<PAGE> 1
- --------------------------------------------------------------------------------
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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 000-23225
TRANSCOASTAL MARINE SERVICES, INC.
(Exact Name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 72-1353528
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
2925 BRIARPARK DRIVE, SUITE 930, HOUSTON, TEXAS 77042
(Address of principal executive offices)
(Zip Code)
(713) 784-7429
(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 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 [ ]
The number of shares of Common Stock of the registrant, par value $.001 per
share, outstanding at August 11, 1998 was 8,898,441.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<S> <C>
PART I
FINANCIAL INFORMATION
Item 1 -- Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and
June 30, 1998.......................................... 3
Consolidated Statements of Operations for the three months
and six months ended June 30, 1997 and 1998............ 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1998........................... 5
Notes to Consolidated Financial Statements................ 6
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9
PART II
OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K.................. 13
Signature................................................... 14
</TABLE>
2
<PAGE> 3
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,416 $ 838
Contracts and accounts receivable......................... 19,214 30,615
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 3,272 5,374
Other current assets...................................... 2,964 2,324
-------- --------
Total current assets.............................. 27,866 39,151
PROPERTY AND EQUIPMENT, net................................. 66,907 86,270
GOODWILL, net............................................... 70,757 69,941
OTHER NONCURRENT ASSETS..................................... 6,287 5,912
-------- --------
Total assets...................................... $171,817 $201,274
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 2,520 $ 605
Accounts payable.......................................... 12,105 13,427
Accrued expenses.......................................... 7,860 7,516
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,651 2,681
Deferred income taxes payable............................. 291 242
-------- --------
Total current liabilities......................... 24,427 24,471
LONG-TERM DEBT, net of current maturities................... 13,471 40,391
DEFERRED INCOME TAXES....................................... 18,774 18,277
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 2,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock, $.001 par value, 20,000,000 shares
authorized, 8,898,441 shares issued and outstanding.... 9 9
Restricted common stock, $.001 par value, 3,000,000 shares
authorized, 250,000 shares issued and outstanding...... -- --
Additional paid-in capital................................ 128,375 128,375
Retained deficit.......................................... (13,277) (10,287)
Net unrealized gain on available-for-sale securities...... 38 38
-------- --------
Total stockholders' equity........................ 115,145 118,135
-------- --------
Total liabilities and stockholders' equity........ $171,817 $201,274
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
1997 1998 1997 1998
-------- -------- ------- -------
<S> <C> <C> <C> <C>
REVENUES............................................... $14,785 $48,391 $18,104 $79,169
COSTS AND EXPENSES:
Cost of revenues..................................... 12,050 36,613 15,447 60,724
Selling, general and administrative expenses......... 527 3,001 1,231 6,119
Depreciation and amortization........................ 269 2,426 455 4,682
------- ------- ------- -------
Operating income....................................... 1,939 6,351 971 7,644
OTHER INCOME (EXPENSE), net:
Interest income (expense), net....................... (5) (824) 19 (1,663)
Other income (expense), net.......................... (15) (48) 496 (1)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES............................. 1,919 5,479 1,486 5,980
PROVISION FOR INCOME TAXES............................. 103 2,765 190 2,990
------- ------- ------- -------
NET INCOME............................................. $ 1,816 $ 2,714 $ 1,296 $ 2,990
======= ======= ======= =======
PRO FORMA INFORMATION (Note 1)
Income before income taxes........................... $1 ,919 $ 1,486
Pro forma income tax................................. 901 698
------- -------
Pro forma net income................................. $ 1,018 $ 788
======= =======
EARNINGS PER SHARE (Notes 1 and 3):
Basic................................................ $ 0.45 $ 0.30 $ 0.37 $ 0.33
======= ======= ======= =======
Diluted.............................................. $ 0.44 $ 0.30 $ 0.36 $ 0.33
======= ======= ======= =======
NUMBER OF SHARES USED IN PER SHARE COMPUTATIONS:
Basic................................................ 2,267 9,148 2,151 9,148
======= ======= ======= =======
Diluted.............................................. 2,295 9,157 2,179 9,162
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
JUNE 30,
------------------
1997 1998
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,296 $ 2,990
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation and amortization.......................... 455 4,682
Gain on sale of investments............................ (517) --
Deferred income taxes.................................. 190 (547)
Other.................................................. -- 782
Changes in operating assets and liabilities --
(Increase) decrease in --
Contracts and accounts receivable................. (3,335) (11,400)
Cost and estimated earnings in excess of billings
on uncompleted contracts......................... (1,053) (2,102)
Inventory......................................... (121) --
Other current assets.............................. 207 639
Other noncurrent assets........................... (2) (473)
Increase (decrease) in --
Accounts payable and accrued expenses............. 2,468 978
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 718 1,030
------- --------
Net cash provided by (used in) operating
activities....................................... 306 (3,421)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of capital assets...................... 239 417
Capital expenditures...................................... (994) (23,580)
Proceeds from sale of investments......................... 2,028 --
------- --------
Net cash provided by (used in) investing
activities....................................... 1,273 (23,163)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on Credit Agreement........................ -- 27,600
Principal payments on notes payable....................... (327) --
Principal payments on long-term debt...................... (450) (2,594)
------- --------
Net cash provided by (used in) financing
activities....................................... (777) 25,006
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 802 (1,578)
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,117 2,416
------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,919 $ 838
======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest............................................... $ 45 $ 1,342
======= ========
Income taxes........................................... $ -- $ 458
======= ========
Non-cash investing and financing activities:
Purchase of assets through assumption of debt.......... $ 1,093 $ --
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS AND ORGANIZATION
TransCoastal Marine Services, Inc. ("TCMS") was organized in April 1996 to
create a fully integrated marine construction company focusing on transition
zone and shallow water regions of the U.S. Gulf Coast. On November 4, 1997, TCMS
acquired, simultaneously with the closing of its initial public offering (the
"Offering"), four privately owned marine construction businesses (the "Founding
Companies") and certain real properties used in the businesses of the Founding
Companies in exchange for consideration consisting of cash, common stock of TCMS
(the "Common Stock") and debt assumption. Unless otherwise indicated, all
references herein to the "Company" and "TransCoastal" include the Founding
Companies, and references to "TCMS" mean TransCoastal Marine Services, Inc.,
prior to the consummation of the acquisitions of the Founding Companies.
The Woodson Companies ("Woodson"), one of the Founding Companies, has been
identified as the "accounting acquiror" for financial statement presentation
purposes. The acquisitions of the remaining Founding Companies were accounted
for using the purchase method of accounting, with the results of operations
included from October 31, 1997, the effective closing date of the acquisitions
for accounting purposes. The allocation of purchase price to the assets acquired
and liabilities assumed has been initially assigned and recorded based on
preliminary estimates of fair value and may be revised as additional information
concerning the valuation of such assets and liabilities becomes available.
The consolidated financial statements herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission that permit certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles to be condensed or omitted. The Company believes
the presentation and disclosures herein are adequate to make the information not
misleading, and the financial statements reflect all elimination entries and
normal recurring adjustments that are necessary for a fair presentation of the
results for the three months ended and six months ended June 30, 1997 and 1998.
Operating results for interim periods are not necessarily indicative of the
results for a full year. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements of
the Company and the related notes thereto included in TransCoastal's Annual
Report on Form 10-K for the year ended December 31, 1997, as filed with the
Securities and Exchange Commission.
Pro forma net income for the three months ended and six months ended June
30, 1997 consists of the historical net income of Woodson, including two S
Corporations, adjusted for income taxes that would have been recorded had each
company operated as a C Corporation. Pro forma earnings per share for the 1997
periods reflect the pro forma adjustment to adjust for income taxes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes in the accounting policies of the
Company during the periods presented. For a description of these policies, see
Note 2 of the Notes to Consolidated Financial Statements of the Company in
TransCoastal's Annual Report on Form 10-K for the year ended December 31, 1997.
6
<PAGE> 7
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. EARNINGS PER SHARE
The following table summarizes weighted average shares outstanding for each
of the periods presented (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- -------------
1997 1998 1997 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Shares issued in the acquisition of Woodson............ 1,031 1,031 1,031 1,031
Shares issued in the formation of TCMS................. 975 975 975 975
Shares issued to the stockholders of the remaining
Founding Companies................................... -- 1,111 -- 1,111
Shares sold to certain employees....................... 258 275 143 275
Shares issued to consultants........................... 3 6 2 6
Shares sold in the Offering............................ -- 5,750 -- 5,750
----- ----- ----- -----
Weighted average shares outstanding for basic earnings
per share calculation................................ 2,267 9,148 2,151 9,148
===== ===== ===== =====
</TABLE>
The calculation of diluted earnings per share is similar to basic earnings per
share except that the denominator includes dilutive common stock equivalents
such as stock options and warrants. Weighted average shares outstanding for
calculation of diluted earnings per share totaled 2,295,000 and 9,157,000 for
the three months ended June 30, 1997 and 1998, respectively. Weighted average
shares outstanding for calculation of diluted earnings per share totaled
2,179,000 and 9,162,000 for the six months ended June 30, 1997 and 1998,
respectively.
4. BUSINESS COMBINATIONS
On November 4, 1997, TCMS acquired in separate transactions (collectively,
the "Acquisitions"), simultaneously with the closing of the Offering, the
Founding Companies and certain real properties used in the businesses of the
Founding Companies. Set forth below are unaudited pro forma combined revenues
and income data reflecting the pro forma effect of the Acquisitions on the
Company's results from operations for the three months ended and six months
ended June 30, 1997. The unaudited pro forma data presented below consists of
the income statement data from the operations of Woodson as presented in these
consolidated financial statements plus the income statement data from the
operations of the remaining Founding Companies for the three months ended and
six months ended June 30, 1997 (in thousands, except per share amounts). These
pro forma results are not necessarily indicative of the actual results which
would have occurred if the Acquisitions had taken place at the beginning of the
period presented, nor are they necessarily indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1997
------------ ----------
<S> <C> <C>
Pro forma revenues.......................................... $38,316 $54,906
Pro forma net income........................................ $ 2,498 $ 1,931
Basic and diluted income per share.......................... $ 0.27 $ 0.21
</TABLE>
Pro forma adjustments included in the amounts above primarily relate to:
(a) the issuance of Common Stock as of the beginning of the year presented for
the Offering, the Acquisitions, and for certain of its executive officers and
consultants, (b) adjustment for pro forma goodwill amortization expense using
40-year
7
<PAGE> 8
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
estimated life, (c) elimination of historical interest expense related to
certain obligations which were repaid by the Company reduced by interest expense
on borrowed funds used to pay the cash portion of the Acquisitions, and (d)
adjustment to the federal and state income tax provisions based on pro forma
results.
5. SUBSEQUENT EVENT
On August 2, 1998, the Company entered into a Stock Purchase and Merger
Agreement (the "Agreement") to acquire Dickson GMP International, Inc. and four
affiliated companies (the "Dickson Group") which specialize in the fabrication
of production systems that incorporate sophisticated piping, electrical and
instrumentation components used in the oil and gas, refinery, petrochemical and
chemical industries. Under the terms of the Agreement, TransCoastal will acquire
all outstanding stock of the Dickson Group for $10 million in cash and
approximately 1.03 million shares of TransCoastal common stock. The Agreement
provides the potential for Dickson to receive an additional $7.3 million in cash
and approximately 0.67 million shares if it achieves certain financial targets
by the end of the third quarter of 1999. Completion of the acquisition, which is
expected to occur in the third quarter of 1998, is contingent on customary
conditions including the expiration or termination of the Hart-Scott-Rodino Act
waiting period requirements. The Company plans to finance the acquisition with
credit available under its existing credit facilities.
6. NEW PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which is effective for the Company's year ending December 31, 1998.
SFAS No. 130 establishes standards for the reporting and displaying of
comprehensive income and its components. Comprehensive income equaled net income
for the three and six month periods ending June 30, 1997 and 1998.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included in Item 1 of this
Report and the consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The Company's revenues are primarily derived from providing services
related to pipeline installation and repair, hydrostatic testing and
commissioning of pipelines, and fabrication and refurbishment of offshore
drilling rigs, barge drilling rigs and structural components of fixed platforms.
To a lesser extent, the Company generates revenues from (1) the manufacture and
sale of amphibious undercarriages for marine construction equipment used in
stump-studded swamp terrain and (2) onshore environmental site assessments and
on-site remediation of petroleum-contaminated areas.
Most of the Company's services are provided under fixed-priced contracts
and are generally completed within one year. These contracts are usually
accounted for using the percentage-of-completion method of accounting. Under
this method, the percentage-of-completion is determined by comparing contract
costs incurred to date with total estimated contract costs. Any significant
revision in cost and income estimates is reflected in the accounting period in
which the facts that require the revision become known. Income is recognized by
applying the percentage completed to the projected total income for each
contract in progress. Cost of revenues consist of direct material, labor and
subcontracting costs and indirect costs related to contract performance, such as
indirect labor, supplies and tools. Cost of revenues also include the
manufacturing costs related to the amphibious undercarriages sold and costs
associated with the services provided for site assessments and remediation
activities. Selling, general and administrative expenses have historically
consisted primarily of compensation and benefits to owners as well as to sales
and administrative employees, fees for professional services and other general
office expenses. Selling, general and administrative expenses have also
historically included incentive and discretionary bonuses paid to owners,
including amounts paid in lieu of S corporation distributions to enable them to
meet their income tax obligations.
This discussion includes certain forward-looking statements, which are
identified by the use of the words "believes", "expects" and similar expressions
that contemplate future events. Numerous important factors, risks and
uncertainties affect the Company's operating results and could cause the
Company's actual results to differ materially from the results implied by these
or any other forward-looking statements made by, or on behalf of the Company.
There can be no assurance that future results will meet expectations.
The marine construction industry along the U.S. Gulf Coast is highly
seasonal as a result of weather conditions, the availability of daylight hours
and the timing of capital expenditures by oil and gas companies. Historically,
the Founding Companies have performed a substantial portion of their services
during the period from March through November, and, therefore, a
disproportionate portion of their contract revenues, gross profit and net income
generally has been earned during the second and third quarters of the calendar
year. Because of this seasonality, the Company's future full year results are
not likely to be direct multiple of any particular quarter or combination of
quarters.
Additionally, the Company's results of operations will also be affected by
the level of oil and gas exploration and development activity maintained by oil
and gas companies in the Gulf of Mexico. The level of exploration and
development activity is related to several factors, including trends of oil and
gas prices, exploration and production companies' expectations of future oil and
gas prices, and changes in technology which reduce costs and improve expected
returns on investment. With the decline in oil prices over the past three
quarters the Company has seen a slowdown in the speed at which pipeline
installation projects that cross the transition zone in the Gulf of Mexico are
moving forward. To date the decline in oil prices has had little or no impact on
the fabrication division revenues due to the fact that its major contracts are
for vessels that are schedule to be working in international waters outside the
Gulf of Mexico.
Certain risks are definitely inherent under contracts which are priced on a
fixed-price basis. The revenues, costs and gross profit realized on a contract
will often vary from the estimated amounts for various reasons, including errors
in estimates or bidding, changes in the availability and cost of labor and
material and
9
<PAGE> 10
variations in productivity from the original estimates. These variations and the
risks inherent in the marine construction industry may result in revenues and
gross profits different from those originally estimated and can result in
reduced profitability or losses on projects.
In accordance with the applicable accounting rules of the Commission,
Woodson Construction Company (collectively with three affiliated companies,
"Woodson") has been identified as the "accounting acquiror" for financial
statement presentation purposes. Consequently, the Company's historical
financial statements for periods ended on or before October 31, 1997, the
effective date of the acquisitions of the Founding Companies for accounting
purposes, are the consolidated historical financial statements of Woodson. As
used in this discussion, the "Company" means (i) Woodson prior to October 31,
1997 and (ii) TCMS and its consolidated subsidiaries on that date and
thereafter.
RESULTS OF OPERATIONS
Revenues, cost of revenues and selling, general and administrative expense
levels were all significantly higher for the three month and six month periods
ended June 30, 1998 as compared to the same periods in 1997. The operating
results for the three month and six month periods ended June 30, 1997 are the
results of operations of Woodson; whereas 1998 operating results reflect the
Company's results of operations including all Founding companies operations for
the entire periods shown.
The following table sets forth certain selected financial data of the
Company and that data as a percentage of the Company's revenues for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------
1997 1998
--------------- ---------------
<S> <C> <C> <C> <C>
Revenues........................................... $14,785 100.0% $48,391 100.0%
Cost of revenues................................... 12,050 81.5% 36,613 75.7%
Selling, general and administrative expenses....... 527 3.6% 3,001 6.2%
Depreciation and amortization...................... 269 1.8% 2,426 5.0%
------- ----- ------- -----
Operating income................................... 1,939 13.1% 6,351 13.1%
Interest income (expense), net..................... (5) 0.0% (824) - 1.7%
Other income, net.................................. (15) - 0.1% (48) - 0.1%
------- ----- ------- -----
Income before income taxes......................... 1,919 13.0% 5,479 11.3%
Provision for income taxes (1)..................... 901 6.1% 2,765 5.7%
------- ----- ------- -----
Net income......................................... $ 1,018 6.9% $ 2,714 5.6%
======= ===== ======= =====
</TABLE>
- ---------------
(1) Represents pro forma income tax for the second quarter of 1997. See Note 3
to the consolidated financial statements.
10
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------
1997 1998
---------------- ----------------
<S> <C> <C> <C> <C>
Revenues........................................ $18,104 100.0% $79,169 100.0%
Cost of revenues................................ 15,447 85.3% 60,724 76.7%
Selling, general and administrative expenses.... 1,231 6.8% 6,119 7.7%
Depreciation and amortization................... 455 2.5% 4,682 5.9%
------- ------ ------- ------
Operating income................................ 971 5.4% 7,644 9.7%
Interest income (expense), net.................. 19 0.1% (1,663) -2.1%
Other income, net............................... 496 2.7% (1) 0.0%
------- ------ ------- ------
Income before income taxes...................... 1,486 8.2% 5,980 7.6%
Provision for income taxes(1)................... 698 3.9% 2,990 3.8%
------- ------ ------- ------
Net income...................................... $ 788 4.4% $ 2,990 3.8%
======= ====== ======= ======
</TABLE>
- ---------------
(1) Represents pro forma income tax for the six months of 1997. See Note 3 to
the consolidated financial statements.
Results for the three months ended June 30, 1997 compared to the three months
ended June 30, 1998
Revenues. Revenues increased $33.6 million, or 227% for the three months
ended June 30, 1998 compared to the three months ended June 30, 1997.
Approximately $28.8 million of the increase resulted from the inclusion of
revenues from those Founding Companies for which the results of operations are
included in the Company's consolidated results from October 31, 1997, the
effective closing date of the acquisitions for accounting purposes. Two primary
factors contributed to the balance of the revenue increase: (1) stronger overall
market conditions than existed during the second quarter of 1997, and (2)
improved asset utilization.
Cost of revenues. Reflecting increased costs associated with the higher
level of revenues, cost of revenues increased $24.6 million, or 204%. Cost of
revenues, as a percentage of revenues, declined from 81.5% during the second
quarter of 1997 to 75.7% for the comparable period in 1998. The decline was
primarily due to improved utilization of equipment and higher average project
margins during the 1998 quarter.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.5 million, or 500%, for the 1998 period as
compared to the 1997 period. As a percentage of revenues, selling, general and
administrative expenses were 6.2% during the first quarter of 1998, compared to
3.6% during the first quarter of 1997.
Depreciation and amortization. Depreciation and amortization expenses
increased $2.2 million from $.3 million in 1997 to $2.4 million in 1998. The
increase was due to: (1) additional property, plant and equipment placed in
service since the first half of 1997, (2) the acquisition of equipment owned by
the Founding Companies effective November 4, 1997 under the purchase method of
accounting and (3) amortization of goodwill that originated with the
consummation of the Acquisitions on November 4, 1997.
Interest income (expense), net. Interest expense, net of interest income,
totaled $.8 million during 1998 as compared to nominal net interest expense
during 1997. The significant increase was due primarily to: (1) higher average
debt levels resulting from draw downs on the corporate revolver after the
completion of the Offering, and (2) amortization of debt issuance costs related
to the credit agreement and common stock warrants.
Results for the six months ended June 30, 1997 compared to the six months
ended June 30, 1998
Revenues. Revenues increased $61.1 million, or 337% for the six months
ended June 30, 1998 compared to the six months ended June 30, 1997.
Approximately $53.4 million of the increase resulted from the inclusion of
revenues from those Founding Companies for which the results of operations are
included in the
11
<PAGE> 12
Company's consolidated results from October 31, 1997, the effective closing date
of the acquisitions for accounting purposes. Two primary factors contributed to
the balance of the revenue increase: (1) stronger overall market conditions than
existed during the first six months of 1997, and (2) improved asset utilization.
Cost of revenues. Reflecting increased costs associated with the higher
level of revenues, cost of revenues increased $45.3 million, or 293%. Cost of
revenues, as a percentage of revenues, declined from 85.3% during the first six
months of 1997 to 76.7% for the comparable period in 1998. The decline was
primarily due to improved utilization of equipment and higher average project
margins during the 1998 quarter.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $4.9 million, or 397%, for the 1998 period as
compared to the 1997 period. As a percentage of revenues, selling, general and
administrative expenses were 7.7% during the first six months of 1998, compared
to 6.8% during the first half of 1997.
Depreciation and amortization. Depreciation and amortization expenses
increased $4.2 million from $.5 million in 1997 to $4.7 million in 1998. The
increase was due to: (1) additional property, plant and equipment placed in
service since the first half of 1997, (2) the acquisition of equipment owned by
the Founding Companies effective November 4, 1997 under the purchase method of
accounting and (3) amortization of goodwill that originated with the
consummation of the Acquisitions on November 4, 1997.
Interest income (expense), net. Interest expense, net of interest income,
totaled $1.7 million during 1998 as compared to nominal net interest income
during 1997. The significant increase in interest expense was due primarily to:
(1) higher average debt levels resulting from draw downs on the corporate
revolver after the completion of the Offering, and (2) amortization of debt
issuance costs related to the credit agreement and common stock warrants.
Other income, net. During 1997, other income consisted primarily of gains
recognized on the sale of available-for-sale securities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital improved by $11.3 million during the first
six months of 1998; increasing to $14.7 million at June 30, 1998 from $3.4
million at December 31, 1997. Net Cash used in operating activities during the
six months ended June 30, 1998 was $3.4 million, which was primarily
attributable to an increase in contracts and accounts receivables, including
cost and estimated earnings in excess of billings, and a decrease in accrued
expenses since December 31, 1997. The increase in receivables relates primarily
to the seasonality of the Company's business in which a greater percentage of
its revenues are earned in the second and third quarters of the year as weather
conditions improve and marine construction activities increase. In the fourth
quarter of 1997 revenues declined towards the end of the quarter because of
inclement weather and the normal slow down in marine construction activity which
occurs in December. The decrease in accrued expenses resulted primarily from
payments totaling approximately $1.1 million related to purchase price
obligations. Capital expenditures totaled $23.6 million during the first six
months of 1998, including $14.1 million related to the purchase of the LB-207
pipelay barge, as renamed the Vermilion Bay, and $2.2 million for the purchase
of the BB-356 bury barge. Cash consumed by operating and investing activities
were funded through additional borrowings on the revolving credit facility.
Reflecting net revolver borrowings of $27.6 million during the first six months
of 1998, the outstanding revolver balance was $37.6 million at June 30, 1998.
Borrowing capacity under the company's revolver and term loan facility at the
end of June 30, 1998 totaled $12.4 million in the aggregate.
The Company intends to continue to pursue attractive asset and corporate
acquisition opportunities; however, the timing, size or success of any
acquisitions and the resulting additional capital commitments are unpredictable.
The Company expects to fund future acquisitions primarily through a combination
of issuance of additional equity, working capital, cash flow from operations and
borrowings, including the unused portion of the credit facilities. There can be
no assurance that the Company can secure such additional financing if and when
it is needed or on terms deemed acceptable to the Company.
12
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
27. -- Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
13
<PAGE> 14
SIGNATURE
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.
TransCoastal Marine Services, Inc.
Dated: August 11, 1998 By: /s/ JOHNNIE W. DOMINGUE
----------------------------------
Johnnie W. Domingue
Chief Financial Officer
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> APR-1-1998 JAN-1-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 2,416 838
<SECURITIES> 0 0
<RECEIVABLES> 19,214 30,615
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 27,866 39,151
<PP&E> 66,907 86,270
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 171,817 201,274
<CURRENT-LIABILITIES> 24,427 24,471
<BONDS> 0 0
0 0
0 0
<COMMON> 9 9
<OTHER-SE> 115,136 118,126
<TOTAL-LIABILITY-AND-EQUITY> 171,817 201,274
<SALES> 48,391 79,169
<TOTAL-REVENUES> 48,391 79,169
<CGS> 42,040 60,724
<TOTAL-COSTS> 6,351 71,525
<OTHER-EXPENSES> 48 1
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 824 1,663
<INCOME-PRETAX> 5,479 5,980
<INCOME-TAX> 2,765 2,990
<INCOME-CONTINUING> 2,714 2,990
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,714 2,990
<EPS-PRIMARY> 0.30 0.33
<EPS-DILUTED> 0.30 0.33
</TABLE>
