<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
Commission file number 0-18335
TETRA Technologies, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2148293
(State of incorporation) (I.R.S. Employer
Identification No.)
25025 I-45 NORTH, THE WOODLANDS, TEXAS 77380
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (281) 367-1983
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
------- --------
As of November 7, 1996 there were 12,880,247 shares of the Company's
common stock, $.01 par value per share, issued and outstanding.
<PAGE> 2
ITEM 1. Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------- --------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
($ Thousands)
Revenues:
Product sales $34,952 $21,609 $90,717 $60,979
Services 9,296 6,440 23,589 17,751
Rentals 910 374 1,756 1,035
------- ------- -------- -------
Total Revenues 45,158 28,423 116,062 79,765
------- ------- -------- -------
Cost of Revenues:
Cost of product sales 26,111 15,539 64,358 41,734
Cost of services 6,812 3,499 16,861 11,483
Cost of rentals 347 164 770 284
------- ------- -------- -------
Total Cost of Revenues 33,270 19,202 81,989 53,501
------- ------- -------- -------
Gross Profit 11,888 9,221 34,073 26,264
General and Administrative Expense 6,746 5,689 19,961 16,739
------- ------- -------- -------
Operating Income 5,142 3,532 14,112 9,525
Interest Expense 440 0 713 14
Interest Income 104 215 141 572
Equity in Earnings (losses) from Joint Ventures 199 (52) 436 (129)
Other Income 61 101 242 225
------- ------- -------- -------
Income Before Income Taxes 5,066 3,796 14,218 10,179
Provision for Income Taxes 1,733 1,359 5,169 3,836
------- ------- -------- -------
Net Income $ 3,333 $ 2,437 $ 9,049 $ 6,343
======= ======= ======== =======
Net Income per Common and
Common Equivalent Share $ 0.25 $ 0.19 $ 0.67 $ 0.49
======= ======= ======== =======
Weighted Average Common and Common
Equivalent Shares Outstanding 13,503 13,073 13,441 13,013
======= ======= ======== =======
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE> 3
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
($ Thousands) 1996 1995
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,067 $ 7,510
Trade accounts receivable, net of allowance for doubtful
accounts of $1,399 in 1996 and $1,568 in 1995 38,042 33,042
Costs and estimated earnings in excess of billings
on incomplete contracts 2,022 1,443
Inventories 23,752 16,309
Current portion of notes receivable 100 89
Deferred tax assets 1,143 1,451
Prepaid expenses and other current assets 1,936 1,515
-------- --------
Total Current Assets 72,062 61,359
Property, Plant and Equipment:
Land and building 8,122 7,890
Machinery and Equipment 37,671 33,465
Automobiles and trucks 4,494 4,099
Chemical plants 44,583 31,370
Construction in progress 4,051 3,255
-------- --------
98,921 80,079
Less accumulated depreciation and amortization (33,426) (25,471)
-------- --------
Net Property, Plant, and Equipment 65,495 54,608
Other Assets:
Patents and licenses, net of accumulated amortization
of $728 in 1996 and $673 in 1995 465 519
Investment in Joint Ventures 5,887 4,189
Cost in excess of net assets acquired, net of accumulated
amortization of $771 in 1996 and $552 in 1995 6,046 3,944
Notes receivable, less current portion 279 308
Other, net of accumulated amortization of $994 in 1996
and $669 in 1995 6,094 4,994
-------- --------
Total Other Assets 18,771 13,954
-------- --------
$156,328 $129,921
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 4
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
($ Thousands) 1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 2,405 $ 2,262
Trade accounts payable 20,902 18,554
Accrued expenses 8,455 8,811
Billings in excess of costs and estimated
earnings on incomplete contracts 361 44
Current portions of all long-term debt and capital
lease obligations 1,710 1,600
-------- --------
Total Current Liabilities 33,833 31,271
Long-term Debt, less current portion 17,437 3,377
Capital Lease Obligations, less current portion 811 502
Deferred Income Taxes 4,869 4,977
Other liabilities 449 508
Commitments and contingencies
Stockholders' Equity:
Common stock, par value $.01 per share
40,000,000 shares authorized, with 12,877,264 shares
issued and outstanding in 1996 and 12,809,580 shares
issued and outstanding in 1995 129 128
Additional paid-in capital 63,288 62,691
Cumulative Translation Adjustment (93) (89)
Retained earnings 35,605 26,556
-------- --------
Total Stockholders' Equity 98,929 89,286
-------- --------
$156,328 $129,921
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 5
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
($ Thousands) 1996 1995
-------- --------
<S> <C> <C>
Operating Activities:
Net Income $ 9,049 $ 6,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,349 4,469
Undistributed (earnings) losses from joint venture (436) 129
Provision for deferred income taxes 282 (127)
Provision for doubtful accounts 471 119
(Gain) on sale of property, plant and equipment (9) (83)
Changes in operating assets and liabilities,
net of assets acquired:
Trade accounts receivable (4,121) (1,539)
Costs and estimated earnings in excess
of billings on incomplete contracts (579) 4
Inventories (6,321) (1,782)
Prepaid expenses and other current assets (196) (775)
Trade accounts payable and accrued expenses 312 4,391
Billings in excess of costs and estimated
earnings on incomplete contracts 318 146
Other (999) (688)
-------- --------
Net cash provided by operating activities 4,120 10,607
-------- --------
Investing Activities:
Purchases of property, plant and equipment (9,224) (13,882)
Acquisition of businesses, net of cash acquired (9,320) 0
Investment in Joint Venture (1,076) 0
Payments from notes receivable 18 114
Proceeds from sale of property, plant and equipment 188 182
Sale of marketable securities 0 4,854
Increase in other assets 0 0
-------- --------
Net cash used by investing activities (19,414) (8,732)
-------- --------
Financing Activities:
Net repayments and borrowings from short-term credit lines 143 0
Proceeds from long-term debt and capital
lease obligations 15,871 513
Principal payments on long-term debt and capital
lease obligations (3,761) (533)
Proceeds from sale of common stock and exercised stock options 598 0
-------- --------
Net cash used by financing activities 12,851 (20)
-------- --------
Increase (Decrease) in cash and cash equivalents (2,443) 1,855
Cash & Investments at Beginning of Period 7,510 8,403
-------- --------
Cash & Investments at End of Period $ 5,067 $ 10,258
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. The Company's
investment in its joint ventures is stated at cost plus equity in undistributed
earnings. All significant intercompany balances and transactions have been
eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X for interim financial
statements required to be filed with the Securities and Exchange Commission and
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, the
information furnished reflects all normal recurring adjustments which are, in
the opinion of management, necessary to a fair statement of the results for the
interim periods.
The accompanying financial statements should be read in conjunction
with the audited financial statements for the year ended December 31, 1995.
For the purposes of the statements of cash flows, the Company
considers all highly liquid cash investments with a maturity of three months or
less to be cash equivalents.
Interest paid on debt during the nine months ended September 30, 1996
and 1995 was $931,000 and $240,000, respectively.
Income tax payments made during the nine months ended September 30,
1996 and 1995 were $2,491,000 and $1,895,000, respectively.
In March 1995, FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The adoption of Statement 121 in
the first quarter of 1996 had no effect on the operations of the Company.
NOTE B - COMMITMENTS AND CONTINGENCIES
The Company, its subsidiaries and other related companies are named
defendants in other lawsuits and respondents in certain governmental
proceedings arising in the ordinary course of business. While the outcome of
lawsuits or other proceedings against the Company cannot be predicted with
certainty, management does not expect these matters to have a material adverse
impact on the Company.
NOTE C - ACQUISITIONS
Effective October 1, 1996, the Company consummated two acquisitions
for cash. The assets of Production Test, Inc., a well testing service company,
were purchased for $1.5 million. These assets will be merged into TETRA's
domestic onshore service operations in the Oil & Gas Services Division. The
Company also acquired the stock of Wilchem Corporation for approximately $7.5
million. Wilchem Corporation is a major marketer of mold and mildew
preventative products and will be integrated into the Specialty Chemicals
Division's operations. Both acquisitions will be accounted for under the
purchase method of accounting.
- 5 -
<PAGE> 7
In the second quarter, the Company acquired the outstanding stock of
Industrias Sulfamex, S.A. DE C.V. ("Sulfamex") for approximately $8 million.
The acquisition was funded by the Company drawing $10 million from its line-
of-credit, $2 million of which was used to retire existing Sulfamex debt. The
purchase price was allocated to the acquired assets and liabilities based on a
preliminary determination of their respective fair values. The acquisition has
been accounted for under the purchase method of accounting. The excess of the
purchase price over the book value of the net assets acquired was approximately
$2.1 million and is being amortized over 20 years. Pro forma information with
respect to the acquisition has not been presented as such amounts are not
material. Sulfamex is a Mexican corporation that produces certain
manganese-based chemicals for distribution predominantly into U.S. markets.
During the quarter ended March 31, 1996, the Company purchased the
assets of Culberson Well Service, Inc. for approximately $1.4 million.
Culberson Well Service, Inc. is an oilfield service company providing services
along the Gulf Coast. The assets purchased consisted of machinery and
equipment. The transaction was accounted for under the purchase method of
accounting. Pro forma information with respect to the acquisition has not been
presented as such amounts are not material.
NOTE D - NET INCOME 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 per common and common equivalent share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number
of common shares outstanding . . . . . . . . . . . 12,877,264 12,681,778 12,857,992 12,667,014
Assumed exercise of stock options . . . . . . . . . . 625,526 391,092 583,437 346,281
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding . . . . . . . . . . . 13,502,790 13,072,870 13,441,429 13,013,295
========== ========== ========== ==========
</TABLE>
In applying the treasury stock method to determine the dilutive effect
of the stock options outstanding during the third quarter of 1996, the average
market price of $18.01 was used.
- 6 -
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Three months September 30, 1996 compared with three months ended September 30,
1995.
Total revenues for the quarter ended September 30, 1996 were $45.2
million compared to $28.4 million in the prior period, an increase of $16.8
million or 59%. Revenues from the Oil & Gas Services Division continued to
improve as activity in the Gulf Coast remains very strong. International
revenues also improved, reflecting a strengthening in these markets as well.
The Division's plug and abandon operations also improved by benefitting from
the increased activity and acquisitions. Specialty Chemicals Division revenues
also improved significantly due to improved dry calcium chloride sales and
revenues from acquisitions.
Gross profits were $11.9 million in the 1996 quarter compared to $9.2
million in the 1995 quarter, for an improvement of $2.7 million or 29%. Gross
profit as a percentage of revenue decreased from 32% in 1995 to 26% in 1996.
The gross margin for the quarter was impacted by significant increases in
revenues from lower-margin heavy completion fluid sales in the Oil & Gas
Services Division and from sales of high-cost startup inventories at TETRA's
new Lake Charles calcium chloride facility in the Specialty Chemicals Division.
Recent strengthening of heavy brine completion fluids prices and the reduction
of the high-cost calcium chloride inventory should increase the profit margin
percentage throughout the fourth quarter and into 1997.
General and administrative expenses were $6.7 million in 1996 compared
to $5.7 million in 1995. The inclusion of acquired operations accounted for a
significant portion of this increase. General and administrative expenses as a
percentage of revenues continued to drop from 20% in 1995 to 15% in 1996.
Operating income for the quarter ended September 30, 1996 was $5.1
million, up $1.6 million or 46% from $3.5 million in 1995. This increase is
the combined result of a gross margin increase of $5.4 million due to increased
revenue volume and a $2.7 decrease due to lower gross margin rates, offset by a
$1.1 increase in general and administrative expenses.
Interest expense increased during the current quarter due in part to
the capitalization of 1995 interest in conjunction with the Lake Charles plant
expansion. Additionally, the long-term debt has increased by over $16 million
in the past twelve months in support of the Company's acquisition program
resulting in increase interest expense. Interest income is down as a result of
lower levels of cash available for investment, due principally to increased
levels of capital improvements and acquisitions.
Net income after taxes for the three months ended September 30, 1996
was $3.3 million versus $2.4 million in 1995, an increase of $0.9 million or
38%. Net income per share was $0.25 in the 1996 quarter based on 13,503,000
weighted average common and common equivalent shares outstanding compared to
earnings in 1995 of $0.19 based on 13,073,000 weighted average common and
common equivalent shares outstanding.
Nine months ended September 30, 1996 compared with Nine months ended September
30, 1995.
For the nine months ended September 30, 1996, total revenues were
$116.1 million up $36.3 million or 46% over the 1995 period total of $79.8
million. The Oil & Gas Services Division accounted for a substantial portion
of this increase, with revenues in both the Gulf Coast and plug and abandon
operations up considerably. Revenues from the Specialty Chemicals Division
also improved over the prior year, principally through the acquisition of two
agriculture businesses, American MicroTrace, Inc. and Industrias Sulfamex, S.A.
CE C.V. The sale of liquid and dry calcium chloride also increased in the 1996
period, somewhat offsetting a decrease in performance chemical sales.
- 7 -
<PAGE> 9
Gross profits were $34.1 million in 1996 compared to $26.3 million in
1995, an increase of $7.8 million or 30%. Gross profit as a percentage of
revenues was 29% in 1996 down from 33% in 1995. This decrease is attributable
to higher than anticipated distribution costs and lower margin filtration and
denitrification projects within the Specialty Chemicals Division. In addition,
higher than planned product costs attributable to the new plant startup from
the new Lake Charles plant also contributed to this decrease.
General and administrative expenses were $20 million in 1996 compared
to $16.7 million in 1995. Additional expenses from acquired operations and
settlements costs of several legal suits accounted for most of this increase.
As a percentage of revenues, 1996 expenses were 17% down significantly from 21%
in 1995.
Operating income for the nine months ended September 30, 1996 was
$14.1 million compared to $9.5 million in 1995, an increase of $4.6 million or
48%. This increase is attributable to a gross margin improvement of $12
million relating to increased volume less $4.1 million from lower gross margin
rates, offset by increased general and administrative expenses of $3.3 million.
Net income after taxes for the first nine months of 1996 totaled $9.1
million versus $6.3 million in the comparable 1995 period. Net income per
share was $0.67 in the 1996 period based on 13,441,000 weighted average common
and common equivalent shares outstanding compared to earnings for the 1995
period of $0.49 based on 13,013,000 weighted average common and common
equivalent shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased from $30.1 million at December
31, 1995 to $38.2 million at September 30, 1996, an increase of $8.1 million.
An increase in borrowings under the Company's line-of-credit plus additional
working capital acquired from Sulfamex accounted for the majority of this
increase. Trade receivables increased $5 million reflecting the significant
growth in sales volume during the third quarter. Inventories were up $7.4
million reflecting increased operating activities in both domestic and
international oil and gas markets. Additionally, within the Specialty
Chemicals Division inventories of dry calcium chloride were up as the new dry
plant production came on-line and agricultural product inventories also
increased due to weak weather-related sales activity. Other significant
components of the Company's working capital changes included an increase in
accounts payable of approximately $2.3 million in conjunction with increased
inventory levels required to support the increases in revenues.
The Company has announced its intention to augment internal growth
with acquisitions. The emphasis of these purchases has been and will continue
to be in areas where TETRA has technological leadership or existing
distribution channels such as acids, metals, agricultural products or oil and
gas services. To fund this acquisition program, the Company will use existing
cash and cash flow as well as its general purpose, unsecured, prime rate $30
million line-of-credit with NationsBank and Texas Commerce Bank. As of
September 30, 1996, the Company has $4 million in letters of credit and $15
million in long-term debt outstanding, leaving net availability of $11 million.
The terms of the current line have been extended until the Company concludes
negotiations to increase this line of credit to $60 million. In addition to
this expanded line, the Company has five million shares of TETRA common stock
covered by a shelf registration statement that are available to finance its
acquisition program.
Major investing activities during the nine months ended September 30,
1996 included the acquisition of Culberson Well Service, Inc. ("Culberson")
for approximately $1.4 million and the purchase of Industrias Sulfamex, S.A.
DE C.V. ("Sulfamex") for $8.0 million. Culberson is an oilfield service
company in the Gulf Coast market and was incorporated into the Oil & Gas
Services Division. Sulfamex is located in Tampico, Mexico where they
manufacture manganese-based chemicals for distribution principally into U.S.
markets. The transaction was funded by the Company drawing $10 million from
its line-of-credit, $2 million of which was used to retire existing Sulfamex
debt. The Company also contributed approximately $1.1 million to its 50% owned
RETEC/TETRA joint venture,
- 8 -
<PAGE> 10
thereby completing its investment obligation under the partnership agreement.
Additionally, the Company has continued to lease significant additional bromine
reserves in close proximity to its Magnolia, Arkansas plant.
Subsequent to the quarter end, the Company consummated two additional
acquisitions. The assets of Production Test, Inc. and the stock of Wilchem
Corporation were purchased for $1.5 million and $7.5 million, respectively.
These cash transactions were funded by drawing against the Company's existing
line of credit.
Capital expenditures during the nine months ended September 30, 1996
totaled approximately $ 9.2 million, a significant portion of which was
associated with the major expansion of the Lake Charles plant. The expanded
dry calcium chloride facility began start-up operations in late 1995 with
de-bottlenecking continuing during the first and second quarters of 1996. When
fully operational, production from the new dry calcium chloride plant is
expected to approximate 105,000 tons per year. Additional expenditures were
incurred to acquire oil and gas blending and filtration equipment, plug and
abandon rig equipment and specialty chemicals transportation and distribution
equipment.
The Company believes that its existing funds, cash generated by
operations, funds available under its bank line of credit, as well as other
traditional financing arrangements, such as secured credit facilities, leases
with institutional leasing companies, and vendor financing will be sufficient
to meet its current and anticipated operations and its anticipated capital
expenditures through 1996 and thereafter.
- 9 -
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company, its subsidiaries and other related companies are named
defendants in a number of lawsuits and respondents in certain governmental
proceedings arising in the ordinary course of business. While the outcome of
lawsuits or other proceedings against the Company cannot be predicted with
certainty, management does not expect these matters to have a material adverse
impact on the Company.
ITEM 6. EXHIBITS
(a) Exhibits
(i) A statement of computation of per share earnings is included in
Note D of the Notes to Consolidated Financial Statements included
in this report and is incorporated by reference into Part II of
this report.
(b) Reports on Form 8-K: None
- 10 -
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TETRA Technologies, Inc.
Date: November 13, 1996 By: /s/ Geoffrey M. Hertel
--------------------------------------
Geoffrey M. Hertel
Executive Vice President -
Finance and Administration
(Principal Financial Officer)
Date: November 13, 1996 By: /s/ Bruce A. Cobb
--------------------------------------
Bruce A. Cobb, Corporate Controller
(Principal Accounting Officer)
- 11 -
<PAGE> 13
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,067
<SECURITIES> 0
<RECEIVABLES> 39,541
<ALLOWANCES> 1,399
<INVENTORY> 23,752
<CURRENT-ASSETS> 72,062
<PP&E> 98,921
<DEPRECIATION> 33,426
<TOTAL-ASSETS> 156,328
<CURRENT-LIABILITIES> 33,833
<BONDS> 19,958
0
0
<COMMON> 129
<OTHER-SE> 98,929
<TOTAL-LIABILITY-AND-EQUITY> 156,328
<SALES> 90,717
<TOTAL-REVENUES> 116,062
<CGS> 64,358
<TOTAL-COSTS> 81,989
<OTHER-EXPENSES> 19,961
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 713
<INCOME-PRETAX> 14,218
<INCOME-TAX> 5,169
<INCOME-CONTINUING> 9,049
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,049
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
</TABLE>
