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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File No. 0-18335
TETRA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware 74-2148293
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25025 I-45 North
The Woodlands, Texas 77380
(Address of principal executive offices) (Zip Code)
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(Registrant's Telephone Number, Including Area Code): (281) 367-1983
Securities Registered Pursuant to Section 12(b) of the Act:
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Common Stock, par value $0.01 per share New York Stock Exchange
(Title of class) (Name of Exchange on Which Registered)
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Securities Registered Pursuant to Section 12(g) of the Act: NONE
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the common stock of TETRA Technologies,
Inc. held by non-affiliates (based upon the March 20, 1998 closing sale price
as reported by the New York Stock Exchange) ($22.625 per share) was
approximately $300,324,657. For purposes of the preceding sentence only, all
directors, executive officers and beneficial owners of 10% or more of the
common stock are assumed to be "affiliates".
Number of shares outstanding of each of the issuer's classes of common
stock, as of March 20, 1998 was 13,520,741 shares.
Part III information is incorporated by reference from the proxy
statement for the annual meeting of stockholders to be held May 15, 1998.
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TABLE OF CONTENTS
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PART I
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 13
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . 18
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 18
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 19
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . 19
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This Annual Report on Form 10-K contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, including,
without limitation, statements concerning future sales, earnings, costs,
expenses, acquisitions or corporate combinations, asset recoveries, working
capital, capital expenditures, financial condition and other results of
operation. Such statements reflect the Company's current views with respect to
future events and financial performance and are subject to certain risks,
uncertainties and assumptions, including those discussed in "Item 1.
Description of Business -- Certain Business Risks." Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
believed, estimated or projected.
PART I
ITEM 1. BUSINESS.
GENERAL
TETRA Technologies, Inc. ("TETRA" or "the Company") is a
specialty inorganic chemical company selling products, services and process
technologies to a variety of markets, including oil and gas, agriculture and
environmental services.
The Company's Specialty Chemicals Division manufactures and
markets specialty chemicals to the agriculture, water treatment, industrial,
cement, food processing, ice melt and energy markets. The division uses
proprietary technology to convert low-cost feedstocks into high quality
commercial products. The Division's Process Technologies group employs
proprietary technologies to provide engineered systems and services that treat
industrial and municipal wastewater and potable water and in some cases solid
waste streams, to ensure compliance with environmental effluent requirements,
to achieve on-site waste minimization, and/or to recover reusable constituents.
The Process Services group reduces or eliminates refinery and petrochemical
waste from process industries. The Performance Chemicals group develops
custom-tailored chemical treatment programs to meet specific customer needs,
and the Agriculture group manufactures and distributes calcium chloride-based
agricultural products and zinc and manganese products for animal and plant
nutrition. The division also participates in the consumer products market,
offering an array of desiccant products under the trade name DampRid(R).
The Company's Oil & Gas Services Division markets chemicals,
including those produced by the Specialty Chemicals Division, to the oil and
gas industry for use in well completion and workover operations in both
domestic and international markets. It also provides complementary on-site
fluid engineering, fluid management and handling services and filtration for
completion and workover applications. The Oil & Gas Services Division also
offers a specialty drilling fluids product line and oil, gas well abandonment
services and production testing services.
TETRA Technologies, Inc. was incorporated in Delaware in 1981.
All references to the Company or TETRA include TETRA Technologies, Inc. and its
subsidiaries. The Company's corporate headquarters are located at 25025
Interstate 45 North in The Woodlands, Texas, and its phone number is
281/367-1983.
PRODUCTS AND SERVICES
SPECIALTY CHEMICALS DIVISION. The principal operations of the
Specialty Chemicals Division are the manufacture and marketing of various
commercial chemical products. The division has ten chemical facilities that
focus on three primary product lines: calcium chloride, bromine products and
micronutrients. These plants primarily convert low-cost, low-value raw
materials produced by industrial chemical manufacturing processes into high
quality products. The division provides technologies and services to the
industrial and municipal wastewater and potable water markets,
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as well as a line of custom-tailored performance chemicals. The division also
offers a line of consumer products that incorporate dry calcium chloride to
reduce mold and mildew. In 1997, the Company acquired the remaining 50 percent
interest in RETEC/TETRA that it did not previously own and renamed the company
TETRA Process Services. This group provides services that reduce or eliminate
refinery and petrochemical waste from process industries.
The Specialty Chemicals Division has four calcium chloride
production facilities that convert hydrochloric acid and weak calcium chloride
solutions into various liquid and dry calcium chloride products. These
operations are located near Arco's Lake Charles, Louisiana TDI plant; Shell's
Norco, Louisiana epoxy resins plant; Vulcan's Wichita, Kansas chlorinated
solvents plant; and DuPont's Parkersburg, West Virginia fluoropolymers plant.
The Company is currently constructing a new plant in Wood County, West
Virginia, which will convert hydrochloric acid produced by an ongoing DuPont
fluoromonomer-polymer expansion at Parkersburg into liquid calcium chloride.
This facility will also consume other feedstock sources as well and is
scheduled for startup in late 1998. Dry calcium chloride is produced at the
Company's Lake Charles plant. With production capacity at almost 100,000 tons
of dry product per year, the Lake Charles plant can now produce a new 80%
calcium chloride pellet to complement its 97% product.
The division's West Memphis, Arkansas plant produces calcium
bromide and zinc bromide using zinc- containing sludges from electroplating
operations and low-cost hydrobromic and hydrochloric acid. In late 1996, the
Company entered into a joint venture with Dow Chemical Company to build a
facility at Dow's Ludington, Michigan chemical facility that will convert a
crude bromine stream from Dow's calcium/magnesium chemicals operation into
purified bromine and bromine derivatives. The first phase of the facility is
scheduled to start producing calcium bromide in the first quarter of 1998. The
second phase will convert bromine into a purified material or sodium bromide,
and is targeted to come online later in 1998. The division's Magnolia,
Arkansas facility is designed to produce calcium bromide, although it is not
currently in operation.
Liquid calcium chloride, liquid zinc bromide and liquid calcium
bromide are referred to as clear brine fluids ("CBFs") in the oil and gas
industry. CBFs are solids-free, clear salt solutions that, like conventional
drilling "muds", have high specific gravities and are used as weighting fluids
to control bottom-hole pressures during oil and gas completion and workover
activities. The use of CBFs increases production by reducing the likelihood of
damage to the well bore and productive pay zone. CBFs are particularly
important in offshore completion and workover operations due to the increased
formation sensitivity, much greater investment necessary to drill offshore, and
the consequent higher cost of error. CBFs are distributed through the
Company's Oil & Gas Services Division.
The division's Agriculture group manufactures and distributes
calcium chloride-based agricultural products and zinc and manganese sulfate
micronutrients for animal and plant nutrition. Production facilities are
located in Tampico, Mexico; Fairbury, Nebraska; and Lamesa, Texas. The Company
believes that calcium chloride is an efficient vehicle for delivering calcium
to plants and, when combined with nitrogen-based fertilizers, increases the
efficiency of nitrogen fertilizers. These calcium chloride and nitrogen
products are sold as liquid blends under the name N-CAL(R). The Company's
research has also discovered that certain calcium chloride-based products will
also reduce sodium in the soil. As a result, the Company has developed and
introduced a soluble liquid calcium blended product, ReNew(TM), that remediates
severe sodium chloride contaminated soils which occur naturally and as a result
of spills of saltwater, as often found at oil and gas well sites. This product
displaces the harmful sodium with a concentrated source of calcium, helping to
restore vegetation and improve soil structure for increased water infiltration
and permeability. The Company has also developed a related product, ACCEL(TM),
that helps to remediate soils contaminated with hydrocarbons. This proprietary
blend contains nutrients that promote and accelerate growth of microorganisms
present in the soil for a more efficient and economical bioremediation process.
The Company has steadily expanded its presence in the feed and
fertilizer markets over the last few years. The Company's American MicroTrace
Corporation subsidiary ("AMT") manufactures and distributes zinc sulfate and
manganese sulfate micronutrients, which are widely used to provide trace
minerals to meet the nutritional needs of animals and plants. AMT acquires its
zinc raw material feedstocks from a variety of sources and combines them with
sulfuric acid to produce zinc sulfate. This plant was modified in 1997 to
accommodate additional sources of low-cost,
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metal-containing streams as feedstocks. The Company's Industrias Sulfamex S.A.
de C.V. ("Sulfamex") facility in Tampico, Mexico manufactures manganese sulfate
for distribution, predominately into U.S. markets. This plant is currently
being expanded to include a new manganous oxide production facility which will
provide lower-cost raw materials and a higher assayed manganese sulfate
product. This expansion, scheduled for completion in late 1998, is designed to
increase manganese sulfate production capacity by 50% while providing a higher
grade 32% manganese product and permitting direct sales of manganous oxide.
As part of the Specialty Chemicals Division, the Process
Technologies group provides three principal types of systems and services:
biological filtration, heavy metals removal and chemical separation systems.
Biological filtration systems and services include deepbed filtration systems
that capture insoluble organics, oils, greases, nutrients, inorganics, digested
solids and viruses suspended in industrial and municipal effluents. The
Company also provides specialized systems and services for the removal of heavy
metals from wastewaters generated by a variety of industrial and mining
operations. These systems incorporate the Company's proprietary High Density
Solids (HDS(TM)) process, which concentrates metals solids into a dense
product. The Company's Continuous Countercurrent Ion Exchange (CCIX(TM))
technology removes and separates metals, acids, nutrients and other chemical
constituents from wastewater and potable water streams. This proprietary
process produces a highly concentrated stream of the constituent removed and is
used not only for the efficient removal of unwanted wastewater constituents but
for the production of desired products from solutions of low concentration.
The division's Performance Chemicals group is a service-oriented
group that develops, implements and/or monitors custom-tailored chemical
treatment programs to meet specific needs of its customers and then identifies,
purchases and/or blends a variety of polymers, resins and other chemicals, many
of which the Company has recycled, to meet these needs. In conducting its
business, the Performance Chemicals group also defines and locates
opportunities for the Company's process technology applications.
The Specialty Chemicals Division entered into the consumer
products market late in 1996 with the acquisition of Wilchem Corporation, which
sells products under the trade name Vapor Products(R). Wilchem manufacturers a
line of desiccant products under the trademark DampRid(R), which reduce mold
and mildew. The primary ingredient in these products is dry calcium chloride.
This acquisition has enabled the division to vertically integrate its dry
calcium chloride business and access the consumer products markets. The
division plans to utilize Wilchem's distribution channels to market certain
other products.
The division's Process Services group utilizes various
technologies, including a proprietary thermal desorption technology, to
separate, collect and recycle volatile hydrocarbons and other hazardous
constituents from EPA-listed refinery sludges. This thermal process has been
approved by the EPA as "Best Demonstrated Available Technology". This
operation also participates in the "Waste Derived Fuels" market by preparing
oily refinery sludges for use as a fuel source to cement kiln operators and for
use in cokers.
OIL & GAS SERVICES DIVISION. The Oil & Gas Services Division
provides custom blended CBFs to domestic and international oil and gas well
operators, based on the specific need of the customer and the proposed
application of the product. In addition, the division also provides these
customers a broad range of complementary services, including on- site fluid
filtration, handling and recycling, fluid engineering consultation, and fluid
management assistance. The Company also repurchases used calcium bromide and
zinc bromide CBFs from operators and recycles these materials. Revenues from
repurchased CBFs reduce the net cost of the CBFs to the operators by reducing
the cost and management involved in disposing of those fluids. The Company
recycles the CBFs through filtration, blending and the addition of chemicals,
and then markets the recycled CBFs.
The Oil & Gas Services Division's fluid engineering and
management personnel use proprietary technology to determine proper blends for
a particular application to maximize the effectiveness and life span of the
CBFs. The specific volume, density, crystallization point and chemical
composition of the CBFs are modified by the Company to satisfy a customer's
requirements. The Company's filtration services involve the use of a variety
of techniques and equipment for the on-site removal of particulates from CBFs
so that those CBFs can be recirculated back
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into the well. The Company's filtration systems reduce fluid loss, which
allows operators to complete and workover wells in environmentally sensitive
areas with greater safety. This also enables recovery of a greater percentage
of used CBFs for recycling.
The economic viability of a well is enhanced by optimizing oil
and gas recovery from the producing payzone. The Oil & Gas Services Division,
through its PayZone(R) Drilling Fluids product line, has become a leader in the
use of clear brine fluids for the protection of the sensitive pay zone during
drilling, completing, underreaming, reentry and workover operations.
The Oil & Gas Services Division's well abandonment business
provides services onshore, in inland waters and offshore Texas and Louisiana
for depleted oil and gas wells. The division first entered this business in
1994 with its acquisition of Pacer-Atlas, Inc. in an effort to expand the
quality services offered to its customers and to capitalize on existing
personnel, equipment and facilities along the Louisiana and Texas Gulf Coast.
The well abandonment business was significantly expanded in 1996 with the
purchase of the assets of Culberson Well Service in Texas and Inland Rigs in
Louisiana. Altogether this business operates onshore rigs, nine barge-mounted
rigs, one jack- up rig and offshore rigless packages and has operating hubs in
Bryan, Rosenberg and Victoria, Texas and Lafayette and Houma, Louisiana. The
Company expanded its well abandonment services further in 1997 by acquiring
certain assets from Posey Pipe and Equipment, which operates an oilfield
tubular goods sales, reconditioning and service business. Well abandonment
services are marketed through its nine service facilities in Houma and
Lafayette, Louisiana and Alice, Bryan, Rosenberg, Edinburg, Laredo, Midland,
and Victoria, Texas.
The division further expanded the onshore services it offers by
acquiring the assets of Production Test, Inc. ("PTI") in 1996. These
operations provide pressure and volume testing of oil and gas wells
predominantly in the South Texas area. PTI provides sophisticated evaluation
techniques needed for reservoir management and optimization of well work-over
programs. The division continued to expand its services in 1997 through the
acquisition of Perfco, an electric wireline service company. Perfco provides
pressure transient testing, reservoir evaluation, well performance evaluation,
cased hole and memory production logging, perforating, bridge plug and packer
service and pipe recovery to major oil companies operating in the Gulf of
Mexico. The division's Production Testing group maintains the largest fleet of
high pressure production testing equipment in the South Texas area, with
operations in Alice, Edinburg and Laredo, Texas, as well as Reynosa, Mexico.
SOURCES OF RAW MATERIALS.
SPECIALTY CHEMICAL DIVISION. The primary sources of raw
materials for the Specialty Chemicals Division are low-cost chemical co-product
streams.
At the Norco, Louisiana; Wichita, Kansas; Lake Charles,
Louisiana; and Parkersburg, West Virginia calcium chloride production plants,
the principal sources of raw material are co-product hydrochloric acid and weak
calcium chloride produced by other chemical companies. The Company has written
agreements with those chemical companies regarding the supply of these raw
materials, but believes that there are numerous alternative sources of supply.
Substantial quantities of limestone are also consumed when converting
hydrochloric acids into calcium chloride. The Company purchases limestone from
several different sources and incorporates a proprietary process that permits
the use of less expensive limestone while maintaining end-use product quality.
To produce zinc bromide, calcium bromide and zinc chloride at its
West Memphis facility, the Company consumes hydrobromic acid and various zinc
sources. Hydrobromic acid is obtained from several major producers of
brominated intermediate products. The chemical process to manufacture zinc
bromide requires the purification of the zinc sources into a high quality zinc
feedstock. The zinc sources are obtained from a number of major steel
companies and other sources. In addition, the Company is able to extract zinc
from zinc-bearing sludges with proprietary technologies supplied by its Process
Technologies group.
The Company entered into a series of agreements with the Dow
Chemical Company ("Dow") in 1997 to purchase crude bromine and build a bromine
derivatives plant at Dow's magnesium and calcium chloride facility in
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Ludington, Michigan. The new Ludington plant, which is expected to start up in
the first quarter of 1998, will give the Company the flexibility to produce
bromine, sodium bromide and calcium bromide. The Company's need for bromine or
its derivatives has increased steadily. Initially a significant portion of
TETRA's completion fluids business, demand for these products has increased
with the use of bromides in its PayZone(R) Drilling Fluids.
The Company owns a calcium bromide manufacturing plant near
Magnolia, Arkansas, that was constructed in 1985 and has a production capacity
of 100 million pounds of calcium bromide per year. This plant was acquired in
1988 and has been shutdown since then. The Company currently has approximately
30,000 gross acres of bromine reserves under lease. While this plant is
designed to produce calcium bromide, it could be modified to produce elemental
bromine or select bromine compounds. The Company believes it has sufficient
brine reserves under lease to operate a world-scale bromine facility for 25 to
30 years. Development of the brine field, construction of necessary pipelines
and reconfiguration of the plant would take several years and require a
substantial additional capital investment by the Company.
OIL & GAS SERVICES DIVISION. The Oil & Gas Services Division
purchases calcium chloride, calcium bromide and zinc bromide from the Specialty
Chemicals Division for resale to its oil and gas customers. The Oil & Gas
Services Division recycles zinc and calcium bromide CBFs repurchased from its
oil and gas customers. The division also purchases CBFs from two domestic and
one foreign chemical manufacturer. During 1996, the division entered into a
long-term supply agreement with a foreign producer of calcium bromide. This
agreement, coupled with the products to be produced at the new Ludington plant
and the existing West Memphis, Arkansas plant, should afford the Company
additional flexibility in its development of the Magnolia plant, allowing it to
consider manufacturing other bromine derivatives at that facility.
MARKET OVERVIEW AND COMPETITION
SPECIALTY CHEMICALS DIVISION. Many chemical companies devote
limited resources to the use or marketing of co-products produced by their own
operations. As a result, a market exists for the design, manufacture,
processing and sale of products based on these co-product as raw materials,
which tend to be lower in cost than virgin raw materials. The Company believes
that the demand for its co-product processing services could increase in the
future as environmental regulations become more stringent. The Specialty
Chemicals Division sells its products and services into retail distribution as
well as end use markets.
The manufacture of calcium chloride from co-product acid is the
principal example of the Company's processing operations. The Company's major
competitors of dry calcium chloride include General Chemical Company, a
Canadian company, and Dow Chemical Company, the only other U.S. producer of
significant quantities of dry calcium chloride. The Company does, however,
expect an additional U.S. competitor, Ambar Chemical, Inc., to enter the dry
product market in 1998. Management of the Company believes that Dow is capable
of producing approximately 800,000 tons of dry calcium chloride annually
through conventional manufacturing methods. With a smaller investment, the
Company has been able to produce and successfully market dry calcium chloride
by using low-cost co-product acid, thereby becoming a niche competitor in a
market that is dominated by two larger companies.
Markets for the Company's liquid and dry calcium chloride
products include industrial, municipal, mining, janitorial and consumer markets
for snow and ice removal, dust control, cement production, road stabilization,
oil and gas operations, and certain agricultural and food industry activities.
In food processing, high grade calcium chloride is used to preserve crispness
in certain canned and bottled fruits and vegetables and to tenderize meat by
enhancing enzyme activity.
The Company has expanded its concept of using mineral acids, such
as hydrochloric, sulphuric and hydrobromic acid to produce calcium chloride,
zinc bromide, zinc chloride, manganese sulfate, zinc sulfate and calcium
bromides, to other chemicals and metals. The Company is also recovering zinc
from certain zinc-bearing materials for manufacturing into zinc chemicals, and
is conducting tests on aluminum, nickel, copper and chrome recovery for resale
as commercial products.
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OIL & GAS SERVICES DIVISION. The Oil & Gas Services Division
markets and sells clear brine fluids and related products and services to major
markets worldwide. Current foreign areas of market presence include the North
Sea, Mexico, South America and West Africa. The Division's principal
competitors in the sale of CBFs to the oil and gas industry are Baroid
Corporation, a subsidiary of Dresser Industries, Inc., M.I. Drilling Fluids,
which is jointly owned by Halliburton Company and Smith International, Inc.,
Ambar Chemical, Inc., and OSCA, Inc., a subsidiary of Great Lakes Chemical
Corporation. This market is highly competitive and competition is based
primarily on service, availability and price. Although Baroid and OSCA both
provide fluid handling, filtration and recycling services, the Company believes
that its historical focus on providing these and other value-added services to
its customers has enabled it to compete very successfully with both companies.
Because of the significant use of CBFs in deeper natural gas and offshore well
completions and workovers, a modest change in drilling in these areas could
have a material impact on the profitability of both the Specialty Chemicals and
Oil & Gas Services Divisions. Major customers of the Oil & Gas Services
Division include Shell Oil Company, Texaco, Baker Hughes, Amerada Hess, British
Petroleum, Oryx Energy, Unocal, Elf Acquitane, Chevron USA, Phillips Petroleum
Company, Conoco USA, and Atlantic Richfield Corporation.
The division's well abandonment services group markets its
services to major oil and gas companies, independent operators, and state
governmental agencies. Major customers include Texaco, Exxon, Shell, Chevron,
Amoco, Fina, Conoco, Union Pacific Resources, Sonat, and the Railroad
Commission of the State of Texas. The geographical scope of these services
include the upper and lower Gulf Coast regions of Texas, South Texas, West
Texas, East Texas, Louisiana, Gulf Coast inland waterways, and the shallow,
state waters of the Gulf of Mexico. The Company's principal competitors in
this business include Superior Energy Services, Inc., Cardinal Services, Total
Abandonment Services, Delta Seaboard, Pool Energy Services Company, Key Energy
Group, and Dawson Production Services, Inc. This market is highly competitive
and competition is based primarily on service, availability, and price. The
division believes its focus on core competency in well abandonment operations
has allowed it to better provide the complete portfolio of equipment,
experience, and administration required to manage its customers' needs.
Competitors of the division's Production Testing group include
Fresco, Dawson Production Services, Inc., TriTech, and Clemenson. Major
customers include Conoco, Pioneer, Cabot, Fina, Shell, Chevron, Coastal, Enron,
Houston Exploration, Texaco, UPR, and other independents. In Mexico, TETRA is
currently under contract to Pemex, IPM, and Halliburton.
OTHER BUSINESS MATTERS
MARKETING AND DISTRIBUTION
The Specialty Chemicals Division markets its products and
services through offices and sales agents in Pennsylvania, Virginia, Texas,
Florida, Connecticut, California, Georgia, Wyoming and Mexico, as well as
through a network of distributors located throughout the Midwest, West,
Northeast, Southeast and Southwest. To service these distributors, the
division has over two dozen distribution facilities strategically located to
provide efficient, low- cost product availability. The marketing efforts of
the Process Technologies group are primarily conducted by technical and
management professionals located in Pittsburgh, Pennsylvania; Tampa, Florida;
and The Woodlands, Texas. These personnel maintain communications with
appropriate corporate representatives, consulting firms and specialty
contractors as sources of potential business. This group also retains
specialized municipal sales representatives and monitors and responds to
requests for proposals for competitive bids.
The Oil & Gas Services Division markets its domestic products and
services through its sixteen distribution facilities located principally in the
United States' Gulf Coast region that are in close proximity to both product
supplies and customer concentrations. Since transportation costs can represent
a large percentage of the total delivered cost of chemical products,
particularly liquid chemicals, the division believes that its strategic
locations make it one of the lowest cost suppliers of liquid calcium chloride
and other CBFs in the southern United States. International markets that are
served include the British and Norwegian sectors of the North Sea, Colombia,
Mexico, Venezuela, Western Africa and the Far East.
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BACKLOG
The Company ships most of its products within seven days of
receipt of an order. Accordingly, the level of backlog is not indicative of
corporate sales activity. On December 31, 1997, the Company had an estimated
backlog of work of $24 million, of which approximately $13 million is expected
to be billed during 1998. On December 31, 1996, the Company had an estimated
backlog of $2.9 million.
EMPLOYEES
As of December 31, 1997, the Company had 1,290 employees. The
Company believes that its relations with its employees are good. None of the
Company's U.S. employees are covered by a collective bargaining agreement.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company actively pursues a policy of seeking patent
protection both in the U.S. and abroad for appropriate technology. The Company
owns or licenses 29 U.S. patents and has 11 patents pending. Many of these
have foreign counterparts. These patents expire at various times through 2015.
While the Company believes that the protection of patents is important to its
business, the Company does not believe any one patent is essential to the
success of the Company. The Company has elected to keep some internally
developed technologies as trade secrets.
The Company also relies on patents, trade secrets, know-how and
continuing technological advancements to maintain its competitive position.
Current proprietary technologies include: liquid N-CAL(R) fertilizer blends,
PayZone(R) products blends, Savage Plate(TM) and Amphidrome(TM) technologies
for waste and potable water treatment industries, ReNew(TM) and ACCEL(TM)
technologies for soil remediation, and a number of process technologies. All
of these items have been in development for a period of time and it is
impossible to predict which may be commercially viable in the future.
It is the practice of the Company to enter into confidentiality
agreements with key employees, consultants and third parties to whom the
Company discloses its confidential and proprietary information. There can be
no assurance, however, that these measures will prevent the unauthorized
disclosure or use of the Company's trade secrets and expertise or that others
may not independently develop similar trade secrets or expertise. Management of
the Company believes, however, that it would require a substantial period of
time, and substantial resources, to develop similar know-how or technology
independently. As a policy, TETRA uses any legal means possible to protect its
patents, trade secrets and other proprietary information.
ENVIRONMENTAL REGULATION
Various environmental protection laws and regulations have been
enacted and amended during the past three decades in response to public
concerns over the environment. The operations of the Company and its customers
are subject to the various evolving environmental laws and corresponding
regulations, which are enforced by the US Environmental Protection Agency (EPA)
and various other federal, state and local environmental authorities. Similar
laws and regulations designed to protect the health and safety of the Company's
employees and visitors to its facilities are enforced by the US Occupational
Safety and Health Administration (OSHA) and other state and local agencies and
authorities. The Company must comply with the requirements of environmental
laws and regulations applicable to its operations, including the Federal Water
Pollution Control Act of 1972 ("The Clean Water Act"), the Resource
Conservation and Recovery Act of 1976 ("RCRA"), the Clean Air Act of 1977 ("The
Clean Air Act"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA" - "Superfund") the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Federal Insecticide, Fungicide, and
Rodenticide Act of 1947 ("FIFRA"), Hazardous Materials Transportation Act of
1975 ("HMTA") and Pollution Prevention Act of 1990. The Company is also
subject to the applicable environmental and health and safety rules and
regulations of the local, state and federal agencies in Mexico for its Sulfamex
operation in Tampico, Mexico. Many
- 8 -
<PAGE> 10
state and local agencies have imposed environmental laws and regulations impose
stricter standards than their federal counterparts. The Company and its
customers and suppliers are affected by all these regulatory programs.
At the Company's Lake Charles, West Memphis, Parkersburg and
Fairbury plants, the Company holds various permits regulating air emissions,
wastewater and storm water discharges, the disposal of certain hazardous and
non- hazardous wastes, and wetlands. The Company's AMT subsidiary has also
submitted a RCRA Part B storage permit application for its Fairbury facility.
The Company, in addition, is subject to certain federal and state community-
right-to-know regulations.
The Company believes that its chemical manufacturing plants and
other facilities are in general compliance with all the applicable
environmental and health and safety laws and regulations. Since its inception,
the Company has not had a history of any significant fines or claims in
connection with environmental or health and safety matters. However, risks of
substantial costs and liabilities are inherent in certain plant operations and
certain products produced at the Company's plants and there can be no assurance
that significant costs and liabilities will not be incurred. Changes in the
environmental and health and safety regulations could subject the Company's
handling, manufacture, use, reuse, or disposal of materials at plants to
stricter scrutiny. The Company cannot predict the extent to which its
operations may be affected by future regulatory and enforcement policies.
CERTAIN BUSINESS RISKS
The Company identifies the following important risk factors,
which could affect the Company's actual results and cause actual results to
differ materially from any such results that might be projected, forecast,
estimated or budgeted by the Company in this report:
MARKETS
The Company's operations are materially dependent on the
level of oil and gas well completion and workover activity, both in the United
States and internationally. Such activity level is affected both by short-term
and long-term trends in oil and gas prices. In recent years, oil and gas
prices and, therefore, the level of well completion and workover activity, have
been volatile. Worldwide military, political and economic events, including
initiatives by the Organization of Petroleum Exporting Countries, have
contributed to, and are likely to continue to contribute to, price volatility.
Any prolonged reduction in oil and gas prices may depress the level of well
completion and workover activity and result in a corresponding decline in the
demand for the Company's products and services and, therefore, have a material
adverse effect on the Company's revenues and profitability.
Much of the Company's growth strategy, particularly in its
specialty chemicals operations, depends upon its ability to sell its products
in markets in which it is not now well-established or to customers it does not
now serve. There is no assurance that the Company's efforts to penetrate these
markets will be successful.
COMPETITION
The Company encounters and expects to continue to
encounter intense competition in the sale of its products. The Company
competes with numerous companies in its speciality chemicals and oil and gas
operations and with numerous companies in its process technologies operations.
Many of the Company's competitors have substantially greater financial and
other resources than the Company. To the extent these competitors offer
comparable products or services at lower prices, or higher quality and more
cost-effective products or services, the Company's business could be materially
adversely affected.
- 9 -
<PAGE> 11
SUPPLY OF RAW MATERIALS
The Company sells a variety of clear brine fluids,
including brominated clear brine fluids such as calcium bromide, zinc bromide
and sodium bromide, and other brominated products, some of which are
manufactured by the Company and some of which are purchased from third parties.
The Company also sells calcium chloride, as a clear brine fluid and in other
forms and for other applications. Sales of calcium chloride and brominated
products contribute significantly to the Company's revenues. In its
manufacture of calcium chloride, the Company uses hydrochloric acid and other
raw materials purchased from third parties. In its manufacture of brominated
products, the Company uses hydrobromic acid and other raw materials purchased
from third parties. The Company acquires brominated products from a variety of
third party suppliers. The Company believes that its supplies of brominated
products and hydrobromic and hydrochloric acid are currently adequate, and the
Company has taken steps to protect itself from future shortages. However, if
the Company were unable to acquire the brominated products or hydrobromic or
hydrochloric acid or any other raw material supplies for a prolonged period,
the Company's business could be materially adversely affected.
POTENTIAL LIABILITY FOR ENVIRONMENTAL OPERATIONS; ENVIRONMENTAL REGULATION
The Company's operations are subject to extensive and
evolving Federal, state and local laws and regulatory requirements, including
permits, relating to environmental affairs, health and safety, waste management
and chemical products. Governmental authorities have the power to enforce
compliance with these regulations and permits, and violators are subject to
civil and criminal penalties, including civil fines, injunctions or both.
Third parties may also have the right to pursue legal actions to enforce
compliance. It is possible that increasingly strict environmental laws,
regulations and enforcement policies could result in substantial costs and
liabilities to the Company and could subject the Company's handling,
manufacture, use, reuse, or disposal of substances or pollutants to scrutiny.
The Company's business exposes it to risks such as the potential for harmful
substances escaping into the environment and causing damages or injuries, which
could be substantial. Although the Company maintains general liability
insurance, this insurance is subject to coverage limits and generally excludes
coverage for losses or liabilities relating to environmental damage or
pollution. The Company maintains a limited amount of specific environmental
liability insurance for only one of its plants. Although the Company believes
that it conducts its operations prudently and that it minimizes its exposure to
such risks, the Company could be materially adversely affected by an
enforcement proceeding or a claim that was not covered or was only partially
covered by insurance.
In addition to increasing the Company's risk of
environmental liability, the promulgation of stricter environmental laws,
regulations and enforcement policies has accelerated the growth of some of the
markets served by the Company. Even though the Company's future business
success is not dependent on increased regulation of environmental matters,
decreased regulation and enforcement could materially adversely affect the
demand for the types of systems offered by the Company's process technologies
operations and, therefore, materially adversely affect the Company's business.
RISKS RELATED TO ACQUISITIONS AND INTERNAL GROWTH
The Company's aggressive growth strategy includes both
internal growth and growth by acquisitions. Acquisitions require significant
financial and management resources both at the time of the transaction and
during the process of integrating the newly acquired business into the
Company's operations. Internal growth requires both financial and management
resources as well as hiring additional personnel. The Company's operating
results could be adversely affected if it is unable to successfully integrate
such new companies into its operations or is unable to hire adequate personnel.
Future acquisitions by the Company could also result in issuances of equity
securities or the rights associated with the equity securities, which could
potentially dilute earnings per share. In addition, future acquisitions could
result in the incurrence of additional debt or contingent liabilities and
amortization expenses related to goodwill and other intangible assets. These
factors could adversely affect the Company's future operating results and
financial position.
- 10 -
<PAGE> 12
RELIANCE ON SIGNIFICANT CUSTOMERS
In 1997 one customer accounted for more than 10% of
consolidated revenues with revenues of $22 million. In 1996 and 1995, two
customers accounted for more than 10% of consolidated revenues. Revenues from
these customers were $20.7 million and $15.9 million in 1996 and $20.5 million
and $15.2 million in 1995. The loss of any of these customers could have a
material adverse effect on the Company's sales revenues.
WEATHER RELATED FACTORS
Demand for the Company's Oil and Gas Services Division's
products and services are subject to seasonal fluctuation due in part to
weather conditions, which cannot be predicted. Demand for the Company's
Specialty Chemical Division's products, especially calcium chloride used for
ice and snow melt and its agricultural products, also fluctuates due to weather
conditions. The Company's operating results may vary from quarter to quarter
depending on weather conditions in applicable areas in the United States and in
international markets.
RISKS RELATED TO GROSS MARGIN
The Company's operating results in general, and gross
margin percentage in particular, are functions of the product mix sold in any
period. Other factors, such as unit volumes, heightened price competition,
changes in sales and distribution channels, shortages in raw materials due to
timely supplies or ability to obtain items at reasonable prices, and
availability of skilled labor, may also continue to affect the cost of sales
and the fluctuation of gross margin percentages in future periods.
PATENT AND TRADE SECRET PROTECTION
The Company owns numerous patents, patent applications and
unpatented trade secret technologies in the U.S. and certain foreign countries.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to deter misappropriation of its
proprietary rights. In addition, independent third parties may develop
competitive or superior technologies.
DEPENDENCE ON PERSONNEL
The Company's success depends upon the continued
contributions of its personnel, many of whom would be difficult to replace.
The success of the Company will depend on the ability of the Company to attract
and retain skilled employees. Changes in personnel, therefore, could adversely
affect operating results.
The foregoing review of factors pursuant to the Private
Securities Litigation Reform Act of 1995 should not be construed as exhaustive.
In addition to the foregoing, the Company wishes to refer readers to the
Company's other filings and reports with the Securities and Exchange
Commission, including its recent reports on Form 10-Q, for a further discussion
of the Company's business and operations and risks and uncertainties that could
cause actual results to differ materially from those contained in
forward-looking statements, such as this report. The Company undertakes no
obligation to publicly release the result of any revisions to any such
forward-looking statements which may be made to reflect the events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
- 11 -
<PAGE> 13
ITEM 2. PROPERTIES.
The following table sets forth certain information concerning facilities
leased or owned by the Company as of December 31, 1997. The Company believes its
facilities are adequate for its present needs.
<TABLE>
<CAPTION>
Description Location Approximate Square Footage(1)
----------- -------- -----------------------------
<S> <C> <C>
Chemical plant facilities........................... Lake Charles, Louisiana 603,600
Tampico, Mexico 353,800
West Memphis, Arkansas 139,000
Magnolia, Arkansas 120,000
Fairbury, Nebraska 90,000
Norco, Louisiana 85,200
Orlando, Florida 35,800
Wichita, Kansas 19,500
Lamesa, Texas 17,000
Parkersburg, West Virginia 360
Oil and gas distribution facilities................. Texas - nine locations 1,262,700
Louisiana - ten locations 732,200
United Kingdom - various locations 92,000
Mexico 30,000
Nigeria 28,000
Venezuela 16,000
Norway - various locations 15,000
Colombia 11,500
Laboratory.......................................... The Woodlands, Texas 26,000
Headquarters........................................ The Woodlands, Texas 109,000
Process Technologies engineering
and sales office................................. Clinton, Tennessee 10,000
Pittsburgh, Pennsylvania 8,000
Tampa, Florida 3,000
Process Services offices............................ The Woodlands, Texas 6,000
and service center.............................. Houston, Texas 23,000
Process Services facilities......................... Texas - seven locations 71,000
Delaware 20,000
Louisiana 12,000
Illinois 7,400
</TABLE>
- -------------
(1) Includes real property and buildings unless otherwise noted.
- 12 -
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS.
Region VII of the EPA issued to the Company's AMT subsidiary a
Unilateral Administrative Order under Section 7003(a) of the Resources
Conservation and Recovery Act ("RCRA") in early 1997 with regard to AMT's
facility in Fairbury, Nebraska. The EPA's Order required AMT to ship off-site
various materials, to commence management of certain sources of zinc raw
materials in accordance with RCRA requirements, and to complete an application
for a RCRA permit to store regulated zinc raw materials. AMT has completed and
filed the RCRA permit application and the Company believes that AMT is in full
compliance with the Order. The EPA has stated its intent to seek civil penalties
in connection with this matter. The Company does not expect that any such
penalties will have a material adverse effect on its consolidated financial
results. Representatives of AMT have met with EPA Region VII counsel and staff
to discuss the Order and possible ways to mitigate such penalties.
The Company is a named defendant in several lawsuits and a respondent in
certain other governmental proceedings arising in the ordinary course of
business. While the outcome of such lawsuits and other proceedings cannot be
predicted with certainty, management does not expect those matters to have a
material adverse impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the fourth quarter of the
year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
PRICE RANGE OF COMMON STOCK
The Common Stock traded on the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
from the Company's initial public offering on April 3, 1990 through October 13,
1997 under the trading symbol "TTRA." On October 15, 1997 the Common Stock began
trading on the New York Stock Exchange under the symbol "TTI." As of March 20,
1998 there were approximately 2,900 holders of record of the Common Stock. The
following table sets forth the high and low closing sale prices of the Common
Stock for each calendar quarterly period in the two years ended December 31,
1997, as reported on the NASDAQ National Market System during the period from
January 1, 1996 to October 13, 1997 and as reported by the New York Stock
Exchange from and after October 14, 1997. Over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1997
First Quarter................................... $ 29 3/4 $ 21 1/4
Second Quarter.................................. 27 3/4 19 3/4
Third Quarter................................... 28 7/8 20 3/4
Fourth Quarter.................................. 26 1/2 19 5/8
1996
First Quarter................................... $ 17 3/4 $ 13 1/2
Second Quarter.................................. 21 7/8 16 1/8
Third Quarter................................... 19 3/8 16 3/4
Fourth Quarter.................................. 27 3/8 18 3/8
</TABLE>
- 13 -
<PAGE> 15
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The
Company currently intends to retain earnings to finance the growth and
development of its business and does not anticipate paying cash dividends in the
foreseeable future. Any payment of cash dividends in the future will depend upon
the financial condition, capital requirements and earnings of the Company as
well as other factors the Board of Directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues .......................................... $ 219,413 $ 160,790 $ 113,468 $ 88,506 $ 62,846
Gross profit ...................................... 62,982 48,644 (1)37,655 (1)29,060 (1)18,403
Operating income (loss) ........................... (2)25,037 20,781 13,430 7,962 (3)(1,092)
Interest expense .................................. (3,305) (1,250) (159) (363) (558)
Interest income ................................... 305 198 959 558 741
Undistributed earnings (loss) of joint ventures ... 290 522 (47) 580 2,031
Other income (expense), net ....................... 775 257 377 241 144
Net income ........................................ 13,936 13,137 9,366 6,058 863
Net income per share .............................. $ 1.05 $ 1.02 $ 0.74 $ 0.48 $ 0.07
Average shares .................................... 13,297 12,873 12,693 12,560 12,493
Net income per diluted share ...................... $ 0.98 $ 0.97 $ 0.72 $ 0.48 $ 0.07
Average diluted shares ............................ 14,189 13,545 13,069 12,693 12,609
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital .............. $ 68,076 $ 37,398 $ 30,088 $ 37,357 $ 36,076
Total assets ................. 263,792 178,506 129,921 102,522 89,187
Long-term liabilities ........ 92,364 31,756 9,364 6,472 6,986
Stockholders' equity ......... 129,580 108,022 89,286 77,687 71,390
</TABLE>
- -----------------
(1) The Company reclassified certain costs previously classified as general and
administrative expenses to cost of goods as direct charges effective June
30, 1995. The 1993 to 1994 periods have been restated for comparability.
Operating income, net income and per share results were unaffected by this
change.
(2) Includes unusual charges of $3.0 million in 1997.
(3) Includes unusual charges of $2.3 million in 1993.
The net income per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. For further discussion of earnings per share and the impact
of Statement No. 128, see the notes to the consolidated financial statements.
- 14 -
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the
percentage relationship which certain items in the Company's statement of
operations bear to revenues, and the percentage increase or decrease in the
dollar amount of such items. The following data should be read in conjunction
with the Consolidated Financial Statements and the associated Notes contained
elsewhere in this document.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES PERIOD-TO-
YEAR ENDED DECEMBER 31, PERIOD CHANGE
-------------------------- ----------------
1997 1996
vs vs
1997 1996 1995 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues ............................ 100.0% 100.0% 100.0% 36.5% 41.7%
Cost of Revenues .................... 71.3 69.7 66.8 39.5 47.9
Gross profit ........................ 28.7 30.3 33.2 29.5 29.2
General & administrative expenses ... 17.3 17.3 21.3 36.2 15.0
Operating income .................... 11.4 13.0 11.9 20.5 54.7
Interest expense .................... 1.5 0.8 0.1 164.4 686.2
Interest income ..................... 0.1 0.1 0.8 54.0 (79.4)
Income in undistributed earnings
of joint ventures ................. 0.1 0.3 -- (44.4) *
Other income, net ................... 0.4 0.2 0.3 201.6 (31.8)
Income before income taxes .......... 10.5 12.8 12.8 12.6 40.9
Net income .......................... 6.4 8.2 8.3 6.1 40.3
</TABLE>
* Comparison not meaningful
1997 COMPARED TO 1996
Revenues for the twelve months ended December 31, 1997 were $219.4
million, up $58.6 million or 36.5% over the prior year. The Oil & Gas Services
Division's revenues were up approximately 44% over the prior year. This
division's well abandonment and production testing businesses have grown
substantially over the last year in response to strong market conditions. Key
factors driving these businesses included the addition of service equipment,
strategic acquisitions in 1997 and late 1996 and additional market penetration.
This division has also benefitted from a domestic offshore market that has
remained strong and from improved international completion fluid and filtration
operations, principally in the U.K. and Africa. The Specialty Chemicals
Division's revenues were up approximately 20% over 1996, reflecting substantial
contributions from two prior year acquisitions: Industrias Sulfamex, S.A. de
C.V. ("Sulfamex"), a Mexican manufacturer of manganese sulfate, and Wilchem
Corporation, a producer of mold and mildew products. This Division's Process
Technologies and Process Services groups realized significant growth during the
year, in part due to the acquisition of the remaining 50% interest in TETRA
Process Services that the Company did not previously own. Increased sales from
this division's dry calcium chloride and performance chemicals product lines
have also contributed to the period's improved revenues.
Gross profits were $63.0 million in 1997 compared to $48.6 million in
1996, for an increase of $14.4 million or 29.6%. Gross profit as a percentage of
revenues was 28.7% in 1997, down from 30.3% in 1996. The Oil & Gas Services
Division's gross profit percentage was up slightly compared to the prior year;
however, the Specialty Chemicals Division's gross profit percentage was down due
principally to disruptions at the division's Fairbury, Nebraska plant. The
Company elected to write-off certain costs associated with regulatory-driven
plant clean-up and modifications at that plant. As a result, a $3.0 million
non-recurring charge was recorded during the year, of which approximately $0.8
million was recorded against gross margins. Operations at the Fairbury plant
during the year were adversely impacted by these events, resulting in increased
operating costs, reduced throughput and significant gross margin erosion. Lower
margins from sale of calcium chloride and performance chemicals products also
contributed to the division's reduced gross margins.
- 15 -
<PAGE> 17
General and administrative expenses were $37.9 million in the 1997
period compared to $27.9 million in the 1996 period. The addition of personnel
in the Oil & Gas Services Division and the inclusion of such expenses from
acquired operations in both divisions accounted for a significant portion of
this increase. The 1997 period also includes approximately $2.2 million
non-recurring charge for AMT. General and administrative expenses as a
percentage of revenues continued to drop from 17.3% in 1996 to 16.3% in 1997,
after adjusting for the non-recurring charge.
Operating income for the twelve months ended December 31, 1997 was $25.0
million, up $4.3 million or 20.5% from $20.8 million in the prior year. This
increase is the combined result of a gross margin improvement of $17.6 million
relating to increased volume, a $3.3 million decrease due to lower gross margin
rates and increased general and administrative expenses of $10.0 million.
Interest expense increased during the year by approximately $2.1
million, as a result of an increase in long-term debt over the past twelve
months of approximately $51 million in connection with the Company's acquisition
and internal growth programs.
Net income after taxes for 1997 totaled $13.9 million versus $13.1
million in 1996. Net income per diluted share was $0.98 in the 1997 period based
on 14,189,000 weighted average diluted shares outstanding compared to earnings
for the comparable 1996 period of $0.97 based on 13,137,000 weighted average
diluted shares outstanding.
1996 COMPARED TO 1995
Revenues for the twelve months ended December 31, 1996 were $160.8
million compared to $113.5 million in 1995, an increase of $47.3 million or
41.7%. Both the Oil & Gas Services Division and the Specialty Chemicals Division
showed significant revenue growth over the prior year. In the Oil & Gas Services
Division, all three operating components (offshore, international and onshore)
realized improved revenues. Domestic operations continued to benefit from the
sustained levels of high drilling activity in the Gulf of Mexico throughout the
year, while international revenues improved principally in Europe and Africa
through a combination of increased drilling activity and market penetration. The
Company believes it has minimal foreign exchange exposure since the majority of
its international operations activity is denominated in U.S. dollars. The well
abandonment operations were complemented during 1996 with several acquisitions
that increased the land rig fleet, added an inland waters fleet operating in
Louisiana and Texas, and added a production testing operation. Revenues
increased significantly as a result of these acquisitions.
In the Specialty Chemicals Division, revenues from liquid and dry
calcium chloride sales increased in 1996 as the Company continued to
aggressively develop new domestic and international markets. The division also
benefitted from increased sales of zinc sulfate and manganese sulfate derived
from acquisitions in late 1995 and early 1996. Finally, revenues from the
acquisition of Wilchem Corporation, which manufactures mold and mildew
preventative products for retail distribution, in the fourth quarter of 1996
also contributed slightly to the Division's revenue growth.
In the twelve months ended December 31, 1996, gross profits were $48.6
million, up $10.9 million or 29.2% from $37.7 million in 1995. Gross profits as
a percentage of revenues was 30.3% in 1996 versus 33.2% in 1995, a decline of
2.9 points. Gross profits increased significantly in both divisions to keep pace
with the revenue growth. However, higher than expected production costs
associated with the start-up of the Specialty Chemicals Division's expanded
calcium chloride facility at Lake Charles, Louisiana resulted in the gross
profit percentage decline.
General and administrative expenses were $27.9 million in 1996 compared
to $24.2 million in 1995, an increase of $3.7 million or 15.0%. A significant
portion of the increase is attributable to the new operations purchased during
the year. Additional costs associated with the expansion of the Oil & Gas
Services Division domestic and international operations also contributed to
these cost increases. General and administrative expenses as a percentage of
revenues continued to decrease from 21.3% in 1995 to 17.3% in 1996.
Operating income for the twelve months ended December 31, 1996 was $20.8
million compared to $13.4 million in 1995, an increase of $7.4 million or 54.7%.
This increase is the combined result of a gross margin increase of $15.7 million
due to increased revenue volume and a $4.6 million decrease due to lower gross
margin rates, offset by a $3.7 million increase in general and administrative
expenses.
During the twelve months ended December 31, 1996, long-term debt
increased approximately $23 million as the Company utilized debt to execute its
internal and external growth strategy. This increase in debt and
- 16 -
<PAGE> 18
corresponding decrease in cash available for investment resulted in an increase
in interest expense and a decrease in interest income in 1996 compared to 1995.
The effective tax rate for the income tax provision was 35.9% in 1996
compared to 35.7% in 1995. The effective rates differ from the statutory rates
due principally to the effects of research and development tax credits and
permanent differences in 1996 and 1995.
Net income after taxes for the twelve months ended December 31, 1996 was
$13.1 million compared to $9.4 million in 1995, an increase of $3.7 million or
40.3%. Net income per diluted share was $0.97 in 1996 based on 13,545,000
weighted average diluted shares outstanding compared to $0.72 in 1995 based on
13,069,000 weighted average diluted shares outstanding. Net income per share
increased $0.25 or 34.7% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's investment in working capital, excluding cash and cash
equivalents, increased to $65.2 million at December 31, 1997 compared to $34.6
million at December 31, 1996. Accounts receivable increased $13.1 million
primarily in the Oil & Gas Services Division as a result the significant revenue
growth in that area; also contributing to this increase is the acquisition of
the remaining 50% interest in TETRA Process Services. Inventories increased
$14.4 million during this period. In the Specialty Chemicals division,
inventories of dry calcium chloride increased due to lower than anticipated
first quarter sales in the snow and ice melt markets and to seasonal build-ups.
Feed and fertilizer inventories also increased due to seasonality as well as the
disruption in sales experienced at the Fairbury plant. Performance Chemicals
inventories have increased as the business continues to develop. Inventories in
the oil and gas operations are up in response to increased domestic drilling
activity, increased international activity in the U.K., Africa and South
America, and the significant growth in the well abandonment business. Other
current assets increased in 1997 as a result of a federal tax refund due of over
$2.0 million. Trade payables and accrued expenses increased during the period by
$8.5 million. Oil and gas operations accounted for a substantial portion of this
change, as increased inventory and capital equipment were acquired. The
acquisition of the remaining 50% interest in TETRA Process Services also
contributed to this increase. Short-term borrowings and current portion of
long-term debt decreased by nearly $5.1 million, as the Company reduced its cost
of capital by refinancing the long-term debt and working capital loans of its
American MicroTrace subsidiary.
The Company has ongoing acquisition and internal growth programs. To
fund these programs, the Company will use existing cash and cash flow as well as
its general purpose, unsecured, prime rate/LIBOR-based line-of-credit with a
syndicate of banks led by NationsBank. As of December 31, 1997, the Company has
$1.9 million in letters of credit and $77 million in long-term debt outstanding
against a $120 million line-of-credit, leaving a net availability of $41.1
million. The line-of-credit matures in 2002. The Company also has 4.6 million
shares of TETRA common stock available under a S-4 Shelf Registration Statement
to finance acquisitions.
Capital expenditures during the twelve months ended December 31, 1997
totaled approximately $47.4 million. Significant components include new inland
water rigs, production testing equipment and assets of Posey Pipe Company
purchased for the Oil & Gas Services Division's well abandonment and production
testing operations. The Specialty Chemicals Division expenditures included
additional process equipment and plant modifications at its AMT Fairbury,
Nebraska plant, the cost of its share of the new Ludington, Michigan calcium
bromide plant and process improvements to the Lake Charles, Louisiana calcium
chloride plant.
Major investing activities include the acquisitions of Perfco Wireline,
Inc. and RETEC-TETRA L.C. The stock of Perfco was purchased in exchange for
146,116 shares of the Company's Common Stock plus additional considerations
contingent upon future earnings. Perfco is an electric wireline service company
operating primarily in the Gulf of Mexico and will be integrated into the Oil &
Gas Services Division. The Company also acquired the remaining 50% interest in
its RETEC-TETRA L.C. joint venture that it did not previously own. RETEC-TETRA,
renamed TETRA Process Services L.C., will continue to be part of the Specialty
Chemicals Division. The acquisition of approximately $8.8 million was funded by
drawing against the Company's line-of-credit. The assets and liabilities of
TETRA Process Services are included in the accompanying financial statements.
TETRA Process Services L.C. provides services for reducing or eliminating
refinery wastes and recovering resources for process industries worldwide.
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 1998 and thereafter.
- 17 -
<PAGE> 19
PENDING ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS No. 131) which establishes standards for the way that public
companies report information about operating segments in both annual and interim
financial statements. SFAS No. 131 also establishes standards for disclosures
about products and services, geographic areas and major customers. SFAS No. 131
is effective for fiscal years beginning after December 15, 1997. The Company
will adopt SFAS No. 131 retroactively in 1998. The adoption of SFAS No. 131 will
not affect the Company's results of operations or financial position, but will
increase the Company's disclosure of segment information.
In June 1997, the FASB also issued SFAS no. 130, Reporting
Comprehensive Income which establishes new rules for the reporting and display
of comprehensive income. Adoption of SFAS No. 130 will have no impact on the
Company's net income or financial position. SFAS No. 130 would require the
Company's foreign currency translation adjustments, which are currently reported
in stockholders' equity, to be added to net income to determine total
comprehensive income. Disclosure of total comprehensive income is also required.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is not applicable to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company and its subsidiaries required to
be included in this Item 8 are set forth in Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There is no disclosure required by Item 304 of Regulation S-K in this
report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item as to the directors and executive
officers of the Company is hereby incorporated by reference from the information
appearing under the captions "Election of Directors -- Executive Officers" in
the Company's definitive proxy statement which involves the election of
directors and is to be filed with the Securities and Exchange Commission
("Commission") pursuant to the Securities Exchange Act of 1934 within 120 days
of the end to the Company's fiscal year on December 31, 1997.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item as to the management of the
Company is hereby incorporated by reference from the information appearing under
the captions "Election of Directors -- Director Compensation" and " --
Compensation of Executive Officers" in the Company's definitive proxy statement
which involves the election of directors and is to be filed with the Commission
pursuant to the Securities Exchange Act of 1934 within 120 days of the end of
the Company's fiscal year on December 31, 1997. Not withstanding the foregoing,
in accordance with the instructions to Item 402 of Regulation S-K, the
information contained in the Company's proxy statement under the sub-heading
"Report of the Compensation Committee of the Board of Directors" and
"Performance Graph" shall not be deemed to be filed as part of or incorporated
by reference into this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item as to the ownership by management
and others of securities of the Company is hereby incorporated by reference from
the information appearing under the caption "Security Ownership of Certain
Beneficial Owners and Management" to the Company's definitive proxy statement
which involves the election of directors and is to be filed with the Commission
pursuant to the Securities Exchange Act of 1934 within 120 days of the end of
the Company's fiscal year on December 31, 1998.
- 18 -
<PAGE> 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item as to certain business
relationships and transactions with management and other related parties of the
company is hereby incorporated by reference to such information appearing under
the captions "Certain Transactions" and "Compensation Committee Interlocks and
Insider Participation" in the Company's definitive proxy statement which
involves the election of directors and is to be filed with the Commission
pursuant to the Securities Exchange Act of 1934 within 120 days of the end of
the Company's fiscal year on December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) List of documents filed as part of this Report
1. Financial Statements of the Company
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors F-1
Consolidated Balance Sheets at December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the years F-4
ended December 31, 1997, 1996, and 1995
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996, and 1995 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996, and 1995 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
2. Financial Statement Schedule
<TABLE>
<CAPTION>
Schedule Description Page
-------- ----------- ----
<S> <C> <C>
VIII Valuation and Qualifying Accounts S-1
</TABLE>
All other schedules are omitted as they are not required,
or are not applicable, or the required information is included in
the financial statements or notes thereto.
3. List of Exhibits
3.1 Restated Certificate of Incorporation (filed as an exhibit
to the Company's Registration Statement on Form S-1
(33-33586) and incorporated herein by reference).
3.2 Bylaws, as amended (filed as an exhibit to the Company's
Registration Statement on Form S-1 (33-33586) and
incorporated herein by reference).
10.1 Asset Purchase Agreement dated as of May 13, 1988 between
the Dow Chemical Company and TETRA-Chlor, Inc (filed as an
exhibit to the Company's Registration Statement on Form S-1
(33-33586) and incorporated herein by reference).
10.2 Asset Sale and Purchase Agreement dated as of February 28,
1989 among TETRA-Chlor, Inc., TETRA Technologies, Inc.,
Texas United Chemical Corporation and Texas United
Corporation (filed as an exhibit to the Company's
Registration Statement on Form S-1 (33-33586) and
incorporated herein by reference).
- 19 -
<PAGE> 21
10.3 Registration Rights Agreement dated May 4, 1989 by and
among TETRA Technologies, Inc. and certain stockholders
listed therein (filed as an exhibit to the Company's
Registration Statement on Form S-1 (33-33586) and
incorporated herein by reference).
10.4 Loan Agreement dated August 30, 1990 between TETRA
Technologies, Inc. and NCNB Texas National Bank (filed as
an exhibit to the Company's Registration Statement on Form
S-1 (33-39154) and incorporated herein by reference).
10.5 Promissory Note (Revolving Line-of-credit) dated August 30,
1990 from TETRA Technologies, Inc. to NCNB Texas National
Bank (filed as an exhibit to the Company's Registration
Statement on Form S-1 (33-39154) and incorporated herein by
reference).
10.6 Promissory Note (Installment) dated December 28, 1990 from
TETRA Technologies, Inc. to NCNB Texas National Bank (filed
as an exhibit to the Company's Registration Statement on
Form S-1 (33-39154) and incorporated herein by reference).
10.7 Loan and Security Agreement dated as of April 15, 1988
between TETRA Technologies, Inc. and Metlife Capital
Corporation (filed as an exhibit to the Company's
Registration Statement on Form S-1 (33-33586) and
incorporated herein by reference).
10.8 Term Note dated April 15, 1988 from TETRA Technologies,
Inc. to Metlife Capital Corporation (filed as an exhibit to
the Company's Registration Statement on Form S-1 (33-33586)
and incorporated herein by reference).
10.9 TETRA Technologies, Inc. 1990 Stock Option Plan (filed as
an exhibit to the Company's Registration Statement on Form
S-1 (33-33586) and incorporated herein by reference).
10.10 TETRA Technologies, Inc. 401(K) Retirement Plan (effective
November 1, 1990) (filed as an exhibit to the Company's
Registration Statement on Form S-1 (33-39154) and
incorporated herein by reference).
10.11 Sales Agreement dated June 25, 1987 between Shell Chemical
Company and TETRA Resources, Inc. (filed as an exhibit to
the Company's Registration Statement on Form S-1 (33-33586)
and incorporated herein by reference).
10.12 Purchase Order No. N21553 dated October 1, 1989 from TETRA
Chemicals to Kaskaskia Stone Company (filed as an exhibit
to the Company's Registration Statement on Form S-1
(33-33586) and incorporated herein by reference).
10.13 Purchase Order No. N21554 dated October 1, 1989 from TETRA
Chemicals to Kaskaskia Stone Company (filed as an exhibit
to the Company's Registration Statement on Form S-1
(33-33586) and incorporated herein by reference).
10.14 Letter Agreement dated September 1, 1989 between Synergy
Fluids, a division of Ameribrom, Inc. and TETRA Resources,
Inc. (filed as an exhibit to the Company's Registration
Statement on Form S-1 (33-33586) and incorporated herein by
reference).
10.15 Optional Supply Agreement dated February 15, 1989 between
Ethyl Corporation and TETRA Technologies, Inc. (filed as an
exhibit to the Company's Registration Statement on Form S-1
(33-33586) and incorporated herein by reference).
10.16 Service Agreement dated July 18, 1990 between TETRA
Technologies, Inc. and Inland Steel Co. (filed as an
exhibit to the Company's Registration Statement on Form S-1
(33-39154) and incorporated herein by reference).
10.17 Milpark/TETRA Joint Venture Agreement dated May 24, 1991
(filed as an exhibit to the Company's Form 10-K for the
year ended December 31, 1991 and incorporated herein by
reference).
10.18 Agreement Between TETRA Technologies, Inc. TETRA (U.K.)
Limited, Severn Trent plc and TETRA Europe Limited
effective October 1, 1991 (filed as an exhibit to the
Company's Form 10-K for the year ended December 31, 1991
and incorporated herein by reference).
10.19 Severn Trent Water License Agreement effective February 5,
1992 Between TETRA Technologies, Inc. and TETRA Europe
Limited and Severn Trent Water Limited (filed as an exhibit
to the Company's Form 10-K for the year ended December 31,
1991 and incorporated herein by reference).
10.20 TETRA Know-How Transfer Agreement effective October 1, 1991
Between TETRA Technologies, Inc. and TETRA Europe Limited
(filed as an exhibit to the Company's Form 10-K for the
year ended December 31, 1991 and incorporated herein by
reference).
10.21 PhoStrip Know-How Transfer Agreement effective October 1,
1991 Between TETRA Technologies, Inc. and TETRA Europe
Limited (filed as an exhibit to the Company's Form 10-K for
the year ended December 31, 1991 and incorporated herein by
reference).
10.22 Amendments 1 and 2 to Loan Agreement dated August 30, 1990
between TETRA Technologies, Inc. and NationsBank (formerly
NCNB Texas National Bank) (filed as an
- 20 -
<PAGE> 22
exhibit to the Company's Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference).
10.23 Formation Agreement and Regulations of RETEC-TETRA, Limited
Liability Co., dated July 28, 1992 (filed as an exhibit to
the Company's Form 10-K for the year ended December 31,
1992 and incorporated herein by reference).
10.27 Long-term Supply Agreement with Bromine Compounds Ltd.
(filed as an exhibit to the Company's Form 10-K for the
year ended December 31, 1996 and incorporated herein by
reference; certain portions of this exhibit have been
omitted pursuant to a confidential treatment request filed
with the Securities and Exchange Commission).
10.28 Agreement dated November 28, 1994 between Olin Corporation
and TETRA-Chlor, Inc. Certain portions of this exhibit have
been omitted pursuant to a confidential treatment request
filed with the Securities and exchange Commission (filed as
an exhibit to the Company's Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).
10.29 Employment Agreement dated April 1, 1996 with Allen T.
McInnes (filed as an exhibit to the Company's Form 10-Q for
the three months ended June 30, 1996 and incorporated
herein by reference).
10.30 Employment Agreement dated April 1, 1996 with Michael L.
Jeane (filed as an exhibit to the Company's Form 10-Q for
the three months ended June 30, 1996 and incorporated
herein by reference).
10.31 Credit Agreement, dated April 10, 1997, with Nationsbank of
Texas, N.A. (filed as an exhibit to the Company's Form 10-Q
for the three months ended June 30, 1997 and incorporated
herein by reference).
21 Subsidiaries of the Company.
23 Consent of Ernst & Young, LLP
(b) Reports on Form 8-K: None were filed in the fourth quarter of 1997
- 21 -
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, TETRA Technologies, Inc. has duly caused this report to be
signed in its behalf by the undersigned, thereunto duly authorized.
TETRA TECHNOLOGIES, INC.
Date: March 23, 1998 BY: /s/Allen T. McInnes
-------------------
Allen T. McInnes,
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/J. Taft Symonds Chairman of March 23, 1998
- --------------------------------- the Board of Directors
J. Taft Symonds
/s/Allen T. McInnes Allen T. McInnes March 23, 1998
- --------------------------------- President and Director
Allen T. McInnes (Principal Executive Officer)
/s/Geoffrey M. Hertel Geoffrey M. Hertel March 23, 1998
- --------------------------------- Chief Financial Officer and Director
Geoffrey M. Hertel (Principal Financial Officer)
/s/Bruce A. Cobb Bruce A. Cobb March 23, 1998
- --------------------------------- Corporate Controller
Bruce A. Cobb (Principal Accounting Officer)
/s/Oscar S. Andras Director March 23, 1998
- ---------------------------------
Oscar S. Andras
/s/Paul D. Coombs Director March 23, 1998
- ---------------------------------
Paul D. Coombs
/s/Tom H. Delimitros Director March 23, 1998
- ---------------------------------
Tom H. Delimitros
/s/Stephen T. Harcrow Director March 23, 1998
- ---------------------------------
Stephen T. Harcrow
/s/Kenneth P. Mitchell Director March 23, 1998
- ---------------------------------
Kenneth P. Mitchell
</TABLE>
- 22 -
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
TETRA Technologies, Inc.
We have audited the accompanying consolidated balance sheets of TETRA
Technologies, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedule listed in the index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TETRA Technologies, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Houston, Texas
February 19, 1998
F - 1
<PAGE> 25
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................................... $ 2,839 $ 2,829
Trade accounts receivable, net of allowance for doubtful
accounts of $1,023 in 1997 and $1,266 in 1996 .................. 56,893 43,768
Costs and estimated earnings in excess
of billings on incomplete contracts ............................. 4,021 1,410
Inventories ........................................................ 38,715 24,360
Deferred tax assets ................................................ 1,444 1,676
Prepaid expenses and other current assets .......................... 6,012 2,083
--------- ---------
Total Current Assets ........................................... 109,924 76,126
Property, Plant and Equipment:
Land and building .................................................. 12,777 8,428
Machinery and equipment ............................................ 72,514 43,477
Automobiles and trucks ............................................. 10,538 5,276
Chemical plants .................................................... 46,791 45,014
Construction in progress ........................................... 27,231 5,409
--------- ---------
169,851 107,604
Less accumulated depreciation and amortization ..................... (48,868) (35,436)
--------- ---------
Net Property, Plant and Equipment .............................. 120,983 72,168
Other Assets:
Investments in joint ventures ...................................... -- 5,928
Cost in excess of net assets acquired, net of accumulated
amortization of $1,805 in 1997 and $964 in 1996 ................ 24,983 17,381
Other, net of accumulated amortization
of $2,987 in 1997 and $1,968 in 1996 ........................... 7,902 6,903
--------- ---------
Total Other Assets ............................................. 32,885 30,212
--------- ---------
$ 263,792 $ 178,506
========= =========
</TABLE>
F - 2
<PAGE> 26
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings ............................................. $ -- $ 2,202
Trade accounts payable ............................................ 26,181 22,618
Accrued expenses .................................................. 14,114 9,085
Billings in excess of costs and estimated
earnings on incomplete contracts ............................... 244 567
Current portion of all long-term debt and
capital lease obligations ...................................... 1,309 4,256
--------- ---------
Total Current Liabilities ................................... 41,848 38,728
Long-term debt, less current portion ................................. 77,000 23,853
Capital lease obligations, less current portion ...................... 1,525 835
Deferred income taxes ................................................ 13,365 6,687
Other liabilities .................................................... 474 381
Commitments and contingencies
Stockholders' Equity:
Common stock, par value $.01 per share:
40,000,000 shares authorized, with 13,480,956 shares
issued and outstanding in 1997 and 13,069,396
shares issued and outstanding in 1996 ........................... 135 131
Additional paid-in capital ........................................ 75,902 67,811
Cumulative translation adjustment ................................ (86) 387
Retained earnings ................................................. 53,629 39,693
--------- ---------
Total Stockholders' Equity .................................... 129,580 108,022
--------- ---------
$ 263,792 $ 178,506
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F - 3
<PAGE> 27
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Product sales ........................................... $ 147,927 $ 125,932 $ 86,958
Services ................................................ 71,486 34,858 26,510
--------- --------- ---------
Total Revenues ........................................ 219,413 160,790 113,468
Cost of Revenues:
Cost of product sales ................................... 107,379 87,775 59,363
Cost of services ........................................ 49,052 24,371 16,450
--------- --------- ---------
Total Cost of Revenues ................................ 156,431 112,146 75,813
--------- --------- ---------
Gross Profit ........................................ 62,982 48,644 37,655
General and administrative ................................. 37,945 27,863 24,225
--------- --------- ---------
Operating Income .................................... 25,037 20,781 13,430
Interest expense ........................................... (3,305) (1,250) (159)
Interest income ............................................ 305 198 959
Undistributed earnings (loss) of joint ventures ............ 290 522 (47)
Other income, net .......................................... 775 257 377
--------- --------- ---------
Income before Income Taxes ................................. 23,102 20,508 14,560
Provision for income taxes ................................. 9,166 7,371 5,194
--------- --------- ---------
Net Income .......................................... $ 13,936 $ 13,137 $ 9,366
========= ========= =========
Net income per share ....................................... $ 1.05 $ 1.02 $ 0.74
========= ========= =========
Average shares ............................................. 13,297 12,873 12,693
========= ========= =========
Net income per diluted share ............................... $ 0.98 $ 0.97 $ 0.72
========= ========= =========
Average diluted shares ..................................... 14,189 13,545 13,069
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F - 4
<PAGE> 28
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED CUMULATIVE TOTAL
COMMON PAID-IN EARNINGS TRANSLATION STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) ADJUSTMENT EQUITY
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 .......................... $ 126 $ 60,419 $ 17,190 $ (48) $ 77,687
Net Income for 1995 ................................... 9,366 9,366
Cumulative translation adjustment ..................... (41) (41)
Exercise of common stock options ...................... 1 599 600
Tax benefit upon exercise of certain non-qualified
and incentive stock options ...................... 96 96
Common stock issued for acquisitions .................. 1 1,577 1,578
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 .......................... 128 62,691 26,556 (89) $ 89,286
Net Income for 1996 ................................... 13,137 13,137
Cumulative translation adjustment ..................... 476 476
Exercise of common stock options ...................... 1 815 816
Tax benefit upon exercise of certain non-qualified
and incentive stock options ...................... 307 307
Common stock issued for acquisitions .................. 2 3,998 4,000
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 .......................... 131 67,811 39,693 387 108,022
Net Income for 1997 ................................... 13,936 13,936
Cumulative translation adjustment ..................... (473) (473)
Exercise of common stock options ...................... 3 2,457 2,460
Tax benefit upon exercise of certain non-qualified
and incentive stock options ...................... 1,636 1,636
Common stock issued for acquisitions .................. 1 3,998 3,999
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 .......................... $ 135 $ 75,902 $ 53,629 $ (86) $ 129,580
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F - 5
<PAGE> 29
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
-------- -------- --------
Operating Activities:
<S> <C> <C> <C>
Net income ............................................................. $ 13,936 $ 13,137 $ 9,366
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization ........................................ 11,575 8,343 6,059
Undistributed earnings of joint ventures ............................. (290) (524) 47
Provision for deferred income taxes .................................. 3,236 1,024 121
Provision for doubtful accounts ...................................... 253 453 123
Gain on sale of property, plant and equipment ........................ (280) 2 (78)
Non-recurring charge ................................................. 3,000 -- --
Changes in operating assets and liabilities, net of effects from
acquisition of subsidiaries:
Trade accounts receivable ......................................... (10,750) (8,869) (4,184)
Costs and estimated earnings in excess of billings
on incomplete contracts ......................................... (2,611) 33 (287)
Inventories ....................................................... (15,155) (6,491) (2,111)
Prepaid expenses and other current assets ......................... (3,500) (364) (461)
Trade accounts payable and accrued expenses ....................... 8,003 588 7,790
Billings in excess of costs and estimated earnings
on incomplete contracts ......................................... (323) 523 (298)
Other ............................................................. (1,824) 231 85
-------- -------- --------
Net cash provided by operating activities ......................... 5,270 8,086 16,172
-------- -------- --------
Investing Activities:
Purchases of property, plant and equipment ............................. (47,360) (12,113) (18,096)
Sale of marketable securities .......................................... -- -- 4,854
Investment in joint venture ............................................ -- (1,075) --
Purchase 50% of net assets of RETEC/TETRA,
net of cash acquired of $718 ......................................... (8,107) -- --
Business combinations, net of cash acquired ............................ -- (18,087) (1,684)
Proceeds from sale of property, plant and equipment .................... 662 218 215
Decrease (Increase) in other assets .................................... 15 (756) (1,710
-------- -------- --------
Net cash used by investing activities ............................... $(54,790) $(31,813) $(16,421)
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements
F - 6
<PAGE> 30
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Financing Activities:
Proceeds from long-term debt and exercised stock options .......... $ 57,955 $ 24,216 $ 728
Net repayment and borrowings under short-term credit lines ........ (2,202) (60) (64)
Principal payments on long-term debt and
capital lease obligations ....................................... (6,223) (5,110) (1,308)
-------- -------- --------
Net cash used by financing activities ........................... 49,530 19,046 (644)
-------- -------- --------
Increase (Decrease) in cash ....................................... 10 (4,681) (893)
Cash and cash equivalents at beginning of period ..................... 2,829 7,510 8,403
-------- -------- --------
Cash and cash equivalents at end of period ........................... $ 2,839 $ 2,829 $ 7,510
======== ======== ========
Supplemental Cash Flow Information:
Capital lease obligations incurred ............................... $ 1,894 $ 983 $ 516
Capital lease obligations terminated ............................. $ 798 $ 498 $ 235
Interest paid .................................................... $ 3,366 $ 1,426 $ 585
Taxes paid ....................................................... $ 2,783 $ 5,633 $ 2,354
</TABLE>
See Notes to Consolidated Financial Statements
F - 7
<PAGE> 31
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A -- ORGANIZATION AND OPERATIONS OF THE COMPANY
TETRA Technologies, Inc. was incorporated in Delaware in 1981. All
references to the Company or TETRA include TETRA Technologies, Inc. and its
subsidiaries.
The Company's Specialty Chemicals Division manufactures and markets
specialty chemicals to the agriculture, mining, water treatment, industrial,
cement, food processing, ice melt and energy markets. The division uses
proprietary technology to take low-cost feedstocks and convert them into high
quality commercial products. The division's Process Technologies group employs
proprietary technologies to provide engineered systems and services that treat
industrial and municipal wastewater and in some cases, solid waste streams, to
ensure compliance with environmental effluent requirements, to achieve on-site
waste minimization, and/or to recover reusable constituents. The Process
Services group reduces or eliminates refinery and petrochemical waste from
process industries. The Performance Chemicals group develops custom-tailored
chemical treatment programs to meet specific customer needs, and its Agriculture
group manufactures and distributes calcium chloride-based agricultural products
and zinc and manganese products for animal and plant nutrition. The division
also participates in the consumer products market, offering an array of
desiccant products under the trade name DampRid(R).
The Company's Oil & Gas Services Division markets chemicals including those
produced by the Specialty Chemicals Division to the oil and gas industry for use
in well completion and workover operations in both domestic and international
markets. They also provide complementary on-site fluid engineering, fluid
management and handling services and filtration for completion and workover
applications. The Oil & Gas Services Division also offers a specialty drilling
fluids product line and oil and gas well abandonment and production testing
services.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. The Company's investment in
joint venture is stated at cost plus equity in undistributed earnings. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average method. Inventories consist of finished products.
F - 8
<PAGE> 32
Financial Instruments
The fair value of the Company's financial instruments which includes cash,
accounts receivable, short-term borrowings and long-term debt approximate their
carrying amounts. Financial instruments which subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company's policy is to evaluate, prior to shipment, each customer's financial
condition and determine the amount of open credit to be extended. The Company
will require the appropriate, additional collateral as security for credit
amounts in excess of approved limits. The trade receivables include activity
with oil and gas companies, municipalities and other industrial companies.
Long-Term Contracts
The Company recognizes revenues and expenses from long-term construction
contracts using the percentage of completion method applying the cost to cost
method. These revenues and expenses are included in service revenues and cost of
revenues. Under this method, the Company recognizes as profit that proportion of
the total anticipated profit which the cost of work completed bears to estimated
total cost of the work covered by the contract. As contracts extend over one
year, revisions of cost and profit estimates are made periodically and are
reflected in the accounting period in which they are determined. If the estimate
of total costs indicates a loss, the total anticipated loss is recognized
immediately. Revenues and expenses from rental and service contracts are
recognized on a time and material basis.
Property, Plant and Equipment
Property, plant, and equipment are stated at the cost of assets acquired.
Expenditures that increase the useful lives of assets are capitalized. The cost
of repairs and maintenance are charged to operations as incurred. For financial
reporting purposes, the Company provides for depreciation using the
straight-line method over the estimated useful lives of assets which are as
follows:
Building 25 years
Machinery and equipment 5 and 10 years
Automobiles and trucks 4 years
Chemical plants 15 years
For income tax purposes, the Company provides for depreciation using
accelerated methods. Capitalized interest charged to construction projects for
the years ended December 31, 1997, 1996 and 1995 was $505,600, $176,000 and
$450,000, respectively.
Patents and Licenses
Patents and licenses are stated on the basis of cost and are amortized over
the estimated useful lives generally ranging from 14 to 20 years.
Income Taxes
The Company computes income tax expense using the liability method. Under
this method, deferred tax liabilities or assets are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using tax rates and laws that are in effect at year end.
Environmental Liabilities
Environmental expenditures which result in additions to property and
equipment are capitalized, while other environmental expenditures are expensed.
Environmental remediation liabilities are recorded on an undiscounted basis when
environmental assessments or cleanups are probable and the costs can be
reasonably estimated. These costs are adjusted as further information develops
or circumstances change.
F - 9
<PAGE> 33
Stock Compensation
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123 "Accounting for Stock-Based Compensation". In accordance with the
provisions of SFAS No. 123, the Company applies APB Opinion 25 and related
interpretations in accounting for its stock option plans and continues to
account for stock-based compensation using the intrinsic value method.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Note K to the
Consolidated Financial Statements contains a summary of the pro forma effects to
reported net income and earnings per share for 1997, 1996 and 1995 if the
Company had elected to recognize the compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS No. 123.
Income per Common and Common Equivalent Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement SFAS No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share and includes the dilutive
effect stock options, which is computed using the treasury stock method during
the periods such options were outstanding. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the Statement SFAS No. 128 requirements. A reconciliation of the common shares
used in the computations of income per common and common equivalent shares is
presented in Note L.
Foreign Currency Translation
The accounts of the Company's foreign operations are translated into United
States dollars in accordance with SFAS No. 52. The U.S. dollar is the designated
functional currency for all of the Company's foreign operations, except for
those in the United Kingdom and Norway, where the British Pound and the
Norwegian Kroner are the functional currency. The cumulative translation effects
of translating balance sheet accounts from the functional currency into the U.S.
dollar at current exchange rates are included as a separate component of
shareholders' equity.
Use of Estimates
Management is required to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Reclassifications
Certain previously reported financial information has been reclassified to
conform to the current year's presentation.
Related Party Transactions
The Company recorded sales and services rendered to unconsolidated joint
ventures of $391,000, $1,201,000 and $726,000 in 1997, 1996 and 1995,
respectively.
Revenue Recognition
Revenues are recognized when finished products are shipped to unaffiliated
customers or services have been rendered with appropriate provisions for
uncollectible accounts.
Derivative Financial Instruments
The Company manages its exposure to variable interest rate financing
arrangements by entering into interest rate swap agreements, which provide for
the Company to pay a fixed rate of interest and receive a variable rate of
interest
F - 10
<PAGE> 34
over the term of the swap agreement. The differential to be paid or received as
a result of the changes in the prevailing interest rates are accrued and
recognized as an adjustment of interest expense related to the debt. The net
amount receivable or payable under the interest rate swap agreements are
included in other assets or liabilities. Gains or losses on termination of
interest rate swap agreements are deferred as an adjustment to the carrying
amount of the debt and would be amortized to interest expense over the remaining
term of the original swap agreement.
NOTE C -- ACQUISITIONS
All acquisitions by the Company have been accounted for as purchases, with
operations of the companies and businesses acquired included in the accompanying
consolidated financial statements from their respective dates of acquisition.
The purchase price has been allocated to the acquired assets and liabilities
based on a preliminary determination of their respective fair values. The excess
of the purchase price over the fair value of the net assets acquired is included
in goodwill and amortized over 40 years. Pro forma information for these
acquisitions has not been presented as such amounts are not material.
The Company completed two acquisitions during the third quarter of 1997.
The outstanding stock of Perfco Wireline, Inc. and C&T Unlimited, Inc.
("Perfco") was acquired in exchange for 146,116 shares of TETRA stock valued at
approximately $4.0 million, plus additional consideration contingent upon future
earnings. Perfco is an electric wireline service company operating primarily in
the Gulf Coast region and has been integrated into the Oil & Gas Services
Division. The Company also acquired the remaining 50% interest in its
RETEC-TETRA L.C. joint venture that it did not previously own. RETEC-TETRA,
renamed TETRA Process Services L.C., will continue to be part of the Specialty
Chemicals Division. The purchase price of approximately $8.8 million was funded
by drawing against the Company's line-of-credit. The accompanying financial
statements include the assets and liabilities of RETEC-TETRA. The excess of the
purchase price over the book value of the net assets acquired was approximately
$3.9 million for Perfco and $3.0 million for RETEC-TETRA.
In the fourth quarter of 1996, the Company acquired the outstanding stock
of three affiliated companies operating under the name of Inland Rigs. The
acquired operations, which are predominantly involved in plugging wells in the
inland waters of Louisiana, were merged into TETRA's oil and gas well
abandonment service business. The Company issued 164,101 shares of common stock
valued at $24.38 per share for the acquired companies. The purchase agreement
also provides for additional purchase price consideration to be paid in the form
of additional shares of the Company's common stock, contingent upon future
incremental profits of Inland Rig's operations over the two years following the
acquisition. The fair market value of any additional shares issued under this
agreement will be capitalized as additional purchase price. The excess of
purchase price over the book value of net assets acquired was approximately $4.4
million.
The Company also consummated two additional acquisitions for cash during
the 1996 fourth quarter. The assets of Production Test, Inc., a well testing
service company, were purchased for $1.5 million. These assets were 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 marketer of mold and mildew preventative
products and has been integrated into the Specialty Chemicals Division. The
excess of the purchase price over the book value of the net assets acquired of
Wilchem Corporation was approximately $7.1 million.
In the second quarter of 1996, the Company acquired the outstanding stock
of Industrias Sulfamex, S.A. de C.V. ("Sulfamex") for approximately $8.1
million. The excess of the purchase price over the book value of the net assets
acquired was approximately $4.0 million. Sulfamex is a Mexican corporation that
produces certain manganese-based chemicals for distribution, predominantly into
U.S. markets and was integrated into the Specialty Chemicals Division's
operations.
In the first quarter of 1996, the Company purchased the assets of Culberson
Well Service, Inc. for approximately $1.4 million. Culberson Well Service, Inc.
is an oilfield services company providing oil and gas well abandonment services
along the Gulf Coast region of Texas. The assets purchased consisted of
machinery and equipment.
F - 11
<PAGE> 35
NOTE D -- ACCOUNTING FOR PROCESS TECHNOLOGY CONTRACTS
The following summarizes percentage of completion of Process Technology
contracts in progress at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(IN THOUSANDS)
1997 1996
-------- --------
<S> <C> <C>
Costs and estimated earnings incurred
on contracts in progress ............................ $ 11,329 $ 12,664
Less applicable billings .............................. (7,552) (11,821)
-------- --------
$ 3,777 $ 843
======== ========
</TABLE>
These amounts are included in the accompanying consolidated balance sheets
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
(IN THOUSANDS)
1997 1996
------- -------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on incomplete contracts ................... $ 4,021 $ 1,410
Billings in excess of costs and estimated
earnings on incomplete contracts ................... (244) (567)
------- -------
$ 3,777 $ 843
======= =======
</TABLE>
Receivables under contractual retainage provisions aggregated approximately
$333,000 and $129,000 at December 31, 1997 and 1996, respectively. Substantially
all retainage receivables are expected to be collected within one year.
F - 12
<PAGE> 36
NOTE E -- LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(IN THOUSANDS)
1997 1996
-------- --------
<S> <C> <C>
General purpose unsecured, revolving line-of-credit
for $120 million with interest at LIBOR
plus .75 - 1.75%. Borrowings as of 12/31/96
accrued interest at LIBOR plus 1% ................................................... $ 77,000 $ 23,405
Installment note with a 10.48% interest rate, payable $62,626 monthly and due in
May 1998. The note is secured and fully serviced by a tolling fee of $62,626
payable to
the Company monthly for five years .................................................. 245 930
Term note payable to bank is secured by a lien on certain realty
and a security agreement on certain personal property. Interest
is payable monthly. The principal was paid off in 1997 and
rolled into the general purpose line of credit ..................................... -- 2,382
Other .................................................................................. 140 875
-------- --------
77,385 27,592
Less current portion ................................................................... (385) (3,739)
-------- --------
Total long-term debt ................................................................ $ 77,000 $ 23,853
======== ========
</TABLE>
Scheduled maturities for the next five years and thereafter as of December
31, 1997 are as follows (in thousands):
<TABLE>
<S> <C> <C>
1998................................................ $ 385
1999................................................ --
2000................................................ --
2001................................................ --
2002................................................ 77,000
--------
$ 77,385
========
</TABLE>
As of December 31, 1997, the Company has $1.9 million in letters of credit
and $77 million in long-term debt outstanding against a $120 million
line-of-credit, leaving a net availability of $41.1 million. Effective March 31,
2000 the maximum borrowing amount of this line will decrease $5 million per
quarter until its maturity date of March 10, 2002.
In September 1997, the Company entered into two interest rate swap
agreements, each with a nominal amount of $20,000,000, which are effective
January 2, 1998 and expire on January 2, 2003. The interest rate swap agreements
provide for the Company to pay interest at a fixed rate of approximately 6.4%
every three months, beginning April 2, 1998 and requires the issuer to pay the
Company on a floating rate based on LIBOR. The swap transactions can be canceled
by the Company through payment of a cancellation fee, which is based upon
prevailing market conditions and remaining life of the agreement. The estimated
fair value (obtained through independent confirmation) of the swap transactions,
at December 31, 1997, was not significant.
F - 13
<PAGE> 37
NOTE F -- LEASES
The Company leases automobiles and trucks, transportation equipment, office
space, and machinery and equipment. The automobile and truck leases, which are
for three and five years and expire at various dates through 2000, are
classified as capital leases. The machinery and equipment leases, which vary
from three to five year terms and expire at various dates through 2001, are also
classified as capital leases. The office leases, which vary from one to five
year terms expiring at various dates through 2001 and are renewable for three
and five year periods at similar terms, are classified as operating leases.
Transportation equipment leases expire at various dates through 2000 and are
classified as operating leases. The automobile and truck leases, office leases,
and machinery and equipment leases require the Company to pay all maintenance
and insurance costs.
Property, plant, and equipment includes the following amounts for
leases that have been capitalized:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
1997 1996
------- -------
<S> <C> <C>
Automobiles and trucks ................. $ 3,003 $ 1,338
Less accumulated amortization .......... (954) (497)
------- -------
2,049 841
======= =======
Machinery and equipment ................ 1,361 1,312
Less accumulated amortization .......... (1,014) (880)
------- -------
$ 347 $ 432
======= =======
</TABLE>
Amortization of these assets is computed using the straight-line method
over the terms of the leases and is included in depreciation and amortization
expense.
Future minimum lease payments by year and in the aggregate, under capital
leases and noncancellable operating leases with terms of one year or more
consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- -------
(IN THOUSANDS)
<S> <C> <C>
1998.................................................. $ 1,079 $ 1,880
1999.................................................. 785 1,363
2000.................................................. 562 868
2001.................................................. 255 452
2002.................................................. 3 244
------- -------
Total minimum lease payments.......................... 2,684 $ 4,807
=======
Amount representing interest.......................... (236)
-------
Present value of net minimum lease payments......... 2,448
Less current portion.................................. 923
-------
Total long-term portion.......................... $ 1,525
=======
</TABLE>
Rental expense for all operating leases was $3,598,000, $2,819,000 and
$2,071,000 in 1997, 1996 and 1995, respectively.
F - 14
<PAGE> 38
NOTE G -- INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Capital loss carryforward ................... $ 632 $ 447
Tax inventory over book ..................... 1,619 847
Allowance for doubtful accounts ............. 384 474
Accruals .................................... 1,054 642
State tax credit carryforward ............... 460 460
Net operating loss carryforward ............. 473 673
All other, net .............................. 11 (4)
------- -------
Total deferred tax assets .............. 4,633 3,539
Valuation reserve ........................... (227) (227)
------- -------
Net deferred tax assets ................. $ 4,406 $ 3,312
======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Liabilities:
Tax over book depreciation .................. $13,352 $ 7,117
Goodwill amortization ....................... 1,548 902
Deferred income from joint venture .......... -- 151
Accounts receivable mark-to-market .......... 1,146 --
Tax over book amortization of other
intangibles .............................. 196 144
All other ................................... 85 9
------- -------
Total deferred tax liability ................ 16,327 8,323
------- -------
Net deferred tax liability .................. $11,921 $ 5,011
======= =======
</TABLE>
Federal and state income taxes for years ended December 31, 1997, 1996
and 1995 consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
CURRENT
Federal .................................. $2,860 $3,281 $3,465
State .................................... 402 459 574
Foreign .................................. 2,668 2,607 1,034
------ ------ ------
5,930 6,347 5,073
DEFERRED
Federal .................................. 3,090 942 17
State .................................... 146 82 104
------ ------ ------
3,236 1,024 121
Total tax provision ...................... $9,166 $7,371 $5,194
====== ====== ======
</TABLE>
F - 15
<PAGE> 39
A reconciliation of the provision for income taxes computed by applying the
federal statutory rate for the years ended December 31, 1997, 1996 and 1995 to
income before income taxes and the reported income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision computed at statutory
federal income tax rates ........................... $ 8,086 $ 6,972 $ 4,950
State income taxes (net of federal benefit) ........... 261 303 379
Research and development tax credit ................... -- (100) (350)
Permanent differences ................................. 359 181 109
Impact of International Operations .................... 386 227 --
Foreign Sales Corporation ............................. (108) (101) --
Other ................................................. 182 (111) 106
------- ------- -------
Total tax provision ................................... $ 9,166 $ 7,371 $ 5,194
======= ======= =======
</TABLE>
The provision for deferred income taxes reflects temporary differences
between financial and tax reporting related to the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
(IN THOUSANDS)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Depreciation .......................................... $ 3,807 $ 1,185 $ 195
Amortization .......................................... $ 700 $ 28 $ --
Capital loss carry forward ............................ (187) -- 45
Notes receivable reserves ............................. -- 19 (198)
Allowance for doubtful accounts and inventory reserves (570) (184) 383
Accruals .............................................. (463) 198 (282)
Net operating loss carryforward ....................... 8 (131) --
All other temporary differences ....................... (59) (91) (22)
------- ------- -------
$ 3,236 $ 1,024 $ 121
======= ======= =======
</TABLE>
NOTE H -- ACCRUED LIABILITIES
Accrued liabilities are detailed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Compensation and employee benefits ............... $ 5,062 $ 3,420
Taxes payable .................................... 3,481 1,888
Transportation and distribution costs ............ 670 575
Plant operating costs ............................ 340 595
Other accrued liabilities ........................ 4,561 2,607
------- -------
$14,114 $ 9,085
======= =======
</TABLE>
NOTE I -- COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries 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
the Company cannot be predicted with certainty, management does not expect these
matters to have a material adverse impact on the financial statements.
F - 16
<PAGE> 40
The EPA issued to the Company's American MicroTrace Corporation subsidiary
("AMT") an Administrative Order under the Resources Conservation and Recovery
Act ("RCRA") in early 1997 with regard to AMT's facility in Fairbury, Nebraska.
The EPA's Order required AMT to ship off-site various materials, to commence
management of certain sources of zinc raw materials in accordance with RCRA
requirements, and to complete an application for a RCRA permit to store
regulated zinc raw materials. AMT has completed and filed the RCRA permit
application and the Company believes that AMT is in full compliance with the
Order. The EPA has stated its intent to seek civil penalties in connection with
this matter. The Company does not expect that any such penalties will have a
material adverse effect on its consolidated financial results. Representatives
of AMT have met with EPA counsel and staff to discuss the Order and possible
ways to mitigate such penalties. The Company recorded a $3.0 million
non-recurring charge in the third quarter of 1997 to cover costs associated with
compliance with this order. Approximately $0.8 million of this charge was
recorded against cost of sales and the remaining $2.2 million recorded in
general and administrative expenses.
NOTE J -- CAPITAL STOCK
The Company's Restated Certificate of Incorporation authorizes the Company
to issue 40,000,000 shares of common stock, par value $.01 per share, and
5,000,000 shares of preferred stock, no par value. The voting, dividend and
liquidation rights of the holders of common stock are subject to the rights of
the holders of preferred stock. The holders of common stock are entitled to one
vote for each share held. There is no cumulative voting. Dividends may be
declared and paid on common stock as determined by the Board of Directors,
subject to any preferential dividend rights of any then outstanding preferred
stock.
The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause shares of preferred stock to be issued in one or more
series and to establish the number of shares to be included in each such series
and the rights, powers, preferences and limitations of each series. Because the
Board of Directors has the power to establish the preferences and rights of each
series, it may afford the holders of any series of preferred stock preferences,
powers and rights, voting or otherwise, senior to the rights of holders of
common stock. The issuance of the preferred stock could have the effect of
delaying or preventing a change in control of the Company. The Board of
Directors has no present plans to issue any of the preferred stock.
Upon dissolution or liquidation of the Company, whether voluntary or
involuntary, holders of common stock will be entitled to receive all assets of
the Company available for distribution to its stockholders, subject to any
preferential rights of any then outstanding preferred stock.
NOTE K -- INCENTIVE STOCK OPTION PLAN
In 1985, the Company adopted the TETRA Technologies, Inc. 1985 Incentive
Stock Option Plan (the "1985 Plan"). In February 1990, the 1985 Plan was amended
to change the name of the 1985 Plan to the TETRA Technologies, Inc. 1990 Stock
Option Plan (the "1990 Plan") and change the number and type of options that
could be granted. In May 1997, the 1990 Plan was amended to increase the number
and type of options that could be granted. After this amendment, the Company has
authorized up to 950,000 performance stock options of which 550,000 shares have
been granted. These options have an exercise price of $25.00 per share and vest
in full in no less than five years, subject to earlier vesting as follows: fifty
percent of each such option vests immediately if the market value per share is
equal to or greater than $37.50 for a period of at least 20 consecutive trading
days; and the remaining fifty percent vests immediately if the market value per
share is equal to or greater than $50.00 for a period of at least 20 consecutive
trading days. These options are immediately exercisable upon vesting; provided,
however, that no more than 100,000 shares of Common Stock may be exercised by
any individual after vesting in any 90 day period, except in the even of death,
incapacity or termination of employment of the holder or the occurrence of a
Corporation Change. Such options must be exercised within three years of vesting
or they expire.
In 1993, the Company adopted the TETRA Technologies, Inc. Director Stock
Option Plan (the "Director's Plan"). The purpose of the Plan is to enable the
Company to attract and retain qualified individuals who are not
F - 17
<PAGE> 41
employees of the Company to serve as directors. In 1996, the Director Plan was
amended to increase the number of shares issuable under automatic grants
thereunder.
The following is a summary of stock option activity for the years ended
December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
SHARES WEIGHTED
UNDER OPTION AVERAGE PRICE
(000'S) PER SHARE
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1994 ........................... 1,193 $ 8.24
Options granted ........................................ 57 12.61
Options canceled ....................................... (62) 7.87
Options exercised ...................................... (92) 6.54
---------
Outstanding at December 31, 1995 ........................... 1,096 8.75
Options granted ........................................ 1,152 16.90
Options canceled ....................................... (27) 14.11
Options exercised ...................................... (100) 8.96
---------
Outstanding at December 31, 1996 ........................... 2,121 12.97
Options granted ........................................ 732 24.36
Options canceled ....................................... (26) 14.25
Options exercised ...................................... (272) 9.42
---------
Outstanding at December 31, 1997 ........................... 2,555 $ 16.60
========= =========
</TABLE>
The exercise prices of the options outstanding at December 31, 1997 range
from $5.88 to $26.38 per share. At December 31, 1997, 1996 and 1995, there were
867,000, 304,000 and 381,000 shares, respectively, reserved for future grants
under the 1990 Plan. At December 31, 1997, 26,000 shares were reserved for
future grants under the Director's Plan. As of December 31, 1997, there were
803,000 options outstanding which were exercisable under the 1990 Plan with a
weighted average exercise price of $11.05 and 67,050 options exercisable under
the Director's Plan with a weighted average exercise price of $16.72.
At December 31, 1997, the maximum number of shares authorized for issuance
under the 1990 Plan was 3,950,000 shares of common stock. Incentive options may
only be granted until December 31, 1999. As of February 28, 1998, there were
2,168,844 incentive stock options granted and outstanding under the 1990 Plan,
34,000 nonqualified options granted and outstanding under the nonqualified plan,
and 284,977 nonqualified options granted and outstanding that are not under any
plan. The maximum number of shares of common stock which may be issued pursuant
to options granted under the Director's Plan is 100,000. As of February 28,1998,
88,619 options had been granted and were outstanding under the Director's Plan.
The weighted average remaining contractual life of all outstanding options is
5.4 years.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123 "Accounting for Stock-Based Compensation". In accordance with the
provisions of SFAS No. 123, the Company applies APB Opinion 25 in accounting for
its stock option plans and, accordingly, does not recognize compensation cost.
If the Company had elected to recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS No. 123, net
income and earnings per share would have been reduced to the pro forma amounts
indicated in the table below (in thousands except per share amounts):
F - 18
<PAGE> 42
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
(IN THOUSANDS)
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Net Income - as reported.......................... $ 13,936 $ 13,137 $ 9,366
======== ======== =======
Net Income - pro forma............................ 12,272 12,315 9,332
======== ======== =======
Net Income per share - as reported................ $ 1.05 $ 1.02 $ 0.74
======== ======== =======
Net Income per share - pro forma.................. $ 0.92 $ 0.96 $ 0.74
======== ======== =======
Net Income per diluted share - as reported........ $ 0.98 $ 0.97 $ 0.72
======== ======== =======
Net Income per diluted share - pro forma.......... $ 0.86 $ 0.91 $ 0.71
======== ======== =======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions; expected
stock price volatility 39.2%, expected life of options 5.0 to 6.0 years,
risk-free interest rate 6.00% and expected dividend yield 0.00%. The weighted
average fair value of options granted during 1997 and 1996 was $11.56 and $7.95
per share, respectively. The pro forma effect on net income for 1997 is not
representative of the pro forma effect on net income in future years because of
the potential of accelerated vesting of certain options and it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995.
NOTE L -- INCOME PER SHARE
The following is a reconciliation of the common shares outstanding with the
number of shares used in the computations of income per common and common
equivalent share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Number of weighted average common shares outstanding ....... 13,297 12,873 12,693
Assumed exercise of stock options .......................... 892 672 376
------ ------ ------
Average diluted shares outstanding ......................... 14,189 13,545 13,069
====== ====== ======
</TABLE>
F - 19
<PAGE> 43
NOTE M -- GEOGRAPHIC INFORMATION AND INDUSTRY SEGMENTS
Summarized financial information concerning the geographic areas in which
the Company operated at December 31, 1997, 1996 and 1995 is presented below.
<TABLE>
<CAPTION>
(IN THOUSANDS)
UNITED EUROPE &
STATES AFRICA OTHER ELIMINATIONS TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1997 OPERATIONS BY GEOGRAPHIC AREA:
Revenues from unaffiliated customers:
Sales ....................................... $111,331 $ 19,530 $ 17,066 -- $147,927
Service and rentals ......................... 64,794 1,879 4,813 -- 71,486
Transfers between geographic areas .......... 5,301 972 (6,272) --
-------- -------- -------- -------- --------
Total revenue ............................... 181,426 22,381 21,879 (6,272) 219,413
======== ======== ======== ======== ========
Operating income ............................ 14,970 5,445 4,442 180 25,037
======== ======== ======== ======== ========
Identifiable assets ......................... $221,113 $ 24,941 $ 36,709 $(18,971) $263,792
======== ======== ======== ======== ========
1996 OPERATIONS BY GEOGRAPHIC AREA:
Revenues from unaffiliated customers:
Sales ....................................... $ 96,454 $ 19,088 $ 10,390 $ -- $125,932
Service and rentals ......................... 30,321 1,936 2,601 -- 34,858
Transfers between geographic areas .......... 589 320 1,151 (2,060) --
-------- -------- -------- -------- --------
Total revenue ............................... 127,364 21,344 14,142 (2,060) 160,790
======== ======== ======== ======== ========
Operating income ............................ 10,258 7,326 3,197 20,781
======== ======== ======== ======== ========
Identifiable assets ......................... $149,842 $ 20,040 $ 19,906 $(11,282) $178,506
======== ======== ======== ======== ========
1995 OPERATIONS BY GEOGRAPHIC AREA:
Revenues from unaffiliated customers:
Sales ....................................... $ 68,712 $ 13,119 $ 5,127 -- $ 86,958
Service and rentals ......................... 23,196 1,552 1,762 -- 26,510
Transfers between geographic areas .......... 966 258 149 (1,373) --
-------- -------- -------- -------- --------
Total revenue ............................... 92,874 14,929 7,038 (1,373) 113,468
======== ======== ======== ======== ========
Operating income ............................. 9,213 2,575 1,642 13,430
======== ======== ======== ========
Identifiable assets .......................... $114,625 $ 16,618 $ 8,648 $ (9,970) $129,921
======== ======== ======== ======== ========
</TABLE>
Transfers between geographic areas are priced at the estimated fair value
of the products or services negotiated between the selling and receiving units.
In 1997 one customer accounted for more than 10% of consolidated revenues
with revenues of $22 million. In 1996 and 1995, two customers accounted for more
than 10% of consolidated revenues. Revenues from these customers were $20.7
million and $15.9 million in 1996 and $20.5 million and $15.2 million in 1995.
F - 20
<PAGE> 44
NOTE N -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 are as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1997
----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total Revenue ......................................... $46,866 $52,398 $60,443 $59,706
Gross Profit .......................................... 13,796 15,232 15,113 18,841
Net Income ............................................ 3,616 3,663 1,710 4,947
Net earnings per share ................................ $ 0.28 $ 0.28 $ 0.13 $ 0.37
Net earnings per diluted share ........................ $ 0.26 $ 0.26 $ 0.12(1) $ 0.35
</TABLE>
- ---------
(1) Includes a $3.0 million non-recurring charge associated with
regulatory-driven costs incurred at the Company's American MicroTrace
Corporation subsidiary.
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1996
---------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Total Revenue ......................................... $34,194 $ 36,710 $45,158 $44,728
Gross Profit .......................................... 10,480 11,705 11,888 14,571
Net Income ............................................ 2,811 2,905 3,333 4,088
Net earnings per share ................................ $ 0.22 $ 0.23 $ 0.26 $ 0.32
Net earnings per diluted share ........................ $ 0.21 $ 0.22 $ 0.25 $ 0.30
</TABLE>
F - 21
<PAGE> 45
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
---------
Charged
Balance at Charged to Other Balance at
Beginning to Costs Accounts- Deductions End
of Period and Expenses Describe Describe of Period
---------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Allowance for doubtful accounts $ 977 $ 123 $ 548(2) $ (80)(1) $ 1,568
Allowance for current portion of
notes and other receivables 726 (726)(2)
Allowance for noncurrent portion of
notes and other receivables 376 (376)(2)
------- ------- ------- ------- -------
Totals 2,079 123 (554) (80)
====== ========= ====== ======= ======
1,568
Year Ended December 31, 1996:
Allowance for doubtful accounts 1,568 453 (755)(1) 1,266
====== ========= ====== ======= ======
Year Ended December 31, 1997:
Allowance for doubtful accounts 1,266 253 74(4) (570)(1) 1,023
====== ========= ====== ======= ======
Inventory reserves $ 303 $ 697 $ (297)(3) $ 703
====== ========= ====== ======= ======
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Recovery of previously reserved noncurrent receivable.
(3) Write off against inventory
(4) Acquisitions
S-1
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES OR OTHER RELATED ENTITIES
TETRA International Incorporated
TETRA Technologies de Venezuela, S.A.
TETRA Technologies U.K. Limited
TETRA Technologies de Mexico, S.A. de C.V.
TETRA Technologies Nigeria Ltd.
TETRA de Mexico, S.A. de C.V.
TETRA Agricultural Products, Inc.
TETRA Agricultural Products de Mexico, S.A. de C.V.
TETRA Applied Technologies, Inc.
TETRA Services, Inc.
TETRA U.K. Limited
TETRA Thermal, Inc.
TETRA Process Services, L.C.
TETRA F.S.C. Limited
American MicroTrace Corporation
American Microbial Technologies, Inc.
Seajay Industries, Inc.
Industrias Sulfamex, S.A. de C.V.
Impreval, S. de R.L. de C.V.
Wilchem Corporation
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 33-99810), Registration Statement on Form S-4 (No. 33-80881) and
the Registration Statements on Form S-8 (Nos. 33-40509, 33-41337, 33-35750, 33-
76804, 33-76806, 333-04284 and 333-09889) of TETRA Technologies, Inc of our
report dated February 17, 1998 with respect to the consolidated financial
statements and schedule of TETRA Technologies, inc. and subsidiaries included
in this Annual Report on Form 10-K for the year ended December 31, 1997.
ERNST & YOUNG LLP
Houston, Texas
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,839
<SECURITIES> 0
<RECEIVABLES> 57,916
<ALLOWANCES> 1,023
<INVENTORY> 38,715
<CURRENT-ASSETS> 109,924
<PP&E> 169,851
<DEPRECIATION> 48,868
<TOTAL-ASSETS> 263,792
<CURRENT-LIABILITIES> 41,848
<BONDS> 78,525
0
0
<COMMON> 135
<OTHER-SE> 129,445
<TOTAL-LIABILITY-AND-EQUITY> 263,792
<SALES> 147,927
<TOTAL-REVENUES> 219,413
<CGS> 107,379
<TOTAL-COSTS> 49,052
<OTHER-EXPENSES> 37,945
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,305
<INCOME-PRETAX> 23,102
<INCOME-TAX> 9,166
<INCOME-CONTINUING> 13,936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,936
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 0.98
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,555
<SECURITIES> 0
<RECEIVABLES> 58,690
<ALLOWANCES> 1,398
<INVENTORY> 35,442
<CURRENT-ASSETS> 104,192
<PP&E> 158,274
<DEPRECIATION> 50,566
<TOTAL-ASSETS> 245,204
<CURRENT-LIABILITIES> 44,460
<BONDS> 59,259
0
0
<COMMON> 135
<OTHER-SE> 122,857
<TOTAL-LIABILITY-AND-EQUITY> 245,204
<SALES> 110,295
<TOTAL-REVENUES> 159,707
<CGS> 81,359
<TOTAL-COSTS> 34,207
<OTHER-EXPENSES> 28,534
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,095
<INCOME-PRETAX> 14,706
<INCOME-TAX> 5,717
<INCOME-CONTINUING> 8,989
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,989
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,727
<SECURITIES> 0
<RECEIVABLES> 44,691
<ALLOWANCES> 1,267
<INVENTORY> 32,302
<CURRENT-ASSETS> 91,120
<PP&E> 125,760
<DEPRECIATION> 39,410
<TOTAL-ASSETS> 209,672
<CURRENT-LIABILITIES> 38,528
<BONDS> 46,400
0
0
<COMMON> 131
<OTHER-SE> 115,788
<TOTAL-LIABILITY-AND-EQUITY> 209,672
<SALES> 69,499
<TOTAL-REVENUES> 99,264
<CGS> 48,947
<TOTAL-COSTS> 70,236
<OTHER-EXPENSES> 16,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,296
<INCOME-PRETAX> 11,823
<INCOME-TAX> 4,544
<INCOME-CONTINUING> 7,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,279
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,829
<SECURITIES> 0
<RECEIVABLES> 45,034
<ALLOWANCES> 1,266
<INVENTORY> 24,360
<CURRENT-ASSETS> 76,126
<PP&E> 107,604
<DEPRECIATION> 35,436
<TOTAL-ASSETS> 178,506
<CURRENT-LIABILITIES> 38,728
<BONDS> 24,688
0
0
<COMMON> 131
<OTHER-SE> 107,891
<TOTAL-LIABILITY-AND-EQUITY> 178,506
<SALES> 125,932
<TOTAL-REVENUES> 160,790
<CGS> 87,775
<TOTAL-COSTS> 112,146
<OTHER-EXPENSES> 27,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,250
<INCOME-PRETAX> 20,508
<INCOME-TAX> 7,371
<INCOME-CONTINUING> 13,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,137
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 0.97
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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> 0.70
<EPS-DILUTED> 0.67
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,139
<SECURITIES> 0
<RECEIVABLES> 35,709
<ALLOWANCES> 1,277
<INVENTORY> 23,204
<CURRENT-ASSETS> 63,970
<PP&E> 96,957
<DEPRECIATION> 31,988
<TOTAL-ASSETS> 146,567
<CURRENT-LIABILITIES> 30,000
<BONDS> 7,783
0
0
<COMMON> 128
<OTHER-SE> 95,326
<TOTAL-LIABILITY-AND-EQUITY> 146,567
<SALES> 55,765
<TOTAL-REVENUES> 20,904
<CGS> 38,247
<TOTAL-COSTS> 48,719
<OTHER-EXPENSES> 13,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314
<INCOME-PRETAX> 9,152
<INCOME-TAX> 3,436
<INCOME-CONTINUING> 5,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,716
<EPS-PRIMARY> .44
<EPS-DILUTED> .43
</TABLE>
