Notes to Financial Statements
December 31, 2015
1. Description of Plan
The following description of the TETRA Technologies, Inc. 401(k)
Retirement Plan (the Plan) is provided for general information only. Participants should refer to the
Plan Document
and
Summary Plan
Description
for a more complete description of the Plan’s provisions, a copy of which is available from TETRA Technologies, Inc. (the Company
or Plan Administrator).
General
The Plan,
which initially
became effective January 1, 1990, is a profit sharing plan as defined by Section 401(a) of the Internal Revenue Code
of 1986, as amended
(IRC) and contains a provision for salary reduction
contributions under Section 401(k) of the IRC. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended
(ERISA).
The Company is the designated administrator of the Plan and the Plan is advised by the 401(k) Committee, which currently consists of certain employees of the Company.
T.
Rowe Price
Trust Company (TRP or Trustee) is the trustee of the Plan.
Eligibility
Employees who have attained age 18 are eligible to participate in the Plan beginning on the first
day of any calendar month coincident with or following completion of six months of service. However, the following employees or classes of employees are not eligible to participate: (i) employees who are non-resident aliens and who receive no earned income
from the Company which constitutes income from sources within the United States; (ii) leased employees; and (iii) reclassified employees and independent contractors.
Contributions
The maximum elective contribution limit is 70% of
eligible Plan
compensation. Contributions for each participant are limited in any calendar year to annual “regular” and “catch-up” contribution limits as determined
pursuant to the
IRC. Unless the employee elects otherwise, 3% of each eligible employee’s
eligible Plan
compensation is automatically contributed to the Plan on a pre-tax basis. The Plan provides an automated service which increases the employee’s
elective
contribution rate by 1% at the same time each year until a 6%
elective
contribution rate has been reached. The 6%
elective
contribution rate is the amount needed to take advantage of the full Company match, if any. The employee is reminded annually before any such increase takes place and can elect to change the elective contribution rate at any time by contacting TRP. Employees have the option to
elect a 0%
elective contribution rate
or to change their
elective contribution rate
in accordance with the Plan.
The Company may contribute an amount equal to a specified matching percentage of the participant’s
elective
contribution.
During
2015
, the Company made matching contributions of 50% of the first 6% of the participant’s elective contributions per pay period. Subsequent to year end, in May 2016, the Company suspended its matching contribution of participants' contributions. The Company may, at the discretion of the Board of Directors, re-implement its matching contribution at a future date.
The Company may also, at the discretion of the
Board of Directors, make a profit sharing contribution to the Plan at the end of each fiscal year. Such Company contribution would be
allocated to Plan participants, who are employed on December 31 of such year,
in the same ratio that each participant’s
eligible Plan
compensation
bears to the total
eligible Plan
compensation of all participants.
No profit sharing contribution was made for the
2015
Plan year.
Participants have the right to direct the investment of their contributions, including the Company’s matching contributions and profit sharing, if any, into any of the investment options offered by the Plan.
Participant contributions and company contributions for which no participant investment direction is given are automatically allocated to age appropriate target date mutual funds. These target date mutual funds provide an asset allocation and investment strategy based on a future retirement date.
If the contributions of a participant are automatically allocated to a target date mutual fund, the participant may elect to change such investments in accordance with the Plan.
Company Stock Fund
The Plan
permits participants to
invest in common stock of the Company through
the Plan’s Company Stock Fund. The Company Stock Fund may also hold cash or other short-term securities, although these are expected to be a small percentage of the fund.
The Plan limits the amount a participant can invest in the Company Stock Fund, to encourage diversification of participants’ accounts. Each payroll period, a participant can direct up to a maximum of 50% of their contributions to the Company Stock Fund. In addition, a participant may not transfer amounts from other investment funds into the Company
Stock Fund to the extent the transfer would result in more than 50% of the participant’s total account balance being invested in the Company Stock Fund.
Vesting
Participants are immediately vested in their
elective
contributions, as adjusted for earnings and losses thereon. Vesting in the
matching
contribution
and profit sharing
contribution portions
of their accounts, if any, as adjusted for earnings and losses thereon, is based on years of service. Participants are 25% vested after two years of service and vest an additional 25% each year thereafter, becoming 100% vested after five years of service.
Upon a participant’s death, disability or normal retirement, the participant becomes 100% vested in his or her entire account. Except as otherwise described herein,
participants forfeit any non-vested
matching
contribution
and profit sharing contribution
portions
of their accounts in the Plan upon termination of employment with the Company.
Benefit Payments and Forfeitures
Upon termination of employment for any reason,
a participant’s vested balance is payable in a lump sum
or installments.
Amounts which are forfeited by participants due to termination of employment are used as a credit against the Company’s matching and profit sharing contributions, if any. During
2015
, amounts forfeited by participants totaling $606,382
were used as a credit against Company-paid matching contributions. Cumulative forfeitures relating to prior period activity and available to be applied against any future Company-paid matching contributions or profit sharing were approximately $120,215 and $121,573
as of
December 31, 2015
and
2014
respectively.
Plan
Amendment and
Termination
The Company has the right under the Plan to amend or terminate
the Plan, subject to applicable law. In the event of Plan termination, participants would become 100% vested in their accounts.
Participant Loans
Participants, during their time of employment, may borrow from their fund accounts a minimum of $1,000, up to a maximum equal to the lesser of $50,000 or 50% of their vested account balances. Loan terms range from 1 to 5 years, or up to 15 years for the purchase of
the participant’s
primary residence. The loans are secured by the balances in the participants’ accounts and bear interest at rates established at the inception of the loan, set at one percentage point higher than the prime lending rate as posted in the Wall Street Journal (or similar financial publication). Principal and interest are paid ratably, generally through payroll deductions.
Administrative Expenses
Certain administrative expenses are paid by the Company.
2. Summary of Accounting Policies
Basis of Accounting
The accompanying financial statements of the Plan have been prepared using the accrual basis of accounting in accordance with
U.S. generally accepted accounting principles (GAAP). Benefit
payments to participants are recorded upon distribution.
Use of Estimates
The preparation of financial statements in conformity with
GAAP
requires management to
make estimates that affect the amounts reported in the financial statements and accompanying notes and schedule. Actual results could differ from
those estimates.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses and are recorded when they are incurred. No allowance for credit losses has been recorded as of
December 31, 2015
or
2014
. If a participant ceases to make loan repayments and the plan administrator deems the participant loan to be a distribution, the participant loan balance
is reduced and a benefit payment is recorded.
New Accounting Pronouncements
In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent), (ASU 2015-07). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value practical expedient provided by Accounting Standards Codification 820, Fair Value Measurement. Disclosures about investments in certain entities that calculate net asset value per share are limited under ASU 2015-07 to those investments for which the entity has elected to estimate the fair value using the net asset value practical expedient. ASU 2015-07 is effective for entities (other than public business entities) for fiscal years beginning after December 15, 2016, with retrospective application to all periods presented. Early application is permitted. The Company has elected to early adopt ASU 2015-07.
In July 2015, the FASB issued ASU 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient. Part I of ASU 2015-12 eliminates the requirements to measure the fair value of fully benefit-responsive investment contracts and provide certain disclosures. Contract value is the only required measure for fully benefit-responsive investment contracts. Part II of ASU 2015-12 eliminates the requirements to disclose individual investments that represent 5 percent or more of net assets available for benefits and the net appreciation or depreciation in fair value of investments by general type. It also simplifies the level of disaggregation of investments that are measured using fair value. Plans will continue to disaggregate investments that are measured using fair value by general type; however, plans are no longer required to also disaggregate investments by nature, characteristics and risks. Further, the disclosure of information about fair value measurements shall be provided by general type of plan asset. Parts I and III of ASU 2015-12 is not applicable to the Plan. ASU 2015-12 is effective for fiscal years beginning after December 15, 2015. Part II is to be applied retrospectively. Early application is permitted. The Company has elected to adopt Part II of ASU 2015-12 early.
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (an exit price).
Short term
investments are valued at cost, which approximates fair value.
Purchases and sales of securities are recorded on a trade date basis.
Interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date.
3. Fair Value Measurements
Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted
quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 – Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.
Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
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•
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quoted prices for similar assets and liabilities in active markets;
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•
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quoted prices for identical or similar assets or liabilities in markets that are not active;
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•
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observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g.,interest rate and yield curve quotes at commonly quoted intervals); and
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•
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inputs that are derived principally from
or corroborated by observable market data by correlation or other means.
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Level 3 – Unobservable inputs for the asset or liability (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumption about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
The level in the fair value hierarchy within which the fair value measurement is classified is determined based
on
the lowest priority input that is significant to the fair value measure in its entirety.
The following tables set
forth by
level
within the fair value hierarchy, the Plan’s assets carried at
fair value for the years ended
December 31, 2015
and
2014
:
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Assets at Fair Value as of December 31, 2015
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Level 1
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Level 2
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Level 3
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Total
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TETRA Technologies, Inc. common stock
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$
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4,702,291
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$
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—
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$
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—
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$
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4,702,291
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Mutual funds
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116,903,135
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—
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—
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116,903,135
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$
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121,605,426
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$
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—
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$
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—
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$
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121,605,426
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Investments measured at net asset value:
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Stable Value Fund (a)
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9,266,492
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Total assets at fair value
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$
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130,871,918
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Assets at Fair Value as of December 31, 2014
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Level 1
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Level 2
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Level 3
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Total
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TETRA Technologies, Inc. common stock
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$
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5,350,107
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$
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—
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$
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—
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$
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5,350,107
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Mutual funds
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121,244,510
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121,244,510
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$
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126,594,617
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$
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—
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$
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—
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$
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126,594,617
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Investments measured at net asset value:
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Stable Value Fund (a)
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$
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9,562,005
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Total assets at fair value
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$
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136,156,622
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(a)
This
category includes a common/collective trust fund that is designed to deliver safety and stability by preserving principal and accumulating earnings. This fund is primarily invested in guaranteed investment contracts and synthetic investment contracts. Participant-directed redemptions have no restrictions; however, the Plan is required to provide a one year redemption notice to liquidate its entire share in the fund. The fair value of this fund is based on the net asset value as reported by the issuer of the fund, which is determined based on the fair value of the underlying investment contracts in the fund.
The Plan’s valuation methodology used to measure the fair values of Company stock and mutual funds were derived
from quoted market prices, as these instruments have active markets. Common collective trust funds are measured at net asset value as determined by the issuer. The net asset value is used as a practical expedient to estimate fair value.
4.
Income Tax Status
The underlying non-standardized
prototype plan has received an opinion letter from the Internal Revenue Service (IRS) dated March 31, 2008, stating that the form of the Plan is qualified under Section 401(a) of the IRC, and therefore, the related trust is tax exempt. In accordance with Revenue Procedures 2015-6 and 2011-49, the Plan Administrator has determined that it is eligible to and has chosen to rely on the current IRS prototype plan opinion letter. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator has indicated that it will take the necessary steps, if any, to bring the Plan's operation into compliance with the IRC.
U.S. generally accepted accounting principles require plan management to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical
merits, to be sustained upon examination by the IRS. The
Plan
Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of
December 31, 2015
, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits in progress for any tax periods. The
Plan
Administrator believes it is no longer subject to income tax examinations for years prior to 2012.
5. Reconciliation of the Financial Statements to the Form 5500
The following is a reconciliation of the net assets available for benefits and the changes in net assets available for benefits per the financial statements to the Form 5500.
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December 31, 2015
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December 31, 2014
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Net assets available for benefits per the financial
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statements
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$
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136,402,557
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$
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142,046,268
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Adjustment from contract value to fair value for
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fully benefit-responsive investment contracts
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—
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140,657
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Net assets available for benefits per the
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Form 5500
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$
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136,402,557
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$
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142,186,925
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The following
is a reconciliation of the net
decrease in net assets available for benefits per the financial statements to the net
loss
per the Form 5500.
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Year Ended
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December 31, 2015
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Net decrease in net assets available for benefits per
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the financial statements
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$
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(5,643,711
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)
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Change in adjustment from contract value to fair
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value for fully benefit-responsive investment contracts
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(140,657
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)
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Net loss per Form 5500
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$
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(5,784,368
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)
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As discussed in Note 2, the Plan early adopted Part II of ASU 2015-12 in the current year. As a result, the Plan no longer identifies the Fidelity Managed Income Portfolio Fund as a fully benefit-responsive investment contract. The financial statements and the Form 5500 both present the Fidelity Managed Income Portfolio Fund at fair value using the net asset value practical expedient as of December 31, 2015. The Form 5500 measured fair value in a different manner as of December 31, 2014.
6. Risks and Uncertainties
The Plan provides for investments in various investment securities, that in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits and
participant account balances.
7. Related Party Transactions
Certain investments of the Plan are managed by T. Rowe Price
Trust
Company, the Trustee of the Plan, and therefore, these transactions qualify as party-in-interest transactions.
The Plan also invests in shares of the Company's common stock and these transactions also qualify as party-in-interest transactions.
All of these
transactions are exempt from the prohibited transactions rules.
Supplemental Schedule