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, 1999
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, 1999 there were 13,520,968 shares of the Company's common
stock, $.01 par value per share, issued and outstanding.
<PAGE>
ITEM 1. Financial Statements
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-------------------------
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
---------- ---------
REVENUES:
PRODUCT SALES $37,865 $42,999
SERVICES 20,132 24,337
---------- ---------
TOTAL REVENUES 57,997 67,336
COST OF REVENUES:
COST OF PRODUCT SALES 30,451 32,037
COST OF SERVICES 13,402 17,053
---------- ---------
TOTAL COST OF REVENUES 43,853 49,090
---------- ---------
GROSS PROFIT 14,144 18,246
GENERAL AND ADMINISTRATIVE EXPENSE 10,521 10,291
SPECIAL CHARGE 4,745 -
---------- ---------
OPERATING INCOME (1,122) 7,955
GAIN ON SALE OF ADMINISTRATION BUILDING 6,731 -
INTEREST EXPENSE, NET 2,213 1,222
OTHER INCOME (EXPENSE) 107 (177)
---------- ---------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 3,503 6,556
PROVISION FOR INCOME TAXES 1,400 2,620
---------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 2,103 3,936
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
(NET OF INCOME TAX EFFECT) (5,782) -
---------- ---------
NET INCOME (LOSS) ($3,679) $3,936
========== =========
NET INCOME PER SHARE BEFORE CUMULATIVE
EFFECT OF ACOUNTING CHANGE $0.16 $0.29
CUMULATIVE EFFECT OF ACCOUNTING CHANGE ($0.43) -
---------- ---------
NET INCOME PER SHARE ($0.27) $0.29
========== =========
AVERAGE SHARES 13,521 13,571
========== =========
NET INCOME PER DILUTED SHARE BEFORE
CUMULATIVE EFFECT ACCOUNTING CHANGE $0.16 $0.28
CUMULATIVE EFFECT OF ACCOUNTING CHANGE ($0.43) -
---------- ---------
NET INCOME PER DILUTED SHARE ($0.27) $0.28
========== =========
AVERAGE DILUTED SHARES 13,555 14,260
========== =========
See Notes to Consolidated Financial Statements
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<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
($ THOUSANDS) 1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 2,081 $ 2,803
TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $700 IN 1999 AND $853 IN 1998 57,942 56,167
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
ON INCOMPLETE CONTRACTS 6,498 5,641
INVENTORIES 58,632 58,478
DEFERRED TAX ASSETS 4,063 4,099
PREPAID EXPENSES AND OTHER CURRENT ASSETS 4,233 3,731
--------- ---------
TOTAL CURRENT ASSETS 133,449 130,919
PROPERTY, PLANT AND EQUIPMENT:
LAND AND BUILDING 12,213 16,761
MACHINERY AND EQUIPMENT 109,161 109,116
AUTOMOBILES AND TRUCKS 9,044 8,485
CHEMICAL PLANTS 40,753 48,040
CONSTRUCTION IN PROGRESS 17,088 23,201
--------- ---------
188,259 205,603
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (54,623) (60,007)
--------- ---------
NET PROPERTY, PLANT, AND EQUIPMENT 133,636 145,596
OTHER ASSETS: `
COST IN EXCESS OF NET ASSETS ACQUIRED, NET OF ACCUMULATED
AMORTIZATION OF $2,725 IN 1999 AND $2,510 IN 1998 34,396 26,190
OTHER, NET OF ACCUMULATED AMORTIZATION OF $3,532 IN 1999
AND $3,680 IN 1998 6,471 8,303
--------- ---------
TOTAL OTHER ASSETS 40,867 34,493
--------- ---------
$307,952 $311,008
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
($ THOUSANDS) 1998 1998
--------- ---------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $ 29,195 $ 29,322
ACCRUED EXPENSES 15,447 11,335
BILLINGS IN EXCESS OF COSTS AND ESTIMATED
EARNINGS ON INCOMPLETE CONTRACTS 425 956
CURRENT PORTIONS OF ALL LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 1,127 1,007
--------- ---------
TOTAL CURRENT LIABILITIES 46,194 42,620
LONG-TERM DEBT, LESS CURRENT PORTION 108,230 109,000
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 1,427 1,307
DEFERRED INCOME TAXES 14,873 17,759
OTHER LIABILITIES 1,670 1,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
COMMON STOCK, PAR VALUE $.01 PER SHARE
40,000,000 SHARES AUTHORIZED, WITH 13,520,968 SHARES
ISSUED AND OUTSTANDING IN 1999 AND 13,514,340 SHARES
ISSUED AND OUTSTANDING IN 1998 136 136
ADDITIONAL PAID-IN CAPITAL 77,923 77,923
TREASURY STOCK, AT COST, 94,000 SHARES IN 1999
AND IN 1998 (1,107) (1,168)
ACCUMULATED OTHER COMPREHENSIVE INCOME (242) (96)
RETAINED EARNINGS 58,848 62,527
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 135,558 139,322
--------- ---------
$307,952 $311,008
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------
($ THOUSANDS) 1999 1998
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ (3,679) $ 3,937
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 4,175 3,916
PROVISION FOR DEFERRED INCOME TAXES (318) 81
PROVISION FOR DOUBTFUL ACCOUNTS 153 93
GAIN ON SALE OF PROPERTY, PLANT AND EQUIPMENT (20) (18)
SPECIAL CHARGES 4,745 -
GAIN ON THE SALE OF THE ADMINISTRATION BUILDING (6,731) -
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX 5,782 -
CHANGES IN OPERATING ASSETS AND LIABILITIES,
NET OF ASSETS ACQUIRED:
TRADE ACCOUNTS RECEIVABLE (346) 560
COSTS AND ESTIMATED EARNINGS IN EXCESS
OF BILLINGS ON INCOMPLETE CONTRACTS (857) (1,965)
INVENTORIES 963 (6,411)
PREPAID EXPENSES AND OTHER CURRENT ASSETS (701) (711)
TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES 2,877 3,389
BILLINGS IN EXCESS OF COSTS AND ESTIMATED
EARNINGS ON INCOMPLETE CONTRACTS (531) (103)
OTHER (72) (11)
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,440 2,757
-------- ---------
INVESTING ACTIVITIES:
PURCHASES OF PROPERTY, PLANT AND EQUIPMENT (3,171) (13,593)
BUSINESS COMBINATIONS, NET OF CASH ACQUIRED (11,658) -
DECREASE (INCREASE) IN OTHER ASSETS (445) 33
PROCEEDS FROM SALE OF PROPERTY, PLANT AND EQUIPMENT 9,580 59
-------- ---------
NET CASH USED BY INVESTING ACTIVITIES (5,694) (13,501)
-------- ---------
FINANCING ACTIVITIES:
NET REPAYMENTS AND BORROWINGS FROM SHORT-TERM
CREDIT LINES - -
PROCEEDS FROM LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 10,512 10,099
PRINCIPAL PAYMENTS ON LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS (11,042) (1,528)
PROCEEDS FROM SALE OF COMMON STOCK AND EXERCISED
STOCK OPTIONS 62 751
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES (468) 9,322
-------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (722) (1,422)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,803 2,839
-------- ---------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 2,081 $ 1,417
======== =========
</TABLE>
See Notes to Consolidated Financial Statements
- 4 -
<PAGE>
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, 1998.
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, 1999 and
1998 was $2,417,000 and $1,375,000, respectively.
Income tax payments made during the three months ended March 31, 1999 and
1998 were $25,300 and $10,000, respectively.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, REPORTING THE COSTS OF START-UP ACTIVITIES
("SOP 98-5"), which requires that costs related to start-up activities be
expensed as incurred. Prior to 1999, the Company capitalized those costs
incurred in connection with opening a new production facility. The Company
adopted the provisions of the SOP 98-5 in its financial statements for the year
ended December 31, 1999. The effect of adoption of SOP 98-5 was to record a
charge for the cumulative effect of an accounting change of $5.8 million ($0.43
per share), net of taxes of $3.9 million, to expense costs that had been
previously capitalized prior to 1999. Had SOP 98-5 been adopted as of January 1,
1998, the reported net income and earnings per share for the 1998 quarter would
not have materially changed.
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
In January 1999, the Company acquired WyZinCo, Inc., CoZinCo Sales, Inc.
and certain assets of CoZinCo, Inc. for approximately $11.7 million in cash and
notes. The acquisition, which was accounted for under the purchase method of
accounting, was funded primarily through the Company's credit facility and the
sale of its corporate headquarters building. The excess of purchase price over
the fair value of assets acquired was approximately $8.3 million. The
acquisition will significantly expand the Company's presence in the
micronutrients market.
- 5 -
<PAGE>
During the third quarter of 1998, the Company acquired from Cargill, Inc.
the assets of its calcium chloride facility located near Amboy, California. The
business, which utilizes solar evaporation and other techniques to produce three
grades of calcium chloride from underground brine reserves, will be integrated
into the Specialty Chemicals Division. The Company paid approximately $2.1
million cash for the assets of the facility. The excess purchase price over the
fair market value of the assets acquired was approximately $2.0 million.
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:
THREE MONTHS ENDED
MARCH 31
1999 1998
---- ----
Number of weighted average
common shares outstanding ........... 13,520,968 13,571,256
Assumed exercise of stock options...... 33,541 688,259
---------- ----------
Average diluted shares outstanding..... 13,554,509 14,259,515
========== ==========
In applying the treasury stock method to determine the dilutive effect of
the stock options outstanding during the first quarter of 1999, the average
market price of $8.02 was used.
NOTE E - COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 1999 and 1998 is
as follows:
THREE MONTHS ENDED
MARCH 31
1999 1998
------- -------
Net Income (loss)...................... $(3,679) $ 3,936
Translation Adjustment................. (145) (22)
------- -------
Comprehensive Income (loss)........ $(3,824) $ 3,914
======== =======
NOTE F - INDUSTRY SEGMENTS
The Company manages its business in two segments: Oil & Gas Services and
Specialty Chemicals. The Oil & Gas Services segment provides a broad range of
products and services to its customers in the energy industry. The Specialty
Chemicals segment manufactures and markets a variety of commercial products
which are produced from low-cost feedstocks. The Specialty Chemicals segment
also employs proprietary technologies to provide engineered systems to reduce or
eliminate refinery and petrochemical waste.
The Company evaluates performance and allocates resources based on profit
or loss from operations, excluding special charges and before income taxes. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies. Transfers between segments,
as well as geographic areas, are priced at the estimated fair value of the
products or services as negotiated between the two operating units. Other
includes corporate expenses and elimination of intersegment revenues.
- 6 -
<PAGE>
Summarized financial information concerning the business segments is as
follows:
<TABLE>
<CAPTION>
OIL & GAS SPECIALTY
SERVICES CHEMICALS
DIVISION DIVISION OTHER CONSOLIDATED
-------- -------- ------- --------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999
Revenues from external customers ........ $ 30,456 $ 27,541 $ -- $ 57,997
Intersegmented revenues ................. 128 3,180 (3,308) --
-------- -------- ------- --------
Total revenues ...................... 30,584 30,721 (3,308) 57,997
Income before Taxes and cumulative effect
of accounting change ................ 2,380 3,062 (1,939)(1) 3,503(1)
Total Assets ............................ $136,030 $166,480 $ 7 $302,517
THREE MONTHS ENDED MARCH 31, 1998
Revenues from external customers ........ $ 42,491 $ 24,845 $ -- $ 67,336
Intersegmented revenues ................. 22 4,354 (4,376) --
-------- -------- ------- --------
Total revenues ...................... 42,513 29,199 (4,376) 67,336
Income before Taxes ..................... 7,107 2,191 (2,742) 6,556
Total Assets ............................ $135,476 $138,851 $ 5,997 $280,324
</TABLE>
(1) Includes gain on the sale of corporate headquarters building of $6,731,
special charge of $4,745 and excludes the cumulate effect of accounting
change of $5,782, net of taxes. Substantially all of the special charge
relates to the Specialty Chemicals Division.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Three months ended March 31, 1999 compared with three months ended March 31,
1998.
Total revenues for the quarter ended March 31, 1999 were $58.0 million
compared to $67.3 million in the prior period, a decrease of $9.3 million or
16%. Revenues from the Oil & Gas Services Division were $30.6 million, down
approximately $11.9 million or 28% from the 1998 level of $42.5 million. The
Division's entire operations were significantly impacted by the continuing weak
market conditions in the oil and gas industry. Specialty Chemicals Division
revenues for the first quarter were $30.7 million, including intercompany, up 5%
over the first quarter 1997 total of $29.2 million. The Division's
micronutrients operations, particularly the Fairbury, Nebraska plant, showed
significant improvements in revenues as production volumes are approaching
planned capacity levels and the customer base is re-established following the
EPA-related disruptions in 1997. The Micronutrients group also benefited from
the acquisition of WyZinCo, Inc. and certain assets of CoZinCo, Inc. during the
first quarter of 1999.
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<PAGE>
Gross profits were $14.1 million in 1999 compared to $18.2 million in
1998, a decline of $4.1 million or 23%. Gross profit as a percentage of revenues
was 24.4% in 1999 versus 27.1% in 1998. Gross profits in the Oil & Gas Services
Division were down significantly as volumes declined and pricing pressures were
realized from the general industry slow down. The Division's gross profits
percentages were also down significantly from the prior year. The Specialty
Chemicals Division's gross profits and percentage have increased in the 1999
quarter over the 1998 quarter driven by the significant turnaround in the
Micronutrients operations. Lower production costs combined with improved pricing
have helped generate substantial profit improvement. The Process Technologies
and Services margins also improved over the prior year's quarter.
General and administrative expenses were $10.5 million, up slightly from
$10.3 million in the prior year due to inclusion of acquired operation and
increased advertising expenses.
The Company recorded a special charge in the quarter ended March 31, 1999
of $4.7 million related to the following:
In March 1999, the Company was verbally notified of the early termination
of a significant liquid calcium chloride contract. Under the terms of the
contract, the Company will be required to terminate its operations at that
location and vacate the facility within two years from the date of written
notification. The Company is also required to remove all of its equipment and
fixtures, at its own cost. As a result of the early termination of the contract,
the Company recorded an impairment of these specific assets of approximately
$1.4 million.
During the quarter, the Company also committed to certain actions which
resulted in the impairment of other plant assets in the Company's Specialty
Chemicals Division. As a result of increased production volumes achieved at the
new calcium chloride dry plant in Lake Charles, Louisiana, the Company no longer
needs the previously existing dry plant and has begun to dismantle the plant. An
impairment charge of approximately $1.8 million was recorded. In addition, the
Company recently completed modifications on the West Memphis, Arkansas bromine
plant. The assets related to the old zinc bromide production unit, which had a
carrying value of approximately $0.4 million, were taken out of service in the
first quarter. The abandoned assets of both plant facilities were written off
during the quarter.
In January 1999, the Company acquired WyZinCo, Inc. and certain assets of
CoZinCo, Inc. As a result of this acquisition, the Company has abandoned certain
redundant assets and recorded a related asset impairment charge during the first
quarter of approximately $1.1 million.
Operating loss for the quarter ended March 31, 1999 was $(1.1) million
compared to income of $8.0 million in 1998. This change includes the special
charge of $4.7 million, a decrease of $2.2 million due to decreased volume, a
net $1.9 million decrease due the lower gross margin rates, and a $0.2 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 March 1999, the Company sold its corporate headquarters building
realizing a gain of approximately $6.7 million. The Company subsequently signed
a ten-year lease agreement for space within the building.
Net income before cumulative effect of accounting change was $2.1 million
in 1999 and $3.9 million in 1998. Net income per diluted share before the
cumulative effect accounting change was $0.16 in 1999 based on 13,555,000
average diluted shares outstanding and $0.28 in 1998 based on 14,260,000 average
diluted shares outstanding.
The Company has adopted the American Institute of Certified Public
Accountants STATEMENT OF POSITION 98-5, REPORTING THE COSTS OF START-UP
ACTIVITIES, which requires that costs associated with start-up activities be
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<PAGE>
expensed as incurred. Prior to 1999, the Company capitalized all costs incurred
in connection with opening a new production facility. The effect of adopting SOP
98.5 was to record a cumulative effect of an accounting charge of $5.8 million,
net of taxes, or $0.43 per share to expense costs that had been previously
capitalized.
After the cumulative effect adjustments, the Company reported a net loss
of $3.7 million or $(0.27) per share in 1999 compared to net income of $3.9
million in 1998 or $0.29 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's investment in working capital, excluding cash and cash
equivalents, decreased to $85.2 million at March 31, 1999 compared to $85.5
million at December 31, 1998. Accounts receivable increased $1.8 million during
this period reflecting the increase in the micronutrients business and the
acquisition of WyZinCo. Trade payables and accrued expenses increased $4.0
million during the period as a result of an increase in federal income taxes
payable and liabilities acquired with the WyZinCo acquisition.
The Company has a general purpose, unsecured, prime rate/LIBOR-based
line-of-credit with a syndicate of banks led by Bank of America. This line is
available to fund working capital requirements, capital expenditures and future
acquisitions. During the quarter, the Company amended certain financial
covenants of its credit agreement to provide for increased borrowing flexibility
under the existing line of credit. The Company also received a waiver for the
sale of its administration building. As of March 31, 1999, the Company has $1.3
million in letters of credit and $108.2 million in long-term debt outstanding
against a $120 million line-of-credit, leaving a maximum net availability of
$11.7 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 use for future acquisitions.
Major investing activities included the acquisition of WyZinCo, Inc. and
certain assets of CoZinCo, Inc. for approximately $11.7 million cash and notes.
The acquisition was funded primarily through the Company's credit facility and
the sale of the corporate headquarters building. Proceeds from the building
sale, approximately $9.6 million, were also used to reduce outstanding debt.
Capital expenditures during the three months ended March 31, 1998 totaled
approximately $3.2 million. Significant components included production testing
equipment for the Oil & Gas Services Division and various Specialty Chemicals
Division projects, including the completion of construction of a new manganous
oxide plant in Tampico, Mexico, completion of the construction of a new liquid
calcium chloride facility in West Virginia and the construction of a new
production process of the West Memphis, Arkansas bromide plant.
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 1999 and thereafter.
YEAR 2000
GENERAL
The Year 2000 (Y2K) issue is the result of computer programs being written
using two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions to various activities and
operations.
The Company has substantially completed its assessment how it may be
impacted by the Y2K issue and has commenced implementation of a comprehensive
plan to address all known aspects of the issue.
THE PLAN
The Company has substantially completed an evaluation of the effects the
Y2K problem could have on the products and services the Company provides, the
processing capabilities of the Company's computers and other internal
information systems, as well as non-informational systems which affect the
Company's operational
- 9 -
<PAGE>
capabilities. The Company uses application software, including its accounting
software, which has been certified by vendors as being Y2K compliant.
Additionally, the Company's mainframe and network software has also been
represented as Y2K compliant by the suppliers. In addition to management
information systems, the Company's Y2K risks include those related to "embedded
technology", such as micro-controllers. The Company has substantially completed
its assessment of these risks. With respect to embedded technology, this phase
includes surveying each of the Company's facilities to determine which systems
may be subject to disruptions. These systems may include plant equipment and
instrumentation and process equipment. These systems are being modified as
required and will be compliant by mid 1999. Accordingly, management does not
believe that the Company's results of operations of financial condition will be
materially affected by any future costs to make its management information
system Y2K compliant.
In addition the Company is in the process of evaluating the Y2K compliance
capabilities of major suppliers and certain larger customers. The majority of
the Company's significant suppliers and major customers are being contacted
regarding the Y2K issue. The Company anticipates this evaluation process will be
in effect for all of 1999 and will include follow-up telephone interviews and
on-site meetings as considered necessary in the circumstances. The Company is
not currently aware of any supplier or customer who has known Y2K risks that are
expected to have a material adverse impact on the Company. The Company will be
looking for alternative suppliers if circumstances warrant.
COST
The Company's preliminary estimate of the total cost for Y2K compliance is
approximately $250,000 of which approximately $170,000 has been incurred through
March 31, 1999. These costs are being expensed as incurred and are not expected
to have a material impact on the Company's results of operations or financial
position.
RISKS
The Company believes that the Y2K issue will not pose significant
operational problems for the Company. However, if all Y2K problems are not
identified or corrected in a timely manner, there can be no assurance that the
Y2K issue will not have a material adverse impact on the Company's results of
operations or adversely affect the Company's relationships with customers,
suppliers, or other parties. In addition, there can be no assurance that outside
third parties, including customers, suppliers, utility and governmental entities
will be in compliance with all Y2K issues. The Company believes that the most
likely worst case Y2K scenario, if one were to occur, would be the inability of
third party suppliers such as critical raw material suppliers, utility
providers, telecommunication, transportation companies, and other critical
suppliers to continue providing their products and services. The failure of
these third party suppliers to provide on going services could have a material
adverse impact on the Company's results of operations.
CONTINGENCY PLAN
As the Company does not believe that the Y2K issue will pose any
significant operational problems for the Company, it does not have a contingency
plan related to that issue. However, if the Company determines that a key
supplier is likely to have a Y2K-related problem that will likely materially
affect its ability to provide critical goods or services to the Company, the
Company will develop a contingency plan. Such a plan would likely include
identifying an alternative supplier of those goods or services.
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, 1998.
- 10 -
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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
- 11 -
<PAGE>
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 13, 1999 By: [GEOFFREY M. HERTEL]
Geoffrey M. Hertel
Executive Vice President -
Finance and Administration
(Principal Financial Officer)
Date: May 13, 1999 By: [BRUCE A. COBB]
Bruce A. Cobb, Corporate Controller
(Principal Accounting Officer)
- 12 -
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