UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

FORM 10-Q
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015
 
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM             TO             .
 
COMMISSION FILE NUMBER 1-13455
 

TETRA Technologies, Inc.
(Exact name of registrant as specified in its charter)

 
Delaware
74-2148293
(State of incorporation)
(I.R.S. Employer Identification No.)
 
 
24955 Interstate 45 North
 
The Woodlands, Texas
77380
(Address of principal executive offices)
(zip code)
 
(281) 367-1983
(Registrant’s telephone number, including area code)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ]  No [   ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ]  No [   ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”  “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer [ X ] 
Accelerated filer [   ] 
Non-accelerated filer [   ] (Do not check if a smaller reporting company)
Smaller reporting company [   ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]  No [ X ]
 
As of August 7, 2015 , there were 80,192,311 shares outstanding of the Company’s Common Stock, $0.01 par value per share.




PART I
FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 

 
 

 
 
 
 
Product sales
$
149,652

 
$
82,871

 
$
234,538

 
$
159,623

Services and rentals
166,667

 
159,618

 
332,873

 
295,723

Total revenues
316,319

 
242,489

 
567,411

 
455,346

Cost of revenues:
 

 
 

 


 


Cost of product sales
105,084

 
76,706

 
168,663

 
141,735

Cost of services and rentals
102,307

 
108,301

 
205,391

 
208,239

Depreciation, amortization, and accretion
39,067

 
22,007

 
77,410

 
45,047

Total cost of revenues
246,458

 
207,014

 
451,464

 
395,021

Gross profit
69,861

 
35,475

 
115,947

 
60,325

General and administrative expense
37,472

 
32,270

 
72,741

 
65,690

Interest expense, net
12,340

 
4,604

 
25,226

 
9,315

Other (income) expense, net
1,941

 
1,095

 
1,927

 
(1,503
)
Income (loss) before taxes
18,108

 
(2,494
)
 
16,053

 
(13,177
)
Provision (benefit) for income taxes
2,741

 
(944
)
 
4,310

 
(5,537
)
Net income (loss)
15,367

 
(1,550
)
 
11,743

 
(7,640
)
Less: income attributable to noncontrolling interest
(442
)
 
(907
)
 
(1,266
)
 
(1,751
)
Net income (loss) attributable to TETRA stockholders
$
14,925

 
$
(2,457
)
 
$
10,477

 
$
(9,391
)
Basic net income (loss) per common share:
 

 
 
 
 
 


Net income (loss) attributable to TETRA stockholders
$
0.19

 
$
(0.03
)
 
$
0.13

 
$
(0.12
)
Average shares outstanding
79,165

 
78,525

 
79,037

 
78,416

Diluted net income (loss) per common share:
 

 


 
 
 


Net income (loss) attributable to TETRA stockholders
$
0.19

 
$
(0.03
)
 
$
0.13

 
$
(0.12
)
Average diluted shares outstanding
79,915

 
78,525

 
79,506

 
78,416



See Notes to Consolidated Financial Statements

1



TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
15,367

 
$
(1,550
)
 
$
11,743

 
$
(7,640
)
Foreign currency translation adjustment, including taxes of $0 and $0 in 2015 and including taxes of $(750) and $446 in 2014
2,358

 
3,244

 
(7,429
)
 
777

Comprehensive income (loss)
17,725

 
1,694

 
4,314

 
(6,863
)
Less: comprehensive income attributable to noncontrolling interest
(442
)
 
(907
)
 
(1,266
)
 
(1,751
)
Comprehensive income (loss) attributable to TETRA stockholders
$
17,283

 
$
787

 
$
3,048

 
$
(8,614
)
 

See Notes to Consolidated Financial Statements

2



TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
 
 
June 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 

ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
41,941

 
$
48,384

Restricted cash
8,697

 
8,721

Trade accounts receivable, net of allowances of $5,299 in 2015 and $2,485 in 2014
190,908

 
226,966

Deferred tax asset, net
351

 
392

Inventories
181,942

 
189,357

Assets held for sale

 
2,568

Prepaid expenses and other current assets
27,634

 
24,463

Total current assets
451,473

 
500,851

Property, plant, and equipment:
 

 
 

Land and building
79,173

 
75,200

Machinery and equipment
1,359,786

 
1,292,734

Automobiles and trucks
51,311

 
57,035

Chemical plants
180,078

 
174,108

Construction in progress
6,894

 
21,483

Total property, plant, and equipment
1,677,242

 
1,620,560

Less accumulated depreciation
(556,428
)
 
(496,368
)
Net property, plant, and equipment
1,120,814

 
1,124,192

Other assets:
 

 
 

Goodwill
293,278

 
293,866

Patents, trademarks and other intangible assets, net of accumulated amortization of $46,095 in 2015 and $39,754 in 2014
99,813

 
105,967

Deferred tax assets, net
1,974

 
1,791

Other assets
36,293

 
40,966

Total other assets
431,358

 
442,590

Total assets
$
2,003,645

 
$
2,067,633

 

See Notes to Consolidated Financial Statements

3



TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
 
 
June 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Trade accounts payable
$
79,720

 
$
119,240

Unearned income
58,884

 
70,688

Accrued liabilities
86,986

 
85,681

Current portion of long-term debt
90,000

 
90,074

Decommissioning and other asset retirement obligations
11,521

 
12,758

Total current liabilities
327,111

 
378,441

Long-term debt, net of current portion
846,112

 
844,961

Deferred income taxes
9,538

 
10,525

Decommissioning and other asset retirement obligations, net of current portion
47,887

 
49,983

Other liabilities
17,953

 
18,122

Total long-term liabilities
921,490

 
923,591

Commitments and contingencies
 

 
 

Equity:
 

 
 

TETRA stockholders' equity:
 

 
 

Common stock, par value $0.01 per share; 100,000,000 shares authorized; 82,924,318 shares issued at June 30, 2015 and 82,322,876 shares issued at December 31, 2014
829

 
823

Additional paid-in capital
244,053

 
241,166

Treasury stock, at cost; 2,731,509 shares held at June 30, 2015, and 2,672,930 shares held at December 31, 2014
(16,664
)
 
(16,419
)
Accumulated other comprehensive income (loss)
(33,644
)
 
(26,215
)
Retained earnings
180,835

 
170,358

Total TETRA stockholders' equity
375,409

 
369,713

Noncontrolling interests
379,635

 
395,888

Total equity
755,044

 
765,601

Total liabilities and equity
$
2,003,645

 
$
2,067,633

 

See Notes to Consolidated Financial Statements

4



TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)  
 
Six Months Ended 
 June 30,
 
2015
 
2014
Operating activities:
 

 
 

Net income (loss)
$
11,743

 
$
(7,640
)
Reconciliation of net income (loss) to cash provided by operating activities:
 
 
 
Depreciation, amortization, and accretion
77,410

 
45,047

Provision (benefit) for deferred income taxes
(953
)
 
(12,932
)
Equity-based compensation expense
4,197

 
3,273

Provision for doubtful accounts
1,354

 
(10
)
Excess decommissioning and abandoning costs
6

 
18,965

Other non-cash charges and credits
(109
)
 
(3,272
)
Gain on sale of assets
(2,306
)
 
(239
)
Changes in operating assets and liabilities, net of assets acquired:
 

 
 

Accounts receivable
31,137

 
10,198

Inventories
6,148

 
8,979

Prepaid expenses and other current assets
(2,092
)
 
3,820

Trade accounts payable and accrued expenses
(43,079
)
 
6,536

Decommissioning liabilities, net
(4,411
)
 
(29,766
)
Other
3,117

 
(2,339
)
Net cash provided by operating activities
82,162

 
40,620

Investing activities:
 

 
 

Purchases of property, plant, and equipment
(73,269
)
 
(52,240
)
Acquisition of businesses, net of cash acquired

 
(18,337
)
Proceeds on sale of property, plant, and equipment
3,943

 
4,250

Other investing activities
(323
)
 
(935
)
Net cash used in investing activities
(69,649
)
 
(67,262
)
Financing activities:
 

 
 

Proceeds from long-term debt
203,871

 
76,450

Principal payments on long-term debt
(203,045
)
 
(47,626
)
CCLP distributions
(18,723
)
 
(2,508
)
Proceeds from exercise of stock options
101

 
391

Other financing activities
(244
)
 
(369
)
Net cash provided by (used in) financing activities
(18,040
)
 
26,338

Effect of exchange rate changes on cash
(916
)
 
(881
)
Decrease in cash and cash equivalents
(6,443
)
 
(1,185
)
Cash and cash equivalents at beginning of period
48,384

 
38,754

Cash and cash equivalents at end of period
$
41,941

 
$
37,569

Supplemental cash flow information:
 

 
 
Interest paid
$
28,418

 
$
8,916

Income taxes paid
4,814

 
6,972



See Notes to Consolidated Financial Statements

5



TETRA Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE A – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
We are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, water management, frac flowback, production well testing, offshore rig cooling, compression services and equipment, and selected offshore services including well plugging and abandonment, decommissioning, and diving. We also have a limited domestic oil and gas production business. We were incorporated in Delaware in 1981 and are composed of five reporting segments organized into four divisions – Fluids, Production Testing, Compression, and Offshore. Unless the context requires otherwise, when we refer to “we,” “us,” and “our,” we are describing TETRA Technologies, Inc. and its consolidated subsidiaries on a consolidated basis.
 
The consolidated financial statements include the accounts of our wholly owned subsidiaries. We consolidate the financial statements of CSI Compressco LP and its subsidiaries ("CCLP") as part of our Compression segment. We control CCLP through our ownership of its general partner. The public ownership share of CCLP's net assets and earnings is presented as a component of noncontrolling interest in our consolidated financial statements. Investments in unconsolidated joint ventures in which we participate are accounted for using the equity method. Our interests in oil and gas properties are proportionately consolidated. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
As a result of CCLP's acquisition of Compressor Systems, Inc. ("CSI") on August 4, 2014, our Compression Division's operations have significantly expanded. See Note B - Acquisitions for further discussion.

The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission ("SEC") and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, the information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2014 .

Certain previously reported financial information has been reclassified to conform to the current year period’s presentation. The impact of such reclassifications was not significant to the prior year period’s overall presentation. These reclassifications include the final allocation of the purchase price of CSI. See Note B - Acquisitions for further discussion.

Beginning in 2014, and continuing into mid-2015, significant decreases in oil and natural gas commodity prices lowered the capital expenditure and operating plans of many of our customers, creating additional uncertainty regarding the expected demand for many of our products and services and the resulting cash flows from operating activities for the foreseeable future. In addition, the availability of new borrowings in the current capital markets is more limited and costly. Accordingly, we continue to implement cost reduction measures designed to lower our cost structure in the current market environment, and have taken other steps to improve our operating cash flows. In addition, we are considering certain financing transactions with a view of generating additional cash to reduce the amount of our outstanding borrowings under our credit agreement, repay or refinance certain of our senior notes, and generate additional liquidity. We believe the steps taken have enhanced our operating cash flows and will continue to enhance our operating cash flows in the future. As a result, we believe that, despite the current industry environment and activity levels, we will have adequate liquidity to fund our operations and debt obligations and maintain compliance with debt covenants through June 30, 2016, including the repayment of the $90.0 million principal amount of the Series 2006-A Senior Notes, which mature in April 2016. However, we cannot predict how an extended period of low commodity prices will affect our operations and liquidity levels.

Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and

6



expenses during the reporting period. For further discussion of fair value measurements in connection with the allocation of the purchase price of the CSI acquisition, see Note B - Acquisitions. Actual results could differ from those estimates, and such differences could be material.

Cash Equivalents
 
We consider all highly liquid cash investments, with a maturity of three months or less when purchased, to be cash equivalents.
 
Restricted Cash
 
Restricted cash is classified as a current asset when it is expected to be repaid or settled in the next twelve month period. Restricted cash reported on our balance sheet as of June 30, 2015 consists primarily of escrowed cash associated with our July 2011 purchase of a heavy lift derrick barge. The escrowed cash will be released to the sellers or us in accordance with the terms of the escrow agreement.
 
Inventories
 
Inventories are stated at the lower of cost or market value. The cost of finished goods, raw materials, and parts and supplies are determined using the weighted average method. The cost of work in progress is determined using the specific identification method.

Significant components of inventories as of June 30, 2015 , and December 31, 2014 , are as follows: 
 
June 30, 2015
 
December 31, 2014
 
(In Thousands)
Finished goods
$
54,502

 
$
62,188

Raw materials
3,318

 
5,005

Parts and supplies
53,282

 
51,229

Work in progress
70,840

 
70,935

Total inventories
$
181,942

 
$
189,357


Finished goods inventories include newly manufactured clear brine fluids as well as recycled brines that are repurchased from certain customers. Recycled brines are recorded at cost, using the weighted average method. Work in progress inventory consists primarily of new compressor packages located in the CCLP fabrication facility in Midland, Texas. We provide a reserve for estimated unrealizable inventory equal to the difference between the cost of inventory and its estimated realizable value.
 
Net Income (Loss) per Share
 
The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income (loss) per common and common equivalent share:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
 
(In Thousands)
Number of weighted average common shares outstanding
79,165

 
78,525

 
79,037

 
78,416

Assumed exercise of stock awards
750

 

 
469

 

Average diluted shares outstanding
79,915

 
78,525

 
79,506

 
78,416

 
For the three and six month periods ended June 30, 2015, the average diluted shares outstanding excludes the impact of 3,618,107 and 3,494,752 , respectively, of average outstanding stock awards that have exercise prices in excess of the average market price, as the inclusion of these shares would have been antidilutive. For the three and six month periods ended June 30, 2014 , the average diluted shares outstanding excludes the impact of all

7



outstanding stock awards, as the inclusion of these shares would have been antidilutive due to the net losses recorded during the periods.

Services and Rentals Revenues and Costs

A portion of our services and rentals revenues consist of lease rental income pursuant to operating lease arrangements for compressors and other equipment assets. For the three and six month periods ended June 30, 2015 and 2014 , the following operating lease revenues and associated costs were included in services and rentals revenues and cost of services and rentals, respectively, in the accompanying consolidated statements of operations.

Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,

2015
 
2014
 
2015

2014

(In Thousands)
Rental revenue
$
38,242

 
$
5,995

 
$
91,017

 
$
13,511

Cost of rental revenue
$
22,812

 
$
2,119

 
$
44,341

 
$
4,046


Foreign Currency Translation
 
We have designated the euro, the British pound, the Norwegian krone, the Canadian dollar, the Brazilian real, the Argentine peso, and the Mexican peso as the functional currency for our operations in Finland and Sweden, the United Kingdom, Norway, Canada, Brazil, Argentina, and certain of our operations in Mexico, respectively. The U.S. dollar is the designated functional currency for all of our other foreign operations. The cumulative translation effects of translating the accounts from the functional currencies into the U.S. dollar at current exchange rates are included as a separate component of equity. Foreign currency exchange gains and (losses) are included in Other Expense and totaled $(1.5) million and $(2.2) million during the three and six month periods ended June 30, 2015 , respectively, and $(0.2) million and $(0.9) million during the three and six months ended June 30, 2014 , respectively.

Income Taxes

Our consolidated effective tax rates for the three and six month periods ended June 30, 2015, include the effects of changes in our expected valuation allowance at the end of 2015 related to our deferred tax assets, such as our U.S. net operating loss carryforward. In 2014, we increased our valuation allowance, primarily on our U.S. deferred tax assets after considering all available positive and negative evidence related to the realizability of our deferred tax assets. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.
 
Fair Value Measurements
 
Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that may differ from the transaction price or market price of the asset or liability.
 
Under generally accepted accounting principles, the fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value. Fair value measurements should maximize the use of observable inputs and minimize the use of unobservable inputs, where possible. Observable inputs are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs may be needed to measure fair value in situations where there is little or no market activity for the asset or liability at the measurement date and are developed based on the best information available in the circumstances, which could include the reporting entity’s own judgments about the assumptions market participants would utilize in pricing the asset or liability.
 
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized in the allocation of purchase consideration

8



for acquisition transactions to the assets and liabilities acquired, including intangible assets and goodwill. In addition, we utilize fair value measurements in the initial recording of our decommissioning and other asset retirement obligations. Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets, including goodwill. The fair value of our financial instruments, which include cash, restricted cash, accounts receivable, short-term borrowings, and long-term debt pursuant to our bank credit agreements, approximate their carrying amounts. The aggregate fair values of our long-term Senior Notes and Senior Secured Notes (as such terms are herein defined) at June 30, 2015 and December 31, 2014, were approximately $194.2 million and $310.7 million , respectively, compared to carrying amounts of $265.0 million and $305.0 million , respectively, as current interest rates on those dates were different than the stated interest rates on the Senior Notes and Senior Secured Notes. The fair values of the CCLP Senior Notes (as herein defined) at June 30, 2015 and December 31, 2014, respectively, were approximately $336.9 million (a level 2 fair value measurement) and $354.9 million compared to a face amount of approximately $ 350.0 million (See Note C - Long-Term Debt and Other Borrowings, for further discussion). We calculate the fair values of our Senior Notes and Senior Secured Notes as of June 30, 2015 (excluding the CCLP Senior Notes, which are publicly traded) internally, using current market conditions and average cost of debt (a level 2 fair value measurement).

The fair value of the liability for the WIT Water Transfer, LLC (acquired in January 2014 and doing business as TD Water Transfer) contingent purchase price consideration at June 30, 2015 , was $0 . We calculate the fair value of the liability for our contingent purchase price consideration obligation in accordance with the TD Water Transfer share purchase agreement based upon a probability weighted calculation using the actual and anticipated earnings of the acquired operations (a level 3 fair value measurement). We also utilize fair value measurements on a recurring basis in the accounting for our foreign currency forward sale derivative contracts. For these fair value measurements, we utilize the quoted value as determined by our counterparty financial institution (a level 2 fair value measurement). A summary of these fair value measurements as of June 30, 2015 and December 31, 2014, is as follows:
 
 
 
Fair Value Measurements Using
 
Total as of
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Description
June 30, 2015
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
(In Thousands)
Asset for foreign currency derivative contracts
$
128

 

 
128

 

Liability for foreign currency derivative contracts
(145
)
 

 
(145
)
 

Acquisition contingent consideration liability

 

 

 

Net liability
$
(17
)
 
 
 
 
 
 

 
 
 
Fair Value Measurements Using
 
Total as of
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Description
Dec 31, 2014
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
(In Thousands)
Asset for foreign currency derivative contracts
$

 
$

 

 

Liability for foreign currency derivative contracts
(174
)
 

 
(174
)
 

Acquisition contingent consideration liability

 

 

 

Net liability
$
(174
)
 


 

 


9




New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers" (Topic 606). ASU No. 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for our first quarter in fiscal 2017, pending a one year deferral currently under consideration by the FASB, under either full or modified retrospective adoption. Early application is not permitted. We are currently assessing the potential effects of these changes to our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern” (Topic 250). The ASU provides guidance on management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and in certain circumstances to provide related footnote disclosures. The ASU is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-01, “Income Statements - Extraordinary and Unusual Items” (Sub-Topic 225-20), which eliminates from U.S. GAAP the concept of extraordinary items. The guidance eliminates the separate presentation of extraordinary items on the income statement, net of tax and the related earnings per share, but does not affect the requirement to disclose material items that are unusual in nature or occurring infrequently. The ASU is effective for the annual period beginning after December 15, 2015 and interim periods within those annual periods, with early adoption permitted, and may be applied prospectively or retrospectively. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”.  The ASU requires entities that have historically presented debt issuance costs as an asset to present those costs as a direct deduction from the carrying amount of the related debt liability. This presentation will result in the debt issuance costs being presented the same way debt discounts have historically been handled. The ASU does not change the recognition, measurement, or subsequent measurement guidance for debt issuance costs. The ASU is effective for the annual period beginning after December 15, 2015 and interim periods within those annual periods and is to be applied retrospectively.  Early adoption is permitted. We plan to adopt this change retrospectively, and do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

NOTE B – ACQUISITIONS

Acquisition of Compressor Systems, Inc.

On August 4, 2014 , a subsidiary of CCLP acquired all of the outstanding capital stock of CSI, for $ 825.0 million cash (the "CSI Acquisition"). Prior to the acquisition, CSI owned one of the largest fleets of natural gas compressor packages in the United States. Headquartered in Midland, Texas, CSI fabricates, sells, and maintains natural gas compressors and provides a full range of compression products and services that covers compression needs throughout the entire natural gas production and transportation cycle to natural gas and oil producing clients. CSI derives revenues through three primary business lines: compression and related services, equipment and parts sales, and aftermarket services. Strategically, the acquisition affords the Compression Division the opportunity to capture significant synergies associated with its product and service offerings and its fabrication operations, to further penetrate new and existing markets, and to achieve administrative efficiencies and other strategic benefits.
    
Our allocation of the purchase price to the estimated fair value of the CSI net assets is as follows (in thousands):

10



Current assets
$
101,411

Property and equipment
571,706

Intangible assets
68,000

Goodwill
161,387

Total assets acquired
902,504

 
 
Current liabilities
77,504

Total liabilities assumed
77,504

Net assets acquired
$
825,000

The allocation of purchase price includes approximately $161.4 million allocated to deductible goodwill recorded, and is supported by the strategic benefits discussed above that are expected to be generated from the acquisition. Adjustments to the allocation of purchase price affecting inventory, property, plant, and equipment, intangible assets, and other current assets and liabilities have been reflected in the accompanying consolidated balance sheets as of June 30, 2015 and December 31, 2014. The adjustment to the previously presented goodwill balance as of December 31, 2014 was $0.1 million . These adjustments to the allocation of purchase price for long-lived assets did not have a material impact on the depreciation and amortization of these assets. The acquired property, plant, and equipment is stated at fair value, and depreciation on the acquired property, plant, and equipment is computed using the straight-line method over the estimated useful lives of each asset. Buildings are depreciated using useful lives of 15 to 30 years. Machinery and equipment is depreciated using useful lives of 2 to 16 years. Automobiles and trucks are depreciated using useful lives of 3 to 4 years. The acquired intangible assets represent approximately $33.7 million for the trademark/trade name, approximately $21.4 million for customer relationships, and approximately $12.9 million of other intangible assets that are stated at estimated fair value and are amortized on a straight-line basis over their estimated useful lives, ranging from 2 to 15 years. These identified intangible assets are recorded net of approximately $ 9.7 million of accumulated amortization as of June 30, 2015.

For the three month period ended June 30, 2015 , our revenues, depreciation and amortization, and pretax earnings, excluding $8.0 million of allocated interest and administrative expense, included $ 96.3 million , $ 16.5 million , and $6.7 million , respectively, associated with the CSI Acquisition. For the six month period ended June 30, 2015 , our revenues, depreciation and amortization, and pretax earnings, excluding $15.8 million of allocated interest and administrative expense, included $167.5 million , $32.4 million , and $13.6 million , respectively, associated with the CSI Acquisition. Approximately $16.6 million of deferred financing costs related to the CSI Acquisition were incurred as of the acquisition date and included in other assets and will be amortized over the term of the related debt. An additional $9.3 million of interim financing costs related to the CSI Acquisition were incurred and reflected in other expense during the year ended December 31, 2014.

Pro Forma Financial Information

The pro forma information presented below has been prepared to give effect to the acquisition of CSI as if the transaction had occurred at the beginning of the period presented. The pro forma information includes the impact from the allocation of the acquisition purchase price on depreciation and amortization. The pro forma information is presented for illustrative purposes only and is based on estimates and assumptions we deemed appropriate. The following pro forma information is not necessarily indicative of the historical results that would have been achieved if the acquisition transactions had occurred in the past, and our operating results may have been different from those reflected in the pro forma information below. Therefore, the pro forma information should not be relied upon as an indication of the operating results that we would have achieved if the transaction had occurred at the beginning of the period presented or the future results that we will achieve after the transaction.

11



 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2014
 
2014
 
(In Thousands, Except Per Share Amounts)
 
 
 
 
Revenues
$
319,807

 
$
625,696

Depreciation, amortization, and accretion
$
36,892

 
$
74,616

Gross profit
$
48,404

 
$
89,176

 
 
 

Net income (loss)
$
(4,496
)
 
$
(11,303
)
Net income (loss) attributable to TETRA stockholders
$
(5,607
)
 
$
(14,612
)
 
 
 
 
Per share information:
 
 
 
Net income (loss) attributable to TETRA stockholders
 
 
 
Basic
$
(0.07
)
 
$
(0.19
)
Diluted
$
(0.07
)
 
$
(0.19
)

NOTE C – LONG-TERM DEBT AND OTHER BORROWINGS
 
Our consolidated capital structure changed significantly during 2014 as a result of the CSI Acquisition. Because of the increased level of consolidated debt, it is increasingly important to consider TETRA's capital structure and CCLP's capital structure separately, as we have no cross default provisions, cross collateralization provisions, or cross guarantees with CCLP's debt, nor does CCLP with TETRA's debt.

Long-term debt consists of the following:
 
 
 
June 30, 2015
 
December 31, 2014
 
 
 
(In Thousands)
 
 
 
 
 
 
TETRA
 
Scheduled Maturity
 
 
 
Bank revolving line of credit facility
 
September 30, 2019
$
92,900

 
$
90,000

5.90% Senior Notes, Series 2006-A
 
April 30, 2016
90,000

 
90,000

6.56% Senior Notes, Series 2008-B
 
April 30, 2015

 
90,000

5.09% Senior Notes, Series 2010-A
 
December 15, 2017
65,000

 
65,000

5.67% Senior Notes, Series 2010-B
 
December 15, 2020
25,000

 
25,000

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

 
35,000

Secured Notes
 
April 1, 2017
50,000

 

Other
 
 

 
74

TETRA Total debt
 
 
357,900

 
395,074

Less current portion
 
 
(90,000
)
 
(90,074
)
TETRA Total long-term debt
 
 
$
267,900

 
$
305,000

 
 
 
 
 
 
CCLP
 
 
 
 
 
CCLP Bank Credit Facility
 
August 4, 2019
233,000

 
195,000

CCLP 7.25% Senior Notes (presented net of unamortized discount of $4.8 million as of June 30, 2015 and December 31, 2014)
 
August 15, 2022
345,212

 
344,961

CCLP total long-term debt
 
 
578,212

 
539,961

Consolidated total long-term debt
 
 
$
846,112

 
$
844,961



12



We and CCLP are in compliance with all covenants and conditions of our respective debt agreements as of June 30, 2015 .

Our Senior Secured Notes

On March 18, 2015 , we entered into a Note Purchase Agreement (the "Note Purchase Agreement") with Wells Fargo Energy Capital, Inc., in its capacity as noteholder representative for the noteholders (the "Noteholder Representative"), and Wells Fargo Energy Capital, Inc., in its capacity as the sole initial purchaser. The Note Purchase Agreement relates to the issuance and sale of $50.0 million aggregate principal amount of Senior Secured Notes due April 1, 2017 (the "Senior Secured Notes"). On April 30, 2015, we completed the issuance and sale of the Senior Secured Notes in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"). The proceeds from these Senior Secured Notes were used to provide a portion of the funds necessary to repay the $90.0 million principal amount repayment of the Series 2008-B Senior Notes that matured on April 30, 2015 . The Senior Secured Notes are secured by our accounts receivable (excluding CCLP accounts receivable) and our limited partner interest in CCLP, and the related Note Purchase Agreement includes financial covenants consistent with those applicable to our existing bank revolving credit facility.

The principal portion of each of the Senior Secured Notes consists of tranches that bear interest at LIBOR, as defined in the Note Purchase Agreement, plus an applicable margin ("LIBOR Tranches") and tranches that bear interest at the Base Rate plus an applicable margin ("Base Rate Tranches"), as we may request in accordance with the Note Purchase Agreement. The initial Senior Secured Note consists of a LIBOR Tranche and the interest rate at closing and as of June 30, 2015 is 3.94% per annum. We may convert the LIBOR Tranche into a Base Rate Tranche in accordance with the Note Purchase Agreement. The Note Purchase Agreement contains customary covenants and default and cross-default provisions consistent with the agreements governing our other TETRA indebtedness.

NOTE D – DECOMMISSIONING AND OTHER ASSET RETIREMENT OBLIGATIONS
 
The large majority of our asset retirement obligations consists of the remaining future well abandonment and decommissioning costs for offshore oil and gas properties and platforms owned by our Maritech subsidiary, including the decommissioning and debris removal costs associated with its remaining offshore platforms previously destroyed by hurricanes. The amount of decommissioning liabilities recorded by Maritech is reduced by amounts allocable to joint interest owners. We also operate facilities in various U.S. and foreign locations that are used in the manufacture, storage, and sale of our products, inventories, and equipment. These facilities are a combination of owned and leased assets.

The values of our asset retirement obligations for non-Maritech properties were approximately $8.7 million and $8.4 million as of June 30, 2015 and December 31, 2014 , respectively. We are required to take certain actions in connection with the retirement of these assets. We have reviewed our obligations in this regard in detail and estimated the cost of these actions. The original estimates are the fair values that have been recorded for retiring these long-lived assets. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The costs for non-oil and gas assets are depreciated on a straight-line basis over the life of the asset.

The changes in the asset retirement obligations during the three and six month periods ended June 30, 2015 , are as follows:

13



 
Three Months Ended June 30, 2015
 
Six Months Ended June 30, 2015
 
(In Thousands)
Beginning balance for the period, as reported
$
62,640

 
$
62,741

Activity in the period:


 

Accretion of liability
422

 
841

Retirement obligations incurred

 

Revisions in estimated cash flows
191

 
237

Settlement of retirement obligations
(3,845
)
 
(4,411
)
Ending balance
$
59,408

 
$
59,408


We review the adequacy of our decommissioning liabilities whenever indicators suggest that the estimated cash flows underlying the liabilities have changed. For our Maritech segment, the timing and amounts of these cash flows are subject to changes in the energy industry environment and other factors and may result in additional liabilities to be recorded.

Asset retirement obligations are recorded in accordance with FASB ASC 410, whereby the estimated fair value of a liability for asset retirement obligations is recorded in the period in which it is incurred and in which a reasonable estimate can be made. Such estimates are based on relevant assumptions that we believe are reasonable. The cost estimates for Maritech asset retirement obligations are considered reasonable estimates consistent with current market conditions, and we believe reflect the amount of work legally required to be performed in accordance with Bureau of Safety and Environmental Enforcement ("BSEE") standards, as revised from time to time.

NOTE E – MARKET RISKS AND DERIVATIVE CONTRACTS
 
We are exposed to financial and market risks that affect our businesses. We have currency exchange rate risk exposure related to transactions denominated in a foreign currency as well as to investments in certain of our international operations. As a result of our variable rate bank credit facilities, including the variable rate credit facility of CCLP, we face market risk exposure related to changes in applicable interest rates. We have concentrations of credit risk as a result of trade receivables owed to us by companies in the energy industry. Our financial risk management activities may at times involve, among other measures, the use of derivative financial instruments, such as swap and collar agreements, to hedge the impact of market price risk exposures.

Derivative Contracts

Foreign Currency Derivative Contracts . As of June 30, 2015 , we and CCLP had the following foreign currency derivative contracts outstanding relating to portions of our foreign operations:
Derivative Contracts
 
US Dollar Notional Amount
 
Traded Exchange Rate
 
Settlement Date

 
(In Thousands)
 

 

Forward purchase Euro
 
$
2,403

 
1.12
 
7/17/2015
Forward purchase pounds sterling
 
$
7,491

 
1.57
 
7/17/2015
Forward sale Canadian dollar
 
$
2,918

 
1.25
 
7/17/2015
Forward sale Mexican peso
 
$
7,617

 
15.71
 
7/17/2015
Forward sale Norwegian krone
 
$
1,640

 
7.84
 
7/17/2015
Forward sale Saudi Arabia Riyal
 
$
1,000

 
3.75
 
7/17/2015
Forward sale Canadian dollar
 
$
780

 
1.25
 
7/17/2015
Forward sale Mexican peso
 
$
2,066

 
15.71
 
7/17/2015

Under a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries, we and CCLP may enter into similar derivative contracts from time to time. Although contracts pursuant to this program will serve as an economic hedge of the cash flow of our currency exchange risk

14



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 (a level 2 fair value measurement). The fair values of our and CCLP's foreign currency derivative instruments as of June 30, 2015 and December 31, 2014, are as follows:
Foreign currency derivative instruments
Balance Sheet Location
 
 Fair Value at
June 30, 2015
 
 Fair Value at December 31, 2014

 

 
(In Thousands)
Forward purchase contracts
 
Current assets
 
$
128

 
$

Forward sale contracts
 
Current liabilities
 
(115
)
 
(91
)
Forward purchase contracts
 
Current liabilities
 
(30
)
 
(83
)
Net liability
 

 
$
(17
)
 
$
(174
)

None of the foreign currency derivative contracts contain credit risk related contingent features that would require us to post assets or collateral for contracts that are classified as liabilities. During the three and six month periods ended June 30, 2015 , we recognized approximately $0.2 million and $0.3 million , respectively, of net gains in other income (expense) associated with our foreign currency derivative program.

NOTE F – EQUITY
 
Changes in equity for the three and six month periods ended June 30, 2015 and 2014 are as follows:
 
Three Months Ended June 30,
 
2015
 
2014
 
TETRA
 
Non-
controlling
Interest
 
Total
 
TETRA
 
Non-
controlling
Interest
 
Total
 
(In Thousands)
Beginning balance for the period
$
356,679

 
$
387,916

 
$
744,595

 
$
548,062

 
$
41,585

 
$
589,647

Net income (loss)
14,925

 
442

 
15,367

 
(2,457
)
 
907

 
(1,550
)
Foreign currency translation adjustment, including taxes of $0 in 2015 and taxes of $(750) in 2014
2,358

 

 
2,358

 
3,244

 

 
3,244

Comprehensive income (loss)
17,283

 
442

 
17,725

 
787

 
907

 
1,694

Exercise of common stock options
(183
)
 

 
(183
)
 
105

 

 
105

Distributions to public unitholders

 
(9,450
)
 
(9,450
)
 

 
(1,265
)
 
(1,265
)
Equity-based compensation
1,874

 
727

 
2,601

 
1,184

 
235

 
1,419

Treasury stock and other
(244
)
 

 
(244
)
 
(352
)
 
(34
)
 
(386
)
Tax adjustment upon cancellation of stock options

 

 

 
(132
)
 

 
(132
)
Ending balance as of June 30
$
375,409

 
$
379,635

 
$
755,044

 
$
549,654

 
$
41,428

 
$
591,082


15




 
Six Months Ended June 30,
 
2015
 
2014
 
TETRA
 
Non-
controlling
Interest
 
Total
 
TETRA
 
Non-
controlling
Interest
 
Total
 
(In Thousands)
Beginning balance for the period
$
369,713

 
$
395,888

 
$
765,601

 
$
555,541

 
$
41,957

 
$
597,498

Net income (loss)
10,477

 
1,266

 
11,743

 
(9,391
)
 
1,751

 
(7,640
)
Foreign currency translation adjustment, including taxes of $0 in 2015 and taxes of $446 in 2014
(7,429
)
 

 
(7,429
)
 
777

 

 
777

Comprehensive Income (loss)
3,048

 
1,266

 
4,314

 
(8,614
)
 
1,751

 
(6,863
)
Exercise of common stock options
101

 

 
101

 
391

 

 
391

Distributions to public unitholders

 
(18,723
)
 
(18,723
)
 

 
(2,508
)
 
(2,508
)
Equity-based compensation
2,993

 
1,204

 
4,197

 
2,836

 
437

 
3,273

Treasury stock and other
(244
)
 


 
(244
)
 
(368
)
 
(209
)
 
(577
)
Tax adjustment upon cancellation of stock options
(202
)
 

 
(202
)
 
(132
)
 

 
(132
)
Ending balance as of June 30
$
375,409

 
$
379,635

 
$
755,044

 
$
549,654

 
$
41,428

 
$
591,082


Activity within the foreign currency translation adjustment account during the periods includes no reclassifications to net income.

NOTE G – COMMITMENTS AND CONTINGENCIES
 
Litigation
 
We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.
 
Environmental
 
One of our subsidiaries, TETRA Micronutrients, Inc. ("TMI"), previously owned and operated a production facility located in Fairbury, Nebraska. TMI is subject to an Administrative Order on Consent issued to American Microtrace, Inc. (n/k/a/ TETRA Micronutrients, Inc.) in the proceeding styled In the Matter of American Microtrace Corporation , EPA I.D. No. NED00610550, Respondent, Docket No. VII-98-H-0016, dated September 25, 1998 (the "Consent Order"), with regard to the Fairbury facility. TMI is liable for future remediation costs and ongoing environmental monitoring at the Fairbury facility under the Consent Order; however, the current owner of the Fairbury facility is responsible for costs associated with the closure of that facility. While the outcome cannot be predicted with certainty, management does not consider it reasonably possible that a loss in excess of any amounts accrued has been incurred or is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.

NOTE H – INDUSTRY SEGMENTS
 
We manage our operations through five reporting segments organized into four divisions: Fluids, Production Testing, Compression, and Offshore.
 
Our Fluids Division manufactures and markets clear brine fluids, additives, and associated products and services to the oil and gas industry for use in well drilling, completion, and workover operations in the United States and in certain countries in Latin America, Europe, Asia, the Middle East, and Africa. The Division also markets liquid and dry calcium chloride products manufactured at its production facilities or purchased from third-party suppliers to

16



a variety of markets outside the energy industry. The Fluids Division also provides domestic onshore oil and gas operators with comprehensive water management services.
 
Our Production Testing Division provides frac flowback, production well testing, offshore rig cooling, and other associated services in many of the major oil and gas producing regions in the United States, Mexico, and Canada, as well as in certain basins in certain regions in South America, Africa, Europe, the Middle East, and Australia.
 
The Compression Division is a provider of compression services and equipment for natural gas and oil production, gathering, transportation, processing, and storage. The Compression Division's equipment and parts sales business includes the fabrication and sale of standard compressor packages, custom-designed compressor packages, and oilfield pump systems designed and fabricated at the Division's facilities as well as the sale of compressor package parts and components manufactured by third-party suppliers. The Compression Division's aftermarket services business provides compressor package reconfiguration and maintenance services. The Compression Division provides its services and equipment to a broad base of natural gas and oil exploration and production, midstream, transmission, and storage companies operating throughout many of the onshore producing regions of the United States as well as in a number of foreign countries, including Mexico, Canada, and Argentina. As a result of the August 4, 2014 acquisition of CSI, we have significantly expanded the scope of our Compression Division.
 
Our Offshore Division consists of two operating segments: Offshore Services and Maritech. The Offshore Services segment provides (1) downhole and subsea services such as well plugging and abandonment and workover 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 saturation diving services.
 
The Maritech segment is a limited oil and gas production operation. During 2011 and the first quarter of 2012, Maritech sold substantially all of its oil and gas producing property interests. Maritech’s operations consist primarily of the ongoing abandonment and decommissioning associated with its remaining offshore wells and production platforms. Maritech intends to acquire a significant portion of these services from the Offshore Division’s Offshore Services segment.
 
We generally evaluate the performance of and allocate resources to our segments based on profit or loss from their operations before income taxes and nonrecurring charges, return on investment, and other criteria. Transfers between segments and geographic areas are priced at the estimated fair value of the products or services as negotiated between the operating units. “Corporate Overhead” includes corporate general and administrative expenses, corporate depreciation and amortization, interest income and expense, and other income and expense.

 Summarized financial information concerning the business segments is as follows:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
 
(In Thousands)
Revenues from external customers
 

 
 

 
 

 
 

Product sales
 

 
 

 
 
 
 
Fluids Division
$
99,930

 
$
78,905

 
$
164,924

 
$
152,325

Production Testing Division

 

 

 

Compression Division
48,968

 
2,065

 
67,119

 
3,902

Offshore Division
 

 
 

 
 
 
 

Offshore Services
360

 
354

 
595

 
473

Maritech
394

 
1,547

 
1,900

 
2,923

Total Offshore Division
754

 
1,901

 
2,495

 
3,396

Consolidated
$
149,652

 
$
82,871

 
$
234,538

 
$
159,623

 
 
 
 
 
 
 
 

17



 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
 
(In Thousands)
Services and rentals
 

 
 

 
 
 
 
Fluids Division
$
23,026

 
$
37,423

 
57,308

 
$
69,163

Production Testing Division
33,692

 
41,292

 
69,601

 
84,306

Compression Division
77,487

 
29,950

 
162,225

 
57,877

Offshore Division
 

 
 

 
 

 
 

Offshore Services
35,371

 
55,887

 
46,919

 
91,098

Maritech

 

 

 

Intersegment eliminations
(2,909
)
 
(4,934
)
 
(3,180
)
 
(6,721
)
Total Offshore Division
32,462

 
50,953

 
43,739

 
84,377

Consolidated
$
166,667

 
$
159,618

 
$
332,873

 
$
295,723

 
 
 
 
 
 
 
 
Interdivision revenues
 

 
 

 
 
 
 
Fluids Division
$
18

 
$
322

 
$
31

 
$
307

Production Testing Division
1,150

 
1,085

 
2,342

 
1,709

Compression Division

 

 

 

Offshore Division
 

 
 

 
 

 
 

Offshore Services

 

 

 

Maritech

 

 

 

Intersegment eliminations

 

 

 

Total Offshore Division

 

 

 

Interdivision eliminations
(1,168
)
 
(1,407
)
 
(2,373
)
 
(2,016
)
Consolidated
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
Total revenues
 

 
 

 
 
 
 
Fluids Division
$
122,974

 
$
116,650

 
$
222,263

 
$
221,795

Production Testing Division
34,842

 
42,377

 
71,943

 
86,015

Compression Division
126,455

 
32,015

 
229,344

 
61,779

Offshore Division
 

 
 

 
 
 
 

Offshore Services
35,731

 
56,241

 
47,514

 
91,571

Maritech
394

 
1,547

 
1,900

 
2,923

Intersegment eliminations
(2,909
)
 
(4,934
)
 
(3,180
)
 
(6,721
)
Total Offshore Division
33,216

 
52,854

 
46,234

 
87,773

Interdivision eliminations
(1,168
)
 
(1,407
)
 
(2,373
)
 
(2,016
)
Consolidated
$
316,319

 
$
242,489

 
$
567,411

 
$
455,346

 
 
 
 
 
 
 
 

18



 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
 
(In Thousands)
Income (loss) before taxes
 

 
 

 
 
 
 
Fluids Division
$
32,583

 
$
17,059

 
$
50,320

 
$
35,536

Production Testing Division
(472
)
 
(249
)
 
(433
)
 
(3,047
)
Compression Division
1,498

 
5,477

 
3,904

 
10,664

Offshore Division
 

 
 

 
 
 
 

Offshore Services
2,095

 
1,833

 
(6,553
)
 
(6,139
)
Maritech
(313
)
 
(10,698
)
 
662

 
(17,237
)
Intersegment eliminations

 

 

 

Total Offshore Division
1,782

 
(8,865
)
 
(5,891
)
 
(23,376
)
Interdivision eliminations
(12
)
 
3

 
(10
)
 
6

Corporate Overhead (1)
(17,271
)
 
(15,919
)
 
(31,837
)
 
(32,960
)
Consolidated
$
18,108

 
$
(2,494
)
 
$
16,053

 
$
(13,177
)

 
June 30,
 
2015
 
2014
 
(In Thousands)
Total assets
 

 
 

Fluids Division
$
408,144

 
$
493,793

Production Testing Division
208,929

 
333,531

Compression Division
1,261,051

 
233,956

Offshore Division
 

 
 

Offshore Services
134,422

 
170,663

Maritech
27,267

 
20,727

Total Offshore Division
161,689

 
191,390

Corporate Overhead and eliminations
(36,168
)
 
29,596

Consolidated
$
2,003,645

 
$
1,282,266


(1)
Amounts reflected include the following general corporate expenses:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
 
(In Thousands)
General and administrative expense
$
11,688

 
$
10,064

 
$
20,537

 
$
21,458

Depreciation and amortization
254

 
527

 
512

 
1,081

Interest expense
4,415

 
4,610

 
9,412

 
9,141

Other general corporate (income) expense, net
914

 
718

 
1,376

 
1,280

Total
$
17,271

 
$
15,919

 
$
31,837

 
$
32,960


19



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report. In addition, the following discussion and analysis also should be read in conjunction with our Annual Report on Form 10-K filed with the SEC on March 2, 2015. This discussion includes forward-looking statements that involve certain risks and uncertainties.

Business Overview  

Despite continuing market challenges and increased competition levels for certain of our businesses as a result of low oil and natural gas prices, consolidated revenues and earnings during the second quarter of 2015 increased compared to the second quarter of 2014. This improved consolidated financial performance was driven by the impact of the Compression Division's August 4, 2014 acquisition of Compression Services, Inc. ("CSI"), the overall impact of ongoing company-wide cost reduction efforts, and the increased clear brine fluids ("CBF") and completion services activity of our Fluids Division, which introduced a new completion fluids technology during the first half of 2015. However, current decreased activity levels by many of our U.S. customers, which are expected to continue, have particularly affected our Offshore Services segment, Production Testing Division, and certain operations of our Fluids and Compression Divisions, prompting us to make significant reductions in our operating and administrative cost structures for these businesses. These cost reduction actions, which have included reductions in headcount, renegotiation of vendor contracts, and other cost restructuring measures, have contributed to improved profitability for certain of these businesses despite decreased revenues. The impact of these cost reduction actions, as well as the continued efforts to further reduce costs, are expected to continue to mitigate the impact of the current uncertain market environment on our financial performance. Certain of our businesses have been less affected by the current market activity levels, including the chemicals manufacturing and offshore completion services portion of our Fluids Division operations, certain of our international operations, and the medium- and high-horsepower operations of our Compression Division, each of which are less dependent on onshore domestic drilling, completion, and production enhancement activity levels. As a result of these factors, as well as the impact of the CSI acquisition and decreased Maritech excess decommissioning costs, our consolidated revenues and gross profit increased 30.4% and 96.9% , respectively, during the second quarter of 2015 compared to the corresponding prior year period.

With the acquisition by CCLP of CSI (the "CSI Acquisition"), we effected a significant change in the composition of our consolidated operations and our consolidated capital structure. Consolidated results of operations for the quarter ended June 30, 2015 , reflect the impact of the CSI Acquisition, as the operations of CSI contributed revenues of approximately $96.3 million and pretax earnings (excluding allocated interest and administrative expense) of approximately $6.7 million . Primarily as a result of increased borrowings by CCLP to fund the purchase price of the CSI Acquisition, net interest expense for the quarter ended June 30, 2015 also increased by approximately $7.7 million compared to the prior year period. The issuance of the CCLP 7.25% Senior Notes (the "CCLP Senior Notes") and borrowings under the CCLP Credit Agreement have resulted in increased levels of our consolidated debt. However, we do not analyze or manage our capital structure on a consolidated basis, as there are no cross default provisions, cross collateralization provisions, or cross guarantees between CCLP's debt and TETRA's debt. Approximately $578.2 million of our consolidated debt balance is owed by CCLP, and is to be serviced by CCLP's existing cash balances and the future cash provided by CCLP's operations (less its capital expenditures) and is secured by the assets of CCLP.

The following table provides condensed consolidating balance sheet information reflecting our net assets and CCLP's net assets that service our and its respective capital debt structures.

20



 
June 30, 2015
Condensed Consolidating Balance Sheet
TETRA
 
CCLP
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
Cash, excluding restricted cash
$
8,662

 
$
33,279

 
$

 
$
41,941

Affiliate receivables
7,351

 

 
(7,351
)
 

Other current assets
234,322

 
175,210

 

 
409,532

Property, plant and equipment, net
415,243

 
705,571

 

 
1,120,814

Other assets, including investment in CCLP
261,448

 
309,339

 
(139,429
)
 
431,358

Total assets
$
927,026

 
$
1,223,399

 
$
(146,780
)
 
$
2,003,645

 
 
 
 
 
 
 
 
Affiliate payables
$

 
$
7,351

 
$
(7,351
)
 
$

Current portion of long-term debt
90,000

 

 

 
90,000

Other current liabilities
119,691

 
117,420

 

 
237,111

Long-term debt, net
267,900

 
578,212

 

 
846,112

Other non-current liabilities
74,026

 
1,352

 

 
75,378

Total equity
375,409

 
519,064

 
(139,429
)
 
755,044

Total liabilities and equity
$
927,026

 
$
1,223,399

 
$
(146,780
)
 
$
2,003,645


TETRA’s debt is serviced by its existing cash balances and cash provided from operating activities (excluding CCLP), less cash capital expenditures (excluding CCLP), and is supplemented by the distributions we receive from CCLP. During the six months ended June 30, 2015 , consolidated cash provided from operating activities was $82.2 million , which included approximately $52.2 million generated by CCLP. Our cash provided from operating activities is reduced by the amount we spend for Maritech decommissioning liabilities, which was $4.4 million during the six months ended June 30, 2015 . During the first half of 2015, consolidated cash capital expenditures were $73.3 million , which included $57.1 million expended by CCLP. In addition, during the first six months of 2015 we received $15.0 million from CCLP as our share of CCLP distributions. 

Given the lower demand for certain of our products and services in the current oil and natural gas services market environment, the expected level of future consolidated operating cash flows, which we have historically used to fund the growth of our businesses, has become more uncertain. While remaining committed to a long-term growth strategy, our near-term focus during this period of reduced demand is to preserve and enhance liquidity through strategic operating steps, including cost structure rationalization, working capital management, and capital structure enhancements designed to strengthen our consolidated balance sheet. Our consolidated operating cash flows during the six months ended June 30, 2015 , increased to $82.2 million , an increase of $41.5 million , or 102.3% , over the prior year period. Our consolidated operating cash flows not only reflect the acquisition of CSI, but also the impact of the fiscal management steps noted above and the growth of certain of our businesses. Net cash flows utilized by investing activities were $69.6 million during the six months ended June 30, 2015, and included approximately $57.2 million of capital expenditures by our Compression Division, compared to $67.3 million during the prior year period. Excluding the growth in Compression Division capital expenditures as a result of the CSI Acquisition, our capital expenditure levels reflect our efforts to defer or reduce capital expenditure projects in the current market environment. Key objectives associated with our capital structure (excluding the capital structure of CCLP) include the ongoing management of the amounts outstanding and available under our bank revolving credit facility and repayment of the April 2016 maturity of $90.0 million of our Senior Notes. CCLP plans to continue its 2015 capital expenditure program, using its cash and available capacity under its revolving bank credit facility (the "CCLP Credit Agreement"), while monitoring demand levels for its compression products and services in the current environment. TETRA's future consolidated operating cash flows are also affected by the continuing challenges associated with extinguishing the remaining Maritech decommissioning and abandonment obligations. The amount of recorded liability for these remaining obligations is approximately $50.8 million as of June 30, 2015 . Approximately $11.5 million of this amount is expected to be performed during the twelve month period ending June 30, 2016, with the timing of a portion of this work being discretionary.

Critical Accounting Policies
 
There have been no material changes or developments in the evaluation of the accounting estimates and the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed in our Form 10-K for the year ended December 31, 2014 , except as discussed below. In preparing our consolidated

21



financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. We periodically evaluate these estimates and judgments, including those related to potential impairments of long-lived assets (including goodwill), the collectability of accounts receivable, and the cost of future abandonment and decommissioning obligations. Our estimates are based on historical experience and on future expectations that we believe are reasonable. The fair values of large portions of our total assets and liabilities are measured using significant unobservable inputs. The combination of these factors forms the basis for judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources. These judgments and estimates may change as new events occur, as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.

Goodwill Impairment Testing - Goodwill represents the excess of cost over the fair value of the net assets of businesses acquired in purchase transactions. We perform a goodwill impairment test on an annual basis or whenever indicators of impairment are present. We perform the annual test of goodwill impairment following the fourth quarter of each year. Our annual assessment for goodwill impairment begins with a qualitative assessment of whether it is “more likely than not” that the fair value of our business is less than its carrying value. If based on the events and circumstances we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we are required to perform a two-step goodwill impairment test, where the first step compares the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value is in excess of the reporting unit carrying amount, no additional steps are necessary. However, if the carrying amount of the reporting unit exceeds its estimated fair value, a second step is performed, using a hypothetical purchase price methodology to allocate total fair value to the reporting unit's balance sheet, including its long-lived property, plant and equipment assets, and identified intangible assets. The resulting allocation of fair value to goodwill is then compared to the reporting units' goodwill balance, and any excess to fair value is then recorded in our statement of operations as an impairment. Our estimates of reporting unit fair value 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.

In our most recent annual goodwill impairment assessment as of December 31, 2014 , based on our qualitative assessment, we determined that it was "more likely than not" that the fair values of one or more of our reporting units were less than their respective carrying values. As a result of the goodwill assessment analysis described above, as of December 31, 2014, we recorded an impairment of the entire $3.9 million of recorded goodwill for our Offshore Services reporting unit and a partial impairment of $60.4 million of the goodwill of our Production Testing reporting unit. As of June 30, 2015 , our Fluids, Production Testing, and Compression reporting units reflect goodwill in the amounts of $6.6 million, $53.3 million, and $233.4 million, respectively. During the first six months of 2015, global oil and natural gas commodity prices continued to be decreased compared to the prior year period. The decreased levels in commodity prices has had, and is expected to continue to have, a negative impact on industry drilling and capital expenditure activity, which affects the demand for products and services of each of our reporting units. As of June 30, 2015 , our stock price had decreased slightly compared to December 31, 2014, resulting in an overall reduction in our market capitalization. As part of the first step of our second quarter 2015 goodwill impairment testing, we updated our assessment of the future cash flows for each of our reporting units as of June 30, 2015, applying expected long-term growth rates, discount rates, and terminal values that we consider reasonable. Our Maritech and Offshore Services reporting units are excluded because they have no recorded goodwill. We calculated a present value of the respective cash flows for each of our other reporting units to arrive at an estimate of fair value under the income approach, and then used the market approach to corroborate these values. Based on these updated assumptions, we determined that the fair value of our Fluids reporting unit was significantly in excess of its carrying value. Because the fair values of our Production Testing and Compression reporting units exceeded their respective carrying values by approximately 5% and 6%, there is a reasonable possibility that the $53.3 million and $233.4 million, respectively, of goodwill for these reporting units may be impaired in a future period as a non-cash charge to earnings, and the amount of such impairments may be material. Specific uncertainties affecting the estimated fair value of our Production Testing and Compression reporting units include the impact of competition, prices of oil and natural gas, future overall activity levels in the regions in which we operate, the activity levels of our significant customers, and other factors affecting the rate of future growth of these reporting units. These factors will continue to be reviewed and assessed going forward. Negative developments with regard to these factors could have a further negative effect on the fair values of our Production Testing and Compression reporting units.

22




Results of Operations

Three months ended June 30, 2015 compared with three months ended June 30, 2014 .

Consolidated Comparisons
 
Three Months Ended 
 June 30,
 
Period to Period Change
 
2015
 
2014
 
2015 vs 2014
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
316,319

 
$
242,489

 
$
73,830

 
30.4
%
Gross profit
69,861

 
35,475

 
34,386

 
96.9
%
Gross profit as a percentage of revenue
22.1
%
 
14.6
 %
 
 

 
 

General and administrative expense
37,472

 
32,270

 
5,202

 
16.1
%
General and administrative expense as a percentage of revenue
11.8
%
 
13.3
 %
 
 

 
 

Interest expense, net
12,340

 
4,604

 
7,736

 
168.0
%
Other (income) expense, net
1,941

 
1,095

 
846

 
77.3
%
Income (loss) before taxes
18,108

 
(2,494
)
 
20,602

 
826.1
%
Income (loss) before taxes as a percentage of revenue
5.7
%
 
(1.0
)%
 
 

 
 

Provision (benefit) for income taxes
2,741

 
(944
)
 
3,685

 
390.4
%
Net income (loss)
15,367

 
(1,550
)
 
16,917

 
1,091.4
%
Net (income) loss attributable to noncontrolling interest
(442
)
 
(907
)
 
465

 
 

Net income (loss) attributable to TETRA stockholders
$
14,925

 
$
(2,457
)
 
$
17,382

 
707.4
%
 
Consolidated revenues for the quarter ended June 30, 2015 , increased compared to the prior year period, primarily due to increased revenues for the Compression Division as a result of the August 4, 2014 acquisition of CSI. The CSI Acquisition, which resulted in increased revenues of approximately $96.3 million for the quarter ended June 30, 2015 , greatly expands the operations of our Compression Division, allowing it to participate in the compression market at a broader level. In addition, the Fluids Division also reflected increased revenues, primarily due to increased offshore CBF sales and related services. These increases in Compression and Fluids Division revenues were partly offset by decreased revenues in our Production Testing and Offshore Services segments, which were primarily due to the impact of decreased industry demand and activity levels in many of the domestic and international markets we serve, largely caused by decreased oil and natural gas pricing.

Consolidated gross profit increased during the current year quarter compared to the prior year quarter primarily due to the impact of our Fluids Division's increased offshore activity. In addition, Compression Division gross profit increased as a result of the CSI Acquisition. Gross profit from our Production Testing and Offshore Services businesses decreased slightly, despite a significant decrease in revenues from these segments, largely as a result of cost reductions implemented in response to decreased activity levels. Maritech gross profit also increased compared to the prior year period, due to decreased excess decommissioning costs during the current year period.
 
Consolidated general and administrative expenses increased during the second quarter of 2015 compared to the prior year period, due to the increase in the Compression Division administrative costs following the CSI Acquisition. The increase in the Compression Division general and administrative expenses was partially offset by decreased administrative costs for our Fluids, Production Testing, and Offshore Divisions, as a result of administrative cost reduction efforts by these segments. Corporate Overhead increased compared to the prior year period primarily due to increased incentive and equity compensation costs. However, consolidated general and administrative expense decreased as a percentage of consolidated revenues due to the administrative cost reductions implemented by each of the divisions and due to the increased revenues.
 
Consolidated interest expense increased due to increased borrowings, primarily from the increased borrowings by the Compression Division, through CCLP, to finance the CSI Acquisition. Compression Division interest expense levels going forward are expected to continue to be increased compared to periods prior to the

23



CSI Acquisition as a result of borrowings associated with the CSI Acquisition during 2014 and additional subsequent borrowings to fund CCLP capital expenditures.
 
Consolidated other expense was $1.9 million during the three months ended June 30, 2015 compared to $1.1 million during the prior year period, primarily due to the amortization of deferred financing costs by the Compression Division as a result of borrowings by CCLP to finance the CSI Acquisition.
 
Our consolidated effective tax rate for the three month period ended June 30, 2015 includes the effect of changes in our expected valuation allowance at the end of 2015 related to our deferred tax assets, such as our U.S. net operating loss carryforward. At December 31, 2014, we increased our valuation allowance primarily on our U.S. deferred tax assets after considering all available positive and negative evidence related to the realizability of our deferred tax assets. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.

Divisional Comparisons
 
Fluids Division
 
Three Months Ended 
 June 30,
 
Period to Period Change
 
2015
 
2014
 
2015 vs 2014
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
122,974

 
$
116,650

 
$
6,324

 
5.4
 %
Gross profit
40,354

 
26,273

 
14,081

 
53.6
 %
Gross profit as a percentage of revenue
32.8
%
 
22.5
%
 
 

 
 

General and administrative expense
7,777

 
9,197

 
(1,420
)
 
(15.4
)%
General and administrative expense as a percentage of revenue
6.3
%
 
7.9
%
 
 

 
 

Interest (income) expense, net
(76
)
 
(103
)
 
(27
)
 
 

Other (income) expense, net
70

 
120

 
50

 
 

Income before taxes
$
32,583

 
$
17,059

 
$
15,524

 
91.0
 %
Income before taxes as a percentage of revenue
26.5
%
 
14.6
%
 
 

 
 

 
The increase in Fluids Division revenues during the second quarter of 2015 compared to the prior year period was due to approximately $21.0 million of increased product sales revenues, primarily due to increased market share for CBFs and associated products, both in the U.S. and certain international markets. In addition, a portion of the Fluids Division's increased CBF and associated products revenues are from U.S. Gulf of Mexico product sales associated with a new completion fluid technology. The increased CBF sales revenues were partially offset by decreased manufactured product sales compared to the prior year period. The net increase in product sales revenues was partially offset by a $14.7 million decrease in service revenues, primarily due to onshore water management services, which had a decline in revenues due to decreased activity levels as a result of lower oil and natural gas commodity prices.

Fluids Division gross profit during the second quarter of 2015 increased compared to the prior year period primarily due to increased profitability associated with the mix of CBF products and services, particularly for offshore completion fluids products and services. Increased gross profit from the Fluids Division's manufactured products operations were realized despite the decreased revenues, and includes the impact of a $2.6 million insurance claim settlement that was credited to earnings during the current year period. These increases in Fluids Division gross profit more than offset the impact of reduced onshore water management services activity during the current year period. Operating cost reduction efforts also contributed to the improved gross profit compared to the prior year period.
 
Fluids Division income before taxes increased compared to the prior year period due to the increased gross profit discussed above. In addition, the Fluids Division reduced its administrative cost levels compared to the prior year period, particularly for its onshore water management services operations, in light of current activity levels. The Fluids Division continues to review opportunities to further reduce its administrative costs.


24



Production Testing Division
 
Three Months Ended 
 June 30,
 
Period to Period Change
 
2015
 
2014
 
2015 vs 2014
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
34,842

 
$
42,377

 
$
(7,535
)
 
(17.8
)%
Gross profit
3,918

 
4,221

 
(303
)
 
(7.2
)%
Gross profit as a percentage of revenue
11.2
 %
 
10.0
 %
 
 

 
 

General and administrative expense
4,608

 
4,764

 
(156
)
 
(3.3
)%
General and administrative expense as a percentage of revenue
13.2
 %
 
11.2
 %
 
 

 
 

Interest (income) expense, net
14

 
(57
)
 
(71
)
 
 

Other (income) expense, net
(232
)
 
(237
)
 
(5
)
 
 

Income (loss) before taxes
$
(472
)
 
$
(249
)
 
$
(223
)
 
(89.6
)%
Income (loss) before taxes as a percentage of revenue
(1.4
)%
 
(0.6
)%
 
 

 
 

 
Production Testing Division revenues decreased during the second quarter of 2015 compared to the prior year period, primarily due to decreased overall market activity, as increases in Saudi Arabia and Argentina were more than offset by decreases in the U.S., Canadian and Brazilian markets. The impact of increased competition for decreased industry activity negatively affected pricing and our activity levels for services in selected markets in the U.S., although the Division has successfully expanded its domestic customer base compared to the prior year period.

Production Testing Division gross profit as a percentage of revenues increased during the second quarter of 2015 compared to the prior year period due to the impact of cost reduction efforts, which have included headcount reductions and other steps to adjust the Production Testing Division's cost structure in light of current market conditions, particularly in key U.S. markets. Despite these efforts, Production Testing Division gross profit decreased slightly during the second quarter of 2015 compared to the prior year period, due to the market conditions discussed above.
 
Production Testing Division reported an increased pretax loss compared to the prior year period, primarily due to decreased revenues and gross profit. General and administrative expenses decreased due to administrative cost reductions, primarily reduced headcount and other employee related cost reductions, but were partially offset by approximately $0.9 million of increased bad debt expense. The Division continues to review for opportunities to further reduce its operating and administrative cost levels in light of the current market conditions.

Compression Division
 
Three Months Ended 
 June 30,
 
Period to Period Change
 
2015
 
2014
 
2015 vs 2014
 
% Change
 
(In Thousands, Except Percentages)
Revenues
$
126,456

 
$
32,015

 
$
94,441

 
295.0
 %
Gross profit
21,150

 
11,085

 
10,065

 
90.8
 %
Gross profit as a percentage of revenue
16.7
%
 
34.6
%
 
 

 
 

General and administrative expense
10,531

 
4,990

 
5,541

 
111.0
 %
General and administrative expense as a percentage of revenue
8.3
%
 
15.6
%
 
 

 
 

Interest (income) expense, net
7,961

 
145

 
7,816

 
 

Other (income) expense, net
1,160

 
473

 
687

 
 

Income before taxes
$
1,498

 
$
5,477

 
$
(3,979
)
 
(72.6
)%
Income before taxes as a percentage of revenue
1.2
%
 
17.1
%
 
 

 
 

    
Compression Division revenues increased significantly during the second quarter of 2015 compared to the prior year period due to the CSI Acquisition, which generated aggregate revenues of approximately $96.3 million during the 2015 period. Compression services revenues increased $47.4 million , as approximately $48.0 million of

25



compression services and aftermarket services revenues of CSI were partially offset by decreased low-horsepower compression services revenues. Revenues from sales of compressor packages and parts during the second quarter of 2015 increased $46.9 million compared to the prior year period, as $48.3 million of sales of compressors and parts by CSI were partially offset by decreased sales of non-CSI compressors and parts.
 
Compression Division gross profit increased during the second quarter of 2015 compared to the prior year period, also primarily due to the impact of the CSI Acquisition, which generated approximately $11.8 million of increased gross profit during the second quarter of 2015. CSI gross profit includes approximately $16.5 million of depreciation and amortization expense, which includes the impact from the allocation of the CSI Acquisition purchase price. CCLP is continuing to capture additional synergies anticipated as part of the integration of CSI's operations. These efforts will continue going forward and are expected to result in additional cost efficiencies in future periods.
 
The Compression Division reflected a decrease in pretax earnings during the second quarter of 2015 compared to the prior year period, despite the increased gross profit discussed above. Compression Division administrative expense levels increased compared to the prior year period, primarily due to the impact of the CSI Acquisition and the resulting increased corporate allocated costs, partly mitigated by administrative cost reductions and integration efficiencies. Interest expense increased significantly as a result of the issuance of the CCLP Senior Notes and the increased borrowings by CCLP under the CCLP Credit Agreement to finance a portion of the purchase price of the CSI Acquisition. Increased interest expense levels compared to the periods prior to the CSI Acquisition are expected to continue going forward, due to the borrowings associated with the CSI Acquisition and the funding of ongoing capital expenditures. Other expense increased significantly primarily due to increased foreign currency exchange losses and increased financing cost amortization as a result of the financing for the CSI Acquisition.
 
Offshore Division
 
Offshore Services Segment
 
Three Months Ended 
 June 30,