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, 2012

 

[  ] 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 November 5, 2012, there were 78,081,789 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

 

Nine Months Ended

 

September 30,

 

September 30,

 

2012

 

2011

 

2012

 

2011

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

$

61,597 

 

 

$

53,225 

 

 

$

204,608 

 

 

$

265,038 

 

Services and rentals

 

172,389 

 

 

 

148,209 

 

 

 

445,083 

 

 

 

394,055 

 

Total revenues

 

233,986 

 

 

 

201,434 

 

 

 

649,691 

 

 

 

659,093 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

54,996 

 

 

 

56,738 

 

 

 

168,002 

 

 

 

216,442 

 

Cost of services and rentals

 

107,875 

 

 

 

92,802 

 

 

 

288,517 

 

 

 

254,251 

 

Depreciation, depletion, amortization, and accretion

 

20,232 

 

 

 

16,226 

 

 

 

56,786 

 

 

 

90,555 

 

Total cost of revenues

 

183,103 

 

 

 

165,766 

 

 

 

513,305 

 

 

 

561,248 

 

Gross profit

 

50,883 

 

 

 

35,668 

 

 

 

136,386 

 

 

 

97,845 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expense

 

34,210 

 

 

 

27,506 

 

 

 

96,567 

 

 

 

84,274 

 

Interest expense, net

 

4,258 

 

 

 

4,085 

 

 

 

12,493 

 

 

 

12,361 

 

(Gain) loss on sale of assets

 

129 

 

 

 

525 

 

 

 

(3,135)

 

 

 

(59,784)

 

Other (income) expense, net

 

(790)

 

 

 

722 

 

 

 

(2,807)

 

 

 

14,651 

 

Income before taxes and discontinued operations

 

13,076 

 

 

 

2,830 

 

 

 

33,268 

 

 

 

46,343 

 

Provision for income taxes

 

4,475 

 

 

 

870 

 

 

 

11,341 

 

 

 

16,372 

 

Income before discontinued operations

 

8,601 

 

 

 

1,960 

 

 

 

21,927 

 

 

 

29,971 

 

Income (loss) from discontinued operations, net of taxes

 

 

 

 

(6)

 

 

 

 

 

 

(63)

 

Net income

 

8,602 

 

 

 

1,954 

 

 

 

21,930 

 

 

 

29,908 

 

Net (income) loss attributable to noncontrolling interest

 

(889)

 

 

 

(567)

 

 

 

(1,962)

 

 

 

(662)

 

Net income attributable to TETRA stockholders

$

7,713 

 

 

$

1,387 

 

 

$

19,968 

 

 

$

29,246 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before discontinued operations attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TETRA stockholders

$

0.10 

 

 

$

0.02 

 

 

$

0.26 

 

 

$

0.38 

 

Income (loss) from discontinued operations attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TETRA stockholders

 

0.00 

 

 

 

(0.00)

 

 

 

0.00 

 

 

 

(0.00)

 

Net income attributable to TETRA stockholders

$

0.10 

 

 

$

0.02 

 

 

$

0.26 

 

 

$

0.38 

 

Average shares outstanding

 

77,329 

 

 

 

76,717 

 

 

 

77,226 

 

 

 

76,517 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before discontinued operations attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TETRA stockholders

$

0.10 

 

 

$

0.02 

 

 

$

0.25 

 

 

$

0.37 

 

Income (loss) from discontinued operations attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TETRA stockholders

 

0.00 

 

 

 

(0.00)

 

 

 

0.00 

 

 

 

(0.00)

 

Net income attributable to TETRA stockholders

$

0.10 

 

 

$

0.02 

 

 

$

0.25 

 

 

$

0.37 

 

Average diluted shares outstanding

 

78,938 

 

 

 

78,340 

 

 

 

78,740 

 

 

 

78,105 

 

 

 

See Notes to Consolidated Financial Statements

 

1

 

TETRA Technologies, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

(Unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

8,602 

 

 

$

1,954 

 

 

$

21,930 

 

 

$

29,908 

 

Foreign currency translation adjustment, net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

tax expense of $41 and $892, respectively, in 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and tax benefit of $1,825 and $1,055, respectively, in 2011

 

5,074 

 

 

 

(9,132)

 

 

 

2,054 

 

 

 

(3,419)

 

Net change in derivative fair value, net of taxes of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0 and $1,578, respectively, in 2011

 

– 

 

 

 

– 

 

 

 

– 

 

 

 

2,663 

 

Comprehensive income (loss)

 

13,676 

 

 

 

(7,178)

 

 

 

23,984 

 

 

 

29,152 

 

Less: comprehensive income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest

 

(889)

 

 

 

(567)

 

 

 

(1,962)

 

 

 

(662)

 

Comprehensive income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TETRA stockholders

$

12,787 

 

 

$

(7,745)

 

 

$

22,022 

 

 

$

28,490 

 

 

 

 

See Notes to Consolidated Financial Statement

 

2

 

TETRA Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands)

 

 

September 30, 2012

 

December 31, 2011

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

20,908 

 

 

$

204,412 

 

Restricted cash

 

5,568 

 

 

 

8,780 

 

Trade accounts receivable, net of allowances for doubtful

 

 

 

 

 

 

 

accounts of $863 in 2012 and $1,849 in 2011

 

218,132 

 

 

 

141,537 

 

Deferred tax asset

 

30,240 

 

 

 

39,330 

 

Inventories

 

102,049 

 

 

 

99,985 

 

Oil and gas properties held for sale

 

19 

 

 

 

3,743 

 

Prepaid expenses and other current assets

 

27,253 

 

 

 

30,714 

 

Total current assets

 

404,169 

 

 

 

528,501 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment

 

 

 

 

 

 

 

Land and building

 

79,112 

 

 

 

76,937 

 

Machinery and equipment

 

607,103 

 

 

 

530,408 

 

Automobiles and trucks

 

55,579 

 

 

 

46,950 

 

Chemical plants

 

159,932 

 

 

 

158,065 

 

Construction in progress

 

47,566 

 

 

 

25,316 

 

Total property, plant, and equipment

 

949,292 

 

 

 

837,676 

 

Less accumulated depreciation

 

(344,444)

 

 

 

(308,375)

 

Net property, plant, and equipment

 

604,848 

 

 

 

529,301 

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

Goodwill

 

188,866 

 

 

 

99,132 

 

Patents, trademarks and other intangible assets, net of accumulated

 

 

 

 

 

 

 

amortization of $25,764 in 2012 and $22,572 in 2011

 

37,963 

 

 

 

11,872 

 

Deferred tax assets

 

71 

 

 

 

258 

 

Other assets

 

42,477 

 

 

 

34,246 

 

Total other assets

 

269,377 

 

 

 

145,508 

 

Total assets

$

1,278,394 

 

 

$

1,203,310 

 

 

 

See Notes to Consolidated Financial Statements

 

3

 

TETRA Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share Amounts)

 

 

September 30, 2012

 

December 31, 2011

 

(Unaudited)

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Trade accounts payable

$

64,503 

 

 

$

46,382 

 

Accrued liabilities

 

85,540 

 

 

 

80,940 

 

Current portion of long-term debt

 

35,665 

 

 

 

35 

 

Decommissioning and other asset retirement obligations, net

 

75,804 

 

 

 

105,008 

 

Total current liabilities

 

261,512 

 

 

 

232,365 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

332,960 

 

 

 

305,000 

 

Deferred income taxes

 

47,237 

 

 

 

48,537 

 

Decommissioning and other asset retirement obligations, net

 

23,702 

 

 

 

34,827 

 

Other liabilities

 

16,495 

 

 

 

13,493 

 

Total long-term liabilities

 

420,394 

 

 

 

401,857 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

TETRA Stockholders' equity:

 

 

 

 

 

 

 

Common stock, par value $0.01 per share; 100,000,000 shares

 

 

 

 

 

 

 

authorized; 80,390,787, shares issued at September 30, 2012,

 

 

 

 

 

 

 

and 79,673,374 shares issued at December 31, 2011

 

803 

 

 

 

797 

 

Additional paid-in capital

 

225,713 

 

 

 

220,144 

 

Treasury stock, at cost; 2,314,250 shares held at September 30, 2012,

 

 

 

 

 

and 2,249,959 shares held at December 31, 2011

 

(14,958)

 

 

 

(14,841)

 

Accumulated other comprehensive income (loss)

 

(823)

 

 

 

(2,877)

 

Retained earnings

 

343,891 

 

 

 

323,923 

 

Total TETRA stockholders' equity

 

554,626 

 

 

 

527,146 

 

Noncontrolling interests

 

41,862 

 

 

 

41,942 

 

Total equity

 

596,488 

 

 

 

569,088 

 

Total liabilities and equity

$

1,278,394 

 

 

$

1,203,310 

 

 

 

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,

 

2012

 

2011

Operating Activities:

 

 

 

 

 

 

 

Net Income

$

21,930 

 

 

$

29,908 

 

Reconciliation of net income to cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation, depletion, amortization, and accretion

 

56,786 

 

 

 

78,021 

 

Impairments of long-lived assets

 

– 

 

 

 

12,534 

 

Provision (benefit) for deferred income taxes

 

1,083 

 

 

 

11,241 

 

Equity-based compensation expense

 

7,393 

 

 

 

4,417 

 

Provision for doubtful accounts

 

(893)

 

 

 

963 

 

Gain on sale of assets

 

(3,135)

 

 

 

(59,784)

 

Other non-cash charges and credits

 

14,219 

 

 

 

34,721 

 

Changes in operating assets and liabilities, net of assets acquired:

 

 

 

 

 

 

 

Accounts receivable

 

(71,758)

 

 

 

(3,541)

 

Inventories

 

(3,098)

 

 

 

6,006 

 

Prepaid expenses and other current assets

 

4,790 

 

 

 

26,422 

 

Trade accounts payable and accrued expenses

 

19,022 

 

 

 

(29,695)

 

Decommissioning liabilities

 

(66,121)

 

 

 

(66,147)

 

Other

 

2,338 

 

 

 

3,317 

 

Net cash provided by (used in) operating activities

 

(17,444)

 

 

 

48,383 

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(80,608)

 

 

 

(99,857)

 

Acquisition of businesses, net

 

(163,305)

 

 

 

(1,500)

 

Proceeds on sale of property, plant, and equipment

 

12,752 

 

 

 

187,843 

 

Other Investing activities

 

3,277 

 

 

 

(26,386)

 

Net cash provided by (used in) investing activities

 

(227,884)

 

 

 

60,100 

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

Proceeds from long-term debt

 

64,176 

 

 

 

– 

 

Payments of long-term debt

 

(2,073)

 

 

 

– 

 

Compressco Partners' distributions

 

(3,393)

 

 

 

(125)

 

Proceeds from exercise of stock options

 

675 

 

 

 

2,432 

 

Proceeds from issuance of Compressco Partners' common units,

 

 

 

 

 

 

 

net of underwriters' discount

 

– 

 

 

 

50,234 

 

Compressco Partners' offering costs

 

– 

 

 

 

(2,038)

 

Excess tax benefit from equity compensation

 

205 

 

 

 

1,268 

 

Net cash provided by (used in) financing activities

 

59,590 

 

 

 

51,771 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

2,234 

 

 

 

(726)

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

(183,504)

 

 

 

159,528 

 

Cash and cash equivalents at beginning of period

 

204,412 

 

 

 

65,360 

 

Cash and cash equivalents at end of period

$

20,908 

 

 

$

224,888 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Interest paid

$

9,083 

 

 

$

9,073 

 

Income taxes paid (refunded)

 

7,066 

 

 

 

(13,887)

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

Adjustment of fair value of decommissioning liabilities

 

 

 

 

 

 

 

capitalized to oil and gas properties

$

– 

 

 

$

1,790 

 

 

 

See Notes to Consolidated Financial Statements

 

5

 

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 associated products and services, after-frac flow back, production well testing and associated services, wellhead compression, and selected offshore services including well plugging and abandonment, decommissioning, and diving. We also have a limited domestic exploration and production business. We were incorporated in Delaware in 1981 and are composed of five reporting segments organized into three divisions – Fluids, Production Enhancement, and Offshore. 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, 2011.

 

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 September 30, 2012, consists primarily of escrowed cash associated with our July 2011 purchase of a heavy lift derrick barge. The escrowed cash will be released to the sellers in accordance with the terms of the escrow agreement.

 

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 September 30, 2012, and December 31, 2011, are as follows:

 

 

September 30, 2012

 

December 31, 2011

 

(In Thousands)

 

 

 

 

 

 

 

 

Finished goods

$

71,703

 

 

$

71,247

 

Raw materials

 

5,051

 

 

 

5,653

 

Parts and supplies

 

24,195

 

 

 

22,216

 

Work in progress

 

1,100

 

 

 

869

 

Total inventories

$

102,049

 

 

$

99,985

 

6

 

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 

 

Nine Months Ended

 

September 30,

 

September 30,

 

2012

 

2011

 

2012

 

2011

 

(In Thousands)

Number of weighted average common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares outstanding

 

77,329

 

 

 

76,717

 

 

 

77,226

 

 

 

76,517

 

Assumed exercise of stock awards

 

1,609

 

 

 

1,623

 

 

 

1,514

 

 

 

1,588

 

Average diluted shares outstanding

 

78,938

 

 

 

78,340

 

 

 

78,740

 

 

 

78,105

 

 

In applying the treasury stock method to determine the dilutive effect of the stock options outstanding during the first nine months of 2012, we used the average market price of our common stock of $7.96. For the three months ended September 30, 2012 and 2011, the average diluted shares outstanding excludes the impact of 2,144,779 and 2,054,303 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 nine months ended September 30, 2012 and 2011, the average diluted shares outstanding excludes the impact of 2,576,375 and 1,874,492 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 such an 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 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.

 

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

 

7

 

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 values of our long-term Senior Notes at September 30, 2012, and December 31, 2011, were approximately $334.1 million and $332.4 million, respectively, compared to a carrying amount of $305.0 million, as current rates on those dates were more favorable than the stated interest rates on the Senior Notes. We calculate the fair value of our Senior Notes internally, using current market conditions and average cost of debt (a level 2 fair value measurement).

 

New Accounting Pronouncements

 

In June 2011, the FASB published ASU 2011-05, “Comprehensive Income (Topic 220), Presentation of Comprehensive Income” (ASU 2011-05), with the stated objective of improving the comparability, consistency, and transparency of financial reporting and increasing the prominence of items reported in other comprehensive income. As part of ASU 2011-05, the FASB eliminated the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The ASU amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and the amendments are applied retrospectively. In December 2011, with the issuance of ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” the FASB announced that it has deferred certain aspects of ASU 2011-05. The portion of this ASU that has been adopted has not had a significant impact on the accounting or disclosures in our financial statements. 

 

In May 2011, the FASB published ASU 2011-04, “Fair Value Measurement (Topic 820) – Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” whereby the FASB and the International Accounting Standards Board (IASB) aligned their definitions of fair value such that their fair value measurement and disclosure requirements are the same (except for minor differences in wording and style). The Boards concluded that the amendments in this ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The amendments in this ASU are effective during interim and annual periods beginning after December 15, 2011, and are applied prospectively. The adoption of the accounting and disclosure requirements of this ASU has not had a significant impact on our financial statements.

 

NOTE B – ACQUISITIONS AND DISPOSITIONS

 

Acquisition of Optima

 

On March 9, 2012, we acquired 100% of the outstanding common stock of Optima Solutions Holdings Limited (Optima), a provider of rig cooling services and associated products that suppress heat generated by high- rate flaring of hydrocarbons during well test operations. The acquisition of Optima, which is based in Aberdeen, Scotland, enables our Production Testing segment to provide its customers with a broader range of production testing and associated services and expands the segment’s presence in many significant global markets. Including the impact of additional working capital received and other adjustments to the purchase price, we paid 41.2 million pounds sterling (approximately $65.0 million equivalent) in cash as the purchase price for the Optima stock at closing and may pay up to an additional 4 million pounds sterling in contingent purchase price consideration, depending on a defined measure of earnings for Optima over each of the two years subsequent to the closing.

 

8

 

We allocated the purchase price to the fair value of the assets and liabilities acquired, which consisted of approximately $3.0 million of net working capital; $16.8 million of property, plant, and equipment; $20.4 million of certain intangible assets; $6.1 million of deferred tax liabilities and $3.5 million of other liabilities associated with the contingent purchase price consideration obligation; and $34.5 million of nondeductible goodwill. This allocation of the purchase price to Optima’s net assets and liabilities is preliminary and subject to the potential identification of additional assets and contingencies or revisions to the fair value calculations. These fair value calculations and allocations are expected to be finalized later during 2012, and could result in adjustments to the calculated depreciation and amortization of the tangible and intangible assets, respectively, that were acquired. The fair value of the obligation to pay the contingent purchase price consideration was calculated based on the anticipated earnings for Optima over each of the next two twelve month periods subsequent to the closing and could increase (up to 4 million pounds sterling) or decrease (to zero) depending on Optima’s actual and expected earnings going forward. Increases or decreases in the value of the anticipated contingent purchase price consideration obligation 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. The $34.5 million of goodwill preliminarily recorded to our Production Testing segment as a result of the Optima acquisition is supported by the expected strategic benefits discussed above to be generated from the acquisition. For the nine month period ended September 30, 2012, our revenues, depreciation and amortization, and pretax earnings included $15.1 million, $3.1 million, and $3.6 million, respectively, associated with the acquired operations of Optima after the closing in March 2012. In addition to the above impact on our results of operations, transaction costs associated with the acquisition of Optima of approximately $1.3 million were also charged to general and administrative expense during the nine month period.

 

Acquisition of ERS

 

On April 23, 2012, we acquired the assets and operations of Eastern Reservoir Services (ERS), a division of Patterson-UTI Energy, Inc. for a cash purchase price of $42.5 million. ERS is a provider of production testing and after-frac flow back services to oil and gas operators in the Appalachian and U.S. Rocky Mountain regions, and the acquisition represents a strategic geographic expansion of our existing Production Testing segment operations, allowing it to serve customers in additional basins in the U.S.

 

We allocated the purchase price to the fair value of the assets acquired, which consisted of approximately $18.5 million of property, plant, and equipment, approximately $3.4 million of certain intangible assets, and approximately $20.6 million of nondeductible goodwill. This allocation of the purchase price to the ERS assets is preliminary and subject to the potential identification of additional assets and contingencies or revisions to the fair value calculations. These fair value calculations and allocations are expected to be finalized later during 2012 and could result in adjustments to the calculated depreciation and amortization of the tangible and intangible assets, respectively. The $20.6 million of goodwill preliminarily recorded to our Production Testing segment as a result of the ERS acquisition is supported by the strategic benefits discussed above to be generated from the acquisition. For the nine month period ended September 30, 2012, our revenues, depreciation and amortization, and pretax earnings included $16.0 million, $1.8 million, and $4.7 million, respectively, associated with the acquired operations of ERS after the closing in April 2012. In addition to the above impact on our results of operations, transaction costs associated with the ERS acquisition of approximately $0.5 million were also charged to general and administrative expense during the nine month period.

 

Acquisition of Greywolf

           

On July 31, 2012, we acquired the assets and operations of Greywolf Production Systems Inc. and GPS Ltd. (together, Greywolf) for a cash purchase price of approximately $55.5 million. Greywolf is a provider of production testing and after-frac flow back services to oil and gas operators in western Canada and the U.S. Williston Basin (including the Bakken formation) and the Niobrara Shale formation of the U.S. Rocky Mountain region. This acquisition represents an additional strategic geographic expansion of our existing Production Testing segment operations.

 

We allocated the purchase price to the fair value of the assets acquired, which consisted of approximately $17.7 million of property, plant, and equipment, approximately $3.5 million of certain intangible assets, and approximately $34.3 million of nondeductible goodwill. This allocation of the purchase price to the Greywolf assets is preliminary and subject to the potential identification of additional assets and contingencies or revisions to the fair value calculations. These fair value calculations and allocations are expected to be finalized during the first quarter of 2013 and could result in adjustments to the calculated depreciation and amortization of the tangible and intangible assets, respectively. The $34.3 million of goodwill preliminarily recorded to our Production Testing segment as a result of the Greywolf acquisition is supported by the strategic benefits discussed above to be

 

9

 

generated from the acquisition. For the nine month period ended September 30, 2012, our revenues, depreciation and amortization, and pretax earnings included $5.9 million, $0.4 million, and $1.2 million, respectively, associated with the acquired operations of Greywolf after the closing in July 2012. In addition to the above impact on our results of operations, transaction costs associated with the Greywolf acquisition of approximately $0.7 million were also charged to general and administrative expense during the nine month period.

 

Pro Forma Financial Information

 

The pro forma information presented below has been prepared to give effect to the acquisitions of Optima, ERS, and Greywolf as if they had occurred at the beginning of the periods presented and include the impact from the allocation of the purchase price on depreciation and amortization. The aggregate pro forma impact of the sale of equipment and oil and gas producing properties described below is not material and is not included in the following pro forma information. 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 transactions 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 transactions had occurred at the beginning of the periods presented or the future results that we will achieve after the acquisitions.

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2012

 

2011

 

2012

 

2011

 

(In Thousands, Except Per Share Amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

237,781

 

 

$

229,130

 

 

$

693,655

 

 

$

730,479

 

Depreciation, depletion, amortization, and accretion

$

20,424

 

 

$

18,625

 

 

$

59,809

 

 

$

97,509

 

Gross Profit

$

51,096

 

 

$

45,222

 

 

$

148,218

 

 

$

119,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before discontinued operations

$

8,897

 

 

$

3,290

 

 

$

28,851

 

 

$

36,352

 

Net income

$

8,898

 

 

$

3,284

 

 

$

28,854

 

 

$

36,289

 

Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TETRA stockholders

$

8,009

 

 

$

2,717

 

 

$

26,892

 

 

$

35,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to TETRA stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.10

 

 

$

0.04

 

 

$

0.35

 

 

$

0.47

 

Diluted

$

0.10

 

 

$

0.03

 

 

$

0.34

 

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TETRA stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.10

 

 

$

0.04

 

 

$

0.35

 

 

$

0.47

 

Diluted

$

0.10

 

 

$

0.03

 

 

$

0.34

 

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of Equipment

 

In January 2012, our Offshore Services segment sold certain equipment for cash of approximately $7.8 million. As a result of the sale, we recognized a gain on disposal of approximately $4.1 million, which is included in gain on sale of assets.

 

Sale of Maritech Producing Properties

 

In March 2012, Maritech sold its interest in certain onshore oil and gas producing properties for cash consideration of approximately $4.4 million. Following this transaction, Maritech’s remaining oil and gas reserves and production are negligible, and its operations consist primarily of the remaining well abandonment and decommissioning of its offshore oil and gas platforms and facilities.

 

10

 

NOTE C – LONG-TERM DEBT AND OTHER BORROWINGS

 

Long-term debt consists of the following:

 

 

September 30, 2012

 

December 31, 2011

 

 

(In Thousands)

 

Scheduled Maturity

 

 

 

 

 

 

 

Bank revolving line of credit facility

June 26, 2015

$

57,160 

 

 

$

 

Compressco Partners' bank credit facility

June 24, 2015

 

5,800 

 

 

 

 

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 

 

European bank credit facility

 

 

 

 

 

 

Other

 

 

665 

 

 

 

35 

 

Total debt

 

 

368,625 

 

 

 

305,035 

 

Less current portion

 

 

(35,665)

 

 

 

(35)

 

Total long-term debt

 

$

332,960 

 

 

$

305,000 

 

 

Subsequent to September 30, 2012, and as of November 9, 2012, we borrowed an additional $13.7 million pursuant to our revolving credit facility.

 

NOTE D – 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 decommissioning and debris removal costs associated with one remaining offshore platform previously destroyed by hurricanes. The amount of decommissioning liabilities recorded by Maritech is reduced by amounts allocable to joint interest owners and any contractual amounts to be paid by the previous owners of the oil and gas properties when the liabilities are satisfied.

 

The changes in the asset retirement obligations during the three and nine month periods ended September 30, 2012 and 2011, are as follows:

 

 

Three Months Ended September 30,

 

2012

 

2011

 

(In Thousands)

 

 

 

 

 

 

 

 

Beginning balance for the period, as reported

$

113,138 

 

 

$

144,525 

 

Activity in the period:

 

 

 

 

 

 

 

Accretion of liability

 

285 

 

 

 

631 

 

Revisions in estimated cash flows

 

9,187 

 

 

 

14,311 

 

Settlement of retirement obligations

 

(23,104)

 

 

 

(25,872)

 

Ending balance as of September 30

$

99,506 

 

 

$

133,595 

 

 

 

 

 

 

 

 

 

 

Nine  Months Ended September 30,

 

2012

 

2011

 

(In Thousands)

 

 

 

 

 

 

 

 

Beginning balance for the period, as reported

$

139,835 

 

 

$

272,815 

 

Activity in the period:

 

 

 

 

 

 

 

Accretion of liability

 

1,306 

 

 

 

3,789 

 

Revisions in estimated cash flows

 

19,293 

 

 

 

40,120 

 

Settlement of retirement obligations

 

(60,928)

 

 

 

(183,129)

 

Ending balance as of September 30

$

99,506 

 

 

$

133,595 

 

 

 

 

 

 

 

 

 

11

 

Revisions in estimated cash flows during the third quarter of 2012 resulted primarily from additional work anticipated to be required on Maritech’s offshore oil and gas properties. Settlements of retirement obligations during the three and nine month periods ended September 30, 2011, include approximately $3.3 and $122.0 million, respectively, of obligations associated with oil and gas properties sold by Maritech during these periods.

 

NOTE E – HEDGE CONTRACTS

 

We are exposed to financial and market risks that affect our businesses. We have currency exchange rate risk exposure related to 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, we face market risk exposure related to changes in applicable interest rates. We have concentrations of credit risk as a result of trade receivables owed to us by companies in the energy industry. 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. Prior to the sale of 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. These cash flow commodity hedge contracts were liquidated in the second quarter of 2011. For these and other hedge contracts, we formally document the 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.

 

Derivative Hedge Contracts

 

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

 

Prior to their liquidation during 2011, we believe that our swap agreements were “highly effective cash flow hedges,” in managing the volatility of future cash flows associated with Maritech’s oil production. The effective portion of the change in the derivative’s fair value (i.e., that portion of the change in the derivative’s fair value that offsets the corresponding change in the cash flows of the hedged transaction) was initially reported as a component of accumulated other comprehensive income, which was classified within equity. This component of accumulated other comprehensive income associated with cash flow hedge derivative contracts, including any derivative contracts which have been liquidated, was subsequently reclassified into product sales revenues, utilizing the specific identification method, when the hedged exposure affected earnings (i.e., when hedged oil and gas production volumes were reflected in revenues). Any “ineffective” portion of the change in the derivative’s fair value was recognized in earnings immediately.

 

Pretax gains and losses associated with oil and gas derivative swap contracts for the nine month periods ended September 30, 2011, are summarized below:

 

 

Nine Months Ended September 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)

 

 

Other Hedge Contracts

 

In July 2012, we borrowed 10.0 million euros (approximately $12.9 million equivalent as of September 30, 2012) and designated the borrowing as a hedge of our net investment in our European operations. Changes in the foreign currency exchange rate have resulted in a cumulative change to the cumulative translation adjustment account of $0.5 million, net of taxes, at September 30, 2012, with no ineffectiveness recorded.

 

12

 

NOTE F – EQUITY

 

Changes in equity for the three and nine month periods ended September 30, 2012 and 2011, are as follows:

 

 

Three Months Ended September 30,

 

2012

 

2011

 

 

Noncontrolling

 

 

 

Noncontrolling

 

 

TETRA

 

Interest

 

Total

 

TETRA

 

Interest

 

Total

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance for the period

$

540,794 

 

 

$

41,329 

 

 

$

582,123 

 

 

$

558,628 

 

 

$

42,980 

 

 

$

601,608 

 

Net income

 

7,713 

 

 

 

889 

 

 

 

8,602 

 

 

 

1,387 

 

 

 

567 

 

 

 

1,954 

 

Changes in commodity derivatives, net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

taxes of $0

 

– 

 

 

 

– 

 

 

 

– 

 

 

 

– 

 

 

 

– 

 

 

 

– 

 

Foreign currency translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

benefit of $41 and $1,825, respectively

 

5,074 

 

 

 

– 

 

 

 

5,074 

 

 

 

(9,132)

 

 

 

– 

 

 

 

(9,132)

 

Exercise of common stock options

 

61 

 

 

 

– 

 

 

 

61 

 

 

 

492 

 

 

 

– 

 

 

 

492 

 

Issuance of Compressco Partners common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units, net of offering costs

 

– 

 

 

 

– 

 

 

 

– 

 

 

 

– 

 

 

 

(629)

 

 

 

(629)

 

Distributions to public unitholders

 

– 

 

 

 

(1,094)

 

 

 

(1,094)

 

 

 

– 

 

 

 

(125)

 

 

 

(125)

 

Equity-based compensation

 

2,476 

 

 

 

664 

 

 

 

3,140 

 

 

 

1,277 

 

 

 

– 

 

 

 

1,277 

 

Treasury stock and other

 

 

 

 

74 

 

 

 

75 

 

 

 

(190)

 

 

 

– 

 

 

 

(190)

 

Excess tax benefit from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

equity compensation

 

(1,493)

 

 

 

– 

 

 

 

(1,493)

 

 

 

(126)

 

 

 

– 

 

 

 

(126)

 

Ending balance as of September 30,

$

554,626 

 

 

$

41,862 

 

 

$

596,488 

 

 

$

552,336 

 

 

$

42,793 

 

 

$

595,129 

 

 

 

Nine Months Ended September 30,

 

2012

 

2011

 

 

Noncontrolling

 

 

 

Noncontrolling

 

 

TETRA

 

Interest

 

Total

 

TETRA

 

Interest

 

Total

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance for the period

$

527,146 

 

 

$

41,942 

 

 

$

569,088 

 

 

$

516,323 

 

 

$

– 

 

 

$

516,323 

 

Net income

 

19,968 

 

 

 

1,962 

 

 

 

21,930 

 

 

 

29,246 

 

 

 

662 

 

 

 

29,908 

 

Changes in commodity derivatives, net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

taxes of $1,578

 

– 

 

 

 

– 

 

 

 

– 

 

 

 

2,663 

 

 

 

– 

 

 

 

2,663 

 

Foreign currency translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

benefit of $892 and $1,055, respectively

 

2,054 

 

 

 

– 

 

 

 

2,054 

 

 

 

(3,419)

 

 

 

– 

 

 

 

(3,419)

 

Exercise of common stock options

 

819 

 

 

 

– 

 

 

 

819 

 

 

 

3,297 

 

 

 

– 

 

 

 

3,297 

 

Issuance of Compressco Partners common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units, net of offering costs

 

– 

 

 

 

– 

 

 

 

– 

 

 

 

– 

 

 

 

42,256 

 

 

 

42,256 

 

Distributions to public unitholders

 

– 

 

 

 

(3,369)

 

 

 

(3,369)

 

 

 

– 

 

 

 

(125)

 

 

 

(125)

 

Equity-based compensation

 

6,080 

 

 

 

1,313 

 

 

 

7,393 

 

 

 

4,417 

 

 

 

– 

 

 

 

4,417 

 

Treasury stock and other

 

(145)

 

 

 

14 

 

 

 

(131)

 

 

 

(1,459)

 

 

 

– 

 

 

 

(1,459)

 

Excess tax benefit from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

equity compensation

 

(1,296)

 

 

 

– 

 

 

 

(1,296)

 

 

 

1,268 

 

 

 

– 

 

 

 

1,268 

 

Ending balance as of September 30,

$

554,626 

 

 

$

41,862 

 

 

$

596,488 

 

 

$

552,336 

 

 

$

42,793 

 

 

$

595,129 

 

 

NOTE G – 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 our financial position, results of operations, or liquidity.

 

13

 

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.

 

NOTE H – INDUSTRY SEGMENTS

 

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

 

Our Fluids Division manufactures and markets clear brine fluids, 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 Production Enhancement Division consists of two operating segments: Production Testing and Compressco. The Production Testing segment provides after-frac flow back, production well testing, rig cooling, and other associated services in many of the major oil and gas basins in the United States, Mexico, Canada, as well as in certain basins in certain regions in South America, Africa, Europe, the Middle East, and Australia.

 

The Compressco segment provides compression-based production enhancement services, including both conventional wellhead compression services and unconventional compression services, and in certain markets, well monitoring and sand separation services. Compressco provides these services throughout many of the onshore producing regions of the United States, as well as certain basins in Mexico, Canada, and certain countries in South America, Europe, Asia, and other international locations. Beginning June 20, 2011, following the initial public offering of Compressco Partners, L.P. (Compressco Partners), we allocate and charge certain corporate and divisional direct and indirect administrative costs to Compressco Partners.

 

Our Offshore Division consists of two operating segments: Offshore Services and Maritech. The Offshore Services segment provides (1) downhole and subsea oil and gas services such as well plugging and abandonment and wireline services, (2) decommissioning and certain construction services utilizing heavy lift barges and various cutting technologies with regard to offshore oil and gas production platforms and pipelines, and (3) conventional and saturated air diving services.

 

The Maritech segment is an oil and gas production operation. During 2011 and the first quarter of 2012, Maritech sold substantially all of its oil and gas producing property interests. Maritech’s operations consist primarily of the ongoing abandonment and decommissioning associated with its remaining offshore wells, facilities, and production platforms. Maritech intends to acquire a significant portion of these services from the Offshore Division’s Offshore Services segment.

 

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.

 

Summarized financial information concerning the business segments from continuing operations is as follows:

 

14

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2012

 

2011

 

2012

 

2011

 

 

(In Thousands)

 

Revenues from external customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fluids Division

$

56,485 

 

 

$

46,680 

 

 

$

190,756 

 

 

$

174,614 

 

 

Production Enhancement Division

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production Testing

 

– 

 

 

 

– 

 

 

 

– 

 

 

 

– 

 

 

Compressco

 

1,518 

 

 

 

3,326 

 

 

 

3,737 

 

 

 

8,329 

 

 

Total Production Enhancement Division

 

1,518 

 

 

 

3,326 

 

 

 

3,737 

 

 

 

8,329 

 

 

Offshore Division

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offshore Services

 

2,289 

 

 

 

1,348 

 

 

 

5,166 

 

 

 

3,475 

 

 

Maritech

 

1,305 

 

 

 

1,871 

 

 

 

4,949 

 

 

 

78,620 

 

 

Total Offshore Division