<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23653
HORIZON OFFSHORE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2162088
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2500 CITYWEST BOULEVARD, SUITE 2200
HOUSTON, TEXAS 77042
(Address of principal executive offices)
(Zip code)
(713) 361-2600
(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 the registrant's Common Stock outstanding as of July 31,
1998 was 19,826,480.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 9,995 $ 2,846
Accounts receivable-
Contract receivables 17,800 9,165
Costs in excess of billings 20,214 2,958
Related parties 1,433 577
Deferred income taxes 1,808 --
Other current assets 1,000 542
-------- -------
Total current assets 52,250 16,088
PROPERTY AND EQUIPMENT, net 133,505 55,040
DEFERRED INCOME TAXES -- 137
OTHER ASSETS 3,279 1,724
-------- -------
$189,034 $72,989
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 3,840 $ 4,145
Accrued liabilities 11,938 2,540
Accrued job costs 18,035 5,501
Accrued interest 8 681
Billings in excess of costs 556 148
Current maturities of long-term debt 5,621 5,101
Income taxes payable 596 85
-------- -------
Total current liabilities 40,594 18,201
LONG-TERM DEBT, net of current maturities 47,698 34,729
DEFERRED TAXES 2,773 --
-------- -------
Total liabilities 91,065 52,930
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value, 5,000,000 shares
authorized, none issued and outstanding -- --
Common stock, $1 par value, 35,000,000 shares
authorized, 19,826,480 and 14,076,480 issued
and outstanding at June 30, 1998 and
December 31, 1997, respectively 9,119 3,369
Subscriptions receivable -- (950)
Additional paid-in-capital 88,711 24,944
Retained earnings (deficit) 139 (7,304)
-------- -------
Total stockholders' equity 97,969 20,059
-------- -------
$189,034 $72,989
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 2
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
------- ------ ------- -------
<S> <C> <C> <C> <C>
CONTRACT REVENUES $34,311 $7,132 $52,922 $11,637
COST OF CONTRACT REVENUES 25,520 5,595 38,747 11,506
---------- ---------- ---------- ----------
Gross profit 8,791 1,537 14,175 131
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,803 671 3,742 1,168
---------- ---------- ---------- ----------
Operating income (loss) 6,988 866 10,433 (1,037)
OTHER INCOME (EXPENSE)
Interest (310) (111) (1,111) (976)
Gain on sale of asset -- -- -- 614
---------- ---------- ---------- ----------
(310) (111) (1,111) (362)
---------- ---------- ---------- ----------
NET INCOME (LOSS) BEFORE INCOME TAXES 6,678 755 9,322 (1,399)
INCOME TAX EXPENSE 1,879 -- 1,879 --
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 4,799 $ 755 $ 7,443 $(1,399)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE--BASIC AND DILUTED $ 0.24 $ 0.05 $ 0.44 $ (0.10)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES USED IN COMPUTING NET INCOME (LOSS)
PER SHARE-BASIC AND DILUTED 19,608,607 13,750,000 16,935,596 13,750,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 3
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
------- ------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,443 $(1,399)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities--
Depreciation 1,515 573
Deferred income taxes 1,102 --
Gain on sale of assets -- (614)
Changes in operating assets and liabilities--
Accounts receivable (9,491) 433
Costs in excess of billings (17,256) 93
Billings in excess of costs 408 --
Other assets (458) 153
Accounts payable (305) --
Accrued liabilities 9,398 58
Accrued job costs 12,534 (454)
Accrued interest (673) 637
Income taxes payable 511 (1,738)
-------- -------
Net cash provided by (used in) operating activities 4,728 (2,258)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases and additions to equipment (55,768) (2,527)
Dry dock costs (601) --
Purchase of other assets 96 113
Proceeds from sale of assets -- 2,878
-------- -------
Net cash provided by (used in) investing activities (56,273) 464
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under notes payable and long-term debt 13,954 3,500
Loan fees (792) --
Principal payments on long-term debt (24,232) (1,000)
Issuance of common stock 950 --
Initial public offering proceeds, net 68,814 --
-------- -------
Net cash provided by (used in) financing activities 58,694 2,500
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,149 706
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,846 2,650
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,995 $ 3,356
======== =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 1,914 $ --
Cash paid for income taxes $ 265 $ --
Non-cash investing and financing activities:
Purchase and additions to equipment with the issuance of
notes payable $ 24,097 $ --
Gain on sale of assets to related party reflected as a
capital contribution, net of tax effect of $1,631 $ -- $ 3,170
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 4
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated interim financial statements included herein have been prepared
by Horizon Offshore, Inc. (a Delaware corporation) and its subsidiaries (Horizon
or the Company), and are unaudited, except for the balance sheet at December 31,
1997, which has been prepared from the audited financial statements at that
date. In the opinion of management, the unaudited consolidated interim financial
statements include all adjustments necessary for a fair presentation of the
financial position as of June 30, 1998, the statements of operations for each of
the three and six-month periods ended June 30, 1998 and 1997 and the statements
of cash flows for the six-month periods ended June 30, 1998 and 1997. Although
management believes the unaudited interim related disclosures in these
consolidated interim financial statements are adequate to make the information
presented not misleading, certain information and footnote disclosures normally
included in annual audited financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules of the Securities and Exchange Commission. The results of
operations for the six months ended June 30, 1998 are not necessarily indicative
of the result to be expected for the entire year. The consolidated interim
financial statements included herein should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
Registration Statement on Form S-1 (Registration No. 333-43965).
Organization
- ------------
Horizon provides offshore construction services to the oil and gas industry.
These services generally consist of laying and burying marine pipelines for the
transportation of oil and gas. Work is performed primarily on a fixed-price or
day-rate basis or a combination thereof.
In April 1998, the Company completed its initial public offering (the Offering)
of 5,750,000 shares of its common stock at $13.00 per share and received $68.8
million, net of $5.9 million of underwriting commissions and discounts and
expenses. The Company used the net proceeds of the Offering to repay $23.8
million of outstanding Subordinated Notes and to acquire the Stephaniturm, a
230-foot diving support vessel, for $17.5 million. The Company also repaid $18.3
million on its Credit Facility payable to Den norske Bank and invested the
balance of the proceeds in short-term securities. At June 30, 1998, the Company
had incurred $12.0 million of costs related to the construction of a derrick
barge, the Pacific Horizon, which includes an allocated portion of the purchase
price of the BB316, a 350-foot barge acquired in May 1998.
Page 5
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Interest Capitalization
- -----------------------
Interest is capitalized on the average amount of accumulated expenditures for
equipment that has been purchased and is undergoing major modifications and
refurbishments prior to being placed into service. Interest is capitalized
using an effective rate based on related debt until the equipment is placed into
service. Interest expense for the three and six-month periods ended June 30,
1998 is net of $145,000 and $293,000 interest capitalized, respectively.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- -------
<S> <C> <C>
Barges, boats and related equipment $121,940 $51,349
Land and buildings 6,794 4,039
Machinery 5,289 245
Office furniture and equipment 905 424
Leasehold improvements 1,229 237
-------- -------
136,157 56,294
Less-Accumulated depreciation (2,652) (1,254)
-------- -------
Property and equipment, net $133,505 $55,040
======== =======
</TABLE>
During the six months ended June 30, 1998, the Company expended an additional
$79.9 million, primarily for vessel acquisitions, improvements and
refurbishments and for improvements to its marine support base in Port Arthur,
Texas.
The Company has chartered the Stephaniturm to Det Sondenfjelds-Norske
Dampskibsselskab ASA (DSND) until December 31, 1998, with an option to extend
the charter term until March 31, 1999. The charter provides for the payment to
the Company of $4.9 million during the initial term of the charter.
Page 6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto and the discussion
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in the Company's Registration Statement on Form S-1
(Registration No. 333-43965) (the "Registration Statement"), relating to the
Company's initial public offering (the "Offering").
General
- -------
The Company provides marine construction services to the oil and gas industry
primarily in the Gulf of Mexico (the "Gulf"). The Company's marine fleet is
used primarily to install marine pipelines that transport oil and gas from newly
installed production platforms and other subsea production systems. Over the
past several years, improvements in seismic and drilling technology and
production techniques, which have increased drilling success rates and
efficiencies, have resulted in increased exploration and development in the Gulf
and have improved the economics of developing smaller oil and gas fields,
especially in shallow water.
The Company's present management team, which assumed its current role in July
1997, has aggressively expanded the Company's operations and has assembled a
fleet of ten vessels. Horizon currently operates eight of these vessels,
including four pipelay/pipebury barges, a dedicated pipebury barge, a derrick
barge and two diving support vessels. During the first six months of 1997, the
Company operated two pipelay/pipebury barges, the American Horizon and the Cajun
Horizon. The Company acquired four vessels in 1997, all of which were placed
into operation in 1998. The Gulf Horizon and Lone Star Horizon, pipelay barges
capable of laying pipe with diameters ranging up to 42-inches and 48-inches,
respectively, commenced operations in the first quarter of 1998. The Gulf
Horizon completed a project offshore Venezuela during the first quarter of 1998.
The Canyon Horizon, a pipebury barge, and the Pearl Horizon, a diving support
vessel, became operational during the second quarter of 1998. The Company's
expanded fleet competes in the Gulf for substantially all pipeline installation
projects in shallow water depths of 200 feet and less, as well as a significant
number of projects in intermediate water depths between 200 and 800 feet.
Page 7
<PAGE>
The Stephaniturm was acquired in April 1998 with Offering proceeds and is
chartered to DSND for $4.9 million until December 31, 1998, with an option to
extend the charter term to March 31, 1999. The Company recognized $1.8 million
in revenues and $1.5 million in gross profit during the second quarter of 1998
related to this charter. The Stephaniturm offers saturation diving services in
water depths up to 1,000 feet, riser installation, tie-ins and commissioning
services that will allow the Company to perform more complex projects and
operate in deeper water. In May 1998, Horizon acquired a recently refurbished
427-foot derrick barge with a 500-ton lift capacity. The vessel was renamed the
Atlantic Horizon and was placed into service in June 1998.
In May 1998 the Company acquired a 350-foot pipebury barge, renamed the Pacific
Horizon, which is being reconfigured as a derrick barge by installing an 800-
ton, revolving crane. The Phoenix Horizon, a derrick/pipelay barge, is
currently being bid for certain international work and refurbishment will be
completed pending the outcome of the bids.
Among the important events announced during the second quarter was Horizon's
deepwater joint venture with DSND, its strategic alliance partner. The joint
venture, which will conduct deepwater pipelaying operations in the Gulf, will
allow the Company to offer added capabilities to its customers and expand its
presence into the deepwater market.
Results of Operations
- ---------------------
The discussion below describes the Company's results of operations. Certain
factors in particular make the results of the following periods difficult to
compare. First, when the Company's management team assumed its current role in
July 1997, it implemented operational systems and procedures that include
improved bidding and profitability analyses for projects, project supervision
and review procedures, and increased equipment utilization achieved through
vessel and project scheduling.
Second, the Company's fleet that operated during the first six months of 1997
consisted of only two vessels, the American Horizon and the Cajun Horizon.
During the last quarter of 1997 and the first six months of 1998, the Company
made significant acquisitions and improvements to its fleet. The Company
operated four vessels during the first quarter of 1998 and was operating eight
vessels by the end of the second quarter of 1998. The Company anticipates that
due to the substantial growth in the size and operating capabilities of its
fleet, the Company's future operating results will not be comparable to the
Company's historical results. The Company's recent vessel acquisitions have
expanded its operating capabilities and increased its operating cost structure.
The Company's ability to integrate these vessels into its operations will
directly impact the Company's future results of operations. The aggregate
amount of selling, general and administrative expenses is also expected to
increase to support this growth.
Page 8
<PAGE>
Three Months Ended June 30, 1998 Compared to the Three Months Ended
- -------------------------------------------------------------------
June 30, 1997
- -------------
Contract Revenues. Contract revenues were $34.3 million for the quarter ended
June 30, 1998 compared to $7.1 million for the quarter ended June 30, 1997. The
Company's fleet operating during the second quarter of 1998 consisted of eight
vessels compared to two vessels during the second quarter of last year. The
Company laid 63 miles and buried 104 miles of pipe during the quarter ended June
30, 1998 compared to approximately 21 miles laid and 21 miles buried for the
second quarter of 1997.
Gross Profit. Gross profit was $8.8 million (25.6% of contract revenues) for the
second quarter of 1998, compared to a gross profit of $1.5 million (21.6% of
contract revenues) for the second quarter of 1997. Under the guidance of
present management, the Company was able to improve its gross profit margin
through more efficient execution of projects, greater equipment capacity and
utilization and an increase in the number of contracts awarded.
Decreased revenues and gross profit for the second quarter of 1997 were
primarily attributable to the number of contracts performed and resulting lack
of equipment utilization and backlog.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $1.8 million (5.3% of contract revenues)
for the three months ended June 30, 1998 from $.7 million (9.4% of contract
revenues) for the second quarter of 1997 primarily due to the addition of
personnel and other expenses associated with the growth of the Company. The
percentage decrease was primarily due to the significant increase in revenues
without a commensurate increase in selling, general and administrative expenses.
Interest Expense. Interest expense of $.3 million for the three months ended
June 30, 1998 is net of $145,000 of interest capitalized. Interest expense was
$111,000 for the three months ended June 30, 1997. The Company's outstanding
debt increased significantly during the fourth quarter of 1997 and the first six
months of 1998 as a result of the vessel acquisitions and improvements made to
expand the Company's fleet and the acquisition of marine bases in Houma,
Louisiana and in Port Arthur, Texas. However, this increase in indebtedness in
the first half of 1998 was partially offset by the repayment of debt with
proceeds from the Offering during April 1998. The net increase in indebtedness
during the first half of 1998 compares to a decrease in the Company's total
outstanding debt from $39.1 million at December 31, 1996 to $11.1 million at
June 30, 1997. This decrease in debt was attributable to the contribution of
$21.0 million of debt to additional paid-in capital by Highwood Partners, L.P.
and Westgate International, L.P. (the Principal Stockholders) and the
application of $12.0 million of proceeds from the sale of assets to reduce debt
during the first six months of 1997.
Page 9
<PAGE>
Income Taxes. The Company uses the liability method of accounting for income
taxes. The Company utilized net operating loss carryforwards that at least
partially offset income taxes in the second quarters of 1998 and 1997. For
financial reporting purposes, a valuation allowance was established as of
December 31, 1997 and 1996 to offset the Company's net deferred tax assets,
including those related to carryforwards, to the extent they were not realizable
through the sale of appreciated assets. As of June 30, 1998, the Company
utilized a portion of its net operating loss carryforwards and provided federal
income tax expense at a net effective rate of 28.1% for the quarter.
Net Income (Loss). Net income was $4.8 million or $.24 per common share for the
three months ended June 30, 1998, compared to $.8 million or $.05 per common
share for the quarter ended June 30, 1997. The net loss for the second quarter
of 1997 was primarily due to the number of contracts performed and resulting
lack of equipment utilization and backlog. This increase in net income for the
second quarter of 1998 compared to 1997 is due to the significant increase in
revenues and gross profit generated by the Company's expanded fleet.
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997
- -----------------------------------------------------------------------------
Contract Revenues. Contract revenues were $52.9 million for the six months ended
June 30, 1998 compared to $11.6 million for the six months ended June 30, 1997.
The Company laid 109 miles and buried 128 miles of pipe during the six months
ended June 30, 1998 compared to approximately 40 miles laid and 40 miles buried
during the first half of 1997. The Company's results of operations for the first
half of 1998 reflect the expansion of its fleet from two to eight vessels, the
level of offshore activity in the Gulf and management's ability to integrate
these vessels into its operations and to competitively bid, win and successfully
manage projects.
Gross Profit. Gross profit was $14.2 million (26.8% of contract revenues) for
the first six months of 1998, compared to a gross profit of $131,000 for the
same period of 1997. Under the guidance of present management, the Company has
continued to improve its gross profit margin during the last half of 1997 and
through the first half of 1998 as a result of efficient project execution,
greater equipment capacity and utilization and an increase in the number of
contracts awarded. Also included in the cost of contract revenues for the six
months ended June 30, 1997 is $.4 million of operating costs associated with
three boats and certain equipment which were sold to an affiliate in March 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $3.7 million (7.1% of contract revenues)
for the six months ended June 30, 1998 from $1.2 million (10.0% of contract
revenues) for the same period of 1997 primarily due to the addition of personnel
and other expenses associated with the growth of the Company. The percentage
decrease was primarily due to the significant increase in revenues with out a
commensurate increase in selling, general and administrative expenses.
Page 10
<PAGE>
Interest Expense. Interest expense for the six months ended June 30, 1998 was
$1.1 million net of $293,000 of interest capitalized. Interest expense was $1.0
million for the six months ended June 30, 1997. Interest expense increased
during the first six months of 1998 due to the Company's debt borrowings for
vessel acquisitions and improvements made to expand the Company's fleet and the
acquisition of marine bases in Houma, Louisiana and Port Arthur, Texas. This
increase in indebtedness was partially offset by the repayment of debt proceeds
from the Offering in April 1998.
Other Income. The Company sold one of its vessels to an unaffiliated third party
in February 1997 for $3.3 million cash resulting in the recognition of a $.6
million gain.
Income Taxes. The Company uses the liability method of accounting for income
taxes. The Company utilized net operating loss carryforwards that at least
partially offset income taxes in the first six months of 1998 and 1997. For
financial reporting purposes, a valuation allowance was established as of
December 31, 1997 and 1996 to offset the Company's net deferred tax assets,
including those related to carryforwards, to the extent they were not realizable
through the sale of appreciated assets. During the second quarter of 1998, the
Company utilized a portion of its net operating loss carryforwards resulting in
income tax expense of $1.9 million and a 20.2% net effective tax rate for the
six months.
The Company recorded a $1.6 million deferred tax asset in Fiscal 1996 related to
the $4.8 million gain from the sale of assets which was included in taxable
income for 1997. The Company accounted for the $3.2 million gain on the sale,
net of taxes of approximately $1.6 million, as a capital contribution for
financial reporting purposes.
Net Income (Loss). Net income was $7.4 million or $.44 per common share for the
six months ended June 30, 1998, compared to a net loss for the six months ended
June 30, 1997 of $1.4 million or $.10 per common share. The net loss for 1997
was primarily due to the number of contracts performed and resulting lack of
equipment utilization and backlog.
Liquidity and Capital Resources
- -------------------------------
In April 1998, the Company completed the initial public offering of 5,750,000
shares of its common stock and received approximately $68.8 million, net of $5.9
million of underwriting commissions and discounts and expenses. The Company
repaid its $23.8 million indebtedness under its Subordinated Notes, acquired the
Stephaniturm for $17.5 million and expects to use the remaining proceeds of the
Offering to continue construction of the Pacific Horizon. Pending application of
the proceeds for the construction of the Pacific Horizon, the Company repaid
$13.0 million on the term loan and $5.3 million on the revolving note payable to
Den norske Bank (DNB). The balance of the proceeds was invested in short-term
securities. The Company has incurred $12.0 million of costs related to the
construction of the Pacific Horizon.
Page 11
<PAGE>
In May 1998, the Company amended its credit facility with DNB (the "Credit
Facility") to provide for $50 million of borrowings. The amended Credit Facility
provides for a $30 million reducing revolver to be reduced in monthly increments
of $625,000 beginning June 30, 1999 and a $20 million revolving note due June
30, 2000. The amendment requires that certain conditions be met in order for the
Company to obtain advances under the Credit Facility. The Credit Facility is
secured by substantially all assets of the Company, including mortgages on all
vessels owned by the Company, as well as accounts receivable. Other significant
terms and covenants under the Credit Facility are described in the Company's
Registration Statement.
On July 31, 1998, Horizon announced that its board of directors approved the
repurchase of up to $10 million of the Company's outstanding common stock. The
shares may be purchased from time to time, subject to market conditions, in the
open market or in privately negotiated transactions, and such repurchases will
be funded by borrowings provided by a wholly-owned subsidiary of Elliott
Associates, L.P., the Company's largest stockholder. As of August 12, 1998, the
Company had repurchased 2,000 shares of common stock for a total cost of
$16,000.
The Company had working capital of $11.7 million, including cash of $10.0
million, at June 30, 1998 compared to a working capital deficit of $2.1 million
at December 31, 1997. Prior to the completion of the Offering and the amendment
to the Credit Facility, the Company financed its vessel and property
acquisitions and improvements through operating cash flow and short-term
borrowings. The significant growth in the number of construction contracts and
related contract revenues has resulted in an increase in contract receivables.
Cash provided by operations was $4.7 million for the six months ended June 30,
1998 compared to cash used by operations of $2.3 million during the first six
months of last year.
Cash used for capital expenditures, primarily vessel acquisitions and
improvements, totaled $55.8 million and $2.5 million during the first six months
of 1998 and 1997, respectively. Principal payments on long-term debt were $24.2
million and $1.0 million during the first half of 1998 and 1997, respectively.
As of June 30, 1998, the Company had $21.0 million outstanding under the Term
Loan and $9.0 million outstanding under the revolving note payable to DNB
bearing interest at 9.0% per annum.
Planned capital expenditures for the remaining six months in 1998 are estimated
to total approximately $13.2 million to complete improvements to the Company's
existing fleet, excluding the Stephaniturm and the Pacific Horizon discussed
above. Management believes that available cash and cash generated from
operations, together with available borrowings under the Credit Facility, will
be sufficient to fund the Company's currently planned capital projects and
working capital requirements for 1998. The Company's strategy, however, is to
make other acquisitions to expand its operating capabilities and expand into
selected international markets. To the extent the Company is successful in
identifying acquisition opportunities, it may require additional debt or equity
financing depending upon the size of the transaction.
Page 12
<PAGE>
Forward-Looking Statements
- ---------------------------
In addition to historical information, Management's Discussion and Analysis of
Financial Condition and Results of Operations includes certain forward-looking
statements regarding events and financial trends that may affect the Company's
future operating results and financial position. Such forward-looking statements
are subject to uncertainties that could cause the Company's actual results to
differ materially from such statements. Such uncertainties include but are not
limited to: industry conditions and volatility; prices of oil and gas; the
Company's ability to obtain and the timing of new projects, and changes in
competitive factors, including the level of capital expenditures by oil and gas
companies due to fluctuations in the price of oil and gas; risks of growth
strategy, including the risks of rapid growth; operating hazards, including the
unpredictable effect of natural occurrences on operations and the significant
possibility of accidents resulting in personal injury and property damage;
seasonality of the offshore construction industry in the Gulf; the Company's
ability to attract and retain skilled workers; the need for additional
financing; the Company's lack of operating history; contract bidding risks;
percentage-of-completion accounting; continued active participation of the
Company's executive management and key personnel; the effect on the Company's
performance of regulatory programs and environmental matters; risks involved in
the Company's operations expansion into international offshore oil and gas
producing areas; and risks involved in joint venture operations, including
difficulty in resolving disputes with present partners or reaching agreements
with future partners. These and other uncertainties related to the business are
described in detail under the heading "Risk Factors" in the Company's
Registration Statement and in Item 5 to the Company's Current Report on Form 8-K
dated July 21, 1998. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to update any of its forward-looking statements for any
reason.
Page 13
<PAGE>
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The Company's Registration Statement on Form S-1 (Registration No. 333-43965)
(the "Registration Statement"), relating to the Company's initial public
offering of common stock was declared effective by the Securities and Exchange
Commission on April 1, 1998. During the second quarter of 1998 the Company used
$9.6 million of the net proceeds of the initial public offering to continue
construction on the Pacific Horizon.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
10.1 Promissory Note, dated August 5, 1998, payable to Highwood Partners,
L.P.
27.1 Financial Data Schedule
______________
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration Statement No. 333-43965).
(b) Reports on Form 8-K:
On April 30, 1998, the Company filed a report on Form 8-K, reporting under
Item 2, the acquisition of the Stephaniturm, a 230-foot North Sea Class,
dynamically positioned diving support vessel from DSND for $17.5 million.
On May 27, 1998, the Company filed a report on Form 8-K, reporting under
Items 2 and 5, the Company's acquisition of the Valhalla, a recently
refurbished 427-foot derrick barge with a 500-ton lift capacity, renamed the
Atlantic Horizon, for monthly charter payments of $200,000 for 18 months with
an option to purchase the vessel for $13,240,000 at the end of the lease
term. The Company also acquired a 350-foot pipebury barge from a subsidiary
of J. Ray McDermott, S.A. for $10 million. This barge will be reconfigured as
a derrick barge and renamed the Pacific Horizon.
On July 21, 1998, the Company filed a report on Form 8-K, reporting under
Item 5, cautionary statements concerning forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Page 14
<PAGE>
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.
HORIZON OFFSHORE, INC.
Date: August 14, 1998 By: /s/ DAVID W. SHARP
---------------------------------
David W. Sharp
Executive Vice President and
Chief Financial Officer
Page 15
<PAGE>
THIS NOTE AND ANY INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATED TO ANY
INDEBTEDNESS, WHETHER NOW EXISTING OF HEREAFTER INCURRED, OF THE MAKER HEREOF
UNDER THAT CERTAIN AMENDED AND RESTATED CREDIT AGREEMENT, DATED MAY 13, 1998,
AMONG HORIZON VESSELS, INC., HORIZON OFFSHORE CONTRACTORS, INC., HORIZON
OFFSHORE, INC. AND DEN NORSKE BANK ASA.
__________________________
HORIZON OFFSHORE, INC.
PROMISSORY NOTE
DUE JUNE 30, 2003
__________________________
$10,000,000.00 Houston, Texas
August 5, 1998
FOR VALUE RECEIVED, Horizon Offshore, Inc., a Delaware corporation (the
"Maker"), promises to pay to the order of Highwood Partners, L.P., a Delaware
limited partnership ("Payee"), as provided below, at 712 Fifth Avenue, New York,
New York 10019 (or at such other address as any holders hereof may designate in
writing), the sum of ten million and no/100 dollars ($10,000,000.00), or such
lesser amount as may have been advanced by the Payee hereunder, together with
interest on the unpaid principal balance at the rate set forth below, on the
earlier to occur of June 30, 2003 or such earlier date as such amount may become
due and payable in accordance with the terms hereof (the "Maturity Date").
Payment for all amounts due hereunder shall be made in lawful money of the
United States of America paid at the address of the Payee, or in such other form
or by such other means as the Maker and any holder shall agree.
1. ADVANCEMENT OF FUNDS. Horizon may from time to time request advances
pursuant to this Note, provided that no event has occurred which would
constitute an event of default hereunder, by presenting to Highwood a request
for borrowing (a "Request"). Within three days of the receipt of such Request,
Highwood shall advance the requested funds to such account as Horizon may direct
by wire transfer of immediately available funds. Any amounts advanced hereunder
shall only be used to repurchase shares of Horizon's common stock, $1.00 par
value per share, in open market purchases or privately negotiated transactions
effected in accordance with Rule 10b-18 under the Securities Exchange Act of
1934, as amended.
2. PAYMENT. The unpaid principal balance of this Note shall be paid on
the Maturity Date.
The outstanding principal amount of this Note from time to time shall bear
interest until paid at the rate set forth below. Interest shall be calculated
on a 360 day per year basis and paid for the
-1-
<PAGE>
actual number of days elapsed (including the first but excluding the last day)
during any period and shall be paid quarterly on March 31, June 30, September 30
and December 31 of each year, commencing September 30, 1998, and with a final
interest payment in the amount of all outstanding interest then unpaid being due
on the Maturity Date. The rate of interest to be charged from time to time on
this Note shall be equal to, for any particular period, the rate of interest
payable during such period on amounts borrowed under that certain Amended and
Restated Credit Agreement, dated May 13, 1998 among Horizon Vessels, Inc. and
Horizon Offshore Contractors, Inc., as borrowers, the Maker as guarantor and Den
norske Bank ASA, or any amendment, renewal or extension thereof (the "Credit
Facility"). If at any time during the term of this Note the Credit Facility is
no longer in effect, outstanding balances under this Note shall bear interest at
a rate of 9 1/2% per annum.
If a payment of principal or interest falls due on a Saturday, Sunday, or
any other day on which financial institutions are generally not open for
business in Houston, Texas, payment shall be made on the next preceding business
day.
Any amount paid pursuant to Section 3 shall be applied first to any accrued
and unpaid interest then accrued, if any, and, then to the principal amounts due
hereunder.
3. PREPAYMENT. The Maker may at any time prepay any amount outstanding
under this Note in whole or in part without notice or penalty.
4. DEFAULT.
4.1 Events of Default. The following events or actions shall
constitute an event of default ("Events of Default"):
(a) Maker shall default in the payment when due of any principal
or interest under the Note and such default shall continue for three (3)
business days after such amount is due; or
(b) Maker shall be in default in the performance of or compliance
with any term of any evidence of any indebtedness in an aggregate
outstanding principal amount in excess of $100,000 or of any mortgage,
indenture or other agreement relating thereto or any other condition
exists, and as a consequence of such default or condition such indebtedness
has become, or has been declared due and payable prior to its stated
maturity or before its regularly scheduled dates of payment; or
(c) Maker shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of its creditors, (iii) commence
a voluntary case under the U.S. Bankruptcy Code (as now or hereafter in
effect), (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, (v) fail to controvert in a timely
and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the U.S. Bankruptcy Code, or (vi)
take any corporate action for the purpose of effecting any of the
foregoing; or
-2-
<PAGE>
(d) A proceeding or case shall be commenced, without the
application or consent of Maker in any court of competent jurisdiction,
seeking (i) its liquidation, reorganization, dissolution or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of Maker or of all or
any substantial part of the assets of any of them, or (iii) similar relief
in respect or Maker under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of sixty (60) days; or an
order for relief against Maker shall be entered in an involuntary case
under the U.S. Bankruptcy Code.
4.2 Remedies Upon Default. If any Event of Default shall occur, the
holder of the Note may declare the principal amount of the Note to be
immediately due and payable. The holder of such accelerated Note may proceed to
protect and enforce its rights under the Note by a suit in equity, action at law
or other appropriate proceeding whether for the specific performance of any
agreements contained herein or for an injunction against a violation of any of
the terms or provisions hereof; or in aid of the exercise of any power granted
hereby or at law. No right shall operate as a waiver thereof or otherwise
prejudice the rights of such holder and no consent or waiver shall extend beyond
the particular case and purpose involved. No remedy conferred hereby shall be
exclusive of any other remedy referred to herein or now or hereafter available
at law, in equity, by statute or otherwise.
5. WAIVER PROVISIONS/COSTS. Maker waives presentment for payment, notice
of nonpayment, notice of intent to accelerate and notice of acceleration,
protest, notice of protest, notice of dishonor or nonpayment, bringing of suit,
diligence in taking any action to collect amounts called for hereunder.
6. CHOICE OF LAW. THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN AND IS
INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF SUCH STATE.
IN WITNESS WHEREOF, the Maker has caused this Note to be issued this 5th
day of August, 1998.
HORIZON OFFSHORE, INC.
By: /s/ Bill J. Lam
-------------------------------
Bill J. Lam
President
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENT OF HORIZON OFFSHORE INC. AND
SUBSIDIARIES AS OF JUNE 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,995
<SECURITIES> 0
<RECEIVABLES> 39,447
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,250
<PP&E> 136,505
<DEPRECIATION> (2,652)
<TOTAL-ASSETS> 189,034
<CURRENT-LIABILITIES> 40,594
<BONDS> 0
0
0
<COMMON> 9,119
<OTHER-SE> 88,850
<TOTAL-LIABILITY-AND-EQUITY> 189,034
<SALES> 52,922
<TOTAL-REVENUES> 52,922
<CGS> 38,747
<TOTAL-COSTS> 38,747
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,111
<INCOME-PRETAX> 9,322
<INCOME-TAX> 1,879
<INCOME-CONTINUING> 7,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,443
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
