Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File Number 0-28732
HVIDE MARINE INCORPORATED
(Exact name of registrant as specified in its charter)
Florida 65-0524593
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2200 Eller Drive, P.O. Box 13038
Ft. Lauderdale, Florida 33316
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 523-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X . NO .
Indicate by check mark 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. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of March 27, 1998 (computed by reference to
the closing price of such stock on the Nasdaq National Market) was $213,675,000.
As of March 16, 1998, there were 12,384,666 shares of the registrant's
Class A Common Stock outstanding and 2,906,465 shares of its Class B Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
Portions of the Registrant's definitive Proxy Statement
regarding the 1997 Annual Meeting of Stockholders Part III
- --------------------------------------------------------------------------------
HVIDE MARINE INCORPORATED
FORM 10-K
Table of Contents
Item Page
Part I
1 Business........................................................................................... 1
2 Properties......................................................................................... 21
3 Legal Proceedings.................................................................................. 21
4 Submission of Matters to a Vote of Security Holders................................................ 22
4a Executive Officers of the Registrant............................................................... 23
Part II
5 Market for Registrant's Common Equity and Related Stockholder Matters............................. 26
6 Selected Financial Data............................................................................ 26
7 Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................................... 28
8 Financial Statements............................................................................... 40
9 Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure......................................................................................... 40
Part III
10 Directors and Executive Officers of the Registrant................................................. 41
11 Executive Compensation............................................................................. 41
12 Security Ownership of Certain Beneficial Owners and Management..................................... 41
13 Certain Relationships and Related Transactions..................................................... 41
Part IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 42
PART I
Item 1. Business
General
Hvide Marine Incorporated ("Hvide" or the "Company") is one of the
world's leading providers of marine support and transportation services, serving
primarily the energy and chemical industries. The Company has been an active
consolidator in each of the markets in which it operates, increasing its vessel
fleet from 23 vessels in 1993 to 267 vessels as of March 13, 1998. As a result,
the Company is the third largest operator of offshore energy support vessels in
the U.S. Gulf of Mexico, the largest operator of offshore energy support vessels
in the Arabian Gulf, and a leading operator of such vessels offshore West Africa
and Southeast Asia. In addition, the Company is the sole provider of commercial
tug services at Port Everglades, Tampa, and Port Canaveral, Florida, and a
leading provider of such services in Mobile, Alabama, Lake Charles, Louisiana,
and Port Arthur, Texas. The Company also transports petroleum products and
specialty chemicals in the U.S. domestic trade, a market insulated from
international competition under the Jones Act.
During 1997 and early 1998, the Company substantially expanded its
offshore energy support operations into several new international markets and
increased its deepwater capability. Beginning with the May 1997 acquisition of a
35-vessel fleet of offshore energy support vessels operating in the Arabian
Gulf, the Company has substantially expanded its offshore energy support
operations into several international markets and increased its deepwater
capability. Since the May 1997 acquisition, the Company has completed five
substantial acquisitions (the "Recent Acquisitions") that have further expanded
its offshore energy support fleet internationally and increased its domestic
offshore and harbor towing and petroleum product transportation operations.
These have consisted of (i) the October 1997 acquisition of 30 offshore energy
support vessels operating primarily in the Arabian Gulf, (ii) the December 1997
acquisition of 14 offshore energy support vessels operating primarily in the
Arabian Gulf, (iii) the February 1998 acquisition of 37 offshore energy support
vessels operating primarily offshore West Africa and Southeast Asia, (iv) the
October 1997 acquisition of a company operating 14 tugs that expanded the
Company's harbor towing operations to the port of Tampa, Florida, and (v) the
March 1998 acquisition of two petroleum product carriers and seven harbor tugs
operating in Port Arthur, Texas and Lake Charles, Louisiana.
The Industry
Marine Support Services
Offshore Energy Support. Offshore energy support vessels are used
primarily to transport materials, supplies, equipment, and personnel to drilling
rigs and to support the construction, positioning, and ongoing operation of oil
and gas production platforms. Offshore energy support vessels are hired by oil
companies and others engaged in offshore exploration and production activities.
The market for offshore energy support services is fundamentally driven
by the offshore exploration, development, and production activities of oil and
gas companies worldwide. The level of exploration, development, and production
activities depends primarily on the capital expenditures of oil and gas
producers, which is a function of current and anticipated future oil and gas
production and prices and operating costs of oil and gas producers. Oil and gas
prices are influenced by a variety of factors,
1
including worldwide demand, production levels, governmental policies regarding
exploration and development of reserves, and political factors in producing
countries.
The types of vessels primarily utilized in offshore energy support
activities are supply boats, crew boats, and anchor handling vessels.
Supply boats (also called workboats) are generally at least
150 feet in length and serve exploration and production facilities and
support offshore construction and maintenance activities. Supply boats
are differentiated from other vessel types by cargo flexibility and
capacity. In addition to transporting deck cargo, such as drill pipe
and heavy equipment, supply boats transport liquid mud, potable and
drilling water, diesel fuel, dry bulk cement, and dry bulk mud. With
their relatively large liquid mud and dry bulk cement capacity and
large areas of open deck space, they are generally in greater demand
than other types of support vessels for exploration and workover
drilling activities.
Crew boats (also called crew/supply boats) are faster and
smaller than supply boats and are utilized primarily to transport light
cargo, including food and supplies, and personnel to and among
production platforms, rigs, and other offshore installations. They can
be chartered together with supply boats to support drilling or
construction operations or separately to serve the various requirements
of offshore production platforms. Crew boats are typically constructed
of aluminum and generally have longer useful lives than steel-hull
supply boats. Crew boats also provide a cost-effective alternative to
helicopter transportation services and can operate reliably in all but
the most severe weather conditions.
Anchor handling vessels, which include anchor handling
tug/supply boats and some tugs, are more powerful than supply boats and
are utilized in towing and positioning drilling rigs, production
facilities, and construction barges. Some are specially equipped to
assist tankers while they are loading from single-point buoy mooring
systems, and some are used in limited supply roles when not performing
towing and positioning functions.
Offshore and Harbor Towing. Offshore and harbor towing services are
provided by tugs to vessels utilizing the ports in which the tugs operate and to
vessels at sea to the extent required by environmental regulations, casualty, or
other emergency. The Company's anchor handling tug/supply boats and offshore
towing-equipped tugs have been engaged in towing a wide variety of barges
carrying heavy equipment, refinery modules, and petroleum products for the
energy industry in the U.S. Gulf of Mexico, the Atlantic Ocean, and the
Mediterranean Sea. In the case of docking services, charges are based on a fixed
rate per job, and in the case of towing services, on hourly or daily rates. In
most ports, including Tampa, Florida, competition is unregulated, although a few
ports--including Port Canaveral and Port Everglades, where the Company is the
sole franchisee--grant non-exclusive franchises to harbor tug operators. Rates
are unregulated in the franchised ports served by the Company. Each port is
generally a distinct market for harbor tugs, even though harbor tugs can be
moved from port to port. Demand for towing services depends on vessel traffic,
which is in turn generally dependent on local and national economic conditions.
OPA 90 and current state legislation require oil tankers to be escorted in and
around certain ports located in Alaska and the U.S. Pacific coast. The Company
anticipates that such regulatory requirements will be expanded, increasing the
demand for specially designed tractor tugs to perform escort services.
2
Marine Transportation Services
Chemical Transportation. In the domestic chemical transportation trade,
vessels carry chemicals primarily from chemical manufacturing plants and storage
tank facilities along the U.S. Gulf of Mexico coast to industrial users in and
around the Atlantic and Pacific coast ports. The chemicals primarily transported
are caustic soda, alcohols, chlorinated solvents, paraxylene, alkylates,
toluene, methyl tertiary butyl ether (MTBE), phosphoric acid, and lubricating
oils. Since 1989, coastwise chemical tonnage demand has increased as a result of
the general expansion of the U.S. economy and as gasoline additives have begun
to move coastwise. Certain of the chemicals transported must be carried in
vessels with specially coated or stainless steel cargo tanks. Many are very
sensitive to contamination and require special cargo-handling equipment.
Petroleum Product Transportation. In the domestic energy transportation
trade, oceangoing and inland-waterway vessels transport fuel and other petroleum
products, primarily from the U.S. Gulf of Mexico coast refineries and storage
facilities, to utilities, waterfront industrial facilities, and distribution
facilities along the U.S. Gulf of Mexico, the Atlantic and Pacific coasts, and
inland rivers. The inventory of U.S.-flag oceangoing vessels eligible to
participate in the U.S. domestic trade and capable of transporting fuel or
petroleum products has steadily decreased since 1980 as vessels have reached the
end of their useful lives and the cost of constructing a vessel in the United
States (a requirement for U.S. domestic trade participation) has exceeded the
level at which it was economically feasible to order a new vessel.
The Company's Operations
Fleet Overview
The following table sets forth certain information with respect to the
vessels owned or operated by the Company as of March 10, 1998:
Number of
Vessels
Marine Support Services
Domestic Offshore Energy Support
Supply Boats................................................................................. 28
Crew/Utility Boats........................................................................... 41
Geophysical Boats............................................................................ 2
--------
Total Domestic Offshore Energy Support....................................................... 71
International Offshore Energy Support
Anchor Handling Tug/Supply Boats............................................................. 41
Anchor Handling Tugs......................................................................... 24
Supply Boats................................................................................. 12
Crew/Utility Boats........................................................................... 33
Geophysical Boats............................................................................ 3
Other........................................................................................ 11
--------
Total International Offshore Energy Support................................................ 124
Offshore and Harbor Towing
Tugs......................................................................................... 38
--------
Total Marine Support Services.............................................................. 233
3
Marine Transportation Services
Chemical/Petroleum Product Carriers............................................................ 8
Fuel Barges.................................................................................... 16
Towboats....................................................................................... 10
--------
Total Marine Transportation Services....................................................... 34
--------
Total Vessels.............................................................................. 267
========
Marine Support Services
Offshore Energy Support. The Company has provided services to the oil
and gas drilling industry since 1989, when it acquired its first eight offshore
supply boats. In a series of acquisitions and new buildings from September 1994
through March 1998 the Company expanded its domestic fleet to 71 vessels,
consisting of 28 supply boats, including six anchor handling tug/supply boats,
39 crew boats, two utility boats, and two geophysical boats. These vessels have
primarily served exploration and production operations in the U.S. Gulf of
Mexico, operating from the Company's facilities in Lafayette, Louisiana.
Beginning in May 1997, the Company began the substantial expansion of
its international offshore energy support fleet. The primary international
markets served by the Company are the Arabian Gulf and offshore West Africa and
Southeast Asia, and the Company's international fleet aggregated 124 vessels as
of March 10, 1998, including 41 anchor handling tug/supply boats, 24 anchor
handling tugs, 12 supply boats, 16 crew boats, and 17 utility vessels. The
Company's Arabian Gulf operations are directed from its facilities in Dubai,
United Arab Emirates. Operations offshore West Africa, as well as those of eight
vessels that currently operate in Southeast Asia, will be conducted at least
through June 1998 by an affiliate of Geneva-based Care Offshore, Inc. which sold
37 vessels operated in those regions to the Company in February 1998, pursuant
to a management agreement with the Company. The remaining operations in
Southeast Asia are directed from the Company's facilities in Brunei.
U.S. Operations. The following tables set forth certain information
concerning the offshore energy support vessels owned or operated by the Company
in the U.S. Gulf of Mexico as of March 10, 1998.
Length Year Built/ Area of
Supply Boat Name (1) (feet) Rebuilt Horsepower Operation
Seabulk New York................................... 234 1975/1997 4,300 U.S. Gulf
Seabulk New Jersey................................. 234 1975/1997 4,300 U.S. Gulf
Seabulk Oklahoma................................... 205 1998 4,000 U.S. Gulf
Seabulk Minnesota.................................. 205 1976/1997 2,250 U.S. Gulf
Seabulk Montana(2)................................. 205 1974/1994 5,350 U.S. Gulf
Seabulk Nevada(2).................................. 200 1977/1997 5,750 U.S. Gulf
Seabulk Massachusetts(2)........................... 191 1980 3,900 U.S. Gulf
Seabulk North Carolina(2)(3)....................... 190 1979/1993 4,000 U.S. Gulf
Seabulk Arkansas................................... 185 1982/1997 2,250 U.S. Gulf
Seabulk Missouri................................... 185 1982/1997 2,250 U.S. Gulf
Seabulk Colorado................................... 185 1982/1997 2,250 U.S. Gulf
Seabulk Connecticut(2)............................. 185 1981 3,900 U.S. Gulf
Seabulk Pennsylvania(2)............................ 185 1979 3,900 U.S. Gulf
Seabulk Hawaii..................................... 180 1979/1995 3,000 U.S. Gulf
4
Seabulk Georgia.................................... 180 1984 3,000 U.S. Gulf
Seabulk California................................. 180 1982 2,250 U.S. Gulf
Seabulk Florida.................................... 180 1982 2,250 U.S. Gulf
Seabulk Alabama.................................... 180 1982 2,250 U.S. Gulf
Seabulk Texas...................................... 180 1982 2,250 U.S. Gulf
Seabulk Louisiana.................................. 180 1982 2,250 U.S. Gulf
Seabulk Rhode Island............................... 180 1980 2,700 U.S. Gulf
Seabulk New Hampshire.............................. 180 1980 1,950 U.S. Gulf
Seabulk Kentucky................................... 175 1983/1997 2,400 U.S. Gulf
Seabulk Washington................................. 175 1978/1997 2,250 U.S. Gulf
Seabulk Tennessee.................................. 175 1983 2,400 U.S. Gulf
Seabulk Oregon..................................... 175 1979 2,250 U.S. Gulf
Seabulk Maryland(3)................................ 165 1980 1,860 U.S. Gulf
Seabulk Virginia(3)................................ 165 1979 1,860 U.S. Gulf
Length Year Built/ Area of
Crew Boat Name (1) (feet) Rebuilt Horsepower Operation
Seabulk St. Tammany................................ 152 1997 4,400 U.S. Gulf
Seabulk St. Frances................................ 152 1996 4,400 U.S. Gulf
Seabulk St. Charles(4)............................. 152 1993 3,820 U.S. Gulf
Seabulk Acadia..................................... 135 1995 3,300 U.S. Gulf
Seabulk Monroe..................................... 135 1993 3,056 U.S. Gulf
Seabulk Grant...................................... 135 1991 3,056 U.S. Gulf
Seabulk DeSoto..................................... 135 1991 3,056 U.S. Gulf
Seabulk Lexington.................................. 135 1991 3,056 U.S. Gulf
Seabulk Winn....................................... 135 1991 3,056 U.S. Gulf
Seabulk Galveston.................................. 135 1990 3,056 U.S. Gulf
Seabulk Bossier.................................... 135 1990 3,056 U.S. Gulf
Seabulk LaFourche.................................. 130 1991 2,040 U.S. Gulf
Seabulk Houston.................................... 125 1985 2,600 U.S. Gulf
Seabulk Lafayette.................................. 125 1985 2,040 U.S. Gulf
Seabulk Starr...................................... 120 1984 2,040 U.S. Gulf
ThunderU.S.A....................................... 120 1984 2,040 U.S. Gulf
Seabulk Lamar...................................... 120 1980 2,040 U.S. Gulf
Seabulk Liberty.................................... 110 1985 2,040 U.S. Gulf
Seabulk Jefferson.................................. 110 1982 2,040 U.S. Gulf
Seabulk Mobile..................................... 110 1982 2,040 U.S. Gulf
Seabulk Evangeline................................. 110 1981 2,040 U.S. Gulf
Seabulk Feliciana.................................. 110 1981 2,040 U.S. Gulf
Seabulk Duval(5)................................... 110 1980 2,820 U.S. Gulf
Seabulk Jasper(5).................................. 110 1980 2,820 U.S. Gulf
Seabulk Madison.................................... 110 1980 2,040 U.S. Gulf
Seabulk Bay........................................ 110 1980 2,040 U.S. Gulf
Seabulk Beauregard................................. 110 1980 2,040 U.S. Gulf
Seabulk Nassau..................................... 110 1979 2,040 U.S. Gulf
Ralph Thompson(5).................................. 110 1978 2,820 U.S. Gulf
5
Seabulk Albany(5).................................. 110 1978 2,820 U.S. Gulf
Seabulk Aransas.................................... 110 1978 2,100 U.S. Gulf
Seabulk Baldwin(5)................................. 110 1976 2,400 U.S. Gulf
Seabulk Claiborne(5)............................... 110 1975 2,400 U.S. Gulf
Thundereagle....................................... 100 1977/1995 1,530 U.S. Gulf
Seabulk Cameron.................................... 100 1976/1995 1,530 U.S. Gulf
Thundercat......................................... 100 1976/1995 1,530 U.S. Gulf
Seabulk Sabine..................................... 100 1976/1995 1,530 U.S. Gulf
Seabulk Bolivar(5)................................. 90 1974 1,650 U.S. Gulf
Seabulk Maverick................................... 85 1976 1,200 U.S. Gulf
Length Year Built/ Area of
Utility Vessel Name(1) (feet) Rebuilt Horsepower Operation
Seabulk Tallahassee................................ 135 1978 2,250 U.S. Gulf
Seabulk Baton Rouge(5)............................. 100 1981 910 U.S. Gulf
Length Year Built/ Area of
Geophysical Boat Name (feet) Rebuilt Horsepower Operation
Seabulk Veritas(6)................................. 194 1973/1997 4,400 U.S. Gulf
Seabulk Austin(7).................................. 110 1978 1,080 U.S. Gulf
(1) Certain names reflect name changes currently in process.
(2) Anchor handling tug/supply vessel.
(3) The Company is bareboat charterer and operator with an option to
purchase the vessel at the end of the bareboat charter for a nominal
amount.
(4) The Company is bareboat charterer and operator with an option to
purchase the Seabulk St. Charles, at the end of the bareboat charter in
2002 for $400,000.
(5) The Company is bareboat charterer and operator with an option to
purchase the vessel at the end of the bareboat charter for a nominal
amount.
(6) Supply boat.
(7) Utility vessel.
International Operations. The following tables set forth certain
information concerning the offshore energy support vessels owned or operated by
the Company in international waters as of March 10, 1998.
Anchor Handling Length Year Built/ Area of
Tug/Supply Vessel Name(1) (feet) Rebuilt Horsepower Operation
Red Tern........................................... 236 1982 10,560 Argentina
Red Raven.......................................... 223 1980 10,560 West Africa
Red Rooster........................................ 223 1980 10,560 North Sea
Seabulk Falcon II.................................. 213 1975 7,040 West Africa
Red Condor......................................... 213 1975 7,040 West Africa
Red Cormorant...................................... 212 1980 7,040 West Africa
6
Red Hawk........................................... 211 1975 8,000 Southeast Asia
Red Coot I......................................... 211 1975 7,040 West Africa
Red Coot II........................................ 211 1975 7,040 West Africa
Seabulk Betsy...................................... 210 1982 8,620 Arabian Gulf
Seabulk Persistence................................ 204 1975 5,750 Arabian Gulf
Red Dove........................................... 203 1991 5,800 West Africa
Red Toucan......................................... 203 1985 8,430 Argentina
Seabulk Treasure Island............................ 202 1982 6,000 Arabian Gulf
Seabulk Emerald.................................... 202 1981 6,100 Arabian Gulf
Red Penguin II..................................... 201 1975 8,600 West Africa
Red Petrel......................................... 201 1975 8,600 Southeast Asia
Red Plover......................................... 201 1975 8,600 Southeast Asia
Red Puffin......................................... 201 1975 8,600 Southeast Asia
Red Penguin........................................ 201 1975 8,600 South Africa
Red Snipe.......................................... 197 1982 5,300 South Africa
Seabulk Lulu....................................... 197 1974 5,600 Arabian Gulf
Seabulk Neptune.................................... 197 1973 6,160 Arabian Gulf
Seabulk Discovery.................................. 195 1993 5,600 Arabian Gulf
Seabulk Defender................................... 193 1983 4,610 Arabian Gulf
Seabulk Liberty.................................... 193 1973 4,500 Arabian Gulf
Red Grebe.......................................... 192 1974 8,000 North Sea
Seabulk Energy..................................... 191 1990 5,300 Arabian Gulf
Seabulk Carol...................................... 190 1982 8,620 Arabian Gulf
Seabulk Danah...................................... 190 1976 3,900 Arabian Gulf
GMMOS Toota........................................ 190 1975 3,900 Arabian Gulf
Seabulk Lark....................................... 189 1973 4,600 Southeast Asia
Red Osprey......................................... 186 1983 4,200 West Africa
Red Kestrel........................................ 186 1982 4,200 West Africa
Red Merlin......................................... 186 1982 4,200 West Africa
Red Pelican........................................ 186 1982 4,200 West Africa
Seabulk Saphire.................................... 182 1983 3,000 Arabian Gulf
Seamark South Carolina(2).......................... 180 1983 3,000 Southeast Asia
Seabulk Nada....................................... 180 1974 3,000 Arabian Gulf
Seabulk Ruby....................................... 180 1974 3,000 Arabian Gulf
Seabulk Command.................................... 175 1992 3,800 Arabian Gulf
Length Year Built/ Area of
Anchor Handling Tug Name(1) (feet) Rebuilt Horsepower Operation
Tims 1............................................. 230 1979 4,900 Arabian Gulf
Red Gannet I....................................... 163 1977 7,500 Southeast Asia
Red Gannet II...................................... 163 1977 7,500 Southeast Asia
Red Harrier........................................ 162 1977 8,480 Arabian Gulf
Seabulk Duke....................................... 155 1983 5,750 Arabian Gulf
Red Eagle.......................................... 150 1976 8,400 Southeast Asia
Red Skua I......................................... 147 1977 8,000 West Africa
Seabulk Master..................................... 146 1993 3,500 Arabian Gulf
7
Red Cygnet I....................................... 146 1974 6,000 West Africa
Red Cygnet II...................................... 146 1974 6,000 West Africa
Seabulk Alkatar.................................... 144 1981 6,000 Arabian Gulf
Seabulk Titan...................................... 142 1976 7,200 Arabian Gulf
Seabulk Gabrielle ................................. 140 1981 2,000 Arabian Gulf
Seabulk Sarah...................................... 140 1981 2,000 Arabian Gulf
Seabulk Debbie..................................... 132 1983 2,000 Arabian Gulf
GMMOS Pride........................................ 126 1978 5,000 Arabian Gulf
Seabulk Champ...................................... 122 1993 2,300 Arabian Gulf
Seabulk Prince..................................... 116 1988 2,400 Arabian Gulf
Aries II........................................... 110 1983 3,477 Arabian Gulf
Seabulk Power...................................... 105 1990 2,400 Arabian Gulf
Seabulk Isabel..................................... 97 1977 1,130 Arabian Gulf
Seabulk Knight..................................... 94 1975 2,200 Arabian Gulf
Seabulk Christopher................................ 86 1977 1,800 Arabian Gulf
Seabulk Taurus..................................... 80 1982 1,400 Arabian Gulf
Length Year Built/ Area of
Supply Boat Name(1) (feet) Rebuilt Horsepower Operation
Red Swan(3)........................................ 220 1976 4,200 West Africa
Red Martin I(3).................................... 200 1976 4,200 West Africa
Red Martin II(3)................................... 200 1976 4,200 North Sea
Seamark Mississippi(2)............................. 180 1982 2,250 Southeast Asia
Seabulk Service.................................... 180 1977 2,700 Arabian Gulf
Seabulk Trader..................................... 180 1975 2,318 Arabian Gulf
Seabulk Lara....................................... 180 1975 2,250 Arabian Gulf
Seabulk Voyager.................................... 174 1974 2,000 Arabian Gulf
Seabulk Arabian.................................... 173 1972 1,900 Arabian Gulf
Shell Star......................................... 168 1982 1,800 Arabian Gulf
GMMOS King......................................... 166 1970 1,700 Arabian Gulf
Seabulk Clipper(4)................................. 165 1971/1992 3,000 Arabian Gulf
Length Year Built/ Area of
Crew Boat Name(1) (feet) Rebuilt Horsepower Operation
Red Mallard(5)..................................... 145 1986 3,250 West Africa
Seabulk Tender..................................... 125 1978 2,240 Arabian Gulf
Capricorn III...................................... 120 1983 2,040 Arabian Gulf
Red Swift(5)....................................... 120 1980 2,040 West Africa
Seabulk Jebel Ali.................................. 110 1991 1,550 Arabian Gulf
Seabulk Arzana..................................... 110 1991 1,550 Arabian Gulf
Virgo One.......................................... 110 1982 2,040 Arabian Gulf
Seabulk Mubarrak................................... 110 1982 1,550 Arabian Gulf
Arctic Express..................................... 110 1981 2,040 Arabian Gulf
Lake Express....................................... 110 1981 2,040 Arabian Gulf
Red Heron(5)....................................... 107 1981 1,530 West Africa
8
Seabulk Zakum...................................... 105 1982 1,875 Arabian Gulf
Seabulk Penny...................................... 105 1977 1,606 Arabian Gulf
Seabulk Bul Hanin.................................. 102 1984 1,630 Arabian Gulf
Seabulk Explorer................................... 102 1979 1,530 Arabian Gulf
Seabulk Umm Shaif.................................. 78 1973/1988 1,020 Arabian Gulf
Length Year Built/ Area of
Utility Vessel Name(1) (feet) Rebuilt Horsepower Operation
GMMOS Queen........................................ 159 1969 1,500 Arabian Gulf
Seabulk Ibex....................................... 135 1972 2,400 Arabian Gulf
Seabulk Barracuda ................................. 132 1984 2,000 Arabian Gulf
Seabulk Gazelle.................................... 130 1982 1,200 Arabian Gulf
Seabulk Shindaga................................... 128 1982 1,200 Arabian Gulf
Seabulk Hatta...................................... 120 1976/1993 1,140 Arabian Gulf
Seabulk Salihu..................................... 120 1976/1992 1,140 Arabian Gulf
Seabulk Falcon..................................... 120 1974/1992 1,140 Arabian Gulf
Seabulk Hamour..................................... 120 1974/1992 1,140 Arabian Gulf
Seabulk Eagle...................................... 120 1989 1,500 Arabian Gulf
Seabulk Singali.................................... 120 1981 1,272 Arabian Gulf
Seabulk Habara..................................... 120 1980 1,272 Arabian Gulf
Seabulk Shari...................................... 120 1980 1,272 Arabian Gulf
Seabulk Houbare.................................... 120 1980 1,272 Arabian Gulf
Seabulk Becky...................................... 120 1980 1,130 Arabian Gulf
Seabulk Oryx....................................... 110 1980/1988 1,200 Arabian Gulf
Seabulk Seahorse................................... 100 1983/1992 1,000 Arabian Gulf
Length Year Built/ Area of
Geophysical Boat Name (feet) Rebuilt Horsepower Operation
Seabulk Wyoming.................................... 185 1979 2,250 West Africa
Ross Seal.......................................... 176 1977/1987 1,700 Southeast Asia
Seabulk Vermont.................................... 176 1977 1,700 Arabian Gulf
Construction & Length Year Built/ Area of
Maintenance Vessel Name (feet) Rebuilt Horsepower Operation
Seabulk Giant...................................... 207 1974/1990 4,200 Arabian Gulf
Seabulk Hercules................................... 200 1969/1986 4,300 Arabian Gulf
Seabulk Freedom.................................... 194 1973/1996 4,600 Arabian Gulf
Accommodation Length Year Built/ Area of
Jack-Up Rig Name (feet) Rebuilt Horsepower Operation
Seabulk Bravo...................................... 150 1973 N/A Arabian Gulf
9
Accommodation Length Year Built/ Area of
Crane Barge Name (feet) Rebuilt Horsepower Operation
Seabulk Maintainer................................. 280 1966/1982 N/A Arabian Gulf
Seabulk Constructor................................ 180 1973/1994 N/A Arabian Gulf
Length Year Built/ Area of
Survey Vessel Name (feet) Rebuilt Horsepower Operation
Red Fulmar......................................... 190 1968 2,400 West Africa
Length Year Built/ Area of
Tug Name(1) (feet) Rebuilt Horsepower Operation
Seabulk Princess(6)................................ 230 1974 6,600 Arabian Gulf
Seabulk Dayna...................................... 96 1973 3,200 Arabian Gulf
Seabulk Marlene.................................... 103 1976 2,640 Arabian Gulf
Seabulk Diana...................................... 99 1973 2,200 Arabian Gulf
(1) Certain names reflect name changes currently in process.
(2) These offshore supply boats are currently chartered to a joint venture in
which the Company has a 49% interest and are operated by the joint venture
in Southeast Asia. The Company receives bareboat charter hire, which is at
a rate that is approximately equivalent to the capital costs of the
vessels, and has the right to receive a 49% share of net income from the
venture. The joint venture has the right to purchase each vessel for
$300,000 upon expiration of the charters in August 1998.
(3) Platform/supply vessel.
(4) Survey vessel.
(5) Utility vessel.
(6) Salvage vessel.
Offshore and Harbor Towing. The harbor tugs owned or operated by the
Company serve Port Everglades, Tampa, and Port Canaveral, Florida, Mobile,
Alabama, Port Arthur, Texas, and Lake Charles, Louisiana where they primarily
assist product carriers, barges, other cargo vessels, and cruise ships in
docking and undocking and in proceeding in confined waters. The Company also
operates eight tugs with offshore towing capabilities that conduct a variety of
offshore towing services in the U.S. Gulf of Mexico and the Atlantic Ocean. In
addition, the Company has completed the construction of one SDM(TM) and has
contracted for the construction of two additional SDMs(TM) for delivery in 1998
which will augment the Company's harbor towing operations. The Company also
charters three of its tugs to third-party operators in California.
Port Everglades. Port Everglades has the second largest petroleum
non-refining storage and distribution center in the United States, providing
substantially all of the petroleum products for south Florida. Since 1958, when
the Company's tug operations were established, the Company has enjoyed a
franchise as the sole provider of docking services in the port. That franchise
specifies, among other things, that three tugs serving the port be less than 90
feet in length, because of the narrowness of slips in the port, and that tugs
have firefighting capability. The franchise is not exclusive and another
operator could be granted an additional franchise. Although a significantly
larger potential competitor sought a
10
franchise in 1992, the Company won unanimous endorsement from the Port Authority
to continue its sole-franchise relationship with the port when that competitor
failed to make the requisite showing of public need and necessity. The current
franchise expires in 2007, and there can be no assurance that it will be
renewed.
Tampa. The Company expanded its harbor towing services to Tampa,
Florida with the October 1997 acquisition of Bay. Tampa is the tenth largest
port in the continental United States in terms of tonnage. Because the port is
comprised of three "sub-ports" and a distant sea-buoy, a greater number of tugs
is required in order to be a competitive operator in Tampa than in other ports
of similar size. The Company currently operates 11 tugs, including three tractor
tugs, in the port and is Tampa's sole provider of harbor towing services.
Port Canaveral. The Company expanded its services in the early 1960s to
Port Canaveral, Florida where, like Port Everglades, it also has the sole
franchise from the port authority to provide harbor docking services. Port
Canaveral is the smallest of the Company's harbor tug operations, providing
docking and undocking services for commercial cargo vessels serving central
Florida and for cruise ships visiting the Disney World/Kennedy Space Center
attractions. The Company's franchise is a month-to-month arrangement and,
although there can be no assurance that the Company will be able to retain its
franchise in Port Canaveral, there has been no challenge to the franchise since
1984.
Mobile. In 1988, the Company purchased a division of a towing company
operating in the port of Mobile, Alabama. The port provides docking and
undocking services primarily for commercial cargo vessels, including vessels
transporting coal and other bulk exports. At the time, that division operated
three harbor tugs in Mobile. The Company added additional equipment and believes
it significantly upgraded the quality and performance of the tug service, thus
enabling the Company to increase its market share to over 50% of the harbor tug
business in that port.
Recent Acquisition. In March 1998, the Company completed the
acquisition of seven harbor tugs. Currently, four of these tugs serve Port
Arthur, Texas, two serve Lake Charles, Louisiana, and one serves both harbors.
The Company expects to continue to operate the tugs in both of these ports, each
of which has a competing provider of harbor tug services.
The following table sets forth certain information with respect to the
37 tugs and one SDM(TM) owned or operated by the Company in U.S. waters as of
March 10, 1998.
Length Year Built/
Vessel Name(1) Horsepower (feet) Rebuilt Port
Kinsman Eagle II(2)(3)(4)................ 6,700 110 1996 Tampa
Kinsman Condor(2)(3)(4).................. 6,700 110 1995 Tampa
Hawk(2).................................. 6,700 110 1995 Tampa
Tampa.................................... 6,000 100 1985 Tampa
Broward(2)(4)............................ 5,100 100 1995 Port Everglades
Vigilant(4).............................. 4,600 120 1981/1994 Offshore
New River(5)............................. 4,400 90 1997 Port Everglades
Reliant(2)............................... 4,300 100 1996 Long Beach
Ft. Lauderdale........................... 4,200 90 1971/1996 Port Everglades
Hollywood(4)............................. 4,200 106 1985/1997 Offshore
11
Mobile Power............................. 4,100 98 1957/1986 Mobile
Z-Two(2)(6).............................. 4,100 94 1996 Mobile
Mobile Point............................. 4,000 107 1952/1990/1997 Mobile
Winslow C. Kelsey(2)..................... 3,900 98 1985 Tampa
Nike..................................... 3,900 97 1982 Port Arthur
Titan.................................... 3,900 96 1977 Lake Charles
Spartan.................................. 3,900 96 1979 Port Arthur
Samson................................... 3,900 96 1980 Port Arthur
Goliath.................................. 3,900 96 1981 Port Arthur
Challenger(4)............................ 3,600 110 1976 Tampa/Offshore
Canaveral................................ 3,600 105 1941/1984 Port Canaveral
Mobile Pride(4).......................... 3,300 107 1969/1989/1997 Offshore
Paragon(4)............................... 3,300 105 1978/1989/1996 Offshore
St. Petersburg........................... 3,300 95 1940 Tampa
Hillsborough............................. 3,300 94 1945/1981 Tampa
Clearwater............................... 3,300 93 1940 Tampa
Delta Deanna(2).......................... 3,200 92 1988 San Francisco
Delta Billie(2).......................... 3,200 92 1990 San Francisco
Mobile Persistence(7).................... 3,000 98 1940/1975 Port Canaveral
Hermes................................... 3,000 95 1973 Lake Charles
Brevard.................................. 2,400 88 1945/1986/1996 Port Canaveral
Captain Brinn............................ 2,145 88 1960/1986 Port Canaveral
Everglades............................... 2,145 88 1956/1984 Port Everglades
Manatee.................................. 2,145 88 1959/1982 Port Everglades
Orange................................... 2,000 93 1903 Tampa
Ares..................................... 1,950 97 1957 Lake Charles/Port Arthur
Ybor..................................... 1,400 85 1965 Tampa
Trooper.................................. 800 63 1964 Tampa
(1) Certain names reflect name changes currently in process.
(2) Tractor tug.
(3) Currently operated offshore Mexico.
(4) Equipped for offshore towing.
(5) SDM(TM).
(6) Vessel operated under a one-year bareboat charter.
(7) Expected to be retired in the first half of 1998.
SDMs(TM). The Company accepted delivery of its first ship-docking
module or SDM(TM) in November 1997. In addition, the Company has contracted for
the construction of two additional SDMs(TM) for delivery in 1998. SDMs(TM) are
innovative ship-docking vessels that are designed to be more maneuverable,
efficient, and flexible than harbor tugs. In addition, they are expected to have
lower operating costs than harbor tugs because they require fewer crew members.
Company personnel, working in conjunction with consulting marine engineers and
architects, prepared the conceptual design and detailed specifications for the
SDMs(TM). The Company has been awarded a patent on the design.
12
Marine Transportation Services
Chemical Transportation. The Company's chemical carriers are the
298,000-barrel, 39,300 dwt Seabulk Magnachem, the 297,000-barrel, 46,300 dwt
Seabulk America, the 360,000-barrel, 50,900 dwt HMI Dynachem, the
360,000-barrel, 49,990 dwt HMI Petrochem, and the 260,000-barrel, 37,100 dwt HMI
Astrachem, which are primarily engaged in the U.S. domestic chemical parcel
trade. The Company operates the Seabulk Magnachem pursuant to a long-term
bareboat charter expiring February 2002. The Company owns a 67% economic
interest, and Stolt Tankers (U.S.A.), Inc. owns the remaining 33% economic
interest, in the Seabulk America.
The Seabulk Magnachem, the Seabulk America, the HMI Dynachem, and the
HMI Petrochem have full double bottoms (as distinct from double hulls) and the
HMI Astrachem has a partial double bottom. Double bottoms provide increased
protection over single hull vessels from a spill in the event of a mishap. The
Company's chemical carriers have from 13 to 24 cargo segregations which are
configured, strengthened, and coated to handle various sized parcels of a wide
variety of industrial chemical and petroleum products giving them the ability to
handle a broader range of chemicals than chemical-capable product carriers. Many
of the chemicals transported by the Company are hazardous substances. Voyages
are currently generally conducted from the Houston and Corpus Christi, Texas,
and Lake Charles, Louisiana areas to such ports as New York, Philadelphia,
Baltimore, Wilmington, North Carolina, Charleston, South Carolina, Los Angeles,
San Francisco, and Kalama, Washington. Delivered in 1977, the Seabulk Magnachem
is a CATUG(R) ITB, which requires fewer personnel to operate than a conventional
carrier of equivalent size and has a higher level of dependability, propulsion
efficiency, and performance than an ordinary tug and barge. Delivered in 1990,
the Seabulk America is the only vessel in the U.S. domestic trade capable of
carrying large cargoes of acid, as a result of its large high-grade alloy
stainless steel tanks, and the only such vessel strengthened to carry relatively
heavy cargoes such as phosphoric and other acids. The Seabulk America's
stainless steel tanks were constructed without internal structure, which greatly
reduces cargo residue from transportation and results in less cargo degradation.
Stainless steel tanks, unlike epoxy-coated tanks, also do not require periodic
sandblasting and recoating. The Seabulk America was one of the first U.S.-flag
carriers to be equipped with state-of-the-art integrated navigation, cargo
control monitoring, and automated engine room equipment.
Pursuant to the requirements of OPA 90, the Seabulk America, the HMI
Dynachem, the HMI Petrochem, and the Seabulk Magnachem, which were built with
full double bottoms but not double sides, cannot be utilized to transport
petroleum and petroleum products in U.S. commerce after 2015, 2011, 2011, and
2007, respectively. The HMI Astrachem, which has a partial double bottom, cannot
be so utilized after 2000. They may, however, be permitted to continue to carry
certain chemicals in U.S. commerce and may be redocumented in another country
and transport chemicals in non-U.S. trades. Although it has no current plans to
do so, the ITB design of the Seabulk Magnachem would allow the Company to
replace only the cargo-carrying portion of the vessel with a double-hull barge,
which the Company anticipates would be substantially less expensive than
constructing an entirely new double-hull conventional tank vessel.
The Company markets the five chemical carriers through its wholly owned
subsidiary Ocean Specialty Tankers Corporation ("OSTC"). The total capacity of
the five carriers represents approximately 47% of the capacity of the domestic
specialty chemical carrier fleet, and four of the chemical carriers are among
the last independently owned carriers scheduled to be retired under OPA 90.
13
OSTC books cargoes either on a spot (movement-by-movement) or time
basis. Approximately 75% of contracts for cargo are committed on a 12- to
30-month basis, with minimum and maximum cargo tonnages specified over the
period at fixed or escalating rates per ton. The HMI Dynachem and HMI Astrachem
are currently chartered to major oil companies under charters that expire in
August 1998 and November 1998, respectively. Upon the expiration of these
charters, the Company intends to enter into new contracts of affreightment or
time charters to market those vessels. OSTC is often able to generate additional
revenues by chartering cargo space on competitors' vessels and by expanding the
carriers' backhaul (return voyage) opportunities.
Petroleum Product Transportation.
Seabulk Challenger. The Company's 320,000-barrel, 39,300 dwt CATUG(R)
ITB Seabulk Challenger is engaged in the transportation of fuel and other
petroleum products from refineries in Texas and Louisiana to tank farms and
industrial sites primarily in Port Everglades and Tampa, Florida. Delivered in
1975, the Seabulk Challenger has six cargo segregations and was the first
CATUG(R) ITB constructed in the world. Like the Seabulk Magnachem, it enjoys
certain manning and other advantages over conventional tank vessels. In 1989 and
1991, the vessel had extensive steel renewals and tank recoatings. In addition,
in 1991 the vessel was outfitted with an inert-gas system at the expense of the
charterer.
The Seabulk Challenger has been under continuous contract to Shell Oil
Company ("Shell") since its delivery in 1975 and to date has performed over 690
voyages for Shell. In January 1990, Shell renewed the charter for a ten-year
period ending in January 2000. Under the charter, the Company is responsible for
operating costs such as crew, maintenance, and insurance, and Shell pays for
voyage costs such as fuel and port charges. The charter hire rate is adjusted
annually for inflation. The charter may be canceled by Shell in July 1998 upon
payment of a percentage of the charter hire due over the remaining term of the
charter. Shell has in the past repeatedly renewed its charter of the Seabulk
Challenger, and continues to fully utilize the vessel. Because the termination
penalties are substantial, and Shell has provided significant capital
enhancement to the vessel, the Company believes that Shell will continue to
charter the vessel until January 2000, although there can be no assurance that
it will do so. The operating lease under which the Company holds the Seabulk
Challenger will not extend beyond January 2000.
Recent Acquisition. In March 1998, the Company completed the
acquisition of the 36,600 dwt petroleum product carrier Willamette and the
32,200 dwt petroleum product carrier Concho. The Company expects to operate the
vessels under a contract of affreightment with an oil company expiring in
December 1999. Pursuant to OPA 90, the Willamette and the Concho cannot be
utilized to transport petroleum and petroleum products in U.S. commerce after
2008 and 2000, respectively. Although the seller of the Concho applied to the
U.S. Coast Guard to extend its retirement date by reducing its gross registered
tonnage and cargo capacity, the Company has not determined whether it will
pursue that application.
Sun State. In September 1994, the Company acquired the marine assets of
Sun State Marine, Inc. ("Sun State"). Sun State currently owns and operates an
energy transportation fleet of ten towboats and 16 fuel barges, all of which are
engaged in fuel transportation along the Atlantic intracoastal waterway and in
the St. Johns River in Florida. Sun State has been in operation for over 50
years, and the Company continues to operate it as a wholly owned subsidiary, Sun
State Marine Services, Inc.
14
A majority of Sun State's revenue for the year ended December 31, 1995
and 1996 was derived from a fuel transportation contract with Florida Power &
Light Company ("FPL"). The remainder of its revenue was derived from a fuel
transportation contract with another customer and its marine maintenance,
repair, and drydocking facility. Under its contract with FPL, which has a term
extending to September 1998, Sun State has agreed to transport fuel oil from
Port Canaveral and Jacksonville to certain FPL electric power generating
facilities at specified rates (a combination of per diem and variable rates
based upon barrels transported) with an escalation provision. The FPL contract
has a specified guaranteed minimum utilization provision.
The following table sets forth certain information with respect to the
Sun State towboats:
Length Year Built/
Vessel Name Horsepower (feet) Rebuilt
Sun River City............................................... 1,000 64 1994
Sun Commander................................................ 1,000 61 1968/1990
Sun Chief.................................................... 1,000 64 1971/1990
Sun Merchant................................................. 1,000 65 1966/1994
Sun Trader................................................... 850 56 1972/1980
Sun St. Johns................................................ 850 58 1961/1990
Sun Explorer................................................. 800 57 1980
Sun Gypsy.................................................... 800 53 1976/1992
Sun Rebel.................................................... 800 60 1957/1991
Sun Venture.................................................. 800 66 1956/1986
The following table sets forth certain information with respect to the
Sun State barges:
Barge Length Year Built/
Vessel Name Capacity (feet) Rebuilt
Sun State No. 1.............................................. 25,684 bbls 290 1952/1994
Sun State No. 3.............................................. 25,974 bbls 290 1962/1986
Sun State No. 4.............................................. 25,974 bbls 290 1962/1984
Sun State No. 6.............................................. 21,408 bbls 264 1950/1982
Sun State No. 7.............................................. 20,700 bbls 264 1967/1990
Sun State No. 8.............................................. 23,000 bbls 272 1970
Sun State No. 9.............................................. 23,000 bbls 272 1970
Sun State 501................................................ 4,880 bbls 126 1966
Sun State 701................................................ 7,000 bbls 175 1942
Sun State 902................................................ 9,500 bbls 195 1947
Sun State 1101............................................... 11,277 bbls 200 1963
Sun State 1102............................................... 12,000 bbls 200 1997
Sun State 2501............................................... 25,420 bbls 298 1973
Sun State 2701............................................... 28,780 bbls 298 1975
Sun State 2702............................................... 27,683 bbls 298 1973
Sun State 2703............................................... 28,780 bbls 298 1974
15
OPA 90 requires all single-hull barges, including the Sun State barges,
to discontinue transporting fuel and other petroleum products in 2015. The
Company has recently constructed one double-hull barge at a cost of $1.0 million
and has purchased an additional four double-hull barges for an aggregate of $2.4
million. These four barges are currently being refurbished for an aggregate cost
of approximately $2.6 million.
New Product Carriers. The Company has an 0.8% equity interest in four
45,300 dwt double-hull product carriers, currently under construction by Newport
News Shipbuilding, intended to serve the market now served by single-hull
product carriers whose retirement is mandated by OPA 90. The vessels, the
operations of which will be managed by the Company, will operate in the U.S.
domestic trade under long- or short-term charters, depending upon market
conditions. The Company is also serving as the construction supervisor during
the construction period. Two of the vessels are currently scheduled for delivery
during the fourth quarter of 1998, with the remaining two to follow during the
first and second quarters of 1999.
The aggregate cost of the four carriers is estimated at $200.0 million,
of which a substantial portion is being financed with the proceeds of
government-guaranteed Title XI ship financing bonds issued in March 1996. Until
its restructuring in March 1998, the project consisted of five product carriers,
and the Company had a conditional option to acquire an additional 49.2% interest
in the vessels. As a result of the restructuring, the Company has agreed to
acquire an additional 25.0% interest in the vessels, at an estimated cost of
$12.0 million, and has an exclusive option to acquire the remaining 74.2%
interest from the shipbuilder at an estimated cost of $27.4 million.
Other Services
Through its Sun State subsidiary, the Company owns a small marine
maintenance, repair, and drydocking facility in Green Cove Springs, Florida,
which is engaged principally in the maintenance of tugs and barges, offshore
support vessels, and other small vessels. The lease for the facility, including
options, expires in 2005. The towboat Sun River City and the barge Sun State
1102 were constructed in the Green Cove Springs facility. This facility is
capable of drydocking vessels up to 300 feet in length for repair and can make
dockside repairs on vessels up to 320 feet in length. Since October 1994, the
Green Cove Springs facility has been utilized to overhaul or rebuild a number of
the Company's harbor tugs and offshore energy support vessels. The facility
(originally a U.S. government naval repair and operations station) has covered
steel fabrication facilities, workshops, and office spaces adjacent to a
1,840-foot finger pier and mooring basins, where the facility's three floating
drydocks are located. The drydocks are 60, 80, and 108 feet in length, and are
capable of lifting 350, 200, and 500 tons, respectively. The 60 and 108 foot
drydocks are capable of being joined together for lifting a vessel or barge with
a nominal capacity of 1,175 long tons.
Customers and Charter Terms
The Company offers its offshore energy support services primarily to
oil companies and large drilling companies. Consistent with industry practice,
the Company's U.S. Gulf of Mexico operations are conducted primarily in the
"term" market pursuant to short-term (less than six months) charters at varying
day rates. Generally, such short-term charters can be terminated by either the
Company or its customer upon notice of five days or less. Charters in the
international markets served by the Company have terms ranging from a few days
to several years.
16
The Company offers its offshore and harbor towing services to vessel
owners and operators and their agents. The Company's rates for harbor towing
services are set forth in the Company's published tariffs and are subject to
modification by the Company at any time, limited by competitive factors. The
Company also grants volume discounts to major users of harbor services. Offshore
towing services are priced based upon the service required on an ad hoc basis.
The primary purchasers of chemical transportation services are chemical
and oil companies. The primary purchasers of petroleum product transportation
services are utilities, oil companies, and large industrial consumers of fuel
with waterfront facilities. Both services are generally contracted for on the
basis of short- or long-term time charters, voyage charters, contracts of
affreightment, or other transportation agreements tailored to the shipper's
requirements. Shell is the Company's largest single customer and the long-term
charterer of the Seabulk Challenger. In addition, Chevron Corporation is a
purchaser of the Company's offshore energy support and chemical transportation
services, FPL is a purchaser of the Company's petroleum product transportation
services and each of Phillips Petroleum Company and Amoco Corporation currently
charters one of the Company's chemical carriers.
Competition
The Company operates in a highly competitive environment in all its
operations. The principal competitive factors in each of the markets in which
the Company operates are suitability of equipment, personnel, price, service,
and reputation. Competitive factors in the offshore energy support segment also
include operating conditions and intended use (both of which determine the
suitability of vessel type), complexity of maintaining logistical support, and
the cost of transferring equipment from one market to another. The Company's
vessels that provide chemical and petroleum products transportation services
compete with both other vessel operators and, in some areas and markets, with
alternative modes of transportation, such as pipelines, rail tank cars, and tank
trucks. Moreover, the users of such services are placing increased emphasis on
safety, the environment, and quality, partly due to heightened liability for the
cargo owner in addition to the vessel owner/operator under OPA 90. With respect
to towing services, the Company's vessels compete not only with other providers
of tug services, but with the providers of tug services in nearby ports. Many of
the companies with which the Company competes have substantially greater
financial and other resources than the Company. Additional competitors may enter
the Company's markets in the future. Moreover, should U.S. coastwise laws be
repealed, foreign-built, foreign-manned, and foreign-owned vessels could be
eligible to compete with the Company's vessels.
Environmental and Other Regulation
The Company's operations are subject to significant federal, state, and
local regulation, the principal provisions of which are described below.
Clean Water Regulations. OPA 90 established an extensive regulatory and
liability regime for the protection of the environment from oil spills. OPA 90
affects all owners and operators of vessels in United States waters, which
include the United States territorial sea and the 200-mile exclusive economic
zone of the United States. Although it applies in general to all vessels, for
purposes of its liability limits and financial-responsibility and
response-planning requirements, OPA 90 differentiates between tank vessels
(which include the Company's chemical carriers, product carrier, and fuel
barges) and "other vessels" (which include the Company's tugs and offshore
energy service vessels).
17
Under OPA 90, owners, operators, and certain charterers of vessels are
"responsible parties" and are jointly, severally, and strictly liable for
containment and cleanup costs and other damages arising from oil spills relating
to their vessels, unless the spill results solely from the act or omission of a
third party, an act of God, or an act of war. Such "other damages" are defined
broadly to include (i) natural resources damages and the costs of assessment
thereof; (ii) damages for injury to, or economic losses resulting from the
destruction of, real and personal property; (iii) net loss of taxes, royalties,
rents, fees, and other lost revenues by the U.S. government, a state, or
political subdivision thereof; (iv) lost profits or impairment of earning
capacity due to property or natural resources damage; (v) net cost of public
services necessitated by a spill response, such as protection from fire or other
hazards; and (vi) loss of subsistence use of natural resources.
For tank vessels, the statutory liability of responsible parties is
limited to the greater of $1,200 per gross ton or $10 million ($2 million for a
vessel of 3,000 gross tons or less) per vessel; for "other vessels," such
liability is limited to the greater of $600 per gross ton or $500,000 per
vessel. Such liability limits do not apply, however, to an incident proximately
caused by violation of federal safety, construction, or operating regulations or
by the responsible party's gross negligence or willful misconduct, or if the
responsible party fails to report the incident or to cooperate and assist in
connection with oil removal activities. Although the Company currently maintains
pollution liability insurance with coverage of $700 million per incident for its
tank vessels ($500 million per incident for its fuel barges), a catastrophic
spill could result in liability in excess of available insurance coverage,
resulting in a material adverse effect on the Company.
Under OPA 90, with certain limited exceptions, all newly built or
converted tankers operating in United States waters must be built with double
hulls, and existing single-hull vessels must be phased out at some point,
depending upon their size, age and place of discharge, between 1995 and 2015
unless retrofitted with double hulls. As a result of this phase-out requirement,
as interpreted by the U.S. Coast Guard, the Company's chemical carriers and its
petroleum product carrier will be required to cease transporting petroleum
products over the next 17 years, and its fuel barges will cease transporting
fuel in 2015.
OPA 90 expanded pre-existing financial responsibility requirements and
requires vessel owners and operators to establish and maintain with the United
States Coast Guard evidence of insurance or qualification as a self-insurer or
other evidence of financial responsibility sufficient to meet their potential
liabilities under OPA 90. U.S. Coast Guard regulations require evidence of
financial responsibility demonstrated by insurance, surety bond, self-insurance,
or guaranty. The regulations also implement the financial responsibility
requirements of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), which imposes liability for discharges of
hazardous substances such as chemicals, by increasing the amount of financial
responsibility from $1,200 to $1,500 per gross ton. The Company has obtained
COFRs pursuant to the Coast Guard regulations for its product carrier and for
its chemical carriers through self-insurance and commercial insurance and as
guarantor for the fuel barges.
OPA 90 also amended the Federal Water Pollution Control Act to require
the owner or operator of a tank vessel to prepare vessel response plans and to
contract with oil spill response organizations to remove to the maximum extent
practicable a worst-case discharge (loss of all cargo). The Company has complied
with both requirements. As is customary, the Company's oil spill response
contracts are executory in nature and are not activated unless required. Once
activated, the Company's pollution liability insurance covers the cost of spill
removal subject to overall coverage limitations and deductibles.
18
OPA 90 expressly permits individual states to impose their own
liability regimes with respect to oil pollution incidents occurring within their
boundaries, and many states have enacted legislation providing for unlimited
liability for oil spills. States that have enacted such legislation have not yet
issued implementing regulations defining tanker owners' responsibilities under
the legislation. The Company does not anticipate that such legislation or
regulations will have any material impact on its operations.
The Company manages its exposure to losses from potential discharges of
pollutants through the use of well-maintained and well-equipped vessels, safety
and environmental programs, and its insurance program, and believes that it will
be able to accommodate reasonably foreseeable environmental regulatory changes.
There can be no assurance, however, that any new regulations or
requirements or any discharge of pollutants by the Company will not have an
adverse effect on the Company.
Clean Air Regulations. The federal Clean Air Act of 1970, as amended by
the Clean Air Act Amendments of 1990, requires the Environmental Protection
Agency to promulgate standards applicable to the emission of volatile organic
compounds and other air pollutants. These standards are designed to reduce
hydrocarbon emissions released in the atmosphere and are implemented by the
states through State Implementation Plans for areas that are not in compliance
with those standards. The Company's vessels are subject to vapor control and
recovery requirements when loading petroleum cargoes in Louisiana and when
loading, unloading, ballasting, cleaning, and conducting other operations in
certain ports in Texas. The Company's chemical and petroleum product carriers
are equipped with vapor control systems that satisfy these states' requirements.
The fuel barges are not equipped with, and are not operated in areas that
require, such systems.
Coastwise Laws. A substantial portion of the Company's operations are
conducted in the U.S. domestic trade, which is governed by the coastwise laws of
the United States (principally, the Jones Act). The coastwise laws reserve
marine transportation (including harbor tug services) between points in the
United States (including drilling rigs fixed to the ocean floor in U.S.
territorial waters) to vessels built in and documented under the laws of the
United States (U.S. flag) and owned and manned by U.S. citizens. Generally, a
corporation is deemed a citizen for these purposes so long as (i) it is
organized under the laws of the U.S. or a state thereof, (ii) each of its
president or other chief executive officer and the chairman of its board of
directors is a citizen, (iii) no more than a minority of the number of its
directors necessary to constitute a quorum for the transaction of business are
non-citizens, and (iv) 75% of the interest and voting power in the corporation
are held by citizens. Because the Company would lose its privilege of operating
its vessels in the U.S. domestic trade if non-citizens were to own or control in
excess of 25% of the Company's outstanding capital stock, the Company's Articles
of Incorporation contain restrictions concerning foreign ownership of its stock.
There have been repeated efforts aimed at repeal or significant change of the
Jones Act. Although the Company believes that it is unlikely that the Jones Act
will be substantially modified or repealed, there can be no assurance that
Congress will not substantially modify the Jones Act or repeal it. Such changes
could have a material adverse effect on the Company's operations and financial
condition.
Occupational Health Regulations. The Company's vessel operations are
subject to occupational safety and health regulations issued by the Coast Guard.
Such regulations currently require the Company to perform extensive monitoring,
medical testing, and record keeping with respect to seamen engaged in the
handling of the various cargoes transported by the Company's chemical and
petroleum products carriers.
19
Vessel Condition. The Company's chemical and petroleum products
carriers, offshore energy support vessels, seven of its tugs, and the fuel
barges are subject to periodic inspection and survey by, and dry-docking and
maintenance requirements of, the Coast Guard and/or the American Bureau of
Shipping, a marine classification society whose periodic certification as to the
construction and maintenance of certain vessels is required in order to maintain
insurance coverage. All of the Company's vessels requiring certification to
maintain insurance coverage are certified.
Oil Tanker Escort Requirements. Implementation of oil tanker escort
requirements of OPA 90 and pending state legislation are expected to introduce
certain performance or engineering standards on tugs to be employed as tanker
escorts. The Company believes its tractor tugs will be able to comply with any
existing or currently anticipated requirements for escort tugs. Adoption of such
new standards could require modification or refitting of the tugs currently
operated by the Company to the extent such tugs are employed as tanker escorts.
The Company does not anticipate OPA 90 or state requirements to require
modification of tugs, such as the Company's, involved in harbor tug operations.
The Company believes that it is currently in compliance in all material
respects with the environmental and other laws and regulations, including OSHA
shipyard requirements, to which its operations are subject and is unaware of any
pending or threatened litigation or other judicial, administrative, or arbitral
proceedings against it occasioned by any alleged non-compliance with such laws
or regulations. The risks of substantial costs, liabilities, and penalties are,
however, inherent in marine operations, and there can be no assurance that
significant costs, liabilities, or penalties will not be incurred by or imposed
on the Company in the future.
International Laws and Regulations. The Company's vessels that operate
internationally are subject to various international conventions, including
certain safety, environmental, and construction standards. Among the more
significant of the conventions applicable to the fleet are: (i) the
International Convention for the Prevention of Pollution of the Sea, 1973, 1979
Protocol, (ii) the International Convention on the Safety of Life at Sea, 1974,
1978, and 1981/1983 Protocol, and (iii) the International Convention on
Standards of Training, Certification and Watchkeeping for Seafarers. These
regulations govern oil spills and other matters of environmental protection,
worker health, and safety and the manning, construction, and operation of
vessels. The Company believes that it presently is in material compliance with
the international environmental laws and regulations to which the Company's
operations are subject. In addition, the countries under which the vessels are
flagged require certain periodic inspections and drydock examinations.
Generally, surveys and inspections are performed by internationally recognized
classification societies. Most of the vessels that operate internationally are
flagged in the Marshall Islands. The Company is not a party to any pending
environmental litigation or other proceeding, and is unaware of any threatened
environmental litigation or proceeding which, if adversely determined, would
have a material adverse effect on the financial condition or results of
operations of the Company. However, the risks of incurring substantial
compliance costs and liabilities and penalties for noncompliance are inherent in
offshore energy support operations. There can be no assurance that significant
costs, liabilities, and penalties will not be incurred by or imposed on the
Company in the future.
Insurance
The Company's marine transportation services operations are subject to
the normal hazards associated with operating vessels carrying large volumes of
cargo or rendering services in a marine environment. These hazards include the
risk of loss of or damage to the Company's vessels, damage to
20
third parties as a result of collision, loss, or contamination of cargo,
personal injury of employees, pollution, and other environmental damages. The
Company maintains insurance coverage against these hazards. Risk of loss of or
damage to the Company's vessels is insured through hull insurance policies in
amounts that approximate fair market value. Vessel operating liabilities, such
as collision, cargo, environmental, and personal injury, are insured primarily
through the Company's participation in the Steamship Mutual Underwriting
Association (Bermuda Limited), a mutual insurance association under which the
coverage against such hazards is currently unlimited for each incident except in
the case of pollution, which is limited to $700 million (the maximum amount
available) for each incident involving the Company's chemical and petroleum
products carriers and $500 million with respect to its other vessels. Because it
maintains mutual insurance, the Company is subject to funding requirements and
coverage shortfalls in the event claims exceed available funds and reinsurance
and to premium increases based on prior loss experience.
Employees
As of March 15, 1998, the Company had approximately 3,104 employees.
Management considers relations with employees to be satisfactory. The Seabulk
America, Seabulk Challenger, and Seabulk Magnachem are manned by approximately
108 officers and crew who are subject to two collective bargaining arrangements.
In addition, the HMI Dynachem, HMI Petrochem, HMI Astrachem, HMI Defender, and
the seven harbor tugs acquired in March 1998 are manned by approximately 175
members of national maritime labor unions pursuant to an agreement between the
Company and a third party employer.
Item 2. Properties
The Company's principal offices are located in Fort Lauderdale,
Florida, where the Company leases approximately 36,000 square feet of office and
shop space under a lease that expires in 2009. In addition, the Company leases
facilities in Houston, Texas, Lafayette and Amelia, Louisiana, Mobile, Alabama,
Tampa, Port Canaveral, and Green Cove Springs, Florida, Sharjah, Dubai, Abu
Dhabi, Brunei, Yemen, Karachi, Qatar, Saudi Arabia, Kuwait, Singapore, and
Thailand to support its operations. The Company expects to lease facilities in
various locations in West Africa to support its offshore operations.
Item 3. Legal Proceedings
The Seabulk America was completed in 1990 by combining the stern
portion of the wrecked oil tanker Fuji with the forebody of the chemical barge
portion of the former integrated tug/barge Oxy Producer/Oxy 4102. In Norfolk
Shipbuilding and Dry Dock Corporation v. Seabulk Transmarine Partnership, Ltd.,
pending in the U.S. District Court for the Eastern District of Louisiana (Civil
Action No. 93-1312), one of the shipyards that contracted to complete the
Seabulk America for the Company is seeking to recover from the Company
approximately $6.1 million for alleged additions and changes to the contract
work and costs of alleged delay and disruption, in addition to $2.4 million of
the $5.9 million contract price that the Company has withheld. In addition, the
shipyard is seeking legal fees and expenses. The Company has asserted
counterclaims aggregating $5.6 million for contract deletions, unfinished and
defective work, and liquidated damages for late delivery. In 1993, when this
suit was filed, the Company obtained a $5.6 million letter of credit in order to
furnish a bond required to obtain the release of the Seabulk America, which had
been arrested pursuant to customary procedures in litigation involving vessels.
The suit, which involves numerous complex factual issues, is currently in
21
the trial stage. While the Company believes that the plaintiff's claims are
without merit and that its counterclaims are meritorious, there can be no
assurance that the ultimate resolution of the suit will not require some payment
by the Company in addition to the $3.6 million previously paid.
From time to time the Company is also party to litigation arising in
the ordinary course of its business, most of which is covered by insurance.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
22
Item 4a. Executive Officers
The executive officers of the Company are:
Name Age Current Positions
J. Erik Hvide.................................... 49 President and Chief Executive Officer
John H. Blankley................................. 50 Executive Vice President and Chief
Financial Officer
Eugene F. Sweeney................................ 55 Executive Vice President--Operations
Andrew W. Brauninger............................. 51 Senior Vice President--Offshore Division and
President--Seabulk Offshore, Ltd
Walter S. Zorkers................................ 51 Senior Vice President--Corporate Development
Leo T. Carey..................................... 46 Vice President--Ship Management
Arthur T. Denning................................ 43 Vice President--Engineering
William R. Ludt.................................. 50 Vice President--Inland Services Division
and President--Sun State Marine Services, Inc.
John J. O'Connell, Jr............................ 54 Vice President--Corporate Communications
Robert A. Santos................................. 66 Vice President--Offshore and Harbor
Towing Operations
Christopher D. Strong............................ 39 Vice President--Finance, Treasurer and Assistant
Secretary
L. Stephen Willrich............................. 45 Vice President and President--Ocean Specialty
Tankers Corporation
Mr. Hvide has been the Company's President and Chief Executive Officer
since January 1991. From 1981 until 1991, Mr. Hvide was President and Chief
Operating Officer of the Company. He has been employed by the Company in various
capacities since 1970 and became Vice President in 1973. He is also a director
of the American Waterways Operators, a participant on the Transportation
Committee of the American Petroleum Institute, a member of the American Bureau
of Shipping, a past Chairman of the Board of the American Institute of Merchant
Shipping, a past appointee to the U.S. Coast Guard's Towing Safety Advisory
Committee, and a director of Seal Holdings Corporation. Mr. Hvide is the son of
Hans J. Hvide, the founder of the Company.
Mr. Blankley has been Executive Vice President--Chief Financial Officer
since September 1995. He previously served as a director and Chief Financial
Officer of Harris Chemical Group Inc., a chemical manufacturing company, from
April 1993 to August 1994. Mr. Blankley is the owner of Seafirst Capital, a ship
finance consulting business he founded in 1994. He served as Executive Vice
President--Finance and Chief Financial Officer of Stolt-Nielsen, Inc., a
publicly traded international operator of specialty chemical tankers, from 1985
to 1991. From 1983 until 1985, Mr. Blankley was a director, Senior Vice
President, and Chief Financial Officer of BP North America Inc. Mr. Blankley is
also a director of MC Shipping, a publicly traded operator of multi-purpose gas
and petroleum product carriers and container feeder vessels.
Mr. Sweeney has been Executive Vice President--Operations of the Company
since September 1994. He was Senior Vice President--Operations of the Company
from 1991 to September 1994. He joined the Company in 1981 as Vice
President--Ship Management. Prior to joining the Company, Mr. Sweeney was
employed for 17 years by Texaco, Inc., where he served in seagoing
23
and shore management positions, including operations manager of Texaco's U.S.
tanker fleet. Mr. Sweeney is on the board of directors of the Chamber of
Shipping of America and is a member of the American Bureau of Shipping.
Mr. Brauninger has been Senior Vice President--Offshore Division since
August 1997. He was Vice President--Offshore Division since March 1990 until
July 1997 and the President of Seabulk Offshore, Ltd., the Company's offshore
energy support services subsidiary, since September 1994. He was Vice President
of Offshore Operations from May 1990 to September 1994 and Vice
President--Development from 1989 to 1990. From 1987 to 1989, Mr. Brauninger was
President of OMI Offshore Services, Inc., an operator of offshore service
vessels. Previously, he was employed by Sabine Towing and Transportation
Company, where he held a variety of posts including Vice President--Harbor
Division.
Mr. Zorkers has been Senior Vice President--Corporate Development since
April 1997. Prior to joining the Company, Mr. Zorkers was the principal of
Commonwealth Management Group, a management consulting firm. From 1993 to 1995
he served as Executive Vice President of Boston Pacific Medical, Inc., a
manufacturer of disposable medical products, and from 1991 to 1993 he was a
Senior Vice President of Metcalf & Eddy, Inc., an environmental engineering and
consulting firm.
Mr. Carey has been Vice President--Ship Management since November 1996.
He previously served as Director of Operations for the Company's fleet of
chemical and petroleum product carriers. He joined the Company in 1981 as
Superintendent Engineer. Prior to that, he served with El Paso Marine Co. as a
deck officer and maintenance manager.
Mr. Denning has been Vice President--Engineering since August 1997. He
previously served as Director of Engineering of the Company from November 1994
to July 1997, and as Superintendent Engineering from September 1986 to October
1994.
Mr. Ludt has been Vice President--Inland Services Division since
January 1995 and the President of Sun State Marine Services, Inc., the Company's
energy tug and barge subsidiary, since September 1994. He was Director--Fleet
Operations of the Company from 1982 to September 1994. Since joining the Company
in 1979, he has also served as Fleet Manager and Port Engineer. He served as
President of the Chemical Carriers Association from 1989 to 1990 and as Vice
President of that association from 1990 to 1992. Mr. Ludt has also served on
various working groups within the U.S. Coast Guard's Chemical Transportation
Advisory Committee concerning issues such as vapor control and marine
occupational safety and health. Mr. Ludt holds a dual license as a Third Mate
and Third Assistant Engineer, Steam and Motor Vessels.
Mr. O'Connell has been Vice President--Corporate Communications since
August 1996, when he joined the Company. From September 1995 to August 1996 he
was an independent consultant. Previously, he served in a variety of management
positions with W. R. Grace & Co. for 20 years, most recently as Director of
Public Affairs. Mr. O'Connell was a member of the President's Private Sector
Survey on Cost Control in the Federal Government from 1982 to 1984.
Mr. Santos has been Vice President--Towing Operations of the Company
since 1983. Mr. Santos joined the Company as its Towing Operations Manager in
1962. He has served as a Commissioner of Florida's Board of Pilot Commissioners,
Chairman of the Escort Vessel Subcommittee
24
of the American Waterways Operators and as a member of various marine-related
trade associations and boards.
Mr. Strong has been Assistant Secretary of the Company since February
1998, Vice President--Finance since August 1997, Treasurer since November 1996
and Director of Finance since joining the Company in December 1994. From January
1990 to December 1994, he was Treasurer of the Port Everglades Authority. From
1986 to 1989, he served in several management positions with Kislak Mortgage
Corporation and Kislak National Bank including Vice President--Finance and
Investment Officer. Mr. Strong previously served as an officer in the U.S. Navy.
Mr. Willrich has been Vice President of the Company and President of
Ocean Specialty Tankers Corporation since March 1998. He was Senior Vice
President of Ocean Specialty Tankers Corporation from August 1996. He was Vice
President of Chartering of Ocean Specialty Tankers Corporation from January 1986
to August 1996. Prior to joining the Company Mr. Willrich was employed in
various capacities by Diamond Shamrock Chemical Company from 1975 to 1982.
25
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since August 9, 1996, the Class A Common Stock has been traded on the
Nasdaq National Market under the symbol "HMAR." The following table sets forth
the high and low sale prices per share of the Class A Common Stock as reported
by the Nasdaq National Market for each calendar quarter since the commencement
of trading.
High Low
1996
Third Quarter (commencing August 9).............. $ 13 7/8 $ 11
Fourth Quarter................................... 24 1/4 12 7/8
1997
First Quarter.................................... 28 3/4 18 1/4
Second Quarter................................... 25 3/4 14 7/8
Third Quarter.................................... 36 1/2 22
Fourth Quarter................................... 36 3/4 20 3/4
1998
First Quarter (through March 27)................. 25 3/4 16 5/8
The Company has not paid any cash dividends on its Common Stock since
its formation. It presently intends to retain its earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. The payment of any future dividends will be determined by
the Board of Directors in light of conditions then existing, including the
Company's earnings, financial condition and requirements, restrictions in
financing agreements, business conditions, and other factors. In addition, the
Company's ability to pay dividends or make distributions to its stockholders is
also restricted by the terms of the Credit Facility. As of March 16, 1998, there
were 116 holders of record of Class A Common Stock and 7 holders of record of
Class B Common Stock.
Item 6. Selected Financial Data
The selected consolidated financial data presented below should be
read in conjunction with the consolidated financial statements and notes thereto
of the Company and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this report.
26
Year Ended December 31
1993 1994 1995 1996 1997
(In thousands, except per share data)
Consolidated Statement of Operations Data:
Revenue .............................................. $ 41,527 $ 49,792 $ 70,562 $ 109,356 $ 210,257
--------- --------- --------- --------- ----------
Operating expenses ................................... 24,032 29,873 40,664 63,777 110,283
Overhead expenses .................................... 6,176 9,581 12,518 14,979 24,791
Depreciation and amortization ........................ 4,735 4,500 6,308 9,830 19,850
--------- --------- --------- --------- ----------
Income from operations ............................... 6,584 5,838 11,072 20,770 55,333
Interest expense, net ................................ 3,412 5,302 11,460 11,631 7,024
Other income (expense) ............................... 519 11 26 437 (3,704)
--------- --------- --------- --------- ----------
Income (loss) before provision for (benefit
from) income taxes, extraordinary item
and cumulative effect of a change in
accounting principle ............................... 3,691 547 (362) 9,576 44,605
Provision for (benefit from) income
taxes .............................................. 1,873 189 (2) 3,543 16,950
--------- --------- --------- --------- ----------
Income (loss) before extraordinary item
and cumulative effect of a change in
accounting principle ............................... 1,818 358 (360) 6,033 27,655
Loss on extinguishment of debt, net(1) ............... -- -- -- 8,108 2,132
Cumulative effect of a change in
accounting principle ............................... 1,491 -- -- -- --
--------- --------- --------- --------- ----------
Net income (loss) .................................... $ 3,309 $ 358 $ (360) $ (2,075) $ 25,523
========= ========= ========= ========= ==========
Earnings (loss) per common share(2):
Income (loss) before extraordinary
item and cumulative effect of a
change in accounting principle ................... $ 0.26 $ 0.03 $ (0.14) $ 1.05 $ 1.87
Net income (loss)(3) ............................... $ 0.50 $ 0.03 $ (0.14) $ (0.36) $ 1.73
========= ========= ========= ========= ==========
Weighted average number of common
shares and common share equivalents
outstanding ...................................... 6,268 5,302 2,535 5,763 14,785
========= ========= ========= ========= ==========
Earnings (loss) per common share--assuming
dilution(2):
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle(3) .......................... $ 0.26 $ 0.03 $ (0.14) $ 0.99 $ 1.75
Net income (loss)(3) ............................... $ 0.50 $ 0.03 $ (0.14) $ (0.24) $ 1.63
========= ========= ========= ========= ==========
Weighted average number of shares
and common share equivalents
outstanding(4) ................................... 6,268 5,302 2,535 6,590 17,120
========= ========= ========= ========= ==========
Other Financial Data:
EBITDA(5) .......................................... $ 11,319 $ 10,338 $ 17,380 $ 30,600 $ 75,183
27
Year Ended December 31
------------------------------------------------------
1993 1994 1995 1996 1997
(In thousands)
Net Cash Provided by (used in):
Operating activities................................... $ 6,956 $ 2,858 $ 3,948 $ 22,584 $ 40,042
Investing activities................................... (2,247) (39,815) (8,066) (84,354) (261,343)
Financing activities................................... (6,158) 41,249 805 68,337 226,636
At December 31
------------------------------------------------------
1993 1994 1995 1996 1997
(In thousands)
Balance Sheet Data:
Working capital (deficit)............................. $ 2,640 $ 7,793 $ 4,315 $ (8,704) $ 25,790
Total assets.......................................... 82,373 135,471 143,683 273,473 604,561
Total long-term obligations........................... 47,485 98,981 100,766 124,454 217,217
Total debt............................................ 51,273 104,281 109,051 141,464 197,547
Convertible preferred securities of a subsidiary
trust............................................... -- -- -- -- 115,000
Stockholders' and minority partners'
equity.............................................. 19,926 14,903 13,999 101,989 227,282
(1) Reflects the loss on the extinguishment of debt, net of applicable income
taxes of $1,474,000 and $1,252,000 for 1996 and 1997, respectively.
(2) Statement of Financial Accounting Standards No. 128, adopted by the
Company, requires the presentation of basic and diluted earnings per share
and replaces the prior presentation of primary and fully diluted earnings
per share. Earnings per share is calculated on the basis of weighted
average outstanding common shares, after giving effect to preferred stock
dividends. Earnings per share assuming dilution is computed on the basis of
weighted average outstanding common shares, outstanding options that are
dilutive, and equivalent shares assuming conversion of outstanding
convertible securities, where dilutive.
(3) For the purposes of calculating earnings per share for the years 1993,
and 1994, historical income available to common stockholders has been
reduced for dividends on Class A Preferred Stock of $203,000, and
$222,000, respectively. The Class A Preferred Stock was redeemed on
September 30, 1994.
(4) For the years 1993 and 1994, the weighted average number of common
shares and common share equivalents assumes the conversion of the
Class B Preferred Stock into shares of Common Stock. The Class B
Preferred Stock was redeemed on September 30, 1994. For the year ended
1994 shares outstanding assuming dilution reflects the assumed
conversion of a portion of the Junior Notes into shares of Common
Stock. The Junior Notes were issued in September 1994 and converted
into shares of Common Stock in September 1996.
(5) EBITDA (net income from continuing operations before interest expense,
income tax expense, depreciation expense, amortization expense,
minority interests, and other non-operating income) is frequently used
by securities analysts and is presented here to provide additional
information about the Company's operations. EBITDA is not required by
generally accepted accounting principles and should not be considered
as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flows from
operations as a measure of liquidity.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion and analysis of the Company's financial condition and
historical results of operations should be read in conjunction with the
Company's consolidated historical financial statements, and the related notes
thereto included elsewhere in this Offering Memorandum.
Area of Operations Overview
The financial information presented below represents historical results
by major areas of operations. The historical financial data presented below
should be read in conjunction with the Company's consolidated financial
statements and notes thereto included elsewhere in this Offering Memorandum.
28
Year Ended December 31,
1995 1996 1997
(In thousands)
Revenue:
Marine support services:
Offshore energy support.................................................. $ 23,217 $ 43,715 $ 111,385
Offshore and harbor towing............................................... 12,582 13,950 20,424
-------- -------- ----------
35,799 57,665 131,809
Marine transportation services:
Chemical transportation.................................................... 18,632 32,759 60,419
Petroleum product transportation........................................... 16,131 18,932 18,029
-------- -------- ----------
34,763 51,691 78,448
-------- -------- ----------
Total revenue.......................................................... 70,562 109,356 210,257
-------- -------- ----------
Operating expenses:
Marine support services:
Offshore energy support.................................................. 13,335 25,525 45,322
Offshore and harbor towing............................................... 6,001 7,480 12,296
-------- -------- ----------
19,336 30,005 57,618
Marine transportation services:
Chemical transportation.................................................... 11,105 20,976 40,732
Petroleum product transportation........................................... 10,223 12,796 11,933
-------- -------- ----------
21,328 33,772 52,665
-------- -------- ----------
Total operating expenses............................................... 40,664 63,777 110,283
-------- -------- ----------
Direct overhead expenses:
Marine support services:
Offshore energy support.................................................. 2,182 2,558 5,866
Offshore and harbor towing............................................... 1,111 1,364 2,361
-------- -------- ----------
3,293 3,922 8,227
Marine transportation services:
Chemical transportation.................................................... 1,433 2,574 4,508
Petroleum product transportation........................................... 738 920 1,231
-------- -------- ----------
2,171 3,494 5,739
-------- -------- ----------
Total direct overhead.................................................. $ 5,464 $ 7,416 $ 13,966
======== ======== ==========
Fleet EBITDA(1):
Marine support services:
Offshore energy support.................................................. 7,700 18,632 60,197
Offshore and harbor towing............................................... 5,470 5,106 5,767
-------- -------- ----------
13,170 23,738 65,964
Marine transportation services:
Chemical transportation.................................................... 6,094 9,209 15,179
Petroleum product transportation........................................... 5,170 5,216 4,865
-------- ------- ----------
11,264 14,425 20,044
-------- -------- ----------
Total fleet EBITDA(1).................................................. 24,434 38,163 86,008
Corporate overhead expenses.................................................. 7,054 7,563 10,825
-------- -------- ----------
EBITDA(1).................................................................... 17,380 30,600 75,183
Depreciation and amortization expenses..................................... 6,308 9,830 19,850
-------- -------- ----------
Income from operations....................................................... $ 11,072 $ 20,770 $ 55,333
======== ======== ==========
(1) EBITDA (net income from continuing operations before interest expense,
income tax expense, depreciation expense, amortization expense,
minority interest and other non-operating income) is frequently used by
securities analysts and is presented here to provide additional
information about the Company's operations. Fleet EBITDA is EBITDA
before corporate overhead expenses. EBITDA and fleet EBITDA are not
required
29
by generally accepted accounting principles, should not be considered
as alternatives to net income as indicators of the Company's operating
performance, or as alternatives to cash flows from operations as a
measure of liquidity, and do not represent funds available for
management's use. The Company's EBITDA may not be comparable to
similarly titled measures reported by other companies.
Historical Growth
Since December 31, 1994, when the Company's fleet consisted of 66
vessels, the Company has completed the acquisition of 203 vessels at an
aggregate cost of approximately $694.1 million, including 109 vessels that will
have been acquired between October 1, 1997 and March 16, 1998 at an aggregate
cost of $462.3 million. Of the 203 vessels, 168 are offshore energy support
vessels and the balance are employed in the Company's offshore and harbor towing
operations and marine transportation services. The Company believes the
increased size of its vessel fleet will enable it to take further advantage of
the strong worldwide demand for marine support and transportation services.
Revenue Overview
Marine Support Services
Revenue derived from vessels providing marine support services is
attributable to the Company's offshore energy support fleet and its offshore and
harbor towing operations.
Offshore Energy Support. Revenue derived from the Company's offshore
energy support services is primarily a function of the size of the Company's
fleet, vessel day rates or charter rates, and fleet utilization. Rates and
utilization are primarily a function of offshore drilling, production, and
construction activities. Levels of offshore drilling, production, and
construction have increased over the past several years as a result of
fundamental changes in the energy industry, including: (i) favorable oil and gas
prices, (ii) significant improvement in the financial condition of many oil and
gas companies in recent years, (iii) increased worldwide demand for
hydrocarbons, (iv) the potential for relatively large oil and gas discoveries in
various offshore areas, particularly previously unexplored deepwater areas, (v)
the opening of new offshore areas for foreign investment, including areas
offshore Brazil, China, and West Africa, and (vi) royalty relief granted by the
U.S. government for oil and gas produced from wells drilled in newly acquired
deepwater blocks in the U.S. Gulf of Mexico. These higher overall activity
levels have led to increased demand for the Company's offshore energy support
services and higher overall vessel day rates in the U.S. Gulf of Mexico. Day
rates offshore West Africa are at levels approaching those in the U.S. Gulf of
Mexico. Day rates in the Arabian Gulf and offshore Southeast Asia, which the
Company believes have been among the lowest in the world, have also been
gradually increasing as a result of increases in exploration and production
activity in these areas. Contracts for the utilization of offshore service
vessels commonly include termination provisions with three- to five-day notice
requirements and no termination penalty. As a result, the operations of
companies engaged in the offshore energy service market are particularly
sensitive to changes in market demand.
The following table sets forth average day rates achieved by the
offshore supply boats and crew boats owned or operated by the Company in the
U.S. Gulf of Mexico and their average utilization for the periods indicated.
30
1995
----------------------------------
Q1 Q2 Q3 Q4
Number of supply boats at end of period..................................... 10 10 10 10
Average supply boat day rates(1)............................................ $ 2,886 $ 2,843 $ 3,113 $ 3,244
Average supply boat utilization(2).......................................... 71% 76% 84% 93%
Number of crew boats at end of period(3)(4)................................. 26 26 26 26
Average crew boat day rates(1)(3)........................................... $ 1,444 $ 1,412 $ 1,422 $ 1,458
Average crew boat utilization(2)(3)......................................... 79% 81% 90% 91%
1996 1997
--------------------------------- -----------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Number of supply boats at end of period.. 10 11 16 18 19 21 25 26
Average supply boat day rates(1)......... $ 3,468 $ 4,095 $ 5,034 $ 5,776 $ 6,478 $ 7,176 $ 7,636 $ 8,032
Average supply boat utilization(2)....... 92% 100% 97% 90% 87% 90% 91% 93%
Number of crew boats
at end of period(3)(4)............... 35 35 36 36 39 39 39 39
Average crew boat day rates(1)(3)........ $ 1,469 $ 1,466 $ 1,528 $ 1,531 $ 1,777 $ 1,940 $ 2,119 $ 2,294
Average crew boat utilization(2)(3)...... 89% 93% 96% 96% 95% 93% 95% 93%
(1) Average day rates are calculated based on vessels operating
domestically by dividing total vessel revenue by the total number of
days of vessel utilization.
(2) Utilization is based on vessels operating domestically and determined
on the basis of a 365-day year. Vessels are considered utilized when
they are generating charter revenue.
(3) Excludes utility boats.
(4) The Company first began operating crew boats in July 1994.
Offshore and Harbor Towing. Revenue derived from the Company's tug
operations is primarily a function of the number of tugs available to provide
services, the rates charged for their services, and the volume of vessel traffic
requiring docking and other ship-assist services. Vessel traffic, in turn, is
largely a function of the general trade activity in the region served by the
port. The Company generally has maintained five tugs in Port Everglades, three
tugs in Port Canaveral, three tugs in Mobile, and 11 tugs in Tampa, with five
additional tugs available to provide offshore towing services.
The following table summarizes certain operating information for the
Company's tugs.
Year Ended December 31,
1995 1996 1997(1)
Number of tugs at end of period.............................................. 11 16 16
Total ship docking tug jobs.................................................. 9,233 9,034 9,353
Total offshore and harbor towing revenue (in thousands)...................... $ 12,582 $ 13,950 $ 17,399
(1) Does not include 14 tugs acquired by the Company on October 16, 1997.
Marine Transportation Services
Chemical Transportation. Generally, demand for industrial chemical
transportation services coincides with overall economic activity. Since 1989,
revenue derived from chemical transportation operations has been entirely
attributable to the operations of OSTC, a company owned equally by OMI Corp.
("OMI") and the Company until August 1996, when the Company acquired OMI's
interest in OSTC
31
along with three chemical carriers owned by OMI (the "OMI Chemical Carriers").
Prior to the acquisition, the Company's chemical transportation revenue
consisted of distributions from OSTC attributable to the Company's two chemical
carriers marketed by OSTC based upon a formula that took into account individual
vessel performance characteristics applied to OSTC's revenue (net of fuel costs,
port charges, and overhead). Since the acquisition, the Company continues to
have OSTC market the five chemical carriers and receives the revenue
attributable to all five of the vessels.
Petroleum Product Transportation. Since entering service in 1975, the
product carrier Seabulk Challenger has derived all of its revenue from
successive voyage and time charters to Shell. Under the current charter, fuel
and port costs are for the account of the charterer, charter hire escalates
based upon changes in the consumer price index, and charter hire is suspended
while the vessel is unavailable to transport cargo, as when it is undergoing
repairs or regularly scheduled maintenance. The charter extends to January 2000,
with the charterer retaining the right to early termination upon the payment to
the Company of a significant penalty. In the fourth quarter of 1997, the charter
rate was renegotiated and reduced by approximately 6% to reflect the lower
current market rate. Revenue from the Company's towboats and fuel barges has
been derived primarily from contracts of affreightment with FPL and Steuart
Petroleum Co. that require the Company to transport fuel as needed by those two
customers, with the FPL contract having a guaranteed minimum utilization.
The following table sets forth the average time charter equivalents for
the Company's chemical and product carriers, including the OMI Chemical Carriers
as if such vessels were owned by the Company during the periods presented.
Year Ended December 31,
1995 1996 1997
Number of vessels............................................................ 6 6 6
Time charter equivalents(1).................................................. $ 25,629 $ 25,276 $ 25,334
(1) Time charter equivalents are calculated by deducting total voyage expenses
from total voyage revenue and dividing the result by the total days per
voyage.
Overview of Operating Expenses and Capital Expenditures
The Company's operating expenses are primarily a function of fleet size
and utilization. The most significant expense categories are crew payroll and
benefits, depreciation and amortization, charter hire, maintenance and repairs,
fuel, and insurance.
The crews of Company-manned chemical and product carriers are paid on a
time-for-time basis by which they receive paid leave in proportion to time
served aboard a vessel. The crews of offshore energy support vessels and certain
tugs and towboats are paid only for days worked.
Charter hire consists primarily of payments made with respect to the
bareboat charters of the Seabulk Challenger and Seabulk Magnachem, which were
acquired pursuant to leveraged lease transactions and operating lease payments
on the tractor tug Broward. The Company also pays charter hire when it charters
harbor tugs to meet requirements in excess of its own tugs' availability.
The Company capitalizes expenditures exceeding $5,000 for product and
chemical tankers and $3,000 for all other vessels, where the item acquired has a
useful life of three years or greater. Vessel
32
improvements are capitalized if they extend the useful life of the vessel or
increase its value. The Company overhauls main engines and key auxiliary
equipment in accordance with a continuous planned maintenance program. Under
applicable regulations, the Company's chemical and product carriers, offshore
service vessels, and its four largest tugs are required to be drydocked twice in
a five-year period for inspection and routine maintenance and repairs. These
vessels are also required to undergo special surveys every five years involving
comprehensive inspection and corrective measures to insure their structural
integrity and proper functioning of their cargo and ballast piping systems,
critical machinery and equipment, and coatings. The Company's fuel barges,
because they are operated in fresh water, are required to be drydocked only
twice in each ten-year period. The Company's harbor tugs and towboats generally
are not required to be drydocked on a specific schedule. During the years ended
December 31, 1995, 1996, and 1997, the Company drydocked 42, 25, and 42 vessels,
respectively, at an aggregate cost (exclusive of lost revenue) of $2.0 million,
$1.6 million, and $4.5 million, respectively. The Company accounts for its
drydocking costs under the deferral method. Under the deferral method,
capitalized drydocking costs are expensed over the period preceding the next
scheduled drydocking. See Note 1 of the Company's consolidated financial
statements. In addition to variable expenses associated with vessel operations,
the Company incurs fixed charges to depreciate its marine assets. The Company
calculates depreciation based on a useful life ranging from 25 years from the
date built for its steel-hull offshore energy support vessels to 30 years from
the date built for aluminum-hull vessels, unless extended to give consideration
to the condition of vessels at acquisition date and the extent, if any, of
significant capital improvements which have been made to such vessels, the
lesser of any applicable lease term life or the OPA 90 life for its product and
chemical carriers, ten years from the acquisition date for its fuel barges, and
40 years from the date built for its towboats and tugs.
Insurance costs consist primarily of premiums paid for (i) protection
and indemnity insurance for the Company's marine liability risks, which are
insured by a mutual insurance association of which the Company is a member and
through the commercial insurance markets; (ii) hull and machinery insurance and
other maritime-related insurance, which are provided through the commercial
marine insurance markets; and (iii) general liability and other traditional
insurance, which is provided through the commercial insurance markets. Insurance
costs, particularly costs of marine insurance, are directly related to overall
insurance market conditions and industry and individual loss records, which vary
from year to year.
Results of Operations
Year Ended December 31, 1997 Compared with the Year Ended December 31, 1996
Revenue. Revenue increased 92% to $210.3 million for the year ended
December 31, 1997 from $109.4 million for the year ended December 31, 1996
primarily due to increased revenue in the Company's offshore energy support and
chemical transportation operations.
Revenue from offshore energy support operations increased 155% for the
year ended December 31, 1997 primarily due to acquisitions and higher day rates
resulting from increased offshore exploration and production activity.
Utilization of supply boats decreased to 91% for 1997 from 94% for 1996 due to a
program of regularly scheduled drydocking, and utilization of crew boats
remained constant at 94% for 1997 and 1996. During 1997, average day rates for
supply boats owned, operated, or managed by the Company increased 54% from 1996,
and average day rates for crew boats owned, operated, or managed by the Company
increased 36% from 1996.
33
Petroleum product transportation revenue decreased 5% to $18.0 million
for the year ended December 31, 1997 from $18.9 million for the year ended
December 31, 1996 primarily due to the reduced charter rate on the Seabulk
Challenger.
Chemical transportation revenue increased 84% to $60.4 million for the
year ended December 31, 1997 from $32.8 million for the year ended December 31,
1996 primarily due to the August 1996 acquisition of the OMI Chemical Carriers
and the remaining 50% interest in OSTC.
Revenue from offshore and harbor towing operations increased 46% to
$20.4 million for the year ended December 31, 1997 from $14.0 million for the
year ended December 31, 1996 primarily as a result of acquisitions and the
redeployment of certain vessels in the offshore towing sector.
Operating Expenses. Operating expenses increased 73% to $110.3 million
for the year ended December 31, 1997 from $63.8 million for the year ended
December 31, 1996 primarily due to increases in crew payroll and benefits,
maintenance and repair, and supplies and consumables resulting from acquisitions
and increased business activity. As a percentage of revenue, operating expenses
decreased to 52% for the year ended December 31, 1997 from 58% for the year
ended December 31, 1996.
Overhead Expenses. Overhead expenses increased 66% to $24.8 million for
the year ended December 31, 1997 from $15.0 million for the year ended December
31, 1996 primarily due to increased staffing requirements due to acquisitions.
As a percentage of revenue, overhead expenses decreased to 12% for the year
ended December 31, 1997 from 14% for the year ended December 31, 1996.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 102% to $19.9 million for the year ended December 31, 1997 as
compared with $9.8 million for the year ended December 31, 1996 as a result of
an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 166% to $55.3
million, or 26% of revenue, for the year ended December 31, 1997 from $20.8
million, or 19% of revenue, for the year ended December 31, 1996 as a result of
the factors noted above.
Net Interest Expense. Net interest expense decreased 40% to $7.0
million, or 3% of revenue, for the year ended December 31, 1997 from $11.6
million, or 11% of revenue, for the year ended December 31, 1996 primarily as a
result of debt retirement.
Other Income (Expense). Other expenses were ($3.7) million for the year
ended December 31, 1997 as compared to other income of $0.4 million for the year
ended December 31, 1996 primarily due to dividend payments relating to the trust
convertible preferred securities.
Net Income (Loss). The Company had net income of $25.5 million for the
year ended December 31, 1997 as compared to a net loss of ($2.1) million for the
year ended December 31, 1996 primarily as a result of the factors noted above.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Revenue. Revenue increased 55% to $109.4 million in 1996 from $70.6
million in 1995 primarily due to increased revenue in the Company's offshore
energy support and chemical transportation operations.
34
Revenue from offshore energy support operations increased 88% to $43.7
million in 1996 from $23.2 million in 1995 primarily due to acquisitions and
greater utilization of supply and crew boats and higher day rates resulting from
increased offshore exploration and production activity. During 1996, day rates
for supply boats owned, operated, or managed by the Company increased 57% from
1995, and day rates for crew boats owned, operated, or managed by the Company
increased 7% from 1995. Utilization of supply boats increased to 94% for 1996
from 81% for 1995, and utilization of crew boats increased to 94% for 1996 from
85% for 1995.
Petroleum product transportation revenue increased 17% to $18.9 million
in 1996 from $16.1 million in 1995 primarily due to increased movements of
product by the Company's towboat and barge fleet.
Chemical transportation revenue increased 76% to $32.8 million in 1996
from $18.6 million in 1995 primarily due to the August 1996 acquisition of the
OMI Chemical Carriers and the remaining 50% interest in OSTC.
Revenue from offshore and harbor tug operations increased 11% to $14.0
million in 1996 from $12.6 million in 1995 primarily as a result of increased
tanker and freighter traffic in Port Everglades. Revenue also increased in the
port of Mobile due to a tariff increase and an increase in port traffic.
Operating Expenses. Operating expenses increased 57% to $63.8 million
in 1996 from $40.7 million in 1995 primarily due to increases in crew payroll
and benefits, maintenance and repair, and supplies and consumables resulting
from acquisitions and increased business activity. As a percentage of revenue,
operating expenses remained stable at 58% for both 1996 and 1995.
Overhead Expenses. Overhead expenses increased 20% to $15.0 million in
1996 from $12.5 million in 1995 primarily due to increased staffing requirements
due to acquisitions. As a percentage of revenue, overhead expenses decreased to
14% in 1996 from 18% in 1995.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 56% to $9.8 million in 1996 compared with $6.3 million in 1995
as a result of an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 88% to $20.8
million, or 19% of revenue, in 1996 from $11.1 million, or 16% of revenue, in
1995 as a result of the factors noted above.
Net Interest Expense. Net interest expense increased 1% to $11.6
million in 1996 from $11.5 million in 1995. As a percentage of revenue, net
interest expense decreased to 11% in 1996 from 16% in 1995.
Net Income (Loss). The Company had a net loss of $(2.1) million in 1996
after incurring a net loss of $(0.4) million in 1995 primarily as a result of
non-recurring charges of $8.1 million, net of a $1.5 million income tax benefit,
related to an early extinguishment of debt in connection with the August 1996
initial public offering.
35
Seasonality
The Company has experienced some slight seasonality in its overall
operations. The first half of the year is generally not as strong as the second
half due to lower activity in offshore energy support activity and petroleum
product transportation during the months of February, March, and April.
Liquidity and Capital Resources
The Company's capital requirements historically have arisen primarily
from its working capital needs, acquisition of marine vessels, improvements to
vessels, and debt service requirements. The Company's principal sources of cash
have been borrowings, cash provided by operating activities, and proceeds from
the initial public offering of its Class A Common Stock in August 1996 (the
"IPO"), a follow-on offering of Class A Common Stock in February 1997 (the
"Follow-on Offering"), an offering of 6 1/2% trust convertible preferred
securities in June 1997 (the "Trust Preferred Offering"), and an offering of
83/8% Senior Notes in February 1998 (the "Senior Note Offering").
In August 1996, the Company completed the IPO, which resulted in net
proceeds to the Company of approximately $76.7 million. Of such net proceeds,
approximately $34.7 million was used to fund the $35.5 million cash portion of
the $97.5 million aggregate purchase price of three chemical carriers, ten
supply boats and one crew boat (the "August 1996 Acquisitions") and
approximately $42.0 million was used to repay indebtedness. The balance of the
purchase price of the August 1996 Acquisitions was paid by the assumption or
incurrence of $62.0 million of debt obligations. In addition, the Company agreed
to indemnify certain affiliates of one of the sellers for certain liabilities up
to a maximum of $7.0 million.
In February 1997, the Company completed the Follow-on Offering, which
resulted in net proceeds to the Company of approximately $94.3 million. Of such
amount, approximately $36.2 million was used to repay outstanding indebtedness.
Of the balance of approximately $58.1 million, $5.5 million was used to fund
vessel acquisitions, $20.9 million was used to fund the remainder of the
purchase price of four supply boats and one crew boat acquired in the second
quarter of 1997, $1.8 million was used to fund the purchase of one crew boat in
the third quarter of 1997, $6.9 million was designated to fund the refurbishment
and lengthening of two supply boats which were put into service during the
fourth quarter of 1997 and the remaining $23.0 million was available for general
corporate purposes and to fund a portion of the costs of the vessels being
constructed.
In May 1997, the Company acquired 35 offshore energy support vessels
operating primarily in the Arabian Gulf for consideration of $58.7 million,
consisting of cash of $49.0 million, a note payable in the amount of $6.0
million, and 141,760 shares of Class A Common Stock valued by the Company at
$3.7 million. Of the cash portion of the purchase price, $10.5 million was
funded from the Company's available cash and $38.5 million was drawn under the
Credit Facility.
In June 1997, the Company completed the Trust Preferred Offering, which
resulted in net proceeds to the Company of approximately $111.6 million. Of that
amount, approximately $94.2 million was used to repay amounts outstanding under
its bank credit facility and $6.0 million was used to repay the $6.0 million
note issued in the May 1997 GMMOS acquisition. The remaining $11.4 million was
used for general corporate purposes.
In October 1997, the Company completed the acquisition of a fleet of 35
offshore energy support vessels operating primarily in the Arabian Gulf, a
topside vessel repair facility, and certain related assets
36
for cash of $36.0 million, which was funded with borrowings under the Company's
bank credit facility. In October 1997, the Company also acquired all of the
outstanding stock of a harbor towing company that operates a fleet of six
tractor tugs and eight conventional harbor tugs, primarily in the port of Tampa,
Florida. The aggregate purchase price for the acquisition was $57.6 million,
consisting of cash of $37.0 million, which was funded with borrowings under the
Company's bank credit facility, and the assumption of approximately $20.6
million of debt, of which $5.5 million was repaid with borrowings under the
Company's bank credit facility.
In December 1997, the Company acquired a fleet of 14 offshore energy
support vessels, operating primarily in the Arabian Gulf, and certain related
assets for cash of $20.5 million, which was funded with borrowings under the
Company's bank credit facility.
In February 1998, the Company acquired a fleet of 37 offshore energy
support vessels, operating primarily offshore West Africa and offshore Southeast
Asia. The Company is operating 11 of the vessels pursuant to bareboat charters
pending their acquisition pursuant to the exercise of purchase options, which it
expects to occur during the second quarter of 1998. Of the $289.7 million
purchase price, $271.1 million was funded with borrowings under the Company's
bank credit facility and the remainder is payable upon the exercise of the
purchase options.
In February 1998, the Company completed the Senior Note Offering, which
resulted in net proceeds to the Company of approximately $291.7 million. Of that
amount, $266.7 was used to repay outstanding indebtedness and the balance was
available for general corporate purposes.
In February 1998, the Company entered into an amended and restated
revolving credit and term loan agreement (the "Amended Credit Agreement") with
Citibank, N.A., as Administrative Agent, and BankBoston, N.A. and BancBoston
Securities Inc., as Documentation Agent and Syndication Agent, respectively. The
Credit Facility merged the Company's revolving line of credit and term loan
under one agreement and requires that aggregate borrowings thereunder be secured
with a portion of the Company's assets, primarily vessels and subsidiary stock,
initially having an appraised value of approximately $400.0 million. The Credit
Facility provides for (i) a $175.0 million revolving credit facility that
matures February 12, 2003, and (ii) a $150.0 million term loan that matures
March 31, 2005, and that is payable in 28 equal quarterly installments
commencing on June 30, 1998 and ending on the maturity date. Borrowings under
the Credit Facility bear interest based on a rate tied to the Eurodollar or the
higher of (i) the base rate of the Administrative Agent or (ii) the Federal
Funds rate plus 0.5%, at the Company's option, plus a margin based upon the
ratio of the Company's consolidated debt to EBITDAR. The effective interest rate
under the Credit Facility was 6.625% at March 10, 1998. Pursuant to the Credit
Facility, the Company is required to meet certain financial tests and is subject
to certain covenants.
In March 1998, the Company acquired seven harbor tugs, two petroleum
product carriers, and a topside repair facility for a purchase price of $31.4
million. The purchase price was funded with borrowings under the Credit Facility
and invested proceeds of the Senior Note Offering.
The Company's future capital needs are expected to relate primarily to
debt service obligations, maintenance and improvements of its fleet, and
acquisitions. The Company's outstanding indebtedness under the Amended Credit
Agreement at March 10, 1998, was $154.0 million. The Company's principal and
interest payment obligations for 1998 are estimated to be approximately $63.8
million, and operating lease obligations for 1998 are estimated to be
approximately $4.9 million.
37
Capital requirements for vessel maintenance and improvements, including
scheduled drydockings, were approximately $20.0 million for 1997, and are
expected to be approximately $50.0 million for 1998.
During 1997, the Company constructed one SDM(TM) at a cost of $5.0
million, one double-hull barge at a cost of $1.0 million, and purchased four
additional double-hull barges for an aggregate of $2.4 million. These four
barges are currently being refurbished for an estimated aggregate cost of $2.6
million and will be deployed in Sun State's operations. The Company has
contracted for the construction of two additional SDMs(TM) at an estimated
aggregate cost of approximately $10.0 million with delivery expected in 1998.
The Company has contracted for the construction of six supply boats for delivery
during 1998 and 1999 at an estimated aggregate cost of $54.0 million, one of
which was delivered in January 1998. The Company has also agreed to purchase for
an estimated aggregate cost of $15.3 million, five newly constructed 152-foot
crew boats, scheduled for delivery in 1998 and 1999. The Company has also
contracted for the construction of two tugs at an estimated aggregate cost of
$9.1 million for delivery in the second quarter of 1998, and the construction of
a double-skin barge at an estimated cost of $1.9 million for delivery in 1998.
During 1997, the Company formed a joint venture with Aker Marine Contractors,
Inc. ("Aker") to construct and operate a 279-foot construction/anchor
handling/tug supply vessel. The Company's capital expenditure obligation with
respect to such joint venture is currently estimated to be approximately $20.8
million, of which $1.6 million was expended in 1997, and $16.9 million and $2.3
million are expected to be expended in 1998 and 1999, respectively. The Company
currently intends to fund the aggregate cost of the SDMs(TM), the crew boats,
the supply boats, the barges, the tugs, and the construction/anchor handling
tug/supply vessel from available working capital, borrowings under the Credit
Facility, lease financing, or a combination of such sources.
The Company has an 0.8% equity interest in four 45,300 dwt double-hull
product carriers that are currently under construction. The aggregate cost of
the four carriers is estimated to be $200.0 million, of which a substantial
portion is being financed with the proceeds of government-guaranteed Title XI
ship financing bonds issued in March 1996. The Company has agreed to purchase an
additional 25.0% interest during the first half of 1998 at an estimated cost of
$12.0 million and has an exclusive option to purchase the remaining 74.8%
interest at an estimated cost of $27.4 million.
In May 1997, the Company's board of directors authorized the repurchase
of up to 1,000,000 shares of the Company's Class A Common Stock. The amount of
funds required to repurchase Class A Common Stock will depend upon the actual
number of shares repurchased and the market price paid by the Company for those
shares. The Company has not repurchased any shares of Class A Common Stock under
this authorization.
The Company believes that the remaining proceeds of the Senior Note
Offering, cash generated from operations, and amounts available under the Credit
Facility will be sufficient to fund debt service requirements, planned capital
expenditures, and working capital requirements for the foreseeable future. The
Company also believes that such resources together with the potential future use
of debt or equity financing, will allow the Company to pursue its strategy of
growth through acquisitions. However, since future cash flows are subject to a
number of uncertainties, including the condition of the markets served by the
Company, there can be no assurance that these resources will continue to be
sufficient to fund the Company's cash requirements.
38
Forward-Looking Information
The Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements other than statements of historical fact included in the
MD&A, including statements regarding the Company's operating strategy, plans,
objectives and beliefs of management for future operations, planned capital
expenditures and vessel acquisition and construction are forward-looking
statements. Although the Company believes the expectations and beliefs reflected
in such forward-looking statements are reasonable, it can give no assurance that
they will prove to have been correct.
Effect of Inflation
The Company does not consider inflation a significant business risk in
the current and foreseeable future although the Company has experienced some
cost increases. In some cases, these increases have been offset by charter hire
escalation clauses.
Prospective Accounting Changes
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
This Statement established standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The new rule requires that the Company (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet. The Company plans to adopt SFAS No. 130 in 1998 and expects no
material impact to the Company's financial statement presentation.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. This Statement supersedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise," and amends
SFAS No. 94, "Consolidation of all Majority-Owned Subsidiaries." This Statement
requires annual financial statements to disclose information about products and
services, geographic areas and major customers based on a management approach,
along with interim reports. The management approach requires disclosing
financial and descriptive information about an enterprise's reportable operating
segments based on reporting information the way management organizes the
segments for making business decisions and assessing performance. It also
eliminates the requirement to disclose additional information about subsidiaries
that were not consolidated. This new management approach may result in more
information being disclosed than presently presented and require new interim
information not previously presented. The Company plans to adopt SFAS No. 131 in
1998 with impact only to the Company's disclosure information and not its
results of operations.
Impact of Year 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure
39
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment of their domestic computer
systems and is currently completing the installation of a management information
system that is year 2000 compliant. The Company is currently assessing the
information systems at overseas locations acquired during 1997 and believes it
will have to modify or replace portions of its software so that overseas
computer systems will function properly with respect to dates in the year 2000
and thereafter. The total expected cost to ensure overseas systems are year 2000
compliant is estimated to range from $3.0 to $3.5 million.
The overseas project is estimated to be completed not later than
December 31, 1998, which is prior to any anticipated impact on its operating
systems. The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Company.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertanties.
Item 8. Financial Statements
The Company's Consolidated Financial Statements are listed in Item
14(a)(1), included at the end of this report on Form 10-K beginning on page F-1,
and incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
40
Part III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 is contained in the Company's
Proxy Statement for the 1998 Annual Meeting of Shareholders under the captions
"Directors and Nominees" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934," and in Item 4a of this Report on Form 10-K, and is
incorporated herein by reference.
Item 11. Executive Compensation.
The information required by Item 11 is contained in the Company's
Proxy Statement for the 1998 Annual Meeting of Shareholders under the caption
"Executive Compensation," and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is contained in the Company's
Proxy Statement for the 1998 Annual Meeting of Shareholders under the caption
"Common Stock Ownership of Certain Beneficial Owners and Management," and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is contained in the Company's
Proxy Statement for the 1998 Annual Meeting of Shareholders under the caption
"Compensation Committee Interlocks and Insider Participation and Certain
Transactions," and is incorporated herein by reference.
41
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) List of Financial Statements. The following is a list of the
financial statements included at the end of this Report of Form 10-K beginning
on page F-1:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997
Notes to Consolidated Financial Statements
(2) List of Financial Statement Schedules. All schedules have been
omitted because they are not applicable or not required, or the required
information is provided in the financial statements or notes thereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the fiscal
year covered by this Report on Form 10-K.
(c) List of Exhibits. The following is a list of exhibits furnished.
Copies of exhibits will be furnished upon written request of any stockholder at
a charge of $.25 per page plus postage.
Exhibit
Number Exhibit
3.1 Amended and Restated Articles of Incorporation.(5)
3.2 Bylaws of the Company, as amended.(5)
4.1 Form of Class A Common Stock Certificate (Domestic).(5)
4.2 Form of Class A Common Stock Certificate (Foreign).(5)
4.3 Certificate of Trust of Hvide Capital Trust.(8)
4.4 Amended and Restated Declaration of Trust, dated as of June 27, 1997,
among Hvide Marine Incorporated as Depositor, The Bank of New York as
Property Trustee, The Bank of New York (Delaware) as Delaware
Trustee, and J. Erik Hvide, John H. Blankley and Gene Douglas as
Administrative Trustees.(8)
4.5 Indenture for the 6 1/2% Convertible Subordinated Debentures, dated
as of June 27, 1997, among Hvide Marine Incorporated and The Bank of
New York, as Indenture Trustee.(8)
4.6 Form of 6 1/2% Preferred Securities.(8)
4.7 Form of 6 1/2% Convertible Debentures.(8)
4.8 Preferred Securities Guarantee Agreement, dated as of June 27, 1997,
between Hvide Marine Incorporated, as Guarantor, and The Bank of New
York, as Guarantee Trustee.(8)
4.9 Indenture, dated February 19, 1998, among Hvide Marine Incorporated,
the Subsidiary Guarantors named therein and the Bank of New York as
Trustee.(12)
42
4.10 Registration Rights Agreement, dated as of February 19, 1998, among
Hvide Marine Incorporated, the Subsidiary Guarantors named therein
and Donaldson, Lufkin & Jenrette Securities Corporation and the other
Initial Purchasers.(12)
10.1 Non-Compete Agreement, between the Company and Hans J. Hvide, dated
September 28, 1994.(2)
10.2 Equity Ownership Plan.(6)
10.3 Stock Option Plan for Directors.(6)
10.4.1 1996 Employee Stock Purchase Plan.(6)
10.4.2 Retirement Plan and Trust. (7)
10.5 Security Agreement, dated December 14, 1973, relating to United
States Government Ship Financing Bonds, between The Provident Bank
and The United States of America, with respect to Seabulk
Challenger/S.T.L. 3901.(1)
10.6* Bareboat Charter, dated as of December 14, 1973, by and between The
Provident Bank and Seabulk Tankers, Ltd., with respect to Seabulk
Challenger/S.T.L. 3901.(1)
10.7* Time Charter Party, dated as of December 20, 1989, between Seabulk
Tankers, Ltd., and Shell Oil Company with respect to Seabulk
Challenger/S.T.L. 3901, as amended.(1)
10.8 Security Agreement, dated August 20, 1975, by and among Port
Everglades Towing, Inc., Central National Bank of Cleveland and The
United States of America, with respect to the Seabulk
Magnachem/S.C.C. 3902, as amended.(1)
10.9* Bareboat Charter, dated February 24, 1977, by and between Central
National Bank of Cleveland and Seabulk Chemical Carriers, Inc., with
respect to Seabulk Magnachem/S.C.C. 3902, as amended.(1)
10.10 Sub-Bareboat Charter, dated January 16, 1988, between Seabulk
Chemical Carriers, Inc., and Hvide Shipping, Incorporated, with
respect to Seabulk Magnachem/S.C.C. 3902, as amended.(1)
10.12* Tanker Time Charter Party, dated December 15, 1989, between Seabulk
Ocean Systems Corporation and Ocean Specialty Tankers Corporation,
with respect with to Seabulk Magnachem/S.C.C. 3902, as amended.(1)
10.13* Tanker Time Charter Party, dated December 15, 1989, between Seabulk
Transmarine Partnership, Ltd., and Ocean Specialty Tankers
Corporation, with respect to Seabulk America.(1)
10.14 Franchise Agreement, dated as of January 8, 1975, by and between
Canaveral Port Authority and Port Everglades Towing, Inc.(1)
10.15 Non-Exclusive Franchise Agreement, dated as of March 7, 1991, by and
between Port Everglades Authority and Hvide Shipping,
Incorporated.(1)
10.16* Contract for Fuel Transportation, dated as of February 18, 1993, by
and between Florida Power & Light Company and Sun State Marine,
Incorporated.(1)
10.17 Post-Retirement Benefits Agreement between the Company and Hans J.
Hvide, dated September 28, 1994.(2)
10.18 Letter of Credit Agreement, dated as of September 29, 1994, between
Hvide Shipping, Inc. and Bank of Boston.(2)
10.19 Amended and Restated Credit Agreement dated as of June 21, 1996, by
and among Hvide Marine Incorporated, Citibank, N.A., The First
National Bank of Boston, BNY Financial Corporation, Hibernia National
Bank, and Amsouth Bank of Florida.(5)
10.20 Amended and Restated Credit Agreement dated as of February 3, 1997.
10.21 Amendment No. 2 to Charter of Seabulk Magnachem.(2)
10.22 Form of Recapitalization Agreement among Hvide Corp., Hvide Marine
Incorporated, the Junior Subordinated Noteholders, the Senior
Subordinated Noteholders, J. Erik Hvide, and certain trusts.(5)
43
10.23 Form of Registration Rights Agreement by and between Hvide Marine
Incorporated and certain shareholders.(5)
10.24 Form of Agreement Among Shareholders among certain shareholders.(5)
10.25 Form of Amended and Restated Contingent Share Issuance Agreement
among Hvide Marine Incorporated and certain purchasers.(5)
10.26 Registration Rights Agreement, dated June 27, 1997, between Hvide
Capital Trust and Donaldson, Lufkin & Jenrette Securities
Corporation, Howard, Weil, Labouisse, Friedrichs Incorporated and
Raymond James & Associates, Inc., as Purchasers.(8)
10.27 Asset Sale Agreement between Hvide Marine Incorporated and Wellington
Capital Limited.(9)
10.28 Revolving Credit Agreement dated September 30, 1997 by and among
Hvide Marine Incorporated, Citibank, N.A., as Administrative Agent,
BankBoston, N.A., as Syndicate Agent, with Citicorp Securities, Inc.
and BankBoston Securities, Inc., having acted as Arrangers.(10)
10.29 Purchase Agreement between Hvide Marine Incorporated and Care
Offshore, Inc.(11)
10.30 Amended and Restated Revolving Credit and Term Loan Agreement, dated
as of February 12, 1998 among Hvide Marine Incorporated, as Borrower,
the Subsidiary Guarantors named therein, the lending institutions
which are or may become parties thereto, CitiBank, N.A., as
Administrative Agent, BankBoston, N.A., as Documentation Agent and
BancBoston Securities, Inc., as Syndication Agent.(12)
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries.(12)
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
- -------------------
* Confidential treatment requested. The materials omitted from these
documents have been marked with an asterisk (*). The materials omitted
have been separately filed with the Commission pursuant to the
confidential treatment request.
(1) Incorporated herein by reference to Registration Statement on Form S-1
(Registration No. 33-78166) filed with the Commission on April 26, 1994.
(2) Incorporated herein by reference to Amendment No. 1 to Registration
Statement on Form S-1 (Registration No. 33-78166) filed with the
Commission on May 3, 1996.
(3) Incorporated herein by reference to Amendment No. 2 to Registration
Statement on Form S-1 (Registration No. 33-78166) filed with the
Commission on May 13, 1996.
(4) Incorporated herein by reference to Amendment No. 3 to Registration
Statement on Form S-1 (Registration No. 33-78166) filed with the
Commission on July 11, 1996.
(5) Incorporated herein by reference to Amendment No. 4 to Registration
Statement on Form S-1 (Registration No. 33-78166) filed with the
Commission on August 5, 1996.
(6) Incorporated herein by reference to Form S-8 (Registration No. 333-17621)
filed with the Commission on December 11, 1996.
(7) Incorporated herein by reference to Form S-8 (Registration No. 333-19543)
filed with the Commission on January 10, 1997.
(8) Incorporated herein by reference to Form S-3 (Registration No. 333-34941)
filed with the Commission on September 4, 1997.
(9) Incorporated herein by reference to Form 8-K filed with the Commission on
June 9, 1997.
(10) Incorporated herein by reference to Form 10-Q filed with the Commission
on November 7, 1997.
(11) Incorporated herein by reference to Form 8-K filed with the Commission on
February 25, 1998.
(12) Incorporated herein by reference to Form S-4 (Registration No. 333-42039)
filed with the Commission on March 18, 1998.
44
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.
HVIDE MARINE INCORPORATED
By: /s/ J. ERIK HVIDE
J. Erik Hvide
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ J. ERIK HVIDE Chairman of the Board, March 30, 1998
- --------------------------------------
J. Erik Hvide President, Chief Executive
Officer and Director
(principal executive officer)
/s/ JOHN H. BLANKLEY Executive Vice March 30, 1998
- --------------------------------------
John H. Blankley President -- Chief Financial
Officer and Director
(principal financial officer)
/s/ EUGENE F. SWEENEY Executive Vice President and March 30, 1998
- --------------------------------------
Eugene F. Sweeney Director
/s/ JOHN J. KRUMENACKER Controller (principal accounting March 30, 1998
- --------------------------------------
John J. Krumenacker officer)
/s/ ROBERT B. CALHOUN, JR. Director March 30, 1998
- --------------------------------------
Robert B. Calhoun, Jr.
/s/ GERALD FARMER Director March 30, 1998
- --------------------------------------
Gerald Farmer
/s/ JEAN FITZGERALD Director March 30, 1998
- --------------------------------------
Jean Fitzgerald
/s/ JOHN J. LEE Director March 30, 1998
- --------------------------------------
John J. Lee
/s/ WALTER C. MINK Director March 30, 1998
- --------------------------------------
Walter C. Mink
/s/ ROBERT RICE Director March 30, 1998
- --------------------------------------
Robert Rice
Director March , 1998
Raymond B. Vickers
/s/ JOSIAH O. LOW III Director March 30, 1998
- --------------------------------------
Josiah O. Low III
45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Hvide Marine Incorporated
We have audited the accompanying consolidated balance sheets of Hvide
Marine Incorporated and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing
standards. 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 Hvide
Marine Incorporated and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Miami, Florida
February 19, 1998,
except for the third paragraph
of Note 18, as to which the date is
March 16, 1998
F-1
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
1996 1997
(In thousands, except
share amounts)
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 9,617 $ 14,952
Accounts receivable:
Trade, net of allowances for doubtful accounts of $115 and $1,093, respectively...... 16,049 36,903
Insurance claims and other........................................................... 1,717 3,234
Inventory, spare parts and supplies.................................................... 5,517 8,162
Prepaid expenses....................................................................... 1,253 3,085
Deferred costs......................................................................... 4,173 4,516
-------- --------
Total current assets................................................................. 38,326 70,852
Property:
Construction in progress............................................................... 8,041 42,010
Vessels and improvements............................................................... 229,776 492,070
Less accumulated depreciation........................................................ (27,480) (45,463)
Furniture and equipment................................................................ 4,502 7,366
Less accumulated depreciation........................................................ (1,409) (1,625)
-------- --------
Net property......................................................................... 213,430 494,358
Other assets:
Deferred costs......................................................................... 4,645 9,580
Investment in affiliates............................................................... 1,291 1,627
Goodwill (net)......................................................................... 8,612 25,361
Deposits and other..................................................................... 7,169 2,783
-------- --------
Total other assets................................................................... 21,717 39,351
-------- --------
Total................................................................................ $273,473 $604,561
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................................................... $ 24,375 $ 7,534
Current obligations under capital leases............................................... 1,443 1,714
Accounts payable....................................................................... 6,278 17,187
Charter hire and other liabilities..................................................... 14,934 18,627
--------- ---------
Total current liabilities............................................................ 47,030 45,062
Long-term liabilities:
Long-term debt......................................................................... 108,154 177,573
Obligations under capital leases....................................................... 7,492 10,726
Deferred income taxes.................................................................. 6,385 25,649
Other.................................................................................. 2,423 3,269
--------- ---------
Total long-term liabilities.......................................................... 124,454 217,217
--------- ---------
Total liabilities.................................................................... 171,484 262,279
Company obligated mandatorily redeemable preferred securities issued
by a consolidated subsidiary........................................................... -- 115,000
Minority partners' equity in subsidiaries................................................. 898 2,295
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $1.00 par value--authorized 10,000,000 shares,
issued and outstanding, none......................................................... -- --
Class A Common Stock--$.001 par value, authorized 100,000,000
shares, issued and outstanding, 7,647,791 and 12,382,435............................. 8 12
Class B Common Stock--$.001 par value, authorized 5,000,000 shares
issued and outstanding, 3,419,577 and 2,906,465...................................... 3 3
Additional paid-in capital............................................................. 97,153 195,522
Retained earnings...................................................................... 3,927 29,450
--------- ---------
Total stockholders' equity......................................................... 101,091 224,987
--------- ---------
Total minority partners' equity in subsidiaries and stockholders' equity........... 101,989 227,282
--------- ---------
Total.............................................................................. $ 273,473 $ 604,561
========= =========
See notes to consolidated financial statements
F-2
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1995 1996 1997
--------- ---------- ---------
(In thousands, except
per share data)
Revenues..................................................................... $ 70,562 $109,356 $ 210,257
Operating expenses:
Crew payroll and benefits................................................. 20,132 29,756 48,732
Charter hire and bond guarantee fee....................................... 4,063 4,667 10,548
Repairs and maintenance................................................... 5,347 8,984 15,512
Insurance................................................................. 4,547 7,633 8,867
Consumables............................................................... 3,395 6,643 13,654
Other..................................................................... 3,180 6,094 12,970
--------- -------- ---------
Total operating expenses................................................ 40,664 63,777 110,283
Selling, general and administrative expenses:
Salaries and benefits..................................................... 6,856 7,936 12,052
Office expenses........................................................... 1,068 1,394 2,248
Professional fees......................................................... 2,137 2,947 4,683
Other..................................................................... 2,457 2,702 5,808
--------- -------- ---------
Total overhead expenses................................................. 12,518 14,979 24,791
Depreciation and amortization................................................ 6,308 9,830 19,850
--------- -------- ---------
Income from operations....................................................... 11,072 20,770 55,333
Interest:
Interest expense.......................................................... 11,748 11,908 8,341
Interest income........................................................... (288) (277) (1,317)
--------- -------- ---------
Net interest............................................................ 11,460 11,631 7,024
Other income (expense):
Minority interest and equity in earnings of subsidiaries.................. 137 894 (3,527)
Other..................................................................... (111) (457) (177)
--------- -------- ---------
Total other income (expense)............................................ 26 437 (3,704)
Income (loss) before provision for (benefit from) income
taxes and extraordinary item.............................................. (362) 9,576 44,605
Provision for (benefit from) income taxes.................................... (2) 3,543 16,950
--------- -------- ---------
Income (loss) before extraordinary item...................................... (360) 6,033 27,655
Loss on early extinguishment of debt, net of applicable
income taxes of $1,474 and $1,252 in 1996 and 1997, respectively.......... -- 8,108 2,132
-------- -------- ---------
Net income (loss)....................................................... $ (360) $ (2,075) $ 25,523
========= ======== =========
Earnings (loss) per common share:
Income (loss) before extraordinary item...................................... $ (0.14) $ 1.05 $ 1.87
Loss on early extinguishment of debt......................................... -- (1.41) (0.14)
--------- -------- ---------
Net income (loss) per common share...................................... $ (0.14) $ (0.36) $ 1.73
========= ======== =========
Earnings (loss) per common share--assuming dilution:
Income (loss) before extraordinary item...................................... $ (0.14) $ 0.99 $ 1.75
Loss on early extinguishment of debt......................................... -- (1.23) (0.12)
--------- -------- ---------
Net income (loss) per common share--assuming dilution.................... $ (0.14) $ (0.24) $ 1.63
========= ======== =========
Weighted average common shares outstanding................................... 2,535 5,763 14,785
========= ======== =========
Weighted average common and common equivalent
shares outstanding--assuming dilution...................................... 2,535 6,590 17,120
========= ======== =========
See notes to consolidated financial statements
F-3
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Class A Class B Class C
Common Stock Common Stock Common Stock Additional
Paid-In Retained
Shares Amount Shares Amount Shares Amount Capital Earnings Total
--------- ------- --------- --------- --------- ------- --------- --------- -----
(In thousands, except share amounts)
Balance at January 1,
1995.................. -- $ -- 1,558,210 $ 1 976,630 $ 1 $ 6,341 $ 6,362 $ 12,705
Net loss................ -- -- -- -- -- -- -- (360) (360)
----------- ------- --------- -------- --------- ------- --------- ---------- --------
Balance at December 31,
1995.................. -- -- 1,558,210 1 976,630 1 6,341 6,002 12,345
Common Stock issued, net
of issuance costs..... 7,647,791 8 1,861,367 2 (976,630) (1) 90,812 -- 90,821
Net loss................ -- -- -- -- -- -- -- (2,075) (2,075)
----------- ------- --------- -------- --------- ------- --------- ---------- --------
Balance at December 31,
1996.................. 7,647,791 8 3,419,577 3 -- -- 97,153 3,927 101,091
Common Stock issued in
public offering, net of
issuance costs........ 4,000,000 4 -- -- -- -- 93,516 -- 93,520
Conversion of Class B
Common Stock to Class
A Common Stock........ 513,112 -- (513,112) -- -- -- -- -- --
Common Stock issued in
connection with
acquisition........... 141,760 -- -- -- -- -- 3,650 -- 3,650
Common Stock issued
upon exercise of
stock options......... 53,425 -- -- -- -- -- 641 -- 641
Common Stock issued
pursuant to employee
stock purchase plan 21,639 -- -- -- -- -- 467 -- 467
Common Stock issued to
directors............. 4,708 -- -- -- -- -- 95 -- 95
Net income.............. -- -- -- -- -- -- -- 25,523 25,523
----------- ------- --------- -------- --------- ------- --------- ---------- --------
Balance at December 31,
1997.................. 12,382,435 $ 12 2,906,465 $ 3 -- $ -- $ 195,522 $ 29,450 $224,987
=========== ======= ========= ======== ========= ======= ========= ========== ========
See notes to consolidated financial statements.
F-4
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1995 1996 1997
-------- -------- ------
(In Thousands)
Other activities:
Net income (loss)......................................................... $ (360) $ (2,075) $ 25,523
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Loss on early extinguishment of debt, net............................... -- 8,108 2,132
Depreciation and amortization of property............................... 4,770 8,291 19,093
Amortization of drydocking costs........................................ 1,517 3,057 5,350
Amortization of intangible assets....................................... 505 505 757
Amortization of discount on long-term debt and financing costs 1,234 1,196 680
Provision for bad debts................................................. 114 125 1,029
Loss (gain) on disposals of property.................................... (73) (13) 524
Provision for (benefit from) deferred taxes............................. (2) 3,543 13,147
Minority partners' equity in losses of subsidiaries, net (625) (756) (183)
Undistributed (earnings) losses of affiliates, net...................... 488 (132) (110)
Other non-cash items.................................................... -- 36 95
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable.................................................. (5,056) (1,928) (20,640)
Other assets......................................................... (3,228) (1,978) (9,500)
Accounts payable and other liabilities............................... 4,664 4,605 2,145
-------- --------- ----------
Net cash provided by operating activities.................................... 3,948 22,584 40,042
Investing activities:
Purchase of property...................................................... (6,312) (8,759) (67,117)
Deposits for the purchase of property..................................... -- (6,349) (910)
Proceeds from disposals of property....................................... 690 8 1,633
Capital contribution to affiliates........................................ -- (736) (226)
Acquisitions, net of escrow deposit of $500
utilized in 1995, net of cash acquired of
$1,722 in 1996 and net of escrow deposits
utilized of $6,349 and cash acquired of $3,525 in 1997................... (2,444) (68,518) (194,723)
-------- --------- ----------
Net cash used in investing activities........................................ (8,066) (84,354) (261,343)
Financing activities:
Proceeds (repayments) of short-term borrowings, net....................... 7,500 1,994 (16,242)
Proceeds from long-term debt.............................................. -- 36,964 177,210
Proceeds from issuance of common stock, net............................... -- 76,595 94,628
Proceeds from issuance of redeemable preferred securities, net -- -- 111,109
Principal payments of long-term debt...................................... (5,458) (45,189) (135,877)
Payment of financing costs................................................ (727) (838) (2,724)
Payment of obligations under capital leases............................... (510) (1,189) (1,468)
-------- --------- ----------
Net cash provided by financing activities.................................... 805 68,337 226,636
-------- --------- ----------
Increase (decrease) in cash and cash equivalents............................. (3,313) 6,567 5,335
Cash and cash equivalents at beginning of period............................. 6,363 3,050 9,617
-------- --------- ----------
Cash and cash equivalents at end of period................................... $ 3,050 $ 9,617 $ 14,952
======== ========= ==========
Supplemental schedule of noncash investing and financing activities
Net assets recorded in connection with dissolution of affiliate $ 341 $ -- $ --
========= ======== ==========
Notes payable issued for the acquisition of vessels.......................... $ 3,000 $ 675 $ 6,000
========= ======== ==========
Capital lease obligations for the acquisition of vessels and
equipment................................................................. $ -- $ 6,098 $ 4,972
======== ========= ==========
Title XI debt assumed for the acquisition of vessels......................... $ -- $ 34,650 $ 15,057
======== ========= ==========
Short-term debt assumed in connection with acquisition of business $ -- $ -- $ 5,595
======== ========= ==========
Common stock issued for the redemption of notes payable...................... $ -- $ 307 $ --
======== ========= ==========
Common stock issued for the repayment of debt................................ $ -- $ 13,883 $ --
======== ========= ==========
Common stock issued for the acquisition of vessels........................... $ -- $ -- $ 3,650
======== ========= ==========
See notes to consolidated financial statements
F-5
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Description of Business and Significant Accounting and Reporting Policies
Description of Business. Hvide Marine Incorporated is a provider of
marine support and transportation services, serving primarily the energy and
chemical industries. The Company operates offshore energy support vessels in the
U.S. Gulf of Mexico, the Arabian Gulf, and Southeast Asia. The Company's fleet
of tankers transports petroleum products and specialty chemicals in the U.S.
domestic trade. The Company also provides commercial tug services in several
ports in the southeastern U.S.
Organization and Basis of Consolidation. The accompanying consolidated
financial statements include the accounts of Hvide Marine Incorporated ("HMI")
and its majority-owned subsidiaries (collectively the "Company"). All material
intercompany transactions and balances have been eliminated in the consolidated
financial statements.
Revenues. Revenues from time charters are earned and recognized on a
daily basis. Time charter rates are adjusted periodically based on changes in
specified price indices and market conditions. Revenues on voyage contracts are
recognized based upon the percentage of voyage completion.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
Insurance Claims Receivable. Insurance claims receivable represent
costs incurred in connection with insurable incidents for which the Company
expects to be reimbursed by the insurance carrier(s), subject to applicable
deductibles. Deductible amounts related to covered incidents are expensed in the
period of occurrence of the incident.
Spare Parts and Supplies. Inventories consist of vessel spare parts,
fuel, and supplies that are recorded at cost and charged to vessel expenses as
consumed.
Long-Lived Assets. The Company accounts for long-lived assets pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which requires impairment losses to be recorded on long-lived assets used
in operations when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Management reviews long-lived assets
and the related intangible assets for impairment whenever events or changes in
circumstances indicate the assets may be impaired.
Property. Vessels, improvements and furniture and equipment are stated at
cost less accumulated depreciation. Major renewals and improvements are
capitalized and replacements, maintenance and repairs which do not improve or
extend the lives of the assets are expensed. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets. The
estimated useful lives of
F-6
vessels other than tankers range from 15 to 40 years and the estimated useful
lives of furniture and equipment are 3 to 10 years. Tankers and related
improvements are depreciated over estimated useful lives, as determined by the
Oil Pollution Act of 1990 and other factors, ranging from 3 to 23 years.
Vessels under capital leases are amortized over the estimated useful
lives of the vessels. Included in vessels and improvements at December 31, 1996
and 1997 are vessels under capital leases of approximately $11.6 million and
$17.6 million, net of accumulated amortization of approximately $0.3 million and
$1.0 million, respectively.
Deferred Costs. Deferred costs primarily represent drydocking and
financing costs. Drydocking costs are deferred and amortized over the period to
the next drydocking, generally 30 to 36 months. Deferred financing costs are
amortized over the term of the related borrowings. At December 31, 1996 and
1997, deferred costs include unamortized drydocking of approximately $6.3
million and $7.0 million, respectively.
Goodwill. Goodwill represents the excess of the purchase price over the
fair value of certain long-lived assets acquired and is amortized on the
straight-line basis over 20 to 40 years. The carrying value of goodwill is
reviewed if facts and circumstances suggest that it may be impaired. If this
review indicates that goodwill will not be recoverable, as determined based on
the estimated undiscounted cash flows of the assets acquired over the remaining
amortization periods, the carrying value will be adjusted accordingly. At
December 31, 1996 and 1997, accumulated amortization of goodwill was
approximately $2.2 million and $2.8 million, respectively.
Income Taxes. HMI files a consolidated tax return with all corporate
subsidiaries other than Seabulk Ocean Systems Holdings, Inc., Seabulk Ocean
Systems Corporation and Ocean Specialty Tankers Corporation which file a
separate consolidated income tax return. Each partnership and trust subsidiary
files a separate tax return.
Deferred income tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws in effect when the
differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents in banks, trade accounts receivable and insurance claims
receivable. The credit risk associated with cash and cash equivalents in banks
is considered low due to the credit quality of the financial institutions. The
Company performs ongoing credit evaluations of its trade customers and generally
does not require collateral. The credit risk associated with insurance claims
receivable is considered low due to the credit quality and funded status of the
insurance pools that the Company participates in.
Recently Issued Accounting Pronouncements. In 1997, the Company adopted
SFAS No. 128, "Earnings per Share" (EPS). EPS amounts for all periods presented
have been restated, where appropriate, to conform to the SFAS No. 128
requirements. Earnings (loss) per common share is calculated based on the
weighted average number of common shares outstanding during the period. Earnings
(loss) per common share assuming dilution includes the effect of the weighted
average number
F-7
of common and dilutive common equivalent shares outstanding and the if-converted
effect of dilutive securities outstanding during the respective periods.
SFAS No. 130, "Reporting Comprehensive Income" is effective in 1998. SFAS
No. 130 establishes standards for reporting and displaying comprehensive income.
The adoption of this statement is not expected to result in a significant change
from the current required disclosures.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" is effective in 1998. This statement abandons the "Industry Segment
Approach" in favor of the "Management Approach" for disclosure purposes.
Adoption of this statement will only effect the Company's disclosures.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications. Certain amounts from prior periods' consolidated
financial statements have been reclassified to conform with the current period's
presentation.
2. Debt
Long-term debt consisted of the following (in thousands):
December 31,
1996 1997
------------- -------------
Lines of Credit........................................................ $ 10,647 $ 135,000
Term Loan.............................................................. 58,500 --
Acquisition Line....................................................... 9,700 --
Senior Note............................................................ 9,153 --
Title XI Debt.......................................................... 32,243 42,162
Notes Payable.......................................................... 12,286 7,945
------------- -------------
132,529 185,107
Less: Current maturities.............................................. (24,375) (7,534)
------------- -------------
$ 108,154 $ 177,573
============= =============
On November 26, 1997, the Company entered into a term loan agreement
(the "Term Loan Agreement") that provides for a $300.0 million term loan to fund
the cash portion of qualifying future acquisitions, as defined. Advances under
the Term Loan Agreement may be drawn at any time prior to April 1, 1998 and are
payable in 28 quarterly installments from June 30, 1998 through March 31, 2005.
There were no amounts outstanding under the Term Loan Agreement at December 31,
1997. (See Notes 5 and 18.)
Borrowings under the Term Loan Agreement, when drawn, will bear
interest based on one of two calculations set forth in the Term Loan Agreement,
at the Company's option, plus a margin based on the Company's compliance with
certain financial ratios. One interest rate calculation is tied to the
F-8
Eurodollar Rate and the other calculation is tied to the higher of the base rate
of the administrative agent named in the Term Loan Agreement or the Federal
Funds Effective Rate (the "Base Rate"). The Term Loan Agreement allows the
Company to convert its outstanding loans from Eurodollar Rate loans to Base Rate
loans, and vice versa, from time to time.
On September 30, 1997, the Company entered into a credit agreement (the
"Credit Agreement") that provides for a $175.0 million revolving line of credit
through September 30, 1999, at which time availability decreases by $6.0 million
per quarter until September 30, 2002 (the "Maturity Date"). The Company's
outstanding indebtedness under the Credit Agreement was $135.0 million at
December 31, 1997.
Borrowings under the Credit Agreement bear interest based on one of two
calculations set forth in the Credit Agreement, at the Company's option, plus a
margin based on the Company's compliance with certain financial ratios. One
interest rate calculation is tied to the Eurodollar Rate and the other
calculation is tied to the higher of the base rate of the administrative agent
named in the Credit Agreement or the Base Rate. The Credit Agreement allows the
Company to convert its revolving credit loans from Eurodollar Rate loans to Base
Rate loans, and vice versa, from time to time. Such Borrowings were accruing
interest at approximately 6.5% at December 31, 1997. On the Maturity Date, all
amounts outstanding under the revolving line of credit, together with accrued
and unpaid interest, will become due and payable. Prior to the Maturity Date,
the Company may repay any outstanding amount, in whole or in part, without
penalty or premium.
Covenants under the Credit Agreement and the Term Loan Agreement, among
other things, (i) require the Company to meet certain financial tests, including
tests requiring the maintenance of minimum leverage ratios, debt service
coverage ratios, and indebtedness to tangible net worth ratios; (ii) limit the
creation or incurrence of certain liens; (iii) limit the incurrence of
additional indebtedness; (iv) limit the Company from making certain investments;
(v) restrict certain payments, including dividends, with respect to shares of
any class of capital stock; (vi) restrict modification of the terms of the
Preferred Securities, and in certain circumstances the repayment, redemption, or
repurchase of the Preferred Securities; and (vii) limit certain corporate acts
of the Company such as making certain dispositions of assets, and entering into
certain types of business transactions, including certain mergers and
acquisitions.
On August 30, 1997, the Company secured a $5.6 million stand-by letter
of credit with one of its banks for a period of one year which, unless
terminated, renews automatically for additional one year periods. The letter of
credit is collateral for a surety bond to fund any final award relating to the
shipyard's claims discussed in Note 5. There were no amounts outstanding under
the letter of credit at December 31, 1997.
On September 28, 1994, and as amended on February 3, 1997, the Company
entered into an agreement for a credit facility (the "Credit Facility") which
provided for a revolving working capital credit line of $20.0 million through
January 15, 2002 (the "Revolving Line") and a stand-by letter of credit of $5.6
million. The Credit Facility was replaced with the Credit Agreement dated
September 30, 1997. Borrowings outstanding under the Revolving Line were
approximately $8.0 million at December 31, 1996.
F-9
The Credit Facility, as amended, also provided for a term loan (the
"Term Loan") of up to $56.8 million and a $50.0 million acquisition line of
credit (the "Acquisition Line") to fund the cash portion of acquisitions.
Borrowings outstanding under the Term Loan and Acquisition Line were repaid with
a portion of the proceeds from the Private Offering on June 27, 1997 and the
Second Offering on February 5, 1997, respectively. (See Notes 4 and 10.)
On September 30, 1994, and as amended on May 24, 1995, the Company
issued a $25.0 million senior subordinated note (the "Senior Note"). The Company
received net proceeds of approximately $23.1 million. In 1996, $15.2 million of
the Senior Note was repaid with a portion of the proceeds from the Company's
initial public offering (the "IPO"). The remaining balance was repaid with a
portion of the proceeds of the Second Offering. (See Note 10.)
On August 14, 1996, the Company assumed Title XI debt of approximately
$34.7 million in connection with the acquisition of certain vessels.
Additionally, on October 16, 1997, the Company assumed Title XI debt of
approximately $15.1 million in connection with the purchase of the outstanding
common stock of an entity. (See Note 13). The Title XI debt is collateralized by
first preferred mortgages on certain vessels and bears interest at rates ranging
from 5.4% to 10.1%. The debt is due in semiannual principal and interest
payments through June 1, 2021. Under the terms of the Title XI debt, the Company
is required to maintain a minimum level of working capital, as defined, and
comply with certain other financial covenants.
On August 14, 1996 and November 20, 1996, the Company issued notes
payable aggregating $10.5 million for the acquisition of vessels. The notes bear
interest at rates ranging from 7.92% to 10% and mature at various dates through
November 2011. Amounts outstanding under the notes totaled $9.9 million and $7.9
million at December 31, 1996 and 1997, respectively.
The aggregate annual future payments due on debt and notes payable as
of December 31, 1997 are as follows (in thousands):
1998.............................................. $ 7,534
1999.............................................. 9,012
2000.............................................. 5,695
2001.............................................. 4,443
2002.............................................. 137,893
Thereafter........................................ 20,530
-----------
$ 185,107
===========
The Company made interest payments of approximately $9.0 million, $19.2
million and $9.2 million in 1995, 1996 and 1997, respectively and capitalized
interest of approximately $0.9 million in 1997. No interest was capitalized in
1995 and 1996.
F-10
3. Capital Leases
The Company owns certain vessels and other equipment under leases that
are classified as capital leases. The following is a schedule of future minimum
lease payments under capital leases together with the present value of the net
minimum lease payments as of December 31, 1997 (in thousands):
1998....................................................... $ 2,569
1999....................................................... 2,477
2000....................................................... 2,369
2001....................................................... 2,091
2002....................................................... 1,189
Thereafter................................................. 6,500
--------
Total minimum lease payments............................... 17,195
Less amount representing interest.......................... (4,755)
--------
Present value of minimum lease payments (including current
portion of $1,714)...................................... $ 12,440
========
4. Company Obligated Mandatorily Redeemable Preferred Securities Issued by a
Subsidiary
On June 24, 1997, the Company completed a private offering (the
"Private Offering") of 2,300,000 of 6 1/2% Trust Convertible Preferred
Securities (the "Preferred Securities"). The Preferred Securities were issued by
Hvide Capital Trust (the "Trust"), a 100%-owned subsidiary of the Company. The
Trust exists for the sole purpose of issuing the Preferred Securities and
investing the proceeds from the issuance thereof in 6 1/2% Convertible
Subordinated Debentures due June 15, 2012 (the "Debentures") issued by the
Company. The net proceeds to the Company were approximately $111.1 million,
after deducting underwriting commissions and other offering expenses. Of such
amount, approximately $94.2 million was used to repay amounts outstanding under
the Credit Facility and $6.0 million was used to repay other indebtedness. The
remaining $10.9 million was available for general corporate purposes.
Holders of the Preferred Securities are entitled to receive
preferential cumulative cash distribution from the Trust at an annual rate of 6
1/2% of the liquidation preference of $50 per Preferred Security accruing from
the date of the original issuance of the Preferred Securities and payable
quarterly in arrears on January 1, April 1, July 1 and October 1 of each year,
commencing on October 1, 1997. The distribution rate and the distribution and
other payment dates for the Preferred Securities correspond to the interest rate
and interest and other payment dates for the Debentures, which are the sole
assets of the Trust. Through certain undertakings, including a guarantee, the
Declaration of Trust, the Trust Indenture and the Debentures, the Company
provides a full and unconditional guarantee of the Trust's obligations under the
Preferred Securities.
The Preferred Securities are convertible, beginning September 25, 1997
and prior to the maturity date of the Debentures or, in the case of Preferred
Securities called for redemption, prior to the close of business on the business
day prior to the redemption date, at the option of the holder into shares of the
Company's Class A Common Stock at the rate of 1.7544 shares of Class A Common
Stock for each Preferred Security (equivalent to a conversion price of $28.50
per share of Class A Common Stock), subject to adjustment in certain
circumstances.
F-11
5. Commitments and Contingencies
The Company leases its office facilities under operating lease
agreements which expire at various dates through 2002. Rent expense under such
leases was $591,000, $699,000, and $929,000 for the years ending December 31,
1995, 1996 and 1997, respectively.
A portion of the Company's operations consists of charters of
ocean-going vessels. Two tankers are bareboat chartered for periods extending
through the years 1999 and 2002. Charter hire expense on these tankers was
approximately $3.2 million for each of the years ended December 31, 1995, 1996
and 1997. Additionally, one tug is bareboat chartered through the year 2010.
Charter hire expense on this tug was approximately $217,000, $614,000 and
$614,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
Aggregate annual future payments due under non-cancelable operating
leases and charter agreements are as follows (in thousands):
1998...................................... $ 4,938
1999...................................... 5,031
2000...................................... 3,680
2001...................................... 3,698
2002...................................... 2,703
------------
$ 20,050
In 1990, the Company withheld approximately $2.4 million from a
shipyard relating to delays and other problems encountered in the construction
of a vessel. In 1993, the shipyard filed a claim to recover approximately $8.5
million for costs allegedly due the shipyard, and the Company asserted a
counterclaim for approximately $5.6 million against the shipyard. In addition,
the shipyard is seeking $10.0 million of punitive damages. Management believes
the shipyard's claim amounts are unsubstantiated and that recoveries upon the
Company's counterclaim, together with insurance coverage, will exceed amounts,
if any, which may be awarded to the shipyard. Management believes that the
additional costs incurred to complete the construction of the vessel exceeded
the amounts withheld (settlement of construction costs, if any, would generally
be capitalized and depreciated over future periods); however, the Company is
unable to predict the final outcome of this matter.
At December 31, 1997, Hvide Partners, L.P. ("HPLP"), an affiliated
entity in which the Company participates as the sole general partner, was party,
through its five 75%-owned limited liability companies Hvide Van Ommeren Tankers
I-V LLC ("HVOT I-V"), to contracts for the construction of five double-hull
petroleum product carriers. Construction on the vessels is expected to be
completed in 1998 and 1999. (See Note 18.)
In December 1997, the Company entered into an agreement, as amended, to
purchase 37 offshore energy support vessels for an aggregate cost of
approximately $289.7 million. At February 13, 1998, the Company had completed
the acquisition of 26 of the vessels and is operating 11 vessels pursuant to
bareboat charters pending their acquisition during April 1998. Vessels acquired
were financed under the Company's Term Loan Agreement. The Company has entered
into a management agreement with an affiliate of the seller pursuant to which
the affiliate will continue to manage the
F-12
operations of the fleet, in exchange for a per diem management fee per vessel,
for a minimum term of six months that may be extended for up to an additional 30
months at the Company's option.
At December 31, 1997, the Company had contracted for the construction
of 15 vessels under various agreements for an aggregate cost of approximately
$99.1 million. The vessels are to be delivered on various dates from April 1998
to July 1999. At December 31, 1997, the Company had incurred approximately $18.1
million of construction costs under such agreements. Capital requirements under
the agreements for the years ended December 31, 1998 and 1999 are estimated to
be approximately $69.8 million and $11.2 million, respectively.
6. Employee Benefit Plans
The Company sponsors a retirement plan and trust (the "Plan")
established pursuant to Section 401(k) of the Internal Revenue Code, which
covers substantially all employees. Subject to certain dollar limitations,
employees may contribute a percentage of their salaries to this Plan, and the
Company will match a portion of the employees' contributions. Profit sharing
contributions by the Company to the Plan are discretionary. For the years ended
December 1995, 1996 and 1997, the Company contributed approximately $1.0
million, $1.3 million and $1.5 million, respectively, to the Plan.
7. Stock Option Plans
During 1996, the Company's Board of Directors approved two stock option
plans covering substantially all employees. The Equity Ownership Plan (the
"EOP") provides for the issuance of a maximum of 1,000,000 shares of Common
Stock. Under the terms of the EOP, the Company is authorized to grant incentive
stock options (ISOs), nonqualified stock options (NSOs), stock appreciation
rights, stock awards, and cash awards. Options and other awards are issuable at
the discretion of committees appointed by the Board of Directors and generally
vest ratably over a four year period. Pursuant to the EOP, options may be
granted to employees at exercise prices not less than market value at date of
grant and, to employees who own more than 10% of the Company's combined voting
power, at exercise prices not less than 110% of the market value at date of
grant. Option terms range from 5 to 10 years.
The Stock Option Plan for Directors covers directors of the Company and
provides for the issuance of a maximum of 70,000 shares of Common Stock. Under
the Stock Option Plan for Directors, each director will receive, upon the date
of their initial election, options to purchase 5,000 shares of Common Stock and
will receive options to purchase 1,500 shares of Common Stock each year
following the grant of the initial options. The exercise price for all options
granted will be equal to the fair market value of the Common Stock at the date
of grant and will become 100% vested and exerciseable on the first anniversary
date of the date of grant. Option terms are for a period of 10 years.
Information for all stock option plans for the years ended December 31,
1996 and 1997 is as follows. There were no stock options granted prior to the
Company's initial public offering in August 1996.
F-13
1996 1997
--------------------------- ---------------------------
Weighted Weighted
Number average Number average
of exercise of exercise
options price options price
Options outstanding at beginning of year -- $ -- 806,000 $ 12.00
Granted.................................... 806,000 12.00 150,950 28.96
Exercised.................................. -- -- (53,425) 12.00
Canceled................................... -- -- (9,500) 14.73
---------- ---------
Options outstanding at end of year........... 806,000 12.00 894,025 14.83
========== =========
Options exercisable at end of year........... 35,000 12.00 99,325 12.00
Options available for future grants at end
of year.................................... 264,000 113,050
Weighted average fair value of options
granted during the year.................... 7.78 18.38
Options Outstanding
Weighted
Options average Options
outstanding at remaining exercisable at
December 31, contractual life December 31,
Exercise price 1997 (in years) 1997
- ---------------------- --------------- ----------------- --------------
$ 12.00 744,325 8 99,325
17.00 25,000 9 --
23.00 10,500 9 --
28.00 16,000 10 --
32.75 98,200 10 --
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted by SFAS No. 123, the Company continues to follow the
measurement provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and does not recognize compensation
expense for its stock based incentive plans. Had compensation cost for the
Company's stock based incentive compensation plans been determined based on the
fair value at the grant dates for awards under those plans, consistent with the
methodology prescribed by SFAS No. 123, the Company's net income and earnings
per share would have been reduced to the pro-forma amounts indicated below (in
thousands, except per share amounts).
1996 1997
---------- -------
Net income (loss):
As reported............................................. $ (2,075) $ 25,523
Pro-forma............................................... (2,498) 24,334
Earnings (loss) per share--assuming dilution:
As reported............................................. (0.24) 1.63
Pro-forma............................................... (0.30) 1.56
The pro-forma amounts may not be indicative of future pro-forma income
and earnings per share.
F-14
The fair value of each option is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions applied to grants in 1996 and 1997:
1996 1997
Dividend yields................................... 0.0% 0.0%
Expected volatility............................... 0.72 0.62
Risk-free interest rates.......................... 7.0% 6.5%
Expected life (in years).......................... 5 6
Because the determination of the fair value of all options is based on
the assumptions described in the preceding paragraph and, because additional
option grants are expected to be made each year, the above pro-forma disclosures
are not representative of pro-forma effects on reported net income or loss for
future years.
8. Stock Purchase and Stock Compensation Plans
The 1996 Stock Purchase Plan (the "1996 Plan) was approved by the
Company's Board of Directors on July 2, 1996 and provides for the sale of a
maximum of 500,000 shares of Common Stock to employees of the Company at a price
equal to 85% of the market value of the Common Stock at the beginning or end of
each purchase period, whichever is lower. Participants under the 1996 Plan
received 0 and 21,639 shares of Common Stock for the years ended December 31,
1996 and 1997, respectively.
The Key Employee Stock Compensation Plan was approved by the Board of
Directors on May 19, 1997 and provides for the issuance of a maximum of 65,000
shares of Common Stock to key employees. Key employees are determined annually
by committees elected by the Board of Directors. Pursuant to the plan, key
employees may elect to receive up to 50% of their annual incentive payments
denominated in shares of Common Stock at the fair value of the shares at the
date of issuance. No shares of Common Stock were issued under the Key Employee
Stock Compensation Plan in 1997.
The Board of Directors Stock Compensation Plan was approved in May 1997
and provides for the issuance of a maximum of 30,000 shares of Common Stock to
non-employee board members. Each eligible board member may elect to convert all
or a portion of his or her fees for attendance at board and committee meetings
into shares of the Company's Common Stock at a 20% discount from the fair value
of the shares at the date of issuance. The Company issued 1,208 shares of Common
Stock under the Board of Directors Stock Compensation Plan in 1997.
F-15
9. Income Taxes
The components of the provision for (benefit from) income taxes are as
follows (in thousands):
1995 1996 1997
------------ ----------- -----------
Current...................................................... $ -- $ -- $ 3,803
Deferred..................................................... (2) 3,543 13,147
------------ ----------- -----------
$ (2) $ 3,543 $ 16,950
============ =========== ===========
Income taxes paid were approximately $3.5 million in 1997. No income taxes
were paid in 1995 and 1996.
A reconciliation of the Company's income tax rate to the statutory
federal rate is as follows:
1995 1996 1997
-------------- ------------ ------------
Income tax expense (benefit) computed at the
statutory rate...................................... (34)% 34% 35%
State income taxes.................................... (2) 2 3
Capital Construction Funds............................ 24 1 --
Other................................................. 11 -- --
-------- -------- ------
(1)% 37% 38%
========= ========= =======
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred income tax assets and liabilities as of
December 31, 1996 and 1997 are as follows (in thousands):
1996 1997
Deferred income tax assets:
Net operating loss carry forward........................................ $ 14,416 $ 13,480
Alternative minimum tax credit carryforward............................. 1,226 5,322
Accrued compensation.................................................... 410 755
Other................................................................... 257 730
----------- -----------
Total deferred income tax assets.................................. 16,309 20,287
----------- -----------
Deferred income tax liabilities:
Fixed asset differences................................................. 21,772 45,109
Deferred drydocking costs............................................... 922 827
----------- -----------
Total deferred income tax liabilities............................. 22,694 45,936
----------- -----------
Net deferred income tax liability................................. $ 6,385 $ 25,649
=========== ===========
At December 31, 1997, the Company had approximately $37.8 million in
net operating loss carry forwards for federal income tax purposes, expiring in
various amounts from 1998 to 2012. Due to a change in ownership, as defined in
Section 382 of the Internal Revenue Service Code, the utilization of
approximately $26.3 million of net operating loss carryforwards are limited to
approximately $3.3 million per year.
F-16
10. Capital Stock
On February 5, 1997, the Company completed a second public offering
(the "Second Offering") of 4,000,000 shares of its Class A Common Stock at
$24.875 per share. The net proceeds to the Company were $93.5 million, after
deducting underwriting commissions and other offering expenses. Of such amount,
approximately $36.2 million was used to repay certain indebtedness. The
remaining $57.3 million was used to fund the acquisition and construction of
certain vessels and for general corporate purposes.
On August 14, 1996 and September 12, 1996, the Company issued 7,000,000
and 159,000 shares of its Class A Common Stock, respectively, pursuant to the
IPO and underwriters' over-allotment option, respectively. Simultaneously with
the IPO, shares of the Company's Class C Common Stock were exchanged for
approximately 304,000 and approximately 673,000 shares of the Company's Class A
and Class B Common Stock, respectively. Additionally, 182,000 and 1,188,000
shares of the Company's Class A and Class B Common Stock, respectively, were
issued in repayment of a portion of the Company's junior-subordinated note (the
"Junior Note") and other outstanding indebtedness. Contemporaneous with the IPO,
the Company's Board of Directors authorized the retirement of the Company's
Class C Common Stock.
Each share of the Company's Class A Common Stock is entitled to one
vote per share and each share of Class B Common Stock is entitled to ten votes
per share. The holders of Class B Common Stock are entitled to convert, at the
holder's election and at any time, such shares into shares of Class A Common
Stock at the rate of one share of Class B Common Stock for one share of Class A
Common Stock.
In connection with the issuance of the Junior Note in 1994, the Company
issued to the note holders common stock and contingent share issuances ("CSIs")
to purchase a maximum of 554,495 additional shares of its common stock. The
Junior Note, common stock and the CSIs were recorded based upon their estimated
fair values at the date of issuance. Simultaneously with the issuance of the
CSIs, the Company entered into an agreement with its Chairman and principal
stockholder and certain trusts whereby the principal stockholder and the trusts
agreed to contribute pro rata a like amount of shares of common stock to the
Company concurrently with the issuance of shares pursuant to the CSIs. During
1997, the Company issued 272,641 shares of Class A Common Stock to the note
holders and the principal stockholder contributed 272,641 shares of Class B
Common Stock in satisfaction of the CSIs. Simultaneous with this transaction,
the noteholders converted 240,471 shares of their Class B Common Stock into an
equal number of shares of Class A Common Stock.
At December 31, 1997, 1,588,728 shares of Common Stock were reserved
for issuance, primarily under the Company's benefit plans and 4,035,120 shares
of Common Stock were reserved for issuance in the event of conversion of the
Preferred Securities.
F-17
11. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings (loss) per share before extraordinary item (in thousands, except per
share amounts).
1995 1996 1997
------------- ------------- -------------
Numerator:
Income (loss) before extraordinary item......................... $ (360) $ 6,033 $ 27,655
------------ ------------- -------------
Numerator for basic earnings per share--income (loss)
available to common shareholders.............................. (360) 6,033 27,655
Effect of dilutive securities:
Payments on convertible preferred securities -- -- 2,369
Interest on convertible Junior Note (a)......................... -- 515 --
------------ ------------- -------------
Numerator for diluted earnings per share--income (loss)
available to common shareholders after assumed
conversions..................................................... $ (360) $ 6,548 $ 30,024
============ ============= =============
Denominator:
Denominator for basic earnings per share--weighted
average shares................................................ 2,535 5,763 14,785
Effect of dilutive securities:
Convertible preferred securities................................ -- -- 2,067
Convertible Junior Notes (a).................................... -- 772 --
Stock options................................................... -- 55 268
------------ ------------- -------------
Dilutive potential common shares.................................. -- 827 2,335
Denominator for diluted earnings per share--adjusted
weighted average shares and assumed conversions 2,535 6,590 17,120
============ ============= =============
Earnings (loss) per share before extraordinary item $ (0.14) $ 1.05 $ 1.87
============ ============= =============
Earnings (loss) per share before extraordinary
item--assuming dilution.......................................... $ (0.14) $ 0.99 $ 1.75
============ ============= =============
(a) Earnings per share--assuming dilution for the year ended December 31,
1995 does not reflect any potential shares relating to the conversion
of the Junior Note due to the net loss for that year. The assumed
issuance of any additional shares would be antidilutive. The Junior
Note was repaid in 1996.
F-18
12. Significant Customer
The Company derived revenues from a long-term contract with one company
representing 13% and 10% of total revenues for the years ended December 31, 1995
and 1996, respectively. There were no customers from which the Company derived
more than 10% of its revenues for the year ended December 31, 1997.
13. Acquisitions
On August 14, 1996, the Company acquired the remaining 50% of the
outstanding common stock of Ocean Specialty Tankers Corporation in a transaction
accounted for as a purchase. The consideration, valued at $64.7 million,
consisted of $30.0 million cash and the assumption of $34.7 million of debt. The
fair value of net assets acquired approximated the purchase price paid by the
Company. During 1996, the Company also acquired 15 vessels under various asset
purchase agreements for aggregate consideration of $43.2 million, and acquired
nine vessels under capital lease obligations.
On May 23, 1997, the Company acquired substantially all of the assets
of an entity, which now operates as Seabulk Offshore International, Inc.
("SOII") in a transaction accounted for as a purchase. The consideration, valued
at $58.7 million, consisted of $49.0 million cash, the issuance of a note
payable in the amount of $6.0 million and the issuance of 141,760 shares of
Class A Common Stock valued by the Company at approximately $3.7 million. The
fair value of net assets acquired approximated the purchase price paid by the
Company.
On October 16, 1997, the Company acquired 100% of the outstanding
common stock of Bay Transportation Corporation ("Bay"). The Company effected
this transaction by acquiring 100% of the outstanding common stock of Kinsman
Lines, the 80% owner of Bay, and purchased the remaining 20% of Bay's
outstanding common stock from an individual. Consideration for the acquisition
consisted of $36.5 million cash and the assumption of approximately $20.6
million of debt. The purchase agreement provided for additional consideration
based on changes in the working capital of Bay, as defined, which totaled
approximately $500,000 and was paid in January 1998. The acquisition was
accounted for under the purchase method and, based upon a preliminary allocation
of the purchase price, resulted in costs in excess of net assets acquired of
approximately $17.4 million, which is being amortized on a straight-line basis
over 20 years.
During 1997, the Company also acquired 64 vessels under various asset
purchase agreements for an aggregate consideration of $115.2 million, and
acquired one vessel under a capital lease obligation.
The operations of the acquired vessels and businesses are included in
the accompanying consolidated statements of operations for periods subsequent to
their acquisition dates.
F-19
The Company's unaudited pro forma consolidated condensed statements of
income, assuming the acquisitions of OSTC, SOII and Bay had occurred on January
1, 1996, are summarized as follows (in millions, except per share amounts):
1996 1997
-------------- -------------
Revenues........................................................ $ 165.6 $ 232.2
Income from operations.......................................... 30.9 60.8
Income before extraordinary item................................ 8.8 30.2
Diluted earnings per common share, before extraordinary
item.......................................................... 1.38 1.90
This pro forma information does not purport to be indicative of the
results which may have been obtained had the acquisitions been consummated at
the dates assumed.
14. Geographic Data
The Company is engaged in providing marine support and transportation
primarily in the United States and the Arabian Gulf.
Beginning in 1997, the Company's results have been partially dependent
on foreign operations located primarily in the Arabian Gulf. These operations
are subject to the risks that are inherent in operating in such locations,
including government regulations, currency, and ownership restrictions and risk
of expropriation.
Revenues by geographic area consist only of services provided to
customers, as reported in the Statement of Operations. Income from operations by
geographic area represents net revenues less applicable costs and expenses
related to those revenues. Unallocated expenses are primarily comprised of
general and administrative expenses of a corporate nature. Identifiable assets
by geographic area represent those assets used in the operations of each
geographic area. Corporate assets consist of an allocation of property and
equipment.
The following table presents selected financial information pertaining
to the Company's geographic operations for the year ended December 31, 1997
(U.S. Dollars in thousands):
Revenues
Domestic............................... $ 189,336
Foreign................................ 20,921
--------------
Consolidated revenues.................... $ 210,257
==============
Income from operations
Domestic............................... $ 57,782
Foreign................................ 8,376
Unallocated expenses................... (10,825)
--------------
Consolidated income from operations...... $ 55,333
==============
F-20
Identifiable assets
Domestic............................... $ 454,688
Foreign................................ 147,332
Corporate assets....................... 2,541
--------------
Consolidated identifiable assets......... $ 604,561
==============
15. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of financial instruments included in the following categories:
Cash and Cash Equivalents and Accounts Receivable. The carrying amounts
reported in the balance sheets approximate fair value due to the current
maturity of such instruments.
Credit Agreement and Term Loan Agreement. Amounts outstanding under the
Company's Credit Facility, as amended, bear interest at variable rates that
periodically adjust to reflect changes in overall market rates and approximate
fair value.
Notes Payable and Title XI Debt. The carrying amount reported in the
balance sheets approximates fair value using a discounted cash flow analysis at
estimated market rates.
Preferred Securities. The Preferred Securities provide for payments at
6.5%. The Company does not believe it is practicable to estimate a fair value
different from the security's carrying value of $115.0 million because of
features unique to the security including, but not limited to, its redemption
and conversion rights.
16. Extraordinary Items
On August 14, 1996, the Company paid cash of $26.3 million, issued
55,500 shares of Class A Common Stock and 1,188,502 shares of Class B Common
Stock to repay $25.0 million and $15.2 million of the Junior and Senior Notes,
respectively. Accordingly, the Company recorded a loss on extinguishment of debt
of $8.1 million for the write off of deferred financing costs and related debt
discounts, net of a tax benefit of $1.5 million.
In February and June 1997, the Company repaid $33.2 million and $93.5
million, respectively, of its outstanding debt and amended its Credit Facility.
As a result, the Company recorded extraordinary losses of $1.8 million and $0.4
million, respectively, for the write-off of deferred financing costs associated
with the early extinguishment of debt, net of income tax benefits of $1.0
million and $0.2 million, respectively.
17. Supplemental Guarantor Information
The $300 million senior notes described in Note 18 are fully and
unconditionally guaranteed on a joint and several basis by substantially all of
the Company's consolidated subsidiaries. Substantially all of the Company's cash
flows are generated by its subsidiaries. As a result, funds necessary to meet
the Company's obligations are provided in part by distributions or advances from
its subsidiaries. Under
F-21
certain circumstances, contractual or legal restrictions, as well as the
financial and operating requirements of the Company's subsidiaries, could limit
the Company's ability to obtain cash from its subsidiaries for the purpose of
meeting its obligations, including the payments of principal and interest on the
senior notes. Accordingly, the following parent company-only summarized
financial information is provided (in thousands).
December 31,
1996 1997
Current assets...................................................................... $ 16,931 $ 12,059
Noncurrent assets(1)................................................................ 186,521 534,424
Current liabilities................................................................. 28,632 17,158
Noncurrent liabilities(2)........................................................... 73,729 304,338
1995 1996 1997
---------- ---------- ----------
Revenues................................................................... $ 38,208 $ 46,910 $ 52,280
Costs and expenses......................................................... 31,234 37,545 52,993
Income (loss) before extraordinary item(3)................................. (360) 6,033 27,655
Net income (loss)(4)....................................................... (360) (2,075) 25,523
(1) Included $73.7 million and $277.9 million in investment in consolidated
subsidiaries in 1996 and 1997, respectively.
(2) Includes $115.0 million of trust preferred securities outstanding at
December 31, 1997.
(3) Extraordinary loss represents loss on early extinguishment of debt.
(4) Includes $0.6 million, $4.4 million and $53.1 million of equity
equity in the earnings of consolidated subsidiaries for the years ended
December 31, 1995, 1996 and 1997, respectively.
18. Subsequent Events
On February 13, 1998, the Company completed an offering of $300.0
million of senior notes, which closed on February 19, 1998. The net proceeds to
the Company were $291.7 million, after deducting underwriting commissions and
other offering expenses. Of such amount, $268.0 million was used to repay
outstanding indebtedness and $23.7 million was used for general corporate
purposes. Interest on the senior notes accrues at the rate of 8.375% per annum,
payable semi-annually in arrears commencing on August 15, 1998. The senior notes
mature on February 15, 2008 and are redeemable, in whole or in part, at the
option of the Company on or after February 15, 2003.
On February 12, 1998, the Company entered into an Amended and Restated
Revolving Credit and Term Loan Agreement (the "Amended Credit Agreement"), which
closed on February 19, 1998 upon receipt by the Company of the proceeds from the
senior notes. The Amended Credit Agreement merged the Credit Agreement and the
Term Loan Agreement described in Note 2 into a single agreement consisting of a
$175.0 million revolving line of credit that matures February 12, 2003 and a
$150.0 million term loan payable in 28 equal quarterly installments commencing
June 30, 1998 and maturing on March 31, 2005. Borrowings under the Amended
Credit Agreement are secured by Company-owned vessels, having an appraised value
of not less than $400.0 million, and certain other assets relating to such
vessels, including accounts receivable, spare parts, fuel and supplies.
F-22
On March 16, 1998, the Company's Board of Directors approved an
agreement restructuring HPLP, the limited partnership that owns a 75% interest
in limited liability companies that own five double-hull petroleum product
carriers currently under construction. (See Note 5.) Under the restructuring,
the number of vessels has been reduced from five to four, the Company has agreed
to purchase one third of the limited partnership interests in HPLP during the
first half of 1998 for approximately $12.0 million and has an exclusive option
to purchase all of the remaining limited partnership interests and the remaining
25% interest in the limited liability companies for approximately $27.4 million.
19. Selected Quarterly Financial Information (unaudited)
The following information is presented as supplementary financial
information for the years ended December 31, 1996 and 1997 (in thousands, except
per share and common stock price information):
First Second Third Fourth
Year Ended December 31, 1997 Quarter Quarter Quarter Quarter
-------------------------------------------- ----------- ----------- ----------- ----------
Revenues.......................................... $ 39,652 $ 46,295 $ 56,906 $ 67,404
Income from operations............................ 9,737 10,989 14,404 20,203
Income before extraordinary item.................. 4,626 5,720 7,500 9,809
Loss on early extinguishment of debt.............. 1,754 378 -- --
Net income........................................ 2,872 5,342 7,500 9,809
Earnings per share--assuming dilution(1):
Income before extraordinary item................ $ 0.33 $ 0.37 $ 0.45 $ 0.56
Net income...................................... 0.21 0.35 0.45 0.56
First Second Third Fourth
Year Ended December 31, 1996 Quarter Quarter Quarter Quarter
-------------------------------------------- ----------- ----------- ----------- ----------
Revenues.......................................... $ 20,211 $ 21,540 $ 30,379 $ 37,226
Income from operations............................ 2,705 3,075 7,097 7,893
Income (loss) before extraordinary item........... (35) 260 2,483 3,325
Loss on early extinguishment of debt.............. -- -- 8,016 92
Net income (loss)................................. (35) 260 (5,533) 3,233
Earnings per share--assuming dilution(1):
Income (loss) before extraordinary item......... $ (0.01) $ 0.10 $ 0.35 $ 0.30
Net income (loss)............................... (0.01) 0.10 (0.71) 0.29
(1) Sum of the four quarters' earnings per share will not necessarily equal
the annual earnings per share as the computations for each quarter are
independent of the annual computation.
F-23