SUBSCRIBE TO TMCnet
TMCnet - World's Largest Communications and Technology Community

TMCNet:  TETRA TECHNOLOGIES INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operation.

[March 03, 2014]

TETRA TECHNOLOGIES INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operation.

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion is intended to analyze major elements of our consolidated financial statements and provide insight into important areas of management's focus. This section should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes included elsewhere in this Annual Report.


29-------------------------------------------------------------------------------- Statements in the following discussion may include forward-looking statements.

These forward-looking statements involve risks and uncertainties. See "Item 1A.

Risk Factors," for additional discussion of these factors and risks.

Business Overview Led by the unprecedented strength of our Fluids Division, operating results for the year ended December 31, 2013, reflected growth in consolidated revenues compared to the prior year, despite significant challenges and uncertainties in several of our key markets. The growth of the Fluids Division's onshore water management business, the increased sales of its manufactured products, and the strong demand for clear brine fluids (CBFs) in the U.S. Gulf of Mexico together resulted in record revenues and profitability for this Division. Our Compressco segment also reflected record revenues, as the reduction in activity by its principal customer in Mexico was more than offset by the growth of its U.S.

unconventional compression services applications revenue and from growth in other foreign markets. Our Offshore Services segment continues to take the strategic measures necessary to successfully operate in a challenging U.S. Gulf of Mexico market and in anticipation of the decreasing work to be performed for our Maritech segment going forward. As a result of continuing cost reduction efforts and other steps taken, our Offshore Services segment generated increased profitability compared to the prior year, despite decreased revenues. The decreased revenues and profitability of our Production Testing segment reflect the reduction in Mexico activity, the suspension of activity in South Texas by a significant U.S. customer, and increased competitive pressure in several key North American markets. The pretax profitability of our core businesses was offset by significant losses by our Maritech segment, due to excess decommissioning costs expensed by Maritech during 2013, including costs for additional remediation work incurred and anticipated to be required on certain wells that had been previously plugged.

We are committed to the continuing growth of our core businesses, and we fund our growth primarily from the cash flows provided by our operating activities as well as from borrowings under our revolving credit facilities. Capital expenditures during 2013 totaled approximately $101.4 million, primarily for the expansion of our fleet of operating equipment for our Fluids and Production Enhancement Division businesses. In addition, in January 2014, we purchased the assets and operations of WIT Water Transfer, LLC (doing business as TD Water Transfer), a water management service provider operating primarily in South Texas, in exchange for $15.0 million in cash paid at closing plus additional contingent consideration. Also in January 2014, we purchased the remaining 50% ownership interest of a Saudi Arabian limited liability company, Ahmad Albinali & TETRA Arabia Company Ltd. (TETRA Arabia) through which we provide completion fluids and services as well as production testing and offshore rig cooling services. The purchase price consisted of $15.0 million in cash paid at closing with an additional $10.2 million scheduled to be paid in July 2014. As a result of the purchase of the remaining ownership, TETRA Arabia, which generated approximately $36.1 million of revenues during 2013, will become a consolidated subsidiary beginning in 2014. These acquisition transactions are expected to further strengthen the U.S. operations of our Fluids segment as well as the Eastern Hemisphere operations of both our Fluids and Production Testing segments. As of February 28, 2014, we have approximately $210.4 million available under our revolving credit facility to fund future strategic growth, and Compressco Partners has an additional $36.8 million available under its revolving credit facility.

Strategic efforts, including the company-wide cost reduction efforts initiated during late 2012 and the first half of 2013, have resulted in improved operating results and cash flow generation for each of our core businesses. Ongoing efforts to streamline and improve invoicing and collection processes have also improved our operating cash flow. Primarily as a result of these efforts, consolidated cash flows provided from operating activities during 2013 increased by $32.0 million, or 181.0%, compared to the prior year. The improvements in operating cash flow levels have enabled us to fund a large portion of our overall growth, while we also continue to aggressively pursue the extinguishment of Maritech's remaining decommissioning liabilities. During 2013, we expended approximately $114.1 million on Maritech decommissioning and abandonment efforts, and, as of December 31, 2013, Maritech's remaining decommissioning liabilities have been reduced to approximately $43.3 million. The majority of the remaining decommissioning and abandonment work is scheduled to be completed in 2014. The expected future decrease in the level of operating cash expended for this work is anticipated to result in a significant increase in operating cash flows.

Future demand for our products and services depends primarily on activity in the oil and natural gas exploration and production industry, particularly including the level of expenditures for the exploration and production of oil and natural gas reserves and for the plugging and decommissioning of abandoned offshore oil and natural gas properties. The growth of certain of our businesses may become hampered by the future pricing levels 30 --------------------------------------------------------------------------------of crude oil and natural gas. We believe that there are growth opportunities for our products and services, supported primarily by: • applications for many of our products and services in the continuing exploitation and development of shale reservoirs; • increased regulatory requirements governing the abandonment and decommissioning work on aging offshore platforms and wells in the Gulf of Mexico; • increases in technologically driven deepwater oil and gas well completions in the Gulf of Mexico; and • increasing international oil and gas exploration and development activities.

Our Fluids Division generates revenues and cash flows by manufacturing and marketing clear brine completion fluids (CBFs), additives, CBF and water management services, and associated products and services to the oil and gas industry for use in well drilling, completion, and workover operations in the United States and in certain countries in Latin America, Europe, Asia, the Middle East, and Africa. The Fluids Division also provides a broad range of associated services, including: onsite fluids filtration, handling, and recycling; wellbore cleanup; and fluid engineering consultation. The Fluids Division also markets liquid and dry calcium chloride products manufactured at its production facilities or purchased from third-party suppliers to a variety of markets outside the energy industry. Fluids Division revenues increased $48.1 million during 2013 compared to 2012, due to the continuing growth of the Division's water management services business, increased CBF product sales from increased activity in the Gulf of Mexico, and increased sales of manufactured products compared to the prior year. Although demand for the Fluids Division's CBF products is driven primarily by completion activity rather than drilling activity, the increase in the Gulf of Mexico rig count compared to 2012 reflects the increasing demand for offshore CBF products. Demand for the Division's products and services, particularly for its offshore CBF products, has been affected by regulatory restrictions in the past and may continue to be affected by future regulatory restrictions. With the acquisition of the TD Water Transfer assets, we anticipate that the revenues, profitability, and operating cash flows of the Fluids Division will continue to increase going forward.

Our Production Enhancement Division consists of two operating segments: the Production Testing segment and the Compressco segment. The Production Testing segment generates revenues and cash flows by performing after-frac flow back, production well testing, offshore rig cooling, early production facilities, and other associated services. The primary markets served by the Production Testing segment include many of the major oil and gas producing regions in the United States, Mexico, and Canada, as well as in certain oil and gas basins in certain regions in South America, Africa, Europe, the Middle East, and Australia. The Division's production testing operations are generally driven by the demand for natural gas and oil and the resulting levels of drilling and completion activities in the markets that the Production Testing segment serves. The Production Testing segment's revenues decreased by $12.0 million in 2013 compared to 2012, due to decreased activity by the segment's primary customers in Mexico and South Texas and the impact of increasing competition, particularly in North America.

Our Compressco segment generates revenues and cash flows by performing compression-based production enhancement services throughout many of the onshore oil and gas producing regions of the United States, as well as certain basins in Mexico and Canada, and certain countries in South America, Europe, and the Asia-Pacific region. The Compressco segment provides services that are used in both conventional wellhead compression applications and unconventional compression applications, and, in certain circumstances, well monitoring and sand separation services. In certain markets, the Compressco segment also sells compressor packages and parts. Compressco segment revenues increased $11.8 million in 2013 as compared to 2012, primarily due to increased demand for domestic unconventional compression applications, and the growth of activity in Canada and Argentina, which more than offset the decreased activity by its primary customer in Mexico. In addition, revenues from the sales of compressor packages and parts also increased compared to the prior year. While there are uncertainties in Latin America that could affect operations, including the upcoming renewal of certain customer contracts, as well as uncertainties surrounding the domestic price of natural gas which drives demand for a portion of Compressco's domestic services, we expect revenues from the segment will continue to increase.

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

The services provided by the Offshore Services segment are marketed to offshore operators, primarily in the U.S. Gulf of Mexico. Gulf of Mexico platform decommissioning and 31 -------------------------------------------------------------------------------- well abandonment activity levels are driven primarily by BSEE regulations; the declining production levels of producing fields; the age of production platforms and other structures; oil and natural gas commodity prices; sales activity of mature oil and gas producing properties; and overall oil and gas company activity levels. Offshore Services revenues decreased by $10.1 million during 2013 compared to 2012, due to the continuing challenges in the U.S. Gulf of Mexico market, including decreased heavy lift, abandonment, and cutting services activity, customer project delays, weather disruptions, and pricing pressures during the past year. We expect that the remaining decommissioning and abandonment work to be performed for Maritech will decrease beginning in 2014, and, thereafter, the Offshore Services segment is focused on replacing this work with work for third party customers.

The sales of substantially all of Maritech's oil and gas producing properties during 2011 and 2012 have essentially removed us from the oil and gas exploration and production business. Maritech's revenues are minimal and are expected to continue to be minimal going forward. Maritech's current operations primarily consist of the ongoing plugging, abandonment, and decommissioning associated with its remaining offshore wells, facilities, and production platforms. We expect to complete the majority of this remaining work during 2014.

Critical Accounting Policies and Estimates This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. We prepared these financial statements in conformity with United States generally accepted accounting principles. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. We base these estimates on historical experience, available information, and various other assumptions that we believe are reasonable. We periodically evaluate these estimates and judgments, including those related to potential impairments of long-lived assets (including goodwill), the collectability of accounts receivable, and the current cost of future abandonment and decommissioning obligations. "Note B - Summary of Significant Accounting Policies" to the Consolidated Financial Statements contains the accounting policies governing each of these matters. The fair values of portions of our total assets and liabilities are measured using significant unobservable inputs.

The combination of these factors forms the basis for our judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources. These judgments and estimates may change as new events occur, as new information is acquired, and as changes in our operating environment are encountered. Actual results are likely to differ from our current estimates, and those differences may be material. The following critical accounting policies reflect the most significant judgments and estimates used in the preparation of our financial statements.

Impairment of Long-Lived Assets The determination of impairment of long-lived assets is conducted periodically whenever indicators of impairment are present. If such indicators are present, the determination of the amount of impairment is based on our judgments as to the future operating cash flows to be generated from these assets throughout their estimated useful lives. If an impairment of a long-lived asset is warranted, we estimate the fair value of the asset based on a present value of these cash flows or the value that could be realized from disposing of the asset in a transaction between market participants. The oil and gas industry is cyclical, and our estimates of the amount of future cash flows, the period over which these estimated future cash flows will be generated, as well as the fair value of an impaired asset, are imprecise. Our failure to accurately estimate these future operating cash flows or fair values could result in certain long-lived assets being overstated, which could result in impairment charges in periods subsequent to the time in which the impairment indicators were first present.

Alternatively, if our estimates of future operating cash flows or fair values are understated, impairments might be recognized unnecessarily or in excess of the appropriate amounts. During 2013, we recorded long-lived asset impairments of $9.6 million. During periods of economic uncertainty, the likelihood of additional material impairments of long-lived assets is higher due to the possibility of decreased demand for our products and services.

Impairment of Goodwill The impairment of goodwill is also assessed whenever impairment indicators are present, but not less than once annually. The annual assessment for goodwill impairment begins with a qualitative assessment of whether it is "more likely than not" that the fair value of each reporting unit is less than its carrying value. This qualitative assessment requires the evaluation, based on the weight of evidence, of the significance of all identified events and circumstances for each reporting unit. Based on this qualitative assessment, we determined that it was not "more 32 -------------------------------------------------------------------------------- likely than not" that the fair values of any of our reporting units were less than their carrying values as of December 31, 2013. If the qualitative analysis indicates that it is "more likely than not" that a reporting unit's fair value is less than its carrying value, the resulting goodwill impairment test would consist of a two-step accounting test performed on a reporting unit basis. If the carrying amount of the reporting unit exceeds its estimated fair value, an impairment loss is calculated by comparing the carrying amount of the reporting unit's goodwill to our estimated implied fair value of that goodwill. Our estimates of reporting unit fair value, if required, are based on a combination of an income and market approach. These estimates are imprecise and are subject to our estimates of the future cash flows of each business and our judgment as to how these estimated cash flows translate into each business' estimated fair value. These estimates and judgments are affected by numerous factors, including the general economic environment at the time of our assessment, which affects our overall market capitalization. If we overestimate the fair value of our reporting units, the balance of our goodwill asset may be overstated.

Alternatively, if our estimated reporting unit fair values are understated, impairments might be recognized unnecessarily or in excess of the appropriate amounts. There were no impairments of goodwill recorded based on our assessment as of December 31, 2013.

Decommissioning Liabilities Maritech records a liability associated with the costs of abandoning and decommissioning the wells, platforms, and pipelines located on its oil and gas leases, as well as removing associated debris. Maritech's decommissioning liabilities are established based on what Maritech estimates a third party would charge to perform these services. These well abandonment and decommissioning liabilities (referred to as decommissioning liabilities) are recorded net of amounts allocable to joint interest owners. In estimating the decommissioning liabilities, we perform detailed estimating procedures, analysis, and engineering studies. Whenever practical, Maritech settles these decommissioning liabilities by utilizing the services of its affiliated companies to perform well abandonment and decommissioning work. This practice saves us the profit margin that a third party would charge for such services. When these services are performed by an affiliated company, all recorded intercompany revenues are eliminated in the consolidated financial statements. Any difference between our own internal costs to settle the decommissioning liability and the recorded liability is recognized in the period in which we perform the work. The recorded decommissioning liability associated with a specific property is fully extinguished when the property is completely abandoned. Once a Maritech well abandonment and decommissioning project is performed, any remaining decommissioning liability in excess of the actual cost of the work performed is recorded as a gain and is included in earnings in the period in which the project is completed. Conversely, estimated or actual costs in excess of the decommissioning liability are charged against earnings in the period in which the work is estimated or performed.

We review the adequacy of our decommissioning liabilities whenever indicators suggest that either the amount or timing of the estimated cash flows underlying the liabilities have changed materially. The amount of cash flows necessary to abandon and decommission the property is subject to changes due to seasonal demand, increased demand following hurricanes, regulatory changes, and other general changes in the energy industry environment. Accordingly, the estimation of our decommissioning liabilities is imprecise. During each of the three years ended December 31, 2013, Maritech adjusted its decommissioning liabilities as a result of increased estimates, as well as the actual cost of significant abandonment and decommissioning work performed during those years. Maritech recorded approximately $194.5 million of excess decommissioning expense during the three years ended December 31, 2013, associated with work performed or to be performed on its oil and gas properties. In addition, adjustments to decommissioning liabilities associated with productive properties were capitalized to oil and gas properties and contributed significantly to Maritech recording approximately $15.2 million of oil and gas property impairments during 2011. The actual cost of performing Maritech's well abandonment and decommissioning work has often exceeded Maritech's initial estimate of these decommissioning liabilities and has resulted in charges to earnings in the period the work is performed or when the additional liability is determined. To the extent our decommissioning liabilities are understated, additional charges to earnings may be required in future periods.

Revenue Recognition We generate revenue on certain well abandonment, decommissioning, and dive services projects under contracts which are typically of short duration and that provide for either lump-sum charges or specific time, material, and equipment charges, which are billed in accordance with the terms of such contracts. We generally recognize revenue once the following four criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been provided; (3) the sales price is fixed or determinable; and (4) collectability is reasonably assured.

33 -------------------------------------------------------------------------------- With regard to longer-term lump sum contracts, revenue is recognized using the percentage-of-completion method based on the ratio of costs incurred to total estimated costs at completion. The estimation of total costs to be incurred may be imprecise due to unexpected well conditions, delays, weather, and other uncertainties. Inaccurate cost estimates may result in the revenue associated with a specific contract being recognized in an inappropriate period. Total project revenue and cost estimates for lump sum contracts are reviewed periodically, but at least quarterly, as work progresses, and adjustments are reflected in the period in which such estimates are revised. Provisions for estimated losses on such contracts are made in full in the period such losses are determined. Despite the uncertainties associated with estimating the total contract cost, our recognition of revenue associated with these contracts has historically been reasonable.

Occasionally, our Offshore Services segment is a party to project management contracts which contain multiple deliverables, including the performance of service milestones. While the contract provides contract-determined values associated with each milestone, the recognition of revenue is determined based on the realized market values received by the customer. The determination of realized market values is supported by objective evidence whenever possible, but may also be determined based on our judgments as to the value of a particular deliverable.

Income Taxes We provide for income taxes by taking into account the differences between the financial statement treatment and tax treatment of certain transactions.

Deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date. This calculation requires us to make certain estimates about our future operations, and many of these estimates of future operations may be imprecise. Changes in state, federal, and foreign tax laws, as well as changes in our financial condition, could affect these estimates. In addition, we consider many factors when evaluating and estimating income tax uncertainties. These factors include an evaluation of the technical merits of the tax position as well as the amounts and probabilities of the outcomes that could be realized upon ultimate settlement. The actual resolution of those uncertainties will inevitably differ from those estimates, and such differences may be material to the financial statements. Our estimates and judgments associated with our calculations of income taxes have been reasonable in the past, however, the possibility for changes in the tax laws, as well as the current economic uncertainty, could affect the accuracy of our income tax estimates in future periods.

Acquisition Purchase Price Allocations We account for acquisitions of businesses using the purchase method, which requires the allocation of the purchase price based on the fair values of the assets and liabilities acquired. We estimate the fair values of the assets and liabilities acquired using accepted valuation methods, and, in many cases, such estimates are based on our judgments as to the future operating cash flows expected to be generated from the acquired assets throughout their estimated useful lives. We have completed several acquisitions during the past several years and have accounted for the various assets (including intangible assets) and liabilities acquired based on our estimate of fair values. Goodwill represents the excess of acquisition purchase price over the estimated fair values of the net assets acquired. Our estimates and judgments of the fair value of acquired businesses are imprecise, and the use of inaccurate fair value estimates could result in the improper allocation of the acquisition purchase price to acquired assets and liabilities, which could result in asset impairments, the recording of previously unrecorded liabilities, and other financial statement adjustments. The difficulty in estimating the fair values of acquired assets and liabilities is increased during periods of economic uncertainty.

34 --------------------------------------------------------------------------------Results of Operations The following data should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report.

2013 Compared to 2012 Consolidated Comparisons Year Ended December 31, Period to Period Change 2013 2012 2013 vs 2012 % Change (In Thousands, Except Percentages) Revenues $ 909,398 $ 880,831 $ 28,567 3.2 % Gross profit 135,392 167,380 (31,988 ) (19.1 )% Gross profit as a percentage of revenue 14.9 % 19.0 % General and administrative expense 131,466 131,649 (183 ) (0.1 )% General and administrative expense as a percentage of revenue 14.5 % 14.9 % Interest expense, net 17,121 17,080 41 0.2 % (Gain) loss on sale of assets (5,776 ) (4,916 ) (860 ) Other (income) expense, net (7,291 ) (4,616 ) (2,675 ) Income before taxes and discontinued operations (128 ) 28,183 (28,311 ) (100.5 )% Income before taxes and discontinued operations as a percentage of revenue - % 3.2 % Provision (benefit) for income taxes (3,454 ) 9,429 (12,883 ) (136.6 )% Income before discontinued operations 3,326 18,754 (15,428 ) (82.3 )% Income (loss) from discontinued operations, net of taxes (1 ) 3 (4 ) Net income 3,325 18,757 (15,432 ) (82.3 )% Net income attributable to noncontrolling interest (3,172 ) (2,797 ) (375 ) Net income attributable to TETRA stockholders $ 153 $ 15,960 $ (15,807 ) (99.0 )% Consolidated revenues during 2013 increased compared to 2012 due to increased revenues of our Fluids and Compressco segments. Growth of the Fluids Division's onshore water management business, increased sales of its manufactured products, and strong demand for clear brine fluids (CBFs) in the U.S. Gulf of Mexico resulted in record revenues for this Division. Our Compressco segment also reflected record revenues, as the reduction in activity by its principal customer in Mexico was more than offset by the growth of its U.S. unconventional compression services applications revenue and from growth in other international markets. These increased consolidated revenues were negatively affected by our Offshore Services segment as well as our Production Testing segment. Our Offshore Services segment reported decreased revenues for the current year compared to the prior year due to a reduction in heavy lift and cutting services activity. This business was also adversely affected by weather delays during the second and third quarters of 2013 as well as by continuing market challenges in the U.S. Gulf of Mexico. Our Production Testing segment revenues also decreased, reflecting the reduction in Mexico activity, the suspension of activity by a significant U.S. customer, and increased competitive pressure in several key North American markets. Consolidated gross profit decreased, despite the increased profitability of our Fluids and Offshore Services segments, as our Maritech and Production Testing segments reported decreases. Maritech recorded increased excess decommissioning costs during 2013 as compared to 2012.

Consolidated general and administrative expenses during 2013 remained consistent with 2012 levels. Decreases in compensation and other employee related expenses by our Offshore Services, Corporate, and Compressco segments were primarily due to cost reduction efforts during late 2012 and early 2013 as well as decreased equity based compensation during 2013 compared to 2012. These administrative cost decreases were largely offset by increased general and administrative costs due to the growth of our Fluids Division, the acquisitions completed during 2012 by our Production Testing segment, and approximately $1.9 million of employee severance costs during 2013. Overall, cost reduction efforts taken by each of our segments are expected to continue to improve profitability during 2014.

35 -------------------------------------------------------------------------------- Consolidated interest expense stayed consistent during 2013 compared to the prior year, as increased interest expense from Compressco Partners borrowings was largely offset by the impact of the lower interest rate on the 2013 Senior Notes.

Consolidated gains on sale of assets increased due to the sale by Maritech of one of its remaining oil and gas properties during the third quarter of 2013.

Consolidated other income increased primarily due to increased earnings from TETRA Arabia, an unconsolidated limited liability company, and partly offset by decreased foreign currency exchange losses.

The consolidated provision for income taxes decreased compared to the prior year due to decreased earnings.

Divisional Comparisons Fluids Division Year Ended December 31, Period to Period Change 2013 2012 2013 vs 2012 % Change (In Thousands, Except Percentages) Revenues $ 382,663 $ 334,548 $ 48,115 14.4 % Gross profit 100,106 79,454 20,652 26.0 % Gross profit as a percentage of revenue 26.2 % 23.7 % General and administrative expense 32,648 30,466 2,182 7.2 % General and administrative expense as a percentage of revenue 8.5 % 9.1 % Interest (income) expense, net (148 ) 54 (202 ) Other (income) expense, net (1,832 ) (1,896 ) 64 Income before taxes and discontinued operations $ 69,438 $ 50,830 $ 18,608 36.6 % Income before taxes and discontinued operations as a percentage of revenue 18.1 % 15.2 % The increase in Fluids Division revenues during 2013 compared to 2012 was primarily due to approximately $24.0 million of increased product sales, primarily due to the increased demand for its calcium chloride manufactured products as well as increased sales of brominated products. A portion of these increased manufactured product sales was due to increased demand in selected markets and nonrecurring demand from a single U.S. customer during 2013. In addition, Fluids Division product sales also reflect the increased demand for its CBF products, as U.S. Gulf of Mexico drilling and completion activity levels increased in 2013 compared to the prior year. Decreased Latin America CBF product sales were partially offset by increased Eastern Hemisphere revenues.

Following the January 2014 purchase of the remaining interest of TETRA Arabia, our unconsolidated Saudi Arabian limited liability company, TETRA Arabia will be consolidated as a wholly owned subsidiary and is expected to result in increased Division revenues and gross profit. In addition, the Division also reported approximately $24.2 million of increased service revenues, primarily from the growth of its onshore water management business. This growth in the water management business is expected to continue into 2014 primarily due to the January 2014 acquisition of the assets and operations of TD Water Transfer, which provides water management services to customers in the South Texas and North Dakota regions of the U.S.

Fluids Division gross profit increased compared to 2012, primarily as a result of the increased demand for manufactured products and the increased U.S. onshore water management activity discussed above, which more than offset the decrease in profitability in Latin America. The increased demand for manufactured products resulted in increased production efficiencies for our El Dorado, Arkansas, calcium chloride facility. Also, the profitability of our European calcium chloride operations improved during 2013 after experiencing reduced plant production levels and equipment repairs during 2012.

36 -------------------------------------------------------------------------------- Fluids Division income before taxes increased compared to the prior year due to the increase in gross profit discussed above and despite increased administrative costs. Fluids Division administrative costs increased primarily due to increased personnel-related costs, partially offset by decreased professional fee expenses. Other income remained flat compared to the prior year, as increased foreign currency exchange losses were offset by increased earnings by TETRA Arabia. As discussed above, beginning in the first quarter of 2014, due to the purchase of the remaining ownership interest, the results of operations from TETRA Arabia will be consolidated as a wholly owned subsidiary.

Production Enhancement Division Production Testing Segment Year Ended December 31, Period to Period Change 2013 2012 2013 vs 2012 % Change (In Thousands, Except Percentages) Revenues $ 195,983 $ 207,984 $ (12,001 ) (5.8 )% Gross profit 29,566 58,009 (28,443 ) (49.0 )% Gross profit as a percentage of revenue 15.1 % 27.9 % General and administrative expense 24,671 23,386 1,285 5.5 % General and administrative expense as a percentage of revenue 12.6 % 11.2 % Interest (income) expense, net (34 ) (43 ) 9 Other (income) expense, net (9,164 ) (5,181 ) (3,983 ) Income before taxes and discontinued operations $ 14,093 $ 39,847 $ (25,754 ) (64.6 )% Income before taxes and discontinued operations as a percentage of revenue 7.2 % 19.2 % Production Testing segment revenues decreased during 2013 compared to 2012 due to the decreases in activity by the segment's primary customer in Mexico. In addition, revenues decreased in the U.S. as a result of the suspension of activity in South Texas by a significant U.S. customer and increased competitive pressure in several key North American markets. These decreases in U.S. revenues more than offset the increased revenues as a result of including a full year of activity from the 2012 acquisitions of ERS and Greywolf. These decreases in the U.S. and Mexico were partially offset by increased revenues in Canada, as a result of the Greywolf acquisition, and in the Eastern Hemisphere, which contributed growth due to increased Middle East activity as well as due to the 2012 acquisition of the segment's OPTIMA offshore rig cooling business. As discussed above, in January 2014, we acquired the remaining ownership interest of TETRA Arabia. Beginning in the first quarter of 2014, TETRA Arabia will be consolidated as a wholly owned subsidiary, and is expected to result in increased revenues and gross profit.

Production Testing segment gross profit decreased during 2013 compared to the prior year, despite the 2012 acquisitions of OPTIMA, ERS, and Greywolf. The gross profit increase from the acquired businesses and the growth in certain of the segment's foreign operations was more than offset by the impact of the decreased activity and pricing levels in certain U.S. markets, increased labor costs, and the impact of the decreased production testing activity in Mexico compared to the prior year. Beginning in the second quarter of 2013, we took steps to downsize field operations and implement other cost reductions for the Production Testing segment, including the relocation of equipment and other resources, that have resulted in decreased operating expenses. We continue to seek additional steps in response to the decreased activity in certain U.S.

markets that are expected to result in further operating expense reductions during 2014.

Production Testing segment income before taxes decreased due to the decreased gross profit discussed above as well as from increased administrative expenses compared to the prior year. The increased administrative expenses were primarily due to the increased personnel-related and other administrative costs associated with the acquired OPTIMA, ERS, and Greywolf businesses. These increases more than offset the decrease in professional services expenses, which included approximately $2.8 million of acquisition related costs during the prior year.

Partially offsetting the decreased gross profit and increased general and administrative expenses, other income increased primarily due to increased earnings from TETRA Arabia. As discussed above, beginning in the first quarter of 2014, the results of operations from TETRA Arabia will be consolidated as a wholly owned subsidiary.

37 -------------------------------------------------------------------------------- Compressco Segment Year Ended December 31, Period to Period Change 2013 2012 2013 vs 2012 % Change (In Thousands, Except Percentages) Revenues $ 121,288 $ 109,466 $ 11,822 10.8 % Gross profit 38,726 38,991 (265 ) (0.7 )% Gross profit as a percentage of revenue 31.9 % 35.6 % General and administrative expense 17,353 17,424 (71 ) (0.4 )% General and administrative expense as a percentage of revenue 14.3 % 15.9 % Interest (income) expense, net 469 25 444 Other (income) expense, net 704 944 (239 ) Income before taxes and discontinued operations $ 20,200 $ 20,598 $ (399 ) (1.9 )% Income before taxes and discontinued operations as a percentage of revenue 16.7 % 18.8 % The increase in Compressco segment revenues compared to the prior year was due to an increase of $9.9 million of service revenues, resulting primarily from increased activity in the U.S., Canada, and Argentina. The increase in the U.S.

reflects the increased demand for unconventional compression services applications as a result of increased activity primarily in horizontal resource play reservoirs. These increases were partially offset by decreased revenues in Mexico. As a result of the budget re-evaluations by Compressco's primary customer in Mexico, in March 2013 Compressco began to experience a decline in demand for its oil and gas services in the northern region of Mexico. We believe this decline in demand is temporary. Compressco has continued to increase its compressor fleet, both in the U.S. and in certain foreign markets, to serve increasing demand. Revenues from the sales of compressor packages and parts during 2013 increased $2.0 million compared to the prior year.

Compressco segment gross profit decreased slightly during 2013 compared to the prior year, as the increased U.S., Canada, and Argentina revenues were largely offset by increased operating expenses, particularly labor, maintenance, and fuel costs. Gross profit as a percentage of revenue decreased compared to the prior year as a result of these cost increases. Primarily as a result of the current reduced activity in Mexico described above, Compressco has aggressively reduced its Mexico operating headcount and relocated certain equipment to the U.S. from Mexico.

Income before taxes for the Compressco segment decreased during 2013 compared to the prior year, primarily due to the increased interest expense as a result of the increased borrowings under the Compressco Partners bank credit facilities during the current year. The Compressco segment's administrative expense levels also increased slightly compared to the prior year, as decreases in salaries and other employee related costs were largely offset by increased allocated costs and professional services. These increases were partially offset by decreased other expense, largely due to decreased foreign currency losses compared to the prior year.

38-------------------------------------------------------------------------------- Offshore Division Offshore Services Segment Year Ended December 31, Period to Period Change 2013 2012 2013 vs 2012 % Change (In Thousands, Except Percentages) Revenues $ 255,812 $ 265,943 $ (10,131 ) (3.8 )% Gross profit 36,147 33,272 2,875 8.6 % Gross profit as a percentage of revenue 14.1 % 12.5 % General and administrative expense 13,386 17,494 (4,108 ) (23.5 )% General and administrative expense as a percentage of revenue 5.2 % 6.6 % Interest (income) expense, net 109 109 - Other (income) expense, net (218 ) (6,037 ) 5,819 Income before taxes and discontinued operations $ 22,870 $ 21,706 $ 1,164 5.4 % Income before taxes and discontinued operations as a percentage of revenue 8.9 % 8.2 % Revenues from our Offshore Services segment decreased during 2013 compared to 2012, primarily due to decreased activity levels in the Gulf of Mexico market for its heavy lift and cutting services businesses. Decreased demand for heavy lift services resulted in the idling of one of the segment's heavy lift barges during 2012. This barge remained idle during 2013 and was sold in January 2014.

These businesses were also negatively affected by weather delays during 2013, including unseasonal weather delays during the second and third quarters, which affected utilization of key assets. Activity levels for the dive service business, however, increased during 2013 compared to the prior year due to increased demand for the segment's leased dive service vessels, particularly during the third quarter of 2013. Offshore Services revenues during the year ended December 31, 2013 and 2012 include approximately $50.1 million and $41.2 million, respectively, of revenues related to work performed for Maritech. The level of such Maritech work is expected to significantly decrease beginning in 2014.

Despite the decrease in revenues for the Offshore Services segment during 2013, gross profit increased compared to prior year. Gross profit as a percentage of revenues rose to 14.1% during the current year compared to 12.5% during the prior year. This increased profitability primarily reflects the impact of cost reduction efforts made during late 2012 and the second quarter of 2013. As a result of these cost reduction efforts, profitability for the segment has increased despite market conditions that continue to be challenging, including the impact of increased competition and decreased pricing compared to the prior year. In addition, the impact of weather delays during a portion of the current year negatively affected profitability. The Offshore Services segment continues to consider additional opportunities to optimize its cost structure.

Offshore Services segment income before taxes increased, primarily due to the increased gross profit discussed above and despite decreased other income. Other income decreased due to a $5.6 million gain on sale of certain abandonment assets recorded during the prior year. Offshore Services segment administrative costs decreased, primarily as a result of the segment's cost reduction efforts, which reduced salary and personnel-related expenses, and more than offset approximately $0.3 million of severance costs expensed during 2013.

39 -------------------------------------------------------------------------------- Maritech Segment Year Ended December 31, Period to Period Change 2013 2012 2013 vs 2012 % Change (In Thousands, Except Percentages) Revenues $ 5,560 $ 6,158 $ (598 ) (9.7 )% Gross profit (loss) (66,828 ) (39,397 ) (27,431 ) (69.6 )% General and administrative expense 2,902 2,875 27 0.9 % General and administrative expense as a percentage of revenue 52.2 % 46.7 % Interest (income) expense, net 11 98 (87 ) (Gain) loss on sales of assets (5,378 ) 420 (5,798 ) Other (income) expense, net - - - Income (loss) before taxes and discontinued operations $ (64,363 ) $ (42,790 ) $ (21,573 ) (50.4 )% As a result of the sale of almost all of its producing properties during 2011 and 2012, Maritech revenues during 2013 and 2012 were negligible and are expected to continue to be negligible going forward.

Maritech gross loss increased during 2013 due to approximately $75.3 million of excess decommissioning costs expensed during the current year, an increase of approximately $34.5 million compared to 2012. Revisions in estimated decommissioning liability cash flows during 2013 resulted primarily from additional work incurred and anticipated to be required on Maritech's offshore oil and gas properties, including remediation work required on certain wells that had been previously plugged. Partially offsetting the increased costs, approximately $5.7 million of insurance settlements primarily associated with an insurance-related litigation settlement was credited to operating expenses during the first quarter of 2013.

The increase in Maritech's pretax loss during 2013 compared to 2012 is primarily due to the increased gross loss discussed above. General and administrative expenses were consistent with the prior year despite approximately $0.2 million of increased professional fees primarily associated with the insurance-related litigation settlement received during the first quarter of 2013. Other income increased significantly during the current year, due to the approximately $5.4 million gain recognized on the sale of one of Maritech's remaining offshore oil and gas properties during 2013.

Corporate Overhead Year Ended December 31, Period to Period Change 2013 2012 2013 vs 2012 % Change (In Thousands, Except Percentages) Gross profit (loss) (primarily depreciation expense) $ (2,327 ) $ (2,949 ) $ 622 21.1 % General and administrative expense 40,506 40,005 501 1.3 % Interest (income) expense, net 16,715 16,837 (122 ) Other (income) expense, net 2,711 2,217 494 (Loss) before taxes and discontinued operations $ (62,259 ) $ (62,008 ) $ (251 ) (0.4 )% Corporate Overhead increased during 2013 compared to the 2012, primarily due to increased corporate general and administrative expenses, which increased primarily due to approximately $2.6 million of increased office expense. The increased office expense was primarily rent, which resulted from the sale and leaseback of our corporate headquarters building in the fourth quarter of 2012.

These increases were partially offset by approximately $1.6 million of decreased personnel-related expenses, $0.2 million of decreased professional expenses, and $0.4 million of increased allocations. The decreased personnel-related expenses were primarily as a result of second quarter 2013 cost reduction efforts and more than offset approximately $0.5 million of associated severance costs incurred during that period. Depreciation expense decreased compared to the prior year due to the sale and leaseback of our corporate headquarters building discussed above.

40-------------------------------------------------------------------------------- 2012 Compared to 2011 Consolidated Comparisons Year Ended December 31, Period to Period Change 2012 2011 2012 vs 2011 % Change (In Thousands, Except Percentages) Revenues $ 880,831 $ 845,275 $ 35,556 4.2 % Gross profit 167,380 89,042 78,338 88.0 % Gross profit as a percentage of revenue 19.0 % 10.5 % General and administrative expense 131,649 111,805 19,844 17.7 % General and administrative expense as a percentage of revenue 14.9 % 13.2 % Interest expense, net 17,080 16,439 641 3.9 % (Gain) loss on sale of assets (4,916 ) (58,674 ) 53,758 Other (income) expense, net (4,616 ) 13,239 (17,855 ) Income before taxes and discontinued operations 28,183 6,233 21,950 352.2 % Income before taxes and discontinued operations as a percentage of revenue 3.2 % 0.7 % Provision for income taxes 9,429 751 8,678 1,155.5 % Income before discontinued operations 18,754 5,482 13,272 242.1 % Income (loss) from discontinued operations, net of taxes 3 (64 ) 67 Net income 18,757 5,418 13,339 246.2 % Net income attributable to noncontrolling interest (2,797 ) (1,271 ) (1,526 ) Net income attributable to TETRA stockholders $ 15,960 $ 4,147 $ 11,813 284.9 % Consolidated revenues during 2012 increased compared to 2011 due to the growth and increased activity for many of our businesses, including unprecedented revenue levels for our Fluids, Production Testing, and Compressco segments. In particular, the acquisitions of OPTIMA, ERS, and Greywolf contributed $62.2 million of increased revenues for our Production Testing segment during 2012, along with $20.7 million of increased gross profit. In addition, our Production Testing segment also reported increased revenues compared to 2011 due to increased domestic drilling activity, particularly in certain of the shale reservoir markets it serves. Our Fluids segment's revenue and gross profit growth was also due to increased industry activity, which resulted in increased CBF product sales, and more than offset the decreased product sales by the segment's manufactured products businesses. Compressco also reported increased revenues and gross profit, primarily due to increased activity and demand in Latin America. These increased revenues more than offset the $76.6 million decrease in Maritech revenues due to the sales of substantially all of its oil and gas producing properties during 2011 and early 2012. In addition, Offshore Services revenues from third party customers as a result of the 2011 purchase of a heavy lift barge were largely offset by decreased diving and well abandonment services revenue, and the segment's gross profit decreased primarily due to decreased diving and cutting services profitability. Overall gross profit increased, however, primarily due to significant impairments and excess decommissioning costs recorded by Maritech during 2011, the aforementioned acquisitions, and the increased profitability of our Fluids, Production Testing, and Compressco segments during 2012.

Consolidated general and administrative expenses increased during 2012 compared to 2011 by $19.9 million, primarily due to approximately $14.8 million of increased salaries, benefits, and other employee related costs, partially due to increased headcount as a result of acquisitions as well as due to increased equity compensation. In addition, general and administrative expenses also increased due to approximately $4.5 million of increased professional fee expenses, approximately $1.3 million of increased office expenses, and approximately $0.3 million of increased insurance and taxes expense. These increases in consolidated general and administrative expenses were partially offset by a decrease of approximately $1.0 million of other general expenses, including decreased provision for doubtful accounts. The increased professional fee expenses included approximately $2.8 million of acquisition transaction costs.

Consolidated net interest expense increased by $0.6 million during 2012 compared to 2011. This increase is due to increased borrowings during 2012.

41 -------------------------------------------------------------------------------- During 2011, Maritech recorded gains on sales of its oil and gas properties, including approximately $58.2 million from a sale of approximately 79% of its oil and gas producing properties during the second quarter of 2011. Gains on sales of assets during 2012 consist primarily of the $5.6 million of gains recorded by our Offshore Services segment for the sale of our electric wireline assets during the fourth quarter of 2012 and the sale of certain abandonment assets during the first quarter of 2012. Consolidated other income increased during 2012 compared to 2011, primarily due to $14.2 million of hedge ineffectiveness losses recorded during 2011. Consolidated other income also includes increased earnings during 2012 compared to 2011 from TETRA Arabia, an unconsolidated limited liability company.

Our provision for income taxes increased during 2012 compared to 2011 due to increased net earnings.

Divisional Comparisons Fluids Division Year Ended December 31, Period to Period Change 2012 2011 2012 vs 2011 % Change (In Thousands, Except Percentages) Revenues $ 334,548 $ 304,536 $ 30,012 9.9 % Gross profit 79,454 57,470 21,984 38.3 % Gross profit as a percentage of revenue 23.7 % 18.9 % General and administrative expense 30,466 26,586 3,880 14.6 % General and administrative expense as a percentage of revenue 9.1 % 8.7 % Interest (income) expense, net 54 14 40 Other (income) expense, net (1,896 ) (1,206 ) (690 ) Income before taxes and discontinued operations $ 50,830 $ 32,076 $ 18,754 58.5 % Income before taxes and discontinued operations as a percentage of revenue 15.2 % 10.5 % The increase in Fluids Division revenues during 2012 compared to 2011 was primarily due to a $28.1 million net increase in product sales revenues. This increase was due to approximately $40.7 million of increased clear brine fluids (CBFs) product sales revenues, primarily due to increased domestic offshore well completion activity. This increase in domestic demand is due to increased activity in the deepwater Gulf of Mexico, as activity levels in late 2012 have returned to the pre-Macondo levels of early 2010. In addition, increased activity in our Eastern Hemisphere markets have also contributed, particularly in the North Sea, West Africa, and the Middle East regions. The increase in CBF sales was partially offset by approximately $12.5 million of decreased revenue from manufactured products, primarily from decreased industrial demand due to weather, increased competition, and due to the reduced sales of dry calcium chloride following the shutdown of the pellet plant at our Lake Charles facility during mid-2011. In addition to the net increase in product sales revenues, the Division also reported a $1.8 million increase in services revenues during 2012 due to increased domestic water management service activity in certain of the Division's shale reservoir markets compared to 2011. However, the growth in domestic onshore service revenues has slowed compared to prior years.

Fluids Division gross profit increased during 2012 compared to 2011 primarily as a result of the increased domestic CBF revenues discussed above and from increased efficiency at our El Dorado, Arkansas, calcium chloride plant. Gross profit from the Division's domestic onshore water management services operation also increased. These increases were partially offset by decreased gross profit from the Division's European manufactured products operation, which was impacted by the decreased demand discussed above. In addition, the Division's European calcium chloride plant experienced reduced production levels and higher costs during 2012 associated with equipment repairs at its calcium chloride plant.

Fluids Division income before taxes increased during 2012 compared to 2011 due to the increase in gross profit discussed above and increased other income, despite increased administrative costs. Other income increased primarily due to increased income from TETRA Arabia, our unconsolidated limited liability company, and foreign 42 --------------------------------------------------------------------------------currency exchange gains. Fluids Division administrative costs increased, primarily due to increased salaries, benefits, and personnel-related costs.

Production Enhancement Division Production Testing Segment Year Ended December 31, Period to Period Change 2012 2011 2012 vs 2011 % Change (In Thousands, Except Percentages) Revenues $ 207,984 $ 139,756 $ 68,228 48.8 % Gross profit 58,009 46,889 11,120 23.7 % Gross profit as a percentage of revenue 27.9 % 33.6 % General and administrative expense 23,386 13,809 9,577 69.4 % General and administrative expense as a percentage of revenue 11.2 % 9.9 % Interest (income) expense, net (43 ) (59 ) 16 Other (income) expense, net (5,181 ) (2,830 ) (2,351 ) Income before taxes and discontinued operations $ 39,847 $ 35,969 $ 3,878 10.8 % Income before taxes and discontinued operations as a percentage of revenue 19.2 % 25.7 % Production Testing revenues increased significantly during 2012, primarily due to an increase of approximately $62.2 million resulting from the acquisitions of OPTIMA, ERS, and Greywolf during 2012. These acquisitions have resulted in the Production Testing segment increasing its scope of services and expanding its operations into strategic geographic markets. In addition, during 2012 the segment reflected revenues from increased domestic drilling in many of its shale reservoir markets compared to 2011. These increases, along with increased revenues from the segment's Eastern Hemisphere operations, were partially offset by decreased revenues in Mexico, where demand for certain of the segment's production testing services has decreased and been more than offset, on a consolidated basis, by increased demand for well monitoring services by our Compressco segment.

Production Testing segment gross profit increased in 2012 compared to 2011, primarily due to approximately $20.7 million of increased gross profit from the acquisitions discussed above. Excluding the increased gross profit from these acquisitions, the impact from increased domestic activity was more than offset by increased operating expenses. In addition, gross profit from the segment's international operations decreased during 2012 compared to 2011 as a result of the decreased production testing activity in Mexico.

Production Testing income before taxes increased due to the increased gross profit discussed above, as well as due to increased other income, which was primarily due to increased earnings from TETRA Arabia, our unconsolidated limited liability company. The increases in gross profit and other income were partially offset by increased administrative expenses resulting from higher personnel-related costs associated with the acquisitions, as well as approximately $2.8 million of acquisition transaction costs expensed during 2012.

43 -------------------------------------------------------------------------------- Compressco Segment Year Ended December 31, Period to Period Change 2012 2011 2012 vs 2011 % Change (In Thousands, Except Percentages) Revenues $ 109,466 $ 95,768 $ 13,698 14.3 % Gross profit 38,991 29,567 9,424 31.9 % Gross profit as a percentage of revenue 35.6 % 30.9 % General and administrative expense 17,424 12,852 4,572 35.6 % General and administrative expense as a percentage of revenue 15.9 % 13.4 % Interest (income) expense, net 25 (67 ) 92 Other (income) expense, net 944 983 (39 ) Income before taxes and discontinued operations $ 20,598 $ 15,799 $ 4,799 30.4 % Income before taxes and discontinued operations as a percentage of revenue 18.8 % 16.5 % The increase in Compressco revenues during 2012 compared to 2011 was primarily due to an increase of $20.6 million of service revenues resulting from increased activity, particularly in Latin America. While there are uncertainties in Latin America that could affect operations, including the renewal of certain customer contracts, we expect revenues from our Latin American operations will continue to increase. Partially offsetting this increase was a $6.9 million decrease from sales of compressor packages and parts during 2012 compared to the prior year.

Compressco gross profit increased during 2012 compared to 2011, primarily due to the increased Latin America activity discussed above, an increase in overall average compressor package utilization from 77.4% to 83.0%, and also due to continuing reductions in domestic operating expenses.

Income before taxes for Compressco increased during 2012 compared to 2011 due to the increased gross profit discussed above and despite increased administrative expenses. Compressco's administrative expenses reflect increased administrative staff and professional fee expenses associated with being a separate publicly traded limited partnership. Administrative expenses during 2012 also reflect increased equity compensation expense arising from current year equity grants by Compressco Partners and the impact of a severance agreement. Additionally, incentive compensation expense increased as a result of favorable overall financial results. Beginning in June 2011, general and administrative expense also includes the allocation of a portion of our corporate administrative expenses to Compressco Partners pursuant to our Omnibus Agreement with Compressco Partners.

Offshore Division Offshore Services Segment Year Ended December 31, Period to Period Change 2012 2011 2012 vs 2011 % Change (In Thousands, Except Percentages) Revenues $ 265,943 $ 287,300 $ (21,357 ) (7.4 )% Gross profit 33,272 33,394 (122 ) (0.4 )% Gross profit as a percentage of revenue 12.5 % 11.6 % General and administrative expense 17,494 15,970 1,524 9.5 % General and administrative expense as a percentage of revenue 6.6 % 5.6 % Interest (income) expense, net 109 45 64 Other (income) expense, net (6,037 ) (1,076 ) (4,961 ) Income before taxes and discontinued operations $ 21,706 $ 18,455 $ 3,251 17.6 % Income before taxes and discontinued operations as a percentage of revenue 8.2 % 6.4 % 44-------------------------------------------------------------------------------- Revenues from our Offshore Services segment decreased in 2012 compared to 2011, primarily due to a decrease in the work performed for Maritech during 2012.

Increased decommissioning services revenues, including those from the TETRA Hedron heavy lift barge purchased during 2011, were offset by decreased diving, abandonment, and cutting services revenues during 2012. In addition to the continuing challenges of pricing pressures, reduced activity levels, reduced number of leased vessels, and project delays experienced by several of the Offshore Services segment's customers, the segment also experienced weather disruptions during 2012, particularly from Tropical Storm Debby and Hurricane Isaac. Diving services revenues were also negatively affected by scheduled vessel repairs during the first quarter of 2012. In addition, revenues decreased due to the 2011 and early 2012 sales of certain of the segment's onshore abandonment assets and operations, which generated approximately $13.7 million in revenues during 2011. In December 2012, the segment also disposed of its wireline assets, which generated $4.0 million and $1.7 million of revenues during 2011 and 2012, respectively. Approximately $41.2 million of Offshore Services revenues were from work performed for Maritech during 2012, compared to $65.0 million of such work in 2011 Intercompany revenues from Maritech work are eliminated in consolidation.

Gross profit for the Offshore Services segment during 2012 slightly decreased compared to 2011, despite approximately $6.2 million of due diligence and startup costs during 2011 associated with the purchase of the TETRA Hedron.

Gross profit decreased primarily due to decreased profitability of our diving and cutting services operations, which largely resulted from decreased utilization and pricing during 2012. In the fourth quarter of 2012, we reclassified the TETRA DB-1 derrick barge as an asset held for sale and recorded a $7.7 million impairment on the asset. The segment also identified other asset impairments of approximately $0.7 million. The decreased profitability of our diving and cutting operations was partially offset by improved profitability of our heavy lift and abandonment operations. In addition to the impact of ongoing cost reductions that began during 2012, the Offshore Services segment expects increased profitability during 2013 as a result of increased bid activity and an observed decrease in Gulf of Mexico federal permitting delays.

Offshore Services segment income before taxes increased during 2012, despite the reduced gross profit discussed above and increased general and administrative expenses. These decreases were more than offset by the gains on the sale of certain abandonment and wireline assets that generated approximately $5.6 million of other income during 2012. Offshore Services segment administrative expenses increased during 2012, primarily due to increased salary and employee related expenses and increased bad debt and professional fee expenses during the year.

Maritech Segment Year Ended December 31, Period to Period Change 2012 2011 2012 vs 2011 % Change (In Thousands, Except Percentages) Revenues $ 6,158 $ 82,740 $ (76,582 ) (92.6 )% Gross profit (loss) (39,397 ) (75,762 ) 36,365 48.0 % General and administrative expense 2,875 5,893 (3,018 ) (51.2 )% General and administrative expense as a percentage of revenue 46.7 % 7.1 % Interest (income) expense, net 98 73 25 (Gain) loss on sales of assets 420 (55,454 ) 55,874 Other (income) expense, net - 1 (1 ) Income (loss) before taxes and discontinued operations $ (42,790 ) $ (26,275 ) $ (16,515 ) (62.9 )% Maritech revenues decreased significantly during 2012 compared to 2011 due to the sales of substantially all of its oil and gas reserves during 2011 and early 2012. In particular, the May 31, 2011, sale of oil and gas properties resulted in the sale of approximately 79% of Maritech's proven reserves. Following the sales of almost all of its producing properties, Maritech revenues are expected to continue to be negligible.

Maritech gross loss decreased during 2012 compared to 2011, primarily due to reduced operating and depletion expenses associated with the sold properties. In addition, Maritech recorded $15.2 million of impairments 45 -------------------------------------------------------------------------------- and approximately $37.6 million of higher excess decommissioning costs associated with Maritech's remaining decommissioning liabilities during 2011.

Subsequent to December 31, 2012, in February 2013, Maritech entered into a $7.6 million settlement agreement with one of its underwriters relating to litigation involving its insurance claim following Hurricane Ike.

Maritech reported an increased pretax loss during 2012 compared to 2011, primarily due to approximately $55.5 million ($57.5 million consolidated) of gains from sales of producing properties reported during 2011. This decrease compared to 2011 was partially offset by the decreased gross loss discussed above. In addition, Maritech reported decreased net administrative expenses during 2012, primarily due to the reduction in its headcount following the sale of properties. This decrease in administrative costs was partially offset by increased legal expenses and decreased administrative costs billed to joint owners.

Corporate Overhead Year Ended December 31, Period to Period Change 2012 2011 2012 vs 2011 % Change (In Thousands, Except Percentages) Gross profit (loss) (primarily depreciation expense) $ (2,949 ) $ (2,626 ) $ (323 ) (12.3 )% General and administrative expense 40,005 36,694 3,311 9.0 % Interest (income) expense, net 16,837 16,434 403 Other (income) expense, net 2,217 15,839 (13,622 ) (Loss) before taxes and discontinued operations $ (62,008 ) $ (71,593 ) $ 9,585 13.4 % Corporate Overhead includes corporate general and administrative expense, interest income and expense, and other income and expense. Such expenses and income are not allocated to our operating divisions, as they relate to our general corporate activities. However, in connection with the public offering of common units in our Compressco Partners subsidiary, on June 20, 2011, we began allocating and charging Compressco Partners for its share of our corporate administrative costs directly related to Compressco Partners' activities.

Corporate Overhead decreased during 2012 compared to 2011, primarily due to a $13.9 million hedge ineffectiveness loss during 2011. This hedge ineffectiveness loss was mainly due to the April 2011 liquidation of hedge derivative contracts, following the planned sale of a significant portion of Maritech oil and gas producing properties, which resulted in a $14.2 million charge to corporate other expense for hedge ineffectiveness during the second quarter of 2011.

Corporate general and administrative expenses increased, largely due to approximately $3.1 million of increased employee related expenses, primarily due to $2.4 million of increased salaries and equity compensation, which includes the impact of severance costs associated with our previous chief financial officer. In addition, professional fee expenses increased approximately $0.4 million and office and insurance expenses increased by approximately $0.4 million. These increases were partially offset by approximately $0.6 million of decreased tax expenses. Corporate interest expense also increased, due to increased borrowings outstanding during much of 2012. In December 2012, we completed the sale of our corporate headquarters building for approximately $43.8 million, before transaction costs and other deductions, and entered into a lease of the facility with a minimum lease term of 15 years. As a result, beginning in 2013, Corporate Overhead will reflect the decreased depreciation expense associated with the sale, and general and administrative expense will reflect an increase for the lease expense going forward.

46 --------------------------------------------------------------------------------Liquidity and Capital Resources Increased operating cash flows during 2013 compared to 2012 reflect the impact of strategic initiatives to reduce costs and streamline our customer billing and collection processes. Cost reduction efforts taken during the second quarter of 2013 and late 2012 resulted in improved profitability and cash flows for each of our segments. The increased operating cash flows have allowed us to continue to aggressively pursue extinguishing Maritech's remaining decommissioning liabilities, fund capital expenditure activity, and further strengthen our balance sheet. As of December 31, 2013, and after expending approximately $114.1 million during 2013 on decommissioning and associated work, Maritech's remaining decommissioning liabilities have been reduced to approximately $43.3 million. A large amount of the remaining work to be performed is expected to be performed during 2014. With the remaining amount of Maritech decommissioning work expected to decrease significantly, we anticipate the resulting increase in operating cash flows beginning in 2014 will provide significant opportunities to continue to strengthen our balance sheet and strategically grow our company. Through December 31, 2013, we spent an aggregate of approximately $101.4 million on capital expenditure activity for several of our existing businesses. In addition to the ongoing capital expenditure activity, we continue to evaluate opportunities to further expand certain of our businesses through acquisitions, consistent with our growth plan. During January 2014, we expended approximately $30.2 million in connection with two acquisitions: the purchase of the assets and operations of TD Water Transfer, a water management business operating primarily in South Texas, and the purchase of the remaining ownership interest in our Saudi Arabian limited liability company. In addition to available cash, as of February 28, 2014, we have approximately $210.4 million available under our revolving credit facility to fund our future strategic growth.

Operating Activities Cash flows generated by operating activities totaled $49.7 million during 2013 compared to $17.7 million of cash provided by operating activities during 2012, an increase of $32.0 million. This increase in operating cash flows during 2013 compared to the prior year was largely due to an improvement of approximately $45.4 million from the collection of accounts receivable, reflecting a continuing effort begun during late 2012 to expedite collections. This increase in cash provided by operating activities was generated despite approximately $114.1 million of decommissioning activity performed during the year ended December 31, 2013, an increase of $19.7 million compared to 2012. A portion of the decommissioning activity performed during 2013 was associated with approximately $75.3 million of excess decommissioning costs charged to earnings during the year.

During the past three years, Maritech has performed approximately $310.4 million of well abandonment and decommissioning work associated with its remaining offshore oil and gas production wells, platforms, and facilities. As of December 31, 2013, and including the impact of adjustments made during 2013 for the estimated cost of work remaining to be performed, Maritech's decommissioning liabilities totaled approximately $43.3 million. Until the remaining decommissioning liabilities are extinguished, our future operating cash flows will continue to be affected by the actual timing and amount of Maritech's decommissioning expenditures. Most of the cash outflow necessary to extinguish Maritech's remaining decommissioning liabilities is expected to occur during 2014. Included in Maritech's decommissioning liabilities is the remaining abandonment, decommissioning, and debris removal associated with offshore platforms that were previously destroyed by a hurricane, as well as certain remediation work required on wells that were previously plugged. Due to the unique nature of the remaining work to be performed associated with these properties, actual costs could greatly exceed these estimates and could therefore result in significant charges to earnings in future periods.

In some cases, the previous owners of properties that were acquired by Maritech are contractually obligated to pay Maritech a fixed amount for the well abandonment and decommissioning work on these properties after the work is performed. Approximately $8.8 million of such contractual reimbursement arrangements as of December 31, 2013, is classified as receivable assets related to amounts waiting to be collected.

Demand for a large portion of our products and services is driven by oil and gas industry activity, which is affected by oil and natural gas commodity pricing.

Oil and natural gas prices have been volatile in the past and are expected to continue to be volatile in the future. In addition, as a result of oil and natural gas commodity prices, drilling activity related to natural gas wells in North America has decreased. While only a portion of our revenues are related to gas drilling activity, we are exposed to the impact that this decreased demand could have on our businesses. In particular, our Production Testing, Compressco, and Fluids segments are vulnerable to the impact of a sustained low natural gas price environment. In addition, decreases in future worldwide crude oil prices could also 47 -------------------------------------------------------------------------------- affect future overall industry drilling activity in certain of the regions in which we operate. If oil or gas industry activity levels decrease in the future, our levels of operating cash flows may be negatively affected.

During late 2012 and the first half of 2013, each of our segments implemented operating and administrative cost reductions, including reductions in headcount, that were designed to streamline our operations and downsize our organization, particularly in our corporate headquarters and in certain of our businesses.

Together with the specific cost reduction steps taken by our Offshore Services segment in late 2012, these cost reduction efforts have resulted in increased operating cash flows and improved profitability, and the impact from these cost reduction efforts are expected to continue going forward. We continue to review our overall operating and administrative cost structure in order to identify additional opportunities to reduce costs.

We are subject to operating hazards normally associated with onshore and offshore oilfield service operations, including fires, explosions, blowouts, cratering, mechanical problems, abnormally pressured formations, and accidents that cause harm to the environment. In addition, in the performance of each of our operations we are exposed to additional hazards, including personal injuries and vehicle-related accidents. We maintain various types of insurance that are designed to be applicable in the event of an explosion or other catastrophic event involving our offshore operations. This insurance includes third-party liability, workers' compensation and employers' liability, automobile liability, general liability, and vessel pollution liability. Our insurance coverage is subject to deductibles that must be satisfied prior to recovery. Additionally, the levels of our insurance coverage are subject to certain exclusions and limitations and we have additional exposure from certain risks that we elect to self-insure. We believe our policy of insuring against such risks, as well as the levels of insurance we maintain, is typical in the industry. In addition, we provide services and products in the offshore Gulf of Mexico generally pursuant to agreements that create insurance and indemnity obligations for both parties.

Our Maritech subsidiary maintains a formalized oil spill response plan that is submitted to the Bureau of Safety and Environmental Enforcement (BSEE). Maritech has designated third-party contractors in place to ensure that resources are available as required in the event of an environmental accident. While it is impossible to anticipate every potential accident or incident involving our offshore operations, we believe we have taken appropriate steps to mitigate the potential impact of such an event on the environment in the regions in which we operate.

Investing Activities During 2013, the total amount of our net cash utilized on investing activities was $100.0 million. Total cash capital expenditures during 2013 were $101.4 million. Approximately $45.3 million of our capital expenditures during 2013 was spent by our Fluids Division, the majority of which related to the purchase of new equipment to support its onshore water management services business. Our Production Enhancement Division spent approximately $50.8 million on capital expenditures, consisting of approximately $26.8 million by the Production Testing segment to add or replace a portion of its production testing equipment fleet, and approximately $24.1 million by the Compressco segment, primarily for the upgrade and expansion of its wellhead compressor and equipment fleet. Our Offshore Services segment spent approximately $4.2 million for costs on its various heavy lift and dive support vessels. Corporate capital expenditures were approximately $1.1 million.

In January 2014, we completed two acquisition transactions. Pursuant to an October 2013 agreement, we acquired the remaining 50% ownership interest of TETRA Arabia in exchange for $15.0 million which was paid at closing and $10.2 million to be paid in July 2014. As a result of this transaction, beginning in the first quarter of 2014, TETRA Arabia has become a wholly owned consolidated subsidiary. Also in January 2014, we acquired the assets and operations of TD Water Transfer for a cash purchase price of $15.0 million along with additional contingent consideration of up to approximately $8.0 million to be paid based on a measure of earnings and other considerations over the two years subsequent to closing. TD Water Transfer is a provider of water management services to oil and gas operators in the South Texas and North Dakota regions, and the acquisition represents a strategic geographic expansion of our Fluids segment operations.

Generally, a significant majority of our planned capital expenditures is related to identified opportunities to grow and expand our existing businesses (other than Maritech). Although our planned level of capital expenditures during 2014 is subject to the impact of acquisitions and future market conditions, we currently plan to expend up to approximately $119 million on total capital expenditures (excluding acquisitions) during 2014. However, certain of these planned expenditures may be postponed or canceled in an effort to conserve capital or otherwise address future market or financing conditions. The deferral of capital projects could affect our ability to compete in the future.

48 --------------------------------------------------------------------------------To the extent we consummate an additional significant acquisition transaction or other capital project, our liquidity position and capital plans will be affected.

Financing Activities To fund our capital and working capital requirements, we may supplement our existing cash balances and cash flow from operating activities as needed from long-term borrowings, short-term borrowings, operating leases, equity issuances, and other sources of capital.

Our Bank Credit Facilities We have a $278 million revolving credit facility with a syndicate of banks pursuant to a credit facility agreement (the Credit Agreement). As of December 31, 2013, we had an outstanding balance on the revolving credit facility of approximately $52.8 million and had $9.5 million in letters of credit and guarantees against the $278 million revolving credit facility, leaving a net availability of $215.7 million. As a result of borrowings made subsequent to December 31, 2013, availability under the revolving credit facility has decreased to approximately $210.4 million as of February 28, 2014. In addition, the Credit Agreement allows us to increase the facility by $150 million, up to a $428 million limit, upon the agreement of the lenders and the satisfaction of certain conditions. Included in the approximately $52.8 million outstanding borrowings under the credit facility agreement as of December 31, 2013 is approximately $13.8 million equivalent denominated in euros, which has been designated as a hedge of the net investment in our European operations.

Under the Credit Agreement, which matures on October 29, 2015, the revolving credit facility is unsecured and guaranteed by certain of our material U.S.

subsidiaries (excluding Compressco). Borrowings generally bear interest at the British Bankers Association LIBOR rate plus 1.5% to 2.5%, depending on one of our financial ratios. We pay a commitment fee ranging from 0.225% to 0.500% on unused portions of the facility. The Credit Agreement contains customary covenants and other restrictions, including certain financial ratio covenants based on our levels of debt and interest cost compared to a defined measure of our operating cash flows over a twelve month period. In addition, the Credit Agreement includes limitations on aggregate asset sales, individual acquisitions, and aggregate annual acquisitions and capital expenditures. Access to our revolving credit line is dependent upon our compliance with the financial ratio covenants set forth in the Credit Agreement. These financial ratios include a minimum interest charge coverage ratio (ratio of a defined measure of earnings to interest) of 3.0 and a maximum leverage ratio (ratio of debt and letters of credit outstanding to a defined measure of earnings) of 3.0. Both of these financial ratios are defined in our revolving bank credit facility agreement. Deterioration of the financial ratios could result in a default by us under the Credit Agreement and, if not remedied, could result in termination of the Credit Agreement and acceleration of any outstanding balances. Compressco is an unrestricted subsidiary and is not a borrower or a guarantor under our bank credit facility.

The Credit Agreement includes cross-default provisions relating to any other indebtedness greater than a defined amount. If any such indebtedness is not paid or is accelerated and such event is not remedied in a timely manner, a default will occur under the Credit Agreement. Our Credit Agreement also contains a covenant that restricts us from paying dividends in the event of a default or if such payment would result in an event of default. We are in compliance with all covenants and conditions of our Credit Agreement as of December 31, 2013. Our continuing ability to comply with these financial covenants depends largely upon our ability to generate adequate cash flow. Historically, our financial performance has been more than adequate to meet these covenants, and we expect this trend to continue.

Our European Credit Agreement We also have a bank line of credit agreement to cover the day to day working capital needs of certain of our European operations (the European Credit Agreement). The European Credit Agreement provides borrowing capacity of up to 5 million euros (approximately $6.9 million equivalent as of December 31, 2013), with interest computed on any outstanding borrowings at a rate equal to the lender's Basis Rate plus 0.75%. The European Credit Agreement is cancellable by either party with 14 business days notice and contains standard provisions in the event of default. As of December 31, 2013, we had no borrowings outstanding pursuant to the European Credit Agreement.

49 --------------------------------------------------------------------------------Compressco Partners' Bank Credit Facility On June 24, 2011, Compressco Partners entered into a credit agreement (the Previous Partnership Credit Agreement) with JPMorgan Chase Bank, N.A. Under the Previous Partnership Credit Agreement, as amended, Compressco Partners, along with certain of its subsidiaries, were named as borrowers, and all of its existing and future, direct and indirect, domestic subsidiaries were guarantors.

We were not a borrower or a guarantor under the Previous Partnership Credit Agreement. The Previous Partnership Credit Agreement, as amended, included a maximum credit commitment of $20.0 million, that was available for letters of credit (with a sublimit of $5.0 million), and included an uncommitted $20.0 million expansion feature.

On October 15, 2013, Compressco Partners entered into a new asset-based revolving credit facility with a syndicate of lenders including JPMorgan Chase Bank, N.A. as administrative agent (the New Partnership Credit Agreement), which replaced the Previous Partnership Credit Agreement. Under the New Partnership Credit Agreement, Compressco Partners, along with certain of its subsidiaries, are named as borrowers, and all obligations under the credit agreement are guaranteed by all of its existing and future, direct and indirect, domestic subsidiaries. We are not a borrower or a guarantor under the New Partnership Credit Agreement. The New Partnership Credit Agreement includes a maximum credit commitment of $100.0 million that is available for letters of credit (with a sublimit of $20.0 million), and includes an uncommitted $30.0 million expansion feature. The actual maximum credit availability under the New Partnership Credit Agreement varies from time to time and is determined by calculating the applicable borrowing base, which is based upon applicable percentages of the values of eligible accounts receivable, inventory, and equipment, minus reserves as determined necessary by the Administrative Agent. As of February 28, 2014, Compressco Partners has a balance outstanding under the New Partnership Credit Agreement of $30.0 million and had availability under the New Partnership Credit Facility of $36.8 million, based upon a $67.4 million borrowing base and the $30.0 million outstanding balance.

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

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

The New Partnership Credit Agreement requires Compressco Partners to maintain a minimum interest coverage ratio (ratio of earnings before interest and taxes to interest) of 4.0 to 1.0 as of the last day of any fiscal quarter, calculated on a trailing four quarters basis. In addition, the New Partnership Credit Agreement includes customary negative covenants, which, among other things, limit Compressco Partners' ability to incur additional debt, incur, or permit certain liens to exist, or make certain loans, investments, acquisitions, or other restricted payments. The New Partnership Credit Agreement provides that Compressco Partners can make distributions to holders of its common and subordinated units, but only if there is no default or event of default under the facility. Compressco Partners was in compliance with the covenants and conditions of the New Partnership Credit Agreement as of December 31, 2013.

50 --------------------------------------------------------------------------------Senior Notes In April 2006, we issued $90.0 million in aggregate principal amount of Series 2006-A Senior Notes pursuant to our existing Master Note Purchase Agreement dated September 2004, as supplemented as of April 18, 2006. The Series 2006-A Senior Notes bear interest at a fixed rate of 5.90% and mature on April 30, 2016. Interest on the 2006-A Senior Notes is due semiannually on April 30 and October 30 of each year.

In April 2008, we issued $35.0 million in aggregate principal amount of Series 2008-A Senior Notes and $90.0 million in aggregate principal amount of Series 2008-B Senior Notes (collectively the Series 2008 Senior Notes) pursuant to a Note Purchase Agreement dated April 30, 2008. The Series 2008-A Senior Notes bore interest at a fixed rate of 6.30% and matured and were repaid on April 30, 2013. The Series 2008-B Senior Notes bear interest at a fixed rate of 6.56% and mature on April 30, 2015. Interest on the Series 2008 Senior Notes is due semiannually on April 30 and October 31 of each year.

In December 2010, we issued $65.0 million in aggregate principal amount of Series 2010-A Senior Notes and $25.0 million in aggregate principal amount of Series 2010-B Senior Notes (collectively, the 2010 Senior Notes) pursuant to a Note Purchase Agreement dated September 30, 2010. The Series 2010-A Senior Notes bear interest at a fixed rate of 5.09% and mature on December 15, 2017. The Series 2010-B Senior Notes bear interest at a fixed rate of 5.67% and mature on December 15, 2020. Interest on the Series 2010 Senior Notes is due semiannually on June 15 and December 15 of each year.

In April 2013, we issued $35.0 million in aggregate principal amount of Series 2013 Senior Notes pursuant to a Note Purchase Agreement. The Series 2013 Senior Notes bear interest at a fixed rate of 4.0% and mature on April 29, 2020. On April 30, 2013, we utilized the proceeds from the issuance to repay the 2008-A Senior Notes. Interest on the 2013 Senior Notes is due semiannually on April 29 and October 29 of each year.

Each of the Senior Notes was sold in the United States to accredited investors pursuant to an exemption from the Securities Act of 1933. We may prepay the Senior Notes, in whole or in part, at any time at a price equal to 100% of the principal amount outstanding, plus accrued and unpaid interest and a "make-whole" prepayment premium. The Senior Notes are unsecured and are guaranteed by substantially all of our wholly owned U.S. subsidiaries. The Note Purchase Agreements and the Master Note Purchase Agreement, as supplemented, contain customary covenants and restrictions and require us to maintain certain financial ratios, including a minimum level of net worth and a ratio between our long-term debt balance and a defined measure of operating cash flow over a twelve month period. The Note Purchase Agreements and the Master Note Purchase Agreement also contain customary default provisions as well as a cross-default provision relating to any other of our indebtedness of $20 million or more. We are in compliance with all covenants and conditions of the Note Purchase Agreements and the Master Note Purchase Agreement as of December 31, 2013. Upon the occurrence and during the continuation of an event of default under the Note Purchase Agreements and the Master Note Purchase Agreements, as supplemented, the Senior Notes may become immediately due and payable, either automatically or by declaration of holders of more than 50% in principal amount of the Senior Notes outstanding at the time.

Other Sources and Uses In addition to the aforementioned revolving credit facilities, we fund our short-term liquidity requirements from cash generated by operations, other operating leases, and from short-term vendor financing. Should additional capital be required, we believe that we have the ability to raise such capital through the issuance of additional debt or equity. However, instability or volatility in the capital markets at the times we need to access capital may affect the cost of capital and the ability to raise capital for an indeterminable length of time. As discussed above, our Credit Agreement matures in October 2015, the New Partnership Credit Agreement matures in October 2017, and our Senior Notes mature at various dates between April 2015 and December 2020. The replacement of these capital sources at similar or more favorable terms is not certain. If it is necessary to issue equity to fund our capital needs, dilution to our common stockholders will occur.

Compressco Partners' Partnership Agreement requires that within 45 days after the end of each quarter, it distribute all of its available cash, as defined in the Partnership Agreement, to its unitholders of record on the applicable record date. For the year ended December 31, 2013, net of distributions paid to us, Compressco Partners distributed approximately $4.8 million to its public unitholders.

51 --------------------------------------------------------------------------------Off Balance Sheet Arrangements An "off balance sheet arrangement" is defined as any contractual arrangement to which an entity that is not consolidated with us is a party, under which we have, or in the future may have: • any obligation under a guarantee contract that requires initial recognition and measurement under U.S. Generally Accepted Accounting Principles; • a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity, or market risk support to that entity for the transferred assets; • any obligation under certain derivative instruments; or • any obligation under a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging, or research and development services with us.

As of December 31, 2013 and 2012, 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. For a discussion of operating leases, including the lease of our corporate headquarters facility, see "Note E - Leases" in the Notes to Consolidated Financial Statements.

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.

Environmental One of our subsidiaries, TETRA Micronutrients, Inc. (TMI), previously owned and operated a production facility located in Fairbury, Nebraska. TMI is subject to an Administrative Order on Consent issued to American Microtrace, Inc. (n/k/a/ TETRA Micronutrients, Inc.) in the proceeding styled In the Matter of American Microtrace Corporation, EPA I.D. No. NED00610550, Respondent, Docket No.

VII-98-H-0016, dated September 25, 1998 (the Consent Order), with regard to the Fairbury facility. TMI is liable for future remediation costs and ongoing environmental monitoring at the Fairbury facility under the Consent Order; however, the current owner of the Fairbury facility is responsible for costs associated with the closure of that facility. While the outcome cannot be predicted with certainty, management does not consider it reasonably possible that a loss in excess of any amounts accrued has been incurred or is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.

Product Purchase Obligations In the normal course of our Fluids Division operations, we enter into supply agreements with certain manufacturers of various raw materials and finished products. Some of these agreements have terms and conditions that specify a minimum or maximum level of purchases over the term of the agreement. Other agreements require us to purchase the entire output of the raw material or finished product produced by the manufacturer. Our purchase obligations under these agreements apply only with regard to raw materials and finished products that meet specifications set forth in the agreements. We recognize a liability for the purchase of such products at the time we receive them. As of December 31, 2013, the aggregate amount of the fixed and determinable portion of the purchase obligation pursuant to our Fluids Division's supply agreements was approximately $205.9 million, extending through 2029.

Other Contingencies Related to its remaining oil and gas property decommissioning liabilities, our Maritech subsidiary estimates the third-party fair values (including an estimated profit) to plug and abandon wells, decommission the pipelines and 52 --------------------------------------------------------------------------------platforms, and clear the sites, and uses these estimates to record Maritech's decommissioning liabilities, net of amounts allocable to joint interest owners.

Contractual Obligations The table below summarizes our contractual cash obligations as of December 31, 2013: Payments Due Total 2014 2015 2016 2017 2018 Thereafter (In Thousands) Long-term debt $ 387,816 $ 89 $ 172,727 $ 90,000 $ 65,000 $ - $ 60,000 Interest on debt 60,190 21,417 16,750 7,872 5,990 2,818 5,343 Purchase obligations 205,900 14,275 14,275 14,275 14,275 12,400 136,400 Decommissioning and other asset retirement obligations(1) 50,904 38,700 4,677 - - - 7,527 Operating and capital leases 74,839 12,613 8,689 6,233 5,411 5,012 36,881 Total contractual cash obligations(2) $ 779,649 $ 87,094 $ 217,118 $ 118,380 $ 90,676 $ 20,230 $ 246,151 (1) We have estimated the timing of these payments for decommissioning liabilities based upon our plans and the plans of outside operators, which are subject to many changing variables, including the estimated life of the producing oil and gas properties, which is affected by changing oil and gas commodity prices. The amounts shown represent the undiscounted obligation as of December 31, 2013.

(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 $4.1 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. See "Note F - Income Taxes," in the Notes to Consolidated Financial Statements for further discussion.

New Accounting Pronouncements In June 2011, the FASB published ASU 2011-05, "Comprehensive Income (Topic 220), Presentation of Comprehensive Income" (ASU 2011-05), with the stated objective of improving the comparability, consistency, and transparency of financial reporting and increasing the prominence of items reported in other comprehensive income. As part of ASU 2011-05, the FASB eliminated the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The ASU amendments require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and the amendments are applied retrospectively. In December 2011, with the issuance of ASU 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," the FASB announced that it has deferred certain aspects of ASU 2011-05. In February 2013, the FASB issued ASU 2013-2, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," with the stated objective of improving the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this ASU are effective during interim and annual periods beginning after December 15, 2012. The adoption of these ASUs regarding comprehensive income have not had a significant impact on the accounting or disclosures in our financial statements.

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

In July 2013, the FASB published ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a 53 -------------------------------------------------------------------------------- Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" (ASU 2013-11). The amendments in this ASU provide guidance on presentation of unrecognized tax benefits and are expected to reduce diversity in practice and better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this ASU are effective prospectively for interim and annual periods beginning after December 15, 2013, with early adoption and retrospective application permitted.

We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Risk During 2013, we borrowed $1.6 million, net of repayments, pursuant to our revolving credit facility. During 2013, Compressco Partners borrowed $19.9 million to fund the expansion and upgrade of its compressor and equipment fleet.

Each of these borrowings was made under existing revolving credit facilities that bear interest at an agreed-upon percentage rate spread above LIBOR, and is therefore subject to market risk exposure related to changes in applicable interest rates.

The following table sets forth as of December 31, 2013, our principal cash flows for our long-term debt obligations (which bear a variable rate of interest) and weighted average effective interest rate by their expected maturity dates. We are not a party to an interest rate swap contract or other derivative instrument designed to hedge our exposure to interest rate fluctuation risk.

Expected Maturity Date Fair Market 2014 2015 2016 2017 2018 Thereafter Total Value As of December 31, 2013 Long-term debt: U.S. dollar variable rate $ - $ 68,959 $ - $ - $ - $ - $ 68,959 $ 68,959 Euro variable rate (in $US) - 13,768 - - - - 13,768 13,768 Weighted average interest rate (variable) - 2.487 % - - - - 2.487 % U.S. dollar fixed rate $ 89 $ 90,000 $ 90,000 $ 65,000 $ - $ 60,000 $ 305,089 $ 313,730 Weighted average interest rate (fixed) - 6.560 % 5.900 % 5.090 % - 4.696 % 5.684 % Variable to fixed swaps - - - - - - - - Fixed pay rate - - - - - - - - Variable receive rate - - - - - - - - Exchange Rate Risk We are exposed to fluctuations between the U.S. dollar and the euro with regard to our euro-denominated operating activities. In July 2012, we designated the 10.0 million euro borrowing described above as a hedge for our euro-denominated operations.

The following table sets forth as of December 31, 2013, our cash flows for our long-term debt obligations, which are denominated in euros. This information is presented in U.S. dollar equivalents. The table presents principal cash flows and related weighted average interest rates by its expected maturity dates. As described above, we utilize the long-term borrowings detailed in the following table as a hedge of our investment in foreign operations.

54 -------------------------------------------------------------------------------- Expected Maturity Date Fair Market 2014 2015 2016 2017 2018 Thereafter Total Value As of December 31, 2013 Long-term debt: Euro variable rate (in $US) $ - $ 13,768 $ - $ - $ - $ - $ 13,768 $ 13,768 Euro fixed rate (in $US) - - - - - - - - Weighted average interest rate - 2.399 % - - - - 2.399 % Variable to fixed swaps - - - - - - - - Fixed pay rate - - - - - - - - Variable receive rate - - - - - - - - We also have currency exchange rate risk exposure related to revenues, expenses, operating receivables, and payables denominated in foreign currencies. In October 2013, we and Compressco Partners began entering into 30-day foreign currency forward derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. As of December 31, 2013, we and Compressco Partners had the following foreign currency derivative contracts outstanding relating to a portion of our foreign operations: Derivative Contracts US Dollar Notional Amount Traded Exchange Rate Value Date (In Thousands) Forward sale Mexican pesos $ 10,332 13.01 1/17/2014 Forward purchase Mexican pesos 5,928 13.01 1/17/2014 Forward purchase euros 7,984 1.38 1/17/2014 Forward purchase pounds sterling 3,149 1.63 1/17/2014 Under this program, we and Compressco Partners may enter into similar derivative contracts from time to time. Although contracts pursuant to this program will serve as an economic hedge of the cash flow of our currency exchange risk exposure, they will not be formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period.

The fair value of foreign currency derivative instruments are based on quoted market values as reported to us by our counterparty. The fair values of our foreign currency derivative instruments as of December 31, 2013, are as follows: Foreign currency derivative Fair Value at instruments Balance Sheet Location December 31, 2013 (In Thousands) Forward purchase contracts Current assets $ 72 Forward sale contracts Current assets 32 Forward purchase contracts Current liabilities (52 ) Total $ 52 Based on the derivative contracts that were in place as of December 31, 2013, a five percent devaluation of the Mexican peso compared to the U.S. dollar would result in an increase in the market value of our forward sale contract of $0.3 million, and a decrease in the market value of our forward purchase contract of $0.5 million. A five percent devaluation of the euro compared to the U.S. dollar would result in a decrease in the market value of our forward purchase contract of $0.6 million. A 5% devaluation of the British pound sterling compared to the U.S. dollar would result in a decrease in the market value of our forward purchase contract of $0.3 million.

55 --------------------------------------------------------------------------------Commodity Price Risk We will be exposed to the commodity price risk associated with Maritech's oil and natural gas production that we will continue to own until it is sold. Due to the minimal amount of expected production following the sale, such commodity price risk exposure is not expected to be significant.

[ Back To Technology News's Homepage ]

OTHER NEWS PROVIDERS







Technology Marketing Corporation

800 Connecticut Ave, 1st Floor East, Norwalk, CT 06854 USA
Ph: 800-243-6002, 203-852-6800
Fx: 203-866-3326

General comments: tmc@tmcnet.com.
Comments about this site: webmaster@tmcnet.com.

STAY CURRENT YOUR WAY

© 2014 Technology Marketing Corporation. All rights reserved.