SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
COMMISSION FILE NUMBERS 0-18335
TETRA Technologies, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
74-2148293 |
|
(State
of incorporation) |
(IRS
Employer Identification No.) |
25025 Interstate 45 North, The Woodlands, Texas 77380
(Address of principal executive offices and zip code)
(281) 367-1983
(Registrant's telephone number, including area code)
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 TWELVE 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 [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT). YES [ X ] NO [ ]
AS OF MARCH 31, 2003, THERE WERE 14,426,210 SHARES OF THE COMPANY'S COMMON STOCK, $0.01 PAR VALUE PER SHARE, ISSUED AND OUTSTANDING.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
|
Three Months Ended March 31, |
||||
2003 |
2002 |
|||
Revenues: |
||||
Product sales |
$34,448 |
$29,123 |
||
Services |
30,802 |
28,678 |
||
Total revenues |
65,250 |
57,801 |
||
|
||||
Cost of revenues: |
||||
Cost of product sales |
24,962 |
20,597 |
||
Cost of services |
26,938 |
21,693 |
||
Total cost of revenues |
51,900 |
42,290 |
||
Gross profit |
13,350 |
15,511 |
||
|
||||
General and administrative expense |
10,797 |
9,387 |
||
Operating income |
2,553 |
6,124 |
||
|
||||
Interest expense, net |
208 |
663 |
||
Other income (expense) |
583 |
385 |
||
Income before income taxes and cumulative effect of change in accounting principle |
2,928 |
5,846 |
||
|
||||
Provision for income taxes |
1,042 |
2,163 |
||
|
||||
Income before cumulative effect of change in accounting principle |
1,886 |
3,683 |
||
Cumulative effect of change in accounting principle, net of taxes |
(1,464 |
) |
– |
|
Net income |
$422 |
$3,683 |
||
|
||||
Net income per share before cumulative effect of change in accounting principle |
$0.13 |
$0.26 |
||
Cumulative effect per share of change in accounting principle |
($0.10 |
) |
– |
|
Net income per share |
$0.03 |
$0.26 |
||
Average shares |
14,426 |
14,117 |
||
|
||||
Net income per diluted share before cumulative effect of change in accounting principle |
$0.13 |
$0.25 |
||
Cumulative effect per share of change in accounting principle |
($0.10 |
) |
– |
|
Net income per diluted share |
$0.03 |
$0.25 |
||
Average diluted shares |
14,876 |
14,859 |
||
|
||||
See Notes to Consolidated Financial Statements
- 1 -
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
March 31, 2003 |
December 31, 2002 |
|||
(Unaudited) |
||||
ASSETS |
||||
Current assets: |
||||
Cash and cash equivalents |
$2,092 |
$3,366 |
||
Restricted cash |
512 |
1,753 |
||
Trade accounts receivable net of allowance for doubtful accounts of $2,323 in 2003 and $2,385 in 2002 |
64,854 |
58,544 |
||
Inventories |
34,482 |
37,428 |
||
Deferred tax assets |
3,116 |
3,284 |
||
Assets held for sale |
1,165 |
1,304 |
||
Prepaid expenses and other current assets |
7,811 |
7,064 |
||
Total current assets |
114,032 |
112,743 |
||
|
||||
Property, plant and equipment |
||||
Land and building |
14,899 |
13,085 |
||
Machinery and equipment |
160,051 |
159,291 |
||
Automobiles and trucks |
12,109 |
12,312 |
||
Chemical plants |
36,841 |
36,135 |
||
O&G producing assets |
37,892 |
30,300 |
||
Construction in progress |
5,402 |
5,975 |
||
|
267,194 |
257,098 |
||
Less accumulated depreciation and depletion |
(102,197 |
) |
(95,534 |
) |
Net property, plant and equipment |
164,997 |
161,564 |
||
|
||||
Other assets: |
||||
Cost in excess of net assets acquired, net of accumulated amortization of $3,540 in 2003 and $3,540 in 2002 |
24,382 |
24,382 |
||
Patents, trademarks and other intangible assets, net of accumulated amortization of $5,288 in 2003 and $5,054 in 2002 |
6,372 |
6,471 |
||
Other assets |
3,144 |
3,657 |
||
Total other assets |
33,898 |
34,510 |
||
|
$312,927 |
$308,817 |
See Notes to Consolidated Financial Statements
- 2 -
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
March 31, 2003 |
December 31, 2002 |
|||
(Unaudited) |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||
Current liabilities: |
||||
Trade accounts payable |
$23,631 |
$22,893 |
||
Accrued expenses |
18,072 |
17,804 |
||
Current portions of all long-term debt and capital lease obligations |
209 |
226 |
||
Total current liabilities |
41,912 |
40,923 |
||
|
||||
Long-term debt, less current portion |
27,000 |
37,000 |
||
Capital lease obligations, less current portion |
171 |
220 |
||
Deferred income taxes |
25,347 |
25,721 |
||
Decommissioning liabilities |
29,803 |
20,001 |
||
Other liabilities |
4,284 |
800 |
||
Total long-term and other liabilities |
86,605 |
83,742 |
||
|
||||
Commitments and contingencies |
||||
|
||||
Stockholders' equity: |
||||
Common stock, par value $0.01 per share; 40,000,000 shares authorized with 14,426,210 shares issued and outstanding in 2003 and 14,367,239 shares issued and outstanding in 2002 |
149 |
148 |
||
Additional paid-in capital |
93,189 |
92,702 |
||
Treasury stock, at cost; 439,698 shares in 2003 and 437,684 shares in 2002 |
(7,354 |
) |
(7,313 |
) |
Accumulated other comprehensive income |
(805 |
) |
(194 |
) |
Retained earnings |
99,231 |
98,809 |
||
Total stockholders' equity |
184,410 |
184,152 |
||
|
$312,927 |
$308,817 |
See Notes to Consolidated Financial Statements
- 3 -
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended March 31, |
||||
2003 |
2002 |
|||
Operating activities: |
||||
Net income |
$422 |
$3,683 |
||
Adjustments to reconcile net income to cash provided by operating activities: |
||||
Depreciation, depletion, accretion and amortization |
7,522 |
4,704 |
||
Provision for deferred income taxes |
602 |
– |
||
Provision for doubtful accounts |
(38 |
) |
318 |
|
Amortization of gain on leaseback |
31 |
367 |
||
Gain on sale of property, plant and equipment |
(676 |
) |
(88 |
) |
Cumulative effect of accounting change |
1,464 |
|
– |
|
Changes in operating assets and liabilities, net of assets acquired: |
||||
Trade accounts receivable |
(6,987 |
) |
12,422 |
|
Inventories |
2,946 |
(1,516 |
) |
|
Prepaid expenses and other current assets |
(747 |
) |
(1,107 |
) |
Trade accounts payable and accrued expenses |
2,733 |
(10,830 |
) |
|
Decommissioning liabilities |
742 |
(2,716 |
) |
|
Discontinued operations: working capital changes |
– |
478 |
||
Other |
(250 |
) |
(424 |
) |
Net cash provided by operating activities |
7,764 |
5,291 |
||
|
||||
Investing activities: |
||||
Purchases of property, plant and equipment |
(2,867 |
) |
(5,895 |
) |
Change in restricted cash |
1,241 |
– |
||
Decrease (increase) in other assets |
521 |
(214 |
) |
|
Proceeds from sale of property, plant and equipment |
1,686 |
1,181 |
||
Net cash provided (used) by investing activities |
581 |
(4,928 |
) |
|
|
||||
Financing activities: |
||||
Proceeds from long-term debt and capital lease obligations |
3,450 |
– |
||
Principal payments on long-term debt and capital lease obligations |
(13,516 |
) |
(12,159 |
) |
Proceeds from sale of common stock and exercised stock options |
447 |
1,782 |
||
Net cash used in financing activities |
(9,619 |
) |
(10,377 |
) |
|
||||
Decrease in cash and cash equivalents |
(1,274 |
) |
(10,014 |
) |
Cash and cash equivalents at beginning of period |
3,366 |
13,115 |
||
Cash and cash equivalents at end of period |
$2,092 |
$3,101 |
||
Supplemental cash flow information: |
||||
Capital lease obligations paid |
66 |
144 |
||
Interest paid |
798 |
740 |
||
Taxes (refunded) paid |
(277 |
) |
139 |
|
|
||||
Supplemental disclosure of non-cash investing and financing activities: |
||||
O&G properties acquired through assumption of decomm. liabilities |
9,152 |
– |
||
|
||||
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 (SEC) 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, 2002.
For the purposes of the statements of cash flows, the Company considers all highly liquid cash investments with a maturity of three months or less to be cash equivalents.
Interest paid on debt during the three months ended March 31, 2003 and 2002 was $0.8 million and $0.7 million, respectively. The difference in interest paid versus interest expense in the current quarter is due to the payment of accrued interest at 6.4% under the interest rate swap agreements that expired at December 31, 2002. The current interest rate is substantially lower than the rate under the expired swap agreements.
Income tax (refunds) payments during the three months ended March 31, 2003 and 2002 were ($0.3) million and $0.1 million, respectively.
Certain previously reported financial information has been reclassified to conform to the current quarter’s presentation.
NOTE B – COMMITMENTS AND CONTINGENCIES
The Company, its subsidiaries and other related companies are named as defendants in numerous 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 – ASSET RETIREMENT OBLIGATIONS
Effective January 1, 2003, the Company changed its method of accounting for asset retirement obligations in accordance with Statement of Financial Accounting Standards No. 143 (SFAS 143), “Accounting for Asset Retirement Obligations.” Previously, the Company had not recognized amounts related to asset retirement obligations for its non-oil and gas properties at the time they were incurred. The Company has, since the inception of its E&P business, Maritech, recorded decommissioning liabilities associated with its oil and gas properties at their undiscounted fair value and reported them as decommissioning liabilities on the balance sheet. Under the new accounting method, the Company must now calculate asset retirement obligations as the discounted fair value of future obligations. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.
- 5 -
The Company operates facilities worldwide in the manufacture, storage, and distribution of its products and services including offshore oil and gas production facilities and equipment. These facilities are a combination of owned and leased assets. The Company is required to take certain actions in connection with the retirement of these assets. The Company has reviewed its obligations in this regard in detail and estimated the cost of these actions to the extent possible. These estimates are the fair values that have been recorded for retiring these long-lived assets. These fair value amounts have been capitalized as part of the cost basis of these assets. The costs are depreciated on a straight-line basis over the life of the asset for non-oil and gas assets and on a unit of production basis for oil and gas properties.
The cumulative effect of the change on prior years resulted in a charge to income of $1.5 million (net of income taxes of $0.8 million) ($0.10 per diluted share), which is included in income for the quarter ended March 31, 2003. The effect of the change on the quarter ended March 31, 2003 was to decrease income before the cumulative effect of the accounting change by $ 0.1 million (net of taxes) ($0.01 per diluted share). The pro forma effects, net of taxes, of the application of SFAS 143 if the Statement had been adopted prior to January 1, 2002 (rather than January 1, 2003) are presented below:
Three Months Ended March 31, |
||||
2003 |
2002 |
|||
(In Thousands, Except Per Share Amounts) |
||||
Net income as reported |
$422 |
$3,683 |
||
Additional accretion and depreciation expense |
– |
(90 |
) |
|
Cumulative effect of accounting change |
1,464 |
– |
||
|
|
|||
Pro forma net income |
$1,886 |
$3,593 |
||
Pro forma net income per diluted share |
$0.13 |
$0.24 |
||
|
||||
The pro forma asset retirement obligation liability balances if SFAS 143 had been adopted on January 1, 2002 (rather than January 1, 2003) and the changes in the asset retirement obligations are as follows:
Three Months Ended March 31, |
||||
2003 |
2002 |
|||
(In Thousands) |
||||
Beginning balance for the quarter, as reported |
24,333 |
14,269 |
||
Adjustment for initial adoption of SFAS 143 |
2,029 |
1,562 |
||
Amount of liability at beginning of period, pro forma |
26,362 |
15,831 |
||
|
|
|||
Activity in the quarter: |
||||
Accretion of liability |
322 |
124 |
||
Retirement obligations incurred |
10,355 |
– |
||
Settlement of retirement obligations |
(1,212 |
) |
(2,717 |
) |
Ending balance at March 31 |
35,827 |
13,238 |
||
|
|
|||
NOTE D – ACQUISITIONS
During the first quarter of 2003, the Company’s wholly owned subsidiary, Maritech Resources, Inc., purchased oil and gas producing properties in four separate transactions. Maritech purchased oil and gas producing assets in offshore Gulf of Mexico and onshore Louisiana locations in exchange for the assumption of approximately $10.4 million in decommissioning liabilities. Oil and gas producing assets were recorded at their estimated fair market value, approximately the value of the decommissioning liabilities assumed, less cash received of $1.2 million. In addition to these acquisitions, the Company has entered into certain turnkey contracts to provide well abandonment services to various third parties.
- 6 -
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:
Three Months Ended March 31, |
||||
2003 |
2002 |
|||
Number of weighted average common shares outstanding |
14,426,210 |
14,116,504 |
||
Assumed exercise of stock options |
||||