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UNITED STATES
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 for the fiscal year ended December 31, 1999
[_]Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-28316
Trico Marine Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 72-1252405
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 North American Court 70363
Houma, Louisiana (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (504) 851-3833
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
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 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 held by non-affiliates of the
Registrant at March 21, 2000 was approximately $124,413,000.
The number of shares of the Registrant's common stock, $0.01 par value per
share, outstanding at March 21, 2000 was 28,390,416.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 2000 Annual Meeting of
Stockholders have been incorporated by reference into Part III of this Form
10-K.
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TRICO MARINE SERVICES, INC.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Page
----
PART I................................................................................... 1
Items 1 and 2. Business and Properties................................................. 1
Item 3. Legal Proceedings....................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders..................... 10
Item 4A. Executive Officers of the Registrant.................................... 11
PART II.................................................................................. 12
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.... 12
Item 6. Selected Financial Data................................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 13
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.............. 18
Item 8. Financial Statements and Supplementary Data............................. 20
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure................................................... 43
PART III................................................................................. 43
Item 10. Directors and Executive Officers of the Registrant...................... 43
Item 11. Executive Compensation.................................................. 43
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 43
Item 13. Certain Relationships and Related Transactions.......................... 43
PART IV................................................................................ 43
Item. 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......... 43
SIGNATURES............................................................................... 44
FINANCIAL STATEMENT SCHEDULE............................................................. S-1
EXHIBIT INDEX............................................................................ E-1
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PART I
Items 1 and 2. Business and Properties
General
We are a leading provider of marine support vessels to the oil and gas
industry in the U.S. Gulf of Mexico, the North Sea and Latin America. The
services provided by our diversified fleet include:
. the transportation of drilling materials, supplies and crews to drilling
rigs and other offshore facilities;
. towing drilling rigs and equipment from one location to another; and
. support for the construction, installation, maintenance and removal of
offshore facilities.
Since our initial public offering in May 1996, we have pursued a strategy of
growth through acquisitions. As a result of these acquisitions, we are now the
second largest owner and operator of supply boats in the Gulf and a leading
operator in the North Sea. In December 1997, we acquired all of the
outstanding stock of Saevik Supply ASA, a then publicly-traded Norwegian
company, for approximately $293.7 million, subsequently renamed Trico Supply
ASA. The acquisition of Trico Supply firmly established our company in the
North Sea market area and significantly expanded our international operations.
Since our initial public offering, we have also acquired 37 supply boats for
use in the Gulf at an aggregate cost of $177.0 million. We currently have a
total fleet of 100 vessels, including 54 supply vessels, 11 large capacity
platform supply vessels, seven large anchor handling, towing and supply
vessels, 13 crew boats, six lift boats and nine line-handling vessels.
During 1998 and 1999, we also expanded our fleet through the construction of
new vessels specifically designed to increase our presence in international
and deepwater markets. These new vessels include:
. the Northern Admiral, a 275-foot, technologically-advanced anchor
handling, towing and supply vessel, which was delivered in July 1999;
. the Spirit River and the Hondo River, 230-foot deepwater supply boats,
one of which was delivered in December 1998 and the second of which was
delivered in July 1999;
. the Stillwater River, a "small water area twin hull" crew boat, also
known as a "SWATH" vessel, which began a five year contract for
Petrobras in Brazil in January 1999;
. the Northern River, a 276-foot platform supply vessel, which began a
three-year charter contract in the U.K. sector of the North Sea in March
1998; and
. the Palma River, a 200-foot supply boat, which began a four year
contract for Petrobras in Brazil in July 1998.
Demand for our services is significantly affected by expenditures for oil
and gas exploration, development and production in the markets where we
operate. As a result of the low oil prices experienced during 1998 and early
1999, oil and gas companies curtailed or deferred exploration and development
spending. Additionally, the entry of newly-built vessels into markets where we
operate contributed to an increased competitive environment, which also
depressed day rates and utilization rates. In response to these conditions, we
withdrew, or "stacked", ten of our Gulf supply boats from service in 1999. In
the Gulf of Mexico, our day rates and fleet utilization continued to decrease
through the third quarter of 1999 as a result of the low levels of industry
activity and the entry of new vessels into this market area. As a result of
increased oil industry activity in the Gulf resulting from the improvement in
the price of oil during 1999, demand for the services of our Gulf fleet began
to improve in late 1999. We experienced a modest increase in day rates and
utilization rates in the fourth quarter of 1999, primarily due to the increase
in industry activity and a supply vessel market tightening caused by the
stacking of vessels by us and some of our competitors. Also contributing to
the increased utilization of our Gulf supply boats was a reduction in vessel
downtime associated with vessel dry-docking and vessel upgrade projects.
Until early 1999, the North Sea market area had not been as dramatically
affected by the oil industry downturn, due primarily to the longer planning
horizons associated with projects in that market area and long-term contracts
for several of our vessels there. However, the entry of newly-built vessels
into the North Sea, combined with decreased
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industry activity, adversely affected the day rates and utilization rates of
our North Sea fleet in 1999. Industry activity in the North Sea has been slow
to respond to the recovery in energy prices, and we expect day rates and
utilization of our North Sea fleet to remain weak for at least the first half
of 2000.
We believe the diversity and quality of our fleet, the long-term contracts
for many of our vessels in the North Sea and Brazil, and the addition of our
new, larger vessels, which are capable of earning higher day rates, will allow
us to take advantage of any recovery in industry conditions. Additionally, we
are relocating some of our North Sea vessels to other international areas
which we believe will experience higher levels of demand in 2000.
The Industry
Marine support vessels primarily are used to transport equipment, supplies,
and personnel to drilling rigs, to support the construction and ongoing
operation of offshore oil and gas production platforms and as work platforms
for offshore construction and platform maintenance. As detailed below, the
principal services provided by us are the transportation of equipment, fuel,
water and supplies to drilling rigs and other offshore facilities; the
transfer of personnel between shore bases and offshore facilities; and towing
services for drilling rigs and equipment. The principal types of vessels
operated by us and our competitors can be summarized as follows:
Supply Boats. Supply boats are generally at least 150 feet in length,
serve drilling and production facilities and support offshore construction
and maintenance work. Supply boats are differentiated from other types of
vessels by cargo flexibility and capacity. In addition to transporting deck
cargo, such as pipe or drummed materials, supply boats transport liquid
mud, potable and drilling water, diesel fuel, dry bulk cement and dry bulk
mud. Accordingly, larger supply boats which have greater liquid mud and dry
bulk cement capacities, as well as larger areas of open deck space than
smaller supply boats, are generally in higher demand than vessels without
those capabilities. However, other characteristics such as maneuverability,
fuel efficiency, anchor handling ability and firefighting capacity may also
be in demand in certain circumstances.
Platform Supply Vessels. Platform supply vessels, also known as PSVs,
serve drilling and production facilities and support offshore construction
and maintenance work. They are differentiated from other offshore support
vessels by their cargo handling capabilities, particularly their large
capacity and versatility. Utilizing space on and below deck, they are used
to transport supplies such as fuel, water, drilling fluids, equipment and
provisions. PSVs range in size from 150 feet to more than 275 feet and are
particularly suited for supporting large concentrations of offshore
production locations because of their large deck space and below deck
capacities. Our PSVs are primarily in this classification but also are
capable of providing construction support services.
Anchor Handling, Towing and Supply Vessels. Anchor handling, towing and
supply vessels, also known as AHTSs, are used to set anchors for drilling
rigs and tow mobile drilling rigs and equipment from one location to
another. In addition, these vessels typically can be used in limited supply
roles when they are not performing anchor handling and towing services.
They are characterized by large horsepower (generally averaging
approximately 16,000-17,000 brake horsepower, and up to 23,800 brake
horsepower for the most powerful North Sea Class AHTS vessels), shorter
after decks and special equipment such as towing winches.
Crew Boats. Crew boats are generally at least 100 feet in length and are
chartered principally for the transportation of personnel and light cargo,
including food and supplies, to and among drilling rigs, production
platforms and other offshore installations. These boats can be chartered
together with supply boats as support vessels for drilling or construction
operations, and also can be chartered on a stand-alone basis to support the
various requirements of offshore production platforms. Crew boats are
constructed from aluminum. As a result, they generally require less
maintenance and have a longer useful life without refurbishment than steel-
hulled supply boats. These vessels also provide a cost-effective
alternative to airborne transportation services and can operate reliably in
virtually all types of weather conditions. Generally, utilization and day
rates for crew boats are more stable than those of other types of vessels
because crew boats are typically used to provide services for production
platforms and construction projects, as well as for exploration and
drilling activities. The majority of our crew boats are vessels 120-feet
long and longer.
Lift Boats. Lift boats are self-propelled, self-elevating and self-
contained vessels that can efficiently assist offshore platform
construction and well servicing tasks that traditionally have required the
use of larger, more
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expensive, mobile offshore drilling units or derrick barges. For example,
lift boats can dismantle offshore rigs, set production facilities and
handle a variety of tasks for existing platform upgrade work. These boats
have also been used successfully as the main work platform for applications
such as diving and salvaging, and are often used as an adjacent support
platform for applications ranging from crew accommodations to full
workovers on existing platforms. Historically, lift boats command higher
day rates but experience lower average utilization rates than other classes
of marine support vessels. Lift boats have different water depth
capacities, with leg lengths ranging from 65 to more than 200 feet. Our
lift boats have leg lengths ranging from 130 to 170 feet, enabling them to
operate in water depths where the majority of the offshore structures
currently in the Gulf are located.
Line Handling Boats. Line handling boats are generally outfitted with
special equipment to assist tankers while they are loading from single buoy
mooring systems. These vessels support oil off-loading operations from
production facilities to tankers and transport supplies and materials to
and between deepwater platforms.
Market Areas
We operate in several different market areas. Financial data, including
revenues, certain expenses, net income (loss) and assets by market
area/operating segment are detailed in Note 18 of the Consolidated Financial
Statements and Notes thereto included elsewhere in this Annual Report. Our
primary market areas are summarized below.
Gulf of Mexico. Our vessels service existing oil and gas production
platforms as well as exploration and development activities in the Gulf of
Mexico. Although the ongoing transportation, maintenance and repair
requirements of offshore production platforms create a baseline demand for
marine support vessels, incremental demand is primarily impacted by the level
of offshore oil and gas drilling activity. The level of drilling activity is
influenced by a number of factors, including oil and gas prices and drilling
budgets of oil and gas companies. As a result, utilization and day rates
traditionally have had a close relationship to oil and gas prices and drilling
activity. Day rates and utilization rates in the Gulf have traditionally been
volatile as a result of fluctuations in oil and gas prices and drilling
activity.
Day rates for supply vessels in the Gulf increased dramatically from 1995
through 1997 due in part to increased oil industry activity levels in the Gulf
and in part to the reduction in the number of vessels serving the Gulf and
overall industry consolidation. The number of offshore supply boats available
for service in the Gulf decreased from a peak of approximately 700 in 1985 to
approximately 320 at the end of 1997. In response to increased day rates and
high utilization levels experienced from 1995 through 1997, newly-built
vessels were constructed and introduced to the Gulf market. We believe
approximately 342 supply boats were in the Gulf fleet at the end of 1999.
As a result of the reduction of industry activity in the Gulf caused by low
oil prices in 1998 and early 1999, combined with newly-built vessels that
entered the market, day rates and utilization of our Gulf fleet decreased
during the first three quarters of 1999. We withdrew ten of our Gulf supply
boats from service in the first quarter of 1999 to reduce costs. Of the
approximately 342 supply boats that were located in the Gulf at the end of
1999, we estimate that approximately 70 are stacked and would require
substantial investment to return to work. We experienced modest increases in
day rates and fleet utilization in the Gulf during the fourth quarter of 1999
primarily due to increased industry activity in the Gulf resulting from the
increase in the price of oil during 1999 and the tightening of the supply
vessel market caused by the stacking of vessels by us and our competitors. The
utilization of our Gulf fleet also improved in the fourth quarter of 1999
because we completed all vessel upgrade projects and had reduced downtime from
vessel dry-dockings.
As of March 15, 2000, we had 42 supply boats, 6 lift boats and 12 crew boats
operating in the Gulf, excluding the 10 supply boats we de-activated in 1999.
North Sea. The North Sea market area consists of offshore Norway, Denmark,
the Netherlands, Germany, Great Britain and Ireland, and the area west of the
Shetlands. Historically, it has been the most demanding of all exploration
frontiers due to harsh weather, erratic sea conditions, significant water
depth and long sailing distances. Exploration and production operators in the
North Sea are typically large and well capitalized entities (such as major oil
companies and state owned oil companies), in large part because of the
significant financial commitment required in this market. In comparison to the
Gulf, projects in the region tend to be fewer in number, but larger in scope,
with longer planning
3
horizons and long-term contracts. Consequently, vessel demand in the North Sea
is generally slower to react to changes in energy prices and less susceptible
to abrupt swings than vessel demand in other regions. Activity in the North
Sea generally is at its highest level during the months from April to August
and at its lowest level during November to February.
The number of vessels operating in the North Sea decreased significantly
from the mid-1980s, from a peak of approximately 290 in 1986 to approximately
191 in 1996. As a result of this reduction, together with increased activity
in the North Sea in 1996 and 1997, day rates for AHTSs and PSVs of comparable
size to those operated by us increased significantly. These higher day rates,
in turn, lead to the construction and introduction of new vessels into the
North Sea market area. The number of AHTSs and PSVs operating in the North Sea
increased to 203 in December 1997, 215 in December 1998 and 231 in December
1999.
As a result of the introduction of new vessels into the North Sea market
area and low levels of industry activity, day rates and utilization of our
North Sea fleet declined in 1999. As of March 15, 2000, we had 10 PSVs and 6
AHTSs in the North Sea. We withdrew two PSVs from service during the third
quarter of 1999 and a third PSV during the fourth quarter of 1999 to reduce
costs. In the first quarter of 2000, in response to contract awards, we also
mobilized one PSV and one AHTS from the North Sea to West Africa and Latin
America. Despite the recovery in energy prices, industry activity in the North
Sea has been slow to recover and we expect day rates and utilization of our
North Sea fleet to remain weak at least for the first half of 2000.
Brazil. Offshore exploration and production activity in Brazil is
concentrated in the deep water Campos Basin, located 60 to 100 miles from the
Brazilian coast. Over 50 fields have been discovered in this Basin, including
an estimated 600 currently producing offshore oil wells. A number of fields in
the Campos Basin are being produced using floating production facilities. In
addition, exploration activity has expanded south to the Santos Basin
approximately 100 miles southeast of the city of Rio de Janeiro and to the
northeastern and northern continental shelves. In September 1999, Petrobras
announced the discovery of a large new offshore oilfield in the Santos Basin
with projected reserves of approximately 600 to 700 million barrels. The
discovery is the first ever in the Santos Basin.
The primary operator in the Brazilian market is Petrobras, the Brazilian
national oil company. In June 1999, the Brazilian government ended Petrobras'
45 year old monopoly over the rights to exploration and production by selling
exploration rights to 12 blocks in the Campos Basin to ten foreign oil
companies and Petrobras, which was allowed to participate in the bidding.
Second round bidding for approximately 12 additional offshore blocks is
planned for the second quarter of 2000.
As of March 15, 2000, we had nine line handling vessels, our SWATH crew boat
and a 200-foot supply boat operating offshore Brazil. Eight of our vessels
operating offshore Brazil are under charters with Petrobras.
Our Fleet
Existing Fleet. The following table sets forth information regarding the
vessels owned by us as of March 15, 2000:
No. of
Type of Vessel Vessels Length Horsepower
-------------- ------- --------- -------------
Supply Boats............................. 54 166'-230' 1,950-6,000
PSVs..................................... 11 176'-276' 4,050-10,800
AHTSs.................................... 7 196'-275' 11,140-23,800
Lift Boats............................... 6 130'-170' --
Crew/Line Handling Boats................. 22(1) 105'-125' 1,200-10,600
- -------
(1) Includes the Stillwater River, a SWATH crew boat with 10,600 horsepower.
The average age of our North Sea fleet is approximately 11 years. The
average age of our Gulf supply boat fleet is approximately 19 years. However,
we believe that our upgrade and refurbishment program, completed in the first
half of 1999, has significantly extended the service life of most of our Gulf
supply boats.
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Vessel Construction. In 1999, we completed construction of the Northern
Admiral, a 275-foot multi-purpose AHTS with 23,800 horsepower, which was
delivered in July 1999. We also completed the construction of the second of
two 230-foot deepwater supply vessels in the Gulf. The first vessel, the
Spirit River, was delivered in December 1998, while the second vessel, the
Hondo River, was delivered in July 1999.
Lift Boat Management. All of our lift boats are managed by Power Offshore,
Inc., a leading operator of lift boats in the Gulf, pursuant to a management
agreement that expires in September 2000. Power Offshore receives a management
fee of 9% of the lift boats' monthly gross income. We are also required to
reimburse Power Offshore for all operating expenses relating to the lift
boats, excluding marketing and general and administrative expenses. In
addition, Power Offshore has a right of first refusal if we intend to sell to
a third party any of the lift boats that are managed by Power Offshore.
Vessel Maintenance. We incur routine dry-dock inspection, maintenance and
repair costs under U.S. Coast Guard Regulations and to maintain American
Bureau of Shipping certification for our vessels. In addition to complying
with these requirements, we also have our own comprehensive vessel maintenance
program which we believe will help us to continue to provide our customers
with well maintained, reliable vessels. We incurred approximately $10.0
million, $24.2 million and $16.4 million in dry-docking and marine inspection
costs for the years ended December 31, 1997, 1998 and 1999, respectively.
Operations Bases
We support our operations in the Gulf from a 62.5 acre docking, maintenance
and office facility in Houma, Louisiana located on the intracoastal waterway
that provides direct access to the Gulf. We also lease a 3,600 square foot
office in Houston, Texas. Our North Sea operations are supported from leased
offices in Fosnavag, Norway, Kristiansand, Norway and Aberdeen, Scotland.
Brazilian operations are supported from a maintenance and administrative
facility in Macae, Brazil and a sales and administrative office in Rio de
Janeiro.
Customers and Charter Terms
We have entered into master service agreements with substantially all of the
major and independent oil companies operating in the Gulf. The majority of our
charters in the Gulf are short-term contracts (60 to 90 days) or spot
contracts (less than 30 days) and are cancelable upon short notice. Because of
frequent renewals, the stated duration of charters frequently has little
relationship to the actual time vessels are chartered to a particular
customer.
The principal customers in the North Sea market are major integrated oil
companies and large independent oil and natural gas exploration and production
companies as well as foreign government owned or controlled organizations and
companies that provide logistic, construction and other services to such oil
companies and foreign government organizations. The charters with these
customers are industry standard time charters. Current charters in the North
Sea market include periods ranging from just a few days or months to several
years. Nine of our North Sea vessels are on long-term contracts (at least one
year in duration). Five of these nine vessels are on long-term charters to
Statoil and Norsk Hydro, which expire between 2001 and 2005. Either charterer
can, however, terminate its contract during the period upon payment of agreed
compensation. Our remaining North Sea vessels are chartered on a short-term
basis.
Charters are obtained through competitive bidding or, with certain
customers, through negotiation. The percentage of revenues attributable to an
individual customer varies from time to time, depending upon the level of
exploration and development activities undertaken by a particular customer,
the availability and suitability of our vessels for the customer's projects,
and other factors, many of which are beyond our control. For the year ended
December 31, 1997, no customer accounted for more than 10% of our revenues.
For the years ended December 31, 1998 and December 31, 1999, approximately 16%
and 19%, respectively, of our total revenues were received from Statoil AS.
Competition
Our business is highly competitive. Competition in the marine support
services industry primarily involves factors such as price, service and
reputation of vessel operators and crews, and availability and quality of
vessels of the type
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and size needed by the customer. Although some of our principal competitors
are larger and have greater financial resources and international experience
than us, we believe that our operating capabilities and reputation enable us
to compete effectively with other fleets in the market areas in which we
operate.
Regulation
Our operations are significantly affected by federal, state and local
regulation, as well as certain international conventions, private industry
organizations and laws and regulations in jurisdictions where our vessels
operate and are registered. These regulations govern worker health and safety
and the manning, construction and operation of vessels. For example, we are
subject to the jurisdiction of the U.S. Coast Guard, the National
Transportation Safety Board, the U.S. Customs Service and the Maritime
Administration of the U.S. Department of Transportation, as well as private
industry organizations such as the American Bureau of Shipping. These
organizations establish safety criteria and are authorized to investigate
vessel accidents and recommend improved safety standards.
The U.S. Coast Guard regulates and enforces various aspects of marine
offshore vessel operations, such as classification, certification, routes,
dry-docking intervals, manning requirements, tonnage requirements and
restrictions, hull and shafting requirements and vessel documentation. Coast
Guard regulations require that each of our vessels be dry-docked for
inspection at least twice within a five-year period. We believe we are in
compliance in all material respects with all Coast Guard regulations.
Under the Merchant Marine Act of 1920, as amended, the privilege of
transporting merchandise or passengers in domestic waters extends only to
vessels that are owned by U.S. citizens and are built in and registered under
the laws of the U.S. A corporation is not considered a U.S. citizen unless,
among other things, no more than 25% of any class of its voting securities are
owned by non-U.S. citizens. If we should fail to comply with these
requirements, during the period of such noncompliance we would not be
permitted to continue operating our vessels in coastwise trade.
Our operations are also subject to a variety of federal and state statutes
and regulations regarding the discharge of materials into the environment or
otherwise relating to environmental protection. Included among these statutes
are the Clean Water Act, the Resource Conservation and Recovery Act ("RCRA"),
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Outer Continental Shelf Lands Act ("OCSLA") and the Oil
Pollution Act of 1990 ("OPA").
The Clean Water Act imposes strict controls on the discharge of pollutants
into the navigable waters of the U.S., and imposes potential liability for the
costs of remediating releases of petroleum and other substances. The Clean
Water Act provides for civil, criminal and administrative penalties for any
unauthorized discharge of oil and other hazardous substances in reportable
quantities and imposes substantial potential liability for the costs of
removal and remediation. Many states have laws that are analogous to the Clean
Water Act and also require remediation of accidental releases of petroleum in
reportable quantities. Our vessels routinely transport diesel fuel to offshore
rigs and platforms, and also carry diesel fuel for their own use. Our supply
boats transport bulk chemical materials used in drilling activities, and also
transport liquid mud which contains oil and oil by-products. All offshore
companies operating in the U.S. are required to have vessel response plans to
deal with potential oil spills.
RCRA regulates the generation, transportation, storage, treatment and
disposal of onshore hazardous and non-hazardous wastes, and requires states to
develop programs to ensure the safe disposal of wastes. We generate non-
hazardous wastes and small quantities of hazardous wastes in connection with
routine operations. We believe that all of the wastes that we generate are
handled in compliance with RCRA and analogous state statutes.
CERCLA contains provisions dealing with remediation of releases of hazardous
substances into the environment and imposes strict, joint and several
liability for the costs of remediating environmental contamination upon owners
and operators of contaminated sites where the release occurred and those
companies who transport, dispose of or who arrange for disposal of hazardous
substances released at the sites. Although we handle hazardous substances in
the ordinary course of business, we are not aware of any hazardous substance
contamination for which we may be liable.
OCSLA provides the federal government with broad discretion in regulating
the release of offshore resources of oil and gas production. Because our
operations rely on offshore oil and gas exploration and production, if the
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government were to exercise its authority under OCSLA to restrict the
availability of offshore oil and gas leases, such an action would have a
material adverse effect on our financial condition and the results of
operations.
OPA contains provisions specifying responsibility for removal costs and
damages resulting from discharges of oil into navigable waters or onto the
adjoining shorelines. Among other requirements, OPA requires owners and
operators of vessels over 300 gross tons to provide the U.S. Coast Guard with
evidence of financial responsibility to cover the costs of cleaning up oil
spills from such vessels. We have provided satisfactory evidence of financial
responsibility to the U.S. Coast Guard for all of our Gulf vessels over 300
tons.
Among the more significant of the conventions applicable to our North Sea
operations are:
. the International Convention for the Prevention of Pollution of the Sea,
1973, 1979 Protocol;
. the International Convention on the Safety of Life at Sea, 1974, 1978
and 1981/1983 Protocol; and
. the International Convention on Standards of Training, Certification and
Watchkeeping for Seafarers.
We believe we are in compliance in all material respects with all applicable
environmental laws and regulations to which we are subject. Moreover,
operations of our vessels in foreign territories are potentially subject to
similar regulatory controls concerning environmental protection similar to
those in force in the Gulf. We believe that compliance with any existing
environmental requirements of foreign governmental bodies will not materially
affect our capital expenditures, earnings, cash flows or competitive position.
Insurance
The operation of our vessels is subject to various risks, such as
catastrophic marine disaster, adverse weather conditions, mechanical failure,
collision and navigation errors, all of which represent a threat to personnel
safety and to our vessels and cargo. We maintain insurance coverage against
certain of these risks, which management considers to be customary in the
industry. We believe that our insurance coverage is adequate and we have not
experienced a loss in excess of our policy limits. However, there can be no
assurance that we will be able to maintain adequate insurance at rates which
we consider commercially reasonable, nor can there be any assurance that such
coverage will be adequate to cover all claims that may arise.
Employees
As of March 1, 2000, we had 1,099 employees worldwide, including 991
operating personnel and 108 corporate, administrative and management
personnel. None of our U.S. employees is unionized or employed pursuant to any
collective bargaining agreement or any similar arrangement. Our Norwegian
seamen are covered by three union contracts that are between the Norwegian
Employer Association for Ship and Offshore Vessels and masters and mates on
offshore vessels, able-bodied seamen, electricians and cooks, and engineers.
Our U.K. seamen are covered by two union contracts between Guernsey Ship
Management Limited acting on our behalf and two separate unions. We believe
our relationship with our employees is satisfactory. To date, our operations
have not been interrupted by strikes or work stoppages.
Cautionary Statements
Certain statements made in this Annual Report that are not historical facts
are "forward-looking statements." Such forward-looking statements may include
statements that relate to:
. our objectives, business plans or strategies, and projected or
anticipated benefits or other consequences of such plans or strategies;
. projected or anticipated benefits from future or past acquisitions; and
. projections involving anticipated capital expenditures or revenues,
earnings or other aspects of capital projects or operating results.
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Also, you can generally identify forward-looking statements by such
terminology as "may," "will," "expect," "believe," "anticipate," "project,"
"estimate" or similar expressions. We caution you that such statements are
only predictions and not guarantees of future performance or events. In
evaluating these statements, you should consider various risk factors,
including but not limited to the risks listed below. These risk factors may
affect the accuracy of the forward-looking statements and the projections on
which the statements are based.
All phases of our operations are subject to a number of uncertainties, risks
and other influences, many of which are beyond our control. Any one of such
influences, or a combination, could materially affect the results of our
operations and the accuracy of forward-looking statements made by us. Some
important factors that could cause actual results to differ materially from
the anticipated results or other expectations expressed in our forward-looking
statements include the following:
. dependence on the oil and gas industry, including the volatility of
prices of oil and gas and their effect on industry conditions;
. industry volatility, including the level of offshore drilling and
development activity and changes in the size of the offshore vessel
fleet in areas where we operate due to new vessel construction and the
mobilization of vessels between market areas;
. operating hazards, including the significant possibility of accidents
resulting in personal injury, property damage or environmental damage;
. the effect on our performance of regulatory programs and environmental
matters;
. the highly competitive nature of the offshore vessel industry;
. the age of our fleet;
. seasonality of the offshore industry in the Gulf;
. the risks of international operations, including currency fluctuations,
risk of vessel seizure and political instability; and
. the continued active participation of our executive officers and key
operating personnel.
Many of these factors are beyond our ability to control or predict. We
caution investors not to place undue reliance on forward-looking statements.
We disclaim any intent or obligation to update the forward-looking statements
contained in this Annual Report, whether as a result of receiving new
information, the occurrence of future events or otherwise.
In addition to the other information in this Annual Report, the following
factors should be considered carefully.
Market volatility may adversely affect operations
Demand for our services depends heavily on activity in offshore oil and gas
exploration, development and production. The level of exploration and
development activity has traditionally been volatile as a result of
fluctuations in oil and natural gas prices and their uncertainty in the
future. For example, as a result of the decline in oil industry activity in
the Gulf due to the depressed oil prices experienced during 1998 and early
1999, day rates and utilization of our Gulf supply boat fleet decreased
dramatically. Although day rates and utilization rates began to recover in the
fourth quarter of 1999 in response to increased industry activity in the Gulf,
we are unable to predict whether the recovery will continue.
The North Sea market is also susceptible to changes in industry activity due
to energy price volatility. Although the use of long-term contracts in the
North Sea generally delays the reaction to fluctuations in energy prices, in
1999 we experienced decreased day rates and utilization of our North Sea
fleet. As a result of the delay caused by the use of long-term contracts, we
expect that a recovery of day rates and fleet utilization in the North Sea
will lag the recovery of other market areas. A decline in the worldwide demand
for oil and gas or prolonged low oil or natural gas prices in the future could
hinder the recovery and depress offshore drilling and development activity. A
prolonged low level of activity in the Gulf and other areas where we operate
is likely to adversely affect the demand for our marine support services and
our financial condition and results of operations.
8
Charter rates for marine support vessels also depend on the supply of
vessels. Excess vessel capacity in the industry can result primarily from the
construction of new vessels and the mobilization of vessels between market
areas. During the last few years there has been a significant increase in
construction of vessels of the type operated by us, for use both in the Gulf
and the North Sea. The addition of new capacity to the worldwide offshore
marine fleet has increased competition in those markets where we operate. This
new capacity coupled with a prolonged period of low oil and gas prices in the
future would likely have a material adverse effect on our financial condition
and results of operations.
We operate in a highly competitive industry
Our business is highly competitive. Certain of our competitors have
significantly greater financial resources than us and more experience
operating in international areas. Competition in the marine support services
industry primarily involves factors such as:
. price, service and reputation of vessel operators and crews; and
. the quality and availability of vessels of the type and size needed by
the customer.
Operating hazards may increase operating costs; limited insurance coverage
Marine support vessels are subject to operating risks such as catastrophic
marine disaster, adverse weather conditions, mechanical failure, collisions,
oil and hazardous substance spills and navigation errors. The occurrence of
any of these events may result in damage to or loss of our vessels and our
vessels' tow or cargo or other property and in injury to passengers and
personnel. Such occurrences may also result in a significant increase in
operating costs or liability to third parties. We maintain insurance coverage
against certain of these risks, which our management considers to be customary
in the industry. We cannot assure you, however, that we can renew our existing
insurance coverage at commercially reasonable rates or that such coverage will
be adequate to cover future claims that may arise.
Compliance with governmental regulations may impose additional expenditures
Federal, state and local regulations, as well as certain international
conventions, private industry organizations and agencies and laws and
regulations in jurisdictions where our vessels operate and are registered,
materially affect our operations. These regulations govern worker health and
safety and the manning, construction and operation of vessels. These
organizations establish safety criteria and are authorized to investigate
vessel accidents and recommend approved safety standards. If we fail to comply
with the requirements of any of these laws or the rules or regulations of
these agencies and organizations, this could adversely affect our operations.
Our operations also are subject to federal, state and local laws and
regulations that control the discharge of pollutants into the environment and
that otherwise relate to environmental protection. While our insurance
policies provide coverage for accidental occurrence of seepage and pollution
or clean up and containment of the foregoing, pollution and similar
environmental risks generally are not fully insurable. We may incur
substantial costs in complying with such laws and regulations, and
noncompliance can subject us to substantial liabilities. The laws and
regulations applicable to us and our operations may change. If we violate any
of such laws or regulations, this could result in significant liability to us.
In addition, any amendment to such laws or regulations that mandates more
stringent compliance standards would likely cause an increase in our vessel
maintenance expenses.
Seasonality may adversely affect operations
Our marine operations are seasonal and depend, in part, on weather
conditions. In the Gulf, we have historically enjoyed our highest utilization
rates during the second and third quarters, as mild weather provides favorable
conditions for offshore exploration, development and construction. Adverse
weather conditions during the winter months generally curtail offshore
development operations and can particularly impact lift boat utilization
rates. Activity in the North Sea is also subject to delays during periods of
adverse weather, but is not affected by seasonality to the extent activity in
the Gulf is affected. Accordingly, the results of any one quarter are not
necessarily indicative of annual results or continuing trends.
9
Age of fleet
The average age of our vessels (based on the date of construction) is
approximately 19 years for our Gulf fleet and approximately 11 years for our
North Sea fleet. Expenditures required for the repair, certification and
maintenance of a vessel typically increase with vessel age. These expenditures
may increase to a level at which they are no longer economically justifiable.
We cannot assure you that we will be able to maintain our fleet by extending
the economic life of existing vessels through major refurbishment or by
acquiring new or used vessels.
Currency fluctuations could adversely affect results of operations
The acquisition of Trico Supply substantially increased the percentage of
our operations conducted in currencies other than the United States dollar.
Changes in the value of foreign currencies relative to the United States
dollar could adversely affect our results of operations and financial
position. In addition, transaction gains and losses could contribute to
fluctuations in our results of operations. Our international operations are
subject to a number of risks inherent to any business operating in foreign
countries. These risks include, among others:
. political instability;
. potential vessel seizure or nationalization of assets;
. currency restrictions and exchange rate fluctuations; and
. import and export quotas and other forms of public and governmental
regulation.
All of these risks are beyond our control. We cannot predict the nature and
the likelihood of any such events. However, if such an event should occur, it
could have a material adverse effect on our financial condition and results of
operations.
We depend on key personnel
We depend on the continued services of our executive officers and other key
management personnel. If we were to lose any of these officers or other
management personnel, such a loss could adversely affect our operations.
Item 3. Legal Proceedings
We are involved in various legal and other proceedings which are incidental
to the conduct of our business. We believe that none of these proceedings, if
adversely determined, would have a material adverse effect on our financial
condition, results of operations or cash flows.
Item 4. Submission of Matters To a Vote Of Security Holders
None.
10
Item 4A. Executive Officers of The Registrant
The name, age and offices held by each of the executive officers of the
Company as of March 15, 2000 are as follows:
Name Age Position
---- --- --------
Ronald O. Palmer..... 53 Chairman of the Board
Thomas E. Fairley.... 52 President and Chief Executive Officer
Victor M. Perez...... 47 Vice President, Chief Financial Officer and Treasurer
Kenneth W. Bourgeois. 52 Vice President and Controller
Michael D. Cain...... 51 Vice President, Marketing
C. Douglas Stroud.... 48 Vice President, Business Development
Charles E. Tizzard... 49 Vice President, Administration
Ronald O. Palmer has been a director since October 1993 and Chairman of the
Board since May 1997. Mr. Palmer also served as Executive Vice President from
February 1995 to May 1997. Mr. Palmer joined Mr. Fairley in founding our
predecessor company in 1980 and served as Vice President, Treasurer and Chief
Financial Officer until February 1995. From 1974 to 1980, Mr. Palmer was
employed by GATX Leasing Corporation where he was responsible for the
marketing of financial leases for industrial and marine equipment in eight
southwestern states and all marine activity of Trans Marine International, an
offshore marine service company and wholly-owned subsidiary of GATX Leasing in
the Gulf.
Thomas E. Fairley, who co-founded our predecessor company with Mr. Palmer in
1980, has been President and Chief Executive Officer and a director since
October 1993. From October 1993 to May 1997, Mr. Fairley also served as our
Chairman of the Board. From 1978 to 1980, Mr. Fairley served as Vice President
of Trans Marine International. From 1975 to 1978, Mr. Fairley served as
General Manager of International Logistics, Inc. , a company engaged in the
offshore marine industry. For more than five years prior to joining
International Logistics, Inc., Mr. Fairley held various positions with Petrol
Marine Company, an offshore marine service company. Mr. Fairley is also a
director of Gulf Island Fabrication, Inc., a leading marine fabricator.
Victor M. Perez has served as our Vice President, Chief Financial Officer
and Treasurer since February 1995. From 1990 to 1995, Mr. Perez served as
Senior Vice President--Corporate Finance of Offshore Pipelines, Inc. Mr. Perez
was Vice President--Investments for Graham Resources, Inc., from August 1987
to October 1990 and from January 1976 to August 1987 served as a Vice
President with InterFirst Bank Dallas in its international and energy banking
groups.
Kenneth W. Bourgeois has served as our Vice President and Controller since
October 1993. Mr. Bourgeois also served as the Controller of our predecessor
company from December 1981 to October 1993. From 1972 to December 1981, Mr.
Bourgeois worked for George Engine Company, Inc., where he held the position
of Assistant Controller and subsequently, Director of Internal Auditing. From
1969 to 1972, Mr. Bourgeois was employed by Price Waterhouse & Co. Mr.
Bourgeois is a Certified Public Accountant.
Michael D. Cain has served as our Vice President, Marketing since February
1993. From 1986 to 1993, Mr. Cain served as Marketing Manager for our
predecessor company. Prior to 1986, Mr. Cain served in the same capacity for
Seahorse, Inc., an offshore marine services company.
C. Douglas Stroud joined us in October 1998 and has served as our Vice
President, Business Development since March 1999. Mr. Stroud was formerly with
Ceanic Corporation (now Stolt Comex Seaway) from April 1997 to September 1998
as Vice President for Technical Sales, and from 1984 to 1997 as Vice President
of Sales and Marketing for Perry Tritech, Inc., a leading subsea robotic and
remotely operated vehicle manufacturing company.
Charles E. Tizzard has served as our Vice President, Administration since
June 1997. From October 1994 to June 1997, Mr. Tizzard served as Manager of
Administration and Planning. From 1987 to October 1994, Mr. Tizzard served as
Vice President and General Manager of Marine Asset Management Corporation, a
wholly-owned subsidiary of Chrysler Capital Corporation, and from 1979 to 1987
he served as District Operations Manager for Chrysler Capital Corporation.
11
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Our common stock is listed for quotation on the Nasdaq National Market under
the symbol "TMAR". At March 21, 2000, we had 134 holders of record of our
common stock.
The following table sets forth the range of high and low closing sales
prices of our common stock as reported by the Nasdaq National Market for the
periods indicated .
High Low
------- -------
1998
First quarter.......................................... $30.500 $15.750
Second quarter......................................... 23.563 12.750
Third quarter.......................................... 13.875 5.625
Fourth quarter......................................... 9.250 4.375
1999
First quarter.......................................... $ 6.250 $ 4.281
Second quarter......................................... 8.500 4.688
Third quarter.......................................... 9.750 6.000
Fourth quarter......................................... 8.750 6.469
2000
First quarter (through March 21, 2000)................. $ 7.813 $ 5.094
We have never paid cash dividends on our common stock. We intend to retain
any future earnings otherwise available for cash dividends on our common stock
for use in our operations and for expansion and we do not anticipate paying
any cash dividends. In addition, our bank credit facility and senior note
indenture currently prohibit us from paying dividends on our common stock. Any
future determination to pay cash dividends will be made by the Board of
Directors in light of our earnings, financial position, capital requirements,
debt agreements and such other factors as the Board of Directors deems
relevant at that time.
12
Item 6. Selected Financial Data
The selected financial data presented below for the five fiscal years ended
December 31, 1999 is derived from our audited Consolidated Financial
Statements and Notes thereto. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Year ended December 31,
---------------------------------------------
1999 1998 1997(1) 1996 1995
-------- -------- -------- -------- -------
(Financial data in thousands, except per
share amounts)
Statement of Operations Data:
Revenues........................ $110,800 $186,245 $125,480 $ 53,484 $26,698
Direct operating expenses....... 92,725 92,122 50,945 29,894 21,972
Depreciation and amortization... 32,919 29,528 12,734 4,478 2,740
-------- -------- -------- -------- -------
Operating income (loss)......... $(14,844) $ 64,595 $ 61,801 $ 19,112 $ 1,986
======== ======== ======== ======== =======
Income (loss) before
extraordinary item............. $(31,580) $ 25,280 $ 35,299 $ 10,891 $(1,299)
Extraordinary item, net of
taxes.......................... (1,830) -- -- (917) --
-------- -------- -------- -------- -------
Net income (loss)............... $(33,410) $ 25,280 $ 35,299 $ 9,974 $(1,299)
======== ======== ======== ======== =======
Diluted Per Share Data:(2)
Income (loss) before
extraordinary item............. $ (1.26) $ 1.20 $ 2.11 $ 0.88 $ (0.21)
Extraordinary item, net of
taxes.......................... (0.07) -- -- (0.07) --
-------- -------- -------- -------- -------
Net income (loss)............... $ (1.33) $ 1.20 $ 2.11 $ 0.81 $ (0.21)
======== ======== ======== ======== =======
Balance Sheet Data:
Working capital (deficit)....... $ (1,478) $ 9,358 $ 7,831 $ 10,753 $ (844)
Property and equipment, net..... $553,388 $570,409 $505,056 $119,142 $39,264
Total assets.................... $730,579 $768,890 $698,781 $144,035 $52,113
Long term debt.................. $393,510 $402,518 $359,385 $ 21,000 $36,780
Stockholders' equity............ $270,108 $284,240 $261,500 $103,980 $ 5,712
- -------
(1) The data for 1997 reflects results of operations of Trico Supply for
December 1997 only and the consolidation of Trico Supply's assets and
liabilities with those of the Company at December 31, 1997.
(2) Per share data has been adjusted to reflect a 3.0253-for-1 common stock
split effective April 26, 1996 and a 100% stock dividend effective June 9,
1997.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Our business strategy for the past several years has been to pursue
opportunities to acquire vessel fleets and diversify into international
markets. Since our initial public offering in May 1996, we significantly
expanded our international operations by acquiring Saevik Supply, a then
publicly-traded Norwegian company, for approximately $293.7 million in cash,
which we subsequently renamed Trico Supply ASA. We also acquired 37 supply
boats in the Gulf at an aggregate cost of $177.0 million. We have also
constructed six new vessels, and have upgraded and refurbished the majority of
our Gulf supply boat fleet. Our newly-built vessels are specially designed
vessels to increase our presence in certain international and deepwater
markets. As a result of this growth, Trico is now the second largest owner and
operator of supply boats in the Gulf and a leading operator in the North Sea.
Our results of operations are affected primarily by day rates and fleet
utilization. Demand for our vessels is primarily impacted by the level of
offshore oil and gas drilling activity, which can be influenced by a number of
factors, including oil and gas prices and drilling budgets of exploration and
production companies, and, to a lesser extent, the market for the maintenance,
repair and salvage of existing platforms. As a result, trends in oil and gas
prices may significantly affect our vessel utilization and day rates. Our day
rates and utilization rates are also affected by the size, configuration and
capabilities of our fleet. In the case of supply boats, PSVs and AHTSs, the
deck space and liquid mud and dry bulk cement capacity are important
attributes. In certain markets and for certain customers, horsepower and
13
dynamic positioning systems are also important requirements. For crew boats,
size and speed are important factors, and in the case of lift boats, longer
leg length and greater crane capacity add versatility and marketability. Our
day rates and utilization can also be affected by the supply of other vessels
available in a given market with similar configuration and capabilities.
Our operating costs primarily are a function of fleet size and utilization
levels. The most significant direct operating costs are wages paid to vessel
crews, maintenance and repairs and marine insurance. Generally, increases or
decreases in vessel utilization only affect that portion of our direct
operating costs that is incurred when the vessels are active. As a result,
direct operating costs as a percentage of revenues may vary substantially due
to changes in day rates and utilization.
In addition to these variable costs, we incur fixed charges related to the
depreciation of our fleet and costs for the routine dry-dock inspection,
maintenance and repair designed to ensure compliance with U.S. Coast Guard
regulations and to maintain required certifications for our vessels.
Maintenance and repair expense and marine inspection amortization charges are
generally determined by the aggregate number of dry-dockings and other repairs
undertaken in a given period. Costs incurred for dry-dock inspection and
regulatory compliance are capitalized and amortized over the period between
such dry-dockings, typically three to five years.
Results of Operations
The table below sets forth by vessel class, the average day rates and
utilization for our vessels and the average number of vessels we owned during
the periods indicated.
Year ended December
31,
----------------------
1999 1998 1997
------ ------ ------
Average vessel day rates:
Supply boats.......................................... $3,292 $6,844 $7,377
PSVs/AHTSs (North Sea)(1)............................. 10,049 14,604 14,056
Lift boats............................................ 4,406 6,199 5,955
Crew/line handling boats.............................. 1,914 2,056 1,964
Average vessel utilization rate:
Supply boats.......................................... 59% 62% 85%
PSVs/AHTSs (North Sea)(1)............................. 85% 95% 97%
Lift boats............................................ 51% 63% 71%
Crew/line handling boats.............................. 83% 94% 97%
Average number of vessels:
Supply boats.......................................... 52.5 50.6 42.0
PSVs/AHTSs (North Sea)(1)............................. 17.5 16.8 1.4
Lift boats............................................ 6.0 6.0 6.0
Crew/line handling boats.............................. 22.0 21.8 23.8
- -------
(1) Includes results of operations of the vessels purchased through the
acquisition of Trico Supply in December 1997. The 1997 day rate and
utilization data is for December only.
14
Set forth below is the internal allocation of our charter revenues and
charter revenues less direct operating expenses among vessel classes for each
of the periods indicated.
Year ended December 31,
----------------------------------------
1999 % 1998 % 1997 %
-------- --- -------- --- -------- ---
Charter Revenues:
Supply boats...................... $ 36,920 34% $ 78,777 42% $ 95,817 76%
PSVs/AHTSs (North Sea)(1)......... 55,671 50% 85,089 46% 7,244 6%
Crew and line-handling boats...... 12,423 11% 12,776 7% 11,989 10%
Lift boats........................ 5,629 5% 9,495 5% 10,426 8%
-------- --- -------- --- -------- ---
$110,643 100% $186,137 100% $125,476 100%
======== === ======== === ======== ===
Charter Revenues less direct
operating expenses:
Supply boats...................... $ 10,338 24% $ 47,299 41% $ 69,145 83%
PSVs/AHTSs (North Sea)(1)......... 30,053 69% 60,115 53% 4,739 6%
Crew and line-handling boats...... 2,052 5% 3,101 3% 4,913 6%
Lift boats........................ 954 2% 3,813 3% 4,412 5%
-------- --- -------- --- -------- ---
$ 43,397 100% $114,328 100% $ 83,209 100%
======== === ======== === ======== ===
- -------
(1) Includes results of operations of the vessels purchased through the
acquisition of Trico Supply in December 1997. Data for 1997 is for
December only.
Comparison of the Year Ended December 31, 1999 to the Year Ended December 31,
1998
Our revenues for 1999 were $110.8 million, a decrease of 40.5%, compared to
$186.2 million in revenues for 1998. This decrease in revenues was due to the
decrease in average day rates and utilization for our vessel fleet. The
decrease in day rates and utilization is the result of the reduction in
worldwide oil and gas exploration and development activity due to the low oil
prices which existed in 1998 and part of 1999. Day rates and utilization for
our Gulf supply boats and North Sea PSVs were also impacted by newly-built
vessels entering the market which increased our competition. Oil and gas
prices have since increased to favorable levels, which our management
believes, if sustained, should lead to increased drilling activity offshore
and increased demand for marine support vessels. Late in the third quarter of
1999, we began to experience improvement in utilization and modest increases
in day rates for our Gulf fleet. However, the North Sea, which was slower to
decline in 1998 than the Gulf, had not experienced any such improvement as of
year end 1999.
Our average supply boat day rates in the Gulf decreased 51.9% to $3,292 for
1999, compared to $6,844 for 1998; average lift boat day rates decreased 28.9%
to $4,406, compared to $6,199 for 1998; and average day rates for our fleet of
crew boats and line handling vessels decreased 6.9% to $1,914, compared to
$2,056 during 1998.
Utilization for our Gulf supply boat fleet in 1999 was also impacted by the
de-activation or stacking of 10 supply boats. Vessel downtime for dry-docking
and refurbishment also impacted our supply boat utilization rates for both the
1999 and 1998 periods. Utilization for our Gulf supply boat fleet decreased to
59% in 1999 from 62% in 1998. Utilization for the lift boats was 51% during
1999, compared to 63% for the previous year. Utilization for the crew boats
and line handling vessels decreased to 83% in 1999, compared to 94% in 1998.
Average day rates for our North Sea vessels in 1999, decreased 31.3 % to
$10,049 compared to $14,604 for 1998. Vessel utilization was 85% for 1999,
compared to 95% for 1998. As a result of low market day rates and utilization,
we elected to de-activate two of our North Sea PSVs in the third quarter of
1999. A third PSV was de-activated in the fourth quarter of 1999.
During 1999, direct vessel operating expenses decreased to $67.7 million
(61.0% of revenues), compared to $72.3 million (38.8% of revenues) for 1998.
Direct vessel operating expenses decreased in 1999 compared to 1998 due to
cost reduction measures that we implemented and the de-activation of 10 supply
vessels in the Gulf and three PSVs in the North Sea. The decrease in direct
vessel operating expenses was partially offset by additional expenses
associated with four new vessels that were placed into service in the last
quarter of 1998 and the first half of 1999. Direct vessel operating
15
expenses as a percentage of revenues increased due primarily to the decrease
in utilization and average vessel day rates for our vessel fleet.
Depreciation and amortization expense increased to $32.9 million for 1999,
up from $29.5 million for 1998, due to our expanded vessel fleet in the Gulf,
the North Sea and Brazil. Amortization of marine inspection costs increased to
$13.9 million for 1999, from $8.9 million in 1998. This was primarily due to
the amortization of increased dry-docking and marine inspection costs which we
incurred in 1997 and 1998 due to our Gulf supply boat upgrade and
refurbishment program.
Our general and administrative expenses decreased to $10.0 million (9.0% of
revenues) in 1999, from $10.9 million (5.9% of revenues) for 1998, due to cost
reduction measures we implemented. General and administrative expenses, as a
percentage of revenues, increased in 1999 due to the decrease in utilization
and average day rates for our vessel fleet in 1999.
Interest expense increased to $32.0 million during 1999 compared to $27.7
million for 1998. This increase was due to higher average interest rates,
increased borrowings in 1999 which were used to fund our vessel construction
and vessel upgrade projects and our working capital requirements. Also, in
1998 we capitalized $3.3 million of interest because of our various vessel
construction projects compared to $1.2 million of interest capitalized in
1999.
In 1999, we had income tax benefit of $15.8 million, compared to income tax
expense of $11.8 million in 1998. Our effective income tax rate for 1999 was
33%. The variance from our statutory rate is due to income contributed by
Trico Supply, which is deferred at the Norwegian statutory rate of 28%, as it
is our intent to reinvest the unremitted earnings and postpone their
repatriation indefinitely.
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997
Revenues for 1998 were $186.2 million, an increase of 48.3%, compared to
$125.5 million in revenues for 1997. This increase was primarily due to the
addition, for a full year, of North Sea operations which we acquired in
December 1997. The increase in revenues from our North Sea operations was
partially offset by a decrease in revenues from the Gulf of Mexico,
principally due to the decrease in average day rates and utilization for our
supply boats. This decrease in supply boat day rates and utilization is the
result of the reduction in industry activity in the Gulf due to low oil
prices. Day rates and utilization for our supply boats was also impacted by
the market entry of newly-constructed vessels which have added to the
increased competitive environment.
Average supply boat day rates in the Gulf decreased 7.2% to $6,844 for 1998,
compared to $7,377 for 1997; average lift boat day rates increased 4.1% to
$6,199, compared to $5,955 for 1997; and average day rates for our crew boats
and line handling vessels increased 4.7% to $2,056, compared to $1,964 during
1997.
Utilization rates for our Gulf supply boats was also impacted by the
significant vessel downtime due to our extensive vessel upgrade and
refurbishment program. Utilization for our Gulf supply boat fleet decreased to
62% in 1998 from 85% in 1997. Utilization for the lift boats was 63% during
1998, compared to 71% for the year-ago period. Utilization for our crew boats
and line handling vessels decreased to 94% in 1998, compared to 97% in 1997.
During 1998, our direct vessel operating expenses increased to $71.8 million
(38.6% of revenues), compared to $42.2 million (33.6% of revenues) for 1997,
due to the addition of the North Sea fleet and the consolidation of our
Brazilian subsidiary beginning July 1, 1998. Our direct vessel operating
expenses increased as a percentage of revenues due to the decrease in average
vessel day rates during 1998 in the Gulf.
Depreciation and amortization expense increased to $29.5 million for 1998,
up from $12.7 million for 1997, due to the acquisition of the North Sea
vessels in December 1997, and our expanded vessel fleet both in the Gulf of
Mexico and Brazil. Amortization of marine inspection costs increased to $8.9
million for 1998, from $3.0 million in 1997, due to the amortization of
increased dry-docking and marine inspection costs associated with our fleet
upgrade and refurbishment program, primarily for our Gulf supply boats.
Our general and administrative expenses increased to $10.9 million (5.9% of
revenues) in 1998, from $5.7 million (4.6% of revenues) for 1997, due to the
addition of the North Sea operations and the consolidation of our Brazilian
subsidiary beginning July 1, 1998. General and administrative expenses, as a
percentage of revenues, increased in 1998 due to the decrease in average
supply boat day rates in the Gulf of Mexico.
16
Interest expense increased to $27.7 million during 1998 compared to $8.0
million for 1997. This increase was due to our increased debt in 1998
associated with the acquisition of the North Sea fleet on December 1, 1997 and
increased borrowings which we used to fund various vessel construction and
vessel upgrade and refurbishment projects. In July 1997, we issued $110.0
million principal amount of 8-1/2% Senior notes due 2005 (the "Notes"), the
proceeds of which were used to purchase 11 supply boats in the Gulf and to
repay outstanding amounts under our revolving credit facility. In November and
December 1997, we issued an additional $170 million principal amount of the
Notes, the proceeds of which were used to fund the acquisition of our North
Sea operations.
In 1998, we had income tax expense of $11.8 million, compared to income tax
expense of $19.0 million in 1997.
Liquidity and Capital Resources
Our ongoing capital requirements arise primarily from our need to service
debt, fund working capital, acquire, maintain or improve equipment and make
other investments. Our business strategy for the past several years had been
to enhance our position as a leading supplier of marine support services by
pursuing opportunities to acquire vessel fleets and by diversifying into
international market areas. Historically, internally generated funds and
equity and debt financing had provided funding for these activities. However,
due to the reduction in industry activity and the resulting decreases in day
rates and utilization rates experienced in 1999, we experienced a net loss,
before extraordinary item, of $31.6 million during 1999. As a result of this
loss, our 1999 capital requirements were primarily funded through the issuance
of additional equity and the incurrence of debt. Our 1999 operating loss,
current operating levels and amount of debt has limited our financial
flexibility.
During 1999, we completed vessel construction and upgrade projects that we
committed to prior to the downturn in industry activity. Additionally, during
the second quarter of 1999 we completed our vessel improvement program that
consisted of the extensive upgrade and refurbishment of a significant portion
of our Gulf supply boat fleet. While this refurbishment program resulted in
significant vessel downtime in 1998 and in the first half of 1999, we believe
that it has extended the service lives of many of our vessels and will
significantly reduce required capital expenditures in the future. Capital
expenditures for 1999 consisted principally of $32.8 million for the
construction of new vessels and other vessel improvements, and $16.4 million
of U.S. Coast Guard dry-docking and vessel refurbishment costs.
Funds during 1999 were provided by $73.0 million in borrowings under our
bank credit facility, $46.3 million in net proceeds from the issuance of
common equity in a private placement, $18.9 million principal amount of 15
year 6.11% Ship Financing Bonds guaranteed by the United States Government,
and $2.8 million generated from operating activities. During 1999, we repaid
$92.1 million of debt, and made capital expenditures totaling $49.1 million,
which included $16.4 million of deferred marine inspection costs. Cash on hand
decreased by $2.8 million during 1999.
We have outstanding $280.0 million in aggregate principal amount of 8 %
Senior Notes due 2005. The senior notes are unsecured and are required to be
guaranteed by all of our significant subsidiaries. Except in certain
circumstances, the senior notes may not be prepaid until August 1, 2001, at
which time they may be redeemed, at our option, in whole or in part, at a
redemption price equal to 104.25% plus accrued and unpaid interest, with the
redemption price declining ratably on August 1 of each of the succeeding three
years. The indenture governing the senior notes contains certain covenants
that, among other things, limit our ability to incur additional debt, pay
dividends or make other distributions, create certain liens, sell assets, or
enter into certain mergers or acquisitions. As a result of our 1999 operating
results, we can now only incur additional debt of approximately $29.8 million
beyond that presently outstanding.
We maintain a bank credit facility that provides a revolving line of credit
that can be used for acquisitions and general corporate purposes. On July 19,
1999, we replaced our $85 million revolving line of credit with a $52.5
million revolving facility. The bank credit facility is collateralized by a
mortgage on substantially all of our vessels other than those located in the
North Sea and Brazil. Amounts borrowed under the bank credit facility mature
on July 19, 2002 and bear interest at a Eurocurrency rate plus a margin that
depends on our leverage ratio. As of March 1, 2000, we had approximately $43
million of debt outstanding under the bank credit facility and the weighted
average interest rate for the bank credit facility was 9.63%. The bank credit
facility requires us to maintain certain financial ratios and limits our
ability to incur additional indebtedness, make capital expenditures, pay
dividends or make certain other distributions, create certain liens, sell
assets or enter into certain mergers or acquisitions. Due to our 1999
operating results, the financial covenants contained in the bank credit
facility have been amended twice since the facility was put
17
in place in July 1999. Although the bank credit facility does impose some
limitations on the ability of our subsidiaries to make distributions to us, it
expressly permits distributions to us by our significant subsidiaries for
scheduled principal and interest payments on the senior notes.
In June 1998, we refinanced our Norwegian bank credit facilities with a
revolving credit facility in the amount of NOK 650 million ($81.8 million).
The commitment amount for this Norwegian bank facility reduces by NOK 50
million ($6.3 million) every six months beginning December 1998, with the
balance of the commitment to expire in June 2003. In December 1999, we amended
the Norwegian bank facility to postpone the scheduled December 1999 NOK 50
million reduction of the commitment amount until June 2003. As of March 1,
2000, the commitment amount for the Norwegian bank facility was NOK 550
million ($65.6 million), and we had approximately NOK 485 million ($57.9
million) of debt outstanding under the facility. The weighted average interest
rate for the Norwegian bank facility was 6.56% as of March 1, 2000. The
Norwegian bank facility is collateralized by a security interest in certain of
our North Sea vessels, requires Trico Supply to maintain certain financial
ratios and limits the ability of Trico Supply to create liens, or merge or
consolidate with other entities. Amounts borrowed under the Norwegian bank
facility bear interest at NIBOR (Norwegian Interbank Offered Rate) plus a
margin.
As a result the reduction in industry activity and resulting decrease in day
rates and utilization rates, and the completion, during 1999, of significant
capital expenditures relating to vessel construction and upgrade projects,
capital expenditures for 2000 will be limited to regulatory-mandated vessel
dry-docking costs.
We believe that cash generated from operations, together with available
borrowings under our bank credit facility and additional borrowings permitted
under the indenture governing the senior notes, will be sufficient to fund our
currently planned capital expenditures and working capital requirements. While
we position ourselves for industry conditions to improve, we also intend to
position ourselves to pursue any acquisition opportunities that we believe may
be presented in our selected market areas. In order to improve our financial
flexibility, during 2000 we expect to take steps to raise additional equity,
subject to market conditions. We are also considering the disposition of
certain non-core assets to reduce financial leverage and increase liquidity.
However, we can give no assurances regarding the availability or terms of any
of the possible transactions under consideration, and we could be adversely
affected if we are unable to consummate such transactions or if the terms are
not favorable to us.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. We are
currently evaluating the impact SFAS No. 133 will have on our financial
statements, if any. We are also reviewing SEC Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements" and do not expect this
pronouncement to have a material effect, if any, on our consolidated financial
condition and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our market risk exposures primarily include interest rate and exchange rate
fluctuation on derivative and financial instruments as detailed below. Our
market risk sensitive instruments are classified as "other than trading". The
following sections address the significant market risks associated with our
financial activities during 1999. Trico's exposure to market risk as discussed
below includes "forward-looking statements" and represents estimates of
possible changes in fair values, future earnings or cash flows that would
occur assuming hypothetical future movements in foreign currency exchange
rates or interest rates. Our views on market risk are not necessarily
indicative of actual results that may occur and do not represent the maximum
possible gains and losses that may occur, since actual gains and losses will
differ from those estimated, based upon actual fluctuations in foreign
currency exchange rates, interest rates and the timing of transactions.
Interest Rate Sensitivity
We have entered into a number of variable and fixed rate debt obligations,
denominated in both the U.S. Dollar and the Norwegian Kroner (Norwegian debt
payable in Norwegian Kroner), as detailed in Note 7 in the Consolidated
Financial Statements appearing elsewhere in this Annual Report. These
instruments are subject to interest rate risk.
18
We manage this risk by monitoring our ratio of fixed and variable rate debt
obligations in view of changing market conditions and from time to time
altering that ratio by, for example, refinancing balances outstanding under
our variable rate bank credit facilities with fixed-rate debt or by entering
into interest rate swap agreements.
As of December 31, 1999 and 1998, we had $60.5 million (NOK 485.0 million)
and $60.0 million (NOK 455.0 million), respectively, in variable rate,
Norwegian Kroner denominated debt. We have entered into interest rate swap
agreements in order to manage our interest rate exposure on this debt. The
agreements require that we pay a fixed rate of interest on a notional amount
of principal to a counterparty. The counterparty, in turn, pays us a variable
rate of interest on the same notional amount of principal. The effect of the
swaps is to limit the interest rate exposure to a fixed percentage on the
related debt obligation.
As of December 31, 1999, the carrying value of our long-term fixed rate
debt, including accrued interest, was $319.9 million, which included our 8.5%
Senior Notes ($280.0 million), 6.08% MARAD bonds ($8.8 million), 6.11% MARAD
bonds ($18.2 million) and the Norwegian fixed rate debt ($2.6 million). As of
December 31, 1998, the carrying value of our long-term fixed rate debt,
including accrued interest, was $303.7 million. The fair value of our long-
term fixed rate debt as of December 31, 1999 and 1998 was approximately $284.9
million and $253.4 million, respectively. Fair value was determined using
discounted future cash flows based on quoted market prices, where available,
on our current incremental borrowing rates for similar types of borrowing
arrangements as of the balance sheet dates. A hypothetical 1% increase in the
applicable interest rates would decrease the fair value of our long-term fixed
rate debt as of December 31, 1999 and 1998 by approximately $15.0 million and
$9.3 million, respectively. The hypothetical fair values are based on the same
assumptions utilized in computing fair values.
As of December 31, 1999 and 1998, the carrying value of our long-term
variable rate debt, including accrued interest, was approximately $92.9
million and $111.5 million, respectively, which included the bank credit
facility and Trico Supply's facility. The fair value of this debt approximates
the carrying value because the interest rates are based on floating rates
identified by reference to market rates. Fair value was determined as noted
above. A hypothetical 1% increase in the applicable interest rates as of
December 31, 1999 and 1998 would increase annual interest expense by
approximately $915,000 and $1.1 million, respectively.
Our interest rate swap agreements had fair values, as of December 31, 1999
and 1998, of $331,000 and $179,000, respectively, based on the estimated
amounts that we would receive or pay to terminate the contracts at the
reporting dates. As of December 31, 1999 and 1998, a hypothetical 1% increase
in the pay rates would increase annual interest expense by approximately
$250,000 and $264,000, respectively. A hypothetical 1% increase in the receive
rates would decrease interest expense by corresponding amounts. In February,
2000 we sold certain of these interest rate swap agreements for approximately
$360,000.
Foreign Currency Exchange Rate Sensitivity
Our foreign subsidiaries collect revenues and pay expenses in several
different foreign currencies. We monitor the exchange rate of our foreign
currencies and, when deemed appropriate, enter into hedging transactions in
order to mitigate the risk from foreign currency fluctuations. We also manage
foreign currency risk by attempting to contract as much foreign revenue as
possible in U.S. Dollars.
We have exposure to fluctuations in foreign currency exchange rates
resulting from some of our vessels operating in the United Kingdom under
contracts denominated in the Great Britain Pound (GBP). As of December 31,
1999 and 1998, we had approximately $5.1 million and $7.1 million,
respectively, of firmly committed sales contracts through the following year
end denominated in the GBP. A hypothetical 10% increase in the applicable
exchange rate as of December 31, 1999 and 1998 would result in increases in
future cash flows of approximately $513,000 and $710,000, respectively. A 10%
decrease would result in corresponding decreases in future cash flows. As of
December 31, 1999 we had no outstanding foreign currency forward exchange
contracts, as management believed the relationship between the Norwegian
Kroner and the GBP did not present sufficient risk to warrant any hedging
transactions. We closely monitor the movement in foreign exchange rates and
will enter into foreign currency forward exchange rate contracts if we believe
our foreign currency risk significantly increases.
19
Item 8. Financial Statements and Supplementary Data
Page
----
Index to Consolidated Financial Statements
Report of Independent Accountants....................................... 21
Consolidated Balance Sheet as of December 31, 1999 and 1998............. 22
Consolidated Statement of Operations for the Years Ended December 1999,
1998 and 1997.......................................................... 23
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997....................................... 24
Consolidated Statement of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997.................................................... 25
Notes to Consolidated Financial Statements.............................. 26
20
Report of Independent Accountants
To the Board of Directors and
Stockholders of Trico Marine Services, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Trico
Marine Services, Inc. and Subsidiaries (the "Company") at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States 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.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 15, 2000
21
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999 and 1998
ASSETS 1999 1998
------ --------- --------
(Dollars in
thousands)
Current assets:
Cash and cash equivalents............................... $ 5,898 $ 8,737
Restricted cash......................................... 566 499
Accounts receivable, net................................ 24,141 30,936
Prepaid expenses and other current assets............... 3,671 2,295
Deferred income taxes................................... 1,069 616
--------- --------
Total current assets.................................. 35,345 43,083
--------- --------
Property and equipment, at cost:
Land and buildings...................................... 3,727 3,402
Marine vessels.......................................... 619,544 565,397
Construction-in-progress................................ 3,250 45,861
Transportation and other................................ 3,960 3,604
--------- --------
630, 481 618,264
Less accumulated depreciation and amortization............ 77,093 47,855
--------- --------
Net property and equipment............................ 553,388 570,409
--------- --------
Goodwill, net............................................. 101,762 116,170
Other assets.............................................. 40,084 39,228
--------- --------
$ 730,579 $768,890
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt....................... $ 7,618 $ 2,033
Accounts payable........................................ 9,467 11,058
Accrued expenses........................................ 7,935 9,894
Accrued interest........................................ 11,746 10,674
Income tax payable...................................... 57 66
--------- --------
Total current liabilities............................. 36,823 33,725
--------- --------
Long-term debt............................................ 393,510 402,518
Deferred income taxes..................................... 27,279 45,622
Other liabilities......................................... 2,859 2,785
--------- --------
Total liabilities..................................... 460,471 484,650
--------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 100,000 authorized and
no shares issued at December 31, 1999 and 1998......... -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 28,462,448 and 20,450,448 shares issued and
28,390,416 and 20,378,416 shares outstanding at
December 31, 1999 and 1998, respectively............... 285 205
Additional paid-in capital.............................. 265,031 218,807
Retained earnings....................................... 37,176 70,586
Cumulative foreign currency translation adjustment...... (32,383) (5,357)
Treasury stock, at par value, 72,032 shares at December
31, 1999 and 1998...................................... (1) (1)
--------- --------
Total stockholders' equity............................ 270,108 284,240
--------- --------
$ 730,579 $768,890
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
22
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
(Dollars in thousands, except share
and per share amounts)
Revenues:
Charter fees.......................... $ 110,643 $ 186,137 $ 125,476
Other vessel income................... 157 108 4
----------- ----------- -----------
Total revenues...................... 110,800 186,245 125,480
----------- ----------- -----------
Operating expenses:
Direct vessel operating expenses and
other................................ 67,692 72,312 42,188
General and administrative............ 10,024 10,939 5,736
Amortization of marine inspection
costs................................ 13,898 8,871 3,021
Asset write-down...................... 1,111 -- --
----------- ----------- -----------
Total operating expenses............ 92,725 92,122 50,945
Depreciation and amortization expense... 32,919 29,528 12,734
----------- ----------- -----------
Operating income (loss)................. (14,844) 64,595 61,801
Interest expense........................ (31,987) (27,696) (7,994)
Amortization of deferred financing
costs.................................. (1,632) (1,784) (372)
Gain on sales of assets................. 147 908 252
Other income, net....................... 951 1,061 594
----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item..................... (47,365) 37,084 54,281
Income tax expense (benefit)............ (15,785) 11,804 18,982
----------- ----------- -----------
Income (loss) before extraordinary item. (31,580) 25,280 35,299
Extraordinary item, net of taxes........ (1,830) -- --
----------- ----------- -----------
Net income (loss)....................... $ (33,410) $ 25,280 $ 35,299
=========== =========== ===========
Basic earnings per common share:
Income (loss) before extraordinary
item................................. $ (1.26) $ 1.24 $ 2.22
Extraordinary item, net of taxes...... (0.07) -- --
----------- ----------- -----------
Net income (loss)..................... $ (1.33) $ 1.24 $ 2.22
=========== =========== ===========
Average common shares outstanding..... 25,062,934 20,342,244 15,895,023
=========== =========== ===========
Diluted earnings per common share:
Income (loss) before extraordinary
item................................. $ (1.26) $ 1.20 $ 2.11
Extraordinary item, net of taxes...... (0.07) -- --
----------- ----------- -----------
Net income (loss)....................... $ (1.33) $ 1.20 $ 2.11
=========== =========== ===========
Average common shares outstanding....... 25,062,934 21,015,313 16,758,466
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
23
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1999, 1998 and 1997
Cumulative
Foreign
Common Stock Additional Currency Treasury Stock Total
------------------ Paid-In Retained Translation -------------- Stockholders'
Shares Dollars Capital Earnings Adjustment Shares Dollars Equity
---------- ------- ---------- -------- ----------- ------ ------- -------------
(Dollars in thousands)
Balance, January 1,
1997................... 15,601,960 $156 $ 93,818 $10,007 $ -- 72,032 $(1) $103,980
Issuance of common
stock................. 4,600,000 46 123,259 -- -- -- -- 123,305
Stock options
exercised............. 165,138 2 1,451 -- -- -- -- 1,453
Comprehensive income:
Loss on foreign
currency translation. -- -- -- -- (2,537) -- -- (2,537)
Net income............ -- -- -- 35,299 -- -- -- 35,299
---------- ---- -------- ------- -------- ------ --- --------
Comprehensive income.. 32,762
========
Balance, December 31,
1997................... 20,367,098 204 218,528 45,306 (2,537) 72,032 (1) 261,500
Stock options
exercised............. 83,350 1 279 -- -- -- -- 280
Comprehensive income:
Loss on foreign
currency translation. -- -- -- -- (2,820) -- -- (2,820)
Net income............ -- -- -- 25,280 -- -- -- 25,280
---------- ---- -------- ------- -------- ------ --- --------
Comprehensive income.. 22,460
========
Balance, December 31,
1998................... 20,450,448 205 218,807 70,586 (5,357) 72,032 (1) 284,240
Issuance of common
stock................. 8,000,000 80 46,195 -- -- -- -- 46,275
Stock options
exercised............. 12,000 -- 29 -- -- -- -- 29
Comprehensive income:
Loss on foreign
currency translation. -- -- -- -- (27,026) -- -- (27,026)
Net loss.............. -- -- -- (33,410) -- -- -- (33,410)
---------- ---- -------- ------- -------- ------ --- --------
Comprehensive loss.... (60,436)
========
Balance, December 31,
1999................... 28,462,448 $285 $265,031 $37,176 $(32,383) 72,032 $(1) $270,108
========== ==== ======== ======= ======== ====== === ========
The accompanying notes are an integral part of these consolidated financial
statements.
24
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
Net income (loss)............................ $(33,410) $ 25,280 $ 35,299
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 48,646 40,139 16,141
Deferred income taxes....................... (16,242) 13,204 11,689
Extraordinary item, net of taxes............ 1,830 -- --
Asset write-down............................ 1,111 -- --
Gain on sales of assets..................... (147) (908) (252)
Provision for doubtful accounts............. (271) 120 (310)
Equity in loss of affiliate................. -- 317 160
Change in operating assets and liabilities:
Restricted cash............................ (67) 64 (563)
Accounts receivable........................ 6,262 3,947 (9,076)
Prepaid expenses and other current assets.. (1,572) 1,212 624
Accounts payable and accrued expenses...... (1,943) 3,550 14,207
Other, net................................. (1,486) (1,924) (1,158)
--------- --------- ---------
Net cash provided by operating
activities.............................. 2,711 85,001 66,761
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment......... (32,768) (101,430) (141,986)
Deferred marine inspection costs............ (16,380) (24,245) (9,950)
Proceeds from sales of assets............... 348 6,874 1,152
Investment in unconsolidated affiliate...... -- (213) (670)
Acquisition of business, net of cash
acquired................................... -- (134) (270,551)
Other....................................... (542) (1,238) 987
--------- --------- ---------
Net cash used in investing activities.... (49,342) (120,386) (421,018)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock.. 46,285 280 123,732
Proceeds from issuance of Senior Notes...... -- -- 280,603
Proceeds from issuance of long-term debt.... 91,852 158,239 223,907
Repayment of long-term debt................. (92,081) (123,332) (254,000)
Deferred financing costs and other.......... (1,952) (1,078) (10,331)
--------- --------- ---------
Net cash provided by financing
activities.............................. 44,104 34,109 363,911
--------- --------- ---------
Effect of exchange rate changes on cash and
cash equivalents............................ (312) (364) (324)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................. (2,839) (1,640) 9,330
Cash and cash equivalents at beginning of
period...................................... 8,737 10,377 1,047
--------- --------- ---------
Cash and cash equivalents at end of period... $ 5,898 $ 8,737 $ 10,377
========= ========= =========
Supplemental cash flow information:
Income taxes paid........................... $ 19 $ 3,871 $ 2,563
========= ========= =========
Income taxes refunded....................... $ -- $ 329 $ --
========= ========= =========
Interest paid............................... $ 32,036 $ 27,561 $ 2,969
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
25
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company
Trico Marine Services, Inc. (the "Company") is a leading provider of marine
support vessels and related services to the oil and gas industry in the U.S.
Gulf of Mexico (the "Gulf"), the North Sea and Latin America. At December 31,
1999, the Company had a total fleet of 100 vessels, including 54 supply
vessels, 11 large capacity platform supply vessels ("PSV"), seven large anchor
handling, towing and supply vessels ("AHTS"), 13 crew boats, six lift boats
and nine line-handling vessels. The services provided by the Company's
diversified fleet include transportation of drilling materials, supplies and
crews to drilling rigs and other offshore facilities, towing drilling rigs and
equipment from one location to another and support for the construction,
installation, maintenance and removal of offshore facilities.
The Company's financial position, results of operations and cash flows are
affected primarily by day rates and fleet utilization in the Gulf and the
North Sea which primarily depend on the level of drilling activity, which
ultimately is dependent upon both short-term and long-term trends in oil and
natural gas prices.
2. Summary of Significant Accounting Policies
Consolidation Policy
The consolidated financial statements include the Company and its
subsidiaries, including wholly-owned Trico Marine Assets, Inc. ("Trico
Assets"), Trico Marine Operators, Inc. ("Trico Operators"), Trico Supply, ASA
("Trico Supply") formerly Saevik Supply, ASA, which was acquired December 1,
1997, and Trico Servicos Maritimos, Ltda. ("TSM") which became wholly-owned
effective July 1, 1998. Prior to July 1, 1998 the Company's 40% investment in
TSM was accounted for using the equity method. (See Note 3). All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
All highly liquid debt instruments with original maturity dates of three
months or less are considered to be cash equivalents.
Restricted Cash
Restricted cash relates to statutory requirements in Norway which require
Trico Supply to segregate cash that will be used to pay tax withholdings and
pension obligations in the following year.
Property and Equipment
All property and equipment is stated at cost. Depreciation for financial
statement purposes is provided on the straight-line method, assuming a 10%
salvage value for marine vessels. Marine vessels are depreciated over a useful
life of fifteen to twenty-five years from the date of acquisition. Major
modifications which extend the useful life of marine vessels are capitalized
and amortized over the adjusted remaining useful life of the vessel. Buildings
and improvements are depreciated over a useful life of fifteen to forty years.
Transportation and other equipment are depreciated over a useful life of five
to ten years. When assets are retired or disposed, the cost and accumulated
depreciation thereon are removed, and any resultant gains or losses are
recognized in current operations.
Depreciation expense amounted to approximately $29,920,000, $26,286,000 and
$12,378,000 in 1999, 1998 and 1997, respectively.
Interest is capitalized in connection with the construction of vessels. The
capitalized interest is recorded as part of the asset to which it relates and
is amortized over the asset's estimated useful life. In 1999, 1998 and 1997,
$1,206,000, $3,271,000 and $421,000 of interest was capitalized, respectively.
26
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Marine vessel spare parts are stated at average cost.
Drydocking expenditures incurred in connection with marine inspections are
capitalized and amortized on a straight-line basis over the period to be
benefited (generally 24 to 60 months).
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets, including
goodwill, in accordance with Statement of Financial Accounting ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." SFAS No. 121 requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the book value of the asset may not be recoverable. The Company evaluates
at each balance sheet date whether events and circumstances have occurred that
indicate possible impairment. In accordance with SFAS No. 121, the Company
uses an estimate of the future undiscounted net cash flows of the related
asset or asset grouping over the remaining life in measuring whether the
assets are recoverable.
Deferred Financing Costs
Deferred financing costs include costs associated with the issuance of the
Company's debt and are amortized on a straight-line basis over the life of the
related debt agreement.
Goodwill
Goodwill, or cost in excess of fair value of the net assets of companies
acquired, is amortized on a straight-line basis over 8 to 37.5 years.
Accumulated amortization amounted to approximately $5,979,000 and $3,642,000
at December 31, 1999 and 1998, respectively.
Income Taxes
Deferred income taxes are provided at the currently enacted income tax rates
for the difference between the financial statement and income tax bases of
assets and liabilities and carryforward items.
Revenue and Expense Recognition
Charter revenue is earned and recognized on a daily rate basis. Operating
costs are expensed as incurred.
Direct Vessel Operating Expenses
Direct vessel operating expenses principally include crew costs, insurance,
repairs and maintenance, management fees and casualty losses.
Foreign Currency Translation
All assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at the exchange rate in effect at the end of the
period, and revenue and expenses are translated at weighted average exchange
rates prevailing during the period. The resulting translation adjustments are
reflected within the stockholders' equity component, cumulative foreign
currency translation adjustment.
Stock Compensation
The Company uses the intrinsic value method of accounting for stock-based
compensation prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and,
27
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accordingly, adopted only the disclosure provisions of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-based Compensation" ("SFAS
No. 123").
Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the
Company.
Authorized Shares and Stock Splits
On May 22, 1997, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of shares of
common stock which the Company is authorized to issue from 15 million to 40
million (the "Amendment"). A two-for-one split of the Company's common stock
in the form of a 100% stock dividend that was previously declared by the
Company's Board of Directors, subject to approval of the Amendment by the
Company's stockholders, was paid on June 9, 1997.
Comprehensive Income
Comprehensive income represents the change in equity of the Company during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
Comprehensive income is reflected in the consolidated statement of changes in
stockholders' equity.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and is, as
amended, effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company is currently evaluating the impact SFAS No. 133
will have on its financial statements, if any.
The Company is reviewing SEC Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements" and does not expect the effect
of the pronouncement on its consolidated financial condition and results of
operations to be material.
Reclassifications
Certain prior-period amounts have been reclassified to conform with the
presentation shown in the current year's financial statements. These
reclassifications had no effect on net income or total stockholders' equity.
28
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Acquisitions
Trico Supply Acquisition
On December 1, 1997, the Company acquired approximately 99% of the
outstanding shares of Saevik Supply ASA, a then publicly traded Norwegian
company, for approximately $293,654,000, including transaction costs. The
Company subsequently renamed Saevik Supply, ASA to Trico Supply, ASA ("Trico
Supply"). Subsequent to December 31, 1997, the Company acquired the remaining
outstanding shares of Trico Supply. Trico Supply provides marine support and
transportation services to companies engaged in offshore exploration and the
production of oil and gas in the North Sea.
The acquisition has been accounted for by the purchase method, and Trico
Supply's results are included in the accompanying consolidated financial
statements from the date of acquisition. Goodwill of $118,310,000 was recorded
in conjunction with the purchase of Trico Supply. The goodwill is being
amortized over 37.5 years.
The effect of the acquisition of Trico Supply at the date of purchase on the
consolidated financial statements was as follows for the year ended December
31, 1997 (in thousands):
Current assets, excluding cash acquired......................... $ 11,989
Property and equipment, net..................................... 261,681
Goodwill........................................................ 118,310
Other assets.................................................... 1,048
Current liabilities............................................. (5,147)
Long-term debt.................................................. (102,447)
Other liabilities............................................... (14,883)
--------
Cash used for acquisition, net of cash acquired................. $270,551
========
The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and Trico Supply as though the acquisition had taken
place at the beginning of 1997. Appropriate adjustments have been made to
reflect the accounting basis used in recording the acquisition. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations that would have resulted
had the combination been in effect on the dates indicated, that have resulted
since the date of acquisition or that may result in the future (in thousands
except share and per share amounts).
Year Ended
December 31,
1997
------------
(unaudited)
Revenues..................................................... $194,973
========
Income before extraordinary item............................. $ 47,731
========
Net income................................................... $ 47,731
========
Basic earnings per common share:
Income before extraordinary item........................... $ 2.36
========
Net income................................................. $ 2.36
========
Diluted earnings per common share:
Income before extraordinary item........................... $ 2.26
========
Net income................................................. $ 2.26
========
29
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
TSM Acquisition
Prior to July 1, 1998, the Company had a 40% interest in TSM, a marine
operating company located in Brazil which was accounted for using the equity
method. On July 1, 1998, the Company acquired the remaining 60% of the
outstanding shares of TSM. The acquisition has been accounted for by the
purchase method and TSM's results are included in the accompanying
consolidated financial statements from July 1, 1998. Total goodwill of
$1,375,000, which is being amortized over eight years, was recorded in
conjunction with the acquisition of TSM.
4. Offerings of Common Stock
In December 1997, the Company completed an offering that included the
issuance of 4,600,000 shares of $.01 par value common stock. The proceeds from
the offering were $123,305,000, net of underwriting discounts and other costs
of $5,495,000. The net proceeds were used to repay a portion of the
indebtedness incurred to fund the acquisition of Trico Supply (see Note 3) and
certain related expenses.
In April 1999, the Company entered into a purchase agreement (the "Purchase
Agreement") with affiliates of Inverness Management LLC, a privately held
investment firm, for the purchase of $50,000,000 of common stock of the
Company in a private placement. Under the Purchase Agreement,
Inverness/Phoenix Partners LP and Executive Capital Partners I LP (the
"Investors"), agreed to purchase in two tranches 8,000,000 shares of the
Company's common stock at $6.25 per share. On May 6, 1999 the Company closed
the first tranche and sold to the Investors 4,000,000 shares of common stock
for an aggregate consideration of $25 million. On June 28, 1999, the Company
closed the second tranche and sold to the Investors 4,000,000 shares of common
stock for an aggregate consideration of $25,000,000. In addition to certain
other issuance costs, pursuant to the terms of the Purchase Agreement, the
Company paid an aggregate of $2 million in transaction fees ($1 million upon
completion of each tranche) to the Investors in connection with the placement.
The net proceeds from both tranches were primarily used to pay down amounts
outstanding under the Company's bank credit facility.
5. Accounts Receivable:
The Company's accounts receivable, net consists of the following at December
31, 1999 and 1998 (in thousands):
1999 1998
------- -------
Trade receivables, net of allowance for doubtful accounts
of $420 and $691 in 1999 and 1998, respectively......... $20,443 $26,077
Insurance and other...................................... 3,698 4,859
------- -------
Accounts receivable, net............................... $24,141 $30,936
======= =======
The Company's receivables are primarily due from entities operating in the
oil and gas industry in the Gulf of Mexico, the North Sea and Latin America.
6. Other Assets:
The Company's other assets consist of the following at December 31, 1999 and
1998 (in thousands):
1999 1998
------- -------
Deferred marine inspection costs, net of accumulated
amortization of $25,343 and $11,813 in 1999 and 1998,
respectively............................................ $27,660 $25,232
Deferred financing costs, net of accumulated amortization
of $2,587 and $2,287 in 1999 and 1998, respectively..... 7,359 9,926
Marine vessels spare parts............................... 3,468 2,551
Other.................................................... 1,597 1,519
------- -------
Other assets........................................... $40,084 $39,228
======= =======
30
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Long-Term Debt:
The Company's long-term debt consists of the following at December 31, 1999
and 1998 (in thousands):
1999 1998
-------- --------
Revolving loan, bearing interest at a Eurocurrency rate plus
a margin, as defined on the date of borrowing (weighted
average interest rate of 9.40% and 6.90% at December 31,
1999 and 1998, respectively) interest payable at the end of
the interest period or quarterly, principal due 2002,
collateralized by certain marine vessels and related
assets..................................................... $ 31,000 $ 51,000
Revolving loan, bearing interest at NIBOR (Norwegian
Interbank Offered Rate) plus a margin (weighted average
interest rate of 6.56% and 9.68% at December 31, 1999 and
1998, respectively) principal and interest due in 6
semiannual installments beginning December 31, 2000 of NOK
50 million ($6.2 million) and one balloon payment of NOK
200 million ($25.0 million), maturing June 2003,
collateralized by certain marine vessels................... 60,547 60,029
Senior Notes, interest at 8.5%, due 2005.................... 280,000 280,000
Notes payable, bearing interest at 6.08%, principal and
interest due in 16 semiannual installments, maturing
September 2006, collateralized by a marine vessel.......... 8,750 10,000
Note payable, bearing interest at 6.49%, principal and
interest due in 17 semiannual installments, maturing March
2003, collateralized by a marine vessel.................... 2,593 3,522
Note payable, bearing interest at 6.11%, principal and
interest due in 30 semiannual installments, maturing April
2014, collateralized by two marine vessels................. 18,238 --
-------- --------
401,128 404,551
Less current maturities..................................... 7,618 2,033
-------- --------
$393,510 $402,518
======== ========
Annual maturities on long-term debt during the next five years are as
follows:
2000............................................................. $ 7,618
2001............................................................. 15,733
2002............................................................. 46,733
2003............................................................. 34,088
2004............................................................. 2,508
Thereafter....................................................... 294,448
--------
$401,128
========
In connection with the acquisition of Trico Supply, on December 1, 1997, the
Company amended and restated its then existing bank credit facility to provide
for a $150,000,000 revolving line of credit and $200,000,000 in term loans
(the "Amended and Restated Facility"). The Amended and Restated Facility was
to mature December 1, 2002 and bore interest at a Eurocurrency rate plus a
margin that depended on the Company's leverage ratio with a commitment fee on
the undrawn portion. The Amended and Restated Facility was collateralized, to
the extent permitted by the indentures that govern the Senior Notes (as
defined herein), by a security interest in substantially all of the assets of
the Company's subsidiaries and a pledge of the stock of certain of the
Company's subsidiaries. The Amended and Restated Facility contained certain
covenants which required the Company to maintain certain debt coverage ratios
and minimum net worth and which restricted the Company's ability to incur
additional indebtedness, pay dividends or make certain other distributions.
During 1998, the Amended and Restated Facility was amended to reduce
permitted borrowings to $85,000,000, increasing to $100,000,000 after June 30,
1999, depending upon the Company's leverage ratio, and to reduce the
collateral requirements to certain U.S. flag vessels and related assets.
31
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Effective July 1999, the Company executed a new $52,500,000 revolving credit
agreement (the "Bank Credit Facility"). The Bank Credit Facility bears
interest at a Eurocurrency rate plus a margin that depends on the Company's
leverage ratio with a commitment fee on the undrawn portion that depends on
the Company's leverage ratio. The Bank Credit Facility does not require any
principal payments until July 19, 2002, when all amounts outstanding under the
Bank Credit Facility will mature. The Bank Credit Facility is collateralized
by substantially all of the Company's U.S. flagged vessels located in the Gulf
of Mexico. The Bank Credit Facility contains certain covenants which require
the Company to maintain certain debt coverage and leverage ratios and net
worth levels, limit capital expenditures, prohibit equity distributions and,
limit the ability of the Company to create liens or merge or consolidate with
other entities.
The proceeds from the Bank Credit Facility were used to prepay the Amended
and Restated Facility. As a result of the prepayment of all amounts
outstanding under the Company's Amended and Restated Facility, the Company
recorded an extraordinary charge of $1,830,000, net of taxes of $985,000, for
the write-off of the unamortized balance of related deferred debt issuance
costs.
During 1997, the Company issued three Series of 8 1/2% Senior Notes due
2005, Series A/B Notes--$110,000,000, Series C/D Notes--$100,000,000 and
Series E/F Notes--$70,000,000. In November 1998, the Company combined the A/B,
C/D and E/F Series Notes, into one series known as the Series G Notes (the
"Senior Notes"). The terms and conditions of the Senior Notes are identical to
the predecessor series of notes. The Senior Notes are uncollateralized and are
required to be guaranteed by all of the Company's Significant Subsidiaries (as
such term is defined in the Indentures that govern the Senior Notes). Interest
on the Senior Notes is payable semi-annually on February 1 and August 1 of
each year. Except in certain circumstances, the Senior Notes may not be
prepaid until August 1, 2001, at which time they may be redeemed, at the
option of the Company, in whole or in part, at a redemption price equal to
104.25%, plus accrued and unpaid interest, with the redemption price declining
ratably on August 1 of each of the succeeding three years. No sinking fund
payments are required on the Senior Notes until their final maturity. The
Senior Notes contain certain covenants that, among other things, limit the
ability of the Company to incur additional indebtedness, pay dividends or make
other distributions, create certain liens, sell assets, or enter into certain
mergers or acquisitions.
In April 1998, the Company issued $10,000,000 principal amount of eight year
United States Government Guaranteed Ship Financing Bonds, SWATH Series I, at
an interest rate of 6.08% (the "Bonds"). The Bonds are due in 16 semi-annual
installments of principal and interest. The Bonds are collateralized by a
first preferred ship mortgage on the Stillwater River, a small waterplane area
twin hull ("SWATH") vessel, and by an assignment of the charter contract that
the vessel commenced upon its completion. The proceeds from the Bonds were
released to the Company upon completion and delivery of the vessel in November
1998.
In June 1998, the Company refinanced a significant portion of its debt,
which was held at the Trico Supply level, into a single NOK 650,000,000
($81,146,000) revolving credit facility (the " Trico Supply Bank Facility")
bearing interest at NIBOR plus a margin, which originally reduced in ten
semiannual installments of NOK 50,000,000 ($6,242,000) and one balloon payment
of NOK 150,000,000 ($18,726,000), due at maturity in June 2003. In 1999, the
Trico Supply Bank Facility was amended to defer a NOK 50,000,000 ($6,242,000)
reduction in the facility amount that was scheduled to occur in December 31,
1999, until June 2003. Therefore, the total balloon payment due at maturity is
NOK 200,000,000 ($24,968,000). The Trico Supply Bank Facility is
collateralized by a security interest in certain of the Company's North Sea
vessels and requires Trico Supply to maintain certain financial ratios and
limits the ability of Trico Supply to create liens or merge or consolidate
with other entities.
In April 1999, the Company issued $18,867,000 principal amount of 15 year
United States Government Guaranteed Ship Financing Bonds (the "Ship Bonds") at
an interest rate of 6.11% per annum. The Ship Bonds are due in 30 semi-annual
installments of principal and interest. The Ship Bonds are secured by first
preferred ship mortgages on two supply boats, the Spirit River and the Hondo
River.
32
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Financial Instruments
During 1998, the Company entered into several foreign currency forward
exchange contracts to hedge certain exposures relating to currency
fluctuations between the Norwegian Kroner and the Great Britain Pound
resulting from several of the Trico Supply vessels operating in the United
Kingdom under long-term contracts denominated in the Great Britain Pound.
Gains and losses on foreign currency forward exchange contracts are deferred
until the hedged transaction is completed. As of December 31, 1998, the
Company had foreign currency forward exchange contracts outstanding of
approximately $9,272,000. These foreign currency forward exchange contracts
expired at various points through December 31, 1999. Losses of $102,000 were
recognized on completed foreign currency forward exchange contracts during
1998, and deferred gains of approximately $54,000 were included in the
consolidated balance sheet at December 31, 1998 as accrued expenses. The
foreign currency forward exchange contracts had a fair value of $139,000 at
December 31, 1998. As of December 31, 1999, there were no foreign currency
forward exchange contracts outstanding, and approximately $59,000 of gains
were recognized on completed contracts during the year.
As of December 31, 1999 and 1998, the Company had interest swap agreements
expiring in June 2003, with a total aggregate notional amount of NOK
200,000,000 ($24,968,000). The agreements require the Company to pay a fixed
rate of interest on the notional amount, and the Company, in turn, receives a
variable rate of interest on the same notional amount. The effect of the swap
agreements is to limit the interest rate exposure to 5.7% on NOK 200,000,000
($24,968,000) of the Trico Supply Bank Facility. Amounts to be paid or
received under the swap agreements are accrued as interest rate changes and
are recognized over the life of the agreements as an adjustment to interest
expense. As a result of these swap agreements, interest expense was decreased
by approximately NOK 1,625,000 ($208,000) in 1999 and increased by NOK
1,500,000 ($198,000) in 1998. The estimated fair value of the interest rate
swap agreements as of December 31, 1999 and 1998 was NOK 2,652,000 ($331,000)
and NOK 1,360,000 ($179,000), respectively. Subsequent to December 31, 1999,
the Company sold certain of the interest swap agreements for approximately
$360,000.
9. Income Taxes
Earnings (loss) before income taxes and extraordinary item derived from U.S.
and international operations for the years ended December 31 are as follows
(in thousands):
1999 1998 1997
-------- ------- -------
United States.................................. $(57,502) $(5,382) $50,780
International.................................. 10,137 42,466 3,501
-------- ------- -------
$(47,365) $37,084 $54,281
======== ======= =======
The components of income tax expense (benefit) from continuing operations of
the Company for the periods ended December 31, 1999, 1998 and 1997, are as
follows (in thousands):
1999 1998 1997
-------- ------- -------
Current income taxes:
U.S. federal income taxes................... $ 591 $ (720) $ 6,486
State income taxes.......................... 53 41 62
Foreign taxes............................... -- -- 66
Deferred income taxes:
U.S. federal income taxes................... (19,533) 753 11,096
State income taxes.......................... (101) 59 328
Foreign taxes............................... 3,205 11,671 944
-------- ------- -------
$(15,785) $11,804 $18,982
======== ======= =======
33
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999 and 1998, the Company has not recognized a deferred
tax liability of approximately $1,224,000 and $2,642,000, respectively, for
the undistributed earnings of a non-U.S. subsidiary because the Company
currently does not expect those unremitted earnings to be distributed and
become taxable to the Company in the foreseeable future. A deferred tax
liability will be recognized when the Company expects that it will realize
those undistributed earnings in a taxable manner, such as through receipt of
dividends or sale of investments. As of December 31, 1999, the undistributed
earnings of this subsidiary were approximately $17,481,000.
The Company's deferred income taxes at December 31, 1999 and 1998 represent
the tax effect of the following temporary differences between the financial
reporting and income tax accounting bases of its assets and liabilities (in
thousands):
Deferred Tax
Deferred Tax Assets Liabilities
------------------- -------------------
Current Non-Current Current Non-Current
------- ----------- ------- -----------
1999
Depreciation and amortization....... $ -- $ 8,224 $ -- $71,564
Deferral of foreign earnings........ -- -- -- 25,218
Insurance reserves.................. 767 -- -- --
Alternative minimum tax credits..... -- 5,142 -- --
Foreign tax credits................. -- 779 -- --
Net operating loss carryforward..... -- 55,411 -- --
Other............................... 610 -- 308 53
------ ------- ---- -------
$1,377 $69,556 $308 $96,835
====== ======= ==== =======
Current deferred tax assets, net.... $ 1,069
=======
Non-current deferred tax
liabilities, net................... $27,279
=======
1998
Depreciation and amortization....... $ -- $ 4,099 $ -- $55,629
Deferral of foreign earnings........ -- -- -- 23,372
Insurance reserves.................. 594 -- -- --
Alternative minimum tax credits..... -- 5,142 -- --
Foreign tax credits................. -- 2,443 -- --
Net operating loss carryforward..... -- 21,735 -- --
Other............................... 484 13 462 53
------ ------- ---- -------
$1,078 $33,432 $462 $79,054
====== ======= ==== =======
Current deferred tax assets, net.... $ 616
=======
Non-current deferred tax
liabilities, net................... $45,622
=======
The provisions (benefits) for income taxes as reported are different from
the provisions (benefits) computed by applying the statutory federal income
tax rate. The differences are reconciled as follow (in thousands):
1999 1998 1997
-------- ------- -------
Federal income taxes at statutory rate........... $(16,578) $12,980 $18,998
State income taxes net of federal benefit........ (37) 108 386
Foreign tax rate differential.................... (783) (2,397) (245)
Goodwill......................................... 1,049 1,135 124
Other............................................ 564 (22) (281)
-------- ------- -------
Income tax expense (benefit)..................... $(15,785) $11,804 $18,982
======== ======= =======
Effective tax rate............................... 33% 32% 35%
======== ======= =======
34
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A tax benefit for the exercise of stock options in the amount of $19,000 and
$279,000 that was not included in income for financial reporting purposes was
credited directly to additional paid-in capital as of December 31, 1999 and
1998, respectively.
The net operating loss carryforwards for federal and state tax purposes are
approximately $159,000,000 at December 31, 1999 and expire in 2019.
Alternative minimum tax credits at December 31, 1999 are approximately
$5,142,000. The Company completed an initial public offering in May 1996,
which is considered a change of control for federal income tax purposes. This
will limit the utilization of approximately $14,500,000 of net operating loss
carryforwards to a set level as provided by regulations.
10. Preferred Stock
In February 1998, the Company's Board of Directors approved the adoption of
a Stockholder Rights Plan (the "Plan"). In connection with the Plan, the Board
of Directors approved the authorization of 100,000 shares of $0.01 par value
preferred stock, designated the Series AA Participating Cumulative Preference
Stock. Under the Plan, Preference Stock Purchase Rights (the "Rights") were
distributed as a dividend at a rate of one Right for each share of the
Company's common stock held as of record as of the close of business on March
6, 1998. Each Right entitles holders of the Company's common stock to buy a
fraction of a share of the new series of the Company's preferred stock at an
exercise price of $105. The Rights will become exercisable and detach from the
common stock, only if a person or group, with certain exceptions, acquires 15%
or more of the outstanding common stock, or announces a tender or exchange
offer that, if consummated, would result in a person or group beneficially
owning 15% or more of outstanding common stock. Once exercisable, each Right
will entitle the holder (other than the acquiring person) to acquire common
stock with a value of twice the exercise price of the Rights. The Company will
generally be able to redeem the Rights at $0.01 per Right at any time until
the close of business on the tenth day after the Rights become exercisable.
11. Common Stock Option Plans
The Company sponsors two stock-based incentive compensation plans, the "1993
Stock Option Plan" (the "1993 Plan") and the "1996 Stock Incentive Plan" (the
"1996 Plan").
Under the 1993 Plan, the Company is authorized to issue shares of common
stock pursuant to "Awards" granted in the form of incentive stock options
(qualified under Section 422 of the Internal Revenue Code of 1986, as amended)
and non-qualified stock options. Awards may be granted to key employees of the
Company. The Compensation Committee administers the Plan and has broad
discretion in selecting Plan participants and determining the vesting period
and other terms applicable to Awards granted under the Plan.
According to the 1993 Plan, Awards may be granted with respect to a maximum
of 1,455,018 shares of common stock. Awards have been granted with respect to
all 1,455,018 shares. All of these Awards have a ten-year term and are fully
exercisable. As of December 31, 1999, there were 1,031,480 stock options
outstanding under the 1993 Plan.
Under the 1996 Plan, the Company is authorized to issue shares of common
stock pursuant to "Awards" granted in the form of incentive stock options
(qualified under Section 422 of the Internal Revenue Code of 1986, as
amended), non-qualified stock options, restricted stock, stock awards, or any
combination of these forms of Awards. Awards may be granted to key employees
of the Company, including directors who are also considered employees of the
Company for purposes of the Plan. The Compensation Committee administers the
Plan and has broad discretion in selecting Plan participants and determining
the vesting period and other terms applicable to Awards granted under the
Plan.
According to the 1996 Plan, Awards may be granted with respect to a maximum
of 900,000 shares of common stock. No participant may be granted, in any
calendar year, Awards with respect to more than 100,000 shares of common
stock.
35
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1997, the Company granted 191,000 Awards in the form of non-qualified
stock options under the 1996 Plan at exercise prices equal to the fair value
of the Company's stock at that time which ranged from $20.13 to $23.13 per
share. The Awards have a ten-year term and vest in annual increments of 25%
over the four years following their grant, except for 18,000 awards granted to
directors which vested at the date of grant.
During 1998, the Company granted 218,500 Awards in the form of non-qualified
stock options under the 1996 Plan at exercise prices equal to the fair value
of the Company's stock at that time which ranged from $6.63 to $19.50. The
Awards expire in ten years and vest in annual increments of 25% over the four
years following their grant, except for 8,000 awards granted to directors
which vested at the date of grant.
During 1999, the Company granted 227,000 Awards in the form of non-qualified
stock options under the 1996 Plan at exercise prices equal to the fair value
of the Company's stock at that time which ranged from $4.50 to $7.63. The
Awards expire in ten years and vest in annual increments of 25% over the four
years following their grant, except for 28,000 awards granted to directors
which vested at the date of grant.
As of December 31, 1999, there were 778,000 options outstanding under the
1996 Plan.
A summary of the status of the Company's stock options as of December 31,
1999, 1998 and 1997 and the changes during the years ended on those dates are
presented below:
1999 1998 1997
------------------- ------------------- -------------------
Number of Weighted Number of Weighted Number of Weighted
Shares Average Shares Average Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Prices Options Prices Options Prices
---------- -------- ---------- -------- ---------- --------
Outstanding at beginning
of the year............ 1,605,855 $ 5.96 1,485,330 $ 4.30 1,468,968 $ 2.01
Granted................. 227,000 4.86 218,500 16.54 191,000 20.90
Exercised............... 12,000 0.91 83,350 1.59 165,138 2.59
Forfeited............... 6,125 20.20 14,625 20.03 9,500 13.01
Expired................. 5,250 19.82 -- -- -- --
Outstanding at end of
year................... 1,809,480 5.77 1,605,855 5.96 1,485,330 4.30
Exercisable at end of
year................... 1,381,105 3.95 1,279,230 2.89 1,314,330 2.15
Weighted average fair value of options granted during 1999, 1998 and 1997
were $2.70, $7.03 and $9.30, respectively.
The fair value of each stock option granted is estimated on the date of
grant using the minimum value method of option pricing with the following
weighted-average assumptions for grants in 1999, 1998 and 1997, respectively:
no dividend yield; risk-free interest rates are 5.36% , 5.42% and 6.40%;
expected terms of the options are five to six years; and the expected
volatility is 58.96%, 38.54% and 39.35%.
The following table summarizes information about stock options outstanding
at December 31, 1999:
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contract Exercise Exercisable Exercise
Exercise Prices at 12/31/99 Life Price at 12/31/99 Price
--------------- ----------- --------- -------- ----------- --------
$ 0.91 to $10.94 1,452,980 7.13 $ 2.45 1,235,230 $ 2.06
$10.95 to $23.13 356,500 7.79 19.30 145,875 19.94
---------------- --------- ---- ------ --------- ------
$ 0.91 to $23.13 1,809,480 7.26 $ 5.77 1,381,105 $ 3.95
36
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS No. 123, the Company's net income (loss)
and net income (loss) per common share for 1999, 1998 and 1997 would
approximate the pro forma below:
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
12/31/99 12/31/99 12/31/98 12/31/98 12/31/97 12/31/97
----------- --------- ----------- --------- ----------- ---------
SFAS 123 Charge......... $ -- $ 877 $ -- $ 743 $ -- $ 711
APB 25 Charge........... $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss)....... $(33,410) $(34,287) $25,280 $24,537 $35,299 $34,588
Diluted net income
(loss) per average
common share........... $ (1.33) $ (1.37) $ 1.20 $ 1.17 $ 2.11 $ 2.06
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
12. Asset Write-Down
In June 1997, the Company acquired 12 supply vessels for the U.S. Gulf of
Mexico market area. The acquisition was accounted for using the purchase
method, and the entire purchase price was allocated to the value of the
vessels. One of the vessels acquired as part of this larger acquisition was
deemed by Company management to be in a condition incapable of operation at
the time of acquisition and has never been activated. Due to the substantially
lower day rates available for its vessels, in general, and the overall
condition and age of this vessel, the Company determined that it would not be
economically feasible to refurbish and activate this vessel. Accordingly,
during the second quarter of 1999, the Company adjusted the net book value of
the vessel to an estimated value of $100,000, resulting in a non-cash asset
write-down of $1,111,000. The estimated value was determined using discounted
cash flows anticipated in connection with scrapping the vessel. Operating
losses, including depreciation, generated by the vessel during the years ended
December 31, 1999 and 1998 were $55,000, and $85,000, respectively.
13. Earnings Per Share
Following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations (in thousands except share
and per share data).
For the Year Ended December 31, For the Year Ended December 31, For the Year Ended December 31,
1999 1998 1997
----------------------------------- ----------------------------------- -----------------------------------
Loss Shares Per Share Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- --------- ----------- ------------- ---------
Income (loss)
before
extraordinary
item........... $(31,580) -- $25,280 -- $35,299 --
-------- ---------- ------- ---------- ------- ----------
Basic EPS
Income (loss)
available to
common
shareholders... (31,580) 25,062,934 $(1.26) 25,280 20,342,244 $1.24 35,299 15,895,023 $2.22
====== ===== =====
Effect of
Dilutive
Securities
Stock option
grants......... -- -- -- 673,069 -- 863,443 --
-------- ---------- ------- ---------- ------- ----------
Diluted EPS
Income (loss)
available to
common
shareholders
plus assumed
conversions.... $(31,580) 25,062,934 $(1.26) $25,280 21,015,313 $1.20 $35,299 16,758,466 $2.11
======== ========== ====== ======= ========== ===== ======= ========== =====
Options to purchase 1,809,480 and 562,375 shares of common stock at prices
ranging from $0.91 to $23.13 were outstanding during 1999 and 1998,
respectively, but were not always included in the computation of diluted
37
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
earnings per share because the options' exercise prices were greater than the
average market price of common shares at certain points during the year. The
options were still outstanding at the end of 1999 and 1998, respectively.
14. Employee Benefit Plans
Profit Sharing Plan
The Company has a defined contribution profit sharing plan under Section
401(k) of the Internal Revenue Code (the "Plan") that covers substantially all
U.S. employees meeting certain eligibility requirements. Employees may
contribute up to 15% (subject to certain ERISA limitations) of their eligible
compensation on a pre-tax basis. The Company will match 25% of the
participants' before tax savings contributions up to 5% of the participants'
taxable wages or salary. The Company may also make a matching contribution to
the Plan at its discretion. The Company expensed contributions to the Plan for
the years ended December 31, 1999, 1998 and 1997 of $229,000, $255,000 and
$129,000, respectively.
Pension Plan and Employee Benefits
Substantially all of the Company's Norwegian and United Kingdom employees
are covered by a number of noncontributory, defined benefit pension plans
which were acquired in association with the acquisition of Trico Supply.
Benefits are based primarily on participants' compensation and years of
credited services. The Company's policy is to fund contributions to the plans
based upon actuarial computations. Plan assets include investments in debt and
equity securities and property.
1999 1998
------ ------
(in
thousands)
Change in Benefit Obligation
Benefit obligation at beginning of year...................... $1,355 $1,081
Service cost................................................. 296 249
Interest cost................................................ 76 56
Translation adjustment and other............................. (113) (31)
------ ------
Benefit obligation at end of year.......................... $1,614 $1,355
====== ======
Change in Plan Assets
Fair value plan assets at beginning of year.................. $1,161 $1,231
Actual return on plan assets................................. 80 54
Contributions................................................ 359 --
Benefits paid................................................ (7) (90)
Translation adjustment and other............................. (74) (34)
------ ------
Fair value of plan assets at end of year................... $1,519 $1,161
====== ======
Funded status, (underfunded) overfunded...................... $ (95) $ (194)
Unrecognized net actuarial gain (loss)....................... (13) (31)
------ ------
Prepaid (accrued) benefit cost............................. $ (108) $ (225)
====== ======
Weighted-Average Assumptions
Discount rate................................................ 5.25% 5.25%
====== ======
Return on plan assets........................................ 6.25% 6.25%
====== ======
Rate of compensation increase................................ 3.30% 3.30%
====== ======
Components of Net Periodic Benefit Cost
Service cost................................................. $ 296 $ 249
Interest cost................................................ 76 56
Return on plan assets........................................ (80) (54)
Amortization of prior service cost........................... -- 88
Social security contributions................................ 43 46
Recognized net actuarial loss................................ 35 38
------ ------
Net periodic benefit cost.................................. $ 370 $ 423
====== ======
38
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The vested benefit obligation is calculated as the actuarial present value
of the vested benefits to which employees are currently entitled based on the
employees' expected date of separation or retirement.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $922,000, $642,000 and $573,000, respectively,
as of December 31, 1999 and $656,000, $492,000 and $364,000, respectively, as
of December 31, 1998.
15. Commitments and Contingencies
The Company has an agreement with an unrelated company to provide management
and operating services for its lift boats. The agreement provides for a
management fee to be paid to the unrelated company based on a percentage of
gross monthly income. Management fees of $392,000, $1,143,000 and $1,271,000
were included in direct vessel operating expenses for the years ended December
31, 1999, 1998 and 1997, respectively. Pursuant to the agreement, the operator
has been granted a right of first refusal on any sale of the lift boats.
In the ordinary course of business, the Company is involved in certain
personal injury, pollution and property damage claims and related threatened
or pending legal proceedings. Management, after review with legal counsel and
insurance representatives, is of the opinion these claims and legal
proceedings will be settled within the limits of the Company's insurance
coverages. At December 31, 1999 and 1998, the Company has accrued a liability
in the amount of $2,250,000 and $1,997,000, respectively, based upon the
insurance deductibles that management believes it may be responsible for
paying in connection with these matters. The amounts the Company will
ultimately be responsible for paying in connection with these matters could
differ materially from amounts accrued.
16. Fair Value of Financial Instruments
The estimated fair values of financial instruments have been determined by
the Company using available market information and valuation methodologies
described below. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
presented herein may not be indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
or valuation methodologies may have a material effect on the estimated fair
value amounts.
Cash and cash equivalents: The carrying amounts approximate fair value due
to the short-term nature of these instruments.
Long-term debt: The carrying amounts of the Company's variable rate debt
approximate fair value because the interest rates are based on floating rates
identified by reference to market rates. The fair value of the Company's fixed
rate debt is based on quoted market prices, where available, or discounted
future cash flows based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements as of the balance sheet date. The
carrying amounts and fair values of long-term debt, including accrued
interest, as of December 31, 1999 and 1998 were as follows (in thousands):
1999 1998
-------- --------
Carrying amount............................................... $412,874 $415,225
Fair value.................................................... $377,855 $364,948
Foreign currency forward exchange contracts: Fair value is estimated by
obtaining quotes from brokers.
Interest swap agreements: Fair value is based on estimated amounts that the
Company would receive or pay to terminate the contract at the reporting date.
39
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Quarterly Financial Data (Unaudited)
(Dollars in thousands, except
per share amounts)
Year ended December 31, 1999 First Second Third Fourth
---------------------------- ------- ------- ------- -------
Revenues.................................... $28,318 $26,664 $27,614 $28,204
Operating loss.............................. (2,810) (5,646) (3,453) (2,935)
Loss before extraordinary item, net of tax.. (7,343) (9,006) (7,816) (7,415)
Net loss.................................... (7,343) (10,836) (7,816) (7,415)
Basic earnings per share:
Net loss before extraordinary item per
average common share outstanding......... (0.36) (0.39) (0.28) (0.26)
Diluted earnings per share:
Net loss before extraordinary item per
average common share outstanding......... (0.36) (0.39) (0.28) (0.26)
Year ended December 31, 1998 First Second Third Fourth
---------------------------- ------- ------- ------- -------
Revenues.................................... $48,887 $52,942 $43,044 $41,372
Operating income............................ 21,383 23,586 11,024 8,602
Net income.................................. 9,844 11,724 2,627 1,085
Basic earnings per share:
Net income per average common share
outstanding.............................. 0.48 0.58 0.13 0.05
Diluted earnings per share:
Net income per average common share
outstanding.............................. 0.47 0.56 0.13 0.05
40
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. Segment and Geographic Information
The Company is a provider of marine vessels and related services to the oil
and gas industry. Substantially all revenues result from the charter of
vessels owned by the Company. The Company's three reportable segments are
based on geographic area, consistent with the Company's management structure.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies except for purposes of income taxes
and intercompany transactions and balances. The North Sea segment provides for
a flat tax rate of 28% which is the Norwegian statutory tax rate.
Additionally, segment data includes intersegment revenues, receivables and
payables, and investments in consolidated subsidiaries. The Company evaluates
performance based on net income (loss). The U.S. segment represents the
domestic operations; the North Sea segment includes Norway and the United
Kingdom, and the Other segment includes primarily Latin America. Long-term
debt and related interest expense associated with the acquisitions of foreign
subsidiaries are reflected in the U.S. segment. Segment data as of and for the
years ended December 31, 1999, 1998 and 1997 are as follows:
(in thousands)
December 31, 1999 U.S. North Sea Other Totals
----------------- -------- --------- ------- ----------
Revenues from external customers....... $ 47,982 $ 55,828 $ 6,990 $ 110,800
Intersegment revenues.................. 324 -- -- 324
Interest revenue....................... 279 387 1 667
Interest expense....................... 28,372 3,600 15 31,987
Depreciation and amortization.......... 32,930 15,497 22 48,449
Income tax expense (benefit)........... (17,858) 2,073 -- (15,785)
Extraordinary item, net of taxes....... 1,830 -- -- 1,830
Segment net income (loss).............. (35,846) 4,949 (2,513) (33,410)
Long-lived assets...................... 252,398 268,858 32,132 553,388
Segment total assets................... 600,925 393,263 32,714 1,026,902
Expenditures for segment assets........ 28,386 46,199 1,215 75,800
December 31, 1998 U.S. North Sea Other Totals
----------------- -------- --------- ------- ----------
Revenues from external customers....... $ 98,318 $ 85,197 $ 2,730 $ 186,245
Intersegment revenues.................. 432 -- -- 432
Interest revenue....................... 535 420 2 957
Interest expense....................... 23,836 3,860 -- 27,696
Depreciation and amortization.......... 29,131 11,045 7 40,183
Income tax expense (benefit)........... (236) 12,043 (3) 11,804
Segment net income (loss).............. (5,097) 30,871 (494) 25,280
Long-lived assets...................... 296,539 273,372 498 570,409
Segment total assets................... 649,623 413,434 1,892 1,064,949
Expenditures for segment assets........ 89,008 36,667 -- 125,675
December 31, 1997 U.S. North Sea Other Totals
----------------- -------- --------- ------- ----------
Revenues from external customers....... $118,236 $ 7,244 $ -- $ 125,480
Intersegment revenues.................. -- -- -- --
Interest revenue....................... 496 114 -- 610
Interest expense....................... 7,604 390 -- 7,994
Depreciation and amortization.......... 15,308 819 -- 16,127
Income tax expense..................... 17,971 1,011 -- 18,982
Segment net income..................... 32,804 2,495 -- 35,299
Long-lived assets...................... 248,647 256,409 -- 505,056
Segment total assets................... 522,129 396,822 -- 918,951
Expenditures for segment assets........ 151,936 -- -- 151,936
41
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of segment data to consolidated data as of December 31,
1999, 1998 and 1997 is as follows:
1999 1998 1997
---------- ---------- --------
(in thousands)
Revenues
Total revenues from external customers and
intersegment revenues for reportable
segments.................................. $ 111,124 $ 186,677 $125,480
Elimination of intersegment revenues....... (324) (432) --
---------- ---------- --------
Total consolidated revenues.............. $ 110,800 $ 186,245 $125,480
========== ========== ========
Assets
Total assets for reportable segments....... $1,026,902 $1,064,949 $918,951
Elimination of intersegment receivables.... (1,899) (2,683) --
Elimination of investment in subsidiaries.. (294,424) (293,029) (219,655)
Other unallocated amounts.................. -- (347) (515)
---------- ---------- --------
Total consolidated assets................ $ 730,579 $ 768,890 $698,781
========== ========== ========
For the years ended December 31, 1999 and 1998, revenues from one customer
of the Company's North Sea segment represented approximately $20,554,000 and
$29,757,000, or 19% and 16%, respectively, of the Company's consolidated
revenues. For the year ended December 31, 1997, no customer accounted for more
than 10% of the Company's revenues.
19. Separate Financial Statements For Subsidiary Guarantors
Pursuant to the terms of the indentures governing the Senior Notes, the
Senior Notes must be guaranteed by each of the Company's "significant
subsidiaries" (the "Subsidiary Guarantors"), whether such subsidiary was a
"significant subsidiary" at the time of the issuance of the Senior Notes or
becomes a "significant subsidiary" thereafter. Separate financial statements
of the Subsidiary Guarantors are not included in this report because (a) the
Company is a holding company with no assets or operations other than its
investments in its subsidiaries, (b) the Subsidiary Guarantors are wholly-
owned subsidiaries of the Company, comprise all of the Company's direct and
indirect subsidiaries (other than inconsequential subsidiaries) and, on a
consolidated basis, represent substantially all of the assets, liabilities,
earnings and equity of the Company, (c) each of the Subsidiary Guarantors must
fully and unconditionally guarantee the Company's obligations under the Senior
Notes on a joint and several basis (subject to a standard fraudulent
conveyance savings clause) and (d) management has determined that separate
financial statements and disclosures concerning the Subsidiary Guarantors are
not material to investors. During 1998, Trico Supply and its wholly-owned
subsidiary, Trico Shipping, AS, executed guarantees of the Senior Notes that
were deemed to be effective December 2, 1997.
42
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
Information concerning the Company's directors and officers called for by
this item will be included in the Company's definitive Proxy Statement
prepared in connection with the 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 11. Executive Compensation
Information concerning the compensation of the Company's executives called
for by this item will be included in the Company's definitive Proxy Statement
prepared in connection with the 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management called for by this item will be included in the Company's
definitive Proxy Statement prepared in connection with the 2000 Annual Meeting
of Stockholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions called
for by this item will be included in the Company's definitive Proxy Statement
prepared in connection with the 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.
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) Financial Statements. Reference is made to Item 8 hereof.
(2) Financial Statement Schedules
Report of Independent Accountants on Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
(3) Exhibits. See Index to Exhibits on page E-1. The Company will furnish
to any eligible stockholder, upon written request of such stockholder, a
copy of any exhibit listed upon the payment of a reasonable fee equal to
the Company's expenses in furnishing such exhibit.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
43
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.
TRICO MARINE SERVICES, INC.
(Registrant)
/s/ Thomas E. Fairley
By:_____________________________________
Thomas E. Fairley
President and Chief Executive Officer
Date: March 27, 2000
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.
Signature Title Date
--------- ----- ----
/s/ Thomas E. Fairley President, Chief Executive March 27, 2000
______________________________________ Officer and Director
Thomas E. Fairley (Principal Executive
Officer)
/s/ Ronald O. Palmer Chairman of the Board March 27, 2000
______________________________________
Ronald O. Palmer
/s/ Victor M. Perez Vice President, Chief March 27, 2000
______________________________________ Financial Officer and
Victor M. Perez Treasurer (Principal
Financial Officer)
/s/ Kenneth W. Bourgeois Vice President and March 27, 2000
______________________________________ Controller (Principal
Kenneth W. Bourgeois Accounting Officer)
/s/ H. K. Acord Director March 27, 2000
______________________________________
H. K. Acord
/s/ Benjamin F. Bailar Director March 27, 2000
______________________________________
Benjamin F. Bailar
/s/ James C. Comis III Director March 27, 2000
______________________________________
James C. Comis III
/s/ Edward C. Hutcheson, Jr. Director March 27, 2000
______________________________________
Edward C. Hutcheson, Jr.
/s/ Joel V. Staff Director March 27, 2000
______________________________________
Joel V. Staff
44
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and
Stockholders of Trico Marine Services, Inc.
Our audits on the consolidated financial statements referred to in our
report dated February 15, 2000 appearing in the 1999 Annual Report to
Shareholders of Trico Marine Services, Inc. (which report and consolidated
financial statements are included in Item 8 in this Annual Report on Form 10-
K) also included an audit of the financial statement schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 15, 2000
S-1
Schedule II
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
for the years ended December 31, 1999, 1998 and 1997
(in thousands)
- --------------------------------------------------------------------------------
Column A Column B Column C Column C Column D Column E
-------- --------- ------------ -------- ---------- --------
Balance Charged Balance
at (Credited) Charged at end
beginning to costs to other of
Description of period and expenses accounts Deductions period
- -------------------------------------------------------------------------------
1999
Deducted in balance sheet
from accounts receivable:
Allowance for doubtful
accounts--trade........ $691 $(271) -- -- $420
==== ===== ==== === ====
1998
Deducted in balance sheet
from accounts receivable:
Allowance for doubtful
accounts--trade........ $571 $ 120 -- -- $691
==== ===== ==== === ====
1997
Deducted in balance sheet
from accounts receivable:
Allowance for doubtful
accounts--trade........ $610 $(310) $271 -- $571
==== ===== ==== === ====
S-2
TRICO MARINE SERVICES, INC.
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Pages
------- ------------
3.1 Amended and Restated Certificate of Incorporation of
the Company.(1)
3.2 Bylaws of the Company, as amended.(1)
4.1 Specimen Common Stock Certificate.(2)
4.2 Indenture dated September 22, 1998 by and among the
Company, Trico Marine Operators, Inc., Trico Marine
Assets, Inc., Trico Marine International Holdings,
B.V., Saevik Supply ASA, Saevik Shipping AS, and Chase
Bank of Texas, National Association, as Trustee
("Indenture").(3)
4.3 Form of Note and Subsidiary Guarantee under the
Indenture.(3)
4.4 Rights Agreement dated as of February 19, 1998 between
the Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent.(4)
4.5 Form of Rights Certificate and of Election to
Exercise.(4)
4.6 Certificate of Designations for the Company's Series AA
Participating Cumulative Preference Stock.(4)
10.1 Form of Indemnity Agreement by and between the Company
and each of the Company's directors.(2)
10.2 Third Amended and Restated Revolving Credit Agreement
dated as of July 19, 1999 by and among the Company,
Trico Marine Operators, Inc., Trico Marine Assets,
Inc., and Wells Fargo Bank, N.A. as agent for itself
and the other lending institutions that may become
party thereto from time to time in accordance with the
terms thereof.(5)
10.3 First Amendment effective as of September 30, 1999 to
the Third Amended and restated Revolving Credit
Agreement dated as of July 19, 1999 by and among the
Company, Trico Marine Operators, Inc., Trico Marine
Assets, Inc., and Wells Fargo Bank, N.A. as agent for
itself and the other lending institutions that may
become party thereto from time to time in accordance
with the terms thereof.(6)
10.4 Second Amendment effective as of December 31, 1999 to
the Third Amended and restated Revolving Credit
Agreement dated as of July 19, 1999 by and among the
Company, Trico Marine Operators, Inc., Trico Marine
Assets, Inc., and Wells Fargo Bank, N.A. as agent for
itself and the other lending institutions that may
become party thereto from time to time in accordance
with the terms thereof.
10.5 Loan Agreement dated as of June 23, 1998 between Saevik
Shipping, AS, Den Norske Bank, ASA, as agent for itself
and the other lending institutions that may become
party thereto from time in accordance with the terms
thereof.(7)
10.6 Purchase Agreement dated as of April 16, 1999 by and
among the Company, Inverness/Phoenix Partners LP and
Executive Capital Partners I LP.(5)
10.7 Stockholders' Agreement dated as of May 6, 1999 among
the Company, Inverness/Phoenix Partners LP and
Executive Capital Partners I LP.(5)
10.8 The Company's 1996 Incentive Compensation Plan.(2)+
10.9 The Company's 1993 Stock Option Plan.(2)+
10.10 Form of Stock Option Agreement under the 1993 Stock
Option Plan.(2)+
10.11 Form of Option Agreement under the 1996 Incentive
Compensation Plan.(2)+
10.12 Form of Noncompetition, Nondisclosure and Severance
Agreements between the Company and each of its
Executive Officers.(2)+
E-1
Sequentially
Exhibit Numbered
Number Pages
------- ------------
11.1 Computation of Earnings Per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers.
27.1 Financial Data Schedule.
- -------
(1) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 21, 1997.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration Statement No. 333-2990).
(3) Incorporated by reference to the Company's Current Report on Form 8-K
dated November 19, 1998.
(4) Incorporated by reference to the Company's Registration Statement on Form
8-A filed on March 6, 1998.
(5) Incorporated by reference to the Company's quarterly report on Form 10-Q
filed on August 16, 1999 for the quarter ended June 30, 1999.
(6) Incorporated by reference to the Company's quarterly report on Form 10-Q
filed on November 12, 1999 for the quarter ended September 30, 1999.
(7) Incorporated by reference to the Company's 1998 Annual Report on Form 10-K
dated March 26, 1999.
+ Management Contract or Compensation Plan or Arrangement.
E-2