2013.09.30 10Q



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, 2013
 
[  ] 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 7, 2013, there were 78,844,626 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 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 

 
 

 
 
 
 
Product sales
$
79,027

 
$
61,597

 
$
229,915

 
$
204,608

Services and rentals
175,276

 
172,389

 
454,048

 
445,083

Total revenues
254,303

 
233,986

 
683,963

 
649,691

Cost of revenues:
 

 
 

 
 
 
 
Cost of product sales
74,240

 
54,996

 
210,113

 
168,002

Cost of services and rentals
111,870

 
108,311

 
296,501

 
289,749

Depreciation, amortization, and accretion
20,751

 
20,232

 
60,498

 
56,786

Total cost of revenues
206,861

 
183,539

 
567,112

 
514,537

Gross profit
47,442

 
50,447

 
116,851

 
135,154

General and administrative expense
31,776

 
33,774

 
99,032

 
95,335

Interest expense, net
4,207

 
4,258

 
12,585

 
12,493

Other (income) expense, net
(7,243
)
 
(661
)
 
(12,284
)
 
(5,942
)
Income before taxes and discontinued operations
18,702

 
13,076

 
17,518

 
33,268

Provision for income taxes
5,848

 
4,475

 
5,072

 
11,341

Income before discontinued operations
12,854

 
8,601

 
12,446

 
21,927

Income (loss) from discontinued operations, net of taxes

 
1

 

 
3

Net income
12,854

 
8,602

 
12,446

 
21,930

Net (income) attributable to noncontrolling interest
(744
)
 
(889
)
 
(1,964
)
 
(1,962
)
Net income attributable to TETRA stockholders
$
12,110

 
$
7,713

 
$
10,482

 
$
19,968

 
 
 
 
 
 
 
 
Basic net income per common share:
 

 
 

 
 
 
 
Income before discontinued operations attributable to TETRA stockholders
$
0.16

 
$
0.10

 
$
0.13

 
$
0.26

Income (loss) from discontinued operations attributable to TETRA stockholders

 

 

 

Net income attributable to TETRA stockholders
$
0.16

 
$
0.10

 
$
0.13

 
$
0.26

Average shares outstanding
78,030

 
77,329

 
77,867

 
77,226

 
 
 
 
 
 
 
 
Diluted net income per common share:
 

 
 

 
 
 
 
Income before discontinued operations attributable to TETRA stockholders
$
0.15

 
$
0.10

 
$
0.13

 
$
0.25

Income (loss) from discontinued operations attributable to TETRA stockholders

 

 

 

Net income attributable to TETRA stockholders
$
0.15

 
$
0.10

 
$
0.13

 
$
0.25

Average diluted shares outstanding
78,963

 
78,938

 
78,719

 
78,740

 

See Notes to Consolidated Financial Statements

1



TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Net income
$
12,854

 
$
8,602

 
$
12,446

 
$
21,930

Foreign currency translation adjustment, including taxes of $165 and $711 in 2013 and including taxes of $41 and $892 in 2012
6,873

 
5,074

 
(1,849
)
 
2,054

Comprehensive income
19,727

 
13,676

 
10,597

 
23,984

Less: comprehensive income attributable to noncontrolling interest
(744
)
 
(889
)
 
(1,964
)
 
(1,962
)
Comprehensive income attributable to TETRA stockholders
$
18,983

 
$
12,787

 
$
8,633

 
$
22,022

 

See Notes to Consolidated Financial Statements

2



TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
 
 
September 30,
2013
 
December 31,
2012
 
(Unaudited)
 
 

ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
28,676

 
$
74,048

Restricted cash
9,068

 
5,571

Trade accounts receivable, net of allowances for doubtful accounts of $856 in 2013 and $1,085 in 2012
196,143

 
176,352

Deferred tax asset
11,461

 
29,789

Inventories
92,325

 
103,041

Assets held for sale
14,603

 
12,009

Prepaid expenses and other current assets
19,770

 
34,299

Total current assets
372,046

 
435,109

Property, plant, and equipment:
 

 
 

Land and building
42,661

 
41,153

Machinery and equipment
653,053

 
589,725

Automobiles and trucks
58,917

 
57,708

Chemical plants
167,793

 
161,565

Construction in progress
30,232

 
40,452

Total property, plant, and equipment
952,656

 
890,603

Less accumulated depreciation
(385,678
)
 
(337,889
)
Net property, plant, and equipment
566,978

 
552,714

Other assets:
 

 
 

Goodwill
188,706

 
189,604

Patents, trademarks and other intangible assets, net of accumulated amortization of $30,223 in 2013 and $27,044 in 2012
32,846

 
36,735

Deferred tax assets
3,842

 
594

Other assets
37,134

 
47,062

Total other assets
262,528

 
273,995

Total assets
$
1,201,552

 
$
1,261,818

 

See Notes to Consolidated Financial Statements

3



TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
 
 
September 30,
2013
 
December 31,
2012
 
(Unaudited)
 
 

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Trade accounts payable
$
75,369

 
$
67,453

Accrued liabilities
78,577

 
73,254

Current portion of long-term debt

 
35,441

Decommissioning and other asset retirement obligations, net
33,964

 
80,667

Total current liabilities
187,910

 
256,815

Long-term debt, net
352,898

 
331,268

Deferred income taxes
23,301

 
41,910

Decommissioning and other asset retirement obligations, net
11,339

 
14,254

Other liabilities
19,955

 
24,263

Total long-term liabilities
407,493

 
411,695

Commitments and contingencies
 

 
 

Equity:
 

 
 

TETRA stockholders' equity:
 

 
 

Common stock, par value $0.01 per share; 100,000,000 shares authorized; 81,215,135 shares issued at September 30, 2013, and 80,446,169 shares issued at December 31, 2012
812

 
804

Additional paid-in capital
232,023

 
226,954

Treasury stock, at cost; 2,434,482 shares held at September 30, 2013, and 2,334,137 shares held at December 31, 2012
(15,318
)
 
(15,027
)
Accumulated other comprehensive income (loss)
(3,343
)
 
(1,494
)
Retained earnings
350,366

 
339,883

Total TETRA stockholders' equity
564,540

 
551,120

Noncontrolling interests
41,609

 
42,188

Total equity
606,149

 
593,308

Total liabilities and equity
$
1,201,552

 
$
1,261,818

 

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,
 
2013
 
2012
Operating activities:
 

 
 

Net income
$
12,446

 
$
21,930

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

Depreciation, amortization, and accretion
60,498

 
56,786

Provision (benefit) for deferred income taxes
(1,923
)
 
1,083

Equity-based compensation expense
5,113

 
7,393

Provision (benefit) for doubtful accounts
370

 
(893
)
Gain on sale of assets
(5,499
)
 
(3,135
)
Excess decommissioning/abandoning costs
54,408

 
19,120

Other non-cash charges and credits
(7,990
)
 
(4,901
)
Changes in operating assets and liabilities, net of assets acquired:
 

 
 

Accounts receivable
(3,558
)
 
(71,758
)
Inventories
10,873

 
(3,098
)
Prepaid expenses and other current assets
17,358

 
4,790

Trade accounts payable and accrued expenses
1,128

 
19,022

Decommissioning liabilities, net
(99,366
)
 
(66,121
)
Other
49

 
2,338

Net cash provided by (used in) operating activities
43,907

 
(17,444
)
Investing activities:
 

 
 

Purchases of property, plant, and equipment
(73,555
)
 
(80,608
)
Acquisition of businesses, net

 
(163,305
)
Proceeds on sale of property, plant, and equipment
1,391

 
12,752

Other investing activities
406

 
3,277

Net cash used in investing activities
(71,758
)
 
(227,884
)
Financing activities:
 

 
 

Proceeds from long-term debt
83,475

 
64,176

Payments of long-term debt
(97,841
)
 
(2,073
)
Compressco Partners' distributions
(3,603
)
 
(3,393
)
Proceeds from exercise of stock options
1,631

 
675

Excess tax benefit from equity compensation

 
205

Other financing activities
(754
)
 

Net cash provided by (used in) financing activities
(17,092
)
 
59,590

Effect of exchange rate changes on cash
(429
)
 
2,234

Increase (decrease) in cash and cash equivalents
(45,372
)
 
(183,504
)
Cash and cash equivalents at beginning of period
74,048

 
204,412

Cash and cash equivalents at end of period
$
28,676

 
$
20,908

Supplemental cash flow information:
 

 
 

Interest paid
$
10,063

 
$
9,083

Income taxes paid
6,171

 
7,066



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, frac water management, after-frac flow back, production well testing, offshore rig cooling, compression-based production enhancement, and selected offshore services including well plugging and abandonment, decommissioning, and diving. We also have a limited domestic oil and gas 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, 2012.
 
Beginning with the three month period ended September 30, 2013, certain ad valorem tax expenses for operating equipment of our Compressco segment have been classified as cost of revenues instead of being included in general and administrative expense as reported in prior periods. Prior period amounts have been reclassified to conform to the current year period's presentation. The amount of such reclassification is $0.7 million for the six month period ended June 30, 2013, and $0.4 million and $1.2 million for the three and nine month periods ended September 30, 2012, respectively. This reclassification had no effect on net income for any of the periods presented.

Certain other 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, 2013, 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 or us 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, 2013, and December 31, 2012, are as follows: 

6



 
September 30, 2013
 
December 31, 2012
 
(In Thousands)
Finished goods
$
64,756

 
$
72,312

Raw materials
4,269

 
5,396

Parts and supplies
22,576

 
24,497

Work in progress
724

 
836

Total inventories
$
92,325

 
$
103,041


Finished goods inventories include newly manufactured clear brine fluids as well as recycled brines that are repurchased from certain 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 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
(In Thousands)
Number of weighted average common shares outstanding
78,030

 
77,329

 
77,867

 
77,226

Assumed exercise of stock awards
933

 
1,609

 
852

 
1,514

Average diluted shares outstanding
78,963

 
78,938

 
78,719

 
78,740

 
In applying the treasury stock method to determine the dilutive effect of the stock options outstanding during the first nine months of 2013, we used the average market price of our common stock of $10.07. For the three and nine months ended September 30, 2013, the average diluted shares outstanding excludes the impact of 1,571,777 and 2,241,490 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 three and nine months ended September 30, 2012, 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.
 
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.
 

7



Repair Costs and Insurance Recoveries
 
During December 2010, we initiated legal proceedings against one of Maritech’s insurance underwriters that had disputed that certain hurricane damage related costs incurred or to be incurred qualified as covered costs pursuant to Maritech’s windstorm insurance policies. In February 2013, we entered into a settlement agreement with the underwriter whereby we received $7.6 million, a portion of which was credited to operating expenses during the nine months ended September 30, 2013.
 
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 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, 2013, and December 31, 2012, were approximately $323.2 million and $327.4 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). The fair values of the liability for the OPTIMA contingent purchase price consideration at September 30, 2013, and December 31, 2012, were approximately $0.6 million and $2.7 million, respectively. We calculate the fair value of the liability for our contingent purchase price consideration obligation in accordance with the OPTIMA share purchase agreement based upon the actual and anticipated earnings of our OPTIMA operations (a level 3 fair value measurement).
 
New Accounting Pronouncements
 
In June 2011, the Financial Accounting Standards Board (FASB) published Accounting Standards Update (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 2011-05 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 2011-05 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. In February 2013, the FASB issued ASU 2013-2, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” with the stated objective of improving the reporting of reclassifications out of accumulated other comprehensive income. The amendments in ASU 2013-2 are effective during interim and annual periods beginning after December 31, 2012. The adoption of

8



ASU 2011-05, 2011-12 and 2013-2 regarding comprehensive income have not had a significant impact on the accounting or disclosures in our financial statements. 
 
In December 2011, the FASB published ASU 2011-11, “Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities” (ASU 2011-11), which requires an entity to disclose the nature of its rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The objective of ASU 2011-11 is to make financial statements that are prepared under U.S. generally accepted accounting principles more comparable to those prepared under International Financial Reporting Standards. The new disclosures will give financial statement users information about both gross and net exposures. In January 2013, the FASB published ASU 2013-01, “Balance Sheet (Topic 210), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (ASU 2013-01), with the stated objective of clarifying the scope of offsetting disclosures and address any unintended consequences of ASU 2011-11. ASU 2011-11 and ASU 2013-01 are effective for interim and annual reporting periods beginning after January 1, 2013, and will be applied on a retrospective basis. The adoption of ASU 2011-11 and ASU 2013-01 did not have a material impact on our financial condition, results of operations, or liquidity.

In July 2013, the FASB published ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" (ASU 2013-11). The amendments in this ASU provide guidance on presentation of unrecognized tax benefits and are expected to reduce diversity in practice and better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this ASU are effective prospectively for interim and annual periods beginning after December 15, 2013, with early adoption and retrospective application permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

NOTE B – ACQUISITIONS AND DISPOSITIONS
 
Acquisition of Joint Venture Interest

In October 2013, we entered into an agreement to acquire the remaining 50% ownership interest of Ahmad Albinali & TETRA Arabia Company Ltd., a Saudi Arabian limited liability company. The closing of the transaction, which is subject to customary approvals by Saudi Arabian governmental agencies as well as other conditions, is expected to occur during the fourth quarter of 2013 or early 2014. Following the closing of this transaction, the Saudi Arabian limited liability company will become a wholly owned consolidated subsidiary.

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 offshore 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 consideration, depending on a defined measure of earnings for OPTIMA over each of the two years subsequent to the closing.
 
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; $7.2 million of deferred and other tax liabilities; $3.5 million of other liabilities associated with the contingent consideration; and $35.6 million of nondeductible goodwill. The fair value of the obligation to pay the contingent 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 consideration liability due to changes in the amounts paid or expected to be paid will be charged or credited to earnings in the period in which such changes occur. Subsequent to the acquisition, the liability associated with the contingent consideration was adjusted downward by approximately $1.8 million (approximately $0.7 million of which was adjusted during the nine months ended September 30, 2013), and

9



this amount was credited to earnings. The $35.6 million of goodwill 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. Transaction costs associated with the acquisition of approximately $1.3 million were also charged to general and administrative expense during the nine month period ended September 30, 2012.
 
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 represented a strategic geographic expansion of our 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. The $20.6 million of goodwill 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 ended September 30, 2012.
 
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 represented an additional strategic geographic expansion of our 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. The $34.3 million of goodwill recorded to our Production Testing segment as a result of the Greywolf 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 $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 ended September 30, 2012.
 
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 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.
 

10



 
Three Months Ended September 30, 2012
 
Nine Months Ended September 30, 2012
 
(In Thousands, Except Per Share Amounts)
 
 
 
 
Revenues
$
237,781

 
$
693,655

Depreciation, depletion, amortization, and accretion
$
20,424

 
$
59,809

Gross profit
$
51,096

 
$
148,218

 
 
 
 
Income before discontinued operations
$
8,897

 
$
28,851

Net income
$
8,898

 
$
28,854

Net income attributable to TETRA stockholders
$
8,009

 
$
26,892

 
 
 
 
Per share information:
 
 
 
Income before discontinued operations attributable to TETRA stockholders
 
 
 
Basic
$
0.10

 
$
0.35

Diluted
$
0.10

 
$
0.34

 
 
 
 
Net income attributable to TETRA stockholders
 
 
 
Basic
$
0.10

 
$
0.35

Diluted
$
0.10

 
$
0.34

 
NOTE C – LONG-TERM DEBT AND OTHER BORROWINGS
 
Long-term debt consists of the following:
 
 
September 30, 2013
 
December 31, 2012
 
 
(In Thousands)
 
Scheduled Maturity
 
 
 
Bank revolving line of credit facility
October 29, 2015
$
23,525

 
$
51,218

Compressco Partners' bank credit facility
June 24, 2015
24,373

 
10,050

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

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

4.00% Senior Notes, Series 2013
April 29, 2020
35,000

 

European bank credit facility
 

 

Other
 

 
441

Total debt
 
352,898

 
366,709

Less current portion
 

 
(35,441
)
Total long-term debt
 
$
352,898

 
$
331,268

Senior Notes
On April 29, 2013, we issued $35.0 million in aggregate principal amount of Series 2013 Senior Notes pursuant to a Note Purchase Agreement. The Series 2013 Senior Notes bear interest at the fixed rate of 4.0% and mature on April 29, 2020. On April 30, 2013, we utilized the proceeds from the issuance to repay the 2008-A Senior Notes. The Series 2013 Senior Notes were sold in the United States to accredited investors pursuant to an exemption from the Securities Act of 1933. Interest on the Series 2013 Senior Notes is due semiannually on April 29 and October 29 of each year. Similar to each other series of our outstanding senior notes, the Series 2013 Senior Notes contain customary covenants and restrictions and require us to maintain certain financial ratios, including a minimum level of net worth and a ratio between our long-term debt balance and a defined measure of operating cash flow over a twelve month period.

11



Compressco Partners' Bank Credit Facility
On May 14, 2013, Compressco Partners, L.P. (Compressco Partners) entered into an amendment of its bank credit facility whereby, among other modifications, the maximum credit commitment under the credit facility was increased from $20.0 million to $40.0 million.

On October 15, 2013, Compressco Partners entered into a new asset-based revolving credit facility with a syndicate of lenders including JPMorgan Chase Bank, N.A. as administrative agent (the Partnership Credit Agreement), which replaced Compressco Partners' previous credit agreement. Under the Partnership Credit Agreement, Compressco Partners, along with certain of its subsidiaries, are named as borrowers, and all obligations under the credit agreement are guaranteed by all of its existing and future, direct and indirect, domestic subsidiaries. We are not a borrower or a guarantor under the Partnership Credit Agreement. The Partnership Credit Agreement includes a maximum credit commitment of $100.0 million that is available for letters of credit (with a sublimit of $20.0 million), and includes an uncommitted $30.0 million expansion feature. The actual maximum credit availability under the Partnership Credit Agreement varies from time to time and is determined by calculating the applicable borrowing base, which is based upon applicable percentages of the values of eligible accounts receivable, inventory, and equipment, minus reserves as determined necessary by the Administrative Agent.

The Partnership Credit Agreement may be used to fund Compressco Partners' working capital needs, letters of credit, and for general partnership purposes, including the refinancing of Compressco Partners' previous credit facility, capital expenditures, and potential future expansions or acquisitions. So long as Compressco Partners is not in default, the Partnership Credit Agreement may also be used to fund Compressco Partners’ quarterly distributions at the option of the board of directors of the Partnership's general partner (provided, that after giving effect to such distributions, the borrowers will be in compliance with the financial covenants). The initial borrowings under the Partnership Credit Agreement of $24.5 million were used to repay in full all amounts outstanding under the previous credit facility dated June 24, 2011. Borrowings under the Partnership Credit Facility are subject to the satisfaction of customary conditions, including the absence of a default. The maturity date of the Partnership Credit Agreement is October 15, 2017.

Borrowings under the Partnership Credit Agreement bear interest at a rate per annum equal to, at Compressco Partners' option, either (a) LIBOR (adjusted to reflect any required bank reserves) for an interest period equal to one, two, three or six months (as selected by Compressco Partners), plus a margin of 2.25% per annum or (b) a base rate determined by reference to the highest of (1) the prime rate of interest per annum announced from time to time by JPMorgan Chase Bank, N.A. or (2) LIBOR (adjusted to reflect any required bank reserves) for a one-month interest period on such day plus 2.50% per annum. In addition to paying interest on outstanding principal under the Partnership Credit Agreement, Compressco Partners is required to pay a commitment fee, in respect of the unutilized commitments thereunder, of 0.375% per annum, paid quarterly in arrears. Compressco Partners is also required to pay a customary letter of credit fee equal to the applicable margin on revolving credit LIBOR loans and fronting fees.

The Partnership Credit Agreement requires Compressco Partners to maintain a minimum interest coverage ratio (ratio of earnings before interest and taxes to interest) of 4.0 to 1.0 as of the last day of any fiscal quarter, calculated on a trailing four quarters basis. In addition, the Partnership Credit Agreement includes customary negative covenants, which, among other things, limit Compressco Partners' ability to incur additional debt, incur, or permit certain liens to exist, or make certain loans, investments, acquisitions, or other restricted payments. The Partnership Credit Agreement provides that Compressco Partners can make distributions to holders of its common and subordinated units, but only if there is no default or event of default under the facility.

All obligations under the Partnership Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a first lien security interest in substantially all of the assets (excluding real property) of Compressco Partners and its existing and future, direct and indirect domestic subsidiaries, and all of the capital stock of its existing and future, direct and indirect subsidiaries (limited, in the case of foreign subsidiaries, to 65% of the capital stock of first tier foreign subsidiaries).

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

12



previously destroyed by a hurricane. The amount of decommissioning liabilities recorded by Maritech is reduced by amounts allocable to joint interest owners. We also operate facilities in various U.S. and foreign locations that are used in the manufacture, storage, and sale of our products, inventories, and equipment. These facilities are a combination of owned and leased assets. We are required to take certain actions in connection with the retirement of these assets. The value of our asset retirement obligations for non-Maritech properties was approximately $8.0 million and $7.5 million as of September 30, 2013, and December 31, 2012, respectively. The changes in consolidated asset retirement obligations during the three and nine month periods ended September 30, 2013, are as follows:
 
Three Months Ended 
 September 30, 2013
 
Nine Months Ended 
 September 30, 2013
 
(In Thousands)
Beginning balance for the period, as reported
$
57,330

 
$
94,921

Activity in the period:
 

 
 
Accretion of liability
173

 
504

Revisions in estimated cash flows
21,538

 
54,404

Settlement of retirement obligations
(33,738
)
 
(104,526
)
Ending balance as of September 30
$
45,303

 
$
45,303


Revisions in estimated cash flows during the first nine months of 2013 resulted primarily from additional work incurred and anticipated to be required on Maritech’s offshore oil and gas properties. Settlements of asset retirement obligations during the three and nine month periods ended September 30, 2013, include approximately $5.3 million of obligations associated with oil and gas properties that were sold by Maritech during the period.

NOTE E – MARKET RISKS AND DERIVATIVE AND 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. For hedge contracts qualifying for hedge accounting treatment, 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.
 
In July 2012, we borrowed 10.0 million euros (approximately $13.5 million equivalent as of September 30, 2013) 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 $0.9 million, net of taxes, at September 30, 2013, including a change of $0.3 million, net of taxes, during the nine months ended September 30, 2013, with no ineffectiveness recorded.

In October 2013, we and Compressco Partners each entered into foreign currency forward sale derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions for our Mexico subsidiaries. We entered into an approximately $10.5 million equivalent nominal value sale of U.S. dollars in November 2013, and Compressco Partners entered into an approximately $6.1 million equivalent nominal value sale of Mexican pesos in November 2013, at fixed exchange rates. Under this program, we and Compressco Partners may enter into similar derivative contracts from time to time. Although contracts pursuant to this program will serve as an economic hedge of the cash flow of our currency exchange risk exposure, they will not be formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period.


13



NOTE F – EQUITY
 
Changes in equity for the three and nine month periods ended September 30, 2013 and 2012, are as follows:
 
Three Months Ended September 30,
 
2013
 
2012
 
TETRA
 
Non-
controlling
Interest
 
Total
 
TETRA
 
Non-
controlling
Interest
 
Total
 
(In Thousands)
Beginning balance for the period
$
544,070

 
$
41,673

 
$
585,743

 
$
540,794

 
$
41,329

 
$
582,123

Net income
12,110

 
744

 
12,854

 
7,713

 
889

 
8,602

Foreign currency translation adjustment, including taxes of $165 in 2013 and taxes of $41 in 2012
6,873

 

 
6,873

 
5,074

 

 
5,074

Comprehensive income (loss)
18,983

 
744

 
19,727

 
12,787

 
889

 
13,676

Exercise of common stock options
597

 

 
597

 
61

 

 
61

Distributions to public unitholders

 
(1,210
)
 
(1,210
)
 

 
(1,094
)
 
(1,094
)
Equity-based compensation
1,152

 
338

 
1,490

 
2,476

 
664

 
3,140

Treasury stock and other
(13
)
 
64

 
51

 
1

 
74

 
75

Tax benefit upon exercise of stock options
(249
)
 

 
(249
)
 
(1,493
)
 

 
(1,493
)
Ending balance as of Sept. 30
$
564,540

 
$
41,609

 
$
606,149

 
$
554,626

 
$
41,862

 
$
596,488

 
Nine Months Ended September 30,
 
2013
 
2012
 
TETRA
 
Non-
controlling
Interest
 
Total
 
TETRA
 
Non-
controlling
Interest
 
Total
 
(In Thousands)
Beginning balance for the period
$
551,120

 
$
42,188

 
$
593,308

 
$
527,146

 
$
41,942

 
$
569,088

Net income
10,482

 
1,964

 
12,446

 
19,968

 
1,962

 
21,930

Foreign currency translation adjustment, including taxes of $711 in 2013 and taxes of $892 in 2012
(1,849
)
 

 
(1,849
)
 
2,054

 

 
2,054

Comprehensive income (loss)
8,633

 
1,964

 
10,597

 
22,022

 
1,962

 
23,984

Exercise of common stock options
1,586

 

 
1,586

 
819

 

 
819

Distributions to public unitholders

 
(3,603
)
 
(3,603
)
 

 
(3,369
)
 
(3,369
)
Equity-based compensation
4,082

 
1,031

 
5,113

 
6,080

 
1,313

 
7,393

Treasury stock and other
(243
)
 
29

 
(214
)
 
(145
)
 
14

 
(131
)
Tax benefit upon exercise of stock options
(638
)
 

 
(638
)
 
(1,296
)
 

 
(1,296
)
Ending balance as of Sept. 30
$
564,540

 
$
41,609

 
$
606,149

 
$
554,626

 
$
41,862

 
$
596,488


Activity within the foreign currency translation adjustment account during the periods includes no reclassifications to net income.
 
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 consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.

14



 
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. While the outcome cannot be predicted with certainty, management does not consider it reasonably possible that a loss in excess of any amounts accrued has been incurred or is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.

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. The Fluids Division also provides domestic onshore oil and gas operators with comprehensive frac water management services.
 
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, offshore rig cooling, and other associated services in many of the major oil and gas basins in the United States, Mexico, and 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, which are used in both conventional wellhead compression applications and unconventional compression applications, and in certain circumstances, well monitoring and sand separation services. Compressco provides these services throughout many of the onshore oil and gas producing regions of the United States, as well as certain basins in Mexico, Canada, and certain countries in South America, Eastern Europe, and the Asia-Pacific region. Beginning June 20, 2011, following the initial public offering of 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 well plugging and abandonment 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 the services necessary to abandon and decommission these properties 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.
 

15



Summarized financial information concerning the business segments from continuing operations is as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
(In Thousands)
Revenues from external customers
 

 
 

 
 
 
 
Product sales
 

 
 

 
 
 
 
Fluids Division
$
73,957

 
$
56,485

 
$
217,859

 
$
190,756

Production Enhancement Division
 

 
 

 
 

 
 

Production Testing

 

 

 

Compressco
1,484

 
1,518

 
3,913

 
3,737

Total Production Enhancement Division
1,484

 
1,518

 
3,913

 
3,737

Offshore Division
 

 
 

 
 

 
 

Offshore Services
2,237

 
2,289

 
3,950

 
5,166

Maritech
1,349

 
1,305

 
4,193

 
4,949

Total Offshore Division
3,586

 
3,594

 
8,143

 
10,115

Consolidated
$
79,027

 
$
61,597

 
$
229,915

 
$
204,608

 
 
 
 
 
 
 
 
Services and rentals
 

 
 

 
 
 
 
Fluids Division
$
25,658

 
$
18,735

 
$
75,982

 
$
53,517

Production Enhancement Division
 

 
 

 
 
 
 

Production Testing
47,380

 
56,033

 
149,420

 
144,645

Compressco
28,283

 
27,413

 
84,660

 
73,134

Intersegment eliminations
(292
)
 
(624
)
 
(865
)
 
(624
)
Total Production Enhancement Division
75,371

 
82,822

 
233,215

 
217,155

Offshore Division
 

 
 

 
 

 
 

Offshore Services
84,198

 
76,513

 
184,589

 
199,407

Maritech

 

 

 
150

Intersegment eliminations
(9,951
)
 
(5,764
)
 
(39,738
)
 
(25,479
)
Total Offshore Division
74,247

 
70,749

 
144,851

 
174,078

Corporate overhead

 
83

 

 
333

Consolidated
$
175,276

 
$
172,389

 
$
454,048

 
$
445,083

 
 
 
 
 
 
 
 
Intersegment revenues
 

 
 

 
 

 
 

Fluids Division
$

 
$
1

 
$
40

 
$
128

Production Enhancement Division
 

 
 

 
 

 
 

Production Testing

 

 

 

Compressco

 

 

 

Total Production Enhancement Division

 

 

 

Offshore Division
 

 
 

 
 

 
 

Offshore Services

 

 

 

Maritech

 

 

 

Intersegment eliminations

 

 

 

Total Offshore Division

 

 

 

Intersegment eliminations

 
(1
)
 
(40
)
 
(128
)
Consolidated
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 

16



 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
(In Thousands)
Total revenues
 

 
 

 
 

 
 

Fluids Division
$
99,615

 
$
75,221

 
$
293,881

 
$
244,401

Production Enhancement Division
 

 
 

 
 

 
 

Production Testing
47,380

 
56,033

 
149,420

 
144,645

Compressco
29,767

 
28,931

 
88,573

 
76,871

Intersegment eliminations
(292
)
 
(624
)
 
(865
)
 
(624
)
Total Production Enhancement Division
76,855

 
84,340

 
237,128

 
220,892

Offshore Division
 

 
 

 
 

 
 

Offshore Services
86,435

 
78,802

 
188,539

 
204,573

Maritech
1,349

 
1,305

 
4,193

 
5,099

Intersegment eliminations
(9,951
)
 
(5,764
)
 
(39,738
)
 
(25,479
)
Total Offshore Division
77,833

 
74,343

 
152,994

 
184,193

Corporate overhead

 
83

 

 
333

Intersegment eliminations

 
(1
)
 
(40
)
 
(128
)
Consolidated
$
254,303

 
$
233,986

 
$
683,963

 
$
649,691


 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(In Thousands)
 
Income (loss) before taxes and
 

 
 

 
 
 
 
 
  discontinued operations
 

 
 

 
 
 
 
 
Fluids Division
$
20,851

 
$
8,460

 
$
55,703

 
$
33,884

 
Production Enhancement Division
 

 
 

 
 

 
 

 
Production Testing
2,807

 
11,114

 
13,422

 
27,961

 
Compressco
5,447

 
6,356

 
13,833

 
14,511

 
Total Production Enhancement Division
8,254

 
17,470

 
27,255

 
42,472

 
Offshore Division
 

 
 

 
 

 
 

 
Offshore Services
20,579

 
12,108

 
25,064

 
22,839

 
Maritech
(15,428
)
 
(9,231
)
 
(44,079
)
 
(19,938
)
 
Intersegment eliminations

 

 

 

 
Total Offshore Division
5,151

 
2,877

 
(19,015
)
 
2,901

 
Corporate overhead
(15,554
)
(1)
(15,731
)
(1)
(46,425
)
(1)
(45,989
)
(1)
Consolidated
$
18,702

 
$
13,076

 
$
17,518

 
$
33,268

 
 

17



 
September 30,
 
2013
 
2012
 
(In Thousands)
Total assets
 

 
 

Fluids Division
$
383,999

 
$
367,925

Production Enhancement Division
 

 
 

Production Testing
328,461

 
343,916

Compressco
234,194

 
217,915

Total Production Enhancement Division
562,655

 
561,831

Offshore Division
 

 
 

Offshore Services
205,343

 
243,724

Maritech
22,087

 
50,486

Intersegment eliminations

 

Total Offshore Division
227,430

 
294,210

Corporate overhead
27,468

 
54,428

Consolidated
$
1,201,552

 
$
1,278,394

_____________________________________________________________
(1)
Amounts reflected include the following general corporate expenses:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
(In Thousands)
General and administrative expense
$
10,195

 
$
10,442

 
$
30,470

 
$
29,600

Depreciation and amortization
582

 
855

 
1,742

 
2,588

Interest expense
4,112

 
4,155

 
12,354

 
12,391

Other general corporate (income) expense, net
665

 
279

 
1,859

 
1,410

Total
$
15,554

 
$
15,731

 
$
46,425

 
$
45,989



18



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Business Overview  
 
Strategic efforts begun during late 2012 and the first half of 2013 have resulted in improved operating results and cash flow generation that were evident during the third quarter of 2013. Despite certain markets that continue to be challenging, overall consolidated revenues increased during the quarter compared to the prior year period, primarily due to the strong performance of our Fluids and Offshore Services segments. Our Fluids Division generated a significant portion of this growth in revenues and profitability compared to the prior year period due to increased sales of manufactured products, the continuing growth of its onshore frac water management business, and the strong demand for its clear brine fluids (CBF) products in the U.S. Gulf of Mexico. Our Offshore Services segment also reported increased revenues and profitability due to increased demand in activity during the quarter and the impact of cost reduction efforts taken in prior quarters that have resulted in increased gross profit and reduced administrative expenses. Despite decreased activity and continuing uncertainties in Mexico, our Compressco segment reported increased revenues, and offset much of the decreased profitability in Mexico by continuing to grow its U.S. compression services business, particularly its unconventional compression services applications business. Our Production Testing segment continues to face challenges in several of its markets, including Mexico, Canada, and selected regions in the U.S. Our Maritech segment reported increased losses due to increased excess decommissioning costs expensed during the third quarter of 2013. Overall, the cost reduction efforts taken during the second quarter of 2013 have contributed to increased profitability and operating cash flow for each of our segments. Efforts to streamline and improve invoicing and collection processes have also improved our operating cash flow. The improvements in operating cash flow levels have enabled us to fund the majority of our overall growth, while we also continue to aggressively pursue the extinguishment of Maritech's remaining decommissioning liabilities. Despite recent adjustments to the work required to be performed, Maritech's decommissioning liabilities have been reduced to approximately $37.3 million as of September 30, 2013.

Consolidated operating cash flows during the nine months ended September 30, 2013, increased approximately $61.4 million compared to the prior year period. This increase is despite the $33.2 million increase in amounts expended on Maritech decommissioning liabilities. These increased operating cash flows, along with available cash balances, were used to fund much of the approximately $73.6 million of capital expenditures during this period. To fund additional future growth, as of November 7, 2013, we have approximately $224.8 million available under our revolving credit facility. In October 2013, Compressco Partners, L.P. (Compressco Partners) entered into a new asset-based bank revolving credit facility, increasing its maximum credit commitment to $100.0 million, with an additional $30.0 million uncommitted expansion feature, which will be available to fund its growth. In addition to the ongoing capital expenditure activity, we continue to evaluate opportunities to further expand certain of our businesses through acquisitions, consistent with our ongoing growth plan.

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, 2012. 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.


19



Results of Operations
 
Three months ended September 30, 2013 compared with three months ended September 30, 2012.
 
Consolidated Comparisons
 
Three Months Ended 
 September 30,
 
Period to Period Change
 
2013
 
2012
 
2013 vs 2012
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
254,303

 
$
233,986

 
$
20,317

 
8.7
 %
Gross profit
47,442

 
50,447

 
(3,005
)
 
(6.0
)%
Gross profit as a percentage of revenue
18.7
%
 
21.6
%
 
 

 
 

General and administrative expense
31,776

 
33,774

 
(1,998
)
 
(5.9
)%
General and administrative expense as a percentage of revenue
12.5
%
 
14.4
%
 
 

 
 

Interest expense, net
4,207

 
4,258

 
(51
)
 
(1.2
)%
Other (income) expense, net
(7,243
)
 
(661
)
 
(6,582
)
 
995.8
 %
Income (loss) before taxes and discontinued operations
18,702

 
13,076

 
5,626

 
43.0
 %
Income (loss) before taxes and discontinued operations as a percentage of revenue
7.4
%
 
5.6
%
 
 

 
 

Provision (benefit) for income taxes
5,848

 
4,475

 
1,373

 
30.7
 %
Income (loss) before discontinued operations
12,854

 
8,601

 
4,253

 
49.4
 %
Income (loss) from discontinued operations, net of taxes

 
1

 
(1
)
 
 

Net income (loss)
12,854

 
8,602

 
4,252

 
49.4
 %
Net (income) attributable to noncontrolling interest
(744
)
 
(889
)
 
145

 
 

Net income (loss) attributable to TETRA stockholders
$
12,110

 
$
7,713

 
$
4,397

 
57.0
 %
 
Consolidated revenues for the quarter ended September 30, 2013, increased compared to the prior year period due to increased revenues for the Fluids, Offshore Services, and Compressco segments. The increase in the Fluids Division revenues was primarily due to increased sales of manufactured products and clear brine fluids (CBF) products in the U.S. The increase in Offshore Services revenues was primarily due to increased dive services activity. The increase in Compressco revenues was primarily due to increased activity in the U.S. and Canada, which more than offset decreased activity in Mexico. These increases were partially offset by decreased Production Testing activity in several of its most significant markets served, including in the U.S., Canada, and Mexico. Any future increases in Compressco and Production Testing segment revenue levels in Mexico are dependent on the resolution of current uncertainties with their primary customer in Mexico. Consolidated gross profit decreased during the current year quarter compared to the prior year period, primarily due to $12.3 million of increased Maritech excess decommissioning expenses as well as the decreased gross profit of our Production Testing segment. These decreases in profitability were largely offset by the increased profitability of our Fluids and Offshore Services segments. These increases were due to the increased product sales revenues of the Fluids segment and the increased demand for services and the impact of cost reduction efforts by our Offshore Services segment.
 
Consolidated general and administrative expenses decreased during the third quarter of 2013 compared to the prior year period primarily due to cost reduction efforts taken by each of our segments during the second quarter of 2013 to reduce administrative expenses. In particular, our Offshore Services segment reported $1.7 million of decreased general and administrative expense during the third quarter of 2013 compared to the prior year period. Reductions of personnel-related expenses as a result of cost reduction efforts were supplemented by additional decreases in professional services expenses as well as other general expenses. Largely due to the impact of these administrative cost reduction efforts taken during the first half of 2013, consolidated general and administrative expenses decreased by approximately $2.2 million compared to the prior quarter.
 
Consolidated interest expense decreased slightly, as decreased interest on Senior Notes borrowings more than offset the increase due to increased Compressco Partners' borrowings.
 

20



Consolidated other income increased primarily due to increased gains on sale of assets, primarily from a sale of a Maritech property during the current year period.
 
The consolidated provision for income taxes increased due to increased earnings during the period.
 
Divisional Comparisons
 
Fluids Division
 
Three Months Ended 
 September 30,
 
Period to Period Change
 
2013
 
2012
 
2013 vs 2012
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
99,615

 
$
75,221

 
$
24,394

 
32.4
%
Gross profit
28,682

 
15,622

 
13,060

 
83.6
%
Gross profit as a percentage of revenue
28.8
%
 
20.8
%
 
 

 
 

General and administrative expense
8,111

 
7,683

 
428

 
5.6
%
General and administrative expense as a percentage of revenue
8.1
%
 
10.2
%
 
 

 
 

Interest (income) expense, net
(52
)
 
(9
)
 
(43
)
 
 

Other (income) expense, net
(228
)
 
(512
)
 
284

 
 

Income before taxes and discontinued operations
$
20,851

 
$
8,460

 
$
12,391

 
146.5
%
Income before taxes and discontinued operations as a percentage of revenue
20.9
%
 
11.2
%
 
 

 
 

 
The increase in Fluids Division revenues during the third quarter of 2013 compared to the prior year period was primarily due to approximately $17.5 million of increased product sales revenues, mainly due to significant sales of calcium chloride by the Division's manufactured products operation. A portion of these increased manufactured product sales was due to increased demand in selected markets and due to nonrecurring demand from a single U.S. customer during the period. In addition, the Division's sales of CBF products also increased due to a significant increase in offshore completion activity in the U.S. Gulf of Mexico. The Division's services revenues increased by approximately $6.9 million, due to the growth of our U.S. onshore frac water management business.
 
Fluids Division gross profit increased compared to the prior year period, primarily as a result of the increased product sales activity discussed above. Operating efficiencies of our El Dorado, Arkansas, calcium chloride plant facility were optimized due to increased production volumes at the plant. Increased water management service activity also contributed to the increased gross profit.
 
Fluids Division income before taxes increased compared to the prior year period due to the increase in gross profit discussed above. This increase was partially offset by increased administrative costs and decreased other income compared to the prior year period.


21



Production Enhancement Division
 
Production Testing Segment
 
Three Months Ended 
 September 30,
 
Period to Period Change
 
2013
 
2012
 
2013 vs 2012
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
47,380

 
$
56,033

 
$
(8,653
)
 
(15.4
)%
Gross profit
5,794

 
15,661

 
(9,867
)
 
(63.0
)%
Gross profit as a percentage of revenue
12.2
%
 
27.9
%
 
 

 
 

General and administrative expense
5,443

 
5,695

 
(252
)
 
(4.4
)%
General and administrative expense as a percentage of revenue
11.5
%
 
10.2
%
 
 

 
 

Interest (income) expense, net
(17
)
 
(75
)
 
58

 
 

Other (income) expense, net
(2,439
)
 
(1,073
)
 
(1,366
)
 
 

Income before taxes and discontinued operations
$
2,807

 
$
11,114

 
$
(8,307
)
 
(74.7
)%
Income before taxes and discontinued operations as a percentage of revenue
5.9
%
 
19.8
%
 
 

 
 

 
Production Testing segment revenues decreased during the third quarter of 2013 compared to the prior year period, primarily due to a $6.6 million decrease in U.S. and Canadian revenues as a result of decreased activity and pricing levels, largely as a result of increased competition in certain of the U.S. and Canadian markets we serve. These decreases occurred despite increased activity in U.S. regions served by our ERS and Greywolf businesses, both of which were acquired during 2012. Foreign Production Testing segment revenues also decreased as compared to the prior year period, as increased activity in the Eastern Hemisphere was more than offset by the impact of decreased demand from our primary customer in Mexico due to budget re-evaluations affecting the northern region of Mexico. We believe this decline in demand in Mexico is temporary, and we have begun to see a slow increase in activity levels in Mexico.
 
Production Testing segment gross profit decreased significantly during the third quarter of 2013 compared to the prior year period due to the impact of the above mentioned decreased activity and pricing levels in certain U.S. and Canadian markets and the decreased Mexico activity levels. During the second quarter of 2013, we took steps to downsize field operations and implement other cost reductions for the Production Testing segment. In response to the decreased activity in certain U.S. markets, we are currently implementing additional cost reduction steps, including the relocation of equipment and other resources, that are expected to result in further operating expense reductions beginning in the fourth quarter of 2013.
 
Production Testing segment income before taxes decreased primarily due to the significant decrease in gross profit discussed above. This decrease in profitability was partially offset by increased other income that resulted from increased earnings from an unconsolidated joint venture and from decreased foreign currency losses. Production Testing segment general and administrative expenses also decreased due to the impact of administrative cost reductions and due to acquisition related costs expensed during the prior year period.


22



Compressco Segment
 
Three Months Ended 
 September 30,
 
Period to Period Change
 
2013
 
2012
 
2013 vs 2012
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
29,767

 
$
28,931

 
$
836

 
2.9
 %
Gross profit
10,201

 
11,370

 
(1,169
)
 
(10.3
)%
Gross profit as a percentage of revenue
34.3
%
 
39.3
%
 
 

 
 

General and administrative expense
4,460

 
4,566

 
(106
)
 
(2.3
)%
General and administrative expense as a percentage of revenue
15.0
%
 
15.8
%
 
 

 
 

Interest (income) expense, net
136

 
24

 
112

 
 

Other (income) expense, net
158

 
424

 
(266
)
 
 

Income before taxes and discontinued operations
$
5,447

 
$
6,356

 
$
(909
)
 
(14.3
)%
Income before taxes and discontinued operations as a percentage of revenue
18.3
%
 
22.0
%
 
 

 
 

 
Compressco segment revenues increased during the third quarter of 2013 compared to the prior year period due to a $0.9 million increase in service revenues, primarily from increased activity in the U.S. and Argentina. The increase in U.S. service revenues was due to Compressco's increased unconventional compression services applications activity, primarily in horizontal resource play reservoirs. The increase in total Compressco revenues was realized despite decreased revenues in Mexico compared to the prior year period caused by the current budget re-evaluations by Compressco's primary customer in Mexico. In March 2013, Compressco began to experience a decline in demand in the northern region of Mexico for its oil and gas services from this customer. Compressco believes this decline in demand is temporary and has begun to see a slow increase in activity levels in Mexico. Compressco has continued to increase its compressor fleet, both in the U.S. and certain foreign markets, to serve increasing demand for services. Revenues from the sales of compressor units and parts during the third quarter of 2013 were flat compared to the prior year period.
 
Compressco segment gross profit decreased during the third quarter of 2013 compared to the prior year period, primarily due to the impact of the reduced revenues in Mexico and increased labor and maintenance costs. Average compressor unit utilization increased from 82.0% to 84.2%, although gross profit as a percentage of revenue decreased compared to the prior year period as a result of the increased costs and the impact of the decreased activity in Mexico. Primarily as a result of the current reduced activity described above, Compressco reduced its Mexico operating headcount and relocated equipment to the U.S. during the second and third quarters of 2013.
 
Income before taxes for the Compressco segment decreased during the third quarter of 2013 compared to the prior year period, primarily due to the decreased gross profit discussed above and from increased interest expense as a result of increased borrowings by Compressco Partners under its bank credit facility. This decrease in profitability was partially offset by decreased administrative costs and decreased other expense. Compressco’s administrative expense levels decreased compared to the prior year period, primarily due to decreased personnel related costs, which more than offset the increase in professional services expenses during the current year period. Other expense decreased primarily due to decreased foreign currency losses compared to the prior year period.
 

23



Offshore Division
 
Offshore Services Segment
 
Three Months Ended 
 September 30,
 
Period to Period Change
 
2013
 
2012
 
2013 vs 2012
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
86,435

 
$
78,802

 
$
7,633

 
9.7
 %
Gross profit
23,829

 
17,492

 
6,337

 
36.2
 %
Gross profit as a percentage of revenue
27.6
%
 
22.2
%
 
 
 
 
General and administrative expense
3,234

 
4,932

 
(1,698
)
 
(34.4
)%
General and administrative expense as a percentage of revenue
3.7
%
 
6.3
%
 
 
 
 
Interest (income) expense, net
27

 
28

 
(1
)
 
 
Other (income) expense, net
(11
)
 
424

 
(435
)
 
 
Income (loss) before taxes and discontinued operations
$
20,579

 
$
12,108

 
$
8,471

 
70.0
 %
Income before taxes and discontinued operations as a percentage of revenue
23.8
%
 
15.4
%
 
 
 
 

Revenues from the Offshore Services segment increased during the third quarter of 2013 compared to the prior year quarter primarily due to increased activity levels for its dive services operations, partly as a result of projects that were delayed from the second quarter of 2013. Increased well abandonment activity during the current year quarter also contributed to the increased revenues. These increases in Offshore Services segment revenues were partially offset by decreased revenues by its cutting services and heavy lift operations, partly due to difficult weather experienced in September 2013. Offshore Services revenues during the three months ended September 30, 2013 and 2012 include approximately $10.0 million and $5.8 million, respectively, of revenues related to work performed for Maritech. The level of such Maritech work is expected to significantly decrease beginning in 2014.
 
Gross profit for the Offshore Services segment increased due to the increased activity levels for the dive services and well abandonment businesses compared to the prior year period, but also as a result of the cost reduction measures that were implemented during late 2012 and the first half of 2013. With its streamlined operating cost structure, the Offshore Services segment's gross profit as a percentage of segment revenues increased to 27.6% during the current year quarter compared to 22.2% during the prior year period. The Offshore Services segment continues to consider additional opportunities to optimize its cost structure.
 
Offshore Services segment income before taxes increased, primarily due to the increased gross profit discussed above. In addition, segment general and administrative expenses were decreased, reflecting the administrative cost reductions taken during late 2012 and first half of 2013. In addition, other expense decreased compared to the prior year period, primarily due to decreased foreign currency losses.

Maritech Segment
 
Three Months Ended 
 September 30,
 
Period to Period Change
 
2013
 
2012
 
2013 vs 2012
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
1,349

 
$
1,305

 
$
44

 
3.4
 %
Gross profit (loss)
(20,483
)
 
(8,927
)
 
(11,556
)
 
129.4
 %
General and administrative expense
331

 
457

 
(126
)
 
(27.6
)%
General and administrative expense as a percentage of revenue
24.5
%
 
35.0
%
 
 
 
 
Interest (income) expense, net

 
9

 
(9
)
 
 
Other (income) expense, net
(5,386
)
 
(162
)
 
(5,224
)
 
 
Income (loss) before taxes and discontinued operations
$
(15,428
)
 
$
(9,231
)
 
$
(6,197
)
 
67.1
 %
 

24



As a result of the sale of almost all of its producing properties during 2011 and 2012, Maritech revenues for the third quarter of 2013 and 2012 are negligible and are expected to continue to be negligible going forward.
 
Maritech gross loss increased during the third quarter of 2013 compared to the prior year period due to approximately $21.5 million of excess decommissioning costs expensed during the current year period, including approximately $10.0 million associated with work to be performed during future periods. The amount expensed during the current year period reflects an increase of approximately $12.3 million of such costs compared to the prior year period and was due to additional oil and gas abandonment and decommissioning work required on certain offshore properties, including remediation work required on certain wells that had been previously plugged.
 
The increase in Maritech’s pretax loss during the third quarter of 2013 compared to the prior year period is primarily due to the increased gross loss discussed above. Partially offsetting this decrease, Maritech sold its interest in one of its remaining offshore oil and gas properties, resulting in a gain of approximately $5.4 million during the current year period.
 
Corporate Overhead
 
Three Months Ended 
 September 30,
 
Period to Period Change
 
2013
 
2012
 
2013 vs 2012
 
% Change
 
(In Thousands, Except Percentages)
Gross profit (loss) (primarily depreciation expense)
$
(582
)
 
$
(771
)
 
$
189

 
(24.5
)%
General and administrative expense
10,195

 
10,442

 
(247
)
 
(2.4
)%
Interest (income) expense, net
4,112

 
4,281

 
(169
)
 
 

Other (income) expense, net
665

 
237

 
428

 
 

(Loss) before taxes and discontinued operations
$
(15,554
)
 
$
(15,731
)
 
$
177

 
(1.1
)%

Corporate Overhead decreased during the third quarter of 2013 compared to the prior year period, due to decreased corporate general and administrative, depreciation, and interest expenses. Corporate general and administrative expenses decreased as approximately $0.7 million of increased office expense was more than offset by decreased salary and employee-related expenses as a result of cost reduction efforts taken earlier during the year. Increased office expense was primarily the result of the sale and leaseback of our corporate headquarters building in the fourth quarter of 2012, which also resulted in decreased depreciation compared to the prior year period. In addition, interest expense decreased due to the second quarter 2013 issuance of the 4.0% Senior Notes Series 2013, the proceeds of which were used to repay the 6.3% Series 2008-A Senior Notes. Partially offsetting these decreases was the increase in other expense due to increased foreign currency losses.
 


25




Nine Months Ended September 30, 2013 compared with nine months ended September 30, 2012.
 
Consolidated Comparisons
 
Nine Months Ended 
 September 30,
 
Period to Period Change
 
2013
 
2012
 
2013 vs 2012
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
683,963

 
$
649,691

 
$
34,272

 
5.3
 %
Gross profit
116,851

 
135,154

 
(18,303
)
 
(13.5
)%
Gross profit as a percentage of revenue
17.1
%
 
20.8
%
 
 

 
 

General and administrative expense
99,032

 
95,335

 
3,697

 
3.9
 %
General and administrative expense as a percentage of revenue
14.5
%
 
14.7
%
 
 

 
 

Interest expense, net
12,585

 
12,493

 
92

 
0.7
 %
Other (income) expense, net
(12,284
)
 
(5,942
)
 
(6,342
)
 
106.7
 %
Income (loss) before taxes and discontinued operations
17,518

 
33,268

 
(15,750
)
 
(47.3
)%
Income (loss) before taxes and discontinued operations as a percentage of revenue
2.6
%
 
5.1
%
 
 

 
 

Provision (benefit) for income taxes
5,072

 
11,341

 
(6,269
)
 
(55.3
)%
Income (loss) before discontinued operations
12,446

 
21,927

 
(9,481
)
 
(43.2
)%
Income (loss) from discontinued operations, net of taxes

 
3

 
(3
)
 
 

Net income (loss)
12,446

 
21,930

 
(9,484
)
 
(43.2
)%
Net (income) attributable to noncontrolling interest
(1,964
)
 
(1,962
)
 
(2
)
 
 

Net income (loss) attributable to TETRA stockholders
$
10,482

 
$
19,968

 
$
(9,486
)
 
(47.5
)%
 
Consolidated revenues for the nine months ended September 30, 2013, increased compared to the prior year period due to increased revenues for our Fluids, Production Testing, and Compressco segments. The increase in the Fluids Division’s revenues is due to increased demand for our manufactured products, the growth of our onshore frac water management business, and the increased activity for U.S. offshore CBF product sales. Our Compressco segment reported increased revenues during the nine month period due to increased activity in Latin America and increased demand for unconventional compression services applications in the U.S. Our Production Testing segment revenues also increased, reflecting the impact of 2012 acquisitions. The impact on segment revenues from these acquisitions more than offset the decreased Production Testing segment revenues resulting from decreased activity experienced in several of the markets it serves, including in Mexico. Any future increases in the Compressco and Production Testing segments' activity levels in Mexico are subject to the resolution of current uncertainties with our primary customer in Mexico. The increased consolidated revenues were negatively affected by our Offshore Services segment, which reported decreased revenues for the current year period due to a reduction in heavy lift and dive services activity. These businesses were also adversely affected by weather delays during the second and third quarters of 2013 as well as by continuing market challenges in the U.S. Gulf of Mexico during the first half of the current year. Consolidated gross profit decreased, despite the increased profitability of our Fluids and Offshore Services segments, as our Maritech and Production Testing segments reported decreases. Maritech expensed approximately $54.4 million of excess decommissioning costs during the current year period.
 
Consolidated general and administrative expenses increased during the first nine months of 2013 compared to the prior year period due to approximately $1.8 million of increased general and administrative expenses by our Production Testing segment, primarily as a result of the businesses acquired during 2012. Consolidated general and administrative expenses also increased as a result of approximately $1.3 million of employee severance expenses recorded during the second quarter of 2013. In addition, our Maritech segment's general and administrative expenses increased approximately $0.8 million, primarily due to legal expenses associated with an insurance-related settlement during the first quarter of 2013. These increases, along with the impact from the growth of our Fluids Division, were partially offset by our Offshore Services segment, where general and administrative costs decreased by $2.1 million, primarily due to the cost reduction steps taken during late 2012 and the second quarter of 2013. Overall, cost reduction efforts taken by each of our segments have resulted in reduced administrative cost levels beginning in the third quarter of 2013. 


26



Consolidated interest expense increased slightly during the first nine months of 2013 primarily due to increased Compressco borrowings.
 
Consolidated other income increased primarily due to $3.9 million of increased earnings from an unconsolidated joint venture and from $2.4 million of increased gains on sale of assets.
 
The consolidated provision for income taxes decreased compared to the prior year period due to decreased earnings.
 
Divisional Comparisons
 
Fluids Division
 
Nine Months Ended 
 September 30,
 
Period to Period Change
 
2013
 
2012
 
2013 vs 2012
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
293,881

 
$
244,401

 
$
49,480

 
20.2
%
Gross profit
78,902

 
54,869

 
24,033

 
43.8
%
Gross profit as a percentage of revenue
26.8
%
 
22.5
%
 
 

 
 

General and administrative expense
24,442

 
22,554

 
1,888

 
8.4
%