Report of Independent
Registered Public Accounting Firm
To the Plan Participants and the Plan Administrator of TETRA Technologies, Inc. 401(k) Retirement Plan
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of TETRA Technologies, Inc. 401(k) Retirement Plan (the Plan) as of
December 31, 2018
and
2017
, and the related statement of changes in net assets available for benefits for the year ended
December 31, 2018
, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan at
December 31, 2018
and
2017
, and the changes in its net assets available for benefits for the year ended
December 31, 2018
, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Supplemental Schedule
The accompanying supplemental schedule of assets (held at end of year) as of
December 31, 2018
has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The information in the supplemental schedule is the responsibility of the Plan’s management. Our audit procedures included determining whether the information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the information, we evaluated whether such information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ Ernst & Young LLP
We have served as the Plan’s auditor since 1990
Houston, Texas
July 1, 2019
Notes to Financial Statements
December 31, 2018
1. Description of Plan
The following description of the TETRA Technologies, Inc. 401(k) Retirement Plan, as amended and restated (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).
The Plan covers employees of the Company and its affiliates, including the employees of the general partner of CSI Compressco LP (CCLP). The general partner of CCLP, owned by the Company, makes the matching contributions for employees of CCLP.
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 (the IRC) and contains a provision for salary reduction contributions under Section 401(k) of the IRC. Effective October 1, 2018, the Plan and related Trust Agreement were amended and restated by adopting a volume submitter plan. 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 thirty days 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) employees who are residents of Puerto Rico.
Contributions
The Company may contribute an amount equal to a specified matching percentage of the participant’s elective contribution other than “catch-up” contributions. During the first 9 months of 2018, the Company made matching contributions of 50% of the first 6% of the participant’s elective contributions per pay period. Effective October 1, 2018, the Company increased the matching contribution to 50% of the first 8% of the participant's elective contributions per pay period. The maximum elective contribution limit is 70% of the employee's eligible compensation as defined by the Plan. Contributions for each participant are limited in any calendar year to annual “regular” pre-tax contributions on an after-tax Roth 401(k) basis up the applicable combined contribution limits as determined pursuant to the IRC. In addition, employees who are, or will be, age 50 or older by the end of the year may make “catch-up” contributions up to the applicable contributions as determined pursuant to the IRC. Unless the employee elects otherwise, 4% of each eligible employee’s 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 2% at the same time each year until a 6% elective contribution rate has been reached. The 8% 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 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
2018
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.
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. Prior to October 1, 2018, participants were 25% vested after two years of service and vested an additional 25% each year thereafter, becoming 100% vested after five years of service. Effective October 1, 2018, participants become 50% vested after two years of service, and 100% vested after three years of service. Participants who had attained three years of service as of October 1, 2018 but were not 100% vested in the matching contribution and profit sharing contribution portions of their accounts, became 100% vested as of that date. 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
2018
, amounts forfeited by participants totaling
$205,570
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
$128,590
and
$144,490
as of
December 31, 2018
and
2017
, 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, and would receive, within a reasonable time, any funds in their accounts as of the date of the termination.
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.
Plan Transfer
On March 1, 2018, the Company completed the disposition of its Offshore Division. In July 2018, net assets of approximately
$22.4 million
attributable to employees of the Offshore Division were transferred from the Plan to the plan of the acquiring company with no continuing involvement by us as Plan Administrator. The assets transferred out of the Plan are included in the Statement of Changes in Net Assets Available for Benefits as “Other changes in plan assets.”
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 (U.S. GAAP). Benefit payments to participants are recorded upon distribution.
Use of Estimates
The preparation of financial statements in conformity with U.S. 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, 2018
or
2017
. 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.
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). Refer to Note 3 for further discussion and disclosure related to fair value.
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.
Accounting Pronouncements
New pronouncements issued but not effective until after December 31, 2018, are not expected to have a material impact on the Plan's financial statements or disclosures.
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;
|
|
|
|
|
•
|
quoted prices for identical or similar assets or liabilities in markets that are not active;
|
|
|
|
|
•
|
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.
|
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:
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|
|
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|
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|
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|
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Assets at Fair Value as of December 31, 2018
|
|
|
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Level 1
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Level 2
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|
Level 3
|
|
Total
|
|
TETRA Technologies, Inc. common stock
|
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$
|
1,191,283
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,191,283
|
|
|
Mutual funds
|
|
96,867,452
|
|
|
—
|
|
|
—
|
|
|
96,867,452
|
|
|
|
|
$
|
98,058,735
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
98,058,735
|
|
|
Investments measured at net asset value:
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|
|
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|
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Stable Value Fund (a)
|
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|
|
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|
|
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6,702,279
|
|
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Total assets at fair value
|
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$
|
104,761,014
|
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|
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|
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|
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Assets at Fair Value as of December 31, 2017
|
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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
|
|
$
|
2,902,713
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,902,713
|
|
|
Mutual funds
|
|
122,199,136
|
|
|
—
|
|
|
—
|
|
|
122,199,136
|
|
|
|
|
$
|
125,101,849
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
125,101,849
|
|
|
Investments measured at net asset value:
|
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|
|
|
|
|
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Stable Value Fund (a)
|
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|
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|
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$
|
6,991,964
|
|
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Total assets at fair value
|
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$
|
132,093,813
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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 estimated 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 volume submitter plan has received an advisory letter from the Internal Revenue Service (IRS) dated August 2, 2017, stating that the form of the Plan is qualified under Section 401 of the IRC, and therefore, the related trust is tax exempt. The Plan Administrator has determined that it is eligible to, and has chosen to, rely on the current IRS advisory letter. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and, therefore, believes the Plan is qualified and the related trust is tax-exempt.
U.S. GAAP requires 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, 2018
, 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.
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 at
December 31, 2018
to the Form 5500:
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December 31, 2018
|
|
|
|
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|
Net assets available for benefits per the financial statements
|
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$
|
107,856,109
|
|
|
Participant loans reduced by deemed distributions
|
|
(1,195
|
)
|
|
Net assets available for benefits per the Form 5500
|
|
$
|
107,854,914
|
|
The following is a reconciliation of benefits paid to participants and deemed distributions of participant loans per the financial statements for the year ended
December 31, 2018
to Form 5500:
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December 31, 2018
|
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Benefits paid to participants per the financial statements
|
|
$
|
12,267,067
|
|
|
Deemed distributions of participant loans at 12/31/2017
|
|
(58,912
|
)
|
|
Deemed distributions of participant loans at 12/31/2018
|
|
1,195
|
|
|
Benefits paid to participants per the Form 5500
|
|
$
|
12,209,350
|
|
The following is a reconciliation of the net increase in net assets available for benefits per the financial statements to the net income per the Form 5500:
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|
|
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December 31, 2018
|
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Net decrease in net assets available for benefits per the financial statements
|
|
$
|
(28,276,527
|
)
|
|
Transfer to acquiring company's plan (Note 1)
|
|
22,447,780
|
|
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Deemed distributions of participant loans at 12/31/2017
|
|
58,912
|
|
|
Deemed distributions of participant loans at 12/31/2018
|
|
(1,195
|
)
|
|
Net income per Form 5500
|
|
$
|
(5,771,030
|
)
|
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 under ERISA.
T. Rowe Price Retirement Plan Services, Inc. provides certain administrative services to the Plan pursuant to a Plan Recordkeeping Agreement (the “Agreement”) between the Company and T. Rowe Price Retirement Plan Services, Inc. T. Rowe Price Retirement Plan Services, Inc. receives fees and/or credits from non-proprietary investments for the provision of recordkeeping, administrative, and shareholder services T. Rowe Price Retirement Plan Services, Inc. provides to the investments. This revenue is used to offset certain amounts owed to T. Rowe Price Retirement Plan Services, Inc. for its administrative services provided to the Plan.
If the revenue received by T. Rowe Price Retirement Plan Services, Inc. from such investments does not exceed the amount owed under the Agreement, T. Rowe Price Retirement Plan Services, Inc. will bill the Company on a quarterly basis. The Plan or the Company may make a payment to T. Rowe Price Retirement Plan Services, Inc. for administrative expenses not covered by sharing of the excess revenue.
Supplemental Schedule