1 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 June 30, 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 June 30, 2001 there were 14,146,952 shares of the Company's common stock, $.01 par value per share, issued and outstanding
2 ITEM 1. FINANCIAL STATEMENTS TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <Table> <Caption> THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ ($ THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2001 2000 2001 2000 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> REVENUES: PRODUCT SALES $ 43,603 $ 28,887 $ 83,120 $ 57,806 SERVICES 37,975 27,230 71,055 49,220 ------------- ------------- ------------- ------------- TOTAL REVENUES 81,578 56,117 154,175 107,026 COST OF REVENUES: COST OF PRODUCT SALES 29,818 22,544 58,150 46,202 COST OF SERVICES 28,668 20,261 53,981 36,254 ------------- ------------- ------------- ------------- TOTAL COST OF REVENUES 58,486 42,805 112,131 82,456 ------------- ------------- ------------- ------------- GROSS PROFIT 23,092 13,312 42,044 24,570 GENERAL AND ADMINISTRATIVE EXPENSE 11,799 9,510 21,860 18,662 ------------- ------------- ------------- ------------- OPERATING INCOME 11,293 3,802 20,184 5,908 INTEREST EXPENSE, NET 371 1,020 996 2,003 OTHER INCOME (EXPENSE) (82) (137) (142) (228) ------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS 10,840 2,645 19,046 3,677 PROVISION FOR INCOME TAXES 4,098 1,006 7,164 1,378 ------------- ------------- ------------- ------------- INCOME BEFORE DISCONTINUED OPERATIONS 6,742 1,639 11,882 2,299 DISCONTINUED OPERATIONS: INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX EXPENSE OF $33 AND $67, RESPECTIVELY -- 79 -- 105 ------------- ------------- ------------- ------------- NET INCOME $ 6,742 $ 1,718 $ 11,882 $ 2,404 ============= ============= ============= ============= NET INCOME PER SHARE BEFORE DISCONTINUED OPERATIONS $ 0.48 $ 0.12 $ 0.85 $ 0.17 INCOME PER SHARE FROM DISCONTINUED OPERATIONS -- 0.01 -- 0.01 ------------- ------------- ------------- ------------- NET INCOME PER SHARE $ 0.48 $ 0.13 $ 0.85 $ 0.18 ============= ============= ============= ============= AVERAGE SHARES 14,053 13,570 13,994 13,562 ============= ============= ============= ============= NET INCOME PER DILUTED SHARE BEFORE DISCONTINUED OPERATIONS $ 0.45 $ 0.12 $ 0.80 $ 0.16 INCOME PER DILUTED SHARE FROM DISCONTINUED OPERATIONS -- -- 0.01 ------------- ------------- ------------- ------------- NET INCOME PER DILUTED SHARE $ 0.45 $ 0.12 $ 0.80 $ 0.17 ============= ============= ============= ============= AVERAGE DILUTED SHARES 15,018 14,194 14,897 13,965 ============= ============= ============= ============= </Table> See Notes to Consolidated Financial Statements 1
3 TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <Table> <Caption> JUNE 30, DECEMBER 31, ($ THOUSANDS) 2001 2000 -------------- -------------- (Unaudited) <S> <C> <C> ASSETS CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 4,105 $ 6,594 TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $1,241 IN 2001 AND $930 IN 2000 82,012 63,997 INVENTORIES 30,469 34,141 DEFERRED TAX ASSETS 9,828 9,828 PREPAID EXPENSES AND OTHER CURRENT ASSETS 4,403 3,524 -------------- -------------- TOTAL CURRENT ASSETS 130,817 118,084 PROPERTY, PLANT AND EQUIPMENT: LAND AND BUILDING 9,246 9,924 MACHINERY AND EQUIPMENT 122,432 120,029 AUTOMOBILES AND TRUCKS 8,811 7,924 CHEMICAL PLANTS 36,120 36,223 O&G PRODUCING ASSETS 8,539 7,475 CONSTRUCTION IN PROGRESS 17,699 10,410 -------------- -------------- 202,847 191,985 LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (73,502) (66,480) -------------- -------------- NET PROPERTY, PLANT, AND EQUIPMENT 129,345 125,505 OTHER ASSETS: COST IN EXCESS OF NET ASSETS ACQUIRED, NET OF ACCUMULATED AMORTIZATION OF $3,247 IN 2001 AND $2,967 IN 2000 19,901 20,189 OTHER, NET OF ACCUMULATED AMORTIZATION OF $3,980 IN 2001 AND $3,762 IN 2000 5,192 5,406 NET ASSETS OF DISCONTINUED OPERATIONS 6,202 9,756 -------------- -------------- TOTAL OTHER ASSETS 31,295 35,351 -------------- -------------- $ 291,457 $ 278,940 ============== ============== </Table> See Notes to Consolidated Financial Statements 2
4 TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <Table> <Caption> JUNE 30, DECEMBER 31, ($ THOUSANDS) 2001 2000 ------------- ------------- (Unaudited) <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: TRADE ACCOUNTS PAYABLE $ 39,088 $ 28,082 ACCRUED EXPENSES 24,729 17,488 CURRENT PORTIONS OF ALL LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 7,065 6,955 ------------- ------------- TOTAL CURRENT LIABILITIES 70,882 52,525 LONG-TERM DEBT, LESS CURRENT PORTION 30,901 50,166 CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 623 444 DEFERRED INCOME TAXES 20,966 20,966 DECOMMISSIONING LIABILITIES 8,009 9,165 OTHER LIABILITIES 1,591 1,920 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: COMMON STOCK, PAR VALUE $.01 PER SHARE 40,000,000 SHARES AUTHORIZED, WITH 14,052,952 SHARES ISSUED AND OUTSTANDING IN 2001 AND 13,719,607 SHARES ISSUED AND OUTSTANDING IN 2000 141 138 ADDITIONAL PAID-IN CAPITAL 82,965 79,587 TREASURY STOCK, AT COST, 94,000 SHARES IN 2001 AND IN 2000 (1,107) (1,107) ACCUMULATED OTHER COMPREHENSIVE INCOME (1,433) (901) RETAINED EARNINGS 77,919 66,037 ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 158,485 143,754 ------------- ------------- $ 291,457 $ 278,940 ============= ============= </Table> See Notes to Consolidated Financial Statements. 3
5 TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <Table> <Caption> SIX MONTHS ENDED JUNE 30, ------------------------------ ($ THOUSANDS) 2001 2000 ------------- ------------- <S> <C> <C> Operating Activities: NET INCOME $ 11,882 $ 2,404 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES : DEPRECIATION AND AMORTIZATION 9,479 7,034 PROVISION FOR DEFERRED INCOME TAXES -- 42 PROVISION FOR DOUBTFUL ACCOUNTS 516 410 GAIN ON SALE OF PROPERTY, PLANT AND EQUIPMENT (165) (5) CHANGES IN OPERATING ASSETS AND LIABILITIES, NET OF ASSETS ACQUIRED : TRADE ACCOUNTS RECEIVABLE (18,531) (13,052) INVENTORIES 3,672 5,716 PREPAID EXPENSES AND OTHER CURRENT ASSETS (879) (936) TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES 18,247 4,728 DISCONTINUED OPERATIONS: NON CASH CHARGES & WORKING CAPITAL CHANGES 3,557 4,690 OTHER (156) (120) ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 27,622 10,911 ------------- ------------- INVESTING ACTIVITIES: PURCHASES OF PROPERTY, PLANT AND EQUIPMENT (14,031) (7,652) BUSINESS COMBINATIONS, NET OF CASH ACQUIRED -- (382) DECREASE (INCREASE) IN OTHER ASSETS (1,822) (478) PROCEEDS FROM SALE OF PROPERTY, PLANT AND EQUIPMENT 1,337 259 ------------- ------------- NET CASH USED BY INVESTING ACTIVITIES (14,516) (8,253) ------------- ------------- FINANCING ACTIVITIES: PROCEEDS FROM LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 591 12,070 PROCEEDS FROM LEASEBACK SALE 1,074 PRINCIPAL PAYMENTS ON LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (19,567) (17,753) PROCEEDS FROM SALE OF COMMON STOCK AND EXERCISED STOCK OPTIONS 3,381 380 ------------- ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES (15,595) (4,229) ------------- ------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,489) (1,571) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,594 4,088 ------------- ------------- CASH & CASH EQUIVALENTS AT END OF PERIOD $ 4,105 $ 2,517 ============= ============= </Table> See Notes to Consolidated Financial Statements. 4
6 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 six months ended June 30, 2001 and 2000 was $1,865,000 and $3,464,000, respectively. Income tax payments made during the six months ended June 30, 2001 and 2000 were $1,285,000 and $21,000, 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 SIX MONTHS ENDED JUNE 30 JUNE 30 2001 2000 2001 2000 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Revenues $ 5,173 $ 9,552 $ 11,085 $ 21,858 Income (loss) before taxes -- 127 -- 168 Provision for taxes -- 48 -- 63 Net Income (loss) from discontinued operations $ -- $ 79 $ -- $ 105 </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 June 30, 2001. The 2000 balance sheet has been restated to conform with the current year's presentation. 5
7 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 SIX MONTHS ENDED JUNE 30 JUNE 30 2001 2000 2001 2000 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Number of weighted average common shares outstanding 14,052,952 13,570,413 13,993,611 13,562,343 Assumed exercise of stock options 965,460 623,722 903,839 402,904 ------------ ------------ ------------ ------------ Average diluted shares outstanding 15,018,412 14,194,135 14,897,450 13,965,247 ============ ============ ============ ============ </Table> In applying the treasury stock method to determine the dilutive effect of the stock options outstanding during the second quarter of 2001, the average market price of $24.61 was used. NOTE E - COMPREHENSIVE INCOME (LOSS) Comprehensive income for the six months ended June 30, 2001 and 2000 is as follows: <Table> <Caption> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2001 2000 2001 2000 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net income (Loss) $ 6,742 $ 1,718 $ 11,882 $ 2,404 Translation adjustment 178 (233) 532 (374) ------------ ------------ ------------ ------------ Comprehensive Income (Loss) $ 6,920 $ 1,485 $ 12,414 $ 2,030 ============ ============ ============ ============ </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 and associated filtration services 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 onshore gulf coast, 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
8 Summarized financial information concerning the business segments from continuing operations is as follows: <Table> <Caption> ($ Thousands) WELL ABANDON/ TESTING FLUIDS DECOMM. & SERVICES OTHER CONSOLIDATED ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> THREE MONTHS ENDED JUNE 30, 2001 Revenues from external customers Products $ 36,754 $ 4,644 $ 2,205 $ -- $ 43,603 Services and Rentals 3,893 20,129 13,953 -- 37,975 Intersegmented Revenues 480 214 58 (752) -- ------------- ------------- ------------- ------------- ------------- Total Revenues 41,127 24,987 16,216 (752) 81,578 ============= ============= ============= ============= ============= Income before taxes and discontinued operations 6,973 4,403 4,175 (4,711) 10,840 Total Assets $ 124,130 $ 85,147 $ 60,610 $ 21,570 $ 291,457 THREE MONTHS ENDED JUNE 30, 2000 Revenues from external customers Products $ 23,974 $ 2,549 $ 2,364 $ -- $ 28,887 Services and Rentals 3,672 13,364 10,194 -- 27,230 Intersegmented Revenues 299 -- -- (299) -- ------------- ------------- ------------- ------------- ------------- Total Revenues 27,945 15,913 12,558 (299) 56,117 ============= ============= ============= ============= ============= Income before taxes and discontinued operations 1,514 1,327 3,015 (3,211) 2,645 Total Assets $ 128,389 $ 59,501 $ 52,806 $ 45,763 $ 286,459 SIX MONTHS ENDED JUNE 30, 2001 Revenues from external customers Products $ 69,503 $ 9,629 $ 3,988 $ -- $ 83,120 Services and Rentals 7,230 36,371 27,454 -- 71,055 Intersegmented Revenues 756 253 61 (1,070) -- ------------- ------------- ------------- ------------- ------------- Total Revenues 77,489 46,253 31,503 (1,070) 154,175 ============= ============= ============= ============= ============= Income before taxes and discontinued operations 11,932 7,436 8,306 (8,628) 19,046 Total Assets $ 124,130 $ 85,147 $ 60,610 $ 21,570 $ 291,457 SIX MONTHS ENDED JUNE 30, 2000 Revenues from external customers Products $ 48,540 $ 5,050 $ 4,216 $ -- $ 57,806 Services and Rentals 8,639 23,802 16,779 -- 49,220 Intersegmented Revenues 632 -- -- (632) -- ------------- ------------- ------------- ------------- ------------- Total Revenues 57,811 28,852 20,995 (632) 107,026 ============= ============= ============= ============= ============= Income before taxes and discontinued operations 3,752 1,968 4,327 (6,370) 3,677 Total Assets $ 128,389 $ 59,501 $ 52,806 $ 45,763 $ 286,459 </Table> 7
9 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three months ended June 30, 2001 compared with three months ended June 30, 2000. Total revenues for the quarter ended June 30, 2001 were $81.6 million compared to $56.1 million in the prior year's quarter, an increase of 45%. All three divisions of the Company recognized significant quarter to quarter increase in revenues. The Fluids Division's revenues increased 47% to $41.1 million, reflecting strong market conditions in the Gulf of Mexico that resulted in increased activity and improved pricing. The international fluids and filtration business improved dramatically based on increased activities in the United Kingdom and Mexico. The calcium chloride group of this division also realized significant revenue growth, benefiting from tight market conditions along the gulf coast. The Well Abandonment/Decommissioning Division reported revenues of $25.0 million, an increase of 57% over the prior year's quarter. Stronger market conditions have resulted in improved equipment utilization, generating improved revenues for this division. The division was able to achieve these results despite having its heavy lift barge, the Southern Hercules, in dry dock most of the quarter for scheduled maintenance and Coast Guard inspections. It resumed operations in July. The Testing & Services Division reported revenues of $16.2 million, up 29% from the prior year. The Production Testing group showed significant quarter to quarter improvement based on the strong natural gas drilling activity in the U.S. Gulf of Mexico and Mexico. Gross margin for the quarter was $23.1 million compared to $13.3 million in 2000, an increase of $9.8 million or 74%. Gross margin percentage was 28.3% in 2001, compared to 23.7% in 2000. Profit margins in the Fluids and P&A/Decommissioning Divisions improved due to pricing and equipment utilization. General and administrative expenses were $11.8 million compared to $9.5 million in 2000. G&A as a percentage of revenues was 14.5% in 2001 versus 16.9% in 2000. Costs increased primarily in the major growth areas of the Company, plug and abandonment/decommissioning and production testing, and for employee benefits. 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 six months ended June 30, 2001. <Table> <Caption> 12/31/00 6/30/01 LIABILITY CASH LIABILITY BALANCE PAYMENTS BALANCE --------------- --------------- --------------- <S> <C> <C> <C> Involuntary termination costs $ 293 $ 147 $ 146 Contractual costs 760 80 680 Exit costs 117 45 72 --------------- --------------- --------------- $ 1,170 $ 272 $ 898 =============== =============== =============== </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 June 30, 2001, approximately $0.8 million is associated with the Fluids Division, and $0.1 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. 8
10 Net interest expense for the 2001 quarter was $0.4 million compared to $1.0 million in the prior year. Reduced interest rates and lower long term debt balances resulted in this decrease. Income before discontinued operations was $6.7 million in the quarter ended June 30, 2001 compared to $1.6 million in 2000, an increase of $5.1 million. Net income per diluted share before discontinued operations was $0.45 in 2001 on 15,018,000 average diluted shares outstanding and $0.12 in 2000 on 14,194,000 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. Six months ended June 30, 2001 compared with six months ended June 30, 2000. Revenues for the six months ended June 30, 2001 were $154.2 million compared to $107 million in 2000, an increase of $47.2 million or 44%. The Fluids Division's revenues were $77.5 million, up 34% from 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 and internationally, improved pricing and a tightening fluids supply market. The Well Abandonment/Decommissioning Division reported revenues of $46.3 million, representing a 60% increase over the prior year. 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 over 50% 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's revenues were $31.5 million, up 50% from the prior year. Revenue increases in this division are the result of improved market conditions driven by strong natural gas drilling, additional equipment employed and improved pricing. Gross profit margin for the period was $42 million, compared to $24.6 million in 2000, an increase of $17.4 million or 71%. Gross profit percentages improved to 27.3% versus 23% in the prior year. Margins increased significantly in the Fluids Division, driven by improved pricing, and in the Well Abandonment/Decommissioning Division, due to increased equipment utilization. General and administrative costs for the period were $21.9 million versus $18.7 million in 2000. The Company has incurred additional costs in conjunction with the expansion of the Well Abandonment/Decommissioning and Production Testing businesses as well as in the area of employee benefits. Net interest expense for the 2001 period was $1.0 million compared to $2.0 million in the prior year. Reduced interest rates and lower long term debt balances resulted in this decrease. Income before discontinued operations was $11.9 million in the period ended June 30, 2001, compared to $2.3 million in 2000, an increase of $9.6 million. Net income per diluted share before discontinued operations was $0.80 in 2001 on 14,897,000 average diluted shares outstanding and $0.16 in 2000 on 13,965,000 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. 9
11 LIQUIDITY AND CAPITAL RESOURCES The Company's investment in working capital, excluding cash, cash equivalents and restricted cash, was $55.8 million at June 30, 2001 compared to $59.0 million at December 31, 2000, a decrease of $3.2 million. Accounts receivables increased approximately $18.5 million, due to the increased activity in the well abandonment/decommissioning, production testing and CBF businesses. Inventories were down $3.6 million, mainly in the bromides and chlorides operations as a result of increased sales and improved inventory management. Accounts payables and accrued expenses increased by $18.2 million in the Gulf Coast and Well Abandonment/Decommissioning groups as a result of increased activity. 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 June 30, 2001, the Company had $2.7 million in letters of credit and $37.4 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 is in the process of renegotiating its credit facility and plans to have its new credit line in place by the end of the year. Capital expenditures during the three months ended June 30, 2001 totaled approximately $14.0 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 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. 10
12 PART II OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS The Company, its subsidiaries, certain officers 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 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 11
13 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: August 10, 2001 By: /s/ [Geoffrey M. Hertel] ----------------------------- Geoffrey M. Hertel Chief Executive Officer Date: August 10, 2001 By: /s/ [Joseph M. Abell] ----------------------------- Joseph M. Abell Chief Financial Officer Date: August 10, 2001 By: /s/ [Bruce A. Cobb] ----------------------------- Bruce A. Cobb Vice President, Finance 12