SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
Commission file number 0-18335
TETRA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2148293
(State of incorporation) (I.R.S. Employer
Identification No.)
25025 I-45 NORTH, THE WOODLANDS, TEXAS 77380
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (281)367-1983
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| . No |_| .
As of September 30, 2000 there were 13,620,099 shares of the Company's
common stock, $.01 par value per share, issued and outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
($ THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
PRODUCT SALES ........................ $ 36,388 $ 34,804 $ 116,047 $ 105,715
SERVICES ............................. 26,384 17,867 75,608 55,259
--------- --------- --------- ---------
TOTAL REVENUES ................... 62,772 52,671 191,655 160,974
COST OF REVENUES:
COST OF PRODUCT SALES ................ 28,259 28,075 94,504 86,017
COST OF SERVICES ..................... 19,883 12,909 54,727 39,014
--------- --------- --------- ---------
TOTAL COST OF REVENUES ........... 48,142 40,984 149,231 125,031
--------- --------- --------- ---------
GROSS PROFIT ..................... 14,630 11,687 42,424 35,943
GENERAL AND ADMINISTRATIVE EXPENSE ....... 10,186 9,751 30,759 30,426
SPECIAL CHARGE ........................... -- -- -- 4,745
--------- --------- --------- ---------
OPERATING INCOME .............. 4,444 1,936 11,665 772
GAIN ON SALE OF ADMINISTRATION BUILDING .. -- -- -- 6,731
GAIN ON SALE OF BUSINESS ................. -- -- -- 28,829
INTEREST EXPENSE, NET .................... 1,480 1,491 4,631 5,862
OTHER INCOME (EXPENSE) ................... 258 (60) 37 43
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 3,222 385 7,071 30,513
PROVISION FOR INCOME TAXES ............... 1,224 152 2,669 11,683
--------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE .................... 1,998 233 4,402 18,830
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
(NET OF INCOME TAX EFFECT) ......... -- -- -- (5,782)
--------- --------- --------- ---------
NET INCOME .......... $ 1,998 $ 233 $ 4,402 $ 13,048
========= ========= ========= =========
NET INCOME PER SHARE BEFORE CUMULATIVE
EFFECT OF ACOUNTING CHANGE ............ $ 0.15 $ 0.02 $ 0.32 $ 1.39
CUMULATIVE EFFECT OF ACCOUNTING CHANGE .. -- -- -- ($ 0.43)
--------- --------- --------- ---------
NET INCOME PER SHARE ..................... $ 0.15 $ 0.02 $ 0.32 $ 0.96
========= ========= ========= =========
AVERAGE SHARES ........................... 13,620 13,524 13,582 13,523
========= ========= ========= =========
NET INCOME PER DILUTED SHARE BEFORE
CUMULATIVE EFFECT ACCOUNTING CHANGE ... $ 0.14 $ 0.02 $ 0.31 $ 1.39
CUMULATIVE EFFECT OF ACCOUNTING CHANGE .. -- -- -- ($ 0.43)
--------- --------- --------- ---------
NET INCOME PER DILUTED SHARE ............. $ 0.14 $ 0.02 $ 0.31 $ 0.96
========= ========= ========= =========
AVERAGE DILUTED SHARES ................... 14,260 13,612 14,064 13,580
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
($ THOUSANDS) 2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS ............................... $ 3,901 $ 4,184
RESTRICTED CASH ......................................... -- 2,000
TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $1,687 IN 2000 AND $1,868 IN 1999 ........ 69,322 50,220
INVENTORIES ............................................. 48,643 57,020
DEFERRED TAX ASSETS ..................................... 4,483 4,483
PREPAID EXPENSES AND OTHER CURRENT ASSETS ............... 4,375 3,701
--------- ---------
TOTAL CURRENT ASSETS ............................... 130,724 121,608
PROPERTY, PLANT AND EQUIPMENT:
LAND AND BUILDING ....................................... 13,142 12,646
MACHINERY AND EQUIPMENT ................................. 120,932 112,026
AUTOMOBILES AND TRUCKS .................................. 8,055 9,261
CHEMICAL PLANTS ......................................... 51,845 52,195
CONSTRUCTION IN PROGRESS ................................ 8,374 7,538
--------- ---------
202,348 193,666
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION .......... (73,112) (63,555)
--------- ---------
NET PROPERTY, PLANT, AND EQUIPMENT ................. 129,236 130,111
OTHER ASSETS:
COST IN EXCESS OF NET ASSETS ACQUIRED, NET OF ACCUMULATED
AMORTIZATION OF $3,882 IN 2000 AND $3,210 IN 1999 ... 32,638 33,328
OTHER, NET OF ACCUMULATED AMORTIZATION OF $3,662 IN 2000
AND $3,309 IN 1999 ................................... 5,432 5,589
--------- ---------
TOTAL OTHER ASSETS ................................. 38,070 38,917
--------- ---------
$ 298,030 $ 290,636
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
($ THOUSANDS) 2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE ................................... $ 32,070 $ 25,939
ACCRUED EXPENSES ......................................... 17,087 17,729
UNEARNED REVENUE ......................................... 1,685 1,002
CURRENT PORTIONS OF ALL LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS ...................................... 7,656 2,232
--------- ---------
TOTAL CURRENT LIABILITIES ........................... 58,498 46,902
LONG-TERM DEBT, LESS CURRENT PORTION .......................... 64,857 74,000
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION ............... 497 1,026
DEFERRED INCOME TAXES ......................................... 18,756 18,792
OTHER LIABILITIES ............................................. 1,364 495
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
COMMON STOCK, PAR VALUE $.01 PER SHARE
40,000,000 SHARES AUTHORIZED, WITH 13,620,099 SHARES
ISSUED AND OUTSTANDING IN 2000 AND 13,529,201 SHARES
ISSUED AND OUTSTANDING IN 1999 ......................... 137 136
ADDITIONAL PAID-IN CAPITAL ............................... 78,864 77,988
TREASURY STOCK, AT COST, 94,000 SHARES IN 2000 AND IN 1999 (1,107) (1,107)
ACCUMULATED OTHER COMPREHENSIVE INCOME ................... (997) (355)
RETAINED EARNINGS ........................................ 77,161 72,759
--------- ---------
TOTAL STOCKHOLDERS' EQUITY .......................... 154,058 149,421
--------- ---------
$ 298,030 $ 290,636
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
($ THOUSANDS) 2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME .................................................... $ 4,402 $ 13,048
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES :
DEPRECIATION AND AMORTIZATION ............................. 12,626 12,511
PROVISION FOR DEFERRED INCOME TAXES ....................... (36) (261)
PROVISION FOR DOUBTFUL ACCOUNTS ........................... 509 668
AMORTIZATION OF GAIN ON LEASEBACK ........................ (124) --
GAIN ON SALE OF PROPERTY, PLANT AND EQUIPMENT ............ (23) (38)
SPECIAL CHARGES ........................................... -- 4,745
GAIN ON THE SALE OF BUSINESS .............................. -- (28,829)
GAIN ON THE SALE OF THE ADMINISTRATION BUILDING ........... -- (6,731)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX ........ -- 5,782
CHANGES IN OPERATING ASSETS AND LIABILITIES,
NET OF ASSETS ACQUIRED:
TRADE ACCOUNTS RECEIVABLE ............................... (19,611) 1,248
COSTS AND ESTIMATED EARNINGS IN EXCESS
OF BILLINGS ON INCOMPLETE CONTRACTS ................. -- (986)
INVENTORIES ............................................ 8,377 (880)
PREPAID EXPENSES AND OTHER CURRENT ASSETS .............. 1,326 (1,151)
TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES ............ 6,172 7,029
BILLINGS IN EXCESS OF COSTS AND ESTIMATED
EARNINGS ON INCOMPLETE CONTRACTS .................... -- (519)
OTHER .................................................. -- (66)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................. 13,618 5,570
-------- --------
INVESTING ACTIVITIES:
PURCHASES OF PROPERTY, PLANT AND EQUIPMENT ................... (11,579) (9,259)
BUSINESS COMBINATIONS, NET OF CASH ACQUIRED .................. -- (11,658)
PROCEEDS FROM SALE OF BUSINESS ............................... -- 38,825
DECREASE (INCREASE) IN OTHER ASSETS .......................... (860) (1,833)
PROCEEDS FROM SALE OF PROPERTY, PLANT AND EQUIPMENT .......... 342 10,051
-------- --------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES .......... (12,097) 26,126
-------- --------
FINANCING ACTIVITIES:
NET REPAYMENTS AND BORROWINGS FROM SHORT-TERM CREDIT LINES ... -- --
PROCEEDS FROM LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS .......................................... 16,094 21,011
PROCEEDS FROM LEASEBACK SALE ................................. 1,074 --
PRINCIPAL PAYMENTS ON LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS .......................................... (19,848) (50,745)
PROCEEDS FROM SALE OF COMMON STOCK AND EXERCISED STOCK OPTIONS 876 86
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................. (1,804) (29,648)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS .......................... (283) 2,048
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 4,184 2,803
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD ....................... $ 3,901 $ 4,851
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X for interim financial
statements required to be filed with the Securities and Exchange Commission and
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, the
information furnished reflects all normal recurring adjustments, which are, in
the opinion of management, necessary to a fair statement of the results for the
interim periods.
The accompanying financial statements should be read in conjunction with
the audited financial statements for the year ended December 31, 1999.
For the purposes of the statements of cash flows, the Company considers
all highly liquid cash investments with a maturity of three months or less to be
cash equivalents.
Interest paid on debt during the nine months ended September 30, 2000 and
1999 was $5,594,109 and $6,988,000, respectively.
Income tax payments made during the nine months ended September 30, 2000
and 1999 were $1,082,000 and $2,097,600, respectively.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, REPORTING THE COSTS OF START-UP ACTIVITIES
("SOP 98-5"), which requires that costs related to start-up activities be
expensed as incurred. Prior to 1999, the Company capitalized those costs
incurred in connection with opening a new production facility. The Company
adopted the provisions of the SOP 98-5 in its financial statements for the year
ended December 31, 1999. The effect of adoption of SOP 98-5 was to record a
charge for the cumulative effect of an accounting change of $5.8 million ($0.43
per share), net of taxes of $3.9 million, to expense costs that had been
previously capitalized prior to 1999.
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, 2001. Because of the
Company's minimal use of derivatives, management does not anticipate the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
NOTE B - COMMITMENTS AND CONTINGENCIES
The Company, its subsidiaries and other related companies are named
defendants in several lawsuits and respondents in certain governmental
proceedings arising in the ordinary course of business. While the outcome of
lawsuits or other proceedings against the Company cannot be predicted with
certainty, management does not expect these matters to have a material adverse
impact on the Company.
NOTE C - ACQUISITIONS AND DISPOSITIONS
In January 1999, the Company acquired WyZinCo, Inc., CoZinCo Sales, Inc.
and certain assets of CoZinCo, Inc. for approximately $11.7 million in cash and
notes. The acquisition, which was accounted for under the purchase method of
accounting, was funded primarily through the Company's credit facility and the
sale of its corporate headquarters building. The excess of purchase price over
the fair value of assets acquired was approximately $8.3 million
During the first quarter of 1999, the Company sold its corporate
headquarters building realizing a pretax gain of approximately $6.7 million. The
Company subsequently signed a ten-year lease agreement for space within the
building. During the second quarter of 1999, the Company sold its Process
Technologies business for a $28.8 million gain.
5
<PAGE>
NOTE D - NET INCOME PER SHARE
The following is a reconciliation of the weighted average number of common
shares outstanding with the number of shares used in the computations of net
income per common and common equivalent share:
<TABLE>
<CAPTION>
THREE MONTH ENDED NINE MONTH ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Number of weighted average
common shares outstanding ...... 13,620,099 13,524,201 13,581,735 13,522,635
Assumed exercise of stock options 640,261 88,291 482,601 57,562
---------- ---------- ---------- ----------
Average diluted shares outstanding 14,260,360 13,612,492 14,064,336 13,580,197
========== ========== ========== ==========
</TABLE>
In applying the treasury stock method to determine the dilutive effect of
the stock options outstanding during the third quarter of 2000, the average
market price of $14.06 was used.
NOTE E - COMPREHENSIVE INCOME (LOSS)
Comprehensive income for the three months ended September 30, 2000 and
1999 is as follows:
THREE MONTH ENDED NINE MONTH ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
-------- -------- -------- --------
Net Income ............... $ 1,998 $ 233 $ 4,402 $ 13,048
Translation Adjustment ... (268) 149 (642) (93)
-------- -------- -------- --------
Comprehensive Income $ 1,730 $ 382 $ 3,760 $ 12,955
======== ======== ======== ========
NOTE F - INDUSTRY SEGMENTS
During the fourth quarter of 1999, the Company implemented a strategic
restructuring program to refocus its effort in the energy services business.
This program will concentrate the Company's efforts on developing its oil and
gas services business and will sell or consolidate non-core operations. To
achieve this strategy, the Company is actively pursuing the disposition of its
micronutrients business, as well as several smaller chemicals-related
operations. Additionally, the Company has implemented plans to exit certain
product lines and businesses, which are not core to its new strategic direction.
The remaining chemicals business will consist primarily of a commodity products
based operations, which significantly supports the energy service markets.
The Company continues to manage its business in two segments: Oil & Gas
Services and Chemicals. The Oil & Gas Services segment provides a broad range of
products and services to its customers in the energy industry. The Chemicals
segment manufactures and markets a variety of commercial products, which are
produced from low-cost feedstock.
The Company evaluates performance and allocates resources based on profit
or loss from operations, excluding special charges and before income taxes. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies. Transfers between segments,
as well as geographic areas, are priced at the estimated fair value of the
products or services as negotiated between the two operating units. Other
includes corporate expenses and elimination of intersegmented revenues.
6
<PAGE>
In 1999, the management reporting responsibilities for TETRA Process
Services were transferred from the Chemicals Division to the Oil & Gas Services
Division. The amounts in the table below have been restated to reflect this
transfer. Summarized financial information concerning the business segments is
as follows:
<TABLE>
<CAPTION>
OIL & GAS
SERVICES CHEMICALS OTHER CONSOLIDATED
--------- --------- -------- ------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenues from external customers ........ $ 44,131 $ 18,641 $ -- $ 62,772
Intersegmented revenues ................. 3 4,631 (4,634) --
-------- -------- -------- --------
Total Revenues .................... 44,134 23,272 (4,634) 62,772
Income Before Taxes ..................... 5,274 1,323 (3,375) 3,222
Total Assets ............................ $168,335 $124,788 $ 4,907 $298,030
THREE MONTHS ENDED SEPTEMBER 30, 1999
Revenues from external customers ........ $ 32,980 $ 19,691 $ -- $ 52,671
Intersegmented revenues ................. 28 2,572 (2,600) --
-------- -------- -------- --------
Total Revenues .................... 33,008 22,263 (2,600) 52,671
Income Before Taxes and cumulative effect
of accounting change ............... 3,320 295 (8,230) 385
Total Assets ............................ $153,009 $135,787 $ 8,824 $297,620
NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenues from external customers ........ $128,638 $ 63,017 $ -- $191,655
Intersegmented revenues ................. 33 14,151 (14,184) --
-------- -------- -------- --------
Total Revenues .................... 128,671 77,168 (14,184) 191,655
Income Before Taxes ..................... 14,404 3,508 (10,841) 7,071
Total Assets ............................ $168,335 $124,788 $ 4,907 $298,030
NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenues from external customers ........ $ 96,579 $ 64,395 $ -- $160,974
Intersegmented revenues ................. 176 8,683 (8,859) --
-------- -------- -------- --------
Total Revenues .................... 96,755 73,078 (8,859) 160,974
Income Before Taxes and cumulative effect
of accounting change ............... 8,053 2,825 19,635(1) 30,513
Total Assets ............................ $153,009 $135,787 $ 8,824 $297,620
</TABLE>
(1) Includes gain in the sale of TETRA Process Technologies of $28,829 and
corporate headquarters building of $6,731, special charge of $4,745 and
excludes the cumulative effect of accounting of $5,782, net of taxes.
Substantially all of the special charge relates to the Chemicals Division.
7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1999.
Total revenues for the quarter ended September 30, 2000 were $62.8 million
compared to $52.7 million in the prior period, an increase of $10.1 million or
19.2%. Revenues from the Oil & Gas Services Division were $44.1 million, up
approximately $11.1 million or 34% from the 1999 level of $33.0 million. Despite
poor weather conditions in the Gulf of Mexico during September, both the
offshore fluids and plug and abandonment businesses generated improved
quarter-to-quarter revenues. The well abandonment/decommission operations
continue to benefit from much improved equipment utilization rates; while the
domestic clear brines fluid business has improved with the increase in working
rigs in the Gulf. The division's Production Testing, Process Services and
International operations have all also benefited from the improving energy
environment. Chemicals Division revenues for the third quarter were $23.3
million, including intercompany, up $1.0 million or 4% over the third quarter
1999 total of $22.3 million. The chlorides business continues it's upward trend
on the strength of much improved liquid calcium chloride volumes and pricing,
particularly in the energy markets. The bromides business also improved due to
increases in zinc bromine sales into oilfield markets.
Gross profits were $14.6 million in 2000 compared to $11.7 million in
1999, an increase of $2.9 million or 25%. Gross profits as a percentage of
revenues were 23% in 2000 versus 22% in 1999. Gross profits in the Oil & Gas
Services Division increased along with the profit percentage. Increased activity
in the CBF business, improved international margin percentages and improved
utilization of production testing equipment all contributed to stronger profit
percentages. The Chemicals Division gross profits and profits percentage
increased quarter-to-quarter primarily on the strength of improved calcium
chloride and bromides activity.
General and administrative expenses were $10.2 million, up slightly from
$9.8 million in the prior year due to the expanding oil and gas activity, and
acquisitions made earlier in 2000.
Operating income for the period ended September 30, 2000 was $4.4 million
compared to $1.9 million in 1999. The increase in earnings quarter-to-quarter
reflects improved oil and gas profitability and increased calcium chloride and
bromides activity.
Net income was $2.0 million in 2000 and $.2 million in 1999. Net income
per diluted share was $0.14 in 2000 based on 14,260,000 average diluted shares
outstanding and $0.02 in 1999 based on 13,612,000 average diluted shares
outstanding.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1999.
Total revenues for the period ended September 30, 2000 were $191.7 million
compared to $161.0 million in the prior period, an increase of $30.7 million or
19%. Oil & Gas Services revenues contributed significantly to this growth
increasing from $96.8 million in the prior year to $128.7 million in 2000, a
$31.9 million or 33% growth. Major revenue improvements came in the well
abandonment/decommissioning, production testing and process services business.
Equipment utilization in the well abandonment/decommission group has improved
steadily throughout the year resulting in substantial jumps in revenues and
margins period-to-period. Chemicals Division revenues for the period were $77.2
million, including intercompany, up $4.1 million or 6% over the 1999 total of
$73.1 million. Included in the 1999 revenues is approximately $4.2 million from
the Process Technologies business, which was sold during the second quarter of
1999. The Chemicals Division revenues increased in every major product line. The
chlorides business was up on the strength of much improved liquid and dry
calcium chloride volumes. The micronutrients business increased as a result of
significantly improved zinc sulfate fertilizer sales, while the bromides
business improved due to significant increases in zinc bromide sales into
oilfield markets.
8
<PAGE>
Gross profits for the period ended September 30, 2000 were $42.4 million
compared to $35.9 million in the prior year, an increase of $6.5 million or 18%.
Gross profit, as a percentage of revenues were comparable to prior year at 22%.
Gross profits in the Oil & Gas Services Division increased 44% period-to-period.
The most significant gains came in the well abandonment/decommissioning and
production testing business as increased activity resulted in significant
improvements in equipment utilization. The process services group also showed
substantial margin improvements over prior years. Despite improved activity, the
CBF margins remain down due to continued depressed market pricing. Excluding the
profits from Process Technologies, the Chemicals Division gross profits were
flat, period-to-period. The micronutrients business gross profits were down due
to pricing pressures in the feed markets and higher production costs caused by
reduced production rates at the Cheyenne, Wyoming plant. This also resulted in
reduced profit percentages for this group. Margin improvements in the chlorides
and bromides business helped to offset some of the micronutrients shortfall.
General and administrative expenses were $30.8 million in 2000 compared to
$30.4 million in 1999.
The Company recorded a special charge in the quarter ended March 31, 1999
of $4.7 million related to the following:
In March 1999, the Company was verbally notified of the early termination
of a significant liquid calcium chloride contract. The Company was subsequently
notified in writing. Under the terms of the contract, the Company is required to
terminate its operations at that location and vacate the facility in 2002. The
Company is also required to remove all of its equipment and fixtures, at its own
cost. As a result of the early termination of the contract, the Company recorded
an impairment of these Chemicals Division assets of approximately $1.4 million.
These assets are currently in service through the end of the contract.
Also during the first quarter of 1999, the Company committed to certain
actions, which resulted in the impairment of other plant assets in the Company's
Chemicals Division. As a result of increased production volumes achieved at the
new calcium chloride dry plant in Lake Charles, Louisiana, the Company no longer
needed the previously existing dry plant and has subsequently dismantled it,
resulting in an impairment charge of approximately $1.8 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 $0.4 million, were taken out of service in
the first quarter of 1999. The abandoned assets of both plant facilities were
written off during the first quarter of 1999. Finally, the Company recognized
the impairment of certain micronutrients' assets totaling approximately $1.1
million. These assets were deemed impaired with the acquisitions of the WyZinCo
Company and the CoZinCo assets and were written off during the first quarter of
1999.
During the fourth quarter of 1999, the Company implemented a strategic
restructuring program to refocus its effort in the energy services business.
Under this program, the Company will concentrate its efforts on developing its
oil and gas services business and will sell or consolidate non-core operations.
To achieve this strategy, the Company is actively pursuing the disposition of
its micronutrients business, as well as several smaller operations.
Additionally, the Company has implemented plans to exit certain product lines
and businesses, which are not core to its new strategic direction. The remaining
chemicals business will consist primarily of a commodity products based
operations, which significantly supports the energy service markets. The Company
has also embarked on an aggressive program to reorganize its overhead structure
to reduce costs and improve operating efficiencies in support of the energy
services operations.
As a result of this change in strategy, the Company recorded a $2.3
million, pretax, restructuring charge in the fourth quarter of 1999. The
following table details the activity in the restructuring during the nine months
ended September 30, 2000.
9
<PAGE>
12/31/99 09/30/00
LIABILITY CASH PAYMENTS LIABILITY
BALANCE 1ST QTR 2ND QTR 3RD QTR BALANCE
--------- ------------------------ -------
Involuntary termination costs $1,170 $ 280 $ 271 $ 216 $ 403
Contractual costs ........... 760 -- -- -- 760
Exit costs .................. 390 -- -- 111 279
------ ------ ------ ------ ------
$2,320 $ 280 $ 271 $ 327 $1,442
====== ====== ====== ====== ======
Involuntary termination costs consist of severance costs associated with
the termination of six management level employees associated with the Company's
restructuring. Contractual costs include obligations triggered in two chemical
product lines when the Company decided to exit these businesses. The Company
currently has a sublease agreement, that expired in July 2000, which it is in
the process of renegotiating. The remaining exit costs are additional
liabilities realized by exiting certain portions of the specialty chemicals
business. Of the total restructuring charge at December 31, 1999, approximately
$1.7 million is associated with the Chemicals Division, $0.1 million with the
Oil & Gas Services Division and $0.5 million with corporate administrative
activities. The majority of the costs are expected to be paid within the next 18
months and will be funded using cash flow from operations.
Operating income for the period ended September 30, 2000 was $11.7 million
compared to $0.8 million in 1999. The increase in earnings period-to-period
reflects improved profitability in Oil & Gas Services, calcium chloride and
bromides, netted by a loss of earnings due to the sale of TETRA Process
Technologies business in 1999 and a first quarter 1999 special charge of $4.7
million.
Interest expense decreased during the period compared to the prior year,
due to decreased long-term debt over the past twelve months.
In March 1999, the Company sold its corporate headquarters building
realizing a gain of approximately $6.7 million. The Company subsequently signed
a ten-year lease agreement for space within the building. During the second
quarter of 1999, the Company sold its Process Technologies business for a $28.8
million gain.
Net income before cumulative effect of accounting change was $4.4 million
in 2000 and $18.8 million in 1999. Net income per diluted share before the
cumulative effect of accounting change was $0.31 in 2000 based on 14,064,000
average diluted shares outstanding and $1.39 in 1999 based on 13,580,000 average
diluted shares outstanding.
In April 1998, the American Institute of Certified Public Accountants
issued STATEMENT OF POSITION 98-5, REPORTING THE COSTS OF START-UP ACTIVITIES,
which requires that costs associated with start-up activities be expensed as
incurred. Prior to 1999, the Company capitalized those costs incurred in
connection with opening a new production facility. The Company adopted the
provisions SOP 98.5 in its financial statements for the year ended December 31,
1999. The effect of adoption of SOP 98-5 was to record a charge for the
cumulative effect of an accounting charge of $5.8 million ($0.43 per share), net
of taxes of $3.9 million, to expense costs that had been previously capitalized
prior to 1999.
After the cumulative effect adjustments, the Company reported a net income
of $13.0 million or $0.96 per diluted share in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's investment in working capital, excluding cash, cash
equivalents and restricted cash decreased to $68.3 million at September 30, 2000
from $68.5 million at December 31, 1999. Accounts receivables increased
approximately $19.6 million, primarily in the Oil & Gas Services Division with
the increased activity in well abandonment/decommissioning, production testing
and CBF business. Inventories were down $8.4 million, mainly in the bromides,
chlorides and micronutrients operations resulting from increased activity.
Finally, accounts payables and accrued expenses increased in the gulf coast and
well abandonment/decommissioning groups in support of increased activity and
inventory levels.
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To fund its capital and working capital requirements, the Company uses
cash flow as well as its general purpose, prime rate/LIBOR-based line-of-credit
with a syndicate of banks led by Bank of America. As of September 30, 2000, the
Company has $2.2 million in letters of credit and $72.0 million in long-term
debt outstanding. The line-of-credit matures in 2002. The Company's credit
facility is subject to typical 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 has
amended its existing credit facility to include an asset-based component of up
to $50 million and a term component of up to $50 million secured with property
and equipment. The Company believes this new credit facility will meet all its
capital and working capital requirements.
Major investing activities include an asset exchange with Key Energy
Services, Inc. TETRA exchanged its South Texas trucking assets and certain
rental tank assets for production testing, slickline, liquid mud and pipe
testing assets in South Texas. This exchange will allow the Company to expand
production testing domestic and international business.
Capital expenditures during the nine months ended September 30, 2000
totaled approximately $11.6 million. Significant components include purchase of
additional Process Services equipment, oil and gas production testing and well
abandonment/decommission equipment and production equipment for the Company's
Damp Rid(R) consumer products business.
The Company believes that its existing funds, cash generated by
operations, funds available under its recently negotiated 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 2000 and thereafter.
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. The Company experienced no significant disruptions in
information technology or any other systems. The Company is not aware of any
material problems resulting from Year 2000 issues, either with its products, its
internal systems, or the products and services of third parties. The Company
expensed approximately $250,000 during 1999 in connection with remediation of
its systems. The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the year to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD LOOKING STATEMENTS
Certain statements contained herein and elsewhere may be deemed to be
forward-looking within the meaning of The Private Securities Litigation Reform
Act of 1995 and are subject to the "safe harbor" provisions of that act,
including without limitation, statements concerning future sales, earnings,
costs, expenses, acquisitions or corporate combinations, asset recoveries,
working capital, capital expenditures, financial condition, and other results of
operations. Such statements involve risks and uncertainties. Actual results
could differ materially from the expectations expressed in such forward-looking
statements. Some of the risk factors that could affect the Company's actual
results and cause actual results to differ materially from any such results that
might be projected, forecast, estimated or budgeted by the Company in such
forward-looking statements are set forth in the section titled "Certain Business
Risks" contained in the Company's report on Form 10-K for the year ended
December 31, 1999.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company, its subsidiaries and other related companies are named
defendants in several lawsuits and respondents in certain governmental
proceedings arising in the ordinary course of business. While the outcome of
lawsuits or other proceedings against the Company cannot be predicted with
certainty, management does not expect these matters to have a material adverse
impact on the Company.
ITEM 6. EXHIBITS
(a) Exhibits
A statement of computation of per share earnings is included in Note
D of the Notes to Consolidated Financial Statements included in this
report and is incorporated by reference into Part II of this report.
(b) Reports on Form 8-K: None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TETRA TECHNOLOGIES, INC.
Date: November 15, 2000 By: [Geoffrey M. Hertel]
----------------------
Geoffrey M. Hertel
Chief Operating Officer
Chief Financial Officer
(Principal Financial Officer)
Date: November 15, 2000 By: [Bruce A. Cobb]
----------------
Bruce A. Cobb
Corporate Controller
(Treasurer)
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