tti10q-20110809.htm
 

 
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 JUNE 30, 2011

[  ] 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ]  No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”  “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer [ X ]
Accelerated filer [   ]
Non-accelerated filer [   ] (Do not check if a smaller reporting company)
Smaller reporting company [   ]

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 August 5, 2011, there were 77,179,949 shares outstanding of the Company’s Common Stock, $0.01 par value per share.
 
 
 

 

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
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues:
                       
   Product sales
  $ 105,290     $ 113,915     $ 211,813     $ 217,108  
   Services and rentals
    129,824       127,703       245,846       230,403  
      Total revenues
    235,114       241,618       457,659       447,511  
                                 
Cost of revenues:
                               
   Cost of product sales
    82,686       71,327       159,704       136,259  
   Cost of services and rentals
    79,678       76,824       161,449       145,857  
   Depreciation, depletion, amortization, and accretion
    36,937       45,635       74,329       82,469  
      Total cost of revenues
    199,301       193,786       395,482       364,585  
         Gross profit
    35,813       47,832       62,177       82,926  
                                 
General and administrative expense
    29,006       24,955       56,768       47,732  
Interest expense, net
    4,085       4,238       8,276       8,266  
(Gain) loss on sale of assets
    (59,577 )     157       (60,309 )     250  
Other (income) expense, net
    14,745       (2,056 )     13,929       (2,332 )
Income before taxes and discontinued operations
    47,554       20,538       43,513       29,010  
Provision for income taxes
    17,031       6,903       15,502       9,919  
Income before discontinued operations
    30,523       13,635       28,011       19,091  
Loss from discontinued operations, net of taxes
    (54 )     (75 )     (57 )     (104 )
Net income
    30,469       13,560       27,954       18,987  
Net (income) loss attributable to noncontrolling interest
    (95 )     -       (95 )     -  
Net income attributable to TETRA stockholders
  $ 30,374     $ 13,560     $ 27,859     $ 18,987  
                                 
Basic net income per common share:
                               
   Income before discontinued operations attributable to
                               
      TETRA stockholders
  $ 0.40     $ 0.18     $ 0.36     $ 0.25  
   Loss from discontinued operations attributable to
                               
      TETRA stockholders
    (0.00 )     (0.00 )     (0.00 )     (0.00 )
   Net income attributable to TETRA stockholders
  $ 0.40     $ 0.18     $ 0.36     $ 0.25  
Average shares outstanding
    76,579       75,491       76,415       75,434  
                                 
Diluted net income per common share:
                               
   Income before discontinued operations attributable to
                               
      TETRA stockholders
  $ 0.39     $ 0.18     $ 0.36     $ 0.25  
   Loss from discontinued operations attributable to
                               
      TETRA stockholders
    (0.00 )     (0.00 )     (0.00 )     (0.00 )
   Net income attributable to TETRA stockholders
  $ 0.39     $ 0.18     $ 0.36     $ 0.25  
Average diluted shares outstanding
    78,315       76,857       77,985       76,819  

 
See Notes to Consolidated Financial Statements
 
 
1

 

TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
 
   
June 30, 2011
   
December 31, 2010
 
   
(Unaudited)
       
ASSETS
           
Current assets:
           
   Cash and cash equivalents
  $ 323,774     $ 65,360  
   Restricted cash
    102       360  
   Trade accounts receivable, net of allowances for doubtful
               
     accounts of $2,591 in 2011 and $2,590 in 2010
    161,082       162,405  
   Inventories
    94,945       104,305  
   Derivative assets
    -       2,436  
Deferred tax asset
    32,575       29,685  
Oil and gas properties held for sale
    9,215       -  
   Prepaid expenses and other current assets
    22,568       50,387  
   Total current assets
    644,261       414,938  
                 
Property, plant, and equipment
               
   Land and building
    76,994       79,368  
   Machinery and equipment
    445,450       482,677  
   Automobiles and trucks
    46,315       43,492  
   Chemical plants
    157,637       176,853  
   Oil and gas producing assets (successful efforts method)
    -       761,449  
   Construction in progress
    22,689       15,677  
   Total property, plant, and equipment
    749,085       1,559,516  
Less accumulated depreciation and depletion
    (281,968 )     (819,646 )
   Net property, plant, and equipment
    467,117       739,870  
                 
Other assets:
               
   Goodwill
    99,132       99,005  
   Patents, trademarks and other intangible assets, net of accumulated
               
     amortization of $21,512 in 2011 and $21,499 in 2010
    13,246       13,024  
   Deferred tax assets
    12       899  
   Other assets
    27,184       31,892  
   Total other assets
    139,574       144,820  
Total assets
  $ 1,250,952     $ 1,299,628  

 
See Notes to Consolidated Financial Statements

 
2

 
 
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
 
   
June 30, 2011
   
December 31, 2010
 
   
(Unaudited)
       
LIABILITIES AND EQUITY
           
Current liabilities:
           
   Trade accounts payable
  $ 50,931     $ 55,555  
   Accrued liabilities
    78,129       83,804  
   Decommissioning and other asset retirement obligations, net
    89,390       72,265  
   Derivative liabilities
    -       5,208  
   Total current liabilities
    218,450       216,832  
                 
Long-term debt, net
    305,035       305,035  
Deferred income taxes
    59,677       46,789  
Decommissioning and other asset retirement obligations, net
    55,135       200,550  
Other liabilities
    11,047       14,099  
   Total long-term liabilities
    430,894       566,473  
Commitments and contingencies
               
                 
Equity:
               
   TETRA stockholders' equity:
               
      Common stock, par value $0.01 per share; 100,000,000 shares
               
        authorized; 78,843,704 shares issued at June 30, 2011,
               
        and 77,825,398 shares issued at December 31, 2010
    788       778  
      Additional paid-in capital
    210,558       203,044  
      Treasury stock, at cost; 1,696,989 shares held at June 30, 2011,
               
        and 1,533,653 shares held at December 31, 2010
    (9,836 )     (8,382 )
      Accumulated other comprehensive income
    9,483       1,107  
      Retained earnings
    347,635       319,776  
   Total TETRA stockholders' equity
    558,628       516,323  
   Noncontrolling interest
    42,980       -  
      Total equity
    601,608       516,323  
Total liabilities and equity
  $ 1,250,952     $ 1,299,628  

 
See Notes to Consolidated Financial Statements
 
 
3

 

TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 
   
Six Months Ended June 30,
 
   
2011
   
2010
 
Operating activities:
           
   Net income
  $ 27,954     $ 18,987  
   Reconciliation of net income to cash provided by operating activities:
               
     Depreciation, depletion, amortization, and accretion
    61,795       72,542  
     Impairments of long-lived assets
    12,534       9,927  
     Provision (benefit) for deferred income taxes
    9,754       (1,217 )
     Stock compensation expense
    3,140       3,055  
     Provision (benefit) for doubtful accounts
    974       (1,302 )
     (Gain) loss on sale of property, plant, and equipment
    (60,309 )     250  
     Non-cash income from sold hedge derivatives
    -       (11,161 )
     Other non-cash charges and credits
    19,997       2,370  
     Proceeds from insurance settlements
    -       39,772  
     Changes in operating assets and liabilities:
               
       Accounts receivable
    597       (1,802 )
       Inventories
    11,812       12,445  
       Prepaid expenses and other current assets
    28,952       (557 )
       Trade accounts payable and accrued expenses
    (17,608 )     (19,672 )
       Decommissioning liabilities
    (43,572 )     (33,796 )
       Operating activities of discontinued operations
    35       (380 )
       Other
    3,859       993  
       Net cash provided by operating activities
    59,914       90,454  
                 
Investing activities:
               
   Purchases of property, plant, and equipment
    (36,284 )     (33,866 )
   Business combinations
    (1,500 )     -  
   Proceeds from sale of property, plant, and equipment
    187,384       353  
   Other investing activities
    (4,929 )     (303 )
       Net cash provided by (used in) investing activities
    144,671       (33,816 )
                 
Financing activities:
               
   Proceeds from long-term debt
    -       35  
   Proceeds from exercise of stock options
    2,245       732  
   Proceeds from issuance of Compressco Partners' common units,
               
      net of underwriters' discount
    50,234       -  
   Compressco Partners' offering costs
    (2,038 )     -  
   Excess tax benefit from exercise of stock options
    1,394       250  
       Net cash provided by financing activities
    51,835       1,017  
                 
Effect of exchange rate changes on cash
    1,994       (1,822 )
                 
Increase in cash and cash equivalents
    258,414       55,833  
Cash and cash equivalents at beginning of period
    65,360       33,394  
Cash and cash equivalents at end of period
  $ 323,774     $ 89,227  
                 
Supplemental cash flow information:
               
   Interest paid
  $ 9,073     $ 9,007  
   Income taxes paid (refunded)
    (16,138 )     25,391  
                 
Supplemental disclosure of non-cash investing activities:
               
   Adjustment of fair value of decommissioning liabilities
               
     capitalized to oil and gas properties
  $ 1,810     $ 4,447  
 
See Notes to Consolidated Financial Statements
 
 
4

 
 
TETRA Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

NOTE A – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

We are a geographically diversified oil and gas services company focused on completion fluids and services, production testing, wellhead compression, and selected offshore services including well plugging and abandonment, decommissioning, and diving. We were incorporated in Delaware in 1981. We are composed of five reporting segments organized into three divisions – Fluids, Offshore, and Production Enhancement. Included in our Offshore Division is our Maritech segment, an oil and gas exploration and production business that sold approximately 95% of its proved oil and gas reserves in the first eight months of 2011, and whose continuing operations consist primarily of the ongoing well plugging, abandonment, and decommissioning associated with its remaining offshore production platforms. 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.

The consolidated financial statements include the accounts of our wholly owned subsidiaries. Investments in unconsolidated joint ventures in which we participate are accounted for using the equity method. Our interests in oil and gas properties are proportionately consolidated. All significant intercompany accounts and transactions have been eliminated in consolidation.

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 Securities and Exchange Commission (SEC) and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, 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. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2010.

Certain previously reported financial information has been reclassified to conform to the current year period’s presentation. The impact of such reclassifications was not significant to the prior year period’s overall presentation.

Cash Equivalents

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

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. Restricted cash reported on our balance sheet as of June 30, 2011, reflects the assignment during March 2011 of restricted cash to the landowner of one of our former Fluids Division leased facility locations related to agreed repairs to be expended at the facility.

Inventories

Inventories are stated at the lower of cost or market value and consist primarily of finished goods. Cost is determined using the weighted average method. Significant components of inventories as of June 30, 2011, and December 31, 2010, are as follows:
 
   
June 30, 2011
   
December 31, 2010
 
   
(In Thousands)
 
             
Finished goods
  $ 67,964     $ 75,874  
Raw materials
    3,611       5,103  
Parts and supplies
    22,361       22,457  
Work in progress
    1,009       871  
Inventories
  $ 94,945     $ 104,305  
 
 
5

 
 
Finished goods inventories include, in addition to newly manufactured clear brine fluids, recycled brines that are repurchased from certain of our customers. Recycled brines are recorded at cost, using the weighted average method.

Net Income 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 per common and common equivalent share:
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Number of weighted average common
                       
  shares outstanding
    76,578,565       75,491,288       76,415,527       75,433,742  
Assumed exercise of stock options
    1,736,132       1,366,009       1,569,904       1,385,443  
Average diluted shares outstanding
    78,314,697       76,857,297       77,985,431       76,819,185  

In applying the treasury stock method to determine the dilutive effect of the stock options outstanding during the first six months of 2011, we used the average market price of our common stock of $13.09. For the three months ended June 30, 2011 and 2010, the calculations of the average diluted shares outstanding excludes the impact of 1,733,435 and 2,110,024 outstanding stock options, respectively, that have exercise prices in excess of the average market price, as the inclusion of these shares would have been antidilutive. For the six months ended June 30, 2011 and 2010, the calculations of the average diluted shares outstanding excludes the impact of 1,783,096 and 2,130,597 outstanding stock options, respectively, that have exercise prices in excess of the average market price, as the inclusion of these shares would have been antidilutive.

Environmental Liabilities

Environmental expenditures that result in additions to property and equipment are capitalized, while other environmental expenditures are expensed. Environmental remediation liabilities are recorded on an undiscounted basis when environmental assessments or cleanups are probable and the costs can be reasonably estimated. Estimates of future environmental remediation expenditures often consist of a range of possible expenditure amounts, a portion of which may be in excess of amounts of liabilities recorded. In this instance, we disclose the full range of amounts reasonably possible of being incurred. Any changes or developments in environmental remediation efforts are accounted for and disclosed each quarter as they occur. Any recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable.

Complexities involving environmental remediation efforts can cause the estimates of the associated liability to be imprecise. Factors that cause uncertainties regarding the estimation of future expenditures include, but are not limited to, the effectiveness of the anticipated work plans in achieving targeted results and changes in the desired remediation methods and outcomes as prescribed by regulatory agencies. Uncertainties associated with environmental remediation contingencies are pervasive and often result in wide ranges of reasonably possible outcomes. Estimates developed in the early stages of remediation can vary significantly. Normally, a finite estimate of cost does not become fixed and determinable at a specific point in time. Rather, the costs associated with environmental remediation become estimable as the work is performed and the range of ultimate cost becomes more defined. It is possible that cash flows and results of operations could be materially affected by the impact of the ultimate resolution of these contingencies.

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.
 
 
6

 
 
Under generally accepted accounting principles, 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.

We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized in the allocation of purchase consideration for acquisition transactions to the assets and liabilities acquired, including intangible assets and goodwill. In addition, we utilize fair value measurements in the initial recording of our decommissioning and other asset retirement obligations. Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets, including goodwill. The fair value of our financial instruments, which may include cash, temporary investments, accounts receivable, short-term borrowings, and long-term debt pursuant to our bank credit agreement, approximate their carrying amounts. The fair value of our long-term Senior Notes at June 30, 2011, was approximately $319.9 million compared to a carrying amount of approximately $305.0 million, as current rates are more favorable than the Senior Note interest rates. We calculate the fair value of our Senior Notes internally, using current market conditions and average cost of debt. We have not calculated or disclosed recurring fair value measurements of non-financial assets and non-financial liabilities.

During the second quarter of 2011, in connection with the sale of substantially all of our Maritech oil and gas producing properties, we liquidated our derivative contracts by paying $14.2 million to the counterparty. For further discussion see Note F – Hedge Contracts.
 
During the second quarter of 2011, Maritech recorded impairment charges of approximately $9.2 million associated with its remaining oil and gas properties. Throughout the first six months of 2011, Maritech sold approximately 92% of its oil and gas reserves as of December 31, 2010, and is seeking to sell its remaining properties at current market values. Accordingly, all of Maritech’s remaining oil and gas properties as of June 30, 2011, have been reclassified to oil and gas properties held for sale and their net book values have been adjusted to fair value less cost to sell. Fair values are estimated based on current market prices being received for these properties’ expected future production cash flows, using forward oil and natural gas pricing data from published sources. Because such published forward pricing data was applied to estimated oil and gas reserve volumes based on our internally prepared reserve estimates, such fair value calculation is based on significant unobservable inputs (Level 3) in accordance with the fair value hierarchy.

A summary of the nonrecurring fair value measurements discussed above as of June 30, 2011 and 2010, using the fair value hierarchy is as follows:
 
         
Fair Value Measurements as of
             
   
June 30, 2011 Using
       
         
Quoted Prices in
                   
         
Active Markets for
   
Significant Other
   
Significant
       
   
Total Fair
   
Identical Assets
   
Observable
   
Unobservable
   
Year-to-Date
 
   
Value as of
   
or Liabilities
   
Inputs
   
Inputs
   
Impairment
 
Description
 
June 30, 2011
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Losses
 
   
(In Thousands)
 
Oil and gas properties
  $ 9,215     $ -     $ -     $ 9,215     $ 12,534  
Total
  $ 9,215                             $ 12,534  
 
 
7

 

         
Fair Value Measurements as of
             
   
June 30, 2010 Using
       
         
Quoted Prices in
                   
         
Active Markets for
   
Significant Other
   
Significant
       
   
Total Fair
   
Identical Assets
   
Observable
   
Unobservable
   
Year-to-Date
 
   
Value as of
   
or Liabilities
   
Inputs
   
Inputs
   
Impairment
 
Description
 
June 30, 2010
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Losses
 
   
(In Thousands)
 
Oil and gas properties
  $ 8,460     $ -     $ -     $ 8,460     $ 8,859  
Other properties
    2,415       -       -       2,415       1,068  
Total
  $ 10,875                             $ 9,927  
 
NOTE B – ACQUISITIONS AND DISPOSITIONS

In March 2011, we acquired a project management and engineering consulting services business that provides liability and risk assessment services for domestic and international offshore well abandonment and decommissioning projects. The purchase price for this acquisition was $1.5 million, and the assets acquired consist primarily of intangible assets.

In late 2010, we began to decrease our investment in Maritech by suspending oil and gas property acquisitions, decreasing our development activities, exploring strategic alternatives to our ownership of Maritech and its oil and gas properties, and reviewing opportunities to sell Maritech oil and gas property packages to industry participants and other third parties. As part of this overall effort, in February and March 2011, Maritech sold certain properties, along with the associated decommissioning liabilities. As part of these transactions, Maritech paid an aggregate of approximately $2.8 million after normal purchase price adjustments. These sold properties, in the aggregate, accounted for approximately 12% of Maritech’s proved reserves as of December 31, 2010.

On May 31, 2011, Maritech completed the sale of approximately 79% of its proved oil and gas reserves as of December 31, 2010, to Tana Exploration Company LLC (Tana), a subsidiary of TRT Holdings, Inc. (TRT), pursuant to a Purchase and Sale Agreement dated April 1, 2011. The sale was made to Tana for a base purchase price of $222.3 million. At the closing of the sale, Tana assumed approximately $72.7 million of associated asset retirement obligations, and Maritech received $173.3 million cash, representing the base purchase price less $11.1 million that was prepaid in April 2011 and purchase price adjustments, including those adjustments reflecting cash flows subsequent to the January 1, 2011, effective date. The proceeds are subject to additional post-closing adjustments. As a result of the sale, we recorded a consolidated gain on sale of assets of $58.2 million. Due to Maritech’s continuing efforts to sell its remaining oil and gas properties, all of Maritech’s remaining oil and gas properties have been reclassified to oil and gas properties held for sale, and their net book values have been adjusted to fair value. In connection with the sale of Maritech oil and gas producing properties, during the second quarter of 2011, we charged to general and administrative expenses approximately $2.7 million of employee retention and incentive benefits paid in connection with these sales.

In August 2011, Maritech sold an additional remaining oil and gas property in exchange for the purchaser assuming the associated decommissioning liability. The sold property represents approximately 3% of Maritech’s yearend oil and gas reserves.

On July 20, 2011, we acquired a new heavy lift derrick barge (which we have named the TETRA Hedron) with a 1,600-metric-ton lift capacity, fully revolving crane. The vessel was purchased from Wison (Nantong) Heavy Industry Co., Ltd. and Nantong MLC Tongbao Shipbuilding Co., Ltd. for $62.8 million. Approximately $20.8 million of the purchase price is held in certain escrow accounts and will be released to the sellers in accordance with the terms of the purchase agreement, less the value of any claims we have under the purchase agreement. The amount of remaining cash in escrow will be included in restricted cash on our consolidated balance sheet until the final release of escrow cash on April 30, 2014. The vessel was recently completed under our supervision in Nantong, China, and is in the process of being transported to the Gulf of Mexico, where it will undergo final outfitting and sea trials.
 
 
8

 

NOTE C – COMPRESSCO PARTNERS, L.P. INITIAL PUBLIC OFFERING

On June 20, 2011, our subsidiary, Compressco Partners, L.P. (Compressco Partners), completed the initial public offering of 2,670,000 of its common units (representing a 17.3% limited partner interest) in exchange for $53.4 million of gross proceeds (the Offering). As a result of the Offering, our ownership in Compressco Partners was reduced to 82.7%, including common units, subordinated units and a 2% general partner interest. In connection with the Offering, certain of our wholly owned subsidiaries, including Compressco Partners GP Inc. (the General Partner), contributed substantially all of our Compressco segment’s natural gas wellhead compression-based production enhancement service business, operations, and related assets and liabilities into Compressco Partners and its wholly owned subsidiaries. In exchange, Compressco Partners issued to us 6,026,757 common units (representing a 39.0% limited partner interest), 6,273,970 subordinated units (representing a 40.7% limited partner interests), an aggregate 2.0% notional general partner interest, and incentive distribution rights. Also, certain directors, executive officers, and other employees of the General Partner were then issued 157,870 restricted units (representing a 1.0% limited partner interest) granted pursuant to a long-term incentive plan. The issuance of the 2,670,000 common units in the Offering, at a $20 per unit Offering Price, resulted in Compressco Partners receiving $53.4 million of gross proceeds, $32.2 million of which was distributed to us to repay an intercompany loan balance. Approximately $10.5 million of the Offering proceeds was used to satisfy Offering expenses, including underwriters’ discount and approximately $7.3 million that was paid to us by Compressco Partners  to reimburse us for costs we incurred on their behalf. The contribution transactions described above represent transactions between entities under common control. Consequently, the contributed assets were recorded at our carrying value.

Also pursuant to the Offering, the underwriters received an option whereby they could purchase 400,500 common units at the $20 per unit Offering Price. At July 15, 2011, this underwriters’ option expired unexercised, resulting in the additional 400,500 units being issued to us. As a result, our ownership of Compressco Partners increased to 83.2%

The contribution of the majority of the operations and related assets and liabilities of our Compressco segment were effected pursuant to the terms of a Contribution, Conveyance and Assumption Agreement (the Contribution Agreement). Compressco Partners’ is to be governed by the First Amended and Restated Agreement of Limited Partnership (the Partnership Agreement). The Partnership Agreement requires Compressco Partners to distribute all of its available cash, as defined in the Partnership Agreement, to the common units, the subordinated units, the 2% general partner interest, and the incentive distribution rights in accordance with the terms of the Partnership Agreement. The Partnership Agreement also provides for the management of Compressco Partners by the General Partner. The reimbursement of direct and indirect costs incurred by us or the General Partner in providing personnel and services on behalf of Compressco Partners, as well as other transactions between us and Compressco Partners, is governed by the terms of an Omnibus Agreement between us and Compressco Partners.

Following the Offering, as of June 30, 2011, the 17.3% portion of Compressco Partners then owned by public unitholders is reflected as a noncontrolling interest in our consolidated financial statements.
 
 
9

 

NOTE D – LONG-TERM DEBT AND OTHER BORROWINGS

Long-term debt consists of the following:
 
     
June 30, 2011
   
December 31, 2010
 
     
(In Thousands)
 
 
Scheduled Maturity
           
Bank revolving line of credit facility
June 26, 2015
  $ -     $ -  
5.90% Senior Notes, Series 2006-A
April 30, 2016
    90,000       90,000  
6.30% Senior Notes, Series 2008-A
April 30, 2013
    35,000       35,000  
6.56% Senior Notes, Series 2008-B
April 30, 2015
    90,000       90,000  
5.09% Senior Notes, Series 2010-A
December 15, 2017
    65,000       65,000  
5.67% Senior Notes, Series 2010-B
December 15, 2020
    25,000       25,000  
Partnership line of credit facility
June 24, 2015
    -       -  
European bank credit facility
      -       -  
Other
      35       35  
Total long-term debt
      305,035       305,035  
Less current portion
      -       -  
     Long-term debt, net
    $ 305,035     $ 305,035  
 
On June 24, 2011, Compressco Partners entered into a new $20.0 million revolving credit facility agreement (the Partnership Credit Agreement) with JPMorgan Chase Bank, N.A. Under the Partnership Credit Agreement, Compressco Partners, along with certain of its subsidiaries, are named as borrowers, and all obligations under the revolving credit facility are guaranteed by all of Compressco Partners’ existing and future, direct and indirect, domestic subsidiaries. All obligations under the Partnership Credit Agreement are secured, subject to certain exceptions, by a first lien security interest in substantially all of Compressco Partners’ and its subsidiaries’ assets (excluding real property) and all of the capital stock of the existing and future subsidiaries of Compressco Partners (with some limitations). The Partnership Credit Agreement includes borrowing capacity of $20.0 million, less $3.0 million that is required to be set aside as a reserve that cannot be borrowed. The facility is available for letters of credit (at a sublimit of $5.0 million) and includes a $20.0 million uncommitted expansion feature. The Partnership Credit Agreement will be used to fund Compressco Partners’ working capital needs, letters of credit, and for general partnership purposes, including capital expenditures and potential future expansions or acquisitions. So long as it is not in default, Compressco Partners may use its credit facility to fund its quarterly distributions at the option of the board of directors of the General Partner. Borrowings under the Partnership Credit Agreement are subject to the satisfaction of customary conditions, including the absence of a default. As of June 30, 2011, there is no balance outstanding under the Partnership Credit Agreement.

NOTE E – DECOMMISSIONING AND OTHER ASSET RETIREMENT OBLIGATIONS

The large majority of our asset retirement obligations consists of the future well abandonment and decommissioning costs for offshore oil and gas properties and platforms owned by our Maritech subsidiary, including the remaining abandonment, decommissioning, and debris removal costs associated with offshore platforms destroyed by hurricanes. The amount of decommissioning liabilities recorded by Maritech is reduced by amounts allocable to joint interest owners, anticipated insurance recoveries, and any contractual amount to be paid by the previous owner of the oil and gas property when the liabilities are satisfied.

The changes in the asset retirement obligations during the three month and six month periods ended June 30, 2011 and 2010 are as follows:

 
10

 
 
   
Three Months Ended June 30,
 
   
2011
   
2010
 
   
(In Thousands)
 
             
Beginning balance as of March 31
  $ 230,834     $ 236,418  
Activity in the period:
               
   Accretion of liability
    1,264       1,350  
   Retirement obligations incurred
    -       -  
   Revisions in estimated cash flows
    16,045       4,902  
   Settlement of retirement obligations
    (103,618 )     (26,523 )
Ending balance as of June 30
  $ 144,525     $ 216,147  

   
Six Months Ended June 30,
 
   
2011
   
2010
 
   
(In Thousands)
 
Beginning balance as of December 31 of
           
  the preceding year
  $ 272,815     $ 224,110  
Activity in the period:
               
   Accretion of liability
    3,158       2,698  
   Retirement obligations incurred
    -       -  
   Revisions in estimated cash flows
    25,809       22,184  
   Settlement of retirement obligations
    (157,257 )     (32,845 )
Ending balance as of June 30
  $ 144,525     $ 216,147  
 
Revisions in estimated cash flows for the three months and six months ended June 30, 2011, are primarily related to the retained Maritech property assets. Settlements of retirement obligations during the three months and six months ended June 30, 2011, include approximately $72.7 million and $118.7 million, respectively, of obligations associated with oil and gas properties sold by Maritech during the periods. In August 2011, Maritech sold an additional oil and gas property, which will result in the further reduction of asset retirement obligations by an additional $3.3 million.

NOTE F – HEDGE CONTRACTS

We are exposed to financial and market risks that affect our businesses. We have currency exchange rate risk exposure related to specific transactions denominated in a foreign currency as well as to investments in certain of our international operations. As a result of our variable rate bank credit facilities and the variable rate credit facility of Compressco Partners, to the extent we have debt outstanding, we face market risk exposure related to changes in applicable interest rates. We have concentrations of credit risk as a result of trade receivables from companies in the energy industry. In addition, we have market risk exposure in the sales prices we receive for the remainder of our oil and gas production. Our financial risk management activities may 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. Prior to the execution of the purchase and sale agreement in April 2011 pursuant to which we sold substantially all of our remaining Maritech oil and gas properties in May 2011, we utilized cash flow commodity hedge transactions to reduce our exposure related to the volatility of oil and gas prices. For these and other hedge contracts, we formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives, our strategies for undertaking various hedge transactions, and our methods for assessing and testing correlation and hedge ineffectiveness. All hedging instruments are linked to the hedged asset, liability, firm commitment, or forecasted transaction. We also assess, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in these hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. As indicated below, these cash flow commodity hedge contracts were liquidated in the second quarter of 2011.

Derivative Hedge Contracts

In April 2011, in connection with the execution of the purchase and sale agreement pursuant to which Maritech agreed to sell approximately 79% of its proved reserves as of December 31, 2010, we liquidated our remaining oil hedge contracts and paid cash totaling $14.2 million to the counterparty. Therefore, as of June 30, 2011, we had no remaining cash flow hedging swap contracts outstanding associated with our Maritech subsidiary’s oil or gas production.

 
11

 
 
Pretax gains and losses associated with oil and gas derivative swap contracts for the three month and six month periods ended June 30, 2011 and 2010, are summarized below:
 
   
Three Months Ended June 30, 2011
 
Derivative Swap Contracts
 
Oil
   
Natural Gas
   
Total
 
   
(In Thousands)
 
Amount of pretax gain reclassified from accumulated other comprehensive
                 
  income into product sales revenue (effective portion)
  $ -     $ -     $ -  
Amount of pretax gain (loss) from change in derivative fair value
                       
  recognized in other comprehensive income
    -       -       -  
Amount of pretax gain (loss) recognized in other income (expense)
                       
  (ineffective portion)
    (14,224 )     -       (14,224 )
 
   
Three Months Ended June 30, 2010
 
Derivative Swap Contracts
 
Oil
   
Natural Gas
   
Total
 
   
(In Thousands)
 
Amount of pretax gain reclassified from accumulated other comprehensive
                 
  income into product sales revenue (effective portion)
  $ 4,858     $ 7,725     $ 12,583  
Amount of pretax gain (loss) from change in derivative fair value
                       
  recognized in other comprehensive income
    (11,097 )     1,371       (9,726 )
Amount of pretax gain (loss) recognized in other income (expense)
                       
  (ineffective portion)
    419       (35 )     384  
 
   
Six Months Ended June 30, 2011
 
Derivative Swap Contracts
 
Oil
   
Natural Gas
   
Total
 
   
(In Thousands)
 
Amount of pretax gain reclassified from accumulated other comprehensive
                 
  income into product sales revenue (effective portion)
  $ 1,177     $ -     $ 1,177  
Amount of pretax gain (loss) from change in derivative fair value
                       
  recognized in other comprehensive income
    (7,854 )     -       (7,854 )
Amount of pretax gain (loss) recognized in other income (expense)
                       
  (ineffective portion)
    (13,947 )     -       (13,947 )
 
   
Six Months Ended June 30, 2010
 
Derivative Swap Contracts
 
Oil
   
Natural Gas
   
Total
 
   
(In Thousands)
 
Amount of pretax gain reclassified from accumulated other comprehensive
                 
  income into product sales revenue (effective portion)
  $ 9,939     $ 12,225     $ 22,164  
Amount of pretax gain (loss) from change in derivative fair value
                       
  recognized in other comprehensive income
    (9,320 )     (7,287 )     (16,607 )
Amount of pretax gain (loss) recognized in other income (expense)
                       
  (ineffective portion)
    125       215       340  


 
12

 

NOTE G – EQUITY

Changes in equity for the three month and six month periods ended June 30, 2011 and 2010, are as follows:
 
   
Three Months Ended June 30,
 
   
2011
   
2010
 
   
(In Thousands)
 
         
Noncontrolling
               
Noncontrolling
       
   
TETRA
   
Interest
   
Total
   
TETRA
   
Interest
   
Total
 
Beginning balance for the period
  $ 517,353     $ -     $ 517,353     $ 581,650     $ -     $ 581,650  
Comprehensive income:
                                               
   Net income
    30,374       95       30,469       13,560       -       13,560  
   Changes in commodity derivatives, net of
                                               
     taxes of $4,165 and $(1,206), respectively
    7,030       -       7,030       (2,035 )     -       (2,035 )
   Foreign currency translation adjustment, net of
                                         
     taxes of $(582) and $(1,112), respectively
    2,229       -       2,229       (1,650 )     -       (1,650 )
Comprehensive income
    39,633       95       39,728       9,875       -       9,875  
Exercise of common stock options
    491       -       491       365       -       365  
Issuance of Compressco Partners common
                                               
   units, net of offering costs
    -       42,885       42,885       -       -       -  
Purchases of treasury stock and other
    (684 )     -       (684 )     (81 )     -       (81 )
Stock based compensation
    1,303       -       1,303       1,505       -       1,505  
Tax benefit upon exercise of stock options
    532       -       532       126       -       126  
Ending balance as of June 30,
  $ 558,628     $ 42,980     $ 601,608     $ 593,440     $ -     $ 593,440  


   
Six Months Ended June 30,
 
   
2011
   
2010
 
   
(In Thousands)
 
         
Noncontrolling
               
Noncontrolling
       
   
TETRA
   
Interest
   
Total
   
TETRA
   
Interest
   
Total
 
Beginning balance for the period
  $ 516,323     $ -     $ 516,323     $ 576,494     $ -     $ 576,494  
Comprehensive income:
                                               
   Net income
    27,859       95       27,954       18,987       -       18,987  
   Changes in commodity derivatives, net of
                                               
     taxes of $1,578 and $(2,194), respectively
    2,663       -       2,663       (3,703 )     -       (3,703 )
   Foreign currency translation adjustment, net of
                                         
     taxes of $(770) and $(1,648), respectively
    5,713       -       5,713       (2,303 )     -       (2,303 )
Comprehensive income
    36,235       95       36,330       12,981       -       12,981  
Exercise of common stock options
    2,805       -       2,805       784       -       784  
Issuance of Compressco Partners common
                                               
   units, net of offering costs
    -       42,885       42,885       -       -       -  
Purchases of treasury stock and other
    (1,269 )     -       (1,269 )     (123 )     -       (123 )
Stock based compensation
    3,140       -       3,140       3,055       -       3,055  
Tax benefit upon exercise of stock options
    1,394       -       1,394       249       -       249  
Ending balance as of June 30
  $ 558,628     $ 42,980     $ 601,608     $ 593,440     $ -     $ 593,440  

NOTE H – 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 reasonably expect these matters to have a material adverse impact on the financial statements.
 
 
13

 
 
Derivative Lawsuit

Between May 28, 2008 and June 27, 2008, two petitions were filed by alleged stockholders in the District Courts of Harris County, Texas, 133rd and 113th Judicial Districts, purportedly on our behalf. The suits name our directors and certain officers as defendants. The factual allegations in these lawsuits mirror those in a federal class action lawsuit which was settled during 2010. The claims are for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. The petitions seek disgorgement, costs, expenses, and unspecified equitable relief. On September 22, 2008, the 133rd District Court consolidated these complaints as In re TETRA Technologies, Inc. Derivative Litigation, Cause No. 2008-23432 (133rd Dist. Ct., Harris County, Tex.), and appointed Thomas Prow and Mark Patricola as Co-Lead Plaintiffs. This lawsuit was stayed by agreement of the parties pending the Court’s ruling on our motion to dismiss the federal class action. On September 8, 2009, the plaintiffs in this state court action filed a consolidated petition which makes factual allegations similar to the surviving allegations in the federal lawsuit prior to it being settled. On April 19, 2010, the Court granted our motion to abate the suit, based on plaintiff’s inability to demonstrate derivative standing. On June 8, 2010, we received a letter from plaintiff’s counsel demanding that our board of directors take action against the defendants named in the previously filed derivative lawsuit. We have reached an agreement in principle to settle the plaintiffs’ claims. The parties are finalizing the settlement papers for filing with the Court, and the Court has set a preliminary hearing on August 22, 2011. The settlement is subject to Court approval.

Environmental

One of our subsidiaries, TETRA Micronutrients, Inc. (TMI), previously owned and operated a production facility located in Fairbury, Nebraska. TMI is subject to an Administrative Order on Consent issued to American Microtrace, Inc. (n/k/a/ TETRA Micronutrients, Inc.) in the proceeding styled In the Matter of American Microtrace Corporation, EPA I.D. No. NED00610550, Respondent, Docket No. VII-98-H-0016, dated September 25, 1998 (the Consent Order), with regard to the Fairbury facility. TMI is liable for future remediation costs and ongoing environmental monitoring at the Fairbury facility under the Consent Order; however, the current owner of the Fairbury facility is responsible for costs associated with the closure of that facility.

In August of 2009, the Environmental Protection Agency (EPA), pursuant to Sections 308 and 311 of the Clean Water Act (CWA), served a request for information with regard to a release of zinc bromide that occurred from one of our transport barges on the Mississippi River on March 11, 2009. We timely filed a response to that request for information in August 2009. In January 2010, the EPA issued a Notice of Violation and Opportunity to Show Cause related to the spill. We met with the EPA in April 2010 to discuss potential violations and penalties. It has been agreed that no injunctive relief will be required. We have finalized a joint stipulation of settlement with the EPA, whereby we are responsible for a penalty of $487,000, which was submitted to the Department of Justice and the U.S. District Court for the Western District of Tennessee. The settlement was entered into the record on April 28, 2011. The penalty amount was paid during May 2011 and we expect the full amount to be covered by insurance.

NOTE I – INDUSTRY SEGMENTS

We manage our operations through five operating segments: Fluids, Offshore Services, Maritech, Production Testing, and Compressco.

Our Fluids Division manufactures and markets clear brine fluids, additives, and other associated products and services to the oil and gas industry for use in well drilling, completion, and workover operations both in the United States and in certain regions of Latin America, Europe, Asia, the Middle East, and Africa. The Division also markets liquid and dry calcium chloride products manufactured at its production facilities to a variety of markets outside the energy industry.
 
 
14

 
 
Our Offshore Division consists of two operating segments: Offshore Services and Maritech, an oil and gas exploration, exploitation, and production segment. The Offshore Services segment provides (1) downhole and subsea oil and gas services such as well plugging and abandonment, workover, and wireline services, (2) various decommissioning and certain construction services utilizing heavy lift barges and various cutting technologies in the decommissioning or construction of offshore oil and gas production platforms and pipelines, and (3) diving services involving conventional and saturated air diving.
 
The Maritech segment consists of our Maritech subsidiary, which is an oil and gas exploration, development, and production operation focused in the offshore, inland waters, and onshore U.S. Gulf Coast region. As a result of certain sales transactions during the first eight months of 2011, including the May 31, 2011, sale of a significant portion of Maritech’s oil and gas properties, Maritech has sold approximately 95% of its proved reserves as of December 31, 2010. Maritech’s remaining operations consist primarily of the ongoing well plugging, abandonment, and decommissioning associated with its remaining offshore production platforms. Maritech intends to acquire a significant portion of these services from the Offshore Division’s Offshore Services segment.
 
Our Production Enhancement Division consists of two operating segments: Production Testing and Compressco. The Production Testing segment provides production testing services in many of the major oil and gas basins in the United States, as well as onshore basins in certain regions in Mexico, Brazil, Northern Africa, the Middle East, and other international markets.

The Compressco segment provides wellhead compression-based and other production enhancement services throughout many of the onshore producing regions of the United States, as well as certain basins in Canada, Mexico, South America, Europe, Asia, and other international locations. Beginning June 20, 2011, following Compressco Partners’ initial public offering, we allocate and charge certain corporate and divisional direct and indirect administrative costs to Compressco Partners.

We generally evaluate performance and allocate resources based on profit or loss from operations before income taxes and nonrecurring charges, return on investment, and other criteria. Transfers between segments, as well as 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.

Summarized financial information concerning the business segments from continuing operations is as follows:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(In Thousands)
 
Revenues from external customers
                       
   Product sales
                       
      Fluids Division
  $ 68,430     $ 62,599     $ 127,934     $ 113,854  
      Offshore Division
                               
         Offshore Services
    1,192       499       2,127       1,147  
         Maritech
    33,155       49,576       76,749       95,794  
         Intersegment eliminations
    -       -       -       -  
            Total Offshore Division
    34,347       50,075       78,876       96,941  
      Production Enhancement Division
                               
         Production Testing
    -       -       -       3,610  
         Compressco
    2,513       1,241       5,003       2,703  
            Total Production Enhancement Division
    2,513       1,241       5,003       6,313  
      Consolidated
  $ 105,290     $ 113,915     $ 211,813     $ 217,108  
 
 
15

 

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(In Thousands)
 
Revenues from external customers
                       
   Services and rentals
                       
      Fluids Division
  $ 20,365     $ 16,714     $ 38,191     $ 31,704  
      Offshore Division
                               
         Offshore Services
    86,060       84,839       136,840       135,448  
         Maritech
    227       759       655       1,140  
         Intersegment eliminations
    (28,421 )     (18,156 )     (34,037 )     (23,296 )
            Total Offshore Division
    57,866       67,442       103,458       113,292  
      Production Enhancement Division
                               
         Production Testing
    31,738       24,342       64,948       46,934  
         Compressco
    19,813       19,205       39,207       38,473  
            Total Production Enhancement Division
    51,551       43,547       104,155       85,407  
      Corporate overhead
    42       -       42       -  
      Consolidated
  $ 129,824     $ 127,703     $ 245,846     $ 230,403  

   Intersegment revenues
                       
      Fluids Division
  $ 34     $ 16     $ 48     $ 32  
      Offshore Division
                               
         Offshore Services
    3       63       3       204  
         Maritech
    -       -       -       35  
         Intersegment eliminations
    -       -       -       -  
            Total Offshore Division
    3       63       3       239  
      Production Enhancement Division
                               
         Production Testing
    1       4       1       4  
         Compressco
    -       -       -       -  
            Total Production Enhancement Division
    1       4       1       4  
      Intersegment eliminations
    (38 )     (83 )     (52 )     (275 )
      Consolidated
  $ -     $ -     $ -     $ -  
                                 
   Total revenues
                               
      Fluids Division
  $ 88,829     $ 79,329     $ 166,173     $ 145,590  
      Offshore Division
                               
         Offshore Services
    87,255       85,401       138,970       136,799  
         Maritech
    33,382       50,335       77,404       96,969  
         Intersegment eliminations
    (28,421 )     (18,156 )     (34,037 )     (23,296 )
            Total Offshore Division
    92,216       117,580       182,337       210,472  
      Production Enhancement Division
                               
         Production Testing
    31,739       24,346       64,949       50,548  
         Compressco
    22,326       20,446       44,210       41,176  
            Total Production Enhancement Division
    54,065       44,792       109,159       91,724  
      Corporate overhead
    42       -       42       -  
      Intersegment eliminations
    (38 )     (83 )     (52 )     (275 )
      Consolidated
  $ 235,114     $ 241,618     $ 457,659     $ 447,511  

Income before taxes and discontinued operations
     
      Fluids Division
  $ 11,545     $ 10,191     $ 18,794     $ 16,377  
      Offshore Division
                               
         Offshore Services
    13,577       14,269       9,201       11,828  
         Maritech
    38,523       1,044       34,003       9,687  
         Intersegment eliminations
    1,588       81       1,747       572  
            Total Offshore Division
    53,688       15,394       44,951       22,087  
      Production Enhancement Division
                               
         Production Testing
    5,988       3,020       15,071       7,015  
         Compressco
    3,809       5,037       7,814       10,133  
            Total Production Enhancement Division
    9,797       8,057       22,885       17,148  
      Corporate overhead
    (27,476 )(1)     (13,104 )(1)     (43,117 )(1)     (26,602 )(1)
      Consolidated
  $ 47,554     $ 20,538     $ 43,513     $ 29,010  
 
 
16

 

   
June 30,
 
   
2011
   
2010
 
Total assets
 
(In Thousands)
 
      Fluids Division
  $ 384,744     $ 381,485  
      Offshore Division
               
         Offshore Services
    167,749       177,656  
         Maritech
    30,775       308,292  
         Intersegment eliminations
    (55 )     (1,674 )
            Total Offshore Division
    198,469       484,274  
      Production Enhancement Division
               
         Production Testing
    97,675       101,997  
         Compressco
    218,020       197,487  
            Total Production Enhancement Division
    315,695       299,484  
      Corporate overhead
    352,044  (2)     171,779  (2)
      Consolidated
  $ 1,250,952     $ 1,337,022  

(1)  Amounts reflected include the following general corporate expenses:
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(In Thousands)
 
General and administrative expense
  $ 8,282     $ 9,083     $ 18,650     $ 17,769  
Depreciation and amortization
    729       727       1,414       1,503  
Interest expense
    4,140       4,303       8,494       8,279  
Other general corporate (income) expense, net
    14,325       (1,009 )     14,559       (949 )
Total
  $ 27,476     $ 13,104     $ 43,117     $ 26,602  
(2)  Includes assets of discontinued operations.
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Business Overview

We continue to take strategic steps to respond to the increasing demand for our products and services. The domestic oil and gas industry continues to increase its demand for services, as reflected by the eight consecutive quarters of increasing domestic rig counts. Most of this domestic growth has been onshore and includes continued strong activity in shale fields, where our Fluids segment has continued to capitalize on the increasing demand for frac water services. Our Production Testing segment also has seen significant domestic growth as a result of increased activity. In addition to growing these domestic businesses, we also continue to pursue international growth opportunities, capitalizing on escalating activity in the regions we serve. In June 2011, our Compressco Partners, L.P. subsidiary completed its initial public offering, issuing approximately 17% of its common units to the public for $53.4 million gross proceeds. Compressco Partners intends to continue growing its business, both organically and through acquisitions. To better serve the Gulf of Mexico decommissioning market, in July 2011, we purchased a heavy lift derrick barge with a 1,600-metric-ton lift capacity, fully-revolving crane. With this heavy lift vessel, which we expect to place into service in the Gulf of Mexico during the fourth quarter of 2011, our Offshore Services segment will significantly increase its heavy lift capacity and enable us for the first time to serve customers with heavier structures in the Gulf of Mexico. Lastly, to fund our growth initiatives and to increase our focus on our service operations, during the second quarter of 2011, Maritech sold a significant portion of its yearend proved reserves to Tana Exploration Company LLC (Tana).

Each of our segments, with the exception of Maritech, reported increased revenues during the second quarter of 2011 compared to the prior year period. In particular, our Fluids and Production Testing segments each reported significant revenue increases, primarily due to increased onshore and international activity. Offshore Fluids segment activity levels continue to be hampered by the uncertain regulatory environment following the 2010 Macondo accident. Despite high activity levels, our Offshore Services segment reported decreased profitability due to decreased diving services profits. Our Compressco segment also reported decreased profitability, primarily due to increased domestic operating expenses. Excluding the net gain reported from sales of oil and gas producing properties, Maritech’s profitability dropped significantly during the second quarter compared to the prior year period, primarily due to increased impairments and excess decommissioning expenses. Maritech’s remaining decommissioning
 
 
17

 
 
liabilities total $136.9 million, and the significant majority of this decommissioning and abandonment work is planned during the next two year period. Overall consolidated earnings during the current year quarter were increased compared to the prior year period, due to the gain on the sale of Maritech properties and despite the hedge ineffectiveness loss upon liquidation of the associated swap derivatives that previously hedged Maritech production cash flows.

With approximately $323.8 million of consolidated cash as of June 30, 2011, significant borrowing capacity under the terms of our existing bank revolving credit facilities, and the potential to access additional capital resources, we have significant capacity to fund our plans for future growth. Consolidated cash as of June 30, 2011, includes approximately $19.3 million held by our Compressco Partners subsidiary that is available solely for its plans for growth and operating needs. The heavy lift barge we purchased in July 2011 utilized $62.8 million of available cash, excluding the costs of transportation, outfitting, and inspection of the vessel. We expect to increase capital expenditure activity levels for 2011 for all of our businesses, except Maritech, compared to the reduced levels of the past year. We continue to seek new markets and new product development for our existing businesses and pursue strategic acquisition opportunities.

Critical Accounting Policies

There have been no material changes or developments in the evaluation of the accounting estimates and the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed in our Form 10-K for the year ended December 31, 2010. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. We periodically evaluate these estimates and judgments, including those related to potential impairments of long-lived assets (including goodwill), the collectability of accounts receivable, and the cost of future abandonment and decommissioning obligations. Our estimates are based on historical experience and on future expectations that we believe are reasonable. The fair values of large portions of our total assets and liabilities are measured using significant unobservable inputs. The combination of these factors forms the basis for judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources. These judgments and estimates may change as new events occur, as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.

Results of Operations

Three months ended June 30, 2011 compared with three months ended June 30, 2010.

Consolidated Comparisons
 
   
Three Months Ended June 30,
   
Period to Period Change
 
   
2011
   
2010
   
2011 vs 2010
   
% Change
 
   
(In Thousands, Except Percentages)
 
                         
Revenues
  $ 235,114     $ 241,618     $ (6,504 )     -2.7 %
Gross profit
    35,813       47,832       (12,019 )     -25.1 %
   Gross profit as a percentage of revenue
    15.2 %     19.8 %                
General and administrative expense
    29,006       24,955       4,051       16.2 %
   General and administrative expense as
                               
     a percentage of revenue
    12.3 %     10.3 %                
Interest expense, net
    4,085       4,238       (153 )     -3.6 %
(Gain) loss on sale of assets
    (59,577 )     157       (59,734 )        
Other (income) expense, net
    14,745       (2,056 )     16,801          
Income before taxes and discontinued operations
    47,554       20,538       27,016       131.5 %
   Income before taxes and discontinued operations as
                               
     a percentage of revenue
    20.2 %     8.5 %                
Provision for income taxes
    17,031       6,903       10,128       146.7 %
Income before discontinued operations
    30,523       13,635       16,888       123.9 %
Loss from discontinued operations, net of taxes
    (54 )     (75 )     21          
Net income
    30,469       13,560       16,909       124.7 %
Net (income) attributable to noncontrolling interest
    (95 )     -       (95 )        
Net income attriubtable to TETRA stockholders
  $ 30,374     $ 13,560     $ 16,814       124.0 %
 
 
18

 
 
Consolidated revenues for the quarter ended June 30, 2011, decreased compared to the prior year period primarily due to a reduction in revenues from our Maritech segment, which sold approximately 95% of its yearend proved oil and gas reserves during the first eight months of the year. These sales of oil and gas properties will significantly reduce Maritech segment revenues going forward, and Maritech continues to seek buyers for its remaining producing properties. In addition, although our Offshore Services segment recorded increased revenues, an increased amount of this activity was performed for Maritech and eliminated in consolidation, thereby contributing to decreased consolidated Offshore Division revenues. Each of our Fluids, Production Testing, and Compressco segments reflected increased activity as compared to the prior year period. Our Fluids segment’s increased revenues were primarily due to increased manufactured chemicals and international CBF sales, which more than offset decreased domestic offshore activity due to continuing regulatory uncertainty. Growth in both of our Production Testing and Compressco segments was primarily due to increased domestic activity. Overall gross profit decreased primarily due to higher excess decommissioning costs and impairments incurred by Maritech, although Offshore Services and Compressco gross profit also decreased compared to the prior year period. These decreases were partially offset by increased gross profit from our Production Testing and Fluids segments.
 
Consolidated general and administrative expenses increased during the second quarter of 2011 compared to the prior year period due to approximately $2.7 million of increased employee-related costs, primarily related to employee retention and incentive benefits paid in connection with the sale of Maritech properties. In addition, general and administrative expenses increased due to approximately $0.4 million of increased professional fee expenses and $0.7 million of increased insurance and other general expenses during the current year period. These increases were partially offset by decreased office expense.

Net consolidated interest expense decreased slightly during the second quarter of 2011 as compared to the prior year period due to increased capitalized interest during the period. Proceeds from the issuance of the 2010 Senior Notes were used to repay the 2004 Senior Notes in December 2010.

During the second quarter of 2011, Maritech oil and gas property sales generated approximately $58.2 million of consolidated net gains. In addition, our Offshore Services segment generated an additional $1.6 million of gain from the sale of certain equipment assets.

Consolidated other expense increased during the second quarter of 2011 compared to the prior year period, primarily due to approximately $14.6 million of increased hedge ineffectiveness loss during the current year period that was realized upon the liquidation of commodity swap derivatives that previously hedged Maritech’s production cash flows. Other expense also increased due to approximately $1.5 million of decreased foreign currency gains.

Our provision for income taxes during the second quarter of 2011 increased due to increased earnings compared to the prior year period.

Divisional Comparisons

Fluids Division
 
   
Three Months Ended June 30,
   
Period to Period Change
 
   
2011
   
2010
   
2011 vs 2010
   
% Change
 
   
(In Thousands, Except Percentages)
 
                         
Revenues
  $ 88,829     $ 79,329     $ 9,500       12.0 %
Gross profit
    18,778       15,369       3,409       22.2 %
   Gross profit as a percentage of revenue
    21.1 %     19.4 %                
General and administrative expense
    7,363       5,684       1,679       29.5 %
   General and administrative expense as
                               
     a percentage of revenue
    8.3 %     7.2 %                
Interest (income) expense, net
    26       (5 )     31          
Other (income) expense, net
    (156 )     (501 )     345          
Income before taxes and discontinued operations
  $ 11,545     $ 10,191     $ 1,354       13.3 %
   Income before taxes and discontinued operations as
                               
     a percentage of revenue
    13.0 %     12.8 %                

 
19

 

The increase in Fluids Division revenues during the second quarter of 2011 compared to the prior year period was primarily due to $5.8 million of increased product sales revenues. This increase in product sales revenues was due