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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 JuneSeptember 30, 2003
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. YES [X] NO [ ]
THERE WERE 23,317,73523,336,404 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE,
OUTSTANDING AT AUGUSTNOVEMBER 1, 2003.
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SEABULK INTERNATIONAL, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)..................................................1..............................................1
Condensed Consolidated Balance Sheets at JuneSeptember 30, 2003 and
December 31, 2002........................12002...............................................................................1
Condensed Consolidated Statements of Operations for the three and
sixnine months ended JuneSeptember 30, 2003 and
2002..............................................................................22002............................................................................................2
Condensed Consolidated Statements of Cash Flows for the sixnine months ended
JuneSeptember 30, 2003 and 2002..............................................................................32002.....................................................................3
Notes to Condensed Consolidated Financial Statements................................................4Statements............................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................18Operations...............20
Item 3. Quantitative and Qualitative Disclosure of Market Risk..................................................29Risk..............................................31
Item 4. Controls and Procedures................................................................................29Procedures............................................................................31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................................30Proceedings...................................................................................32
Item 2. Changes in Securities ..................................................................................30..............................................................................32
Item 3. Default Upon Senior Securities..........................................................................30Securities......................................................................32
Item 4. Submission of Matters to a Vote of Security Holders.....................................................30Holders.................................................32
Item 5. Other Information.......................................................................................31Information...................................................................................32
Item 6. Exhibits and Reports on Form 8-K........................................................................31
Signature........................................................................................................328-K....................................................................32
Signature....................................................................................................34
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)
JUNESEPTEMBER 30, DECEMBER 31,
2003 2002
--------- ---------------------- ------------
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 49,07847,038 $ 37,188
Restricted cash .................................................... 1,337 1,337
Trade accounts receivable, net of allowance for doubtful accounts of
$4,652$4,945 and $5,243 in 2003 and 2002, respectively .................. 44,80346,771 45,987
Other receivables .................................................. 16,63918,781 13,485
Marine operating supplies .......................................... 7,6627,791 8,139
Prepaid expenses and other ......................................... 3,6832,660 2,702
--------- ---------
Total current assets ............................................. 123,202124,378 108,838
Vessels and equipment, net ............................................ 540,637531,612 545,169
Deferred costs, net ................................................... 33,75143,493 38,228
Other ................................................................. 11,25310,423 10,860
--------- ---------
Total assets ..................................................... $ 708,843709,906 $ 703,095
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 8,93910,747 $ 11,343
Current maturities of long-term debt ............................... 23,69021,076 24,315
Current obligations under capital leases ........................... 3,5043,514 3,005
Accrued interest ................................................... 1,7357,072 1,733
Accrued liabilities and other ...................................... 45,40148,446 42,181
--------- ---------
Total current liabilities ........................................ 83,26990,855 82,577
Long-term debt ........................................................ 405,964402,229 410,858
Obligations under capital leases ...................................... 34,01933,137 28,748
Other liabilities ..................................................... 3,4633,338 3,489
--------- ---------
Total liabilities ................................................ 526,715529,559 525,672
Commitments and contingencies
Minority interest ..................................................... 848789 623
Stockholders' equity:
Preferred stock, no par value--authorized 5,000; none issued and
outstanding ...................................................... -- --
Common stock -- $.01 par value, authorized 40,000 shares; 23,31823,334
and 23,124 shares issued and outstanding in 2003 and 2002,
respectively ................................................... 233 231
Additional paid-in capital ......................................... 258,981259,068 258,016
Unearned compensation .............................................. (832)(765) (99)
Accumulated deficit ................................................ (77,102)(78,978) (81,348)
--------- ---------
Total stockholders' equity ....................................... 181,280179,558 176,800
--------- ---------
Total liabilities and stockholders' equity ..................... $ 708,843709,906 $ 703,095
========= =========
SEE ACCOMPANYING NOTES.NOTES TO FINANCIAL STATEMENTS
1
SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
-------------------------- ------------------------------------------------------
2003 2002 2003 2002
-------- ----------------- --------- --------- ---------
Revenue ............................................... $ 79,92479,670 $ 81,63980,369 $ 157,153236,823 $ 164,838245,207
Operating expenses:
Crew payroll and benefits .......................... 20,939 21,854 42,319 44,63021,195 22,098 63,514 66,728
Charter hire ....................................... 1,923 1,912 3,649 3,7092,285 2,162 5,934 5,871
Repairs and maintenance ............................ 6,464 8,041 12,197 14,8056,647 6,768 18,844 21,573
Insurance .......................................... 2,739 2,603 4,943 5,3763,347 2,408 8,290 7,784
Fuel and consumables ............................... 6,106 7,586 12,245 14,9156,490 6,707 18,735 21,622
Port charges and other ............................. 4,410 4,744 8,600 9,046
-------- --------4,420 3,773 13,020 12,819
--------- --------- --------- ---------
Total operating expenses ......................... 42,581 46,740 83,953 92,48144,384 43,916 128,337 136,397
Overhead expenses:
Salaries and benefits .............................. 6,023 5,727 11,890 11,5545,663 5,545 17,553 17,099
Office ............................................. 1,198 1,309 2,417 2,5931,264 1,180 3,681 3,773
Professional fees .................................. 694 858 1,604 1,443846 1,064 2,450 2,507
Other .............................................. 1,513 1,832 2,847 3,068
-------- --------2,001 2,232 4,848 5,300
--------- --------- --------- ---------
Total overhead expenses .......................... 9,428 9,726 18,758 18,6589,774 10,021 28,532 28,679
Depreciation, amortization and drydocking ............. 15,923 16,633 32,417 33,191
-------- --------16,285 16,407 48,702 49,598
Gain on disposal of assets, net ....................... 250 287 1,433 1,641
--------- --------- --------- ---------
Income from operations ................................ 11,992 8,540 22,025 20,5089,477 10,312 32,685 32,174
Other (expense) income:
Interest expense ................................... (8,238) (12,365) (16,301) (25,078)(9,109) (11,617) (25,410) (36,695)
Interest income .................................... 123 75 209 13791 71 300 208
Minority interest in gains (losses) of subsidiaries ......... (199) (216) (227) (117)
Gain61 56 (166) (61)
Loss on disposalearly extinguishment of assets, net .................... 386 1,482 1,183 1,354debt ............... (1,692) (27,823) (1,692) (27,823)
Other .............................................. (88) (142) (65) (49)
-------- --------528 23 463 (26)
--------- --------- --------- ---------
Total other expense, net ......................... (8,016) (11,166) (15,201) (23,753)
-------- --------(10,121) (39,290) (26,505) (64,397)
--------- --------- --------- ---------
Income (loss) before provision for income taxes ....... 3,976 (2,626) 6,824 (3,245)(644) (28,978) 6,180 (32,223)
Provision for income taxes ............................ 1,316 1,741 2,578 3,408
-------- --------1,232 1,602 3,810 5,010
--------- --------- --------- ---------
Net income (loss) ................................ $ 2,660(1,876) $ (4,367)(30,580) $ 4,2462,370 $ (6,653)
======== ========(37,233)
========= ========= ========= =========
Net income (loss) per common share:
Net income (loss) per common share - basic ......... $ 0.11(0.08) $ (0.41)(2.37) $ 0.180.10 $ (0.63)
======== ========(3.29)
========= ========= ========= =========
Net income (loss) per common share - diluted ....... $ 0.11(0.08) $ (0.41)(2.37) $ 0.180.10 $ (0.63)
======== ========(3.29)
========= ========= ========= =========
Weighted average common shares outstanding - basic . 23,182 10,529 23,142 10,494
======== ========23,199 12,899 23,161 11,304
========= ========= ========= =========
Weighted average common shares outstanding - diluted 23,640 10,529 23,538 10,494
======== ========23,199 12,899 23,527 11,304
========= ========= ========= =========
SEE ACCOMPANYING NOTES.NOTES TO FINANCIAL STATEMENTS
2
SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIXNINE MONTHS ENDED
JUNESEPTEMBER 30,
--------------------------
2003 2002
-------- ----------------- ---------
OPERATING ACTIVITIES:
Net income (loss) ........................................................................................................................ $ 4,2462,370 $ (6,653)(37,233)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of vessels and equipment ................. 21,391 22,139................... 31,986 32,975
Amortization of drydocking costs ....................................... 11,026 11,052......................................... 16,716 16,623
Provision for (recovery of) bad debts .................................. (351) 147.................................... 161 (100)
Gains on disposal of assets, ............................................ (1,183) (1,354)net ......................................... (1,433) (1,641)
Loss on early extinguishment of debt ..................................... 1,692 27,823
Amortization of discount on long-term debt and financing costs ......... 748 2,378........... 1,123 3,876
Minority interest in gains of subsidiaries ............................. 227 117
Senior and notes............................... 166 61
Notes payable issued for payment of senior note accrued interest and fees -- 626
Other non-cash items ................................................... 105 146..................................................... 172 281
Changes in operating assets and liabilities:
Trade accounts and other receivables ............................... (1,968) 5,661................................. (6,590) 10,364
Other current and long-term assets ................................. (1,317) 2,557................................... 534 3,905
Accounts payable and other liabilities ............................. 588 (2,036)
-------- --------............................... 10,061 (2,551)
--------- ---------
Net cash provided by operating activities ........................ 33,512 34,780.......................... 56,958 55,009
INVESTING ACTIVITIES:
Expenditures for drydocking ................................................. (7,103) (12,072)................................................... (19,833) (16,573)
Proceeds from disposals of assets ........................................... 8,259 10,882............................................. 8,647 11,587
Purchases of vessels and equipment .......................................... (22,535) (2,204)............................................ (24,208) (3,066)
Investment in Joint Venture .................................................................................................... (400) --
-------- ----------------- ---------
Net cash used in investing activities .................................... (21,779) (3,394)...................................... (35,794) (8,052)
FINANCING ACTIVITIES:
Net payments of revolving credit facility ........................................................................ -- (4,281)
Payments(9,000)
(Payments) proceeds of existingprior credit facility ........................................ (5,000).................................. (148,179) 178,800
Proceeds from 9.5% senior notes ............................................... 150,000 --
Proceeds from long-term debt .................................................................................................. 6,525 --
Payments of long-term debt .................................................. (3,349) (18,604).................................................... (4,392) (163,457)
Payments of prior senior notes ................................................ -- (101,499)
Proceeds of private placement, net of issuance costs .......................... -- 91,250
Payments of Title XI bonds .................................................. (3,695) (3,547).................................................... (15,552) (3,997)
Payments of deferred financing costs ........................................under prior credit facility .............. (61) (3,949)
Payments of deferred financing costs under 9.5% senior notes and amended credit
facility ...................................................................... (4,607) --
Net proceeds from sale leaseback .......................................................................................... 13,274 --
Payments of obligations under capital leases ................................ (7,666) (1,576).................................. (8,538) (2,275)
Capitalized issue costs related to issuance of common stock .................................... (27) (328)--
Proceeds from exercise of stock options ..................................... 155 --....................................... 242 42
Proceeds from exercise of warrants ...................................................................................... 1 1
-------- ----------------- ---------
Net cash provided by (used in)used in financing activities ...................... 157 (28,335)
-------- --------...................................... (11,314) (14,084)
--------- ---------
Change in cash and cash equivalents ......................................... 11,890 3,051........................................... 9,850 32,873
Cash and cash equivalents at beginning of period .......................................................... 37,188 11,631
-------- ----------------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................................................................... $ 49,07847,038 $ 14,682
======== ========44,504
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Senior and notes payable issued for payment of accrued interest and fees .... $ -- $ 626
======== ========
Vessels exchanged for drydock expenditures ...................................................................... $ -- $ 900
======== ========
Reactivation of two vessels previously classified as assets held for sale ... $ -- $ 1,682
======== ================= =========
SEE ACCOMPANYING NOTES.NOTES TO FINANCIAL STATEMENTS
3
SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2003
(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. The consolidated balance sheet at December 31,
2002 has been derived from the audited financial statements at that date. The
unaudited condensed consolidated financial statements and the consolidated
balance sheet 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 for the fiscal year ended December
31, 2002. Except net income (loss), the Company has no material components of
comprehensive income (loss).
Certain financial statement reclassifications have been made to conform
prior period data to the 2003 financial statement presentation.
2. SENIOR NOTES OFFERING
On August 5, 2003, the Company completed the offering of $150 million
of Senior Notes ("Notes") due 2013 through a private placement eligible for
resale under Rule 144A and Regulation S. The net proceeds of the offering were
used to repay a portion of the Company's indebtedness under its existing $180 million
credit facility. Interest on the Notes will be payable semi-annually in arrears,
commencing on February 15, 2004. The average interest rate on the Notes sold to private
institutional investors is 9.50%. The Notes are senior unsecured obligations
guaranteed by certain of the Company's U.S. subsidiaries. The Notes are subject
to certain covenants, including, among other things, limiting the Parent's and
certain U.S. subsidiaries' ability to incur additional indebtedness or issue
preferred stock, pay dividends to stockholders, and make investments or sell
assets. On October 31, 2003 the Company filed a registration statement with the
SEC to register substantially identical senior notes to be exchanged for the
Notes pursuant to a registration rights agreement, so that the notes may be
eligible for trading in the public markets. On November 13, 2003, the
registration statement was declared effective and the Company commenced the
exchange offer. The exchange offer will expire on December 16, 2003, unless
extended by the Company.
In connection with the Notes offering, the Company amended and restated
its existing $180 million credit facility. The amended credit facility consists of an $80
million revolving credit facility and has a five-year maturity. The amended
credit facility is subject to semi-annual reductions commencing February 5,
2004. It is secured by first liens on certain of the Company's vessels
(excluding vessels financed with Title XI financing and some of its other
vessels), second liens on two vessels, and stock of certain subsidiaries and
will be guaranteed by certain subsidiaries.subsidiaries (see Note 12). The amended credit
facility is subject to various financial covenants, including minimum ratios of
adjusted EBITDA to adjusted interest expense and a minimum ratio of adjusted
funded debt to adjusted EBITDA.EBITDA, minimum adjusted tangible net worth, and minimum
fair market value of the Company's vessels.
3. EARLY EXTINGUISHMENT OF DEBT
In connection with amending its $180 million credit facility, the
Company wrote off approximately 45% of the unamortized financing costs of
4
3.the existing credit facility. The total amount written off was approximately
$1.1 million. In connection with the Senior Notes offering, the company paid
$11.2 million to retire the debt of certain vessels financed with Title XI
financing. As a result of this early retirement, the Company wrote off $400,000
of unamortized financing costs, and paid an early retirement premium of
$226,000.
4. VESSEL ACQUISITIONS
In January 2003, the Company took delivery of the SEABULK AFRICA, a
newbuild, state-of-the art, 236-foot, 5,500 horsepower UT-755L platform supply
vessel. The vessel has joined the Company's West African fleet. The SEABULK
AFRICA and related improvements were acquired for cash of approximately $17.8
million and financed in April 2003 by means of a sale leaseback arrangement with
TransAmerica Capital for a lease term of 10 years, under which the Company will
have an option to acquire the vessel after 8 years at a fixed price. The lease
will be accounted for as a capital lease.
The Company also took delivery of two newbuild vessels as bareboat
charterer in February and March 2003. The SEABULK BADAMYAR is a 3800-horsepower
anchor handling tug/supply vessel and SEABULK NILAR is a 3800-horsepower
platform supply vessel. The Company is bareboat chartering the vessels from the
shipbuilder, the Labroy Group in Indonesia, for deployment under time charters
with a major international oil company in the Southeast Asia market. The term of
each bareboat charter is three years with an option to purchase the vessel at
fair market value at the end of the term. The leases will be accounted for as
operating leases.
In April 2003, the Company terminated a capital lease with TA Marine
Inc. for the SEABULK ARIZONA and acquired the vessel for $6.9 million. The
SEABULK ARIZONA is a 1998 built, 205-foot, 4,200 horsepower supply vessel.
Financing was in the form of a 5-year, $6.5 million term loan provided by Orix
Financial Services, Inc. with an interest rate of 5.81%.
In June 2003, the Company purchased a Brazilian flag line handling
vessel for operations in Brazil for $2.5 million. The Company also executed a
vessel construction agreement in April 2003, through its newly formed Brazilian
subsidiary, with a Brazilian shipyard for the construction of a modern platform
supply vessel for a purchase price of $16.6$16.7 million for offshore energy support
operations in Brazil. This vessel is expected to be completed in the third
quarter of 2004. As of JuneSeptember 30, 2003, the Company had spent approximately
$800,000$845,000 on the construction of the vessel. In August 2003, the Company entered
into a second construction agreement, and made a down payment of $825,000, with
the same yard, Promar, for a second identical vessel, to be delivered in the
fourth quarter of 2004, for $16.5 million. In anticipation of such operations,
the Company has established a Brazilian subsidiary called Seabulk Offshore do
Brazil S.A.
TheIn August 2003, the Company anticipates enteringentered into a 5-yearfive year bareboat charter
with purchase option for a newly built anchor handler. It is expected that thishandler, the SEABULK SOUTH
ATLANTIC, and took delivery of the vessel will beon September 2, 2003. In September
2003, the Company entered into a five year bareboat charter with purchase option
for a newly built platform supply vessel, the SEABULK ASIA, and took delivery of
the vessel on October 1, 2003. The Company also purchased a small tender. All
three vessels have been deployed in West Africa.
4.5. JOINT VENTURE AGREEMENTS
In March 2003, the Company formed a joint venture company in Nigeria,
named Modant Seabulk Nigeria Limited, with CTC International, Inc., a company
owned by Nigerian interests. The Company has a 40% interest in Modant Seabulk
Nigeria Limited. The Company also sold five of its crewboats operating in
Nigeria to joint venture companies related to CTC International in April 2003
for $2 million. As a part of the proceeds of sale, the Company invested $400,000
and acquired a 20% interest in these joint venture vessel-owning companies.
Modant Seabulk Nigeria Limited operates the crewboats. In July 2003, the five
crewboats were reflagged into the Nigerian registry. Seabulk Offshore provides
certain management services for the joint venture. The Company has not
guaranteed any debt of the joint venture, nor is the Company required to provide
additional funding.
The5
In September 2003, the Company anticipates enteringentered into a joint venture agreement
and formed a joint venture company called Angobulk SARL with an AngolanAngola Drilling
Company. The Company intends to bareboat charter offshore vessels to the joint
venture company and provide certain ship management services for the joint
venture company for vesseloffshore operations in Angola.
5
5.6. INCOME TAXES
For the three and sixnine months ended JuneSeptember 30, 2003 and 2002, a
gross deferred tax liability and benefit, respectively, was computed using an
estimated annual effective tax rate of 36%. Management has recorded a valuation
allowance at JuneSeptember 30, 2003 and 2002 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 and six-monthnine-month periods ended JuneSeptember
30, 2003 and 2002 represents taxes withheld on foreign source revenue.
6.7. NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share for the periods indicated:
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
------------------------- ---------------------------------------------------- -----------------------
2003 2002 2003 2002
------- --------- ----------------- ---------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Numerator for basic and diluted net income (loss) per share -
net income (loss) available to common shareholders ........ $ 2,660(1,876) $ (4,367)(30,580) $ 4,246 $ (6,653)
======= ========= =======2,370 $(37,233)
========== ========== ======== ========
Denominator for basic net income per share-weighted
average shares ........................................... 23,182 10,529 23,142 10,49423,199 12,899 23,161 11,304
Effects of dilutive securities:
Stock options ............................................... 268 -- 196-- 173 --
Warrants .................................................... 164 -- 186-- 178 --
Restricted shares ........................................... 26 -- 14 -- ------- --------- -------15 --
---------- ---------- -------- --------
Dilutive potential common shares ............................ 458 -- 396 -- ------- --------- -------366 --
---------- ---------- -------- --------
Denominator for diluted net income per share-adjusted
weighted average shares and assumed conversions .......... 23,640 10,529 23,538 10,494
======= ========= =======23,199 12,899 23,527 11,304
========== ========== ======== ========
Net income (loss) per share - basic ......................... $ 0.11(0.08) $ (0.41)(2.37) $ 0.180.10 $ (0.63)
======= ========= =======(3.29)
========== ========== ======== ========
Net income (loss) per share - diluted ....................... $ 0.11(0.08) $ (0.41)(2.37) $ 0.180.10 $ (0.63)
======= ========= =======(3.29)
========== ========== ======== ========
The weighted average diluted common shares outstanding for the three
and six months ended June 30, 2003 and 2002 excludes 100,000 and 820,334
options, respectively. Additionally, 250,000 and 459,775 warrants are excluded
from the weighted average diluted common shares outstanding for the three and
six months ended June 30, 2003 and 2002, respectively. These common stock
equivalents are excluded because they are antidilutive.
6
7.8. 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.
6
MARINE TRANSPORTATION SERVICES (Seabulk Tankers) - Marine
transportation services includes oceangoing vessels used to transport
chemicals, fuel and other petroleum products, primarily from chemical
manufacturing plants, refineries and storage facilities along the U.S.
Gulf of Mexico coast to industrial users and distribution facilities in
and around the Gulf of Mexico, Atlantic and Pacific coast ports.
Certain of the vessels also transport crude oil within Alaska and among
Alaska, the Pacific coast and Hawaiian ports.
TOWING (Seabulk Towing) - Harbor and offshore towing services are
provided by tugs to vessels utilizing the ports in which the tugs
operate, and to vessels at sea to the extent required by offshore
commercial contract opportunities and by environmental regulations,
casualties or other emergencies.
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.
7
The following schedules present segment and geographic information
about the Company's operations (in thousands):
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
------------------------ --------------------------------------------------- --------------------------
2003 2002 2003 2002
-------- ----------------- --------- --------- ---------
REVENUE
Offshore energy support ............... $ 39,23042,012 $ 44,06142,969 $ 77,068119,080 $ 87,372130,341
Marine transportation services ........ 31,750 29,656 61,927 61,58127,981 30,442 89,908 92,023
Towing ................................ 9,012 7,983 18,301 16,0439,799 7,041 28,100 23,084
Eliminations(1) ....................... (68) (61) (143) (158)
-------- --------(122) (83) (265) (241)
--------- --------- --------- ---------
TOTAL .............................. $ 79,92479,670 $ 81,63980,369 $ 157,153236,823 $ 164,838
======== ========245,207
========= ========= ========= =========
OPERATING EXPENSES
Offshore energy support ............... $ 23,01524,535 $ 25,09224,524 $ 46,21770,752 $ 48,68273,206
Marine transportation services ........ 14,113 16,532 27,770 34,20214,580 15,210 42,350 49,412
Towing ................................ 5,521 4,879 10,109 9,4465,391 4,220 15,500 13,666
General Corporate ..................... -- 29845 -- 309354
Eliminations(1) ....................... (68) (61) (143) (158)
-------- --------(122) (83) (265) (241)
--------- --------- --------- ---------
TOTAL .............................. $ 42,58144,384 $ 46,74043,916 $ 83,953128,337 $ 92,481
======== ========136,397
========= ========= ========= =========
DEPRECIATION, AMORTIZATION AND DRYDOCKING
Offshore energy support ............... $ 9,9019,993 $ 11,21610,722 $ 20,59030,583 $ 21,71832,440
Marine transportation services ........ 4,604 4,514 9,158 9,0624,910 4,432 14,068 13,494
Towing ................................ 992 810 1,818 1,570956 830 2,774 2,400
General corporate ..................... 426 93 851 841
-------- --------423 1,277 1,264
--------- --------- --------- ---------
TOTAL .............................. $ 15,92316,285 $ 16,63316,407 $ 32,41748,702 $ 33,191
======== ========49,598
========= ========= ========= =========
INCOME (LOSS) FROM OPERATIONS
Offshore energy support ............... $ 1,7243,077 $ 3,3203,687 $ 9625,305 $ 8,43712,255
Marine transportation services ........ 11,964 7,327 23,047 15,5837,578 9,839 30,625 26,645
Towing ................................ 1,242 1,181 3,895 2,7632,084 940 5,896 3,703
General corporate ..................... (2,938) (3,288) (5,879) (6,275)
-------- --------(3,262) (4,154) (9,141) (10,429)
--------- --------- --------- ---------
TOTAL .............................. $ 11,9929,477 $ 8,54010,312 $ 22,02532,685 $ 20,508
======== ========32,174
========= ========= ========= =========
NET INCOME (LOSS)
Offshore energy support ............... $ (2,160)(1,672) $ (4,979)(3,413) $ (6,264)(7,936) $ (7,445)(10,858)
Marine transportation services ........ 7,343 3,571 14,014 6,2583,737 5,829 17,751 12,087
Towing ................................ 369 (128) 2,334 1511,028 (292) 3,362 (141)
General Corporate ..................... (2,892) (2,831) (5,838) (5,617)
-------- --------(4,969) (32,704) (10,807) (38,321)
--------- --------- --------- ---------
TOTAL .............................. $ 2,660(1,876) $ (4,367)(30,580) $ 4,2462,370 $ (6,653)
======== ========(37,233)
========= ========= ========= =========
GEOGRAPHIC REVENUE
Domestic .............................. $ 51,02249,600 $ 49,35348,589 $ 99,249148,849 $ 102,923151,511
Foreign
West Africa ....................... 19,765 22,455 39,729 42,87119,396 22,178 59,125 65,049
Middle East ....................... 5,356 5,780 10,833 11,8396,804 5,523 17,637 17,362
Southeast Asia .................... 3,781 4,051 7,342 7,205
-------- --------3,870 4,079 11,212 11,285
--------- --------- --------- ---------
CONSOLIDATED GEOGRAPHIC REVENUE ......... $ 79,92479,670 $ 81,63980,369 $ 157,153236,823 $ 164,838
======== ========245,207
========= ========= ========= =========
- ---------------------
(1) Eliminations of intersegment towing revenue and intersegment marine
transportation operating expense.
8
8.9. COMMITMENTS AND CONTINGENCIES
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 ("OFAC") 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 related to certain
limited charters with third parties involving three of the Company's vessels
which called in the 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. In March 2003, the Company received notification from
OFAC that the case has been referred to its Civil Penalties Division. Should
OFAC determine that these activities constituted violations of the laws or
regulations, civil penalties, including fines, could be assessed against the
Company. The Company cannot predict the extent of such penalties; however,
management does not believe the outcome of these matters will have a material
impact on its financial position or results of operations.
The Company was sued by Maritime Transportation Development Corporation
(MTDC) in January 2002 in Florida state court in Broward County alleging broker
commissions due since 1998 from charters on two of its vessels, the SEABULK
MAGNACHEM and SEABULK CHALLENGER, under an alleged broker commission agreement.
MTDC was controlled by the founders of the Company's predecessor company. The
claim allegedly continues to accrue. The amount alleged to be due is over
$500,000, but is subject to offset claims and defenses by the Company. The
Company is vigorously defending such charges and believes that it has good
defenses, but the Company cannot predict the ultimate outcome.
Under the Company's mutual protection and indemnity marine insurance
policy, the Company could be liable for additional premiums to cover investment
losses and reserve shortfalls experienced by its marine insurance club
(Steamship). The maximum potential amount of additional premiums that can be
assessed by Steamship is substantial, however,substantial. However, additional premiums can only be
assessed for open policy years. Steamship usually closes a policy year
approximately three years after the policy year has ended. As of AugustNovember 1,
2003, completed policy years 2000 -2001 and 2002 are still open, but there have been
no additional premiums assessed for these policy years. The Company will record
a liability for any such additional premiums if and when they are assessed and
the amount can be reasonably estimated.
From time to time, the Company is also party to personal injury and
property damage claims litigation arising in the ordinary course of its
business. Protection and indemnity marine liability insurance covers large
injury and property damage claims in excess of the Company's significant
deductibles and self-insured retentions.
9.10. STOCK-BASED COMPENSATION
As permitted by SFASStatement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"), the Company has elected to
follow Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES ("APB 25") and related interpretations in accounting for its
employee stock-based transactions and has complied with the disclosure
requirements of SFAS 123. Under APB 25, compensation expense is calculated at
the time of option grant based upon the difference between the exercise prices
of the option and the fair market value of the Company's common stock at the
date of grant recognized over the vesting period.
On December 31, 2002, the FASBFinancial Accounting Standards Board issued
SFAS No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND
DISCLOSURE. SFAS No. 148 amends SFAS 123 to provide alternative methods of
transition to the fair value method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure provisions of
SFAS 123 to require expanded disclosure of 9
the effects of an entity's accounting
policy with respect to stock-based employee compensation on reported net income
and earnings per share in annual and interim financial statements.
9
The Company uses the Black-Scholes option valuation model to determine
the fair value of options granted under the Company's stock option plans. Had
compensation expense for the stock option grants been determined based on the
fair value at the grant date for awards consistent with the methods of SFAS No.
123, the Company's net income (loss) would have changed by the pro forma amounts
presented below:
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
---------------------------------- ------------------------------------------------------- -------------------------
2003 2002 2003 2002
--------------- --------------- -------------- ---------------------- ---------- ---------- -----------
Net income (loss), as reported ........................ $ 2,660(1,876) $ (4,367)(30,580) $ 4,2462,370 $ (6,653)(37,233)
Stock-based compensation expense
determined under the fair value method . $ (473)(66) $ (531)(228) $ (697)(763) $ (769)
--------------- --------------- -------------- -------------(997)
--------- ---------- ---------- -----------
Pro forma net income (loss) .............................. $ 2,187(1,942) $ (4,898)(30,808) $ 3,5491,607 $ (7,422)
=============== =============== ============== =============(38,230)
========= ========== ========== ===========
Net income (loss) per common share:
Basic-as reported ...................... $ 0.11 $ (0.41) $ 0.18 $ (0.63)
=============== =============== ============== =============
Basic-pro forma ........................ $ 0.09 $ (0.47) $ 0.15 $ (0.71)
=============== =============== ============== =============
Diluted-as reported .................... $ 0.11(0.08) $ (0.41)(2.37) $ 0.180.10 $ (0.63)
=============== =============== ============== =============
Diluted-pro(3.29)
========= ========== ========== ===========
Basic-pro forma ...................... $ 0.09(0.08) $ (0.47)(2.39) $ 0.150.07 $ (0.71)
=============== =============== ============== =============(3.38)
========= ========== ========== ===========
Diluted-as reported .................. $ (0.08) $ (2.37) $ 0.10 $ (3.29)
========= ========== ========== ===========
Diluted-pro forma .................... $ (0.08) $ (2.39) $ 0.07 $ (3.38)
========= ========== ========== ===========
10.11. RECENT ACCOUNTING PRONOUNCEMENTS
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 Company's vessels are deferred and
amortized on a straight-line basis over the period to the next drydocking,
generally 30 to 36 months. At its September 9, 2003 meeting, AcSEC voted to
approve the SOP. The SOP is expected to be presented for FASB clearance in the
first quarter of 2004 and would be applicable for fiscal years beginning after
December 15, 2004. Management has determined that this SOP if issued as
proposed, wouldmay 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 ($23.2 million as of June 30, 2003). Additionally, all drydock
expenditures incurred after the adoption of the SOP would be expensed as
incurred.
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 an
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. Subsequent toAs a result of the January 1, 2003 adoption date of
the standard, the Company will be required to reclassifyhas reclassified to continuing operations amounts
previously reported as extinguishments of debt.
In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES, which addresses the financial
10
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 November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS. FIN 45 expands on the accounting
guidance of Statements No. 5, 57, and 107 and incorporates without change the
provisions of FASB Interpretation No. 34, which is being superseded. FIN 45
10
elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit. It also clarifies
that at the time a company issues a guarantee, it must recognize an initial
liability for the fair value, or market value, of the obligations it assumes
under that guarantee and must disclose that information in its interim and
annual financial statements. The initial recognition and initial measurement
provisions apply on a prospective basis to guarantees issued or modified after
December 31, 2002, regardless of the guarantor's fiscal year-end. The disclosure
requirements in the Interpretation are effective for financial statements of
interim or annual periods ending after December 15, 2002. The adoption of FIN 45
isdid not expected to have a significant impact on the Company.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the variable interest entity. The primary beneficiary is
defined as the party which, as a result of holding its variable interest,
absorbs a majority of the entity's expected losses, receives a majority of its
expected residual returns, or both. FIN 46 is effective for all new variable
interest entities created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1, 2003, the provisions
of FIN 46 must be applied for the first interim or annual period beginningending after
JuneDecember 15, 2003. The Company has not yet determined the impact that the adoption of FIN 46 will
not have a significant impact on its financial position, results of operations
or cash flows.
11.12. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On August 5, 2003, the Company completed the offering of $150 million
of Senior Notes due 2013 through a private placement eligible for resale under
Rule 144 A and Regulation S. The net proceeds of the offering were used to repay
a portion of the Company's indebtedness under its existing $180 million credit facility.
The restricted subsidiaries presented below represent the Company's subsidiaries that
will beare subject to the terms and conditions outlined in the indenture governing the
Senior Notes. Only certain of the restricted
subsidiaries, representing the domestic restricted subsidiaries will guarantee the notes, jointly
and severally, on a senior unsecured basis. The non-guarantor unrestricted
subsidiaries presented below represent the subsidiaries that own the five double-hull tankers
which are financed by the Title XI debt with recourse to these tankers and the
subsidiaries that own them. These subsidiaries are designated as unrestricted
subsidiaries under the indenture governing the Senior Notes and will not
guarantee the notes.
Supplemental financial information for the Company and its guarantor
restricted subsidiaries, non-guarantor restricted subsidiaries and non-guarantor
unrestricted subsidiaries for the senior notes is presented below.
11
CONDENSED CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
AS OF JUNESEPTEMBER 30, 2003
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
WHOLLY OWNED NON-WHOLLY NON- NON-
GUARANTOR OWNED GUARANTOR GUARANTOR GUARANTOR
RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------ ------------ -------------
ASSETS
Current assets:
Cash and cash
equivalents............. $ 6,988 $ 553 $ 2,995 $ 8,715 $ 27,787 $ -- $ 47,038
Restricted cash ........ -- -- -- 1,337 -- -- 1,337
Trade accounts
receivable , net ..... (130) 13,526 707 32,172 496 -- 46,771
Other receivables ...... 1,180 5,541 25 11,856 179 -- 18,781
Marine operating
supplies ............. 83 792 1,421 3,379 2,116 -- 7,791
Due (to) from affiliates -- 77,522 -- 123,204 7,162 (207,888) --
Prepaid expenses
and other ............ 783 140 13 1,446 278 -- 2,660
--------- -------- ------- -------- -------- --------- --------
Total current assets 8,904 98,074 5,161 182,109 38,018 (207,888) 124,378
Vessels and equipment,
net .................. 36,377 141,593 29,670 104,370 219,602 -- 531,612
Deferred costs, net ........ 11,863 8,275 1,227 14,339 7,789 -- 43,493
Investments in affiliates .. 512,868 2,861 -- -- -- (515,729) --
Due from affiliates ........ 31,854 -- -- -- -- (31,854) --
Other ...................... 1,796 2,132 -- 1,124 5,371 -- 10,423
--------- -------- ------- -------- -------- --------- --------
Total assets ......... $ 603,662 $252,935 $36,058 $301,942 $270,780 $(755,471) $709,906
========= ======== ======= ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable ......... $ 608 $ 2,875 $ -- $ 7,066 $ 198 $ -- $ 10,747
Current maturities of
long-term debt ........ 14,086 2,154 -- -- 4,836 -- 21,076
Current obligations
under capital leases .. 1,025 2,489 -- -- -- -- 3,514
Accrued interest ......... 2,583 167 -- -- 4,322 -- 7,072
Due (to) from affiliates . 204,300 -- 63 -- -- (204,363) --
Accrued liabilities
and other ............. 9,257 3,203 444 34,770 772 -- 48,446
--------- -------- ------- -------- -------- --------- --------
Total current
liabilities ........ 231,859 10,888 507 41,836 10,128 (204,363) 90,855
Long-term debt ............. 178,725 14,942 -- -- 208,562 -- 402,229
Obligations under
capital leases .......... 11,835 21,302 -- -- -- -- 33,137
Due to affiliates .......... -- -- 31,854 -- -- (31,854)
Other liabilities .......... 1,685 538 -- 1,068 47 -- 3,338
--------- -------- ------- -------- -------- --------- --------
Total liabilities .... 424,104 47,670 32,361 42,904 218,737 (236,217) 529,559
--------- -------- ------- -------- -------- --------- --------
Commitments and
contingencies
Minority interest .......... -- -- -- -- -- 789 789
Total stockholders'
equity (deficit) ....... 179,558 205,265 3,697 259,038 52,043 (520,043) 179,558
--------- -------- ------- -------- -------- --------- --------
Total liabilities and
stockholders'
equity (deficit) ...... $ 603,662 $252,935 $36,058 $301,942 $270,780 $(755,471) $709,906
========= ======== ======= ======== ======== ========= ========
12
CONDENSED CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
AS OF DECEMBER 31, 2002
------------------------------------------------------------------------------------------------
WHOLLY OWNED NON-WHOLLY NON- NON-
GUARANTOR OWNED GUARANTOR GUARANTOR GUARANTOR
RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------ ------------ -------------
ASSETS
Current assets:
Cash and cash
equivalents .............. $ 22,520 $ 1,608 $ 6,700 $ 18,250 $ -- $ 49,078
Restricted cash ........................ -- -- 1,337 -- -- 1,337
Accounts receivable:
Trade, net .......................... 263 13,646 29,299 1,595 -- 44,803
Insurance claims and other .......... 861 4,882 10,371 525 -- 16,639
Marine operating supplies .............. (739) 2,973 3,230 2,198 -- 7,662
Due (to) from affiliates .............. -- 58,873 124,554 12,541 (195,968) --
Prepaid expenses and other ............. 448 478 2,267 490 -- 3,683
--------- -------- -------- -------- --------- ---------
Total current assets ................ 23,353 82,460 177,758 35,599 (195,968) 123,202
Vessels and equipment, net ............... 38,341 173,442 107,079 221,775 -- 540,637
Deferred costs, net ...................... 6,586 8,744 12,126 6,295 -- 33,751
Investments in affiliates ................ 515,777 -- -- -- (515,777) --
Other .................................... 1,896 2,129 1,843 5,385 -- 11,253
--------- -------- -------- -------- --------- ---------
Total assets ........................ $ 585,953 $266,775 $298,806 $269,054 $(711,745) $ 708,843
========= ======== ======== ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable ....................... $ 603 $ 2,120 $ 6,216 $ -- $ -- $ 8,939
Current maturities of long-term debt ... 16,086 2,768 -- 4,836 -- 23,690
Current obligations under capital leases 1,007 2,497 -- -- -- 3,504
Accrued interest ....................... 758 308 -- 669 -- 1,735
Due (to) from affiliates ............... 192,443 -- -- -- (192,443) --
Accrued liabilities and other .......... 8,531 4,010 32,111 749 -- 45,401
--------- -------- -------- -------- --------- ---------
Total current liabilities ........... 219,428 11,703 38,327 6,254 (192,443) 83,269
Long-term debt ........................... 171,375 26,027 -- 208,562 -- 405,964
Obligations under capital leases ......... 12,102 21,917 -- -- -- 34,019
Other liabilities ........................ 1,768 565 1,082 48 -- 3,463
--------- -------- -------- -------- --------- ---------
Total liabilities ................. 404,673 60,212 39,409 214,864 (192,443) 526,715
Commitments and contingencies
Minority interest ........................ -- -- -- -- 848 848
Total stockholders' equity (deficit) .. 181,280 206,563 259,397 54,190 (520,150) 181,280
--------- -------- -------- -------- --------- ---------
Total liabilities and stockholders'
equity (deficit) ................ $ 585,953 $266,775 $298,806 $269,054 $(711,745) $ 708,843
========= ======== ======== ======== ========= =========
12
CONDENSED CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
AS OF DECEMBER 31, 2002
--------------------------------------------------------------------------------
NON- NON-
GUARANTOR GUARANTOR GUARANTOR
RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents .............. $ 12,316 $ 426413 $ 13 $ 4,802 $ 19,644 $ -- $ 37,188
Restricted cash .................................... -- -- -- 1,337 -- -- 1,337
Accounts Receivable:
Trade accounts
receivable, net .................................. 580 15,77415,051 723 28,239 1,394 -- 45,987
Insurance claims and other ........Other receivables .......... 797 3,4173,415 2 8,890 381 -- 13,485
Marine operating
supplies ............ (719) 3,099................. 121 1,673 586 3,504 2,255 -- 8,139
Due (to) from
affiliates ............................ -- 63,14284,113 -- 134,054 -- (197,196)(218,167) --
Prepaid expenses
and other ........................... 652 831803 28 1,033 186 -- 2,702
--------- -------- -------- ------- -------- -------- --------- --------
Total current assets .............. 13,626 86,689... 14,466 105,468 1,352 181,859 23,860 (197,196)(218,167) 108,838
Vessels and equipment, net ............... 40,784 184,917.... 39,944 153,705 32,052 93,259 226,209 -- 545,169
Deferred costs, net ................................. 8,243 9,3687,528 1,840 13,715 6,902 -- 38,228
Investments in affiliates ..................... 513,909 30,504 -- -- -- (544,413) --
Due from affiliates ........... 31,478 -- -- -- -- (31,478) --
Other ............................................................. 1,931 3,165 -- 5,345 419 -- 10,860
--------- -------- -------- ------- -------- -------- --------- --------
Total assets ....................... $ 578,493 $314,643............ $609,971 $300,370 $35,244 $294,178 $257,390 $(741,609)$(794,058) $703,095
========= ======== ======== ======= ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable ................................... $ 3,094 $ 2,397 $ -- $ 5,783 $ 69 $ -- $ 11,343
Current maturities of
long-term debt ............... 17,586 2,055 -- -- 4,674 -- 24,315
Current obligations
under capital leases ...... -- 3,005 -- -- -- -- 3,005
Accrued interest ................................... 671 393 -- -- 669 -- 1,733
Due (to) from affiliates ............... 189,946 10,567.... 221,424 -- 60 -- 206 (200,719)(221,690) --
Accrued liabilities
and other ........................... 10,013 3,8243,306 518 27,520 824 -- 42,181
--------- -------- -------- ------- -------- -------- --------- --------
Total current liabilities .......... 221,310 22,241252,788 11,156 578 33,303 6,442 (200,719)(221,690) 82,577
Long-term debt ........................................... 178,500 21,337 -- -- 211,021 -- 410,858
Obligations under
capital leases ....................... -- 28,748 -- -- -- -- 28,748
Due to affiliates ............. -- -- 31,478 -- -- (31,478) --
Other liabilities ..................................... 1,883 616 -- 944 46 -- 3,489
--------- -------- -------- ------- -------- -------- --------- --------
Total liabilities .................. 401,693 72,942....... 433,171 61,857 32,056 34,247 217,509 (200,719)(253,168) 525,672
--------- -------- -------- ------- -------- -------- --------- --------
Commitments and contingencies
Minority interest ..................................... -- -- -- -- -- 623 623
Total stockholders'
equity (deficit) ............. 176,800 241,701238,513 3,188 259,931 39,881 (541,513) 176,800
--------- -------- -------- ------- -------- -------- --------- --------
Total liabilities and
stockholders' equity
(deficit) ............... $ 578,493 $314,643................ $609,971 $300,370 $35,244 $294,178 $257,390 $(741,609)$(794,058) $703,095
========= ======== ======== ======= ======== ======== ========= ========
13
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED JUNESEPTEMBER 30, 2003
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
WHOLLY OWNED NON-WHOLLY NON- NON-
GUARANTOR OWNED GUARANTOR GUARANTOR GUARANTOR
RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------ ------------ -------------
Revenue ........................................... $ 11,8729,609 $ 23,24921,458 $ 28,9023,358 $ 15,920 $(19)30,368 $ 79,92414,999 $(122) $ 79,670
Operating expenses .............. 5,720 14,800 15,751 6,329 (19) 42,581....... 6,386 13,317 2,098 16,609 6,096 (122) 44,384
Overhead expenses ............... 2,865 2,586 3,535 442........ 3,139 2,540 208 3,482 405 -- 9,4289,774
Depreciation, amortization
and drydocking .................. 1,929 4,530 7,082 2,382....... 2,053 3,745 821 7,218 2,448 -- 15,92316,285
Gain (loss) on disposal
of assets, net ....... -- 253 -- (3) -- -- 250
------- -------- ------- -------- -------- ----- --------
Income (loss) from
operations ........... (1,969) 2,109 231 3,056 6,050 -- 9,477
Other (expense) income ... (1,302) (2,391) (410) (2,184) (3,895) 61 (10,121)
------- -------- ------- -------- -------- ---- --------
Income from operations .......... 1,358 1,333 2,534 6,767 -- 11,992
Other expense, net .............. (121) (2,752) (1,192) (3,951) -- (8,016)
-------- -------- -------- -------- --------- --------
Income (loss) before
income taxes 1,237 (1,419) 1,342 2,816 -- 3,976......... (3,271) (282) (179) 872 2,155 61 (644)
Provision for income
taxes ...................... -- -- 1,316-- 1,232 -- -- 1,3161,232
------- -------- ------- -------- -------- -------- -------- --------- --------
Net income (loss) ....................... $(3,271) $ 1,237(282) $ (1,419)(179) $ 26(360) $ 2,8162,155 $ --61 $ 2,660(1,876)
======= ======== ======= ======== ======== ======== ======== ========= ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED JUNESEPTEMBER 30, 2002
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
WHOLLY OWNED NON-WHOLLY NON- NON-
GUARANTOR OWNED GUARANTOR GUARANTOR GUARANTOR
RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------ ------------ -------------
Revenue ........................................... $ 9,77011,903 $ 24,19118,477 $ 32,2872,872 $ 15,405 $(14)31,781 $ 81,63915,419 $(83) $ 80,369
Operating expenses .............. 7,302 14,499 17,863 7,090 (14) 46,740....... 6,671 12,324 1,804 16,934 6,266 (83) 43,916
Overhead expenses ............... 2,910 3,230 3,193 393........ 4,057 2,447 221 2,960 336 -- 9,72610,021
Depreciation, amortization
and Drydocking .................. 1,956 4,737 7,545 2,395drydocking ....... 1,966 4,081 527 7,482 2,351 -- 16,63316,407
Gain on disposal of
assets, net .......... -- 88 -- 199 -- -- 287
-------- -------- ------- -------- -------- -------- ---- --------
Income (loss) from
operations ........... (791) (287) 320 4,604 6,466 -- 10,312
Other (expense) income ... (2,398) 1,725 3,686 5,527 -- 8,540
Other expense, net .............. (321) (2,678) (4,156) (4,011) -- (11,166)(28,119) (3,372) (491) (3,367) (3,997) 56 (39,290)
-------- -------- ------- -------- -------- -------- ---- --------
Income (loss) before
income taxes (2,719) (953) (470) 1,516 -- (2,626)......... (28,910) (3,659) (171) 1,237 2,469 56 (28,978)
Provision for income
taxes ...................... -- -- 1,741-- 1,602 -- -- 1,7411,602
-------- -------- ------- -------- -------- -------- ---- --------
Net income (loss) ............... $(2,719)........ $(28,910) $ (953)(3,659) $ (2,211)(171) $ 1,516(365) $ --2,469 $ (4,367)56 $(30,580)
======== ======== ======= ======== ======== ======== ==== ========
14
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2003
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
WHOLLY OWNED NON-WHOLLY NON- NON-
GUARANTOR OWNED GUARANTOR GUARANTOR GUARANTOR
RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------ ------------ -------------
Revenue ............................................ $ 23,75733,366 $ 44,82259,023 $ 57,90410,705 $ 30,723 $(53)88,272 $ 157,15345,722 $(265) $ 236,823
Operating expenses .............. 11,775 28,464 31,777 11,990 (53) 83,953........ 18,161 37,864 6,105 48,386 18,086 (265) 128,337
Overhead expenses ............... 5,709 5,340 6,907 802......... 8,848 7,425 663 10,389 1,207 -- 18,75828,532
Depreciation, amortization
and drydocking .................. 3,867 9,314 14,473 4,763Drydocking ........ 5,920 11,714 2,166 21,691 7,211 -- 32,41748,702
Gain on disposal of assets,
net ................... -- 1,040 -- 393 -- -- 1,433
-------- -------- -------- -------- ------------ ----- ---------
Income (loss) from
operations .......... 2,406 1,704 4,747 13,168............ 437 3,060 1,771 8,199 19,218 -- 22,02532,685
Other expense net .............. (27) (4,586) (2,701) (7,887) -- (15,201)............. (1,329) (6,686) (1,261) (5,281) (11,782) (166) (26,505)
-------- -------- -------- -------- ------------ ----- ---------
Income (loss) before
income taxes 2,379 (2,882) 2,046 5,281 -- 6,824.......... (892) (3,626) 510 2,918 7,436 (166) 6,180
Provision for income taxes ...... -- -- 2,578-- 3,810 -- -- 2,5783,810
-------- -------- -------- -------- ------------ ----- ---------
Net income (loss) ........................ $ 2,379(892) $ (2,882)(3,626) $ (532)510 $ 5,281(892) $ --7,436 $(166) $ 4,2462,370
======== ======== ======== ======== ============ ===== =========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2002
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
WHOLLY OWNED NON-WHOLLY NON- NON-
GUARANTOR OWNED GUARANTOR GUARANTOR GUARANTOR
RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------ ------------ -------------
Revenue ............................................. $ 20,13332,036 $ 52,12563,805 $ 61,9159,781 $ 30,711 $(46)93,696 $ 164,83846,130 $(241) $ 245,207
Operating expenses ............... 13,481 31,895 33,121 14,030 (46) 92,481........ 20,152 40,376 5,759 50,055 20,296 (241) 136,397
Overhead expenses ................ 5,676 5,876 6,129 977......... 9,733 7,886 658 9,089 1,313 -- 18,65828,679
Depreciation, amortization
and drydocking...................... 3,935 10,148 14,310 4,798Drydocking ........ 5,901 13,086 1,670 21,792 7,149 -- 33,19149,598
Gain (loss) on disposal
of assets, net ........ -- 1,901 -- (260) -- -- 1,641
-------- -------- ------- -------- -------- --------- ---------
Income (loss) from
operations ............ (3,750) 4,358 1,694 12,500 17,372 -- 32,174
Other (expense) income .... (2,959) 4,206 8,355 10,906 -- 20,508
Other expense, net ............... (703) (7,352) (7,640) (8,058) -- (23,753)(28,822) (11,401) (1,510) (10,548) (12,055) (61) (64,397)
-------- -------- ------- -------- -------- --------- ---------
Income (loss) before income
taxes (3,662) (3,146) 715 2,848 -- (3,245)................. (32,572) (7,043) 184 1,952 5,317 (61) (32,223)
Provision for income taxes ....... -- -- 3,408-- 5,010 -- -- 3,4085,010
-------- -------- ------- -------- -------- --------- ---------
Net income (loss) ......................... $(32,572) $ (3,662)(7,043) $ (3,146)184 $ (2,693)(3,058) $ 2,8485,317 $ --(61) $ (6,653)(37,233)
======== ======== ======= ======== ======== ========= =========
15
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2003
-----------------------------------------------------------------------------------
NON- NON-
GUARANTOR--------------------------------------------------
WHOLLY OWNED NON-WHOLLY OWNED
GUARANTOR GUARANTOR
RESTRICTED RESTRICTED
UNRESTRICTED CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES
SUBSIDIARIES ELIMINATIONS TOTAL
--------------- ------------ ------------ ------------ ------------ ------------------------------
Net cash provided by (used in) operating
Activities ............................activities .................................... $ 6,939(6,614) $ 3,68117,752 $ 21,989 $ 903 $ -- $ 33,5122,993
INVESTING ACTIVITIES:
Expenditures for drydocking ............. (65) (3,115) (3,923)................... (2,927) (5,808) -- -- (7,103)
Proceeds from disposals of assets .................... -- 3,607 4,6523,993 -- -- 8,259
Purchases of vessels and equipment ...... (1,059) (1,056) (20,420) -- -- (22,535)............ (1,253) (1,314) (11)
Investment in Joint Venture ................................ -- -- (400) --
-- (400)--------- -------- ------- -------- -------- ------- --------
Net cash used in financinginvesting activities ... (1,124) (564) (20,091) -- -- (21,779)......... (4,180) (3,129) (11)
FINANCING ACTIVITIES:
Payments of existing Credit Facility .... (5,000)prior credit facility ............ (148,179) -- --
Proceeds of 9.5% senior notes ................ 150,000 -- -- (5,000)
Proceeds from long-term debt ............................. -- 6,525 -- -- -- 6,525
Payments of long-term debt .............. (2,551) (798)................... (3,075) (1,317) -- -- -- (3,349)
Payments of Title XI bonds .............. (1,075) (323)................... (1,525) (11,730) --
(2,297)Payment of deferred financing costs
under prior credit facility .................. (61) -- (3,695)--
Payments of deferred financing costs .... (61)under
9.5% senior notes and amended credit facility (4,607) -- -- -- -- (61)
Net proceeds from sale leaseback ..................... 13,274 -- -- -- -- 13,274
Payments of obligations under capital leases ................................ (327) (7,339)(577) (7,961) -- -- -- (7,666)
Capitalized issue costs related to Issuanceissuance of
common stock ................................................. (27) -- -- -- -- (27)
Proceeds from exercise of stock options . 155...... 242 -- -- -- -- 155
Proceeds from exercise of warrants ................. 1 -- --
-- -- 1--------- -------- ------- -------- -------- ------- --------
Net cash provided by (used in) financing
activities ............................ 4,389 (1,935)................................... 5,466 (14,483) --
(2,297) -- 157--------- -------- ------- -------- -------- ------- --------
Increase (decrease) in cash and cash
equivalents ........................... 10,204 1,182 1,898 (1,394) -- 11,890.................................. (5,328) 140 2,982
Cash and cash equivalents at beginning of
period ......................................................................... 12,316 426 4,802 19,644 -- 37,188413 13
--------- -------- ------- -------- -------- ------- --------
Cash and cash equivalents at end of
period ....................................................................... $ 22,5206,988 $ 1,608553 $ 6,700 $ 18,250 $ -- $ 49,0782,995
========= ======== ======= ======== ======== ======= ========
16
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2002
------------------------------------------------------------------------------------2003
---------------------------------------------------------------------------
NON- NON-
GUARANTOR GUARANTOR
GUARANTOR
RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED
PARENT SUBSIDIARIES
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------ -------------------------- ------------- ------------- -----------
Net cash provided by (used in) operating
activities .................................................................... $ 22,16130,485 $ (336) $ 6,691 $ 6,26412,342 $ -- $ 34,78056,958
INVESTING ACTIVITIES:
Expenditures for drydocking .................. (9,242) (1,856) -- (19,833)
Proceeds from disposals of assets ............ 4,654 -- -- 8,647
Purchases of vessels and equipment ........... (21,584) (46) -- (24,208)
Investment in Joint Venture ................. (400) -- -- (400)
-------- -------- ------------- ---------
Net cash used in investing
activities ................................... (26,572) (1,902) -- (35,794)
FINANCING ACTIVITIES:
Payments of prior credit facility ............ -- -- -- (148,179)
Proceeds of 9.5% senior notes ................ -- -- -- 150,000
Proceeds from long-term debt ................. -- -- -- 6,525
Payments of long-term debt ................... -- -- -- (4,392)
Payments of Title XI bonds ................... -- (2,297) -- (15,552)
Payment of deferred financing costs
under existing credit facility ............... -- -- -- (61)
Payments of deferred financing costs under
9.5% senior notes and amended credit facility -- -- -- (4,607)
Net proceeds from sale leaseback ............. -- -- -- 13,274
Payments of obligations under capital leases.. -- -- -- (8,538)
Capitalized issue costs related to issuance
of common stock .............................. -- -- -- (27)
Proceeds from exercise of stock options ...... -- -- -- 242
Proceeds from exercise of warrants ........... -- -- -- 1
-------- -------- ------------- ---------
Net cash used in financing activities ........ -- (2,297) -- (11,314)
-------- -------- ------------- ---------
Increase (decrease) in cash and cash
equivalents ................................. 3,913 8,143 -- 9,850
Cash and cash equivalents at beginning of
period ...................................... 4,802 19,644 -- 37,188
-------- -------- ------------- ---------
Cash and cash equivalents at end of period .. $ 8,715 $ 27,787 $ -- $ 47,038
======== ======== ------------- =========
17
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 2002
------------------------------------------------
WHOLLY OWNED NON-WHOLLY OWNED
GUARANTOR GUARANTOR
RESTRICTED RESTRICTED
PARENT SUBSIDIARIES SUBSIDIARIES
--------- ------------- ----------------
Net cash provided by operating
activities ................................. $ 29,775 $ 1,372 $ 66
INVESTING ACTIVITIES:
Expenditures for drydocking ................ (1,375) (2,589) (8,021) (87)(3,475) (3,242) -- (12,072)
Proceeds from disposals of assets .......... -- 7,213 2,165 1,5047,663 -- 10,882
Purchases of vessels and equipment ......... (137) (1,755) (312)(301) (2,374) (72)
--------- ------- ----
Net cash provided by (used in) investing
activities ................................. (3,776) 2,047 (72)
FINANCING ACTIVITIES:
Net repayment of revolving credit facility . (9,000) -- --
(2,204)
--------Proceeds of prior credit facility .......... 178,800 -- --
Payments of long-term debt ................. (162,496) (961) --
Payment of prior senior notes .............. (101,499) -- --
Proceeds of private placement, net of
issuance costs ............................. 91,250 -- --
Payments of Title XI bonds ................. (1,525) (323) --
Payments of obligations under capital
leases ..................................... -- (2,275) --
Payment of deferred financing costs under
prior credit facility ...................... (3,949) -- --
Proceeds from exercise of warrants ......... 1 -- --
Proceeds from exercise of stock options .... 42 -- --
--------- ------- ----
Net cash used in financing activities ...... (8,376) (3,559) --
--------- ------- ----
Increase (decrease) in cash and cash
equivalents ................................ 17,623 (140) (6)
Cash and cash equivalents at beginning of
period ..................................... 250 270 14
--------- ------- ----
Cash and cash equivalents at end of
period ..................................... $ 17,873 $ 130 $ 8
========= ======= ====
18
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 2002
--------------------------------------------------------------
NON- NON-
GUARANTOR GUARANTOR
RESTRICTED UNRESTRICTED CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------- ---------
Net cash provided by operating
activities ................................ $ 8,013 $ 15,783 $ -- $ 55,009
INVESTING ACTIVITIES:
Expenditures for drydocking ............... (9,769) (87) -- (16,573)
Proceeds from disposals of assets ......... 2,420 1,504 -- 11,587
Purchases of vessels and equipment ........ (319) -- -- (3,066)
------- -------- ----------- --------------------- ---------
Net cash provided by (used in) investing
activities ................................ (1,512) 2,869 (6,168)(7,668) 1,417 -- (3,394)(8,052)
FINANCING ACTIVITIES:
Net repayment of revolving credit facility . (4,281) -- -- -- (9,000)
Proceeds of prior credit facility ......... -- (4,281)-- -- 178,800
Payments of long-term borrowings ........... (17,970) (634)debt ................ -- -- -- (18,604)(163,457)
Payment of prior senior notes ............. -- -- -- (101,499)
Proceeds of private placement, net
of issuance costs ......................... -- -- -- 91,250
Payments of Title XI bonds ................. (1,075) (323)................ -- (2,149) -- (3,547)(3,997)
Payments of obligations under capital
leases .................................. -- (1,576).................................... -- -- -- (1,576)
Capitalization issue(2,275)
Payment of deferred financing costs related to
issuance of common stock ................ (328)under
prior credit facility ..................... -- -- -- -- (328)(3,949)
Proceeds from exercise of warrants ......... 1 --........ -- -- -- 1
-------- -------Proceeds from exercise of stock options ... -- -- -- 42
------- -------- ----------- --------------------- ---------
Net cash used in financing activities ...... (23,653) (2,533)..... -- (2,149) -- (28,335)
-------- -------(14,084)
------- -------- ----------- --------------------- ---------
Increase (decrease) in cash and cash
equivalents ............................. (3,004).............................. 345 15,051 -- 523 5,532 -- 3,05132,873
Cash and cash equivalents at beginning of
period ................................... 250 284 3,888 7,209 -- 11,631
-------- ------- ------- -------- ----------- --------------------- ---------
Cash and cash equivalents at end of
period .................................. $ (2,754)4,233 $ 284 $ 4,411 $ 12,74122,260 $ -- $ 14,682
======== =======44,504
======= ======== =========== ========------------- =========
1713. SUBSEQUENT EVENT
On October 20, 2003, the Company entered into a ten-year interest rate
swap agreement with Fortis Bank and other members of its bank group. Through
this derivative instrument, which covers a notional amount of $150 million, the
Company effectively converted the interest rate on its outstanding 9.5% senior
notes due August 2013 to a floating rate based on LIBOR. The current effective
floating interest rate is 6.05%. The swap agreement is expected to be secured by
a second lien on the assets that secure the Company's amended and restated
credit facility.
19
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 2002 Form 10-K.
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 2002 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
2002 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 Company's vessels are deferred and
amortized on a straight-line basis over the period to the next drydocking,
generally 30 to 36 months. At its September 9, 2003 meeting, AcSEC voted to
approve the SOP. The SOP is expected to be presented for FASB clearance in
the first quarter of 2004 and would be applicable for fiscal years beginning
after December 15, 2004. Management has determined that this SOP if issued as proposed, wouldmay 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
($23.2 million as of June 30, 2003). 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 -
Seabulk Offshore, Seabulk Tankers, and Seabulk Towing. Seabulk Offshore, the
Company's domestic and international offshore energy support business, accounted
for approximately 49% and 54%53% of Company revenue for the three months ended JuneSeptember
30, 2003 and 2002, respectively.2002. Marine transportation, under the name Seabulk Tankers,
consists of the Company's Jones Act domestic tanker business, in which it owns
nine petroleum and chemical product carriers in the domestic coastwise trade and
leases one vessel under a bareboat charter. Seabulk Tankers accounted for
approximately 40%35% and 36%38% of Company revenue for the three months ended
JuneSeptember 30, 2003 and 2002, respectively. Seabulk Towing, the Company's
domestic harbor and offshore towing business, accounted for approximately 11%12%
and 10%9% of Company revenue for the three months ended JuneSeptember 30, 2003 and
2002, respectively.
1820
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-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.
As the Company's offshore energy support fleet gets older, the
Company's strategy is to look for opportunities to upgrade its offshore fleet to
higher-value, larger and newer vessels and to reduce the number of older and
smaller vessels, mainly crewboats, in its fleet.
The Company is planning a newbuild program for offshore fleet
replacement and enhancement, which remains subject to negotiating acceptable
agreements and financing arrangements, which have not been finalized. In
anticipation of this program, the Company has already added three vessels to its
West African fleet: the SEABULK AFRICA, SEABULK SOUTH ATLANTIC and SEABULK ASIA;
two vessels to its Southeast Asia fleet: the SEABULK BADAMYAR and SEABULK NILAR;
and an inaugural vessel to its Brazilian fleet, the SEABULK IPANEMA. The Company
has also executed contracts for two offshore newbuilds for deployment in Brazil.
The Company sold 1516 offshore energy support vessels during the first
halfnine months of 2003 for an aggregate total of $7.9$8.2 million and a gain of
approximately $1.3$1.5 million. The Company sold 17 offshore energy support vessels
during 2002 for an aggregate total of $6.8 million and a gain of approximately
$55,000.
Periods for collection of receivables in certain foreign areas of
operation in the offshore business tend to be longer than is usual for the
United States. The Company regularly monitors all such receivablesreceivable accounts and
believes that it has accrued adequate reserves where necessary.
1921
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 2003 Q2 2003 ------------------------------------------ --------------------------------------------Q3 2003
-------------------------------- ----------------------------------- -------------------------------
AHTS/ AHT/ Crew/ AHTS/ AHT/ Crew/ AHTS/ AHT/ Crew/
Supply Tugs Utility Other Supply Tugs Utility Other ------ --------- ------- ------- ------- ------- -------- -------Supply Tugs Utility Other
----- ---- ----- ----- ----- ---- ----- ----- ----- ---- ----- -----
DOMESTIC(1)
Vessels(2) .... 21 -- 25 2 21 -- 25 2 21 -- 24 2
Laid-Up ....... -- -- -- 1 -- -- -- 1 -- -- -- 1
Effective
Utilization(3) 56% -- 61% -- 67% -- 69% -- 73% -- 77% --
Day Rate ...... $5,192 -- $2,330 -- $4,989 -- $2,422 -- $4,970 -- $2,557 --
WEST AFRICA
Vessels(2) .... 32 4 6 1 32 4 1 -- 33 4 1 1
Laid-Up ....... -- -- -- -- -- -- -- -- -- -- -- --
Effective
Utilization(3) 80% 72% 97% -- 83% 76% -- -- 78% 86% -- --
Day Rate ...... $7,223 $6,131 $3,028 -- $7,199 $6,198 -- -- $7,321 $6,265 -- --
MIDDLE EAST
Vessels(2) .... 6 6 7 6 6 6 7 6 6 6 7 6
Laid-Up ....... -- -- -- 1 -- -- -- 1 -- -- -- 1
Effective
Utilization(3) 90% 56% 86% 52% 89% 48% 95% 50% 91% 63% 92% 71%
Day Rate ...... $3,283 $4,457 $1,682 $5,213 $3,393 $5,364 $1,677 $4,246 $3,476 $5,266 $1,742 $5,341
SOUTHEAST ASIA
Vessels(2) .... 9 1 -- 1 8 -- -- 1 8 -- -- 1
Laid-Up ....... -- -- -- -- -- -- -- -- -- -- -- --
Effective
Utilization(3) 59% -- -- -- 80% -- -- -- 78% -- -- --
Day Rate ...... $5,936 -- -- -- $5,321 -- -- -- $5,310 -- -- --
- ---------
(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) Effective utilization excludes laid-up vessels.
2022
Q1 2002 Q2 2002
----------------------------------- ------------------------------------------------------------------- ---------------------------------
AHTS/ AHT/ Crew/ AHTS/ AHT/ Crew/
Supply Tugs Utility Other Supply Tugs Utility Other
------ ---- ------- ----- ------ ---- ------- -----
DOMESTIC(1)
Vessels(2) ... 24 -- 30 2 21 -- 31 2
Bareboat-out . -- -- -- -- -- -- -- --
Laid-Up ...... -- -- -- 1 -- -- -- 1
Effective
Utilization(3) 59% -- 65% -- 63% -- 58% --
Day Rate ..... $6,687 -- $2,666 -- $6,005 -- $2,469 --
WEST AFRICA
Vessels(2) ... 29 5 7 1 30 5 6 1
Laid-Up ...... -- 1 -- -- -- 1 -- --
Effective
Utilization(3) 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(3) 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) ... 8 -- 5 2 8 -- -- 2
Laid-Up ...... -- -- -- -- -- -- -- --
Effective
Utilization(3) 59% -- 53% 44% 68% -- -- --
Day Rate ..... $5,510 -- $1,472 -- $6,320 -- -- --
Q3 2002 Q4 2002
------------------------------------ -------------------------------------------------------------------- ----------------------------------
AHTS/ AHT/ Crew/ AHTS/ AHT/ Crew/
Supply Tugs Utility Other Supply Tugs Utility Other
------ ---- ------- ----- ------ ---- ------- -----
DOMESTIC(1)
Vessels(2) ... 21 -- 31 2 21 -- 28 2
Bareboat-out . -- -- -- -- -- -- -- --
Laid-Up ...... -- -- -- 1 -- -- -- 1
Effective
Utilization(3) 63% -- 62% -- 65% -- 65% --
Day Rate ..... $5,581 -- $2,530 -- $5,252 -- $2,315 --
WEST AFRICA
Vessels(2) ... 30 5 6 1 30 4 6 1
Laid-Up ...... -- 1 -- -- -- -- -- --
Effective
Utilization(3) 80% 87% 76% -- 79% 71% 68% --
Day Rate ..... $7,787 $6,234 $2,976 -- $7,316 $5,891 $2,878 --
MIDDLE EAST
Vessels(2) ... 6 8 8 5 6 7 7 5
Laid-Up ...... -- 1 1 1 -- -- -- 1
Effective
Utilization(3) 92% 49% 88% 65% 86% 71% 95% 57%
Day Rate ..... $3,496 $4,556 $1,646 $4,181 $3,684 $3,991 $1,666 $4,197
SOUTHEAST ASIA
Vessels(2) ... 8 -- -- 2 8 -- -- 2
Laid-Up ...... -- -- -- -- -- -- -- --
Effective
Utilization(3) 66% -- -- -- 61% -- -- --
Day Rate ..... $5,584 -- -- -- $6,484 -- -- --
- ------------------------------
(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) Effective utilization excludes laid-up vessels.
2123
Domestic revenue for the sixnine months ended JuneSeptember 30, 2003 was
adversely affected by the continued slowdown in natural gas and crude oil
drilling activity in the U.S. Gulf of Mexico. Despite relatively high natural
gas prices, and dwindling inventories, exploration and production companies in the U.S. Gulf of Mexico werehave
been unwilling to invest in new projects until there was clear
evidence of the sustainability of commodity pricesprojects. Some exploration and an increase indrilling
companies have reduced their expectations for energy demand. Although there is still uncertaintyprospects in the market, the rise in both
crude oil and natural gas prices that began in the fourth quarter of 2002, the
temporary shutoff of Iraqi and Venezuelan imports, dwindling inventories of both
crude oil and natural gas as the winter of 2002/2003 turned out to be much
colder than expected, and other factors, should eventually aid a recovery in themature
Gulf of Mexico offshore vessel market. In the meantime, the Company is exploring charter
opportunities in Mexico, which remains an active market. OnIn the other
hand, some exploration and drilling companies have reduced expectations for
energy prospects inthird quarter
the matureCompany moved one vessel from the U.S. Gulf of Mexico, market. These two factors may
prolong the slumpand a total of three
vessels in this market and limit the extent of a recovery. The recent
increase2003 through November 1, to short-term charters in worldwide crude oil inventories and subsequent decline in crude oil
prices following the conclusion of the war phase in Iraq may also impact any
recovery.Mexico.
International offshore revenues for the sixnine months ended JuneSeptember 30,
2003 decreased slightly from the same period in the prior year. 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. However, revenue
decreased as both day rates and utilization declined slightly from the peak
levels achieved in the second and third quarters of 2002, and the Company sold
six vessels in its West African fleet during the first nine months of 2003. The
Company also redeployed one vessel and added onethree newbuild vesselvessels to its West
African operations during the first halfnine months of 2003. The recent unrest in Nigeria
did not have a significant impact on itsthe Company's operations.
International vessel demand is primarily driven by crude oil
exploration and production. During the secondthird quarter of 2003, crude oil prices
and demand remained firm. The Company expects, based on oil company projections
and independent analyses, that international exploration and production spending
towill continue to increase in West Africa, which should strengthen vessel demand
in that area. Revenue decreased fromremained substantially the same in the third quarter of
2003 versus the prior year for the Company's Middle East operations as both vessel count and utilization
decreased. In Southeast Asia
revenue increased slightly from the year-earlier
period due to an increase in utilization.
Day rates currently available to the Company's anchor handling tug
supply and supply boats average approximately $5,000 for Domestic, $7,100 for
West Africa, $3,400 for the Middle East and $5,300 for Southeast Asia.operations.
The Company had two offshore vessels in "held-for-sale" status as of
JuneSeptember 30, 2003. The balance is included in other assets on the condensed
consolidated balance sheet.
SEABULK TANKERS
Revenue from the Company's marine transportation services business is
derived from the operations of ten tankers carrying crude oil, petroleum
products and chemical products in the U.S. Jones Act trade.
The Company's tanker fleet operates on either long-term time charters,
bareboat charters, or pursuant to contracts of affreightment. The Company
currently has six tankers operating under long-term time charters, three on
contracts of affreightment and one under a bareboat charter.
2224
The following table sets forth the number of vessels and revenue for
the Company's petroleum and chemical product carriers:
SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
---------------------------------------------------------
2003 2002
------- -------
Number of vessels owned at end of period 10 10
Revenue (in thousands) ................. $61,927 $57,880$89,908 $88,138
Tanker revenue increased by 7.0%2.0% in the first halfnine months of 2003
compared to the same period in the prior year as a result of improved rates and
higher utilization.
PETROLEUM TANKERS. Demand for the Company's crude oil and petroleum
product transportation services is dependent both on several factors, including
production and refining levels in the United States, as well as on domestic consumer and
commercial consumption of petroleum products and chemicals.chemicals, and competition from
foreign imports. The Company owned eight petroleum product tankers at JuneSeptember
30, 2003. Five of these are double-hull, state-of-the-art vessels, of which two
have chemical-carrying capability. Since January 2002, a major oil company
charterer has had exclusive possession and control of one of the petroleum
product tankers and is responsible for all operating and drydocking expenses of
the vessel. ThatThe bareboat charter is
expected towill be converted to a transportation contract
during the thirdfourth quarter of 2003. In2003, after which the vessel will begin trading in
foreign commerce. During the third quarter of 2002, a vessel previously trading under a
voyage contract entered into a three-year2003, one tanker's time charter
with a major oil company andwas renewed for two of the Company's existingyears. Two other time charters with
another major oil company were extended through July 10,
2010. Under a time charter, fuelrenewed for periods of one year and
port charges are borne bytwo-and-one-half years, respectively. Although the charterer and
are therefore not reflected in the charter rates. Consequently, both the revenue
and cost side of time charter vessels are reduced by the amount of the fuel and
port charges. The Company's Jones Act fleet is benefitinghas
benefited from a tightening domestic tanker market, which should seeincreased competition from
foreign imported product has had a further strengthening as OPA 90
forces out older, single-hull vessels.moderating effect on Jones Act tanker rates.
None of the Company's single-hull vessels areis scheduled for retirement under OPA
90 before 2007.
CHEMICAL TANKERS. Demand for the Company's industrial chemical
transportation services generally coincides with overall domestic economic
activity. The Company operated two chemical tankers and one of the five
double-hull vessels in the chemical trade as of JuneSeptember 30, 2003. The two
chemical tankers are double-bottom ships. The higher day rate environment for
petroleum tankers is carryingover the last two years has carried over into the chemical
tanker market as charterers look for quality tonnage to replace older
single-hull vessels. However, as noted above under "Petroleum Tankers", the
changing industrial needs in U.S. markets, as well as increased competition from
foreign imports, have had a moderating effect on chemical tanker rates.
SEABULK TOWING
Revenue derived from the Company's tug operations is primarily a
function of the number of tugs available to provide services, the rates charged
for their services, the volume of vessel traffic requiring docking and other
ship-assist services, and competition. Vessel traffic, in turn, is largely a
function of the general trade activity in the region served by the port.
The following table summarizes certain operating information for the
Company's tugs:
SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
----------------------------------------------------------
2003 2002
------- -------
Number of tugs at end of period 28 31
Revenue (in thousands) ........ $18,301 $16,043$28,100 $23,084
Towing revenue increased 14.1%21.7% in the first halfnine months of 2003
compared to the same period in the prior year due to increased vessel traffic in
certain of the Company's ports and other factors, including higher rates.rates and
improved utilization of the Company's tug fleet.
25
The Company has been the sole provider of docking services in Port
Canaveral, the smallest of its harbor towing markets. As a result of a
recent
proceeding before the Federal Maritime Commission in the first quarter of 2003,
the Company is expected to
23
have a competitor in Port Canaveral. Port Canaveral
Towing intends to continue its operations at Port Canaveral.
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 2002 Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth certain selected financial data and
percentages of revenue for the periods indicated:
THREE MONTHS ENDED JUNESEPTEMBER 30,
-------------------------------------------------------------------------------------------------------------
2003 2002
------------------- --------------------------------------------- -----------------------
(IN MILLIONS)
Revenue ...................... $79.9....................... $ 79.7 100.0% $81.6$ 80.4 100.0%
Operating expenses ........... 42.6 53.3 46.7 57.2............ 44.4 55.7 43.9 54.6
Overhead expenses ............ 9.4 11.8 9.7 11.9............. 9.8 12.3 10.1 12.6
Depreciation, amortization and
15.9 19.9 16.6 20.3
----- ----- ----- -----
drydocking .................... 16.3 20.4 16.4 20.4
Gain on disposal of assets, net 0.3 0.3% 0.3 0.4%
------- ------- ------- -------
Income from operations ....... $12.0 15.0%........ $ 8.5 10.6%
===== ===== ===== =====9.5 11.9% $ 10.3 12.8%
======= ======= ======= =======
Interest expense, net ................. $ 8.1 10.1% $12.3 15.1%
===== ===== ===== =====9.0 11.3% $ 11.5 14.3%
======= ======= ======= =======
Other income,expense, net ............ $ 0.1 0.1%(1.1) 1.4% $ 1.1 1.3%
===== ===== ===== =====(27.7) (34.5)
======= ======= ======= =======
Net income (loss) ............loss ...................... $ 2.7 3.4% $(4.4) (5.4)(1.9) (2.4%) $ (30.6) (38.0)%
===== ===== ===== ============ ======= ======= =======
THREE MONTHS ENDED JUNESEPTEMBER 30, 2003 COMPARED WITH THE THREE MONTHS ENDED
JUNESEPTEMBER 30, 2002
REVENUE. Revenue decreased 2.1%0.9% to $79.9$79.7 million for the three months
ended JuneSeptember 30, 2003 from $81.6$80.4 million for the three months ended JuneSeptember
30, 2002.
Offshore energy support revenue decreased 11.0%2.2% to $39.2$42.0 million for the
three months ended JuneSeptember 30, 2003 from $44.1$43.0 million for the same period in
2002, primarily due to reduced revenue from the U.S. Gulf of Mexico and the West
Africa operating region. Revenue from the U.S. Gulf of Mexico decreased during
the three months ended JuneSeptember 30, 2003 compared to the same period in 2002
primarily due to reduced exploration and production activity, as oil companies
were unwilling to investa decline in new projects until there was clear evidence of the
sustainability of commodity pricesday
rates and an increase in energy demand.lower vessel count. The decrease in West Africa revenue was driven by
lower day rates and utilization and a reduction in vessel count.
Marine transportation revenue increased 7.1%decreased 8.1% to $31.8$28.0 million for the
three months ended JuneSeptember 30, 2003 from $29.7$30.4 million for the three months
ended JuneSeptember 30, 2002. This increasedecrease is primarily due to an improvementincrease in
ratesoff-hire days as a result of regularly scheduled vessel drydockings for two
tankers and higher utilization.an unscheduled engine repair for one tanker.
26
Towing revenue increased 12.9%39.2% to $9.0$9.8 million for the three months
ended JuneSeptember 30, 2003 from $8.0$7.0 million for the three months ended JuneSeptember
30, 2002. The increase in revenue is due to increased vessel traffic in certain
of the Company's ports and other factors, including higher rates.
24
rates and improved
utilization of the Company's tug fleet.
OPERATING EXPENSES. Operating expenses decreased 8.9%increased 1.1% to $42.6$44.4 million
for the three months ended JuneSeptember 30, 2003 from $46.7$43.9 million for the same
period in 2002. The decrease is due to a variety of factors, including a reduction in
crewing payrollPayroll decreased in the struggling U.S. Gulf of Mexico market
as well as strong
payroll expense control in the towingdue to lower crewing costs and tanker segments. Repairs and
maintenance decreased as there were major repairs in the tanker segment fordue to strong payroll
expense control. Insurance increased due to larger reserves under the same period in 2002. FuelCompany's
protection and consumables decreased in the West Africa regionindemnity policy as the passenger count on the vessels decreased.deductible increased from prior year. As
a percentage of revenue, operating expenses decreasedincreased to 53.3%55.7% for the three
months ended JuneSeptember 30, 2003 from 57.2%54.6% for the 2002 period.
OVERHEAD EXPENSES. Overhead expenses decreased 3.1%2.5% to $9.4$9.8 million for
the three months ended JuneSeptember 30, 2003 from $9.7$10.0 million for the same period
in 2002, primarily due to a decrease in professional fees and other overhead.
Other overhead decreased as a result of a reductiondecrease in insurance expense as the
bad debt reserve.Company paid a one-time Directors and Officers policy premium in 2002 related to
the previous Board of Directors. As a percentage of revenue, overhead expenses
decreased to 11.8%12.3% for the three months ended JuneSeptember 30, 2003 compared to
11.9%12.6% for the same period in 2002.
DEPRECIATION, AMORTIZATION AND DRYDOCKING. Depreciation, amortization
and drydocking decreased 4.3% to $15.9remained substantially the same at $16.3 million for the three
months ended JuneSeptember 30, 2003 from $16.6compared with $16.4 million for the three months
ended JuneSeptember 30, 2002 primarily
due2002.
GAIN ON DISPOSAL OF ASSETS. Gain on disposal of assets decreased 12.9%
to a reduction$250,000 for the three months ended September 20, 2003 from $287,000 for the
same period in drydockings2002. The Company sold one offshore energy support vessel in the
offshore energy segment asthree months ended September 30, 2003 compared to two vessels for the Company
has been selling its older and smaller vessels.same
period in 2002.
NET INTEREST EXPENSE. Net interest expense decreased 34.0%21.9% to $8.1$9.0
million for the three months ended JuneSeptember 30, 2003 from $12.3$11.5 million for the
same period in 2002. The decrease is primarily due to a lower debt balance and
lower interest rates as a result of the recapitalization in September 2002.
OTHER INCOME,EXPENSE, NET. Other income,expense, net decreased 96.0% to $0.1$1.1 million
for the three months ended JuneSeptember 30, 2003 compared to other income,expense, net of
$1.1$27.7 million for the same period in 2002, primarily due to a smaller gainthe loss on vessel salesearly
extinguishment of debt of $27.8 million in
2003 compared to the 2002 period.
SIXperiod as a result of the
recapitalization in September 2002.
NINE MONTHS ENDED JUNESEPTEMBER 30, 2003 COMPARED WITH THE SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, 2002
REVENUE. Revenue decreased 4.7%3.4% to $157.2$236.8 million for the sixnine months
ended JuneSeptember 30, 2003 from $164.8$245.2 million for the sixnine months ended JuneSeptember
30, 2002.
Offshore energy support revenue decreased 11.8%8.6% to $77.1$119.1 million for
the sixnine months ended JuneSeptember 30, 2003 from $87.4$130.3 million for the same period
in 2002, primarily due to reduced revenue from the U.S. Gulf of Mexico. Revenue
from the U.S. Gulf of Mexico decreased during the sixnine months ended JuneSeptember
30, 2003 compared to the same period in 2002 primarily due to reduced
exploration and production activity, as oil companies were unwillinga decline in day rates and lower vessel
count. In addition, revenue decreased in West Africa due to investa lower vessel count
and a reduction in new projects
until there was clear evidence of the sustainability of commodity pricesday rates and an
increase in energy demand.utilization.
Marine transportation revenue remains substantially the same at $61.9decreased 2.3% to $89.9 million for the
sixnine months ended JuneSeptember 30, 2003 as compared to $61.6$92.0 million for the sixnine
months ended JuneSeptember 30, 2002. The decrease in revenue is primarily due to the
discontinuance of Sun State operations in March 2002, as well as an increase in
off-hire days in the third quarter of 2003 as a result of vessel drydockings and
repairs. The decrease is partially offset by improved rates and higher
utilization in 2003.
27
Towing revenue increased 14.1%21.7% to $18.3$28.1 million for the sixnine months
ended JuneSeptember 30, 2003 from $16.0$23.1 million for the sixnine months ended JuneSeptember
30, 2002. The increase in revenue is due to increased vessel traffic in certain
of the Company's ports, higher rates and other factors, including higher rates.improved utilization of the Company's
tug fleet.
OPERATING EXPENSES. Operating expenses decreased 9.2%5.9% to $84.0$128.3 million
for the sixnine months ended JuneSeptember 30, 2003 from $92.5$136.4 million for the same
period in 2002. The decrease is due to a variety of factors, including the
elimination of operating expenses for the Company's Sun State Marine Services
subsidiary, which was discontinued in March 2002, a reduction in crewing payroll
in the struggling U.S. Gulf of Mexico market, a decrease in repairs and
maintenance for the Company's tanker segment due to major repairs done in the
first halfnine months of 2002, and a decrease in fuel and consumables in the West
Africa operating region. As a percentage of revenue, operating expenses
decreased to 53.4%54.2% for the sixnine months ended JuneSeptember 30, 2003 from 56.1%55.6% for
the 2002 period.
25
OVERHEAD EXPENSES. Overhead expenses remainremained substantially the same at
$18.8$28.5 million for the sixnine months ended JuneSeptember 30, 2003 as compared to $18.7$28.7
million for the sixnine months ended JuneSeptember 30, 2002.
DEPRECIATION, AMORTIZATION AND DRYDOCKING. Depreciation, amortization
and drydocking decreased 2.3%1.8% to $32.4$48.7 million for the sixnine months ended
JuneSeptember 30, 2003 from $33.2$49.6 million for the sixnine months ended JuneSeptember 30,
2002 primarily due to a reduction in drydockings in the offshore energy segment
as the Company has been selling its older and smaller vessels.
GAIN ON DISPOSAL OF ASSETS, NET. Gain on disposal of assets, net
decreased 12.7% to $1.4 million for the nine months ended September 20, 2003
from $1.6 million for the same period in 2002. The Company sold 16 vessels for
the nine months ended September 30, 2003 as compared to 14 vessels for the same
period in 2002.
NET INTEREST EXPENSE. Net interest expense decreased 35.5%31.2% to $16.1$25.1
million for the sixnine months ended JuneSeptember 30, 2003 from $24.9$36.5 million for the
same period in 2002. The decrease is primarily due to a lower debt balance and
lower interest rates as a result of the recapitalization in September 2002.
OTHER INCOME,EXPENSE, NET. Other income,expense, net decreased 95.0% to $0.9$1.4 million
for the sixnine months ended JuneSeptember 30, 2003 compared to $1.2$27.9 million for the
same period in 2002, primarily due to the loss on early extinguishment of debt
of $27.8 million in the 2002 period as a smaller gain on asset salesresult of the recapitalization in
2003 compared to the
same period inSeptember 2002.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS. Net cash provided by operating activities totaled $33.5$57.0
million for the sixnine months ended JuneSeptember 30, 2003 compared to $34.8$55.0 million
for the same period in 2002. Net income (excluding loss on early extinguishment
of debt) improved by $10.9$5.3 million over the 2002 period as a result of the
factors mentioned above.
This was partially offset by a
decrease of $7.6 million between the 2002 and 2003 period in trade accounts and
other receivables. The collections from the Company's protection and indemnity
insurance club for settlement of outstanding insurance claims were higher in the
first half of 2002 versus the 2003 period.
Net cash used in investing activities was $21.8$35.8 million for the sixnine
months ended JuneSeptember 30, 2003 compared to $3.4$8.1 million for the same period in
2002. The increase in cash used in investing activities is due to the cash
purchases of the SEABULK AFRICA in January 2003 and the SEABULK IPANEMA in April
2003, and the initial down paymentpayments on the first Brazilian newbuildnewbuilds in April 2003 (See(see Note
3)4).
Net cash provided by financing activities for the six months ended June
30, 2003 was $0.2 million compared to net cash used in financing activities of
$28.3for the nine months ended
September 30, 2003 was $11.3 million compared to $14.1 million for the same
period in 2002. The decrease innet cash used in financing activities in 2003 of $11.8
million is attributableprimarily due to larger payments in 2002 on the previous
term loans and from the proceedsearly payout of the sale leasebackTitle XI debt of the SEABULK AFRICA in
April 2003 (See$11.2 million
(see Note 3).
RECENT EXPENDITURES AND FUTURE CASH REQUIREMENTS. During the first sixnine
months of 2003, the Company incurred $29.6$44.0 million in capital expenditures for
fleet improvements and drydocking costs of which approximately $21$22 million was
for the purchase of the SEABULK AFRICA and the SEABULK IPANEMA, as well as thefor
28
down paymentpayments on the two Brazilian newbuild.newbuilds. For the remainder of 2003,
maintenance capital expenditures are expected to aggregate approximately $16$8.3
million, and payments for the two Brazilian newbuilds are expected to aggregate
approximately $6.8 million. The Company received net proceeds of approximately
$13.3 million from the sale-leaseback of the SEABULK AFRICA in April of 2003. Total
2003 capital expenditures of approximately $46.0$60 million will substantially cover
all of the Company'sour drydocking requirements for 6457 vessels during 2003.
26
2003, as well as the
new vessel purchases and down payments noted above.
Long-term debt consisted of the following at JuneSeptember 30, 2003:
OUTSTANDING BALANCE
2003 AS OF INTEREST RATE AS OF
FACILITY PAYMENTS JUNESEPTEMBER 30, 2003 MATURITY AUGUSTNOVEMBER 1, 2003
-------- -------- ------------------------------------- -------- ------------------------------------
Bank Tranche A revolver $5.0$68.7 million $93.7$ 30.0 million 2007 5.61%
Bank Tranche B term loan2008 4.62%
9.50% Senior Notes (see Note 13) $0.0 million $80.0$150.0 million 2007 6.11%2013 9.50%
Title XI Financing Bonds $3.7$15.3 million $230.8$219.1 million 2005 to 2024 5.86% to 10.10%
Other notes payable $3.3$4.4 million $25.2$ 24.2 million 2003 to 2011 5.81% to 8.50%
In addition to the revolver balance of $93.7$30.0 million, there are $1.3$3.3
million in outstanding letters of credit as of JuneSeptember 30, 2003. In connection
with the Notes offering, the bank Tranche A revolver was amended (see Note 2).
The Company is required to make semi-annual principal repayments of the revolver
commencing six
months after September 2002February 2004 with the final payment due in September 2007. In
connection with the Notes offering, the bank Tranche A revolver has been amended
and the bank Tranche B term loan has been prepaid and cancelled (See Note 2).August 2008.
The Company's capital requirements arise primarily from its need to
service debt, fund working capital, maintain and improve its vessels, and make
vessel acquisitions. The Company's expected 2003 capital requirements for debt
service, vessel maintenance and fleet improvements total approximately $93$116
million. The Company expects that cash flow from operations will continue to be
a significant source of funds for its working capital and capital requirements.
Management continues implementation of certain initiatives in an effort
to improve profitability and liquidity. These initiatives include (1) planning a
newbuilding program for offshore vessels, (2) selective acquisitions and
charters of additional vessels, (2)(3) repositioning certain vessels to take
advantage of higher day rates, (3)(4) selling unprofitable and low margin vessels,
and (4)(5) eliminating non-essential operating and overhead expenses. In addition,
the Company is exploring expansion opportunities in the international tanker
business. The Company will operate one of its U.S. flag double hull tankers
under a contract of affreightment in U.S. foreign commerce commencing in the
fourth quarter of 2003 or first quarter of 2004, and is also reviewing newbuild
tanker opportunities in foreign shipyards.
While the Company believes that these initiatives are sound and
attainable, the possibility exists that unforeseen events or business or
regulatory conditions, including deterioration in its markets, could prevent the
Company from meeting targeted operating results. If unforeseen events or
business or regulatory conditions prevent the Company from meeting targeted
operating results, it will continue to pursue alternative plans including
additional asset sales, additional reductions in operating expenses, and
deferral of capital expenditures, which should enable the Company 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.
EFFECTS OF INFLATION
The rate of inflation has not had a material impact on the Company's
operations. Moreover, if inflation remains at its recent levels, it is not
expected to have a material impact on the Company's operations for the
foreseeable future.
29
RECENT ACCOUNTING PRONOUNCEMENTS
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.
27
Currently, the costs incurred to drydock the Company's vessels are deferred and
amortized on a straight-line basis over the period to the next drydocking,
generally 30 to 36 months. At its September 9, 2003 meeting, AcSEC voted to
approve the SOP. The SOP is expected to be presented for FASB clearance in
the first quarter of 2004 and would be applicable for fiscal years beginning
after December 15, 2004. Management has determined that this SOP if issued as
proposed, wouldmay 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 ($23.2 million as of June 30, 2003). Additionally, all drydock
expenditures incurred after the adoption of the SOP would be expensed as
incurred.
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 an
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. Subsequent to the January 1, 2003 adoption date of
the standard, the Company will be required to reclassify to continuing
operations amounts previously reported as extinguishments of debt.
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 November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS. FIN 45 expands on the accounting
guidance of Statements No. 5, 57, and 107 and incorporates without change the
provisions of FASB Interpretation No. 34, which is being superseded. FIN 45
elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit. It also clarifies
that at the time a company issues a guarantee, it must recognize an initial
liability for the fair value, or market value, of the obligations it assumes
under that guarantee and must disclose that information in its interim and
annual financial statements. The initial recognition and initial measurement
provisions apply on a prospective basis to guarantees issued or modified after
December 31, 2002, regardless of the guarantor's fiscal year-end. The disclosure
requirements in the Interpretation are effective for financial statements of
interim or annual periods ending after December 15, 2002. The adoption of FIN 45
isdid not expected to have a significant impact on the Company.
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR
STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE. SFAS No. 148 amends SFAS
123 to provide alternative methods of transition to the fair value method of
accounting for stock-based employee compensation. In addition, this statement
amends the disclosure provisions of SFAS 123 to require expanded disclosure of
the effects of an entity's accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in annual
and interim financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
"CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF"Consolidation of Variable Interest Entities, an Interpretation of ARB NO.No. 51"
(FIN46). FIN 46 requires certain variable interest entities to be consolidated
by the primary beneficiary of the variable interest entity. The primary
beneficiary is defined as the party which, as a result of holding its variable
interest, absorbs a majority of the entity's expected losses, receives a
majority of its expected residual returns, or both. FIN 46 is effective for all
new variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim or annual period
beginningending after JuneDecember 15, 2003. The Company has not yet determined the impact that the adoption of
FIN 46 will not have a significant impact on its financial position, results of
operations or cash flows.
2830
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The Company is exposed to market risk from changes in interest rates,
which may adversely affect its results of operations and financial condition. The Company's policy is not to use financial instruments for trading or other
speculative purposes, andOn
October 20, 2003, the Company entered into a ten-year interest rate swap
agreement with Fortis Bank and other members of its bank group. Through this
derivative instrument, which covers a notional amount of $150 million, the
Company effectively converted the interest rate on its outstanding 9.5% senior
notes due August 2013 to a floating rate based on LIBOR. The current effective
floating interest rate is not6.05%. The swap agreement is expected to be secured by
a party to any leveraged financial
instruments. The Company manages market risk by restrictingsecond lien on the use of
derivative financial instruments to infrequent purchases of forward contracts
forassets that secure the purchase of fuel oil for its carrier fleet. These contracts have been
terminated as of December 31, 2001.Company's amended and restated
credit facility.
The Jones Act restricts the U.S. coastwise trade to vessels owned,
operated and crewed substantially by U.S. citizens. The Jones Act continues to
be in effect and supported by Congress and the Administration. However, it is
possible that the Company's advantage as a U.S. citizen operator of Jones Act
vessels could be somewhat eroded over time as there continue to be periodic
efforts and attempts by foreign interests to circumvent certain aspects of the
Jones Act.
EXPOSURE TO SHORT-TERM INTEREST RATEs.RATES. In connection with the Senior
Notes offering, the Company has amended and restated its existing credit
facility (see Note 2). The amended credit facility consists of an $80 million
revolving credit facility and has a five-year maturity. The interest rate is
currently 5.11%4.62%. A hypothetical 2.0% increase in interest rates on $80 million
of debt would cause the Company's interest expense to increase on average
approximately $1.2 million per year over the term of the loans, with a
corresponding decrease in income before taxes.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
The Company maintains systems of disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) designed to
ensure that the Company is able to record, process, summarize and report, within
the applicable time periods, the information required in the Company's annual
and quarterly reports under the Securities Exchange Act of 1934. Management of
the Company has evaluated the effectiveness of these disclosure controls and
procedures as of the end of the period covered by this report. Based upon that
evaluation, the principal executive officer and principal financial officer
concluded that these disclosure controls and procedures are effective to
accomplish their purpose. No significant changes were made during the period covered by
this report to the Company's internal controlscontrol over financial reporting (as
defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that have
materially affected the Company's internal control over financial reporting, or
other factors that could significantlyare reasonably likely to materially affect these
controls subsequent to the date of their evaluation, nor were any corrective
actions with respect to significant deficiencies and material weaknesses
necessary subsequent to that date.Company's internal control over
financial reporting.
Attached as Exhibits 31.1 and 31.2 hereto are certifications by the
Company's Chief Executive Officer and Chief Financial Officer, which are
required by Section 302 of the Sarbanes-Oxley Act of 2002. The information set
forth in this Item 4 should be read in conjunction with these Section 302
certifications.
2931
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information concerning certain legal proceedings, see Note 89 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 16, 2003. At
the meeting, the shareholders elected the following individuals to one-year
terms as members of the Board of Directors: Ari J. Benacerraf, Peter H. Cressy,
David A. Durkin, Kenneth V. Huseman, Robert L. Keiser, Gerhard E.Kurz, Pierre F.
Lapeyre, Jr., David M. Leuschen, Thomas P. Moore, Jr., and Steven A. Webster.
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 1,300,000 to 2,300,000,
and to amend the definition of the term "Change in Control" in such Plan.
The shareholders also approved amendment of the Seabulk International,
Inc. Stock Option Plan for Directors to increase the number of shares of the
Company's common stock available for issuance under such Plan from 125,000 to
360,000, and amend the definition of the term "Change in Control" in such Plan.
The voting results of the election of directors, amendment of the two
Plans and the ratification of the appointment of Ernst & Young LLP as
independent public accountants for the year 2003 voted upon at the meeting are
as follows:
Election of Directors:
NOMINEE VOTES FOR AUTHORITY WITHHELD
------------------ ----------- -----------------
Ari J. Benacerraf 19,209,286 147,019
Peter H. Cressy 19,242,615 113,690
David A. Durkin 19,241,415 114,890
Kenneth V. Huseman 19,241,515 114,790
Robert L. Keiser 19,210,186 146,119
Gerhard E. Kurz 19,233,215 123,090
Pierre F. Lapeyre, Jr. 19,209,186 147,119
David M. Leuschen 19,241,515 114,790
Thomas P. Moore, Jr. 19,242,515 113,790
Steven A. Webster 19,241,515 114,790
30
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 1,300,000 to 2,300,000, and amend the
definition of the term "Change in Control" in such Plan:
VOTES FOR VOTES AGAINST VOTES ABSTAINING
--------- ------------- ----------------
17,375,434 214,871 6,700
To approve amendment of the Seabulk International, Inc. Stock Option
Plan for Directors to increase the number of shares of the Company's common
stock available for issuance under such Plan from 125,000 to 360,000, and amend
the definition of the term "Change in Control" in such Plan:
VOTES FOR VOTES AGAINST VOTES ABSTAINING
--------- ------------- ----------------
17,478,491 111,291 7,223
To ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants for the year ending December 31, 2003:
VOTES FOR VOTES AGAINST VOTES ABSTAINING
--------- ------------- ----------------
19,353,905 2,000 400None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Principal Executive Officer pursuant
to Rule 13a-14(a) of the Securities Exchange Act of
1934.
31.2 Certification of Principal Financial Officer pursuant
to Rule 13a-14(a) of the Securities Exchange Act of
1934.
32.1 Certification of Principal Executive Officer pursuant
to 18 U.S.C.ss.1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.2002 and Rule
13a-14(b) of the Securities Exchange Act of 1934
(furnished herewith).
32.2 Certification of Principal Financial Officer pursuant
to 18 U.S.C.ss.1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.2002 and Rule
13a-14(b) of the Securities Exchange Act of 1934
(furnished herewith).
32
(b) Reports of Form 8-K
The following reports on Form 8-K were filed (other than information
reported pursuant to Item 9 which was furnished to the Securities and Exchange
Commission rather than filed) during the quarter ended
JuneSeptember 30, 2003:
1. The Company filed a Current Report on Form 8-K dated April 21,July 17,
2003. Item 5 was reported and no financial statements were
filed.
2. The Company filedfiled/furnished a Current Report on Form 8-K dated
MayJuly 18, 2003. Items 7 and 9 2003. Item 5 waswere reported and no financial
statements were filed.
3. The Company filed a Current Report on Form 8-K dated June 16,July 30,
2003. Item 5 was reported and no financial statements were
filed.
314. The Company filed a Current Report on Form 8-K dated August 8,
2003. Items 7 and 12 were reported and no financial statements
were filed.
5. The Company furnished a Current Report on Form 8-K dated
September 3, 2003. Item 9 was reported and no financial
statements were filed.
33
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: AugustNovember 14, 2003
3234