Company Quick10K Filing
Quick10K
Tetra Technologies
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$2.65 126 $333
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2018-12-26 Officers, Exhibits
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-09-30 Officers
8-K 2018-09-10 Enter Agreement, Leave Agreement, Off-BS Arrangement, Shareholder Rights, Exhibits
8-K 2018-08-09 Earnings, Exhibits
8-K 2018-07-16 Officers
8-K 2018-07-13 Officers, Exhibits
8-K 2018-05-31 Regulation FD, Exhibits
8-K 2018-05-21 Regulation FD
8-K 2018-05-08 Earnings, Exhibits
8-K 2018-05-04 Officers, Shareholder Vote, Regulation FD, Exhibits
8-K 2018-04-27 Regulation FD, Exhibits
8-K 2018-02-28 Regulation FD, Other Events, Exhibits
8-K 2018-02-22 Officers
8-K 2018-02-13 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-02-08 Officers, Exhibits
COG Cabot Oil & Gas
CNX CNX Resources
CPE Callon Petroleum
BRY Berry Petroleum
LPI Life Partners Position Holder Trust
OMP Oasis Midstream Partners
SBR Sabine Royalty Trust
CHAP Chaparral Energy
AREX Approach Resources
GBR New Concept Energy
TTI 2018-09-30
Part I
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 a20180930ex311.htm
EX-31.2 a20180930ex312.htm
EX-32.1 a20180930ex321.htm
EX-32.2 a20180930ex322.htm

Tetra Technologies Earnings 2018-09-30

TTI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a20180930tti10q.htm 10-Q Document



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 SEPTEMBER 30, 2018
 
[  ] 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 1-13455
 

TETRA Technologies, Inc.
(Exact name of registrant as specified in its charter)

 
Delaware
74-2148293
(State of incorporation)
(I.R.S. Employer Identification No.)
 
 
24955 Interstate 45 North
 
The Woodlands, Texas
77380
(Address of principal executive offices)
(zip code)
 
(281) 367-1983
(Registrant’s telephone number, including area code)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ]  No [   ]
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ X ]  No [   ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer [ ] 
Accelerated filer [ X ] 
Non-accelerated filer [   ]
Smaller reporting company [   ]
Emerging growth company [ ]
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]  No [ X ]
 
As of November 8, 2018, there were 125,710,418 shares outstanding of the Company’s Common Stock, $0.01 par value per share.




TETRA Technologies, Inc. and Subsidiaries
Table of Contents
 
Page
PART I—FINANCIAL INFORMATION
 
 
 
 
PART II—OTHER INFORMATION
 









PART I
FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 

 
 

 
 
 
 
Product sales
$
102,070

 
$
72,566

 
$
285,136

 
$
226,724

Services
154,781

 
111,111

 
431,168

 
296,293

Total revenues
256,851

 
183,677

 
716,304

 
523,017

Cost of revenues:
 

 
 

 
 
 
 
Cost of product sales
81,817

 
49,999

 
228,146

 
161,348

Cost of services
101,304

 
67,437

 
283,224

 
193,931

Depreciation, amortization, and accretion
29,460

 
25,942

 
84,880

 
78,250

Impairments of long-lived assets
2,940

 

 
2,940

 

Insurance recoveries

 
(2,352
)
 

 
(2,352
)
Total cost of revenues
215,521

 
141,026

 
599,190

 
431,177

Gross profit
41,330

 
42,651

 
117,114

 
91,840

General and administrative expense
34,446

 
29,685

 
98,866

 
85,896

Interest expense, net
18,894

 
14,654

 
52,246

 
42,749

Warrants fair value adjustment (income) expense
(179
)
 
(47
)
 
22

 
(11,568
)
CCLP Series A Preferred Units fair value adjustment (income) expense
498

 
(1,137
)
 
1,344

 
(4,340
)
Litigation arbitration award income

 

 

 
(12,816
)
Other (income) expense, net
619

 
(425
)
 
7,203

 
811

Loss before taxes and discontinued operations
(12,948
)
 
(79
)
 
(42,567
)
 
(8,892
)
Provision (benefit) for income taxes
(96
)
 
778

 
3,474

 
4,176

Loss before discontinued operations
(12,852
)
 
(857
)
 
(46,041
)
 
(13,068
)
Discontinued operations:
 
 
 
 
 
 
 
Income (loss) from discontinued operations (including 2018 loss on disposal of $33.8 million), net of taxes
796

 
(481
)
 
(40,931
)
 
(14,141
)
Net loss
(12,056
)
 
(1,338
)
 
(86,972
)
 
(27,209
)
Loss attributable to noncontrolling interest
5,120

 
4,483

 
20,423

 
16,900

Income (loss) attributable to TETRA stockholders
$
(6,936
)
 
$
3,145

 
$
(66,549
)
 
$
(10,309
)
Basic net income (loss) per common share:
 

 
 
 
 
 
 
Income (loss) before discontinued operations attributable to TETRA stockholders
$
(0.06
)
 
$
0.03

 
$
(0.21
)
 
$
0.03

Income (loss) from discontinued operations attributable to TETRA stockholders
$
0.00

 
$
0.00

 
$
(0.33
)
 
$
(0.12
)
Net income (loss) attributable to TETRA stockholders
$
(0.06
)
 
$
0.03

 
$
(0.54
)
 
$
(0.09
)
Average shares outstanding
125,689

 
114,563

 
123,557

 
114,375

Diluted net income (loss) per common share:
 

 
 

 
 
 
 
Income (loss) before discontinued operations attributable to TETRA stockholders
$
(0.06
)
 
$
0.03

 
$
(0.21
)
 
$
0.03

Income (loss) from discontinued operations attributable to TETRA stockholders
$
0.00

 
$
0.00

 
$
(0.33
)
 
$
(0.12
)
Net income (loss) attributable to TETRA stockholders
$
(0.06
)
 
$
0.03

 
$
(0.54
)
 
$
(0.09
)
Average diluted shares outstanding
125,689

 
114,569

 
123,557

 
114,375

See Notes to Consolidated Financial Statements

1


TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Net loss
$
(12,056
)
 
$
(1,338
)
 
$
(86,972
)
 
$
(27,209
)
Foreign currency translation adjustment
(581
)
 
2,620

 
(8,547
)
 
7,781

Comprehensive income (loss)
(12,637
)
 
1,282

 
(95,519
)
 
(19,428
)
Comprehensive income (loss) attributable to noncontrolling interest
5,025

 
4,670

 
22,467

 
17,271

Comprehensive income (loss) attributable to TETRA stockholders
$
(7,612
)
 
$
5,952

 
$
(73,052
)
 
$
(2,157
)
 

See Notes to Consolidated Financial Statements

2


TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
 
 
September 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 

ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
53,899

 
$
26,128

Restricted cash
69

 
261

Trade accounts receivable, net of allowances of $2,193 in 2018 and $1,286 in 2017
188,830

 
144,051

Inventories
150,638

 
115,438

Assets of discontinued operations
1,301

 
34,879

Prepaid expenses and other current assets
19,725

 
17,597

Total current assets
414,462

 
338,354

Property, plant, and equipment:
 

 
 

Land and building
78,764

 
78,559

Machinery and equipment
1,221,746

 
1,167,680

Automobiles and trucks
36,406

 
34,744

Chemical plants
188,072

 
186,790

Construction in progress
62,162

 
31,566

Total property, plant, and equipment
1,587,150

 
1,499,339

Less accumulated depreciation
(741,969
)
 
(689,907
)
Net property, plant, and equipment
845,181

 
809,432

Other assets:
 

 
 

Goodwill
22,197

 
6,636

Patents, trademarks and other intangible assets, net of accumulated amortization of $75,972 in 2018 and $71,114 in 2017
80,963

 
47,405

Deferred tax assets, net
10

 
10

Notes receivable
7,540

 
44

Long-term assets of discontinued operations

 
86,255

Other assets
21,886

 
20,478

Total other assets
132,596

 
160,828

Total assets
$
1,392,239

 
$
1,308,614

 

See Notes to Consolidated Financial Statements

3


TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
 
 
September 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Trade accounts payable
$
70,756

 
$
70,847

Unearned income
38,263

 
18,701

Accrued liabilities
69,867

 
58,478

Liabilities of discontinued operations
3,570

 
25,688

Total current liabilities
182,456

 
173,714

Long-term debt, net
822,905

 
629,855

Deferred income taxes
3,348

 
4,404

Asset retirement obligations
12,014

 
11,738

CCLP Series A Preferred Units
36,944

 
61,436

Warrants liability
13,224

 
13,202

Long-term liabilities of discontinued operations

 
48,225

Other liabilities
15,159

 
13,479

Total long-term liabilities
903,594

 
782,339

Commitments and contingencies
 

 
 

Equity:
 

 
 

TETRA stockholders' equity:
 

 
 

Common stock, par value $0.01 per share; 250,000,000 shares authorized at September 30, 2018 and December 31, 2017; 128,434,431 shares issued at September 30, 2018 and 118,515,797 shares issued at December 31, 2017
1,284

 
1,185

Additional paid-in capital
459,123

 
425,648

Treasury stock, at cost; 2,710,581 shares held at September 30, 2018, and 2,638,093 shares held at December 31, 2017
(18,936
)
 
(18,651
)
Accumulated other comprehensive income (loss)
(50,270
)
 
(43,767
)
Retained earnings (deficit)
(222,884
)
 
(156,335
)
Total TETRA stockholders' equity
168,317

 
208,080

Noncontrolling interests
137,872

 
144,481

Total equity
306,189

 
352,561

Total liabilities and equity
$
1,392,239

 
$
1,308,614

 

See Notes to Consolidated Financial Statements

4


TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited) 
 
Nine Months Ended September 30,
 
2018
 
2017
Operating activities:
 

 
 

Net loss
$
(86,972
)
 
$
(27,209
)
Reconciliation of net loss to cash provided by operating activities:
 
 
 
Depreciation, amortization, and accretion
86,965

 
87,298

Impairment of long-lived assets
2,940

 

Benefit for deferred income taxes
(837
)
 
(431
)
Equity-based compensation expense
5,692

 
7,242

Provision for doubtful accounts
1,566

 
1,333

Non-cash loss on disposition of business
32,369

 

Amortization of deferred financing costs
3,188

 
3,491

Insurance recoveries associated with damaged equipment

 
(2,352
)
Debt financing cost expense
398

 

CCLP Series A Preferred accrued paid in kind distributions
3,933

 
5,606

CCLP Series A Preferred fair value adjustment
1,344

 
(4,340
)
Warrants fair value adjustment
22

 
(11,568
)
Contingent consideration liability fair value adjustment
3,700

 

Expense for unamortized finance costs and other non-cash charges and credits
3,919

 
(221
)
Gain on sale of assets
(454
)
 
(605
)
Changes in operating assets and liabilities:
 

 
 

Accounts receivable
(7,708
)
 
(34,187
)
Inventories
(35,920
)
 
(13,394
)
Prepaid expenses and other current assets
(2,995
)
 
(1,659
)
Trade accounts payable and accrued expenses
(6,776
)
 
28,368

Decommissioning liabilities

 
(550
)
Other
(2,741
)
 
12

Net cash provided by operating activities
1,633

 
36,834

Investing activities:
 

 
 

Purchases of property, plant, and equipment, net
(107,080
)
 
(28,587
)
Acquisition of businesses, net of cash acquired
(42,002
)
 

Proceeds from disposal of business
3,121

 

Proceeds on sale of property, plant, and equipment
774

 
786

Insurance recoveries associated with damaged equipment

 
2,352

Other investing activities
(293
)
 
(6,175
)
Net cash used in investing activities
(145,480
)
 
(31,624
)
Financing activities:
 

 
 

Proceeds from long-term debt
747,887

 
297,100

Principal payments on long-term debt
(544,962
)
 
(301,250
)
CCLP distributions
(13,928
)
 
(14,815
)
Proceeds from exercise of stock options
251

 

Tax remittances on equity based compensation
(708
)
 
(624
)
Debt issuance costs
(17,932
)
 
(1,573
)
Net cash provided by (used in) financing activities
170,608

 
(21,162
)
Effect of exchange rate changes on cash
818

 
533

Increase (decrease) in cash and cash equivalents
27,579

 
(15,419
)
Cash and cash equivalents and restricted cash at beginning of period
26,389

 
36,531

Cash and cash equivalents and restricted cash at end of period
$
53,968

 
$
21,112

 
 
 
 
 
 
 
 
Supplemental cash flow information:
 

 
 
Interest paid
$
24,651

 
$
39,919

Income taxes paid
3,954

 
5,217

See Notes to Consolidated Financial Statements

5


TETRA Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE A – ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES

Organization 

We are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, water management, frac flowback, production well testing and offshore rig cooling services, and compression services and equipment. We were incorporated in Delaware in 1981. Following the acquisition and disposition transactions that closed during the three month period ended March 31, 2018, we reorganized our reporting segments and are now composed of three divisions – Completion Fluids & Products, Water & Flowback Services, and Compression. Unless the context requires otherwise, when we refer to “we,” “us,” and “our,” we are describing TETRA Technologies, Inc. and its consolidated subsidiaries on a consolidated basis.

Presentation  

Our unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. Operating results for the period ended September 30, 2018 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2018.

We consolidate the financial statements of CSI Compressco LP and its subsidiaries ("CCLP") as part of our Compression Division, as we determined that CCLP is a variable interest entity and we are the primary beneficiary. We control the financial interests of CCLP and have the ability to direct the activities of CCLP that most significantly impact its economic performance through our ownership of its general partner. The share of CCLP net assets and earnings that is not owned by us is presented as noncontrolling interest in our consolidated financial statements. Our cash flows from our investment in CCLP are limited to the quarterly distributions we receive on our CCLP common units and general partner interest (including incentive distribution rights) and the amounts collected for services we perform on behalf of CCLP, as TETRA's capital structure and CCLP's capital structure are separate, and do not include cross default provisions, cross collateralization provisions, or cross guarantees.
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission ("SEC") and do not include all information and footnotes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2017, and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March 5, 2018.

Use of Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could be material.

Reclassifications

Certain previously reported financial information has been reclassified to conform to the current period’s presentation. For a discussion of the reclassification of the financial presentation of our Offshore Division as discontinued operations, see Note E - "Discontinued Operations."

Cash Equivalents
 
We consider all highly liquid cash investments with a maturity of three months or less when purchased to be cash equivalents.

6


 
Restricted Cash
 
Restricted cash is classified as a current asset when it is expected to be repaid or settled in the next twelve month period.

Inventories

Inventories are stated at the lower of cost or net realizable value. Except for work in progress inventory, cost is determined using the weighted average method. The cost of work in progress is determined using the specific identification method.

Impairments of Long-Lived Assets
 
Impairments of long-lived assets, including identified intangible assets, are determined periodically when indicators of impairment are present. If such indicators are present, the determination of the amount of impairment is based on our judgments as to the future undiscounted operating cash flows to be generated from these assets throughout their remaining estimated useful lives. If these undiscounted cash flows are less than the carrying amount of the related asset, an impairment is recognized for the excess of the carrying value over its fair value.

During the three month period ended September 30, 2018, as a result of decreased expected future cash flows from a specific customer contract, we recorded a long-lived asset impairment of $2.9 million of an identified intangible asset.
 
Foreign Currency Translation
 
We have designated the euro, the British pound, the Norwegian krone, the Canadian dollar, the Brazilian real, and the Mexican peso as the functional currencies for our operations in Finland and Sweden, the United Kingdom, Norway, Canada, Brazil, and certain of our operations in Mexico, respectively. The U.S. dollar is the designated functional currency for all of our other foreign operations. The cumulative translation effects of translating the applicable accounts from the functional currencies into the U.S. dollar at current exchange rates are included as a separate component of equity. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $0.4 million and $0.1 million during the three and nine month periods ended September 30, 2018 and $0.3 million and $1.5 million during the three and nine month periods ended September 30, 2017, respectively.

On June 30, 2018, we determined the economy in Argentina to be highly inflationary. As a result of this determination and in accordance with U.S. GAAP, on July 1, 2018, the functional currency of our operations in Argentina was changed from the Argentine peso to the U.S. dollar. The remeasurement did not have a material impact on our consolidated financial position or results of operations.

Income Taxes

Our consolidated provision for income taxes is primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the three month period ended September 30, 2018 was 0.7%. Our consolidated effective tax rate for the nine month period ended September 30, 2018 of negative 8.2% was primarily the result of losses generated in entities for which no related tax benefit has been recorded. The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.

The Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted on December 22, 2017. At September 30, 2018 and December 31, 2017, we had not completed our accounting for the tax effects of enactment of the Tax Reform Act; however, in certain cases, as described below, we made reasonable estimates of the effects and recorded provisional amounts. We will continue to make and refine our calculations as additional analysis is completed. The accounting for the tax effects of the Tax Reform Act will be completed in 2018 as provided by the SEC’s Staff Accounting Bulletin ("SAB") No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act

7


("SAB 118"). We recognized an income tax expense of $54.1 million in the fourth quarter of 2017 associated with the impact of the Tax Reform Act, which was fully offset by a decrease in the valuation allowance previously recorded on our net deferred tax assets. As such, the Tax Reform Act resulted in no net tax expense in the fourth quarter of 2017. We have considered in our estimated annual effective tax rate for 2018, the impact of the statutory changes enacted by the Tax Reform Act, including reasonable estimates of those provisions effective for the 2018 tax year. Our estimate on Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion and Anti-Abuse Tax (“BEAT”), and IRC Section 163(j) interest limitation do not impact our effective tax rate for the three and nine month periods ended September 30, 2018.

Asset Retirement Obligations

We operate facilities in various U.S. and foreign locations that are used in the manufacture, storage, and sale of our products, inventories, and equipment. These facilities are a combination of owned and leased assets. We are required to take certain actions in connection with the retirement of these assets. The values of our asset retirement obligations for these properties were $12.0 million and $11.7 million as of September 30, 2018 and December 31, 2017, respectively. Asset retirement obligations are recorded in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 410, "Asset Retirement and Environmental Obligations," whereby the estimated fair value of a liability for asset retirement obligations is recognized in the period in which it is incurred and in which a reasonable estimate can be made. Such estimates are based on relevant assumptions that we believe are reasonable. We have reviewed our obligations in this regard in detail and estimated the cost of these actions. The associated asset retirement costs are capitalized as part of the carrying amount of these long-lived assets and are depreciated on a straight-line basis over the life of the assets.

The changes in the values of our asset retirement obligations during the three and nine month period ended September 30, 2018, are as follows:
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
(In Thousands)
Beginning balance for the period, as reported
$
12,073

 
$
11,738

Activity in the period:
 
 
 
Accretion of liability
96

 
405

Revisions in estimated cash flows
(156
)
 
(130
)
Settlement of retirement obligations
(35
)
 
(35
)
Ending balance
$
12,014

 
$
12,014


We review the adequacy of our asset retirement obligation liabilities whenever indicators suggest that the estimated cash flows underlying the liabilities have changed.
 
Fair Value Measurements
  
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized on a recurring basis in the determination of the carrying values of the liabilities for the warrants to purchase 11.2 million shares of our common stock (the "Warrants") and the CCLP Preferred Units (as defined in Note G). We also utilize fair value measurements on a recurring basis in the accounting for our foreign currency derivative contracts. Refer to Note H - "Fair Value Measurements" for further discussion.

Fair value measurements are also utilized on a nonrecurring basis in certain circumstances, such as in the allocation of purchase consideration for acquisition transactions to the assets and liabilities acquired, including intangible assets and goodwill (a Level 3 fair value measurement), the initial recording of our asset retirement obligations, and for the impairment of long-lived assets, including goodwill (a Level 3 fair value measurement).

8



New Accounting Pronouncements

Standards adopted in 2018

In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers". This ASU supersedes the revenue recognition requirements in ASC 605, "Revenue Recognition," and most industry-specific guidance. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those years, under either full or modified retrospective adoption.

On January 1, 2018, we adopted ASU 2014-09 and all related amendments ("ASU 2014-09"). We utilized the modified retrospective method of adoption. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The core principle of ASU 2014-09 is that 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. ASU 2014-09 also provides a five-step model for determining revenue recognition for arrangements that are within the scope of the standard: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASU 2014-09, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for revenues, see Note L - "Revenue from Contracts with Customers".
The impact from the adoption of ASU 2014-09 to our January 1, 2018 consolidated balance sheet, our September 30, 2018 consolidated balance sheet, and our consolidated results of operations for the three and nine month periods ended September 30, 2018 was immaterial. The adoption of ASU 2014-09 had no impact to cash provided by operating, financing, or investing activities in our consolidated statement of cash flows. We do not expect the adoption of the new revenue standard to have a material impact to our net income on an ongoing basis.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" to reduce diversity in practice in classification of certain transactions in the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted, under a retrospective transition adoption. We adopted this ASU during the three month period ended March 31, 2018, with no impact to our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory," which requires companies to account for the income tax effects of intercompany transfers of assets other than inventory when the transfer occurs. We adopted this ASU during the three month period ended March 31, 2018. The adoption of this standard did not have a material impact to our consolidated financial statements.
Additionally, in November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. We adopted this ASU during the three month period ended March 31, 2018, resulting in restricted cash, if any, being classified with cash and cash equivalents in our consolidated statement of cash flows.
In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting" to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. We adopted this ASU during the three month period ended March 31, 2018, with no impact to our consolidated financial statements.

9


Standards not yet adopted

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" to increase comparability and transparency among different organizations. Organizations are required to recognize right-of-use lease assets and lease liabilities in the balance sheet related to the right to use the underlying asset for the lease term. In addition, through improved disclosure requirements, the ASU will enable users of financial statements to further understand the amount, timing, and uncertainty of cash flows arising from leases. The ASU is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. In July 2018, the FASB provided an additional transition method allowing for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. We plan to adopt Topic 842 on January 1, 2019 using the optional transition method. Comparative information will continue to be reported under the accounting standards that were in effect for those periods. We are continuing to assess other transition practical expedients available to us. We are currently evaluating our portfolio of real estate, vehicle, and equipment leases for consideration of the accounting impact. Lease data is being loaded into a software solution that will assist in the calculation of the impact on the consolidated balance sheet and facilitate the creation of disclosures. We are concurrently evaluating and developing internal policies necessary to implement the standard. Based on our preliminary assessment, upon adoption of the ASU, we will record significant right-to-use assets and lease obligations pursuant to the new requirements.
In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. The ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted, under a prospective adoption. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to align the measurement and classification guidance for share-based payments to nonemployees with the guidance currently applied to employees, with certain exceptions. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods, with early adoption permitted. We are currently assessing the potential effects of these changes to our consolidated financial statements and do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

NOTE B – INVENTORIES

Components of inventories as of September 30, 2018 and December 31, 2017 are as follows: 
 
September 30, 2018
 
December 31, 2017
 
(In Thousands)
Finished goods
$
67,926

 
$
66,377

Raw materials
3,740

 
4,027

Parts and supplies
45,671

 
33,632

Work in progress
33,301

 
11,402

Total inventories
$
150,638

 
$
115,438


Finished goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling. Work in progress inventory consists primarily of new compressor packages located in the CCLP fabrication facility in Midland, Texas.


10


NOTE C - NET INCOME (LOSS) PER SHARE

The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income (loss) per common and common equivalent share:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
 
(In Thousands)
Number of weighted average common shares outstanding
125,689

 
114,563

 
123,557

 
114,375

Assumed exercise of equity awards and warrants

 
6

 

 

Average diluted shares outstanding
125,689

 
114,569

 
123,557

 
114,375


For the three and nine month periods ended September 30, 2018 and nine month period ended September 30, 2017, the average diluted shares outstanding excludes the impact of all outstanding equity awards and warrants, as the inclusion of these shares would have been anti-dilutive due to the net losses recorded during the periods. In addition, for the three and nine month periods ended September 30, 2018 and September 30, 2017, the calculation of diluted earnings per common share excludes the impact of the CCLP Preferred Units (as defined in Note G), as the inclusion of the impact from conversion of the CCLP Preferred Units into CCLP common units would have been anti-dilutive.

NOTE D – ACQUISITIONS AND DISPOSITIONS

Acquisition of SwiftWater Energy Services

On February 28, 2018, pursuant to a purchase agreement dated February 13, 2018 (the "SwiftWater Purchase Agreement"), we purchased all of the equity interests in SwiftWater Energy Services, LLC ("SwiftWater"), which is engaged in the business of providing water management and water solutions to oil and gas operators in the Permian Basin market of Texas. Strategically, the acquisition of SwiftWater enhances our position as one of the leading integrated water management companies, providing water transfer, storage, and treatment services, along with proprietary automation technology and numerous other water-related services.

Under the terms of the SwiftWater Purchase Agreement, consideration of $42.0 million of cash, subject to a working capital adjustment, and 7,772,021 shares of our common stock (valued at $28.2 million) were paid at closing. Subsequent to closing, in August 2018, a working capital adjustment of approximately $1.0 million was paid. The sellers will also have the right to receive contingent consideration payments, in an aggregate amount of up to $15.0 million, calculated on EBITDA and revenue (each as defined in the SwiftWater Purchase Agreement) of the water management business of SwiftWater and all of our pre-existing operations in the Permian Basin in respect of the period from January 1, 2018 through December 31, 2019. The contingent consideration may be paid in cash or shares of our common stock, at our election.

As of September 30, 2018, our allocation of the SwiftWater purchase price is as follows (in thousands):

Current assets
$
16,880

Property and equipment
11,631

Intangible assets
41,960

Goodwill
15,560

Total assets acquired
86,031

 
 
Current liabilities
7,189

Total liabilities assumed
7,189

Net assets acquired
$
78,842


The above allocation of the purchase price to the SwiftWater net tangible assets and liabilities considers approximately $7.6 million of the initial estimated fair value for the liabilities associated with the contingent purchase

11


price consideration. The fair value of the obligation to pay the contingent purchase price consideration was calculated based on the anticipated EBITDA and revenue as of the closing date for the operations of SwiftWater and our pre-existing operations in the Permian Basin and could increase (to $15.0 million) or decrease (to $0) depending on the actual earnings from these operations going forward. Increases or decreases in the value of the anticipated contingent purchase price consideration liability due to changes in the amounts paid or expected to be paid will be charged or credited to earnings in the period in which such changes occur. During the period from the closing date to September 30, 2018, the estimated fair value for the liabilities associated with the contingent purchase price consideration increased to $11.3 million, resulting in $(0.6) million and $3.7 million being (credited) charged to other (income) expense, net, during the three and nine month periods ended September 30, 2018, respectively.

The allocation of the purchase price to the SwiftWater net tangible assets and liabilities and identifiable intangible assets, as well as the initial estimated fair value for the liabilities associated with the contingent purchase price consideration, as of February 28, 2018, is final and adjustments to the purchase price allocation have been reflected in the accompanying consolidated balance sheets as of September 30, 2018. The allocation of purchase price includes approximately $15.6 million of deductible goodwill allocated to our Water & Flowback Services segment, and is supported by the strategic benefits discussed above and expected to be generated from the acquisition. The acquired property and equipment is stated at fair value, and depreciation on the acquired property and equipment is computed using the straight-line method over the estimated useful lives of each asset. Machinery and equipment is depreciated using useful lives of 3 to 15 years and automobiles and trucks are depreciated using useful lives of 3 to 4 years. The acquired intangible assets include $3.3 million for the trademark/tradename, $37.2 million for customer relationships, and $1.5 million of other intangible assets that are stated at estimated fair value and are amortized on a straight-line basis over their estimated useful lives, ranging from 5 to 16 years. These identified intangible assets are recorded net of $1.7 million of accumulated amortization as of September 30, 2018.

Subsequent to the February 28, 2018 acquisition closing date, we have continued to integrate the acquired SwiftWater operations into our existing Water & Flowback Services Division in the Permian Basin in order to better serve our customers through seamless combined service offerings. With the addition of SwiftWater services, such as water treatment, we are now able to offer integrated water management services to both TETRA and SwiftWater customers that would have not been possible prior to the acquisition. Moreover, services performed for certain pre-acquisition SwiftWater customers have utilized TETRA employees and equipment. Similarly, certain pre-SwiftWater acquisition TETRA customers have utilized SwiftWater employees, equipment, and services. We have also added to SwiftWater's fleet of operating equipment through additional capital expenditures. As a result of the combined operations, the distinction of the revenue originating from SwiftWater versus TETRA is a subjective estimate. Due to these limitations, we have considered the $65.0 million of revenues for services performed for pre-acquisition SwiftWater customers subsequent to the closing on February 28, 2018 as the estimate of the impact from the SwiftWater acquisition on our consolidated revenues for the nine month period ended September 30, 2018.

As a result of our focus since the date of the acquisition on integrating and managing SwiftWater services with our pre-existing operations in the Permian Basin, quantifying the financial impact on our consolidated earnings of the operations specific to SwiftWater is impracticable. SwiftWater acquisition-related costs of approximately $0.4 million were incurred during the nine month period ended September 30, 2018, consisting of external legal fees, transaction consulting fees, and due diligence costs. These costs have been recognized in general and administrative expenses in the consolidated statement of operations.

The pro forma information presented below has been prepared to give effect to the SwiftWater acquisition as if the transaction had occurred at the beginning of the periods presented. The pro forma information includes the impact from the allocation of the acquisition purchase price on depreciation and amortization. The pro forma information also excludes the SwiftWater acquisition-related costs charged to earnings during the 2018 period. The pro forma information is presented for illustrative purposes only and is based on estimates and assumptions we deemed appropriate. The following pro forma information is not necessarily indicative of the historical results that would have been achieved if the acquisition transaction had occurred in the past, and our operating results may have been different from those reflected in the pro forma information below. Therefore, the pro forma information should not be relied upon as an indication of the operating results that we would have achieved if the transaction had occurred at the beginning of the periods presented or the future results that we will achieve after the transaction.


12


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In Thousands)
Revenues
$
256,851

 
$
198,894

 
$
730,454

 
$
561,718

Depreciation, amortization, and accretion
$
29,460

 
$
27,307

 
$
85,857

 
$
82,256

Gross profit
$
41,330

 
$
46,335

 
$
120,586

 
$
100,837

 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
(12,852
)
 
$
1,255

 
$
(43,840
)
 
$
(8,028
)
Net income (loss) attributable to TETRA stockholders
$
(6,936
)
 
$
5,257

 
$
(64,348
)
 
$
(5,269
)
 
 
 
 
 
 
 
 

Sale of Offshore Division

On March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division. Pursuant to an Asset Purchase and Sale Agreement (the "Maritech Asset Purchase Agreement") with Orinoco Natural Resources, LLC ("Orinoco"), Orinoco purchased certain remaining offshore oil, gas and mineral leases and related assets of Maritech (the "Maritech Properties"). Immediately thereafter, we closed the transactions contemplated by a Membership Interest Purchase and Sale Agreement (the "Maritech Equity Purchase Agreement") with Orinoco, whereby Orinoco purchased all of the equity interests of Maritech (the "Maritech Equity Interests"). Immediately thereafter, we closed the transactions contemplated by an Equity Interest Purchase Agreement (the "Offshore Services Purchase Agreement") with Epic Offshore Specialty, LLC, an affiliate of Orinoco ("Epic Offshore"), whereby Epic Offshore (the "Offshore Services Sale") purchased all of the equity interests in the wholly owned subsidiaries that comprised our Offshore Services segment operations (the "Offshore Services Equity Interests").
 
Under the terms of the Maritech Asset Purchase Agreement, the Maritech Equity Purchase Agreement, and the Offshore Services Purchase Agreement, the consideration delivered by Orinoco and Epic Offshore for the Maritech Properties, the Maritech Equity Interests and the Offshore Services Equity Interests consisted of (i) the assumption by Orinoco of substantially all of the liabilities and obligations relating to the ownership, operation and condition of the Maritech Properties and the provision of certain indemnities by Orinoco to us under the Maritech Asset Purchase Agreement, (ii) the assumption by Orinoco of substantially all of the liabilities of Maritech and the provision of certain indemnities by Orinoco under the Maritech Equity Purchase Agreement, (iii) the assumption by Epic Offshore of substantially all of the liabilities of the Offshore Services Equity Interests relating to the periods following the closing of the Offshore Services Sale and the provision of certain indemnities by Epic Offshore under the Offshore Services Purchase Agreement, (iv) cash in the amount $3.1 million, (v) a promissory note in the original principal amount of $7.5 million payable by Epic Offshore to us in full, together with interest at a rate of 1.52% per annum, on December 31, 2019, (vi) performance by Orinoco under a Bonding Agreement executed in connection with the Maritech Asset Purchase Agreement and the Maritech Equity Purchase Agreement whereby Orinoco provided at closing non-revocable performance bonds in an amount equal to $46.8 million to cover the performance by Orinoco and Maritech of the asset retirement obligations of Maritech, and (vii) the delivery of a personal guaranty agreement from Thomas M. Clarke and Ana M. Clarke guaranteeing the payment obligations of Orinoco under the Bonding Agreement (collectively, the "Transaction Consideration"). Pursuant to the Bonding Agreement, Orinoco is required to replace, within 90 days following the closing, the initial bonds delivered at closing with non-revocable performance bonds, meeting certain requirements, in the aggregate sum of $47.0 million. Orinoco has not delivered such replacement bonds and we are seeking to enforce the terms of the Bonding Agreement. The non-revocable performance bonds delivered at the closing remain in effect.

As a result of these transactions, we have effectively exited the businesses of our Offshore Services and Maritech segments, and these operations are reflected as discontinued operations in our consolidated financial statements. See Note E - "Discontinued Operations" for further discussion. Our consolidated pre-tax results of operations for the nine month period ending September 30, 2018 included a loss on the disposal of our Offshore Division of $33.8 million, net of tax, including transaction costs of $1.4 million.


13


NOTE E – DISCONTINUED OPERATIONS

As discussed in Note D - "Acquisitions and Dispositions," on March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division. As a result, we have accounted for our Offshore Division, consisting of our Offshore Services and Maritech segments, as discontinued operations and have revised prior period financial statements to exclude these businesses from continuing operations. A summary of financial information related to our discontinued operations is as follows:

Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations
(in thousands)
 
Three Months Ended 
 September 30, 2018
 
Three Months Ended 
 September 30, 2017
 
Offshore Services
 
Maritech
 
Total
 
Offshore Services
 
Maritech
 
Total
Major classes of line items constituting pretax loss from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Revenue
$

 
$

 
$

 
$
32,667

 
$
21

 
$
32,688

Cost of revenues
125

 

 
125

 
28,190

 
386

 
28,576

Depreciation, amortization, and accretion

 

 

 
2,886

 
372

 
3,258

General and administrative expense
192

 

 
192

 
1,345

 
177

 
1,522

Other (income) expense, net
(1,113
)
 

 
(1,113
)
 
(206
)
 

 
(206
)
Pretax income (loss) from discontinued operations
796

 

 
796

 
452

 
(914
)
 
(462
)
Income tax expense
 
 
 
 

 
 
 
 
 
19

Total income (loss) from discontinued operations
 
 
 
 
$
796

 
 
 
 
 
$
(481
)
 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
 
Offshore Services
 
Maritech
 
Total
 
Offshore Services
 
Maritech
 
Total
Major classes of line items constituting pretax loss from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
4,487

 
$
187

 
$
4,674

 
$
69,290

 
$
427

 
$
69,717

Cost of revenues
11,013

 
139

 
11,152

 
66,862

 
987

 
67,849

Depreciation, amortization, and accretion
1,873

 
212

 
2,085

 
7,932

 
1,115

 
9,047

General and administrative expense
1,729

 
187

 
1,916

 
4,408

 
588

 
4,996

Other (income) expense, net
(1,035
)
 

 
(1,035
)
 
2,417

 
(565
)
 
1,852

Pretax loss from discontinued operations
(9,093
)
 
(351
)
 
(9,444
)
 
(12,329
)
 
(1,698
)
 
(14,027
)
Pretax loss on disposal of discontinued operations
 
 
 
 
(33,813
)
 

 

 

Total pretax loss from discontinued operations
 
 
 
 
(43,257
)
 
 
 
 
 
(14,027
)
Income tax (benefit) expense
 
 
 
 
(2,326
)
 
 
 
 
 
114

Total loss from discontinued operations
 
 
 
 
$
(40,931
)
 
 
 
 
 
$
(14,141
)



14





Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)
 
September 30, 2018
 
December 31, 2017
 
Offshore Services
 
Maritech
 
Total
 
Offshore Services
 
Maritech
 
Total
Carrying amounts of major classes of assets included as part of discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Trade receivables
$
(53
)
 
$
1,341

 
$
1,288

 
$
27,385

 
$
1,542

 
$
28,927

Inventories

 

 

 
4,616

 

 
4,616

Other Current Assets
13

 

 
13

 
1,292

 
44

 
1,336

Current assets of discontinued operations
(40
)
 
1,341

 
1,301

 
33,293

 
1,586

 
34,879

Property, plant, and equipment

 

 

 
85,873

 

 
85,873

Other assets

 

 

 
382

 

 
382

Long-term assets of discontinued operations
$

 
$

 
$

 
$
86,255

 
$

 
$
86,255

Total major classes of assets of the discontinued operations
$
(40
)
 
$
1,341

 
$
1,301

 
$
119,548

 
$
1,586

 
$
121,134

 
 
 
 
 
 
 
 
 
 
 
 
Carrying amounts of major classes of liabilities included as part of discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Trade payables

 

 

 
13,942

 
87

 
14,029

Accrued liabilities
1,495

 
2,075

 
3,570

 
8,904

 
2,278

 
11,182

Current portion of decommissioning liability

 

 

 

 
477

 
477

Current liabilities of discontinued operations
1,495

 
2,075

 
3,570

 
22,846

 
2,842

 
25,688

Decommissioning and other asset retirement obligations

 

 

 

 
46,185

 
46,185

Other liabilities

 

 

 
2,040

 

 
2,040

Long-term liabilities of discontinued operations

 

 

 
2,040

 
46,185

 
48,225

Total major classes of liabilities of the discontinued operations
$
1,495

 
$
2,075

 
$
3,570

 
$
24,886

 
$
49,027

 
$
73,913



15



NOTE F – LONG-TERM DEBT AND OTHER BORROWINGS
 
We believe our capital structure, excluding CCLP, ("TETRA") and CCLP's capital structure should be considered separately, as there are no cross default provisions, cross collateralization provisions, or cross guarantees between CCLP's debt and TETRA's debt.

Consolidated long-term debt as of September 30, 2018 and December 31, 2017, consists of the following:
 
 
 
September 30, 2018
 
December 31, 2017
 
 
 
(In Thousands)
TETRA
 
Scheduled Maturity
 
 
 
Asset-based credit agreement (presented net of unamortized deferred financing costs of $1.7 million as of September 30, 2018)
 
September 10, 2023
$
8,301

 
$

Term credit agreement (presented net of the unamortized discount of $7.4 million as of September 30, 2018 and net of unamortized deferred financing costs of $10.5 million as of September 30, 2018)
 
September 10, 2025
182,124

 

Bank revolving line of credit facility, terminated September 10, 2018
 


 

11.0% Senior Note, Series 2015 (presented net of the unamortized discount of $3.9 million as of December 31, 2017 and net of unamortized deferred financing costs of $3.4 million as of December 31, 2017), terminated September 10, 2018
 


 
117,679

TETRA total debt
 
 
190,425

 
117,679

Less current portion
 
 

 

TETRA total long-term debt
 
 
$
190,425

 
$
117,679

 
 
 
 
 
 
CCLP
 
 
 
 
 
CCLP Bank Credit Facility (presented net of the unamortized deferred financing costs of $4.0 million as of December 31, 2017), terminated March 22, 2018
 


 
223,985

CCLP New Credit Agreement
 
June 29, 2023

 

CCLP 7.25% Senior Notes (presented net of the unamortized discount of $2.4 million as of September 30, 2018 and $2.8 million as of December 31, 2017 and net of unamortized deferred financing costs of $4.2 million as of September 30, 2018 and $5.0 million as of December 31, 2017)
 
August 15, 2022
289,391

 
288,191

CCLP 7.50% Senior Secured Notes (presented net of unamortized deferred financing costs of $6.9 million as of September 30, 2018)
 
April 1, 2025
343,089

 

CCLP total debt
 
 
632,480

 
512,176

Less current portion
 
 

 

Consolidated total long-term debt
 
 
$
822,905

 
$
629,855


As of September 30, 2018, TETRA had a $10.0 million outstanding balance and $6.1 million in letters of credit against its ABL Credit Agreement (as defined below). As of September 30, 2018, subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings, TETRA had an availability of $47.4 million under this agreement. There was no balance outstanding under the CCLP New Credit Agreement (as defined below) as of September 30, 2018. As of September 30, 2018, and subject to compliance

16


with the covenants, borrowing base, and other provisions of the agreements that may limit borrowings under the CCLP New Credit Agreement, CCLP had availability of $23.3 million.

As described below, TETRA and CCLP are both in compliance with all covenants of their respective credit and senior note agreements as of September 30, 2018.
    
TETRA Long-Term Debt

Asset-Based Credit Agreement

On September 10, 2018, TETRA, as borrower, and certain of its subsidiaries, as loan parties and guarantors, entered into an asset-based lending Credit Agreement (the “ABL Credit Agreement”) with a syndicate of lenders, including JPMorgan Chase Bank, N.A., as administrative agent (collectively, the "ABL Lenders"). The ABL Credit Agreement provides for a senior secured revolving credit facility of up to $100 million, subject to a borrowing base to be determined by reference to the value of TETRA’s and any other borrowers’ inventory and accounts receivable, and contains within the facility a letter of credit sublimit of $20.0 million and a swingline loan sublimit of $10.0 million.

Borrowings under the ABL Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) London InterBank Offering Rate (“LIBOR”) (adjusted to reflect any required bank reserves) for an interest period equal to one, two, three or six months (as selected by TETRA) plus a margin based upon a fixed charge coverage ratio or (ii) a base rate plus a margin based on a fixed charge coverage ratio. The base rate is determined by reference to the highest of (a) the prime rate of interest as announced from time to time by JPMorgan Chase Bank, N.A. (b) the Federal Funds Effective Rate (as defined in the ABL Credit Agreement) plus 0.5% per annum and (c) LIBOR (adjusted to reflect any required bank reserves) for a one-month period on such day plus 1.0% per annum. Initially, from September 10, 2018 until the delivery of the financial statements for the fiscal quarter ending September 30, 2018, LIBOR-based loans have an applicable margin of 2.00% per annum and base-rate loans have an applicable margin of 1.0% per annum. Thereafter, the applicable margin will range between 1.75% and 2.25% per annum for LIBOR-based loans and 0.75% to 1.25% per annum for base-rate loans, based upon the applicable fixed charge coverage ratio. In addition to paying interest on the outstanding principal under the ABL Credit Agreement, TETRA is required to pay a commitment fee in respect of the unutilized commitments at an applicable rate ranging from 0.375% to 0.5% per annum, paid monthly in arrears based on utilization of the commitments under the ABL Credit Agreement. TETRA will also be required to pay a customary letter of credit fee equal to the applicable margin on LIBOR-based loans and fronting fees.

The revolving loans under the ABL Credit Agreement may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to applicable breakage fees. The maturity date of the ABL Facility is September 10, 2023.

The ABL Credit Agreement contains certain affirmative and negative covenants, including covenants that restrict the ability of TETRA and certain of its subsidiaries to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, engaging in mergers and other fundamental changes, the making of investments, entering into transactions with affiliates, the payment of dividends and other restricted payments, the prepayment of other indebtedness, and the sale of assets. The ABL Credit Agreement also contains a provision that may require a fixed charge coverage ratio (as defined in the ABL Credit Agreement) of not less than 1.00 to 1.00 in the event that certain conditions associated with outstanding borrowings and cash availability occur. As of September 30, 2018, such conditions have not occurred. All obligations under the ABL Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a security interest for the benefit of the ABL Lenders on substantially all of the personal property of TETRA and certain of its subsidiaries, the equity interests in certain domestic subsidiaries, including CCLP, and a maximum of 65% of the equity interests issued by certain foreign subsidiaries.

The ABL Credit Agreement includes customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross-default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of security interests or invalidity of loan documents, certain ERISA events, unsatisfied or unstayed judgments, and change of control.

Proceeds of loans under the ABL Credit Agreement were used to pay certain debt of TETRA existing on the effective date of the ABL Credit Agreement and may be used for working capital needs, capital expenditures, and

17


other general corporate purposes, including acquisitions. The ABL Credit Agreement replaced TETRA's previous Bank Credit Agreement, as defined and discussed in further detail below. In connection with the execution of the ABL Credit Agreement, $1.3 million of financing costs were incurred, and deferred against the carrying value of the amount outstanding.

Term Credit Agreement

On September 10, 2018, TETRA, as borrower, entered into a credit agreement (the “Term Credit Agreement”) with a syndicate of lenders (collectively, the “Term Lenders”) and Wilmington Trust, National Association, as administrative agent. The Term Credit Agreement provides an initial loan in the amount of $200 million (the “Initial Term Loan”) and the availability of additional loans, subject to the terms of the Term Credit Agreement, up to an aggregate amount of $75 million (the “Additional Term Loans,” and together with the Initial Term Loan, the “Term Loan”).

Borrowings under the Term Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) LIBOR (adjusted to reflect any required bank reserves) for an interest period equal to one, three or six months (as selected by TETRA) plus a margin of 6.25% per annum or (ii) a base rate plus a margin of 5.25% per annum. The base rate is determined by reference to the highest of (a) the rate of interest as set forth in the print edition of The Wall Street Journal as the base rate on corporate loans posted by at least 70% of the largest U.S. banks announced from time to time by The Wall Street Journal as its prime rate, (b) the Federal Funds Rate (as defined in the Term Credit Agreement) plus 0.5% per annum and (c) LIBOR (adjusted to reflect any required bank reserves) for a one-month period on such day plus 1.0% per annum. In addition to paying interest on the outstanding principal under the Term Credit Agreement, TETRA is required to pay a commitment fee in respect of the unutilized commitments at the rate of 1.0% per annum, paid quarterly in arrears based on utilization of the commitments under the Term Credit Agreement.

The Term Credit Agreement contains certain affirmative and negative covenants, including covenants that restrict the ability of TETRA and certain of its subsidiaries to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, engaging in mergers and other fundamental changes, the making of investments, entering into transactions with affiliates, the payment of dividends and other restricted payments, the prepayment of other indebtedness, and the sale of assets. The Term Credit Agreement also contains a requirement that the borrowers comply at the end of each fiscal quarter with a minimum Interest Coverage Ratio (as defined in the Term Credit Agreement) of 1.00 to 1.00. As of September 30, 2018, TETRA is in compliance with the Interest Coverage Ratio requirement.

All obligations under the Term Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a security interest for the benefit of the Term Lenders on substantially all of the personal property of TETRA and certain of its subsidiaries, the equity interests in certain domestic subsidiaries, including CCLP, and a maximum of 65% of the equity interests issued by certain foreign subsidiaries.

The Term Credit Agreement includes customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross-default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of security interests or invalidity of loan documents, certain ERISA events, unsatisfied or unstayed judgments and change of control.

Proceeds from the Initial Term Loan, net of a 2% discount in the amount of $4.0 million, were used to prepay the outstanding indebtedness under the $125.0 million 11.00% Senior Secured Notes due November 5, 2022 (the “11.0% Senior Notes”) and indebtedness of TETRA under its existing Bank Credit Agreement. Proceeds of any Additional Term Loans may be used for acquisitions, subject to the terms of the Term Credit Agreement. The loans under the Term Credit Agreement may be voluntarily prepaid, in whole or in part, subject to applicable breakage fees. Any prepayment prior to the one-year anniversary is subject to a “make-whole” payment as set forth in the Term Credit Agreement. Thereafter, any prepayment during the period commencing after the one-year anniversary and ending on the two-year anniversary will have a premium of 3.0% and during the period commencing after the two-year anniversary and ending on the three-year anniversary, a premium of 1.0%. The maturity date of the Term Credit Agreement is September 10, 2025. There is no prepayment premium required after the third anniversary. In connection with the issuance of the Term Credit Agreement, TETRA incurred $1.0 million of financing costs, $0.4 million of which was charged to other (income) expense during the three months ended September 30, 2018 and $0.6 million of lender fees were deferred against the carrying value of the amount

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outstanding. These deferred financing costs, along with the 2% discount, are amortized over the term of the Term Credit Agreement.

Bank Credit Agreement

On September 10, 2018, in connection with the closing of the above-described loans, TETRA repaid all outstanding borrowings and obligations under its then existing Credit Agreement dated as of January 27, 2006, as previously amended (the "Bank Credit Agreement") with a portion of the net proceeds from the above-described loans, and terminated the existing Bank Credit Agreement. As a result of the termination of the Bank Credit Agreement, during the three month period ended September 30, 2018, associated unamortized deferred financing costs of $0.5 million were charged to other (income) expense, net, and $0.4 million were deferred and will be amortized over the term of the ABL Credit Agreement. Certain ABL Lenders were lenders under the existing Bank Credit Agreement and, accordingly, received a portion of the proceeds from the above-described loans in connection with the repayment of the outstanding borrowings under the Bank Credit Agreement.

11% Senior Note

On September 10, 2018, in connection with the closing of the above-described loans, TETRA repaid all outstanding indebtedness under the 11% Senior Note with a portion of the proceeds from the above-described loans, terminating its obligations under the 11% Senior Note and related note purchase agreement. Affiliates of certain Term Lenders were holders of the 11% Senior Note and, accordingly, received a portion of the proceeds from the Term Credit Agreement in connection with the repayment of the outstanding indebtedness under the 11% Senior Note. In connection with the early termination of the 11% Senior Note, TETRA paid a $7.0 million "make-whole" prepayment fee in accordance with the terms of the 11% Senior Note. This prepayment fee, along with $3.4 million of unamortized discount and $2.9 million of unamortized deferred financing costs associated with the 11% Senior Note, has been deferred and is being amortized over the term of the new Term Credit Agreement.

CCLP Long-Term Debt    

CCLP Senior Secured Notes

On March 8, 2018, CCLP, and its wholly owned subsidiary, CSI Compressco Finance Inc. (together with CCLP, the "CCLP Issuers") entered into the Purchase Agreement (the “Purchase Agreement”) with Merrill Lynch, Pierce, Fenner & Smith Incorporated as representative of the initial purchasers listed in Schedule A thereto (collectively, the “Initial Purchasers”), pursuant to which the CCLP Issuers agreed to issue and sell to the Initial Purchasers $350 million aggregate principal amount of the CCLP Issuers’ 7.50% Senior Secured First Lien Notes due 2025 (the "CCLP Senior Secured Notes") (the "CCLP Offering") pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act").

The CCLP Issuers closed the Offering on March 22, 2018. The CCLP Senior Secured Notes were issued at par for net proceeds of approximately $342.7 million, after deducting certain financing costs. CCLP used a portion of the net proceeds to repay in full and terminate its existing CCLP Bank Credit Facility and plans to use the remainder for general partnership purposes, including the expansion of its compression fleet. The CCLP Senior Secured Notes are jointly and severally, and fully and unconditionally, guaranteed (the "Guarantees" and, together with the CCLP Senior Secured Notes, the "CCLP Senior Secured Note Securities") on a senior secured basis initially by each of CCLP's domestic restricted subsidiaries (other than CSI Compressco Finance Inc., certain immaterial subsidiaries and certain other excluded domestic subsidiaries) and are secured by a first-priority security interest in substantially all of the CCLP Issuers' and the Guarantors' assets (other than certain excluded assets) (the "Collateral") as collateral security for their obligations under the CCLP Senior Secured Notes, subject to certain permitted encumbrances and exceptions. On the closing date, CCLP entered into an indenture (the "Indenture") by and among the Obligors and U.S. Bank National Association, as trustee with respect to the Securities. The CCLP Senior Secured Notes accrue interest at a rate of 7.50% per annum. Interest on the CCLP Senior Secured Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning October 1, 2018. The CCLP Senior Secured Notes are scheduled to mature on April 1, 2025. During the nine months ended September 30, 2018, CCLP incurred total financing costs of $7.4 million related to the CCLP Senior Secured Notes. These costs are deferred, netting against the carrying value of the amount outstanding.


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On and after April 1, 2021, CCLP may redeem all or a part of the CCLP Senior Secured Notes, from time to time, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon to, but not including, the applicable redemption date, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the 12-month period beginning on April 1 of the years indicated below:

 
 
 
Date
 
Price
2021
 
105.625
%
2022
 
103.750
%
2023
 
101.875
%
2024
 
100.000
%

In addition, at any time and from time to time before April 1, 2021, CCLP may, at its option, redeem all or a portion of the CCLP Senior Secured Notes at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium (as defined in the Indenture) with respect to the CCLP Senior Secured Notes plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date, subject to the rights of holders of the CCLP Senior Secured Notes on the relevant record date to receive interest due on the relevant interest payment date.

Prior to April 1, 2021, CCLP may on one or more occasions redeem up to 35% of the principal amount of the CCLP Senior Secured Notes with an amount of cash not greater than the amount of the net cash proceeds from one or more equity offerings at a redemption price equal to 107.500% of the principal amount of the CCLP Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the date of redemption, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date, provided that (a) at least 65% of the aggregate principal amount of the CCLP Senior Secured Notes originally issued on the issue date (excluding notes held by CCLP and its subsidiaries) remains outstanding after each such redemption; and (b) the redemption occurs within 180 days after the date of the closing of the equity offering.
    
If CCLP experiences certain kinds of changes of control, each holder of the CCLP Senior Secured Notes will be entitled to require CCLP to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess of $2,000) of that holder’s CCLP Senior Secured Notes pursuant to an offer on the terms set forth in the Indenture. CCLP will offer to make a cash payment equal to 101% of the aggregate principal amount of the CCLP Senior Secured Notes repurchased plus accrued and unpaid interest, if any, on the CCLP Senior Secured Notes repurchased to the date of repurchase, subject to the rights of holders of the CCLP Senior Secured Notes on the relevant record date to receive interest due on the relevant interest payment date.

The Indenture contains customary covenants restricting CCLP's ability and the ability of CCLP restricted subsidiaries to: (i) pay distributions on, purchase or redeem CCLP common units or purchase or redeem any CCLP subordinated debt; (ii) incur or guarantee additional indebtedness or issue certain kinds of preferred equity securities; (iii) create or incur certain liens securing indebtedness; (iv) sell assets, including dispositions of the Collateral; (v) consolidate, merge or transfer all or substantially all of its assets; (vi) enter into transactions with affiliates; and (vii) enter into agreements that restrict distributions or other payments from its restricted subsidiaries to CCLP. These covenants are subject to a number of important limitations and exceptions, including certain provisions permitting CCLP, subject to the satisfaction of certain conditions, to transfer assets to certain of CCLP's unrestricted subsidiaries. Moreover, if the CCLP Senior Secured Notes receive an investment grade rating from at least two rating agencies and no default has occurred and is continuing under the Indenture, many of the restrictive covenants in the Indenture will be terminated. The Indenture also contains customary events of default and acceleration provisions relating to such events of default, which provide that upon an event of default under the Indenture, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding CCLP Senior Secured Notes may declare all of the CCLP Senior Secured Notes to be due and payable immediately.

On March 22, 2018, CCLP, the grantors named therein, the Trustee and U.S. Bank National Association, as the collateral trustee (the “Collateral Trustee”), entered into a collateral trust agreement (the “Collateral Trust Agreement”) pursuant to which the Collateral Trustee will receive, hold, administer, maintain, enforce and distribute

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the proceeds of all of its liens upon the Collateral for the benefit of the current and future holders of the CCLP Senior Secured Notes and any future priority lien obligations, if any.

CCLP Bank Credit Facilities.

On March 22, 2018, in connection with the closing of the CCLP Offering, CCLP repaid all outstanding borrowings and obligations under its then existing CCLP Bank Credit Facility with a portion of the net proceeds from the CCLP Offering, and terminated the CCLP Bank Credit Facility. As a result of the termination of the CCLP Bank Credit Facility, associated unamortized deferred financing costs of $3.5 million were charged to other (income) expense, net, during the three month period ended March 31, 2018.

On June 29, 2018, CCLP and two of its wholly owned subsidiaries (collectively the "CCLP Borrowers"), and certain of its wholly owned subsidiaries named therein as guarantors (the "CCLP New Credit Agreement Guarantors"), entered into a Loan and Security Agreement (the "CCLP New Credit Agreement") with the lenders thereto (the "Lenders"), and Bank of America, N.A., in its capacity as administrative agent, collateral agent, letter of credit issuer, and swing line lender. All of the CCLP Borrowers' obligations under the CCLP New Credit Agreement are guaranteed by certain of their existing and future domestic subsidiaries. The CCLP New Credit Agreement includes a maximum credit commitment of $50.0 million available for loans, letters of credit with a sublimit of $25.0 million and swingline loans with a sublimit of $5.0 million, subject to a borrowing base to be determined by reference to the value of CCLP’s and any other borrowers’ accounts receivable. Such maximum credit commitment may be increased by $25.0 million in accordance with the terms and conditions of the CCLP New Credit Agreement.

The CCLP Borrowers may borrow funds under the CCLP New Credit Agreement to pay fees and expenses related to the CCLP New Credit Agreement and for the Borrower's ongoing working capital needs and for general business purposes. The revolving loans under the CCLP New Credit Agreement may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to breakage or similar costs. The maturity date of the CCLP New Credit Agreement is June 29, 2023. As of September 30, 2018, no balance was outstanding under the CCLP New Credit Agreement. Because there was no outstanding balance on the CCLP New Credit Agreement, associated deferred financing costs of $1.2 million as of September 30, 2018, were classified as other assets on the accompanying consolidated balance sheet.

Borrowings under the CCLP New Credit Agreement will bear interest at a rate per annum equal to, at the option of the CCLP Borrowers, either (i) London InterBank Offered Rate (“LIBOR”) (adjusted to reflect any required bank reserves) for an interest period equal to 30, 60, 90, 180 or 360 days (as selected by the CCLP Borrowers, subject to availability and with the consent of the Lenders for 360 days) plus a margin based on average daily excess availability or (ii) a base rate plus a margin based on average daily excess availability; such base rate shall be determined by reference to the highest of (a) the prime rate of interest announced from time to time by Bank of America, N.A., (b) the Federal Funds Rate (as defined in the CCLP New Credit Agreement) rate plus 0.5% per annum and (c) LIBOR (adjusted to reflect any required bank reserves) for a 30-day interest period on such day plus 1.0% per annum. Initially, from June 29, 2018 until the delivery of the financial statements for the fiscal quarter ending December 31, 2018, LIBOR-based loans will have an applicable margin of 2.00% per annum and base-rate loans will have an applicable margin of 1.00% per annum; thereafter, the applicable margin will range between 1.75% and 2.25% per annum for LIBOR-based loans and 0.75% and 1.25% per annum for base-rate loans, according to average daily excess availability when financial statements are delivered. In addition to paying interest on outstanding principal under the CCLP New Credit Agreement, the CCLP Borrowers will be required to pay a commitment fee in respect of the unutilized commitments thereunder, initially at the rate of 0.375% per annum until the delivery of the financial statements for the fiscal quarter ending September 30, 2018 and thereafter at the applicable rate ranging from 0.250% to 0.375% per annum, paid quarterly in arrears based on utilization of the commitments under the CCLP New Credit Agreement. The CCLP Borrowers will also be required to pay a customary letter of credit fee equal to the applicable margin on revolving credit LIBOR loans and fronting fees.

The CCLP New Credit Agreement contains certain affirmative and negative covenants, including covenants that restrict the ability of the CCLP Borrowers, the CCLP New Credit Agreement Guarantors and certain of their subsidiaries to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The CCLP New Credit Agreement also contains a provision that may require a fixed charge coverage ratio (as defined in the CCLP New Credit Agreement) of not less than 1.0 to 1.0 in the event that certain conditions associated with outstanding borrowings and cash availability occur. As of September 30, 2018, such conditions have not occurred.

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All obligations under the CCLP New Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a first priority security interest for the benefit of the Lenders in the CCLP Borrowers’ and the CCLP New Credit Agreement Guarantors’ present and future accounts receivable, inventory and related assets and proceeds of the foregoing.

NOTE G – CCLP SERIES A CONVERTIBLE PREFERRED UNITS

During 2016, CCLP entered into Series A Preferred Unit Purchase Agreements (the “CCLP Unit Purchase Agreements”) with certain purchasers to issue and sell in two private placements (the "Initial Private Placement" and "Subsequent Private Placement," respectively) an aggregate of 6,999,126 of CSI Compressco LP Series A Convertible Preferred Units representing limited partner interests in CCLP (the “CCLP Preferred Units”) for a cash purchase price of $11.43 per CCLP Preferred Unit (the “Issue Price”), resulting in total 2016 net proceeds to CCLP, after deducting certain offering expenses, of $77.3 million. We purchased 874,891 of the CCLP Preferred Units in the Initial Private Placement at the aggregate Issue Price of $10.0 million.

We and the other holders of CCLP Preferred Units (each, a “CCLP Preferred Unitholder”) receive quarterly distributions, which are paid in kind in additional CCLP Preferred Units, equal to an annual rate of 11.00% of the Issue Price ($1.2573 per unit annualized), subject to certain adjustments. The rights of the CCLP Preferred Units include certain anti-dilution adjustments, including adjustments for economic dilution resulting from the issuance of CCLP common units in the future below a set price.

A ratable portion of the CCLP Preferred Units has been, and will continue to be, converted into CCLP common units on the eighth day of each month over a period of thirty months that began in March 2017 (each, a “Conversion Date”), subject to certain provisions of the Second Amended and Restated CCLP Partnership Agreement that may delay or accelerate all or a portion of such monthly conversions. On each Conversion Date, a portion of the CCLP Preferred Units will convert into CCLP common units representing limited partner interests in CCLP in an amount equal to, with respect to each CCLP Preferred Unitholder, the number of CCLP Preferred Units held by such CCLP Preferred Unitholder divided by the number of Conversion Dates remaining, subject to adjustment described in the Second Amended and Restated CCLP Partnership Agreement, with the conversion price (the "Conversion Price") determined by the trading prices of the common units over the prior month, among other factors, and as otherwise impacted by the existence of certain conditions related to the CCLP common units. Based on the number of CCLP Preferred Units outstanding as of September 30, 2018, the maximum aggregate number of CCLP common units that could be required to be issued pursuant to the conversion provisions of the CCLP Preferred Units is approximately 20.7 million CCLP common units; however, CCLP may, at its option, pay cash, or a combination of cash and common units, to the CCLP Preferred Unitholders instead of issuing common units on any Conversion Date, subject to certain restrictions as described in the Second Amended and Restated CCLP Partnership Agreement. The total number of CCLP Preferred Units outstanding as of September 30, 2018 was 3,623,950, of which we held 455,127.

Because the CCLP Preferred Units may be settled using a variable number of CCLP common units, the total fair value of the CCLP Preferred Units of $42.3 million, net of the fair value of the units we purchased of $5.3 million, is classified as long-term liabilities on our consolidated balance sheet in accordance with ASC 480 "Distinguishing Liabilities and Equity." The net fair value of the CCLP Preferred Units as of September 30, 2018 was $36.9 million. During the three and nine month period ended September 30, 2018, changes in the fair value during each period resulted in $0.5 million and $1.3 million being charged to earnings, respectively, in the accompanying consolidated statements of operations. During the three and nine month period ended September 30, 2017, changes in the fair value resulted in $1.1 million and $4.3 million being credited to earnings, respectively, in the accompanying consolidated statements of operations.

Based on the conversion provisions of the CCLP Preferred Units, and using the Conversion Price calculated as of September 30, 2018, the theoretical number of CCLP common units that would be issued if all of the outstanding CCLP Preferred Units were converted on September 30, 2018 on the same basis as the monthly conversions would be approximately 8.4 million CCLP common units, with an aggregate market value of $43.2 million. A $1 decrease in the Conversion Price would result in the issuance of 2.1 million additional CCLP common units pursuant to these conversion provisions.


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NOTE H – FAIR VALUE MEASUREMENTS
 
Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that may differ from the transaction price or market price of the asset or liability.
 
Under U.S. GAAP, the fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value. Fair value measurements should maximize the use of observable inputs and minimize the use of unobservable inputs, where possible. Observable inputs are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs may be needed to measure fair value in situations where there is little or no market activity for the asset or liability at the measurement date and are developed based on the best information available in the circumstances, which could include the reporting entity’s own judgments about the assumptions market participants would utilize in pricing the asset or liability.

Financial Instruments

CCLP Preferred Units

The CCLP Preferred Units are valued using a lattice modeling technique that, among a number of lattice structures, includes significant unobservable items (a Level 3 fair value measurement). These unobservable items include (i) the volatility of the trading price of CCLP's common units compared to a volatility analysis of equity prices of CCLP's comparable peer companies, (ii) a yield analysis that utilizes market information related to the debt yields of comparable peer companies, and (iii) a future conversion price analysis. The fair valuation of the CCLP Preferred Units liability is increased by, among other factors, projected increases in CCLP's common unit price and by increases in the volatility and decreases in the debt yields of CCLP's comparable peer companies. Increases (or decreases) in the fair value of CCLP Preferred Units will increase (decrease) the associated liability and result in future adjustments to earnings for the associated valuation losses (gains). During the three and nine month periods ended September 30, 2018, the changes in the fair value of the CCLP Preferred Units resulted in $0.5 million and $1.3 million charged to earnings, respectively, in the consolidated statement of operations.

Warrants

The Warrants are valued either by using their traded market prices (a Level 1 fair value measurement) or, for periods when market prices are not available, by using the Black Scholes option valuation model that includes estimates of the volatility of the Warrants implied by their trading prices (a Level 3 fair value measurement). As of September 30, 2018 and December 31, 2017, the fair valuation methodology utilized for the Warrants was a Level 3 fair value measurement, as there were no available traded market prices to value the Warrants. The fair valuation of the Warrants liability is increased by, among other factors, increases in our common stock price, and by increases in the volatility of our common stock price. Increases (or decreases) in the fair value of the Warrants will increase (decrease) the associated liability and result in future adjustments to earnings for the associated valuation losses (gains). During the three and nine month periods ended September 30, 2018, the changes in the fair value of the Warrants liability resulted in $0.2 million being credited to earnings and $0.02 million being charged to earnings, respectively, in the consolidated statement of operations.

Stock Appreciation Rights

During the third quarter of 2017 and the first quarter of 2018, we issued stand-alone, cash-settled stock appreciation rights awards to an executive officer. These awards are valued by using the Black Scholes option valuation model (a Level 3 fair value measurement) and such fair value is recognized based on the portion of the requisite service period satisfied as of each valuation date. The fair valuation of the stock appreciation rights liability is increased by, among other factors, increases in our common stock price, and by increases in the volatility of our common stock price. These stock appreciation rights awards are reflected as an accrued liability in our consolidated balance sheet. Increases (or decreases) in the fair value of the stock appreciation rights awards will increase (decrease) the associated liability and result in future adjustments to earnings for the associated valuation losses (gains). During the nine months ended September 30, 2018, the fair value of the stock appreciation rights increased $0.3 million, which was charged to earnings in the consolidated statement of operations.

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SwiftWater Contingent Consideration

As part of the purchase agreement of SwiftWater during the first quarter of 2018, the sellers have the right to receive contingent consideration payments, in an aggregate amount of up to $15.0 million, calculated on EBITDA and revenue of the combined water management business of SwiftWater and our pre-existing operations in the Permian Basin in respect of the period from January 1, 2018 through December 31, 2019. The contingent consideration may be paid in cash or shares of our common stock, at our election. The fair value of the contingent consideration is based on a probability simulation utilizing forecasted revenues and EBITDA of the water management business of SwiftWater and all of our pre-existing operations in the Permian Basin (a Level 3 fair value measurement). During the period from the closing date to September 30, 2018, the estimated fair value for the liabilities associated with the contingent purchase price consideration increased to $11.3 million, resulting in $(0.6) million and $3.7 million being (credited) charged to other (income) expense, net, during the three and nine month periods ended September 30, 2018, respectively.

Derivative Contracts

We are exposed to financial and market risks that affect our businesses. We have concentrations of credit risk as a result of trade receivables owed to us by companies in the energy industry. We have currency exchange rate risk exposure related to transactions denominated in foreign currencies as well as to investments in certain of our international operations. As a result of our variable rate bank credit facility, we face market risk exposure related to changes in applicable interest rates. Our financial risk management activities may at times involve, among other measures, the use of derivative financial instruments, such as swap and collar agreements, to hedge the impact of market price risk exposures. For these fair value measurements, we utilize the quoted value as determined by our counterparty financial institution (a Level 2 fair value measurement).

We and CCLP each enter into 30-day foreign currency forward derivative contracts with third parties as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. As of September 30, 2018, we and CCLP had the following foreign currency derivative contracts outstanding relating to portions of our foreign operations:
Derivative Contracts
 
US Dollar Notional Amount
 
Traded Exchange Rate
 
Settlement Date

 
(In Thousands)
 

 

Forward purchase Euro
 
$
2,818

 
1.17
 
10/18/2018
Forward sale pounds sterling
 
3,928

 
1.31
 
10/18/2018
Forward sale Canadian dollar
 
5,419

 
1.29
 
10/18/2018
Forward purchase Mexican peso
 
1,747

 
18.89
 
10/18/2018
Forward sale Norwegian krone
 
679

 
8.11
 
10/18/2018
Forward sale Mexican peso
 
6,352

 
18.89
 
10/18/2018

Derivative Contracts
 
British Pound Notional Amount
 
Traded Exchange Rate
 
Settlement Date
 
 
(In Thousands)
 
 
 
 
Forward purchase Euro
 
982

 
0.89
 
10/18/2018

Derivative Contracts
 
Swedish Krona Notional Amount
 
Traded Exchange Rate
 
Settlement Date
 
 
(In Thousands)
 
 
 
 
Forward purchase Euro
 
23,791

 
10.34
 
10/18/2018

Under this program, we and CCLP may enter into similar derivative contracts from time to time. Although contracts pursuant to this program will serve as an economic hedge of the cash flow of our currency exchange risk exposure, they are not formally designated as hedge contracts or qualify for hedge accounting treatment.

24


Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period.

The fair values of foreign currency derivative instruments are based on quoted market values as reported to us by our counterparty (a Level 2 fair value measurement). The fair values of our and CCLP's foreign currency derivative instruments as of September 30, 2018 and December 31, 2017, are as follows:

Foreign currency derivative instruments
Balance Sheet Location
 
 Fair Value at September 30, 2018
 
 Fair Value at December 31, 2017

 

 
(In Thousands)
Forward purchase contracts
 
Current assets
 
$
12

 
$
111

Forward sale contracts
 
Current assets
 
14

 
130

Forward sale contracts
 
Current liabilities
 
(45
)
 
(255
)
Forward purchase contracts
 
Current liabilities
 
(34
)
 
(113
)
Net asset (liability)
 
 
 
$
(53
)
 
$
(127
)

None of the foreign currency derivative contracts contain credit risk related contingent features that would require us to post assets or collateral for contracts that are classified as liabilities. During the three and nine month periods ended September 30, 2018, we recognized $(0.6) million and $0.1 million of net gains (losses), respectively, reflected in other (income) expense, net, associated with our foreign currency derivative program. During the three and nine month periods ended September 30, 2017, we recognized $0.1 million and $1.2 million of net gains (losses), respectively, reflected in other (income) expense, net, associated with our foreign currency derivative program.

A summary of these recurring fair value measurements by valuation hierarchy as of September 30, 2018 and December 31, 2017, is as follows:
 
 
 
Fair Value Measurements Using
 
Total as of
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Description
September 30, 2018
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
(In Thousands)
CCLP Series A Preferred Units
$
(36,944
)
 
$

 
$

 
$
(36,944
)
Warrants liability
(13,224
)
 

 

 
(13,224
)
Cash-settled stock appreciation rights
(392
)
 

 

 
(392
)
Asset for foreign currency derivative contracts
26

 

 
26

 

Liability for foreign currency derivative contracts
(79
)
 

 
(79
)
 

Acquisition contingent consideration liability
(11,300
)
 

 

 
(11,300
)
Net liability
$
(61,913
)
 
 
 
 
 
 


25


 
 
 
Fair Value Measurements Using
 
Total as of
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Description
December 31, 2017
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
(In Thousands)
CCLP Series A Preferred Units
$
(61,436
)
 
$

 
$

 
$
(61,436
)
Warrants liability
(13,202
)
 

 

 
(13,202
)
Cash-settled stock appreciation rights
(97
)
 

 

 
(97
)
Asset for foreign currency derivative contracts
241

 

 
241

 

Liability for foreign currency derivative contracts
(378
)
 

 
(378
)
 

Net liability
$
(74,872
)
 
 
 
 
 
 


The fair values of cash, restricted cash, accounts receivable, accounts payable, short-term borrowings and long-term debt pursuant to TETRA's ABL Credit Agreement and Term Credit Agreement, and the CCLP New Credit Agreement approximate their carrying amounts. The fair value of our long-term 11% Senior Note at December 31, 2017 was approximately $130.8 million, based on current interest rates on that date, which was different from the stated interest rate on the 11% Senior Note. This fair value compares to the face amount of the 11% Senior Note of $125.0 million at December 31, 2017. The fair values of the publicly traded CCLP 7.25% Senior Notes (as herein defined) at September 30, 2018 and December 31, 2017, were approximately $276.0 million and $279.7 million, respectively. Those fair values compare to the face amount of $295.9 million both at September 30, 2018 and December 31, 2017. The fair value of the publicly traded CCLP 7.50% Senior Secured Notes at September 30, 2018 was approximately $358.3 million. This fair value compares to aggregate principal amount of such notes at September 30, 2018 of $350.0 million. We calculated the fair values of our 11% Senior Note as of December 31, 2017 internally, using current market conditions and average cost of debt (a Level 2 fair value measurement). We based the fair values of the CCLP 7.25% Senior Notes and the CCLP 7.50% Senior Secured Notes as of September 30, 2018 on recent trades for these notes. See Note F - "Long-Term Debt and Other Borrowings," for a complete discussion of our debt.



26


NOTE I – EQUITY
 
Changes in equity for the three and nine month periods ended September 30, 2018 and 2017 are as follows:

 
Three Months Ended September 30,
 
2018
 
2017
 
TETRA
 
Non-
controlling
Interest
 
Total
 
TETRA
 
Non-
controlling
Interest
 
Total
 
(In Thousands)
Beginning balance for the period
$
173,958

 
$
137,104

 
$
311,062

 
$
228,673

 
$
155,054

 
$
383,727

Net income (loss)
(6,936
)
 
(5,120
)
 
(12,056
)
 
3,145

 
(4,483
)
 
(1,338
)
Foreign currency translation adjustment
(676
)
 
95

 
(581
)
 
2,807

 
(187
)
 
2,620

Comprehensive Income (loss)
(7,612
)
 
(5,025
)
 
(12,637
)
 
5,952

 
(4,670
)
 
1,282

Exercise of common stock options
251

 

 
251

 

 

 

Conversions of CCLP Series A Preferred

 
10,294

 
10,294

 

 

 

Distributions to CCLP public unitholders

 
(4,946
)
 
(4,946
)
 

 
(3,871
)
 
(3,871
)
Equity-based compensation
1,798

 
367

 
2,165

 
1,537

 
45

 
1,582

Treasury stock and other
(78
)
 
78

 

 
(188
)
 
(22
)
 
(210
)
Ending balance as of September 30
$
168,317

 
$
137,872

 
$
306,189

 
$
235,974

 
$
146,536

 
$
382,510

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
2018
 
2017
 
TETRA
 
Non-
controlling
Interest
 
Total
 
TETRA
 
Non-
controlling
Interest
 
Total
 
(In Thousands)
Beginning balance for the period
$
208,080

 
$
144,481

 
$
352,561

 
$
233,523

 
$
166,943

 
$
400,466

Net income (loss)
(66,549
)
 
(20,423
)
 
(86,972
)
 
(10,309
)
 
(16,900
)
 
(27,209
)
Foreign currency translation adjustment
(6,503
)
 
(2,044
)
 
(8,547
)
 
8,152

 
(371
)
 
7,781

Comprehensive Income (loss)
(73,052
)
 
(22,467
)
 
(95,519
)
 
(2,157
)
 
(17,271
)
 
(19,428
)
Exercise of common stock options
251

 

 
251

 

 

 

Issuance of stock for business combination and other
28,117

 

 
28,117

 
(16
)
 

 
(16
)
Conversions of CCLP Series A Preferred

 
29,669

 
29,669

 

 
10,020

 
10,020

Distributions to CCLP public unitholders

 
(13,928
)
 
(13,928
)
 

 
(14,815
)
 
(14,815
)
Equity-based compensation
5,137

 
70

 
5,207

 
5,089

 
1,784

 
6,873

Treasury stock and other
(216
)
 
47

 
(169
)
 
(465
)
 
(125
)
 
(590
)
Ending balance as of September 30
$
168,317

 
$
137,872

 
$
306,189

 
$
235,974

 
$
146,536

 
$
382,510


Activity within the foreign currency translation adjustment account during the periods includes no reclassifications to net income (loss).


27


NOTE J – COMMITMENTS AND CONTINGENCIES
 
Litigation
 
We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.

On March 18, 2011, we filed a lawsuit in the Circuit Court of Union County, Arkansas, asserting claims of professional negligence, breach of contract and other claims against the engineering firm we hired for engineering design, equipment, procurement, advisory, testing and startup services for our El Dorado, Arkansas chemical production facility. The engineering firm disputed our claims and promptly filed a motion to compel the matter to arbitration. After a lengthy procedural dispute in Arkansas state court, arbitration proceedings were initiated on November 15, 2013. Ultimately, on December 16, 2016, the arbitration panel ruled in our favor, declared us as the prevailing party, and awarded us a total net amount of $12.8 million. We received full payment of the $12.8 million final award on January 5, 2017, and this amount was credited to earnings in the accompanying consolidated statement of operations for the nine months ended September 30, 2017.

NOTE K – INDUSTRY SEGMENTS
 
Following the transactions closed during the three month period ended March 31, 2018, we reorganized our reporting segments and now manage our operations through three Divisions: Completion Fluids & Products, Water & Flowback Services, and Compression. Our Completion Fluids & Products Division was previously reported as our Fluids Division, and included our water management services operations. Following the acquisition of SwiftWater in February 2018, our expanded water management operations are now included with our production testing operations as part of our Water & Flowback Services Division. The operations of our previous Offshore Division, consisting of our previous Offshore Services and Maritech segments, are now reported as discontinued operations following their disposal in March 2018.
 
Our Completion Fluids & Products Division manufactures and markets clear brine fluids ("CBF"), additives, and associated products and services to the oil and gas industry for use in well drilling, completion, and workover operations in the United States and in certain countries in Latin America, Europe, Asia, the Middle East, and Africa. The division also markets liquid and dry calcium chloride products manufactured at its production facilities or purchased from third-party suppliers to a variety of markets outside the energy industry.
 
Our Water & Flowback Services Division provides domestic onshore oil and gas operators with comprehensive water management services. The division also provides frac flowback, production well testing, offshore rig cooling, and other associated services in many of the major oil and gas producing regions in the United States, Mexico, and Canada, as well as in basins in certain regions in South America, Africa, Europe, the Middle East, and Australia.
 
The Compression Division is a provider of compression services and equipment for natural gas and oil production, gathering, transportation, processing, and storage. The Compression Division's equipment sales business includes the fabrication and sale of standard compressor packages, custom-designed compressor packages, and oilfield pump systems designed and fabricated at the division's facilities. The Compression Division's aftermarket services business provides compressor package reconfiguration and maintenance services as well as providing compressor package parts and components manufactured by third-party suppliers. The Compression Division provides its services and equipment to a broad base of natural gas and oil exploration and production, midstream, transmission, and storage companies operating throughout many of the onshore producing regions of the United States as well as in a number of foreign countries, including Mexico, Canada, and Argentina.
 
We generally evaluate the performance of and allocate resources to our segments based on profit or loss from their operations before income taxes and nonrecurring charges, return on investment, and other criteria. Transfers between segments and geographic areas are priced at the estimated fair value of the products or services as negotiated between the operating units. “Corporate Overhead” includes corporate general and administrative expenses, corporate depreciation and amortization, interest income and expense, and other income and expense.

28


 Summarized financial information concerning the business segments is as follows:

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
 
(In Thousands)
Revenues from external customers
 

 
 

 
 

 
 

Product sales
 

 
 

 
 
 
 
Completion Fluids & Products Division
$
58,050

 
$
58,049

 
$
181,394

 
$
177,568

Water & Flowback Services Division
941

 
143

 
1,617

 
6,401

Compression Division
43,079

 
14,374

 
102,125

 
42,755

Consolidated
$
102,070

 
$
72,566

 
$
285,136

 
$
226,724

 
 
 
 
 
 
 
 
Services
 

 
 

 
 
 
 
Completion Fluids & Products Division
$
5,027

 
$
13,262

 
$
11,344

 
$
23,965

Water & Flowback Services Division
77,572

 
40,612

 
221,342

 
102,601

Compression Division
72,182

 
57,237

 
198,482

 
169,727

Consolidated
$
154,781

 
$
111,111

 
$
431,168

 
$
296,293

 
 
 
 
 
 
 
 
Interdivision revenues
 

 
 

 
 
 
 
Completion Fluids & Products Division
$
(4
)
 
$
12

 
$
(5
)
 
$
13

Water & Flowback Services Division
55

 
293

 
330

 
1,311

Compression Division