================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2001 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 March 31, 2001 there were 13,933,612 shares of the Company's common stock, $.01 par value per share, issued and outstanding ================================================================================
ITEM 1. FINANCIAL STATEMENTS TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------------ ($ Thousands, except per share amounts) 2001 2000 -------------- -------------- <S> <C> <C> Revenues: Product sales $39,517 $28,919 Services 33,080 21,990 -------------- -------------- Total Revenues 72,597 50,909 Cost of Revenues: Cost of product sales 28,332 23,658 Cost of services 25,313 15,993 -------------- -------------- Total Cost of Revenues 53,645 39,651 -------------- -------------- Gross Profit 18,952 11,258 General and Administrative Expense 10,061 9,152 -------------- -------------- Operating Income 8,891 2,106 Interest Expense, net 625 983 Other Income (expense) (60) (91) -------------- -------------- Income before income taxes and discontinued operations 8,206 1,032 Provision for Income Taxes 3,066 371 -------------- -------------- Income before discontinued operations 5,140 661 Discontinued Operations: Income from discontinued operations, net of income tax expense of $15 - 25 -------------- -------------- Net income (loss) $5,140 $686 ============== ============== Net income per share before discontinued operations $0.37 $0.05 Income per share from discontinued operations - - -------------- -------------- Net income per share $0.37 $0.05 ============== ============== Average shares 13,934 13,554 ============== ============== Net income per diluted share before discontinued operations $0.35 $0.05 Income per diluted share from discontinued operations - - -------------- -------------- Net income per diluted share $0.35 $0.05 ============== ============== Average diluted shares 14,775 13,736 ============== ============== </TABLE> See Notes to Consolidated Financial Statements 1
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> March 31, December 31, ($ Thousands) 2001 2000 ----------------- ---------------- (Unaudited) <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents $7,038 $6,594 Trade accounts receivable, net of allowance for doubtful accounts of $913 in 2001 and $930 in 2000 73,273 63,997 Inventories 31,005 34,141 Deferred tax assets 9,828 9,828 Prepaid expenses and other current assets 4,141 3,524 ----------------- ---------------- Total Current Assets 125,285 118,084 Property, Plant and Equipment: Land and building 9,922 9,924 Machinery and Equipment 120,678 120,029 Automobiles and trucks 7,985 7,924 Chemical plants 36,223 36,223 O&G Producing Assets 8,430 7,475 Construction in progress 12,930 10,410 ----------------- ---------------- 196,168 191,985 Less accumulated depreciation and amortization (70,467) (66,480) ----------------- ---------------- Net Property, Plant, and Equipment 125,701 125,505 Other Assets: Cost in excess of net assets acquired, net of accumulated amortization of $3,104 in 2001 and $2,967 in 2000 20,045 20,189 Other, net of accumulated amortization of $3,871 in 2001 and $3,762 in 2000 5,285 5,406 Net assets of discontinued operations 9,577 9,756 ----------------- ---------------- Total Other Assets 34,907 35,351 ----------------- ---------------- $285,893 $278,940 ================= ================ </TABLE> See Notes to Consolidated Financial Statements 2
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> March 31, December 31, ($ Thousands) 2001 2000 -------------- -------------- (Unaudited) <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Trade accounts payable $36,012 $28,082 Accrued expenses 21,324 17,488 Current portions of all long-term debt and capital lease obligations 6,983 6,955 -------------- -------------- Total Current Liabilities 64,319 52,525 Long-term Debt, less current portion 39,534 50,166 Capital Lease Obligations, less current portion 524 444 Deferred Income Taxes 20,966 20,966 Decommissioning liabilities 8,132 9,165 Other liabilities 1,666 1,920 Commitments and contingencies Stockholders' Equity: Common stock, par value $.01 per share 40,000,000 shares authorized, with 13,933,612 shares issued and outstanding in 2001 and 13,719,607 shares issued and outstanding in 2000 140 138 Additional paid-in capital 81,797 79,587 Treasury stock, at cost, 94,000 shares in 2001 and in 2000 (1,107) (1,107) Accumulated other comprehensive income (1,255) (901) Retained earnings 71,177 66,037 -------------- -------------- Total Stockholders' Equity 150,752 143,754 -------------- -------------- $285,893 $278,940 ============== ============== </TABLE> See Notes to Consolidated Financial Statements 3
<TABLE> <CAPTION> TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31, ----------------------------------- ($ Thousands) 2001 2000 --------------- --------------- <S> <C> <C> Operating Activities: Net Income $5,140 $686 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,729 3,422 Provision for deferred income taxes - (12) Provision for doubtful accounts 183 208 Gain on sale of property, plant and equipment (29) - Changes in operating assets and liabilities, net of assets acquired: Trade accounts receivable (9,459) (2,556) Inventories 3,136 1,550 Prepaid expenses and other current assets (617) (3,346) Trade accounts payable and accrued expenses 11,765 2,865 Discontinued operations: non cash charges & working capital changes 182 (837) Other 240 (27) --------------- --------------- Net cash provided by operating activities 15,270 1,953 --------------- --------------- Investing Activities: Purchases of property, plant and equipment (5,151) (3,344) Business combinations, net of cash acquired - (382) Decrease (increase) in other assets (1,566) (75) Proceeds from sale of property, plant and equipment 202 - --------------- --------------- Net cash used by investing activities (6,515) (3,801) --------------- --------------- Financing Activities: Proceeds from long-term debt and capital lease obligations 253 7,051 Principal payments on long-term debt and capital lease obligations (10,776) (7,001) Proceeds from sale of common stock and exercised stock options 2,212 248 --------------- --------------- Net cash provided by financing activities (8,311) 298 --------------- --------------- Increase (decrease) in cash and cash equivalents 444 (1,550) Cash & Cash Equivalents at Beginning of Period 6,594 4,088 --------------- --------------- Cash & Cash Equivalents at End of Period $7,038 $2,538 =============== =============== </TABLE> See Notes to Consolidated Financial Statements 4
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, 2000. For the purposes of the statements of cash flows, the Company considers all highly liquid cash investments with a maturity of three months or less to be cash equivalents. Interest paid on debt during the three months ended March 31, 2001 and 2000 was $1,052,000 and $1,839,000, respectively. Income tax payments made during the three months ended March 31, 2001 and 2000 were $626,000 and $67,000, respectively. NOTE B - COMMITMENTS AND CONTINGENCIES The Company, its subsidiaries and other related companies are named as 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 - DISCONTINUED OPERATIONS The Company developed a plan in October 2000 to exit its micronutrients business which produces zinc and manganese products for the agricultural markets. The plan provided for the sale of the stock of TETRA's wholly owned Mexican subsidiary, Industrias Sulfamex, S.A. de C.V., a producer and distributor of manganese sulfate, and all the manganese inventory held by the Company's U.S. operations. It also provided for the sale or other disposition of all inventories, plant and equipment associated with its U.S. zinc sulfate business. In December 2000, the Company sold all of its U.S. and foreign manganese sulfate assets for $15.4 million in cash. The Company has accounted for the micronutrients business as a discontinued operation and has restated prior period financial statements accordingly. Summary operating results of discontinued operations are as follows: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31 2001 2000 ---- ---- <S> <C> <C> Revenues.......................................................... $5,912 $12,306 Income (loss) before taxes........................................ - 41 Provision for taxes............................................... - 15 Net Income (loss) from discontinued operations.................... $ - $ 26 </TABLE> The net assets to be disposed are carried at their expected net realizable values and have been separately classified in the accompanying balance sheet at March 31, 2001. The 2000 balance sheet has been restated to conform with the current year's presentation. 5
NOTE D - NET INCOME PER SHARE The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income per common and common equivalent share: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31 2001 2000 ---- ---- <S> <C> <C> Number of weighted average common shares outstanding...................................... 13,933,612 13,554,272 Assumed exercise of stock options................................. 841,534 182,086 ------------ ------------ Average diluted shares outstanding................................ 14,775,146 13,736,358 ============ ============ </TABLE> In applying the treasury stock method to determine the dilutive effect of the stock options outstanding during the first quarter of 2001, the average market price of $19.29 was used. NOTE E - COMPREHENSIVE INCOME (LOSS) Comprehensive income for the three months ended March 31, 2001 and 2000 is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31 2001 2000 ---- ---- <S> <C> <C> Net income (Loss)................................................. $5,140 $686 Translation adjustment......................................... 354 141 -------- ----- Comprehensive Income (Loss).................................... $5,494 $827 ======== ===== </TABLE> NOTE F - INDUSTRY SEGMENTS The Company manages its operations through three divisions; Fluids, Well Abandonment/Decommissioning and Testing & Services. The segment information for the prior period has been restated to reflect the restructuring of the Company that took place in 2000. The Company's Fluids Division manufactures and markets clear brine fluids to the oil and gas industry for use in well drilling, completion and workover operations in both domestic and international markets. The division also markets the fluids and dry calcium chloride manufactured at its production facilities to a variety of markets outside the energy industry. The Well Abandonment/Decommissioning Division provides a complete package of services required for the abandonment of depleted oil and gas wells and the decommissioning of platforms, pipelines and other associated equipment. The division services the onshore, inland waters and offshore markets of the Gulf of Mexico. The Division is also an oil and gas producer from wells acquired in connection with its well abandonment and decommissioning business. The Company's Testing & Services Division provides production testing services to the Texas, Louisiana, offshore Gulf of Mexico and Latin American markets. It also provides technology and services required for the separation and recycling of oily residuals generated from petroleum refining and exploration and production operations. The Company evaluates performance and allocates resources based on profit or loss from operations before income taxes and non-recurring charges. 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 operating units. Other includes corporate expenses, non-recurring charges and elimination of intersegment revenues. 6
Summarized financial information concerning the business segments from continuing operations is as follows: <TABLE> <CAPTION> (In Thousands) WELL ABANDON/ TESTING FLUIDS DECOMM. & SERVICES OTHER CONSOLIDATED ------------- ------------- ------------- ------------- ---------------- <S> <C> <C> <C> <C> <C> THREE MONTHS ENDED MARCH 31, 2001 Revenues from external customers Products $ 32,748 $ 4,985 $ 1,784 $ - $ 39,517 Services and Rentals 3,804 16,279 12,997 - 33,080 Intersegmented Revenues 314 3 - (317) - ------------- ------------- ------------- ------------- ---------------- Total Revenues 36,866 21,267 14,781 (317) 72,597 ============= ============= ============= ============= ================ Income before taxes and discontinued operations 4,989 3,033 4,103 (3,919) 8,206 Total Assets $122,144 $78,939 $58,927 $25,883 $285,893 THREE MONTHS ENDED MARCH 31, 2000 Revenues from external customers Products $24,563 $2,503 $1,853 $ - $ 28,919 Services and Rentals 4,969 10,437 6,584 - 21,990 Intersegmented Revenues 332 - - (332) - ------------- ------------- ------------- ------------- ---------------- Total Revenues 29,864 12,940 8,437 (332) 50,909 ============= ============= ============= ============= ================ Income before taxes and discontinued operations 2,238 641 1,312 (3,159) 1,032 Total Assets $131,847 $55,655 $44,480 $55,442 $287,424 </TABLE> ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three months ended March 31, 2001 compared with three months ended March 31, 2000. Total revenues for the quarter ended March 31, 2001 were $72.6 million compared to $50.9 million in the prior year's quarter, an increase of $21.7 million or 43%. The Fluids Division revenues were $36.9 million, an increase of $7.0 million or 23% over the prior year. Every group within the division realized increased revenues as a result of improved oil and gas completion and workover activity in the Gulf of Mexico, improved pricing and a tightening fluids supply market. The Well Abandonment/Decommissioning Division reported revenues of $21.3 million, up $8.3 million or 64%. This division expanded its equipment base during the prior year and has realized significant increases in equipment utilization during the period. In addition, revenues of the division's exploitation Company, Maritech Resources, Inc., have grown by 170% as a result of oil and gas production acquired or developed in conjunction with our expanding well abandonment and decommissioning business. The Testing & Services Division revenues were $14.8 million, up $6.3 million or 75% from the prior year. Revenue increases in this division are the result of improved market conditions driven by strong natural gas drilling and improved pricing. Gross profit margin for the quarter was $19.0 million, up $7.7 million or 68% from the prior year's quarter of $11.3 million. Gross profit percentage also improved, to 26.1% compared to 22.1%. Improved pricing and equipment utilization were the major factors driving this increase. 7
General and administrative expenses were $10.1 million, up slightly from the 2000 level of $9.2 million. Costs increased primarily in the major growth areas of the Company, plug and abandonment/decommissioning and production testing. During the fourth quarter of 1999, the Company initiated a strategic restructuring program to refocus its efforts in the energy services business. This program concentrated the Company's efforts on developing its oil and gas services business and selling or consolidating non-core chemical operations. The Company's strategy was to dispose of the micronutrients business as well as other non strategic chemical operations. During 2000, the Company sold the manganese sulfate portion of the micronutrients business and reported the remainder of that business as a discontinued operation. It also exited other non-core businesses. As a result of this 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 three months ended March 31, 2001. <TABLE> <CAPTION> 12/31/00 3/31/01 LIABILITY CASH LIABILITY BALANCE PAYMENTS BALANCE --------- -------- --------- <S> <C> <C> <C> Involuntary termination costs............... $ 293 $ 73 $ 220 Contractual costs........................... 760 60 700 Exit costs.................................. 117 - 117 ------- ------ ------- $1,170 $133 $1,037 ====== ==== ====== </TABLE> Involuntary termination costs consist of severance costs associated with the termination of management level employees associated with the Company's restructuring. Contractual costs include obligations triggered in two chemicals product lines when the Company decided to exit these businesses. The remaining exit costs are additional liabilities realized by exiting certain portions of the specialty chemicals business. Of the total restructuring charge at March 31, 2001, approximately $0.8 million is associated with the Fluids Division, and $0.2 million with corporate administrative activities. The majority of these costs are expected to be paid within the next 12 months and will be funded using cash flow from operations. Interest expense for the 2001 quarter was $0.6 million compared to $1.0 million in the prior year. Reduced interest rates and long term debt balances resulted in this decrease. Income before discontinued operations was $5.1 million in the quarter ended March 31, 2001 compared to $0.7 million in 2000, an increase of $4.4 million. Net income per diluted share before discontinued operations was $0.35 in 2001 on 14,775,000 average diluted shares outstanding and $0.05 in 2000 on 13,736,000 average diluted shares outstanding. In the fourth quarter of 2000, the Company approved a plan to exit the micronutrients business. This business has been reported as a discontinued operation in the accompanying financial statement, with the prior years restated. In the 2000 quarter, income from discontinued operations was reported as $0.03 million, net of tax benefit. LIQUIDITY AND CAPITAL RESOURCES The Company's investment in working capital, excluding cash, cash equivalents and restricted cash, was $53.9 million at March 31, 2001 compared to $59.0 million at December 31, 2000, a decrease of $5.1 million. Accounts receivables increased approximately $9.6 million, due to the increased activity in the well abandonment/decommissioning, production testing and CBF businesses. Inventories were down $3.1 million, mainly in the bromides and chlorides operations as a result of increased sales. Accounts payables and accrued expenses increased in the Gulf Coast and Well Abandonment/Decommissioning groups as a result of increased activity. 8
To fund its capital and working capital requirements, the Company uses cash flow as well as its general purpose, secured, prime rate/LIBOR based line of credit with a syndicate of banks led by Bank of America. As of March 31, 2001, the Company had $2.6 million in letters of credit and $46 million in long term debt outstanding. The line of credit matures in 2002. The Company's credit facility 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's existing credit facility includes 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 credit facility will meet all its capital and working capital requirements. Capital expenditures during the three months ended March 31, 2001 totaled approximately $5.2 million. Significant components include the purchase of additional oil and gas production testing equipment and well abandonment/ decommissioning equipment as well as Process Services equipment. The Company believes that its existing funds, cash generated by operations, funds available under its recently renegotiated 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 expenditures through 2001 and thereafter. CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD LOOKING STATEMENTS Certain statements contained herein and elsewhere may be deemed to be forward-looking within the meaning of The Private Securities Litigation Reform Act of 1995 and are subject to the "safe harbor" provisions of that act, including without limitation, statements concerning future sales, earnings, costs, expenses, acquisitions or corporate combinations, asset recoveries, working capital, capital expenditures, financial condition, and other results of operations. Such statements involve risks and uncertainties. Actual results could differ materially from the expectations expressed in such forward-looking statements. Some of the risk factors that could affect the Company's actual results and cause actual results to differ materially from any such results that might be projected, forecast, estimated or budgeted by the Company in such forward-looking statements are set forth in the section titled "Certain Business Risks" contained in the Company's report on Form 10-K for the year ended December 31, 2000. 9
PART II OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS The Company, its subsidiaries and other related companies are named as 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 10.8 Amendment to nonqualified Stock option Agreement dated December 11, 1998 with Allen T. McInnes A statement of computation of per share earnings is included in Note D to the Notes to Consolidated Financial Statements included in this report and is incorporated be reference into Part II of this report. (b) Reports on Form 8-K: None 10
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: April 30, 2001 By: /s/ Geoffrey M. Hertel ------------------------------------ Geoffrey M. Hertel Chief Operating Officer Chief Financial Officer (Principal Financial Officer) Date: April 30, 2001 By: /s/ Bruce A. Cobb ------------------------------------ Bruce A. Cobb Vice President, Finance 11