<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 SEPTEMBER 30, 1998
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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
39503
13085 INDUSTRIAL SEAWAY ROAD, (ZIP CODE)
GULFPORT, MISSISSIPPI
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (228) 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. 28,858,178 as of October 31,
1998.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HALTER MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
ASSETS 1998 1998
------ ------------- ---------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ 15,715 $ 51,146
Contract receivables................................. 111,355 115,389
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 105,983 81,229
Inventories.......................................... 36,778 19,692
Other current assets................................. 5,438 5,124
-------- --------
Total current assets............................... 275,269 272,580
Property, plant, and equipment, net.................... 163,112 125,962
Excess of cost over net assets acquired................ 101,586 92,101
Other assets........................................... 8,538 8,958
-------- --------
$548,505 $499,601
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued Liabilities............. $ 59,521 $ 51,433
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 93,192 68,172
Notes payable and current portion of long-term debt.. 667 1,918
-------- --------
Total current liabilities.......................... 153,380 121,523
Long-term debt, less current portion................... 218,013 218,215
Deferred income taxes.................................. 11,526 7,025
Other noncurrent liabilities........................... 1,648 1,735
-------- --------
Total liabilities.................................. 384,567 348,498
Stockholders' Equity:
Common stock......................................... 288 288
Additional paid-in capital........................... 119,417 119,396
Retained earnings.................................... 44,233 31,419
-------- --------
Total stockholders' equity......................... 163,938 151,103
-------- --------
$548,505 $499,601
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
HALTER MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Contract revenue earned..................................... $480,557 $300,266
Cost of revenue earned...................................... 424,964 260,047
-------- --------
Gross profit.............................................. 55,593 40,219
Selling, general, and administrative expenses............... 30,218 16,451
Amortization of excess of cost over net assets acquired..... 3,244 675
-------- --------
Operating income............................................ 22,131 23,093
Other expenses:
Interest expense, net..................................... 3,895 3,150
Other, net................................................ (69) 1,044
-------- --------
3,826 4,194
-------- --------
Income before income taxes.................................. 18,305 18,899
Income taxes................................................ 5,491 5,677
-------- --------
Net income.................................................. $ 12,814 $ 13,222
======== ========
Net income per share........................................ $ 0.44 $ 0.48
======== ========
Net income per share, diluted............................... $ 0.44 $ 0.46
======== ========
Weighted average shares outstanding:
Basic..................................................... 28,835 27,675
Diluted................................................... 29,405 28,944
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HALTER MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Contract revenue earned..................................... $270,782 $151,197
Cost of revenue earned...................................... 240,929 129,544
-------- --------
Gross profit.............................................. 29,853 21,653
Selling, general, and administrative expenses............... 16,258 8,566
Amortization of excess of cost over net assets acquired..... 1,872 338
-------- --------
Operating income............................................ 11,723 12,749
Other expenses:
Interest expense, net..................................... 2,208 1,714
Other, net................................................ (35) 904
-------- --------
2,173 2,618
-------- --------
Income before income taxes.................................. 9,550 10,131
Income taxes................................................ 2,865 2,319
-------- --------
Net income.................................................. $ 6,685 $ 7,812
======== ========
Net income per share........................................ $ 0.23 $ 0.28
======== ========
Net income per share, diluted............................... $ 0.23 $ 0.27
======== ========
Weighted average shares outstanding:
Basic..................................................... 28,847 27,675
Diluted................................................... 29,259 28,933
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HALTER MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-----------------
1998 1997
------- --------
<S> <C> <C>
Net cash provided by operating activities.................... $11,622 $ 12,429
Investing activities:
Capital expenditures....................................... (45,621) (21,038)
Business acquisitions, net of cash acquired................ -- (54,825)
------- --------
Net cash required by investing activities................ (45,621) (75,863)
Financing activities:
Net proceeds from sale and issuance of stock............... 21 --
Debt issuance costs........................................ -- (5,058)
Additions to debt.......................................... -- 243,450
Principal payments on debt................................. (1,453) (120,000)
------- --------
Net cash provided (required) by financing activities..... (1,432) 118,392
------- --------
Net increase (decrease) in cash and cash equivalents......... (35,431) 54,958
Cash and cash equivalents at beginning of year............... 51,146 7,079
------- --------
Cash and cash equivalents at end of period................... $15,715 $ 62,037
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HALTER MARINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
NOTE 1--BASIS OF PRESENTATION
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 three and
six month periods ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the fiscal year ended March 31, 1999. The
balance sheet at March 31, 1998 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 audited
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, 1998.
NOTE 2--BUSINESS ACQUISITIONS
During August 1997, the Company acquired the assets of Bludworth Bond
Shipyard, Inc., Houston, Texas. During the third quarter of fiscal 1998, the
Company completed the acquisitions of four additional companies, including
AmClyde Engineered Products, Inc., and formed the Engineered Products Group.
The aggregate purchase price for these five companies was $75 million, of
which approximately $45 million was paid in cash and the balance in 835,484
shares of the Company's common stock. A substantial portion of the total
purchase price was allocated to cost in excess of net assets acquired.
The following unaudited pro forma financial information presents the
combined results of operations for the three and six months ended September
30, 1997, assuming consummation of the purchase of these companies as of April
1, 1997 and, after giving effect to the shares issued and certain adjustments,
including amortization of excess of cost over net assets acquired, increased
interest expense on debt related to the acquisitions, and related income tax
expense. This pro forma information does not necessarily reflect the results
of operations that would have occurred had the Company, along with these
companies, constituted a single entity during these periods.
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED
SEPT. 30, SEPT. 30,
1997 1997
---------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Contract revenue earned... $344,920 $167,568
======== ========
Net income................ $ 11,578 $ 5,661
======== ========
Net income per share...... $ 0.41 $ 0.20
======== ========
Net income per share,
diluted.................. $ 0.41 $ 0.20
======== ========
Proforma weighted average
number of Shares
outstanding:
Basic................... 28,510 28,510
Diluted................. 29,779 29,768
</TABLE>
6
<PAGE>
HALTER MARINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 3--SEGMENT INFORMATION
The Company classifies its business into three segments: Vessels, which
includes the new construction and repair of a wide variety of vessels for the
government, energy and commercial markets; Rigs, which includes the
construction, conversion and repair of mobile offshore drilling rigs; and
Engineered Products, which includes the design, manufacture and marketing of
cranes, derricks, winches, hoists, windlasses, jacks, linear winches,
fairleads, capstans, tuggers, locking devices, turret bearings, control
systems, and other related products used in the marine, offshore and
construction industries. The Company evaluates the performance of its segments
based upon income before interest and income taxes as these expenses are not
allocated to the segments.
Selected information as to the operations and other financial information of
the Company by segment is as follows.
Six Months Ended September 30, 1998:
<TABLE>
<CAPTION>
ENGINEERED
VESSELS RIGS PRODUCTS TOTAL
-------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Operations:
Contract revenue earned.............. $259,698 $162,655 $58,204 $480,557
Cost of revenue earned............... 236,723 139,829 48,412 424,964
-------- -------- ------- --------
Gross profit....................... 22,975 22,826 9,792 55,593
Selling, general and administrative
expenses............................ 19,758 5,960 4,500 30,218
Amortization of excess of cost over
net assets acquired................. 551 1,069 1,624 3,244
Other, net........................... (32) -- (37) (69)
-------- -------- ------- --------
Income before interest and income
taxes............................. $ 2,698 $ 15,797 $ 3,705 $ 22,200
======== ======== ======= ========
Other financial information:
Depreciation expense:
Included in cost of revenue
earned............................ $ 6,134 $ 1,323 $ 381 $ 7,838
Included in selling, general and
administrative expenses........... 493 94 46 633
-------- -------- ------- --------
$ 6,627 $ 1,417 $ 427 $ 8,471
======== ======== ======= ========
</TABLE>
Six Months Ended September 30, 1997:
<TABLE>
<CAPTION>
VESSELS RIGS TOTAL
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operations:
Contract revenue earned........................... $233,424 $66,842 $300,266
Cost of revenue earned............................ 211,295 48,752 260,047
-------- ------- --------
Gross profit.................................... 22,129 18,090 40,219
Selling, general and administrative expenses...... 13,190 3,261 16,451
Amortization of excess of cost over net assets
acquired ........................................ -- 675 675
Other, net........................................ (3) 1,047 1,044
-------- ------- --------
Income before interest and income taxes......... $ 8,942 $13,107 $ 22,049
======== ======= ========
Other financial information:
Depreciation expense:
Included in cost of revenue earned.............. $ 4,059 $ 831 $ 4,890
Included in selling, general and administrative
expenses....................................... 143 68 211
-------- ------- --------
$ 4,202 $ 899 $ 5,101
======== ======= ========
</TABLE>
7
<PAGE>
HALTER MARINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Three Months Ended September 30, 1998:
<TABLE>
<CAPTION>
ENGINEERED
VESSELS RIGS PRODUCTS TOTAL
-------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Operations:
Contract revenue earned.............. $131,999 $112,900 $25,883 $270,782
Cost of revenue earned............... 117,719 101,706 21,504 240,929
-------- -------- ------- --------
Gross profit....................... 14,280 11,194 4,379 29,853
Selling, general and administrative
expenses............................ 10,934 3,302 2,022 16,258
Amortization of excess of cost over
net assets acquired................. 349 452 1,071 1,872
Other, net........................... (17) -- (18) (35)
-------- -------- ------- --------
Income before interest and income
taxes............................. $ 3,014 $ 7,440 $ 1,304 $ 11,758
======== ======== ======= ========
Other financial information:
Depreciation expense:
Included in cost of revenue
earned............................ $ 3,077 $ 746 $ 199 $ 4,022
Included in selling, general and
administrative expenses........... 255 48 28 331
-------- -------- ------- --------
$ 3,332 $ 794 $ 227 $ 4,353
======== ======== ======= ========
</TABLE>
Three Months Ended September 30, 1997:
<TABLE>
<CAPTION>
VESSELS RIGS TOTAL
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operations:
Contract revenue earned........................... $106,287 $44,910 $151,197
Cost of revenue earned............................ 95,119 34,425 129,544
-------- ------- --------
Gross profit.................................... 11,168 10,485 21,653
Selling, general and administrative expenses...... 7,084 1,482 8,566
Amortization of excess of cost over net assets
acquired......................................... -- 338 338
Other, net........................................ (1) 905 904
-------- ------- --------
Income before interest and income taxes......... $ 4,085 $ 7,760 $ 11,845
======== ======= ========
Other financial information:
Depreciation expense:
Included in cost of revenue earned.............. $ 2,151 $ 447 $ 2,598
Included in selling, general and administrative
expenses....................................... 89 39 128
-------- ------- --------
$ 2,240 $ 486 $ 2,726
======== ======= ========
</TABLE>
As described in Note 2, the Company formed the Engineered Products Group
during the third quarter of fiscal 1998. Accordingly, there were no operating
results related to this segment during the six months and three months ended
September 30, 1997.
8
<PAGE>
HALTER MARINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Total assets and capital expenditures of the Company by segment are set
forth below.
<TABLE>
<CAPTION>
ENGINEERED
VESSELS RIGS PRODUCTS ADJUSTMENTS TOTAL
-------- -------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets:
As of Sept. 30, 1998........ $296,389 $126,815 $102,936 $19,865 $546,005
======== ======== ======== ======= ========
As of March 31, 1998........ $263,820 $102,029 $ 85,247 $48,505 $499,601
======== ======== ======== ======= ========
Capital expenditures
For six months ended:
Sept. 30, 1998............ $ 20,253 $ 23,034 $ 2,361 $ -- $ 45,648
======== ======== ======== ======= ========
Sept. 30, 1997............ $ 17,500 $ 3,539 $ -- $ -- $ 21,038
======== ======== ======== ======= ========
For three months ended:
Sept. 30, 1998............ $ 9,987 $ 4,315 $ 480 $ -- $ 14,782
======== ======== ======== ======= ========
Sept. 30, 1997............ $ 7,771 $ 1,388 $ -- $ -- $ 9,159
======== ======== ======== ======= ========
</TABLE>
For consolidation purposes, certain cash and cash equivalent balances are
allocated to corporate and are included along with other accounting
eliminations and adjustments in the Adjustments column.
NOTE 4--RECONCILIATION OF NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER
30,
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
---------------
1998 1997
------- -------
NUMERATOR:
- ----------
<S> <C> <C>
Net income.................................................... $12,814 $13,222
======= =======
Numerator for net income per share, diluted................... $12,814 $13,222
======= =======
<CAPTION>
DENOMINATOR:
- ------------
<S> <C> <C>
Denominator for net income per share-weighted average shares
outstanding.................................................. 28,835 27,675
Effect of dilutive securities:
Stock options............................................... 570 1,269
------- -------
Denominator for net income per share, diluted................. 29,405 28,944
======= =======
Net income per share.......................................... $ .44 $ .48
======= =======
Net income per share, diluted................................. $ .44 $ .46
======= =======
</TABLE>
9
<PAGE>
HALTER MARINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
---------------
1998 1997
------- -------
NUMERATOR:
- ----------
<S> <C> <C>
Net income.................................................... $ 6,685 $ 7,812
======= =======
Numerator for net income per share, diluted................... $ 6,685 $ 7,812
======= =======
<CAPTION>
DENOMINATOR:
- ------------
<S> <C> <C>
Denominator for net income per share-weighted average shares
outstanding.................................................. 28,847 27,675
Effect of dilutive securities:
Stock options............................................... 412 1,258
------- -------
Denominator for net income per share, diluted................. 29,259 28,933
======= =======
Net income per share.......................................... $ .23 $ .28
======= =======
Net income per share, diluted................................. $ .23 $ .27
======= =======
</TABLE>
NOTE 5--CHANGE IN EFFECTIVE INCOME TAX RATE
The effective tax rate for the second quarter and first six months of fiscal
1999 was 30% compared to 23% for the same quarter last year and 30% for the
first six months of fiscal 1998. During the current quarter, the Company
received a tax refund from Trinity Industries, Inc. ("Trinity") resulting from
an overpayment of income taxes paid to Trinity while the Company was a
subsidiary. Recognition of the tax refund had the effect of reducing the tax
rate for the quarter. 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 increasing
research activities. Year-to-date income tax expense for the current year
continues to reflect the anticipated benefits of this credit as well as the
tax refund from Trinity.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
All statements (other than statements of historical fact) contained in this
document concerning the Company's financial position and liquidity; results of
operations; prospects for commercial or government contracts; ability to take
advantage of new vessel construction and conversion opportunities; labor
supply and costs; selling, general and administrative costs; and other
matters, are forward-looking statements. Forward-looking statements in this
document generally are accompanied by words such as "anticipate," "believe,"
"estimate," or "expect" or similar words or phrases. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, no assurance can be given that such expectations will prove
correct. Certain of the factors that could cause the Company's results to
differ materially from the results discussed in such forward-looking
statements are discussed below. 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 September 30, 1998 as compared to
March 31, 1998 were primarily the result of the acquisition of a shipyard
facility in Orange, Texas and other purchases of fixed assets.
SIX MONTHS ENDED SEPTEMBER 30, 1998 VS.
SIX MONTHS ENDED SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
The following tables set forth certain statement of income information as a
percentage of the Company's revenue for the periods indicated:
Six Months Ended September 30,
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Contract revenue earned by business segment:
Vessels........................................ $259.7 54.0% $233.4 77.7%
Rigs........................................... 162.7 33.9 66.8 22.3
Engineered Products............................ 58.2 12.1 -- --
------ ----- ------ -----
$480.6 100.0% $300.2 100.0%
====== ===== ====== =====
Contract revenue earned by customer type:
Government: (1)
Vessels...................................... $ 77.5 16.1% $101.6 33.8%
Energy: (2)
Vessels...................................... 120.5 25.1 90.2 30.0
Rigs......................................... 162.7 33.9 66.8 22.3
------ ----- ------ -----
283.2 59.0 157.0 52.3
Commercial: (3)
Vessels...................................... 21.0 4.4 25.7 8.6
Other: (4)
Vessels...................................... 40.7 8.4 15.9 5.3
Engineered Products.......................... 58.2 12.1 -- --
------ ----- ------ -----
98.9 20.5 15.9 5.3
------ ----- ------ -----
$480.6 100.0% $300.2 100.0%
====== ===== ====== =====
</TABLE>
- --------
(1) Consists of revenue from the Company's government customers, including
the U.S. Navy, state and local governments, and foreign governments.
11
<PAGE>
(2) Consists of revenue from the construction or conversion of vessels and
the construction, conversion, and repair of mobile offshore drilling
rigs. Vessels include offshore support vessels, offshore double-hull
barges and tank barges.
(3) Consists of revenue from the Company's commercial customers and includes
vessels such as tugboats, barges, inland tow boats and other vessels.
(4) Consists of revenue from customers for the construction of yachts, vessel
repairs and assorted marine products and the design and manufacture of
engineered products.
Contract revenue increased 60.0% to $480.6 million for the six months ended
September 30, 1998 compared to $300.2 million for the six months ended
September 30, 1997. Of the $180.4 million increase, $95.9 million was
attributable to the Rigs segment as a result of revenue recognized on
contracts involving the new construction of three multi-service drill barges
and a jack-up rig, as well as increased contracts for repair and conversion of
drilling rigs. Another $58.2 million of the increase was related to revenue
generated by the Engineered Products Group which was acquired during the third
quarter of fiscal 1998. Additionally, $26.3 million of the increase was
generated by the Vessels segment as a result of an increase in contracts for
offshore support vessels.
Revenue generated from the energy customer group increased primarily as a
result of higher revenue generated by the Rigs segment as previously discussed
as well as growth in construction of offshore support vessels within the
Vessels segment. Revenue growth within the other customer group of the Vessels
segment resulted from increased vessel repair and yacht activity. The decline
in government revenue within the Vessels segment occurred as fiscal 1998
included revenue from several contracts that were reaching final stages of
completion during fiscal 1999.
The gross profit margin decreased to 11.6% for the first six months of
fiscal 1999 compared to 13.4% for the same period last year. Excluding the
Engineered Products Group, the gross margin was 10.8% for the current period.
The overall decrease in gross margin was partially a result of a decline in
the gross margin experienced in the Rigs segment principally as a result of
cost overruns associated with the new construction of three multi-service
drill barges. These cost overruns were primarily related to engineering
delays, owner changes, and production delays resulting from the effects of two
tropical storms that affected the Texas coast during the quarter.
Additionally, during the first six months of fiscal 1998, a larger percentage
of total revenue was derived from the government customer group which
generated higher profit margins thus contributing to a higher overall gross
margin for that period.
Selling, general and administrative expenses increased $13.9 million to
$30.3 million for the first six months of fiscal 1999, or 6.3% of revenue
compared to $16.4 million or 5.5% of revenue for the same period last year.
The increase is primarily a result of the overall growth of the Company during
the past year. The recently acquired Engineered Products Group added
approximately $4.5 million in expenses. The remaining increase was primarily
attributable to a $2.8 million increase in salary expense and a $3.5 million
increase in consulting expenses related to a business process improvement
project undertaken in the Vessels segment during the latter part of fiscal
1998. The Company expects to spend an additional $3.0 million on this project
during the remainder of fiscal 1999 and will consider additional amounts as
necessary.
Interest expense, net of interest income, increased $0.7 million to $3.9
million for the first six months of fiscal 1999 compared to $3.2 million for
the first six months of fiscal 1998 primarily as a result of the issuance of
$185.0 million of 4% convertible subordinated notes in September 1997 and $30
million of taxable revenue bonds in January 1998.
The effective tax rate for the first six months of fiscal 1999 was 30%
compared to 30% for the same period last year. 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 increasing research activities. The current period continues to reflect
the anticipated benefits of this credit as well as the effect of a tax refund
from Trinity Industries, Inc. ("Trinity") resulting from an overpayment of
income taxes paid to Trinity while the Company was a subsidiary.
12
<PAGE>
The Company's construction backlog of $857.1 million at September 30, 1998
increased 4.9% compared to $817.1 million at March 31, 1998 and 41.2% compared
to $607.0 million at September 30, 1997.
Backlog consisted of the following as of September 30, 1998:
<TABLE>
<CAPTION>
ENGINEERED
VESSELS RIGS PRODUCTS TOTAL
------- ------ ---------- ------
<S> <C> <C> <C> <C>
Backlog by customer type:
Government................................... $122.6 $ -- $ -- $122.6
Commercial................................... 43.0 -- -- 43.0
Energy....................................... 204.1 396.8 -- 600.9
Other........................................ 22.2 -- 68.4 90.6
------ ------ ----- ------
$391.9 $396.8 $68.4 $857.1
====== ====== ===== ======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 VS.
THREE MONTHS ENDED SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
The following tables set forth certain statement of income information as a
percentage of the Company's revenue for the periods indicated:
Three Months Ended September 30,
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Contract revenue earned by business segment:
Vessels........................................ $132.0 48.7% $106.3 70.3%
Rigs........................................... 112.9 41.7 44.9 29.7
Engineered Products............................ 25.9 9.6 -- --
------ ----- ------ -----
$270.8 100.0% $151.2 100.0%
====== ===== ====== =====
Contract revenue earned by customer type:
Government: (1)
Vessels...................................... $ 39.3 14.5% $ 43.4 28.7%
Energy: (2)
Vessels...................................... 62.9 23.2 41.0 27.1
Rigs......................................... 112.9 41.7 44.9 29.7
------ ----- ------ -----
175.8 64.9 85.9 56.8
Commercial: (3)
Vessels...................................... 8.8 3.2 14.3 9.5
Other: (4)
Vessels...................................... 21.0 7.8 7.6 5.0
Engineered Products.......................... 25.9 9.6 -- --
------ ----- ------ -----
46.9 17.4 7.6 5.0
------ ----- ------ -----
$270.8 100.0% $151.2 100.0%
====== ===== ====== =====
</TABLE>
- --------
Note: See footnote references on pages 11 and 12.
Contract revenue increased 79.1% to $270.8 million for the quarter ended
September 30, 1998 compared to $151.2 million for the quarter ended September
30, 1997. Of the $119.6 million increase, $68.0 million was attributable to
the Rigs segment as a result of revenue recognized on the new construction of
three multi-service drill barges and a jack-up rig as well as an increase in
rig repair and conversion revenue. Another $25.9 million
13
<PAGE>
was attributable to revenue generated by the Engineered Products Group which
was acquired during the third quarter of fiscal 1998. Additionally, $25.7
million of the increase was generated by the Vessels segment as a result of an
increase in contracts for offshore support vessels.
Revenue generated from the energy customer group increased primarily as a
result of higher revenue generated by the Rigs segment as previously discussed
as well as growth in construction of offshore support vessels within the
Vessels segment. Revenue growth within the other customer group of the Vessels
segment resulted from increased vessel repair and yacht activity. The decline
in government revenue within the Vessels segment occurred as fiscal 1998
included revenue from several contracts that were reaching final stages of
completion during fiscal 1999.
The gross profit margin decreased to 11.0% for the second quarter of fiscal
1999 compared to 14.3% for the second quarter of fiscal 1998. Excluding the
Engineered Products Group, the gross margin was 10.4% for the current quarter.
The overall decrease in gross margin is largely a result of a decline in the
gross margin experienced in the Rigs segment principally as a result of cost
overruns associated with the new construction of three multi-service drill
barges. These cost overruns were primarily related to engineering delays,
owner changes, and production delays resulting from the effects of two
tropical storms that affected the Texas coast during the quarter.
Selling, general and administrative expenses increased $7.6 million to $16.3
million in the second quarter of fiscal 1999, or 6.0% of revenue compared to
$8.7 million or 5.7% of revenue for the same quarter last year. The increase
is primarily a result of the overall growth of the Company during the past
year. The recently acquired Engineered Products Group added approximately $2.0
million in expenses. The remaining increase was primarily attributable to a
$1.6 million increase in salary expense and a $2.4 million increase in
consulting expenses related to a business process improvement project
undertaken in the Vessels segment during the latter part of fiscal 1998. The
Company expects to spend an additional $3.0 million on this project during the
remainder of fiscal 1999 and will consider additional amounts as necessary.
Interest expense, net of interest income, increased $0.5 million to $2.2
million for the second quarter of fiscal 1999 compared to $1.7 million for the
second quarter of fiscal 1998 primarily as a result of the issuance of $185.0
million of 4% convertible subordinated notes in September 1997 and $30 million
of taxable revenue bonds in January 1998.
The effective tax rate for the second quarter of fiscal 1999 was 30%
compared to 23% for the same period last year. During the current quarter, the
Company received a tax refund from Trinity Industries, Inc. ("Trinity")
resulting from an overpayment of income taxes paid to Trinity while the
Company was a subsidiary. Recognition of the tax refund had the effect of
reducing the tax rate for the quarter. 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 increasing research activities which resulted in a lower tax rate for that
quarter.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's needs for capital for the three and six month periods ending
September 30,1998 resulted primarily from the acquisition of fixed assets and
increased working capital requirements as a result of the Company's growth.
Additionally, during the first quarter the Company acquired a shipyard
facility in Orange, Texas. These needs were funded with cash flows from
operations and excess cash generated from the Company's debt offering and
taxable revenue bonds. The Company believes that cash flows from operations
and funds available under the existing credit facility will be sufficient to
fund its requirements for working capital, capital expenditures, acquisitions
and other capital needs for at least the next twelve months.
YEAR 2000 TECHNOLOGICAL ISSUES
The Company is currently working to assess the potential impact of the Year
2000 on the processing of time-sensitive information by its computerized
information systems and equipment. Year 2000 issues may arise if computer
programs have been written using two digits (rather than four) to define the
applicable year. In such
14
<PAGE>
case, programs that have time-sensitive logic may recognize a date using "00"
as the year 1900 rather than the Year 2000, which could result in
miscalculations or system failures.
Management plans to resolve Year 2000 issues in the following four phases:
assessment, remediation, testing and implementation. Management has
substantially completed its review and assessment of significant software used
in the Company's operations, and, to the extent practicable, in the operations
of its key business relationships such as vendors, suppliers, and financial
institutions, in order to determine if any Year 2000 risks exist that may be
material to the Company as a whole. The Company does not anticipate
significant exposure related to its vendors, suppliers, or financial
institutions.
Remediation and testing measures are currently underway and are expected to
be completed by September 1999. The Company has already begun implementing
certain measures to alter, validate or replace time-sensitive software prior
to any anticipated material impact on its computerized information systems and
equipment. Costs of addressing potential problems have not been material to
date and, based on preliminary information, are not currently expected to have
a material adverse impact on the Company's financial position, results of
operations or cash flows in future periods. The implementation phase is
expected to be completed by September 1999.
Management believes it has an effective program in place to resolve Year
2000 issues in a timely manner. The Company has not yet completed all
necessary phases of its Year 2000 plan. In the unlikely event that the Company
does not complete any additional phases, the Company would be unable to take
customer orders, manufacture and deliver products, invoice customers, collect
payments or process payments to vendors. In addition, disruptions in the
economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems product failure, for example, equipment shutdown or failure
to properly date business records. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
The Company is in the process of developing a contingency plan in the
unlikely event that material year 2000 situations arise. The Company expects
to have completed this plan by September 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K. The Registrant was not required to file any reports
on Form 8-K during the quarter ended September 30, 1998.
15
<PAGE>
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: November 13, 1998 HALTER MARINE GROUP, INC.
By: /s/ Rick Rees
----------------------------------
Rick Rees
Executive Vice President
As a Duly Authorized Officer
and Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HALTER
MARINE GROUP INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS-SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 16
<SECURITIES> 0
<RECEIVABLES> 111
<ALLOWANCES> 0
<INVENTORY> 37
<CURRENT-ASSETS> 275
<PP&E> 245
<DEPRECIATION> 82
<TOTAL-ASSETS> 549
<CURRENT-LIABILITIES> 153
<BONDS> 218
0
0
<COMMON> 0
<OTHER-SE> 164
<TOTAL-LIABILITY-AND-EQUITY> 549
<SALES> 481
<TOTAL-REVENUES> 481
<CGS> 425
<TOTAL-COSTS> 33
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 18
<INCOME-TAX> 5
<INCOME-CONTINUING> 13
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
