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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
Commission File Number: 0-28732
SEABULK INTERNATIONAL, INC.
State of Incorporation: Delaware I.R.S. Employer I.D.: 65-0966399
Address and Telephone Number:
2200 Eller Drive
P.O. Box 13038
Ft. Lauderdale, Florida 33316
(954) 523-2200
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 twelve months, and (2) has been subject to such filing
requirements for the past ninety days. YES [X] NO [ ]
THERE WERE 10,623,938 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE,
OUTSTANDING AT AUGUST 1, 2002.
SEABULK INTERNATIONAL, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)..................................................1
Condensed Consolidated Balance Sheets at June 30, 2002 and December 31, 2001
(as restated) ......................................................................................1
Condensed Consolidated Statements of Operations for the three and six months ended
June 30, 2002 and 2001..............................................................................2
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2002 and 2001..............................................................................3
Notes to Condensed Consolidated Financial Statements................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................18
Item 3. Quantitative and Qualitative Disclosure of Market Risk..................................................32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................................33
Item 2. Changes in Securities ..................................................................................33
Item 3. Default Upon Senior Securities..........................................................................33
Item 4. Submission of Matters to a Vote of Security Holders.....................................................33
Item 5. Other Information.......................................................................................34
Item 6. Exhibits and Reports on Form 8-K........................................................................34
Signature........................................................................................................35
As used in this Report, the term "Parent" means Seabulk International, Inc., and
the term "Company" means the Parent and/or one or more of its consolidated
subsidiaries.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Seabulk International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except par value data)
June 30, December 31,
2002 2001
------------ ------------
(as restated)
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 14,682 $ 11,631
Restricted cash............................................................. 1,337 1,337
Trade accounts receivable, net of allowance for doubtful accounts of $5,248
and $5,919 in 2002 and 2001, respectively................................. 47,050 50,088
Other receivables........................................................... 14,057 16,282
Marine operating supplies................................................... 8,300 10,049
Prepaid expenses and other.................................................. 2,710 2,984
------------ ------------
Total current assets...................................................... 88,136 92,371
Vessels and equipment, net..................................................... 567,313 589,371
Deferred costs, net............................................................ 47,496 48,899
Other.......................................................................... 5,333 14,124
------------ ------------
Total assets.............................................................. $ 708,278 $ 744,765
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 8,767 $ 18,171
Current maturities of long-term debt........................................ 34,537 38,367
Current obligations under capital leases.................................... 2,899 2,972
Accrued interest............................................................ 4,696 1,455
Accrued liabilities and other............................................... 40,877 38,719
------------ ------------
Total current liabilities................................................. 91,776 99,684
Long-term debt................................................................. 377,513 399,974
Obligations under capital leases............................................... 30,265 31,768
Senior notes................................................................... 83,006 81,635
Other liabilities.............................................................. 6,641 6,175
------------ ------------
Total liabilities......................................................... 589,201 619,236
Contingencies (Note 8)
Minority interest.............................................................. 959 842
Stockholders' equity:
Preferred stock, no par value--authorized 5,000; none issued and outstanding. -- --
Common stock--$.01 par value, authorized 20,000 shares; 10,624 and .
10,506 shares issued and outstanding in 2002 and 2001, respectively....... 106 105
Additional paid-in capital.................................................. 167,301 167,259
Accumulated other comprehensive loss........................................ (10) (1)
Unearned compensation....................................................... (148) (198)
Accumulated deficit......................................................... (49,131) (42,478)
------------ ------------
Total stockholders' equity................................................ 118,118 124,687
------------ ------------
Total liabilities and stockholders' equity.............................. $ 708,278 $ 744,765
============ ============
SEE ACCOMPANYING NOTES.
1
Seabulk International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Revenue............................................................ $ 81,639 $ 91,424 $ 164,838 $ 172,844
Operating expenses:
Crew payroll and benefits....................................... 21,854 24,683 44,630 48,613
Charter hire.................................................... 1,912 1,429 3,709 2,920
Repairs and maintenance......................................... 8,041 5,833 14,805 12,208
Insurance....................................................... 2,603 2,916 5,376 5,816
Fuel and consumables............................................ 7,586 8,608 14,915 17,573
Port charges and other.......................................... 4,744 5,096 9,046 10,304
------------- ------------- ------------- -------------
Total operating expenses...................................... 46,740 48,565 92,481 97,434
Overhead expenses:
Salaries and benefits........................................... 5,727 5,607 11,554 11,259
Office.......................................................... 2,236 1,474 4,232 3,003
Professional fees............................................... 858 574 1,443 1,852
Other........................................................... 905 1,480 1,429 3,240
------------- ------------- ------------- -------------
Total overhead expenses....................................... 9,726 9,135 18,658 19,354
Depreciation, amortization and drydocking.......................... 16,633 14,821 33,191 28,744
------------- ------------- ------------- -------------
Income from operations............................................. 8,540 18,903 20,508 27,312
Other (expense) income:
Interest expense................................................ (12,365) (14,080) (25,078) (28,696)
Interest income................................................. 75 20 137 66
Minority interest in losses (gains) of subsidiaries............. (216) (27) (117) 181
(Loss) gain on disposal of assets............................... 1,482 (96) 1,354 154
Other........................................................... (142) (186) (49) (302)
------------- ------------- ------------- -------------
Total other expense, net...................................... (11,166) (14,369) (23,753) (28,597)
------------- ------------- ------------- -------------
Income (loss) before provision for income taxes.................... (2,626) 4,534 (3,245) (1,285)
Provision for income taxes......................................... 1,741 1,784 3,408 3,198
------------- ------------- ------------- -------------
Net income (loss)............................................. $ (4,367) $ 2,750 $ (6,653) $ (4,483)
============= ============= ============= =============
Net income (loss) per common share:
Net income (loss) per common share - basic...................... $ (0.41) $ 0.27 $ (0.63) $ (0.44)
============= ============= ============= =============
Net income (loss) per common share - diluted.................... $ (0.41) $ 0.25 $ (0.63) $ (0.44)
============= ============= ============= =============
Weighted average common shares outstanding - basic.............. 10,529 10,200 10,494 10,174
============= ============= ============= =============
Weighted average common shares outstanding - diluted............ 10,529 10,800 10,494 10,174
============= ============= ============= =============
SEE ACCOMPANYING NOTES.
2
Seabulk International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six Months Ended
June 30,
---------------------------
2002 2001
------------ ------------
OPERATING ACTIVITIES:
Net loss.............................................................................. $ (6,653) $ (4,483)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of vessels and equipment........................... 22,139 22,545
Amortization of drydocking costs................................................. 11,052 6,199
Provision for bad debts.......................................................... 147 544
Gains on disposal of assets...................................................... (1,354) (154)
Amortization of discount on long-term debt and financing costs................... 2,378 2,603
Minority interest in losses (gains) of subsidiaries.............................. 117 (181)
Senior and notes payable issued for payment of accrued interest and fees......... 626 860
Other non-cash items............................................................. 146 240
Changes in operating assets and liabilities:
Trade accounts and other receivables......................................... 5,661 (3,388)
Other current and long-term assets........................................... 2,557 1,725
Accounts payable and other liabilities....................................... (2,036) (1,209)
------------ ------------
Net cash provided by operating activities.................................. 34,780 25,301
INVESTING ACTIVITIES:
Expenditures for drydocking........................................................... (12,072) (11,950)
Proceeds from disposals of assets..................................................... 10,882 4,700
Purchases of vessels and equipment.................................................... (2,204) (4,739)
Acquisition of minority interest...................................................... -- (524)
Redemption of restricted investments.................................................. -- 32
Purchase of restricted investments.................................................... -- (21)
------------ ------------
Net cash used in investing activities.............................................. (3,394) (12,502)
FINANCING ACTIVITIES:
Net repayment of revolving credit facility............................................ (4,281) (3,250)
Payments of long-term debt............................................................ (18,604) (9,756)
Payments of Title XI bonds............................................................ (3,547) (4,739)
Redemption of restricted cash......................................................... -- 331
Payments of obligations under capital leases.......................................... (1,576) (2,115)
Capitalized issue costs related to proposed finance transactions...................... (328) --
Proceeds from exercise of warrants.................................................... 1 1
------------ ------------
Net cash used in financing activities.............................................. (28,335) (19,528)
------------ ------------
Change in cash and cash equivalents................................................... 3,051 (6,729)
Cash and cash equivalents at beginning of period...................................... 11,631 14,233
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................ $ 14,682 $ 7,504
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Notes payable issued for the acquisition of minority interest......................... $ -- $ 10,500
============ ============
Senior and notes payable issued for payment of accrued interest and fees.............. $ 626 $ 860
============ ============
Vessels exchanged for drydock expenditures............................................ $ 900 $ --
============ ============
Reactivation of two vessels previously classified as assets held for sale............. $ 1,682 $ --
============ ============
SEE ACCOMPANYING NOTES.
3
Seabulk International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
1. Organization and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. All
adjustments which, in the opinion of management, are considered necessary for a
fair presentation of the results of operations for the periods shown are of a
normal recurring nature and have been reflected in the unaudited condensed
consolidated financial statements. The results of operations for the periods
presented are not necessarily indicative of the results expected for the full
fiscal year or for any future period. The information included in these
unaudited condensed consolidated financial statements should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in this report and the consolidated financial
statements and accompanying notes included in the Company's Annual Report on
Form 10-K/A for the fiscal year ended December 31, 2001.
The Company has restated its consolidated financial statements as of
and for the year ended December 31, 2001 and as of and for the quarter ended
March 31, 2002. The restatements are primarily related to a $4.1 million accrual
in additional insurance calls in the fourth quarter of 2001 (see Note 8).
The Company has no material components of comprehensive loss except net
loss.
Certain financial statement reclassifications have been made to conform
prior periods' data to the 2002 financial statement presentation.
2. Issues Affecting Liquidity
The Company's capital requirements arise primarily from its need to
service debt, fund working capital and maintain and improve its vessels. The
Company's expected 2002 capital requirements for debt service, vessel
maintenance and fleet improvements total approximately $106.4 million. The
Company expects that cash flow from operations and proceeds from the sale of
non-strategic assets will continue to make significant contributions toward
working capital and capital requirements. If operating cash flow is not
adequate, the Company believes that the amounts available under the revolving
line of credit will be sufficient to meet its capital requirements.
On June 13, 2002, the Company announced the signing of a definitive
agreement with DLJ Merchant Banking Partners III, L.P., a CSFB Private Equity
fund, and affiliated entities, and Carlyle/Riverstone Global Energy and Power
Fund I, L.P. and affiliated entities, for the private placement of 12.5 million
shares of newly issued Seabulk common stock at a cash price of $8.00 per share.
The $100 million investment would give the new investors approximately 51% of
the pro forma, fully diluted common shares of the Company and majority
representation on its Board of Directors. The investment is subject to
shareholder approval, the refinancing of the Company's senior credit facility,
certain regulatory approvals and satisfaction of other customary conditions.
4
The new investors have also agreed to purchase, for $8.00 per share,
all of the Company's common stock and common stock purchase warrants
beneficially owned by accounts managed by Loomis, Sayles & Co., L.P., an
SEC-registered investment advisor. These accounts, which collectively represent
approximately 48% of the Company's outstanding shares of common stock, currently
hold approximately 5.2 million shares (excluding shares issuable upon exercise
of warrants). Loomis has agreed to approve the investment transaction and the
related amendments to the Company's Certificate of Incorporation, subject to
approvals and certain other conditions customary for transactions of this type.
Taken together, the two transactions would give the new investors
approximately 73% of the pro forma, fully diluted shares of the Company.
The Company also announced that it has signed a commitment letter with
Fortis Capital Corp. and NIB Capital Bank N.V., as arrangers, for a $180 million
senior secured credit facility, which would replace the Company's existing
facility. The new credit facility will consist of an $80 million term loan and a
$100 million revolving credit facility and will have a five-year maturity.
The term loan portion of the new credit facility will be used to redeem
the Company's outstanding 12 1/2% Senior Secured Notes due 2007. The revolving
portion of the credit facility will be subject to semi-annual reductions
commencing six months after closing. The new credit facility will be secured by
first liens on substantially all of the Company's vessels (excluding vessels
financed with U.S. Maritime Administration Title XI financing) and will be
guaranteed by substantially all of the subsidiaries of the Company. The new
credit facility will be subject to various financial covenants, including
minimum adjusted tangible net worth requirements, minimum ratios of adjusted
EBITDA to adjusted interest expense, and a maximum ratio of adjusted funded debt
to adjusted EBITDA. The Company will also be required to maintain a minimum fair
market value of collateralized assets of at least 175% of outstanding borrowings
under the new credit facility, based upon appraisals which may be requested not
more than once during any 12-month period.
In connection with the closing of the new investment, the Company
expects to redeem or repurchase all of its outstanding 12 1/2% Senior Secured
Notes due 2007. In addition, and as a condition to the closing of the new
investment, President and Chief Executive Officer Gerhard E. Kurz has agreed to
a five-year extension of his employment contract with the Company.
Proceeds from the new equity investment and new bank credit facility,
totaling approximately $280 million before payment of fees and expenses of the
transaction, will be used to repay the Company's existing bank debt, repurchase
or redeem its outstanding Senior Notes, and provide growth capital for new
initiatives.
It is contemplated that, in connection with the new investment, the new
investors would enter into a stockholders agreement together with the Company
and Mr. Kurz.
A shareholder vote will be required to approve the new share issuance
under Nasdaq Stock Market rules and to approve the necessary amendments to the
Company's Certificate of Incorporation. The amendments to the Certificate of
Incorporation include several provisions intended, for certain periods following
closing, to ensure independent director oversight of affiliated party
transactions and to provide certain protective rights to minority shareholders.
Certain regulatory approvals are also required. If the approvals are obtained,
closing of the transaction is expected to take place by the end of the third
quarter.
While management believes that the possibility exists that unforeseen
events or business conditions, including deterioration in its markets, could
prevent the Company from meeting targeted operating results and its financial
covenants. If unforeseen events or business conditions prevent the Company from
meeting targeted operating results, the Company has alternative plans including
additional asset sales, additional reductions in operating expenses and deferral
of capital expenditures, which should enable it to satisfy essential capital
requirements. While the Company believes it could successfully complete
alternative plans, if necessary, there can be no assurance that such
alternatives would be available or that the Company would be successful in their
implementation.
5
3. Sale of Assets of Sun State and Lone Star
On March 22, 2002, the Company closed on the sale of the marine
transportation assets and trade name of Sun State for $3.8 million in cash. The
assets consisted of tugs, barges and fuel inventory with a carrying value of
$4.3 million. The name of this company was changed to Seabulk Marine Services,
Inc. As a result, the Company recognized a loss on the disposal of these assets
of approximately $470,000. The proceeds from the sale of these assets were used
for working capital purposes as permitted by the Company's credit facility.
On May 20, 2002, the Company closed on the sale of the marine terminal
facility assets of Lone Star for $3.0 million. Fifty percent of the proceeds
($1.5 million) were received at closing in cash and the remainder will be
deferred and received over the next three years in the form of either cash or
shipyard repair credits from the buyer. The assets consisted of land, an office
building, docks and parking and warehouse storage facilities with a carrying
value of $1.3 million. As a result, the Company recognized a gain of $1.7
million. The proceeds of the sale of these assets were used to pay down the
Company's term loans.
On July 9, 2002, the Company closed on the sale of the drydock and
related shipyard equipment assets of Seabulk Marine Services, Inc. (formerly Sun
State Marine Services, Inc.) for $450,000. The Company has no remaining
operations at the Sun State location.
4. Long-Term Debt
On March 15, 2002, a sixth amendment to the credit facility was
executed, which reduced the working capital ratio for 2002 and for the life of
the term loans and reduced the fixed charge ratio in 2002, with a gradual
increase over the remaining life of the term loans.
On August 9, 2002, the Company executed the seventh amendment to the
credit facility which waived the Company's non-compliance with its working
capital covenants at December 31, 2001, which occurred as a result of the
restatement discussed in Note 2.
The Company's senior secured notes have not received the rating from
the rating agencies required by the note indenture. As a result, on April 15,
2000, the interest rate on the senior notes increased from 12.5% to 13.5%,
retroactively applied to December 15, 1999. The additional interest is payable
quarterly in the form of additional senior notes, of which notes in the
principal amount of $485,388 were issued for the six months ended June 30, 2002.
The Company expects to redeem or repurchase all of the outstanding notes in
connection with the closing of the new equity investment and new bank credit
facility.
5. Income Taxes
For the three months ended June 30, 2002 and 2001, a gross deferred tax
benefit was computed using an estimated annual effective tax rate of 36%.
Management has recorded a valuation allowance at June 30, 2002 and 2001 to
reduce the net deferred tax assets to an amount that will more likely than not
be realized. After application of the valuation allowance, the net deferred tax
assets are zero. The current provision for income taxes for the three-month
periods ended June 30, 2002 and 2001 represents taxes withheld on foreign source
revenue.
6
6. Net Income (Loss) Per Share
The following table sets forth other securities the computation of
basic and diluted net income (loss) per share for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2002 2001 2002 2001
----------- ----------- ----------- ----------
(in thousands, except for per share data)
Numerator:
Numerator for basic and diluted net income (loss) per share
Net income (loss) available to common shareholders............ $ (4,367) $ 2,750 $ (6,653) $ (4,483)
========== =========== ========== ==========
Denominator:
Denominator for basic net income per share-weighted average
shares........................................................ 10,529 10,200 10,494 10,174
Effects of dilutive securities:
Stock options................................................... -- 62 -- --
Warrants........................................................ -- 538 -- --
---------- ---------- ---------- ----------
Dilutive potential common shares................................ -- 600 -- --
---------- ---------- ---------- ----------
Denominator for diluted net income per share-adjusted weighted
average shares and assumed conversions........................ 10,529 10,800 10,494 10,174
========== ========== ========== ==========
Net income (loss) per share - basic............................. $ (0.41) $ 0.27 $ (0.63) $ (0.44)
========== ========== ========== ==========
Net income (loss) per share - diluted........................... $ (0.41) $ 0.25 $ (0.63) $ (0.44)
========== ========== ========== ==========
Common stock equivalents include 820,334 stock options and 459,775
warrants as of June 30, 2002 and have not been included in the computation of
diluted loss per common share as their effect is antidilutive.
7. Segment Information
The Company organizes its business principally into three segments. The
Company does not have significant intersegment transactions. These segments and
their respective operations are as follows:
OFFSHORE ENERGY SUPPORT (Seabulk Offshore) - 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 production platforms.
MARINE TRANSPORTATION SERVICES (Seabulk Tankers) - Marine
transportation services include oceangoing vessels used to transport
crude oil, petroleum products and chemicals between ports and terminals
within the U.S.
TOWING (Seabulk Towing) - Harbor and offshore towing services are
provided by tugs to vessels utilizing the seven ports in which the tugs
operate, and to vessels at sea.
7
The Company evaluates performance by operating segment. Also, within
the offshore energy support segment, the Company performs additional performance
evaluations of vessels marketed in U.S. and foreign locations. Resources are
allocated based on segment profit or loss from operations, before interest and
taxes.
Revenue by segment and geographic area consists only of services
provided to external customers, as reported in the Statements of Operations.
Income from operations by geographic area represents net revenue less applicable
costs and expenses related to that revenue. Unallocated expenses are primarily
comprised of general and administrative expenses of a corporate nature.
8
The following schedules present segment and geographic information
about the Company's operations (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
2002 2001 2002 2001
--------------- --------------- ---------------- ---------------
REVENUE
Offshore energy support........................ $ 44,061 $ 50,544 $ 87,372 $ 93,703
Marine transportation services................. 29,656 32,299 61,581 62,103
Towing(1)...................................... 7,922 8,581 15,885 17,038
---------------- ---------------- ---------------- ----------------
TOTAL....................................... $ 81,639 $ 91,424 $ 164,838 $ 172,844
================ ================ ================ ================
OPERATING EXPENSES
Offshore energy support........................ $ 25,092 $ 23,691 $ 48,682 $ 48,299
Marine transportation services(1).............. 16,532 19,941 34,202 39,368
Towing......................................... 4,818 4,933 9,288 9,767
General Corporate.............................. 298 -- 309 --
---------------- ---------------- ---------------- ----------------
TOTAL....................................... $ 46,740 $ 48,565 $ 92,481 $ 97,434
================ ================ ================ ================
DEPRECIATION, AMORTIZATION AND DRYDOCKING
Offshore energy support........................ $ 11,216 $ 9,311 $ 21,718 $ 17,767
Marine transportation services................. 4,514 4,435 9,062 8,794
Towing......................................... 810 691 1,570 1,420
General corporate.............................. 93 384 841 763
---------------- ---------------- ---------------- ----------------
TOTAL....................................... $ 16,633 $ 14,821 $ 33,191 $ 28,744
================ ================ ================ ================
INCOME (LOSS) FROM OPERATIONS
Offshore energy support........................ $ 3,320 $ 13,687 $ 8,437 $ 19,533
Marine transportation services................. 7,327 6,543 15,583 11,213
Towing......................................... 1,181 1,831 2,763 3,554
General corporate.............................. (3,288) (3,158) (6,275) (6,988)
---------------- ---------------- ---------------- ----------------
TOTAL....................................... $ 8,540 $ 18,903 $ 20,508 $ 27,312
================ ================ ================ ================
NET INCOME (loss)
Offshore energy support........................ $ (4,979) $ 4,829 $ (7,445) $ 1,407
Marine transportation services................. 3,571 844 6,258 577
Towing......................................... (128) 302 151 698
General Corporate.............................. (2,831) (3,225) (5,617) (7,165)
---------------- ---------------- ---------------- ----------------
TOTAL....................................... $ (4,367) $ 2,750 $ (6,653) $ (4,483)
================ ================ ================ ================
GEOGRAPHIC REVENUE...............................
Domestic....................................... $ 49,353 $ 64,680 $ 102,923 $ 122,350
Foreign
West Africa................................. 22,455 17,074 42,871 31,696
Middle East................................. 5,780 6,088 11,839 11,090
Southeast Asia.............................. 4,051 3,582 7,205 7,708
---------------- ---------------- ---------------- ----------------
CONSOLIDATED GEOGRAPHIC REVENUE.................. $ 81,639 $ 91,424 $ 164,838 $ 172,844
================ ================ ================ ================
(1) Net of elimination of intersegment towing revenue and intersegment marine
transportation operating expense of $0.1 million and $0.6 million for the
three months ended June 30, 2002 and 2001, and $0.2 million and $1.1 million
for the six months ended June 30, 2002 and 2001, respectively.
9
8. Contingencies
In December 2001, the Company was notified by Steamship Mutual, its
protection and indemnity marine insurance club (the "Club"), of additional
insurance calls in the projected amount of $4.1 million, due to investment
losses resulting in reserve shortfalls for the Club. Although the Company has
serious disagreements over the basis for these additional assessments and has
instituted a dispute procedure, the Company has accrued the full $4.1 million
in 2001. Payments toward the calls are projected to be made in various
installments during 2002 and 2003.
Under United States law, "United States persons" are prohibited from
business activities and contracts in certain countries, including Sudan and
Iran. The Company has filed three reports with and submitted documents to the
Office of Foreign Asset Control of the U.S. Department of Treasury. One of the
reports was also filed with the Bureau of Export Administration of the U.S.
Department of Commerce. The reports and documents relate to certain limited
charters with third parties involving three of the Company's vessels which
called in Sudan for several months in 1999 and January 2000, and charters with
third parties involving several of the Company's vessels which called in Iran in
1998. Should either of the agencies determine that these activities constituted
violations of the laws or regulations administered by them, civil penalties,
including fines, could be assessed against the Company and/or certain
individuals who knowingly participated in such activities. The Company cannot
predict whether any such penalties will be imposed or the nature or extent of
such penalties; however, management does not believe the outcome of these
matters will have a material impact on its financial position, results of
operations or cash flows.
The Company was sued by Maritime Transportation Development Corporation
in January 2002 alleging broker commissions due from charters on two of its
tanker vessels, the SEABULK MAGNACHEM and SEABULK CHALLENGER, since 1998. The
Plaintiff is seeking approximately $550,000. The Company is vigorously defending
such charges, but cannot predict the ultimate outcome of the matter.
The Company is sometimes named as a defendant in litigation, usually
relating to claims for bodily injury, 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 these claims do not have a material impact
on the Company's financial position, results of operations or cash flows.
9. Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS, which requires companies to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The Company adopted SFAS No. 143 as of January 1, 2002 with no
material financial statement impact.
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation of discontinued operations to include more disposal
transactions. SFAS No. 144 supersedes SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and
reporting provisions of APB Opinion No. 30. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. The Company adopted SFAS No. 144 as of
January 1, 2002 with no material financial statement impact.
10
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB
STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO. 14, AND TECHNICAL
CORRECTIONS, which eliminates the requirement that gains and losses from the
extinguishment of debt be aggregated and, if material, classified as
extraordinary item, net of the related income tax effect and eliminates an
inconsistency between the accounting for sale-leaseback transactions and certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. Generally, SFAS No. 145 is effective for
transactions occurring after May 15, 2002. The adoption of the standard is not
expected to have a significant impact to the Company.
In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES, which addresses the financial
accounting and reporting for costs associated with exit or disposal activities
SFAS No. 146 is effective for fiscal years beginning after December 31, 2002.
The adoption of the standard is not expected to have a significant impact on the
Company.
In June 2001, the Accounting Executive Committee of the American
Institute of Certified Public Accountants issued an exposure draft of a proposed
Statement of Position ("SOP") entitled ACCOUNTING FOR CERTAIN COSTS AND
ACTIVITIES RELATED TO PROPERTY, PLANT AND EQUIPMENT. Under the proposed SOP, the
Company would expense major maintenance costs as incurred and prohibit the use
of the deferral of the entire cost of a planned major maintenance activity.
Currently, the costs incurred to drydock the vessels are deferred and amortized
on a straight-line basis over the period to the next drydocking, generally 30 to
36 months. The proposed SOP would be effective for fiscal years beginning after
June 15, 2002. Management has determined that this SOP, if issued as proposed,
would have a material effect on the consolidated financial statements. In the
year of adoption, the Company would write-off the net book value of the deferred
drydocking costs and record the write-off as a change in accounting principle
($29.4 million as of June 30, 2002). Additionally, all drydock expenditures
incurred after the adoption of the SOP would be expensed as incurred.
10. Supplemental Condensed Consolidated Financial Information
The senior secured notes are fully and unconditionally guaranteed on a
joint and several basis by certain of the Company's wholly-owned consolidated
subsidiaries. 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 condensed consolidating financial information for the
Company, segregating the parent, the domestic and foreign guarantor
subsidiaries, the combined non-guarantor subsidiaries and eliminations.
11
Condensed Consolidating Balance Sheet
(in thousands)
As of June 30, 2002
----------------------------------------------------------------------------------
Domestic Foreign Non- Condensed
Guarantor Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................ $ (2,755) $ 269 $ 4,411 $ 12,757 $ -- $ 14,682
Restricted cash .......................... -- -- 1,337 -- -- 1,337
Accounts receivable:
Trade, net ............................ 209 16,632 28,521 1,688 -- 47,050
Insurance claims and other ............ 1,824 3,023 8,784 426 -- 14,057
Marine operating supplies ................ (638) 1,891 3,340 3,707 -- 8,300
Prepaid expenses ......................... 397 1,027 657 629 -- 2,710
--------- --------- --------- --------- --------- ---------
Total current assets .................. (963) 22,842 47,050 19,207 -- 88,136
Vessels and equipment, net ................. 43,004 159,981 101,771 262,557 -- 567,313
Deferred costs, net ........................ 14,805 8,211 16,792 7,688 -- 47,496
Due (to) from affiliates ................... (188,293) 91,787 129,215 (29,230) (3,479) --
Investments in affiliates .................. 519,772 356,026 -- 38,544 (914,342) --
Other ...................................... 253 2,589 2,067 424 -- 5,333
--------- --------- --------- --------- --------- ---------
Total assets ............................. $ 388,578 $ 641,436 $ 296,895 $ 299,190 $(917,821) $ 708,278
========= ========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable ......................... $ 451 $ 1,234 $ 6,677 $ 405 $ -- $ 8,767
Current maturities of long-term debt ..... 28,022 1,996 -- 4,519 -- 34,537
Current obligations under capital leases . -- 2,899 -- -- -- 2,899
Accrued interest ......................... 3,623 404 -- 669 -- 4,696
Accrued liabilities and other ............ 8,639 2,844 27,322 2,072 -- 40,877
--------- --------- --------- --------- --------- ---------
Total current liabilities ............. 40,735 9,377 33,999 7,665 -- 91,776
Long-term debt ............................. 141,736 22,379 -- 213,398 -- 377,513
Obligations under capital leases ........... -- 30,265 -- -- -- 30,265
Senior notes ............................... 83,006 -- -- -- -- 83,006
Other liabilities .......................... 4,983 710 846 102 -- 6,641
--------- --------- --------- --------- --------- ---------
Total liabilities ........................ 270,460 62,731 34,845 221,165 -- 589,201
Contingencies .............................. -- -- -- -- -- --
Minority interest .......................... -- -- -- -- 959 959
Total stockholders' equity (deficit) ....... 118,118 578,705 262,050 78,025 (918,780) 118,118
--------- --------- --------- --------- --------- ---------
Total liabilities and stockholders' equity
(deficit) ............................... $ 388,578 $ 641,436 $ 296,895 $ 299,190 $(917,821) $ 708,278
========= ========= ========= ========= ========= =========
12
Condensed Consolidating Balance Sheet
(in thousands)
As of December 31, 2001 (as restated)
----------------------------------------------------------------------------------
Domestic Foreign Non- Condensed
Guarantor Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................ $ 250 $ 270 $ 3,888 $ 7,223 $ -- $ 11,631
Restricted cash .......................... -- -- 1,337 -- -- 1,337
Accounts receivable:
Trade, net ............................ 1,088 20,186 27,098 2,420 (704) 50,088
Insurance claims and other ............ 2,896 5,849 7,149 388 -- 16,282
Marine operating supplies ................ (795) 3,072 3,624 4,148 -- 10,049
Prepaid expenses ......................... 864 844 988 288 -- 2,984
--------- --------- --------- --------- --------- ---------
Total current assets .................. 4,303 30,221 44,084 14,467 (704) 92,371
Vessels and equipment, net ................. 45,388 166,678 109,451 267,854 -- 589,371
Deferred costs, net ........................ 16,107 10,063 14,187 8,542 -- 48,899
Due (to) from affiliates ................... (170,000) 80,479 123,866 (30,867) (3,478) --
Investments in affiliates .................. 522,764 366,174 -- 35,547 (924,485) --
Other ...................................... 289 7,661 6,174 -- -- 14,124
--------- --------- --------- --------- --------- ---------
Total assets ............................. $ 418,851 $ 661,276 $ 297,762 $ 295,543 $(928,667) $ 744,765
========= ========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable ......................... $ 5,892 $ 2,353 $ 9,102 $ 824 $ -- $ 18,171
Current maturities of long-term debt ..... 32,056 1,941 -- 4,370 -- 38,367
Current obligations under capital leases . -- 2,972 -- -- -- 2,972
Accrued interest ......................... 340 420 -- 695 -- 1,455
Accrued liabilities and other ............ 8,787 5,442 23,110 2,084 (704) 38,719
--------- --------- --------- --------- --------- ---------
Total current liabilities ............. 47,075 13,128 32,212 7,973 (704) 99,684
Long-term debt ............................. 160,887 23,391 -- 215,696 -- 399,974
Obligations under capital leases ........... -- 31,768 -- -- -- 31,768
Senior notes ............................... 81,635 -- -- -- -- 81,635
Other liabilities .......................... 4,567 753 807 48 -- 6,175
--------- --------- --------- --------- --------- ---------
Total liabilities ........................ 294,164 69,040 33,019 223,717 (704) 619,236
Contingencies
Minority interest .......................... -- -- -- -- 842 842
Total stockholders' equity (deficit) ....... 124,687 592,236 264,743 71,826 (928,805) 124,687
--------- --------- --------- --------- --------- ---------
Total liabilities and stockholders' equity
(deficit) .............................. $ 418,851 $ 661,276 $ 297,762 $ 295,543 $(928,667) $ 744,765
========= ========= ========= ========= ========= =========
13
Condensed Consolidating Statement of Operations
(in thousands)
Three Months Ended June 30, 2002
-----------------------------------------------------------------------------------
Domestic Foreign Non- Condensed
Guarantor Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ ------------ ------------
Revenue ................................. $ 9,770 $ 20,567 $ 32,286 $ 19,359 $ (343) $ 81,639
Operating expenses ...................... 7,290 12,842 17,863 9,094 (349) 46,740
Overhead expenses ....................... 3,176 2,745 3,193 607 5 9,726
Depreciation, amortization and drydocking 1,626 4,495 7,545 2,967 -- 16,633
-------- -------- -------- -------- -------- --------
(Loss) income from operations ........... (2,322) 485 3,685 6,691 1 8,540
Other (expense) income, net ............. (2,045) (7,249) (4,156) (2,724) 5,008 (11,166)
-------- -------- -------- -------- -------- --------
(Loss) income before provision income
taxes ................................. (4,367) (6,764) (471) 3,967 5,009 (2,626)
Provision for income taxes .......... .... -- -- 1,741 -- -- 1,741
-------- -------- -------- -------- -------- --------
Net (loss) income ....................... $ (4,367) $ (6,764) $ (2,212) $ 3,967 $ 5,009 $ (4,367)
======== ======== ======== ======== ======== ========
Condensed Consolidating Statement of Operations
(in thousands)
Three Months Ended June 30, 2001
-----------------------------------------------------------------------------------
Domestic Foreign Non- Condensed
Guarantor Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ ------------ ------------
Revenue ..................................... $ 2,176 $ 48,520 $ 27,309 $ 14,649 $ (1,230) $ 91,424
Operating expenses .......................... 488 28,287 13,509 7,444 (1,163) 48,565
Overhead expenses ........................... 3,019 3,186 3,192 (189) (73) 9,135
Depreciation, amortization and drydocking ... 1,720 4,728 5,623 2,750 -- 14,821
-------- -------- -------- -------- -------- --------
(Loss) income from operations ............... (3,051) 12,319 4,985 4,644 6 18,903
Other (expense) income, net ................. 4,387 12,752 (3,090) (4,622) (23,796) (14,369)
-------- -------- -------- -------- -------- --------
(Loss) income before provision income taxes . 1,336 25,071 1,895 22 (23,790) 4,534
Provision for income taxes .................. (1,414) -- 3,198 -- -- 1,784
-------- -------- -------- -------- -------- --------
Net (loss) income ........................... $ 2,750 $ 25,071 $ (1,303) $ 22 $(23,790) $ 2,750
======== ======== ======== ======== ======== ========
14
Condensed Consolidating Statement of Operations
(in thousands)
Six Months Ended June 30, 2002
------------------------------------------------------------------------------------
Domestic Foreign Non- Condensed
Guarantor Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ ------------ ------------
Revenue ................................. $ 20,133 $ 45,884 $ 61,915 $ 37,620 $ (714) $ 164,838
Operating expenses ...................... 13,481 28,619 33,121 17,985 (725) 92,481
Overhead expenses ....................... 5,676 5,427 6,129 1,415 11 18,658
Depreciation, amortization and drydocking 3,935 9,005 14,310 5,941 -- 33,191
--------- --------- --------- --------- --------- ---------
(Loss) income from operations ........... (2,959) 2,833 8,355 12,279 -- 20,508
Other (expense) income, net ............. (3,694) (16,364) (7,640) (6,080) 10,025 (23,753)
--------- --------- --------- --------- --------- ---------
(Loss) income before provision income
taxes ................................. (6,653) (13,531) 715 6,199 10,025 (3,245)
Provision for income taxes .............. -- -- 3,408 -- -- 3,408
--------- --------- --------- --------- --------- ---------
Net (loss) income ....................... $ (6,653) $ (13,531) $ (2,693) $ 6,199 $ 10,025 $ (6,653)
========= ========= ========= ========= ========= =========
15
Condensed Consolidating Statement of Cash Flows
(in thousands)
Six Months Ended June 30, 2002
------------------------------------------------------------------------------------
Domestic Foreign Non- Condensed
Guarantor Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ ------------ -----------
Net cash provided by (used in) operating
activities .................................. $ 22,163 $ (1,841) $ 6,687 $ 7,771 $ -- $ 34,780
INVESTING ACTIVITIES:
Expenditures for drydocking ................. (1,375) (2,588) (8,021) (88) -- (12,072)
Proceeds from disposals of assets ........... -- 8,713 2,169 -- -- 10,882
Purchases of vessels and equipment .......... (139) (1,753) (312) -- -- (2,204)
-------- -------- -------- -------- ---------- ---------
Net cash (used in) provided by investing
activities ............................... (1,514) 4,372 ( 6,164) (88) -- (3,394)
FINANCING ACTIVITIES:
Net repayment of revolving credit facility .. (4,281) -- -- -- -- (4,281)
Payments of long-term borrowings ............ (17,971) (633) -- -- -- (18,604)
Payments of Title XI bonds .................. (1,075) (323) -- (2,149) -- (3,547)
Payments of obligations under capital leases -- (1,576) -- -- -- (1,576)
Issue costs related to new equity/credit
facility ................................... (328) -- -- -- -- (328)
Proceeds from exercise of warrants .......... 1 -- -- -- -- 1
-------- -------- -------- -------- ---------- ---------
Net cash used in financing activities ...... (23,654) (2,532) -- (2,149) -- (28,335)
-------- -------- -------- -------- ---------- ---------
Change in cash and cash equivalents .......... (3,005) (1) 523 5,534 -- 3,051
Cash and cash equivalents at beginning of
period ...................................... 250 270 3,888 7,223 -- 11,631
-------- -------- -------- -------- ---------- ---------
Cash and cash equivalents at end of period ... $ (2,755) $ 269 $ 4,411 $ 12,757 $ -- $ 14,682
======== ======== ======== ======== ========== =========
Condensed Consolidating Statement of Operations
(in thousands)
Six Months Ended June 30, 2001
-----------------------------------------------------------------------------------
Domestic Foreign Non- Condensed
Guarantor Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ ------------ -----------
Revenue ................................. $ 4,487 $ 90,231 $ 50,493 $ 30,078 $ (2,445) $172,844
Operating expenses ...................... 854 55,936 27,438 15,517 (2,311) 97,434
Overhead expenses ....................... 6,717 6,302 5,708 773 (146) 19,354
Depreciation, amortization and drydocking 3,334 8,966 10,865 5,579 -- 28,744
-------- -------- -------- -------- -------- --------
(Loss) income from operations ........... (6,418) 19,027 6,482 8,209 12 27,312
Other (expense) income, net ............. 1,935 13,055 (9,780) (9,640) (24,167) (28,597)
-------- -------- -------- -------- -------- --------
(Loss) income before provision income
taxes ................................. (4,483) 32,082 (3,298) (1,431) (24,155) (1,285)
Provision for income taxes .............. -- -- 3,198 -- -- 3,198
-------- -------- -------- -------- -------- --------
Net (loss) income ....................... $ (4,483) $ 32,082 $ (6,496) $ (1,431) $(24,155) $ (4,483)
======== ======== ======== ======== ======== ========
16
Condensed Consolidating Statement of Cash Flows
(in thousands)
Six Months Ended June 30, 2001
----------------------------------------------------------------------------------
Domestic Foreign Non- Condensed
Guarantor Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ ------------ -----------
Net cash provided by (used in) operating
activities .................................. $ 5,720 $ 13,780 $ 2,415 $ (4,561) $ 7,947 $ 25,301
INVESTING ACTIVITIES:
Expenditures for drydocking ................. (656) (5,493) (5,801) -- -- (11,950)
Proceeds from disposals of assets ........... -- 820 3,880 -- -- 4,700
Purchases of property ....................... 37 (3,533) (1,133) (105) (5) (4,739)
Acquisition of minority interest ............ 8,347 -- -- (929) (7,942) (524)
Redemption of restricted investments ........ -- -- -- 32 -- 32
Purchases of restricted investments ......... -- -- -- (21) -- (21)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities ............................... 7,728 (8,206) (3,054) (1,023) (7,947) (12,502)
FINANCING ACTIVITIES:
Net repayment of revolving credit facility .. (3,250) -- -- -- -- (3,250)
Repayment of long-term borrowings ........... (9,091) (665) -- -- -- (9,756)
Repayment of Title XI bonds ................. (2,409) (322) -- (2,008) -- (4,739)
Redemption of restricted cash ............... 331 -- -- -- -- 331
Payments of obligations under capital leases -- (2,115) -- -- -- (2,115)
Proceeds from exercise of warrants .......... 1 -- -- -- -- 1
-------- -------- -------- -------- -------- --------
Net cash used in financing activities ...... (14,418) (3,102) -- (2,008) -- (19,528)
-------- -------- -------- -------- -------- --------
Change in cash and cash equivalents .......... (970) 2,472 (639) (7,592) -- (6,729)
Cash and cash equivalents at beginning of
period ...................................... 1,402 (2,190) 6,380 8,641 -- 14,233
-------- -------- -------- -------- -------- --------
Cash and cash equivalents at end of period ... $ 432 $ 282 $ 5,741 $ 1,049 $ -- $ 7,504
======== ======== ======== ======== ======== ========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") should be read in conjunction with
the condensed consolidated financial statements and the related notes thereto
included elsewhere in this Report and the 2001 Annual Report on Form 10-K.
References to the "2001 Form 10-K" in this Quarterly Report are to a restated
and amended Annual Report on Form 10-K/A.
The MD&A contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in the MD&A are forward-looking
statements. Although the Company believes that the expectations and beliefs
reflected in such forward-looking statements are reasonable, it can give no
assurance that they will prove correct. For information regarding the risks and
uncertainties that could cause such forward-looking statements to prove
incorrect, see "Projections and Other Forward-Looking Information" in Item 1 of
the 2001 Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For general information concerning critical accounting policies as well
as estimates, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations, Critical Accounting Policies and Estimates" in the
2001 Form 10-K.
In June 2001, the Accounting Executive Committee of the American
Institute of Certified Public Accountants issued an exposure draft of a proposed
Statement of Position ("SOP") entitled ACCOUNTING FOR CERTAIN COSTS AND
ACTIVITIES RELATED TO PROPERTY, PLANT AND EQUIPMENT. Under the proposed SOP, the
Company would expense major maintenance costs as incurred and prohibit the use
of the deferral of the entire cost of a planned major maintenance activity.
Currently, the costs incurred to drydock the vessels are deferred and amortized
on a straight-line basis over the period to the next drydocking, generally 30 to
36 months. The proposed SOP would be effective for fiscal years beginning after
June 15, 2002. Management has determined that this SOP, if issued as proposed,
would have a material effect on the consolidated financial statements. In the
year of adoption, the Company would write off the net book value of the deferred
drydocking costs and record the write off as a change in accounting principle
($29.4 million as of June 30, 2002). Additionally, all drydock expenditures
incurred after the adoption of the SOP would be expensed as incurred.
REVENUE OVERVIEW
The Company derives its revenue from three main lines of business -
offshore energy support, marine transportation, and towing. Seabulk Offshore,
the Company's domestic and international offshore energy support business,
accounted for approximately 54% and 55% of Company revenue for the three months
ended June 30, 2002 and 2001, respectively. Marine transportation consists of
the Company's Jones Act domestic tanker business, in which it owns eight
petroleum and chemical product carriers in the domestic coastwise trade with a
67.3% ownership interest in a ninth, and is the bareboat charterer with a
purchase option on a tenth. Marine transportation accounted for approximately
36% and 35% of Company revenue for the three months ended June 30, 2002 and
2001, respectively. Seabulk Towing, the Company's domestic harbor and offshore
towing business, accounted for approximately 10% of Company revenue for the
three months ended June 30, 2002 and 2001.
18
Seabulk Offshore
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 and natural gas.
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.
19
The following tables set forth, by primary area of operation, average
day rates achieved by the offshore energy fleet owned or operated by the Company
and average utilization for the periods indicated. Average day rates are
calculated by dividing total revenue by the number of days worked. Utilization
percentages are based upon the number of working days over a 365/366-day year
and the number of vessels in the fleet on the last day of the quarter.
Q1 2002 Q2 2002
---------------------------- ----------------------------
AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other
Supply Tugs Utility Supply Tugs Utility
----------------------------------------------------------
DOMESTIC(1)
Vessels(2) (3) (4) (8) (9) 24 -- 30 2 21 -- 31 2
Bareboat-out(4) -- -- -- -- -- -- -- --
Laid-Up -- -- -- 1 -- -- -- 1
Effective Utilization(5) 59% -- 65% -- 63% -- 58% --
Day Rate $6,687 -- $2,666 -- $6,005 -- $2,469 --
WEST AFRICA
Vessels(2) (3) (6) (7) (8) 29 5 7 1 30 5 6 1
Laid-Up -- 1 -- -- -- 1 -- --
Effective Utilization(5) 84% 86% 89% 97% 85% 97% 84% --
Day Rate $7,368 $6,613 $3,124 - $8,042 $6,522 $2,722 --
MIDDLE EAST
Vessels(2) 6 8 8 5 6 8 8 5
Laid-Up -- 1 1 1 -- 1 1 1
Effective Utilization(5) 83% 75% 81% 77% 79% 62% 85% 66%
Day Rate $3,265 $4,571 $1,649 $4,502 $3,250 $5,048 $1,668 $4,475
SOUTHEAST ASIA
Vessels(2) (7) (10) 8 -- 5 2 8 -- 2
Laid-Up -- -- -- -- -- -- --
Effective Utilization(5) 59% -- 53% 44% 68% -- --
Day Rate $5,510 -- $1,472 - $6,320 -- --
--------------------------------------------------------------------------------------
----------------------
(1) Domestic consists of vessels operating in the United States, the U.S. Gulf
of Mexico and Mexico.
(2) Held-for-sale and bareboat-out vessels are excluded from the vessel count.
(3) During Q1 2002, two Anchor Handling Tug Supply Vessels were transferred
from Domestic to West Africa.
(4) During Q1 2002, a bareboat contract for one Geophysical Vessel in the
Domestic operating region expired and the vessel was returned to the
Company.
(5) Effective utilization excludes laid-up vessels.
(6) During Q1 2002, the Company reactivated one AHT from "held-for-sale"
status. This vessel was placed into service in West Africa.
(7) During Q1 2002, the Company reactivated one Anchor Handling Tug Supply
Vessel from "held-for-sale" status and placed the vessel into service in
Southeast Asia. Additionally during Q1 2002, the Company transferred one
utility boat from Southeast Asia to West Africa.
(8) During Q2 2002, two Anchor Handling Tug Supply Vessels were sold.
Additionally during Q2 2002, the Company transferred one supply vessel to
West Africa.
(9) During Q2 2002, one Crewboat was returned to Domestic from West Africa.
(10) During Q2 2002, five Crewboats in Southeast Asia were sold.
20
Q1 2001 Q2 2001
---------------------------------- ---------------------------------
AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other
Supply Tugs Utility Supply Tugs Utility
---------------------------------- ---------------------------------
DOMESTIC(1)
Vessels(2)(3)(4) 26 -- 31 1 26 -- 33 1
Bareboat-out(4) -- -- 2 1 -- -- 2 1
Laid-Up 1 -- -- 1 1 -- -- 1
Effective
Utilization(5) 75% -- 87% -- 90% -- 87% --
Day Rate $6,946 -- $2,709 -- $7,397 -- $2,929 --
WEST AFRICA
Vessels(2)(3)(6)(8) 27 3 6 1 27 4 5 1
Laid-Up -- -- -- -- -- -- -- --
Effective
Utilization(5) 83% 46% 85% -- 86% 41% 77% 84%
Day Rate $6,325 $4,491 $2,754 -- $6,988 $5,528 $2,774 $6,160
MIDDLE EAST
Vessels(2)(3)(7)(9)
(11)(12) 5 8 11 7 5 8 11 7
Laid-Up(12) -- -- -- -- -- -- -- --
Effective
Utilization(5) 77% 24% 66% 56% 92% 50% 59% 69%
Day Rate $3,003 $4,129 $1,421 $5,197 $2,855 $3,889 $1,434 $5,393
SOUTHEAST ASIA
Vessels(2)(6)(10)
(11) 8 1 5 1 8 1 5 1
Laid-Up -- -- 1 -- -- -- 1 --
Effective
Utilization(5) 87% 37% 89% 33% 83% 46% 73% 71%
Day Rate $5,347 $3,929 $1,429 $6,614 $4,277 $4,255 $1,443 $6,630
Q3 2001 Q4 2001
--------------------------------- --------------------------------
AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other
Supply Tugs Utility Supply Tugs Utility
--------------------------------- --------------------------------
DOMESTIC(1)
Vessels(2)(3)(4) 26 -- 32 1 26 -- 32 1
Bareboat-out(4) -- -- -- 1 -- -- -- 1
Laid-Up -- -- -- 1 -- -- -- 1
Effective
Utilization(5) 83% -- 83% -- 63% -- 72% --
Day Rate $7,486 -- $3,061 -- $7,141 -- $2,928 --
WEST AFRICA
Vessels(2)(3)(6)(8) 27 4 6 1 27 4 6 1
Laid-Up -- -- -- -- -- -- -- --
Effective
Utilization(5) 82% 63% 64% 84% 76% 86% 80% 96%
Day Rate $7,644 $6,097 $2,715 $7,363 $7,829 $8,041 $3,358 $9,246
MIDDLE EAST
Vessels(2)(3)(7)(9)
(11)(12) 5 8 9 6 6 8 8 5
Laid-Up(12) -- -- -- -- -- 1 1 1
Effective
Utilization(5) 86% 48% 65% 43% 81% 60% 86% 64%
Day Rate $2,954 $4,443 $1,611 $5,399 $3,121 $4,937 $1,671 $3,986
SOUTHEAST ASIA
Vessels(2)(6)(10)
(11) 8 -- 6 2 7 -- 6 2
Laid-Up -- -- -- -- -- -- -- --
Effective
Utilization(5) 79% -- 69% 100% 69% -- 51% 52%
Day Rate $4,762 -- $1,708 $8,298 $5,285 -- $1,674 $7,302
- ------------------------------------
(1) Domestic consists of vessels operating in the United States, the U.S. Gulf
of Mexico, Mexico, the Caribbean and South America.
(2) Held-for-sale and bareboat-out vessels are excluded from the vessel count.
(3) During Q1 2001, one AHTS, one supply boat, and one specialty vessel (Other)
transferred from the Middle East to West Africa. During Q2 2001, the
Company purchased a crewboat and transferred one vessel in the Crew/Utility
category from West Africa to Domestic.
(4) Bareboat-out chartered vessels are not included in the day rate and
utilization statistics. During Q3 2001, bareboat contracts for two
crewboats in the Domestic operating region were terminated and the vessels
were returned to the Company.
(5) Effective utilization excludes laid-up vessels.
(6) One vessel in the AHT/Tugs category worked in West Africa and Southeast
Asia during Q2 2001 and earned sufficient revenue to be included in the
statistics for both regions.
(7) The Middle East - Other category includes a vessel that is in a 50/50 joint
venture and not included in the day rate and utilization statistics.
(8) During Q3 2001, one crewboat and one utility boat in Domestic region were
transferred to "held-for-sale" status. Additionally, the Company
transferred one crewboat from Domestic to West Africa. The reduction in the
Domestic Crew/Utility vessel count was offset in part by the addition of
two crewboats as bareboat-out contracts were terminated during Q3 2001.
(9) During Q3 2001, the Company transferred one crewboat and one specialty
vessel (Other) from the Middle East to Southeast Asia. Additionally, one
crewboat was transferred to "held-for-sale" status.
(10) During Q3 2001, one crewboat and one specialty vessel (Other) were
transferred from West Africa to Southeast Asia. Also, one vessel in the
AHT/Tugs category that worked in West Africa and Southeast Asia during Q2
2001 did not work in Southeast Asia during Q3. Additionally, the Company
reactivated one crewboat from laid-up status during Q3 2001.
(11) During Q4 2001, one supply vessel was transferred from Southeast Asia to
Middle East. Also, one vessel in the AHT/Tugs category that worked in West
Africa and Southeast Asia during Q2 2001 did not work in Southeast Asia
during Q3. Additionally, the Company reactivated one crewboat from laid-up
status during Q3 2001.
(12) During Q4 2001, the Company transferred one crewboat to "held-for-sale"
status. Additionally, three vessels were laid-up during Q4 2001.
21
Domestic revenue for the six months ended June 30, 2002 was adversely
affected by the slowdown in natural gas drilling activity in the U.S. Gulf of
Mexico as a result of lower natural gas prices and high inventories. The lower
level of natural gas prices resulted from above-average inventory buildups and
reduced demand due to one of the mildest winters on record. Exploration and
production companies in the U.S. Gulf of Mexico responded by cutting back their
level of spending as evidenced by the significant drop in offshore rig fleet
utilization rates during the last half of calendar year 2001 and the first half
of 2002. Although there is still uncertainty in the market, the recent rise in
both crude oil and natural gas prices, driven by the conflict in the Middle
East, the temporary shutoff of Iraqi and Venezuelan imports and other factors,
have led to a recent improvement in utilization rates for jack-up rigs, which
should eventually bring about a recovery in the Gulf of Mexico offshore vessel
market.
As the demand for vessels in the domestic market is primarily driven by
natural gas exploration and production, it is difficult to predict what effect
the current fluctuation in natural gas prices and the uncertainty in the
economic environment will have on demand for the Company's vessels in the
domestic market.
International offshore revenues for the six months ended June 30, 2002
benefited from increases in vessel count and utilization. In West Africa, the
demand for vessels, and hence utilization, remained strong as this is an
oil-driven deepwater market with longer time horizons and increasing exploration
and production budgets primarily from oil company majors. The Company redeployed
vessels to its West African operations during the six months ended June 30,
2002.
International vessel demand is primarily driven by crude oil
production, and during the quarter crude oil prices and demand remained firm.
The Company expects international exploration and production spending to
continue to increase in West Africa, which should strengthen vessel demand in
that area. Revenue and utilization were also up for the Company's Middle East
operations. In Southeast Asia, revenue declined from the year-earlier period due
to reduced utilization caused by vessel downtimes.
Average day rates and utilization for the Company's anchor handling tug
supply vessels and supply boats at July 31, 2002 for Domestic, West Africa, the
Middle East and Southeast Asia were approximately $5,900/57.0%, $8,600/74.0%,
$3,200/100.0% and $5,300/63.0%, respectively.
The Company had four offshore vessels in "held-for-sale" status as of
June 30, 2002. The majority of these vessels were previously laid up.
Seabulk Tankers
Revenue from the Company's marine transportation services is derived
principally from the operations of ten tankers carrying crude oil, petroleum
products and chemical products in the U.S. Jones Act trade and, to a lesser
extent, from the Sun State towboat and fuel barge operations in Green Cove
Springs, Florida, which were sold in March 2002.
PETROLEUM TANKERS. Demand for crude oil and petroleum product
transportation services is dependent both on production and refining levels as
well as on consumer and commercial consumption of petroleum products and
chemicals. The Company owned eight petroleum product tankers at June 30, 2002.
Five of these are double-hull, state-of-the-art vessels, of which two have
chemical-carrying capability. At the end of December 2001, voyage charters for
three vessels expired and were replaced by two multi-year time charters at time
charter-equivalent rates 55% above the returns achieved for these vessels in
2001. For the third vessel, the Company entered into a ten-year bareboat charter
22
agreement with a major oil company. Beginning in January 2002, the oil company
has exclusive possession and control of the vessel. As a result, the charterer
incurs and pays all operating costs during the charter period. A fourth vessel
also secured a time charter, commencing in the fourth quarter of 2001, at a 25%
increase over the expiring rate. Under a time charter, fuel and port charges are
borne by the charterer customer and are therefore not reflected in the charter
rates. Under a bareboat contract, the charterer is responsible for all operating
expenses of the vessel. Consequently, both the revenue and cost side of time
charter vessels are reduced by the amount of the fuel and port charges. Our
Jones Act fleet is benefiting from a tightening domestic tanker market, which
should see a further strengthening as OPA 90 forces out older, single-hull
vessels. None of our single hull vessels is scheduled for retirement under OPA
90 before 2007.
CHEMICAL TANKERS. Demand for industrial chemical transportation
services generally coincides with overall economic activity. The Company
operated two chemical tankers and one of the five double-hull vessels in the
chemical trade as of June 30, 2002. The chemical tankers are double-bottom
ships. The higher day rate environment for petroleum tankers is carrying over
into the chemical tanker market as charterers look for quality tonnage to
replace older single-hull vessels.
The Company's tanker fleet operates on either long-term time charters,
bareboat charters, or pursuant to short-term arrangements. During the six months
ended June 30, 2002, six of the Company's tankers operated under long-term
contracts. As a result of the change from spot trading to time charters for two
tankers and the bareboat charter of a third tanker, the Company expects that
revenue and operating expenses will decline in 2002. However, operating income
should increase to reflect the improved contract terms.
The following table sets forth the number of vessels and revenue for
the Company's petroleum and chemical product carriers:
Six Months Ended June 30,
-----------------------------
2002 2001
-------------- ------------
Number of vessels owned............... 10 10
Revenue (in thousands)................ $ 57,880 $ 56,495
INLAND TUGS AND BARGES. Revenue from the Company's Sun State Marine
Services subsidiary, were derived primarily from contracts of affreightment with
Colonial Oil Industries (formerly known as Steuart Petroleum Co.) and Florida
Power & Light (FPL) and from ship maintenance, repair, drydocking and
construction activities. Revenue from all of Sun State's operations totaled $3.8
and $5.7 million, respectively, for the six months ended June 30, 2002 and 2001.
The decrease in Sun State revenue is due to the sale of the marine
transportation tug and barge assets on March 22, 2002. On July 9, 2002, the
Company closed on the sale of the drydock and related shipyard equipment of Sun
State for $450,000 in cash, and recorded a gain of approximately $88,000.
Seabulk Towing
Revenue 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 general
trade activity in the region served by the port.
23
The following table summarizes certain operating information for the
Company's tugs:
Six Months Ended June 30,
-------------------------------
2002 2001
----------------- -------------
Number of tugs at end of period........ 31 31
Revenue (in thousands)................. $ 15,885 $ 17,038
Towing revenue decreased by 6.8% for the six months ended June 30, 2002
compared to the same period in the prior year. The decrease in revenue is due to
reduced vessel traffic in certain of the Company's ports, reflecting the
slowdown in international trade. The Company expects that towing revenue in
fiscal 2002 will decrease marginally compared to fiscal 2001 due to competition
and a less than robust economy.
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, maintenance and repairs, fuel, insurance and charter hire. For general
information concerning these categories of operating expenses as well as capital
expenditures, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations, Overview of Operating Expenses and Capital
Expenditures" in the 2001 Form 10-K.
24
Results of Operations
The following table sets forth certain selected financial data and
percentages of revenue for the periods indicated:
Three Months ended June 30,
----------------------------------------------------
2002 2001
------------------------ ------------------------
(in millions)
Revenue.............................................. $ 81.6 100% $ 91.4 100%
Operating expenses................................... 46.7 57 48.6 53
Overhead expenses.................................... 9.7 12 9.1 10
Depreciation, amortization and drydocking............ 16.6 21 14.8 16
---------- ---------- ---------- ----------
Income from operations............................... $ 8.5 10% $ 18.9 21%
========== ========== ========== ==========
Interest expense, net................................ $ 12.3 15% $ 14.1 15%
========== ========== ========== ==========
Other income, net.................................... $ 1.1 0% $ (0.3) 0%
========== ========== =========== ==========
Net loss............................................. $ (4.4) 5% $ 2.8 3%
========== ========== =========== ==========
Three months ended June 30, 2002 compared with the three months ended June 30,
2001
REVENUE. Revenue decreased 10.7% to $81.6 million for the three months
ended June 30, 2002 from $91.4 million for the three months ended June 30, 2001.
Offshore energy support revenue decreased 12.8% to $44.1 million for
the three months ended June 30, 2002 from $50.5 million for the same period in
2001, primarily due to reduced revenue from the U.S. Gulf of Mexico offset in
part by increased revenue from the West Africa operating region. Revenue from
the U.S. Gulf of Mexico decreased during the three months ended June 30, 2002
compared to the same period in 2001 primarily due to reduced exploration and
production activity in response to low natural gas prices and reduced demand.
The increase in West Africa revenue was driven by higher day rates and an
expanded vessel count as offshore exploration and production activity remained
strong. The Company took advantage of the expanding West Africa market by
mobilizing one of its Gulf of Mexico supply boats to West Africa during the
quarter.
Marine transportation revenue decreased 8.2% to $29.7 million for the
three months ended June 30, 2002 from $32.3 million for the three months ended
June 30, 2001. This decrease is primarily due to the change from spot trading to
time charters for two tankers and the bareboat charter of a third tanker, and
the sale of Sun State marine transportation assets during the first quarter of
2002.
Towing revenue decreased 7.7% to $7.9 million for the three months
ended June 30, 2002 from $8.6 million for the three months ended June 30, 2001.
The decrease in revenue is due to reduced vessel traffic in certain of the
Company's ports, reflecting the slowdown in international trade. The Company
expects that towing revenue in fiscal 2002 will decrease marginally compared to
fiscal 2001 due to competition and a less than robust economy.
OPERATING EXPENSES. Operating expenses decreased 3.8% to $46.7 million
for the three months ended June 30, 2002 from $48.6 million for the same period
in 2001. The decrease is primarily due to the change from spot trading to time
25
charters for two tankers and the bareboat charter of a third tanker, and the
sale of Sun State marine transportation assets in the first quarter. The
decrease in expenditures is offset by an increase in operating expenses in the
West Africa region due to higher crew payroll and repair and maintenance
expenditures. As a percentage of revenue, operating expenses increased to 56.9%
for the three months ended June 30, 2002 from 53.0% for the 2001 period.
OVERHEAD EXPENSES. Overhead expenses increased 6.4% to $9.7 million for
the three months ended June 30, 2002 from $9.1 million for the same period in
2001, primarily due to increased salaries and benefits and office expense,
offset in part by decreases in other overhead. The decrease in other overhead
expenses is primarily due to lower charges for rent and other miscellaneous
items as a result of the elimination of non-essential services and the
consolidation of administrative functions. As a percentage of revenue, overhead
expenses increased to 11.9% for the three months ended June 30, 2002 compared to
10.0% for the same period in 2001.
DEPRECIATION, AMORTIZATION AND DRYDOCKING. Depreciation, amortization
and drydocking increased 12.2% to $16.6 million for the three months ended June
30, 2002 from $14.8 million for the three months ended June 30, 2001, primarily
due to higher planned drydocking expenditures for offshore energy support
vessels and tankers during the second half of 2001 compared to the second half
of 2000. Since there were larger 2001 drydock expenditures, drydock amortization
expense is also higher as drydock costs are amortized on a straight-line basis
over the period to the next drydocking (generally 30 months).
NET INTEREST EXPENSE. Net interest expense decreased 12.6% to $12.3
million for the three months ended June 30, 2002 from $14.1 million for the same
period in 2001. The decrease is primarily due to the combination of lower
interest rates on variable rate debt and lower outstanding debt balances under
our term loans and revolving credit facility.
OTHER INCOME, NET. Other income, net increased to $1.1 million for the
three months ended June 30, 2002 compared to other income, net of $(0.3) million
for the same period in 2001, primarily due to a gain on asset sales in 2002
compared to a loss on asset sales in the 2001 period.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2001
REVENUE. Revenue decreased 4.6% to $164.8 million for the six months
ended June 30, 2002 from $172.8 million for the six months ended June 30, 2001.
Offshore energy support revenue decreased 6.8% to $87.4 million for the
six months ended June 30, 2002 from $93.7 million for the same period in 2001,
primarily due to reduced revenue from the U.S. Gulf of Mexico offset in part by
higher revenue from the West Africa operating region. Revenue from the U.S. Gulf
of Mexico decreased during the six months ended June 30, 2002 compared to the
same period in 2001 primarily due to reduced exploration and production activity
in response to low natural gas prices and reduced demand. The increase in West
Africa revenue was driven by higher utilization and an expanded vessel count as
offshore exploration and production activity remained strong. The Company took
advantage of the expanding West Africa market by (1) mobilizing three of its
Gulf of Mexico supply boats and one Southeast Asia utility boat for redeployment
to West Africa and (2) reactivating one anchor-handling tug from "held-for-sale"
status to active status in West Africa during the first half of 2002.
Marine transportation revenue remains substantially the same at $61.6
million for the six months ended June 30, 2002 as compared to $62.1 million for
the six months ended June 30, 2001.
26
Towing revenue decreased by 6.8% to $15.9 million for the six months
ended June 30, 2002 from $17.0 million for the six months ended June 30, 2001.
The decrease in revenue was due to reduced vessel traffic in certain of the
Company's ports, reflecting the slowdown in international trade. The Company
expects that towing revenue in fiscal 2002 will decrease marginally compared to
fiscal 2001 due to competition and a less than robust economy.
OPERATING EXPENSES. Operating expenses decreased 5.0% to $92.5 million
for the six months ended June 30, 2002 from $97.4 million for the same period in
2001, primarily due to the change from spot trading to time charters for two
tankers and the bareboat charter of a third tanker, and the sale of Sun State
marine transportation assets in the first quarter. As a percentage of revenue,
operating expenses decreased to 55.9% for the six months ended June 30, 2002
from 56.4% for the 2001 period.
OVERHEAD EXPENSES. Overhead expenses decreased 3.6% to $18.7 million
for the six months ended June 30, 2002 from $19.4 million for the same period in
2001, primarily due to decreased professional fees and other overhead expense,
offset in part by increases in salaries and benefits. The decrease in other
overhead expenses is primarily due to lower charges for rent and other
miscellaneous items as a result of the elimination of non-essential services and
the consolidation of administrative functions. As a percentage of revenue,
overhead expenses increased to 11.4% for the six months ended June 30, 2002
compared to 11.2% for the same period in 2001.
DEPRECIATION, AMORTIZATION AND DRYDOCKING. Depreciation, amortization
and drydocking increased 15.5% to $33.2 million for the six months ended June
30, 2002 from $28.7 million for the six months ended June 30, 2001, primarily
due to higher planned drydocking expenditures for offshore energy support
vessels and tankers during the second half of 2001 compared to the second half
of 2000. Since there were larger 2001 drydock expenditures, drydock amortization
expense is also higher as drydock costs are amortized on a straight-line basis
over the period to the next drydocking (generally 30 months).
NET INTEREST EXPENSE. Net interest expense decreased 12.9% to $24.9
million for the six months ended June 30, 2002 from $28.6 million for the same
period in 2001. The decrease is primarily due to the combination of lower
interest rates on variable rate debt and lower outstanding debt balances under
our term loans and revolving credit facility.
OTHER INCOME, NET. Other income, net increased to $1.2 million for the
six months ended June 30, 2002 compared to the same period in 2001, primarily
due to a larger gain on asset sales in 2002 compared to the same period in 2001.
Liquidity and Capital Resources
PROPOSED RECAPITALIZATION. The Company has entered into agreements for
a series of proposed transactions that, if consummated, will substantially
affect the liquidity and financial position of the Company.
On June 13, 2002, the Company announced the signing of a definitive
agreement with DLJ Merchant Banking Partners III, L.P., a CSFB Private Equity
fund, and affiliated entities, and Carlyle/Riverstone Global Energy and Power
Fund I, L.P. and affiliated entities, for the private placement of 12.5 million
shares of newly issued Seabulk common stock at a cash price of $8.00 per share.
The $100 million investment would give the new investors approximately 51% of
the pro forma, fully diluted common shares of the Company and majority
representation on its Board of Directors. The investment is subject to
shareholder approval, the refinancing of the Company's senior credit facility,
certain regulatory approvals and satisfaction of other customary conditions.
27
The new investors have also agreed to purchase, for $8.00 per share,
all of the Company's common stock and common stock purchase warrants
beneficially owned by accounts managed by Loomis, Sayles & Co., L.P., an
SEC-registered investment advisor. These accounts, which collectively represent
approximately 48% of the Company's outstanding shares of common stock, currently
hold approximately 5.2 million shares (excluding shares issuable upon exercise
of warrants). Loomis has agreed to approve the investment transaction and the
related amendments to the Company's Certificate of Incorporation, subject to
approvals and certain other conditions customary for transactions of this type.
Taken together, the two transactions would give the new investors
approximately 73% of the pro forma, fully diluted shares of the Company.
The Company also announced that it has signed a commitment letter with
Fortis Capital Corp. and NIB Capital Bank N.V., as arrangers, for a $180 million
senior secured credit facility, which would replace the Company's existing
facility. The new credit facility will consist of an $80 million term loan and a
$100 million revolving credit facility and will have a five-year maturity.
The term loan portion of the new credit facility will be used to redeem
the Company's outstanding 12 1/2% Senior Secured Notes due 2007. The revolving
portion of the credit facility will be subject to semi-annual reductions
commencing six months after closing. The new credit facility will be secured by
first liens on substantially all of the Company's vessels (excluding vessels
financed with U.S. Maritime Administration Title XI financing) and will be
guaranteed by substantially all of the subsidiaries of the Company. The new
credit facility will be subject to various financial covenants, including
minimum adjusted tangible net worth requirements, minimum ratios of adjusted
EBITDA to adjusted interest expense, and a maximum ratio of adjusted funded debt
to adjusted EBITDA. The Company will also be required to maintain a minimum fair
market value of collateralized assets of at least 175% of outstanding borrowings
under the new credit facility, based upon appraisals which may be requested not
more than once during any 12-month period.
In connection with the closing of the new investment, the Company
expects to redeem or repurchase all of its outstanding 12 1/2% Senior Secured
Notes due 2007. In addition, and as a condition to the closing of the new
investment, President and Chief Executive Officer Gerhard E. Kurz has agreed to
a five-year extension of his employment contract with the Company.
Proceeds from the new equity investment and new bank credit facility,
totaling approximately $280 million before payment of fees and expenses of the
transaction, will be used to repay the Company's existing bank debt, repurchase
or redeem its outstanding Senior Notes, and provide growth capital for new
initiatives.
It is contemplated that, in connection with the new investment, the new
investors would enter into a stockholders agreement together with the Company
and Mr. Kurz.
A shareholder vote will be required to approve the new share issuance
under Nasdaq Stock Market rules and to approve the necessary amendments to the
Company's Certificate of Incorporation. The amendments to the Certificate of
Incorporation include several provisions intended, for certain periods following
closing, to ensure independent director oversight of affiliated party
transactions and to provide certain protective rights to minority shareholders.
Certain regulatory approvals are also required. If the approvals are obtained,
closing of the transaction is expected to take place by the end of the third
quarter.
28
CASH FLOWS. Net cash provided by operating activities totaled $34.8
million for the six months ended June 30, 2002 compared to $25.3 million for the
same period in 2001. The significant increase in cash provided by operating
activities is primarily a result of timely collection of customer invoices and
collections of outstanding insurance claims. The average number of days
outstanding for trade accounts receivable was 51 days at June 30, 2002 compared
to 55 days at June 30, 2001. During the first half of 2002, the Company received
approximately $7.5 million in collections from our protection and indemnity
insurance club for settlement of outstanding insurance claims.
Net cash used in investing activities was $3.4 million for the six
months ended June 30, 2002 compared to $12.5 million for the same period in
2001. The reduction of cash used in investing activities is due primarily to a
larger amount of proceeds from asset sales. In particular, on March 22, 2002,
the Company closed on the sale of the towboat/barge assets of Sun State for $3.8
million in cash.
Net cash used in financing activities for the six months ended June 30,
2002 was $28.3 million compared to $19.5 million for the same period in 2001.
The increase in cash used in financing activities is attributable to larger
payments on the term loans from the proceeds of asset sales.
RECENT EXPENDITURES AND FUTURE CASH REQUIREMENTS. During the first six
months of 2002, the Company incurred $14.3 million in capital expenditures for
fleet improvements and drydocking costs. For the remainder of 2002, these
capital expenditures are expected to aggregate $10.7 million. Total 2002
expenditures of $25.0 million will substantially cover all of the Company's
drydocking requirements.
Long-term debt and the Senior Notes consisted of the following at June
30, 2002:
2002 Outstanding Balance
Year-to-Date as of Interest Rate as of
Facility Payments June 30, 2002 Maturity August 1, 2002
-------- -------- ------------- -------- --------------
Tranche A term loan $7.20 million $45.2 million 2004 5.12%
Tranche B term loan $1.15 million $23.5 million 2005 5.62%
Tranche C term loan $3.64 million $74.4 million 2006 6.12%
Amendment fee note $4.79 million $0.00 million 2002 15.00%
Senior Notes $0.00 million $83.0 million(1) 2007 13.50%
Title XI Financing Bonds $3.55 million $238.1 million 2005 to 2024 5.86% to 10.10%
Other notes payable $1.68 million $26.3 million 2003 to 2011 Various
Revolving credit facility $4.28 million(2) $4.7 million 2004 7.00%
- ----------------------
(1) Outstanding balance is net of unamortized discount of $14.4 million
(2) Represents net payments
The terms of the term loans and revolving credit facility are contained
in the credit facility between the Company and the financial institutions. For
general information concerning the term loans and revolving credit facility, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations, Liquidity and Capital Resources" in the 2001 Form 10-K.
In addition to the revolver balance, there are $1.2 million in
outstanding letters of credit as of June 30, 2002. As a result, the unused
portion of the revolver was $11.6 million at June 30, 2002. With the bank's
approval, the Company can borrow an additional $7.5 million on the revolver.
However, there can be no assurance that the bank would approve such additional
borrowings under the revolver.
29
On March 15, 2002, a sixth amendment to the credit facility was
executed, which is expected to allow the Company to maintain compliance with the
financial covenants of its existing credit facility until it is replaced. The
amendment reduced the working capital ratio for 2002 and for the life of the
term loans and reduced the fixed charge ratio in 2002, with a gradual increase
over the remaining life of the term loans.
On August 9, 2002, the Company executed the seventh amendment to the
credit facility which waived the Company's non-compliance with its working
capital covenants at December 31, 2001, which occurred as a result of the
restatement discussed in Note 2.
The senior secured notes did not receive by April 15, 2000 the minimum
credit rating from the rating agencies required under the note indenture. As a
result, the interest rate on the notes increased from 12.5% to 13.5% effective
December 15, 1999. The indenture requires that such additional interest be paid
in the form of additional notes, which notes in the aggregate principal amount
of $485,388 were issued for the six months ended June 30, 2002. The Company is
currently seeking the required ratings that would return the interest rate to
12.5%.
The Company is required to make deposits to a U.S. Maritime
Administration Title XI reserve fund based on a percentage of net income
attributable to the operations of the five double-hull tankers, as defined by
the Title XI bond agreement. Cash held in a Title XI reserve fund is invested by
the trustee of the fund, and any income earned thereon is either paid to the
Company or retained in the reserve fund. Withdrawals from the Title XI reserve
fund may be made for limited purposes, subject to prior approval from MARAD. To
date, no deposits have been required. Additionally, according to the Title XI
Reserve Fund and Financial Agreement, the Company is restricted from formally
distributing excess cash from the operations of the five double-hull tankers
until certain working capital ratios have been reached and maintained.
Accordingly, at June 30, 2002, the Company had approximately $12.6 million in
cash and cash equivalents that are restricted for use from the operations of the
five double-hull tankers and cannot be used to fund the Company's general
working capital requirements without MARAD approval. Based on current
projections, the Company expects to meet the working capital requirements under
the Title XI Reserve Fund and Financial Agreement in the first quarter of 2003
and may then begin to formally distribute available excess cash.
The Company's capital requirements arise primarily from its need to
service debt, fund working capital and maintain and improve its vessels. The
Company's expected 2002 capital requirements for debt service, vessel
maintenance and fleet improvements total approximately $106.4 million. The
Company expects that cash flow from operations and proceeds from the sale of
non-strategic assets will continue to make significant contributions toward
working capital and capital requirements. If operating cash flow is not
adequate, the Company believes that the amounts available under the revolving
credit facility will be sufficient to meet its capital requirements.
Management has taken new initiatives to improve profitability and
liquidity during the first half of 2002. Due to the expanding market in West
Africa, the Company has mobilized three of its Gulf of Mexico supply boats and
one Southeast Asia utility boat for redeployment to West Africa. Additionally,
the Company reactivated one anchor-handling tug from "held-for-sale" status and
placed the boat into service in West Africa. At the end of December 2001,
low-rate voyage charters for three of the Company's tankers expired and were
replaced by two time charters and a ten-year bareboat charter at substantially
higher rates. During the first half of 2002, the Company sold the marine
transportation assets and marine terminal assets of Sun State Marine Services,
Inc. and Lone Star Marine Services, Inc. for $3.8 million and $3.0 million,
respectively (see Note 3). In addition, the Company sold 13 offshore energy
support vessels during the first half of 2002 for an aggregate total of $5.4
million.
30
While management believes that the possibility exists that unforeseen
events or business conditions, including deterioration in its markets, could
prevent the Company from meeting targeted operating results and its financial
covenants. If unforeseen events or business conditions prevent the Company from
meeting targeted operating results, the Company has alternative plans including
additional asset sales, additional reductions in operating expenses and deferral
of capital expenditures, which should enable it to satisfy essential capital
requirements. While the Company believes it could successfully complete
alternative plans, if necessary, there can be no assurance that such
alternatives would be available or that the Company would be successful in their
implementation.
Inflation
The rate of inflation has not had a material impact on our operations.
Moreover, if inflation remains at its recent levels, it is not expected to have
a material impact on our operations for the foreseeable future.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No.
142, GOODWILL AND OTHER INTANGIBLE ASSETS, which establishes a new method of
testing goodwill for impairment using a fair value-based approach and does not
permit amortization of goodwill as previously required by Accounting Principles
Board (APB) Opinion No. 17, INTANGIBLE ASSETS. An impairment loss would be
recorded if the recorded goodwill exceeds its implied fair value. The Company
adopted SFAS No. 142 effective January 1, 2002. As the Company does not have any
recorded goodwill or other intangible assets, the adoption of this statement had
no impact on its financial statements.
Also in July 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS, which requires companies to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The Company adopted SFAS No. 143 as of January 1, 2002 with no
material financial statement impact.
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation of discontinued operations to include more disposal
transactions. SFAS No. 144 supersedes SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and
reporting provisions of APB Opinion No. 30. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. The Company adopted SFAS No. 144 as of
January 1, 2002 with no material financial statement impact.
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB
STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO. 14, AND TECHNICAL
CORRECTIONS, which eliminates the requirement that gains and losses from the
extinguishment of debt aggregated and, if material, classified as extraordinary
item, net of the related income tax effect and eliminates an inconsistency
between the accounting for sale-leaseback transactions and certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. Generally, SFAS No. 145 is effective for transactions occurring
after May 15, 2002. The adoption of the standard will have no impact to the
Company.
31
In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES, which addresses the financial
accounting and reporting for costs associated with exit or disposal activities
SFAS No. 146 is effective for fiscal years beginning after December 31, 2002.
The adoption of the standard will have no impact on the Company.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
Information about the Company's exposure to market risk was disclosed
in its 2001 Annual Report on Form 10-K, which was filed with the Securities and
Exchange Commission on March 29, 2002. There have been no material quantitative
or qualitative changes in market risk exposures since the date of that filing.
32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information concerning certain legal proceedings see Note 8 of the
financial statements.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on May 14, 2002. At
the meeting, the shareholders elected the following individuals to three year
terms as Class III members of the Board of Directors: Peter H. Cressy, Gerhard
E. Kurz and Donald R. Shepherd.
The shareholders also approved amendment of the Company's Amended and
Restated Equity Ownership Plan to increase the number of shares of the Company's
common stock available for issuance under the Plan from 800,000 to 1,300,000.
The voting results of the election of directors, amendment of the Plan
and the appointment of Ernst & Young LLP as independent public auditors for the
year 2002 voted upon at the meeting are as follows:
Election of Directors:
Nominee Votes For Authority Withheld
---------------------- ------------------ ------------------
Peter H. Cressy 8,959,155 139,413
Gerhard E. Kurz 7,389,324 1,709,244
Donald R. Shepherd 8,959,255 139,313
To approve amendment of the Company's Amended and Restated Equity
Ownership Plan to increase the number of shares of the Company's common stock
available for issuance under the Plan from 800,000 to 1,300,000:
Votes For Votes Against Votes Abstaining
---------------------- ------------------ ----------------
8,481,468 608,410 8,690
To ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants for the year ending December 31, 2002:
Votes For Votes Against Votes Abstaining
---------------------- ------------------ ----------------
9,079,139 19,429 0
33
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 19, 2002.
34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEABULK INTERNATIONAL, INC.
/s/ MICHAEL J. PELLICCI
- -------------------------------------
Michael J. Pellicci
VP - Finance and Corporate Controller
(Principal Accounting Officer)
Date: August 14, 2002
35