SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
-----------------------------------------------------
OR
[ ] 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
-------
SEACOR HOLDINGS INC.
-----------------------------------------------------
(Exact name of Registrant as Specified in Its Charter)
Delaware 13-3542736
- ------------------------------------ --------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
11200 Richmond Avenue,
Suite 400, Houston, Texas 77082
- ------------------------------------------ ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (281) 899-4800
---------------------------
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
- ------------------------------------------ ---------------------------------
Securities registered pursuant to Section 12 (g) of the Act:
None
- --------------------------------------------------------------------------------
(Title of Class)
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 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. X Yes No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). X Yes No
--- ---
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of June 30, 2003 was approximately $639,012,000 based on the
closing price on the New York Stock Exchange on such date. The total number of
shares of Common Stock issued and outstanding as of March 8, 2004 was
18,624,825.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission (the "Commission") pursuant to Regulation 14A within 120
days after the end of the Registrant's last fiscal year is incorporated by
reference into Part III of this Annual Report on Form 10-K.
SEACOR HOLDINGS INC.
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business......................................................................................... 1
General...................................................................................... 1
Segment and Geographic Financial Information................................................. 2
Offshore Marine Services..................................................................... 2
Environmental Services....................................................................... 9
Other Business Segment....................................................................... 11
Environmental Compliance..................................................................... 14
Employees.................................................................................... 14
Item 2. Properties....................................................................................... 14
Item 3. Legal Proceedings................................................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 15
Item 4A. Executive Officers of the Registrant............................................................. 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................ 16
Market for the Company's Common Stock........................................................ 16
Equity Compensation Plans Information........................................................ 16
Item 6. Selected Financial Data.......................................................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 18
Overview..................................................................................... 18
Consolidated Results of Operations........................................................... 19
Offshore Marine Services..................................................................... 23
Environmental Services....................................................................... 27
Other Business Segment....................................................................... 29
Critical Accounting Policies................................................................. 30
Liquidity and Capital Resources.............................................................. 33
Effects of Inflation......................................................................... 36
Contingencies................................................................................ 36
Cautionary Statements........................................................................ 36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....................................... 40
Item 8. Financial Statements and Supplementary Data...................................................... 41
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................................... 41
Item 9A. Controls and Procedures.......................................................................... 41
PART III
Item 10. Directors and Executive Officers of the Registrant............................................... 41
Item 11. Executive Compensation........................................................................... 41
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.............................................................. 42
Item 13. Certain Relationships and Related Transactions................................................... 42
Item 14. Principal Accountant Fees and Services........................................................... 42
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................. 42
FORWARD-LOOKING STATEMENTS
Certain statements discussed in Item 1 (Business), Item 3 (Legal Proceedings),
Item 7 (Management's Discussion and Analysis of Financial Condition and Results
of Operations), Item 7A (Quantitative and Qualitative Disclosures About Market
Risk) and elsewhere in this Form 10-K 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: the cyclical nature of the oil and gas industry,
adequacy of insurance coverage, currency exchange fluctuations, changes in
foreign political, military and economic conditions, the ongoing need to replace
aging vessels, dependence of Offshore Marine Services on several customers,
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, vessel-related risks, effects of adverse weather conditions and
seasonality on Aviation Services, helicopter related risks, effects of adverse
weather and river conditions and seasonality on inland river operations, the
level of grain export volume, the effect of fuel prices on barge towing costs,
variability in freight rates for inland river barges, changes in NRC's OSRO
classification, liability in connection with providing spill response services,
restrictions imposed by the Shipping Acts on the amount of foreign ownership of
the Company's Common Stock, the effect of international economic and political
factors in inland river operations and various other matters, many of which are
beyond the Company's control and other factors. 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.
PART I
ITEM 1. BUSINESS
GENERAL
Unless the context indicates otherwise, any reference to the "Company" refers to
SEACOR Holdings Inc., incorporated in 1989 in Delaware, and its consolidated
subsidiaries. "SEACOR" refers to SEACOR Holdings Inc. and "Common Stock" refers
to the common stock, par value $.01 per share, of SEACOR. SEACOR (formerly named
SEACOR SMIT Inc.) changed its name to SEACOR Holdings Inc. effective March 15,
2004.
The Company is in the business of owning, operating, investing in, marketing and
remarketing equipment, primarily in the offshore oil and gas and inland
transportation industries. It also provides oil spill response and environmental
remediation services.
The Company's principal activity is the operation of a diversified fleet of
offshore support vessels that service oil and gas exploration and development
activity worldwide. In 2000, the Company began operating an inland river barge
business. In 2002, the Company completed the acquisition of Tex-Air Helicopters,
Inc., which operates a fleet of helicopters that primarily serve the offshore
oil and gas industry in the U.S. Gulf of Mexico.
SEACOR's principal executive offices are located at 11200 Richmond Avenue, Suite
400, Houston, Texas 77082, and its telephone number is (281) 899-4800. The
Company's Internet address is www.seacorholdings.com.
All of the Company's periodic report filings with the Securities and Exchange
Commission ("SEC") pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, are made available, free of charge, through the
Company's website, including the Company's annual report on Form 10-K, quarterly
reports on Form 10-Q, and current reports on Form 8-K, and any amendments to
those reports. These reports and amendments are available through the Company's
website as soon as reasonably practicable after the Company electronically files
such report or amendment with the SEC.
1
SEGMENT AND GEOGRAPHIC FINANCIAL INFORMATION
The Company's operations are divided among the following three business
segments: "Offshore Marine Services;" "Environmental Services;" and "Other,"
which includes its "Inland River Services" and "Aviation Services" businesses.
Financial data for segment and geographic areas is reported in "Item 8.
Consolidated Financial Statements - Note 14. Major Customers and Segment Data"
included in Part IV of this Annual Report on Form 10-K.
OFFSHORE MARINE SERVICES
GENERAL
Offshore Marine Services is primarily dedicated to operating a diversified fleet
of offshore support vessels that service oil and gas exploration and production
facilities mainly in the U.S. Gulf of Mexico, the North Sea, Latin America and
Mexico, West Africa and Asia.
FLEET
GENERAL. Offshore Marine Services' 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,
Offshore Marine Services' vessels support special projects, such as well
stimulation, seismic data gathering and freight hauling. In addition to vessel
services, Offshore Marine Services offers logistics services, also in support of
offshore oil and gas exploration and production operations, which include
shorebase, marine transport and other supply chain management services.
As of December 31, 2003, the average age of Offshore Marine Services' fleet was
14.4 years and, excluding standby safety vessels, the fleet's average age was
12.6 years. The Company believes that after vessels have been in service for
approximately 20 years, the level of expenditures necessary to satisfy required
marine certification standards escalate and, in some instances, may not be
economically justifiable. There can be no assurance that Offshore Marine
Services will be able to maintain its fleet by extending the economic life of
existing vessels or acquiring new or used vessels, or that the Company's
financial resources will be sufficient to enable it to make capital expenditures
for such purposes.
The following table sets forth a count of Offshore Marine Services' vessel
types.
At December 31,
---------------------------
Vessel Type 2001 2002 2003
- --------------------------------------- -------- -------- --------
Anchor Handling Towing Supply.......... 31 28 26
Crew................................... 91 96 87
Geophysical, Freight and Other.......... 3 2 4
Mini-Supply............................ 26 33 32
Standby Safety......................... 30 26 27
Supply and Towing Supply............... 79 71 59
Utility................................ 65 45 -(1)
-------- -------- --------
325 301 235(2)
======== ======== ========
- --------------------
(1) Excludes 26 utility vessels that were retired from service. See additional
discussion in "Item 7. Management Discussion and Analysis of Financial
Condition and Results of Operations - Offshore Marine Services."
(2) Includes 139 owned; 36 chartered-in, 5 managed and 1 pooled. Joint ventures
in which the Company owned a 50% or less interest owned 43 vessels and
chartered-in 5 and joint ventures in which the Company owned a majority
interest owned 6 vessels.
ANCHOR HANDLING TOWING SUPPLY. Anchor handling towing supply vessels range in
size and capacity and are equipped with winches capable of towing drilling rigs
and lifting and positioning their anchors. These vessels also have the
capability to deliver cargo, but are usually less efficient delivery "vehicles"
than supply boats of comparable size, and have large deck space to handle
anchors and chain and mooring equipment. Historically, vessels of 4-8,000
horsepower ("BHP"), fitted with a winch, functioned as anchor handling vessels.
While in some regions vessels of less than 10,000 BHP perform "anchor handling"
services and do support construction and pipe laying barges, it is rare that a
vessel with less than 10,000 BHP will support deep water drilling activity,
particularly outside the U.S. Vessels that support deep water drilling are
defined not only by horsepower but winch capability and storage capacity for
chain and mooring wire. Except for the occasional job supporting drilling in
shallow water, typically less than 1,000 feet, or in the case of one vessel
specially equipped to lay pre-set moorings, Offshore Marine Services' vessels
that are less than 12,000 BHP do not handle anchors for drilling rigs. Offshore
Marine Services controls 5 vessels 12-14,000 BHP that are equipped with large
winches, defined by "line pull" capability that range from 660,000 lbs. to
1,000,000 lbs. and can service rigs working in deep water of over 2,500 feet.
Four of these vessels are U.S. flag and can work in over 4,000 foot water
depths. Offshore Marine Services also has a joint venture interest in a 9,000
BHP vessel equipped for efficient handling of pre-set moorings. Most modern
anchor handling towing supply vessels are equipped with dynamic positioning
("DP") systems that enable them to maintain a fixed position in close proximity
to a rig without the use of tie-up lines.
2
CREW (FAST SUPPORT VESSELS "FSV"). Personnel move to and from offshore
installations in crew boats and helicopters. Historically, crew boats
transported people and were also used to deliver "light" cargo, small amounts of
fuel oil to production platforms, personal effects and small machinery. These
boats also served as field stand-by vessels, moving personnel between platforms
and providing an emergency stand-by service under certain circumstances. Crew
vessels built prior to 1990 are generally 100 to 130 feet in length and are
capable of 20 knots in light condition and calm seas. Vessels built since 1998,
also referred to as Fast Support Vessels, range from 130 to 200 feet in length
and generally can develop a speed of 25 knots and may attain speeds of 35 knots.
The modern versions of these vessels have enhanced cargo carrying capacities,
including in some instances, the capacity to support some phases of drilling
operations. Vessels supporting drilling and working in deep water are usually
equipped with DP capabilities.
GEOPHYSICAL, FREIGHT AND OTHER. Geophysical, freight and other vessels must
generally have special features adapting them to their roles, such as large deck
space, high electrical generating capacity, high maneuverability and unique
thrusters, extra berthing facilities and long-range cruising capabilities.
Certain vessels are employed in special project activities such as well
stimulation, seismic data gathering and freight hauling services.
MINI-SUPPLY. Mini-supply vessels range from 125 to 155 feet in length and serve
drilling and production facilities and support offshore construction and
maintenance work. They typically carry deck cargo, liquid mud, methanol, diesel
fuel and water but are not equipped with below deck bulk tanks for the carriage
of dry mud or cement. Some of these vessels have bow thrusters for added
maneuverability and are well suited for production support, construction
projects and certain drilling support activities.
STANDBY SAFETY. Standby safety vessels typically remain on location proximate to
offshore rigs and production facilities to respond to emergencies. These vessels
carry special equipment to rescue personnel and are equipped to provide first
aid and shelter. In some cases, these vessels perform a dual role, functioning
as supply vessels. Offshore Marine Services' standby safety vessels operate in
the United Kingdom sector of the North Sea.
SUPPLY. The most efficient use of supply vessels is to deliver cargo to rigs and
platforms where drilling and work-over activity is underway or to support
construction work delivering pipe to vessels performing underwater
installations. Supply vessels are distinguished from other vessels by the total
carrying capacity (deadweight: "dwt"), available square feet (meters) of clear
deck space, below-deck capacity for storage of mud and cement used in the
drilling process, and tank storage for water and fuel oil. Speed is not
generally a factor but the ability to hold station in open water and moderately
rough seas is also a key factor in differentiating supply vessels. Generally for
drilling operations and serving manned platforms, customers prefer vessels with
large liquid mud, dry bulk mud and cement capacity and large areas of clear deck
space. For certain projects, characteristics such as maneuverability, fuel
efficiency or firefighting capability may also be important. Offshore Marine
Services' supply vessels range from 166 to 255 feet in length and certain of
those vessels have DP capabilities.
TOWING SUPPLY. Towing supply vessels perform similar cargo delivery functions to
those handled by supply vessels. They are, however, equipped with more powerful
engines (4-8,000 horsepower) and deck mounted winches, giving them the added
capability to perform general towing functions, buoy setting and limited anchor
handling work. Offshore Marine Services' towing supply vessels are primarily
used in international operations supporting jack-up drilling rigs, which
generally require the additional versatility that these vessels offer.
UTILITY. Utility vessels service offshore production facilities and also support
offshore maintenance and construction work. They are capable of transporting
fuel, water, deck cargo and personnel. Certain vessels in the fleet have
enhanced firefighting and pollution response features. Utility vessels range
from 96 to 125 feet in length. As of December 31, 2003, the Company was
committed to the disposition of its remaining 26 utility vessels. See discussion
in "Item 7. Management Discussion and Analysis of Financial Condition and
Results of Operations - Offshore Marine Services."
3
The following table sets forth the percent of the Company's consolidated
operating revenues earned by vessel type and certain other business activities
of Offshore Marine Services, including logistic services, for each year
indicated.
Vessel Type 2001 2002 2003
- --------------------------------------------- ------ ------ ------
Anchor Handling Towing Supply................ 20.1% 20.9% 14.8%
Crew......................................... 19.5% 18.2% 17.3%
Geophysical, Freight and Other............... 0.5% - -
Mini-Supply.................................. 5.0% 5.7% 7.3%
Standby Safety............................... 9.3% 10.3% 10.5%
Supply and Towing Supply..................... 28.7% 28.6% 21.6%
Utility...................................... 5.9% 4.4% 3.2%
Other........................................ 2.8% 3.2% 3.2%
------ ------ ------
91.8% 91.3% 77.9%
====== ====== ======
ACQUISITIONS AND DISPOSITIONS. The Company actively monitors opportunities to
buy and sell vessels to maximize the overall utility and flexibility of its
fleet. Fleet additions have resulted principally from the purchase of vessels
from competitors, new vessels and equity holdings in joint ventures that own
vessels. The following table sets forth acquisitions in the last five years by
vessel type.
Vessel Type 1999 2000 2001 2002 2003 Total
- -------------------------------- ---- ---- ---- ---- ---- -----
Anchor Handling Towing Supply... 3 1 3 2 - 9
Crew............................ 4 2 4 5 7 22
Mini-Supply..................... 2 - 19 4 - 25
Standby Safety.................. - 16 - - - 16
Supply and Towing Supply........ 1 6 14 1 3 25
Utility......................... - - 11 - - 11
---- ---- ---- ---- ---- ----
10 25 51 12 10 108
==== ==== ==== ==== ==== ====
The following table sets forth sale transactions in the last five years by
vessel type. Thirty-five vessels sold in the last five years remain bareboat
chartered-in by Offshore Marine Services pursuant to sale-leaseback
transactions. Leaseback vessels include 23 crew, 6 supply and towing supply, 4
mini-supply and 2 anchor handling towing supply.
Vessel Type(1) 1999 2000 2001 2002 2003 Total
- -------------------------------- ---- ---- ---- ---- ---- -----
Anchor Handling Towing Supply... 1 1 1 4 2 9
Crew............................ 11 1 13 10 16 51
Geophysical, Freight and Other.. - - - 1 - 1
Mini-Supply..................... - - 4 - 2 6
Standby Safety.................. - 2 6 3 1 12
Supply and Towing Supply........ - 9 5 8 7 29
Utility......................... 2 8 10 7 29 56
---- ---- ---- ---- ---- ----
14 21 39 33 57 164
==== ==== ==== ==== ==== ====
- ------------------
(1) Sale transactions during 1999 through 2003 included 6 utility vessels and 1
mini-supply vessel transferred to Environmental Services and 5 towing
supply, 5 crew and 1 each of the utility, anchor handling towing and
mini-supply class were sold to joint venture companies in which the Company
owns a 50% or less equity interest.
NEW CONSTRUCTION. At December 31, 2003, the Company was committed to acquire 6
crew boats, 2 supply vessels and 1 towing supply vessel. Following year end, the
2 supply vessels that were on order were delivered to the Company.
4
MARKETS
Offshore Marine Services operates vessels in five principal geographic regions.
From time to time, vessels are relocated between these regions to meet customer
demand for equipment. The table below sets forth by region vessel types that are
owned, chartered-in, managed, pooled and joint ventured. Offshore Marine
Services has formed or acquired interests in offshore marine joint ventures to
enter new markets, enhance its marketing capabilities and facilitate operations
in certain foreign markets. These arrangements have allowed Offshore Marine
Services to expand its fleet or operations while diversifying the risks and
reducing the capital outlays associated with independent expansion.
At December 31,
----------------------
Vessel Type by Geographic Market 2001 2002 2003
- ----------------------------------------------------------------
United States:
Anchor Handling Towing Supply......... 4 5 6
Crew.................................. 60 63 53
Geophysical, Freight and Other........ 2 1 1
Mini-Supply........................... 23 29 27
Supply and Towing Supply.............. 20 18 11
Utility............................... 62 42 -(1)
----------------------
Total United States Fleet................. 171 158 98
----------------------
Latin America & Mexico:
Anchor Handling Towing Supply......... 9 9 9
Crew.................................. 10 10 11
Geophysical, Freight and Other........ - - 2
Mini-Supply........................... 3 4 4
Supply and Towing Supply.............. 20 19 20
Utility............................... 3 3 -
----------------------
45 45 46
----------------------
North Sea:
Anchor Handling Towing Supply......... 2 3 1
Standby Safety........................ 30 26 27
Supply and Towing Supply.............. 15 9 7
----------------------
47 38 35
----------------------
West Africa:
Anchor Handling Towing Supply......... 9 7 6
Crew.................................. 11 13 14
Mini-supply........................... - - 1
Supply and Towing Supply.............. 11 12 11
----------------------
31 32 32
----------------------
Asia:
Anchor Handling Towing Supply......... 6 3 3
Crew.................................. 9 10 9
Supply and Towing Supply.............. 6 6 2
----------------------
21 19 14
----------------------
Other Foreign:
Anchor Handling Towing Supply......... 1 1 1
Crew.................................. 1 - -
Geophysical, Freight and Other........ 1 1 1
Supply and Towing Supply.............. 7 7 8
----------------------
10 9 10
----------------------
Total Foreign Fleet....................... 154 143 137
----------------------
Total Fleet............................... 325 301 235
======================
------------------
(1) Excludes 26 utility vessels that have been retired from service. See "Item
7. Management Discussion and Analysis of Financial Condition and Results of
Operations - Offshore Marine Services."
UNITED STATES. Offshore Marine Services is a major provider of vessel services
primarily to the oil and gas exploration and production industry operating in
the U.S. Gulf of Mexico. At December 31, 2003, the U.S. fleet was comprised of
98 vessels, including 59 owned, 34 bareboat chartered-in, 4 joint ventured and 1
pooled. Anchor handling towing supply, supply and towing supply, and certain
crew and mini-supply vessels support exploration activities, primarily in deep
water, while certain other crew and mini-supply vessels support production
activities. A significant number of drilling support vessels service rigs
operating in deep water during a majority of their days worked. Vessels working
in the U.S. may also be employed in geophysical, freight and other special
purpose operations. At December 31, 2003, the Company estimates 34 companies
were operating approximately 340 supply and towing supply, 200 crew, 160 utility
and mini-supply and 30 anchor handling towing supply vessels in the U.S. Gulf of
Mexico. The Company estimates that less than half of these anchor handling
towing supply vessels are capable of working in water depths greater than 4,000
feet.
Offshore Marine Services holds a 67% equity interest in Energy Logistics, Inc.
("ELI"), a joint venture corporation that provides shorebase, marine transport
and other supply chain management services in support of offshore exploration
and production operations primarily in the U.S. Gulf of Mexico. ELI owns Liberty
Services, Inc. ("Liberty"), a company that has provided base services, equipment
rental and personnel in support of the offshore energy industry for many years.
ELI and Liberty operate shorebase support facilities in Louisiana and employ
vessels owned by Offshore Marine Services and others in its operations.
5
LATIN AMERICA AND MEXICO. Offshore Marine Services provides vessel services in
Latin America and Mexico for both exploration and production activities
primarily through its joint venture operations. At December 31, 2003, 31 vessels
were operating from ports in Mexico and the remaining fleet worked from ports in
Venezuela, Trinidad, Brazil, Chile and Argentina. Joint ventures owned 24
vessels and chartered-in an additional 20 vessels, 16 from Offshore Marine
Services and 4 from other owners. A Brazilian customer also charters 2 Offshore
Marine Services vessels.
In 1994, Offshore Marine Services and Grupo TMM, S.A., formerly Transportacion
Maritima Mexicana S.A. de C.V., a Mexican corporation ("TMM"), organized a joint
venture to serve the Mexican offshore market (the "TMM Joint Venture") in which
Offshore Marine Services owns a 40% equity interest. The TMM Joint Venture has
enabled Offshore Marine Services to expand into a market contiguous to the U.S.
Gulf of Mexico and provides greater marketing flexibility for its fleet in the
region. Demand for vessels in Mexico has been affected historically, to a
significant degree, by Mexican government policies, particularly those relating
to Petroleos Mexicanos ("PEMEX"), the Mexican national oil company.
NORTH SEA. The North Sea fleet principally provides standby safety, supply and
anchor handling towing supply vessel services to platform and rig operators
primarily operating in the United Kingdom. In addition to 26 owned and 1
charter-in vessel, the North Sea fleet includes 5 standby safety vessels managed
for a third party owner and 3 standby safety vessels that participate in joint
ventures. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Offshore Marine Services" for discussion
of managed vessel activity. At December 31, 2003, 8 companies were operating
approximately 118 certified standby safety vessels in the North Sea and an
additional 30 companies were operating approximately 106 supply and 66 anchor
handling towing supply vessels in this region.
Demand in the North Sea market for standby safety vessel services developed in
1991 after the United Kingdom promulgated legislation requiring offshore
operations to maintain higher specification standby safety vessels. The
legislation requires a vessel to "stand by" to provide a means of evacuation and
rescue for platform and rig personnel in the event of an emergency at an
offshore installation.
Due to the severe winter weather in the North Sea, activity for supply and
anchor handling towing supply vessels can vary between the winter and spring and
summer months. In particular, drilling activity and construction work are
usually planned for the March-October period.
WEST AFRICA. The West African fleet is substantially comprised of vessels owned
by Offshore Marine Services and additionally includes 2 vessels owned by joint
ventures and 1 chartered-in. Approximately 50% of Offshore Marine Services' West
African fleet operates from ports in Nigeria. The remainder of its vessels in
this region operates from ports in the Congo, Gabon, Equatorial Guinea,
Cameroon, and Angola. Competition is very concentrated in West Africa with only
6 principal vessel operators managing approximately 130 vessels. The need for
vessels in this market is primarily dependent upon multi-year offshore oil and
gas exploration and development projects and production support.
ASIA. The Asian fleet includes 6 vessels owned by Offshore Marine Services and 8
vessels owned by joint ventures operating primarily from ports in Indonesia,
Malaysia, India and Brunei. At December 31, 2003, approximately 30 companies
were operating more than 350 vessels in this region in support of exploration,
production, construction and special project activities.
Offshore Marine Services is also a 50% owner of Pelican Offshore Services Pte
Ltd, a Singapore corporation ("Pelican"), which owns 7 Fast Support Vessels.
OTHER FOREIGN. A vessel owned by Offshore Marine Services and 9 owned by joint
ventures are serving the oil and gas industry in Egypt, Greece and France.
INDUSTRY CONDITIONS AND COMPETITION
Offshore exploration and drilling activities, which affect the demand for
vessels, are influenced by a number of factors. The anticipated prices for oil
and gas commodities are an important driver of drilling expenditures. It is
equally important how customers assess drilling prospects and how they measure
offshore opportunities versus others on land. Such decisions on the part of
customers involve the assessment of costs, geological opportunity and political
stability in host countries. Demand for drilling services is additionally
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,
the relative value of the U.S. dollar since it is the benchmark pricing for
worldwide oil prices and the policies of various governments regarding
exploration and development of their oil and natural gas reserves. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Offshore Marine Services" for discussion of current market
conditions.
6
Each of the markets in which Offshore Marine Services operates is highly
competitive. The Company believes the most important competitive factors are
pricing and the availability of equipment to fit customer requirements. Other
factors considered important by customers include service and reputation, flag
preference, local marine operating conditions, the ability to provide and
maintain logistical support given the complexity of a project and the cost of
transferring equipment from one market to another.
Although there are many suppliers of offshore marine services, management
believes only one other company, Tidewater, Inc., operates in all of Offshore
Marine Services' major geographic markets. Tidewater, Inc. has a substantially
greater percentage of domestic and foreign offshore marine market share compared
to that of Offshore Marine Services and its other competitors. See "Markets" for
the number of competitors in the principal geographical regions where Offshore
Marine Services operates. The Company believes its strong financial condition,
diverse fleet and broad geographical distribution of vessels assist Offshore
Marine Services in weathering the effects of industry downturns. The Company's
financial position also enables Offshore Marine Services to capitalize on
opportunities as they develop for purchasing, mobilizing, or upgrading vessels
to meet changing market conditions and optimize the financial performance of the
fleet.
CUSTOMERS AND CONTRACT ARRANGEMENTS
The principal customers for Offshore Marine Services are major integrated oil
companies and large independent oil and gas exploration and production companies
and emerging independent companies. Consolidation of oil and gas companies
through mergers and acquisitions over the past several years has further
concentrated and generally limited Offshore Marine Services' customer base.
Although there was no single customer responsible for 10% or more of Offshore
Marine Services' operating revenues in 2003, the 10 largest customers accounted
for approximately 50% of its operating revenues. The loss of any one or more of
its most significant customers would have a material adverse effect on Offshore
Marine Services. The percentage of operating revenues attributable to any
individual customer varies from time to time, depending on the level of oil and
gas exploration undertaken by a particular customer, and other factors, many of
which are beyond Offshore Marine Services' control.
The majority of the vessels in the fleet are chartered to customers in
arrangements pursuant to which the customer leases a vessel at a daily rate of
hire. Offshore Marine Services provides all necessary support for its safe and
efficient operation, and vessel operating expenses, except for fuel, are borne
by Offshore Marine Services. Alternatively, customers charter vessels under
"bareboat" charter agreements. Pursuant to these agreements, Offshore Marine
Services provides only the vessel to the customer, and the customer provides for
the vessel's operating expenses and generally assumes all risk of operation. The
daily rate of hire under a bareboat charter agreement is lower than that under a
time charter agreement.
Charter terms may vary widely from several days to several years.
INDUSTRY HAZARDS AND INSURANCE
Offshore marine vessel operations involve inherent risks associated with
hazards, such as adverse weather conditions, collisions, fire, and mechanical
failures, which may result in injury to personnel, damage to equipment, loss of
operating revenues and increased costs. The Company maintains hull, liability,
marine war risk, general liability, workers compensation and other insurance
customary in the industry.
GOVERNMENT REGULATION
DOMESTIC REGULATION. Offshore Marine Services operations are subject to
significant federal, state and local regulations, as well as international
conventions. Its domestically registered vessels are subject to the jurisdiction
of the U.S. Coast Guard (the "Coast Guard"), the National Transportation Safety
Board, the U.S. Customs Service and the U.S. Maritime Administration, as well as
to rules of private industry organizations such as the American Bureau of
Shipping. These agencies and organizations establish safety standards and are
authorized to investigate vessels and accidents and to recommend improved
maritime safety standards. Moreover, to ensure compliance with applicable safety
regulations, the Coast Guard is authorized to inspect vessels at will.
Offshore Marine Services is also subject to the Shipping Act, 1916, as amended
(the "1916 Act"), and the Merchant Marine Act of 1920, as amended (the "1920
Act," and together with the 1916 Act, the "Shipping Acts"), which govern, among
other things, the ownership and operation of vessels used to carry cargo between
U.S. ports. The Shipping Acts require that vessels engaged in the U.S. coastwise
trade be owned by U.S. citizens and built in the U.S. For a corporation engaged
in the U.S. coastwise trade to be deemed a U.S. citizen: (i) the corporation
must be organized under the laws of the U.S. or of a state, territory or
possession thereof, (ii) each of the president or other chief executive officer
and the chairman of the board of directors of such corporation must be a U.S.
citizen, (iii) no more than a minority of the number of directors of such
corporation necessary to constitute a quorum for the transaction of business can
be non-U.S. citizens and (iv) at least 75% of the interest in such corporation
must be owned by U.S. "citizens" (as defined in the Shipping Acts). Should the
Company fail to comply with the U.S. citizenship requirements of the Shipping
Acts, it would be prohibited from operating its vessels in the U.S. coastwise
trade during the period of such non-compliance.
7
To facilitate compliance with the Shipping Acts, the Company's Restated
Certificate of Incorporation: (i) limits the aggregate percentage ownership by
non-U.S. citizens of any class of the Company's capital stock (including the
Common Stock) to 22.5% of the outstanding shares of each such class to ensure
that such foreign ownership will not exceed the maximum percentage permitted by
applicable maritime law (presently 25.0%) and authorizes the Board of Directors,
under certain circumstances, to increase the foregoing percentage to 24.0%, (ii)
requires institution of a dual stock certification system to help determine such
ownership and (iii) permits the Board of Directors to make such determinations
as reasonably may be necessary to ascertain such ownership and implement such
limitations. In addition, the Company's Amended and Restated By-Laws provide
that the number of foreign directors shall not exceed a minority of the number
necessary to constitute a quorum for the transaction of business and restrict
any officer who is not a U.S. citizen from acting in the absence or disability
of the Chairman of the Board of Directors and Chief Executive Officer and the
President, all of whom must be U.S. citizens.
FOREIGN REGULATION. Offshore Marine Services operates vessels registered in the
following foreign jurisdictions: St. Vincent and the Grenadines, Vanuatu, the
Cayman Islands, France, Chile, Egypt, Bahamas, Isle of Man, Greece, Panama,
Argentina, Mexico, the United Kingdom, and the Marshall Islands. The vessels
registered in these jurisdictions are subject to the laws of the applicable
jurisdiction as to ownership, registration, manning and safety of vessels. In
addition, the vessels are subject to the requirements of a number of
international conventions that are applicable to vessels depending on their
jurisdiction of registration. Among the more significant of these conventions
are: (i) the 1978 Protocol Relating to the International Convention for the
Prevention of Pollution from Ships, (ii) the International Convention on the
Safety of Life at Sea, 1974 and 1978 Protocols, and (iii) the International
Convention on Standards of Training, Certification and Watchkeeping for
Seafarers, 1978. The Company believes that its vessels registered in foreign
jurisdictions are in compliance with all applicable material regulations and
have all licenses necessary to conduct their business. In addition, vessels
operated as standby safety vessels in the North Sea are subject to the
requirements of the Department of Transport of the United Kingdom pursuant to
the United Kingdom Safety Act.
ENVIRONMENTAL REGULATION. Vessels routinely transport diesel fuel to offshore
rigs and platforms and carry diesel fuel for their own use, certain bulk
chemical materials used in drilling activities, rig-generated wastes for
delivery to waste disposal contractors onshore and liquid mud which contains oil
and oil by-products. These operations are subject to a variety of federal and
analogous state statutes concerning matters of environmental protection.
Statutes and regulations that govern the discharge of oil and other pollutants
onto navigable waters include the Oil Pollution Act of 1990, as amended ("OPA
90"), and the Clean Water Act of 1972, as amended (the "Clean Water Act"). The
Clean Water Act imposes substantial potential liability for the costs of
remediating releases of petroleum and other substances in reportable quantities.
State laws analogous to the Clean Water Act also specifically address the
accidental release of petroleum in reportable quantities.
OPA 90, which amended the Clean Water Act, increased the limits on liability for
oil discharges at sea, although such limits do not apply in certain listed
circumstances. In addition, some states have enacted legislation providing for
unlimited liability under state law for oil spills occurring within their
boundaries. Other environmental statutes and regulations governing offshore
marine operations include, among other things, the Resource Conservation and
Recovery Act, as amended ("RCRA"), which regulates the generation,
transportation, storage and disposal of on-shore hazardous and non-hazardous
wastes; the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), which imposes strict and joint and several
liability for the costs of remediating historical environmental contamination;
and the Outer Continental Shelf Lands Act, as amended ("OCSLA"), which regulates
oil and gas exploration and production activities on the Outer Continental
Shelf.
OCSLA provides the federal government with broad discretion in regulating the
leasing of offshore resources for the production of oil and gas. Because
offshore marine operations rely on offshore oil and gas exploration and
production, the government's exercise of OCSLA authority to restrict the
availability of offshore oil and gas leases could have a material adverse effect
on the Company's financial condition and results of operations.
In addition to these federal and state laws, local laws and regulations and
certain international treaties to which the U.S. is a signatory, such as MARPOL
73/78, subject Offshore Marine Services to various requirements governing waste
disposal and water and air pollution.
8
RISKS OF FOREIGN OPERATIONS
For the years ended December 31, 2001, 2002 and 2003 approximately 42%, 51% and
54%, respectively, of Offshore Marine Services' operating revenues were derived
from its foreign operations. Its foreign offshore marine service 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 on 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. It
is not possible to predict whether any of these 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.
ENVIRONMENTAL SERVICES
GENERAL
Until November 2003, Environmental Services primarily provided contractual oil
spill response and other professional emergency preparedness services to those
who store, transport, produce or handle petroleum and certain non-petroleum oils
as required by OPA 90, various state and municipal regulations and international
maritime conventions. These services include training, consulting and
supervision for emergency preparedness, response and crisis management. The
business is conducted through its wholly owned subsidiaries, National Response
Corporation ("NRC"), International Response Corporation ("IRC") and The
O'Brien's Group, Inc.
In November 2003, NRC acquired Foss Environmental Services Company and changed
this company's name to NRC Environmental Services Inc. ("NRCES"). NRCES operates
primarily on the west coast of the U.S. and, in addition to the above described
emergency response services, provides industrial and marine cleaning services,
petroleum storage tank removal and site remediation, transportation and disposal
of hazardous waste, and environmental equipment and product sales.
EQUIPMENT AND SERVICES
OIL SPILL RESPONSE SERVICES. Environmental Services employs trained personnel
and maintains specialized equipment positioned in the U.S. and in certain
international locations to respond to oil spills and other projects as required
by its customers. NRC maintains a fleet of 13 vessels and 6 barges outfitted
with specialized equipment on the east, gulf, and west coasts of the U.S. as
well as in the Caribbean and Hawaii. It also has established a network of
approximately 150 independent oil spill response contractors that may assist it
by providing equipment and personnel. When a marine or land oil spill occurs,
Environmental Services mobilizes the appropriate equipment, and either its own
personnel or personnel under contract, to provide emergency management and
response services.
RETAINER SERVICES. Environmental Services offers retainer services to the
maritime community, such as operators of tank vessels, chemical carriers,
non-tank vessels and tank barges, and to owners of facilities, such as
refineries, pipelines, exploration and production platforms and storage tank
terminals. Retainer services include access to professional management and
specialized equipment necessary to respond to an oil or chemical spill
emergency.
CONSULTING SERVICES. Environmental Services has developed customized training
programs for industrial companies to educate personnel on the prevention of and
response to oil spills, handling of hazardous materials releases, fire fighting,
security incidents and other crisis-related events as well as the associated
risks. Environmental Services plans and participates in customer oil and
chemical spill response and other risk exercises and develops and maintains
vessel and facility response and security plans. It also conducts and assists
with vessel inspections, as well as security assessments of vessels and
facilities. All of these services are offered throughout the U.S. and
internationally, both on a stand-alone basis and as part of its base retainer
services.
INDUSTRIAL AND REMEDIATION SERVICES. Through NRCES and its network of
independent oil spill response contractors, Environmental Services provides
hazardous waste management, industrial and marine cleaning services, salvage
support, petroleum storage tank removal and site remediation services, primarily
in the U.S. It also markets and sells environmental equipment and products.
9
MARKET
The market for contractual oil spill response and other related training and
consulting services in the U.S. resulted from the enactment of OPA 90
legislation passed by the U.S. Congress after the Exxon Valdez oil spill in
Alaska. OPA 90 requires that all tank vessels operating within the Exclusive
Economic Zone of the United States and all facilities and pipelines handling oil
that could have a spill affecting the navigable waters of the U.S. develop a
plan to respond to a "worst case" oil spill and ensure by contract or other
approved means the ability to respond to such a spill. Certain states have
enacted similar oil spill laws and regulations, most notably California,
Washington and Alaska. The United Nations' MARPOL 73/78 regulation also subjects
companies to various requirements governing waste disposal and water and air
pollution.
The international market is characterized by two distinct operating environments
- - developed and developing nations. In developed nations, the environmental
regulations generally are mature and governments usually respond to oil spills
with public resources and then recover their costs from the responsible parties.
In developing nations where global oil exploration and production exists, there
is less oil spill response infrastructure and, accordingly, Environmental
Services is seeking to develop opportunities to work with international oil and
gas exploration and producing companies.
CUSTOMERS AND CONTRACT ARRANGEMENTS
Environmental Services offers its services primarily to the domestic and
international shipping community, major oil companies, independent exploration
and production companies, power generating operators, industrial companies and
airports. Services are provided pursuant to contracts generally ranging from one
month to ten years. In addition to its retainer customers, Environmental
Services provides training, exercise and response services for oil spills,
chemical releases, terrorist acts and natural disasters to others, including,
under certain circumstances, local, state and federal agencies such as the U. S.
Coast Guard.
Environmental Services has more than 1,500 customers, and management does not
believe that it is dependent on a single or few customers.
INDUSTRY CONDITIONS AND COMPETITION
Over a decade since OPA 90's enactment, the demand for oil spill response
services in the U.S. has stabilized and has become very competitive for the
numerous regional companies that now provide related services. The number of
potential marine and oil company clients has been reduced through mergers and
other consolidations. In addition, the number and the severity of the spills
that do occur have been fewer in recent years than was the case when NRC began
operating, mostly attributed to stricter OPA 90 regulations. More recently,
certain states, particularly on the west coast of the U.S., have begun passing
their own more stringent oil spill response requirements. As a result,
Environmental Services' costs of maintaining the resources needed to meet state
regulatory requirements have risen and when combined with the effects of
increased competition, it has been unable to recover these increased expenses
from its customers.
The principal competitive factors in the environmental service business are
price, customer service, reputation, experience, and operating capabilities.
Management believes that the lack of uniform regulatory development and
enforcement on a federal and state level in the U.S. has reduced demand for
services provided by Environmental Services, thereby putting downward pressure
on market rates. In the U.S., NRC faces competition primarily from the Marine
Spill Response Corporation, a non-profit corporation funded by the major
integrated oil companies, other non-profit industry cooperatives and also from
smaller commercial contractors who target specific market niches. Its
environmental consulting business faces competition from a number of relatively
small privately-held spill management companies. Internationally, competition
for both oil spill response and emergency preparedness and management comes from
a few well-known private companies and regional oil industry cooperatives.
GOVERNMENT REGULATION
NRC is "classified" by the Coast Guard as an Oil Spill Removal Organization
("OSRO") for every port in the continental U.S., Hawaii and the Caribbean. The
OSRO classification process is strictly voluntary. Vessel owners and other
customers subject to OPA 90 who utilize classified OSROs are exempt from the
requirement to list their response resources in their plans. The classification
process permits the Coast Guard and these customers to evaluate an OSRO's
potential to respond to and recover oil spills of various types and sizes in
different operating environments and geographic locations.
In addition to the Coast Guard, the Environmental Protection Agency ("EPA"), the
Office of Pipeline Safety, the Minerals Management Service division of the
Department of Interior, and individual states regulate vessels, facilities, and
pipelines in accordance with the requirements of OPA 90 or under analogous state
law. There is currently little uniformity among the regulations issued by these
agencies.
10
When responding to third-party oil spills, Environmental Services enjoys
immunity from liability under federal law and some state laws for any spills
arising from its response efforts, except for deaths or personal injuries or in
the event of gross negligence or willful misconduct. It also obtains contractual
indemnity and liability release terms similar to the immunity provision
discussed above from its customers. In addition, the Company maintains insurance
coverage against such claims arising from its response operations. It considers
the limits of liability adequate, although there can be no assurance that such
coverage will be sufficient to cover future claims that may arise.
RISKS OF FOREIGN OPERATIONS
Environmental Services operates in Asia, the Caribbean, Europe, the Middle East,
West Africa and Latin America primarily through IRC and joint ventures in
Thailand, the United Arab Emirates and Brazil. IRC and The O'Brien's Group, Inc.
services include oil spill response, training, exercise support and special
projects in assessing risk of spills, response preparedness, strategies and
resource requirements to multinational oil companies, governments and industry.
For the years ended December 31, 2001, 2002 and 2003 approximately 7%, 9% and
40%, respectively, of Environmental Services' operating revenues were derived
from its foreign operations. A significant increase in operating revenues earned
from foreign operations in 2003 resulted from spill response, spill management,
containment, and remediation services provided in support of Operation Iraqi
Freedom.
Environmental Services' foreign operations are subject to various risks inherent
in conducting business in foreign nations. These risks include, among others,
political instability, terrorist attacks, the repatriation of income or capital
and other forms of public and governmental regulation, all of which are beyond
the control of the Company. It is not possible to predict whether any of these
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.
"OTHER" BUSINESS SEGMENT
INLAND RIVER SERVICES
FLEET. In the third quarter of 2000, the Company acquired SCF Corporation
("SCF"), a company that had owned, operated and managed dry cargo barges since
1983. Dry cargo barges transport a range of dry-bulk commodities such as grain,
coal, aggregate, ore, steel, scrap and fertilizers on the U.S. inland waterways.
Each dry cargo barge in Inland River Services' fleet is capable of transporting
approximately 1,500 (1,350 MT) tons of cargo. Dry cargo barges are propelled by
vessels, known in the trade as "towboats." The combination of a towboat and dry
cargo barges is commonly referred to as a "tow." The number of dry cargo barges
included in a tow depends on a variety of factors, including but not limited to
towboat horsepower, river conditions, the direction of travel and the mix of
loaded and empty dry cargo barges. Inland River Services contracts with third
parties to move its dry cargo barges.
Since 2000, Inland River Services has taken delivery of 359 new dry cargo
barges, including 91 in 2003, and purchased three used inland river towboats.
The towboats are leased to a third party that provides "contract towing" to
Inland River Services. Additionally, the Company has firm commitments to
purchase 330 new dry cargo barges and 24 new chemical tank barges ("tank
barges") during 2004. The Company holds options to purchase 150 new dry cargo
barges for delivery in 2005. At present, Inland River Services expects its tank
barges will be managed in a pool with other operators.
The following table sets forth the number of dry cargo barges and towboats owned
and/or operated by Inland River Services.
At December 31,
----------------------------------------
Fleet Structure 2001 2002 2003
- ------------------------------- --------- --------- ---------
Dry Cargo Barges:
Owned....................... 101 295 369
Managed (1)................. 226 229 235
Chartered-in................ - - 174
Joint Ventured(3)........... 11 11 6
--------- --------- ---------
338 535 784
========= ========= =========
Towboats....................... - - 3(2)
========= ========= =========
- ---------------------------
(1) See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Inland River Services" for a discussion of
managed barges.
(2) Three 6,250 horsepower towboats were acquired in December 2003 and are
bareboat chartered-out.
(3) 50% owned.
MARKET. Dry cargo barges provide one of the nation's most cost effective methods
for transporting bulk cargoes on the U.S. inland waterways and are regularly
chosen as the preferred mode of transportation for many bulk commodity shippers.
Inland River Services' primary dry cargo barge customers include major U.S.
agricultural and industrial companies.
11
Inland River Services sometimes seeks to enter into long-term contracts to
provide a level of stable cash flows while a significant portion of its business
remains in the short-term market. Given this exposure, Inland River Services is
at risk should rates decline, but will benefit if the relationship between the
supply and demand of available barges tightens and improves pricing.
SEASONALITY. The upper Mississippi River usually closes to barge traffic from
mid-December to mid-March; ice hinders the navigation of barge traffic on the
northern Mississippi River, the Illinois River and the upper Ohio River. Adverse
river conditions arising from high water as a result of excessive rainfall, or
low water caused by drought, can also impact operations by limiting the speed at
which tows travel the waterways, the number of barges included in tows, and the
quantity of cargo that is loaded in the barges. The volume of grain transported
from the Midwest to the Gulf of Mexico, primarily for export, is highest during
the harvest season, which runs primarily from August through late November. The
harvest season is particularly significant because pricing tends to peak during
these months.
COMPETITION. The barge business has been consolidating for many years.
Management believes that there are five major domestic companies that operate
over 1,000 barges each. There are also three mid-sized barge companies that
operate more than 500 but less than 1,000 barges. The seven largest operators
hold 78% of the capacity.
The inland barging business is very competitive and there are competitors that
have greater financial resources than the Company and may be better able to
withstand and respond to adverse market conditions. Furthermore, there can be no
assurance Inland River Services will not encounter increased competition in the
future. The Company believes that the primary barriers to entry are the
complexity of operations and the difficulty of assembling a sufficiently large
fleet to operate effectively. The Company believes that a large fleet and
experienced personnel are required for an operator to be efficient in the
execution of voyages and its ability to spread risk. Competitive factors among
established operators primarily include the price and availability of barges. In
addition to being reliable, barge operators must have equipment of a suitable
type and in condition for a specific cargo.
Inland River Services' dry cargo barge fleet is one of the youngest in the
industry, with an average age of approximately three years. The Company believes
this young fleet enhances customer service and improves availability due to
reduced days lost to repairs.
Demand for dry cargo barges is also impacted by competition from alternative
modes of transportation. If factors such as the access to discharge destinations
are suitable, management believes that dry cargo barge transportation holds a
cost advantage over alternative modes of inland transportation as it provides
the lowest unit cost of delivery for high volume bulk products.
AVIATION SERVICES
The Company commenced Aviation Services with the acquisition of Houston-based
Tex-Air Helicopters, Inc. ("Tex-Air") in December 2002.
FLEET. Tex-Air was founded in March 1988 and provides helicopter transportation
services primarily to oil and gas companies operating in the U.S. Gulf of
Mexico. To a lesser extent, its helicopters are used in servicing the healthcare
industry, seismic work, aerial photography and VIP transportation. Tex-Air also
operates a Federal Aviation Administration ("FAA") approved maintenance repair
station and an American Eurocopter Corporation factory-approved service center
in Houston, Texas through which Tex-Air provides helicopter repair and
refurbishment services.
The following table sets forth the type and number of Aviation Services'
helicopters as of December 31, 2003:
Passenger
Manufacturer Model Number Engine Capacity
------------ ----- ------ ------ --------
Eurocopter EC155 2 Twin 12
Eurocopter AS355 N 1 Twin 5
Eurocopter AS355 F1/F2 3 Twin 5-6
Agusta A119 3 Single 7
Eurocopter AS350 B1/B2 8 Single 5-6
Eurocopter AS350 BA 4 Single 5
Eurocopter AS350 B 2 Single 5
Eurocopter EC120 B 9 Single 4
Bell 206 B Series 8 Single 4
Sikorsky(1) S76 C+ 1 Twin 6
-----------
41
===========
- ---------------------
(1) This aircraft is leased in corporate configuration to a third party.
12
Tex-Air took delivery of two new Eurocopter EC155 helicopters and two new Agusta
A119 helicopters in the fourth quarter of 2003 and additionally acquired a used
Agusta A119 helicopter in the third quarter of the year. Six leased helicopters
were also acquired by Tex-Air during 2003, and at year end, its fleet was
comprised of 23 owned, 16 leased and 1 managed helicopter. In addition, Aviation
Services purchased a Sikorsky S76 C+ in the fourth quarter of 2003, subject to
an operating lease that expires in 2006. At December 31, 2003, Aviation Services
was committed to purchase 1 new Agusta A119. Following year end, it committed to
purchase 3 additional new Agusta A119's.
MARKET. At this time, Tex-Air's helicopters are marketed principally for use in
offshore operations in the U.S. Gulf of Mexico. Tex-Air charters its helicopters
to customers primarily through master service agreements, term contracts and
day-to-day charter arrangements. Master service agreements require incremental
payments based on usage, have fixed terms ranging from one month to five years
and generally are cancelable upon 30-days notice. Term contracts and day-to-day
charter arrangements are generally non-cancelable without cause and call for a
combination of a monthly or daily fixed rental fee plus a charge based on usage.
At December 31, 2003, Tex-Air had 25 helicopters operating under master service
agreements or term contracts with customers. The majority of Tex-Air's fleet
operates in the U.S. Gulf of Mexico servicing offshore production facilities and
its principal customers are major oil companies and production management
companies. With the investment in the EC155 helicopter, Tex-Air is broadening
its offerings in the U.S. Gulf of Mexico to target offshore exploration and
construction activities.
SEASONALITY. A significant portion of Tex-Air's operating revenues and profits
is dependent on actual flight hours. Prolonged periods of adverse weather and
the effect of fewer hours of daylight can adversely impact Tex-Air's operating
results. Three types of weather-related and seasonal occurrences impact Tex-Air,
including poor weather conditions, tropical storm season in the U.S. Gulf of
Mexico and the number of hours of daylight. As a general rule, in the U.S. Gulf
of Mexico the months of December through February have more days of adverse
weather conditions than the other months of the year and June through November
is tropical storm season. During tropical storms, Aviation Services is unable to
operate in the area of the storm although flight activity may increase due to
the evacuation of offshore workers. In addition, Aviation Services' facilities
are located along the U.S. Gulf of Mexico coast and tropical storms may cause
damage to its property. The fall and winter months have fewer hours of daylight.
Consequently, flight hours are generally lower at these times.
COMPETITION. The helicopter transportation business is highly competitive in the
U.S. Gulf of Mexico. There are three major and several smaller competitors
operating in this market. In addition, several oil and gas operators in the U.S.
Gulf of Mexico operate their own helicopter fleets. Tex-Air is the fourth
largest independent helicopter company operating in the U.S. Gulf of Mexico. In
most instances, an operator must have an acceptable safety record, demonstrated
reliability, type and availability of equipment and quality of service to
participate in competitive bids. Having met these criteria, customers usually
make their final choice based on price.
GOVERNMENT REGULATION. Tex-Air is subject to regulations pursuant to the Federal
Aviation Act of 1958, as amended, and other statutes as it carries persons and
properties in its helicopters pursuant to a FAR Part 135 Air Taxi Certificate
granted by the FAA. The FAA regulates flight operations and, in this respect,
has jurisdiction over Tex-Air personnel, aircraft, ground facilities and certain
technical aspects of its operations. In addition to the FAA, the National
Transportation Safety Board is authorized to investigate aircraft accidents and
to recommend improved safety standards and, because of the use of radio
facilities in its operations, Tex-Air is also subject to the Communications Act
of 1934.
Tex-Air is subject to federal, state and local laws and regulations relating to
the protection of the environment. The nature of the business of operating and
maintaining helicopters requires that Tex-Air use, store and dispose of
materials that are subject to these laws and regulations. The environmental
protection requirements have become more stringent in recent years; however,
management believes these laws and regulations will not have a material adverse
effect on Aviation Services.
HAZARDS. In general, helicopter operations are potentially hazardous and may
result in incidents or accidents, the risks of which are inherent in the
helicopter transportation industry. These hazards may result in injury to
personnel or loss of equipment and operating revenues. Tex-Air conducts training
and safety programs to minimize these hazards. Tex-Air maintains insurance
coverage for liability to other parties, as well as for damage to its aircraft.
There can be no assurance that Tex-Air's liability coverage will be adequate to
cover all claims that may arise. There is also no assurance that Tex-Air will be
able to maintain its existing coverage or that operating revenues will not be
adversely affected by these hazards in the future.
13
OTHER ACTIVITIES
GLOBE WIRELESS. In 1998, the Company acquired an interest in the predecessor of
Globe Wireless, L.L.C. ("Globe Wireless") and owns beneficially approximately
38% of the voting equity of Globe Wireless. Globe Wireless operates a worldwide
network of high frequency radio stations. The network of stations is a wireless
data network initially targeted at the maritime industry that supports Internet
messaging, telex and facsimile communications. Globe Wireless also provides
satellite messaging and voice communication services to the maritime industry.
The Company records Globe's results using the equity method of accounting.
OTHER JOINT VENTURES. Also in 1998, the Company entered into a joint venture
with an established private ship-owning and ship-management company in which it
owns a 50% interest. The joint venture currently owns and operates a 52,000 dead
weight ton handy-max bulk carrier built in 2001. In 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 or lease. The Company
records the results of these joint ventures using the equity method of
accounting.
CHILES. Chiles Offshore Inc. ("Chiles") was formed in 1997 for the purpose of
constructing, owning and operating ultra-premium jackup drilling rigs. The
Company consolidated the reporting of financial information of Chiles from its
inception until its initial public offering of common stock in September 2000
(the "Chiles IPO") and thereafter using the equity method. Consequently, the
Company's consolidated results for 1997 through the Chiles IPO in 2000 included
in revenues, expenses and operating income, amounts reflecting its pro-rata
share of ownership of Chiles during that period; thereafter, until Chiles merged
with ENSCO International Incorporated ("ENSCO"), its net results were reflected
in equity income.
In the merger of Chiles with ENSCO on August 7, 2002 (the "Chiles Merger"), the
Company received $5.25 and 0.6575 shares of ENSCO common stock for each share of
Chiles' common stock it owned at the time of the merger. The Company received
$25.4 million in cash and 3,176,646 shares of ENSCO's common stock, valued at
$73.4 million on the date of merger, and recognized an after-tax gain of $12.9
million, or $0.61 per diluted share. Following the Chiles Merger, the Company
began accounting for the ENSCO shares it owns as available-for-sale securities
and now records changes in their market value each period as adjustments to
other comprehensive income.
ENVIRONMENTAL COMPLIANCE
The Company's operations are subject to federal, state and local laws and
regulations controlling the discharge of materials into the environment or
otherwise relating to the protection of the environment. The Company makes
expenditures it believes to be necessary and seeks to comply, in all material
respects, with these laws to avoid liability for environmental damage.
Compliance with existing environmental laws has not had a material adverse
effect on the Company's results of operations. However, future changes in
environmental regulations with respect to the oil and gas industry could
adversely affect the Company.
EMPLOYEES
As of December 31, 2003, the Company directly or indirectly employed
approximately 2,900 individuals. All indirect employees support offshore marine
vessel operations. In Nigeria, a joint venture company assists with vessel
management and, at December 31, 2003, employed approximately 300 individuals.
Also at December 31, 2003, the Company's North Sea operations were provided
approximately 850 seamen through various manning agencies.
Unions represent seamen employed in the United Kingdom and West Africa,
employees of an Offshore Marine Services' joint venture in Nigeria and certain
individuals employed in Environmental Services. Furthermore, in recent years,
maritime labor unions have attempted to organize seamen employed by Offshore
Marine Services in its U.S. Gulf of Mexico operations. Although union-organizing
activities for U.S. seamen employed by Offshore Marine Services have recently
declined, the unionization of its domestic seaman is likely to continue to be an
ongoing goal of the unions.
ITEM 2. PROPERTIES
Vessels, helicopters and barges are the principal physical properties owned by
the Company and are more fully described in "Offshore Marine Services" and
"Other Business Segment - Inland River Services" and "Other Business Segment -
Aviation Services."
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal and other proceedings, which are
ordinary routine litigation incidental to the conduct of its business. The
Company believes that none of these proceedings, if adversely determined, would
have a material adverse effect on its financial condition or results of
operations.
14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2003.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Officers of the Company serve at the pleasure of the Board of Directors. The
name, age and offices held by each of the executive officers of the Company at
December 31, 2003 were as follows:
Name Age Position
- ---------------------- --------- --------------------------------------------
Charles Fabrikant 59 Chairman of the Board of Directors,
President and Chief Executive Officer of
SEACOR and has served as a director of
certain of SEACOR's subsidiaries since
December 1989. President of SEACOR since
1989. For more than five years preceding its
acquisition by SEACOR in December 2000, Mr.
Fabrikant served as Chairman of the Board
and Chief Executive Officer of SCF. For more
than the past five years, Mr. Fabrikant has
been the President of Fabrikant
International Corporation ("FIC"), a
privately owned corporation engaged in
marine operations and investments that may
be deemed an affiliate of the Company. Mr.
Fabrikant is a director of Globe Wireless,
and prior to the Chiles Merger, Mr.
Fabrikant served as Chairman of the Board of
Chiles. Mr. Fabrikant is a licensed attorney
admitted to practice in the State of New
York and in the District of Columbia.
Randall Blank 53 Executive Vice President and Chief Financial
Officer of SEACOR since December 1989 and
has been the Secretary of SEACOR since
October 1992. From December 1989 to October
1992, Mr. Blank was Treasurer of SEACOR. In
addition, Mr. Blank has been a director of
certain of SEACOR's subsidiaries since
January 1990 and, since October 1997, has
been the Chief Executive Officer of
Environmental Services. Mr. Blank is a
director of Globe Wireless, and prior to the
Chiles Merger, Mr. Blank served as a
director of Chiles.
Dick Fagerstal 43 Senior Vice President, Corporate Development
and Treasurer of SEACOR since February 2003
and has served as Treasurer since May 2000.
From August 1997 to February 2003, Mr.
Fagerstal served as Vice President of
Finance. Mr. Fagerstal has also served as a
director of certain of SEACOR's subsidiaries
since August 1997. Prior to the Chiles
Merger, Mr. Fagerstal served as a director,
Senior Vice President and Chief Financial
Officer of Chiles.
Milton Rose 59 Vice President of SEACOR and President and
Chief Operating Officer of its Americas
Division since January 1993. Mr. Rose also
serves as a director of various SEACOR joint
ventures.
Alice Gran 54 Vice President and General Counsel of SEACOR
since July 1998 and is a director and
officer of certain SEACOR subsidiaries. Ms.
Gran is responsible for managing legal,
insurance and certain risk management
functions. Ms. Gran is a licensed attorney
admitted to practice in the District of
Columbia.
Andrew Strachan 56 Vice President of SEACOR since April 1997
and a director and officer of certain SEACOR
subsidiaries since December 1996.
Lenny Dantin 51 Vice President and Chief Accounting Officer
of SEACOR since March 1991. From October
1992 to May 2000, Mr. Dantin was Treasurer
of SEACOR. In addition, Mr. Dantin has been
an officer and director of certain of
SEACOR's subsidiaries since January 1990.
Since 1994, Mr. Dantin has been a director
of the two companies comprising the TMM
Joint Venture.
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR THE COMPANY'S COMMON STOCK
SEACOR's Common Stock trades on the New York Stock Exchange (the "NYSE") under
the trading symbol "CKH." Set forth in the table below for the periods presented
are the high and low sale prices for SEACOR's Common Stock.
HIGH LOW
------------ -----------
Fiscal Year Ending December 31, 2002:
First Quarter.......................................... 50.19 40.10
Second Quarter......................................... 51.70 44.30
Third Quarter.......................................... 47.98 37.05
Fourth Quarter......................................... 44.50 37.75
Fiscal Year Ending December 31, 2003:
First Quarter.......................................... 44.84 34.27
Second Quarter......................................... 39.58 33.80
Third Quarter.......................................... 40.45 34.90
Fourth Quarter......................................... 42.08 35.60
Fiscal Year Ending December 31, 2004:
First Quarter (through March 8, 2004).................. 44.47 39.93
As of March 8, 2004, there were 126 holders of record of Common Stock.
SEACOR has not paid any cash dividends in respect of its Common Stock since its
inception in December 1989 and has no present intention to pay any dividends in
the foreseeable future. Instead, SEACOR intends to retain earnings for working
capital and to finance the expansion of its business. Any payment of future
dividends will be at the discretion of SEACOR's Board of Directors and will
depend upon, among other factors, the Company's earnings, financial condition,
capital requirements, level of indebtedness and contractual restrictions,
including the provisions of the Company's revolving credit facility.
The payment of future cash dividends, if any, would be made only from assets
legally available and would also depend on the Company's financial condition,
results of operations, current and anticipated capital requirements, plans for
expansion, restrictions under then existing indebtedness and other factors
deemed relevant by the Company's Board of Directors in its sole discretion.
EQUITY COMPENSATION PLANS INFORMATION
Number of Weighted-average Number of securities
Securities to be exercise remaining available
issued upon price of for future issuance
exercise of outstanding under equity
outstanding options, compensation plans
options, warrants (excluding securities
warrants and and reflected in column
Plan Category rights rights (a))
(a) (b) (c)
- ------------------------------------------------------------------------ --------------- -------------------
Equity compensation plans approved by security holders 706,619 $ 31.25 1,097,542
Equity compensation plans not approved by security
holders None - -
---------------- --------------- --------------------
Total 706,619 $ 31.25 1,097,542
================ =============== ====================
16
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth, for the periods and at the dates indicated,
selected historical and consolidated financial data for the Company, in
thousands of dollars, except per share data. Such financial data should be read
in conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8. Consolidated Financial
Statements" included in Parts II and IV, respectively, of this Annual Report on
Form 10-K.
Year Ended December 31,
-------------------------------------------------------------------------
1999 2000 2001 2002 2003
------------- ------------- ------------- ------------- -------------
OPERATING REVENUES:
Offshore Marine.............................. 258,705 276,931 399,123 367,969 316,116
Environmental................................ 22,820 24,996 26,847 22,087 44,045
Drilling(1).................................. 7,651 37,380 - - -
Other (2).................................... 938 1,092 9,598 13,369 48,599
Elimination.................................. (689) (458) (778) (267) (2,551)
------------- ------------- ------------- ------------- -------------
$ 289,425 $ 339,941 $ 434,790 $ 403,158 $ 406,209
============= ============= ============= ============= =============
OPERATING INCOME................................ $ 46,613 $ 47,752 $ 91,935 $ 43,757 $ 5,729
============= ============= ============= ============= =============
OTHER INCOME (EXPENSES):
Net interest expense......................... (1,835) (10,027) (8,452) (8,231) (11,782)
Income from equipment sales or retirements,
net........................................ 1,677 7,628 9,030 8,635 17,522
Other income (expense)(3).................... (4,771) 16,305 9,825 21,981 9,980
------------- ------------- ------------- ------------- -------------
(4,929) 13,906 10,403 22,385 15,720
============= ============= ============= ============= =============
NET INCOME...................................... $ 30,936 $ 34,120 $ 70,701 $ 46,587 $ 11,954
============= ============= ============= ============= =============
INCOME PER SHARE: (4)
Basic..................................... $ 1.73 $ 2.02 $ 3.63 $ 2.33 $ 0.63
Diluted................................... 1.69 1.92 3.43 2.28 0.63
STATEMENT OF CASH FLOWS DATA:
Cash provided by operating activities........ $ 47,872 $ 65,251 $ 111,420 $ 66,795 $ 44,996
Cash provided by (used in) investing
activities................................. 39,779 (31,012) (76,638) 6,167 (1,741)
Cash provided by (used in) financing
activities................................. (82,686) 14,222 (77,455) 87,205 (127,525)
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents, marketable
securities and construction reserve funds.. $ 273,499 $ 347,159 $ 258,055 $ 525,931 $ 438,131
Total assets................................. 1,196,991 1,132,730 1,298,138 1,487,107 1,402,611
Long-term debt............................... 465,661 377,955 256,675 402,118 332,179
Stockholders' equity......................... 508,130 552,552 743,698 804,951 770,446
CAPITAL EXPENDITURES............................ $ 140,470 $ 73,750 $ 107,445 $ 139,706 $ 161,842
OPERATING DATA:
Offshore Marine Services:
Fleet Count, at period end(5)............. 294 305 325 301 235
Percent Utilized(6)....................... 73.1% 75.7% 81.1% 78.5% 76.6%
Rates Per Day Worked by Vessel Type-(7)(8)
Anchor Handling Towing Supply.......... $ 11,869 $ 11,410 $ 13,548 $ 13,067 $ 12,406
Crew................................... 2,493 2,645 3,313 3,216 3,225
Mini-Supply............................ 2,094 2,041 3,071 2,854 3,029
Standby Safety......................... 6,045 5,328 5,448 5,935 6,697
Supply and Towing Supply............... 5,526 5,251 7,771 7,985 7,554
Utility................................ 1,669 1,609 1,895 1,755 1,773
Helicopter Count, at period end(9)........... N/A N/A N/A 36 40
Barge Count, at period end(10)............... N/A 262 338 535 784
(1) As a consequence of its majority ownership, the Company consolidated the
reporting of financial information of Chiles until its ownership interest
was reduced in September 2000, at which time the Company began using the
equity method of accounting for its ownership interest until the Chiles
Merger in August of 2002.
(2) Primarily comprised of Inland River Services, which commenced operations in
the third quarter of 2000, and Aviation Services following the acquisition
of Tex-Air in December 2002.
(3) Other income (expense) principally includes gains and losses from the sale
of marketable securities, derivative transactions, the sale of investments
in 50% or less owned companies, foreign currency transactions and debt
extinguishment. Other income in 2000 additionally included a gain upon the
sale of shares of Chiles and in 2002 also included gains resulting from the
Chiles Merger.
(4) Computations of basic and diluted income per common share give effect for
SEACOR's June 15, 2000 three-for-two stock split.
(5) Offshore Marine Services' fleet includes vessels owned, chartered-in,
managed, pooled and joint ventured.
(6) Utilization with respect to any period is the ratio of the aggregate number
of days worked for all offshore vessels that are owned and bareboat
chartered-in to total calendar days available during such period.
(7) Rate per day worked with respect to any period is the ratio of total time
charter revenues earned by offshore vessels that are owned and chartered-in
to the aggregate number of days worked by offshore vessels during such
period.
(8) Revenues for certain vessels included in the calculation of rates per day
worked 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.
(9) The Company commenced reporting the consolidation of financial information
of helicopter operator, Tex-Air, in December 2002.
(10) Inland River Services commenced operations in the third quarter of 2000 and
the fleet includes barges owned, managed, chartered-in and joint ventured.
17
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations presents our operating results for each of the three years in the
period ended December 31, 2003, and our financial condition at December 31,
2003. Except for the historical information contained herein, the following
discussion contains forward-looking statements, which 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 expressed or implied by such
forward-looking statements. We discuss such risks, uncertainties and other
factors throughout this report and specifically under the caption
"Forward-Looking Statements" immediately preceding Part I of this report and
under the caption "Cautionary Statements," in below in this Item 7. In addition,
the following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in connection with the information
presented in our consolidated financial statements and the related notes to our
consolidated financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
SEACOR is in the business of owning, operating, investing in, marketing and
remarketing equipment, primarily in the offshore oil and gas and inland
transportation industries. It also provides oil spill response and environmental
remediation services.
The Company's principal subsidiaries are divided among the following three
business segments: "Offshore Marine Services;" "Environmental Services;" and
"Other," which includes its "Inland River Services" and "Aviation Services"
businesses. The primary assets used in these businesses include marine vessels
or "workboats", environmental spill response equipment, inland river barges and
towboats and helicopters.
The Company's largest business segment, Offshore Marine Services, operates 235
vessels servicing offshore oil and gas exploration and production around the
world. These 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. Offshore Marine Services works for both major
integrated oil companies and small independents in the following five principal
geographic locations: including the U.S. Gulf of Mexico; Latin America and
Mexico; the North Sea; West Africa; and Asia.
Environmental Services provides contractual spill response and site remediation
services. It acquired a complementary business in 2003 that expanded its range
of services to include hazardous waste management, industrial and marine
cleaning and site remediation services on the West Coast.
Results of Environmental Services can vary greatly in terms of profitability and
operating margins from year to year. In 2003, Environmental Services provided
emergency oil spill response services in support of Operation Iraqi Freedom.
These services, which have been completed, generated significant increases in
foreign operating revenues and profits. As this specific response required an
unusually high degree of logistical support and involved a high level of risk,
the margin of profit, relative to operating revenues, was greater than would be
the case with a typical remediation project undertaken on land in the U.S.
Although remediation projects are a regular activity, responses to emergencies
on a large scale are episodic. Environmental Services, while not capital
intensive, is "people intensive" and, depending on the specific service
rendered, its margins can be highly variable.
The majority of the Company's assets are employed servicing cyclical industries.
The earnings power of those assets is subject to the varying nature of demand
within industries they support. The supply of competing assets is often
countercyclical to underlying demand, such that over-capacity can occur even
when demand is at reasonable levels.
Offshore Marine Services, Inland River Services and Aviation Services are highly
capital intensive businesses. To successfully manage these businesses over time,
the Company believes it is often necessary to re-allocate capital among
different classes of assets and across a variety of industries. The Company also
believes that maintaining sufficient liquidity is important to weather business
cycles and provide the resources necessary to take advantage of opportunities as
they develop.
In December 2002, the Company diversified its energy related asset mix through
the acquisition of Tex-Air. Although Tex-Air operates a fleet of helicopters
primarily dedicated to the offshore oil and gas sector, the considerations
governing the supply of such equipment are not necessarily the same as with
marine vessels. In addition, Tex-Air's assets can be used in seismic work,
aerial photography, VIP transportation and to service the healthcare industry.
The results of Aviation Services are included in the Company's "Other" business
segment along with Inland River Services.
18
For the past several years, the Company has been pursuing a strategy of reducing
its overall exposure to the offshore marine services industry and adjusting the
mix of equipment it operates. In 2000, the Company embarked on a program of
purchasing new dry cargo barges and acquired SCF Corporation, a company that
owned, operated and managed dry cargo barges on the U.S. inland waterways. In
the years since that acquisition, the Company has continued to invest in new
barges and plans to commit substantial capital to Inland River Services in 2004.
The demand for inland river barges, while subject to economic cycles, is not
subject to the same underlying forces that determine activity in Offshore Marine
Services. The dynamic of the supply side of this business is also different. The
Company believes that Inland River Services provides an attractive alternative
for investment of capital relative to Offshore Marine Services.
As a result of its committed new construction plan, the Company believes that
Inland River Services will become a separately reported segment in 2004. The
number of dry cargo barges in Inland River Services' fleet has grown from 262
units at the end of 2000 to 784 at the end of 2003. As a great deal of this
equipment was added in the third and fourth quarters of 2003, its impact on
revenues and results for the year was not commensurate with the magnitude of
investment. Inland River Services' fleet is expected to exceed 1,100 units by
the end of 2004.
CONSOLIDATED RESULTS OF OPERATIONS
OVERVIEW
The table below provides an analysis of the Company's consolidated statements of
income for each year indicated. See "Item 8. Consolidated Financial Statements -
Note 14. Major Customers and Segment Data" included in Part IV for additional
financial information about the Company's business segments and geographical
areas of operation.
2001 2002 2003
----------------------- ---------------------- -----------------------
(in thousands) Amount % Amount % Amount %
- --------------------------------------------------------- ------------ ---------- ------------ --------- ------------- ---------
Operating revenues...................................... $ 434,790 100 $ 403,158 100 $ 406,209 100
------------ ---------- ------------ --------- ------------- ---------
Operating expenses...................................... 234,551 54 249,892 62 287,290 71
Administrative and general.............................. 49,980 12 53,265 13 57,684 14
Depreciation and amortization........................... 58,324 13 56,244 14 55,506 14
------------ ---------- ------------ --------- ------------- ---------
342,855 79 359,401 89 400,480 99
------------ ---------- ------------ --------- ------------- ---------
Operating income........................................ 91,935 21 43,757 11 5,729 1
Other income, net(1) ................................... 10,403 2 22,385 6 15,720 4
------------ ---------- ------------ --------- ------------- ---------
Income before taxes, minority interest and equity
earnings.............................................. 102,338 23 66,142 17 21,449 5
Income taxes(2)......................................... 35,571 8 23,034 6 10,396 3
------------ ---------- ------------ --------- -----------------------
Income before minority interest and equity earnings..... 66,767 15 43,108 11 11,053 3
Minority interest....................................... (372) - (226) - (517) -
Equity earnings......................................... 4,306 1 3,705 1 1,418 -
------------ ---------- ------------ --------- ------------- ---------
Net income.............................................. $ 70,701 16 $ 46,587 12 $ 11,954 3
============ ========== ============ ========= ============= =========
- --------------------------
(1) Includes net interest expense, income from equipment sales or retirements,
net, gain upon sale of shares of Chiles, derivative income (loss), net,
foreign currency transaction gains (losses), net, gains (losses) from the
sale of marketable securities, net and other income and expenses.
(2) The effective income tax rate of the Company was 34.8% in 2001 and 2002 and
48.5% in 2003.
In 2002, consolidated operating revenues declined 7% to $403.2 million due
primarily to reduced Offshore Marine Services and Environmental Services
operating revenues. Consolidated net income declined 34% to $46.6 million and
diluted earnings per share declined 34% to $2.28. Between years, consolidated
net income was primarily impacted by the after-tax effect of a (i) $31.3 million
decline in consolidated operating income, resulting from reduced profits earned
by Offshore Marine Services, (ii) $12.8 million non-recurring gain recognized in
2002 in connection with the Chiles Merger, (iii) $7.6 million reduction in
income from derivative transactions and the sale of marketable securities and
(iv) $3.3 million increase in foreign currency exchange gains.
In 2003, consolidated operating revenues increased by 1% to $406.2 million. An
increase in operating revenues earned by Environmental Services and Inland River
Services and resulting from the commencement of Aviation Services was
substantially offset by a decline in operating revenues of Offshore Marine
Services. Consolidated net income declined 74% to $12.0 million and diluted
earnings per share declined 72% to $0.63. Between comparable years, consolidated
net income was primarily impacted by the after-tax effect of a (i) $24.7 million
decline in consolidated operating income, in which significantly lower Offshore
Marine Services' profits and Aviation Services' losses exceeded the improved
results of Environmental Services and Inland River Services, (ii) $12.8 million
non-recurring gain recognized in 2002 in connection with the Chiles Merger,
(iii) $7.0 million increase in income from derivative transactions and the sale
of marketable securities, (iv) $5.8 million increase in income from the sale of
Offshore Marine Services' vessels, (v) $2.3 million increase in net interest
expense and (vi) $2.3 million decline in equity earnings. Net income
additionally declined $2.9 million in 2003 due to an increase in the Company's
effective income tax rate.
19
OPERATING REVENUES BY BUSINESS SEGMENT AND GEOGRAPHIC REGION
Operating revenues of the Company's business segments and the geographical
regions in which they were earned are presented in the following table for each
year indicated.
2001 2002 2003
------------------ ----------------- -----------------
(in thousands) Amount % Amount % Amount %
- ----------------------------- ----------- ----- ---------- ----- ---------- ------
Business Segment:
Offshore Marine Services $ 399,123 92 $ 367,969 91 $ 316,116 78
Environmental Services.. 26,847 6 22,087 6 44,045 11
"Other"................. 9,598 2 13,369 3 48,599 12
Elimination............. (778) - (267) - (2,551) (1)
----------- ----- ---------- ----- ---------- ------
$ 434,790 100 $ 403,158 100 $ 406,209 100
=========== ===== ========== ===== ========== ======
Geographic Region:
United States........... $ 267,195 61 $ 212,291 53 $ 217,677 54
----------- ----- ---------- ----- ---------- ------
North Sea............... 81,184 19 89,138 22 73,693 18
West Africa............. 51,976 12 57,754 14 54,501 13
Asia.................... 22,439 5 24,227 6 19,340 5
Latin America & Mexico.. 10,012 2 17,390 4 21,121 5
Other(1) ............... 1,984 1 2,358 1 19,877 5
----------- ----- ---------- ----- ---------- ------
167,595 39 190,867 47 188,532 46
----------- ----- ---------- ----- ---------- ------
434,790 100 403,158 100 406,209 100
=========== ===== ========== ===== ========== ======
----------------------
(1) Operating revenues earned in Other geographic regions in 2003 resulted
primarily from environmental spill services provided in Iraq.
In 2002, reduced demand for Offshore Marine Services' vessels in the U.S. and
declining retainer activities in Environmental Services in the U.S. lowered
consolidated operating revenues by 8%, or $35.9 million. These declines were
partly offset by a 1%, or $3.8 million, increase in consolidated operating
revenues earned by the Company's "Other" business segment as a result of U.S.
fleet expansion in Inland River Services. Operating revenues earned in foreign
regions improved during 2002 due to North Sea and West African fleet expansion
in Offshore Marine Services and as a result of the relocation of vessels from
the U.S. to Latin America and Mexico. Results for 2002 include the effect on
consolidated operating revenues of relocating certain vessels from the U.S. to
West Africa and Other foreign regions. A more detailed discussion of
consolidated operating revenue for each of the Company's business segments can
be found below.
In 2003, consolidated operating revenues increased 14%, or $57.2 million, due to
improved results in the Environmental Services and "Other" business segments.
Spill response activities improved in both the U.S. and Other foreign markets,
principally Iraq. The Company again added dry cargo barges to Inland River
Services' fleet and Aviation Services commenced operations in 2003. These
improvements in consolidated operating revenues were substantially offset by a
13%, or $51.9 million, decline in the results of Offshore Marine Services.
Demand for U.S. vessels remained depressed and weakened for many of Offshore
Marine Services' vessels operating in the North Sea and West Africa. Between
years, the Company also reduced the size of its Offshore Marine Services'
domestic and foreign vessel fleets and repositioned vessels between geographic
regions of operation.
In 2001, 2002 and 2003, Offshore Marine Services earned 58%, 49% and 46%, and
Environmental Services earned 93%, 91% and 60%, of their respective operating
revenues in the U.S. Environmental Services' operating revenues increased
significantly in foreign markets during 2003 due to increased spill response
activities in Iraq. The Company's "Other" business segment activities, including
both Inland River Services and Aviation Services, are presently concentrated in
the U.S. Geographic regions of the world in which the Company earns operating
revenues may vary widely between years as a result of the mobility of Offshore
Marine Services' vessels and the unpredictability of the number, severity and
location of oil spills to which Environmental Services may respond.
OPERATING EXPENSES BY BUSINESS SEGMENT
The operating expenses of the Company's business segments are presented in the
following table for each year indicated.
2001 2002 2003
----------------------- ---------------------- ------------------------
% of % of % of
(in thousands) Amount Revenues Amount Revenues Amount Revenues
- ------------------------------------- ----------- ----------- ---------- ---------- ------------ -----------
Offshore Marine Services......... $ 216,853 54 $ 233,486 63 $ 228,231 72
Environmental Services........... 12,924 48 10,387 47 24,405 55
"Other".......................... 5,297 55 6,074 45 36,962 76
Elimination...................... (523) - (55) - (2,308) -
----------- ---------- ------------
Consolidated operating expenses.. $ 234,551 54 $ 249,892 62 $ 287,290 71
=========== ========== ============
20
Consolidated operating expenses increased by 7% to $249.9 million in 2002 and
15% to $287.3 million in 2003. Operating expenses of Offshore Marine Services
increased in 2002 as a result of net fleet additions and escalating costs
associated with vessel operations. "Other" business segment expenses also
increased in 2002 due to the commencement of operation of new dry cargo barges.
These increases were partly offset by lower 2002 Environmental Services'
operating expenses that resulted from reduced retainer business activity. In
2003, operating expense savings that resulted from net vessel dispositions in
Offshore Marine Services were partly offset by escalating costs associated with
vessel operations. Operating expenses of Environmental Services increased due to
increased spill response activities and the acquisition in the fourth quarter of
an environmental services company serving the west coast of the U.S. Inland
River Services fleet expansion again increased "Other" business segment
operating expenses along with the commencement of Aviation Services. A more
detailed discussion of operating expenses for each of the Company's business
segments can be found below.
Consolidated operating expenses as a percent of consolidated operating revenues
increased to 62% in 2002 and 71% in 2003. The increase in both years was due
primarily to declining Offshore Marine Services' operating revenues that
resulted from lower fleet utilization and rates per day worked and escalating
costs associated with vessel operations. Consolidated operating expenses
additionally increased as a percent of consolidated operating revenues in 2003.
Environmental Services' new West Coast operations and Aviation Services earned
marginal profits and Inland River Services' operating expenses escalated during
the year.
ADMINISTRATIVE AND GENERAL
Administrative and general expenses are presented by business segment in the
following table for each year indicated.
(in thousands) 2001 2002 2003
- ------------------------------------------- ----------- ----------- -----------
Offshore Marine Services............... $ 32,523 $ 33,806 $ 35,082
Environmental Services................. 7,598 7,404 8,086
"Other"................................ 987 1,101 3,174
Corporate.............................. 9,131 11,165 11,587
Elimination............................ (259) (211) (245)
----------- ----------- -----------
Consolidated administrative and general $ 49,980 $ 53,265 $ 57,684
=========== =========== ===========
Administrative and general expenses increased 7% to $53.3 million in 2002 and 8%
to $57.7 million in 2003. Performance-based incentive compensation increased
administrative and general expenses in 2002 by $1.2 million as a consequence of
the successful completion of the Chiles Merger. Administrative and general
expenses additionally increased in 2002 as a result of fleet acquisitions in
Offshore Marine Services, expanded information technology support infrastructure
and higher corporate development and travel expenses. The increase in
administrative and general expense in 2003 resulted primarily from the
commencement of Aviation Services, a substantial increase in employee
termination benefit expenses in Offshore Marine Services associated with
reductions in the size of our fleet, increased insurance expenses and increased
legal and professional services. Declines in performance-based incentive
compensation partly offset these cost increases.
DEPRECIATION AND AMORTIZATION
The depreciation and amortization of the Company's business segments are
presented in the following table for each year indicated.
(in thousands) 2001 2002 2003
- ---------------------------------------------- ----------- ----------- -----------
Offshore Marine Services................... $ 52,926 $ 51,079 $ 46,425
Environmental Services..................... 4,288 3,280 2,509
"Other".................................... 1,106 1,886 6,247
Corporate.................................. - - 323
Elimination................................ 4 (1) 2
----------- ----------- -----------
Consolidated deprecation and amortization.. $ 58,324 $ 56,244 $ 55,506
=========== =========== ===========
Depreciation and amortization expense, primarily related to offshore support
vessels, inland river barges and helicopters, decreased 4% to $56.2 million in
2002 and 1% to $55.5 million in 2003. A decline in expense during 2002 that
resulted from the cessation of goodwill amortization in accordance with SFAS 142
"Goodwill and Other Intangible Assets," and various Environmental Services'
assets reaching the end of their depreciable lives was partly offset by
increased depreciation expense that resulted from the acquisition of dry cargo
barges. In 2003, a decline in depreciation expense that resulted from net vessel
dispositions in Offshore Marine Services and additional Environmental Services'
assets reaching the end of their depreciable lives was substantially offset by
an increase in depreciation expense that resulted from the acquisition of
additional dry cargo barges and the commencement of Aviation Services resulting
from the Tex-Air acquisition.
21
OTHER INCOME, NET
Other income, net, the components of which are presented in the following table
for each year indicated, increased 115% to $22.4 million in 2002 and decreased
30% to $15.7 million in 2003.
(in thousands) 2001 2002 2003
- ------------------------------------ ---------- ---------- -----------
Net interest expense............. $ (8,452) $ (8,231)$ (11,782)
Income from equipment sales
or retirements, net........... 9,030 8,635 17,522
Gain upon sale of shares of
Chiles........................ - 19,719 -
Derivative income (loss), net.... 4,127 (5,043) 2,389
Foreign currency transaction
gains, net.................... 1,247 6,281 3,739
Other, net....................... 4,451 1,024 3,852
---------- ---------- -----------
$ 10,403 $ 22,385 $ 15,720
========== ========== ===========
NET INTEREST EXPENSE. Net interest expense decreased 3% to $8.2 million in 2002
but increased by 43% to $11.8 million in 2003. Interest expense decreased in
2002 with the Company's repayment of loans that financed vessel acquisitions,
redemption of $146.3 million of the Company's 5-3/8% Convertible Subordinated
Notes Due 2006 (the "5-3/8% Notes") and entry into interest swap agreements with
respect to the Company's 7.2% Senior Notes Due September 15, 2009 (the "7.2%
Notes"). Offsetting interest expense declines in 2002 was a $4.7 million
decrease in interest income resulting from lower invested cash balances and
interest rates.
Interest expense increased in 2003 due to the issuance of the Company's 5-7/8%
Senior Notes Due October 2012 (the "5-7/8% Notes") in September 2002. In
addition, even though the Company has not had any specific borrowing associated
with vessel construction activity, pursuant to generally accepted accounting
principles, the Company capitalizes interest cost attributable to progress
payments made to shipyards. Those payments increased in 2003 and capitalized
interest totaled $2.3 million during the year. Another significant factor
contributing to the increase in net interest expense was the decline in rates on
short-term deposits.
Net interest expense is expected to again rise in 2004 due to the Company's
termination in the fourth quarter of 2003 of interest swap agreements with
respect to its 7.2% Notes. See "Item 7A Quantitative and Qualitative Disclosures
about Market Risk" for additional discussion of interest rate swap agreements.
The sale by the Company in the fourth quarter of 2003 of all its long-term fixed
income marketable securities is expected to lower interest income in the coming
year. Additionally, shipyard progress payments are projected to decline in 2004
and lower capitalized interest in the coming year.
INCOME FROM EQUIPMENT SALES OR RETIREMENTS, NET. Income from equipment sales or
retirements decreased 4% to $8.6 million in 2002 but increased 103% to $17.5
million in 2003. Equipment sale activities in 2002 resulted principally from the
disposition of 31 vessels, including 13 pursuant to sale-leaseback transactions
that resulted in income deferral, totaling $13.8 million. In 2003, 25 additional
offshore support vessels were sold during the year, including 5 pursuant to
sale-leaseback transactions that resulted in income deferral, totaling $5.2
million. Income deferred as a result of sale-leaseback transactions is being
amortized against vessel rental expense over the applicable lease terms.
During December 2003, management determined to divest Offshore Marine Services'
utility fleet. During 2003, the Company sold 28 utility boats. At December 31,
2003, the Company still owned 26 utility vessels all of which were retired from
service and are being marketed for sale.
GAIN UPON SALE OF SHARES OF CHILES. A non-recurring gain of $19.7 million in
2002 resulted from the Chiles Merger.
DERIVATIVE INCOME (LOSS), NET. Results from derivative transactions declined
$9.2 million in 2002 but improved $7.4 million in 2003. Net losses of $6.6
million were recognized upon settlement of U.S. Treasury note and bond options
and future contracts in 2002; whereas, net gains resulted from comparable
transactions in the prior year. The settlement of U.S. Treasury rate-lock
agreements and a transaction that hedged the Company's share ownership position
in ENSCO acquired from the Chiles Merger resulted in additional derivative
losses during 2002. An increase in unrealized gains from interest rate swap
agreements partly offset these declines. In 2003, net gains were recognized from
the settlement of U.S. Treasury note and bond options and future contracts and a
transaction that hedged the Company's share ownership position in ENSCO;
whereas, net losses resulted from comparable transactions in the prior year.
FOREIGN CURRENCY TRANSACTION GAINS, NET. Net foreign currency exchange gains
increased 404% to $6.3 million 2002, then decreased 40% to $3.7 million in 2003.
In both years, net foreign currency exchange gains were due primarily to the
effect of currency exchange rate changes on intercompany loans (denominated in
Pounds Sterling) and other transactions denominated in currencies other than the
functional currency of various SEACOR subsidiaries that are part of Offshore
Marine Services. In both 2002 and 2003, the Pound Sterling currency strengthened
against the U.S. dollar.
22
OTHER, NET. In 2002 and 2003, other, net principally included marketable
security sale gains and debt extinguishment losses and 2003 additionally
included an impairment charge with respect to an investment that was accounted
for using the cost method. Security sale gains primarily resulted from the sale
of equity securities. Debt extinguishment losses resulted primarily from the
write off of deferred financing costs and the payment of premium upon the
retirement of indebtedness.
INCOME TAXES
The Company's effective income tax rate increased to 48.5% in 2003 from 34.8% in
2001 and 2002 due primarily to the provision of a $1.9 million valuation
allowance for foreign tax credits that may expire before utilization and a $0.5
million tax consequence of non-deductible expenses.
EQUITY EARNINGS
Equity in earnings of 50% or less owned companies declined 14% to $3.7 million
in 2002 and 62% to $1.4 million in 2003. Results in 2002 declined as the Company
ceased to report equity in the earnings of Chiles following the Chiles Merger
and recognized an impairment charge with respect to the Company's investment in
an entity that develops and sells software to the ship brokerage and shipping
industry. Results of the prior year included a non-recurring gain from the sale
of a Handymax Dry-Bulk ship by a bulk carrier joint venture. Equity in the
improved results of Offshore Marine Services' ventures operating in Singapore,
Trinidad, Egypt and Greece and lower operating losses of Globe Wireless partly
offset these declines.
Results for 2003 declined due primarily to a $1.6 million charge for U.S. income
taxes payable on a dividend received from Offshore Marine Services' joint
venture in Mexico. Earnings were also reduced by $1.1 million as the Company
ceased to report equity in the earnings of Chiles following the Chiles Merger in
2002 and as a result of lower profits earned by Offshore Marine Services' joint
ventures operating in Trinidad, Singapore and the U.K. Weak demand lowered joint
venture results in Trinidad. Two vessels operating in Asia were sold at a loss.
Significant repairs were performed on a North Sea joint venture vessel. Declines
were partly offset by improved results from Offshore Marine Services' joint
venture results in Argentina, Chile and Brazil due to increased vessel
utilization and fleet growth. The operating losses of Globe Wireless declined
between years. Prior year results included a non-recurring impairment charge
relating to the Company's investment in an entity that develops and sells
software to the ship brokerage and shipping industry.
OFFSHORE MARINE SERVICES
GENERAL
Through SEACOR's subsidiaries and its joint venture arrangements, Offshore
Marine Services, the Company's principal business segment, is primarily
dedicated to operating a diversified fleet of offshore support vessels that
service oil and gas exploration and production facilities mainly in the U.S.
Gulf of Mexico, the North Sea, Latin America and Mexico, West Africa and Asia.
Offshore Marine Services' vessels carry cargo and personnel to and from offshore
installations, handle anchors for drilling rigs and other marine equipment,
support offshore construction and maintenance work, provide standby safety
support and oil spill response services. From time to time, vessels also service
special projects, such as well stimulation, seismic data gathering and freight
hauling. In addition to vessel services, Offshore Marine Services offers
logistics services, including shorebase, marine transport and other supply chain
management services in support of offshore oil and gas exploration and
production operations.
FLEET
Since its inception, the Company has actively monitored opportunities to buy and
sell vessels to maximize the overall utility and flexibility of its fleet.
Offshore Marine Services has expanded its fleet through the purchase of vessels
from competitors, equity investments in joint ventures that own vessels and
construction of new equipment. Since 1997, Offshore Marine Services has spent
approximately as much on new construction as it has on the acquisition of
existing fleets or second hand vessels.
23
The table below sets forth the Company's fleet ownership structure at the dates
indicated.
At December 31,
-------------------------------
Fleet Structure 2001 2002 2003
- -------------------------------------------------------- --------- --------- ---------
Domestic:
Owned................................................ 146 119 59
Bareboat Chartered-in (1)............................ 23 36 34
Managed.............................................. - - -
Joint Ventures and Pool.............................. 2 3 5(2)
--------- --------- ---------
171 158 98
--------- --------- ---------
Foreign:
Owned................................................ 88 81 80
Bareboat Chartered-in(1)............................. 2 4 2
Managed.............................................. 12 6 5
Joint Ventures....................................... 52 52 50(2)
154 143 137
--------- --------- ---------
325 301 235
========= ========= =========
---------------------------
(1) Vessels chartered-in primarily in sale-leaseback transactions.
(2) Of joint ventured vessels, 43 were owned and 5 were chartered-in by joint
ventures in which the Company owned less than a majority interest and 6
participated in joint ventures in which the Company owned the majority
interest. One vessel owned by a third party participates in a pool with 2
additional vessels owned by the Company.
OPERATING REVENUE AND EXPENSE DRIVERS
OPERATING REVENUE DRIVERS. The number and type of Offshore Marine Services'
vessels, rates per day worked and utilization levels are the key determinants of
operating revenues and results. Unless the Company decides to lay up a vessel,
operating costs are static, irrespective of utilization or rates. In some
instances the cost of lay-up would necessitate paying "redundancy" expenses
thereby making it more economical to keep a vessel in service, even if current
utilization and rates do not cover daily operating expenses. The Company does
not believe, however, in keeping equipment in service simply to avoid the cost
of redundancy and does so only when it expects that conditions will improve soon
enough to make it impractical to release personnel and re-hire them on a timely
basis.
Operating revenues are derived primarily from chartering vessels to its
customers for specified periods of time at agreed rates ("time charter"). These
vessels are either owned or chartered in by Offshore Marine Services. When
Offshore Marine Services charters vessels from other owners, it is usually on a
"bareboat charter" basis. In such arrangements Offshore Marine Services is
responsible for all vessel operating expenses plus a rental fee to the owner. On
rare occasions, Offshore Marine Services also charters vessels from other
operators, "fully found." In these instances the charter rate includes all
operating expenses. As charter hire payable to third parties and bareboat
expenses are included in operating expenses, operating margins are impacted.
When vessels are sold and leased back (bareboat chartered), depreciation and
finance charges become indirectly assimilated into operating expense via the
lease payment.
Offshore Marine Services also provides management services to other vessel
owners and recognizes related management fees in operating revenues but does not
recognize charter revenues or vessel expenses of the managed vessels.
Rates per day worked and utilization of Offshore Marine Services' fleet are a
function of demand and availability in marine vessel markets, which are closely
aligned with the level of exploration and development of offshore areas.
Numerous factors impact the demand side of this equation. Short-term and
long-term trends in oil and gas prices, which in turn are related to demand for
petroleum products and the current availability of oil and gas resources, have
in the past been good leading indicators of activity. In recent years, however,
that has not been the case. The decision to invest capital offshore is also a
function of alternatives for investment, whether it be share re-purchases by oil
and gas producers, merger opportunities, or availability of more promising
acreage on land.
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. Utilization with respect to any vessel
during a given period is the ratio of aggregate number of days worked by such
vessel to total calendar days available for work during such period. Utilization
is impacted by availability of work and also availability of the vessel for
service. The factors that affect service downtime are scheduled and unscheduled
repairs.
24
The table below sets forth rates per day worked and utilization data for
Offshore Marine Services' fleet during the periods indicated.
Fleet 2001 2002 2003
- ---------------------------------------------------------- ------------- -------------- --------------
Rates per Day Worked:(1)(2)
Anchor Handling Towing Supply - Domestic............. $ 20,542 $ 21,275 $ 19,028
Anchor Handling Towing Supply - Foreign.............. 11,104 10,810 10,004
Crew................................................. 3,313 3,216 3,221
Geophysical, Freight and Other....................... 5,406 - -
Mini-Supply.......................................... 3,071 2,854 3,029
Standby Safety....................................... 5,448 5,935 6,697
Supply and Towing Supply - Domestic.................. 8,256 7,541 6,338
Supply and Towing Supply - Foreign................... 7,264 8,289 8,097
Utility.............................................. 1,895 1,755 1,773
Utilization:(1)
Anchor Handling Towing Supply - Domestic............. 82.7% 74.1% 64.2%
Anchor Handling Towing Supply - Foreign.............. 85.2% 79.4% 81.5%
Crew................................................. 93.4% 80.3% 78.3%
Geophysical, Freight and Other....................... 51.8% -% -%
Mini-Supply.......................................... 91.7% 86.9% 88.5%
Standby Safety....................................... 87.3% 87.4% 87.8%
Supply and Towing Supply - Domestic.................. 87.8% 89.4% 68.0%
Supply and Towing Supply - Foreign................... 89.8% 87.3% 86.2%
Utility.............................................. 56.1% 60.6% 55.9%
Overall Fleet.................................... 81.1% 78.5% 76.7%
- ---------------------------------
(1) Excludes owned vessels that are bareboat chartered-out, vessels owned by
corporations that participate in pooling arrangements with Offshore Marine
Services, minority-owned joint venture vessels and managed vessels and
includes vessels bareboat and time chartered-in by Offshore Marine
Services.
(2) Revenues for certain vessels 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.
OPERATING AND OTHER EXPENSE DRIVERS. Vessel operating expenses consist primarily
of "daily running costs" and depreciation. Daily running costs, including such
expenses as wages paid marine personnel, maintenance and repairs and insurance,
vary depending on equipment type, location, and activity. Daily running costs
may also include charter-in expenses, a fixed cost, resulting from sale and
leaseback transactions. Depreciation charges are also fixed and depend on the
cost of acquisition and the Company's useful life assumptions. Aggregate
expenses for Offshore Marine Services primarily depend on the size and asset mix
of the fleet.
Drydocking costs are expensed when incurred. Under applicable maritime
regulations, vessels must be drydocked and surveyed by regulatory authorities
twice in any given five-year period or once in a two-year period in the case of
crew boats. The Company adheres to an asset management strategy of laying up
vessels during periods of weak utilization. Drydocking and survey costs tend to
decline when demand becomes slack; conversely, when business improves,
drydocking activities and related costs tend to increase as vessels are returned
to service. Should Offshore Marine Services undertake a large number of
drydockings in a particular fiscal year 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 years ended December 31,
2001, 2002, and 2003, drydocking costs totaled $10.1 million, $12.9 million and
$10.2 million, respectively. During those same periods, Offshore Marine Services
completed the drydocking of 99, 84 and 71 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 Offshore Marine Services' vessel maintenance costs. In recent
years, Offshore Marine Services has begun to replace older vessels with newer
vessels that have more powerful main propulsion engines, which may result in
higher repair expenses. This altered fleet mix has occurred primarily through
the introduction of new aluminum-constructed Fast Support Vessels, in which main
propulsion engines significantly exceed the horsepower of older crew vessels
sold from the fleet. Should engine repair expenses, particularly those related
to main engine overhauls, increase in a fiscal year, comparative results may be
affected. For the fiscal years ended December 31, 2001, 2002 and 2003 main
propulsion engine repair expenses totaled $15.2 million, $16.8 million and $14.6
million, respectively.
The Company believes that the continuing worldwide threat of terrorist activity
and past economic and political uncertainties have resulted in significant
increases in its cost to insure against liability to other parties and damage to
its vessels and other property and further increases in insurance costs are
expected in 2004. For the fiscal years ended December 31, 2001, 2002 and 2003,
marine insurance expense totaled $7.7 million, $8.2 million and $10.0 million,
respectively. There can be 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 insurance expense.
25
At December 31, 2003, Offshore Marine Services had 35 vessels bareboat
chartered-in pursuant to sale-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-leaseback
transactions totaled $11.0 million in 2001, $14.5 million in 2002 and $14.2
million in 2003.
MARKET CONDITIONS
The number of working offshore rigs peaked in March 2001 at approximately 470
worldwide and declined to approximately 420 rigs at year end 2001, where it
remained through year end 2002. The average working offshore rig count for 2003
was 333 rigs. The decline in offshore rig demand was greatest in the U.S. Gulf
of Mexico and North Sea. 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 been
accompanied by more drilling activity, which increases the demand for services
provided by Offshore Marine Services. The decline in rig demand since 2001 has
tracked oil and natural gas commodity prices until recently. Although oil and
natural gas prices increased during the second half of 2002 and remained at
historically high levels in 2003, this has yet to produce an increase in
drilling activity.
VESSELS RETIRED AND OUT OF SERVICE
With continued weak demand and operating losses in its U.S. Gulf of Mexico
utility fleet, the Company decided in the fourth quarter of 2003 to divest of
this vessel type. Following this decision, the Company profitably disposed of 17
utility vessels and increased the size of its retired from service fleet from 12
to 26 utility vessels. These vessels are being actively marketed for sale and
have been removed from utilization statistics and fleet counts following their
retirement from service. The Company's remaining fleet of 26 utility vessels
range in length from 110 to 120 feet, approximate 22 to 29 years of age and have
an aggregate net book value of approximately $1.8 million. Management expects to
recover the remaining book value of the Company's utility vessels upon their
disposition. Nine crew, 3 supply, 2 mini-supply and 1 each of the anchor
handling towing supply and geophysical classes were additionally out of service
at year end due to weak customer demand for such equipment in the U.S. Gulf of
Mexico.
RESULTS OF OPERATIONS
The results of operations for Offshore Marine Services are presented in
the following table for each year indicated.
(in thousands) 2001 2002 2003
- ------------------------------------ ------------------- ------------------- ------------------
Amount % Amount % Amount %
----------- ------ ----------- ------ ---------- ------
Revenues......................... $ 399,123 100 $ 367,969 100 $ 316,116 100
----------- ------ ----------- ------ ---------- ------
Operating expenses............... 216,853 55 233,486 63 228,231 72
Administrative and general....... 32,523 8 33,806 9 35,082 11
Depreciation and amortization.... 52,926 13 51,079 14 46,425 15
----------- ------ ----------- ------ ---------- ------
302,302 76 318,371 86 309,738 98
----------- ------ ----------- ------ ---------- ------
Operating income................. $ 96,821 24 $ 49,598 14 $ 6,378 2
=========== ====== =========== ====== ========== ======
OPERATING REVENUES. Operating revenues declined 8% to $368.0 million in 2002 and
14% to $316.1 million in 2003 and represented 91% and 78%, respectively of
consolidated operating revenues. The elements of changes in operating revenues
included the effects of changes in:
2002 2003
--------------------- ---------------------
(in thousands) Amount % Amount %
- --------------------------------------------- ------------ ------ ------------ ------
Utilization................................. $ (30,849) (8) $ (15,405) (4)
Rates Per Day Worked........................ (10,946) (3) (17,017) (5)
Acquisitions................................ 38,798 10 21,630 6
Dispositions................................ (28,141) (7) (42,698) (11)
Foreign Currency............................ 2,656 1 4,926 1
Other....................................... (2,672) (1) (3,289) (1)
------------ ------ ------------ ------
$ (31,154) 8 $ (51,853) 14
============ ====== ============ ======
Declines in utilization and rates per day worked occurred principally in the
Company's U.S. operations where vessel demand was lower resulting from a
significant depression in rig utilization. Operating revenues earned in 2002
from fleet additions exceeded declines from fleet dispositions and the resulting
modernization of Offshore Marine Services' fleet increased 2002 revenues. In
2003, the decline in operating revenues resulting from fleet dispositions
exceeded the revenues earned from vessels added to the fleet during the year.
Offshore Marine Services has for some years been pursuing a strategy to
modernize its crew, supply and mini-supply fleets. During 2003, several
chartered-in vessels were returned to their owners and others were divested.
26
Functional currency (Pounds Sterling) rates per day worked earned by North Sea
standby safety vessels remained steady in 2002 and 2003; however, a
strengthening in both years in the Pound Sterling currency relative to the U.S.
dollar increased reported operating revenues by 1% in each year. Because
Offshore Marine Services pays expenses associated with its North Sea operations
in Pounds Sterling, the strengthening of that currency relative to the U.S.
dollar did not have a material effect on overall operating income and net income
of the Company in 2002 or 2003. For financial statement reporting purposes,
revenues and expenses associated with Offshore Marine Services' North Sea
operations are translated into U.S. dollars at the weighted average currency
exchange rates during the relevant period.
Other operating revenues declined 1% in each of 2002 and 2003 due primarily to
additional vessels entering bareboat charter-out service.
OPERATING EXPENSES. Operating expenses of Offshore Marine Services increased in
2002 due to increases in wages paid to marine professionals. Regulatory docking
expenses also rose. A greater number of main engine overhauls, an increase in
expenses resulting from major hull repairs to an anchor handling towing supply
vessel and the replacement of certain diesel generator engines also contributed
to higher vessel repair and maintenance expenses. Foreign shore-based support
expenses increased due to the relocation of Offshore Marine Services' Nigerian
office and increased wages for shore-based support personnel. Expenses
associated with expanded Trinidadian vessel operations also increased.
Additional sale and leaseback transactions resulted in increased charter-in
expense in 2003. Operating expenses also increased in 2003 as a result of
redundancy payments associated with workforce reductions due to fleet
dispositions, escalating cost of insurance, and raises in compensation paid
international seamen.
ADMINISTRATIVE AND GENERAL. Administrative and general expenses increased in
2002 and 2003 due to employee termination benefit expenses. Fleet purchases also
added administrative support expenses in 2002.
DEPRECIATION AND AMORTIZATION. The disposition of vessels pursuant to sale and
leaseback transactions and the effect of certain vessels reaching the end of
their depreciable lives lowered depreciation expense in 2002. Amortization
expense also declined in 2002 as the Company ceased amortizing goodwill pursuant
to Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets." Net vessel dispositions and sale and leaseback transactions
resulted in lower depreciation expense in 2003.
ENVIRONMENTAL SERVICES
GENERAL
Environmental Services provides oil spill response, retainer, consulting and
industrial and remediation services to tank vessel owner/operators, refiners and
terminal operators, exploration and production facility operators, pipeline
operators, power generating operators, airports, and industrial companies. With
the exception of a major project completed in 2003 in support of Operation Iraqi
Freedom, most of the segment's operating revenues and profits are earned in the
U.S.
OPERATING REVENUE AND EXPENSE DRIVERS
OPERATING REVENUE DRIVERS. Spill response operating revenues and related
operating income are dependent on the number of spill responses in a given
fiscal period and the magnitude of each spill. Consequently, spill response
revenues and operating income can vary materially between comparable periods and
the revenues from any one period is not indicative of a trend or of anticipated
results in future periods. Costs of oil spill response activities primarily
include payments to sub-contractors for labor, equipment and materials and/or
the direct charge of labor, equipment and materials provided by Environmental
Services.
The margins on equipment intensive responses tend to be better than the margins
on labor intensive responses. The cost of equipment is largely fixed in relation
to the capital investment whereas the cost of labor is variable. Further, labor
costs can increase significantly when overtime payments are required as is
typically the case with emergency responses that occur outside of normal
business hours. Margins can also vary based on the use of Environmental
Services' own personnel and equipment resources versus the use of third party
personnel and equipment. Environmental Services charges a retainer fee for
ensuring by contract the availability (at predetermined rates) of its response
services and equipment. Retainer services include employing a staff to supervise
response to an oil spill emergency and maintaining specialized equipment,
including marine equipment, in a ready state for emergency and spill response as
contemplated by response plans filed by its customers in accordance with OPA 90
and various state regulations. Environmental Services maintains relationships
with numerous environmental sub-contractors to assist with response operations
and equipment maintenance and provide trained personnel for deploying equipment
in a spill response.
27
Pursuant to retainer agreements entered into with Environmental Services,
certain vessel owners pay in advance an annual retainer fee based upon the
number and size of vessels in each such owner's fleet and in some circumstances
pay additional fees based upon vessel voyage activity in the U.S. Certain vessel
owners and facilities pay a fixed fee based upon volume of petroleum product
transported for Environmental Services' retainer services. Environmental
Services' retainer agreements with vessel owners and facilities generally range
from one to ten years. Retainer fees are generally recognized ratably throughout
the year. Environmental Services charges consulting fees to customers for
customized training programs, its planning of and participation in customer oil
spill response drill programs and response exercises and other special projects.
Environmental Services charges fees for its industrial and remediation services
on both a time and material basis and on a fixed fee bid basis. In both cases
the total fees charged are dependent upon the scope of work to be accomplished
and the labor and equipment to carry it out. The margins on time and material
services are more predictable and for the most part are larger. As with
emergency response work, the margins on equipment intensive jobs are better than
labor intensive jobs. Bid jobs also carry the risk of underbidding the price in
an effort to win the work so they must be managed very carefully to ensure
profitability. Bid work that is bid and managed properly can result in higher
margins than time and material work.
OPERATING EXPENSE DRIVERS. The principal components of Environmental Services'
operating expenses are salaries and related benefits for operating personnel,
payments to subcontractors, equipment maintenance and depreciation. These
expenses are primarily a function of regulatory requirements and the level of
retainer, spill, consulting and other environmental business activities.
RESULTS OF OPERATIONS
The results of operations for Environmental Services are presented in the
following table for each year indicated.
(in thousands) 2001 2002 2003
- ------------------------------------ ------------------- ------------------- ------------------
Amount % Amount % Amount %
----------- ------ ----------- ------ ---------- ------
Revenues......................... $ 26,847 100 $ 22,087 100 $ 44,045 100
----------- ------ ----------- ------ ---------- ------
Operating expenses............... 12,924 48 10,387 47 24,405 55
Administrative and general....... 7,598 28 7,404 33 8,086 18
Depreciation and amortization.... 4,288 16 3,280 15 2,509 6
----------- ------ ----------- ------ ---------- ------
24,810 92 21,071 95 35,000 79
----------- ------ ----------- ------ ---------- ------
Operating income................. $ 2,037 8 $ 1,016 5 $ 9,045 21
=========== ====== =========== ====== ========== ======
OPERATING REVENUES. Operating revenues decreased 18% to $22.1 million in 2002 as
compared to increasing 99% to $44.0 million in 2003 and represented 6% and 11%,
respectively, of consolidated operating revenues. The decline in operating
revenues in 2002 resulted primarily from the loss of certain customers' retainer
business, retainer service contract renegotiations with certain other customers
and a decrease in the number and severity of managed oil spills. The increase in
operating revenues in 2003 resulted primarily from spill response, spill
management, containment, and remediation services provided in Iraq and the
acquisition in the fourth quarter of an environmental services company serving
the west coast of the U.S. Spill response activities represented approximately
8% in 2002 and 41% in 2003 of all Environmental Services' operating revenues.
The Company expects its newly acquired environmental services operation located
on the west coast of the U.S. will provide for the continued improvement in
spill response activities and new sources of revenues not previously available
to Environmental Services. Spill response revenues will nevertheless continue to
be dependent on the number of spill responses and their magnitude in any given
fiscal year. Consequently, spill response revenues may still vary materially
between years and spill response revenues earned in any one year is not
indicative of a trend or of anticipated results in future years.
OPERATING EXPENSES. Operating expenses declined in 2002 in response to reduced
retainer activities. Higher operating costs in 2003 resulted from increased
spill response, spill management, containment, and remediation services provided
in Iraq and the acquisition in the fourth quarter of an environmental services
company serving the west coast of the U.S. Spill response operating expenses
totaled $1.2 million in 2002 and $9.7 million in 2003, representing 65% and 54%,
respectively, of related operating revenues. As with spill response operating
revenues, spill response operating expenses can vary greatly between years due
to the number and severity of the spill responses. Furthermore, spill response
operating margin may also vary greatly between years and is dependent upon spill
response contract pricing relative to the direct costs of labor, material and
other resources engaged in spill projects. In 2003, the operating revenue and
margin associated with Operation Iraqi Freedom was relatively higher than most
projects given the unusually high degree of logistical support and level of
risk.
DEPRECIATION AND AMORTIZATION. In both 2002 and 2003, depreciation expense
declined as a result of various assets reaching the end of their depreciable
lives.
28
"OTHER" BUSINESS SEGMENT
The Company operates an inland river barge business in the U.S., and until the
Chiles Merger on August 7, 2002, the Company held an equity interest in Chiles,
which owned and operated ultra-premium offshore jackup drilling rigs. On
December 31, 2002, the Company completed its acquisition of Tex-Air, a company
that provides helicopter transportation services primarily to oil and gas
companies operating in the U.S. Gulf of Mexico.
INLAND RIVER SERVICES
Inland River Services earns operating revenues primarily from voyage contracts.
Under these arrangements customers pay a price per ton to transport cargo for a
specific point of origin (load port) to a specific destination (discharge port).
Customers are permitted a specified number of days to load and discharge the
cargo, and thereafter pay a per diem rate for extra time. From time to time,
voyage contracts are entered into with the anticipation that the barge will be
used for storage for a period of time prior to delivery. Such arrangements
combine a per diem charge and a per ton payment for delivery. Inland River
Services also charters barges to other operators for various durations. Prices
under such contracts are based on a rate per day. Dry cargo barge operating
expenses are typically differentiated between those directly related to voyages
and all other dry cargo barge operating costs. Voyage expenses primarily include
towing, switching, fleeting and cleaning costs; non-voyage related operating
expenses include such costs as repairs, insurance and depreciation.
A majority of the dry cargo barges controlled by Inland River Services and
certain dry cargo barges managed for third parties participate in pooling
arrangements. Pursuant to these pooling arrangements, operating revenues and
voyage expenses are pooled and the net results are allocated to participants
based upon the number of days the dry cargo barges are in the pool.
Over the past several years, the Company has committed to expand Inland River
Services primarily through the building and charter-in of dry cargo barges, and
further growth is expected principally through the continued purchase of new
barges and possibly through the charter-in and/or acquisition of additional
inland river transportation equipment. At December 31, 2004, the Company was
committed to acquire 330 new dry cargo barges and 24 new tank barges.
Additionally, the Company holds options to purchase 150 new dry cargo barges in
2005. The Company expects Inland River Services will become a reportable
business segment in the coming year as a result of improving operating revenues,
profits and increasing asset values.
AVIATION SERVICES
Tex-Air derives the majority of its operating revenues from service contracts
with major integrated and independent oil and gas producing companies. 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 obtain in the market primarily
influence operating revenues. Rates and utilization are a function of demand for
and availability of helicopters, which are closely aligned with the level of
exploration, development and production in the U.S. Gulf of Mexico. The level of
exploration, development and production is affected by both short-term and
long-term trends in oil and gas prices that, in turn, are related to the demand
for petroleum products and the current availability of oil and gas resources.
At December 31, 2003, Tex-Air's fleet consisted of 40 helicopters, 25 of which
helicopters were committed for hire under customer contracts. Tex-Air took
delivery of 2 new Eurocopter EC155 helicopters and 2 new Agusta A119 helicopters
in the fourth quarter of 2003 and additionally acquired a used Agusta A119
helicopter in the third quarter of the year. Aviation Services also purchased a
Sikorsky S76 C+ in the fourth quarter of 2003, subject to an operating lease
that expires in 2006. At year end, Aviation Services was committed to purchase 1
new Agusta A119 helicopter, and following year end, committed to purchase 3
additional new Agusta A119's.
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 investment in Globe Wireless
and in a handy-max bulk carrier joint venture. The Company, from time to time,
has made and may make investments in other related or unrelated businesses.
Since its inception in the early 1990's, Globe Wireless has focused on expanding
its network of high frequency radio stations and its customer base. To support
its continued growth, Globe Wireless completed a private placement of equity in
2000. Although Globe Wireless continues to experience negative cash flow, the
Company presently expects it can achieve operating cash break-even without
requiring additional capital funding from shareholders. There can be no
assurances that Globe Wireless' future operations will be successful. Should
Globe Wireless be unable to meet its funding requirements, SEACOR would be
required to commit additional funding or record an impairment charge with
respect to its investment. At December 31, 2003, the carrying value of the
Company's investment in Globe Wireless was $16.6 million.
29
The Company consolidated the reporting of financial information of Chiles, as a
consequence of its majority ownership of Chiles, from Chiles' inception in 1997
until the Chiles IPO on September 22, 2000. Because the Company's ownership
interest in Chiles was reduced, the Company began accounting for it using the
equity method. Following the Chiles Merger in August 2002, the Company began
accounting for the shares of ENSCO it acquired in the Chiles Merger as
available-for-sale securities and now records changes in their market value each
period as adjustments to other comprehensive income.
RESULTS OF OPERATIONS
The results of operations for "Other" are presented in the following table for
each year indicated.
(in thousands) 2001 2002 2003
- ------------------------------------ ------------------- ------------------- ------------------
Amount % Amount % Amount %
----------- ------ ----------- ------ ---------- ------
Revenues........................... $ 9,598 100 $ 13,369 100 $ 48,599 100
----------- ------ ----------- ------ ---------- ------
Operating expenses................. 5,297 55 6,074 46 36,962 76
Administrative and general......... 987 10 1,101 8 3,174 6
Depreciation and amortization ..... 1,106 12 1,886 14 6,247 13
----------- ------ ----------- ------ ---------- ------
7,390 77 9,061 68 46,383 95
----------- ------ ----------- ------ ---------- ------
Operating income................... $ 2,208 23 $ 4,308 32 $ 2,216 5
=========== ====== =========== ====== ========== ======
OPERATING REVENUES. Operating revenues increased 39% to $13.4 million in 2002
and 264% to $48.6 million in 2003. Inland River Services' results improved 31%
to $12.6 million in 2002 and 121% to $27.9 million in 2003 due primarily to the
commencement of operation of new dry cargo barges in both years and the
charter-in of additional barges in 2003. The commencement of Aviation Services
further increased "Other" operating revenues by $20.6 million in 2003.
OPERATING EXPENSES. Operating expenses increased 15% to $6.1 million in 2002 and
509% to $37.0 million in 2003. Operating expenses were higher in 2002 due to the
commencement of operation of new dry cargo barges. Operating expenses declined
as a percent of operating revenues in 2002 due to increased revenues resulting
primarily from improved fleet utilization. "Other" operating expenses again
increased in 2003 due to continued dry cargo fleet growth and commencement of
Aviation Services and were higher as a percent of operating revenues. "Start-up"
and lease costs associated with chartered-in dry cargo barges, higher barge
towing expenses resulting from rising fuel costs, and the expense of placing new
and existing helicopters into service increased operating expenses as a percent
of operating revenues during the year.
ADMINISTRATIVE AND GENERAL. Administrative and general expenses increased in
both 2002 and 2003 in response to Inland River Services' barge fleet growth and
2003 additionally increased with commencement of Aviation Services.
DEPRECIATION AND AMORTIZATION. Depreciation expenses increased in both 2002 and
2003 as a result of Inland River Services' barge fleet growth and 2003
additionally increased with commencement of Aviation Services.
CRITICAL ACCOUNTING POLICIES
GENERAL. Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the consolidated financial statements of the Company,
which have been prepared in accordance with accounting principles generally
accepted in the U.S. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles; whereas, in other circumstances, the Company is required to make
estimates, judgments and assumptions that we believe are reasonable based upon
information available. The Company bases its estimates and judgments on
historical experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions. The Company believes that
of its significant accounting policies, as discussed in its footnotes to the
consolidated financial statements, the following may involve a higher degree of
judgment and complexity.
30
REVENUE RECOGNITION. Offshore Marine Services earns and recognizes revenues
primarily from the time and bareboat charter-out of vessels to customers based
upon daily rates of hire. A time charter is a lease arrangement under which
Offshore Marine Services provides a vessel to a customer and is responsible for
all crewing, insurance and other operating expenses. In a bareboat charter,
Offshore Marine Services provides only the vessel to the customer, and the
customer assumes responsibility to provide for all of the vessel's operating
expenses and generally assumes all risk of operation. Vessel charters may range
from several days to several years.
Customers of Environmental Services are charged retainer fees for ensuring by
contract the availability (at predetermined rates) of oil spill response
services and equipment. Such retainer fees are generally recognized ratably over
the terms of the contract. Retainer services include employing a staff to
supervise response to an oil spill and maintaining specialized equipment.
Retainer agreements with vessel owners generally range from one to three years
while retainer arrangements with facility owners are as long as ten years. Spill
response revenues are recognized as the services are provided based on contract
terms. Consulting fees are also earned from preparation of customized training
programs, planning of and participation in customer oil spill response drill
programs and response exercises and other special projects and are recognized as
the services are provided based on contract terms. Environmental Services
charges fees for its industrial and remediation services on both a time and
material basis and on a fixed fee bid basis. In both cases the total fees
charged are dependent upon the scope of work to be accomplished and the labor
and equipment to carry it out.
Inland River Services earns operating revenues primarily from voyage contracts.
Under these arrangements customers pay a price per ton to transport cargo for a
specific point of origin (load port) to a specific destination (discharge port).
In such arrangements customers are permitted a specified number of days to load
and discharge the cargo, and thereafter pay a per diem rate to Inland River
Services for extra time. From time to time, voyage contracts are entered into
with the anticipation that the barge will be used for storage for a period of
time prior to delivery. Such arrangements combine a per diem charge and a per
ton payment for delivery. Inland River Services also charters barges to other
operators for various durations. Prices under such contracts are based on a rate
per day.
Helicopters are chartered primarily through master service agreements, term
contracts and day-to-day charter arrangements. Master service agreements require
customers to make incremental payments based on usage, have fixed terms ranging
from one month to five years and generally are cancelable upon notice by either
party in 30 days. Term contracts and day-to-day charter arrangements are
generally non-cancelable and call for a combination of a monthly or daily fixed
rental fee plus a charge based on usage. Rental fee revenues are recognized
ratably over the contract term and revenues for helicopter usage are recognized
as the services are performed.
RESERVES FOR DOUBTFUL ACCOUNTS RECEIVABLE. The Company's reserves for doubtful
accounts are based on estimates of losses related to customers' receivable
balances. In establishing reserves, the Company assesses customer credit quality
as well as other factors and trends, including the age of receivable balances.
Individual credit assessments are performed regularly. Once the Company
completes its assessment of receivable balances due from customers, a
determination is made as to the probability of default. A reserve is established
when the Company views loss is likely. The Company's level of reserves can
fluctuate depending upon all of the factors mentioned above.
PURCHASE ACCOUNTING AND GOODWILL. Purchase accounting requires extensive use of
estimates and judgment to allocate the cost of an acquired enterprise to the
assets acquired and liabilities assumed. The cost of each acquired operation is
allocated to the assets acquired and liabilities assumed based on their
estimated fair values. These estimates are revised during an allocation period
as necessary when, and if, information becomes available to further define and
quantify the value of the assets acquired and liabilities assumed. The
allocation period does not exceed one year from the date of the acquisition. The
cost of an enterprise acquired in a business combination includes the direct
cost of the acquisition. The operating results of entities acquired are included
in the Company's consolidated statements of income from the completion date of
the applicable transaction.
In recording various business combinations, the Company has assigned the excess
of the cost of its acquired enterprises over the sum of the amounts assigned to
the identifiable assets acquired less liabilities assumed to goodwill, the
balance of which totaled $28.7 million, or 2% of total assets, at December 31,
2003. In 2001 and prior years, the Company amortized goodwill to expense over
the expected benefit period, ranging from 10 to 22 years. Effective January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets." Among other changes to
prior practices, the new standard requires 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. The Company ceased amortization of its remaining goodwill balance
effective January 1, 2002.
31
The Company's goodwill has primarily resulted from the acquisition of
environmental and offshore marine businesses. The Company has performed its
annual impairment test of goodwill based upon carrying values as of December 31,
2003 and has determined there was no goodwill impairment. The implied fair
values of the applicable reporting units were determined by employing comparable
company and present value techniques to estimate the fair value of related
groups' net assets. Estimates used in discounted cash flow projections were
consistent with the most recent budgets and plans used by management and
incorporated consideration of industry trends. There were many assumptions and
estimates employed in determining the implied fair value of each reporting unit,
including among other, the projection of vessels' rates per day worked, vessels'
utilization, plans for vessel acquisitions and dispositions and operating
expenses. The Company believes its estimates and assumptions are reasonable;
however, variations from those estimates could produce materially different
results.
FAIR VALUE OF DERIVATIVE INSTRUMENTS. Derivative instruments are recorded at
fair value and except for those transactions that are effective hedges for
accounting purposes in accordance with SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," gains and losses are included in the
determination of net income. The derivative contracts recorded in the Company's
consolidated balance sheets are stated at their fair values, the determination
of which the Company acquired from third parties that regularly conduct business
in the derivative contracts, which we have negotiated. Future adverse changes in
the market price for the underlying amounts of the Company's derivative
contracts may result in losses in the Company's statement of income or other
comprehensive income.
INVESTMENTS IN BUSINESS VENTURES. The Company holds less than majority
investments in, and has receivables from, strategically aligned companies that
totaled $59.8 million at December 31, 2003.
The Company employs the equity method of accounting for investments in business
ventures when it has the ability to exercise significant influence over the
operating and financial policies of the venture. Significant influence is
generally deemed to exist if the Company has between 20% and 50% of the voting
rights of an investee. The Company may record investment impairment charges when
it believes an investment has experienced a decline in value that is other than
temporary. Future adverse changes in market conditions or poor operating results
of underlying investments could result in losses or an inability to recover the
carrying value of the investments that may not be reflected in an investment's
current carrying value, thereby possibly requiring an impairment charge in the
future.
IMPAIRMENT OF LONG-LIVED ASSETS. The Company reviews long-lived assets for
impairment when events or changes in circumstances indicate that the carrying
amount of any asset may not be recoverable. Examples of events or changes in
circumstances that could indicate that the recoverability of an asset's carrying
amount should be assessed might include (i) a significant decrease in the market
value of an asset, (ii) a significant adverse change in the business climate
that could affect the value of an asset and (iii) current period operating or
cash flow losses combined with a history of operating or cash flow losses or a
projection or forecast that demonstrates continuing losses associated with an
asset. If events or changes in circumstances as set forth above indicate that
the carrying amount of an asset may not be recoverable, the Company would then
be required to estimate the discounted future cash flows expected to result from
the use of that asset and its eventual disposition. If the sum of the expected
future cash flows was less than the carrying amount of the asset, the Company
would be required to recognize an impairment loss. Cash flow estimates are based
upon historical data adjusted to reflect the Company's best estimate of future
market performance that is based on market trends. The Company's estimates of
cash flows may differ from actual cash flows due to, among other things, changes
in economic conditions or changes in an asset's operating performance.
SELF-INSURANCE LIABILITIES. The Company maintains business insurance programs
with significant self-insured retention, primarily relating to its offshore
support vessels. In addition, the Company maintains self-insured health benefit
plans for its participating employees. The Company limits its exposure to the
business insurance programs and health benefit plans by maintaining stop-loss
and aggregate liability coverage. Self-insurance losses for claims filed and
claims incurred but not reported are accrued based upon the Company's historical
loss experience and valuations provided by independent third-party consultants.
To the extent that estimated self-insurance losses differ from actual losses
realized, the Company's insurance reserves could differ significantly and may
result in either higher or lower insurance expense in future periods.
INCOME TAXES. The Company records a valuation allowance to reduce its deferred
tax assets if it is more likely than not that some portion or all of the
deferred assets will not be realized. While the Company has considered future
taxable income and ongoing prudent and feasible tax strategies in assessing the
need for the valuation allowance, if these estimates and assumptions change in
the future, the Company may be required to adjust its valuation allowance. This
could result in a charge to, or an increase in, income in the period such
determination is made.
At December 31, 2003, the Company had deferred tax assets totaling $14.5 million
resulting primarily from net operating loss carryforwards expiring in 2023 and
foreign tax credit carryforwards expiring from 2004 through 2008. Based on
projections completed during the fourth quarter of 2003, the Company has
determined that the foreign tax credits due to expire in 2004 and 2005 may not
be utilized, resulting in a recorded valuation allowance of $1.9 million. The
Company believes that it will be able to utilize the remaining net foreign tax
credit carryforwards through the turnaround of existing temporary differences,
future earnings, tax strategies or a combination thereof.
32
Also at December 31, 2003, the Company had not provided for U.S. income taxes,
totaling $9.2 million, with respect to $26.3 million of undistributed earnings
of certain non-U.S. subsidiaries and business ventures as it is the Company's
intention to indefinitely invest these earnings abroad. Should a remittance of
undistributed earnings be expected in the foreseeable future, the Company would
then be required to provide for the related U.S. income tax consequences.
VESSEL DEPRECIATION. The Company depreciates its vessels over 20 to 25 years
from date of original construction, except for standby safety vessels where it
has chosen a useful life of 30 years. In assigning depreciable lives to its
vessels, the Company has considered the effects of both physical deterioration
largely caused by wear and tear due to operating use and other factors that
could impact commercial viability. Typical equipment is depreciated to a
"salvage value," which ranges from 5% to 10% of acquisition cost. To date, the
Company's experience confirms that these policies are reasonable, although,
there may be events in the future that cause it to change these estimates. The
effect of a change in an accounting estimate would be reported in the period of
change and future periods if the change affects both.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's ongoing liquidity requirements arise primarily from the funding of
working capital needs, acquisition, construction or improvement of equipment,
repayment of debt obligations, repurchase of common stock and purchase of other
investments. The Company's principal sources of liquidity are cash balances,
marketable securities, construction reserve funds, cash flows from operations
and borrowings under its revolving credit facility although, from time to time,
it may issue debt, shares of Common Stock, preferred stock, or a combination
thereof, or sell vessels and other assets to finance the acquisition of
equipment and businesses or make improvements to existing equipment. The
Company's operating cash flow levels are determined by the size of the fleet,
rates per day worked and overall utilization of Offshore Marine Services'
vessels and the activities of Environmental Services, Inland River Services and
Aviation Services.
OPERATING ACTIVITIES
The Company's cash flows from operating activities declined 40% to $66.8 million
in 2002 and 33% to $45.0 million in 2003.
A significant curtailment of drilling activity, particularly in the U.S. Gulf of
Mexico following March 2001, has adversely affected demand and rates per day
worked for most vessel types in Offshore Marine Services' U.S. fleet. As a
result, Offshore Marine Services' profits have declined dramatically along with
related cash flows provided from operations. Although oil and natural gas prices
improved in 2003, there has been no increase in U.S. Gulf of Mexico drilling
activity. The Company cannot predict whether, or to what extent, market
conditions will improve, remain stable or deteriorate. Should present demand and
rates per day worked for Offshore Marine Services' vessels remain unchanged or
further decline, results of operations and cash flows will be adversely
affected.
Offshore Marine Services' net fleet dispositions have also lowered cash flows
provided by operating activities in 2003. The size of Offshore Marine Services'
fleet has declined from 325 vessels at December 31, 2001 to 235 vessels at
December 31, 2003 as a result of the Company's strategy of reducing its overall
exposure to the broad cycles of the energy business.
Reduced cash flows provided by operating activities in Offshore Marine Services
were partly offset by improved results in Inland River Services and
Environmental Services. Profits improved in Inland River Services in both 2002
and 2003 due primarily to fleet expansion. Environmental Services' profits rose
in 2003 resulting from increased spill response activities.
Over the past several years, the Company has committed to expand Inland River
Services primarily through the building and charter-in of dry cargo barges, and
further growth is planned through the continued purchase of new barges and
possibly through the charter-in and/or acquisition of additional inland river
transportation equipment. Consequently, operating profits and cash flows
provided by Inland River Services are expected to improve in future years.
33
Spill response profits and related cash flows from operations continue to be
dependent upon the number of spill responses in a given fiscal year and the
magnitude of each spill. Consequently, cash flows provided by operations that
result from spill response activities can vary greatly between years and the
results of one year is not indicative of a trend or of anticipated cash flows
from future years.
During December 2002, the Company expanded into Aviation Services through the
acquisition of Tex-Air. In 2003, Aviation Services incurred a slight operating
loss and negative cash flow from operations. Aviation Services is subject to the
same broad cycles of the energy industry as is Offshore Marine Services.
Although the Company cannot predict whether, or to what extent, market
conditions will improve, remain stable or deteriorate, the Company does believe
Aviation Services' operating results and cash flows will improve in the coming
year.
INVESTING ACTIVITIES
Historically, the Company has made significant capital expenditures to acquire
vessels for Offshore Marine Services. Although the Company is presently pursuing
a strategy to reduce its overall exposure in this industry, it will continue to
make future capital expenditures that will maximize the overall utility and
flexibility of Offshore Marine Services' fleet. With its recent entry into
Inland River Services and Aviation Services, the Company is committed to
expanding these businesses with the acquisition of barges and related inland
river transportation equipment and helicopters. Capital expenditures increased
30% to $139.7 million in 2002 and 16% to $161.8 million in 2003. The Company
acquired 12 vessels and 184 barges in 2002. Ten vessels, 91 barges and 12
helicopters, including 6 previously leased by the Company, were additionally
acquired in 2003. Of the equipment purchased in both years, 20 vessels, all
barges and 4 helicopters were new equipment.
Cash flows from the sale of equipment, principally vessels, increased 112% to
$128.7 million in 2002 and 12% to $143.8 million in 2003. The Company sold 31
vessels in 2002, including 13 pursuant to sale and leaseback transactions. An
additional 56 vessels were sold in 2003, including 5 pursuant to sale and
leaseback transactions and 28 utility vessels, a type that has been retired from
service and is being actively marketed for sale. With the Company's strategy of
reducing its overall exposure in the energy business, it will continue to sell
selected offshore support vessels to maximize the overall utility and
flexibility of its Offshore Marine Services' fleet.
For many years, the Company has maintained construction reserve funds with the
U.S. Maritime Administration that were established pursuant to Section 511 of
the Merchant Marine Act, 1936, as amended. In accordance with this statute, the
Company has been permitted to deposit vessel sale proceeds into construction
reserve fund accounts for purposes of acquiring new U.S.-flag vessels and
thereby qualifying for temporary deferral of taxable gains realized from sale of
vessels. These accounts are controlled jointly by the Company and the U.S.
Maritime Administration. From date of deposit, withdrawals from the jointly
controlled construction reserve fund accounts are subject to prior written
approval of the U.S. Maritime Administration, and the funds on deposit must be
committed for expenditure within three years or be released for the Company's
general use. In prior years, the Company has used these funds to acquire
vessels, but it expects to use some of the funds in the future for the
acquisition of barges. Any such gains from vessel sales previously deferred
would become immediately taxable upon release to the Company of sale proceeds
that were deposited into jointly controlled construction reserve fund accounts.
At December 31, 2003, the Company held $126.1 million in construction reserve
funds.
At December 31, 2003 the Company was committed to purchase 9 new vessels, 330
new dry cargo barges, 24 new tank barges, and 1 new helicopter at an aggregate
cost of $140.0 million. Deliveries are expected over the next 10 months. Also at
December 31, 2003, the Company held options to purchase an additional 150 new
dry cargo barges. Following year end, 2 vessels previously under construction
were delivered, and the Company committed to the construction of 3 additional
helicopters.
Cash used in corporate acquisition transactions declined to $0.1 million in 2002
but increased to $7.8 million in 2003. Significant corporate acquisitions in
2001 that added 44 vessels to Offshore Marine Services' fleet did not recur in
the following year. Corporate acquisitions in 2003 primarily related to the
purchase of Foss Environmental Services Company. Investing activities with
Offshore Marine Services' joint ventures and the net results of marketable
securities sale/purchase transactions provided cash flows in both 2002 and 2003.
The Company received $25.4 million during 2002 in connection with the Chiles
Merger. Cash was set aside in construction reserve funds during both 2002 and
2003 for the purchase of vessels or barges.
STOCK AND DEBT REPURCHASE ACTIVITY
SEACOR's stock and debt repurchase plan, approved by the Board of Directors,
allows the Company to acquire Common Stock, its 5-3/8% Notes that were
completely retired in 2003, its 5-7/8% Senior Notes Due October 2012 (the
"5-7/8% Notes"), and its 7.2% Notes (collectively, "SEACOR Securities"). In
2001, 2002 and 2003, a total of 5,950, 459,700 and 1,518,116 shares of Common
Stock, respectively, were acquired for treasury at an aggregate cost of $0.2
million, $18.5 million and $56.5 million, respectively. Also during 2002, the
Company purchased $13.0 million principal amount of its 7.2% Notes and $11.0
million principal amount of its 5-3/8% Notes for $15.4 million. During 2003,
SEACOR's Board of Directors increased its previously announced repurchase
authority and, at March 8, 2004, $58.1 million of such authority remains
available for future purchases of SEACOR Securities that may be conducted from
time to time through open market purchases, privately negotiated transactions or
otherwise, depending on market conditions.
34
FINANCIAL POSITION AND CAPITAL RESOURCES
FINANCIAL POSITION. Total assets of the Company grew by 15% to $1.49 billion in
2002 but declined 6% to $1.40 billion in 2003. The Company's combined cash,
marketable securities and construction reserve funds declined 17% to $438.1
million in 2003 and represented 31% of total assets at year end. Debt repayment
and the repurchase of stock for treasury particularly lowered the Company's cash
balances in 2003. Net property and equipment remained constant between 2002 and
2003 at $738 million and represented 53% of total assets at year end.
FINANCING. The Company generally borrows on a long-term basis. Debt obligations
at December 31, 2002 totaled $402.7 million as compared to $332.3 million at
December 31, 2003 and declined 17% between years. The Company's outstanding debt
at December 31, 2003 principally included its 5-7/8% Notes due in 2012 and its
7.2% Notes due in 2009. Debt obligations increased in 2002 with the Company's
sale of $200.0 million aggregate principal amount of its 5-7/8% Notes. In 2003,
the Company reduced the amount of its debt obligations principally with
repayment of amounts owing under its 5-3/8% Notes, 7.2% Notes and notes due
former stockholders of an acquired company. Through the sale of its 5-7/8% notes
and repayment of various other outstanding debts in 2002 and 2003, the Company
increased the average life of its funded debt obligations, extending the dates
on which principal repayment obligations fall due. Additionally, the recent
retirement of all of its convertible debt eliminated the possibility that the
Company would have to issue additional shares of Common Stock under these
instruments.
The Company has $198.7 million available for use under a five year,
non-reducing, unsecured revolving credit facility that terminates in February
2007. Advances under the revolving credit facility are available for general
corporate purposes. Interest on advances will be charged at a rate per annum of
LIBOR plus an applicable margin of 65 to 150 basis points based upon the
Company's credit rating as determined by Standard & Poor's and Moody's. The only
consequence of a change in the Company's credit rating would be adjustments to
the applicable margin. The Company is not required to maintain a credit rating
under the terms of the facility agreement, and if the Company does not maintain
a credit rating, the applicable margin would be determined by financial ratios.
The revolving credit facility contains various restrictive covenants regarding
interest coverage, secured debt to total capitalization, funded debt to total
capitalization ratios and the maintenance of a minimum level of consolidated net
worth, as well as other customary covenants, representations and warranties,
funding conditions and events of default. The revolving credit facility contains
no repayment triggers.
The Company's access to its revolving credit facility requires the maintenance
of certain financial covenants, one of which is an interest coverage ratio. The
Company has recently experienced declines in results of operations and, if
results of operations continue at the level of the fourth quarter of 2003 or
decline further, the Company may fail to meet this requirement of the revolving
credit facility and, accordingly, may not have access to it or it may be
terminated. Should this occur, the Company believes it has ample liquidity to
repay amounts outstanding under the facility, $1.3 million as of December 31,
2003, and to meet its foreseeable operating and capital expenditure commitments,
including its ability to continue its share repurchase program.
The Company uses major capital markets and bank financing to meet certain of its
financing requirements. The Company has not historically experienced difficulty
in obtaining financing or refinancing existing debt. The Company manages its
debt portfolio in response to changes in interest rates by periodically
retiring, redeeming and repurchasing debt.
SHORT AND LONG-TERM LIQUIDITY REQUIREMENTS
The Company anticipates it will generate positive cash flows from operations in
the coming year and these cash flows will be adequate to meet the Company's
working capital requirements and contribute toward defraying the costs of next
year's capital expenditures. As in the past and in further support of the
Company's 2004 capital expenditure program, the Company intends to sell vessels,
enter into sale and leaseback transactions for vessels, or utilize construction
reserve funds, or a combination thereof. To the extent the Company relies on
existing cash balances, proceeds from the sale of available for sale securities
or construction reserve funds, the Company's liquidity would be reduced.
The Company's long-term liquidity is dependent upon its ability to generate
operating profits, which are sufficient to meet its requirements for working
capital, capital expenditures and a reasonable return on shareholders'
investment. The Company believes that earning such operating profits will permit
it to maintain its access to favorably priced debt, equity and/or off-balance
sheet financing arrangements. With the cyclical nature of the energy business
and the recent adverse effect it has had on the Company's results of operations
and cash flows, the Company has adopted a strategy of reducing its overall
dependency on this industry and reinvesting certain of its capital resources in
Inland River Services.
35
OFF-BALANCE SHEET ARRANGEMENTS
At December 31, 2003, the Company guaranteed up to $9.3 million with respect to
amounts owing pursuant to a vessel charter agreement between the Company's
Mexican joint venture and the owner of the chartered vessels. The Company's
guarantee declines over the life of the charter and terminates in 2009.
At December 31, 2003, the Company guaranteed up to $5.2 million with respect to
amounts owing pursuant to a vessel charter agreement between a U.S. joint
venture entity in which the Company owns a 50% interest and the owner of the
chartered vessel. The Company's guarantee declines over the life of the charter
and terminates in 2008.
At December 31, 2003, the Company guaranteed up to $1.5 million with respect to
amounts owed by Pelican under a banking facility, which becomes due in 2006.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table summarizes the Company's contractual obligations and other
commercial commitments and their aggregate maturities as of December 31, 2003,
in thousands of dollars.
Payments Due By Period
-------------------------------------------------------------------
Less than After
Contractual Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years
- ------------------------------------ ---------- ---------- ----------- ---------- ----------
Long-term Debt..................... $ 334,659 $ 93 $ 66 $ - $ 334,500
Operating Leases(1)................ 105,415 28,028 42,675 21,833 12,879
Purchase Obligations (2)........... 143,091 143,091 - - -
---------- ---------- ----------- ---------- ----------
Total Contractual Obligations $ 583,165 $ 171,212 $ 42,741 $ 21,833 $ 347,379
========== ========== =========== ========== ==========
Amount of Commitment Expiration Per Period
-------------------------------------------------------------------
Total Less than After
Other Commercial Commitments Committed 1 Year 1-3 Years 3-5 Years 5 Years
- ------------------------------------ ---------- ---------- ----------- ---------- ----------
Joint Venture Charter Guarantees(3) $ 14,507 $ 1,721 $ 3,705 $ 5,571 $ 3,510
Joint Venture Note Guarantee(4) ... 1,500 - 1,500 - -
Letters of Credit.................. 1,275 275 1,000 - -
---------- ---------- ----------- ---------- ----------
Total Commercial Commitments. $ 17,282 $ 1,996 $ 6,205 $ 5,571 $ 3,510
========== ========== =========== ========== ==========
- -------------------------
(1) Primarily resulted from leases of vessels, helicopters and barges.
(2) Following year end, the Company committed to the construction of 3
helicopters for aggregate consideration of $6.5 million.
(3) Guarantee for non-payment of amounts owing under joint venture charter
agreements with respect to 4 vessels.
(4) Guarantee of amounts owed by Pelican under its banking facilities.
EFFECTS OF INFLATION
The Company's operations expose it to the effects of inflation. Although the
Company does not consider the effects of inflation to be material to its
operating revenues or income from continuing operations, in the event that
inflation becomes a significant factor in the world economy, inflationary
pressures could result in increased operating and financing costs.
CONTINGENCIES
In connection with an examination of the Company's income tax return for fiscal
year 2001, the Internal Revenue Service (IRS) has indicated that it may assert a
deficiency in the amount of taxes paid based on the manner in which vessel
assets were classified for the purpose of depreciation. If the IRS were able to
sustain its position, the Company would be required to pay currently certain
amounts, which have not yet been determined, that are currently reported as
long-term deferred tax obligations. Other than a potential charge for interest
related to any such deficiencies, the final resolution of this matter should not
have an effect on the Company's results of operations. The Company intends to
vigorously defend its position and to contest any deficiency that may be
asserted.
CAUTIONARY STATEMENTS
Certain statements discussed Item 1 (Business), Item 3 (Legal Proceedings), Item
7 (Management's Discussion and Analysis of Financial Condition and Results of
Operations), Item 7A (Quantitative and Qualitative Disclosures About Market
Risk) and elsewhere in this Form 10-K constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements 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 expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, among
others:
36
OFFSHORE MARINE SERVICES AND AVIATION SERVICES ARE SUBJECT TO CYCLICALITY AND A
SIGNIFICANT OR PROLONGED DECLINE IN OIL AND GAS PRICES WOULD LIKELY REDUCE THE
LEVEL OF EXPLORATION AND DEVELOPMENT OF OFFSHORE AREAS, WHICH WOULD REDUCE
DEMAND FOR THE COMPANY'S VESSELS AND HELICOPTERS. The offshore oil and gas
industry is highly cyclical. Activity in the offshore oil and gas exploration
and production industry has a significant impact on Offshore Marine Services and
Aviation Services. The level of exploration and development of offshore areas is
affected by both short-term and long-term trends in oil and gas prices. In
recent years, oil and gas prices have been extremely volatile and, as a result,
the level of offshore exploration and drilling activity also has been extremely
volatile. Reductions in oil and gas prices generally result in decreased
drilling and production and corresponding decreases in demand for the Company's
vessels, logistics services and helicopters.
OFFSHORE MARINE SERVICES RELIES ON SEVERAL CUSTOMERS FOR A SIGNIFICANT SHARE OF
ITS REVENUES, THE LOSS OF WHICH COULD ADVERSELY AFFECT OFFSHORE MARINE SERVICES'
BUSINESS AND OPERATING RESULTS. Offshore Marine Services' customers are
primarily major oil companies, large independent oil and gas exploration and
production companies. The portion of Offshore Marine Services' revenues
attributable to any single customer may change over time, depending on the level
of relevant activity by the customer, Offshore Marine Services' ability to meet
the customer's needs and other factors, many of which are beyond Offshore Marine
Services' control.
THE COMPANY MAY INCUR SIGNIFICANT COSTS, LIABILITIES AND PENALTIES IN COMPLYING
WITH GOVERNMENT REGULATIONS. Government regulation, such as international
conventions, federal, state and local laws and regulations in jurisdictions
where the Company operates have a significant impact on the Company's business.
These regulations relate to worker health and safety, the manning, construction
and operation of vessels, oil spills and other aspects of the Company's
business. Risks of incurring substantial compliance costs and liabilities and
penalties for non-compliance, particularly with respect to environmental laws
and regulations, are inherent in the Company's business. The Company cannot
predict whether it will incur such costs or penalties in the future.
OFFSHORE MARINE SERVICES FACES INTENSE COMPETITION THAT COULD ADVERSELY AFFECT
ITS ABILITY TO INCREASE ITS MARKET SHARE AND REVENUES. Offshore Marine Services
operates in a highly competitive industry. High levels of competition could
reduce its operating revenues, increase its expenses and reduce its
profitability. In addition to price, service and reputation, important
competitive factors for offshore fleets of vessels include customer flag
preferences, local marine operating conditions and intended use of vessels.
Other principal competitive factors include the ability to maintain logistical
support given the complexity of a project and presence of equipment in the
appropriate geographical locations.
AN INCREASE IN THE SUPPLY OF OFFSHORE SUPPORT VESSELS WOULD LIKELY HAVE AN
ADVERSE IMPACT ON THE CHARTER RATES EARNED BY THE COMPANY'S OFFSHORE SUPPORT
VESSELS. Expansion of the worldwide offshore support vessel fleet would increase
competition in the markets where Offshore Marine Services operates. The
refurbishment of disused or "mothballed" vessels, conversion of vessels from
uses other than oil support and related activities or construction of new
vessels could all add vessel capacity to current worldwide levels. A significant
increase in vessel capacity would lower charter rates.
VESSEL AND HELICOPTER RELATED RISKS COULD DISRUPT OFFSHORE MARINE SERVICES AND
AVIATION SERVICES AND EXPOSE THE COMPANY TO LIABILITY. The operation of offshore
support vessels and helicopters is subject to various risks, including
catastrophic disaster, adverse weather, mechanical failure and collision, and
risks with respect to vessels additionally include sea conditions, capsizing,
grounding, oil and hazardous substance spills and navigation errors. These risks
could endanger the safety of the Company's personnel, equipment, cargo and other
property, as well as the environment. If any of these events were to occur, the
Company could be held liable for resulting damages. In addition, the affected
vessels or helicopters could be removed from service and would not be available
to generate revenues.
AVIATION SERVICES MAY BE SUBJECT TO ADVERSE WEATHER CONDITIONS AND SEASONALITY.
Three types of weather-related and seasonal occurrences impact Aviation
Services; poor weather conditions generally, tropical storm season in the U.S.
Gulf of Mexico, and the number of hours of daylight. Poor visibility, high
winds, and heavy precipitation can affect the operation of helicopters and
result in reduced number of flight hours. In the U.S. Gulf of Mexico, the months
of December through February have more days of adverse weather conditions than
the other months of the year and June through November is tropical storm season.
During tropical storms, Aviation Services is unable to operate in the area of
the storm although flight activity may increase due to the evacuation of
offshore workers. In addition, Aviation Services' facilities are located along
the U.S. Gulf of Mexico coast and tropical storms may cause damage to its
property. The fall and winter months have fewer hours of daylight. Consequently,
flight hours are generally lower at these times. A significant portion of the
Company's revenues from Aviation Services is dependent on actual flight hours
and prolonged periods of adverse weather and the effect of fewer hours of
daylight can adversely impact Aviation Services.
37
THE COMPANY'S INSURANCE COVERAGE MAY BE INADEQUATE TO PROTECT THE COMPANY FROM
THE LIABILITIES THAT COULD ARISE IN ITS BUSINESSES. The Company maintains
insurance coverage against the risks related to its businesses. There can be no
assurance, however, that its existing insurance coverage can be renewed at
commercially reasonable rates or that available coverage will be adequate to
cover future claims. If a loss occurs that is partially or completely uninsured,
the Company could be exposed to substantial liability.
THE COMPANY'S GLOBAL OPERATIONS ARE SUBJECT TO CURRENCY EXCHANGE RISKS. To
minimize the financial impact of currency fluctuations and risks arising from
fluctuations in currency exchange rates, the Company attempts to contract the
majority of its services in U.S. dollars. However, in some of its foreign
businesses, the Company collects revenues and pays expenses in local currency.
If the value of foreign currencies (in particular the value of the Pound
Sterling, the currency in the United Kingdom where most of the Company's
currency exchange risk arises) decline against the U.S. dollar and the Company
does not or is not able to minimize the effects of such fluctuations through
currency hedging arrangements, the Company's operating results may be adversely
affected. There can be no assurance, however, that the Company will not incur
losses in the future as a result of currency exchange rate fluctuations.
BECAUSE A SIGNIFICANT PROPORTION OF OFFSHORE MARINE SERVICES' OPERATIONS ARE
CONDUCTED IN FOREIGN COUNTRIES, UNSTABLE POLITICAL, MILITARY AND ECONOMIC
CONDITIONS IN THOSE COUNTRIES COULD ADVERSELY IMPACT THE COMPANY'S BUSINESS.
During 2003, approximately 46% of the Company's revenues, principally resulting
from Offshore Marine Services' activities, were derived from foreign operations.
These operations are subject to risks, among other things, of political
instability, potential vessel seizure, terrorist attacks, nationalization of
assets, currency restrictions, import-export quotas and other forms of public
and governmental regulation, all of which are beyond the Company's control.
Economic sanctions or an oil embargo, for example, could have a significant
negative impact on activity in the oil and gas industry and correspondingly on
the Company should it operate vessels in the region of the embargo. In addition,
the Company's vessel operations in Mexico are significantly affected by Mexican
government policy. The Company cannot predict whether any such conditions or
events might develop in the future.
THE COMPANY MAY BE UNABLE TO MAINTAIN OR REPLACE ITS VESSELS AS THEY AGE. As of
December 31, 2003, the average age of offshore support vessels the Company
owned, excluding its standby safety vessels, was approximately 12.6 years. The
Company believes that after an offshore support vessel has been in service for
approximately 25 years, the expense (which typically increases with age)
necessary to satisfy required marine certification standards may not be
economically justifiable. There can be no assurance that the Company will be
able to maintain its fleet by extending the economic life of existing vessels,
or that its financial resources will be sufficient to enable it to make
expenditures necessary for these purposes or to acquire or build replacement
vessels.
SPILL RESPONSE REVENUE IS DEPENDENT UPON THE MAGNITUDE AND NUMBER OF SPILL
RESPONSES. Environmental Services' spill response revenue can vary greatly
between comparable years based on the number and magnitude of spill responses in
any given year. As a result, Environmental Services' revenues and profitability
may vary greatly from year to year.
A RELAXATION OF OIL SPILL REGULATION OR ENFORCEMENT COULD REDUCE DEMAND FOR
ENVIRONMENTAL SERVICES' SERVICES. Environmental Services is dependent upon the
enforcement of regulations promulgated under OPA 90 and, to a lesser extent,
upon state regulations. Less stringent oil spill regulations or less aggressive
enforcement of these regulations would decrease demand for Environmental
Services' services. There can be no assurance that oil spill regulation will not
be relaxed or enforcement of existing or future regulation will not become less
stringent. If this happens, the demand for Environmental Services' oil spill
response services could be reduced.
A CHANGE IN, OR REVOCATION OF, NRC'S CLASSIFICATION AS AN "OIL SPILL REMOVAL
ORGANIZATION" WOULD RESULT IN A LOSS OF BUSINESS. NRC is classified as an OSRO.
OSRO classification is a voluntary process conducted by the Coast Guard. The
Coast Guard classifies OSROs based on their overall ability to respond to
various types and sizes of oil spills in different operating environments, such
as rivers/canals, inland waters and oceans. Coast Guard classified OSROs have a
competitive advantage over non-classified service providers. Customers of a
classified OSRO are exempt from regulations that would otherwise require them to
list their oil spill response resources in filings with the Coast Guard. A loss
of NRC's classification or changes in the requirements could eliminate or
diminish NRC's ability to provide customers with this exemption. If this
happens, Environmental Services could lose customers.
ENVIRONMENTAL SERVICES COULD INCUR LIABILITY IN CONNECTION WITH PROVIDING SPILL
RESPONSE SERVICES. Although Environmental Services is generally exempt from
liability under the federal Clean Water Act for its own actions and omissions in
providing spill response services, this exemption would not apply if it was
found to have been grossly negligent or to have engaged in willful misconduct,
or if it fails to provide these services consistent with applicable regulations
and directives under the Clean Water Act. In addition, the exemption under the
federal Clean Water Act would not protect Environmental Services against
liability for personal injury or wrongful death, or against prosecution under
other federal or state laws. While most of the U.S. states in which
Environmental Services provides service have adopted similar exemptions, several
states have not. If a court or other applicable authority determines that
Environmental Services does not benefit from federal or state exemptions from
liability in providing spill response services, Environmental Services could be
liable together with the local contractor and the responsible party for any
resulting damages, including damages caused by others.
38
IF THE COMPANY DOES NOT RESTRICT THE AMOUNT OF FOREIGN OWNERSHIP OF ITS COMMON
STOCK, THE COMPANY COULD BE PROHIBITED FROM OPERATING ITS OFFSHORE SUPPORT
VESSELS IN PARTS OF THE U.S., WHICH WOULD ADVERSELY IMPACT ITS BUSINESS AND
OPERATING RESULTS. The Company is subject to the Shipping Acts, which govern,
among other things, the ownership and operation of offshore support vessels used
to carry cargo between U.S. ports. The Acts require that vessels engaged in the
"U.S. coastwise trade" be owned by U.S. citizens and built in the U.S. Although
the Company's Certificate of Incorporation and Amended and Restated By-laws
contain provisions intended to assure compliance with these provisions of the
Shipping Acts, the Company would be prohibited from operating its offshore
support vessels in the U.S. coastwise trade during any period in which the
Company did not comply with these regulations.
INLAND RIVER SERVICES COULD EXPERIENCE SIGNIFICANT VARIABILITY IN FREIGHT RATES.
Freight transportation rates may fluctuate from season to season and year to
year. Demand for transportation of dry cargo on the inland waterways varies due
to numerous factors, including global economic conditions and business cycles,
domestic agricultural production/demand as well as international agricultural
production/demand and the value of the U.S. dollar relative to other currencies.
In addition, the number of barges in the overall industry fleet available to
transport these cargoes varies from year to year as older barges are retired and
scrapped and new barges are constructed and placed into service. The resulting
relationship between available cargoes and available barges varies with periods
of low barge availability and high cargo demand causing higher freight rates and
periods of high barge availability and low cargo demand causing lower freight
rates. Significant periods of high barge availability and low cargo demand could
adversely impact Inland River Services.
INLAND RIVER SERVICES' OPERATIONS ARE AFFECTED BY THE LEVEL OF GRAIN EXPORTS.
Inland River Services' business is significantly affected by the level of grain
export volume handled through U.S. Gulf of Mexico ports. Grain exports can vary
due to, among other things, crop harvest yield levels in the U.S. and abroad.
Overseas grain shortages can increase demand for U.S. grain, while worldwide
over-production can decrease the demand for U.S. grain. This variable nature of
grain exports can result in temporary barge oversupply, which can drive down
freight rates. There can be no assurance that historical levels of grain export
volume will be maintained in the future and, to the extent supply imbalances
were to prevail for a significant period of time, they could have an adverse
impact on Inland River Services.
INLAND RIVER SERVICES' OPERATIONS ARE AFFECTED BY INTERNATIONAL ECONOMIC AND
POLITICAL FACTORS. Inland River Services may be affected by actions of foreign
governments and global or regional economic developments. For example, global
economic events such as foreign import/export policy or currency fluctuations,
could affect the level of imports and exports. Foreign agricultural subsidies
can also impact demand for U.S. agricultural exports. In addition, foreign trade
agreements and each country's adherence to the terms of such agreements can
raise or lower demand for U.S. imports and exports. National and international
boycotts and embargoes of other countries' or U.S. imports and/or exports
together with the raising or lowering of tariff rates will affect the demand for
transportation of cargo on the Inland Waterways. Changes in the value of the U.
S. dollar relative to other currencies will raise or lower demand for U.S.
exports as well as U.S. demand for foreign produced raw materials and finished
good imports. Such actions or developments could have an adverse impact on
Inland River Services.
INLAND RIVER SERVICES' OPERATIONS ARE AFFECTED BY SEASONALITY IN ACTIVITY.
Inland River Services' business is seasonal, and its quarterly operating
revenues and operating profits historically have been lower during the first and
second fiscal quarters of the year (January through June) and higher during the
third and fourth fiscal quarters (July through December) due to the grain
harvest.
INLAND RIVER SERVICES' OPERATIONS ARE AFFECTED BY RISKS OF ADVERSE WEATHER AND
RIVER CONDITIONS. Inland River Services' operations are affected by weather and
river conditions. Varying weather patterns can affect river levels and cause ice
in Northern U.S. river areas. For example, the Upper Mississippi River closes
annually from approximately mid-December to mid-March and ice conditions can
hamper navigation on the upper reaches of the Illinois River during the winter
months. In addition, adverse river conditions affect towboat speed, tow size and
loading drafts and can delay barge movements. Lock outages due to lock
maintenance and/or other interruptions in normal lock operation can also delay
barge movements. It is likely that adverse weather or river conditions in the
future could adversely impact Inland River Services' operations.
INLAND RIVER SERVICES' OPERATIONS ARE AFFECTED BY FUEL PRICE FLUCTUATIONS. Fuel
prices are subject to fluctuation as a result of domestic and international
events. While the Company does not currently operate towboats or fleeting
operations, instead purchasing these services from third party vendors, it is
indirectly exposed to increases in fuel prices, as vendors will adjust the price
of the services when fuel prices escalate. Thus, there can be no assurance that
Inland River Services will not experience pressure from increased fuel prices in
the future, which could adversely impact Inland River Services' business.
39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has foreign currency exchange risks primarily related to its vessel
operations that are conducted from ports located in the United Kingdom where its
functional currency is Pounds Sterling. Net consolidated assets of (pound)84.3
million, before translation to U.S. dollars, are included in the Company's
consolidated balance sheet at December 31, 2003. In addition, SEACOR has
provided cash advances to these operations of $41.1 million, or (pound)23.1
million, as of December 31, 2003. SEACOR considers these advances to be
intercompany loans with payment expected in the foreseeable future. A 10%
weakening in the exchange rate of the Pound Sterling against the U.S. dollar as
of December 31, 2003 would reduce other comprehensive income by approximately
$9.7 million, net of tax, due to translation and would reduce income by
approximately $2.7 million, net of tax, due to foreign currency losses on the
revaluing of intercompany advance transactions.
At December 31, 2003, the Company held available-for-sale securities with a fair
value of $48.9 million, including $2.4 million in fixed income investments and
$46.5 million in equity securities. The fixed income investments had remaining
maturities of 4 years or less. From time to time, the Company may increase its
level of investment in fixed income securities that have included U.S.
government bonds, U.K. government bonds, state and municipal bonds, and
corporate notes with maturities ranging from a few months to many years. The
fair value of such investments fluctuates based on the general level of interest
rates and the creditworthiness of the issuers of the securities. When making
substantial investments in fixed income securities, the Company manages its risk
associated with these investments by maintaining a ladder of maturities and
analyzing the creditworthiness of issuers. The Company's equity securities
primarily include positions in energy, marine, and other related businesses,
including a significant position in ENSCO. The Company monitors its investments
in available-for-sale securities on a regular basis and disposes of investments
when it judges the risk profile to be too high or when it believes that the
investments have reached an attractive valuation. A 10% decline in the value of
available-for-sale securities as of December 31, 2003 would reduce other
comprehensive income by $3.2 million, net of tax.
In order to partially hedge the fluctuation in market value for part of the
Company's common stock position in ENSCO that resulted from the Chiles Merger,
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 costless collar transactions were terminated in the
second quarter of 2003 with neither party having a payment obligation under
these transactions.
At December 31, 2003, the Company held positions in short sales of marketable
equity securities with a fair value of $3.7 million. The Company's short sales
of marketable equity securities primarily include positions in energy, marine,
and other related businesses. A 10% increase in the value of equity securities
underlying the short sale positions of the Company as of December 31, 2003 would
reduce income and other comprehensive income by $0.2 million, net of tax.
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. The Company's only
significant variable rate debt instrument is its revolving credit facility,
under which the Company had no outstanding borrowings at December 31, 2003.
While available for liquidity requirements, the Company has not historically
utilized significant portions of the revolving credit facility for any extended
period 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 the London Interbank Offered rate plus a margin
of 95 basis points on the agreed upon price of such notional amount of the 7.2%
Notes as set forth in the applicable swap agreement. During fourth quarter of
2003, the Company terminated the swap agreements and the financial institution
paid the Company $3.5 million, representing the amount by which the fair market
value of the notional amount of the 7.2% Notes subject to such swap agreements
on such date exceeded the agreed upon price of such notional amount as set forth
in such swap agreements.
The Company has entered into forward exchange and futures contracts that are
considered speculative with respect to Norwegian Kroners, Pounds Sterling,
Euros, Japanese Yen, Singapore Dollars and Hong Kong Dollars. The Norwegian
Kroner contracts enabled the Company to buy Norwegian Kroners in the future at
fixed exchange rates, which could have offset possible consequences of changes
in foreign exchange had the Company conducted business in Norway. The Pound
Sterling, Euro Yen, Singapore Dollar and Hong Kong Dollar contracts enable the
Company to buy Pounds Sterling, Euros, Yen, Singapore Dollars and Hong Kong
Dollars in the future at fixed exchange rates, which could offset possible
consequences of changes in foreign exchange of the Company's business conducted
in Europe and the Far East. As of December 31, 2003, the Company's positions
relating to these currencies were not significant.
The Company has entered into and settled various positions in natural gas and
crude oil via swaps, options and futures contracts pursuant to which, on each
applicable settlement date, the Company receives or pays an amount, if any, by
which a contract price for a swap, an option or a futures contract exceeds the
settlement price quoted on the New York Mercantile Exchange ("NYMEX") or
receives or pays the amount, if any, by which the settlement price quoted on the
NYMEX exceeds the contract price. The general purpose of these hedge
transactions is to provide value to the Company should the price of natural gas
and crude oil decline, which over time, if sustained, would lead to a decline in
the Company's offshore assets' market values and cash flows. As of December 31,
2003, the Company's positions relating to these commodities were not
significant.
40
The Company has entered into and settled various positions in U.S. treasury
notes and bonds via futures or options on futures and rate-lock agreements on
U.S. treasury notes pursuant to which, on each applicable settlement date, the
Company receives or pays an amount, if any, by which a contract price for an
option or a futures contract exceeds the settlement price quoted on the Chicago
Board of Trade ("CBOT") or receives or pays the amount, if any, by which the
settlement price quoted on the CBOT exceeds the contract price. The general
purpose of these hedge transactions is 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, might lead to higher interest
costs for the Company. As of December 31, 2003, the Company's positions relating
to these interest rate instruments were not significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and related notes are included in Part IV
of this Form 10-K on pages 48 through 78.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Required.
ITEM 9A. CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of the Company's
principal executive and principal financial officers, the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), as of December 31, 2003. Based on their evaluation, the Company's
principal executive and principal financial officers concluded that the
Company's disclosure controls and procedures were effective as of December 31,
2003.
There have been no changes in the Company's internal controls over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the Company's fiscal year ended December 31, 2003, that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As permitted by General Instruction G to this Form 10-K, other than information
with respect to the Company's executive officers, which is set forth in Item 4A
of Part I of this Form 10-K, the information required to be disclosed pursuant
to this Item 10 is incorporated in its entirety herein by reference to the
Company's definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A within 120 days after the end of the Company's last fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
As permitted by General Instruction G to this Form 10-K, the information
required to be disclosed pursuant to this Item 11 is incorporated in its
entirety herein by reference to the Company's definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A within 120 days after the
end of the Company's last fiscal year.
41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
As permitted by General Instruction G to this Form 10-K, the information
required to be disclosed pursuant to this Item 12 is incorporated in its
entirety herein by reference to the Company's definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A within 120 days after the
end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As permitted by General Instruction G to this Form 10-K, the information
required to be disclosed pursuant to this Item 13 is incorporated in its
entirety herein by reference to the Company's definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A within 120 days after the
end of the Company's last fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
As permitted by General Instructions G to this Form 10-K, the information
required to be disclosed pursuant to this Item 14 is incorporated in its
entirety herein by reference to the Company's definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A within 120 days after the
end of the Company's last fiscal year.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. and 2. Financial Statements and Financial Statement Schedules.
See Index to Consolidated Financial Statements and Financial Statement
Schedule on page 48 of this Form 10-K.
3. Exhibits:
Exhibit
Number Description
- ------ -----------
2.1 * Agreement and Plan of Merger, dated as of December 19,
2000, by and between SEACOR SMIT Inc. and SCF Corporation
(incorporated by reference to Exhibit 2.1 of the Company's
Registration Statement on Form S-3 (No. 333-56842) filed
with the Commission on March 9, 2001).
2.2 * Stock Exchange Agreement, dated as of January 9, 2001, among
SEACOR SMIT Inc. and the other parties thereto (incorporated
by reference to Exhibit 2.2 of the Company's Registration
Statement on Form S-3 (No. 333-56842) filed with the
Commission on March 9, 2001).
3.1 * Restated Certificate of Incorporation of SEACOR SMIT Inc.
(incorporated herein by reference to Exhibit 3.1(a) to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997 and filed with the Commission on
August 14, 1997).
3.2 * Certificate of Amendment to the Restated Certificate of
Incorporation of SEACOR SMIT Inc. (incorporated herein by
reference to Exhibit 3.1(b) to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30,
1997 and filed with the Commission on August 14, 1997).
3.3 * Amended and Restated By-laws of SEACOR Holdings, Inc.
(incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (No. 333-12637)
of SEACOR Holdings, Inc. filed with the Commission on
September 25, 1996).
4.1 * Indenture, dated as of November 1, 1996, between First Trust
National Association, as trustee, and SEACOR Holdings, Inc.
(including therein forms of 5-3/8% Convertible Subordinated
Notes due November 15, 2006 of SEACOR Holdings, Inc.)
(incorporated herein by reference to Exhibit 4.0 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1996 and filed with the
Commission on November 14, 1996).
42
4.2 * Indenture, dated as of September 22, 1997, between SEACOR
SMIT Inc. and First Trust National Association, as trustee
(including therein form of Exchange Note 7.20% Senior Notes
Due 2009)(incorporated herein by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-4 (No.
333-38841) filed with the Commission on October 27, 1997).
4.3 * Investment and Registration Rights Agreement, dated as of
March 14, 1995, by and among SEACOR Holdings, Inc., Miller
Family Holdings, Inc., Charles Fabrikant, Mark Miller,
Donald Toenshoff, Alvin Wood, Granville Conway and Michael
Gellert (incorporated herein by reference to Exhibit 4.0 of
the Company's Current Report on Form 8-K dated March 14,
1995, as amended).
4.4 * Investment and Registration Rights Agreement, dated as of
May 31, 1996, among SEACOR Holdings, Inc. and the persons
listed on the signature pages thereto (incorporated herein
by reference to Exhibit 10.8 to the Company's Current Report
on Form 8-K dated May 31, 1996 and filed with the Commission
on June 7, 1996).
4.5 * Registration Rights Agreement, dated November 5, 1996,
between SEACOR Holdings, Inc. and Credit Suisse First Boston
Corporation, Salomon Brothers Inc. and Wasserstein Perella
Securities, Inc. (incorporated herein by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1996 and filed
with the Commission on November 14, 1996).
4.6 * Investment and Registration Rights Agreement, dated as of
December 19, 1996, by and between SEACOR Holdings, Inc. and
Smit International Overseas B.V. (incorporated herein by
reference to Exhibit 4.0 to the Company's Current Report on
Form 8-K dated December 19, 1996 and filed with the
Commission on December 24, 1996).
4.7 * Investment and Registration Rights Agreement, dated as of
January 3, 1997, among SEACOR Holdings, Inc., Acadian
Offshore Services, Inc., Galaxie Marine Service, Inc.,
Moonmaid Marine, Inc. and Triangle Marine, Inc.
(incorporated herein by reference to Exhibit 4.6 to the
Company's Registration Statement on Form S-3 (No. 333-20921)
filed with the Commission on January 31, 1997).
4.8 * Investment and Registration Rights Agreement, dated October
27, 1995, by and between SEACOR Holdings, Inc. and Coastal
Refining and Marketing, Inc. (incorporated herein by
reference to Exhibit 4.2 of the Company's Registration
Statement on Form S-3 (No. 33-97868) filed with the
Commission on November 17, 1995).
4.9 * Investment and Registration Rights Agreement, dated November
14, 1995, by and between SEACOR Holdings, Inc. and Compagnie
Nationale de Navigation (incorporated herein by reference to
Exhibit 4.3 of the Company's Registration Statement on Form
S-3 (No. 33-97868) filed with the Commission on November 17,
1995).
4.10 * Registration Agreement, dated as of September 22, 1997,
between the Company and the Initial Purchasers (as defined
therein)(incorporated herein by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-4 (No.
333-38841) filed with the Commission on October 27, 1997).
4.11 * Restated Stockholders' Agreement dated December 16, 1992
(incorporated herein by reference to Exhibit 10.12 to the
Annual Report on Form 10-K of SEACOR Holdings, Inc. for the
fiscal year ended December 31, 1992).
4.12 * Investment and Registration Rights Agreement, dated as of
April 19, 2000, among SEACOR SMIT Inc. and the other parties
thereto (incorporated herein by reference to Exhibit 4.1 of
the Company's Registration Statement on Form S-3 (No.
333-37492) filed with the Commission on May 19, 2000).
4.13 * Investment and Registration Rights Agreement, dated as of
December 19, 2000, among SEACOR SMIT Inc. and the other
parties thereto (incorporated by reference to Exhibit 4.1 of
the Company's Registration Statement on Form S-3 (No.
333-56842) filed with the Commission on March 9, 2001).
4.14 * Investment and Registration Rights Agreement, dated as of
January 9, 2001, among SEACOR SMIT Inc. and the other
parties thereto (incorporated by reference to Exhibit 4.2 of
the Company's Registration Statement on Form S-3 (No.
333-56842) filed with the Commission on March 9, 2001).
4.15 * SEACOR SMIT Inc. 2000 Employee Stock Purchase Plan, as
amended February 14, 2001 (incorporated herein by reference
to Exhibit 4.4 to the Company's Registration Statement on
Form S-8 (No. 333-56714), filed with the Commission on March
8, 2001).
43
4.16 * Instrument, dated May 4, 2001, setting forth terms of
(pound) 14,668,942 in aggregate principal amount of Fixed
Rate Abatable Loan Notes (including form of Loan Note
Certificate as a Schedule thereto) (incorporated herein by
reference to the Company's Registration Statement on Form
8-K dated May 17, 2001).
4.17 * Form of Indenture, dated as of January 10, 2001, among
SEACOR SMIT Inc. and U.S. Bank Trust National Association as
trustee (incorporated herein by reference to Exhibit 4.2 to
Amendment No.1 to the Company's Registration Statement on
Form S-3/A (No. 333-53326) filed with the Commission on
January 18, 2001).
4.18 * Form of Indenture, dated as of January 10, 2001, among
SEACOR SMIT Inc. and U.S. Bank Trust National Association as
trustee (incorporated herein by reference to Exhibit 4.3 to
Amendment No. 1 to the Company's Registration Statement on
Form S-3/A (No. 333-53326) filed with the Commission on
January 18, 2001).
10.1 * Lease Agreement, dated September 1, 1989, between The Morgan
City Fund and NICOR Marine Inc. (SEACOR Marine Inc., as
successor lessee) (incorporated herein by reference to
Exhibit 10.33 to the Company's Registration Statement on
Form S-1 (No. 33-53244) filed with the Commission on
November 10, 1992).
10.2 *+ SEACOR Holdings, Inc. 1992 Non-Qualified Stock Option Plan
(incorporated herein by reference to Exhibit 10.45 to the
Company's Registration Statement on Form S-1 (No. 33-53244)
filed with the Commission on November 10, 1992).
10.3 *+ SEACOR Holdings, Inc. 1996 Share Incentive Plan
(incorporated herein by reference to SEACOR Holdings, Inc.'s
Proxy Statement dated March 18, 1996 relating to the Annual
Meeting of Stockholders held on April 18, 1996).
10.4 *+ SEACOR SMIT Inc. 2000 Stock Option Plan for Non-Employee
Directors (incorporated herein by reference to Exhibit 10.1
of the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 2000 and filed with the Commission on
August 14, 2000).
10.5 *+ Benefit Agreement, dated May 1, 1989, between NICOR Marine
Inc. and Lenny P. Dantin (assumed by SEACOR Holdings, Inc.)
(incorporated herein by reference to Exhibit 10.51 to the
Company's Registration Statement on Form S-1 (No. 33-53244)
filed with the Commission on November 10, 1992).
10.6 *+ Employment Agreement, dated December 24, 1992, between
SEACOR Holdings, Inc. and Milton Rose (incorporated herein
by reference to Exhibit 10.61 to the Annual Report on Form
10-K of SEACOR Holdings, Inc. for the fiscal year ended
December 31, 1992).
10.7 * Management and Services Agreement, dated January 1, 1985,
between NICOR Marine (Nigeria) Inc. and West Africa Offshore
Limited (assumed by SEACOR Holdings, Inc.) (incorporated
herein by reference to Exhibit 10.55 to the Company's
Registration Statement on Form S-1 (No. 33-53244) filed with
the Commission on November 10, 1992).
10.8 * Joint Venture Agreement, dated December 19, 1996, between
SEACOR Holdings, Inc. and Smit-Lloyd (Antillen) N.V.
(incorporated herein by reference to Exhibit 10.0 to the
Company's Current Report on Form 8-K dated December 19, 1996
and filed with the Commission on December 24, 1996).
10.9 * Form of Management Agreement (incorporated herein by
reference to Exhibit 10.4 to the Company's Current Report on
Form 8-K dated December 19, 1996 and filed with the
Commission on December 24, 1996).
10.10 * License Agreement, dated December 19, 1996, between SEACOR
Holdings, Inc., certain subsidiaries of SEACOR Holdings,
Inc. and Smit Internationale N.V. (incorporated herein by
reference to Exhibit 10.6 to the Company's Current Report on
Form 8-K dated December 19, 1996 and filed with the
Commission on December 24, 1996).
10.11 * Purchase Agreement, dated as of September 15, 1997, between
the Company and Salomon Brothers Inc., individually and as
representative of the Initial Purchasers (as defined
therein)(incorporated herein by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-4 (No.
333-38841) filed with the Commission on October 27, 1997).
44
10.12 *+ Form of Type A Restricted Stock Grant Agreement
(incorporated herein by reference to Exhibit 10.35 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 and filed with the Commission on
March 30, 2000).
10.13 *+ Form of Type B Restricted Stock Grant Agreement
(incorporated herein by reference to Exhibit 10.36 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 and filed with the Commission on
March 30, 2000).
10.14 *+ Form of Option Agreement for Officers and Key Employees
Pursuant to the SEACOR SMIT Inc. 1996 Share Incentive Plan
(incorporated herein by reference to Exhibit 10.37 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 and filed with the Commission on
March 30, 2000).
10.15 * Stock Purchase Agreement dated as of January 30, 2001, by
and between SEACOR SMIT Inc. and Brian Cheramie
(incorporated herein by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K, dated February 23,
2001 and filed with the Commission on March 5, 2001).
10.16 * Letter Agreement dated as of February 23, 2001, amending the
Stock Purchase Agreement dated as of February 23, 2001,
amending the Stock Purchase Agreement dated as of January
30, 2001 by and between SEACOR SMIT Inc. and Brian Cheramie
(incorporated herein by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K, dated February 23,
2001 and filed with the Commission on March 5, 2001).
10.17 * Stock Purchase Agreement dated as of January 30, 2001 by and
among SEACOR SMIT Inc., the persons listed on Exhibit A
thereto and Brian Cheramie, as representative of such
persons (incorporated herein by reference to Exhibit 10.3 of
the Company's Current Report on Form 8-K, dated February 23,
2001 and filed with the Commission on March 5, 2001).
10.18 * Letter Agreement dated as of February 23, 2001, amending the
Stock Purchase Agreement dated as of January 30, 2001 by and
among SEACOR SMIT Inc., the persons listed on Exhibit A
thereto and Brian Cheramie, as representative of such
persons (incorporated herein by reference to Exhibit 10.4 of
the Company's Current Report on Form 8-K, dated February 23,
2001 and filed with the Commission on March 5, 2001).
10.19 * Stock Purchase Agreement, dated as of May 4, 2001, by and
between SEACOR SMIT Inc. and the Stirling Vendors
(incorporated herein by reference to the Company's
Registration Statement on Form 8-K dated May 17, 2001).
10.20 * Tax Deed, dated as of May 4, 2001, by and between SEACOR
SMIT Inc. and the Stirling Vendors (incorporated herein by
reference to the Company's Registration Statement on Form
8-K dated May 17, 2001).
10.21 * Revolving Credit Facility Agreement, dated as of February 5,
2002 by and among SEACOR SMIT Inc., the banks and financial
institutions named therein, Fleet National Bank, Den norske
Bank ASA, Nordea and The Governor and Company of the Bank of
Scotland as agents.
10.22 * Securities Purchase Agreement dated as of December 31, 2002
by and between Offshore Aviation Inc., a wholly-owned
subsidiary of SEACOR SMIT Inc., and Edward L. Behne.
(Incorporated by reference to Exhibit 10.22 of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 and filed with the Commission on March 31,
2003.)
10.23 + List of Named Executive Officers which received awards of
Type A Restricted Stock pursuant to a Type A Restricted
Stock Grant Agreement, the form of which is attached hereto
as Exhibit 10.12.
10.24 + List of Named Executive Officers which received awards of
Type B Restricted Stock pursuant to a Type B Restricted
Stock Grant Agreement, the form of which is attached hereto
as Exhibit 10.13.
10.25 SEACOR SMIT Inc. 2003 Non-Employee Director Share Incentive
Plan.
10.26 SEACOR SMIT Inc. 2003 Share Incentive Plan.
21.1 List of Registrant's Subsidiaries.
23.1 Consent of Ernst & Young LLP.
45
23.2 Notice Regarding Consent of Arthur Andersen LLP.
31.1 Certification by the Chief Executive Officer Pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
31.2 Certification by the Chief Financial Officer Pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
32.1 Certification by the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification by the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
- ---------------------------
* Incorporated herein by reference as indicated.
+ Management contracts or compensatory plans or arrangements required to
be filed as an exhibit pursuant to Item 15 (c) of the rules governing
the preparation of this report.
(b) Reports on Form 8-K:
The Company filed a report on For 8-K dated November 5, 2003. Under
Item 7 and item 12, the Company filed as an exhibit a Press Release
reporting the Company's financial results for the third quarter of
2003.
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SEACOR Holdings Inc.
(Registrant)
By: /s/ Charles Fabrikant
-------------------------------------
Charles Fabrikant,
Chairman of the Board,
President and Chief Executive Officer
Date: March 15, 2004
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Charles Fabrikant Chairman of the Board, March 15, 2004
- ------------------------------- President and Chief Executive
Charles Fabrikant Officer (Principal Executive Officer)
/s/ Randall Blank Executive Vice President, Chief March 15, 2004
- ------------------------------- Financial Officer and Secretary
Randall Blank (Principal Financial Officer)
/s/ Lenny P. Dantin Vice President March 15, 2004
- ------------------------------- and Chief Accounting Officer
Lenny P. Dantin (Principal Accounting Officer)
/s/ Michael E. Gellert Director March 15, 2004
- -------------------------------
Michael E. Gellert
/s/ Stephen Stamas Director March 15, 2004
- -------------------------------
Stephen Stamas
/s/ Richard M. Fairbanks III Director March 15, 2004
- -------------------------------
Richard M. Fairbanks III
/s/ Pierre de Demandolx Director March 15, 2004
- -------------------------------
Pierre de Demandolx
/s/ Andrew R. Morse Director March 15, 2004
- -------------------------------
Andrew R. Morse
/s/ John Hadjipateras Director March 15, 2004
- -------------------------------
John Hadjipateras
/s/ Oivind Lorentzen Director March 15, 2004
- -------------------------------
Oivind Lorentzen
/s/ James Cowderoy Director March 15, 2004
- -------------------------------
James Cowderoy
/s/ Steven Wisch Director March 15, 2004
- -------------------------------
Steven Wisch
47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Consolidated Financial Statements:
Page
Reports of Independent Auditors................................................ 49
Consolidated Balance Sheets as of December 31, 2003 and 2002................... 51
Consolidated Statements of Income for the Years Ended
December 31, 2003, 2002 and 2001............................................ 52
Consolidated Statements of Changes in Equity for the Years Ended
December 31, 2003, 2002 and 2001............................................ 53
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003, 2002 and 2001............................................ 54
Notes to Consolidated Financial Statements..................................... 55
Financial Schedule:
Reports of Independent Auditors on Financial
Statement Schedule.......................................................... 76
Valuation and Qualifying Accounts for the
Years ended December 31, 2003, 2002 and 2001................................ 78
All Financial Schedules, except those set forth above, have been omitted since
the information required is either included in the consolidated financial
statements, not applicable or not required.
48
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors
SEACOR SMIT Inc.
We have audited the accompanying consolidated balance sheets of SEACOR SMIT Inc.
and subsidiaries as of December 31, 2003 and 2002, and the related consolidated
statements of income, changes in equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. The financial statements of SEACOR SMIT Inc. and subsidiaries for
the year ended December 31, 2001 were audited by other auditors who have ceased
operations and whose report dated February 21, 2002 expressed an unqualified
opinion on those statements, including an explanatory paragraph that disclosed
the Company's adoption of SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities," before the transitional disclosures and reclassification
adjustments described in Notes 1 and 14.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SEACOR SMIT Inc.
and subsidiaries at December 31, 2003 and 2002 and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
As discussed in Note 1 to the financial statements, effective January 1, 2002,
the Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142).
As discussed above, the financial statements of SEACOR SMIT Inc. and
subsidiaries for the year ended December 31, 2001 were audited by other auditors
who have ceased operations. As described in Notes 1 and 14, these financial
statements have been revised. Our procedures with respect to the SFAS 142
transitional disclosures in Note 1 related to 2001 included (a) agreeing the
previously reported net income to the previously issued financial statements and
the adjustments representing goodwill amortization (including related tax
effects) recognized in those periods to the Company's underlying records
obtained from management, and (b) testing the mathematical accuracy of the
determination of the impact on net income and earnings-per-share. Our procedures
with respect to the disclosures in Note 1 related to 2001 also included agreeing
the carrying value of goodwill and the related 2001 activity by reportable
segment, and in total, to the Company's underlying records obtained from
management. We also audited the reclassification adjustments described in Note
14 that were applied to revise the 2001 financial statements relating to a
change in the composition of reportable segments. In our opinion, the SFAS 142
transitional disclosures for 2001 in Note 1 are appropriate and the
reclassification adjustments applied to the 2001 segment disclosures in Note 14
are appropriate and have been properly applied. However, we were not engaged to
audit, review, or apply any procedures to the 2001 financial statements of the
Company other than with respect to such transitional disclosures and
reclassification adjustments and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 financial statements taken as a whole.
/s/ Ernst & Young LLP
New Orleans, Louisiana
March 9, 2004
49
REPORT OF INDEPENDENT AUDITORS
THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH SEACOR SMIT INC.'S FILING ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN
LLP IN CONNECTION WITH THIS FILING ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2003 AS THEY HAVE CEASED OPERATIONS. SEACOR SMIT INC. IS INCLUDING
THIS COPY OF ARTHUR ANDERSON LLP'S AUDIT REPORT PURSUANT TO RULE 2-02(E) OF
REGULATION S-X UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
To SEACOR SMIT Inc.:
We have audited the accompanying consolidated balance sheets of SEACOR SMIT Inc.
(a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000 and
the related consolidated statements of income, changes in equity and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SEACOR SMIT Inc. and
subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2001 the Company adopted SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities."
/s/ Arthur Andersen LLP
New Orleans, Louisiana
February 21, 2002
50
SEACOR SMIT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS 2003 2002
-------------- --------------
Current Assets:
Cash and cash equivalents......................................................... $ 263,135 $ 342,046
Available-for-Sale Securities..................................................... 48,856 7,984
Receivables:
Trade, net of allowance for doubtful accounts of $2,800 and $1,421
in 2003 and 2002, respectively............................................ 81,491 81,075
Other.......................................................................... 27,185 25,045
Prepaid expenses and other........................................................ 23,551 17,041
-------------- --------------
Total current assets......................................................... 444,218 473,191
-------------- --------------
Investments, at Equity, and Receivables from 50% or Less Owned Companies............. 59,848 61,359
Available-for-Sale Securities........................................................ - 80,641
Property and Equipment:
Offshore vessels and equipment.................................................... 822,871 849,921
Inland river barges and boats..................................................... 89,046 71,307
Helicopters....................................................................... 37,284 15,311
Construction in progress.......................................................... 47,134 37,475
Equipment, furniture, fixtures, vehicles and other ............................... 25,368 14,429
-------------- --------------
1,021,703 988,443
Accumulated depreciation.......................................................... (283,487) (250,475)
-------------- --------------
738,216 737,968
-------------- --------------
Construction Reserve Funds........................................................... 126,140 95,260
Other Assets......................................................................... 34,189 38,688
-------------- --------------
$ 1,402,611 $ 1,487,107
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt................................................. $ 93 $ 614
Accounts payable and accrued expenses............................................. 30,333 31,799
Accrued wages and benefits........................................................ 12,840 11,549
Accrued interest.................................................................. 5,759 7,394
Accrued income taxes.............................................................. 4,337 1,053
Deferred income taxes............................................................. 4,092 -
Accrued construction costs........................................................ 4,314 8,321
Accrued liability-short sale of securities........................................ 3,680 2,597
Other current liabilities......................................................... 12,067 8,094
-------------- --------------
Total current liabilities.................................................... 77,515 71,421
-------------- --------------
Long -Term Debt ..................................................................... 332,179 402,118
Deferred Income Taxes................................................................ 190,704 174,987
Deferred Income and Other Liabilities................................................ 29,858 31,938
Minority Interest in Subsidiaries.................................................... 1,909 1,692
Stockholders' Equity:
Common stock, $.01 par value, 40,000,000 shares authorized; 24,466,010
and 24,307,235 shares issued in 2003 and 2002, respectively.................... 245 243
Additional paid-in capital........................................................ 408,828 403,590
Retained earnings................................................................. 531,384 519,430
Less 5,884,971 and 4,386,143 shares held in treasury in 2003 and
2002, respectively, at cost.................................................... (183,531) (127,587)
Unamortized restricted stock...................................................... (2,998) (2,217)
Accumulated other comprehensive income -
Cumulative translation adjustments............................................. 12,994 5,750
Unrealized gain on available-for-sale securities............................... 3,524 5,742
-------------- --------------
Total stockholders' equity................................................... 770,446 804,951
-------------- --------------
$ 1,402,611 $ 1,487,107
============== ==============
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
51
SEACOR SMIT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
2003 2002 2001
-------------- --------------- ---------------
Operating Revenues......................................................... $ 406,209 $ 403,158 $ 434,790
-------------- --------------- ---------------
Costs and Expenses:
Operating expenses...................................................... 287,290 249,892 234,551
Administrative and general.............................................. 57,684 53,265 49,980
Depreciation and amortization........................................... 55,506 56,244 58,324
-------------- --------------- ---------------
400,480 359,401 342,855
-------------- --------------- ---------------
Operating Income........................................................... 5,729 43,757 91,935
-------------- --------------- ---------------
Other Income (Expense):
Interest income......................................................... 7,531 8,833 13,546
Interest expense........................................................ (19,313) (17,064) (21,998)
Debt extinguishments.................................................... (2,091) (2,338) (1,383)
Income from equipment sales or retirements, net......................... 17,522 8,635 9,030
Gain upon sale of shares of Chiles Offshore Inc......................... - 19,719 -
Derivative income (loss), net........................................... 2,389 (5,043) 4,127
Foreign currency transaction gains, net................................. 3,739 6,281 1,247
Marketable securities sale gains, net................................... 6,595 3,218 5,689
Other, net.............................................................. (652) 144 145
-------------- --------------- ---------------
15,720 22,385 10,403
-------------- --------------- ---------------
Income Before Income Taxes, Minority Interest and Equity in Earnings
of 50% or Less Owned Companies.......................................... 21,449 66,142 102,338
-------------- --------------- ---------------
Income Tax Expense:
Current................................................................. 618 6,007 14,351
Deferred................................................................ 9,778 17,027 21,220
-------------- --------------- ---------------
10,396 23,034 35,571
-------------- --------------- ---------------
Income Before Minority Interest and Equity in Earnings of 50% or Less
Owned Companies......................................................... 11,053 43,108 66,767
Minority Interest in Net Income of Subsidiaries............................ (517) (226) (372)
Equity in Earnings of 50% or Less Owned Companies.......................... 1,418 3,705 4,306
-------------- --------------- ---------------
Net Income................................................................. $ 11,954 $ 46,587 $ 70,701
============== =============== ===============
Basic Earnings Per Common Share............................................ $ 0.63 $ 2.33 $ 3.63
============== =============== ===============
Diluted Earnings Per Common Share.......................................... $ 0.63 $ 2.28 $ 3.43
============== =============== ===============
Weighted Average Common Shares
Basic................................................................... 19,012,899 19,997,625 19,490,115
Diluted................................................................. 19,279,568 21,057,877 21,335,182
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
52
SEACOR SMIT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
Accumulated
Additional Unamortized Other
Common Paid-in Retained Treasury Restricted Comprehensive Comprehensive
Stock Capital Earnings Stock Stock Income Income
- ------------------------------------------ -------- ------------ ---------- ----------- ------------- -------------- --------------
2003
- ------------------------------------------
Balance, December 31, 2002................ $ 243 $ 403,590 $ 519,430 $ (127,587) $ (2,217) $ 11,492 $ -
Add/(Deduct) -
-Net income for fiscal year 2003....... - - 11,954 - - - 11,954
-Issuance of common stock:.............
Employee Stock Purchase Plan........ - - - 670 - - -
Exercise of stock options........... 1 1,543 - - - - -
Director stock awards............... - 116 - - - - -
Issuance of restricted stock........ 1 3,585 - - (3,716) - -
-Amortization of restricted stock...... - - - - 2,855 - -
-Cancellation of restricted stock,
1,857 shares........................ - (8) - (72) 80 - -
-Net currency translation adjustments.. - - - - - 7,244 7,244
-Change in unrealized gains (losses)
on available-for-sale securities.... - - - - - (2,218) (2,218)
-Conversion of 5 3/8% Convertible
Subordinated Notes due 2006......... - 2 - - - - -
-Purchase of treasury shares........... - - - (56,542) - - -
-------- ------------ ---------- ----------- ------------- -------------- --------------
Balance, December 31, 2003................ $ 245 $ 408,828 $ 531,384 $ (183,531) $ (2,998) $ 16,518 $ 16,980
===================================================================================================================================
2002
- ------------------------------------------
Balance, December 31, 2001................ $ 238 $ 384,857 $ 472,843 $ (109,638) $ (1,985) $ (2,617) $ -
Add/(Deduct) -
-Net income for fiscal year 2002....... - - 46,587 - - - 46,587
-Issuance of common stock:.............
Tex-Air Helicopters, Inc.
acquisition....................... 1 2,726 - - - - -
Employee Stock Purchase Plan........ - - - 693 - - -
Exercise of stock options.......... 1 3,380 - - - - -
Issuance of restricted stock........ 1 2,655 - - (2,675) - -
Settlement of equity forward
transaction....................... 2 9,998 - - - - -
-Amortization of restricted stock...... - - - - 2,309 - -
-Cancellation of restricted stock,
2,850 shares........................ - - - (134) 134 - -
-Net currency translation
adjustments......................... - - - - - 8,224 8,224
-Change in unrealized gains (losses)
on available-for-sale securities.... - - - - - 5,885 5,885
-Conversion of 5 3/8% Convertible
Subordinated Notes due 2006........ - 1 - - - - -
-Change in share of book value of
investment in Chiles Offshore
Inc................................. - (27) - - - - -
-Purchase of treasury shares........... - - - (18,508) - - -
-------- ------------ ---------- ----------- ------------- -------------- --------------
Balance, December 31, 2002................ $ 243 $ 403,590 $ 519,430 $ (127,587) $ (2,217) $ 11,492 $ 60,696
===================================================================================================================================
2001
- ------------------------------------------
Balance, December 31, 2000................ $ 214 $ 278,567 $ 402,142 $ (125,968) $ (1,301) $ (1,102) $ -
Add/(Deduct) -
-Net income for fiscal year 2001....... - - 70,701 - - - 70,701
-Issuance of common stock:.............
ERST/O'Brien's Inc. acquisition,
27,877 shares..................... - 1,284 - - - - -
Plaisance Marine Inc. acquisition... - - - 3,163 - - -
Stirling Shipping Holdings
Limited acquisition............... - - - 12,777 - - -
Employee Stock Purchase Plan........ - - - 624 - - -
Exercise of stock options........... - 272 - - - - -
Issuance of restricted stock........ 1 3,644 - - (2,976) - -
-Amortization of restricted stock...... - - - - 2,272 - -
-Cancellation of restricted stock,
459 shares.......................... - - - (20) 20 - -
-Net currency translation
adjustments......................... - - - - - (545) (545)
-Change in unrealized gains (losses)
on available-for-sale securities.... - - - - - (1,055) (1,055)
-Conversion of 5 3/8% Convertible
Subordinated Notes due 2006......... 23 98,824 - - - - -
-Change in share of book value of
investment in Chiles Offshore Inc... - 2,395 - - - - -
-Change in value of shares issued
in equity forward transaction....... - (164) - - - - -
-Change in fair value of derivatives... - - - - - 85 85
-Purchase of TMM's minority interest
in SEACOR Vision LLC................ - 35 - - - - -
-Purchase of treasury shares........... - - - (214) - - -
-------- ------------ ---------- ----------- ------------- -------------- --------------
Balance, December 31, 2001................ $ 238 $ 384,857 $ 472,843 $ (109,638) $ (1,985) $ (2,617) $ 69,186
===================================================================================================================================
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
53
SEACOR SMIT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN THOUSANDS)
2003 2002 2001
------------- -------------- -------------
Cash Flows from Operating Activities:
Net income................................................................. $ 11,954 $ 46,587 $ 70,701
Depreciation and amortization.............................................. 55,506 56,244 58,324
Restricted stock amortization.............................................. 2,855 2,309 2,272
Director stock awards...................................................... 116 - -
Debt discount amortization, net............................................ 326 522 474
Bad debt expense........................................................... 829 9 947
Deferred income taxes...................................................... 9,778 17,027 21,220
Equity in net earnings of 50% or less owned companies...................... (1,418) (3,705) (4,306)
Gain from sale of investment in 50% or less owned companies................ - - (201)
Extinguishment of debt..................................................... 2,091 1,520 896
Derivative (income) loss................................................... (2,389) 5,043 (4,127)
Foreign currency transaction gains, net.................................... (3,739) (6,281) (1,247)
Gain from sale of available-for-sale securities, net....................... (6,595) (3,218) (5,689)
Impairment on other investments............................................ 1,254 - -
Gain upon sale of shares of Chiles Offshore Inc............................ - (19,719) -
Gain from equipment sales or retirements, net.............................. (17,522) (8,635) (9,030)
Amortization of deferred income on sale and leaseback transactions......... (6,342) (7,396) (5,482)
Minority interest in income of subsidiaries................................ 517 226 372
Other, net................................................................. 450 6,931 1,751
Changes in operating assets and liabilities -
(Increase) decrease in receivables....................................... 3,559 (2,075) (3,360)
Increase in prepaid expenses and other assets............................ (4,433) (13,600) (4,175)
Decrease in accounts payable, accrued and other liabilities.............. (1,801) (4,994) (7,920)
------------- -------------- -------------
Net cash provided by operations........................................ 44,996 66,795 111,420
------------- -------------- -------------
Cash Flows from Investing Activities:
Purchases of property and equipment........................................ (161,842) (139,706) (107,445)
Proceeds from the sale of marine vessels, other equipment and property..... 143,797 128,669 60,666
Investments in and advances to 50% or less owned companies................. (7,992) (22) (5,763)
Principal payments on notes due from 50% or less owned companies........... 1,875 20,665 6,040
Dividends received from 50% or less owned companies........................ 11,569 1,889 6,705
Proceeds from sale of investment in 50% or less owned companies............ - - 3,076
Net increase in construction reserve funds................................. (30,880) (39,970) (14,531)
Proceeds from sale of available-for-sale securities........................ 84,255 63,519 145,920
Purchases of available-for-sale securities................................. (40,161) (49,603) (74,771)
Cash settlements of derivative transactions................................ 3,330 (5,712) 1,594
Acquisitions, net of cash acquired......................................... (7,756) (113) (98,174)
Cash proceeds from sale of shares of Chiles Offshore Inc................... - 25,365 -
Other, net................................................................. 2,064 1,186 45
------------- -------------- -------------
Net cash provided by (used in) investing activities.................... (1,741) 6,167 (76,638)
------------- -------------- -------------
Cash Flows from Financing Activities:
Payments of long-term debt and stockholder loans........................... (71,557) (93,801) (145,356)
Premium paid with 5 3/8 % Note extinguishment.............................. (632) - -
Proceeds from issuance of long-term debt .................................. 107 231 75,563
Net proceeds from sale of 5 7/8% Notes..................................... - 196,836 -
Payments on capital lease obligations...................................... - - (17,580)
Proceeds from issuance of Common Stock..................................... - - 10,000
Common stock acquired for treasury......................................... (56,542) (18,508) (214)
Stock options exercised.................................................... 936 1,754 131
Other, net................................................................. 163 693 1
------------- -------------- -------------
Net cash provided by (used in) financing activities.................... (127,525) 87,205 (77,455)
------------- -------------- -------------
Effects of Exchange Rate Changes on Cash and Cash Equivalents.................. 5,359 1,485 (1,152)
------------- -------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents........................... (78,911) 161,652 (43,825)
Cash and Cash Equivalents, beginning of period................................. 342,046 180,394 224,219
------------- -------------- -------------
Cash and Cash Equivalents, end of period....................................... $ 263,135 $ 342,046 $ 180,394
============= ============== =============
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
54
SEACOR SMIT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES:
NATURE OF OPERATIONS. SEACOR SMIT Inc. ("SEACOR") and its subsidiaries
(collectively referred to as the "Company") is a major provider of offshore
support vessel services to the oil and gas exploration and production industry
and is one of the leading providers of oil spill response services to owners of
tank vessels and oil storage, processing and handling facilities. The Company
also operates inland river dry cargo barges primarily for the agriculture and
industrial sectors strategically aligned along the Mississippi River and its
tributaries and also provides helicopter transportation services primarily to
companies operating in the U.S. Gulf of Mexico.
BASIS OF CONSOLIDATION. The consolidated financial statements include the
accounts of SEACOR and all of its majority owned subsidiaries. All significant
intercompany accounts and transactions are eliminated in consolidation.
The Company employs the equity method of accounting for investments in business
ventures when it has the ability to exercise significant influence over the
operating and financial policies of the venture. Significant influence is
generally deemed to exist if the Company has between 20% and 50% of the voting
rights of an investee. The Company reports its investment in and advances to
equity investees in the Consolidated Balance Sheets as "Investments, at Equity,
and Receivables from 50% or Less Owned Companies." The Company reports its share
of earnings or losses of equity investees in the Consolidated Statements of
Income as "Equity in Earnings of 50% or Less Owned Companies."
The Company employs the cost method of accounting for investments in other
business ventures which the Company does not have the ability to exercise
significant influence. These investments are in private companies, carried at
cost, and are adjusted only for other-than-temporary declines in fair value and
capital distributions.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION. The Company's offshore marine business segment earns and
recognizes revenues primarily from the time and bareboat charter-out of vessels
to customers based upon daily rates of hire. A time charter is a lease
arrangement under which the Company provides a vessel to a customer and is
responsible for all crewing, insurance and other operating expenses. In a
bareboat charter, the Company provides only the vessel to the customer, and the
customer assumes responsibility to provide for all of the vessel's operating
expenses and generally assumes all risk of operation. Vessel charters may range
from several days to several years.
Customers of the Company's environmental business segment are charged retainer
fees for ensuring by contract the availability (at predetermined rates) of oil
spill response services and equipment. Such retainer fees are generally
recognized ratably over the terms of the contract. Retainer services include
employing a staff to supervise response to an oil spill and maintaining
specialized equipment. Retainer agreements with vessel owners generally range
from one to three years while retainer arrangements with facility owners are as
long as ten years. Spill response revenues are recognized as the services are
provided based on contract terms and are dependent on the magnitude of any one
spill response and the number of spill responses within a given fiscal year.
Consequently, spill response revenues can vary greatly between comparable
periods. Consulting fees are also earned from preparation of customized training
programs, planning of and participation in customer oil spill response drill
programs and response exercises and other special projects and are recognized as
the services are provided based on contract terms. Industrial and remediation
services are provided on both a time and material basis and on a fixed fee bid
basis. In both cases the total fees charged are dependent upon the scope of work
to be accomplished and the labor and equipment to carry it out.
The Company's inland river business earns 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 rate per ton. The inland river operation also earns revenues
while cargo is stored aboard a barge and when a barge is chartered-out by a
third party.
Helicopters are chartered primarily through master service agreements, term
contracts and day-to-day charter arrangements. Master service agreements require
customers to make incremental payments based on usage, have fixed terms ranging
from one month to five years and generally are cancelable upon notice by either
party in 30 days. Term contracts and day-to-day charter arrangements are
generally non-cancelable and call for a combination of a monthly or daily fixed
rental fee plus a charge based on usage. Rental fee revenues are recognized
ratably over the contract term and revenues for helicopter usage are recognized
as the services are performed.
55
CASH EQUIVALENTS. Cash equivalents refer to securities with maturities of three
months or less when purchased.
ACCOUNTS RECEIVABLE. Customers of offshore support vessel services and
helicopter transportation services are primarily major and large independent oil
and gas exploration and production companies. Oil spill and emergency response
services are provided to tank vessel owner/operators, refiners, terminals,
exploration and production facilities and pipeline operators. Barge customers
are primarily major agricultural and industrial companies based within the
United States. All customers are granted credit on a short-term basis and
related credit risks are considered minimal. Although credit risks associated
with these customers are considered minimal, the Company routinely reviews its
accounts receivable balances and makes provisions for probable doubtful
accounts. Accounts receivable are deemed uncollectible and removed from accounts
receivable and allowance for doubtful accounts when collection efforts have been
exhausted.
DERIVATIVES. Effective January 1, 2001, the Company adopted SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended, and
accounts for all of its derivative positions at fair value. The cumulative
effect of adopting SFAS 133 was not material.
CONCENTRATIONS OF CREDIT RISK. The Company is exposed to concentrations of
credit risks relating to its receivables due from customers in the industries
described above. The Company does not generally require collateral or other
security to support its outstanding receivables. The Company minimizes its
credit risk relating to receivables by performing ongoing credit evaluations
and, to date, credit losses have been within management's expectations. The
Company is also exposed to concentrations of credit risks associated with its
cash and cash equivalents, its available-for-sale securities, and its derivative
instruments. The Company minimizes its credit risk relating to these positions
by monitoring the financial condition of the financial institutions and
counterparties involved.
PROPERTY AND EQUIPMENT. Equipment, stated at cost, is depreciated over the
estimated useful lives of the assets using the straight-line method. Offshore
support vessels ("vessels") and related equipment are depreciated over 20 to 30
years, inland river dry cargo barges are depreciated over 20 years, helicopters
and related equipment are generally depreciated over 12 years, and all other
equipment is depreciated and amortized over 2 to 10 years. Depreciation expense
totaled $55,501,000, $56,239,000 and $55,069,000 in 2003, 2002 and 2001,
respectively.
Effective January 1, 2003, the Company changed its estimated residual value for
newly constructed supply vessels, towing and supply vessels, and anchor handling
towing supply vessels from 10% to 5%. The effect on income of this change in
accounting estimate was not material.
Vessel, helicopter and barge maintenance and repair costs and the costs of
routine drydock inspections performed on vessels are charged to operating
expense as incurred. Expenditures that extend the useful life or improve the
marketing and commercial characteristics of vessels and helicopters as well as
major renewals or improvements to other properties are capitalized. Certain
interest costs incurred during the construction of equipment was capitalized as
part of the assets' carrying values and are being amortized to expense over such
assets estimated useful lives. Capitalized interest totaled $2,272,000,
$1,092,000 and $760,000 in 2003, 2002 and 2001, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS. In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, the Company reviews long-lived
assets for impairment when events or changes in circumstances indicate that the
carrying amount of any asset may not be recoverable. As of December 31, 2003,
the Company was not aware of any indicators that would have required an
impairment review.
BUSINESS COMBINATIONS. As discussed in Note 4, business combinations completed
by the Company have been accounted for under the purchase method of accounting.
The cost of each acquired operation is allocated to the assets acquired and
liabilities assumed based on their estimated fair values. These estimates are
revised during an allocation period as necessary when, and if, information
becomes available to further define and quantify the value of the assets
acquired and liabilities assumed. The allocation period does not exceed beyond
one year from the date of the acquisition. Should information become available
after the allocation period, those items are included in operating results. The
cost of an enterprise acquired in a business combination includes the direct
cost of the acquisition. The operating results of entities acquired are included
in the Consolidated Statements of Income from the completion date of the
applicable transaction.
GOODWILL. Goodwill represents the excess of purchase price over fair value of
net assets acquired in business combinations. Effective January 1, 2002, the
Company adopted SFAS 142, "Goodwill and Other Intangible Assets" and ceased
amortization of its remaining goodwill balance. The Company now performs annual
testing based upon a fair value approach and, based on its annual impairment
test as of December 31, 2003, has determined there is no goodwill impairment.
Application of the non-amortization provisions of SFAS 142 would have increased
net income by $2,103,000, or $0.10 per diluted share, in 2001.
56
DEFERRED FINANCING COSTS. Deferred financing costs, incurred in connection with
the issuance of debt, are amortized over the life of the related debt, ranging
from 4 to 9 years, using the effective interest rate method. Deferred financing
costs amortization expense totaled $474,000, $526,000 and $504,000 in 2003, 2002
and 2001, respectively, is included in the Consolidated Statements of Income as
"Interest Expense."
SELF-INSURANCE LIABILITIES. The Company maintains business insurance programs
with significant self-insured retention, primarily relating to its offshore
support vessels. In addition, the Company maintains self-insured health benefit
plans for its participating employees. The Company limits its exposure to the
business insurance programs and health benefit plans by maintaining stop-loss
and aggregate liability coverages. Self-insurance losses for claims filed and
claims incurred but not reported are accrued based upon the Company's historical
loss experience and valuations provided by independent third-party consultants.
To the extent that estimated self-insurance losses differ from actual losses
realized, the Company's insurance reserves could differ significantly and may
result in either higher or lower insurance expense in future periods.
INCOME TAXES. Deferred income tax assets and liabilities have been provided in
recognition of the income tax effect attributable to the difference between
assets and liabilities reported in the tax return and financial statements.
Deferred tax assets or liabilities are provided using the enacted tax rates
expected to apply to taxable income in the periods in which the deferred tax
assets and liabilities are expected to be settled or realized. Deferred taxes
are not provided on undistributed earnings of certain non-U.S. subsidiaries and
business ventures because the Company considers those earnings to be
indefinitely reinvested abroad.
The Company records a valuation allowance to reduce its deferred tax assets if
it is more likely than not that some portion or all of the deferred assets will
not be realized. While the Company has considered future taxable income and
ongoing prudent and feasible tax strategies in assessing the need for the
valuation allowance, the Company may be required to adjust its valuation
allowance if these estimates and assumptions change in the period such
determination is made.
DEFERRED INCOME. The Company has entered into vessel sale and leaseback
transactions and has sold vessels to business ventures in which it holds an
equity ownership interest. Certain of the gains realized from these transactions
were not immediately recognized in income and have been reported in the
Consolidated Balance Sheets as "Deferred Income and Other Liabilities." In sale
and leaseback transactions, gains were deferred to the extent of the present
value of minimum lease payments and are being amortized to income as reductions
in rental expense over the applicable lease terms. In business venture sale
transactions, gains were deferred to the extent of the Company's ownership
interest with amortization to income over the applicable vessels' depreciable
lives and upon receipt of debt securities with amortization to income on the
installment method.
Deferred
(in thousands) Income
- ------------------------------------------------------ --------------
Balance at 12/31/02................................... $ 27,308
Deferred income from 2003 vessel sales................ 5,596
2003 amortization of deferred income.................. (7,015)
Currency translation.................................. 10
--------------
Balance at 12/31/03................................... $ 25,899
==============
FOREIGN CURRENCY TRANSLATION. The assets, liabilities and results of operations
of certain SEACOR subsidiaries are measured using the currency of the primary
foreign economic environment within which they operate, their functional
currency. Upon consolidating these subsidiaries with SEACOR, their assets and
liabilities are translated to U.S. dollars at currency exchange rates as of the
balance sheet date and their revenues and expenses at the weighted average
currency exchange rates during the applicable reporting periods. Translation
adjustments resulting from the process of translating these subsidiaries'
financial statements are reported in the Consolidated Balance Sheets as
"Accumulated other comprehensive income."
FOREIGN CURRENCY TRANSACTIONS. Certain SEACOR subsidiaries enter into
transactions denominated in currencies other than their functional currency.
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. From
time to time, SEACOR may advance funds to wholly-owned subsidiaries whose
functional currency differs from the U.S. dollar. If settlement of such advances
are not planned or anticipated to be paid in the foreseeable future, exchange
rate gains and losses relating to the transactions are deferred and included in
the Consolidated Balance Sheets as "Accumulated other comprehensive income."
Conversely, if settlement of the advances is expected in the foreseeable future,
changes in the exchange rate from the transaction date until the settlement date
with respect to such advances are included in the Consolidated Statements of
Income as "Foreign currency transaction gains, net."
57
EARNINGS PER SHARE. Basic earnings per common share were computed based on the
weighted-average number of common shares issued and outstanding for the relevant
periods. Diluted earnings per common 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. Certain
options and share awards, 364,805, 69,300 and 127,580 in 2003, 2002 and 2001,
respectively, were excluded from the computation of diluted earnings per share
as the effect would have been antidilutive.
Per
(in thousands, except share data) Income Shares Share
- --------------------------------------------------------------- --------------- ------------- --------
FOR THE YEAR ENDED 2003-
Basic Earnings Per Share:
Net income.......................................... $ 11,954 19,012,899 $ 0.63
========
Effect of Dilutive Securities:
Options and restricted stock........................ - 163,308
Convertible securities.............................. 167 103,361
--------------- -------------
Diluted Earnings Per Share:
Net income available to common stockholders
plus assumed conversions......................... $ 12,121 19,279,568 $ 0.63
=============== ============= ========
FOR THE YEAR ENDED 2002-
Basic Earnings Per Share:
Net income.......................................... $ 46,587 19,997,625 $ 2.33
========
Effect of Dilutive Securities:
Options and restricted stock........................ - 257,538
Convertible securities.............................. 1,463 802,714
--------------- -------------
Diluted Earnings Per Share:
Net income available to common stockholders
plus assumed conversions.......................... $ 48,050 21,057,877 $ 2.28
=============== ============= ========
FOR THE YEAR ENDED 2001-
Basic Earnings Per Share:
Net income.......................................... $ 70,701 19,490,115 $ 3.63
========
Effect of Dilutive Securities:
Options and restricted stock........................ - 253,260
Convertible securities.............................. 2,596 1,591,807
Common stock sold with equity forward contract,
see Note 8........................................ (164) -
--------------- -------------
Diluted Earnings Per Share:
Net income available to common stockholders
plus assumed conversions......................... $ 73,133 21,335,182 $ 3.43
=============== ============= ========
COMPREHENSIVE INCOME. Comprehensive income is defined as the total of net income
and all other changes in equity of an enterprise that result from transactions
and other economic events of a reporting period other than transactions with
owners. The Company has chosen to disclose Comprehensive Income in the
Consolidated Statements of Changes in Equity. The Company's other comprehensive
income was comprised of net currency translation adjustments and unrealized
holding gains and losses on available-for-sale securities. Income taxes
allocated to each component of other comprehensive income during the years
indicated are as follows:
Before-Tax Tax (Expense) Net-of-Tax
(in thousands) Amount or Benefit Amount
- -------------------------------------------------------------------------- --------------- --------------- ---------------
2003
Foreign currency translation adjustments................................ $ 11,145 $ (3,901) $ 7,244
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during period...................... 3,117 (1,091) 2,026
Less - reclassification adjustment for gains included in net income. (6,529) 2,285 (4,244)
--------------- --------------- ---------------
Other comprehensive income.............................................. $ 7,733 $ (2,707) $ 5,026
=============== =============== ===============
2002
Foreign currency translation adjustments................................ $ 12,652 $ (4,428) $ 8,224
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during period...................... 12,272 (4,295) 7,977
Less - reclassification adjustment for gains included in net income. (3,218) 1,126 (2,092)
--------------- --------------- ---------------
Other comprehensive income ............................................. $ 21,706 $ (7,597) $ 14,109
=============== =============== ===============
2001
Foreign currency translation and derivative adjustments................. $ (708) $ 248 $ (460)
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during period...................... 4,066 (1,423) 2,643
Less - reclassification adjustment for gains included in net income. (5,689) 1,991 (3,698)
--------------- --------------- ---------------
Other comprehensive loss................................................ $ (2,331) $ 816 $ (1,515)
=============== =============== ===============
58
STOCK COMPENSATION. Under Statement of Financial Accounting Standards No. 123
("SFAS 123"), companies could either adopt a "fair value method" of accounting
for its stock based compensation plans or continue to use the "intrinsic value
method" as prescribed by APB Opinion No. 25. The Company has elected to continue
accounting for its stock compensation plans using the intrinsic value method.
Had compensation costs for the plans been determined using a fair value method
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 following years
ended December 31:
(in thousands, except share and option data) 2003 2002 2001
- ------------------------------------------------------ ------------- -------------- -------------
Net income, as reported............................. $ 11,954 $ 46,587 $ 70,701
Add: stock based compensation included in net
income........................................... 1,931 1,501 1,477
Less: stock based compensation using fair value
method........................................... (3,163) (3,498) (3,432)
------------- -------------- -------------
Net income, Pro forma............................... $ 10,722 $ 44,590 $ 68,746
============= ============== =============
Basic earnings per common share:
As reported....................................... $ 0.63 $ 2.33 $ 3.63
Pro forma......................................... 0.56 2.23 3.53
Diluted earnings per share:
As reported....................................... $ 0.63 $ 2.28 $ 3.43
Pro forma......................................... 0.56 2.19 3.34
Weighted average fair value of options granted...... $ 13.99 $ 20.03 $ 26.21
============= ============== =============
Weighted average fair value of restricted stock
granted........................................... $ 41.44 $ 43.53 $ 50.80
============= ============== =============
Weighted average fair value of stock granted to
non-employee directors............................ $ 38.62 $ - $ -
============= ============== =============
The effects of applying a fair value method consistent with SFAS 123 in this pro
forma disclosure are not indicative of future events and the Company anticipates
that it will award additional stock based compensation in future periods.
The fair value of each option granted during the periods presented is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following assumptions: (a) no dividend yield, (b) weighted average expected
volatility of 37.2%, 38.8% and 37.37% in the years 2003, 2002 and 2001,
respectively, (c) weighted average discount rates of 2.93%, 3.76% and 5.31% in
the years 2003, 2002 and 2001, respectively, and (d) expected lives of five
years.
NEW ACCOUNTING PRONOUNCEMENTS. In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51 ("FIN 46"), as revised. This
interpretation provides guidance on the identification of, and the financial
reporting for, variable interest entities, as defined. Consolidation of variable
interest entities is required under FIN 46 only when a company will absorb a
majority of the variable interest entity's expected losses, receive a majority
of the variable interest entity's expected residual returns, or both. This
interpretation applied immediately to a variable interest entity created or
acquired after January 31, 2003. For variable entities acquired before February
1, 2003, this interpretation was applied effective December 31, 2003. The
adoption of FIN 46 did not have a material impact on the Company's financial
position or results of its operations.
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity ("SFAS 150").
This statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement applied immediately for financial instruments entered
into or modified after May 31, 2003. For financial instruments entered into or
modified before June 1, 2003, this statement was applied effective July 1, 2003.
The adoption of SFAS 150 did not have a material impact on the Company's
financial position or results of its operations.
Effective January 1, 2003, the Company adopted Statement of Financial Accounting
Standard No. 145, Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections ("SFAS 145"). 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. The Company recognized losses on debt
extinguishments of $2,091,000, $2,338,000 (previously reported as an
extraordinary item, net of tax), and $1,383,000 (previously reported as an
extraordinary item, net of tax) in 2003, 2002 and 2001, respectively. These
charges against income consisted of premium payments and the write off of
related unamortized deferred financing costs and debt discount.
RECLASSIFICATIONS. Certain reclassifications of prior year information have been
made to conform to the presentation of current year information.
59
2. FINANCIAL INSTRUMENTS:
2003 2002
----------------------------- -----------------------------
Carrying Estimated Carrying Estimated
(in thousands) Amount Fair Value Amount Fair Value
- ------------------------------------------------------------- -------------- ------------- ------------- -------------
ASSETS:
Cash and cash equivalents............................... $ 263,135 $ 263,135 $ 342,046 $ 342,046
Available-for-sale securities........................... 48,856 48,856 88,625 88,625
Collateral deposits and notes receivables............... 6,220 5,975 10,146 9,725
Construction reserve funds.............................. 126,140 126,140 95,260 95,260
Business ventures, carried at cost...................... 700 see below 1,190 see below
Derivative instruments.................................. 338 338 3,535 3,535
LIABILITIES:
Long-term debt, including current portion............... 332,272 357,490 402,732 422,557
Short-sale of securities................................ 3,680 3,680 2,597 2,597
Derivative instruments.................................. - - 1,688 1,688
The carrying value of cash, cash equivalents and collateral cash deposits
approximates fair value. The carrying value of construction reserve funds,
primarily consisting of auction rate certificates, approximates fair value. The
fair values of the Company's available-for-sale securities, notes receivable,
derivative instruments, long-term debt, and short-sales of marketable securities
were estimated based upon quoted market prices or by using discounted cash flow
analyses based on estimated current rates for similar type of arrangements. It
was not practicable to estimate the fair value of the Company's historical cost
investments in business ventures because of the lack of a quoted market price
and the inability to estimate fair value without incurring excessive costs.
Considerable judgment was required in developing certain of the estimates of
fair value and, accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.
3. DERIVATIVE INSTRUMENTS:
The Company's foreign currency exchange risks primarily relates to its offshore
support vessel operations that are conducted from ports located in the United
Kingdom, where its functional currency is Pounds Sterling. To protect the U.S.
dollar value of certain Pounds Sterling denominated net assets of the Company
from the effects of volatility in foreign currency exchange rates that might
occur prior to their conversion to U.S. dollars, the Company has entered into
forward exchange contracts. The Company considers these forward exchange
contracts as economic hedges of its net investment in the United Kingdom with
the resulting gains or losses from those transactions being charged to
Accumulated Other Comprehensive Income in Stockholders' Equity. For the year
ended December 31, 2001, recognized net gains of $85,000 from these contracts.
At December 31, 2003, the Company had no outstanding Pounds Sterling forward
exchange contracts for which hedge accounting criteria were met.
The Company has entered into forward exchange and futures contracts that are
considered speculative with respect to Norwegian Kroners, Pounds Sterling,
Euros, Japanese Yen and Singapore Dollars. The Norwegian Kroner contracts
enabled the Company to buy Norwegian Kroners in the future at fixed exchange
rates which could have offset possible consequences of changes in foreign
exchange had the Company decided to conduct business in Norway. The Pound
Sterling, Euro, Yen and Singapore Dollar contracts enable the Company to buy
Pounds Sterling, Euros, Yen and Singapore Dollars in the future at fixed
exchange rates which could offset possible consequences of changes in foreign
exchange of the Company's business conducted in Europe and the Far East.
Resulting gains or losses from these transactions are reported in the
Consolidated Statements of Income as "Derivative income (loss), net" as they do
not meet the criteria for hedge accounting. For the years ended December 31,
2003, 2002 and 2001, the Company recognized net gains of $1,343,000, net gains
of $674,000 and net losses of $153,000, respectively, from these forward
exchange and futures contracts. At December 31, 2003, the fair market value of
the Company's speculative Pound Sterling, Euro, Japanese Yen and Singapore
Dollar contracts was an unrealized gain of $238,000 included in the Consolidated
Balance Sheets as "Other receivables." At December 31, 2003, the Company had no
outstanding Norwegian Kroner contracts.
The Company has entered into and settled various positions in natural gas and
crude oil via swaps, options and futures contracts pursuant to which, on each
applicable settlement date, the Company receives or pays an amount, if any, by
which a contract price for a swap, an option or a futures contract exceeds the
settlement price quoted on the New York Mercantile Exchange ("NYMEX") or
receives or pays the amount, if any, by which the settlement price quoted on the
NYMEX exceeds the contract price. The general purpose of these hedge
transactions is to provide value to the Company should the price of natural gas
and crude oil decline which over time, if sustained, would lead to a decline in
the Company's offshore assets' market values and cash flows. Resulting gains or
losses from these transactions are reported in the Consolidated Statements of
Income as "Derivative income (loss), net" as they do not meet the criteria for
hedge accounting. For the years ended December 31, 2003, 2002 and 2001, the
Company has recognized net losses of $743,000, net gains of $406,000 and net
gains of $4,584,000, respectively, from these commodity hedging activities. At
December 31, 2003, the fair market value of the Company's positions in commodity
contracts was an unrealized gain of $177,000 included in the Consolidated
Balance Sheets as "Other receivables."
60
The Company has entered into and settled various positions in U.S. treasury
notes and bonds via futures or options on futures and rate-lock agreements on
U.S. treasury notes pursuant to which, on each applicable settlement date, the
Company receives or pays an amount, if any, by which a contract price for an
option or a futures contract exceeds the settlement price quoted on the Chicago
Board of Trade ("CBOT") or receives or pays the amount, if any, by which the
settlement price quoted on the CBOT exceeds the contract price. The general
purpose of these transactions is 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, might lead to a higher interest
cost for the Company. Resulting gains or losses from these transactions are
reported in the Consolidated Statements of Income as "Derivative income (loss),
net" as they do not meet the criteria for hedge accounting. For the years ended
December 31, 2003, 2002 and 2001, the Company recognized net gains of $52,000,
net losses of $8,312,000 and net gains of $195,000, respectively, with respect
to derivative positions in U.S. treasury obligations. At December 31, 2003, the
fair market value of the Company's derivative positions in U.S. treasury
obligations was an unrealized loss of $77,000 included in the Consolidated
Balance Sheets as "Other receivables."
In order to reduce its cost of capital, the Company entered into swap agreements
with a major financial institution with respect to $41,000,000 of its 7.2%
Senior Notes due 2009 (the 7.2% Notes"). Pursuant to each such agreement and
subsequent extensions, 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 an agreed upon reduced interest rate on the 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 such 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. As of December 31,
2003, the Company had terminated all outstanding swap agreements. For the years
ended December 31, 2003, 2002 and 2001, the Company recorded a gain of $49,000,
a gain of $3,877,000 and a loss of $499,000, respectively, with respect to these
swap agreements in the Condensed Consolidated Statements of Income as
"Derivative income (loss), net."
In order to partially hedge the fluctuation in market value for part of the
Company's common stock investment in ENSCO International Incorporated ("ENSCO")
acquired in connection with the Chiles Merger (see discussion in Note 5), 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 would be
guaranteed a minimum value of approximately $24.35 and a maximum value of
approximately $29.80 per share of ENSCO, at expiration. These costless collars
expired during the second quarter of 2003 and, as the share value of ENSCO's
common stock was between $24.35 and $29.80 at expiration, neither party had a
payment obligation under these transactions. For the years ended December 31,
2003 and 2002, the Company recorded a gain of $1,688,000 and a loss of
$1,688,000, respectively, with respect to these costless collars in the
Condensed Consolidated Statement of Income as "Derivative income (loss), net".
4. MARKETABLE SECURITIES:
Marketable equity securities with readily determinable fair values and debt
securities are classified by the Company as investments in available-for-sale
securities. Available-for-sale securities are current assets representing the
investment of cash available for current operations. These investments are
reported at their fair values with unrealized holding gains and losses included
in the Consolidated Balance Sheets as "Accumulated other comprehensive income."
The amortized cost and fair value of marketable securities at December 31, 2003
and 2002 were as follows:
(in thousands) Gross Unrealized Holding
- ------------------------------------------ Amortized --------------------------- Fair
Type of Securities Cost Gains Losses Value
- ------------------------------------------ ----------- ----------- ----------- -----------
2003:
Corporate debt securities........ $ 1,793 $ 630 $ (15) $ 2,408
Equity securities................ 41,640 5,229 (421) 46,448
----------- ----------- ----------- -----------
$ 43,433 $ 5,859 $ (436) $ 48,856
=========== =========== =========== ===========
2002:
U.S. government and agencies..... $ 3,208 $ 34 $ - $ 3,242
U.S. states and political
subdivisions.................. 12,860 360 - 13,220
Corporate debt securities........ 19,602 - (241) 19,361
UK government securities......... 3,777 186 - 3,963
Equity securities................ 40,343 8,496 - 48,839
----------- ----------- ----------- -----------
$ 79,790 $ 9,076 $ (241) $ 88,625
=========== =========== =========== ===========
At December 31, 2003, the corporate debt securities have contractual maturities
in 2006 and 2007.
61
For the years ended December 31, 2003, 2002 and 2001, the sale of
available-for-sale securities resulted in gross realized gains of $6,845,000,
$4,342,000 and $8,944,000, respectively, and gross realized losses of $316,000,
$1,903,000 and $3,275,000, respectively. The specific identification method was
used to determine the cost of available-for-sale securities in computing
realized gains and losses.
Short sales of marketable equity securities are temporary trading positions held
by the Company in anticipation of short-term market movements. The liabilities
arising from these positions are reported at fair value with both realized and
unrealized gains and losses included in the Consolidated Statement of Income as
"Marketable securities sale gains, net." For the years ended December 31, 2003,
2002 and 2001, short sales of marketable securities resulted in gross realized
and unrealized gains of $772,000, $1,026,000 and $643,000, respectively, and
gross realized and unrealized losses of $706,000, $247,000 and $623,000,
respectively.
5. ACQUISITIONS AND DISPOSITIONS:
FES ACQUISITION. On October 31, 2003, the Company acquired all of the issued and
outstanding shares of Foss Environmental Services, Inc. ("FES") for $7,769,000.
The selling stockholder of FES has the opportunity to receive additional
consideration of up to $41,000,000 based upon certain performance standards over
a period following the date of the acquisition through December 31, 2008. This
additional consideration, if paid, will be allocated to fixed assets and
goodwill.
YARNELL ACQUISITION. On June 30, 2003, the Company acquired a controlling
interest in Yarnell Marine, LLC ("Yarnell") for $248,000. Previous to this
transaction, the Company had a 50% interest in this business venture and
accounted for its investment using the equity method.
TEX-AIR ACQUISITION. During January and July of 2002, the Company acquired an
aggregate 20 percent of the outstanding common stock of Tex-Air Helicopters,
Inc. ("Tex-Air") through two separate cash transactions totaling $225,000. The
Company acquired the remaining 80 percent of Tex-Air's common stock on December
31, 2002 in a stock-for-stock transaction whereby the Company issued 68,292
shares of SEACOR's common stock, par value $.01 per share ("Common Stock")
valued at $3,039,000. As security for the selling stockholder's obligations
under the purchase agreement, 6,097 shares issued pursuant to the transaction
were deposited into escrow for a period of eighteen months. The selling
stockholder of Tex-Air has the opportunity to receive additional consideration
of up to $900,000 based upon certain performance standards through 2004. This
additional consideration, if paid, will be allocated to fixed assets and
goodwill. Tex-Air's long term debt at closing was approximately $6,662,000 and
immediately following the closing of the transaction, the Company repaid
$5,838,000 of such debt.
STIRLING ACQUISITION. On May 4, 2001, the Company completed the acquisition of
all of the issued and outstanding shares of Stirling Shipping Holdings Limited
("Stirling Shipping"). Aggregate consideration was (pound)54,300,000
($77,100,000 based on exchange rates in effect and the price of SEACOR's Common
Stock on the closing date, consisting of (pound)29,900,000, or $43,000,000, in
cash, (pound)14,700,000, or $21,200,000, in one-year loan notes, and 285,852
shares of Common Stock issued from treasury, valued at $12,900,000. Stirling
Shipping's long term debt at closing was approximately (pound)43,000,000, or
$61,900,000. In November 2001, the Company repaid all of the outstanding
indebtedness, totaling (pound)48,316,000 or approximately $68,250,000 that was
included in the Stirling Shipping acquisition.
CHERAMIE ACQUISITION. In February 2001, the Company completed the acquisition of
all of the issued and outstanding shares of Gilbert Cheramie Boats, Inc. and
related companies (collectively, "Cheramie"). Purchase consideration was
$62,800,000 in cash. Pursuant to the terms of the purchase agreement, the
Company had an option of making an Internal Revenue Code Section 338(h)(10)
election and, in January 2002, it exercised that option. The election entitled
the Company to full income tax basis in the assets of the Cheramie companies and
the realization of an income tax benefit of the depreciation. In order to induce
the prior shareholders of Cheramie to agree to the election, the Company had
agreed to make them "whole" for the amount of the increase in their total income
tax liability, including the amount of income tax payable by them on the
additional purchase price payment. In January 2002, as a result of making this
election, the Company paid the prior shareholders of Cheramie an additional
$10,162,000 in order to reimburse them for all of their expected additional
income tax obligations, which payment was recorded in the Consolidated Balance
Sheet as "Accrued acquisition costs." The January 2002 payment was intended to
reimburse the selling shareholders for all of their incremental tax liabilities,
and therefore, the Company has recorded an adjustment to the purchase price for
the funds presently held in escrow. Goodwill, as adjusted, of approximately
$11,280,000 was recorded in connection with this acquisition.
62
RINCON ACQUISITION. In February 2001, the Company acquired two U.S. based towing
supply vessels from Rincon Marine, Inc., a U.S. based operator ("Rincon").
Aggregate consideration paid Rincon was $19,700,000, including $6,100,000 in
cash and the assumption of $13,600,000 of debt due Caterpillar Financial
Services Corporation ("Caterpillar"). In February 2002, the Company repaid all
of the outstanding indebtedness due Caterpillar from working capital.
PLAISANCE ACQUISITION. In January 2001, the Company acquired all of the issued
and outstanding shares of Plaisance Marine, Inc. ("Plaisance") that owns two
mini-supply vessels and acquired four additional mini-supply vessels from
companies affiliated with Plaisance (collectively the "Plaisance Fleet'").
Aggregate consideration paid for the Plaisance Fleet and certain related spares
and other assets was $20,100,000, including $16,200,000 paid in cash, the
assumption of $700,000 of debt and the issuance of 71,577 shares of Common Stock
from treasury, valued at $3,200,000 on the closing date.
UNAUDITED PRO FORMA INFORMATION. The following unaudited pro forma information
has been prepared as if the acquisitions of FES, Yarnell, Tex-Air, Stirling
Shipping, Cheramie and Plaisance had occurred at the beginning of each of the
periods presented. This pro forma information has been prepared for comparative
purposes only and is not necessarily indicative of what would have occurred had
the acquisition taken place on the dates indicated, nor does it purport to be
indicative of the future operating results of the Company.
For the Year Ended December, 31
-------------------------------------------------
(in thousands, except share data, unaudited) 2003 2002 2001
- ---------------------------------------------------------- ---------------- --------------- ---------------
Revenue.............................................. $ 433,648 $ 420,047 $ 468,582
Net income........................................... 10,475 45,914 73,72,883
Basic earnings per share............................. 0.55 2.29 3.66
PURCHASE PRICE ALLOCATION. The following table summarizes the allocation of the
purchase price in the FES, Yarnell and Tex-Air acquisitions in 2003 and 2002:
For the Year Ended December 31,
-------------------------------
(in thousands) 2003 2002
- ---------------------------------------------------------- --------------- ---------------
Trade and other receivables ............................. $ 7,568 $ 3,540
Prepaid expenses and other............................... 940 1,747
Equity Investments....................................... (552) -
Property and equipment................................... 3,836 7,659
Goodwill................................................. 367 109
Other assets............................................. 54 385
Accounts payable and accrued liabilities................. (3,707) (2,140)
Debt..................................................... - (6,662)
Deferred income taxes.................................... (550) (888)
Deferred gains and other liabilities..................... - (910)
Minority Interest........................................ (200) -
Common stock............................................. - (1)
Paid in capital.......................................... - (2,726)
--------------- ---------------
Purchase price(a)........................................ $ 7,756 $ 113
=============== ===============
- -------------------
(a) The purchase price is net of cash acquired, totaling $261,000 and $302,000
in 2003 and 2002, respectively, and includes acquisition costs, totaling
$92,000 and $190,000 in 2003 and 2002, respectively.
VESSEL CONSTRUCTION. Since January 1, 2001, the Company completed the
construction of 15 crew, 2 anchor handling towing supply, 2 mini-supply, 1
supply and 3 towing supply vessels at an approximate aggregate cost of
$179,649,000.
VESSEL DISPOSITIONS. The table below sets forth, during the fiscal years
indicated, the number of vessels sold by type of service. At December 31, 2003,
35 vessels previously sold pursuant to sale and leaseback transactions remain
chartered-in to the Company.
Type of Vessel 2003 2002 2001
- -------------------------------------------------- ------------ ------------ -----------
Anchor handling towing supply.................... 2 4 1
Crew............................................. 16 10 13
Mini-supply...................................... 2 - 3
Standby safety................................... 1 3 6
Supply........................................... 1 2 -
Towing supply.................................... 6 6 5
Utility.......................................... 28 5 7
Project.......................................... - 1 -
------------ ------------ -----------
56 31 35
============ ============ ===========
63
OTHER MAJOR EQUIPMENT ADDITIONS. Since January 1, 2001, the Company has accepted
delivery of 327 newly constructed barges, 4 newly constructed helicopters and 4
pre-owned helicopters for an approximate aggregate cost of $107,596,000.
CHILES DISPOSITION. On August 7, 2002, the stockholders of Chiles Offshore Inc.
("Chiles") approved a merger (the "Chiles Merger") with 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 $25,365,000 in cash and 3,176,646 shares of ENSCO's
common stock, valued at $73,444,000 on date of close, and recognized an
after-tax gain of $12,817,000, or $0.61 per diluted share.
Chiles Offshore LLC, the predecessor to Chiles, was formed in 1997 for the
purpose of constructing, owning and operating ultra-premium jackup drilling
rigs. The Company consolidated the reporting of financial information of Chiles
from its inception in 1997 until its initial public offering of common stock in
September 2000 (the "Chiles IPO"). As a consequence of the Chiles IPO, the
Company's ownership interest in Chiles was reduced, and the Company ceased its
consolidation of Chiles and began accounting for its ownership interest in
Chiles using the equity method.
The Company received approximately $2,006,000 and $240,000 in 2002 and 2001,
respectively, for management and legal services provided to Chiles. Chiles also
paid the Company approximately $65,000 for services provided by one of its
offshore marine vessels in 2001.
6. INVESTMENTS, AT EQUITY, AND RECEIVABLES FROM 50% OR LESS OWNED COMPANIES:
Investments, carried at equity, and advances to 50% or less owned companies were
as follows:
(in thousands) December 31,
----------------------------
50% or Less Owned Companies Ownership 2003 2002
- ------------------------------------------- --------------- ------------- -------------
TMM Joint Venture....................... 40.0% $ 10,284 $ 15,701
Globe Wireless, L.L.C................... 38.0% 16,593 17,793
Pelican Offshore Services Pte Ltd....... 50.0% 8,540 9,832
Ultragas Joint Venture.................. 50.0% 5,908 4,477
Other................................... 29.6%-50.0% 18,523 13,556
------------- -------------
$ 59,848 $ 61,359
============= =============
COMBINED CONDENSED FINANCIALS. Summarized unaudited financial information for
the Company's investments, at equity, is as follows:
December 31,
----------------------------
(in thousands, unaudited) 2003 2002
- ---------------------------------------------------------------- ------------- --------------
Current assets.................................................. $ 68,496 $ 78,433
Noncurrent assets............................................... 94,334 111,516
Current liabilities............................................. 26,271 28,233
Noncurrent liabilities.......................................... 29,870 38,390
Year ended December 31,
-------------------------------------------
2003 2002 2001
------------- ------------- --------------
Equity Investees, excluding Chiles:
Operating revenues........................... $ 122,388 $ 112,725 $ 103,990
Operating income............................. 10,892 16,601 2,697
Net income................................... 7,110 8,690 3,265
Chiles:
Operating revenues........................... - 58,405 74,184
Operating income............................. - 4,184 29,688
Net income................................... - 7,326 22,546
At December 31, 2003, cumulative net undistributed losses of 50% or less owned
companies accounted for by the equity method included in the Company's
consolidated retained earnings was $2,552,000.
TMM JOINT VENTURE. In 1994, the Company and Grupo TMM, S.A., formerly
Transportacion Maritima Mexicana S.A. de C.V., a Mexican corporation ("TMM"),
organized a joint venture to serve the Mexican offshore market. At December 31,
2003, the joint venture operated 31 vessels, 15 owned and 16 chartered-in,
including 12 vessels provided by the Company and 4 vessels provided by other
vessel owners. Since commencement of operations, the Company has sold 11 of its
vessels to the joint venture.
64
The Company guarantees up to 40% of obligations for nonpayment that may arise
from the bareboat charter-in of three vessels by the TMM joint venture. At
December 31, 2003, the Company's guarantee was limited to approximately
$9,300,000 and terminates upon completion of the charters, expected in 2008 and
2009. A $750,000 promissory note previously issued the Company as partial
payment by the TMM joint venture for the purchase of a vessel from the Company
was repaid in 2003. Revenues earned by the Company from the charter of vessels
and management services provided the TMM joint venture in 2003, 2002 and 2001
totaled $11,264,000, $7,041,000 and $4,890,000, respectively. During 2003, the
joint venture paid the Company an $8,000,000 dividend.
GLOBE WIRELESS L.L.C. Globe Wireless L.L.C. ("Globe Wireless") and its
subsidiaries operate a worldwide network of high frequency radio stations. The
network of stations is a wireless data network initially targeted at the
maritime industry that supports Internet messaging, telex and facsimile
communications. Globe Wireless also provides satellite messaging and voice
communication services to the maritime industry. At December 31, 2003, the
Company owned beneficially approximately 38% of the voting equity of Globe
Wireless.
Since its inception in 1990, Globe Wireless has experienced negative cash flow.
The Company presently expects Globe Wireless can achieve operating cash
break-even without requiring additional capital funding from shareholders. There
can be no assurances that Globe Wireless' future operations will successful.
Should Globe Wireless be unable to meet its funding requirements, SEACOR would
be required to commit additional funding or record an impairment charge with
respect to its investment.
Globe Wireless provides the Company's offshore marine business segment with a
"ship-to-shore" communication network and has provisioned and installed certain
computer hardware, software and electronic equipment aboard its vessels. In
fiscal 2003, 2002 and 2001, the Company paid approximately $1,525,000,
$1,904,000 and $2,126,000, respectively, to Globe Wireless for services and
merchandise provided the Company.
PELICAN OFFSHORE SERVICES PTE LTD. During 2000, the Company entered into a joint
venture owned 50% by each of the Company and Penguin Boat International Limited,
a Singapore corporation, ("Penguin"). The joint venture, Pelican Offshore
Services Pte Ltd, also a Singapore corporation ("Pelican"), owns 7 newly built
Fast Support Vessels (also known as multipurpose crew vessels) that operate in
Asia. At December 31, 2003, the Company had outstanding loans to Pelican
totaling approximately $2,197,000. The Company also presently guarantees up to
$1,500,000 of amounts owed by the Pelican joint venture under its banking
facilities that is expected to mature in 2006.
ULTRAGAS JOINT VENTURE. In 1996, the Company acquired an equity interest in
Ultragas Smit Lloyd Ltda ("Ultragas") and certain other entities affiliated with
Ultragas that own and operate vessels. Since 1996, the Company and Sociedad
Naviera Ultragas Ltda, the Company's joint venture partner in Ultragas and its
affiliated companies, formed additional corporations for purposes of owning and
operating additional vessels. As of December 31, 2003, this joint venture owned
6 vessels that operated in Chile, Argentina and Brazil.
OTHER. The Company's other business ventures include offshore marine businesses
that own 15 and charter-in an additional vessel, environmental services
businesses, an entity that develops and sells software to the ship brokerage and
shipping industry, and a corporation that owns a Handymax Dry-Bulk ship. At
December 31, 2003, loans of $2,995,000 were payable to the Company from certain
of these joint ventures. The Company is guarantor of up to $5,224,000 with
respect to amounts owing pursuant to a vessel charter between a joint venture in
which the Company owns a 50% interest and the vessel owner. The Company's
guarantee declines over the life of the charter and terminates in 2009. During
2003 and 2002, the Company received dividends, totaling $2,520,000 and
$1,889,000, respectively, from its other business ventures.
7. CONSTRUCTION RESERVE FUNDS:
The Company has established, pursuant to Section 511 of the Merchant Marine Act,
1936, as amended, joint depository construction reserve fund accounts with the
Maritime Administration. In accordance with this statute, the Company has been
permitted to deposit proceeds from the sale of certain vessels into the joint
depository construction reserve fund accounts for purposes of acquiring newly
constructed U.S.-flag vessels and qualifying for the Company's temporary
deferral of taxable gains realized from the sale of the vessels. From date of
deposit, withdrawals from the joint depository construction reserve fund
accounts are subject to prior written approval of the Maritime Administration,
and the funds on deposit must be committed for expenditure within three years or
be released for the Company's general use. Construction reserve funds are
classified as non-current assets as the Company has the intent and ability to
maintain the funds for more than one year and/or use the funds to acquire fixed
assets. Income from vessel sales previously deferred would become immediately
taxable upon release to the Company of sale proceeds that were deposited into
joint depository construction reserve funds.
65
8. INCOME TAXES:
Income before income taxes, minority interest and equity in net earnings of 50%
or less owned companies derived from the United States and foreign operations
for the years ended December 31, are as follows:
(in thousands) 2003 2002 2001
- ----------------------------------------------------- ------------ ----------- -----------
United States................................... $ 5,165 $ 25,629 $ 63,091
Foreign......................................... 16,284 40,513 39,247
------------ ----------- -----------
$ 21,449 $ 66,142 $ 102,338
============ =========== ===========
The Company files a consolidated U.S. federal tax return. Income tax expense
(benefit) consisted of the following components for the years ended December 31:
(in thousands) 2003 2002 2001
- ----------------------------------------------------- ------------ ----------- -----------
Current:
State........................................... $ 681 $ 991 $ 790
Federal......................................... (6,648) 2,106 7,844
Foreign......................................... 6,585 2,910 5,717
Deferred:
Federal......................................... 9,888 16,996 21,123
Foreign......................................... (110) 31 97
------------ ----------- -----------
$ 10,396 $ 23,034 $ 35,571
============ =========== ===========
The following table reconciles the difference between the statutory federal
income tax rate for the Company to the effective income tax rate:
2003 2002 2001
----------------- ------------------ ------------------
Statutory rate.......................... 35.0 % 35.0 % 35.0 %
Valuation allowance..................... 9.0 % - % - %
Non-deductible expenses................. 2.1 % - % - %
Foreign and state taxes................. 2.1 % 1.4 % 1.0 %
Other................................... 0.3 % (1.6)% (1.2)%
----------------- ------------------ ------------------
48.5 % 34.8 % 34.8 %
================= ================== ==================
The components of the net deferred income tax liabilities for the years ended
December 31 were as follows:
(in thousands) 2003 2002
- ---------------------------------------------------------------------- ------------ -----------
Deferred tax liabilities:
Property and equipment....................................... $ 154,902 $ 128,753
Unremitted earnings of foreign subsidiaries.................. 34,624 33,244
Marketable securities........................................ 6,955 12,890
Currency translation......................................... 6,998 3,094
Other........................................................ 3,860 3,429
------------ -----------
Total deferred tax liabilities......................... 207,339 181,410
------------ -----------
Deferred tax assets:
Net operating loss carryforwards............................. $ 5,151 $ -
Foreign tax credit carryforwards............................. 6,607 4,478
Alternative minimum tax credit carryforward.................. 927 927
Other........................................................ 1,795 1,086
------------ -----------
Total deferred tax assets.............................. 14,480 6,491
Valuation allowance.................................... (1,937) -
------------ -----------
Net deferred tax assets................................ 12,543 6,491
------------ -----------
Net deferred tax liabilities..................... $ 194,796 $ 174,919
============ ===========
As of December 31, 2003, the Company has not recognized a deferred tax liability
of $9,198,000 on $26,281,000 of undistributed earnings for certain non-U.S.
subsidiaries and business ventures because it considers those earnings to be
indefinitely reinvested abroad. As of December 31, 2003, the Company has net
operating loss carryforwards approximating $14,700,000 that expires in 2023. The
Company's alternative minimum tax credits can be carryforward indefinitely.
As of December 31, 2003, the Company also has foreign tax credit carryforwards
of $6,607,000 that expire from 2004 through 2008. Based on projections completed
during the fourth quarter of 2003, the Company has determined that the foreign
tax credits due to expire in 2004 and 2005 may not be utilized, resulting in a
recorded valuation allowance of $1,937,000. The Company believes it is more
likely than not that the remaining net foreign tax credit carryforwards will be
utilized through the turnaround of existing temporary differences, future
earnings, tax strategies or a combination thereof.
66
For employee stock options that are exercised, the Company receives an income
tax benefit based on the difference between the option exercise price and the
fair market value of the stock at the time the option is exercised. For employee
restricted stock grants, the Company receives an income tax benefit or accrues
additional taxes based on the difference between the fair market value of the
stock at the time of grant and at the time of vesting. The combined benefit,
which is recorded in stockholders' equity, was $478,000 and $1,608,000 in 2003
and 2002, respectively.
9. LONG-TERM DEBT:
Long-term debt balances, maturities and interest rates are as follows as of
December 31:
(in thousands) 2003 2002
- ------------------------------------------------------------------------------------ ------------- -------------
7.2% Senior Notes due 2009, interest payable semi-annually......................... $ 134,500 $ 134,500
5-7/8% Senior Notes due 2012, interest payable semi-annually....................... 200,000 200,000
5-3/8% Convertible Subordinated Notes due 2006, interest payable semi-annually..... - 35,319
5.467% Subordinated Promissory Notes due SMIT in 2004, interest payable quarterly.. - 23,200
Promissory Notes due the prior shareholders of Putford Enterprises Ltd., bearing
interest at 4%, principal and interest due April 2005............................ - 12,032
Other obligations due various financial institutions, secured by equipment......... 158 1,385
------------- -------------
334,658 406,436
Less - Portion due within one year............................................... (93) (614)
- Debt discount, net........................................................ (2,386) (3,704)
------------- -------------
$ 332,179 $ 402,118
============= =============
Maturities of long-term debt following December 31, 2003 are as follows:
(in thousands) 2004 2005 2006 2007 2008 Thereafter
- ------------------------------------ ---------- ---------- ---------- ---------- ---------- -----------
Amount......................... $ 93 $ 41 $ 24 $ - $ - $ 334,500
========== ========== ========== ========== ========== ===========
7.2% NOTES. The Company's 7.2% Notes were issued under an indenture (the "1997
Indenture") between the Company and First Trust National Association, as
trustee. Interest on the 7.2% Notes is payable semi-annually on March 15 and
September 15 of each year. The 7.2% Notes may be redeemed at any time at the
option of the Company, in whole or from time to time in part, at a price equal
to 100% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of redemption plus a "make-whole" premium, if any, relating to
the then prevailing Treasury Yield and the remaining life of the 7.2% Notes. The
1997 Indenture contains covenants including, among others, limitations on liens
and sale and leasebacks of certain Principal Properties, as defined in the 1997
Indenture, and certain restrictions on the Company consolidating with or merging
into any other Person, as defined in the 1997 Indenture. During 2002, the
Company purchased $13,000,000 principal amount of its 7.2% Notes in the open
market that resulted in the recognition of a $1,522,000 debt extinguishment
loss.
5-7/8% SENIOR NOTES. During 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 associated with this transaction.
5-3/8% CONVERTIBLE NOTES. On February 20, 2003, the Company redeemed all of the
then outstanding principal amount of its 5-3/8% Notes, totaling $35,319,000, in
exchange for $35,949,000 in cash and 45.4544 shares of Common Stock. The
redemption resulted in the Company's recognition of a debt extinguishment loss
of $1,124,000.
In 2002, the Company called for the redemption of $10,000,000 of the 5-3/8%
Notes. The redemption price was $1,023.90 per $1,000 principal amount of notes
plus accrued interest to the applicable redemption date. Holders of 5-3/8% Notes
being called were able to convert any or all of their notes into 22.7272 shares
of Common Stock per $1,000 principal amount of notes. The entire $10,000,000 was
redeemed for cash totaling $10,352,472, including a premium and accrued
interest. Also during 2002, the Company purchased $1,000,000 principal amount of
the 5-3/8% Notes in the open market and $1,000 principal amount of the 5-3/8%
Notes were voluntarily converted into 22.7272 shares of Common Stock. In
connection with the redemptions and purchase of the 5-3/8% Notes during 2002,
the Company recognized a debt extinguishment loss of $554,000.
67
In 2001, the Company called for the redemption of $100,000,000 of the
$181,600,000 aggregate principal amount outstanding of the 5-3/8% Notes. The
redemption price was $1,029.90 per $1,000 principal amount of notes plus accrued
interest to the applicable redemption date. Holders of 5-3/8% Notes being called
were able to convert any or all of their notes into 22.7272 shares of Common
Stock per $1,000 principal amount of notes. The call, together with certain
privately negotiated transactions, resulted in the conversion of $99,166,000
principal amount of the 5-3/8% Notes into 2,285,878 shares of Common Stock and
redemption of $36,114,000 principal amount of the 5-3/8% Notes for approximately
$37,970,000, including accrued interest. The redemption resulted in the
Company's recognition of a debt extinguishment loss of $1,383,000.
5.467% SMIT NOTES. On March 4, 2003, the Company repaid the $23,200,000
aggregate principal amount of its 5.467% five-year subordinated promissory notes
that were issued pursuant to a vessel purchase transaction.
PUTFORD NOTES. On April 7, 2003, the Company repaid the outstanding principal
amount of its Promissory Notes due to the prior shareholders of Putford
Enterprises Ltd, totaling $13,156,000. The redemption resulted in the Company's
recognition of a debt extinguishment loss of $967,000.
REVOLVING CREDIT FACILITY. On February 5, 2002, the Company completed the
syndication of a $200,000,000, five year, non-reducing, unsecured revolving
credit facility. Advances under this revolving credit facility are available for
general corporate purposes. Interest on advances will be charged at a rate per
annum of LIBOR plus an applicable margin of 65 to 150 basis points based upon
the Company's credit rating as determined by Standard and Poor's and Moody's.
Adjustments to the applicable margin are the only consequence of a change in the
Company's credit rating. The Company is not required to maintain a credit rating
under the terms of the facility agreement, and if the Company does not maintain
a credit rating, the applicable margin would be determined by financial ratios.
The revolving credit facility contains various restrictive covenants covering
interest coverage, secured debt to total capitalization, funded debt to total
capitalization ratios, the maintenance of a minimum level of consolidated net
worth, as well as other customary covenants, representations and warranties,
funding conditions and events of default. The revolving credit facility contains
no repayment triggers. As of December 31, 2003 and 2002, the Company had
outstanding letters of credit of $1,275,000 and $175,000, respectively, advanced
under the revolving credit facility. As of December 31, 2003, the Company had
$198,725,000 available for future borrowings under the revolving credit
facility.
During 2002, the Company repaid the then outstanding borrowings, totaling
$30,000,000, and cancelled a letter of credit in connection with the acquisition
of Stirling Shipping. Also during 2002, the Company incurred cancellation fees
associated with its previous credit facility that resulted in the recognition of
a $262,000 debt extinguishment loss.
10. COMMON STOCK:
The Company's Board of Directors has approved a securities repurchase plan,
which allows the Company to acquire its outstanding Common Stock, 5-3/8% Notes,
7.2% Notes and 5-7/8% Notes (collectively, the "SEACOR Securities"). In 2003 and
2002, a total of 1,518,116 and 459,700 shares of Common Stock, respectively,
were acquired for treasury at an aggregate cost of $56,542,000 and $18,508,000,
respectively. Also during 2002, the Company purchased $13,000,000 principal
amount of its 7.2% Notes and $11,000,000 principal amount of its 5-3/8% Notes
for a total of $15,407,940. As of December 31, 2003, the Company had
approximately $58,184,000 available for the repurchase of additional SEACOR
Securities that may be conducted from time to time through open market
purchases, privately negotiated transactions or otherwise, depending on market
conditions.
11. BENEFIT PLANS:
SEACOR SAVINGS PLAN. The Company provides a defined contribution plan to its
employees. The Company's contribution is limited to 50% of the employee's first
6% of wages invested in such defined contribution plan and is subject to annual
review by the Board of Directors. The Company's contributions to the plan were
$1,072,000, $1,106,000 and $1,088,000 for the years ended December 31, 2003,
2002 and 2001, respectively.
EMPLOYEE STOCK INCENTIVE PLANS. On November 22, 1992, April 18, 1996 and May 14,
2003, SEACOR's stockholders adopted the 1992 Non-Qualified Stock Option Plan,
the 1996 Share Incentive Plan, and the 2003 Share Incentive Plan, respectively
(collectively, the "Plans"). The Plans provide for the grant of options to
purchase shares of Common Stock and additionally provides for the grant of stock
appreciation rights, restricted stock awards, performance awards and stock units
to key officers and employees of the Company. The exercise price per share of
options granted cannot be less than 100% of the fair market value of Common
Stock at the date of grant under the current plan. Options granted under the
Plans expire no later than the tenth anniversary of the date of grant. The Plans
are administered by the Stock Option and Executive Compensation Committee of the
Board of Directors (the "Compensation Committee"). A total of 2,500,000 shares
of Common Stock have been reserved for issuance upon adoption of the Plans.
During 2003 and 2002, and 183,955 and 62,360 shares of Common Stock and options
to purchase shares of Common Stock were granted pursuant to the Plans,
respectively. As of December 31, 2003, there were 974,542 shares available for
future grant under the Plans.
68
On February 25, 2004, the Compensation Committee granted to certain officers and
key employees of the Company 36,650 restricted shares of Common Stock with an
aggregate market value of $1,578,000 on the grant date. Also on February 25,
2004, the Compensation Committee granted to certain officers and key employees
of the Company, or conditionally agreed to grant in installments during 2004,
options to purchase an aggregate of 92,150 shares of Common Stock. The exercise
price of the options granted on February 25, 2004 was $43.05 per share of Common
Stock. The options that the Compensation Committee agreed to conditionally grant
in installments during 2004 will have an exercise price of the fair market value
per share of Common Stock on the date of each installment.
EMPLOYEE STOCK PURCHASE PLAN. On May 23, 2000, the stockholders of SEACOR
approved the 2000 Employee Stock Purchase Plan (the "Stock Purchase Plan") that
permits SEACOR to offer Common Stock for purchase by eligible employees at a
price equal to 85% of the lesser of (i) the fair market value of Common Stock on
the first day of the offering period or (ii) the fair market value of Common
Stock on the last day of the offering period. Common Stock will be available for
purchase under the Stock Purchase Plan for six-month offering periods. The Stock
Purchase Plan is intended to comply with Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code"), but is not intended to be subject to
Section 401(a) of the Code or the Employee Retirement Income Security Act of
1974. The Board of Directors of SEACOR may amend or terminate the Stock Purchase
Plan at any time; however, no increase in the number of shares of Common Stock
reserved for issuance under the Stock Purchase Plan may be made without
stockholder approval. A total of 300,000 shares of Common Stock have been
reserved for issuance under the Stock Purchase Plan during the ten years
following its adoption. During 2003 and 2002, a total of 21,142 and 19,684
shares, respectively, of Common Stock were issued from treasury pursuant to the
Stock Purchase Plan. As of December 31, 2003, there were 243,251 shares
available for future issuance pursuant to the Stock Purchase Plan.
NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLANS. On May 14, 2003, the stockholders
of SEACOR approved the 2003 Non-Employee Director Share Incentive Plan
("Non-Employee Share Incentive Plan"). Under the Non-Employee Share Incentive
Plan, each member of the Board of Directors who is not an employee of SEACOR
will be granted automatically a stock option to purchase 3,000 of Common Stock
on the date of each annual meeting of the stockholders of SEACOR commencing with
the 2003 Annual Meeting of Stockholders of SEACOR. The exercise price of the
options granted under the Non-Employee Director Plan will be equal to 100% of
the fair market value per share of Common Stock on the date the options are
granted. Options granted under the Non-Employee Share Incentive Plan will be
exercisable at any time following the earlier of the first anniversary of, or
the first annual meeting of SEACOR's stockholders after, the date of grant, for
a period of up to ten years from date of grant. Subject to the accelerated
vesting of options upon a non-employee Director's death or disability or the
change in control of SEACOR, if a non-employee Director's service as a director
of SEACOR is terminated, his or her options will terminate with respect to the
shares of Common Stock as to which such options are not then exercisable. A
non-employee Director's options that are vested but not exercised may, subject
to certain exceptions, be exercised within three months after the date of
termination of service as a director in the case of termination by reason of
voluntary retirement, failure of SEACOR to nominate such director for
re-election or failure of such director to be re-elected by stockholders after
nomination by SEACOR, or within one year in the case of termination of service
as a director by reason of death or disability. Also on the date of each Annual
Meeting of Stockholders of SEACOR, each Non-Employee Director in office
immediately following such annual meeting shall be granted the right to receive
500 shares of Common Stock with such shares to be delivered to such Non-Employee
Director in four equal installments as follows: 125 shares on the date of such
annual meeting and 125 shares on the dates that are three, six, and nine months
thereafter (each such installment of shares, until the delivery date thereof,
being referred to as an "Unvested Stock Award"); provided, however, if a
Non-Employee Director's service as a director of SEACOR terminates for any
reason, any and all Unvested Stock Awards shall terminate and become null and
void. A total of 150,000 shares of Common Stock have been reserved under the
Non-Employee Share Incentive Plan. During 2003, options were granted for the
purchase of 24,000 shares of Common Stock and 3,000 shares of Common Stock were
issued under the Non-Employee Share Incentive Plan. As of December 31, 2003,
there were 123,000 shares available for future issuance pursuant to the
Non-Employee Share Incentive Plan.
On May 23, 2000, the stockholders of SEACOR approved the 2000 Stock Option Plan
for Non-Employee Directors (the "Non-Employee Director Plan"). The Non-Employee
Director Plan was terminated upon the adoption of the Non-Employee Share
Incentive Plan. Options granted under the Non-Employee Director Plan will be
exercisable at any time following the earlier of the first anniversary of, or
the first annual meeting of SEACOR's stockholders after, the date of grant, for
a period of up to ten years from date of grant. A non-employee Director's
options that are vested but not exercised may, subject to certain exceptions, be
exercised within three months after the date of termination of service as a
director in the case of termination by reason of voluntary retirement, failure
of SEACOR to nominate such director for re-election or failure of such director
to be re-elected by stockholders after nomination by SEACOR, or within one year
in the case of termination of service as a director by reason of death or
disability. During 2002, options were granted for the purchase of 21,000 shares
of Common Stock pursuant to the Non-Employee Director Plan.
69
SHARE AWARD TRANSACTIONS. The following transactions have occurred in connection
with the employee stock incentive plans and the non-employee director stock
incentive plans during the years ended December 31:
2003 2002 2001
----------------------------- ---------------------------- ----------------------------
Wt'ed Avg. Wt'ed Avg. Wt'ed Avg.
Number of Exercise/ Number of Exercise/ Number of Exercise/
Shares Grant Price Shares Grant Price Shares Grant Price
------------- -------------- ------------ -------------- ------------ --------------
Stock Option Activities -
Outstanding, at beginning of year. 657,894 $ 28.27 807,752 $ 25.05 681,212 $ 20.80
Granted........................ 118,300 $ 38.13 21,900 $ 48.69 139,800 $ 44.73
Exercised...................... (66,075) $ 14.16 (150,458) $ 11.66 (11,760) $ 11.20
Canceled....................... (3,500) $ 26.80 (21,300) $ 44.38 (1,500) $ 40.00
------------- ------------ ------------
Outstanding, at end of year....... 706,619 $ 31.25 657,894 $ 28.27 807,752 $ 25.05
============= ============ ============
Options exercisable at year end... 555,226 $ 28.42 530,062 $ 25.01 549,113 $ 18.35
============= ============ ============
Restricted stock awards granted....... 89,655 $ 41.44 61,460 $ 43.53 58,580 $ 50.80
============= ============ ============
Director stock awards granted......... 3,000 $ 38.62 - $ - - $ -
============= ============ ============
Shares available for future grant..... 1,097,542 243,140 302,350
============= ============ ============
The following table summarizes certain information about the options outstanding
at December 31, 2003 grouped into three exercise price ranges:
Exercise Price Range
-------------------------------------------------------------
$6.43 - $16.63 $20.50 - $29.67 $30.71 - $52.25
------------------- ------------------- -------------------
Options outstanding at December 31, 2003...................... 166,842 72,828 466,949
Weighted-average exercise price............................... $ 11.65 $ 28.96 $ 38.61
Weighted-average remaining contractual life (years)........... 1.25 4.27 8.05
Options exercisable at December 31, 2003...................... 166,842 72,828 315,556
Weighted average exercise price of exercisable options........ $ 11.65 $ 28.96 $ 37.16
On date of issue, the market value of restricted shares issued to certain
officers and key employees of the Company is recorded in Stockholders' Equity as
Unamortized Restricted Stock and then amortized to expense over defined vesting
periods. During 2003, 2002 and 2001, compensation cost recognized in connection
with restricted stock awards totaled $2,855,000, $2,309,000 and $2,272,000,
respectively. At December 31, 2003, there were 124,126 shares of unvested
restricted stock outstanding at a weighted average price of $42.75. Of the
unvested shares outstanding, 61,558, 25,969, 13,763, 11,418 and 11,418 shares
will vest in 2004, 2005, 2006, 2007, and 2008, respectively.
12. RELATED PARTY TRANSACTIONS:
The Company manages barge pools as part of its inland river business segment.
Pursuant to the pooling agreements, operating revenues and expenses of
participating barges in a pool are combined and the net results are allocated to
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 a
pool. Mr. Fabrikant, the Chief Executive Officer of SEACOR, companies controlled
by Mr. Fabrikant and trusts for the benefit of Mr. Fabrikant's two children own
barges that participate in the barge pools managed by the Company. In 2003 and
2002, the Company distributed $369,000 and $434,000, respectively, of barge pool
results to Mr. Fabrikant and his affiliates, net of $91,000 and $87,000,
respectively in management fees paid to the Company.
13. COMMITMENTS AND CONTINGENCIES:
Future capital expenditures, based upon the Company's commitments at December
31, 2003, to purchase 9 new vessels, 330 new inland river dry cargo barges, 24
new chemical tank barges, and one new helicopter, will approximate $139,837,000.
Deliveries are expected over the next ten months. Subsequent to December 31,
2003, the Company committed to purchase additional equipment for $6,500,000.
In the normal course of its business, the Company becomes involved in various
litigation matters including, among other things, claims by third parties for
alleged property damages, personal injuries and other matters. While the Company
believes it has meritorious defenses against these claims, management has used
estimates in determining the Company's potential exposure and has recorded
reserves in its financial statements related thereto where appropriate. It is
possible that a change in the Company's estimates of that exposure could occur,
but the Company does not expect such changes in estimated costs will have a
material effect on the Company's financial position or results of its
operations.
70
In connection with an examination of the Company's income tax return for fiscal
year 2001, the Internal Revenue Service (IRS) has indicated that it may assert a
deficiency in the amount of taxes paid based on the manner in which vessel
assets were classified for the purpose of depreciation. If the IRS were able to
sustain its position, the Company would be required to pay currently certain
amounts, which have not yet been determined, that are currently reported as
long-term deferred tax obligations. Other than a potential charge for interest
related to any such deficiencies, the final resolution of this matter should not
have an effect on the Company's results of operations. The Company intends to
vigorously defend its position and to contest any deficiency that may be
asserted.
As of December 31, 2003, the Company leases 36 vessels, resulting primarily from
sale-leaseback transactions, 16 helicopters, 174 barges and certain facilities
and equipment. These leasing agreements have been classified as operating leases
for financial reporting purposes and related rental fees are charged to expense
over the lease term as they become payable. Vessel leases generally contain
purchase and lease renewal options at fair market value or rights of first
refusal with respect to the sale or lease of the vessels and range in duration
from 1 to 7 years. Certain of the gains realized from various sale-leaseback
transactions, totaling $5,201,000, $13,822,000 and $11,447,000 in 2003, 2002 and
2001, respectively, have been deferred in the Consolidated Balance Sheets and
are being credited to income as reductions in rental expense over the lease
terms. The total rental expense for the Company's operating leases in 2003, 2002
and 2001 totaled $24,372,000, $18,783,000 and $12,945,000, respectively. Future
minimum payments under operating leases that have a remaining term in excess of
one year at December 31, 2003:
(in thousands) Minimum
In the Years Ending December 31, Payment
- --------------------------------------- -------------
2004............................... $ 28,028
2005............................... 25,012
2006............................... 17,663
2007............................... 12,005
2008............................... 9,828
Years subsequent to 2008........... 12,879
14. MAJOR CUSTOMERS AND SEGMENT DATA:
Accounting standards require public business enterprises to report information
about each of their operating business segments that exceed certain quantitative
thresholds or meet certain other reporting requirements. Operating business
segments have been defined as a component of an enterprise about which separate
financial information is available and is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The Company's basis of segmentation and its basis of measurement of
segment profit have not changed from previous periods reported, except for a
change in certain vessels' estimated residual values as described in Note 1
herein.
The Company's most significant business segment, offshore marine services, 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 Mexico 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.
71
The Company's environmental services segment provides contractual oil spill
response and other services, both domestically and internationally, to those who
store, transport, produce or handle petroleum and certain non-petroleum oils, as
required by the Oil Pollution Act of 1990, as amended ("OPA 90"), various state
regulations and the United Nations' MARPOL 73/78 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 maintains relationships with
numerous environmental sub-contractors to assist with response operations,
equipment maintenance and provide trained personnel for deploying equipment in a
spill response. When oil spills occur, the Company mobilizes specialized oil
spill response equipment, using either its own personnel or personnel under
contract, to provide emergency response services for both land and marine oil
spills. The Company's clients include tank vessel owner/operators, refiners and
terminal operators, exploration and production facility operators, and pipeline
operators. In accordance with Statement of Financial Accounting Standards No.
131, the Company's environmental services segment has been separately reported
in the segment information presented below due to its improvement in operating
results. Certain reclassifications of prior year information have been made to
conform to the current year's reportable segment presentation.
"Other" business segment of the Company includes inland river dry cargo barge
operations, aviation services and equity in earnings of 50% or less owned
companies unrelated to the offshore marine services and environmental services
segments. The Company's aviation services commenced operations on December 31,
2002 with the acquisition of Tex-Air Helicopters, Inc. The Company reported its
equity in the earnings of Chiles, an owner and operator of jackup drilling rigs,
until Chiles' merger with ENSCO on August 7, 2002.
Information about profit and loss and assets by business segment is as follows:
Offshore "Other"
Marine Environmental Business
FOR THE YEAR ENDED DECEMBER 31, 2003 (IN THOUSANDS) Services Services Segment Total
- ------------------------------------------------------------- ------------- -------------- -------------- ------------
OPERATING REVENUES:
External customers..........................................$ 315,822 $ 44,045 $ 46,342 $ 406,209
Intersegment................................................ 294 - 2,257 2,551
------------- -------------- -------------- ------------
$ 316,116 $ 44,045 $ 48,599 408,760
============= ============== ==============
Eliminations................................................ (2,551)
------------
$ 406,209
============
REPORTABLE SEGMENT PROFIT:
Operating profit (loss).....................................$ 6,378 $ 9,045 $ 2,216 $ 17,639
Income from equipment sales and retirements, net............ 17,866 83 (411) 17,538
Other, net.................................................. 5,055 (7) (2,163) 2,885
Equity in earnings (losses) of 50% or less owned companies.. 2,306 (56) (832) 1,418
------------- -------------- -------------- ------------
$ 31,605 $ 9,065 $ (1,190) 39,480
============= ============== ==============
RECONCILIATION TO INCOME BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY EARNINGS:
Interest income............................................ 7,531
Interest expense........................................... (19,313)
Debt extinguishment........................................ (2,091)
Gain on derivative transactions, net....................... 2,389
Gain from sale of marketable securities, net............... 6,595
Corporate.................................................. (11,724)
Equity in earnings of 50% or less owned companies.......... (1,418)
------------
$ 21,449
============
ASSETS:
Investments in and Receivables from 50% or less owned
companies.................................................$ 33,891 $ (10) $ 25,967 $ 59,848
Goodwill.................................................... 12,646 14,264 1,798 28,708
Other Segment Assets........................................ 683,193 26,898 147,816 857,907
------------- -------------- -------------- ------------
$ 729,730 $ 41,152 $ 175,581 946,463
============= ============== ==============
Corporate................................................... 456,148
------------
$ 1,402,611
============
CAPITAL EXPENDITURES:
Segment.....................................................$ 93,673 $ 2,139 $ 65,473 161,285
============= ============== ==============
Corporate................................................... 557
------------
$ 161,842
============
DEPRECIATION AND AMORTIZATION:
Segment.....................................................$ 46,425 $ 2,509 $ 6,250 55,184
============= ============== ==============
Corporate................................................... 322
------------
$ 55,506
============
72
Offshore "Other"
Marine Environmental Business
FOR THE YEAR ENDED DECEMBER 31, 2002 (IN THOUSANDS) Services Services Segment Total
- ------------------------------------------------------------- ------------- -------------- -------------- ------------
OPERATING REVENUES:
External customers..........................................$ 367,914 $ 22,087 $ 13,157 $ 403,158
Intersegment................................................ 55 - 212 267
------------- -------------- -------------- ------------
$ 367,969 $ 22,087 $ 13,369 403,425
============= ============== ==============
Eliminations................................................ (267)
------------
$ 403,158
============
REPORTABLE SEGMENT PROFIT:
Operating profit (loss).....................................$ 49,598 $ 1,016 $ 4,308 $ 54,922
Income from equipment sales and retirements, net............ 8,625 10 - 8,635
Other, net.................................................. 6,307 - 118 6,425
Equity in earnings (losses) of 50% or less owned companies.. 5,353 (37) (1,611) 3,705
------------- -------------- -------------- ------------
$ 69,883 $ 989 $ 2,815 73,687
============= ============== ==============
RECONCILIATION TO INCOME BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY EARNINGS:
Interest income............................................ 8,833
Interest expense........................................... (17,064)
Debt extinguishment........................................ (2,338)
Gain upon sale of Chiles Offshore Inc...................... 19,719
Loss from derivative transactions, net..................... (5,043)
Gain from sale of marketable securities, net............... 3,218
Corporate.................................................. (11,165)
Equity in earnings of 50% or less owned companies.......... (3,705)
------------
$ 66,142
============
ASSETS:
Investments in and Receivables from 50% or less owned
companies.................................................$ 39,155 $ 83 $ 22,121 $ 61,359
Goodwill.................................................... 12,646 14,172 1,523 28,341
Other Segment Assets........................................ 878,526 12,386 71,281 962,193
------------- -------------- -------------- ------------
$ 930,327 $ 26,641 $ 94,925 1,051,893
============= ============== ==============
Corporate................................................... 435,214
------------
$ 1,487,107
============
CAPITAL EXPENDITURES:
Segment.....................................................$ 94,037 $ 1,284 $ 43,989 139,310
============= ============== ==============
Corporate................................................... 396
------------
$ 139,706
============
DEPRECIATION AND AMORTIZATION:
Segment.....................................................$ 50,846 $ 3,280 $ 1,885 56,011
============= ============== ==============
Corporate................................................... 233
------------
$ 56,244
============
FOR THE YEAR ENDED DECEMBER 31, 2001 (IN THOUSANDS)
- -------------------------------------------------------------
OPERATING REVENUES:
External customers..........................................$ 398,557 $ 26,847 $ 9,386 $ 434,790
Intersegment................................................ 566 - 212 778
------------- -------------- -------------- ------------
$ 399,123 $ 26,847 $ 9,598 435,568
============= ============== ==============
Eliminations................................................ (778)
------------
$ 434,790
============
REPORTABLE SEGMENT PROFIT:
Operating profit (loss).....................................$ 96,821 $ 2,037 $ 2,208 $ 101,066
Income from equipment sales and retirements, net............ 9,180 6 (156) 9,030
Other, net.................................................. 1,384 - 8 1,392
Equity in earnings (losses) of 50% or less owned companies.. 3,882 26 398 4,306
------------- -------------- -------------- ------------
$ 111,267 $ 2,069 $ 2,458 115,794
============= ============== ==============
RECONCILIATION TO INCOME BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY EARNINGS:
Interest income............................................ 13,546
Interest expense........................................... (21,998)
Debt extinguishment........................................ (1,383)
Gain on derivative transactions, net....................... 4,127
Gain from sale of marketable securities, net............... 5,689
Corporate.................................................. (9,131)
Equity in earnings of 50% or less owned companies.......... (4,306)
------------
$ 102,338
============
ASSETS:
Investments in and Receivables from 50% or less owned
companies.................................................$ 49,618 $ 303 $ 103,906 $ 153,827
Goodwill.................................................... 12,537 14,172 1,523 28,232
Other Segment Assets........................................ 862,611 14,240 30,787 907,638
------------- -------------- -------------- ------------
$ 924,766 $ 28,715 $ 136,216 1,089,697
============= ============== ==============
Corporate................................................... 208,441
------------
$ 1,298,138
============
CAPITAL EXPENDITURES:
Segment.....................................................$ 92,495 $ 3,762 $ 11,141 107,398
============= ============== ==============
Corporate................................................... 47
------------
$ 107,445
============
DEPRECIATION AND AMORTIZATION:
Segment.....................................................$ 52,871 $ 4,288 $ 1,110 58,269
============= ============== ==============
Corporate................................................... 55
------------
$ 58,324
============
73
In 2003 and 2002, the Company did not earn revenues from a single customer that
was greater than or equal to 10% of total revenues. Revenues earned by the
Company's offshore marine and environmental services businesses for services
rendered to divisions or subsidiaries of one customer totaled $42,240,000, or
10%, of revenues in 2001. Revenues attributed to geographic areas were based
upon the country of domicile for offshore marine and drilling service segment
customers and the country in which the Company provided oil spill protection or
other related training and consulting services for environmental service segment
customers. The Company considers long-lived assets to be property and equipment
that has been distributed to geographical areas based upon the assets' physical
location during the applicable period. Certain of the Company's offshore marine
service segment's long-lived vessel assets relocate between its geographical
areas of operation. The costs of long-lived vessel assets that are relocated
have been allocated between geographical areas of operation based upon length of
service in the applicable region. The following table is presented for the years
ending December 31.
(in thousands) 2003 2002 2001
- ------------------------------------------------ ------------ ------------- ------------
Revenues:
United States of America................. $ 217,677 $ 212,291 $ 267,195
United Kingdom........................... 71,996 83,033 74,477
Nigeria.................................. 26,329 36,130 29,425
Other.................................... 90,207 71,704 63,693
------------ ------------- ------------
$ 406,209 $ 403,158 $ 434,790
============ ============= ============
Property and Equipment:
United States of America................. $ 387,895 $ 365,474 $ 335,648
United Kingdom........................... 131,561 182,741 186,686
Mexico................................... 80,699 15,547 20,900
Nigeria.................................. 46,142 42,121 39,973
Other.................................... 91,919 132,085 151,550
------------ ------------- ------------
$ 738,216 $ 737,968 $ 734,757
============ ============= ============
For the years ended December 31, 2003, 2002 and 2001, approximately 46%, 47%,
and 39%, respectively, of the Company's operating revenues were derived from its
foreign operations. The Company's foreign operations, primarily contained in its
offshore marine service segment, 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, currency restrictions and exchange rate fluctuations,
import-export quotas and other forms of public and governmental regulations, 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. Oil spill response and related
training and consulting service revenues derived from foreign markets have not
been material and barge and helicopter operations are limited to the U.S.
15. SUPPLEMENTAL INFORMATION FOR STATEMENTS OF CASH FLOWS:
(in thousands) 2003 2002 2001
- ---------------------------------------------------------------------------------------- --------- --------- ---------
Income taxes paid.................................................................... $ 5,341 $ 15,435 $ 14,244
Income taxes refunded................................................................ 10,000 - -
Interest paid........................................................................ 22,421 16,194 21,262
Schedule of Non-Cash Investing and Financing Activities:
Cancellation of sales-type lease................................................. 1,710 - -
Exchange of assets with affiliate................................................ 170 - -
Property exchanged for investment in and notes receivable from 50% or less owned
company........................................................................ - - 17,688
Conversion of 5 3/8% Notes - Common Stock............................. 2 1 98,824
Acquisition of ERST/O'Brien's Inc. with
- Common Stock............................. - - 1,284
Acquisition of Plaisance with - Common Stock............................. - - 3,163
- assumption of debt....................... - - 700
Acquisition of Rincon vessels with - assumption of debt....................... - - 13,600
Acquisition of Stirling Shipping with - Common Stock............................. - - 12,777
- assumption of debt....................... - - 61,900
- notes, including debt discount........... - - 21,200
Acquisition of Tex-Air with - Common Stock............................. - 2,727 -
- assumption of debt....................... - 6,662 -
74
16. OTHER ASSETS:
Other assets as of December 31 include the following:
(in thousands) 2003 2002
- ---------------------------------------------------------- ----------- ------------
Goodwill, net of amortization....................... $ 28,708 $ 28,341
Deferred financing costs, net of amortization....... 2,627 3,055
Net sale-type leases................................ - 2,443
Notes receivable.................................... 1,135 15
Common stock investments, carried at cost........... 700 1,190
Refundable deposits................................. 902 2,684
Other............................................... 117 960
----------- ------------
Total other assets.................................. $ 34,189 $ 38,688
=========== ============
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Selected financial information for interim periods are presented below. Earnings
per share are computed independently for each of the quarters presented;
therefore, the sum of the quarterly earnings per share do not necessarily equal
the total for the year.
Quarter Ended
--------------------------------------------------------------
(in thousands, except share data) Dec. 31, Sept. 30, June 30, March 31,
- ----------------------------------------------------- ----------- ----------- ----------- -----------
2003:
Revenue......................................... $ 100,956 $ 103,234 $ 105,159 96,860
Operating income (loss)......................... (7,837) 3,883 8,638 1,045
Net income (loss)............................... (1,730) 2,897 6,443 4,344
Basic earnings (loss) per common share.......... $ (0.09) $ 0.16 $ 0.34 $ 0.22
=========== =========== =========== ===========
Diluted earnings (loss) per common share........ $ (0.09) $ 0.15 $ 0.33 $ 0.22
=========== =========== =========== ===========
2002:
Revenue......................................... $ 99,708 $ 102,137 $ 97,670 $ 103,643
Operating income................................ 3,743 10,025 9,738 20,251
Net income...................................... 1,638 21,295 12,248 11,406
Basic earnings per common share................. $ 0.08 $ 1.06 $ 0.61 $ 0.57
=========== =========== =========== ===========
Diluted earnings per common share............... $ 0.08 $ 1.02 $ 0.59 $ 0.55
=========== =========== =========== ===========
75
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated financial statements of SEACOR SMIT Inc. and
subsidiaries as of December 31, 2003 and 2002 and for the years then ended, and
have issued our report thereon dated March 9, 2004 (included elsewhere in this
Form 10-K). Our audits also included the financial statement schedule listed in
Item 15(a) of this Form 10-K as of and for the years ended December 31, 2003 and
2002. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the 2003 and 2002 financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
New Orleans, Louisiana
March 9, 2004
76
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP ON
FINANCIAL STATEMENT SCHEDULE IN CONNECTION WITH SEACOR SMIT INC.'S FILING ON
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT
BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH THIS FILING ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 AS THEY HAVE CEASED OPERATIONS.
SEACOR SMIT INC. IS INCLUDING THIS COPY OF ARTHUR ANDERSON LLP'S AUDIT REPORT
PURSUANT TO RULE 2-02(E) OF REGULATION S-X UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
To SEACOR SMIT Inc.:
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of SEACOR SMIT Inc. and its
subsidiaries and have issued our report thereon dated February 21, 2002. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule on page 76 is the responsibility of
the Company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
New Orleans, Louisiana
February 21, 2002
77
SEACOR SMIT INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN THOUSANDS)
Balance Allowances Charges to Balance
Beginning Assumed in Cost and (a) End
Description of Year Acquisitions Expenses Deductions of Year
- ------------------------------------------- -------------- ------------- ------------- ------------ ------------
Year Ended December 31, 2003
Allowance for doubtful accounts
(deducted from accounts receivable)... $ 1,421 $ 718 $ 829 $ 168 $ 2,800
============== ============= ============= ============ ============
Year Ended December 31, 2002
Allowance for doubtful accounts
(deducted from accounts receivable)... $ 1,635 $ 0 $ 9 $ 223 $ 1,421
============== ============= ============= ============ ============
Year Ended December 31, 2001
Allowance for doubtful accounts
(deducted from accounts receivable)... $ 1,310 $ 0 $ 947 $ 622 $ 1,635
============== ============= ============= ============ ============
(a) Accounts receivable amounts deemed uncollectible and removed from accounts
receivable and allowance for doubtful accounts.
78