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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT OF 1934
Commission file number 333-38157
FIRST WAVE MARINE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0461352
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4000 S. SHERWOOD FOREST BOULEVARD
SUITE 603
BATON ROUGE, LOUISIANA 70816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 292-8800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 [ ] NO [x]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ] NOT APPLICABLE
Number of shares of common stock outstanding as of March 25, 1998:
11,756,955.
This Form 10-K is filed pursuant to Rule 15d-2 of the Securities Exchange
Act of 1934. In accordance with such rule, this Form 10-K contains only the
Consolidated Financial Statements of the Registrant and Management's Discussion
and Analysis of Financial Condition and Results of Operations relating to such
Consolidated Financial Statements.
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ITEMS 1-4 NOT REQUIRED PURSUANT TO RULE 15D-2 OF THE SECURITIES EXCHANGE
ACT OF 1934.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS; USE OF PROCEEDS
First Wave Marine, Inc. (the "Company") filed a Registration Statement
(Commission File No. 333-38157) with the Securities and Exchange Commission for
the public offering of $90,000,000 of 11% Senior Notes due 2008. The
Registration Statement became effective on January 27, 1998. The managing
underwriter was Schroder & Co. Inc. The entire registered offering of Senior
Notes was sold at 100% of face value. No offering proceeds were received in
the reporting period covered by this Form 10-K. All offering proceeds were
received in the current reporting period. The use of such proceeds will be
disclosed, in accordance with Item 701 of Regulation S-K under the Securities
Exchange Act of 1934, in the Company's Form 10-Q to be filed in May 1998,
covering the current reporting period.
ITEM 6. NOT REQUIRED PURSUANT TO RULE 15D-2 OF THE SECURITIES EXCHANGE ACT OF
1934.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition, results
of operations, liquidity and capital resources should be read in conjunction
with the "Consolidated Financial Statements" and the "Notes to the Consolidated
Financial Statements" included elsewhere in this report.
GENERAL
The Company engages in the repair and upgrade of inland and offshore
marine vessels, including barges, boats, drilling rigs and ships, as well as
the construction of new barges. The Company currently operates three shipyards
in the Houston, Texas area (Brady Island, Greens Bayou and JBM Pasadena) and two
in the Galveston, Texas area (East Pelican Island and West Pelican Island). The
Company acquired the JBM Pasadena and West Pelican Island shipyards on February
2, 1998.
The Company's results of operations are primarily dependent upon: (i)
the conditions affecting the oil and gas and petrochemical industries in the
Gulf of Mexico; (ii) the Company's ability to obtain contracts; and (iii) the
Company's ability to manage contracts to successful completion. The Company's
primary source of revenue is derived from labor hours. The Company currently
employs 800 production workers at its five shipyards. In the last twelve
months increased demand for shipyard services in the U.S. Gulf Coast has
resulted in shortages of skilled shipyard labor. At the present time, the labor
shortage has not materially impacted the Company, although no assurances can be
given regarding whether the Company will experience labor shortages in the
future.
Since the acquisition of the Brady Island shipyard in December 1993,
the Company has served the offshore support vessel and offshore and inland
barge markets. Historically, the Company's services have included repair,
upgrade, construction and related environmental services. The Company's
strategy has been to achieve a balanced diversification and provide one-stop
servicing for both inland and offshore marine markets.
With the acquisition of the JBM Pasadena shipyard, the Company has a
significant market share of the highly competitive inland marine repair
business in the strategically important Houston market. This concentration of
assets allows for efficiencies and economies of scale which the Company
believes provide it with a competitive advantage. The Company's operations are
conducted along a 50-mile corridor around the Houston-Galveston ports.
Management believes that growth generated by the offshore rig repair and
construction segments will result in larger unit contracts, and will enhance
revenues and earnings. When combined with the relative stability and
consistent volumes of the inland marine business, management believes its
approach produces higher net income, less cyclicality, and more consistent
growth than is possible for companies servicing a single segment of the
industry.
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Revenues derived from the repair and upgrade segment of the shipyard
industry generally produce higher gross profit margins than new construction.
The repair and upgrade market is currently experiencing growth due to several
factors, including the increased utilization of aging fleets, consolidation of
these fleets by well-capitalized vessel operators, and replenishment and
upgrading of fleets. The Company has also developed a specialization in the
upgrade of offshore support vessels into longer and wider vessels in response
to increased demand for offshore vessels with deepwater capabilities.
Historically, the Company has used new construction of inland barges
to stabilize the labor force highs and lows typical in the shipyard industry by
shifting workers to new construction as a means of absorbing excess labor.
Management views lower-margin inland barge new construction as an incremental
contributor to the business. Management expects to increase efficiency and
volumes for both new construction and repair related fabrication through the
addition of production line assets to reduce unit costs. Management believes
that it has positioned the Company to undertake major new construction projects
in the offshore rig market, while preserving the advantages of high margins and
lower volatility in the repair and related environmental services business.
The Company also provides related environmental services, including
cleaning, degassing and wastewater treatment. Although this business comprises
a small percentage of the Company's total revenues, it generates high margins
and enhances the Company's strategy to be the only one-stop source of all
shipyard services for all segments of the offshore and inland marine markets
in Texas.
All statements other than statements of historical fact contained in
this document, including statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" concerning results
of operations, results from proposed shipyard acquisitions, future expansion
plans 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 statements.
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. Factors that could cause the Company's
results to differ materially from the results discussed in such forward-looking
statements include risks such as the dependence on the oil and gas industry,
difficulties related to managing growth in operations, dependence on
significant customers, competition, the risks associated with contractual
pricing, the success of the recent expansion into the offshore drilling rig
segment, and labor, operating, regulatory and other risks in the shipbuilding
industry and risks relating to the offshore support vessel, offshore barge and
inland marine markets. All forward-looking statements in this document are
expressly qualified in their entirety by the cautionary statements in this
paragraph.
RECENT DEVELOPMENTS
On February 2, 1998, the Company completed an offering of $90 million
of senior notes. The senior notes bear interest at the rate of 11% per annum
with principal due at maturity in February 2008. The senior notes are fully
guaranteed, jointly and severally, by all of the Company's direct and indirect
subsidiaries. The proceeds from the offering have been, and will be, used
primarily for the following: (1) to complete Bludworth Acquisition (discussed
below), (2) to prepay debt of the Company's subsidiaries, including the Credit
Agreement discussed below, (3) to fund capital improvements at the Company's new
East Pelican Island facility, and (4) to fund working capital needs. In
connection with the early termination of debt, the Company will incur prepayment
penalties of approximately $850,000 and the writeoff of approximately $470,000
in loan origination costs in the first quarter of 1998.
Simultaneously with closing the senior notes offering, discussed
above, the Company completed the acquisition of all of the outstanding shares
of John Bludworth Marine, Inc. (The "Bludworth Acquisition"). The Bludworth
Acquisition provides the Company with the JBM Pasadena facility near Houston,
Texas and the West Pelican Island facility in Galveston, Texas. The Company
paid $15.0 million in cash and issued a promissory note in the amount of $4.0
million. The promissory note is adjustable upward or downward based upon
outstanding debt and a final calculation of earnings before interest, taxes,
depreciation and amortization of the acquired company. The promissory note
must be paid on or before July 31, 1998.
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RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Revenues increased 23.8% to $34.6 million in 1997 compared with $28.0
million in 1996 primarily due to growth in offshore support vessel repair and
upgrade activity. Overall growth in repair and upgrade activity, which
accounted for approximately 82% of total revenues in 1997, rose 35% over 1996,
based on labor hours.
Cost of revenues rose 7.1% to $19.9 million in 1997 from $18.6 million in
1996 as a result of the overall growth in labor hours.
Gross profits increased by 57.1% to $14.7 million in 1997 from $9.3
million in 1996 primarily due to higher billing and bid rates. This is
reflected in an increase in gross profit margin for 1997 to 42.4% from 33.4%
for 1996.
General and administrative expenses increased 32.1% to $7.4 million in
1997 from $5.6 million in 1996. The increase is due primarily to approximately
$1.3 million in bonuses paid to three executive officers and additional
costs related to the two new facilities put in service in 1997. General and
administrative expenses as a percentage of revenues for 1997 represented 21.5%
of total revenues, as compared to 20.1% for 1996.
Depreciation and amortization expense increased to $1.5 million in
1997 from $680,000 in 1996 primarily due to the effect of a full year of
depreciation in 1997 on the assets acquired at the Brady Island facility in
August 1996, and due to the acquisition of the Greens Bayou Facility in August
1997.
Interest expense rose to $1.8 million in 1997 from $829,000 in 1996
due primarily to additional financing costs associated with the debt incurred
to finance the acquisition of the Brady Island assets acquired in August 1996.
Thus, a full year's interest on approximately $12 million of debt was incurred
in 1997 as compared to only four months interest on this debt in 1996.
As a result of the increased earnings, income tax expense increased to
$2.0 million in 1997 from $1.1 million in 1996.
Net earnings rose 70.7% to $2.7 million in 1997 from $1.6 million in 1996.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Revenues increased 27.1% to $28.0 million in 1996 compared with $22.0
million in 1995 primarily due to increased activity in the offshore support
vessel and inland tank barge markets. The growth in revenues was primarily
driven by higher levels of activity in repair and upgrade services that rose
23.4% and related environmental services that increased 10.7% in 1996 over
1995, respectively, based on labor hours.
Cost of revenues rose 9.3% to $18.6 million in 1996 from $17.0 million
in 1995 primarily due to increased activity.
Gross profits increased by 88.3% to $9.3 million in 1996 from $5.0
million in 1995 primarily due to a shift in the business mix including higher
levels of activity generated from repair and upgrades of offshore support
vessels. As a result, gross profit margin increased to 33.4% in 1996 from
22.5% in 1995.
General and administrative expenses rose 55.4% to $5.6 million in 1996
from $3.6 million in 1995 and increased as a percentage of revenues to 20.1%
from 16.5% as a result of a $700,000 non-recurring pre-tax fee relating to a
reduction in costs resulting from consolidation of the Company's insurance
plan. Also included in general and administrative expenses was an aggregate
$680,000 paid in discretionary bonuses during 1996 compared with $62,000 in
1995.
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Depreciation and amortization expense increased to $680,000 in 1996
from $259,000 in 1995 due to additional depreciation associated with fixed
assets purchased at the Brady Island facility in the third quarter of 1996,
which assets had previously been under lease.
Interest expense rose to $829,000 in 1996 from $247,000 in 1995 due to
the additional financing costs associated with debt incurred to finance
operations and the fixed assets purchased at the Brady Island shipyard.
As a result of the foregoing, income tax expense increased to $1.1
million in 1996 from $283,000 in 1995. The 1995 period included the
utilization of a $300,000 net operating loss carryover.
Net earnings rose 114.1% to $1.6 million in 1996 from $728,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash have been to fund acquisitions and
capital expenditures and to service and repay debt.
Net cash provided by operating activities was $4.9 million, $1.2
million, and $36,000 in fiscal 1997, 1996, and 1995, respectively. The increase
in the Company's cash generated from operations primarily results from an
increase in net earnings, plus increases in noncash charges of minority interest
and depreciation and amortization.
Net cash used in investing activities was $3.5 million, $1.4 million
and $934,000 in fiscal 1997, 1996 and 1995, respectively. During the three
year period ended December 31, 1997, net cash used in investing activities
consisted largely of capital improvements.
Net cash (used in) provided by financing activities was ($1.0)
million, $175,000 and $884,000, in fiscal 1997, 1996 and 1995, respectively.
Net cash provided by financing activities represented debt incurred to finance
growth and expansion of the Company's operations, whereas cash used in
financing activities reflected repayment of the Company's outstanding debt.
In August 1996, the Company entered into a Credit Agreement ("Credit
Agreement") with a financial institution providing up to $12.4 million in
amortizing term debt bearing an interest rate of approximately 10.4% to finance
the acquisition of shipyard assets which had previously been leased. The Credit
Agreement was collateralized by certain of the Company's assets and required the
Company to maintain certain financial ratios. In connection with the Company's
acquisition of the Brady Island shipyard assets in August 1996, the Company
borrowed $11.8 million under the Credit Agreement and issued $6.3 million in
subordinated debt to the Seller to fund the purchase price. The subordinated
debt bears interest at 5.0% and matures 2003. In August 1997, the Company
borrowed the remaining $600,000 available under the Credit Agreement to
partially fund the acquisition of the Greens Bayou facility.
Excluding the acquisition of the two shipyards discussed above in
"Recent Developments", the Company has budgeted $32.7 million in capital
expenditures for 1998, including $1.0 million, $2.1 million and $29.6 million in
capital improvements for the Brady Island, Greens Bayou and East Pelican Island
shipyard facilities, respectively. The Company is required pursuant to the
terms of the East Pelican Island lease to make $20 million in capital
improvements and equipment purchases over the next three years, all of which the
Company has budgeted for 1998.
During the fourth quarter of 1997, the Company entered into a
non-binding letter of intent to purchase certain shipyard assets, including
real property and improvements, in Galveston, Texas for $5.5 million.
Negotiations are still proceeding and it is anticipated that an agreement will
be finalized in the second quarter of 1998.
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Currently, the Company has an aggregate $4.8 million in borrowing
capacity under two revolving lines of credit, both of which bear interest at
prime plus 1.0%. At December 31, 1997 the Company had $1.6 million outstanding
under these facilities.
As permitted by the Company's Indenture entered into in connection with
the senior notes offering discussed above, the Company is negotiating to obtain
a new revolving line of credit for additional borrowing capacity equal to the
lesser of $20 million or 85% of eligible receivables.
Management believes that with the net proceeds from the senior notes
offering and cash generated from operations, the Company will have sufficient
financial resources available to meet its anticipated requirements for
acquisitions, capital expenditures, working capital and debt amortization for
the next 12 months.
INFLATION AND CHANGING PRICES
The Company does not believe that general price inflation has had a
significant impact on the Company's results of operations during the periods
presented. To the extent that the effects of inflation are not offset by
improvements in manufacturing and purchasing efficiency and labor productivity,
the Company generally has been able to take such effects into account in
pricing its contracts with customers. There can be no assurance, however, that
inflation will not have a material effect on the Company's business in the
future. For information regarding the effects of increases in labor costs on
the Company's results of operations in recent periods, see "General" and
"Results of Operations."
ACCOUNTING PRONOUNCEMENTS
The FASB has issued Financial Accounting Standards No. 130, Reporting
Comprehensive Income, which is effective for financial statements issued after
December 15, 1997. The new standard requires an entity to report and display
comprehensive income and its components.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 Disclosures about Segments of an Enterprise and Related
Information ("SEAS 131"). SEAS 131 establishes standards for the way public
enterprises are to report information about operating segments in annual
financial statements and requires the reporting of selected information about
operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers SEAS 131 is effective for periods
beginning after December 15, 1997.
YEAR 2000 COMPUTER ISSUE
Many computer systems in use today were designed and developed using
two digits, rather than four, to specify the year. As a result, such systems
will recognize the year 2000 as "00". This could cause many computer
applications to fail completely or to create erroneous results unless
corrective measures are taken.
The Company currently believes that with recent upgrades made to its
existing software, the Year 2000 problem will not pose significant operations
problems for the Company's computer systems.
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NO.
----
Report of Independent Certified Public Accountants . . . . . . . . . 8
Consolidated Balance Sheets as of December 31, 1996 and 1997 . . . . 9
Consolidated Statements of Income for the years ended December 31,
1995, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 10
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997 . . . . . . . . . . . . . . . . . . 11
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996, and 1997. . . . . . . . . . . . . . . . . . . . . . . . . 12
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 13
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
First Wave Marine, Inc.
We have audited the accompanying consolidated balance sheets of First Wave
Marine, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of First Wave Marine,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Grant Thornton LLP
Houston, Texas
March 20, 1998
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FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- -------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents ......................................... $ -- $ 378
Accounts receivable, less allowance of $-0- in 1996 and
$37 in 1997....................................................... 5,147 8,488
Inventories ....................................................... 566 792
Costs and estimated earnings in excess of billings on
uncompleted contracts........................................... 1,125 793
Other ............................................................. 283 341
Income tax receivable.............................................. 139 773
Deferred income taxes.............................................. 23 281
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Total current assets....................................... 7,283 11,846
PROPERTY AND EQUIPMENT, NET.......................................... 16,755 23,326
FINANCING COSTS, net of amortization ................................ 538 1,438
GOODWILL AND OTHER INTANGIBLES, net of amortization.................. 124 2,726
DEPOSITS............................................................. 232 210
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$24,932 $39,546
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Due to bank ....................................................... $ 88 $ --
Current portion of long-term obligations and notes payable......... 2,396 215
Trade accounts payable............................................. 897 1,354
Accrued liabilities................................................ 1,188 3,956
------- -------
Total current liabilities.................................. 4,569 5,525
LONG-TERM OBLIGATIONS, net of current portion........................ 10,872 17,781
SUBORDINATED DEBT.................................................... 6,914 6,876
DEFERRED INCOME TAXES................................................ 236 632
OTHER LIABILITIES.................................................... 57 678
MINORITY INTEREST IN SUBSIDIARY...................................... 391 --
COMMITMENTS AND CONTINGENCIES........................................ -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 2,000 shares authorized,
no shares issued................................................ -- --
Common stock, no par value in 1996, $.01 par value in 1997,
21,000 shares authorized, 10,650 shares issued and outstanding
at December 31, 1996 and 11,757 shares issued and outstanding
at December 31, 1997............................................ 1 118
Additional paid-in capital......................................... -- 3,490
Retained earnings.................................................. 1,892 4,446
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1,893 8,054
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$24,932 $39,546
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
9
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FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
REVENUES
Repair and upgrades . . . . . . . . . . $15,392 $20,997 $28,331
New construction . . . . . . . . . . . 3,321 2,841 1,002
Environmental services . . . . . . . . 3,287 4,119 5,283
------- ------- -------
22,000 27,957 34,616
COST OF REVENUES . . . . . . . . . . . . 17,043 18,623 19,952
------- ------- -------
Gross profit . . . . . . . . . . . . . 4,957 9,334 14,664
GENERAL AND ADMINISTRATIVE EXPENSES . . . 3,623 5,629 7,437
------- ------- -------
Income from operations . . . . . . . . 1,334 3,705 7,227
INTEREST EXPENSE . . . . . . . . . . . . 247 829 1,815
MINORITY INTEREST IN NET EARNINGS OF
SUBSIDIARY . . . . . . . . . . . . . . 76 219 750
------- ------- -------
Income before income taxes . . . . . . 1,011 2,657 4,662
INCOME TAX EXPENSE 283 1,098 2,001
------- ------- -------
NET INCOME . . . . . . . . . . . . . $ 728 $ 1,559 $ 2,661
======= ======= =======
Earnings per share
Basic . . . . . . . . . . . . . . . . . $ .07 $ .15 $ .25
======= ======= =======
Diluted . . . . . . . . . . . . . . . . $ .07 $ .15 $ .25
======= ======= =======
Weighted-averaged shares
Basic . . . . . . . . . . . . . . . . . 10,650 10,650 10,680
======= ======= =======
Diluted . . . . . . . . . . . . . . . . 10,650 10,650 10,680
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
10
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FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 10,650 $ 1 $ -- $ (259) $ (258)
Distribution to
stockholders . . . . . -- -- -- (136) (136)
Net income . . . . . . -- -- -- 728 728
----- ---- ---- ------ ------
Balance at December 31,
1995 . . . . . . . . . . 10,650 1 -- 333 334
Net income . . . . . . -- -- -- 1,559 1,559
----- ---- ---- ------ ------
Balance at December 31,
1996 . . . . . . . . . . . . 10,650 1 -- 1,892 1,893
Change in par value . . . . -- 9 -- (9) --
Issuance of common stock. . 108 -- 2 -- 2
Stock split effected in
the form of a dividend . . -- 98 -- (98) --
Issuance of common stock
in exchange for minority
interest of subsidiary . . 999 10 3,488 -- 3,498
Net income . . . . . . . . -- -- -- 2,661 2,661
----- ---- --------- ------ ------
Balance at December 31,
1997. . . . . . . . . . . . 11,757 $118 $ 3,490 $4,446 $8,054
====== ==== ======== ====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
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FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . $ 728 $ 1,559 $ 2,661
Adjustments to reconcile net income to net cash
provided by operating activities . . . . . . . . . 259 680 1,521
Depreciation and amortization . . . . . . . . . .
Minority interest on earnings . . . . . . . . . . 76 219 750
Provision for doubtful accounts. . . . . . . . . . -- -- 37
Loss on sale of property and equipment . . . . . . -- -- 4
Deferred income tax provision . . . . . . . . . . (29) 242 138
Change in assets and liabilities
Increase in accounts receivable . . . . . . . . (1,357) (1,263) (3,378)
Decrease (increase) in inventories . . . . . . . 314 (256) (226)
Decrease (increase) in costs and
estimated earnings in excess of
billings on uncompleted contracts . . . . . . . 281 (251) 332
Increase in other assets . . . . . . . . . . . . (89) (150) (58)
Increase in income tax receivable . . . . . . . -- (139) (634)
(Increase) decrease in deposits . . . . . . . . (290) 58 22
Increase (decrease) in due to bank . . . . . . . -- 88 (88)
(Decrease) increase in trade accounts payable. . (198) 44 457
Increase in accrued liabilities . . . . . . . . 376 317 2,768
Decrease in billings in excess of costs and
estimated earnings on uncompleted contracts . . (56) -- --
Increase in other liabilities . . . . . . . . . 21 36 621
------- ------- -------
Net cash provided by operating activities 36 1,184 4,927
Cash flows from investing activities
Acquisition of property and equipment . . . . . . . . (934) (1,425) (3,256)
Proceeds from sales of property and equipment . . . . -- -- 12
Asset acquisition costs . . . . . . . . . . . . . . . -- -- (298)
------- ------- -------
Net cash used by investing activities . . . . (934) (1,425) (3,542)
Cash flows from financing activities
Proceeds from issuance of debt . . . . . . . . . . . 3,393 3,435 1,130
Payments on long-term debt and notes payables . . . . (3,395) (2,113) (1,251)
Net (payments) proceeds on revolving lines of credit 886 (567) 81
Financing costs . . . . . . . . . . . . . . . . . . . -- (580) (969)
Issuance of common stock . . . . . . . . . . . . . . -- -- 2
------- ------- -------
Net cash provided (used) by financing
activities . . . . . . . . . . . . . . . . 884 175 (1,007)
------- ------- -------
Net (decrease) increase in cash . . . . . . . (14) (66) 378
Cash and cash equivalents at beginning of period . . . 80 66 --
------- ------- -------
Cash and cash equivalents at end of period . . . . . . $ 66 $ -- $ 378
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
- 12 -
<PAGE> 13
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of
First Wave Marine, Inc. (the Company) and its wholly-owned subsidiaries,
Newpark Shipbuilding and Repair, Inc. (Newpark), EAE Industries, Inc., EAE
Services, Inc., Newpark Marine Fabricators, Inc. and Louisiana Ship, Inc. The
minority interest stockholders of Newpark exchanged their shares of Newpark for
shares of the Company effective December 31, 1997 (see note N). All material
intercompany balances and transactions have been eliminated in consolidation.
The Company's business is concentrated in providing shipyard and related
environmental services to the offshore support vessel, offshore barge and
inland marine industries, and the Company customarily extends credit to such
customers. The Company provides a full range of repair and construction
services as well as environmental services including cleaning, degassing and
wastewater disposal from its location along the Houston Ship Channel in
Houston, Texas.
2. REVENUE RECOGNITION
Revenues from construction performed under lump-sum contracts are recognized
on the percentage-of-completion method, measured by the percentage of labor
hours incurred to date to estimated total labor hours for each contract. This
method is used because management considers expended labor hours to be the best
available measure of progress on these contracts.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation costs. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes
in job performance, job conditions, and estimated profitability, including
those arising from contract penalty provisions, and final contract settlements
may result in revisions to costs and income and are recognized in the period in
which the revisions are determined. Profit incentives are included in revenues
when their realization is reasonably assured. An amount equal to contract costs
attributable to claims is included in revenues when realization is probable and
the amount can be reliably estimated.
The asset, "costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed.
Revenues from repairs, upgrades and environmental services performed under
time-and-materials arrangements are recognized as the services are provided.
Included in accounts receivable are unbilled receivables in the amounts of
$938 and $2,450 at December 31, 1996 and 1997, respectively, all of which are
due within a one year period.
- 13 -
<PAGE> 14
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- CONTINUED
3. INVENTORIES
Inventories consist of raw materials and repair parts. Inventories are valued
at the lower of cost or market using the first-in, first-out method.
4. INCOME TAXES
Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences reverse. Deferred tax expense (benefit) is the result of changes in
deferred tax assets and liabilities.
5. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided principally on the straight-line method over the estimated useful
lives of the assets.
6. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
7. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased with
an original maturity of three months or less to be cash equivalents.
8. FINANCING COSTS
Financing costs are amortized over the life of the related loan. Accumulated
amortization on financing costs at December 31, 1996 and 1997 was $42 and $111,
respectively. Also included in financing costs at December 31, 1997 are
financing costs related to the senior notes offering completed in February
1998.
9. GOODWILL AND OTHER INTANGIBLES
Goodwill resulting from acquisitions is being amortized on a straight-line
method over 40 years. Organizational costs are amortized on a straight-line
method over a period of five years. Accumulated amortization on goodwill and
other intangibles at December 31, 1996 and 1997 was $94 and $146, respectively.
When events and circumstances so indicate, the carrying value of goodwill and
other intangibles is assessed for recoverability based upon cash flow
forecasts. No impairment losses have been recognized in any of the periods
presented.
- 14 -
<PAGE> 15
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- CONTINUED
10. EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share. All periods presented
have been restated to reflect the adoption of this SFAS.
Basic earnings per share is calculated by dividing net income by the
weighted-average number of common shares outstanding during the period.
Diluted earnings per share is calculated by dividing net income by the
weighted-average number of common shares outstanding during the period,
adjusted for any dilutive potential common shares outstanding during the
period. Incentive stock options granted on December 30, 1997 were the only
dilutive common shares outstanding during 1997.
On September 30, 1997, the Company merged into and became a Delaware
corporation which effectively resulted in a stock split of 1,000 for 1 and the
establishment of a $.01 par value on the common stock. All share and per share
data have been restated to give effect to the stock split.
On November 20, 1997, the Company's common stock was split 10.65 for 1 to
stockholders of record on that date, and was effected as a stock dividend. All
share and per share data have been restated to give effect to the stock split.
11. RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
NOTE B -- CONTRACTS IN PROGRESS
Information regarding construction under lump-sum contracts in progress as of
December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C>
Expenditures on uncompleted contracts . . $ 712 $2,276 $1,379
Estimated earnings . . . . . . . . . . . 162 1,377 1,123
----- ------ ------
874 3,653 2,502
Less billings applicable thereto . . . . -- 2,528 1,709
----- ------ ------
Costs and estimated earnings in excess
of billings on uncompleted contracts. . $ 874 $1,125 $ 793
===== ====== ======
Included in the accompanying balance
sheet under the following caption:
Costs and estimated earnings in excess
of billings on uncompleted contracts . . $ 874 $1,125 $ 793
Billings in excess of costs and
estimated earnings on uncompleted
contracts . . . . . . . . . . . . . . . -- -- --
----- ------ ------
$ 874 $1,125 $ 793
===== ====== ======
</TABLE>
- 15 -
<PAGE> 16
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment are summarized as of December 31, as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES IN
YEARS 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Land . . . . . . . . . . . . . . . -- $3,355 $4,843
Buildings . . . . . . . . . . . . . 31-40 4,584 6,453
Automobiles . . . . . . . . . . . . 5-7 59 188
Office furniture, fixtures and
equipment. . . . . . . . . . . . 3-5 211 365
Equipment . . . . . . . . . . . . . 5-16 8,693 12,321
Construction in progress . . . . . 704 1,397
------- -------
17,606 25,567
Less accumulated depreciation . (851) (2,241)
------- -------
$16,755 $23,326
======= =======
</TABLE>
NOTE D -- LONG-TERM OBLIGATIONS AND NOTES PAYABLE
Long-term obligations and notes payable as of December 31, consist of the
following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Revolving line of credit of $4,000 at a bank;
interest at prime plus 1% (9.5% at December 31,
1997) due monthly; principal due on demand;
collateralized by receivables, inventory and
guaranteed by the chairman of the Company . . . . . . . $ 1,519 $1,027
Note payable to a corporation; unsecured; due on
demand; interest at 7% . . . . . . . . . . . . . . . . . -- 215
Note payable to a financial institution; due in
monthly installments of $159 including interest at
10.42% through September 2003; collateralized by
all assets, stock issued, and guaranteed by
the chairman of the Company . . . . . . . . . . . . . . 11,630 10,903
Subordinated note payable to a corporation; interest
at 5%; principal and interest due September 2003;
collateralized by all assets, stock issued, and
guaranteed by the chairman of the Company. . . . . . . . 6,328 6,328
Notes payable to a bank; interest ranging from 8% to
10.75%; due in monthly installments of $5 through
March 2000, collateralized by certain assets and
guaranteed by the chairman of the Company. . . . . . . . 119 --
Subordinated note payable to a corporation; due in monthly
installments of $7 including interest of 8% through
September 2003. Additional payments of principal of $40
are due on each of the third, fourth, fifth and sixth
anniversary dates of the note; guaranteed by the
chairman of the Company . . . . . . . . . . . . . . . . . 586 548
</TABLE>
- 16 -
<PAGE> 17
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE D - LONG-TERM OBLIGATIONS AND NOTES PAYABLE- CONTINUED
<TABLE>
<S> <C> <C>
Note payable to a financial institution; due
in monthly installments of $10, including interest at
9.25% through February 2002; collateralized by
equipment, and guaranteed by the chairman of the
Company . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 483
Note payable to a financial institution; due in
monthly installments of $8, including interest at
9.90% through August 2003; collateralized by all
assets, stock issued, and guaranteed by the
chairman of the Company . . . . . . . . . . . . . . . . . -- 587
Note payable to a bank; due in monthly installments
of $21, including interest at prime plus 1%
through August 2000; collateralized by accounts
receivable, inventories and property and
equipment, and guaranteed by the chairman of the
Company . . . . . . . . . . . . . . . . . . . . . . . . . -- 569
Notes payable to banks; interest ranging from 8.5%
to 9.5%; collateralized by automobiles. . . . . . . . . . -- 59
Revolving line of credit of $800 at a bank; interest
at prime plus 1% (9.5% at December 31, 1997);
collateralized by receivables, inventory and fixed
assets . . . . . . . . . . . . . . . . . . . . . . . . . -- 586
Notes payable to a bank; due in monthly installments
of $8, including interest at prime plus 1% (9.5% at
December 31, 1997); collateralized by receivables,
inventory and fixed assets . . . . . . . . . . . . . . . -- 358
Capital lease obligation . . . . . . . . . . . . . . . . -- 3,209
------- -------
20,182 24,872
Less current portion . . . . . . . . . . . . . . . . . . 2,396 215
------- -------
$17,786 $24,657
======= =======
</TABLE>
In February 1998, all notes payable and long-term obligations of the Company
were paid in full, except for the following: $215 note payable to a
corporation, $6,328 subordinated note payable to a corporation and the $3,209
capital lease obligation. These debt obligations were paid in full with
proceeds from the $90 million senior notes offering completed in February 1998
(see note M). Because these debt obligations were paid with long-term
obligations, these loans are classified as long-term debt in the consolidated
balance sheet of the Company. In connection with the early extinguishment of
this debt, the Company will incur prepayment penalties of approximately
$850,000 and the write-off of approximately $470,000 in loan origination costs
in the first quarter of 1998.
Certain notes payable are subject to loan agreements which contain, among
other things, provisions restricting other borrowings, acquisitions, capital
expenditures, redemption of the Company's stock and dividends, and require the
Company to maintain certain financial ratios.
The $6,328 subordinated note payable contains a default penalty of $2,206 if
the note is not fully paid by the maturity date. It is management's intention
to pay this note in full prior to the maturity date, September 30, 2003.
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term debt is
$17,643 and $24,059 at December 31, 1996 and 1997.
- 17 -
<PAGE> 18
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE E -- INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
Current tax expense . . . . . . . $312 $856 $1,863
Deferred tax expense (benefit). . (29) 242 138
---- ------ ------
$283 $1,098 $2,001
==== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- ---------
<S> <C> <C>
Deferred tax assets:
Percentage of completion
allowance . . . . . . . . $ 23 $ 18
Bonus accrual . . . . . . . -- 206
Other . . . . . . . . . . . -- 57
------ -----
$ 23 $ 281
====== =====
Deferred tax liabilities:
Capitalized small tools . . $ (39) $ (40)
Depreciation . . . . . . . (197) (592)
------ -----
$ (236) $(632)
====== =====
</TABLE>
The reconciliation between the Company's effective income tax rate and the
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------
1995 1996 1997
---------- --------- ----------
<S> <C> <C> <C>
Statutory federal income
tax rate . . . . . . . 34.00% 34.00% 34.00%
Change in valuation
allowance . . . . . . . (11.09) -- --
Minority interest . . . . 2.56 2.80 5.47
State taxes . . . . . . . 2.16 3.61 3.99
Other . . . . . . . . . . 0.36 0.91 (.53)
----- ----- -----
Effective income tax rate 27.99% 41.32% 42.93%
===== ===== =====
</TABLE>
The Company utilized its remaining net operating loss carryforward of $300
during 1995.
NOTE F -- LEASING ARRANGEMENTS
Prior to the acquisition of facilities and equipment in 1996, the Company
conducted its operations in leased facilities and leased certain equipment
under operating leases. Rental expense for operating leases was $1,631, $1,202
and $39 for 1995, 1996 and 1997.
In October 1997, the Company entered into a lease agreement for a shipyard
facility in Galveston, Texas. The lease agreement provides for an initial term
of fifteen years with options to renew up to a total term of ninety-nine years,
and monthly payments of $58. The Company is further obligated to spend at least
$20,000 on improvements and equipment for the facility prior to January 31,
2001. Rental expense for this operating lease during 1997 was $116.
- 18 -
<PAGE> 19
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE F -- LEASING ARRANGEMENTS - CONTINUED
Effective December 1, 1997, the Company entered into an agreement to lease an
airplane from an entity that is owned by two shareholders of the Company. The
lease provides for a term of five years at a monthly rental of $5. Under
the terms of the lease, the Company is required to maintain the airplane in
good working condition, to pay all operating expenses related to the airplane
and to maintain insurance on the airplane. Company policy requires that any
direct costs related to personal use of the airplane be reimbursed to the
Company.
Future minimum lease payments for all noncancelable operating leases having a
remaining term in excess of one year at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ended December 31:
1998 . . . . . . . . . . . . . $ 760
1999 . . . . . . . . . . . . . 760
2000 . . . . . . . . . . . . . 760
2001 . . . . . . . . . . . . . 760
2002 . . . . . . . . . . . . . 755
Thereafter . . . . . . . . . . 6,883
-------
$10,678
========
</TABLE>
In August 1997, the Company commenced certain of its operations in leased
facilities. For financial reporting purposes, minimum lease rentals relating to
the building and land have been capitalized. The related assets and obligations
have been recorded using the Company's incremental borrowing rate at the
inception of the lease. The lease, which is noncancelable, expires in August
2002, at which time ownership of the assets will transfer to the Company. The
following is a schedule of leased property under capital leases at December 31,
1997:
<TABLE>
<S> <C>
Land . . . . . . . . . . . . . . . . $1,417
Buildings and equipment . . . . . . . 1,792
------
3,209
Less accumulated depreciation . . . . 37
------
$3,172
======
</TABLE>
The following is a schedule by years of future minimum lease payments under
capital leases together with present value of the net minimum lease payments as
of December 31, 1997:
<TABLE>
<S> <C>
Year ended December 31:
1998 . . . . . . . . . . . . . . $ --
1999 . . . . . . . . . . . . . . 200
2000 . . . . . . . . . . . . . . 595
2001 . . . . . . . . . . . . . . 655
2002 . . . . . . . . . . . . . . 3,323
--------
Total minimum lease payments. . . . . 4,773
Less amount representing interest . . 1,564
--------
3,209
Current portion . . . . . . . . . . . --
--------
Noncurrent portion . . . . . . . . . $ 3,209
========
</TABLE>
NOTE G -- CONTINGENCIES
In November 1997, the Company entered into a nonbinding letter of intent to
purchase certain shipyard assets, including real property and improvements, in
Galveston, Texas for $5,500.
- 19 -
<PAGE> 20
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE G -- CONTINGENCIES - CONTINUED
The Company is involved in certain claims and lawsuits occurring in the
normal course of business. Management, after consultation with outside legal
counsel, does not believe the outcome of these actions will have a material
impact on the financial statements of the Company.
The Company is subject to extensive and changing federal, state and local
laws and regulations designed to protect the environment. The Company from time
to time is involved in administrative and other proceedings under environmental
laws involving its operations and facilities. Environmental laws could impose
liability for remediation costs or result in civil or criminal penalties in
cases of noncompliance. Environmental laws have been subject to frequent
change; therefore, the Company is unable to predict the future costs or other
future impact of environmental laws on its operations.
NOTE H -- HEALTH INSURANCE PLAN
The Company had a self-insured health plan. The aggregate annual amount of
self-insurance that had to be paid before stop-loss insurance applied varied
based on enrollment and approximated $710 at December 31, 1996. The individual
amount of insurance that had to be paid before stop-loss insurance applied was
$50 per individual claim. Expense under this self-insured plan was
approximately $469 and $694 for the years ended December 31, 1995 and 1996. As
of January 1, 1997 the Company terminated the self-insured health plan.
NOTE I -- BENEFIT PLAN
Eligible employees of the Company participate in a 401(k) deferred savings
plan (the Plan). Under the Plan, participating employees may allocate up to 15%
of their salary and the Company, at its discretion, may make contributions to
the Plan. The Company contributed approximately $26, $42 and $39 for the years
ended December 31, 1995, 1996 and 1997.
NOTE J -- NEW PRONOUNCEMENTS
The FASB has issued Financial Accounting Standards No. 130, Reporting
Comprehensive Income, which is effective for financial statements for fiscal
years beginning after December 15, 1997. The new standard requires an entity
to report and display comprehensive income and its components.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 establishes standards for the way public enterprises are to
report information about operating segments in annual financial statements and
requires the reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic area, and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
Management believes that the adoption of the above two statements in 1998
will not have a material impact on the Company's financial statements.
- 20 -
<PAGE> 21
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE K -- RELATED PARTY TRANSACTIONS
The Company paid management fees to stockholders and entities related by
common ownership for the years ended December 31, 1995, 1996 and 1997 totaling
$480, $1,346 and $180.
The Company paid loan costs of $110 in 1996 to a related entity for services
rendered in connection with obtaining certain long-term debt.
During 1997, the Company loaned $185 to a company related by common
ownership. The loan was due on demand and bore an interest rate of 12%.
Additionally, the Company pledged a $100 certificate of deposit to secure a
bank loan of this related company. In October 1997, when the principal balance
on the loan was $165, the Company sold the notes receivable and the certificate
of deposit to two shareholders of the Company at book value. Subsequent to the
sale, the two shareholders received a bonus equal to the amount of their
payable to the Company and the receivables from the two shareholders were
eliminated.
NOTE L -- MAJOR CUSTOMERS
The Company had the following customers to which it had sales exceeding 10%
of total Company sales for the year ended December 31,:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
SEACOR Smit Inc (a) 22.1% 11.0%
Kirby Corporation 28.0% 15.3% 20.7%
Seariver Maritime 12.2% (a) (a)
- ----------
(a) less than 10%
</TABLE>
NOTE M -- SUBSEQUENT EVENTS
ACQUISITION -- On February 2, 1998, the Company completed the acquisition of
all of the outstanding capital stock of a company that owns and operates
shipyard facilities in Pasadena, Texas and Galveston, Texas. The Company paid
$15 million in cash and issued a promissory note in the amount of $4 million.
The Company used a portion of the proceeds from its $90 million senior notes
offering (discussed below) to fund the cash portion of the acquisition. The
promissory note is adjustable upward or downward based upon outstanding debt
and a final calculation of earnings before interest, taxes, depreciation and
amortization of the acquired company. The promissory note must be paid on or
before July 31, 1998. The acquisition will be accounted for using the purchase
method of accounting.
11% SENIOR NOTES OFFERING -- On February 2, 1998, the Company completed an
offering of $90 million of senior notes. The senior notes bear interest at the
rate of 11% per annum; principal is due at maturity in February 2008. The
senior notes are fully and unconditionally guaranteed, jointly and severally,
by all of the Company's direct and indirect subsidiaries. The Company is
subject to certain restrictive covenants under the related trust indenture.
The indenture contains certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur additional indebtedness,
make certain investments, create certain liens, enter into certain transactions
with affiliates, sell assets, enter into certain mergers and consolidations,
allow subsidiaries to create certain dividend and other payment restrictions,
enter into sale and leaseback transactions, and issue or sell capital stock of
subsidiaries.
- 21 -
<PAGE> 22
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE M -- SUBSEQUENT EVENTS - CONTINUED
Management has determined that presentation of separate financial statements
of the Company's subsidiaries who will guarantee the debt would not be material
to an investment decision. The Company has minimal operations and assets other
than its investment in subsidiaries. The condensed combined financial
information for the Company's subsidiaries who will guarantee the debt is as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ ------
<S> <C>
Current Assets
Cash and Cash Equivalents $ 66 $ -- $ 373
Accounts Receivable . . . . . . . . 4,759 5,147 8,425
Other . . . . . . . . . . . . . . . 485 2,144 2,269
------- ------- -------
5,310 7,291 11,067
Other . . . . . . . . . . . . . . . . 1,317 16,987 24,445
Intangible Assets . . . . . . . . . . 167 662 1,105
------- ------- -------
Total Assets . . . . . . . . . . . $ 6,794 $24,940 $36,617
======= ======= =======
Current Liabilities . . . . . . . . . $ 5,182 $ 4,191 $ 4,228
Noncurrent Liabilities . . . . . . . 132 18,079 25,565
Stockholders' Equity . . . . . . . . 1,480 2,670 6,824
------- ------- -------
Total Liabilities and Stockholders'
Equity . . . . . . . . . . . . . . $ 6,794 $24,940 $36,617
======= ======= =======
Revenues . . . . . . . . . . . . . . $22,000 $27,772 $34,613
Gross Profit . . . . . . . . . . . . $ 4,957 $18,623 $14,661
Earnings from Operations . . . . . . $ 1,334 $ 3,736 $8,496
Net Earnings . . . . . . . . . . . . $ 804 $ 1,824 $4,242
</TABLE>
SHAREHOLDER LINE OF CREDIT -- In February 1998, the board of directors of the
Company approved a maximum $1,000 line of credit available to three shareholders
of the Company. The line of credit allows borrowings of up to $600 to one of
the shareholders and up to $200 to each of the other two shareholders. Any
borrowings under the line of credit will bear an interest rate of 6% per annum
with interest payable annually and principal to be amortized over a ten year
period commencing two years from the date of each advance.
NOTE N -- PURCHASE OF MINORITY INTEREST OF NEWPARK
Effective December 31, 1997, the Company completed the acquisition of all the
minority interests of its subsidiary, Newpark pursuant to a Stock Exchange
Agreement dated October 16, 1997. The minority shareholders of Newpark
exchanged shares representing 17% ownership in Newpark for a total of 999 shares
of common stock of the Company. The 999 shares of the Company were valued at
$3.50 per share based on the fair value of the Company. Goodwill resulting from
the exchange of approximately $2,400 will be amortized over a period of 40
years.
NOTE O -- SUPPLEMENTAL CASH FLOW INFORMATION
During 1996 and 1997, the Company financed the purchase of assets with term
debt and notes payable in the amount of $14,897 and $4,730, respectively.
During 1995, assets of $136 were distributed to the stockholders.
Interest of $335, $619 and $1,389 was paid in 1995, 1996 and 1997,
respectively. Income taxes of $240, $952 and $2,107 were paid in 1995, 1996
and 1997, respectively.
As discussed in note N, on December 31, 1997, the Company completed the
acquisition of 100% of the minority interest of one of its subsidiaries by
exchanging stock in the Company for the remaining stock of the subsidiary.
- 22 -
<PAGE> 23
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE P -- INCENTIVE EQUITY PLAN
On November 20, 1997, the board of directors of the Company approved the 1997
Incentive Equity Plan. The plan provides for the issuance of a maximum of
1,800 shares at an exercise price of not less than 100% of the fair market
value of a share of common stock of the Company at the date of grant. Certain
options under the plan provide for an annual vesting of 20% per year beginning
with the first anniversary of the date of grant. Other options under the plan
provide for an annual vesting of 33-1/3% per year beginning with the first
anniversary of the date of grant. All options under the plan provide for a
term of ten years. On December 30, 1997, through board of director approval,
the 1997 Incentive Equity Plan was amended and became the 1997 Amended and
Restated Incentive Equity Plan.
The Company applies Accounting Principles Board Opinion 25 (APB 25) and
related Interpretations in accounting for its plan. Accordingly, no
compensation cost has been recognized for its stock option plan, as the
exercise price of all stock options granted thereunder is equal to the fair
value at the date of grant. Had compensation costs for the Company's
stock-based plan been determined based on the fair value at the grant date,
consistent with the method of Statement of Financial Accounting Standard No.
123 (SFAS 123), the Company's net income and earnings per share would have been
as follows:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Net income
As reported . . . . . . . . . . . . $ 2,661
Proforma . . . . . . . . . . . . . $ 2,658
Basic earnings per share
As reported . . . . . . . . . . . . $ .25
Proforma . . . . . . . . . . . . . $ .25
Diluted earnings per share
As reported . . . . . . . . . . . . $ .25
Proforma . . . . . . . . . . . . . $ .25
</TABLE>
The fair value of options granted on December 30, 1997 was estimated using
the minimum value method as permitted by SFAS 123 for a nonpublic company. The
following assumptions were used for the options granted: no dividend yield;
risk-free interest rate of 5.725%; and an expected life of 7-1/2 years.
On December 30, 1997, the Company granted a total of 1,482 options to
employees at an option price of $3.50, the fair market value at the date of
grant. Of the total options granted, 942 were granted with a vesting period of
five years and 540 were granted with a vesting period of three years. The fair
value of options granted during 1997 was $1.22. No options are exercisable at
December 31, 1997.
- 23 -
<PAGE> 24
ITEMS 9-13. NOT REQUIRED PURSUANT TO RULE 15D-2 OF THE SECURITIES EXCHANGE
ACT OF 1934.
ITEM 14. EXHIBITS
Although Rule 15d-2 of the Securities Exchange Act of 1934 does not
require Exhibit filings with this Special Report on Form 10-K, Exhibit 27,
Financial Data Schedule has been included.
*27 ---- Financial Data Schedule
*filed herewith
- 24 -
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FIRST WAVE MARINE, INC.
By: /s/ David B. Ammons
------------------------------------
David B. Ammons
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Samuel F. Eakin Chairman of the Board, Chief March 27, 1998
-------------------------------------- Executive Officer and Director
Samuel F. Eakin (Principal Executive Officer)
/s/ Frank W. Eakin President, Chief Operating Officer March 27, 1998
-------------------------------------- and Director
Frank W. Eakin
/s/ David B. Ammons Executive Vice President, Chief March 27, 1998
-------------------------------------- Financial Officer, Secretary and
David B. Ammons Director
(Principal Financial Officer)
/s/ Dale E. Schexnayder Corporate Controller March 27, 1998
-------------------------------------- (Principal Accounting Officer)
Dale E. Schexnayder
/s/ James D. Cole Director March 27, 1998
--------------------------------------
James D. Cole
/s/ Paul E. O'Neill, II Director March 27, 1998
--------------------------------------
Paul E. O'Neill, II
</TABLE>
- 25 -
<PAGE> 26
SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF
THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy material has been sent to security holders.
None will be sent covering Registrant's last fiscal year other than this Form
10-K.
- 26 -
<PAGE> 27
Exhibit Index
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 378 0 66
<SECURITIES> 0 0 0
<RECEIVABLES> 8,488 5,147 3,884
<ALLOWANCES> 37 0 0
<INVENTORY> 792 566 309
<CURRENT-ASSETS> 11,846 7,283 5,309
<PP&E> 25,567 17,606 1,284
<DEPRECIATION> 2,241 851 256
<TOTAL-ASSETS> 39,546 24,932 6,794
<CURRENT-LIABILITIES> 5,525 4,569 6,243
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 118 1 1
<OTHER-SE> 7,936 1,892 333
<TOTAL-LIABILITY-AND-EQUITY> 39,546 24,932 6,794
<SALES> 34,616 27,957 22,000
<TOTAL-REVENUES> 34,616 27,957 22,000
<CGS> 19,952 18,623 17,043
<TOTAL-COSTS> 19,952 18,623 17,043
<OTHER-EXPENSES> 7,437 5,629 3,623
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,815 829 247
<INCOME-PRETAX> 4,662 2,657 1,011
<INCOME-TAX> 2,001 1,098 283
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,661 1,559 728
<EPS-PRIMARY> .25 .15 .07
<EPS-DILUTED> .25 .15 .07
</TABLE>
