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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


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


For the quarterly period ended March 31, 2018

September 30, 2020
or

o ☐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
Apergy CorporationChampionX 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 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 valueCHXNew York Stock Exchange

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. Yeso☑  No  þ☐
* The registrant became subject to such requirements on April 19, 2018, and has filed all reports so required since that date.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yesþ☑  No  o☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 12-b-212b-2 of the Exchange Act.
Large accelerated filero
☑ 
Accelerated filero
☐
Non-accelerated filerþ
(Do not check if smaller reporting company)☐
Smaller reporting companyo☐
  
Emerging growth companyþ☐


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 þ☐


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


The registrant had 77,339,828199,833,331 shares of common stock, $0.01 par value, outstanding as of May 31, 2018.October 26, 2020.


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APERGYCHAMPIONX CORPORATION


TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
Page
Item 1.
Financial Statements (unaudited)
 
 
Condensed CombinedConsolidated Statements of Income (Loss)
1
 
Condensed CombinedConsolidated Statements of Comprehensive Income (Loss)
2
 
Condensed CombinedConsolidated Balance Sheets
3
 
Condensed Combined StatementConsolidated Statements of Changes in Net InvestmentStockholders’ Equity
4
 
Condensed CombinedConsolidated Statements of Cash Flows
5
Notes to Condensed Combined Financial Statements
6
Item 2.Notes to Condensed Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2331
 
Executive Overview and Business Outlook
2331
 
Consolidated Results of Operations
2534
 
Segment Results of Operations
2636
 
Capital Resources and Liquidity
2738
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
2942
Item 4.
Controls and Procedures
2943
   
PART II — OTHER INFORMATION
 
Item 1.
Legal Proceedings
3045
Item 1A.
Risk Factors
3045
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
3145
Item 3.
Defaults Upon Senior Securities
3145
Item 4.
Mine Safety Disclosures
3145
Item 5.
Other Information
3145
Item 6.
Exhibits
3146
SIGNATURES
32
EXHIBIT INDEX
3347








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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 harborsharbor 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 Exchange Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are usually relatedrelate 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,” “will,” “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 risk,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 includeare those set forth in thisPart II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q and in “Risk Factors” infor the Information Statement included in Amendment No. 1quarterly period ended June 30, 2020.

We wish to the Form 10 filed with the Securities and Exchange Commissioncaution you not to place undue reliance on April 12, 2018,any forward-looking statements, which are summarizedspeak only as follows:

Demand for our products and services, which is affected by changes in the price of, and demand for, crude oil and natural gas in domestic and international markets;
Our ability to successfully compete with other companies in our industry;
Our ability to develop and implement new technologies and services, as well as our ability to protect and maintain critical intellectual property assets;
Cost inflation and availability of raw materials;
Changes in federal, state and local legislation and regulations relating to hydraulic fracturing or oil and gas development and the potential for related litigation or restrictions on our customers;
Our ability to successfully execute our capital allocation and acquisition programs;
Potential liabilities arising out of the installation or use of our products;
Continuing consolidation within our customers’ industry;
A failure of our information technology infrastructure or any significant breach of security;
Changes in environmental and health and safety laws and regulations which may increase our costs, limit the demand for our products and services or restrict our operations;
Risks relating to our existing international operations and expansion into new geographical markets;
Changes in domestic and foreign governmental public policies, risks associated with entry into emerging markets, changes in statutory tax rates and unanticipated outcomes with respect to tax audits;
Failure to attract, retain and develop personnel for key management;
The impact of our indebtedness on our financial position and operating flexibility;
Credit risks related to our customer base or the loss of significant customers;
Deterioration in future expected profitability or cash flows and its effect on our goodwill;
Disruptions in the political, regulatory, economic and social conditions of the countries in which we conduct business;
Fluctuations in currency markets worldwide; and
Increased compliance costs for us and our customers due to changes in climate change legislation and other regulatory initiatives.

date hereof. We undertake no obligation to publicly update, revise or revisecorrect 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 by law.under the federal securities laws.


Table of Contents




PART I — FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


APERGYCHAMPIONX CORPORATION
CONDENSED COMBINEDCONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(in thousands, except per share data)2020 2019 2020 2019
Product revenue$540,825
 $239,867
 $1,014,140
 $775,489
Service revenue76,665
 23,979
 138,436
 71,853
Lease and other revenue16,036
 12,993
 41,298
 36,161
Total revenue633,526
 276,839
 1,193,874
 883,503
Cost of goods and services505,066
 184,140
 950,845
 579,033
Gross profit128,460
 92,699
 243,029
 304,470
Selling, general and administrative expense122,156
 68,405
 330,956
 199,221
Goodwill impairment0
 0
 616,271
 0
Long-lived asset impairment0
 0
 40,980
 1,746
Interest expense, net15,935
 9,590
 36,236
 30,226
Other (income) expense, net1,663
 (309) 342
 3,469
Income (loss) before income taxes(11,294) 15,013
 (781,756) 69,808
Provision for (benefit from) income taxes(3,962) 3,425
 (31,922) 15,274
Net income (loss)(7,332) 11,588
 (749,834) 54,534
Less: Net income attributable to noncontrolling interest582
 194
 1,453
 547
Net income (loss) attributable to ChampionX$(7,914) $11,394
 $(751,287) $53,987
        
Earnings (loss) per share attributable to ChampionX:       
Basic$(0.04) $0.15
 $(5.73) $0.70
Diluted$(0.04) $0.15
 $(5.73) $0.70
Weighted-average shares outstanding:       
Basic199,809
 77,460
 131,064
 77,416
Diluted199,809
 77,573
 131,064
 77,615

 Three Months Ended March 31,
(in thousands)2018 2017
Product revenue$253,377
 $209,675
Service revenue19,861
 14,872
Lease and other revenue10,684
 5,731
Total revenue283,922
 230,278
Cost of goods and services189,661
 154,918
Gross profit94,261
 75,360
Selling, general and administrative expense59,739
 52,639
Operating income34,522
 22,721
Other expense, net2,617
 2,929
Income before income taxes31,905
 19,792
Provision for income taxes7,220
 6,206
Net income24,685
 13,586
Net income attributable to noncontrolling interest142
 317
Net income attributable to Apergy$24,543
 $13,269

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

1
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APERGYCHAMPIONX CORPORATION 
CONDENSED COMBINEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended March 31,Three Months Ended
September 30,		 Nine Months Ended
September 30,
(in thousands)2018 20172020 2019 2020 2019
Net income$24,685
 $13,586
Net income (loss)$(7,332) $11,588
 $(749,834) $54,534
Other comprehensive income (loss), net of tax:          
Foreign currency translation adjustments (1)
(1,691) 1,698
3,782
 (2,900) (1,567) (836)
Reclassification adjustment for pension and other post-retirement benefit plan amortization of net actuarial loss included in net income (2)
49
 75
Cash flow hedges(862) 0
 (209) 0
Defined pension and other post-retirement benefits adjustments, net(2)
99
 68
 297
 235
Other comprehensive income (loss)(1,642) 1,773
3,019
 (2,832) (1,479) (601)
Comprehensive income23,043
 15,359
Comprehensive income (loss)(4,313) 8,756
 (751,313) 53,933
Comprehensive income attributable to noncontrolling interest142
 317
582
 194
 1,453
 547
Comprehensive income attributable to Apergy$22,901
 $15,042
Comprehensive income (loss) attributable to ChampionX$(4,895) $8,562
 $(752,766) $53,386
_______________________
(1) Net of income tax (expense) benefit of nil$0 for the three and nine months ended March 31, 2018September 30, 2020 and 2017.2019.
(2) Net of income tax (expense) benefit of $16$33 and $24$23 for the three months ended March 31, 2018September 30, 2020 and 2017,2019, respectively, and $99 and $202 for the nine months ended September 30, 2020 and 2019, respectively.



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

2
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APERGYCHAMPIONX CORPORATION
CONDENSED COMBINEDCONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)March 31, 2018 December 31, 2017September 30, 2020 December 31, 2019
Assets      
Cash and cash equivalents$17,122
 $23,712
$171,462
 $35,290
Receivables, net of allowances of $5,011 in 2018 and $4,753 in 2017227,473
 202,024
Receivables, net516,245
 219,874
Inventories, net210,941
 201,591
471,331
 211,342
Prepaid expenses and other current assets16,493
 14,038
73,713
 26,934
Total current assets472,029
 441,365
1,232,751
 493,440
Property, plant and equipment, net220,055
 211,832
Property, plant and equipment, net of accumulated depreciation of $495,380 in 2020 and $426,722 in 2019868,111
 248,181
Operating lease right-of-use assets118,993
 24,289
Goodwill909,037
 910,088
660,329
 911,113
Intangible assets, net325,444
 338,510
509,789
 238,707
Other non-current assets3,584
 2,980
63,759
 7,095
Total assets1,930,149
 1,904,775
$3,453,732
 $1,922,825
Liabilities and Net Investment   
Liabilities and Equity   
Current portion of long-term debt$31,470
 $4,845
Accounts payable108,083
 98,826
262,092
 120,291
Accrued compensation and employee benefits24,162
 30,289
60,566
 38,470
Current portion of operating lease liabilities33,888
 7,620
Accrued distributor fees36,386
 0
Accrued expenses and other current liabilities26,775
 21,950
150,005
 28,455
Total current liabilities159,020
 151,065
574,407
 199,681
Long-term debt989,690
 559,821
Deferred income taxes92,916
 96,985
141,047
 84,060
Operating lease liabilities80,261
 19,419
Other long-term liabilities16,771
 16,691
82,295
 23,630
Total liabilities268,707
 264,741
1,867,700
 886,611
Net Investment: 
  
Net parent investment in Apergy1,685,923
 1,661,700
Stockholders’ equity: 
  
Common stock (2.5 billion shares authorized, $0.01 par value)
199.8 million shares and 77.5 million shares issued and outstanding in 2020 and 2019, respectively
1,998
 775
Capital in excess of par value of common stock2,288,930
 969,174
Retained earnings (accumulated deficit)(645,863) 107,048
Accumulated other comprehensive loss(29,372) (26,415)(45,516) (44,037)
Total1,656,551
 1,635,285
Total stockholders’ equity1,599,549
 1,032,960
Noncontrolling interest4,891
 4,749
(13,517) 3,254
Total net investment1,661,442
 1,640,034
Total liabilities and net investment$1,930,149
 $1,904,775
Total equity1,586,032
 1,036,214
Total liabilities and equity$3,453,732
 $1,922,825


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

3
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APERGYCHAMPIONX CORPORATION
CONDENSED COMBINED STATEMENTCONSOLIDATED STATEMENTS OF CHANGES IN NET INVESTMENTSTOCKHOLDERS’ EQUITY
(Unaudited)

 Attributable to Dover Corporation    
(in thousands)Net Parent Investment in Apergy Accumulated Other Comprehensive Loss Noncontrolling Interest Total
December 31, 2017$1,661,700
 $(26,415) $4,749
 $1,640,034
Net income24,543
 —
 142
 24,685
Cumulative effect of accounting changes (Note 2)1,315
 (1,315) —
 —
Other comprehensive loss—
 (1,642) —
 (1,642)
Net transfer to parent company (Note 3)(1,635) —
 —
 (1,635)
March 31, 2018$1,685,923
 $(29,372) $4,891
 $1,661,442
 Common stock        
(in thousands)Shares 
Par
Value
 Capital in Excess of Par Value Retained Earnings (Accum. Deficit) 
Accum.
Other
Comp.
Loss
 Non-controlling Interest Total
December 31, 201977,460
 $775
 $969,174
 $107,048
 $(44,037) $3,254
 $1,036,214
Cumulative effect of accounting changes, net of tax (Note 3)—
 —
 —
 (1,573) —
 —
 (1,573)
Net income (loss)—
 —
 —
 (633,728) —
 273
 (633,455)
Other comprehensive loss—
 —
 —
 —
 (10,953) —
 (10,953)
Stock-based compensation44
 0
 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
Net income (loss)—
 —
 —
 (7,914) —
 582
 (7,332)
Other comprehensive income—
 —
 —
 —
 3,019
 —
 3,019
Stock-based compensation12
 —
 5,856
 —
 —
 —
 5,856
Taxes withheld on issuance of stock-based awards—
 —
 (28) —
 —
 —
 (28)
Other—
 —
 6
 (88) —
 3
 (79)
September 30, 2020199,820
 $1,998
 $2,288,930
 $(645,863) $(45,516) $(13,517) $1,586,032


 Common Stock        
(in thousands)Shares 
Par
Value
 Capital in Excess of Par Value Retained Earnings 
Accum.
Other
Comp.
Loss
 Non-controlling Interest Total
December 31, 201877,353
 $774
 $960,773
 $54,884
 $(42,906) $2,458
 $975,983
Net income—
 —
 —
 19,656
 —
 282
 19,938
Other comprehensive income—
 —
 —
 —
 1,189
 —
 1,189
Stock-based compensation39
 —
 2,285
 —
 —
 —
 2,285
Taxes withheld on issuance of stock-based awards—
 —
 (719) —
 —
 —
 (719)
Other—
 —
 —
 —
 —
 14
 14
March 31, 201977,392
 $774
 $962,339
 $74,540
 $(41,717) $2,754
 $998,690
Net income—
 —
 —
 22,937
 —
 71
 23,008
Other comprehensive income—
 —
 —
 —
 1,042
 —
 1,042
Stock-based compensation67
 1
 2,735
 —
 —
 —
 2,736
Taxes withheld on issuance of stock-based awards—
 —
 (1,080) —
 —
 —
 (1,080)
Other—
 —
 —
 —
 —
 (14) (14)
June 30, 201977,459
 $775
 $963,994
 $97,477
 $(40,675) $2,811
 $1,024,382
Net income—
 —
 —
 11,394
 —
 194
 11,588
Other comprehensive loss—
 —
 —
 —
 (2,832) —
 (2,832)
Stock-based compensation—
 —
 2,524
 —
 —
 —
 2,524
Other—
 —
 (42) —
 —
 

 (42)
September 30, 201977,459
 $775
 $966,476
 $108,871
 $(43,507) $3,005
 $1,035,620

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




4
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APERGYCHAMPIONX CORPORATION
CONDENSED COMBINEDCONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended March 31,
(in thousands)2018 2017
Cash provided (required) by operating activities:   
Net income$24,685
 $13,586
Adjustments to reconcile net income to net cash provided (required) by operating activities:   
Depreciation16,969
 13,138
Amortization12,656
 13,412
Stock-based compensation510
 601
(Gain) loss on sale of fixed assets242
 (31)
Deferred income taxes(4,279) (6,787)
Other(142) (317)
Changes in operating assets and liabilities (net of effects of acquisitions and foreign exchange):   
Receivables, net(25,388) (17,280)
Inventories, net(9,552) (10,317)
Prepaid expenses and other current assets(2,553) (1,464)
Accounts payable9,452
 19,239
Accrued compensation and employee benefits(6,198) (3,030)
Accrued expenses and other current liabilities4,718
 1,609
Leased assets and other, net(13,773) (2,961)
Net cash provided by operating activities7,347
 19,398
    
Cash provided (required) by investing activities: 
  
Capital expenditures(13,683) (6,260)
Proceeds from sale of property, plant and equipment205
 678
Purchase price adjustments on acquisition53
 —
Net cash required by investing activities(13,425) (5,582)
    
Cash provided (required) by financing activities: 
  
Net transfers to parent company(814) (13,919)
Net cash required by financing activities(814) (13,919)
    
Effect of exchange rate changes on cash and cash equivalents302
 638
    
Net increase (decrease) in cash and cash equivalents(6,590) 535
Cash and cash equivalents at beginning of period23,712
 26,027
Cash and cash equivalents at end of period$17,122
 $26,562

 Nine Months Ended
September 30,
(in thousands)2020 2019
Cash provided by (used for) operating activities:   
Net income (loss)$(749,834) $54,534
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation101,434
 51,126
Amortization47,827
 38,504
Stock-based compensation13,718
 7,545
Loss (gain) on disposal of fixed assets3,685
 (846)
Loss on goodwill and long-lived asset impairment657,251
 1,746
Loss on sale of business0
 2,475
Provision for losses on accounts receivable2,945
 122
Provision for inventory obsolescence and write-downs15,626
 (997)
Amortization of deferred loan costs and accretion of discount2,480
 1,943
Deferred income taxes(34,318) (4,439)
Employee benefit plan expense1,606
 1,506
Other(1,696) 386
Changes in operating assets and liabilities (net of effects of foreign exchange):   
Receivables91,204
 14,133
Inventories62,225
 13,232
Prepaid expenses and other current assets17,737
 (16,270)
Accounts payable(48,519) (16,861)
Accrued compensation and employee benefits1,518
 (3,651)
Accrued expenses and other liabilities12,846
 14,121
Leased assets(7,799) (34,305)
Other(504) (614)
Net cash provided by operating activities189,432
 123,390
    
Cash provided by (used for) investing activities: 
  
Capital expenditures(32,169) (31,589)
Acquisitions, net of cash acquired57,588
 (12,500)
Proceeds from sale of fixed assets9,295
 2,954
Payment on sale of business0
 (2,194)
Net cash provided by (used for) investing activities34,714
 (43,329)
    
Cash provided by (used for) financing activities: 
  
Proceeds from long-term debt125,000
 36,500
Payment of debt issue costs(4,356) 0
Repayment of long-term debt(206,713) (111,500)
Distribution to noncontrolling interest(2,200) 0
Payment of finance lease obligations(4,536) (4,108)
Payments related to taxes withheld on stock-based compensation(640) (1,841)
Net cash used for financing activities(93,445) (80,949)
    
Effect of exchange rate changes on cash and cash equivalents5,471
 (317)
    
Net increase (decrease) in cash and cash equivalents136,172
 (1,205)
Cash and cash equivalents at beginning of period35,290
 41,832
Cash and cash equivalents at end of period$171,462
 $40,627
The accompanying notes are an integral part of the condensed combinedconsolidated financial statements.

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APERGYCHAMPIONX CORPORATION
NOTES TO CONDENSED COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 — 1—BASIS OF PRESENTATION AND SEPARATION


ApergyChampionX Corporation (“Apergy”) is a leading provider ofglobal 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

Unless the lifecyclecontext 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 Ecolab transferred their upstream energy business to Champion X Holding, Inc. (“legacy ChampionX”) and, thereafter, distributed all of the shares of legacy ChampionX common stock to certain Ecolab stockholders (“the Distribution”). Immediately following the Distribution, a well—from drilling to completion to production. We report our resultswholly owned subsidiary of operationsthe Company merged with and into legacy ChampionX, with legacy ChampionX continuing as the surviving company in the following reporting segments: Production & Automation TechnologiesMerger and Drilling Technologies. Our Production and Automation segment offerings consist of artificial lift equipment and solutions, including rod pumping systems, electric submersible pump systems, progressive cavity pumps and drive systems and plunger lifts, as well as a full automation offering consistingwholly owned subsidiary of equipment, software and Industrial Internetthe Company (“the Merger”). In association with the completion of Things solutions for downhole monitoring, wellsite productivity enhancement and asset integrity management.  Our Drilling Technologies segment offering provides market leading polycrystalline diamond cutters and bearings that result in cost effective and efficient drilling.

Separation and Distribution

On April 18, 2018, the Dover Corporation (“Dover”) Board of Directors approvedMerger, the separation of entities conductingCompany has changed its upstream oil and gas energy business within Dover’s Energy segment (the “Separation”) into an independent, publicly traded company named Apergy Corporation.name from Apergy Corporation was incorporated in Delaware on October 10, 2017, under the name Wellsite(“Apergy”) to ChampionX Corporation, and was renamed Apergy Corporation on February 2, 2018. Apergy Corporation was formed for the purpose of holding entities, assets and liabilities conducting Dover’s upstream oil and gas business within Dover’s Energy segment. In accordance with the separation and distribution agreement, the two companies were separated by Dover distributing to Dover’s stockholders all 77,339,828common shares of common stock of Apergy on May 9, 2018. Each Dover shareholder received one share of Apergy stock for every two shares of Dover stock held at the close of business on the record date of April 30, 2018. In conjunction with the Separation, Dover received a private letter ruling from the Internal Revenue Service to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the ruling, for U.S. federal income tax purposes, the distribution of Apergy common stock was not taxable to Dover or U.S. holders of Dover common stock, except in respect to cash received in lieu of fractional share interests. Following the Separation, Dover retained no ownership interest in Apergy, and each company, as of May 9, 2018, has separate public ownership, boards of directors and management. A registration on Form 10, as amended, describing the Separation was filed by Apergy with the U.S. Securities and Exchange Commission (“SEC”) and was declared effective on April 19, 2018. On May 9, 2018, Apergy common stock began “regular-way” trading on the New York Stock Exchange under the “APY” symbol.symbol “CHX”.


In connection withAs a result of the Separation, we incurred an aggregate principal amountMerger, the results of $715 millionoperations of long-term debt, which consists of a $415 million term loan facility and $300 million of senior notes. Net proceedslegacy ChampionX have been reflected in our accompanying condensed consolidated financial statements from the notes offering, together with borrowings underclosing date of the term loan facility, were usedMerger through September 30, 2020. Results for the periods prior to make a cash paymentJune 3, 2020 reflect the financial and operating results of $700 million to DoverApergy and to pay feesdo not include the financial and expenses incurred in connection with the financing transactions.operating results of legacy ChampionX. See Note 16 — Subsequent Events2—Merger Transaction for additional information.information on the Merger.


Basis of Presentation

The accompanying condensed combined financial statements were derived from the consolidated financial statements and accounting records of Dover. These financial statements reflect the combined historical results of operations, financial position and cash flows of certain Dover entities conducting its upstream oil and gas energy business within Dover’s Energy segment, including an allocated portion of Dover’s corporate costs. Although the legal transfer of these businesses from Dover to Apergy occurred subsequent to March 31, 2018, for ease of reference, and unless otherwise stated or the context otherwise requires, all references to “Apergy Corporation,” “Apergy,” “we,” “us” or “our” refer (i) prior to the Separation, to the Apergy businesses, consisting of entities, assets and liabilities conducting the upstream oil and gas business within Dover’s Energy segment and (ii) after the Separation, to Apergy Corporation and its consolidated subsidiaries.

These financial statements have been presented as if such businesses had been combined for all periods presented. All intercompany transactions and accounts within Dover were eliminated. The assets and liabilities in the condensed combined financial statements were reflected on a historical cost basis, as immediately prior to the Separation, all of the assets and liabilities presented were wholly owned by Dover and were transferred within the Dover consolidated group. The condensed combined statements of income also include expense allocations for certain corporate functions historically performed by Dover and not allocated to its operating segments, including corporate executive management, human resources, information

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technology, facilities, tax, shared services, finance and legal, including the costs of salaries, benefits and other related costs. These expense allocations were based on direct usage or benefit where identifiable, with the remainder allocated on the basis of revenue, headcount or other measures. Our management believes the assumptions underlying these condensed combined financial statements, including the assumptions regarding the allocation of corporate expenses from Dover, are reasonable. Nevertheless, the condensed combined financial statements may not include all of the actual expenses that would have been incurred had we been a stand-alone public company during the periods presented and consequently may not reflect our combined results of operations, financial position and cash flows had we been a stand-alone public company during the periods presented. Actual costs that would have been incurred if we had been a stand-alone public company would depend on a variety of factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

Transactions between Apergy and Dover, with the exception of transactions discussed in Note 3 — Related Party Transactions, are reflected in “total net investment” in the condensed combined balance sheets as part of “net parent investment in Apergy” and in the condensed combined statements of cash flows as a financing activity in “net transfers to parent company.” See Note 3 — Related Party Transactions for additional information.

No portion of Dover’s third-party debt was historically held by an Apergy entity or was transferred to Apergy; therefore, no debt was included in the condensed combined balance sheets as of March 31, 2018 and December 31, 2017, and no interest expense was presented in the condensed combined statements of income for the three months ended March 31, 2018 and 2017. Intercompany notes payable to Dover of $221.4 million and $224.5 million as of March 31, 2018 and December 31, 2017, respectively, were presented within “net parent investment in Apergy” because the notes were not settled in cash. Accordingly, no interest expense related to intercompany debt was presented in the condensed combined statements of income for each of the periods presented. Additionally, our U.S. cash was historically pooled to Dover through intercompany advances and consequently is not reflected on our condensed combined balance sheets.

Interim Financial Information


The accompanying unaudited condensed combinedconsolidated financial statements of ApergyChampionX have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the SECSecurities 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 combinedconsolidated financial statements, and notes thereto, in the Information Statementwhich are included in Amendment No. 1 toour Annual Report on Form 10-K for the Form 10 filed with the SEC on April 12, 2018.year ended December 31, 2019.


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 combinedconsolidated financial statements reflect all adjustments (consisting of normal recurring adjustments)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, 2018.2020.

Change in Accounting Estimate

During the second quarter, we entered into new commercial agreements, which changed the economics of the leased asset program of our Electrical Submersible Pump (“ESP”) subsidiary in our Production & Automation Technologies segment. As such, we re-evaluated the estimated useful life and salvage value of our assets based on the combination of new commercial contracts and historical operating trends related to the aging of our lease fleet, including functioning assets beyond original expected life. Based on our analysis, effective April 1, 2020, we changed our estimate of useful life and salvage values for certain equipment to better reflect the useful life and estimated values of these assets at the end of their useful life. The estimated useful life, previously estimated at 12 months, was increased to 18 months. The estimated salvage value of the equipment, previously estimated at 50%, was decreased to 0%. The effect of the changes in estimate for the three and nine months ended September 30, 2020, was an increase in depreciation expense of $8.6 million and $26.2 million, respectively, a decrease in net income of $5.7 million and $17.6 million, and a decrease in basic and diluted earnings per share of $0.03 per share and $0.13 per share, respectively.

Reclassifications

During the three months ended March 31, 2018, we changed our presentation of certain amortization expense primarily related to customer intangible assets. For the three months ended March 31, 2017, we reclassified $10.7 million of amortization expense previously reported as a component of “selling, general and administrative expense” to “cost of goods and services” on our condensed combined statement of income.


Certain prior-yearprior period amounts have been reclassified to conform to the presentation of the current yearperiod financial statements. These reclassifications had no effect on the previously reported net loss.

Revisions

We revised our previously issued financial statements for the three and nine months ended September 30, 2019, for the correction of immaterial errors related to: (i) the assessing and recording of liabilities for state sales tax and associated penalties and interest, primarily resulting in an understatement of our selling, general, and administrative expense and interest expense for the three and nine months ended September 30, 2019; and (ii) previously recorded amounts including, but not limited to, the write-off of inventory and leased assets, timing of revenue recognition, and revenue classification, that the Company concluded were immaterial to our previously filed condensed consolidated financial statements. See the following table for the impact of the corrections on our condensed consolidated financial statements:

Condensed Consolidated Statement of Income
 Three Months Ended
September 30, 2019
(in thousands, except per share data)As Reported Adjustments As Revised
Product revenue (1)
$244,651
 $(4,784) $239,867
Service revenue (1)
20,708
 3,271
 23,979
Lease and other revenue (1)
13,022
 (29) 12,993
Total revenue278,381
 (1,542) 276,839
Cost of goods and services186,862
 (2,722) 184,140
Gross profit91,519
 1,180
 92,699
Selling, general and administrative expense68,813
 (408) 68,405
Interest expense, net9,537
 53
 9,590
Income before income taxes13,478
 1,535
 15,013
Provision for income taxes3,059
 366
 3,425
Net income10,419
 1,169
 11,588
Net income attributable to ChampionX$10,225
 $1,169
 $11,394
      
Earnings per share attributable to ChampionX:     
Basic$0.13
 $0.02
 $0.15
Diluted$0.13
 $0.02
 $0.15
      
Comprehensive income$7,587
 $1,169
 $8,756
Comprehensive income attributable to ChampionX$7,393
 $1,169
 $8,562

(1) Certain as reported amounts have been reclassified for consistency with the current period presentation. See Note 2 — New Accounting Standards for additional information.These reclassifications had no effect on the reported net income (loss).




7
 Nine Months Ended
September 30, 2019
(in thousands, except per share data)As Reported Adjustments As Revised
Product revenue (1)
$787,698
 $(12,209) $775,489
Service revenue (1)
62,056
 9,797
 71,853
Lease and other revenue (1)
36,372
 (211) 36,161
Total revenue886,126
 (2,623) 883,503
Cost of goods and services579,289
 (256) 579,033
Gross profit306,837
 (2,367) 304,470
Selling, general and administrative expense199,044
 177
 199,221
Long-lived asset impairment (1)
1,746
 0
 1,746
Interest expense, net30,068
 158
 30,226
Income before income taxes72,510
 (2,702) 69,808
Provision for income taxes15,672
 (398) 15,274
Net income56,838
 (2,304) 54,534
Net income attributable to ChampionX$56,291
 $(2,304) $53,987
      
Earnings per share attributable to ChampionX:     
Basic$0.73
 $(0.03) $0.70
Diluted$0.73
 $(0.03) $0.70
      
Comprehensive income$56,237
 (2,304) $53,933
Comprehensive income attributable to ChampionX$55,690
 (2,304) $53,386


(1) Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported net income (loss).
Condensed Consolidated Statement of Changes in Stockholders’ Equity
 September 30, 2019
(in thousands)As Reported Adjustments As Revised
Stockholders’ Equity:    
Capital in excess of par value of common stock$971,075
 $(4,599) $966,476
Retained earnings110,458
 (1,587) 108,871
Total equity1,041,806
 (6,186) 1,035,620

(in thousands)As Reported Adjustments As Revised
Total equity at December 31, 2018$981,527
 $(5,544) $975,983
Cumulative effect of accounting changes(1,662) 1,662
 0
Net income22,569
 (2,631) 19,938
Total equity at March 31, 20191,005,203
 (6,513) 998,690
Net income23,850
 (842) 23,008
Total equity at June 30, 20191,031,737
 (7,355) 1,024,382
Net income10,419
 1,169
 11,588
September 30, 20191,041,806
 (6,186) 1,035,620



Condensed Consolidated Statements of Cash Flows
 Nine Months Ended September 30, 2019
(in thousands)As Reported Adjustments As Revised
Cash provided by (used for) operating activities:     
Net income$56,838
 $(2,304) $54,534
Adjustments to reconcile net income to net cash provided (required) by operating activities:     
Deferred income taxes(3,717) (722) (4,439)
Gain on sale of fixed assets (1)
(846) 0
 (846)
Provision for losses on accounts receivable (1)
122
 0
 122
Amortization of deferred loan costs and accretion of discount (1)
1,943
 0
 1,943
Other386
 0
 386
Changes in operating assets and liabilities (net of effects of foreign exchange):     
Receivables12,218
 1,915
 14,133
Inventories11,455
 1,777
 13,232
Prepaid expenses and other current assets(16,742) 472
 (16,270)
Accounts payable(15,532) (1,329) (16,861)
Accrued compensation and employee benefits(3,651) 0
 (3,651)
Accrued expenses and other liabilities14,288
 (167) 14,121
Leased assets(34,645) 340
 (34,305)
Other(634) 20
 (614)
_______________________
(1) Each of these amounts were included within other on the condensed consolidated statements of cash flows reported for the nine months ended September 30, 2019. These amounts have been reclassified consistent with the presentation in the current reporting period.

NOTE 2—MERGER TRANSACTION
Table
On June 3, 2020 we completed the acquisition of Contentsthe legacy ChampionX business through the merger of one of our wholly owned subsidiaries with legacy ChampionX. Immediately prior to the Merger, Ecolab transferred their upstream energy business to legacy ChampionX. Pursuant to the Merger, shares of Ecolab common stock that were tendered through an exchange offer were converted into common shares of legacy ChampionX on a 1-for-24.6667 basis, with each share of legacy ChampionX automatically converting into one share of the Company. 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 legacy ChampionX. The transaction resulted in legacy ChampionX equityholders owning approximately 62% of the Company on a fully diluted basis, with equityholders of the Company prior to the Merger owning approximately 38% on a fully diluted basis.

Acquisition-related costs associated with the Merger were expensed as incurred and total $3.1 million and $60.9 million for the three and nine months ended September 30, 2020, respectively, and are included in selling, general and administrative expense in our condensed consolidated statements of income (loss). The acquisition-related transaction costs consisted primarily of investment banker fees and legal and accounting costs. 

The Merger constitutes a business combination, with the Company (formerly known as Apergy) treated as the accounting acquirer and legacy ChampionX treated as the acquired company for accounting purposes.

Legacy ChampionX provides on-site, technology-driven chemistry programs and value-enabling solutions and services to the global upstream oil and natural gas industry. 



Preliminary 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)
44,000
Favorable supply agreement(2)
(55,000)
Fair value of consideration transferred$1,296,895

_______________________
(1) Represents the fair value of the replacement equity awards to the extent services were provided by employees of legacy ChampionX prior to closing. See Note 12—Equity And Cash Incentive Programs for additional information about the replacement equity awards.
(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 purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their preliminary fair value estimates as of the acquisition date. The measurements of assets acquired and liabilities assumed, other than debt which was measured using Level 2 measurements, are based on inputs that are not observable in the market and thus represent Level 3 inputs. The excess of the purchase price over such fair values was recorded as goodwill. The purchase price allocation is based upon a preliminary valuation only and will be finalized upon completion of certain valuation procedures. Our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas in which the preliminary purchase price allocation is not yet finalized relate to the fair values of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, certain working capital items, deferred income taxes and residual goodwill. We will complete the purchase price allocation and valuation during the 12-month period following the Merger date.

The following table provides the preliminary allocation of the purchase price as of the acquisition date.
(in thousands) 
Cash and cash equivalents$57,588
Receivables392,409
Inventories339,214
Prepaid expenses and other current assets62,011
Property, plant, and equipment690,047
Identifiable intangible assets(1)
305,000
Other non-current assets156,002
Total identifiable assets acquired2,002,271
Accounts payable183,445
Other current liabilities(1)
170,433
Long-term debt (2)
537,000
Deferred tax liabilities93,290
Other liabilities(1)
104,980
Total liabilities assumed1,089,148
Net identifiable assets acquired913,123
Add: Negative fair value of non-controlling interests16,052
Goodwill367,720
Total net assets acquired$1,296,895

_______________________
(1) The fair value of the consideration transferred related to the Favorable and Unfavorable supply agreements has been excluded.
(2) In connection with the Merger, we assumed a term loan from legacy ChampionX, 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.

Summary of Significant Fair Value Methods

Inventories
Acquired inventory is comprised of raw materials and finished goods.  The preliminary fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The preliminary fair value of raw materials and supplies was determined based on replacement cost which approximates historical carrying value.  The preliminary fair value step-up of $13.6 million of inventories measured on a First In First Out (“FIFO”) basis is amortized to cost of goods and services in the condensed consolidated financial statements as the inventory is sold, which is expected to be a period of three months from the acquisition date.  For inventories measured on a Last In First Out (“LIFO”) basis, the acquired inventory becomes the LIFO base layer inventory.

Property, Plant, and Equipment
The preliminary fair value of identifiable fixed assets was calculated using a combination of valuation approaches, primarily including the cost approach which adjusts estimates of replacement cost for the age, condition and utility of the associated assets, as well as the market approach to value asset types where market comparable data is available, and is summarized below:
(in thousands)Fair Value Useful Life (years)
Land and land improvements$125,733
 -
Buildings and leasehold improvements207,427
 5 to 40
Machinery, equipment and other337,374
 3 to 20
Capitalized software and computer hardware19,513
 3 to 7
Total property, plant, and equipment acquired$690,047
  


Identifiable Intangible Assets

The preliminary fair values of trademarks, trade names, and developed technology were determined using a relief from royalty methodology which estimates cost savings generated by a company related to the ownership of an asset for which otherwise have had to pay royalties or license fees on revenues earned through the use of the asset. Customer relationships were determined using the multi-period excess earnings method which involves isolating the net earnings attributable to the asset being measured based on the present value of the incremental after-tax cash flows attributable solely to the intangible assets over its remaining useful life. Preliminary fair values are summarized below:
(in thousands)Fair Value Useful Life (years)
Trademarks and trade names$25,000
 15
Developed technology115,000
 7
Customer relationships165,000
 15
Total identifiable intangible assets acquired305,000
 
Favorable supply agreements55,000
 3
Total identifiable intangible assets recognized$360,000
  


The weighted average amortization period for identifiable intangible assets recognized is 10.5 years.

Leases

Lease-related assets and liabilities acquired were remeasured at the present value of the future minimum lease payments over the remaining lease term utilizing an updated incremental borrowing rate of the Company as if the acquired leases were new leases as of the acquisition date. Right-of-use assets were further adjusted for any off-market terms of the lease. The remaining lease term is based on the remaining term at the acquisition date plus any renewal or extension options that the Company is reasonably certain will be exercised. Additionally, the Company has elected short-term lease treatment for those acquired lease contracts which, at the acquisition date, have a remaining lease term of 12 months or less. For the leases acquired through the

Merger, the Company will retain the previous lease classification. This resulted in legacy ChampionX assets and liabilities of $100.6 million and $93.2 million, respectively, as of the acquisition date.

Goodwill

Goodwill of $367.7 million arising from the acquisition consisted largely of the expected synergies and economies of scale from combining the operations of the Company and legacy ChampionX. Goodwill recognized as a result of the acquisition is not deductible for tax purposes. We have allocated goodwill of $278.7 million and $89.0 million to our Production Chemical Technologies and Reservoir Chemical Technologies operating segments, respectively. See Note 5—Goodwill And Intangible Assets for a rollforward of our goodwill balance by operating segment.

Pro forma financial information

The results of operations for legacy ChampionX that have been included in our condensed consolidated financial statements from the June 3, 2020 acquisition date through September 30, 2020 include revenue of $644.5 million and net income of $23.1 million. 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 September 30, Nine Months Ended September 30,
(in thousands, except per share data)2020 2019 2020 2019
Revenues$633,526
 $866,506
 $2,068,904
 $2,634,009
Net income (loss) attributable to ChampionX4,667
 53,251
 (789,858) 163,130

Transactions with Ecolab

Certain agreements have been entered into between the Company and Ecolab, including, among others, a Tax Matters Agreement, an Intellectual Property Matters Agreement, a Cross Supply and Product Transfer Agreement, and a Transition Services Agreement, each entered into on the Closing Date; as well as the Employee Matters Agreement entered into on December 18, 2019. Pursuant to the Transition Services Agreement, Ecolab and its subsidiaries as well as legacy ChampionX and its subsidiaries will provide each other with specified support services and other assistance for a limited time following the closing of the Merger.  Charges for services under the agreement are representative of our best estimate of market price and will be determined on an allocated cost basis, subject to an overall annual aggregate cap.  Revenue recognized under the Cross Supply and Product Transfer Agreement for the three and nine months ended September 30, 2020 was $49.5 million and $67.4 million, respectively. The Cross Supply and Product Transfer Agreement also includes a take-or-pay element which requires the Company to purchase a minimum of 13.7 million kilograms of product over a ten-year period, approximately $23.3 million. The Company has the option to terminate early beginning in the fifth year upon a two-year’s notice, subject to a termination fee which declines over the contract term.

NOTE 2 — 3—NEW ACCOUNTING STANDARDS


Recently Adopted Accounting Standards


Effective January 1, 2018,2020, we early adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This update allows for the reclassification from accumulated other comprehensive income (“AOCI”) to net investment for stranded deferred income tax effects resulting from the U.S. Tax Cuts and Jobs Act (“Tax Reform Act”). We elected to reclassify these stranded deferred income tax effects which amounted to $1.3 million. The stranded deferred income tax effects were specifically identified with our employee benefit plans and were the result of the reduction in the corporate income tax rate against the corresponding deferred income taxes in AOCI. See Note 11 — Income Taxes for additional information.

Effective January 1, 2018, we adopted ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This update changes the income statement presentation of defined benefit and post-retirement benefit plan expense by requiring separation between operating expense (service cost component of net periodic benefit cost) and non-operating expense (all other components of net periodic benefit cost, including interest cost, amortization of prior service cost, curtailments and settlements, etc.). The operating expense component is reported with similar compensation costs while the non-operating components are reported in “other expense, net” in the condensed combined statements of income. The adoption of this update was not material to the periods presented. We utilized a practical expedient which allows an entity to use amounts previously disclosed in its pension and other post-retirement benefits disclosures for any prior period as the estimation basis for applying the required retrospective presentation requirements.

Effective January 1, 2018, we adopted ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output. The update also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. The adoption of this ASU did not have a material impact on our financial statements.

Effective January 1, 2018, we adopted ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The new update clarifies how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. Specifically, the new update clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. We adopted this guidance retrospectively. For the three months ended March 31, 2017, the impact of this adoption resulted in a $0.9 million increase in net cash provided by operating activities and a corresponding increase to net cash used by investing activities on our statement of cash flows related to cash expenditures for certain leased assets.

Effective January 1, 2018, we adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The update introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update also requires quantitative and qualitative disclosures to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We applied the provisions of the ASU to contracts that were not completed as of January 1, 2018.

During the second half of 2015, Dover developed a project plan to implement ASU 2014-09, and as a subsidiary of Dover, we were included in Dover’s implementation efforts. We completed the project plan and analyzed the ASU’s impact on our contract portfolio, surveyed our businesses for our various revenue streams, completed contract reviews, and compared our historical accounting policies and practices to the requirements of the new guidance. We also evaluated the new disclosure requirements and identified and implemented appropriate changes to our business processes, systems and controls. We adopted the new guidance using the modified retrospective method and identified no cumulative effect adjustment to our total net investment balance as of January 1, 2018. The impact of adopting the new standard was not material to our financial statements for the three months ended March 31, 2018.


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We have applied the following practical expedients or elections under the new standard:

Omission of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
We applied the practical expedient to not capitalize costs to obtain contracts with a duration of one year or less, which are expensed and included within “cost of goods and services” in the condensed combined statements of income.
We elected to use the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component if it is expected, at contract inception, that the period between when we transfer a promised good or service to a customer, and when the customer pays for that good or service, will be one year or less. Thus, we may not consider an advance payment to be a significant financing component, if it is received less than one year before product completion.
We elected to exclude all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer (e.g., sales, use, value added, and some excise taxes) from the determination of the transaction price. As a result, our accounting policy of reporting revenue net of these taxes was not changed under the new standard.
We elected to account for shipping and handling activities performed after control of a good has been transferred to the customer as a contract fulfillment cost. As a result, our accounting policy related to shipping and handling was not changed under the new standard.

See Note 9 — Revenue for additional information.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This update requires that a lessee recognize in the statement of financial position a liability for future lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Similar to current guidance, the update continues to differentiate between finance leases and operating leases; however, this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors largely unchanged from existing GAAP. Early application is permitted. Entities are required to use a modified retrospective adoption, with certain relief provisions, for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements when adopted. The guidance will be effective for us on January 1, 2019.

During the second half of 2017, Dover developed a project plan to implement ASU 2016-02, and as a subsidiary of Dover, we were included in Dover’s implementation efforts. As part of our implementation efforts to date, we are surveying our businesses, assessing our portfolio of leases and compiling a central repository of active leases. Additionally, we have selected a lease software package to aid in our accounting and internal control processes related to leases. Effective with the Separation, we are evaluating our policy elections and considerations under the ASU and are in the process of developing internal policies. We are currently assessing the impacts the ASU will have on our financial statements and related disclosures, internal control over financial reporting and other business practices and processes.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” TheThis update amends the impairment model to utilize an expected credit loss methodology in place of the currently used incurred credit loss methodology which may result in earlier recognition of losses related tofor financial instruments. The guidance will be effective for us on January 1, 2020. Early adoption is permitted for annual periods beginning after December 15, 2018. We do not expectapplied the adoptionprovisions of this ASU to have a material impact on our financial statements.instruments, mostly consisting of trade receivables, as of January 1, 2020. We utilized the modified retrospective method of adoption; therefore, prior period amounts have not been adjusted and continue to be reflected in accordance with our historical accounting policies. As of January 1, 2020, we recorded a cumulative adjustment to retained earnings of $1.6 million, net of $0.4 million of income tax benefit.

Our exposure to credit losses is primarily the result of product sales to our customers, resulting in trade receivables with payment terms generally ranging from 30 days to 90 days. We manage credit risk on trade receivables by transacting only with what management believes are financially secure customers. Accounts receivable are carried at the invoiced amounts, less an

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NOTE 3 — RELATED PARTY TRANSACTIONS

Dover Corporation

Priorallowance for doubtful accounts, and generally do not bear interest. The Company estimates the allowance for doubtful accounts for expected credit losses by analyzing accounts receivable balances by applying historical write-off and collection trend rates as well as current economic and market conditions. Specific allowance amounts are established to record the Separation, Dover provided certain services including corporate executive management, human resources, information technology, facilities, tax, shared services, finance and legal services. Dover will continue to provide us certain of these services on a temporary basis following the Separation. See Note 16 — Subsequent Eventsappropriate provision for additional information. The financial information in these unaudited interim condensed combined financial statements does not include all the expensescustomers that would have been incurred had Apergy been a stand-alone public company. The corporate expenses allocated to these financial statements were $5.8 million and $6.1 million for the three months ended March 31, 2018 and 2017, respectively, which were recorded in “selling, general and administrative expense” in the condensed combined statements of income.

Transactions between Apergy and Dover, with the exception of transactions discussed below with Dover’s affiliates, are reflected in “net parent investment in Apergy” in the condensed combined balance sheets and in “net transfers to parent company” in the condensed combined statements of cash flows as a financing activity.

Accounts receivable, accounts payable and revenues with Dover and its affiliates were not material for the periods presented. We recognized royalty expense of $2.3 million for the three months ended March 31, 2018 and 2017, respectively, related to the use of Dover’s intellectual property and patents which was included in “other expense, net” in the condensed combined statements of income. At the Separation, patents and intangibles owned by Dover related to our operations transferred to Apergy. No further royalty charges are expected to be incurred by Apergy from Dover after the Separation.

Noncontrolling Interest

For the three months ended March 31, 2018 and 2017, we did not declare any distributions to the noncontrolling interest holder in Norris Production Solutions Middle East LLC, a subsidiary in the Sultanate of Oman. We have a commission arrangement withhigher probability of default. Account balances are written off against the allowance when it is determined the receivable will not be recovered.

The following table provides a rollforward of our noncontrolling interestallowance for 5% of certain annual product sales. The commissions paid during the three months ended March 31, 2018 and 2017, respectively, were not material.credit losses balance:

(in thousands)Allowance for Credit Losses
December 31, 2019$8,072
Impact of adoption on January 1, 20202,042
Provision for expected credit losses3,384
Accounts written off(1,947)
Recoveries1,770
Foreign currency translation(470)
September 30, 2020$12,851



NOTE 4 — 4—INVENTORIES


Inventories consisted of the following:
(in thousands)September 30, 2020 December 31, 2019
Raw materials$140,875
 $50,099
Work in progress11,051
 13,325
Finished goods354,584
 175,774
 506,510
 239,198
Inventory reserve(17,237) (12,067)
LIFO adjustments(17,942) (15,789)
Inventories, net$471,331
 $211,342

(in thousands)March 31, 2018 December 31, 2017
Raw materials$51,036
 $45,408
Work in progress12,914
 10,879
Finished goods171,307
 167,416
 235,257
 223,703
LIFO and valuation adjustments(24,316) (22,112)
Inventories, net$210,941
 $201,591

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NOTE 5 — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:
(in thousands)March 31, 2018 December 31, 2017
Land$13,552
 $13,557
Buildings and improvements99,339
 99,233
Machinery, equipment and other463,306
 446,261
 576,197
 559,051
Accumulated depreciation(356,142) (347,219)
Property, plant and equipment, net$220,055
 $211,832



NOTE 6 — 5—GOODWILL AND INTANGIBLE ASSETS

During the first quarter of 2020, certain unprecedented events caused the rapid decline of several market indicators in the oil and gas industry. Decisions by the Organization of Petroleum Exporting Countries (“OPEC”) and other oil producing nations resulted in an oversupply of crude oil. Compounding this situation, demand for oil and gas commodities declined significantly as the world was impacted by the COVID-19 outbreak, which resulted in a sharp decline in crude oil prices. Consequently, our market capitalization was negatively impacted as a result of these market conditions and overall impact to our industry.

Management determined that these events and their related impact to future revenues and cash flows constituted a triggering event in the first quarter of 2020, requiring us to perform a recoverability test of our long-lived assets and an interim impairment assessment of goodwill as of March 31, 2020.

Goodwill


Goodwill
The carrying amount of goodwill, including changes therein, of goodwill by reporting segment was as follows:is below:
(in thousands)Production Chemical Technologies Production & Automation Technologies Drilling Technologies Reservoir Chemical Technologies Total
December 31, 2019$0
 $809,977
 $101,136
 $0
 $911,113
Acquisition (1)
278,723
 0
 0
 88,997
 $367,720
Impairment0
 (616,271) 0
 0
 $(616,271)
Foreign currency translation243
 (2,473) 0
 (3) $(2,233)
September 30, 2020$278,966
 $191,233
 $101,136
 $88,994
 $660,329
(in thousands)Production & Automation Technologies Drilling Technologies Total
December 31, 2017$808,952
 $101,136
 $910,088
Purchase price adjustment *
(53) —
 (53)
Foreign currency translation(998) —
 (998)
March 31, 2018$807,901
 $101,136
 $909,037

_______________________
* Purchase price adjustment(1) See Note 2—Merger Transaction for additional information related to the acquisition completed during June 2020.

Goodwill is not subject to amortization but is tested for impairment on an annual basis or more frequently if impairment indicators arise.
During the first quarter of 2020, we performed a quantitative analysis for each of our 2017 acquisitionreporting units to determine the existence of PCP Oil Tools S.A.goodwill impairment and Ener Tools S.A.the amount of the impairment loss. In performing the quantitative assessment, we estimated the fair value of each of our reporting units using a combination of the income and market approaches, which determined that the fair values were less than the respective carrying values for our Artificial Lift and Automation reporting units.
Our income-based valuation method determines the present value of estimated future cash flows to estimate the fair value of a reporting unit. Significant assumptions used in estimating our reporting unit fair values include: (i) annual revenue growth rates; (ii) operating margins; (iii) risk-adjusted discount rate; and (iv) terminal value determined using a long-term growth rate. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit. Given the unprecedented uncertainty of both short-term and long-term market conditions, we utilized a weighted-average projection for estimated future cash flows that consists of three estimated future cash flows scenarios with the following weightings: (i) low case scenario with a 40% weighting, (ii) base case scenario with a 40% weighting, and (iii) high case scenario with a 20% weighting.
Under the market approach, we estimated a fair value based on comparable companies’ market multiples of revenues and earnings before interest, taxes, depreciation and amortization and factored in a control premium. Finally, we compared our estimates of fair values to our March 31, 2020 total public market capitalization and assessed an implied control premium based on the 20-day average of our common stock. 
The reporting unit carrying values were adjusted based on the long-lived asset impairment assessment noted below. Financial and credit market volatility directly impacts our fair value measurement through the weighted average cost of capital used to determine a discount rate. During times of volatility, significant judgment must be applied to determine whether credit market changes are a short-term or long-term trend. We utilized discount rates of 14.5% and 16.5% for our Artificial Lift and Automation reporting units, respectively.
During the first quarter of 2020, we recorded a $616.3 million impairment charge to goodwill, consisting of $539.2 million and $77.1 million in our Artificial Lift reporting unit and our Automation reporting unit, respectively. Both reporting units are within our Production & Automation Technologies reportable segment. The goodwill impairment charge includes $560.1 million of non-taxable goodwill, which was recognized as a discrete item in determining our effective tax rate for the period. We did not identify any triggering events at any of our reporting units during the third quarter of 2020.

Long-lived Asset Impairment
Long-lived assets, which include property, plant and equipment, right-of-use assets, and identified intangible assets, comprise a significant amount of our total assets. The Company makes judgments and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized, depreciation and amortization methods and estimated useful lives.

Intangible Assets

The negative market indicators described above, as well as the results of the previously mentioned fair value determinations of certain of our reporting units, were triggering events indicating that certain of our long-lived tangible and intangible assets may be impaired. We performed recoverability tests on our asset groups as of March 31, 2020, which indicated that long-lived assets associated with two of our asset groups within Production & Automation Technologies were not recoverable as the aggregate amount of estimated undiscounted cash flows of these asset groups was determined to be below their respective carrying values. We estimated the fair value of these intangible and fixed assets using an income approach that required us to make long-term forecasts of our future revenues and costs related to the assets subject to review. These forecasts utilized assumptions about demand for our products and services, future market conditions and technological developments. The forecasts are dependent upon assumptions including those regarding oil prices and the general outlook for the global oil and gas industry, among other factors. Financial and credit market volatility directly impacts our fair value measurement through our income forecast. Changes to these assumptions, including, but not limited to: variability of spot and futures prices for crude oil; sustained declines in worldwide rig counts below current analysts’ forecasts; significant deterioration of external financing for our customers; higher risk premiums or higher cost of equity; or any other significant adverse economic news could require a provision for impairment.
Accordingly, the estimated fair value of each of these asset groups was below their respective carrying value and as a result, we recorded a long-lived asset impairment charge of $41.0 million in the first quarter of 2020, consisting of $40.4 million to customer relationships and $0.6 million to trademarks. We did not identify impairment triggering events at any of our asset groups during the third quarter of 2020.

The components of our definite- and indefinite-lived intangible assets were as follows:
March 31, 2018 December 31, 2017September 30, 2020 December 31, 2019
(in thousands)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Definite-lived
intangible assets:
                      
Customer intangibles$571,800
 $287,340
 $284,460
 $572,415
 $276,655
 $295,760
Customer relationships (1)
$610,091
 $309,762
 $300,329
 $560,316
 $353,189
 $207,127
Trademarks(1)36,308
 18,750
 17,558
 36,312
 17,821
 18,491
59,860
 26,459
 33,401
 35,695
 24,830
 10,865
Patents38,547
 21,075
 17,472
 38,679
 20,449
 18,230
38,280
 28,547
 9,733
 38,436
 26,838
 11,598
Unpatented technologies9,700
 9,700
 —
 9,700
 9,700
 —
128,700
 15,349
 113,351
 13,700
 9,811
 3,889
Favorable supply agreements (2)
54,728
 5,929
 48,799
 0
 0
 0
Drawings and manuals3,051
 2,118
 933
 3,067
 2,109
 958
1,739
 1,739
 0
 2,558
 1,758
 800
Other5,355
 3,934
 1,421
 5,382
 3,911
 1,471
5,299
 4,723
 576
 5,332
 4,504
 828
664,761
 342,917
 321,844
 665,555
 330,645
 334,910
898,697
 392,508
 506,189
 656,037
 420,930
 235,107
Indefinite-lived
intangible assets:
                      
Trademarks3,600
 —
 3,600
 3,600
 —
 3,600
3,600
 —
 3,600
 3,600
 —
 3,600
Total$668,361
 $342,917
 $325,444
 $669,155
 $330,645
 $338,510
$902,297
 $392,508
 $509,789
 $659,637
 $420,930
 $238,707

_______________________
(1) Includes impairment of customer relationship and trademark intangible assets of $40.4 million and $0.6 million, respectively, all of which relate to asset groups included within our Artificial Lift business.
11(2) Favorable supply agreements were entered into as part of the Merger transaction. See Note 2—Merger Transaction for further information.
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NOTE 6—DEBT



NOTE 7 — ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive lossLong-term debt consisted of the following:
(in thousands)September 30, 2020 December 31, 2019
2018 Credit Facility$0
 $0
2018 Term Loan Facility190,000
 265,000
2020 Term Loan Facility530,287
 0
6.375% Senior Notes due 2026300,000
 300,000
Finance lease obligations9,561
 9,375
Total1,029,848
 574,375
Net unamortized discounts and issuance costs(8,688) (9,709)
Total long-term debt$1,021,160
 $564,666
Current portion of long-term debt (1)
(31,470) (4,845)
Long-term debt, less current portion$989,690
 $559,821

(in thousands)Foreign Currency Translation Defined Pension and Other Post-Retirement Benefits Accumulated Other Comprehensive Loss
December 31, 2017$(21,935) $(4,480) $(26,415)
Other comprehensive income (loss) before reclassifications, net of tax(1,691) —
 (1,691)
Reclassification adjustment for net losses (gains) included in net income, net of tax—
 49
 49
Other comprehensive income (loss),
net of tax		(1,691) 49
 (1,642)
Reclassification adjustment for cumulative effect of change in accounting principle—
 (1,315) (1,315)
March 31, 2018$(23,626) $(5,746) $(29,372)
_______________________

Reclassification adjustments from accumulated other comprehensive loss to net income(1) Primarily includes the mandatory amortization payments due within twelve months related to defined pension and other post-retirement benefits consistedthe 2020 Term Loan Facility.

2018 Credit Facility
On February 14, 2020, the Company entered into an amendment to its existing credit facility dated May 9, 2018 (as amended, the “2018 Credit Facility”), which (i) provided for the incurrence of an additional $150 million of revolving commitments under the 2018 Credit Facility, upon consummation of the following:Merger, (ii) permitted the consummation of the Merger and the incurrence of a senior secured term loan facility (“2020 Term Loan Facility”) in an aggregate amount up to $537 million by legacy ChampionX, and (iii) continued to provide that all obligations under the 2018 Credit Facility continue to be guaranteed by certain of the Company’s wholly owned U.S. subsidiaries, including upon the consummation of the Merger, certain legacy ChampionX wholly owned U.S. subsidiaries. The weighted average interest rate on borrowings during the period was 2.69%.
2020 Term Loan Facility
  Three Months Ended March 31, Affected line items on the condensed combined statements of income
(in thousands) 2018
2017 
Amortization of actuarial loss $65
 $99
 
(1) 
Tax benefit (16) (24) Provision for income taxes
  $49
 $75
 Net income

_______________________
(1) This accumulated comprehensive loss componentOn June 3, 2020, legacy ChampionX entered into a term loan facility for $537.0 million (“2020 Term Loan Facility”). Proceeds from the 2020 Term Loan Facility were utilized to fund a cash payment of $527.4 million from legacy ChampionX to Ecolab upon the completion of the Merger. We assumed the 2020 Term Loan Facility upon completion of the Merger, which is includedfully and unconditionally guaranteed by the Company and certain of its wholly owned domestic subsidiaries, which also guarantee the obligations under the 2018 Credit Facility. The 2020 Term Loan Facility matures at the earlier of (i) June 3, 2027 or (ii) January 30, 2026 in the computationevent the Company’s senior unsecured notes due May 1, 2026 remain outstanding. Amounts outstanding under the 2020 Term Loan Facility bear interest, at the option of net periodic pension cost (See Note 14 — Employee Benefit Plansthe Company, at a rate equal to (a) LIBOR plus 5.0% for additional information)eurocurrency rate loans (to the extent LIBOR is less than 1%, the LIBOR rate will be deemed to be 1%) or (b) the highest of (i) the Federal Funds Rate plus 1/2 of 1%, (ii) the “prime rate” quoted by Bank of America, N.A., (iii) LIBOR plus 1.00% and (iv) 1.00%, plus 4.0%. The 2020 Term Loan Facility contains customary representations and warranties, covenants, and events of default for loan facilities of this type. The weighted average interest rate on borrowings during the period was 6.00%.

The term loan is recognized in both costsubject to mandatory amortization payments of goods and services and selling, general and administrative expense, depending$6.7 million paid quarterly, beginning on September 30, 2020. Any voluntary prepayment of the 2020 Term Loan Facility which occurs prior to June 3, 2022, is subject to a make-whole prepayment premium on the functional areaaggregate prepaid principal amount of the underlying employee.2020 Term Loan Facility.

Senior Notes

ChampionX has senior notes outstanding, the payment obligations of which are fully and unconditionally guaranteed by certain wholly owned subsidiaries of ChampionX on a joint and several basis. On June 18, 2020, the wholly owned subsidiaries of legacy ChampionX that guarantee the 2018 Credit Facility and the 2020 Term Loan Facility, delivered a Supplemental Indenture to join as guarantors of the senior notes.
 





NOTE 8 — 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. See Note 16 — Subsequent Events for additional information related to indemnifications related to the Separation.

As of March 31, 2018 and December 31, 2017, we had $7.8 million and $8.1 million, respectively, of outstanding letters of credit, surety bonds and guarantees which expire at various dates through 2020. 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 in the event of default in the performance of our obligations, the probability of which we believe is remote.

Litigation

Our environmental matters that are probable and estimable were not material as of March 31, 2018 and December 31, 2017.

We are also a party to a number of other legal proceedings incidental to our businesses. These proceedings primarily involve claims by private parties alleging injury arising out of use of our products, patent infringement, employment matters, and commercial disputes. Management and legal counsel review the probable outcome of such proceedings, the costs and expenses

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reasonably expected to be incurred and currently accrued to-date, and the availability and extent of insurance coverage. We have reserves for legal matters that are probable and estimable and not otherwise covered by insurance, and as of March 31, 2018 and December 31, 2017, these liabilities were not significant. Management is unable to predict the ultimate outcome of these actions because of their inherent uncertainty. However, management believes that the most probable, ultimate resolution of these matters will not have a material adverse effect on our combined financial position, results of operations or cash flows.


NOTE 9 — REVENUE

Our revenue is substantially generated from product sales. For the three months ended March 31, 2018, approximately 89% of our revenue was generated from product sales. Our remaining revenue was derived from services, leases and other, which represented approximately 7%, 3%, and 1%, respectively, of total revenue for the three months ended March 31, 2018. Product revenue is derived from the sale of drilling and production equipment. Service revenue is earned as technical advisory assistance and field services related to our products are provided. Lease revenue is derived from month-to-month rental income of leased production equipment.

The majority of our revenue is short cycle in nature with shipments occurring within a year from the customer order date. A small portion of our revenue derives from contracts extending over one year. Our payment terms generally range between 30 to 90 days and vary by the location of our businesses and the types and volumes of products manufactured and sold, among other factors. Costs incurred to obtain a customer contract are generally not material to us.

Disaggregation of Revenue
Revenue disaggregated by end market in each of our reporting segments was as follows:
 Three Months Ended March 31,
(in thousands)2018
Drilling Technologies$69,231
Production & Automation Technologies: 
Artificial lift technologies167,341
Automation technologies24,363
Other production equipment24,696
Intra-segment eliminations(1,709)
Total214,691
Total revenue$283,922

Revenue disaggregated by geography was as follows:
 Three Months Ended March 31,
(in thousands)2018
United States$221,239
Canada22,584
Middle East10,338
Europe9,022
Latin America7,686
Asia-Pacific6,070
Other6,983
Total revenue$283,922


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Performance Obligations
The majority of our contracts have a single performance obligation which represents, in most cases, the equipment or product sold to the customer. Some contracts include multiple performance obligations such as a product and the related installation, extended warranty and/or maintenance services. For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We typically use observable prices to determine the stand-alone selling price of a performance obligation and utilize a cost plus margin approach when observable prices are not available.

Substantially all of our performance obligations are recognized at a point in time and are primarily related to our product revenue derived from the sale of drilling and production equipment. Revenue is recognized when control transfers to the customer upon shipment or completion of installation, testing, certification, or other substantive acceptance provisions required under the contract. Revenue is recognized over time for our service and lease offerings. Service revenue is recognized over time as we provide technical advisory assistance and field services related to our products.

Warranties

The majority of our contracts contain standard warranties in connection with the sale of a product to a customer which provide a customer assurance that the related product will function for a period of time as the parties intended. In addition to our standard warranties, we also offer extended warranties to our customers. Warranties provided as part of our product offering are analyzed to determine whether they represent a distinct service, and if so, are recognized as service revenue over the related warranty period.

Remaining performance obligations
As of March 31, 2018, we did not have any contracts with an original length of greater than a year, from which revenue is expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied).

Contract balances

Contract assets and contract liabilities from contracts with customers were as follows:
(in thousands)March 31, 2018 January 1, 2018
Contract assets2,806
 4,733
Contract liabilities - current5,947
 4,487

Contract assets primarily relate to our right to consideration for work completed but not billed at the reporting date and are recorded in “prepaid expenses and other current assets” on our condensed combined balance sheets. Contract assets are transferred to receivables when the right to consideration becomes unconditional. Contract liabilities relate to our obligation to transfer goods or services to a customer for which we have received advance consideration (or an amount of consideration is due) from the customer. Current contract liabilities are recorded in other “accrued expenses and other current liabilities” on our condensed combined balance sheets.

Critical Accounting Estimates

Estimates are used to determine the amount of variable consideration in contracts, the determination of the standalone selling price among separate performance obligations, as well as the determination of the measure of progress for contracts where revenue is recognized over time. Some contracts with customers include variable consideration primarily related to volume rebates. We estimate variable consideration at the most likely amount to determine the total consideration which we expect to be entitled. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are largely based on an assessment of our anticipated performance and all information that is reasonably available.


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NOTE 10 — RESTRUCTURING AND OTHER CHARGES

Restructuring and other charges by reporting segment were as follows:
 Three Months Ended March 31,
(in thousands)2018 2017
Production & Automation Technologies$482
 $6
Drilling Technologies—
 —
Total$482
 $6
    
Classification of amounts in the condensed combined statements of income:
Cost of goods and services$3
 $(7)
Selling, general and administrative expense479
 13
Total$482
 $6

Restructuring and other charges of $0.5 million incurred during the three months ended March 31, 2018, primarily reflect severance costs in our Production and Automation Technologies segment. Our restructuring and other programs were designed to better align our costs and operations with current market conditions and include measures such as targeted facility consolidations, headcount reductions and other actions to further optimize our operations. We expect the initiatives currently underway to be substantially completed in the next 12 to 18 months.

Our liability balances for restructuring and other exit activities was $2.5 million and $2.6 million as of March 31, 2018 and December 31, 2017, respectively, and primarily reflected restructuring plans initiated in 2017, as well as ongoing lease commitment obligations for facilities closed in prior periods.


NOTE 11 — INCOME TAXES

Our operations have been historically included in Dover’s U.S. combined federal and state income tax returns. Income tax expense and deferred tax balances are presented in these condensed combined financial statements as if Apergy filed its own tax returns in each jurisdiction. These condensed combined financial statements include tax losses and tax credits that may not reflect tax positions taken by Dover. In many cases, tax losses and tax credits generated by Apergy through the date of the Separation were utilized by Dover.

Our income tax provision reflected effective tax rates for the three months ended March 31, 2018 and 2017 of 22.6% and 31.4%, respectively. The year-over-year decrease in the effective tax rate was primarily due to the Tax Reform Act, which was enacted on December 22, 2017, and which permanently reduced the U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018.

We recognized provisional tax impacts related to deemed repatriated earnings and the benefit for the revaluation of deferred tax assets and liabilities in our combined financial statements for the year ended December 31, 2017. The provisions in the Tax Reform Act are broad and complex. We have not yet completed our accounting for the income tax effects of the Tax Reform Act as of March 31, 2018, but have made reasonable estimates of those effects on our existing deferred income tax balances and the one-time deemed repatriation tax. The final financial statement impact of the Tax Reform Act may differ from our estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Reform Act, any legislative action to address questions that arise because of the Tax Reform Act, and changes in accounting standards for income taxes or related interpretations in response to the Tax Reform Act, or any updates or changes to estimates we have utilized to calculate the provisional impacts. The SEC has issued rules allows for a measurement period of up to one year after the enactment date of the Tax Reform Act to finalize the recording of the related income tax impacts. We expect to finalize our analysis related to the Tax Reform Act by the end of the measurement period.

As subsidiaries of Dover, we file U.S., federal, state, local and foreign tax returns and are routinely audited by the tax authorities in these jurisdictions of which a number of audits are currently underway. We are no longer subject to examinations of our federal income tax returns for years through 2013. All significant state, local and international matters have been concluded for years through 2012. We did not have any recorded liabilities for uncertain tax positions as of March 31, 2018 and December 31, 2017. We did not have any income tax payable balances as of March 31, 2018 and December 31, 2017. Income

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tax payables at each balance sheet date computed under the stand-alone return basis are classified within “net parent investment in Apergy” on the condensed combined balance sheets since Dover is legally liable for the tax.


NOTE 12 — FAIR VALUE MEASUREMENTS

We had no outstanding derivative contracts as of March 31, 2018 and December 31, 2017. Other assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, were not significant; thus, no fair value disclosures are presented.

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.

Credit Risk

By their nature, financial instruments involve risk, including credit risk, for non-performance by counterparties. Financial instruments that potentially subject us to credit risk primarily consist of trade receivables. We manage the credit risk on financial instruments by transacting only with what management believes are financially secure counterparties, requiring credit approvals and credit limits, and monitoring counterparties’ financial condition. Our maximum exposure to credit loss in the event of non-performance by the counterparty is limited to the amount drawn and outstanding on the financial instrument. Allowances for losses on trade receivables are established based on collectability assessments.


NOTE 13 — EQUITY AND CASH INCENTIVE PROGRAM

Dover granted share-based awards to its officers and other key employees, including certain Apergy individuals. All awards granted under the program consisted of Dover common shares and are not necessarily indicative of the results that Apergy would have experienced as a stand-alone public company for the periods presented. Effective with the Separation, outstanding Dover share-based awards were converted to Apergy share-based awards, with the exception of outstanding Dover performance share awards that relate to a performance period ending after the Separation. Such performance share awards were cancelled effective with the Separation. See Note 16 — Subsequent Events for additional information.

Dover’s plan authorized the grant of stock options, stock-settled stock appreciation rights (“SARs”), restricted stock, restricted stock units and performance share awards. The exercise price per share for SARs was equal to the closing price of Dover’s stock on the date of grant. The period for which SARs and stock options were exercisable was fixed by the Compensation Committee of Dover’s Board of Directors at the time of grant. Generally, the stock options or SARs vested after three years of service and expired at the end of ten years. Performance share awards vested if (i) Dover achieved certain specified internal metrics and (ii) the employee remained continuously employed by Dover during the performance period. Partial vesting occurred after Separation from service in the case of certain terminations not for cause and for retirements.

Dover’s board of directors typically granted equity awards annually at its regularly scheduled first quarter meeting. During the three months ended March 31, 2018, Dover issued no equity awards to Apergy employees. During the three months ended March 31, 2017, Dover issued SARs covering 79,970 shares, performance share awards of 4,162 and restricted stock units of 24,319 to Apergy employees.

Stock-based compensation expense is reported within “selling, general and administrative expense” in the condensed combined statements of income. Stock-based compensation expense relating to all stock-based incentive plans was as follows:
 Three Months Ended March 31,
 2018 2017
Stock-based compensation expense$510
 $601
Tax benefit(113) (208)
Stock-based compensation expense, net of tax$397
 $393


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NOTE 14 — EMPLOYEE BENEFIT PLANS

Multi-employer Defined Benefit Plans and Non-Qualified Plans

Prior to the Separation, Apergy participated in the following plans as though they were participants in a multi-employer plan with the other businesses of Dover. Accordingly, a proportionate share of the cost associated with these plans is reflected in the condensed combined financial statements.

Dover provided a defined benefit pension plan for its eligible U.S. employees and retirees (“U.S. Pension Plan”). As such, the portion of Apergy’s liability associated with the U.S. Pension Plan is not reflected in the condensed combined balance sheets and was not recorded at the Separation as this obligation will be maintained and serviced by Dover. Shortly before the Separation, Apergy participants in the U.S. Pension Plan (other than Norris USW participants) fully vested in their benefits, and all participants ceased accruing benefits. In addition, Apergy did not assume any funding requirements or obligations related to the U.S. Pension Plan upon the Separation. Norris USW participants were moved to a new pension plan and continued to accrue benefits. No contributions were made by Dover to the U.S Pension Plan for the three months ended March 31, 2018 and 2017.

Dover also provided a defined benefit pension plan for its eligible salaried non-U.S. employees and retirees in Canada (“Canada Salaried Pension Plan”). As such, the portion of Apergy’s liability associated with this non-U.S. plan is not reflected in our condensed combined balance sheets as this obligation was maintained and serviced by Dover. The Canada Salaried Pension Plan, including all assets and liabilities, was transferred to Apergy at the Separation. Shortly before the Separation, all non-Apergy participants in this plan ceased accruing benefits or were not permitted to make contributions, as applicable. The non-Apergy participants may elect a lump sum cash payment post Separation that will be the responsibility of Apergy, will be funded out of the plan assets, and could also result in a non-cash settlement charge to earnings. Contributions to the Canada Salaried Pension Plan totaled $0.2 million for the three months ended March 31, 2017.

Dover provided to certain U.S. management employees, through non-qualified plans, supplemental retirement benefits in excess of qualified plan limits imposed by federal tax law. As of January 1, 2018, Apergy participants in these non-qualified plans no longer accrued benefits nor were permitted to make contributions, as applicable. Apergy assumed the funding requirements and related obligations attributable to Apergy employees related to these non-qualified plans upon the Separation. The non-qualified plans are unfunded and contributions are made as benefits are paid.

Single Employer Defined Benefit Plans and Other Non-Qualified Plans

We sponsor one defined benefit pension plan to certain hourly non-U.S. employees and retirees. The plan is closed to new participants; however, as of the Separation, all active participants in this plan continue to accrue benefits. This plan is considered a direct obligation of Apergy and will be recorded within our condensed combined financial statements at the Separation. 

We also sponsor a non-qualified plan covering certain U.S. employees and retirees. The plan provides supplemental retirement benefits in excess of qualified plan limits imposed by federal tax law. The plan is closed to new hires and all benefits under the plan are frozen. The plan is considered a direct obligation of Apergy and will be recorded within our condensed combined financial statements at the Separation.


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Net Periodic Benefit Cost

Net periodic benefit cost relating to our retirement benefit plans was as follows:

Defined Benefit Plans
 Non-U.S. Qualified Defined Benefit Plan
 Three Months Ended March 31,
(in thousands)2018 2017
Service cost$31
 $26
Interest cost33
 34
Expected return on plan assets(56) (49)
Amortization of actuarial loss14
 17
Net periodic benefit cost$22
 $28

 Non-Qualified Supplemental Benefits Plan
 Three Months Ended March 31,
(in thousands)2018 2017
Service cost$—
 $—
Interest cost112
 155
Amortization of actuarial loss51
 82
Net periodic benefit cost$163
 $237

Defined Contribution Retirement Plans

We also offer defined contribution retirement plans which cover the majority of our U.S. employees and employees in certain other countries. Expense relating to our defined contribution plans was $2.4 million and $2.0 million for the three months ended March 31, 2018 and 2017, respectively.



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NOTE 15 — SEGMENT INFORMATION

We report our results of operations in the following reporting segments: Production & Automation Technologies and Drilling Technologies. Segment revenue and segment earnings were as follows:
 Three Months Ended March 31,
(in thousands)2018 2017
Segment revenue:   
Production & Automation Technologies$214,691
 $180,800
Drilling Technologies69,231
 49,478
Total revenue$283,922
 $230,278
    
Income before income taxes:   
Segment earnings:   
Production & Automation Technologies$10,351
 $7,877
Drilling Technologies24,189
 14,720
Total segment earnings34,540
 22,597
Corporate expense and other (1)
2,635
 2,805
Income before income taxes$31,905
 $19,792
_______________________
(1)Corporate expense include costs not directly attributable to our reporting segments such as corporate executive management and other administrative functions. Includes the net income attributable to our noncontrolling interest.


NOTE 16 — SUBSEQUENT EVENTS

Separation and Distribution

On May 9, 2018, we entered into definitive agreements with Dover, that, among other things, set forth the terms and conditions of the Separation of Apergy from Dover and provide a framework for Apergy’s relationship with Dover after the Separation, including the allocation between Dover and Apergy of Dover’s and Apergy’s assets, employees, liabilities and obligations attributable to periods prior to, at and after the Separation. In addition to the separation and distribution agreement, which contains many of the key provisions related to the separation of Apergy, the parties entered into an employee matters agreement, a tax matters agreement and a transition services agreement.

The Separation was completed on May 9, 2018, in the form of a distribution of 100% of the shares of common stock of Apergy, which became an independent, publicly-traded company. The distribution was tax-free to Apergy, Dover, and Dover’s U.S. stockholders. Dover shareholders received one share of Apergy common stock for every two shares of Dover common stock. As a result, Apergy had 77.3 million shares of common stock outstanding, par value $0.01, based on 154.7 million shares of Dover common stock outstanding as of May 9, 2018. Following the Separation, Dover retained no ownership interest in Apergy, and each company, as of May 9, 2018, has separate public ownership, boards of directors and management.

Transition Services Agreement

On May 9, 2018, Apergy and Dover entered into a transition services agreement pursuant to which Dover agreed to provide Apergy with various services, including certain information technology services, and Apergy agreed to provide Dover with various services, including certain services related to transitioning operations. Apergy will pay a fee to Dover for services utilized under the transition services agreement, which fee is generally intended to allow Dover to recover all of its direct and indirect costs generally without profit. Except as provided otherwise in the transition services agreement, or with respect to specific services with other specified terms, the initial term of the transition services agreement will end on January 31, 2019, and the term may then be extended until the one-year anniversary of execution of the transition services agreement or such other period set forth on the schedules thereto (subject to earlier termination under certain circumstances).


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Tax Matters Agreement

On May 9, 2018, Apergy and Dover entered into a tax matters agreement which governs Apergy’s and Dover’s respective rights, responsibilities and obligations after the Separation with respect to tax liabilities (including taxes, if any incurred as a result of any failure of the Separation or certain related transactions to qualify for tax-free treatment for U.S. federal income tax purposes) and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other tax matters. Neither party’s obligations under the tax matters agreement will be limited in amount or subject to any cap.

Apergy also agreed to certain covenants that contain restrictions intended to preserve the tax-free status of the Separation and certain related transactions. Apergy and certain of its subsidiaries are barred from taking any action, or failing to take any action, where such action or failure to act may be expected to result in any increased tax liability or reduced tax attribute of Dover. In addition, during the time period ending two years after the date of the Separation, these covenants include specific restrictions on the ability of Apergy and certain of its subsidiaries to:

issue or sell stock or other securities (including securities convertible into Apergy stock but excluding certain compensatory arrangements);
cease to actively conduct its business or dispose of assets outside the ordinary course of business; and
enter into certain other corporate transactions which could cause Apergy to undergo a 40% or greater change in its stock ownership.

Employee Matters Agreement

On May 9, 2018, Apergy and Dover entered into an employee matters agreement which governs the respective rights, responsibilities and obligations of the parties in connection with the Separation with respect to employee-related matters. The employee matters agreement provides for the allocation and treatment of assets and liabilities as applicable, arising out of incentive plans, retirement plans, and employee health and welfare benefit programs in which Apergy’s employees participated prior to the Separation and the treatment of outstanding Dover incentive awards. In general, Apergy assumed liabilities related to its current and former employees incurred before the Separation. Dover retained liabilities accrued prior to the Separation related to certain Apergy participants in Dover’s U.S. defined benefit pension plan. As a result of the Separation and effective May 15, 2019, outstanding Dover equity awards held by Apergy employees, other than Dover performance shares, converted into corresponding Apergy equity awards issued under the Apergy Corporation 2018 Equity and Cash Incentive Plan. Generally, each award is subject to the same terms and conditions as were in effect prior to the Separation. Immediately prior to the Separation, outstanding Dover performance shares held by Apergy employees that related to a performance period ending after the Separation were cancelled.

Indemnifications


In connection with the Separation,Company’s separation from Dover Corporation (“Dover”) in 2018 (the “Separation”), we entered into agreements with Dover that govern the treatment between Dover and us offor 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 and/or certain related transactions to the extent caused by an acquisition of ApergyChampionX stock or assets or by any other action or failure to act undertaken by ApergyChampionX or its affiliates.


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TablePursuant to the provisions of Contentsthe tax matters agreement with Dover, we recorded an indemnification liability of $3.4 million as of December 31, 2019, with respect to certain liabilities related to tax audits for the 2012-2016 tax years. We received notification in February 2020 that the tax audits and related assessments were completed, resulting in a final settlement amount of $3.0 million, which was paid in April 2020.

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 September 30, 2020 and December 31, 2019, we had $51.6 million and $15.7 million, respectively, of outstanding letters of credit, surety bonds and guarantees which expire at various dates through 2025. 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 condensed consolidated financial position, results of operations or cash flows.
Pro Forma Financial Information
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 September 30, 2020 environmental liability accruals related to these locations were $8.9 million.

Prior to the Separation, 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. Now that we have such recommendations, we have begun discussions with ODEQ regarding our proposed long-term remediation plan. The plan is subject to ODEQ’s review, input, and approval. Because we have not yet finalized a plan 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, 2019. 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 September 30, 2020.

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 (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 cases pending against the COREXIT Defendants relating to the Deepwater Horizon oil spill, all of which are expected to ultimately be dismissed pursuant to the Court’s November 28, 2012 order granting the COREXIT Defendants’ motion for summary judgment.
​
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.

NOTE 8 — ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss—Accumulated other comprehensive loss consisted of the following:
 Three Months Ended March 31,
(in thousands, except per share data)2018 2017
Net income attributable to Apergy$24,543
 $13,269
Pro forma earnings per share: (1)
   
Basic$0.32
 $0.17
Diluted$0.31
 $0.17
Pro forma shares outstanding: (2)
   
Basic77,340
 77,340
Diluted78,329
 78,329
(in thousands)Foreign Currency Translation Defined Pension and Other Post-Retirement Benefits Cash Flow Hedges Accumulated Other Comprehensive Loss
December 31, 2018$(36,146) $(6,760) $0
 $(42,906)
Other comprehensive income (loss) before reclassifications, net of tax1,090
 (323) 0
 767
Reclassification adjustment for net losses included in net income, net of tax0
 422
 0
 422
Other comprehensive income, net of tax1,090
 99
 0
 1,189
March 31, 2019$(35,056) $(6,661) $0
 $(41,717)
Other comprehensive income (loss) before reclassifications, net of tax974
 0
 0
 974
Reclassification adjustment for net losses included in net income, net of tax0
 68
 0
 68
Other comprehensive income (loss), net of tax974
 68
 0
 1,042
June 30, 2019$(34,082) $(6,593) $0
 $(40,675)
Other comprehensive loss before reclassifications, net of tax(2,900) —
 0
 (2,900)
Reclassification adjustment for net losses included in net income, net of tax0
 68
 0
 68
Other comprehensive income (loss), net of tax(2,900) 68
 0
 (2,832)
September 30, 2019$(36,982) $(6,525) $0
 $(43,507)


(in thousands)Foreign Currency Translation Defined Pension and Other Post-Retirement Benefits Cash Flow Hedges Accumulated Other Comprehensive Loss
December 31, 2019$(35,210) $(8,827) $0
 $(44,037)
Other comprehensive loss before reclassifications, net of tax(11,052) 0
 0
 (11,052)
Reclassification adjustment for net losses included in net income, net of tax0
 99
 0
 99
Other comprehensive income (loss), net of tax(11,052) 99
 0
 (10,953)
March 31, 2020$(46,262) $(8,728) $0
 $(54,990)
Other comprehensive income before reclassifications, net of tax5,703
 0
 653
 6,356
Reclassification adjustment for net losses included in net income, net of tax0
 99
 0
 99
Other comprehensive income, net of tax5,703
 99
 653
 6,455
June 30, 2020$(40,559) $(8,629) $653
 $(48,535)
Other comprehensive loss before reclassifications, net of tax3,782
 0
 (862) 2,920
Reclassification adjustment for net losses included in net income, net of tax0
 99
 0
 99
Other comprehensive income (loss), net of tax3,782
 99
 (862) 3,019
September 30, 2020$(36,777) $(8,530) $(209) $(45,516)



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 September 30, Nine Months Ended September 30, Affected line items on the condensed consolidated statements of income (loss)
(in thousands)2020 2019 2020
2019 
Pensions and other post-retirement benefits:
Amortization of actuarial loss and other$132
 $91
 $396
 $274
 Other (income) expense, net
Settlement loss0
 0
 0
 486
 Other (income) expense, net
Total before tax132
 91
 396
 760
 Income (loss) before income taxes
Tax benefit(33) (23) (99) (202) Provision for (benefit from) income taxes
Net of tax$99
 $68
 $297
 $558
 Net income (loss)



NOTE 9 — 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 September 30, Nine Months Ended September 30,
(in thousands, except per share data)2020 2019 2020 2019
Net income (loss) attributable to ChampionX$(7,914) $11,394
 $(751,287) $53,987
        
Weighted-average number of shares outstanding199,809
 77,460
 131,064
 77,416
Dilutive effect of stock-based compensation0
 113
 0
 199
Total shares and dilutive securities199,809
 77,573
 131,064
 77,615
        
Basic earnings (loss) per share attributable to ChampionX$(0.04) $0.15
 $(5.73) $0.70
Diluted earnings (loss) per share attributable to ChampionX$(0.04) $0.15
 $(5.73) $0.70

For all periods presented, the computation of diluted earnings (losses) per share excludes awards with an anti-dilutive impact. For the three and nine months ended September 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. For the three and nine months ended September 30, 2019, the diluted shares include the dilutive impact of equity awards except for approximately 0.4 million shares that were excluded because their inclusion would be anti-dilutive.

NOTE 10—REVENUE

Our revenue is generated primarily from product sales. Service revenue is generated from providing services to our customers. These services include laboratory and logistics services, chemical management services, troubleshooting, reporting, water treatment services, technical advisory assistance and 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. We do not track cost of goods sold separately for all of our revenue streams.

Within our Production & Automation Technologies and Drilling Technologies segments, substantially all of our performance obligations are recognized at a point in time and are primarily related to our product revenue derived from the sale of drilling and production equipment. Revenue is recognized when control transfers to the customer upon shipment or completion of installation, testing, or certification as required under the contract. Within our Production Chemical Technologies and Reservoir Chemical Technologies segments, revenue recognized from the sale of products and equipment is recognized at the point in time when the obligations in the contract with the customer are satisfied, which generally occurs with the transfer of the product or delivery of the equipment.

In certain markets, the Company utilizes joint ventures and independent third-party distributors and sales agents to sell and market products and services. Amounts payable to independent third-party distributors and sales agents may fluctuate based on sales and timing of distributor fee payments. For services rendered by such independent third-party distributors and sales agents, the Company records the consideration received on a net basis within product revenue in our condensed consolidated statements of income. As of September 30, 2020, accrued distributor fees were $36.4 million and nil at December 31, 2019.



Disaggregation of Revenue

Revenue disaggregated by revenue type was as follows:
 Three Months Ended September 30, Nine Months Ended
September 30,
(in thousands)2020 2019 2020 2019
Production Chemical Technologies:       
Product revenue$361,167
 $0
 $480,634
 $0
Service revenue46,933
 0
 63,165
 0
Lease and other revenue2,051
 0
 2,354
 0
Total Production Chemical Technologies revenue$410,151
 $0
 $546,153
 $0
Production & Automation Technologies:       
Product revenue$96,605
 $185,051
 $347,477
 $572,797
Service revenue26,331
 23,918
 70,720
 71,781
Lease and other revenue13,985
 12,993
 38,944
 36,161
Total Production & Automation Technologies revenue$136,921
 $221,962
 $457,141
 $680,739
Drilling Technologies:       
Product revenue$15,706
 $54,816
 $92,576
 $202,692
Service revenue9
 61
 42
 72
Total Drilling Technologies revenue$15,715
 $54,877
 $92,618
 $202,764
Reservoir Chemical Technologies:       
Product revenue$21,234
 $0
 $30,473
 $0
Service revenue30
 0
 97
 0
Total Reservoir Chemical Technologies revenue$21,264
 $0
 $30,570
 $0
Corporate and other: (1)
       
Product revenue$46,113
 $0
 $62,980
 $0
Service revenue3,362
 0
 4,412
 0
Total Corporate and other revenue$49,475
 $0
 $67,392
 $0
Total Revenue:       
Product revenue$540,825
 $239,867
 $1,014,140
 $775,489
Service revenue76,665
 23,979
 138,436
 71,853
Lease and other revenue16,036
 12,993
 41,298
 36,161
Total revenue$633,526
 $276,839
 $1,193,874
 $883,503

_______________________
(1) Revenue generated from the Cross Supply and Product Transfer Agreement with Ecolab is recorded to Corporate. See Note 2—Merger Transaction for additional information on this arrangement.


Revenue disaggregated by geography was as follows:
 Three Months Ended September 30, 2020
(in thousands)Production Chemical Technologies Production & Automation Technologies Drilling Technologies Reservoir Chemical Technologies Corporate Total
United States$136,689
 $100,875
 $11,308
 $10,901
 $33,125
 $292,898
Canada53,681
 6,018
 942
 686
 136
 61,463
Middle East66,352
 10,899
 182
 4,696
 6,048
 88,177
Europe45,720
 1,823
 1,948
 715
 5,822
 56,028
Australia5,944
 11,266
 32
 82
 0
 17,324
Latin America80,761
 4,319
 0
 1,696
 1,278
 88,054
Asia-Pacific11,931
 1,382
 818
 882
 3,066
 18,079
Other9,073
 339
 485
 1,606
 0
 11,503
Total revenue$410,151
 $136,921
 $15,715
 $21,264
 $49,475
 $633,526


 Nine Months Ended September 30, 2020
(in thousands)Production Chemical Technologies Production & Automation Technologies Drilling Technologies Reservoir Chemical Technologies Corporate Total
United States$178,442
 $338,457
 $66,142
 $15,177
 $45,057
 $643,275
Canada69,641
 23,140
 6,213
 817
 198
 100,009
Middle East94,500
 33,065
 722
 7,583
 8,485
 144,355
Europe62,864
 9,481
 9,543
 987
 7,048
 89,923
Australia7,827
 32,801
 101
 93
 0
 40,822
Latin America105,795
 15,034
 22
 2,183
 1,768
 124,802
Asia-Pacific15,623
 4,653
 8,495
 1,155
 4,836
 34,762
Other11,461
 510
 1,380
 2,575
 0
 15,926
Total revenue$546,153
 $457,141
 $92,618
 $30,570
 $67,392
 $1,193,874

 Three Months Ended September 30, 2019
(in thousands)Production Chemical Technologies Production & Automation Technologies Drilling Technologies Reservoir Chemical Technologies Corporate Total
United States$0
 $169,658
 $39,705
 $0
 $0
 $209,363
Canada0
 14,012
 5,212
 0
 0
 19,224
Middle East0
 16,030
 286
 0
 0
 16,316
Europe0
 4,530
 5,939
 0
 0
 10,469
Australia0
 7,919
 83
 0
 0
 8,002
Latin America0
 6,816
 19
 0
 0
 6,835
Asia-Pacific0
 2,239
 3,335
 0
 0
 5,574
Other0
 758
 298
 0
 0
 1,056
Total revenue$0
 $221,962
 $54,877
 $0
 $0
 $276,839


 Nine Months Ended September 30, 2019
(in thousands)Production Chemical Technologies Production & Automation Technologies Drilling Technologies Reservoir Chemical Technologies Corporate Total
United States$0
 $527,893
 $149,880
 $0
 $0
 $677,773
Canada0
 39,712
 14,296
 0
 0
 54,008
Middle East0
 43,440
 920
 0
 0
 44,360
Europe0
 14,384
 26,134
 0
 0
 40,518
Australia0
 21,927
 83
 0
 0
 22,010
Latin America0
 23,917
 19
 0
 0
 23,936
Asia-Pacific0
 8,307
 10,678
 0
 0
 18,985
Other0
 1,159
 754
 0
 0
 1,913
Total revenue$0
 $680,739
 $202,764
 $0
 $0
 $883,503


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)September 30, 2020 December 31, 2019
Contract assets$0
 $285
Contract liabilities - current16,883
 6,148


NOTE 11—RESTRUCTURING AND OTHER RELATED CHARGES

Restructuring and other related charges as classified in our condensed consolidated statements of income (loss) were as follows:
 Three Months Ended September 30, Nine Months Ended
September 30,
(in thousands)2020 2019 2020 2019
Segment restructuring charges (1):
       
Production Chemical Technologies$2,305
 $0
 $2,305
 $0
Production & Automation Technologies914
 1,246
 9,919
 2,317
Drilling Technologies0
 526
 5,521
 526
Reservoir Chemical Technologies207
 0
 207
 0
Corporate0
 0
 368
 0
Total$3,426
 $1,772
 $18,320
 $2,843
   
Statements of Income (Loss) classification:       
Cost of goods and services$2,228
 $1,344
 $12,974
 $1,743
Selling, general and administrative expense1,198
 428
 5,346
 1,100
Total (1)
$3,426
 $1,772
 $18,320
 $2,843

_______________________
(1) Total restructuring expenses include asset write-downs, which are not included in the restructuring accrual below.

Restructuring and other related charges during the three and nine months ended September 30, 2020 included the following activities, which the Company expects will be completed by early 2021:

Production Chemical Technologies. Production Chemical Technologies incurred restructuring charges of $2.3 million during the three and nine months ended September 30, 2020, primarily due to costs associated with employee severance and related benefits as a result of workforce reductions to better align the cost base with the significantly lower demand environment.


Production & Automation Technologies. Production & Automation Technologies incurred restructuring charges of $0.9 million and $9.9 million during the three and nine months ended September 30, 2020, respectively, related to various programs, primarily focused on facility closures and consolidations, exit of certain nonstrategic product lines, and workforce reductions.

Drilling Technologies. Drilling Technologies incurred restructuring charges of $5.5 million during the nine months ended September 30, 2020, primarily due to costs associated with employee severance and related benefits as a result of workforce reductions and facility closures to better align the cost base with the significantly lower demand environment.

Reservoir Chemical Technologies. Reservoir Chemical Technologies incurred restructuring charges of $0.2 million during the three and nine months ended September 30, 2020, primarily due to costs associated with employee severance and related benefits as a result of workforce reductions to better align the cost base with the significantly lower demand environment.

The following table details our restructuring accrual activities during the nine months ended September 30, 2020:
(in thousands)Restructuring Accrual Balance
December 31, 2019$130
Restructuring charges and asset write downs10,993
Payments(12,078)
Liabilities assumed in the Merger4,843
Other, including foreign currency translation(39)
September 30, 2020$3,849


Our liability balance for restructuring and other related charges at September 30, 2020, reflects employee severance and related benefits initiated during the period as well as liabilities assumed in the Merger. Additional programs may be initiated during 2020 with related restructuring charges.

NOTE 12—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 September 30, Nine Months Ended September 30,
(in thousands)2020 2019 2020 2019
Stock-based compensation expense$5,856
 $2,524
 $13,718
 $7,545
Tax benefit(1,342) (615) (3,144) (1,841)
Stock-based compensation expense, net of tax$4,514
 $1,909
 $10,574
 $5,704


A summary of activity relating to our share-based awards for the nine months ended September 30, 2020, was as follows:
(in shares)Stock-Settled Appreciation Rights Performance Share Awards Restricted Stock Units Non-Qualified Stock Options
Outstanding at January 1, 2020422,361
 174,726
 440,048
 0
Granted0
 121,261
 583,814
 0
Replacement awards (1)
0
 0
 2,357,733
 7,324,853
Forfeited(7,030) (5,011) (24,834) (9,693)
Exercised / vested0
 (6,891) (164,314) (946)
Outstanding at September 30, 2020415,331
 284,085
 3,192,447
 7,314,214
_______________________
(1) In connection with the Merger, the Company entered into the Employee Matters Agreement dated December 18, 2019, which provided the terms in which certain Ecolab share-based awards held by legacy ChampionX employees were replaced with share-based awards of the Company on the merger date. The fair value of the replacement awards has been allocated between each employee’s pre-combination and post-combination services. Amounts allocated to pre-combination services have been included as consideration transferred as part of the Merger. See Note 2—Merger Transaction for a summary of consideration

transferred. Compensation costs of $15.8 million allocated to post-combination services will be recorded as stock-based compensation expense over each employees’ remaining service period.

NOTE 13—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.
​
The carrying amount and the estimated fair value for assets and liabilities measured on a recurring basis are as follows:
 September 30, 2020
 Carrying Amount Fair Value Measurements
(in thousands) Level 1 Level 2 Level 3
Assets       
Foreign currency forward contracts$1,392
 $0
 $1,392
 $0
        
Liabilities       
Foreign currency forward contracts$4,647
 $0
 $4,647
 $0


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 14—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:
 September 30, 2020 December 31, 2019
(in thousands)Carrying Amount Fair Value Carrying Amount Fair Value
2018 Term Loan Facility$190,000
 $185,963
 $265,000
 $266,161
2020 Term Loan Facility$530,287
 $527,636
 $0
 $0
6.375% Senior Notes due 2026$300,000
 $288,300
 $300,000
 $316,710


We consider the inputs for our long-lived asset and goodwill impairment calculations to be Level 3 inputs in the fair value hierarchy. See Note 5—Goodwill And Intangible Assets for further information.


NOTE 14—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.

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. We did not have outstanding derivatives at December 31, 2019:
 September 30, 2020
(in thousands)Derivative Assets Derivative Liabilities
Prepaid expenses and other current assets$1,392
 $—
Accrued expenses and other current liabilities—
 4,647
 $1,392
 $4,647

The following table summarizes the notional values of the Company’s outstanding derivatives:
(in thousands)September 30, 2020 December 31, 2019
Notional value of foreign currency forward contracts$457,239
 $0


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 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 September 30, Nine Months Ended
September 30,
(in thousands)2020 2019 2020 2019
Loss reclassified from AOCI to income on cash flow hedges:       
Cost of goods and services$19
 $0
 $34
 $0
Loss on derivatives not designated as hedging instruments:       
Other (income) expense, net772
 0
 1,483
 0
Total loss of derivative instruments$791
 $0
 $1,517
 $0


NOTE 15 — SEGMENT INFORMATION

Upon completion of the Merger, the Company re-evaluated its reporting segments. Our determination of reporting segments was made on the basis of our strategic priorities within each segment and corresponds to the manner in which our chief operating decision maker reviews and evaluates operating performance to make decisions about resources to be allocated to the segment. In addition to our strategic priorities, segment reporting is also based on differences in the products and services we provide. As a result, we added two new reportable segments - Production Chemical Technologies and Reservoir Chemical Technologies. The legacy Apergy reportable segments remain unchanged.

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. 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 September 30, Nine Months Ended September 30,
(in thousands)2020 2019 2020 2019
Segment revenue:       
Production Chemical Technologies$410,151
 $0
 $546,153
 $0
Production & Automation Technologies136,921
 221,962
 457,141
 680,739
Drilling Technologies15,715
 54,877
 92,618
 202,764
Reservoir Chemical Technologies21,264
 0
 30,570
 0
Corporate and other (1)
49,475
 0
 67,392
 0
Total revenue$633,526
 $276,839
 $1,193,874
 $883,503
        
Segment operating profit (loss): 
  
    
Production Chemical Technologies$35,172
 $0
 $45,094
 $0
Production & Automation Technologies(7,454) 18,917
 (693,213) 51,849
Drilling Technologies(5,127) 13,797
 2,421
 64,853
Reservoir Chemical Technologies(3,819) 0
 (6,630) 0
Total segment operating profit (loss)18,772
 32,714
 (652,328) 116,702
Corporate and other (1)
14,131
 8,111
 93,192
 16,668
Interest expense, net15,935
 9,590
 36,236
 30,226
Income (loss) before income taxes$(11,294) $15,013
 $(781,756) $69,808
_______________________
(1)
Pro forma basicCorporate and diluted earnings per share was determined by dividing historical net incomeother 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 Apergy by pro forma shares outstanding during each ofour noncontrolling interest. Additionally, the periods presented.
(2)Pro forma basic shares outstanding was based onsales and expenses related to the Apergy shares issued in connectionCross Supply Agreement with the completion of the Separation on May 9, 2018,Ecolab are included within Corporate and are assumed to be outstanding during each of the periods presented. Pro forma diluted shares outstanding assumes the full effect of potentially dilutive securities of all outstanding awards under our incentive compensation programs plus pro forma basic shares outstanding during each of the periods presented.other. See Note 2—Merger Transaction for further information.


BorrowingsLegacy ChampionX has an integrated supply chain function that serves the Production Chemical Technologies and ContributionReservoir Chemical Technologies reportable segments. As such, asset information for these reportable segments has not been provided and is not available, since the Company does not produce or utilize such information.

NOTE 16—CASH FLOW INFORMATION

Supplemental cash flow information is as follows:
  Nine Months Ended September 30,
(in thousands) 2020 2019
Non-cash information:    
Finance lease additions $4,071
 $3,990


Lease program

Our ESP leased asset program is reported in our Production & Automation Technologies segment. At the time of purchase, assets are recorded to Dover Corporation

To fund the Separation, we incurred the following borrowings:
Senior Notes
On May 3, 2018,inventory and in connection with the Separation, we completed the private placement of $300 million in aggregate principal amount of 6.375% senior notes due May 2026 (“Senior Notes”). Interest on the Senior Notes is payable semi-annually in arrears on May 1are transferred to property, plant, and November 1 of each year commencing on November 1, 2018. Net proceeds of $294.8 million from the offering were utilized to partially fund the $700 million cash payment to Dover at the Separation and to pay fees and expenses incurred in connection with the Separation.

The terms of the Senior Notes are governed by the indenture dated as of May 3, 2018, between Apergy and Wells Fargo Bank, National Association, as trustee. At any time prior to May 1, 2021, we may redeem all or part of the Senior Notes atequipment when a redemption price equal to 100% of the principal amount of the Senior Notes redeemed plus a premium, as defined in the indenture, plus accrued and unpaid interest. Beginning on or after May 1, 2021, we may redeem the Senior Notes, in whole or in part, at certain tiered redemption prices as defined in the indenture, plus accrued and unpaid interest. The Senior Notes are our senior unsecured obligations. The Senior Notes will rank equally in right of payment with our future and existing senior debt and will rank senior in right of payment to all of our future subordinated debt.

In connection with the private placement, we granted the initial purchasers of the Senior Notes certain registration rights under a registration right agreement. We have agreed for the benefit of the holders of the Senior Notes to use our commercially reasonable efforts to file and cause to be effective a registration statement with the SEC relating to a registered offer to exchange the Senior Notescustomer contracts for an issueasset under our lease program. During the nine months ended September 30, 2020 and September 30, 2019, we transferred $26.5 million and $61.2 million, respectively, of SEC-registered notes with terms identical in all material respects to the Senior Notes. Generally, we have one year from the issuanceinventory into property, plant, and equipment as a result of the Senior Notes to complete the exchange offer. Should Apergy not complete its obligations under the registration rights agreement within a year, the annual interest rate on the Senior Notes will increase at different intervals based on the passage of time after one year.assets entering our leased asset program.


Senior Secured Credit Facilities

On May 9, 2018, Apergy enteredExpenditures for assets that are placed into a new credit agreement (“credit agreement”) governing the terms of its new senior secured credit facilities, consisting of (i) a seven-year senior secured term loan B facility (“term loan facility”) and (ii) a five-year senior secured revolving credit facility (“revolving credit facility,” and together with the term loan facility, the “senior secured credit facilities”), with JPMorgan Chase Bank, N.A. as administrative agent. The net proceeds of the senior secured credit facilities areour leased asset program expected to be used (i) to pay fees and expensesrecovered through sale are reported in connection withleased assets in the Separation, (ii) partially fund the cash payment to Dover and (iii) provide for working capital and other general corporate purposes.


21
Table of Contents



At our election, outstanding borrowings under the senior secured credit facilities will accrue interest at a per annum rate of (i) LIBOR plus a margin or (ii) a base rate plus a margin. The senior secured credit facilities contain a number of customary covenants that, among other things, will limit or restrict the ability of Apergy and the restricted subsidiaries to, subject to certain qualifications and exceptions, perform certain activities which include, but are not limited to (i) incur additional indebtedness, (ii) make acquisitions and (iii) pay dividends or other payments in respectoperating 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 stock. Additionally, Apergy will be required to maintain (a) a minimum interest coverage ratio, as definedexpenditures in the credit agreement,investing section of 2.75 to 1.00 and (b) a maximum total leverage ratio, as defined inour condensed consolidated statements of cash flows. During the credit agreement, of 4.00 to 1.00 through the fiscal quarter ending June 30, 2019, then 3.75 to 1.00 through the fiscal quarter ending Junenine months ended September 30, 2020 then 3.50and 2019, such expenditures were estimated to 1.00 thereafter.

Term Loan Facility. The term loan facility will have an initial commitment of $415 million. The full amount of the term loan facility was funded on May 9, 2018. Amounts borrowed under the term loan facility that are repaid or prepaid may not be re-borrowed. The term loan facility matures in May 2025.

The term loan is subject to mandatory amortization payments of one percent per annum of the initial commitment of $415$12.9 million paid quarterly. Additionally, subject to certain exceptions, the term loan facility is subject to mandatory prepayments, including the amount equal to: 100% of the net cash proceeds of all non-ordinary course asset sales subject to (i) reinvestment periods an (ii) step-downs to 75% and 50% based on certain leverage targets; and 50% of excess cash flow, as defined in the credit agreement, with step-downs to 25% and 0% based on certain leverage targets. Apergy may voluntarily prepay amounts outstanding under the term loan facility in whole or in part at any time without premium or penalty (other than during the six months following May 9, 2018 on the amount of loans prepaid or repaid in connection with a repricing transaction, as defined in the credit agreement.

Revolving Credit Facility. The revolving credit facility consists of a five-year senior secured facility with aggregate commitments in an amount equal to $250$13.9 million, of which up to $50 million is available for the issuance of letters of credit. Amounts repaid under the revolving credit facility may be re-borrowed. The revolving credit facility matures in May 2023.respectively.

A summary of our borrowings and payment to Dover as part of the Separation was as follows:
(in thousands) 
Proceeds from issuance of debt$715,000
Debt discounts(1,038)
Debt issuance costs(13,854)
Net proceeds700,108
Cash payment to Dover(700,000)
Net cash retained by Apergy$108



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


Management’s Discussiondiscussion and Analysisanalysis 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 combinedcondensed consolidated financial statements, and notes thereto, included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to Apergy’sChampionX’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,” “will,” “would,” “could,” “target,” “forecast” and similar expressions, including the negative thereof. We do not undertake no obligation to publicly update, revise or correct any of our forward-looking statements after the forward-lookingdate they are made, whether as a result of new information, unlessfuture events or otherwise, except to the extent required to do so under the federal securities laws.
Readers are cautioned that such forward-looking statements should be read in conjunction with the disclosures under the heading:heading “CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.”




EXECUTIVE OVERVIEW AND BUSINESS OUTLOOK


Apergy Corporation (“Apergy”)ChampionX is a leading provider ofglobal 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. OurChampionX’s products provide efficient functioning throughout the lifecycle of a well—well with a focus on the production phase of wells. Our Production Chemical Technologies segment provides chemistry solutions to maximize production from flowing oil and gas wells, and our Reservoir Chemical Technologies segment provides chemistry solutions used in drilling and completion activities. ChampionX’s Production & Automation Technologies offerings consist of artificial lift equipment and solutions, including rod pumping systems, electric submersible pump systems, progressive cavity pumps and drive systems and plunger lifts, as well as a full automation and digital offering consisting of equipment and software for Industrial Internet of Things (“IIoT”) solutions for downhole monitoring, wellsite productivity enhancement, and asset integrity management. ChampionX’s Drilling Technologies offering provides market leading polycrystalline diamond cutters and bearings that result in cost effective and efficient drilling.

On June 3, 2020, the Company and Ecolab completed a Reverse Morris Trust transaction in which Ecolab transferred their upstream energy business to completion to production.On May 9, 2018, Apergylegacy ChampionX and, thereafter, distributed all of the shares of legacy ChampionX common stock to certain Ecolab stockholders. Immediately following the Distribution, a wholly owned subsidiary of the Company merged with and into legacy ChampionX, with legacy ChampionX continuing as the surviving company in the Merger and as a wholly owned subsidiary of the Company. The Merger constitutes a business combination, with the Company (formerly known as Apergy) treated as the accounting acquirer and legacy ChampionX treated as the acquired company for accounting purposes. In association with the completion of the Merger, the Company has changed its name from Apergy Corporation to ChampionX Corporation, and common shares began “regular-way” trading on the New York Stock Exchange under the “APY” symbol.symbol “CHX”. See Note 2—Merger to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.


Separation and Distribution

On April 18, 2018, the Dover Board of Directors approved the separation of entities conducting its upstream oil and gas energy business within the Dover Energy segment into an independent, publicly traded company named Apergy Corporation. In accordanceconnection with the separationMerger, we reorganized our reportable segments. As a result, we have identified two new reportable segments, Production Chemical Technologies and distribution agreement,Reservoir Chemical Technologies, which include the two companies were separated by Dover distributing to its stockholders all 77,339,828 sharesresults of operations of legacy ChampionX. The legacy Apergy common stock on May 9, 2018. Each Dover shareholder received one sharereportable segments remain unchanged. The results of Apergy common stock for every two sharesoperations of Dover common stock held atlegacy ChampionX have been reflected in our accompanying condensed consolidated financial statements from the close of business on the recordclosing date of Aprilthe Merger through September 30, 2018. In conjunction with2020. Results for the Separation, Dover received a private letter ruling fromperiods prior to June 3, 2020 reflect the Internal Revenue Service to the effect that, based on certain facts, assumptions, representationsfinancial and undertakings set forth in the ruling, for U.S. federal income tax purposes, the distributionoperating results of Apergy common stock was not taxable to Dover or U.S. holders of Dover common stock, except in respect to cash received in lieu of fractional share interests. Following the Separation, Dover retained no ownership interest inlegacy Apergy and each company now has separate public ownership, boardsdo not include the financial and operating results of directorslegacy ChampionX. As such, our historical results of operations are not comparable from period to period and management. A registration on Form 10, as amended, describing the Separation was filed by Apergy with the SEC and was declared effective on April 19, 2018. On May 9, 2018, Apergy common stock began “regular-way” trading on the New York Stock Exchange under the “APY” symbol.may not be comparable to our financial results of operations in future periods.


Basis of Presentation


The accompanying condensed combinedWe revised our previously issued financial statements were derived fromfor the three and nine months ended September 30, 2019, for the correction of immaterial errors. In addition, we made certain reclassifications to conform to the presentation of the current period financial statements. Refer to Note 1—Basis of Presentation to our condensed consolidated financial statements and accounting recordsincluded in Part I, Item 1 of Dover. Thesethis Quarterly Report on Form 10-Q. For more information on our segments, see Note 15 — Segment Information to our condensed consolidated financial statements reflect the combined historical resultsincluded in Part I, Item 1 of operations, financial position and cash flows of certain Dover entities conducting its upstream oil and gas energy business within the Dover Energy segment, including an allocated portion of Dover’s corporate costs. As a result, the financial statements may not include all of the actual expenses that would have been incurred had we been a stand-alone public company during the periods presented and consequently may not reflect our combined results of operations, financial position and cash flows had we been a stand-alone public company during the periods presented. See Note 1 — Basis of Presentation and Separation for additional informationthis Quarterly Report on the basis of presentation of these combined financial statements.


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Form 10-Q.

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 providessegments provide a broad range of technologies and products for the oil and gas drilling and production industry and, as a result, isare substantially dependent upon activity levels in the oil and gas industry. 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 production of oil and gas resources. Our customers determine their operating and capital budgets primarilybased on current and projectedfuture crude oil and natural gas prices, U.S. and worldwide rig count and U.S. well completions.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. ProjectedFuture higher crude oil and natural gas prices typically translate into higher exploration and production budgets. Indicators, such as rigRig count, footage drilled and exploration and production spendinginvestment 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.


Market Conditions and Outlook


Oil markets tightened inDuring the backfirst half of 2017,2020, certain unprecedented events caused the rapid decline of oil prices. Decisions by the Organization of Petroleum Exporting Countries (“OPEC”) and other oil prices continued to improveproducing nations resulted in the first quarteran oversupply of 2018 driven by demonstrated compliance by OPEC countries to production quotas, increased global oil demand and declining product inventories. As a result, oil prices continued to strengthen with the WTI spot price averaging $62.91 in the first quarter of 2018 versus the average of $55.27 in the fourth quarter of 2017. Both U.S. and international rig counts increased in the first quarter of 2018 with growth of 5% and 2%, respectively, when compared to the rig counts in the fourth quarter of 2017. According to Spears & Associates, the global oil demand growth in 2018 will be entirely met by increased production from the United States.

Although risk remains that oil prices and activity levels could deteriorate from current levels, we believe the outlook for our businesses over the long term is favorable. Increasing globalcrude oil. Compounding this situation, demand for oil and gas commodities declined significantly as the world was impacted by the novel coronavirus (“COVID-19”) outbreak, which resulted in combinationa sharp decline in crude oil prices. In response to the significant reduction in oil prices, customer spending associated with ongoing depletion of existing reservoirs, will drive continued investment in the drilling and completionexploration and production (E&P) activity deteriorated at a rapid pace due to reduced drilling activities, lower budgeted capital and operating expenditures and cost cutting initiatives.

Although oil prices rebounded moderately, we are still below average oil prices experienced during 2019. We expect market conditions to remain challenging throughout the remainder of new wells. 2020 and into 2021 as we believe it will take time for global oil demand to recover from the COVID-19 pandemic and for oil supplies to return to normal levels. Outside of the incremental revenues associated with the Merger, we experienced a sequential increase in revenue in North America, primarily within our Production and Automation Technologies segment. This increase was driven by higher volumes across our artificial lift portfolio as customer spending began to recover from the compressed levels experienced during the second quarter. Internationally, markets have been more resilient, particularly in Australia and the Middle East, as the need for artificial lift in those regions is increasing and the international sales cycle is longer than the North American cycle.

Response to the COVID-19 Pandemic

In addition, productivityresponse to impacts of the COVID-19 pandemic, we implemented a set of immediate actions to reduce operating costs and efficiencycapital spending. These actions are becoming increasingly importantexpected to generate annualized operating cost savings of $135 million during fiscal year 2020 and include:

reduction in total ChampionX headcount;
company-wide salary reductions, including steeper reductions for executive management and the highest reduction for our chief executive officer; and
facility rationalization and elimination of non-essential expenses.

Additionally, we have significantly reduced capital expenditures and expect a full year reduction of approximately $50 million, including ESP leased assets within our Production & Automation Technologies segment. On our recently acquired Chemical Technologies business, we have reduced capital spend by 50% against prior year levels. We are continuing to monitor market developments and will take additional restructuring actions should further declines in oilfield service activities occur.

Ensuring the health and safety of our employees is paramount. As our businesses are classified as critical infrastructure, our manufacturing and field locations continue to operate and support the vital oil and gas industryinfrastructure around the world. In order to protect our employees during this period, we mobilized our crisis management team and have adopted a comprehensive response plan, which includes:

taking precautions consistent with local, state, and national government health authority guidelines, including the Centers for Disease Control and Prevention and the World Health Organization;

meetings between the crisis management team and executive management to ensure real-time understanding of developments as operators focusthey occur such that our communications and responses are appropriate and timely;
equipping our employees with additional personal protective equipment;
introducing new employee screening procedures in our operations; and
enacting social distancing procedures, including staggering shifts, implementing rotating work schedules, and modifying workspaces and break areas.

CRITICAL ACCOUNTING ESTIMATES

Refer to our “Critical Accounting Estimates” included in Part II, Item 7 of our Annual Report on improving per-well economics, driven byForm 10-K for the year ended December 31, 2019, for a flatteningdiscussion of our critical accounting estimates, together with the following additional critical accounting estimate:

Determination of Fair Value in Business Combinations

Accounting for the acquisition of a business requires the allocation of the WTI forwardpurchase price curve.

Average oilto the various assets acquired and gas prices, rig countsliabilities assumed at their respective fair values. The determination of fair value requires the use of significant estimates and assumptions, and in making these determinations, management uses all available information. If necessary, we have up to one year after the acquisition closing date to finalize these fair value determinations under the applicable GAAP. For tangible and identifiable intangible assets acquired in a business combination, the determination of fair value utilizes several valuation methodologies including discounted cash flows which has assumptions with respect to the timing and amount of future revenue and expenses associated with an asset. The assumptions made in performing these valuations include, but are not limited to, discount rates, future revenues and operating costs, projections of capital costs, and other assumptions believed to be consistent with those used by principal market participants. Due to the specialized nature of these calculations, we engage third-party specialists to assist management in evaluating our assumptions as well completions are summarized below foras appropriately measuring the periods presented:
 2018 2017
 Q1 Q1Q2Q3Q4FY
Average Price WTI Crude (per bbl) (a)$62.91
 $51.62
$48.10
$48.18
$55.27
$50.80
Average Price Brent Crude (per bbl) (a)66.86
 53.59
49.55
52.10
61.40
54.12
Average Price Henry Hub Natural Gas (per mmBtu) (a)3.08
 3.01
3.08
2.95
2.90
2.99
        
U.S. Rig Count (b)966
 742
895
946
921
876
Canada Rig Count (b)269
 295
117
208
204
206
International Rig Count (b)970
 939
958
947
949
948
Worldwide Rig Count2,205
 1,976
1,970
2,101
2,074
2,030
U.S. Well Completions (a)1,158
 776
934
985
1,076
943
_______________________
(a) Source: U.S. Energy Information Administration (EIA), as of April 16, 2018.
(b) Source: Baker Hughes Rig Count, as of April 1, 2018.

Book-to-bill ratio. The book-to-bill ratio compares the dollarfair value of orders received (bookings) relative to revenues realized during the period. Management uses this financial measure as an indicator of demand. A ratio above 1.0 implies that more orders were received than filled, indicating strong customer demand, while a ratio below 1.0 implies weaker customer demand. We believe the book-to-bill ratio is a meaningful financial measure that may assist investors in understanding our performanceassets acquired and outlook.liabilities assumed.


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COMBINEDCONSOLIDATED RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

 Three Months Ended March 31, Change
(dollars in thousands)2018 2017 $ %
Revenue$283,922
 $230,278
 53,644
 23.3
Cost of goods and services189,661
 154,918
 34,743
 22.4
Gross profit94,261
 75,360
 18,901
 25.1
Gross profit margin33.2% 32.7%   0.5 pts.
Selling, general and administrative expense59,739
 52,639
 7,100
 13.5
Selling, general and administrative expense as a percent of revenue21.0% 22.9%   (1.9) pts.
Other expense, net2,617
 2,929
 (312) *
Income before provision for income taxes31,905
 19,792
 12,113
 61.2
Provision for income taxes7,220
 6,206
 1,014
 16.3
Effective tax rate22.6% 31.4%   (8.8) pts.
Net income24,685
 13,586
 11,099
 81.7
Net income attributable to noncontrolling interest142
 317
 (175) (55.2)
Net income attributable to Apergy$24,543
 $13,269
 11,274
 85.0
        
Other measures:       
Bookings$286,118
 $250,847
 35,271
 14.1
Book-to-bill ratio1.01
 1.09
   

 Three Months Ended    
 September 30, Change
(dollars in thousands)2020 2019 $ %
Revenue$633,526
 $276,839
 356,687
 128.8%
Cost of goods and services505,066
 184,140
 320,926
 *
Gross profit128,460
 92,699
 35,761
 38.6%
Selling, general and administrative expense122,156
 68,405
 53,751
 78.6%
Interest expense, net15,935
 9,590
 6,345
 66.2%
Other (income) expense, net1,663
 (309) 1,972
 *
Income (loss) before income taxes(11,294) 15,013
 (26,307) *
Provision for (benefit from) income taxes(3,962) 3,425
 (7,387) *
Net income (loss)(7,332) 11,588
 (18,920) *
Net income attributable to noncontrolling interest582
 194
 388
 *
Net income (loss) attributable to ChampionX$(7,914) $11,394
 (19,308) *
        
Gross profit margin20.3% 33.5%   (1320) bps.
SG&A expense, percent of revenue19.3% 24.7%   (540) bps.
Effective tax rate35.1% 22.8%   1230 bps.
_______________________
*
Not meaningful


Revenue. Revenue increased $356.7 million, or 128.8%, in the third quarter of 2020 compared to prior year as a result of $481.2 million of incremental revenues from our recently acquired Chemicals Technologies business. Offsetting these incremental revenues was a $85.0 million decrease in revenue in our Production & Automation Technologies segment driven by a decline in drilling and completion activities and related reduced customer spending in North America and internationally, which affected our artificial lift, digital products, and other production equipment offerings. Additionally, there was a $39.2 million decrease in revenue in our Drilling Technologies segment primarily due to a steep decline in U.S. land-based rig count and drilling activity in the first quarter of 2020.

Gross profit. Gross profit increased $35.8 million, or 38.6%, in third quarter of 2020 compared to the prior year mainly due to $100.1 million of gross profit generated by our recently acquired Chemicals Technologies business, offset by lower sales volume at both Production & Automation Technologies and Drilling Technologies segments, and an increase in depreciation expense of $23.2 million primarily due to a change in salvage value estimate for certain of our leased assets, and depreciation expense incurred on assets acquired related to the Merger.

Selling, general and administrative expense. Selling, general and administrative expense increased $53.8 million, or 78.6%, in the third quarter of 2020 compared to the prior year primarily due to $68.0 million of selling, general and administrative expense generated by our recently acquired Chemicals Technologies business subsequent to the acquisition date. The increase also includes acquisition and integration costs of $8.4 million associated with the merger with legacy ChampionX. The increase in selling, general and administrative expense was partially offset by cost savings resulting from restructuring actions taken in the latter half of 2019 and the second quarter of 2020.

Interest expense, net. Interest expense, net increased $6.3 million in the third quarter of 2020 compared to prior year primarily due to incremental interest expense related to the term loan assumed as part of the Merger.

Provision for (benefit from) income taxes. Our provision for (benefit from) income taxes reflected effective tax rates of 35.1% and 22.8%, in the third quarter of 2020 and 2019, respectively. The effective tax rate was impacted by the effects of valuation allowances in loss jurisdictions and foreign branch earnings.



CONSOLIDATED RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

 Nine Months Ended    
 September 30, Change
(dollars in thousands)2020 2019 $ %
Revenue$1,193,874
 $883,503
 $310,371
 35.1 %
Cost of goods and services950,845
 579,033
 371,812
 64.2 %
Gross profit243,029
 304,470
 (61,441) (20.2)%
Selling, general and administrative expense330,956
 199,221
 131,735
 66.1 %
Goodwill impairment616,271
 —
 616,271
 *
Long-lived asset impairment40,980
 1,746
 39,234
 *
Interest expense, net36,236
 30,226
 6,010
 19.9 %
Other (income) expense, net342
 3,469
 (3,127) (90.1)%
Income (loss) before income taxes(781,756) 69,808
 (851,564) *
Provision for (benefit from) income taxes(31,922) 15,274
 (47,196) *
Net income (loss)(749,834) 54,534
 (804,368) *
Net income attributable to noncontrolling interest1,453
 547
 906
 *
Net income (loss) attributable to ChampionX$(751,287) $53,987
 (805,274) *
        
Gross profit margin20.4% 34.5%   (1410) bps.
SG&A expense, percent of revenue27.7% 22.5%   520 bps.
Effective tax rate4.1% 21.9%   (1780) bps.
_______________________
* Not meaningful

Revenue. Revenue for the first quarternine months of 20182020 increased $53.6$310.4 million, or 23.3%35.1%, from the prior year primarilyyear-over-year driven by increased volumes.$644.5 million of incremental revenues associated with our recently acquired Chemicals Technologies business. The increase in revenue was drivenoffset by continued growtha decrease in U.S. rig count, increased U.S. onshore capital spending and well completion activity.

The growth in revenue was led by our Drilling Technologies segment reflecting significant growth in U.S. rig count.revenue of $110.1 million year-over-year due to lower volumes and pricing pressure. Additionally, Production & Automation Technologies segment revenue increased due to increasesdecreased $223.6 million year-over-year, driven by lower volumes in U.S. rig count, increasesNorth America and internationally, and the disposition of our pressure vessel manufacturing business in well completion activity and higher demand from well service and exploration and production companies. Allthe second quarter of the top geographic markets experienced revenue growth, including the United States, Canada, Middle East and Europe.2019.


Gross profit. Gross profit for the first quarternine months of 2018 increased $18.92020 decreased $61.4 million, or 25.1%20.2%, from the prioryear-over year, reflecting benefits of increasedlower sales volumes combinedin our Production & Automation Technologies and Drilling Technologies segments. The decrease is also attributable to an increase in depreciation expense of $45.8 million, primarily due to a change in salvage value estimate for certain of our leased assets and incremental depreciation expense incurred on assets acquired related to the Merger. The decrease in gross profit in Drilling Technologies and Production & Automation Technologies is partially offset with cost containment efforts and productivity initiatives.gross profit of $127.0 million generated subsequent to the Merger date by our recently acquired Chemicals Technologies business.


Selling, general and administrative expense. Selling, general and administrative expense for the first nine months of 2020 increased $131.7 million, or 66.1%, year-over-year, primarily due to $92.7 million of selling, general and administrative expense generated subsequent to the acquisition date by our recently acquired Chemicals Technologies business as well as acquisition and integration costs of $78.0 million related to the Merger. The increase also includes an increase of $4.2 million for restructuring charges, and $5.3 million for professional fees incurred related to material weakness remediation. The increase in selling, general and administrative expense was partially offset by cost savings from restructuring actions taken in the second half of 2019 and the second quarter of 20182020.

Interest expense, net. Interest expense, net in the first nine months of 2020 increased $7.1$6.0 million or 13.5%, fromyear-over-year due to a draw on our revolving credit facility during the prior year, primarily in supportsecond quarter, as well as incremental interest expense related to the term loan assumed as part of our growth initiatives.the Merger, partially offset by the repayment of $75 million of the Company’s term loan during the quarter.


Provision for (benefit from) income taxes. The effective tax rates for the first quarternine months of 20182020 and 20172019 were 22.6%4.1% and 31.4%,21.9% respectively. The year-over-year decrease intax benefit recognized during 2020 reflects the loss before income taxes, largely due to goodwill and intangible asset impairment charges recorded during the first quarter. The effective tax rate was primarily due toimpacted by the Tax Reform Act, which was enacted on December 22, 2017,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 which permanently reduced the U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018.foreign branch earnings.


See Note 11 — Income Taxes in the condensed combined financial statements for additional information.

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SEGMENT RESULTS OF OPERATIONS

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019


Production Chemical Technologies
(dollars in thousands) Three Months Ended September 30, 2020
Nine Months Ended September 30, 2020 (1)
Revenue $410,151
$546,153
Operating profit 35,172
45,094
Operating profit margin 8.6%8.3%
    
Depreciation and amortization $26,407
$33,364
_______________________
(1) The results of operations of the Production Chemical Technologies segment have been reflected in the table above from the closing date of the Merger through September 30, 2020.

Revenue. Production Chemical Technologies revenue is primarily generated from providing E&P and other customers in the 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. Revenue was $410.2 million for the period. Deteriorating market conditions during the second and third quarters of 2020 have significantly impacted customer demand; however, as Production Chemical Technologies mostly supports existing production, sales are somewhat less sensitive to changes in customers’ capital and operating expenditure budgets related to the exploration for and development of new oil and natural gas reserves, which are more directly affected by trends in oil and natural gas prices.

Operating profit. Production Chemical Technologies generated operating profit of $35.2 million during the three months ended September 30, 2020, which includes depreciation and amortization expense of $26.4 million and an increase to cost of goods sold related to the step-up of inventory as part of the purchase price allocation of $7.6 million.

Production & Automation Technologies
  Three Months Ended March 31, Change
(dollars in thousands) 2018 2017 $ %
Revenue $214,691
 $180,800
 33,891
 18.7
Segment earnings 10,351
 7,877
 2,474
 31.4
Segment margin 4.8% 4.4%   0.4 pts.
         
Depreciation and amortization $26,758
 $23,591
 3,167
 13.4
Restructuring and other charges 482
 6
 476
 *
         
Other measures:        
Bookings $216,934
 $197,037
 19,897
 10.1
Book-to-bill ratio 1.01
 1.09
   
  Three Months Ended September 30, Change
(dollars in thousands) 2020 2019 $ %
Revenue $136,921
 $221,962
 (85,041) (38.3)%
Operating profit (loss) (7,454) 18,917
 (26,371) (139.4)%
Operating profit (loss) margin (5.4)% 8.5%   (1390) bps.
         
Depreciation and amortization $30,221
 $27,196
 3,025
 11.1 %
Restructuring and other related charges 914
 2,194
 (1,280) (58.3)%
Environmental costs —
 1,988
 (1,988) (100.0)%
Acquisition transaction costs 250
 167
 83
 49.7 %
______________________
*
Not meaningful

Revenue. Production & Automation Technologies revenue decreased $85.0 million, or 38.3%, as compared to the prior year, primarily due to a decline in customer spending as a result of deteriorating market conditions during the second and third quarters of 2020. The decline in customer spending led to lower volumes and associated lower revenue in our artificial lift, digital products and other production equipment offerings in North America and international markets.


Operating profit. Production & Automation Technologies operating profit decreased $26.4 million in the third quarter of 2020 compared to the prior year primarily due to lower sales volume as noted above. The decrease in costs of goods and services of approximately $42.9 million as well as a $14.5 million reduction in selling, general and administrative costs partially offset the decline in revenue. The decline in costs is predominantly volume driven, further supplemented by various cost reduction initiatives initiated during the latter part of 2019 and first half of 2020 in response to the economic downturn. These cost initiatives were implemented to better align the segment’s cost base with the significantly lower demand environment.

  Nine Months Ended September 30, Change
(dollars in thousands) 2020 2019 $ %
Revenue $457,141
 $680,739
 (223,598) (32.8)%
Operating profit (loss) (693,213) 51,849
 (745,062) *
Operating profit (loss) margin (151.6)% 7.6%   (15920) bps.
         
Depreciation and amortization $99,327
 $82,177
 17,150
 20.9 %
Goodwill impairment 616,271
 —
 616,271
 *
Long Lived Asset Impairment 40,980
 1,746
 39,234
 *
Restructuring and other related charges **
 9,919
 6,225
 3,694
 59.3 %
Environmental costs —
 1,988
 (1,988) (100.0)%
Acquisition transaction costs 910
 167
 743
 *
_______________________
*
Not meaningful

** Includes a $2.5 million loss on disposal during the nine months ended September 30, 2019, related to our pressure vessel manufacturing business.

Revenue.Production & Automation Technologies revenue for the nine months of 2020 decreased $223.6 million, or 32.8%, year-over-year, driven by lower volumes in North America and internationally due to deteriorating market conditions during the first half of 2020, and the disposition of our pressure vessel manufacturing business in the second quarter of 2019.

Operating profit. Production & Automation Technologies operating profit decreased $745.1 million year-over-year primarily driven by goodwill and long-lived asset impairment charges of $616.3 million and $41.0 million, respectively, in the first quarter of 20182020. Excluding impairment charges, operating profit decreased $89.6 million, primarily due to lower sales volume, an increase in depreciation and amortization expense of $17.2 million primarily related to a change in salvage value estimate for certain of our leased assets, and increased $33.9restructuring expense and other related charges of $3.7 million, partially offset by decreased environmental costs of $2.0 million.

Drilling Technologies
  Three Months Ended September 30, Change
(dollars in thousands) 2020 2019 $ %
Revenue $15,715
 $54,877
 (39,162) (71.4)%
Operating profit (loss) (5,127) 13,797
 (18,924) (137.2)%
Operating profit margin (32.6)% 25.1%   (5770) bps.
         
Depreciation and amortization $1,936
 $2,244
 (308) (13.7)%
Restructuring and other related charges —
 526
 (526) (100.0)%

Revenue. Drilling Technologies revenue decreased $39.2 million, or 18.7%71.4%, asin the third quarter of 2020 compared to the prior year comprised of broad-based volume growth. In spite of more constructive market conditions, customer pricing continues to be challenging.

Segment earnings. Production & Automation Technologies earnings increased$2.5 million, or 31.4%, compared to the prior year. The increase was primarily driven by growth in sales volume due to improving oil and gas markets, particularlya steep decline in U.S. land-based rig count and well completion activity. The increaseassociated decline in segment earnings included cost savings realized from restructuring programs, as well as productivity savings. The increasecustomer spending on drilling activities, which negatively impacted sales volumes of our diamond cutters and diamond bearings products.

Operating profit. Drilling Technologies operating profit decreased $18.9 million in earnings was partially offset by material cost increases, particularly aluminum and steel.

Bookings and Book-to-bill. Bookings for the firstthird quarter of 2018 increased $19.9 million, or 10.1%,2020 compared to the prior year reflecting ongoing market improvement. Our book-to-bill ratio was 1.01 in the first quarter of 2018, reflecting our ability to fulfill increasing customer demand. In the first quarter of 2017, our book-to-bill ratio was 1.09, which was largely driven by short-term production constraints during the early stages of the market recovery. Such production constraints have been abatedperiod primarily due to our ability to scale up production capacity to match increasing demand.lower revenue.


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Drilling Technologies
  Three Months Ended March 31, Change
(dollars in thousands) 2018 2017 $ %
Revenue $69,231
 $49,478
 19,753
 39.9
Segment earnings 24,189
 14,720
 9,469
 64.3
Segment margin 34.9% 29.8%   5.1  pts.
         
Depreciation and amortization $2,867
 $2,959
 (92) (3.1)
Restructuring and other charges —
 —
 —
 
         
Other measures:        
Bookings $69,184
 $53,810
 15,374
 28.6
Book-to-bill ratio 1.00
 1.09
   
  Nine Months Ended
September 30,		 Change
(dollars in thousands) 2020 2019 $ %
Revenue $92,618
 $202,764
 (110,146) (54.3)%
Operating profit 2,421
 64,853
 (62,432) (96.3)%
Operating profit margin 2.6% 32.0%   (2940) bps.
         
Depreciation and amortization $6,045
 7,079
 (1,034) (14.6)%
Restructuring and other related charges 5,521
 526
 4,995
 *


Revenue. Drilling Technologies revenue increased $19.8decreased $110.1 million, or 39.9%54.3%, comparedyear-over-year primarily due to a steep decline in U.S. land-based rig count and associated decline in customer spending on drilling activities, which negatively impacted sales volumes of our diamond cutters and diamond bearings products.

Operating profit. Drilling Technologies operating profit decreased $62.4 million year-over-year due to lower revenue and increased restructuring charges of $5.0 million associated with employee severance and related benefits, partially offset by productivity savings.

Reservoir Chemical Technologies
(dollars in thousands) Three Months Ended September 30, 2020
Nine Months Ended September 30, 2020 (1)
Revenue $21,264
$30,570
Operating loss (3,819)(6,630)
Operating loss margin (18.0)%(21.7)%
    
Depreciation and amortization $1,923
$4,141
______________________
(1) The results of operations of the Reservoir Chemical Technologies segment have been reflected in the table above from the closing date of the Merger through September 30, 2020.


Revenue. Reservoir Chemical Technologies revenue is primarily comprised of the sale of specialty products that support well stimulation, construction (including drilling and cementing) and remediation needs to service and equipment companies that support global E&P companies. Revenue was $21.3 million for the period. Reservoir Chemical Technologies products are sensitive to changes in its customers’ capital expenditure budgets as they relate closely to the prior year which was the resultexploration and development of increased volumes due to increased rig counts. Customer pricing did not have a significant impact on revenuenew oil and natural gas reserves. This exploration and development activity is affected by trends in oil and natural gas prices and its customers’ corresponding levels of drilling activity, capital investment and well development.

Operating profit. Reservoir Chemical Technologies generated operating loss of $3.8 million in the firstthird quarter of 2018.

Segment earnings. Drilling2020, which includes depreciation and amortization expense of $1.9 million. Reservoir Chemical Technologies earnings increased $9.5generated operating loss of $6.6 million or 64.3%, comparedfor the nine months of 2020, which includes depreciation and amortization expense of $4.1 million and an increase in cost of goods sold related to the prior year, largely driven by volume growth, combined with the benefitsstep-up of cost containment efforts and productivity gains.

Bookings and Book-to-bill. Bookings for the first quarter of 2018 increased $15.4 million, or 28.6%, compared to the prior year, reflecting ongoing market improvement. Our book-to-bill ratio was 1.00 in the first quarter of 2018, reflecting our ability to fulfill increasing customer demand. In the first quarter of 2017, our book-to-bill ratio was 1.09, which was largely driven by short-term production constraints during the early stagesinventory as part of the market recovery. Such production constraints have been abated due to our ability to scale up production capability to match increasing customer demand.purchase price allocation of $0.5 million.



CAPITAL RESOURCES AND LIQUIDITY

Overview

At September 30, 2020, we had cash and cash equivalent balances of $171.5 million for the primary purpose of working capital and operational support needs. During the second quarter, in order to ensure appropriate liquidity as a result of the industry downturn, the negative business impacts of COVID-19, and to have sufficient funds to extinguish merger-related transaction expenses, we borrowed $125 million against our revolving credit facility. As a result of ongoing robust cash generation throughout the second and third quarters, the Company was able to fully repay the $125 million borrowing during the second quarter as well as an additional $82 million during the third quarter.


All of our cash balances are held outside the United States. Our U.S. cash was historically pooled to Dover through intercompany advances and is not reflected on our condensed combined balance sheets. All of our cash held outside the United States could be repatriated to the United States. Werepatriated; however, we have not provided for foreign withholding taxes on our undistributed foreign earnings from jurisdictions which impose such taxes since we have determined that such earnings are indefinitely reinvested.reinvested in those jurisdictions.


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 in facilities and systems, acquisitions that create value with add-on capabilities that broaden our existing businesses and overall growth strategy, and debt repayments.

At September 30, 2020, we had a long-term debt balance of $989.7 million, net of the current portion of long-term debt of $31.5 million, primarily consisting of our term loan due 2027 with a principal amount of $530.3 million, our senior notes due in 2026 with a principal amount of $300.0 million, and our term loan due in 2025 with a principal amount of $190.0 million. We also have access to a revolving credit facility which expires in May of 2023, which had an unused capacity of $355.4 million at September 30, 2020.

Outlook

We expect to meet the continuing funding requirements ofgenerate our U.S.liquidity and capital resources through operations with cash generated by such U.S. operations and, when needed, through our revolving credit facility. See “Capital ResourcesThe volatility in credit, equity and Liquidity—Outlook”commodity markets resulting from current market conditions can create uncertainty for information related toour 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 use of our revolving credit facility.facility and access to capital markets.


Given the uncertainty created by the lack of visibility of future operating conditions in the current market environment and over the remainder of the year, we are restricting our capital expenditures to maintenance requirements and integration related investments only. We expect our full year 2020 capital expenditures, combined with investment in leased assets in the net cash from operating activities section of our consolidated statement of cash flows, to be between $50 to $55 million.

Cash Flows
Three Months Ended March 31,Nine Months Ended September 30,
(in thousands)2018 20172020 2019
Cash provided by operating activities$7,347
 $19,398
$189,432
 $123,390
Cash required by investing activities(13,425) (5,582)
Cash required by financing activities(814) (13,919)
Cash provided by (used in) investing activities34,714
 (43,329)
Cash used in financing activities(93,445) (80,949)
Effect of exchange rate changes on cash and cash equivalents302
 638
5,471
 (317)
Net increase (decrease) in cash and cash equivalents$(6,590) $535
$136,172
 $(1,205)


Operating Activities


We generated cash fromCash provided by operating activities forin the threenine months ended March 31, 2018 and 2017, of $7.3September 30, 2020 increased $66.0 million and $19.4 million, respectively.compared to 2019. The decreaseincrease in cash provided byby operating activities was primarily driven by increases from changes in our working

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capital position of $18.3 million, partially offset by higher cash income generated from operations. Operating cash usedoperating assets and liabilities in 2020 as a result of changes in our working capital position arecompared to 2019, primarily due to increasesan increase in ourcash received related to the collection of trade receivables and inventories from higher market activity.a reduction in our cash outflows for inventory procurement and cash outflows on leased assets due to strict adherence to cost and capital discipline. Partially offsetting the increase in cash provided by operating cash flows was lower net income, adjusted for non-cash items, and merger related acquisition and integration costs incurred 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


For the three months ended March 31, 2018 and 2017, we used cash from investing activities of $13.4 million and $5.6 million, respectively. The $7.8 million increase in cash usedCash provided by investing activities was $34.7 million for the nine months ended September 30, 2020, and was primarily due to investments to support increased salescomprised of cash acquired in the merger with legacy ChampionX of $57.6 million and investments in$9.3 million of cash proceeds on sale of fixed assets, available to customers on a rental basis.partially offset by capital expenditures of $32.2 million.

Cash used in investing activities was $43.3 million for the nine months ended September 30, 2019 and was primarily comprised of capital expenditures of $31.6 million, a $12.5 million payment to acquire a business comprising certain assets used in the manufacturing of downhole monitoring systems, and a $2.2 million payment related to the sale of our pressure vessel manufacturing business in our Production & Automation Technologies segment, partially offset by $3.0 million of cash proceeds from the sale of fixed assets.

Financing Activities


Cash used in financing activities resulted from net transfers to Doverof $93.4 million for the nine months ended September 30, 2020, was primarily the result of repayments totaling $81.7 million on our Term Loan Facilities, $4.4 million in debt issuance costs related to transactions with Doverthe amendment of the credit agreement, as discussed in Note 6—Debt to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, $4.5 million of payments of finance lease obligations, and assumptionsa distribution of $2.2 million to one of our non-controlling interests. Net borrowings under our revolving credit facility totaled zero in 2020 as we borrowed and fully repaid the borrowing within the same period.

Cash used in financing activities of $80.9 million for the preparationnine months ended September 30, 2019, was primarily the result of $111.5 million of debt repayment on the principal balance of our combined financial statements. Seeterm loan and payments totaling $4.1 million for finance lease obligations, partially offset by proceeds on long-term debt of $36.5 million.

Long-term Debt

Senior Notes

Refer to Note 1 10— BasisDebt, included in Part II, Item 8 of Presentation and Separation and Note 3 — Related Party Transactionsour Annual Report on Form 10-K for additionalthe year ended December 31, 2019, for information related to net transfersour Senior Notes, which are fully and unconditionally guaranteed by certain 100-percent-owned subsidiaries (the “Guarantors”) of ChampionX on a joint and several basis. On June 18, 2020, the wholly-owned subsidiaries of legacy ChampionX that guarantee the 2018 Credit Facility and the 2020 Term Loan Facility, delivered a Supplemental Indenture to Dover. Duringjoin as guarantors of the three months ended March 31, 2018senior notes.

The Senior Notes indenture restricts the ability of the Guarantors to pay dividends or other distributions, make loans or advances, or sell, lease or otherwise transfer property and 2017, we made no distributionsother assets to our noncontrolling interest holder.certain restricted subsidiaries or the Parent.

Outlook

Separation
Subsequent to the Separation, we will no longer participate in cash management and funding arrangements with Dover. Historically, we have utilized these arrangements to fund daily operating activities and significant business expenditures, such as manufacturing capacity expansion and acquisitions. Our ability to fund our daily operating activities and capital projects will depend on our ongoing ability to generate cash from operations and our ability to access the capital markets.
Senior Notes
On May 3, 2018, and in connection with the Separation, we completed the private placementAs part of $300 million in aggregate principal amount of 6.375% senior notes due May 2026 (“Senior Notes”). Interest on the Senior Notes indenture, a guarantee of the senior notes by ChampionX or a Guarantor is payable semi-annuallysubject to release in arrears on May 1the following circumstances:

the sale, exchange or transfer (by merger or otherwise) of (i) the capital stock of the Guarantor after which the Guarantor is no longer a restricted subsidiary or (ii) all or substantially all of the assets of such Guarantor made in a manner not in violation of the indenture;
the release or discharge of the guarantee by, or direction obligation of, such Guarantor with respect to the Senior Credit Facilities or capital markets debt securities that resulted in the creation of such guarantee, except a discharge by or as a result of payment under such guarantee;
the designation of the subsidiary as an unrestricted subsidiary under the indenture;
the legal defeasance or covenant defeasance of the Senior Notes in accordance with the terms of the indenture;
the merger or consolidation of any Guarantor with and November 1into the Issuer or another Guarantor that is the surviving person in such merger or consolidation, or upon the liquidation of such Guarantor following the transfer of all its assets to the Parent or another Guarantor; or
an amendment of the Senior Note indenture agreement.

The obligations of each year commencing on November 1, 2018. Net proceeds of $294.8 millionGuarantor under its note guarantee are limited as necessary to prevent such note guarantee from constituting a fraudulent conveyance under applicable law.

The following summarized financial information presents the offering were utilized to partially fund the cash payment to DoverParent and to pay feesGuarantors (collectively and expenses incurred in connectiontogether with the Separation.Parent, the “Obligor Group”) on a combined basis:

Condensed Combined Statement of Loss of the Obligor Group
(dollars in thousands) Nine Months Ended September 30, 2020
Total Revenue $1,113,381
Cost of goods and services 882,034
Selling, general and administrative expense 318,327
Goodwill impairment (396,017)
Long-lived asset impairment (40,980)
Loss before income taxes (559,541)
Net loss $(533,277)

Condensed Combined Balance Sheets of the Obligor Group
(dollars in thousands) September 30, 2020 December 31, 2019
Current assets:    
Current assets $1,264,872
 $419,692
Non-current assets:    
Goodwill 611,223
 639,280
Advances due from affiliates 17,421
 18,534
Other non-current assets 1,230,457
 430,553
Total assets $3,123,973
 $1,508,059
     
Current liabilities:    
Current liabilities $652,004
 $173,372
Non-current liabilities:    
Advances due to affiliates 91,686
 87,682
Other non-current liabilities 1,279,455
 664,581
Total liabilities $2,023,145
 $925,635

Senior Secured Credit Facilities


OnIn May 9, 2018, Apergywe entered into a new credit agreement (“credit agreement”) governing the terms of its newour senior secured credit facilities, consisting of (i) a seven-year senior secured term loan B facility (“term loan facility”) and (ii) a five-year senior secured revolving credit facility (“revolving credit facility,” and together with the term loan facility, the “senior secured credit facilities”), with JPMorgan Chase Bank, N.A. as administrative agent. The net proceeds of the senior secured credit facilities are expected. Refer to be used (i) to pay fees and expenses in connection with the Separation, (ii) partially fund the cash payment to Dover and (iii) provide for working capital and other general corporate purposes.

Term Loan Facility. The term loan facility will have an initial commitment of $415 million. The full amount of the term loan facility was funded on May 9, 2018. Amounts borrowed under the term loan facility that are repaid or prepaid may not be re-borrowed. The term loan facility matures in May 2025.

Revolving Credit Facility. The revolving credit facility consists of a five-year senior secured facility with aggregate commitments in an amount equal to $250 million, of which up to $50 million is available for the issuance of letters of credit. Amounts repaid under the revolving credit facility may be re-borrowed. The revolving credit facility matures in May 2023.

See Note 16 10— Subsequent Events to our condensed combined financial statementsDebt included in Part I,II, Item 18 of this Quarterlyour Annual Report on Form 10-Q10-K for the year ended December 31, 2019, for additional information related to debt issuances after March 31, 2018.our senior secured credit facilities.

On February 14, 2020, we amended our credit agreement, which (i) provides for the incurrence of an additional $150 million of revolving commitments under the amended credit agreement, upon consummation of the Merger, (ii) permits the consummation of the Merger and the incurrence of a senior secured term loan facility in an aggregate amount up to $537 million by ChampionX, and (iii) continues to provide that all obligations under the amended agreement continue to be guaranteed by certain of our wholly-owned U.S. subsidiaries.
During the nine months ended September 30, 2020, we made a $75.0 million payment on our 2018 Term Loan Facility and amortization payments of $6.7 million on the 2020 Term Loan Facility.


PursuantRevolving Credit Facility

A summary of our revolving credit facility at September 30, 2020, was as follows:
(in millions)
Description
Amount 
Debt
Outstanding
 
Letters
of
Credit
 Unused Capacity Maturity
Five-year revolving credit facility$400.0
 $—
 $44.6
 $355.4
 May 2023

Additionally, we have a letter of credit outside of the revolving credit facility of approximately $0.2 million. As of September 30, 2020, we were in compliance with all restrictive covenants under our revolving credit facility.

2020 Term Loan Facility

On June 3, 2020, prior to the Separation, Apergy madeclosing of the Merger, legacy ChampionX entered into a term loan facility for $537.0 million (“2020 Term Loan Facility”). Proceeds from the 2020 Term Loan Facility were utilized to fund a cash payment of $700$527.4 million from legacy ChampionX to Dover. See Note 16 — Subsequent EventsEcolab prior to the closing of the Merger. We assumed the 2020 Term Loan Facility upon completion of the Merger, which is fully and unconditionally guaranteed by the Company and certain of its wholly-owned domestic subsidiaries, which also guarantee the obligations under the 2018 Term Loan Facility. The 2020 Term Loan Facility matures at the earlier of (i) June 3, 2027 or (ii) January 30, 2026 in the event the Company’s senior unsecured notes due May 1, 2026 remain outstanding. Amounts outstanding under the 2020 Term Loan Facility bear interest, at the option of the Company, at a rate equal to (a) LIBOR plus 5.0% for additional information.eurocurrency rate loans or (b) the highest of (i) the Federal Funds Rate plus 1/2 of 1%, (ii) the “prime rate” quoted by Bank of America, N.A., (iii) LIBOR plus 1.00% and (iv) 1.00%, plus 4.0%. The 2020 Term Loan Facility contains customary representations and warranties, covenants, and events of default for loan facilities of this type.




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OFF-BALANCE SHEET ARRANGEMENTS


Information related to guarantees is incorporated herein by reference from Note 8 — 7—Commitments And Contingencies to our condensed combinedconsolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.



CRITICAL ACCOUNTING ESTIMATES

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Information Statement included in Amendment No. 1 to the Form 10 filed with the SEC on April 12, 2018. During the three months ended March 31, 2018, there were no changes to our identified critical accounting estimates.


RECENTLY ISSUED ACCOUNTING STANDARDS


See Note 2 — 3—New Accounting Standards to our condensed combinedconsolidated 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. This risk arises primarily as a result of potential changes in the fair market value of financial instruments due to adverse fluctuations in commodity prices, foreign currency exchange rates, and interest rates as discussed below. We do not use derivative financial instruments where the objective is to generate profits solely from trading activities.

Commodity Price Risk

We use a variety of raw materials, primarily metals and semi-processed or finished components, that are generally available from various sources. Commodity pricing for metals, such as nickel, chrome, molybdenum, vanadium, manganese and steel scrap, fluctuate with the market. As a result, our earnings are exposed to commodity market price fluctuations. Although some cost increases may be recovered through increased prices to customers, we attempt to control such costs through fixed-price contracts with suppliers and various other programs, such as our global supply chain activities.


Refer
Foreign Currency Risk

We conduct operations around the world in a number of different currencies. Many of our foreign subsidiaries have designated the local currency as their functional currency. Our earnings are therefore subject to “Management’s Discussionchange due to fluctuations in foreign currency exchange rates when the earnings in foreign currencies are translated into U.S. dollars. We do not hedge this translation impact on earnings. When transactions are denominated in currencies other than our subsidiaries’ respective functional currencies, both with external parties and Analysisintercompany relationships, these transactions result in increased exposure to foreign currency exchange effects. The Company uses foreign currency forward contracts to manage risks associated with foreign currency exchange rates. As of September 30, 2020, the amount of gain or loss in the fair value of derivative instruments that would have resulted from a 10 percent increase or decrease in the underlying price of the contracts was not material.

Interest Rate Risk

Our use of fixed- or variable-rate debt directly exposes us to interest rate risk. Fixed-rate debt, such as the senior notes, exposes us to changes in the fair value of our debt due to changes in market interest rates. Fixed-rate debt also exposes us to the risk that we may need to refinance maturing debt with new debt at higher rates, or that we may be obligated to pay rates higher than the current market rate. Variable-rate debt, such as our term loan or borrowings under our revolving credit facility, exposes us to short-term changes in market rates that impact our interest expense.

As of September 30, 2020, we had unhedged variable rate debt of $190.0 million related to our 2018 Term Loan Facility with an interest rate of 2.69%. A hypothetical 10% adverse movement in the interest rate, or 27 basis points, would result in an increase to interest expense of $0.5 million on an annualized basis.

We also had unhedged variable rate debt of $530.3 million related to our 2020 Term Loan Facility with an interest rate of 6.00%. A hypothetical 10% adverse movement in the interest rate, or 60 basis points, would result in an increase to interest expense of $1.9 million. As the 2020 Term Loan Facility was acquired as part of the Merger on June 3, 2020, we have calculated the interest rate sensitivity on the interest expense expected to be incurred for the period subsequent to the Merger date through December 31, 2020.

Fair Value of Financial ConditionInstruments

The fair value of our fixed rate long-term debt and Results of Operations—Risk Management” in the Information Statementvariable rate debt is estimated based on quoted market prices or prices quoted from third-party financial institutions. We do not currently intend to enter into any interest rate hedging agreements, but will continue to monitor interest rate exposure. See Note 13—Fair Value Measurements to our condensed consolidated financial statements included in Amendment No.Part I, Item 1 to theof this Quarterly Report on Form 10 filed with the SEC on April 12, 2018. There have been no material changes in10-Q for further discussion of our exposures to market risk since December 31, 2017.financial instruments.



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 Act)“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 operating effectivelynot effective as of MarchSeptember 30, 2020 because of the material weaknesses in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) described in Item 9A - Controls and Procedures in our Form 10-K for the year ended December 31, 2018.2019.

In conducting management’s evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2020, we have excluded the operations of ChampionX Holding Inc. (“legacy ChampionX”) as permitted by the SEC. As part of our ongoing integration of legacy ChampionX, we continue to incorporate our controls and procedures into legacy ChampionX subsidiaries and to expand our company-wide controls to reflect the risks inherent in an acquisition of this size and complexity. The legacy ChampionX subsidiaries account for approximately 51.1% of our total assets as of September 30, 2020.

Notwithstanding the material weaknesses noted above, our management, including our principal executive officer and principal financial officer, has concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with GAAP for each of the periods presented.


There
Remediation Activities

As described in Item 9A - Controls and Procedures in our Form 10-K for the year ended December 31, 2019, we identified
material weaknesses in our internal control over financial reporting. Management, with oversight from the Audit Committee, developed a remediation plan to address the material weaknesses. As part of our remediation plan, we have implemented new and enhanced processes, procedures and controls to address certain control deficiencies that led to the material weaknesses. Specifically, management has:

Reviewed staffing competencies and resource requirements at ESP and within the Artificial Lift business and used the results of our review as part of our overall financial statement risk assessment process.

Made personnel changes, including terminations and hiring of staff for both current and newly created positions, at ESP and within the Artificial Lift business in order to strengthen the control environment and to ensure we have a sufficient complement of resources with an appropriate degree of knowledge, expertise and skills commensurate with our financial statement requirements.

Engaged third party experts to assist management in assessing and designing new and enhanced processes, procedures, and controls, including automation of certain processes and controls, at ESP and within the Artificial Lift business.

Implemented policies, procedures and controls at ESP and within the Artificial Lift business to (i) ensure price and quantity are accurately recorded and supported by agreements with customers as part of the revenue recognition process and (ii) properly calculate and support management’s review and assessment for the valuation of accounts receivable reserves.

Implemented policies, procedures and controls at ESP to (i) ensure manual journal entries are properly prepared and reviewed for accuracy and appropriate supporting documentation and (ii) properly account for inventory transfers and fixed asset deployments and disposals as part of ESP’s leased asset program.

Conducted policies and procedural training for all personnel responsible for the performance of control activities over financial reporting as well as specific training for personnel responsible for control activities associated with manual journal entries, revenue recognition, accounts receivable, inventory and fixed assets at ESP and within the Artificial lift business.

Enhanced and formalized certain elements of our Enterprise Risk Management program, including our review and response to significant business changes, within our risk assessment process.

Implemented controls to ensure proper segregation of duties associated with user access rights to system capabilities within the general ledger, specifically the restriction of a system user’s ability to both prepare and post journal entries.

Changes in Internal Control Over Financial Reporting
Except as described above, there were no changes in internal controlscontrol over financial reporting identified in the evaluation for the quarter ended March 31, 2018,September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.reporting.

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PART II — OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


We are involved in various pending or potential legal actions or disputes in the ordinary course of our business. Management is unable to predict the ultimate outcome of these actions because of theirthe inherent uncertainty.uncertainty of litigation. However, management believes that the most probable, ultimate resolution of these matters will not have a material adverse effect on our combinedcondensed 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


In addition toInformation concerning our risk factors previously disclosed in “Risk Factors” in the Information Statement included in Amendment No. 1 to the Form 10 filed with the SEC on April 12, 2018, the following risk factor was identified:

Our indebtedness could adversely affect our financial condition and operating flexibility.

In connection with the Separation, we incurred a significant amount of indebtedness. As of March 31, 2018, after giving effect to the Separation, our total debt would have been approximately $700 million (net of original issue discount and deferred financings costs), and we would have had unused commitments of approximately $250 million under our five-year senior secured revolving credit facility (less the amount of any outstanding letters of credit issued thereunder).

Subject to the limitsis contained in the credit agreement governing our senior secured credit facilities and the indenture that governs our senior notes, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our level of debt could intensify.

Specifically, our level of debt could have important consequences, including:

making it more difficult for us to satisfy our obligations with respect to our senior notes and our other debt;
limiting our ability to obtain additional financing to fund our business operations;
requiring a substantial portionPart II, Item 1A of our cash flows to be dedicated to debt service payments;Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and is incorporated by reference herein.
increasing our vulnerability to general adverse economic and industry conditions;
exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our senior secured credit facilities, are at variable rates of interest;
limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
placing us at a disadvantage compared to other, less leveraged competitors; and
increasing our cost of borrowing.

In addition, the credit agreement governing our senior secured credit facilities and the indenture that governs our senior notes contain restrictive covenants that limit our ability to engage in activities that may be in our long-term interests. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt.

Our ability to make payments on and to refinance our indebtedness as well as any future debt that we may incur depends upon the level of cash flows generated by our operations, our ability to sell assets, availability under our five-year senior secured revolving credit facility and our ability to access the capital markets and/or other sources of financing. Our ability to generate cash is subject to general economic, industry, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are not able to repay or refinance our debt as it becomes due, we may be forced to sell assets or take other disadvantageous actions, including (i) reducing financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes or (ii) dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in the oil and gas industry could be impaired.

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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


None.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 legacy ChampionX 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 $0.13 million during the period from July 1, 2020 to September 30, 2020. 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 abovementioned statute.

ITEM 6. EXHIBITS

Information required by this item is incorporated herein by reference from the section entitled “Exhibit Index” of this Quarterly Report on Form 10-Q for the period ended March 31, 2018.
Exhibit
No.
Exhibit Description
22.1
List of Issuer and Subsidiary Guarantors of Guaranteed Securities (incorporated by reference to Exhibit 22.1 to ChampionX’s From 10-Q for the quarterly period ended June 30, 2020 filed August 7, 2020)
31.1*
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1**
Certification of Chief Executive Officer Under Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
32.2**
Certification of Chief Financial Officer Under Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
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

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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.


APERGYCHAMPIONX CORPORATION 
(Registrant) 
   
/s/ JAY A. NUTTANTOINE MARCOS 
Jay A. NuttAntoine Marcos 
Senior Vice President, Corporate Controller and Chief FinancialAccounting Officer 
(Principal FinancialAccounting Officer and a Duly Authorized Officer) 
   
Date:June 4, 2018October 30, 2020 


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EXHIBIT INDEX

    Incorporated by Reference
Exhibit
No.
 Exhibit Description FormExhibit No.Filing Date
2.1
 
Separation and Distribution Agreement, dated May 9, 2018, by and between Dover Corporation and Apergy Corporation.
 8-K2.1May 11, 2018
3.1
 
Amended and Restated Certificate of Incorporation of Apergy Corporation.
 8-K3.1May 11, 2018
3.2
 
Amended and Restated By-Laws of Apergy Corporation.
 8-K3.2May 11, 2018
4.1
 
Indenture, dated as of May 3, 2018, between Apergy Corporation, as Issuer, and Wells Fargo Bank, National Association, as Trustee.
 8-K4.1May 7, 2018
4.2
 
Form of 6.375% Senior Notes due 2026 (included as Exhibit 1 to the Indenture filed as Exhibit 4.1).
 8-K4.2May 7, 2018
4.3
 
Registration Rights Agreement, dated May 3, 2018, by and between Apergy Corporation and J.P. Morgan Securities LLC, for itself and on behalf of the several initial purchasers.
 8-K4.3May 7, 2018
4.5
 
Supplemental Indenture, dated as of May 9, 2018, between the Guarantors and Wells Fargo Bank, National Association, as Trustee.
 8-K4.1May 11, 2018
10.1
 
Purchase Agreement, dated April 19, 2018, by and among Apergy Corporation and J.P. Morgan Securities LLC, for itself and on behalf of the several initial purchasers named therein.
 8-K10.1April 25, 2018
10.2
 
Escrow Agreement, dated May 3, 2018, by and among Wells Fargo Bank, National Association, Apergy Corporation and JPMorgan Chase Bank, N.A.
 8-K10.1May 7, 2018
10.3
 
Employee Matters Agreement, dated May 9, 2018, by and between Dover Corporation and Apergy Corporation.
 8-K10.1May 11, 2018
10.4
 
Tax Matters Agreement, dated May 9, 2018, by and between Dover Corporation and Apergy Corporation.
 8-K10.2May 11, 2018
10.5
 
Transition Services Agreement, dated May 9, 2018, by and between Dover Corporation and Apergy Corporation.
 8-K10.3May 11, 2018
10.6
 
Credit Agreement, dated May 9, 2018, among Apergy Corporation, as borrower, the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
 8-K10.4May 11, 2018
10.7
 
Apergy Corporation 2018 Equity and Cash Incentive Plan.
 8-K10.5May 11, 2018
10.8
 
Apergy Corporation Executive Officer Annual Incentive Plan.
 8-K10.6May 11, 2018
10.9
 
Apergy USA, Inc. Executive Deferred Compensation Plan.
 8-K10.7May 11, 2018
10.10
 
Apergy Corporation Executive Severance Plan.
 8-K10.8May 11, 2018
10.11
 
Apergy Corporation Senior Executive Change-in-Control Severance Plan.
 8-K10.9May 11, 2018
10.12
 
Form of award grant letter for restricted stock unit awards made under the Apergy Corporation 2018 Equity and Cash Incentive Plan.
 8-K10.10May 11, 2018
10.13
 
Form of award grant letter for performance share awards made under the Apergy Corporation 2018 Equity and Cash Incentive Plan.
 8-K10.11May 11, 2018
31.1*
 
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
    
31.2*
 
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
    

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31.2**
 
Certification of Chief Executive Officer Under Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
    
32.2**
 
Certification of Chief Financial Officer Under Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
    
99.1
 
Information Statement of Apergy Corporation, dated April 11, 2018.
 1099.1April 12, 2018
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    
       
* Filed herewith    
** Furnished herewith    

34