-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FeclMwVgTfZO7XmvHUTY09y4VVJkCnEuIwt6tKIAKz5iKyjixJWwle58rMs9H2+n Nq4fWdMC6eWo+gVe2Sqd1A== 0000950129-98-004753.txt : 19981118 0000950129-98-004753.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950129-98-004753 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TETRA TECHNOLOGIES INC CENTRAL INDEX KEY: 0000844965 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 742148293 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13455 FILM NUMBER: 98752450 BUSINESS ADDRESS: STREET 1: 25025 I-45N CITY: WOODLANDS STATE: TX ZIP: 77380 BUSINESS PHONE: 7133671983 MAIL ADDRESS: STREET 1: 25025 I-45 NORTH CITY: WOODLANDS STATE: TX ZIP: 77380 10-Q 1 TETRA TECHNOLOGIES, INC. - DATED 09/30/1998 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 September 30, 1998 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 November 7, 1998 there were 13,550,718 shares of the Company's common stock, $.01 par value per share, issued and outstanding. ================================================================================ 2 ITEM 1. FINANCIAL STATEMENTS TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ----------------------- 1998 1997 1998 1997 --------- --------- --------- --------- ($ THOUSANDS) Revenues: Product sales $ 31,639 $ 40,796 $ 114,827 $ 110,295 Services 20,675 19,647 68,610 49,412 --------- --------- --------- --------- TOTAL REVENUES 52,314 60,443 183,437 159,707 Cost of Revenues: Cost of product sales 24,345 32,412 85,859 81,359 Cost of services 15,250 12,918 49,696 34,207 --------- --------- --------- --------- Total Cost of Revenues 39,595 45,330 135,555 115,566 --------- --------- --------- --------- GROSS PROFIT 12,719 15,113 47,882 44,141 General and Administrative Expense 10,144 11,798 29,844 28,534 --------- --------- --------- --------- OPERATING INCOME 2,575 3,315 18,038 15,607 Interest Expense 1,809 799 4,473 2,095 Interest Income 41 48 112 155 Equity in Earnings from Joint Ventures 0 67 0 290 Other Income (expense) (168) 252 (507) 749 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 639 2,883 13,170 14,706 Provision for Income Taxes 248 1,173 5,130 5,717 --------- --------- --------- --------- NET INCOME $ 391 $ 1,710 $ 8,040 $ 8,989 ========= ========= ========= ========= NET INCOME PER SHARE $ 0.03 $ 0.13 $ 0.59 $ 0.67 ========= ========= ========= ========= AVERAGE SHARES 13,551 13,391 13,577 13,325 ========= ========= ========= ========= NET INCOME PER DILUTED SHARE $ 0.03 $ 0.12 $ 0.57 $ 0.63 ========= ========= ========= ========= AVERAGE DILUTED SHARES 13,784 14,257 14,101 14,158 ========= ========= ========= =========
See Notes to Consolidated Financial Statements -1- 3 TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, ($ THOUSANDS) 1998 1997 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,469 $ 2,839 Trade accounts receivable, net of allowance for doubtful accounts of $889 in 1998 and $1,023 in 1997 61,349 56,893 Costs and estimated earnings in excess of billings on incomplete contracts 6,707 4,021 Inventories 56,591 38,715 Deferred tax assets 1,309 1,444 Prepaid expenses and other current assets 4,863 6,012 --------- --------- Total Current Assets 133,288 109,924 PROPERTY, PLANT AND EQUIPMENT: Land and building 15,851 12,777 Machinery and Equipment 104,329 72,514 Automobiles and trucks 11,997 10,538 Chemical plants 47,722 46,791 Construction in progress 25,388 27,231 --------- --------- 205,287 169,851 Less accumulated depreciation and amortization (58,883) (48,868) --------- --------- Net Property, Plant, and Equipment 146,404 120,983 OTHER ASSETS: Cost in excess of net assets acquired, net of accumulated amortization of $2,326 in 1998 and $1,805 in 1997 26,378 24,983 Other, net of accumulated amortization of $3,252 in 1998 and $2,987 in 1997 7,741 7,902 --------- --------- Total Other Assets 34,119 32,885 --------- --------- $ 313,811 $ 263,792 ========= =========
See Notes to Consolidated Financial Statements -2- 4 TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1998 1997 --------- --------- ($ THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 26,819 $ 26,181 Accrued expenses 17,906 14,114 Billings in excess of costs and estimated earnings on incomplete contracts 337 244 Current portions of all long-term debt and capital lease obligations 1,057 1,309 --------- --------- Total Current Liabilities 46,119 41,848 LONG-TERM DEBT, LESS CURRENT PORTION 114,000 77,000 CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 1,313 1,525 DEFERRED INCOME TAXES 13,224 13,365 OTHER LIABILITIES 944 474 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.01 per share 40,000,000 shares authorized, with 13,609,418 shares issued and outstanding in 1998 and 13,480,956 shares issued and outstanding in 1997 136 135 Additional paid-in capital 77,279 75,902 Treasury stock, at cost, 58,700 shares in 1998 (736) -- Accumulated other comprehensive income (134) (86) Retained earnings 61,666 53,629 --------- --------- Total Stockholders' Equity 138,211 129,580 --------- --------- $ 313,811 $ 263,792 ========= =========
See Notes to Consolidated Financial Statements -3- 5 TETRA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- ($ THOUSANDS) 1998 1997 ---------- ---------- OPERATING ACTIVITIES: Net Income $ 8,040 $ 8,989 Adjustments to reconcile net income to net cash provided by operating activities : Depreciation and amortization 11,829 8,104 Undistributed earnings from joint venture -- (290) Provision for deferred income taxes (6) 245 Provision for doubtful accounts 72 124 Gain on sale of property, plant and equipment (50) (215) Non-recurring charge 3,000 Changes in operating assets and liabilities, net of assets acquired : Trade accounts receivable (2,201) (11,575) Costs and estimated earnings in excess of billings on incomplete contracts (2,686) (1,311) Inventories (17,577) (11,882) Prepaid expenses and other current assets (1,178) (1,058) Trade accounts payable and accrued expenses 4,430 7,706 Billings in excess of costs and estimated earnings on incomplete contracts 93 (258) Other 20 (1,456) ---------- ---------- Net cash provided by operating activities 786 123 ---------- ---------- INVESTING ACTIVITIES: Purchases of property, plant and equipment (36,825) (30,829) Business combinations, net of cash acquired (2,112) -- Decrease in other assets 161 -- Proceeds from sale of property, plant and equipment 441 676 ---------- ---------- Net cash used by investing activities (38,335) (30,153) ---------- ---------- FINANCING ACTIVITIES: Net repayments and borrowings from short-term credit lines -- (2,202) Proceeds from long-term debt and capital lease obligations 38,650 34,987 Principal payments on long-term debt and capital lease obligations (2,113) (4,400) Proceeds from sale of common stock and exercised stock options 642 2,371 ---------- ---------- Net cash provided by financing activities 37,179 30,756 ---------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (370) 726 CASH & INVESTMENTS AT BEGINNING OF PERIOD 2,839 2,829 ---------- ---------- CASH & INVESTMENTS AT END OF PERIOD $ 2,469 $ 3,555 ========== ==========
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, 1997. 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, 1998 and 1997 was $4,984,000 and $2,344,000, respectively. Income tax payments made during the nine months ended September 30, 1998 and 1997 were $2,677,000 and $2,742,000, respectively. 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 During the third quarter of 1998, the Company acquired from Cargill, Inc., the assets of its calcium chloride facility located near Amboy, California. The Business, which utilizes solar evaporation and other techniques to produce three grades of calcium chloride from underground brine reserves, will be integrated into the Specialty Chemicals Division. The Company paid approximately $2.1 million cash for the assets of the facility. The excess purchase price over the fair market value of the assets acquired was approximately $1.9 million. The Company completed two acquisitions during the third quarter of 1997. The outstanding stock of Perfco Wireline, Inc. and C & T Unlimited, Inc. (collectively, "Perfco") was acquired in exchange for 146,116 shares of TETRA stock valued at approximately $4.0 million, plus additional consideration contingent upon future earnings. Perfco is an electric wireline service company operating primarily in the Gulf Coast region and was integrated into the Oil & Gas Services Division. The Company also acquired the remaining 50% interest in its RETEC-TETRA L.C. joint venture that it did not previously own. RETEC-TETRA, renamed TETRA Process Services L.C., will continue to be part of the Specialty Chemicals Division. The Company paid approximately $8.8 million for the remaining stock. The excess of the purchase price over the book value of the net assets was approximately $3.9 million for Perfco and $3.0 million for RETEC-TETRA. -5- 7 All acquisitions by the Company have been accounted for as purchases, with operations of the companies and businesses acquired included in the accompanying consolidated financial statements from their respective dates of acquisition. The purchase price has been allocated to the acquired assets and liabilities based on a preliminary determination of their respective fair values. The excess of the purchase price over the fair value of the net assets acquired is included in goodwill and amortized over 40 years. Pro forma information for these acquisitions has not been presented, as such amounts are not material. 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:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Number of weighted average common shares outstanding ................ 13,550,718 13,390,690 13,577,055 13,235,120 Assumed exercise of stock options .......... 233,672 866,518 524,077 922,767 ---------- ---------- ---------- ---------- Average diluted shares outstanding ......... 13,784,390 14,257,208 14,101,132 14,157,887 ========== ========== ========== ==========
In applying the treasury stock method to determine the dilutive effect of the stock options outstanding during the third quarter of 1998, the average market price of $13.41 was used. NOTE E - NEW ACCOUNTING PRONOUNCEMENTS Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("FAS 130"). FAS 130 establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income includes all changes in equity except those resulting from investments by owners and distributions to owners. Other comprehensive income for the Company includes cumulative foreign currency translation adjustments. No taxes are provided because cumulative translation adjustments are considered a component of permanently invested unremitted earnings of subsidiaries outside the United States. Comprehensive income for the three months ended September 30, 1998 and 1997 was $0.4 million and $1.7 million, respectively and for the nine months ended September 30, 1998 and 1997 is $8.0 million and $8.5 million, respectively. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in years beginning after June 15, 1999. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company. In April 1998, the AICPA issued SOP98-5, Reporting the Costs of Start-up Activities. The SOP is effective beginning on January 1, 1999, and requires that start-up costs capitalized prior to January 1, 1999 be written-off and any future start-up costs to be expensed as incurred. The unamortized balance of start-up costs will be written off as a cumulative effect of an accounting change as of January 1, 1999. The Company estimates this amount to be approximately $6 million. -6- 8 NOTE F - SHAREHOLDERS RIGHTS PLAN On October 27, 1998, the Board of Directors adopted a stockholder rights plan (the "Rights Plan") designed to assure that all of the Company's shareholders receive fair and equal treatment in the event of any proposed takeover of the Company. The Rights Plan helps to guard against partial tender offers, open market accumulations and other abusive tactics to gain control of the Company without paying an adequate and fair price in any takeover attempt. The Rights are not presently exercisable and are not represented by separate certificates. The Company is currently not aware of any effort of any kind to acquire control of the Company. Terms of the Rights Plan provide for a dividend distribution of one Preferred Stock Purchase Right for each outstanding share of Common Stock to holders of record at the close of business on November 6, 1998. The Rights Plan would be triggered if an acquiring party accumulates or initiates a tender offer to purchase 20% or more of the Company's Common Stock and would entitle holders of the Rights to purchase either the Company's stock or shares in an acquiring entity at half of market value. The Company would generally be entitled to redeem the Rights at $.01 per Right at any time until the tenth day following the time the Rights become exercisable. The Rights will expire on November 6, 2008. For a more detailed description of the Rights Plan, refer to the Company's Form 8-A filed with the Securities and Exchange Commission on October 28, 1998. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Three months ended September 30, 1998 compared with three months ended September 30, 1997. Total revenues for the quarter ended September 30, 1998 were $52.3 million compared to $60.4 million in the prior quarter, a decrease of $8.1 million or 13%. The Oil & Gas Services Division's revenues were $32.3 million in the 1998 quarter compared to $43.1 million in the 1997 quarter. The 25% decline in revenues is substantially attributable to severe weather disruptions in the Gulf of Mexico during the latter part of August and most of September. In addition, spending reductions by the Division's oil and gas customers and general weak market conditions have resulted in significantly reduced utilization of new equipment placed into service this year. The Specialty Chemicals Division revenues of $25.2 million, including intercompany, were up 21% from $20.8 million for the 1997 quarter. The Division's American Microtrace operations reported significant revenue increases resulting from improved volumes and pricing in the fertilizer markets. Additionally, the Process Technologies group also turned in increased revenues from its filtration business. The Division also benefited from the incorporation of the now wholly owned TETRA Process Services. Gross profits were $12.7 million in the 1998 quarter compared to $15.1 million in the 1997 quarter, for a decrease of $2.4 million or 16%. The gross profit percentage of revenues was 24% in 1998 versus 25% in 1997. Gross profit percentage improved in the Specialty Chemicals Division due in large part to the dramatic turnaround accomplished at the American Microtrace plant. However, reduced margins in the Oil & Gas Service Division's onshore and well abandonment business negated these gains. General and administrative expenses were $10.1 million in the third quarter of 1998 compared to $11.8 million in the third quarter of 1997. The 1997 quarter included a $2.2 million write-off associated with the American Microtrace operations. G&A costs increased in support of expanded international and onshore operations of the Oil & Gas Services Division. During the quarter, the Division has continued to implement various cost cutting and control measures, including personnel reductions, in an effort to keep its G&A costs in line with its anticipated revenue levels. The inclusion of expenses associated with acquired operations also accounted for a portion of the increase. G&A expenses as a percentage of revenues decreased from 20% in the 1997 quarter to 19% in the 1998 quarter. -7- 9 Operating income for the quarter ended September 30, 1998 was $2.6 million, down $.7 million or 21% from $3.3 million in 1997. This decrease is the combined result of a gross margin decrease of $2.0 million due to volume, a $0.4 million decrease due the lower gross margin rates, and a $1.7 million decrease in general and administrative expenses. Interest expense increased approximately $1.0 million during the current quarter compared to the prior year's quarter due to increased long-term debt over the past twelve months in support of the Company's acquisition and internal growth programs. Net income after taxes for the three months ended September 30, 1998 was $.4 million, down from the prior year's quarter of $1.7 million. Net income per diluted share was $0.03 in the 1998 quarter based on 13,784,000 average diluted shares outstanding compared to earnings in 1997 of $0.12 based on 14,257,000 average diluted shares outstanding. Nine months ended September 30, 1998 compared with nine months ended September 30, 1997. For the period ended September 30, 1998, total revenues were $183.4 million, up $23.7 million or 15% over the 1997 period of $159.7 million. The Oil & Gas Services Division's revenues of $115.8 million were up approximately 8% over the prior year's total of $107.5 million. The well abandonment business continues to suffer from weak market conditions while the domestic completion fluid business was adversely impacted from the third quarter weather activity. All other operations of the Division show revenue increases over the prior year. International completion and PayZone(TM) Drill-In fluid sales and services, wireline and well-testing businesses all provided significant revenue increases. Revenues of the Specialty Chemicals Division were up approximately 30% over 1997, from $62.5 million, including intercompany, to $81.1 million in 1998. Despite soft winter snow and ice melt demand, sales of dry calcium chloride increased from the prior year. Also contributing with strong period-to-period increases were the Process Technologies group, American Microtrace micronutrient operations and Vapor Products consumer product sales. The Division's revenues were also impacted favorably from the inclusion of the now wholly-owned TETRA Process Services. Gross profits were $47.9 million in the 1998 period compared to $44.1 million in the 1997 period, for an increase of $3.8 million or 9%. The gross profit margin percentage from operations was 26% in 1998 versus 28% in 1997. The Specialty Chemicals Division's gross profit percentage was up slightly from the prior year. Substantially improved volumes and pricing at American Microtrace helped offset reduced margins in the calcium chloride product line, the result of market pricing pressures and product mix. The profit percentage was also down in the Process Technologies group due to project and revenue mix. The gross profit percentage of the Oil & Gas Services Division also declined in response to the slowdown in the well abandonment business. General and administrative expenses were $29.8 million in the 1998 period compared to $28.5 million in the 1997 period, for an increase of $1.3 million or 5%. The 1997 period includes the write-off of $2.2 million associated with American Microtrace operations. G & A costs increased predominantly in support of expanded onshore operations of the Oil & Gas Services Division and for increased advertising of consumer products in the Specialty Chemicals Division. The inclusion of expenses associated with acquired operations also accounted for a portion of the increase. G & A expenses as a percentage of revenues decreased from 18% in the 1997 period to 16% in the 1998 period. Operating income for the nine months ended September 30, 1998 was $18.0 million, up $2.4 million or 15% from $15.6 million in 1997. This increase is the combined result of a gross margin increase of $6.2 million due to increased volume, a $2.5 million decrease due to the lower gross margin rates, and a $1.3 million increase in general and administrative expenses. Interest expense increased approximately $2.4 million during the current period compared to the prior year's period due to increased long-term debt over the past twelve months in support of the Company's acquisition and internal growth programs. -8- 10 For the nine-month period ending September 30, 1998, net income was $8 million, down 11% from the $9 million reported in 1997. Net income per diluted share was $0.57 in 1998 on 14,101,000 average diluted shares outstanding compared to earnings in 1997 of $0.63 based on 14,158,000 average diluted outstanding shares outstanding. LIQUIDITY AND CAPITAL RESOURCES The Company's investment in working capital, excluding cash and cash equivalents, increased to $84.7 million at September 30, 1998 compared to $65.2 million at December 31, 1997. Accounts receivables increased by $2.2 million, principally in the Process Technologies business. Unbilled project costs of the Process Technologies operations also increased by $2.7 million as a result of increased activity in the water treatment business and a significant increase in larger projects with longer durations. Inventories increased $17.9 million during this period, primarily in the Oil & Gas Services Division. Inventories of clear brine fluids along the Gulf of Mexico increased as did pipe inventories associated with the Division's well abandonment business. In the Specialty Chemicals Division, bromide inventories increased as the new TETRA/Dow Chemicals plant at Ludington, Michigan came on-line and dry calcium chloride and feed and fertilizer inventories increased due to the seasonality of the demand. Trade payables and accrued expenses increased during the period by $4.4 million. Oil and gas operations accounted for a substantial portion of this change resulting from inventory increases and capital equipment acquired. Increased project and construction costs in the specialty chemicals operations also contributed to this increase. To fund its capital and working capital requirements, the Company uses cash flow as well as its general purpose, unsecured, prime rate/LIBOR-based line-of-credit with a syndicate of banks led by NationsBank. As of September 30, 1998, the Company has $2 million in letters of credit and $114 million in long-term debt outstanding against a $120 million line-of-credit, leaving a net availability of $4 million. The line-of-credit matures in 2002. The Company also has 4.6 million shares of TETRA common stock available under an S-4 Shelf Registration Statement to finance its acquisitions. Major investing activities include the acquisition of a calcium chloride facility located near Amboy, California from Cargill, Inc. for approximately $2.1 million. This plant utilizes solar evaporation to produce calcium chloride from underground brine reserves. Capital expenditures during the nine months ended September 30, 1998 totaled approximately $36.8 million. Significant components include new inland water rigs, production testing equipment and well service equipment for the Oil & Gas Services Division. The Specialty Chemicals Division's expenditures included the ongoing construction of a new manganous oxide plant in Tampico, Mexico, construction of a new liquid calcium chloride facility in West Virginia and the completion of the first stage of the new TETRA/Dow Chemicals bromine derivatives plant at Ludington, Michigan. The Company believes that its existing funds, cash generated by operations, funds available under its bank line-of-credit, as well as other traditional financing arrangements, such as secured credit facilities, leases with institutional leasing companies, and vendor financing, will be sufficient to meet its current and anticipated operations and its anticipated capital expenditures through 1998 and thereafter. YEAR 2000 Many computer systems were designed and programmed in such a manner as to be unable to recognize dates beyond December 31, 1999. In such cases, computer applications could fail or create erroneous results by or at the year 2000 (the "Year 2000 Issue"). -9- 11 Management is currently evaluating the risks of a material effect on the Company's results of operations and financial condition with respect to its management information systems and the Year 2000 Issue. The Company uses application software, including its accounting software, which has been certified by vendors as being Year 2000 compliant. Additionally, the Company's mainframe and network software has also been represented as Year 2000-compliant by the suppliers. Accordingly, management does not believe that the Company's results of operations or financial condition will be materially affected by any future costs to make its management information system Year 2000-compliant. In addition to management information systems, the Company's Year 2000 risks include those related to "embedded technology", such as micro-controllers, and to the Year 2000 Issues of third parties with which the Company has material relationships. The Company has recently begun the initial phase of assessing these risks. Program costs to comply with Year 2000 requirements are being expensed as incurred and are not believed to be significant. With respect to embedded technology, this phase includes surveying each of the Company's facilities to determine which systems may be subject to disruptions. These systems may include plant equipment and instrumentation and process equipment. These systems are being modified as required and will be compliant by mid 1999. With respect to third parties, the Company is continuing to communicate with all of its significant suppliers and customers to determine the likely extent to which the Company may be affected by third parties' Year 2000 plans and target dates. In this regard, while the Company does not have a current expectation of a material loss as a result of the Year 2000 problem, there can be no guarantee that the systems of other companies or counterparts on which the Company relies will be remedied on a timely basis, or that a failure to remediate by another party, or a remediation or conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. The Company will develop contingency plans by the middle of 1999 to alter business relationships in the event certain third parties fail to become Year 2000 compliant. Management is not presently aware of any Year 2000 issue related to embedded technology or third parties that may adversely affect the Company. 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, 1997. -10- 12 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 (i) 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 -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: November 12, 1998 By: [Geoffrey M. Hertel] ------------------------- Geoffrey M. Hertel Executive Vice President - Finance and Administration (Principal Financial Officer) Date: November 12, 1998 By: [Bruce A. Cobb] ------------------------- Bruce A. Cobb, Corporate Controller (Principal Accounting Officer) -12- 14 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 2,469 0 62,238 889 56,591 133,288 205,287 58,883 313,811 46,119 115,313 0 0 136 138,075 313,811 31,639 52,314 24,345 39,595 10,144 0 1,809 639 248 391 0 0 0 391 .03 .03
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