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.
Item 4. Submission of Matters To a Vote Of Security Holders
None.
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:
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.
PART II
Item 5.
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 .
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.
Item 6.
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."
- ------- (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.
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
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.
- ------- (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.
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.
- ------- (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,
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
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,
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.
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
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.
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.
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.
Item 8.
Item 8. Financial Statements and Supplementary Data
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
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999 and 1998
The accompanying notes are an integral part of these consolidated financial statements.
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
The accompanying notes are an integral part of these consolidated financial statements.
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1999, 1998 and 1997
The accompanying notes are an integral part of these consolidated financial statements.
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
The accompanying notes are an integral part of these consolidated financial statements.
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.
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,
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.
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):
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).
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):
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):
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):
Annual maturities on long-term debt during the next five years are as follows:
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.
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.
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):
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):
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):
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):
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.
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:
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:
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:
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).
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
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.
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):
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.
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Quarterly Financial Data (Unaudited)
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:
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:
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.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
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.
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.
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.
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.
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.
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)
- --------------------------------------------------------------------------------
S-2
TRICO MARINE SERVICES, INC.
EXHIBIT INDEX
E-1
- ------- (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