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ChampionX Corp - Quarter Report: 2021 June (Form 10-Q)


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 June 30, 2021
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: 001-38441
ChampionX Corporation
(Exact name of registrant as specified in its charter)
Delaware82-3066826
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2445 Technology Forest Blvd,Building 4, 12th Floor
The Woodlands,Texas77381
(Address of principal executive offices)(Zip Code)
(281) 403-5772
(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueCHXThe Nasdaq Stock Market LLC

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 filerAccelerated filer
Non-accelerated filerSmaller 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 

The registrant had 201,802,181 shares of common stock, $0.01 par value, outstanding as of July 23, 2021.



CHAMPIONX CORPORATION

TABLE OF CONTENTS

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words “believe,” “anticipate,” “expect,” “may,” “intend,” “foresee,” “guidance,” “estimate,” “potential,” “outlook,” “plan,” “should,” “would,” “could,” “target,” “forecast” and similar expressions, including the negative thereof. The absence of these words, however, does not mean that the statements are not forward-looking statements. Forward-looking statements are based on our current expectations, beliefs and assumptions concerning future developments and business conditions and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate.

All of our forward-looking statements involve risks, uncertainties (some of which are significant or beyond our control) and assumptions that could cause actual results to materially differ from our historical experience and our present expectations or projections. Known material factors that could cause actual results to materially differ from those contemplated in the forward-looking statements are those set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update, revise or correct any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except to the extent required under the federal securities laws.



PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands, except per share data)2021202020212020
Product revenue$649,399 $248,871 $1,234,756 $473,316 
Service revenue81,223 36,846 161,849 61,770 
Lease and other revenue18,550 13,197 37,455 25,262 
Total revenue749,172 298,914 1,434,060 560,348 
Cost of goods and services569,167 266,684 1,091,723 445,779 
Gross profit180,005 32,230 342,337 114,569 
Selling, general and administrative expense152,341 130,657 295,819 208,800 
Goodwill impairment— — — 616,271 
Long-lived asset impairment— — — 40,980 
Interest expense, net14,064 11,262 28,035 20,301 
Other (income) expense, net2,251 312 315 (1,321)
Income (loss) before income taxes11,349 (110,001)18,168 (770,462)
Provision for (benefit from) income taxes3,563 (954)6,345 (27,960)
Net income (loss)7,786 (109,047)11,823 (742,502)
Less: Net income (loss) attributable to noncontrolling interest536 598 (1,199)871 
Net income (loss) attributable to ChampionX$7,250 $(109,645)$13,022 $(743,373)
Earnings (losses) per share attributable to ChampionX: *
Basic$0.04 $(0.95)$0.06 $(7.72)
Diluted$0.03 $(0.95)$0.06 $(7.72)
Weighted-average shares outstanding: *
Basic201,467 115,149 201,063 96,313 
Diluted208,541 115,149 207,939 96,313 
_______________________
* See Note 11—Earnings Per Share

The accompanying notes are an integral part of the condensed consolidated financial statements.
1




CHAMPIONX CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2021202020212020
Net income (loss)$7,786 $(109,047)$11,823 $(742,502)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments8,332 5,703 11,545 (5,349)
Cash flow hedges(277)653 136 653 
Defined pension and other post-retirement benefits adjustments, net6,373 99 6,540 198 
Other comprehensive income (loss)14,428 6,455 18,221 (4,498)
Comprehensive income (loss)22,214 (102,592)30,044 (747,000)
Comprehensive income (loss) attributable to noncontrolling interest536 598 (1,199)871 
Comprehensive income (loss) attributable to ChampionX$21,678 $(103,190)$31,243 $(747,871)


The accompanying notes are an integral part of the condensed consolidated financial statements.
2




CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)June 30, 2021December 31, 2020
ASSETS
Cash and cash equivalents$238,995 $201,421 
Receivables, net576,090 559,545 
Inventories, net467,594 430,112 
Prepaid expenses and other current assets67,360 74,767 
Total current assets1,350,039 1,265,845 
Property, plant and equipment, net of accumulated depreciation of $541,796 in 2021 and $494,490 in 2020
818,928 854,536 
Operating lease right-of-use assets118,898 122,481 
Goodwill690,134 680,594 
Intangible assets, net436,027 479,009 
Other non-current assets71,984 73,311 
Total assets$3,486,010 $3,475,776 
LIABILITIES AND EQUITY
Current portion of long-term debt$26,850 $26,850 
Accounts payable391,213 299,666 
Accrued compensation and employee benefits69,315 70,303 
Current portion of operating lease liabilities35,471 33,234 
Accrued distributor fees28,813 37,465 
Accrued expenses and other current liabilities134,916 155,042 
Total current liabilities686,578 622,560 
Long-term debt838,826 905,764 
Deferred income taxes144,418 156,283 
Operating lease liabilities77,344 83,553 
Other long-term liabilities79,887 95,041 
Total liabilities1,827,053 1,863,201 
Stockholders’ equity: 
Common stock (2.5 billion shares authorized, $0.01 par value)
201.7 million shares and 200.4 million shares issued and outstanding in 2021 and 2020, respectively
2,017 2,004 
Capital in excess of par value of common stock2,310,267 2,293,179 
Accumulated deficit(625,435)(638,457)
Accumulated other comprehensive loss(12,534)(30,755)
ChampionX stockholders’ equity1,674,315 1,625,971 
Noncontrolling interest(15,358)(13,396)
Total equity1,658,957 1,612,575 
Total liabilities and equity$3,486,010 $3,475,776 

The accompanying notes are an integral part of the condensed consolidated financial statements.
3




CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

Common stock
(in thousands)SharesPar
Value
Capital in Excess of Par ValueAccum. DeficitAccum.
Other
Comp.
Loss
Non-controlling InterestTotal
December 31, 2020200,380 $2,004 $2,293,179 $(638,457)$(30,755)$(13,396)$1,612,575 
Net income (loss)— — — 5,772 — (1,735)4,037 
Other comprehensive income— — — — 3,793 — 3,793 
Stock-based compensation64 — 6,442 — — — 6,442 
Stock options exercised577 3,341 — — — 3,347 
Taxes withheld on issuance of stock-based awards— — (556)— — — (556)
Cumulative translation adjustments— — — — — 268 268 
Distributions to noncontrolling interest— — — — — (800)(800)
March 31, 2021201,021 $2,010 $2,302,406 $(632,685)$(26,962)$(15,663)$1,629,106 
Net income (loss)— — — 7,250 — 536 7,786 
Other comprehensive income— — — — 14,428 — 14,428 
Stock-based compensation101 — 5,914 — — — 5,914 
Stock options exercised578 3,155 — — — 3,162 
Taxes withheld on issuance of stock-based awards— — (1,208)— — — (1,208)
Cumulative translation adjustments— — — — — (231)(231)
June 30, 2021201,700 $2,017 $2,310,267 $(625,435)$(12,534)$(15,358)$1,658,957 

4




Common Stock
(in thousands)SharesPar
Value
Capital in Excess of Par ValueRetained Earnings (Accum. Deficit)Accum.
Other
Comp.
Loss
Non-controlling InterestTotal
December 31, 201977,460 $775 $969,174 $107,048 $(44,037)$3,254 $1,036,214 
Cumulative effect of accounting changes— — — (1,573)— — (1,573)
Net income (loss)— — — (633,728)— 273 (633,455)
Other comprehensive loss— — — — (10,953)— (10,953)
Stock-based compensation44 — 2,429 — — — 2,429 
Taxes withheld on issuance of stock-based awards— — (368)— — — (368)
March 31, 202077,504 $775 $971,235 $(528,253)$(54,990)$3,527 $392,294 
Issuance of common stock related to the Merger122,237 1,223 1,262,708 — — — 1,263,931 
Issuance of replacement awards related to the Merger— — 43,964 — — — 43,964 
Non-controlling interest acquired in the Merger— — — — — (16,015)(16,015)
Net income (loss)— — — (109,645)— 598 (109,047)
Other comprehensive income— — — — 6,455 — 6,455 
Stock-based compensation67 — 5,433 — — — 5,433 
Taxes withheld on issuance of stock-based awards— — (244)— — — (244)
Distributions to noncontrolling interest— — — — — (2,200)(2,200)
Other— — — 37 — (12)25 
June 30, 2020199,808 $1,998 $2,283,096 $(637,861)$(48,535)$(14,102)$1,584,596 

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


5




CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended June 30,
(in thousands)20212020
Cash flows from operating activities:  
Net income (loss)$11,823 $(742,502)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation76,648 58,139 
Amortization43,739 26,274 
Stock-based compensation12,356 7,862 
Loss on disposal of fixed assets3,176 4,040 
Loss on goodwill and long-lived asset impairment— 657,251 
Loss on debt extinguishment3,305 — 
Provision for bad debt86 3,498 
Provision for inventory obsolescence and write-downs 6,200 8,354 
Amortization of deferred loan costs and accretion of discount1,628 1,999 
Deferred income taxes(1,757)(24,682)
Employee benefit plan expense1,250 859 
Other167 (264)
Changes in operating assets and liabilities (net of effects of foreign exchange):
Receivables(18,706)77,777 
Inventories(41,586)24,794 
Prepaid expenses and other current assets9,215 22,088 
Accounts payable92,997 (30,331)
Accrued compensation and employee benefits(2,444)(13,846)
Accrued expenses and other liabilities(46,447)4,717 
Leased assets(1,609)(9,311)
Other1,097 1,317 
Net cash provided by operating activities151,138 78,033 
Cash flows from investing activities:  
Capital expenditures(45,680)(19,322)
Acquisitions, net of cash acquired— 57,588 
Proceeds from sale of fixed assets2,482 1,066 
Net cash (used for) provided by investing activities(43,198)39,332 
Cash flows from financing activities:  
Proceeds from long-term debt— 125,000 
Payment of debt issue costs— (4,356)
Repayment of long-term debt(71,113)(125,000)
Distributions to noncontrolling interest(800)(2,200)
Payment of finance lease obligations(2,575)(2,802)
Proceeds from exercise of stock options6,509 — 
Payments related to taxes withheld on stock-based compensation(1,764)(612)
Net cash used for financing activities(69,743)(9,970)
Effect of exchange rate changes on cash and cash equivalents(623)(790)
Net increase (decrease) in cash and cash equivalents37,574 106,605 
Cash and cash equivalents at beginning of period201,421 35,290 
Cash and cash equivalents at end of period$238,995 $141,895 
The accompanying notes are an integral part of the condensed consolidated financial statements.
6


CHAMPIONX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of the Business

ChampionX Corporation is a global leader in chemistry solutions and highly engineered equipment and technologies that help companies drill for and produce oil and gas safely and efficiently around the world. Our products provide efficient functioning throughout the lifecycle of a well with a focus on the production phase of wells.

Unless the context requires otherwise, references in this report to “we,” “us,” “our,” “the Company,” or “ChampionX” mean ChampionX Corporation, together with our subsidiaries where the context requires.

On June 3, 2020, the Company and Ecolab Inc. (“Ecolab”) completed a Reverse Morris Trust transaction in which we acquired the Chemical Technologies business (“the Merger”). In association with the completion of the Merger, the Company changed its name from Apergy Corporation (“Apergy”) to ChampionX Corporation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of ChampionX have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial information. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the audited consolidated financial statements, and notes thereto, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions that we may undertake in the future, actual results may differ from our estimates. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments unless otherwise specified) necessary for a fair statement of our financial condition and results of operations as of and for the periods presented. Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these financial statements may not be representative of the results that may be expected for the year ending December 31, 2021.

Significant Accounting Policies

Please refer to "Note 1Basis of Presentation and Summary of Significant Accounting Policies," to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for the discussion of our significant accounting policies.

New Accounting Standards

All new accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.
7


NOTE 2—MERGER TRANSACTION

On June 3, 2020 we completed the acquisition of the Chemical Technologies business. To complete the acquisition, we issued 122.2 million shares of common stock, at a share price of $10.34 per share, in exchange for 100% equity ownership of Chemical Technologies.

Purchase Price Allocation

The acquisition-date fair value of the consideration transferred consisted of the following:
(in thousands)
Equity consideration$1,263,931 
Replacement awards attributable to pre-combination services(1)
43,964 
Unfavorable supply agreement(2)
46,000 
Favorable supply agreement(2)
(59,000)
Fair value of consideration transferred$1,294,895 
_______________________
(1) Represents the fair value of the replacement equity awards to the extent services were provided by employees of Chemical Technologies prior to closing.
(2) As part of the Merger, the Company entered into a Cross Supply and Product Transfer Agreement with Ecolab in which over a period of approximately three years from the merger date, certain products will be manufactured by one party for the other. The cross selling prices in which each party will transfer their products, and include a take-or-pay element, have been set forth within this agreement and are not reflective of market terms. As a result, we recognized an intangible asset recorded at fair value for the favorable terms and a liability recorded at fair value for the unfavorable terms. The intangible asset will be amortized on a straight-line basis over a three-year period into cost of goods and services and the liability will be amortized as a component of product revenue.

The following table provides the final allocation of the purchase price as of the acquisition date.
(in thousands)
Cash and cash equivalents$57,588 
Receivables394,432 
Inventories340,000 
Prepaid expenses and other current assets63,576 
Property, plant, and equipment687,085 
Identifiable intangible assets(1)
290,000 
Other non-current assets156,427 
Total identifiable assets acquired1,989,108 
Accounts payable184,028 
Other current liabilities(1)
172,997 
Long-term debt (2)
537,000 
Deferred tax liabilities103,956 
Other liabilities(1)
98,970 
Total liabilities assumed1,096,951 
Net identifiable assets acquired892,157 
Add: Negative fair value of non-controlling interests16,052 
Goodwill386,686 
Total net assets acquired$1,294,895 
_______________________
(1) The fair value of the consideration transferred related to the favorable and unfavorable terms of the cross supply agreement has been excluded.
(2) In connection with the Merger, we assumed a term loan from Chemical Technologies, of which approximately $26.9 million has been classified as short-term representing the mandatory amortization payments due within the next twelve months. See Note 6—Debt for further information.

8


Pro forma financial information

The following unaudited pro forma results of operations have been prepared as though the Merger was completed on January 1, 2019. Pro forma amounts are based on the preliminary purchase price allocation of the acquisition and are not necessarily indicative of results that may be reported in the future. Non-recurring pro forma adjustments including acquisition-related costs directly attributable to the Merger are included within the reported pro forma revenue and net income (loss).
Three Months Ended June 30,Six Months Ended June 30,
(in thousands, except per share data)20202020
Revenues$614,684 $1,435,379 
Net income (loss) attributable to ChampionX(60,100)(794,525)

Included in the net income (loss) attributable to ChampionX on a pro forma basis were goodwill and long-lived asset impairment charges of $805.0 million during the six months ended June 30, 2020.

9


NOTE 3—SEGMENT INFORMATION

Our reporting segments are:

Production Chemical Technologies—provides oil and natural gas production and midstream markets with solutions to manage and control corrosion, oil and water separation, flow assurance, sour gas treatment and a host of water-related issues.

Production & Automation Technologies—designs, manufactures, markets and services a full range of artificial lift equipment, end-to-end digital automation solutions, as well as other production equipment and asset monitoring technologies. Production & Automation Technologies’ products are sold under a collection of brands including Harbison-Fischer, Norris, Alberta Oil Tool, Oil Lift Technology, PCS Ferguson, Pro-Rod, Upco, Unbridled ESP, Norriseal-Wellmark, Quartzdyne, Spirit, Theta, Timberline and Windrock.

Drilling Technologies—designs, manufactures and markets polycrystalline diamond cutters and bearings for use in oil and gas drill bits under the US Synthetic brand.

Reservoir Chemical Technologies—manufactures specialty products that support well stimulation, construction (including drilling and cementing) and remediation needs in the oil and natural gas industry.

Business activities that do not meet the criteria of an operating segment have been combined into Corporate and other. Corporate and other includes (i) corporate and overhead expenses, and (ii) revenue and costs for activities that are not operating segments.

Segment revenue and segment operating profit were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Segment revenue:  
Production Chemical Technologies$447,049 $136,002 $859,420 $136,002 
Production & Automation Technologies188,173 114,741 355,018 320,220 
Drilling Technologies37,589 20,948 72,583 76,903 
Reservoir Chemical Technologies33,222 9,306 63,113 9,306 
Corporate and other (1)
43,139 17,917 83,926 17,917 
Total revenue$749,172 $298,914 $1,434,060 $560,348 
Segment operating profit (loss):  
Production Chemical Technologies$33,871 $9,922 $64,228 $9,922 
Production & Automation Technologies12,292 (37,168)17,654 (685,759)
Drilling Technologies3,868 (3,811)10,254 7,548 
Reservoir Chemical Technologies(2,594)(2,811)(5,822)(2,811)
Total segment operating profit (loss)47,437 (33,868)86,314 (671,100)
Corporate and other (1)
22,024 64,871 40,111 79,061 
Interest expense, net14,064 11,262 28,035 20,301 
Income (loss) before income taxes$11,349 $(110,001)$18,168 $(770,462)
_______________________
(1)    Corporate and other includes costs not directly attributable or allocated to our reporting segments such as corporate executive management and other administrative functions, and the results attributable to our noncontrolling interest. Additionally, the sales and expenses related to the Cross Supply Agreement with Ecolab are included within Corporate and other. See Note 2—Merger Transaction for further information.



10


NOTE 4—REVENUE

Our revenue is generated primarily from product sales. Service revenue is generated from providing services to our customers. These services include installation, repair and maintenance, laboratory and logistics services, chemical management services, troubleshooting, reporting, water treatment services, technical advisory assistance, asset monitoring, and other field services. Lease revenue is derived from rental income of leased production equipment. These lease arrangements generally allow customers to rent equipment on a daily basis with no stated end date. Management accounts for these arrangements as a daily renewal option beginning on the lease commencement date, with the lease term determined as the period in which it is reasonably certain the option will be exercised. As our costs are shared across the various revenue categories, cost of goods sold is not tracked separately and is not discretely identifiable.

Revenue disaggregated by geography was as follows:
Three Months Ended June 30, 2021
(in thousands)Production Chemical TechnologiesProduction & Automation TechnologiesDrilling TechnologiesReservoir Chemical TechnologiesCorporateTotal
United States$156,852 $141,799 $30,392 $19,589 $30,225 $378,857 
Latin America93,389 4,530 — 3,587 1,261 102,767 
Middle East & Africa66,213 13,358 1,446 6,534 1,945 89,496 
Canada63,639 14,754 1,986 377 124 80,880 
Europe41,046 1,790 2,278 1,101 3,690 49,905 
Asia-Pacific10,562 2,743 853 1,393 5,894 21,445 
Australia5,994 9,182 13 30 — 15,219 
Other9,354 17 621 611 — 10,603 
Total revenue$447,049 $188,173 $37,589 $33,222 $43,139 $749,172 
Six Months Ended June 30, 2021
(in thousands)Production Chemical TechnologiesProduction & Automation TechnologiesDrilling TechnologiesReservoir Chemical TechnologiesCorporateTotal
United States$306,716 $267,712 $55,799 $35,198 $56,242 $721,667 
Latin America165,005 9,172 — 6,606 2,692 183,475 
Middle East & Africa124,583 24,091 2,162 12,596 7,067 170,499 
Canada124,931 27,282 5,813 1,106 282 159,414 
Europe83,654 3,773 4,777 2,490 5,947 100,641 
Asia-Pacific21,054 4,206 2,406 2,513 11,696 41,875 
Australia12,389 18,758 130 84 — 31,361 
Other21,088 24 1,496 2,520 — 25,128 
Total revenue$859,420 $355,018 $72,583 $63,113 $83,926 $1,434,060 
Three Months Ended June 30, 2020
(in thousands)Production Chemical TechnologiesProduction & Automation TechnologiesDrilling TechnologiesReservoir Chemical TechnologiesCorporateTotal
United States$41,753 $83,153 $13,894 $4,275 $11,932 $155,007 
Middle East & Africa28,148 10,262 82 2,887 2,436 43,815 
Latin America25,035 3,154 — 488 490 29,167 
Europe17,144 1,318 1,904 273 1,227 21,866 
Canada15,961 3,998 443 131 62 20,595 
Australia1,884 12,313 23 11 — 14,231 
Asia-Pacific3,692 1,295 4,170 273 1,770 11,200 
Other2,385 (752)432 968 — 3,033 
Total revenue$136,002 $114,741 $20,948 $9,306 $17,917 $298,914 
11


Six Months Ended June 30, 2020
(in thousands)Production Chemical TechnologiesProduction & Automation TechnologiesDrilling TechnologiesReservoir Chemical TechnologiesCorporateTotal
United States$41,753 $237,581 $54,834 $4,275 $11,932 $350,375 
Middle East & Africa28,148 22,166 540 2,887 2,436 56,177 
Canada15,961 17,122 5,271 131 62 38,547 
Latin America25,035 10,714 22 488 490 36,749 
Europe17,144 7,658 7,595 273 1,227 33,897 
Australia1,884 21,535 69 11 — 23,499 
Asia-Pacific3,692 3,272 7,678 273 1,770 16,685 
Other2,385 172 894 968 — 4,419 
Total revenue$136,002 $320,220 $76,903 $9,306 $17,917 $560,348 
Revenue is attributed to regions based on the location of our direct customer, which in some instances is an intermediary and not necessarily the end user.

Contract balances

Contract assets and contract liabilities from contracts with customers were as follows:
(in thousands)June 30, 2021December 31, 2020
Contract liabilities - current$15,854 $16,668 

NOTE 5—INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The components of our definite- and indefinite-lived intangible assets were as follows:
June 30, 2021December 31, 2020
(in thousands)Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Definite-lived
intangible assets:
Customer relationships$594,549 $343,941 $250,608 $593,068 $321,298 $271,770 
Unpatented technologies133,700 28,652 105,048 133,700 19,958 113,742 
Favorable supply agreements59,000 20,927 38,073 59,000 11,308 47,692 
Trademarks59,878 30,045 29,833 59,881 27,565 32,316 
Patents38,863 30,368 8,495 38,635 29,289 9,346 
Other5,422 5,052 370 5,374 4,831 543 
891,412 458,985 432,427 889,658 414,249 475,409 
Indefinite-lived
intangible assets:
Trademarks3,600 — 3,600 3,600 — 3,600 
Total$895,012 $458,985 $436,027 $893,258 $414,249 $479,009 

Goodwill

We perform our annual goodwill impairment test for two of our reporting units (i) Production Chemical Technologies and (ii) Reservoir Chemical Technologies as of May 31 of each fiscal year. During the second quarter of 2021, we completed our assessment and concluded that the goodwill related to those reporting units was not impaired.


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NOTE 6—DEBT

Long-term debt consisted of the following:
(in thousands)June 30, 2021December 31, 2020
2018 Credit Facility$— $— 
2018 Term Loan Facility140,000 140,000 
2020 Term Loan Facility510,150 523,575 
6.375% Senior Notes due 2026
222,041 277,041 
Total872,191 940,616 
Net unamortized discounts and issuance costs(6,515)(8,002)
Total long-term debt$865,676 $932,614 
Current portion of long-term debt (1)
(26,850)(26,850)
Long-term debt, less current portion$838,826 $905,764 
_______________________
(1) Represents the mandatory amortization payments due within twelve months related to the 2020 Term Loan Facility.

The 2020 Term Loan Facility is subject to mandatory amortization payments of $6.7 million paid quarterly, which began on September 30, 2020, and contains customary representations and warranties, covenants, and events of default for loan facilities of this type. We were in compliance with all covenants as of June 30, 2021. The weighted average interest rate on borrowings during the six month period ended June 30, 2021 was 2.63% and 6.00% for the 2018 Term Loan Facility and 2020 Term Loan Facility, respectively.

Tender Offer
On May 7, 2021, the Company completed a tender offer to purchase certain of the Senior Notes (the “Tender Offer”) at 104.781%. We repurchased $55.0 million in aggregate principal amount of the Senior Notes for $57.7 million in cash, including principal, and $0.1 million in accrued interest. In connection with these repurchases, we recognized a net loss of approximately $3.3 million for the period ended June 30, 2021, inclusive of the write off of unamortized debt financing costs related to the extinguished portion of the notes, and is included in other expense, net in our condensed consolidated statement of income (loss).

NOTE 7—COMMITMENTS AND CONTINGENCIES

The Company is subject to various claims and contingencies related to, among other things, workers’ compensation, general liability (including product liability), automobile claims, health care claims, environmental matters, and lawsuits. We record liabilities where a contingent loss is probable and can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. In accordance with applicable GAAP, the Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred.

Guarantees and Indemnifications

We have provided indemnities in connection with sales of certain businesses and assets, including representations and warranties, covenants and related indemnities for environmental health and safety, tax, and employment matters. We do not have any material liabilities recorded for these indemnifications and are not aware of any claims or other information that would give rise to material payments under such indemnities.

In connection with the Company’s separation from Dover Corporation (“Dover”) in 2018, we entered into agreements with Dover that govern the treatment between Dover and us for certain indemnification matters and litigation responsibility. Generally, the separation and distribution agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and to place financial responsibility for the obligations and liabilities of Dover’s business with Dover. The separation and distribution agreement also establishes procedures for handling claims subject to indemnification and related matters. In addition, pursuant to the tax matters agreement, we have agreed to indemnify Dover and its affiliates against any and all tax-related liabilities incurred by them relating to the separation
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and/or certain related transactions to the extent caused by an acquisition of ChampionX stock or assets or by any other action or failure to act undertaken by ChampionX or its affiliates.

In connection with the Merger, we entered into agreements with Ecolab that govern the treatment between Ecolab and us for certain indemnification matters and litigation responsibility. Generally, the separation and distribution agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and to place financial responsibility for the obligations and liabilities of Ecolab’s business with Ecolab. The separation and distribution agreement also establishes procedures for handling claims subject to indemnification and related matters. In addition, pursuant to the Tax Matters Agreement, we have agreed to indemnify Ecolab and its affiliates for (i) all taxes for which ChampionX is responsible as defined within the Tax Matters Agreement, (ii) all taxes resulting from a breach by ChampionX of any of its representations (but only to the extent relating to a breach occurring after the consummation of the Merger) or any of its covenants under the Tax Matters Agreement, (iii) all taxes resulting from an acquisition after the Merger of any of the stock or assets of ChampionX, other than as a result of the Merger or a repayment of the ChampionX Credit Facilities and (iv) reasonable costs and expenses (including reasonable attorneys’ fees and expenses) related to the foregoing.

As of June 30, 2021 and December 31, 2020, we had $85.3 million and $88.8 million, respectively, of outstanding letters of credit, surety bonds and guarantees which expire at various dates through 2027. These financial instruments are primarily maintained as security for insurance, warranty, and other performance obligations. Generally, we would only be liable for the amount of these letters of credit and surety bonds in the event of default in the performance of our obligations, the probability of which we believe is remote.

Litigation and Environmental Matters

We are involved in various pending or potential lawsuits, claims and environmental actions that have arisen in the ordinary course of our business. These proceedings primarily involve claims by private parties alleging injury arising out of use of our products, patent infringement, employment matters, and commercial disputes, as well as possible obligations to investigate and mitigate the effects on the environment of the disposal or release of certain chemical substances at various sites, such as Superfund sites and either operating or owned facilities. We review the probable outcome of such proceedings, the costs and expenses reasonably expected to be incurred and accrued to date, and the availability and extent of insurance coverage. We accrue a liability for legal matters that are probable and can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. We are unable to predict the ultimate outcome of these actions because of the inherent uncertainty of litigation and unfavorable rulings or developments could occur, and there can be no certainty that the Company may not ultimately incur changes in excess of recorded liabilities. However, we believe the most probable, ultimate resolution of these matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Environmental Matters

The Company is currently participating in environmental assessments and remediation at approximately 11 locations, the majority of which are in the U.S., and environmental liabilities have been accrued reflecting our best estimate of future costs. Potential insurance reimbursements are not anticipated in the Company’s accruals for environmental liabilities. As of June 30, 2021 environmental liability accruals related to these locations were $7.4 million.

Prior to the separation from Dover in 2018, groundwater contamination was discovered at the Norris Sucker Rods plant site located in Tulsa, Oklahoma ("Norris"). Initial remedial efforts were undertaken at the time of discovery of the contamination and Norris has since coordinated monitoring and remediation with the Oklahoma Department of Environmental Quality ("ODEQ"). As part of the ongoing long-term remediation process, Norris contracted an engineering and consulting firm to develop a range of possible additional remedial alternatives in order to accelerate the remediation process and associated cost estimates for the work. In October 2019, we received the firm’s preliminary remedial alternatives for consideration. We have submitted our long-term remediation plan and it was approved by ODEQ. We are now in discussion with ODEQ to finalize a consent order. Because we have not yet finalized the consent order for further remediation at the site and discussions with ODEQ remain ongoing, we cannot fully anticipate the timing, outcome or possible impact of such further remedial activities, financial or otherwise. As a result of the recommendations in the report, we accrued liabilities for these remediation efforts of approximately $2.0 million as of December 31, 2020. Liabilities could increase in the future at such time as we ultimately reach agreement with ODEQ on our remediation plan and such liabilities become probable and can be reasonably estimated, however, there have been no changes to our estimated liability as of June 30, 2021.
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Matters Related to Deepwater Horizon Incident Response

On April 22, 2010, the deepwater drilling platform, the Deepwater Horizon, operated by a subsidiary of BP plc, sank in the Gulf of Mexico after an explosion and fire, resulting in a massive oil spill. Certain entities that are now subsidiaries of ChampionX as a result of the Merger (collectively the “COREXIT Defendants”) supplied COREXIT™ 9500, an oil dispersant product listed on the U.S. EPA National Contingency Plan Product Schedule, which was used in the response to the spill. In connection with the provision of COREXIT™, the COREXIT Defendants were named in several lawsuits. Cases arising out of the Deepwater Horizon accident were administratively transferred and consolidated for pre-trial purposes under In Re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, Case No. 10-md-02179 in the United States District Court in the Eastern District of Louisiana (E.D. La.) (“MDL 2179”). Claims related to the response to the oil spill were consolidated in a master complaint captioned the “B3 Master Complaint.” In 2011, Transocean Deepwater Drilling, Inc. and its affiliates (the “Transocean Entities”) named the COREXIT Defendants and other unaffiliated companies as first party defendants (In re the Complaint and Petition of Triton Asset Leasing GmbH, et al, MDL No. 2179, Civil Action 10-2771). In April and May 2011, the Transocean Entities, Cameron International Corporation, Halliburton Energy Services, Inc., M-I L.L.C., Weatherford U.S., L.P. and Weatherford International, Inc. (collectively, the “Cross Claimants”) filed cross claims in MDL 2179 against the COREXIT Defendants and other unaffiliated cross defendants. In April and June 2011, in support of its defense of the claims against it, the COREXIT Defendants filed counterclaims against the Cross Claimants. On May 18, 2012, the COREXIT Defendants filed a motion for summary judgment as to the claims in the B3 Master Complaint. On November 28, 2012, the Court granted the COREXIT Defendants’ motion and dismissed with prejudice the claims in the B3 Master Complaint asserted against the COREXIT Defendants. There currently remain three “B3” cases that had asserted claims against Nalco and that remain pending against other defendants. Because the Court’s decision was not a “final judgment” for purposes of appeal with respect to those claims, under Federal Rule of Appellate Procedure 4(a), plaintiffs will have 30 days after entry of final judgment in each case to appeal the Court’s summary judgment decision.

The Company believes the claims asserted against the COREXIT Defendants are without merit and intends to defend these lawsuits vigorously. The Company also believes that it has rights to contribution and/or indemnification (including legal expenses) from third parties. However, we cannot predict the outcome of these lawsuits, the involvement it might have in these matters in the future, or the potential for future litigation.

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NOTE 8—RESTRUCTURING AND OTHER RELATED CHARGES

During the current and prior periods, we approved various restructuring plans related to the consolidation of product lines and associated facility closures and workforce reductions. As a result, we recognized charges of $3.8 million and $8.0 million during the three and six months ended June 30, 2021, respectively, consisting of employee severance and related benefits. During the three and six months ended June 30, 2020, we recorded restructuring and other charges of $12.1 million and $14.9 million, respectively.

The following table presents the restructuring and other related charges by segment as classified in our condensed consolidated statements of income (loss).
 Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Segment restructuring charges:
Production Chemical Technologies$3,103 $— $3,791 $— 
Production & Automation Technologies432 8,334 3,956 9,005 
Drilling Technologies— 3,426 — 5,521 
Reservoir Chemical Technologies198 — 242 — 
Corporate42 368 42 368 
Total$3,775 $12,128 $8,031 $14,894 
Statements of Income (Loss) classification:
Cost of goods and services$422 $8,707 $3,906 $10,746 
Selling, general and administrative expense3,353 3,421 4,125 4,148 
Total$3,775 $12,128 $8,031 $14,894 

Our liability balance for restructuring and other related charges at June 30, 2021, reflects employee severance and related benefits initiated during the period. Additional programs may be initiated during 2021 with related restructuring charges.

The following table details our restructuring accrual activities during the six months ended June 30, 2021:
(in thousands)Restructuring Accrual Balance
December 31, 2020$2,951 
Restructuring charges6,035 
Payments(2,915)
Other, including foreign currency translation(4)
June 30, 2021$6,067 

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NOTE 9—EQUITY AND CASH INCENTIVE PROGRAMS

Stock-based compensation expense is reported within selling, general and administrative expense in the condensed consolidated statements of income (loss). Stock-based compensation expense relating to all stock-based incentive plans was as follows:
 Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Stock-based compensation expense$5,914 $5,433 $12,356 $7,862 
Tax benefit(1,242)(1,203)(2,595)(1,802)
Stock-based compensation expense, net of tax$4,672 $4,230 $9,761 $6,060 

A summary of activity relating to our share-based awards for the six months ended June 30, 2021, was as follows:
(in shares)Stock-Settled Appreciation RightsPerformance Share AwardsRestricted Stock UnitsNon-Qualified Stock Options
Outstanding at January 1, 2021415,331 278,763 2,669,779 7,175,040 
Granted— 333,037 842,148 — 
Forfeited(2,134)— (94,371)(59,963)
Exercised / vested(10,000)— (236,250)(1,155,492)
Outstanding at June 30, 2021403,197 611,800 3,181,306 5,959,585 
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NOTE 10—ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss—Accumulated other comprehensive loss consisted of the following:
(in thousands)Foreign Currency TranslationDefined Pension and Other Post-Retirement BenefitsCash Flow HedgesAccumulated Other Comprehensive Loss
December 31, 2020$(14,965)$(13,470)$(2,320)$(30,755)
Other comprehensive loss before reclassifications, net of tax3,213 — 413 3,626 
Reclassification adjustment for net losses included in net income, net of tax— 167 — 167 
Other comprehensive income (loss), net of tax3,213 167 413 3,793 
March 31, 2021$(11,752)$(13,303)$(1,907)$(26,962)
Other comprehensive income before reclassifications, net of tax8,332 — (277)8,055 
Reclassification adjustment for net losses included in net income, net of tax— 6,373 — 6,373 
Other comprehensive income, net of tax8,332 6,373 (277)14,428 
June 30, 2021$(3,420)$(6,930)$(2,184)$(12,534)
(in thousands)Foreign Currency TranslationDefined Pension and Other Post-Retirement BenefitsCash Flow HedgesAccumulated Other Comprehensive Loss
December 31, 2019$(35,210)$(8,827)$— $(44,037)
Other comprehensive income (loss) before reclassifications, net of tax(11,052)— — (11,052)
Reclassification adjustment for net losses included in net income, net of tax— 99 — 99 
Other comprehensive income, net of tax(11,052)99 — (10,953)
March 31, 2020$(46,262)$(8,728)$— $(54,990)
Other comprehensive income (loss) before reclassifications, net of tax5,703 — 653 6,356 
Reclassification adjustment for net losses included in net income, net of tax— 99 — 99 
Other comprehensive income (loss), net of tax5,703 99 653 6,455 
June 30, 2020$(40,559)$(8,629)$653 $(48,535)


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Reclassifications from accumulated other comprehensive loss—Reclassification adjustments from accumulated other comprehensive loss to net income (loss) related to defined pension and other post-retirement benefits consisted of the following:
Three Months Ended June 30,Six Months Ended June 30,Affected line items on the condensed consolidated statements of income (loss)
(in thousands)2021202020212020
Pensions and other post-retirement benefits:
Amortization of actuarial loss and other$6,326 $132 $6,540 $264 Other (income) expense, net
Total before tax6,326 132 6,540 264 Income (loss) before income taxes
Tax benefit47 (33)— (66)Provision for (benefit from) income taxes
Net of tax$6,373 $99 $6,540 $198 Net income (loss)

NOTE 11—EARNINGS PER SHARE

A reconciliation of the number of shares used for the basic and diluted earnings (loss) per share calculation was as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands, except per share data)2021202020212020
Net income (loss) attributable to ChampionX$7,250 $(109,645)$13,022 $(743,373)
Weighted-average number of shares outstanding201,467 115,149 201,063 96,313 
Dilutive effect of stock-based compensation7,074 — 6,876 — 
Total shares and dilutive securities208,541 115,149 207,939 96,313 
Basic earnings (loss) per share attributable to ChampionX$0.04 $(0.95)$0.06 $(7.72)
Diluted earnings (loss) per share attributable to ChampionX$0.03 $(0.95)$0.06 $(7.72)

For all periods presented, the computation of diluted earnings (losses) per share excludes awards with an anti-dilutive impact. For the three and six months ended June 30, 2021, the diluted shares include the dilutive impact of equity awards except for approximately 0.7 million and 0.7 million shares, respectively, that were excluded because their inclusion would be anti-dilutive. For the three and six months ended June 30, 2020, we excluded all outstanding equity awards from the calculation of weighted-average shares outstanding, because their inclusion would be anti-dilutive as we were in a loss position.

NOTE 12—FAIR VALUE MEASUREMENTS

Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs be used when available. The hierarchy is broken down into three levels:
Level 1- Inputs are quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2- Inputs include observable inputs other than quoted prices in active markets.
Level 3- Inputs are unobservable inputs for which there is little or no market data available.
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The carrying amount and the estimated fair value for assets and liabilities measured on a recurring basis are as follows:
June 30, 2021December 31, 2020
(in thousands)Carrying Amount
Assets
Foreign currency forward contracts$3,856 $4,576 
Liabilities
Foreign currency forward contracts$5,961 $6,561 

The carrying value of foreign currency forward contracts is at fair value, which is determined based on foreign currency exchange rates as of the balance sheet date and is classified within Level 2. For purposes of fair value disclosure above, derivative values are presented gross. See Note 13—Derivatives And Hedging Transactions for further discussion of gross versus net presentation of the Company’s derivatives.

The carrying amounts of cash and cash equivalents, trade receivables, accounts payable, as well as amounts included in other current assets and other current liabilities that meet the definition of financial instruments, approximate fair value due to their short-term nature.

The fair value of our senior notes is based on Level 1 quoted market prices. The fair value of our term loan facilities are based on Level 2 quoted market prices for the same or similar debt instruments. The carrying amount and the estimated fair value of long-term debt, including current maturities, held by the Company were:
June 30, 2021December 31, 2020
(in thousands)Carrying AmountFair ValueCarrying AmountFair Value
2018 Term Loan Facility$140,000 $138,950 $140,000 $137,200 
2020 Term Loan Facility$510,150 $516,527 $523,575 $530,120 
6.375% Senior Notes due 2026
$222,041 $232,566 $277,041 $277,054 

NOTE 13—DERIVATIVES AND HEDGING TRANSACTIONS

The Company uses foreign currency forward contracts to manage risks associated with foreign currency exchange rates. The Company does not hold derivative financial instruments of a speculative nature or for trading purposes. Derivative contracts are recorded as assets and liabilities on the balance sheet at fair value. We evaluate hedge effectiveness at contract inception and thereafter on a quarterly basis. If a derivative is no longer expected to be effective, hedge accounting is discontinued. Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge. Changes in fair value attributable to changes in spot exchange rates for derivative contracts that have been designated as cash flow hedges are recognized in accumulated other comprehensive income (loss) (“AOCI”) and reclassified into earnings in the same period the hedged transaction affects earnings and are presented in the same income statement line as the earnings effect of the hedged item. Cash flows from derivatives are classified in the statement of cash flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships.

The Company is exposed to credit risk in the event of nonperformance of counterparties for foreign currency forward exchange contracts. We monitor our exposure to credit risk by using major global banks and financial institutions as counterparties and monitoring their financial condition and credit profile. The Company does not anticipate nonperformance by any of these counterparties, and therefore, recording a valuation allowance against the Company’s derivative balance is not considered necessary.

Derivative Positions Summary

Certain of the Company’s derivative transactions are subject to master netting arrangements that allow the Company to settle with the same counterparties. These arrangements generally do not call for collateral and as of the applicable dates presented in the following table, no cash collateral had been received or pledged related to the underlying derivatives. We have elected to present our derivative balances on a gross basis on the condensed consolidated balance sheet.

20


The following table summarizes the gross fair value of the Company’s outstanding derivatives and the lines in which they are presented on the condensed consolidated balance sheet.
Derivative AssetsDerivative Liabilities
(in thousands)June 30, 2021December 31, 2020June 30, 2021December 31, 2020
Prepaid expenses and other current assets$3,856 $4,576 $— $— 
Accrued expenses and other current liabilities— — 5,961 $6,561 
$3,856 $4,576 $5,961 $6,561 

The following table summarizes the notional values of the Company’s outstanding derivatives:
(in thousands)June 30, 2021December 31, 2020
Notional value of foreign currency forward contracts$568,929 $483,377 

Cash Flow Hedges

The Company utilizes foreign currency forward contracts to hedge the effect of foreign currency exchange rate fluctuations on forecasted foreign currency transactions, primarily related to inventory purchases. These forward contracts are designated as cash flow hedges. The changes in fair value of these contracts attributable to changes in spot exchange rates are recorded in AOCI until the hedged items affect earnings, at which time the gain or loss is reclassified into the same line item in the condensed consolidated statements of income (loss) as the underlying exposure being hedged. The forward points are marked-to-market monthly and recognized in the same line item in the condensed consolidated statement of income (loss) as the underlying exposure being hedged.

Derivatives Not Designated as Hedging Instruments

The Company also uses foreign currency forward contracts to offset its exposure to the change in value of certain foreign currency denominated assets and liabilities, primarily receivables and payables, which are remeasured at the end of each period. Although the contracts are effective economic hedges, they are not designated as accounting hedges. Therefore, changes in the value of these derivatives are recognized immediately in earnings, thereby offsetting the current earnings effect of the related foreign currency denominated assets and liabilities.
Effect of Derivative Instruments on Income

The loss of all derivative instruments recognized is summarized below:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Loss reclassified from AOCI to income on cash flow hedges:
Cost of goods and services$1,018 $15 $1,772 $15 
Loss on derivatives not designated as hedging instruments:
Other (income) expense, net795 711 1,462 711 
Total loss of derivative instruments$1,813 $726 $3,234 $726 

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NOTE 14—INVENTORIES

Inventories consisted of the following:
(in thousands)June 30, 2021December 31, 2020
Raw materials$155,054 $137,038 
Work in progress13,064 9,509 
Finished goods364,789 323,144 
532,907 469,691 
Inventory reserve(29,968)(24,769)
LIFO adjustments (1)
(35,345)(14,810)
Inventories, net$467,594 $430,112 
_______________________
(1) Represents the amount by which LIFO inventories exceeded their carrying value.

NOTE 15—CASH FLOW INFORMATION

Lease program

Our ESP leased asset program is reported in our Production & Automation Technologies segment. At the time of purchase, assets are recorded to inventory and are transferred to property, plant, and equipment when a customer contracts for an asset under our lease program. During the six months ended June 30, 2021 and June 30, 2020, we transferred $20.3 million and $12.4 million, respectively, of inventory into property, plant, and equipment as a result of assets entering our leased asset program.

Expenditures for assets that are placed into our leased asset program expected to be recovered through sale are reported in leased assets in the operating section of our condensed consolidated statements of cash flows. All other capitalizable expenditures for assets that are placed into our leased asset program are classified as capital expenditures in the investing section of our condensed consolidated statements of cash flows.

NOTE 16—SUBSEQUENT EVENTS

On July 2, 2021, we acquired Scientific Aviation, Inc. (“Scientific”), a provider of site-specific and regional methane emissions monitoring solutions for continuous and periodic monitoring applications. Under the terms of the agreement, we paid an initial amount of $10.0 million. We may also be required to make future payments of up to an additional $10.0 million, contingent on the future performance of Scientific.
22


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis is our analysis of our financial performance, financial condition and significant trends that may affect our future performance. It should be read in conjunction with the condensed consolidated financial statements, and notes thereto, included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to ChampionX’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the words “believe,” “anticipate,” “expect,” “may,” “intend,” “foresee,” “guidance,” “estimate,” “potential,” “outlook,” “plan,” “should,” “would,” “could,” “target,” “forecast” and similar expressions, including the negative thereof. We undertake no obligation to publicly update, revise or correct any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except to the extent required under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the disclosures under the heading “CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.”

In November 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements. The final rule became effective on February 10, 2021 and must be applied in a registrant’s first fiscal year ending on or after August 9, 2021, however, under applicable SEC rules, early adoption is permitted following the effective date. We have elected to early adopt these amendments, including the sequential discussion of results within this section. Given the cyclical nature of our industry over the past decade combined with the short-cycle nature of our North American business, we believe this sequential discussion provides a more relevant analysis of our business results.

EXECUTIVE OVERVIEW AND BUSINESS OUTLOOK

We are a global leader in chemistry solutions and highly engineered equipment and technologies that help companies drill for and produce oil and gas safely and efficiently around the world. Our products provide efficient and safe operations throughout the lifecycle of a well with a focus on the production phase of wells. Our business is organized into four reportable segments: Production Chemical Technologies, Production & Automation Technologies, Drilling Technologies, and Reservoir Chemical Technologies.

On June 3, 2020, the Company and Ecolab Inc. completed a Reverse Morris Trust transaction in which we acquired the Chemical Technologies business. In association with the completion of the Merger, the Company has changed its name from Apergy Corporation to ChampionX Corporation and its ticker symbol to “CHX”. See Note 2—Merger Transaction to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

On July 2, 2021, we acquired Scientific Aviation, Inc. (“Scientific”), a market leader in site-specific and regional methane emissions monitoring solutions for continuous and periodic monitoring applications. Under the terms of the agreement, we paid an initial amount of $10.0 million. We may also be required to make future payments of up to an additional $10.0 million, contingent on the future performance of Scientific.

Business Environment

We focus on economic- and industry-specific drivers and key risk factors affecting our business segments as we formulate our strategic plans and make decisions related to allocating capital and human resources. Our business segments provide a broad range of technologies and products for the oil and gas drilling, production and midstream industries and, as a result, are substantially dependent upon production and activity levels in the oil and gas and midstream industries. Demand for our products, technologies and services is impacted by overall global demand for oil and gas, ongoing depletion rates of existing wells which produce oil and gas, and our customers’ willingness to invest in the development and ongoing production of oil and gas resources. Our customers determine their operating and capital budgets based on current and expected future crude oil and natural gas prices, U.S. and worldwide rig count and U.S. well completions, among other factors. Crude oil and natural gas prices are impacted by supply and demand, which are influenced by geopolitical, macroeconomic, and local events, and have historically been subject to substantial volatility and cyclicality. Rig count, footage drilled, and exploration and production (E&P) investment by oil and gas operators have often been used as leading indicators for the level of drilling and development activity in the oil and gas sector.
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Market Conditions and Outlook

The novel coronavirus (“COVID-19”) pandemic significantly disrupted the market with unprecedented fluctuations in the supply and demand of crude oil and resulting rapid decline of oil prices during 2020. In response to the significant reduction in oil prices, customer spending for exploration and production (E&P) activity deteriorated at a rapid pace due to reduced drilling activities, lower budgeted capital spending and options to reduce operating expenditures via cost cutting initiatives.

As the global economy reopened from the COVID-19 lockdowns, there has been an increase in demand which resulted in increased crude oil prices, reaching a two year high during the second quarter of 2021. Additionally, rig counts continue to increase, particularly in the U.S., amid the oil demand recovery. During the early months of 2021, we experienced a severe winter storm in Texas, which disrupted our operations due to facility damages and outages and raw materials supply chain disruptions. These factors led to short-term raw materials cost inflation during the first and second quarter of 2021. Although we continue to experience positive momentum within the industry, revenue is not growing at the same rate as the increase in activity. As many producers, particularly in the U.S., were faced with significant cash constraints during the pandemic, our customers continue to prioritize capital investment discipline and focus on using cash toward debt reduction and deleveraging their balance sheet. However, we expect positive momentum in our shorter-cycle North American businesses as well as a seasonal uptick in our international operations, particularly resulting from the recent OPEC production restorations, during the second half of the year.

CRITICAL ACCOUNTING ESTIMATES

Refer to our “Critical Accounting Estimates” included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, for a discussion of our critical accounting estimates.
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CONSOLIDATED RESULTS OF OPERATIONS

Three Months Ended
 June 30,March 31, Variance
(dollars in thousands)20212021$
Revenue$749,172 $684,888 $64,284 
Cost of goods and services569,167 522,556 46,611 
Gross profit180,005 162,332 17,673 
Selling, general and administrative expense152,341 143,478 8,863 
Interest expense, net14,064 13,971 93 
Other (income) expense, net2,251 (1,936)4,187 
Income (loss) before income taxes11,349 6,819 4,530 
Provision for (benefit from) income taxes3,563 2,782 781 
Net income (loss)7,786 4,037 3,749 
Net income (loss) attributable to noncontrolling interest536 (1,735)2,271 
Net income (loss) attributable to ChampionX$7,250 $5,772 $1,478 

Revenue. Revenue increased $64.3 million, or 9%, as we posted sequential improvements across all operating segments. Within our Chemical Technologies business, the increase reflects recovery from the impact of the severe winter storm during the first quarter and a seasonal increase in our international operations. Production & Automation Technologies and Drilling Technologies segments have also increased as a result of an increase in U.S. land-based rig count and associated increase in customer spending on drilling activities, which positively impacted sales volumes.

Gross profit. Gross profit increased $17.7 million, or 11%, due to an increase in revenue and correlation between an increase in cost of materials associated with the higher volumes noted above.

Selling, general and administrative expense. Selling, general and administrative expense increased $8.9 million, or 6%, sequentially primarily due to integration related costs associated with the Merger and restructuring expenses incurred for employee severance and related benefits.

Provision for (benefit from) income taxes. Our provision for (benefit from) income taxes reflected effective tax rates of 31.4% and 40.8%, for the three months ended June 30, 2021 and March 31, 2021, respectively. The effective tax rate for the second quarter of 2021 was primarily impacted by the effects of valuation allowances in loss-making jurisdictions and withholding taxes.


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CONSOLIDATED RESULTS OF OPERATIONS

Six Months Ended
 June 30,Variance
(dollars in thousands)20212020$
Revenue$1,434,060 $560,348 $873,712 
Cost of goods and services1,091,723 445,779 645,944 
Gross profit342,337 114,569 227,768 
Selling, general and administrative expense295,819 208,800 87,019 
Goodwill impairment— 616,271 (616,271)
Long-lived asset impairment— 40,980 (40,980)
Interest expense, net28,035 20,301 7,734 
Other (income) expense, net315 (1,321)1,636 
Income (loss) before income taxes18,168 (770,462)788,630 
Provision for (benefit from) income taxes6,345 (27,960)34,305 
Net income (loss)11,823 (742,502)754,325 
Net income attributable to noncontrolling interest(1,199)871 (2,070)
Net income (loss) attributable to ChampionX$13,022 $(743,373)756,395 

Revenue. Revenue increased $873.7 million for the six months ended June 30, 2021 compared to prior year due to $777.2 million of incremental revenues associated with our acquired Chemicals Technologies business. Additionally, Production & Automation Technologies revenue increased $34.8 million year-over-year, driven by higher volumes in North America and internationally as the global economy has rebounded from the COVID-19 pandemic.

Gross profit. Gross profit increased $227.8 million for the six months ended June 30, 2021 compared to prior year, mainly due to $187.2 million of gross profit generated by the acquired Chemicals Technologies business, further supplemented by cost savings from restructuring actions as well as other cost reduction efforts in response to the COVID-19 pandemic.

Selling, general and administrative expense. Selling, general and administrative expense increased $87.0 million, or 42%, for the six months ended June 30, 2021 compared to prior year, primarily due to $133.3 million of incremental expense associated with the acquired Chemicals Technologies business as well as the restoration of salaries from the temporary employee salary and benefit reduction instituted during 2020 to address the COVID-19 pandemic impact on commodity prices and oil and gas production. These increases were partially offset by fewer acquisition and integration related costs on the acquisition of Chemical Technologies.

Interest expense, net. Interest expense, net increased $7.7 million, or 38%, or the six months ended June 30, 2021 compared to prior year due to incremental interest expense related to the term loan assumed as part of the Merger, partially offset by a $68.4 million reduction in long-term debt during 2021.

Provision for (benefit from) income taxes. The effective tax rates for the first six months of 2021 and 2020 were 34.9% and 3.6% respectively. The effective tax rate for the first six months of 2021 was primarily due to the tax effects of valuation allowances in loss making jurisdictions and withholding taxes. The effective tax rate for the first six months of 2020 was primarily impacted by the tax effects of impairment of non-taxable goodwill of $560.1 million, recognized as a discrete item. Other items impacting the rate include the effects of valuation allowances in loss jurisdictions and foreign branch earnings.

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SEGMENT RESULTS OF OPERATIONS
Three Months Ended
 June 30,March 31, Variance
(dollars in thousands)20212021$
Segment revenue:
Production Chemical Technologies$447,049 $412,371 $34,678 
Production & Automation Technologies188,173 166,845 21,328 
Drilling Technologies37,589 34,994 2,595 
Reservoir Chemical Technologies33,222 29,891 3,331 
Corporate43,139 40,787 2,352 
Total revenue$749,172 $684,888 $64,284 
Segment operating profit (loss):
Production Chemical Technologies$33,871 $30,357 $3,514 
Production & Automation Technologies12,292 5,362 6,930 
Drilling Technologies3,868 6,386 (2,518)
Reservoir Chemical Technologies(2,594)(3,228)634 
Total segment operating profit (loss)47,437 38,877 8,560 
Corporate expense and other22,024 18,087 3,937 
Interest expense, net14,064 13,971 93 
Income (loss) before income taxes$11,349 $6,819 $4,530 

Production Chemical Technologies
Revenue. Production Chemical Technologies revenue increased $34.7 million, or 8%, sequentially mainly due to the seasonal increase within our international operations as well as an increase in volumes in North America as we recovered from the impacts of the severe winter storm in the first quarter of 2021. Additionally, increased global pricing mitigated the increase in costs for raw materials and inflationary factors.

Operating profit. Production Chemical Technologies operating profit increased $3.5 million in the second quarter of 2021 compared to the prior quarter primarily due to higher revenue noted above and the correlating increase in cost of materials.

Production & Automation Technologies

Revenue. Production & Automation Technologies revenue increased $21.3 million, or 13%, as compared to the prior quarter, primarily due to an increase in customer spending as a result of improving market conditions during the second quarter of 2021. The increase in customer spending led to higher volumes across our product offerings in North America.

Operating profit. Production & Automation Technologies operating profit increased $6.9 million in the second quarter of 2021 compared to the prior quarter primarily due to higher sales volume as noted above.

Drilling Technologies

Revenue. Drilling Technologies revenue increased $2.6 million, or 7%, in the second quarter of 2021 compared to the prior quarter primarily due to an increase in U.S. land-based rig count and associated increase in customer spending on drilling activities, which positively impacted sales volumes of our diamond cutters and diamond bearings products.

Operating profit. Drilling Technologies operating profit decreased $2.5 million in the second quarter of 2021 compared to the prior quarter primarily due to higher professional fees associated with the defense of our patented technologies.

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Reservoir Chemical Technologies

Revenue. Reservoir Chemical Technologies revenue increased $3.3 million, or 11%, sequentially mainly due to an increase in revenue within North America as we rebounded from the impact of the severe winter storm in the first quarter of 2021.

Operating profit. Reservoir Chemical Technologies operating loss was $2.6 million in the second quarter of 2021, relatively flat on a sequential basis, primarily due to continued raw material constraint.


Six Months Ended June 30,Variance
(dollars in thousands)20212020$
Segment revenue:
Production Chemical Technologies$859,420 $136,002 $723,418 
Production & Automation Technologies355,018 320,220 34,798 
Drilling Technologies72,583 76,903 (4,320)
Reservoir Chemical Technologies63,113 9,306 53,807 
Corporate83,926 17,917 66,009 
Total revenue$1,434,060 $560,348 $873,712 
Segment operating profit (loss):
Production Chemical Technologies$64,228 $9,922 $54,306 
Production & Automation Technologies17,654 (685,759)703,413 
Drilling Technologies10,254 7,548 2,706 
Reservoir Chemical Technologies(5,822)(2,811)(3,011)
Total segment operating profit (loss)86,314 (671,100)757,414 
Corporate expense and other40,111 79,061 (38,950)
Interest expense, net28,035 20,301 7,734 
Income (loss) before income taxes$18,168 $(770,462)$788,630 
The results of operations of the Production Chemical Technologies and Reservoir Chemical Technologies segments have been reflected in the table above from the closing date of the Merger through the end of the period presented. As results are not comparable for the given periods, no further discussion included herein.

Production & Automation Technologies

Revenue. Revenue increased $34.8 million, or 11%, as compared to the prior year, primarily due to an increase in customer spending as a result of improving market conditions during the first half of 2021. The increase in customer spending led to higher volumes across our product offerings in North America.

Operating profit. Operating profit increased $703.4 million compared to the prior year primarily due to goodwill and long-lived asset impairment charges of $657.3 million recognized during the six months ended June 30, 2020. Absent the impairment charges, operating profit increased due to the increase in revenue.

Drilling Technologies

Revenue. Revenue decreased $4.3 million, or 6%, compared to the prior year primarily due to a steep decline in U.S. land-based rig count throughout 2020 as a result of the pandemic. This resulted in a decline in customer spending on drilling activities, which negatively impacted sales volumes of our diamond cutters and diamond bearings products. Although we are experiencing an increase in rig counts sequentially, they have not reached pre-pandemic levels.

Operating profit. Operating profit increased $2.7 million, or 36%, compared to the prior year period despite lower revenue which was offset by cost savings from restructuring actions as well as other cost reduction efforts taken during 2020.

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CAPITAL RESOURCES AND LIQUIDITY

Overview

Our primary source of cash is from operating activities. We have historically generated, and expect to continue to generate, positive cash flow from operations. Cash generated from operations is generally allocated to working capital requirements, investments to support profitable revenue growth and maintain our facilities and systems, acquisitions that create value through add-on capabilities that broaden our existing businesses and deliver our growth strategy, as well as debt repayments to reduce our leverage.

On May 7, 2021, the Company completed a tender offer to purchase certain of the Senior Notes (the “Tender Offer”) at 104.781%. We repurchased $55.0 million in aggregate principal amount of the Senior Notes for $57.7 million in cash, including principal, and $0.1 million in accrued interest. In connection with these repurchases, we recognized a net loss of approximately $3.3 million for the period ended June 30, 2021, inclusive of the write off of unamortized debt financing costs related to the extinguished portion of the notes, and is included in other expense, net in our condensed consolidated statement of income (loss).

At June 30, 2021, we had cash and cash equivalents of $239.0 million compared to $201.4 million at December 31, 2020, primarily for working capital and operational purposes. At June 30, 2021, we had total liquidity of $591.9 million, comprised of $239.0 million of cash and $352.9 million of available capacity on our revolver.

At June 30, 2021, we had a long-term debt balance of $838.8 million, net of the current portion of long-term debt of $26.9 million, primarily consisting of our term loan due 2027 with a principal amount of $510.2 million, our Senior Notes due in 2026 with a principal amount of $222.0 million, and our term loan due in 2025 with a principal amount of $140.0 million. We also have access to a revolving credit facility which expires in May of 2023, which had an unused capacity of $352.9 million at June 30, 2021.

Outlook

We expect to generate cash to support liquidity and business requirements through operations and, if necessary, through our revolving credit facility. Volatility in credit, equity and commodity markets can create uncertainty for our businesses. However, the Company believes, based on our current financial condition and current expectations of future market conditions, that we will meet our short- and long-term needs with a combination of cash on hand, cash generated from operations, our revolving credit facility and access to capital markets.

In 2021, we expect to fund our capital expenditures and reduce outstanding debt through earnings and working capital improvements. We project capital expenditures of 3.0% to 3.5% of revenue inclusive of capital investments for our electric submersible pump leased assets.

Information related to guarantees is incorporated herein by reference from Note 7—Commitments And Contingencies to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Cash Flows
 Six Months Ended June 30,
(in thousands)20212020
Cash provided by operating activities$151,138 $78,033 
Cash (used in) provided by investing activities(43,198)39,332 
Cash used in financing activities(69,743)(9,970)
Effect of exchange rate changes on cash and cash equivalents(623)(790)
Net increase (decrease) in cash and cash equivalents$37,574 $106,605 

Operating Activities

Cash provided by operating activities during the six months ended June 30, 2021 increased $73.1 million compared to 2020. The increase in cash provided by operating activities was primarily driven by an increase in our results of operations. The results of our Chemicals Technologies business include six months of activity in 2021 as compared to 2020 including the period
29


from the acquisition date of June 3, 2020 through the end of the period. Changes in working capital items used cash of $7.5 million during the six months ended June 30, 2021 compared to cash generated of $77.2 million during 2020. The change in working capital items primarily related to cash outflows for inventory procurement and an increase in accounts receivable as a result of revenue growth during the period.

Expenditures for assets that are placed into our lease asset program expected to be recovered through sale are reported in leased assets in the operating section of our condensed consolidated statements of cash flows. All other capitalizable expenditures for assets that are placed into our lease asset program are classified as capital expenditures in the investing section of our condensed consolidated statements of cash flows.

Investing Activities

Cash used in investing activities was $43.2 million for the six months ended June 30, 2021, and was primarily comprised of capital expenditures of $45.7 million, partially offset by $2.5 million of cash proceeds from the sale of fixed assets.

Cash provided by investing activities was $39.3 million for the six months ended June 30, 2020, and was primarily comprised of cash acquired in the Merger of $57.6 million and $1.1 million of cash proceeds from the sale of fixed assets, partially offset by capital expenditures of $19.3 million.

Financing Activities

Cash used in financing activities of $69.7 million for the six months ended June 30, 2021, was primarily the result of repayments totaling $71.1 million on long-term debt, $2.6 million of payments of finance lease obligations and a distribution of $0.8 million to one of our non-controlling interests. This was partially offset by $6.5 million in cash proceeds from the exercise of stock options.

Cash used in financing activities of $10.0 million for the six months ended June 30, 2020, was primarily the result of $4.4 million in debt issue costs related to the amendment of the credit agreement and payments totaling $2.8 million for finance lease obligations.

Revolving Credit Facility

A summary of our revolving credit facility at June 30, 2021, was as follows:
(in millions)
Description
AmountDebt
Outstanding
Letters
of
Credit
Unused CapacityMaturity
Five-year revolving credit facility$400.0 $— $47.1 $352.9 May 2023

Additionally, we have a letter of credit outside of the revolving credit facility of approximately $1.9 million. As of June 30, 2021, we were in compliance with all restrictive covenants under our revolving credit facility.

Pursuant to Section 15(d) of the Securities Exchange Act of 1934, the obligation to file periodic financial information of the wholly owned subsidiaries of the Company that guarantee the Senior Notes was automatically suspended on January 1, 2021 when the Senior Notes were held by fewer than 300 persons.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 1—Basis Of Presentation And Summary Of Significant Accounting Policies to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We may be exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2020. Our exposure to market risk has not materially changed since December 31, 2020.
30






ITEM 4. CONTROLS AND PROCEDURES

With the participation of management, our principal executive officer and principal financial officer carried out an evaluation, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

There were no changes in internal control over financial reporting identified in the evaluation for the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in various pending or potential legal actions in the ordinary course of our business. Management is unable to predict the ultimate outcome of these actions because of the inherent uncertainty of litigation. However, management believes the most probable, ultimate resolution of these matters will not have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows. See Note 7—Commitments And Contingencies to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

There have been no material changes or updates to our risk factors that were previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)None.
(b)None.
(c)None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Iran Threat Reduction and Syria Human Rights Act of 2012
Under the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the Securities Exchange Act of 1934, the Company is required to disclose in its periodic reports if it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with entities or individuals designated pursuant to certain Executive Orders. Disclosure is required even where the activities are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and even if the activities are not covered or prohibited by U.S. law.
As authorized by the U.S. Treasury’s Office of Foreign Assets Control (OFAC), a non-U.S. subsidiary of the Company which is part of Chemical Technologies completed sales of products used for process and water treatment applications in upstream oil and gas production related to the operation of and production from the Rhum gas field off the Scottish coast (Rhum) totaling $145,874 during the period from April 1, 2021 to June 30, 2021. The net profit before taxes associated with these sales for each period were nominal. Rhum is jointly owned by Serica Energy plc and Iranian Oil Company (U.K.) Limited. Our non-U.S. subsidiary intends to continue the Rhum-related activities, consistent with a specific license obtained from OFAC by its customers, and such activities may require additional disclosure pursuant to the above mentioned statute.

32


ITEM 6. EXHIBITS
Exhibit
No.
Exhibit Description
10.1+
31.1*
31.2*
32.1**
32.2**
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith
** Furnished herewith
† Denotes management contract or compensatory plan or arrangement

33


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CHAMPIONX CORPORATION
(Registrant)
/s/ ANTOINE MARCOS
Antoine Marcos
Vice President, Corporate Controller and Chief Accounting Officer
(Principal Accounting Officer and a Duly Authorized Officer)
Date:July 29, 2021

34