<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 SEPTEMBER 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 October
30, 1998 was 18,699,280.
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
1998 1997
--------- ---------
(Unaudited) (Audited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,452 $ 2,846
Accounts receivable-
Contract receivables 24,714 9,165
Costs in excess of billings 15,147 2,958
Related parties 576 577
Deferred income taxes 337 -
Other current assets 594 542
--------- ---------
Total current assets 42,820 16,088
PROPERTY AND EQUIPMENT, net 139,906 55,040
DEFERRED INCOME TAXES - 137
OTHER ASSETS 3,673 1,724
--------- ---------
$ 186,399 $ 72,989
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 9,458 $ 4,145
Accrued liabilities 5,347 2,540
Accrued job costs 14,999 5,501
Accrued interest 10 681
Billings in excess of costs 1,215 148
Current maturities of long-term debt 2,402 5,101
Income taxes payable 215 85
--------- ---------
Total current liabilities 33,646 18,201
LONG-TERM DEBT, net of current maturities 50,765 34,729
DEFERRED INCOME TAXES 2,608 -
--------- ---------
Total liabilities 87,019 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, 19,582,280 and 14,076,480 issued
at September 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) 3,088 (7,304)
Treasury stock , 244,200 shares at cost (1,538) -
--------- ---------
Total stockholders' equity 99,380 20,059
--------- ---------
$ 186,399 $ 72,989
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
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HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CONTRACT REVENUES $ 34,894 $ 10,594 $ 87,816 $ 22,231
COST OF CONTRACT REVENUES 27,545 7,389 66,292 18,895
----------- ----------- ----------- -----------
Gross profit 7,349 3,205 21,524 3,336
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,308 790 6,050 1,958
----------- ----------- ----------- -----------
Operating income 5,041 2,415 15,474 1,378
OTHER INCOME (EXPENSE)
Interest (601) (222) (1,712) (1,198)
Gain on sale of asset - - - 614
----------- ----------- ----------- -----------
(601) (222) (1,712) (584)
----------- ----------- ----------- -----------
NET INCOME BEFORE INCOME TAXES 4,440 2,193 13,762 794
INCOME TAX EXPENSE 1,491 - 3,370 -
----------- ----------- ----------- -----------
NET INCOME $ 2,949 $ 2,193 $ 10,392 $ 794
=========== =========== =========== ===========
NET INCOME PER SHARE--BASIC AND DILUTED $ 0.15 $ 0.16 $ 0.58 $ 0.06
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES USED IN COMPUTING
NET INCOME PER SHARE-BASIC AND DILUTED 19,740,572 14,016,324 17,880,863 14,016,324
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Page 3
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HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 10,392 $ 794
Adjustments to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation 3,121 791
Deferred income taxes 2,408 (66)
Gain on sale of asset - (614)
Changes in operating assets and liabilities-
Accounts receivable (15,548) (5,875)
Costs in excess of billings (12,189) 694
Billings in excess of costs 1,067 780
Other assets (52) 149
Accounts payable 5,313 -
Accrued liabilities 2,807 2,390
Accrued job costs 9,498 (332)
Accrued interest (671) 17
Income taxes payable 130 66
-------- --------
Net cash provided by (used in) operating activities 6,276 (1,206)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases and additions to equipment (61,619) (6,256)
Dry dock costs (619) -
Purchase of other assets (368) -
Proceeds from sale of assets - 2,933
-------- --------
Net cash used in investing activities (62,606) (3,323)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under notes payable and long-term debt 13,747 4,591
Loan fees (767) -
Principal payments on long-term debt (26,177) (1,502)
Issuance of common stock 950 -
Initial public offering proceeds, net 68,721 -
Purchase of treasury stock (1,538) -
-------- --------
Net cash provided by financing activities 54,936 3,089
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,394) (1,440)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,846 2,650
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,452 $ 1,210
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 1,914 $ 68
Cash paid for income taxes $ 265 $ -
Non-cash investing and financing activities:
Purchase and additions to equipment with the issuance of notes payable $ 26,098 $ 4,925
Gain on sale of assets to related party reflected as a capital contribution,
net of tax effect of $1,631 $ - $ 3,170
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Page 4
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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 September 30, 1998, the statements of operations for
each of the three and nine-month periods ended September 30, 1998 and 1997 and
the statements of cash flows for the nine-month periods ended September 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 nine months ended September 30, 1998 are not
necessarily indicative of the results 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 $68.7
million, net of $6.0 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 $18.3 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 September 30, 1998, the
Company had incurred $15.6 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.
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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 nine-month periods ended
September 30, 1998 is net of $443,000 and $736,000 interest capitalized,
respectively. Interest capitalized as of September 30, 1997 was $173,000.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
September 30, December 31,
1998 1997
--------- ---------
Barges, boats and related equipment $ 128,806 $ 51,349
Land and buildings 7,526 4,039
Machinery 5,313 245
Office furniture and equipment 1,099 424
Leasehold improvements 1,267 237
--------- ---------
144,011 56,294
Less- Accumulated depreciation (4,105) (1,254)
--------- ---------
Property and equipment, net $ 139,906 $ 55,040
========= =========
During the nine months ended September 30, 1998, the Company expended $87.7
million 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 its initial term.
3. TREASURY STOCK
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 September 30, 1998,
the Company had repurchased 244,200 shares of common stock for a total cost of
$1,538,000 through debt borrowings. The interest rate on the debt was 9% at
September 30, 1998, and the debt matures on March 31, 2003.
Page 6
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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
Horizon Offshore, Inc. 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 Horizon's operations. This management team has
assembled a fleet of ten vessels capable of providing a full range of pipeline
and derrick services in varying water depths. Horizon currently operates eight
of these vessels, consisting of four pipelay/pipebury barges, a dedicated
pipebury barge, a derrick barge and two diving support vessels. 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.
Horizon has one derrick barge deployed, one derrick barge under construction and
a derrick/pipelay barge undergoing refurbishment. These derrick barges have lift
capacities ranging from 200 to 800 tons. The growth in the size and operating
capabilities of the fleet is reflected in the Company's revenues and operating
results. The following table describes Horizon's marine vessels and the date
each vessel was deployed.
DATE DEPLOYED Vessel Vessel Type
- ------------- ------ -----------
April 1996 American Horizon Pipelay/Pipebury
July 1996 Cajun Horizon Pipelay/Pipebury
January 1998 Lone Star Horizon Pipelay/Pipebury
February 1998 Gulf Horizon Pipelay/Pipebury
April 1998 Pearl Horizon Diving Support Vessel
May 1998 Stephaniturm Diving Support Vessel
June 1998 Canyon Horizon Pipebury
June 1998 Atlantic Horizon Derrick barge
First Quarter 1999* Phoenix Horizon Derrick/Pipelay
First Quarter 1999* Pacific Horizon Derrick
* ANTICIPATED DATE OF DEPLOYMENT.
Page 7
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The Stephaniturm, a 244-foot dynamically positioned diving support vessel, 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 $1.7 million in revenues and $1.4 million
in gross profit during the third quarter of 1998 related to this charter, and
$3.5 million in revenues and $2.9 million in gross profit during the first nine
months of 1998. 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 and under adverse weather conditions.
In May 1998, the Company acquired the BB-316, a 350-foot pipebury barge,
subsequently 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. Adverse weather
conditions in the Gulf of Mexico during the third quarter of 1998 caused delays
in the refurbishment of the Phoenix Horizon and in the delivery of equipment
needed to complete the construction of the Pacific Horizon. It is anticipated
that these vessels will be placed into service in the first quarter of 1999.
Horizon formed a deepwater joint venture with DSND, its strategic alliance
partner, in the second quarter of 1998 to conduct deepwater pipelaying
operations in the Gulf. The Company will offer added capabilities to its
customers and expand its presence into the deepwater market through the joint
venture's operations.
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. This management team has increased equipment utilization
achieved through vessel and project scheduling and through an expansion in
Horizon's client base.
Second, the fleet that operated during the first nine months of 1997 consisted
of only two vessels, the American Horizon and the Cajun Horizon. During the last
quarter of 1997 and the first nine 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. Due to the substantial growth in the size and operating
capabilities of its fleet, 1998 operating results are not comparable to 1997
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 future
results of operations. The aggregate amount of selling, general and
administrative expenses has also increased to support this growth.
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Three Months Ended September 30, 1998 Compared to the Three Months Ended
September 30, 1997
Contract Revenues. Contract revenues were $34.9 million for the quarter ended
September 30, 1998, compared to $10.6 million for the quarter ended September
30, 1997. The Company's fleet operating during the third quarter of 1998
consisted of eight vessels compared to two vessels during the third quarter of
last year. During the third quarter of 1998, both equipment productivity and
profit margins were impacted by adverse weather conditions in the Gulf of
Mexico, which caused construction and scheduling delays. This delayed work was
substantially completed in October 1998. The Company laid 51 miles and buried 50
miles of pipe during the quarter ended September 30, 1998, compared to
approximately 36 miles laid and 36 miles buried for the first quarter of 1997.
Gross Profit. Gross profit was $7.3 million (21.1% of contract revenues) for the
third quarter of 1998, compared to $3.2 million (30.2% of contract revenues) for
the third quarter of 1997. Higher revenues and gross profit for the third
quarter of 1998 were primarily attributable to the increased number vessels
which were deployed during this period. Profit margins for the third quarter of
1998 declined due to adverse weather conditions in the Gulf.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $2.3 million (6.6% of contract revenues)
for the three months ended September 30, 1998, from $0.8 million (7.5% of
contract revenues) for the third 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 $601,000 for the three months ended
September 30, 1998 is net of $443,000 of interest capitalized. Interest expense
was $222,000, net of $173,000 capitalized for the quarter ended September 30,
1997. The Company's total outstanding debt was $39.1 million at December 31,
1996, $16.6 million at September 30, 1997, and $53.2 million at September 30,
1998. The Company's outstanding debt increased significantly from September 1997
to September 1998 as a result of the vessel acquisitions and improvements made
to expand the Company's fleet, and the acquisition of a marine base in Port
Arthur, Texas. However, this increase in indebtedness was partially offset by
the repayment of debt with proceeds from the Offering during April 1998. The
decrease in debt from December 1996 to September 1997 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 nine months of 1997.
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Income Taxes. The Company provided federal income tax expense of $1.5 million,
at a net effective rate of 34% on pre-tax income of $4.4 million for the quarter
ended September 30, 1998. Pre-tax income for the same quarter in 1997 was $2.2
million and there was no income tax expense during this period due to net
operating loss carryforwards. The Company uses the liability method of
accounting for income taxes. Horizon utilized net operating loss carryforwards
that offset income taxes in 1997 and at least partially offset income taxes in
1998. A valuation allowance was established to substantially 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 at
December 31, 1997.
Net Income. Net income was $2.9 million or $0.15 per common share for the third
quarter of 1998, compared to $2.2 million or $0.16 per common share for the same
quarter last year. This increase in net income for the third quarter of 1998
compared to 1997 is due to the significant increase in revenues and gross profit
generated by the Company's expanded fleet.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended
September 30, 1997
Contract Revenues. Contract revenues were $87.8 million for the nine months
ended September 30, 1998, compared to $22.2 million for the nine months ended
September 30, 1997. The Company's results of operations for the first nine
months 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. Adverse weather conditions in the Gulf during the third quarter
of 1998 affected productivity, revenues and profit margins. The Company laid 160
miles and buried 178 miles of pipe during the nine months ended September 30,
1998 compared to approximately 76 miles laid and 76 miles buried during the same
period in 1997.
Gross Profit. Gross profit was $21.5 million (24.5% of contract revenues) for
the first nine months of 1998, compared to $3.3 million (15.0% of contract
revenues) for the same period of 1997. Under the guidance of present
management, the Company has continued to improve its gross profit margin as a
result of efficient project execution, greater equipment capacity and
utilization, and an increase in the number of contracts awarded.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $6.1 million (6.9% of contract revenues)
for the nine months ended September 30, 1998, from $2.0 million (8.8% of
contract revenues) for the nine month period in 1997. The addition of personnel
and other expenses associated with the growth of the Company have increased. The
percentage decrease was primarily due to the significant increase in revenues
without a commensurate increase in selling, general and administrative expenses.
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Interest Expense. Interest expense for the nine months ended September 30, 1998
was $1.7 million net of $0.7 million of interest capitalized. Interest expense
was $1.2 million for the nine months ended September 30, 1997, net of $173,000
capitalized. Interest expense increased during the first nine months of 1998 due
to debt borrowings for 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. 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. Horizon uses the liability method of accounting for income taxes.
The Company utilized net operating loss carryforwards to partially offset income
taxes in the first nine months of 1998 and 1997. A valuation allowance was
established to substantially 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 at December 31, 1997. During the nine
months ended September 30, 1998, the Company utilized a portion of its net
operating loss carryforwards resulting in income tax expense of $3.4 million, a
24.5% net effective tax rate on pre-tax income of $13.8 million. For the same
period in 1997, both pre-tax income and net income were $0.8 million, as no
income tax expense was recorded due to net operating loss carryforwards.
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. Net income was $10.4 million or $.58 per common share for the nine
months ended September 30, 1998, compared to a net income for the nine months
ended September 30, 1997 of $.8 million or $0.06 per common share. This increase
is due to the significant increase in revenues and gross profit generated by
Horizon's expanded fleet.
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 $68.7 million, net of $6.0
million of underwriting commissions and discounts and expenses. The Company
repaid its $23.8 million indebtedness under its Subordinated Notes, acquired the
Stephaniturm for $18.3 million and subsequently used 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 $15.6 million of costs
related to the construction of the Pacific Horizon as of September 30, 1998.
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In May 1998, Horizon amended its credit facility with DNB (the "Credit
Facility") to provide for up to $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 September 30, 1999 and a $20 million revolving
note due September 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. Horizon was in compliance with the Credit
Facility covenants at September 30, 1998.
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 October 30, 1998, the
Company had repurchased 1,127,200 shares of common stock for a total cost of
$7,446,450 through debt borrowings.
Horizon had working capital of $9.2 million 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 $6.3 million for the nine months
ended September 30, 1998, compared to cash used in operations of $1.2 million
during the first nine months of last year.
Capital expenditures, primarily vessel acquisitions and improvements, totaled
$87.7 million and $10.2 million during the first nine months of 1998 and 1997,
respectively. Cash used for capital expenditures totaled $61.6 million and $6.3
million during the first nine months of 1998 and 1997, respectively, with the
remaining $26.1 million and $4.9 million of additions made through debt
borrowings. Principal payments on long-term debt were $26.2 million and $1.5
million during the nine months of 1998 and 1997, respectively. As of October 30,
1998, the Company had $20.3 million outstanding under the Term Loan and $14.4
million outstanding under the revolving note payable to DNB bearing interest at
8.5% per annum.
Planned capital expenditures for the remaining three months in 1998 are
estimated to total approximately $3.7 million to complete improvements to the
Company's existing fleet, excluding 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 expand its
operating capabilities and expand into selected international markets. To the
extent the Company is successful in identifying expansion opportunities,
additional debt or equity financing may be required depending upon the size of
the transaction.
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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 third quarter of 1998 the Company used
$3.6 million of the net proceeds of the initial public offering to continue
construction on the Pacific Horizon.
ITEM 5. OTHER INFORMATION
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>
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/
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:
None.
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: November 11, 1998 By: /s/ David W. Sharp
-----------------------------
David W. Sharp
Executive Vice President and
Chief Financial Officer
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF HORIZON OFFSHORE, INC.
AND SUBSIDIARIES AS OF SEPTEMBER 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,452
<SECURITIES> 0
<RECEIVABLES> 40,437
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,820
<PP&E> 144,011
<DEPRECIATION> (4,105)
<TOTAL-ASSETS> 186,399
<CURRENT-LIABILITIES> 33,646
<BONDS> 0
0
0
<COMMON> 9,119
<OTHER-SE> 90,261
<TOTAL-LIABILITY-AND-EQUITY> 186,399
<SALES> 87,816
<TOTAL-REVENUES> 87,816
<CGS> 66,292
<TOTAL-COSTS> 66,292
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,712
<INCOME-PRETAX> 13,762
<INCOME-TAX> 3,370
<INCOME-CONTINUING> 10,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,392
<EPS-PRIMARY> $0.58
<EPS-DILUTED> $0.58
</TABLE>
