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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 September 30, 2000 or
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[ ] 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, Suite 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 November 7, 2000 was 16,995,400. The Registrant has no other
class of Common Stock outstanding.
73293.0004
SEACOR SMIT INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999................................................1
Condensed Consolidated Statements of Operations for each of the
Three and Nine-Month Periods Ended September 30, 2000 and 1999..........................2
Condensed Consolidated Statements of Cash Flows
for each of the Nine-Month Periods Ended September 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.....................................22
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K...............................................................23
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA, UNAUDITED)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents .................................................. $ 222,158 $ 178,509
Marketable securities (available-for-sale) ................................. 23,214 18,196
Trade and other receivables, net of allowance for
doubtful accounts of $1,502 and $1,567, respectively .................... 81,120 69,501
Prepaid expenses and other ................................................. 4,660 15,810
----------- -----------
Total current assets ................................................. 331,152 282,016
----------- -----------
Investments, at Equity, and Receivables from 50% or Less Owned Companies ...... 133,817 77,276
Available-for-Sale Securities ................................................. 64,820 54,809
Property and Equipment ........................................................ 737,868 859,012
Less - Accumulated depreciation ............................................ 185,087 143,815
----------- -----------
Net property and equipment ........................................... 552,781 715,197
----------- -----------
Restricted Cash ............................................................... 14,313 21,985
Other Assets .................................................................. 25,895 45,708
----------- -----------
$ 1,122,778 $ 1,196,991
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .......................................... $ 2,953 $ 2,832
Accounts payable and accrued expenses ...................................... 20,588 29,757
Other current liabilities .................................................. 48,854 16,403
----------- -----------
Total current liabilities ............................................ 72,395 48,992
----------- -----------
Long-term Debt ................................................................ 378,386 465,661
Deferred Income Taxes ......................................................... 114,643 101,704
Deferred Gains and Other Liabilities .......................................... 16,925 35,783
Minority Interest in Subsidiaries ............................................. 5,065 36,721
Stockholders' Equity:
Common stock, $.01 par value, 21,426,738 and 21,353,259 issued, respectively 214 214
Additional paid-in capital ................................................. 278,184 274,979
Retained earnings .......................................................... 391,033 368,022
Less 4,431,338 and 4,401,426 treasury shares, respectively ................. (131,888) (131,183)
Less unamortized restricted stock compensation ............................. (1,684) (1,110)
Accumulated other comprehensive losses ..................................... (495) (2,792)
----------- -----------
Total stockholders' equity ........................................... 535,364 508,130
----------- -----------
$ 1,122,778 $ 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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Operating Revenues................................................ $ 93,552 $ 71,894 $ 251,640 $ 218,090
----------- ----------- ----------- -----------
Costs and Expenses:
Operating expenses............................................. 56,913 42,089 150,521 124,960
Administrative and general..................................... 10,231 8,692 29,245 25,260
Depreciation and amortization.................................. 13,782 10,774 38,771 29,902
----------- ----------- ----------- -----------
80,926 61,555 218,537 180,122
----------- ----------- ----------- -----------
Operating Income.................................................. 12,626 10,339 33,103 37,968
----------- ----------- ----------- -----------
Other Income (Expense):
Interest on debt............................................... (6,792) (4,690) (21,146) (15,906)
Interest income................................................ 4,273 4,201 12,394 15,646
Gain from equipment sales, net................................. 1,824 852 6,932 1,807
Gain upon sale of shares of Chiles............................. 4,023 - 4,023 -
Derivative income (loss), net.................................. 6,696 (943) 5,617 (877)
Other, net..................................................... 1,471 125 2,731 (1,711)
----------- ----------- ----------- -----------
11,495 (455) 10,551 (1,041)
----------- ----------- ----------- -----------
Income Before Income Taxes, Minority Interest, Equity in Losses
of 50% or Less Owned Companies, net, and Extraordinary Item.... 24,121 9,884 43,654 36,927
Income Tax Expense................................................ 7,857 3,416 14,276 12,746
----------- ----------- ----------- -----------
Income Before Minority Interest, Equity in Losses of 50% or Less
Owned Companies, net, and Extraordinary Item................... 16,264 6,468 29,378 24,181
Minority Interest in (Income) Loss of Subsidiaries................ (2,093) 197 (3,303) (78)
Equity in Losses of 50% or Less Owned Companies, net.............. (2,680) (2,556) (3,064) (498)
----------- ----------- ----------- -----------
Income Before Extraordinary Item.................................. 11,491 4,109 23,011 23,605
Extraordinary Item - Gain from Extinguishment of Debt, net of tax. - 888 - 1,148
----------- ----------- ----------- -----------
Net Income........................................................ $ 11,491 $ 4,997 $ 23,011 $ 24,753
=========== =========== =========== ===========
Basic Earnings Per Common Share:
Income before extraordinary item............................... $ 0.68 $ 0.23 $ 1.36 $ 1.30
Extraordinary item............................................. - 0.05 - 0.06
----------- ----------- ----------- -----------
Net income.................................................... $ 0.68 $ 0.28 $ 1.36 $ 1.36
=========== =========== =========== ===========
Diluted Earnings Per Common Share:
Income before extraordinary item............................... $ 0.62 $ 0.23 $ 1.32 $ 1.27
Extraordinary item............................................. - 0.05 - 0.05
----------- ----------- ----------- -----------
Net income.................................................... $ 0.62 $ 0.28 $ 1.32 $ 1.32
=========== =========== =========== ===========
Weighted Average Common Shares:
Basic.......................................................... 16,920,118 17,959,449 16,870,507 18,212,478
Diluted........................................................ 21,285,243 18,165,290 21,212,144 22,621,778
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)
Nine Months Ended September 30,
2000 1999
--------- ---------
Net Cash Provided by Operating Activities ......................... $ 41,911 $ 11,102
--------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment .............................. (48,903) (116,438)
Proceeds from sale of marine vessels and equipment .............. 14,912 19,212
Purchase of available-for-sale securities ....................... (20,894) (11,943)
Proceeds from sale of available-for-sale securities ............. 53,952 93,064
Investments in and advances to 50% or less owned companies ...... (1,058) (15,873)
Principal payments on notes due from 50% or less owned companies 1,417 3,177
Net decrease in restricted cash .................................... 7,672 36,512
Dividends received from 50% or less owned companies ................ 7,788 11,450
Cash settlements of derivative transactions ..................... (1,245) 3,968
Acquisitions, net of cash acquired .............................. (14,973) (5,115)
Deconsolidation of Chiles
Cash of Chiles Offshore LLC, a deconsolidated subsidiary ........ (11,691) -
Other, net ...................................................... 376 190
--------- ---------
Net cash provided (used) in investing activities ............ (12,647) 18,204
--------- ---------
Cash Flows from Financing Activities:
Payments of long-term debt ...................................... (15,482) (31,169)
Payments of capital lease obligations ........................... (1,248) (1,182)
Payments of a stockholder's loan ................................ (258) (240)
Proceeds from issuance of long-term debt ........................ 112 26,115
Proceeds from exercise of stock options ......................... 379 -
Common stock acquired for treasury .............................. (4,791) (65,520)
Proceeds from membership interest offering of Chiles Offshore LLC 17,651 -
Termination of swap agreements .................................. 19,504 -
Other ........................................................... (102) -
--------- ---------
Net cash provided (used) in financing activities ............ 15,765 (71,996)
--------- ---------
Effect of Exchange Rate Changes on Cash and Cash Equivalents ....... (1,380) (1,056)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ............... 43,649 (43,746)
Cash and Cash Equivalents, Beginning of Period ..................... 178,509 175,267
--------- ---------
Cash and Cash Equivalents, End of Period ........................... $ 222,158 $ 131,521
========= =========
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 nine-month
periods ended September 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 September 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 uses derivative financial instruments to hedge against its exposure
to changes in foreign currencies and prices of natural gas and crude oil. 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. At September 30, 2000,
there were no material unrealized gains or losses on outstanding forward
exchange contracts. The Company has also entered into and settled various
positions in natural gas and crude oil via swaps, options, and futures
contracts. 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. At September 30, 2000, the Company's positions in
commodity contracts were not material.
3. COMPREHENSIVE INCOME --
For the three-month periods ended September 30, 2000 and 1999, total
comprehensive income was $11,948,000 and $5,177,000, respectively. For the
nine-month periods ended September 30, 2000 and 1999, total comprehensive income
was $25,308,000 and $23,030,000, 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
4
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 stock dividend 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. As a result of this stock split, 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 similarly restated.
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 available for purchase under the Stock
Purchase Plan for six-month offering periods. 300,000 shares of Common Stock are
reserved 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
stockholder approval.
6. 2000 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS --
On May 23, 2000, the stockholders of SEACOR approved the 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.
5
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. All computations give effect for the three-for-two stock
split effected June 15, 2000. In the three-month period ended September 30,
1999, the assumed conversion of the Company's convertible subordinated notes and
certain of its stock options and restricted stock grants into 4,211,291 shares
of Common Stock and the add-back to income of interest charges on the
convertible subordinated notes, totaling $1,679,000, were excluded from the
computation of diluted earnings per share as the effect was antidilutive. The
computation of diluted earnings per share for the three-month period ended
September 30, 2000 and the nine-month periods ended September 30, 1999 and 2000
excluded the assumed conversion of certain stock options and restricted stock
grants into 23,263, 46,601, and 25,877 shares, respectively, of Common Stock as
the effect was antidilutive.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------- -----------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
2000
- ----
BASIC EARNINGS PER SHARE:
Income Before Extraordinary Item....... $ 11,491,000 16,920,118 $ 0.68 $ 23,011,000 16,870,507 $ 1.36
======== ========
EFFECT OF DILUTIVE SECURITIES, NET OF
TAX:
Options and Restricted Stock............ - 237,855 - 214,367
Convertible Securities.................... 1,652,000 4,127,270 4,952,000 4,127,270
--------- --------- --------- ---------
DILUTED EARNINGS PER SHARE:
Income Available to Common Stockholders
Plus Assumed Conversions............. $ 13,143,000 21,285,243 $ 0.62 $ 27,963,000 21,212,144 $ 1.32
============ ========== ======== ============= ========== ========
1999
- ----
BASIC EARNINGS PER SHARE:
Income Before Extraordinary Item....... $ 4,109,000 17,959,449 $ 0.23 $ 23,605,000 18,212,478 $ 1.30
======== ========
EFFECT OF DILUTIVE SECURITIES, NET OF
TAX:
Options and Restricted Stock........... - 205,841 - 185,489
Convertible Securities................. - - 5,065,000 4,223,811
--------- --------- --------- ---------
DILUTED EARNINGS PER SHARE:
Income Available to Common Stockholders
Plus Assumed Conversions............. $ 4,109,000 18,165,290 $ 0.23 $ 28,670,000 22,621,778 $ 1.27
=========== ========== ======== ============= ========== ========
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"). Assets indirectly acquired in the acquisition included Boston
Putford's standby safety vessels ("SBSV"), certain joint venture interests, and
fixed assets, for an aggregate purchase price valued at approximately
(pound)23,000,000 ($36,400,000 based on exchange rates in effect on April 19,
2000 and SEACOR's stock price during a period preceding such date). Boston
Putford's SBSV fleet, including vessels held in joint ventures, but excluding
vessels managed for third parties, consisted of 18 vessels operating primarily
in the southern UK sector of the North Sea. The purchase consideration consisted
of (pound)14,200,000 in cash ($22,500,000 based on exchange rates in effect on
April 19, 2000), 125,423 shares of Common Stock (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 an estimated value of
(pound)6,200,000 ($9,800,000 based on exchange rates in effect on April 19,
2000).
In the nine-month period ended September 30, 2000, shipyards completed
construction and delivered to the Company an anchor handling towing supply and
crew vessel and 23 inland river covered hopper barges and 3 bareboat
chartered-in towing supply vessels were acquired. As of September 30, 2000,
payment of the purchase price for 2 of the towing supply vessels, approximating
$14,800,000, has been deferred until termination of existing charter-in
arrangements and the obligation has been reported in Other Current Liabilities
of the accompanying Condensed Consolidated Balance Sheet.
In the nine-month period ended September 30, 2000, the Company sold 14 offshore
6
marine vessels. Gains from those sales and the disposition of other equipment
totaled $6,932,000. 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
service segment conducted its business affairs through Chiles Offshore LLC
("Chiles"), an entity in which the Company owned a majority ownership interest
until its conversion into a corporation (with Chiles renamed "Chiles Offshore
Inc.") and completion of its initial public offering on September 22, 2000.
Chiles' 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 a bareboat chartered-in ultra-premium jackup
drilling rig, the Tonala. Effective September 22, 2000, the Company no longer
consolidates the operating results of Chiles. See additional discussion in Note
10.
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, derivative
income (losses), 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.
7
Marine Environmental Drilling Other Total
--------- -------------- ----------- ------------ ------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000:
Operating Revenues -
External Customers.................................. $ 72,320 $ 6,200 $ 14,724 $ 308a$ 93,552
Intersegment........................................ 76 - - (76) -
--------- -------------- ----------- ------------ ------------
Total............................................. $ 72,396 $ 6,200 $ 14,724 $ 232 $ 93,552
========= ============== =========== ============ ============
Operating Profit...................................... $ 6,721 $ 731 $ 5,885 $ 73 $ 13,410
Gain from Equipment Sales, net........................ 1,821 3 - - 1,824
Equity in Earnings (Losses) of 50% or Less Owned Companies (2,074) 135 74 (1,166) (3,031)
Minority Interest in Income of Subsidiaries........... - - - (2,093) (2,093)
Interest Income....................................... - - - 4,273 4,273
Interest Expense...................................... - - - (6,792) (6,792)
Derivative Income, net................................ - - - 6,696 6,696
Gain from Sale of Marketable Securities, net.......... - - - 2,057 2,057
Gain Upon Sale of Shares of Chiles.................... - - - 4,023 4,023
Corporate Expenses.................................... - - - (1,370) (1,370)
Income Taxes......................................... - - - (7,506) (7,506)
--------- -------------- ----------- ------------ ------------
Income (Loss) before Extraordinary Item............. $ 6,468 $ 869 $ 5,959 $ (1,805)$ 11,491
==============================================================================================================================
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999:
Operating Revenues -
External Customers................................. $ 63,865 $ 5,679 $ 2,350 $ - $ 71,894
Intersegment....................................... 117 45 - (162) -
--------- -------------- ----------- ------------ ------------
Total............................................ $ 63,982 $ 5,724 $ 2,350 $ (162)$ 71,894
========= ============== =========== ============ ============
Operating Profit (Loss)............................... $ 10,761 $ 1,316 $ (573)$ (55)$ 11,449
Gain from Equipment Sales, net........................ 848 4 - - 852
Equity in Earnings (Losses) of 50% or Less Owned Companies 652 279 - (1,067) (136)
Minority Interest in Loss of Subsidiaries............. - - - 197 197
Interest Income....................................... - - - 4,201 4,201
Interest Expense...................................... - - - (4,690) (4,690)
Derivative Loss, net.................................. - - - (943) (943)
Gain from Sale of Marketable Securities, net.......... - - - 261 261
Corporate Expenses.................................... - - - (1,246) (1,246)
Income Taxes.......................................... - - - (5,836) (5,836)
--------- -------------- ----------- ------------ ------------
Income (Loss) before Extraordinary Item............. $ 12,261 $ 1,599 $ (573)$ (9,178)$ 4,109
==============================================================================================================================
Marine Environmental Drilling Other Total
--------- -------------- ----------- ------------ ------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
Operating Revenues -
External Customers.................................. $ 196,828 $ 17,125 $ 37,379 $ 308a$ 251,640
Intersegment........................................ 287 - - (287) -
--------- -------------- ----------- ------------ ------------
Total............................................. $ 197,115 $ 17,125 $ 37,379 $ 21 $ 251,640
========= ============== =========== ============ ============
Operating Profit...................................... $ 19,292 $ 1,573 $ 14,615 $ 70 $ 35,550
Gain from Equipment Sales, net........................ 6,923 9 - - 6,932
Equity in Earnings (Losses) of 50% or Less Owned Companies (703) 405 74 (3,982) (4,206)
Minority Interest in Income of Subsidiaries........... - - - (3,303) (3,303)
Interest Income....................................... - - - 12,394 12,394
Interest Expense...................................... - - - (21,146) (21,146)
Derivative Income, net................................ - - - 5,617 5,617
Gain from Sale of Marketable Securities, net.......... - - - 4,408 4,408
Gain Upon Sale of Shares of Chiles.................... - - - 4,023 4,023
Corporate Expenses.................................... - - - (4,124) (4,124)
Income Taxes.......................................... - - - (13,134) (13,134)
--------- -------------- ----------- ------------ ------------
Income (Loss) before Extraordinary Item............. $ 25,512 $ 1,987 $ 14,689 $ (19,177)$ 23,011
==============================================================================================================================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
Operating Revenues -
External Customers................................. $ 198,073 $ 16,201 $ 2,878 $ 938 $ 218,090
Intersegment....................................... 117 151 - (268) -
--------- -------------- ----------- ------------ ------------
Total............................................ $ 198,190 $ 16,352 $ 2,878 $ 670 $ 218,090
========= ============== =========== ============ ============
Operating Profit (Loss)............................... $ 37,710 $ 3,434 $ (1,114)$ 3 $ 40,033
Gain from Equipment Sales, net........................ 1,802 5 - - 1,807
Equity in Earnings (Losses) of 50% or Less Owned Companies 2,861 691 - (1,562) 1,990
Minority Interest in Income of Subsidiaries........... - - - (78) (78)
Interest Income....................................... - - - 15,646 15,646
Interest Expense...................................... - - - (15,906) (15,906)
Derivative Loss, net.................................. - - - (877) (877)
Loss from Sale of Marketable Securities, net.......... - - - (479) (479)
Corporate Expenses.................................... - - - (3,297) (3,297)
Income Taxes.......................................... - - - (15,234) (15,234)
--------- -------------- ----------- ------------ ------------
Income (Loss) before Extraordinary Item............. $ 42,373 $ 4,130 $ (1,114)$ (21,784)$ 23,605
==============================================================================================================================
8
(a) Revenues below quantitative thresholds for determining reportable operating
segments are attributable to the Company's inland barge business that
commenced operation in the third quarter of 2000.
10. RECENT CHILES DEVELOPMENTS --
On September 22, 2000, Chiles converted from a limited liability company to a
corporation and completed its initial public offering of 8,970,000 shares of its
common stock (the "Chiles IPO") at $19.00 per share, and Chiles now has
17,687,241 shares of common stock outstanding. Proceeds from the Chiles IPO, net
of offering costs, approximated $156,900,000. Chiles used $99,000,000 of the
offering proceeds to repurchase and retire outstanding indebtedness consisting
of approximately $95,000,000 principal amount of its 10% Senior Notes due 2008
(the "Chiles 10% Notes") plus accrued interest. Chiles also used approximately
$7,000,000 to repay outstanding indebtedness under its bank facility.
As a consequence of the Chiles IPO, the Company's ownership interest in Chiles
was reduced from 55.4% to 27.3% and the Company owns 4,831,401 shares of common
stock of Chiles. With less than 50% ownership interest, the Company no longer
consolidates Chiles' financial condition, results of operations, and cash flows
and, as of September 22, 2000, began accounting for its interest in Chiles using
the equity method. In the third quarter, the Company recognized a gain upon the
sale of common stock of Chiles of $4,023,000, representing the difference
between the Company's underlying interest in the net book value of Chiles
immediately following the Chiles IPO and its pre-IPO carrying value. As a result
of Chiles' redemption of the Chiles 10% Notes, certain swap agreements with
respect to the Chiles 10% Notes, to which the Company was a party, were
terminated and the Company recognized derivative income of $6,634,000.
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. Upon contracting for the construction of the Chiles
Discovery, Chiles signed a commitment letter with a non-U.S. based lender that
is affiliated with Keppel, to provide a maximum of $82,000,000 of floating rate
debt to partially fund the Chiles Discovery's construction. Chiles expects to
enter into a definitive loan agreement in the fourth quarter of 2000.
Chiles has also executed an option agreement with Keppel to construct three
additional rigs. In October 2000, Chiles exercised the first of the construction
options to 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 the Chiles
IPO and debt financing raised under a U.S. Maritime Administration ("Marad")
guarantee. Chiles has received a commitment letter from Marad for its guarantee,
which would secure up to $81,000,000 of construction and term financing for the
New Option Rig. Upon delivery of the New Option Rig, Chiles will be required to
pay a commission to the Company of approximately $1,000,000.
On July 20, 2000, Chiles entered into an agreement with Perforadora Central,
S.A. de C.V. of Mexico, to acquire all of the equity in an entity that will own
the Tonala, which has been operated by Chiles under a bareboat charter since the
rig entered service in April 2000. Under the terms of the agreement, Chiles will
issue 2,679,723 shares of its common stock and assume approximately $64,500,000
of the seller's debt, which is guaranteed by Marad. The agreement is subject to,
among other things, the consent and approval by Marad regarding the terms of the
assumption of the debt. Chiles expects the acquisition to close in the second
quarter of 2001. As a consequence of this transaction, the Company's ownership
interest in Chiles would be reduced to approximately 24%.
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. Chiles expects to enter into a definitive credit agreement for the New
Chiles Bank Facility in the fourth quarter of this year. The New Chiles Bank
Facility will be secured by ship mortgages on the Chiles Columbus and the Chiles
Magellan and may, subject to restriction on availability under such facility,
contain assignments of the New Option Rig's construction contract and related
agreements.
9
11. COMMITMENTS AND CONTINGENCIES --
As of September 30, 2000, the Company was committed to the construction of nine
crew vessels for an approximate aggregate cost of $39,820,000, of which
$7,956,000 has been expended. These offshore marine vessels are scheduled for
delivery during the next two years.
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 the third quarter of 2000, one of the two construction contracts
was sold. A joint venture of the Company remains committed to the construction
of the remaining ship for an approximate cost of $18,500,000, 75% of which is
expected to be financed from external sources. The ship is expected to enter
service in 2001.
12. SUBSEQUENT EVENTS --
Following quarter end, the Company acquired three anchor handling towing supply
vessels for aggregate cash consideration of $10,200,000 and committed to the
construction of a towing supply vessel for an aggregate cost of $11,000,000.
On October 17, 2000, the Company purchased from Anchor Handlers of America,
Inc., a wholly owned subsidiary of SEACOR's joint venture partner in Mexico,
Transportacion Maritima Mexicana S.A. de C.V., its 25% minority interest in
Seacor Vision LLC for $4,200,000 of consideration. The Seacor Vision LLC owns
and operates a U.S. based anchor handling towing supply vessel constructed in
1997.
10
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 and
bareboat and time chartered-in as well as rates per day worked and utilization
of the Company's fleet.
Rates per day worked and utilization of the Company's fleet are a function of
supply and demand in the marine vessel market, 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 historical and
projected 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
RATES PER DAY WORKED ($): (1) (2)
Supply and Towing Supply................... 5,016 5,130 4,841 5,655
Anchor Handling Towing Supply.............. 10,787 12,011 11,161 11,989
Crew....................................... 2,687 2,455 2,578 2,511
Standby Safety............................. 5,317 5,677 5,421 6,055
Utility and Line Handling.................. 1,617 1,632 1,635 1,706
Geophysical, Freight, and Other............ 5,481 5,880 5,715 5,488
Overall Fleet........................... 3,819 3,869 3,715 4,022
OVERALL UTILIZATION (%): (1)
Supply and Towing Supply................... 82.4 67.1 70.4 70.6
Anchor Handling Towing Supply.............. 74.7 80.0 69.3 76.5
Crew....................................... 93.8 84.6 94.0 80.2
Standby Safety............................. 86.0 76.3 76.0 79.3
Utility and Line Handling.................. 62.4 66.5 58.6 67.9
Geophysical, Freight, and Other............ 57.9 50.0 47.1 57.5
Overall Fleet........................... 79.8 73.8 74.6 73.6
----------------------
(1) Rates per Day Worked is the ratio of total charter revenue to
the total number of vessel days worked. For any group of vessels
with respect to any period, utilization is the ratio of
aggregate number of days worked to total calendar days available
during such period. 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 in the
periods indicated.
11
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.
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 earned 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 September 30,
2000 and 1999, the Company had 19 and 13 vessels, respectively, bareboat
chartered-out, which included 13 and 6, respectively, chartered to its joint
ventures, entities affiliated with its joint venture operations, or its
environmental service segment.
The table below sets forth the Company's marine fleet structure at the dates
indicated:
AT SEPTEMBER 30,
---------------------------------
FLEET STRUCTURE 2000 1999
- ----------------------------------------- --------------- ---------------
Owned.................................... 230(1) 221
Bareboat and Time Chartered-In........... 22 29
Managed.................................. 5 1
Joint Venture Vessels (2)................ 41 37
Pool Vessels (3)......................... 9 9
--------------- ---------------
Overall Fleet........................ 307 297
=============== ===============
- -----------------------
(1) Includes two North Sea standby safety vessels that have been removed
from service and are being held for sale.
(2) 2000 and 1999 include 18 and 14 vessels, respectively 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
include 8 and 6 vessels, respectively, operated by other joint venture
businesses.
(3) 2000 and 1999 include five vessels owned by Toisa Ltd. that participate
in a pool with Company owned North Sea standby safety vessels.
Additionally, 2000 and 1999 include four 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, primarily relating to the
Company's North Sea operations, are received or 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.
Overall, the percentage of the Company's offshore marine operating revenues
derived from foreign operations, whether in U.S. dollars or foreign currencies,
approximated 36% and 41% for the nine-month periods ended September 30, 2000 and
1999, respectively. Foreign operating revenues declined between comparable
nine-month periods due primarily to reduced rates per day worked and
utilization.
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,
12
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 nine-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 nine-month periods ended September 30, 2000 and 1999,
drydocking costs totaled $5.9 million and $4.7 million, respectively. During
those same periods, the Company completed the drydocking of 61 and 67 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 until the second quarter of 2000, (ii) the SEAVEC and Avian
Fleet Pools, which coordinated the marketing of 20 standby safety vessels in the
North Sea at September 30, 2000, of which 11 were owned by the Company; (iii)
the TMM Joint Venture, which operated 25 vessels in Mexico, including 7 bareboat
chartered-in from the Company, at September 30, 2000; (iv) the Smit Joint
Ventures, which operated 15 vessels in the Far East, Latin America, the Middle
East, and the Mediterranean at September 30, 2000; (v) the Vision Joint Venture,
a majority owned subsidiary which owned and operated 1 anchor handling towing
supply vessel in the U.S. Gulf of Mexico at September 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
8 vessels in Latin America, the Mediterranean, 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"). Assets indirectly acquired in the acquisition included Boston
Putford's standby safety vessels ("SBSV"), certain joint venture interests, and
fixed assets for an aggregate purchase price valued at approximately (pound)23.0
million ($36.4 million based on exchange rates in effect on April 19, 2000 and
SEACOR's stock price during a period preceding such date). Boston Putford's SBSV
fleet, including vessels held in joint ventures, but excluding vessels managed
for third parties, consisted of 18 vessels operating primarily in the southern
UK sector of the North Sea. The purchase consideration consisted of (pound)14.2
million in cash ($22.5 million based on exchange rates in effect on April 19,
2000), 125,423 shares of SEACOR's common stock, par value $.01 per share
("Common Stock") (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 an estimated value of (pound)6.2
million ($9.8 million based on exchange rates in effect on April 19, 2000).
During April 2000, the Company completed the purchase of the majority of VOL's
equity interest in the Veesea Joint Venture. Management of the Veesea Joint
Venture's 11 North Sea standby safety vessels and the SEAVEC Pool has been
consolidated with the operations of Boston Putford. In October 2000, the Company
also acquired all of the ownership interest of its minority partner in the
Vision Joint Venture.
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.
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
13
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 and the return of laid-up vessels to
operations.
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 availability of a staff to supervise response to an
oil spill emergency and the maintenance of 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 each 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 environmental service business
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. At present, the Company
is discussing with this customer the opportunity to provide services similar to
those provided by CPA for one year following expiration of the existing
contract. CPA will be dissolved effective December 1, 2000.
DRILLING SERVICES
From its inception in 1997 and until September 22, 2000, the Company
consolidated the business activities of drilling rig operator Chiles Offshore
LLC ("Chiles") due to its majority ownership interest. On September 22, 2000,
Chiles completed its initial public offering of common stock (the "Chiles IPO").
As a consequence of the Chiles IPO, the Company's ownership interest in Chiles
was reduced from 55.4% to 27.3%. Because its ownership interest has declined
below 50%, the Company no longer consolidates Chiles' financial condition,
results of operations, and cash flows and, as of September 22, 2000, began
accounting for its interest in Chiles using the equity method.
14
Chiles operated as a development stage company from its inception and until July
1999, 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 ultra-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.
During November 1999, Chiles entered into a bareboat charter-in agreement for an
ultra-premium jackup mobile offshore drilling rig, the Tonala, which is similar
in class to the Rigs. In April 2000, the Tonala commenced operations. On July
20, 2000, Chiles entered into an agreement with Perforadora Central, S.A. de
C.V. of Mexico, to acquire all of the equity in an entity that will own the
Tonala. Under the terms of the agreement, Chiles will issue 2,679,723 shares of
its common stock and assume approximately $64.5 million of the seller's debt,
which is guaranteed by the U.S. Maritime Administration ("Marad"). The agreement
is subject to, among other things, the consent and approval by Marad regarding
the terms of the assumption of the debt. Chiles expects the acquisition to close
in the second quarter of 2001. As a consequence of this transaction, the
Company's ownership interest in Chiles would be further reduced to approximately
24%.
Operating revenues earned by Chiles are primarily a function of the number of
rigs it operates and rates per day worked and utilization of its rig fleet.
Rates per day worked and utilization are largely dependent upon the capital
expenditure programs of oil and gas companies, which are dependent upon the
prevailing and expected levels of oil and gas prices and the other factors.
Operating expenses are primarily a function of fleet size and utilization. The
most significant variable operating expenses are compensation and related
personnel expenses, maintenance and repairs, insurance, supplies and charter
hire. Fixed charges include depreciation of rigs and other property and
equipment.
Chiles' business is influenced by the various economic and political factors
that also affect the offshore marine service business as discussed above. Due to
Chiles' initial focus on the Gulf of Mexico, its business and operations are and
will continue to be particularly dependent upon the condition of the oil and
natural gas industry and on the exploration and production expenditures of oil
and gas companies operating in the Gulf of Mexico. The offshore contract
drilling industry historically has been and is expected to continue to be highly
competitive and cyclical. Sustained weak commodity prices, economic problems in
countries outside the United States, and a number of other factors beyond
Chiles' control could curtail spending by oil and gas companies. Chiles cannot
predict whether or not current market conditions will continue at favorable
levels and, if so, to what extent.
Net proceeds from the Chiles IPO approximated $156.9 million. Chiles used $99.0
million of the offering proceeds to repurchase and retire outstanding
indebtedness, consisting of approximately $95.0 million principal amount of its
10% Senior Notes due 2008 (the "Chiles 10% Notes") plus accrued interest. Chiles
also used approximately $7.0 million to repay outstanding indebtedness due under
its bank facility.
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 $110.0 million, 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. Upon contracting for the construction of the Chiles
Discovery, Chiles signed a commitment letter with a non-U.S. based lender that
is affiliated with Keppel, to provide a maximum of $82.0 million of floating
rate debt to partially fund the Chiles Discovery's construction. Chiles expects
to enter into a definitive loan agreement in the fourth quarter of 2000.
Chiles has also executed an option agreement with Keppel to construct three
additional rigs. In October 2000, Chiles exercised the first of the construction
options to build a rig of similar design to the Chiles Discovery (the "New
Option Rig"), at a cost estimated not to exceed $112.0 million. Chiles expects
to finance the New Option Rig's construction costs with proceeds from the Chiles
IPO and debt financing raised under a Marad guarantee. Chiles has received a
commitment letter from Marad for its guarantee, which would secure up to $81.0
million of construction and term financing for the New Option Rig. Upon delivery
of the New Option Rig, Chiles will be required to pay a commission to the
Company of approximately $1.0 million.
Chiles has received a commitment for a new $120.0 million bank facility (the
"New Chiles Bank Facility"), which would replace its existing $40.0 million bank
facility. Chiles expects to enter into a definitive credit agreement for the New
15
Chiles Bank Facility in the fourth quarter of this year. The New Chiles Bank
Facility will be secured by ship mortgages on the Chiles Columbus and the Chiles
Magellan and may, subject to restriction on availability under such facility,
contain assignments of the New Option Rig's construction contract and related
agreements.
OTHER INVESTMENTS
In 1998, the Company acquired an interest in the predecessor of Globe Wireless,
LLC ("Globe Wireless") and now owns approximately 38% of its voting Units. Globe
Wireless is a provider of advanced marine telecommunication services using
satellite and high frequency radio technologies. It owns and operates a
worldwide network of high frequency radio stations to offer email, data
transfer, and telex services to ships at a much lower cost than competing
satellite services. The Company believes that Globe Wireless offers the only
such service combining radio, satellite, and Internet communications to the
maritime community.
In the third quarter of 2000, the Company made a $6.0 million investment to
acquire 23 inland river covered hopper barges used in the Mississippi River
System. The Company intends to pursue additional opportunities related to the
inland river barge industry.
In addition, the Company, from time to time, makes investments in other related
businesses.
16
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 SEPTEMBER 30, 2000:
Operating Revenues -
External Customers.................................. $ 72,320 $ 6,200 $ 14,724 $ 308a$ 93,552
Intersegment........................................ 76 - - (76) -
--------- -------------- ----------- ------------ ------------
Total............................................. $ 72,396 $ 6,200 $ 14,724 $ 232 $ 93,552
========= ============== =========== ============ ============
Operating Profit...................................... $ 6,721 $ 731 $ 5,885 $ 73 $ 13,410
Gain from Equipment Sales, net........................ 1,821 3 - - 1,824
Equity in Earnings (Losses) of 50% or Less Owned
Companies............................................. (2,074) 135 74 (1,166) (3,031)
Minority Interest in Income of Subsidiaries........... - - - (2,093) (2,093)
Interest Expense, net................................. - - - (2,519) (2,519)
Derivative Income, net................................ - - - 6,696 6,696
Gain from Sale of Marketable Securities, net.......... - - - 2,057 2,057
Gain Upon Sale of Shares of Chiles.................... - - - 4,023 4,023
Corporate Expenses.................................... - - - (1,370) (1,370)
Income Taxes.......................................... - - - (7,506) (7,506)
--------- -------------- ----------- ------------ ------------
Income (Loss) before Extraordinary Item............. $ 6,468 $ 869 $ 5,959 $ (1,805)$ 11,491
==============================================================================================================================
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999:
Operating Revenues -
External Customers................................. $ 63,865 $ 5,679 $ 2,350 $ - $ 71,894
Intersegment....................................... 117 45 - (162) -
--------- -------------- ----------- ------------ ------------
Total............................................ $ 63,982 $ 5,724 $ 2,350 $ (162)$ 71,894
========= ============== =========== ============ ============
Operating Profit (Loss)............................... $ 10,761 $ 1,316 $ (573)$ (55)$ 11,449
Gain from Equipment Sales, net........................ 848 4 - - 852
Equity in Earnings (Losses) of 50% or Less Owned
Companies............................................. 652 279 - (1,067) (136)
Minority Interest in Loss of Subsidiaries............. - - - 197 197
Interest Expense, net................................. - - - (489) (489)
Derivative Loss, net.................................. - - - (943) (943)
Gain from Sale of Marketable Securities, net.......... - - - 261 261
Corporate Expenses.................................... - - - (1,246) (1,246)
Income Taxes.......................................... - - - (5,836) (5,836)
--------- -------------- ----------- ------------ ------------
Income (Loss) before Extraordinary Item............. $ 12,261 $ 1,599 $ (573)$ (9,178)$ 4,109
==============================================================================================================================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
Operating Revenues -
External Customers.................................. $ 196,828 $ 17,125 $ 37,379 $ 308a$ 251,640
Intersegment........................................ 287 - - (287) -
--------- -------------- ----------- ------------ ------------
Total............................................. $ 197,115 $ 17,125 $ 37,379 $ 21 $ 251,640
========= ============== =========== ============ ============
Operating Profit...................................... $ 19,292 $ 1,573 $ 14,615 $ 70 $ 35,550
Gain from Equipment Sales, net........................ 6,923 9 - - 6,932
Equity in Earnings (Losses) of 50% or Less Owned
Companies............................................. (703) 405 74 (3,982) (4,206)
Minority Interest in Income of Subsidiaries........... - - - (3,303) (3,303)
Interest Expense, net................................. - - - (8,752) (8,752)
Derivative Income, net................................ - - - 5,617 5,617
Gain from Sale of Marketable Securities, net.......... - - - 4,408 4,408
Gain Upon Sale of Shares of Chiles.................... - - - 4,023 4,023
Corporate Expenses.................................... - - - (4,124) (4,124)
Income Taxes.......................................... - - - (13,134) (13,134)
--------- -------------- ----------- ------------ ------------
Income (Loss) before Extraordinary Item............. $ 25,512 $ 1,987 $ 14,689 $ (19,177)$ 23,011
==============================================================================================================================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
Operating Revenues -
External Customers.................................. $ 198,073 $ 16,201 $ 2,878 $ 938 $ 218,090
Intersegment........................................ 117 151 - (268) -
--------- -------------- ----------- ------------ ------------
Total............................................. $ 198,190 $ 16,352 $ 2,878 $ 670 $ 218,090
========= ============== =========== ============ ============
Operating Profit (Loss)............................... $ 37,710 $ 3,434 $ (1,114)$ 3 $ 40,033
Gain from Equipment Sales, net........................ 1,802 5 - - 1,807
Equity in Earnings (Losses) of 50% or Less Owned
Companies............................................. 2,861 691 - (1,562) 1,990
Minority Interest in Income of Subsidiaries........... - - - (78) (78)
Interest Expense, net................................. - - - (260) (260)
Derivative Loss, net.................................. - - - (877) (877)
Loss from Sale of Marketable Securities, net.......... - - - (479) (479)
Corporate Expenses.................................... - - - (3,297) (3,297)
Income Taxes.......................................... - - - (15,234) (15,234)
--------- -------------- ----------- ------------ ------------
Income (Loss) before Extraordinary Item............. $ 42,373 $ 4,130 $ (1,114)$ (21,784)$ 23,605
==============================================================================================================================
17
(a) Revenues below quantitative thresholds for determining reportable operating
segments are attributable to the Company's inland barge business that
commenced operation in the third quarter of 2000.
OFFSHORE MARINE SERVICES
OPERATING REVENUES. The Company's offshore marine service segment's operating
revenues increased $8.4 million, or 13%, in the three-month period ended
September 30, 2000 compared to the three-month period ended September 30, 1999
and decreased $1.1 million, or 0.5%, in the nine-month period ended September
30, 2000 compared to the nine-month period ended September 30, 1999. Operating
revenues rose in the three and nine-month periods ended September 30, 2000 due
primarily 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
nine-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.
The construction, acquisition, and bareboat charter-in of 17 standby safety (the
Boston Putford fleet), 5 crew, 3 anchor handling towing supply, 3 supply/towing
supply, and 1 utility vessel resulted in a $9.6 million and $24.0 million
increase in operating revenues between comparable three and nine-month periods,
respectively.
During December 1999, the Company acquired a majority ownership interest in ELI,
a provider 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 $3.6 million and $9.5 million in
the three and nine-month periods ended September 30, 2000, respectively, due to
the consolidation of ELI with the Company.
Lower utilization resulted in operating revenue declines of approximately $0.4
million and $10.6 million between comparable quarters and nine-month periods,
respectively. These declines resulted primarily from reduced demand for U.S.
anchor handling towing supply and utility, North Sea standby safety, and Other
Foreign supply/towing supply vessels and the removal from service, in the third
quarter of 2000, two U.S. anchor handling towing supply vessels that required
emergency repairs. Revenues additionally declined between comparable nine-month
periods due to reduced demand for West African and North Sea supply/towing
supply vessels. These declines were offset by an improvement in the utilization
of the Company's U.S. crew and supply/towing supply and Other Foreign anchor
handling towing supply fleets.
Lower rates per day worked resulted in operating revenue declines of
approximately $0.2 million and $12.6 million between comparable quarters and
nine-month periods, respectively. Rates declined in the U.S. and West African
anchor handling towing supply and the North Sea standby safety and supply/towing
supply fleets. Revenues additionally declined between comparable nine-month
periods due to lower rates in the U.S. utility, West African supply/towing
supply, and Other Foreign anchor handling towing supply and supply/towing supply
fleets. These declines were offset by an improvement in rates per day worked
earned by the Company's U.S. crew and supply/towing supply fleets.
The sale and charter-in cancellation of 7 utility, 6 anchor handling towing
supply, 5 crew, and 4 supply/towing supply vessels resulted in a $3.3 million
and $8.2 million decline in operating revenues between comparable three and
nine-month periods, respectively. Operating revenues also declined $1.3 million
and $3.6 million between comparable three and nine-month periods, respectively,
as certain vessels previously operated by the Company have been bareboat
chartered-out.
From the second to third quarter of 2000, utilization of the Company's U.S. and
foreign fleets increased 5% to 81.5% and 16% to 75.4%, respectively. Rates per
day worked also rose 5% to $3,220 in the U.S. and remained essentially unchanged
in foreign markets at $5,456. A 20% increase in the utilization of the Company's
U.S. and foreign supply/towing supply fleets and a 7% increase in rates per day
worked of the Company's domestic crew fleet significantly improved operating
revenue results. Utilization rose for all vessel classes in the Company's
worldwide fleet, with the exception of anchor handling towing supply and crew
vessels operating in West Africa and crew vessels operating in Other Foreign
18
regions. In the U.S., rates per day worked rose for supply/towing supply and
crew vessels, remained essentially unchanged for utility vessels, and declined
for anchor handling towing supply and project vessels. In foreign markets, rates
per day worked declined for supply/towing supply and standby safety vessels but
rose for anchor handling towing supply and crew vessels.
OPERATING PROFIT. The Company's offshore marine segment's operating profit
declined $4.0 million, or 38%, and $18.4 million, or 49%, in the three and
nine-month periods ended September 30, 2000, respectively, compared to the three
and nine-month periods ended September 30, 1999 due primarily to those factors
adversely affecting operating revenues as outlined above. Operating profits also
declined due to higher operating expenses. Emergency repair costs were incurred
on 2 large anchor handling towing supply vessels. Drydock expenses were incurred
to return 4 laid-up vessels to active service. Nine-month results additionally
included higher insurance deductible costs 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 September 30, 2000, the Company had 30 vessels out
of service, including 22 that require drydocking prior to re-entering
operations. The removal of vessels from service resulted primarily from weak
demand and low rates per day worked for the Company's U.S. Gulf of Mexico
utility fleet. In September 2000, the Company increased wages paid to seaman
working domestically in response to competition for qualified personnel.
GAINS FROM EQUIPMENT SALES, NET. Net gains from equipment sales increased $1.0
million and $5.1 million in the three and nine-month periods ended September 30,
2000, respectively, compared to the three and nine-month periods ended September
30, 1999. 8 utility, 5 supply/towing supply, and 1 crew vessel were sold in
2000; whereas, 10 crew, 1 anchor handling towing supply, and 1 utility vessel
were sold in 1999. In 1999, the Company deferred the recognition of certain
gains realized from the sale of 5 crew vessels that were subsequently
leased-back; no sale and leaseback transactions occurred in 2000. Deferred sale
and leaseback gains are being amortized to income as reductions in rental
expense over the lease terms.
EQUITY IN EARNINGS (LOSSES) OF 50% OR LESS OWNED COMPANIES. Equity losses were
$2.1 million and $0.7 million in the three and nine-month periods ended
September 30, 2000; whereas, equity earnings were $0.7 million and $2.9 million
in the three and nine-month periods ended September 30, 1999. Joint venture
operating results declined between comparable periods due primarily to reduced
profits of the TMM Joint Venture and the SMIT Joint Ventures. Reduced profits of
the TMM Joint Venture resulted primarily from an increase in reserves for
doubtful accounts receivable and estimated income tax expenses recorded in prior
periods. Lower rates per day worked also contributed to the reduced profits of
the TMM Joint Venture. A vessel sale and the termination of one chartered-in
vessel by the SMIT Joint Ventures also resulted in reduced profits.
ENVIRONMENTAL SERVICES
OPERATING REVENUES. The environmental business segment's operating revenues
increased $0.5 million, or 8%, and $0.8 million, or 5%, in the three and
nine-month periods ended September 30, 2000, respectively, compared to the three
and nine-month periods ended September 30, 1999 due primarily to an increase in
the number and severity of oil spills managed by the Company that was partially
offset by a decline in retainer revenues.
OPERATING PROFIT. The environmental business segment's operating profit
decreased $0.6 million, or 44%, and $1.9 million, or 55%, in the three and
nine-month periods ended September 30, 2000, respectively, compared to the three
and nine-month periods ended September 30, 1999. Operating expenses rose between
comparable three and nine-month periods due to 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. Operating results also fell due to a decline in profits from retainer
services.
EQUITY IN EARNINGS (LOSSES) OF 50% OR LESS OWNED COMPANIES. Equity earnings
decreased $0.1 million, or 52%, and $0.3 million, or 42%, in the three and
nine-month periods ended September 30, 2000, respectively, compared to the three
and nine-month periods ended September 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
$12.4 million and $34.5 million in the three and nine-month periods ended
19
September 30, 2000, respectively, compared to the three and nine-month periods
ended September 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 had 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 and
improvement in rates per day worked.
OPERATING PROFIT. In the three and nine-month periods ended September 30, 2000,
the drilling business segment's operating profits were $5.9 million and $14.6
million, respectively; whereas, in comparable three and nine-month periods of
the prior year, the drilling business segment incurred operating losses of $0.5
million and $1.1 million, respectively. The improvement in operating results
between years was due primarily to the factors affecting operating revenues as
outlined above.
On September 22, 2000, Chiles completed its initial public offering of common
stock. As a consequence of the Chiles IPO, the Company's ownership interest in
Chiles was reduced from 55.4% to 27.3%. Because its ownership interest in Chiles
has declined to less than 50%, the Company no longer consolidates Chiles'
financial condition, results of operations, and cash flows and, as of September
22, 2000, began accounting for its interest in Chiles using the equity method.
OTHER
EQUITY IN EARNINGS (LOSSES) OF 50% OR LESS OWNED COMPANIES. Equity losses in the
three and nine-month periods ended September 30, 2000 resulted from the
Company's recognition of its share of the operating losses of 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. Current quarter
and nine-month results also reflect $0.4 million and $0.5 million, respectively,
of equity interest in the earnings of a bulk carrier joint venture that included
a $0.5 million gain from the sale of a Handymax Dry-Bulk ship construction
contract.
INTEREST EXPENSE, NET. Net interest expense rose $2.0 million and $8.5 million
in the three and nine-month periods ended September 30, 2000, respectively,
compared to the three and nine-month periods ended September 30, 1999. 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 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 nine months of 2000 and 1999, the Company capitalized interest of $0.8
million and $8.5 million, respectively, with respect to the construction of rigs
and offshore marine vessels.
DERIVATIVE INCOME (LOSS), NET. During the three and nine-month periods ended
September 30, 2000, the Company recognized net derivative income of $6.7 million
and $5.6 million, respectively; whereas, in each of the three and nine-month
periods ended September 30, 1999, the Company recognized a net loss of $0.9
million. In September 2000, Chiles purchased and redeemed substantially all of
its then outstanding Chiles 10% Notes with proceeds from the Chiles IPO that
resulted in the termination of certain swap agreements entered into by the
Company with respect to those Notes, and as a further result, the Company
recognized derivative income of $6.6 million. Net derivative losses were also
incurred in 2000 and 1999 from commodity price hedging arrangements in which the
settlement prices quoted on the New York Mercantile Exchange ("NYMEX") exceeded
the contract prices for various natural gas and crude oil positions.
GAINS (LOSSES) FROM SALE OF MARKETABLE SECURITIES, NET. During the three and
nine-month periods ended September 30, 2000, the Company realized net gains of
$2.1 million and $4.4 million, respectively; whereas, in the three and
nine-month periods ended September 30, 1999, the Company recognized net gains of
$0.3 million and net losses of $0.5 million, respectively. In the first nine
months of 2000, net gains 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. Net gains in the third quarter of 1999 resulted
20
primarily from the sale of equity securities. Net losses in the first nine
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 nine-month periods ended September 30, 2000
compared to the three and nine-month periods ended September 30, 1999, corporate
expenses increased $0.1 million and $0.8 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
marketable securities, including unrestricted cash and cash equivalents,
restricted cash, and investments in marketable securities, increased by $51.0
million. At September 30, 2000, cash and marketable securities totaled $324.5
million, including $222.2 million of unrestricted cash and cash equivalents,
$88.0 million of marketable securities, and $14.3 million of restricted cash.
Restricted cash is intended for use in defraying costs to construct offshore
marine vessels for the Company. At September 30, 2000, the Company had funded
$8.9 million in offshore marine vessel construction costs from unrestricted cash
balances, and subject to prior written approval from Marad, 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,
privately negotiated transactions, or otherwise, depending on market conditions.
In the nine-month period ended September 30, 2000, the Company acquired 154,400
shares of Common Stock (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 September 30, 2000, the Company had approximately $36.9 million of available
authority for the repurchase of additional SEACOR Securities. Due to the decline
in the Company's ownership interest of Chiles, resulting from the Chiles IPO,
the Chiles 10% Notes will no longer be considered SEACOR Securities.
CAPITAL STRUCTURE. At September 30, 2000, the Company's capital structure was
comprised of $378.4 million of long-term debt and $535.4 million of
stockholders' equity. Since year end, long-term debt declined due primarily to
the deconsolidation of Chiles, Chiles' repayment of $15.0 million borrowed under
its bank 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. These increases were 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 stock dividend 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; 7,137,801 shares were
distributed.
21
CASH GENERATION AND DEPLOYMENT. Cash flow provided from operating activities
during the nine-month period ended September 30, 2000 totaled $41.9 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 nine-month period ended September 30, 2000, the Company generated
$123.8 million from investing and financing activities. Available-for-sale
securities were sold for $54.0 million. Proceeds, including cash collateral, of
$19.5 million were received upon the termination of certain SEACOR swap
agreements in connection with Chiles' purchase and redemption of substantially
all of the Chiles 10% Notes. Chiles completed an offering of membership
interests and the Company realized $17.7 million, net of offering costs.
Fourteen offshore support vessels were sold for $14.9 million. Dividends
received from 50% or less owned companies totaled $7.8 million. Restricted cash
balances declined by $7.7 million as withdrawals from vessel joint depository
construction reserve fund accounts exceeded deposits into such accounts
generated from the sale of equipment. Additional cash was generated primarily
from the repayment of notes due from 50% or less owned companies and the
exercise of employee stock options.
During the nine-month period ended September 30, 2000, the Company used $120.6
million in its investing and financing activities. Capital expenditures for
property and equipment, primarily related to rig construction and the
acquisition and construction of offshore marine vessels, totaled $48.9 million.
Marketable securities were acquired for $20.9 million. Chiles repaid $15.0
million of outstanding indebtedness borrowed under its bank facility. The
Company paid $14.7 million to acquire Boston Putford (net of cash acquired) and
the majority of VOL's equity interest in the VEESEA Joint Venture. The
deconsolidation of Chiles resulted in an $11.7 million reduction in cash
balances. 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, the settlement of certain
commodity price hedging arrangements, and advances to 50% or less owned
companies for the purchase of vessels.
CAPITAL EXPENDITURES. As of September 30, 2000, the Company was committed to the
construction of nine crew vessels for an approximate aggregate cost of $40.0
million, of which $8.0 million has been expended. The crew vessels are expected
to enter service during the next two years. Following quarter end, the Company
acquired three anchor handling towing supply vessels for aggregate cash
consideration of $10.2 million and committed to the construction of a towing
supply vessel for an aggregate cost of $11.0 million.
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 the third quarter of 2000, one of the two construction contracts
was sold. A joint venture of the Company remains committed to the construction
of the remaining ship for an approximate cost of $18.5 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 September 30, 2000, the
Company had approximately $90.9 million available for future borrowings under
the DnB Credit Facility.
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
22
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
available for purchase under the Stock Purchase Plan for six-month offering
periods. 300,000 shares of Common Stock are reserved 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
stockholder approval.
On May 23, 2000, the stockholders of SEACOR approved the 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.
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 uses derivative financial instruments to hedge against its exposure
to changes in foreign currencies and prices of natural gas and crude oil. 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
23
offset the consequences of changes in foreign exchange on the amount of U.S.
dollar cash flows to be derived from the net assets. At September 30, 2000,
there were no material unrealized gains or losses on outstanding forward
exchange contracts. The Company has also entered into and settled various
positions in natural gas and crude oil via swaps, options, and futures
contracts. 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. At September 30, 2000, the Company's positions in
commodity contracts were not material.
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 September 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.
Due to Chiles' redemption of substantially all of the Chiles 10% Notes, these
swap agreements were terminated in September 2000.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
27.1 Financial Data Schedule.
B. Reports on Form 8-K:
None.
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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: NOVEMBER 14, 2000 By: /s/ Charles Fabrikant
-----------------------------------------
Charles Fabrikant, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
DATE: NOVEMBER 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
- --------- ------------------------------------------------------
27.1 Financial Data Schedule
27