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, 1998
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ______________
Commission File No. 0-18335
TETRA Technologies, Inc.
(Exact name of registrant as specified in its charter)
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)
(Registrant's Telephone Number, Including Area Code): (281) 367-1983
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share New York Stock Exchange
(Title of class) (Name of Exchange on Which Registered)
Rights to purchase Series One New York Stock Exchange
Junior Participating Preferred Stock (Name of Exchange on Which Registered)
(Title of Class)
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
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 8, 1999 closing sale price as
reported by the New York Stock Exchange) ($6.69 per share) was approximately
$90,444,000. 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 12, 1999 was 13,520,968 shares.
Part III information is incorporated by reference from the proxy statement
for the annual meeting of stockholders to be held May 17, 1999.
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TABLE OF CONTENTS
PART 1
Item 1. Business...................................................... 2
Item 2. Properties.................................................... 13
Item 3. Legal Proceedings............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders........... 14
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters................................. 14
Item 6. Selected Financial Data....................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Markets Risks.. 19
Item 8. Financial Statements and Supplementary Data................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant............ 20
Item 11. Executive Compensation........................................ 20
Item 12. Security Ownership of Certain Beneficial Owners and Management 20
Item 13. Certain Relationships and Related Transactions................ 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 21
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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.
The Company's Specialty Chemicals Division manufactures and markets
specialty chemicals to the energy, agriculture, water treatment, industrial,
cement, food processing, ice melt and consumer products markets. The Division
uses proprietary technologies to convert low-cost feedstocks into high quality
commercial products. The Division's Chlorides group produces liquid and dry
calcium chloride and also markets hydrochloric acid. The Micronutrients group
manufactures and distributes zinc and manganese products to the feed and
fertilizer markets, as well as calcium chloride- based agricultural products.
The Division also markets a line of desiccant products, predominantly calcium
chloride based, to the consumer products market under the trademark DampRid(R).
The Bromine group manufactures and distributes calcium bromide, zinc bromide and
sodium bromide to the energy and water treatment markets. 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 certain process industries.
The Company's Oil & Gas Services Division markets chemical products,
including those produced by the Specialty Chemicals Division, and systems to the
oil and gas industry for use in well completion and workover operations in both
domestic and international markets. It also provides associated on-site fluid
engineering, fluid management and handling, and filtration services for
completion and workover applications, as well as line of a specialty drilling
fluids products. The Oil & Gas Services Division also offers oil and 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
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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 also
markets a line of desiccant products that incorporates dry calcium chloride to
the consumer products market to reduce mold and mildew odors. The Division
provides technologies and services to the industrial and municipal wastewater
and potable water markets, as well as a line of custom-tailored performance
chemicals. The Process Services operations provides services that reduce or
eliminate refinery and petrochemical waste from process industries.
CHLORIDES
The Chlorides group has four facilities that convert co-product
hydrochloric acid from nearby sources into various liquid and dry calcium
chloride products. These operations are located near Lyondell'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 fluoromonomer plant. The Company's Parkersburg facility will also
consume other feedstock sources as well. Dry calcium chloride is produced at the
Company's Lake Charles plant. With production capacity of at least 100,000 tons
of dry product per year, the Lake Charles plant can produce both 80% and 97%
calcium chloride products. The Company also has a solar evaporation plant
located in Amboy, California, which produces liquid calcium chloride from
underground brine reserves to supply the Western States markets.
The liquid calcium chloride produced by the Chlorides group and
the zinc bromide and calcium bromide produced by the Bromine group 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 and they
are sold to other companies who service customers in the oil and gas industry.
The Specialty Chemicals Division entered into the consumer
products market late in 1996 with the acquisition of Wilchem Corporation (now
named Damp Rid, Inc.), which manufactures a line of desiccant products at its
Orlando, Florida plant. These products, marketed under the trademark DampRid(R),
reduce mold and mildew odors. 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 Damp Rid's distribution channels to
market certain other products.
BROMINE
The Bromine group manufactures and distributes elemental bromine
and zinc bromide, calcium bromide and sodium bromide. The West Memphis, Arkansas
facility produces calcium bromide and zinc bromide using zinc-containing sludges
from electroplating operations and low-cost hydrobromic acid. The West Memphis
facility was recently expanded and can now use bromine and other sources of zinc
as raw materials. The expanded plant became operational during the first quarter
of 1999, substantially increasing the facility's capacity while producing a
higher quality product.
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 to convert a crude bromine stream from Dow's calcium/magnesium
chemicals operation into merchant bromine, calcium bromide and sodium bromide.
This facility started producing calcium bromide and sodium bromide in mid 1998
and merchant bromine in the fourth quarter of 1998.
The Company also owns a plant in Magnolia, Arkansas that is
designed to produce calcium bromide. Approximately 33,000 gross acres of bromine
containing brine reserves are under lease in this area of the plant
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to support its production. The plant is not currently in operation, and the
Company continues to evaluate its strategy related to these assets and its
developing bromine and derivatives business.
MICRONUTRIENTS
The Division's Micronutrients group manufactures and distributes
calcium chloride-based agricultural products and zinc and manganese sulfate
micronutrients. These micronutrients are widely used to provide trace minerals
to meet the nutritional needs of animals and plants. Production facilities are
located in Tampico, Mexico, Fairbury, Nebraska, and Cheyenne, Wyoming (as of
January 20, 1999). The Tampico plant produces manganese sulfate using manganous
oxide and sulfuric acid. The Fairbury plant produces zinc sulfate using
secondary zinc raw materials and sulfuric acid, and it produces manganese
sulfate as well.
In January 1999, the Company significantly expanded its presence
in the micronutrients business with the acquisition of WyZinCo Inc., which has a
zinc sulfate manufacturing plant in Cheyenne, Wyoming, and certain assets of
Cozinco, Inc. These newly acquired assets manufacture zinc sulfate from
secondary zinc sources and sulfuric acid. The Tampico plant was recently
expanded to include a new manganous oxide production facility, which the Company
believes will provide lower-cost raw material manganous oxide to the manganese
sulfate plant, which will in turn produce a higher assayed manganese sulfate
product. This expansion is designed to increase the manganese sulfate production
capacity by 20%, provide a higher grade 32% manganese sulfate product, and
permit the sale of manganous oxide.
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 a variety of
trademarks, including N-CAL(R) and Sodex(R). In early 1999 the Company was
awarded a US patent on a moisture-resistant dry calcium chloride and urea
product. The Micronutrients group is evaluating the market potential of this new
product.
PROCESS TECHNOLOGIES AND PROCESS SERVICES
As part of the Specialty Chemicals Division, the Process
Technologies group provides various types of filtration equipment, complete
filtration systems and related services for the following types of filtration:
deep bed filtration, biological filtration, ion exchange, and metals removal.
Deep bed and biological filtration systems capture insoluble organics, oils,
greases, nutrients, inorganics and/or suspended solids from certain industrial
effluent streams and at municipal wastewater facilities. These systems
incorporate one or more of the Company's proprietary technologies, which include
Denite (R), ColOX(TM), and Amphidrome(TM), or filter blocks, including the
patented T-Block(TM). The group also provides conventional filtration equipment,
systems and services to the municipal potable water market, which include its
proprietary U Block(TM) and LP Block(TM) filter blocks and/or SavagePlate(TM)
gravelless filter plates.
In addition, the Process Technologies group provides specialized
systems and services for the removal of metals from wastewaters generated by a
variety of industrial operations, including steel production, mining and
petrochemical operations. These metals removal systems generally incorporate the
Company's proprietary High Density Sludge (HDS(TM)) technology, which
concentrates metals solids into a dense product, or its Higgins Loop(TM)
Continuous Ion Exchange technology, which can remove or separate metals, acids,
nutrients and other chemical constituents from wastewater and potable water
streams. The proprietary Higgins Loop(TM) process produces a highly concentrated
stream of the constituent removed, and can be used not only for the efficient
removal of unwanted wastewater constituents but also for the production of
desired products from solutions of low concentration. The group typically
provides the engineering services of its employees in connection with the
original configuration, installation and operation of the systems it sells. The
group also markets its technologies in selected international markets, through
direct sales and under licensing arrangements.
The Division's Process Services group provides oil recovery and
oily residuals separation and recycling services to approximately 20% of the
existing petroleum refining capacity in the United States. This group utilizes
various technologies, including a proprietary thermal desorption and recovery
technology and various
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separation technologies, such as centrifuges and filter presses. These
technologies are used to separate, collect and recycle oil and water from
petroleum residuals. The Process Services Group typically builds, owns and
operates fixed systems on its customers' sites to provide these services under
long term contracts. The group has begun to offer these services
internationally, and to related domestic and international markets including
hydrocarbon exploration, production and transportation.
OIL & GAS SERVICES DIVISION.
The Company's Oil & Gas Services Division markets its clear brine
fluids systems to the oil and gas industry for use in well drilling, completion
and workover operations in the United States and in international markets. The
Division also provides associated on-site fluid engineering, fluid management
and handling, and filtration services. The Oil & Gas Services Division also
offers oil and gas well abandonment and production testing services.
DRILLING AND COMPLETION FLUIDS SYSTEMS
The Oil & Gas Services Division provides basic and 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 provides these customers a broad range of associated
services, including on-site fluid filtration, handling and recycling, fluid
engineering consultation, and fluid management. The Company also repurchases
used CBFs from operators and recycles and reconditions these materials. Selling
used CBFs to the Company reduces the net cost of the CBFs to the operator and
minimizes the need for disposal 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 the proper blend
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 use a variety of techniques and
equipment for the on-site removal of particulates from CBFs so that those CBFs
can be recirculated back 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 Division's PayZone(R) Drill-In Fluids systems use clear brine
fluids as the basis for this line of specialized drilling fluid systems, some of
which were recently patented. These systems are used during drilling,
completing, underreaming, reentry and workover operations through the sensitive
pay zone of the well, to increase oil and gas recovery. The Division's
PayZone(R) A.C.T. (Advanced Cleanup Treatment) systems (patent pending) are
designed to quickly and uniformly clean up drill-in fluids filtercake from the
payzone to increase oil and gas production.
WELL ABANDONMENT
The Oil & Gas Services Division's well abandonment business
provides services for depleted oil and gas wells onshore, in inland waters, and
offshore Texas and Louisiana. The Division first entered this business in 1994
in an effort to expand the 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. This business presently operates onshore rigs, barge-mounted
rigs, a jack-up rig and a platform rig, and offshore rigless packages and it has
operating hubs in Bryan, Rosenberg and Victoria, Texas and Lafayette and Houma,
Louisiana. In 1997, the Division further expanded this business through the
acquisitions of Perfco Wireline, Inc. and a related company, which were involved
in the electric wireline service business. These operations provide 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
Company continued to expand its well abandonment services business in 1997 by
acquiring an oilfield tubular goods sales, reconditioning
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and service business from Posey Pipe and Equipment Company. Well abandonment
services are marketed through nine service facilities in Houma and Lafayette,
Louisiana and Alice, Bryan, Rosenberg, Edinburg, Laredo, Midland, and Victoria,
Texas.
PRODUCTION TESTING
The Oil & Gas Services Division further expanded the onshore
services it offers by acquiring the assets of Production Test, Inc. in 1996.
These operations provide pressure and volume testing of oil and gas wells,
predominantly in the South Texas and Northern Mexico areas, which facilitate the
sophisticated evaluation techniques needed for reservoir management and
optimization of well work-over programs. Management of the Company believes that
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.
Some of the primary sources of raw materials for the Specialty
Chemicals Division are low-cost chemical co-product streams obtained from
chemical manufacturers.
At the Norco, Louisiana, Wichita, Kansas, Lake Charles, Louisiana, and
Parkersburg, West Virginia calcium chloride production plants, the principal raw
material is co-product hydrochloric acid produced by other chemical companies.
The Company has written agreements with those chemical companies regarding the
supply of this raw material, but believes that there are numerous alternative
sources of supply. Substantial quantities of limestone are also consumed when
converting hydrochloric acid into calcium chloride. The Company uses a
proprietary process that permits the use of less expensive limestone, while
maintaining end-use product quality. The Company purchases limestone from
several different sources.
To produce zinc bromide and calcium bromide at its West Memphis
facility, the Company uses hydrobromic acid, bromine, zinc sludges, and other
sources of zinc raw materials. The Company has one internal source of bromine
and several external sources of co-product hydrobromic acid. The Company uses a
proprietary process that permits the use of cost advantaged raw materials, while
maintaining high product quality.
In 1997, the Company entered into a series of agreements with the Dow
Chemical Company to purchase crude bromine, build a bromine derivatives plant at
Dow's magnesium and calcium chloride facility in Ludington, Michigan, and toll
produce purified bromine and various brominated chemical products at that plant.
The new Ludington plant, which started operations during 1998, gives the Company
the flexibility to produce purified bromine (for use at the West Memphis
facility or for sale), sodium bromide and calcium bromide. The Company's need
for bromine and its derivatives has increased steadily.
The Company also 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 is not in operation. The Company currently has approximately 33,000
gross acres of bromine containing brine 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. During 1996, the Company entered
into a long-term supply agreement with a foreign producer of calcium bromide.
This agreement, coupled with production of zinc bromide and bromine and
derivatives from the new Ludington plant and the West Memphis, Arkansas
facility, should afford the Company additional flexibility in its development of
the Magnolia plant, allowing it to consider manufacturing other bromine
derivatives at that facility.
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The Division's Micronutrients' plants purchase co-product sulfuric
acid from a variety of sources, one of which is under a long term contract. The
Fairbury plant and the Cheyenne plant are capable of utilizing various forms of
secondary zinc, primarily co-products of the galvanizing industry, which it
obtains from a variety of sources. The Tampico plant utilizes manganous oxide,
which it obtains from one internal and numerous external sources.
OIL & GAS SERVICES DIVISION.
The Oil & Gas Services Division purchases calcium chloride, calcium
bromide and zinc bromide CBFs 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 manufacturer.
MARKET OVERVIEW AND COMPETITION
SPECIALTY CHEMICALS DIVISION.
Markets for the Company's liquid and dry calcium chloride products
include the oil and gas exploration industry, industrial, municipal, mining,
janitorial and consumer markets for snow and ice melt products, dust control,
cement curing, and road stabilization markets, and certain agricultural and food
industry businesses. Most of these markets are highly competitive. Damp Rid(R)
products are marketed to the consumer products industry. The Company's major
competitors in the dry calcium chloride market include Dow Chemical Company,
General Chemical Company, a Canadian company, and Ambar Chemical, Inc.
The Bromine group sells elemental bromine and several brominated
derivative products in North America to customers in the oil and gas industry
(as completion fluids), the water treatment industry (as biocides), and the
polymer additives industry (as flame retardants).
The Micronutrients group sells zinc and manganese sulfate as plant
micronutrients to numerous agricultural distributors, including fertilizer
manufacturers, in the United States and in Mexico and several other foreign
countries. The group sells zinc sulfate and manganese sulfate as animal feed
micronutrients to major trace mineral pre- mix manufacturers in the United
States, as well as to a number of smaller distributors. These markets are highly
competitive, with major domestic competitors including Fritt Industries, Old
Bridge, Bay Zinc and Sims. The Company also competes against Chinese and Mexican
producers of these products.
Markets for the Process Technologies group's systems and services
include the municipal wastewater and potable water markets and various
industrial markets. Municipal customers typically solicit competitive bids for
filtration projects. The group has a number of competitors in the United States,
including F.B. Leopold Co. The Process Services group markets its services in
the United States and in select international markets. It has numerous domestic
and international competitors.
OIL & GAS SERVICES DIVISION.
The Oil & Gas Services Division markets and sells clear brine fluids,
drilling and completion fluids systems, and related products and services to
major oil and gas exploration and production areas worldwide. Current foreign
areas of market presence include the North Sea, Mexico, South America, the Far
East 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 Halliburton,
Inc., M.I. Drilling Fluids, a subsidiary of 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 all competitors 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 all 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
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customers of the Oil & Gas Services Division include Shell Oil Company, Texaco,
Baker Hughes Inteq, Amerada Hess, BP Amoco, Oryx Energy, Elf Acquitane, Chevron
USA, Phillips Petroleum Company, Conoco USA, Vastar Resources and Coastal Oil &
Gas.
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 and Key Energy Group. 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 Fesco,
Key Energy Group, TriTech and Clemenson. Major customers include Conoco,
Pioneer, Cabot, Fina, Shell, Chevron, Coastal, Enron, Houston Exploration,
Texaco, Union Pacific Resources and Pemex, the national oil company in Mexico.
OTHER BUSINESS MATTERS
MARKETING AND DISTRIBUTION
The Specialty Chemicals Division markets its products and services through
offices and sales agents in Arizona, California, Colorado, Connecticut, Florida,
Georgia, Nebraska, Pennsylvania, Texas, 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. Damp Rid(R) products are marketed through sales
agents to various mass merchandisers, hardware and home centers and grocery and
drug stores in the U.S. and internationally through distributors. The Bromine
group markets its products directly and through distributors and sales agents.
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 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 U.K. and
Norwegian sectors of the North Sea, Colombia, Mexico, Venezuela, Western Africa,
the C.I.S. and the Far East.
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, 1998, the Company had an estimated backlog of work of
$30.1 million, of which approximately $17.4 million is expected to be billed
during 1999. On December 31, 1997, the Company had an estimated backlog of $24
million.
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EMPLOYEES
As of December 31, 1998, the Company had 1,425 employees. None of the
Company's U.S. employees are presently covered by a collective bargaining
agreement. However, in 1998 the employees of the Company's Lake Charles,
Louisiana calcium chloride production facility elected to be represented by the
Paper, Allied Industrial, Chemical and Energy Workers International union, and
representatives of the Company and that union are in the process of negotiating
a collective bargaining agreement. The Company believes that its relations with
its employees are good.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADEMARKS
The Company actively pursues a policy of seeking patent protection both in
the U.S. and abroad for appropriate technology. As of December 31, 1998, the
Company owned or licensed 22 issued U.S. patents, had 19 patents pending in the
U.S., had 32 issued foreign patents and 19 foreign patents pending. The foreign
patents and patent applications are primarily foreign counterparts to U.S.
patents or patent applications. The issued patents expire at various times
through 2015. The Company has elected to maintain certain other internally
developed technologies, know-how and inventions as trade secrets. While the
Company believes that the protection of its patents and trade secrets is
important to its competitive positions in its businesses, the Company does not
believe any one patent or trade secret is essential to the success of the
Company.
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, the Company uses all possible legal means to protect its patents, trade
secrets and other proprietary information.
The Company sells various products and services under a variety of trade
marks and service marks, some of which are registered in the U.S. or certain
foreign countries.
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 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
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
Resource Conservation and Recovery Act of 1976, the Clean Air Act of 1977, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act of 1986, the Federal
Insecticide, Fungicide, and Rodenticide Act of 1947, Hazardous Materials
Transportation Act of 1975, 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 and in those foreign countries in which its Oil &
Gas Services Division operates. Many state and local agencies have imposed
environmental laws and regulations with 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, Cheyenne,
Fairbury and Amboy production plants, the Company holds various permits
regulating air emissions, wastewater and storm water discharges, the disposal of
certain hazardous and non-hazardous wastes, and/or wetlands. The Company has
also submitted a RCRA
- 9 -
<PAGE>
Part B storage permit application for its Fairbury facility. In addition, the
Company is subject to certain federal, state and local 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.
The Company's micronutrients business can also be significantly
affected by fluctuations in farming activity and weather conditions throughout
the farm belt. Worldwide commodity prices can influence what crops are planted
and, accordingly, the types of fertilizer applications that are employed.
Extreme weather conditions can also delay and sometimes postpone crop planting.
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, including certain governmentally owned or operated competitors. 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.
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
- 10 -
<PAGE>
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 bromine,
hydrobromic acid and other raw materials, including various forms of zinc, that
are purchased from third parties. The Company acquires brominated products from
a variety of third party suppliers. In its manufacture of zinc and manganese
sulfate, the Company uses sulfuric acid and various sources of zinc and
manganese. If the Company were unable to acquire the brominated products,
sulfuric, hydrobromic or hydrochloric acid, zinc 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 the
manufacture, storage, handling, transportation, use and sale of 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 under one site specific policy and
under a policy covering environmental risks associated with contract services
for oil and gas operations and refinery waste treatment operations. 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. 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.
RELIANCE ON SIGNIFICANT CUSTOMERS
In 1998, no customers accounted for more than 10% of consolidated
revenues. In 1997 one customer who generated revenues of $22 million accounted
for more than 10% of consolidated revenues. In 1996, revenues of $20.7 million
and $15.9 million generated by two customers accounted for more than 10% of
consolidated revenues. The loss of any of these customers could have a material
adverse effect on the Company's sales revenues.
- 11 -
<PAGE>
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.
YEAR 2000 ISSUE
Many computer software applications and operating programs written in
the past may not properly recognize calendar dates beginning in the year 2000.
Such a recognition failure could cause computer systems to shut down or provide
incorrect information. There can be no assurance that no year 2000 related
computer operating problems or expenses will arise with the computer systems and
software of the Company or the Company's vendors and customers.
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.
- 12 -
<PAGE>
ITEM 2. PROPERTIES.
The following table sets forth certain information concerning facilities
leased or owned by the Company as of December 31, 1998. 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........................... Amboy, California 59 square miles (2)
Lake Charles, Louisiana 751,500
West Memphis, Arkansas 697,800
Tampico, Mexico 353,800
Magnolia, Arkansas 120,000
Parkersburg, West Virginia 106,300
Fairbury, Nebraska 90,000
Norco, Louisiana 85,200
Orlando, Florida 35,800
Wichita, Kansas 19,500
Ludington, Michigan 10,000
Oil and gas distribution facilities................. Texas - eleven locations 1,262,700
Louisiana - six locations 732,200
United Kingdom - various locations 92,000
Mexico - various locations 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 - six locations 71,000
Delaware 20,000
Louisiana 12,000
Illinois 7,400
</TABLE>
- -------------
(1) Includes real property and buildings unless otherwise noted.
(2) Includes solar evaporation ponds.
- 13 -
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
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, 1998.
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 22,
1999 there were approximately 3,131 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,
1998, as reported on the NASDAQ National Market System during the period from
January 1, 1997 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.
HIGH LOW
-------- --------
1998
First Quarter ....................... $ 24 3/4 $ 19 3/4
Second Quarter ...................... 25 3/8 16
Third Quarter ....................... 16 1/4 11 1/2
Fourth Quarter ...................... 13 3/4 8
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
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.
- 14 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues ...................................... $ 238,468 $ 219,413 $ 160,790 $ 113,468 $ 88,506
Gross profit .................................. 60,435 62,982 48,644(1) 37,655(1) 29,060
Operating income (loss) ....................... 21,380 (2)25,037 20,781 13,430 7,962
Interest expense .............................. (6,458) (3,305) (1,250) 159 (363)
Interest income ............................... 172 305 198 959 558
Undistributed earnings (loss) of joint ventures -- 290 522 (47) 580
Other income (expense), net ................... (478) 775 257 377 241
Net income .................................... 8,898 13,936 13,137 9,366 6,058
Net income per share .......................... $ 0.66 $ 1.05 $ 1.02 $ 0.74 $ 0.48
Average shares ................................ 13,561 13,297 12,873 12,693 12,560
Net income per diluted share .................. $ 0.64 $ 0.98 $ 0.97 $ 0.72 $ 0.48
Average diluted shares ........................ 13,994 14,189 13,545 13,069 12,693
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
BALANCE SHEET DATA
Working capital ............................... $ 88,299 $ 68,076 $ 37,398 $ 30,088 $ 37,357
Total assets .................................. 311,008 263,792 178,506 129,921 102,522
Long-term liabilities ......................... 129,066 92,364 31,756 9,364 6,472
Stockholders' equity .......................... 139,322 129,580 108,022 89,286 77,687
</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.
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.
- 15 -
<PAGE>
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
-------------------------------- --------------------
1998 1997
VS VS
1998 1997 1996 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ........................ 100.0% 100.0% 100.0% -8.7% 36.5%
Cost of Revenues ................ 74.7 71.3 69.7 -13.8 39.5
Gross profit .................... 23.3 28.7 30.3 4.0 29.5
General & administrative expenses 16.4 17.3 17.3 -2.9 36.2
Operating income ................ 9.0 11.4 13.0 14.6 20.5
Interest expense ................ 2.7 1.5 0.8 -95.4 164.4
Interest income ................. 0.1 0.1 0.1 43.6 54.0
Income in undistributed earnings
of joint ventures ............. -- 0.1 0.3 100.0 (44.4)
Other income, net ............... 0.2 0.4 0.2 161.8 201.6
Income before income taxes ...... 6.1 10.5 12.8 36.7 12.6
Net income ...................... 3.7 6.4 8.2 36.2 6.1
</TABLE>
1998 COMPARED TO 1997
For the year ended December 31, 1998, total revenues were $238.4
million, up $19.0 million or 9% over the 1997 total of $219.4 million. The Oil &
Gas Services Division's revenues of $149.0 million were up slightly over the
prior year's total of $147.8 million. While the entire Division suffered from
the current dramatic decline in the oil and gas industry, the Division's well
abandonment business was significantly impacted as the major oil companies
initiated substantial delays in well abandonment operations. Offshore revenues
also dropped year-to-year, reflecting the slow down in drilling activity in the
Gulf. The Division's international operations showed a slight increase in
revenues due to increased activity in Norway, Venezuela and Mexico. The
production testing business also generated increased revenues over last year.
Revenues of the Specialty Chemicals Division were up approximately 23% over 1997
from $87.0 million, including intercompany, to $106.7 million in 1998. Despite
weak winter snow and ice melt demand and the decline in the oil and gas markets,
the Division's 1998 chloride and bromide revenues matched 1997 levels. The
Division's micronutrients operations, particularly the AMT Fairbury plant,
showed significant improvement in revenues as product volumes are approaching
planned capacity levels and the customer base is re-established following the
EPA related disruptions in 1997. The Division's consumer products business also
reflected revenue increases resulting from new product introduction and market
penetration. The Process Technologies business increased over the prior year as
well, reflecting a significant increase in wastewater, deep bed filtration and
denitrification business. The Division's revenues were also impacted favorably
from the inclusion of the now wholly-owned TETRA Process Services.
Gross profits were $60.4 million in 1998 compared to $63.0 million in
1997, for a decrease of $2.6 million or 4%. The gross profit margin percentage
from operations was 25.3% in 1998 versus 28.7% in 1997. The Specialty Chemicals
Division's gross profit percentage was comparable to the prior year.
Substantially improved volumes and pricing at American Microtrace helped offset
reduced margins in the calcium chloride product line, which were caused by
market pricing pressures and product mix. The profit percentage was also down in
the Process Technologies group due to project and revenue mix. The gross profit
percentage of the Oil & Gas Services Division declined in response to the
slowdown in the well abandonment business and pricing pressures in the offshore
Gulf Coast business.
- 16 -
<PAGE>
General and administrative expenses were $39.1 million in 1998 compared
to $37.9 million in 1997, for an increase of $1.2 million or 3%. The 1997 period
includes the write-off of $2.2 million associated with American Microtrace
operations. General and administrative costs increased predominantly in support
of expanded international operations of the Oil & Gas Services Division and for
increased advertising of consumer products in the Specialty Chemicals Division.
The Oil & Gas Services Division has continued to implement various cost-cutting
and expense control measures, including personnel reduction, in an effort to
keep its G & A costs in line with its anticipated revenue levels. These measures
are reflected in the fact that the Division's 1998 fourth quarter G & A costs,
excluding international operations, are down from the prior year's quarter. 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 1997 to 16% in 1998.
Operating income for the twelve months ended December 31, 1998 was $21.4
million, down $3.6 million or 14% from $25.0 million in 1997. This decrease is
the combined result of a gross margin increase of $5.5 million due to increased
volume, a $7.9 million decrease due to the lower gross margin rates, and a $1.2
million increase in general and administrative expenses.
Interest expense increased approximately $3.1 million during the current
year compared to the prior year period due to increased long-term debt over the
past twelve months in support of the Company's acquisition and internal growth
programs.
For the twelve months ending December 31, 1998, net income was $8.9
million, down 36% from the $13.9 million reported in 1997. Net income per
diluted share was $0.64 in 1998 on 13,994,000 average diluted shares outstanding
compared to earnings in 1997 of $0.98 based on 14,189,000 average diluted shares
outstanding
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.
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.
- 17 -
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's investment in working capital, excluding cash and cash
equivalents, increased to $84.5 million at December 31, 1998 compared to $65.2
million at December 31, 1997. Unbilled project costs of the Process Technologies
operations increased by $1.6 million as a result of increased activity in the
water treatment business and a significant increase in larger projects with
longer durations. Inventories increased $19.5 million during the year, $9.7
million in Oil & Gas Services Division and $9.8 million in the Specialty
Chemicals Division. Inventories of clear brine fluids along the Gulf of Mexico
increased as did pipe inventories associated with the Division's well
abandonment business. Inventories in Norway and Venezuela also increased in
conjunction with increased business development in these areas. In the Specialty
Chemicals Division, bromide inventories increased as the new TETRA/Dow Chemicals
plant at Ludington, Michigan came on-line. Additionally, dry calcium chloride
and micronutrients inventories increased due to the seasonality of the demand.
Trade payables and accrued expenses increased during the period by $1.0 million.
Increased project costs in the Process Technologies operations contributed to
this increase.
To fund its capital and working capital requirements, the Company uses
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,
1998, the Company has $2.3 million in letters of credit and $109 million in
long-term debt outstanding against a $120 million line-of-credit, leaving a net
availability of $8.7 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 finance its acquisitions.
Major investing activities include the acquisition of a calcium chloride
facility located near Amboy, California from Cargill, Inc. for approximately
$2.1 million. This plant utilizes solar evaporation to produce calcium chloride
from underground brine reserves.
In January 1999, the Company purchased the assets of WyZinCo and
CoZinCo, Inc. for approximately $11.7 million in cash and notes. The
acquisition, which included a zinc sulfate plant in Cheyenne, Wyoming and
certain assets of a second zinc sulfate plant located in Salida, Colorado,
significantly expanded the Company's micronutrients business. The purchase was
partially funded by drawing from the Company's credit facility. The Company also
used a portion of the cash generated from the sale of its corporate headquarter
building to fund the acquisition. The sale was completed in March 1999. The
building was sold for approximately $9.7 million, with a subsequent ten-year
lease for space in the building executed by the Company with the new owner. The
Company also used a portion of the proceeds to pay down a portion of its
long-term debt.
In March 1999, the Company was notified of the loss of a significant
liquid calcium chloride related contract. Under the terms of the agreement, the
Company will be required to terminate its plant operations at that location and
vacate the facilities in two years from the date of written notification. As a
result of the early termination of the contract, the Company will record an
impairment of these specific assets. The impact of the impairment has not yet
been determined, but the assets associated with this project total approximately
$2.0 million.
Capital expenditures during the twelve months ended December 31, 1998
totaled approximately $43.2 million. Significant components include new inland
water rigs, production testing equipment and well service equipment for the Oil
& Gas Services Division. The Specialty Chemicals Division's expenditures
included the construction of a new manganous oxide plant in Tampico, Mexico,
construction of a new liquid calcium chloride facility in West Virginia,
- 18 -
<PAGE>
expansion of the West Memphis plant and the completion of the new TETRA/Dow
Chemicals bromine derivatives plant at Ludington, Michigan.
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 assessed how it may be impacted by the Y2K issue and has
formulated and commenced implementation of a comprehensive plan to address all
known aspects of the issue.
THE PLAN
The Company has 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
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 is in the process of
assessing 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 customers and suppliers. The majority of the
Company's major customers and suppliers 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 customer or supplier circumstances that may have a material adverse impact
on the Company. The Company will be looking for alternative suppliers where
circumstances warrant.
COST
The Company's preliminary estimate of the total cost for Y2K compliance
is approximately $250,000 of which approximately $150,000 has been incurred
through December 31, 1998. 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 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
The Company is considering contingency plans relating to key third
parties. These include identifying alternative suppliers and working with major
customers that may be affected by Y2K issues.
- 19 -
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to market risk exposure related to changes in
interest rates on the floating rate portion of its credit facility. These
instruments carry interest at an agreed-upon percentage rate spread from LIBOR.
At December 31, 1998, the Company had $109 million outstanding under its credit
facility, of which $40 million was subject to an interest rate swap and $69
million subject to a floating rate based on LIBOR plus .75 - 1.75%. The interest
rate swap agreements provide the Company with a 6.4% fixed interest rate which
mitigates a portion of the Company's risk against charges in interest rates.
Based on this balance, an immediate change of one percent in the interest rate
would cause a change in interest expense of approximately $0.7 million on an
annual basis. The Company has no financial instruments subject to foreign
currency fluctuation or commodity price risks.
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" and
"Section 16(a) Beneficial ownership Reporting Compliance."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, 1998.
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, 1998. Notwithstanding 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 subheading
"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" 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, 1998.
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, 1998.
- 20 -
<PAGE>
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
PAGE
----
Report of Independent Auditors ................................ F-1
Consolidated Balance Sheets at December 31, 1998, 1997 and 1996 F-2
Consolidated Statements of Operations for the years ........... F-4
ended December 31, 1998, 1997, and 1996
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997, and 1996 .......... F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997, and 1996 ................ F-6
Notes to Consolidated Financial Statements .................... F-8
2. Financial Statement Schedule
SCHEDULE DESCRIPTION PAGE
-------- ----------- ----
VIII Valuation and Qualifying Accounts S-1
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 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).
10.2 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).
10.3 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).
10.4 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).
- 21 -
<PAGE>
10.5 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).
10.6 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).
10.7 Sales Agreement with Albermarle Corporation. Certain
portions of this exhibit have been omitted pursuant
to a confidential treatment request filed with the
Securities and Exchange Commission.
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 1998
- 22 -
<PAGE>
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 26, 1999 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:
SIGNATURE TITLE DATE
--------- ----- ----
/S/J. TAFT SYMONDS Chairman of March 26, 1999
J. Taft Symonds the Board of Directors
/S/ALLEN T. MCINNES Allen T. McInnes March 26, 1999
Allen T. McInnes President and Director
(Principal Executive Officer)
/S/GEOFFREY M. HERTEL Geoffrey M. Hertel March 26, 1999
Geoffrey M. Hertel Chief Financial Officer and Director
(Principal Financial Officer)
/S/BRUCE A. COBB Bruce A. Cobb March 26, 1999
Bruce A. Cobb Corporate Controller
(Principal Accounting Officer)
/S/HOYT AMMIDON, JR. Director March 26, 1999
Hoyt Ammidon, Jr.
/S/OSCAR S. ANDRAS Director March 26, 1999
Oscar S. Andras
/S/PAUL D. COOMBS Director March 26, 1999
Paul D. Coombs
/S/TOM H. DELIMITROS Director March 26, 1999
Tom H. Delimitros
/S/KENNETH P. MITCHELL Director March 26, 1999
Kenneth P. Mitchell
- 23 -
<PAGE>
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, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, 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, 1999
F-1
<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................... $ 2,803 $ 2,839
Trade accounts receivable, net of allowance for doubtful
accounts of $853 in 1998 and $1,023 in 1997 .......... 56,167 56,893
Costs and estimated earnings in excess
of billings on incomplete contracts .................. 5,641 4,021
Inventories ............................................. 58,478 38,715
Deferred tax assets ..................................... 4,099 1,444
Prepaid expenses and other current assets ............... 3,731 6,012
--------- ---------
Total Current Assets ................................ 130,919 109,924
Property, Plant and Equipment:
Land and building ....................................... 16,761 12,777
Machinery and equipment ................................. 109,116 72,514
Automobiles and trucks .................................. 8,485 10,538
Chemical plants ......................................... 48,040 46,791
Construction in progress ................................ 23,201 27,231
--------- ---------
205,603 169,851
Less accumulated depreciation and amortization .......... (60,007) (48,868)
--------- ---------
Net Property, Plant and Equipment .................... 145,596 120,983
Other Assets:
Cost in excess of net assets acquired, net of accumulated
amortization of $2,510 in 1998 and $1,805 in 1997 .... 26,190 24,983
Other, net of accumulated amortization
of $3,680 in 1998 and $2,987 in 1997 ................. 8,303 7,902
--------- ---------
Total Other Assets .................................. 34,493 32,885
--------- ---------
$ 311,008 $ 263,792
========= =========
</TABLE>
F-2
<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable ............................... $ 29,322 $ 26,181
Accrued expenses ..................................... 11,335 14,114
Billings in excess of costs and estimated
earnings on incomplete contracts .................. 956 244
Current portion of all long-term debt and
capital lease obligations ......................... 1,007 1,309
--------- ---------
Total Current Liabilities ...................... 42,620 41,848
Long-term debt, less current portion .................... 109,000 77,000
Capital lease obligations, less current portion ......... 1,307 1,525
Deferred income taxes ................................... 17,759 13,365
Other liabilities ....................................... 1,000 474
Commitments and contingencies
Stockholders' Equity:
Common stock, par value $.01 per share:
40,000,000 shares authorized, with 13,514,340 shares
issued and outstanding in 1998 and 13,480,956
shares issued and outstanding in 1997 .............. 136 135
Treasury Stock, at cost, 94,000 shares .............. (1,168) --
Additional paid-in capital ........................... 77,923 75,902
Accumulated other comprehensive income ............... (96) (86)
Retained earnings .................................... 62,527 53,629
--------- ---------
Total Stockholders' Equity ....................... 139,322 129,580
--------- ---------
$ 311,008 $ 263,792
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
Revenues:
Product sales ....................... $ 147,400 $ 147,927 $ 125,932
Services ............................ 91,068 71,486 34,858
--------- --------- ---------
Total Revenues .................... 238,468 219,413 160,790
Cost of Revenues:
Cost of product sales ............... 111,646 107,379 87,775
Cost of services .................... 66,387 49,052 24,371
--------- --------- ---------
Total Cost of Revenues ............ 178,033 156,431 112,146
--------- --------- ---------
Gross Profit .................... 60,435 62,982 48,644
General and administrative ............. 39,055 37,945 27,863
--------- --------- ---------
Operating Income ................ 21,380 25,037 20,781
Interest expense ....................... (6,458) (3,305) (1,250)
Interest income ........................ 172 305 198
Undistributed earnings of joint ventures -- 290 522
Other income (expense), net ............ (478) 775 257
--------- --------- ---------
Income before Income Taxes ............. 14,616 23,102 20,508
Provision for income taxes ............. 5,718 9,166 7,371
--------- --------- ---------
Net Income ...................... 8,898 $ 13,936 $ 13,137
========= ========= =========
Net income per share ................... $ 0.66 $ 1.05 $ 1.02
========= ========= =========
Average shares ......................... 13,561 13,297 12,873
========= ========= =========
Net income per diluted share ........... $ 0.64 $ 0.98 $ 0.97
========= ========= =========
Average diluted shares ................. 13,994 14,189 13,545
========= ========= =========
See Notes to Consolidated Financial Statements
F-4
<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN TREASURY RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL STOCK EARNINGS INCOME EQUITY
------ ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ........................ $ 128 $ 62,691 $ 26,556 $ (89) $ 89,286
Net Income for 1996 ................................. 13,137 13,137
Translation adjustment .............................. 476 476
-------------
Comprehensive Income .............................. 13,613
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
Translation adjustment .............................. (473) (473)
-------------
Comprehensive Income .............................. 13,463
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
Net Income for 1998 ................................. 8,898 8,898
Translation adjustment .............................. (10) (10)
-------------
Comprehensive Income .............................. 8,888
Exercise of common stock options .................... 1 1,408 1,409
Purchase of Treasury Stock .......................... (1,168) (1,168)
Tax benefit upon exercise of certain non-qualified
and incentive stock options ................... 613 613
------ ---------- -------- -------- ------------- -------------
Balance at December 31, 1998 ........................ $ 136 $ 77,923 $ (1,168) $ 62,527 $ (96) $ 139,322
====== ========== ======== ======== ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income .................................................. $ 8,898 $ 13,936 $ 13,137
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization ............................. 16,223 11,575 8,343
Undistributed earnings of joint ventures .................. -- (290) (524)
Provision for deferred income taxes ....................... 2,472 3,236 1,024
Provision for doubtful accounts ........................... 200 253 453
Gain on sale of property, plant and equipment ............. (38) (280) 2
Non-recurring charge ...................................... -- 3,000 --
Changes in operating assets and liabilities, net of effects
from acquisition of subsidiaries:
Trade accounts receivable .............................. 526 (10,750) (8,869)
Costs and estimated earnings in excess of billings
on incomplete contracts .............................. (1,620) (2,611) 33
Inventories ............................................ (19,464) (15,155) (6,491)
Prepaid expenses and other current assets .............. 953 (3,500) (364)
Trade accounts payable and accrued expenses ............ 1,569 8,003 588
Billings in excess of costs and estimated earnings
on incomplete contracts .............................. 712 (323) 523
Other .................................................. 176 (1,824) 231
-------- -------- --------
Net cash provided by operating activities .............. 10,607 5,270 8,086
-------- -------- --------
Investing Activities:
Purchases of property, plant and equipment .................. (43,239) (47,360) (12,113)
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 ................. (2,135) -- (18,087)
Proceeds from sale of property, plant and equipment ......... 3,617 662 218
Decrease (Increase) in other assets ......................... (607) 15 (756)
-------- -------- --------
Net cash used by investing activities .................... $(42,364) $(54,790) $(31,813)
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Financing Activities:
Proceeds from long-term debt ............................. $ 41,974 $ 55,495 $ 23,400
Proceeds from exercised stock options .................... 1,409 2,460 816
Repurchase of common stock ............................... (1,168) -- --
Net repayment and borrowings under short-term credit lines -- (2,202) (60)
Principal payments on long-term debt and
capital lease obligations .............................. (10,494) (6,223) (5,110)
-------- -------- --------
Net cash used by financing activities .................. 31,721 49,530 19,046
-------- -------- --------
Increase (Decrease) in cash .............................. (36) 10 (4,681)
Cash and cash equivalents at beginning of period ............ 2,839 2,829 7,510
-------- -------- --------
Cash and cash equivalents at end of period .................. $ 2,803 $ 2,839 $ 2,829
======== ======== ========
Supplemental Cash Flow Information:
Capital lease obligations incurred ...................... $ 975 $ 1,894 $ 983
Capital lease obligations terminated .................... $ 1,109 $ 798 $ 498
Interest paid ........................................... $ 7,286 $ 3,366 $ 1,426
Taxes paid .............................................. $ 2,727 $ 2,783 $ 5,633
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 also employs proprietary technologies
to provide engineered systems and services that treat industrial and municipal
wastewater to ensure compliance with environmental effluent requirements. They
also provide services to the process industries to reduce or eliminate refinery
and petrochemical waste. The division also participates in the consumer products
market, offering an array of desiccant products under the trademark 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 wholly-owned subsidiaries. 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 and consist
primarily of finished goods. Cost is determined using the weighted average
method.
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 that 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
generally requires 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.
F-8
<PAGE>
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 3 and 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. Interest capitalized for the years ended December 31, 1998,
1997 and 1996 was $1,346,000, $505,600 and $176,000, 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.
STOCK COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method. 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 1998, 1997 and 1996 if the
Company had elected to recognize the compensation cost based on the fair value
of the options granted at grant date.
F-9
<PAGE>
INCOME PER COMMON SHARE
Basic earnings per share excludes any dilutive effects of options.
Diluted earnings per share includes the dilutive effect of stock options, which
is computed using the treasury stock method during the periods such options were
outstanding. A reconciliation of the common shares used in the computations of
income per common and common equivalent shares is presented in Note L to the
Consolidated Financial Statements.
FOREIGN CURRENCY TRANSLATION
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 in 1997 and $1,201,000 in 1996. No such sales or services
were rendered in 1998.
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 contracts, which provide for the
Company to pay a fixed rate of interest and receive a variable rate of interest
over the term of the contracts. 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 contracts 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 contract.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA issued SOP98-5, REPORTING THE COSTS OF START-UP
ACTIVITIES. The SOP is effective beginning on January 1, 1999, and requires that
start-up costs capitalized prior to January 1, 1999 be written off and any
future start-up costs to be expensed as incurred. The unamortized balance of
start-up costs will be written off as a cumulative effect of an accounting
change as of January 1, 1999. The Company estimates this amount to be
approximately $9.5 million.
F-10
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
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 periods which do not exceed
forty years. Pro forma information for these acquisitions has not been presented
as such amounts are not material.
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.
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.
NOTE D -- ACCOUNTING FOR PROCESS TECHNOLOGY CONTRACTS
The following summarizes percentage of completion of Process Technology
contracts in progress at December 31, 1998 and 1997.
DECEMBER 31,
------------------------
(IN THOUSANDS)
1998 1997
-------- --------
Costs and estimated earnings incurred
on contracts in progress ..................... $ 21,012 $ 11,329
Less applicable billings ....................... (16,327) (7,552)
-------- --------
$ 4,685 $ 3,777
======== ========
F-11
<PAGE>
These amounts are included in the accompanying consolidated balance
sheets as follows:
DECEMBER 31,
---------------------
(IN THOUSANDS)
1998 1997
------- -------
Costs and estimated earnings in excess of
billings on incomplete contracts .......... $ 5,641 $ 4,021
Billings in excess of costs and estimated
earnings on incomplete contracts .......... (956) (244)
------- -------
$ 4,685 $ 3,777
======= =======
Receivables under contractual retainage provisions aggregated
approximately $796,120 and $333,000 and at December 31, 1998 and 1997,
respectively. Substantially all retainage receivables are expected to be
collected within one year.
NOTE E -- LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt consists of the following:
DECEMBER 31,
--------------------
(IN THOUSANDS)
1998 1997
-------- --------
General purpose unsecured, revolving line-of-credit
for $120 million with interest at LIBOR
plus .75 - 1.75%. Borrowings as of 12/31/98
accrued interest at LIBOR plus 1.75% ................ $109,000 $ 77,000
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 ............................................ -- 245
Other ................................................. -- 140
-------- --------
109,000 77,385
Less current portion .................................. -- (385)
-------- --------
Total long-term debt ............................... $109,000 $ 77,000
======== ========
Scheduled maturities for the next five years and thereafter as of
December 31, 1998 are as follows (in thousands):
2000 ................................. $ 9,000
2001 ................................. 20,000
2002 ................................. 80,000
--------
$109,000
========
F-12
<PAGE>
As of December 31, 1998, the Company has $2.3 million in letters of
credit and $109.0 million in long-term debt outstanding against a $120 million
line-of-credit, leaving a net availability of $8.7 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. TETRA's credit facility,
which is unsecured, is subject to common financial ratio covenants. These
include, among others, a debt to EBITDA ratio, a fixed charge coverage ratio, a
net worth minimum and dollar limits on the total amount of capital expenditures
and acquisitions the Company may undertake in any given year. The Company pays a
commitment fee on unused portions of the line and a LIBOR-based interest rate
which decreases as the financial ratios increase. The Company is not required to
maintain compensating balances. The covenants also included certain restrictions
on the Company for the sale of assets. The Company has obtained an amendment to
the covenants authorizing the sale of its corporate headquarters building
subsequent to year end.
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%
(annual rate) 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 of the swap transactions at December 31,
1998 was lower than the carrying value by $2.0 million.
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 2003, 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 2002 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:
DECEMBER 31,
------------------------
(IN THOUSANDS)
1998 1997
------- -------
Automobiles and trucks ................ $ 3,658 $ 3,003
Less accumulated amortization ......... (1,424) (954)
------- -------
2,234 2,049
======= =======
Machinery and equipment ............... 260 1,361
Less accumulated amortization ......... (133) (1,014)
------- -------
$ 127 $ 347
======= =======
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.
F-13
<PAGE>
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, 1998:
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
1999 .................................................... $ 1,163 $ 3,600
2000 .................................................... 840 2,186
2001 .................................................... 424 1,497
2002 .................................................... 153 883
2003 .................................................... 1 397
------- ---------
Total minimum lease payments ............................ 2,581 $ 8,563
======= =========
Amount representing interest ............................ (267)
-------
Present value of net minimum lease payments ............. 2,314
Less current portion .................................... (1,007)
-------
Total long-term portion ............................ $ 1,307
=======
Rental expense for all operating leases was $4,335,000, $3,598,000 and
$2,819,000 in 1998, 1997 and 1996, respectively.
NOTE G -- INCOME TAXES
The income tax provision for years ended December 31, 1998, 1997 and 1996
consisted of the following:
YEAR ENDED DECEMBER 31,
----------------------------------
(IN THOUSANDS)
1998 1997 1996
------ ------ ------
CURRENT
Federal ........................... $ 920 $2,860 $3,281
State ............................. 100 402 459
Foreign ........................... 2,226 2,668 2,607
------ ------ ------
3,246 5,930 6,347
DEFERRED
Federal ........................... 2,420 3,090 942
State ............................. 52 146 82
------ ------ ------
2,472 3,236 1,024
Total tax provision ............... $5,718 $9,166 $7,371
====== ====== ======
F-14
<PAGE>
A reconciliation of the provision for income taxes computed by applying
the federal statutory rate for the years ended December 31, 1998, 1997 and 1996
to income before income taxes and the reported income taxes is as follows:
1998 1997 1996
------- ------ -------
(IN THOUSANDS)
Income tax provision computed at statutory
federal income tax rates ..................... $ 4,970 $8,086 $ 6,972
State income taxes (net of federal benefit) ..... 66 261 303
Permanent differences ........................... 391 359 181
Impact of International Operations .............. 320 386 227
Other ........................................... (29) 74 (312)
------- ------ -------
Total tax provision ............................. $ 5,718 $9,166 $ 7,371
======= ====== =======
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, 1998 and 1997 are as follows:
Deferred Tax Assets: 1998 1997
-------- --------
(IN THOUSANDS)
Tax inventory over book ............................ $ 1,638 $ 1,619
Allowance for doubtful accounts .................... 315 384
Accruals ........................................... 1,094 1,054
Net operating and capital loss carryforward ........ 960 1,105
Tax credit carryforward ............................ 1,594 --
All other, net ..................................... 624 471
-------- --------
Total deferred tax assets ...................... 6,225 4,633
Valuation reserve .................................. (227) (227)
-------- --------
Net deferred tax assets ........................ $ 5,998 $ 4,406
======== ========
Deferred Tax Liabilities: 1998 1997
-------- --------
(IN THOUSANDS)
Tax over book depreciation ......................... $ 16,670 $ 13,352
Goodwill amortization .............................. 1,516 1,548
Accounts receivable mark-to-market ................. 839 1,146
All other .......................................... 633 281
-------- --------
Total deferred tax liability ....................... 19,658 16,327
-------- --------
Net deferred tax liability ......................... $ 13,660 $ 11,921
======== ========
The Company has net operating loss carryforward of $337,000 for U.S.
federal income tax purposes which, if not utilized, will begin to expire in
2010. The Company has capital loss carryforwards of $623,000, which will begin
to expire in 2002 if not utilized. The Company also has alternative minimum tax
credit carryforwards of approximately $1.0 million which may be carried forward
indefinitely. The Company has recorded a valuation allowance of $227,000 at
December 31, 1998 and 1997 for deferred tax assets, which are not considered
realizable.
F-15
<PAGE>
NOTE H -- ACCRUED LIABILITIES
Accrued liabilities are detailed as follows:
YEAR ENDED DECEMBER 31,
----------------------
1998 1997
------- -------
(IN THOUSANDS)
Compensation and employee benefits ................. $ 3,297 $ 5,062
Taxes payable ...................................... 870 3,481
Transportation and distribution costs .............. 867 670
Plant operating costs .............................. 481 340
Other accrued liabilities .......................... 5,821 4,561
------- -------
$11,336 $14,114
======= =======
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.
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 -- STOCK OPTION PLANS
The Company has various stock option plans which provide for the granting
of options for the purchase of the Company's common stock and other
performance-based awards to officers, key employees, non employees and directors
of the Company. Incentive stock options generally vest over a five year period
and are exercisable for periods up to ten years. The TETRA Technologies, Inc.
1990 Stock Option Plan (the "1990 Plan") was initially adopted in 1985 and
subsequently amended to change the name and the number and type of options that
could be granted.
F-16
<PAGE>
In 1997, the Company granted performance stock options under the 1990
Plan. 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 event 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. At December 31, 1998, 950,000 shares of common stock have been
reserved from grants, of which 350,000 were available for future grants.
In 1993, the Company adopted the TETRA Technologies, Inc. Director Stock
Option Plan (the "Director's Plan"). The purpose of the Directors' Plan is to
enable the Company to attract and retain qualified individuals who are not
employees of the Company to serve as directors. In 1996, the Directors' Plan was
amended to increase the number of shares issuable under automatic grants
thereunder. In 1998, the Company adopted the TETRA Technologies, Inc. 1998
Director Stock Option Plan (the 1998 Directors' Plan"). The purpose of the 1998
Directors' Plan is to enable the Company to attract and retain qualified
individuals to serve as directors of the Company and to align their interests
more closely with the Company's interests. The 1998 Directors' Plan is funded
with treasury stock of the Company.
The Company also has a plan designed to award incentive stock options to
non-executive employees and consultants who are key to the performance of the
Company. At December 31, 1998, 500,000 shares of common stock have been reserved
for grants, of which 466,980 were available for future grants.
Effective December 11, 1998, the Company's Board of Directors approved a
stock option exchange program whereby all outstanding 1996 options, other than
directors options, could be exchanged for 70% of as many shares, and all 1997
and 1998 options and all directors options could be exchanged for 50% of as many
shares. The exercise price of the new options received was $10.188 per share.
The new options issued are vested to the same extent as the old options, on a
prorata basis, and the vesting period will continue unchanged. The term of the
new options is ten years from December 11, 1998. The exchange program was
offered to substantially all employee option holders and directors who received
grants in 1996, 1997 and 1998, other than the performance-based options made to
executive officers. This program reduced the number of options outstanding by
approximately 516,000.
The following is a summary of stock option activity for the years ended
December 31, 1996, 1997 and 1998:
SHARES WEIGHTED AVERAGE
UNDER OPTION OPTION PRICE
(000'S) PER SHARE
------------ ----------------
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
F-17
<PAGE>
SHARES WEIGHTED AVERAGE
UNDER OPTION OPTION PRICE
(000'S) PER SHARE
------------ ----------------
Options granted ................... 1,415 14.76
Options canceled .................. (1,459) 19.13
Options exercised ................. (134) 10.71
------------ ----------------
Outstanding at December 31, 1998 ..... 2,377 $ 14.28
============ ================
(In thousands, except per share amounts)
1998 1997 1996
------ ------ ------
1990 TETRA TECHNOLOGIES, INC. EMPLOYEE PLAN (AS AMENDED)
Maximum number of shares authorized for issuance 3,950 3,950 3,000
Shares reserved for future grants ............... 824 867 304
Shares exercisable at year end .................. 848 803 1,001
Weighted average exercise price of shares
exercisable at year end ...................... $ 9.69 $11.05 $12.92
DIRECTOR STOCK OPTION PLANS
Maximum number of shares authorized for issuance 175 100 50
Shares reserved for future grants ............... 101 26 50
Shares exercisable at year end .................. 47 68 43
Weighted average exercise price of shares
exercisable at year end ...................... $ 9.93 $16.72 $12.62
ALL OTHER PLANS
Maximum number of shares authorized for issuance 785 785 785
Shares reserved for future grants ............... 467 465 469
Shares exercisable at year end .................. 209 198 94
Weighted average exercise price of shares
exercisable at year end ...................... $10.27 $16.92 $16.88
The exercise prices of the options outstanding at December 31, 1998 range
from $5.88 to $23.00 per share. The maximum number of shares of common stock
which may be issued pursuant to options granted under the Director's Plans is
175,000. The weighted average remaining contractual life of all outstanding
options is 7.3 years.
Assuming that TETRA had accounted for its stock-based compensation using
the alternative fair value method of accounting under FAS No. 123 and amortized
the fair value to expense over the options vesting period, net income and
earnings per share would have been as follows (in thousands except per share
amounts):
F-18
<PAGE>
YEAR ENDED DECEMBER 31,
----------------------------------
(IN THOUSANDS)
1998 1997 1996
--------- --------- ----------
Net Income - as reported .................. $ 8,898 $ 13,936 $ 13,137
========= ========= ==========
Net Income - pro forma .................... 7,369 12,272 12,315
========= ========= ==========
Net Income per share - as reported ........ $ 0.66 $ 1.05 $ 1.02
========= ========= ==========
Net Income per share - pro forma .......... $ 0.54 $ 0.92 $ 0.96
========= ========= ==========
Net Income per diluted share - as reported $ 0.64 $ 0.98 $ 0.97
========= ========= ==========
Net Income per diluted share - pro forma .. $ 0.53 $ 0.86 $ 0.91
========= ========= ==========
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 39.9%, expected life of options 5.0 to 6.0
years, risk-free interest rate 6.00% and no expected dividend yield. The
weighted average fair value of options granted during 1998, 1997 and 1996 was
$6.62, $12.95 and $7.95 per share, respectively. The pro forma effect on net
income for 1998 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:
YEAR ENDED DECEMBER 31,
------------------------
(IN THOUSANDS)
1998 1997 1996
------ ------ ------
Number of weighted average common shares outstanding 13,561 13,297 12,873
Assumed exercise of stock options ................... 433 892 672
------ ------ ------
Average diluted shares outstanding .................. 13,994 14,189 13,545
====== ====== ======
NOTE M -- INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
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 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.
F-19
<PAGE>
Summarized financial information concerning the business segments
follows:
(IN THOUSANDS)
<TABLE>
<CAPTION>
OIL & GAS SPECIALTY
SERVICES CHEMICALS
DIVISION DIVISION OTHER CONSOLIDATED
--------- --------- -------- ------------
<S> <C> <C> <C> <C>
1998 SEGMENT DETAIL Revenues from external customers:
Products ................................................................ $ 85,542 $ 61,858 $ -- $ 147,400
Services and Rentals .................................................... 62,866 28,202 -- 91,068
Intersegmented revenues ..................................................... 616 16,635 (17,251) --
--------- --------- -------- ------------
Total revenues .......................................................... 149,024 106,695 (17,251) 238,468
========= ========= ======== ============
Depreciation and amortization ............................................... 7,404 7,458 1,361 16,223
Interest Expense ............................................................ 11 213 6,234 6,458
Income before Taxes ......................................................... 19,397 8,234 (13,015) 14,616
Total Assets ................................................................ 141,334 162,647 7,027 311,008
Capital Expenditures ........................................................ 21,086 22,978 1,310 45,374
<CAPTION>
(IN THOUSANDS)
OIL & GAS SPECIALTY
SERVICES CHEMICALS
DIVISION DIVISION OTHER CONSOLIDATED
--------- --------- -------- ------------
1997 SEGMENT DETAIL Revenues from external customers:
Products ................................................................ $ 92,704 $ 55,223 $ -- $ 147,927
Services and Rentals .................................................... 55,094 16,392 -- 71,486
Intersegmented revenues ..................................................... -- 15,356 (15,356) --
--------- --------- -------- ------------
Total revenues .......................................................... 147,798 86,971 (15,356) 219,413
========= ========= ======== ============
Depreciation and amortization ............................................... 5,072 5,733 770 11,575
Interest Expense ............................................................ 60 1,046 2,199 3,305
Income before Taxes ......................................................... 30,098 3,322 (10,318) 23,102
Total Assets ................................................................ 123,371 133,056 7,365 263,792
Capital Expenditures ........................................................ 36,227 18,169 1,071 55,467
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
OIL & GAS SPECIALTY
SERVICES CHEMICALS
DIVISION DIVISION OTHER CONSOLIDATED
--------- --------- -------- ------------
<S> <C> <C> <C> <C>
1996 SEGMENT DETAIL Revenues from external customers:
Products ................................................................ $ 76,797 $ 49,135 $ -- $ 125,932
Services and Rentals .................................................... 25,629 9,229 -- 34,858
Intersegmented revenues ..................................................... -- 13,843 (13,843) --
--------- --------- -------- ------------
Total revenues .......................................................... 102,426 72,207 (13,843) 160,790
========= ========= ======== ============
Depreciation and amortization ............................................... 2,592 4,490 1,261 8,343
Interest Expense ............................................................ 15 600 635 1,250
Income before Taxes ......................................................... 19,797 8,296 (7,585) 20,508
Total Assets ................................................................ 68,433 105,721 4,352 178,506
Capital Expenditures ........................................................ 9,472 21,303 500 31,275
Investments in Joint Ventures ............................................... -- $ 5,928 -- $ 5,928
</TABLE>
Summarized financial information concerning the geographic areas in which
the Company operated at December 31, 1998, 1997 and 1996 are presented below:
1998 1997 1996
--------- --------- ---------
Revenues from external customers:
U.S ................................. $ 189,853 $ 176,125 $ 126,775
Europe and Africa ................... 24,112 21,409 21,024
Other ............................... 24,503 21,879 12,991
--------- --------- ---------
Total ........................ $ 238,468 $ 219,413 $ 160,790
Transfer between geographic areas:
U.S ................................. $ 1,252 $ 5,301 $ 589
Europe and Africa ................... -- 972 320
Other ............................... -- -- 1,151
Eliminations ........................ (1,252) (6,273) (2,060)
--------- --------- ---------
Total Revenues .......................... $ 238,468 $ 219,413 $ 160,790
========= ========= =========
Identifiable Assets:
U.S ................................. $ 264,811 $ 221,113 $ 149,842
Europe and Africa ................... 22,797 24,941 20,040
Other ............................... 42,875 36,709 19,906
Eliminations ........................ (19,475) (18,971) (11,282)
--------- --------- ---------
Total ................................... $ 311,008 $ 263,792 $ 178,506
========= ========= =========
In 1998, no customers accounted for more than 10% of consolidated
revenues. In 1997, one customer accounted for more than 10% of consolidated
revenues with revenues of $22 million. Revenues from two customers in 1996 of
$20.7 million and $15.9 million accounted for 10% of the consolidated revenues.
F-21
<PAGE>
NOTE N -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for 1998 and 1997 are as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1998
---------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Total Revenue .................... $67,336 $ 63,787 $ 52,314 $ 55,031
Gross Profit ..................... 18,246 16,917 12,719 12,553
Net Income ....................... 3,937 3,714 391 856
Net earnings per share ........... $ 0.29 $ 0.27 $ 0.03 $ 0.06
Net earnings per diluted share.... $ 0.28 $ 0.26 $ 0.03 $ 0.06
<CAPTION>
THREE MONTHS ENDED 1997
---------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------- -------- ------------ ------------
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.
NOTE O - SHAREHOLDERS RIGHTS PLAN
On October 27, 1998, the Board of Directors adopted a stockholder rights
plan (the "Rights Plan") designed to assure that all of the Company's
shareholders receive fair and equal treatment in the event of any proposed
takeover of the Company. The Rights Plan helps to guard against partial tender
offers, open market accumulations and other abusive tactics to gain control of
the Company without paying an adequate and fair price in any takeover attempt.
The Rights are not presently exercisable and are not represented by separate
certificates. The Company is currently not aware of any effort of any kind to
acquire control of the Company.
F-22
<PAGE>
Terms of the Rights Plan provide for a dividend distribution of one
Preferred Stock Purchase Right for each outstanding share of Common Stock to
holders of record at the close of business on November 6, 1998. The Rights Plan
would be triggered if an acquiring party accumulates or initiates a tender offer
to purchase 20% or more of the Company's Common Stock and would entitle holders
of the Rights to purchase either the Company's stock or shares in an acquiring
entity at half of market value. Each Right entitles the holder thereof to
purchase 1/100 of a share of Series One Junior Participating Preferred Stock for
$50.00 per share, subject to adjustment. The Company would generally be entitled
to redeem the Rights at $.01 per Right at any time until the tenth day following
the time the Rights become exercisable. The Rights will expire on November 6,
2008.
For a more detailed description of the Rights Plan, refer to the
Company's Form 8-A filed with the Securities and Exchange Commission on October
28, 1998.
NOTE P -- SUBSEQUENT EVENTS
In January 1999, the Company acquired WyZinCo 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. 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. As a result of this acquisition, the Company has
abandoned certain redundant assets in the zinc sulfate business and record a
related asset impairment charge in the first quarter of 1999. These assets have
a carrying value of approximately $0.8 million..
In March 1999, the Company sold its corporate headquarters building for
approximately $9.7 million. The purchase price exceeds the carrying value of the
building by approximately $7.0 million. The Company subsequently signed a
ten-year lease agreement for space within the building.
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 will record an impairment of these specific assets. The impact of
the impairment has not yet been determined, but the assets associated with this
project total approximately $2.0 million.
During the first quarter of 1999, the Company also committed to certain
actions which will result in the impairment of certain assets in the Company's
Specialty Chemicals group. Specifically, 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
will begin to dismantle the plant. The carrying value of these assets is
approximately $1.5 million. 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 $0.5 million, were taken out of service in the first quarter and
dismantled. The Company anticipates incurring additional costs in the first
quarter associated with demobilizing both facilities.
F-23
<PAGE>
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, 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 (3) (570)(1) 1,023
========== ============ ========== ========== ==========
Inventory reserves .................................... $ 303 $ 697 $ (297)(2) -- $ 703
========== ============ ========== ========== ==========
Year Ended December 31, 1998
Allowance for doubtful accounts ...................... 1,023 200 -- (370)(1) 853
========== ============ ========== ========== ==========
Inventory Reserves ................................... $ 703 $ 255 $ (745)(2) $ -- $ 213
========== ============ ========== ========== ==========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Write off against inventory
(3) Acquisitions
S-1
EXHIBIT 10.7
STRICTLY CONFIDENTIAL
SALES AGREEMENT NO: MB9810070752
SELLER - ALBEMARLE CORPORATION, a Virginia corporation (hereinafter called
"Albemarle") having a place of business at 451 Florida Street, Baton Rouge,
Louisiana 70801.
BUYER - TETRA TECHNOLOGIES, INC., a Delaware corporation (hereinafter called
"Buyer") having a place of business at 25025 I-45 North, The Woodlands, Texas
77380.
Albemarle agrees to sell and Buyer agrees to purchase the product specified
below upon the following terms and conditions:
1. PRODUCT- ELEMENTAL BROMINE
Product will conform to the specifications as attached (Exhibit A).
Buyer represents that Product purchased hereunder is primarily intended for
Buyer's use and consumption in the United States of America. Buyer recognizes
the nature of Product and the inherent issues associated with the handling and
use of the Product. Therefore, if Buyer sells Product or offers Product for
sale, Buyer will be responsible for product stewardship and safety issues that
are under Buyer's control associated with the shipment, handling and use of the
Product to or at Buyer's customers. Albemarle will have the right, but not the
obligation, to suspend, effective immediately upon notice, any shipments of
Product where Albemarle has reason to believe that minimal standards
commensurate with Albemarle's Product Stewardship Requirements (attached as
Exhibit B) are not being met or exceeded in Buyer's use, sale or resale of
Product.
2. QUANTITY AND MODE OF DELIVERY - During calendar year ****, Buyer will
purchase from Albemarle not less than ********* pounds of Product ("Minimum
Annual Purchase Quantity"). During calendar year 1999, Albemarle will make
available for purchase by Buyer ********* pounds of Product per month
("********* of the Minimum Annual Purchase Quantity"). Not less than ********
months prior to the beginning of each calendar year after **** (commencing with
calendar year ****), Buyer will notify Albemarle in writing of the "Minimum
Annual Purchase Quantity" for the upcoming calendar year. The Minimum Annual
Purchase Quantity for any calendar year will not exceed ********* pounds of
Product without Albemarle's prior written consent. Albemarle will indicate
whether or not it will agree to a "Minimum Annual Purchase Quantity" in excess
of ********* pounds of Product within **days of Buyer notification. No such
confirmation is required if Buyer's Minimum Annual Purchase Quantity
notification for the upcoming contract year is equal to, or less than, *********
pounds.
********* Confidential Treatment Requested
<PAGE>
For each month listed below (Forecasted Month), Buyer will provide to Albemarle,
not later than the date listed below (Notification Date), a forecast of Buyer's
requirements for Product from Albemarle during the Forecasted Month. Albemarle
will make available to Buyer in the Forecasted Month a quantity of Product
("Albemarle Forecasted Month Supply Obligation") equal to the lesser of:
(a) ********* the applicable Forecasted Quantity; or
(b) ********* the Minimum Annual Purchase Quantity.
If Buyer desires to purchase from Albemarle a quantity of Product in excess of
the Albemarle Forecasted Month Supply Obligation during the Forecasted Month for
which the forecast has been given, Buyer will so notify Albemarle, and Albemarle
will have ten (10) days from receipt of Buyer's request to either agree to
supply (in whole or in part) or decline to supply Buyer's requirements for
Product during such month which are in excess of the Albemarle Forecasted Month
Supply Obligation. If Buyer's forecast is in the form of a purchase order or
other release document, none of the terms and conditions of the purchase order
or release document will be applicable to the extent that they replace or
supplement the terms and conditions hereof.
NOTIFICATION DATE FORECASTED MONTHS
----------------- -----------------
December 1 [1998 only] January & February [1999 only]
January 1 March
February 1 April
March 1 May
April 1 June
May 1 July
June 1 August
July 1 September
August 1 October
September 1 November
October 1 December
November 1 January
December 1 February
THIS IS A TAKE-OR-PAY CONTRACT. If during any calendar year, Buyer purchases
from Albemarle less than the Minimum Annual Purchase Quantity, then within
thirty (30) days after the end of such calendar year, Buyer will pay to
Albemarle a sum equal to the (i) price equal to ********, FOB Magnolia, AR,
freight collect (**** pricing) TIMES (ii) the difference between the aggregate
quantity of Product actually purchased by Buyer during such calendar year and
the Minimum Annual Purchase Quantity. For example, if, during 1999, Buyer
purchases ********* pounds of Product from Albemarle, then by January 31
following the end of the calendar year in question, Buyer will pay to Albemarle
******** times ********* (e.g., ********************) which equals ********. The
take-or-pay obligation specified above will apply notwithstanding that Albemarle
might in any month or months decline to make available to Buyer quantities of
Product in excess of
********* Confidential Treatment Requested
<PAGE>
the Albemarle Forecasted Month Supply Obligation for such month. This
take-or-pay obligation will not apply to the extent that Buyer's failure to
purchase has been directly caused by events contemplated by Section B
(Contingencies) of the General Terms and Conditions (attached) which prevent
Buyer from purchasing the Minimum Annual Purchase Quantity. However, lack or
failure of markets for Product or products produced by Buyer therefrom will not
be considered a contingency which would excuse Buyer from purchases hereunder.
Without affecting the obligations set forth in the preceding sentences, in the
event that Buyer purchased from Albemarle during a calendar year less than the
Minimum Annual Purchase Quantity for that calendar year and in such calendar
year Buyer purchased from Albemarle at least ******************** of the total
amount of elemental bromine purchased by Buyer from third parties for sale or
use in North America, then, during the period from ************************* of
the following calendar year, Albemarle will make available to Buyer (FOB
Magnolia) ******************** of the volume of Product that Buyer failed to
take but paid for due to the take or pay obligation set forth in the preceding
paragraph. For purposes of calculating the total amount of elemental bromine
purchased by Buyer from third parties for sale or use in North America,
elemental bromine produced in Ludington, Michigan by the Dow/Tetra joint
venture, as well as elemental bromine obtained by swap or barter in exchange for
elemental bromine produced in Ludington, Michigan by the Dow/Tetra joint
venture, shall not be considered to have been purchased from a third party.
Albemarle will have the right to make available to Buyer the volume of Product
specified in the immediately preceding paragraph over such
********************** ************************* on an approximately equal
monthly basis. Albemarle will have the right to have an audit conducted by an
independent third party certified public accountant reasonably acceptable to
both Buyer and Albemarle to determine whether Buyer in fact purchased from
Albemarle during the calendar year in question at least ******************** of
the total amount of elemental bromine purchased by Buyer from third parties for
sale or use in North America. Albemarle will pay for such audit unless the
independent third party accountant determines that Buyer purchased from
Albemarle less than *** of Buyer's total annual requirements for elemental
bromine as defined above during the calendar year in question, in which case the
fees and expenses of the independent third party accountant will be paid by
Buyer. The audit shall be conducted confidentially and the only information
disclosed to Albemarle shall be whether the percent of elemental bromine
purchased from Albemarle was at least *** as defined above. In the event the
audit demonstrates that Buyer failed to purchase from Albemarle a minimum of ***
of Buyer's total annual requirements for elemental bromine during the calendar
year in question, then as to any volume of Product which Albemarle made
available to Buyer without further charge during the ************* period based
upon Buyer's notification, Buyer will pay to Albemarle the price which was
applicable to such Product during the calendar year in question.
A Certificate of Analysis will accompany each shipment.
********* Confidential Treatment Requested
<PAGE>
3. PRICE AND DELIVERY TERMS - Pricing based on tiered prices as listed below.
Reduced price goes into effect for incremental volume. Prices are valid January
1, 1999 through December 31, ****.
ALBEMARLE OWNED TANK TRUCKS:
0 - ********* pounds *********, FOB Magnolia, AR, freight collect
********* + pounds *********, FOB Magnolia, AR, freight collect
BUYER SUPPLIED TRANSPORTATION EQUIPMENT (17 METRIC TON ISOTANK OR, UPON
DEMONSTRATION OF PROPER DOT EXEMPTIONS, 23 METRIC TON ISOTANKS) :
0 - ******** pounds ********, FOB Magnolia, AR, freight collect
********* + pounds ********, FOB Magnolia, AR, freight collect
Albemarle has the right, but not the obligation, to inspect and approve
any transportation and shipping containers or equipment supplied by Buyer.
Buyer is allowed to purchase a maximum of *** of total volume purchased
during the calendar year of Product in Albemarle owned tank trucks at the
"Buyer supplied transportation equipment" prices, to be given as a
********* rebate to be paid no later than 30 days after the end of the
calendar year.
The shipment that causes the total annual volume to be ********* pounds (whether
delivered in either Albemarle owned tank trucks or Buyer supplied transportation
equipment) will be priced at the *********************** price as listed above
for the entire shipment quantity.
For example, if Buyer purchases ********** pounds within the given calendar year
with the first ********* pounds purchased in Albemarle supplied tank trucks and
the remaining ********* pounds in Buyer supplied transportation equipment the
pricing would be as follows:
- ********* pounds will be priced at *********
- The next ********* pounds will be priced at ********
- The last ********* pounds will be priced at ********
- *** of total purchases is ********* pounds will be issued a *********
rebate.
Albemarle and Buyer agree to cooperate in the scheduling, loading and shipping
of Product in order to minimize unnecessary costs and delays to both Albemarle
and Buyer.
********* Confidential Treatment Requested
<PAGE>
4. PRICE REVISION - Albemarle may at any time or times by written notice reduce
prices on products shipped hereunder after the effective date specified in such
notice.
Albemarle may raise prices or change delivery terms, or both, effective any
January 1 (beginning January 1, **** and each January 1 thereafter) upon written
notice to Buyer prior to September 1 and thereupon such revised prices or
revised delivery terms, or both, shall be applicable to all Products shipped
hereunder after the effective date. The maximum price increase for a particular
calendar year is *** above the price which was in effect during the immediately
preceding calendar year.
5. TERMS OF PAYMENT - Net 30 days from date of invoice.
6. TERM AND TERMINATION OF AGREEMENT - The term of this Agreement shall commence
on January 1, **** and terminate on December 31, **** provided, that said term
shall be automatically renewed from year to year, with such modifications, if
any, as the parties may agree upon, unless either party hereto shall, by
********* prior to the termination of the original term or any subsequent yearly
term, given written notice to the other party of its intention to terminate the
same at the end of such term subject, however, to the aforesaid rights of
revision and the following right of cancellation:
In case either party shall breach this Agreement by failing to comply with
any of the terms and conditions hereof, then the other party shall give notice
in writing specifying the breach complained of, and if the same be not remedied
within thirty (30) days from the time such notice is given this Agreement may be
canceled by the non-offending party.
7. CONFIDENTIALITY AND CONDITIONS -Both Buyer and Albemarle agree that the
terms and conditions hereof are confidential as between the parties and neither
Buyer nor Albemarle will permit or allow such terms and conditions hereof to
become known to any third party, including, without limitation, industry
publications or other media. In the event of breach of this obligation of
confidentiality by Buyer, Albemarle will have the right to terminate this
Agreement upon written notice to Buyer. Notwithstanding the first sentence in
Section 7, in the event that the Securities and Exchange Commission should
require that this Agreement be disclosed, the attached (Exhibit C) will be used
as the initial submission to the SEC. If any further information concerning this
Agreement is required by the SEC, Buyer will submit a copy of the SEC request to
Albemarle. Albemarle will have the option to participate in discussions
concerning any additional information requested by the SEC with the SEC. Any
additional information added to Exhibit C is limited to information required by
the SEC.
The conditions set forth on the attached page hereof are specifically made a
part of this Agreement.
********* Confidential Treatment Requested
<PAGE>
8. Unless Buyer accepts Albemarle's offer, as contained in this Agreement, on or
before December 4, 1998, said offer shall expire and have no further effect
unless reinstated in writing by Albemarle.
TETRA TECHNOLOGIES, INC. ALBEMARLE CORPORATION
/s/ ARTHUR L. PATTERSON /s/ N. SCOTT PRESLEY
Arthur L. Patterson N. Scott Presley
Business Manager, Bromine &
Flame Retardants Business Area Sales Manager, Bromine
Date: DECEMBER 7, 1998 Date: 12/3/98
---------------- -------
********* Confidential Treatment Requested
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 Applied Technologies, Inc.
TETRA F.S.C. Limited
TETRA Micronutrients, Inc.
American Microbial Technologies, Inc.
Seajay Industries, Inc.
TETRA Agricultural Products de Mexico, S.A. de C.V.
TETRA Services, Inc.
TETRA Technologies Australia Pty Ltd
TETRA Thermal, Inc.
TETRA Process Services, L.C.
TETRA U.K. Limited
Damp Rid, Inc.
Industrias Sulfamex, S.A. de C.V.
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 19, 1999 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, 1998
Houston, Texas
March 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,803
<SECURITIES> 0
<RECEIVABLES> 57,020
<ALLOWANCES> 853
<INVENTORY> 58,478
<CURRENT-ASSETS> 130,919
<PP&E> 205,603
<DEPRECIATION> 60,007
<TOTAL-ASSETS> 311,008
<CURRENT-LIABILITIES> 42,620
<BONDS> 110,307
0
0
<COMMON> 136
<OTHER-SE> 139,186
<TOTAL-LIABILITY-AND-EQUITY> 311,008
<SALES> 147,400
<TOTAL-REVENUES> 238,468
<CGS> 111,646
<TOTAL-COSTS> 66,387
<OTHER-EXPENSES> 39,055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,458
<INCOME-PRETAX> 14,616
<INCOME-TAX> 5,718
<INCOME-CONTINUING> 8,898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,898
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.64
</TABLE>
