding depreciation of $20.6, $18.8, $61.7 and $55.7 respectively, included in depreciation and amortization below)

 

 

147.2

 

 

222.2

 

 

476.2

 

 

863.8

Selling, general and administrative

 

 

21.1

 

 

19.7

 

 

66.4

 

 

66.3

Depreciation and amortization

 

 

22.7

 

 

21.1

 

 

67.9

 

 

62.4

Impairments and other charges

 

 

5.1

 

 

10.0

 

 

68.7

 

 

16.0

(Gain) loss on disposal of assets, net

 

 

(0.1)

 

 

(0.1)

 

 

(1.0)

 

 

0.2

Total operating expenses

 

 

196.0

 

 

272.9

 

 

678.2

 

 

1,008.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(10.0)

 

 

61.5

 

 

(43.9)

 

 

286.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(7.6)

 

 

(10.4)

 

 

(23.5)

 

 

(39.9)

Gain (loss) on extinguishment of debt, net

 

 

0.8

 

 

(0.6)

 

 

1.2

 

 

(10.7)

Equity in net income (loss) of joint venture affiliate

 

 

 —

 

 

(0.7)

 

 

0.6

 

 

(1.9)

Gain on sale of equity interest in joint venture affiliate

 

 

7.0

 

 

 —

 

 

7.0

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

 

(9.8)

 

 

49.8

 

 

(58.6)

 

 

234.0

Income tax expense

 

 

1.0

 

 

0.2

 

 

1.3

 

 

2.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(10.8)

 

$

49.6

 

$

(59.9)

 

$

231.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to common stockholders

 

$

(10.8)

 

$

49.6

 

$

(59.9)

 

$

655.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share attributable
to common stockholders

 

$

(0.10)

 

$

0.45

 

$

(0.55)

 

$

6.40

Shares used in computing basic and diluted
earnings per share

 

 

108.6

 

 

109.3

 

 

109.3

 

 

102.4

The accompanying notes are an integral part of these consolidated financial statements.

4

FTS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

  

September 30,

  

December 31,

(In millions, except share amounts)

  

2019

  

2018

ASSETS

 

 

   

 

 

   

Current assets

 

 

   

 

 

   

Cash and cash equivalents

 

$

204.2

 

$

177.8

Accounts receivable, net

 

 

119.5

 

 

158.3

Inventories

 

 

48.3

 

 

66.6

Prepaid expenses and other current assets

 

 

11.9

 

 

7.0

Total current assets

 

 

383.9

 

 

409.7

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

237.7

 

 

275.3

Operating lease right-of-use assets

 

 

30.2

 

 

 —

Intangible assets, net

 

 

29.5

 

 

29.5

Investment in joint venture affiliate

 

 

 —

 

 

23.2

Other assets

 

 

4.2

 

 

6.0

Total assets

 

$

685.5

 

$

743.7

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

   

 

 

   

Current liabilities

 

 

   

 

 

   

Accounts payable

 

$

57.6

 

$

86.8

Accrued expenses

 

 

34.8

 

 

29.3

Current portion of operating lease liabilities

 

 

15.0

 

 

 —

Other current liabilities

 

 

12.0

 

 

16.3

Total current liabilities

 

 

119.4

 

 

132.4

 

 

 

 

 

 

 

Long-term debt

 

 

456.6

 

 

503.2

Operating lease liabilities

 

 

17.2

 

 

 —

Other liabilities

 

 

45.8

 

 

1.2

Total liabilities

 

 

639.0

 

 

636.8

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

   

 

 

   

 

 

 

 

 

 

 

Stockholders’ equity

 

 

   

 

 

   

Preferred stock, $0.01 par value, 25,000,000 shares authorized

 

 

 —

 

 

 —

Common stock, $0.01 par value, 320,000,000 shares authorized, 107,878,289 shares issued and outstanding at September 30, 2019 and 109,434,841 shares issued and outstanding at December 31, 2018

 

 

36.4

 

 

36.4

Additional paid-in capital

 

 

4,377.8

 

 

4,378.4

Accumulated deficit

 

 

(4,367.7)

 

 

(4,307.9)

Total stockholders’ equity

 

 

46.5

 

 

106.9

Total liabilities and stockholders’ equity

 

$

685.5

 

$

743.7

The accompanying notes are an integral part of these consolidated financial statements.

5

FTS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30,

(In millions)

  

2019

  

2018

Cash flows from operating activities

 

 

   

 

 

   

Net (loss) income

 

$

(59.9)

 

$

231.9

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

67.9

 

 

62.4

Stock-based compensation

 

 

9.6

 

 

8.2

Amortization of debt discounts and issuance costs

 

 

1.4

 

 

2.0

Impairment of assets

 

 

9.7

 

 

 —

(Gain) loss on disposal of assets, net

 

 

(1.0)

 

 

0.2

(Gain) loss on extinguishment of debt, net

 

 

(1.2)

 

 

10.7

(Gain) sale of equity interest in joint venture affiliate

 

 

(7.0)

 

 

 —

Inventory write-down

 

 

1.4

 

 

 —

Non-cash provision for supply commitment charges

 

 

57.6

 

 

16.0

Cash paid to settle supply commitment charges

 

 

(16.1)

 

 

(2.1)

Other non-cash items

 

 

1.6

 

 

1.8

Changes in operating assets and liabilities:

 

 

   

 

 

   

Accounts receivable

 

 

38.7

 

 

16.0

Accounts receivable from related parties

 

 

 —

 

 

(4.4)

Inventories

 

 

16.8

 

 

(23.3)

Prepaid expenses and other assets

 

 

(6.9)

 

 

1.1

Accounts payable

 

 

(28.5)

 

 

(25.2)

Accrued expenses and other liabilities

 

 

5.8

 

 

7.3

Net cash provided by operating activities

 

 

89.9

 

 

302.6

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

   

 

 

   

Capital expenditures

 

 

(39.5)

 

 

(84.9)

Proceeds from disposal of assets

 

 

1.9

 

 

1.0

Proceeds from sale of equity interest in joint venture affiliate

 

 

30.7

 

 

 —

Net cash used in investing activities

 

 

(6.9)

 

 

(83.9)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

   

 

 

   

Repayments of long-term debt

 

 

(46.4)

 

 

(569.3)

Repurchase of common stock

 

 

(8.3)

 

 

 —

Taxes paid related to net share settlement of equity awards

 

 

(1.9)

 

 

 —

Net proceeds from issuance of common stock

 

 

 —

 

 

303.0

Payments of revolving credit facility issuance costs

 

 

 —

 

 

(2.4)

Net cash used in financing activities

 

 

(56.6)

 

 

(268.7)

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

26.4

 

 

(50.0)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

177.8

 

 

217.2

Cash and cash equivalents at end of period

 

$

204.2

 

$

167.2

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

 

$

17.9

 

$

32.7

Income tax payments

 

$

2.5

 

$

0.9

Noncash investing and financing activities:

 

 

 

 

 

 

Capital expenditures included in accounts payable

 

$

3.3

 

$

6.3

Operating lease liabilities incurred from obtaining right-of-use assets

 

$

10.9

 

$

 —

The accompanying notes are an integral part of these consolidated financial statements.

6

FTS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

(Dollars in millions and shares in thousands)

  

Shares

  

Amount

  

Capital

  

Deficit

  

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

109,435

 

$

36.4

 

$

4,378.4

 

$

(4,307.9)

 

$

106.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(55.0)

 

 

(55.0)

Cumulative effect of accounting change

 

 —

 

 

 —

 

 

 —

 

 

0.1

 

 

0.1

Activity related to stock plans

 

364

 

 

 —

 

 

1.3

 

 

 —

 

 

1.3

Balance at March 31, 2019

 

109,799

 

$

36.4

 

$

4,379.7

 

$

(4,362.8)

 

$

53.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

5.9

 

 

5.9

Repurchase of common stock

 

(761)

 

 

 —

 

 

(4.6)

 

 

 —

 

 

(4.6)

Activity related to stock plans

 

55

 

 

 —

 

 

3.4

 

 

 —

 

 

3.4

Balance at June 30, 2019

 

109,093

 

$

36.4

 

$

4,378.5

 

$

(4,356.9)

 

$

58.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(10.8)

 

 

(10.8)

Repurchase of common stock

 

(1,215)

 

 

 —

 

 

(3.7)

 

 

 —

 

 

(3.7)

Activity related to stock plans

 

 —

 

 

 —

 

 

3.0

 

 

 —

 

 

3.0

Balance at September 30, 2019

 

107,878

 

$

36.4

 

$

4,377.8

 

$

(4,367.7)

 

$

46.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

(Dollars in millions and shares in thousands)

  

Shares

  

Amount

  

Capital

  

Deficit

  

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2018

 

51,783

 

$

35.9

 

$

3,712.1

 

$

(4,566.3)

 

$

(818.3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

78.7

 

 

78.7

Activity related to stock plans

 

 —

 

 

 —

 

 

1.6

 

 

 —

 

 

1.6

Recapitalization of convertible preferred
stock to common stock

 

39,415

 

 

0.4

 

 

349.4

 

 

 —

 

 

349.8

Issuance of common stock

 

18,077

 

 

0.1

 

 

302.9

 

 

 —

 

 

303.0

Balance at March 31, 2018

 

109,275

 

$

36.4

 

$

4,366.0

 

$

(4,487.6)

 

$

(85.2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

103.6

 

 

103.6

Activity related to stock plans

 

 —

 

 

 —

 

 

3.4

 

 

 —

 

 

3.4

Balance at June 30, 2018

 

109,275

 

$

36.4

 

$

4,369.4

 

$

(4,384.0)

 

$

21.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

49.6

 

 

49.6

Activity related to stock plans

 

 —

 

 

 —

 

 

3.2

 

 

 —

 

 

3.2

Balance at September 30, 2018

 

109,275

 

$

36.4

 

$

4,372.6

 

$

(4,334.4)

 

$

74.6

The accompanying notes are an integral part of these consolidated financial statements.

7

FTS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1 — BASIS OF PRESENTATION

Unless the context requires otherwise, the use of the terms “FTSI,” “Company,” “we,” “us,” “our” or “ours” in these Notes to Consolidated Financial Statements refer to FTS International, Inc., together with its consolidated subsidiaries. The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. Accordingly, certain information and disclosures normally included in our annual consolidated financial statements have been condensed or omitted. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2018. In our opinion, the consolidated financial statements included herein contain all adjustments of a normal, recurring nature considered necessary for a fair presentation of the interim periods. The results of operations of the interim periods are not necessarily indicative of the results of operations to be expected for the full year. There were no items of other comprehensive income in the periods presented. The Company had $9.1 million of restricted cash at January 1, 2018 and zero restricted cash at September 30, 2019 and 2018.

Reclassifications

Current liabilities related to accrued supply commitment charges have been reclassified from accounts payable to other current liabilities on the balance sheet as of December 31, 2018, and the statement of cash flows for the nine months ended September 30, 2018. These reclassifications had no effect on total assets, total liabilities, total equity, or net cash provided by operating activities as previously reported.

New Accounting Standards Updates

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases. The FASB subsequently issued a number of additional ASUs to update this guidance. This standard was issued to increase transparency and comparability among organizations by requiring that a right-of-use asset and corresponding lease liability be recorded on the balance sheet for leases with terms longer than 12 months. We elected to use three practical expedients allowed under the guidance. According to these practical expedients we did not reassess whether existing contracts are or contain a lease; we did not reassess whether existing leases are operating or finance leases; and we did not reassess the accounting for initial direct costs for existing leases. Our approach to adopting this new standard included a review of existing leases and other executory contracts that could contain embedded leases and we identified the key terms that were necessary for us to calculate the right-of-use asset and lease liability. These consolidated financial statements have been prepared in accordance with the new ASU utilizing the modified retrospective transition method, which resulted in the recording of operating lease liabilities of $38.7 million as of January 1, 2019 on our consolidated balance sheet with an immaterial effect on our consolidated statement of stockholders’ equity (deficit) and no related effect on our consolidated statement of operations.

 

 

NOTE 2 — JOINT VENTURE

In August 2019, FTSI closed on the sale of its 45% equity ownership interest in SinoFTS Petroleum Services Ltd., FTSI’s joint venture in China, to Sinopec Oilfield Services Corporation, FTSI’s joint venture partner. In exchange, FTSI, through its affiliate FTS International Netherlands B.V., received consideration of $26.9 million for the sale of its equity interest, and through FTS International Services, LLC, received a royalty fee of $5.8 million for a license for its intellectual property use and for future limited support of the joint venture’s operations. After conducting an analysis of the relative fair values of the equity interest and royalty fee, FTSI allocated $30.7 million of the total consideration received to the sale of its equity interest and $2.0 million to the prepaid royalty fee. FTSI recognized a gain of $7.0 million on the sale of its equity interest. The prepaid royalty fee will be recognized over approximately the next six years.

 

8

NOTE 3 — INDEBTEDNESS AND BORROWING FACILITY

The following table summarizes our long-term debt:

 

 

 

 

 

 

 

 

  

September 30,

  

December 31,

(In millions)

  

2019

  

2018

Term loan due April 2021 ("Term Loan")

 

$

90.0

 

$

121.0

Senior notes due May 2022 ("2022 Senior Notes")

 

 

369.9

 

 

386.9

Total principal amount

 

 

459.9

 

 

507.9

Less unamortized discount and debt issuance costs

 

 

(3.3)

 

 

(4.7)

Total long-term debt

 

$

456.6

 

$

503.2

Estimated fair value of long-term debt

 

$

396.4

 

$

461.2

 

Estimated fair values for our  Term Loan and 2022 Senior Notes were determined using recent trading activity and/or bid-ask spreads and are classified as Level 2 in the FASB’s fair value hierarchy. We believe we were in compliance with all of the covenants in our debt agreements at September 30, 2019.

Debt Repayments

In the first nine months of 2019, we repaid $31.0 million of aggregate principal amount of Term Loan using cash on hand. We recognized a loss on this debt extinguishment of $0.2 million.

In the first nine months of 2019, we repurchased $17.0 million of aggregate principal amount of 2022 Senior Notes in the qualified institutional buyer market using cash on hand. We recognized a gain on this debt extinguishment of $1.4 million.

Revolving Credit Facility

The maximum availability of credit under our revolving credit facility is limited at any time to the lesser of $250 million or a borrowing base. The borrowing base is based on percentages of eligible accounts receivable and eligible inventory and is subject to certain reserves. In an event of default or if the amount available under the credit facility is less than either 10% of our maximum availability or $12.5 million, we will be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0. If at any time borrowings and letters of credit issued under the credit facility exceed the borrowing base, we will be required to repay an amount equal to such excess.

As of September  30, 2019, the borrowing base was $94.8 million and therefore our maximum availability under the credit facility was $94.8 million. As of September  30, 2019, there were no borrowings outstanding under the credit facility, and letters of credit totaling $4.3 million were issued, resulting in $90.5 million of availability under the credit facility.

We believe we were in compliance with all of the covenants in the credit facility at September  30, 2019.

NOTE 4 — LEASES

We lease certain administrative offices, sales offices, and operational facilities. We also lease some service equipment and light duty vehicles. These leases have remaining lease terms of 6 years or less. Some leases contain options to extend the leases, and some include options to terminate the leases. We do not include renewal or termination options in our assessment of the lease terms unless extension or termination for certain assets is deemed to be reasonably certain. The accounting for some of our leases requires significant judgment, which includes determining whether a contract contains a lease, determining the incremental borrowing rates, if necessary, to utilize in the calculation of our lease liabilities, and assessing the likelihood of renewal or termination options. We also have some lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.

We provide residual value guarantees for our leases of light-duty vehicles and certain service equipment. No amounts related to these residual value guarantees have been deemed probable and included in the lease liabilities on our consolidated balance sheet; however, if the value for all of the vehicles was zero and if we cancelled these leases at September 30, 2019, we would be required to pay a total of $12.9 million in residual value guarantees.

9

We had no material amount of finance leases or subleases at September  30, 2019. We had no material variable lease costs for the three or nine months ended September  30, 2019. The following table summarizes the components of our lease costs:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(In millions)

  

2019

  

2019

Operating lease cost

 

$

4.7

 

$

16.7

Short-term lease cost

 

 

1.5

 

 

4.2

Total lease cost

 

$

6.2

 

$

20.9

 

Short-term lease costs represent costs related to leases with terms of one year or less. We elected the practical expedient to not recognize lease assets and liabilities for these leases. The following table includes other supplemental information for our operating leases:

 

 

 

 

 

  

Nine Months Ended

 

 

September 30,

(Dollars in millions)

  

2019

Cash paid for amounts included in the measurement of our lease obligations

 

$

16.9

Right-of-use assets obtained in exchange for lease obligations

 

$

10.9

Right-of-use assets recognized upon adoption of the leasing standard

 

$

37.8

Weighted-average remaining lease term

 

 

2.5 years

Weighted-average discount rate

 

 

5.0%

 

The following table summarizes the maturity of our operating leases as of September  30, 2019:

 

 

 

 

 

  

 

(In millions)

  

 

Remainder of 2019

 

$

4.4

2020

 

 

15.4

2021

 

 

11.0

2022

 

 

1.2

2023

 

 

1.2

2024 and thereafter

 

 

1.0

Total lease payments

 

 

34.2

Less imputed interest

 

 

(2.0)

Total lease liabilities

 

$

32.2

 

 

 

 

NOTE 5 — SHARE REPURCHASE

In May 2019, our board of directors (our “Board”) approved an authorization for a total share repurchase of up to $100 million of the Company’s common stock to be executed through open market or private transactions. The authorization expires on May 14, 2020 and may be discontinued at any time. For the first nine months of 2019 we repurchased approximately 1,975,000 shares of common stock at an average price of $4.21 per share for a total of $8.3 million. At September  30, 2019,  $91.7 million of the authorized amount was available for share repurchases under this program.

The amount and timing of share repurchases are at the sole discretion of the Company, and plans for future share repurchases may be revised by the Board at any time. The share repurchase program could be affected by, among other things, changes in results of operations, capital expenditures, cash flows, and applicable tax laws.

 

 

10

NOTE 6 — REVENUE

The Company contracts with its customers to perform hydraulic fracturing services on one or more oil or natural gas wells. Under these arrangements, we satisfy our performance obligations as services are rendered, which is generally upon the completion of a fracturing stage or the passage of time. Pricing for our services is frequently negotiated with our customers and is based on prevailing market rates during each reporting period. The amounts we invoice our customers for services performed during a period are directly related to the value received by the customers for the period. There is no inherent uncertainty to the amount of consideration we will receive for services performed during a period and no judgment is required to allocate a portion of the transaction price to a future period. Accordingly, we are not required to identify any unsatisfied performance obligations nor attribute any revenue to them. We have no material contract assets or liabilities with our customers. We do not present disaggregated revenue because we do not believe this information is necessary to understand the nature, amount, timing and uncertainty of our revenues and cash flows.

NOTE 7 — IMPAIRMENTS AND OTHER CHARGES

The following table summarizes our impairments and other charges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(In millions)

  

2019

  

2018

  

2019

  

2018

Supply commitment charges

 

$

0.9

 

$

10.0

 

$

57.6

 

$

16.0

Impairment of assets

 

 

4.2

 

 

 —

 

 

9.7

 

 

 —

Inventory write-down

 

 

 —

 

 

 —

 

 

1.4

 

 

 —

Total impairments and other charges

 

$

5.1

 

$

10.0

 

$

68.7

 

$

16.0

 

Supply Commitment Charges

We incur supply commitment charges when our purchases of sand from certain suppliers are less than the minimum purchase commitments in our supply contracts. According to the accounting guidance for firm purchase commitments, future losses that are considered likely are also required to be recorded in the current period.

During the first nine months of 2019 and 2018, we recorded aggregate charges under these supply contracts of $57.6 million and $16.0 million, respectively. These charges relate to actual purchase shortfalls incurred, as well as forecasted losses expected to be incurred and settled in future periods. These purchase shortfalls are largely due to our customers choosing to procure their own sand, often from sand mines closer to their operating areas.

In May 2019, we restructured and amended our largest sand supply contract to reduce the total remaining commitment through 2024 by approximately $162 million. This reduced our annual commitment from $47.9 million to $21.0 million from 2019 through 2024. The reduced annual commitments of $21.0 million represent the annual payments we would make under the contract if we do not purchase any sand from this vendor. Due to the terms of the amended agreement and our estimated future purchases under this contract, we determined that we would not be able to satisfy $11.0 million of the $21.0 million annual commitment with sand purchases for the last five years of the contract. Therefore, in connection with this amendment, we recorded a supply commitment charge of $55.0 million in the first quarter of 2019 to accelerate these purchase shortfalls. After recording the $55.0 million supply commitment charge in the first quarter of 2019, the amount of accrued supply commitment charges for future periods that was recognized on our consolidated balance sheet at March 31, 2019 was $66.0 million. We paid $11.0 million of this amount in the second quarter of 2019 and we expect to pay the remaining $55.0 million in annual installments of $11.0 million from January 2020 through January 2024. These payments may be accelerated under limited circumstances. The remaining amount of the 2019 charges represent revised estimates of our purchase shortfalls under this contract for 2019.

After recording the $55.0 million supply commitment charge, the remaining annual purchase commitment that we must satisfy to avoid additional charges is $10.0 million. We will satisfy this annual purchase commitment if we purchase at least 1.0 million tons of sand per year, which we believe better matches our current and forecasted sand needs. If we purchase more than 1.0 million tons of sand in a year, then we could recover a portion of the supply commitment charge.

11

We entered into this contract in 2013 in connection with selling our sand mines, which was at a time when our then current and expected needs for sand were significantly higher than they are today. As our sand needs have declined over the years due to industry cycles and due to our customers choosing to procure their own sand, we and our supplier have continuously worked together to accommodate changing market conditions by amending the contract.

Estimated losses related to these supply contracts contain uncertainties, such as future customer demand and sand preferences. These uncertainties require us to use judgment to quantify these estimates. Actual results could materially differ from our estimates.

Fleet Capacity Reduction

In the fourth quarter of 2019, we decided to dispose of certain idle equipment where we now believe there is no expectation of future use. The equipment we have selected for disposal is comprised primarily of hydraulic fracturing pumps that are substantially depreciated. Certain hydraulic fracturing components, such as engines and transmissions that we believe to have remaining useful lives, will be removed prior to disposing of the equipment and used in our maintenance and repair activities for our remaining fleets. These disposals will reduce our capacity of equipment from 34 total fleets to 28 total fleets. The amount of proceeds we anticipate receiving from these disposals is not significant. We recorded an asset impairment of $4.2 million in connection with these anticipated disposals.

Discontinued Wireline Operations

In May 2019, we decided to discontinue our wireline operations due to underperformance. We are in the process of identifying the best options for disposing of these assets. As a result of this decision, we recorded an asset impairment of $2.8 million and an inventory write-down of $1.4 million in the first quarter of 2019 to adjust these assets to their estimated fair market values and net realizable values, respectively.

Other Impairments

In the second quarter of 2019, we recorded $2.7 million of impairments for certain land and buildings that we no longer use. We are closely monitoring current industry conditions and future expectations. If  current industry conditions continue for a prolonged period or worsen, we may be subject to impairments of long-lived assets or intangible assets in future periods.

NOTE 8 — INCOME TAXES

In 2012, we established a full valuation allowance with respect to our U.S. federal deferred tax assets and state deferred tax assets in excess of our deferred tax liabilities. We have continued to record a valuation allowance for these net deferred tax assets since 2012. As a result, we only recorded income tax expense for the three and nine months ended September  30, 2019 and 2018 for states that limit the deduction of net operating loss carryforwards and for foreign income taxes. Deferred tax assets related to our U.S. federal and state operating losses are still available to us to offset future taxable income, subject to limitations in the event of a change of control under Section 382 of the Internal Revenue Code. At September  30, 2019, we had not incurred such an ownership change.

At each reporting date, we consider all available positive and negative evidence to evaluate whether our deferred tax assets are more likely than not to be realized. A significant piece of negative evidence that we consider is that the Company generated a loss before income taxes for each year from 2012 to 2016. Such negative evidence weighs heavily against other more subjective positive evidence such as projections for future taxable income.

The Company generated income before income taxes in 2017 and 2018 and has generated cumulative income for its most recent three year period. This represents positive evidence that we may be able to realize some or all of our deferred tax assets; however, due to the negative evidence of our annual losses generated from 2012 through 2016, the significant cyclicality of our business in recent years,  and our loss before income taxes for the first nine months of 2019, we concluded that a full valuation allowance was still required at September  30, 2019.

12

NOTE 9  — EARNINGS PER SHARE 

The numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for our common stock are calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(In millions, except per share amounts)

  

2019

  

2018

  

2019

  

2018

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(10.8)

 

$

49.6

 

$

(59.9)

 

$

231.9

Net reversal of convertible preferred stock
accretion due to recapitalization of convertible
preferred stock to common stock (1)

 

 

 —

 

 

 —

 

 

 —

 

 

423.2

Net (loss) income attributable to common
stockholders used for basic and diluted EPS computation

 

$

(10.8)

 

$

49.6

 

$

(59.9)

 

$

655.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used for
basic EPS computation

 

 

108.6

 

 

109.3

 

 

109.3

 

 

102.4

Dilutive potential common shares (2)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Number of shares used for diluted EPS computation

 

 

108.6

 

 

109.3

 

 

109.3

 

 

102.4

Basic and diluted EPS