SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004March 31, 2005
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. YESüþ NOo
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YESoNOüþ
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. YESüþ NOo
There were 23,423,61923,619,873 shares of Common Stock, par value $0.01 per share, outstanding at November 1, 2004.May 2, 2005.
SEABULK INTERNATIONAL, INC.
FORM 10-Q
Table of Contents
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
Seabulk International, Inc. and Subsidiaries
September 30, | December 31, | March 31, | December 31, | |||||||||||||
2004 | 2003 | 2005 | 2004 | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 11,133 | $ | 7,399 | $ | 31,310 | $ | 18,949 | ||||||||
Restricted cash | 37,943 | 30,656 | 30,350 | 35,681 | ||||||||||||
Trade accounts receivable, net of allowance for doubtful accounts of $5,950 and $4,321 in 2004 and 2003, respectively | 52,110 | 49,599 | ||||||||||||||
Trade accounts receivable, net of allowance for doubtful accounts of $5,881 and $5,649 in 2005 and 2004, respectively | 51,848 | 55,209 | ||||||||||||||
Other receivables | 3,844 | 10,730 | 4,121 | 3,784 | ||||||||||||
Marine operating supplies | 8,704 | 8,155 | 8,081 | 7,868 | ||||||||||||
Prepaid expenses and other | 2,542 | 3,045 | 4,163 | 3,627 | ||||||||||||
Total current assets | 116,276 | 109,584 | 129,873 | 125,118 | ||||||||||||
Vessels and equipment, net | 588,062 | 527,026 | 596,626 | 598,793 | ||||||||||||
Deferred costs, net | 47,189 | 48,486 | 41,976 | 45,053 | ||||||||||||
Other | 14,326 | 9,344 | 21,173 | 17,824 | ||||||||||||
Total assets | $ | 765,853 | $ | 694,440 | $ | 789,648 | $ | 786,788 | ||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 9,530 | $ | 18,805 | $ | 10,126 | $ | 14,918 | ||||||||
Current maturities of long-term debt | 16,172 | 11,037 | 16,429 | 16,653 | ||||||||||||
Current obligations under capital leases | 3,652 | 3,521 | 3,531 | 3,708 | ||||||||||||
Accrued interest | 5,928 | 5,812 | 6,265 | 4,875 | ||||||||||||
Accrued liabilities and other | 37,145 | 37,363 | 35,333 | 35,321 | ||||||||||||
Total current liabilities | 72,427 | 76,538 | 71,684 | 75,475 | ||||||||||||
Long-term debt | 319,274 | 258,217 | 323,714 | 325,965 | ||||||||||||
Senior notes | 152,686 | 151,472 | 148,006 | 152,906 | ||||||||||||
Obligations under capital leases | 29,515 | 32,246 | 27,841 | 28,568 | ||||||||||||
Other liabilities | 3,384 | 3,136 | 7,663 | 4,879 | ||||||||||||
Total liabilities | 577,286 | 521,609 | 578,908 | 587,793 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Minority interest | 659 | 476 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, no par value-authorized 5,000; issued and outstanding, none | — | — | — | — | ||||||||||||
Common stock-$.01 par value, authorized 40,000 shares; 23,410 and 23,347 shares issued and outstanding in 2004 and 2003, respectively | 234 | 233 | ||||||||||||||
Common stock–$.01 par value, authorized 40,000 shares; 23,620 and 23,446 shares issued and outstanding in 2005 and 2004, respectively | 236 | 234 | ||||||||||||||
Additional paid-in capital | 259,622 | 259,134 | 261,746 | 259,843 | ||||||||||||
Accumulated other comprehensive income | 31 | 55 | ||||||||||||||
Unearned compensation | (826 | ) | (699 | ) | (2,074 | ) | (758 | ) | ||||||||
Other comprehensive income | 7 | — | ||||||||||||||
Accumulated deficit | (71,129 | ) | (86,313 | ) | (49,199 | ) | (60,379 | ) | ||||||||
Total stockholders’ equity | 187,908 | 172,355 | 210,740 | 198,995 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 765,853 | $ | 694,440 | $ | 789,648 | $ | 786,788 | ||||||||
See notes to condensed consolidated financial statements.
1
Seabulk International, Inc. and Subsidiaries
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2005 | 2004 | |||||||||||||||||||
Revenue | $ | 89,361 | $ | 79,670 | $ | 259,098 | $ | 236,823 | $ | 95,581 | $ | 82,534 | ||||||||||||
Vessel and voyage expenses: | ||||||||||||||||||||||||
Crew payroll and benefits | 22,066 | 21,195 | 66,344 | 63,514 | 22,600 | 22,581 | ||||||||||||||||||
Charter hire | 3,199 | 2,285 | 10,730 | 5,934 | 4,892 | 3,587 | ||||||||||||||||||
Repairs and maintenance | 5,943 | 6,647 | 20,115 | 18,844 | 4,645 | 6,198 | ||||||||||||||||||
Insurance | 2,929 | 3,347 | 9,253 | 8,290 | 3,181 | 2,620 | ||||||||||||||||||
Fuel and consumables | 7,373 | 6,490 | 22,183 | 18,735 | 7,283 | 7,015 | ||||||||||||||||||
Port charges and other | 5,451 | 4,420 | 15,437 | 13,020 | 5,326 | 4,906 | ||||||||||||||||||
46,961 | 44,384 | 144,062 | 128,337 | 47,927 | 46,907 | |||||||||||||||||||
General and administrative | 9,332 | 9,774 | 28,080 | 28,532 | 9,568 | 9,425 | ||||||||||||||||||
Depreciation, amortization and drydocking | 16,723 | 16,285 | 49,640 | 48,702 | 16,520 | 15,790 | ||||||||||||||||||
Gain on disposal of assets, net | (446 | ) | (250 | ) | (2,423 | ) | (1,433 | ) | ||||||||||||||||
Total | 72,570 | 70,193 | 219,359 | 204,138 | ||||||||||||||||||||
Loss on disposal of assets, net | 130 | 12 | ||||||||||||||||||||||
Income from operations | 16,791 | 9,477 | 39,739 | 32,685 | 21,436 | 10,400 | ||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest expense | (8,422 | ) | (9,109 | ) | (24,866 | ) | (25,410 | ) | (9,426 | ) | (8,069 | ) | ||||||||||||
Interest income | 91 | 91 | 209 | 300 | 146 | 66 | ||||||||||||||||||
Minority interest in (gains) losses of subsidiaries | (241 | ) | 61 | (183 | ) | (166 | ) | |||||||||||||||||
Loss on early extinguishment of debt | — | (1,692 | ) | — | (1,692 | ) | ||||||||||||||||||
Minority interest in losses of subsidiaries | — | 78 | ||||||||||||||||||||||
Other, net | 63 | 528 | 4,639 | 463 | (8 | ) | 4,524 | |||||||||||||||||
Total other expense, net | (8,509 | ) | (10,121 | ) | (20,201 | ) | (26,505 | ) | ||||||||||||||||
Total income (expense), net | (9,288 | ) | (3,401 | ) | ||||||||||||||||||||
Income (loss) before provision for income taxes | 8,282 | (644 | ) | 19,538 | 6,180 | |||||||||||||||||||
Income before provision for income taxes | 12,148 | 6,999 | ||||||||||||||||||||||
Provision for income taxes | 1,469 | 1,232 | 4,354 | 3,810 | 968 | 1,349 | ||||||||||||||||||
Net income (loss) | $ | 6,813 | $ | (1,876 | ) | $ | 15,184 | $ | 2,370 | |||||||||||||||
Net income | $ | 11,180 | $ | 5,650 | ||||||||||||||||||||
Net income (loss) per common share: | ||||||||||||||||||||||||
Net income (loss) per common share - basic | $ | 0.29 | $ | (0.08 | ) | $ | 0.65 | $ | 0.10 | |||||||||||||||
Net income (loss) per common share - diluted | $ | 0.29 | $ | (0.08 | ) | $ | 0.64 | $ | 0.10 | |||||||||||||||
Net income per common share: | ||||||||||||||||||||||||
Net income per common share — basic | $ | 0.48 | $ | 0.24 | ||||||||||||||||||||
Weighted average common shares outstanding - basic | 23,262 | 23,199 | 23,257 | 23,161 | ||||||||||||||||||||
Net income per common share — diluted | $ | 0.46 | $ | 0.24 | ||||||||||||||||||||
Weighted average common shares outstanding - diluted | 23,676 | 23,199 | 23,690 | 23,527 | ||||||||||||||||||||
Weighted average common shares outstanding — basic | 23,327 | 23,249 | ||||||||||||||||||||||
Weighted average common shares outstanding — diluted | 24,273 | 23,795 | ||||||||||||||||||||||
See notes to condensed consolidated financial statements.
2
Seabulk International, Inc. and Subsidiaries
Three Months Ended | ||||||||||||||||
March 31, | ||||||||||||||||
Nine Months Ended | 2005 | 2004 | ||||||||||||||
September 30, | (as restated, | |||||||||||||||
2004 | 2003 | see Note 1) | ||||||||||||||
Operating activities: | ||||||||||||||||
Net income | $ | 15,184 | $ | 2,370 | $ | 11,180 | $ | 5,650 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation of vessels and equipment | 30,442 | 31,986 | ||||||||||||||
Depreciation and amortization of vessels and equipment | 9,903 | 9,900 | ||||||||||||||
Expenditures for drydocking | (18,118 | ) | (19,833 | ) | (3,943 | ) | (4,628 | ) | ||||||||
Amortization of drydocking costs | 19,198 | 16,716 | 6,617 | 5,890 | ||||||||||||
Amortization of discount on long-term debt & deferred financing costs | 1,280 | 1,123 | ||||||||||||||
Amortization of discount on long-term debt and financing costs | 418 | 412 | ||||||||||||||
Amortization of unearned compensation | 194 | — | ||||||||||||||
Provision for bad debts | 2,085 | 161 | 432 | 1,643 | ||||||||||||
Gain on disposal of assets | (2,423 | ) | (1,433 | ) | ||||||||||||
Loss on early extinguishment of debt | — | 1,692 | ||||||||||||||
Minority interest in gains of subsidiaries | 183 | 166 | ||||||||||||||
Other non-cash items | 187 | 172 | ||||||||||||||
Loss on disposal of assets | 130 | 12 | ||||||||||||||
Minority interest in losses of subsidiaries | — | (78 | ) | |||||||||||||
Other | — | 51 | ||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade accounts and other receivables | 2,290 | (6,590 | ) | 2,592 | 1,360 | |||||||||||
Other current and long-term assets | (3,640 | ) | 534 | (9,157 | ) | (5,465 | ) | |||||||||
Accounts payable and other liabilities | (9,164 | ) | 10,061 | (623 | ) | (3,264 | ) | |||||||||
Net cash provided by operating activities | 37,504 | 37,125 | 17,743 | 11,483 | ||||||||||||
Investing activities: | ||||||||||||||||
Proceeds from disposals of assets | 3,770 | 8,647 | 2,250 | 601 | ||||||||||||
Purchases of vessels and equipment | (92,717 | ) | (24,208 | ) | (9,973 | ) | (71,040 | ) | ||||||||
Investment in Joint Venture | (240 | ) | (400 | ) | ||||||||||||
Net cash used in investing activities | (89,187 | ) | (15,961 | ) | (7,723 | ) | (70,439 | ) | ||||||||
Financing activities: | ||||||||||||||||
Payments of Fortis debt | (1,483 | ) | — | |||||||||||||
Proceeds from Fortis debt | 20,000 | — | ||||||||||||||
Payments of prior credit facility | — | (148,179 | ) | |||||||||||||
Proceeds from 9.5% senior notes | — | 150,000 | ||||||||||||||
Proceeds from Amended Credit Facility | — | 20,000 | ||||||||||||||
Payments on Amended Credit Facility | (5,500 | ) | — | |||||||||||||
Proceeds from long-term debt | 5,799 | 49,600 | ||||||||||||||
Payments of long-term debt | (5,489 | ) | (4,392 | ) | (2,324 | ) | (843 | ) | ||||||||
Proceeds from long-term debt | 57,193 | 6,525 | ||||||||||||||
Payments of Title XI bonds | (3,984 | ) | (15,552 | ) | (450 | ) | (450 | ) | ||||||||
Payments of obligations under capital leases | (904 | ) | (865 | ) | ||||||||||||
Payments of deferred financing costs related to 2003 Senior Notes and Amended Credit Facility | — | (95 | ) | |||||||||||||
Payments of other deferred financing costs | (823 | ) | (61 | ) | (6 | ) | (506 | ) | ||||||||
Issue costs related to senior notes and amended credit facility | (285 | ) | — | |||||||||||||
Payments of deferred financing costs under senior notes and credit facility | — | (4,607 | ) | |||||||||||||
Net proceeds from sale leaseback | — | 13,274 | ||||||||||||||
Payments of obligations under capital leases | (2,600 | ) | (8,538 | ) | ||||||||||||
Capitalized issue costs related to issuance of common stock | — | (27 | ) | |||||||||||||
Proceeds from exercise of stock options | 175 | 242 | 395 | 167 | ||||||||||||
Proceeds from exercise of warrants | — | 1 | ||||||||||||||
Increase in restricted cash | (7,287 | ) | (8,143 | ) | ||||||||||||
Decrease (increase) in restricted cash | 5,331 | (3,617 | ) | |||||||||||||
Net cash provided (used in) by financing activities | 55,417 | (19,457 | ) | |||||||||||||
Net cash provided by financing activities | 2,341 | 63,391 | ||||||||||||||
Change in cash and cash equivalents | 3,734 | 1,707 | 12,361 | 4,435 | ||||||||||||
Cash and cash equivalents at beginning of period | 7,399 | 17,544 | 18,949 | 7,399 | ||||||||||||
Cash and cash equivalents at end of period | $ | 11,133 | $ | 19,251 | $ | 31,310 | $ | 11,834 | ||||||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||||||||||
Obligation for fair market value of interest rate swap | $ | 1,214 | $ | — | $ | 1,994 | $ | 4,891 | ||||||||
See notes to condensed consolidated financial statements.
3
Seabulk International, Inc. and Subsidiaries
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, 20032004 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 athe 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 and Form 10-K/A Amendment No. 1 for the fiscal year ended December 31, 2003. In addition to2004. For the three months ended March 31, 2005, the Company’s components of comprehensive income include net income the only other component of total comprehensive income is that related to theand a foreign currency forward contract for approximately $24,000. For the three months ended March 31, 2004, except for net income, the Company had no material components of approximately $7,000 as discussed below.comprehensive income.
Certain financial statement reclassifications have been made to conform prior period data to the 20042005 financial statement presentation.
The Company recently reviewed its financial statement presentation and disclosure in response to comments received from the staff of the Securities and Exchange Commission (the “SEC”) in a normal periodic review of the Company’s filings. As a result, the Company is restating the accompanying 2004 condensed consolidated statement of cash flows to classify expenditures for drydocking of $4.6 million as an operating activity rather than an investing activity.
2. Merger
On March 16, 2005, SEACOR Holdings Inc., a Delaware corporation (“SEACOR”), entered into a merger agreement (the “Merger Agreement”) with Seabulk International, Inc., a Delaware corporation (“Seabulk” or the “Company”), SBLK Acquisition Corp., a Delaware corporation and a direct, wholly owned subsidiary of SEACOR (“Merger Sub”) and CORBULK LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of SEACOR (“LLC”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, the Merger Sub will merge with and into Seabulk, with Seabulk continuing as the surviving corporation and a direct, wholly owned subsidiary of SEACOR (the “Merger”). The structure of the Merger could be modified such that Seabulk could merge with and into LLC, with LLC continuing as the surviving entity and a direct, wholly owned subsidiary of SEACOR, depending on the share price of SEACOR stock. As part of the transaction, entities associated with DLJ Merchant Banking Partners III, L.P. and Carlyle/Riverstone Global Energy and Power Fund I, L.P., who collectively own approximately 75% of Seabulk’s common shares, have entered into an agreement to support the transaction.
4
At the effective time and as a result of the Merger, Seabulk stockholders will be entitled to receive in exchange for each issued and outstanding share of Seabulk common stock (i) $4.00 in cash and (ii) 0.2694 shares of SEACOR common stock. In certain circumstances, the portion of the merger consideration payable in cash may be reduced and shares of SEACOR common stock, having a value on the closing date equal to the cash reduction, may be substituted therefor. The closing prices of SEACOR and Seabulk shares on Wednesday, March 16, 2005, were $65.28 and $16.73, respectively. All outstanding Seabulk stock options will be assumed by SEACOR. Each such option for Seabulk common stock will then become exercisable for SEACOR common stock under the exchange ratio, plus the cash component.
Seabulk and SEACOR have made customary representations, warranties and covenants in the Merger Agreement. The completion of the Merger is subject to approval by the stockholders of each of Seabulk and SEACOR and the satisfaction of customary conditions, including regulatory approvals. As part of the transaction, entities associated with DLJ Merchant Banking Partners III, L.P. and Carlyle/Riverstone Global Energy and Power Fund I, L.P., who collectively own approximately 75% of Seabulk’s common shares, have entered into an agreement to support the transaction.
The Merger Agreement contains certain termination rights for both SEACOR and Seabulk and further provides that, upon termination of the Merger Agreement under specified circumstances, Seabulk may be required to pay SEACOR a termination fee of up to $21.3 million and SEACOR may be required to pay Seabulk a termination fee of up to $5 million.
On April 22, 2005, the Company announced the early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, thereby satisfying one of the key conditions to the completion of the merger.
3. Vessel Purchases, Sales and Operations
In January 2004,2005, the Company took delivery of and began to operate theSeabulk EnergyAngra, one of its U.S.-flag double-hull tankers,an offshore supply vessel, under a consecutive voyagetime charter with Petrobras in U.S. foreign commerce.Brazil. The vessel is currently deployed on forty-two-day voyages, approximately 8.5 voyages per year. Thebrings the total number of vessels operating in the Brazil market to three under charter began in January 2004 for a term of four years, in partial substitution of a previous bareboat charter that was terminated in December 2003 with a major oil company, which has an ongoing financial obligation related to the original bareboat charter.Petrobras.
In January 2004,2005, the Company entered intotook delivery of and began to operate theSeabulk Carmen, a contract with Labroy Shipbuildingsupply boat, in the U.S. Gulf of Mexico. The transaction to acquire theSeabulk Carmenwas a like-kind exchange of assets of equal value and Engineering Pte. Ltd. of Singapore for the construction ofwas a terminal support tugtax-free transaction to be namedSeabulk Angolafor delivery in March 2005 for the Singapore dollar equivalent of U.S. $10.8 million. The Company also entered into a forward exchange contract intended to fully hedge its foreign currency commitment. Under the forward contract, the Company, will purchase Singapore dollars at various rates dated from February 2004 through March 2005, in conjunction with the progress payment dates as required by the construction agreement. In July 2004,which the Company entered into a loan agreement with Caterpillar Financial Services Corporation (“CFSC”) to financedelivered three older crew boats and one older geophysical vessel in exchange for the construction of the vessel. The loan will be paid in installments of principal and interest for a term of 120 months at the rate of one month LIBOR plus 3.68% per year. The vessel will be employed on a long-term contract in Angola.Seabulk Carmen.
In February 2004,March 2005, the Company sold theSeabulk GrebeVeritas, an offshore energy support vessel operating in the U.S. Gulf of Mexico. Proceeds from the sale of the vessel were $200,000. The gain on the sale of the vessel was approximately $45,000.
In March 2005, the Company sold theSeabulk Neptune, an anchor handling tug operating in West Africa. Proceeds from the sale of the vessel were $600,000.approximately $200,000. The loss on the sale of the vessel was approximately $13,000.$148,000.
In March 2004,2005, the Company completed the purchase of two four-year-old, foreign-flag, double-hull product tankers from principals of World-Wide Shipping of Singapore for a total purchase price of approximately $62.0 million. The purchase price was funded by a combination of bank borrowings and available cash. The tankers are modern double-hull vessels suitable for worldwide trading. The Company took delivery of the two vessels in March 2004. Both vessels have been placed in an international tanker pool.
In March 2004, the Company received $400,000 from the settlement of litigation over a previous joint venture and $4.5 million from the settlement of litigation against two of its suppliers. The settlement against its suppliers represents reimbursement for certain direct expenses and economic losses that adversely affected operating results. The Company recorded the $4.5 million proceeds as other income in the statement of operations.
4
In May 2004, the Company solddelivered theSeabulk MobileWinn, an offshorea crew boat operating in the U.S. Gulf. Proceeds fromGulf of Mexico, and $550,000 in exchange for theC/Crusader, a supply boat, and the assignment of a purchase and sale agreement. The Company subsequently sold theC/Crusaderunder the terms of the vessel were $300,000. The gain on theassigned purchase and sale agreement for proceeds of the vessel was approximately $174,000. In May 2004, the Company sold theSeabulk Maintainer, an offshore crane barge operating in the Arabian Gulf. Proceeds from the sale of the vessel were approximately $1.6$1.9 million. The gain ontransaction was a like-kind exchange of assets of equal value and was a tax free-transaction to the sale of the vessel was approximately $1.5 million.
In May 2004, the Company entered into a contract with Labroy Shipbuilding and Engineering Pte. Ltd. for the construction of an anchor handling tug supply vessel to be namedSeabulk Luandafor delivery in mid-2005. In October 2004, the Company entered into a loan agreement with Caterpillar Financial Services Corporation (“CFSC”) to finance the construction of the anchor handling tug supply vessel for the Singapore dollar equivalent of U.S. $14.3 million. The loan will be paid in installments of principal and interest for a term of 120 months at the rate of one month LIBOR plus 3.68% per year. The vessel will be employed on a long-term contract in Angola.
In May 2004, the Company entered into a contract with Jaya Shipbuilding and Engineering Pte. Ltd. of Singapore for the construction of a multi-purpose offshore supply vessel with a four point mooring system to be namedSeabulk Advantagefor delivery in late 2004. The vessel will be constructed at a cost of approximately $8.6 million. The purchase price will be financed by a combination of bank borrowings and available cash.
In June 2004, the Company sold theSeabulk Petrel, an offshore anchor handling tug supply vessel. Proceeds from the sale of the vessel were approximately $650,000. The gain on the sale of the vessel was approximately $263,000.
In July 2004, the Company sold theSeabulk Beauregard, an offshore crew boat operating in the U.S. Gulf. Proceeds from the sale of the vessel were $325,000. The gain on the sale of the vessel was approximately $223,000.
In July 2004, the Company entered into a loan agreement with Banco Nacional de Desenvolvimento Economico e Social (“BNDES”) of Brazil, a government-owned company, to finance the construction of two offshore supply vessels. The vessels will be constructed by Estaleiro Promar I Reparos Navais Ltda (“Promar”), and will be used to service oil drilling and production companies. The loan in the principal amount of $29.9 million is divided into two Subcredits “A” and “B” in the amounts of $15.0 million and $14.9 million, respectively. As required by the construction agreements, progress payments for Subcredits A and B are demandable at various dates monthly for sixteen year terms with final installments due May 2021 and August 2021, respectively. The Company took delivery of the first vessel, theSeabulk Brasil, in October 2004.
In September 2004, the Company sold theSeabulk Bolivarand theSeabulk Baldwin,two offshore crew boats operating in the U.S. Gulf. Proceeds from the sale of the vessels were $150,000 each. The gains on the sale of theSeabulk Bolivarand theSeabulk Baldwinwere approximately $123,000 and $100,000, respectively.
In October 2004, the Company entered into a contract with Labroy Shipbuilding and Engineering Pte. Ltd. for the construction of four anchor handling tug supply vessels with an option for four additional vessels. Built at a combined cost of approximately $43.7 million with delivery scheduled in 2006, the vessels will work under long-term contracts in West Africa and Southeast Asia.Company.
5
3.4. Income Taxes
The current provision for income taxes for the three and nine-months ended September 30, 2004 represents expected tax obligations on foreign-source revenue. For the three and nine-months ended September 30, 2003, a gross tax liability and benefit was computed using an estimated annual effective tax rate of 36%. For the three and nine months ended September 30,March 31, 2005 and 2004, a domestic tax provision was computed using an estimated annual effective tax rate of 35%. A corresponding reduction in the valuation allowance was recorded resulting in no net domestic provision.recorded. Management has recorded a valuation allowance at September 30,March 31, 2005 and 2004 and 2003 to reduce the net deferred tax assets to an amount that is likely to be realized. After application of the valuation allowance, the net deferred tax assets are zero. The current provision for income taxes for the three-month period ended March 31, 2005 represents expected tax obligations on foreign-source revenue and includes a benefit of $0.5 million related to the acceptance by the Internal Revenue Service of the Company’s refund request related to the 1997 tax year. The current provision for income taxes for the three-month period ended March 31, 2004 represents expected tax obligations on foreign-source revenue.
4.5. Net Income per Common Share
The following table sets forth the computation of basic and diluted net income per share for the periods indicated:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2005 | 2004 | |||||||||||||||||||
(in thousands, except for per share data) | (in thousands, except | |||||||||||||||||||||||
Numerator for basic and diluted net income (loss) per share: | ||||||||||||||||||||||||
Net income (loss) available to common shareholders | $ | 6,813 | $ | (1,876 | ) | $ | 15,184 | $ | 2,370 | |||||||||||||||
per share data) | ||||||||||||||||||||||||
Numerator for basic and diluted net income per share: | ||||||||||||||||||||||||
Net income available to common shareholders | $ | 11,180 | $ | 5,650 | ||||||||||||||||||||
Denominator for basic net income per share-weighted average shares | 23,262 | 23,199 | 23,257 | 23,161 | 23,327 | 23,249 | ||||||||||||||||||
Effects of dilutive securities: | ||||||||||||||||||||||||
Stock options | 205 | — | 226 | 173 | 691 | 337 | ||||||||||||||||||
Warrants | 157 | — | 159 | 178 | 157 | 159 | ||||||||||||||||||
Restricted shares | 52 | — | 47 | 15 | 98 | 50 | ||||||||||||||||||
Dilutive potential common shares | 414 | — | 433 | 366 | 946 | 546 | ||||||||||||||||||
Denominator for diluted net income per share-adjusted weighted average shares and assumed conversions | 23,676 | 23,199 | 23,690 | 23,527 | 24,273 | 23,795 | ||||||||||||||||||
Net income per share – basic | $ | 0.29 | $ | (0.08 | ) | $ | 0.65 | $ | 0.10 | $ | 0.48 | $ | 0.24 | |||||||||||
Net income per share – diluted | $ | 0.29 | $ | (0.08 | ) | $ | 0.64 | $ | 0.10 | $ | 0.46 | $ | 0.24 | |||||||||||
The weighted average diluted common shares outstanding for the three and nine months ended September 30,March 31, 2004 and 2003 excludes 241,000 and 605,00074,000 options respectively. Additionally, 250,000 warrants are excluded from the weighted average diluted common shares outstanding for the three and nine months ended September 30, 2003. Theseas these common stock equivalents are excluded because they are antidilutive.
6
5.6. Segment and Geographic Data
The Company organizes its business principally into three segments. The Company does not have significant intersegment transactions. These segments and their respective operations are as follows:
Offshore Energy Support(Seabulk Offshore) – Offshore energy support includes vessels operating in U.S. and foreign locations used primarily to transport materials, supplies, equipment and personnel to drilling rigs and to support the construction, positioning and ongoing operations of oil and gas production platforms. Marine Transportation Services(Seabulk Tankers) – Marine transportation services includes 10 U.S.-flag product tankers and two foreign-flag product tankers. The U.S.-flag oceangoing vessels are used to transport petroleum, chemicals, and crude products, primarily from chemical manufacturing plants, refineries and storage facilities along the U.S. Gulf 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. One U.S.-flag vessel and the two foreign-flag vessels operate in the foreign trade. 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, casualty or other emergencies. |
The Company evaluates performance by operating segment. Within the offshore energy support segment, the Company conducts 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 schedule presents segment and geographic information about the Company’s operations (in thousands):
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2005 | 2004 | |||||||||||||||||||
Revenue | ||||||||||||||||||||||||
Offshore energy support | $ | 40,661 | $ | 42,012 | $ | 121,417 | $ | 119,080 | $ | 45,347 | $ | 39,583 | ||||||||||||
Marine transportation services | 38,067 | 27,981 | 107,937 | 89,908 | 38,659 | 33,462 | ||||||||||||||||||
Towing | 10,742 | 9,799 | 30,079 | 28,100 | 11,654 | 9,578 | ||||||||||||||||||
Eliminations(1) | (109 | ) | (122 | ) | (335 | ) | (265 | ) | (79 | ) | (89 | ) | ||||||||||||
Total | $ | 89,361 | $ | 79,670 | $ | 259,098 | $ | 236,823 | $ | 95,581 | $ | 82,534 | ||||||||||||
Vessel and voyage expenses | ||||||||||||||||||||||||
Offshore energy support | $ | 22,495 | $ | 24,535 | $ | 73,294 | $ | 70,752 | $ | 24,329 | $ | 25,205 | ||||||||||||
Marine transportation services | 18,538 | 14,580 | 53,887 | 42,350 | 17,561 | 16,853 | ||||||||||||||||||
Towing | 6,037 | 5,391 | 17,216 | 15,500 | 6,116 | 4,938 | ||||||||||||||||||
Eliminations(1) | (109 | ) | (122 | ) | (335 | ) | (265 | ) | (79 | ) | (89 | ) | ||||||||||||
Total | $ | 46,961 | $ | 44,384 | $ | 144,062 | $ | 128,337 | $ | 47,927 | $ | 46,907 | ||||||||||||
Depreciation, amortization and drydocking | ||||||||||||||||||||||||
Offshore energy support | $ | 9,450 | $ | 9,993 | $ | 28,741 | $ | 30,583 | $ | 8,840 | $ | 9,545 | ||||||||||||
Marine transportation services | 6,210 | 4,910 | 17,894 | 14,068 | 6,596 | 5,294 | ||||||||||||||||||
Towing | 992 | 956 | 2,800 | 2,774 | 1,013 | 885 | ||||||||||||||||||
General corporate | 71 | 426 | 205 | 1,277 | 71 | 66 | ||||||||||||||||||
Total | $ | 16,723 | $ | 16,285 | $ | 49,640 | $ | 48,702 | $ | 16,520 | $ | 15,790 | ||||||||||||
Income (loss) from operations | ||||||||||||||||||||||||
Offshore energy support | $ | 4,911 | $ | 3,077 | $ | 7,366 | $ | 5,305 | $ | 7,916 | $ | (902 | ) | |||||||||||
Marine transportation services | 12,277 | 7,578 | 33,399 | 30,625 | 13,637 | 10,445 | ||||||||||||||||||
Towing | 2,564 | 2,084 | 6,523 | 5,896 | 3,078 | 2,494 | ||||||||||||||||||
General corporate | (2,961 | ) | (3,262 | ) | (7,549 | ) | (9,141 | ) | (3,195 | ) | (1,637 | ) | ||||||||||||
Total | $ | 16,791 | $ | 9,477 | $ | 39,739 | $ | 32,685 | $ | 21,436 | $ | 10,400 | ||||||||||||
�� | ||||||||||||||||||||||||
Net income (loss) | ||||||||||||||||||||||||
Offshore energy support | $ | 597 | $ | (1,672 | ) | $ | (5,481 | ) | $ | (7,936 | ) | $ | 2,700 | $ | (5,113 | ) | ||||||||
Marine transportation services | 7,365 | 3,737 | 19,523 | 17,751 | 8,969 | 6,167 | ||||||||||||||||||
Towing | 1,788 | 1,028 | 4,206 | 3,362 | 2,185 | 1,727 | ||||||||||||||||||
General corporate | (2,937 | ) | (4,969 | ) | (3,064 | ) | (10,807 | ) | (2,674 | ) | 2,869 | |||||||||||||
Total | $ | 6,813 | $ | (1,876 | ) | $ | 15,184 | $ | 2,370 | $ | 11,180 | $ | 5,650 | |||||||||||
Geographic revenue | ||||||||||||||||||||||||
Domestic | $ | 58,584 | $ | 49,600 | $ | 163,754 | $ | 148,849 | ||||||||||||||||
Foreign | ||||||||||||||||||||||||
West Africa | 20,594 | 19,396 | 64,633 | 59,125 | ||||||||||||||||||||
Americas(2) | $ | 61,189 | $ | 50,682 | ||||||||||||||||||||
Foreign West Africa | 21,125 | 22,246 | ||||||||||||||||||||||
Middle East | 6,567 | 6,804 | 19,773 | 17,637 | 7,882 | 5,838 | ||||||||||||||||||
Southeast Asia | 3,616 | 3,870 | 10,938 | 11,212 | 5,385 | 3,768 | ||||||||||||||||||
Consolidated geographic revenue | $ | 89,361 | $ | 79,670 | $ | 259,098 | $ | 236,823 | $ | 95,581 | $ | 82,534 | ||||||||||||
(1) | ||
(2) | Americas consist of vessels operating in the United States, the Gulf of Mexico, South America and |
8
6.7. Commitments and Contingencies
Under United States law, “United States persons” are prohibited from business activities and contracts in certain countries, including Sudan and Iran. TheRelating to the prohibitions, 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 and/or certain individuals who knowingly participated in such activities. 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 Transport Development Corporation (“MTDC”) in January 2002 in Florida state court in Broward County alleging broker commissions due since 1998 from charters on twothree of its vessels, theSeabulk Magnachem, Seabulk ChallengerandSeabulk Challenger,Pride,under an alleged broker commission agreement. MTDC was controlled by the founders of our predecessor company. The claim allegedly continues to accrue. The amount alleged to be due is over $600,000,$800,000, but is subject to offset claims and defenses by the Company. The Company is vigorously defending such charges, but the Company cannot predict the ultimate outcome.
UnderAs of February 20, 2004, the Company’sCompany switched its mutual protection and indemnity (“P&I”) marine insurance policies from Steamship Mutual (“Steamship”) to West of England Association (“West of England”). Under the Company’s P&I policies, the Company could be liable for additional premiums to cover investment losses and reserve shortfalls experienced by one of its marine insurance clubs (Steamship Mutual). The maximum potential amount of additional premiums that can be assessed by Steamship is substantial. However,clubs; however, additional premiums can only be assessed for open policy years. Steamship closesand West of England close a policy year three years after the policy year has ended. PolicyCompleted policy years 2002 and 2003 are still open but therefor Steamship and policy year 2004 is open for West of England. There have been no additional premiums assessed for these policy years. Theyears and the Company believes it is unlikely that additional premiums for those policy years will be made.assessed. The Company will record a liability for any such additional premiums if and when they are assessed and the amount can be reasonably estimated.
As of February 20, 2004, the Company switched its P&I club from Steamship to the West of England Association (“West of England”). In order to cover potential future additional insurance calls made by Steamship Mutual for 2002 and 2003, the Company was required to post a letter of credit in the amount of approximately $1.9 million to support such potential additional calls as a condition to its departure from Steamship Mutual.Steamship. The letter of credit will be returned if no additional insurance calls are made. Potential claims liabilities are recorded as insurance expense reserves when they become probable and can be reasonably estimated.
P&I insurance premiums were approximately $2.1 million and $1.5 million for the three months ended March 31, 2005 and 2004, respectively. The Company’s hull and machinery insurance renewed in October 2004. Additionally, the Company maintains high levels of self-insurance for P&I and hull and machinery risks through the use of substantial deductibles and self-insured retentions.
From time to time, the Company is party to personal injury and property damage claims litigation arising in the ordinary course of our business. Protection and indemnity marine liability insurance covers large claims in excess of the substantial deductibles and self-insured retentions.
7.8. Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation(“SFAS No. 123”), the Company has elected to follow Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees(“APB No. 25”) and related interpretations in accounting for its employee stock-based transactions and has complied with the disclosure requirements of SFAS No. 123. Under APB No. 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 FASB issued SFAS No. 148,Accounting for Stock-Based Compensation - Transition and Disclosure(“SFAS 148”). SFAS 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.
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 would have changeddecreased to the pro forma amounts presented below:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Net income (loss), reported | $ | 6,813 | $ | (1,876 | ) | $ | 15,184 | $ | 2,370 | |||||||
Stock-based compensation expense determined under the fair value method | $ | (410 | ) | $ | (66 | ) | $ | (981 | ) | $ | (763 | ) | ||||
Pro forma net income (loss) | $ | 6,403 | $ | (1,942 | ) | $ | 14,203 | $ | 1,607 | |||||||
Net income (loss) per common share: | ||||||||||||||||
Basic-as reported | $ | 0.29 | $ | (0.08 | ) | $ | 0.65 | $ | 0.10 | |||||||
Basic-pro forma | $ | 0.28 | $ | (0.08 | ) | $ | 0.61 | $ | 0.07 | |||||||
Diluted-as reported | $ | 0.29 | $ | (0.08 | ) | $ | 0.64 | $ | 0.10 | |||||||
Diluted-pro forma | $ | 0.27 | $ | (0.08 | ) | $ | 0.60 | $ | 0.07 | |||||||
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8.
Three Months Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Net income, as reported | $ | 11,180 | $ | 5,650 | ||||
Stock-based compensation expense determined under the fair value method | (447 | ) | (376 | ) | ||||
Pro forma net income | $ | 10,733 | $ | 5,274 | ||||
Net income per common share: | ||||||||
Basic-as reported | $ | 0.48 | $ | 0.24 | ||||
Basic-pro forma | $ | 0.46 | $ | 0.23 | ||||
Diluted-as reported | $ | 0.46 | $ | 0.24 | ||||
Diluted-pro forma | $ | 0.44 | $ | 0.22 | ||||
Effective October 14, 2004, the Company amended the stock option agreements for all of the vested and unvested awards, whereby the option exercise period was extended from 12 months to 36 months in the event of termination within two years of a change in control, as defined in the plan. In accordance with FASB Interpretation No. 44Accounting for Certain Transactions involving Stock Compensation, the amendment to the agreements is considered a modification of the award and accordingly the intrinsic value of the option award shall be measured at the date of the modification and any intrinsic value in excess of the amount measured at the original measurement date shall be recognized as compensation cost if the separation event occurs. As of December 31, 2004 the intrinsic value in excess of the amount measured at the original measurement date was $4.1 million and, if a separation event occurred within two years of a change in control, would be recognized as compensation expense in the accompanying condensed consolidated statement of operations.
9. Recent Accounting Pronouncements
In January 2003,December 2004, the FASBFinancial Accounting Standards Board (“FASB”) issued FASB InterpretationStatement of Financial Accounting Standards No. 46,123 (revised 2004),ConsolidationShare-Based Payment(“SFAS No. 123R”), which requires companies to expense in their consolidated statements of Variable Interest Entities, an Interpretationoperations the estimated fair value of ARB No. 51 (“FIN 46”). FIN 46 requires certain variable interest entitiesemployee stock options and similar awards. The Company currently uses the intrinsic value method to be consolidated byvalue stock options, and accordingly, no compensation expense has been recognized for stock options since the primary beneficiaryCompany grants stock options with exercise prices equal to or greater that the Company’s common stock market price on the date of the variable interest entity.grant. 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,Company will adopt the provisions of FIN 46 must be appliedSFAS No. 123R using the modified prospective application. Under the modified prospective application, SFAS No. 123R will apply to the first interim or annual period ending after March 15, 2004. The adoption of FIN 46 did not have a significant impactnew awards and to awards that are outstanding on the effective date and are subsequently modified or cancelled. Compensation expense for unvested stock-based awards will be recognized over the remaining vesting period. Depending on the model used to calculate stock-based compensation expense in the future, the implementation of certain other requirements of SFAS No. 123R and additional option grants expected to be made in the future, the pro forma disclosure discussed previously may not be indicative of the stock-based compensation expense that will be recognized in the Company’s future consolidated financial statements. In April 2005, the FASB delayed the implementation of SFAS No. 123R from the next reporting period beginning after June 15, 2005 until the beginning of the Company’s next fiscal year. The Company is in the process of determining the impact adopting SFAS No. 123R will have on its consolidated financial position and consolidated results of operations or cash flows.
In June 2001, the Accounting Standards Executive Committee (“AcSEC”) of the American Institute of Certified Public Accountants (“AICPA”) issued an exposure draft of a proposed Statement of Position (“SOP”) entitledAccounting 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 be prohibited from deferring the 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 April 14, 2004 meeting, the FASB voted not to clear AcSEC’s proposed SOP. It has indicated that the accounting matters covered by the SOP will be addressed during the 2005-2006 time frame.operations.
10
9. Subsequent Events
In OctoberDecember 2004, the Company entered into a contract with Labroy Shipbuilding and Engineering Pte. Ltd. for the constructionFASB issued Statement of four anchor handling tug supply vessels with an option for four additional vessels. Built at a combined costFinancial Accounting Standard No. 153,Exchanges of approximately $43.7 million with delivery scheduled in 2006, the vessels will work under long-term contracts in West Africa and Southeast Asia.
In November 2004, the Company sold theSeabulk Penguin IINonmonetary Assets(“SFAS No. 153”), an anchor handling tug supply vessel operating in West Africa. Proceeds fromamendment of APB Opinion No. 29,Accounting for Nonmonetary Transactions(“APB No. 29”). APB No. 29 is based on the saleprinciple that exchanges of nonmonetary assets should be measured based on the fair value of assets exchanged, however certain exceptions apply. SFAS No. 153 amends APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the vessel were $1.1 million.entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The gainCompany’s adoption of SFAS No. 153 is not expected to have a material impact on the saleCompany’s consolidated financial position and consolidated results of the vessel was approximately $569,000.operations.
10. Supplemental Condensed Consolidated Financial Information
The restrictedRestricted Subsidiaries as to which financial information is included in the tables below are subsidiaries representof the Company’s subsidiariesCompany that are subject to the terms and conditions outlined inof the indentureIndenture governing the 2003 Senior Notes due 2013.Notes. Only certain of the Restricted Subsidiaries (representing the domestic restricted subsidiaries guaranteeand referred to in the notes,Indenture as the “Guarantor Subsidiaries”), jointly and severally guarantee the 2003 Senior Notes, on a senior unsecured basis. The non-guarantor unrestricted subsidiaries representNon-guarantor Unrestricted Subsidiaries as to which financial information is included in the subsidiariestables below are the subsidiary entities that own the five U.S.-flag double-hull product tankers which are financed by the U.S. Maritime Administration backed Title XI debt with recourse to thesethe five tankers and the subsidiaries that own them. These subsidiariesentities are designated as unrestricted“Non-Recourse” or “Unrestricted” subsidiaries under the indenture governing the Senior NotesIndenture and willdo not guarantee the notes.2003 Senior Notes.
11
Supplemental financial information for the Company and its guarantor restricted subsidiaries, non-guarantor restricted subsidiaries and non-guarantor unrestricted subsidiaries forunder the 2003 Senior Notes is presented below.
11
Condensed Consolidating Balance Sheet | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
As of March 31, 2005 | ||||||||||||||||||||||||
Wholly | ||||||||||||||||||||||||
Owned | Non- | Non- | ||||||||||||||||||||||
Guarantor | Guarantor | Guarantor | ||||||||||||||||||||||
Restricted | Restricted | Unrestricted | Consolidated | |||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 22,955 | $ | 986 | $ | 7,369 | $ | — | $ | — | $ | 31,310 | ||||||||||||
Restricted cash | — | — | 2,756 | 27,594 | — | 30,350 | ||||||||||||||||||
Trade accounts receivable, net | 366 | 18,294 | 30,046 | 3,142 | — | 51,848 | ||||||||||||||||||
Other receivables | 1,313 | 2,257 | 360 | 191 | — | 4,121 | ||||||||||||||||||
Marine operating supplies | (698 | ) | 3,178 | 3,118 | 2,483 | — | 8,081 | |||||||||||||||||
Prepaid expenses and other | 1,806 | 514 | 1,321 | 522 | — | 4,163 | ||||||||||||||||||
Total current assets | 25,742 | 25,229 | 44,970 | 33,932 | — | 129,873 | ||||||||||||||||||
Vessels and equipment, net | 54,371 | 210,543 | 125,260 | 206,452 | — | 596,626 | ||||||||||||||||||
Deferred costs, net | 12,902 | 8,099 | 13,211 | 7,764 | — | 41,976 | ||||||||||||||||||
Investments in affiliates | 525,413 | — | — | — | (525,413 | ) | — | |||||||||||||||||
Due from affiliates | — | 50,282 | 127,080 | 3,698 | (181,060 | ) | — | |||||||||||||||||
Other | 5,807 | 712 | 1,549 | 13,105 | — | 21,173 | ||||||||||||||||||
Total assets | $ | 624,235 | $ | 294,865 | $ | 312,070 | $ | 264,951 | $ | (706,473 | ) | $ | 789,648 | |||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Accounts payable | $ | 938 | $ | 3,003 | $ | 6,185 | $ | — | $ | — | $ | 10,126 | ||||||||||||
Current maturities of long-term debt | 3,350 | 7,067 | 659 | 5,353 | — | 16,429 | ||||||||||||||||||
Current obligations under capital leases | 1,108 | 2,423 | — | — | — | 3,531 | ||||||||||||||||||
Accrued interest | 1,878 | 161 | 6 | 4,220 | — | 6,265 | ||||||||||||||||||
Accrued liabilities and other | 8,265 | 4,931 | 19,775 | 2,362 | — | 35,333 | ||||||||||||||||||
Total current liabilities | 15,539 | 17,585 | 26,625 | 11,935 | 71,684 | |||||||||||||||||||
Long-term debt | 56,688 | 51,507 | 14,853 | 200,666 | — | 323,714 | ||||||||||||||||||
Senior Notes | 148,006 | — | — | — | — | 148,006 | ||||||||||||||||||
Obligations under capital leases | 10,192 | 17,649 | — | — | — | 27,841 | ||||||||||||||||||
Due to affiliates | 177,536 | — | — | — | (177,536 | ) | — | |||||||||||||||||
Other liabilities | 5,534 | 238 | 1,846 | 45 | — | 7,663 | ||||||||||||||||||
Total liabilities | 413,495 | 86,979 | 43,324 | 212,646 | (177,536 | ) | 578,908 | |||||||||||||||||
Commitments and contingencies | — | — | — | — | — | — | ||||||||||||||||||
Total stockholders’ equity | 210,740 | 207,886 | 268,746 | 49,027 | (528,937 | ) | 210,740 | |||||||||||||||||
Total liabilities and stockholders’ equity | $ | 624,235 | $ | 294,865 | $ | 312,070 | $ | 264,951 | $ | (706,473 | ) | $ | 789,648 | |||||||||||
Condensed Consolidating Balance Sheet | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
As of September 30, 2004 | ||||||||||||||||||||||||||||
Wholly | Non-Wholly | |||||||||||||||||||||||||||
Owned | Owned | Non- | Non- | |||||||||||||||||||||||||
Guarantor | Guarantor | Guarantor | Guarantor | |||||||||||||||||||||||||
Restricted | Restricted | Restricted | Unrestricted | Consolidated | ||||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 214 | $ | 733 | $ | 1,212 | $ | 8,974 | $ | — | $ | — | $ | 11,133 | ||||||||||||||
Restricted cash | 2,198 | — | — | 1,478 | 34,267 | — | 37,943 | |||||||||||||||||||||
Trade accounts receivable, net | 36 | 14,259 | 1,049 | 35,126 | 1,640 | — | 52,110 | |||||||||||||||||||||
Other receivables | 1,495 | 1,926 | 3 | 246 | 174 | — | 3,844 | |||||||||||||||||||||
Marine operating supplies | 90 | 1,725 | 616 | 3,580 | 2,693 | — | 8,704 | |||||||||||||||||||||
Due from affiliates | — | 67,691 | — | 116,377 | 4,113 | (188,181 | ) | — | ||||||||||||||||||||
Prepaid expenses and other | 942 | 267 | — | 1,081 | 252 | — | 2,542 | |||||||||||||||||||||
Total current assets | 4,975 | 86,601 | 2,880 | 166,862 | 43,139 | (188,181 | ) | 116,276 | ||||||||||||||||||||
Vessels and equipment, net | 46,194 | 191,698 | 28,043 | 111,233 | 210,894 | 588,062 | ||||||||||||||||||||||
Deferred costs, net | 15,855 | 7,168 | 412 | 14,587 | 9,167 | 47,189 | ||||||||||||||||||||||
Investments in affiliates | 514,149 | 2,591 | — | — | — | (516,740 | ) | — | ||||||||||||||||||||
Due from affiliates | 27,435 | — | — | — | — | (27,435 | ) | — | ||||||||||||||||||||
Other | 2,925 | 1,400 | — | 1,428 | 8,573 | 14,326 | ||||||||||||||||||||||
Total assets | $ | 611,533 | $ | 289,458 | $ | 31,335 | $ | 294,110 | $ | 271,773 | $ | (732,356 | ) | $ | 765,853 | |||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Accounts payable | $ | 1,290 | $ | 1,729 | $ | — | $ | 6,002 | $ | 509 | $ | — | $ | 9,530 | ||||||||||||||
Current maturities of long-term debt | 3,800 | 7,062 | — | 137 | 5,173 | — | 16,172 | |||||||||||||||||||||
Current obligations under capital leases | 1,083 | 2,569 | — | — | — | — | 3,652 | |||||||||||||||||||||
Accrued interest | 1,473 | 163 | — | 4 | 4,288 | — | 5,928 | |||||||||||||||||||||
Due to affiliates | 188,181 | — | — | — | — | (188,181 | ) | — | ||||||||||||||||||||
Accrued liabilities and other | 10,150 | 3,680 | 606 | 19,884 | 2,825 | — | 37,145 | |||||||||||||||||||||
Total current liabilities | 205,977 | 15,203 | 606 | 26,027 | 12,795 | (188,181 | ) | 72,427 | ||||||||||||||||||||
Long-term debt | 55,734 | 55,043 | — | 5,109 | 203,388 | — | 319,274 | |||||||||||||||||||||
Senior notes | 152,686 | — | — | — | — | — | 152,686 | |||||||||||||||||||||
Obligations under capital leases | 10,752 | 18,763 | — | — | — | — | 29,515 | |||||||||||||||||||||
Due to affiliates | — | — | 27,434 | — | — | (27,434 | ) | — | ||||||||||||||||||||
Other liabilities | 1,501 | 249 | — | 1,585 | 49 | — | 3,384 | |||||||||||||||||||||
Total liabilities | 426,650 | 89,258 | 28,040 | 32,721 | 216,232 | (215,615 | ) | 577,286 | ||||||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||||||||
Minority interest | — | — | — | — | — | 659 | 659 | |||||||||||||||||||||
Total stockholders’ equity | 184,883 | 200,200 | 3,295 | 261,389 | 55,541 | (517,400 | ) | 187,908 | ||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 611,533 | $ | 289,458 | $ | 31,335 | $ | 294,110 | $ | 271,773 | $ | (732,356 | ) | $ | 765,853 | |||||||||||||
12
Condensed Consolidating Balance Sheet | Condensed Consolidating Balance Sheet | |||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2003 | As of December 31, 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Wholly | Non-Wholly | Wholly | ||||||||||||||||||||||||||||||||||||||||||||||||||
Owned | Owned | Non- | Non- | Owned | Non- | Non- | ||||||||||||||||||||||||||||||||||||||||||||||
Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | ||||||||||||||||||||||||||||||||||||||||||||||
Restricted | Restricted | Restricted | Unrestricted | Consolidated | Restricted | Restricted | Unrestricted | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiaries | Subsidiaries | Eliminations | Total | Parent | Subsidiaries | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 217 | $ | 452 | $ | 1,030 | $ | 5,700 | $ | — | $ | — | $ | 7,399 | $ | 8,265 | $ | 4,983 | $ | 5,701 | $ | — | $ | — | $ | 18,949 | ||||||||||||||||||||||||||
Restricted cash | 2,198 | — | — | 1,478 | 26,980 | — | 30,656 | — | — | 2,756 | 32,925 | — | 35,681 | |||||||||||||||||||||||||||||||||||||||
Trade accounts receivable, net | (296 | ) | 13,686 | 822 | 34,161 | 1,226 | — | 49,599 | 35 | 17,797 | 32,207 | 5,170 | — | 55,209 | ||||||||||||||||||||||||||||||||||||||
Other receivables | 3,739 | 3,338 | 16 | 2,799 | 838 | — | 10,730 | 1,003 | 2,430 | 204 | 147 | — | 3,784 | |||||||||||||||||||||||||||||||||||||||
Marine operating supplies | 121 | 1,575 | 482 | 3,504 | 2,473 | — | 8,155 | 79 | 2,503 | 2,700 | 2,586 | — | 7,868 | |||||||||||||||||||||||||||||||||||||||
Due from affiliates | — | 73,837 | — | 120,556 | 3,377 | (197,770 | ) | — | — | 66,330 | 119,375 | 3,372 | (189,077 | ) | — | |||||||||||||||||||||||||||||||||||||
Prepaid expenses and other | 960 | 365 | 19 | 1,505 | 196 | — | 3,045 | 2,005 | 285 | 1,239 | 98 | — | 3,627 | |||||||||||||||||||||||||||||||||||||||
Total current assets | 6,939 | 93,253 | 2,369 | 169,703 | 35,090 | (197,770 | ) | 109,584 | 11,387 | 94,328 | 164,182 | 44,298 | (189,077 | ) | 125,118 | |||||||||||||||||||||||||||||||||||||
Vessels and equipment, net | 34,998 | 138,211 | 29,893 | 106,401 | 217,523 | — | 527,026 | 46,072 | 216,200 | 127,848 | 208,673 | — | 598,793 | |||||||||||||||||||||||||||||||||||||||
Deferred costs, net | 13,869 | 9,347 | 1,022 | 14,202 | 10,046 | — | 48,486 | 14,546 | 6,625 | 15,438 | 8,444 | — | 45,053 | |||||||||||||||||||||||||||||||||||||||
Investments in affiliates | 506,250 | 2,214 | — | — | — | (508,464 | ) | — | 525,588 | 14,644 | 364 | 82,611 | (623,207 | ) | — | |||||||||||||||||||||||||||||||||||||
Due from affiliates | 30,069 | — | — | — | — | (30,069 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||
Other | 1,709 | 2,234 | — | 1,562 | 3,839 | — | 9,344 | 7,231 | 813 | 1,177 | 8,603 | — | 17,824 | |||||||||||||||||||||||||||||||||||||||
Total assets | $ | 593,834 | $ | 245,259 | $ | 33,284 | $ | 291,868 | $ | 266,498 | $ | (736,303 | ) | $ | 694,440 | $ | 604,824 | $ | 332,610 | $ | 309,009 | $ | 352,629 | $ | (812,284 | ) | $ | 786,788 | ||||||||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | 5,256 | $ | 2,658 | $ | — | $ | 9,504 | $ | 1,387 | $ | — | $ | 18,805 | $ | 4,802 | $ | 1,159 | $ | 8,957 | $ | — | $ | — | $ | 14,918 | ||||||||||||||||||||||||||
Current maturities of long-term debt | 4,250 | 1,650 | — | 139 | 4,998 | — | 11,037 | 3,799 | 7,065 | 436 | 5,353 | — | 16,653 | |||||||||||||||||||||||||||||||||||||||
Current obligations under capital leases | 1,039 | 2,482 | — | — | — | — | 3,521 | 1,093 | 2,615 | — | — | — | 3,708 | |||||||||||||||||||||||||||||||||||||||
Accrued interest | 5,079 | 100 | — | — | 633 | 5,812 | 4,008 | 159 | 5 | 703 | 4,875 | |||||||||||||||||||||||||||||||||||||||||
Due to affiliates | 197,707 | — | 63 | — | — | (197,770 | ) | — | 161,144 | — | — | — | (161,144 | ) | — | |||||||||||||||||||||||||||||||||||||
Accrued liabilities and other | 11,395 | 3,010 | 415 | 20,293 | 2,250 | — | 37,363 | 8,854 | 4,676 | 17,929 | 3,862 | — | 35,321 | |||||||||||||||||||||||||||||||||||||||
Total current liabilities | 224,726 | 9,900 | 478 | 29,936 | 9,268 | (197,770 | ) | 76,538 | 183,700 | 15,674 | 27,327 | 9,918 | (161,144 | ) | 75,475 | |||||||||||||||||||||||||||||||||||||
Long-term debt | 35,575 | 14,665 | — | 1,958 | 206,019 | — | 258,217 | 57,544 | 53,275 | 14,480 | 200,666 | — | 325,965 | |||||||||||||||||||||||||||||||||||||||
Senior notes | 151,472 | — | — | — | — | — | 151,472 | |||||||||||||||||||||||||||||||||||||||||||||
Senior Notes | 152,906 | — | — | — | — | 152,906 | ||||||||||||||||||||||||||||||||||||||||||||||
Obligations under capital leases | 11,569 | 20,677 | — | — | — | — | 32,246 | 10,476 | 18,092 | — | — | — | 28,568 | |||||||||||||||||||||||||||||||||||||||
Due to affiliates | — | — | 30,069 | — | — | (30,069 | ) | — | — | 27,935 | — | — | (27,935 | ) | — | |||||||||||||||||||||||||||||||||||||
Other liabilities | 1,660 | 273 | — | 1,157 | 46 | — | 3,136 | 2,851 | 242 | 1,740 | 46 | — | 4,879 | |||||||||||||||||||||||||||||||||||||||
Total liabilities | 425,002 | 45,515 | 30,547 | 33,051 | 215,333 | (227,839 | ) | 521,609 | 407,477 | 115,218 | 43,547 | 210,630 | (189,079 | ) | 587,793 | |||||||||||||||||||||||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Minority interest | — | — | — | — | — | 476 | 476 | |||||||||||||||||||||||||||||||||||||||||||||
Total stockholders’ equity | 168,832 | 199,744 | 2,737 | 258,817 | 51,165 | (508,940 | ) | 172,355 | 197,347 | 217,392 | 265,462 | 141,999 | (623,205 | ) | 198,995 | |||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 593,834 | $ | 245,259 | $ | 33,284 | $ | 291,868 | $ | 266,498 | $ | (736,303 | ) | $ | 694,440 | $ | 604,824 | $ | 332,610 | $ | 309,009 | $ | 352,629 | $ | (812,284 | ) | $ | 786,788 | ||||||||||||||||||||||||
13
�� | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidating Statement of Operations | Condensed Consolidating Statement of Operations | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2004 | Three Months Ended March 31, 2005 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wholly | Non-Wholly | Wholly | Non-Wholly | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Owned | Owned | Non- | Non- | Owned | Owned | Non- | Non- | |||||||||||||||||||||||||||||||||||||||||||||||||
Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | |||||||||||||||||||||||||||||||||||||||||||||||||
Restricted | Restricted | Restricted | Unrestricted | Consolidated | Restricted | Restricted | Restricted | Unrestricted | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiaries | Subsidiaries | Eliminations | Total | Parent | Subsidiaries | Subsidiaries(a) | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||||||||||||||||||||||||||
Revenue | $ | 10,924 | $ | 23,889 | $ | 4,690 | $ | 31,018 | $ | 18,950 | $ | (110 | ) | $ | 89,361 | $ | 11,827 | $ | 30,504 | $ | — | $ | 35,240 | $ | 18,089 | $ | (79 | ) | $ | 95,581 | ||||||||||||||||||||||||||
Vessel and voyage expenses | 6,749 | 12,280 | 2,488 | 17,025 | 8,529 | (110 | ) | 46,961 | 6,589 | 15,704 | — | 18,306 | 7,407 | (79 | ) | 47,927 | ||||||||||||||||||||||||||||||||||||||||
General and administrative | 3,232 | 1,956 | 265 | 3,449 | 430 | — | 9,332 | 3,473 | 2,401 | — | 3,263 | 431 | — | 9,568 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation, amortization and drydocking | 1,986 | 4,228 | 820 | 6,933 | 2,756 | — | 16,723 | 2,294 | 5,082 | — | 6,365 | 2,779 | — | 16,520 | ||||||||||||||||||||||||||||||||||||||||||
Gain on disposal of assets, net | — | (446 | ) | — | — | — | — | (446 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
(Gain) loss on disposal of assets, net | — | (18 | ) | — | 148 | — | — | 130 | ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from operations | (1,043 | ) | 5,871 | 1,117 | 3,611 | 7,235 | — | 16,791 | (529 | ) | 7,335 | 7,158 | 7,472 | 21,436 | ||||||||||||||||||||||||||||||||||||||||||
Other income (expense), net | 3 | (2,372 | ) | (382 | ) | (1,704 | ) | (3,813 | ) | (241 | ) | (8,509 | ) | |||||||||||||||||||||||||||||||||||||||||||
Other expense | (449 | ) | (2,770 | ) | — | (2,399 | ) | (3,670 | ) | — | (9,288 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before provision for income taxes | (1,040 | ) | 3,499 | 735 | 1,907 | 3,422 | (241 | ) | 8,282 | |||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (978 | ) | 4,565 | — | 4,759 | 3,802 | — | 12,148 | ||||||||||||||||||||||||||||||||||||||||||||||||
Provision for income taxes | — | — | — | 1,469 | — | — | 1,469 | (507 | ) | — | — | 1,475 | — | — | 968 | |||||||||||||||||||||||||||||||||||||||||
Net (loss) income | $ | (1,040 | ) | $ | 3,499 | $ | 735 | $ | 438 | $ | 3,422 | $ | (241 | ) | $ | 6,813 | ||||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | (471 | ) | $ | 4,565 | $ | — | $ | 3,284 | $ | 3,802 | $ | — | $ | 11,180 | |||||||||||||||||||||||||||||||||||||||||
(a) | In December 2004, the Company purchased the minority interest in a partnership that owns the Seabulk America. Subsequent to the acquisition, all Guarantor Restricted Subsidiaries are wholly-owned subsidiaries of the Company. |
Condensed Consolidating Statement of Operations | Condensed Consolidating Statement of Operations | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2003 | Three Months Ended March 31, 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wholly | Non-Wholly | Wholly | Non-Wholly | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Owned | Owned | Non- | Non- | Owned | Owned | Non- | Non- | |||||||||||||||||||||||||||||||||||||||||||||||||
Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | |||||||||||||||||||||||||||||||||||||||||||||||||
Restricted | Restricted | Restricted | Unrestricted | Consolidated | Restricted | Restricted | Restricted | Unrestricted | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiaries | Subsidiaries | Eliminations | Total | Parent | Subsidiaries | Subsidiaries | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||||||||||||||||||||||||||
Revenue | $ | 9,609 | $ | 21,458 | $ | 3,358 | $ | 30,368 | $ | 14,999 | $ | (122 | ) | $ | 79,670 | $ | 11,913 | $ | 17,345 | $ | 3,319 | $ | 32,118 | $ | 17,928 | $ | (89 | ) | $ | 82,534 | ||||||||||||||||||||||||||
Vessel and voyage expenses | 6,386 | 13,317 | 2,098 | 16,609 | 6,096 | (122 | ) | 44,384 | 6,057 | 11,851 | 2,190 | 18,484 | 8,414 | (89 | ) | 46,907 | ||||||||||||||||||||||||||||||||||||||||
General and administrative | 3,139 | 2,540 | 208 | 3,482 | 405 | — | 9,774 | 1,852 | 2,564 | 210 | 4,455 | 344 | — | 9,425 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation, amortization and drydocking | 2,053 | 3,745 | 821 | 7,218 | 2,448 | — | 16,285 | 1,717 | 3,871 | 821 | 6,684 | 2,697 | — | 15,790 | ||||||||||||||||||||||||||||||||||||||||||
(Gain) loss on disposal of assets, net | — | (253 | ) | — | 3 | — | — | (250 | ) | — | (1 | ) | — | 13 | — | — | 12 | |||||||||||||||||||||||||||||||||||||||
Income (loss) from operations | (1,969 | ) | 2,109 | 231 | 3,056 | 6,050 | — | 9,477 | 2,287 | (940 | ) | 98 | 2,482 | 6,473 | — | 10,400 | ||||||||||||||||||||||||||||||||||||||||
Other income (expense), net | (1,302 | ) | (2,391 | ) | (410 | ) | (2,184 | ) | (3,895 | ) | 61 | (10,121 | ) | |||||||||||||||||||||||||||||||||||||||||||
Other income (expense) | 4,428 | (1,900 | ) | (337 | ) | (1,752 | ) | (3,918 | ) | 78 | (3,401 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before provision for income taxes | (3,271 | ) | (282 | ) | (179 | ) | 872 | 2,155 | 61 | (644 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | 6,715 | (2,840 | ) | (239 | ) | 730 | 2,555 | 78 | 6,999 | |||||||||||||||||||||||||||||||||||||||||||||||
Provision for income taxes | — | — | — | 1,232 | — | — | 1,232 | — | — | — | 1,349 | — | — | 1,349 | ||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | (3,271 | ) | $ | (282 | ) | $ | (179 | ) | $ | (360 | ) | $ | 2,155 | $ | 61 | $ | (1,876 | ) | $ | 6,715 | $ | (2,840 | ) | $ | (239 | ) | $ | (619 | ) | $ | 2,555 | $ | 78 | $ | 5,650 | ||||||||||||||||||||
14
Condensed Consolidating Statement of Operations | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Nine months ended September 30, 2004 | ||||||||||||||||||||||||||||
Wholly | Non-Wholly | |||||||||||||||||||||||||||
Owned | Owned | Non- | Non- | |||||||||||||||||||||||||
Guarantor | Guarantor | Guarantor | Guarantor | |||||||||||||||||||||||||
Restricted | Restricted | Restricted | Unrestricted | Consolidated | ||||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Revenue | $ | 33,214 | $ | 63,051 | $ | 11,778 | $ | 96,117 | $ | 55,274 | $ | (336 | ) | $ | 259,098 | |||||||||||||
Vessel and voyage expenses | 19,499 | 38,073 | 7,000 | 54,179 | 25,647 | (336 | ) | 144,062 | ||||||||||||||||||||
General and administrative | 8,234 | 6,487 | 680 | 11,551 | 1,128 | — | 28,080 | |||||||||||||||||||||
Depreciation, amortization and drydocking | 5,916 | 12,435 | 2,463 | 20,668 | 8,158 | — | 49,640 | |||||||||||||||||||||
Gain on disposal of assets, net | — | (631 | ) | — | (1,792 | ) | — | — | (2,423 | ) | ||||||||||||||||||
Income (loss) from operations | (435 | ) | 6,687 | 1,635 | 11,511 | 20,341 | — | 39,739 | ||||||||||||||||||||
Other income (expense), net | 4,338 | (6,609 | ) | (1,076 | ) | (5,091 | ) | (11,580 | ) | (183 | ) | (20,201 | ) | |||||||||||||||
Income (loss) before provision for income taxes | 3,903 | 78 | 559 | 6,420 | 8,761 | (183 | ) | 19,538 | ||||||||||||||||||||
Provision for income taxes | — | — | — | 4,354 | — | — | 4,354 | |||||||||||||||||||||
Net income (loss) | $ | 3,903 | $ | 78 | $ | 559 | $ | 2,066 | $ | 8,761 | $ | (183 | ) | $ | 15,184 | |||||||||||||
Condensed Consolidating Statement of Cash Flows | ||||||||||||
(in thousands) | ||||||||||||
Three Months Ended March 31, 2005 | ||||||||||||
Wholly Owned | Non-Wholly | |||||||||||
Guarantor | Owned Guarantor | |||||||||||
Restricted | Restricted | |||||||||||
Parent | Subsidiaries | Subsidiaries(a) | ||||||||||
Net cash provided by (used in) operating activities | $ | 24,330 | $ | (3,032 | ) | $ | — | |||||
Investing activities: | ||||||||||||
Proceeds from sales of vessels and equipment | — | 2,050 | — | |||||||||
Purchases of vessels and equipment | (8,459 | ) | (610 | ) | — | |||||||
Net cash (used in) provided by investing activities | (8,459 | ) | 1,440 | — | ||||||||
Financing activities: | ||||||||||||
Proceeds from Amended Credit Facility | — | — | — | |||||||||
Payments on Amended Credit Facility | (5,500 | ) | — | — | ||||||||
Proceeds from long-term debt | 5,170 | 33 | — | |||||||||
Payments of long-term debt | (525 | ) | (1,799 | ) | — | |||||||
Payments of Title XI bonds | (450 | ) | — | — | ||||||||
Payments of obligations under capital leases | (269 | ) | (635 | ) | — | |||||||
Payment of other deferred financing costs | (2 | ) | (4 | ) | — | |||||||
Proceeds from exercise of stock options | 395 | — | — | |||||||||
Decrease in restricted cash | — | — | — | |||||||||
Net cash (used in) provided by financing activities | (1,181 | ) | (2,405 | ) | — | |||||||
Increase (decrease) in cash and cash equivalents | 14,690 | (3,997 | ) | — | ||||||||
Cash and cash equivalents at beginning of period | 8,265 | 4,983 | — | |||||||||
Cash and cash equivalents at end of period | $ | 22,955 | $ | 986 | $ | — | ||||||
Condensed Consolidating Statement of Operations | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Nine months ended September 30, 2003 | ||||||||||||||||||||||||||||
Wholly | Non-Wholly | |||||||||||||||||||||||||||
Owned | Owned | Non- | Non- | |||||||||||||||||||||||||
Guarantor | Guarantor | Guarantor | Guarantor | |||||||||||||||||||||||||
Restricted | Restricted | Restricted | Unrestricted | Consolidated | ||||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Revenue | $ | 33,366 | $ | 59,023 | $ | 10,705 | $ | 88,272 | $ | 45,722 | $ | (265 | ) | $ | 236,823 | |||||||||||||
Vessel and voyage expenses | 18,161 | 37,864 | 6,105 | 48,386 | 18,086 | (265 | ) | 128,337 | ||||||||||||||||||||
General and administrative | 8,848 | 7,425 | 663 | 10,389 | 1,207 | — | 28,532 | |||||||||||||||||||||
Depreciation, amortization and drydocking | 5,920 | 11,714 | 2,166 | 21,691 | 7,211 | — | 48,702 | |||||||||||||||||||||
Gain on disposal of assets, net | — | (1,040 | ) | — | (393 | ) | — | — | (1,433 | ) | ||||||||||||||||||
Income from operations | 437 | 3,060 | 1,771 | 8,199 | 19,218 | — | 32,685 | |||||||||||||||||||||
Other expense, net | (1,329 | ) | (6,686 | ) | (1,261 | ) | (5,281 | ) | (11,782 | ) | (166 | ) | (26,505 | ) | ||||||||||||||
Income (loss) before provision for income taxes | (892 | ) | (3,626 | ) | 510 | 2,918 | 7,436 | (166 | ) | 6,180 | ||||||||||||||||||
Provision for income taxes | — | — | — | 3,810 | — | — | 3,810 | |||||||||||||||||||||
Net income (loss) | $ | (892 | ) | $ | (3,626 | ) | $ | 510 | $ | (892 | ) | $ | 7,436 | $ | (166 | ) | $ | 2,370 | ||||||||||
(a) | In December 2004, the Company purchased the minority interest in a partnership that owns the Seabulk America. Subsequent to the acquisition, all Guarantor Restricted Subsidiaries are wholly-owned subsidiaries of the Company. |
15
Condensed Consolidating Statement of Cash Flows | Condensed Consolidating Statement of Cash Flows | |||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||
Nine months ended September 30, 2004 | Three Months Ended March 31, 2005 | |||||||||||||||||||||||||||
Wholly Owned | Non-Wholly | Non- | Non- | |||||||||||||||||||||||||
Guarantor | Owned Guarantor | Guarantor | Guarantor | |||||||||||||||||||||||||
Restricted | Restricted | Restricted | Unrestricted | Consolidated | ||||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (4,121 | ) | $ | 12,944 | $ | 182 | $ | 1,776 | $ | (5,331 | ) | $ | — | $ | 17,743 | ||||||||||||
Investing activities: | ||||||||||||||||||||||||||||
Proceeds from disposals of assets | — | 311 | — | |||||||||||||||||||||||||
Proceeds from sales of vessels and equipment | 200 | — | — | 2,250 | ||||||||||||||||||||||||
Purchases of vessels and equipment | (11,787 | ) | (62,268 | ) | (904 | ) | — | — | (9,973 | ) | ||||||||||||||||||
Investment in Joint Venture | — | — | — | |||||||||||||||||||||||||
Net cash used in investing activities | (11,787 | ) | (61,957 | ) | — | |||||||||||||||||||||||
Net cash (used in) provided by investing activities | (704 | ) | — | (7,723 | ) | |||||||||||||||||||||||
Financing activities: | ||||||||||||||||||||||||||||
Payments of Fortis debt | (1,483 | ) | — | — | ||||||||||||||||||||||||
Proceeds from Fortis debt | 20,000 | — | — | |||||||||||||||||||||||||
Proceeds from Amended Credit Facility | — | — | — | |||||||||||||||||||||||||
Payments on Amended Credit Facility | — | — | — | (5,500 | ) | |||||||||||||||||||||||
Proceeds from long-term debt | 596 | — | — | 5,799 | ||||||||||||||||||||||||
Payments of long-term debt | (4,278 | ) | (1,211 | ) | — | — | — | — | (2,324 | ) | ||||||||||||||||||
Proceeds from long-term debt | 4,293 | 52,900 | — | |||||||||||||||||||||||||
Payments of Title XI bonds | (1,525 | ) | — | — | — | — | — | (450 | ) | |||||||||||||||||||
Payments of obligations under capital leases | –– | –– | –– | (904 | ) | |||||||||||||||||||||||
Payment of other deferred financing costs | (218 | ) | (569 | ) | — | — | — | — | (6 | ) | ||||||||||||||||||
Issue costs related to senior notes and amended credit facility | (285 | ) | — | — | ||||||||||||||||||||||||
Payments of obligations under capital leases | (774 | ) | (1,826 | ) | — | |||||||||||||||||||||||
Proceeds from exercise of stock options | 175 | — | — | — | — | — | 395 | |||||||||||||||||||||
Increase in restricted cash | — | — | — | |||||||||||||||||||||||||
Decrease in restricted cash | — | 5,331 | — | 5,331 | ||||||||||||||||||||||||
Net cash (used in) provided by financing activities | 15,905 | 49,294 | — | 596 | 5,331 | — | 2,341 | |||||||||||||||||||||
Change in cash and cash equivalents | (3 | ) | 281 | 182 | ||||||||||||||||||||||||
Increase (decrease) in cash and cash equivalents | 1,668 | — | — | 12,361 | ||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 217 | 452 | 1,030 | 5,701 | — | — | 18,949 | |||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 214 | $ | 733 | $ | 1,212 | $ | 7,369 | $ | — | $ | — | $ | 31,310 | ||||||||||||||
16
Condensed Consolidating Statement of Cash Flows | Condensed Consolidating Statement of Cash Flows | |||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||
Nine months ended September 30, 2004 | Three Months Ended March 31, 2004 | |||||||||||||||||||||||||||
Non- | Non- | Wholly Owned | Non-Wholly | |||||||||||||||||||||||||
Guarantor | Guarantor | Guarantor | Owned Guarantor | |||||||||||||||||||||||||
Restricted | Unrestricted | Consolidated | Restricted | Restricted | ||||||||||||||||||||||||
Subsidiaries | Subsidiaries | Eliminations | Total | Parent | Subsidiaries | Subsidiaries | ||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 18,718 | $ | 9,781 | $ | — | $ | 37,504 | ||||||||||||||||||||
Net cash (used in) provided by operating activities | $ | (16,904 | ) | $ | 13,702 | $ | (271 | ) | ||||||||||||||||||||
Investing activities: | ||||||||||||||||||||||||||||
Proceeds from disposals of assets | 3,459 | — | — | 3,770 | ||||||||||||||||||||||||
Proceeds from sales of vessels and equipment | — | 1 | — | |||||||||||||||||||||||||
Purchases of vessels and equipment | (18,627 | ) | (35 | ) | — | (92,717 | ) | (21 | ) | (62,026 | ) | — | ||||||||||||||||
Investment in Joint Venture | (240 | ) | — | — | (240 | ) | ||||||||||||||||||||||
Net cash used in investing activities | (15,408 | ) | (35 | ) | — | (89,187 | ) | |||||||||||||||||||||
Net cash (used in) provided by investing activities | (21 | ) | (62,025 | ) | — | |||||||||||||||||||||||
Financing activities: | ||||||||||||||||||||||||||||
Payments of Fortis debt | — | — | — | (1,483 | ) | |||||||||||||||||||||||
Proceeds from Fortis debt | — | — | — | 20,000 | ||||||||||||||||||||||||
Proceeds from Amended Credit Facility | 20,000 | — | — | |||||||||||||||||||||||||
Payments of long-term debt | — | — | — | (5,489 | ) | (525 | ) | (318 | ) | — | ||||||||||||||||||
Proceeds from long-term debt | — | — | — | 57,193 | — | 49,600 | — | |||||||||||||||||||||
Payments of Title XI bonds | — | (2,459 | ) | — | (3,984 | ) | (450 | ) | — | — | ||||||||||||||||||
Payments of obligations under capital leases | (254 | ) | (611 | ) | — | |||||||||||||||||||||||
Payments of deferred financing costs related to 2003 Senior Notes and Amended Credit Facility | (95 | ) | — | — | ||||||||||||||||||||||||
Payment of other deferred financing costs | (36 | ) | — | — | (823 | ) | — | (506 | ) | — | ||||||||||||||||||
Issue costs related to senior notes and amended credit facility | — | — | — | (285 | ) | |||||||||||||||||||||||
Payments of obligations under capital leases | — | — | — | (2,600 | ) | |||||||||||||||||||||||
Proceeds from exercise of stock options | — | — | — | 175 | ||||||||||||||||||||||||
Proceeds from the exercise of stock options | 167 | — | — | |||||||||||||||||||||||||
Increase in restricted cash | — | (7,287 | ) | — | (7,287 | ) | — | — | — | |||||||||||||||||||
Net cash (used in) provided by financing activities | (36 | ) | (9,746 | ) | — | 55,417 | ||||||||||||||||||||||
Net cash provided by (used in) financing activities | 18,843 | 48,165 | — | |||||||||||||||||||||||||
Change in cash and cash equivalents | 3,274 | — | — | 3,734 | ||||||||||||||||||||||||
Increase (decrease) in cash and cash equivalents | 1,918 | (158 | ) | (271 | ) | |||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 5,700 | — | — | 7,399 | 217 | 452 | 1,030 | |||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 8,974 | $ | — | $ | — | $ | 11,133 | $ | 2,135 | $ | 294 | $ | 759 | ||||||||||||||
17
Condensed Consolidating Statement of Cash Flows | ||||||||||||
(in thousands) | ||||||||||||
Nine months ended September 30, 2003 | ||||||||||||
Wholly Owned | Non-Wholly | |||||||||||
Guarantor | Owned Guarantor | |||||||||||
Restricted | Restricted | |||||||||||
Parent | Subsidiaries | Subsidiaries | ||||||||||
Net cash provided by (used in) operating activities | $ | (9,541 | ) | $ | 11,944 | $ | 2,993 | |||||
Investing activities: | ||||||||||||
Proceeds from disposals of assets | — | 3,993 | — | |||||||||
Purchases of vessels and equipment | (1,253 | ) | (1,314 | ) | (11 | ) | ||||||
Investment in Joint Venture | — | — | — | |||||||||
Net cash used in financing activities | (1,253 | ) | (2,679 | ) | (11 | ) | ||||||
Financing activities: | ||||||||||||
Payments of prior credit facility | (148,179 | ) | — | — | ||||||||
Proceeds of 9.5% senior notes | 150,000 | — | — | |||||||||
Payments of long-term debt | (3,075 | ) | (1,317 | ) | — | |||||||
Proceeds from long-term debt | — | 6,525 | — | |||||||||
Payments of Title XI bonds | (1,525 | ) | (11,730 | ) | — | |||||||
Payments of deferred financing costs under prior 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 | (577 | ) | (7,961 | ) | — | |||||||
Capitalized issue costs related to issuance of common stock | (27 | ) | — | — | ||||||||
Proceeds from exercise of stock options | 242 | — | — | |||||||||
Proceeds from exercise of warrants | 1 | — | — | |||||||||
Increase in restricted cash | — | — | — | |||||||||
�� | ||||||||||||
Net cash provided by (used in) financing activities | 5,466 | (14,483 | ) | — | ||||||||
Change in cash and cash equivalents | (5,328 | ) | 140 | 2,982 | ||||||||
Cash and cash equivalents at beginning of period | 12,316 | 413 | 13 | |||||||||
Cash and cash equivalents at end of period | $ | 6,988 | $ | 553 | $ | 2,995 | ||||||
Condensed Consolidating Statement of Cash Flows | ||||||||||||||||
(in thousands) | ||||||||||||||||
Three Months Ended March 31, 2004 | ||||||||||||||||
Non- | Non- | |||||||||||||||
Guarantor | Guarantor | |||||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||||||
Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||
Net cash (used in) provided by operating activities | $ | 11,321 | $ | 3,635 | $ | — | $ | 11,483 | ||||||||
Investing activities: | ||||||||||||||||
Proceeds from sales of vessels and equipment | 600 | — | — | 601 | ||||||||||||
Purchases of vessels and equipment | (8,975 | ) | (18 | ) | — | (71,040 | ) | |||||||||
Net cash (used in) provided by investing activities | (8,375 | ) | (18 | ) | — | (70,439 | ) | |||||||||
Financing activities: | ||||||||||||||||
Proceeds from Amended Credit Facility | — | — | — | 20,000 | ||||||||||||
Payments of long-term debt | — | — | — | (843 | ) | |||||||||||
Proceeds from long-term debt | — | — | — | 49,600 | ||||||||||||
Payments of Title XI bonds | — | — | — | (450 | ) | |||||||||||
Payments of obligations under capital leases | — | — | — | (865 | ) | |||||||||||
Payments of deferred financing costs related to 2003 Senior Notes and Amended Credit Facility | — | — | — | (95 | ) | |||||||||||
Payment of other deferred financing costs | — | — | — | (506 | ) | |||||||||||
Proceeds from the exercise of stock options | –– | –– | –– | 167 | ||||||||||||
Increase is restricted cash | –– | (3,617 | ) | –– | (3,617 | ) | ||||||||||
Net cash provided by (used in) financing activities | — | (3,617 | ) | — | 63,391 | |||||||||||
Increase (decrease) in cash and cash equivalents | 2,946 | — | — | 4,435 | ||||||||||||
Cash and cash equivalents at beginning of period | 5,700 | — | — | 7,399 | ||||||||||||
Cash and cash equivalents at end of period | $ | 8,646 | $ | — | $ | — | $ | 11,834 | ||||||||
18
Condensed Consolidating Statement of Cash Flows | ||||||||||||||||
(in thousands) | ||||||||||||||||
Nine months ended September 30, 2003 | ||||||||||||||||
Non- | Non- | |||||||||||||||
Guarantor | Guarantor | |||||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||||||
Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||
Net cash provided by (used in) operating activities | $ | 21,243 | $ | 10,486 | $ | — | $ | 37,125 | ||||||||
Investing activities: | ||||||||||||||||
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 financing activities | (17,330 | ) | (46 | ) | — | (15,961 | ) | |||||||||
Financing activities: | ||||||||||||||||
Payments of prior credit facility | — | — | — | (148,179 | ) | |||||||||||
Proceeds of 9.5% senior notes | — | — | — | 150,000 | ||||||||||||
Payments of long-term debt | — | — | — | (4,392 | ) | |||||||||||
Proceeds from long-term debt | — | — | — | 6,525 | ||||||||||||
Payments of Title XI bonds | — | (2,297 | ) | — | (15,552 | ) | ||||||||||
Payments 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 | ||||||||||||
Increase in restricted cash | — | (8,143 | ) | — | (8,143 | ) | ||||||||||
Net cash provided by (used in) financing activities | — | (2,297 | ) | — | (19,457 | ) | ||||||||||
Change in cash and cash equivalents | 3,913 | 8,143 | 1,707 | |||||||||||||
Cash and cash equivalents at beginning of period | 4,802 | — | — | 17,544 | ||||||||||||
Cash and cash equivalents at end of period | $ | 8,715 | $ | 8,143 | $ | — | $ | 19,251 | ||||||||
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 2003Company’s 2004 Annual Report on Form 10-K.10-K and Form 10-K/A Amendment No. 1.
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 2003Company’s 2004 Annual Report on Form 10-K.10-K and Form 10-K/A Amendment No. 1.
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 2003Company’s 2004 Annual Report on Form 10-K.
In June 2001, the Accounting Standards Executive Committee (“AcSEC”) of the American Institute of Certified Public Accountants (“AICPA”) issued an exposure draft of a proposed Statement of Position (“SOP”) entitledAccounting for Certain Costs10-K and Activities Related to Property, Plant and Equipment. Under the proposed SOP, the Company would expense major maintenance costs as incurred and be prohibited from deferring the 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 April 14, 2004 meeting, the FASB voted not to clear AcSEC’s proposed SOP. It has indicated that the accounting matters covered by the SOP will be addressed during the 2005-2006 time frame.Form 10-K/A Amendment No. 1.
Overview of Revenue
The Company derives its revenue from three main lines of business -– offshore energy support, marine transportation, and marine towing. Seabulk Offshore, the Company’s domestic and international offshore energy support business, accounted for approximately 47%47.4% and 50%47.9% of Company revenue for the ninethree months ended September 30,March 31, 2005 and 2004, and 2003, respectively. Seabulk Tankers, our marine transportationtanker business, consists of the Company’sJones ActU.S.-flag product tanker business, in which it operates ten U.S.-flagowns nine petroleum and chemical product tankers and leases one chemical product tanker in the domestic coastwise trade. The tanker business also consists of the Company’s two foreign-flag tankers. Nine of the U.S.-flagproduct tankers, are engagedwhich began operations in coastwiseinternational trade carrying petroleum products, crude oil,in March and chemicals, and one is employed in U.S. foreign commerce. The two foreign-flag vessels, acquired at the end of March 2004, have been employed in the world-wide foreign product shipping trade.April 2004. Seabulk Tankers accounted for approximately 42%40.4% and 38%40.5% of Company revenue for the ninethree months ended September 30,March 31, 2005 and 2004, and 2003, respectively. Seabulk Towing, the Company’s domestic harbor and offshore towing business, accounted for approximately 11%12.2% and 12%11.6% of Company revenue for the ninethree months ended September 30,March 31, 2005 and 2004, and 2003, respectively.
20
Seabulk Offshore
Revenue from the Company’s offshore energy support businessoperations 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. In certain areas where the Company conducts offshore energy support operations (particularly the U.S. Gulf of Mexico), contracts for the utilization of offshore energy support vessels commonly include termination provisions with three-to-five-day notice requirements and no termination penalty. As a result, companies engaged in offshore energy support operations (including the Company)us) are particularly sensitive to changes in market demand.
Periods for collection of receivables in certain foreign areas of operation in the offshore business, particularly in West Africa, are longer than is usual for the United States. The Company regularly monitors all such receivables accounts and believes that it has accrued adequate reserves where necessary. The Company reviews the creditworthiness of certain of its customers and potential customers in West Africa.
As the Company’s offshore energy support fleet gets older, the Company’s strategy is to look for opportunities to improve its age profile by acquiring higher-value, larger and newer vessels and selling a number of older and smaller vessels, mainly crewboats.crewboats and vessels approaching the end of their useful lives.
19
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 accounts receivable and believes that it has accrued adequate reserves.
The Company has a newbuild program for selective offshore fleet replacement and enhancement. In 2004, the Company added one vessel to the Brazilian fleet, theSeabulk Brasil; and one vessel to the West African fleet, theSeabulk Advantage. In January 2005, the Company added one vessel to the Brazilian fleet, theSeabulk Angra. The Company also executed contracts in 2004 for two offshore newbuilds for delivery in May and August 2005 to cover contracts in Angola. In addition, in 2004 and in May 2005 the Company signed contracts for a total of eight anchor handling tug supply vessels for delivery in 2006 and 2007.
In January 2004,2005, the Company entered intotook delivery of and began to operate theSeabulk Carmen, a contract with Labroy Shipbuildingsupply boat operating in the U.S. Gulf of Mexico. The transaction to acquire theSeabulk Carmen was a like-kind exchange of assets of equal value and Engineering Pte. Ltd. of Singapore for the construction ofwas a terminal support tugtax-free transaction to be namedSeabulk Angolafor delivery in March 2005 for the Singapore dollar equivalent of U.S. $10.8 million. The Company also entered into a forward exchange contract intended to fully hedge its foreign currency commitment. Under the forward contract, the Company, will purchase Singapore dollars at various rates dated from February 2004 through March 2005, in conjunction with the progress payment dates as required by the construction agreement. In July 2004,which the Company entered into a loan agreement with Caterpillar Financial Services Corporation (“CFSC”) to financedelivered three older crew boats and one older geophysical vessel in exchange for the construction of the vessel. The loan will be paid in installments of principal and interest for a term of 120 months at the rate of one month LIBOR plus 3.68% per year. The vessel will be employed on a long-term contract in Angola.Seabulk Carmen.
In February 2004,March 2005, the Company sold theSeabulk GrebeVeritas, an offshore energy support vessel operating in the U.S Gulf of Mexico. Proceeds from the sale of the vessel were $200,000. The gain on the sale of the vessel was approximately $45,000.
In March 2005, the Company sold theSeabulk Neptune, an anchor handling tug operating in West Africa. Proceeds from the sale of the vessel were $600,000.approximately $200,000. The loss on the sale of the vessel was approximately $13,000.$148,000.
In May 2004,March 2005, the Company solddelivered theSeabulk MobileWinn, an offshorea crew boat operating in the U.S. Gulf. Proceeds fromGulf of Mexico, and $550,000 in exchange for theC/Crusader, a supply boat, and the assignment of a purchase and sale agreement. The Company subsequently sold theC/Crusaderunder the terms of the vessel were $300,000. The gain on theassigned purchase and sale agreement for proceeds of the vessel was approximately $174,000. In May 2004, the Company sold theSeabulk Maintainer, an offshore crane barge operating in the Arabian Gulf. Proceeds from the sale of the vessel were approximately $1.6$1.9 million. The gain ontransaction was a like-kind exchange of assets of equal value and was a tax-free transaction to the sale of the vessel was approximately $1.5 million.Company.
In May 2004, the Company entered into a contract with Labroy Shipbuilding and Engineering Pte. Ltd. for the construction of an anchor handling tug supply vessel to be namedSeabulk Luandafor delivery in mid-2005. In October 2004, the Company entered into a loan agreement with Caterpillar Financial Services Corporation (“CFSC”) to finance the construction of the anchor handling tug supply vessel for the Singapore dollar equivalent of U.S. $14.3 million. The loan will be paid in installments of principal and interest for a term of 120 months at the rate of one month LIBOR plus 3.68% per year. The vessel will be employed on a long-term contract in Angola.
In May 2004, the Company entered into a contract with Jaya Shipbuilding and Engineering Pte. Ltd. of Singapore for the construction of a multi-purpose offshore supply vessel with a four point mooring system to be namedSeabulk Advantagefor delivery in late 2004. The vessel will be constructed at a cost of approximately $8.6 million. The purchase price will be financed by a combination of bank borrowings and available cash.
In June 2004, the Company sold theSeabulk Petrel, an offshore anchor handling tug supply vessel. Proceeds from the sale of the vessel were approximately $650,000. The gain on the sale of the vessel was approximately $263,000.
21
In July 2004, the Company sold theSeabulk Beauregard, an offshore crew boat operating in the U.S. Gulf. Proceeds from the sale of the vessel were $325,000. The gain on the sale of the vessel was approximately $223,000.
In July 2004, the Company entered into a loan agreement with Banco Nacional de Desenvolvimento Economico e Social (“BNDES”) of Brazil, a government-owned company, to finance the construction of two offshore supply vessels. The vessels will be constructed by Estaleiro Promar I Reparos Navais Ltda (“Promar”), and will be used to service oil drilling and production companies. The loan in the principal amount of $29.9 million is divided into two Subcredits “A” and “B” in the amounts of $15.0 million and $14.9 million, respectively. As required by the construction agreements, progress payments for Subcredits A and B are demandable at various dates monthly for sixteen year terms with final installments due May 2021 and August 2021, respectively. The Company took delivery of the first vessel, theSeabulk Brasil, in October 2004.
In September 2004, the Company sold theSeabulk Bolivarand theSeabulk Baldwin,two offshore crew boats operating in the U.S. Gulf. Proceeds from the sale of the vessels were $150,000 each. The gains on the sale of theSeabulk Bolivarand theSeabulk Baldwinwere approximately $123,000 and $100,000, respectively.
In October 2004, the Company entered into a contract with Labroy Shipbuilding and Engineering Pte. Ltd. for the construction of four anchor handling tug supply vessels with an option for four additional vessels. Built at a combined cost of approximately $43.7 million with delivery scheduled in 2006, the vessels will work under long-term contracts in West Africa and Southeast Asia.
22
The following tables set forth, by primary area of operation, average day rates achieved by the offshore energy support 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 2004 | Q2 2004 | Q3 2004 | ||||||||||||||||||||||||||||||||||||||||||||||
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 | — | 22 | 2 | 21 | — | 21 | 2 | 21 | — | 18 | 2 | ||||||||||||||||||||||||||||||||||||
Laid-Up | — | — | — | 1 | — | — | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||
Effective Utilization(3) | 43 | % | — | 63 | % | — | 52 | % | — | 67 | % | — | 68 | % | — | 73 | % | — | ||||||||||||||||||||||||||||||
Average Day Rate | $ | 5,001 | — | $ | 2,410 | — | $ | 4,879 | — | $ | 2,442 | — | $ | 4,768 | — | $ | 2,705 | — | ||||||||||||||||||||||||||||||
West Africa | ||||||||||||||||||||||||||||||||||||||||||||||||
Vessels(2) | 33 | 4 | 3 | — | 33 | 4 | 3 | — | 33 | 4 | 3 | — | ||||||||||||||||||||||||||||||||||||
Laid-Up | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Effective Utilization(3) | 82 | % | 86 | % | 98 | % | — | 83 | % | 75 | % | 94 | % | — | 78 | % | 67 | % | 93 | % | — | |||||||||||||||||||||||||||
Average Day Rate | $ | 7,281 | $ | 6,193 | $ | 3,413 | — | $ | 7,350 | $ | 6,831 | $ | 3,524 | — | $ | 7,300 | $ | 6,196 | $ | 3,620 | — | |||||||||||||||||||||||||||
Middle East | ||||||||||||||||||||||||||||||||||||||||||||||||
Vessels(2) | 6 | 5 | 7 | 5 | 6 | 5 | 7 | 4 | 6 | 5 | 7 | 4 | ||||||||||||||||||||||||||||||||||||
Laid-Up | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Effective Utilization(3) | 89 | % | 80 | % | 79 | % | 43 | % | 97 | % | 84 | % | 92 | % | 78 | % | 83 | % | 75 | % | 93 | % | 95 | % | ||||||||||||||||||||||||
Average Day Rate | $ | 3,750 | $ | 4,565 | $ | 1,740 | $ | 3,966 | $ | 3,880 | $ | 4,739 | $ | 1,712 | $ | 5,043 | $ | 3,827 | $ | 4,951 | $ | 1,659 | $ | 4,804 | ||||||||||||||||||||||||
Southeast Asia | ||||||||||||||||||||||||||||||||||||||||||||||||
Vessels(2) | 8 | — | — | 1 | 7 | — | — | 1 | 7 | — | — | 1 | ||||||||||||||||||||||||||||||||||||
Laid-Up | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Effective Utilization(3) | 66 | % | — | — | — | 77 | % | — | — | — | 88 | % | — | — | — | |||||||||||||||||||||||||||||||||
Average Day Rate | $ | 5,422 | — | — | — | $ | 5,388 | — | — | — | $ | 5,400 | — | — | — |
20
Q1 2005 | ||||||||||||||||||||
AHTS/ | AHT/ | Crew/ | Other | |||||||||||||||||
Supply | Tugs | Utility | ||||||||||||||||||
Americas(1) | ||||||||||||||||||||
Vessels (2) | 24 | — | 14 | 1 | ||||||||||||||||
Effective Utilization (3) | 64 | % | — | 77 | % | — | ||||||||||||||
Day Rate | $ | 5,518 | — | $ | 3,196 | — | ||||||||||||||
West Africa | ||||||||||||||||||||
Vessels (2) | 29 | 2 | 3 | 1 | ||||||||||||||||
Effective Utilization (3) | 87 | % | 79 | % | 92 | % | — | |||||||||||||
Day Rate | $ | 7,564 | $ | 7,076 | $ | 3,635 | — | |||||||||||||
Middle East | ||||||||||||||||||||
Vessels (2) | 8 | 5 | 7 | 4 | ||||||||||||||||
Effective Utilization (3) | 84 | % | 95 | % | 72 | % | 72 | % | ||||||||||||
Day Rate | $ | 4,298 | $ | 4,686 | $ | 1,614 | $ | 4,095 | ||||||||||||
Southeast Asia | ||||||||||||||||||||
Vessels (2) | 7 | — | — | 1 | ||||||||||||||||
Effective Utilization (3) | 94 | % | — | — | — | |||||||||||||||
Day Rate | $ | 6,159 | — | — | — | |||||||||||||||
(1) | ||
(2) | Held-for-sale and bareboat-out vessels are excluded from the vessel count. | |
(3) | Effective utilization excludes laid-up vessels. |
23
Q1 2004 | Q2 2004 | Q3 2004 | Q4 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
AHTS/ | AHT/ | Crew/ | Other | AHTS/ | AHT/ | Crew/ | Other | AHTS/ | AHT/ | Crew/ | Other | AHTS/ | AHT/ | Crew/ | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Supply | Tugs | Utility | Supply | Tugs | Utility | Supply | Tugs | Utility | Supply | Tugs | Utility | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vessels(2) | 21 | — | 22 | 2 | 21 | — | 21 | 2 | 21 | — | 18 | 2 | 22 | — | 18 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Laid-Up | — | — | — | 1 | — | — | — | 1 | — | — | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Effective Utilization(3) | 43 | % | — | 63 | % | — | 52 | % | — | 67 | % | — | 68 | % | — | 73 | % | — | 69 | % | — | 72 | % | — | ||||||||||||||||||||||||||||||||||||||||||||
Day Rate | $ | 5,001 | — | $ | 2,410 | — | $ | 4,879 | — | $ | 2,442 | — | $ | 4,768 | — | $ | 2,705 | — | $ | 5,421 | — | $ | 2,958 | — | ||||||||||||||||||||||||||||||||||||||||||||
West Africa | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vessels(2) | 33 | 4 | 3 | — | 33 | 4 | 3 | — | 33 | 4 | 3 | — | 32 | 2 | 3 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Effective Utilization(3) | 82 | % | 86 | % | 98 | % | — | 83 | % | 75 | % | 94 | % | — | 78 | % | 67 | % | 93 | % | — | 77 | % | 70 | % | 84 | % | — | ||||||||||||||||||||||||||||||||||||||||
Day Rate | $ | 7,281 | $ | 6,193 | $ | 3,413 | — | $ | 7,350 | $ | 6,831 | $ | 3,524 | — | $ | 7,300 | $ | 6,196 | $ | 3,620 | — | $ | 7,574 | $ | 6,329 | $ | 3,664 | — | ||||||||||||||||||||||||||||||||||||||||
Middle East | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vessels(2) | 6 | 5 | 7 | 5 | 6 | 5 | 7 | 4 | 6 | 5 | 7 | 4 | 6 | 5 | 7 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Effective Utilization(3) | 89 | % | 80 | % | 79 | % | 43 | % | 97 | % | 84 | % | 92 | % | 78 | % | 83 | % | 75 | % | 93 | % | 95 | % | 86 | % | 64 | % | 80 | % | 99 | % | ||||||||||||||||||||||||||||||||||||
Day Rate | $ | 3,750 | $ | 4,565 | $ | 1,740 | $ | 3,966 | $ | 3,880 | $ | 4,739 | $ | 1,712 | $ | 5,043 | $ | 3,827 | $ | 4,951 | $ | 1,659 | $ | 4,804 | $ | 3,782 | $ | 5,388 | $ | 1,580 | $ | 4,733 | ||||||||||||||||||||||||||||||||||||
Southeast Asia | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vessels(2) | 8 | — | — | 1 | 7 | — | — | 1 | 7 | — | — | 1 | 7 | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Effective Utilization(3) | 66 | % | — | — | — | 77 | % | — | — | — | 88 | % | — | — | — | 93 | % | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Day Rate | $ | 5,422 | — | — | — | $ | 5,388 | — | — | — | $ | 5,400 | — | — | — | $ | 5,327 | — | — | — |
Q1 2003 | Q2 2003 | |||||||||||||||||||||||||||||||
AHTS/ | AHT/ | Crew/ | AHTS/ | AHT/ | Crew/ | |||||||||||||||||||||||||||
Supply | Tugs | Utility | Other | Supply | Tugs | Utility | Other | |||||||||||||||||||||||||
Domestic(1) | ||||||||||||||||||||||||||||||||
Vessels(2) | 21 | — | 25 | 2 | 21 | — | 25 | 2 | ||||||||||||||||||||||||
Laid-Up | — | — | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||
Effective Utilization(3) | 56 | % | — | 61 | % | — | 67 | % | — | 69 | % | — | ||||||||||||||||||||
Average Day Rate | $ | 5,192 | — | $ | 2,330 | — | $ | 4,989 | — | $ | 2,422 | — | ||||||||||||||||||||
West Africa | ||||||||||||||||||||||||||||||||
Vessels(2) | 32 | 4 | 6 | 1 | 32 | 4 | 1 | — | ||||||||||||||||||||||||
Laid-Up | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Effective Utilization(3) | 80 | % | 72 | % | 97 | % | — | 83 | % | 76 | % | — | — | |||||||||||||||||||
Average Day Rate | $ | 7,223 | $ | 6,131 | $ | 3,028 | — | $ | 7,199 | $ | 6,198 | — | — | |||||||||||||||||||
Middle East | ||||||||||||||||||||||||||||||||
Vessels(2) | 6 | 6 | 7 | 6 | 6 | 6 | 7 | 6 | ||||||||||||||||||||||||
Laid-Up | — | — | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||
Effective Utilization(3) | 90 | % | 56 | % | 86 | % | 52 | % | 89 | % | 48 | % | 95 | % | 50 | % | ||||||||||||||||
Average Day Rate | $ | 3,283 | $ | 4,457 | $ | 1,682 | $ | 5,213 | $ | 3,393 | $ | 5,364 | $ | 1,677 | $ | 4,246 | ||||||||||||||||
Southeast Asia | ||||||||||||||||||||||||||||||||
Vessels(2) | 9 | 1 | — | 1 | 8 | — | — | 1 | ||||||||||||||||||||||||
Laid-Up | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Effective Utilization(3) | 59 | % | — | — | — | 80 | % | — | — | — | ||||||||||||||||||||||
Average Day Rate | $ | 5,936 | — | — | — | 5,321 | — | — | — |
[Continued from above table, first column(s) repeated]
Q3 2003 | Q4 2003 | |||||||||||||||||||||||||||||||
AHTS/ | AHT/ | Crew/ | AHTS/ | AHT/ | Crew/ | |||||||||||||||||||||||||||
Supply | Tugs | Utility | Other | Supply | Tugs | Utility | Other | |||||||||||||||||||||||||
Domestic(1) | ||||||||||||||||||||||||||||||||
Vessels(2) | 21 | — | 24 | 2 | 21 | — | 24 | 2 | ||||||||||||||||||||||||
Laid-Up | — | — | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||
Effective Utilization(3) | 73 | % | — | 77 | % | — | 61 | % | — | 73 | % | — | ||||||||||||||||||||
Average Day Rate | $ | 4,970 | — | $ | 2,557 | — | $ | 5,101 | — | $ | 2,463 | — | ||||||||||||||||||||
West Africa | ||||||||||||||||||||||||||||||||
Vessels(2) | 33 | 4 | 1 | — | 34 | 4 | 1 | — | ||||||||||||||||||||||||
Laid-Up | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Effective Utilization(3) | 78 | % | 86 | % | — | — | 73 | % | 82 | % | — | — | ||||||||||||||||||||
Average Day Rate | $ | 7,321 | $ | 6,265 | — | — | $ | 7,591 | $ | 6,053 | — | — | ||||||||||||||||||||
Middle East | ||||||||||||||||||||||||||||||||
Vessels(2) | 6 | 6 | 7 | 6 | 6 | 5 | 7 | 5 | ||||||||||||||||||||||||
Laid-Up | — | — | — | 1 | — | — | — | — | ||||||||||||||||||||||||
Effective Utilization(3) | 91 | % | 63 | % | 92 | % | 71 | % | 75 | % | 94 | % | 92 | % | 58 | % | ||||||||||||||||
Average Day Rate | $ | 3,476 | $ | 5,266 | $ | 1,742 | $ | 5,341 | $ | 3,711 | $ | 4,855 | $ | 1,760 | $ | 4,975 | ||||||||||||||||
Southeast Asia | ||||||||||||||||||||||||||||||||
Vessels(2) | 8 | — | — | 1 | 8 | — | — | 1 | ||||||||||||||||||||||||
Laid-Up | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Effective Utilization(3) | 78 | % | — | — | — | 65 | % | — | — | — | ||||||||||||||||||||||
Average Day Rate | $ | 5,310 | — | — | — | $ | 5,558 | — | — | — |
(1) |
(2) |
(3) |
2421
Domestic Offshore energy support revenue in the Americas for the ninethree months ended September 30, 2004 was adversely affectedMarch 31, 2005 increased by 41.7% over the continued slowdownsame period in 2004. Gulf of Mexico revenue increased from the prior year due to improvement in natural gas and crude oil drilling activity due to higher commodity prices and strong energy demand, which resulted in higher rates and utilization. However, with a current shortage of additional rigs available for employment, future upside may be limited as boat demand is essentially capped in the U.S. Gulf of Mexico. Despite high natural gas and petroleum prices, exploration and production companies in the U.S.shallow water Gulf of Mexico have not been investing in new projects, andwhere the contracted rig count fell to seasonal lows. ManyCompany operates. As a result of the oil company majors have reduced their expectations for energy prospectscycles in the mature Gulf of Mexico, market and are seeking more promising opportunities elsewhere. The Company redeployed two vessels to Mexico in the third quarter of 2004. The Company continues to explore charter opportunities in Mexico and Brazil, which remains anremain active market. Beginningmarkets. TheSeabulk Brasil, which began operations in Brazil in November 2004, underwent modifications for a part of the first quarter 2005 in preparation for her two year term charter, and now continues to produce high revenues. Revenues are expected to increase in the thirdAmericas region as theSeabulk Angrabegins full operation in Brazil in the second quarter of 2004, vessel utilization in the Gulf of Mexico began to improve in response to hurricane clean-up activities and2005 after also undergoing modifications for a dwindling supply of available vessels.similar time charter.
International offshore revenues for the ninethree months ended September 30, 2004March 31, 2005 increased by approximately 8.4%8.0% over the same period in 2003.2004. International vessel demand is primarily driven by crude oil exploration and production. During the first nine monthsquarter of 2004,2005, crude oil prices and demand remained high. InThe West Africa, utilization and day rates increased as this is an oil-driven deepwaterAfrican market with long time horizons and increasingcontinues to benefit from a tight market driven by strong exploration and production budgets primarily from oil company majors. Based on oil company projectionsactivity coupled with larger vessels moving out of the region and independent analyses,repatriating back to the North Sea. Day rates continued to improve with almost all available vessels fully utilized. In the Middle East and Southeast Asia, the Company expects international explorationexperienced higher rates and production spendingutilization in comparison to continue to increase in West Africa, which should lead to a higher level of demand in that area for some time to come. Revenue increased for the prior year. The Company’s Middle East operations versus the prior year as a result ofregion has increased its presence in India to five vessels, which resulted in higher day rates and higher utilization.revenues. Revenue remained substantially the sameincreased for the Company’s Southeast Asia operations versus the prior year.primarily due to a strong Vietnamese market.
Seabulk Tankers
Revenue from the Company’s marine transportation services business is derived from the operations of nine U.S.-flag tankers carrying petroleum, crude oil, petroleum products and chemical products in the domestic U.S.Jones Acttrade, one in U.S. foreign commerce and as of the first quarter of 2004, two foreign-flag tankers in foreign trade.
The Company’s U.S.-flag product tanker fleet operates on long-term time charters, consecutive voyage charters orand contracts of affreightment. The Company currently has sixseven tankers operating under time charters, one under a consecutive voyage charter, and threetwo under contracts of affreightment. The two foreign-flag tankers have been placed in an international product tanker pool.
The following table sets forth the number of vessels and revenue for the Company’s U.S. and foreign-flag product carriers:
Nine months ended September 30, | Three Months Ended March 31, | |||||||||||||||
2004 | 2003 | 2005 | 2004 | |||||||||||||
Number of vessels operated at end of period | 12 | 10 | 12 | 12 | ||||||||||||
Revenue (in thousands) | $ | 107,937 | $ | 89,908 | $ | 38,659 | $ | 33,462 |
Tanker revenue increased by 20.1%15.5% in the first nine monthsquarter of 20042005 as a result of higher rates andadding the addition of two foreign-flag double-hull product tankers which were purchased into the Company’s fleet at the end of March 2004. In addition, revenue increased by approximately $3.8 million for one tanker after the Company converted a bareboat charter to a consecutive voyage charter in January 2004.
U.S.-Flag Tankers.Demand for the Company’s tenJones Actproduct carriers is dependent on several factors, including production and refining levels in the United States, domestic consumer and commercialindustrial consumption of petroleum products and chemicals, and competition from foreign imports. The Company owned nine U.S.-flag tankers and operated a tenth under a bareboat charter at September 30, 2004.March 31, 2005. Five of the petroleum product tankers are double-hull, state-of-the-art vessels, of which two have chemical-carrying capability. Although theThe Company’sJones Actfleet has benefitedis benefiting from a higher energy demand and a tightening domestic tanker market, although increased competition from imported products has had a moderating effect onJones Acttanker rates. One of the Company’s single-hull vessels is scheduled for retirement in 2007, one in 2008, two in 2011, and one in 2015. None of the five U.S.-flag double-hull tankers has a regulatory agean OPA 90 restriction.
2522
In October 2004, the Company renewed for two years the time charter on one of its Jones Act vessels at a higher rate. One of the Company’s U.S.-flag single-hull vessels is currently subject to a trading restriction in foreign countries which are signatories to the International Maritime Organizations’ accelerated phase-out schedule for single-hull tankers. This vessel could potentially be prohibited from entering the Panama Canal because of such restriction, although it does not currently trade to the U.S. West Coast. Efforts are being made to address this matter on behalf of the U.S.-flag tanker industry. However, if not successfully addressed, it could potentially affect the Company’s other single-hull vessels as well should they be engaged to trade to the West Coast.
Foreign-Flag Tankers.The international product tanker market is highly cyclical and dependent upon the worldwide demand for refined products. Surging demand from China and an increase in U.S. petroleum product imports have favorably impacted international tanker rates, which are currently high by historical standards. The Company’s two double-hull foreign-flag carriers are benefiting from the current high rates. Neither of them has a regulatory age restriction.
Seabulk Towing
Revenue derived from the Company’s towing businesstug 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, competition and competition.the number of tugs available to provide services. Vessel traffic 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:
Nine months ended September 30, | Three Months Ended March 31, | |||||||||||||||
2004 | 2003 | 2005 | 2004 | |||||||||||||
Number of tugs at end of period | 26 | 28 | 26 | 26 | ||||||||||||
Revenue (in thousands) | $ | 30,079 | $ | 28,100 | $ | 11,654 | $ | 9,578 |
Towing revenue increased by 7.0% in the nine months of 200421.7% due to increased vessel traffic in certain of the Company’s ports, higher rates and improved utilization. The total number of port tug jobs during the months ended September 30, 2004 increased 33% from approximately 18,000 to 24,000 versus the comparable period in 2003.
Overview of Vessel and Voyage Expenses and Capital Expenditures
The Company’s vessel and voyage 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, repairs and maintenance, insurance, fuel and consumables, port charges and other.hire. For general information concerning these categories of vessel and voyage expenses as well as capital expenditures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Overview of Operating Expenses and Capital Expenditures” in Item 7 of the 2003Company’s 2004 Annual Report on Form 10-K.10-K and Form 10-K/A Amendment No. 1.
Insurance Coverage
Our protection and indemnity (P&I) insurance coverage for marine liability insurance is provided by mutual protection and indemnity marine insurance syndicates (clubs) and reinsured in the commercial market. Since February 2004, our coverage has been with West of England. Prior to that, our carrier was Steamship Mutual. The clubs generally base a member’s premium on the member’s loss experience and deductible. Insurance risk is transferred to the club, (as a third party), for losses in excess of the deductible. Premiums are a reflection of loss experience over prior years; premiums do not equate to insurance pay-outs. Insurance risk for claims above the deductible is transferred to the club, and to the reinsurance syndicates to the extent that the cost of claims exceeds specified levels. Additional or supplemental premiums for prior open years may be assessed; however, they are not based on an individual member’s loss experience. Such premiums are based on requirements to maintain the stated legal reserves as required by the insurance regulators in the United Kingdom.
2623
Results of Operations
The following table sets forth certain selected financial data and percentages of revenue for the periods indicated:
Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2004 | 2003 | 2005 | 2004 | |||||||||||||||||||||||||||||
(in millions) | ($’s in millions) | |||||||||||||||||||||||||||||||
Revenue | $ | 89.4 | 100 | % | $ | 79.7 | 100 | % | $ | 95.6 | 100 | % | $ | 82.5 | 100 | % | ||||||||||||||||
Vessel and voyage expenses | 47.0 | 53 | % | 44.4 | 56 | % | 47.9 | 50 | % | 46.9 | 57 | % | ||||||||||||||||||||
General and administrative | 9.3 | 10 | % | 9.8 | 12 | % | 9.7 | 10 | % | 9.4 | 11 | % | ||||||||||||||||||||
Depreciation, amortization, and drydocking | 16.7 | 19 | % | 16.3 | 20 | % | ||||||||||||||||||||||||||
Gain on disposal of assets, net | (0.4 | ) | 0 | % | (0.3 | ) | 0 | % | ||||||||||||||||||||||||
Depreciation, amortization, drydocking and Other | 16.5 | 17 | % | 15.8 | 19 | % | ||||||||||||||||||||||||||
Loss on disposal of assets, net | 0.1 | 0 | % | — | 0 | % | ||||||||||||||||||||||||||
Income from operations | $ | 16.8 | 19 | % | $ | 9.5 | 12 | % | $ | 21.4 | 23 | % | $ | 10.4 | 13 | % | ||||||||||||||||
Interest expense, net | $ | 8.3 | 9 | % | $ | 9.0 | 11 | % | $ | 9.3 | 10 | % | $ | 8.0 | 10 | % | ||||||||||||||||
Other income (expense), net | $ | 0.2 | 0 | % | $ | (1.1 | ) | 1 | % | $ | — | 0 | % | $ | 4.6 | 6 | % | |||||||||||||||
Income (loss) before provision for income taxes | $ | 8.3 | 9 | % | $ | (0.6 | ) | 0 | % | |||||||||||||||||||||||
Net income (loss) | $ | 6.8 | 8 | % | $ | (1.9 | ) | 2 | % | |||||||||||||||||||||||
Income before provision for income taxes | $ | 12.1 | 13 | % | $ | 7.0 | 8 | % | ||||||||||||||||||||||||
Net income | $ | 11.2 | 12 | % | $ | 5.7 | 7 | % | ||||||||||||||||||||||||
Three months ended September 30, 2004March 31, 2005 compared with the three months ended September 30, 2003March 31, 2004
Revenue.Revenue during the three months ended September 30, 2004first quarter of 2005 increased 12.2%15.8% from $79.7$82.5 million to $89.4$95.6 million versus the comparable period in 2003.2004. The increase primarily reflects higher revenue from the Company’s marine transportation services segmentand offshore energy support segments and, to a lesser extent, higher offshore and towing revenue.
Offshore revenue during the three months ended September 30, 2004 decreased 3.2%first quarter of 2005 increased 14.6% from $42.0$39.6 million to $40.7$45.3 million versus the comparable period in 2003.2004. The decrease primarilyincrease reflects lower revenueincreases in rates and utilization for the Gulf of Mexico resulting fromAmericas (including additions to the decline in the number of vessels operating there.Brazil fleet), Middle East and Southeast Asia regions.
Marine transportation revenue during the three months ended September 30, 2004first quarter of 2005 increased 36.0%15.5% from $28.0$33.5 million to $38.1$38.7 million versus the comparable period in 2003.2004. The increase primarily reflects the revenue impactoperation of the two new foreign-flag tankers as theywhich entered service towardat the end of March 2004. In addition, the Company is benefiting from a worldwide shortage of available tonnage and a high rate environment. The average day rate for the tanker rate improved approximately $6,000 per day versus the comparable period in 2003.
Towing revenue during the three months ended September 30, 2004first quarter of 2005 increased 9.6%21.7% from $9.8$9.6 million to $10.7$11.6 million versus the comparable period in 2003.2004. The increase primarily reflects additional vessel traffic in certain of the Company’s ports, higher tariffs and fuel surcharges. In addition,rates, improved utilization of the Company’s tug fleet, achieved higher rates and improved utilization during the period. The hurricane that swept the port of Mobile halting the operations of two tugs for several days did not have a significant impact on operations.additional offshore towing jobs.
Vessel and Voyage Expenses. Vessel and voyage expenses during the three months ended September 30, 2004first quarter of 2005 increased 5.8%2.2% from $44.4$46.9 million to $47.0$47.9 million versus the comparable period in 2003. Charter2004. Higher charter hire expenses due to increased asactivity in Southeast Asia, the Middle East and outside harbor towing were offset by a resultdecrease in maintenance and repair expenses due to the sale of additional bareboat expensesa number of older vessels in the offshore segment as the Company acquired four vessels in 2003 through bareboat charter contracts. RepairsGulf of Mexico and maintenance decreased primarily due to repairs performed in the tanker segment. Insurance decreased due to higher P&I premiums and higher P&I claim reserves. Fuel and consumables increased as a result of higher prices in the offshore, tanker and towing segments.West Africa.
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General and Administrative Expenses. General and administrative expenses during the three months ended September 30, 2004 decreased 4.5% from $9.8first quarter of 2005 remained substantially the same at $9.6 million to $9.3versus $9.4 million versusin the comparable period in 2003.
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Salaries and related benefit expenses decreased by approximately $0.5 million in the offshore segment, particularly in the Gulf of Mexico and the Middle East.2004.
Depreciation, Amortization, and Drydocking. Depreciation, amortization, and drydocking during the three months ended September 30, 2004first quarter of 2005 increased 2.7%4.6% from $16.3$15.8 million in 2003 to $16.7$16.5 million versus the comparable period in 2004. Amortization of drydocking costs increasedThe increase was primarily due to higher expenditures during the preceding drydocking periodaddition of approximately $0.8 million, howeverthe two foreign-flag product tankers added in March 2004 offset by a decreasereduction in depreciation expense due to the saletotal number of vessels as the Company continued selling its older and full vessel depreciation of approximately $0.4 million.smaller offshore units.
GainLoss on Disposal of Assets, Net.GainLoss on disposal of assets during the three months ended September 30, 2004first quarter of 2005 increased to $0.4a loss of $0.1 million from $0.3 million$12,000 in the comparable period in 2003.of 2004. The number of vessels sold or exchanged increased to threeseven for the three months ended September 30, 2004March 31, 2005 compared to one for the same period in 2003. The gain in 2004 included theSeabulk Beauregard, which had a gain of approximately $0.2 million.2004.
Net Interest Expense.Net interest expense during the three months ended September 30, 2004 decreased 7.6%first quarter of 2005 increased 16.0% from $8.0 million to $8.3$9.3 million from $9.0 million inversus the comparable period in 2003.2004. The decreaseincrease is primarily due to increased debt related to the improved rates as a resultpurchase of the interest rate swap agreementtwo new foreign-flag tankers, which entered service in October 2003.late March 2004, and to an overall increase in the Company’s variable borrowing rates.
Other Income (Expense), Net.Other income (expense), net during the three months ended September 30, 2004 increasedfirst quarter of 2005 decreased to $0.0 million from income of $0.2 million versus an expense of $1.1$4.6 million in the comparable period in 2003. The expense in 2003 included a $1.7 million loss on early extinguishment of debt in connection with the Company’s amended credit facility.
Nine months ended September 30, 2004 compared with the nine months ended September 30, 2003
Revenue.Revenue during the nine months ended September 30, 2004 increased 9.4% to $259.1 million from $236.8 million in the comparable period in 2003. The increase primarily reflects higher revenue from the Company’s marine transportation services segment and, to a lesser extent, higher offshore and towing revenue.
Offshore revenue during the nine months ended September 30, 2004 increased 2.0% to $121.4 million from $119.1 million in the comparable period in 2003. The increase primarily reflects revenue growth of $5.5 million in West Africa due to increased utilization, higher day rates, and an increased number of vessels, and revenue growth of $1.9 million in the Middle East and Southeast Asia, combined. The increase was, however, offset by lower revenue from the Gulf of Mexico of $5.0 million, due to fewer vessels and lower utilization.
Marine transportation revenue during the nine months ended September 30, 2004 increased 20.1% to $107.9 million from $89.9 million in the comparable period in 2003. The increase primarily reflects the addition of two foreign-flag double-hull product tankers in March 2004. In addition, revenue increased for one tanker after the Company converted a bareboat charter to a consecutive voyage charter in January 2004. The average day rate for the tanker fleet improved approximately $4,500 per day versus the comparable period in 2003.
Towing revenue during the nine months ended September 30, 2004 increased 7.0% to $30.1 million from $28.1 million in the comparable period in 2003. The increase primarily reflects additional vessel traffic in certain of the Company’s ports. In addition, the Company’s tug fleet achieved higher rates and improved utilization during the period.
Vessel and Voyage Expenses. Vessel and voyage expenses during the nine months ended September 30, 2004 increased 12.3% to $144.1 million from $128.3 million in the comparable period in 2003. Charter hire increased as a result of additional bareboat expenses in the offshore segment as the Company acquired four vessels in 2003 through bareboat charter contracts. Repairs and maintenance increased primarily due to repairs performed in the tanker segment. Insurance increased due to higher P&I premiums and higher P&I claim reserves. Fuel and consumables increased as a result of higher prices in the offshore, tanker and towing segments.
General and Administrative Expenses. General and administrative expenses during the nine months ended September 30, 2004 decreased 1% to $28.1 million from $28.5 million for the comparable period in 2003. Salaries, and benefit expenses decreased by approximately $0.8 million and the reserves for franchise taxes were reversed by approximately $1.4 million. The decrease was offset by an increase of approximately $1.9 million of bad debt expense, primarily due to the West Africa region for a net decrease in other general and administrative expenses of approximately $0.4 million.
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Depreciation, Amortization, and Drydocking. Depreciation, amortization, and drydocking during the nine months ended September 30, 2004 increased 1.9% to $49.6 million from $48.7 million in the comparable period in 2003. Amortization of drydocking costs increased due to higher expenditures during the preceding drydocking period of approximately $2.4 million, however offset by a decrease in depreciation expense due to the sale of vessels and full vessel depreciation of approximately $1.5 million.
Gain on Disposal of Assets, Net.Gain on disposal of assets during the nine months ended September 30, 2004 increased 69.1% from $1.4 million to $2.4 million versus the comparable period in 2003. The number of vessels sold decreased to seven for the nine months ended September 30, 2004 compared to 17 for the same period in 2003. However, sales in 2004 included theSeabulk Maintainer, which had a gain of approximately $1.5 million.
Net Interest Expense.Net interest expense during the nine months ended September 30, 2004 remained substantially the same at $24.7 million versus $25.1 million in the comparable period in 2003.
Other Income (Expense), Net.Other income (expense), net during the nine months ended September 30, 2004 increased to a income of $4.5 million versus an expense of $1.4 million in the comparable period in 2003. The expense in 2003 included a $1.7 million expense primarily due to the loss on early extinguishment of debt in connection with the Company’s amended credit facility. The gain in 2004 is primarily due to the proceeds from the Company’s settlement of litigation, in which it received a total of $4.5 million from two of its suppliers in March 2004.
Liquidity and Capital Resources
At September 30, 2004,As of March 31, 2005, the Company had cash on hand of $11.1$31.3 million and working capital of approximately $43.8 million.$58.2 million, which includes $30.4 million in restricted cash. The Company’s main sources of liquidity are cash from operations, borrowings under its amended credit facility, and proceeds from the sale of vessels with marginal operating performance. For the nine months ended September 30, 2004,As of March 31, 2005, cash from operations totaled $37.5$17.7 million, which was $0.4$6.3 million more than in the same period in 2003. At September 30, 2004, availability under our $80.0 million amended senior credit facility was approximately $1.1 million.2004. Additionally, the Company received approximately $3.8$2.3 million from the sale of vessels during the first nine monthsquarter of 2004.2005. As of March 31, 2005, availability under our Amended Credit Facility was approximately $2.6 million. While the Company believes cash from operations will continue to be a meaningful source of liquidity, factors that can affect our operating earnings and liquidity are discussed further under “Additional Business and Corporate Risk Factors” in Part 1, Item 1 of the 2003Company’s 2004 Annual Report on Form 10-K.10-K and Form 10-K/A Amendment No. 1. The Company relies on external financing to fund a substantial portion of the purchase price of new vessels to its fleet. The Company expectsbelieves it will obtain commitments from various lenders to fund the new vessels through its existing cash balances, cash flow from operations, availability under the Company’s credit line facility and additional debt financing in 2004 and 2005. The Company currently has a commitment from a lender to fundat least 80% of the cost of an additional vessel thatvessels it has contracted to purchase.
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Off-Balance Sheet Arrangements
The Company does not have any financial instruments classified as off-balance sheet as of September 30, 2004 and December 31, 2003.
Long-Term Debt.Long-term debt, including capital leases and current maturities, consisted of the following (in millions):
Outstanding | Outstanding | Outstanding | Outstanding | |||||||||||||||||||||||||
Balance | Balance | Interest Rate | Balance | Balance | ||||||||||||||||||||||||
as of | as of | as of | as of | as of | Interest Rate | |||||||||||||||||||||||
September 30, | December 31, | November 1, | March 31, | December 31, | as of | |||||||||||||||||||||||
Facility | 2004 | 2003 | Maturity | 2004 | 2005 | 2004 | Maturity | May 1, 2005 | ||||||||||||||||||||
Senior Notes | $ | 152.7 | $ | 151.5 | 2013 | 9.50 | %(a) | |||||||||||||||||||||
Amended credit facility | 48.5 | 30.0 | 2008 | 5.84 | % | |||||||||||||||||||||||
2003 Senior Notes | $ | 148.0 | $ | 152.9 | 2013 | 9.50%(a) | ||||||||||||||||||||||
Amended Credit Facility | 43.0 | 48.5 | 2008 | 7.13% | ||||||||||||||||||||||||
Title XI financing bonds | 212.1 | 216.1 | 2005 to 2024 | 5.86% to 10.10% | 208.5 | 209.0 | 2006 to 2024 | 5.86% to 8.85% | ||||||||||||||||||||
Other notes payable | 74.8 | 23.1 | 2003 to 2011 | 3.67% to 8.50% | 88.6 | 85.1 | 2006 to 2011 | 4.00% to 8.50% | ||||||||||||||||||||
Capital leases | 33.2 | 35.8 | 2004 to 2013 | 5.57% to 10.00% | 31.4 | 32.3 | 2005 to 2013 | 5.57% to 10.00% | ||||||||||||||||||||
Total | $ | 521.3 | $ | 456.5 | $ | 519.5 | $ | 527.8 | ||||||||||||||||||||
(a) The Company effectively converted the interest rate on its outstanding 7.88% as of May 1, 2005. |
In addition to the amended credit facilityAmended Credit Facility balance of $48.5approximately $43.0 million, there are $22.4 million in outstanding letters of credit as of September 30, 2004.March 31, 2005. The Company is subject to semi-annual reductions on the amended credit facility commencingAmended Credit Facility each February 5, 2004and August with the final payment due in August 2008.
Material Changes in Contractual Obligations.In January 2004,On March 4, 2005, the Company entered into a contract with Labroy Shipbuilding and Engineering Pte. Ltd. of Singapore formade the construction of a terminal support tug to be namedSeabulk Angolafor deliveryfinal principal redemption on the United States Government Guarantee Ship Financing Bonds, Hull 2318 Issue, 10.10% Sinking Fund Bonds, Series C, issued in March 2005 for the Singapore dollar equivalent of U.S. $10.8 million. The Company also entered into a forward exchange contract intended to fully hedge its foreign currency commitment. Under the forward contract, the Company will purchase Singapore dollars at various rates dated from February 2004 through March 2005, in conjunctionconnection with the progress payment dates as required by the construction agreement. In July 2004, the Company entered into a loan agreement with Caterpillar Financial Services Corporation (“CFSC”Title XI financing on its U.S.-flag product tanker,Seabulk Trader(ex:HMI Dynachem) to finance the construction. Accordingly, all of the vessel. The loan will beShipowner’s issued and outstanding United States Government Guarantee Ship Financing Bonds, Hull 2318 Issue, comprised on Sinking Fund Bond Series A, Series B, and Dynachem Series B (which were previously retired or paid) and Series C, have been retired or paid in installments of principal and interest for a term of 120 months atwithin the rate of one month LIBOR plus 3.68% per year. The vessel will be employed on a long-term contract in Angola.
A covenant in the Company’s amended credit agreement was amended as of February 26, 2004, to allow the Company a greater degree of flexibility under the debt/EBITDA ratio.
In March 2004, the Company acquired theSeabulk Reliantand theSeabulk Trust.To finance this transaction, a subsidiarymeaning of the Company entered into a loan agreementindenture between the Shipowner’s predecessor, Ogden Clover Transport, Inc. and mortgage with a syndicateCitibank, N.A., as Trustee, effective March 4, 2005; and each and every guarantee, as that term is defined in Schedule A to the Indenture, has been released and is of banks led by Nordea Bank. The loan was in the principal amount of $49.6 million for a term of seven years.no further force and effect.
In May 2004, the Company entered into a contract with Labroy Shipbuilding and Engineering Pte. Ltd. for the construction of an anchor handling tug supply vessel to be namedSeabulk Luandafor delivery in mid-2005. In October 2004, the Company entered into a loan agreement with Caterpillar Financial Services Corporation (“CFSC”) to finance the construction of the anchor handling tug supply vessel for the Singapore dollar equivalent of U.S. $14.3 million. The loan will be paid in installments of principal and interest for a term of 120 months at the rate of one month LIBOR plus 3.68% per year. The vessel will be employed on a long-term contract in Angola.
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In May 2004, the Company entered into a contract with Jaya Shipbuilding and Engineering Pte. Ltd. of Singapore for the construction of a multi-purpose offshore supply vessel with a four point mooring system to be namedSeabulk Advantagefor delivery in late 2004. The vessel will be constructed at a cost of approximately $8.6 million. The purchase price will be financed by a combination of bank borrowings and available cash.
In July 2004, the Company entered into a loan agreement with Banco Nacional de Desenvolvimento Economico e Social (“BNDES”) of Brazil, a government-owned company, to finance the construction of two offshore supply vessels. The vessels will be constructed by Estaleiro Promar I Reparos Navais Ltda (“Promar”), and will be used to service oil drilling and production companies. The loan in the principal amount of $29.9 million is divided into two Subcredits “A” and “B” in the amounts of $15.0 million and $14.9 million, respectively. As required by the construction agreements, progress payments for Subcredits A and B are demandable at various dates monthly for sixteen year terms with final installments due May 2021 and August 2021, respectively. The Company took delivery of the first vessel, theSeabulk Brasil, in October 2004.
In October 2004, the Company entered into a contract with Labroy Shipbuilding and Engineering Pte. Ltd. for the construction of four anchor handling tug supply vessels with an option for four additional vessels. Built at a combined cost of approximately $43.7 million with delivery scheduled in 2006, the vessels will work under long-term contracts in West Africa and Southeast Asia.
Capital Requirements.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.
During the first nine monthsquarter of 2004,2005, the Company spent $110.8incurred $13.9 million primarilyin capital improvements for drydocking costs, capital expenditures and newbuild vessels. Of this amount, approximately $18.1$3.9 million was expended for drydockings, and approximately $62.0$9.3 million for five offshore newbuild vessels, $0.1 million for capital expenditures and $0.6 million on the purchaseexchange for theC/Crusader.
Management expects to continue implementation of the two double-hull product tankers,Seabulk ReliantandSeabulk Trust. Expenditures on the construction of fourinitiative to sell unprofitable vessels in an effort to improve profitability and the purchase of one offshoreliquidity.
The Company’s expected remaining 2005 capital requirements are $26.1 million for drydocking costs and $17.9 million for newbuild vessel totaled approximately $30.2 million.vessels. 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 expects to continue implementation of the initiative to sell unprofitable vessels in an effort to improve profitability and liquidity.26
The Company anticipates that capital requirements for drydocking and newbuild vessels for the remainder of 2004 will be approximately $25.1 million and approximately $46.4 million in 2005. The Company expects to be able to adequately fund these capital requirements through its existing cash balances, cash flow from operations, availability under the Company’s credit line facility and additional debt financing.
The Company’s amended credit agreementAmended Credit Facility contains certain restrictive financial covenants that, among other things, require minimum levels of EBITDA and tangible net worth. A covenantThe Company was amendedin compliance with all such covenants as of February 26, 2004 to allow the Company a greater degree of flexibility under the debt/EBITDA ratio.March 31, 2005.
The Company is in compliance with the financial covenants of the 2003 Senior Notes at September 30, 2004.as of March 31, 2005. The 2003 Senior Notes require the Company to make payments of interest only. Based on current financial projections, the Company expects to be in compliance through the balance of 2004.2005.
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The possibility exists that unforeseen events or changes in business or regulatory conditions, including deterioration in its markets, could prevent the Company from meeting targeted operating results. If unforeseen events or changes in business or regulatory conditions prevent the Company from meeting targeted operating results, the Company 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.
Cash Flows.Net cash provided by operating activities totaled $37.5$17.7 million for the ninethree months ended September 30, 2004March 31, 2005 compared to $37.1$11.5 million for the same period in 2003.2004. The increase in cash provided by operating activities resulted in part from an improvedwas primarily a result of increased net income by $12.8 million, however offset by factors including an additional $5.3income. In addition, the Company deposited $4.5 million in interest payments primarily due to the Senior Notes andTitle XI reserve fund with the two new foreign-flag U.S. Maritime Administration in March 2005 for its five double-hullJones Actproduct tankers. The corresponding amount in 2004 of $4.7 million was deposited in March 2004.
Net cash used in investing activities was $89.2$7.7 million for the ninethree months ended September 30, 2004March 31, 2005 compared to $16.0$70.4 million for the same period in 2003.2004. The increasedecrease in cash used in investing activities was due primarily to the purchase of vessels and equipment. In 2004, the Company used approximately $62.0 million for the purchase of the two foreign-flag product tankers andin 2004 for approximately $30.2 million for the construction of four and the purchase of one new offshore vessel.$62.0 million.
Net cash provided by financing activities for the ninethree months ended September 30, 2004March 31, 2005 was $55.4$2.3 million compared to net cash used in financing activities of $19.5$64.0 million for the same period in 2003.2004. The decrease in cash provided by financing activities in 20042005 is mainly attributable to additional financing related to the purchase of theSeabulk ReliantandSeabulk Trust, and additional financing under the Company’s amended credit facility.two foreign-flag product tankers, which occurred in March 2004.
Effects of Inflation
The rate of inflation has not had a material impact on our operations. Moreover, if inflation remains at its recent levels, it is not expected to have a material impact on our operations for the foreseeable future.
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Recent Accounting Pronouncements
In January 2003,December 2004, the FASB issued FASB InterpretationSFAS No. 46,Consolidation123R, which requires companies to expense in their consolidated statements of Variable Interest Entities, an Interpretationoperations the estimated fair value of ARBemployee stock options and similar awards. The Company currently uses the intrinsic value method to value stock options, and accordingly, no compensation expense has been recognized for stock options since the Company grants stock options with exercise prices equal to or greater that the Company’s common stock market price on the date of the grant. The Company will adopt the provisions of SFAS No. 51 (“FIN 46”). FIN 46 requires123R using the modified prospective application. Under the modified prospective application, SFAS No. 123R will apply to new awards and to awards that are outstanding on the effective date and are subsequently modified or cancelled. Compensation expense for unvested stock-based awards will be recognized over the remaining vesting period. Depending on the model used to calculate stock-based compensation expense in the future, the implementation of certain variable interest entitiesother requirements of SFAS No. 123R and additional option grants expected to be consolidated bymade in the primary beneficiaryfuture, the pro forma disclosure discussed previously may not be indicative of the variable interest entity.stock-based compensation expense that will be recognized in the Company’s future consolidated financial statements. In April 2005, the FASB delayed the implementation of SFAS No. 123R from the next reporting period beginning after June 15, 2005 until the beginning of the Company’s next fiscal year. The primary beneficiaryCompany is defined asin the party which,process of determining the impact adopting SFAS No. 123R will have on its consolidated financial position and consolidated results of operations.
In December 2004, the FASB issued SFAS No. 153, an amendment of APB No. 29. APB No. 129 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of assets exchanged; however, certain exceptions apply. SFAS No. 153 amends APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly 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 46exchange. SFAS No. 153 is effective for all new variable interest entities created or acquirednonmonetary exchanges occurring in fiscal periods beginning 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 ending after MarchJune 15, 2004.2005. The Company’s adoption of FIN 46 didSFAS No. 153 is not expected to have a significantmaterial impact on the Company’s consolidated financial position and consolidated results of operations or cash flows.
In June 2001, the Accounting Standards Executive Committee (“AcSEC”) of the American Institute of Certified Public Accountants (“AICPA”) issued an exposure draft of a proposed Statement of Position (“SOP”) entitledAccounting 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 be prohibited from deferring the 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 April 14, 2004 meeting, the FASB voted not to clear AcSEC’s proposed SOP. It has indicated that the accounting matters covered by the SOP will be addressed during the 2005-2006 time frame.
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Item 3. Quantitative and Qualitative Disclosures of Market Risk.
TheJones Actrestricts U.S. coastwise trade to vessels owned, operated and crewed substantially by U.S. citizens. TheJones Actcontinues 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 ofJones Actvessels could be somewhat eroded over time as there continue to be periodic efforts and attempts by foreign interests to circumvent certain aspects of theJones Act.
On March 30, 2005, the U. S. District Court for the Northern District of California found that the Environmental Protection Agency (“EPA”) should not have exempted ballast water discharges in U. S. territorial waters from the rules under the National Pollutant Discharge Elimination System established under the U.S. Clean Water Act. The decision may affect the way product tankers and other vessels in the maritime transportation industry, including Seabulk Tankers, discharge ballast water from ships. This is an industry issue being reviewed by the EPA, the marine industry, environmental groups, and Congress. It is possible that final resolution of this issue will involve higher operating costs for the industry, including Seabulk Tankers.
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Interest Rate Risk
The Company is exposed to market risk from changes in interest rates, which may adversely affect its results of operations and financial condition. On October 20, 2003, the Company entered into a ten-year interest rate swap agreement with Fortis Bankits Amended Credit Facility lenders and other members of its banklending group. The Company entered into this transaction in order to take advantage of a lower available interest rate. Through this derivative instrument, which covers a notional amount of $150.0 million, the Company effectively converted the interest rate on its outstanding 9.50%2003 Senior Notes due August 2013 to a floating rate based on LIBOR. The current effective floating interest rate is 6.79%7.88%.
The fair valuefloating rate is adjusted semi-annually in February and August of the interest rate swap is the present value of the projected future net cash flows, based on the change in the United States swap yield curve. The Company expects the fair value of the swap to change in accordance with the movements in the swap yield curve. The fair value of the swap is reflected in the carrying value of the Senior Notes. At the inception of the swap agreement, the carrying value of the Senior Notes was $150.0 million. The carrying value increased to $151.5 million at December 31, 2003 and subsequently increased to $152.7 million at September 30, 2004.
A hypothetical 2.0% increase in interest rates on $150.0 million of debt would cause the Company interest expense on average to increase approximately $3.0 million per year over the remaining term of the swap agreement.each year. The swap agreement is secured by a second lien on the assets that secure the Company’s amended credit facility.Amended Credit Facility.
The interest rate swap was valued as a liability of ($2.0) million as of March 31, 2005 a decrease of $4.9 million from an asset of $2.9 million as of December 31, 2004 and is included in other liabilities with an offsetting decrease in the 2003 Senior Notes in the accompanying condensed consolidated balance sheets. The Company expects the fair value of the interest rate swap to change in accordance with the movement in the underlying LIBOR rate.
In connection with the 2003 Senior Notes offering, in August 2003, the Company amended and restated its existing credit facility. The amendedAmended Credit Facility consists of a revolving credit facility consistswith an original amount available of an $80.0 million revolving credit facility and has a five-year maturity. The interest rate is currently 5.84%as of March 31, 2005 was 6.88%. A hypothetical 2.0% increase in the interest ratesrate on $80.0the outstanding borrowings of $65.4 million including outstanding letters of debtcredit of $22.4 million, as of March 31, 2005, would cause the Company’s interest expense to increase on average approximately $1.6$1.3 million per year over the remaining termterms of the loan,Amended Credit Facility, 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 changes were made during the period covered by this report to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities and Exchange Act of 1934) that have materially affected the Company’s internal control over financial reporting or are reasonably likely to materially affect the 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. Additionally, our Chief Executive Officer and Chief Financial Officer have provided certain certifications to the Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which are filed as exhibits to this Report on Form 10-Q.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For information concerning certain legal proceedings see Note 67 of the condensed consolidated financial statements.statements included herein.
Item 2. Changes in Securities and Use of Proceeds.Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934. | |||
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934. | |||
32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the | |||
32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the |
(b) Reports on 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 March 31, 2004:
1. | The Company filed a Current Report on Form 8-K dated | |||
2. | The Company filed a Current Report on Form 8-K dated | |||
3. | The Company filed a Current Report on Form 8-K dated March 3, 2005. Items 2, 7 and 9 were reported and no financial statements were filed. |
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4. | The Company filed a Current Report on Form 8-K dated March 7, 2005. Item | |||
5. | The Company filed a Current Report on Form 8-K dated | |||
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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.
SEABULK INTERNATIONAL, INC. | ||
/s/ MICHAEL J. PELLICCI | ||
Michael J. Pellicci | ||
Senior Vice President – Finance & Planning, | ||
Treasurer and Chief Accounting Officer | ||
(Principal Accounting Officer) | ||
Date: May 13, 2005 |
Michael J. PellicciVP - Finance and Corporate Controller(Chief Accounting and Duly Authorized Officer)Date: November 15, 2004
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