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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, 1998
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 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 at March 29, 1999 (based on the closing price
of such stock on the Nasdaq National Market) was $53,359,600.
At March 19, 1999, there were 12,879,509 shares of the registrant's Class A
Common Stock outstanding and 2,547,064 shares of its Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
Proxy Statement for Annual Meeting
to be held June 7, 1999 (specified portions) Part III
HVIDE MARINE INCORPORATED
1998 FORM 10-K
Table of Contents
Item Page
Part I
1 Business........................................................................................... 1
2 Properties.........................................................................................
3 Legal Proceedings..................................................................................
4 Submission of Matters to a Vote of Security Holders................................................
4A Executive Officers of the Registrant...............................................................
Part II
5 Market for Registrant's Common Equity and Related Stockholder Matters..............................
6 Selected Financial Data............................................................................
7 Management's Discussion and Analysis of Financial Condition and Results of
Operations.........................................................................................
7A Quantitative and Qualitative Disclosures About Market Risk.......................................
8 Financial Statements and Supplementary Data........................................................
9 Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.........................................................................................
Part III
10 Directors and Executive Officers of the Registrant.................................................
11 Executive Compensation.............................................................................
12 Security Ownership of Certain Beneficial Owners and Management.....................................
13 Certain Relationships and Related Transactions.....................................................
Part IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................................
PART I
Item 1. Business
General
Hvide Marine Incorporated, directly and through subsidiaries, is one of
the world's leading providers of marine support and transportation services,
primarily serving the energy and chemical industries. The Company has been an
active consolidator in each of the markets in which it operates, increasing its
fleet from 23 vessels in 1993 to 284 vessels at March 15, 1999. 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 such vessels in the Arabian Gulf,
and a leading operator of such vessels offshore West Africa, Southeast Asia and
Mexico. In addition, the Company is the sole provider of commercial tug services
at Port Everglades and Port Canaveral, Florida, the primary provider of such
services in Tampa, Florida and a leading provider of such services in Mobile,
Alabama, Lake Charles, Louisiana, and Port Arthur, Texas, as well as in the Bay
of Campeche in Mexico. The Company also provides marine transportation services,
principally for specialty chemicals and petroleum products in the U.S. domestic
trade, a market largely insulated from international competition under the Jones
Act.
Through early 1998, the Company completed a number of acquisitions
that substantially expanded its offshore energy support operations into several
new international markets, increased its deepwater energy support capability and
increased its domestic offshore and harbor towing and petroleum product
transportation operations. These acquisitions included the February 1998
acquisition of 37 offshore energy support vessels operating primarily offshore
West Africa and Southeast Asia, and the March 1998 acquisition of two petroleum
product carriers and seven harbor tugs operating in Port Arthur, Texas and Lake
Charles, Louisiana. The Company's fleet grew modestly during the balance of 1998
and early 1999 through the delivery of 13 vessels (consisting of four tugs, four
supply boats, two crew boats, two ship docking modules or SDMs(TM), and one
barge). In addition, an affiliate of the Company took delivery of three
double-hull petroleum product tankers in 1998 and one double-hull chemical
product carrier in early 1999.
As a result of declines in the Company's offshore energy support
business in the second half of 1998 and early 1999, the Company does not expect
to be in compliance, as of March 31, 1999, with one or more covenants contained
in the agreements governing its bank borrowings. Such noncompliance would result
in a default under such agreements. Such a default would enable the bank lenders
to accelerate the payment of all bank borrowings, which would, in turn, result
in a default under certain other indebtedness under cross-default provisions. In
the event of such defaults, all bank borrowings and such other indebtedness, as
well as all interest accrued on such borrowings and indebtedness, could become
immediately due and payable. In order to avoid these defaults, the Company will
be required either to enter into an amendment of the agreement governing its
bank borrowings or to obtain a waiver with respect to such noncompliance. The
Company has developed a plan to improve liquidity, including the disposition of
assets in order to raise significant amounts of cash; discussing amended and new
financing arrangements with its banks and other lenders; reducing capital
expenditures and operating and overhead expenses; and improving working capital
management.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for additional information.
As used in this Report, the term "HMI" refers to Hvide Marine
Incorporated, a Florida corporation, and the term "Company" refers to HMI and/or
one or more of its subsidiaries and, in certain cases, their respective
predecessors. The Company's principal executive offices are located at 2200
Eller Drive, P.O. Box 13038, Fort Lauderdale, Florida 33316, and its telephone
number is (954) 523-2200.
Projections and Other Forward-Looking Information
This Report contains, and other communications by the Company may
contain, projections or other "forward-looking" information. Forward-looking
information includes all statements regarding the Company's expected financial
position, results of operations, cash flows, financing plans, business strategy,
budgets, capital and other expenditures, competitive position, growth
opportunities for existing or new products and services, management plans and
objectives, and markets for stock. Like any other business, the Company is
subject to risks and other uncertainties that could cause its actual results to
differ materially from any projections or that could cause other forward-looking
information to prove incorrect. In addition to general economic, business and
market conditions, these risks and uncertainties include the following:
o declines in oil and/or gas prices, which tend to cause reductions in
exploration, development and production activities and, in turn,
reductions in the use of the offshore energy support services provided
by the Company (although these reductions may be partially offset by
reductions in operating costs and by increased use of the Company's
marine transportation and towing services);
o increased offshore energy support vessel construction activity, which
can cause oversupply in the industry and consequent reductions in the
utilization rates of the Company's offshore energy support vessels and
the amounts charged by the Company for the use of its offshore energy
support vessels;
o international political instability, which can lead to reductions in
exploration, development and production activities, particularly in
less developed regions (although such instability can lead to increased
oil prices);
o fluctuations in weather, which can lead to declines in energy
consumption and resulting declines in oil and/or gas prices (although
extreme weather conditions can lead to increases in the use of the
petroleum transportation services provided by the Company);
o changes in laws and regulations affecting the maritime industry,
including any possible weakening of the Jones Act, which could result
in increased competition from non-U.S. companies in the Company's U.S.
offshore energy support, offshore and harbor towing, and marine
transportation businesses;
o changes in environmental laws and regulations, including any possible
weakening of the U.S. Oil Pollution Act of 1990 ("OPA 90") and similar
statutes, which could result in increased competition for the petroleum
product transportation services provided by the Company's modern
double-hull fleet; and
o uncertainties involving the so-called "Millennium Bug," which may cause
the closing of various ports and other facilities used by the Company
and/or other disruptions in the Company's businesses at year-end 1999.
Additional information regarding the above and other factors affecting
the Company's business appears elsewhere in this Report.
The Company's Industries and Operations
Fleet Overview
The following table lists the vessels owned or operated by the Company
at March 15, 1999:
Number of
Vessels
Marine Support Services
Offshore Energy Support
Crew/Utility Boats........................................................................... 78
Anchor Handling Tug/Supply Boats............................................................. 47
Supply Boats................................................................................. 38
Anchor Handling Tugs......................................................................... 28
Geophysical Boats............................................................................ 7
Specialty Units............................................................................ 6
--------
Total Offshore Energy Support.............................................................. 204
Offshore and Harbor Towing Tugs................................................................ 41
--------
Total Marine Support Services.............................................................. 245
--------
Marine Transportation Services
Chemical/Petroleum Product Carriers............................................................ 12
Fuel Barges.................................................................................... 17
Towboats....................................................................................... 10
--------
Total Marine Transportation Services....................................................... 39
--------
Total Vessels........................................................................... 284
========
The above table includes vessels owned and operated by the Company,
vessels owned by the Company and operated by others, and vessels owned by others
but operated by the Company, under various financing and operating arrangements.
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 largely a function of current and anticipated energy prices.
Oil and gas prices are influenced by a variety of factors, including worldwide
demand, production levels, governmental policies regarding exploration and
development of reserves, and political factors in producing countries.
The following are the types of vessels primarily used in offshore
energy support activities:
o Supply boats (also called workboats) are generally steel-hull
vessels of at least 150 feet in length. They serve exploration and
production facilities and support offshore construction and
maintenance activities and 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.
o Crew boats (also called crew/supply boats) are faster and smaller
than supply boats and are used 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.
o Anchor handling vessels, which include anchor handling tug/supply
boats and some tugs, are more powerful than supply boats and are
used to tow and position 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 place of supply boats when not performing towing
and positioning functions.
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, the Company expanded its offshore energy
support fleet to 204 vessels at March 15, 1999, consisting of 78 crew/utility
boats, 47 anchor handling tug/supply boats, 38 supply boats, 28 anchor handling
tugs, seven geophysical boats and six specialty units. From March 15 through
December 1999, the Company expects to take delivery of a total of five offshore
energy support vessels, consisting of one 279-foot construction/anchor handling
tug/supply boat, one 205-foot platform supply vessel and three crew boats.
Until mid-1997, the Company primarily served exploration and production
operations in the U.S. Gulf of Mexico, operating from facilities in Lafayette,
Louisiana. At that time, the Company began the substantial expansion of its
international offshore energy support fleet. In addition, in response to
deteriorating market conditions in the U.S. Gulf of Mexico in 1998, the Company
redeployed certain of its
vessels from the Gulf to international markets. The primary international
markets currently served by the Company are the Arabian Gulf and adjacent areas,
West Africa, Southeast Asia and Mexico; the Company also operates offshore
energy support vessels in other regions, including the North Sea and South
America. The Company's operations in the Arabian Gulf and adjacent areas are
directed from its facilities in Dubai, United Arab Emirates; operations offshore
West Africa, and certain other international areas, are directed from the
Company's facilities in Lausanne, Switzerland; operations in Southeast Asia are
directed from its facilities in Singapore; and operations in Mexico are directed
from the Company's offices in Lafayette, Louisiana. In addition, the Company has
sales offices and/or maintenance and other facilities in many of the countries
where its offshore energy support vessels operate. At March 15, 1999, 88 of the
Company's offshore energy support vessels were located in the Arabian Gulf and
adjacent areas, 59 in the U.S. Gulf of Mexico, 27 in West Africa, 17 in
Southeast Asia, eight in Mexico and five in other areas of the world.
Offshore and Harbor Towing. Offshore and harbor towing services are
provided by tugs to vessels using the ports in which the tugs operate and to
vessels at sea to the extent required by environmental regulations, casualty or
other emergency. In addition, the Company's anchor handling tug/supply boats and
offshore towing-equipped tugs tow 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. Charges
for docking services are based on a fixed rate per job, and charges for towing
services are based on hourly or daily rates.
In most U.S. ports, competition is unregulated. However, a few ports
grant non-exclusive franchises to harbor tug operators; these include Port
Canaveral and Port Everglades, Florida, where the Company is the sole
franchisee, and Tampa and Port Manatee (near Tampa), Florida where the Company
is the primary provider of commercial tug services. 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 state
legislation require oil tankers to be escorted in and around certain ports
located in Alaska and the U.S. Pacific coast.
The harbor tugs owned or operated by the Company serve Port Everglades,
Tampa, Port Manatee, 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, the Bay of Campeche in Mexico and the Atlantic
Ocean. In addition, the Company has completed the construction of three SDMs(TM)
and has contracted for the construction of three additional SDMs(TM) for
delivery in 1999 and 2000 to augment the Company's harbor towing operations. The
Company also charters two 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 commenced, the Company has enjoyed a franchise as
the sole provider of docking services in the Port. The 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; consequently,
another operator could be granted an additional franchise. Although a
significantly larger potential competitor sought a 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. At March
15, 1999, the Company operated five tugs in Port Everglades and is the Port's
sole provider of harbor towing services.
Tampa. The Company expanded its harbor towing services to Tampa,
Florida with an October 1997 acquisition. Tampa is the tenth largest port in the
continental United States in terms of tonnage. Because the port is comprised of
three "sub-ports" (including Port Manatee) and a distant sea-buoy, a greater
number of tugs is required to be a competitive operator in Tampa than in other
ports of similar size. At March 15, 1999, the Company operated 12 tugs,
including four tractor tugs, in the port (including Port Manatee) and is Tampa's
primary provider of harbor towing services.
Port Canaveral. In Port Canaveral, Florida, like Port Everglades, the
Company has the sole franchise to provide harbor docking services. At Port
Canaveral, the smallest of the Company's harbor tug operations, the Company
provides 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. At March 15, 1999, the Company operated three tugs in Port Canaveral and
is the Port's sole provider of harbor towing services.
Mobile. At this port, the Company provides docking and undocking
services, primarily for commercial cargo vessels, including vessels transporting
coal and other bulk exports. The Company believes that it provides from 40% to
50% of the harbor tug business in this port. At March 15, 1999, the Company
operated four tugs in Mobile.
Port Arthur and Lake Charles. 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.
Each of these ports has a competing provider of harbor tug services.
Mexico. The Company also owns two tugs that operate in the Bay of Campeche
in Mexico under an arrangement with a Mexican company.
Other. In addition, the Company charters two of its tugs to third-party
operators in California, and eight tugs with offshore towing capability are
performing such services in the U.S. Gulf of Mexico and in the Atlantic Ocean
off the east coast of the United States.
SDMs(TM). The Company accepted delivery of its first SDM(TM) in
November 1997; two additional SDMs(TM) were delivered in 1998, two are expected
to be delivered in 1999 and one in 2000. SDMs(TM) are innovative ship docking
vessels that are designed to be more maneuverable, efficient, and flexible than
harbor tugs. In addition, they have lower operating costs than harbor tugs
because they require fewer crewmembers. Company personnel, working in
conjunction with consulting marine engineers and architects, prepared the
conceptual design and detailed specifications for the SDM(TM). The Company has
been awarded a patent on the design.
Marine Transportation Services
The Company provides marine transportation services, principally for
specialty chemicals and petroleum products, in the U.S. domestic trade, a market
largely insulated from international competition under the Jones Act.
Chemical Transportation. In the U.S. domestic chemical transportation
trade, vessels carry chemicals, primarily from chemical manufacturing plants and
storage tank facilities along the coast of the U.S. Gulf of Mexico to industrial
users in and around Atlantic and Pacific coast ports. The chemicals transported
consist primarily of caustic soda, alcohol, chlorinated solvents, paraxylene,
alkylates, toluene, methyl tertiary butyl ether (MTBE), phosphoric acid and
lubricating oils. Coastwise chemical tonnage demand has increased in recent
years 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;
further, many of these chemicals are very sensitive to contamination and require
special cargo-handling equipment.
At March 15, 1999, chemical carriers operated by the Company were as
follows:
Tonnage (in
Name of Vessel Capacity (in barrels) dead weight tons or "dwt")
-------------- --------------------- --------------------------
Seabulk Magnachem 298,000 39,300
Seabulk America 297,000 46,300
HMI Petrochem 360,000 49,900
HMI Dynachem 360,000 49,900
HMI Astrachem 260,000 37,100
HMI Ambrose Channel 341,000 45,000
The Company operates the Seabulk Magnachem under a long-term bareboat
charter expiring in February 2002. The Company owns a 67% economic interest in
the Seabulk America; the remaining 33% interest is owned by Stolt Tankers
(U.S.A.), Inc.
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 in the event of a spill. Delivered in 1977,
the Seabulk Magnachem is a CATUG (or catamaran tug) integrated tug and barge, or
"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. The HMI Ambrose Channel is one of the
double-
hull carriers described below under "New Carriers". A second new double-hull
chemical carrier is expected to be delivered in mid-1999.
All of 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.
The Company's chemical carriers are also suitable for transporting other
cargoes, including grain.
Pursuant to 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 used 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 used after 2000,
and the Company intends to retire this vessel in mid-1999. The other vessels may
be permitted to continue to carry certain chemicals in U.S. commerce. Further,
it is possible that these vessels could be redocumented in another country and
thereafter be used to transport chemicals in non-U.S. trades, and/or that 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. However, the Company has no present
plans to take any of these actions, and no assurance can be given as to the
feasibility or economic liability of doing so.
The Company markets its chemical carriers through its wholly owned
subsidiary, Ocean Specialty Tankers Corporation ("OSTC"). The Company believes
that the total capacity of these carriers represents a substantial portion of
the capacity of the domestic specialty chemical carrier fleet, and that these
chemical carriers (other than the HMI Astrachem) are among the last
independently owned carriers scheduled to be retired under OPA 90.
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 Astrachem and HMI Dynachem
are currently chartered to major oil companies under charters that expire in
July 1999 and August 1999, respectively. Upon the expiration of its charter, the
Company intends to enter into a new contract of affreightment or time charter to
market the HMI Dynachem; as noted above, the Company intends to retire the HMI
Astrachem in mid-1999, following the expiration of its current charter. 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. In the domestic energy transportation
trade, oceangoing and inland-waterway vessels transport fuel and other petroleum
products, primarily from refineries and storage facilities along the coast of
the U.S. Gulf of Mexico, 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
substantially increased.
The Company's 320,000-barrel, 39,300 dwt CATUG ITB Seabulk Challenger
is engaged in the transportation of fuel and other petroleum products from
refineries on the U.S. Gulf Coast to tank farms and industrial sites on the U.S.
East Coast. Delivered in 1975, the Seabulk Challenger has six cargo segregations
and was the first CATUG ITB constructed in the world. Like the Seabulk
Magnachem, it enjoys certain manning and other advantages over conventional tank
vessels. From the time it entered service in 1975 to November 1998, the Seabulk
Challenger derived all of its revenue from successive voyage and time charters
to Shell Oil Company. The charter was terminated in November 1998, resulting in
the payment of a $750,000 penalty to the Company. The Seabulk Challenger has
since been operating under short-term arrangements, and the Company intends to
redeliver it to its leaseholder in the fourth quarter of 1999.
In March 1998, the Company completed the acquisition of a 36,600 dwt
petroleum product carrier (the HMI Defender) and a 32,200 dwt petroleum product
carrier (the HMI Trader). Both vessels operate under a contract of affreightment
with an oil company expiring in December 1999. Pursuant to OPA 90, the HMI
Trader and the HMI Defender cannot be used to transport petroleum and petroleum
products in U.S. commerce after 2000 and 2008, respectively. Although the
Company has the ability to apply to the U.S. Coast Guard to extend the
retirement date of the HMI Trader by reducing its gross registered tonnage and
cargo capacity, the Company has not determined whether it will pursue that
application.
The Company also has a 50.8% equity interest in three petroleum product
carriers delivered in the fourth quarter of 1998. See "New Carriers" below for
additional information.
All of the Company's petroleum product carriers are marketed through
OSTC.
New Carriers. The Company currently has a 50.8% equity interest in five
double-hull carriers intended to serve the market now served by single-hull
carriers whose retirement is mandated by OPA 90. Three petroleum product
carriers (the HMI Lookout Shoals, the HMI Nantucket Shoals and the HMI Diamond
Shoals) were delivered in the fourth quarter of 1998; one chemical carrier (the
HMI Ambrose Channel) was delivered in the first quarter of 1999; and an
additional chemical carrier (the HMI Brenton Reef) is expected to be delivered
in mid-1999. Each of the carriers is approximately 46,000 dwt and can carry
approximately 340,000 barrels of cargo. The carriers' operations are managed by
the Company (through OSTC). One of the carriers is currently on charter, making
weekly transits between Louisiana and Port Everglades, Florida; the charter
expires in October 2000. The other carriers delivered to date are currently
operating under short-term arrangements in the U.S. domestic trade.
The aggregate cost of the carriers is estimated at $270.0 million, a
substantial portion of which is being financed with the proceeds of
government-guaranteed Title XI ship financing bonds.
The Company has an option, exercisable through year-end 1999, to
acquire up to an additional 25% interest in these carriers at a cost of
approximately $7.5 million. If the Company exercises this option, it will have
an additional option, exercisable through year-end 2000, to acquire the
remaining 24.2% interest in the carriers at a cost of approximately $9.0
million. From year-end 2000 to year-end 2003, the Company has a right of first
refusal to purchase the remaining 24.2% interest for approximately
$9.0 million plus interest accrued from year-end 2000. The Company has not yet
determined whether or to what extent it will exercise either option or such
right; however, the Company plans to dispose of a portion of its interest in the
carriers so as to reduce its aggregate interest to less than 50%. No assurance
can be given as to whether or when the Company will consummate such disposition
or as to the terms of such disposition.
Sun State. The Company acquired Sun State Marine Services, Inc. ("Sun
State") in 1994. At March 15, 1999, Sun State owned and operated an energy
transportation fleet of 10 towboats and 17 fuel barges, all of which are engaged
in fuel transportation along the Atlantic intracoastal waterway and the St.
Johns River in Florida.
A majority of Sun State's revenue through the third quarter of 1998 was
derived from a fuel transportation contract with Florida Power & Light Company
("FPL"). The remainder of its revenue was derived from fuel transportation
contracts with other customers and its marine maintenance, repair, and
drydocking facility. Under its contract with FPL, which expired in September
1998, Sun State transported 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 contract also had a specified guaranteed minimum
utilization provision. Subsequent to the expiration of the principal contract
with FPL, Sun State has entered into a new contract to provide similar services
to FPL in the future. The new contract expires in September 2002, subject to an
optional one-year extension, and provides for rates substantially the same as
under the prior contract; however, the extent of the services to be provided
under the new contract is expected to be substantially less than under the prior
contract.
OPA 90 requires all single-hull barges, including those owned by Sun
State, to discontinue transporting fuel and other petroleum products in 2015.
The Company has recently constructed two double-hull barges at a cost of $1.0
million each and previously purchased four additional double-hull barges for an
aggregate of $2.4 million (exclusive of refurbishment costs aggregating
approximately $2.6 million).
Other Services
Through Sun State, 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 optional renewals,
expires in 2005. 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 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. Sun State also
maintains another yard, primarily for use in new construction projects and
vessels requiring long-term repairs. The yard has a marine railway capable of
lifting and launching vessels weighing up to 600 tons, and a 600-foot finger
pier with adjacent covered steel fabrication facilities, workshops and office
space.
The Company also owns a 40-acre facility in Port Arthur, Texas that
serves as a storage and supply base and a facility for topside repairs. This
facility has 1200 feet of dock space and is suitable for development as a
shipyard.
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.
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 may be modified by
the Company at any time, subject to 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. CITGO is currently the Company's largest single customer, with a
contract of affreightment for both the HMI Defender and the HMI Trader. 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 vessel use (both of which determine
the suitability of vessel type), the complexity of maintaining logistical
support, and the cost of transferring equipment from one market to another. The
Company's vessels that provide marine 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 owners and operators of facilities operating near navigable waters and
owners and operators of vessels operating in United States waters, which include
the navigable waters of the United States 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 and petroleum products carriers and fuel
barges) and "other vessels" (which include the Company's tugs and offshore
energy service vessels).
Under OPA 90, owners and operators of facilities, and owners,
operators, and certain charterers of vessels, are "responsible parties" and are
jointly, severally, and strictly liable for removal costs and damages arising
from oil spills relating to their facilities and vessels, unless the spill
results solely from the act or omission of a third party, an act of God, or an
act of war. 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) the
net loss of taxes, royalties, rents, fees and profits 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) the net costs
of providing increased or additional public services necessitated by a spill
response, such as protection from fire, safety or other hazards; and (vi) the
loss of subsistence use of natural resources.
For facilities, the statutory liability of responsible parties is
limited to $350 million. 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
any "other vessel," 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 provide
reasonable cooperation and assistance as required by a responsible official in
connection with oil removal activities. Although the Company currently maintains
pollution liability insurance, 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 oil tankers operating in United States waters must be built with
double hulls, and existing single-hull, double-side or double-bottom 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 single-hull chemical and petroleum product carriers will be
required to cease transporting petroleum products over the next 15 years, and
its "single-skinned" 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. 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, in an amount equal to $300 per gross
ton, thus increasing the overall amount of financial responsibility from $1,200
to $1,500 per gross ton. The Company has obtained "Certificates of Financial
Responsibility" pursuant to the Coast Guard regulations for its product and
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 certain facilities or the owner or operator of a tank
vessel to prepare facility or vessel response plans and to contract with oil
spill removal organizations to remove to the maximum extent practicable a
worst-case discharge. The Company has complied with these 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.
OPA 90 does not prevent individual states from imposing 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. Some states have issued implementing regulations
addressing oil spill liability, financial responsibility and vessel and facility
response planning requirements. 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-managed facilities,
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 U.S. Environmental Protection
Agency ("EPA") 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, unloading, ballasting, cleaning,
and conducting other operations in certain ports. 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. In addition, it is anticipated
that the EPA will issue regulations addressing air emission requirements
applicable to marine diesel engines. Adoption of such standards could require
modifications to existing marine diesel engines in some cases.
Coastwise Laws. A substantial portion of the Company's operations is
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 on the U.S.
outer continental shelf) 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, (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 or repeal the Jones Act. Such changes
could have a material adverse effect on the Company's operations and financial
condition.
Occupational Health Regulations. The Company's facilities are subject
to occupational safety and health regulations issued by the U.S. Occupational
Safety and Health Administration ("OSHA") and/or comparable state programs. Such
regulations currently require the Company to maintain a workplace free of
recognized hazards, observe safety and health regulations, maintain records, and
keep employees informed of safety and health practices and duties. The Company's
vessel operations are also subject to occupational safety and health regulations
issued by the U.S. Coast Guard and, to and extent, OSHA. Such regulations
currently require the Company to perform 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.
Vessel Condition. The Company's chemical and petroleum products
carriers, offshore energy support vessels, certain of its tugs, and its 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 and/or other marine classification societies 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
requirements, to which its operations are subject and is unaware of any pending
or threatened litigation or other judicial, administrative, or
arbitration 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 from Ships, 1973, 1978
Protocol, (ii) the International Convention on the Safety of Life at Sea, 1978
Protocol, including the International Management Code for the Safe Operation of
Ships and for Pollution Prevention, which went into effect for tank vessels on
July 1, 1998, and (iii) the International Convention on Standards of Training,
Certification and Watchkeeping for Seafarers, 1978, as amended in 1995. 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. The vessels that operate internationally are
principally flagged in the Marshall Islands, Panama, and St. Vincent and The
Grenadines. The Company is not a party to any pending environmental litigation
or 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 and rendering services in a marine environment. These hazards include the
risk of loss of or damage to the Company's vessels, damage to third parties as a
result of collision, loss, or contamination of cargo, personal injury of
employees, and 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. 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, 1999, the Company had approximately 3,100 employees.
Management considers relations with employees to be satisfactory. The Seabulk
America, Seabulk Challenger, and Seabulk Magnachem are manned by approximately
105 officers and crew who are subject to two
collective bargaining arrangements that expire on December 31, 1999 and 2001. In
addition, the HMI Dynachem, HMI Petrochem, HMI Astrachem, HMI Defender, and
seven harbor tugs are manned by approximately 198 members of national maritime
labor unions pursuant to an agreement between the Company and a third-party
employer that expires May 31, 2001.
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 expiring in 2009. The Company also leases office and
other facilities in Lafayette, Louisiana; the United Arab Emirates; Lausanne,
Switzerland; and Singapore. In addition, the Company leases sales offices and/or
maintenance and other facilities in many of the locations where its vessels
operate. The Company believes that its facilities are generally adequate for
current and anticipated future use, although the Company may from time to time
lease additional facilities as operations require.
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.,
brought 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 sought to recover from the Company approximately
$6.1 million for alleged additions and changes to the contract work and the
costs of alleged delay and disruption, in addition to $2.4 million of the $5.9
million contract price that the Company previously withheld, plus fees and
expenses. This lawsuit was settled in the fourth quarter of 1998. Under the
terms of the settlement, the lawsuit and related counterclaims were dismissed
with prejudice in consideration of the Company's agreement to pay the shipyard
$4.75 million in installments from December 1998 to May 1999. As part of the
settlement, a $5.6 million bond previously provided by the Company was released
and a related letter of credit was terminated.
In March 1999, a proceeding was brought against HMI in the Swiss courts
(ABC Maritime A.G. v. Hvide Marine Incorporated, Cour Civile du Tribunal du
Canton de Vaud, Switzerland) claiming that HMI owes approximately $2.9 million
in commissions (plus interest and costs) in connection with a 1998 acquisition.
In connection with this proceeding, one of the Company's offshore energy support
vessels was arrested in the Republic of South Africa. Although the outcome of
these proceedings cannot be predicted at this time, HMI believes that the Swiss
proceeding is without merit and is seeking to effect the release of the vessel.
From time to time the Company is also a 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.
Item 4a. Executive Officers
The executive officers of the Company are:
Name Age Current Positions
J. Erik Hvide....................... 50 Chairman, President and Chief Executive Officer
John H. Blankley.................... 51 Executive Vice President and Chief Financial Officer
Eugene F. Sweeney................... 56 Executive Vice President and Chief Operating Officer
Andrew W. Brauninger................ 52 Senior Vice President--Offshore Division and
President--Seabulk Offshore, Ltd
Robert B. Lamm...................... 51 Senior Vice President, General Counsel and Secretary
Walter S. Zorkers................... 52 Senior Vice President--Corporate Development
Leo T. Carey........................ 47 Vice President--Ship Management
Arthur T. Denning................... 44 Vice President--Engineering
James S. Kimbrell.................. 60 Vice President and President of Hvide Marine Towing, Inc.
William R. Ludt..................... 51 Vice President, President--Sun State Marine Services, Inc. and
Managing Director of Seabulk Offshore, Ltd.
John J. O'Connell, Jr............... 55 Vice President--Corporate Communications
Christopher D. Strong............... 40 Vice President--Finance, Treasurer and Assistant Secretary
L. Stephen Willrich................. 46 Vice President and President--Ocean Specialty Tankers Corporation
Mr. Hvide has been Chairman since September 1994 and President and
Chief Executive Officer since 1991. He has been a director of the Company since
1973. From 1981 until 1991, Mr. Hvide was President and Chief Operating Officer.
He has been employed by the Company in various capacities since 1970 and became
Vice President in 1973. He is a past 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 and a past
appointee to the U.S. Coast Guard's Towing Safety Advisory Committee. In 1998,
he was inducted into the International Maritime Hall of Fame. He is immediate
past president of the Port Everglades Association and former director of the
United Way of Broward County. Mr. Hvide is a director of Seal Holdings
Corporation, a publicly traded company, and serves on the vestry of St. Paul's
Church. He was formerly chairman of the Board of Trustees of Saint Andrew's
School. Mr. Hvide is the son of Hans J. Hvide, the founder of the Company.
Mr. Blankley has been a director of the Company since 1991 and
Executive Vice President--Chief Financial Officer since September 1995. He
served as a director and Chief Financial Officer of Harris Chemical Group Inc.,
a chemical manufacturing company, from April 1993 to August 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 petroleum
product and gas carriers and multi-purpose container feeder vessels.
Mr. Sweeney has been Chief Operating Officer since April 1998,
Executive Vice President since September 1994 and a director since 1984. 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 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 from 1990 until July 1997
and has been President of Seabulk Offshore, Ltd., the Company's offshore energy
support services subsidiary, since September 1994. He was Vice President of
Offshore Operations from 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. Lamm has been Senior Vice President, General Counsel and Secretary
since July 1998. He was formerly Vice President and Secretary of W. R. Grace &
Co., where he was employed for more than 18 years. Prior to that, he served as
Assistant Secretary of Studebaker-Worthington, Inc. and was earlier associated
with the New York law firm of Wofsey, Certilman, Haft, Snow & Becker. He is a
member of the American and New York Bar Associations, an affiliate member of the
Florida Bar and a member of the American Society of Corporate Secretaries and
the Society's Securities Law and Finance Committees. Mr. Lamm is President and a
director of the Alzheimer's Association Greater Palm Beach Area Chapter and a
director of the Association of Public Corporations (Miami).
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. Kimbrell has been a Vice President of the Company and President of
Hvide Marine Towing, Inc. since August 1998. He was formerly Executive Vice
President, Chief Financial Officer and a director of Bay Transportation Company,
Inc. of Tampa, Florida, which the Company acquired in October of 1997. He joined
the former St. Philip Towing in 1965. He is a member of the American Waterways
Operators, the Tampa Club, the University Club (Tampa) and the Harvard Business
School Club of the West Coast of Florida.
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 its Vice
President 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. 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 a Vice President of the Company and President of
OSTC since March 1998. He was Senior Vice President of OSTC from August 1996. He
served as Vice President of Chartering of OSTC from January 1988. Prior to
joining the Company, Mr. Willrich was employed by Diamond Shamrock Chemical
Company from 1975 to 1988, where he rose to Division General Manager. Prior to
his service with Diamond Shamrock, he worked for Gulf Oil Corporation as a Third
Assistant Engineer on various company tankers. He has more than 24 year of
experience in the management of Jones Act product tankers.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
HMI's Class A Common Stock is traded on the Nasdaq National Market
under the symbol "HMAR." The following table sets forth the high and low
(closing) sale prices per share of Class A Common Stock, as reported by the
Nasdaq National Market, for the periods shown.
High Low
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 ...................................................... 25 3/4 16 5/8
Second Quarter...................................................... 18 1/4 12
Third Quarter....................................................... 13 5/8 6 3/4
Fourth Quarter...................................................... 8 3/8 4 1/2
1999
First Quarter (through March 19).................................... 6 1/8 4 1/4
HMI 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, business conditions, and other
factors. In addition, the ability to pay dividends or make distributions to its
stockholders is restricted by the terms of the Company's financing agreements.
As of March 19, 1999, there were 331 holders of record of Class A Common Stock
and 6 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
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this Report.
Year Ended December 31,
1994 1995 1996 1997 1998
(In thousands, except per share data)
Consolidated Statement of Operations Data:
Revenue............................................. $ 49,792 $ 70,562 $109,356 $ 210,257 $ 401,906
Operating expenses.................................. 29,873 40,664 63,777 110,283 222,889
Overhead expenses................................... 9,581 12,518 14,979 24,791 42,305
Depreciation and amortization....................... 4,500 6,308 9,830 19,850 51,757
-------- -------- -------- ---------- ----------
Income from operations.............................. 5,838 11,072 20,770 55,333 84,955
Interest expense, net............................... 5,302 11,460 11,631 7,024 42,442
Other (expense) income.............................. 11 26 437 (3,704) (6,542)
-------- -------- -------- --------- ----------
Income (loss) before provision for (benefit
from) income taxes, extraordinary item............ 547 (362) 9,576 44,605 35,971
Provision for (benefit from) income
taxes............................................. 189 (2) 3,543 16,950 13,489
-------- ------- -------- ---------- ----------
Income (loss) before extraordinary item............. 358 (360) 6,033 27,655 22,482
Loss on extinguishment of debt, net(1).............. -- -- 8,108 2,132 734
-------- -------- -------- ---------- ----------
Net income (loss)................................... $ 358 $ (360) $(2,075) $ 25,523 $ 21,748
======== ======= ======= ========== ==========
Earnings (loss) per common share:
Income (loss) before extraordinary
item............................................ $ 0.03 $ (0.14) $ 1.05 $ 1.87 $ 1.47
Net income (loss)................................. $ 0.03 $ (0.14) $ (0.36) $ 1.73 $ 1.42
======== ======= ======= ========== ==========
Weighted average number of common
shares and common share equivalents
outstanding..................................... 5,302 2,535 5,763 14,785 15,324
======== ======== ======== ========== ==========
Earnings (loss) per common share--assuming
dilution:
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle............................ $ 0.03 $ (0.14) $ 0.99 $ 1.75 $ 1.39
Net income (loss)................................. $ 0.03 $ (0.14) $ (0.24) $ 1.63 $ 1.35
======== ======= ======= ========== ==========
Weighted average number of shares
and common share equivalents
outstanding(2).................................. 5,302 2,535 6,590 17,120 19,451
======== ======== ======== ========== ==========
Other Financial Data:
EBITDA(3)......................................... $ 10,338 $ 17,380 $ 30,600 $ 75,183 $ 136,712
======== ======== ======== ========== ==========
Year Ended December 31,
1994 1995 1996 1997 1998
(In thousands)
Consolidated Statements of Cash Flows Data:
Net cash provided by (used in):
Operating activities................................. $ 2,858 $ 3,948 $ 22,584 $ 40,042 $ 64,536
Investing activities................................. (39,815) (8,066) (84,354) (261,343) (498,806)
Financing activities................................. 41,249 805 68,337 226,636 428,495
At December 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- -------- -------- -------- ---------
(In thousands)
Balance Sheet Data:
Working capital (deficit)............................. $ 7,793 $ 4,315 $(8,704) $ 25,790 $ (205,026)
Total assets.......................................... 135,471 143,683 273,473 604,561 1,108,825
Total long-term obligations........................... 98,981 100,766 124,454 217,217 408,819
Total debt............................................ 104,281 109,051 141,464 197,547 635,503
Convertible preferred securities of a subsidiary
trust............................................... -- -- -- 115,000 115,000
Stockholders' and minority partners'
equity.............................................. 14,903 13,999 101,989 227,282 258,648
(1)Reflects losses on the extinguishment of debt, net of applicable income
taxes of $1,474,000, $1,252,000 and $413,000 for 1996, 1997 and 1998,
respectively.
(2)For 1994, the weighted average number of common shares and common share
equivalents assume the conversion of the Class B Preferred Stock into shares
of Common Stock. The Class B Preferred Stock was redeemed on September 30,
1994. Also, for 1994, shares outstanding assuming dilution reflects the
assumed conversion of a portion of certain notes into shares of Common Stock.
Such notes were issued in September 1994 and converted into shares of Common
Stock in September 1996.
(3)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 recognized by generally accepted
accounting principles, 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, and does
not represent funds available for management's use. Further, the Company's
EBITDA may not be comparable to similarly titled measures reported by other
companies.
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 Report.
Operations Overview
The financial information presented below represents historical results
for each of the Company's business segments.
Year ended December 31,
1996 1997 1998
-------- -------- ----------
(In thousands)
Revenue:
Marine support services:
Offshore energy support.................................................. $ 43,715 $111,385 $ 242,656
Offshore and harbor towing............................................... 13,950 20,424 46,368
-------- -------- ---------
57,665 131,809 289,024
Marine transportation services............................................... 51,691 78,448 112,882
-------- -------- ---------
Total revenue.......................................................... 109,356 210,257 401,906
-------- -------- ---------
Operating expenses:
Marine support services:
Offshore energy support.................................................. 22,525 45,322 120,207
Offshore and harbor towing............................................... 7,480 12,296 22,556
-------- -------- ---------
30,005 57,618 142,763
Marine transportation services............................................... 33,772 52,665 80,126
-------- -------- ---------
Total operating expenses............................................... 63,777 110,283 222,889
-------- -------- ---------
Direct overhead expenses:
Marine support services:
Offshore energy support.................................................. 2,558 5,866 14,707
Offshore and harbor towing............................................... 1,364 2,361 5,528
-------- -------- ---------
3,922 8,227 20,235
Marine transportation services............................................... 3,494 5,739 6,845
-------- -------- ---------
Total direct overhead.................................................. 7,416 13,966 27,080
-------- -------- ---------
Fleet EBITDA(1):
Marine support services:
Offshore energy support.................................................. 18,632 60,197 107,742
Offshore and harbor towing............................................... 5,106 5,767 18,284
-------- -------- ---------
23,738 65,964 126,026
Marine transportation services............................................... 14,425 20,044 25,911
-------- -------- ---------
Total fleet EBITDA(1).................................................. 38,163 86,008 151,937
Corporate overhead expenses.................................................. 7,563 10,825 15,225
-------- -------- ---------
EBITDA(1).................................................................... 30,600 75,183 136,712
Depreciation and amortization expenses....................................... 9,830 19,850 51,757
-------- -------- ---------
Income from operations....................................................... $ 20,770 $ 55,333 $ 84,955
======== ======== =========
(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
recognized 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. Further, the Company's EBITDA may not be comparable
to similarly titled measures reported by other companies.
Revenue Overview
Marine Support Services
Revenue from marine support services is attributable to the Company's
offshore energy support operations and its offshore and harbor towing
operations.
Offshore Energy Support. Revenue from the Company's offshore energy
support operations 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 exploration, development and production
activities, which are in turn heavily dependent upon the price of crude oil.
Beginning in the first half of 1998 and continuing [throughout] [for most of]
the year, crude oil prices declined substantially, with resultant adverse
effects on exploration, development and production activities and, in turn, the
Company's offshore energy support operations. Further, in certain areas where
the Company conducts offshore energy support operations (particularly the U.S.
Gulf of Mexico), contracts for the utilization of offshore energy support
vessels commonly include termination provisions with three- to five-day notice
requirements and no termination penalty. As a result, companies engaged in
offshore energy support operations (including the Company) 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.
1996 1997 1998
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Number of supply boats at
end of period(1)................ 10 11 16 18 19 21 25 26 28 29 27 24
Average supply boat day rates(2).... $3,468 $4,095 $5,034 $5,776 $6,478 $7,176 $7,636 $8,032 $8,475 $8,211 $6,505 $5,191
Average supply boat utilization(3).. 92% 100% 97% 90% 87% 90% 91% 93% 86% 80% 55% 72%
Number of crew boats at
end of period(4)................ 35 35 36 36 39 39 39 39 39 39 38 37
Average crew boat day rates(2)(4)... $1,469 $1,466 $1,528 $1,531 $1,777 $1,940 $2,119 $2,294 $2,419 $2,502 $2,375 $2,383
Average crew boat utilization(3)(4). 89% 93% 96% 96% 95% 93% 95% 93% 89% 91% 77% 83%
(1) The decline in the number of supply boats in the third and fourth quarters
of 1998 primarily reflects bareboat chartering and the redeployment of
boats to other global regions in response to declines in utilization and
day rates in the U.S. Gulf of Mexico.
(2) Average day rates are calculated based on vessels operating domestically by
dividing total vessel revenue by the total number of days of vessel
utilization.
(3) 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.
(4) Excludes utility boats. The decline in the number of crew boats in the
third and fourth quarters of 1998 primarily reflects the redeployment of
boats to other global regions in response to declines in utilization and
day rates in the U.S. Gulf of Mexico.
As indicated in the above table, average supply boat day rates began to
decline in the second quarter of 1998 and continued to decline for the balance
of the year. By year-end 1998, day rates had fallen to levels that had not
prevailed since the second half of 1996. Supply boat utilization also started to
decline in the second quarter of 1998. The fourth quarter reflects an
improvement in utilization due to the redeployment of idle vessels from the U.S.
Gulf of Mexico to international markets; however,
utilization had fallen to recent historical lows during the third quarter. In
early March 1999, these rates improved slightly due to the startup of the 1999
drilling season; at March 15, 1999, supply boat day rates averaged approximately
$5,000 per day. The current low level of supply boat day rates is expected to
continue until oil prices improve.
In addition, average crew boat day rates and utilization rates declined
in the second half of 1998 (although the decline was not as severe as that of
supply boat rates, due primarily to fewer actual and anticipated new vessel
deliveries). At March 15, 1999, crew boat day rates averaged approximately
$2,300 per day. As is the case with supply boat rates, no substantial
improvement in crew boat rates is anticipated until crude oil prices improve.
The following table shows rate and utilization information for foreign
operations (which commenced in the 1997 second quarter):
1997 1998
----------------------------------- ------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Number of anchor handling
tug/supply boats.................... -- 9 23 23 66 67 66 69
Average anchor/handling tug/
supply boat day rates(1)............ $ -- $ 2,900 $ 3,162 $ 3,357 $ 5,505 $ 6,008 $ 5,914 $ 5,727
Average anchor handling tug/
supply boat utilization(1)(2)....... -- 66% 80% 75% 75% 77% 77% 77%
Number of crew/utility boats......... -- 8 8 8 32 33 31 36
Average crew/utility boat
day rates(2)........................ $ -- $ 1,330 $ 1,365 $ 1,344 $ 1,549 $ 1,544 $ 1,588 $ 1,616
Average crew/utility boat
utilization(3)...................... -- 100% 93% 90% 75% 76% 72% 67%
(1)Includes anchor handling tug boats.
(2)Average day rates are calculated based on vessels operating internationally
by dividing total vessel revenue by the total number of days of vessel
utilization.
(3)Utilization is based on vessels operating internationally and determined on
the basis of a 365-day year. Vessels are considered utilized when they are
generating charter revenue.
As indicated in the above table, foreign anchor handling tugs/supply
boats experienced stable utilization rates during 1998, but moderate declines in
day rates during the second half of the year. Foreign crew/utility boats
experienced a slight increase in day rates over the full year, with declines in
utilization rates during the second half. In general, both types of operations
remained steady as compared to declines in the comparable U.S. markets. However,
foreign rates continued to decline in January and February 1999, rebounding
slightly in early March 1999 in response to the startup of the 1999 drilling
season. At March 15, 1999, day rates averaged approximately $5,600 per day for
foreign anchor handling tugs/supply boats and approximately $1,600 for foreign
crew/utility boats.
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 following table summarizes certain operating information for the
Company's tugs.
Year Ended December 31,
1996 1997 1998
Number of tugs at end of period.............................................. 16 30 41
Total offshore and harbor towing revenue (in thousands)...................... $ 13,950 $ 20,424 $ 46,368
In 1998, the Company acquired a fleet of seven harbor tugs operating in
Port Arthur, Texas and Lake Charles, Louisiana. This acquisition coupled with
the delivery of four tractor tugs and two SDMs(TM) attributed to the increase in
revenue. By increasing the number of harbor tugs, the Company was able to take
advantage of the offshore towing market. This diversification helps to keep
offshore and harbor towing revenue stable.
Marine Transportation Services
Chemical Transportation. Generally, demand for industrial chemical
transportation services coincides with overall economic activity. Revenue
derived from chemical transportation operations is entirely attributable to the
operations of OSTC, a wholly owned subsidiary of the Company that markets the
Company's chemical carriers. OSTC was owned equally by OMI Corp. ("OMI") and the
Company prior to August 1996, at which time, the Company acquired OMI's interest
in OSTC along with three chemical carriers owned by OMI (the "OMI Chemical
Carriers").
Petroleum Product Transportation. From 1975 to November 1998, the
product carrier Seabulk Challenger derived all of its revenue from successive
voyage and time charters to Shell. The charter was terminated in November 1998,
resulting in the payment of a $750,000 penalty to the Company. The Seabulk
Challenger has since been operating under short-term arrangements, and the
Company expects to redeliver it to its leaseholder in the fourth quarter of
1999.
In March 1998, the Company acquired the HMI Defender and HMI Trader.
Both vessels operate under a contract of affreightment expiring in December
1999.
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 principal
contract with FPL expired in September 1998. The Company has since entered into
a new contract, expiring in September 2002, to provide similar services to FPL
at similar rates. However, the extent of the services to be provided under the
new contract is expected to be substantially less than under the prior contract.
The following table sets forth the average time charter equivalents for
the Company's chemical and product carriers as if such vessels were owned by the
Company during the entire periods presented.
Year Ended December 31,
1996 1997 1998
Number of vessels............................................................ 6 6 8
Time charter equivalents(1).................................................. $ 25,276 $ 25,334 $ 24,225
(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, maintenance and repairs, charter hire,
insurance and fuel.
The crews of Company-manned chemical and product carriers are paid on a
time-for-time basis under 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.
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 useful lives ranging from 12 to 25 years from
acquisition for its steel-hull offshore energy support vessels, 12 to 30 years
from acquisition for aluminum-hull vessels, the lesser of any applicable lease
term or the OPA 90 life for its product and chemical carriers, 10 years from
acquisition for its fuel barges, and 40 years from the date built for its
towboats and tugs.
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 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 and offshore service vessels and its
four largest tugs are required to be drydocked twice in each 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, 1996, 1997, and 1998, the Company drydocked 25, 42, and 90 vessels,
respectively, at an aggregate cost (exclusive of lost revenue) of $1.6 million,
$4.5 million, and $13.7 million, respectively. The Company accounts for its
drydocking costs under the deferral method, under which capitalized drydocking
costs are expensed over the period preceding the next scheduled drydocking. See
Note 1 to the Company's consolidated financial statements.
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.
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
1998 Compared with 1997
Revenue. Revenue increased 91% to $401.9 million for 1998 from $210.3
million for 1997, primarily due to increased revenue from the Company's offshore
energy support and chemical transportation operations.
Revenue from offshore energy support operations increased 118% for 1998
over 1997, primarily due to acquisitions, offset by a decrease in day rates and
utilization rates. Utilization of supply boats decreased to 73% for 1998 from
93% in 1997 and domestic rates for crew boats decreased to 83% for 1998 from 93%
in 1997. As indicated above under "Revenue Overview - Marine Support
Services-Domestic Operations", average supply boat day rates and utilization
rates in the U.S. Gulf of Mexico declined in the 1998 second, third and fourth
quarters. This decline began in June 1998 due to the protracted decline in crude
oil prices and is expected to continue until oil prices improve. In early March
1999, supply boat day rates improved slightly compared to rates in January and
February 1999 due to the startup of the 1999 drilling season. At March 15, 1999,
U.S. supply boat day rates averaged $5,000 per day.
In addition, average crew boat day rates and utilization rates declined
in the 1998 second half (although the decline was not as severe as that of
supply boat rates, due primarily to fewer actual and anticipated new vessel
deliveries). At March 15, 1999, U.S. crew boat day rates averaged $2,300 per
day. As is the case with supply boat rates, no substantial improvement in crew
boat rates is anticipated until crude oil prices improve.
Marine transportation services revenue increased 44% to $112.9 million
for 1998 from $78.4 million for 1997, primarily due to additional revenues
earned by OSTC for marketing vessels owned by third parties and the acquisition
of two product carriers in March 1998.
Revenue from offshore and harbor towing operations increased 127% to
$46.4 million for 1998 from $20.4 million for 1997, primarily as a result of
acquisitions and the redeployment of certain vessels from harbor towing to
offshore towing.
Operating Expenses. Operating expenses increased 102% to $222.9 million
for 1998 from $110.3 million for 1997, primarily due to increases in crew
payroll and benefits, maintenance and repair, and supplies and consumables
resulting from acquisitions. As a percentage of revenue, operating expenses
increased to 55% for 1998 from 52% for 1997, primarily due to the aforementioned
declines of day rates and utilization and an increase in consumable expenses due
to the acquisition of two tankers, offset in part by reduced insurance premiums
brought about by larger fleet discounts.
Overhead Expenses. Overhead expenses increased 71% to $42.3 million for
1998 from $24.8 million for 1997, primarily due to increased staffing
requirements due to acquisitions. As a percentage of revenue, overhead expenses
were 11% and 12% for both 1998 and 1997, respectively.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 161% to $51.8 million for 1998 as compared with $19.9 million
for 1997 as a result of an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 54% to $85.0
million, or 21% of revenue, for 1998 from $55.3 million, or 26% of revenue, for
1997 as a result of the factors noted above.
Net Interest Expense. Net interest expense increased 506% to $42.4
million, or 11% of revenue, for 1998 from $7.0 million, or 3% of revenue, for
1997, primarily as a result of the February 1998 offering of Senior Notes and
debt incurred in connection with acquisitions.
Other Income (Expense). Other expenses were $6.5 million for 1998 as
compared to $3.7 million for 1997, primarily due to dividend payments relating
to the Trust Convertible Preferred Securities issued in July 1997 (see
"Liquidity and Capital Resources").
Net Income (Loss). The Company had net income of $21.7 million for 1998 as
compared to $25.5 million for 1997 as a result of the factors noted above.
1997 Compared with 1996
Revenue. Revenue increased 92% to $210.3 million for 1997 from $109.4
million for 1996, primarily due to increased revenue from the Company's offshore
energy support and chemical transportation operations.
Revenue from offshore energy support operations increased 155% for 1997
over 1996, 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 increased 54%
from 1996, and average day rates for crew boats increased 36% from 1996.
Marine transportation services revenue increased 52% to $78.4 million
for 1997 from $51.7, primarily due to the August 1996 acquisition of the OMI
Chemical Carriers and the remaining 50% interest in OSTC, offset slightly by the
reduced charter rate on the Seabulk Challenger.
Revenue from offshore and harbor towing operations increased 46% to
$20.4 million for 1997 from $14.0 million for 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 1997 from $63.8 million for 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 1997 from 58% for 1996, mainly due to
significant increases in day rates resulting from increased offshore exploration
and production activities.
Overhead Expenses. Overhead expenses increased 66% to $24.8 million for
1997 from $15.0 million for 1996, primarily due to increased staffing
requirements due to acquisitions. As a percentage of revenue, overhead expenses
decreased to 12% for 1997 from 14% for 1996.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 102% to $19.9 million for 1997 as compared with $9.8 million
for 1996 as a result of fleet growth due to acquisitions.
Income from Operations. Income from operations increased 166% to $55.3
million, or 26% of revenue, for 1997 from $20.8 million, or 19% of revenue, for
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 1997 from $11.6 million, or 11% of revenue, for
1996, primarily as a result of debt retirement.
Other Income (Expense). Other expenses were $3.7 million for 1997 as
compared to other income of $0.4 million for 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 1997
as compared to a net loss of $2.1 million for 1996, primarily as a result of the
factors noted above.
Seasonality
The Company has experienced some slight seasonality in its 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
Background. The Company's capital requirements have historically arisen
primarily from its working capital needs, acquisitions of and improvements to
vessels, and debt service requirements. The Company's principal sources of cash
have been bank borrowings, cash provided by operations, and proceeds from public
offerings of securities, consisting of the initial public offering of Class A
Common Stock in August 1996, a second offering of Class A Common Stock in
February 1997, an offering of 6 1/2% Trust Convertible Preferred Securities (the
"Preferred Securities") in 1997, and an offering of 8-3/8% Senior Notes (the
"Senior Notes") in February 1998. The offering of the Senior Notes yielded net
proceeds of $292.5 million, of which $268.0 million was used to repay certain
indebtedness and $24.5 million was used for general corporate purposes. In
addition, the Company has financed various vessel acquisitions through U.S.
government-guaranteed Title XI ship financing bonds and capital lease
obligations.
During 1998, the Company generated $64.5 million in cash flows from
operations, primarily reflecting net income adjusted by normal recurring
non-cash items and changes in working capital. Cash used in investing activities
was approximately $498.8 million, primarily reflecting the acquisition and
construction of and capital improvements to vessels. Cash provided by financing
activities was approximately $428.5 million, consisting of proceeds from the
offering of the Senior Notes and borrowings under bank credit facilities, offset
in part by principal payments on debt and capital lease obligations.
Recent Expenditures and Future Cash Requirements. During 1998 and
through February 1999, 61 vessels were delivered to or acquired by the Company,
at a total cost of $405.4 million. These vessels included more than 45 offshore
energy support vessels and two petroleum product tankers. During the remainder
of 1999 and 2000, the Company is scheduled to take delivery of eight new
vessels, costing a total of approximately $54.5 million, of which $23.5 million
has previously been paid, $25.9 million is due in 1999 and $5.1 million in 2000.
In addition to vessel acquisitions and deliveries, the Company's
capital needs relate primarily to debt service and maintenance and improvements
of its fleet. The Company's principal and interest payment obligations for 1999
are estimated to be approximately $87.4 million, and operating lease obligations
for 1999 are estimated to be approximately $6.1 million. Capital requirements
for fleet maintenance and improvements were approximately $72.8 million for 1998
and are currently expected to aggregate $27.7 million during 1999; the
anticipated reduction for 1999 reflects the substantial amounts expended in
1998, which resulted primarily from planned refurbishments of vessels acquired
in 1997 and early 1998. However, the Company intends to defer certain scheduled
drydockings and to reduce or defer other expenses. See "Recent Developments"
below for additional information.
The above amounts do not include capital and other expenditures
relating to five 45,300 dwt double-hull product carriers in which the Company
currently holds a 50.8% equity interest (see Note 4 to the consolidated
financial statements). The Company paid $18.5 million in June 1998 to increase
its equity interest in these carriers from 0.8% to 50.8%. Three of these
carriers were delivered in the fourth quarter of 1998, a fourth was delivered in
early 1999, and the fifth and final carrier is expected to be delivered in
mid-1999. The aggregate cost of the five carriers is estimated to be $270.0
million, a substantial portion of which is being financed with the proceeds of
U.S. government-guaranteed Title XI ship financing bonds. At the time of the
increase in its equity interest, the Company intended, and it still intends, to
reduce its equity interest to less than 50%. Accordingly, the Company accounts
for this temporary investment under the equity method. No assurance can be given
as to whether or when the Company will consummate such disposition or as to the
terms of such disposition. However, the Company has exclusive options,
exercisable through 2000, to purchase all or a portion of the remaining 49.2%
equity interest in the carriers at an estimated cost of $16.5 million. The
Company has not yet determined whether or to what extent it will exercise the
options.
During 1999, an estimated $19.3 million of principal and interest
payments are due on the Title XI ship financing bonds referred to above. In the
event that the operations of the carriers do not generate sufficient cash to
fund those payments, the Company has the right to require the current holder of
the other 49.2% interest to fund up to $6.0 million of the operating shortfall
for a period of up to 18 months.
In view of 1998 declines in average day rates and utilization rates,
particularly in the U.S. Gulf of Mexico, and the possibility that rates will
remain at low levels or will deteriorate further, the Company has previously
curtailed or deferred certain capital and other expenditures and is taking the
additional actions discussed below under "Recent Developments".
Bank and Other Borrowings. In addition to the securities offerings
described in "Background" above, the Company has established various bank credit
facilities from time to time. The Company entered into an Amended and Restated
Revolving Credit and Term Loan Agreement (the "Agreement") with a group of banks
in February 1998. The Agreement provided for (i) a $175.0 million revolving
credit facility maturing in 2003, and (ii) a $150.0 million term loan maturing
in 2005, payable in equal quarterly installments beginning in June 1998. The
Agreement required the Company to maintain specified ratios relating to
leverage, debt service and indebtedness; limited the Company's ability to create
or incur certain liens; limited the incurrence of certain indebtedness;
restricted the Company's ability to make certain investments; and restricted
certain payments, including dividends on the Company's capital stock.
As a result of the declines in rates and utilization discussed above,
the Company entered into an amendment of the Agreement (the Agreement, as so
amended, the "Amendment"), effective September 30, 1998. In the absence of the
Amendment, the Company would not have been in compliance with the covenant in
the Agreement that it maintain a maximum "Leverage Ratio" (as defined in the
Agreement) of 4.0:1.00. The Amendment modified that and other covenants in the
Agreement, generally imposing
restraints on future capital and other expenditures. In addition, the Amendment
(i) reduced the revolving credit facility to $150.0 million, increasing to
$166.0 million subsequent to March 1, 1999, subject to repayment of a portion of
the term loan with proceeds from a sale and leaseback transaction, and then
increasing to $175.0 million, subject to compliance with a specified leverage
ratio; (ii) provided that borrowings thereunder be secured by Company-owned
vessels having an appraised value of at least $600.0 million and by
substantially all other assets of the Company; and (iii) increased the rate of
interest on borrowings and fees payable under the Agreement.
The Company's outstanding indebtedness under the Amendment was $253.0
million at December 31, 1998 and $265.9 million at March 15, 1999.
The Company has also engaged in other financing arrangements from time
to time, including mortgage and lease financing of various vessels.
Recent Developments. The Company's financial results for January and
February 1999, and its expectations as to results for March 1999, indicate that
the Company's offshore energy support business continues to be adversely
affected by low average day rates and utilization rates in the United States.
Further, although 1998 rates in foreign markets remained steady or declined only
slightly as compared to those in the U.S. markets, foreign rates continued to
decline in January and February 1999, rebounding only slightly in early March
1999 in response to the startup of the 1999 drilling season. As a result of
these declines, the Company does not expect to be in compliance, as of March 31,
1999, with one or more covenants contained in the Amendment. Such noncompliance
would result in a default under the Amendment, which would entitle the bank
lenders to accelerate the payment of all borrowings under the Amendment. The
acceleration of payment would result in a default under the Senior Notes under
their cross-default provisions. (There are no comparable cross-default
provisions with respect to the Title XI ship financing bonds or the Preferred
Securities. However, acceleration of the borrowings under the Amendment would
require the Company, under the terms of the Title XI ship financing bonds, to
obtain consents for certain transactions and other matters). In the event that,
following such defaults, the holders of the Senior Notes exercise their rights
to accelerate payment, all borrowings under the Amendment and the principal
amount of the Senior Notes, as well as all interest accrued on such borrowings
and the Senior Notes, will become immediately due and payable. In order to avoid
these defaults, the Company will be required either to enter into a further
amendment of the Agreement or to obtain a waiver with respect to such
noncompliance.
The Company has developed a plan to improve liquidity. The plan
contemplates the following actions:
Asset Dispositions. The Company is developing a detailed plan to dispose of
certain assets in order to raise significant amounts of cash.
New and Amended Financing Arrangements. The Company is in discussion with its
bank lenders, as well as the holders of certain other debt obligations, seeking
to amend or obtain waivers of the covenants contained in and other terms of its
existing borrowing arrangements. In addition, the Company is seeking alternative
means of financing.
Reductions in Capital Expenditures. The Company is curtailing or deferring
certain capital expenditures. In particular, the Company intends to defer
certain scheduled drydockings of vessels, consistent with safety and operational
considerations.
Reductions in Operating and Overhead Expenses. The Company has reduced operating
and overhead expenses throughout its operations, and additional reductions are
expected to be implemented in the future. These reductions have been and are
expected to be effected through salary reductions, a freeze on the hiring of
additional employees, and headcount reductions through selected layoffs at
certain locations, as well as through attrition. Reductions in operating
expenses are also expected to be achieved by reducing crew costs and deferring
other expenses, consistent with safety and operational considerations.
In addition, in March 1999, the Company exercised its right to defer
the April 1, 1999 payment of interest on the 6 1/2% Convertible Subordinated
Debentures (the "Debentures") issued by HMI to Hvide Capital Trust (the "Trust")
in 1997. Under its governing instruments, the Trust is required to use interest
payments on the Debentures to pay dividends on the Preferred Securities.
Therefore, the deferral of the interest payment on the Debentures will also
result in the deferral of the payment of the April 1, 1999 dividend on the
Preferred Securities. The Company has the right to defer such interest payments
and, indirectly, such dividend payments, for periods of up to five years.
Improvements in Working Capital Management. The Company plans to improve its
working capital position by, among other things, strengthening its efforts to
collect receivables.
There can be no assurance as to whether or the extent to which the
Company will be able to achieve any or all of the above objectives or as to the
terms on which any or all of the above objectives might be achieved. The
achievement of many of the above objectives is subject to factors beyond the
Company's control, including general economic conditions and conditions in the
industries the Company serves. Further, the achievement of certain of the above
objectives will require the agreement or cooperation of third parties.
Effects 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, some of which have been offset by charter hire escalation
clauses.
Prospective Accounting Changes
In September 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
which is required to be adopted in years beginning after September 15, 1999.
Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of the new Statement will have a significant effect
on the Company's earnings or financial position.
Impact of the "Year 2000 Issue"
The "Year 2000 Issue" is the result of the use by certain computer
software of a two-digit dating convention rather than a four-digit dating
convention (i.e., "00" rather than "2000"), causing a computer or similar
technology to recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or in other errors that could cause
disruptions of normal business activities.
The Company has implemented a program designed to assess the likely
impact of the Year 2000 Issue on the Company and to develop and implement
measures designed to minimize its impact. The
program covers not only the Company's computer equipment and software systems,
but also other systems containing so-called "embedded" technology, such as alarm
systems, elevators and fax machines.
The Company's Year 2000 program has focused on the two major components
of the Company's operations - land-based systems and vessel-based systems - with
separate teams for computer operations/information systems, facilities
management, and vessel operations. Each team is implementing the program in the
following four phases:
o Assessment, including taking physical inventories of all computer-based
equipment and software, as well as digital and analog control systems;
establishing testing procedures for checking Year 2000 readiness; and
carrying out those testing procedures. This phase has been
substantially completed for both land-based and vessel-based systems,
except to the extent that the Company is seeking to determine, based on
communications with third-party suppliers and customers, whether and to
what extent the Company may face disruptions in supplies or services
(such as ports and utilities) provided by suppliers or cessation of
operations by customers. The Company estimates that such determination
has been made with respect to approximately 70% of such third-party
suppliers and customers and that such determination should be completed
by April 1999.
o Remediation of all land-based and vessel-based issues identified in the
assessment phase. Except as discussed above with respect to third
parties, land-based remediation activities have been completed and
vessel-based remediation efforts have been approximately 70% completed
and are expected to be completed during the first half of 1999. Based
on the information obtained to date from third-party suppliers and
customers, the Company does not anticipate any material obstacles to
completing any remaining remediation activities during the third
quarter of 1999.
o Compliance certification, including re-testing to assure that
remediation efforts have been successful compliance certification is
expected to be completed shortly after the completion of remediation
efforts in the 1999 third quarter.
o Maintenance, including ongoing testing and remediation. This phase is
expected to commence at the end of the first half of 1999 and is
expected to continue until early 2000.
The Company expects each of the above phases to be completed or
substantially completed by the times indicated above. However, the Company
cannot predict whether or to what extent the completion of these phases may be
delayed for various reasons. In particular, as indicated above, the Company
continues to contact third-party suppliers and customers with regard to the Year
2000 Issue. As indicated above, based on the information obtained to date from
third-party suppliers and customers, the Company does not anticipate any
material obstacles to completing any remaining land-based and vessel-based
remediation activities during the third quarter of 1999. However, it is not
possible to predict whether or to what extent the information obtained from
suppliers and customers may require additional assessment, remediation and/or
other activities. Further, the completion of the Company's Year 2000 program
could be adversely affected by the unavailability of replacement components and
equipment.
The Company estimates that its total cost for new systems and equipment
and related services will approximate $6.5 million, of which approximately $5.6
million had been expended through 1998. However, these amounts include the costs
of new systems and equipment that, while "Year 2000
compliant," were not acquired in connection with or as a result of the Year 2000
Issue. Further, these amounts do not include the Company's internal costs in
connection with the Year 2000 Issue (consisting primarily of payroll costs for
employees working on the Company's Year 2000 program), as the Company does not
separately track such costs. Consequently, it is not possible to determine the
precise amount expended by the Company directly in connection with the Year 2000
Issue. These expenditures are not expected to affect other expenditures by the
Company relating to information technology and systems.
The Company faces numerous potential risks in connection with the Year
2000 Issue. For the Company's land-based systems, these risks include the
possible loss of network integrity; failures with regard to accounting, finance
and other functions; potential damage to equipment; and possible loss of
communications. In addition, systems containing embedded technology could result
in the loss of building management control systems (including elevators, air
conditioning and generators); failure of fire and emergency and safety systems;
potential damage to equipment; and loss of power. In its vessel-based
operations, the Year 2000 Issue could result in vessel delays or stoppages;
damage to vessels and other equipment; risk of injury to crew members and
others; failure of navigation and/or communications equipment; and cargo
handling failures. It is not possible to determine whether or to what extent any
or all of these risks are likely to occur or the costs involved in any such
occurrence. However, such costs could be material.
The Company has developed a number of contingency plans to address the
Year 2000 Issue. Some of these plans will be implemented regardless of the
Company's expectations as to the likely impact of the Year 2000 Issue, while
others will be implemented only if the Company believes that it is likely to be
seriously affected by the Year 2000 Issue. These contingency plans include
maintaining backup systems with pre-2000 dates (including backups of all
critical systems); advance testing of critical systems; printing paper copies of
all critical data; establishing emergency response teams; and manually
overriding all mechanical systems. In addition, the Company may suspend cargo
operations; instruct vessels at sea to be in open sea, well away from shore or
shallows; instruct vessels in port to remain alongside or at anchor; insure that
all ships are fully provisioned with stores and fuel; and restrict crew changes.
In addition, as 2000 approaches, the Company will conduct safety drills, cargo
handling drills, and backup vessel handling drills.
The above discussion of the Year 2000 Issue is a "Year 2000 Readiness
Disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act. However, such Act does not protect the Company against
proceedings under the federal securities laws, including enforcement proceedings
by the Securities and Exchange Commission arising out of material misstatements
in and omissions from the above discussion.
Euro Conversion Issues
On January 1, 1999, certain member nations of the European Economic and
Monetary Union ("EMU") adopted a common currency, the "Euro." For a three-year
transition period, both the Euro and individual participants' currencies will
remain in circulation; after January 1, 2002, the Euro will be the sole legal
tender for EMU countries. The adoption of the Euro affects numerous financial
systems and business applications.
While the Company does business in many countries around the world,
substantially all of such business is U.S. dollar-denominated. Thus, while the
Company is reviewing the impact of the introduction of the Euro on various
aspects of its business (including information systems, currency
exchange rate risk, taxation, contracts, competitive position and pricing), such
introduction is not expected to have a material impact on the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The company is exposed to market risk from changes in interest rates
which may adversely affect its results of operations and financial condition.
The Company's policy is not to use financial instruments for trading or other
speculative purposes and the Company is not a party to any leveraged financial
instruments. The Company manages market risk by restricting the use of
derivative financial instruments to infrequent purchases of forward contracts
for the purchase of fuel oil for its carrier fleet. The Company does nto have
any open contracts at December 31, 1998. A discussion of the Company's credit
risk and the fair value of financial instruments is included in Notes 15 and 17
of the Company's consolidated financial statements.
Exposure To Short-Term Interest Rates. Short-term variable rate debt,
primarily borrowings under the Amendment, comprised approximately $252.9
million, or 34% of the Company's total debt and Preferred Securities at December
31, 1998. The Company's variable rate debt had an interest rate of approximately
7.4% during 1998 and a hypothetical 2% increase in the rates under the Amendment
during 1998 would have increased the Company's interest expense and decreased
income before taxes by $3.9 million. Since a significant portion of the
Company's borrowing are based on short-term interest rates, the Company's
borrowing costs could increase due to fluctuations in short-term interest rates
as well as the interest rate spread charged by the Company's lenders.
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
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 1999 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 1999 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 1999 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 1999 Annual Meeting of Shareholders under the caption
"Compensation Committee Interlocks and Insider Participation and Certain
Transactions," and is incorporated herein by reference.
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, 1997 and 1998
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998
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 consolidated 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.(1)
3.2 Bylaws of the Company, as amended.(1)
4.1 Form of Class A Common Stock Certificate (Domestic).(1)
4.2 Form of Class A Common Stock Certificate (Foreign).(1)
4.3 Certificate of Trust of Hvide Capital Trust.(2)
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.(2)
4.5 Indenture for the 6 2% Convertible Subordinated Debentures, dated as
of June 27, 1997, among Hvide Marine Incorporated and The Bank of New
York, as Indenture Trustee.(2)
4.6 Form of 6 2% Preferred Securities.(2)
4.7 Form of 6 2% Convertible Debentures.(2)
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.(2)
4.9 Indenture, dated February 19, 1998, among Hvide Marine Incorporated,
the Subsidiary Guarantors named therein and the Bank of New York as
Trustee.(3)
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.(3)
10.1 Non-Compete Agreement, between the Company and Hans J. Hvide, dated
September 28, 1994.(4)
10.2 Equity Ownership Plan.(5)
10.3 Stock Option Plan for Directors.(5)
10.4.1 1996 Employee Stock Purchase Plan.(5)
10.4.2 Retirement Plan and Trust. (6)
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.(7)
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.(7)
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.(7)
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.(7)
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.(7)
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.(7)
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.(7)
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.(7)
10.14 Franchise Agreement, dated as of January 8, 1975, by and between
Canaveral Port Authority and Port Everglades Towing, Inc.(7)
10.15 Non-Exclusive Franchise Agreement, dated as of March 7, 1991, by and
between Port Everglades Authority and Hvide Shipping,
Incorporated.(7)
10.16* Contract for Fuel Transportation, dated as of February 18, 1993, by
and between Florida Power & Light Company and Sun State Marine,
Incorporated.(7)
10.17 Post-Retirement Benefits Agreement between the Company and Hans J.
Hvide, dated September 28, 1994.(4) 10.18 Letter of Credit
Agreement, dated as of September 29, 1994, between Hvide Shipping,
Inc. and Bank of Boston.(4)
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.(1)
10.20 Amended and Restated Credit Agreement dated as of February 3,
1997.(8)
10.21 Amendment No. 2 to Charter of Seabulk Magnachem.(4)
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.(1)
10.23 Form of Registration Rights Agreement by and between Hvide
Marine Incorporated and certain shareholders.(1)
10.24 Form of Agreement Among Shareholders among certain shareholders.(1)
10.25 Form of Amended and Restated Contingent Share Issuance Agreement
among Hvide Marine Incorporated and certain purchasers.(1)
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.(2)
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.(3)
10.31 Hvide Marine Incorporated Amended and Restated Equity Ownership
Plan.(12)
10.32 Amendment No. 1, dated as of September 30, 1998, to the Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of
February 12, 1998, by and among Hvide Marine Incorporated, the
Guarantors party thereto, Citibank, N.A., BankBoston, N.A. and the
lending institutions named therein.(13)
10.33 Indemnification Agreement, dated as of October 22, 1998, between
Hvide Marine Incorporated and J. Erik Hvide.(13)
10.34 Indemnification Agreement, dated as of October 30, 1998, between
Hvide Marine Incorporated and Hans J. Hvide.(13)
10.35 Consulting Agreement between Gene Fitzgerald and Hvide Marine
Incorporated, dated January 15, 1999.
21 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
27 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 Amendment No. 4 to Registration
Statement on Form S-1 (Registration No. 33-78166) filed with the Commission
on August 5, 1996.
(2) Incorporated herein by reference to Form S-3 (Registration No. 333-34941)
filed with the Commission on September 4, 1997.
(3) Incorporated herein by reference to Form S-4 (Registration No. 333-42039)
filed with the Commission on March 18, 1998.
(4) 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.
(5) Incorporated herein by reference to Form S-8 (Registration No. 333-17621)
filed with the Commission on December 11, 1996.
(6) Incorporated herein by reference to Form S-8 (Registration No. 333-19543)
filed with the Commission on January 10, 1997.
(7) Incorporated herein by reference to Registration Statement on Form S-1
(Registration No. 33-78166) filed with the Commission on April 26, 1994.
(8) Incorporated herein by reference to Form 10-K filed with the Commission on
March 31, 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-8 (Registration No. 333-58119)
filed with the Commission on June 30, 1998.
(13) Incorporated herein by reference to Form 10-Q filed with the Commission on
November 16, 1998.
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, 1999
- - --------------------------------------
J. Erik Hvide President, Chief Executive
Officer and Director
(principal executive officer)
/s/ JOHN H. BLANKLEY Executive Vice President, March 30, 1999
- - --------------------------------------
John H. Blankley Chief Financial Officer
and Director
(principal financial officer)
/s/ EUGENE F. SWEENEY Executive Vice President, March 31, 1999
- - --------------------------------------
Eugene F. Sweeney Chief Operating Officer,
and Director
/s/ JOHN J. KRUMENACKER Controller (principal accounting March 31, 1999
- - --------------------------------------
John J. Krumenacker officer)
/s/ ROBERT B. CALHOUN, JR. Director March 31, 1999
- - ---------------------------------------
Robert B. Calhoun, Jr.
/s/ GERALD FARMER Director March 31, 1999
- - ---------------------------------------
Gerald Farmer
/s/ JEAN FITZGERALD Director March 31, 1999
- - ---------------------------------------
Jean Fitzgerald
/s/ JOHN J. LEE Director March 31, 1999
- - --------------------------------------
John J. Lee
/s/ JOSIAH O. LOW III Director March 31, 1999
- - --------------------------------------
Josiah O. Low III
/s/ WALTER C. MINK Director March 31, 1999
- - --------------------------------------
Walter C. Mink
/s/ ROBERT RICE Director March 31, 1999
- - ---------------------------------------
Robert Rice
/s/RAYMOND B. VICKERS Director March 30, 1999
- - --------------------------------------
Raymond B. Vickers
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, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. 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 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Hvide Marine Incorporated will continue as a going concern. As more fully
described in Note 2, the Company has experienced a reduction in revenues and
believes that it will not be in compliance with certain covenants of a loan
agreement as of March 31, 1999. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Miami, Florida
February 5, 1999, except for
Note 21, as to which the
date is March 17, 1999, and
Note 2, as to which the date
is March 31, 1999
F-1
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1998
(in thousands, except
share amounts)
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 14,952 $ 9,177
Accounts receivable:
Trade, net of allowances for doubtful accounts of $1,093 and $2,169.................. 36,903 67,961
Insurance claims and other........................................................... 2,456 11,915
Inventory, spare parts and supplies.................................................... 8,162 17,455
Prepaid expenses....................................................................... 3,085 4,342
Deferred costs, net.................................................................... 4,516 10,482
-------- --------
Total current assets................................................................. 70,074 121,332
Property:
Construction in progress............................................................... 42,010 39,455
Vessels and improvements............................................................... 492,070 889,903
Less accumulated depreciation........................................................ (45,463) (91,309)
Furniture and equipment................................................................ 7,366 17,297
Less accumulated depreciation........................................................ (1,625) (3,540)
------- --------
Net property......................................................................... 494,358 851,806
Other assets:
Deferred costs, net.................................................................... 9,580 20,978
Investment in affiliates............................................................... 1,627 23,421
Goodwill, net.......................................................................... 25,361 86,955
Other.................................................................................. 2,783 4,333
-------- --------
Total other assets................................................................... 39,351 135,687
-------- --------
Total................................................................................ $603,783 $1,108,825
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................................... $ 17,187 $ 25,822
Current maturities of long-term debt................................................... 7,534 9,011
Current obligations under capital leases............................................... 1,714 2,991
Debt subject to acceleration........................................................... -- 252,954
Accrued interest....................................................................... 1,007 9,864
Charter hire and other liabilities..................................................... 16,842 25,716
--------- ---------
Total current liabilities............................................................ 44,284 326,358
Long-term liabilities:
Long-term debt......................................................................... 177,573 33,564
Obligations under capital leases....................................................... 10,726 36,983
Senior Notes........................................................................... -- 300,000
Deferred income taxes.................................................................. 25,649 32,721
Other.................................................................................. 3,269 5,551
--------- ---------
Total long-term liabilities.......................................................... 217,217 408,819
--------- ---------
Total liabilities.................................................................... 261,501 735,177
Company-obligated mandatorily redeemable preferred securities of a subsidiary trust
holding solely debentures issued by the Company........................................ 115,000 115,000
Minority partners' equity in subsidiaries................................................. 2,295 10,613
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, 12,382,435 and 12,872,629............................ 12 13
Class B Common Stock--$.001 par value, authorized 5,000,000 shares;
issued and outstanding, 2,906,465 and 2,547,064...................................... 3 2
Additional paid-in capital............................................................. 195,522 196,822
Retained earnings...................................................................... 29,450 51,198
--------- ---------
Total stockholders' equity......................................................... 224,987 248,035
--------- ---------
Total minority partners' equity in subsidiaries and stockholders' equity........... 227,282 258,648
--------- ---------
Total.............................................................................. $ 603,783 $1,108,825
========= ==========
See notes to consolidated financial statements
F-2
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1996 1997 1998
--------- ---------- ----------
(In thousands, except
per share data)
Revenues..................................................................... $ 109,356 $210,257 $ 401,906
Operating expenses:
Crew payroll and benefits................................................. 29,756 48,732 91,357
Charter hire and bond guarantee fee....................................... 4,667 10,548 19,679
Repairs and maintenance................................................... 8,984 15,512 31,129
Insurance................................................................. 7,633 8,867 12,668
Consumables............................................................... 6,643 13,654 39,222
Other..................................................................... 6,094 12,970 28,834
--------- -------- ---------
Total operating expenses................................................ 63,777 110,283 222,889
Selling, general and administrative expenses:
Salaries and benefits..................................................... 7,936 12,052 21,062
Office expenses........................................................... 1,394 2,248 5,804
Professional fees......................................................... 2,947 4,683 6,259
Other..................................................................... 2,702 5,808 9,180
--------- -------- ---------
Total overhead expenses................................................. 14,979 24,791 42,305
Depreciation and amortization................................................ 9,830 19,850 51,757
--------- -------- ---------
Income from operations....................................................... 20,770 55,333 84,955
Interest:
Interest expense.......................................................... 11,908 8,341 43,077
Interest income........................................................... (277) (1,317) (635)
-------- ------- ---------
Net interest............................................................ 11,631 7,024 42,442
Other income (expense):
Minority interest and equity in earnings of subsidiaries.................. 894 (3,527) (6,698)
Other..................................................................... (457) (177) 156
-------- ------- ---------
Total other income (expense)............................................ 437 (3,704) (6,542)
Income before provision for income
taxes and extraordinary item.............................................. 9,576 44,605 35,971
Provision for income taxes................................................... 3,543 16,950 13,489
--------- -------- ---------
Income before extraordinary item............................................. 6,033 27,655 22,482
Loss on early extinguishment of debt, net of applicable
income taxes of $1,474, $1,252 and $413 in 1996, 1997 and 1998............ 8,108 2,132 734
--------- -------- ---------
Net income (loss)....................................................... $ (2,075) $ 25,523 $ 21,748
======== ======== =========
Earnings per common share:
Income before extraordinary item........................................... $ 1.05 $ 1.87 $ 1.47
Loss on early extinguishment of debt....................................... (1.41) (0.14) (0.05)
-------- ------- ---------
Net income (loss) per common share...................................... $ (0.36) $ 1.73 $ 1.42
======== ======== =========
Earnings per common share--assuming dilution:
Income before extraordinary item........................................... $ 0.99 $ 1.75 $ 1.39
Loss on early extinguishment of debt........................................ (1.23) (0.12) (0.04)
-------- ------- ---------
Net income (loss) per common share--assuming dilution.................... $ (0.24) $ 1.63 $ 1.35
======== ======== =========
Weighted average common shares outstanding................................... 5,763 14,785 15,324
========= ======== =========
Weighted average common and common equivalent
shares outstanding--assuming dilution...................................... 6,590 17,120 19,451
========= ======== =========
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 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 (retired)
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
Conversion of Common
Stock ............................. 359,401 1 (359,401) (1) -- -- -- -- --
Common Stock
issued upon
exercise of
stock options ...................... 100 -- -- -- -- -- 1 -- 1
Common Stock issued
pursuant to employee
stock purchase plan ............... 112,319 -- -- -- -- -- 889 --
889
Common Stock issued to
directors ......................... 18,374 -- -- -- -- -- 216 -- 216
Stock Compensation
pursuant to key employee
stock plan ......................... -- -- -- -- -- -- 194 -- 194
Net income .......................... -- -- -- -- -- -- -- 21,748 21,748
---------- --- ---------- --- -------- --- -------- -------- ---------
Balance at
December 31,
1998 12,872,629 $13 2,547,064 $ 2 -- $-- $196,822 $ 51,198 $ 248,035
========== ==== ========== === ======= ==== ======== ======== ==========
See notes to consolidated financial statements.
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
1996 1997 1998
--------- -------- --------
(In thousands)
Operating activities:
Net income (loss)......................................................... $(2,075) $ 25,523 $ 21,748
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Loss on early extinguishment of debt, net............................... 8,108 2,132 734
Depreciation and amortization of property............................... 8,291 19,093 48,487
Amortization of drydocking costs........................................ 3,057 5,350 11,354
Amortization of intangible assets....................................... 505 757 3,270
Amortization of discount on long-term debt and financing costs.......... 1,196 680 1,274
Provision for bad debts................................................. 125 1,029 1,087
Loss (gain) on disposals of property.................................... (13) 524 (26)
Provision for deferred taxes............................................ 3,543 13,147 10,189
Minority partners' equity in (losses) income of subsidiaries, net....... (756) (183) 311
Undistributed earnings of affiliates, net............................... (132) (110) (1,103)
Other non-cash items.................................................... 36 95 217
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable.................................................. (1,928) (20,640) (40,628)
Other assets......................................................... (1,978) (9,500) (21,008)
Accounts payable and other liabilities............................... 4,605 2,145 28,630
-------- -------- ---------
Net cash provided by operating activities................................... 22,584 40,042 64,536
Investing activities:
Purchase of property...................................................... (8,759) (67,117) (103,569)
Deposits for the purchase of property..................................... (6,349) (910) --
Proceeds from disposals of property....................................... 8 1,633 --
Investments in non-consolidated affiliates................................ (736) (226) (21,702)
Acquisitions, 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................... (68,518) (194,723) (373,535)
------- -------- ---------
Net cash used in investing activities....................................... (84,354) (261,343) (498,806)
Financing activities:
Proceeds (repayments) of short-term borrowings, net....................... 1,994 (16,242) --
Proceeds from long-term debt.............................................. 36,964 177,210 464,321
Proceeds from issuance of senior notes, net of offering costs............. -- -- 292,500
Proceeds from issuance of common stock, net............................... 76,595 94,628 800
Proceeds from issuance of redeemable preferred securities, net............ -- 111,109 --
Principal payments of long-term debt...................................... (45,189) (135,877) (321,278)
Payment of financing costs................................................ (838) (2,724) (2,760)
Payment of obligations under capital leases............................... (1,189) (1,468) (5,088)
------- ------- ---------
Net cash provided by financing activities................................... 68,337 226,636 428,495
-------- -------- ---------
Increase (decrease) in cash and cash equivalents............................ 6,567 5,335 (5,775)
Cash and cash equivalents at beginning of period............................ 3,050 9,617 14,952
-------- -------- ---------
Cash and cash equivalents at end of period.................................. $ 9,617 $ 14,952 $ 9,177
======== ======== =========
Supplemental schedule of noncash investing and financing
activities:
Notes payable issued for the acquisition of vessels......................... $ 675 $ 6,000 $ --
======== ======== =========
Capital lease obligations for the acquisition of vessels and
equipment................................................................. $ 6,098 $ 4,972 $ 32,621
======== ======== =========
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-4
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Description of Business and Significant Accounting and Reporting Policies
Description of Business. Hvide Marine Incorporated and subsidiaries
(collectively, the "Company") is a provider of marine support and transportation
services, serving primarily the energy and chemical industries. The Company
operates offshore energy support vessels, principally 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" or
the "Parent") and its majority-owned subsidiaries. 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.
Inventory, 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.
F-5
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 that 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 vessels, other than tankers, range from 12 to 40 years
and the estimated useful lives of furniture and equipment range from 3 to 10
years. Tankers and related improvements are depreciated over estimated useful
lives ranging from 1 to 17 years, as determined by the Oil Pollution Act of 1990
and other factors.
Vessels under capital leases are amortized over the lesser of the lease
term or their estimated useful lives. Included in vessels and improvements at
December 31, 1997 and 1998 are vessels under capital leases of approximately
$17.6 million and $47.1 million, net of accumulated amortization of
approximately $1.0 million and $1.7 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, 1997 and
1998, deferred costs include unamortized drydocking costs of approximately $7.0
million and $16.0 million, respectively, and net financing costs of $7.1 million
and $14.8 million, respectively.
Goodwill. Goodwill represents the excess of the purchase price over the
fair value of assets acquired and is amortized on the straight-line basis over
periods ranging from 20 to 35 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, 1997 and 1998, accumulated amortization of goodwill was
approximately $2.8 million and $6.0 million, respectively.
Investments. Investments in companies in which the Company's ownership
interest ranges from 20 to 50% and the Company exercises significant influence
over operating and financial policies are accounted for using the equity method.
Income Taxes. HMI files a consolidated tax return with substantially
all corporate subsidiaries; the others file separate income tax returns. 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.
Foreign Currency Translation. In accordance with SFAS No. 52, "Foreign
Currency Translation", assets and liabilities denominated in foreign currencies
are translated into U.S. dollars at the rate of exchange in effect at the
balance sheet date, while revenue and expenses are translated at the weighted
average rates prevailing during the respective years. The Company's foreign
subsidiaries use the U.S. dollar as their functional currency and substantially
all external transactions are denominated in U.S. dollars. Gains
F-6
and losses resulting from changes in exchange rates from year to year are
insignificant for all years presented.
Recent Pronouncements. In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income. This statement
establishes standards for reporting and the display of comprehensive income,
which is defined as the change in equity arising from non-owner sources. It
includes foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on certain investments in debt and equity
securities. This statement is effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 130 did not have a material effect
on the Company's consolidated financial statements.
In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. This statement requires that public
business enterprises report certain information about operating segments in
complete sets of financial statements of the enterprise and in condensed
financial statements for interim periods. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. This
statement is effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 131 had no impact on the Company's financial condition,
results of operation or cash flows and increased the Company's financial
statement disclosures (see Note 16).
Reclassifications. Certain amounts from prior periods' consolidated
financial statements have been reclassified to conform with the current period's
presentation.
2. Basis of Financial Statement Presentation and Issues Affecting Liquidity
As a result of a decline in revenues, the Company does not expect to be
in compliance, as of March 31, 1999, with one or more covenants contained in its
Restated and Revolving Credit and Term Loan Agreement, as amended ("Credit
Facility"). Management and the Credit Facility lenders are engaged in
discussions to resolve this matter. In the event the parties are unable to reach
an agreement, the lenders are entitled, at their discretion, to exercise certain
remedies including acceleration or repayment of the $253.0 million balance
($266.0 million at March 31, 1999), plus accrued interest, outstanding under the
Credit Facility. There can be no assurance that the Credit Facility lenders will
provide the Company with an amendment or waiver of the defaults. In addition,
the Company's Senior Notes contain provisions under which repayment of the
outstanding principal amount of $300.0 million, plus accrued interest, could be
accelerated in the event that repayment of the Credit Facility is accelerated.
In the event that the Credit Facility lenders elect to exercise their
right to accelerate repayment, such acceleration would have a material adverse
effect on the Company, its operations and its financial condition. Furthermore,
there can be no assurance that the Company would be successful in identifying or
consummating financing necessary to satisfy the obligations which would become
immediately due and payable. As a result of the uncertainty related to these
matters, the obligations with respect to the Credit Facility are shown as
current liabilities on the Company's consolidated balance sheet at December 31,
1998 and the Company has a deficit in working capital of approximated $205.0
million. These matters raise substantial doubt about the Company's ability to
continue as a going concern. In addition to continuing to negotiate with the
Credit Facility lenders to obtain waivers or amendments, the Company has various
plans to increase liquidity, including: (i) workforce and wage reductions and a
hiring freeze aimed at reducing the Company's overall expense levels; (ii)
identification of assets for
F-7
disposition in order to increase available cash; (iii) reduction of capital
expenditures; (iv) reductions in operating and overhead expenses; and (v)
deferral of interest payments on the debentures (see Note 21).
The financial statements do not include any further adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
3. Change in Estimates
In 1998, the Company changed the estimated useful lives of its offshore
energy support vessels and the amortization period for certain intangible
assets. Management believes these changes more accurately reflect the economic
lives of the Company's assets. For 1998, the change had the effect of reducing
depreciation expense by $4.0 million which increased earnings per diluted share
by $0.21, for both income before extraordinary item and net income.
4. Equity Investment in Affiliate
In June 1998, the Company paid $18.5 million to increase its equity
interest in five 45,300 dead weight ton double-hull carriers (collectively the
"Lightship Tankers") from 0.8% to 50.8%. Three of these carriers were delivered
in the fourth quarter of 1998, a fourth was delivered in early 1999, and the
fifth and final carrier is expected to be delivered in mid-1999. At the time of
the increase in its equity interest, the Company intended, and it still intends,
to reduce its equity interest to less than 50%. Accordingly, the Company
accounts for this temporary investment under the equity method.
The Company has exclusive options to purchase the remaining 49.2%
equity interest in the carriers at an estimated cost of $16.5 million. These
options expire at year-end 2000, after which time the Company will retain a
right of first refusal to purchase a 24.2% interest for $9.0 million plus
interest. The Company has not yet determined whether or to what extent it will
exercise the options or the right of first refusal.
Summary financial information for the Lightship Tankers as of and for
the period ended December 31, 1998 is as follows (in thousands):
1998
-------------
Current assets................................ $ 10,652
Vessels and other assets...................... 254,220
Current liabilities........................... 6,579
Long term debt................................ 221,373
Revenues...................................... 3,185
Loss from operations.......................... (37)
Net loss...................................... (130)
F-8
5. Senior Notes and Other Debt
Senior Notes
In February 1998, the Company completed an offering of $300.0 million
of 8.375% senior notes (the "Senior Notes"). The net proceeds to the Company
were approximately $292.5 million, after deducting underwriting commissions and
other offering expenses, which are included in deferred costs and amortized over
the term to maturity. Of such proceeds, approximately $268.0 million was used to
repay certain indebtedness and approximately $24.5 million was used for general
corporate purposes. Interest on the Senior Notes is payable semi-annually in
arrears on February 15 and August 15. 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. The Senior Notes are guaranteed by certain of the
Company's subsidiaries (see Note 19).
Covenants under the Senior Notes, among other things, (i) limit the
creation or incurrence of certain liens; (ii) limit the incurrence of additional
indebtedness; (iii) restrict certain payments and asset sales; and (iv) contain
certain cross-default provisions under which holders of the Senior Notes could
accelerate repayment of principal and accrued interest in the event of certain
defaults on other indebtedness.
Other Debt
Long-term debt consisted of the following (in thousands):
December 31,
1997 1998
------------- -------------
Lines of Credit..................... $ 135,000 $ 135,000
Term Loan........................... -- 117,954
Title XI Debt....................... 42,162 36,701
Notes Payable....................... 7,945 5,874
------------- -------------
185,107 295,529
Less: Current maturities........... (7,534) 261,965
------------ -------------
$ 177,573 $ 33,564
============= =============
In September 1997, the Company entered into a $175.0 million revolving
line of credit through September 1999. In November 1997, the Company entered
into a Term Loan Agreement that provided for $300.0 million of term loans. In
February 1998, the Company entered into an Amended and Restated Revolving Credit
and Term Loan Agreement which merged the Credit Agreement and the Term Loan
Agreement and resulted in their individual termination.
Effective September 30, 1998, the Company entered into Amendment No. 1
to the Amended and Restated Revolving Credit and Term Loan Agreement (the
"Credit Facility"). Pursuant to the Credit Facility, borrowings under the
revolving line of credit may not initially exceed $150.0 million, inclusive of a
letter of credit sub-limit of $20.0 million, increasing to (1) $166.0 million
subsequent to March 1, 1999, subject to repayment of a portion of the term loan
with proceeds from a specified sale and leaseback transaction or (2) $175.0
million, based upon the Company's compliance with a specified leverage ratio.
The Credit Facility provides that borrowings thereunder will be secured by
Company-owned vessels having an appraised value of at least $600.0 million and
by substantially all other assets of the Company and its subsidiaries. Interest
on borrowings is based on one of two rates, at the Company's election, plus a
margin based on the Company's compliance with certain financial ratios. Interest
on
F-9
amounts outstanding at December 31, 1998 ranged from 7.2% to 7.6%. In addition,
the revolving line of credit is subject to a commitment fee of 0.4% on the
unused portion. The revolving line of credit and term loan mature on February
12, 2003 and March 31, 2005, respectively. At December 31, 1998, the Company's
outstanding indebtedness under the revolving line of credit was approximately
$135.0 million with $14.5 million available and $0.5 million of outstanding
stand-by letter of credits and approximately $118.0 million was outstanding
under the term loan.
Covenants under the Credit Facility, 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)
prohibit the Company from making certain investments; (v) restrict certain
payments, including dividends with respect to shares of any class of capital
stock; and (vi) restrict modification of the terms of the Preferred Securities
(see Note 6), and in certain circumstances the repayment, redemption, or
repurchase of the Preferred Securities.
Based upon current circumstances the Company does not believe it will
be in compliance, at March 31, 1999, with certain of the covenants contained in
the Credit Facility (See Note 2).
The Company has approximately $36.7 million of Title XI debt which 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 semi-annual
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.
The Company has outstanding notes payable that bear interest at rates
ranging from 7.92% to 10% and mature at various dates through November 2011. The
notes payable are collateralized by certain vessels.
At December 31, 1998, the Company also had letters of credit
outstanding in the amount of approximately $2.3 million which expire on various
dates through December 2002. These letters of credit are not secured by any
collateral.
The aggregate annual future payments due (prior to classification of
certain amounts subject to acceleration) on the Senior Notes and other debt as
of December 31, 1998 are as follows (in thousands):
1999................................................. $ 30,440
2000................................................. 27,123
2001................................................. 25,874
2002................................................. 24,322
2003................................................. 159,330
Thereafter........................................... 328,440
-----------
$ 595,529
===========
F-10
The Company made interest payments of approximately $19.2 million, $9.2
million and $33.0 million in 1996, 1997 and 1998, respectively, and capitalized
interest of approximately $0.9 million and $1.4 million in 1997 and 1998,
respectively. No interest was capitalized in 1996.
6. Capital Leases
The Company has entered into sale-leaseback transactions for seven
vessels. The obligations pursuant to the transactions are classified as capital
lease obligations.
The Company owns certain other 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, including obligations under
sale-leaseback transactions, together with the present value of the net minimum
lease payments as of December 31, 1998 (in thousands):
1999......................................................... $ 5,284
2000......................................................... 5,650
2001......................................................... 5,377
2002......................................................... 4,546
2003......................................................... 4,408
Thereafter................................................... 33,045
---------
Total minimum lease payments................................. 58,310
Less amount representing interest............................ (18,336)
--------
Present value of minimum lease payments (including current
portion of $2,991)........................................ $ 39,974
=========
7. Company Obligated Mandatorily Redeemable Preferred Securities
In June 1997, a private offering of 2,300,000 of 6 1/2% Trust
Convertible Preferred Securities (the "Preferred Securities") was completed 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 their issuance 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.
Holders of the Preferred Securities are entitled to receive
preferential cumulative cash distributions from the Trust at an annual rate of
6.5% 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.
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. The
Company provides a full and unconditional guarantee of the Trust's obligations
under the Preferred Securities. These instruments also provide, among other
things, that payments of interest on the Debentures, and of dividends on the
Preferred Securities, may be deferred at the Company's election for periods of
up to five years. On March 17, 1999, the Company elected to defer the bonds 1999
payments of interest on the debentures (see Note 21).
F-11
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.
8. Commitments and Contingencies
The Company leases its office facilities under operating lease
agreements which expire at various dates through 2013. Rent expense under such
leases was $0.7 million, $0.9 million, and $2.0 million for 1996, 1997 and 1998,
respectively.
A portion of the Company's operations consists of charters of
ocean-going vessels. Two tankers are bareboat chartered for periods extending
through 1999 and 2002. Charter hire expense on these tankers was approximately
$3.2 million for 1996 and 1997 and $3.3 million for 1998.
Aggregate annual future payments due under non-cancelable operating
leases and charter agreements are as follows (in thousands):
1999........................................... $ 6,109
2000........................................... 4,777
2001........................................... 4,795
2002........................................... 3,800
2003........................................... 2,813
------------
$ 22,294
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 $6.1
million for additional construction costs allegedly due the shipyard. The
proceeding was settled in the fourth quarter of 1998. Under the terms of the
settlement, all claims were dismissed with prejudice in consideration of the
Company's agreement to pay the shipyard $4.75 million in installments from
December 1998 to May 1999. As part of the settlement, a $5.6 million bond
previously provided by the Company was released and a related letter of credit
was terminated. Included in charter hire and other liabilities on the
accompanying December 31, 1998 balance sheet is $3.75 million due the shipyard
in 1999, representing the Company's remaining payments under the settlement
agreement.
At December 31, 1998, the Company had contracted for the construction
of 10 vessels under various agreements at an aggregate cost of approximately
$72.0 million. The vessels are to be delivered on various dates from January
1999 to April 2000. At December 31, 1998, the Company had incurred approximately
$29.1 million of construction costs under such agreements. Capital requirements
under the agreements for 1999 and 2000 are estimated to be approximately $38.0
million and $4.9 million, respectively.
F-12
9. Acquisitions
In February 1998, the Company acquired a fleet of 37 offshore energy
support vessels, operating primarily offshore West Africa and Southeast Asia,
which now operate as Seabulk Offshore Operators, Inc. ("SOOP"), for a cash
purchase price of approximately $291.7 million. The acquisition was accounted
for under the purchase method and resulted in costs in excess of net assets
acquired of approximately $61.4 million, which is being amortized on a
straight-line basis over 30 years.
In May 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, a $6.0 million note (repaid in June
1997) and 141,760 shares of Class A Common Stock valued at approximately $3.7
million. The fair value of net assets acquired approximated the purchase price
paid by the Company.
In October 1997, the Company acquired 100% of the outstanding common
stock of Bay Transportation Corporation ("Bay") for $36.5 million in cash and
the assumption of approximately $20.6 million of debt. The purchase agreement
provided for additional consideration based on specified changes in the working
capital of Bay, which resulted in the payment of approximately $500,000 in
January 1998. The acquisition was accounted for under the purchase method and
resulted in goodwill of approximately $17.4 million, which is being amortized on
a straight-line basis over 35 years.
The Company's unaudited pro-forma condensed consolidated income
statements, assuming that the acquisition of SOOP, SOII and Bay had occurred on
January 1, 1997, are summarized as follows (in thousands, except per share
amounts):
Year Ended December 31,
1997 1998
----------- -------------
Revenues............................................................ $ 292,248 $ 409,494
Income before extraordinary item.................................... 21,032 22,549
Net income.......................................................... 18,900 21,815
Diluted earnings per common share, before
extraordinary item................................................ 1.37 1.40
Diluted earnings per common share................................... 1.24 1.36
This pro-forma information does not purport to be indicative of the
results which might have been obtained had the acquisitions been consummated at
the dates assumed.
In March 1998, the Company acquired seven harbor tugs, two petroleum
product carriers, and a topside repair facility from Kirby Corporation for a
cash purchase price of $31.9 million. The fair value of net assets acquired
approximated the purchase price paid by the Company.
In 1998, the Company also acquired 3 vessels under various asset
purchase agreements for an aggregate cash consideration of approximately $8.9
million and completed the construction of 10 vessels at a total cost of $56.0
million.
In 1997, the Company also acquired 64 vessels under various asset
purchase agreements for an aggregate consideration of approximately $115.2
million and acquired one vessel under a capital lease obligation.
F-13
The operations of the acquired vessels and businesses are included in
the accompanying consolidated statements of operations for periods subsequent to
their acquisition dates.
10. Stock Option Plans
The Equity Ownership Plan (the "EOP") provides for the issuance of a
maximum of 2,000,000 shares of Class A Common Stock. Under the terms of the EOP,
the Company is authorized to grant incentive stock options, nonqualified stock
options, stock appreciation rights, stock awards and cash awards. Options and
other awards are issuable at the discretion of a committee 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
the fair market value of the underlying common stock 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 fair market value at the date of
grant. Option terms range from 5 to 10 years.
The Stock Option Plan for Directors provides for the issuance of a
maximum of 70,000 shares of Class A Common Stock to directors of the Company.
Each director receives options to purchase 5,000 shares of Common Stock upon the
date of his or her initial election, and options to purchase 2,000 shares of
Common Stock each year following the grant of the initial options. The exercise
price for all options is equal to the fair market value of the underlying Common
Stock at the date of grant and options become 100% vested and exercisable on the
first anniversary of the date of grant. The term of these options is 10 years.
Information for all stock option plans for 1996, 1997 and 1998 is as
follows.
1996 1997 1998
---------------------- -------------------- --------------------
Weighted Weighted Weighted
Number average Number average Number average
of exercise of exercise of exercise
options price options price options price
Options outstanding at beginning of year..... -- $ -- 806,000 $ 12.00 894,025 $ 14.83
Granted.................................... 806,000 12.00 150,950 28.96 221,350 13.61
Exercised.................................. -- -- (53,425) 12.00 (100) 12.00
Canceled................................... -- -- (9,500) 14.73 (127,600) 29.35
---------- -------- ---------
Options outstanding at end of year........... 806,000 12.00 894,025 14.83 987,675 12.60
========== ========= =========
Options exercisable at end of year........... 35,000 12.00 99,325 12.00 228,325 12.73
Options available for future grants at end
of year.................................... 264,000 -- 113,050 -- 891,700 --
Weighted average fair value of options
granted during the year.................... -- 7.78 -- 18.38 -- 7.98
F-14
Options Outstanding at December 31, 1998
Weighted average
remaining contractual
Exercise Price Outstanding life (in years) Exercisable
$ 6.00 50,950 10 --
12.00 - 17.13 921,225 7 - 10 216,575
23.00 - 28.00 15,500 8 - 9 11,750
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 because the fair market value of the
underlying common stock equals or exceeds the exercise price of the options at
their grant date. Had compensation cost for these plans been determined based on
the fair value at the grant dates of awards under those plans, pursuant 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 1998
----------- ----------- -----------
Net income (loss):
As reported................................................. $ (2,075) $ 25,523 $ 21,748
Pro-forma................................................... (2,498) 24,334 20,261
Earnings (loss) per share--assuming dilution:
As reported................................................. (0.24) 1.63 1.35
Pro-forma................................................... (0.30) 1.56 1.27
The fair value of each option is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions
applied to grants in 1996, 1997 and 1998:
1996 1997 1998
----------- ----------- -----------
Dividend yield................................................ 0.0% 0.0% 0.0%
Expected volatility factor.................................... 0.72 0.62 0.68
Approximate risk-free interest rate........................... 7.0% 6.5% 4.5%
Expected life (in years)...................................... 5 6 6
Because the determination of the fair value of all options is based on
the assumptions described above and because additional option grants are
expected to be made each year, the above pro-forma disclosures are not
representative of the pro-forma effects on reported net income or loss in future
years.
11. Employee Benefit and Stock 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 1996, 1997 and
1998, the Company contributed approximately $1.3 million, $1.5 million and $2.7
million, respectively, to the Plan.
The 1996 Stock Purchase Plan (the "1996 Plan") provides for the sale of
a maximum of 500,000 shares of Class A 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
F-15
lower. Participants under the 1996 Plan received 0, 21,639 and 112,319 shares of
Common Stock for 1996, 1997 and 1998, respectively.
The Key Employee Stock Compensation Plan was approved by the Board of
Directors in 1997 and provides for the issuance of a maximum of 65,000 shares of
Class A Common Stock to key employees. Key employees are determined annually by
a committee appointed by the Board of Directors. Pursuant to the plan, key
employees may elect to receive up to 50% of their annual incentive compensation
denominated in shares of Common Stock at the fair value of the shares at the
date of issuance. Under the terms of the plan, such shares of stock vest 100% on
the third anniversary of the election to receive such shares. During 1998, key
employees elected to receive approximately $194,000 of incentive compensation
under the plan and 13,752 shares have been reserved for issuance at the end of
the vesting period. No shares of Common Stock were issued under the Key Employee
Stock Compensation Plan in 1997 or 1998.
The Board of Directors Stock Compensation Plan was approved in 1997 and
provides for the issuance of a maximum of 30,000 shares of Common Stock to
non-employee directors. Each eligible director 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 and 14,374 shares
of Common Stock under the Board of Directors Stock Compensation Plan in 1997 and
1998, respectively.
12. Income Taxes
The United States and foreign components of income (loss) from
continuing operations before income taxes are as follows (in thousands):
1996 1997 1998
----------- ----------- -----------
United States ............. $ 9,576 $ 39,013 $ (3,393)
Foreign...................... -- 5,592 39,364
----------- ----------- -----------
Total.................... $ 9,576 $ 44,605 $ 35,971
=========== =========== ===========
The components of the provision for income taxes are as follows (in
thousands):
1996 1997 1998
----------- ----------- -----------
Current:
Federal........................ $ -- $ 3,803 $ --
Foreign........................ -- -- 4,603
----------- ----------- -----------
Total Current .............. -- 3,803 4,603
Deferred........................... 3,543 13,147 8,886
----------- ----------- -----------
Total income tax expense....... $ 3,543 $ 16,950 $ 13,489
=========== =========== ===========
F-16
Income taxes paid were approximately $3.5 million in 1997. No income taxes
were paid in 1996 or 1998.
A reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
1996 1997 1998
----------- ----------- -----------
Income tax expense computed at the federal statutory
rate...................................................... 34% 35% 35%
State income taxes............................................ 2 3 1
Capital construction funds.................................... 1 -- --
Other......................................................... -- -- 1
----------- ----------- -----------
37% 38% 37%
----------- ----------- -----------
The significant components of the Company's deferred income taxes are
approximately as follows (in thousands):
December 31,
1997 1998
----------- -----------
Deferred income tax assets:
Net operating loss carryforwards $ 13,480 $ 26,903
Alternative minimum tax credit carryforward................ 5,322 6,141
Foreign tax credit carryforward............................ -- 4,683
Accrued compensation....................................... 755 1,118
Other...................................................... 730 773
----------- -----------
Total deferred income tax assets......................... 20,287 39,618
Deferred income tax liabilities:
Fixed asset differences.................................... 45,109 70,450
Deferred drydocking costs.................................. 827 1,172
----------- -----------
Total deferred income tax liabilities.................... 45,936 71,622
----------- -----------
Net deferred income tax liability............................. $ 25,649 $ 32,004
=========== ===========
At December 31, 1998, the Company had approximately $75.3 million in
net operating loss carryforwards for U.S. federal income tax purposes, expiring
in various amounts from 1999 to 2012 and in 2018. Due to a change of ownership,
as defined in Section 382 of the Internal Revenue Code, the utilization of
approximately $23.8 million of net operating loss carryforwards are limited to
approximately $3.3 million per year.
F-17
The Company has available approximately $6.1 million in alternative
minimum tax credit carryforwards which carry forward indefinitely and are
available to offset future federal tax liabilities. The Company also has
approximately $4.6 million in foreign tax credits, expiring in 2003 that are
available to offset future federal tax liabilities.
13. 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 such
shares, at the holder's election at any time, 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 1996, the Company's Class C Common Stock was retired.
In February 1997, the Company completed an offering of 4,000,000 shares
of 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.
At December 31, 1998, 2,455,240 shares of Common Stock were reserved
for issuance, primarily under the Company's benefit plans, and 4,035,120
additional shares of Common Stock were reserved for issuance upon conversion of
the Preferred Securities.
14. 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).
1996 1997 1998
------------- ------------- --------------
Numerator:
Income before extraordinary item................................ $ 6,033 $ 27,655 $ 22,482
------------ ------------- -------------
Numerator for basic earnings per share--income
available to common shareholders.............................. 6,033 27,655 22,482
Effect of dilutive securities:
Payments on convertible preferred securities.................... -- 2,369 4,635
Interest on convertible junior note (a)......................... 515 -- --
------------ ------------- -------------
Numerator for diluted earnings per share--income
available to common shareholders after assumed
conversions..................................................... $ 6,548 $ 30,024 $ 27,117
============ ============= =============
F-18
Denominator:
Denominator for basic earnings per share--weighted
average shares................................................ 5,763 14,785 15,324
Effect of dilutive securities:
Convertible preferred securities................................ -- 2,067 4,035
Convertible junior note (a)..................................... 772 -- --
Deferred compensation (b)....................................... -- -- 14
Stock options................................................... 55 268 78
------------ ------------- -------------
Dilutive potential common shares.................................. 827 2,335 4,127
------------ ------------- -------------
Denominator for diluted earnings per share--adjusted
weighted average shares and assumed conversions................. 6,590 17,120 19,451
============ ============= =============
Earnings per share before extraordinary item...................... $ 1.05 $ 1.87 $ 1.47
============ ============= =============
Earnings per share before extraordinary
item--assuming dilution.......................................... $ 0.99 $ 1.75 $ 1.39
============ ============= =============
(a) Repaid in 1996.
(b) Includes shares contingently issuable pursuant to the Key Employee Stock
Plan (see Note 11).
15. Business Risks
Risks and Uncertainties. The Company's operating results and financial
condition may vary in the future depending on a number of factors. The following
factors may impact the Company's business, results of operations and financial
condition.
Significant Customers. The Company derived revenues from one customer
representing approximately 16% of total offshore and harbor towing revenues for
the year ended December 31, 1998. The Company derived revenues from three
customers, each representing 10-11% of total marine transportation services
revenue for 1997. The Company also derived revenues from a long-term contract
with one company representing approximately 18% of total marine transportation
services revenues and one customer representing approximately 13% of total
offshore energy support revenue for 1996.
Dependence on Oil and Gas Industry. The Company's current business and
operations are substantially dependent upon conditions in the oil and gas
industry, particularly the expenditures by oil and gas companies for offshore
exploration and production activities. To the extent that oil and natural gas
prices decline or remain at present levels for an extended period of time, the
Company's business could be adversely affected due to a reduction in
expenditures for offshore exploration and production.
International Operations. The Company derives substantial revenue from
international operations, primarily under U.S. dollar-denominated contracts with
major international oil companies. Risks associated with operating in
international markets include vessel seizure, foreign exchange restrictions and
currency fluctuations, foreign taxation, political instability, expropriation,
nationalization, modification or renegotiation of contracts, war and civil
disturbances or other risks that may limit or disrupt markets.
F-19
Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk consists 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 their credit quality. 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 in which the Company participates.
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.
Litigation. The Company is sometimes named as a defendant in
litigation, usually relating to claims for bodily injuries or property damage.
The Company maintains insurance coverage against such claims to the extent
deemed prudent by management and applicable deductible amounts are accrued at
the time of the incident. The Company believes that there are no existing claims
of a potentially material adverse nature for which it has not already provided
appropriate accruals.
Unions and Collective Bargaining Agreements. At December 31, 1998,
approximately 10% of the Company's employees were members of national maritime
labor unions , or are subject to collective bargaining agreements. Management
considers relations with employees to be satisfactory; however, the
deterioration of these relations could have an adverse effect on the Company's
operating results.
16. Segment and Geographic Data
The Company organizes its business principally into three segments. The
accounting policies of the reportable segments are the same as those described
in Note 1. The Company does not have significant intersegment transactions.
These segments and their respective operations are as follows:
Offshore Energy Support - Offshore energy support includes vessels,
operating in U.S. and foreign locations used primarily to transport
materials, supplies, equipment and personnel to drilling rigs and to
support the construction, positioning and ongoing operations of oil and
gas productions platforms.
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.
Marine Transportation Services - Marine transportation services
includes oceangoing and inland-waterway vessels used to transport
chemicals, fuel and other petroleum products, primarily from chemical
manufacturing plants, refineries and storage facilities along the U.S.
Gulf of Mexico coast to industrial users and distribution facilities in
and around the Gulf of Mexico, Atlantic and Pacific coast ports and
inland rivers.
F-20
The company evaluates performance by operating segment. Also, within
the offshore energy support segment, the Company performs additional performance
evaluation of vessels marketed in U.S. and foreign locations. Resources are
allocated based on segment profit or loss from operations, before interest and
taxes.
Revenues by segment and geographic area consist only of services
provided to external customers, as reported in the Statement of Operations.
Income from operations 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 represent those assets used in the operations of each segment or
geographic area and unallocated assets include corporate assets and intercompany
eliminations.
The following schedule presents information about the Company's
operations in these segments for the years shown and at December 31 of each
year:
F-21
1996 1997 1998
--------------- --------------- ---------------
Revenues
Offshore energy support................. $ 43,715 $ 111,385 $ 242,656
Offshore and harbor towing.............. 13,950 20,424 46,368
Marine transportation services.......... 51,691 78,448 112,882
--------------- --------------- ---------------
Consolidated revenue........................ $ 109,356 $ 210,257 $ 401,906
=============== =============== ===============
Operating expenses
Offshore energy support................. $ 22,525 $ 45,322 $ 120,207
Offshore and harbor towing.............. 7,480 12,296 22,556
Marine transportation services.......... 33,772 52,665 80,126
--------------- --------------- ---------------
Consolidated operating expenses............. $ 63,777 $ 110,283 $ 222,889
=============== =============== ===============
Selling, general and administrative
expenses
Offshore energy support................. $ 2,558 $ 5,866 $ 14,707
Offshore and harbor towing.............. 1,364 2,361 5,528
Marine transportation services.......... 3,494 5,739 7,395
General corporate....................... 7,563 10,825 14,675
--------------- --------------- ---------------
Consolidated selling, general and
administrative expenses.................. $ 14,979 $ 24,791 $ 42,305
=============== =============== ===============
Depreciation and Amortization
Offshore energy support................. $ 3,300 $ 9,324 $ 35,708
Offshore and harbor towing.............. 408 1,147 3,752
Marine transportation services.......... 5,904 8,954 11,226
General corporate....................... 218 425 1,071
--------------- --------------- ---------------
Consolidated depreciation and amortization.. $ 9,830 $ 19,850 $ 51,757
=============== =============== ===============
Income from operations
Offshore energy support................. $ 15,332 $ 50,873 $ 72,034
Offshore and harbor towing.............. 4,698 4,620 14,532
Marine transportation services.......... 8,521 11,090 14,135
General corporate....................... (7,781) (11,250) (15,746)
--------------- --------------- ---------------
Consolidated income from operations......... $ 20,770 $ 55,333 $ 84,955
=============== =============== ===============
Identifiable assets
Offshore energy support................. $ 110,056 $ 237,131 $ 653,687
Offshore and harbor towing.............. 4,750 101,547 116,381
Marine transportation services.......... 179,419 298,707 333,138
Unallocated............................. (20,752) (33,602) 5,619
--------------- --------------- ---------------
Total ..................................... $ 273,473 $ 603,783 $ 1,108,825
=============== =============== ===============
Capital expenditures
Offshore energy support................. $ 51,382 $ 207,207 $ 304,387
Offshore and harbor towing.............. 2,440 47,003 27,525
Marine transportation services.......... 26,283 7,513 23,240
Unallocated............................. 36,028 37,404 50,057
--------------- --------------- ---------------
Total ...................................... $ 116,133 $ 299,127 $ 405,209
=============== =============== ===============
F-22
The Company is engaged in providing marine support and transportation
services in the United States and foreign locations (see Note 15). The Company's
foreign operations are primarily conducted in the Arabian Gulf, West Africa,
Southeast Asia and Mexico. These operations are subject to risks inherent in
operating in such locations.
The following table presents selected financial information pertaining
to the Company's geographic operations for 1997 and 1998 (in thousands):
1997 1998
------------- -------------
Revenues
Domestic............................................... $ 189,336 $ 251,695
Foreign................................................ 20,921 150,211
------------- -------------
Consolidated revenues.................................... $ 210,257 $ 401,906
============= =============
Income from operations
Domestic............................................... $ 57,782 $ 57,370
Foreign................................................ 8,376 43,331
Unallocated expenses................................... (10,825) (15,746)
------------- -------------
Consolidated income from operations...................... $ 55,333 $ 84,955
============= =============
Identifiable assets
Domestic............................................... $ 454,688 $ 590,473
Foreign................................................ 147,332 512,733
Unallocated............................................ 2,541 5,619
------------- -------------
Consolidated identifiable assets......................... $ 604,561 $ 1,108,825
============= =============
17. 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.
Senior Notes. The Senior Notes are publicly traded. The fair value of
the Senior Notes is approximately $237.0 million at December 31, 1998, based
upon quoted market rates.
Revolving Credit and Term Loan Agreement. Amounts outstanding under the
Credit Facility 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 Stock is publicly traded. The fair
value of the Preferred Securities is approximately $39.0 million at December 31,
1998, based upon quoted market rates.
F-23
18. Extraordinary Items
In 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 junior and senior notes, respectively.
Accordingly, the Company recorded a loss on extinguishment of $8.1 million net
of a tax benefit of $1.5 million.
In 1997, the Company repaid $126.7 million of its outstanding debt and
amended its then existing credit facility. As a result, the Company recorded a
loss on extinguishment of $2.1 million, net of an income tax benefit of $1.2
million.
In February 1998, the Company repaid $268.0 million of its outstanding
debt. As a result, the Company recorded a loss on extinguishment of
approximately $0.7 million, net of an income tax benefit of $0.4 million.
19. Supplemental Condensed Consolidating Financial Information
The Senior Notes described in Note 5 are fully and unconditionally
guaranteed on a joint and several basis by substantially all of the Company's
consolidated subsidiaries, each of which is wholly owned by the Company. A
substantial portion of the Company's cash flows are generated by its
subsidiaries. As a result, the funds necessary to meet the Company's obligations
are provided in substantial part by distributions or advances from its
subsidiaries. Under 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.
The following is summarized condensed consolidating financial
information for the Company, segregating the Parent, the combined wholly owned
guarantor subsidiaries, the combined foreign subsidiary guarantors, the combined
mostly owned guarantors, the combined non-guarantor subsidiaries and
eliminations. Two of the guarantor subsidiaries, Seabulk America Partnership,
Ltd. and Seabulk Transmarine Partnership, Ltd., are only 81.59%-owned and
67.33%-owned by the Company and have been presented separately from the wholly
owned guarantors. The foreign guarantor subsidiaries are also presented
separately from the wholly owned guarantors. Separate financial statements of
the wholly owned guarantor subsidiaries are not presented because management
believes that these financial statements would not be material to investors in
the Senior Notes. Separate audited financial statements of the non-wholly owned
guarantor subsidiaries have been filed with the Securities and Exchange
Commission.
F-24
Condensed Consolidating Balance Sheet
(in thousands)
December 31, 1997
Wholly Owned Foreign Mostly Owned
Guarantor Guarantor Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Subsidiaries Eliminations Total
Assets
Current assets
Cash and cash equivalents.... $ 2,510 $ 8,238 $ 4,104 $ 17 $ 83 $ -- $ 14,952
Accounts receivable:
Trade, net................. 3,460 25,224 8,872 -- -- (653) 36,903
Insurance claims and other. 471 1,218 753 14 -- -- 2,456
Inventory, spare parts and
supplies .................. 2,498 2,433 1,918 1,320 -- (7) 8,162
Prepaid expenses............. 819 1,762 402 97 5 -- 3,085
Deferred costs, net.......... 2,300 1,669 332 215 -- -- 4,516
----------- ------------ ------------ ----------- ------------- ------------- ------------
Total current assets....... 12,058 40,544 16,381 1,663 88 (660) 70,074
Property, net.................. 89,925 240,630 128,409 33,996 3,611 (2,213) 494,358
Other assets:
Deferred costs, net.......... 2,903 1,718 775 426 3,758 -- 9,580
Due from affiliates.......... 161,385 1,174 (130,062) (31,797) (414) -- 286
Investments in affiliates.... 278,908 552,088 -- 2,723 32,333 (864,425) 1,627
Goodwill, net................ -- 25,361 -- -- -- -- 25,361
Other........................ 1,304 184 909 -- 118,657(1) (118,557) 2,497
----------- ------------ ------------ ----------- ------------- ------------ ------------
Total other assets......... 444,500 580,525 (128,378) (28,648) 154,334 (982,982) 39,351
----------- ------------ ------------ ----------- ------------- ------------ ------------
Total.................... $ 546,483 $ 861,699 $ 16,412 $ 7,011 $ 158,033 $ (985,855) $ 603,783
=========== ============ ============ =========== ============= ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,046 $ 10,812 $ 3,329 $ -- $ -- $ -- $ 17,187
Current maturities of long-term
debt....................... 6,693 841 -- -- -- -- 7,534
Current obligations
under capital
leases..................... 356 1,358 -- -- -- -- 1,714
Other ....................... 7,063 7,072 3,678 741 3 (708) 17,849
----------- ----------- ------------ ------------- ------------- ------------ ------------
Total current liabilities.. 17,158 20,083 7,007 741 3 (708) 44,284
Long-term liabilities:
Long-term debt............... 279,507 16,623 -- -- -- (118,557) 177,573
Obligations under
capital leases............. 4,986 5,740 -- -- -- -- 10,726
Deferred income taxes........ 18,577 7,072 -- -- -- -- 25,649
Other long term obligations.. 1,268 1,645 247 109 -- -- 3,269
----------- ----------- ------------ ------------- ------------- ------------- ------------
Total long-term liabilities 304,338 31,080 247 109 -- (118,557) 217,217
----------- ----------- ------------ ------------- ------------- ------------- ------------
Total liabilities.............. 321,496 51,163 7,254 850 3 (119,265) 261,501
Company-obligated mandatorily
redeemable preferred securities
issued by a subsidiary trust
holding solely debentures issued
by the Company............... -- -- -- -- 115,000 -- 115,000
Minority partners' equity in sub-
sidiaries.................... -- -- -- -- -- 2,295 2,295
Stockholders' equity 224,987 810,536 9,158 6,161 43,030 (868,885) 224,987
----------- ----------- ------------ ------------- ------------- ------------ ------------
Total...................... $ 546,483 $ 861,699 $ 16,412 $ 7,011 $ 158,033 $ (985,855) $ 603,783
=========== =========== ============ ============= ============= ============ ============
(1) Represents receivable for debentures of the Company held by the Trust.
F-26
Condensed Consolidating Balance Sheet (in thousands)
December 31, 1998
Wholly Owned Foreign Mostly Owned
Guarantor Guarantor Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Subsidiaries Eliminations Total
Assets
Current assets
Cash and cash equivalents.... $ 1,401 $ 2,118 $ 3,460 $ 31 $ 2,167 $ -- $ 9,177
Accounts receivable:
Trade, net................. 5,337 26,769 33,954 -- 2,573 (672) 67,961
Insurance claims and other. 4,874 3,698 3,282 (33) 94 -- 11,915
Inventory, spare parts and
supplies .................. 2,707 3,093 9,726 1,320 886 (277) 17,455
Prepaid expenses............. 1,373 1,463 1,050 63 393 -- 4,342
Deferred costs, net.......... 3,881 4,255 1,865 241 414 (174) 10,482
------------ ---------- ----------- ------------- ------------- ------------- ------------
Total current assets....... 19,573 41,396 53,337 1,622 6,527 (1,123) 121,332
Property, net.................. 113,688 285,974 366,885 37,319 50,785 (2,845) 851,806
Other assets:
Deferred costs, net.......... 11,761 3,556 1,639 160 3,974 (112) 20,978
Due from affiliates.......... 167,216 (2,443) (128,038) (30,681) (5,629) -- 425
Investments in affiliates.... 695,479 582,135 -- 3,143 40,840 (1,298,176) 23,421
Goodwill, net................ 114 24,505 62,257 -- 79 -- 86,955
Other........................ 1,526 362 2,006 -- 118,571(1) (118,557) 3,908
------------ ---------- ----------- ------------- ------------- ------------ ------------
Total other assets......... 876,096 608,115 (62,136) (27,378) 157,835 (1,416,845) 135,687
------------ ---------- ----------- ------------- ------------- ------------ ------------
$ 1,009,357 $ 935,485 $ 358,086 $ 11,563 $ 215,147 $ (1,420,813) $ 1,108,825
============ ========== =========== ============= ============= ============ ============
Liabilities and Stockholders'
Equity Current liabilities:
Accounts payable............. $ 6,190 $ 9,635 $ 9,525 $ 19 $ 453 $ -- $ 25,822
Current maturities of long-term
debt....................... 8,152 859 -- -- -- -- 9,011
Current obligations under capital
leases..................... 630 2,361 -- -- -- -- 2,991
Debt subject to acceleration 252,954 __ __ __ __ __ 252,954
Other ....................... 14,854 6,521 9,712 3,844 1,371 (722) 35,580
------------ ---------- ----------- ------------- ------------- ------------ ------------
Total current liabilities.. 282,780 19,376 19,237 3,863 1,824 (722) 326,358
Long-term liabilities:
Long-term debt............... 436,355 15,766 -- -- -- (118,557) 333,564
Obligations under capital leases 14,186 22,797 -- -- -- -- 36,983
Deferred income taxes........ 25,649 7,072 -- -- -- -- 32,721
Other long term obligations.. 2,352 1,200 1,885 114 -- -- 5,551
------------ ---------- ----------- ------------- ------------- ------------- ------------
Total long-term liabilities 478,542 46,835 1,885 114 -- (118,557) 408,819
------------ ---------- ----------- ------------- ------------- ------------- ------------
Total liabilities.............. 761,322 66,211 21,122 3,977 1,824 (119,279) 735,177
Company-obligated mandatorily
redeemable preferred securities
issued by a subsidiary trust
holding solely debentures issued
by the Company............... -- -- -- -- 115,000 -- 115,000
Minority partners' equity in sub-
sidiaries.................... -- -- -- -- -- 10,613 10,613
Stockholders' equity 248,035 869,274 336,964 7,586 98,323 (1,312,147) 248,035
------------ ---------- ----------- ------------- ------------- ------------ ------------
$ 1,009,357 $ 935,485 $ 358,086 $ 11,563 $ 215,147 $ (1,420,813) $ 1,108,825
============ ========== =========== ============= ============= ============ ============
(1) Represents receivable for debentures of the Company held by the Trust.
F-27
Condensed Consolidating Statement of Operations
(in thousands)
December 31, 1996
Wholly Owned Foreign Mostly Owned
Guarantor Guarantor Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Subsidiaries Eliminations Total
Revenues....................... $ 46,910 $ 77,778 $ -- $ 10,193 $ -- $ (25,525) $ 109,356
Operating expenses:
Crew payroll and benefits.... 13,969 13,026 -- 2,761 -- -- 29,756
Charter hire and bond guarantee
fee........................ 3,191 27,223 -- -- -- (25,747) 4,667
Repairs and maintenance ..... 4,429 3,800 755 -- -- 8,984
Insurance.................... 3,308 3,610 -- 715 -- -- 7,633
Consumables.................. 2,061 4,279 -- 303 -- -- 6,643
Other........................ 1,948 3,915 -- 241 -- (10) 6,094
-------------- ----------- ---------- ------------- ----------- ------------- ------------
Total operating expenses... 28,906 55,853 -- 4,775 -- (25,757) 63,777
Selling, general and administrative
expenses..................... 4,935 7,548 -- 2,485 1 10 14,979
Depreciation and amortization.. 4,107 4,323 -- 1,400 -- -- 9,830
-------------- ----------- ---------- ------------- ----------- ------------- ------------
Income from operations......... 8,962 10,054 -- 1,533 (1) 222 20,770
Net interest................... 3,598 3,882 -- 4,151 -- -- 11,631
Other income (expense):
Minority interest and equity
earnings of subsidiaries... 4,375 12,751 -- (964) -- (15,268) 894
Other........................ (163) (376) -- 304 -- (222) (457)
-------------- ----------- ---------- ------------- ----------- ------------- ------------
Total other income (expense) 4,212 12,375 -- (660) -- (15,490) 437
Income (loss) before provision for
(benefit from) income taxes and
extraordinary item........... 9,576 18,547 -- (3,278) (1) (15,268) 9,576
Provision for income taxes..... 3,543 -- -- -- -- -- 3,543
-------------- ----------- ---------- ------------- ----------- ------------- ------------
Income (loss) before extraordinary
item......................... 6,033 18,547 -- (3,278) (1) (15,268) 6,033
Loss on early extinguishment
item......................... 8,108 -- -- -- -- -- 8,108
-------------- ----------- ---------- ------------- ----------- ------------- ------------
Net income (loss).............. $ (2,075) $ 18,547 $ -- $ (3,278) $ (1) $ (15,268) $ (2,075)
============== =========== ========== ============= =========== ============= ============
F-28
Condensed Consolidating Statement of Operations
(in thousands)
December 31, 1997
Wholly Owned Foreign Mostly Owned
Guarantor Guarantor Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Subsidiaries Eliminations Total
Revenues....................... $ 52,280 $ 187,817 $ 31,879 $ 10,329 $ 39 $ (72,087) $ 210,257
Operating expenses:
Crew payroll and benefits.... 15,866 26,909 4,194 2,741 -- (978) 48,732
Charter hire and bond guarantee
fee........................ 4,170 59,124 -- -- -- (52,746) 10,548
Repairs and maintenance ..... 5,476 7,579 1,772 685 -- -- 15,512
Insurance.................... 2,230 5,345 821 471 -- -- 8,867
Consumables.................. 2,796 13,445 2,305 254 -- (5,146) 13,654
Other........................ 2,636 8,576 1,332 448 -- (22) 12,970
-------------- ------------ ------------ ----------- ----------- ------------- ------------
Total operating expenses... 33,174 120,978 10,424 4,599 -- (58,892) 110,283
Selling, general and administrative
expenses..................... 13,166 6,436 4,037 3,166 69 (2,083) 24,791
Depreciation and amortization.. 6,654 8,973 2,784 1,439 -- -- 19,850
-------------- ------------ ------------ ----------- ----------- ------------- ------------
Income from operations......... (714) 51,430 14,634 1,125 (30) (11,112) 55,333
Net interest................... 7,928 1,146 149 1,650 (3,849) -- 7,024
Other income (expense):
Minority interest and equity
earnings of subsidiaries... 53,147 118,102 1 (233) (3,396) (171,148) (3,527)
Other........................ 99 (238) (8,895) (36) -- 8,893 (177)
-------------- ------------ ------------ ----------- ----------- ------------- ------------
Total other income (expense) 53,246 117,864 (8,894) (269) (3,396) (162,255) (3,704)
Income (loss) before provision for
(benefit from) income taxes and
extraordinary item........... 44,604 168,148 5,591 (794) 423 (173,367) 44,605
Provision for income taxes..... 16,950 -- -- -- -- -- 16,950
-------------- ------------ ------------ ----------- ----------- ------------- ------------
Income (loss) before extraordinary
item......................... 27,654 168,148 5,591 (794) 423 (173,367) 27,655
Loss on early extinguishment
item......................... 2,132 -- -- -- -- -- 2,132
-------------- ------------ ------------ ----------- ----------- ------------- ------------
Net income (loss).............. $ 25,522 $ 168,148 $ 5,591 $ (794) $ 423 $ (173,367) $ 25,523
============== ============ ============ =========== =========== ============= ============
F-29
Condensed Consolidating Statement of Operations
(in thousands)
December 31, 1998
Wholly Owned Foreign Mostly Owned
Guarantor Guarantor Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Subsidiaries Eliminations Total
Revenues....................... $ 69,616 $ 224,533 $ 211,172 $ 10,505 $ 19,691 $ (133,611) $ 401,906
Operating expenses:
Crew payroll and benefits.... 21,507 36,313 29,107 2,725 3,324 (1,619) 91,357
Charter hire and bond guarantee
fee........................ 3,633 68,392 77 -- 644 (53,067) 19,679
Repairs and maintenance ..... 8,463 12,516 8,508 733 909 -- 31,129
Insurance.................... 2,014 5,632 4,264 305 453 -- 12,668
Consumables.................. 5,994 19,612 15,920 282 1,313 (3,899) 39,222
Other........................ 3,408 12,725 12,762 18 1,196 (1,275) 28,834
-------------- ------------ ------------ ----------- ----------- ------------- ------------
Total operating expenses... 45,019 155,190 70,638 4,063 7,839 (59,860) 222,889
Selling, general and administrative
expenses..................... 17,846 11,784 11,713 2,101 4,206 (5,345) 42,305
Depreciation and amortization.. 9,115 17,412 23,053 1,448 729 -- 51,757
-------------- ------------ ------------ ----------- ----------- ------------- ------------
Income from operations......... (2,364) 40,147 105,768 2,893 6,917 (68,406) 84,955
Net interest................... 47,716 8 39 2,162 (7,483) -- 42,442
Other income (expense):
Minority interest and equity
earnings of subsidiaries... 81,513 81,932 (747) 420 (6,039) (163,777) (6,698)
Other........................ 4,538 (839) (67,324) 275 (3,707) 67,213 156
-------------- ------------ ------------ ----------- ----------- ------------- ------------
Total other income (expense) 86,051 81,093 (68,071) 695 (9,746) (96,564) (6,542)
Income (loss) before provision for
(benefit from) income taxes and
extraordinary item........... 35,971 121,232 37,658 1,426 4,654 (164,970) 35,971
Provision for income taxes..... 13,489 -- -- -- -- -- 13,489
-------------- ------------ ------------ ----------- ----------- ------------- ------------
Income (loss) before extraordinary
item......................... 22,482 121,232 37,658 1,426 4,654 (164,970) 22,482
Loss on early extinguishment
item......................... 734 -- -- -- -- -- 734
-------------- ------------ ------------ ----------- ----------- ------------- ------------
Net income (loss).............. $ 21,748 $ 121,232 $ 37,658 $ 1,426 $ 4,654 $ (164,970) $ 21,748
============== ============ ============ =========== =========== ============= ============
F-30
Condensed Consolidating Statement of Cash Flows
(in thousands)
December 31, 1996
Wholly Owned Foreign Mostly Owned
Guarantor Guarantor Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Subsidiaries Eliminations Total
Operating activities:
Net income (loss) ....................... $ (2,075) $ 18,547 $ -- $(3,278) $ (1) $(15,268) $ (2,075)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Loss on early extinguishment of debt,
net ................................... 8,108 -- -- -- -- -- 8,108
Depreciation and amortization of
property .............................. 3,417 3,474 -- 1,400 -- -- 8,291
Amortization of drydocking costs ........ 1,651 1,088 -- 318 -- -- 3,057
Amortization of intangible assets ....... -- 505 -- -- -- -- 505
Amortization of discount on long-term
debt and financing costs .............. 446 345 -- 639 -- (234) 1,196
Provision for bad debts ................. 100 25 -- -- -- -- 125
Gain on disposals of property ........... (13) -- -- -- -- -- (13)
Provision for deferred taxes ............ 3,543 -- -- -- -- -- 3,543
Minority partners' equity in losses of
subsidiaries, net ..................... -- -- -- -- -- (756) (756)
Undistributed earnings (losses) of
affiliates, net ....................... (4,375) (12,750) -- 963 -- 16,030 (132)
Other non-cash items .................... 36 -- -- -- -- -- 36
Changes in operating assets
and liabilities, net of effect
of acquisitions:
Accounts receivable ..................... 6,176 (9,383) -- 1,262 -- 17 (1,928)
Other assets ............................ (30,896) 26,313 -- 1,244 1 1,360 (1,978)
Accounts payable and
other liabilities ...................... 3,827 1,743 -- 178 -- (1,143) 4,605
Net cash provided by operating
activities .............................. (10,055) 29,907 -- 2,726 6 22,584
Investing activities:
Purchase of property .................... 27,212 (35,775) -- (196) -- -- (8,759)
Deposits for the purchase of
property .............................. -- (6,349) -- -- -- -- (6,349)
Proceeds from disposals
of property ............................ 8 -- -- -- -- -- 8
Capital contribution to affiliates ...... (1,863) (82,959) -- -- -- 84,086 (736)
Acquisitions, net of cash
acquired of
$1,722 ................................ (61,384) (7,134) -- -- -- -- (68,518)
-------- --------- ------------ ------- ------- -------- --------
Net cash used
in investing activities .................. (36,027) (132,217) -- (196) -- 84,086 (84,354)
Financing activities:
Proceeds (repayments) of short-term
borrowings, net ....................... 500 1,494 -- -- -- -- 1,994
Proceeds from long-term debt ............ 13,259 23,705 -- -- -- -- 36,964
Proceeds from issuance of common
stock, net ............................ 76,595 -- -- -- -- -- 76,595
Principal payments of long-term debt .... (38,836) (3,832) -- (2,521) -- --
(45,189)
Payment of financing costs .............. (838) -- -- -- -- -- (838)
Payment of obligations under capital
leases ................................ (126) (1,063) -- -- -- -- (1,189)
Capital contributions from parent/
partners .............................. -- 84,092 -- -- -- (84,092) --
-------- --------- ------------ ------- ------- -------- --------
Net cash provided by financing
activities ............................ 50,554 104,396 -- (2,521) -- (84,092) 68,337
Increase in cash and
cash equivalents ......................... 4,472 2,086 -- 9 -- -- 6,567
Cash and cash equivalents at beginning
of period ............................. 2,765 275 -- 9 1 -- 3,050
-------- --------- ------------ ------- ------- -------- --------
Cash and cash equivalents at end of
period ................................ $ 7,237 $ 2,361 $ -- $ 18 $ 1 $ -- $ 9,617
======== ========= ============ ======= ======= ======== ========
F-31
Condensed Consolidating Statement of Cash Flows
(in thousands)
December 31, 1997
Wholly Owned Foreign Mostly Owned
Guarantor Guarantor Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Subsidiaries Eliminations Total
Operating activities:
Net income (loss) ........................ $ 25,523 $ 168,148 $ 5,591 $ (794) $ 423 $(173,368) $ 25,523
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Loss on early extinguishment of debt,
net .................................... 2,132 -- -- -- -- -- 2,132
Depreciation and amortization of
property ............................... 6,616 8,275 2,784 1,418 -- -- 19,093
Amortization of drydocking costs ......... 3,096 1,858 104 292 -- -- 5,350
Amortization of intangible assets ........ 38 698 -- 21 -- -- 757
Amortization of discount on long-term
debt and financing costs ............... 680 -- -- 176 -- (176) 680
Provision for bad debts .................. 217 812 -- -- -- -- 1,029
Loss on disposals of property ............ 493 31 -- -- -- -- 524
Provision for deferred taxes ............. 13,147 -- -- -- -- 13,147
Minority partners' equity in losses of
subsidiaries, net ...................... -- -- -- -- -- (183) (183)
Undistributed earnings of affiliates,
net .................................... (53,147) (117,993) -- 233 (425) 171,222 (110)
Other non-cash items ..................... 95 -- -- -- -- -- 95
Changes in operating assets
and liabilities, net of effect
of acquisitions:
Accounts receivable ...................... (735) (10,479) (9,625) 182 -- 17 (20,640)
Other assets ............................. 175,682 (72,486) 8,028 (139) (118,112) (2,473) (9,500)
Accounts payable and other
liabilities .......................... (2,372) (3,306) 6,253 415 3 1,152 2,145
Net cash provided by operating
activities ............................... 171,465 (24,442) 13,135 1,804 (118,111) (3,809) 40,042
Investing activities:
Purchase of property ..................... (15,061) (43,840) (8,039) (359) (2,031) 2,213 (67,117)
Deposits for the purchase of
property ............................... -- -- (910) -- -- -- (910)
Proceeds from
disposals of property ................. -- 1,633 -- -- -- -- 1,633
Capital contribution
to affiliates ......................... (113,210) (286,152) -- -- -- 399,136 (226)
Acquisitions, net of cash acquired of
escrow deposits and cash ............... (194,723) -- -- -- -- -- (194,723)
--------- --------- -------- ------- --------- --------- ---------
Net cash used in
investing activities ..................... (322,994) (328,359) (8,949) (359) (2,031) 401,349 (261,343)
Financing activities:
Proceeds (repayments) of short-term
borrowings, net ........................ (8,000) (8,242) -- -- -- -- (16,242)
Proceeds from long-term debt ............. 177,210 -- -- -- -- -- 177,210
Proceeds from issuance of common
stock, net ............................. 94,628 -- -- -- -- -- 94,628
Proceeds from issuance of redeemable
preferred securities, net .............. -- -- -- -- 111,109 -- 111,109
Principal payments of long-
term debt ............................ (114,121) (21,756) -- (1,446) -- 1,446 (135,877)
Payment of financing costs ............... (2,724) -- -- -- -- -- (2,724)
Payment of obligations under capital
leases ................................. (191) (1,277) -- -- -- -- (1,468)
Capital contributions from parent/
partners ............................... -- 389,953 (82) -- 9,115 (398,986) --
--------- --------- -------- ------- --------- --------- ---------
Net cash provided by financing
activities ............................. 146,802 358,678 (82) (1,446) 120,224 (397,540) 226,636
Increase (decrease) in cash and cash
equivalents ............................ (4,727) 5,877 4,104 (1) 82 -- 5,335
Cash and cash equivalents at beginning
of period .............................. 7,237 2,361 -- 18 1 -- 9,617
--------- --------- -------- ------- --------- --------- ---------
Cash and cash equivalents at end of
period ................................. $ 2,510 $ 8,238 $ 4,104 $ 17 $ 83 $ -- $ 14,952
========= ========= ======== ======= ========= ========= =========
F-32
Condensed Consolidating Statement of Cash Flows
(in thousands)
December 31, 1998
Wholly Owned Foreign Mostly Owned
Guarantor Guarantor Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Subsidiaries Eliminations Total
Operating activities:
Net income ................................ $ 21,748 $ 121,232 $ 37,658 $ 1,426 $ 4,654 $(164,970) $ 21,748
Adjustments to reconcile net income
to net cash provided by
operating activities:
Loss on early extinguishment of debt,
net ..................................... 734 -- -- -- -- -- 734
Depreciation and amortization of
property ................................ 9,088 16,291 20,964 1,448 696 -- 48,487
Amortization of drydocking costs .......... 4,575 3,309 2,755 240 475 -- 11,354
Amortization of intangible assets ......... 27 1,121 2,142 -- (20) -- 3,270
Amortization of discount on long-term
debt and financing costs ................ 1,274 -- -- -- -- -- 1,274
Provision for bad debts ................... 176 550 322 -- 39 -- 1,087
Loss (gain) on disposals of property ...... -- -- -- -- -- -- --
Provision for deferred taxes .............. 10,189 -- -- -- -- -- 10,189
Minority partners' equity in losses of
subsidiaries, net ....................... -- -- -- -- -- 311 311
Undistributed earnings of affiliates,
net ..................................... (81,513) (81,511) -- (420) (1,436) 163,777 (1,103)
Other non-cash items ...................... 188 (17) -- -- 20 -- 191
Changes in operating assets
and liabilities, net of
effect of acquisitions:
Accounts receivable ....................... (6,456) (4,575) (26,957) 47 (2,706) 19 (40,628)
Other assets .............................. (12,713) (4,446) (7,151) (1,081) 3,828 555 (21,008)
Accounts payable and
other liabilities ..................... 9,381 1,445 12,872 3,126 1,818 (12) 28,630
Net cash provided by operating
activities ................................ (43,302) 53,399 42,605 4,786 7,368 (320) 64,536
Investing activities:
Purchase of property ...................... (15,803) (28,749) (37,544) (4,772) (25,375) 8,674 (103,569)
Capital contribution
to affiliates ......................... (11,836) (40,461) -- -- (36,696) 67,291 (21,702)
Acquisitions, net of cash acquired of
escrow deposits and cash ................ (341,442) (32,014) (14,702) -- (67) 14,690 (373,535)
--------- --------- -------- ------- -------- --------- ---------
Net cash used in investing
activities ......................... (369,081) (101,224) (52,246) (4,772) (62,138) 90,655 (498,806)
Financing activities:
Proceeds from long-term debt .............. 441,725 22,596 -- -- -- -- 464,321
Proceeds from issuance of senior
notes, net of offering costs ............ 292,500 -- -- -- -- -- 292,500
Proceeds from issuance of common
stock, net .............................. 800 -- -- -- -- -- 800
Principal payments of
long-term debt ......................... (320,439) (839) -- -- -- -- (321,278)
Payment of financing costs ................ (2,760) -- -- -- -- -- (2,760)
Payment of obligations under capital
leases .................................. (552) (4,536) -- -- -- -- (5,088)
Capital contributions from parent/
partners ................................ -- 24,484 8,997 -- 56,854 (90,335) --
--------- --------- -------- ------- -------- --------- ---------
Net cash provided by financing
activities .............................. 411,274 41,705 8,997 -- 56,854 (90,335) 428,495
Increase (decrease) in cash and cash
equivalents ............................. (1,109) (6,120) (644) 14 2,084 -- (5,775)
Cash and cash equivalents at beginning
of period ............................... 2,510 8,238 4,104 17 83 -- 14,952
--------- --------- -------- ------- -------- --------- ---------
Cash and cash equivalents at end of
period .................................. $ 1,401 $ 2,118 $ 3,460 $ 31 $ 2,167 $ -- $ 9,177
========= ========= ======== ======= ======== ========= =========
F-33
20. Selected Quarterly Financial Information (unaudited)
The following information is presented as supplementary financial
information for 1997 and 1998 (in thousands, except per share information):
First Second Third Fourth
Year Ended December 31, 1998 Quarter Quarter Quarter Quarter
---------------------------- ----------- ----------- ----------- -----------
Revenues.......................................... $ 86,485 $ 109,332 $ 100,149 $ 105,940
Income from operations............................ 20,563 28,121 19,615 16,656
Income before extraordinary item.................. 7,184 9,472 3,904 1,922
Loss on early extinguishment of debt (1).......... 734 -- -- --
Net income........................................ 6,450 9,472 3,904 1,922
Earnings per share--basic:
Income before extraordinary item................ $ 0.47 $ 0.62 $ 0.25 $ 0.13
Net income...................................... 0.42 0.62 0.25 0.13
Earnings per share--assuming dilution(2):
Income before extraordinary item................ $ 0.43 $ 0.55 $ 0.25 $ 0.12
Net income...................................... 0.39 0.55 0.25 0.12
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).......... 1,754 378 -- --
Net income........................................ 2,872 5,342 7,500 9,809
Earnings per share--basic:
Income before extraordinary item................ $ 0.34 $ 0.38 $ 0.49 $ 0.64
Net income...................................... 0.21 0.35 0.49 0.64
Earnings per share--assuming dilution(2):
Income before extraordinary item................ $ 0.34 $ 0.37 $ 0.45 $ 0.56
Net income...................................... 0.21 0.35 0.45 0.56
- - ----------------
(1) See Note.
(2) The 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.
21. Subsequent Events
On March 17, 1999, the Company exercised its right to defer the April
1, 1999 payment of interest on the Debentures (see Note 7). Under its governing
instruments, the Trust is required to use interest payments on the Debentures to
pay dividends on the Preferred Securities. Therefore, the deferral of the
interest payment on Debentures will also result in the deferral of payment of
the April 1, 1999 dividend on the Preferred Securities.
F-34