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, 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 September 30, 2001 there were 14,081,696 shares of the Company's common stock, $.01 par value per share, issued and outstanding
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- ($ THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2001 2000 2001 2000 --------- --------- --------- --------- <S> <C> <C> <C> <C> REVENUES: PRODUCT SALES $ 35,502 $ 27,693 $ 118,622 $ 85,499 SERVICES 41,874 26,384 112,929 75,604 --------- --------- --------- --------- TOTAL REVENUES 77,376 54,077 231,551 161,103 COST OF REVENUES: COST OF PRODUCT SALES 23,709 19,921 81,859 66,123 COST OF SERVICES 30,979 20,848 84,960 57,102 --------- --------- --------- --------- TOTAL COST OF REVENUES 54,688 40,769 166,819 123,225 --------- --------- --------- --------- GROSS PROFIT 22,688 13,308 64,732 37,878 GENERAL AND ADMINISTRATIVE EXPENSE 10,885 9,310 32,745 27,972 --------- --------- --------- --------- OPERATING INCOME 11,803 3,998 31,987 9,906 INTEREST EXPENSE, NET 422 900 1,417 2,903 OTHER INCOME (EXPENSE) (322) 275 (464) 47 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS 11,059 3,373 30,106 7,050 PROVISION FOR INCOME TAXES 4,209 1,281 11,374 2,659 --------- --------- --------- --------- INCOME BEFORE DISCONTINUED OPERATIONS 6,850 2,092 18,732 4,391 DISCONTINUED OPERATIONS: INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX EXPENSE OF $35 AND $102, RESPECTIVELY -- (94) -- 11 --------- --------- --------- --------- NET INCOME (LOSS) $ 6,850 $ 1,998 $ 18,732 $ 4,402 ========= ========= ========= ========= NET INCOME PER SHARE BEFORE DISCONTINUED OPERATIONS $ 0.49 $ 0.15 $ 1.34 $ 0.32 INCOME PER SHARE FROM DISCONTINUED OPERATIONS -- -- -- -- --------- --------- --------- --------- NET INCOME PER SHARE $ 0.49 $ 0.15 $ 1.34 $ 0.32 ========= ========= ========= ========= AVERAGE SHARES 14,082 13,620 14,023 13,582 ========= ========= ========= ========= NET INCOME PER DILUTED SHARE BEFORE DISCONTINUED OPERATIONS $ 0.46 $ 0.15 $ 1.26 $ 0.31 INCOME PER DILUTED SHARE FROM DISCONTINUED OPERATIONS -- (0.01) -- -- --------- --------- --------- --------- NET INCOME PER DILUTED SHARE $ 0.46 $ 0.14 $ 1.26 $ 0.31 ========= ========= ========= ========= AVERAGE DILUTED SHARES 14,947 14,260 14,914 14,064 ========= ========= ========= ========= </TABLE> See Notes to Consolidated Financial Statements 1
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> SEPTEMBER 30, DECEMBER 31, ($ THOUSANDS) 2001 2000 ------------- ------------ (Unaudited) <S> <C> <C> ASSETS CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 2,814 $ 6,594 TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $1,560 IN 2001 AND $930 IN 2000 82,155 63,997 INVENTORIES 36,824 34,141 DEFERRED TAX ASSETS 9,828 9,828 PREPAID EXPENSES AND OTHER CURRENT ASSETS 4,524 3,524 --------- --------- TOTAL CURRENT ASSETS 136,145 118,084 PROPERTY, PLANT AND EQUIPMENT: LAND AND BUILDING 9,286 9,924 MACHINERY AND EQUIPMENT 129,546 120,029 AUTOMOBILES AND TRUCKS 9,587 7,924 CHEMICAL PLANTS 36,120 36,223 O&G PRODUCING ASSETS 9,206 7,475 CONSTRUCTION IN PROGRESS 20,232 10,410 --------- --------- 213,977 191,985 LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (76,196) (66,480) --------- --------- NET PROPERTY, PLANT, AND EQUIPMENT 137,781 125,505 OTHER ASSETS: COST IN EXCESS OF NET ASSETS ACQUIRED, NET OF ACCUMULATED AMORTIZATION OF $3,397 IN 2001 AND $2,967 IN 2000 19,757 20,189 OTHER, NET OF ACCUMULATED AMORTIZATION OF $4,089 IN 2001 AND $3,762 IN 2000 5,388 5,406 NET ASSETS OF DISCONTINUED OPERATIONS 5,878 9,756 --------- --------- TOTAL OTHER ASSETS 31,023 35,351 --------- --------- $ 304,949 $ 278,940 ========= ========= </TABLE> See Notes to Consolidated Financial Statements 2
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> SEPTEMBER 30, DECEMBER 31, ($ THOUSANDS) 2001 2000 ------------- ------------ (Unaudited) <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: TRADE ACCOUNTS PAYABLE $ 39,150 $ 28,082 ACCRUED EXPENSES 30,803 17,488 CURRENT PORTIONS OF ALL LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 7,018 6,955 --------- --------- TOTAL CURRENT LIABILITIES 76,971 52,525 LONG-TERM DEBT, LESS CURRENT PORTION 32,268 50,166 CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 546 444 DEFERRED INCOME TAXES 20,966 20,966 DECOMMISSIONING LIABILITIES 8,013 9,165 OTHER LIABILITIES 1,509 1,920 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: COMMON STOCK, PAR VALUE $.01 PER SHARE 40,000,000 SHARES AUTHORIZED, WITH 14,081,696 SHARES ISSUED AND OUTSTANDING IN 2001 AND 13,719,607 SHARES ISSUED AND OUTSTANDING IN 2000 142 138 ADDITIONAL PAID-IN CAPITAL 83,209 79,587 TREASURY STOCK, AT COST, 94,000 SHARES IN 2001 AND IN 2000 (1,107) (1,107) ACCUMULATED OTHER COMPREHENSIVE INCOME (2,337) (901) RETAINED EARNINGS 84,769 66,037 --------- --------- TOTAL STOCKHOLDERS' EQUITY 164,676 143,754 --------- --------- $ 304,949 $ 278,940 ========= ========= </TABLE> See Notes to Consolidated Financial Statements 3
TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED ) <TABLE> <CAPTION> NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- ($ THOUSANDS) 2001 2000 -------- -------- <S> <C> <C> OPERATING ACTIVITIES: NET INCOME $ 18,732 $ 4,402 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 13,779 10,679 PROVISION FOR DEFERRED INCOME TAXES -- 42 PROVISION FOR DOUBTFUL ACCOUNTS 849 464 GAIN ON SALE OF PROPERTY, PLANT AND EQUIPMENT (167) (11) CHANGES IN OPERATING ASSETS AND LIABILITIES, NET OF ASSETS ACQUIRED: TRADE ACCOUNTS RECEIVABLE (19,007) (16,375) INVENTORIES (2,683) 6,078 PREPAID EXPENSES AND OTHER CURRENT ASSETS (1,000) 1,270 TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES 23,229 5,621 DISCONTINUED OPERATIONS: NON CASH CHARGES & WORKING CAPITAL CHANGES 3,741 1,493 OTHER (235) (249) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 37,238 13,414 -------- -------- INVESTING ACTIVITIES: PURCHASES OF PROPERTY, PLANT AND EQUIPMENT (21,602) (11,368) BUSINESS COMBINATIONS, NET OF CASH ACQUIRED (4,930) DECREASE (INCREASE) IN OTHER ASSETS (1,772) (878) PROCEEDS FROM SALE OF PROPERTY, PLANT AND EQUIPMENT 1,393 330 -------- -------- NET CASH USED BY INVESTING ACTIVITIES (26,911) (11,916) -------- -------- FINANCING ACTIVITIES: PROCEEDS FROM LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 8,591 16,094 PROCEEDS FROM LEASEBACK SALE 1,074 PRINCIPAL PAYMENTS ON LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (26,324) (19,848) PROCEEDS FROM SALE OF COMMON STOCK AND EXERCISED STOCK OPTIONS 3,626 876 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES (14,107) (1,804) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,780) (306) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,594 4,184 -------- -------- CASH & CASH EQUIVALENTS AT END OF PERIOD $ 2,814 $ 3,878 ======== ======== </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 nine months ended September 30, 2001 and 2000 was $2,479,000 and $5,594,109, respectively. Income tax payments made during the nine months ended September 30, 2001 and 2000 were $4,436,000 and $1,082,000, 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 - ACQUISITIONS In September 2001, the Company acquired the assets of Production Well Testers, Inc. (PWT) for approximately $4.9 million in cash. PWT provides production testing services to offshore Gulf of Mexico markets as well as onshore gulf coast markets. The business will be integrated with TETRA's Testing Division as part of its production testing operations, enhancing their presence in Louisiana and expanding operations into the Mississippi and Alabama markets. The acquisition has been accounted for as a purchase, with operations of the company and business acquired included in the accompanying consolidated financial statements from the dates of acquisition. The purchase price has been allocated to the acquired assets and liabilities based on a preliminary determination of its fair value. Pro forma information for this acquisition has not been presented as such amounts are not material. NOTE D - 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. Effective September 30, 2001, the Company has executed an agreement to sell the remainder of its micronutrients business. The Company has accounted for the micronutrients business as a discontinued operation and has restated prior period financial statements accordingly. 5
Summary operating results of discontinued operations are as follows: <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2001 2000 2001 2000 ------- ------- ------- ------- <S> <C> <C> <C> <C> Revenues ......................................... $ 5,164 $ 8,695 $16,249 $30,553 Income (loss) before taxes ....................... -- (152) -- 16 Provision for taxes .............................. -- 58 -- 5 Net Income (loss) from discontinued operations ... $ -- $ (94) $ -- $ 11 </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 September 30, 2001. The 2000 balance sheet has been restated to conform with the current year's presentation. NOTE E - 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 NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2001 2000 2001 2000 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Number of weighted average common shares outstanding ........... 14,081,696 13,620,099 14,023,295 13,581,735 Assumed exercise of stock options ...... 865,291 640,261 890,557 482,601 ---------- ---------- ---------- ---------- Average diluted shares outstanding ..... 14,946,987 14,260,360 14,913,852 14,064,336 ========== ========== ========== ========== </TABLE> In applying the treasury stock method to determine the dilutive effect of the stock options outstanding during the third quarter of 2001, the average market price of $22.07 was used. NOTE F - DERIVATIVES The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities as amended by SFAS No. 137 and SFAS No. 138. These statements require the Company to recognize all derivative instruments on the balance sheet at fair value and establish criteria for designation and effectiveness of hedging relationships. A fair value hedge requires that the effective portion of the change in the fair value of a derivative instrument be offset against the change in fair value of the underlying assets, liability or firm commitment being hedges through earnings. A cash flow hedge requires that the effective portion of the change in the fair value of a derivative instrument be recognized in Other Comprehensive Income (OCI), a component of the Shareholder's Equity, and reclassified into earnings in the period or periods during which the hedged transaction affects earnings. Any ineffective portion of a derivative instrument's change in fair value is immediately recognized in earnings. The Company uses interest note swap agreements to decrease the volatility of future cash flows associated with interest payments on its variable rate debt. The Company's swap agreements in effect, provide a fixed interest rate of 6.4% on its credit facility through 2002. The notional principle values of these agreements are substantially equal to the outstanding long-term debt balances. Differences between amounts paid and amounts received under the contracts are recognized in interest expense. The Company believes that its swap agreements are "highly effective cash flow hedges", as defined by the Standards, in managing the volatility of future cash flows associated with interest payments on its variable rate debt. The effective portion of the derivative's gain or loss (i.e., that portion of the derivative's gain or loss that offsets the corresponding change in the cash flows of the hedged transaction) is initially reported as a component of "accumulated other comprehensive income (loss)" and will be subsequently reclassified into earnings when the hedged exposure affects earnings (i.e., when interest expense on the debt is accrued). The "ineffective" portion of the derivative's gain or loss is recognized in earnings immediately. 6
In the third quarter of 2001, the Company recognized a decrease in the aggregate fair market value of its swap agreements, resulting from the general decline in interest rates that occurred during the period. The decrease in the aggregate fair market value of the agreements of $1.1 million (net of an income tax benefit of $0.68 million) is reflected under the caption "accumulated other comprehensive loss" in the balance sheet. NOTE G - COMPREHENSIVE INCOME (LOSS) Comprehensive income for the nine months ended September 30, 2001 and 2000 is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2001 2000 2001 2000 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net income ................................................ $ 6,850 $ 1,998 $ 18,732 $ 4,402 Decrease in fair value of interest rate swap agreements, net of a tax benefit of $680 ....................... (1,133) -- (1,133) -- Foreign currency translation adjustment ................ (229) (268) 303 (642) -------- -------- -------- -------- Comprehensive Income ................................... $ 5,488 $ 1,730 $ 17,902 $ 3,760 ======== ======== ======== ======== </TABLE> NOTE H - 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. 7
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 SEPTEMBER 30, 2001 Revenues from external customers Products $ 29,087 $ 3,581 $ 2,834 $ -- $ 35,502 Services and Rentals 4,182 22,974 14,718 -- 41,874 Intersegmented Revenues 566 157 4 (727) -- -------- -------- -------- -------- -------- Total Revenues 33,835 26,712 17,556 (727) 77,376 ======== ======== ======== ======== ======== Income before taxes and discontinued operations 5,241 4,405 5,368 (3,955) 11,059 Total Assets $133,278 $ 86,038 $ 67,799 $ 17,834 $304,949 THREE MONTHS ENDED SEPTEMBER 30, 2000 Revenues from external customers Products $ 23,204 $ 2,269 $ 2,220 $ -- $ 27,693 Services and Rentals 2,795 11,910 11,679 -- 26,384 Intersegmented Revenues 344 -- -- (344) -- -------- -------- -------- -------- -------- Total Revenues 26,343 14,179 13,899 (344) 54,077 ======== ======== ======== ======== ======== Income before taxes and discontinued operations 3,387 233 2,732 (2,979) 3,373 Total Assets $127,229 $ 61,095 $ 53,694 $ 49,412 $291,430 NINE MONTHS ENDED SEPTEMBER 30, 2001 Revenues from external customers Products $ 98,590 $ 13,210 $ 6,822 $ -- $118,622 Services and Rentals 11,412 59,345 42,172 -- 112,929 Intersegmented Revenues 1,322 410 65 (1,797) -- -------- -------- -------- -------- -------- Total Revenues 111,324 72,965 49,059 (1,797) 231,551 ======== ======== ======== ======== ======== Income before taxes and discontinued operations 17,173 11,841 13,674 (12,582) 30,106 Total Assets $133,278 $ 86,038 $ 67,799 $ 17,834 $304,949 NINE MONTHS ENDED SEPTEMBER 30, 2000 Revenues from external customers Products $ 71,744 $ 7,319 $ 6,436 $ -- $ 85,499 Services and Rentals 11,434 35,712 28,458 -- 75,604 Intersegmented Revenues 976 -- -- (976) -- -------- -------- -------- -------- -------- Total Revenues 84,154 43,031 34,894 (976) 161,103 ======== ======== ======== ======== ======== Income before taxes and discontinued operations 7,044 2,201 7,156 (9,351) 7,050 Total Assets $127,229 $ 61,095 $ 53,694 $ 49,412 $291,430 </Table> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three months ended September 30, 2001 compared with three months ended September 30, 2000. Total revenues for the quarter ended September 30, 2001 were $77.4 million compared to $54.1 million in the prior year's quarter, an increase of 43%. All three divisions of the Company recognized significant quarter to quarter increase in revenues. The Fluids Division's revenues of $33.8 million increased 28% over the prior year's quarter, reflecting stronger market conditions, year to year, as a result of improved market penetration and improved pricing. The international fluids and filtration business continued to improve based on increased activities in the United Kingdom and Mexico. The calcium chloride group of this division also continued its significant revenue growth, benefiting from tight market conditions along the Gulf Coast. The Well Abandonment/Decommissioning Division reported revenues of $26.7 million, an increase of 88% over the prior year's quarter. Stronger market conditions have resulted in improved equipment utilization, generating improved revenues for this division. Additionally, the deployment of the division's heavy lift barge, Southern Hercules, for the current quarter, substantially contributed to the incremental revenues. The Testing & Services Division reported revenues of $17.6 million, up 26% from the prior year. The Production Testing group showed significant quarter to quarter improvement based on continued strong natural gas drilling activity in the U.S. Gulf of Mexico and Mexico. Gross margin for the quarter was $22.7 million compared to $13.3 million in 2000, an increase of $9.4 million or 71%. Gross margin percentage was 29.3% in 2001, compared to 24.6% in 2000. Profit margins in the Fluids and P&A/Decommissioning Divisions improved due to pricing and equipment utilization. General and administrative expenses were $10.9 million compared to $9.3 million in 2000. G&A as a percentage of revenues was 14.1% in 2001 versus 17.2% 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. Effective September 30, 2001, the Company has entered into an agreement to sell the remainder of the micronutrients business. 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 nine months ended September 30, 2001. <TABLE> <CAPTION> 12/31/00 9/30/01 LIABILITY CASH LIABILITY BALANCE PAYMENTS BALANCE --------- -------- --------- <S> <C> <C> <C> Involuntary termination costs............... $ 293 $ 220 $ 73 Contractual costs........................... 760 88 672 Exit costs.................................. 117 64 53 ------ ------ ------ $1,170 $ 372 $ 798 ====== ====== ====== </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 September 30, 2001, approximately $0.7 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. 9
Net interest expense for the 2001 quarter was $0.4 million compared to $0.9 million in the prior year. Lower long term debt balances resulted in this decrease. Income before discontinued operations was $6.9 million in the quarter ended September 30, 2001 compared to $2.1 million in 2000, an increase of $4.8 million. Net income per diluted share before discontinued operations was $0.46 in 2001 on 14,947,000 average diluted shares outstanding and $0.15 in 2000 on 14,260,000 average diluted shares outstanding. Nine months ended September 30, 2001 compared with nine months ended September 30, 2000. Revenues for the nine months ended September 30, 2001 were $231.6 million compared to $161.1 million in 2000, an increase of $70.5 million or 44%. The Fluids Division's revenues were $111.3 million, up 32% from the prior year. Every group within the division realized increased revenues as a result of improved year to year oil and gas completion and workover activity in the Gulf of Mexico and international markets, improved pricing and a tightening fluids supply market. The Well Abandonment/Decommissioning Division reported revenues of $73 million, representing a 70% 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 current period. Revenues from the decommissioning business have increased substantially with the addition of heavy lift equipment to the group's product offerings. In addition, revenues of the division's exploitation company, Maritech Resources, Inc., have grown 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 $49.1 million, up 41% 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 $64.7 million, compared to $37.9 million in 2000, an increase of $26.8 million or 71%. Gross profit percentages improved to 28% 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 $32.7 million versus $28.0 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 $1.4 million compared to $2.9 million in the prior year. Reduced interest rates and lower long term debt balances resulted in this decrease. Income before discontinued operations was $18.7 million in the period ended September 30, 2001, compared to $4.4 million in 2000, an increase of $14.3 million. Net income per diluted share before discontinued operations was $1.26 in 2001 on 14,914,000 average diluted shares outstanding and $0.31 in 2000 on 14,064,000 average diluted shares outstanding. 10
LIQUIDITY AND CAPITAL RESOURCES The Company's investment in working capital, excluding cash, cash equivalents and restricted cash, was $56.4 million at September 30, 2001 compared to $59.0 million at December 31, 2000, a decrease of $2.6 million. Accounts receivables increased approximately $19.0 million, due to the increased activity in the well abandonment/decommissioning, production testing and fluids and filtration businesses. Inventories were up $2.7 million, mainly in the bromides and chlorides operations as a result of seasonal increases and a general slowing in drilling activity. Accounts payables and accrued expenses increased by $24.4 million in the Gulf Coast and Well Abandonment/Decommissioning groups as a result of increased activity and growth. 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 September 30, 2001, the Company had $2.7 million in letters of credit and $38.8 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. In the third quarter of 2001, the Company recognized a decrease in the aggregate fair market value of its interest rate swap agreements, resulting from the general decline in interest rates that occurred during the period. The decrease in the aggregate fair market value of the agreements of $1.1 million (net of an income tax benefit of $0.68 million) is reflected under the caption "accumulated other comprehensive loss" in the balance sheet. Capital expenditures during the nine months ended September 30, 2001 totaled approximately $21.6 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. 11
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 12
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 13, 2001 By: [GEOFFREY M. HERTEL] -------------------------- Geoffrey M. Hertel Chief Executive Officer Date: November 13, 2001 By: [JOSEPH M. ABELL] -------------------------- Joseph M. Abell Chief Financial Officer Date: November 13, 2001 By: [BRUCE A. COBB] -------------------------- Bruce A. Cobb Vice President, Finance 13