<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1997
----------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _____________________ to ______________________
Commission file number 33-6967
-----------
HALTER MARINE GROUP, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2656828
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
13085 Industrial Seaway Road, Gulfport, Mississippi 39503
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (601)896-0029
----------------------------
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant:(1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date. 28,521,361
------------
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HALTER MARINE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
DECEMBER 31 MARCH 31
1997 1997
----------- --------
Assets (UNAUDITED)
------
Current Assets:
Cash and cash equivalents $ 51.6 $ 7.1
Contract receivables 104.6 36.1
Due from former parent company - 11.5
Costs and estimated earnings
in excess of billings on
uncompleted contracts 93.3 77.7
Inventories 15.3 10.8
Other current assets 6.1 4.5
------ --------
Total current assets 270.9 147.7
Property, plant and equipment, net 113.4 61.4
Excess of cost over net assets
acquired 79.0 -
Other assets 9.1 0.3
------ --------
$472.4 $209.4
====== ========
Liabilities and Stockholders' Equity
- --------------------------------------
Current Liabilities:
Accounts payable and accrued
liabilities $ 47.4 $ 30.6
Billings in excess of costs and
estimated earnings on
uncompleted contracts 78.4 19.9
Notes payable and current
portion of long-term debt 7.2 8.7
Deferred income taxes 4.0 2.9
------ --------
Total current liabilities 137.0 62.1
Long-term debt, less current portion 188.3 52.0
Other noncurrent liabilities 1.9 2.0
------ --------
Total liabilities 327.2 116.1
Stockholders' equity:
Common stock 0.3 0.2
Additional paid-in capital 114.0 84.2
Retained earnings 30.9 8.9
------ --------
Total stockholders' equity 145.2 93.3
------ --------
$472.4 $209.4
====== ========
See accompanying notes to consolidated financial statements.
<PAGE>
HALTER MARINE GROUP, INC.
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
NINE MONTHS
ENDED DECEMBER 31
-----------------
1997 1996
-------- -------
Contract revenue earned $480.8 $292.9
Cost of revenue earned 414.0 256.2
------ ------
Gross profit 66.8 36.7
Selling, general and
administrative expenses 27.1 15.5
Amortization of excess of
cost over net assets acquired 1.5 -
------ ------
Operating income 38.2 21.2
Other expenses:
Interest expense, net 5.0 2.4
Other, net 1.8 -
------ ------
6.8 2.4
------ ------
Income before income taxes 31.4 18.8
Income taxes 9.4 7.4
------ ------
Net income $ 22.0 $ 11.4
====== ======
Net income per share* $ 0.79 $ 0.42
====== ======
Net income per share, diluted* $ 0.76 $ 0.42
====== ======
Weighted average shares outstanding:*
Basic 27.9 27.1
Diluted 31.3 27.1
*Pro forma for 1996.
See accompanying notes to consolidated financial statements.
<PAGE>
HALTER MARINE GROUP, INC.
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED DECEMBER 31
-----------------
1997 1996
-------- -------
Contract revenue earned $180.6 $112.5
Cost of revenue earned 154.0 100.0
------ ------
Gross profit 26.6 12.5
Selling, general and
administrative expenses 10.7 5.0
Amortization of excess of
cost over net assets acquired 0.8 -
------ ------
Operating income 15.1 7.5
Other expenses:
Interest expense, net 1.8 0.7
Other, net 0.8 -
------ ------
2.6 0.7
------ ------
Income before income taxes 12.5 6.8
Income taxes 3.7 2.6
------ ------
Net income $ 8.8 $ 4.2
====== ======
Net income per share $ 0.31 $ 0.15
====== ======
Net income per share, diluted $ 0.29 $ 0.15
====== ======
Weighted average shares outstanding:
Basic 28.2 27.1
Diluted 35.7 27.2
See accompanying notes to consolidated financial statements.
<PAGE>
HALTER MARINE GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
NINE MONTHS
ENDED DECEMBER 31
----------------------
1997 1996
----------- ----------
Net cash provided (required) by
operating activities $ 45.8 $(12.0)
Cash flows from investing activities:
Purchase of subsidiaries, net
of cash acquired (88.7) -
Capital expenditures (31.3) (10.1)
Proceeds from disposals of equipment - 0.6
------- ------
Net cash required by
investing activities (120.0) (9.5)
Cash flows from financing activities:
Net borrowing from former parent
company - (51.2)
Additions to debt 248.7 -
Debt issuance costs (5.7) -
Principal payments on debt (124.4) -
Net proceeds from sale of stock .1 33.8
------- ------
Net cash provided by
financing activities 118.7 26.6
------- ------
Net increase in cash and cash equivalents 44.5 5.1
Cash and cash equivalents:
Beginning of period 7.1 0.7
------- ------
End of period $ 51.6 $ 5.8
======= ======
See accompanying notes to consolidated financial statements.
<PAGE>
HALTER MARINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1997
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month and three month periods
ended December 31, 1997 are not necessarily indicative of the results that may
be expected for the year ended March 31, 1998. The balance sheet at March 31,
1997 has been derived from the audited financial statements at that date but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Halter Marine Group, Inc. and Subsidiaries' Annual
Report on Form 10-K for the year ended March 31, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share" which is
required to be adopted for the quarter ended December 31, 1997. This Statement
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes the dilutive effects of stock options and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to SFAS No. 128 requirements.
NOTE 2--STOCK SPLIT
On September 29, 1997, the Board of Directors declared a three-for-two split
of the Company's common stock, effectuated in the form of a stock dividend paid
October 31, 1997 to shareholders of record as of October 15, 1997. As a result,
earnings per share computations and related weighted average shares outstanding
for all periods presented in the foregoing financial statements have been
adjusted to reflect the stock split.
<PAGE>
NOTE 3--RECONCILIATION OF NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income
per share:
NINE THREE
MONTHS ENDED MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------ ----------------
1997 1996 1997 1996
-------- -------- ------- -------
Numerator:
- ----------
Net Income $22.0 $11.4 $8.8 $4.2
===== ===== ==== ====
Numerator for net income
per share $22.0 $11.4 $8.8 $4.2
Effect of dilutive securities:
4 1/2% Convertible Notes 1.7 - 1.5 -
----- ----- ---- ----
Numerator for net income per
share, diluted, after
assumed conversion $23.7 $11.4 $10.3 $4.2
===== ===== ==== ====
Denominator:
- ------------
Denominator for net income
per share--weighted
average shares outstanding* 27.9 27.1 28.2 27.1
Effect of dilutive securities:
Employee Stock Options 1.2 - 1.6 .1
4 1/2% Convertible Notes 2.2 - 5.9 -
----- ----- ---- ----
Denominator for net income per
share, diluted, after assumed
conversion* 31.3 27.1 35.7 27.2
==== ==== ==== ====
Net income per share* $0.79 $0.42 $0.31 $0.15
===== ===== ===== =====
Net income per share, diluted* $0.76 $0.42 $0.29 $0.15
===== ===== ==== ====
*Pro forma for nine months ended December 31, 1996.
For additional information regarding the 4 1/2% Convertible Subordinated Notes,
refer to Note 6.
NOTE 4--ACQUISITION OF TEXAS DRYDOCK, INC.
On April 4, 1997, the Company acquired a 51% interest in and obtained an
option to acquire the remaining 49% of Texas Drydock, Inc. (TDI), a company
engaged principally in the construction, conversion and repair of offshore oil
drilling rigs. On May 16, 1997, the Company acquired the remaining 49% of TDI.
The aggregate purchase price amounted to approximately $50 million which was
paid in cash. In addition, the Company advanced TDI $4.5 million for working
capital and a fixed asset acquisition. A substantial portion of the total
purchase price was allocated to cost in excess of net assets acquired. The pro
forma unaudited results of
<PAGE>
operations for nine months and three months ended December 31, 1996, assuming
consummation of the purchase as of April 1, 1996, are as follows:
NINE MONTHS THREE MONTHS
ENDED ENDED
12/31/96 12/31/96
--------- ---------
(in millions, except per share data)
Contract revenue earned $ 374.8 $ 140.5
Net Income $ 13.4 $ 5.4
Net income per share $ .49 $ .20
Net income per share, diluted $ .49 $ .20
Pro forma weighted average
number of shares outstanding:
Basic 27.1 27.1
Diluted 27.1 27.2
NOTE 5--OTHER ACQUISITIONS
During the current quarter, the Company completed the acquisitions of four
companies, including AmClyde Engineered Products, Inc., and formed the
Engineered Products Group. The aggregate purchase price for the combined
companies was $65 million, of which approximately $35 million was paid in cash
and the balance in 835,484 shares of the Company's common stock.
In August 1997, the Company completed the acquisition of Bludworth Bond
Shipyard, Inc. which included two vessel repair yards. In January 1998, the
Company announced that it had signed a letter of intent to acquire the stock of
three companies comprising the operations of Calcasieu Shipyard, Inc., Sulphur,
Louisiana. Closing is expected during the fourth quarter of the current fiscal
year.
NOTE 6--ISSUANCE OF DEBT
On September 15, 1997, the Company completed the issuance and sale of $185.0
million aggregate principal amount of its 4 1/2% Convertible Subordinated Notes
due in 2004 (the "Notes"). The Notes are convertible, at the election of the
holder, into shares of the Company's common stock at a conversion rate
equivalent to a conversion price of $31.50 per share (adjusted for the stock
split). A portion of the proceeds from the sale of the Notes was used to repay
the Company's entire indebtedness under its senior credit facility with the
remainder to be used for general corporate purposes.
The Notes were not registered under the Securities Act of 1933, and could not
be offered or sold in the United States without registration or an applicable
exemption from the
<PAGE>
registration requirements. A registration statement covering resales of the
Notes became effective on December 30, 1997. As a result, holders of Notes who
are identified in the registration statement may make resales of the Notes, as
described in the registration statement, without any volume limitations or other
constraints normally applicable to sales of "restricted securities."
NOTE 7--CHANGE IN EFFECTIVE INCOME TAX RATE
During the second quarter of fiscal 1998, the Company lowered its estimated
annual effective tax rate to approximately 30% reflecting the anticipated
year-to-date benefit of a credit for increased research activities. The third
quarter continues to reflect an estimated annual effective tax rate of 30%.
This change in effective tax rate had the effect of increasing net income for
the nine month and three month periods ended December 31, 1997 by $3.2 million,
or $0.10 per share, diluted, and $1.2 million, or $0.03 per share, diluted,
respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain statements (other than statements of historical fact) contained in
this document are forward-looking statements. Forward-looking statements are
generally accompanied by words such as "anticipate," "believe," "estimate" or
"expect" or similar statements. Although the Company believes that the
expectations described in such forward-looking statements are reasonable, no
assurance can be given that such expectations will prove correct. Factors that
could cause the Company's results to differ materially from the results
discussed in such forward-looking statements include risks such as dependence on
U.S. Navy contracts, intense competition and contractual, labor, regulatory and
other risks in the shipbuilding industry and risks related to the market for
offshore support vessels and offshore double hull tank barges. All forward-
looking statements in this document are expressly qualified in their entirety by
the cautionary statements in this paragraph.
Financial Condition
- -------------------
Increases in balance sheet accounts at December 31, 1997 as compared to March
31, 1997 were primarily the result of the acquisitions of Texas Drydock, Inc.
(TDI) and other companies and the issuance of convertible subordinated
debentures.
<PAGE>
Results of Operations
- ---------------------
Nine Months Ended December 31 ,1997 vs.
Nine Months Ended December 31, 1996
Contract revenue earned increased by $187.9 million or 64.2% in the first nine
months of fiscal 1998 over the comparable period in fiscal 1997. This increase
was primarily the result of increased revenue from construction and repair of
energy related products ($309.3 million) offset by decreased revenue from
construction and repair of government products ($15.2 million) and construction
and repair of commercial products ($14.7 million). Of the total increase of
$187.9 million, $126.1 million, or 67.1% of the total increase, was attributable
to revenue generated from companies newly acquired in fiscal year 1998. Revenue
from construction and repair of energy related products includes all of TDI-
Halter's revenue for the period. Comparative revenue by product line for the
nine months ended December 31 is as follows:
Nine Months Ended
December 31
-----------------------------
1997 1996
------------ -------------
(in millions)
Government Products $148.3 30.8% $163.5 55.8%
Commercial Products 47.8 9.9 62.6 21.4
Energy Products 245.7 51.1 50.5 17.2
Engineered Products 8.1 1.7 - -
Other Products 30.9 6.5 16.3 5.6
----- ----- ----- -----
Total Revenue $480.8 100.0% $292.9 100.0%
===== ===== ===== =====
The gross profit margin increased to 13.9% for the first nine months of fiscal
1998 compared to 12.5% for the same period last year. The increased gross
margin was primarily due to increased revenue of higher margin business.
Selling, general and administrative expenses increased by $11.6 million in the
first nine months of fiscal 1998 as compared to the same period last year. As a
percent of contract revenue earned, these expenses increased to 5.6% for the
nine months ended December 31, 1997 from 5.3% for the same period a year ago.
The increase in expenses resulted from increased activities related to the
overall growth of the Company.
Interest expense increased $2.6 million in the first nine months of fiscal
1998 as compared to the same period in fiscal 1997 principally from the
additional borrowings incurred by the Company in connection with the acquisition
of TDI.
The decrease in the effective tax rate to approximately 30% for the first nine
months of fiscal 1998 as compared to approximately 40.0% in the same period last
year results from the
<PAGE>
anticipated benefit of income tax credits for increased research activities. The
availability of these income tax credits in future periods is uncertain.
The Company's construction backlog increased to $732.7 million at December 31,
1997, an increase of $ 308.0 million (72.5%)from December 31, 1996 and $253.9
million (53.0%)from March 31, 1997. This increase in backlog generally reflects
the growth of the Company's energy backlog which includes that of TDI-Halter
at December 31, 1997 and the addition of its new Engineered Products Group.
Three Months Ended December 31, 1997 vs.
Three Months Ended December 31, 1996
Contract revenue earned increased by $68.1 million or 60.5% for the three
months ended December 31, 1997 compared to the same period last year. This
increase was primarily the result of increased revenue from construction and
repair of energy related products ($69.0 million) which includes all of TDI-
Halter's revenue for the period and from other products ($17.2 million) which
includes all of the revenue from the Engineered Products Group, offset by
decreased revenue from construction and repair of government products ($19.7
million). Of the total increase of $68.1 million, $56.7 million, or 83.3% of
the total increase, was the result of revenue generated from companies newly
acquired in fiscal year 1998. Comparative revenue by product line for the three
months ended December 31 is as follows:
Three Months Ended
December 31
----------------------------
1997 1996
------------- ----------
(in millions)
Government Products $46.6 25.8% $66.3 59.0%
Commercial Products 22.2 12.3 20.7 18.3
Energy Products 88.7 49.1 19.7 17.5
Engineered Products 8.1 4.5 - -
Other Products 15.0 8.3 5.8 5.2
---- ------ ------ -----
Total Revenue $ 180.6 100.0% $112.5 100.0%
====== ====== ====== =====
The gross profit margin increased to 14.7% for the third quarter of fiscal
1998 compared to 11.1% in the third quarter of fiscal 1997. The third quarter of
fiscal 1998 includes new revenue from the repair and conversion of offshore
drilling rigs which generated higher margins from that experienced by other
product lines.
Selling, general and administrative expenses increased by $5.7 million in the
third quarter of fiscal 1998 as compared to the same quarter in fiscal 1997. As
a percent of contract revenue earned, these expenses increased to 5.9% for the
three months ended December 31, 1997 from 4.4% for the same period a year ago.
<PAGE>
The increase in expenses primarily resulted from inclusion of selling, general
and administrative expenses of TDI-Halter and the Engineered Products Group for
the three months and from increased activities related to the overall growth of
the Company.
Interest expense increased $1.1 million in the third quarter of fiscal 1998 as
compared to the same period in fiscal 1997 principally from the additional
borrowings incurred by the Company in connection with the acquisition of TDI.
The decrease in the effective tax rate to 30% for the third quarter of fiscal
1998 as compared to 38% for the same period in fiscal 1997 is a result of the
anticipated benefit of income tax credits arising from increased research
activities. The availability of these income tax credits in future periods is
uncertain.
Liquidity and Sources of Capital
- --------------------------------
The Company's needs for capital for the nine month and three month periods
ending December 31, 1997 resulted primarily from the acquisition of Texas
Drydock, Inc. and other companies, the acquisition of fixed assets and increased
working capital requirements as a result of the Company's growth. These needs
were funded by borrowing from the Company's existing credit facility and the
issuance of convertible subordinated notes. The Company believes that the cash
flow from operations, the remaining funds available under the existing credit
facility and excess cash generated from the Company's recent debt offering will
be sufficient to fund its requirements for working capital, capital
expenditures, acquisitions and other capital needs for at least the next twelve
months.
ITEM 3. QUALITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K. The Registrant filed the following reports on
Form 8-K during the quarter ended December 31, 1997:
<PAGE>
Date of Report Item Number and Subject Matter
- -------------- ------------------------------
October 7, 1997 Item 5 - reporting a press release announcing the Company's
pending acquisition of three companies that will form the
basis of its new Engineered Products Group subject to
certain conditions, including completion of definitive
purchase agreements and the approval of Halter's board of
directors.
October 21, 1997 Item 2 -amending the reporting on Form 8-K/A, dated July
31, 1997, which amended the reporting on Form 8-K, dated
April 4, 1997 of the purchase of fifty-one percent of the
stock of Maritime Holdings, Inc., the primary asset of which
is eighty percent of the stock of Texas Drydock, Inc. (TDI)
and the simultaneous purchase of fifty-one percent of the
other twenty percent of the issued and outstanding capital
stock of TDI; and, amended the reporting on Form 8-K, dated
May 16, 1997, of the purchase of the remaining forty-nine
percent of the issued and outstanding stock of Maritime
Holdings, Inc. and the remaining forty-nine percent of the
other twenty-percent of TDI (the name of which had been
changed to TDI-Halter, Inc.)
November 12, 1997 Item 5-Reporting replacement of the Company's existing
senior credit facility with a new senior credit facility
effective October 31, 1997; and, reporting a press release
announcing completion of its acquisition of three companies
that have formed the basis of its new Engineered Products
Group.
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.
Date: February 9, 1998 HALTER MARINE GROUP, INC.
By:/S/KEITH L.VOIGTS
--------------------------
Keith L. Voigts
Senior Vice President-Finance
As a Duly Authorized Officer
and Principal Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HALTER
MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS-DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 52
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<RECEIVABLES> 105
<ALLOWANCES> 0
<INVENTORY> 109
<CURRENT-ASSETS> 271
<PP&E> 167
<DEPRECIATION> 54
<TOTAL-ASSETS> 472
<CURRENT-LIABILITIES> 137
<BONDS> 185
0
0
<COMMON> 0
<OTHER-SE> 114
<TOTAL-LIABILITY-AND-EQUITY> 472
<SALES> 481
<TOTAL-REVENUES> 481
<CGS> 414
<TOTAL-COSTS> 29
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
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<EPS-PRIMARY> .79
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</TABLE>
