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, 2001 or
------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission file number 1-12289
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SEACOR SMIT INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3542736
- ------------------------------- -----------------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
11200 Richmond, Suite 400, Houston, Texas 77082
- --------------------------------------------------------------------------------
(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 $.01 per share,
outstanding as of November 9, 2001 was 20,081,060. The Registrant has no other
class of common stock outstanding.
NY2:\1096885\03\N$D103!.DOC\73293.0004
SEACOR SMIT INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2001 and December 31, 2000................................1
Condensed Consolidated Statements of Operations for each of the
Three and Nine Months Ended September 30, 2001 and 2000.................2
Condensed Consolidated Statements of Cash Flows
for each of the Nine Months Ended September 30, 2001 and 2000...........3
Notes to Condensed Consolidated Financial Statements.........................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................23
Part II. Other Information
Item 5. Other Information................................................................24
Item 6. Exhibits and Reports on Form 8-K.................................................24
i
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,
2001 2000
------------------- -------------------
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 130,751 $ 224,219
Marketable securities (available-for-sale)................................... - 4,997
Trade and other receivables, net of allowance for
doubtful accounts of $1,392 and $1,310, respectively...................... 111,569 87,687
Prepaid expenses and other................................................... 7,786 5,103
------------------- ------------------
Total current assets...................................................... 250,106 322,006
------------------- ------------------
Investments, at Equity, and Receivables from 50% or Less Owned Companies........ 154,139 137,694
Available-for-Sale Securities................................................... 56,697 77,184
Property and Equipment.......................................................... 1,002,440 712,511
Less - Accumulated depreciation.............................................. (241,616) (185,433)
------------------- ------------------
Net property and equipment................................................ 760,824 527,078
------------------- ------------------
Restricted Cash................................................................. 54,708 40,759
Other Assets.................................................................... 48,703 28,009
------------------- ------------------
$ 1,325,177 $ 1,132,730
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............................................ $ 39,744 $ 2,553
Accounts payable and accrued expenses........................................ 29,761 25,746
Other current liabilities.................................................... 37,044 38,084
------------------- ------------------
Total current liabilities................................................. 106,549 66,383
------------------- ------------------
Long-term Debt.................................................................. 305,013 377,955
Deferred Income Taxes........................................................... 161,725 119,545
Deferred Gains and Other Liabilities............................................ 12,673 14,371
Minority Interest in Subsidiaries............................................... 1,995 1,924
Common Stock Sold with Equity Forward Transaction............................... 10,000 -
Stockholders' Equity:
Common stock, $.01 par value, 24,024,393 and 21,426,969 shares issued at
September 30, 2001 and December 31, 2000, respectively.................... 240 214
Additional paid-in capital................................................... 384,928 278,567
Retained earnings............................................................ 454,164 402,142
Less 3,941,883 and 4,310,505 shares held in treasury at September 30, 2001
and December 31, 2000, respectively, at cost.............................. (109,424) (125,968)
Less unamortized restricted stock compensation............................... (2,560) (1,301)
Accumulated other comprehensive loss......................................... (126) (1,102)
------------------- ------------------
Total stockholders' equity................................................ 727,222 552,552
------------------- ------------------
$ 1,325,177 $ 1,132,730
=================== ==================
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,
------------------------------- -------------------------------
2001 2000 2001 2000
------------- -------------- ------------- --------------
Operating Revenues.............................................$ 119,358 $ 93,552 $ 324,986 $ 251,640
------------- -------------- ------------- --------------
Costs and Expenses:
Operating expenses.......................................... 60,512 56,913 176,203 150,521
Administrative and general.................................. 13,140 10,231 36,794 29,245
Depreciation and amortization............................... 15,511 13,782 42,266 38,771
------------- -------------- ------------- --------------
89,163 80,926 255,263 218,537
------------- -------------- ------------- --------------
Operating Income............................................... 30,195 12,626 69,723 33,103
------------- -------------- ------------- --------------
Other Income (Expense):
Interest on debt............................................ (5,798) (6,792) (16,793) (21,146)
Interest income............................................. 3,023 4,273 10,910 12,394
Gain from equipment sales and retirements, net.............. 4,145 1,824 7,992 6,932
Gain upon sale of shares of Chiles.......................... - 4,023 - 4,023
Derivative income, net...................................... 1,997 6,696 1,962 5,617
Other, net.................................................. 829 1,471 2,670 2,731
------------- -------------- ------------- --------------
4,196 11,495 6,741 10,551
------------- -------------- ------------- --------------
Income Before Income Taxes, Minority Interest, Equity in
Earnings (Losses) of 50% or Less Owned Companies,
and Extraordinary Item ..................................... 34,391 24,121 76,464 43,654
Income Tax Expense............................................. 12,141 7,857 26,886 14,276
------------- -------------- ------------- --------------
Income Before Minority Interest, Equity in Earnings (Losses)
of 50% or Less.............................................. 22,250 16,264 49,578 29,378
Owned Companies, and Extraordinary Item.....................
Minority Interest in Income of Subsidiaries.................... (92) (2,093) (256) (3,303)
Equity in Earnings (Losses) of 50% or Less Owned Companies..... 348 (2,680) 3,596 (3,064)
------------- -------------- ------------- --------------
Income Before Extraordinary Item............................... 22,506 11,491 52,918 23,011
Extraordinary Item - Loss on Debt Extinguishment, net of tax... - - (896) -
-------------
-------------- ------------- --------------
Net Income.....................................................$ 22,506 $ 11,491 $ 52,022 $ 23,011
============= ============== ============= ==============
Basic Earnings Per Common Share:
Income before extraordinary item............................$ 1.13 $ 0.68 $ 2.74 $ 1.36
Extraordinary item.......................................... - - (0.05) -
------------- -------------- ------------- --------------
Net income...............................................$ 1.13 $ 0.68 $ 2.69 $ 1.36
============= ============== ============= ==============
Diluted Earnings Per Common Share:
Income before extraordinary item............................$ 0.97 $ 0.62 $ 2.47 $ .32
Extraordinary item.......................................... - - (0.04) -
------------- -------------- ------------- --------------
Net income...............................................$ 0.97 $ 0.62 $ 2.43 $ 1.32
============= ============== ============= ==============
Weighted Average Common Shares:
Basic 19,990,199 16,920,118 19,319,905 16,870,507
Diluted.................................................. 21,289,672 21,285,243 21,363,299 21,212,144
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,
2001 2000
-------------------- -------------------
Net Cash Provided by Operating Activities.................................... $ 75,762 $ 41,911
-------------------- -------------------
Cash Flows from Investing Activities:
Purchase of property and equipment........................................ (83,052) (48,903)
Proceeds from sale of marine vessels and equipment........................ 20,637 14,912
Purchase of available-for-sale securities................................. (64,114) (20,894)
Proceeds from sale of available-for-sale securities....................... 94,127 53,952
Proceeds from sale of investment in 50% or less owned companies........... 3,076 -
Investments in and advances to 50% or less owned companies................ (5,124) (1,058)
Principal payments on notes due from 50% or less owned companies.......... 2,987 1,417
Dividends received from 50% or less owned companies....................... 1,417 7,788
Net (increase) decrease in restricted cash................................ (13,949) 7,672
Cash settlement from derivative transactions.............................. 1,278 (1,245)
Acquisitions, net of cash acquired........................................ (99,236) (14,973)
Cash of Chiles Offshore LLC, a deconsolidated subsidiary.................. - (11,691)
Other, net................................................................ (150) 376
-------------------- -------------------
Net cash used in investing activities.................................. (142,103) (12,647)
-------------------- -------------------
Cash Flows from Financing Activities:
Payments of long-term debt................................................ (64,604) (15,482)
Payments of capital lease obligations..................................... (1,316) (1,248)
Payments of stockholders' loans........................................... (278) (258)
Proceeds from issuance of long-term debt.................................. 31,171 112
Proceeds from issuance of common stock.................................... 10,000 -
Proceeds from exercise of stock options................................... 118 379
Common stock acquired for treasury........................................ - (4,791)
Proceeds from membership interest offering of Chiles Offshore
LLC.................................................................... - 17,651
Termination of swap agreements............................................ - 19,504
Other..................................................................... 1 (102)
-------------------- -------------------
Net cash provided by (used in) financing activities.................... (24,908) 15,765
-------------------- -------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents................. (2,219) (1,380)
-------------------- -------------------
Net Decrease in Cash and Cash Equivalents.................................... (93,468) 43,649
Cash and Cash Equivalents, Beginning of Period............................... 224,219 178,509
-------------------- -------------------
Cash and Cash Equivalents, End of Period..................................... $ 130,751 $ 222,158
==================== ===================
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, 2001 and 2000 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,
2001 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, 2000.
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--
Effective January 1, 2001, the Company adopted Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities", as amended. 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. The cumulative effect of adopting
SFAS 133 resulted in other comprehensive income of $71,000. 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 the U.S. dollar
value of certain Pounds Sterling denominated net assets of the Company from the
effects of volatility in foreign currency exchange rates that might occur prior
to their conversion to U.S. dollars, the Company has entered into forward
exchange contracts. The Company considers these forward exchange contracts as
economic hedges of its net investment in the United Kingdom and resulting gains
or losses from those transactions are charged to Accumulated Other Comprehensive
Income in Stockholders' Equity. During the nine months ended September 30, 2001,
the Company settled several Pounds Sterling forward exchange contracts, which
resulted in a realized gain of $131,000. At September 30, 2001, the Company had
no outstanding Pounds Sterling forward exchange contracts for which hedge
accounting criteria were met.
In July 2001, the Financial Accounting Standards Board ("FASB") approved two new
accounting standards related to the accounting for business combinations and
goodwill and other intangible assets. The standards, which are numbered SFAS No.
141 and 142, among other requirements, (i) prohibit the use of the
pooling-of-interests method of accounting for business combinations, (ii)
require that goodwill not be amortized in any circumstance, and (iii) require
that goodwill be tested for impairment annually or when events or circumstances
occur between annual tests indicating that goodwill for a reporting unit might
be impaired. The standards will establish a new method for testing goodwill for
impairment based on a fair value concept. Management's current policy is to
periodically evaluate the amortization periods for goodwill to determine if
later events or circumstances warrant revised estimates of useful lives. It is
also management's policy to review goodwill for impairment whenever events or
changes in circumstances indicate that the carrying value of goodwill may not be
recoverable. As of and subsequent to September 30, 2001, there have been no
events or changes in circumstances surrounding purchased businesses to indicate
that the carrying value of the allocated goodwill may not be recoverable. The
standards will take effect for the fiscal year beginning after December 15,
2001, which would be the Company's fiscal year beginning January 1, 2002. Upon
adoption, the Company will be required to cease amortization of its remaining
goodwill balance and will be required to perform an impairment test based on a
fair value concept of its existing goodwill. The Company has not completed an
analysis of the potential impact upon adoption of the impairment test of
4
goodwill; however, amortization of existing goodwill, which was approximately
$898,000 and $2,336,000 for the three and nine-month periods ended September 30,
2001, respectively, will cease upon adoption.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which requires recording the fair value of a liability for an
asset retirement obligation in the period incurred. The standard is effective
for fiscal years beginning after June 15, 2002, with earlier application
permitted. Upon adoption of the standard, the Company will be required to use a
cumulative effect approach to recognize transition amounts for any existing
retirement obligation liabilities, asset retirement costs, and accumulated
depreciation. The Company has not determined what effect this statement will
have on its financial statements, if any.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which supercedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". This new statement also supercedes certain aspects of APB 30, "Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", with regard to reporting the effects of a disposal of a segment
of a business and will require expected future operating losses from
discontinued operations to be reported in discontinued operations in the period
incurred rather than as of the measurement date as presently required by APB 30.
Additionally, certain dispositions may now qualify for discontinued operations
treatment. The provisions of this statement are required to be applied for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years. The Company has not yet determined what effect this statement will
have on its financial statements.
3. COMPREHENSIVE INCOME--
For the three-month periods ended September 30, 2001 and 2000, total
comprehensive income was $26,896,000 and $11,948,000, respectively. For the
nine-month periods ended September 30, 2001 and 2000, total comprehensive income
was $52,998,000 and $25,308,000, respectively. Other comprehensive income in
2001 primarily included gains from foreign currency translation adjustments and
unrealized holding gains on available-for-sale securities and other
comprehensive income in 2000 primarily included unrealized holding gains on
available-for-sale securities and losses from foreign currency translation
adjustments.
4. VESSEL DISPOSITIONS--
In the nine-month period ended September 30, 2001, the Company sold 19 offshore
marine vessels. Net pre-tax gains from those sales and the disposition of other
equipment totaled $7,992,000. Proceeds from certain vessel sales this year were
deposited into joint depository construction reserve funds with the U.S.
Maritime Administration. Construction reserve fund accounts, reported as
Restricted Cash in the Condensed Consolidated Balance Sheets, have been
established 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 certain vessels.
5. ACQUISITIONS--
In January 2001, the Company acquired all of the issued share capital of
Plaisance Marine, Inc. ("Plaisance") that owns two mini-supply vessels and
acquired four additional mini-supply vessels from companies affiliated with
Plaisance (collectively the "Plaisance Fleet'"). Aggregate consideration paid
for the Plaisance Fleet and certain related spares and other assets was
approximately $20,100,000, including approximately $16,200,000 paid in cash, the
assumption of approximately $700,000 of debt, and the issuance of 71,577 shares
of SEACOR's common stock from treasury, valued at approximately $3,700,000 on
the closing date. The Plaisance Fleet operates in the U.S. Gulf of Mexico.
In February 2001, the Company acquired two U.S. based towing supply vessels from
Rincon Marine, Inc., a U.S. based operator ("Rincon"). Aggregate consideration
paid Rincon was approximately $19,700,000, including approximately $6,100,000 in
cash and the assumption of approximately $13,600,000 of debt.
In February 2001, the Company completed the acquisition of all of the issued
share capital of Gilbert Cheramie Boats, Inc. and related companies
(collectively, "Cheramie"). Purchase consideration was approximately $62,800,000
in cash. Through its acquisition of Cheramie, the Company acquired 11
mini-supply, 11 utility, and 2 offshore supply vessels operating in the U.S.
Gulf of Mexico.
5
On May 4, 2001, the Company completed the acquisition of all of the outstanding
share capital of Stirling Shipping Holdings Limited ("Stirling Shipping").
Purchase consideration was determined by the estimated adjusted net assets of
Stirling Shipping at closing and totaled approximately (pound)54,300,000
($77,100,000 based on exchange rates in effect and the price of SEACOR's common
stock on the closing date). Purchase consideration consisted of
(pound)29,900,000, or $43,000,000, in cash, (pound)14,700,000, or $21,200,000,
in one-year loan notes, and 285,852 shares of SEACOR's common stock issued from
treasury, valued at $12,900,000, and is subject to adjustment based on
finalization of Stirling Shipping's closing balance sheet. Stirling Shipping's
long term debt at closing was approximately (pound)43,000,000, or $61,900,000.
To fund a portion of the Stirling acquisition, the Company borrowed $25,000,000
under its unsecured reducing revolving credit facility with Den norske Bank ASA
(the "DnB Credit Facility") that was established in November 1998. In the third
quarter, the Company repaid the $25,000,000 principal amount, plus accrued
interest, borrowed under the DnB Credit Facility. Through its acquisition of
Stirling Shipping, the Company acquired 12 offshore support vessels currently
working in the North Sea, including 9 supply and 3 anchor handling towing supply
vessels, and contracts for the construction of 2 anchor handling towing supply
vessels. The new construction vessels are being built in the UK and are
scheduled for delivery during the first half of 2002.
The costs of the Plaisance, Cheramie, and Stirling Shipping acquisitions were
allocated under the purchase method of accounting based upon the fair value of
the assets acquired and liabilities assumed, plus amounts of transaction costs
and the related deferred tax effect of the acquisitions. Goodwill of
approximately $500,000 and $22,300,000 was recorded in connection with the
Plaisance and Cheramie acquisitions, respectively, and is being amortized to
expense over 12 to 22 years.
The pro forma effect of the Plaisance and Cheramie acquisitions on the results
of operations was not material; however, the pro forma effect of the Stirling
Shipping acquisition was material and therefore the following unaudited pro
forma information has been prepared as if the acquisition had occurred at the
beginning of each of the periods presented, in thousands of dollars except per
share data. This pro forma information has been prepared for comparative
purposes only and is not necessarily indicative of what would have occurred had
the acquisition taken place on the dates indicated, nor does it purport to be
indicative of the future operating results of the Company.
For the Three Months Ended For the Nine Months Ended
9/30/01 9/30/00 9/30/01 9/30/00
------------- ---------------- -------------- -------------
Revenue........................................ $ 119,358 $ 104,995 $ 341,524 $ 282,924
Income Before Extraordinary Item............... 22,506 12,780 55,466 25,094
Net Income..................................... 22,506 12,780 54,570 25,094
Basic Earnings Per Share....................... 1.13 0.74 2.82 1.46
In the nine-month period ended September 30, 2001, shipyards completed
construction and delivered to the Company 2 crew and 1 supply and towing supply
vessel for approximately $20,800,000 and 52 inland river hopper barges
("barges") for approximately $12,900,000.
6. 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. Computation of diluted earnings per share excludes certain
options and share awards, totaling 57,500 and 30,000, respectively, for the
three and nine-month periods ended September 30, 2001 and 23,263 and 25,877,
respectively, for the three and nine-month periods ended September 30, 2000, as
the effect would have been antidilutive.
6
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------------------- --------------------------------------
Income Shares Per Income Shares Per
Share Share
-------------- --------------- -------- -------------- --------------- -------
2001
BASIC EARNINGS PER SHARE:
Income Before Extraordinary Item.......... $ 22,506,000 19,990,199 $ 1.13$ 52,918,000 19,319,905 $ 2.74
======== =======
EFFECT OF DILUTIVE SECURITIES, NET OF TAX:
Options and Restricted Stock.............. 246,746 - 269,919
Convertible Securities.................... 431,000 1,052,727 2,164,000 1,773,475
Common Stock Sold with Equity Forward
Transaction (See Note 8)............... (2,283,000) - (2,283,000) -
-------------- --------------- -------------- ---------------
DILUTED EARNINGS PER SHARE:
Income Available to Common Stockholders
Plus Assumed Conversions............... $ 20,654,000 21,289,672 $ 0.97$ 52,799,000 21,363,299 $ 2.47
============== =============== ======== ============== =============== =======
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
============== =============== ======== ============== =============== =======
7. SEGMENT DATA --
The Company aggregates its business activities into three primary operating
segments: offshore marine, environmental, and drilling. These operating segments
represent strategic business units that offer different services. The offshore
marine business segment charters support vessels to owners and operators of
offshore drilling rigs and production platforms both domestically and
internationally. The Company's offshore marine business 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 business segment provides contractual oil spill
response and other related training and consulting services. The drilling
business segment, which owns and operates jackup drilling rigs, conducted its
business affairs through Chiles Offshore LLC ("Chiles Offshore"), an entity in
which the Company owned a majority ownership interest until its conversion into
a corporation (with Chiles Offshore renamed "Chiles Offshore Inc.") and
completion of the initial public offering of its common stock (the "Chiles IPO")
on September 22, 2000. As a consequence of the Chiles IPO, the Company's
ownership interest in Chiles Offshore was reduced to 27.3% and as of September
30, 2001 was 23.8%. With less than 50% ownership interest, the Company no longer
consolidates Chiles Offshore and its consolidated subsidiaries' financial
condition, results of operations and cash flows and, as of September 22, 2000,
began accounting for its interest in Chiles Offshore using the equity method.
The Company evaluates the performance of each operating business segment based
upon the operating profit of the segment, which includes gains and losses from
the sale of equipment and interests in 50% or less owned companies and equity
interests in the earnings (losses) of 50% or less owned companies but excludes
minority interest in subsidiaries, interest income and expense, gains and losses
from derivative transactions and the sale of marketable securities, corporate
expenses, and income taxes. Operating profit is defined as Operating Income as
reported in the Consolidated Statements of Operations excluding corporate
expenses and including certain other income and expense items. The accounting
policies of the operating business 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, 2000. The table presented below sets forth operating
revenue and profit 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
Offshore Other and
Marine Environmental Drilling Corporate Total
----------- ---------------- ------------- --------------- -------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001:
Operating Revenues -
External Customers................................. $ 110,785 $ 5,916 $ - $ 2,657(a) $ 119,358
Intersegment....................................... 191 - - (191) -
----------- ---------------- ------------- --------------- -------------
Total........................................... $ 110,976 $ 5,916 $ - $ 2,466 $ 119,358
=========== ================ ============= =============== =============
Operating Profit...................................... $ 31,579 $ 78 $ - $ 732 $ 32,389
Gains from Equipment Sales and Retirements, net....... 4,141 4 - - 4,145
Equity in Earnings (Losses) of 50% or Less Owned
Companies............................................ 833 59 1,151 (1,391) 652
Minority Interest in Subsidiaries..................... - - - (92) (92)
Interest Income....................................... - - - 3,023 3,023
Interest Expense...................................... - - - (5,798) (5,798)
Derivative Income, net................................ - - - 1,997 1,997
Gains from Sale of Marketable Securities, net ........ - - - 1,184 1,184
Corporate Expenses.................................... - - - (2,549) (2,549)
Income Taxes.......................................... - - - (12,445) (12,445)
----------- ---------------- ------------- --------------- -------------
Income (Loss) before Extraordinary Item............ $ 36,553 $ 141 $ 1,151 $ (15,339) $ 22,506
================================================================================================================================
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000:
Operating Revenues -
External Customers................................. $ 72,320 $ 6,200 $ 14,724 $ 308(a) $ 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
Gains from Equipment Sales and Retirements, 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 Subsidiaries..................... - - - (2,093) (2,093)
Interest Income....................................... - - - 4,273 4,273
Interest Expense...................................... - - - (6,792) (6,792)
Derivative Income, net................................ - - - 6,696 6,696
Gains 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 NINE MONTHS ENDED SEPTEMBER 30, 2001:
Operating Revenues -
External Customers................................. $ 298,128 $ 20,177 $ - $ 6,681 (a)$ 324,986
Intersegment....................................... 631 - - (631) -
----------- ---------------- ------------- --------------- -------------
Total $ 298,759 $ 20,177 $ - $ 6,050 $ 324,986
=========== ================ ============= =============== =============
Operating Profit...................................... $ 72,874 $ 1,648 $ - $ 1,438 $ 75,960
Gains (Losses) from Equipment Sales and
Retirements, net..................................... 8,143 6 - (157) 7,992
Equity in Earnings (Losses) of 50% or Less Owned
Companies............................................ 4,051 62 3,988 (3,758) 4,343
Gain from Sale of Interest in a 50% or Less Owned
Company.............................................. 100 - - - 100
Minority Interest in Subsidiaries..................... - - - (256) (256)
Interest Income....................................... - - - 10,910 10,910
Interest Expense...................................... - - - (16,793) (16,793)
Derivative Income, net................................ - - - 1,962 1,962
Gains from Sale of Marketable Securities, net......... - - - 3,583 3,583
Corporate Expenses.................................... - - - (7,251) (7,251)
Income Taxes.......................................... - - - (27,632) (27,632)
----------- ---------------- ------------- --------------- -------------
Income (Loss) before Extraordinary Item............ $ 85,168 $ 1,716 $ 3,988 $ (37,954) $ 52,918
================================================================================================================================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
Operating Revenues -
External Customers................................. $ 196,828 $ 17,125 $ 37,379 $ 308(a) $ 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
Gains from Equipment Sales and Retirements, 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 Subsidiaries..................... - - - (3,303) (3,303)
Interest Income....................................... - - - 12,394 12,394
Interest Expense...................................... - - - (21,146) (21,146)
Derivative Income, net................................ - - - 5,617 5,617
Gains 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
================================================================================================================================
(a) Operating revenues are attributable to the Company's inland barge business
that commenced operation in the third quarter of 2000.
8
8. LONG-TERM DEBT --
During the nine-month period ended September 30, 2001, SEACOR called for
redemption $100,000,000 of the $181,600,000 aggregate principal amount
outstanding of its 5 3/8% Convertible Subordinated Notes Due November 15, 2006
(the "5 3/8% Notes"). The redemption price was $1,029.90 per $1,000 principal
amount of notes plus accrued interest to the applicable redemption date. Holders
of notes being called were able to convert any or all of their notes into
22.7272 shares of SEACOR's common stock per $1,000 principal amount of notes.
The call, together with certain privately negotiated transactions, resulted in
the conversion of $99,166,000 principal amount of the 5 3/8% Notes into
2,285,878 shares of SEACOR's common stock and redemption of $36,114,000
principal amount of the 5 3/8% Notes for approximately $37,970,000.
Pursuant to an amended and restated standby purchase agreement between Credit
Suisse First Boston ("CSFB") and SEACOR, CSFB was obligated, subject to several
conditions, to purchase from SEACOR, at a purchase price of $46.26 per share,
the number of shares of SEACOR's common stock necessary to provide SEACOR with
the proceeds to pay the aggregate total redemption price of up to $100,000,000
face amount of the 5 3/8% Notes that SEACOR redeemed. In the second quarter,
CSFB purchased 216,170 shares of SEACOR's common stock to provide SEACOR with
proceeds to redeem $10,000,000 principal amount of the 5 3/8% Notes that were
called but not converted. Related underwriting and legal and professional fees
expensed in the nine-month period ended September 30, 2001 totaled $586,000.
SEACOR also entered into an equity forward transaction with Credit Suisse First
Boston International ("CSFBi"), an affiliate of CSFB, with respect to shares of
SEACOR's common stock that CSFB purchased from SEACOR under the standby purchase
agreement. The equity forward transaction provides that at maturity, which will
occur twelve months following this purchase by CSFB of shares of SEACOR's common
stock, SEACOR will elect, as described below, to either purchase the shares
covered by the equity forward transaction from CSFBi or cash settle the
transaction. If SEACOR elects to purchase the shares from CSFBi, it will pay a
purchase price equal to $46.26 (the purchase price under the standby purchase
agreement) plus interest calculated at LIBOR plus 115 basis points, from the
date that CSFB purchased those shares from SEACOR to the date that SEACOR
purchases those shares from CSFBi. If SEACOR elects to cash settle the
transaction, then if the value of the shares at maturity (determined on the
basis of the net proceeds that CSFBi is able to receive upon the sale of those
shares in the open market) exceeds the purchase price described above, then
CSFBi will pay to SEACOR the amount of such excess in cash at maturity. If the
purchase price exceeds the value of the shares at maturity, then SEACOR will pay
to CSFBi the amount of such excess in cash at maturity. SEACOR has the right to
accelerate the maturity of the equity forward transaction in whole or in part at
any time upon prior written notice to CSFBi. The equity forward transaction also
contains customary events of default and termination events following which
either one or both parties would have the right to terminate the transaction and
make net cash payments based on the net value of the transaction at the time of
termination.
The market value of SEACOR's common stock issued in the equity forward
transaction was $2,283,000 less than the price at which SEACOR could purchase
those same shares from CSFBi, assuming maturity at September 30, 2001. Although
this temporary decline is not reflected in net income as reported in the
Condensed Consolidated Statements of Operations, the Company did deduct
$2,283,000 from income available to common stockholders in the computation of
diluted earnings per share for the three and nine-month periods ended September
30, 2001 as its effect was dilutive in both periods.
9. COMMITMENTS AND CONTINGENCIES --
As of September 30, 2001, the Company was committed to the construction of 12
offshore support vessels for an approximate aggregate cost of $88,118,000 of
which $38,678,000 has been expended. Following quarter-end, the Company
committed to the construction of 50 barges for an approximate aggregate cost of
$12,000,000. These vessels and barges are expected to enter service within the
next twelve months.
10. SUBSEQUENT EVENTS -
In October 2001, the Company received a binding commitment letter from a group
of banks which sets forth the preliminary terms for a five year multi-currency
senior unsecured revolving credit facility of $200,000,000 (the "New Credit
Facility"). The New Credit Facility will replace the Company's existing
unsecured reducing revolving credit facility with Den norske Bank ASA. The
Company intends to use the New Credit Facility to fund general corporate
purposes. The Company has agreed to assist the bank group in syndicating up to
$85,000,000 to other banks. The New Credit Facility is expected to close during
the fourth quarter of 2001.
9
Subject to definitive documentation, the commitment letter provides that the New
Credit Facility would mature five years from the date of closing and outstanding
borrowings would bear interest at annual rates ranging from 45 to 110 basis
points above LIBOR. The commitment letter also provides that the New Credit
Facility would require the Company, on a consolidated basis, to maintain certain
debt to capitalization ratios, a minimum interest coverage ratio, and a minimum
net worth.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain statements discussed in Item 2 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) and Item 3 (Quantitative and
Qualitative Disclosures About Market Risk) and elsewhere in this Form 10-Q
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
concerning Management's expectations, strategic objectives, business prospects,
anticipated economic performance and financial condition and other similar
matters involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of
results to differ materially from any future results, performance or
achievements discussed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others: general
economic and business conditions, the cyclical nature of our business, adequacy
of insurance coverage, currency exchange fluctuations, changes in foreign
political, military and economic conditions, the ongoing need to replace aging
vessels, dependence of spill response revenue on the number and size of spills
and upon continuing government regulation in this area and our ability to comply
with such regulation and other governmental regulation, industry fleet capacity,
changes in foreign and domestic oil and gas exploration and production activity,
competition, regulatory initiatives, customer preferences, marine-related risks,
and various other matters, many of which are beyond the Company's control and
other factors as are described at the end of Item 7 (Management's Discussion and
Analysis of Financial Condition and Results of Operations) of the Company's Form
10-K for the fiscal year ended December 31, 2000. The words "estimate,"
"project," "intend," "believe," "plan" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements speak only as of
the date of the document in which they are made. We disclaim any obligation or
undertaking to provide any updates or revisions to any forward-looking statement
to reflect any change in our expectations or any change in events, conditions or
circumstances on which the forward-looking 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 primarily affected 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.
Opportunities to buy and sell vessels are actively monitored by the Company to
maximize overall fleet utility and flexibility. Expansion has been achieved
principally through the purchase of offshore support vessels from its
competitors, construction of new vessels, and equity holdings in joint ventures
that own offshore support vessels. The Company has also sold many vessels from
its fleet, particularly those that were less marketable in the Company's
ordinary operations. Since 1997, proceeds from certain vessel sales have been
deposited into restricted cash accounts for purposes of acquiring newly
constructed U.S.-flag vessels and thereby qualifying the Company for temporary
deferral of taxable gains realized from vessel sales. During the first nine
months of 2001, the Company continued fleet expansion with the acquisition and
construction of 17 mini-supply, 14 supply and towing supply, 11 utility, 3
anchor handling towing supply, and 2 crew vessels. During the nine months ended
September 30, 2001, the Company also sold 7 crew, 6 utility, 4 towing supply,
and 2 standby safety vessels and removed 3 standby safety vessels from service
that are held for sale.
From time to time, the Company bareboat or time charters-in vessels. A bareboat
charter is a vessel lease under which the lessee ("charterer") is responsible
for all crewing, insurance, and other operating expenses, as well as the payment
of bareboat charter hire to the providing entity. A time charter is a lease
under which the entity providing the vessel is responsible for all crewing,
insurance, and other operating expenses and the charterer only pays a time
charter hire fee to the providing entity. Operating revenues for vessels owned
and bareboat or time chartered-in are incurred at similar rates; however,
operating expenses associated with vessels bareboat and time chartered-in
11
include charter hire expenses that, in turn, are included in vessel expenses,
but exclude depreciation expense.
From time to time, the Company provides management services to other vessel
owners. Charter revenues and vessel expenses of such managed vessels are not
generally included in the Company's operating results, but the Company does earn
a management fee that is reported in operating revenue. 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, 2001, there were 19 vessels
bareboat chartered-out, including 7 and 3 vessels operated by certain of the
Company's offshore marine joint ventures and environmental service segment,
respectively.
The table below sets forth the Company's offshore marine fleet structure at the
dates indicated:
AT SEPTEMBER 30,
--------------------------------------
FLEET STRUCTURE 2001 2000
- ---------------------------------------------------------- ----------------- ------------------
Owned........................................................ 254(a) 230
Bareboat and Time Chartered-In............................... 14 22
Managed...................................................... 7 5
Joint Ventures and Pools:
TMM Joint Venture......................................... 21 18
SMIT Joint Venture........................................ 14 15
Pelican Joint Venture..................................... 7 -
Other Joint Ventures...................................... 6 8
SEAVEC Pool............................................... 5 5
Avian Fleet Pool.......................................... - 4
----------------- ------------------
Overall Fleet..................................... 328 307
================= ==================
(a) 2001 excludes three standby safety vessels that were removed from
service and are held for sale.
Rates per day worked and utilization of the Company's fleet are a function of
demand for and availability of marine vessels, which are closely aligned with
the level of exploration and development of offshore areas. The level of
exploration and development of offshore areas is affected by both short-term and
long-term trends in oil and gas prices which, in turn, are related to the demand
for petroleum products and the current availability of oil and gas resources.
The table below sets forth rates per day worked and utilization data for the
Company during the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------- -------------- ------------- --------------
RATES PER DAY WORKED ($): (1) (2)
Supply and Towing Supply........................... 8,200 5,096 7,670 4,923
Anchor Handling Towing Supply...................... 15,095 10,787 13,921 11,161
Crew............................................... 3,411 2,687 3,283 2,578
Standby Safety..................................... 5,612 5,317 5,386 5,421
Utility and Line Handling.......................... 1,976 1,582 1,888 1,602
Mini-Supply(3)..................................... 3,211 2,023 3,087 2,018
Geophysical, Freight, and Other.................... 5,380 5,481 5,413 5,715
Overall Fleet.............................. 5,365 3,819 4,983 3,715
OVERALL UTILIZATION (%): (1)
Supply and Towing Supply........................... 91.3 82.0 89.3 69.8
Anchor Handling Towing Supply...................... 84.5 74.7 82.6 69.3
Crew............................................... 95.0 93.8 95.8 94.0
Standby Safety..................................... 91.4 86.0 87.9 76.0
Utility and Line Handling.......................... 58.6 60.4 56.4 56.5
Mini-Supply(3) .................................... 93.9 94.6 93.9 94.7
Geophysical, Freight, and Other.................... 50.0 57.9 54.6 47.1
Overall Fleet(4)........................... 83.2 79.8 82.0 74.6
(1) Rates per day worked is the ratio of total charter revenue to
the total number of vessel days worked. Rates per day worked
and overall utilization figures exclude owned vessels that are
bareboat chartered-out, vessels owned by corporations that
participate in pooling arrangements with the Company, joint
venture vessels, and managed/operated vessels and include
vessels bareboat and time chartered-in by the Company.
(2) Revenues for certain of the Company's vessels, primarily
operating in the North Sea, are earned in foreign currencies,
primarily Pounds Sterling, and have been converted to U.S.
dollars at the weighted average exchange rate for the periods
indicated.
(3) Effective January 1, 2001, the Company began reporting a new
class of vessel denoted Mini-Supply. As a result, seven
utility and one supply vessel in the three and nine-month
periods ended September 30, 2000 were reclassified as
Mini-Supply.
(4) Excluding the impact of utility vessels stacked in the U.S.
Gulf of Mexico, most of which are intended to be sold, the
Company's overall fleet utilization was 92.1% and 91.5% in the
three and nine-month periods ended September 30, 2001,
respectively.
12
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.
Certain of the Company's revenues and expenses, primarily related 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, approximately 40% and 36% of the Company's offshore marine operating
revenues were derived from foreign operations (in U.S. dollars or foreign
currencies) in the nine-month periods ended September 30, 2001 and 2000,
respectively.
The Company's foreign offshore marine operations are subject to various risks
inherent in conducting business in foreign nations. These risks include, among
others, political instability, potential vessel seizure, nationalization of
assets, fluctuating currency values, hard currency shortages, controls of
currency exchange, the repatriation of income or capital, import-export quotas,
and other forms of public and governmental regulation, all of which are beyond
the control of the Company. Although, historically, the Company's operations
have not been affected materially by such conditions or events, it is not
possible to predict whether any such conditions or events might develop in the
future. The occurrence of any one or more of such conditions or events could
have a material adverse effect on the Company's financial condition and results
of operations.
Regulatory drydockings, which are a substantial component of marine maintenance
and repair costs, are expensed when incurred. Under applicable maritime
regulations, vessels must be drydocked twice in a five-year period for
inspection and routine maintenance and repair. The Company follows an asset
management strategy pursuant to which it defers required drydocking of selected
marine vessels and voluntarily removes these marine vessels from operation
during periods of weak market conditions and low rates per day worked. Should
the Company undertake a large number of drydockings in a particular fiscal
quarter or 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, 2001 and 2000,
drydocking costs totaled $8.7 million and $5.9 million, respectively. During
those same periods, the Company completed the drydocking of 78 and 61 marine
vessels, respectively. At September 30, 2001, the Company had 26 vessels out of
service, including 22 U.S. based utility vessels that require drydocking prior
to re-entering operations.
Operating results are also affected by the Company's participation in various
joint ventures. The Company has formed or acquired interests in offshore marine
joint ventures and entered into pooling arrangements with various third parties
to enter new markets, enhance its marketing capabilities, and facilitate
operations in certain foreign markets. These arrangements allow the Company to
expand its fleet while diversifying the risks and reducing the capital outlays
associated with independent fleet expansion. The Company also participates in a
logistics joint venture whose mission has been to provide shorebase, marine
transport, and other supply chain management services in support of offshore
exploration and production operations principally in the U.S. Gulf of Mexico.
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 and
general economic conditions.
U.S. Gulf of Mexico rig activity has declined in recent months due, apparently,
to lower natural gas prices and current natural gas inventories that are
reported to be near capacity. Utilization of jack-up rigs working on the U.S.
Gulf of Mexico shelf was particularly hard hit, although work for deepwater rigs
remained steady. Drilling activities in the U.S. Gulf of Mexico may also be
adversely affected by the present U.S. economic slowdown, which may be further
exacerbated by the September 11, 2001 terrorist attacks in New York City and
Washington, D.C. Recent reports have indicted that exploration and production
companies have spent most of their capital budgets during the first half of 2001
when commodity prices were high, and there is little prospect for a strong rig
market in the near term.
13
Utilization of the Company's domestic offshore marine fleet is significantly
affected by natural gas exploration and production activities in the U.S. Gulf
of Mexico. It is difficult to predict when, and to what extent, natural gas
prices and the U.S. economy will improve or deteriorate further. Weak commodity
prices, economic problems in countries outside the United States, and other
factors beyond the Company's control could further curtail exploration and
production spending by oil and gas companies. Should recent trends and levels of
activity continue, the Company's results of operations and cash flows will be
adversely affected, and if such conditions deteriorated severely and if they
then persisted for an extended period of time, they would have an adverse effect
on the Company's financial position.
The Company's fleet is currently operating at fairly high rates and levels of
utilization, although rates and utilization levels have declined for some
classes of vessels working in the U.S. Gulf of Mexico. The Company believes that
the level of drilling activity in the U.S. Gulf of Mexico will depend on the
demand for natural gas in 2002, which, in turn, will depend on weather, the
economy and the rate of depletion being experienced for existing wells, both
offshore and on land. The price of oil could impact the level of drilling
activity in other markets but, at present, drilling activity in international
markets remains strong.
ENVIRONMENTAL SERVICES
The Company's environmental service business provides contractual oil spill
response and other related training and consulting services. The Company's
clients include tank vessel owner/operators, refiners and terminal operators,
exploration and production facility operators, and pipeline operators. The
Company charges a retainer fee to its customers for ensuring by contract the
availability (at predetermined rates) of its response services and equipment.
Retainer services include employing a staff to supervise response to an oil
spill emergency and maintaining specialized equipment, including marine
equipment, in a ready state for emergency and spill response as contemplated by
response plans filed by the Company's customers in accordance with the Oil
Pollution Act of 1990, as amended, and various state regulations. The Company
maintains relationships with numerous environmental sub-contractors to assist
with response operations, equipment maintenance, and provide trained personnel
for deploying equipment in a spill response.
Pursuant to retainer agreements entered into with the Company, certain vessel
owners pay in advance to the Company an annual retainer fee based upon the
number and size of vessels in each such owner's fleet and in some circumstances
pay the Company additional fees based upon the level of each vessel owner's
voyage activity in the U.S. The Company recognizes the greater of revenue earned
by voyage activity or the portion of the retainer earned in each accounting
period. Certain vessel and facility owners pay a fixed fee or a fee based on
volume of petroleum product transported for the Company's retainer services and
such fee is recognized ratably throughout the year. The Company's retainer
agreements with vessel owners generally range from one to three years while
retainer arrangements with facility owners are as long as ten years.
Spill response revenue is dependent on the number of spill responses within a
given fiscal period and the magnitude of each. 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
subcontractors for labor, equipment, and materials, (ii) direct charges to the
Company for equipment and materials, (iii) participation interests of others in
gross profits from oil spill response, and (iv) training and exercises related
to spill response preparedness.
The Company charges consulting fees to customers for customized training
programs, its planning of and participation in customer oil spill response drill
programs and response exercises, and other special projects.
The principal components of the Company's operating costs are salaries and
related benefits for operating personnel, payments to sub-contractors, equipment
maintenance, and depreciation. These expenses are primarily a function of
regulatory requirements and the level of retainer business.
In 1996, National Response Corporation ("NRC") expanded its coverage area to
include the West Coast of the United States through Clean Pacific Alliance
("CPA"), a joint venture with Crowley Marine Services. On November 30, 2000, NRC
purchased Crowley Marine Service's 50% interest in CPA and began a termination
and winding up process. As of that date, all of CPA's obligations under existing
contracts were assumed by NRC. CPA will be dissolved upon completion of the
termination and winding up of its affairs.
INVESTMENT IN DRILLING SERVICES BUSINESS
The Company consolidated the reporting of financial information of drill rig
operator Chiles Offshore LLC, due to the Company's majority ownership, from its
inception in 1997 until its initial public offering of common stock (the "Chiles
IPO") on September 22, 2000. On that date, Chiles Offshore LLC converted into a
14
corporation, was renamed Chiles Offshore Inc. ("Chiles Offshore"), and completed
the Chiles IPO. As a consequence of the Chiles IPO, the Company's ownership
interest in Chiles Offshore was reduced from 55.4% to 27.3%. Because its
ownership interest declined below 50%, the Company no longer consolidates Chiles
Offshore and its consolidated subsidiaries' (together, "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. At
September 30, 2001, the Company's ownership interest in Chiles Offshore was
23.8%.
Chiles operated as a development stage company from its inception and until July
1999, devoting substantially all its efforts to constructing rigs, raising
capital, and securing contracts for its rigs. In 1997, Chiles commenced
construction of two ultra-premium jackup drilling rigs, the Chiles Columbus and
the Chiles Magellan, which were delivered to Chiles in May 1999 and October
1999, respectively. From its delivery and final commissioning in April 2000,
Chiles bareboat chartered-in and operated the jackup drilling rig, Tonala, until
acquiring it in July 2001. The consideration paid for the rig consisted of
2,679,723 shares of Chiles' common stock and the assumption of $58.8 million of
aggregate principal amount of debt. Following the acquisition, the Tonala was
renamed Chiles Coronado. In September 2001, the Chiles Coronado commenced
operations offshore Trinidad pursuant to a three-year contract with a major
integrated oil and gas operator.
The number of rigs Chiles operates is a function of rigs delivered to service
through its capital construction program and rigs placed in operation under
charter. In the U.S. Gulf of Mexico, Chiles typically operates its rigs on
well-to-well contracts that last 30 to 90 days; whereas, in international
operations, Chiles has entered into drilling contracts for multi-year periods.
Chiles has two rigs under construction, which are expected to be completed
during the second and third quarters of 2002. Chiles has contracted to operate
the rig scheduled to be completed during the second quarter of 2002 for a major
independent oil and gas operator for a term that will last for a minimum of 600
days.
Chiles derives its revenue primarily from drilling wells for oil and gas
operators pursuant to drilling contracts. These drilling contracts typically
provide for base day rates, which may be subject to adjustments based on
performance incentives. Fees and expenses for transporting Chiles' rigs between
sites are included in revenues and expenses. The effective average day rate for
Chiles' rigs was $74,762 and $58,754 for the three-month periods ended September
30, 2001 and 2000, respectively, and $71,597 and $54,519 for the nine-month
periods ended September 30, 2001 and 2000, respectively, and utilization was
100% in all reported periods. In calculating the effective average day rates,
Chiles divides revenues earned by its rigs during the period by the total number
of days in the period. In addition, Chiles' effective average day rates include
bonuses, which may be triggered by achieving performance and safety targets in
some of Chiles' contracts and mobilization revenue.
Chiles' rig operating expenses primarily consist of crew, insurance, and repair
and maintenance costs. General and administrative expenses primarily consist of
management, administration, marketing, finance, and legal expenses.
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 fourth quarter of 2000, the Company acquired 23 newly constructed inland
river hopper barges ("barges") and SCF Corporation, a company that owned and
operated barges. In 2001, the Company acquired an additional 52 newly
constructed barges at an approximate cost of $12.9 million. At September 30,
2001, the Company owned 118 barges and a 50% interest in a partnership that
owned 11 barges and managed 209 barges for third parties.
In addition, the Company, from time to time, makes investments in other related
businesses.
15
RESULTS OF OPERATIONS
The following table sets forth operating revenue and operating profit by the
Company's various business segments for the periods indicated, in thousands of
dollars.
Offshore Other and
Marine Environmental Drilling Corporate Total
----------- ---------------- ------------- --------------- -------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001:
Operating Revenues -
External Customers................................... $ 110,785 $ 5,916 $ - $ 2,657(a) $ 119,358
Intersegment......................................... 191 - - (191) -
----------- ---------------- ------------- --------------- -------------
Total $ 110,976 $ 5,916 $ - $ 2,466 $ 119,358
=========== ================ ============= =============== =============
Operating Profit........................................ $ 31,579 $ 78 $ - $ 732 $ 32,389
Gains from Equipment Sales and Retirements, net......... 4,141 4 - - 4,145
Equity in Earnings (Losses) of 50% or Less Owned
Companies.............................................. 833 59 1,151 (1,391) 652
Minority Interest in Subsidiaries....................... - - - (92) (92)
Net Interest Expense.................................... - - - (2,775) (2,775)
Derivative Income, net.................................. - - - 1,997 1,997
Gains from Sale of Marketable Securities, net........... - - - 1,184 1,184
Corporate Expenses...................................... - - - (2,549) (2,549)
Income Taxes............................................ - - - (12,445) (12,445)
----------- ---------------- ------------- --------------- -------------
Income (Loss) before Extraordinary Item.............. $ 36,553 $ 141 $ 1,151 $ (15,339) $ 22,506
==================================================================================================================================
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000:
Operating Revenues -
External Customers................................... $ 72,320 $ 6,200 $ 14,724 $ 308(a) $ 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
Gains from Equipment Sales and Retirements, 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 Subsidiaries....................... - - - (2,093) (2,093)
Net Interest Expense.................................... - - - (2,519) (2,519)
Derivative Income, net.................................. - - - 6,696 6,696
Gains 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 NINE MONTHS ENDED SEPTEMBER 30, 2001:
Operating Revenues -
External Customers................................... $ 298,128 $ 20,177 $ - $ 6,681(a) $ 324,986
Intersegment......................................... 631 - - (631) -
----------- ---------------- ------------- --------------- -------------
Total $ 298,759 $ 20,177 $ - $ 6,050 $ 324,986
=========== ================ ============= =============== =============
Operating Profit........................................ $ 72,874 $ 1,648 $ - $ 1,438 $ 75,960
Gains (Losses) from Equipment Sales and
Retirements, net....................................... 8,143 6 - (157) 7,992
Equity in Earnings (Losses) of 50% or Less Owned
Companies.............................................. 4,051 62 3,988 (3,758) 4,343
Gain from Sale of Interest in a 50% or Less Owned
Company................................................ 100 - - - 100
Minority Interest in Subsidiaries....................... - - - (256) (256)
Net Interest Expense.................................... - - - (5,883) (5,883)
Derivative Income, net.................................. - - - 1,962 1,962
Gains from Sale of Marketable Securities, net........... - - - 3,583 3,583
Corporate Expenses...................................... - - - (7,251) (7,251)
Income Taxes............................................ - - - (27,632) (27,632)
----------- ---------------- ------------- --------------- -------------
Income (Loss) before Extraordinary Item.............. $ 85,168 $ 1,716 $ 3,988 $ (37,954) $ 52,918
==================================================================================================================================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
Operating Revenues -
External Customers................................... $ 196,828 $ 17,125 $ 37,379 $ 308(a) $ 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
Gains from Equipment Sales and Retirements, 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 Subsidiaries....................... - - - (3,303) (3,303)
Net Interest Expense.................................... - - - (8,752) (8,752)
Derivative Income, net.................................. - - - 5,617 5,617
Gains 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
==================================================================================================================================
(a) Operating revenues are attributable to the Company's inland barge business
that commenced operation in the third quarter of 2000.
16
OFFSHORE MARINE SERVICES
OPERATING REVENUES. The Company's offshore marine service segment's operating
revenues increased $38.6 million, or 53%, and $101.6 million, or 52%, in the
three and nine-month periods ended September 30, 2001, respectively, compared to
the three and nine-month periods ended September 30, 2000. Operating revenues
rose due primarily to the entry into service of vessels acquired by and
constructed for the Company and higher rates per day worked and fleet
utilization. These increases were partially offset by a decline in operating
revenues due to vessel dispositions.
The acquisition and construction of 17 standby safety, 17 mini-supply, 17 supply
and towing supply, 11 utility, 4 anchor handling towing supply, and 4 crew
vessels contributed $24.9 million and $60.5 million toward the increase in
operating revenues between comparable three and nine-month periods,
respectively.
Significant increases in rates per day worked resulted in an approximate $14.9
million and $36.1 million increase in operating revenues between comparable
three and nine-month periods, respectively. Rates per day worked for all classes
of the Company's worldwide fleet rose except for its project vessels whose rates
per day worked remained relatively unchanged.
Improved utilization also resulted in higher operating revenues of approximately
$4.1 million and $15.5 million between comparable three and nine-month periods,
respectively. Demand rose for the Company's worldwide fleet of supply and towing
supply, anchor handling towing supply, and standby safety vessels.
The sale and charter-in termination of 15 supply and towing supply, 5 standby
safety, 4 crew, 3 anchor handling towing supply, and 3 utility vessels resulted
in a decline in operating revenues of approximately $5.2 million and $10.9
million between comparable three and nine-month periods, respectively.
OPERATING PROFIT. The Company's offshore marine business segment's operating
profit increased $24.9 million, or 370%, and $53.6 million, or 278%, in the
three and nine-month periods ended September 30, 2001, respectively, compared to
the three and nine-month periods ended September 30, 2000 due primarily to those
factors affecting operating revenues outlined above. The increases in operating
profit were offset by higher operating expenses that resulted primarily from (i)
an increase in crew wages paid to seamen working domestically in response to
competition for qualified personnel, (ii) the sale and leaseback of several
vessels, (iii) a greater number of vessels undergoing drydockings, and (iv)
higher costs associated with repairs and maintenance of main engines and deck
and winch equipment.
GAINS FROM EQUIPMENT SALES OR RETIREMENTS, NET. Net gains from equipment sales
or retirements increased $2.3 million and $1.2 million in the three and
nine-month periods ended September 30, 2001, respectively, compared to the three
and nine-month periods ended September 30, 2000. During the nine-month period
ended September 30, 2001, seven crew, six utility, four towing supply, and two
standby safety vessels were sold. During the nine-month period ended September
30, 2000, the vessels sold included eight utility, three towing supply, two
supply, and one crew vessel.
EQUITY IN EARNINGS (LOSSES) OF 50% OR LESS OWNED COMPANIES. Equity earnings
increased $2.9 million and $4.8 million in the three and nine-month periods
ended September 30, 2001, respectively, compared to the three and nine-month
periods ended September 30, 2000. Equity earnings rose due primarily to an
increase in profits earned by the Company's Mexican joint venture and higher
profits (including a gain from the sale of a vessel) earned by certain joint
ventures in which the Company acquired an interest pursuant to a 1996
transaction with SMIT Internationale N.V. ("SMIT"). Results in 2001 also rose
due to the commencement of operations of a joint venture in Southeast Asia.
ENVIRONMENTAL SERVICES
OPERATING REVENUES. The environmental business segment's operating revenues
decreased $0.3 million, or 5%, in the three-month period ended September 30,
2001 compared to the three-month period ended September 30 2000; whereas,
revenues increased $3.1 million, or 18%, in the nine-month period ended
September 30, 2001 compared to the nine-month period ended September 30, 2000.
The decrease in the comparable three-month periods was due primarily to the
decline in the severity of oil spills managed by the Company. The nine month
results improved due primarily to the addition of a major West Coast terminal
operator client and an increase in retainer revenues.
OPERATING PROFIT. The environmental business segment's operating profit
decreased $0.7 million, or 89%, in the three-month period ended September 30,
2001 compared to the three-month period ended September 30, 2000; whereas,
operating profit increased $0.1 million, or 5%, in the nine-month period ended
September 30, 2001 compared to the nine-month period ended September 30, 2000
17
due primarily to the factors affecting operating revenues as outlined above. In
the comparable three-month period, operating profits also declined as higher
drydocking costs were expended to repair spill response vessels.
EQUITY IN EARNINGS (LOSSES) OF 50% OR LESS OWNED COMPANIES. Equity earnings
decreased $0.1 million and $0.3 million in the three and nine-month periods
ended September 30, 2001, respectively, compared to the three and nine-month
periods ended September 30, 2000. On November 30, 2000, NRC purchased Crowley
Marine Service's 50% interest in CPA and began a termination and winding up
process. As of that date, all of CPA's obligations under existing contracts were
assumed by NRC. CPA will be dissolved upon completion of the termination and
winding up of its affairs.
DRILLING SERVICES
As a consequence of the Chiles IPO, the Company's ownership interest in Chiles
Offshore was reduced from 55.4% to 27.3% and consequently, because its ownership
interest declined below 50%, the Company no longer consolidates Chiles'
financial condition, results of operations, and cash flows. As of September 22,
2000, the Company began accounting for its interest in Chiles using the equity
method.
OTHER
EQUITY IN LOSSES OF 50% OR LESS OWNED COMPANIES. Equity losses increased $0.2
million and decreased $0.2 million in the three and nine-month periods ended
September 30, 2001, respectively, compared to the three and nine-month periods
ended September 30, 2000. Nine-month results improved due to a decline in the
operating losses of the Company's telecommunication services joint venture and a
gain realized from the sale of a Handymax Dry-Bulk ship by the Company's bulk
carrier joint venture. In the second quarter of 2001, the Company began
recording its proportionate share of net losses of Strategic Software Limited,
an equity investee whose principal activity is to develop and sell software to
the ship brokerage and shipping industry.
NET INTEREST EXPENSE. Net interest expense increased $0.3 million and decreased
$2.9 million in the three and nine-month periods ended September 30, 2001,
respectively, compared to the three and nine-month periods ended September 30,
2000. Declines in net interest were due primarily to a decline in outstanding
indebtedness following the deconsolidation of Chiles Offshore in September 2000
and SEACOR's redemption of $135.3 million principal amount of the 5 3/8%
Convertible Subordinated Notes Due 2006 (the "5 3/8% Notes") during the first
nine months of 2001. See "Liquidity and Capital Resources -- Credit Facilities
- -- 5 3/8% Notes" for additional discussion. These savings were partially offset
by the effect of additional indebtedness and lower cash balances available for
investments resulting primarily from the acquisition of offshore marine vessels.
DERIVATIVE INCOME (LOSSES), NET. Net gains from derivative transactions
decreased $4.7 million and $3.7 million in the three and nine-month periods
ended September 30, 2001, respectively, compared to the three and nine-month
periods ended September 30, 2000 as gains realized from the termination of
certain swap agreements in 2000 did not recur. Net gains from commodity price
hedging arrangements on various natural gas and crude oil positions and foreign
currency forward exchange contracts in 2001 partially offset the decline.
GAINS FROM SALE OF MARKETABLE SECURITIES, NET. Net gains from the sale of
marketable securities decreased $0.9 million and $0.8 million in the three and
nine-month periods ended September 30, 2001, respectively, compared to the three
and nine-month periods ended September 30, 2000. In all periods presented, the
Company realized net gains primarily from the sale of equity securities.
CORPORATE EXPENSES. In the three and nine-month periods ended September 30, 2001
compared to the three and nine-month periods ended September 30, 2000, corporate
expenses increased $1.2 million and $3.1 million, respectively. 2001 included
underwriting fees and legal and professional expenses relating to unused
availability under a standby purchase agreement with Credit Suisse First Boston
("CSFB") in connection with the redemption of certain of the Company's 5 3/8%
Notes and higher costs resulting from an increase in the number of filings with
the Securities and Exchange Commission. See "Liquidity and Capital Resources --
Credit Facilities -- 5 3/8% Notes" for additional discussion. Corporate expenses
also increased between comparable periods due to an increase in wage and related
benefit costs.
18
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 fleet, rates per day worked and
overall utilization of the Company's offshore marine fleet, and retainer, spill
response, and consulting activities of the Company's environmental service
business. The Company's offshore marine business is 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, 2000, the Company's cash and investments in marketable
securities decreased by $105.0 million. At September 30, 2001, cash and
marketable securities totaled $242.2 million, including $130.8 million of
unrestricted cash and cash equivalents, $56.7 million of marketable securities,
and $54.7 million of restricted cash. Restricted cash at September 30, 2001 is
intended for use in defraying costs to construct U.S.-flag offshore marine
vessels for the Company. At September 30, 2001, the Company had funded $34.0
million in offshore marine vessel construction costs from unrestricted cash
balances, and subject to prior written approval from the U.S. Maritime
Administration, the Company expects such amounts to be reimbursed from its
restricted cash accounts.
CASH GENERATION AND DEPLOYMENT
OPERATING ACTIVITIES. Cash flow provided from operating activities during the
nine-month period ended September 30, 2001 totaled $75.8 million and increased
80.8% from the comparable period in 2000 due primarily to an increase in the
size, rates per day worked, and utilization of the Company's offshore marine
fleet.
INVESTING AND FINANCING ACTIVITIES. During the nine-month period ended September
30, 2001, the Company generated $164.8 million from investing and financing
activities. Available-for-sale securities were sold for $94.1 million. The
Company borrowed $25.0 million under its revolving credit facility with Den
norske Bank ASA ("DnB") (the "DnB Credit Facility"). See "Credit Facilities --
DnB Credit Facility" for discussion. Cash proceeds from the sale of 19 offshore
support vessels totaled $20.6 million. Pursuant to a standby purchase agreement
between CSFB and SEACOR, CSFB purchased 216,170 shares of SEACOR's common stock
for $10.0 million. See "Credit Facilities -- 5 3/8% Notes" for discussion.
Additional cash was generated primarily from the sale of the Company's
investment in a 50% or less owned offshore marine service segment subsidiary,
principal payments received on notes due from 50% or less owned subsidiaries,
dividends received from 50% or less owned subsidiaries, and settlements of
certain derivative transactions.
During the nine-month period ended September 30, 2001, the Company used $331.8
million in its investing and financing activities. To acquire corporations that
own offshore support vessels, the Company paid $98.8 million, net of cash
acquired. Capital expenditures for property and equipment, primarily related to
the acquisition and construction of offshore marine vessels and barges, totaled
$83.1 million. Marketable securities were acquired for $64.1 million. The
Company paid $38.0 million for the redemption of $36.1 million principal amount
of the 5 3/8% Notes. The company repaid $25.0 million borrowed under the DnB
Credit Facility. Restricted cash balances rose by $13.9 million due to deposits
into vessel joint depository construction reserve fund accounts generated from
the sale of offshore support vessels exceeding reimbursements to the Company.
Investments in and advances to 50% or less owned companies, primarily for the
purchase of vessels, totaled $5.1 million. Additional cash was used primarily
for scheduled repayments of outstanding indebtedness.
STOCK AND DEBT REPURCHASE PROGRAM
Pursuant to a stock and debt repurchase program, the Company may repurchase its
common stock, 5 3/8% Notes, and 7.2% Senior Notes Due 2009 (the "7.2% Notes")
(collectively, the "SEACOR Securities"). Repurchases of SEACOR Securities will
be effected from time to time through open market purchases, privately
19
negotiated transactions, or otherwise, depending on market conditions. At
September 30, 2001, the Company had approximately $36.7 million of available
authority for the repurchase of SEACOR Securities.
CAPITAL STRUCTURE
At September 30, 2001, the Company's capital structure was comprised of $344.8
million in long-term debt, including the current portion, and $727.2 million in
stockholders' equity. Since year end, long-term debt declined due primarily to
the conversion of $99.2 million principal amount of the 5 3/8% Notes in exchange
for 2,285,878 shares of SEACOR's common stock and redemption of $36.1 million
principal amount of the 5 3/8% Notes (see "Credit Facilities -- 5 3/8% Notes"
for discussion) for approximately $38.0 million and the Company's regularly
scheduled repayment of certain outstanding indebtedness. These decreases were
partially offset by increases in outstanding indebtedness of $83.1 million in
connection with the acquisition of Stirling Shipping and $13.6 million in
connection with the acquisition of two offshore support vessels. Stockholders'
equity rose since year end due primarily to the conversion of certain of the 5
3/8% Notes into SEACOR's common stock, an increase in retained earnings from net
income, the issuances of SEACOR's common stock from treasury in connection with
the acquisitions of two corporations owning offshore support vessels and a
decrease in other comprehensive losses that resulted primarily from gains from
foreign currency translation adjustments. These increases were partially offset
by the amortization of restricted stock.
CAPITAL EXPENDITURES
As of September 30, 2001, the Company was committed to the construction of 12
offshore support vessels for an approximate aggregate cost of $88.1 million of
which $38.7 million has been expended. Following quarter-end, the Company
committed to the construction of 50 barges for an approximate aggregate cost of
$12.0 million. These vessels and barges are expected to enter service within the
next twelve months.
CREDIT FACILITIES
DNB CREDIT FACILITY. Under the terms of the DnB Credit Facility with Den norske
Bank ASA that was established in November 1998, the Company could borrow up to
$100.0 million aggregate principal amount (the "Maximum Committed Amount") of
unsecured reducing revolving credit loans maturing on November 17, 2004. The
Maximum Committed Amount automatically decreases 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 earnings before
interest, taxes, depreciation, and amortization ("EBITDA") 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, as defined, 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. In May 2001, the Company borrowed $25.0 million under the DnB Credit
facility to fund a portion of the acquisition of Stirling Shipping and then
subsequently repaid it in August 2001. On behalf of the Company, DnB issued a
letter of credit, totaling (pound)15.3 million, which represents a guarantee on
the loan notes issued by the Company in connection with the acquisition of
Stirling Shipping. At September 30, 2001, the outstanding letter of credit
totaled $21.9 million and the amount available for future borrowings under the
DnB Credit Facility totaled $59.9 million.
In October 2001, the Company received a binding commitment letter from a group
of banks which sets forth the preliminary terms for a five year multi-currency
senior unsecured revolving credit facility of $200.0 million (the "New Credit
Facility"). The New Credit Facility will replace the Company's existing
unsecured reducing revolving credit facility with DnB. The Company intends to
use the New Credit Facility to fund general corporate purposes. The Company has
agreed to assist the bank group in syndicating up to $85.0 million to other
banks. The New Credit Facility is expected to close during the fourth quarter of
2001.
Subject to definitive documentation, the commitment letter provides that the New
Credit Facility would mature five years from the date of closing and outstanding
borrowings would bear interest at annual rates ranging from 45 to 110 basis
points above LIBOR. The commitment letter also provides that the New Credit
Facility would require the Company, on a consolidated basis, to maintain certain
debt to capitalization ratios, a minimum interest coverage ratio, and a minimum
net worth.
20
5.467% NOTES. Pursuant to a February 1998 letter agreement between the Company
and SMIT, the Company agreed to prepay certain contingent obligations for
additional purchase consideration that would otherwise have been payable to SMIT
in 1999 pursuant to a certain Asset Purchase Agreement dated December 19, 1996,
by and among the Company and SMIT (the "SMIT Transaction"). The prepayment
included the issuance, effective January 1, 1999, of five-year subordinated
promissory notes in the aggregate principal amount of $23.2 million, which notes
will bear interest at 5.467% per annum payable quarterly in arrears.
7.2% NOTES. At September 30, 2001, the Company had outstanding $147.5 million
aggregate principal amount of its 7.2% Notes. Interest on the 7.2% Notes is
payable semi-annually on March 15 and September 15 of each year commencing March
15, 1998. The 7.2% Notes may be redeemed at any time at the option of the
Company, in whole or from time to time in part, at a price equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of redemption plus a Make-Whole Premium, if any, relating to the then prevailing
Treasury Yield and the remaining life of the 7.2% Notes. The 7.2% Notes were
issued under an indenture that contains covenants including, among others,
limitations on liens and sale and leasebacks of certain Principal Properties, as
defined therein, and certain restrictions on the Company consolidating with or
merging into any other Person.
5 3/8% NOTES. At September 30, 2001, the Company had outstanding $46.3 million
aggregate principal amount of its 5 3/8% Notes that were issued pursuant to a
private placement and the SMIT Transaction in 1996. The 5 3/8% Notes are
convertible, in whole or part, at the option of the holder at any time prior to
the close of business on the business day next preceding November 15, 2006,
unless previously converted into shares of common stock at a conversion price of
$44.00 per share (equivalent to a conversion rate of 22.7272 shares of common
stock per $1,000 principal amount of the 5 3/8% Notes), subject to adjustment in
certain circumstances. The 5 3/8% Notes are redeemable at the Company's option
at any time on or after November 24, 1999 at the redemption prices specified
therein, together with accrued and unpaid interest to the repurchase date. The 5
3/8% Notes are general unsecured obligations of the Company, subordinated in
right of payment to all senior indebtedness of the Company and effectively
subordinated in right of payment to all indebtedness and other obligations and
liabilities and any preferred stock of the Company's subsidiaries. Also,
pursuant to the SMIT Transaction, the Company entered into certain lease
purchase agreements which obligate the Company to purchase two vessels from SMIT
with cash and $6.75 million principal amount of the 5 3/8% Notes in December
2001.
During the nine-month period ended September 30, 2001, SEACOR called for
redemption $100.0 million of the $181.6 million aggregate principal amount
outstanding of its 5 3/8% Notes. The call, together with certain privately
negotiated transactions, resulted in the conversion of $99.2 million principal
amount of the 5 3/8% Notes into 2,285,878 shares of SEACOR's common stock and
redemption of $36.1 million principal amount of the 5 3/8% Notes for
approximately $38.0 million.
Pursuant to an amended and restated standby purchase agreement between CSFB and
SEACOR, CSFB was obligated, subject to several conditions, to purchase from
SEACOR, at a purchase price of $46.26 per share, the number of shares of
SEACOR's common stock necessary to provide SEACOR with the proceeds to pay the
aggregate total redemption price of up to $100.0 million face amount of the 5
3/8% Notes that SEACOR redeemed. In the second quarter, CSFB purchased 216,170
shares of SEACOR's common stock to provide SEACOR with proceeds to redeem $10.0
million principal amount of the 5 3/8% Notes that were called but not converted.
Related underwriting and legal and professional fees expensed in the nine-month
period ended September 30, 2001 totaled $0.6 million.
SEACOR also entered into an equity forward transaction with Credit Suisse First
Boston International ("CSFBi"), an affiliate of CSFB, with respect to shares of
SEACOR's common stock that CSFB purchased from SEACOR under the standby purchase
agreement. The equity forward transaction provides that at maturity, which will
occur twelve months following this purchase by CSFB of shares of SEACOR's common
stock. SEACOR will elect, as described below, to either purchase the shares
covered by the equity forward transaction from CSFBi or cash settle the
transaction. If SEACOR elects to purchase the shares from CSFBi, it will pay a
purchase price equal to $46.26 (the purchase price under the standby purchase
agreement) plus interest calculated at LIBOR plus 115 basis points, from the
date that CSFB purchased those shares from SEACOR to the date that SEACOR
purchases those shares from CSFBi. If SEACOR elects to cash settle the
transaction, then if the value of the shares at maturity (determined on the
basis of the net proceeds that CSFBi is able to receive upon the sale of those
shares in the open market) exceeds the purchase price described above, then
CSFBi will pay to SEACOR the amount of such excess in cash at maturity. If the
purchase price exceeds the value of the shares at maturity, then SEACOR will pay
to CSFBi the amount of such excess in cash at maturity. SEACOR has the right to
accelerate the maturity of the equity forward transaction in whole or in part at
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any time upon prior written notice to CSFBi. The equity forward transaction also
contains customary events of default and termination events following which
either one or both parties would have the right to terminate the transaction and
make net cash payments based on the net value of the transaction at the time of
termination. At September 30, 2001, the market value of SEACOR's common stock
issued in the equity forward transaction was $2.3 million less than the price at
which SEACOR could purchase those same shares from CSFBi.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Company adopted Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities", as amended. 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. The cumulative effect of adopting
SFAS 133 resulted in other comprehensive income of $0.1 million.
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 the U.S. dollar value of certain Pounds Sterling denominated net assets
of the Company from the effects of volatility in foreign currency exchange rates
that might occur prior to their conversion to U.S. dollars, the Company has
entered into forward exchange contracts. The Company considers these forward
exchange contracts as economic hedges of its net investment in the United
Kingdom and resulting gains or losses from those transactions are charged to
Accumulated Other Comprehensive Income in Stockholders' Equity. During the nine
months ended September 30, 2001, the Company settled several Pounds Sterling
forward exchange contracts, which resulted in a realized gain of $0.1 million.
At September 30, 2001, the Company had no outstanding Pounds Sterling forward
exchange contracts for which hedge accounting criteria were met.
In July 2001, the Financial Accounting Standards Board approved two new
accounting standards related to the accounting for business combinations and
goodwill and other intangible assets. The standards, which are numbered SFAS No.
141 and 142, among other requirements, (i) prohibit the use of the
pooling-of-interests method of accounting for business combinations, (ii)
require that goodwill not be amortized in any circumstance, and (iii) require
that goodwill be tested for impairment annually or when events or circumstances
occur between annual tests indicating that goodwill for a reporting unit might
be impaired. The standards will establish a new method for testing goodwill for
impairment based on a fair value concept. Management's current policy is to
periodically evaluate the amortization periods for goodwill to determine if
later events or circumstances warrant revised estimates of useful lives. It is
also management's policy to review goodwill for impairment whenever events or
changes in circumstances indicate that the carrying value of goodwill may not be
recoverable. As of and subsequent to September 30, 2001, there have been no
events or changes in circumstances surrounding purchased businesses to indicate
that the carrying value of the allocated goodwill may not be recoverable. The
standards will take effect for the fiscal year beginning after December 31,
2001, which would be the Company's fiscal year beginning January 1, 2002. Upon
adoption, the Company will be required to cease amortization of its remaining
goodwill balance and will be required to perform an impairment test based on a
fair value concept of its existing goodwill. The Company has not completed an
analysis of the potential impact upon adoption of the impairment test of
goodwill, however, amortization of existing goodwill which was approximately
$0.9 million and $2.3 million for the three and nine-month periods ended
September 30, 2001, respectively, will cease upon adoption.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which requires recording the fair value of a liability for an
asset retirement obligation in the period incurred. The standard is effective
for fiscal years beginning after June 15, 2002, with earlier application
permitted. Upon adoption of the standard, the Company will be required to use a
cumulative effect approach to recognize transition amounts for any existing
retirement obligation liabilities, asset retirement costs, and accumulated
depreciation. The Company has not determined what effect this statement will
have on its financial statements, if any.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which supercedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". This new statement also supercedes certain aspects of APB 30, "Reporting
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the Results of Operations-Reporting the Effects of Disposal of a Segment of a
business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", with regard to reporting the effects of a disposal of a segment
of a business and will require expected future operating losses from
discontinued operations to be reported in discontinued operations in the period
incurred rather than as of the measurement date as presently required by APB 30.
Additionally, certain dispositions may now qualify for discontinued operations
treatment. The provisions of this statement are required to be applied for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years. The Company has not yet determined what effect this statement will
have on its financial statements.
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 as the
translation adjustments resulting from the forward exchange contracts move in
the opposite direction from the translation adjustments resulting from the
restatement of its United Kingdom subsidiaries' net assets. At September 30,
2001, the Company had no outstanding contracts for which hedge accounting
criteria were met.
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, 2001, the Company's positions in commodity
contracts were not material.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 15, 2001, the Company's Board of Directors (the "Board") expanded the
size of the fully constituted Board from nine to eleven directors and named
Oivind Lorentzen and James Cowderoy to fill the vacancies created in the
newly-expanded Board, to serve until the next annual meeting of the Company's
stockholders and their successors are elected and qualified or until their
earlier resignation or removal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
None
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, 2001 By: /s/ Charles Fabrikant
---------------------------------------
Charles Fabrikant, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
DATE: NOVEMBER 14, 2001 By: /s/ Randall Blank
---------------------------------------
Randall Blank, Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
25