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 March 31, 1998 or
--------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-12289
SEACOR SMIT INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3542736
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(State or Other Jurisdiction or (IRS Employer
Incorporation or Organization) Identification No.)
11200 Westheimer, Suite 850, Houston Texas 77042
- -------------------------------------------- --------------------------
(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 May 11, 1998 was 13,207,693. The Registrant has no other class
of Common Stock outstanding.
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SEACOR SMIT INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
Part I. Financial Information
Item 1. Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997............................................................1
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 1998 and 1997..............................................2
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1998 and 1997..............................................3
Notes to Condensed Consolidated Financial Statements............................................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................................7
Item 3. Quantitative and Qualitative Disclosures
About Market Risks.............................................................................15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K...............................................................16
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------ ------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ 145,311 $ 175,381
Held-to-maturity securities........................................ - 33,020
Trade and other receivables, net of allowance for
doubtful accounts of $1,451 and $1,626, respectively............ 96,531 84,087
Inventories........................................................ 1,423 2,149
Prepaid expenses and other......................................... 1,966 1,422
------------------ ------------------
Total current assets......................................... 245,231 296,059
------------------ ------------------
Investments, at Equity, and Receivables from 50%
or Less Owned Companies............................................ 45,874 38,370
Available-for-Sale Securities......................................... 155,324 127,420
Property and Equipment................................................ 628,566 592,883
Less--Accumulated depreciation...................................... (113,164) (109,949)
------------------ ------------------
Net property and equipment................................... 515,402 482,934
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Restricted Cash....................................................... 60,832 46,983
Other Assets.......................................................... 27,401 28,035
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$ 1,050,064 $ 1,019,801
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable and current portion of long-term debt............. $ 33,168 $ 36,229
Other current liabilities.......................................... 24,573 23,292
------------------ ------------------
Total current liabilities.................................... 57,741 59,521
------------------ ------------------
Long-Term Debt........................................................ 380,551 358,714
Deferred Income Taxes................................................. 66,889 59,681
Deferred Gain and Other Liabilities................................... 39,617 34,168
Minority Interest in Subsidiaries..................................... 34,583 33,703
Stockholders' Equity:
Common stock, $.01 par value, 14,110,611 and 14,064,221
shares issued at March 31, 1998 and December 31, 1997........... 141 140
Additional paid-in capital......................................... 270,683 268,728
Retained earnings.................................................. 245,429 211,159
Less 904,468 and 166,968 shares held in treasury at
March 31, 1998 and December 31, 1997, at cost................... (43,742) (5,365)
Less unamortized restricted stock.................................. (1,884) (986)
Accumulated other comprehensive income............................. 56 338
------------------ ------------------
Total stockholders' equity................................... 470,683 474,014
------------------ ------------------
$ 1,050,064 $ 1,019,801
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
1
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SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Operating Revenue:
Marine........................................................... $ 91,159 $ 74,955
Environmental -
Oil spill and emergency response................................ 1,452 477
Retainer fees and other services................................ 4,602 3,747
---------------- ----------------
97,213 79,179
---------------- ----------------
Costs and Expenses:
Cost of oil spill and emergency response......................... 1,168 495
Operating expenses -
Marine.......................................................... 43,369 34,127
Environmental................................................... 1,339 1,222
Administrative and general....................................... 8,507 6,483
Depreciation and amortization.................................... 9,516 8,867
---------------- ----------------
63,899 51,194
---------------- ----------------
Operating Income.................................................... 33,314 27,985
---------------- ----------------
Other (Expense) Income:
Interest on debt................................................. (4,483) (2,792)
Interest income.................................................. 5,688 2,064
Gain from equipment sales, net................................... 12,719 15,887
Other............................................................ (54) (43)
---------------- ----------------
13,870 15,116
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Income Before Income Taxes, Minority Interest, and Equity in
Net Earnings of 50% or Less Owned Companies...................... 47,184 43,101
Income Tax Expense.................................................. 16,632 14,882
---------------- ----------------
Income Before Minority Interest and Equity in Net Earnings of
......50% or Less Owned Companies................................... 30,552 28,219
Minority Interest in (Income) Loss of Subsidiaries.................. (471) 32
Equity in Net Earnings of 50% or Less Owned Companies............... 4,189 511
---------------- ----------------
Net Income.......................................................... $ 34,270 $ 28,762
================ ================
Basic Earnings Per Common Share..................................... $ 2.51 $ 2.07
================ ================
Diluted Earnings Per Common Share................................... $ 2.16 $ 1.80
================ ================
Weighted Average Common Shares:
Basic............................................................ 13,640,818 13,894,363
Diluted.......................................................... 16,651,481 16,906,023
</TABLE>
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
2
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SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
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Net Cash Provided by Operating Activities............................ $ 21,266 $ 20,337
----------------- ------------------
Cash Flows from Investing Activities:
Purchase of property and equipment................................ (40,525) (35,926)
Proceeds from sale of marine vessels and equipment................ 40,011 22,785
Purchase of securities............................................ (48,322) -
Proceeds from maturities and sales of securities.................. 53,032 311
Investments in and advances to 50% or less
owned companies.................................................. (3,317) (13)
Principal payments on notes due from 50% or
less owned companies............................................. 545 196
Principal payments received under a sale-type lease............... 61 51
Restricted cash................................................... (13,849) -
----------------- ------------------
Net cash used in investing activities......................... (12,364) (12,596)
----------------- ------------------
Cash Flows from Financing Activities:
Payments of long-term debt........................................ - (1,351)
Payments on capital lease obligations............................. (369) -
Payments on stockholders' loans................................... (223) -
Proceeds from exercise of stock options........................... 367 -
Other............................................................. 5 -
Common stock acquired for treasury................................ (38,377) (143)
----------------- ------------------
Net cash used in financing activities......................... (38,597) (1,494)
----------------- ------------------
Effect of Exchange Rate Changes
on Cash and Cash Equivalents...................................... (375) 284
----------------- ------------------
Net Increase (Decrease) in Cash and Cash Equivalents................. (30,070) 6,531
Cash and Cash Equivalents, Beginning of Period....................... 175,381 149,053
----------------- ------------------
Cash and Cash Equivalents, End of Period............................. $ 145,311 $ 155,584
================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
3
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SEACOR SMIT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION --
The condensed consolidated financial information for the three month
periods ended March 31, 1998, and 1997, has been prepared by the Company
(defined below) and was not audited by its independent public accountants. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1998, and for all periods presented have
been made. 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, 1997.
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. EARNINGS PER SHARE --
Basic earnings per common share were computed based on the weighted
average number of common shares issued and outstanding during the relevant
periods. Diluted earnings per common 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 removal of certain stock restrictions and the issuance of common
shares for stock options and convertible subordinated notes through the
application of the treasury stock and if-converted methods.
<TABLE>
<CAPTION>
Per
Income Shares Share
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<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1998-
BASIC EARNINGS PER SHARE:
Net Income...................................... $ 34,270,000 13,640,818 $ 2.51
=======
EFFECT OF DILUTIVE SECURITIES:
Options and Restricted Stock.................... - 181,119
Convertible Securities.......................... 1,689,000 2,829,544
------------ ---------------
DILUTED EARNINGS PER SHARE:
Income Available to Common Stockholders
Plus Assumed Conversions..................... $ 35,959,000 16,651,481 $ 2.16
============ =============== =======
FOR THE THREE MONTHS ENDED MARCH 31, 1997-
BASIC EARNINGS PER SHARE:
Net Income...................................... $ 28,762,000 13,894,363 $ 2.07
=======
EFFECT OF DILUTIVE SECURITIES:
Options and Restricted Stock.................... - 166,965
Convertible Securities.......................... 1,693,000 2,844,695
------------ ---------------
DILUTED EARNINGS PER SHARE:
Income Available to Common Stockholders
Plus Assumed Conversions...................... $ 30,455,000 16,906,023 $ 1.80
============ =============== =======
</TABLE>
4
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3. ACCOUNTING FOR START-UP COSTS --
During April 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position 98-5 ("SOP"), "Reporting on the Costs of
Start-Up Activities." The SOP requires costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. During
the first quarter of 1998, the Company chose to adopt the SOP as encouraged by
the AICPA, and the effect of such early adoption did not have a material effect
on the Company's statement of financial position or results of operations.
4. REPORTING OF COMPREHENSIVE INCOME --
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" which establishes standards for reporting comprehensive income (defined
as net income and all other non-owner changes in equity) in the financial
statements. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997, and the reclassification of financial statements for earlier periods
presented for comparative purposes is required. For the three month periods
ended March 31, 1998 and 1997, total comprehensive income was $33,984,000 and
$27,009,000, respectively. Other comprehensive losses in 1998 and 1997 primarily
included losses from net currency translation adjustments. Unrealized holding
losses on securities were also included in 1998 comprehensive losses.
5. VESSEL DISPOSITIONS --
During the first quarter of 1998, the Company completed the sale of
twelve vessels that included five utility, three anchor handling towing supply
(two of which have been bareboat chartered-in), three crew, and one towing
supply. The sale of these vessels and other equipment resulted in the
recognition of a net pre-tax gain of $12,719,000.
6. COMMITMENT AND CONTINGENCY --
As of May 1, 1998, the Company is committed to the construction of 25
offshore marine vessels for an approximate aggregate cost $253,000,000 of which
$74,000,000 has been funded, and its majority owned subsidiary, Chiles Offshore
LLC ("Chiles"), has commitments to build 2 premium jackup offshore drilling rigs
(the "Rigs") for an approximate aggregate cost of $178,000,000 of which
$55,000,000 has been funded. These construction projects are expected to be
completed over the next two years. Pursuant to Memoranda of Agreement between
the Company and Transportacion Maritima Mexicana S.A. de C.V. ("TMM"), two joint
venture corporations will be structured to each own an offshore marine service
vessel currently being constructed by the Company. TMM is expected to make an
approximate $6,000,000 aggregate capital contribution for a 12.5% equity
interest in each joint venture and the Company will own all remaining equity
interests in these joint venture corporations.
The Company has commitments for the sale and leaseback of three of its
vessels for aggregate consideration of $23,875,000. These transactions are
expected to be completed at various dates during the second and third quarters
of 1998.
7. SUBSEQUENT EVENTS --
CHILES FINANCING
On April 29, 1998, a majority owned subsidiary of the Company, Chiles,
completed the sale of $110,000,000 aggregate principal amount of its 10.0%
Senior Notes Due 2008 (the "Chiles 10.0% Notes") which will mature May 1, 2008.
The offering was made to qualified institutional buyers and to certain persons
5
<PAGE>
in offshore transactions exempt from registration under U.S. federal securities
laws. Interest on the Chiles 10.0% Notes is payable semiannually on May 1 and
November 1 of each year commencing November 1, 1998. The Chiles 10.0% Notes are
not redeemable at the option of Chiles prior to May 1, 2003, except that until
May 1, 2001, Chiles may redeem, at its option, in the aggregate up to 35% of the
original principal amount of the Chiles 10.0% Notes, on a pro rata basis, with
the net proceeds of one or more Public Equity Offerings (as defined), at a
redemption price of 110% plus accrued interest to the redemption date; provided,
however, that at least $71,500,000 aggregate principal amount of the Chiles10.0%
Notes remains outstanding after each such redemption. On and after May 1, 2003,
the Chiles 10.0% Notes may be redeemed at the option of Chiles, in whole or in
part, initially at 105.0% of the principal amount thereof and declining by 1.67%
each year thereafter to 100.0% of the principal amount on and after May 1, 2006,
plus accrued interest to the date of redemption. The proceeds from the issuance
of the Chiles 10.0% Notes will be placed in escrow and used to (a) partially
fund the construction of Rigs, (b) pay interest on the Chiles 10.0% Notes
through the first two semi-annual interest payment dates, and (c) provide
working capital.
Also on April 29, 1998, Chiles executed a commitment letter that
provides for a $25,000,000 revolving credit facility (the "Chiles Bank
Facility") maturing December 31, 2004. Borrowings under the Chiles Bank Facility
may be repaid and reborrowed during the term thereof and will bear interest at a
per annum rate equal to LIBOR plus a margin of 1.25%. Subject to satisfaction of
customary conditions precedent, including that there shall have occurred no
material adverse change with respect to Chiles or its business, assets,
properties or prospects since the date of execution of the Chiles Bank Facility,
availability under the Chiles Bank Facility will commence upon first delivery of
one of the two Rigs being constructed by Chiles. Until the commencement of
availability, Chiles will be required to pay quarterly in arrears a commitment
fee equal to 0.25% per annum on the undrawn amount of the Chiles Bank Facility,
thereafter increased to 0.50% per annum.
The Chiles Bank Facility will be guaranteed by wholly owned
subsidiaries of Chiles that own the Rigs (the "Rig Owners") and such guarantees
will be secured by first priority mortgages on the Rigs, assignment of earnings
of the Rigs (which may continue to be collected by Chiles unless there occurs an
event of default) and assignments of insurance proceeds.
The Chiles Bank Facility is expected to contain customary affirmative
covenants, representations, and warranties and will be cross-defaulted to the
related promissory notes; provided, however, should there occur an event of
default under the Chiles Bank Facility (other than arising from enforcement
actions undertaken by a holder of other indebtedness of Chiles, enforcement
actions arising from in rem claims against either of the Rigs or bankruptcy
events with respect to Chiles or a Rig Owner), the lenders under the Chiles Bank
Facility have agreed on a one-time basis not to enforce remedies for a period of
60 days during which the Noteholders or the Company may cure such event of
default or prepay all of the indebtedness outstanding under the Chiles Bank
Facility. In addition, the Chiles Bank Facility will require that the fair
market value of the Rigs, as determined by appraisers appointed by the lenders
thereunder, at all times equals or exceeds an amount equal to 130% of
outstanding indebtedness under the Chiles Bank Facility.
VESSEL DISPOSITIONS
Following March 31, 1998, the Company sold eight vessels for aggregate
consideration of $49,415,000. Six of these vessels were bareboat chartered-in by
the Company.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When included in this Quarterly Report on Form 10-Q or in documents
incorporated herein by reference, the words "expects," "intends," "anticipates,"
"believes," "estimates," and analogous expressions are intended to identify
forward-looking statements. Such statements inherently are subject to a variety
of risks and uncertainties that could cause actual results to differ materially
from those projected. Such risks and uncertainties include, among others,
general economic and business conditions, industry fleet capacity, changes in
foreign and domestic oil and gas exploration and production activity,
competition, changes in foreign political, social and economic conditions,
regulatory initiatives and compliance with governmental regulations, customer
preferences and various other matters, many of which are beyond the Company's
control. These forward-looking statements speak only as of the date of this
Quarterly Report on Form 10-Q. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or any change in the Company's
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.
OFFSHORE MARINE SERVICES
The Company provides marine transportation and related services largely
dedicated to supporting offshore oil and gas exploration and production 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 also are used for special projects, such as well
stimulation, freight hauling, line handling, seismic data gathering, salvage,
and oil spill emergencies.
Operating revenues are affected primarily by the number of vessels
owned, average rates per day worked and utilization of the Company's fleet, and
the number of vessels bareboat and time chartered-in.
Opportunities to buy and sell vessels are actively monitored by the
Company to maximize overall fleet utility and flexibility. Since 1994, certain
acquisition transactions and investments in joint ventures have added over 230
vessels to the Company's fleet. During this same time period, over 75 vessels
were sold of which 10 have been bareboat chartered-in. The Company is also
presently committed to the construction of 25 vessels over the next two years.
7
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Rates per day worked and utilization of the Company's fleet are a
function of demand for and availability of marine vessels that is 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.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
RATES PER DAY WORKED ($): (1) (2)
Supply and Towing Supply................... 7,007 5,846
Anchor Handling Towing Supply.............. 12,054 8,866
Crew....................................... 2,695 2,065
Standby Safety ............................ 6,445 5,335
Utility and Line Handling.................. 1,838 1,298
Geophysical, Freight and Other............. 4,372 4,724
Overall Fleet........................... 4,221 3,297
OVERALL UTILIZATION (%): (1)
Supply and Towing Supply................... 91.1 96.0
Anchor Handling Towing Supply.............. 85.4 86.1
Crew....................................... 97.0 98.0
Standby Safety............................. 98.4 86.0
Utility and Line Handling.................. 95.2 97.3
Geophysical, Freight and Other............. 100.0 93.1
Overall Fleet........................... 94.2 95.8
</TABLE>
(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) Certain of the Company's vessels earn revenue in foreign currencies which
have been converted to U.S. dollars for reporting purposes at the weighted
average exchange rates of those foreign currencies for the periods
indicated.
From time-to-time, the Company bareboat or time charters-in vessels. A
bareboat charter is a vessel lease under which the lessee ("charterer") is
responsible for all crewing, insurance, and other operating expenses, as well as
the payment of bareboat charter hire to the providing entity. A time charter is
a lease under which the entity providing the vessel is responsible for all
crewing, insurance, and other operating expenses and the charterer only pays a
time charter hire fee to the providing entity. Operating revenues for vessels
owned and bareboat or time chartered-in are incurred at similar rates. However,
operating expenses associated with vessels bareboat and time chartered-in
include charter hire expenses that, in turn, are included in vessel expenses,
but exclude depreciation expense. During 1997 and the first quarter of 1998, the
Company sold and bareboat chartered-back ten vessels. An additional nine vessels
are contracted to be sold and bareboat chartered-back during the second and
third quarters of 1998.
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 which are chartered-out are owned. At March
31, 1998, the Company had six vessels bareboat chartered-out.
8
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The table below sets forth the Company's marine fleet structure at the
dates indicated:
FLEET STRUCTURE AT MARCH 31,
--------------------------------
1998 1997
--------------- ---------------
Owned...................................... 238 264
Bareboat and Time Chartered-In............. 15 5
Managed.................................... 2 -
Joint Venture Vessels (1).................. 34 31
Pool Vessels (2)........................... 12 12
=============== ===============
Overall Fleet.......................... 301 312
=============== ===============
- ---------------
(1) 1998 and 1997 include 15 and 10 vessels, respectively, owned or
chartered-in by a joint venture between Transportacion Maritima Mexicana
S.A. de C.V. ("TMM") and the Company (the "TMM Joint Venture"). 1998 and
1997 also include 19 and 21 vessels, respectively, owned by corporations in
which the Company acquired an equity interest pursuant to a transaction
with Smit Internationale N.V. ("Smit") in December 1996 (the "Smit Joint
Ventures").
(2) 1998 and 1997 include five vessels owned by Toisa Ltd. which participate in
a pool with ten Company owned North Sea standby safety vessels.
Additionally, 1998 and 1997 includes seven standby safety vessels in which
the Company shares net operating profits after certain adjustments with
Toisa and owners of the vessels (the "Saint Fleet Pool").
Vessel operating expenses are primarily a function of fleet size and
utilization levels. The most significant vessel operating expense items are
wages paid to marine personnel, maintenance and repairs, and marine insurance.
In addition to variable vessel operating expenses, the offshore marine segment
also incurs fixed charges related to the depreciation of property and equipment.
Depreciation is a significant operating cost, and the amount related to vessels
is the most significant component.
A portion of the Company's revenues and expenses are paid in foreign
currencies. For financial statement reporting purposes, these amounts are
translated into U.S. dollars at the weighted average exchange rates during the
relevant period. The foregoing applies primarily to the Company's North Sea
operations. Overall, the percentage of the Company's offshore marine operating
revenues derived from foreign operations whether in U.S. dollars or foreign
currencies approximated 37% and 40% for the three month periods ended March 31,
1998 and 1997, 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, currency restrictions and exchange rate fluctuations, 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 put through survey a disproportionate number of older vessels which
typically have higher drydocking costs, comparative results may be affected. For
the three month period ended March 31, 1998, the Company completed the
drydocking of 23 vessels at an aggregate cost of $2.7 million. For the three
month period ended March 31, 1997, the Company completed the drydocking of 26
vessels at an aggregate cost of $1.4 million.
9
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Operating results are also affected by the Company's participation in
(i) a joint venture arrangement with Vector Offshore Limited, a U.K.
corporation, which owns a 9% equity interest in the Company's subsidiary (the
"Veesea Joint Venture") that operates 10 standby safety vessels in the North
Sea, (ii) the SEAVEC and Saint Fleet Pools, which coordinate the marketing of 22
standby safety vessels in the North Sea, of which 10 are owned by the Veesea
Joint Venture, (iii) the TMM Joint Venture which operates 15 vessels offshore
Mexico, (iv) the Smit Joint Ventures which operated 19 vessels in the Far East,
Latin America, the Middle East, the Mediterranean and offshore West Africa, and
(v) other joint venture arrangements.
ENVIRONMENTAL SERVICES
The Company's environmental services 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 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 and 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 seven years.
Spill response revenue is dependent on the magnitude of any one spill
response and the number of spill responses within a given fiscal period.
Consequently, spill response revenue can vary greatly between comparable periods
and the revenue from any one period is not indicative of a trend or of
anticipated results in future periods. Costs of oil spill response activities
relate primarily to (i) payments to sub-contractors for labor, equipment and
materials, (ii) direct charges to the Company for equipment and materials, (iii)
participation interests of others in gross profits from oil spill response, and
(iv) training and exercises related to spill response preparedness.
The principal components of the Company's environmental service
business operating costs are salaries and related benefits for operating
personnel, payments to sub-contractors, equipment maintenance and depreciation.
These expenses are primarily a function of regulatory requirements and the level
of retainer business. Operating results are also affected by the Company's
participation in Clean Pacific Alliance on the West Coast of the United States.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth operating revenue and operating profit
by business segment for the periods indicated. The offshore marine business
segment's data is provided by geographic area of operation. The environmental
business segment's principal operations are in the United States.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------------
1998 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING REVENUE:
Marine:
United States...................................... $ 57,799 $ 44,702
North Sea.......................................... 9,774 13,128
West Africa........................................ 14,726 11,462
Other Foreign...................................... 8,860 5,663
------------- -------------
91,159 74,955
Environmental ....................................... 6,054 4,224
------------- -------------
97,213 79,179
============= =============
OPERATING PROFIT:
Marine:
United States...................................... 35,523 34,458
North Sea.......................................... 4,162 3,304
West Africa........................................ 2,727 4,461
Other Foreign...................................... 3,873 2,502
------------- -------------
46,285 44,725
Environmental ....................................... 773 215
------------- -------------
47,058 44,940
Other income (expense) (1)......................... (24) (1)
General corporate administration................... (1,054) (1,110)
Net interest expense............................... 1,205 (728)
Minority interest in (income) loss of subsidiaries. (471) 32
Equity in net earnings of 50% or less owned 4,189 511
companies..............................................
Income tax expense................................. (16,633) (14,882)
------------- -------------
Net Income......................................... $ 34,270 $ 28,762
============= =============
</TABLE>
- -------------------
(1) Excludes gains from equipment sales and certain other expenses that
were reclassified to operating profit of the applicable business
segment in both years.
The marine business segment's operating revenue increased approximately
$16.2 million or 22% in the three month period ended March 31, 1998 compared to
the three month period ended March 31, 1997 due primarily to higher rates per
day worked earned by the Company's domestic and foreign fleet. Approximately
two-thirds of the revenue earned from the improvement in rates per day worked
was derived from the Company's domestic fleet operation, and the remainder of
this increase was earned internationally. This increase was offset by a decline
in revenue between comparable periods due to a net reduction in vessels owned
and operated by the Company, a decline in the SEAVEC Pool's results, and a
slight decline in fleet utilization. Since 1997, the Company has relocated
certain vessels from the North Sea and Other Foreign regions to offshore West
Africa, and there has been a net increase in vessels owned and operated in Other
Foreign regions.
The environmental business segment's operating revenue increased $1.8
million or 43% in the three month period ended March 31, 1998 compared to the
three month period ended March 31, 1997 due primarily to an increase in the
number and severity of oil spills managed by the Company. Oil spill, retainer,
and other service revenues earned in 1998 include the results of ERST/O'Brien's
Inc., an entity acquired by the Company in October 1997.
11
<PAGE>
The marine business segment's operating profit increased $1.6 million
in the three month period ended March 31, 1998 compared to the three month
period ended March 31, 1997. The increase was due to those factors affecting
operating revenue as outlined above offset by higher wage and related benefit
costs, a decline in gains from the sale of equipment, higher repair and
maintenance expenses, and higher travel, bareboat charter, and administrative
costs (see discussion below). Crew wage and related benefit costs rose both
domestically and in West Africa in response to strong demand for personnel
resulting from very active market conditions. During the first quarter of 1998,
the Company sold five utility, three anchor handling towing supply (two of which
have been bareboat chartered-in), one towing supply, and three crew vessels that
operated in the U.S. Gulf of Mexico and North Sea; whereas, vessels sold in 1997
operated only domestically. Profits from the 1998 vessel sales were lower than
in the comparable prior period due to the deferral of certain gains associated
with sale and leaseback transactions. Repair and maintenance expenses rose both
domestically and internationally due to an increase in the number of larger
vessels drydocked and higher expenses associated with main engine, electronic,
winch, other deck machinery, and hull repairs. Travel expenses rose due to an
increase in the frequency of crew rotation aboard the Company's vessels working
offshore West Africa. The Company also increased the number of chartered-in
vessels primarily through recent sale and leaseback transactions.
The environmental business segment's operating profit increased $0.6
million between comparable periods due primarily to the factors affecting
operating revenue as outlined above and improved spill response gross profit.
The Company's overall administrative and general expenses, relating
primarily to operating activities, increased $2.0 million in the three month
period ended March 31, 1998 compared to the three month period ended March 31,
1997, and related primarily to managerial wage and benefit increases and the
acquisition of an environmental subsidiary, ERST/O'Brien's Inc. Administrative
wage and benefit costs of the marine business segment rose due to additional
staffing requirements in the North Sea, West Africa, and Other Foreign regions.
The Company's marine business segment also increased wages domestically
commensurate with competition in the labor market for administrative personnel.
The environmental business segment's administrative and general expenses rose
primarily in connection with operating the business of ERST/O'Brien's Inc.
Administrative and general expenses primarily include cost associated with
personnel, professional services, travel, communications, facility rental and
maintenance, general insurance, and franchise taxes.
The Company's overall depreciation and amortization expense, relating
primarily to operating activities, increased $0.6 million in the three month
period ended March 31, 1998 compared to the three month period ended March 31,
1997. This increase was due primarily to additional vessel purchase
consideration paid during the first quarter of 1998 to Smit pursuant to a
December 19, 1996 transaction and the acquisition of an environmental
subsidiary, ERST/O'Brien's Inc.
Net interest improved by $1.9 million in the three month period ended
March 31, 1998 compared to the three month period ended March 31, 1997. Interest
income rose between comparable periods due primarily to greater invested cash
balances that primarily resulted from (i) the sale in September 1997 of $150.0
million aggregate principal amount of the Company's 7.2% Senior Notes Due 2009
(the "7.2% Notes"), (ii) improved operating results, and (iii) the sale of
offshore marine vessels. Interest expense also rose between comparable periods.
An increase in interest expense due to the issuance of the Company's 7.2% Notes
was partially offset by the capitalization of approximately $1.2 million in
interest costs associated with the Company's offshore marine vessel and jackup
drilling rig construction programs.
12
<PAGE>
Equity earnings from 50% or less owned companies increased in the three
month period ended March 31, 1998 compared to the three month period ended March
31, 1997. This increase resulted primarily from improved operating results of
the Company's Mexican and Smit Joint Ventures. Equity earnings in the three
month period end March 31, 1998 also included approximately $1.4 million of gain
from a vessel sale by one of the Smit Joint Venture corporations.
LIQUIDITY AND CAPITAL RESOURCES
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, 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 fleet, vessels' rates per day worked,
overall vessel utilization, and the level of spill response activity. Factors
relating to the marine service business are affected directly by the volatility
of oil and gas prices, the level of offshore production and exploration activity
and other factors beyond the Company's control.
For the three month period ended March 31, 1998, the Company had a
modest improvement in net cash provided by operating activities over the
comparable period in 1997. This increase was due primarily to improved operating
profits that was offset by a decline in working capital due primarily to an
increase in outstanding trade accounts receivable both resulting from higher
rates per day earned by the Company's worldwide marine fleet.
For the three month period ended March 31, 1998, the Company had a net
use of cash in investing activities resulting primarily from (i) the
satisfaction of a cash obligation for additional purchase consideration due Smit
pursuant to a December 19, 1996 transaction in which the Company acquired
substantially all of Smit's offshore vessel assets and certain related joint
venture interests, (ii) expenditures associated with the construction of vessels
and premium jackup offshore drilling rigs, and (iii) additional funds set aside
into restricted cash accounts to be used toward the purchase of vessels. The use
of cash was offset principally by cash generated from the sale of 12 offshore
marine vessels. Following March 31, 1998, the Company sold 8 offshore marine
vessels for aggregate consideration of approximately $49.4 million, and 6 of
those vessels have been bareboat chartered-in. The Company also has commitments
for the sale and leaseback of 3 offshore marine vessels for aggregate
consideration of approximately $23.9 million. These transactions are expected to
be completed at various dates during the second and third quarters of 1998.
The Company had a net use of cash in financing activities for the three
month period ended March 31, 1998 due primarily to the repurchase of 737,500
shares of the Company's common stock. 712,000 of these shares were repurchased
from a subsidiary of Smit on March 3, 1998.
Pursuant to a revolving credit facility (the "DnB Facility") with Den
norske Bank ("DnB"), the Company may borrow up to $100.0 million. At March 31,
1998, the Company had $100.0 million available for future borrowings. The Credit
Facility requires the Company, on a consolidated basis, to maintain a minimum
ratio of indebtedness to vessel value, 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 Credit Facility limits the
amount of secured indebtedness which the Company and its subsidiaries may incur,
provides for a negative pledge with respect to the Company's and its
subsidiaries' assets, and restricts the payment of dividends.
13
<PAGE>
On April 29, 1998, a majority owned subsidiary of the Company, Chiles
Offshore LLC ("Chiles"), completed the sale of $110.0 million aggregate
principal amount of its 10.0% Senior Notes Due 2008 (the "Chiles 10.0% Notes")
which will mature May 1, 2008. The offering was made to qualified institutional
buyers and to certain persons in offshore transactions exempt from registration
under U.S. federal securities laws. Interest on the Chiles 10.0% Notes is
payable semiannually on May 1 and November 1 of each year commencing November 1,
1998. The Chiles 10.0% Notes are not redeemable at the option of Chiles prior to
May 1, 2003, except that until May 1, 2001, Chiles may redeem, at its option, in
the aggregate up to 35% of the original principal amount of the Chiles 10.0%
Notes, on a pro rata basis, with the net proceeds of one or more Public Equity
Offerings (as defined), at a redemption price of 110% plus accrued interest to
the redemption date; provided, however, that at least $71.5 million aggregate
principal amount of the Chiles 10.0% Notes remains outstanding after each such
redemption. On and after May 1, 2003, the Chiles 10.0% Notes may be redeemed at
the option of Chiles, in whole or in part, initially at 105.0% of the principal
amount thereof and declining by 1.67% each year thereafter to 100.0% of the
principal amount on and after May 1, 2006, plus accrued interest to the date of
redemption. The proceeds from the issuance of the Chiles 10.0% Notes will be
placed in escrow and used to (a) partially fund the construction of two premium
jackup offshore drilling rigs (the "Rigs"), (b) pay interest on the Chiles 10.0%
Notes through the first two semi-annual interest payment dates, and (c) provide
working capital.
Also on April 29, 1998, Chiles executed a commitment letter that
provides for a $25.0 million revolving credit facility (the "Chiles Bank
Facility") maturing December 31, 2004. Borrowings under the Chiles Bank Facility
may be repaid and reborrowed during the term thereof and will bear interest at a
per annum rate equal to LIBOR plus a margin of 1.25%. Subject to satisfaction of
customary conditions precedent, including that there shall have occurred no
material adverse change with respect to Chiles or its business, assets,
properties or prospects since the date of execution of the Chiles Bank Facility,
availability under the Chiles Bank Facility will commence upon first delivery of
one of the two Rigs being constructed by Chiles. Until the commencement of
availability, Chiles will be required to pay quarterly in arrears a commitment
fee equal to 0.25% per annum on the undrawn amount of the Chiles Bank Facility,
thereafter increased to 0.50% per annum.
The Chiles Bank Facility will be guaranteed by wholly owned
subsidiaries of Chiles that own the Rigs (the "Rig Owners") and such guarantees
will be secured by first priority mortgages on the Rigs, assignment of earnings
of the Rigs (which may continue to be collected by Chiles unless there occurs an
event of default) and assignments of insurance proceeds.
The Chiles Bank Facility is expected to contain customary affirmative
covenants, representations, and warranties and will be cross-defaulted to the
related promissory notes; provided, however, should there occur an event of
default under the Chiles Bank Facility (other than arising from enforcement
actions undertaken by a holder of other indebtedness of Chiles, enforcement
actions arising from in rem claims against either of the Rigs or bankruptcy
events with respect to Chiles or a Rig Owner), the lenders under the Chiles Bank
Facility have agreed on a one-time basis not to enforce remedies for a period of
60 days during which the Noteholders or the Company may cure such event of
default or prepay all of the indebtedness outstanding under the Chiles Bank
Facility. In addition, the Chiles Bank Facility will require that the fair
market value of the Rigs, as determined by appraisers appointed by the lenders
thereunder, at all times equals or exceeds an amount equal to 130% of
outstanding indebtedness under the Chiles Bank Facility.
14
<PAGE>
CAPITAL EXPENDITURES
The Company may make selective acquisitions of marine vessels or fleets
of marine vessels and oil spill response equipment or expand the scope and
nature of its environmental services. The Company also may upgrade or enhance
its marine vessels or construct marine vessels to remain competitive in the
marketplace. Management anticipates that such expenditures would be funded
through a combination of existing cash balances, cash flow provided by
operations, sale of existing equipment and, potentially, through the issuance of
additional indebtedness or shares of its common stock.
As of May 1, 1998, the Company is committed to the construction of 25
offshore marine vessels for an approximate aggregate cost $253.0 million of
which $74.0 million has been funded, and its majority owned subsidiary, Chiles,
has commitments to build 2 Rigs for an approximate aggregate cost of $178.0
million of which $55.0 million has been funded. These construction projects are
expected to be completed over the next two years. Pursuant to Memoranda of
Agreement between the Company and Transportacion Maritima Mexicana S.A. de C.V.
("TMM"), two joint venture corporations will be structured to each own an
offshore marine service vessel currently being constructed by the Company. TMM
is expected to make an approximate $6.0 million aggregate capital contribution
for a 12.5% equity interest in each joint venture and the Company will own all
remaining equity interests in these joint venture corporations.
Expenditures for environmental compliance to modify marine segment
vessels have not been a significant component of the Company's capital budget.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
27.1 Financial Data Schedule.
B. Reports on Form 8-K:
Current Report on Form 8-K dated March 3,
1998 and filed with the Securities and Exchange
Commission on March 11, 1998 (reporting under Items 5
and 7 of the Current Report on Form 8-K).
16
<PAGE>
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: MAY 15, 1998 By: /s/ Charles Fabrikant
----------------------------------
Charles Fabrikant, Chairman of the
Board, President and Chief
Executive Officer
(Principal Executive Officer)
DATE: MAY 15, 1998 By: /s/ Randall Blank
----------------------------------
Randall Blank, Executive Vice
President, Chief Financial Officer
and Secretary
(Principal Financial Officer)
17
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE ACCOMPANYING FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 145,311
<SECURITIES> 0
<RECEIVABLES> 97,982
<ALLOWANCES> 1,451
<INVENTORY> 1,423
<CURRENT-ASSETS> 245,231
<PP&E> 628,566
<DEPRECIATION> 113,164
<TOTAL-ASSETS> 1,050,064
<CURRENT-LIABILITIES> 57,741
<BONDS> 380,551
0
0
<COMMON> 141
<OTHER-SE> 470,542
<TOTAL-LIABILITY-AND-EQUITY> 1,050,064
<SALES> 0
<TOTAL-REVENUES> 97,213
<CGS> 0
<TOTAL-COSTS> 1,168
<OTHER-EXPENSES> 44,708
<LOSS-PROVISION> (130)
<INTEREST-EXPENSE> 4,483
<INCOME-PRETAX> 47,184
<INCOME-TAX> 16,632
<INCOME-CONTINUING> 30,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,270
<EPS-PRIMARY> 2.51
<EPS-DILUTED> 2.16
</TABLE>
