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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000 or
---------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 1-12289
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SEACOR SMIT INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3542736
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(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
11200 Richmond Avenue 400, Houston Texas 77082
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(Address of principal executive offices) (Zip Code)
(713) 782-5990
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 90 days. Yes [X] No [ ]
The total number of shares of Common Stock, par value $.01 per share,
outstanding as of August 9, 2000 was 16,982,260. The Registrant has no other
class of common stock outstanding.
73293.0004
SEACOR SMIT INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999..........................................1
Condensed Consolidated Statements of Operations for each of the
Three and Six-Months Ended June 30, 2000 and 1999............................2
Condensed Consolidated Statements of Cash Flows
for each of the Six-Months Ended June 30, 2000 and 1999......................3
Notes to Condensed Consolidated Financial Statements..............................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........................23
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders..................................24
Item 6. Exhibits and Reports on Form 8-K.....................................................24
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA, UNAUDITED)
June 30, December 31,
2000 1999
----------------- ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 175,854 $ 178,509
Marketable securities (available-for-sale) 23,173 18,196
Trade and other receivables, net of allowance for
doubtful accounts of $1,557 and $1,567, respectively 94,701 69,501
Prepaid expenses and other 6,357 15,810
----------------- ------------------
Total current assets 300,085 282,016
----------------- ------------------
Investments, at Equity, and Receivables from 50% or Less Owned Companies 71,955 77,276
Available-for-Sale Securities 54,546 54,809
Property and Equipment 942,691 859,012
Less - Accumulated depreciation 183,951 143,815
----------------- ------------------
Net property and equipment 758,740 715,197
----------------- ------------------
Restricted Cash 10,823 21,985
Other Assets 45,822 45,708
----------------- ------------------
$ 1,241,971 $ 1,196,991
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,829 $ 2,832
Accounts payable and accrued expenses 35,882 29,757
Other current liabilities 38,752 16,403
----------------- ------------------
Total current liabilities 77,463 48,992
----------------- ------------------
Long-term Debt 458,594 465,661
Deferred Income Taxes 105,516 101,704
Deferred Gains and Other Liabilities 22,721 35,783
Minority Interest in Subsidiaries 55,076 36,721
Stockholders' Equity:
Common stock, $.01 par value, 21,413,598 and 21,353,259 issued, respectively 214 214
Additional paid-in capital 277,123 274,979
Retained earnings 379,542 368,022
Less 4,431,338 and 4,401,426 treasury shares, respectively (131,888) (131,183)
Less unamortized restricted stock compensation (1,439) (1,110)
Accumulated other comprehensive income (951) (2,792)
----------------- ------------------
Total stockholders' equity 522,601 508,130
----------------- ------------------
$ 1,241,971 $ 1,196,991
================= ==================
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
1
SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA, UNAUDITED)
Three Months Ended June Six Months Ended
30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
Operating Revenues $ 85,144 $ 68,475 $ 158,088 $ 146,196
---------- ---------- ----------- -----------
Costs and Expenses:
Operating expenses 51,075 41,176 93,608 82,871
Administrative and general 9,579 8,390 19,014 16,568
Depreciation and amortization 13,088 9,803 24,989 19,128
---------- ---------- ----------- -----------
73,742 59,369 137,611 118,567
---------- ---------- ----------- -----------
Operating Income 11,402 9,106 20,477 27,629
---------- ---------- ----------- -----------
Other Income (Expense):
Interest on debt (7,412) (5,799) (14,354) (11,216)
Interest income 4,133 5,474 8,121 11,445
Gain from equipment sales and retirements, net 2,572 661 5,108 955
Other, net (792) (511) 181 (1,770)
---------- ---------- ----------- -----------
(1,499) (175) (944) (586)
---------- ---------- ----------- -----------
Income Before Income Taxes, Minority Interest, Equity in Earnings
(Losses) of 50% or Less Owned Companies, and Extraordinary Item 9,903 8,931 19,533 27,043
Income Tax Expense 3,049 3,081 6,419 9,330
---------- ---------- ----------- -----------
Income Before Minority Interest, Equity in Earnings (Losses) of
50% or Less Owned Companies, and Extraordinary Item 6,854 5,850 13,114 17,713
Minority Interest in (Income) Loss of Subsidiaries (1,438) 93 (1,210) (275)
Equity in Earnings (Losses) of 50% or Less Owned Companies (376) 274 (384) 2,058
---------- ---------- ----------- -----------
Income Before Extraordinary Item 5,040 6,217 11,520 19,496
Extraordinary Item - Gain from Extinguishment of Debt, net of tax - - - 260
---------- ---------- ----------- -----------
Net Income $ 5,040 $ 6,217 $ 11,520 $ 19,756
========== ========== =========== ===========
Basic Earnings Per Common Share:
Income before extraordinary item $ 0.30 $ 0.34 $ 0.68 $ 1.06
Extraordinary item - - - 0.01
---------- ---------- ----------- -----------
Net income $ 0.30 $ 0.34 $ 0.68 $ 1.07
========== ========== =========== ===========
Diluted Earnings Per Common Share:
Income before extraordinary item $ 0.29 $ 0.34 $ 0.68 $ 1.00
Extraordinary item - - - 0.01
---------- ---------- ----------- -----------
Net income $ 0.29 $ 0.34 $ 0.68 $ 1.01
========== ========== =========== ===========
Weighted Average Common Shares:
Basic 16,885,675 18,144,611 16,845,429 18,341,090
Diluted 17,114,389 18,343,571 17,057,075 22,769,846
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
2
SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
Six Months Ended June 30,
2000 1999
-------------------- -------------------
Net Cash Provided by Operating Activities $ 19,618 $ 18,865
-------------------- -------------------
Cash Flows from Investing Activities:
Purchase of property and equipment (34,319) (102,978)
Proceeds from sale of marine vessels and equipment 12,581 15,123
Purchase of available-for-sale securities (17,388) (7,400)
Proceeds from sale of available-for-sale securities 19,477 62,051
Investments in and advances to 50% or less owned companies (927) (7,419)
Principal payments on notes due from 50% or less owned companies 231 2,159
Net decrease in restricted cash 11,162 29,947
Dividends received from 50% or less owned companies 6,250 700
Cash settlement from commodity price hedging arrangements (803) 2,443
Acquisitions, net of cash acquired (14,666) (4,959)
Other, net (13) 124
-------------------- -------------------
Net cash used in investing activities (18,415) (10,209)
-------------------- -------------------
Cash Flows from Financing Activities:
Payments of long-term debt (15,396) (3,639)
Payments of capital lease obligations (826) (783)
Payments of stockholders' loans (258) (240)
Proceeds from issuance of long-term debt 99 -
Proceeds from exercise of stock options 379 -
Common stock acquired for treasury (4,776) (23,511)
Proceeds from membership interest offering of Chiles Offshore LLC 17,651 -
Other (102) -
-------------------- -------------------
Net cash used in financing activities (3,229) (28,173)
-------------------- -------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (629) (991)
-------------------- -------------------
Net Decrease in Cash and Cash Equivalents (2,655) (20,508)
Cash and Cash Equivalents, Beginning of Period 178,509 175,267
-------------------- -------------------
Cash and Cash Equivalents, End of Period $ 175,854 $ 154,759
==================== ===================
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
3
SEACOR SMIT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION --
The condensed consolidated financial information for the three and six-month
periods ended June 30, 2000 and 1999 has been prepared by the Company and was
not audited by its independent public accountants. In the opinion of management,
all adjustments have been made to present fairly the financial position, results
of operations, and cash flows of the Company at June 30, 2000 and for all
reported periods. Results of operations for the interim periods presented are
not necessarily indicative of the operating results for the full year or any
future periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
related notes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
Unless the context otherwise indicates, any references in this Quarterly Report
on Form 10-Q to the "Company" refer to SEACOR SMIT Inc. and its consolidated
subsidiaries, and any references in this Quarterly Report on Form 10-Q to
"SEACOR" refer to SEACOR SMIT Inc.
Certain reclassifications of prior year information have been made to conform
with the current year presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS --
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair market value. SFAS 133 requires that changes in the derivative's fair
market value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" ("SFAS 137"). SFAS 137 is an amendment of SFAS 133
and defers the effective date of SFAS 133 to fiscal years beginning after June
15, 2000. The Company has not yet quantified the impact on its financial
statements but does not believe adoption will have a material impact on net
income, comprehensive income, and accumulated other comprehensive income.
3. COMPREHENSIVE INCOME --
For the three-month periods ended June 30, 2000 and 1999, total comprehensive
income was $4,833,000 and $5,188,000, respectively. For the six-month periods
ended June 30, 2000 and 1999, total comprehensive income was $13,360,000 and
$17,853,000, respectively. Other comprehensive income in 2000 included
unrealized holding gains on available-for-sale securities and losses from
foreign currency translation adjustments and other comprehensive losses in 1999
included losses from foreign currency translation adjustments and unrealized
holding losses on available-for-sale securities.
4. COMMON STOCK SPLIT --
On May 23, 2000, SEACOR's Board of Directors authorized a three-for-two stock
split effected in the form of a dividend that was distributed on June 15, 2000.
Shareholders of record as of June 2, 2000 received one additional share of
SEACOR's common stock, par value $.01 per share ("Common Stock") for every two
shares they owned on that date, and 7,137,801 shares were distributed.
Shareholders' Equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying from additional paid-in
capital to common stock the par value of the additional shares arising from the
split. Additionally, except as otherwise indicated, share and per share amounts
and stock option and convertible securities data have been restated.
4
5. 2000 EMPLOYEE STOCK PURCHASE PLAN --
On May 23, 2000, the stockholders of SEACOR approved the 2000 Employee Stock
Purchase Plan (the "Stock Purchase Plan") that permits SEACOR to offer Common
Stock for purchase by eligible employees at a price equal to 85% of the lesser
of (i) the fair market value of Common Stock on the first day of the offering
period or (ii) the fair market value of Common Stock on the last day of the
offering period. Common Stock will be offered for purchase under the Stock
Purchase Plan for six-month periods. 300,000 shares of Common Stock are
available for issuance under the Stock Purchase Plan during the ten years
following its adoption.
Eligible employees may accumulate savings through payroll deductions over an
offering period in order to purchase Common Stock at the end of such period.
Purchases of Common Stock under the Stock Purchase Plan may only be made with
accumulated savings from payroll deductions, and an employee cannot complete
such purchases using other resources. All employees who have been continuously
employed by SEACOR's participating subsidiaries for at least six months and who
regularly work more than 20 hours a week and more than five months a year are
eligible to participate in the Stock Purchase Plan.
The Stock Purchase Plan is intended to comply with section 423 of the Internal
Revenue Code of 1986, as amended (the "Code") but is not intended to be subject
to section 401(a) of the Code or the Employee Retirement Income Security Act of
1974. The Board of Directors of SEACOR may amend or terminate the Stock Purchase
Plan at any time; however, no increase in the number of shares of Common Stock
reserved for issuance under the Stock Purchase Plan may be made without
shareholder approval.
6. 2000 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS --
On May 23, 2000, the stockholders of SEACOR approved a 2000 Stock Option Plan
for Non-Employee Directors (the "Non-Employee Director Plan"). Under the
Non-Employee Director Plan, each member of the Board of Directors who is not an
employee of SEACOR or any subsidiary will be granted an option to purchase 3,000
shares of Common Stock on the date of each annual meeting of the stockholders of
SEACOR through and including the 2004 Annual Meeting of Stockholders. The
exercise price of the options granted under the Non-Employee Director Plan will
be equal to 100% of the fair market value per share of Common Stock on the date
the options are granted. 150,000 shares of Common Stock have been reserved for
issuance under the Non-Employee Director Plan.
Options granted under the Non-Employee Director Plan will be exercisable at any
time following the earlier of the first anniversary of, or the first annual
meeting of SEACOR's stockholders after, the date of grant, for a period of up to
ten years from date of grant. Subject to the accelerated vesting of options upon
a non-employee Director's death or disability, if a non-employee Director's
service as a director of SEACOR is terminated, his or her options will terminate
with respect to the shares of Common Stock as to which such options are not then
exercisable. A non-employee Director's options that are vested but not exercised
may, subject to certain exceptions, be exercised within three months after the
date of termination of service as a director in the case of termination by
reason of voluntary retirement, failure of SEACOR to nominate such director for
re-election or failure of such director to be re-elected by stockholders after
nomination by SEACOR, or within one year in the case of termination of service
as a director by reason of death or disability.
7. EARNINGS PER SHARE --
Basic earnings per share were computed based on the weighted average number of
common shares issued and outstanding during the relevant periods. Diluted
earnings per share were computed based on the weighted average number of common
shares issued and outstanding plus all potentially dilutive common shares that
would have been outstanding in the relevant periods assuming the vesting of
restricted stock grants and the issuance of common shares for stock options and
convertible subordinated notes through the application of the treasury stock and
if-converted methods. In the three-month periods ended June 30, 1999 and 2000
and six-month period ended June 30, 2000, the assumed conversion of the
Company's convertible subordinated notes and certain of its stock options and
restricted stock grants into 4,271,241, 4,127,270, and 4,157,270 shares,
respectively, of Common Stock and the add-back to income of interest charges on
5
the convertible subordinated notes, totaling $1,693,000, $1,650,000, and
$3,301,000, respectively, were excluded from the computation of diluted earnings
per share as the effect was antidilutive. The computation of diluted earnings
per share for the six-month period ended June 30, 1999 excludes the assumed
conversion of certain stock options and restricted stock grants into 46,601
shares of Common Stock as the effect was antidilutive.
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------------------- ---------------------------------------
Per Per
Income Shares Share Income Shares Share
-------------- --------------- -------- -------------- --------------- --------
2000
- ----
BASIC EARNINGS PER SHARE:
Income Before Extraordinary Item $ 5,040,000 16,885,675 $ 0.30 $ 11,520,000 16,845,429 $ 0.68
======== ========
EFFECT OF DILUTIVE SECURITIES, NET OF TAX:
Options and Restricted Stock - 228,714 - 211,646
Convertible Securities - - - -
-------------- --------------- -------------- ---------------
DILUTED EARNINGS PER SHARE:
Income Available to Common Stockholders
Plus Assumed Conversions $ 5,040,000 17,114,389 $ 0.29 $ 11,520,000 17,057,075 $ 0.68
============== =============== ======== ============== =============== ========
1999
- ----
BASIC EARNINGS PER SHARE:
Income Before Extraordinary Item $ 6,217,000 18,144,611 $ 0.34 $ 19,496,000 18,341,090 $ 1.06
======== ========
EFFECT OF DILUTIVE SECURITIES, NET OF TAX:
Options and Restricted Stock - 198,960 - 184,440
Convertible Securities - - 3,386,000 4,244,316
-------------- --------------- -------------- ---------------
DILUTED EARNINGS PER SHARE:
Income Available to Common Stockholders
Plus Assumed Conversions $ 6,217,000 18,343,571 $ 0.34 $ 22,882,000 22,769,846 $ 1.00
============== =============== ======== ============== =============== ========
8. VESSEL ACQUISITIONS AND DISPOSITIONS --
On April 19, 2000, the Company completed the acquisition of all of the issued
share capital of Putford Enterprises Ltd. and associated companies (collectively
"Boston Putford"). The acquisition includes Boston Putford's standby safety
vessels ("SBSV"), certain joint venture interests, and fixed assets, for an
aggregate purchase price of approximately (pound)23,000,000 or $36,400,000 based
upon exchange rates in effect on April 19, 2000. Boston Putford's SBSV fleet,
including vessels held in joint ventures, but excluding vessels managed for
third parties, consists of 18 vessels operating primarily in the southern UK
sector of the North Sea. The purchase consideration consists of
(pound)14,200,000 in cash, 83,615 shares of Common Stock (125,423 shares after
adjustment for the stock split), a (pound)5,000,000 five year, fixed coupon
note, and a (pound)2,500,000 five year, fixed coupon note, which is subject to
offset if Boston Putford does not meet certain earnings targets. The notes
combined had a fair value of (pound)6,200,000.
During the first six months of 2000, the Company took delivery of a recently
constructed anchor handling towing supply and crew vessel and also acquired
three towing supply vessels. The Company's obligation to pay for two of the
towing supply vessels has been deferred until termination of existing bareboat
charter-in arrangements. At June 30, 2000, the deferred obligation,
approximating $14,800,000, is reported in Other Current Liabilities of the
accompanying Condensed Consolidated Balance Sheet.
In the six-month period ended June 30, 2000, the Company sold 10 offshore marine
vessels. Net pre-tax gains from those sales and the disposition of other
equipment totaled $5,108,000. Proceeds from the sale of certain of the vessels
were deposited into restricted cash accounts for purposes of acquiring newly
constructed U.S.-flag vessels and qualifying for the Company's temporary
deferral of taxable gains realized from the sale of the vessels.
9. SEGMENT DATA --
The Company aggregates its business activities into three primary operating
segments: marine, environmental, and drilling. These operating segments
represent strategic business units that offer different services. The marine
service segment charters support vessels to owners and operators of offshore
drilling rigs and production platforms. The marine segment also offers logistics
services, which include shorebase, marine transport, and other supply chain
management services in support of offshore exploration and production
operations. The environmental service segment provides contractual oil spill
response and other related training and consulting services. The drilling
6
service segment conducts its business affairs through Chiles Offshore LLC
("Chiles"), an entity in which the Company owns a majority ownership interest
and whose business purpose is to own and operate offshore drilling rigs. Since
inception in 1997 and until July 1999, Chiles operated as a development stage
company, devoting substantially all its efforts to constructing two mobile
offshore drilling rigs, raising capital, and securing contracts for the rigs.
The first rig, the Chiles Columbus, entered service in June 1999 and the second
rig, the Chiles Magellan, entered service in November 1999. In April 2000,
Chiles commenced operation of the Tonala, a bareboat chartered-in rig.
The Company evaluates the performance of each operating segment based upon the
operating profit of the segment and includes net gains from the sale of
equipment and equity in the earnings (losses) of 50% or less owned companies but
excludes minority interest in income (losses) of subsidiaries, interest income
and expense, gains (losses) from the sale of marketable securities and commodity
swap transactions, corporate expenses, and income taxes. Operating profit is
defined as Operating Income as reported in the Consolidated Statements of
Operations net of corporate expenses and certain other income and expense items.
The accounting policies of the operating segments have not changed from those
previously described in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999. The table presented below sets forth operating
revenues and profits by the Company's various business segments, in thousands of
dollars, and these results may differ from separate financial statements of
subsidiaries of the Company due to certain elimination entries required in
consolidation.
Marine Environmental Drilling Other Total
----------- ---------------- ------------- --------------- -------------
FOR THE THREE MONTHS ENDED JUNE 30, 2000:
Operating Revenues -
External Customers $ 64,429 $ 6,406 $ 14,309 $ - $ 85,144
Intersegment 74 - - (74) -
----------- ---------------- ------------- --------------- -------------
Total $ 64,503 $ 6,406 $ 14,309 $ (74) $ 85,144
=========== ================ ============= =============== =============
Operating Profit (Loss) $ 5,847 $ 566 $ 5,901 $ (3) $ 12,311
Gains from Equipment Sales and Retirements, net 2,569 3 - - 2,572
Equity in Earnings (Losses) of 50% or Less Owned Companies 668 94 - (1,635) (873)
Minority Interest in Income of Subsidiaries - - - (1,438) (1,438)
Interest Income - - - 4,133 4,133
Interest Expense - - - (7,412) (7,412)
Losses from Commodity Swap Transactions, net - - - (678) (678)
Gains from Sale of Marketable Securities - - - 393 393
Corporate Expenses - - - (1,417) (1,417)
Income Taxes - - - (2,551) (2,551)
----------- ---------------- ------------- --------------- -------------
Income before Extraordinary Item $ 9,084 $ 663 $ 5,901 $ (10,608) $ 5,040
===================================================================================================================================
FOR THE THREE MONTHS ENDED JUNE 30, 1999:
Operating Revenues -
External Customers $ 61,811 $ 5,198 $ 528 $ 938 $ 68,475
Intersegment - 38 - (38) -
----------- ---------------- ------------- --------------- -------------
Total $ 61,811 $ 5,236 $ 528 $ 900 $ 68,475
=========== ================ ============= =============== =============
Operating Profit (Loss) $ 8,806 $ 1,140 $ (336) $ 58 $ 9,668
Gains from Equipment Sales and Retirements, net 657 4 - - 661
Equity in Earnings (Losses) of 50% or Less Owned Companies 540 136 - (495) 181
Minority Interest in Loss of Subsidiaries - - - 93 93
Interest Income - - - 5,474 5,474
Interest Expense - - - (5,799) (5,799)
Losses from Commodity Swap Transactions, net - - - (293) (293)
Gains from Sale of Marketable Securities - - - 226 226
Corporate Expenses - - - (1,006) (1,006)
Income Taxes - - - (2,988) (2,988)
----------- ---------------- ------------- --------------- -------------
Income before Extraordinary Item $ 10,003 $ 1,280 $ (336) $ (4,730) $ 6,217
===================================================================================================================================
FOR THE SIX MONTHS ENDED JUNE 30, 2000:
Operating Revenues -
External Customers $ 124,508 $ 10,925 $ 22,655 $ - $ 158,088
Intersegment 211 - - (211) -
----------- ---------------- ------------- --------------- -------------
Total $ 124,719 $ 10,925 $ 22,655 $ (211) $ 158,088
=========== ================ ============= =============== =============
Operating Profit (Loss) $ 12,571 $ 842 $ 8,730 $ (3) $ 22,140
Gains from Equipment Sales and Retirements, net 5,102 6 - - 5,108
Equity in Earnings (Losses) of 50% or Less Owned Companies 1,371 270 - (2,816) (1,175)
Minority Interest in Income of Subsidiaries - - - (1,210) (1,210)
Interest Income - - - 8,121 8,121
Interest Expense - - - (14,354) (14,354)
Losses from Commodity Swap Transactions, net - - - (1,079) (1,079)
Gains from Sale of Marketable Securities - - - 2,351 2,351
Corporate Expenses - - - (2,754) (2,754)
Income Taxes - - - (5,628) (5,628)
----------- ---------------- ------------- --------------- -------------
Income before Extraordinary Item $ 19,044 $ 1,118 $ 8,730 $ (17,372) $ 11,520
===================================================================================================================================
7
Marine Environmental Drilling Other Total
----------- ---------------- ------------- --------------- -------------
FOR THE SIX MONTHS ENDED JUNE 30, 1999:
Operating Revenues -
External Customers $ 134,208 $ 10,522 $ 528 $ 938 $ 146,196
Intersegment - 106 - (106) -
----------- ---------------- ------------- --------------- -------------
Total $ 134,208 $ 10,628 $ 528 $ 832 $ 146,196
=========== ================ ============= =============== =============
Operating Profit (Loss) $ 26,949 $ 2,118 $ (541) $ 58 $ 28,584
Gains from Equipment Sales and Retirements, net 954 1 - - 955
Equity in Earnings (Losses) of 50% or Less Owned Companies 2,209 412 - (495) 2,126
Minority Interest in Income of Subsidiaries - - - (275) (275)
Interest Income - - - 11,445 11,445
Interest Expense - - - (11,216) (11,216)
Gains from Commodity Swap Transactions, net - - - 66 66
Losses from Sale of Marketable Securities - - - (740) (740)
Corporate Expenses - - - (2,051) (2,051)
Income Taxes - - - (9,398) (9,398)
----------- ---------------- ------------- --------------- -------------
Income before Extraordinary Item $ 30,112 $ 2,531 $ (541) $ (12,606) $ 19,496
===================================================================================================================================
10. RECENT CHILES DEVELOPMENTS --
On April 6, 2000, Chiles entered into an agreement with Singapore shipyard
Keppel FELS Limited ("Keppel") to build a KFELS MOD V "B" design, cantilevered
jackup drilling rig (the "Chiles Discovery"). Construction cost is estimated not
to exceed $110,000,000, including equipment furnished by the owner. The KFELS
MOD V "B" is a proprietary design owned by Keppel that has been modeled on the
MOD V "harsh-environment" jackups. It will be delivered with a leg length
between 475 and 545 feet.
In connection with contracting for construction of the Chiles Discovery, Chiles
signed a commitment letter with a Non-U.S. based lender, which is affiliated
with the shipyard, to provide a maximum of $82,000,000 of floating rate debt to
partially fund the rig's construction. The commitment letter relating to this
loan provides for an interest rate equal to LIBOR plus 200 basis points on a
$75,000,000 term loan due upon the earlier of 22 months from Chiles' first
borrowing or delivery of the Chiles Discovery and LIBOR plus 300 basis points on
a $7,000,000 revolving loan available to pay interest on the term loan. Chiles
will be able to refinance the entire facility for an additional 18 months at a
fixed rate to be determined at that time based on a bank cost of funds rate plus
300 basis points. Chiles expects to enter into a definitive loan agreement
during the third quarter of 2000, but there is no assurance that Chiles will be
able to successfully negotiate such agreement. Chiles expects the loan will be
secured by a first mortgage on the Chiles Discovery and any other assets held by
the rig owning subsidiary of Chiles.
In May 2000, Chiles raised an additional $33,000,000 of equity from existing and
new equity investors that included $15,200,000 funded by the Company. Chiles
received $32,800,000 of net proceeds after offering costs. After giving effect
for this offering, the Company's ownership interest in Chiles declined from
58.3% to 55.4%. With borrowings from the Non-U.S. based lender described above
and this equity offering, it is management's belief that adequate capital will
be available to successfully complete the construction of the Chiles Discovery.
Chiles has also executed an option agreement with Keppel to construct three
additional rigs. Subject to a successful completion of the Chiles IPO (as
defined below), Chiles intends to exercise the first of the construction options
and build a rig of similar design to the Chiles Discovery (the "New Option
Rig"), at a cost estimated not to exceed $112,000,000. Chiles expects to finance
the New Option Rig's construction costs with proceeds from its initial public
offering, as described below, and issuance of notes or bonds guaranteed by the
U.S. government under a ship financing program administered by the U.S. Maritime
Administration ("MarAd") or borrowings under a new bank facility, the definitive
terms of which are currently under negotiation, as described below.
Chiles has received a commitment for a new $120,000,000 bank facility (the "New
Chiles Bank Facility"), which would replace its existing $40,000,000 bank
facility. Subject to a successful completion of the Chiles IPO (as defined
below), Chiles expects to enter into a definitive credit agreement for the New
Chiles Bank Facility during the third quarter of this year. The New Chiles Bank
Facility will be secured by ship mortgages on the Chiles Columbus and the Chiles
8
Magellan, as well as assignments of the construction contract and related
agreements regarding the New Option Rig. The New Chiles Bank Facility will bear
interest at a variable rate equal to LIBOR plus a margin ranging between 150 to
200 basis points, depending on the extent of Chiles' borrowings. The commitment
letter provides that the New Chiles Bank Facility will be a reducing revolving
facility with a seven-year maturity. The New Chiles Bank Facility is expected to
contain a number of restrictive covenants that would include the maintenance of
certain financial ratios and limitations on levels of indebtedness.
On June 15, 2000, Chiles filed a registration statement for an initial public
offering of its common stock (the "Chiles IPO"). If the Chiles IPO is
consummated, Chiles expects to use the proceeds to retire its outstanding 10%
Senior Notes Due 2008 (the "Chiles 10% Notes") and fund further growth and
working capital. SEACOR currently owns approximately $26,700,000 aggregate
principal amount of the Chiles 10% Notes and has an economic interest in
substantially all of the remaining outstanding Chiles 10% Notes, comprising
approximately $68,300,000 aggregate principal amount. SEACOR and the other
holders of the Chiles 10% Notes have agreed to sell their holdings in the Chiles
10% Notes to Chiles at a price equal to the par value of the Chiles 10% Notes,
plus accrued and unpaid interest to the purchase date. Retirement of the Chiles
10% Notes would result in SEACOR's recognition of pre-tax gain that would have
approximated $9,100,000 at June 30, 2000.
The consummation of the Chiles IPO would result in SEACOR's deconsolidation of
Chiles as a majority owned subsidiary and the commencement of accounting for its
investment in Chiles under the equity method.
On July 20, 2000, Chiles entered into an agreement with Perforadora Central,
S.A. de C.V. ("Perforadora"), Perforadora's parent and that parent's
stockholders to acquire, through a series of transactions, all of the shares of
capital stock of an entity that would own the Tonala, a rig that Chiles
currently operates under a bareboat charter with Perforadora. Under the terms of
that agreement, these stockholders would receive shares of Chiles common stock
and Chiles would also assume approximately $64,600,000 aggregate principal
amount of debt guaranteed by MarAd and incurred by Perforadora to construct the
Tonala. Chiles' management estimates that following the completion of Chiles'
IPO and the acquisition of the Tonala, former owners of the Tonala would hold
approximately 13.8% of Chiles' outstanding common stock. The MarAd guaranteed
debt bears interest at the rate of 5.6% per year until its maturity in 2010. The
transaction is subject to a number of conditions, including approval by MarAd
and consummation of the Chiles IPO.
11. COMMITMENTS AND CONTINGENCIES --
As of June 30, 2000, the Company was committed to the construction of nine crew
vessels for an approximate aggregate cost of $39,000,000 of which $3,220,000 has
been expended. These offshore marine vessels will be delivered during the next
two years.
At June 30, 2000, the Company was committed to acquire 24 newly constructed
hopper barges for an approximate aggregate cost of $6,288,000. Delivery of the
barges is expected during the third quarter of 2000.
At December 31, 1999, joint venture corporations, in which the Company owns a
50% equity interest, were committed to the construction of two Handymax Dry-Bulk
ships. During 2000, one of the ships was sold; however, one of the joint
ventures remains committed to the construction of one ship for an approximate
cost of $19,500,000, 75% of which is expected to be financed from external
sources. The ship is expected to enter service in 2001.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
When included in this Quarterly Report on Form 10-Q or in documents incorporated
herein by reference, the words "expects," "intends," "anticipates," "believes,"
"estimates," and analogous expressions are intended to identify forward-looking
statements. Such statements inherently are subject to a variety of risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, among others, general economic
and business conditions, industry fleet capacity, changes in foreign and
domestic oil and gas exploration and production activity, competition, changes
in foreign political, social and economic conditions, regulatory initiatives and
compliance with governmental regulations, customer preferences and various other
matters, many of which are beyond the Company's control. These forward-looking
statements speak only as of the date of this Quarterly Report on Form 10-Q. The
Company expressly disclaims any obligation or undertaking to release publicly
any updates or any change in the Company's expectations with regard thereto or
any change in events, conditions or circumstances on which any statement is
based.
OFFSHORE MARINE SERVICES
The Company provides marine transportation, logistics, and related services
largely dedicated to supporting offshore oil and gas exploration and production.
Marine transportation services are provided through the operation, domestically
and internationally, of offshore support vessels. The Company's vessels deliver
cargo and personnel to offshore installations, tow and handle the anchors of
drilling rigs and other marine equipment, support offshore construction and
maintenance work, and provide standby safety support. The Company's vessels are
also used for special projects, such as well stimulation, seismic data
gathering, freight hauling, line handling, salvage, and oil spill emergencies.
Logistics services include shorebase, marine transport, and other supply chain
management services in support of offshore exploration and production
operations.
Operating revenues are affected primarily by the number of vessels owned,
average rates per day worked and utilization of the Company's fleet, and the
number of vessels bareboat and time chartered-in.
Opportunities to buy and sell vessels are actively monitored by the Company to
maximize overall fleet utility and flexibility. The size of the Company's fleet
has grown substantially since 1994 due to the acquisition and construction of
vessels and the investment in joint venture companies that own and operate
vessels. The Company has also sold many vessels from its fleet, particularly
those that are less marketable. Since 1997, proceeds from the sale of certain
vessels have been deposited into restricted cash accounts for purposes of
acquiring newly constructed U.S.-flag vessels and qualifying for the Company's
temporary deferral of taxable gains realized from the sale of those vessels. At
June 30, 2000, the Company was committed to the construction of nine crew
vessels that are expected to enter service during the next two years.
Rates per day worked and utilization of the Company's fleet are a function of
demand for and availability of marine vessels, which are closely aligned with
the level of exploration and development of offshore areas. The level of
exploration and development of offshore areas is affected by both short-term and
long-term trends in oil and gas prices which, in turn, are related to the demand
for petroleum products and the current availability of oil and gas resources.
The table below sets forth rates per day worked and utilization data for the
Company during the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------- -------------- ------------- --------------
RATES PER DAY WORKED ($): (1) (2)
Supply and Towing Supply 4,716 5,712 4,738 5,916
Anchor Handling Towing Supply 11,157 11,142 11,351 11,978
Crew 2,526 2,505 2,523 2,541
Standby Safety 5,466 5,826 5,518 6,236
Utility and Line Handling 1,627 1,681 1,644 1,742
Geophysical, Freight, and Other 5,880 5,880 5,880 5,338
Overall Fleet 3,643 3,881 3,658 4,100
10
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------- -------------- ------------- --------------
OVERALL UTILIZATION (%): (1)
Supply and Towing Supply 68.5 66.6 64.9 72.4
Anchor Handling Towing Supply 65.0 68.8 66.8 74.8
Crew 95.1 81.2 94.1 78.1
Standby Safety 75.5 83.4 68.6 80.8
Utility and Line Handling 58.8 65.1 56.8 68.7
Geophysical, Freight, and Other 33.3 50.0 41.6 61.1
Overall Fleet 74.1 71.6 72.0 73.5
-------------------------
(1) Rates per day worked is the ratio of total charter revenue to
the total number of vessel days worked. Rates per day worked
and overall utilization figures exclude owned vessels that
are bareboat chartered-out, vessels owned by corporations
that participate in pooling arrangements with the Company,
joint venture vessels, and managed/operated vessels and
include vessels bareboat and time chartered-in by the
Company.
(2) Revenues for certain of the Company's vessels, primarily its
standby safety vessels, are earned in foreign currencies,
primarily British pounds sterling, and have been converted to
U.S. dollars at the weighted average exchange rate for the
periods indicated.
From time to time, the Company bareboat or time charters-in vessels. A bareboat
charter is a vessel lease under which the lessee ("charterer") is responsible
for all crewing, insurance, and other operating expenses, as well as the payment
of bareboat charter hire to the providing entity. A time charter is a lease
under which the entity providing the vessel is responsible for all crewing,
insurance, and other operating expenses and the charterer only pays a time
charter hire fee to the providing entity. Operating revenues for vessels owned
and bareboat or time chartered-in are incurred at similar rates. However,
operating expenses associated with vessels bareboat and time chartered-in
include charter hire expenses that, in turn, are included in vessel expenses,
but exclude depreciation expense.
The Company also bareboat charters-out vessels. Operating revenues for these
vessels are lower than for vessels owned and operated or bareboat chartered-in
by the Company, because vessel expenses, normally recovered through charter
revenue, are the burden of the charterer. Operating expenses include
depreciation expense if the vessels chartered-out are owned. At June 30, 2000
and 1999, the Company had 18 and 14 vessels, respectively, bareboat
chartered-out, which included 13 and 10, respectively, chartered to its joint
ventures, entities affiliated with its joint venture operations, or the
environmental service segment.
The table below sets forth the Company's marine fleet structure at the dates
indicated:
AT JUNE 30,
--------------------------------------
FLEET STRUCTURE 2000 1999
- --------------------------------------------------------------------- ----------------- ------------------
Owned 234 220
Bareboat and Time Chartered-In 22 29
Managed 7 3
Joint Venture Vessels (1) 37 37
Pool Vessels (2) 9 9
----------------- ------------------
Overall Fleet 309 298
================= ==================
--------------------------
(1) 2000 and 1999 include 14 vessels owned or chartered-in from
external sources by a joint venture between Transportacion
Maritima Mexicana S.A. de C.V. and the Company (the "TMM Joint
Venture"). 2000 and 1999 includes 15 and 17 vessels,
respectively, owned by corporations in which the Company
acquired an equity interest pursuant to a transaction with
Smit Internationale N.V. in December 1996 (the "Smit Joint
Ventures"). 2000 and 1999 also includes 8 and 6 vessels,
respectively, operated by other joint venture businesses.
(2) 2000 and 1999 include 5 vessels owned by Toisa Ltd. that
participate in a pool with Company owned North Sea standby
safety vessels. Additionally, 2000 and 1999 includes 4 standby
safety vessels in which the Company shares net operating
profits after certain adjustments with the vessel owners (the
"Avian Fleet Pool").
Vessel operating expenses are primarily a function of fleet size and utilization
levels. The most significant vessel operating expense items are wages paid to
marine personnel, maintenance and repairs, and marine insurance. In addition to
variable vessel operating expenses, the offshore marine business segment incurs
fixed charges related to the depreciation of property and equipment.
Depreciation is a significant operating expense, and the amount related to
vessels is the most significant component.
A portion of the Company's revenues and expenses are paid in foreign currencies.
For financial statement reporting purposes, these amounts are translated into
U.S. dollars at the weighted average exchange rates during the relevant period.
The foregoing applies primarily to the Company's North Sea operations. Overall,
the percentage of the Company's offshore marine operating revenues derived from
foreign operations whether in U.S. dollars or foreign currencies approximated
35% and 44% for the six-month periods ended June 30, 2000 and 1999,
11
respectively. Foreign operating revenues declined between comparable six-month
periods due primarily to reduced utilization and rates per day worked.
The Company's foreign offshore marine operations are subject to various risks
inherent in conducting business in foreign nations. These risks include, among
others, political instability, potential vessel seizure, nationalization of
assets, fluctuating currency values, hard currency shortages, controls of
currency exchange, the repatriation of income or capital, import-export quotas,
and other forms of public and governmental regulation, all of which are beyond
the control of the Company. Although, historically, the Company's operations
have not been affected materially by such conditions or events, it is not
possible to predict whether any such conditions or events might develop in the
future. The occurrence of any one or more of such conditions or events could
have a material adverse effect on the Company's financial condition and results
of operations.
Regulatory drydockings, which are a substantial component of marine maintenance
and repair costs, are expensed when incurred. Under applicable maritime
regulations, vessels must be drydocked twice in a five-year period for
inspection and routine maintenance and repair. The Company follows an asset
management strategy pursuant to which it defers required drydocking of selected
marine vessels and voluntarily removes these marine vessels from operation
during periods of weak market conditions and low rates per day worked. Should
the Company undertake a large number of drydockings in a particular fiscal
quarter or six month period or put through survey a disproportionate number of
older vessels, which typically have higher drydocking costs, comparative results
may be affected. For the six-month periods ended June 30, 2000 and 1999,
drydocking costs totaled $2.8 million and $3.0 million, respectively. During
those same periods, the Company completed the drydocking of 32 and 40 marine
vessels, respectively.
Operating results were also affected by the Company's participation in (i) a
joint venture arrangement with Vector Offshore Limited ("VOL"), a U.K.
corporation (the "Veesea Joint Venture") that operated 11 standby safety vessels
in the North Sea, (ii) the SEAVEC and Avian Fleet Pools, which coordinated the
marketing of 20 standby safety vessels in the North Sea at June 30, 2000, of
which 11 were owned by the Company; (iii) the TMM Joint Venture, which operated
20 vessels in Mexico, including 6 bareboat or time chartered-in from the
Company, at June 30, 2000; (iv) the Smit Joint Ventures, which operated 15
vessels in the Far East, Latin America, the Middle East, and the Mediterranean
at June 30, 2000; (v) the Vision Joint Venture, a majority owned subsidiary
which operated 1 vessel in the U.S. Gulf of Mexico at June 30, 2000; (vi) the
Logistics Joint Venture, which provided shorebase, marine transport, and other
supply chain management services; and (vii) other joint ventures which operated
10 vessels in Latin America, the Mediterranean, the Far East, the North Sea, and
the Pacific Rim.
On April 19, 2000, the Company completed the acquisition of all of the issued
share capital of Putford Enterprises Ltd. and associated companies (collectively
"Boston Putford"). The acquisition includes Boston Putford's standby safety
vessels ("SBSV"), certain joint venture interests, and fixed assets for an
aggregate purchase price of approximately (pound)23.0 million or $36.4 million
based upon exchange rates in effect on April 19, 2000. Boston Putford's SBSV
fleet, including vessels held in joint ventures, but excluding vessels managed
for third parties, consists of 18 vessels operating primarily in the southern UK
sector of the North Sea. The purchase consideration consists of (pound)14.2
million in cash, 83,615 shares of SEACOR's common stock, par value $.01 per
share ("Common Stock") (125,423 shares after adjustment for the stock split), a
(pound)5.0 million five year, fixed coupon note, and a (pound)2.5 million five
year, fixed coupon note, which is subject to offset if Boston Putford does not
meet certain earnings targets. The notes combined have a fair value of
(pound)6.2 million.
During April 2000, the Company completed the purchase of the majority of VOL's
equity interest in the Veesea Joint Venture. Management of the Company's 11
North Sea standby safety vessels in which VOL had an ownership interest and the
SEAVEC Pool has been consolidated with the operations of Boston Putford.
Exploration and drilling activities, which affect the demand for vessels, are
influenced by a number of factors, including the current and anticipated prices
of oil and natural gas, the expenditures by oil and gas companies for
exploration and development, and the availability of drilling rigs. In addition,
demand for drilling services remains dependent on a variety of political and
economic factors beyond the Company's control, including worldwide demand for
oil and natural gas, the ability of the Organization of Petroleum Exporting
Countries ("OPEC") to set and maintain production levels and pricing, the level
of production of non-OPEC countries, and the policies of various governments
regarding exploration and development of their oil and natural gas reserves.
12
Improvements in oil prices have caused increased drilling activity and demand
for drilling rigs. The improvement in oil prices follows a period of extremely
low commodity prices during 1998 and early 1999 that resulted from an oil
surplus. Management believes that higher commodity prices will likely further
increase exploration and development by the oil companies both in the U.S. and
foreign markets that would lead to improved drilling rig and offshore support
vessel utilization. Demand and rates per day worked for offshore support vessels
will also be influenced by an increase in supply resulting from the recent
construction of offshore support vessels worldwide.
ENVIRONMENTAL SERVICES
The Company's environmental service business provides contractual oil spill
response and other related training and consulting services. The Company's
clients include tank vessel owner/operators, refiners and terminal operators,
exploration and production facility operators, and pipeline operators. The
Company charges a retainer fee to its customers for ensuring by contract the
availability (at predetermined rates) of its response services and equipment.
Retainer services include employing a staff to supervise response to an oil
spill emergency and maintaining specialized equipment, including marine
equipment, in a ready state for emergency and spill response as contemplated by
response plans filed by the Company's customers in accordance with the Oil
Pollution Act of 1990, as amended, and various state regulations. The Company
maintains relationships with numerous environmental sub-contractors to assist
with response operations, equipment maintenance, and provide trained personnel
for deploying equipment in a spill response.
Pursuant to retainer agreements entered into with the Company, certain vessel
owners pay in advance to the Company an annual retainer fee based upon the
number and size of vessels in each such owner's fleet and in some circumstances
pay the Company additional fees based upon the level of each vessel owner's
voyage activity in the U.S. The Company recognizes the greater of revenue earned
by voyage activity or the portion of the retainer earned in each accounting
period. Certain vessel and facility owners pay a fixed fee or a fee based on
volume of petroleum product transported for the Company's retainer services and
such fee is recognized ratably throughout the year. The Company's retainer
agreements with vessel owners generally range from one to three years, while
retainer arrangements with facility owners are as long as ten years.
Spill response revenue is dependent on the magnitude of any one spill response
and the number of spill responses within a given fiscal period. Consequently,
spill response revenue can vary greatly between comparable periods and the
revenue from any one period is not indicative of a trend or of anticipated
results in future periods. Costs of oil spill response activities relate
primarily to (i) payments to sub-contractors for labor, equipment and materials,
(ii) direct charges to the Company for equipment and materials, (iii)
participation interests of others in gross profits from oil spill response, and
(iv) training and exercises related to spill response preparedness.
The Company charges consulting fees to customers for customized training
programs, its planning of and participation in customer oil spill response drill
programs and response exercises, and other special projects.
The principal components of the Company's operating costs are salaries and
related benefits for operating personnel, payments to sub-contractors, equipment
maintenance, and depreciation. These expenses are primarily a function of
regulatory requirements and the level of retainer business.
Operating results are also affected by the Company's participation in the Clean
Pacific Alliance ("CPA"), a joint venture with Crowley Marine Services that
operates on the West Coast of the United States. In November 2000, a retainer
service contract expires with CPA's principal customer. Should this contract not
be renewed, there could be a material adverse effect on CPA's future results of
operations and cash flows.
DRILLING SERVICES
The Company's drilling service business is conducted through Chiles Offshore LLC
("Chiles"), a majority owned subsidiary. From its inception in 1997 and until
July 1999, Chiles operated as a development stage company, devoting
substantially all its efforts constructing two mobile offshore drilling rigs
(the "Rigs"), raising capital, and securing contracts for the Rigs. In 1997,
Chiles commenced construction of two premium jackup mobile offshore drilling
rigs, the Chiles Columbus and the Chiles Magellan, which were delivered to
Chiles in May 1999 and October 1999, respectively.
13
During November 1999, Chiles entered into a bareboat charter-in agreement for a
jackup drilling rig, the Tonala, which was constructed for the owner at a U.S.
shipyard and is similar in class to the Rigs. Under the bareboat charter
agreement, Chiles is responsible for all crewing, insurance, and other operating
expenses of the rig, as well as the charter payment to the vessel owner. Charter
operations of the Tonala commenced in April 2000, and the initial term is 18
months. As discussed below, Chiles has entered into an agreement relating to
transactions that, if consummated, would result in Chiles acquiring ownership of
the Tonala.
The drilling service segment's operating revenues are affected by rates per day
worked and utilization of the Rigs. The rates per day worked and utilization of
the Rigs are a function of demand for and availability of rigs, which are
closely aligned with the level of oil and gas exploration and development of
offshore areas. The level of oil and gas exploration and development of offshore
areas is affected by both short-term and long-term trends in oil and gas prices
which, in turn, are related to the demand for petroleum products and the current
availability of oil and gas resources.
The Company's drilling service segment's operating expenses are primarily a
function of fleet size and utilization. The most significant variables in
operating expenses are compensation and related expenses for personnel,
maintenance and repairs, supplies, charter hire, and insurance. In addition to
variable operating expenses, the drilling service segment also incurs fixed
charges related to the depreciation of property and equipment. Depreciation is a
significant fixed operating charge and the amount related to the Rigs is the
most significant component.
The Company's drilling service business is influenced by the various economic
and political factors that also affect its offshore marine service business as
discussed above. The Company's drilling service business is focused in the U.S.
Gulf of Mexico, which is the largest single market for jackup rigs in the world
and which features the presence of an established pipeline and production
infrastructure. The Company's drilling service business and operations will be
particularly dependent upon the condition of the oil and natural gas industry in
the U.S. Gulf of Mexico and on the exploration and production expenditures of
oil and gas companies there.
Historically, the drilling service industry has been highly competitive and
cyclical, with periods of high demand, short rig supply, and high rates per day
worked followed by periods of low demand, excess rig supply, and low rates per
day worked. During 1998 and early 1999, the decline in product prices in the oil
and gas industry resulted in reduced rates per day worked and decreased
utilization worldwide and particularly in the U.S. Gulf of Mexico jackup market.
Should improvements in product prices in the oil and gas industry be sustained,
owners of jackup rigs should benefit through an improvement in rates per day
worked and utilization.
The Chiles Columbus was placed in service in June 1999. At June 30, 2000, it was
operating under a contract in the U.S. Gulf of Mexico. If all wells planned by
the current customer of the Chiles Columbus are drilled, work under the existing
agreement is expected to conclude during the third quarter of 2000. The Chiles
Magellan was placed in service in November 1999. At June 30, 2000, it was
operating in the U.S. Gulf of Mexico under a drilling contract with expected
completion in the third quarter of 2001. The Tonala is presently working under a
drilling contract in the U.S. Gulf of Mexico that is expected to conclude during
the third quarter of 2000.
Utilization of the Rigs and the Tonala was 100% in the three and six-month
periods ended June 30, 2000. Rates per day worked for the Rigs were $60,900 and
$53,131 in the three and six-month periods ended June 30, 2000, respectively,
and $39,727 for the Tonala in those same periods.
On April 6, 2000, Chiles entered into an agreement with Singapore shipyard
Keppel FELS Limited ("Keppel") to build a KFELS MOD V "B" design, cantilevered
jackup drilling rig (the "Chiles Discovery"). The KFELS MOD V "B" is a
proprietary design owned by Keppel that has been modeled on the MOD V
"harsh-environment" jackups. It will be delivered with a leg length between 475
and 545 feet. Chiles has also executed an option agreement with Keppel to
construct three additional rigs. Subject to a successful completion of the
Chiles IPO (as defined below), Chiles intends to exercise the first of these
options for the construction of a rig of similar design to the Chiles Discovery
(the "New Option Rig").
To finance construction of the Chiles Discovery, Chiles raised an additional
$33.0 million of equity from existing and new equity investors that included
$15.2 million funded by the Company. Chiles received $32.8 million of net
proceeds after offering costs. Chiles also signed a commitment letter with a
Non-U.S. based lender, which is affiliated with the shipyard, to provide a
maximum of $82.0 million of floating rate debt to partially fund construction of
the Chiles Discovery. Chiles expects to finance the New Option Rig's
construction costs with proceeds from its initial public offering, see
14
discussion below, and issuance of notes or bonds guaranteed by the U.S.
government under a ship financing program administered by the U.S. Maritime
Administration ("MarAd") or borrowings under a new bank facility currently under
negotiation. See "Liquidity and Capital Resources - Credit Facilities."
On June 15, 2000, Chiles filed a registration statement for an initial public
offering of its common stock (the "Chiles IPO"). If the Chiles IPO is
consummated, Chiles expects to use the proceeds to retire its outstanding 10%
Senior Notes Due 2008 (the "Chiles 10% Notes") and fund further growth and
working capital. SEACOR currently owns approximately $26.7 million aggregate
principal amount of the Chiles 10% Notes and has an economic interest in
substantially all of the remaining outstanding Chiles 10% Notes, comprising
approximately $68.3 million aggregate principal amount. SEACOR and the other
holders of the Chiles 10% Notes have agreed to sell their holdings in the Chiles
10% Notes to Chiles at a price equal to the par value of the Chiles 10% Notes,
plus accrued and unpaid interest to the purchase date. Retirement of the Chiles
10% Notes would result in SEACOR's recognition of pre-tax gain that would have
approximated $9.1 million at June 30, 2000.
The consummation of the Chiles IPO would result in SEACOR's deconsolidation of
Chiles as a majority owned subsidiary and the commencement of accounting for its
investment in Chiles under the equity method.
On July 20, 2000, Chiles entered into an agreement with Perforadora Central,
S.A. de C.V. ("Perforadora"), Perforadora's parent and that parent's
stockholders to acquire, through a series of transactions, all of the shares of
capital stock of an entity that would own the Tonala. Under the terms of that
agreement, these stockholders would receive shares of Chiles common stock and
Chiles would also assume approximately $64.6 million aggregate principal amount
of debt guaranteed by the MarAd and incurred by Perforadora to construct the
Tonala. Chiles' management estimates that following the completion of Chiles'
IPO and the acquisition of the Tonala, former owners of the Tonala would hold
approximately 13.8% of Chiles' outstanding common stock. The MarAd guaranteed
debt bears interest at the rate of 5.6% per year until its maturity in 2010. The
transaction is subject to a number of conditions, including approval by MarAd
and consummation of the Chiles IPO.
15
RESULTS OF OPERATIONS
The following table sets forth operating revenue and operating profit by the
Company's various business segments for the periods indicated, in thousands of
dollars.
Marine Environmental Drilling Other Total
----------- ---------------- ------------- --------------- -------------
FOR THE THREE MONTHS ENDED JUNE 30, 2000:
Operating Revenues -
External Customers $ 64,429 $ 6,406 $ 14,309 $ - $ 85,144
Intersegment 74 - - (74) -
----------- ---------------- ------------- --------------- -------------
Total $ 64,503 $ 6,406 $ 14,309 $ (74) $ 85,144
=========== ================ ============= =============== =============
Operating Profit (Loss) $ 5,847 $ 566 $ 5,901 $ (3) $ 12,311
Gains from Equipment Sales and Retirements, net 2,569 3 - - 2,572
Equity in Earnings (Losses) of 50% or Less Owned Companies 668 94 - (1,635) (873)
Minority Interest in Income of Subsidiaries - - - (1,438) (1,438)
Net Interest Expense - - - (3,279) (3,279)
Losses from Commodity Swap Transactions, net - - - (678) (678)
Gains from Sale of Marketable Securities - - - 393 393
Corporate Expenses - - - (1,417) (1,417)
Income Taxes - - - (2,551) (2,551)
----------- ---------------- ------------- --------------- -------------
Income before Extraordinary Item $ 9,084 $ 663 $ 5,901 $ (10,608) $ 5,040
===================================================================================================================================
FOR THE THREE MONTHS ENDED JUNE 30, 1999:
Operating Revenues -
External Customers $ 61,811 $ 5,198 $ 528 $ 938 $ 68,475
Intersegment - 38 - (38) -
----------- ---------------- ------------- --------------- -------------
Total $ 61,811 $ 5,236 $ 528 $ 900 $ 68,475
=========== ================ ============= =============== =============
Operating Profit (Loss) $ 8,806 $ 1,140 $ (336) $ 58 $ 9,668
Gains from Equipment Sales and Retirements, net 657 4 - - 661
Equity in Earnings (Losses) of 50% or Less Owned Companies 540 136 - (495) 181
Minority Interest in Loss of Subsidiaries - - - 93 93
Net Interest Expense - - - (325) (325)
Losses from Commodity Swap Transactions, net - - - (293) (293)
Gains from Sale of Marketable Securities - - - 226 226
Corporate Expenses - - - (1,006) (1,006)
Income Taxes - - - (2,988) (2,988)
----------- ---------------- ------------- --------------- -------------
Income before Extraordinary Item $ 10,003 $ 1,280 $ (336) $ (4,730) $ 6,217
===================================================================================================================================
FOR THE SIX MONTHS ENDED JUNE 30, 2000:
Operating Revenues -
External Customers $ 124,508 $ 10,925 $ 22,655 $ - $ 158,088
Intersegment 211 - - (211) -
----------- ---------------- ------------- --------------- -------------
Total $ 124,719 $ 10,925 $ 22,655 $ (211) $ 158,088
=========== ================ ============= =============== =============
Operating Profit (Loss) $ 12,571 $ 842 $ 8,730 $ (3) $ 22,140
Gains from Equipment Sales and Retirements, net 5,102 6 - - 5,108
Equity in Earnings (Losses) of 50% or Less Owned Companies 1,371 270 - (2,816) (1,175)
Minority Interest in Income of Subsidiaries - - - (1,210) (1,210)
Net Interest Expense - - - (6,233) (6,233)
Losses from Commodity Swap Transactions, net - - - (1,079) (1,079)
Gains from Sale of Marketable Securities - - - 2,351 2,351
Corporate Expenses - - - (2,754) (2,754)
Income Taxes - - - (5,628) (5,628)
----------- ---------------- ------------- --------------- -------------
Income before Extraordinary Item $ 19,044 $ 1,118 $ 8,730 $ (17,372) $ 11,520
===================================================================================================================================
FOR THE SIX MONTHS ENDED JUNE 30, 1999:
Operating Revenues -
External Customers $ 134,208 $ 10,522 $ 528 $ 938 $ 146,196
Intersegment - 106 - (106) -
----------- ---------------- ------------- --------------- -------------
Total $ 134,208 $ 10,628 $ 528 $ 832 $ 146,196
=========== ================ ============= =============== =============
Operating Profit (Loss) $ 26,949 $ 2,118 $ (541) $ 58 $ 28,584
Gains from Equipment Sales and Retirements, net 954 1 - - 955
Equity in Earnings (Losses) of 50% or Less Owned Companies 2,209 412 - (495) 2,126
Minority Interest in Income of Subsidiaries - - - (275) (275)
Net Interest Income - - - 229 229
Gains from Commodity Swap Transactions, net - - - 66 66
Losses from Sale of Marketable Securities - - - (740) (740)
Corporate Expenses - - - (2,051) (2,051)
Income Taxes - - - (9,398) (9,398)
----------- ---------------- ------------- --------------- -------------
Income before Extraordinary Item $ 30,112 $ 2,531 $ (541) $ (12,606) $ 19,496
===================================================================================================================================
16
OFFSHORE MARINE SERVICES
OPERATING REVENUES. The Company's offshore marine service segment operating
revenues increased $2.7 million, or 4%, in the three-month period ended June 30,
2000 compared to the three-month period ended June 30, 1999 and decreased $9.5
million, or 7%, in the six-month period ended June 30, 2000 compared to the
six-month period ended June 30, 1999. The three and six-month periods ended June
30, 2000 included an increase in operating revenues due to the acquisition of
the Boston Putford standby safety vessel fleet, the consolidation of Energy
Logistics, Inc. and its subsidiaries' ("ELI") financial results with those of
the Company, and the entry into service of vessels both constructed for and
chartered-in by the Company. These increases were offset by a decline in
operating revenues between comparable three and six-month periods due primarily
to lower utilization and rates per day worked, the sale of vessels, and an
increase in the number of vessels bareboat chartered-out.
Operating revenues declined approximately $3.4 million and $11.9 million between
comparable quarters and six-month periods, respectively, due primarily to lower
utilization of the Company's fleet of supply/towing supply, anchor handling
towing supply, utility, and standby safety vessels. $2.5 million and $0.9
million of the decrease between comparable quarters and $10.0 million and $1.9
million of the decrease between comparable six-month periods occurred in the
Company's foreign and domestic operations, respectively. These decreases were
offset by a rise in operating revenues resulting primarily from an increase in
the number of days worked by the Company's domestic crew vessels. Operating
revenues also declined approximately $2.7 million and $10.3 million between
comparable quarters and six-month periods, respectively, due primarily to lower
rates per day worked in the Company's fleet of supply/towing supply, anchor
handling towing supply, and standby safety vessels.
During 1999 and the first six months of 2000, there was a slight increase in the
size of the Company's fleet. The construction, acquisition, and bareboat
charter-in of 17 standby safety (the Boston Putford fleet), 5 crew, 4 anchor
handling towing supply, 3 supply/towing supply, and 2 utility vessels resulted
in a $10.6 million and $15.1 million increase in operating revenues between
comparable three and six-month periods, respectively. The sale and charter-in
cancellation of 9 utility, 7 crew, 6 anchor handling towing supply, 4
supply/towing supply, and 1 project vessel resulted in a $4.4 million and $6.1
million decline in operating revenues between comparable three and six-month
periods, respectively. Operating revenues also declined $0.9 million and $2.5
million between comparable three and six-month periods, respectively, as certain
vessels previously operated by the Company have been bareboat chartered-out.
During December 1999, the Company acquired a majority ownership interest in ELI,
one of the Company's providers of logistics services that include shorebase,
marine transport, and other supply chain management services in support of
offshore exploration and production operations. From December 1999, the
financial condition, results of operations, and cash flows of ELI are reflected
in the Company's consolidated financial statements. Prior to that date, the
Company reported its interest in ELI as an investment in a 50% or less owned
company that was accounted for under the equity method. Operating revenues rose
by $3.2 million and $5.9 million in the three and six-month periods ended June
30, 2000, respectively, due to the consolidation of ELI with the Company.
OPERATING PROFIT. The Company's offshore marine segment operating profit
declined $3.0 million, or 34%, and $14.4 million, or 53%, in the three and
six-month periods ended June 30, 2000, respectively, compared to the three and
six-month periods ended June 30, 1999 due primarily to those factors adversely
affecting operating revenues as outlined above. Operating profits also declined
between comparable periods due to an increase in insurance deductible expenses
under policies that provide hull and machinery and protection and
indemnification coverage to the Company. Deductible expenses associated with
damage to machinery and equipment aboard anchor handling towing supply vessels
and personal injury claims aboard crew vessels increased between periods. At
June 30, 2000, the Company had 32 vessels out of service due to weak demand and
low rates per day worked, including 29 that require drydocking prior to
re-entering operations. Vessels out of service were primarily from the Company's
utility fleet that operated in the U.S. Gulf of Mexico.
GAINS FROM EQUIPMENT SALES OR RETIREMENTS, NET. Net gains from equipment sales
increased $1.9 million and $4.1 million in the three and six-month periods ended
June 30, 2000, respectively, compared to the three and six-month periods ended
June 30, 1999. 5 utility, 2 towing supply, 2 supply, and 1 crew vessel were sold
in 2000, and 10 crew and 1 utility vessel were sold in 1999. In 1999, the
17
Company deferred the recognition of certain gains realized in connection with
the sale of 5 crew vessels that were subsequently leased-back; no sale and
leaseback transactions occurred in 2000. Gains realized in sale and leaseback
transactions have been deferred to the extent of the present value of the
minimum lease payments over the applicable lease terms and are being credited to
income as reductions in rental expense over the lease terms.
EQUITY IN EARNINGS (LOSSES) OF 50% OR LESS OWNED COMPANIES. Equity earnings
increased $0.1 million in the three-month period ended June 30, 2000 compared to
the three-month period ended June 30, 1999 and declined $0.8 million in the
six-month period ended June 30, 2000 compared to the six-month period ended June
30, 1999. Profits improved between comparable quarters due primarily to a
reduction in repair and maintenance expenses. Between comparable six-month
periods, operating profits declined in the SMIT and TMM Joint Ventures due
primarily to lower rates per day worked and utilization and a decrease in the
size of the fleets they operated resulting from vessel sales and terminations of
certain vessel charters.
ENVIRONMENTAL SERVICES
OPERATING REVENUES. The environmental business segment's operating revenues
increased $1.2 million, or 22%, and $0.3 million, or 3% in the three and
six-month periods ended June 30, 2000, respectively, compared to the three and
six-month periods ended June 30, 1999 due primarily to an increase in the number
and severity of oil spills managed by the Company. OPERATING PROFIT. The
environmental business segment's operating profit decreased $0.6 million, or
50%, and $1.3 million, or 60%, in the three and six-month periods ended June 30,
2000, respectively, compared to the three and six-month periods ended June 30,
1999 due primarily to an increase in operating expenses resulting primarily from
the addition of a marine operating base in St. Croix and higher drydocking
expenses. The expansion of operations in the Caribbean was pursuant to a 10-year
contract with a major customer.
EQUITY IN EARNINGS (LOSSES) OF 50% OR LESS OWNED COMPANIES. Equity earnings
decreased $0.1 million in the three and six-month periods ended June 30, 2000
compared to the three and six-month periods ended June 30, 1999 due primarily to
a decrease in the severity of oil spills managed by CPA.
DRILLING SERVICES
OPERATING REVENUES. The drilling business segment's operating revenues increased
$13.8 million and $22.1 million in the three and six-month periods ended June
30, 2000, respectively, compared to the three and six-month periods ended June
30, 1999. The Chiles Columbus was placed in service during June 1999 and the
Chiles Magellan was placed in service during November 1999. Prior to such time,
and since its inception, Chiles has not engaged in operations other than
managing construction of the Rigs and related matters. Revenues also increased
due to the commencement of operations in April 2000 of the Tonala.
OPERATING PROFIT. The drilling business segment's operating profit increased
$6.2 million and $9.3 million in the three and six-month periods ended June 30,
2000, respectively, compared to the three and six-month periods ended June 30,
1999 due primarily to the factors affecting revenues outlined above. Prior to
the delivery and commissioning of the Rigs, Chiles had incurred operating
losses.
OTHER
EQUITY IN LOSSES OF 50% OR LESS OWNED COMPANIES. Equity losses in the three and
six-month periods ended June 30, 2000 resulted primarily from the Company's
recognition of its share of the operating losses of Globe Wireless, LLC ("Globe
Wireless"). Due to an ability to significantly influence the operating
activities of Globe Wireless, the Company began accounting for its investment in
Globe Wireless under the equity method during the second quarter of 1999. Prior
to this time, the Company carried its investment in Globe Wireless at cost.
NET INTEREST INCOME (EXPENSE). During the three and six-month periods ended June
30, 2000, the Company incurred net interest expense totaling $3.3 million and
$6.2 million, respectively; whereas, in the comparable three and six-month
periods ended June 30, 1999, the Company realized net interest expense totaling
$0.3 million and net interest income totaling $0.2 million, respectively.
Interest expense rose between comparable periods due primarily to a decline in
interest capitalized after substantial completion of the Company's offshore
marine vessel and rig construction programs in 1999. This increase was partially
offset by lower interest expense resulting primarily from a decline in
outstanding indebtedness pursuant to the Company's debt repurchase program and
entry into swap agreements with respect to the Chiles 10% Notes. A reduction in
18
funds invested in interest bearing securities due primarily to the Company's use
of cash for the purchase of property and equipment and Common Stock and
retirement of certain indebtedness resulted in a decline in interest income.
During the first six months of 2000 and 1999, the Company capitalized interest
of $0.5 million and $6.1 million, respectively, with respect to the construction
of rigs and offshore marine vessels.
GAINS (LOSSES) FROM COMMODITY SWAP TRANSACTIONS, NET. During the three and
six-month periods ended June 30, 2000, the Company recognized a net loss of $0.7
million and $1.1 million, respectively, from commodity price hedging
arrangements; whereas, in the three and six-month periods ended June 30, 1999,
the Company recognized a net loss of $0.3 million and a net gain of $0.1
million, respectively. During the first six months of 2000, the net loss was due
primarily to the settlement prices quoted on the New York Mercantile Exchange
("NYMEX") exceeding the contract prices for various natural gas and crude oil
positions; whereas, during the first six months of 1999, the net gain was due
primarily to the contract prices exceeding the settlement prices quoted on the
NYMEX for various natural gas and crude oil positions.
GAINS (LOSSES) FROM SALE OF MARKETABLE SECURITIES, NET. During the three and
six-month periods ended June 30, 2000, the Company realized net gains of $0.4
million and $2.4 million, respectively. During the first six months of 2000, the
net gain resulted primarily from the sale of equity securities during periods
when the market values were greater than those at the dates of purchase. These
gains were partially offset by losses realized from the sale of interest bearing
securities during periods when interest rates exceeded those in effect at the
dates of purchase. The Company realized net gains of $0.2 million and net losses
of $0.7 million during the three and six-month periods ended June 30, 1999,
respectively. Losses during the first six months of 1999 resulted primarily from
the sale of interest bearing securities during periods when interest rates
exceeded those in effect at the dates of purchase.
CORPORATE EXPENSES. In the three and six-month periods ended June 30, 2000
compared to the three and six-month periods ended June 30, 1999, corporate
expenses increased $0.4 million and $0.7 million, respectively, due primarily to
an increase in wage and related benefit costs.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company's ongoing liquidity requirements arise primarily from its
need to service debt, fund working capital, acquire, construct, or improve
equipment and make other investments. Management believes that cash flow from
operations will provide sufficient working capital to fund the Company's
operating needs. The Company may, from time to time, issue shares of its common
stock, preferred stock, debt or a combination thereof, or sell vessels to
finance the acquisition of equipment and businesses or make improvements to
existing equipment.
The Company's cash flow levels and operating revenues are determined primarily
by the size of the Company's offshore marine vessel and rig fleets, rates per
day worked and overall utilization of the Company's offshore marine vessels, and
retainer, spill response, and consulting activities of the Company's
environmental service business. The Company's marine and drilling service
businesses are directly affected by the volatility of oil and gas prices, the
level of offshore production and exploration activity, and other factors beyond
the Company's control.
CASH AND MARKETABLE SECURITIES. Since December 31, 1999, the Company's cash and
investments in marketable securities decreased by $9.1 million. At June 30,
2000, cash and marketable securities totaled $264.4 million, including $175.9
million of unrestricted cash and cash equivalents, $77.7 million of marketable
securities, and $10.8 million of restricted cash. Restricted cash at June 30,
2000 is intended for use in defraying costs to construct offshore marine vessels
for the Company. At June 30, 2000, the Company had funded $6.0 million in
offshore marine vessel construction costs from unrestricted cash balances, and
subject to prior written approval from the Maritime Administration, the Company
expects such amounts to be reimbursed from its restricted cash accounts. See
discussion below regarding Cash Generation and Deployment.
STOCK AND DEBT REPURCHASE PROGRAM. In March 2000, SEACOR's Board of Directors
increased its previously announced securities repurchase authority by $15.0
million. The securities covered by this repurchase program (the "Stock and Debt
Repurchase Program") include Common Stock, the Company's 5 3/8% Convertible
Subordinated Notes Due 2006, the Company's 7.2% Senior Notes Due 2009, and the
Chiles 10% Notes (collectively, the "SEACOR Securities"). Repurchases of SEACOR
Securities will be effected from time to time through open market purchases,
19
privately negotiated transactions, or otherwise, depending on market conditions.
In the six-month period ended June 30, 2000, the Company acquired 103,900 shares
of Common Stock (157,400 shares after adjustment for the stock split) and $0.01
million principal amount of the Chiles 10% Notes for an aggregate cost of $4.8
million. At June 30, 2000, the Company had approximately $36.9 million of
available authority for the repurchase of additional SEACOR Securities.
CAPITAL STRUCTURE. At June 30, 2000, the Company's capital structure was
comprised of $461.4 million in long-term debt, including the current portion,
and $522.6 million in stockholders' equity. Since year end, long-term debt
declined due primarily to Chiles' repayment of $15.0 million previously borrowed
under its revolving credit facility and the Company's regularly scheduled
repayment of outstanding indebtedness. This decline in long-term debt was
partially offset by the issuance of fixed coupon notes in connection with the
acquisition of Boston Putford. Stockholders' equity rose since year end due
primarily to an increase in retained earnings from net income, the issuance of
Common Stock from treasury in connection with the acquisition of Boston Putford,
and an increase in other comprehensive income that resulted from unrealized
gains on available-for-sale securities. This increase was partially offset by a
decline resulting from the Company's repurchase of Common Stock.
On May 23, 2000, SEACOR's Board of Directors authorized a three-for-two stock
split effected in the form of a dividend that was distributed on June 15, 2000.
Shareholders of record as of June 2, 2000 received one additional share of
Common Stock for every two shares they owned on that date, and 7,137,801 shares
were distributed.
CASH GENERATION AND DEPLOYMENT. Cash flow provided from operating activities
during the six-month period ended June 30, 2000 totaled $19.6 million and
increased between comparable quarters due primarily to the commencement of rig
operations and the favorable effect of changes in working capital. This increase
was partially offset by the adverse effect of lower utilization and rates per
day worked of the Company's offshore marine vessels.
During the six-month period ended June 30, 2000, the Company generated $67.8
million from investing and financing activities. Available-for-sale securities
were sold for $19.5 million. Chiles completed an offering of membership
interests and the Company realized $17.7 million, net of offering costs. After
giving effect to this offering, SEACOR's equity interest in Chiles declined from
58.3% to 55.4%. Ten offshore support vessels were sold for $12.6 million.
Restricted cash balances declined by $11.2 million as withdrawals from vessel
joint depository construction reserve fund accounts exceeded deposits into such
accounts generated from the sale of equipment. Dividends received from 50% or
less owned companies totaled $6.3 million. Additional cash was generated
primarily from the exercise of employee stock options.
During the six-month period ended June 30, 2000, the Company used $89.4 million
in its investing and financing activities. Capital expenditures for property and
equipment, primarily related to rig construction and the acquistion and
construction of offshore marine vessels, totaled $34.3 million. Marketable
securities were acquired for $17.4 million. Chiles repaid $15.0 million of
outstanding indebtedness borrowed under the Amended Chiles Bank Facility, as
defined below. The Company paid $14.7 million to acquire Boston Putford, net of
cash acquired, and VOL's equity interest in the VEESEA Joint Venture. SEACOR
Securities were repurchased pursuant to the Stock and Debt Repurchase Program
for $4.8 million. Additional cash was used primarily for scheduled repayments of
outstanding indebtedness, advances to 50% or less owned companies for the
purchase of vessels, and the settlement of certain commodity price hedging
arrangements.
CAPITAL EXPENDITURES. As of June 30, 2000, the Company was committed to the
construction of nine crew vessels for an approximate aggregate cost of $39.0
million, of which $3.2 million has been expended. The crew vessels are expected
to enter service during the next two years.
Chiles has contracted to build the Chiles Discovery, at Keppel shipyard in
Singapore for a cost estimated not to exceed $110.0 million, including equipment
furnished by the owner. At June 30, 2000, Chiles had expended $15.3 million
toward the construction of the Chiles Discovery. Subject to successful
completion of the Chiles IPO, Chiles also intends to have Keppel build the New
Option Rig at a cost estimated not to exceed $112.0 million.
At June 30, 2000, the Company was committed to acquire 24 newly constructed
hopper barges for an approximate aggregate cost of $6.3 million. Delivery of the
barges is expected during the third quarter of 2000.
At December 31, 1999, joint venture corporations, in which the Company owns a
50% equity interest, were committed to the construction of two Handymax Dry-Bulk
20
ships. During 2000, one of the ships was sold; however, one of the joint
ventures remains committed to the construction of one ship for an approximate
cost of $19.5 million, 75% of which is expected to be financed from external
sources. The ship is expected to enter service in 2001.
CREDIT FACILITIES. Under the terms of an unsecured reducing revolving credit
facility (the "DnB Credit Facility") with Den norske Bank ASA that was
established in November 1998, the Company may borrow up to $100.0 million
aggregate principal amount (as such amount may be adjusted, the "Maximum
Committed Amount") of unsecured reducing revolving credit loans maturing on
November 17, 2004. The Maximum Committed Amount will automatically decrease
semi-annually by 4.54% beginning November 17, 1999, with the balance payable at
maturity. Outstanding borrowings will bear interest at annual rates ranging from
45 to 110 basis points (the "Margin") above LIBOR. The Margin is determined
quarterly and varies based upon the percentage the Company's funded debt bears
to EBITDA, as defined, and/or the credit rating maintained by Moody's and
Standard & Poor's, if any. The DnB Credit Facility requires the Company, on a
consolidated basis, to maintain a minimum ratio of vessels' values to Maximum
Committed Amount, a minimum cash and cash equivalent level, a specified interest
coverage ratio, specified debt to capitalization ratios, and a minimum net
worth. The DnB Credit Facility limits the amount of secured indebtedness that
the Company and its subsidiaries may incur, provides for a negative pledge with
respect to certain activities of the Company's vessel owning/operating
subsidiaries, and restricts the payment of dividends. At June 30, 2000, the
Company had approximately $90.9 million available for future borrowings under
the DnB Credit Facility.
During April 1998, Chiles entered into a bank credit agreement that provided for
a $25.0 million revolving credit facility (the "Chiles Bank Facility") maturing
December 31, 2004. In December 1999, the Chiles Bank Facility was amended and
available borrowings rose from $25.0 million to $40.0 million (the "Amended
Chiles Bank Facility"). The Amended Chiles Bank Facility provides for a floating
interest rate of LIBOR plus 1 3/8% per annum (approximately 7.9% at June 30,
2000) on amounts outstanding under the Amended Chiles Bank Facility and provides
for repayment of such amounts in eight quarterly installments of $1.875 million
beginning March 31, 2003, followed by eight quarterly installments of $3.125
million, with the remaining balance payable on December 31, 2006.
The subsidiaries of Chiles that own the Rigs (the "Guarantors") guarantee the
Amended Chiles Bank Facility and such guarantees are secured by first priority
mortgages on the Rigs, assignment of earnings of the Rigs (which may continue to
be collected by Chiles unless there occurs an event of default), and assignments
of insurance proceeds. The Amended Chiles Bank Facility contains customary
affirmative covenants, representations, and warranties and is cross-defaulted to
the related promissory notes; provided, however, should there occur an event of
default under the Amended Chiles Bank Facility (other than arising from
enforcement actions undertaken by a holder of other indebtedness of Chiles,
enforcement actions arising from in rem claims against either of the Rigs or
bankruptcy events with respect to Chiles or a Rig Owner), the lenders under the
Amended Chiles Bank Facility have agreed on a one-time basis not to enforce
remedies for a period of 60 days during which the holders of the Chiles 10%
Notes (the "Noteholders") or Chiles may cure such event of default or prepay all
of the indebtedness outstanding under the Amended Chiles Bank Facility. The
Amended Chiles Bank Facility also contains certain negative covenants applicable
to Chiles and the Guarantors, including prohibitions against the following:
certain liens on the collateral under the Amended Chiles Bank Facility; material
changes in the nature of their business; sale or pledge of an Guarantor's
membership interests; sale or disposition of a Rig or other substantial assets;
certain changes in office locations; consolidation or mergers; certain
Restricted Payments (as defined in the Amended Chiles Bank Facility), including
distributions on membership interests in Chiles (the "Membership Interests");
the exercise of a right to call the Chiles 10% Notes; or any material amendment
or modification of the Indenture. The Amended Chiles Bank Facility further
requires Chiles to prevent the Guarantors from making certain loans and
advances, except in their normal course of business or to certain affiliates;
assuming, guaranteeing or (except in their ordinary course of business)
otherwise becoming liable in connection with any obligation other than
guarantees for the benefit of the lenders under the Amended Chiles Bank
Facility, guarantees in favor of the Noteholders or pre-existing guaranties;
paying out any funds, except in their ordinary course of business for the
business of Chiles or service of certain indebtedness permitted under the
Amended Chiles Bank Facility; and issuing or disposing of any of their own
membership interests (except to Chiles). In addition, the Amended Chiles Bank
Facility requires that the fair market value of the Rigs, as determined by
appraisers appointed by the lenders thereunder, at all times equals or exceeds
200% of indebtedness outstanding under the Amended Chiles Bank Facility. At June
21
30, 2000, Chiles had $33.0 million available for future borrowings under the
Amended Chiles Bank Facility.
Chiles has received a commitment for a new $120.0 million bank facility (the
"New Chiles Bank Facility"), which would replace the Amended Chiles Bank
Facility. Subject to successful completion of the Chiles IPO, Chiles expects to
enter into a definitive credit agreement during the third quarter of this year.
The New Chiles Bank Facility will be secured by ship mortgages on the Chiles
Columbus and the Chiles Magellan, as well as assignments of the construction
contract and related agreements regarding the New Option Rig. The New Chiles
Bank Facility will bear interest at a variable rate equal to LIBOR plus a margin
ranging between 150 to 200 basis points, depending on the extent of Chiles'
borrowings. The commitment letter provides that the new facility will be a
reducing revolving bank facility with a seven-year maturity. The New Chiles Bank
Facility is expected to contain a number of restrictive covenants that would
include the maintenance of certain financial ratios and limitations on levels of
indebtedness.
In connection with ordering the construction of the Chiles Discovery, Chiles
signed a commitment letter with a Non-U.S. based lender, which is affiliated
with the shipyard, to provide a maximum of $82.0 million of floating rate debt
to partially fund construction of the Chiles Discovery. The commitment letter
relating to this loan provides for an interest rate equal to LIBOR plus 200
basis points on a $75.0 million term loan due upon the earlier of 22 months from
Chiles' first borrowing or delivery of the Chiles Discovery and LIBOR plus 300
basis points on a $7.0 million revolving loan available to pay interest on the
term loan. Chiles will be able to refinance the entire facility for an
additional 18 months at a fixed rate to be determined at that time based on a
bank cost of funds rate plus 300 basis points. Chiles expects to enter into a
definitive loan agreement during the third quarter of 2000, but there is no
assurance that Chiles will be able to successfully negotiate such agreement.
Chiles expects the loan will be secured by a first mortgage on the Chiles
Discovery and any other assets held by the rig owning subsidiary of Chiles. For
additional information concerning the construction of the Chiles Discovery, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Drilling Services."
STOCK PURCHASE AND OPTION PLANS. On May 23, 2000, the stockholders of SEACOR
approved the 2000 Employee Stock Purchase Plan (the "Stock Purchase Plan") that
permits SEACOR to offer Common Stock for purchase by eligible employees at a
price equal to 85% of the lesser of (i) the fair market value of the Common
Stock on the first day of the offering period or (ii) the fair market value of
the Common Stock on the last day of the offering period. Common Stock will be
offered for purchase under the Stock Purchase Plan for six-month periods.
300,000 shares of Common Stock are available for issuance under the Stock
Purchase Plan during the ten years following its adoption.
Eligible employees may accumulate savings through payroll deductions over an
offering period in order to purchase Common Stock at the end of such period.
Purchases of Common Stock under the Stock Purchase Plan may only be made with
accumulated savings from payroll deductions, and an employee cannot complete
such purchases using other resources. All employees who have been continuously
employed by SEACOR's participating subsidiaries for at least six months and who
regularly work more than 20 hours a week and more than five months a year are
eligible to participate in the Stock Purchase Plan.
The Stock Purchase Plan is intended to comply with section 423 of the Internal
Revenue Code of 1986, as amended (the "Code") but is not intended to be subject
to section 401(a) of the Code or the Employee Retirement Income Security Act of
1974. The Board of Directors of SEACOR may amend or terminate the Stock Purchase
Plan at any time; however, no increase in the number of shares of Common Stock
reserved for issuance under the Stock Purchase Plan may be made without
shareholder approval.
On May 23, 2000, the stockholders of SEACOR approved a 2000 Stock Option Plan
for Non-Employee Directors (the "Non-Employee Director Plan"). Under the
Non-Employee Director Plan, each member of the Board of Directors who is not an
employee of SEACOR or any subsidiary will be granted an option to purchase 3,000
shares of Common Stock on the date of each annual meeting of the stockholders of
SEACOR through and including the 2004 Annual Meeting of Stockholders. The
exercise price of the options granted under the Non-Employee Director Plan will
be equal to 100% of the fair market value per share of Common Stock on the date
the options are granted. 150,000 shares of Common Stock have been reserved for
issuance under the Non-Employee Director Plan.
Options granted under the Non-Employee Director Plan will be exercisable at any
time following the earlier of the first anniversary of, or the first annual
meeting of SEACOR's stockholders after, the date of grant, for a period of up to
22
ten years from date of grant. Subject to the accelerated vesting of options upon
a non-employee Director's death or disability, if a non-employee Director's
service as a director of SEACOR is terminated, his or her options will terminate
with respect to the shares of Common Stock as to which such options are not then
exercisable. A non-employee Director's options that are vested but not exercised
may, subject to certain exceptions, be exercised within three months after the
date of termination of service as a director in the case of termination by
reason of voluntary retirement, failure of SEACOR to nominate such director for
re-election or failure of such director to be re-elected by stockholders after
nomination by SEACOR, or within one year in the case of termination of service
as a director by reason of death or disability.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair market value. SFAS 133 requires that changes in the derivative's fair
market value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" ("SFAS 137"). SFAS 137 is an amendment of SFAS 133
and defers the effective date of SFAS 133 to fiscal years beginning after June
15, 2000. The Company has not yet quantified the impact on its financial
statements but does not believe adoption will have a material impact on net
income, comprehensive income, and accumulated other comprehensive income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has foreign currency exchange risks primarily related to its
offshore marine service vessel operations that are conducted from ports located
in the United Kingdom, where its functional currency is pounds sterling. To
protect certain of the U.S. dollar value of pound sterling denominated net
assets of the Company from the effects of volatility in foreign exchange rates
that might occur prior to their conversion to U.S. dollars, the Company has
entered into forward exchange contracts. The forward exchange contracts enable
the Company to sell pounds sterling in the future at fixed exchange rates to
offset the consequences of changes in foreign exchange on the amount of U.S.
dollar cash flows to be derived from the net assets. The Company considers these
forward exchange contracts as economic hedges of a net investment of its United
Kingdom subsidiaries' net assets.
The Company has entered into and settled various positions in natural gas and
crude oil via swaps, options, and futures contracts pursuant to which, on each
applicable settlement date, the Company receives or pays an amount, if any, by
which a contract price for a swap, an option, or a futures contract exceeds the
settlement price quoted on the NYMEX or receives or pays the amount, if any, by
which the settlement prices quoted on the NYMEX exceeds the contract price. The
general purpose of these hedge transactions is to provide value to the Company
should the price of natural gas and crude oil decline, which, if sustained,
would lead to a decline in the Company's offshore assets' market values and cash
flows. For accounting purposes, the Company records the change in market value
of its commodity contracts at the end of each month and recognizes a related
gain or loss. At June 30, 2000, the Company's positions in commodity contracts
were not material.
In order to reduce its cost of capital, the Company entered into swap agreements
during 1999 with a major financial institution with respect to notional amounts
equal to a portion of the outstanding principal amount of the Chiles 10% Notes.
Pursuant to each such agreement, such financial institution has agreed to pay to
the Company an amount equal to interest paid by Chiles on the notional amount of
Chiles 10% Notes subject to such agreement, and the Company has agreed to pay to
such financial institution an amount equal to interest currently at the rate of
approximately 6.9% per annum on the agreed upon price of such notional amount of
Chiles 10% Notes as set forth in the applicable swap agreement.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 2000 Annual Meeting of Stockholders of SEACOR was held on
May 23, 2000 (the "Annual Meeting").
(b) At the Annual Meeting, Messrs. Charles Fabrikant, Granville E.
Conway, Michael E. Gellert, Stephen Stamas, Richard M.
Fairbanks III, Pierre de Demandolx, Antoon Kienhuis, and
Andrew R. Morse were elected as directors to serve until the
2001 Annual Meeting of Stockholders of SEACOR or until their
respective successors are earlier elected and qualified.
10,389,623 shares were voted in favor of the election of
Charles Fabrikant with 28,390 shares against. 10,360,938
shares were voted in favor of the election of Granville E.
Conway with 57,075 shares against. 10,389,923 shares were
voted in favor of the election of Michael E. Gellert with
28,090 shares against. 10,389,923 shares were voted in favor
of the election of Stephen Stamas with 28,090 shares against.
10,389,321 shares were voted in favor of the election of
Richard M. Fairbanks III with 28,692 shares against.
10,389,521 shares were voted in favor of the election of
Pierre de Demandolx with 28,492 shares against. 10,389,923
shares were voted in favor of the election of Antoon Kienhuis
with 28,090 shares against. 10,389,923 shares were voted in
favor of the election of Andrew Morse with 28,090 shares
against. There were no shares withheld.
(c) At the Annual Meeting, SEACOR's stockholders ratified the
appointment of Arthur Andersen LLP to serve as SEACOR's
independent auditors for the fiscal year ending December 31,
2000. 10,416,848 shares were voted in favor of the appointment
of Arthur Andersen LLP with 880 shares voted against such
appointment and 285 withheld. 10,385,829 shares were voted in
favor to approve the 2000 Employee Stock Purchase Plan with
29,909 against such approval and 2,275 withheld. 10,173,405
shares were voted in favor to approve the 2000 Stock Option
Plan for Non-Employee Directors with 239,999 against such
approval and 4,609 withheld.
Numbers of shares reported in this Item 4. Submission of Matters to a Vote of
Security Holders represent actual shares voted and have not been restated to
reflect the June 15, 2000 stock split.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
10.1 SEACOR SMIT Inc. 2000 Stock Option Plan for Non-Employee Directors.
10.2 Platform Construction Agreement by and between Keppel FELS Limited and
Chiles Offshore LLC, dated April 6, 2000.
10.3 Agreement with respect to Ownership of the Tonala dated as of July 20,
2000, among Chiles Offshore LLC, Perforadora Central, S.A. de C.V.,
Grupo Industrial Atlantida, S.A. de C.V. and the individuals identified
therein.
27.1 Financial Data Schedule.
B. Reports on Form 8-K:
Current Report on Form 8-K, dated June 15, 2000, and filed with the
Securities and Exchange Commission on June 16, 2000.
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SIGNATURES
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.
SEACOR SMIT Inc.
(Registrant)
DATE: AUGUST 14, 2000 By: /s/ Charles Fabrikant
-----------------------------------------
Charles Fabrikant, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
DATE: AUGUST 14, 2000 By: /s/ Randall Blank
-----------------------------------------
Randall Blank, Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
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INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
10.1 SEACOR SMIT Inc. 2000 Stock Option Plan for Non-Employee Directors.
10.2 Platform Construction Agreement by and between Keppel FELS Limited and
Chiles Offshore LLC, dated April 6, 2000.
10.3 Agreement with respect to Ownership of the Tonala dated as of July 20,
2000, among Chiles Offshore LLC, Perforadora Central, S.A. de C.V.,
Grupo Industrial Atlantida, S.A. de C.V. and the individuals identified
therein.
27.1 Financial Data Schedule
26