SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission File Number: 0-28732
SEABULK INTERNATIONAL, INC.
State of Incorporation: Delaware I.R.S. Employer I.D.: 65-0966399
Address and Telephone Number:
2200 Eller Drive
P.O. Box 13038
Ft. Lauderdale, Florida 33316
(954) 523-2200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety days. YES [X] NO [ ]
THERE WERE 10,566,755 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE,
OUTSTANDING AT MAY 1, 2002.
SEABULK INTERNATIONAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)..................................................2
Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001.......................2
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2002 and 2001.............................................................................3
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2002 and 2001.............................................................................4
Notes to Condensed Consolidated Financial Statements................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................16
Item 3. Quantitative and Qualitative Disclosure of Market Risk..................................................27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................................28
Item 2. Changes in Securities ...................................................................................28
Item 3. Default Upon Senior Securities..........................................................................28
Item 4. Submission of Matters to a Vote of Security Holders.....................................................28
Item 5. Other Information.......................................................................................28
Item 6. Exhibits and Reports on Form 8-K........................................................................28
Signature........................................................................................................28
As used in this Report, the term "Parent" means Seabulk International, Inc., and
the term "Company" means the Parent and/or one or more of its consolidated
subsidiaries.
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
MARCH 31, DECEMBER 31,
2002 2001
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 24,059 $ 11,631
Restricted cash............................................................. 1,337 1,337
Trade accounts receivable, net of allowance for doubtful accounts of
$5,215 and $5,919 in 2002 and 2001, respectively.......................... 49,070 50,088
Other receivables......................................................... 11,113 16,282
Marine operating supplies................................................... 8,207 10,049
Prepaid expenses and other.................................................. 2,174 2,984
------------ ------------
Total current assets...................................................... 95,960 92,371
Vessels and equipment, net..................................................... 580,664 589,371
Deferred costs, net............................................................ 49,122 48,899
Other.......................................................................... 6,665 14,124
------------ ------------
Total assets.............................................................. $ 732,411 $ 744,765
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 12,321 $ 18,171
Current maturities of long-term debt........................................ 30,849 38,367
Current obligations under capital leases.................................... 2,883 2,972
Accrued interest............................................................ 8,700 1,455
Accrued liabilities and other............................................... 39,546 36,583
------------ ------------
Total current liabilities................................................. 94,299 97,548
Long-term debt................................................................. 392,928 399,974
Obligations under capital leases............................................... 31,034 31,768
Senior notes................................................................... 82,310 81,635
Other liabilities.............................................................. 4,412 4,218
------------ ------------
Total liabilities......................................................... 604,983 615,143
Contingencies (Note 8)
Minority interest.............................................................. 743 842
Stockholders' equity:
Preferred stock, no par value--authorized 5,000; none issued and outstanding. -- --
Common stock--$.01 par value, authorized 20,000 shares; 10,506 shares
issued and outstanding in 2002 and 2001................................... 105 105
Additional paid-in capital.................................................. 167,259 167,259
Accumulated other comprehensive loss........................................ -- (1)
Unearned compensation....................................................... (173) (198)
Accumulated deficit......................................................... (40,506) (38,385)
------------ ------------
Total stockholders' equity................................................ 126,685 128,780
------------ ------------
Total liabilities and stockholders' equity.............................. $ 732,411 $ 744,765
============ ============
SEE ACCOMPANYING NOTES.
2
SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
------------------------------
2002 2001
--------------- -------------
Revenue........................................................................ $ 83,199 $ 81,420
Operating expenses:
Crew payroll and benefits................................................... 22,776 23,930
Charter hire................................................................ 1,797 1,491
Repairs and maintenance..................................................... 6,764 6,375
Insurance................................................................... 2,669 2,900
Fuel and consumables........................................................ 7,329 8,965
Port charges and other...................................................... 4,395 5,208
------------- -------------
Total operating expenses.................................................. 45,730 48,869
Overhead expenses:
Salaries and benefits....................................................... 5,827 5,652
Office...................................................................... 1,996 1,529
Professional fees........................................................... 585 1,278
Other....................................................................... 790 1,760
------------- -------------
Total overhead expenses................................................... 9,198 10,219
Depreciation, amortization and drydocking...................................... 16,228 13,923
------------- -------------
Income from operations......................................................... 12,043 8,409
Other (expense) income:
Interest expense............................................................ (12,713) (14,616)
Interest income............................................................. 62 46
Minority interest in losses of subsidiaries................................. 99 208
(Loss) gain on disposal of assets........................................... (38) 250
Other....................................................................... 93 (116)
------------- -------------
Total other expense, net.................................................. (12,497) (14,228)
------------- -------------
Loss before provision for income taxes......................................... (454) (5,819)
Provision for income taxes..................................................... 1,667 1,414
------------- -------------
Net loss.................................................................. $ (2,121) $ (7,233)
============= =============
Net loss per common share:
Net loss per common share - basic and diluted............................... $ (0.20) $ (0.71)
============= =============
Weighted average common shares outstanding - basic and diluted.............. 10,461 10,149
============= =============
SEE ACCOMPANYING NOTES.
3
SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2002 2001
--------------- --------------
OPERATING ACTIVITIES:
Net loss..................................................................... $ (2,121) $ (7,233)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of vessels and equipment.................. 10,961 11,345
Amortization of drydocking costs........................................ 5,267 2,578
Provision for bad debts................................................. 307 355
Loss (gain) on disposal of assets....................................... 38 (250)
Amortization of discount on long-term debt and financing costs.......... 1,352 1,258
Minority interest in losses of subsidiaries............................. (99) (208)
Senior and notes payable issued for payment of accrued interest and fees 375 425
Other non-cash items.................................................... 218 32
Changes in operating assets and liabilities:
Accounts and other receivables...................................... 5,880 (4,222)
Other current and long-term assets.................................. 2,823 921
Accounts payable and other liabilities.............................. 4,765 7,626
------------- -------------
Net cash provided by operating activities......................... 29,766 12,627
INVESTING ACTIVITIES:
Expenditures for drydocking.................................................. (5,615) (6,391)
Proceeds from disposals of assets............................................ 5,104 2,636
Purchases of vessels and equipment........................................... (1,306) (978)
Acquisition of minority interest............................................. -- (524)
Redemption of restricted investments......................................... -- 33
Purchase of restricted investments........................................... -- (23)
------------- -------------
Net cash used in investing activities..................................... (1,817) (5,247)
FINANCING ACTIVITIES:
Net repayment of revolving credit facility................................... (6,700) (8,250)
Payments of long-term debt................................................... (7,548) (4,260)
Payments of Title XI bonds................................................... (450) (1,263)
Redemption of restricted cash................................................ -- 331
Payments of obligations under capital leases................................. (823) (1,171)
------------- -------------
Net cash used in financing activities..................................... (15,521) (14,613)
------------- -------------
Change in cash and cash equivalents.......................................... 12,428 (7,233)
Cash and cash equivalents at beginning of period............................. 11,631 14,233
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................... $ 24,059 $ 7,000
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Notes payable issued for the acquisition of minority interest................ $ -- $ 10,500
============= =============
Senior and notes payable issued for payment of accrued interest and fees..... $ 375 $ 425
============= =============
Vessels exchanged for drydock expenditures................................... $ 900 $ --
============= =============
Reactivation of two vessels that were classified as assets held for sale..... $ 1,682 $ --
============= =============
SEE ACCOMPANYING NOTES.
4
SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. All
adjustments which, in the opinion of management, are considered necessary for a
fair presentation of the results of operations for the periods shown are of a
normal recurring nature and have been reflected in the unaudited condensed
consolidated financial statements. The results of operations for the periods
presented are not necessarily indicative of the results expected for the full
fiscal year or for any future period. The information included in these
unaudited condensed consolidated financial statements should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in this report and the consolidated financial
statements and accompanying notes included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001.
The Company has no material components of comprehensive loss except net
loss.
Certain financial statement reclassifications have been made to conform
prior periods' data to the 2002 financial statement presentation.
2. ISSUES AFFECTING LIQUIDITY
The Company's capital requirements arise primarily from its need to
service debt, fund working capital and maintain and improve its vessels. The
Company's expected 2002 capital requirements for debt service, vessel
maintenance and fleet improvements total approximately $109.4 million. The
Company expects that cash flow from operations and proceeds from the sale of
non-strategic assets will continue to make significant contributions toward
working capital and the capital requirements. If operating cash flow is not
adequate, the Company believes that the amounts available under the revolving
line of credit will be sufficient to meet its capital requirements.
Management has taken new initiatives to improve profitability and
liquidity during the first quarter of 2002. Due to the expanding market in West
Africa, the Company has mobilized two of its Gulf of Mexico supply boats and one
Southeast Asia utility boat for redeployment to West Africa during the first
quarter of 2002. Additionally, the Company reactivated one anchor-handling tug
from "held-for-sale" status and placed the boat into service in West Africa. At
the end of December 2001, low-rate voyage charters for three of the Company's
tankers expired and were replaced by two time charters and a ten-year bareboat
charter at substantially higher rates. On March 15, 2002, a sixth amendment to
the credit facility was executed, which is expected to allow the Company to
maintain compliance with its financial covenants. On March 22, 2002, the Company
closed on the sale of the marine transportation assets of Sun State Marine
Services, Inc. ("Sun State") for $3.8 million in cash (see Note 3). The proceeds
from the sale of Sun State's assets were used for working capital purposes as
permitted by the Company's Credit Facility. The Company continues to evaluate
financing alternatives, including a possible equity infusion or other strategic
transaction to reduce debt levels and support future growth opportunities.
5
While management believes that the initiatives are sound and
attainable, the possibility exists that unforeseen events or business
conditions, including deterioration in its markets, could prevent the Company
from meeting targeted operating results and its financial covenants. If
unforeseen events or business conditions prevent the Company from meeting
targeted operating results, the Company has alternative plans including
additional asset sales, additional reductions in operating expenses and deferral
of capital expenditures, which should enable it to satisfy essential capital
requirements. While the Company believes it could successfully complete
alternative plans, if necessary, there can be no assurance that such
alternatives would be available or that the Company would be successful in their
implementation.
3. SALE OF MARINE TRANSPORTATION ASSETS OF SUN STATE
On March 22, 2002, the Company closed on the sale of the marine
transportation assets of Sun State for $3.8 million in cash. The marine
transportation assets consisted of tugs, barges and fuel inventory with a
carrying value of $4.3 million. As a result, the Company recognized a loss on
the disposal of these assets of approximately $470,000. The proceeds from the
sale of these assets were used for working capital purposes as permitted by the
Company's Credit Facility.
4. LONG-TERM DEBT
On March 15, 2002, a sixth amendment to the Credit Facility was
executed, which is expected to allow the Company to maintain compliance with its
financial covenants. The amendment reduced the working capital ratio for 2002
and for the life of the term loans and reduced the fixed charge ratio in 2002,
with a gradual increase over the remaining life of the term loans.
The Company's senior secured notes have not received the rating from
the rating agencies required by the note indenture. As a result, on April 15,
2000, the interest rate on the senior notes increased from 12.5% to 13.5%,
retroactively applied to December 15, 1999. The additional interest is payable
quarterly in the form of additional senior notes, of which a note in the
principal amount of $242,391 was issued for the three months ended March 31,
2002. The Company is currently seeking the ratings necessary to return the
interest rate to 12.5%.
5. INCOME TAXES
For the three months ended March 31, 2002 and 2001, a gross deferred
tax benefit was computed using an estimated annual effective tax rate of 36%.
Management has recorded a valuation allowance at March 31, 2002 and 2001 to
reduce the net deferred tax assets to an amount that will more likely than not
be realized. After application of the valuation allowance, the net deferred tax
assets are zero. The current provision for income taxes for the three-month
periods ended March 31, 2002 and 2001 represents taxes withheld on foreign
source revenue.
6
6. NET LOSS PER COMMON SHARE
Common stock equivalents include 818,000 and 711,000 stock options and
572,000 and 809,000 warrants as of March 31, 2002 and 2001, respectively, and
have not been included in the computation of diluted loss per common share as
their effect is antidilutive.
7. SEGMENT INFORMATION
The Company organizes its business principally into three segments. The
Company does not have significant intersegment transactions. These segments and
their respective operations are as follows:
OFFSHORE ENERGY SUPPORT (Seabulk Offshore) - Offshore energy support
includes vessels operating in U.S. and foreign locations used primarily
to transport materials, supplies, equipment and personnel to drilling
rigs and to support the construction, positioning and ongoing
operations of oil and gas production platforms.
MARINE TRANSPORTATION SERVICES (Seabulk Tankers) - Marine
transportation services include oceangoing vessels used to transport
crude oil, petroleum products and chemicals between ports and terminals
within the U.S.
TOWING (Seabulk Towing) - Harbor and offshore towing services are
provided by tugs to vessels utilizing the seven ports in which the tugs
operate, and to vessels at sea.
The Company evaluates performance by operating segment. Also, within
the offshore energy support segment, the Company performs additional performance
evaluations of vessels marketed in U.S. and foreign locations. Resources are
allocated based on segment profit or loss from operations, before interest and
taxes.
Revenue by segment and geographic area consists only of services
provided to external customers, as reported in the Statements of Operations.
Income from operations by geographic area represents net revenue less applicable
costs and expenses related to that revenue. Unallocated expenses are primarily
comprised of general and administrative expenses of a corporate nature.
7
The following schedules present segment and geographic information
about the Company's operations (in thousands):
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2002 2001
---------------- -----------------
REVENUE
Offshore energy support....................................................... $ 43,312 $ 43,159
Marine transportation services................................................ 31,924 29,804
Towing(1)..................................................................... 7,963 8,457
---------------- ----------------
TOTAL...................................................................... $ 83,199 $ 81,420
================ ================
OPERATING EXPENSES
Offshore energy support....................................................... $ 23,589 $ 24,608
Marine transportation services(1)............................................. 17,670 19,427
Towing........................................................................ 4,471 4,834
---------------- ----------------
TOTAL...................................................................... $ 45,730 $ 48,869
================ ================
DEPRECIATION, AMORTIZATION AND DRYDOCKING
Offshore energy support....................................................... $ 10,503 $ 8,456
Marine transportation services................................................ 4,548 4,359
Towing........................................................................ 760 729
General corporate............................................................. 417 379
---------------- ----------------
TOTAL...................................................................... $ 16,228 $ 13,923
================ ================
INCOME (LOSS) FROM OPERATIONS
Offshore energy support....................................................... $ 5,111 $ 5,846
Marine transportation services................................................ 8,254 4,670
Towing........................................................................ 1,589 1,723
General corporate............................................................. (2,911) (3,830)
---------------- ----------------
TOTAL...................................................................... $ 12,043 $ 8,409
================ ================
NET INCOME (LOSS)
Offshore energy support....................................................... $ (2,471) $ (3,422)
Marine transportation services................................................ 2,684 (267)
Towing........................................................................ 287 395
General Corporate............................................................. (2,621) (3,939)
---------------- ----------------
TOTAL...................................................................... $ (2,121) $ (7,233)
================ ================
GEOGRAPHIC REVENUE
Domestic...................................................................... $ 53,571 $ 57,670
Foreign
West Africa................................................................ 20,416 14,622
Middle East................................................................ 6,058 5,002
Southeast Asia............................................................. 3,154 4,126
---------------- ----------------
CONSOLIDATED GEOGRAPHIC REVENUE................................................. $ 83,199 $ 81,420
================ ================
(1) Net of elimination of intersegment towing revenue and intersegment marine
transportation operating expense of $0.1 million and $0.5 million for the three
months ended March 31, 2002 and 2001, respectively.
8
8. CONTINGENCIES
Under United States law, "United States persons" are prohibited from
business activities and contracts in certain countries, including Sudan and
Iran. The Company has filed three reports with and submitted documents to the
Office of Foreign Asset Control 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 Sudan for several months in 1999 and January 2000, and charters with
third parties involving several of the Company's vessels which called in Iran in
1998. Should either of the agencies determine that these activities constituted
violations of the laws or regulations administered by them, civil penalties,
including fines, could be assessed against the Company and/or certain
individuals who knowingly participated in such activities. The Company cannot
predict whether any such penalties will be imposed or the nature or extent of
such penalties; however, management does not believe the outcome of these
matters will have a material impact on its financial position, results of
operations or cash flows.
The Company was sued by Maritime Transportation Development Corporation
in January 2002 alleging broker commissions due from charters on two of its
vessels, the SEABULK MAGNACHEM and SEABULK CHALLENGER, since 1998. The Company
is vigorously defending such charges, believes it has good defenses, but cannot
predict the ultimate outcome.
In December 2001, the Company was notified by Steamship Mutual, its
protection and indemnity maritime insurance club ("the Club"), of additional
insurance calls in the approximate amount of $4 million, allegedly due to
investment mismanagement by the club's investment advisors causing reserve
shortfalls for the club. The Company is vigorously contesting this assessment.
Based on recent discussions with the Club, the Company cannot predict the
ultimate outcome of this dispute.
The Company is sometimes named as a defendant in litigation, usually
relating to claims for bodily injuries or property damage. The Company maintains
insurance coverage against such claims to the extent deemed prudent by
management and applicable deductible amounts are accrued at the time of the
incident. The Company believes that these claims do not have a material impact
on the Company's financial position, results of operations or cash flows.
9. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS, which requires companies to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The Company adopted SFAS No. 143 as of January 1, 2002 with no
material financial statement impact.
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation of discontinued operations to include more disposal
transactions. SFAS No. 144 supersedes SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and
reporting provisions of APB Opinion No. 30. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. The Company adopted SFAS No. 144 as of
January 1, 2002 with no material financial statement impact.
9
In June 2001, the Accounting Executive Committee of the American
Institute of Certified Public Accountants issued an exposure draft of a proposed
Statement of Position ("SOP") entitled ACCOUNTING FOR CERTAIN COSTS AND
ACTIVITIES RELATED TO PROPERTY, PLANT AND EQUIPMENT. Under the proposed SOP, the
Company would expense major maintenance costs as incurred and prohibit the use
of the deferral of the entire cost of a planned major maintenance activity.
Currently, the costs incurred to drydock the vessels are deferred and amortized
on a straight-line basis over the period to the next drydocking, generally 30 to
36 months. The proposed SOP would be effective for fiscal years beginning after
June 15, 2002. Management has determined that this SOP, if issued as proposed,
would have a material effect on the consolidated financial statements. In the
year of adoption, the Company would write off the net book value of the deferred
drydocking costs and record the write off as a change in accounting principle
($30.4 million as of March 31, 2002). Additionally, all drydock expenditures
incurred after the adoption of the SOP would be expensed as incurred.
10. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The senior secured notes are fully and unconditionally guaranteed on a
joint and several basis by certain of the Company's wholly-owned consolidated
subsidiaries. A substantial portion of the Company's cash flows are generated by
its subsidiaries. As a result, the funds necessary to meet the Company's
obligations are provided in substantial part by distributions or advances from
its subsidiaries. Under certain circumstances, contractual or legal
restrictions, as well as the financial and operating requirements of the
Company's subsidiaries, could limit the Company's ability to obtain cash from
its subsidiaries for the purpose of meeting its obligations, including the
payments of principal and interest on the senior notes.
The following is condensed consolidating financial information for the
Company, segregating the parent, the domestic and foreign guarantor
subsidiaries, the combined non-guarantor subsidiaries and eliminations.
10
CONDENSED CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
AS OF MARCH 31, 2002
------------------------------------------------------------------------------------------
DOMESTIC FOREIGN NON- CONDENSED
GUARANTOR GUARANTOR GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents......... $ 5,230 $ 713 $ 4,431 $ 13,685 $ -- $ 24,059
Restricted cash................... -- -- 1,337 -- -- 1,337
Accounts receivable:
Trade, net..................... 107 17,988 29,152 1,823 -- 49,070
Insurance claims and other..... 2,095 967 7,852 199 -- 11,113
Marine operating supplies......... (656) 1,812 3,286 3,765 -- 8,207
Prepaid expenses.................. 479 635 487 573 -- 2,174
------------- ------------- ------------- ------------- ------------- -------------
Total current assets........... 7,255 22,115 46,545 20,045 -- 95,960
Vessels and equipment, net.......... 44,170 164,140 107,149 265,205 -- 580,664
Deferred costs, net................. 14,586 8,801 17,584 8,151 -- 49,122
Due (to) from affiliates............ (187,597) 91,828 127,833 (28,585) (3,479) --
Investments in affiliates........... 521,586 361,227 -- 36,752 (919,565) --
Other............................... 290 3,096 2,860 419 -- 6,665
------------- ------------- ------------- ------------- ------------- -------------
Total assets...................... $ 400,290 $ 651,207 $ 301,971 $ 301,987 $ (923,044) $ 732,411
============= ============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.................. $ 361 $ 2,557 $ 8,660 $ 743 $ -- $ 12,321
Current maturities of long-term
debt............................. 24,510 1,969 -- 4,370 -- 30,849
Current obligations under capital
leases........................... -- 2,883 -- -- -- 2,883
Accrued interest.................. 3,561 647 -- 4,492 -- 8,700
Accrued liabilities and other..... 6,011 2,860 28,146 2,529 -- 39,546
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities...... 34,443 10,916 36,806 12,134 -- 94,299
Long-term debt...................... 154,182 23,050 -- 215,696 -- 392,928
Obligations under capital leases.... -- 31,034 -- -- -- 31,034
Senior notes........................ 82,310 -- -- -- -- 82,310
Other liabilities................... 2,670 739 904 99 -- 4,412
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities................. 273,605 65,739 37,710 227,929 -- 604,983
Contingencies.......................
Minority interest................... -- -- -- -- 743 743
Total stockholders' equity (deficit) 126,685 585,468 264,261 74,058 (923,787) 126,685
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders' equity (deficit)... $ 400,290 $ 651,207 $ 301,971 $ 301,987 $ (923,044) $ 732,411
============= ============= ============= ============= ============= =============
11
CONDENSED CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
AS OF DECEMBER 31, 2001
-----------------------------------------------------------------------------------------
DOMESTIC FOREIGN NON- CONDENSED
GUARANTOR GUARANTOR GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------ ------------ ------------ ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents........... $ 250 $ 270 $ 3,888 $ 7,223 $ -- $ 11,631
Restricted cash..................... -- -- 1,337 -- -- 1,337
Accounts receivable:
Trade, net....................... 1,088 20,186 27,098 2,420 (704) 50,088
Insurance claims and other....... 2,896 5,849 7,149 388 -- 16,282
Marine operating supplies........... (795) 3,072 3,624 4,148 -- 10,049
Prepaid expenses.................... 864 844 988 288 -- 2,984
------------- ------------- ------------- ------------- ------------- -------------
Total current assets............. 4,303 30,221 44,084 14,467 (704) 92,371
Vessels and equipment, net............ 45,388 166,678 109,451 267,854 -- 589,371
Deferred costs, net................... 16,107 10,063 14,187 8,542 -- 48,899
Due (to) from affiliates.............. (170,000) 80,479 123,866 (30,867) (3,478) --
Investments in affiliates............. 522,764 366,174 -- 35,547 (924,485) --
Other................................. 289 7,661 6,174 -- -- 14,124
------------- ------------- ------------- ------------- ------------- -------------
Total assets........................ $ 418,851 $ 661,276 $ 297,762 $ 295,543 $ (928,667) $ 744,765
============= ============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.................... $ 5,892 $ 2,353 $ 9,102 $ 824 $ -- $ 18,171
Current maturities of long-term debt 32,056 1,941 -- 4,370 -- 38,367
Current obligations under capital
leases............................. -- 2,972 -- -- -- 2,972
Accrued interest.................... 340 420 -- 695 -- 1,455
Accrued liabilities and other....... 6,651 5,442 23,110 2,084 (704) 36,583
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 44,939 13,128 32,212 7,973 (704) 97,548
Long-term debt........................ 160,887 23,391 -- 215,696 -- 399,974
Obligations under capital leases...... -- 31,768 -- -- -- 31,768
Senior notes.......................... 81,635 -- -- -- -- 81,635
Other liabilities..................... 2,610 753 807 48 -- 4,218
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities................... 290,071 69,040 33,019 223,717 (704) 615,143
Contingencies
Minority interest..................... -- -- -- -- 842 842
Total stockholders' equity (deficit).. 128,780 592,236 264,743 71,826 (928,805) 128,780
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity (deficit)................... $ 418,851 $ 661,276 $ 297,762 $ 295,543 $ (928,667) $ 744,765
============= ============= ============= ============= ============= =============
12
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2002
-----------------------------------------------------------------------------------------
DOMESTIC FOREIGN NON- CONDENSED
GUARANTOR GUARANTOR GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- ------------- -------------
Revenue............................... $ 10,363 $ 25,317 $ 29,629 $ 18,261 $ (371) $ 83,199
Operating expenses.................... 6,180 15,777 15,258 8,891 (376) 45,730
Overhead expenses..................... 2,766 2,682 2,936 808 6 9,198
Depreciation, amortization and
drydocking........................... 1,979 4,510 6,765 2,974 -- 16,228
------------- ------------- ------------- ------------- ------------- -------------
(Loss) income from operations......... (562) 2,348 4,670 5,588 (1) 12,043
Other (expense) income, net........... (1,559) (9,115) (3,484) (3,356) 5,017 (12,497)
------------- ------------- ------------- -------------- ------------- -------------
(Loss) income before provision income
taxes............................... (2,121) (6,767) 1,186 2,232 5,016 (454)
Provision for income taxes............ -- -- 1,667 -- -- 1,667
------------- ------------- ------------- ------------- ------------- -------------
Net (loss) income..................... $ (2,121) $ (6,767) $ (481) $ 2,232 $ 5,016 $ (2,121)
============= ============= ============= ============= ============= =============
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2001
-----------------------------------------------------------------------------------------
DOMESTIC FOREIGN NON- CONDENSED
GUARANTOR GUARANTOR GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- ------------- -------------
Revenue............................... $ 2,311 $ 41,711 $ 23,184 $ 15,429 $ (1,215) $ 81,420
Operating expenses.................... 366 27,649 13,929 8,073 (1,148) 48,869
Overhead expenses..................... 3,698 3,116 2,516 962 (73) 10,219
Depreciation, amortization and
drydocking........................... 1,614 4,238 5,242 2,829 -- 13,923
------------- ------------- ------------- ------------- ------------- -------------
(Loss) income from operations......... (3,367) 6,708 1,497 3,565 6 8,409
Other (expense) income, net........... (2,452) 303 (6,690) (5,018) (371) (14,228)
------------- ------------- ------------- ------------- ------------- -------------
(Loss) income before provision income
taxes................................ (5,819) 7,011 (5,193) (1,453) (365) (5,819)
Provision for income taxes............ 1,414 -- -- -- -- 1,414
------------- ------------- ------------- ------------- ------------- -------------
Net (loss) income..................... $ (7,233) $ 7,011 $ (5,193) $ (1,453) $ (365) $ (7,233)
============= ============= ============= ============= ============= =============
13
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2002
------------------------------------------------------------------------------------------
DOMESTIC FOREIGN NON- CONDENSED
GUARANTOR GUARANTOR GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------ -------------
Net cash provided by (used in)
operating activities................ $ 19,435 $ (1,328) $ 5,110 $ 6,549 $ -- $ 29,766
INVESTING ACTIVITIES:
Expenditures for drydocking......... (70) (698) (4,760) (87) -- (5,615)
Proceeds from disposals of assets... -- 4,665 439 -- -- 5,104
Purchases of vessels and equipment.. -- (1,060) (246) -- -- (1,306)
------------ ------------ ------------ ------------ ------------ --------------
Net cash (used in) provided by
investing activities.............. (70) 2,907 (4,567) (87) -- (1,817)
FINANCING ACTIVITIES:
Net repayment of revolving credit
facility........................... (6,700) -- -- -- -- (6,700)
Payments of long-term borrowings.... (7,235) (313) -- -- -- (7,548)
Payments of Title XI bonds.......... (450) -- -- -- -- (450)
Payments of obligations under
capital leases..................... -- (823) -- -- -- (823)
------------ ------------ ------------ ------------ ------------ -------------
Net cash used in financing
activities....................... (14,385) (1,136) -- -- -- (15,521)
------------ ------------ ------------ ------------ ------------ -------------
Change in cash and cash equivalents. 4,980 443 543 6,462 -- 12,428
Cash and cash equivalents at
beginning of period................ 250 270 3,888 7,223 -- 11,631
------------ ------------ ------------ ------------ ------------ -------------
Cash and cash equivalents at end of
period............................. $ 5,230 $ 713 $ 4,431 $ 13,685 $ -- $ 24,059
============ ============ ============ ============ ============ =============
14
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2001
------------------------------------------------------------------------------------------
DOMESTIC FOREIGN NON- CONDENSED
GUARANTOR GUARANTOR GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------ -------------
Net cash provided by (used in)
operating activities................... $ 13,312 $ 6,615 $ 478 $ (7,783) $ 5 $ 12,627
INVESTING ACTIVITIES:
Expenditures for drydocking............ (55) (2,754) (3,582) -- -- (6,391)
Proceeds from disposals of assets...... -- 820 1,816 -- -- 2,636
Purchases of property.................. (16) (407) (472) (78) (5) (978)
Acquisition of minority interest....... (524) -- -- -- -- (524)
Redemption of restricted investments... -- -- -- 33 -- 33
Purchases of restricted investments.... -- -- -- (23) -- (23)
------------ ------------ ------------ ------------- ------------ --------------
Net cash used in investing activities (595) (2,341) (2,238) (68) (5) (5,247)
FINANCING ACTIVITIES:
Net repayment of revolving credit
facility.............................. (8,250) -- -- -- -- (8,250)
Repayment of long-term borrowings...... (3,931) (329) -- -- -- (4,260)
Repayment of Title XI bonds............ (1,263) -- -- -- -- (1,263)
Redemption of restricted cash.......... 331 -- -- -- -- 331
Payments of obligations under capital
leases................................ -- (1,171) -- -- -- (1,171)
------------ ------------ ------------ ------------ ------------ -------------
Net cash used in financing activities (13,113) (1,500) -- -- -- (14,613)
------------ ------------ ------------ ------------ ------------ -------------
Change in cash and cash equivalents..... (396) 2,774 (1,760) (7,851) -- (7,233)
Cash and cash equivalents at beginning
of period.............................. 1,402 (2,190) 6,380 8,641 -- 14,233
------------ ------------ ------------ ------------ ------------ -------------
Cash and cash equivalents at end of
period................................. $ 1,006 $ 584 $ 4,620 $ 790 $ -- $ 7,000
============ ============ ============ ============ ============ =============
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") should be read in conjunction with
the condensed consolidated financial statements and the related notes thereto
included elsewhere in this Report and the 2001 Form 10-K.
The MD&A contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in the MD&A are forward-looking
statements. Although the Company believes that the expectations and beliefs
reflected in such forward-looking statements are reasonable, it can give no
assurance that they will prove correct. For information regarding the risks and
uncertainties that could cause such forward-looking statements to prove
incorrect, see "Projections and Other Forward-Looking Information" in Item 1 of
the 2001 Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For general information concerning critical accounting policies as well
as estimates, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations, Critical Accounting Policies and Estimates" in the
2001 Form 10-K.
In June 2001, the Accounting Executive Committee of the American
Institute of Certified Public Accountants issued an exposure draft of a proposed
Statement of Position ("SOP") entitled ACCOUNTING FOR CERTAIN COSTS AND
ACTIVITIES RELATED TO PROPERTY, PLANT AND EQUIPMENT. Under the proposed SOP, the
Company would expense major maintenance costs as incurred and prohibit the use
of the deferral of the entire cost of a planned major maintenance activity.
Currently, the costs incurred to drydock the vessels are deferred and amortized
on a straight-line basis over the period to the next drydocking, generally 30 to
36 months. The proposed SOP would be effective for fiscal years beginning after
June 15, 2002. Management has determined that this SOP, if issued as proposed,
would have a material effect on the consolidated financial statements. In the
year of adoption, the Company would write off the net book value of the deferred
drydocking costs and record the write off as a change in accounting principle
($30.4 million as of March 31, 2002). Additionally, all drydock expenditures
incurred after the adoption of the SOP would be expensed as incurred.
REVENUE OVERVIEW
The Company derives its revenue from three main lines of business -
offshore energy support, marine transportation, and towing. Seabulk Offshore,
the Company's domestic and international offshore energy support business,
accounted for approximately 52% and 53% of Company revenue for the three months
ended March 31, 2002 and 2001, respectively. Marine transportation, under the
new name Seabulk Tankers, consists of the Company's Jones Act tanker business,
in which it owns ten petroleum and chemical product carriers in the domestic
coastwise trade, and accounted for approximately 38% and 37% of Company revenue
for the three months ended March 31, 2002 and 2001, respectively. Seabulk
Towing, the Company's domestic harbor and offshore towing business, accounted
for approximately 10% of Company revenue for the three months ended March 31,
2002 and 2001.
16
SEABULK OFFSHORE
Revenue from the Company's offshore energy support operations is
primarily a function of the size of the Company's fleet, vessel day rates or
charter rates, and fleet utilization. Rates and utilization are primarily a
function of offshore exploration, development, and production activities, which
are in turn heavily dependent upon the price of crude oil and natural gas.
Further, in certain areas where the Company conducts offshore energy support
operations (particularly the U.S. Gulf of Mexico), contracts for the utilization
of offshore energy support vessels commonly include termination provisions with
three- to five-day notice requirements and no termination penalty. As a result,
companies engaged in offshore energy support operations (including the Company)
are particularly sensitive to changes in market demand.
17
The following tables set forth, by primary area of operation, average
day rates achieved by the offshore energy fleet owned or operated by the Company
and average utilization for the periods indicated. Average day rates are
calculated by dividing total revenue by the number of days worked. Utilization
percentages are based upon the number of working days over a 365/366-day year
and the number of vessels in the fleet on the last day of the quarter.
-----------------------------------------------------------
Q1 2002
AHTS/ AHT/ Crew/ Other
Supply Tugs Utility
------------------------------
DOMESTIC(1)
Vessels(2) (3) (4) 24 -- 30 2
Bareboat-out(4) -- -- -- --
Laid-Up -- -- -- 1
Effective Utilization(5) 59% -- 65% --
Day Rate $6,687 -- $2,666 --
WEST AFRICA
Vessels(2) (3) (6) (7) 29 5 7 1
Laid-Up -- 1 -- --
Effective Utilization(5) 84% 86% 89% 97%
Day Rate $7,368 $6,613 $3,124 --
MIDDLE EAST
Vessels(2) 6 8 8 5
Laid-Up -- 1 1 1
Effective Utilization(5) 83% 75% 81% 77%
Day Rate $3,265 $4,571 $1,649 $4,502
SOUTHEAST ASIA
Vessels(2) (7) 8 -- 5 2
Laid-Up -- -- -- --
Effective Utilization(5) 59% -- 53% 44%
Day Rate $5,510 -- $1,472 --
-----------------------------------------------------------
---------------------
(1) Domestic consists of vessels operating in the United States, the U.S. Gulf
of Mexico and Mexico.
(2) Held-for-sale and bareboat-out vessels are excluded from the vessel count.
(3) During Q1 2002, two Anchor Handling Tug Supply Vessels were transferred
from Domestic to West Africa.
(4) During Q1 2002, a bareboat contract for one Geophysical Vessel in the
Domestic operating region expired
And the vessel was returned to the Company.
(5) Effective utilization excludes laid-up vessels.
(6) During Q1 2002, the Company reactivated one AHT from "held-for-sale"
status. This vessel was placed into service in West Africa.
(7) During Q1 2002, the Company reactivated one Anchor Handling Tug Supply
Vessel from "held-for-sale" status and placed the vessel into service in
Southeast Asia. Additionally during Q1 2002, the Company transferred one
utility boat from Southeast Asia to West Africa.
18
------------------- ----------------------------- ----------------------------
Q1 2001 Q2 2001
----------------------------- ----------------------------
AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other
Supply Tugs Utility Supply Tugs Utility
----------------------------- ----------------------------
DOMESTIC(1)
Vessels(2) (3) (4) 26 -- 31 1 26 -- 33 1
Bareboat-out(4) -- -- 2 1 -- -- 2 1
Laid-Up 1 -- -- 1 1 -- -- 1
Effective
Utilization(5) 75% -- 87% -- 90% -- 87% --
Day Rate $6,946 -- $2,709 -- $7,397 -- $2,929 --
WEST AFRICA
Vessels(2) (3) (6)
(8) 27 3 6 1 27 4 5 1
Laid-Up -- -- -- -- -- -- -- --
Effective
Utilization(5) 83% 46% 85% -- 86% 41% 77% 84%
Day Rate $6,325 $4,491 $2,754 -- $6,988 $5,528 $2,774 $6,160
MIDDLE EAST
Vessels(2) (3) (7)
(9)(11)(12) 5 8 11 7 5 8 11 7
Laid-Up12) -- -- -- -- -- -- -- --
Effective
Utilization(5) 77% 24% 66% 56% 92% 50% 59% 69%
Day Rate $3,003 $4,129 $1,421 $5,197 $2,855 $3,889 $1,434 $5,393
SOUTHEAST ASIA
Vessels(2) (6)
(10)(11) 8 1 5 1 8 1 5 1
Laid-Up -- -- 1 -- -- -- 1 --
Effective
Utilization(5) 87% 37% 89% 33% 83% 46% 73% 71%
Day Rate $5,347 $3,929 $1,429 $6,614 $4,277 $4,255 $1,443 $6,630
-------------------------------------------------------------------------------
------------------- ---------------------------- -----------------------------
Q3 2001 Q4 2001
---------------------------- -----------------------------
AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other
Supply Tugs Utility Supply Tugs Utility
---------------------------- -----------------------------
DOMESTIC(1)
Vessels(2) (3) (4) 26 -- 32 1 26 -- 32 1
Bareboat-out(4) -- -- -- 1 -- -- -- 1
Laid-Up -- -- -- 1 -- -- -- 1
Effective
Utilization(5) 83% -- 83% -- 63% -- 72% --
Day Rate $7,486 -- $3,061 -- $7,141 -- $2,928 --
WEST AFRICA
Vessels(2) (3) (6)
(8) 27 4 6 1 27 4 6 1
Laid-Up -- -- -- -- -- -- -- --
Effective
Utilization(5) 82% 63% 64% 84% 76% 86% 80% 96%
Day Rate $7,644 $6,097 $2,715 $7,363 $7,829 $8,041 $3,358 $9,246
MIDDLE EAST
Vessels(2) (3) (7)
(9)(11)(12) 5 8 9 6 6 8 8 5
Laid-Up(12) -- -- -- -- -- 1 1 1
Effective
Utilization(5) 86% 48% 65% 43% 81% 60% 86% 64%
Day Rate $2,954 $4,443 $1,611 $5,399 $3,121 $4,937 $1,671 $3,986
SOUTHEAST ASIA
Vessels(2) (6)
(10)(11) 8 -- 6 2 7 -- 6 2
Laid-Up -- -- -- -- -- -- -- --
Effective
Utilization(5) 79% -- 69% 100% 69% -- 51% 52%
Day Rate $4,762 -- $1,708 $8,298 $5,285 -- $1,674 $7,302
---------------------------------------------------------------------------------
------------------------------------
(1) Domestic consists of vessels operating in the United States, the U.S. Gulf
of Mexico, Mexico, the Caribbean and South America.
(2) Held-for-sale and bareboat-out vessels are excluded from the vessel count.
(3) During Q1 2001, one AHTS, one supply boat, and one specialty vessel (Other)
transferred from the Middle East to West Africa. During Q2 2001, the
Company purchased a crewboat and transferred one vessel in the Crew/Utility
category from West Africa to Domestic.
(4) Bareboat-out chartered vessels are not included in the day rate and
utilization statistics. During Q3 2001, bareboat contracts for two
crewboats in the Domestic operating region were terminated and the vessels
were returned to the Company.
(5) Effective utilization excludes laid-up vessels.
(6) One vessel in the AHT/Tugs category worked in West Africa and Southeast
Asia during Q2 2001 and earned sufficient revenue to be included in the
statistics for both regions.
(7) The Middle East - Other category includes a vessel that is in a 50/50 joint
venture and not included in the day rate and utilization statistics.
(8) During Q3 2001, one crewboat and one utility boat in Domestic region were
transferred to "held-for-sale" status. Additionally, the Company
transferred one crewboat from Domestic to West Africa. The reduction in the
Domestic Crew/Utility vessel count was offset in part by the addition of
two crewboats as bareboat-out contracts were terminated during Q3 2001.
(9) During Q3 2001, the Company transferred one crewboat and one specialty
vessel (Other) from the Middle East to Southeast Asia. Additionally, one
crewboat was transferred to "held-for-sale" status.
(10) During Q3 2001, one crewboat and one specialty vessel (Other) were
transferred from West Africa to Southeast Asia. Also, one vessel in the
AHT/Tugs category that worked in West Africa and Southeast Asia during Q2
2001 did not work in Southeast Asia during Q3. Additionally, the Company
reactivated one crewboat from laid-up status during Q3 2001.
(11) During Q4 2001, one supply vessel was transferred from Southeast Asia to
Middle East. Also, one vessel in the AHT/Tugs category that worked in West
Africa and Southeast Asia during Q2 2001 did not work in Southeast Asia
during Q3. Additionally, the Company reactivated one crewboat from laid-up
status during Q3 2001.
(12) During Q4 2001, the Company transferred one crewboat to "held-for-sale"
status. Additionally, three vessels were laid-up during Q4 2001.
19
Domestic revenue for the three months ended March 31, 2002 was
adversely affected by the slowdown in natural gas drilling activity in the U.S.
Gulf of Mexico as a result of low natural gas prices. The low level of natural
gas prices resulted from above-average inventory buildups and reduced demand due
to the mildest winter on record. Exploration and production companies in the
U.S. Gulf of Mexico responded by cutting back their level of spending as
evidenced by the significant drop in offshore rig fleet utilization rates during
the last half of calendar year 2001 and the first quarter of 2002. Although
there is still uncertainty in the market, the recent rise in both crude oil and
natural gas prices, driven by the conflict in the Middle East, the temporary
shutoff of Iraqi and Venezuelan imports and other factors, have led to a recent
improvement in utilization rates for jack-up rigs, which should eventually bring
about a recovery in the Gulf of Mexico offshore vessel market.
As the demand for vessels in the domestic market is primarily driven by
natural gas exploration and production, it is difficult to predict what effect
the current fluctuation in natural gas prices and the uncertainty in the
economic environment will have on demand for the Company's vessels in the
domestic market.
International offshore revenues for the three months ended March 31,
2002 benefited from increases in vessel count and utilization. In West Africa,
the demand for vessels, and hence utilization, remained strong as this is an
oil-driven deepwater market with longer time horizons and increasing exploration
and production budgets primarily from oil company majors. The Company redeployed
four vessels to its West African operations during the quarter.
International vessel demand is primarily driven by crude oil
production, and during the quarter crude oil prices and demand remained firm.
The Company expects international exploration and production spending to
continue to increase in West Africa, which should strengthen vessel demand in
that area. Revenue and utilization were also up for the Company's Middle East
operations. In Southeast Asia, revenue declined from the year-earlier period due
to reduced utilization caused by vessel downtimes.
Average day rates and utilization for the Company's anchor handling tug
supply vessels and supply boats at April 30, 2002 for Domestic, West Africa, the
Middle East and Southeast Asia were approximately $5,700/53.0%, $7,900/87.0%,
$3,100/67.0% and $6,100/75.0%, respectively.
The Company had eight offshore vessels in "held-for-sale" status as of
March 31, 2002. The majority of these vessels was previously laid up. Subsequent
to March 31, 2002, the Company sold one vessel.
SEABULK TANKERS
Revenue from the Company's marine transportation services is derived
principally from the operations of ten tankers carrying crude oil, petroleum
products and chemical products in the U.S. Jones Act trade and, to a lesser
extent, from towboat and fuel barge operations in Green Cove Springs, Florida,
which were sold in March 2002.
PETROLEUM TANKERS. Demand for crude oil and petroleum product
transportation services is dependent both on the level of production and
refining levels as well as on consumer and commercial consumption of petroleum
products and chemicals. The Company owned eight petroleum tankers at March 31,
2002. Five of these are double-hull, state-of-the-art vessels, of which two have
chemical-carrying capability. At the end of December 2001, voyage charters for
three vessels expired and were replaced by two multi-year time charters at time
charter-equivalent rates 55% above the returns achieved for these vessels in
20
2001. For the third vessel, the Company entered into a ten-year bareboat charter
agreement with a major oil company. Beginning in January 2002, the oil company
has exclusive possession and control of the vessel. As a result, the charterer
incurs and pays all operating costs during the charter period. A fourth vessel
also secured a time charter, commencing in the fourth quarter of 2001, at a 25%
increase over the expiring rate. Under a time charter, fuel and port charges are
borne by the charterer and are therefore not reflected in the charter rates.
Consequently, both the revenue and cost side of time charter vessels are reduced
by the amount of the fuel and port charges. Our Jones Act fleet is benefiting
from a tightening domestic tanker market, which should see a further
strengthening as OPA 90 forces out older, single-hull vessels. None of our
single hull vessels is scheduled for retirement under OPA 90 before 2007.
CHEMICAL TANKERS. Demand for industrial chemical transportation
services generally coincides with overall economic activity. The Company
operated two chemical tankers and one of the five double-hull vessels in the
chemical trade as of March 31, 2002. The chemical tankers are double-bottom
ships. The higher day rate environment for petroleum tankers is carrying over
into the chemical tanker market as charterers look for quality tonnage to
replace older single-hull vessels.
The Company's tanker fleet operates on either long-term time charters,
bare-boat charter, or pursuant to short-term arrangements. During the three
months ended March 31, 2002, six of the Company's tankers operated under
long-term contracts. As a result of the change from spot trading to time
charters for two tankers and the bareboat charter of a third tanker, the Company
expects that revenue and operating expenses will decline in 2002. However,
operating income should increase to reflect the improved contract terms.
The following table sets forth the number of vessels and revenue for
the Company's petroleum and chemical product carriers:
THREE MONTHS ENDED MARCH 31,
----------------------------
2002 2001
------------ -------------
Number of vessels owned.................. 10 10
Revenue (in thousands)................... $ 28,688 $ 28,035
INLAND TUGS AND BARGES. Revenue from the Company's Sun State Marine
Services subsidiary has been derived primarily from contracts of affreightment
with Colonial Oil Industries (formerly known as Steuart Petroleum Co.) and
Florida Power & Light (FPL) and from ship maintenance, repair, drydocking and
construction activities. Revenue from all of Sun State's operations totaled $3.2
and $1.7 million, respectively, for the three months ended March 31, 2002 and
2001. The increase in Sun State revenue is due to the completion of various
large ship repair projects in the first quarter of 2002.
On March 22, 2002, the Company closed on the sale of the marine
transportation assets of Sun State for $3.8 million in cash.
SEABULK TOWING
Revenue from the Company's tug operations is primarily a function of
the number of tugs available to provide services, the rates charged for their
services, and the volume of vessel traffic requiring docking and other
ship-assist services. Vessel traffic, in turn, is largely a function of general
trade activity in the region served by the port. While the demand for tug
services normally tracks overall trade activity, it has increased in certain
areas in the wake of the terrorist attacks and the renewed focus on security in
U.S. ports.
21
The following table summarizes certain operating information for the
Company's tugs:
THREE MONTHS ENDED MARCH 31,
----------------------------
2002 2001
----------------------------
Number of tugs at end of period............... 31 31
Revenue (in thousands)........................ $ 7,963 $ 8,457
Towing revenue decreased by 5.8% for the three months ended March 31,
2002 compared to the same period in the prior year. The decrease in revenue is
due to reduced vessel traffic in certain of the Company's ports, reflecting the
slowdown in international trade. The Company expects that towing revenue in
fiscal 2002 will decrease marginally compared to fiscal 2001 due to competition
and a less than robust economy.
OVERVIEW OF OPERATING EXPENSES AND CAPITAL EXPENDITURES
The Company's operating expenses are primarily a function of fleet size
and utilization. The most significant expense categories are crew payroll and
benefits, maintenance and repairs, fuel, insurance and charter hire. For general
information concerning these categories of operating expenses as well as capital
expenditures, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations, Overview of Operating Expenses and Capital
Expenditures" in the 2001 Form 10-K.
22
RESULTS OF OPERATIONS
The following table sets forth certain selected financial data and
percentages of revenue for the periods indicated:
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------
2002 2001
------------------------ -------------------------
(in millions)
Revenue.............................................. $ 83.2 100% $ 81.4 100%
Operating expenses................................... 45.7 55 48.9 60
Overhead expenses.................................... 9.2 11 10.2 13
Depreciation, amortization and drydocking............ 16.2 20 13.9 17
---------- ---------- ---------- ----------
Income from operations............................... $ 12.0 15% $ 8.4 10%
========== =========== ========== ==========
Interest expense, net................................ $ 12.7 15% $ 14.6 18%
========== =========== ========== ==========
Other income, net.................................... $ 0.2 0.2% $ 0.3 0.4%
========== =========== ========== ==========
Net loss............................................. $ (2.1) (3)% $ (7.2) (9)%
========== =========== ========== ==========
THREE MONTHS ENDED MARCH 31, 2002 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2001
REVENUE. Revenue increased 2.2% to $83.2 million for the three months
ended March 31, 2002 from $81.4 million for the three months ended March 31,
2001.
Offshore energy support revenue increased 0.4% to $43.3 million for the
three months ended March 31, 2002 from $43.2 million for the same period in
2001, primarily due to higher revenue from the West Africa operating region
offset in part by reduced revenue from the U.S. Gulf of Mexico. The increase in
West Africa revenue was driven by higher utilization and an expanded vessel
count as offshore exploration and production activity remained strong. The
Company took advantage of the expanding West Africa market by (1) mobilizing two
of its Gulf of Mexico supply boats and one Southeast Asia utility boat for
redeployment to West Africa and (2) reactivating one anchor-handling tug from
"held-for-sale" status to active status in West Africa during the first quarter
of 2002. Revenue from the U.S. Gulf of Mexico decreased during the three months
ended March 31, 2002 compared to the same period in 2001 primarily due to
reduced exploration and production activity in response to low natural gas
prices and reduced demand.
Marine transportation revenue increased 7.1% to $31.9 million for the
three months ended March 31, 2002 from $29.8 million for the three months ended
March 31, 2001. This increase is primarily due to the completion of several ship
repair projects at Sun State during the first quarter of 2002. Additionally, the
Company entered into a time charter at a higher day rate for one of its
double-hull tankers during the fourth quarter of 2001. This was partially offset
by reduced revenue on account of the change of two tankers from spot to time
charter arrangements and the bareboat charter of a third tanker. Because of a
significant reduction in operating expenses, however, operating income should
increase.
Towing revenue decreased by 5.8% for the three months ended March 31,
2002 compared to the same period in the prior year. The decrease in revenue is
due to reduced vessel traffic in certain of the Company's ports, reflecting the
slowdown in international trade. The Company expects that towing revenue in
fiscal 2002 will decrease marginally compared to fiscal 2001 due to competition
and a less than robust economy.
23
OPERATING EXPENSES. Operating expenses decreased 6.4% to $45.7 million
for the three months ended March 31, 2002 from $48.9 million for the same period
in 2001, primarily due to the change from spot trading to time charters for two
tankers and the bareboat charter of a third tanker. Under a time charter, the
charterer is responsible for fuel and port charges. Under a bareboat contract,
the charterer is responsible for all operating expenses of the vessel.
Additionally, operating expenses decreased in the offshore energy support
segment as the Company eliminated non-essential expenditures in the U.S. Gulf of
Mexico operating region. The decrease in expenditures is offset in part by
increased shipyard expenses associated with the completion of various ship
repair projects at Sun State. As a percentage of revenue, operating expenses
decreased to 55% for the three months ended March 31, 2002 from 60% for the 2001
period.
OVERHEAD EXPENSES. Overhead expenses decreased 10.0% to $9.2 million
for the three months ended March 31, 2002 from $10.2 million for the same period
in 2001, primarily due to decreased professional fees and other overhead
expense, offset in part by increases in salaries and benefits. Higher headcount
and related salary expense for corporate activity resulted in savings on
third-party consulting fees and services. The decrease in other overhead
expenses is primarily due to lower charges for rent and other miscellaneous
items as a result of the elimination of non-essential services and the
consolidation of administrative functions. As a percentage of revenue, overhead
expenses decreased to 11% for the three months ended March 31, 2002 compared to
13% for the same period in 2001.
DEPRECIATION, AMORTIZATION AND DRYDOCKING. Depreciation, amortization
and drydocking increased 16.6% to $16.2 million or 19.5% of revenue for the
three months ended March 31, 2002 from $13.9 million or 17.1% of revenue for the
three months ended March 31, 2001, primarily due to higher planned drydocking
expenditures for offshore energy support vessels and tankers during the second
half of 2001 compared to the second half of 2000. Since there were larger 2001
drydock expenditures, drydock amortization expense is also higher as drydock
costs are amortized on a straight-line basis over the period to the next
drydocking (generally 30-36 months).
NET INTEREST EXPENSE. Net interest expense decreased 13.2% to $12.7
million or 15% of revenue for the three months ended March 31, 2002 from $14.6
million or 18% of revenue for the same period in 2001. The decrease is primarily
due to the combination of lower interest rates on variable rate debt and lower
outstanding debt balances under our term loans and revolving credit facility.
OTHER INCOME, NET. Other income, net decreased 55.0% to $0.2 million
for the three months ended March 31, 2002 from other income, net of $0.3 million
for the same period in 2001, primarily due to a gain on asset sales in 2001
compared to a loss on asset sales in the 2002 period.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS. Net cash provided by operating activities totaled $29.8
million for the three months ended March 31, 2002 compared to $12.6 million for
the same period in 2001. The significant increase in cash provided by operating
activities is primarily a result of (1) higher operating income before non-cash
charges such as depreciation and amortization in 2002 and (2) timely collection
of customer invoices and insurance reimbursements from our insurance club. The
average number of days outstanding for trade accounts receivable was 53 days at
March 31, 2002 compared to 63 days at March 31, 2001. During the first quarter
of 2002, the Company received approximately $5 million in collections from our
protection and indemnity insurance club for settlement of outstanding insurance
claims.
24
Net cash used in investing activities was $1.8 million for the three
months ended March 31, 2002 compared to $5.2 million for the same period in
2001. The reduction of cash used in investing activities is due primarily to a
larger amount of proceeds from asset sales. In particular, on March 22, 2002,
the Company closed on the sale of the towboat/barge assets of Sun State for $3.8
million in cash.
Net cash used in financing activities for the three months ended March
31, 2002 was $15.5 million compared to $14.6 million for the same period in
2001. The increase in cash used in financing activities is attributable to
larger payments on the term loans from the proceeds of asset sales.
RECENT EXPENDITURES AND FUTURE CASH REQUIREMENTS. During the first
three months of 2002, the Company incurred $6.9 million in capital expenditures
for fleet improvements and drydocking costs. For the remainder of 2002, these
capital expenditures are expected to aggregate $18.1 million. Total 2002
expenditures of $25 million will substantially cover all of the Company's
drydocking requirements for 54 vessels.
Long-term debt and the Senior Notes consisted of the following at March
31, 2002:
2002 OUTSTANDING BALANCE
YEAR-TO-DATE AS OF INTEREST RATE AS OF
FACILITY PAYMENTS MARCH 31, 2002 MATURITY MAY 1, 2002
-------- -------- -------------- -------- -----------
Tranche A term loan $2.89 million $49.5 million 2004 5.12%
Tranche B term loan $0.20 million $24.4 million 2005 5.62%
Tranche C term loan $0.62 million $77.4 million 2006 6.12%
Amendment fee note $3.00 million $1.9 million 2002 15.00%
Senior Notes $0.00 million $82.3 million(1) 2007 13.50%
Title XI Financing Bonds $0.45 million $241.2 million 2005 to 2024 6.50% to 10.00%
Other notes payable $0.84 million $27.1 million 2003 to 2011 Various
Revolving credit facility $6.70 million(2) $2.3 million 2004 7.00%
----------------------
(1) Outstanding balance is net of unamortized discount of $14.9 million
(2) Represents net payments
The terms of the term loans and revolving credit facility are contained
in the Credit Facility between the Company and the financial institutions. For
general information concerning the term loans and revolving credit facility, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations, Liquidity and Capital Resources" in the 2001 Form 10-K.
In addition to the revolver balance, there are $1.6 million in
outstanding letters of credit as of March 31, 2002. As a result, the unused
portion of the revolver was $13.6 million at March 31, 2002. With the bank's
approval, the Company can borrow an additional $7.5 million on the revolver.
However, there can be no assurance that the bank will approve additional
borrowings under the revolver.
On March 15, 2002, a sixth amendment to the credit facility was
executed, which is expected to allow the Company to maintain compliance with its
financial covenants. The amendment reduced the working capital ratio for 2002
and for the life of the term loans and reduced the fixed charge ratio in 2002,
with a gradual increase over the remaining life of the term loans.
25
The senior secured notes did not receive by April 15, 2000 the minimum
credit rating from the rating agencies required under the note indenture. As a
result, the interest rate on the notes increased from 12.5% to 13.5% effective
December 15, 1999. The indenture requires that such additional interest be paid
in the form of additional notes, which notes in the aggregate principal amount
of $242,391 were issued for the three months ended March 31, 2002. The Company
is currently seeking the required ratings that would return the interest rate to
12.5%.
The Company is required to make deposits to a Title XI reserve fund
based on a percentage of net income attributable to the operations of the five
double-hull tankers, as defined by the Title XI bond agreement. Cash held in a
Title XI reserve fund is invested by the trustee of the fund, and any income
earned thereon is either paid to the Company or retained in the reserve fund.
Withdrawals from the Title XI reserve fund may be made for limited purposes,
subject to prior approval from MARAD. To date, no deposits have been required.
Additionally, according to the Title XI Financial Agreement, the Company is
restricted from formally distributing excess cash from the operations of the
five double-hull tankers until certain working capital ratios have been reached
and maintained. Accordingly, at March 31, 2002, the Company had approximately
$13.7 million in cash and cash equivalents that are restricted for use for the
operations of the five double-hull tankers and cannot be used to fund the
Company's general working capital requirements. Based on current projections,
the Company expects to meet the working capital requirements under the financial
agreement in the first quarter of 2003 and may then begin to formally distribute
available excess cash.
The Company's capital requirements arise primarily from its need to
service debt, fund working capital and maintain and improve its vessels. The
Company's expected 2002 capital requirements for debt service, vessel
maintenance and fleet improvements total approximately $109.4 million. The
Company expects that cash flow from operations and proceeds from the sale of
non-strategic assets will continue to make significant contributions toward
working capital and the capital requirements. If operating cash flow is not
adequate, the Company believes that the amounts available under the revolving
credit facility will be sufficient to meet its capital requirements.
Management has taken new initiatives to improve profitability and
liquidity during the first quarter of 2002. Due to the expanding market in West
Africa, the Company has mobilized two of its Gulf of Mexico supply boats and one
Southeast Asia utility boat for redeployment to West Africa during the first
quarter of 2002. Additionally, the Company reactivated one anchor-handling tug
from "held-for-sale" status and placed the boat into service in West Africa. At
the end of December 2001, low-rate voyage charters for three of the Company's
tankers expired and were replaced by two time charters and a ten-year bareboat
charter at substantially higher rates. On March 15, 2002, a sixth amendment to
the credit facility was executed, which is expected to allow the Company to
maintain compliance with its financial covenants. On March 22, 2002, the Company
closed on the sale of the marine transportation assets of Sun State Marine
Services, Inc. ("Sun State") for $3.8 million in cash (see Note 3). The proceeds
from the sale of Sun State's assets were used for working capital purposes as
permitted by the Company's Credit Facility. The Company continues to evaluate
financing alternatives, including a possible equity infusion or other strategic
transaction to reduce debt levels and support future growth opportunities.
While management believes that the initiatives are sound and
attainable, the possibility exists that unforeseen events or business
conditions, including deterioration in its markets, could prevent the Company
from meeting targeted operating results and its financial covenants. If
unforeseen events or business conditions prevent the Company from meeting
targeted operating results, the Company has alternative plans including
additional asset sales, additional reductions in operating expenses and deferral
of capital expenditures, which should enable it to satisfy essential capital
requirements. While the
26
Company believes it could successfully complete alternative plans, if necessary,
there can be no assurance that such alternatives would be available or that the
Company would be successful in their implementation.
INFLATION
The rate of inflation has not had a material impact on our operations.
Moreover, if inflation remains at its recent levels, it is not expected to have
a material impact on our operations for the foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No.
142, GOODWILL AND OTHER INTANGIBLE ASSETS, which establishes a new method of
testing goodwill for impairment using a fair value-based approach and does not
permit amortization of goodwill as previously required by Accounting Principles
Board (APB) Opinion No. 17, INTANGIBLE ASSETS. An impairment loss would be
recorded if the recorded goodwill exceeds its implied fair value. The Company
adopted SFAS No. 142 effective January 1, 2002. As the Company does not have any
recorded goodwill or other intangible assets, the adoption of this statement had
no impact on its financial statements.
Also in July 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS, which requires companies to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The Company adopted SFAS No. 143 as of January 1, 2002 with no
material financial statement impact.
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation of discontinued operations to include more disposal
transactions. SFAS No. 144 supersedes SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and
reporting provisions of APB Opinion No. 30. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. The Company adopted SFAS No. 144 as of
January 1, 2002 with no material financial statement impact.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
Information about the Company's exposure to market risk was disclosed
in its 2001 Annual Report on Form 10-K, which was filed with the Securities and
Exchange Commission on March 29, 2002. There have been no material quantitative
or qualitative changes in market risk exposures since the date of that filing.
27
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information concerning certain legal proceedings see Note 8 of the
financial statements.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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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.
/s/ GERHARD E. KURZ
------------------------------------------------
Gerhard E. Kurz
President, Chief Executive Officer, and Director
Date: May 14, 2002
29