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 March 31, 2003 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
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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
- --------------------------------------------- -------------------------------
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
The total number of shares of common stock, par value $.01 per share,
outstanding as of May 9, 2003 was 19,505,221. The Registrant has no other class
of common stock outstanding.
SEACOR SMIT INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2003 and December 31, 2002...................................................................1
Condensed Consolidated Statements of Operations for each of the
Three-Months Ended March 31, 2003 and 2002.............................................................2
Condensed Consolidated Statements of Cash Flows
for each of the Three-Months Ended March 31, 2003 and 2002.............................................3
Notes to the Condensed Consolidated Financial Statements....................................................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................................17
Part II. Other Information
Item 4. Controls and Procedures....................................................................................18
Item 6. Exhibits and Reports on Form 8-K...........................................................................18
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA, UNAUDITED)
March 31, December 31,
2003 2002
----------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 321,624 $ 342,046
Marketable Securities - 7,984
Trade and other receivables, net of allowance for
doubtful accounts of $1,406 and $1,421, respectively 102,660 106,120
Prepaid expenses and other 19,154 17,041
----------------- -----------------
Total current assets 443,438 473,191
----------------- -----------------
Investments, at Equity, and Receivables from 50% or 64,898 61,359
Less Owned Companies
Available-for-Sale Securities 78,259 80,641
Property and Equipment 936,401 988,443
Less - Accumulated depreciation (255,596) (250,475)
----------------- -----------------
Net property and equipment 680,805 737,968
----------------- -----------------
Construction Reserve Funds 98,192 95,260
Other Assets 36,118 38,688
----------------- -----------------
$ 1,401,710 $ 1,487,107
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 138 $ 614
Accounts payable and accrued expenses 27,452 31,799
Other current liabilities 34,318 39,008
----------------- -----------------
Total current liabilities 61,908 71,421
----------------- -----------------
Long-term Debt 343,058 402,118
Deferred Income Taxes 174,933 174,987
Deferred Income and Other Liabilities 30,100 31,938
Minority Interest in Subsidiaries 1,740 1,692
Stockholders' Equity:
Common stock, $.01 par value, 24,393,365 and 24,307,235 shares
issued at March 31, 2003 and December 31, 2002 244 243
Additional paid-in capital 407,047 403,590
Retained earnings 523,774 519,430
Treasury stock, 4,778,747 and 4,386,143 shares at
March 31, 2003 and December 31, 2002, at cost (141,536) (127,587)
Unamortized restricted stock compensation (5,033) (2,217)
Accumulated other comprehensive income -
Cumulative translation adjustments 748 5,750
Unrealized gain on available-for-sale securities 4,727 5,742
----------------- -----------------
Total stockholders' equity 789,971 804,951
----------------- -----------------
$ 1,401,710 $ 1,487,107
================= =================
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
March 31,
----------------- --- ----------------
2003 2002
----------------- ----------------
Operating Revenues $ 96,860 $ 103,643
----------------- ----------------
Costs and Expenses:
Operating expenses 67,100 57,156
Administrative and general 14,079 12,360
Depreciation and amortization 14,636 13,876
----------------- ----------------
95,815 83,392
----------------- ----------------
Operating Income 1,045 20,251
----------------- ----------------
Other Income (Expense):
Interest on debt (5,506) (4,001)
Interest income 2,556 1,867
Debt extinguishment (1,125) -
Income from equipment sales or retirements, net 5,147 2,299
Derivative income (loss), net 1,749 (772)
Other, net 2,729 (4,325)
----------------- ----------------
5,550 (4,932)
----------------- ----------------
Income Before Income Tax Expense, Minority Interest in
Income of Subsidiaries and Equity in Earnings of 50%
or Less Owned Companies 6,595 15,319
Income Tax Expense 2,399 5,243
----------------- ----------------
Income Before Minority Interest in Income of Subsidiaries
And Equity in Earnings of 50% or Less Owned Companies 4,196 10,076
Minority Interest in Income of Subsidiaries (98) (93)
Equity in Earnings of 50% or Less Owned Companies 246 1,423
----------------- ----------------
Net Income $ 4,344 $ 11,406
================= ================
Basic Earnings Per Common Share $ 0.22 $ 0.57
================= ================
Diluted Earnings Per Common Share $ 0.22 $ 0.55
================= ================
Weighted Average Common Shares:
Basic 19,775,194 20,039,130
Diluted 20,362,120 21,350,345
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)
Three Months Ended
March 31,
----------------------------------
2003 2002
--------------- ---------------
Net Cash Provided by Operating Activities $ 8,936 $ 18,926
--------------- ---------------
Cash Flows from Investing Activities:
Purchase of property and equipment (23,431) (30,926)
Proceeds from equipment sales 69,794 32,245
Purchase of available-for-sale securities (14,382) . (6,258)
Proceeds from sale of available-for-sale securities 19,421 3,105
Investments in and advances to 50% or less owned companies (6,000) (232)
Principal payments on notes due from 50% or less owned companies 627 1,597
Dividends received from 50% or less owned companies 2,197 1,061
Net increase in construction reserve funds (2,932) (6,372)
Cash settlements of derivative transactions (59) 2,399
Other, net 121 261
--------------- ---------------
Net cash provided by (used in) investing activities 45,356 (3,120)
--------------- ---------------
Cash Flows from Financing Activities:
Payments of long-term debt (59,451) (12,189)
Proceeds from issuance of long-term debt - 81
Proceeds from share award plans 367 196
Common stock acquired for treasury (14,310) -
Premium paid with 5 3/8% note extinguishment (632) -
--------------- ---------------
Net cash used in financing activities (74,026) (11,912)
--------------- ---------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (688) (3,895)
--------------- ---------------
Net Decrease in Cash and Cash Equivalents (20,422) (1)
Cash and Cash Equivalents, Beginning of Period 342,046 180,394
--------------- ---------------
Cash and Cash Equivalents, End of Period $ 321,624 $ 180,393
=============== ===============
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-month periods
ended March 31, 2003 and 2002 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 March 31, 2003 and 2002. 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, 2002.
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. CHANGES IN ACCOUNTING POLICIES AND ESTIMATES
Effective January 1, 2003, the Company adopted SFAS 145, "Recission of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections." This statement, among other matters, 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.
Adopting SFAS 145 had no impact on prior quarter financial statements, but in
future quarters will result in the reclassification of the extraordinary losses
recognized in previous periods to income from continuing operations. On February
20, 2003, the Company redeemed all of the then outstanding principal amount of
its 5 3/8% Convertible Subordinated Notes due November 15, 2006 (the "5 3/8%
Notes"), which resulted in a write-off of related unamortized deferred financing
costs and premium payment, totaling $1,125,000. In accordance with SFAS 145, the
deferred financing costs write-off and premium payment were recognized as a
component of income from continuing operations.
Effective January 1, 2003, the Company changed its estimated residual value for
newly constructed supply, towing supply and anchor handling towing supply vessel
assets from 10% to 5%. The effect on income of this change in accounting
estimate was not material in the first quarter.
3. COMPREHENSIVE INCOME
For the three-month period ended March 31, 2003, the Company had a total
comprehensive loss of $1,673,000 as compared to total comprehensive income of
$11,250,000 for the three-month period ended March 31, 2002. Results of each
quarter included other comprehensive losses resulting primarily from foreign
currency translation adjustments. Results for the first quarter of 2003
additionally included comprehensive losses resulting from unrealized holding
losses on available-for-sale securities; whereas, results of the first quarter
2002 included a comprehensive gain from similar transactions.
4
4. LONG-TERM DEBT
On February 20, 2003, the Company redeemed all of the then outstanding principal
amount of its 5 3/8% Notes, totaling $35,319,000. On March 4, 2003, the Company
repaid all of the then outstanding principal amount of its 5.467% Subordinated
Promissory Notes, totaling $23,200,000. First quarter results also include the
repayment of various other promissory notes in the aggregate principal amount of
$934,000. On April 7, 2003, the Company repaid additional promissory notes in
the aggregate principal amount of (pound)7,500,000, or $11,712,000.
5. STOCK AND DEBT REPURCHASE PROGRAM
In the first quarter of 2003, the Company acquired a total of 403,990 shares of
its common stock for treasury at an aggregate cost of $14,310,000. At March 31,
2003, $38,443,000 remained available, pursuant to authorization of SEACOR's
Board of Directors, for the repurchase of additional securities pursuant to the
Company's securities repurchase plan. These repurchases may be conducted from
time to time through open market purchases, privately negotiated transactions or
otherwise, depending on market conditions. Following quarter end and through May
13, 2003, the Company acquired an additional 223,650 shares of its common stock
for treasury at an aggregate cost of $8,376,000. On May 14, 2003, the Company's
Board of Directors increased its authorization for repurchases pursuant to the
securities repurchase plan and, with this increase, approximately $65,000,000 is
available for purchases of the Company's common stock, 7.2% senior notes due
2009 and its 5 7/8% senior notes due 2012.
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 exclude certain options and
share awards, totaling 284,285 and 48,000 in the three-month periods ended March
31, 2003 and 2002, respectively, as the effect of their inclusion in the
computation would have been antidilutive.
Per
Income Shares Share
------------------------------- --------
FOR THE THREE MONTHS ENDED MARCH 31, 2003:
Basic Earnings Per Share -
Income before extraordinary item $ 4,344,000 19,775,194 $ 0.22
=======
Effect of Dilutive Securities -
Options and restricted stock - 167,739
Convertible securities 167,000 419,187
-------------- ---------------
Diluted Earnings Per Share -
Income available to common stockholders
plus assumed conversions $ 4,511,000 20,362,120 $ 0.22
=============== =============== ========
FOR THE THREE MONTHS ENDED MARCH 31, 2002:
Basic Earnings Per Share -
Income before extraordinary item $ 11,406,000 20,039,130 $ 0.57
========
Effect of Dilutive Securities -
Options and restricted stock - 258,488
Convertible securities 432,000 1,052,727
-------------- ---------------
Diluted Earnings Per Share -
Income available to common stockholders
plus assumed conversions $ 11,838,000 21,350,345 $ 0.55
=============== =============== ========
5
7. STOCK COMPENSATION
Under SFAS 123, companies could either adopt a "fair valued based method" of
accounting for an employee stock option, as defined, or continue to use
accounting methods as prescribed by APB Opinion No. 25. The Company has elected
to continue accounting for its plan under APB Opinion No 25. Had compensation
costs for the plan been determined consistent with SFAS 123, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts for the three months ended March 31, 2003, and 2002.
2003 2002
------------------------------- --------------------------------
(in thousands, except share data) As Reported Pro forma As Reported Pro forma
------------------------------------ --------------- --------------- --------------- ---------------
Net income $ 4,344 $ 4,079 $ 11,406 $ 10,921
Earnings per common share:
Basic $ 0.22 $ 0.21 $ 0.57 $ 0.54
Diluted 0.22 0.21 0.55 0.53
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future events, and additional awards in the future are anticipated.
8. COMMITMENTS AND CONTINGENCIES
As of March 31, 2003, the Company was committed to the construction of 12
offshore support vessels and 30 inland river hopper barges ("barges") for an
approximate aggregate cost of $103,471,000, of which $32,087,000 has been
expended. The Company is expected to take delivery of the barges during the
third and fourth quarters of 2003, and the vessels are expected to enter service
during 2003 and 2004. Following quarter end, the Company committed to the
construction of an additional offshore support vessel for an approximate
aggregate cost of $3,900,000.
9. SEGMENT INFORMATION
Management views the Company's business as consisting of two principal business
segments, offshore marine services and "all other" operations.
The Company's offshore marine services business is primarily engaged in the
operation of a diversified fleet of offshore support vessels serving oil and gas
exploration and development activities in the U.S. Gulf of Mexico, the North
Sea, West Africa, Asia, Latin America and other international regions. The
Company's vessels deliver cargo and personnel to offshore installations, handle
anchors for drilling rigs and other marine equipment, support offshore
construction and maintenance work, provide standby safety services and support
the Company's environmental service segment's oil spill response activities.
From time to time, vessels service special projects, such as well stimulation,
seismic data gathering and freight hauling. In addition to vessel services, the
Company's offshore marine services 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 development operations.
Other activities of the Company include environmental services, helicopter
transportation services, inland river hopper barge operations and equity in
earnings of 50% or less owned companies unrelated to the offshore marine
services segment. Results reported as "Other" in the three-month periods ending
March 31, 2003 and 2002 include environmental service and inland river hopper
barge operations and the Company's equity in earnings of 50% or less owned
companies unrelated to the offshore marine services segment. The Company's
helicopter transportation services commenced with the acquisition on December
31, 2002 of Tex-Air Helicopters, Inc. The Company reported its equity in the
earnings of Chiles Offshore Inc. ("Chiles"), an owner and operator of jackup
drilling rigs, until Chiles' merger with ENSCO International Incorporated on
August 7, 2002.
6
The Company evaluates its business segments' performance based upon their
respective operating profits (defined as Operating Income as reported in the
Consolidated Statements of Operations, excluding corporate-related expenses)
plus any income or loss from equipment sales or retirements, the sale of
interests in 50% or less owned companies and foreign currency translation and
equity in earnings and losses of 50% or less owned companies but excluding
interest income and expense, debt extinguishment expense, gains or losses from
derivative transactions and the sale of marketable securities, corporate
expenses, income taxes and minority interest in income or losses of
subsidiaries. Accounting policies for measuring operating 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, 2002 except as described in Note 2.
Offshore
FOR THE THREE MONTHS ENDED MARCH 31, 2003 Marine Other Total
- ------------------------------------------------------------- ------------- -------------- -------------
OPERATING REVENUES :
External Customers $ 80,696 $ 16,164 $ 96,860
Intersegment 411 - 411
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$ 81,107 $ 16,164 97,271
============= ==============
Elimination (411)
-------------
$ 96,860
=============
REPORTABLE SEGMENT PROFIT:
Operating Profit $ 3,312 $ 339 $ 3,651
Income (Loss) from Equipment Sales and Retirements, net 5,307 (160) 5,147
Equity in Earnings (Losses) of 50% or Less Owned Companies 817 (494) 323
Other, primarily Foreign Currency Exchange Gains, net 538 - 538
------------- -------------- -------------
$ 9,974 $ (315) 9,659
============= ==============
RECONCILIATION TO INCOME BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY EARNINGS:
Interest Expense (5,506)
Interest Income 2,556
Debt Extinguishment (1,125)
Derivative Income, net 1,749
Gain from Sale of Marketable Securities, net 2,191
Corporate Expenses (2,606)
Equity in Earnings of 50% or Less Owned Companies (323)
-------------
$ 6,595
=============
FOR THE THREE MONTHS ENDED MARCH 31, 2002
- -------------------------------------------------------------
OPERATING REVENUES :
External Customers $ 95,574 $ 8,069 $ 103,643
Intersegment 67 - 67
------------- -------------- -------------
$ 95,641 $ 8,069 103,710
============= ==============
Elimination (67)
-------------
$ 103,643
=============
REPORTABLE SEGMENT PROFIT:
Operating Profit $ 21,864 $ 825 $ 22,689
Income from Equipment Sales and Retirements, net 2,298 1 2,299
Equity in Earnings of 50% or Less Owned Companies 1,288 252 1,540
Other, primarily Foreign Currency Exchange Losses, net (3,150) (11) (3,161)
------------- -------------- -------------
$ 22,300 $ 1,067 23,367
============= ==============
RECONCILIATION TO INCOME BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY EARNINGS:
Interest Expense (4,001)
Interest Income 1,867
Derivative Loss, net (772)
Loss from Sale of Marketable Securities, net (1,164)
Corporate Expenses (2,438)
Equity in Earnings of 50% or Less Owned Companies (1,540)
-------------
$ 15,319
=============
7
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), 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,
effects of adverse weather conditions and seasonality on the Company's offshore
aviation business, helicopter related risks, effects of adverse weather and
river conditions and seasonality on inland river operations, the level of grain
export volume, variability in freight rates for inland river barges 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, 2002. The words "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
Management views the Company's business as consisting of two principal business
segments, offshore marine services and "all other" operations. Offshore marine
services, through subsidiaries and joint venture arrangements, is primarily
dedicated to operating a diversified fleet of offshore support vessels that
service oil and gas exploration and development activities in the U.S. Gulf of
Mexico, the North Sea, Latin America, West Africa, Asia and other international
regions. The Company's 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
services and support the Company's environmental service segment's oil spill
response activities. From time to time, vessels service special projects, such
as well stimulation, seismic data gathering and freight hauling. In addition to
vessel services, the Company's offshore marine services 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.
Other operations of the Company include being a leading provider of oil spill
response services to owners of tank vessels and oil storage, processing and
handling facilities and operating and managing inland river hopper barges
("barges") that service the agriculture and industrial sectors within the U.S.
that are strategically aligned along the Mississippi River and its tributaries.
On December 31, 2002, the Company completed the acquisition of Tex-Air
Helicopters, Inc. ("Tex-Air"), a company providing helicopter transportation
services primarily to oil and gas companies operating in the U.S. Gulf of
Mexico.
8
OFFSHORE MARINE SERVICES
The Company's offshore marine service segment provides marine transportation,
logistics and related services primarily dedicated to supporting oil and gas
exploration and production.
Since its inception, the Company has actively monitored opportunities to buy and
sell vessels to maximize the overall utility and flexibility of its fleet. Fleet
growth has occurred principally through the purchase of vessels from
competitors, expansion of equity holdings in joint ventures that own and
charter-in vessels and from the construction of new equipment. In support of
fleet expansion, the Company has deposited proceeds from many of its vessel
sales into construction reserve fund accounts for the express purposes of
acquiring newly constructed U.S.-flag vessels in order to qualify for deferral
of taxable gains realized from the vessel sales.
The offshore marine service segment's operating revenues are influenced
primarily by the number of vessels owned and bareboat and time chartered-in by
the Company, rates per day worked and utilization of the Company's fleet.
Utilization for a vessel over a period of time is the ratio of number of days
worked by the vessel to the total calendar days available during such period.
The rate per day worked for a vessel over a period of time is the ratio of
aggregate time charter revenue earned by the vessel to the number of days worked
by such vessel during the 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. Exploration and
drilling activities 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 that are also 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.
Depressed offshore rig utilization that existed for all of 2002 has continued
into the first quarter of 2003 due to reduced exploration activities,
particularly in the U.S. Gulf of Mexico. Drilling activity has traditionally
been linked to the cash flow of oil and gas companies, which is directly related
to oil and natural gas commodity prices. High oil and natural gas prices have
historically resulted in greater drilling activity, which increases the demand
for the Company's services. However, the robust oil and natural gas prices
realized during the second half of 2002 and so far in 2003 have yet to produce
an increase in drilling activity. While the Company remains hopeful that
drilling activity will accelerate later in 2003, the Company has experienced
less demand for offshore services than during the same period in 2002.
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
March 31,
----------------------------
2003 2002
------------- --------------
RATES PER DAY WORKED ($): (1) (2)
Anchor Handling Towing Supply 11,963 13,108
Crew 3,158 3,293
Geophysical, Freight and Other(3) - -
Mini-Supply 3,102 2,737
Standby Safety 6,537 5,404
Supply and Towing Supply 7,712 7,986
Utility and Line Handling 1,767 1,753
OVERALL UTILIZATION (%): (1)(4)
Anchor Handling Towing Supply 82.6 87.2
Crew 78.9 85.4
Geophysical, Freight and Other(3) - -
Mini-Supply 86.8 85.4
Standby Safety 81.6 88.0
Supply and Towing Supply 79.9 88.8
Utility and Line Handling 55.1 59.6
Overall Fleet 76.2 80.6
- -----------------------------------
(1) Rates per day worked and overall utilization figures exclude owned vessels
that are bareboat chartered-out, minority-owned joint venture vessels and
managed vessels and include vessels bareboat and time chartered-in by the
Company.
(2) Revenues for certain of the Company's vessels included in the calculation
of rates per day worked, primarily its North Sea fleet, are earned in
foreign currencies, primarily Pounds Sterling, and have been converted to
U.S. dollars at the weighted average exchange rate for the periods
indicated.
(3) Vessels in this class were out of service during the reported periods.
(4) Statistics exclude vessels retired from service in the applicable periods,
comprised of 16 utility vessels at quarter end.
9
From time to time, the Company bareboat or time charters-in vessels. A bareboat
charter is a vessel lease under which the charterer (i.e., the lessee) is
responsible for all crewing, insurance and other operating expenses, as well as
the payment of bareboat charter hire to the providing entity. A time charter is
a lease under which the entity providing the vessel is responsible for all
crewing, insurance and other operating expenses and the charterer only pays a
time charter hire fee to the providing entity. Operating revenues for vessels
owned and bareboat or time chartered-in are earned at similar rates. However,
operating expenses associated with vessels that are bareboat and time
chartered-in include charter hire expenses that, in turn, are included in vessel
expenses, but exclude depreciation expense.
The Company earns operating revenues primarily from the time or bareboat
charter-out of vessels, which are owned or bareboat or time chartered-in.
Operating revenues earned from the bareboat charter-out of vessels are generally
lower than for vessels time-chartered out because vessel expenses, normally
recovered through charter revenue, are paid by the charterer under a bareboat
charter. At various times, the Company also manages vessels for other owners and
earns a fee for this service.
The table below sets forth the Company's offshore marine fleet structure at the
dates indicated:
At March 31,
--------------------------------
Fleet Structure 2003 2002
- --------------------------------------------- --------------- ----------------
DOMESTIC:
Owned 114 128
Bareboat Chartered-In(1) 35 26
Joint Venture(2) 3 2
FOREIGN:
Owned 76 89
Bareboat Chartered-In 4 2
Managed 6 11
Joint Venture(2) 50 57
--------------- ----------------
Total Fleet 288(3) 315(3)
=============== ================
- ---------------------------------
(1) Resulting primarily from sale and leaseback transactions of prior periods.
(2) Of joint venture vessels at March 31, 2003, 48 participated in joint
ventures in which the Company owned less than a majority interest and 5
participated in joint ventures in which the Company owned the majority
interest.
(3) Fleet count at March 31, 2003 and 2002 excludes 16 and 15 utility vessels,
respectively, that that have been retired from service.
Vessel operating expenses are primarily a function of fleet size, fleet
composition and vessel utilization. The most significant vessel operating
expense items are wages paid to marine personnel, maintenance and repairs and
marine insurance. Maintenance and repair expenses, including drydocking and main
engine overhaul, are expected to rise over time as the mix of vessels in our
fleet trends toward larger, more powerful equipment in response to the changing
needs of the customers that we serve and challenges of the markets in which we
compete. In addition to variable vessel operating expenses, the offshore marine
service segment incurs fixed charges related to the depreciation of property and
equipment and charter-in hire costs. Depreciation is a significant operating
expense; vessel depreciation is the most significant component.
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 such 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 quarter or put through survey a disproportionate
number of older and/or larger vessels, which typically have higher drydocking
costs, comparative results may be affected. For the three-month periods ended
March 31, 2003 and 2002, drydocking costs totaled $2.5 million and $3.0 million,
respectively. During those same periods, the Company completed the drydocking of
16 and 21 vessels, respectively.
The number of main propulsion engine overhauls performed in a period
particularly affects engine repair expenses, which are also a significant
component of the Company's vessel maintenance costs. In recent years, the
Company has begun to alter its fleet mix by disposing of older lower-horsepower
main propulsion engine vessels replacing them with newer higher-horsepower main
propulsion engine vessels. This change in fleet mix has occurred primarily
through the Company's introduction of new aluminum-constructed Fast Support
Intervention Vessels, the main propulsion engines of which may total 9,000
horsepower exceeding the horsepower of older crew vessels that they replaced by
as much as 7,000 horsepower. Should engine repair expenses, particularly those
10
related to main engine overhauls, increase in a quarter, comparative results may
be affected. For the three-month periods ended March 31, 2003 and 2002, main
propulsion engine repair expenses totaled $3.6 million and $3.3 million,
respectively.
The Company believes that recent terrorist attacks, the continuing threat of
terrorist activity and economic and political uncertainties have resulted in
significant increases in the Company's cost to insure against liabilities to
other parties and damage to its vessels and other property. The combined effect
of rising insurance premiums and the assumption by the Company of higher
deductible limits during the first quarter of 2003 is expected to increase
operating expenses in 2003 by an amount between approximately $3.3 million and
approximately $5.5 million. There is no assurance that in the future the Company
will be able to maintain its existing coverage or that it will not experience
further substantial increases in premiums.
At March 31, 2003, the Company had 35 vessels bareboat chartered-in pursuant to
sale and leaseback transactions that have been accounted for as operating leases
for financial reporting purposes. Income realized from the sale component of
these transactions has been deferred to the extent of the present value of
minimum lease payments and is being amortized to income as reductions in rental
expense over the applicable lease terms. Charter-in expense, net of deferred
income amortization, resulting from sale and leaseback transactions totaled $3.7
million and $2.7 million in each of the three-month periods ending March 31,
2003 and 2002, respectively.
At March 31, 2003, 16 of the Company's utility vessels were considered retired
from service and are being marketed for sale. These vessels range in length from
96 feet to 120 feet, average 24 years of age and had an aggregate carrying value
of $1.1 million at quarter end. Vessels retired from service have been excluded
from the Company's utilization statistics and fleet counts.
A portion of the Company's revenues and expenses, primarily related to its North
Sea operations, are received or paid in foreign currencies, primarily pounds
sterling. For financial statement reporting purposes, these amounts are
translated into U.S. dollars at the weighted average exchange rates during the
relevant period. Overall, approximately 53% of the Company's offshore marine
operating revenues was derived from foreign operations (in U.S. dollars or
foreign currencies) in the three-month period ended March 31, 2003.
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, terrorist attacks, 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 in order 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 owns a majority interest in a 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.
OTHER BUSINESS SEGMENT 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, as required 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.
11
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 revenues and related operating profits are dependent on the
magnitude and the number of spill responses within a given period. Consequently,
spill response revenues and operating profits are subject to material variation
between comparable periods, and the revenues from any one period is not
indicative of a trend or of anticipated results in future periods. 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.
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.
The Company's environmental services business has entered into agreements during
the first quarter to provide services and oil spill response equipment in Iraq
for fees of up to approximately $10.0 million, which services and equipment are
expected to be rendered primarily during the second quarter, unless the relevant
agreements are extended, modified or terminated.
INLAND RIVER BUSINESS
The Company's inland river business earns operating revenues primarily from
voyage affreightments under which customers are charged for a committed space to
transport cargo for a specific time from a point of origin to a destination at
an established price per ton of cargo transported. The Company also earns
operating revenues while cargo is stored aboard barges and when barges are
chartered-out to third parties. Barge operating expenses are typically
differentiated between those directly related to voyages and all other barge
operating costs. Voyage operating expenses primarily include towing, switching,
fleeting and cleaning costs; whereas, non-voyage operating expenses include such
costs as repairs, insurance and depreciation.
A majority of the 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 net
results are allocated to each participating barge owner.
At March 31, 2003, the Company controlled 562 barges, including 326 directly
owned, 11 owned by a 50% owned partnership and 225 managed for third parties.
OFFSHORE AVIATION SERVICES
Tex-Air, the Company's helicopter transportation service business, derives the
majority of its operating revenues from service contracts with major integrated
and independent oil and gas companies, primarily in the production phase of the
oil and gas cycle. The number and type of helicopters in Tex-Air's fleet, the
utilization of that fleet and the rates of hire Tex-Air is able to charge
customers are the primary drivers of its operating revenues. Rates and
utilization are a function of demand for and availability of helicopters, which
are closely aligned with the level of exploration and development of offshore
areas. Exploration and drilling activities 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 that are also
beyond the Company's control, including worldwide demand for oil and natural
gas, the ability of the 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. At March 31, 2003, Tex-Air's fleet included 36 helicopters, of which
23 helicopters were committed for hire under customer contracts.
Operating expenses are primarily a function of fleet size and utilization
levels. The majority of Tex-Air's operating expenses consist of wages and
related benefits, insurance, repairs and maintenance and equipment leases.
OTHER ACTIVITIES
Other activities primarily relate to the Company's 50% or less equity interest
in Globe Wireless, L.L.C., a marine telecommunications company, a handy-max bulk
carrier joint venture and a developer of ship brokerage software that supports
the shipping industry. The Company, from time to time, may make investments in
other related or unrelated businesses.
12
On March 31, 2003, the Company made a $6.0 million minority equity investment in
a California based company that designs and manufactures water treatment systems
for sale and lease.
RESULTS OF OPERATIONS
In the following table, the Company segregates the operating revenues and
profits of its offshore marine services business and combines similar results
for its environmental, inland river and offshore aviation businesses in an
"Other" reporting category as they do not meet accounting standards for separate
disclosure. The "Other" reporting category also includes equity in earnings of
50% or less owned companies unrelated to the offshore marine services segment.
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, 2002.
Offshore
FOR THE THREE MONTHS ENDED MARCH 31, 2003 Marine Other Total
- ------------------------------------------------------------- ------------- -------------- -------------
OPERATING REVENUES :
External Customers $ 80,696 $ 16,164 $ 96,860
Intersegment 411 - 411
------------- -------------- -------------
$ 81,107 $ 16,164 97,271
============= ==============
Elimination (411)
-------------
$ 96,860
=============
REPORTABLE SEGMENT PROFIT:
Operating Profit $ 3,312 $ 339 $ 3,651
Income (Loss) from Equipment Sales and Retirements, net 5,307 (160) 5,147
Equity in Earnings (Losses) of 50% or Less Owned Companies 817 (494) 323
Other, primarily Foreign Currency Exchange Gains, net 538 - 538
------------- -------------- -------------
$ 9,974 $ (315) 9,659
============= ==============
RECONCILIATION TO INCOME BEFORE INCOME TAXES, MINORITY
INTEREST,
AND EQUITY EARNINGS:
Net Interest Expense (2,950)
Debt Extinguishment (1,125)
Derivative Income, net 1,749
Gain from Sale of Marketable Securities, net 2,191
Corporate Expenses (2,606)
Equity in Earnings of 50% or Less Owned Companies (323)
-------------
$ 6,595
=============
FOR THE THREE MONTHS ENDED MARCH 31, 2002
- -------------------------------------------------------------
OPERATING REVENUES :
External Customers $ 95,574 $ 8,069 $ 103,643
Intersegment 67 - 67
------------- -------------- -------------
$ 95,641 $ 8,069 103,710
============= ==============
Elimination (67)
-------------
$ 103,643
=============
REPORTABLE SEGMENT PROFIT:
Operating Profit $ 21,864 $ 825 $ 22,689
Income from Equipment Sales and Retirements, net 2,298 1 2,299
Equity in Earnings of 50% or Less Owned Companies 1,288 252 1,540
Other, primarily Foreign Currency Exchange Losses, net (3,150) (11) (3,161)
------------- -------------- -------------
$ 22,300 $ 1,067 23,367
============= ==============
RECONCILIATION TO INCOME BEFORE INCOME TAXES, MINORITY
INTEREST,
AND EQUITY EARNINGS:
Net Interest Expense (2,134)
Derivative Loss, net (772)
Loss from Sale of Marketable Securities, net (1,164)
Corporate Expenses (2,438)
Equity in Earnings of 50% or Less Owned Companies (1,540)
-------------
$ 15,319
=============
OFFSHORE MARINE SERVICES SEGMENT
OPERATING REVENUES. Operating revenues decreased $14.5 million, or 15%, in the
three-month period ended March 31, 2003 compared to the three-month period ended
March 31, 2002 due primarily to lower utilization, lower rates per day worked
and the effect of a net reduction in fleet size. These declines were partially
offset by an improvement in operating revenues resulting from the strengthening
of the pound sterling against the U.S. dollar.
13
Fewer days worked resulted in lower operating revenues of approximately $7.1
million due primarily to reduced business activities in the U.S. Gulf of Mexico.
Vessel utilization was also lower between comparable periods in West Africa and
the North Sea. Lower rates per day worked resulted in a decline in operating
revenues of approximately $4.6 million. Day rate declines were most significant
in U.S. operations, although day rates earned by certain vessel classes working
in foreign markets were also lower between quarters. A decline in operating
revenues resulting from fleet dispositions exceeded the improvement in operating
revenues resulting from fleet additions by approximately $2.8 million. A net
increase in the number of vessels entering bareboat charter-out service upon
concluding time charter-out arrangements lowered operating revenues by
approximately $1.0 million. These declines were offset by an approximate $1.8
million increase in operating revenues resulting from a strengthening between
comparable quarters in the pound sterling relative to the U.S. dollar.
OPERATING PROFIT. Operating profit decreased $18.6 million, or 85%, in the
three-month period ended March 31, 2003 compared to the three-month period ended
March 31, 2002 due primarily to those factors affecting operating revenues and
higher operating expenses. Crew wages increased for seamen working
internationally during 2002 in response to competition for qualified personnel.
Charter-in costs in 2003 increased while depreciation expense decreased
following the sale and leaseback of 13 vessels during the prior fiscal year.
Higher repair and maintenance expenses, resulting from major repairs to a large
anchor handling towing supply vessel based in the U.S., were offset by lower
drydocking costs. An increase in general and administrative expenses resulting
from a charge in the current quarter for employee severance benefits, higher
insurance premiums and enhancements to information technology systems was
partially offset by lower performance based compensation costs due to depressed
business conditions.
INCOME FROM EQUIPMENT SALES OR RETIREMENTS, NET. Income from equipment sales or
retirements increased $3.0 million, or 131%, in the three-month period ended
March 31, 2003 compared to the three-month period ended March 31, 2002. Eight
vessels were sold in the first quarter of 2003. In the comparable quarter of
2002, seven vessels were sold, and income was deferred for future recognition in
connection with the sale and leaseback of three vessels.
EQUITY IN EARNINGS OF 50% OR LESS OWNED COMPANIES. Equity earnings decreased
$0.5 million, or 37%, in the three-month period ended March 31, 2003 compared to
the three-month period ended March 31, 2002 due primarily to lower profits
earned by the Company's Mexican and Asian joint ventures. Fleet utilization
declined in Mexico, and the Company's Asian joint venture incurred losses upon
the sale of two vessels.
FOREIGN CURRENCY TRANSACTION GAINS (LOSSES), NET. The Company recognized net
foreign currency transaction gains of $0.5 million in the three-month period
ended March 31, 2003 compared to net foreign currency transaction losses of $3.2
million in the three-month period ended March 31, 2002. Gains or losses in both
periods resulted primarily from the revaluation of loans due SEACOR by certain
of its subsidiaries, whose functional currency is pounds sterling. During the
first quarter of 2003, a subsidiary of SEACOR repaid a significant intercompany
loan.
"OTHER" BUSINESS SEGMENT
OPERATING REVENUES. Operating revenues increased $8.1 million, or 100%, in the
three-month period ended March 31, 2003 compared to the three-month period ended
March 31, 2002. The commencement of helicopter transportation services on
December 31, 2002 resulted in an increase in operating revenues of $5.1 million.
Operating revenues earned by the Company's inland river business rose $2.3
million, or 93%. An increase in revenues resulting from the addition to the
fleet of newly constructed barges was partially offset by the adverse effect on
revenues of reduced demand for equipment. Environmental service segment revenues
also rose $0.6 million, or 10%. An increase in spill response revenues was
partially offset by a decline in retainer revenues.
OPERATING PROFIT. Operating profit decreased $0.5 million, or 59%, in the
three-month period ended March 31, 2003 compared to the three-month period ended
March 31, 2002. The environmental service segment reported operating losses of
$0.4 million in the current quarter as compared to operating profits of $0.2
million in the comparable prior quarter. Reduced retainer services and higher
spill response vessel repair costs offset improved spill response revenues.
Operating profits for the inland river business segment increased by $0.2
million. Higher operating revenues resulting from fleet growth were partially
offset by higher towing costs that resulted from increased fuel costs and
reduced demand for barges. Helicopter operations had a $0.1 million operating
loss in the first quarter.
14
EQUITY IN EARNINGS (LOSSES) OF 50% OR LESS OWNED COMPANIES. Equity losses were
$0.5 million in the three-month period ended March 31, 2003 compared to equity
earnings of $0.3 million in the three-month period ended March 31, 2002. Losses
in 2003 resulted primarily from the Company's equity interest in the net losses
of Globe Wireless, L.L.C. ("Globe"), a marine telecommunications company. In
2002, an equity interest in the net earnings of Chiles Offshore Inc. ("Chiles")
was partially offset by the Company's equity interest in the net losses of
Globe. The Company owned 23.8% of Chiles until its merger with ENSCO
International Incorporated ("ENSCO") on August 7, 2002.
OTHER
INTEREST INCOME AND INTEREST EXPENSE. Net interest expense increased $0.8
million, or 38%, in the three-month period ended March 31, 2003 compared to the
three-month period ended March 31, 2002. An increase in interest expense
resulting from the sale of $200.0 million aggregate principal amount of 5 7/8%
notes in the third quarter of 2002 was partially offset by the effect of
retiring $59.5 million of various other indebtedness and higher interest income
in the first quarter of 2003.
DEBT EXTINGUISHMENT. On February 20, 2003, the Company redeemed all of the then
outstanding principal amount of its 5 3/8% Convertible Subordinated Notes due
November 15, 2006, which resulted in a write-off of related unamortized deferred
financing costs and premium payment, totaling $1.1 million.
DERIVATIVE INCOME (LOSSES), NET. The Company recognized net income from
derivative transactions of $1.7 million in the three-month period ended March
31, 2003 compared to net losses of $0.8 million in the three-month period ended
March 31, 2002. Derivative income in the first quarter of 2003 resulted
primarily from the revaluation of costless collars associated with the Company's
common stock investment in ENSCO. Derivative losses in 2002 resulted primarily
from the revaluation of interest rate swap agreements and foreign currency
forward exchange contracts.
GAINS (LOSSES) FROM SALE OF MARKETABLE SECURITIES, NET. Net gains from the sale
of marketable securities totaled $2.2 million in the three-month period ended
March 31, 2003 compared to net losses of $1.2 million from the sale of
marketable securities in the three-month period ended March 31, 2002. Net gains
in 2003 resulted primarily from the sale of equity securities. The mark to
market of short sales of equity securities resulted in substantially all of the
net losses in 2002.
LIQUIDITY AND CAPITAL RESOURCES
CASH AND MARKETABLE SECURITIES
Following year end, the Company's cash and investments in available-for-sale
securities decreased by $27.9 million to $498.1 million at March 31, 2003. Cash
and marketable securities at quarter end included $321.6 million of unrestricted
cash and cash equivalents, $78.3 million of available-for-sale securities and
$98.2 million of construction reserve funds. See "Cash Generation and
Deployment" below.
CASH GENERATION AND DEPLOYMENT
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. The Company's principal sources of
liquidity are cash flows from operations and borrowings under its revolving
credit facility although, from time to time, it may issue shares of common
stock, preferred stock, 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 are determined by the size of
the Company's offshore marine fleet, rates per day worked and overall
utilization of the Company's offshore marine vessels and the operations of its
environmental service, inland river and offshore aviation business segments.
The volatility of oil and gas prices, the level of offshore production and
exploration activity and other factors beyond the Company's control will
directly affect the Company's offshore marine and offshore aviation businesses.
A curtailment of drilling activity in U.S. Gulf of Mexico beginning in March
2001 has adversely affected demand and rates per day worked for most vessel
types in the Company's U.S. offshore marine fleet. As a result, operating
results have declined and, at March 31, 2003, the Company had 35 vessels out of
service and an additional 16 vessels retired from service. Although oil and
natural gas prices have improved, this has yet to produce an increase in U.S.
Gulf of Mexico drilling activity. The Company cannot predict whether, or to what
15
extent, market conditions will improve, remain stable or deteriorate. Should
present demand and rates per day worked for the Company's U.S. vessels remain
unchanged or further decline, results of operations and cash flows will be
adversely affected.
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES. Cash flows provided from
operating activities were $8.9 million and $18.9 million in three-month periods
ended March 31, 2003 and 2002, respectively. Recent declines in operating cash
flows have resulted primarily from lower utilization and rates per day worked
for offshore support vessels.
CASH FLOWS PROVIDED BY OR USED IN INVESTING ACTIVITIES. Net cash flows of $45.4
million were provided by investing activities in the three-month period ended
March 31, 2003 as compared to net cash flows of $3.1 million used in investing
activities in the three-month period ended March 31, 2002.
In the first quarter of 2003, cash flows were provided by investing activities
principally from (i) the sale of eight offshore support vessels for $69.8
million that included two large North Sea anchor handling towing supply vessels,
(ii) the sale of available-for-sale securities for $19.4 million and (iii) the
receipt of dividends and promissory note principal repayments from 50% or less
owned companies, totaling $2.8 million. These increases in cash flows were
partially offset by uses of cash flows in investing activities principally to
(i) construct offshore support vessels and inland river barges and acquire other
equipment for $23.4 million, (ii) purchase available-for-sale securities for
$14.4 million, (iii) acquire a minority equity interest in a company that
designs and manufactures water treatment systems for sale or lease for $6.0
million, and (iv) increase construction reserve fund balances by $2.9 million.
In the first quarter of 2002, cash flows were used in investing activities
principally to (i) construct offshore support vessels for $30.9 million, (ii)
increase construction reserve fund balances by $6.4 million and (iii) acquire
available-for-sale securities for $6.3 million. These uses in cash flows were
partially offset by cash flows provided in investing activities principally from
(i) the sale of seven offshore support vessels for $32.2 million, (ii) the sale
of available-for-sale securities for $3.1 million and (iii) the settlement of
derivative transactions and the receipt of dividends and promissory note
principal repayments from 50% or less owned companies, totaling $5.1 million.
CASH FLOW USED IN FINANCING ACTIVITIES. Net cash flows of $74.0 million and
$11.9 million were used in financing activities in the three-month periods ended
March 31, 2003 and 2002, respectively.
In the first quarter of 2003, cash flows were used in financing activities to
(i) repay $59.4 million of outstanding indebtedness, including $35.3 million of
5 3/8% convertible subordinated notes, $23.2 million of 5.467% subordinated
promissory notes and $0.9 million of other outstanding indebtedness, (ii)
purchase for treasury 403,990 shares of common stock for an aggregate cost of
$14.3 million and (iii) pay $0.6 million in premium upon extinguishment of 5
3/8% convertible subordinated notes.
In the first quarter of 2002, cash flows used in financing activities repaid
$12.2 million of indebtedness associated with the acquisition of two vessels.
CAPITAL EXPENDITURES
As of March 31, 2003, the Company was committed to the construction of 12
offshore support vessels and 30 inland river barges for an approximate aggregate
cost of $103.5 million, of which $32.1 million has been expended. The Company is
expected to take delivery of the barges during the third and fourth quarters of
2003, and the offshore support vessels are expected to enter service during 2003
and 2004. Following quarter end, the Company committed to the construction of an
additional offshore support vessel for an approximate aggregate cost of $3.9
million.
CREDIT FACILITY AND NOTES
REVOLVING CREDIT FACILITY. Amounts available for future borrowings under the
Company's revolving credit facility totaled $199.8 million at May 9, 2003.
PROMISSORY NOTES. On April 7, 2003, the Company repaid all promissory notes due
former stockholders of Putford Enterprises Ltd., an offshore marine subsidiary
that was acquired in April 2000, in an aggregate amount of(pound)7,500,000, or
$11,712,000.
16
STOCK AND DEBT REPURCHASE PROGRAM
In the first quarter of 2003, the Company acquired a total of 403,990 shares of
its common stock for treasury at an aggregate cost of $14.3 million. At March
31, 2003, $38.4 million remained available, pursuant to the authorization of
SEACOR's Board of Directors, for the repurchase of additional securities
pursuant to the Company's securities repurchase plan. These repurchases may be
conducted from time to time through open market purchases, privately negotiated
transactions or otherwise, depending on market conditions. Following quarter end
and through May 13, 2003, the Company acquired an additional 223,650 shares of
its common stock for treasury at an aggregate cost of $8.4 million. On May 14,
2003, the Company's Board of Directors increased its authorization for
repurchases pursuant to the securities repurchase plan and, with this increase,
approximately $65.0 million is available for purchases of the Company's common
stock, 7.2% senior notes due 2009 and its 5 7/8% senior notes due 2012.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Below is an aggregation of the Company's contractual obligations and commercial
commitments as of March 31, 2003, in thousands of dollars.
Payments Due By Period
-------------------------------------------------------------------
Less than After
Contractual Obligations Total 1 Year 1-3 Years 4-5 Years 5 Years
- ------------------------------------ ---------- ---------- ----------- ---------- ----------
Long-term Debt $ 346,801 $ 138 $ 11,982 $ 42 $ 334,639
Operating Leases 106,352 26,229 38,030 23,060 19,033
Construction Commitments(1) 71,384 70,833 551 - -
---------- ---------- ----------- ---------- ----------
Total Contractual Cash $ 524,537 $ 97,200 $ 50,563 $ 23,102 $ 353,672
Obligations ========== ========== =========== ========== ==========
Amount of Commitment Expiration Per Period
-------------------------------------------------------------------
Total Less than Over 5
Other Commercial Commitments Committed 1 Year 1-3 Years 4-5 Years Years
- ------------------------------------ ---------- ---------- ----------- ---------- ----------
TMM Joint Venture Guarantee(2) $ 6,020 $ 365 $ 814 $ 941 $ 3,900
Pelican Joint Venture Guarantee(3) 1,500 - - 1,500 -
Letter of Credit 175 175 - - -
---------- ---------- ----------- ---------- ----------
Total Commercial Commitments $ 7,695 $ 540 $ 814 $ 2,441 $ 3,900
========== ========== =========== ========== ==========
- --------------------
(1) Following quarter end, the Company committed to the construction of an
additional vessel for an approximate aggregate cost of $3.9 million.
(2) Guarantee for non-payment of obligations owing by the Company's Mexican
joint venture under a charter arrangement.
(3) Guarantee of amounts owed by an Asian joint venture under its banking
facilities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the information required to be reported
pursuant to this Item from the end of the fiscal year ended December 31, 2002
through the end of the first quarter. However, in April 2003, certain "costless
collars" expired and no amounts were owed between the counterparties to these
transactions. In order to partially hedge the fluctuation in market value for
part of the Company's common stock investment in ENSCO that resulted from the
merger of Chiles and ENSCO, the Company entered into various transactions
(commonly known as "costless collars") during 2002 with a major financial
institution on 1,000,000 shares of ENSCO common stock. The effect of these
transactions was that the Company was guaranteed a minimum and maximum value per
share of ENSCO, at expiration.
17
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 January 16, 2003,
reporting under Item 5 that, on January 16, 2003, the
Company announced it had called for redemption the aggregate
principal amount outstanding of its 5 3/8% convertible
subordinated notes due 2006.
(ii) Current Report on Form 8-K, dated February 27, 2003,
reporting under Item 9 that, on February 27, 2003, the
Company issued a press release announcing its financial
results for the fourth quarter and fiscal year ended
December 31, 2002.
18
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: MAY 15, 2003 By: /s/ Charles Fabrikant
-----------------------------------------
Charles Fabrikant, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
DATE: MAY 15, 2003 By: /s/ Randall Blank
-----------------------------------------
Randall Blank, Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
19
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 officer 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 officer 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
6. The registrant's other certifying officer 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: May 15, 2003
/s/ Charles Fabrikant
- ----------------------------------
Name: Charles Fabrikant
Title: Chief Executive Officer
20
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 officer 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 officer 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
6. The registrant's other certifying officer 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: May 15, 2003
/s/ Randall Blank
Name: Randall Blank
Title: Chief Financial Officer
21
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.
22