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, 1999
----------------
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 1-12289
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SEACOR SMIT INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3542736
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(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
11200 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 7, 1999 was 12,149,524. The Registrant has no other class
of common stock outstanding.
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SEACOR SMIT INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
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Page No.
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<S> <C> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998.......................1
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and 1998..............................................2
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998..............................................3
Notes to Condensed Consolidated Financial Statements...................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K..................................................................17
</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,
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents, including restricted cash
of $7,492 and $14,239, respectively ........................................ $ 180,526 $ 175,267
Marketable securities ......................................................... 40,214 40,325
Trade and other receivables, net of allowance for
doubtful accounts of $2,246 and $1,956, respectively ....................... 81,365 86,621
Inventories ................................................................... 1,565 1,561
Prepaid expenses and other .................................................... 1,879 7,959
----------- -----------
Total current assets .................................................... 305,549 311,733
----------- -----------
Investments, at Equity, and Receivables from 50%
or Less Owned Companies ....................................................... 55,109 55,478
Available-for-Sale Securities .................................................... 94,357 154,378
Property and Equipment ........................................................... 773,476 736,583
Less--Accumulated depreciation ................................................ 117,799 111,722
----------- -----------
Net property and equipment .............................................. 655,677 624,861
----------- -----------
Restricted Cash .................................................................. 56,199 69,234
Other Assets ..................................................................... 44,647 42,291
----------- -----------
$ 1,211,538 $ 1,257,975
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
CURRENT LIABILITIES:
Current portion of long-term debt ............................................. $ 2,092 $ 2,122
Accounts payable and accrued expenses ......................................... 28,162 45,842
Other current liabilities ..................................................... 16,783 23,754
----------- -----------
Total current liabilities ............................................... 47,037 71,718
----------- -----------
Long-Term Debt ................................................................... 468,098 472,799
Deferred Income Taxes ............................................................ 85,572 86,124
Deferred Gain and Other Liabilities .............................................. 45,340 51,623
Minority Interest in Subsidiaries ................................................ 33,251 32,929
Stockholders' Equity:
Common stock, $.01 par value,14,183,157 and 14,146,457
shares issued at March 31, 1999 and December 31, 1998 ...................... 142 141
Additional paid-in capital .................................................... 273,589 272,012
Retained earnings ............................................................. 350,625 337,086
Less 2,065,634 and 1,472,134 shares held in treasury at
March 31, 1999 and December 31, 1998, at cost .............................. (89,167) (65,656)
Less unamortized restricted stock ............................................. (2,246) (972)
Accumulated other comprehensive income ........................................ (703) 171
----------- -----------
Total stockholders' equity .............................................. 532,240 542,782
----------- -----------
$ 1,211,538 $ 1,257,975
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
and should be read in conjunction herewith.
1
<PAGE>
SEACOR SMIT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
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<S> <C> <C>
Operating Revenue:
Marine ............................................................. $ 72,397 $ 91,159
Environmental -
Oil spill and emergency response .................................. 883 1,452
Retainer fees and other services .................................. 4,441 4,602
------------ ------------
77,721 97,213
------------ ------------
Costs and Expenses:
Cost of oil spill and emergency response ........................... 715 1,168
Operating expenses -
Marine ............................................................ 39,962 43,369
Environmental ..................................................... 1,018 1,339
Administrative and general ......................................... 8,178 8,507
Depreciation and amortization ...................................... 9,325 9,516
------------ ------------
59,198 63,899
------------ ------------
Operating Income ...................................................... 18,523 33,314
------------ ------------
Other (Expense) Income:
Interest on debt ................................................... (5,417) (4,483)
Interest income .................................................... 5,971 5,688
Gain from equipment sales or retirements, net ...................... 294 12,719
Other .............................................................. (1,259) (54)
------------ ------------
(411) 13,870
------------ ------------
Income Before Income Taxes, Minority Interest, Equity in Earnings of
50% or Less Owned Companies, and Extraordinary Item ................... 18,112 47,184
Income Tax Expense .................................................... 6,249 16,632
------------ ------------
Income Before Minority Interest, Equity in Earnings of 50%
or Less Owned Companies, and Extraordinary Item ....................... 11,863 30,552
Minority Interest in Income of Subsidiaries ........................... (368) (471)
Equity in Earnings of 50% or Less Owned Companies ..................... 1,784 4,189
------------ ------------
Income Before Extraordinary Item ...................................... 13,279 34,270
Extraordinary Item - Gain on Extinguishment of Debt ................... 260 --
------------ ------------
Net Income ............................................................ $ 13,539 $ 34,270
============ ============
Basic Earnings Per Common Share:
Income before extraordinary item ................................... $ 1.08 $ 2.51
Extraordinary item ................................................. .02 --
------------ ------------
Net income ........................................................ $ 1.10 $ 2.51
============ ============
Diluted Earnings Per Common Share:
Income before extraordinary item ................................... $ 0.97 $ 2.16
Extraordinary item ................................................. .02 --
------------ ------------
Net income ........................................................ $ 0.99 $ 2.16
============ ============
Weighted Average Common Shares:
Basic .............................................................. 12,359,835 13,640,818
Diluted ............................................................ 15,309,798 16,651,481
</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,
1999 1998
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Net Cash Provided by Operating Activities .......................... $ 9,247 $ 21,266
--------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment ............................. (40,958) (40,525)
Proceeds from sale of marine vessels and equipment ............. 878 40,011
Purchase of available-for-sale securities ...................... (2,527) (48,322)
Proceeds from maturity of held-to-maturity securities .......... -- 33,032
Proceeds from sale of available-for-sale securities ............ 53,909 20,000
Investments in and advances to 50% or less owned companies ..... (269) (3,317)
Principal payments on notes due from 50% or less owned companies 2,029 545
Dividends received from a 50% or less owned company ............ 700 --
Principal payments received under sale-type leases ............. 60 61
Loans to Globe Wireless, Inc. .................................. (3,000) --
Net decrease (increase) in restricted cash ..................... 13,035 (13,849)
Other .......................................................... 23 --
--------- ---------
Net cash provided by (used in) investing activities ........ 23,880 (12,364)
--------- ---------
Cash Flows from Financing Activities:
Payments of long-term debt ..................................... (3,638) --
Payments on capital lease obligations .......................... (389) (369)
Payments on stockholders' loans ................................ (240) (223)
Proceeds from exercise of stock options ........................ -- 367
Common stock acquired for treasury ............................. (23,511) (38,377)
Other .......................................................... -- 5
--------- ---------
Net cash used in financing activities ...................... (27,778) (38,597)
--------- ---------
Effect of Exchange Rate Changes
on Cash and Cash Equivalents ................................... (90) (375)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents .............. 5,259 (30,070)
Cash and Cash Equivalents, Beginning of Period .................... 175,267 175,381
--------- ---------
Cash and Cash Equivalents, End of Period .......................... $ 180,526 $ 145,311
========= =========
</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, 1999 and 1998 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 March 31, 1999 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, 1998.
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. RESTRICTED CASH --
Restricted cash balances at March 31, 1999 are intended for use in defraying the
costs of constructing offshore marine vessels and two state-of-the-art premium
jackup offshore drilling rigs (the "Rigs") and other matters for Chiles Offshore
LLC and its subsidiaries ("Chiles"), a majority owned subsidiary of the Company.
At March 31, 1999, the Company had paid $13,757,000 in offshore marine vessel
construction costs from unrestricted cash balances, and subject to prior written
approval from the Maritime Administration, the Company expects such amounts to
be reimbursed from its restricted cash accounts.
3. 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 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. Certain stock options and restricted
stock grants, totaling 30,767 in the first quarter of 1999, were excluded from
the computation of diluted earnings per share, as the effect would have been
antidilutive.
Per
Income Shares Share
----------- ---------- -----
FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Basic Earnings Per Share -
Income Before Extraordinary Item ...... $13,279,000 12,359,835 $ 1.08
=====
Effect of Dilutive Securities -
Options and Restricted Stock .......... -- 120,419
Convertible Securities ................ 1,692,000 2,829,544
--------- ---------
Diluted Earnings Per Share -
Income Available to Common Stockholders
Plus Assumed Conversions ............ $14,971,000 15,309,798 $ 0.97
=========== =========== =====
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
Basic Earnings Per Share -
Income Before Extraordinary Item ...... $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
=========== =========== =====
4
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4. SEGMENT DATA --
The Company aggregates its business activities into three operating segments:
marine, environmental, and drilling. These operating segments represent
strategic business units that offer different services. The marine service
segment charters support vessels to owners and operators of offshore drilling
rigs and production platforms. The environmental service segment provides
contractual oil spill response and other related training and consulting
services. The drilling service segment conducts its business affairs through
Chiles, an entity in which the Company owns a 55.4% membership interest and
whose business purpose is to construct, own, and operate offshore drilling rigs.
Chiles has operated as a development stage company since inception in 1997.
The Company evaluates the performance of each operating segment based upon the
operating profit of the segment and includes gains from the sale of equipment
and equity in the earnings of 50% or less owned companies but excludes minority
interest, interest income and expense, gains and losses from the sale of
marketable securities and commodity swap transactions, corporate expenses, and
income taxes. Operating profit is defined as Operating Income as reported in the
Consolidated Statements of Operations net of corporate expenses and certain
other income and expense items. The accounting policies of the operating
segments have not changed from those previously described in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998. 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.
<TABLE>
<CAPTION>
Marine Environmental Drilling Other Total
--------- ------------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Operating Revenues -
External Customers............................ $ 72,397 $ 5,324 -- -- $ 77,721
Intersegment .................................. -- 68 -- (68) --
-------- -------- ------ ------- --------
Total ....................................... $ 72,397 $ 5,392 $ -- $ (68) $ 77,721
======== ======== ====== ======= ========
Operating Profit (Loss) ......................... $ 18,143 $ 978 $ (205) $ -- $ 18,916
Gains (Losses) from Equipment Sales or
Retirements, net................................. 297 (3) -- -- 294
Equity in Earnings of 50% or Less Owned Companies 1,669 276 -- -- 1,945
Minority Interest in Income of Subsidiaries ..... -- -- -- (368) (368)
Interest Income ................................. -- -- -- 5,971 5,971
Interest Expense ................................ -- -- -- (5,417) (5,417)
Gain from Commodity Swap Transactions ........... -- -- -- 359 359
Loss from Sale of Marketable Securities ......... -- -- -- (966) (966)
Corporate Expenses .............................. -- -- -- (1,045) (1,045)
Income Taxes .................................... -- -- -- (6,410) (6,410)
-------- -------- ------ ------- --------
Income before Extraordinary Item .............. $ 20,109 $ 1,251 $ (205) $(7,876) $ 13,279
==========================================================================================================
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
Operating Revenues -
External Customers ............................ $ 91,159 $ 6,054 $ -- $ 97,213
Intersegment .................................. -- -- -- -- --
-------- -------- ------ ------- --------
Total ....................................... $ 91,159 $ 6,054 $ -- $ -- $ 97,213
======== ======== ====== ======= ========
Operating Profit (Loss) ......................... $ 33,707 $ 784 $ (85) $ -- $ 34,406
Gains from Equipment Sales or Retirements, net .. 12,693 26 -- -- 12,719
Equity in Earnings of 50% or Less Owned Companies 4,220 60 -- -- 4,280
Minority Interest in Income of Subsidiaries ..... -- -- -- (471) (471)
Interest Income ................................. -- -- -- 5,688 5,688
Interest Expense ................................ -- -- -- (4,483) (4,483)
Corporate Expenses .............................. -- -- -- (1,146) (1,146)
Income Taxes .................................... -- -- -- (16,723) (16,723)
-------- -------- ------ ------- --------
Income before Extraordinary Item .............. $ 50,620 $ 870 $ (85) $(17,135) $34,270
==========================================================================================================
</TABLE>
5. COMPREHENSIVE INCOME --
For the three-month periods ended March 31, 1999 and 1998, total comprehensive
income was $12,665,000 and $33,988,000, respectively. Other comprehensive losses
in 1999 and 1998 included losses from foreign currency translation adjustments
and unrealized holding losses on available-for-sale securities.
5
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6. RECENT ACCOUNTING PRONOUNCEMENTS --
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair market
value. SFAS 133 requires that changes in the derivative's fair market value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. A company may also
implement SFAS 133 as of the beginning of any fiscal quarter after issuance
(that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS 133 must
be applied to derivative instruments and certain derivative instruments embedded
in hybrid contracts that were issued, acquired, or substantially modified after
December 31, 1997. The Company has not yet quantified the impact of adopting
SFAS 133 on its financial statements and has not determined the timing or method
of its adoption of SFAS 133.
7. COMMITMENTS AND CONTINGENCIES --
As of March 31, 1999, the Company was committed to the construction of 12
offshore marine vessels for an approximate aggregate cost $99,500,000 of which
$43,200,000 has been expended, and Chiles has commitments to build 2 Rigs for an
approximate aggregate cost of $171,300,000 of which $123,400,000 has been
expended. The offshore marine vessel construction projects are expected to be
completed over the next two years, and the 2 Rigs being constructed for Chiles
are expected to be completed in May and September of 1999.
8. SUBSEQUENT EVENTS --
During April 1999, the Company completed sale and leaseback transactions for
five crew vessels for aggregate consideration of $11,100,000. The leaseback
agreements extend for five years and contain renewal options. Proceeds from the
sale of these vessels are expected to be deposited into restricted cash accounts
for purposes of acquiring newly constructed U.S.-flag vessels and qualifying for
the Company's temporary deferral of taxable gains realized from the sales.
Certain of the gains realized from these sale and leaseback transactions will be
deferred in the Company's balance sheet and amortized to income over the
applicable lease term.
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. The size of the Company's fleet
has grown substantially since 1994 due to the acquisition and construction of
vessels and the investment in joint venture companies that own and operate
vessels. The Company has also sold many vessels from its fleet, particularly
those that are less marketable. Since 1997, proceeds from the sale of certain
vessels have been deposited into restricted cash accounts for purposes of
acquiring newly constructed U.S.-flag vessels and qualifying for the Company's
temporary deferral of taxable gains realized from the sale of those vessels.
7
<PAGE>
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.
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------------- -------------
RATES PER DAY WORKED ($): (1) (2)
Supply and Towing Supply .................... 6,094 7,007
Anchor Handling Towing Supply ............... 12,715 12,054
Crew ........................................ 2,579 2,695
Standby Safety .............................. 6,678 6,445
Utility and Line Handling ................... 1,798 1,838
Geophysical, Freight, and Other ............. 5,007 4,372
Overall Fleet ............................ 4,308 4,221
OVERALL UTILIZATION (%): (1)
Supply and Towing Supply................... 78.4 91.1
Anchor Handling Towing Supply.............. 81.0 85.4
Crew....................................... 75.1 97.0
Standby Safety............................. 78.2 98.4
Utility and Line Handling.................. 72.2 95.2
Geophysical, Freight, and Other............ 70.6 100.0
Overall Fleet........................... 75.5 94.2
- ---------------------
(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. As of March 31, 1999 and 1998, the Company
operated 26 and 15 vessels, respectively, under bareboat and time charter-in
agreements. As of March 31, 1999, 19 of the vessels chartered-in resulted from
sale and lease back transactions that occurred in 1998 and 1997.
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 March 31, 1999
and 1998, the Company had 13 and 6 vessels, respectively, bareboat
chartered-out.
The table below sets forth the Company's marine fleet structure at the dates
indicated:
AT MARCH 31,
---------------------------------
FLEET STRUCTURE 1999 1998
------------------------------------ --------------- ---------------
Owned............................... 226 238
Bareboat and Time Chartered-In...... 26 15
Managed............................. 4 2
Joint Venture Vessels (1)........... 36 34
Pool Vessels (2).................... 9 12
--------------- ----------------
Overall Fleet................... 301 301
=============== ================
- --------------------
(1) 1999 and 1998 include 14 and 15 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"). 1999 and 1998 include 18 and 19 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"). 1999 also
includes 4 vessels operated by other joint venture businesses.
(2) 1999 and 1998 include five vessels owned by Toisa Ltd. which
participate in a pool with Company owned North Sea standby safety
vessels. Additionally, 1999 and 1998 include four and seven
standby safety vessels, respectively, in which the Company shares
net operating profits after certain adjustments with Toisa and
owners of the vessels (the "Saint Fleet Pool").
8
<PAGE>
Vessel operating expenses are primarily a function of fleet size and utilization
levels. The most significant vessel operating expense items are wages paid to
marine personnel, maintenance and repairs, and marine insurance. In addition to
variable vessel operating expenses, the offshore marine business segment incurs
fixed charges related to the depreciation of property and equipment.
Depreciation is a significant operating expense, and the amount related to
vessels is the most significant component.
A portion of the Company's revenues and expenses are paid in foreign currencies.
For financial statement reporting purposes, these amounts are translated into
U.S. dollars at the weighted average exchange rates during the relevant period.
The foregoing applies primarily to the Company's North Sea operations. Overall,
the percentage of the Company's offshore marine operating revenues derived from
foreign operations whether in U.S. dollars or foreign currencies approximated
45% and 37% for the three-month periods ended March 31, 1999 and 1998,
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 periods ended March 31, 1999 and 1998, drydocking costs totaled
$1.4 million and $2.7 million, respectively. During those same periods, the
Company completed the drydocking of 16 and 23 offshore marine vessels,
respectively.
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 11 standby safety vessels in the North Sea, (ii) the
SEAVEC and Saint Fleet Pools, which coordinate the marketing of 20 standby
safety vessels in the North Sea, of which 11 are owned by the Veesea Joint
Venture, (iii) the TMM Joint Venture, which operates 20 vessels offshore Mexico,
(iv) the Smit Joint Ventures, which operate 18 vessels in the Far East, Latin
America, the Middle East, and the Mediterranean, and (v) other joint venture
arrangements.
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 OPA 90 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
9
<PAGE>
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 Company charges consulting fees to customers for customized training
programs, its planning of and participation in customer oil spill response drill
programs and response exercises, and other special projects.
The principal components of the Company's operating costs are salaries and
related benefits for operating personnel, payments to sub-contractors, equipment
maintenance, and depreciation. These expenses are primarily a function of
regulatory requirements and the level of retainer business. Operating results
are also affected by the Company's participation in the Clean Pacific Alliance
("CPA"), a joint venture with Crowley Marine Services that operates on the West
Coast of the United States.
DRILLING SERVICES
The Company's drilling service business is conducted through Chiles Offshore LLC
and its wholly owned subsidiaries (collectively referred to as "Chiles").
Chiles, a 55.4% majority owned subsidiary, has operated as a development stage
company since inception in 1997 by devoting substantially all of its efforts to
designing, engineering, and contracting with shipyards and vendors for the two
state-of-the-art premium offshore jackup drilling rigs (the "Rigs"), raising
capital, employing personnel, and securing contracts for the Rigs. Drilling
operations have not generated operating revenues, nor is there any assurance
that it will generate significant operating revenues until the Rigs are placed
in service. In addition, there can be no assurance that Chiles will successfully
complete the transition from a development stage company to successful
operations. Other risk factors associated with the Company's drilling operations
include, but are not limited to, oil and gas prices, capital expenditure plans
of oil and gas operators, access to capital, completion of construction of the
Rigs, and competition. As a result of the aforementioned factors and the related
uncertainties, there can be no assurance of the future success of the Company's
drilling service business.
A drilling contract has been executed with CNG Producing Company ("CNG") for use
of the first Rig (the "Chiles Columbus"). The Chiles Columbus is expected to
enter operations following its delivery from the shipyard in May 1999 and
testing of its equipment and drilling systems. In order to satisfy the terms of
the contract with CNG, the Chiles Columbus will be modified to extend its legs
from 477 feet to 511 feet in length.
10
<PAGE>
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.
<TABLE>
<CAPTION>
Marine Environmental Drilling Other Total
-------- ------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999:
Operating Revenues -
External Customers.............................. $ 72,397 $5,324 $ - $ - $ 77,721
Intersegment.................................... - 68 - (68) -
-------- ------ -------- --------- ----------
Total......................................... $ 72,397 $5,392 $ - $ (68) $ 77,721
======== ====== ======== ========= ==========
Operating Profit (Loss)........................... $ 18,143 $ 978 $ (205) $ - $ 18,916
Gains (Losses) from Equipment Sales or 297 (3) - - 294
Retirements, net..................................
Equity in Earnings of 50% or Less Owned Companies. 1,669 276 - - 1,945
Minority Interest in Income of Subsidiaries....... - - - (368) (368)
Interest, net..................................... - - - 554 554
Gain from Commodity Swap Transactions............. - - - 359 359
Loss from Sale of Marketable Securities........... - - - (966) (966)
Corporate Expenses................................ - - - (1,045) (1,045)
Income Taxes...................................... - - - (6,410) (6,410)
-------- ------ -------- --------- ----------
Income before Extraordinary Item................ $ 20,109 $1,251 $ (205) $ (7,876) $ 13,279
=========================================================================================================================
THREE MONTHS ENDED MARCH 31, 1998:
Operating Revenues -
External Customers.............................. $ 91,159 $6,054 $ - $ - $ 97,213
Intersegment.................................... - - - - -
-------- ------ -------- --------- ----------
Total......................................... $ 91,159 $6,054 $ - $ - $ 97,213
======== ====== ======= ========= ==========
Operating Profit (Loss)........................... $ 33,707 $ 784 $ (85) $ - $ 34,406
Gains from Equipment Sales or Retirements, net.... 12,693 26 - - 12,719
Equity in Earnings of 50% or Less Owned Companies. 4,220 60 - - 4,280
Minority Interest in Income of Subsidiaries....... - - - (471) (471)
Interest, net..................................... - - - 1,205 1,205
Corporate Expenses................................ - - - (1,146) (1,146)
Income Taxes...................................... - - - (16,723) (16,723)
-------- ------ -------- --------- ----------
Income before Extraordinary Item................ $ 50,620 $ 870 $ (85) $ (17,135) $ 34,270
=========================================================================================================================
</TABLE>
OFFSHORE MARINE SERVICES
OPERATING REVENUES. The Company's offshore marine business segment's operating
revenues decreased $18.8 million or 20.6% in the three-month period ended March
31, 1999 compared to the three-month period ended March 31, 1998 due primarily
to lower utilization and day rates and the sale of vessels. Recent declines in
oil and gas prices have resulted in reduced drilling and production support
activities. The adverse effect of these factors was partially offset by an
increase in operating revenues resulting from the entry into service of vessels
constructed for and chartered-in by the Company.
Utilization of the Company's worldwide fleet declined from 94.2% in the
three-month period ended March 31, 1998 to 75.5% in the three-month period ended
March 31, 1999 and resulted in a $17.4 million reduction in operating revenues.
Most of this decline resulted from reduced demand for the Company's supply,
towing supply, crew, and utility vessels operating domestically. Utilization of
the Company's North Sea standby safety, West African crew, towing supply, and
line handling, and Far Eastern anchor handling towing supply vessels also
declined between comparable quarters. With the decline in demand for equipment
in the United States, the Company has mobilized nine crew, five anchor handling
towing supply, and five supply/towing supply vessels to foreign markets since
March 1998.
Operating revenues declined $3.2 million between comparable quarters due to
lower day rates earned by the Company's vessels working in the United States and
foreign regions. This decline was particularly focused in the Company's domestic
fleet of supply/towing supply and crew vessels whose day rates fell 27% to
$5,102 per day and 6% to $2,503 per day, respectively. The Company also
experienced declines in day rates earned by certain of its anchor handling
towing supply and crew vessels working offshore West Africa and supply/towing
supply vessels working in other foreign regions.
11
<PAGE>
During 1998 and the first quarter of 1999, the Company sold and ceased
operations of 25 vessels and constructed and accepted delivery of 13 vessels.
The sale of 7 crew, 7 utility, 6 supply/towing supply and 5 anchor handling
towing supply vessels resulted in an $8.3 million decline in operating revenues.
Vessels constructed for the Company, including 5 anchor handling towing supply,
4 crew, 3 supply, and 1 utility, contributed $9.7 million to operating revenues.
Revenues also rose $1.4 million between comparable quarters due to the operation
in the Far East by the Company of additional chartered-in vessels.
OPERATING PROFIT. The Company's offshore marine business segment's operating
profit declined $15.6 million, or 46.2%, in the three-month period ended March
31, 1999 compared to the three-month period ended March 31, 1998 due primarily
to the adverse affect of lower utilization and day rates as outlined above. This
decrease was offset by lower direct vessel operating expenses and an improvement
in operating profits resulting from the replacement of older vessels with newly
constructed vessels. In response to a decline in demand and day rates for
vessels in the U.S. Gulf of Mexico, the Company removed vessels from service.
Additional vessels were removed from service consistent with the Company's asset
management strategy pursuant to which drydockings are deferred on selected
vessels during periods of weak market conditions. At March 31, 1999, 45 of the
Company's vessels in the U.S. Gulf of Mexico were out of service, and 19 of
those vessels require drydocking before returning to operation. Administrative
and general expenses of the offshore marine business segment remained relatively
constant between comparable periods.
GAINS (LOSSES) FROM EQUIPMENT SALES OR RETIREMENTS, NET. Net gains from
equipment sales or retirements decreased $12.4 million in the three-month period
ended March 31, 1999 compared to the three-month period ended March 31, 1998.
During the first quarter 1999, the Company sold two offshore marine crew
vessels. During the first quarter 1998, five utility, three crew, three anchor
handling towing supply (two of which were bareboat chartered-in), and one towing
supply vessels were sold.
EQUITY IN EARNINGS OF 50% OR LESS OWNED COMPANIES. Equity earnings declined $2.6
million in the three-month period ended March 31, 1999 compared to the
three-month period ended March 31, 1998 due primarily to reduced profits of the
SMIT and TMM Joint Ventures and the disposition of the Company's equity interest
in a joint venture that provides marine and underwater services to offshore
terminal and oilfield operations internationally. In 1998, the Company's
interest in a gain from the sale of a SMIT Joint Venture vessel totaled $1.4
million, and there were no vessels sold in 1999 by joint ventures in which the
Company's investment is accounted for under the equity method. Profits of the
TMM Joint Ventures declined due primarily to lower rates per day worked and
utilization and an increase in operating expenses associated with the bareboat
charter-in of a vessel. The decrease in the TMM Joint Ventures' profits was
partially offset by earnings from its operation of additional chartered-in
vessels.
ENVIRONMENTAL SERVICES
OPERATING REVENUE. The environmental business segment's operating revenue
decreased $0.7 million or 11% in the three-month period ended March 31, 1999
compared to the three-month period ended March 31, 1998 due primarily to a
decrease in the number and severity of oil spills managed by the Company.
OPERATING PROFIT. The environmental business segment's operating profit
increased $0.2 million in the three- month period ended March 31, 1999 compared
to the three-month period ended March 31, 1998 due to reduced operating and
general and administrative expenses.
EQUITY IN EARNINGS OF A 50% OR LESS OWNED COMPANY. Equity earnings increased
$0.2 million in the three-month period ended March 31, 1999 compared to the
three-month period ended March 31, 1998. Profits rose between comparable
quarters due to an oil spill response by CPA in 1999; whereas, there were no
spill responses in the prior year by joint ventures in which the Company's
investment is accounted for under the equity method.
DRILLING SERVICES
Since inception in 1997, the Company's drilling service
business segment has engaged in no operations other than managing construction
of the Rigs and related matters. Operating losses in the three-month periods
ended March 31, 1999 and 1998 resulted from general and administrative and
depreciation expenses.
12
<PAGE>
OTHER
NET INTEREST INCOME. Net interest income decreased $0.7 million in the
three-month period ended March 31, 1999 compared to the three-month period ended
March 31, 1998. Interest expense rose between comparable periods due primarily
to the sale in April 1998 of $110.0 million aggregate principal amount of the
Chiles 10.0% Senior Notes due 2008 (the "Chiles 10.0% Notes") and a decline in
capitalized interest associated with the construction of offshore marine
vessels. This decrease was partially offset by an increase in capitalized
interest associated with the construction of Rigs and interest income due
primarily to greater invested cash balances. During the first quarter of 1999
and 1998, the Company capitalized interest of $3.3 million and $1.2 million,
respectively, with regard to the construction of Rigs and offshore marine
vessels.
GAIN FROM COMMODITY SWAP TRANSACTIONS. During the three-month period ended March
31, 1999, the Company recognized net gains, totaling $0.4 million, from natural
gas commodity swap transactions. There were no commodity swap transactions
during the comparable period ended March 31, 1998.
LOSS FROM SALE OF MARKETABLE SECURITIES. During the three-month period ended
March 31, 1999, the Company realized net losses of $1.0 million primarily from
the sale of interest bearing securities as interest rates rose between the date
of acquisition and disposition. There were no gains or losses recognized from
the sale of marketable securities during the three-month period ended March 31,
1998.
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 vessels, and retainer,
spill response, and consulting activities of the Company's environmental service
business. The offshore marine service 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.
OFFSHORE MARKET DEVELOPMENTS. The decline in oil and gas prices that began in
1998 has resulted in reduced drilling and production support activities both
domestically and internationally. As a result, revenue earned by the Company's
offshore marine services fleet has declined, and at March 31, 1999, the Company
had 45 offshore marine vessels out of service in the U.S. Gulf of Mexico. The
decline in product prices in the oil and gas industry has also resulted in
significantly reduced day rates and utilization of jackup rigs, particularly in
the U.S. Gulf of Mexico shallow water market, and excess supply in the current
jackup market.
Sustained weak oil and gas prices, economic problems in countries outside the
United States, and a number of other factors beyond the Company's control could
further curtail spending by oil and gas companies. Therefore, the Company cannot
predict whether, or to what extent, market conditions will improve or
deteriorate further. The current trends in market conditions will have an
adverse effect on the Company's results of operations and cash flows, and if
such conditions deteriorated severely and if they then persisted for an extended
period of time, they may have an adverse effect on the Company's financial
position.
The Company believes that Chiles has sufficient financing in place to complete
the construction and outfitting of the Rigs and fund the initial cost of
operations. Current day rate levels for jackup rigs are, however, not sufficient
for Chiles to operate the Rigs and produce cash flow at levels necessary to
provide adequate debt service coverage. Accordingly, if jackup rig day rates
remain depressed, it will be necessary for Chiles to obtain additional financing
in the form of subordinated debt or equity. The Company believes that Chiles
will be able to obtain such financing, if required; however, there can be no
assurance that it will be available on acceptable terms.
13
<PAGE>
CASH AND MARKETABLE SECURITIES. Since December 31, 1998, the Company's cash and
investments in marketable securities declined by $67.9 million. At March 31,
1999, cash and marketable securities totaled $371.3 million, including $173.0
million of unrestricted cash and cash equivalents, $134.6 million of marketable
securities, and $63.7 million of restricted cash. At March 31, 1999, the Company
had paid $13.8 million in offshore marine vessel construction costs from
unrestricted cash balances, and subject to prior written approval from the
Maritime Administration, the Company expects such amounts to be reimbursed from
its restricted cash accounts. See discussion below regarding Cash Generation and
Deployment.
CAPITAL STRUCTURE. At March 31, 1999, the Company's capital structure was
comprised of $470.2 million in long-term debt (including current portion) and
$532.2 million in stockholders' equity. Since year end, long-term debt declined
due primarily to the Company's early retirement of certain indebtedness.
Stockholders' equity also decreased since year end due to the repurchase of the
Company's common stock and a decline in accumulated other comprehensive income
that resulted from unrealized losses on available-for-sale securities and losses
from foreign currency translation adjustments. This decrease was partially
offset by an increase in retained earnings from net income. See discussion below
regarding the Company's Stock and Debt Repurchase Program.
CASH GENERATION AND DEPLOYMENT. At March 31, 1999, cash and cash equivalents
were relatively unchanged from the prior year end. Cash flow provided from
operating activities during the three-month period ended March 31, 1999 totaled
$9.2 million and declined significantly between comparable quarters due
primarily to lower utilization of and day rates earned by the Company's offshore
marine vessels. During the three-month period ended March 31, 1999, cash
generated from investing activities primarily included $53.9 million from the
sale of available-for-sale securities and $13.0 million as a result of a
reduction in restricted cash balances. These increases in cash flows were
primarily offset by uses in investing and financing activities to acquire $41.0
million of property and equipment and $23.5 of the Company's common stock, repay
$3.9 million of indebtedness, loan $3.0 million to Globe Wireless, Inc, and
purchase $2.5 million of available-for-sale securities.
CAPITAL EXPENDITURES. Expenditures for property and equipment during the
three-month period ended March 31, 1999 primarily related to the Company's
construction of offshore marine vessels and Rigs. As of March 31, 1999, the
Company was committed to the construction of 12 offshore marine vessels for an
approximate aggregate cost $99.5 million of which $43.2 million has been
expended, and Chiles has commitments to build 2 Rigs for an approximate
aggregate cost of $171.3 million of which $123.4 million has been expended. The
offshore marine vessel construction projects are expected to be completed over
the next two years, and the 2 Rigs being constructed for Chiles are expected to
be completed in May and September of 1999.
STOCK AND DEBT REPURCHASE PROGRAM. During the three-month period ended March 31,
1999, the Company purchased 593,500 shares of its common stock, $2.5 million
principal amount of its 7.2% Senior Notes due 2009, and $1.5 million principal
amount of the Chiles 10.0% Notes, all in the open market, at an aggregate cost
of $27.1 million. At March 31, 1999, the Company had $31.8 million available for
purchases of additional SEACOR Securities that may be conducted from
time-to-time through open market purchases, privately negotiated transactions,
or otherwise depending on market conditions.
LIQUIDITY. Under the terms of an unsecured reducing revolving credit facility
(the "Credit Facility") with Den norske Bank ASA, the Company may borrow up to
$100.0 million aggregate principal amount of unsecured reducing revolving credit
loans maturing November 17, 2004. At March 31, 1999, the Company had $100.0
million available for future borrowings under the Credit Facility. 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 certain activities of the
Company's vessel owning/operating subsidiaries, and restricts the payment of
dividends.
14
<PAGE>
Chiles entered into a bank credit agreement that provides for a $25.0 million
revolving credit facility (the "Chiles Bank Facility") maturing December 31,
2004. 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, conditions (financial or otherwise), or
prospects since the date of execution of the Chiles Bank Facility, availability
under the Chiles Bank Facility will commence upon delivery of a Rig being
constructed under contract with Chiles. All obligations with respect to the
Chiles Bank Facility are limited exclusively to Chiles and are nonrecourse to
SEACOR. Presently, management has no reason to believe that credit under the
facility will not be available.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair market
value. SFAS 133 requires that changes in the derivative's fair market value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. A company may also
implement SFAS 133 as of the beginning of any fiscal quarter after issuance
(that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS 133 must
be applied to derivative instruments and certain derivative instruments embedded
in hybrid contracts that were issued, acquired, or substantially modified after
December 31, 1997. The Company has not yet quantified the impact of adopting
SFAS 133 on its financial statements and has not determined the timing or method
of its adoption of SFAS 133.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computerized systems being written
to store and process the year portion of dates using two digits rather than four
and that date sensitive systems may fail or produce erroneous results on or
before January 1, 2000 because the year 2000 will be interpreted incorrectly.
The Company has been pursuing a strategy to ensure that all of its significant
computer systems will be able to process dates from and after January 1, 2000
without critical failure. Computerized systems are integral to the Company's
operations, particularly for accounting and office product software applications
used throughout its many offices and, to a lesser extent, for communication,
navigational, and other systems aboard certain of the Company's vessels.
Most of the Company's computerized accounting and office product software
applications are licensed through commercial third party software developers
with whom the Company has maintenance contracts. Where necessary, these software
developers have already modified and released newer versions of their product
that are Y2K compliant. The Company has implemented or is in the process of
testing and evaluating these newer Y2K compliant versions. In connection with
the acquisition of accounting applications in prior years unconnected with its
Y2K planning, the Company has already upgraded materially all of its computer
hardware to systems that are Y2K compliant. The Company expects to complete the
implementation of both Y2K compliant accounting and office product software and
related hardware during the second half of 1999. Substantially all Y2K compliant
software upgrades have been provided under the terms of the Company's
maintenance contracts without additional cost. The Company has also
substantially completed inventorying and preparing a risk analysis of other
date-aware systems in its operations that include vessels. Presently, the
Company estimates the cost of modifying its information technology
infrastructure to be Y2K compliant will be approximately $0.5 million.
The Company's computer systems are not widely integrated with the systems of its
suppliers and customers. A potential Y2K risk attributable to third parties
would be from a temporary disruption in certain materials and services provided
by third parties. Major suppliers have been contacted regarding Y2K compliance,
and the Company has added Y2K compliance requirements to all of its purchasing
contracts.
At present, the Company has not developed a contingency plan to address all
areas of risk associated with Y2K compliance but expects to develop a plan, if
needed, beginning in the third quarter of 1999. The Company is committed to
ensuring that it is fully Y2K ready and believes that, when completed, its plans
will adequately address the above-mentioned risks.
15
<PAGE>
Based upon the Y2K risk assessment work performed thus far, the Company believes
the most likely Y2K-related failures would be related to a disruption of
materials and services provided by third parties. Although the Company does not
expect that such disruptions would have a material adverse effect on the
Company's financial condition or results of operations, there can be no
assurance that the Company's belief is correct or that its risk assessments are,
in fact, accurate. The Company believes that the upgrades to its hardware and
software systems, in conjunction with any contingency plans developed prior to
January 1, 2000, will permit a transition through that date without significant
interruption in its business or operations; however, such assessment is
predicated on the timely completion of the above referenced software
modifications. Should these modifications and upgrades be delayed or the
Company's contingency plans fail, the Y2K issue could have a material impact on
the Company's financial condition or results of operations. In addition, there
can be no assurance that the Company's vendors, suppliers and other parties with
whom the Company does business will successfully resolve their Y2K problems. In
the event of any such failures or other Y2K failures, there can be no assurance
that, despite the Company's contingency plans, there will not be a material
adverse effect on the Company's financial condition or results of operations.
16
<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:
None.
<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 17, 1999 By: /s/ Charles Fabrikant
-----------------------------------
Charles Fabrikant, Chairman of the
Board, President and Chief
Executive Officer
(Principal Executive Officer)
DATE: MAY 17, 1999 By: /s/ Randall Blank
-----------------------------------
Randall Blank, Executive Vice
President, Chief Financial Officer
and Secretary
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 180,526
<SECURITIES> 40,214
<RECEIVABLES> 83,611
<ALLOWANCES> 2,246
<INVENTORY> 1,565
<CURRENT-ASSETS> 305,549
<PP&E> 773,476
<DEPRECIATION> 117,799
<TOTAL-ASSETS> 1,211,538
<CURRENT-LIABILITIES> 47,037
<BONDS> 468,098
0
0
<COMMON> 142
<OTHER-SE> 532,098
<TOTAL-LIABILITY-AND-EQUITY> 1,211,538
<SALES> 0
<TOTAL-REVENUES> 77,721
<CGS> 0
<TOTAL-COSTS> 715
<OTHER-EXPENSES> 40,980
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,417
<INCOME-PRETAX> 18,112
<INCOME-TAX> 6,249
<INCOME-CONTINUING> 11,863
<DISCONTINUED> 0
<EXTRAORDINARY> 260
<CHANGES> 0
<NET-INCOME> 13,539
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 0.99
</TABLE>
