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TETRA TECHNOLOGIES INC - Quarter Report: 2019 September (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended SEPTEMBER 30, 2019
or 
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 or Other Jurisdiction of Incorporation or Organization)
(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)

_______________________________________________________________________
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
TTI
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes   No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

 As of November 6, 2019, there were 125,540,626 shares outstanding of the Company’s Common Stock, $0.01 par value per share.




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




Table of Contents

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,
 
2019
 
2018
 
2019
 
2018
Revenues:
 

 
 

 
 
 
 
Product sales
$
93,377

 
$
102,070

 
$
320,508

 
$
285,136

Services
152,570

 
154,781

 
457,963

 
431,168

Total revenues
245,947

 
256,851

 
778,471

 
716,304

Cost of revenues:
 

 
 

 
 
 
 
Cost of product sales
71,957

 
81,817

 
254,798

 
228,146

Cost of services
98,356

 
101,304

 
298,911

 
283,224

Depreciation, amortization, and accretion
30,867

 
29,460

 
93,312

 
84,880

Impairments and other charges
849

 
2,940

 
3,306

 
2,940

Insurance recoveries
(1,042
)
 

 
(1,392
)
 

Total cost of revenues
200,987

 
215,521

 
648,935

 
599,190

Gross profit
44,960

 
41,330

 
129,536

 
117,114

General and administrative expense
34,926

 
34,446

 
105,498

 
98,866

Interest expense, net
18,146

 
18,894

 
55,054

 
52,246

Warrants fair value adjustment (income) expense
78

 
(179
)
 
(1,035
)
 
22

CCLP Series A Preferred Units fair value adjustment (income) expense

 
498

 
1,309

 
1,344

Other (income) expense, net
(690
)
 
619

 
(1,014
)
 
7,203

Loss before taxes and discontinued operations
(7,500
)
 
(12,948
)
 
(30,276
)
 
(42,567
)
Provision (benefit) for income taxes
1,579

 
(96
)
 
5,678

 
3,474

Loss before discontinued operations
(9,079
)
 
(12,852
)
 
(35,954
)
 
(46,041
)
Discontinued operations:
 
 
 
 
 
 
 
Income (loss) from discontinued operations (including 2018 loss on disposal of $33.8 million), net of taxes
(9,130
)
 
796

 
(9,901
)
 
(40,931
)
Net loss
(18,209
)
 
(12,056
)
 
(45,855
)
 
(86,972
)
Less: loss attributable to noncontrolling interest
2,378

 
5,120

 
12,273

 
20,423

Net loss attributable to TETRA stockholders
$
(15,831
)
 
$
(6,936
)
 
$
(33,582
)
 
$
(66,549
)
Basic net loss per common share:
 

 
 
 
 
 
 
Loss before discontinued operations attributable to TETRA stockholders
$
(0.06
)
 
$
(0.06
)
 
$
(0.19
)
 
$
(0.21
)
Loss from discontinued operations attributable to TETRA stockholders
$
(0.07
)
 
$
0.00

 
$
(0.08
)
 
$
(0.33
)
Net loss attributable to TETRA stockholders
$
(0.13
)
 
$
(0.06
)
 
$
(0.27
)
 
$
(0.54
)
Average shares outstanding
125,568

 
125,689

 
125,620

 
123,557

Diluted net loss per common share:
 

 
 

 
 
 
 
Loss before discontinued operations attributable to TETRA stockholders
$
(0.06
)
 
$
(0.06
)
 
$
(0.19
)
 
$
(0.21
)
Loss from discontinued operations attributable to TETRA stockholders
$
(0.07
)
 
$
0.00

 
$
(0.08
)
 
$
(0.33
)
Net loss attributable to TETRA stockholders
$
(0.13
)
 
$
(0.06
)
 
$
(0.27
)
 
$
(0.54
)
Average diluted shares outstanding
125,568

 
125,689

 
125,620

 
123,557


See Notes to Consolidated Financial Statements

1

Table of Contents

TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(18,209
)
 
$
(12,056
)
 
$
(45,855
)
 
$
(86,972
)
Foreign currency translation adjustment, net of taxes of $0 in 2019 and 2018
(3,742
)
 
(581
)
 
(3,300
)
 
(8,547
)
Comprehensive loss
(21,951
)
 
(12,637
)
 
(49,155
)
 
(95,519
)
Less: Comprehensive loss attributable to noncontrolling interest
2,358

 
5,025

 
11,994

 
22,467

Comprehensive loss attributable to TETRA stockholders
$
(19,593
)
 
$
(7,612
)
 
$
(37,161
)
 
$
(73,052
)
 

See Notes to Consolidated Financial Statements

2

Table of Contents

TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
 
 
September 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 

ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
35,918

 
$
40,038

Restricted cash
61

 
64

Trade accounts receivable, net of allowances of $4,466 in 2019 and $2,583 in 2018
170,168

 
187,592

Inventories
142,406

 
143,571

Assets of discontinued operations
16

 
1,354

Notes receivable

 
7,544

Prepaid expenses and other current assets
22,563

 
20,528

Total current assets
371,132

 
400,691

Property, plant, and equipment:
 

 
 

Land and building
75,206

 
78,746

Machinery and equipment
1,316,661

 
1,265,732

Automobiles and trucks
33,163

 
35,568

Chemical plants
189,416

 
188,641

Construction in progress
50,055

 
44,419

Total property, plant, and equipment
1,664,501

 
1,613,106

Less accumulated depreciation
(803,109
)
 
(759,175
)
Net property, plant, and equipment
861,392

 
853,931

Other assets:
 

 
 

Goodwill
25,784

 
25,859

Patents, trademarks and other intangible assets, net of accumulated amortization of $85,911 in 2019 and $80,401 in 2018
76,225

 
82,184

Deferred tax assets, net
19

 
13

Operating lease right-of-use assets
57,848

 

Other assets
23,300

 
22,849

Total other assets
183,176

 
130,905

Total assets
$
1,415,700

 
$
1,385,527

 

See Notes to Consolidated Financial Statements

3

Table of Contents

TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
 
 
September 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Trade accounts payable
$
97,142

 
$
80,279

Unearned income
26,896

 
26,695

Accrued liabilities and other
87,127

 
89,232

Liabilities of discontinued operations
1,907

 
4,145

Total current liabilities
213,072

 
200,351

Long-term debt, net
858,272

 
815,560

Deferred income taxes
3,729

 
3,242

Asset retirement obligations
12,603

 
12,202

CCLP Series A Preferred Units

 
27,019

Warrants liability
1,038

 
2,073

Operating lease liabilities
45,993

 

Other liabilities
7,465

 
12,331

Total long-term liabilities
929,100

 
872,427

Commitments and contingencies
 

 
 

Equity:
 

 
 

TETRA stockholders' equity:
 

 
 

Common stock, par value $0.01 per share; 250,000,000 shares authorized at September 30, 2019 and December 31, 2018; 128,363,817 shares issued at September 30, 2019 and 128,455,134 shares issued at December 31, 2018
1,284

 
1,285

Additional paid-in capital
465,615

 
460,680

Treasury stock, at cost; 2,823,191 shares held at September 30, 2019, and 2,717,569 shares held at December 31, 2018
(19,164
)
 
(18,950
)
Accumulated other comprehensive income (loss)
(55,242
)
 
(51,663
)
Retained deficit
(248,691
)
 
(217,952
)
Total TETRA stockholders' equity
143,802

 
173,400

Noncontrolling interests
129,726

 
139,349

Total equity
273,528

 
312,749

Total liabilities and equity
$
1,415,700

 
$
1,385,527

 

See Notes to Consolidated Financial Statements

4

Table of Contents

TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Equity
(In Thousands)

 
Common Stock
Par Value
 
Additional Paid-In
Capital
 
Treasury
Stock
 
Accumulated Other 
Comprehensive Income (Loss)
 
Retained
Earnings
 
Noncontrolling
Interest
 
Total
Equity
 
 
 
 
Currency
Translation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
1,285

 
$
460,680

 
$
(18,950
)
 
$
(51,663
)
 
$
(217,952
)
 
$
139,349

 
$
312,749

Net loss for first quarter 2019

 

 

 

 
(10,838
)
 
(8,262
)
 
(19,100
)
Translation adjustment, net of taxes of $0

 

 

 
(582
)
 

 
176

 
(406
)
Comprehensive loss

 

 

 

 

 

 
(19,506
)
Distributions to public unitholders

 

 

 

 

 
(307
)
 
(307
)
Equity award activity
(1
)
 

 

 

 

 

 
(1
)
Treasury stock activity, net

 

 
(155
)
 

 

 

 
(155
)
Equity compensation expense

 
1,628

 

 

 

 
311

 
1,939

Conversions of CCLP Series A Preferred

 

 

 

 

 
2,539

 
2,539

Cumulative effect adjustment

 

 

 

 
2,843

 

 
2,843

Other

 
(67
)
 

 

 

 
76

 
9

Balance at March 31, 2019
$
1,284

 
$
462,241

 
$
(19,105
)
 
$
(52,245
)
 
$
(225,947
)
 
$
133,882

 
$
300,110

Net loss for second quarter 2019

 

 

 

 
(6,913
)
 
(1,633
)
 
(8,546
)
Translation adjustment, net of taxes of $0

 

 

 
765

 

 
83

 
848

Comprehensive loss

 

 

 

 

 

 
(7,698
)
Distributions to public unitholders

 

 

 

 

 
(308
)
 
(308
)
Treasury stock activity, net

 

 
(11
)
 

 

 

 
(11
)
Equity compensation expense

 
2,100

 

 

 

 
567

 
2,667

Other

 
(36
)
 

 

 

 
(33
)
 
(69
)
Balance at June 30, 2019
$
1,284

 
$
464,305

 
$
(19,116
)
 
$
(51,480
)
 
$
(232,860
)
 
$
132,558

 
$
294,691

Net loss for third quarter 2019

 

 

 

 
(15,831
)
 
(2,378
)
 
(18,209
)
Translation adjustment, net of taxes of $0

 

 

 
(3,762
)
 

 
20

 
(3,742
)
Comprehensive loss

 

 

 

 

 

 
(21,951
)
Distributions to public unitholders

 

 

 

 

 
(309
)
 
(309
)
Treasury stock activity, net

 

 
(48
)
 

 

 

 
(48
)
Equity compensation expense

 
1,316

 

 

 

 
(211
)
 
1,105

Other

 
(6
)
 

 

 

 
46

 
40

Balance at September 30, 2019
$
1,284

 
$
465,615

 
$
(19,164
)
 
$
(55,242
)
 
$
(248,691
)
 
$
129,726

 
$
273,528


See Notes to Consolidated Financial Statements


5

Table of Contents

 
Common Stock
Par Value
 
Additional Paid-In
Capital
 
Treasury
Stock
 
Accumulated Other 
Comprehensive Income (Loss)
 
Retained
Earnings
 
Noncontrolling
Interest
 
Total
Equity
 
 
 
 
Currency
Translation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
1,185

 
$
425,648

 
$
(18,651
)
 
$
(43,767
)
 
$
(156,335
)
 
$
144,481

 
$
352,561

Net loss for first quarter 2018

 

 

 

 
(53,648
)
 
(9,115
)
 
(62,763
)
Translation adjustment, net of taxes of $0

 

 

 
1,668

 

 
(385
)
 
1,283

Comprehensive loss

 

 

 

 

 

 
(61,480
)
Distributions to public unitholders

 

 

 

 

 
(4,358
)
 
(4,358
)
Equity award activity
20

 

 

 

 

 

 
20

Treasury stock activity, net

 

 
(170
)
 

 

 

 
(170
)
Issuance of common stock for business combination
77

 
28,135

 

 

 

 

 
28,212

Equity compensation expense

 
1,434

 

 

 

 
(655
)
 
779

Conversions of CCLP Series A Preferred

 

 

 

 

 
10,103

 
10,103

Other

 
(171
)
 

 

 

 
(35
)
 
(206
)
Balance at March 31, 2018
$
1,282

 
$
455,046

 
$
(18,821
)
 
$
(42,099
)
 
$
(209,983
)
 
$
140,036

 
$
325,461

Net loss for second quarter 2018

 

 

 

 
(5,965
)
 
(6,188
)
 
(12,153
)
Translation adjustment, net of taxes of $0

 

 

 
(7,495
)
 

 
(1,754
)
 
(9,249
)
Comprehensive loss

 

 

 

 

 

 
(21,402
)
Distributions to public unitholders

 

 

 

 

 
(4,624
)
 
(4,624
)
Equity award activity
1

 

 

 

 

 

 
1

Treasury stock activity, net

 

 
(44
)
 

 

 

 
(44
)
Equity compensation expense

 
1,905

 

 

 

 
358

 
2,263

Conversions of CCLP Series A Preferred

 

 

 

 

 
9,272

 
9,272

Other

 
131

 

 

 

 
4

 
135

Balance at June 30, 2018
$
1,283

 
$
457,082

 
$
(18,865
)
 
$
(49,594
)
 
$
(215,948
)
 
$
137,104

 
$
311,062

Net loss for third quarter 2018

 

 

 

 
(6,936
)
 
(5,120
)
 
(12,056
)
Translation adjustment, net of taxes of $0

 

 

 
(676
)
 

 
95

 
(581
)
Comprehensive loss

 

 

 

 

 

 
(12,637
)
Distributions to public unitholders

 

 

 

 

 
(4,946
)
 
(4,946
)
Equity award activity
1

 
251

 


 

 

 

 
252

Treasury stock activity, net

 

 
(71
)
 

 

 

 
(71
)
Equity compensation expense

 
1,798

 

 

 

 
367

 
2,165

Conversions of CCLP Series A Preferred

 

 

 

 

 
10,294

 
10,294

Other

 
(8
)
 

 

 

 
78

 
70

Balance at September 30, 2018
$
1,284

 
$
459,123

 
$
(18,936
)
 
$
(50,270
)
 
$
(222,884
)
 
$
137,872

 
$
306,189


See Notes to Consolidated Financial Statements


6

Table of Contents

TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited) 
 
Nine Months Ended September 30,
 
2019
 
2018
Operating activities:
 

 
 

Net loss
$
(45,855
)
 
$
(86,972
)
Reconciliation of net loss to cash provided by operating activities:
 
 
 
Depreciation, amortization, and accretion
93,364

 
86,965

Impairment and other charges
3,306

 
2,940

Benefit for deferred income taxes
545

 
(837
)
Equity-based compensation expense
6,260

 
5,692

Provision for doubtful accounts
3,351

 
1,566

Non-cash loss on disposition of business
7,500

 
32,369

Amortization of deferred financing costs
2,890

 
3,188

Debt financing cost expense

 
398

CCLP Series A Preferred redemption premium
1,283

 

CCLP Series A Preferred accrued paid in kind distributions
982

 
3,933

CCLP Series A Preferred fair value adjustment
1,309

 
1,344

Warrants fair value adjustment
(1,035
)
 
22

Contingent consideration liability fair value adjustment
(800
)
 
3,700

Expense for unamortized finance costs and other non-cash charges and credits
1,649

 
3,919

Acquisition and transaction financing fees
75

 

Gain on sale of assets
(1,583
)
 
(454
)
Changes in operating assets and liabilities:
 

 
 

Accounts receivable
13,309

 
(7,708
)
Inventories
(6,847
)
 
(35,920
)
Prepaid expenses and other current assets
(1,831
)
 
(2,995
)
Trade accounts payable and accrued expenses
10,344

 
(6,776
)
Other
(3,234
)
 
(2,741
)
Net cash provided by operating activities
84,982

 
1,633

Investing activities:
 

 
 

Purchases of property, plant, and equipment, net
(89,192
)
 
(107,080
)
Acquisition of businesses, net of cash acquired
(12,024
)
 
(42,002
)
Proceeds from disposal of business

 
3,121

Proceeds on sale of property, plant, and equipment
2,152

 
774

Other investing activities
(890
)
 
(293
)
Net cash used in investing activities
(99,954
)
 
(145,480
)
Financing activities:
 

 
 

Proceeds from long-term debt
246,090

 
747,887

Principal payments on long-term debt
(204,718
)
 
(544,962
)
CCLP distributions
(924
)
 
(13,928
)
Proceeds from exercise of stock options

 
251

Redemptions of CCLP Series A Preferred
(28,049
)
 

Tax remittances on equity based compensation
(571
)
 
(708
)
Debt issuance costs and other financing activities
(373
)
 
(17,932
)
Net cash provided by financing activities
11,455

 
170,608

Effect of exchange rate changes on cash
(606
)
 
818

Increase (decrease) in cash and cash equivalents
(4,123
)
 
27,579

Cash and cash equivalents and restricted cash at beginning of period
40,102

 
26,389

Cash and cash equivalents and restricted cash at end of period
$
35,979

 
$
53,968

 
 
 
 
 
 
 
 
Supplemental cash flow information:
 

 
 
Interest paid
$
49,073

 
$
24,651

Income taxes paid
6,226

 
3,954

See Notes to Consolidated Financial Statements

7

Table of Contents

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

Organization 

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

Presentation  

Our unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. Operating results for the period ended September 30, 2019 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2019.

We consolidate the financial statements of CSI Compressco LP and its subsidiaries ("CCLP") as part of our Compression Division, as we determined that CCLP is a variable interest entity and we are the primary beneficiary. We control the financial interests of CCLP and have the ability to direct the activities of CCLP that most significantly impact its economic performance through our ownership of its general partner. The share of CCLP net assets and earnings that is not owned by us is presented as noncontrolling interest in our consolidated financial statements. Our cash flows from our investment in CCLP are limited to the quarterly distributions we receive on our CCLP common units and general partner interest (including incentive distribution rights) and the amounts collected for services we perform on behalf of CCLP, as TETRA's capital structure and CCLP's capital structure are separate, and do not include cross default provisions, cross collateralization provisions, or cross guarantees.
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission ("SEC") and do not include all information and footnotes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2018 and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March 4, 2019.

Significant Accounting Policies

We have added policies for the recording of leases in conjunction with the adoption of the new lease standard discussed in our "Leases" and "New Accounting Pronouncements" sections below. Other than the additional lease policies described herein, there have been no significant changes in our accounting policies or the application of these policies.

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


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Impairments and Other Charges
    
During the second quarter of 2019, our Compression Division recorded impairments of $2.3 million on certain units of its low-horsepower compression fleet, reflecting the decision to dispose of these units upon management's determination that refurbishing this equipment was not economic given limited current and forecasted demand for such equipment. A recoverability analysis was performed on the remaining low-horsepower fleet and it was concluded that the remaining fleet was recoverable from estimated future cash flows. During the third quarter of 2019, we recorded a charge of $0.8 million for the carrying value of a compressor unit that was written off due to being destroyed by fire.

Goodwill

Our Water & Flowback Services Division consists of two reporting units, Production Testing and Water Management. During the third quarter of 2019, as part of our internal long-term outlook for each of these reporting units, we updated our assessment of the Water Management reporting unit and determined that the current decreased energy industry outlook was an indicator requiring further analysis for impairment of goodwill. As part of the first step of goodwill impairment testing for our Water Management reporting unit, the only reporting unit with goodwill as of September 30, 2019, we updated our assessment of the future cash flows, applying expected long-term growth rates, discount rates, and terminal values that we consider reasonable for the reporting unit. We calculated a present value of the cash flows for the Water Management reporting unit to arrive at an estimate of fair value using a combination of the income approach and the market approach. Based on these assumptions, we determined that the fair value of the Water Management reporting unit exceeded its carrying value, which includes approximately $25.8 million of goodwill, by approximately 17%. Specific uncertainties affecting the estimated fair value of our Water Management reporting unit includes the impact of competition, prices of oil and natural gas, and future overall activity levels in the regions in which it operates, the activity levels of our significant customers, and other factors affecting the rate of future growth of this reporting unit. These factors will continue to be reviewed and assessed going forward. Negative developments with regard to these factors could have a further negative effect on the fair value of the Water Management reporting unit.

Leases

As a lessee, unless the lease meets the criteria of short-term and is excluded per our policy election described below, we initially recognize a lease liability and related right-of-use asset on the commencement date. The right-of-use asset represents our right to use an underlying asset and the lease liability represents our obligation to make lease payments to the lessor over the lease term.    

Long-term operating leases are included in operating lease right-of-use assets, accrued liabilities and other, and operating lease liabilities in our consolidated balance sheet as of September 30, 2019. Long-term finance leases are not material. We determine whether a contract is or contains a lease at inception of the contract. Where we are a lessee in a contract that includes an option to extend or terminate the lease, we include the extension period or exclude the period covered by the termination option in our lease term, if it is reasonably certain that we would exercise the option.

As an accounting policy election, we do not include short-term leases on our balance sheet. Short-term leases include leases with a term of 12 months or less, inclusive of renewal options we are reasonably certain to exercise. The lease payments for short-term leases are included as operating lease costs on a straight-line basis over the lease term in cost of revenues or general and administrative expense based on the use of the underlying asset. We recognize lease costs for variable lease payments not included in the determination of a lease liability in the period in which an obligation is incurred.

As allowed by U.S. GAAP, we do not separate nonlease components from the associated lease component for our compression services contracts and instead account for those components as a single component based on the accounting treatment of the predominant component. In our evaluation of whether Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 842 "Leases" or ASC 606 "Revenue from Contracts with Customers" is applicable to the combined component based on the predominant component, we determined the services nonlease component is predominant, resulting in the ongoing recognition of our compression services contracts following ASC 606.


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Our operating and finance leases are recognized at the present value of lease payments over the lease term. When the implicit discount rate is not readily determinable, we use our incremental borrowing rate to calculate the discount rate used to determine the present value of lease payments. Consistent with other long-lived assets or asset groups that are held and used, we test for impairment of our right-of-use assets when impairment indicators are present.

Foreign Currency Translation
 
The cumulative translation effects of translating the applicable accounts from the functional currencies into the U.S. dollar at current exchange rates are included as a separate component of equity. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $(1.7) million and $(2.2) million during the three and nine months ended September 30, 2019, respectively, and $(0.1) million and $(0.4) million during the three and nine months ended September 30, 2018, respectively.

New Accounting Pronouncements

Standards adopted in 2019

In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" to increase comparability and transparency among different organizations. Organizations are required to recognize right-of-use lease assets and lease liabilities in the balance sheet related to the right to use the underlying asset for the lease term. In addition, through improved disclosure requirements, ASC 842 will enable users of financial statements to further understand the amount, timing, and uncertainty of cash flows arising from leases. We adopted the standard effective January 1, 2019. The standard had a material impact on our consolidated balance sheet, specifically, the reporting of our operating leases. The impact in the reporting of our finance leases was insignificant.

We chose to transition using a modified retrospective approach which allows for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented. Comparative information is reported under the accounting standards that were in effect for those periods. In addition, upon transition, we elected the package of practical expedients, which allows us to continue to apply historical lease classifications to existing contracts. Upon adoption, we recognized $60.6 million in operating right-of-use assets, $12.0 million in accrued liabilities and other, and $50.7 million in operating lease liabilities in our consolidated balance sheet. In addition, we also recognized a $2.8 million cumulative effect adjustment to increase retained earnings, primarily as a result of a deferred gain from a previous sale and leaseback transaction on our corporate headquarters facility that was accounted for as an operating lease. Refer to Note K - “Leases” for further information on our leases.    

In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220)" that gives entities the option to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. This was effective for us on January 1, 2019, however, as we do not have associated tax effects in accumulated other comprehensive income, there was no impact.

In June 2018, the FASB issued ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to align the measurement and classification guidance for share-based payments to nonemployees with the guidance currently applied to employees, with certain exceptions. We adopted this ASU during the three months ended March 31, 2019, with no material impact to our consolidated financial statements.

Standards not yet adopted

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairment will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. We are continuing to work through our implementation plan which includes evaluating the impact on our

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allowance for doubtful accounts methodology, identifying new reporting requirements, and implementing changes to business processes, systems, and controls to support adoption of the standard. Upon adoption, the allowance for doubtful accounts is expected to increase with an offsetting adjustment to retained earnings. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. ASU 2016-13 has an effective date of the first quarter of fiscal 2020. We continue to assess the potential effects of these changes to our consolidated financial statements.
    
In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. The ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted, under a prospective adoption. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. We are currently assessing the potential effects of these changes to our consolidated financial statements.
NOTE B – INVENTORIES

Components of inventories as of September 30, 2019 and December 31, 2018 are as follows: 
 
September 30, 2019
 
December 31, 2018
 
(In Thousands)
Finished goods
$
69,326

 
$
69,762

Raw materials
3,043

 
3,503

Parts and supplies
46,815

 
47,386

Work in progress
23,222

 
22,920

Total inventories
$
142,406

 
$
143,571



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

The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income (loss) per common and common equivalent share:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In Thousands)
Number of weighted average common shares outstanding
125,568

 
125,689

 
125,620

 
123,557

Assumed exercise of equity awards and warrants

 

 

 

Average diluted shares outstanding
125,568

 
125,689

 
125,620

 
123,557



For the three and nine month periods ended September 30, 2019 and September 30, 2018, the average diluted shares outstanding excludes the impact of all outstanding equity awards and warrants, as the inclusion of these shares would have been anti-dilutive due to the net losses recorded during the periods. In addition, for the three and nine month periods ended September 30, 2019 and September 30, 2018, the calculation of diluted earnings per common share excludes the impact of the CSI Compressco LP Series A Convertible Preferred Units (the "CCLP Preferred Units"), as the inclusion of the impact from conversion of the CCLP Preferred Units into CCLP common units would have been anti-dilutive.

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NOTE D – DISCONTINUED OPERATIONS

On March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division. As a result, we have accounted for our Offshore Division, consisting of our Offshore Services and Maritech segments, as discontinued operations and have revised prior period financial statements to exclude these businesses from continuing operations. During the three months ended September 30, 2019, as a result of the bankruptcy filing of Epic Companies, LLC, we recorded a reserve for the full amount of certain other receivables of discontinued operations in the amount of $1.5 million and for the full amount of a $7.5 million promissory note, including accrued interest, that we received as part of the consideration for the sale. See Note H - "Commitments and Contingencies" for further discussion. A summary of financial information related to our discontinued operations is as follows:

Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations
(in thousands)
 
Three Months Ended
September 30, 2019
 
Three Months Ended
September 30, 2018
 
Offshore Services
 
Maritech
 
Total
 
Offshore Services
 
Maritech
 
Total
Major classes of line items constituting pretax loss from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Revenue
$

 
$

 
$

 
$

 
$

 
$

Cost of revenues
(273
)
 

 
(273
)
 
125

 

 
125

Depreciation, amortization, and accretion
52

 

 
52

 

 

 

General and administrative expense
1,734

 

 
1,734

 
192

 

 
192

Other (income) expense, net
117

 

 
117

 
(1,113
)
 

 
(1,113
)
Pretax income (loss) from discontinued operations
(1,630
)
 

 
(1,630
)
 
796

 

 
796

Pretax loss on disposal of discontinued operations
 
 
 
 
(7,500
)
 
 
 
 
 

Total pretax income (loss) from discontinued operations
 
 
 
 
(9,130
)
 
 
 
 
 
796

Income tax expense
 
 
 
 

 
 
 
 
 

Total income (loss) from discontinued operations
 
 
 
 
$
(9,130
)
 
 
 
 
 
$
796

 
Nine Months Ended
September 30,
 
Nine Months Ended
September 30,
 
Offshore Services
 
Maritech
 
Total
 
Offshore Services
 
Maritech
 
Total
Major classes of line items constituting pretax loss from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Revenue
$

 
$

 
$

 
$
4,487

 
$
187

 
$
4,674

Cost of revenues
(251
)
 

 
(251
)
 
11,013

 
139

 
11,152

Depreciation, amortization, and accretion
52

 

 
52

 
1,873

 
212

 
2,085

General and administrative expense
2,483

 

 
2,483

 
1,729

 
187

 
1,916

Other (income) expense, net
117

 

 
117

 
(1,035
)
 

 
(1,035
)
Pretax loss from discontinued operations
(2,401
)
 

 
(2,401
)
 
(9,093
)
 
(351
)
 
(9,444
)
Pretax loss on disposal of discontinued operations
 
 
 
 
(7,500
)
 
 
 
 
 
(33,813
)
Total pretax loss from discontinued operations
 
 
 
 
(9,901
)
 
 
 
 
 
(43,257
)
Income tax benefit
 
 
 
 

 
 
 
 
 
(2,326
)
Total loss from discontinued operations
 
 
 
 
$
(9,901
)
 
 
 
 
 
$
(40,931
)
    

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Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)
 
September 30, 2019
 
December 31, 2018
 
Offshore Services
 
Maritech
 
Total
 
Offshore Services
 
Maritech
 
Total
Carrying amounts of major classes of assets included as part of discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Trade receivables
$
16

 
$

 
$
16

 
$

 
$
1,340

 
$
1,340

Other current assets

 

 

 
14

 

 
14

Assets of discontinued operations
$
16

 
$

 
$
16

 
$
14

 
$
1,340

 
$
1,354

 
 
 
 
 
 
 
 
 
 
 
 
Carrying amounts of major classes of liabilities included as part of discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Trade payables
$
901

 
$

 
$
901

 
$
740

 
$

 
$
740

Accrued liabilities
885

 
121

 
1,006

 
1,330

 
2,075

 
3,405

Liabilities of discontinued operations
$
1,786

 
$
121

 
$
1,907

 
$
2,070

 
$
2,075

 
$
4,145



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

Consolidated long-term debt as of September 30, 2019 and December 31, 2018, consists of the following:
 
 
 
September 30, 2019
 
December 31, 2018
 
 
 
(In Thousands)
TETRA
 
Scheduled Maturity
 
 
 
Asset-based credit agreement (presented net of unamortized deferred financing costs of $1.4 million as of September 30, 2019)
 
September 2023
$
8,585

 
$

Term credit agreement (presented net of the unamortized discount of $6.6 million as of September 30, 2019 and $7.2 million as of December 31, 2018 and net of unamortized deferred financing costs of $9.8 million as of September 30, 2019 and $10.2 million as of December 31, 2018)
 
September 2025
204,112

 
182,547

TETRA total debt
 
 
212,697

 
182,547

Less current portion
 
 

 

TETRA total long-term debt
 
 
$
212,697

 
$
182,547

 
 
 
 
 
 
CCLP
 
 
 
 
 
CCLP asset-based credit agreement (presented net of unamortized deferred financing costs of $0.9 million as of September 30, 2019)
 
June 2023
10,559

 

CCLP 7.25% Senior Notes (presented net of the unamortized discount of $1.8 million as of September 30, 2019 and $2.2 million as of December 31, 2018 and net of unamortized deferred financing costs of $3.1 million as of September 30, 2019 and $3.9 million as of December 31, 2018)
 
August 2022
291,028

 
289,797

CCLP 7.50% Senior Secured Notes (presented net of unamortized deferred financing costs of $6 million as of September 30, 2019 and $6.8 million as of December 31, 2018)
 
April 2025
343,988

 
343,216

CCLP total debt
 
 
645,575

 
633,013

Less current portion
 
 

 

CCLP total long-term debt
 
 
$
645,575

 
$
633,013

Consolidated total long-term debt
 
 
$
858,272

 
$
815,560



As of September 30, 2019, TETRA had a $10.0 million outstanding balance and $6.9 million in letters of credit against its asset-based credit agreement ("ABL Credit Agreement"). As of September 30, 2019, subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings, TETRA had an availability of $41.6 million under this agreement. There was an $11.5 million balance outstanding and $3.0 million in letters of credit against the CCLP asset-based credit agreement ("CCLP Credit Agreement") as of September 30, 2019. On June 26, 2019, CCLP entered into an amendment of the CCLP Credit Agreement that, among other things, revised and increased the borrowing base, including adding the value of certain CCLP inventory in the determination of the borrowing base. As of September 30, 2019, and subject to compliance with the covenants, borrowing base, and other provisions of the agreements that may limit borrowings under the CCLP Credit Agreement, CCLP had availability of $7.8 million.

TETRA and CCLP credit and senior note agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. TETRA and CCLP are both in compliance with all covenants of their respective credit and senior note agreements as of September 30, 2019.

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NOTE F – CCLP SERIES A CONVERTIBLE PREFERRED UNITS

In January 2019, CCLP began redeeming CCLP Preferred Units for cash, resulting in 2,660,569 CCLP Preferred Units being redeemed during the nine months ended September 30, 2019 for an aggregate of $28.0 million, which includes approximately $1.3 million of redemption premium that was paid and charged to other (income) expense, net in the accompanying consolidated statements of operations. The last redemption of the remaining outstanding CCLP Preferred Units, along with a final cash payment made in lieu of paid-in-kind units, occurred on August 8, 2019, for an aggregate cash payment of $5.0 million, of which $0.6 million was paid to us.
NOTE G – FAIR VALUE MEASUREMENTS
 
Financial Instruments

Warrants

The Warrants are valued using a Black Scholes option valuation model that includes implied volatility of the trading price (a Level 3 fair value measurement).

Contingent Consideration

The fair value of the remaining contingent consideration associated with the February 2018 acquisition of SwiftWater Energy Services, LLC ("SwiftWater") is based on a probability simulation utilizing forecasted revenues and EBITDA of the water management business of SwiftWater and all of our pre-existing operations in the Permian Basin (a Level 3 fair value measurement). At September 30, 2019, based on a forecast of SwiftWater 2019 revenues and EBITDA, the estimated fair value for the liability associated with the remaining contingent purchase price consideration was $0.2 million, resulting in $0.8 million being credited to other (income) expense, net, during the nine months ended September 30, 2019. During the nine months ended September 30, 2019, the sellers received a payment of $10.0 million based on SwiftWater's performance during 2018. In addition, as part of the purchase of JRGO Energy Services LLC ("JRGO") during December 2018, the sellers were paid contingent consideration of $1.4 million during the nine month period ended September 30, 2019, based on JRGO's performance during the fourth quarter of 2018.

Derivative Contracts

We and CCLP each enter into short term foreign currency forward derivative contracts with third parties as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. As of September 30, 2019, we and CCLP had the following foreign currency derivative contracts outstanding relating to portions of our foreign operations:
Derivative Contracts
 
US Dollar Notional Amount
 
Traded Exchange Rate
 
Settlement Date

 
(In Thousands)
 

 

Forward purchase Euro
 
$
9,472

 
1.12
 
12/19/2019
Forward purchase Euro
 
8,687

 
1.11
 
10/18/2019
Forward sale pounds sterling
 
1,867

 
1.24
 
10/18/2019
Forward purchase Mexican peso
 
774

 
19.38
 
10/18/2019
Forward purchase Norwegian krone
 
5,063

 
8.89
 
10/18/2019
Forward sale Mexican peso
 
8,844

 
19.56
 
10/18/2019
Derivative Contracts
 
British Pound Notional Amount
 
Traded Exchange Rate
 
Settlement Date
 
 
(In Thousands)
 
 
 
 
Forward purchase Euro
 
2,316

 
0.89
 
10/18/2019
Derivative Contracts
 
Swedish Krona Notional Amount
 
Traded Exchange Rate
 
Settlement Date
 
 
(In Thousands)
 
 
 
 
Forward purchase Euro
 
15,980

 
10.65
 
10/18/2019



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Under this program, we and CCLP may enter into similar derivative contracts from time to time. Although contracts pursuant to this program will serve as an economic hedge of the cash flow of our currency exchange risk exposure, they are not formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative contracts during a period will be included in the determination of earnings for that period.

The fair values of foreign currency derivative contracts are based on quoted market values (a Level 2 fair value measurement). The fair values of our and CCLP's foreign currency derivative contracts as of September 30, 2019 and December 31, 2018, are as follows:
Foreign currency derivative contracts
Balance Sheet Location
 
 Fair Value at September 30, 2019
 
 Fair Value at December 31, 2018

 

 
(In Thousands)
Forward purchase contracts
 
Current assets
 
$
12

 
$
41

Forward sale contracts
 
Current assets
 
122

 
76

Forward sale contracts
 
Current liabilities
 

 
(126
)
Forward purchase contracts
 
Current liabilities
 
(504
)
 
(168
)
Net asset (liability)
 
 
 
$
(370
)
 
$
(177
)


None of our foreign currency derivative contracts contain credit risk related contingent features that would require us to post assets or collateral for contracts that are classified as liabilities. During the three and nine month periods ended September 30, 2019, we recognized $1.0 million and $1.8 million of net (gains) losses, respectively, reflected in other (income) expense, net, associated with our foreign currency derivative program. During the three and nine months ended September 30, 2018, we recognized $0.6 million and $(0.1) million of net (gains) losses, respectively, reflected in other (income) expense, net, associated with our foreign currency derivative program.

Recurring fair value measurements by valuation hierarchy as of September 30, 2019 and December 31, 2018, are as follows:
 
 
 
Fair Value Measurements Using
 
Total as of
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Description
September 30, 2019
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
(In Thousands)
Warrants liability
$
(1,038
)
 
$

 
$

 
$
(1,038
)
Asset for foreign currency derivative contracts
134

 

 
134

 

Liability for foreign currency derivative contracts
(504
)
 

 
(504
)
 

Acquisition contingent consideration liability
(200
)
 

 

 
(200
)
Net liability
$
(1,608
)
 
 
 
 
 
 


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Fair Value Measurements Using
 
Total as of
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Description
December 31, 2018
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
(In Thousands)
CCLP Series A Preferred Units
$
(27,019
)
 
$

 
$

 
$
(27,019
)
Warrants liability
(2,073
)
 

 

 
(2,073
)
Asset for foreign currency derivative contracts
117

 

 
117

 

Liability for foreign currency derivative contracts
(294
)
 

 
(294
)
 

Acquisition contingent consideration liability
(12,452
)
 

 

 
(12,452
)
Net liability
$
(41,721
)
 
 
 
 
 
 

The fair values of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt pursuant to TETRA's ABL Credit Agreement and Term Credit Agreement, and the CCLP Credit Agreement approximate their carrying amounts. The fair values of the publicly traded CCLP 7.25% Senior Notes at September 30, 2019 and December 31, 2018, were approximately $269.2 million and $266.3 million, respectively. Those fair values compare to the face amount of $295.9 million both at September 30, 2019 and December 31, 2018. The fair values of the CCLP 7.50% Senior Secured Notes at September 30, 2019 and December 31, 2018 were approximately $344.8 million and $332.5 million, respectively. These fair values compare to aggregate principal amount of such notes at both September 30, 2019 and December 31, 2018, of $350.0 million. We based the fair values of the CCLP 7.25% Senior Notes and the CCLP 7.50% Senior Secured Notes as of September 30, 2019 on recent trades for these notes.
NOTE H – COMMITMENTS AND CONTINGENCIES
 
Litigation
 
We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not 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.

Contingencies of Discontinued Operations

    In early 2018, we closed the Maritech Asset Purchase Agreement with Orinoco Natural Resources, LLC ("Orinoco") that provided for the purchase by Orinoco of Maritech's remaining oil and gas properties and related assets. Also in early 2018, we closed the Maritech Membership Interest Purchase Agreement with Orinoco that provided for the purchase by Orinoco of all of the outstanding membership interests in Maritech. As a result of these transactions, we have effectively exited the business of our Maritech segment.

Under the Maritech Asset Purchase Agreement, Orinoco assumed all of Maritech’s decommissioning liabilities related to the leases sold to Orinoco (the “Orinoco Lease Liabilities”) and, under the Maritech Membership Interest Purchase Agreement, Orinoco assumed all other liabilities of Maritech, including the decommissioning liabilities associated with the oil and gas properties previously sold by Maritech (the “Legacy Liabilities”), subject to certain limited exceptions unrelated to the decommissioning liabilities. To the extent that Maritech or Orinoco fails to satisfy decommissioning liabilities associated with any of the Orinoco Lease Liabilities or the Legacy Liabilities, we may be required to satisfy such liabilities under third party indemnity agreements and corporate guarantees that we previously provided to the US Department of the Interior and other parties, respectively.

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    Pursuant to a Bonding Agreement entered into as part of these transactions (the "Bonding Agreement"), Orinoco provided non-revocable performance bonds in an aggregate amount of $46.8 million to cover the performance by Orinoco and Maritech of the asset retirement obligations of Maritech (the “Initial Bonds”) and agreed to replace, within 90 days following the closing, the Initial Bonds with other non-revocable performance bonds, meeting certain requirements, in the aggregate sum of $47.0 million (collectively, the “Interim Replacement Bonds”). Orinoco further agreed to replace, within 180 days following the closing, the Interim Replacement Bonds with a maximum of three non-revocable performance bonds in the aggregate sum of $47.0 million, meeting certain requirements (the “Final Bonds”). Among the other requirements of the Final Bonds was that they must provide coverage for all of the asset retirement obligations of Maritech instead of only relating to specific properties. In the event Orinoco does not provide the Interim Replacement Bonds or the Final Bonds, Orinoco is required to make certain cash escrow payments to us.

    The payment obligations of Orinoco under the Bonding Agreement were guaranteed by Thomas M. Clarke and Ana M. Clarke pursuant to a separate guaranty agreement (the “Clarke Bonding Guaranty Agreement”). Orinoco has not delivered such replacement bonds and it has not made any of the agreed upon cash escrow payments and we filed a lawsuit against Orinoco and the Clarkes to enforce the terms of the Bonding Agreement and the Clarke Bonding Guaranty Agreement. A summary judgment was granted in favor of Orinoco and the Clarkes which dismissed our present claims against Orinoco under the Bonding Agreement and against the Clarkes under the Clarke Bonding Guaranty Agreement. We believe this judgment should not have been granted and have begun the process of appealing it. The Initial Bonds, which are non-revocable, remain in effect.

    If we become liable in the future for any decommissioning liability associated with any property covered by either an Initial Bond or an Interim Replacement Bond while such bonds are outstanding and the payment made to us under such bond is not sufficient to satisfy such liability, the Bonding Agreement provides that Orinoco will pay us an amount equal to such deficiency and if Orinoco fails to pay any such amount, such amount must be paid by the Clarkes under the Clarke Bonding Guaranty Agreement. However, if the Final Bonds or the full amount of the escrowed cash have been provided, neither Orinoco nor the Clarkes would be liable to pay us for any such deficiency. Our financial condition and results of operations may be negatively affected if Orinoco is unable to cover any such deficiency or if we become liable for a significant portion of the decommissioning liabilities.

    In early 2018, we also closed the sale of our Offshore Division to Epic Companies, LLC (“Epic Companies,” formerly known as Epic Offshore Specialty, LLC). Part of the consideration we received was a promissory note of Epic Companies in the original principal amount of $7.5 million (the “Epic Promissory Note”) payable to us in full, together with interest at a rate of 1.52% per annum, on December 31, 2019, along with a personal guaranty agreement from Thomas M. Clarke and Ana M. Clarke guaranteeing the payment obligations of Epic Companies pursuant to the Epic Promissory Note (the “Clarke Promissory Note Guaranty Agreement”). Additionally, pursuant to the Equity Interest Purchase Agreement (the “Offshore Services Purchase Agreement”) and other agreements with Epic Companies, certain other amounts relating to the Offshore Division totaling approximately $1.5 million were payable to us. At the end of August 2019, Epic Companies filed for bankruptcy. Although the Epic Promissory Note is not currently due and is guaranteed by the Clarke Promissory Note Guaranty Agreement, we recorded a reserve of $7.5 million for the full amount of the promissory note including accrued interest, and certain other receivables in the amount of $1.5 million at September 30, 2019. We continue to monitor this matter and seek to vigorously pursue our rights to collect all amounts payable to us, including the amounts owed under the Epic Promissory Note when due, including by enforcing our rights under the Clarke Promissory Note Guaranty Agreement.


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NOTE I – INDUSTRY SEGMENTS
 
We manage our operations through three Divisions: Completion Fluids & Products, Water & Flowback Services, and Compression.

 Summarized financial information concerning the business segments is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In Thousands)
Revenues from external customers
 

 
 

 
 

 
 

Product sales
 

 
 

 
 
 
 
Completion Fluids & Products Division
$
55,444

 
$
58,050

 
$
185,578

 
$
181,394

Water & Flowback Services Division
100

 
941

 
831

 
1,617

Compression Division
37,833

 
43,079

 
134,099

 
102,125

Consolidated
$
93,377

 
$
102,070

 
$
320,508

 
$
285,136

 
 
 
 
 
 
 
 
Services
 

 
 

 
 
 
 
Completion Fluids & Products Division
$
3,896

 
$
5,027

 
$
15,110

 
$
11,344

Water & Flowback Services Division
72,741

 
77,572

 
223,812

 
221,342

Compression Division
75,933

 
72,182

 
219,041

 
198,482

Consolidated
$
152,570

 
$
154,781

 
$
457,963

 
$
431,168

 
 
 
 
 
 
 
 
Interdivision revenues
 

 
 

 
 
 
 
Completion Fluids & Products Division
$

 
$
(4
)
 
$

 
$
(5
)
Water & Flowback Services Division

 
55

 

 
330

Compression Division

 

 

 

Interdivision eliminations

 
(51
)
 

 
(325
)
Consolidated
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
Total revenues
 

 
 

 
 
 
 
Completion Fluids & Products Division
$
59,340

 
$
63,073

 
$
200,688

 
$
192,733

Water & Flowback Services Division
72,841

 
78,568

 
224,643

 
223,289

Compression Division
113,766

 
115,261

 
353,140

 
300,607

Interdivision eliminations

 
(51
)
 

 
(325
)
Consolidated
$
245,947

 
$
256,851

 
$
778,471

 
$
716,304

 
 
 
 
 
 
 
 
Income (loss) before taxes
 

 
 

 
 
 
 
Completion Fluids & Products Division
$
11,318

 
$
8,713

 
$
32,118

 
$
21,143

Water & Flowback Services Division
2,578

 
5,809

 
7,269

 
20,668

Compression Division
(3,464
)
 
(7,844
)
 
(14,748
)
 
(30,517
)
Interdivision eliminations
(1
)
 
5

 
6

 
9

Corporate Overhead(1)
(17,931
)
 
(19,631
)
 
(54,921
)
 
(53,870
)
Consolidated
$
(7,500
)
 
$
(12,948
)
 
$
(30,276
)
 
$
(42,567
)

(1)
Amounts reflected include the following general corporate expenses:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In Thousands)
General and administrative expense
$
12,573

 
$
13,037

 
$
39,012

 
$
37,506

Depreciation and amortization
167

 
172

 
507

 
487

Interest expense
5,495

 
5,268

 
16,533

 
14,152

Warrants fair value adjustment (income) expense
78

 
(179
)
 
(1,035
)
 
22

Other general corporate (income) expense, net
(382
)
 
1,333

 
(96
)
 
1,703

Total
$
17,931

 
$
19,631

 
$
54,921

 
$
53,870



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NOTE J – REVENUE FROM CONTRACTS WITH CUSTOMERS

Performance Obligations. Revenue is generally recognized when we transfer control of our products or services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services to our customers. We receive cash equal to the invoice price for most sales of product and services and payment terms typically range from 30 to 60 days from the date we invoice our customer. Since the period between when we deliver products or services and when the customer pays for such products or services is not expected to exceed one year, we have elected not to calculate or disclose a financing component for our customer contracts.

Depending on the terms of the arrangement, we may also defer the recognition of revenue for a portion of the consideration received because we have to satisfy a future performance obligation. For example, consideration received from customers during the fabrication of new compressor packages is typically deferred until control of the compressor package is transferred to our customer.

For any arrangements with multiple performance obligations, we use management's estimated selling price to determine the stand-alone selling price for separate performance obligations. For revenue associated with mobilization of service equipment as part of a service contract arrangement, such revenue, if significant, is deferred and amortized over the estimated service period.

Product Sales. Product sales revenues are generally recognized when we ship products from our facility to our customer. The product sales for our Completion Fluid & Products Division consist primarily of clear brine fluids ("CBFs"), additives, and associated manufactured products. Product sales for our Water & Flowback Services Division are typically attributed to specific performance obligations within certain production testing service arrangements. Parts and equipment sales comprise the product sales for the Compression Division.

Services. Service revenues represent revenue recognized over time, as our customer arrangements typically provide agreed upon day-rates (monthly service rates for compression services) and we recognize service revenue based upon the number of days services have been performed. Service revenue recognized over time is associated with a majority of our Water & Flowback Services Division arrangements, compression service and aftermarket service contracts within our Compression Division, and a small portion of Completion Fluids & Products Division revenue that is associated with completion fluid service arrangements. With the exception of the initial terms of the compression services contracts for medium- and high-horsepower compressor packages of our Compression Division, our customer contracts are generally for terms of one year or less. The majority of the service arrangements in the Water & Flowback Services Division are for a period of 90 days or less.
    
As of September 30, 2019, we had $69.9 million of remaining contractual performance obligations for compression services. As a practical expedient, this amount does not reflect revenue for compression service contracts whose original expected duration is less than twelve months and does not consider the effects of the time value of money. Expected revenue to be recognized in the future for completion of performance obligations of compression service contracts are as follows:
 
2019
 
2020
 
2021
 
2022
 
2023
 
Total
 
(In Thousands)
Compression service contracts remaining performance obligations
$
18,830

 
$
37,710

 
$
11,834

 
$
1,551

 
$

 
$
69,925


Sales taxes, value added taxes, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost for freight and shipping costs as part of cost of product sales when control over our products (i.e. delivery) has transferred to the customer.

Use of Estimates. In recognizing revenue for variable consideration arrangements, the amount of variable consideration recognized is limited so that it is probable that significant amounts of revenues will not be reversed in future periods when the uncertainty is resolved. For products returned by the customer, we estimate the expected returns based on an analysis of historical experience. For volume discounts earned by the customer, we estimate the discount (if any) based on our estimate of the total expected volume of products sold or services to be provided to the customer during the discount period. In certain contracts for the sale of CBF, we may agree to issue credits for the repurchase of reclaimable used fluids from certain customers at an agreed price that is based on the condition of the fluids. For sales of CBF, we adjust the revenue recognized in the period of shipment by the

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estimated amount of the credit expected to be issued to the customer, and this estimate is based on historical experience. As of September 30, 2019, the amount of remaining credits expected to be issued for the repurchase of reclaimable used fluids was $2.1 million that were recorded in inventory (right of return asset) and accounts payable. There were no material differences between amounts recognized during the three and nine month periods ended September 30, 2019, compared to estimates made in a prior period from these variable consideration arrangements.

Contract Assets and Liabilities. We consider contract assets to be trade accounts receivable when we have an unconditional right to consideration and only the passage of time is required before payment is due. In certain instances, particularly those requiring customer specific documentation prior to invoicing, our invoicing of the customer is delayed until certain documentation requirements are met. In those cases, we recognize a contract asset rather than a billed trade accounts receivable until we are able to invoice the customer. Our contract asset balances, primarily associated with these documentation requirements, were $33.0 million and $44.2 million as of September 30, 2019 and December 31, 2018, respectively. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.

We classify contract liabilities as unearned income in our consolidated balance sheets. Such deferred revenue typically results from advance payments received on orders for new compressor equipment prior to the time such equipment is completed and transferred to the customer in accordance with the customer contract. New equipment sales orders generally take less than twelve months to build and deliver.

The following table reflects the changes in our contract liabilities for the periods indicated:
 
Nine Months Ended
September 30,
 
2019
 
2018
 
(In Thousands)
Unearned Income, beginning of period
$
25,333

 
$
17,050

Additional unearned income
106,744

 
101,887

Revenue recognized
(105,486
)
 
(82,050
)
Unearned income, end of period
$
26,591

 
$
36,887



During the nine month period ended September 30, 2019, we recognized in product sales revenue of $24.6 million from unearned income that was deferred as of December 31, 2018. During the nine months ended September 30, 2018, we recognized in product sales revenue of $16.2 million from unearned income that was deferred as of our adoption of ASC 606 on January 1, 2018.

Contract Costs. As of September 30, 2019, contract costs were immaterial.
    

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Disaggregation of Revenue. We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our three reportable segments in Note I. In addition, we disaggregate revenue from contracts with customers by geography based on the following table below.

 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In Thousands)
Completion Fluids & Products
 
 
 
 
 
 
 
U.S.
31,480

 
35,426

 
$
100,622

 
$
97,446

International
27,860

 
27,647

 
100,066

 
95,287

 
59,340

 
63,073

 
200,688

 
192,733

Water & Flowback Services
 
 
 
 
 
 
 
U.S.
68,052

 
71,579

 
209,663

 
189,457

International
4,789

 
6,989

 
14,980

 
33,832

 
72,841

 
78,568

 
224,643

 
223,289

Compression
 
 
 
 
 
 
 
U.S.
105,153

 
105,655

 
324,792

 
273,563

International
8,613

 
9,606

 
28,348

 
27,044

 
113,766

 
115,261

 
353,140

 
300,607

Interdivision eliminations
 
 
 
 
 
 
 
U.S.

 
4

 

 
4

International

 
(55
)
 

 
(329
)
 

 
(51
)
 

 
(325
)
Total Revenue
 
 
 
 
 
 
 
U.S.
204,685

 
212,664

 
635,077

 
560,470

International
41,262

 
44,187

 
143,394

 
155,834

 
245,947

 
256,851

 
$
778,471

 
$
716,304


NOTE K – LEASES

We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. We have finance leases for certain storage tanks and equipment rentals. These finance leases are not material to our financial statements. Our leases have remaining lease terms ranging from 1 to 16 years. Some of our leases have options to extend for various periods, while some have termination options with prior notice of generally 30 days or six months. The office space, warehouse space, operating location leases, and machinery and equipment leases generally require us to pay all maintenance and insurance costs. We do not have leases that have not yet commenced that create significant rights and obligations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Variable rent expense was not material.

Our corporate headquarters facility located in The Woodlands, Texas, was sold on December 31, 2012, pursuant to a sale and leaseback transaction. As a condition to the consummation of the purchase and sale of the facility, the parties entered into a lease agreement for the facility having an initial lease term of 15 years, which is classified as an operating lease. Under the terms of the lease agreement, we have the ability to extend the lease for five successive five-year periods at base rental rates to be determined at the time of each extension.


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Table of Contents

Components of lease expense, included in either cost of revenues or general and administrative expense based on the use of the underlying asset, are as follows (inclusive of lease expense for leases not included on our consolidated balance sheet based on our accounting policy election to exclude leases with a term of 12 months or less):
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
 
(In Thousands)
Operating lease expense
$
5,075

 
$
15,106

Short-term lease expense
9,556

 
30,269

Total lease expense
$
14,631

 
$
45,375


Supplemental cash flow information:
 
 
Nine Months Ended September 30, 2019
 
 
(In Thousands)
Cash paid for amounts included in the measurement of lease liabilities:
 
 
     Operating cash flows - operating leases
 
$
14,868

 
 
 
Right-of-use assets obtained in exchange for lease obligations:
 
 
     Operating leases
 
$
7,631



Supplemental balance sheet information:
 
September 30, 2019
 
(In Thousands)
Operating leases:
 
     Operating lease right-of-use assets
$
57,848

 
 
     Accrued liabilities and other
$
14,071

     Operating lease liabilities
45,993

     Total operating lease liabilities
$
60,064


Additional operating lease information:
 
September 30, 2019
Weighted average remaining lease term:
 
     Operating leases
6.60 Years

 
 
Weighted average discount rate:
 
     Operating leases
9.39
%

    

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Future minimum lease payments by year and in the aggregate, under non-cancelable operating leases with terms in excess of one year consist of the following at September 30, 2019:
 
 
Operating Leases
 
(In Thousands)
 
 
 
Remainder of 2019
 
$
4,870

2020
 
17,721

2021
 
12,798

2022
 
9,591

2023
 
7,871

Thereafter
 
29,440

Total lease payments
 
82,291

Less imputed interest
 
(22,227
)
Total lease liabilities
 
$
60,064


    
At September 30, 2019, future minimum rental receipts under a non-cancelable sublease for office space in one of our locations totaled $5.7 million. For the three and nine months ended September 30, 2019, we recognized sublease income of $0.2 million and $0.7 million, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report. In addition, the following discussion and analysis also should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 4, 2019 ("2018 Annual Report"). This discussion includes forward-looking statements that involve certain risks and uncertainties.
Business Overview  
We are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, water management, frac flowback, production well testing, and compression services and equipment. We operate through three reporting segments organized into three Divisions - Completion Fluids & Products, Water & Flowback Services, and Compression.
Demand for products and services of our Completion Fluids & Products Division has remained fairly consistent despite continued volatility in pricing for oil and uncertainty in many of the markets where we operate, which affects the plans of many of our oil and gas operations customers. Recent oil price volatility has particularly affected domestic onshore demand for our Water & Flowback Services Division services, resulting in increased customer contract pricing pressure. The construction of infrastructure to alleviate current takeaway capacity constraints that are limiting production and new drilling in the Permian Basin has continued to contribute to increased demand for compressor equipment and services through our Compression Division. This growth in demand continues to drive increases in our compression services revenues, through increased activity and customer contract pricing.
We are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment. In addition, we continue to review our expectations of the demand for the products and services we provide in each of the markets where we operate. We intend to manage our flexible cost structure to proactively respond to changing market conditions and execute on actions necessary to manage through these conditions, some of which could result in impairments or restructuring charges in future periods.
Critical Accounting Policies and Estimates
 
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 2018 Annual Report. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. These judgments and estimates may change as new events occur,

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as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.    
Results of Operations

Three months ended September 30, 2019 compared with three months ended September 30, 2018.

Consolidated Comparisons
 
Three Months Ended
September 30,
 
Period to Period Change
 
2019
 
2018
 
2019 vs 2018
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
245,947

 
$
256,851

 
$
(10,904
)
 
(4.2
)%
Gross profit
44,960

 
41,330

 
3,630

 
8.8
 %
Gross profit as a percentage of revenue
18.3
 %
 
16.1
 %
 
 

 
 

General and administrative expense
34,926

 
34,446

 
480

 
1.4
 %
General and administrative expense as a percentage of revenue
14.2
 %
 
13.4
 %
 
 

 
 

Interest expense, net
18,146

 
18,894

 
(748
)
 
(4.0
)%
Warrants fair value adjustment (income) expense
78

 
(179
)
 
257

 
 
CCLP Series A Preferred Units fair value adjustment (income) expense

 
498

 
(498
)
 
 
Other (income) expense, net
(690
)
 
619

 
(1,309
)
 
 
Loss before taxes and discontinued operations
(7,500
)
 
(12,948
)
 
5,448

 
42.1
 %
Loss before taxes and discontinued operations as a percentage of revenue
(3.0
)%
 
(5.0
)%
 
 

 
 

Provision (benefit) for income taxes
1,579

 
(96
)
 
1,675

 
 
Loss before discontinued operations
(9,079
)
 
(12,852
)
 
3,773

 
 
Discontinued operations:
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of taxes
(9,130
)
 
796

 
(9,926
)
 
 
Net loss
(18,209
)
 
(12,056
)
 
(6,153
)
 
 
Loss attributable to noncontrolling interest
2,378

 
5,120

 
(2,742
)
 
 

Net income (loss) attributable to TETRA stockholders
$
(15,831
)
 
$
(6,936
)
 
$
(8,895
)
 
 
 
Consolidated revenues during the current year quarter decreased compared to the prior year quarter due to decreases in product sales and activity. See Divisional Comparisons section below for additional discussion.

Consolidated gross profit during the current year quarter increased compared to the prior year quarter primarily due to increased gross profit from our Completion Fluids & Products and Compression Divisions. This increase was partially offset, however, by the lower gross profit of our Water & Flowback Services Division. Despite efforts to reduce operating costs whenever possible, the impact of pricing pressures hampered profitability in certain markets.
 
Consolidated general and administrative expenses increased during the current year quarter compared to the prior year quarter primarily due to increased provision for bad debt of $1.3 million, offset by decreased salary and employee expenses of $0.6 million, decreased professional services fees of $0.1 million, and decreased insurance and other general expenses of $0.2 million.
 
Consolidated interest expense, net, decreased during the current year quarter compared to the prior year quarter primarily due to decreased Compression Division interest expense partially offset by increased Corporate interest expense. Compression Division interest expense decreased due to the completion of the redemption of CCLP Preferred Units outstanding on August 8, 2019. Corporate interest expense increased due to additional borrowings under the TETRA Term Credit Agreement and ABL Credit Agreement during the current year period. Interest expense during the current and prior year quarters includes $1.0 million and $1.1 million, respectively, of finance cost amortization.


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Table of Contents

Consolidated other (income) expense, net, was $0.7 million of other income during the current year quarter compared to $0.6 million of other expense during the prior year quarter primarily due to $0.9 million of decreased loan fees associated with new TETRA credit agreements in the prior year quarter and $1.3 million of decreased foreign currency losses, offset by increased expense of $0.4 million associated with a redemption premium incurred in connection with the redemption of CCLP Preferred Units for cash in the current year quarter.
 
Our consolidated provision for income taxes during the three month period ended September 30, 2019 is attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the three month period ended September 30, 2019 of negative 21.1% was primarily the result of losses generated in entities for which no related tax benefit has been recorded. The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.


Divisional Comparisons
 
Completion Fluids & Products Division
 
Three Months Ended
September 30,
 
Period to Period Change
 
2019
 
2018
 
2019 vs 2018
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
59,340

 
$
63,073

 
$
(3,733
)
 
(5.9
)%
Gross profit
16,181

 
13,129

 
3,052

 
23.2
 %
Gross profit as a percentage of revenue
27.3
%
 
20.8
%
 
 

 
 

General and administrative expense
4,865

 
4,909

 
(44
)
 
(0.9
)%
General and administrative expense as a percentage of revenue
8.2
%
 
7.8
%
 
 

 
 

Interest (income) expense, net
(216
)
 
(70
)
 
(146
)
 
 

Other (income) expense, net
214

 
(423
)
 
637

 
 

Income before taxes
$
11,318

 
$
8,713

 
$
2,605

 
29.9
 %
Income before taxes as a percentage of revenue
19.1
%
 
13.8
%
 
 

 
 

 
The decrease in Completion Fluids & Products Division revenues during the current year quarter compared to the prior year quarter was primarily due to $2.6 million of decreased product sales revenue due to decreased CBF product and manufactured product sales. Additionally, service revenues decreased $1.1 million due to reduced activity in engineering and filtration services compared to the prior year quarter.

Completion Fluids & Products Division gross profit during the current year quarter increased compared to the prior year quarter despite decreased revenues primarily due to higher margins on sales of manufactured products as well as increased profitability associated with higher margin CBF products during the current year quarter when compared to the prior year quarter. Completion Fluids & Products Division profitability in future periods will continue to be affected by the mix of its products and services, including the timing of TETRA CS Neptune(R) completion fluid projects.
 
The Completion Fluids & Products Division reported an increase in pretax earnings during the current year quarter compared to the prior year quarter primarily due to increased gross profit discussed above. Completion Fluids & Products Division general and administrative expense levels remained flat compared to prior year quarter. Other expense increased primarily due to increased foreign currency losses.


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Table of Contents

Water & Flowback Services Division
 
Three Months Ended
September 30,
 
Period to Period Change
 
2019
 
2018
 
2019 vs 2018
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
72,841

 
$
78,568

 
$
(5,727
)
 
(7.3
)%
Gross profit
8,236

 
11,522

 
(3,286
)
 
(28.5
)%
Gross profit as a percentage of revenue
11.3
%
 
14.7
%
 
 

 
 

General and administrative expense
5,957

 
5,919

 
38

 
0.6
 %
General and administrative expense as a percentage of revenue
8.2
%
 
7.5
%
 
 

 
 

Interest (income) expense, net
(2
)
 
5

 
(7
)
 
(140.0
)%
Other (income) expense, net
(297
)
 
(211
)
 
(86
)
 
40.8
 %
Income before taxes
$
2,578

 
$
5,809

 
$
(3,231
)
 
(55.6
)%
Income before taxes as a percentage of revenue
3.5
%
 
7.4
%
 
 

 
 

 
Water & Flowback Services Division revenues decreased during the current year quarter primarily due to a reduction in commodity prices driving our customers' capital spending decisions and resulting in decreased activity and pricing levels when compared to prior year quarter.

The Water & Flowback Services Division reflected decreased gross profit during the current year quarter compared to the prior year quarter primarily due to the decreased revenues resulting from the decreased activity and pricing levels described above. In addition, our cost structure, specifically labor expense, does not always decrease proportionately with revenues due to a tight labor market for the services we provide.
 
The Water & Flowback Services Division reported decreased pretax income during the current year quarter compared to the prior year quarter primarily due to the reduction in gross profit described above. General and administrative expense levels remained flat compared to the prior year quarter. Other income increased as compared to prior year quarter due to increased foreign currency gains of $0.5 million and increased gains on the disposal of assets of $0.2 million, offset by decreased income of $0.6 million associated with the remeasurement of the contingent purchase price consideration for SwiftWater in the prior year.

Compression Division
 
Three Months Ended
September 30,
 
Period to Period Change
 
2019
 
2018
 
2019 vs 2018
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
113,766

 
$
115,261

 
$
(1,495
)
 
(1.3
)%
Gross profit
20,710

 
16,847

 
3,863

 
22.9
 %
Gross profit as a percentage of revenue
18.2
 %
 
14.6
 %
 
 

 
 

General and administrative expense
11,530

 
10,580

 
950

 
9.0
 %
General and administrative expense as a percentage of revenue
10.1
 %
 
9.2
 %
 
 

 
 

Interest expense, net
12,869

 
13,690

 
(821
)
 
(6.0
)%
CCLP Series A Preferred fair value adjustment (income) expense

 
498

 
(498
)
 
(100.0
)%
Other (income) expense, net
(225
)
 
(77
)
 
(148
)
 
192.2
 %
Loss before taxes
$
(3,464
)
 
$
(7,844
)
 
$
4,380

 
55.8
 %
Loss before taxes as a percentage of revenue
(3.0
)%
 
(6.8
)%
 
 

 
 

    
Compression Division revenues decreased during the current year quarter compared to the prior year quarter primarily due to a $5.2 million decrease in product sales revenues, due to the timing of when customer projects were completed, partially offset with a $3.8 million increase in service revenues. This increase in service revenues was primarily due to increasing demand for compression services, which is also reflected by increased compression fleet utilization rates.

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Table of Contents


Compression Division gross profit increased during the current year quarter compared to the prior year quarter due to improved customer contract pricing, labor efficiencies, reduced maintenance costs, and improved inventory management.
 
The Compression Division recorded a decreased pretax loss during the current year quarter compared to the prior year quarter due to increased gross profit discussed above. Interest expense decreased compared to the prior year quarter, primarily due to the conversion and redemption of CCLP Preferred Units outstanding. General and administrative expense levels increased compared to the prior year quarter, primarily due to increased bad debt expense of $1.5 million mainly associated with the bankruptcy of a single customer, partially offset by decreased employee expenses of $0.9 million. The CCLP Preferred Units fair value adjustment resulted in a $0.5 million charge to earnings in the prior year period with no corresponding impact in the current year quarter, as the last remaining outstanding Preferred Units were redeemed for cash on August 8, 2019. Other (income) expense, net, reflected increased income primarily due to increased foreign currency gains of $0.5 million offset by $0.4 million of redemption premium incurred in connection with the redemption of the CCLP Preferred Units for cash.

Corporate Overhead
 
Three Months Ended
September 30,
 
Period to Period Change
 
2019
 
2018
 
2019 vs 2018
 
% Change
 
(In Thousands, Except Percentages)
Depreciation and amortization
$
167

 
$
172

 
$
(5
)
 
2.9
 %
General and administrative expense
12,573

 
13,037

 
(464
)
 
(3.6
)%
Interest (income) expense, net
5,495

 
5,268

 
227

 
 

Warrants fair value adjustment (income) expense
78

 
(179
)
 
257

 
 
Other (income) expense, net
(382
)
 
1,333

 
(1,715
)
 
(128.7
)%
Loss before taxes
$
(17,931
)
 
$
(19,631
)
 
$
1,700

 
8.7
 %

Corporate Overhead pretax loss decreased during the current year quarter compared to the prior year quarter, primarily due to decreased other expense and decreased general and administrative expense. Other expense, net, decreased primarily due to a $0.9 million decrease of debt issuance fees related to the ABL Credit Agreement and the new Term Credit Agreement that were entered into during the prior year quarter and decreased foreign currency losses of $0.7 million in the current year quarter compared to the prior year quarter. Corporate general and administrative expense decreased primarily due to decreased professional service fees of $0.6 million in the current year quarter compared to the prior year quarter. The fair value of the outstanding Warrants liability resulted in a $0.1 million charge to earnings during the current year quarter compared to a $0.2 million credit to earnings in the prior year quarter. Interest expense increased resulting from increased borrowings.

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Table of Contents

Results of Operations

Nine months ended September 30, 2019 compared with nine months ended September 30, 2018.

Consolidated Comparisons
 
Nine Months Ended September 30,
 
Period to Period Change
 
2019
 
2018
 
2019 vs 2018
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
778,471

 
$
716,304

 
$
62,167

 
8.7
%
Gross profit
129,536

 
117,114

 
12,422

 
10.6
%
Gross profit as a percentage of revenue
16.6
 %
 
16.3
 %
 
 

 
 

General and administrative expense
105,498

 
98,866

 
6,632

 
6.7
%
General and administrative expense as a percentage of revenue
13.6
 %
 
13.8
 %
 
 

 
 

Interest expense, net
55,054

 
52,246

 
2,808

 
5.4
%
Warrants fair value adjustment (income) expense
(1,035
)
 
22

 
(1,057
)
 
 
CCLP Series A Preferred Units fair value adjustment (income) expense
1,309

 
1,344

 
(35
)
 
 
Other (income) expense, net
(1,014
)
 
7,203

 
(8,217
)
 
 
Loss before taxes and discontinued operations
(30,276
)
 
(42,567
)
 
12,291

 
28.9
%
Loss before taxes and discontinued operations as a percentage of revenue
(3.9
)%
 
(5.9
)%
 
 

 
 

Provision (benefit) for income taxes
5,678

 
3,474

 
2,204

 
 
Loss before discontinued operations
(35,954
)
 
(46,041
)
 
10,087

 
 
Discontinued operations:
 
 
 
 
 
 
 
Income (loss) from discontinued operations (including 2018 loss on disposal of $33.8 million), net of taxes
(9,901
)
 
(40,931
)
 
31,030

 
 
Net loss
(45,855
)
 
(86,972
)
 
41,117

 
 
Loss attributable to noncontrolling interest
12,273

 
20,423

 
(8,150
)
 
 

Net loss attributable to TETRA stockholders
$
(33,582
)
 
$
(66,549
)
 
$
32,967

 
 

Consolidated revenues for the current year period increased compared to the prior year period primarily due to increased Compression Division and Completion Fluids & Products Division revenues, which increased by $52.5 million and $8.0 million, respectively. The increased revenues of the Compression Division were primarily due to increased new compressor equipment sales activity. The increase in revenues for the Completion Fluids & Products Division was primarily due to increased international product sales. See Divisional Comparisons section below for additional discussion.

Consolidated gross profit increased during the current year period compared to the prior year period primarily due to the increased profitability of our Compression Division and our Completion Fluids & Products Division. The increased gross profit from these divisions more than offset the lower gross profit of our Water & Flowback Services Division, which experienced increased costs and challenging customer pricing in competitive markets compared to the prior year period. Despite the improvement in activity levels of certain of our businesses, onshore and offshore U.S. Gulf of Mexico activity levels remain flat and the impact of pricing pressures continues to challenge profitability in certain markets. Operating expenses reflect the increase in consolidated revenues, although we remain aggressive in managing operating costs and minimizing increased headcount, despite the increased operations.

Consolidated general and administrative expenses increased during the current year period compared to the prior year period primarily due to increased salary related expenses of $6.0 million, inclusive of executive transition costs of $1.8 million, and increased bad debt expense of $1.9 million, offset by decreased consulting and other expenses of $0.8 million and decreased professional services fees of $0.4 million. Increased general and administrative expenses were driven primarily by our Compression and Corporate Divisions. Due to the increased consolidated revenues discussed above, general and administrative expense as a percentage of revenues decreased compared to the prior year period.
 

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Table of Contents

Consolidated interest expense, net, increased in the current year period primarily due to Corporate and Compression Division interest expense. Corporate interest expense increased due to additional borrowings under the TETRA Term Credit Agreement and ABL Credit Agreement in the current period. Compression Division interest expense increased due to higher CCLP outstanding debt balances and higher interest rates compared to the prior year period. Interest expense during the current year period and the prior year period includes $2.9 million and $3.2 million, respectively, of finance cost amortization.
 
Consolidated other (income) expense, net, was $1.0 million of income during the current year period compared to $7.2 million of expense during the prior year period. The decrease in expense is primarily due to $4.5 million of decreased expense associated with the remeasurement of the contingent purchase price consideration for the SwiftWater acquisition, $3.5 million decreased expense related to the unamortized deferred financing costs charged to earnings during the prior year period as a result of the termination of the CCLP Bank Credit Facility, and $1.0 million of decreased loan fees associated with new TETRA credit agreements that were issued in the prior year. These decreases were offset by increased expense of $1.5 million associated with a redemption premium incurred in connection with the redemption of CCLP Preferred Units for cash and increased foreign currency losses.

Our consolidated provision for income taxes for the current year period is primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the nine month period ended September 30, 2019 of negative 18.8% was primarily the result of losses generated in entities for which no related tax benefit has been recorded. The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.

Divisional Comparisons
 
Completion Fluids & Products Division
 
Nine Months Ended September 30,
 
Period to Period Change
 
2019
 
2018
 
2019 vs 2018
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
200,688

 
$
192,733

 
$
7,955

 
4.1
%
Gross profit
46,653

 
34,211

 
12,442

 
36.4
%
Gross profit as a percentage of revenue
23.2
%
 
17.8
%
 
 

 


General and administrative expense
14,792

 
14,011

 
781

 
5.6
%
General and administrative expense as a percentage of revenue
7.4
%
 
7.3
%
 
 

 
 

Interest (income) expense, net
(553
)
 
(434
)
 
(119
)
 
 

Other (income) expense, net
296

 
(509
)
 
805

 
 

Income before taxes
$
32,118

 
$
21,143

 
$
10,975

 
51.9
%
Income before taxes as a percentage of revenue
16.0
%
 
11.0
%
 
 

 
 

 
The increase in Completion Fluids & Products Division revenues during the current year period compared to the prior year period was primarily due to $4.2 million of increased product sales revenue primarily due to increased international CBF product sales and domestic manufactured products sales, partially offset by reduced CBF product sales revenues in the U.S. Gulf of Mexico. Additionally, service revenues increased $3.8 million, primarily due to increased international completion services activity. Offshore U.S. Gulf of Mexico activity levels remain challenged, and the impact of pricing pressures continues to hamper profitability.

Completion Fluids & Products Division gross profit during the current year period increased significantly compared to the prior year period primarily due to the profitability associated with the increased manufactured products and international CBF sales revenues. Completion Fluids & Products Division profitability in future periods will be affected by the mix of its products and services, including the timing of TETRA CS Neptune completion fluid projects.


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Table of Contents

The Completion Fluids & Products Division reported a significant increase in pretax earnings during the current year period compared to the prior year period due to the increase in gross profit discussed above. Completion Fluids & Products Division administrative cost levels increased compared to the prior year period, as increased legal and professional fees of $0.7 million and increased general expenses of $0.5 million were partially offset by decreased bad debt and other sales and marketing expenses of $0.4 million.

Water & Flowback Services Division
 
Nine Months Ended September 30,
 
Period to Period Change
 
2019
 
2018
 
2019 vs 2018
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
224,643

 
$
223,289

 
$
1,354

 
0.6
 %
Gross profit
24,577

 
41,556

 
(16,979
)
 
(40.9
)%
Gross profit as a percentage of revenue
10.9
%
 
18.6
%
 
 

 
 

General and administrative expense
18,528

 
17,641

 
887

 
5.0
 %
General and administrative expense as a percentage of revenue
8.2
%
 
7.9
%
 
 

 
 

Interest (income) expense, net
(6
)
 
(10
)
 
4

 
(40.0
)%
Other (income) expense, net
(1,214
)
 
3,257

 
(4,471
)
 
(137.3
)%
Income before taxes
$
7,269

 
$
20,668

 
$
(13,399
)
 
64.8
 %
Income before taxes as a percentage of revenue
3.2
%
 
9.3
%
 
 

 
 

 
Water & Flowback Services Division revenues increased slightly during the current year period compared to the prior year period due to increased water management services activity. Water management and flowback services revenues increased $2.1 million during the current year period compared to the prior year period primarily resulting from the impact of a full nine months of revenues from SwiftWater, which was acquired on February 28, 2018, and the impact of the December 2018 acquisition of JRGO. Product sales revenue decreased by $0.8 million, due to decreased international equipment sales activity.

The Water & Flowback Services Division reflected decreased gross profit during the current year period compared to the prior year period, despite increased revenues, due to a shift in revenue mix away from smaller, capital constrained customers towards larger operators with stronger balance sheets. The costs to demobilize from one customer to mobilize for another within the same period had a meaningful impact on profitability. In addition, we reflected decreased revenues and profit from certain high-margin projects performed during the prior year period. We also experienced high maintenance costs on our flowback service equipment following the significant activity experienced in the fourth quarter of 2018, which was our highest flowback service revenue quarter in over three years.
 
The Water & Flowback Services Division reported decreased pretax income compared to the prior year period, primarily due to the decrease in gross profit described above. General and administrative expenses increased primarily due to increased bad debt expense of $0.5 million, increased wage and benefit related expenses of $0.4 million, and increased general expenses of $0.2 million, offset by decreased professional fees of $0.3 million. The Water & Flowback Services Division reported other income, net, during the current year period compared to other expense during the prior year period primarily due to $0.8 million of current year period income associated with the remeasurement of the contingent purchase price consideration for SwiftWater compared to a corresponding $3.7 million expense during the prior year period.


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Table of Contents

Compression Division
 
Nine Months Ended September 30,
 
Period to Period Change
 
2019
 
2018
 
2019 vs 2018
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
353,140

 
$
300,607

 
$
52,533

 
17.5
 %
Gross profit
58,804

 
41,820

 
16,984

 
40.6
 %
Gross profit as a percentage of revenue
16.7
 %
 
13.9
 %
 
 

 
 

General and administrative expense
33,166

 
29,708

 
3,458

 
11.6
 %
General and administrative expense as a percentage of revenue
9.4
 %
 
9.9
 %
 
 

 
 

Interest expense, net
39,079

 
38,538

 
541

 
1.4
 %
CCLP Series A Preferred fair value adjustment (income) expense
1,309

 
1,344

 
(35
)
 
(2.6
)%
Other (income) expense, net
(2
)
 
2,747

 
(2,749
)
 
(100.1
)%
Loss before taxes
$
(14,748
)
 
$
(30,517
)
 
$
15,769

 
51.7
 %
Loss before taxes as a percentage of revenue
(4.2
)%
 
(10.2
)%
 
 

 
 

    
Compression Division revenues increased during the current year period compared to the prior year period due to a $32.0 million increase in product sales revenues and a $20.6 million increase in service revenues from compression and aftermarket services operations. Demand for new compressor equipment remains strong, although the current equipment sales backlog has decreased compared to the prior year period, due to significant sales orders recorded in the prior year period. Changes in our new equipment sales backlog are a function of additional customer orders less completed orders that result in equipment sales revenues. The increase in service revenues was primarily due to increasing demand for compression services, as reflected by increased compression fleet utilization rates. Overall utilization of the Compression Division's compression fleet has improved sequentially for the past two year period, led by increased utilization of the high- and medium-horsepower fleet.

Compression Division gross profit increased during the current year period compared to the prior year due to increased revenues discussed above. This increase was despite a $3.3 million charge for the impairment and other charges on certain low-horsepower compressor equipment and associated inventory and damage caused by fire to a certain compressor package during the current year period. The increased compression fleet utilization rates have led to increases in customer contract pricing.

The Compression Division recorded less pretax loss in the current year period compared to the prior year period primarily due to the increased gross profit discussed above. Interest expense increased compared to the prior year period due to higher CCLP outstanding debt balances and a higher interest rate on the CCLP Senior Secured Notes, a portion of the proceeds of which were used to repay the balance outstanding under the previous CCLP bank credit facility. General and administrative expense levels increased compared to the prior year period, due to increased bad debt expense of $1.5 million and increased salary and employee-related expenses, including the impact of increased headcount, incentives and equity compensation of $1.3 million, and increased professional services of $0.9 million. These increases were offset by decreased general expenses of $0.2 million. In addition, other expense decreased $2.7 million compared to prior year period. This decrease in expense is primarily due to $3.5 million of unamortized deferred financing costs charged to other expense as a result of the termination of the previous credit agreement in the prior year period and decreased foreign currency losses of $0.6 million. These decreases in expense were offset by increased expense of $1.5 million of redemption premium incurred in connection with the redemption of CCLP Preferred Units for cash. The last remaining outstanding CCLP Preferred Units were redeemed for cash on August 8, 2019.



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Table of Contents

Corporate Overhead
 
Nine Months Ended September 30,
 
Period to Period Change
 
2019
 
2018
 
2019 vs 2018
 
% Change
 
(In Thousands, Except Percentages)
Depreciation and amortization
$
507

 
$
487

 
$
20

 
(4.1
)%
General and administrative expense
39,012

 
37,506

 
1,506

 
4.0
 %
Interest expense, net
16,533

 
14,152

 
2,381

 
17.7
 %
Warrants fair value adjustment (income) expense
(1,035
)
 
22

 
(1,057
)
 
 
Other (income) expense, net
(96
)
 
1,703

 
(1,799
)
 
 

Loss before taxes
$
(54,921
)
 
$
(53,870
)
 
$
(1,051
)
 
(2.0
)%

Corporate Overhead pretax loss increased during the current year period compared to the prior year period primarily due to increased interest expense resulting from increased borrowings. Corporate general and administrative expense increased primarily due to increased salary related expense of $4.4 million, which included $1.8 million of executive transition costs. This increase was offset by $1.7 million of decreased professional fees, $0.5 million of decreased general expenses, and $0.6 million of decreased consulting fees. The fair value of the outstanding Warrants liability resulted in a $1.0 million credit to earnings compared to an $22,000 charge to earnings during the prior year period. In addition, other income of $0.1 million was recorded during the current year period, compared to $1.7 million of expense during the prior year period primarily associated with debt issuance fees related to the new ABL Credit Agreement and the new Term Credit Agreement entered into in the prior year period and foreign currency losses.
Liquidity and Capital Resources
    
We believe that the capital structure steps we have taken during the past three years continue to support our ability to meet our financial obligations and fund future growth as needed, despite current uncertain operating conditions and financial markets. As of September 30, 2019, we and CCLP are in compliance with all covenants of our respective debt agreements. Information about the terms and covenants of debt agreements can be found in our 2018 Annual Report.

Because of the level of consolidated debt, we believe it is important to consider our capital structure and CCLP's capital structure separately, as there are no cross default provisions, cross collateralization provisions, or cross guarantees between CCLP's debt and TETRA's debt. Our consolidated debt outstanding has a carrying value of approximately $858.3 million as of September 30, 2019. However, approximately $645.6 million of this consolidated debt balance is owed by CCLP and is serviced from the existing cash balances and cash flows of CCLP, and $354.5 million of which is secured by certain of CCLP's assets. Through our common unit ownership interest in CCLP, which was approximately 34% as of September 30, 2019, and ownership of an approximate 1.4% general partner interest, we receive our share of the distributable cash flows of CCLP through its quarterly cash distributions. Approximately $15.3 million of the $35.9 million of the cash balance reflected on our consolidated balance sheet is owned by CCLP and is not accessible by us. The following table provides condensed consolidating balance sheet information reflecting TETRA's net assets and CCLP's net assets that service and secure TETRA's and CCLP's respective capital structures.

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Table of Contents

 
September 30, 2019
Condensed Consolidating Balance Sheet
TETRA
 
CCLP
 
Eliminations
 
Consolidated
 
(In Thousands)
Cash, excluding restricted cash
$
20,642

 
$
15,276

 
$

 
$
35,918

Affiliate receivables
11,659

 

 
(11,659
)
 

Other current assets
197,790

 
137,424

 

 
335,214

Property, plant and equipment, net
206,600

 
654,792

 

 
861,392

Long-term affiliate receivables
13,270

 

 
(13,270
)
 

Other assets, including investment in CCLP
62,037

 
42,437

 
78,702

 
183,176

Total assets
$
511,998

 
$
849,929

 
$
53,773

 
$
1,415,700

 
 
 
 
 
 
 
 
Affiliate payables
$

 
$
11,659

 
$
(11,659
)
 
$

Other current liabilities
91,720

 
121,352

 

 
213,072

Long-term debt, net
212,697

 
645,575

 

 
858,272

CCLP Series A Preferred Units

 

 

 

Warrants liability
1,038

 

 

 
1,038

Long-term affiliate payable

 
13,270

 
(13,270
)
 

Other non-current liabilities
62,741

 
7,049

 

 
69,790

Total equity
143,802

 
51,024

 
78,702

 
273,528

Total liabilities and equity
$
511,998

 
$
849,929

 
$
53,773

 
$
1,415,700


As of September 30, 2019, subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings, we had $41.6 million of availability under the ABL Credit Agreement. As of September 30, 2019, and subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings under the CCLP Credit Agreement, CCLP had availability of $7.8 million.
    
Our consolidated sources (uses) of cash during the nine months ended September 30, 2019 and 2018 are as follows:
 
Nine months ended September 30,
 
2019
 
2018
 
(In Thousands)
Operating activities
$
84,982

 
$
1,633

Investing activities
(99,954
)
 
(145,480
)
Financing activities
11,455

 
170,608


Operating Activities
 
Consolidated cash flows provided by operating activities increased by $83.3 million. CCLP generated $67.8 million of our consolidated cash flows provided by operating activities during the nine months ended September 30, 2019 compared to $6.5 million during the prior year period. Operating cash flows increased due to improved operating profitability and due to working capital management, particularly related to the management of inventory levels, collections of accounts receivable, and the timing of payments of accounts payable. We continue to monitor customer credit risk in the current environment and focus on serving larger capitalized oil and gas operators and national oil companies.

Investing Activities
 
Total cash capital expenditures during the first nine months of 2019 were $89.2 million. Our Completion Fluids & Products Division spent $5.2 million on capital expenditures, the majority of which related to plant and facility additions. Our Water & Flowback Services Division spent $22.4 million on capital expenditures, primarily to add to its water management equipment fleet. Our Compression Division spent $61.3 million, primarily for growth capital expenditure projects to increase its compression fleet.

Generally, a majority of our planned capital expenditures has been related to identified opportunities to grow and expand certain of our existing businesses. However, certain of these planned expenditures have been,

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and may continue to be, postponed or canceled as we are reviewing all capital expenditure plans carefully in an effort to conserve cash. We currently have no long-term capital expenditure commitments. The deferral of capital projects could affect our ability to expand our operations in the future. Excluding our Compression Division, we expect to spend approximately $25.0 million to $30.0 million during 2019 on capital expenditures, primarily to expand our Water & Flowback Services Division equipment fleet.

Our Compression Division expects to spend approximately $80.0 million to $85.0 million on capital expenditures during 2019 primarily to expand its compression fleet in response to increased demand for compression services. Our Compression Division, through the separate capital structure of CCLP, expects to fund 2019 growth capital expenditures for new compression services equipment through CCLP available cash, operating cash flows, and up to $15.0 million of new compression services equipment that is being purchased by us, and leased to CCLP. Approximately $14.6 million of the $15.0 million has been funded as of September 30, 2019.

If the forecasted demand for our products and services increases or decreases, the amount of planned expenditures on growth and expansion may be adjusted.
 
Financing Activities 
 
During the first nine months of 2019, the total amount of consolidated cash provided by financing activities was $11.5 million, consisting primarily of borrowings under our ABL Credit Agreement and our Term Credit Agreement. We and CCLP may supplement our existing cash balances and cash flow from operating activities with short-term borrowings, long-term borrowings, issuances of equity and debt securities, and other sources of capital. CCLP expects to meet its growth capital expenditure requirements during the remainder of 2019 without having to access additional available borrowings under its credit agreement (the "CCLP Credit Agreement") and without having to access the current debt and equity markets. CCLP may also seek to expand its compression fleet through finance or operating leases with third parties. We and CCLP are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment.

TETRA Long-Term Debt

Asset-Based Credit Agreement. The ABL Credit Agreement provides for a senior secured revolving credit facility of up to $100 million, subject to a borrowing base to be determined by reference to the value of TETRA’s and any other borrowers’ inventory and accounts receivable, and contains within the facility a letter of credit sublimit of $20.0 million and a swingline loan sublimit of $10.0 million. The ABL Credit Agreement is scheduled to mature on September 10, 2023. As of November 6, 2019, we have $27.0 million outstanding under our ABL Credit Agreement and $6.8 million letters of credit, resulting in $30.0 million of availability.
    
Term Credit Agreement.    The Term Credit Agreement provides for an initial loan in the amount of $200 million and the availability of additional loans, subject to the terms of the Term Credit Agreement, up to an aggregate amount of $75 million. The Term Credit Agreement is scheduled to mature on September 10, 2025. As of November 6, 2019, $220.5 million in aggregate principal amount of our Term Credit Agreement is outstanding.
    
CCLP Financing Activities

CCLP Preferred Units. In January 2019, CCLP began redeeming the remaining CCLP Preferred Units for cash, resulting in 2,660,569 Preferred Units being redeemed during the nine months ended September 30, 2019 for $31.9 million, which includes approximately $1.5 million of redemption premium that was paid. The last redemption of the remaining outstanding CCLP Preferred Units, along with a final cash payment made in lieu of paid-in-kind Preferred Units occurred on August 8, 2019.

CCLP Bank Credit Facilities. The CCLP Credit Agreement, as amended, includes a maximum credit commitment of $50.0 million available for loans, letters of credit (with a sublimit of $25.0 million) and swingline loans (with a sublimit of $5.0 million), subject to a borrowing base to be determined by reference to the value of CCLP’s and any other borrowers’ accounts receivable and the value of certain CCLP inventory. Such maximum credit commitment may be increased by $25.0 million in accordance with the terms and conditions of the CCLP Credit Agreement. As of September 30, 2019, CCLP had $11.5 million outstanding balance and had $3.0 million in letters of credit against the CCLP Credit Agreement. The CCLP Credit Agreement is scheduled to mature on June 29, 2023. As of November 5, 2019, CCLP has $5.5 million balance outstanding under the CCLP Credit Agreement and

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$3.1 million in letters of credit, resulting in $14.4 million of availability, reflecting recent increases to the borrowing base.

CCLP Senior Secured Notes. As of November 5, 2019, $350.0 million in aggregate principal was outstanding. The CCLP Senior Secured Notes accrue interest at a rate of 7.50% per annum and are scheduled to mature on April 1, 2025.

CCLP Senior Notes. As of November 5, 2019, $295.9 million in aggregate principal amount was outstanding. The CCLP Senior Notes accrue interest at a rate of 7.25% per annum and are scheduled to mature on August 15, 2022.

Other Sources and Uses

In addition to the various aforementioned credit facilities and senior notes, we and CCLP fund our respective short-term liquidity requirements primarily from cash generated by our respective operations and from short-term vendor financing. Should additional capital be required, the ability to raise such capital through the issuance of additional debt or equity securities may currently be limited. Instability or volatility in the capital markets at the times we need to access capital may also affect the cost of capital and the ability to raise capital for an indeterminable length of time. If it is necessary to issue additional equity to fund our capital needs, additional dilution to our common stockholders will occur.

On April 11, 2019, we filed a universal shelf Registration Statement on Form S-3 with the SEC. On May 1, 2019, the Registration Statement on Form S-3 was declared effective by the SEC. Pursuant to this registration statement, we have the ability to sell debt or equity securities in one or more public offerings up to an aggregate public offering price of $464.1 million, inclusive of $64.1 million of our common stock issuable upon conversion of our currently outstanding warrants. This shelf registration statement currently provides us additional flexibility with regard to potential financings that we may undertake when market conditions permit or our financial condition may require.

The Second Amended and Restated Partnership Agreement of CCLP requires that within 45 days after the end of each quarter, CCLP distribute all of its available cash, as defined in the Second Amended and Restated Partnership Agreement, to its common unitholders of record on the applicable record date. During the nine months ended September 30, 2019, CCLP distributed $1.4 million in cash, including $0.9 million to its public unitholders, reflecting the reduction in quarterly distributions announced previously by CCLP in December 2018. There can be no assurance that quarterly distributions from CCLP will increase from this amount per unit going forward.
 
Off Balance Sheet Arrangements
 
As of September 30, 2019, we had no “off balance sheet arrangements” that may have a current or future material effect on our consolidated financial condition or results of operations. 

Recently Adopted Accounting Guidance

We adopted the new lease accounting standard on January 1, 2019. The new lease standard had a material impact to our consolidated financial statements, resulting from the inclusion of operating lease right-of-use assets and operating lease liabilities in our consolidated balance sheet. Refer to Part I, Item 1. Financial Statements- Note A - "Organization, Basis of Presentation and Significant Accounting Policies" and Note K - “Leases” for further discussion.
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.

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Contingencies of Discontinued Operations

    In early 2018, we closed the Maritech Asset Purchase Agreement with Orinoco Natural Resources, LLC ("Orinoco") that provided for the purchase by Orinoco of Maritech's remaining oil and gas properties and related assets. Also in early 2018, we closed the Maritech Membership Interest Purchase Agreement with Orinoco that provided for the purchase by Orinoco of all of the outstanding membership interests in Maritech. As a result of these transactions, we have effectively exited the business of our Maritech segment.

Under the Maritech Asset Purchase Agreement, Orinoco assumed all of Maritech’s decommissioning liabilities related to the leases sold to Orinoco (the “Orinoco Lease Liabilities”) and, under the Maritech Membership Interest Purchase Agreement, Orinoco assumed all other liabilities of Maritech, including the decommissioning liabilities associated with the oil and gas properties previously sold by Maritech (the “Legacy Liabilities”), subject to certain limited exceptions unrelated to the decommissioning liabilities. To the extent that Maritech or Orinoco fails to satisfy decommissioning liabilities associated with any of the Orinoco Lease Liabilities or the Legacy Liabilities, we may be required to satisfy such liabilities under third party indemnity agreements and corporate guarantees that we previously provided to the US Department of the Interior and other parties, respectively.

    Pursuant to a Bonding Agreement entered into as part of these transactions (the "Bonding Agreement"), Orinoco provided non-revocable performance bonds in an aggregate amount of $46.8 million to cover the performance by Orinoco and Maritech of the asset retirement obligations of Maritech (the “Initial Bonds”) and agreed to replace, within 90 days following the closing, the Initial Bonds with other non-revocable performance bonds, meeting certain requirements, in the aggregate sum of $47.0 million (collectively, the “Interim Replacement Bonds”). Orinoco further agreed to replace, within 180 days following the closing, the Interim Replacement Bonds with a maximum of three non-revocable performance bonds in the aggregate sum of $47.0 million, meeting certain requirements (the “Final Bonds”). Among the other requirements of the Final Bonds was that they must provide coverage for all of the asset retirement obligations of Maritech instead of only relating to specific properties. In the event Orinoco does not provide the Interim Replacement Bonds or the Final Bonds, Orinoco is required to make certain cash escrow payments to us.

    The payment obligations of Orinoco under the Bonding Agreement were guaranteed by Thomas M. Clarke and Ana M. Clarke pursuant to a separate guaranty agreement (the “Clarke Bonding Guaranty Agreement”). Orinoco has not delivered such replacement bonds and it has not made any of the agreed upon cash escrow payments and we filed a lawsuit against Orinoco and the Clarkes to enforce the terms of the Bonding Agreement and the Clarke Bonding Guaranty Agreement. A summary judgment was granted in favor of Orinoco and the Clarkes which dismissed our present claims against Orinoco under the Bonding Agreement and against the Clarkes under the Clarke Bonding Guaranty Agreement. We believe this judgment should not have been granted and have begun the process of appealing it. The Initial Bonds, which are non-revocable, remain in effect.

    If we become liable in the future for any decommissioning liability associated with any property covered by either an Initial Bond or an Interim Replacement Bond while such bonds are outstanding and the payment made to us under such bond is not sufficient to satisfy such liability, the Bonding Agreement provides that Orinoco will pay us an amount equal to such deficiency and if Orinoco fails to pay any such amount, such amount must be paid by the Clarkes under the Clarke Bonding Guaranty Agreement. However, if the Final Bonds or the full amount of the escrowed cash have been provided, neither Orinoco nor the Clarkes would be liable to pay us for any such deficiency. Our financial condition and results of operations may be negatively affected if Orinoco is unable to cover any such deficiency or if we become liable for a significant portion of the decommissioning liabilities.

    In early 2018, we also closed the sale of our Offshore Division to Epic Companies, LLC (“Epic Companies,” formerly known as Epic Offshore Specialty, LLC). Part of the consideration we received was a promissory note of Epic Companies in the original principal amount of $7.5 million (the “Epic Promissory Note”) payable to us in full, together with interest at a rate of 1.52% per annum, on December 31, 2019, along with a personal guaranty agreement from Thomas M. Clarke and Ana M. Clarke guaranteeing the payment obligations of Epic Companies pursuant to the Epic Promissory Note (the “Clarke Promissory Note Guaranty Agreement”). Additionally, pursuant to the Equity Interest Purchase Agreement (the “Offshore Services Purchase Agreement”) and other agreements with Epic Companies, certain other amounts relating to the Offshore Division totaling approximately $1.5 million were payable to us. At the end of August 2019, Epic Companies filed for bankruptcy. Although the Epic Promissory Note is not currently due and is guaranteed by the Clarke Promissory Note Guaranty Agreement, we recorded a reserve of $7.5 million for the full amount of the promissory note including accrued interest, and certain other receivables in

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the amount of $1.5 million at September 30, 2019. We continue to monitor this matter and seek to vigorously pursue our rights to collect all amounts payable to us, including the amounts owed under the Epic Promissory Note when due, including by enforcing our rights under the Clarke Promissory Note Guaranty Agreement.

Contractual Obligations

Our contractual obligations and commitments principally include obligations associated with our outstanding
indebtedness and obligations under operating leases. The table below summarizes our consolidated contractual cash obligations as of September 30, 2019:
 
 
Payments Due
 
 
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
 
(In Thousands)
Long-term debt - TETRA
 
$
230,500

 
$

 
$

 
$

 
$

 
$
10,000

 
$
220,500

Long-term debt - CCLP
 
657,430

 

 

 

 
295,930

 
11,500

 
350,000

Interest on debt - TETRA
 
107,766

 
4,522

 
18,088

 
18,088

 
18,088

 
17,993

 
30,987

Interest on debt - CCLP
 
209,158

 
12,066

 
48,264

 
48,264

 
41,156

 
26,595

 
32,813

Purchase obligations
 
96,875

 
2,375

 
9,500

 
9,500

 
9,500

 
9,500

 
56,500

Asset retirement obligations(1)
 
12,603

 

 

 

 

 

 
12,603

Operating leases
 
82,291

 
4,870

 
17,721

 
12,798

 
9,591

 
7,871

 
29,440

Total contractual cash obligations(2)
 
$
1,396,623

 
$
23,833

 
$
93,573

 
$
88,650

 
$
374,265

 
$
83,459

 
$
732,843

(1) 
We have estimated the timing of these payments for asset retirement obligation liabilities based upon our plans. The amounts shown represent the discounted obligation as of September 30, 2019.
(2) 
Amounts exclude other long-term liabilities reflected in our Consolidated Balance Sheet that do not have known payment streams. These excluded amounts include approximately $0.8 million of liabilities under FASB Codification Topic 740, “Accounting for Uncertainty in Income Taxes,” as we are unable to reasonably estimate the ultimate amount or timing of settlements.

For additional information about our contractual obligations as of December 31, 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2018 Annual Report on Form 10-K.
Cautionary Statement for Purposes of Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements in this Quarterly Report are identifiable by the use of the following words, the negative of such words, and other similar words: “anticipates", "assumes", “believes,” "budgets", “could,” “estimates,” "expects", "forecasts", "goal", "intends", "may", "might", "plans", "predicts", "projects", "schedules", "seeks", "should", "targets", "will", and "would".

Such forward-looking statements reflect our current views with respect to future events and financial performance and are based on assumptions that we believe to be reasonable, but such forward-looking statements are subject to numerous risks, and uncertainties, including, but not limited to:
economic and operating conditions that are outside of our control, including the supply, demand, and prices of oil and natural gas;
the availability of adequate sources of capital to us;
the levels of competition we encounter;
the activity levels of our customers;
our operational performance;
the availability of raw materials and labor at reasonable prices;
risks related to acquisitions and our growth strategy;
restrictions under our debt agreements and the consequences of any failure to comply with debt covenants;

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the effect and results of litigation, regulatory matters, settlements, audits, assessments, and contingencies;
risks related to our foreign operations;
information technology risks including the risk from cyberattack, and
other risks and uncertainties under “Item 1A. Risk Factors” in our 2018 Annual Report, and as included in our other filings with the SEC, which are available free of charge on the SEC website at www.sec.gov.

The risks and uncertainties referred to above are generally beyond our ability to control and we cannot predict all the risks and uncertainties that could cause our actual results to differ from those indicated by the forward-looking statements. If any of these risks or uncertainties materialize, or if any of the underlying assumptions prove incorrect, actual results may vary from those indicated by the forward-looking statements, and such variances may be material.

All subsequent written and oral forward-looking statements made by or attributable to us or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statements we may make, except as may be required by law.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market risk is the risk of loss arising from adverse changes in market rates and prices. For a discussion of our indirect exposure to fluctuating commodity prices, please read “Risk Factors — Certain Business Risks” in our 2018 Annual Report. We depend on U.S. and international demand for and production of oil and natural gas, and a reduction in this demand or production could adversely affect the demand or the prices we charge for our services, which could cause our revenues and operating cash flows to decrease in the future. We do not currently hedge, and do not intend to hedge, our indirect exposure to fluctuating commodity prices.

Interest Rate Risk

As of September 30, 2019, we had balances outstanding under the Term Credit Agreement, ABL Credit Agreement, and CCLP Credit Agreement that bear interest at variable rates.
 
 
Expected Maturity Date
 
 
 
Fair Market
Value
($ amounts in thousands)
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
 
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. dollar variable rate - TETRA
 
$

 
$

 
$

 
$

 
$
10,000

 
$
220,500

 
$
230,500

 
$
230,500

Weighted average interest rate (variable)
 
%
 
%
 
%
 
%
 
3.81
%
 
8.29
%
 
 
 
 
U.S. dollar variable rate - CCLP
 
$

 
$

 
$

 
$

 
$
11,500

 
$

 
$
11,500

 
$
11,500

Weighted average interest rate (variable)
 
%
 
%
 
%
 
%
 
6.00
%
 
%
 
 
 
 
U.S. dollar fixed rate - CCLP
 
$

 
$

 
$

 
$
295,930

 
$

 
$
350,000

 
$
645,930

 
$
614,000

Weighted average interest rate (fixed)
 
%
 
%
 
%
 
7.25
%
 
%
 
7.50
%
 
 
 
 


Exchange Rate Risk

As of September 30, 2019, there have been no material changes pertaining to our exchange rate exposures as disclosed in our 2018 Annual Report.

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Item 4. Controls and Procedures.
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2019, the end of the period covered by this quarterly report.

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
 
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 amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.
 
Environmental Proceedings
 
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 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.  
Item 1A. Risk Factors.

We have described in the 2018 Annual Report significant risk factors and periodically update those risks for material developments. Provided below is an update to our risk factors as previously disclosed in the 2018 Annual Report.

We have continuing exposure to decommissioning liabilities associated with oil and gas properties previously owned by Maritech.
 
From 2001 to 2012, Maritech sold various oil and gas producing properties in numerous transactions to different buyers. In connection with those sales, the buyers generally assumed the decommissioning liabilities associated with the properties sold (the "Legacy Liabilities") and generally became the successor operator. In some cases, Maritech retained certain liabilities and we provided guaranties of Maritech’s retained liabilities. Some buyers of these Maritech properties subsequently sold certain of these properties to other buyers, who also assumed the financial responsibilities associated with the properties' operations, including decommissioning liabilities, and these buyers also typically became the successor operator of the properties. To the extent that a buyer of these properties fails to perform the decommissioning work required, a previous owner, including Maritech, may be required to perform operations to satisfy the decommissioning liabilities. As a result of the third-party indemnity agreements and corporate guaranties we have previously provided to the US Department of the Interior and to other private third-parties as the former parent company of Maritech, we may be responsible for satisfying these decommissioning obligations if they are not satisfied by the current owners and operators of the properties or by Maritech. Significant decommissioning liabilities that were assumed by the buyers of the Maritech properties in these previous sales remain unperformed. If oil and natural gas pricing levels continue to be depressed or further deteriorate, one or more of these buyers may be unable to perform the decommissioning work required on a property previously owned by Maritech. If these buyers, or any successor owners of the Maritech properties, are unable to satisfy and extinguish their decommissioning liabilities due to bankruptcy or other liquidity issues, the US Department of the Interior may seek to impose those decommissioning obligations on Maritech and on us due to our third party

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indemnity agreements, and contractual commitments and guaranties issued from time to time by us to the US Department of the Interior and various third parties. The amount of cash necessary to satisfy these obligations could be significant and could adversely affect our business, results of operations, financial condition, and cash flows.
 
In March 2018, pursuant to a series of transactions, Maritech sold the remaining offshore leases held by Maritech to Orinoco Natural Resources, LLC ("Orinoco") and, immediately thereafter, we sold all equity interest in Maritech to Orinoco. The assignments for six of the offshore leases conveyed to Orinoco have not been approved by the US Department of the Interior and Maritech remains an owner of record for these leases. Maritech also remains a recognized operator of a portion of four other offshore properties. Under the Maritech Asset Purchase Agreement, Orinoco assumed all of Maritech's decommissioning liabilities related to the leases conveyed to Orinoco (the “Orinoco Lease Liabilities”) and, under the Maritech Membership Interest Purchase Agreement, Orinoco assumed all other liabilities of Maritech, including the Legacy Liabilities, subject to limited exceptions unrelated to the decommissioning liabilities. Pursuant to a Bonding Agreement executed in connection with such purchase agreements, Orinoco provided non-revocable bonds in the aggregate amount of approximately $46.8 million to secure the performance of certain of Maritech’s decommissioning obligations related to the Orinoco Lease Liabilities and certain of Maritech’s remaining current decommissioning obligations (not including the Legacy Liabilities). Orinoco was required to replace, within 90 days and then 180 following the closing, the initial bonds delivered at closing with other non-revocable performance bonds, meeting certain additional requirements, in the aggregate sum of $47.0 million or make cash escrow payments. Among the other requirements of the final replacement bonds was that they must provide coverage for all of the asset retirement obligations of Maritech instead of only relating to specific properties. The payment obligations of Orinoco under the Bonding Agreement are guaranteed by Thomas M. Clarke and Ana M. Clarke pursuant to a separate guaranty agreement (the “Clarke Bonding Guaranty Agreement”). Orinoco has not delivered such replacement bonds and neither it nor the Clarkes has made any of the escrow payments required pursuant to the terms of the Bonding Agreement. We filed a lawsuit against Orinoco and the Clarkes to enforce the terms of the Bonding Agreement and the Clarke Bonding Guaranty Agreement. A summary judgment was granted in favor of Orinoco and the Clarkes which has the effect of dismissing our present claims for the replacement bonds and the escrow payments provided for in the Bonding Agreement. We believe this judgment should not have been granted and we have begun the process of appealing it. The non-revocable performance bonds delivered at the closing remain in effect.
 
If in the future we become liable for decommissioning liabilities associated with any property covered by either an initial bond or stage 1 permanent bond, the Bonding Agreement provides that if we call any of the initial bonds or the stage 1 permanent bonds to satisfy such liability and the amount of the bond payment is not sufficient to pay for such liability, Orinoco will pay us for the additional amount required. To the extent Orinoco is unable to cover any such deficiency or we become liable for a significant portion of the Legacy Liabilities, our financial condition and results of operations may be negatively affected.

Possible changes in the US Department of Interior's supplemental bonding and financial assurance requirements may increase our risks associated with the decommissioning obligations pertaining to oil and gas properties previously owned by Maritech.

Recent and additional anticipated changes to the supplemental bonding and financial assurance program managed by the US Department of the Interior could require all oil and gas owners and operators with infrastructure in the Gulf of Mexico to provide additional supplemental bonds or other acceptable financial assurance for decommissioning liabilities. These changes have the potential to adversely impact the financial condition of lease owners and operators in the Gulf of Mexico and increase the number of such owners and operators seeking bankruptcy protection, given current oil and gas prices. In July 2016, the US Department of the Interior issued a Notice to Lessees and Operators (“2016 NTL”) that strengthened requirements for the posting of additional financial assurance by offshore lease owners and operators to assure that sufficient security is available to satisfy and extinguish decommissioning obligations with respect to offshore wells, platforms, pipelines and other facilities. The 2016 NTL, which became effective in September 2016, eliminated the past practice of waiving supplemental bonding requirements where lease owners or operators, or their guarantors, could demonstrate a certain level of financial strength. Instead, under the 2016 NTL, the US Department of the Interior will allow lease owners and operators to "self-insure," but only up to 10% of their "tangible net worth," which is defined as the difference between a company’s total assets and the value of all liabilities and intangible assets. It is unclear how this self-insurance allowance relates to lease owners or operators with a guarantor presently in place. In addition, the 2016 NTL is being held in abeyance by the US Department of the Interior, which creates additional and significant uncertainty for Gulf of Mexico lease owners and operators and for us through the third party indemnity agreements

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we have provided for Maritech liabilities to the US Department of the Interior and/or to third parties through our private guarantees.

The US Department of the Interior also recently increased its estimates for decommissioning liabilities in the Gulf of Mexico, causing the potential need for additional supplemental bonding and/or other financial assurances to be dramatically increased. When coupled with the volatile and currently low prices of oil and gas, it is difficult to predict the impact of the rule and regulatory changes already promulgated and as may be forthcoming by the US Department of the Interior relating to financial assurance for decommissioning liabilities. The US Department of the Interior's revisions to its supplemental bonding process could result in demands for the posting of increased financial assurances by owners and operators in the Gulf of Mexico, including Maritech, Orinoco and the other entities to whom Maritech divested its Gulf of Mexico assets, but such demands cannot be directly placed on us due to the fact that we are only a former parent company of Maritech and are only a guarantor as opposed to an actual lease owner or operator. This may force lease owners and operators of leases and other infrastructure in the Gulf of Mexico to obtain surety bonds or other forms of financial assurance, the costs of which could be significant. Moreover, recent and anticipated changes to the bonding and financial assurance program for the Gulf of Mexico are likely to result in the loss of supplemental bonding waivers for a large number of lease owners and operators of infrastructure in the Gulf of Mexico, which will in turn force these owners and operators to seek additional surety bonds which could exceed the surety bond market’s ability to provide such additional financial assurance. Lease owners and operators who have already leveraged their assets could face difficulty obtaining surety bonds because of concerns the surety may have about the priority of their liens on their collateral as well as the creditworthiness of such lease owners and operators. Consequently, anticipated changes to the bonding and financial assurance program could result in additional lease owners and operators in the Gulf of Mexico initiating bankruptcy proceedings, which in turn could result in the US Department of the Interior seeking to impose decommissioning costs on predecessors in interest and providers of third party indemnity agreements in the event that the current lease owners and/or operators cannot meet their decommissioning obligations. As a result, this could increase the risk that we may be required to step in and satisfy remaining decommissioning liabilities of Maritech and any buyer of the Maritech properties, including Orinoco, through our third party indemnity agreements and private guarantees, which obligations could be significant and could adversely affect our business, results of operations, financial condition and cash flows.

We are exposed to significant credit risks.
 
We face credit risk associated with the significant amounts of accounts receivable we have with our customers in the energy industry. Many of our customers, particularly those associated with our onshore operations, are small- to medium-sized oil and gas operators that may be more susceptible to declines in oil and gas commodity prices or generally increased operating expenses than larger companies. Our ability to collect from our customers is impacted by the current volatile oil and natural gas price environment.

As discussed in the preceding risk factors, we face the risk of having to satisfy decommissioning liabilities on properties presently or formerly owned by Maritech. Continued decreased oil and natural gas prices have resulted in reduced revenues and cash flows for oil and gas lease owners and operators, including companies that have purchased Maritech properties or are joint-owners in properties presently and formerly owned by Maritech and from whom Maritech is entitled to receive payments upon satisfaction of certain decommissioning obligations. Consequently, we face credit risk associated with the ability of these companies to satisfy their decommissioning liabilities. If these companies are unable to satisfy their obligations, it will increase the possibility that we will become liable for such decommissioning obligations in the future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
(a) None.
 
(b) None.
 

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(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Period
 
Total Number
of Shares Purchased
 
Average
Price
Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
 
Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Publicly Announced Plans or Programs(1)
July 1 – July 31, 2019
 
2,169

(2)
$
1.50


 
$
14,327,000

August 1 – August 31, 2019
 
29,126

(2)
1.51


 
14,327,000

September 1 – September 30, 2019
 
154

(2)
2.01


 
14,327,000

Total
 
31,449

 
 


 
$
14,327,000

(1)
In January 2004, our Board of Directors authorized the repurchase of up to $20 million of our common stock. Purchases will be made from time to time in open market transactions at prevailing market prices. The repurchase program may continue until the authorized limit is reached, at which time the Board of Directors may review the option of increasing the authorized limit.
(2)
Shares we received in connection with the exercise of certain employee stock options or the vesting of certain shares of employee restricted stock. These shares were not acquired pursuant to the stock repurchase program.
Item 3. Defaults Upon Senior Securities.
 
None.
Item 4. Mine Safety Disclosures.
 
None.
Item 5. Other Information.
 
None.

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Table of Contents

Item 6. Exhibits.
 
Exhibits:
10.1
31.1*
31.2*
32.1**
32.2**
101.SCH+
XBRL Taxonomy Extension Schema Document.
101.CAL+
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB+
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE+
XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF+
XBRL Taxonomy Extension Definition Linkbase Document.
*
Filed with this report.
**
Furnished with this report.
+
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine month periods ended September 30, 2019 and 2018; (ii) Consolidated Statements of Comprehensive Income for the three and nine month periods ended September 30, 2019 and 2018; (iii) Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018; (iv) Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2019 and 2018; and (v) Notes to Consolidated Financial Statements for the nine months ended September 30, 2019.
 


44

Table of Contents

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 

 
TETRA Technologies, Inc.
 
 
 
 
 
Date:
November 7, 2019
By:
/s/Brady M. Murphy
 
 
 
Brady M. Murphy
 
 
 
President
 
 
 
Chief Executive Officer
 
 
 
 
Date:
November 7, 2019
By:
/s/Elijio V. Serrano
 
 
 
Elijio V. Serrano
 
 
 
Senior Vice President
 
 
 
Chief Financial Officer
 
 
 
 
Date:
November 7, 2019
By:
/s/Richard D. O'Brien
 
 
 
Richard D. O'Brien
 
 
 
Vice President – Finance and Global Controller
 
 
 
Principal Accounting Officer

45