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, 2000
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 76-0487309
(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
August 7, 2000 was 18,822,454.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2000 1999
------------ -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 17,469 $ 8,117
Accounts receivable --
Contract receivables....... 17,029 16,675
Costs in excess of
billings............... 9,671 4,172
Affiliated parties......... 69 3,086
Inventory....................... 1,488 1,700
Other current assets............ 2,399 1,909
-------- --------
Total current assets....... 48,125 35,659
PROPERTY AND EQUIPMENT, net.......... 171,929 163,353
OTHER ASSETS......................... 3,738 3,389
-------- --------
$223,792 $202,401
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 6,965 $ 4,247
Accrued liabilities............. 4,710 2,926
Accrued job costs............... 15,802 13,332
Billings in excess of costs..... 4,187 871
Current maturities of long-term
debt........................... 10,883 10,305
-------- --------
Total current liabilities.. 42,547 31,681
LONG-TERM DEBT, net of current
maturities......................... 77,334 68,986
DUE TO RELATED PARTIES............... 24 --
DEFERRED INCOME TAXES 5,353 4,634
-------- --------
Total liabilities.......... 125,258 105,301
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,
19,834,911 shares issued at
June 30, 2000 and 19,826,480 at
December 31, 1999.............. 9,128 9,119
Additional paid-in capital...... 87,938 87,872
Retained earnings............... 8,099 6,835
Treasury stock, 1,011,023 shares
at June 30, 2000 and 1,025,500
at December 31, 1999........... (6,631) (6,726)
-------- --------
Total stockholders'
equity................. 98,534 97,100
-------- --------
$223,792 $202,401
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CONTRACT REVENUES.................... $ 36,588 $ 23,437 $ 52,494 $ 35,793
COST OF CONTRACT REVENUES............ 30,045 16,603 44,826 26,693
---------- ---------- ---------- ----------
Gross profit.................... 6,543 6,834 7,668 9,100
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,371 2,129 4,381 4,470
---------- ---------- ---------- ----------
Operating income................ 4,172 4,705 3,287 4,630
OTHER:
Interest expense................ (1,824) (1,508) (3,592) (2,467)
Interest income and other....... 66 302 164 405
---------- ---------- ---------- ----------
NET INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.................. 2,414 3,499 (141) 2,568
INCOME TAX PROVISION (BENEFIT)....... 845 1,194 (24) 867
---------- ---------- ---------- ----------
NET INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE........ 1,569 2,305 (117) 1,701
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE, NET OF TAXES............... -- -- 1,381 --
---------- ---------- ---------- ----------
NET INCOME........................... $ 1,569 $ 2,305 $ 1,264 $ 1,701
========== ========== ========== ==========
EARNINGS PER SHARE -- BASIC AND
DILUTED:
NET INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE............. $ 0.08 $ 0.12 $ 0.00 $ 0.09
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE........................ -- -- 0.07 --
---------- ---------- ---------- ----------
NET INCOME...................... $ 0.08 $ 0.12 $ 0.07 $ 0.09
========== ========== ========== ==========
SHARES USED IN COMPUTING NET INCOME
(LOSS) PER SHARE -- BASIC AND
DILUTED............................ 19,362,393 18,870,580 19,193,229 18,768,758
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
------- -------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income......................... $ 1,264 $ 1,701
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation and amortization... 3,575 3,361
Cumulative effect of accounting
change........................ (2,126) --
Deferred income taxes........... 719 867
Amortization of deferred
interest...................... 341 --
Expense recognized for issuance
of treasury stock to 401(K)
plan.......................... 120 (18)
Changes in operating assets and
liabilities --
Accounts receivable........... 2,663 8,844
Costs in excess of billings... (5,499) (4,637)
Billings in excess of costs... 3,316 (1,030)
Inventory..................... 212 --
Other assets.................. (490) 24
Accounts payable.............. 2,718 (4,448)
Accrued liabilities........... 1,784 (1,504)
Accrued job costs............. 2,470 (172)
Due to related parties........ 24 12
------- -------
Net cash provided by
operating activities..... 11,091 3,000
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases and additions to
equipment......................... (9,325) (15,240)
Drydock costs...................... (1,165) (4,060)
Purchases of other assets.......... -- (250)
------- -------
Net cash used in investing
activities.............. (10,490) (19,550)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under notes payable and
long-term debt.................... 14,200 18,800
Loan fees.......................... (225) --
Principal payments on long-term
debt.............................. (5,274) (4,258)
Stock option transactions and
other............................. 50 --
------- -------
Net cash provided by
financing activities.... 8,751 14,542
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 9,352 (2,008)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 8,117 9,649
------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $17,469 $ 7,641
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest............. $ 3,372 $ 2,967
Purchase and additions to equipment
with the issuance of treasury
stock.......................... $ -- $ 998
The accompanying notes are an integral part of
these consolidated financial statements.
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), and are unaudited, except for the balance sheet at December 31, 1999,
which has been prepared from the audited financial statements. 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, 2000, the statements of operations and cash flows for each of the three
and six month periods ended June 30, 2000 and 1999. 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, 2000 are not necessarily indicative of the results
to be expected for the entire year ending December 31, 2000. The consolidated
interim financial statements included herein should be read in conjunction with
the audited financial statements and notes thereto included in our 1999 Annual
Report on Form 10-K.
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, and installing and salvaging
production platforms and other marine structures. Work is performed primarily on
a fixed-price or day-rate basis or a combination of these.
INTEREST CAPITALIZATION
Interest is capitalized on the average amount of accumulated expenditures
for equipment that is undergoing major modifications and refurbishment 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, 2000 is net of $61,000 and
$128,000 of capitalized interest, respectively. Interest capitalized during the
three and six month periods ended June 30, 1999 was $103,000 and $667,000,
respectively.
INVENTORY
Inventory consists of structures held for resale from derrick salvage
services. The inventory is reported at the lower of cost or market value.
Horizon periodically assesses the net realizable value of its inventory items.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
JUNE 30, DECEMBER 31,
2000 1999
-------- --------
Barges, boats and related
equipment.......................... $174,282 $165,266
Land and buildings................... 7,740 7,586
Machinery and equipment.............. 245 245
Office furniture and equipment....... 1,344 1,292
Leasehold improvements............... 1,511 1,409
-------- --------
185,122 175,798
Less -- Accumulated depreciation.... (13,193) (12,445)
-------- --------
Property and equipment, net.......... $171,929 $163,353
======== ========
5
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the six months ended June 30, 2000, we incurred $9.3 million of
capital expenditures primarily related to completing the upgrade of the PACIFIC
HORIZON'S lift capacity from 800 tons to 1,000 tons, increasing the tension
capacity of the LONESTAR HORIZON and the BRAZOS HORIZON, and increasing the
jetting capacity of the CANYON HORIZON.
On January 1, 2000, we changed depreciation methods from the straight-line
method to the units-of-production method on our major barges and vessels to more
accurately reflect the wear and tear of normal use. We believe that the
units-of-production method is best suited to reflect the actual deterioration of
our marine equipment. Depreciation expense calculated under the
units-of-production method may be different than depreciation expense calculated
under the straight-line method in any period. The annual depreciation based on
utilization of each vessel will not be less than 25% of annual straight-line
depreciation, and the cumulative depreciation based on utilization of each
vessel will not be less than 50% of cumulative straight-line depreciation. For
the six months ended June 30, 2000, we recorded the cumulative effect of a $1.4
million adjustment, or $0.07 per share, which is net of taxes of $0.7 million
related to changing depreciation methods from the straight-line method to the
units-of-production method.
3. STOCKHOLDERS' EQUITY
EARNINGS PER SHARE
Earnings per share data for all periods presented has been computed
pursuant to Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" that requires a presentation of basic earnings per share
(basic EPS) and diluted earnings per share (diluted EPS). Basic EPS excludes
dilution and is determined by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities and
other contracts to issue common stock were exercised or converted into common
stock. As of June 30, 2000, we had outstanding options covering an aggregate of
2.0 million shares of common stock, of which 0.4 million shares were
exercisable. There are no material differences in basic EPS and diluted EPS for
all periods presented.
TREASURY STOCK
In July 1998, the board of directors approved the repurchase of up to $10
million of Horizon's outstanding common stock. Shares have been purchased from
time to time, subject to market conditions, in the open market or in privately
negotiated transactions. During 1998 and 1999, we repurchased 1,158,800 shares
of common stock for a total cost of $7.6 million. We re-issued 133,300 shares of
treasury stock in connection with the purchase of the BRAZOS HORIZON in April
1999. During the six months ended June 30, 2000, we contributed 14,477 shares of
treasury stock to our 401(k) Plan. As of June 30, 2000, our treasury stock
consisted of 1,011,023 shares at a cost of $6.6 million. We record treasury
stock under the average cost basis.
4. RELATED PARTY TRANSACTIONS
In our opinion, all of the transactions described below were effected on
terms at least as favorable to us as those which could have been obtained from
unaffiliated third parties.
In August 1998, we entered into a master services agreement with Odyssea
Marine, Inc. (Odyssea), an entity wholly-owned by Elliott Associates, L.P. and
Westgate International, L.P., (Principal Stockholders), to charter certain
marine vessels on an as needed basis from Odyssea. As of June 30, 2000, Horizon
owed Odyssea $1.0 million as a result of services performed under this
agreement, compared to $30,000 at December 31, 1999. During the six months ended
June 30, 2000, Odyssea billed Horizon $2.6 million and we paid Odyssea $1.6
million for services rendered under the agreement. Odyssea billed Horizon $1.7
million and we paid Odyssea $2.7 million during the six months ended June 30,
1999.
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
HORIZON'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 OUR 1999 ANNUAL REPORT ON FORM 10-K. THE FOLLOWING
INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT TO RISKS AND
UNCERTAINTIES. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE,
ACTUAL RESULTS MAY DIFFER FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING
STATEMENTS.
GENERAL
We provide marine construction services to the oil and gas industry
primarily in the Gulf of Mexico and selected international locations. Our marine
fleet installs pipelines to transport oil and gas from newly installed
production platforms and other subsea production systems, and installs and
removes production platforms and other marine structures.
We have assembled a fleet of eleven vessels, ten of which are currently
operational. Our fleet is capable of a wide range of marine construction
activities, including installing up to 48-inch pipelines and smaller diameter
rigid and coiled-line pipe in water depths up to 800 feet, providing pipebury
and all other services necessary to commence transporting oil and gas through an
installed pipeline, and installing and removing production platforms and other
marine structures. We believe that our expanded fleet allows us to compete in
the Gulf for substantially all pipeline installation projects in shallow water
depths of 200 feet and less and a substantial number of projects in intermediate
water depths of between 200 and 800 feet. We have also formed a joint venture
with Det Sondenfjelds-Norske Dampkibsselskab ASA (DSND) which allows us to
conduct deepwater pipelaying operations in the Gulf, offshore Mexico and Canada,
and in the Caribbean. During 2000, we upgraded the PACIFIC HORIZON'S lift
capacity from 800 to 1,000 tons, increased the tension capacity of the LONESTAR
HORIZON and the BRAZOS HORIZON, and increased the burial capacity of the CANYON
HORIZON.
Our second quarter revenues reflect an improvement in the marine
construction market and a strengthened demand for our services. The enhancement
of our equipment capabilities, the performance of our people and our commitment
to international expansion have all contributed to our ability to meet this
increased demand. Our profit margins reflect the current competitive environment
in the marine construction industry. However, equipment utilization increased
during the quarter and, as equipment utilization continues to increase in the
second half of 2000 and into 2001, we expect our margins bid on jobs to improve.
Our operating results are directly tied to industry demand for our
services, most of which are performed on the outer continental shelf in the
Gulf. Demand for our services is primarily a function of the level of oil and
gas activity in the Gulf of Mexico. If current oil and gas prices and drilling
levels are sustained, we expect demand for our services to increase from their
present levels. Due to the time required to drill a well and fabricate a
production platform, demand for our services usually lags exploratory drilling
activity levels by six to eighteen months. We believe our operating results are
significantly effected by improvements in market conditions, our fleet
capabilities and our management expertise.
RESULTS OF OPERATIONS
The discussion below describes our results of operations. Improvements in
the marine construction business are reflected in our second quarter results. We
believe our enhanced equipment capabilities have strengthened our competitive
position. Horizon has been awarded several large projects during the second
quarter which demonstrates our reputation for delivering a quality product and
the confidence that our clients have in our ability to provide superior service.
During the second quarter, we mobilized our 500-ton derrick barge, the ATLANTIC
HORIZON, and our pipelay barge, the GULF HORIZON, to Mexico to begin work on the
construction of a major project for Pemex Exploracion y Produccion. This project
is for the construction of six pipelines in the Cantarell Field and represents
our entry into Mexico. We have also received a letter of intent for another
project from Pemex Exploracion y Produccion which includes the installation,
bury,
7
<PAGE>
hook-up and commissioning of seven pipelines in the Cantarell Field. The
construction of this project is scheduled to begin in August 2000. We believe
that these projects are important milestones in the execution of our
international expansion strategy and further enhance our reputation in the
international market. We will continue to pursue international construction
projects in Mexico, as well as Central and South America and West Africa. Our
backlog of work was approximately $60.0 million as of August 14, 2000.
QUARTER ENDED JUNE 30, 2000 COMPARED TO THE QUARTER ENDED JUNE 30, 1999
CONTRACT REVENUES. Contract revenues were $36.6 million for the quarter
ended June 30, 2000, compared to $23.4 million for the quarter ended June 30,
1999. The increase in revenues is due to our international expansion into
Mexico, increase in vessel utilization and demand for our services.
GROSS PROFIT. Gross profit was $6.5 million (17.9% of contract revenues)
for the quarter ended June 30, 2000 compared to gross profit of $6.8 million
(29.2% of contract revenues) for the quarter ended June 30, 1999. The reduction
in gross profit is a result of lower margins bid on jobs awarded earlier in 2000
due to competitive market conditions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $2.4 million (6.5% of contract revenues)
for the three months ended June 30, 2000, compared with $2.1 million (9.1% of
contract revenues) for the same period in 1999 due to the addition of personnel
and other expenses associated with the growth of the company. The percentage
decrease was primarily due to the increase in revenues without a corresponding
increase in selling, general and administrative expenses.
INTEREST EXPENSE. Interest expense was $1.8 million for the three months
ended June 30, 2000, net of $61,000 interest capitalized, and $1.5 million for
the same period last year, net of $103,000 interest capitalized. Our total
outstanding debt was $88.2 million at June 30, 2000, compared to $84.4 million
at June 30, 1999.
OTHER INCOME. Included in other income is interest income on cash
investments of $53,000 for the quarter ended June 30, 2000 and $144,000 for the
second quarter in 1999.
INCOME TAXES. We use the liability method of accounting for income taxes.
For the quarter ended June 30, 2000, we recorded a federal income tax provision
of $0.8 million, at a net effective rate of 35.0% on pre-tax net income of $2.4
million. For the quarter ended June 30, 1999, Horizon recorded a federal income
tax provision of $1.2 million, at a net effective rate of 34.1% on pre-tax net
income of $3.5 million.
NET INCOME. Net income for the quarter ended June 30, 2000 was $1.6
million, or $0.08 per share. This compares with net income of $2.3 million, or
$0.12 per share for the quarter ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
CONTRACT REVENUES. Contract revenues were $52.5 million for the six months
ended June 30, 2000, compared to $35.8 million for the six months ended June 30,
1999. Our results during the first half of 2000, and particularly our backlog of
work and utilization, have been significantly impacted by the improvements in
the marine construction industry.
GROSS PROFIT. Gross profit was $7.7 million (14.6% of contract revenues)
for the first six months of 2000, compared to a gross profit of $9.1 million
(25.4% of contract revenues) for the same period of 1999. The reduction in gross
profit is due to lower margins previously bid and earned on jobs awarded earlier
due to competitive market conditions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $4.4 million (8.3% of contract revenues) for the
six months ended June 30, 2000, compared to $4.5 million (12.5% of contract
revenues) for the same period of 1999. The percentage decrease was primarily due
to the increase in revenues without a corresponding increase in selling, general
and administrative expenses.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 2000
was $3.6 million net of $0.1 million of interest capitalized. Interest expense
was $2.5 million for the six months ended June 30, 1999, net of $0.7 million on
interest capitalized.
8
<PAGE>
OTHER INCOME. Included in other income is interest income on cash
investments for the six months ended June 30, 2000 and 1999 of $152,000 and
$233,000 respectively.
INCOME TAXES. We use the liability method of accounting for income taxes.
For the six months ended June 30, 2000, we recorded a federal income tax benefit
of $24,000, at a net effective rate of 17.0% on a pre-tax loss of $141,000. For
the same period last year, we recorded a federal income tax provision of $0.9
million, at a net effective rate of 33.8% on pre-tax income of $2.6 million.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. We recorded a cumulative effect of
$1.4 million, or $0.07 per share, net of taxes of $0.7 million related to
changing depreciation methods from straight-line to the units-of-production
method effective January 1, 2000. See Note 2 of the notes to consolidated
financial statements.
NET INCOME. Net income was $1.3 million, or $0.07 per share, for the six
months ended June 30, 2000, which includes the effect of a cumulative adjustment
of $1.4 million, or $0.07 per share, related to a change in accounting
principle. Net income for the six months ended June 30, 1999 was $1.7 million,
or $0.09 per share.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund acquisitions and improvements to
the fleet necessary to expand operations and to provide working capital. Horizon
had working capital of $5.6 million at June 30, 2000, compared to working
capital of $4.0 million at December 31, 1999. Cash provided by operations was
$11.0 million for the six months ended June 30, 2000, compared to $3.0 million
of cash provided by operations for the first six months ended June 30, 1999. The
increase in working capital was primarily the result of an increase in cash and
cash equivalents.
Outstanding borrowings under the term loan with the CIT Group, Inc. at June
30, 2000 were $79.6 million, which was borrowed at various dates. The first
advance of $50 million under the term loan is due in 84 monthly principal
installments of $463,000, the second advance of $5 million is due in 84 monthly
principal installments of $46,000, the third advance of $13.8 million is due in
84 monthly principal installments of $128,000, the fourth advance of $14.5
million is due in 73 monthly installments of $154,000, and the fifth advance of
$8.0 million is due in 59 monthly principle installments of $96,000. The
remaining principal balance is due at the end of the 84 months. The term loan is
secured by mortgages on all owned vessels.
We have a $30 million revolving credit facility with Wells Fargo Bank. At
June 30, 2000, we had $6.2 million outstanding under the $30 million revolving
credit facility. Outstanding borrowings bear interest at LIBOR plus 2% and are
secured by accounts receivable from customers. The revolving credit facility
matures on December 31, 2001. Subsequent to June 30, 2000, we have paid down the
revolving credit facility and currently have no outstanding borrowings.
Both the term loan and the revolving credit facility require that certain
conditions be met in order for us to obtain advances. These loans are secured by
substantially all of our assets, including mortgages on all vessels owned by us,
as well as accounts receivable. Both loan facilities contain customary defaults
and require us to maintain certain financial ratios. The facilities also contain
certain covenants that limit our ability to incur additional debt, pay
dividends, create certain liens, sell assets and make capital expenditures.
Horizon was in compliance with all loan covenants as of June 30, 2000.
We believe that cash generated from operations, together with available
borrowings under our loan facilities, will be sufficient to fund our currently
planned capital projects and working capital requirements into the year 2001.
Planned capital expenditures for the remainder of 2000 are estimated to total
approximately $8.6 million. Our strategy, however, is to make other acquisitions
to expand our operating capabilities and expand into selected international
markets. To the extent we are successful in identifying acquisition, expansion
opportunities and experience a significant increase in our scope of operations,
we may require additional equity or debt financing depending on the size of any
transaction.
9
<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
our future operating results and financial position. Some important factors that
could cause actual results to differ materially from the anticipated results or
other expectations expressed in our forward-looking statements include the
following:
o industry volatility, including the level of capital expenditures by oil
and gas companies due to fluctuations in the price of oil and gas;
o risks of growth strategy, including the risks of rapid growth;
o operating hazards, including the unpredictable effect of natural
occurrences on operations and the significant possibility of accidents
resulting in personal injury and property damage;
o the highly competitive nature of the marine construction business;
o dependence on the continued strong working relationships with
significant customers operating in the Gulf;
o seasonality of the offshore construction industry in the Gulf;
o the need for additional financing;
o contract bidding risks;
o percentage-of-completion accounting;
o continued active participation of our executive officers and key
operating personnel;
o the effect on our performance of regulatory programs and environmental
matters;
o risks involved in the expansion of our operations into international
offshore oil and gas producing areas; and
o risks involved in joint venture operations, including difficulty in
resolving disputes with present partners or reaching agreements with
future partners.
Many of these factors are beyond our ability to control or predict. We
caution investors not to place undue reliance on forward-looking statements. We
disclaim any intent or obligation to update the forward-looking statements
contained in this report, whether as a result of receiving new information, the
occurrence of future events or otherwise.
These and other uncertainties related to the business are described in
detail under the heading "Cautionary Statement" in our 1999 Annual Report on
Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our annual meeting of stockholders was held on May 2, 2000. At such
meeting, each of the following persons listed below were re-elected as
directors of the company.
<TABLE>
<CAPTION>
FOR WITHHOLD AUTHORITY
---------- ------------------
<S> <C> <C>
James Devine 13,804,482 780,925
Edward L. Moses, Jr. 13,791,357 794,050
</TABLE>
In addition to the directors re-elected at the annual meeting, the terms
of Jonathan D. Pollock, Bill J. Lam, Michael R. Latina and Derek Leach
continued after the annual meeting.
The stockholders also approved a proposal to increase the number of
shares of common stock that may be issued under our stock incentive plan
by the following vote:
<TABLE>
VOTES FOR VOTES AGAINST VOTES ABSTAIN
--------- ------------- -------------
<S> <C> <C> <C>
13,250,845 1,333,162 1,400
</TABLE>
10
<PAGE>
PART II -- OTHER INFORMATION
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)
10.21 Amendment No. 5 to the Loan Agreement dated as of June 30, 2000
among Horizon Vessels, Inc., Horizon Offshore Contractors, Inc.,
The CIT Group/Equipment Financing, Inc., as agent, and the other
lenders specified therein.(2)
27.1 Financial Data Schedule (2)
(b) Reports on Form 8-K:
None
------------
(1) Incorporated by reference to our Registration Statement on Form S-1
(Registration Statement No. 333-43965).
(2) Filed herewith
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<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.
By:/s/ DAVID W. SHARP
DAVID W. SHARP
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: August 14, 2000
12
