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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended September 30, 2020
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from             to            .
 
Commission File Number 1-13455
TETRA Technologies, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware 74-2148293
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
   
24955 Interstate 45 North  
The Woodlands,
Texas 77380
(Address of Principal Executive Offices) (Zip Code)
(281) 367-1983
(Registrant’s Telephone Number, Including Area Code)

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

 As of November 2, 2020, there were 125,976,728 shares outstanding of the Company’s Common Stock, $0.01 par value per share.



TETRA Technologies, Inc. and Subsidiaries
Table of Contents
Page
PART I—FINANCIAL INFORMATION
1
2
3
5
7
8
26
42
42
PART II—OTHER INFORMATION
42
42
43
44
44
44
45
46




Table of Contents
PART I
FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020 2019 2020 2019
Revenues:    
Product sales
$ 68,810  $ 93,377  $ 252,016  $ 320,508 
Services
83,791  152,570  315,968  457,963 
Total revenues
152,601  245,947  567,984  778,471 
Cost of revenues:    
Cost of product sales
50,541  71,957  184,512  254,798 
Cost of services
52,441  98,356  201,056  298,911 
Depreciation, amortization, and accretion
29,604  30,867  88,906  93,312 
Impairments and other charges
97  849  14,445  3,306 
Insurance recoveries
(52) (1,042) (643) (1,392)
Total cost of revenues
132,631  200,987  488,276  648,935 
Gross profit
19,970  44,960  79,708  129,536 
General and administrative expense 25,256  34,926  89,807  105,498 
Interest expense, net 17,631  18,146  53,073  55,054 
Warrants fair value adjustment (income) expense —  78  (327) (1,035)
CCLP Series A Preferred Units fair value adjustment expense —  —  —  1,309 
Other (income) expense, net (2,137) (690) 2,141  (1,014)
Loss before taxes and discontinued operations (20,780) (7,500) (64,986) (30,276)
Provision for income taxes 645  1,579  3,800  5,678 
Loss before discontinued operations (21,425) (9,079) (68,786) (35,954)
Discontinued operations:
Loss from discontinued operations, net of taxes (173) (9,130) (155) (9,901)
Net loss (21,598) (18,209) (68,941) (45,855)
Less: loss attributable to noncontrolling interest 8,296  2,378  32,833  12,273 
Net loss attributable to TETRA stockholders $ (13,302) $ (15,831) $ (36,108) $ (33,582)
Basic net loss per common share:  
Loss before discontinued operations attributable to TETRA stockholders
$ (0.10) $ (0.06) $ (0.29) $ (0.19)
Loss from discontinued operations attributable to TETRA stockholders —  (0.07) —  (0.08)
Net loss attributable to TETRA stockholders
$ (0.10) $ (0.13) $ (0.29) $ (0.27)
Average shares outstanding 125,893  125,568  125,789  125,620 
Diluted net loss per common share:    
Loss before discontinued operations attributable to TETRA stockholders
$ (0.10) $ (0.06) $ (0.29) $ (0.19)
Loss from discontinued operations attributable to TETRA stockholders —  (0.07) —  (0.08)
Net loss attributable to TETRA stockholders
$ (0.10) $ (0.13) $ (0.29) $ (0.27)
Average diluted shares outstanding 125,893  125,568  125,789  125,620 

See Notes to Consolidated Financial Statements
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Table of Contents
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020 2019 2020 2019
Net loss
$ (21,598) $ (18,209) $ (68,941) $ (45,855)
Foreign currency translation adjustment, net of taxes of $0 in 2020 and 2019
2,874  (3,742) (2,498) (3,300)
Comprehensive loss
(18,724) (21,951) (71,439) (49,155)
Less: Comprehensive loss attributable to noncontrolling interest
8,229  2,358  32,880  11,994 
Comprehensive loss attributable to TETRA stockholders
$ (10,495) $ (19,593) $ (38,559) $ (37,161)
 

See Notes to Consolidated Financial Statements
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TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
 
  September 30,
2020
December 31,
2019
  (Unaudited)  
ASSETS    
Current assets:    
Cash and cash equivalents
$ 75,165  $ 17,704 
Restricted cash
59  64 
Trade accounts receivable, net of allowances of $7,742 in 2020 and $5,262 in 2019
108,222  175,918 
Inventories
113,020  136,510 
Prepaid expenses and other current assets
21,176  21,158 
Total current assets
317,642  351,354 
Property, plant, and equipment:    
Land and building
39,534  60,586 
Machinery and equipment
1,341,905  1,335,157 
Automobiles and trucks
26,581  31,681 
Chemical plants
60,195  57,692 
Construction in progress
10,819  34,393 
Total property, plant, and equipment
1,479,034  1,519,509 
Less accumulated depreciation
(804,466) (760,872)
Net property, plant, and equipment
674,568  758,637 
Other assets:    
Patents, trademarks and other intangible assets, net of accumulated amortization of $93,976 in 2020 and $88,422 in 2019
68,350  74,199 
Deferred tax assets, net
24  24 
Operating lease right-of-use assets
78,867  68,131 
Other assets
22,089  19,577 
Total other assets
169,330  161,931 
Total assets $ 1,161,540  $ 1,271,922 
 

See Notes to Consolidated Financial Statements
3

TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
 
  September 30,
2020
December 31,
2019
  (Unaudited)  
LIABILITIES AND EQUITY    
Current liabilities:    
Trade accounts payable
$ 42,406  $ 88,917 
Unearned income
7,310  9,831 
Accrued liabilities and other
80,500  87,877 
Liabilities of discontinued operations
1,852  2,098 
Total current liabilities
132,068  188,723 
Long-term debt, net 843,216  842,871 
Deferred income taxes 3,421  2,988 
Asset retirement obligations 12,973  12,762 
Warrants liability 123  449 
Operating lease liabilities 64,200  53,919 
Other liabilities 10,364  7,384 
Total long-term liabilities
934,297  920,373 
Commitments and contingencies    
Equity:    
TETRA stockholders’ equity:    
Common stock, par value 0.01 per share; 250,000,000 shares authorized at September 30, 2020 and December 31, 2019; 128,930,704 shares issued at September 30, 2020 and 128,304,354 shares issued at December 31, 2019
1,289  1,283 
Additional paid-in capital
471,146  466,959 
Treasury stock, at cost; 2,953,976 shares held at September 30, 2020, and 2,823,191 shares held at December 31, 2019
(19,484) (19,164)
Accumulated other comprehensive (loss) (54,634) (52,183)
Retained deficit
(398,630) (362,522)
Total TETRA stockholders’ equity (313) 34,373 
Noncontrolling interests
95,488  128,453 
Total equity
95,175  162,826 
Total liabilities and equity $ 1,161,540  $ 1,271,922 
 

See Notes to Consolidated Financial Statements
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Table of Contents
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Equity
(In Thousands)
(Unaudited)
Common Stock
Par Value
Additional Paid-In
Capital
Treasury
Stock
Accumulated Other 
Comprehensive Income (Loss)
Retained
Deficit
Noncontrolling
Interest
Total
Equity
Currency
Translation
Balance at December 31, 2019 $ 1,283  $ 466,959  $ (19,164) $ (52,183) $ (362,522) $ 128,453  $ 162,826 
Net loss for first quarter 2020 —  —  —  —  (1,551) (8,825) (10,376)
Translation adjustment, net of taxes of $0
—  —  —  (6,238) —  (229) (6,467)
Comprehensive loss —  —  —  —  —  —  (16,843)
Distributions to public unitholders —  —  —  —  —  (309) (309)
Equity award activity —  —  —  —  — 
Treasury stock activity, net —  —  (89) —  —  —  (89)
Equity compensation expense —  1,145  —  —  —  228  1,373 
Other —  (16) —  —  —  (15) (31)
Balance at March 31, 2020 $ 1,287  $ 468,088  $ (19,253) $ (58,421) $ (364,073) $ 119,303  $ 146,931 
Net loss for second quarter 2020 —  —  —  —  (21,255) (15,712) (36,967)
Translation adjustment, net of taxes of $0
—  —  —  980  —  115  1,095 
Comprehensive loss —  —  —  —  —  —  (35,872)
Distributions to public unitholders —  —  —  —  —  (311) (311)
Equity award activity —  —  —  —  — 
Treasury stock activity, net —  —  (181) —  —  —  (181)
Equity compensation expense —  1,685  —  —  —  449  2,134 
Other —  —  —  —  (20) (16)
Balance at June 30, 2020 $ 1,288  $ 469,777  $ (19,434) $ (57,441) $ (385,328) $ 103,824  $ 112,686 
Net loss for third quarter 2020 —  —  —  —  (13,302) (8,296) (21,598)
Translation adjustment, net of taxes of $0
—  —  —  2,807  —  67  2,874 
Comprehensive loss —  —  —  —  —  —  (18,724)
Distributions to public unitholders —  —  —  —  —  (312) (312)
Equity award activity —  —  —  —  — 
Treasury stock activity, net —  —  (50) —  —  —  (50)
Equity compensation expense —  1,363  —  —  —  232  1,595 
Other —  —  —  —  (27) (21)
Balance at September 30, 2020 $ 1,289  $ 471,146  $ (19,484) $ (54,634) $ (398,630) $ 95,488  $ 95,175 

See Notes to Consolidated Financial Statements


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Table of Contents
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Equity
(In Thousands)
(Unaudited)
Common Stock
Par Value
Additional Paid-In
Capital
Treasury
Stock
Accumulated Other 
Comprehensive Income (Loss)
Retained
Deficit
Noncontrolling
Interest
Total
Equity
Currency
Translation
Balance at December 31, 2018 $ 1,285  $ 460,680  $ (18,950) $ (51,663) $ (217,952) $ 139,349  $ 312,749 
Net loss for first quarter 2019 —  —  —  —  (10,838) (8,262) (19,100)
Translation adjustment, net of taxes of $0
—  —  —  (582) —  176  (406)
Comprehensive loss —  —  —  —  —  —  (19,506)
Distributions to public unitholders —  —  —  —  —  (307) (307)
Equity award activity (1) —  —  —  —  —  (1)
Treasury stock activity, net —  —  (155) —  —  —  (155)
Equity compensation expense —  1,628  —  —  —  311  1,939 
Conversions of CCLP Series A Preferred —  —  —  —  —  2,539  2,539 
Cumulative effect adjustment —  —  —  —  2,843  —  2,843 
Other —  (67) —  —  —  76 
Balance at March 31, 2019 $ 1,284  $ 462,241  $ (19,105) $ (52,245) $ (225,947) $ 133,882  $ 300,110 
Net loss for second quarter 2019 —  —  —  —  (6,913) (1,633) (8,546)
Translation adjustment, net of taxes of $0
—  —  —  765  —  83  848 
Comprehensive loss —  —  —  —  —  —  (7,698)
Distributions to public unitholders —  —  —  —  —  (308) (308)
Treasury stock activity, net —  —  (11) —  —  —  (11)
Equity compensation expense —  2,100  —  —  —  567  2,667 
Other —  (36) —  —  —  (33) (69)
Balance at June 30, 2019 $ 1,284  $ 464,305  $ (19,116) $ (51,480) $ (232,860) $ 132,558  $ 294,691 
Net loss for third quarter 2019 —  —  —  —  (15,831) (2,378) (18,209)
Translation adjustment, net of taxes of $0
—  —  —  (3,762) —  20  (3,742)
Comprehensive loss —  —  —  —  —  —  (21,951)
Distributions to public unitholders —  —  —  —  —  (309) (309)
Equity award activity —  —  —  —  —  —  — 
Treasury stock activity, net —  —  (48) —  —  —  (48)
Equity compensation expense —  1,316  —  —  —  (211) 1,105 
Other —  (6) —  —  —  46  40 
Balance at September 30, 2019 $ 1,284  $ 465,615  $ (19,164) $ (55,242) $ (248,691) $ 129,726  $ 273,528 

See Notes to Consolidated Financial Statements

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TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited) 
  Nine Months Ended September 30,
  2020 2019
Operating activities:    
Net loss
$ (68,941) $ (45,855)
Reconciliation of net loss to net cash provided by operating activities:
Depreciation, amortization, and accretion
88,906  93,364 
Impairment and other charges
14,445  3,306 
Benefit for deferred income taxes
550  545 
Equity-based compensation expense
4,847  6,260 
Provision for doubtful accounts
5,907  3,351 
Loss on disposition of business
—  7,500 
Amortization and expense of financing costs
3,698  4,614 
Insurance recoveries associated with damaged equipment
(643) (1,392)
Equipment received in lieu of cash
725  — 
Debt exchange expenses
4,777  — 
CCLP Series A Preferred Unit distributions and adjustments
—  3,574 
Warrants fair value adjustment
(326) (1,035)
Contingent consideration liability fair value adjustment
—  (800)
Gain on sale of assets
(4,340) (1,583)
Changes in operating assets and liabilities:
   
Accounts receivable
61,314  13,309 
Inventories
11,780  (6,847)
Prepaid expenses and other current assets
(916) (1,831)
Trade accounts payable and accrued expenses
(57,844) 10,344 
Other
888  (3,234)
Net cash provided by operating activities
64,827  83,590 
Investing activities:    
Purchases of property, plant, and equipment, net
(22,011) (89,192)
Acquisition of businesses, net of cash acquired
—  (12,024)
Proceeds on sale of property, plant, and equipment
24,704  2,152 
Insurance recoveries associated with damaged equipment
643  1,392 
Other investing activities
(576) (890)
Net cash provided by (used in) investing activities 2,760  (98,562)
Financing activities:    
Proceeds from long-term debt
404,060  246,090 
Principal payments on long-term debt
(408,666) (204,718)
CCLP distributions
(932) (924)
Redemptions of CCLP Series A Preferred
—  (28,049)
Tax remittances on equity based compensation
(341) (571)
Debt issuance costs and other financing activities
(3,897) (373)
Net cash provided by (used in) financing activities
(9,776) 11,455 
Effect of exchange rate changes on cash (355) (606)
Increase (decrease) in cash and cash equivalents 57,456  (4,123)
Cash and cash equivalents and restricted cash at beginning of period 17,768  40,102 
Cash and cash equivalents and restricted cash at end of period $ 75,224  $ 35,979 
Supplemental cash flow information:  
Interest paid
$ 42,199  $ 49,073 
Income taxes paid
4,692  6,226 
See Notes to Consolidated Financial Statements
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Table of Contents
TETRA Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES

Organization 

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

Presentation  

Our unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. Operating results for the period ended September 30, 2020 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2020.

We consolidate the financial statements of our CSI Compressco LP subsidiary (“CCLP”) as part of our Compression Division, as we determined that CCLP is a variable interest entity and we are the primary beneficiary. We control the financial interests of CCLP and have the ability to direct the activities of CCLP that most significantly impact its economic performance through our ownership of its general partner. The share of CCLP net assets and earnings that is not owned by us is presented as noncontrolling interest in our consolidated financial statements. Our cash flows from our investment in CCLP are limited to the quarterly distributions we receive on our CCLP common units and general partner interest (including incentive distribution rights) and the amounts collected for services we perform on behalf of CCLP, as TETRA’s capital structure and CCLP’s capital structure are separate, and do not include cross default provisions or cross guarantees.
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission (“SEC”) and do not include all information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2019 and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March 16, 2020.

Significant Accounting Policies

    Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K. There have been no significant changes in our accounting policies or the application thereof during the third quarter of 2020.

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

Reclassifications

    Certain previously reported financial information has been reclassified to conform to the current year's presentation. The impact of such reclassifications was not significant to the prior year’s overall presentation.

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Impairments and Other Charges

Impairments of long-lived assets, including identified intangible assets, are determined periodically when indicators of impairment are present. If such indicators are present, the determination of the amount of impairment is based on our judgment as to the future undiscounted operating cash flows to be generated from the relevant assets throughout their remaining estimated useful lives. If these undiscounted cash flows are less than the carrying amount of the related assets, an impairment is recognized for the excess of the carrying value over fair value. Fair value of intangible assets is generally determined using the discounted present value of future cash flows using discount rates commensurate with the risks inherent with the specific assets. Assets held for disposal are recorded at the lower of carrying value or estimated fair value less estimated selling costs. See Note 3 - “Impairments and Other Charges” for additional discussion of recorded impairments.

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

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

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

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

    Services. Service revenues represent revenue recognized over time, as our customer arrangements typically provide agreed upon day-rates (monthly service rates for compression services) and we recognize service revenue based upon the number of days services have been performed. Service revenue recognized over time is associated with a majority of our Water & Flowback Services Division arrangements, compression service and aftermarket service contracts within our Compression Division, and a small portion of Completion Fluids & Products Division revenue that is associated with completion fluid service arrangements. With the exception of the initial terms of the compression services contracts for medium- and high-horsepower compressor packages of our Compression Division, our customer contracts are generally for terms of one year or less. The majority of the service arrangements in the Water & Flowback Services Division are for a period of 90 days or less.

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

    Use of Estimates. In recognizing revenue for variable consideration arrangements, the amount of variable consideration recognized is limited so that it is probable that significant amounts of revenues will not be reversed in future periods when the uncertainty is resolved. For products returned by the customer, we estimate the expected returns based on an analysis of historical experience. For volume discounts earned by the customer, we estimate the discount (if any) based on our estimate of the total expected volume of products sold or services to be provided to the customer during the discount period. In certain contracts for the sale of CBFs, we may agree to issue credits
9

for the repurchase of reclaimable used fluids from certain customers at an agreed price that is based on the condition of the fluids.

    Contract Assets and Liabilities. We consider contract assets to be trade accounts receivable when we have an unconditional right to consideration and only the passage of time is required before payment is due. In certain instances, particularly those requiring customer specific documentation prior to invoicing, our invoicing of the customer is delayed until certain documentation requirements are met. In those cases, we recognize a contract asset rather than a billed trade accounts receivable until we are able to invoice the customer. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.

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

    Bill-and-Hold Arrangements. We design and fabricate compressor packages based on our customer’s specifications. In some cases, the customer will request us to hold the equipment, upon completion of the unit, until the job site is ready to receive the equipment. When this occurs, we along with the customer sign a bill-and-hold agreement, which outlines that the customer has title to the equipment, the equipment is ready for delivery, we cannot use the equipment or direct it to another customer, and we have a present right to payment. When those criteria have been met and the agreement is executed, we recognize the revenue on the equipment because control of the equipment has passed to our customer and our performance obligations are complete. Entering into these arrangements is something we have done as a courtesy for certain customers for many years. The equipment subject to the bill-and-hold agreements has generally been invoiced and paid for through progressive billings such that at the time the bill-and-hold agreement is executed, the majority of the contractual cash obligation of the customer has been received by us.
Operating Costs
 
Cost of product sales includes direct and indirect costs of manufacturing and producing our products, including raw materials, fuel, utilities, labor, overhead, repairs and maintenance, materials, services, transportation, warehousing, equipment rentals, insurance, and certain taxes. Cost of services includes operating expenses we incur in delivering our services, including labor, equipment rental, fuel, repair and maintenance, transportation, overhead, insurance, and certain taxes. We include in product sales revenues the reimbursements we receive from customers for shipping and handling costs. Shipping and handling costs are included in cost of product sales. Amounts we incur for “out-of-pocket” expenses in the delivery of our services are recorded as cost of services. Reimbursements for “out-of-pocket” expenses we incur in the delivery of our services are recorded as service revenues. Depreciation, amortization, and accretion includes depreciation expense for all of our facilities, equipment and vehicles, amortization expense on our intangible assets, and accretion expense related to our decommissioning and other asset retirement obligations.
 
We include in general and administrative expense all costs not identifiable to our specific product or service operations, including divisional and general corporate overhead, professional services, corporate office costs, sales and marketing expenses, insurance, and certain taxes. 
Foreign Currency Translation
 
    We have designated the Euro, the British pound, the Norwegian krone, the Canadian dollar, the Brazilian real, and the Mexican peso as the functional currencies for our operations in Finland and Sweden, the United Kingdom, Norway, Canada, Brazil, 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 applicable accounts from the functional currencies into the U.S. dollar at current exchange rates are included as a separate component of equity. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $(0.8) million and $(3.2) million during the three and nine months ended September 30, 2020, respectively, and $(1.7) million and $(2.2) million during the three and nine months ended September 30, 2019, respectively.

10

Fair Value Measurements
 
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized on a recurring basis in the determination of the carrying values of certain liabilities, including the liabilities for the warrants to purchase 11.2 million shares of our common stock (the “Warrants”) and our foreign currency derivative contracts. See Note 9 - “Fair Value Measurements” for further discussion.

Fair value measurements are also utilized on a nonrecurring basis in certain circumstances, such as in the allocation of purchase consideration for acquisition transactions to the assets and liabilities acquired, including intangible assets and goodwill (a Level 3 fair value measurement), the initial recording of our asset retirement obligations, and for the impairment of long-lived assets, including goodwill (a Level 3 fair value measurement).

New Accounting Pronouncements
Standards adopted in 2020

    In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The adoption of this standard did not have a material impact on our consolidated financial statements.

Standards not yet adopted

    In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairment will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. We are continuing to work through our implementation plan which includes evaluating the impact on our allowance for doubtful accounts methodology, identifying new reporting requirements, and implementing changes to business processes, systems, and controls to support adoption of the standard. Upon adoption, the allowance for doubtful accounts is expected to increase with an offsetting adjustment to retained earnings. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. ASU 2016-13 has an effective date of the first quarter of fiscal 2023. We continue to assess the potential effects of these changes to our consolidated financial statements.

    In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions related to intraperiod tax allocation, interim period income tax calculation methodology, and the recognition of deferred tax liabilities for outside basis differences. It also simplifies certain aspects of accounting for franchise taxes and clarifies the accounting for transactions that results in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for us the first quarter of fiscal 2021. We continue to assess the potential effects of these changes to our consolidated financial statements.

    In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. Entities may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. We are currently evaluating the impacts of the provisions of ASU 2020-04 on our consolidated financial statements.
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NOTE 2 – REVENUE FROM CONTRACTS WITH CUSTOMERS
    
    As of September 30, 2020, we had $47.1 million of remaining contractual performance obligations for compression services. As a practical expedient, this amount does not reflect revenue for compression service contracts whose original expected duration is less than twelve months and does not consider the effects of the time value of money. Expected revenue to be recognized in the future as of September 30, 2020 for completion of performance obligations of compression service contracts are as follows:
  2020 2021 2022 2023 2024 Total
  (In Thousands)
Compression service contracts remaining performance obligations $ 13,939  $ 26,608  $ 5,785  $ 703  $ 56  $ 47,091 
    For sales of CBFs where we have agreed to issue credits for the repurchase of reclaimable used fluids at an agreed price based on the condition of the fluid upon return, we adjust the revenue recognized in the period of shipment by an estimated amount, based on historical experience, of the credit expected to be issued. As of September 30, 2020, the amount of remaining credits expected to be issued for the repurchase of reclaimable used fluids was $1.1 million recorded in inventory (right of return asset) and either accounts payable or as a reduction to accounts receivable. There were no material differences between amounts recognized during the three and nine month period ended September 30, 2020, compared to estimates made in a prior period from these variable consideration arrangements.

    Our contract asset balances, primarily associated with customer documentation requirements, were $17.2 million and $34.9 million as of September 30, 2020 and December 31, 2019, respectively. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.

    Collections primarily associated with progressive billings to customers for the construction of compression equipment is included in unearned income in the consolidated balance sheets. The following table reflects the changes in unearned income in our consolidated balance sheets for the periods indicated:
Nine Months Ended
September 30,
  2020 2019
(In Thousands)
Unearned Income, beginning of period $ 9,678  $ 25,333 
Additional unearned income 38,979  106,744 
Revenue recognized (41,624) (105,486)
Unearned income, end of period $ 7,033  $ 26,591 

    During the nine month period ended September 30, 2020, we recognized product sales revenue of $9.4 million from unearned income that was deferred as of December 31, 2019. During the nine months ended September 30, 2019, we recognized product sales revenue of $22.2 million from unearned income that was deferred as of December 31, 2018.

    As of September 30, 2020, contract costs were immaterial.
    
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    We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our three reportable segments in Note 12. In addition, we disaggregate revenue from contracts with customers by geography based on the following table below.
Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
  (In Thousands)
Completion Fluids & Products
U.S. 15,013  31,480  $ 85,073  $ 100,622 
International 36,937  27,860  113,460  100,066 
51,950  59,340  198,533  200,688 
Water & Flowback Services
U.S. 19,767  68,052  97,016  209,663 
International 1,767  4,789  6,708  14,980 
21,534  72,841  103,724  224,643 
Compression
U.S. 71,478  105,153  240,661  324,792 
International 7,639  8,613  25,066  28,348 
79,117  113,766  265,727  353,140 
Total Revenue
U.S. 106,258  204,685  422,750  635,077 
International 46,343  41,262  145,234  143,394 
152,601  245,947  $ 567,984  $ 778,471 
NOTE 3 – IMPAIRMENTS AND OTHER CHARGES

Impairments of Long-Lived Assets

    During the first nine months of 2020, the COVID-19 pandemic and decline in oil and gas prices had a significant impact on our customers and industry. These events led to a significant reduction in the operations of our customers resulting in a decrease in demand in certain of our service lines.

    During the first quarter of 2020, we started to see our customers revise their capital budgets downwards and adjust their operations accordingly, which led to a decline in orders for new compression equipment to be fabricated and sold to third parties. We concluded that these events were indicators of impairment for all our asset groups within our Compression Division and certain asset groups within our Completion Fluids & Products Division. We performed recoverability analyses on the relevant asset groups within these divisions. Based upon these recoverability analyses, we determined that the carrying values of our Midland manufacturing facility and related new unit sales inventory in our Compression Division exceeded their respective fair values. Therefore, we recorded impairments of approximately $5.4 million related to these assets. Fair value was estimated based on a market approach.

    During the second quarter of 2020, primarily as a result of continued negative impacts on our compression fleet associated with the COVID-19 pandemic and declines in oil and gas prices, our Compression Division recorded impairments and other charges of approximately $9.0 million associated with non-core used compressor equipment that we have held for sale, the low-horsepower class of our compression fleet, and field inventory for compression and related services. During the third quarter of 2020, no further impairments were recorded. Impairment charges are reflected in impairment and other charges in our consolidated statements of operations. Fair value used to determine impairments was estimated based on a market approach. Given the dynamic nature of the events, we are not able to reasonably estimate how long our operations will be adversely impacted and the full impact these events will have on our operations. As a result, we could have indicators of impairment again in future periods resulting in additional asset impairments.
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NOTE 4 – INVENTORIES

Components of inventories as of September 30, 2020 and December 31, 2019 are as follows: 
  September 30, 2020 December 31, 2019
  (In Thousands)
Finished goods $ 70,452  $ 70,135 
Raw materials 3,744  4,125 
Parts and supplies 32,340  47,793 
Work in progress 6,484  14,457 
Total inventories
$ 113,020  $ 136,510 

Finished goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling. Work in progress inventory consists primarily of new compressor packages located at our Compression Division manufacturing facility in Midland, Texas as well as work in progress on certain compression services jobs.
NOTE 5 – LEASES

    We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. We have finance leases for certain storage tanks and equipment rentals. These finance leases are not material to our financial statements. Our leases have remaining lease terms ranging from 1 to 16 years. Some of our leases have options to extend for various periods, while some have termination options with prior notice of generally 30 days or six months. The office space, warehouse space, operating location leases, and machinery and equipment leases generally require us to pay all maintenance and insurance costs. During the fourth quarter of 2019, CCLP entered into a lease agreement commitment for 14 compressor packages. The leases are for an initial term of seven years and commenced upon the completion of the equipment fabrication. During the first quarter, CCLP took delivery of eight compressor packages. During the second quarter, CCLP took delivery of the remaining six compressor packages. We have no other lease commitments that have not yet commenced that create significant rights and obligations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Variable rent expense was not material.

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

    Components of lease expense, included in either cost of revenues or general and administrative expense based on the use of the underlying asset, are as follows (inclusive of lease expense for leases not included on our consolidated balance sheet based on our accounting policy election to exclude leases with a term of 12 months or less):
  Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
  (In Thousands)
Operating lease expense $ 5,822  $ 5,075  $ 17,839  $ 15,106 
Short-term lease expense 3,758  9,556  17,061  30,269 
Total lease expense $ 9,580  $ 14,631  $ 34,900  $ 45,375 
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Supplemental cash flow information:
  Nine Months Ended September 30,
2020 2019
  (In Thousands)
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows - operating leases $ 17,861  $ 14,868 
Right-of-use assets obtained in exchange for lease obligations:
     Operating leases $ 24,201  $ 7,631 

Supplemental balance sheet information:
  September 30, 2020 December 31, 2019
  (In Thousands)
Operating leases:
     Operating lease right-of-use assets $ 78,867  $ 68,131 
     Accrued liabilities and other $ 16,362  $ 15,850 
     Operating lease liabilities 64,200  53,919 
     Total operating lease liabilities $ 80,562  $ 69,769 

Additional operating lease information:
  September 30, 2020 December 31, 2019
Weighted average remaining lease term:
     Operating leases 6.09 years 6.43 years
Weighted average discount rate:
     Operating leases 9.33  % 9.46  %
    
    Future minimum lease payments by year and in the aggregate, under non-cancellable operating leases with terms in excess of one year consist of the following at September 30, 2020:
  Operating Leases
  (In Thousands)
Remainder of 2020 $ 5,809 
2021 22,322 
2022 18,896 
2023 15,803 
2024 12,067 
Thereafter 32,611 
Total lease payments 107,508 
Less imputed interest (26,946)
Total lease liabilities $ 80,562 
    
    At September 30, 2020, future minimum rental receipts under a non-cancellable sublease for office space in one of our locations totaled $5.0 million. For the three and nine months ended September 30, 2020, we recognized sublease income of $0.3 million and $0.9 million.
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NOTE 6 – LONG-TERM DEBT AND OTHER BORROWINGS
 
We believe our capital structure, excluding CCLP, (“TETRA”) and CCLP’s capital structure should be considered separately, as there are no cross default provisions or cross guarantees between CCLP’s debt and TETRA’s debt.

Consolidated long-term debt as of September 30, 2020 and December 31, 2019, consists of the following:
    September 30, 2020 December 31, 2019
    (In Thousands)
TETRA Scheduled Maturity
Asset-based credit agreement (presented net of unamortized deferred financing costs of $0 million as of September 30, 2020 and $1.0 million as of December 31, 2019)
September 10, 2023 $ —  $ — 
Term credit agreement (presented net of the unamortized discount of $5.7 million as of September 30, 2020 and $6.4 million as of December 31, 2019 and net of unamortized deferred financing costs of $8.5 million as of September 30, 2020 and $9.5 million as of December 31, 2019)
September 10, 2025 206,273  204,633 
TETRA total long-term debt   $ 206,273  $ 204,633 
CCLP
CCLP asset-based credit agreement (presented net of unamortized deferred financing costs of $0 million as of September 30, 2020 and $0.9 million of December 31, 2019)
June 29, 2023 —  2,622 
CCLP 7.25% Senior Notes (presented net of the unamortized discount of $0.3 million as of September 30, 2020 and $1.7 million as of December 31, 2019 and net of unamortized deferred financing costs of $0.5 million as of September 30, 2020 and $2.8 million as of December 31, 2019)
August 15, 2022 79,893  291,444 
CCLP 7.50% First Lien Notes (presented net of unamortized deferred financing costs of $5.4 million as of September 30, 2020 and $5.8 million as of December 31, 2019, net of the unamortized discount of $0.2 million as of September 30, 2020, and net of deferred restructuring gain of $5.3 million as of September 30, 2020)
April 1, 2025 399,640  344,172 
CCLP 10.00%/10.75% Second Lien Notes (presented net of the unamortized discount of $0.8 million as of September 30, 2020, net of unamortized deferred financing costs of $1.2 million as of September 30, 2020, and net of deferred restructuring gain of $3.9 million as of September 30, 2020)
April 1, 2026 157,410  — 
CCLP total long-term debt   $ 636,943  $ 638,238 
Consolidated total long-term debt $ 843,216  $ 842,871 

    As of September 30, 2020, TETRA had no outstanding balance and $6.4 million in letters of credit against its asset-based credit agreement (“ABL Credit Agreement”). Because there was no outstanding balance on this Credit Agreement, associated deferred financing costs of $1.1 million as of September 30, 2020, were classified as other long-term assets on the accompanying consolidated balance sheet. As of September 30, 2020, subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement that may limit borrowings, TETRA had an availability of $25.8 million under this agreement.

As of September 30, 2020, CCLP had no balance outstanding and $2.5 million in letters of credit against its asset-based credit agreement (“CCLP Credit Agreement”). Because there was no outstanding balance under the CCLP Credit Agreement, associated deferred financing costs of $0.7 million were classified as other long-term assets on the accompanying consolidated balance sheet. As of September 30, 2020, and subject to compliance with the covenants, borrowing base, and other provisions of the CCLP Credit Agreement that may limit borrowings, CCLP had availability of $14.5 million.

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    TETRA and CCLP credit and senior note agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. TETRA and CCLP are both in compliance with all covenants of their respective credit and senior note agreements as of September 30, 2020.

Second Amendment to Credit Agreement

    On June 11, 2020, CSI Compressco, LP and CSI Compressco Sub Inc (the “Borrowers”) entered into the Second Amendment to Loan and Security Agreement (the “Amendment”) amending the Loan and Security Agreement dated June 29, 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) with Bank of America, N.A., in its capacity as administrative agent, issuing bank and swing line issuer (“Administrative Agent”), and the other lenders and loan parties party thereto. The Amendment provided for changes and modifications to the Credit Agreement which include, among other things, changes to certain terms of the Credit Agreement as follows: (i) resizing of the maximum credit commitment under the Credit Agreement from $50,000,000 to $35,000,000; (ii) the inclusion of a $5,000,000 reserve with respect to the Borrowing Base (as defined in the Credit Agreement) thereunder, which would result in reduced borrowing availability; (iii) the removal of the financial covenant compliance test with respect to the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement); (iv) an increase in the applicable margin related to (x) LIBOR Rate Loans (as defined in the Credit Agreement) to a range between 3.00% and 3.50% and (y) Base Rate Loans (as defined in the Credit Agreement) to a range between 2.00% and 2.50%, in each case, which shall be determined according to average daily excess availability under the Credit Agreement; and (v) an increase in the rate used to calculate the commitment fee in respect of the unutilized commitments under the Credit Agreement to 0.50%. In connection to this amendment, $0.2 million of financing costs were incurred by CCLP and deferred against the carrying value of the amount outstanding, if any. Additionally, $0.2 million of financing fees were charged to other (income) expense, net during the nine month period ended September 30, 2020.

First Supplemental Indenture for the Old Notes

    On June 11, 2020, CSI Compressco, LP and CSI Compressco Finance Inc. (the “Issuers”) announced that they had accepted for exchange $215,208,000, or approximately 72.7%, of their outstanding 7.25% Senior Notes due 2022 (the “Old Notes”) that were validly tendered (and not validly withdrawn) by 11:59 p.m., New York City time, on June 10, 2020, for (i) $50,000,000 of the Issuers’ 7.50% Senior Secured First Lien Notes due 2025 (the “7.50% First Lien Notes”) and (ii) $155,529,000 aggregate principal amount of new 10.00%/10.75% Senior Secured Second Lien Notes due 2026 (the “10.00%/10.75% Second Lien Notes” and, together with the 7.50% First Lien Notes, the “New Notes”), pursuant to its previously announced exchange offer and consent solicitation (the “Exchange Offer”), which commenced on April 17, 2020. In connection with the exchange offer, CCLP incurred financing fees of $4.6 million which were charged to other (income) expense, net during the nine month period ended September 30, 2020.

    On June 12, 2020, following receipt of the requisite consents of the holders of the Old Notes, the Issuers entered into the First Supplemental Indenture (the “First Supplemental Indenture”), by and among the Issuers, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, to the Indenture, dated as of August 4, 2014 (the “Unsecured Indenture”), by and among the Issuers, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee.

    The First Supplemental Indenture eliminated substantially all of the restrictive covenants and certain of the default provisions in the Unsecured Indenture and became operative upon the consummation by the Issuers of the Exchange Offer.

    On June 12, 2020, the Issuers issued $50,000,000 in aggregate principal amount of New First Lien Notes to certain holders of the Old Notes pursuant to the terms of the Exchange Offer. In March 2018, the Issuers had issued $350,000,000 in aggregate principal amount of 7.50% Senior Secured Notes due 2025 (the “Existing First Lien Notes” and, together with the New First Lien Notes, the “7.50% First Lien Notes”) pursuant to the First Lien Base Indenture. The New First Lien Notes were issued as “additional notes” under the First Lien Base Indenture and will be treated as a single class with such notes but will not trade fungibly with the Existing First Lien Notes.

Second Lien Notes Indenture
    On June 12, 2020, the Issuers issued $155,529,000 in aggregate principal amount of the 10.00%/10.75% Second Lien Notes to certain holders of the Old Notes pursuant to the terms of the Exchange Offer. The Issuers
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issued the 10.00%/10.75% Second Lien Notes pursuant to an indenture, dated June 12, 2020 (the “Second Lien Notes Indenture”),by and among the Issuers, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (the “Second Lien Trustee”). In connection with the payment of PIK Interest (as defined below), if any, in respect of the 10.00%/10.75% Second Lien Notes, the Issuers will be entitled, without the consent of the Holders, to increase the outstanding aggregate principal amount of the 10.00%/10.75% Second Lien Notes or issue additional notes (“PIK notes”) under the Second Lien Notes Indenture on the same terms and conditions as the 10.00%/10.75% Second Lien Notes offered hereby (each such increase or issuance, a “PIK Payment”). The Issuers may issue additional 10.00%/10.75% Second Lien Notes under the Second Lien Notes Indenture from time to time. Any issuance of additional 10.00%/10.75% Second Lien Notes (including PIK notes) is subject to all of the covenants in the Second Lien Notes Indenture. The 10.00%/10.75% Second Lien Notes and any additional 10.00%/10.75% Second Lien Notes subsequently issued under the indenture, will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Subject to the making of PIK Payments, the Issuers will issue 10.00%/10.75% Second Lien Notes in denominations of $2,000 and integral multiples of $1,000 in excess of $2,000; provided that PIK Payments may result in 10.00%/10.75% Second Lien Notes being issued in denominations of $1.00 and integral multiples of $1.00. The 10.00%/10.75% Second Lien Notes will mature on April 1, 2026. Interest on the 10.00%/10.75% Second Lien Notes will be payable semi-annually in arrears on April 1 and October 1, commencing on October 1, 2020. The Issuers will make each interest payment to the holders of record on March 15 and September 15 immediately preceding each interest payment date. Interest will accrue at (1) the annual rate of 7.250% payable in cash, plus (2) at the election of the Issuers (made by delivering a notice to the Second Lien Trustee not less than five business days prior to the record date), the annual rate of (i) 2.750% payable in cash (together with the annual rate set forth in clause (1), the “Cash Interest Rate”) or (ii) 3.500% payable by increasing the principal amount of the outstanding 10.00%/10.75% Second Lien Notes or by issuing additional PIK notes, in each case rounding up to the nearest $1.00 (such increased principal amount or additional PIK notes, the “PIK Interest”). In the absence of an interest payment election made by the Issuers as set forth above, interest on the notes will be payable as if the Issuers had elected to pay PIK Interest with respect to the portion of interest payable pursuant to clause (2) above.

    The 10.00%/10.75% Second Lien Notes are jointly and severally, and fully and unconditionally, guaranteed (the “Guarantees”) on a senior secured basis initially by each of the Partnership’s domestic restricted subsidiaries (other than Finance Corp, certain immaterial subsidiaries and certain other excluded domestic subsidiaries, the “Guarantors”) and will be secured by a second-priority security interest in substantially all of the Issuers’ and the Guarantors’ assets (other than certain excluded assets) (the “Collateral”) as collateral security for their obligations under the 10.00%/10.75% Second Lien Notes, subject to certain permitted encumbrances and exceptions. At any time prior to April 1, 2023, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 10.00%/10.75% Second Lien Notes issued under the Second Lien Notes Indenture at a redemption price of 110.000% of the principal amount of the 10.00%/10.75% Second Lien Notes, plus accrued and unpaid interest to the redemption date, with an amount of cash equal to the net cash proceeds of certain equity offerings. On or after April 1, 2023, the Issuers may redeem all or part of the 10.00%/10.75% Second Lien Notes at redemption prices (expressed as percentages of the principal amount) equal to (i) 107.500% for the twelve month period beginning on April 1, 2023; (ii) 105.000% for the twelve-month period beginning on April 1, 2024 and (iii) 100.000% at any time thereafter, plus accrued and unpaid interest up to, but not including, the redemption date. In addition, at any time prior to April 1, 2023, the Company may redeem all or a part of the 10.00%/10.75% Second Lien Notes at a redemption price equal to 100% of the principal amount of the 10.00%/10.75% Second Lien Notes to be redeemed plus a make-whole premium, plus accrued and unpaid interest up to, but not including, the redemption date.

    The Second Lien Notes Indenture contains customary covenants restricting the Partnership’s ability and the ability of its restricted subsidiaries to: (i) pay distributions on, purchase or redeem its common units or purchase or redeem its subordinated debt; (ii) incur or guarantee additional indebtedness or issue certain kinds of preferred equity securities; (iii) create or incur certain liens securing indebtedness; (iv) sell assets, including dispositions of the Collateral; (v) consolidate, merge or transfer all or substantially all of its assets; (vi) enter into transactions with affiliates; and (vii) enter into agreements that restrict distributions or other payments from its restricted subsidiaries to the Partnership. These covenants are subject to a number of important limitations and exceptions, including certain provisions permitting the Partnership, subject to the satisfaction of certain conditions, to transfer assets to certain of its unrestricted subsidiaries. Moreover, if the 10.00%/10.75% Second Lien Notes receive an investment grade rating from at least two rating agencies and no default has occurred and is continuing under the 10.00%/10.75% Second Lien Notes Indenture, many of the restrictive covenants in the Second Lien Notes Indenture will be terminated. The Second Lien Notes Indenture also contains customary events of default and acceleration provisions relating to such events of default, which provide that upon an event of default under the
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Second Lien Notes Indenture, the Second Lien Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding 10.00%/10.75% Second Lien Notes may declare all of the 10.00%/10.75% Second Lien Notes to be due and payable immediately.
NOTE 7 – DISCONTINUED OPERATIONS

    On March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division. As a result, we have accounted for our Offshore Division, consisting of our Offshore Services and Maritech segments, as discontinued operations. See Note 8 - “Commitments and Contingencies” for further discussion. A summary of financial information related to our discontinued operations is as follows:

Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations
(in thousands)
Three Months Ended
September 30, 2020
Three Months Ended
September 30, 2019
Offshore Services Maritech Total Offshore Services Maritech Total
Major classes of line items constituting pretax loss from discontinued operations
Revenue $ —  $ —  $ —  $ —  $ —  $ — 
Cost of revenues —  (273) —  (273)
Depreciation, amortization, and accretion —  —  —  52  —  52 
General and administrative expense 171  —  171  1,734  —  1,734 
Other expense, net —  —  —  117  —  117 
Pretax income (loss) from discontinued operations (173) —  (173) (1,630) —  (1,630)
Pretax (loss) on disposal of discontinued operations —  (7,500)
Total pretax (loss) from discontinued operations (173) (9,130)
Income tax provision (benefit) —  — 
Total (loss) from discontinued operations $ (173) $ (9,130)

Nine Months Ended
September 30, 2020
Nine Months Ended
September 30, 2019
Offshore Services Maritech Total Offshore Services Maritech Total
Major classes of line items constituting pretax loss from discontinued operations
Revenue $ —  $ —  $ —  $ —  $ —  $ — 
Cost of revenues (332) —  (332) (251) —  (251)
Depreciation, amortization, and accretion —  —  —  52  —  52 
General and administrative expense 487  —  487  2,483  —  2,483 
Other expense, net —  —  —  117  —  117 
Pretax (loss) from discontinued operations (155) —  (155) (2,401) —  (2,401)
Pretax (loss) on disposal of discontinued operations —  (7,500)
Total pretax (loss) from discontinued operations (155) (9,901)
Income tax provision (benefit) —  — 
Total (loss) from discontinued operations $ (155) $ (9,901)
    
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Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)
September 30, 2020 December 31, 2019
Offshore Services Maritech Total Offshore Services Maritech Total
Carrying amounts of major classes of assets included as part of discontinued operations
Trade receivables $ —  $ —  $ —  $ —  $ —  $ — 
Other current assets —  —  —  —  —  — 
Assets of discontinued operations $ —  $ —  $ —  $ —  $ —  $ — 
Carrying amounts of major classes of liabilities included as part of discontinued operations
Trade payables $ 1,223  $ —  $ 1,223  $ 1,233  $ —  $ 1,233 
Accrued liabilities 401  228  629  745  120  865 
Liabilities of discontinued operations $ 1,624  $ 228  $ 1,852  $ 1,978  $ 120  $ 2,098 
NOTE 8 – COMMITMENTS AND CONTINGENCIES
 
Litigation
 
We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.

Contingencies of Discontinued Operations

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

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

    Pursuant to a Bonding Agreement entered into as part of these transactions (the “Bonding Agreement”), Orinoco provided non-revocable performance bonds in an aggregate amount of $46.8 million to cover the performance by Orinoco and Maritech of the asset retirement obligations of Maritech (the “Initial Bonds”) and agreed to replace, within 90 days following the closing, the Initial Bonds with other non-revocable performance bonds, meeting certain requirements, in the aggregate sum of $47.0 million (collectively, the “Interim Replacement Bonds”). Orinoco further agreed to replace, within 180 days following the closing, the Interim Replacement Bonds with a maximum of three non-revocable performance bonds in the aggregate sum of $47.0 million, meeting certain requirements (the “Final Bonds”). Among the other requirements of the Final Bonds was that they must provide coverage for all of the asset retirement obligations of Maritech instead of only relating to specific properties. In the event Orinoco did not provide the Interim Replacement Bonds or the Final Bonds, Orinoco was required to make certain cash escrow payments to us.
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    The payment obligations of Orinoco under the Bonding Agreement were guaranteed by Thomas M. Clarke and Ana M. Clarke pursuant to a separate guaranty agreement (the “Clarke Bonding Guaranty Agreement”). Orinoco has not delivered such replacement bonds and neither it nor the Clarkes has made any of the agreed upon cash escrow payments and we filed a lawsuit against Orinoco and the Clarkes to enforce the terms of the Bonding Agreement and the Clarke Bonding Guaranty Agreement. A summary judgment was initially granted in favor of Orinoco and the Clarkes which dismissed our claims against Orinoco under the Bonding Agreement and against the Clarkes under the Clarke Bonding Guaranty Agreement. We filed an appeal and also asked the trial court to grant a new trial on the summary judgment or to modify the judgment because we believe this judgment should not have been granted. On November 5, 2019, the trial court signed an order granting our motion for new trial and vacating the prior order granting summary judgment for Orinoco and the Clarkes. The parties are awaiting direction from the court on a new scheduling order and/or trial setting. The Initial Bonds, which are non-revocable, remain in effect.

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

     In early 2018, we also closed the sale of our Offshore Division to Epic Companies, LLC (“Epic Companies,” formerly known as Epic Offshore Specialty, LLC). Part of the consideration we received was a promissory note of Epic Companies in the original principal amount of $7.5 million (the “Epic Promissory Note”) payable to us in full, together with interest at a rate of 1.52% per annum, on December 31, 2019, along with a personal guaranty agreement from Thomas M. Clarke and Ana M. Clarke guaranteeing the payment obligations of Epic Companies pursuant to the Epic Promissory Note (the “Clarke Promissory Note Guaranty Agreement”). Additionally, pursuant to the Equity Interest Purchase Agreement (the “Offshore Services Purchase Agreement”) and other agreements with Epic Companies, certain other amounts relating to the Offshore Division totaling approximately $1.5 million were payable to us. At the end of August 2019, Epic Companies filed for bankruptcy. We recorded a reserve of $7.5 million for the full amount of the promissory note, including accrued interest, and the certain other receivables in the amount of $1.5 million during the quarter ended September 30, 2019. The Epic Promissory Note became due on December 31, 2019 but neither Epic nor the Clarkes made the required payment. Upon the default by Epic and the Clarkes, we filed a lawsuit against the Clarkes on January 15, 2020 in Montgomery County, Texas for breach of the Clarke Promissory Note Guaranty Agreement, seeking the amounts due under the Epic Promissory Note and related interest, as well as attorneys’ fees and expenses. The Clarkes each filed an answer and counterclaims for fraud and negligent misrepresentation and seek monetary damages in excess of $1 million, punitive damages, and attorneys’ fees. After taking discovery from the Clarkes, on August 21, 2020, we filed a Motion for Summary Judgment to recover the principal amount of the note plus interest from the Clarkes and to dismiss their counterclaims. The Court granted the Motion for Summary Judgment and entered Final Judgment in our favor, thereby dismissing the Clarkes’ counterclaims and awarding TETRA the full amount requested pursuant to an Order dated September 23, 2020. The Court awarded TETRA the full amount of $7,887,454, plus post-judgment interest at the rate of 3.52% per annum. On October 21, 2020, the Clarkes filed a Notice of Appeal. We will defend the Clarkes’ appeal and consider the options available to enforce the Court’s Order.

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NOTE 9 – FAIR VALUE MEASUREMENTS
 
Financial Instruments

Warrants

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

Derivative Contracts

    We and CCLP each enter into short term foreign currency forward derivative contracts with third parties as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. As of September 30, 2020, 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 sale Mexican peso 5,464  21.87 October 1, 2020

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

The fair values of foreign currency derivative contracts are based on quoted market values (a Level 2 fair value measurement). The fair values of our and CCLP’s foreign currency derivative contracts as of September 30, 2020 and December 31, 2019, are as follows:
Foreign currency derivative contracts Balance Sheet Location  Fair Value at
September 30, 2020
 Fair Value at
December 31, 2019
(In Thousands)
Forward purchase contracts Current assets $ 59  $ 86 
Forward sale contracts Current liabilities —  (53)
Forward purchase contracts Current liabilities —  (3)
Net asset $ 59  $ 30 

None of our foreign currency derivative contracts contain credit risk related contingent features that would require us to post assets or collateral for contracts that are classified as liabilities. During the three and nine months ended September 30, 2020, we recognized $0.2 million and $(0.7) million, respectively, of net (gains) losses associated with our foreign currency derivative program. During the three and nine months ended September 30, 2019, we recognized $1.0 million and $1.8 million, respectively, of net (gains) losses associated with our foreign currency derivative program. These amounts are reflected in other (income) expense, net, in the accompanying consolidated statement of operations.


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During the nine months ended September 30, 2020, we recorded impairments of approximately $9.0 million, reflecting the decreased fair value for certain assets. The fair values used in these impairment calculations were estimated based on a market approach, which is based on significant unobservable inputs (Level 3) in accordance with the fair value hierarchy. See Note 3 - “Impairments and Other Charges” for further discussion.

Recurring and nonrecurring fair value measurements by valuation hierarchy as of September 30, 2020 and December 31, 2019, are as follows:
    Fair Value Measurements Using
Total as of Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Other Observable Inputs Significant Unobservable Inputs
Description September 30, 2020 (Level 1) (Level 2) (Level 3)
(In Thousands)
Warrants liability
$ (123) $ —  $ —  $ (123)
Asset for foreign currency derivative contracts
59  —  59  — 
Net asset
$ (64)
      Fair Value Measurements Using
Total as of Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Other Observable Inputs Significant Unobservable Inputs
Description December 31, 2019 (Level 1) (Level 2) (Level 3)
(In Thousands)
Warrants liability
$ (449) $ —  $ —  $ (449)
Asset for foreign currency derivative contracts
86  —  86  — 
Liability for foreign currency derivative contracts
(56) —  (56) — 
Net liability
$ (419)

The fair values of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt pursuant to TETRA’s ABL Credit Agreement and Term Credit Agreement, and the CCLP Credit Agreement approximate their carrying amounts. The fair values of the publicly traded CCLP 7.25% Senior Notes at September 30, 2020 and December 31, 2019, were approximately $59.7 million and $266.0 million, respectively. Those fair values compare to the face amount of $80.7 million and $295.9 million at September 30, 2020 and December 31, 2019, respectively. The fair values of the CCLP 7.50% Senior Secured Notes at September 30, 2020 and December 31, 2019 were approximately $360.0 million and $344.8 million, respectively. These fair values compare to aggregate principal amount of such notes at September 30, 2020 and December 31, 2019, of $400.0 million and $350.0 million, respectively. The fair value of the CCLP 10.00%/10.75% Second Lien Notes at September 30, 2020 was approximately $115.5 million. This fair value compares to aggregate principal amount of such notes at September 30, 2020 of $155.5 million. We based the fair values of the CCLP 7.25% Senior Notes, the CCLP 7.50% Senior Secured Notes, and the CCLP 10.00%/10.75% Second Lien Notes as of September 30, 2020 on recent trades for these notes. See Note 6 - “Long-Term Debt and Other Borrowings” for further discussion.

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NOTE 10 – SALE OF ASSETS

In April 2020, we entered into a purchase and sale agreement for the sale of the Midland manufacturing facility within our Compression Division. During the nine months ended September 30, 2020, we recorded an impairment of $3.1 million to reduce this asset to its approximate fair market value based on a market approach and expected net proceeds. The impairment charges are reflected in impairment and other charges in our statement of operations.

On July 2, 2020, we completed the previously announced sale of our Midland manufacturing facility for a total sale price of $17.0 million. The Midland facility was used to design, fabricate and assemble new standard and customized compressor packages. The sale of the Midland facility resulted in a gain of $0.3 million during the three and nine months ended September 30, 2020, which is reflected in other (income) expense, net in our statement of operations.

Additionally, in the third quarter of 2020, we sold the remaining inventory and equipment related to the fabrication of new compressors within our Compression Division for a gain of $0.5 million, which is reflected in other (income) expense, net in our statement of operations for the three and nine months ended September 30, 2020. During the nine months ended September 30, 2020, we recorded an impairment of $2.3 million to reduce the carrying value of the new unit sales inventory to its approximate fair market value based on a market approach. The impairment charges are reflected in impairment and other charges in our statement of operations.

During the third quarter ended September 30, 2020, we completed the sale of 58 low-horsepower units to one of our customers for $2.6 million. During the nine months ended September 30, 2020, we recorded an impairment of $3.7 million to reduce these assets to their approximate fair market value based on a market approach and expected net proceeds. The impairment charges are reflected in impairment and other charges in our statement of operations.
NOTE 11 – NET INCOME (LOSS) PER SHARE

The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income (loss) per common and common equivalent share:
Three Months Ended
September 30,
Nine Months Ended
September 30,
  2020 2019 2020 2019
  (In Thousands)
Number of weighted average common shares outstanding
125,893  125,568  125,789  125,620 
Assumed exercise of equity awards and warrants
—  —  —  — 
Average diluted shares outstanding
125,893  125,568  125,789  125,620 

For the three and nine month periods ended September 30, 2020 and September 30, 2019, the average diluted shares outstanding excludes the impact of all outstanding equity awards and warrants, as the inclusion of these shares would have been anti-dilutive due to the net losses recorded during the periods. In addition, for the three and nine month period ended September 30, 2019, the calculation of diluted earnings per common share excludes the impact of the CSI Compressco LP Series A Convertible Preferred Units (the “CCLP Preferred Units”), as the inclusion of the impact from conversion of the CCLP Preferred Units into CCLP common units would have been anti-dilutive.
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NOTE 12 – INDUSTRY SEGMENTS
 
We manage our operations through three Divisions: Completion Fluids & Products, Water & Flowback Services, and Compression.

 Summarized financial information concerning the business segments is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
  2020 2019 2020 2019
  (In Thousands)
Revenues from external customers        
Product sales    
Completion Fluids & Products Division $ 49,986  $ 55,444  $ 187,419  $ 185,578 
Water & Flowback Services Division 23  100  56  831 
Compression Division 18,801  37,833  64,541  134,099 
Consolidated $ 68,810  $ 93,377  $ 252,016  $ 320,508 
Services    
Completion Fluids & Products Division $ 1,964  $ 3,896  $ 11,114  $ 15,110 
Water & Flowback Services Division 21,511  72,741  103,668  223,812 
Compression Division 60,316  75,933  201,186  219,041 
Consolidated $ 83,791  $ 152,570  $ 315,968  $ 457,963 
Total revenues    
Completion Fluids & Products Division $ 51,950  $ 59,340  $ 198,533  $ 200,688 
Water & Flowback Services Division 21,534  72,841  103,724  224,643 
Compression Division 79,117  113,766  265,727  353,140 
Interdivision eliminations —  —  —  — 
Consolidated $ 152,601  $ 245,947  $ 567,984  $ 778,471 
Income (loss) before taxes    
Completion Fluids & Products Division $ 11,756  $ 11,318  $ 44,354  $ 32,118 
Water & Flowback Services Division (7,746) 2,578  (18,408) 7,269 
Compression Division (11,321) (3,464) (47,117) (14,748)
Interdivision eliminations (1) 10 
Corporate Overhead(1)
(13,472) (17,931) (43,825) (54,921)
Consolidated $ (20,780) $ (7,500) $ (64,986) $ (30,276)

(1)Amounts reflected include the following general corporate expenses:
  Three Months Ended
September 30,
Nine Months Ended
September 30,
  2020 2019 2020 2019
  (In Thousands)
General and administrative expense $ 8,959  $ 12,573  $ 28,650  $ 39,012 
Depreciation and amortization 270  167  643  507 
Interest expense 4,706  5,495  14,909  16,533 
Warrants fair value adjustment (income) expense —  78  (327) (1,035)
Other general corporate income, net (463) (382) (50) (96)
Total $ 13,472  $ 17,931  $ 43,825  $ 54,921 
NOTE 13 – SUBSEQUENT EVENTS

In connection with the Midland manufacturing facility sale discussed in Note 10, we entered into an agreement with the buyer to continue to operate a portion of the facility, which allowed us to close out remaining backlog for the New Unit Sale business and operate our aftermarket services business for an interim period. Following the shipment of the last unit in October, we are no longer fabricating new compressor packages for sales to third parties or for our own service fleet. The operations associated with fabricating new compressor packages will be reported as a discontinued operation in the fourth quarter of 2020.
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In July 2020, we received a purchase order to sell $6.7 million of idle large horsepower compressor units to one of our significant customers. During the third quarter of 2020, we received proceeds and recognized $1.7 million relating to this order. In October 2020, we received the remaining $5.0 million of proceeds and started to deliver the compressor units to the customer. We have and will continue to evaluate the sale of other non-core assets, including our low-horsepower compression fleet. We can provide no assurance that we will consummate a future sale of our low-horsepower compression fleet or any other non-core asset.    
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report. In addition, the following discussion and analysis also should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 16, 2020 (“2019 Annual Report”). This discussion includes forward-looking statements that involve certain risks and uncertainties.
Business Overview  
We are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, comprehensive water management, frac flowback, production well testing and offshore rig cooling services, and compression services and equipment. We operate through three reporting segments organized into three Divisions - Completion Fluids & Products, Water & Flowback Services, and Compression.
Demand for the products and services of our Completion Fluids & Products Division has remained resilient despite the continued significant downward pressure on oil prices and ongoing uncertainty in many of the markets in which we operate. During the third quarter of 2020, lower domestic completion fluids product sales revenues as a result of hurricane activity in the Gulf of Mexico were offset by strong international sales mainly in the Middle East and Europe. However, continuing low prices for oil and gas and further price erosion could adversely affect the demand for our products and services in the future.
Recent macroeconomic uncertainty resulting from depressed commodity prices and the COVID-19 pandemic has particularly affected domestic onshore demand for our Water & Flowback Services Division. We experienced decreased water management services activity during the third quarter of 2020 and without a meaningful recovery, we expect our water management services operations to continue to be negatively impacted in the near future.
Our Compression Division is significantly dependent upon the demand for, and production of, oil and the associated natural gas from unconventional oil and natural gas production in the domestic and international markets in which we operate. During the third quarter of 2020, macroeconomic uncertainty in the oil and natural gas industry continued to drive steep declines in spending by the oil and gas operators but as oil prices stabilized around $40, the pace of horsepower being released slowed in comparison to the second quarter. In addition, the unprecedented drop in U.S. land oil and natural gas activity in the second quarter led to some of our customers temporarily shutting in wells and compression was placed on standby. Customers continued bringing production back online throughout the third quarter and we ended the third quarter with approximately 8% of our US domestic fleet on standby as compared to 15% in the second quarter.
During the first nine months of 2020, we saw our customers revise their capital budgets substantially downward and adjust their operations accordingly, which we believe will continue for an indefinite period. Given the decline in orders for new compression equipment to be fabricated and sold to third parties, in early April 2020, we announced our plan to shut down our Midland manufacturing facility. On July 2, 2020, we completed the previously announced sale of our Midland manufacturing facility for a total sale price of $17.0 million. We continued to operate the facility until the completion and sale of our remaining backlog, which was completed in October 2020. Following the completion of the backlog, we are no longer fabricating new compressor packages for sales to third parties or for our own service fleet.
    During the first quarter of 2020, we concluded that the impact on our customers and industry from the COVID-19 pandemic and decline in oil prices were indicators of impairment for all asset groups within our Compression Division and certain asset groups in our Completion Fluids & Products Division. As a result, we performed a recoverability analysis on all our long-lived asset groups and we determined that the carrying values of our Midland manufacturing facility and related new unit sales inventory exceeded their respective fair values.
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Therefore, we recorded impairments of approximately $5.4 million during the first quarter of 2020 related to these assets. During the second quarter of 2020, as a result of continued negative impacts on our compression fleet associated with the COVID-19 pandemic and declines in oil and gas prices, we recorded impairments and other charges of approximately $9.0 million in our Compression Division associated with non-core used compressor equipment that we have held for sale, the low-horsepower class of our compression fleet, and field inventory for compression and related services. During the third quarter of 2020, no further impairments were recorded. Given the dynamic nature of the events, we are not able to reasonably estimate how long our operations will be impacted and the full impact these events will have on our operations. As a result, we could have indicators of impairment again in future periods resulting in additional asset impairments. We have and will continue to evaluate the sale of non-core assets, including our low-horsepower compression fleet. We can provide no assurance that we will consummate a future sale of our low-horsepower compression fleet or any other non-core asset.

We actively managed our flexible cost structure as a proactive response to the changing market conditions throughout the second and third quarters while taking necessary actions to manage through these conditions, some of which could result in impairments or restructuring charges in future periods. Temporary and permanent cost reductions we have implemented include reductions in 2020 capital expenditures, workforce reductions, salary reductions, the suspension of 401(k) matching contributions for our employees, targeted reduction in SG&A expenses, and negotiated reductions in expenditures with many of our suppliers. While we are not able to predict how long market disruptions resulting from the COVID-19 pandemic will continue, or what impact it will ultimately have on our business, we have seen activity levels stabilizing at the end of the third quarter. Despite challenging market conditions, we will continue to maintain our commitment to safety and service quality for our customers.
How we Evaluate Operations
     We use U.S. GAAP financial measures such as revenues, gross profit, income (loss) before taxes, and net cash provided by operating activities, as well as certain non-GAAP financial measures, including Adjusted EBITDA, as performance measures for our business.
    Adjusted EBITDA. We view Adjusted EBITDA as one of our primary management tools, and we track it on a monthly basis, both in dollars and as a percentage of revenues (typically compared to the prior month, prior year period, and to budget). We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, impairments and certain other non-cash charges and non-recurring adjustments.
    Adjusted EBITDA is used as a supplemental financial measure by our management to:
evaluate the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis; and
determine our ability to incur and service debt and fund capital expenditures.

 
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The following table reconciles net income (loss) to Adjusted EBITDA for the periods indicated:
Three Months Ended
September 30, 2020
Net Income (Loss), as reported Tax Provision Income (Loss) Before Tax, as Reported Impairments & Special Charges Adjusted Income (Loss) Before Tax Interest Expense, Net

Adjusted Depreciation & Amortization
Adjusted Equity Comp. Expense Adjusted EBITDA
(In Thousands)
Completion Fluids & Products Division
$ 11,756  $ 729  $ 12,485  $ (291) $ 1,710  $ —  $ 13,904 
Water & Flowback Services Division
(7,746) 274  (7,472) (77) 7,584  —  35 
Compression Division
(11,321) 879  (10,442) 13,293  19,948  143  22,942 
Eliminations and other
—  —  (3) —  — 
Subtotal
(7,308) 1,882  (5,426) 12,925  29,239  143  36,881 
Corporate and other
(13,472) 1,031  (12,441) 4,706  173  983  (6,579)
TETRA excluding Discontinued Operations
$ (21,425) $ 645  $ (20,780) $ 2,913  $ (17,867) $ 17,631  $ 29,412  $ 1,126  $ 30,302 
Three Months Ended
September 30, 2019
Net Income (Loss), as reported Tax Provision Income (Loss) Before Tax, as Reported Impairments & Special Charges Adjusted Income (Loss) Before Tax Interest Expense, Net Depreciation & Amortization Equity Comp. Expense Adjusted EBITDA
(In Thousands)
Completion Fluids & Products Division
$ 11,318  $ (736) $ 10,582  $ (216) $ 3,676  $ —  $ 14,042 
Water & Flowback Services Division
2,578  76  2,654  (2) 8,568  —  11,220 
Compression Division
(3,464) 3,597  133  12,869  18,459  (211) 31,250 
Eliminations and other
(1) —  (1) —  (3) —  (4)
Subtotal
10,431  2,937  13,368  12,651  30,700  (211) 56,508 
Corporate and other
(17,931) 379  (17,552) 5,495  167  1,539  (10,351)
TETRA excluding Discontinued Operations
$ (9,079) $ 1,579  $ (7,500) $ 3,316  $ (4,184) $ 18,146  $ 30,867  $ 1,328  $ 46,157 

Adjusted EBITDA is a financial measure that is not in accordance with U.S. GAAP and should not be considered an alternative to net income, operating income, cash provided by operating activities, or any other measure of financial performance presented in accordance with U.S. GAAP. This measure may not be comparable to similarly titled financial metrics of other companies, as other companies may not calculate Adjusted EBITDA in the same manner as we do. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable U.S. GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’s decision-making processes.
Critical Accounting Policies and Estimates
 
    There have been no material changes or developments in the evaluation of the accounting estimates and
the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed
in our 2019 Annual Report. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. These judgments and estimates may change as new events occur, 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.    
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Results of Operations

Three months ended September 30, 2020 compared with three months ended September 30, 2019.

Consolidated Comparisons
Three Months Ended
September 30,
Period to Period Change
  2020 2019 2020 vs 2019 % Change
  (In Thousands, Except Percentages)
Revenues $ 152,601  $ 245,947  $ (93,346) (38.0) %
Gross profit 19,970  44,960  (24,990) (55.6) %
Gross profit as a percentage of revenue
13.1