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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
Commission file number 0-18335
TETRA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2148293
(State of incorporation) (I.R.S. Employer
Identification No.)
25025 I-45 NORTH, THE WOODLANDS, TEXAS 77380
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (281) 367-1983
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
---- ----
As of April 30, 1998 there were 13,585,755 shares of the Company's
common stock, $.01 par value per share, issued and outstanding.
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ITEM 1. FINANCIAL STATEMENTS
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
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<S> <C> <C>
($ THOUSANDS)
Revenues:
Product sales $ 42,999 $ 33,984
Services 24,337 12,882
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TOTAL REVENUES 67,336 46,866
Cost of Revenues:
Cost of product sales 32,037 23,731
Cost of services 17,053 9,339
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Total Cost of Revenues 49,090 33,070
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GROSS PROFIT 18,246 13,796
General and Administrative Expense 10,291 7,976
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OPERATING INCOME 7,955 5,820
Interest Expense 1,245 680
Interest Income 23 53
Equity in Earnings from Joint Ventures 0 120
Other Income (expense) (176) 361
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INCOME BEFORE INCOME TAXES 6,557 5,674
Provision for Income Taxes 2,620 2,058
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NET INCOME $ 3,937 $ 3,616
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NET INCOME PER SHARE $ 0.29 $ 0.28
======== ========
AVERAGE SHARES 13,571 13,121
======== ========
NET INCOME PER DILUTED SHARE $ 0.28 $ 0.26
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AVERAGE DILUTED SHARES 14,260 14,149
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
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TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
($ THOUSANDS) 1998 1997
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,417 $ 2,839
Trade accounts receivable, net of allowance for doubtful
accounts of $1,096 in 1998 and $1,023 in 1997 57,240 56,893
Costs and estimated earnings in excess of billings
on incomplete contracts 5,986 4,021
Inventories 45,126 38,715
Deferred tax assets 1,351 1,444
Prepaid expenses and other current assets 5,723 6,012
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Total Current Assets 116,843 109,924
PROPERTY, PLANT AND EQUIPMENT:
Land and building 14,382 12,777
Machinery and Equipment 78,986 72,514
Automobiles and trucks 11,240 10,538
Chemical plants 47,207 46,791
Construction in progress 31,322 27,231
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183,137 169,851
Less accumulated depreciation and amortization (51,973) (48,868)
--------- ---------
Net Property, Plant, and Equipment 131,164 120,983
OTHER ASSETS:
Cost in excess of net assets acquired, net of accumulated
amortization of $1,980 in 1998 and $1,805 in 1997 24,811 24,983
Other, net of accumulated amortization of $3,179 in 1998
and $2,987 in 1997 7,506 7,902
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Total Other Assets 32,317 32,885
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$ 280,324 $ 263,792
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
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($ THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 28,168 $ 26,181
Accrued expenses 15,545 14,114
Billings in excess of costs and estimated
earnings on incomplete contracts 141 244
Current portions of all long-term debt and capital
lease obligations 1,023 1,309
--------- ---------
Total Current Liabilities 44,877 41,848
LONG-TERM DEBT, LESS CURRENT PORTION 86,000 77,000
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 1,381 1,525
DEFERRED INCOME TAXES 13,353 13,365
OTHER LIABILITIES 470 474
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share
40,000,000 shares authorized, with 13,571,256 shares
issued and outstanding in 1998 and 13,480,956 shares
issued and outstanding in 1997 136 135
Additional paid-in capital 76,653 75,902
Accumulated other comprehensive income (108) (86)
Retained earnings 57,562 53,629
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Total Stockholders' Equity 134,243 129,580
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$ 280,324 $ 263,792
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</TABLE>
See Notes to Consolidated Financial Statements
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TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
($ THOUSANDS) 1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 3,937 $ 3,616
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,916 2,536
Undistributed (earnings) losses from joint venture -- (120)
Provision for deferred income taxes 81 155
Provision for doubtful accounts 93 115
(Gain) on sale of property, plant and equipment (18) (154)
Changes in operating assets and liabilities,
net of assets acquired:
Trade accounts receivable 560 3,670
Costs and estimated earnings in excess
of billings on incomplete contracts (1,965) (557)
Inventories (6,411) (3,461)
Prepaid expenses and other current assets (711) (723)
Trade accounts payable and accrued expenses 3,389 3,209
Billings in excess of costs and estimated
earnings on incomplete contracts (103) (166)
Other (11) (740)
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Net cash provided by operating activities 2,757 7,380
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INVESTING ACTIVITIES:
Purchases of property, plant and equipment (13,593) (7,769)
Decrease(increase) in other assets 33 --
Proceeds from sale of property, plant and equipment 59 430
-------- --------
Net cash used by investing activities (13,501) (7,339)
-------- --------
FINANCING ACTIVITIES:
Net repayments and borrowings from short-term credit lines -- (2,202)
Proceeds from long-term debt and capital
lease obligations 10,099 10,207
Principal payments on long-term debt and capital
lease obligations (1,528) (3,094)
Proceeds from sale of common stock and exercised stock options 751 507
-------- --------
Net cash provided by financing activities 9,322 5,418
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,422) 5,459
CASH & INVESTMENTS AT BEGINNING OF PERIOD 2,839 2,829
-------- --------
CASH & INVESTMENTS AT END OF PERIOD $ 1,417 $ 8,288
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X for interim financial
statements required to be filed with the Securities and Exchange Commission and
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, the
information furnished reflects all normal recurring adjustments, which are, in
the opinion of management, necessary to a fair statement of the results for the
interim periods.
The accompanying financial statements should be read in conjunction
with the audited financial statements for the year ended December 31, 1997.
For the purposes of the statements of cash flows, the Company considers
all highly liquid cash investments with a maturity of three months or less to be
cash equivalents.
Interest paid on debt during the three months ended March 31, 1998 and
1997 was $1,375,000 and $680,000, respectively.
Income tax payments made during the three months ended March 31, 1998
and 1997 were $10,000 and $123,000, respectively.
NOTE B - COMMITMENTS AND CONTINGENCIES
The Company, its subsidiaries and other related companies 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 Company.
NOTE C - ACQUISITIONS
The Company completed two acquisitions during the third quarter of
1997. The outstanding stock of Perfco Wireline, Inc. and C & T Unlimited, Inc.
(collectively, "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 was 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 Company paid approximately $8.8 million for the
remaining stock. The excess of the purchase price over the book value of the net
assets was approximately $3.9 million for Perfco and $3.0 million for
RETEC-TETRA.
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.
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NOTE D - NET INCOME PER SHARE
The following is a reconciliation of the weighted average number of
common shares outstanding with the number of shares used in the computations of
net income per common and common equivalent share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1997
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<S> <C> <C>
Number of weighted average
common shares outstanding .............................. 13,571,256 13,121,493
Assumed exercise of stock options......................... 688,259 1,027,873
---------- ----------
Average diluted shares outstanding........................ 14,259,515 14,149,366
========== ==========
</TABLE>
In applying the treasury stock method to determine the dilutive effect
of the stock options outstanding during the first quarter of 1998, the average
market price of $22.56 was used.
NOTE E - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS
130 establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income includes all changes
in equity except those resulting from investments by owners and distributions to
owners. Other comprehensive income for the Company includes cumulative foreign
currency translation adjustments. No taxes are provided because cumulative
translation adjustments are considered a component of permanently invested
unremitted earnings of subsidiaries outside the United States. Comprehensive
income for the three months ended March 31,1998 and 1997 is $3.9 million and
$3.3 million, respectively.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Three months ended March 31, 1998 compared with three months ended March 31,
1997.
Total revenues for the quarter ended March 31, 1998 were $67.3 million
compared to $46.9 million in the prior period, an increase of $20.4 million or
43.5%. Revenues from the Oil & Gas Services Division were $42.5 million, up
approximately 47% over the prior year's quarter. Domestic and international
completion and PayZone(R) drilling fluids sales and services had record results.
Growth in the Company's oil and gas well abandonment business, wireline
business, well-testing business, as well as the equipment rental and service
operations, contributed to substantial revenue growth in this division. Oil and
gas international revenues also improved significantly during the quarter.
Specialty Chemicals Division revenues for the first quarter were $24.8 million,
net of intercompany, up 37% over first quarter of 1997. Revenues were up in
every major product line in this division. Despite soft winter snow and ice melt
demand, sales of dry calcium chloride increased over the prior year's quarter.
Sales of bromide and chloride products into the oil and gas markets were also
up. Also contributing with strong quarter to quarter increases were the Process
Technologies and Performance Chemicals groups. The division also benefited from
the incorporation of the now wholly-owned Process Services.
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Gross profits were $18.2 million in the 1998 quarter compared to $13.8
million in the 1997 quarter, for an increase of $4.4 million or 31.9%. Gross
profit as a percentage of revenues was 27.1% in 1998 versus 29.4% in 1997. The
Specialty Chemicals Division's gross profit percentage was down from the prior
quarter principally in the calcium chloride line. Market pricing pressures and
product mix contributed significantly to this decrease. Profit percentage was
also down in the Process Technologies group due to project and revenue mix.
General and administrative expenses were $10.3 million in the first
quarter of 1998 compared to $8.0 million in the first quarter of 1997. G & A
costs increased predominantly in support of expanded onshore operations of the
Oil & Gas Services Division and for increased advertising of consumer products
in the Specialty Chemicals Division. The inclusion of expenses associated with
acquired operations also accounted for a portion of the increase. G & A expenses
as a percentage of revenues decreased from 17% in the 1997 quarter to 15% in the
1998 quarter.
Operating income for the quarter ended March 31, 1998 was $8 million,
up $2.2 million or 38% from $5.8 million in 1997. This increase is the combined
result of a gross margin increase of $6.0 million due to increased volume, a
$1.5 million decrease due the lower gross margin rates, and a $2.3 million
increase in general and administrative expenses.
Interest expense increased during the current quarter compared to the
prior year's quarter due to increased long-term debt over the past twelve months
in support of the Company's acquisition and internal growth programs.
Net income after taxes for the three months ended March 31, 1998 was
$3.9 million versus $3.6 million in 1997, an increase of $0.3 million or 8%. Net
income per diluted share was $0.28 in the 1998 quarter on 14,260,000 average
diluted shares outstanding compared to earnings in 1997 of $0.26 based on
14,149,000 average diluted outstanding shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company's investment in working capital, excluding cash and cash
equivalents, increased to $70.5 million at March 31, 1998 compared to $65.2
million at December 31, 1997. Inventories increased $6.4 million during this
period primarily in the Oil & Gas Services Division. Inventories of clear brine
fluids along the Gulf of Mexico increased as did pipe inventories associated
with the division's expanding well abandonment business. In the Specialty
Chemicals division, bromide inventories increased as the new Dow Chemicals plant
at Ludington, Michigan came on-line; offsetting this increase was a decrease in
the feed and fertilizer inventories due to seasonal increases in sales demand.
Trade payables and accrued expenses increased during the period by $3.4 million.
Oil and gas operations accounted for a substantial portion of this change
resulting from inventory increases and capital equipment acquired. Increased
project and construction costs in the specialty chemicals operations also
contributed to this increase.
The Company has an ongoing acquisition program to augment its internal
growth. To fund this program, 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 March 31, 1998, the Company
has $2.9 million in letters of credit and $86 million in long-term debt
outstanding against a $120 million line-of-credit, leaving a net availability of
$31.1 million. The line-of-credit matures in 2002. The Company also has 4.6
million shares of TETRA common stock available under an S-4 Shelf Registration
Statement to finance its acquisitions.
Capital expenditures during the three months ended March 31, 1998
totaled approximately $13.6 million. Significant components include new inland
water rigs and production testing equipment for the Oil & Gas Services Division.
The Specialty Chemicals Division expenditures included the construction of a new
manganous oxide plant in Tampico, Mexico, construction of a new liquid calcium
chloride facility in West Virginia and the completion of the first stage of the
new TETRA and Dow Chemicals bromine derivatives plant at Ludington, Michigan.
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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.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD LOOKING STATEMENTS
Certain statements contained herein and elsewhere may be deemed to be
forward-looking within the meaning of The Private Securities Litigation Reform
Act of 1995 and are subject to the "safe harbor" provisions of that act,
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
operations. Such statements involve risks and uncertainties. Actual results
could differ materially from the expectations expressed in such forward-looking
statements. Some of the risk factors that 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 such
forward-looking statements are set forth in the section entitled "Certain
Business Risks" contained in the Company's report on Form 10-K for the year
ended December 31, 1997.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Region VII of the United States Environmental Protection Agency ("EPA")
issued to the Company's American MicroTrace Corporation subsidiary ("AMT") 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
believes that AMT's prompt actions in response to the Order, as well as other
equitable factors, should mitigate the civil penalties under consideration.
The Company, its subsidiaries and other related companies 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 Company.
ITEM 6. EXHIBITS
(a) Exhibits
(i) A statement of computation of per share earnings is included
in Note D of the Notes to Consolidated Financial Statements
included in this report and is incorporated by reference into
Part II of this report.
(b) Reports on Form 8-K: None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TETRA Technologies, Inc.
Date: May 11, 1998 By: [Geoffrey M. Hertel]
------------------------------------
Geoffrey M. Hertel
Executive Vice President -
Finance and Administration
(Principal Financial Officer)
Date: May 11, 1998 By: [Bruce A. Cobb]
------------------------------------
Bruce A. Cobb, Corporate Controller
(Principal Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,417
<SECURITIES> 0
<RECEIVABLES> 58,336
<ALLOWANCES> 1,096
<INVENTORY> 45,126
<CURRENT-ASSETS> 116,843
<PP&E> 183,137
<DEPRECIATION> 51,973
<TOTAL-ASSETS> 280,324
<CURRENT-LIABILITIES> 44,877
<BONDS> 87,381
0
0
<COMMON> 136
<OTHER-SE> 134,107
<TOTAL-LIABILITY-AND-EQUITY> 280,324
<SALES> 42,999
<TOTAL-REVENUES> 67,336
<CGS> 32,037
<TOTAL-COSTS> 49,090
<OTHER-EXPENSES> 10,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,245
<INCOME-PRETAX> 6,557
<INCOME-TAX> 2,620
<INCOME-CONTINUING> 3,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,937
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.28
</TABLE>
