SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 2002 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from
------------------ to -----------------
Commission file number 1-12289
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SEACOR SMIT INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3542736
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
11200 Richmond, Suite 400, Houston, Texas 77082
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(Address of Principal Executive Offices) (Zip Code)
(281) 899-4800
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The total number of shares of common stock, par value $.01 per share,
outstanding as of November 7, 2002 was 19,940,017. The Registrant has no other
class of common stock outstanding.
SEACOR SMIT INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2002 and December 31, 2001...........................................................1
Condensed Consolidated Statements of Operations for each of the
Three and Nine Months Ended September 30, 2002 and 2001............................................2
Condensed Consolidated Statements of Cash Flows
for each of the Nine Months Ended September 30, 2002 and 2001......................................3
Notes to the Condensed Consolidated Financial Statements................................................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........................................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................................21
Part II. Other Information
Item 4. Controls and Procedures.....................................................................................24
Item 6. Exhibits and Reports on Form 8-K............................................................................24
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA, UNAUDITED)
September 30, December 31,
2002 2001
------------------- -------------------
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 388,233 $ 180,394
Trade and other receivables, net of allowance for
doubtful accounts of $1,474 and $1,635, respectively...................... 102,253 104,436
Prepaid expenses and other................................................... 8,461 6,631
------------------- -------------------
Total current assets...................................................... 498,947 291,461
------------------- -------------------
Investments, at Equity, and Receivables from 50% or Less Owned Companies........ 69,569 153,827
Available-for-Sale Securities................................................... 61,121 22,371
Property and Equipment.......................................................... 965,581 971,621
Less - Accumulated depreciation.............................................. (253,198) (236,864)
------------------- -------------------
Net property and equipment................................................ 712,383 734,757
------------------- -------------------
Construction Reserve Funds...................................................... 87,596 55,290
Goodwill........................................................................ 28,341 28,232
Other Assets.................................................................... 9,439 12,200
------------------- -------------------
$ 1,467,396 $ 1,298,138
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............................................ $ 356 $ 33,724
Accounts payable and accrued expenses........................................ 26,298 29,070
Other current liabilities.................................................... 36,242 50,915
------------------- -------------------
Total current liabilities................................................. 62,896 113,709
------------------- -------------------
Long-term Debt.................................................................. 401,347 256,675
Deferred Income Taxes........................................................... 164,646 148,430
Deferred Gains and Other Liabilities............................................ 32,642 24,070
Minority Interest in Subsidiaries............................................... 1,638 1,556
Common Stock Sold with Equity Forward Transaction............................... - 10,000
Stockholders' Equity:
Common stock, $.01 par value, 24,110,935 and 24,027,003 shares issued at
September 30, 2002 and December 31, 2001, respectively.................... 241 238
Additional paid-in capital................................................... 397,777 384,857
Retained earnings............................................................ 517,792 472,843
Less 4,070,949 and 3,943,333 shares held in treasury at September 30, 2002
and December 31,
2001, respectively, at cost............................................... (114,667) (109,638)
Less unamortized restricted stock compensation............................... (2,747) (1,985)
Accumulated other comprehensive income (loss) -
Cumulative translation adjustments....................................... 3,904 (2,474)
Unrealized gains (losses) on available-for-sale securities............... 1,927 (143)
------------------- -------------------
Total stockholders' equity................................................ 804,227 743,698
------------------- -------------------
$ 1,467,396 $ 1,298,138
=================== ===================
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
1
SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA, UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Operating Revenues.................................................$ 102,137 $ 119,358 $ 303,450 $ 324,986
------------- ------------- ------------- -------------
Costs and Expenses:
Operating expenses.............................................. 64,297 60,512 182,586 176,203
Administrative and general...................................... 13,434 13,140 38,597 36,794
Depreciation and amortization................................... 14,381 15,511 42,253 42,266
------------- ------------- ------------- -------------
92,112 89,163 263,436 255,263
------------- ------------- ------------- -------------
Operating Income................................................... 10,025 30,195 40,014 69,723
------------- ------------- ------------- -------------
Other Income (Expense):
Interest on debt................................................ (3,503) (5,798) (11,300) (16,793)
Interest income................................................. 2,043 3,023 6,012 10,910
Income from equipment sales and retirements, net................ 2,321 4,145 5,558 7,992
Gain from Chiles Merger......................................... 19,719 - 19,719 -
Derivative income (loss), net................................... (3,251) 1,997 (2,619) 1,962
Foreign currency transaction gains (losses), net................ 2,203 121 5,454 (537)
Other, net...................................................... 3,381 708 2,703 3,207
------------- ------------- ------------- -------------
22,913 4,196 25,527 6,741
------------- ------------- ------------- -------------
Income Before Income Taxes, Minority Interest, Equity in Earnings
of 50% or Less Owned Companies and Extraordinary Item........... 32,938 34,391 65,541 76,464
Income Tax Expense................................................. 11,187 12,141 22,586 26,886
------------- ------------- ------------- -------------
Income Before Minority Interest, Equity in Earnings of 50% or
Less Owned Companies and Extraordinary Item..................... 21,751 22,250 42,955 49,578
Minority Interest in Income of Subsidiaries........................ (6) (92) (194) (256)
Equity in Earnings of 50% or Less Owned Companies.................. 1,070 348 3,708 3,596
------------- ------------- ------------- -------------
Income Before Extraordinary Item................................... 22,815 22,506 46,469 52,918
Extraordinary Item - Loss on Debt Extinguishment, net of tax....... (1,520) - (1,520) (896)
------------- ------------- ------------- -------------
Net Income.........................................................$ 21,295 $ 22,506 $ 44,949 $ 52,022
============= ============= ============= =============
Basic Earnings Per Common Share:
Income before extraordinary item................................$ 1.14 $ 1.13 $ 2.32 $ 2.74
Extraordinary item............................................... (0.08) - (0.08) (0.05)
------------- ------------- ------------- -------------
Net income....................................................$ 1.06 $ 1.13 $ 2.24 $ 2.69
============= ============= ============= =============
Diluted Earnings Per Common Share:
Income before extraordinary item................................$ 1.09 $ 0.97 $ 2.23 $ 2.47
Extraordinary item............................................... (0.07) - (0.07) (0.04)
------------- ------------- ------------- -------------
Net income....................................................$ 1.02 $ 0.97 $ 2.16 $ 2.43
============= ============= ============= =============
Weighted Average Common Shares:
Basic........................................................... 20,051,743 19,990,119 20,056,435 19,319,905
Diluted......................................................... 21,186,390 21,289,672 21,325,804 21,363,299
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
2
SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
Nine Months Ended September 30,
2002 2001
-------------------- -------------------
Net Cash Provided by Operating Activities.........................$ 52,144 $ 75,762
-------------------- -------------------
Cash Flows from Investing Activities:
Purchase of property and equipment............................. (88,565) (83,052)
Proceeds from equipment sales.................................. 102,019 20,637
Purchase of available-for-sale securities...................... (26,028) (64,114)
Proceeds from sale of available-for-sale securities............ 60,871 94,127
Proceeds from sale of investment in 50% or less owned companies - 3,076
Investments in and advances to 50% or less owned companies..... (22) (5,124)
Principal payments on notes due from 50% or less owned companie 12,812 2,987
Dividends received from 50% or less owned companies............ 1,290 1,417
Net increase in construction reserve funds..................... (32,306) (13,949)
Cash settlements from derivative transactions.................. (5,655) 1,278
Acquisitions, net of cash acquired............................. (109) (99,236)
Chiles Merger.................................................. 25,365 -
Other, net..................................................... 831 (150)
-------------------- -------------------
Net cash provided by (used in) investing activities......... 50,503 (142,103)
-------------------- -------------------
Cash Flows from Financing Activities:
Payments of long-term debt..................................... (87,769) (64,604)
Payments of capital lease obligations.......................... - (1,316)
Payments of stockholder loans.................................. - (278)
Proceeds from issuance of long-term debt....................... 231 31,171
Net proceeds from sale of 5 7/8% Notes......................... 196,836 -
Proceeds from issuance of common stock......................... - 10,000
Proceeds from exercise of stock options........................ 349 118
Proceeds from Employee Stock Purchase Plan..................... 693 -
Common stock acquired for treasury............................. (5,602) -
Other.......................................................... - 1
-------------------- -------------------
Net cash provided by (used in) financing activities......... 104,738 (24,908)
-------------------- -------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents...... 454 (2,219)
-------------------- -------------------
Net Increase (Decrease) in Cash and Cash Equivalents.............. 207,839 (93,468)
Cash and Cash Equivalents, Beginning of Period.................... 180,394 224,219
-------------------- -------------------
Cash and Cash Equivalents, End of Period.......................... $ 388,233 $ 130,751
==================== ===================
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith
3
SEACOR SMIT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION --
The condensed consolidated financial information for the three and nine-month
periods ended September 30, 2002 and 2001 has been prepared by the Company and
was not audited by its independent public accountants. In the opinion of
management, all adjustments have been made to present fairly the financial
position, results of operations and cash flows of the Company at September 30,
2002 and for all reported periods. Results of operations for the interim periods
presented are not necessarily indicative of the operating results for the full
year or any future periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
related notes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001.
Unless the context otherwise indicates, any references in this Quarterly Report
on Form 10-Q to the "Company" refer to SEACOR SMIT Inc. and its consolidated
subsidiaries, and any references in this Quarterly Report on Form 10-Q to
"SEACOR" refer to SEACOR SMIT Inc.
Certain reclassifications of prior year information have been made to conform
with the current year presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS --
Effective January 1, 2002, the Company adopted Financial Accounting Standards
No. 141 ("SFAS 141"), "Business Combinations," and SFAS 142, "Goodwill and Other
Intangible Assets." Among other changes to prior practices, the new standards
require (i) the use of the purchase method of accounting for all business
combinations, (ii) that goodwill not be amortized in any circumstance and (iii)
that goodwill be tested for impairment annually or when events or circumstances
occur between annual tests indicating that goodwill for a reporting unit might
be impaired based on a fair value concept. SFAS 142 requires that impairment
testing of the opening goodwill balances be performed within six months from the
start of the fiscal year in which the standard is adopted and that any
impairment be written off and reported as a cumulative effect of a change in
accounting principle. We have completed the impairment test as of January 1,
2002 and have determined there is no goodwill impairment. The Company ceased
amortization of its remaining goodwill balance effective January 1, 2002. For
the three and nine-month periods ended September 30, 2001, goodwill amortization
totaled $898,000 and $2,336,000, respectively. The following table presents the
Company's comparative operating results, in thousands (except share data), for
the periods indicated reflecting the exclusion of goodwill amortization expense
in 2001.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------- -------------
Income before extraordinary item:
As reported..................................$ 22,815 $ 22,506 $ 46,469 $ 52,918
Goodwill amortization, net of tax............ - 584 - 1,518
------------ ------------ ------------- -------------
As adjusted.................................$ 22,815 $ 23,090 $ 46,469 $ 54,436
============ ============ ============= =============
Net income:
As reported.................................$ 21,295 $ 22,506 $ 44,949 $ 52,022
Goodwill amortization, net of tax........... - 584 - 1,518
------------ ------------ ------------- -------------
As adjusted.................................$ 21,295 $ 23,090 $ 44,949 $ 53,540
============ ============ ============= =============
Basic earnings per share:
Net income as reported......................$ 1.06 $ 1.13 $ 2.24 $ 2.69
Goodwill amortization, net of tax........... - 0.03 - 0.08
------------ ------------ ------------- -------------
As adjusted.................................$ 1.06 $ 1.16 $ 2.24 $ 2.77
============ ============ ============= =============
Diluted earnings per share:
Net income as reported......................$ 1.02 $ 0.97 $ 2.16 $ 2.43
Goodwill amortization, net of tax........... - 0.03 - 0.07
------------ ------------ ------------- -------------
As adjusted.................................$ 1.02 $ 1.00 $ 2.16 $ 2.50
============ ============ ============= =============
4
Effective January 1, 2002, the Company adopted SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." This new statement also supercedes certain aspects of
Accounting Principle Board Opinion No. 30 ("APB 30"), "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," with
regard to reporting the effects of a disposal of a segment of a business and
will require expected future operating losses from discontinued operations to be
reported in discontinued operations in the period incurred rather than as of the
measurement date as presently required by APB 30. Additionally, certain
dispositions may now qualify for discontinued operations treatment. The adoption
of this statement did not have a material effect on the Company's financial
statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 143,
"Accounting for Asset Retirement Obligations," which requires recording the fair
value of a liability for an asset retirement obligation in the period incurred.
The standard is effective for fiscal years beginning after June 15, 2002, with
earlier application permitted. Upon adoption of the standard, the Company will
be required to use a cumulative effect approach to recognize transition amounts
for any existing retirement obligation liabilities, asset retirement costs and
accumulated depreciation. The nature of the Company's business and long-lived
assets is such that the Company does not expect adoption of this standard to
have a material effect on the Company's financial statements.
In May 2002, the FASB issued SFAS 145, "Recission of FASB Statements Nos. 4, 44
and 64, Amendment of FASB Statement No. 13 and Technical Corrections," which is
effective for fiscal years beginning after May 15, 2002. This statement, among
other matters, provides guidance with respect to the accounting for gains or
losses on capital leases which were modified to become operating leases. The
statement also eliminates the requirement that gains or losses on the early
extinguishment of debt be classified as extraordinary items and provides
guidance when gains or losses on the early retirement of debt should or should
not be reflected as an extraordinary item. The Company does not expect adoption
of this statement when it becomes effective to have a material effect on its
financial statements.
In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities." This statement requires that costs associated with
terminating employees or contracts or closing or relocating facilities are to be
recognized at fair value at the time the liability is incurred. The Company does
not expect adoption of this statement when it becomes effective for disposal
activities initiated after December 31, 2002 to have a material effect on its
financial statements.
3. LONG-TERM DEBT --
In the first six months of 2002, the Company repaid $12,132,000, the outstanding
balance of secured debt assumed in connection with the purchase of two offshore
marine vessels, and (pound)14,669,000, or $21,368,000, in one year loan notes
issued in the prior year in connection with the acquisition of an offshore
marine company operating principally in the United Kingdom.
In the third quarter of 2002, SEACOR redeemed and/or purchased $11,000,000
principal amount of its 5 3/8% Convertible Subordinated Notes Due 2006 (the "5
3/8% Notes") for $11,251,000 and retired $13,000,000 principal amount of its
7.2% Senior Notes Due 2009 (the "7.2% Notes") for $14,395,940. During the third
quarter of 2002, the Company repaid the outstanding balance, totaling
$30,000,000, of its revolving credit facility maturing in February 2007. These
transactions resulted in the Company's recognition of an after-tax extraordinary
loss of $1,520,000 that included the write-off of related unamortized deferred
debt issue costs.
Also in the third quarter of 2002, SEACOR completed the sale of $200,000,000
aggregate principal amount of its 5 7/8% Senior Notes Due October 1, 2012 (the
"5 7/8% Notes"). The 5 7/8% Notes were issued at a price of 98.839% of principal
amount. Interest on the 5 7/8% Notes is payable semiannually on April 1 and
October 1 of each year commencing April 1, 2003. The 5 7/8% Notes may be
redeemed at any time, in whole or in part, at a price equal to 100% of the
principal amount, plus accrued and unpaid interest to the date of redemption,
plus a specified "make-whole" premium. The 5 7/8% Notes were issued under a
supplemental indenture dated as of September 27, 2002 to the base indenture
relating to SEACOR's senior debt securities, dated as of January 10, 2001,
between SEACOR and U.S. Bank National Association, as trustee. The Company
incurred $842,000 of net underwriting fees.
5
4. COMMON STOCK SOLD WITH EQUITY FORWARD TRANSACTION --
Pursuant to an amended and restated standby purchase agreement between Credit
Suisse First Boston Corporation ("CSFB") and SEACOR, CSFB was obligated, subject
to several conditions, to purchase from SEACOR from time to time, at a purchase
price of $46.26 per share, the number of shares of SEACOR's common stock
necessary to provide SEACOR with the proceeds to pay the aggregate total
redemption price of up to $100,000,000 face amount of its 5 3/8% Notes that
SEACOR redeemed. During 2001, CSFB purchased 216,170 shares of SEACOR's common
stock under this arrangement to provide SEACOR with proceeds to redeem
$10,000,000 principal amount of its 5 3/8% Notes that were called for redemption
but not converted into SEACOR's common stock prior to the redemption date.
SEACOR entered into an equity forward transaction with Credit Suisse First
Boston International ("CSFBI"), an affiliate of CSFB, with respect to the shares
of SEACOR common stock that CSFB purchased from SEACOR under the previously
described standby purchase agreement. At December 31, 2001, the $10,000,000 paid
by CSFB for the purchase of 216,170 shares of SEACOR's common stock was reported
in the Condensed Consolidated Balance Sheets under "Common Stock Sold with
Equity Forward Transaction." During the first quarter of 2002, SEACOR paid CSFBI
$164,000 to settle the equity forward transaction and the $10,000,000 previously
reported as common stock sold with equity forward transaction was permanently
reclassified to the Company's common stock and additional paid-in capital
accounts.
5. COMPREHENSIVE INCOME --
For the three-month periods ended September 30, 2002 and 2001, total
comprehensive income was $24,750,000 and $26,896,000, respectively. For the
nine-month periods ended September 30, 2002 and 2001, total comprehensive income
was $53,397,000 and $52,998,000, respectively. Other comprehensive income in
2002 and 2001 consisted primarily of gains from foreign currency translation
adjustments and unrealized holding gains on available-for-sale securities.
6. EARNINGS PER SHARE --
Basic earnings per share were computed based on the weighted average number of
common shares issued and outstanding during the relevant periods. Diluted
earnings per share were computed based on the weighted average number of common
shares issued and outstanding plus all potentially dilutive common shares that
would have been outstanding in the relevant periods assuming the vesting of
restricted stock grants and the issuance of common shares for stock options and
convertible subordinated notes through the application of the treasury stock and
if-converted methods. Diluted earnings per share excludes certain options and
share awards, totaling 168,100 and 69,300, respectively, for the three and
nine-month periods ended September 30, 2002 and 57,500 and 30,000, respectively,
for the three and nine-month periods ended September 30, 2001 as the effect of
their inclusion in the computation would have been antidilutive.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------------------- ---------------------------------------
Income Shares Per Income Shares Per
Share Share
------------- --------------- -------- -------------- --------------- --------
2002
- ----
BASIC EARNINGS PER SHARE:
Income Before Extraordinary Item.......... $ 22,815,000 20,051,743 $ 1.14 $ 46,469,000 20,056,435 $ 2.32
======= ========
EFFECT OF DILUTIVE SECURITIES, NET OF TAX:
Options and Restricted Stock.............. - 237,081 - 268,934
Convertible Securities.................... 290,000 897,566 1,155,000 1,000,435
------------- -------------- -------------- --------------
DILUTED EARNINGS PER SHARE:
Income Available to Common Stockholders
Plus Assumed Conversions............... $ 23,105,000 21,186,390 $ 1.09 $ 47,624,000 21,325,804 $ 2.23
============= ============== ======= ============== ============== ========
2001
BASIC EARNINGS PER SHARE:
Income Before Extraordinary Item.......... $ 22,506,000 19,990,199 $ 1.13 $ 52,918,000 19,319,905 $ 2.74
======= ========
EFFECT OF DILUTIVE SECURITIES, NET OF TAX:
Options and Restricted Stock.............. - 246,746 - 269,919
Convertible Securities.................... 431,000 1,052,727 2,164,000 1,773,475
Common Stock Sold with Equity Forward
Transaction (See Note 4)............. (2,283,000) - (2,283,000) -
------------- -------------- -------------- --------------
DILUTED EARNINGS PER SHARE:
Income Available to Common Stockholders
Plus Assumed Conversions............... $ 20,654,000 21,289,672 $ 0.97 $ 52,799,000 21,363,299 $ 2.47
============= ============== ======= ============== ============== ========
6
7. EQUIPMENT SALES --
In the nine-month period ended September 30, 2002, the
Company sold 25 offshore marine vessels and other equipment that resulted in the
recognition of net pre-tax income totaling $8,036,000. This income was offset by
a $2,478,000 loss resulting from the write-down in the carrying value of certain
offshore marine equipment associated with a previously cancelled construction
contract. Twelve of the vessels sold during 2002 were chartered-in by the
Company pursuant to sale-leaseback transactions. The Company continues to
deposit proceeds from the sale of certain vessels into joint depository
construction reserve fund bank accounts with the Maritime Administration for
purposes of acquiring newly constructed U.S.-flag vessels and qualifying for the
Company's temporary deferral of taxable gains realized from the sales. Joint
depository construction reserve fund bank accounts are reported in the Condensed
Consolidated Balance Sheets under "Construction Reserve Funds."
8. CHILES MERGER --
On August 7, 2002, the stockholders of Chiles Offshore Inc.
("Chiles") approved a merger with ENSCO International Incorporated ("ENSCO") and
the merger was completed. Pursuant to the terms of the merger agreement, Chiles'
stockholders received $5.25 and 0.6575 shares of ENSCO common stock for each
share of Chiles' common stock they owned at the time of the merger. Upon
completion of this merger, the Company received $25,364,855 and 3,176,646 shares
of ENSCO's common stock, valued at $73,444,000, and recognized an after-tax gain
of $12,817,000, or $0.60 per fully diluted share.
Prior to the merger, the Company accounted for its equity holdings in Chiles as
an investment in a 50% or less owned company. Following the merger, the Company
began accounting for the shares it owns of ENSCO as available-for-sale
securities and now records changes in their market value each period as
adjustments to other comprehensive income.
In September 2002, the Company sold 1,916,300 shares of the ENSCO stock it
received in the merger and recognized a gain of $1,293,000 that is reported in
the Condensed Consolidated Statements of Operations under "Other, net." The
Company has also entered into various costless collar transactions with respect
to a portion of the remaining shares it owns of ENSCO. See "Footnote 9 --
Derivative Transactions" for discussion.
9. DERIVATIVE TRANSACTIONS --
From time to time, the Company enters into short positions on U.S. treasury
notes and bonds via futures or options on futures and rate-lock agreements on
U.S. treasury notes in order to provide value to the Company should the price of
U.S. treasury notes and bonds decline leading to generally higher interest rates
which, if sustained over time, could lead to higher interest costs for the
Company. In the three and nine-month periods ended September 30, 2002, the
Company recognized net losses of $7,541,000 and $8,320,000 with respect to these
transactions and the losses were reported in the Condensed Consolidated
Statements of Operations under "Derivative income (loss), net." At September 30,
2002, the unrealized losses with respect to positions in U.S. treasury
obligations totaled $9,000 and were reported in the Condensed Consolidated
Balance Sheet under "Other current liabilities."
Natural gas and crude oil swaps, options and futures contracts are generally
employed by the Company to provide value should the price of natural gas or
crude oil decline, which, if sustained, would lead to a decline in the Company's
offshore assets' market values and cash flows. In the three and nine-month
periods ended September 30, 2002, the Company recognized net gains of $56,000
and net losses of $164,000, respectively, with respect to these contracts. The
gains and losses were reported in the Condensed Consolidated Statements of
Operations under "Derivative income (loss), net." At September 30, 2002, the
unrealized losses with respect to outstanding natural gas and crude oil swaps,
options and futures contracts totaled $259,000 and were reported in the
Condensed Consolidated Balance Sheet under "Other current liabilities."
In order to reduce its cost of capital, the Company entered into swap agreements
during the fourth quarter of 2001 and second quarter of 2002 with a major
financial institution with respect to $41,000,000 of its 7.2% Notes. Pursuant to
each such agreement, such financial institution agreed to pay to the Company an
amount equal to interest paid on the notional amount of the 7.2% Notes subject
to such agreement, and the Company agreed to pay to such financial institution
an amount equal to interest currently at the rate of approximately 3.3% per
annum on the agreed upon price of such notional amount of the 7.2% Notes as set
forth in the applicable swap agreement. Upon termination of each swap agreement,
the financial institution agreed to pay to the Company the amount, if any, by
7
which the fair market value of the notional amount of the 7.2% Notes subject to
the swap agreements on such date exceeded the agreed upon price of such notional
amount as set forth in such swap agreements, and the Company agreed to pay to
such financial institution the amount, if any, by which the agreed upon price of
such notional amount exceeded the fair market value of such notional amount on
such date. The agreed upon price of such notional amount as set forth in such
swap agreements totaled $41,700,000. During the fourth quarter of 2002, the swap
agreements were extended for an additional twelve months and will now terminate
during the fourth quarter of 2003 and the second quarter of 2004 unless they are
extended further by mutual consent. In the three and nine-month periods ended
September 30, 2002, the Company recorded gains of $2,647,000 and $3,869,000,
respectively, with respect to these swap agreements and the gains were reported
in the Condensed Consolidated Statements of Operations under "Derivative income
(loss), net." At September 30, 2002, the unrealized gains that resulted from the
fair value of the notional amounts exceeding the agreed upon price set forth in
the swap agreements totaled $3,475,000 and were reported in the Condensed
Consolidated Balance Sheet under "Trade and other receivables."
In order to partially hedge the fluctuation in market value for part of the
Company's common stock position in ENSCO, the Company entered into various
transactions (commonly known as "costless collars") with a major financial
institution on 1,000,000 shares of ENSCO common stock. The effect of these third
quarter transactions is that the Company will be guaranteed a minimum value of
approximately $24.35 and up to a maximum value of approximately $29.80 per share
of ENSCO, at maturity. The costless collars will expire during the second
quarter 2003. If the share value of ENSCO's common stock is in excess of
approximately $29.80 at maturity, then the Company will have a choice of either
(a) selling the shares to the counterparty for $29.80 or (b) paying the
counterparty the difference between the market value and $29.80, in cash, and
continue to own the shares. If, on the other hand, the share value of ENSCO's
common stock is less than approximately $24.35 at maturity, then the Company
will have a choice of either (a) selling the shares to the counterparty for
$24.35 or (b) receiving the difference between the market value and $24.35, in
cash, and continue to own the shares. If the share value of ENSCO's common stock
is between $24.35 and $29.80 at maturity, then neither party will have a payment
obligation and the Company will continue to own the shares. The Company
establishes the fair value of the costless collar at the end of each reporting
period and the change in value is recorded in the books of the Company under
"Derivative income (loss), net." At September 30, 2002, the unrealized gains,
totaling $1,468,000, with respect to the costless collars were reported in the
Condensed Consolidated Statement of Operations under "Derivative income (loss),
net" and the Condensed Consolidated Balance Sheet under "Trade and other
receivables." The market value of ENSCO's common stock at September 30, 2002 was
$25.04 per share.
During the three and nine-month periods ended September 30, 2002, the Company
recognized net gains of $118,000 and $528,000, respectively, with respect to its
forward exchange and futures contracts that are considered speculative with
respect to Pounds Sterling, Euros, Norwegian Kroners and Singapore Dollars.
These gains were reported in the Condensed Consolidated Statements of Operations
under "Derivative income (loss), net." The Pound Sterling, Euro and Singapore
Dollar contracts enable the Company to buy Pounds Sterling, Euros and Singapore
Dollars in the future at fixed exchange rates, which could offset consequences
of certain changes in foreign currency exchange rates on business conducted in
such currencies in the United Kingdom, the Netherlands, France and Singapore.
The Norwegian Kroner contracts enable the Company to buy Norwegian Kroners in
the future at fixed exchange rates, which could offset consequences of certain
changes in foreign currency exchange rates if it conducts business in Norway. At
September 30, 2002, the unrealized losses with respect to the Company's
outstanding forward exchange and futures contracts totaled $70,000 and were
reported in the Condensed Consolidated Balance Sheet under "Other current
liabilities."
10. FOREIGN CURRENCY --
Certain SEACOR subsidiaries enter into transactions denominated in currencies
other than their functional currency and changes in currency exchange rates
between the functional currency and the currency in which a transaction is
denominated is included in the determination of net income in the period in
which the currency exchange rates change. SEACOR has also advanced funds to
wholly owned subsidiaries whose functional currencies are not U.S. dollars and,
as settlement of the advances are expected in the foreseeable future, changes in
the currency exchange rates from the transaction date until the settlement date
with respect to such advances are also included in the determination of net
income in the period in which the currency exchange rates change.
8
In the three and nine-month periods ended September 30, 2002, the Company
recognized net gains from foreign currency transactions of $2,203,000 and
$5,454,000, respectively. In the three and nine-month periods ended September
30, 2001, the Company recognized net gains of $121,000 and net losses of
$537,000, respectively, from foreign currency transactions. In both years, these
gains and losses are reported in the Condensed Consolidated Statements of
Operations under "Foreign currency transaction gains (losses), net." Gains in
2002 resulted primarily from the revaluation of obligations due SEACOR by
certain wholly owned U.K. subsidiaries, whose functional currency is Pounds
Sterling, during periods when the Pound Sterling currency strengthened against
the U.S. dollar.
11. COMMITMENTS AND CONTINGENCIES --
As of September 30, 2002, the Company was committed to the construction of
offshore support vessels and inland river hopper barges ("barges") for an
approximate aggregate cost of $99,534,000 of which $18,990,000 has been
expended. The Company expects a certain number of the barges to be purchased by
third parties and managed by the Company. The barges are expected to be
delivered during the fourth quarter of 2002 and the vessels are expected to
enter service within the next year.
Following quarter-end, the Company committed to acquire and/or construct
additional offshore support vessels and barges for an approximate aggregate cost
of $18,800,000. The Company expects the vessels and barges to be delivered
within the next six months.
12. SEGMENT INFORMATION --
The Company's offshore marine services business is primarily dedicated to
operating a diversified fleet of offshore support vessels serving offshore oil
and gas exploration and production facilities mainly in the U.S. Gulf of Mexico,
the North Sea, Latin America, West Africa and Asia. Our vessels deliver cargo
and personnel to offshore installations, handle anchors for drilling rigs and
other marine equipment, support offshore construction and maintenance work and
provide standby safety support and oil spill response services. From time to
time, vessels service special projects, such as well stimulation, seismic data
gathering, salvage and freight hauling. In addition to vessel services, the
Company's offshore marine service business offers logistics services, which
include shorebase, marine transport and other supply chain management services
also in support of offshore oil and gas exploration and production operations.
The Company's other activities include its environmental service and inland
river barge businesses and all non-offshore marine service segment equity in
earnings of 50% or less owned companies. Prior to 2002, the Company presented
its environmental service business as a separate reportable business segment.
Effective January 1, 2002, the environmental service business is no longer
reported as a separate segment as it does not meet the criteria for reporting
segregation pursuant to accounting standards.
The Company evaluates business performance based upon operating profit (defined
as Operating Income as reported in the Consolidated Statements of Operations,
excluding corporate-related expenses) plus any gains and losses from the sale of
equipment and interest in 50% or less owned companies, equity in the earnings
and losses of 50% or less owned companies and foreign currency transaction gains
and losses. Accounting policies for measuring segment profits have not changed
from those previously described in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001.
Offshore
(in thousands of dollars) Marine Other Total
----------- ----------- -----------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002:
Revenues from external customers.............................$92,894 $ 9,243 $ 102,137
Intersegment revenues........................................ 66 - 66
----------- ----------- -----------
Segment operating revenues.................................. 92,960 9,243 102,203
----------- -----------
Elimination of intersegment revenues........................ (66)
-----------
Consolidated operating revenues........................... $ 102,137
===========
Operating profit............................................. 11,647 1,425 13,072
Income from equipment sales or retirements, net.............. 2,318 3 2,321
Foreign currency transaction gains, net...................... 2,203 - 2,203
Other, net................................................... (23) 27 4
Equity in earnings (losses) of 50% or less owned 2,076 (1,288) 788
companies.......................................................
----------- ----------- -----------
Segment profit.............................................. 18,221 167 18,388
----------- -----------
Interest income............................................. 2,043
Interest expense............................................ (3,503)
Derivative losses, net...................................... (3,251)
Gains from sale of marketable securities, net............... 3,377
Gain from Chiles Merger..................................... 19,719
Corporate expenses.......................................... (3,047)
Equity in earnings of 50% or less owned companies........... (788)
-----------
Consolidated earnings before income taxes................. $ 32,938
===========
9
Offshore
Marine Other Total
----------- ----------- -----------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001:
Revenues from external customers....................... $ 110,785 $ 8,573 $ 119,358
Intersegment revenues.................................. 191 - 191
----------- ----------- -----------
Segment operating revenues........................... 110,976 8,573 119,549
----------- -----------
Elimination of intersegment revenues................. (191)
-----------
Consolidated operating revenues.................... $ 119,358
===========
Operating profit....................................... 32,032 711 32,743
Income from equipment sales or retirements, net........ 4,141 4 4,145
Foreign currency transaction gains (losses), net....... 122 (1) 121
Other, net............................................. (475) - (475)
Equity in earnings (losses) of 50% or less owned
companies.............................................. 833 (181) 652
----------- ----------- -----------
Segment profit....................................... 36,653 533 37,186
----------- -----------
Interest income...................................... 3,023
Interest expense..................................... (5,798)
Derivative income, net............................... 1,997
Gains from sale of marketable securities, net........ 1,184
Corporate expenses................................... (2,549)
Equity in earnings of 50% or less owned companies ... (652)
-----------
Consolidated earnings before income taxes.......... $ 34,391
===========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002:
Revenues from external customers....................... $ 279,149 $ 24,301 $ 303,450
Intersegment revenues.................................. 200 - 200
----------- ----------- -----------
Segment operating revenues............................ 279,349 24,301 303,650
----------- -----------
Elimination of intersegment revenues.................. (200)
-----------
Consolidated operating revenues..................... $ 303,450
===========
Operating profit....................................... 45,055 2,762 47,817
Income from equipment sales or retirements, net........ 5,554 4 5,558
Foreign currency transaction gains (losses), net....... 5,465 (11) 5,454
Other, net............................................. (23) 27 4
Equity in earnings (losses) of 50% or less owned
companies.............................................. 5,611 (2,431) 3,180
----------- ----------- -----------
Segment profit.................................... 61,662 351 62,013
----------- -----------
Interest income....................................... 6,012
Interest expense...................................... (11,300)
Derivative losses, net................................ (2,619)
Gain from sale of marketable securities, net.......... 2,699
Gain from Chiles Merger............................... 19,719
Corporate expenses.................................... (7,803)
Equity in earnings of 50% or less owned companies..... (3,180)
-----------
Consolidated earnings before income taxes..... $ 65,541
===========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001:
Revenues from external customers....................... $ 298,128 $ 26,858 $ 324,986
Intersegment revenues.................................. 631 - 631
----------- ----------- -----------
Segment operating revenues......................... 298,759 26,858 325,617
----------- -----------
Elimination of intersegment revenues.................. (631)
-----------
Consolidated operating revenues..................... $ 324,986
===========
Operating profit....................................... 73,986 2,987 76,973
Income (loss) from equipment sales or retirements, net. 8,143 (151) 7,992
Foreign currency transaction losses, net............... (537) - (537)
Other, net............................................. (475) - (475)
Equity in earnings of 50% or less owned companies...... 4,051 292 4,343
Gain from Sale of Interest in a 50% or Less Owned
Company............................................. 100 - 100
----------- ----------- -----------
Segment profit........................................ 85,268 3,128 88,396
----------- -----------
Interest income....................................... 10,910
Interest expense...................................... (16,793)
Derivative income, net................................ 1,962
Gains from sale of marketable securities, net......... 3,583
Corporate expenses.................................... (7,251)
Equity in earnings of 50% or less owned companies..... (4,343)
-----------
Consolidated earnings before income taxes........... $ 76,464
===========
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements discussed in Item 2 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) and Item 3 (Quantitative and
Qualitative Disclosures About Market Risk) and elsewhere in this Form 10-Q
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
concerning Management's expectations, strategic objectives, business prospects,
anticipated economic performance and financial condition and other similar
matters involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of
results to differ materially from any future results, performance or
achievements discussed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others: general
economic and business conditions, the cyclical nature of our business, adequacy
of insurance coverage, currency exchange fluctuations, changes in foreign
political, military and economic conditions, the ongoing need to replace aging
vessels, dependence of spill response revenue on the number and size of spills
and upon continuing government regulation in this area and our ability to comply
with such regulation and other governmental regulation, industry fleet capacity,
changes in foreign and domestic oil and gas exploration and production activity,
competition, regulatory initiatives, customer preferences, marine-related risks,
and various other matters, many of which are beyond the Company's control and
other factors as are described at the end of Item 7 (Management's Discussion and
Analysis of Financial Condition and Results of Operations) of the Company's Form
10-K for the fiscal year ended December 31, 2001. The words "expect,"
"estimate," "project," "intend," "believe," "plan" and similar expressions are
intended to identify forward-looking statements. Forward-looking statements
speak only as of the date of the document in which they are made. We disclaim
any obligation or undertaking to provide any updates or revisions to any
forward-looking statement to reflect any change in our expectations or any
change in events, conditions or circumstances on which the forward-looking
statement is based.
OVERVIEW
Through its subsidiaries and joint venture arrangements, the Company furnishes
offshore support services to the oil and gas exploration and production
industry, contractual oil spill response and professional services to those who
store, transport, produce or handle petroleum and certain non-petroleum oils and
inland river dry cargo transportation services. The Company's offshore support
vessels operate principally in the U.S. Gulf of Mexico, the North Sea, Latin
America, West Africa and Asia and its oil spill and related professional
services and inland river barge services are primarily provided in the U.S.
OFFSHORE MARINE SERVICES
The Company's offshore marine service business provides marine transportation,
logistics and related services primarily dedicated to supporting offshore oil
and gas exploration and production.
The offshore marine service business' operating revenues are primarily affected
by the number of vessels owned and bareboat and time chartered-in as well as
rates per day worked and utilization of the Company's fleet. Overall utilization
for any vessel with respect to any period is the ratio of aggregate number of
days worked by such vessel to total calendar days available during such period.
The rate per day worked for any vessel with respect to any period is the ratio
of total time charter revenue of such vessel to the aggregate number of days
worked by such vessel for such period.
Rates per day worked and utilization of the Company's fleet are a function of
demand for and availability of marine vessels, which are closely aligned with
the level of exploration and development of offshore areas. The level of
exploration and development of offshore areas is affected by both short-term and
long-term trends in oil and gas prices which, in turn, are related to the demand
for petroleum products and the current availability of oil and gas resources.
11
The table below sets forth rates per day worked and utilization data for the
Company's offshore marine fleet during the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------- -------------- ------------- --------------
RATES PER DAY WORKED ($): (1) (2)
Anchor Handling Towing Supply...................... 13,144 15,095 12,778 13,921
Crew............................................... 3,200 3,411 3,239 3,283
Geophysical, Freight and Other(3).................. - 5,380 - 5,413
Mini-Supply........................................ 2,918 3,211 2,807 3,087
Standby Safety..................................... 6,268 5,612 5,817 5,386
Supply and Towing Supply........................... 8,153 8,200 8,032 7,670
Utility and Line Handling.......................... 1,761 1,976 1,752 1,888
Overall Fleet.............................. 5,117 5,365 5,134 4,983
OVERALL UTILIZATION (%): (1)(4)
Anchor Handling Towing Supply...................... 72.9 84.5 79.8 82.6
Crew............................................... 76.3 95.0 81.1 95.8
Geophysical, Freight and Other(3).................. - 50.0 - 54.6
Mini-Supply........................................ 90.0 93.9 87.2 93.9
Standby Safety..................................... 88.2 91.4 87.0 87.9
Supply and Towing Supply........................... 88.9 91.3 88.9 89.3
Utility and Line Handling.......................... 62.4 58.6 61.4 56.4
Overall Fleet.............................. 77.7 83.2 79.1 82.0
(1) Rates per day worked and overall utilization figures exclude
owned vessels that are bareboat chartered-out, vessels owned
by corporations that participate in pooling arrangements with
the Company, joint venture vessels, and managed/operated
vessels and include vessels bareboat and time chartered-in by
the Company.
(2) Revenues for certain of the Company's vessels are earned in
foreign currencies, primarily Pounds Sterling, and have been
converted to U.S. dollars at the weighted average exchange
rate in the periods indicated.
(3) None of the vessels comprising this class worked
during 2002.
(4) Utilization rates exclude vessels held for sale in the
applicable periods.
The Company earns operating revenues primarily from the time or bareboat
charter-out of vessels, which are owned by the Company or bareboat or time
chartered-in. From time to time, the Company provides management services to
other vessel owners. Charter revenues and vessel expenses of those managed
vessels are not generally included in operating results, but the Company does
recognize a management fee in operating revenues.
The table below sets forth the Company's offshore marine fleet structure at the
dates indicated:
At September 30,
--------------------------------
Fleet Structure 2002(1) 2001
- ------------------------------------------ --------------- ----------------
DOMESTIC:
Owned.................................. 123 167
Bareboat and Time Chartered-In......... 34 14
FOREIGN:
Owned.................................. 85 87
Bareboat and Time Chartered-In......... 4 -
Managed................................ 6 7
Joint Ventures and Pools............... 48 53
--------------- ----------------
Total Fleet....................... 300 328
=============== ================
__________
(1) Fleet structure at September 30, 2002 excludes vessels held for sale.
At the beginning of 2002, 15 U.S. utility vessels were permanently removed from
service and 13 of these vessels were still held for sale at September 30, 2002.
These vessels range in length from 96 feet to 120 feet, are at least 20 years
old and have not operated for over one year. All held for sale vessels have been
excluded from utilization statistics and fleet counts since exiting service. The
carrying value of held for sale vessels, totaling $1.1 million, is expected to
be recovered upon disposition.
Vessel operating expenses are primarily a function of fleet size and utilization
levels. The most significant vessel operating expense items are wages paid to
marine personnel, maintenance and repairs and marine insurance. In addition to
variable vessel operating expenses, the offshore marine business segment incurs
fixed charges related to the depreciation of property and equipment and
charter-in hire. Depreciation is a significant operating expense and the amount
related to vessels is the most significant component. Most vessels chartered-in
by the Company resulted from sale-leaseback transactions.
12
Drydocking repairs, which are a substantial component of a vessel's maintenance
costs, are expensed when incurred. Under applicable maritime regulations,
vessels must be drydocked twice in a five-year period for inspection by
regulatory authorities. The Company follows an asset management strategy
pursuant to which it defers required drydocking of selected vessels and
voluntarily removes these vessels from operation during periods of weak market
conditions and low rates per day worked. Should the Company undertake a large
number of drydockings in a particular fiscal quarter or nine-month period or put
through survey a disproportionate number of older vessels, which typically have
higher drydocking costs, comparative results may be affected. For the nine-month
periods ended September 30, 2002 and 2001, drydocking costs totaled $10.6
million and $8.7 million, respectively. During those same periods, the Company
completed the drydocking of 66 and 78 marine vessels, respectively. At September
30, 2002, the Company had removed 27 U.S. based vessels from service requiring
drydocking prior to re-entering operations.
A portion of the Company's revenues and expenses, primarily related to its North
Sea operations, are received or paid in foreign currencies. For financial
statement reporting purposes, these amounts are translated into U.S. dollars at
the weighted average exchange rates during the relevant period. Approximately
52% of the Company's offshore marine operating revenues was derived from foreign
operations (in U.S. dollars or foreign currencies) in the nine-month period
ended September 30, 2002.
The Company's foreign offshore marine operations are subject to various risks
inherent in conducting business in foreign nations. These risks include, among
others, political instability, potential vessel seizure, nationalization of
assets, fluctuating currency values, hard currency shortages, controls of
currency exchange, the repatriation of income or capital, import-export quotas
and other forms of public and governmental regulation, all of which are beyond
the control of the Company. Although, historically, the Company's operations
have not been affected materially by such conditions or events, it is not
possible to predict whether any such conditions or events might develop in the
future. The occurrence of any one or more of such conditions or events could
have a material adverse effect on the Company's financial condition and results
of operations.
Operating results are also affected by the Company's participation in various
joint ventures. The Company has formed or acquired interests in offshore marine
joint ventures with various third parties to enter new markets, enhance its
marketing capabilities and facilitate operations in certain foreign markets.
These arrangements allow the Company to expand its fleet while diversifying the
risks and reducing the capital outlays associated with independent fleet
expansion. The Company also participates in a majority owned logistics joint
venture whose mission has been to provide shorebase, marine transport and other
supply chain management services in support of offshore exploration and
production operations principally in the U.S. Gulf of Mexico.
Exploration and drilling activities, which affect the demand for vessels, are
influenced by a number of factors, including the current and anticipated future
prices of oil and natural gas, the expenditures by oil and gas companies for
exploration and development and the availability of drilling rigs. In addition,
demand for drilling services remains dependent on a variety of political and
economic factors beyond the Company's control, including worldwide demand for
oil and natural gas, the ability of the Organization of Petroleum Exporting
Countries ("OPEC") to set and maintain production levels and pricing, the level
of production of non-OPEC countries and the policies of various governments
regarding exploration and development of their oil and natural gas reserves.
OTHER BUSINESSES AND INVESTMENTS
ENVIRONMENTAL SERVICES
The Company's environmental services business provides contractual oil spill
response and other professional services to companies that store, transport,
produce or handle petroleum and certain non-petroleum oils and, as a result, are
required to obtain such services by the Oil Pollution Act of 1990, as amended,
and various state regulations. Services include training, consulting and
supervision for emergency preparedness, response and crisis management
associated with oil or hazardous material spills, fires and natural disasters
and maintaining specialized equipment for immediate deployment in response to
spills and other events.
The Company charges a retainer fee to its customers for ensuring by contract the
availability (at predetermined rates) of its response services and equipment.
Spill response revenue is dependent on the magnitude of any one spill response
and the number of spill responses within a given fiscal period. The Company also
charges consulting fees to customers for developing customized training
programs, planning and participating in customer oil spill response drill
programs and response exercises as well as other special projects.
13
Operating costs for environmental services primarily include salaries and
related benefits for operating personnel, payments to sub-contractors, equipment
maintenance and depreciation. These expenses are primarily a function of
regulatory requirements and the level of retainer business.
INLAND RIVER BUSINESS
The Company's inland river business was established in 2000. A fleet of hopper
barges service the agriculture and industrial sectors within the United States
that are located along the Mississippi River and its tributaries. Operating
revenues are primarily earned from voyage affreightments under which customers
are charged an established rate per ton to transport cargo at a specific time
from a point of origin to a destination. Revenues are also earned while cargo is
stored aboard barges, when barges are chartered-out to third parties and by
managing barges owned by others. Expenses primarily include towing, switching,
fleeting and cleaning costs and non-voyage related operating expenses including
such costs as repairs, insurance and depreciation.
Barges owned by the Company and certain of those managed for third parties
participate in two pooling arrangements. Pursuant to these pooling arrangements,
operating revenues and voyage expenses are pooled and the profits or losses
after payment to the Company of its management fee are allocated to respective
participating barge owners based upon the number of days any one participating
owner's barges bear to the total number of days of all barges participating in
the pool.
At September 30, 2002, the Company controlled 482 barges, including 246 directly
owned, 11 owned by a 50% owned partnership and 225 managed for third parties.
INVESTMENT IN DRILLING SERVICES BUSINESS
On August 7, 2002, the stockholders of Chiles Offshore Inc. ("Chiles") approved
a merger with ENSCO International Incorporated ("ENSCO") and the merger was
completed. Pursuant to the terms of the merger agreement, Chiles' stockholders
received $5.25 and 0.6575 shares of ENSCO common stock for each share of Chiles'
common stock they owned at the time of the merger. Upon completion of this
merger, the Company received $25.4 million in cash and 3,176,646 shares of
ENSCO's common stock, valued at $73.4 million, and recognized an after-tax gain
of $12.8 million, or $0.60 per fully diluted share.
Prior to the merger, the Company accounted for its equity holdings in Chiles as
an investment in a 50% or less owned company. Following the merger, the Company
sold a portion of its shares of ENSCO common stock and accounts for the shares
of ENSCO common stock it continues to own as available-for-sale securities, and
records changes in their market value each period as adjustments to other
comprehensive income.
OTHER INVESTMENTS
In 1998, the Company acquired an interest in the predecessor of Globe Wireless,
L.L.C. ("Globe Wireless") and now owns approximately 38% of its voting units.
Globe Wireless is a provider of advanced marine telecommunication services using
satellite and high frequency radio technologies. It owns and operates a
worldwide network of high frequency radio stations that offer email, data
transfer and telex services to ships at a much lower cost than competing
satellite services. The Company believes that Globe Wireless offers the only
such service combining radio, satellite and Internet communications to the
maritime community.
In addition, the Company, from time to time, makes investments in other related
businesses.
RESULTS OF OPERATIONS
In the following table, the Company segregates the operating revenues and
profits of its offshore marine service business and combines similar results for
its environmental and inland river businesses in an "Other" reporting category
as they do not meet accounting standards for separate disclosure. The "Other"
reporting category additionally includes all non-offshore marine service
business equity in earnings of 50% or less owned companies. Prior to 2002, the
Company presented its environmental service business as a separate reportable
business segment. Effective January 1, 2002, the environmental service business
is no longer reported as a separate segment as it does not meet the criteria for
reporting segregation pursuant to accounting standards.
14
The Company evaluates business performance based upon operating profit (defined
as Operating Income as reported in the Consolidated Statements of Operations,
excluding corporate-related expenses) plus any gains and losses from the sale of
equipment and interest in 50% or less owned companies, equity in the earnings
and losses of 50% or less owned companies and foreign currency transaction gains
and losses. Accounting policies for measuring segment profits have not changed
from those previously described in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001.
(in thousands of dollars) Offshore
Marine Other Total
---------------- ---------------- ----------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002:
Revenue from External Customers............................. $ 92,894 $ 9,243 $ 102,137
Intersegment Revenues........................................ 66 - 66
---------------- ---------------- ----------------
Segment Operating Revenues............................... 92,960 9,243 102,203
---------------- ----------------
Elimination of Intersegment Revenues..................... (66)
----------------
Consolidated Operating Revenues ...................... $ 102,137
================
Operating Profit............................................ 11,647 1,425 13,072
Income from Equipment Sales or Retirements, net............. 2,318 3 2,321
Foreign Currency Transaction Gains, net..................... 2,203 - 2,203
Other, net................................................... (23) 27 4
Equity in Earnings (Losses) of 50% or Less Owned Companies.. 2,076 (1,288) 788
---------------- ---------------- ----------------
Segment Profit........................................... 18,221 167 18,388
---------------- ----------------
Interest Income.......................................... 2,043
Interest Expense......................................... (3,503)
Derivative Losses, net................................... (3,251)
Gains from Sale of Marketable Securities, net............ 3,377
Gain from Chiles Merger.................................. 19,719
Corporate Expenses....................................... (3,047)
Equity in Earnings of 50% or Less Owned Companies........ (788)
----------------
Consolidated Earnings Before Income Taxes............. $ 32,938
================
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001:
Revenue from External Customers............................. $ 110,785 $ 8,573 $ 119,358
Intersegment Revenues........................................ 191 - 191
---------------- ---------------- ----------------
Segment Operating Revenues............................... 110,976 8,573 119,549
---------------- ----------------
Elimination of Intersegment Revenues..................... (191)
----------------
Consolidated Operating Revenues ...................... $ 119,358
================
Operating Profit............................................ 32,032 711 32,743
Income from Equipment Sales or Retirements, net............. 4,141 4 4,145
Foreign Currency Transaction Gains (Losses), net............ 122 (1) 121
Other, net................................................... (475) - (475)
Equity in Earnings (Losses) of 50% or Less Owned Companies.. 833 (181) 652
---------------- ---------------- ----------------
Segment Profit........................................... 36,653 533 37,186
---------------- ----------------
Interest Income.......................................... 3,023
Interest Expense......................................... (5,798)
Derivative Income, net................................... 1,997
Gains from Sale of Marketable Securities, net............ 1,184
Corporate Expenses....................................... (2,549)
Equity in Earnings of 50% or Less Owned Companies........ (652)
----------------
Consolidated Earnings Before Income Taxes............. $ 34,391
================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002:
Revenue from External Customers............................. $ 279,149 $ 24,301 $ 303,450
Intersegment Revenues........................................ 200 - 200
---------------- ---------------- ----------------
Segment Operating Revenues............................... 279,349 24,301 303,650
---------------- ----------------
Elimination of Intersegment Revenues..................... (200)
----------------
Consolidated Operating Revenues ...................... $ 303,450
================
Operating Profit............................................ 45,055 2,762 47,817
Income from Equipment Sales or Retirements, net............. 5,554 4 5,558
Foreign Currency Transaction Gains (Losses), net............ 5,465 (11) 5,454
Other, net................................................... (23) 27 4
Equity in Earnings (Losses) of 50% or Less Owned Companies.. 5,611 (2,431) 3,180
---------------- ---------------- ----------------
Segment Profit........................................... 61,662 351 62,013
---------------- ----------------
Interest Income.......................................... 6,012
Interest Expense......................................... (11,300)
Derivative Losses, net................................... (2,619)
Gains from Sale of Marketable Securities, net............ 2,699
Gain from Chiles Merger.................................. 19,719
Corporate Expenses....................................... (7,803)
Equity in Earnings of 50% or Less Owned Companies........ (3,180)
----------------
Consolidated Earnings Before Income Taxes............. $ 65,541
================
15
Offshore
Marine Other Total
---------------- ---------------- ----------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001:
Revenue from External Customers............................. $ 298,128 $ 26,858 $ 324,986
Intersegment Revenues........................................ 631 - 631
---------------- ---------------- ----------------
Segment Operating Revenues............................... 298,759 26,858 325,617
---------------- ----------------
Elimination of Intersegment Revenues..................... (631)
----------------
Consolidated Operating Revenues ............... $ 324,986
================
Operating Profit............................................ 73,986 2,987 76,973
Income (Losses) from Equipment Sales or Retirements, net.... 8,143 (151) 7,992
Foreign Currency Transaction Losses, net.................... (537) - (537)
Other, net................................................... (475) - (475)
Equity in Earnings of 50% or Less Owned Companies........... 4,051 292 4,343
Gain from Sale of Interest in a 50% or Less Owned Company... 100 - 100
---------------- ---------------- ----------------
Segment Profit........................................... 85,268 3,128 88,396
---------------- ----------------
Interest Income.......................................... 10,910
Interest Expense......................................... (16,793)
Derivative Income, net................................... 1,962
Gains from Sale of Marketable Securities, net............ 3,583
Corporate Expenses....................................... (7,251)
Equity in Earnings of 50% or Less Owned Companies........ (4,343)
----------------
Consolidated Earnings Before Income Taxes............. $ 76,464
================
OFFSHORE MARINE SERVICES
OPERATING REVENUES. Operating revenues decreased $18.0 million, or 16%, and
$19.4 million, or 6%, in the three and nine-month periods ended September 30,
2002, respectively, compared to the three and nine-month periods ended September
30, 2001.
Lower utilization and rates per day worked resulted in a decline of operating
revenues of $17.0 million and $27.5 million between comparable three and
nine-month periods, respectively. Declines in revenue of $14.2 million and
$27.9 million, respectively, were attributable to the Company's domestic
operations, which offset overall improvements in rates per day worked in the
Company's international operations. Lower domestic fleet utilization and rates
per day worked resulted primarily from a decline in U.S. Gulf of Mexico drilling
activity beginning the second half of 2001 in response to falling natural gas
prices and a weak economic outlook. As of September 30, 2002, the number of
offshore mobile rigs working in the U.S. Gulf of Mexico was 122 as compared with
133 on the same date in the prior year. At September 30, 2002, the Company had
33 U.S. vessels out of service due to weak market conditions in addition to the
13 U.S. vessels held for sale. Although oil and natural gas prices have recently
improved, there has been no particular strengthening in demand for our vessels.
Changes in size and composition of the Company's fleet resulted in a decline of
operating revenues of $0.3 million and an increase of operating revenues of
$10.8 million between comparable three and nine-month periods, respectively.
Reductions in revenue while certain offshore support vessels are removed from
service during mobilization between operating regions and the change of certain
vessels from time charter-out to bareboat charter-out arrangements resulted in
additional operating revenue declines of $2.9 million and $5.4 million between
comparable three and nine-month periods, respectively.
A strengthening of the Pound Sterling currency against the U.S. dollar resulted
in an increase of operating revenues of $1.2 million and $1.4 million between
comparable three and nine-month periods, respectively.
OPERATING PROFIT. Operating profit decreased $20.4 million, or 64%, and $28.9
million, or 39%, in the three and nine-month periods ended September 30, 2002,
respectively, compared to the three and nine-month periods ended September 30,
2001 due primarily to the reductions in operating revenues discussed above.
Other factors contributing to lower operating profits included higher costs
associated with (i) vessel dockings and repairs, (ii) wage increases, (iii) the
charter-in of vessels that were previously owned and (iv) expenses associated
with mobilization of vessels between operating regions. The declines in
operating profit between comparable periods were partially offset by the
cessation of goodwill amortization effective January 1, 2002 in accordance with
recently enacted accounting standards.
16
INCOME FROM EQUIPMENT SALES OR RETIREMENTS, NET. Income from equipment sales or
retirements decreased $1.8 million, or 44%, and $2.6 million, or 32%, in the
three and nine-month periods ended September 30, 2002, respectively, compared to
the three and nine-month periods ended September 30, 2001. These declines are
due principally to the write down by the Company of the carrying value of
certain equipment that had been purchased in anticipation of building a new
vessel that was subsequently cancelled, although the equipment was held for
future use. Management determined that the equipment is mostly obsolete.
During the nine-month period ended September 30, 2002, a total of ten crew, five
towing supply, four utility, three anchor handling towing supply, one supply,
one standby safety and one project vessel were sold. Of these vessels sold,
eight crew, two towing, one anchor handling towing supply and one supply were
chartered-in pursuant to sale-leaseback transactions.
FOREIGN CURRENCY TRANSACTION GAINS (LOSSES), NET. The Company recognized foreign
currency transaction gains of $2.2 million and $5.5 million in the three and
nine-month periods ended September 30, 2002, respectively, as compared with
foreign currency transaction gains of $0.1 million and losses of $0.5 million in
the three and nine-month periods ended September 30, 2001, respectively. In late
2001 and early 2002, SEACOR provided significant advances to certain wholly
owned U.K. subsidiaries, whose functional currency is Pounds Sterling. An
increase in the value of the Pound Sterling relative to the U.S. dollar has
resulted in the Company's recognition of a significant foreign currency
transaction gain with respect to these advances during the three and nine-month
periods ended September 30, 2002. See "Item 3. Quantitative and Qualitative
Disclosures About Market Risks" for additional discussion.
EQUITY IN EARNINGS OF 50% OR LESS OWNED COMPANIES. Equity earnings increased
$1.2 million, or 149%, and $1.6 million, or 39%, in the three and nine-month
periods ended September 30, 2002, respectively, compared to the three and
nine-month periods ended September 30, 2001. The increase in earnings resulted
primarily from higher profits earned by the Company's joint ventures operating
in Mexico and Trinidad. In addition, results for the nine-month period ended
September 30, 2001 included $1.3 million of income resulting from the sale of a
vessel; whereas, results for the nine-month period ended September 30, 2002 did
not include any income from vessel sales.
OTHER
OPERATING REVENUES. Operating revenues increased $0.7 million, or 8%, and
decreased $2.6 million, or 10%, in the three and nine-month periods ended
September 30, 2002, respectively, compared to the three and nine-month periods
ended September 30, 2001. Both the increase and decrease in operating revenues
between comparable three and nine-month periods resulted primarily from the
changes in the number and severity of spill responses managed by the Company's
environmental service business. Environmental retainer revenues declined between
both comparable periods due to the loss of certain customers and contract
renegotiations with certain other customers. Between both comparable periods,
higher revenues were earned by the Company's inland river business due primarily
to an increase in the size of its barge fleet.
OPERATING PROFIT. Operating profit increased $0.7 million, or 100%, and
decreased $0.2 million, or 8%, in the three and nine-month periods ended
September 30, 2002, respectively, compared to the three and nine-month periods
ended September 30, 2001 due primarily to the changes in operating revenues
discussed above. The results for the 2002 periods benefited from lower expenses
due to the cessation of goodwill amortization effective January 1, 2002 in
accordance with recently enacted accounting standards.
EQUITY IN EARNINGS (LOSSES) OF 50% OR LESS OWNED COMPANIES. Results decreased
$1.1 million, or 612%, and $2.7 million, or 933%, in the three and nine-month
periods ended September 30, 2002, respectively, compared to the three and
nine-month periods ended September 30, 2001. The decline in results between
comparable three-month periods was due primarily to the Company no longer
accounting for its investment in Chiles under the equity method as a result of
the merger of Chiles and ENSCO (the "Chiles Merger"). The nine-month comparable
results declined due primarily to the Company's recognition of a charge against
income for investment impairment of Strategic Software Limited, an equity
investee, whose principal activity is to develop and sell software to the ship
brokerage and shipping industry. In addition, results for the nine-month period
ended September 30, 2001 included income resulting from the sale of a dry-bulk
carrier ship; whereas, results for the nine-month period ended September 30,
2002 did not include any income from vessel sales.
17
INTEREST INCOME AND INTEREST EXPENSE. Net interest expense decreased $1.3
million, or 47%, and $0.6 million, or 10%, in the three and nine-month periods
ended September 30, 2002, respectively, compared to the three and nine-month
periods ended September 30, 2001. Interest income declined due primarily to
lower invested cash balances that resulted primarily from fleet acquisitions.
Lower interest expense resulted primarily from the repayment of certain
outstanding indebtedness related primarily to the acquisition of offshore
support vessels, the redemption of $146.3 million principal amount of the
Company's 5 3/8% Convertible Subordinated Notes Due 2006 (the "5 3/8% Notes")
during 2001 and 2002 and the entry into interest rate swap agreements. See "Item
3. Quantitative and Qualitative Disclosures About Market Risk" for discussion.
DERIVATIVE INCOME (LOSSES), NET. The Company recognized net losses from
derivative transactions of $3.3 million and $2.6 million in the three and
nine-month periods ended September 30, 2002, respectively, compared to net gains
of $2.0 million in the three and nine-month periods ended September 30, 2001. In
the three and nine-month periods ended September 30, 2002, the Company
recognized net losses primarily from the settlement of U.S. Treasury rate-lock
agreements, notes and bond options and futures contracts. The net losses in 2002
were partially offset by unrealized gains resulting from interest rate swap
agreements and costless collar transactions. See "Item 3. Quantitative and
Qualitative Disclosures About Market Risk" for discussion. In the three and
nine-month periods ended September 30, 2001, the Company recognized net gains
primarily from natural gas and crude oil positions and foreign currency forward
exchange contracts.
GAINS (LOSSES) FROM SALE OF MARKETABLE SECURITIES, NET. Net gains from the sale
of marketable securities increased $2.2 million and decreased $0.9 million
between comparable three and nine-month periods ended September 30, 2002 and
2001, respectively. The gains in both years resulted primarily from the sale of
equity securities.
GAIN FROM CHILES MERGER. The Company recognized a gain of $19.7 million in the
three and nine-month periods ended September 30, 2002 as a result of the Chiles
Merger.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's ongoing liquidity requirements arise primarily from its need to
service debt, fund working capital, acquire, construct or improve equipment and
make other investments. Management believes that cash flow from operations will
provide sufficient working capital to fund the Company's operating needs. The
Company may, from time to time, issue shares of its common stock, preferred
stock or debt, or a combination thereof, or sell vessels to finance the
acquisition of equipment and businesses or make improvements to existing
equipment.
The Company's cash flow levels and operating revenues are determined primarily
by the size of the Company's offshore marine fleet, rates per day worked and
overall utilization of the Company's offshore marine fleet. The Company's
ability to generate cash through its offshore marine business is directly
affected by the volatility of oil and gas prices, the level of offshore
production and exploration activity and other factors beyond the Company's
control.
CASH AND MARKETABLE SECURITIES
Since December 31, 2001, the Company's cash and investments in marketable
securities increased by $278.9 million. At September 30, 2002, cash and
marketable securities totaled $536.9 million, including $388.2 million of
unrestricted cash and cash equivalents, $61.1 million of marketable securities
and $87.6 million of construction reserve funds. Construction reserve funds at
September 30, 2002 are intended to be used for payment of costs to construct
U.S.-flag offshore marine vessels for the Company.
CASH GENERATION AND DEPLOYMENT
OPERATING ACTIVITIES. Cash flow provided from operating activities during the
nine-month period ended September 30, 2002 totaled $52.1 million and decreased
31% from the comparable period in 2001 due primarily to lower utilization of the
Company's offshore support vessels. This decrease was partially offset by
favorable changes in working capital.
18
INVESTING AND FINANCING ACTIVITIES. During the nine-month period ended September
30, 2002, the Company generated $401.3 million from investing and financing
activities. In the third quarter of 2002, SEACOR completed the sale of $200.0
million aggregate principal amount of its 5 7/8% Senior Notes due October 1,
2012 (the "5 7/8% Notes"). The 5 7/8% Notes were issued at a price of 98.839% of
the principal amount, or $197.7 million. See "Liquidity and Capital Resources -
5 7/8% Notes." Proceeds of $102.0 million were received in the sale of
twenty-five offshore support vessels. Available-for-sale securities were sold
for $60.9 million. The Company received $25.4 million in cash as a result of the
Chiles Merger. Payments of principal and dividends from 50% or less owned
companies totaled $14.1 million. Additional cash was generated primarily from
principal repayments of sale-type leases and proceeds from the Company's
Employee Stock Purchase Plan.
During the nine-month period ended September 30, 2002, the Company used $246.1
million in its investing and financing activities. Capital expenditures,
primarily related to the acquisition of offshore support vessels and barges,
totaled $88.6 million. Shipyards delivered five crew and two anchor handling
towing supply vessels and one hundred thirty-four barges. The Company repaid
$87.8 million of its outstanding indebtedness. Construction reserve fund
balances rose by $32.3 million as deposits into joint depository construction
reserve fund accounts exceeded reimbursements. Marketable securities were
acquired for $26.0 million. Additional cash was used primarily for the
settlement of derivative transactions and the purchase of treasury stock.
CAPITAL EXPENDITURES
As of September 30, 2002, the Company was committed to the construction of
offshore support vessels and barges for an approximate aggregate cost of $99.5
million of which $19.0 million has been expended. The Company expects a certain
number of the barges to be purchased by third parties and managed by the
Company. The barges are expected to be delivered during the fourth quarter of
2002 and the vessels are expected to enter service within the next year.
Following quarter-end, the Company committed to acquire and/or construct
additional offshore support vessels and barges for an approximate aggregate cost
of $18.8 million. The Company expects the vessels and barges to be delivered
within the next six months.
CREDIT FACILITY AND NOTES
REVOLVING CREDIT FACILITY. As of November 7, 2002, the Company had $199.8
million available for borrowing under its revolving credit facility maturing in
February 2007. Availability under the facility increased by $174.8 million
following December 31, 2001 upon the refinancing and increase of the prior
credit facility, repayment of outstanding borrowings and cancellation of a
letter of credit that served as security for note obligations the Company issued
in connection with the acquisition of Stirling Shipping Holdings Limited in
2001. The Company presently has an outstanding letter of credit in the amount of
$0.2 million.
OTHER NOTES. During the first quarter of 2002, the Company repaid $12.1 million,
the outstanding balance of secured debt assumed in connection with the purchase
of two offshore marine vessels in 2001, and during the second quarter of 2002,
the Company repaid (pound)14.7 million, or $21.4 million, in one year loan notes
issued in the prior year in connection with the acquisition of an offshore
marine company operating principally in the United Kingdom.
5 7/8% NOTES. During the third quarter of 2002, SEACOR completed the sale of
$200.0 million aggregate principal amount of its 5 7/8% Notes at a price of
98.839% of the principal amount which resulted in proceeds of $197.7 million.
Interest on the 5 7/8% Notes is payable semiannually on April 1 and October 1 of
each year commencing April 1, 2003. The 5 7/8% Notes may be redeemed an any
time, in whole or in part, at a price equal to 100% of the principal amount,
plus accrued and unpaid interest to the date of redemption, plus a specified
"make-whole" premium. The 5 7/8% Notes were issued under a supplemental
indenture dated as of September 27, 2002 to the base indenture relating to
SEACOR's senior debt securities, dated as of January 10, 2001, between SEACOR
and U.S. Bank National Association, as trustee.
With proceeds from the 5 7/8% Notes, the SEACOR redeemed and/or purchased $11.0
million principal amount of its 5 3/8% Notes for $11.2 million and $13.0 million
principal amount of its 7.2% Notes Due 2009 (the "7.2% Notes") for $14.4
million. SEACOR also repaid $30.0 million outstanding under its revolving credit
facility. Subject to market and other conditions, the Company also plans to use
the net proceeds to redeem the $35.3 million outstanding principal amount of its
5 3/8% Notes and for working capital and general corporate purposes, which may
include repayment of other outstanding debt.
19
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Below is an aggregation of the Company's contractual
obligations and commercial commitments as of September 30, 2002, in thousands of
dollars.
Payments Due By Period
------------------------------------------------------
Less
than 1-3 4-5 After
Contractual Obligations Total 1 Year Years Years 5 Years
- ------------------------------- --------- --------- --------- --------- --------
Long-term Debt (1)............ $ 405,538 $ 356 $ 35,129 $ 35,395 $ 334,658
Operating Leases(2)........... 94,613 26,981 37,510 21,439 8,683
Construction Commitments(3)... 80,544 80,544 - - -
--------- --------- --------- --------- --------
Total Contractual Cash $ 580,695 $ 107,881 $ 72,639 $ 56,834 $ 343,341
Obligations...................
========= ========= ========= ========= ========
Amount of Commitment Expiration Per Period
---------------------------------------------------------
Less
Total than 1-3 4-5 Over 5
Other Commercial Commitments Committed 1 Year Years Years Years
- ------------------------------- --------- --------- --------- --------- --------
TMM Joint Venture Guarantee(4) $ 1,847 $ 1,847 $ - $ - $ -
Pelican Joint Venture 1,500 - - 1,500 -
Guarantee(5)..................
Letter of Credit ............. 175 175 - - -
--------- --------- --------- --------- --------
Total Commercial Commitments $ 3,522 $ 2,022 $ - $ 1,500 $ -
========= ========= ========= ========= ========
____________________
(1) This excludes debt discount, totaling $3.8 million.
(2) This primarily relates to vessel lease obligations. See "Item 1.
Financial Statements -- Notes to Condensed Consolidated Financial
Statements, Footnote 7 -- Equipment Sales" for discussion of vessels
sold pursuant to sale-leaseback transactions during 2002.
(3) See "Liquidity and Capital Resources -- Capital Expenditures" for
discussion.
(4) Guarantee for non-payment of obligations owing under a charter
arrangement by the Company's TMM Joint Venture that is expected to
terminate during 2002.
(5) Guarantee of amounts owed by the Pelican Joint Venture under its
banking facilities.
TREASURY STOCK PURCHASES
During the nine-month period ended September 30, 2002, SEACOR purchased 144,700
shares of its common stock for treasury at an aggregate cost of $5.6 million.
SECURITY REPURCHASE AUTHORITY
The Company has approximately $37.5 million authorized and available under its
securities repurchase program to repurchase the Company's common stock, its 5
3/8% Notes, its 7.2% Notes and/or its 5 7/8% Notes as of the date of this report
and after taking into account all repurchases made through such date. The
repurchase of any such securities may be conducted from time to time through
open market repurchases, privately negotiated transactions or otherwise
depending on market conditions.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted Financial Accounting Standards
No. 141 ("SFAS 141"), "Business Combinations," and SFAS 142, "Goodwill and Other
Intangible Assets." Among other changes to prior practices, the new standards
require (i) the use of the purchase method of accounting for all business
combinations, (ii) that goodwill not be amortized in any circumstance and (iii)
that goodwill be tested for impairment annually or when events or circumstances
occur between annual tests indicating that goodwill for a reporting unit might
be impaired based on a fair value concept. SFAS 142 requires that impairment
testing of the opening goodwill balances be performed within six months from the
start of the fiscal year in which the standard is adopted and that any
impairment be written off and reported as a cumulative effect of a change in
accounting principle. We have completed the impairment test as of January 1,
2002 and have determined there is no goodwill impairment. The Company ceased
amortization of its remaining goodwill balance effective January 1, 2002. For
the three and nine-month periods ended September 30, 2001, goodwill amortization
totaled $0.9 million and $2.3 million, respectively, and adjusted for goodwill
amortization, net income in these same periods would have been $23.1 million, or
$1.00 per fully diluted share, and $53.5 million, or $2.50 per fully diluted
share, respectively.
Effective January 1, 2002, the Company adopted SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." This new statement also supercedes certain aspects of
Accounting Principle Board Opinion No. 30 ("APB 30"), "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," with
regard to reporting the effects of a disposal of a segment of a business and
will require expected future operating losses from discontinued operations to be
20
reported in discontinued operations in the period incurred rather than as of the
measurement date as presently required by APB 30. Additionally, certain
dispositions may now qualify for discontinued operations treatment. The adoption
of this statement did not have a material effect on the Company's financial
statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 143,
"Accounting for Asset Retirement Obligations," which requires recording the fair
value of a liability for an asset retirement obligation in the period incurred.
The standard is effective for fiscal years beginning after June 15, 2002, with
earlier application permitted. Upon adoption of the standard, the Company will
be required to use a cumulative effect approach to recognize transition amounts
for any existing retirement obligation liabilities, asset retirement costs and
accumulated depreciation. The nature of the Company's business and long-lived
assets is such that the Company does not expect adoption of this standard to
have a material effect on the Company's financial statements.
In May 2002, the FASB issued SFAS 145, "Recission of FASB Statements Nos. 4, 44
and 64, Amendment of FASB Statement No. 13 and Technical Corrections," which is
effective for fiscal years beginning after May 15, 2002. This statement, among
other matters, provides guidance with respect to the accounting for gains or
losses on capital leases which were modified to become operating leases. The
statement also eliminates the requirement that gains or losses on the early
extinguishment of debt be classified as extraordinary items and provides
guidance when gains or losses on the early retirement of debt should or should
not be reflected as an extraordinary item. The Company does not expect adoption
of this statement when it becomes effective to have a material effect on its
financial statements.
In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities." This statement requires that costs associated with
terminating employees or contracts or closing or relocating facilities are to be
recognized at fair value at the time the liability is incurred. The Company does
not expect adoption of this statement when it becomes effective for disposal
activities initiated after December 31, 2002 to have a material effect on its
financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company has foreign currency exchange risks primarily related to its
offshore marine service vessel operations that are conducted from ports located
in the United Kingdom where its functional currency is Pounds Sterling. To
protect certain of the U.S. dollar value of pound sterling denominated net
assets of the Company from the effects of volatility in foreign exchange rates
that might occur prior to their conversion to U.S. dollars, the Company from
time to time enters into forward exchange contracts. The forward exchange
contracts would enable the Company to sell pounds sterling in the future at
fixed exchange rates to offset certain consequences of changes in foreign
currency exchange rates on the amount of U.S. dollar cash flows to be derived
from the net assets. The Company considers these forward exchange contracts as
economic hedges of a net investment as the translation adjustments resulting
from the forward exchange contracts move in the opposite direction from the
translation adjustments resulting from the restatement of its United Kingdom
subsidiaries' net assets. At September 30, 2002, there were no outstanding
forward exchange contracts for which hedge accounting criteria were met.
SEACOR has loaned funds to certain of its wholly owned subsidiaries that are
Pound Sterling functional currency investees. At September 30, 2002, the
outstanding balance of these intercompany loans totaled $100.2 million, or
(pound)63.9 million. The advances are repayable in Pounds Sterling and are
expected to be repaid in the foreseeable future. Until repaid, accounting
standards require that changes in the exchange rate from the transaction date
until the settlement date with respect to these intercompany advances be
included in the determination of net income. A 1% weakening in the exchange rate
of the Pound Sterling against the U.S. dollar would result in the Company's
recognition of a $1.0 million foreign currency transaction loss with respect to
these advances.
The Company from time to time enters into forward exchange contracts or futures
contracts that are considered speculative with respect to Pounds Sterling,
Euros, Norwegian Kroners and Singapore Dollars. The Pound Sterling, Euro and
Singapore Dollar contracts enable the Company to buy Pounds Sterling, Euros and
Singapore Dollars in the future at fixed exchange rates, which would offset
certain effects of future changes in currency exchange rates on business
conducted in such currencies in the United Kingdom, the Netherlands, France and
Singapore. The Norwegian Kroner contracts enable the Company to buy Norwegian
Kroners in the future at a fixed exchange rate, which would offset certain
effects of changes in currency exchange rates if the Company conducts business
21
in Norway. At September 30, 2002, the fair values of the Company's outstanding
forward exchange and futures contracts were immaterial.
From time to time, the Company enters into short positions in U.S. treasury
notes and bonds via futures or options on futures and rate-lock agreements on
U.S. treasury notes in order to provide value to the Company should the price of
U.S. treasury notes and bonds decline leading to generally higher interest rates
which, if sustained over time, could lead to higher interest costs for the
Company. At September 30, 2002, unrealized losses with respect to positions in
U.S. treasury obligations were immaterial.
Natural gas and crude oil swaps, options and futures contracts are generally
employed by the Company to provide value should the price of natural gas or
crude oil decline, which, if sustained, would lead to a decline in the Company's
offshore assets' market values and cash flows. At September 30, 2002, unrealized
losses with respect to positions in commodity contracts totaled $0.3 million and
were reported in the Condensed Consolidated Balance Sheet under "Other current
liabilities."
In order to partially hedge the fluctuation in market value for part of the
Company's common stock position in ENSCO, the Company entered into various
transactions (commonly known as "costless collars") with a major financial
institution on 1.0 million shares of ENSCO common stock. The effect of these
third quarter transactions is that the Company will be guaranteed a minimum
value of approximately $24.35 and up to a maximum value of approximately $29.80
per share of ENSCO, at maturity. The costless collars will expire during the
second quarter 2003. If the share value of ENSCO's common stock is in excess of
approximately $29.80 at maturity, then the Company will have a choice of either
(a) selling the shares to the counterparty for $29.80 or (b) paying the
counterparty the difference between the market value and $29.80, in cash, and
continue to own the shares. If, on the other hand, the share value of ENSCO's
common stock is less than approximately $24.35 at maturity, then the Company
will have a choice of either (a) selling the shares to the counterparty for
$24.35 or (b) receiving the difference between the market value and $24.35, in
cash, and continue to own the shares. If the share value of ENSCO's common stock
is between $24.35 and $29.80 at maturity, then neither party will have a payment
obligation and the Company will continue to own the shares. The Company
establishes the fair value of the costless collar at the end of each reporting
period and the change in value is recorded in the books of the Company under
"Derivative income (loss), net." At the end of the third quarter 2002, the
Company recorded derivative income of $1.5 million from these transactions. The
market value of ENSCO's common stock at September 30, 2002 was $25.04 per share.
The Company's investment in ENSCO's common stock is recorded as
available-for-sale securities and the change in market value at the end of each
period is recorded as other comprehensive income.
The Company's debt is primarily in fixed interest rate instruments. While the
fair value of these debt instruments will vary with changes in interest rates,
the Company has fixed most of its cash flow requirements and operations are not
significantly affected by interest rate fluctuations. For a portion of the
Company's fixed debt instruments, the 5 3/8% Notes, the fair value is driven by
the conversion feature rather than interest rates. As of September 30, 2002,
$35.3 million aggregate principal amount of the 5 3/8% Notes was outstanding.
The Company's only significant variable rate debt instrument is its revolving
credit facility, under which the Company had no outstanding balance at September
30, 2002. While available for liquidity requirements, the Company has not
historically utilized significant portions of this facility for any extended
periods of time and thus has not been significantly impacted by fluctuations in
interest rates.
In order to reduce its cost of capital, the Company entered into swap agreements
during the fourth quarter of 2001 and second quarter of 2002 with a major
financial institution with respect to $41.0 million of its 7.2% Notes. Pursuant
to each such agreement, such financial institution agreed to pay to the Company
an amount equal to interest paid on the notional amount of the 7.2% Notes
subject to such agreement, and the Company agreed to pay to such financial
institution an amount equal to interest currently at the rate of approximately
3.3% per annum on the agreed upon price of such notional amount of the 7.2%
Notes as set forth in the applicable swap agreements.
Upon termination of each swap agreement, the financial institution agreed to pay
to the Company the amount, if any, by which the fair market value of the
notional amount of the 7.2% Notes subject to the swap agreement on such date
exceeded the agreed upon price of such notional amount as set forth in such swap
agreement, and the Company agreed to pay to such financial institution the
amount, if any, by which the agreed upon price of such notional amount exceeded
the fair market value of such notional amount on such date. The agreed upon
price of such notional amount as set forth in such swap agreements totaled $41.7
million. At September 30, 2002, unrealized gains which resulted from the fair
value of the notional amounts exceeding the agreed upon price set forth in the
swap agreements totaled $3.5 million. During the fourth quarter of 2002, the
swap agreements were extended for an additional twelve months and will now
terminate during the fourth quarter of 2003 and the second quarter of 2004
unless they are extended further by mutual consent.
22
PART II - OTHER INFORMATION
ITEM 4. CONTROLS AND PROCEDURES
(a) The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the
Company's filings under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the periods
specified in the rules and forms of the Securities and Exchange
Commission. Such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily is required to apply
judgment in evaluating disclosure controls and procedures.
Within 90 days prior to the filing date of this quarterly report on
Form 10-Q, the Company has carried out an evaluation, under the
supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on such
evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls
and procedures are effective.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the
internal controls subsequent to the date of their evaluation in
connection with the preparation of this quarterly report on Form
10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
B. Reports on Form 8-K:
(i) Current Report on Form 8-K, dated June 25, 2002, reporting, under
Item 4, that on June 25, 2002, the Company dismissed Arthur Andersen LLP as
its independent auditor, and engaged the firm of Ernst & Young LLP as its
new independent auditor for 2002.
(ii) Current Report on Form 8-K, dated July 1, 2002, reporting, under
Item 5, that on July 1, 2002 the Company announced that it had called for
redemption certain of its 5 3/8% convertible subordinated notes due 2006
and disclosing certain information with respect to the merger of Chiles
Offshore Inc., the Company's offshore drilling subsidiary, with Ensco
International Incorporated.
(iii) Current Report on Form 8-K, dated September 27, 2002, reporting,
under Item 5, entry into a firm commitment underwriting agreement with
Morgan Stanley & Co. Incorporated to sell $200.0 million of 5 7/8% senior
notes due October 1, 2012 and subsequent completion of this transaction on
September 27, 2002.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEACOR SMIT Inc.
(Registrant)
DATE: NOVEMBER 14, 2002 By: /s/ Charles Fabrikant
----------------------------------------
Charles Fabrikant, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
DATE: NOVEMBER 14, 2002 By: /s/ Randall Blank
----------------------------------------
Randall Blank, Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
24
CERTIFICATIONS
I, Charles Fabrikant, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SEACOR SMIT Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a- 14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
25
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: November 14, 2002
/s/ Charles Fabrikant
- --------------------------------
Name: Charles Fabrikant
Title: Chief Executive Officer
26
I, Randall Blank, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SEACOR SMIT Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
27
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 14, 2002
/s/ Randall Blank
- ------------------------------
Name: Randall Blank
Title: Chief Financial Officer
28
EXHIBIT INDEX
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
29