<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 SEPTEMBER 30, 1999
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>
4900 WOODWAY, SUITE 500, HOUSTON, TEXAS 77056
(Address of principal executive offices)
(Zip Code)
(713) 626-8899
(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 November 11, 1999 was 11,248,441.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999.................................... 3
Consolidated Statements of Operations for the three
months and nine months ended September 30, 1998 and
1999.................................................. 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1999.............. 5
Notes to Consolidated Financial Statements............. 6
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations... 9
Item 3 -- Quantitative and Qualitative Disclosures about
Market Risk............................................ 13
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, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,020 $ 1,711
Contracts and accounts receivable, net of allowance of
$1,182 and $4,895, respectively........................ 31,470 34,195
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 6,629 2,544
Other current assets...................................... 7,941 4,833
-------- --------
Total current assets.............................. 55,060 43,283
PROPERTY AND EQUIPMENT, net................................. 96,135 94,129
GOODWILL, net of amortization of $2,195 and $3,818,
respectively.............................................. 80,430 86,840
OTHER NONCURRENT ASSETS..................................... 4,972 5,815
-------- --------
Total assets...................................... $236,597 $230,067
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt.... $ 6,018 $ 4,594
Accounts payable.......................................... 16,949 14,586
Accrued expenses.......................................... 9,836 6,889
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 6,741 2,146
-------- --------
Total current liabilities......................... 39,544 28,215
LONG-TERM DEBT, net of current maturities................... 35,096 42,850
SUBORDINATED DEBT........................................... 20,000 20,000
DEFERRED INCOME TAXES....................................... 21,729 20,849
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK, Series A 7% redeemable cumulative, $.001
par value, 140 shares authorized, 140 shares issued and
outstanding at September 30, 1999......................... -- 140
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 1,999,860 authorized,
none issued and outstanding............................ -- --
Common stock, $.001 par value, 20,000,000 shares
authorized, 10,198,441 and 11,248,441 shares issued and
outstanding at December 31, 1998 and September 30,
1999, respectively..................................... 10 11
Restricted common stock, $.001 par value, 3,000,000 shares
authorized, 250,000 and 0 shares issued and outstanding
at December 31, 1998 and September 30, 1999,
respectively........................................... -- --
Additional paid-in capital................................ 133,899 137,230
Retained deficit.......................................... (13,699) (19,228)
Net unrealized gain on available-for-sale securities...... 18 --
-------- --------
Total stockholders' equity........................ 120,228 118,153
-------- --------
Total liabilities and stockholders' equity........ $236,597 $230,067
======== ========
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES............................................. $44,912 $25,735 $124,081 $125,803
COSTS AND EXPENSES:
Cost of revenues................................... 37,207 25,642 98,493 111,930
Selling, general and administrative expenses....... 3,636 2,491 9,193 7,413
Special charges.................................... -- 1,655 -- 1,655
Depreciation and amortization...................... 2,403 3,587 7,086 10,337
------- ------- -------- --------
OPERATING INCOME..................................... 1,666 (7,640) 9,309 (5,532)
OTHER INCOME (EXPENSE), net:
Interest income (expense), net..................... (1,194) (1,567) (2,856) (4,094)
Other income (expense), net........................ (75) 60 (76) 412
------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.................... 397 (9,147) 6,377 (9,214)
PROVISION (BENEFIT) FOR INCOME TAXES................. (567) (3,659) 2,423 (3,686)
------- ------- -------- --------
NET INCOME (LOSS).................................... $ 964 $(5,488) $ 3,954 $ (5,528)
======= ======= ======== ========
PREFERRED STOCK DIVIDENDS............................ -- (2) -- (3)
------- ------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS... $ 964 $(5,490) $ 3,954 $ (5,531)
======= ======= ======== ========
COMPREHENSIVE INCOME (LOSS), net of taxes:
NET INCOME (LOSS).................................... $ 964 $(5,488) $ 3,954 $ (5,528)
Reclassification adjustment for gains included in
net income (loss), net of tax of $8 at September
30, 1999........................................ -- -- -- (18)
------- ------- -------- --------
COMPREHENSIVE INCOME (LOSS).......................... $ 964 $(5,488) $ 3,954 $ (5,546)
======= ======= ======== ========
EARNINGS PER SHARE:
Basic.............................................. $ 0.10 $ (0.49) $ 0.43 $ (0.51)
======= ======= ======== ========
Diluted............................................ $ 0.10 $ (0.49) $ 0.43 $ (0.51)
======= ======= ======== ========
NUMBER OF SHARES USED IN PER SHARE COMPUTATIONS:
Basic.............................................. 9,572 11,248 9,291 10,832
======= ======= ======== ========
Diluted............................................ 9,572 11,248 9,291 10,832
======= ======= ======== ========
</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
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 3,954 $ (5,528)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Depreciation and amortization............................. 7,086 10,337
Provision for doubtful accounts........................... -- 3,713
Gain on sale of investments............................... -- (29)
Deferred income taxes..................................... (867) (880)
Other..................................................... 1,180 145
Changes in operating assets and liabilities --
(Increase) decrease in --
Contracts and accounts receivable..................... (11,689) (6,438)
Cost and estimated earnings in excess of billings on
uncompleted contracts................................ 59 4,085
Other current assets.................................. 1,511 3,108
Other noncurrent assets............................... (949) (843)
Increase (decrease) in --
Accounts payable and accrued expenses................. 1,312 (5,310)
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ 3 (4,595)
-------- --------
Net cash provided by (used in) operating
activities........................................ 1,600 (2,235)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of capital assets...................... 1,012 47
Capital expenditures...................................... (33,461) (6,751)
Distribution to stockholders.............................. (3,185) --
Cash paid for acquisitions and related cost, net of cash
acquired................................................ (5,840) (4,700)
-------- --------
Net cash used in investing activities.............. (41,474) (11,404)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on Credit Agreement........................ 43,646 11,500
Principal payments on notes payable....................... -- (2,022)
Principal payments on long-term debt...................... (2,958) (3,148)
-------- --------
Net cash provided by financing activities.......... 40,688 6,330
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 814 (7,309)
CASH AND CASH EQUIVALENTS, beginning of period.............. 2,416 9,020
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 3,230 $ 1,711
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest................................................ $ 1,809 $ 2,464
======== ========
Income taxes............................................ $ 458 $ 23
======== ========
Non-cash investing and financing activities:
Common stock issued for acquisition..................... $ 5,525 $ 3,332
======== ========
Preferred stock issued for acquisition.................. $ -- $ 140
======== ========
</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
The consolidated financial statements herein have been prepared by
TransCoastal Marine Services, Inc. ("TransCoastal" or "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. The consolidated financial statements reflect all elimination
entries and normal recurring adjustments that are necessary for a fair
presentation of the results for the three month and nine month periods ended
September 30, 1998 and 1999.
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, 1998, as filed with the
Securities and Exchange Commission.
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, 1998.
Reclassifications
Certain amounts reported in 1998 have been reclassified to conform with the
1999 presentation.
3. EARNINGS PER SHARE
The weighted average number of common shares outstanding used to compute
basic and diluted income per share for the three and nine month periods ended
September 30, 1998 were 9,572,000 and 9,291,000 shares, respectively. The
weighted average number of common shares outstanding used to compute basic and
diluted (loss) per share for the three and nine month periods ended September
30, 1999 were 11,248,000 and 10,832,000 shares, respectively. 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. Common stock equivalents are excluded from fully diluted
calculations in those periods in which a net loss is reported as they would be
anti-dilutive.
4. SUMMARY OF FINANCING AGREEMENTS
In November 1999, the Company amended the Bank One Revolving Credit
Facility to reduce the maximum borrowing capacity to $10.0 million from $15.0
million, and amended the Heller Term Facility to provide for an additional $5.0
million advance. The incremental $5.0 million advance will increase the
principal balance of the Heller Term Facility to $37.4 million upon funding. The
incremental $5.0 million advance will amortize over 48 months, bear interest at
LIBOR plus 250 basis points, and will be secured by the same collateral as the
initial Heller Term Facility. Additionally, the Heller Term Facility has been
amended to provide for monthly principal and interest payments from quarterly
payments previously required. The proceeds of the advance will be used to reduce
borrowings on the Bank One Revolving Credit Facility which were $11.5 million at
September 30, 1999.
6
<PAGE> 7
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1999, the Company had covenant violations or events of
default under substantially all of its long-term and subordinated debt
obligations. Subsequently, the Company has cured the defaults and obtained
waivers from the appropriate lenders for the covenant violations as of September
30, 1999. Additionally, the Company has amended the financial covenants included
in the Bank One Revolving Credit Facility, the Heller Term Facility and its
subordinated debt. The revised covenants are more favorable for the Company and
take into consideration the current market environment in which the Company
operates. The new covenants require a $7.5 million equity investment into the
Company by January 31, 2000 and either a $7.5 million equity infusion or
increased earnings of a similar amount in the first quarter of the year 2000.
TransCoastal's management is currently in discussions with several investor
groups regarding an equity investment in the company. Total fees and expenses
associated with the amendment of the three credit agreements were $0.3 million
and also included the issuance of a warrant for 175,000 shares with an exercise
price equal to fair market value at date of grant. Management believes the
Company will be in compliance with the revised covenants including those related
to additional equity and increased earnings. Accordingly, the debt has been
classified in accordance with its stated repayment terms.
5. SPECIAL CHARGES
In September of 1999, the Company completed a review of its Fabrication &
Offshore Group's operations and foreign and domestic facilities. As a result of
this review, the Company recorded a special charge in the amount of $1.7
million. The components of the charge consists of: (a) $1.2 million severance
costs related to former employees terminated as a result of the Company's
headcount reduction initiative and (b) $0.5 million in costs associated with the
closing of foreign facilities and reduction in operations in Nigeria and South
America. This charge increased the net loss by $1.0 million, net of tax, or
$0.09 per share for the three and nine month periods ended September 30, 1999.
6. DICKSON ACQUISITION
On September 1, 1998, the Company acquired Dickson GMP International, Inc.
and four affiliated companies ("Dickson") 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 acquisition agreement, TransCoastal
acquired all outstanding stock of Dickson for $10 million in cash and 1.3
million shares of TransCoastal common stock. The acquisition agreement provided
Dickson with the potential to receive an additional $7.3 million in cash and
approximately 0.4 million common shares if it achieved certain financial targets
by the third quarter of 1999. On May 18, 1999, the Company finalized the early
settlement of the Dickson earn-out. The terms of the early settlement included a
reduction in the cash payment to $4.7 million and the issuance of 800,000 shares
of common stock and 140 shares of Series A preferred stock with a redemption
price equal to $1,000 per share. The Company financed the cash portion of the
acquisition with credit available under its existing credit facilities. The
Dickson acquisition has been accounted for as a purchase, therefore, the
accompanying statements of operations reflect the results of operations of
Dickson since the date of acquisition.
Set forth below are the unaudited pro-forma consolidated results of
operations for the three month and nine month periods ended September 30, 1998,
and are prepared as though Dickson had been acquired as of January 1, 1998.
These pro forma results are not necessarily indicative of the actual results
which would have occurred if the acquisition of Dickson had taken place at the
beginning of the periods presented, nor are they necessarily indicative of
future results (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues.......................................... $51,747 $153,900
Net income available to common stockholders....... $ 1,041 $ 4,167
Basic and diluted earnings per share.............. $ 0.09 $ 0.37
</TABLE>
7
<PAGE> 8
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SEGMENT INFORMATION
The Company has two primary operating segments, the Pipeline & Marine Group
and the Fabrication & Offshore Group. The Pipeline & Marine Group's operations
focus on the construction, burial and testing of pipelines on land, through the
transition zone and out to 800 feet of water. The Fabrication & Offshore Group
fabricates, refurbishes and installs production platforms, offshore drilling
rigs, barges and performs other related fabrication services. The two segments
are managed separately because each business requires different technology and
marketing strategies. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (see Annual
Report on Form 10-K) except that certain corporate expenses such as amortization
of goodwill as well as interest expense and interest income are not allocated
between the segments.
The following table shows segment information for the reportable segments
for the three month and nine month periods ended September 30, 1998 and 1999,
respectively (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1998 1999 1998 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues to unaffiliated
customers:
Pipeline & Marine............. $24,313 $12,792 $ 82,931 $ 45,053
Fabrication & Offshore........ 20,097 12,943 40,587 80,728
Other......................... 502 -- 563 22
------- ------- -------- --------
$44,912 $25,735 $124,081 $125,803
======= ======= ======== ========
Net income (loss):
Pipeline & Marine............. $ 3,250 $(1,585) $ 7,951 $ (1,610)
Fabrication & Offshore........ 561 (2,705) 1,799 (1,322)
Other......................... (2,847) (1,198) (5,796) (2,596)
------- ------- -------- --------
$ 964 $(5,488) $ 3,954 $ (5,528)
======= ======= ======== ========
</TABLE>
The Company operated principally in four geographic segments during the
first nine months of 1999: the United States, Venezuela, Mexico, and Nigeria.
The following table shows segment information for the geographic segments for
the three month and nine month periods ended September 30, 1998 and 1999,
respectively (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1998 1999 1998 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues to unaffiliated
customers:
United States................. $25,304 $20,639 $ 99,315 $ 61,595
Venezuela..................... 13,174 2,039 13,174 40,620
Mexico........................ 4,579 1,525 4,579 15,491
Nigeria....................... 1,835 1,532 1,835 8,097
Other Foreign................. 20 -- 5,178 --
------- ------- -------- --------
$44,912 $25,735 $124,081 $125,803
======= ======= ======== ========
</TABLE>
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, 1998.
TransCoastal is a marine construction company with worldwide operations
onshore, in the transition zone and offshore (up to 800 feet). The Company has
two operating groups: the Pipeline & Marine Group and the Fabrication & Offshore
Group. The Pipeline & Marine group performs pipeline installation and repair
worldwide utilizing a fleet of company owned vessels. This group also provides
construction support services, including hydrostatic testing and commissioning
of pipelines. The Fabrication & Offshore Group fabricates, refurbishes and
installs production platforms, offshore drilling rigs, barges and performs other
related fabrication services.
The Company currently conducts its operations from port facilities and
fabrication yards strategically positioned along the U.S. Gulf Coast. In order
to conduct its international activities, the Company currently has offices in
West Africa, Venezuela, and Mexico. The Company's principal executive offices
are located at 4900 Woodway, Suite 500, Houston, Texas 77056, and its telephone
is (713) 626-8899.
This discussion includes certain forward-looking statements, which are
identified by the use of the words "believes," "expects," "anticipates" 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. These factors, risks and uncertainties are set forth in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. There can be no
assurance that future results will meet expectations.
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 SEPTEMBER 30,
-----------------------------------
1998 1999
--------------- ---------------
<S> <C> <C> <C> <C>
Revenues......................................... $44,912 100.0% $25,735 100.0%
Cost of revenues................................. 37,207 82.8% 25,642 99.6%
Selling, general and administrative expenses..... 3,636 8.1% 2,491 9.7%
Special charges.................................. -- 0.0% 1,655 6.4%
Depreciation and amortization.................... 2,403 5.4% 3,587 13.9%
------- ----- ------- -----
Operating income (loss).......................... 1,666 3.7% (7,640) (29.6)%
Interest income (expense), net................... (1,194) (2.6)% (1,567) (6.1)%
Other income (expense), net...................... (75) (0.2)% 60 0.2%
------- ----- ------- -----
Income (loss) before income taxes................ 397 0.9% (9,147) (35.5)%
Provision (benefit) for income taxes............. (567) (1.2)% (3,659) (14.2)%
------- ----- ------- -----
Net income (loss)................................ $ 964 2.1% $(5,488) (21.3)%
======= ===== ======= =====
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C> <C> <C>
Revenues..................................... $124,081 100.0% $125,803 100.0%
Cost of revenues............................. 98,493 79.4% 111,930 89.0%
Selling, general and administrative
expenses................................... 9,193 7.4% 7,413 5.9%
Special charges.............................. -- 0.0% 1,655 1.3%
Depreciation and amortization................ 7,086 5.7% 10,337 8.2%
-------- ------ -------- ------
Operating income............................. 9,309 7.5% (5,532) (4.4)%
Interest income (expense), net............... (2,856) (2.3)% (4,094) (3.3)%
Other income (expense), net.................. (76) (0.1)% 412 0.3%
-------- ------ -------- ------
Income (loss) before income taxes............ 6,377 5.1% (9,214) (7.4)%
Provision (benefit) for income taxes......... 2,423 1.9% (3,686) (2.9)%
-------- ------ -------- ------
Net income (loss)............................ $ 3,954 3.2% $ (5,528) (4.5)%
======== ====== ======== ======
</TABLE>
Results for the three months ended September 30, 1998 compared to the three
months ended September 30, 1999
Revenues. Revenues decreased $19.2 million, or 42.7%, from $44.9 million
for the three months ended September 30, 1998 to $25.7 million for the three
months ended September 30, 1999. The Fabrication & Offshore Group's (F&O Group)
revenues decreased $7.2 million, or 35.6%, from $20.1 million for the three
months ended September 30, 1998 to $12.9 million for the three months ended
September 30, 1999. The reduction in the F&O Group's revenues is primarily
related to the completion of two contracts in July of 1999 that generated
approximately $79.3 million in revenue for the group over the last twelve
months. The Company anticipates that the F&O Group's revenues will continue at
these reduced levels through the first quarter of 2000. The Pipeline & Marine
Group's (P&M Group) revenues decreased $11.5 million, or 47.4% from $24.3
million for the third quarter of 1998 to $12.8 million for the same period in
1999. The decline in revenues for the P&M Group was the result of delays in
pipeline construction projects due to the fall of oil and gas prices during
1998. With recent increases in oil and gas prices, the Company has experienced
increased bidding activity and an increase in the dollar amount of new contracts
awarded in the third quarter of 1999 as compared to the previous two quarters.
The Company anticipates increased levels of pipeline activity in the first half
of 2000 as a result of increased commodity prices.
Cost of revenues. Cost of revenues decreased $11.6 million, or 31.1%, from
$37.2 million for the three months ended September 30, 1998 to $25.6 million for
the same period in 1999. Overall cost of revenues increased as a percentage of
revenues from 82.8% in the third quarter of 1998 to 99.6% in the third quarter
of 1999. This decrease in gross profit percentage in the third quarter of 1999
as compared to the third quarter of 1998 was primarily due to two factors.
First, the decrease in volume of work performed by the F&O Group meant that a
greater percentage of revenues were needed to cover fixed production costs.
Secondly, the P&M Group's gross margin decreased as the competition intensified
for fewer pipeline installation projects in the third quarter of 1999 as
compared to the same period in 1998.
Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses decreased $1.1 million, or 31.5%, for the three
months ended September 30, 1999 as compared to the same period in 1998. The
reduction in selling, general and administrative expenses in the third quarter
of 1999 as compared to the third quarter of 1998 was accomplished primarily
through reductions in the headcount of the administrative staff and in the use
of third party services. As a percentage of revenues, SG&A expenses were 9.7%
during the third quarter of 1999, compared to 8.1% during the third quarter of
1998. The increase in SG&A expenses as a percentage of revenues is a function of
the 42.7% decline in revenues of the Company the third quarter of 1999 as
compared to the same period in 1998.
10
<PAGE> 11
Special charges. In September of 1999, the Company completed a review of
its Fabrication & Offshore Group's operations and foreign and domestic
facilities. As a result of this review, the Company recorded a special charge in
the amount of $1.7 million. The components of the charge consists of: (a) $1.2
million severance costs related to former employees terminated as a result of
the Company's headcount reduction initiative and (b) $0.5 million in costs
associated with the closing of foreign facilities and reduction in operations in
Nigeria and South America.
Depreciation and amortization. Depreciation and amortization expenses
increased $1.2 million from $2.4 million in 1998 to $3.6 million in 1999. The
increase was primarily the result of $36.1 million dollars in capital
expenditures in 1998, the majority of which were not placed in service until
late in the third quarter of 1998.
Interest income (expense), net. Interest expense, net of interest income,
totaled $1.6 million during the third quarter of 1999 as compared to $1.2
million of interest expense during the same period in 1998. This increase was
primarily due to higher average debt levels resulting from increases in the
corporate revolver to fund capital expenditures, the acquisition of Dickson and
working capital requirements.
Results for the nine months ended September 30, 1998 compared to the nine
months ended September 30, 1999
Revenues. Revenues increased $1.8 million, or 1.4%, from $124.1 million for
the nine months ended September 30, 1998 to $125.8 million for the nine months
ended September 30, 1999. The F&O Group's revenues increased $41.2 million, or
201.0%, from $40.6 million for the nine months ended September 30, 1998 to $81.8
million for the nine months ended September 30, 1999. Dickson, which was
acquired in September 1998, accounted for $60.9 million of the F&O Group's
revenues in the first nine months of 1999 and only $14.1 million for the same
period in 1998. The P&M Group's revenues decreased $38.9 million, or 66.4% from
$82.9 million for the first nine months of 1998 to $44.0 million for the same
period in 1999. The decline in revenues for the P&M Group was the result of
delays in pipeline construction projects due to the fall of oil and gas prices
during 1998. With recent increases in oil and gas prices, the Company
anticipates increased levels of pipeline activity in the first half of 2000.
Cost of revenues. Cost of revenues increased $13.4 million, or 13.6%, from
$98.5 million for the nine months ended September 30, 1998 to $111.9 million for
the same period in 1999. Overall cost of revenues increased as a percentage or
revenues from 79.4% in the first nine months of 1998 to 89.0% in the first nine
months of 1999. The resulting decrease in gross profit percentage in the first
nine months of 1999 as compared to the same period in 1998 was primarily due to
three factors. First, in 1999 a higher percentage of the Company's revenues in
the first nine months of 1999 as compared to the same period of 1998 were
generated by F&O Group whose gross profit is lower than the typical gross profit
on revenues generated by the P&M Group. Secondly, the decline in volume of work
performed in the third quarter of 1999 by the F&O Group meant that a greater
percentage of the revenues went to cover the fixed production costs for the F&O
group. Finally, the P&M Group's gross margin decreased as the competition
intensified for fewer pipeline installation projects in the first nine months of
1999.
Selling, general and administrative expenses. SG&A expenses decreased $1.8
million, or 19.4%, for the nine months ended September 30, 1999 as compared to
the same period in 1998. As a percentage of revenues, SG&A expenses were 5.9%
during the first nine months of 1999, compared to 7.4% during the same period
for 1998. The reduction in SG&A was accomplished primarily through reductions in
the headcount of the administrative staff and in the use of third party
services.
Special charges. In September of 1999, the Company completed a review of
its Fabrication & Offshore Group's operations and foreign and domestic
facilities. As a result of this review, the Company recorded a special charge in
the amount of $1.7 million. The components of the charge consists of: (a) $1.2
million severance costs related to former employees terminated as a result of
the Company's headcount reduction initiative and (b) $0.5 million in costs
associated with the closing of foreign facilities and reduction in operations in
Nigeria and South America.
11
<PAGE> 12
Depreciation and amortization. Depreciation and amortization expenses
increased $3.2 million from $7.1 million in 1998 to $10.3 million in 1999. The
increase was primarily due to the $36.1 million dollars in capital expenditures
in 1998, the majority of which were not placed in service until late in the
third quarter of 1998.
Interest income (expense), net. Interest expense, net of interest income,
totaled $4.1 million during the first nine months of 1999 as compared to $2.9
million of interest expense during the same period in 1998. This increase was
primarily due to higher average debt levels resulting from increases in the
corporate revolver to fund capital expenditures, the acquisition of Dickson and
working capital requirements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased by $0.4 million during the first
nine months of 1999, from $15.5 million at December 31, 1998 to $15.1 million at
September 30, 1999. Net cash used in the operating activities during the nine
months ended September 30, 1999 was $2.2 million. Accounts receivable increased
$2.7 million in the first nine months of 1999 primarily due to a net foreign
receivable of $14.9 million. Based upon information available at this time
management expects to receive payment on this account within the normal
operating cycle.
Net cash used in investing activities during the nine months ended
September 30, 1999 was $11.4 million. Capital expenditures accounted for $6.8
million of the cash used in investing activities during the period and primarily
related to the refurbishment of two vessels (the Atchafalaya Bay and the BH-400)
which were completed in the third quarter of 1999. The $4.7 million cash payment
in connection with the early settlement of the Dickson acquisition earn-out
accounted for the balance of the cash used in investing activities. Net cash
consumed by operating and investing activities was funded through additional
borrowings under the revolving credit facility. During the first nine months of
1999, net long-term debt borrowings were $8.4 million, resulting in an
outstanding long-term debt balance of $47.4 million at September 30, 1999.
Additional borrowing availability under the Company's long-term credit facility
at the end of September 30, 1999 totaled $3.5 million.
At September 30, 1999, the Company had covenant violations or events of
default under substantially all of its long-term and subordinated debt
obligations. Subsequently, the Company cured the defaults and obtained waivers
from the appropriate lenders for the covenant violations as of September 30,
1999. In November 1999, the Company amended the financial covenants in its Bank
One Revolving Credit Facility, Heller Term Facility, and its subordinated debt
agreements. The revised covenants are more favorable for the Company and take
into consideration the current market environment in which the Company operates.
The new covenants require a $7.5 million equity investment into the Company by
January 31, 2000 and either a $7.5 million equity infusion or increased earnings
of a similar amount in the first quarter of the year 2000. TransCoastal's
management is currently in discussions with several investor groups regarding an
equity investment in the company. However, there can be no assurance that the
Company can secure the necessary equity investments when it is needed or on
terms deemed acceptable to the Company.
YEAR 2000 ISSUES
The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive data by the Company's computerized
information systems and equipment. The Year 2000 may be critical to these
systems as many computer programs were written and equipment manufactured using
two digits rather than four to define the applicable year. As a result, any of
the Company's computer applications or equipment that have date-sensitive
programs may recognize a date using "00" as the year 1900 rather than the Year
2000. This could result in system failures in the fabrication area that could
cause serious production-related issues. In addition, miscalculations or system
failures could result in a temporary inability to process transactions, issue
invoices, remit payments, communicate with financial institutions and other
entities
12
<PAGE> 13
electronically and update internal accounting systems. If not corrected in a
timely manner, such business disruptions could be detrimental to the continuing
operations of the Company.
The Company has completed a program to prepare its computer systems and
applications for the Year 2000. Based on present information, management
believes that significant systems are Year 2000 compliant, other minor systems
may require modification or replacement with new programs. The Company has and
will continue to utilize both internal and external resources to reprogram,
replace and test software for Year 2000 compliance.
The Company has developed a written contingency plan to address the issues
that could arise should the Company or any of its significant suppliers,
customers, service providers or financial institutions not be prepared to
accommodate Year 2000 issues timely. The Company intends to maintain constant
surveillance on Year 2000 issues and will adapt its plans as required.
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to market risk,
primarily from changes in interest rates. The Company continually monitors
exposure to market risk and develops appropriate strategies to manage this risk.
Accordingly, the Company may enter into certain derivative financial instruments
such as interest rate swap agreements. The Company does not use derivative
financial instruments for trading or to speculate on changes in interest rates.
Interest Rate Exposure
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's long-term debt. At September 30, 1999, $65.0 million
of the Company's indebtedness was subject to variable interest rates with a
weighted average effective interest rate of 9.63% for the nine months then
ended. The detrimental effect of a hypothetical 100 basis point increase in
interest rates would be to reduce income before taxes by $0.6 million for the
nine month period. At September 30, 1999, the Company's fixed rate debt
approximated fair market value based upon discounted future cash flows using
current market prices.
Foreign Currency Exposure
The Company believes its exposure to foreign currency fluctuations is
minimal in that contracts for work performed in or to be delivered to countries
outside the United States ("Foreign Contracts") are primarily denominated in
U.S. dollars. It is Company policy to limit the portion of any Foreign Contracts
denominated in local currency to that portion of the total revenue required to
be spent in country to complete the project. The Company's operations outside
the United States currently are in Latin America and West Africa and
substantially all current Foreign Contracts are denominated in U.S. dollars.
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.
By: /s/ WARREN L. WILLIAMS
----------------------------------
Warren L. Williams
Vice President of Finance and
Treasurer
Dated: November 15, 1999
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999 DEC-31-1998 DEC-31-1999
<PERIOD-START> JUL-01-1998 JUL-01-1999 JAN-01-1998 JAN-01-1999
<PERIOD-END> SEP-30-1998 SEP-30-1999 SEP-30-1998 SEP-30-1999
<CASH> 9,020 1,711 0 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 31,470 34,195 0 0
<ALLOWANCES> 1,185 4,895 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 55,060 43,283 0 0
<PP&E> 96,135 94,129 0 0
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 236,597 230,067 0 0
<CURRENT-LIABILITIES> 39,544 28,215 0 0
<BONDS> 0 0 0 0
0 0 0 0
0 140 0 0
<COMMON> 10 11 0 0
<OTHER-SE> 120,218 118,142 0 0
<TOTAL-LIABILITY-AND-EQUITY> 236,597 230,067 0 0
<SALES> 44,912 25,735 124,081 125,803
<TOTAL-REVENUES> 44,912 25,735 124,081 125,803
<CGS> 37,207 25,642 98,493 111,930
<TOTAL-COSTS> 43,246 33,375 114,772 131,335
<OTHER-EXPENSES> (75) 60 (76) 412
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 1,194 1,567 2,856 4,094
<INCOME-PRETAX> 397 (9,147) 6,377 (9,214)
<INCOME-TAX> (567) (3,659) 2,423 (3,686)
<INCOME-CONTINUING> 964 (5,488) 3,954 (5,528)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 964 (5,488) 3,954 (5,528)
<EPS-BASIC> $0.10 $(0.49) $0.43 $(0.51)
<EPS-DILUTED> $0.10 $(0.49) $0.43 $(0.51)
</TABLE>
