SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period_______to______
Commission File Number 0-10809
HORNBECK OFFSHORE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2153030
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
7707 Harborside Drive 77554
Galveston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (409) 744-9500
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ------------------- -------------------------
None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
Preferred Stock Purchase Rights
(Title of Class)
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. [X] Yes [ ] No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the Registrant held by
nonaffiliates as of February 15, 1996, was approximately $239,110,990. The total
number of shares of Common Stock issued and outstanding as of February 15, 1996,
was 13,234,428.
Documents incorporated by reference:
None
<PAGE>
PART 1
ITEM 1. BUSINESS
GENERAL
The Company is engaged in the offshore marine services business serving the
oil and gas industry primarily in the Gulf of Mexico through its operation and
management of a diversified fleet of 61 vessels, consisting of supply,
tug/supply, crew and specialty service vessels. The Company currently uses such
vessels to provide a wide range of services, such as transporting supplies
necessary to sustain drilling, workover and production activities; supporting
offshore pipelaying and construction, and assisting geophysical evaluation.
Fifty-six of these vessels are owned, four are chartered and one is managed by
the Company. The Company operates the second largest fleet of supply vessels
both in the Gulf of Mexico and in the world. The Company also has 49.9% equity
interests in Ravensworth Investments Limited, an Isle of Man-based company
("Ravensworth"), and Seaboard Holdings Limited, an Aberdeen, Scotland-based
company ("Seaboard"), which together have the largest safety standby fleet
operating in the North Sea, a combined total of 29 vessels. Founded in 1981, the
Company is headquartered in Galveston, Texas and also conducts its Gulf of
Mexico operations from its office in Morgan City, Louisiana. North Sea
operations of Ravensworth and Seaboard are conducted from offices in Douglas,
Isle of Man, and Aberdeen, Scotland.
The Company's operating strategy is to provide its customers with
high-quality, quick-response service and a well-equipped and maintained fleet of
vessels. Offshore supply fleets compete on the basis of a variety of factors,
including quality and type of equipment, price, service and reputation.
Management believes that the Company's operating capabilities and reputation in
the offshore marine services industry allow it to compete favorably with other
fleets in the Gulf of Mexico.
Before entering into an agreement and plan of merger with Tidewater, Inc.
on December 21, 1995, management had identified several strategies for future
growth. If the merger contemplated in the Merger Agreement (as defined below)
does not occur, the Company, which has made three significant Gulf fleet
acquisitions and several smaller acquisitions since 1990, will continue to
search for opportunities to enhance its position in the Gulf of Mexico through
the strategic acquisition of vessels available in that market. The Company also
will seek to increase the size of its fleet by purchasing or building new
vessels if market conditions justify such purchases or construction.
Additionally, the Company will continue to pursue potential opportunities for
growth in the offshore marine services business in international markets, as
evidenced by its July 1993 purchase of a substantial interest in Ravensworth and
November 1994 purchase of a substantial interest in Seaboard.
RECENT EVENTS
THE MERGER. On December 21, 1995, the Company signed a definitive Agreement
and Plan of Merger (the "Merger Agreement") with Tidewater, Inc. ("Tidewater")
providing for a business combination (the "Merger") between the Company and
Tidewater in which a wholly owned subsidiary of Tidewater will be merged with
and into the Company, the Company will become a wholly owned subsidiary of
Tidewater and the holders of the Company's stock will be issued Tidewater common
stock in a transaction intended to qualify as a pooling of interests for
accounting purposes and as a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code") for
federal income tax purposes. Pursuant to the Merger Agreement, upon consummation
of the Merger, each share of the Company's Common Stock that is issued and
outstanding at the Effective Time (as defined below) will be converted, subject
to the adjustment discussed in the following sentence, into the right to receive
.667 of a share of common stock, $.10 par value per share, of Tidewater (the
"Tidewater Common Stock"), together with certain associated rights under the
Tidewater Restated Rights Agreement dated as of December 17, 1993, by and
between Tidewater and the First National Bank of Boston, as rights agent (the
"Tidewater Stockholder Rights Plan"). The Merger Agreement provides that if the
Average Market Price (as defined below) of a share of Tidewater Common Stock is
less than $24.50 or exceeds $32.50, then the conversion ratio will be adjusted,
provided that the conversion ratio, as so adjusted, will not be less than .60
(if the Average Market Price is more than $32.50) or greater than .74 (if the
Average Market Price
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is less than $24.50) (as so adjusted, the "Conversion Ratio"). The Merger
Agreement further provides that either the Company or Tidewater may terminate
the Merger Agreement if the Conversion Ratio at the date of closing of the
Merger would be less than .60 or greater than .74, by virtue of the Average
Market Price being greater than $36.13 or less than $22.08. The term "Average
Market Price" is defined as the average of the daily closing sale prices of a
share of Tidewater Common Stock on the New York Stock Exchange as reported in
THE WALL STREET JOURNAL for the ten consecutive trading days that end on the
second trading day immediately prior to the date of the closing of the Merger.
Each holder of the Company's Common Stock entitled upon conversion to a
fractional share of Tidewater Common Stock will, in lieu thereof, receive a cash
payment (without interest) equal to the product of the Average Market Price and
such fraction.
The Company and Tidewater were required to make certain filings pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR"),
with respect to the proposed Merger and made such filings on January 2, 1996.
The waiting period under HSR expired on February 1, 1996, without the imposition
of any obstacles to the Merger. The Board of Directors of the Company has
recommended that the Company's stockholders adopt the Merger Agreement and on or
about February 8, 1996, the Company mailed to its stockholders of record on
January 31, 1996 a notice of special meeting to be held on March 13, 1996, and
related proxy materials with respect to the proposed adoption of the Merger
Agreement. In addition to the approval of the Company's stockholders and HSR
clearance, the consummation of the Merger Agreement is conditioned upon the
satisfaction of certain conditions set forth in the Merger Agreement, including
the receipt by each party of customary legal opinions, certificates, consents,
resolutions and reports from the other and from third parties and confirmation
of certain tax opinions and accountants' opinions or letters. Tidewater and the
Company intend to consummate the Merger as soon as practicable following
satisfaction or waiver of the conditions thereto. The Merger will become
effective at the time (the "Effective Time") and on the date (the "Effective
Date") the Certificate of Merger is filed with the Secretary of State of
Delaware.
CERTAIN OTHER TERMS OF THE MERGER. The Merger Agreement provides that
Tidewater will indemnify and hold harmless each person who was an officer or
director of the Company or any of its subsidiaries on December 21, 1995 or who
previously served as such at any time after January 1, 1993, from and against
all damages, liabilities, judgments and claims based upon or arising out of such
person's service in such capacity to the same extent as he or she would have
been indemnified under the Restated Certificate of Incorporation or Restated
Bylaws of the Company as they were in effect on the date the Merger Agreement
was executed. With certain exceptions, the aggregate amount of indemnification
payments required to be made by Tidewater to such persons is limited to $50
million. Tidewater has also agreed to pay the insurance premiums required for
any extension of the Company's director's and officer's insurance policy
following the Effective Date for a period of six years or to provide comparable
coverage under a Tidewater policy.
The Merger Agreement prohibits the Company and its subsidiaries and
affiliated entities from, directly or indirectly, soliciting or encouraging the
initiation or submission of any inquiries, proposals or other offers regarding
any acquisition, merger, takeover bid, sale of all or substantially all of its
assets, or sales of shares of capital stock of the Company or similar
transactions involving the Company. The Merger Agreement provides that if the
Company Board decides after considering advice of outside counsel and financial
advisors that it would be consistent with its fiduciary responsibilities to
approve or recommend another transaction in lieu of the Merger and therefore
withdraws or modifies its recommendation that the Merger Agreement be adopted,
the Company may not enter into any agreement for such other takeover proposal
until the Merger Agreement is terminated and a termination fee of $6 million in
cash (the "Termination Fee") is paid to Tidewater. The Company's obligation to
pay the Termination Fee is not incurred if the Company or Tidewater otherwise
terminates the Merger Agreement in accordance with its terms.
The Company and Tidewater may mutually agree to amend the Merger Agreement
at any time before or after the Company stockholder approval, provided that no
amendment is permissible following the Company stockholder approval if the
amendment would by law require further stockholder approval, unless such further
stockholder approval is obtained. Either party may waive compliance with any of
the agreements or conditions contained in the Merger Agreement other than the
satisfaction of all requirements prescribed by law for consummation of the
Merger.
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The Merger Agreement may be terminated at any time before the Effective
Time (i) by the mutual consent of the Board of Directors of the Company and the
Tidewater Board or (ii) by the board of directors of either party if (a) the
required approval by the Company's stockholders is not obtained at the Special
Meeting, (b) there has been a material breach by the other party of any
representation, warranty or covenant in the Merger Agreement which is not cured
within 15 days after notice of such breach is given to the breaching party, (c)
all conditions to closing have not been met by, or the Merger has not been
consummated on or before, November 20, 1996 unless the party seeking to
terminate the Merger Agreement is, at such time, in willful and material
violation of its representations, warranties or covenants under the Merger
Agreement, (d) any governmental entity shall have issued an order, decree, or
ruling or taken any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable, or (e) at the date of closing of the Merger, the
Conversion Ratio would be less than .60 or greater than .74. Also, the Company
may terminate the Merger if the Board of Directors of the Company withdraws its
recommendation of the Merger to the holders of the Company's Common Stock in
connection with its approval or recommendation to the holders of the Company's
Common Stock of any alternate proposal and pays the Termination Fee to
Tidewater.
THE INDUSTRY
Offshore service vessels are generally used to support offshore oil and gas
exploration, development and production and to provide other marine services.
The largest class of offshore service vessels are supply vessels (also called
workboats), which are capable of transporting drillpipe, drilling fluids and
construction materials. Other service vessels include tug/supply vessels, which
have more powerful engines and are capable of towing and positioning offshore
rigs; crewboats, which transport personnel; special service vessels, including
geophysical boats which perform offshore seismic testing functions; and safety
vessels, which are available for emergency response services related to oil and
gas exploration, drilling and production. Although vessels servicing the
offshore oil and gas industry are used to support existing production platforms,
incremental vessel demand is largely dependent on new offshore drilling activity
associated with new wells or the workover of older wells. Therefore, the demand
for offshore service vessels generally correlates with oil and gas prices. The
level of activity in the industry has been very cyclical.
The cyclical nature of the offshore marine services business and the
decreased number of vessels have also contributed to a reduction in the number
of vessel owning and operating companies. The Company estimates that there are
currently 19 other supply vessel operating companies competing in the Gulf of
Mexico, significantly lower than estimates made as recently as 1990. Thirteen
companies have ten or fewer supply vessels.
During the fourth quarter of 1992 and calendar 1993, supply vessel
operations improved due to increased drilling activity in the Gulf of Mexico
coupled with further downsizing of the industry's offshore vessel fleet. From
December 1992 to December 1993, the number of contracted drilling rigs in the
Gulf of Mexico increased from 109 to 137. In 1994, the number of contracted
drilling rigs decreased to a low of approximately 120 before recovering to
approximately 140 by year-end. In 1995, the number of contracted drilling rigs
decreased before increasing in early 1996 to more than 150. Average industry
utilization for offshore supply vessels, however, declined significantly from
December 1993 levels of approximately 96% to a low in May 1994 of 80% due
primarily to the increased number of vessels in the industry fleet. Company
utilization and average supply vessel dayrates have peaked seasonally in late
1994 and 1995 after declining in the second quarter of 1994 and the first
quarter of 1995. Recently utilization and dayrates have remained relatively
strong compared to comparable periods in the previous year. On February 9, 1996,
the utilization rate for the Company's vessels was 97% and the average supply
vessel dayrate was approximately $3,650. The Company believes its current
utilization and average dayrates are substantially comparable to those of the
other major competitors in the offshore marine services business.
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COMPANY VESSELS
The following table compares the number of vessels in the Company's fleet
at the dates indicated:
DECEMBER 31(1)
--------------------------------
1993 1994 1995
---- ---- ----
Supply/Tug/Supply .................... 49 59 58
Crewboats ............................ 2 2 2
Specialty service .................... 2 2 1
-- -- --
Total .......................... 53 63 61
== == ==
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1. Includes vessels bareboat chartered or managed by the Company. Does not
include Ravensworth or Seaboard vessels.
Future demand for the Company's vessels will be influenced by drilling
activity in the Gulf of Mexico, by the degree of success of the Company's
efforts to market its vessels outside the Gulf of Mexico and by the availability
of competing vessels. Management believes that the number of vessels available
in the Gulf will continue to decrease because current dayrates in the Gulf of
Mexico do not justify the expense of building new vessels and current
regulations prohibit foreign operators and foreign registered vessels from
entering the offshore marine services business in the Gulf of Mexico.
Furthermore, increased activities in overseas areas could result in reduction of
Gulf fleet size as vessels are deployed to those areas. It is also possible that
additional vessels could be redeployed to the Gulf of Mexico from other areas.
The Company's management believes that many of the vessels previously
servicing the oil and gas industry could not be readily returned to service in
the Gulf of Mexico because their condition would not meet U.S. Coast Guard and
other industry standards or certain restrictions imposed by the Maritime
Administration of the U.S. Department of Transportation ("MARAD") on their
return to offshore service vessel use in United States coastal waters. In
addition, the entry into the Gulf of Mexico market of certain foreign flag
vessels currently operating in foreign waters is restricted as a result of the
provisions of the Merchant Marine Act of 1920, which limits vessels carrying
merchandise or passengers for hire in domestic waters to U.S. flag vessels,
built in U.S. shipyards, which are owned and operated by U.S. citizens.
THE COMPANY'S FLEET
The Company's fleet has an average age of approximately 15 years. The
Company's vessels support the entire range of the offshore exploration and
development business, including transporting supplies necessary to sustain
drilling, workover and production activities; supporting offshore pipelaying and
construction activities; and assisting geophysical evaluation.
The following table provides information, as of January 31, 1996, regarding
the 56 vessels owned, the four vessels bareboat chartered and the one vessel
managed by the Company.
LENGTH
OVERALL YEAR
NAME IN FEET CLASSIFICATION COMPLETED IHP
- ---- ------- -------------- --------- ---
OWNED(1):
HOS War Admiral .............. 220 Supply 1991 4,000
HOS Man O'War ................ 220 Supply 1991 4,000
HOS Boss Hoss ................ 220 Supply 1991 4,000
HOS Sea Hero ................. 220 Supply 1991 4,000
-4-
HOS Gallant Fox .............. 214 Supply 1978 3,600
HOS Sly Fox .................. 214 Supply 1978 3,600
HOS Majestic Prince .......... 192 Supply 1979 3,900
HOS Whirlaway ................ 192 Supply 1979 3,900
HOS Chief .................... 192 Supply 1982 2,500
HOS Belle .................... 192 Supply 1982 2,500
HOS Dark Star ................ 192 Supply 1985 4,600
HOS Native Dancer ............ 192 Supply 1975 2,240
HOS Sword Dancer ............. 192 Supply 1974 2,240
HOS Normandy ................. 191 Tug/Supply 1982 4,600
HOS Bravo .................... 191 Tug/Supply 1982 4,600
HOS Chaleur .................. 191 Tug/Supply 1982 4,600
HOS Liberty .................. 191 Tug/Supply 1982 4,600
HOS Fortune .................. 191 Tug/Supply 1979 4,600
HOS Samson ................... 191 Tug/Supply 1979 4,600
HOS Crusader ................. 188 Supply 1981 3,000
HOS High Quest ............... 188 Supply 1980 3,000
HOS Black Gold ............... 188 Supply 1981 3,000
HOS Lone Wolf ................ 188 Supply 1981 3,000
HOS Gate Dancer .............. 188 Supply 1981 3,000
HOS Risen Star ............... 185 Supply 1977 3,600
HOS Swaps .................... 185 Supply 1977 3,600
HOS Cavalcade ................ 185 Supply 1977 3,600
HOS Dover .................... 185 Supply 1978 3,600
HOS Barrow ................... 185 Supply 1978 3,600
HOS Success .................. 185 Supply 1976 3,600
HOS Conception ............... 185 Supply 1976 3,600
HOS Canonero ................. 180 Supply 1975 2,500
HOS Career Boy ............... 185 Supply 1973 2,250
HOS Nashua ................... 180 Supply 1978 2,500
HOS Iron Leige ............... 180 Supply 1979 2,500
HOS Gun Bow .................. 180 Supply 1979 2,500
HOS Gallant Man .............. 180 Supply 1979 2,500
HOS Seattle Slew ............. 180 Supply 1979 2,500
HOS High Gun ................. 180 Supply 1979 2,500
HOS Avatar ................... 180 Supply 1979 2,500
HOS Bold Ruler ............... 180 Supply 1975 1,800
HOS Alydar ................... 180 Supply 1979 2,100
HOS Alysheba ................. 180 Supply 1983 3,600
HOS Affirmed ................. 180 Supply 1975 2,100
HOS Bold Forbes .............. 180 Supply 1976 2,240
HOS Agile .................... 180 Supply 1979 3,000
HOS Gallant Knight ........... 175 Supply 1982 1,800
HOS Advocator ................ 170 Supply 1976 2,100
HOS Cape Charles ............. 166 Supply 1981 1,800
HOS Count Fleet .............. 166 Supply 1976 2,240
HOS Shut Out ................. 166 Supply 1977 2,240
HOS Count Turf ............... 166 Supply 1976 2,240
HOS Carry Back ............... 180 Supply 1981 1,800
HOS Secretariat .............. 150 Supply 1980 1,860
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HOS Assault ..................... 110 Crew 1979 2,025
HOS Messenger ................... 110 Crew 1979 2,025
BAREBOAT CHARTERED:
HOS Bold Venture ................. 192 Supply 1981 2,500
HOS Centurion .................... 187 Supply 1982 2,500
HOS Citation ..................... 187 Supply 1982 2,500
HOS Determine .................... 185 Supply 1982 2,500
MANAGED:
Gyre ................... 170 Research 1979 2,250
- ------------
1. At December 31, 1995, 22 vessels owned by the Company were pledged as
security for approximately $3,300,000 of MARAD-guaranteed debt and
approximately $12,100,000 of bank debt.
CUSTOMERS AND CHARTER TERMS
Substantially all of the Company's charters in the Gulf of Mexico are
short-term contracts (30 to 45 days) or spot contracts (less than 30 days) and
all are cancelable upon short notice. The terms of charters are determined
through negotiation and vary widely. Because of renewals, the stated duration of
charters frequently has little relationship to the actual time a vessel is
chartered to a particular customer. Charters are obtained through competitive
bidding or, with established customers, through negotiation. The Company
believes that the short terms of its charters can be advantageous as they will
enable the Company to benefit from any increase in dayrates resulting from
increased demand in the offshore marine services industry. Conversely, the short
charter terms do not protect the Company against any decrease in utilization or
dayrates resulting from a downturn in the industry. As discussed below,
Ravensworth and Seaboard generally conduct their business pursuant to longer
term contracts for vessel support service.
The Company's customers consist principally of major and independent oil
and gas exploration and development companies. During 1995, the Company's
vessels were chartered to approximately 120 different customers. The number and
identity of the Company's customers vary from year to year. In past years,
several customers have accounted for 10% or more of the Company's consolidated
revenues, although the identity of such customers varies from year to year.
Typically, invoices for services were paid within 30 to 45 days of the invoice
date. Because of the variety and number of customers each year, the Company's
management believes that the loss of any one customer would not have a material
adverse effect on the Company.
COMPETITION
The Company currently competes primarily in the Gulf of Mexico with many
other owners and operators of offshore marine service vessels. In addition,
since vessels can be easily moved from one geographic area to another,
additional competition could come from U.S. flag vessels not currently active in
the Gulf of Mexico. The Company's North Sea affiliates, Ravensworth and
Seaboard, now compete and, if the Company commences work directly in overseas
markets it will compete, with many different foreign and U.S. based operators.
Competition from foreign operators in the U.S. Gulf of Mexico is restricted as a
result of the provisions of the Merchant Marine Act of 1920, which limits
vessels carrying merchandise or passengers for hire between two points in
domestic waters to U.S. flag vessels, built in U.S. shipyards, which are owned
and operated by U.S. citizens. The Company believes it currently operates the
second largest fleet of supply vessels in the Gulf of Mexico. Certain of the
Company's competitors own more vessels or have greater financial and other
resources than the Company. A large number of companies that own a relatively
small number of vessels also compete with the Company. Competition
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in the offshore marine services industry involves such factors as availability
of vessels of the type needed by the customer, experience and reputation of the
operator and crews, quality of equipment and service, price and charter terms.
CERTAIN GOVERNMENT REGULATIONS
Many aspects of the offshore marine services industry are subject to direct
governmental regulation. The Company is subject to the jurisdiction of the U.S.
Coast Guard, the National Transportation Safety Board and the U.S. Customs
Service, as well as private industry organizations such as the American Bureau
of Shipping. The Coast Guard and the National Transportation Safety Board set
safety standards and are authorized to investigate vessels at will. The
operations of Ravensworth and Seaboard and Hornbeck Offshore Limited, an
affiliate of the Company (the "North Sea Manager") are subject to direct
governmental regulation, including by the Department of Transportation and the
Health and Safety Executive of the United Kingdom. If the Company expands its
operations to foreign waters, it will also be subject to regulation by other
governments.
In addition to laws and regulations directly affecting the Company, the
Company's business is also influenced by laws, regulations and policies which
impact the drilling programs of its customers and of the oil and gas industry as
a whole.
The operations of the Company are subject to federal, state and, for
onshore activities, local laws and regulations relating to protection of the
environment. Although the Company believes that its operations are in general
compliance with applicable environmental regulations, risks of substantial costs
and liabilities are inherent in offshore marine service operations, and there
can be no assurance that significant costs and liabilities will not be incurred.
Moreover, it is possible that other developments, such as increasingly strict
environmental laws, regulations and enforcement policies thereunder, and claims
for damages to property, persons or the environment resulting from the Company's
operations could result in substantial costs and liabilities to the Company.
Without limiting the generality of the foregoing, the Company's operations are
subject to the Outer Continental Shelf Lands Act, and regulations promulgated
thereunder, which regulate the activities of offshore service vessels, require
vessel owners and operators to demonstrate financial and operational
responsibility and provide for certain limitations on the liability of vessel
owners and operators. The Company's operations also are subject to the Federal
Water Pollution Control Act of 1972, as amended, which imposes strict controls
against the discharge of oil and other pollutants into surface waters within
their jurisdiction. Any hazardous substances transported by the Company are
subject to regulation under the Resource Conservation and Recovery Act and the
Hazardous Materials Transportation Act. Numerous other environmental laws and
regulations also apply to the operations of the Company, and such laws and
regulations are subject to frequent changes. The Company's insurance policies
provide coverage for accidental occurrences of seepage and pollution and/or
cleanup and containment of the foregoing. Although the Company's losses from
such occurrences have not historically exceeded its insurance coverage, there is
no assurance that this will continue to be the case. Management believes,
however, that the Company's insurance coverage is adequate and comparable to
that generally carried in the offshore marine services industry.
The Company has received and is responding to a subpoena for documents from
the United States District Court for the Southern District of Texas, Houston
Division. The scope of the subpoena suggests an interest in the Company's
compliance with certain environmental statutes and regulations, violations of
which could carry both civil and criminal liabilities. The subpoena seeks
information concerning the Company's vessels since January 1, 1993 regarding
vessel operations as they relate to the purchase, use and disposition of
petroleum and related products.
It is the Company's policy to comply with all applicable laws, including
laws designed to protect the environment. While management and the board of
directors of the Company do not believe that any outcome of the investigation
would have a material adverse effect on the financial position of the Company,
they cannot predict the nature or ultimate outcome of the investigation or any
proceeding that might be based thereon.
Under the Merchant Marine Act of 1920, the transportation of merchandise or
passengers for hire in domestic waters is limited to vessels owned and operated
by U.S. citizens that are built in U.S. shipyards and registered under the laws
of the United States. For purposes of these requirements, no corporation is
deemed a U.S. citizen unless,
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among other things, no more than 25% of any class of its voting securities
are owned by non-U.S. citizens, none of the corporation's chief executive
officer, president or chairman of the board are non-U.S. citizens and no more
than a minority of its board of directors necessary to constitute a quorum are
non-U.S. citizens. If the Company should fail to meet any of the foregoing
citizenship requirements, its vessels become ineligible to engage in trade in
U.S. domestic waters. Furthermore, the foregoing citizenship requirements must
be met in order for the Company to continue to qualify for MARAD-guaranteed
financing that currently exists with respect to certain of its vessels. Certain
provisions of the Company's Restated Certificate of Incorporation are intended
to aid in compliance with the foregoing requirements regarding non-U.S. citizen
ownership. Based on the composition of its management and board of directors and
the most recent annual test of its stock ownership, the Company meets these
citizenship requirements.
Under the provisions of the Restated Certificate of Incorporation (i) any
transfer, or attempted or purported transfer, of any shares of capital stock
which would result in the ownership or control by one or more persons who is not
a U.S. citizen for purposes of United States coastwise domestic shipping (as
defined in the Shipping Act of 1916, as amended), of an aggregate percentage of
the shares of capital stock in excess of a fixed percentage (the "Permitted
Percentage") which is equal to 5% less than the percentage that would prevent
the Company from being a U.S. citizen (currently 25%) for purposes of engaging
in United States coastwise domestic shipping, will, until such excess no longer
exists, be void and ineffective as against the Company; and (ii) if at any time
ownership of Common Stock (either of record or beneficial) by persons other than
U.S. citizens exceeds the Permitted Percentage, the Company will withhold
payment of any dividends on such shares deemed to be in excess of the Permitted
Percentage and will suspend the voting rights of such shares.
Certificates representing the Common Stock bear legends concerning the
restrictions on ownership by persons other than U.S. citizens. In addition, the
Company's board of directors is authorized to adopt bylaw provisions (i)
requiring, as a condition precedent to the transfer of shares on the records of
the Company, representations and other proof as to the identity of existing or
prospective stockholders; and (ii) establishing and maintaining a dual stock
certificate system under which different forms of certificates may be used to
indicate whether or not the owner thereof is a U.S. citizen.
SEASONALITY OF BUSINESS
Demand for the Company's services is directly affected by the level of
offshore drilling activity. Budgets of many companies which engage in offshore
drilling and exploration activities are based upon a calendar year and,
historically, demand for the Company's services has been stronger in the second,
third and fourth calendar quarters when allocated budgets are expended by the
Company's customers and weather conditions are more favorable for offshore
activities. Many other factors such as the expiration dates of drilling leases
and the supply of and demand for oil and gas can, however, affect this general
trend in any particular year.
NORTH SEA AFFILIATES -- THE RAVENSWORTH AND SEABOARD ACQUISITIONS
BUSINESS
Ravensworth Investments Limited, an Isle of Man company ("Ravensworth") and
Seaboard Holdings Limited, a Scottish company ("Seaboard"), through their
subsidiaries, are engaged in the offshore marine services business primarily
serving the oil and gas industry in the North Sea by providing safety standby
vessels. Under the United Kingdom's Offshore Installations (Emergency
Procedures) Regulations 1976 and Code for the Assessment of the Suitability of
Standby Vessels, as revised in 1991 (collectively, the "Safety Code"), existing
manned platforms and offshore drilling rigs are subject to offshore marine
safety requirements and offshore operations and operators are required to engage
and maintain the availability of safety standby vessels. The Safety Code
requires that a vessel "standby" to provide a means of rescuing platform or rig
personnel in the event of an emergency at such an offshore facility.
Through the combined fleet of 29 vessels, 23 owned and six chartered,
Ravensworth and Seaboard provide such safety standby services, generally
pursuant to long-term charters. Of the 29 vessels, 24 are currently under
charters as of February 12, 1996. Thirteen of these charters expire in 1996, six
expire in 1997, two expire in 1999,
- 8 -
one expires in 2002 and two expire in 2003. Charters at Ravensworth and
Seaboard are generally terminable upon varying notice periods, and certain
charters provide for compensation for early termination or effectively prohibit
termination due to charter rates being above then prevailing market rates. Due
to the requirement to maintain a safety standby vessel in the operational area
24 hours per day, seven days per week, most charters provide for the safety
standby service to be provided without specifying a particular vessel, thus
allowing Ravensworth and Seaboard to move their vessels to an alternative
project, to shipyards for repairs and maintenance, or to port to exchange crews
and take on fuel and supplies, by replacing the primary vessel with a relief
vessel. The requirement for constant coverage, however, requires, as a practical
matter, that Ravensworth and Seaboard have vessels available for substitution
when primary vessels are off-line and therefore prohibits commitment of all
vessels to separate full time charters. From time to time, under short-term
arrangements, Ravensworth and Seaboard may either charter in other vessels to
meet their contractual commitments or charter out their own vessels to enable
third parties to meet similar obligations. Recently, safety standby vessel
utilization in the North Sea has been negatively affected by sharing
arrangements, whereby operations with facilities in close proximity to one
another coordinate in order to share safety standby vessel support. The
increased drilling activity in the North Sea, however, has offset this sharing
trend somewhat and has helped to offset its impact.
Dayrates for the Ravensworth and Seaboard vessels are not comparable to
Gulf of Mexico supply vessel dayrates because (i) they are governed by long-term
charters, and (ii) the rates are designed to cover significant additional costs
borne by Ravensworth and Seaboard not applicable to supply vessel operations.
These additional costs include larger, more expensive crews and fuel costs. Fuel
costs are normally paid by the customer in supply vessel operations.
All of the Ravensworth vessels and all of the Seaboard vessels are
operated by Seaboard and Hornbeck Offshore Limited, a 49.9% owned affiliate of
the Company (the "North Sea Manager"). The crews and officers who work on the
vessels are employed by foreign subsidiaries of Ravensworth and Seaboard.
Ravensworth has three full time and two part time employees who perform
general and administrative functions of the Ravensworth operations and oversee
the safety standby operations generally, including the contractual relations
with clients. The North Sea Manager has 35 employees who manage the day-to-day
operations.
Ravensworth's 23 vessels are registered as British ships, with ports of
registry at Douglas, Isle of Man; Aberdeen, Scotland; Glasgow, Scotland; or
London, England. Five of Seaboard's vessels are registered as British ships, and
one Seaboard vessel is registered as a Bahamian ship, all with ports of registry
at Inverness, Scotland. All of these vessels are subject to the laws of the
applicable jurisdiction as to ownership, registration and manning of vessels. In
addition, such vessels are subject to the requirements of a number of
international conventions to which the jurisdictions where the vessels are
registered are parties. Further, vessels operated as safety standby vessels in
the U.K. sector of the North Sea are subject to the requirements of the
Department of Transport and of the Health and Safety Executive of the United
Kingdom pursuant to the Safety Code.
RAVENSWORTH AND SEABOARD FLEETS
The following table provides information as of January 31, 1996, regarding
the 29 vessels in which either Ravensworth or Seaboard has an interest, each of
which is a safety standby vessel.
LENGTH YEAR
OVERALL COMPLETED/
NAME IN FEET CONVERTED IHP
------- ---------- ---
RAVENSWORTH OWNED:
Hornbeck Snipe .................................... 185 1972/92 3600
Scott Guardian .................................... 180 1993 2250
Trafalgar Guardian ................................ 180 1994 2250
Hornbeck Swan ..................................... 175 1971/91 4200
Safe Transporter .................................. 175 1971/90 4200
- 9 -
Hornbeck Skua ..................................... 175 1971/91 4200
Safe Carrier ...................................... 175 1967/90 3000
Hornbeck Scout .................................... 175 1974/90 2500
Sunset Baronet .................................... 175 1985/92 2200
Sunset Earl ....................................... 175 1985/91 2200
Safe Protector .................................... 175 1973/91 2200
Sunset Searcher ................................... 174 1985/91 4200
Sunset Seeker ..................................... 174 1985/91 4200
Hornbeck Capella .................................. 168 1968/91 2500
Hornbeck Swallow .................................. 165 1972/90 2500
Hornbeck Swift .................................... 165 1973/90 2500
Hornbeck Castor ................................... 154 1947/90 1100
RAVENSWORTH SALE/CHARTERBACK/REPURCHASE INTEREST:(1)
Hornbeck Sapphire ................................. 182 1980/90 2700
Hornbeck Supreme .................................. 182 1981/90 2700
Hornbeck Sentry ................................... 182 1979/90 2700
Hornbeck Support .................................. 182 1979/90 2700
Hornbeck Sceptre .................................. 180 1981/90 2700
Hornbeck Sovereign ................................ 180 1979/90 2700
SEABOARD OWNED:
Hornbeck Implacable ............................... 245 1965/84 2500
Hornbeck Illustrious .............................. 234 1972/86 2160
Hornbeck Integrity ................................ 231 1969/85 1750
Hornbeck Intrepid ................................. 231 1969/85 1750
Hornbeck Invincible ............................... 231 1971/86 2400
Hornbeck Coral .................................... 200 1977/92 4200
- ------------
1. These six vessels are operated under charters. Pursuant to agreements entered
into at the time the vessels were sold and chartered back, Ravensworth may
acquire the owners of the vessels or be required to repurchase such vessels
from such owners.
RAVENSWORTH ACQUISITION TERMS
On July 23, 1993, the Company acquired 49.9% (the "Ravensworth
Acquisition") of the outstanding capital stock of Ravensworth, from Ravensworth
Holdings Limited ("RHL"), the sole beneficial holder of the outstanding capital
stock of Ravensworth, for a purchase price of $11 million in cash and
approximately $2.7 million in the form of 158,978 restricted shares of common
stock of the Company, $.10 par value per share (the "Common Stock") and options
to acquire the remaining outstanding capital stock of Ravensworth (the
"Ravensworth Options").
Pursuant to rights granted in connection with the Ravensworth Acquisition,
the Company is entitled to nominate directors to be elected to the Board of
Directors of Ravensworth commensurate with its ownership interest in
Ravensworth, and RHL has agreed to vote its shares for the Company's designees
to Ravensworth's Board. The Company has nominated and caused to be elected three
directors to the six-member Board of Directors of Ravensworth. In addition, the
consent of the Company is required before Ravensworth takes certain significant
actions.
SEABOARD ACQUISITION TERMS
Effective November 30, 1994, the Company's newly formed 49.9% owned
affiliate, Seaboard, acquired (the "Seaboard Acquisition"), for nominal
consideration, all of the outstanding capital stock of Seaboard Offshore Group
Limited ("SOGL") which, together with its subsidiaries, owns six (6) safety
standby vessels operating in the North Sea. To facilitate the transaction, the
Company made a (pound)1.5 million loan to SOGL and guaranteed approximately
(pound)302,000 of SOGL debt. In connection with the Seaboard Acquisition and the
formation of its 49.9% owned
- 10 -
affiliate, Hornbeck Offshore Limited, the Company acquired options to purchase,
to the extent it has exercised the Ravensworth Options, the remaining equity
interest in Seaboard.
In connection with the exercise of its options to acquire the remaining
outstanding capital stock of Ravensworth, the Company will be entitled to
receive for no additional consideration a corresponding amount of the remaining
equity interests in North Sea Manager.
Pursuant to rights granted in connection with the Seaboard Acquisition and
the formation of North Sea Manager, the Company is entitled to nominate
directors to be elected to the boards of directors of Seaboard and North Sea
Manager commensurate with its ownership interests in such companies, and RHL has
agreed to vote its shares for the Company's designees to such companies' boards.
The Company has nominated and caused to be elected the appropriate directors to
the boards of directors of such companies. In addition, the consent of the
Company is required before Seaboard or North Sea Manager take certain
significant actions.
EMPLOYEES
As of January 31, 1996, the Company had approximately 570 employees. The
Company considers relations with its employees to be satisfactory. None of the
Company's employees is represented by a collective bargaining unit.
EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and offices held by each of the executive officers of the
Company at February 15, 1996 are as follows:
NAME AGE OFFICE/OFFICES
---- --- --------------
Larry D. Hornbeck ........................ 57 Chairman of the Board of
Directors, President and Chief
Executive Officer
Bernie W. Stewart ........................ 51 Senior Vice President and
Chief Operating Officer
Robert W. Hampton ........................ 44 Vice President, Treasurer and
Chief Financial Officer
Roger M. Sykes ........................... 51 Vice President - Marketing
Terry Jett ............................... 51 Vice President of Sales,
Manager - East
Harvey C. Haskett ........................ 53 Vice President of Sales - West
Richard R. Ellison ....................... 44 Vice President and Secretary
John D. Opiela ........................... 37 Vice President and Controller
Officers each serve for a one-year term or until their successors are
appointed and qualified.
Larry D. Hornbeck is Chairman of the Board, President and Chief Executive
Officer of the Company. He has held these positions and has been a director
since he founded the Company in January of 1981. Prior to 1981, Mr. Hornbeck was
Chairman of the Board, President and Chief Executive Officer of Seal Fleet,
Inc., a publicly held offshore supply vessel company. Mr. Hornbeck has more than
27 years of senior management experience in the offshore marine services
industry, including international operations. He also serves as a director of
Coastal Towing, Inc.
- 11 -
Bernie W. Stewart has been Senior Vice President and Chief Operating
Officer of the Company since February 1995. From October 1993 until he joined
the Company, he pursued various business opportunities. From 1989 to October
1993, Mr. Stewart was President of Western Oceanic Inc., a wholly owned
subsidiary of The Western Company of North America.
Robert W. Hampton has been Vice President, Treasurer and Chief Financial
Officer of the Company since February 1990. He was Vice President of American
Exploration Company, a publicly held independent oil and gas company, from 1986
to 1989. From 1982 to 1986, Mr. Hampton was a Senior Manager in the Houston
office of Price Waterhouse. Mr. Hampton has more than six years of experience in
the offshore marine services industry.
Roger M. Sykes has been Vice President - Marketing of the Company since
March 1993 and from January 1992 to March 1993 he was the Vice President -
International of the Company. He was Director of International Marketing of
Zapata Gulf Marine from 1985 to December 1991. Mr. Sykes has managed
international marketing of offshore service vessels for more than 22 years.
Terry Jett has been Vice President of Sales - East of the Company since
March 1993, prior to that he was Vice President of Sales, Manager - East of the
Company from January 1990 to March 1993. He was Vice President of Point Marine,
Inc. from August 1976 until January 1990. Mr. Jett has more than 24 years of
experience in the offshore marine services industry.
Harvey C. Haskett has been Vice President of Sales - West of the Company
since March 1993 and prior to that he was a Vice President of Operations of the
Company from December 1981 to March 1993. He was a director of the Company from
May 1982 to June 1989. Prior to joining the Company in 1981, Mr. Haskett was an
officer of Seal Fleet, Inc., a publicly held offshore supply vessel company.
Mr. Haskett has more than 24 years of experience in the offshore marine service
industry.
Richard R. Ellison has been Vice President and Secretary of the Company
since August 1987. Mr. Ellison also served as Treasurer until February 1990. He
was a director of the Company from August 1987 to June 1989. From December 1980
to August 1987, Mr. Ellison was Assistant Treasurer of Texas Foundries, Inc.,
which manufactures custom castings. Mr. Ellison has more than eight years of
experience in the offshore marine services industry.
John D. Opiela has been Vice President and Controller of the Company since
March 1993 and prior to that he was Vice President and Controller of the Morgan
City office from January 1990 to March 1993. He was the Controller of Point
Marine, Inc. from November 1988 until January 1990. From 1983 through November
1988, Mr. Opiela worked for the accounting firm, L.D. Crocker and Company. Mr.
Opiela has more than seven years of experience in the offshore marine services
industry.
ITEM 2. PROPERTIES.
The Company owns approximately 2.6 acres in Galveston, Texas, on which its
headquarters office and staging facility/warehouse are located. Its offices and
operating facilities near Morgan City and Houma, Louisiana, occupy leased space.
The vessels owned, bareboat-chartered or managed by certain subsidiaries of
the Company and by Ravensworth and Seaboard are described in Item 1 of this
Report.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings the result of which
could, in the opinion of management, have a material adverse effect upon the
Company.
The Company has received and is responding to a subpoena for documents from
the United States District Court for the Southern District of Texas, Houston
Division. The scope of the subpoena suggests an interest in the Company's
compliance with certain environmental statutes and regulations, violations of
which could carry both civil and criminal liabilities. The subpoena seeks
information concerning the Company's vessels since January 1,
- 12 -
1993 regarding vessel operations as they relate to the purchase, use and
disposition of petroleum and related products.
It is the Company's policy to comply with all applicable laws, including
laws designed to protect the environment. While management and the board of
directors of the Company do not believe that any outcome of the investigation
would have a material adverse effect on the financial position of the Company,
they cannot predict the nature or ultimate outcome of the investigation or any
proceeding that might be based thereon.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1995. The Company has distributed proxy materials to holders of
record of the Common Stock on January 31, 1996 for the purpose of submitting the
adoption of the Merger Agreement to a vote of security holders at a special
meeting to be held on March 13, 1996. See discussion under Item 1: "Recent
Events" above.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades in the over-the-counter market and is
quoted on the NASDAQ National Market System under the symbol "HOSS". At January
31, 1996, the Company had 214 holders of record of Common Stock. The Company
estimates that there are approximately 4,500 beneficial holders of the Company's
Common Stock based upon the number of individual participants in security
position listings.
The following table sets forth the range of high and low closing sales
prices of the Company's Common Stock as reported by NASDAQ for the quarters
indicated.
PRICE RANGE OF
COMMON STOCK
---------------
HIGH LOW
---- ---
1994
First quarter ................................ $ 18 5/8 $ 13 1/2
Second quarter ............................... 17 3/8 12 7/8
Third quarter ................................ 15 7/8 11 1/2
Fourth quarter ............................... 15 1/2 12 1/4
1995
First quarter ................................ $ 12 7/8 $ 8 7/8
Second quarter ............................... 16 5/8 11 1/4
Third quarter ................................ 16 3/8 12 5/8
Fourth quarter ............................... 20 1/8 13 1/2
1996
First quarter (through February 15, 1995) .... $ 21 3/8 $ 19
The Company has never paid cash dividends on its Common Stock, and the
Company's ability to pay cash dividends in the future is limited by its current
debt arrangements.
- 13 -
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the Company as of and for the
years ended December 31, 1991 through December 31, 1995 were derived from the
audited Consolidated Financial Statements of the Company and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements of the Company
and the related notes included elsewhere herein:
<TABLE>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1991 1992 1993 1994 1995
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ........................................ $ 20,419 $18,435 $ 47,291 $ 45,834 $ 59,012
Depreciation and amortization ................... 4,429 4,749 7,394 10,007 13,577
Operating profit ................................ 2,933 567 16,371 8,767 11,333
Income before income taxes, equity in earnings
of affiliates and extraordinary charge ........ 2,869 57 14,657 9,824 11,173
Income taxes .................................... (989) -- (4,530) (3,209) (3,597)
Equity in earnings of affiliates ................ -- 5 818 1,408 53
Income before extraordinary charge .............. 1,930 62 10,945 8,023 7,629
Extraordinary charge for early extinguishment of
debt, net of income tax effect ................ -- -- 280 -- --
Net income ...................................... 1,930 62 10,665 8,023 7,629
Earnings per share before extraordinary charge .. .18 .01 .92 .60 .57
Loss per share from extraordinary charge for
early extinguishment of debt, net of income tax
effect ........................................ -- -- (.02) -- --
Net income per share ............................ .18 .01 .90 .60 .57
BALANCE SHEET DATA:
Working capital ................................. 10,135 6,607 40,987 14,747 20,783
Property and equipment, net ..................... 44,138 58,783 55,396 101,563 93,118
Investment in affiliates ........................ 15,223 16,851 14,976
Total assets .................................... 62,740 73,112 124,672 147,882 149,709
Long-term debt .................................. 13,663 14,659 7,883 21,023 11,852
Stockholders' equity ............................ 37,450 46,064 99,590 106,907 113,277
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
THE COMPANY
The Company's operating revenue is directly affected by average dayrates
and fleet utilization which are closely aligned with the offshore oil and gas
exploration and development industry. The level of exploration and development
of offshore areas is affected by both short-term and long-term trends in oil and
gas prices which, in turn, are related to the demand for petroleum products and
the current availability of oil and gas resources. Although different geographic
markets were affected at different times and to varying degrees, the level of
activity in the oil and gas exploration and development industry and, therefore,
the offshore marine services industry, was depressed in the U.S. Gulf of Mexico
during the middle 1980's. In the period between 1988 and 1995, the U.S. Gulf of
Mexico's market has experienced several periods of increased offshore activity
as well as periods, both seasonal and otherwise, where demand for vessel
services has decreased. Many industry experts anticipate that increased natural
gas demand will increase activity in the U.S. Gulf. On the other hand, a reduced
level of oil and gas prices could lead to less exploration and development of
offshore areas, reduced activity for the offshore marine
- 14 -
services industry, and an adverse effect of the Company's financial condition
and results of operations. Internationally, in the North Sea, since the
Company's 1993 acquisition of its Ravensworth affiliate, safety standby vessel
demand has declined due to lower drilling activity caused by oil price declines
and certain tax law changes affecting that area. Currently, there are industry
expectations of increased drilling activity in the North Sea during 1995. Such
drilling activity changes would increase demand and, potentially, dayrates for
the safety standby vessel market. The Company, however, cannot predict future
demand levels for its markets.
As the offshore marine services industry is cyclical, periods of increased
demand for services result in higher utilization and dayrates and periods of
lower demand result in lower utilization and dayrates. An upward or downward
movement in dayrates has little direct impact on operating costs and expenses
for a vessel. An increase or decrease in utilization of a vessel will
incrementally increase or decrease certain operating costs and expenses but
generally not in proportion to the associated revenue change. The Company's
results of operations have not been significantly affected by inflation during
the past five years. Since the time of the Company's investment in Ravensworth
in mid-1993, it has become exposed to potential foreign exchange gains or
losses. Through December 31, 1995, the Company has not recorded any significant
foreign exchange gains or losses.
If the proposed Merger with Tidewater is not accomplished, the Company will
seek to expand its fleet through acquisitions when industry cycles or other
factors create attractive purchase opportunities. Through acquisitions,
including those described below, the Company has grown to become the operator of
the second largest fleet of supply vessels in the Gulf of Mexico and the world.
The Company's most recent significant acquisitions are described below.
THE PETROL ACQUISITION
On November 19, 1992, the Company strengthened its fleet in the Gulf of
Mexico by acquiring 20 offshore supply vessels and one utility vessel from
Petrol Marine Corporation and certain related entities (collectively "Petrol")
for $18,500,000. The aggregate consideration paid to Petrol consisted of
$4,750,000 in cash, $5,250,000 in unsecured notes issued by the Company, and
1,365,462 restricted shares of Common Stock then valued at a market price of
$8,500,000. As a condition to the transaction, $2,000,000 of the cash
consideration was escrowed for purposes of refurbishing and recertifying seven
of the acquired vessels that were not in service on the date of the acquisition.
These seven vessels were subsequently repaired, refurbished, and returned to
service. Because the escrowed funds were insufficient to pay for all of the
costs for the required work on the seven vessels, the future debt service for
the notes issued to Petrol in connection with the Petrol Acquisition was reduced
by the excess of such costs over the escrowed funds, a total of approximately
$1.8 million. In a transaction finalized effective March 18, 1994, the Company
prepaid the balance of the unsecured notes.
THE RAVENSWORTH ACQUISITION
On July 23, 1993, the Company completed the acquisition of 49.9% of the
outstanding capital stock of Ravensworth and certain options to acquire the
balance of such capital stock. The Company purchased the 49.9% equity interest
for a purchase price of $11,000,000 payable in cash in U.S. dollars and 158,978
shares of restricted Common Stock of the Company's capital stock valued at
approximately $2.7 million. Based on Ravensworth's EBDIT performance in 1994,
the option price for the 9.9% option exercised effective July 23, 1993 was
adjusted downward by approximately $1,800,000, resulting in the surrender and
cancellation of approximately 106,000 shares of the Company's common stock
originally issued as partial consideration for such option exercise.
THE OIL & GAS ACQUISITION
On November 15, 1994, the Company once again added to its Gulf fleet by
completing the acquisition of thirteen (13) large offshore supply vessels and
related assets (collectively, the "Oil & Gas Vessels") from Oil & Gas Rental
Services, Inc. for aggregate consideration of $46,000,000 in cash.
One-half of the purchase price was paid from the Company's cash reserves,
while the other one-half was obtained under new loan facilities. In connection
with the Company's acquisition of the Oil & Gas Vessels, on November 15, 1994,
the Company entered into a loan agreement to provide a portion of the funds for
the Oil &
- 15 -
Gas Acquisition under a term loan as well as a revolving credit facility. The
term loan ($12,100,000 at December 31, 1995) is secured by the thirteen acquired
Oil & Gas Vessels. See "-- Liquidity and Capital Resources."
THE SEABOARD ACQUISITION
Effective November 30, 1994, the Company's newly formed 49.9% owned
affiliate, Seaboard, acquired all of the outstanding capital stock of SOGL
which, together with its subsidiaries, owns six safety-standby vessels operating
in the North Sea. The acquisition of the SOGL equity securities was accomplished
for nominal consideration. To facilitate the transaction, the Company made a
(pound)1.5 million loan to SOGL and guaranteed approximately (pound)302,000 of
SOGL debt. RHL, the 50.1% owner of the Company's 49.9% owned North Sea
affiliate, Ravensworth, guaranteed to the Company the repayment of 50.1% of the
loan to SOGL. The Company also acquired a 49.9% interest in North Sea Manager,
which provides management services to the six Seaboard vessels and the 23
Ravensworth vessels.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operating activities totaled $23,457,000 for 1995
compared to $19,148,000 in the prior year. The Company had cash and equivalents
of $13,945,000 at December 31, 1995. The improvement in operating cash flow
resulted from increased operating income and lower tax and interest payments.
In connection with the Oil & Gas Acquisition, the Company entered into a
loan agreement (the "Loan Agreement") with First Interstate Bank of Texas, N.A.,
as lender, and as agent for any future lenders who may participate in the loans
under the Loan Agreement (collectively, the "Lenders") to provide a portion of
the funds for the Oil & Gas Acquisition and a revolving credit facility. Under
the Loan Agreement, the Company obtained a term loan in the amount of $20
million, payable over a five-year period in quarterly installments of $714,284
commencing March 31, 1995, with the balance due November 15, 1999. The term loan
is secured by the 13 acquired Oil & Gas Vessels. The Loan Agreement also
provides for a revolving credit facility of up to $10 million based on a
Borrowing Base (as defined in the Loan Agreement) comprised of eligible accounts
receivable of the Company and its subsidiaries. The loans bear interest at the
agent's prime rate or, at the election of the Company, at LIBOR plus 1%.
The Company anticipates it will be able to generate sufficient cash flow
from operations to meet its debt repayment and capital expenditure requirements
and be in a position to invest a portion of its cash flow in other acquisitions
in the offshore marine services industry. If the Merger is not completed,
planned growth will be funded through future cash flow and/or additional debt or
equity financing. The Company believes that it possesses sufficient unencumbered
assets (recognizing that only nineteen of the 56 U.S. flag vessels in which the
Company has an ownership interest constitute collateral for outstanding debt) to
support future debt financing.
Pursuant to an option agreement entered into in connection with the
Ravensworth Acquisition, the Company may acquire the remaining 50.1% of
Ravensworth equity that it does not presently own during the period January 1,
1995 through March 31, 1997. The option price will bear interest from the
original acquisition date and the option prices are subject to upward or
downward adjustment based on actual Ravensworth EBDIT performance. Performance
of the North Sea Manager and of Seaboard is combined with that of Ravensworth
for purposes of making such EBDIT calculations. Based on Ravensworth's EBDIT
performance in 1994, the option price for the 9.9% option exercised effective
July 23, 1993 was adjusted downward by approximately $1,800,000, resulting in
the surrender and cancellation of approximately 106,000 shares of the Company's
common stock originally issued as partial consideration for such option
exercise. Assuming no performance adjustments and exercises of the options on
March 31, 1996 and March 31, 1997, the total future purchase price, including
interest, amounts to a payment of approximately $5.7 million in cash together
with $11.4 million of Hornbeck common stock. If the Company does not exercise
the option that may be exercised on or before March 31, 1996, both the option
that may be exercised on or before March 31, 1996 and the option that may be
exercised on or before March 31, 1997 will terminate. Pursuant to option
agreements entered into in connection with the formation of the North Sea
Manager and the Seaboard Acquisition, the Company may acquire the remaining
50.1% of the North Sea Manager and Seaboard that it does not presently own. In
connection with the exercise of its options to acquire the remaining outstanding
capital stock of Ravensworth, the Company will be entitled to receive for no
additional consideration a corresponding
- 16 -
amount of the remaining equity interests in North Sea Manager. If the Company
has exercised its options to acquire the remainder of the capital stock of
Ravensworth, the Company may exercise an option to acquire the remaining
outstanding capital stock of Seaboard.
The Company's commitments for future capital expenditures were not material
at December 31, 1995. The Company is subject to regulations which require supply
vessels to be drydocked twice in a five-year period and, therefore, each year a
portion of the Company's vessels undergo routine drydocking for maintenance and
repairs.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994
Revenues increased by $13,178,000 or 29% from $45,834,000 in the year ended
December 31, 1994 to $59,012,000 in the year ended December 31, 1995. Relevant
fleet statistics affecting the Company's revenues are as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
------- -------
Number of vessels in fleet at end of period 63 61
Average supply vessel dayrate $ 3,272 $ 3,194
Average fleet utilization 80% 83%
Revenues increased due to the increased fleet utilization and the larger
number of vessels in the fleet. This increase was partially offset by the impact
of lower dayrates. Direct labor and other operating expenses increased from
$23,484,000 in 1994 to $29,858,000 in 1995, an increase of $6,374,000 or 27%.
This increase is due to the increased fleet utilization and the increased number
of vessels in the fleet in 1995. Depreciation and amortization also increased
because of the acquisition of vessels in November 1994. Average depreciation on
a per vessel basis increased in 1995 because vessels acquired in late 1994 cost
more than the average vessel in the existing fleet. General and administrative
expenses increased $668,000 or 19% from $3,576,000 in 1994 to $4,244,000 in 1995
primarily because of the increase in shore-based staff to support the increased
fleet size, the expense associated with a cancelled stock offering, and higher
legal fees. Operating income increased 29% or $2,566,000 from $8,767,000 to
$11,333,000 in 1994 and 1995, respectively.
The Company reported a gain on the sale of assets totalling $431,000 in
1995, which is primarily attributable to the sale of a vessel in June 1995
compared to a gain of $736,000 on three vessels sold in 1994, a decrease of
$305,000. The Company also reported equity in earnings of affiliates of $53,000
representing its share of income of certain affiliates for the year ended
December 31, 1995 as compared to $1,408,000 in the prior year. The Company's
North Sea safety standby vessel affiliates recognized lower income primarily
because of lower revenues due to decreased utilization and dayrates. Interest
expense increased $884,000 or 102% because of the additional borrowings made in
November 1994 in connection with the Oil & Gas Vessel Acquisition.
Income taxes represent a lower or higher percentage of pretax income than
an expected "statutory" rate of approximately 35% due primarily to the fact that
no income tax effect is recognized for the Company's equity in earnings of
affiliates. Additionally, in 1995, certain property taxes paid on vessels
generate state income tax credits which lower effective state tax rates.
YEAR ENDED DECEMBER 31, 1994 VERSUS YEAR ENDED DECEMBER 31, 1993
Revenues declined by $1,457,000 or 3% in 1994 compared to 1993. The primary
cause for this reduction was the decline in overall fleet utilization in 1994 to
80% compared to 85% in the prior year. Relevant fleet statistics affecting the
Company's revenues are as follows:
- 17 -
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994
------ ------
Number of vessels in fleet at end of period ....... 51 63(1)
Average supply vessel dayrate ..................... $3,284 $3,272
Average fleet utilization ......................... 85% 80%
- ------------
1. Includes 13 vessels acquired on November 15, 1994.
Although dayrates averaged approximately the same in 1993 and 1994, market
conditions differed significantly, with increasing rates during 1993, which
ended in December at approximately $4,000 per day for average supply vessel
rates, and with rates declining in 1994 through the middle of the year to
approximately $3,000 per day, flat in much of the third quarter and increasing
in the fourth quarter of 1994 to slightly above $3,200 on average. Utilization
declined in the first half of 1994, then increased in the second half of the
year.
Direct labor and other operating expenses increased by $2,896,000 or 14% in
1994 compared to 1993. Most of this increase was attributable to higher
insurance premiums and insurance deductibles paid by the Company in 1994.
Additionally, labor increased by 8.5% due to crewmembers' wage rate adjustments
and payroll taxes related thereto. Generally, operating costs and expenses do
not change in direct proportion to revenues.
Depreciation and amortization increased 35% because of increased
depreciation in 1994 on vessels purchased and because of a $1,630,000 increase
in amortization of deferred drydocking costs compared to 1993 due to a larger
fleet size that caused higher levels of deferred dry docking.
General and administrative expenses increased 22% because of an increased
number of shore-based employees required to support the Company's increased
fleet, both domestically and overseas, and because of higher insurance, travel,
franchise tax and shareholder-related expenses associated with a larger company.
Equity in earnings of affiliates increased due to the inclusion in 1994 of
such earnings for all of 1994 compared to inclusion in 1993 from only the July
1993 acquisition date. Full-year earnings of affiliates were actually down in
1994 compared to 1993 due to lower dayrates in 1994. The gain on sale of assets
relates to three vessels sold during the second quarter of 1994. Interest and
other income increased primarily because of higher levels of investment and
interest rates in 1994. Interest expense declined because of debt repayments in
early 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company included in this
Report are listed under Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth for the directors and for each executive
officer listed in the Summary Compensation Table the information regarding their
names, ages, principal occupations for at least the last five years (directors
only), other directorships in certain companies held by them and the length of
continuous service as a director of the Company, as well as the number of shares
of Common Stock beneficially owned by each of them and by the directors and
officers as a group as of February 15, 1996.
- 18 -
<TABLE>
<CAPTION>
COMMON STOCK
PRINCIPAL BENEFICIALLY OWNED(1)
OCCUPATIONS -------------------------
NOMINEES/DIRECTORS/ AND DIRECTOR NUMBER OF PERCENT OF
CERTAIN OFFICERS DIRECTORSHIPS AGE SINCE SHARES CLASS
- ------------------------ ----------------------------- --- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Larry D. Hornbeck Chairman of the Board, 57 1981 262,658(2) 2.0%
President and Chief Executive
Officer of the Company and
Director of Coastal Towing,
Inc.
Robert E. Schuller, Jr. Independent Naval Architect, 66 1981 3,900 **
President and a Director of
Schuller & Allen, Inc.
Billy Pugh President of Ingleside Marine, 71 1981 83,400 **
Inc.
Warren B. Idsal Senior Vice President and 50 1989 3,800 **
Director of Corporate Finance,
Principal Financial Securities,
Inc.
Anthony W. Henfrey Executive Director of Postern 51 1990 6,500 **
Executive Group Limited
L. E. Simmons President of L.E. Simmons & 49 1991 93,815(3) **
Associates Incorporated,
Director of Zions
Bancorporation, Grant
Geophysical, Inc., and
Computalog Limited
Bruce W. Hunt President of Petro-Hunt 38 1992 1,367,662(4) 10.2%
Corporation and Petrol Marine
Corporation, Vice President of
Pentad Resources, Inc.
Bernie W. Stewart* Senior Vice President and 51 N/A 8,156(5) **
Chief Operating Officer
Robert W. Hampton* Vice President, Treasurer and 44 N/A 36,811(6) **
Chief Financial Officer
Officers and Directors as a 2,015,144(7) 15.0%
group (14 persons)
</TABLE>
- ------------
* Executive officer only - not a director
** Less than one percent
1. The information presented reflects "beneficial ownership" as defined in
Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which includes the right to acquire beneficial ownership
of a security within 60 days, whether upon the exercise of a stock option,
conversion of a convertible security, or otherwise. In addition,
securities must be listed as beneficially owned by a person who directly
or indirectly holds or shares the power to vote or dispose of the
securities, whether or not the person has any economic interest in the
securities. Unless otherwise indicated, beneficial owners have sole voting
and investment power with respect to the shares owned of record by them.
All percentages set forth in this table have been rounded.
2. Includes 219,800 shares held of record and 42,853 shares of Common Stock
subject to stock options exercisable within 60 days.
3. The number above includes (i) 91,054 shares of Common Stock owned by L. E.
Simmons directly and (ii) 2,761 shares of Common Stock owned by Mr.
Simmons indirectly.
4. Bruce W. Hunt, the sole stockholder of Petrol Marine Corporation, the
controlling stockholder of Portal Energy Corporation, a significant
stockholder of Pentad Offshore Corporation and an executive officer and
director of each of such corporations, may be deemed to be the beneficial
owner of an aggregate of 1,365,462 shares of Common Stock held of record
by these entities. Mr. Hunt owns directly 2,200 shares of Common Stock.
5. Includes 1,519 shares of Common Stock held of record and 6,667 shares of
Common Stock subject to stock options exercisable within 60 days.
- 19 -
6. Includes 26,609 shares of Common Stock held of record and 10,202 shares of
Common Stock subject to stock options exercisable within 60 days.
7. Includes 170,913 shares of Common Stock subject to stock options
exercisable within 60 days.
Under Section 16(a) of the Securities Exchange Act of 1934, the
Company's directors, its officers, and any person holding more than 10% of the
Company's Common Stock are required to file reports of ownership and any changes
in ownership with the Securities and Exchange Commission. Based solely on a
review of copies of reporting forms furnished to the Company or written
representations that no annual forms (Form 5) were required, the Company
believes that, during 1995, each of its officers, directors and 10% stockholders
were in compliance with all such filing requirements.
Each of the directors named in the table above has been engaged in the
principal occupation set forth beneath his name in such table for the past five
years except as follows:
Billy Pugh served for more than five years as Vice President of Owens
Well Service, Inc. prior to his retirement in November 1992.
Warren B. Idsal was from January 1991 through July 1991 Deputy Treasurer of
the Texas State Treasury. He has been serving since August 1991 as Senior Vice
President and Director of Corporate Finance at Principal Financial Securities,
Inc. (formerly, The Principal/Eppler, Guerin & Turner, Inc.).
Anthony W. Henfrey has served as a principal since July 1995 of Postern
Executive Group Limited, a firm specializing in the provision of corporate
recovery services and headquartered in London, England. Since February 1991 he
has served as Chairman, and since February 1995 as a director, of Oceonics Group
PLC, an offshore services company headquartered in Great Yarmouth, England. From
July 1994 to April 1995 he served as a director of Pavilion Services Group, a
leading retailer of gasoline, convenience store merchandise and catering
services on the UK freeway network.
L.E. Simmons has for more than five years served as President of L.E.
Simmons & Associates Incorporated (formerly SCF Investment Partners, Inc.),
which is the general partner of SCF Partners, L.P.
ITEM 11. EXECUTIVE COMPENSATION.
In accordance with the rules promulgated by the Securities and Exchange
Commission ("SEC"), the following compensation information is provided to enable
stockholders to better understand the compensation of the Company's executive
officers.
DIRECTOR COMPENSATION
Mr. Hornbeck, the sole executive officer who also serves as a director
of the Company, was paid $400 for each meeting of the Board of Directors that he
attended through May 2, 1995 and $450 for each meeting attended thereafter in
1995. Other directors were paid an annual retainer of $10,000, paid
semi-annually, plus $800 for each meeting of the Board of Directors and $800 for
each committee meeting that they attended through May 2, 1995 and $900 for each
meeting attended thereafter in 1995. At the request and direction of the
Company, Messrs. Hornbeck, Henfrey and Hunt serve as directors of Ravensworth
Investments Limited, an entity in which the Company owns a 49.9% equity
interest. Pursuant to Ravensworth's compensation arrangements, Messrs. Hornbeck,
Henfrey and Hunt each received in 1995 an annual retainer of (pound)5,000 for
serving as a director of Ravensworth.
The Hornbeck Offshore Services, Inc. 1991 Restricted Stock Plan for
Non-Employee Directors, as amended pursuant to a vote of the stockholders of the
Company at the 1994 Annual Meeting (the "1991 Plan" or the "Restricted Stock
Plan"), provides for awards of restricted shares of Common Stock, as part of
their compensation, to persons who serve as directors of the Company and who are
not employees of the Company (or its subsidiaries) or consultants to the Company
(or its subsidiaries) under long-term agreements. At present, there are six non-
- 20 -
employee directors. All non-employee directors participate in the Restricted
Stock Plan. The awards are in addition to the directors' annual cash retainer
and meeting attendance fees.
An award of 800 restricted shares of Common Stock was made to Messrs.
Schuller, Pugh, Henfrey, Idsal, Hunt and Simmons in 1995. The awards to be made
to the non-employee directors in conjunction with the 1996 Special Meeting will
be the sixth successive award under the Restricted Stock Plan. If the proposed
Merger is not consummated, annual awards consisting of restricted shares of
Common Stock will continue to be made to each participant who is elected or
appointed or continues as a director each year, effective as of the date of the
annual meeting of stockholders.
The Restricted Stock Plan is administered by the Compensation Committee
of the Board of Directors of the Company. As discussed below, the Compensation
Committee is presently comprised of three independent non-employee directors,
Messrs. Idsal, Henfrey and Pugh.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The persons who served on the Compensation Committee for 1995 were
Messrs. Henfrey, Idsal and Pugh. None of such persons is or has been an officer
or employee of the Company or any of its subsidiaries. No executive officer of
the Company served in the last fiscal year as a director or member of the
compensation committee of any other entity one of whose executive officers
served as a director or on the Compensation Committee of the Company.
COMPENSATION TABLES
The SEC rules with respect to executive compensation require certain
compensation information to be presented in tabular form. Such information is
required for the Chief Executive Officer and the four most highly compensated
executive officers of the Company whose total annual salary and bonus for 1995
exceeded $100,000. No executive officers of the Company received salary and
bonuses in excess of the $100,000 disclosure limit except Mr. Hornbeck, Mr.
Stewart and Mr. Hampton.
- 21 -
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- --------------------------------------------------------------------------- ------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
RESTRICTED ALL
NAME & PRINCIPAL STOCK OPTIONS/ OTHER
POSITION YEAR SALARY BONUS AWARDS ($)(1) SARS (#) COMPENSATION(2)
- ---------------- ---- ------ ----- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Hornbeck 1995 $215,000 * * * $ 1,372,622
Chairman of the Board,
President & Chief 1994 200,000 $ 70,000 $50,000(3) 11,594 -
Executive Officer
1993 140,000 100,000 50,700(4) 6,000 -
Bernie W. Stewart 1995 133,212 * 15,000(5) 20,000(6) 534,332
Senior Vice President &
Chief Operating Officer
Robert W. Hampton 1995 123,000 * * * 644,206
Vice President, Treasurer &
Chief Financial Officer 1994 120,000 30,000 16,800(7) 3,565 -
1993 100,000 50,000 15,600(8) 1,800 -
</TABLE>
- ------------
* The Company has not determined bonuses, restricted stock awards or option
awards for 1995.
1. The Company has never paid cash dividends on its Common Stock. If the
Merger is not consummated, the Company intends to retain any future
earnings otherwise available for cash dividends on the Common Stock for
use in its operations and for expansion and does not anticipate that any
cash dividends will be paid in the foreseeable future. If the Company were
to change its current policy of retaining earnings otherwise available for
cash dividends, the Company's ability to pay cash dividends would be
subject to continuing compliance with certain financial covenants in the
loan agreement governing its bank term loan and revolving credit facility.
2. Pursuant to agreements entered into as of December 28, 1995, the Company
made advance cash payments to Messrs. Hornbeck, Stewart and Hampton in
connection with the change in control agreements described below. If the
proposed Merger is not consummated, each of such officers has agreed to
remit to the Company an aggregate of (i) cash in an amount equal to 58.95%
of the amount received by such executive officer in 1995, payable within
five days of such event and (ii) an amount equal to any tax benefit
received because of such reimbursement, payable subsequently.
3. Represents a restricted stock award of 4,348 shares granted on April 1,
1995 ($11.50 per share market price) for fiscal year 1994. As of December
31, 1995, Mr. Hornbeck held an aggregate of 10,648 shares of restricted
Common Stock issued to him as compensation awards with a market value of
$108,967.
4. Represents a restricted stock award of 3,900 shares granted on December
14, 1993 ($13.00 per share market price) for fiscal year 1993.
5. Represents a restricted stock award of 1,519 shares granted on February 8,
1995 pursuant to a Hiring Agreement ($9.875 per share market price). Mr.
Stewart was hired by the Company on February 8, 1995. As of December 31,
1995, Mr. Stewart held 1,519 shares of restricted Common Stock issued to
him pursuant to a Hiring Agreement with an aggregate market value of
$29,810.
6. Represents an option granted on February 8, 1995 pursuant to a Hiring
Agreement ($9.875 per share market price).
7. Represents a restricted stock award of 1,461 shares granted on April 1,
1995 ($11.50 per share market price) for fiscal year 1994.
8. Represents a restricted stock award of 1,200 shares granted on December
14, 1993 ($13.00 per share market price) for fiscal year 1993.
In addition to the above-mentioned compensation, executive officers are
provided with certain other perquisites. Although the dollar amount of such
benefits is not readily ascertainable, the Company believes that with
- 22 -
respect to the named executive officers, any personal benefit derived from such
perquisites does not exceed the lesser of $25,000 or 10% of such person's salary
and bonus per year.
COMPENSATION PURSUANT TO PLANS
The Company currently has two employee incentive plans whereby the
Company has granted or may grant stock options, stock appreciation rights, and
make awards of shares of restricted stock. Each of these incentive plans, the
1989 Employee Incentive Plan (the "1989 Plan") and the 1993 Employee Incentive
Plan (the "1993 Plan"), comply with the provisions of Rule 16b-3 of the Exchange
Act. Pursuant to Rule 16b-3, the 1989 Plan and the 1993 Plan are administered by
a committee consisting of two or more "disinterested directors," as that term is
defined in the Exchange Act. The Compensation Committee of the Board of
Directors, presently comprised of Messrs. Idsal, Henfrey and Pugh, has been
designated by the Board to administer the 1989 Plan and the 1993 Plan. The 1989
Plan has terminated pursuant to its terms, except for the continuing
administration of outstanding options issued under that plan. The 1993 Plan
authorized the issuance of 500,000 shares of the Company's Common Stock pursuant
to incentive stock options, non-qualified stock options, restricted stock awards
and stock appreciation rights granted pursuant to the 1993 Plan. Absent
forfeiture of such options under the terms of the 1993 Plan, there are 390,739
shares available for additional grants to officers and employees.
- 23 -
<PAGE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------ ----------------------------
(a) (b) (c) (d) (e) (f) (g)
PERCENT OF
NUMBER OF TOTAL OPTIONS/
SECURITIES SARS GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION
NAME OPTIONS/SARS IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------- ------------ -------------- ----------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Hornbeck 11,594 19.37% $11.50 April 1, 2008 $73,509 $181,057
Bernie W. Stewart 20,000(1) 33.42% $9.88 February 8, 2008 108,887 268,195
Robert W. Hampton 3,565 5.96% $11.50 April 1, 2008 22,603 55,672
</TABLE>
- ------------
1. Pursuant to the Hiring Agreement.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
The following table shows data regarding aggregate option exercises in
the last fiscal year and fiscal year-end option values for the Chief Executive
Officer and the other two executive officers named in the Summary Compensation
Table. The Company has never granted any stock appreciation rights under its
Employee Incentive Plans.
- 24 -
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTION/SARS OPTIONS/SARS
SHARES AT 12/31/95(#) AT 12/31/95($)(1)
ACQUIRED ON
EXERCISE DURING VALUE EXERCISABLE/ EXERCISABLE/
NAME FISCAL 1995 (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- --------------------------- -------------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Larry D. Hornbeck 46,442 $665,489 42,858/13,594 $841,088/$266,782
Chairman of the Board,
President and Chief
Executive Officer
Bernie W. Stewart 0/20,000 $0/$195,000
Senior Vice President
and Chief Operating
Officer
Robert W. Hampton 23,198 $276,237 10,202/4,165 $200,214/$81,738
Vice President,
Treasurer and Chief
Financial Officer
</TABLE>
- ------------
1. Computed based upon the difference between the fair market value on
December 31, 1995 of the shares of Common Stock covered by the options and
the exercise prices of each of the outstanding stock options held by such
executive officers.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into change in control agreements (the
"Agreements") with the following officers of the Company: Larry D. Hornbeck,
Bernie W. Stewart, Robert W. Hampton and Robert M. Sykes. The Agreements set
forth certain benefits that the Company will provide if their employment is
terminated or, under certain conditions, they elect to terminate their
employment after a "change in control" of the Company, as defined in the
Agreements. The Agreements continue in effect for three years and thereafter
until terminated by the Company upon specified notice; provided that they
continue for two years after a change in control of the Company. The Agreements
each provide that if the officer is terminated or if the officer so elects to
terminate employment within two years after a change in control of the Company,
the officer shall be entitled to a lump sum severance payment of (a) up to three
times the officer's highest annual compensation within the five tax years
preceding the change in control and (b) the difference between the market value
and the exercise price of unexercised stock options. In addition, the officer is
entitled to a two-year continuation of certain employee benefits and
reimbursement of certain legal fees, expenses and any applicable excise taxes.
On December 29, 1995, the Company made certain advance payments to three
executive officers of a portion of the amounts to which such officers would have
otherwise become entitled following consummation of the Merger under the terms
of the Agreements.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company by each person known by
the Company to own more than five percent of the outstanding Common Stock,
including any "group" as that term is used in Section 13(d)(3) of the Exchange
Act, at January 31, 1996 (except as otherwise indicated):
- 25 -
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
AMOUNT OF PERCENT OF NATURE CLASS
NAME AND ADDRESS OF DIRECT CLASS OF BENEFICIAL BENEFICIALLY
BENEFICIAL OWNER OWNERSHIP(1) DIRECTLY OWNED OWNERSHIP(2) OWNED
------------------- ------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
COMMON STOCK
Portal Energy Corporation 660,428 5.00%
(Pentad Offshore Corporation)(3)
(Petrol Marine Corporation)(3)
(Bruce W. Hunt)(3) 1,365,462(3) 10.70%
Thanksgiving Tower
Suite 3900
Dallas, Texas 75701
Pentad Offshore Corporation 657,053 5.00%
(Portal Energy Corporation)(3)
(Petrol Marine Corporation)(3)
(Bruce W. Hunt)(3)
Thanksgiving Tower
Suite 3900
Dallas, Texas 75702
FMR Corp.(4) - - 1,711,500(4) 13.00%
82 Devonshire Street
Boston, Massachusetts 02109
State of Wisconsin(5) 722,000 5.48% 722,000 5.48%
Investment Board
Wellington Management Company(6) 859,000(5) 6.45%
</TABLE>
- ------------
1. The information presented reflects each stockholder's direct ownership of
the 13,243,600 shares of Company Common Stock issued and outstanding as of
January 31, 1996 (not including shares of Common Stock reserved for issuance
upon exercise of options and/or warrants).
2. The information presented reflects "beneficial ownership" as defined in Rule
13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which includes the right to acquire beneficial ownership of a security
within 60 days, whether upon the exercise of a stock option, conversion of a
convertible security, or otherwise. In addition, securities must be listed as
beneficially owned by a person who directly or indirectly holds or shares the
power to vote or dispose of the securities, whether or not the person has any
economic interest in the securities. Unless otherwise indicated, beneficial
owners have sole voting and investment power with respect to the shares owned
of record by them. All percentages set forth in this table have been rounded.
3. Portal Energy Corporation owns of record 660,428 shares of Common Stock.
Pentad Offshore Corporation owns of record 657,053 shares of Common Stock.
Petrol Marine Corporation owns of record 47,981 shares of Common Stock. These
three corporations may be deemed affiliated through a common controlling
stockholder. Bruce W. Hunt is the sole stockholder and an executive officer
of Petrol Marine Corporation, a controlling stockholder and executive officer
of Portal Energy Corporation and a significant stockholder and executive
officer of Pentad Offshore Corporation. Mr. Hunt may be deemed to control or
share in the control of the voting and/or disposition of the securities of
the Company owned by each of these three corporations. Each of these three
corporations may be deemed to be the beneficial owner of 1,365,462 shares of
Common Stock. The referenced numbers do not include 2,200 shares owned by
Bruce W. Hunt directly.
4. Includes 1,711,500 shares of Common Stock over which FMR Corp. may be deemed
to have sole dispositive power and 13,000 shares of Common Stock over which
FMR Corp. may be deemed to have sole voting power. Various persons have the
right to receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, the Common Stock. The interest of one person,
Fidelity Equity-Income II Fund, an investment company registered under the
Investment Company Act of 1940, in the Common Stock amounted to 876,200
shares or 6.66% of the total outstanding Common Stock at December 31, 1995.
This information is based on a Schedule 13G filed with the Securities and
Exchange Commission in February 1996.
5. Based on a Schedule 13G filed with the Securities and Exchange Commission in
February 1996. Includes 339,000 shares of Common Stock over which
Wellington Management Company may be deemed to have shared voting power and
849,000 shares of Common Stock over which Wellington Management Company may
be deemed to have shared dispositive power in its capacity as investment
adviser to numerous investment counselling clients.
STOCK OWNERSHIP POLICY
In December 1993, the Company adopted a stock ownership policy requiring
all employees at or above the Vice President level ("Covered Employees") to own
shares of the Company's Common Stock equal to a specified
-26-
percentage of their base salary as of January 1, 1994, or their hire date, if
later. The ownership guidelines are calculated based on percentages of such base
salary for each covered employee, ranging from 50% to 100% depending on the
level of each Covered Employee's responsibility with the Company. The amount
determined by applying such percentage to the base salary, divided by the
closing price of the Company's Common Stock quoted on The NASDAQ Stock Market as
of January 1, 1994, or the hire date, if later, establishes the number of shares
that must be owned by each covered employee.
Covered Employees must achieve the ownership guideline levels by
January 1, 1998 (or four years from their hire date, if later). Shares of
restricted stock, whether or not vested, will apply to achieving the prescribed
ownership guideline level. After the ownership guideline level is achieved by a
Covered Employee, such Covered Employee may sell shares of the Company's Common
Stock owned by him as long as the ownership guideline level is maintained.
During the four year period during which Covered Employees are acquiring shares
of Company Common Stock in order to achieve their ownership guideline level,
there are restrictions imposed on the ability of the Covered Employees to sell
shares of Company Common Stock unless reasonable progress is being made to
achieve the ownership guideline level. The Compensation Committee will annually
review whether reasonable progress is being made by the Covered Employees. The
Company believes that requiring executive officers of the Company to acquire a
more substantial interest in the Company will more closely align the best
interests of the executive officers with the stockholders of the Company by
providing those persons who have substantial responsibility for the management
and growth of the Company with additional proprietary interests in the success
of the Company.
PERFORMANCE GRAPH
The following performance graph compares the performance of the
Company's Common Stock to the S & P 500 Index, the S & P Small Cap 600 Index,
the SCI Offshore Transportation Services Index and the SCI Composite Index of
114 publicly traded oil service and equipment companies. Because the Company was
added to the S & P Small Cap 600 Index in 1994, the Company intends to use the
S & P Small Cap 600 Index and not the S & P 500 Index as its broad equity market
index for comparisons in future filings. The graph assumes that the value of the
investment in the Company's Common Stock was $100.00 at December 31, 1990.
Although the Company has never paid any dividends, the indices assume
reinvestment of dividends. The referenced SCI index is updated monthly and the
numbers and identities of the companies included in the index may be changed by
SCI from time to time to maintain comprehensive reporting on public oil services
and equipment companies. SCI's Performance and Valuation Guide of Publicly
Traded Oil Service Companies (the "Stock Guide") (and the referenced SCI index
printed therein) is available to any stockholder of the Company who subscribes
with SCI for the Stock Guide. Copies of the Stock Guide are also available for
inspection at the Company's principal executive office.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Hornbeck Offshore ..................... 100.00 55.10 103.06 236.74 204.08 320.41
S & P 500 Index ....................... 100.00 130.47 140.41 154.56 156.60 215.44
S & P 600 Small Capitalization Index .. 100.00 148.48 213.50 179.73 203.30 264.21
SCI Offshore Transportation Services
Index ............................... 100.00 64.39 95.92 154.29 145.73 194.87
SCI Composite Index ................... 100.00 96.14 93.84 123.48 129.00 185.83
</TABLE>
- 27 -
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In previous years, the Company granted certain registration rights with
respect to shares of the Company's Common Stock held by Larry D. Hornbeck, L.E.
Simmons and Petrol, which is controlled by Bruce W. Hunt. Messrs. Hornbeck,
Simmons and Hunt are current members of the Board of Directors of the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following financial statements, schedules and exhibits are
filed as part of this Report:
(1) and (2) Financial Statements and financial statement
schedules.
See Index to Consolidated Financial Statements on page F-1.
(3) Exhibits
See Index to Exhibits on pages E-1 - E-3.
(b) Reports on Form 8-K
(1) Form 8-K dated December 4, 1995; and
(2) Form 8-K dated December 28, 1995.
- 28 -
<PAGE>
HORNBECK OFFSHORE SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ........................................ F-2
Consolidated Balance Sheet at December 31, 1994 and 1995 ................. F-3
Consolidated Statement of Income For the Years Ended
December 31, 1993, 1994 and 1995 ........................................ F-4
Consolidated Statement of Cash flows For the Years Ended
December 31, 1993, 1994 and 1995 ........................................ F-5
Consolidated Statement of Stockholders' Equity For the Years Ended
December 31, 1993, 1994 and 1995 ........................................ F-6
Notes to Consolidated Financial Statements ............................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Hornbeck Offshore Services, Inc.
In our opinion, the consolidated financial statements of Hornbeck Offshore
Services, Inc. listed in the index appearing on page F-1 present fairly, in all
material respects, the financial position of Hornbeck Offshore Services, Inc.
and its subsidiaries at December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the financial statements, the Company entered into an
Agreement and Plan of Merger with Tidewater Inc. on December 21, 1995.
PRICE WATERHOUSE LLP
HOUSTON, TEXAS
FEBRUARY 12, 1996
F-2
<PAGE>
HORNBECK OFFSHORE SERVICES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1995
------------ ------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ....................................... $ 8,572 $ 13,945
Accounts receivable, net of allowance for doubtful
accounts of $25 and $120, respectively..................... 11,747 13,400
Prepaid and other current assets............................ 1,121 1,473
Current portion of note receivable from affiliate........... 880 436
------------ ------------
Total current assets.................................... 22,320 29,254
------------ ------------
Property and equipment, net................................... 101,563 93,118
Investment in affiliates...................................... 16,851 14,976
Note receivable from affiliate................................ 1,394 218
Reserve funds and restricted cash............................. 1,280 1,024
Drydocking and other assets, net.............................. 4,474 8,195
Merger costs.................................................. 2,924
------------ ------------
$ 147,882 $ 149,709
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 1,570 $ 2,655
Accrued interest............................................ 86 51
Income taxes payable........................................ 358 118
Accrued labor costs......................................... 953 950
Accrued medical costs....................................... 521 300
Other accrued liabilities................................... 618 836
Current portion of long-term debt........................... 3,467 3,561
------------ ------------
Total current liabilities............................... 7,573 8,471
------------ ------------
Long-term debt................................................ 21,023 11,852
------------ ------------
Deferred income taxes......................................... 12,379 16,109
------------ ------------
Commitments and contingencies (Note 12) Stockholders' equity:
Common stock, $.10 par value, 25,000,000 shares
authorized, 13,240,698 and 13,234,728 shares
issued and outstanding, respectively....................... 1,324 1,323
Additional paid-in capital.................................. 83,639 82,381
Retained earnings........................................... 21,944 29,573
------------ ------------
Total stockholders' equity 106,907 113,277
------------ ------------
$ 147,882 $ 149,709
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
HORNBECK OFFSHORE SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995
----------- ----------- ----------
(in thousands)
<S> <C> <C> <C>
Revenues......................................... $ 47,291 $ 45,834 $ 59,012
----------- ----------- ----------
Costs and expenses:
Direct labor and other operating expenses...... 20,588 23,484 29,858
Depreciation and amortization.................. 7,394 10,007 13,577
General and administrative expenses............ 2,938 3,576 4,244
----------- ----------- ----------
30,920 37,067 47,679
----------- ----------- ----------
Other income (expense):
Foreign exchange loss.......................... (105) (10)
Gain on sale of assets......................... 9 736 431
Equity in earnings of affiliates............... 818 1,408 53
Unsuccessful salvage expense................... (945)
Other costs and expenses....................... (254) (149) (31)
Interest and other income...................... 799 1,439 1,198
Interest expense............................... (1,323) (864) (1,748)
----------- ----------- ----------
(896) 2,465 (107)
----------- ----------- ----------
Income before income taxes and
extraordinary charge........................... 15,475 11,232 11,226
Income taxes..................................... (4,530) (3,209) (3,597)
----------- ----------- ----------
Income before extraordinary charge............... 10,945 8,023 7,629
Extraordinary charge for early extinguishment....
of debt, net of income tax benefit of $145...... (280)
----------- ----------- ----------
Net income....................................... $ 10,665 $ 8,023 $ 7,629
=========== =========== ==========
Earnings per share before extraordinary charge... $ .92 $ .60 $ .57
Extraordinary charge (.02)
----------- ----------- ----------
Earnings per share............................... $ .90 $ .60 $ .57
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
HORNBECK OFFSHORE SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (NOTE 12)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995
----------- ----------- ----------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers and affiliates............. $ 43,185 $ 43,498 $ 57,358
Cash paid to suppliers and employees.................... (25,936) (23,429) (32,975)
Cash paid for income taxes.............................. (1,847) (1,512) (280)
Interest and other income received...................... 753 1,428 1,135
Interest paid........................................... (1,230) (837) (1,781)
Refund of income taxes.................................. 1,266
Distribution from partnership........................... 38
----------- ----------- ----------
Net cash provided by operating activities.......... 16,229 19,148 23,457
----------- ----------- ----------
Cash flows from investing activities:
Capital and drydocking expenditures..................... (9,209) (57,973) (9,534)
Purchase of marketable securities....................... (24,007)
Sale of marketable securities........................... 500 27,310
Increase in other assets................................ (134) (45) (40)
Decrease (increase) in reserve funds.................... 312 (890) (253)
Investment in affiliates................................ (11,677) (195) 119
Loan to affiliate....................................... (2,351)
Repayment of loan to affiliate.......................... 72 1,610
Sale of property and equipment.......................... 1,300 3,491 1,119
Merger costs............................................ (2,924)
Salvage expenditures.................................... (945)
----------- ----------- ----------
Net cash used by investing activities.............. (43,860) (30,581) (9,903)
----------- ----------- ----------
Cash flows from financing activities:
New borrowings.......................................... 23,000
Repayment of borrowings................................. (5,917) (9,158) (8,504)
Issuance of common stock and warrants................... 39,959 36 323
Repurchase of Series 1 preferred stock and warrants..... (886)
----------- ----------- ----------
Net cash provided (used) by financing activities... 34,042 12,992 (8,181)
----------- ----------- ----------
Net increase in cash and equivalents...................... 6,411 1,559 5,373
Cash and equivalents at beginning of year................. 602 7,013 8,572
----------- ----------- ----------
Cash and equivalents at end of year....................... $ 7,013 $ 8,572 $ 13,945
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
HORNBECK OFFSHORE SERVICES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL COMMON
PREFERRED ------------------------ PAID-IN STOCK RETAINED
STOCK SHARES AMOUNT CAPITAL WARRANTS EARNINGS
------- -------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1992............ $ 205 10,007 $ 1,001 $ 41,217 $ 385 $ 3,256
Sale of common stock for cash,
net of expenses....................... 2,500 250 39,538
Issuance of common stock for stock
options exercised and shares issued
for directors' stock plan and other... 79 8 213
Issuance of stock for Ravensworth
acquisition........................... 159 16 2,707
Tax benefit of stock sold by employees. 129
Net income............................. 10,665
------- -------- --------- --------- --------- ---------
Balance - December 31, 1993............ 205 12,745 1,275 83,804 385 13,921
Purchase of Series 1 preferred stock... (205) (313)
Warrants exercised or repurchased...... 481 48 (32) (385)
Issuance of common stock for stock
options exercised and shares issued
for directors' stock plan and other... 15 1 144
Tax benefit of stock sold by employees. 36
Net income............................. 8,023
------- -------- --------- --------- --------- ---------
Balance - December 31, 1994............ 13,241 1,324 83,639 21,944
Issuance of common stock for stock
options exercised and shares issued
for directors' stock plan and other... 100 10 505
Tax benefit of stock sold by employees. 36
Return of shares held in escrow........ (106) (11) (1,799)
Net income............................. 7,629
------- -------- --------- --------- --------- ---------
Balance - December 31, 1995............ $ 13,235 $ 1,323 $ 82,381 $ $ 29,573
======= ======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
HORNBECK OFFSHORE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND SUMMARY OF ACCOUNTING POLICIES:
ORGANIZATION AND HISTORY
Hornbeck Offshore Services, Inc. was incorporated under the laws of the state of
Delaware in January 1981. All references to the "Company" refer to Hornbeck
Offshore Services, Inc. and its subsidiaries unless the context requires
otherwise.
As discussed in Note 2, on December 21, 1995, the Company entered into an
Agreement and Plan of Merger with Tidewater Inc. (Tidewater).
NATURE OF OPERATIONS
The Company is engaged in the worldwide offshore marine services business,
mainly serving the oil and gas industry through its operation and management of
a diversified fleet of 61 vessels (the vessels) located primarily in the Gulf of
Mexico. The fleet consists of supply, tug-supply, crew and specialty vessels; 56
of the vessels are owned, 4 are chartered and 1 is managed for an unrelated
party. Additionally, the Company maintains a 49.9% equity interest in 3
entities which operate and own or lease a combined fleet of 29 safety standby
vessels in the North Sea.
The Company's operating revenue is directly affected by average day rates and
fleet utilization which are closely aligned with the offshore oil and gas
exploration and development industry. The level of exploration and development
of offshore areas is affected by both short-term and long-term trends in oil and
gas prices which, in turn, are related to the demand for petroleum products and
the current availability of oil and gas resources.
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. The equity method of accounting is used when the
Company has a 20%-50% interest in an affiliate. Under the equity method,
original investments are recorded at cost and are adjusted by the Company's
share of earnings or losses. All significant intercompany accounts and
transactions have been eliminated. Any difference between the Company's share of
book value of an equity affiliate and its investment amount is amortized over
the remaining useful life of the underlying assets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE AND EXPENSE RECOGNITION
Charter revenue is earned and recognized on a daily rate basis. The Company's
accounts receivable are generally unsecured and are due primarily from companies
involved in exploration and production of oil and gas reserves.
Operating and other costs are expensed as incurred.
F-7
PROPERTY AND EQUIPMENT
For financial reporting purposes, the Company records depreciation expense using
the straight-line method over the estimated useful lives of the related assets.
For tax purposes, depreciation is computed using accelerated methods.
The net book value of the Company's vessels is reviewed periodically to
determine that their recorded value does not exceed the estimated future benefit
from utilization of those vessels in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", issued in March
1995. The Company adopted SFAS No. 121 effective October 1, 1995 and such
adoption had no impact.
OTHER ASSETS
Other assets consist primarily of drydocking expenditures. Drydocking
expenditures are capitalized and amortized on a straight-line basis over the
period to be benefitted (generally 24 to 36 months).
DEFERRED INCOME TAXES
Deferred income taxes are determined utilizing a liability approach. This method
gives consideration to the future tax consequences associated with differences
between financial accounting and tax bases of assets and liabilities. Such
differences relate mainly to depreciable assets. This method gives immediate
effect to changes in income tax laws upon enactment. The income statement effect
is derived from changes in deferred income taxes on the balance sheet.
EARNINGS PER SHARE
Earnings per share is calculated using the weighted-average number of shares
outstanding assuming exercise of dilutive stock options and conversion of
preferred stock. The weighted-average number of primary shares, which includes
common shares and equivalent common shares outstanding, during the years ended
December 31, 1993, 1994 and 1995 was 11,901,000, 13,460,000 and 13,344,000,
respectively. Fully diluted earnings per share amounts are not materially
different from primary earnings per share amounts.
CASH AND EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company considers
all deposits readily convertible to known amounts of cash with original
maturities of three months or less to be cash and equivalents. For the years
ended December 31, 1994 and 1995, included in"Interest and other income" is
interest income of $1,173,000 and $1,094,000 from such deposits.
RECLASSIFICATIONS
Certain 1993 and 1994 amounts were reclassified to conform to the 1995
presentation.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" was issued. SFAS No. 123 provides
companies with an alternative to the intrinsic value methodology of valuing
stock based compensation pursuant to APB Opinion No. 25, "Accounting for Stock
Issued to Employees". Under SFAS No. 123, companies have the option of valuing
such stock based compensation using fair value. Companies electing to continue
under the guidance of APB No. 25 are required to disclose the effects of SFAS
No. 123 in proforma footnote disclosure. The Company is required to adopt SFAS
No. 123 beginning January 1, 1996. Due to the pending merger with Tidewater,
management has not selected a preferred accounting method.
F-8
NOTE 2 - PROPOSED MERGER WITH TIDEWATER, INC.:
On December 21, 1995, Hornbeck Offshore Services, Inc. (Hornbeck) entered into
an Agreement and Plan of Merger with Tidewater Inc. (Tidewater) to merge a
wholly owned subsidiary of Tidewater into Hornbeck with Hornbeck becoming a
wholly owned subsidiary of Tidewater. The merger will be structured as a tax
free exchange of approximately 8,780,000 Tidewater shares for all Hornbeck
shares (an exchange ratio of 0.667 Tidewater shares for each Hornbeck share,
subject to adjustment) and will be accounted for as a pooling of interests.
The Board of Directors of both Hornbeck and Tidewater have approved the
combination subject to the approval of stockholders of Hornbeck holding at least
66 2/3% of the outstanding Hornbeck common stock and certain other conditions.
The merger is expected to be presented for stockholders' approval on March 13,
1996 with consummation immediately thereafter, if approved. Upon consummation of
the merger, Larry D. Hornbeck will join the Board of Directors of Tidewater and
will become a consultant to Tidewater.
On December 29, 1995, Hornbeck made advance payments in the approximate
aggregate amount of $2,500,000 to three executive officers, such payments being
a portion of the amounts to which such officers would become entitled following
consummation of the merger under the terms of change in control agreements
between Hornbeck and such executive officers. The impact on operations of these
amounts and certain other disbursements related to the merger have been deferred
pending consummation of the transaction and are classified as merger costs in
the consolidated balance sheet.
NOTE 3 - ACQUISITIONS AND DISPOSITIONS OF BUSINESSES AND VESSELS:
In 1995, the Company sold one vessel for $1 million and realized a gain of
$431,000. From January through September 1994, the Company sold four vessels for
$3.1 million and realized a gain of $736,000. During the same period, three
vessels were acquired for cash consideration of $5.2 million.
On November 30, 1994, the Company acquired an equity interest in Seaboard
Holdings Limited (Note 5). On November 15, 1994, the Company completed the
acquisition of 13 supply vessels from Oil and Gas Rental Services, Inc. (Oil &
Gas) for cash consideration of $46 million. The Company borrowed $23 million in
connection with this acquisition (Note 6).
On July 23, 1993, the Company acquired an equity interest in Ravensworth
Investments Limited (Ravensworth), and the Company's share of earnings of this
affiliate has been included in the Company's results of operations since that
date (Note 4). On April 29, 1993, the Company sold two vessels previously being
operated in the North Sea to an unrelated entity for approximately $1.3 million,
which approximated the carrying value of the vessels. On June 17, 1993, the
Company purchased a supply vessel for cash payment of $1,175,000.
The results of operations of the acquired vessels are included in the
consolidated financial statements from the acquisition date of November 15, 1994
for the Oil & Gas acquisition. Substantially all of the purchase price was
allocated to vessels acquired based on their fair market values and the
transactions have been accounted for using the purchase method. The acquired
vessels were employed prior to the acquisitions and continue to be employed by
the Company after the closing of the acquisition in the offshore marine service
business, primarily serving the oil and gas industry.
Assuming the Oil & Gas transaction occurred at the beginning of each year
presented and the Ravensworth transaction occurred at the beginning of 1993,
condensed unaudited pro forma combined results of operations are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994
------------ -------------
Revenues...................................... $ 62,109,000 $ 60,379,000
Income before extraordinary charge............ $ 13,464,000 $ 9,391,000
Earnings per share before extraordinary
charge....................................... $ 1.12 $ .70
F-9
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31:
ESTIMATED
USEFUL LIVES 1994 1995
------------ ----------- ------------
(in thousands)
Vessels......................... 25 $ 119,622 $ 119,125
Building........................ 25 771 971
Land............................ 182 274
Vehicles........................ 3 to 4 420 124
Furniture, fixtures and other... 3 to 10 332 429
----------- ------------
121,327 120,923
Less - accumulated depreciation. 19,764 27,805
----------- ------------
Property and equipment, net..... $ 101,563 $ 93,118
=========== ============
Depreciation expense related to property and equipment for 1993, 1994 and 1995
was $5,196,000, $6,267,000 and $9,343,000, respectively. A portion of property
and equipment is pledged to secure long-term debt (Note 6).
Drydocking expenditures included in other assets for the year ended December 31
are as follows (in thousands):
1993 1994 1995
--------- --------- ---------
Balance -- beginning of year.. $ 1,519 $ 5,234 $ 4,409
Additions..................... 5,825 2,915 7,945
Amortization.................. (2,110) (3,740) (4,234)
--------- --------- ---------
Balance -- end of year $ 5,234 $ 4,409 $ 8,120
========= ========= =========
NOTE 5 - INVESTMENTS IN AFFILIATES:
On November 30, 1994, the Company acquired 49.9% of the equity interests of
Seaboard Holdings Limited, a Scottish corporation (Seaboard). The transaction
was accounted for using the purchase method of accounting. At the time of the
transaction, Seaboard owned a fleet of six safety standby vessels operating in
the North Sea. Consideration in the form of a guarantee of approximately
$483,000 of certain Seaboard indebtedness was given. Further, the Company funded
an unsecured loan totaling pound sterling 1.5 million ($2.35 million at November
30, 1994) to Seaboard for operational purposes and has recorded a note
receivable from affiliate which bears interest at LIBOR plus 1 3/4% and is
payable in 32 equal monthly installments. During 1995, 50% of the remaining note
balance was funded by Ravensworth Holdings Limited (RHL), the owner of a 50.1%
interest in Seaboard and Ravensworth. The Company accounts for its investment in
Seaboard using the equity method of accounting.
In connection with the Seaboard acquisition, the Company was granted an option
by RHL to acquire the remaining outstanding equity interest in Seaboard.
Exercise of the option is contingent upon the Company's exercise, in full, of
the options to acquire the remaining capital stock of Ravensworth, as discussed
below.
On July 23, 1993, the Company acquired 49.9% of the outstanding capital stock of
Ravensworth from RHL, the owner of the outstanding capital stock of Ravensworth,
for a purchase price of $11 million in cash and approximately $2.7 million in
the form of 158,978 shares of restricted Common Stock (Ravensworth Acquisition).
Ravensworth owned or chartered a fleet of 22 safety standby vessels operating in
the North Sea at the time of the acquisition. The Company accounts for its
investment in Ravensworth using the equity method of accounting. The difference
between the Company's investment in Ravensworth and its proportionate share of
Ravensworth's book equity totaled $7,985,000 at December 31, 1995 and this
difference is being depreciated over the remaining useful life of the
Ravensworth fleet. The Company used the purchase method of accounting for this
transaction.
F-10
In connection with the Ravensworth Acquisition, the Company acquired options to
purchase the remaining outstanding capital stock of Ravensworth, exercisable
after January 1, 1995 in two equal annual installments, with the first option
exercisable on or before March 31, 1996 (the 1995 Option) and the second option
exercisable on or before March 31, 1997 (the 1996 Option). The Company may, at
its election, accelerate the exercise of the 1996 Option to any date on or after
January 1, 1995. The 1996 Option will expire unless the 1995 Option is exercised
in full. The consideration payable upon exercise of the 1995 Option and the 1996
Option is to be paid one-third in cash and two-thirds in common stock of the
Company valued at market price, as defined in the applicable agreements. The
Company may elect to pay in U.S. dollars any payments that would otherwise be
made to RHL in the Company's common stock.
The per share consideration to be paid for the remainder of Ravensworth (subject
to the adjustment described below) will be equal to the per share price paid by
the Company for the initial 49.9% investment, plus simple interest at 7%
(compounded annually) from the closing of the initial acquisition to the date of
payment. The consideration for Ravensworth will be adjusted by 50% of any
difference in actual Ravensworth and Seaboard earnings before depreciation,
interest and taxes (EBDIT) versus a target EBDIT for 1994 and 1995 and by 25% of
such difference for 1996. The maximum adjustment to the consideration paid or
payable for Ravensworth with respect to any year for which EBDIT is measured
against a specified target is limited to $4 million. In the event the Company
does not exercise either of the options to acquire additional interests in
Ravensworth, the agreement calls for certain purchase/sale arrangements between
the parties with respect to Ravensworth.
In connection with the Company's initial purchase of 49.9% at Ravensworth,
approximately 106,000 shares of the Company's common stock placed in escrow at
the time of acquisition were returned to the Company based on Ravensworth's
actual EBDIT for 1994 compared to targeted EBDIT as described under the
agreement. Such shares, valued at approximately $1.8 million, were canceled and
stockholders' equity and Ravensworth's investment accounts were reduced
accordingly.
Summarized historical, combined financial information for the affiliated
investees, which includes Ravensworth as of and for the years ended December 31,
1994 and 1995 and Seaboard as of and for the one month ended December 31, 1994
and year ended 1995 is as follows (in thousands):
1994 1995
---------- ------------
(Unaudited)
Current assets....................... $ 11,773 $ 11,979
Property and equipment, net.......... 73,389 66,619
Other noncurrent assets.............. 861 1,246
---------- ------------
Total assets................... $ 86,023 $ 79,844
========== ============
Current liabilities.................. $ 17,869 $ 14,275
Long-term debt....................... 50,328 47,349(1)
Other noncurrent liabilities......... 1,574 953
Stockholders' equity................. 16,252 17,267
---------- ------------
Total liabilities and equity... $ 86,023 $ 79,844
========== ============
Revenues............................. $ 37,870 $ 49,937
Operating income..................... $ 5,823 $ 5,574
Foreign exchange loss (gain).........
(recognized in affiliates'
accounts but not in the Company's
accounts due to purchase accounting
adjustments)........................ $ (684) $ (201)
Net income........................... $ 3,765 $ 1,497
- ------------
(1) A total of approximately $30,000,000 of this debt is owed by certain
subsidiaries of Ravensworth and Seaboard who collectively have negative
shareholders' equity of approximately $400,000 which offsets the total
combined Ravensworth and Seaboard shareholders' equity. Such debt is
nonrecourse to both the Company and Ravensworth, except for a pound sterling
300,000 guarantee by Hornbeck Offshore Services, Inc.
F-11
NOTE 6 - LONG-TERM DEBT:
Long-term debt consisted of the following at December 31 (in thousands):
1994 1995
---------- ----------
Bank note payable; principal payable in
quarterly installments of $714.4, plus
accrued interest at LIBOR plus 1% (6.875% at
December 31, 1995); secured by thirteen
vessels; matures November 15, 1999............ $ 20,000 $ 12,143
U.S. Government Guaranteed Ship Financing
Bonds payable in semiannual installments of
principal and interest as described below;
secured by mortgages on nine vessels and
guaranteed by the U.S. Maritime
Administration (MARAD)........................ 4,490 3,270
---------- ----------
24,490 15,413
Less - current portion........................ 3,467 3,561
---------- ----------
Long-term debt................................ $ 21,023 $ 11,852
========== ==========
Maturities of long-term debt outstanding at December 31, 1995 are as follows:
1996 - $3,561,000; 1997 - $3,433,000; 1998 - $3,367,000; 1999 - $4,081,000; and
2000 - $503,000.
Concurrent with the November 15, 1994 Oil & Gas vessel acquisition, the Company
entered into a $20 million term loan and a $10 million revolving credit facility
with a bank. Any borrowings under the revolving credit facility will be due and
payable on November 15, 1997. The availability of the revolving credit facility
is based on specified trade receivables levels and will be reduced by
outstanding letters of credit. At December 31, 1994 and 1995, there were no
outstanding balances under the revolving credit facility.
At the Company's option, interest with respect to any amounts outstanding under
the revolving credit facility and the bank term loan accrues at a rate equal to
the lender's prime rate, or the LIBOR rate plus 1%, and is payable quarterly.
The indebtedness is collateralized by 13 vessels owned by subsidiaries of the
Company. The indebtedness also contains covenants which, among other things,
provide limitations on the sale of such vessels and require the Company to
maintain certain financial ratios and minimum net worth.
The U.S. Government Guaranteed Ship Financing Bonds represent several series of
bonds which are guaranteed by MARAD. These bonds mature from 2000 to 2002 and
bear interest at rates ranging from 8.75% to 10.75%. The related reserve fund
balance was $1,024,000 at December 31, 1995. The Company expects to deposit
approximately $220,000 in 1996.
F-12
NOTE 7 - INCOME TAXES:
The components of the provision for income taxes for the years ended December 31
are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- --------
<S> <C> <C> <C>
Current provision (benefit):
U.S. federal income tax.......................... $ 2,480 $ 2,383
Alternative minimum and other taxes.............. 619 161 $ 176
State income tax................................. 104 25 (309)
Foreign taxes.................................... 62
Utilization of net operating loss carryforwards
and carrybacks.................................. (1,245) (864)
Utilization of investment tax credit
carryforward.................................... (381)
--------- --------- --------
1,958 1,386 (133)
--------- --------- --------
Deferred provision (benefit):
U.S. federal income tax.......................... 1,946 739 6,572
Alternative minimum tax and other credits........ (619) 220 (2,842)
Utilization of net operating loss carryforwards.. 1,245 864
--------- --------- --------
2,572 1,823 3,730
--------- --------- --------
Total provision for income taxes................... $ 4,530 $ 3,209 $ 3,597
========= ========= ========
</TABLE>
The difference between the effective income tax rate and the amount which would
be determined by applying the statutory U.S. income tax to income before taxes
is as follows:
DECEMBER 31,
-------------------------------
1993 1994 1995
------ ------ ------
Provision for income taxes at
U.S. statutory rates............ 34% 34% 34%
Foreign earnings not includable
in U.S. tax return.............. (2) (4)
Tax restructuring benefit........ (4) (1)
State taxes...................... 1 (2)
------ ------ ------
29% 29% 32%
====== ====== =====
The deferred income tax liability is primarily comprised of differences in the
tax and book basis of the Company's vessels and benefits from the carryforward
tax attributes as described below.
Undistributed earnings of the Company's foreign affiliates aggregated $3,986,000
on December 31, 1995, which, under existing law, will not be subject to U.S. tax
until distributed as dividends. Since the earnings have been and are intended to
be indefinitely reinvested in foreign operations, no provision has been made for
any U.S. taxes that may be applicable thereto. The amount of unrecognized
deferred U.S. taxes on these undistributed earnings is approximately $1,355,000.
Furthermore, any taxes paid to foreign governments on those earnings may be used
in whole or in part, as credits against the U.S. tax on any dividends
distributed from such earnings.
As of December 31, 1995, the Company has net operating loss carryforwards of
$347,000 which will expire from 2004 to 2005 if not used to offset future
taxable income. The utilization of these net operating losses is subject to an
annual limitation of $53,000. As of December 31, 1995, the Company has
investment tax credit carryforwards of $1,006,000 which will expire in 1997, if
not used to offset future income. As of December 31, 1995, the Company also has
alternative minimum tax credit carryforwards of $4,600,000.
F-13
NOTE 8 - COMMON STOCK, PREFERRED STOCK AND WARRANTS:
On July 21, 1993, the Company completed a public offering of 2,500,000 shares of
common stock for aggregate proceeds of approximately $40,000,000, after
expenses. Proceeds have been and will be utilized for the Ravensworth
acquisition, to repay certain debt and for general corporate purposes. In
connection with the July 23 closing of the Ravensworth acquisition, 158,978
shares of common stock were issued at an aggregate value of $2,722,500.
In September 1994, the Company purchased the remaining 71 shares of Series 1
Preferred Stock for $518,000 with the price determined in accordance with the
liquidation preference thereof.
In June 1994, 928,752 common stock purchase warrants were exercised. Pursuant to
the terms of the warrant agreement, the Company issued 480,588 shares of common
stock in exchange for all of such warrants. In September 1994, the Company paid
$368,896 to repurchase 71,428 warrants.
As discussed in Note 5, in 1995, approximately 106,000 shares were returned to
the Company pursuant to the Ravensworth acquisition agreement. The shares were
canceled by the Company.
NOTE 9 - RELATED PARTY TRANSACTIONS:
Bareboat charter fees are paid to an affiliate of a director of the Company.
Such fees totaled $600,000, $940,000 and $803,000 for the years ended December
31, 1993, 1994 and 1995, respectively. Until September 1993, a director of the
Company was an affiliate of an investment banking firm providing investment
banking services. The Company paid fees totaling $301,000 in 1993 for such
services.
NOTE 10 - EMPLOYEE INCENTIVE PLANS:
Pursuant to the Company's Employee Incentive Plans of 1982, 1989 and 1993, the
Board of Directors (or compensation committee thereof) has been empowered to
grant (over respective ten-year periods) stock options, stock appreciation
rights and stock bonuses with respect to an aggregate of 950,000 shares of
Common Stock. There were 466,770, 458,712 and 390,739 shares available for grant
at December 31, 1993, 1994 and 1995, respectively.
The following is a summary of stock option activity for the years ended
December 31:
<TABLE>
<CAPTION>
1993 1994 1995
------------- ------------- --------------
<S> <C> <C> <C>
Options outstanding at
beginning of year................ 311,559 287,619 283,593
Options granted................... 20,160 7,250 59,841
Options exercised................. (44,100) (9,861) (80,693)
Options canceled.................. (1,415) (7,507)
------------- ------------- --------------
Options outstanding at end of year 287,619 283,593 255,234
============= ============ ==============
Price range of options granted.... $6.31-13.00 $14.25-14.63 $9.88-11.50
Price range of options exercised.. $2.63-5.84 $3.50-6.31 $3.50-13.00
Price range of options outstanding
at end of year................... $3.25-13.00 $3.25-14.63 $3.25-14.63
</TABLE>
F-14
The stock options are exercisable over a five-year or ten-year period which
commences on the date of grant. The number of shares exercisable in each year
during the period is determined by the Company's Board of Directors (or
compensation committee) at the time of grant. At December 31, 1993, 1994 and
1995, options to purchase 246,739, 257,763 and 233,564 shares, respectively,
were exercisable. If the merger with Tidewater as discussed in Note 2, is
consummated, all options will be exercisable. Because the exercise price of the
options equaled the market price of the Company's stock on the dates the options
were granted, no compensation costs have been recognized by the Company.
Effective January 1, 1993, a total of 13,975 shares were awarded to employees
which vest over two years. Compensation expense of approximately $97,000 will be
recorded for the stock awards over the vesting period. On December 14, 1993, a
total of 13,070 shares were awarded to employees which vest over three years.
Compensation expense of approximately $170,000 will be recorded for the stock
awards over the vesting period.
In November 1994, a total of 2,698 shares which vest over a period of 1 1/2 - 2
years were awarded to employees. Compensation expense of approximately $37,845
will be recorded for the stock awards over the vesting period.
In April 1995, a total of 17,310 shares which vest over a period of three years
were awarded to employees. Compensation expense of approximately $199,065 will
be recorded for stock awards over the vesting period.
In 1993, 1994 and 1995, shares totaling 3,500, 4,200 and 4,800, respectively,
were awarded to the Company's Board of Directors pursuant to the Non-Employee
Directors Restricted Stock Plan.
No stock appreciation rights have been awarded under the Employee Incentive
Plans. The Company has no postretirement benefits that are required to be
accrued under Statement of Financial Accounting Standards (SFAS) No. 106,
"Accounting for Postretirement Benefits Other Than Pensions", nor does it have
postemployment benefits that are required to be accrued under SFAS No. 112,
"Employer's Accounting for Postemployment Benefits".
NOTE 11 - SEGMENT INFORMATION:
The Company's operations which are conducted in one segment, the offshore
service vessel industry. There were no charter fee revenues earned from
customers in excess of 10% of total revenues for 1993 and 1994. In 1995, one
customer accounted for approximately 10% of total revenues.
NOTE 12 - COMMITMENTS AND CONTINGENCIES:
Hornbeck has received and is responding to a subpoena for documents from the
U.S. District Court for the Southern District of Texas, Houston Division. The
scope of the subpoena suggests an interest in Hornbeck's compliance with certain
environmental statutes and regulations, violations of which could carry both
civil and criminal liabilities. The subpoena seeks information concerning
Hornbeck's vessels since January 1, 1993 regarding vessel operations as they
relate to the purchase, use and disposition of petroleum and related products.
It is Hornbeck's policy to comply with all applicable laws, including laws
designed to protect the environment. While management and the Hornbeck Board do
not believe that any outcome of the investigation would have a material adverse
effect on the financial position of Hornbeck, they cannot predict the nature or
ultimate outcome of the investigation or any proceeding that might be based
thereon.
The Company is not party to any legal proceedings the result of which could, in
the opinion of management, have a material adverse effect upon the Company.
F-15
NOTE 13 - CASH FLOW INFORMATION:
The following is a reconciliation of net income to net cash provided by
operating activities (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income.......................................... $ 10,665 $ 8,023 $ 7,629
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization..................... 7,394 10,007 13,577
Amortization of noncompete agreements............. 291 150
Amortization of debt discount..................... 200 67 33
Deferred income taxes............................. 2,846 1,823 3,730
Equity in net income of unconsolidated affiliates. (822) (1,409) (53)
Cash distributions from unconsolidated affiliate.. 38
Unrealized income on marketable securities, net... (291)
Gain on sale of vessels........................... (736) (431)
Salvage expense................................... 945
Extraordinary charge for early retirement of debt. 280
Other............................................. (28) 100 174
Changes in current assets and liabilities, net:
Accounts receivable - trade..................... (3,813) (2,335) (1,653)
Refundable income taxes......................... 663
Prepaid and other current assets................ (3,309) 2,824 (352)
Accounts payable................................ 715 (291) 1,085
Accrued interest................................ (107) (40) (35)
Income taxes payable............................ 440 (82) (240)
Other accrued liabilities....................... 122 1,047 (7)
---------- ---------- ----------
Net cash provided by operating activities....... $ 16,229 $ 19,148 $ 23,457
========== ========== ==========
</TABLE>
The following is a supplemental schedule of noncash investing and financing
activities for the years ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- --------
<S> <C> <C> <C>
Issuance of common and preferred stock:
Nonemployee directors restricted stock plan... $ 16
Acquisition of Ravensworth.................... 2,723
Exercise of warrants.......................... $ 358
Return of Ravensworth stock held in escrow.... $ 1,809
Tax benefit of stock sold by employees.......... 129 36 36
</TABLE>
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for 1993, 1994 and 1995 are as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED (1993)
---------------------------------------------------
MAR 31 JUN 30 SEP 30 DEC 31
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues ............................................................... $ 9,410 $10,601 $12,582 $14,698
Depreciation and amortization .......................................... 1,620 1,698 2,016 2,060
Operating profit (1) ................................................... 2,838 3,548 4,753 5,232
Net income ............................................................. 1,779 2,774 3,427 2,685
Net income per share ................................................... .17 .26 .27 .20
F-16
THREE MONTHS ENDED (1994)
---------------------------------------------------
MAR 31 JUN 30 SEP 30 DEC 31
------ ------ ------ ------
Revenues ............................................................... $11,506 $ 9,807 $10,418 $14,103
Depreciation and amortization .......................................... 2,273 2,441 2,430 2,863
Operating profit (1) ................................................... 2,534 1,198 1,509 3,526
Net income ............................................................. 1,902 1,476 2,135 2,510
Net income per share ................................................... .14 .11 .16 .19
THREE MONTHS ENDED (1995)
---------------------------------------------------
MAR 31 JUN 30 SEP 30 DEC 31
------ ------ ------ ------
Revenues ............................................................... $12,671 $14,057 $14,603 $17,681
Depreciation and amortization .......................................... 3,281 3,361 3,334 3,601
Operating profit (1) ................................................... 1,376 2,453 2,977 4,527
Net income ............................................................. 487 1,579 2,139 3,424
Net income per share ................................................... .04 .12 .16 .26
</TABLE>
- ------------
(1) Operating profit equals operating revenues minus direct labor and other
operating expenses, depreciation and amortization and general and
administrative expenses.
F-17
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
HORNBECK OFFSHORE SERVICES, INC.
(Registrant)
By: /s/LARRY D. HORNBECK
Larry D. Hornbeck
Chairman of the Board, President and Chief
Executive Officer
Date: February 20, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, President February 20, 1996
/s/LARRY D. HORNBECK and Chief Executive Officer
Larry D. Hornbeck (Principal Executive Officer)
Vice President, Treasurer and February 20, 1996
/s/ROBERT W. HAMPTON Chief Financial Officer
Robert W. Hampton (Principal Financial and Accounting Officer)
/s/ANTHONY W. HENFREY
Anthony W. Henfrey Director February 20, 1996
/s/B. W. HUNT
B. W. Hunt Director February 20, 1996
/s/WARREN B. IDSAL
Warren B. Idsal Director February 20, 1996
/s/BILLY PUGH
Billy Pugh Director February 20, 1996
/s/ROBERT E. SCHULLER, JR
Robert E. Schuller, Jr. Director February 20, 1996
/s/L. E. SIMMONS
L. E. Simmon Director February 20, 1996
</TABLE>
S-1
INDEX TO EXHIBITS
EXHIBIT
NO.
- -------
2(a) Asset Purchase Agreement dated as of November 16, 1992, by and among
Registrant, certain subsidiaries of Registrant, Pentad Offshore
Corporation and Petrol Marine Corporation (Form 8-K, November 25,
1992, SEC File No. 0-10809, Exhibit 2(a)).
2(b) Asset Purchase Agreement dated as of November 16, 1992, by and among
Registrant, certain subsidiaries of Registrant, Pentad Offshore
Corporation and Pentad Resources, Inc. (Form 8-K, November 25, 1992,
SEC File No. 0-10809, Exhibit 2(b)).
2(c) Asset Purchase Agreement dated as of November 16, 1992, by and among
Registrant, certain subsidiaries of Registrant, Portal Energy
Corporation and Portal Corporation (Form 8-K, November 25, 1992, SEC
File No. 0-10809, Exhibit 2(c)).
2(d) Stock Purchase Agreement, dated May 26, 1993, by and between the
Registrant and Ravensworth Holdings Limited (Form 8-K, May 26, 1993,
SEC File No. 0-10809, Exhibit 2(a)).
2(e) Stock Option and Ancillary Rights Agreement, dated May 26, 1993, by
and between Registrant and Ravensworth Holdings Limited (Form 8-K,
May 26, 1993, SEC File No. 0-10809, Exhibit 2(b)).
2(f) Agreement for Purchase and Sale of Vessels by and between Registrant
and Oil & Gas Rental Services, Inc. (Form 8-K, October 6, 1994, SEC
File No. 0-10809, Exhibit 2(a)).
2(g) Share, Business and Asset Acquisition Agreement relating to purchase
of Seaboard Offshore Group Limited dated as of November 30, 1994, by
and among Seaboard Holdings Limited and the shareholders of Seaboard
Offshore Group Limited and joined for limited purposes by certain
other parties. (Form 10-k, December 31, 1994, SEC File No. 0-10809,
Exhibit 2(g)).
3(a) Restated Certificate of Incorporation of Hornbeck Offshore Service,
Inc., as amended (Form 8-A/A Amendment No. 2, June 21, 1995, SEC
File No. 0-10809, Exhibit 3.2i).
3(b) Bylaws of Hornbeck Offshore Services, Inc., as amended through June
20, 1995. (Form 8-A/A Amendment No. 2, June 21, 1995, SEC File No.
0-10809, Exhibit 3.2ii)
4(a) Agreement Concerning Registration Rights between Registrant and
Larry D. Hornbeck, dated as of June 28, 1989. (Form S-1, March 22,
1990, Registration No. 33-33999, Exhibit 4(b)).
4(b) Special Rights Agreement, dated January 30, 1990, by and between
Registrant and HOS-2 Partners, L.P. (Form 8-K, January 30, 1990, SEC
File No. 0-10809, Exhibit 4.7).
4(c) Registration Rights Agreement, dated January 30, 1990, by and among
Registrant, HOS-2 Partners, L.P. and Collecting Bank, N.A. (a bank
in liquidation) (Form 8-K, January 30, 1990, SEC File No. 0-10809,
Exhibit 4.8).
4(d) Stockholders Agreement dated as of November 19, 1992, by and among
Registrant, Petrol Marine Corporation, Pentad Offshore Corporation,
Portal Energy Corporation, acknowledged and agreed to by Bruce W.
Hunt and acknowledged and agreed to for certain limited purposes by
HOS Partners, L.P. and HOS-2 Partners, L.P. (Form 8-K, November 25,
1992, SEC File No. 0-10809, Exhibit 28(b)).
E-1
4(e) Amendment No. 1 to Stockholders Agreement dated as of March 18, 1994
by and among Petrol Marine Corporation, Pentad Offshore Corporation,
Portal Energy Corporation, acknowledged and agreed to by Bruce W.
Hunt, and acknowledged and agreed to for certain limited purposes by
HOS Partners, L.P. and HOS-2 Partners, L.P. (Form 10-K, December 31,
1994, SEC File No. 0-10809, Exhibit 4(e)).
4(f) Registration Rights Agreement, dated July 23, 1993, by and between
Hornbeck Offshore Services, Inc. and Ravensworth Holdings Limited
(Form 10-K, December 31, 1993, SEC File No. 0-10809, Exhibit 4(g)).
10(a) Hornbeck Offshore Services, Inc. 1982 Employee Incentive Plan (Form
10-K, December 31, 1982, SEC File No. 0-10809, Exhibit 10.16).
10(b) Amendment No. 1 to the Hornbeck Offshore Services, Inc. 1982
Employee Incentive Plan (Form 10-K, December 31, 1993, SEC File No.
0-10809, Exhibit 10(b)).
10(c) Bareboat Charters between HOS Marine Partners, Inc. and Hornbeck
Offshore (1984) Corporation, dated as of June 28, 1989 (Form 10-Q,
June 30, 1989, SEC File No. 0-10809, Exhibit 10.30).
10(d) Letter agreements extending bareboat charters between HOS Marine
Partners, Inc. and Hornbeck Offshore (1984) Corporation, dated
February 21, 1992, May 28, 1993 and January 26, 1994 (Form 10-K,
December 31, 1993, SEC File No. 0-10809, Exhibit 10(d)).
10(e) Hornbeck Offshore Services, Inc. 1991 Restricted Stock Plan for
Non-Employee Directors. (Form 10-K, December 31, 1991, SEC File No.
0-10809, Exhibit 10(n)).
10(f) Hornbeck Offshore Services, Inc. 1993 Employee Incentive Plan (Form
S-8, October 7, 1993, Registration No. 33-70048, Exhibit 4).
10(g) Letter Loan Agreement among the Company and First Interstate Bank of
Texas, N.A., as Agent and as Lender (Form 8-K, November 15, 1994,
SEC File No. 0-10809, Exhibit 10).
10(h) Rights Agreement dated as of June 20, 1995 between Hornbeck Offshore
Services, Inc. and First Interstate Bank of Texas, N.A., as Rights
Agent, which includes as Exhibit B the form of Right Certificate and
as Exhibit C the form of Summary of Rights to Purchase Shares. (Form
8-A, June 21, 1995, SEC File No. 0-10809, Exhibit 4.1)
10(i) Change in Control Agreement dated as of June 20, 1995, by and
between Hornbeck Offshore Services, Inc. and Larry D. Hornbeck.
(Form 8-K, June 21, 1995, SEC File No. 0-10809, Exhibit 10.1)
10(j) Change in Control Agreement dated as of June 20, 1995, by and
between Hornbeck Offshore Services, Inc. and Bernie W. Stewart.
(Form 8-K, June 21, 1995, SEC File No. 0-10809, Exhibit 10.2)
10(k) Change in Control Agreement dated as of June 20, 1995, by and
between Hornbeck Offshore Services, Inc. and Robert W. Hampton.
(Form 8-K, June 21, 1995, SEC File No. 0-10809, Exhibi 10.3)
10(l) Change in Control Agreement dated as of June 20, 1995, by and
between Hornbeck Offshore Services, Inc. and Roger M. Sykes. (Form
8-K, June 21, 1995, SEC File No. 0-10809, Exhibit 10.5)
10(m) Agreement and Plan of Merger dated as of December 21, 1995 among
Hornbeck Offshore Services, Inc., Tidewater, Inc. and Tidewater
Expansion, Inc. (Form 8-K, December 28, 1995, SEC File No. 0-10809,
Exhibit 2(a).)
E-2
*21(a) Subsidiaries of Hornbeck Offshore Services, Inc.
*23(a) Consent of Price Waterhouse, LLP.
Registrant hereby agrees to furnish independently, upon request of
the Commission, a copy of any omitted schedule, annexure or other
attachment to the agreement referenced to in 10(m) above.
- ------------
* filed herewith
E-3
EXHIBIT 21(a)
SUBSIDIARIES OF HORNBECK OFFSHORE SERVICES, INC.
Hornbeck Offshore Operators, Inc.
Hornbeck Offshore (GP-1984) Inc.
Hornbeck Offshore (1984) Corporation
Hornbeck Offshore (1989) Corporation
Hornbeck Offshore (1991) Corporation
Hornbeck Offshore (1991-II) Corporation
Hornbeck Offshore (1992) Corporation
Hornbeck Offshore (1992-II) Corporation
Hornbeck Offshore (1992-III) Corporation
Hornbeck Offshore (1992-IV) Corporation
Hornbeck Offshore (1992-V) Corporation
Hornbeck Holdings (1992) Corporation
Hornbeck Offshore (1993) Corporation
Hornbeck Offshore (1994-I) Corporation
Hornbeck Offshore (1994-II) Corporation
Hornbeck Offshore (1994-III) Corporation
Hornbeck Offshore (1994-IV) Corporation
Hornbeck North Sea Safety, Inc.
Point Marine, Inc.
T. Benetee Corporation
Each of the above subsidiaries is a Delaware corporation except for Point
Marine, Inc., which is a Louisiana corporation.
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 0-10809) and the Registration Statement on Form S-8
(No. 33-36524) of Hornbeck Offshore Services, Inc. of our report dated February
12, 1996 appearing on page F-2 of this Form 10-K.
PRICE WATERHOUSE LLP
February 12, 1996
Houston, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM HORNBECK OFFSHORE SERVICES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 13,945
<SECURITIES> 0
<RECEIVABLES> 13,400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,254
<PP&E> 120,923
<DEPRECIATION> (27,805)
<TOTAL-ASSETS> 149,709
<CURRENT-LIABILITIES> 8,471
<BONDS> 11,852
0
0
<COMMON> 83,704
<OTHER-SE> 29,573
<TOTAL-LIABILITY-AND-EQUITY> 149,709
<SALES> 59,012
<TOTAL-REVENUES> 59,012
<CGS> 0
<TOTAL-COSTS> 47,679
<OTHER-EXPENSES> 107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,748
<INCOME-TAX> 3,597
<INCOME-CONTINUING> 7,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,629
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
