UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2004 |
| ¨ | 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 incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 250 North American Court | 70363 | |
| Houma, Louisiana (Address of principal executive offices) |
(Zip code) | |
Registrant’s telephone number, including area code: (985) 851-3833
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 whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2.) Yes x No ¨
The number of shares of the Registrant’s common stock, $0.01 par value per share, outstanding at April 30, 2004 was 36,935,537.
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of March 31, 2004 and December 31, 2003
(Unaudited)
(Dollars in thousands, except share and per share amounts)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 34,440 | $ | 25,892 | ||||
| Restricted cash |
1,022 | 1,708 | ||||||
| Accounts receivable, net |
27,514 | 30,451 | ||||||
| Prepaid expenses and other current assets |
1,263 | 1,501 | ||||||
| Total current assets |
64,239 | 59,552 | ||||||
| Property and equipment, at cost: |
||||||||
| Land and buildings |
6,374 | 6,402 | ||||||
| Marine vessels |
653,341 | 661,729 | ||||||
| Construction-in-progress |
834 | 170 | ||||||
| Transportation and other |
4,684 | 4,628 | ||||||
| 665,233 | 672,929 | |||||||
| Less accumulated depreciation and amortization |
192,066 | 185,910 | ||||||
| Net property and equipment |
473,167 | 487,019 | ||||||
| Restricted cash - noncurrent |
6,622 | — | ||||||
| Other assets |
42,501 | 38,620 | ||||||
| Total assets |
$ | 586,529 | $ | 585,191 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ | 5,295 | $ | 4,758 | ||||
| Accounts payable |
6,734 | 6,190 | ||||||
| Accrued expenses |
7,001 | 6,352 | ||||||
| Accrued insurance reserve |
4,856 | 4,497 | ||||||
| Accrued interest |
9,065 | 3,656 | ||||||
| Income taxes payable |
322 | 331 | ||||||
| Total current liabilities |
33,273 | 25,784 | ||||||
| Long-term debt, net of discounts |
393,370 | 375,408 | ||||||
| Deferred income taxes |
38,025 | 39,772 | ||||||
| Other liabilities |
2,168 | 2,196 | ||||||
| Total liabilities |
466,836 | 443,160 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.01 par value, 5,000,000 shares authorized and no shares issued at March 31, 2004 and December 31, 2003 |
— | — | ||||||
| Common stock, $.01 par value, 55,000,000 shares authorized, 37,007,569 and 36,982,569 shares issued and 36,935,537 and 36,910,537 shares outstanding at March 31, 2004 and December 31, 2003 |
370 | 370 | ||||||
| Additional paid-in capital |
338,065 | 338,007 | ||||||
| Accumulated deficit |
(231,299 | ) | (214,845 | ) | ||||
| Unearned compensation |
(170 | ) | (127 | ) | ||||
| Cumulative foreign currency translation adjustment |
12,728 | 18,627 | ||||||
| Treasury stock, at par value, 72,032 shares at March 31, 2004 and December 31, 2003 |
(1 | ) | (1 | ) | ||||
| Total stockholders’ equity |
119,693 | 142,031 | ||||||
| Total liabilities and stockholders’ equity |
$ | 586,529 | $ | 585,191 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share and per share amounts)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues: |
||||||||
| Charter hire |
$ | 23,504 | $ | 28,958 | ||||
| Other vessel income |
65 | 53 | ||||||
| Total revenues |
23,569 | 29,011 | ||||||
| Operating expenses: |
||||||||
| Direct vessel operating expenses and other |
18,112 | 20,529 | ||||||
| General and administrative |
3,555 | 3,805 | ||||||
| Amortization of marine inspection costs |
2,880 | 2,357 | ||||||
| Depreciation and amortization expense |
8,287 | 8,524 | ||||||
| Loss (gain) on sales of assets |
9 | (483 | ) | |||||
| Total operating expenses |
32,843 | 34,732 | ||||||
| Operating loss |
(9,274 | ) | (5,721 | ) | ||||
| Interest expense |
(7,436 | ) | (7,858 | ) | ||||
| Amortization of deferred financing costs |
(240 | ) | (227 | ) | ||||
| Loss on early retirement of debt |
(618 | ) | — | |||||
| Other income (loss), net |
499 | (808 | ) | |||||
| Loss before income taxes |
(17,069 | ) | (14,614 | ) | ||||
| Income tax benefit |
(615 | ) | (1,143 | ) | ||||
| Net loss |
$ | (16,454 | ) | $ | (13,471 | ) | ||
| Basic loss per common share: |
||||||||
| Net loss |
$ | (0.45 | ) | $ | (0.37 | ) | ||
| Average common shares outstanding |
36,850,812 | 36,272,335 | ||||||
| Diluted loss per common share: |
||||||||
| Net loss |
$ | (0.45 | ) | $ | (0.37 | ) | ||
| Average common shares outstanding |
36,850,812 | 36,272,335 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net loss |
$ | (16,454 | ) | $ | (13,471 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
11,468 | 11,140 | ||||||
| Deferred marine inspection costs |
(5,589 | ) | (6,200 | ) | ||||
| Deferred income taxes |
(615 | ) | (1,143 | ) | ||||
| Loss on early retirement of debt |
618 | — | ||||||
| Loss (gain) on sales of assets |
9 | (483 | ) | |||||
| Provision for doubtful accounts |
30 | 30 | ||||||
| Amortization of unearned compensation |
15 | — | ||||||
| Change in operating assets and liabilities: |
||||||||
| Accounts receivable |
2,486 | 4,549 | ||||||
| Prepaid expenses and other current assets |
219 | (608 | ) | |||||
| Accounts payable and accrued expenses |
7,164 | 5,284 | ||||||
| Other, net |
(168 | ) | 372 | |||||
| Net cash used in operating activities |
(817 | ) | (530 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(3,118 | ) | (6,049 | ) | ||||
| Proceeds from sales of assets |
109 | 623 | ||||||
| (Increase) decrease in restricted cash |
(5,958 | ) | 375 | |||||
| Other |
44 | 260 | ||||||
| Net cash used in investing activities |
(8,923 | ) | (4,791 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of long-term debt |
53,900 | 1,374 | ||||||
| Repayment of long-term debt |
(33,136 | ) | (1,033 | ) | ||||
| Deferred financing costs and other |
(2,284 | ) | (64 | ) | ||||
| Proceeds from sale-leaseback transactions |
— | 2,929 | ||||||
| Net cash provided by financing activities |
18,480 | 3,206 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
(192 | ) | (193 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
8,548 | (2,308 | ) | |||||
| Cash and cash equivalents at beginning of period |
25,892 | 10,165 | ||||||
| Cash and cash equivalents at end of period |
$ | 34,440 | $ | 7,857 | ||||
| Supplemental cash flow information: |
||||||||
| Income taxes paid |
$ | — | $ | 2 | ||||
| Interest paid |
$ | 1,936 | $ | 1,439 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS COMPREHENSIVE LOSS
(Unaudited)
(Dollars in thousands)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net loss |
$ | (16,454 | ) | $ | (13,471 | ) | ||
| Other Comprehensive Income (loss): |
||||||||
| Loss on foreign currency translation |
(5,899 | ) | (14,705 | ) | ||||
| Comprehensive Loss |
$ | (22,353 | ) | $ | (28,176 | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TRICO MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited)
1. Financial Statement Presentation:
The condensed consolidated financial statements for Trico Marine Services, Inc. (the “Company”) included herein are unaudited but reflect, in management’s opinion, all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair presentation of the nature of the Company’s business. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the full fiscal year or any future periods. The financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
Certain prior period amounts have been reclassified to conform to current presentations.
2. Liquidity:
During the first quarter of 2004, activity in the Company’s key markets continued to be depressed. The Company’s operations in the North Sea and Gulf of Mexico continued to return negative operating results. As a result, the Company’s day rates and utilization in these areas are at three year lows, and first quarter revenues in 2004 are approximately 19% lower than the comparable quarter in 2003. The Company cannot provide any assurance that market conditions in its key markets will improve in the future.
On March 15, 2004, Moody’s Investors Service (“Moody’s”) downgraded the long-term senior implied rating to Caa2 from Caa1 and lowered the Senior Notes’ rating to Caa3 from Caa2, while changing the outlook for the Company from stable to negative. On April 28, 2004, Standard & Poor’s Ratings Services (“S&P”) placed the Company’s corporate rating on creditwatch, with negative implications.
Negative operating results since 2002 have led the Company to complete steps to enhance liquidity. As part of this program, the Company refinanced long-term debt in 2002, sold vessels in September 2003 and refinanced its U.S. revolving credit facility in February 2004. The Company entered into a senior secured credit facility (the “2004 Term Loan”) which increased available liquidity and eliminated restrictive performance covenants. With the net proceeds of the 2004 Term Loan of $51.4 million, the Company used $31.0 million to repay and retire the U.S. revolving credit facility, and will use the remaining funds to fund operating, capital and debt service requirements.
As previously reported in our annual report on Form 10-K, the Company’s financial results and position have continued to deteriorate since 2002, principally due to its leveraged condition and continued operating losses. In the second quarter of 2004, the Company decided to proactively address its financial leverage and liquidity situation while it has sufficient cash resources to allow it to pursue a variety of alternatives. On April 27, 2004, the Company announced that it had retained legal and financial advisors to assist in its objective of fundamentally restructuring the Company’s capital structure. As discussed below, this initiative has resulted in an evaluation by the Company’s Board of Directors as to whether or not to make the cash interest payment on its Senior Notes. In addition and as discussed below, the restructuring costs associated with this initiative will have a significant negative impact on our cash flow forecast in the near term.
The Company’s Board of Directors, management and advisors have initiated a review of a wide-range of restructuring alternatives. On May 10, 2004, the Company announced that it intends to utilize a 30-day grace period with regard to the $11.1 million interest payment due May 15, 2004 on its Senior Notes (see Note 8). This non-payment will not constitute an event of default under the indenture governing the Senior Notes unless such non-payment continues following the expiration of a 30-day grace period. While the Company currently has sufficient cash resources to make the payment, the Company is continuing to review its near-term and long-term liquidity situation and as such, no decision has been made as to whether the Company will make the interest payment before the expiration of the grace period. In the event the Company were to be in default of its Senior Notes Indenture, it is likely that the maturity of outstanding Senior Notes, together with the 2004 Term Loan would be accelerated, and the Company would be declared in default under the Master Charter. Accordingly, these amounts would be reclassified from long term to current at that time. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary in the event of such an acceleration.
Other than the decision to utilize the 30-day grace period, no decisions have been made with regard to any contemplated course of action. Any restructuring plan could involve various operational restructuring alternatives, asset sales, a purchase, exchange or amendment to the Senior Notes, equity transactions, or other potential transactions or decisions to resolve leverage and liquidity issues.
Consistent with its objective to review financial restructuring opportunities, the Company and its financial and legal advisors have entered into discussions with an ad hoc committee of Senior Note holders who represent that they hold, in the aggregate, not less than 80 percent of the Senior Notes.
The restructuring process presents inherent material uncertainty. It is not possible to determine the length of time it will take the Company to complete its restructuring, or the outcome of the restructuring in general. The Company anticipates that it will incur significant costs associated with its restructuring. It is probable that these restructuring costs will have a significant adverse effect on the results of operations and cash flows. There can be no assurance that the Company will be successful in its restructuring, or that any measures that are achievable will result in sufficient improvement to the Company’s financial position.
While the Company is in the process of restructuring, investments in its securities will be highly speculative. Shares of the Company’s common stock may have little or no value. The value of its Senior Notes is impaired, and may be further impaired. If the Company is unable to accomplish a financial restructuring outside the protection of bankruptcy laws, it may be forced to seek the protection of the bankruptcy laws.
The Company’s liquidity generally depends on cash provided by operating activities, its NOK credit facility, and the ability to comply with the long-term credit agreements described in Notes 8 and 9. The ability of the Company to continue as a going concern, including its ability to meet its ongoing operational obligations, is dependent upon, among other things, (i) the Company’s ability to maintain adequate cash on hand; (ii) the Company’s ability to generate cash from operations; (iii) the cost, duration and outcome of the restructuring process; and (iv) the Company’s ability to achieve profitability following a restructuring. The Company, in conjunction with its advisors, is working to design and implement strategies to ensure the Company maintains adequate liquidity. However, there can be no assurance as to the success of such efforts.
The potential adverse publicity associated with the Company’s announcements relating to its financial restructuring and the resulting uncertainty