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 March 31, 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 Identification no.)
organization)
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 May 8,
2000 was 18,812,273.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2000 1999
--------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 8,748 $ 8,117
Accounts receivable-
Contract receivables .......................... 13,819 16,675
Costs in excess of billings ................... 3,115 4,172
Affiliated parties ............................ 23 3,086
Inventory ........................................ 1,646 1,700
Other current assets ............................. 2,049 1,909
--------- ---------
Total current assets ................... 29,400 35,659
PROPERTY AND EQUIPMENT, net ......................... 168,148 163,353
OTHER ASSETS ........................................ 3,913 3,389
--------- ---------
$ 201,461 $ 202,401
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................. $ 3,242 $ 4,247
Accrued liabilities .............................. 2,928 2,926
Accrued job costs ................................ 7,706 13,332
Billings in excess of costs ...................... 1,069 871
Current maturities of long-term debt ............. 10,305 10,305
--------- ---------
Total current liabilities .............. 25,250 31,681
LONG-TERM DEBT, net of current maturities ........... 74,849 68,986
DEFERRED INCOME TAXES ............................... 4,508 4,634
--------- ---------
Total liabilities ...................... 104,607 105,301
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, 19,826,480 shares issued .......... 9,119 9,119
Additional paid-in capital ....................... 87,872 87,872
Retained earnings ................................ 6,530 6,835
Treasury stock, 1,016,524 and 1,025,500
shares, respectively .......................... (6,667) (6,726)
--------- ---------
Total stockholders' equity ................. 96,854 97,100
--------- ---------
$ 201,461 $ 202,401
========= =========
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)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
------------ ------------
CONTRACT REVENUES ............................ $ 15,906 $ 12,357
COST OF CONTRACT REVENUES .................... 14,781 10,091
------------ ------------
Gross profit ........................... 1,125 2,266
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES . 2,010 2,342
------------ ------------
Operating loss ......................... (885) (76)
OTHER INCOME (EXPENSE):
Interest expense ....................... (1,768) (959)
Interest income and other .............. 98 102
------------ ------------
NET LOSS BEFORE INCOME TAX BENEFIT AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE .. (2,555) (933)
INCOME TAX BENEFIT ........................... (869) (328)
------------ ------------
NET LOSS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE ...................... (1,686) (605)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF
TAXES .................................. 1,381 --
------------ ------------
NET LOSS ..................................... $ (305) $ (605)
============ ============
EARNINGS PER SHARE - BASIC AND DILUTED:
NET LOSS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE ............ $ (0.09) $ (0.03)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 0.07 --
------------ ------------
NET LOSS .............................. $ (0.02) $ (0.03)
============ ============
SHARES USED IN COMPUTING NET LOSS PER SHARE-
BASIC AND DILUTED ...................... 18,804,379 18,669,793
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss .................................................... $ (305) $ (605)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities-
Depreciation and amortization ......................... 1,567 1,502
Cumulative effect of accounting change ................ (2,126) --
Deferred income taxes ................................. (126) (328)
Amortization of deferred interest ..................... 131 --
Changes in operating assets and liabilities-
Accounts receivable ................................ 5,919 11,581
Costs in excess of billings ........................ 1,057 3,485
Billings in excess of costs ........................ 198 (988)
Inventory .......................................... 54 --
Other current assets ............................... (140) 35
Accounts payable ................................... (1,005) (1,028)
Accrued liabilities ................................ 2 (1,089)
Accrued job costs .................................. (5,626) (4,183)
Due to related parties ............................. -- 39
-------- --------
Net cash provided by (used in) operating
activities ................................ (400) 8,421
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases and additions to equipment ........................ (3,932) (7,444)
Drydock costs ............................................... (759) (1,618)
-------- --------
Net cash used in investing activities ........ (4,691) (9,062)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under notes payable and long-term debt ........... 8,500 5,000
Loan fees ................................................... (200) --
Principal payments on long-term debt ........................ (2,637) (1,986)
Treasury stock transactions ................................. 59 (18)
-------- --------
Net cash provided by financing activities .... 5,722 2,996
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ...................... 631 2,355
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 8,117 9,649
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................... $ 8,748 $ 12,004
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest ...................................... $ 1,711 $ 1,387
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<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
March 31, 2000, the statements of operations and cash flows for the three-month
periods ended March 31, 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 three
months ended March 31, 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 modification 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-month period ended March 31, 2000 is net of $67,000 interest
capitalized. Interest capitalized during the three-month period ended March 31,
1999 was $563,000.
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.
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<PAGE>
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
MARCH 31, DECEMBER 31,
2000 1999
--------- -----------
Barges, boats and related equipment .... $ 168,994 $ 165,266
Land and buildings ..................... 7,701 7,586
Machinery and equipment ................ 245 245
Office furniture and equipment ......... 1,301 1,292
Leasehold Improvements ................. 1,489 1,409
--------- ---------
179,730 175,798
(11,582) (12,445)
Less - Accumulated depreciation......... --------- ---------
Property and equipment, net............. $ 168,148 $ 163,353
========= =========
During the three months ended March 31, 2000, we incurred $3.9 million of
capital expenditures primarily related to the upgrade of the PACIFIC HORIZON's
lift capacity from 800 tons to 1,000 tons and to complete the installation of
diving equipment on our vessels.
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 depreciation 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 quarter ended March 31, 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 March 31, 2000, we had outstanding options covering an aggregate of 1.9
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, as all outstanding options would be anti-dilutive to EPS.
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 quarter ended March 31, 2000, we contributed 8,976 shares of
treasury stock to our 401(k) Plan. As of March 31, 2000, our treasury stock
consisted of 1,016,524 shares at a cost of $6.7 million. We record treasury
stock under the average cost basis.
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<PAGE>
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 March 31, 2000, Horizon
owed Odyssea $31,000 as a result of services performed under this agreement,
compared to $30,000 at December 31, 1999. During the three months ended March
31, 2000, Odyssea billed Horizon $1.0 million and we paid Odyssea $1.0 million
for services rendered under the agreement. Odyssea billed Horizon $1.1 million
and we paid Odyssea $2.1 million during the quarter ended March 31, 1999.
In August 1998, we entered into an agreement with Prime Natural Resources,
Inc. (Prime), an entity that is majority-owned by one of the Principal
Stockholders, to perform marine construction work. Prime awards contracts to us
on the basis of a competitive bid process. Prime paid its outstanding receivable
balance of $3.1 million in full as of March 15, 2000. We did not bill Prime for
any services during the first quarter of 2000. We billed Prime $1.6 million for
services rendered under the agreement during the first quarter of 1999 and had
an outstanding receivable balance of $2.9 million as of March 31, 1999.
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<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
salvages production platforms and other marine structures.
We have assembled a fleet of eleven vessels, ten of which are 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 salvaging 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 the first quarter, we completed upgrading the
PACIFIC HORIZON from an 800 ton lift capacity to 1,000 tons and the installation
of diving equipment on our vessels. The diving and towing capabilities of the
PEARL HORIZON were also upgraded.
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. Our 1999 and first quarter 2000 operating results were adversely
affected by relatively low levels of industry demands. As oil prices began to
improve at mid-year 1999, drilling activity began to increase. If the recent
increase in oil and gas prices and drilling levels are sustained, we expect
demand for our services to increase.
Due to time required to drill a well and fabricate a production platform,
demand for our services usually lags exploratory drilling by six to eighteen
months. We believe our operating results will be highly leveraged to any
improvement in market conditions on the outer continental shelf due to our fleet
capabilities and management expertise in this market area.
RESULTS OF OPERATIONS
The discussion below describes our results of operations. The first quarter
results were impacted both by the typical seasonality of marine construction in
the Gulf of Mexico and by the current competitive environment in our industry.
Reduced demand for construction and lower margins bid on jobs also impacted
results for the first three months of 2000.
We believe our enhanced equipment capabilities have strengthened our
competitive position. The lower utilization for the pipelay vessels was
partially offset by increased utilization of our derrick vessels. The PACIFIC
HORIZON and the ATLANTIC HORIZON together successfully completed several
projects during the first quarter.
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<PAGE>
The PACIFIC HORIZON mobilized to offshore Ecuador for the transportation and
installation of a drilling and production platform. This project was completed
in April 2000 and represents our commitment to international expansion in Latin
America. We are also continuing our business development efforts in West Africa
and Mexico by actively bidding on selected projects.
QUARTER ENDED MARCH 31, 2000 COMPARED TO THE QUARTER ENDED MARCH 31, 1999
CONTRACT REVENUES. Contract revenues were $15.9 million for the quarter
ended March 31, 2000, compared to $12.4 million for the quarter ended March 31,
1999. The increase in revenues is primarily due to the deployment of the PACIFIC
HORIZON which allowed us to participate in a larger share of the platform
installation and abandonment market.
GROSS PROFIT. Gross profit was $1.1 million (7.1% of contract revenues) for
the quarter ended March 31, 2000 compared to a gross profit of $2.3 million
(18.3% of contract revenues) for the quarter ended March 31, 1999. The reduction
in gross profit is due to lower margins earned on jobs performed due to market
conditions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $2.0 million (12.6% of contract revenues)
for the three months ended March 31, 2000, compared with $2.3 million (19.0% of
contract revenues) for the same period in 1999. The percentage decrease was
primarily due to the increase in revenues without a commensurate increase in
selling, general and administrative expenses.
INTEREST EXPENSE. Interest expense was $1.8 million for the three months
ended March 31, 2000, net of $0.1 million interest capitalized, and $1.0 million
for the same period last year, net of $0.6 million interest capitalized. Our
total outstanding debt was $85.2 million at March 31, 2000, compared to $72.9
million at March 31, 1999. The outstanding debt increased as a result of the
vessel acquisitions and improvements made to our fleet.
OTHER INCOME. Included in other income is interest income on cash
investments of $0.1 million for the three months ended March 31, 2000 and $0.1
million for the first quarter in 1999.
INCOME TAXES. We use the liability method of accounting for income taxes.
For the quarter ended March 31, 2000, we recorded a federal income tax benefit
of $0.9 million, at a net effective rate of 34.0% on a pre-tax income net loss
of $2.6 million. For the quarter ended March 31, 1999, Horizon recorded a
federal income tax benefit of $0.3 million, at a net effective rate of 35.2% on
pre-tax net loss of $0.9 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 LOSS. Net loss for the first quarter was $0.3 million, or $.02 per
share, which includes the effect of a cumulative adjustment of $1.4 million or
$.07 per share related to a change in accounting principle. This compares with a
net loss of $0.6 million, or $0.03 per share, for the first quarter of 1999.
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 $4.2 million at March 31, 2000, compared to working capital
of $4.0 million at December 31, 1999. Cash used in operations was $0.4 million
for the three months ended March 31, 2000, compared to $8.4 million of cash
provided by operations for the first three months ended March 31, 1999. Cash
provided by operations for the quarter ended March 31, 1999 was the result of a
decline in working capital from $12.7 million at December 31,
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<PAGE>
1998 to $7.2 million by March 31, 1999. The decrease in accounts receivable and
costs in excess of billings during the first quarter of 1999 caused the decline
in working capital.
Outstanding borrowings under the term loan with the CIT Group, Inc. at March
31, 2000 were $73.9 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, and the fourth advance of $14.5
million is due in 73 monthly installments of $154,490. 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
LIBOR plus 2%. At March 31, 2000, we had $8.7 million in cash and $8.5 million
outstanding under the $30 million revolving credit facility. At May 11, 2000, we
had $4.5 million outstanding and $1.9 million available 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.
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 March 31, 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 2000.
Planned capital expenditures for the remainder of 2000 are estimated to total
approximately $10.0 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
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<PAGE>
PART II - OTHER INFORMATION
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
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.
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<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)
10.21 Employment and Non-Competition Agreement dated as of September 1,
1999 between the Company and Clay Etheridge (2)
18.1 Preferability Letter of Arthur Andersen LLP (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.
Date: May 12, 2000 By: /s/ DAVID W. SHARP
David W. Sharp
Executive Vice President and
Chief Financial Officer
EXHIBIT 10.21
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Employment Agreement (this "Agreement") between Horizon Offshore,
Inc., a Delaware corporation ("Company"), and Clay Etheridge ("Employee") is
dated as of September 1, 1999.
The Company and the Employee agree as follows:
1. EMPLOYMENT . The Company has hired the Employee and the Employee agreed
to be employed upon the terms and conditions hereinafter set forth.
2. TERM. (a) Subject to the provisions for termination as hereinafter
provided, Employee's employment pursuant to the terms of this Agreement shall be
for the period expiring on August 31, 2002. Such period of employment is
referred to herein as the "Employment Term."
(b) If Employee continues to serve as an employee of the Company after the
Employment Term, such continued employment shall be subject to the terms of this
Agreement but shall be terminable at will by either the Company or Employee.
(c) Following Employee ceasing for whatever reason to be an employee of
the Company, each party shall have the right to enforce all rights, and shall be
bound by all obligations, of such party that are continuing rights and
obligations under the terms of this Agreement.
3. DUTIES. The Employee shall perform such duties, consistent with the
Employee's job title, as may be prescribed from time to time by the Board of
Directors of the Company (the "Board") or officers to whom such authority has
been delegated.
4. COMPENSATION AND BENEFITS. The Company will provide or will cause to be
provided to Employee a minimum annual base salary of $200,000. The Employee
shall be entitled to all benefits and perquisites provided to similarly situated
employees of the Company.
5. TERMINATION OF EMPLOYMENT.
(a) During the Employment Term, the Employee's status as an employee will
terminate immediately and automatically upon the earliest to occur of:
(i) the death or "Disability" (as defined below) of the Employee;
(ii) the discharge of the Employee by the Company "For Cause" (as
defined below);
(iii) the expiration of the Employment Term.
The Employee hereby accepts such employment subject to the terms and conditions
hereof.
-1-
<PAGE>
(b) As used herein, "For Cause" shall mean any one or more of the
following:
(i) material or repeated violations by the Employee (after notice
thereof from the Company) of the terms of this Agreement or
the Employee's material or repeated failure (after notice
thereof from the Company) to perform the Employee's duties in
a manner consistent with the Employee's position;
(ii) excessive absenteeism on the part of the Employee not related
to illness or disability;
(iii) the Employee's indictment for a felony;
(iv) the Employee's commission of fraud, embezzlement, theft or
other acts involving dishonesty, or crimes constituting moral
turpitude, in any case whether or not involving the Company,
that, in the opinion of the Board, renders the Employee's
continued employment harmful to the Company;
(v) substance abuse on the part of the Employee; or
(vi) the Employee acting in bad faith relative to the Company's
business interests.
Anything in this Agreement to the contrary notwithstanding, the Employee's
employment may not be terminated "For Cause" unless and until there shall have
been delivered to the Employee a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board (without giving effect to the Employee's status as a director or any vote
of the Employee) at a meeting of the Board called and held for the purpose
(after reasonable notice to the Employee and an opportunity for the Employee to
be heard before the Board), finding that in the good faith opinion of the Board
the Employee was guilty of any of the conduct set forth in clauses (i) through
(vi) of this subparagraph (b) and specifying the particulars thereof in detail.
(c) As used herein, "Disability" shall mean a physical or mental
incapacity of the Employee that, in the good faith determination of the Board
has prevented the Employee from performing the duties assigned the Employee by
the Company for 60 consecutive days or for a period of more than 90 days in the
aggregate in any 12-month period and that, in the determination of the Company
after consultation with a medical doctor appointed by the Company, may be
expected to prevent the Employee for any period of time thereafter from devoting
the Employee's full time and energies (or such lesser time and energies as may
be acceptable to the Company in its sole discretion) to the Employee's duties as
provided hereunder. The Employee's employment hereunder, except as otherwise
agreed to in writing between the Company and the Employee, shall cease as of the
date of such determination. The Employee agrees to submit to medical
examinations, at the Company's sole cost and expense, to determine whether a
Disability exists pursuant to reasonable requests that the Company may make from
time to time. During the period of any such physical or mental incapacity as
provided above, the salary otherwise payable to the Employee may,
-2-
<PAGE>
in the absolute discretion of the Company, be reduced by the amount of any
disability benefits or payments received by the Employee from the Company or any
disability or health plan funded in whole or in part by the Company (excluding
health insurance benefits or other reimbursement of medical expenses
attributable to insurance policies that have not been funded in any part by the
Company).
6. TRADE SECRETS, ETC. The Employee shall hold, both during the Employment
Term and thereafter, in a fiduciary capacity for the benefit of the Company all
secret or confidential information, knowledge or data relating to the Company or
any of its subsidiaries or corporate affiliates and their respective businesses
and operations, which shall have been obtained by the Employee during the
Employee's employment (whether prior to or after the date hereof) and which
shall not have become public knowledge (other than by acts of the Employee or
his representatives in violation of this Agreement). The Employee agrees (i)
that, without the prior written consent of the Company or as may be otherwise
required by law or legal process, he will not communicate or divulge any such
information, knowledge or data to any party other than the Company and (ii) to
deliver promptly to the Company upon its written request any confidential
information, knowledge or data in his possession, whether produced by the
Company or any of its subsidiaries and corporate affiliates or by the Employee,
that relates to the business of the Company or any of its subsidiaries and joint
ventures or any past, current or prospective activity of the Company or any of
its subsidiaries and joint ventures. The Employee shall be permitted to retain
copies of such data as are necessary in order to enable the Employee to assert
any rights under this Agreement, provided that such data shall be used solely
for such purpose.
7. LIMITED COVENANT NOT TO COMPETE. (a) While Employee is employed by the
Company and for a period of one year following the termination of Employee's
employment with the Company the Employee will not, directly or indirectly, own,
manage, operate, control, be employed by, participate in, or be connected in any
manner with the ownership, management, operation or control of any company or
other business enterprise engaged in a line or lines of business similar to that
of the Company or any of its subsidiaries or joint ventures, within the State of
Texas, Louisiana, Mississippi, Alabama or Florida (including any area offshore
in the Gulf of Mexico or any such state) or any other jurisdiction, whether
within or outside the United States in which the business of the Company or any
of its subsidiaries or joint ventures is carried on, so long as the Company or
any of its subsidiaries or joint ventures carries on a like line of business
therein; provided, however, that nothing contained herein shall prohibit the
Employee from making investments in any publicly held company which do not
exceed in the aggregate two percent of the equity interest of such company.
(b) As part of the consideration for the compensation and benefits
to be paid to the Employee hereunder; to protect the trade secrets and
confidential information of Company and its affiliates that have been and will
in the future be disclosed or entrusted to the Employee, the business good will
of the Company and its affiliates that has been and will in the future be
developed in the Employee, or the business opportunities that have been and will
in the future be disclosed or entrusted to the Employee by the Company and its
affiliates; and, as an additional incentive for the Company to enter in this
Agreement, the Company and the Employee agree to the non-competition
-3-
<PAGE>
obligations hereunder. The obligations of the Employee set forth in this Section
7 shall apply during the term of this Agreement and shall survive termination of
this Agreement and/or the termination of the Employee's services under this
Agreement regardless of the reason for such termination.
8. NO TAMPERING. While Employee is employed by the Company and for one
year following the termination of Employee's employment with the Company, the
Employee shall not (a) request, induce or attempt to influence any supplier of
goods or services to the Company curtail or cancel any business they may
transact with the Company; (b) request, induce or attempt to influence any
customers of the Company that have done business with or potential customers
which have been in contact with the Company to curtail or cancel any business
they may transact with the Company; or (c) request, induce or attempt to
influence any employee of the Company to terminate his or her employment with
the Company.
9. STATEMENTS CONCERNING THE COMPANY. The Employee shall refrain, both
during the Employment Term and following the termination of Employee's
employment by the Company for any reason, from publishing any oral or written
statements about the Company, any of its affiliates, or any of such entities'
officers, employees, agents or representatives that are slanderous, libelous, or
defamatory; or that disclose private or confidential information about the
Company, any of its affiliates, or any of such entities' business affairs,
officers, employees, agents or representatives; or that constitute an intrusion
into the seclusion or private lives of the Company, any of its affiliates, or
any of such entities' officers, employees, agents or representatives or that
give rise to unreasonable publicity about the private lives of the Company, any
of its affiliates, or any of such entities' officers, employees, agents or
representatives; or that place the Company, any of its affiliates, or any of
such entities' officers, employee, agents or representatives in a false light
before the public; or that constitute a misappropriation of the name or likeness
of the Company, any of its affiliates, or any of such entities; officers,
employees, agents or representatives. A violation or threatened violation of
this prohibition may be enjoined by the courts. The rights afforded the Company
and its affiliates under this provision are in addition to any and all rights
and remedies otherwise afforded by law.
10. INJUNCTIVE RELIEF. In the event of a breach or threatened breach by
the Employee of the provisions of Sections 6, 7, 8 or 9 of this Agreement during
or after the term of this Agreement, the Company shall be entitled to injunctive
relief restraining the Employee from violation of such paragraph. Nothing herein
shall be construed as prohibiting the Company from pursuing any other remedy at
law or in equity it may have in the event of breach or threatened breach of this
Agreement by the Employee.
11. BINDING EFFECT.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any of its successors or assigns.
(b) This Agreement is personal to the Employee and shall not be
assignable by the Employee without the consent of the Company (there being no
obligation to give such consent) other than such rights or benefits as are
transferred by will or the laws of descent and distribution.
-4-
<PAGE>
(c) The Company will require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets or businesses of the Company (i) to assume
unconditionally and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to the same extent
as would have been required of the Company had no assignment or succession
occurred, such assumption to be set forth in a writing reasonably satisfactory
to the Employee. In the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such successor or
assign.
12. NOTICES. Any notice or other communication required under this
Agreement shall be in writing, shall be deemed to have been given and received
when delivered in person, or, if mailed, shall be deemed to have been given when
deposited in the United States mail, first class, registered or certified,
return receipt requested, with proper postage prepaid, and shall be deemed to
have been received on the third business day thereafter, and shall be addressed
as follows:
If to the Company, addressed to:
Horizon Offshore, Inc.
2500 City West Boulevard, Suite 2200
Houston, Texas 77042
Attention: James K. Cole
If to the Employee, addressed to:
Clay Etheridge
c/o Horizon Offshore, Inc.
2500 City West Boulevard, Suite 2200
Houston, Texas 77042
or such other address as to which any party hereto may have notified the other
in writing.
13. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas.
14. ENTIRE AGREEMENT. This Agreement and the documents referred to herein,
contain or refer to the entire arrangement or understanding between the Employee
and the Company relating to the employment of the Employee by the Company. No
provision of the Agreement, may be modified or amended except by an instrument
in writing signed by or for both parties hereto.
15. SEVERABILITY. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall at any time or to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or
-5-
<PAGE>
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term and provision of this Agreement
shall be valid and enforced to the fullest extent permitted by law.
16. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
17. REMEDIES NOT EXCLUSIVE. No remedy specified herein shall be deemed to
be such party's exclusive remedy, and accordingly, in addition to all of the
rights and remedies provided for in this Agreement, the parties shall have all
other rights and remedies provided to them by applicable law, rule or
regulation.
18. BENEFICIARIES. Whenever this Agreement provides for any payment to be
made to the Employee or his estate, such payment may be made instead to such
beneficiary or beneficiaries as the Employee may have designated in writing and
filed with the Company. The Employee shall have the right to revoke any such
designation from time to time and to redesignate any beneficiary or
beneficiaries by written notice to the Company.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date just above written.
HORIZON OFFSHORE, INC.
By:_________________________________________
Bill J. Lam
President
EMPLOYEE:
____________________________________________
Clay Etheridge
6
<PAGE>
EXHIBIT 18.1
March 21, 2000
Horizon Offshore, Inc.
2500 City West Blvd.
Suite 2200
Houston, Texas 77024
Re: Report for the quarter ended March 31, 2000
Gentlemen/Ladies:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
We have been informed that, as of January 1, 2000, the Company changed from the
straight-line method of accounting for depreciation to the units of production
method. The annual depreciation based on utilization of each vessel will be less
that the greater of 25 percent of annual straight-lined depreciation or 50
percent of the cumulative straight-lined depreciation rate. According to the
management of the Company, this change was made to record depreciation in the
periods that more accurately reflect the decline in value during such periods,
taking into account the nature of these assets and Horizon's business.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
We have not audited the application of this change to the financial statements
of any period subsequent to December 31, 1999. Further, we have not examined and
do not express any opinion with respect to your financial statements for the
three months ended March 31, 2000
Very truly yours,
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF HORIZON
OFFSHORE, INC. AND SUBSIDIARIES AS OF MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,748
<SECURITIES> 0
<RECEIVABLES> 13,819
<ALLOWANCES> 0
<INVENTORY> 1,646
<CURRENT-ASSETS> 29,400
<PP&E> 179,730
<DEPRECIATION> (11,582)
<TOTAL-ASSETS> 201,461
<CURRENT-LIABILITIES> 25,250
<BONDS> 0
0
0
<COMMON> 9,119
<OTHER-SE> 87,735
<TOTAL-LIABILITY-AND-EQUITY> 201,461
<SALES> 15,906
<TOTAL-REVENUES> 15,906
<CGS> 14,781
<TOTAL-COSTS> 16,791
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,768
<INCOME-PRETAX> (2,555)
<INCOME-TAX> 869
<INCOME-CONTINUING> (1,686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,381
<NET-INCOME> (305)
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
