<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number: 0-28732
HVIDE MARINE INCORPORATED
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Florida 65-0524593
Hvide Marine Incorporated
2200 Eller Drive
P.O. Box 13038
Fort Lauderdale, Florida 33316
(954) 524-4200
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
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Class A Common Stock 7,647,791 shares at November 4, 1996
Class B Common Stock 3,419,577 shares at November 4, 1996
<PAGE> 2
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Balance Sheets as of
December 31, 1995 and September 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations
for the three months and nine months ended September 30, 1995 and 1996 (unaudited) . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1995 and 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission (the "Commission"), although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and related notes contained in the
Company's 1995 consolidated financial statements previously filed with the
Commission. Other than as indicated herein, there have been no significant
changes from the financial data published in said report. In the opinion of
Management, such unaudited information reflects all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of the
unaudited information shown.
Results for the three month periods ended September 30, 1996 and 1995
presented herein are not necessarily indicative of results that may be expected
for the year ending December 31, 1996.
2
<PAGE> 4
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31 September 30,
1995 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,050 $ 5,598
Accounts receivable:
Trade, net 9,602 16,232
Insurance claims and other 4,399 2,046
Due from affiliates 101 --
Spare parts and supplies 3,417 5,137
Prepaid expenses 960 181
Deferred costs (net) 2,550 4,440
Total current assets 24,079 33,634
Property:
Construction in progress 1,387 4,250
Vessels and improvements 122,198 222,719
Less accumulated depreciation (20,585) (24,641)
Furniture and equipment 2,601 3,494
Less accumulated depreciation (998) (1,294)
Net property 104,603 204,528
Other assets:
Deferred costs (net) 4,112 5,841
Due from affiliates 131 255
Investment in affiliates 423 1,112
Goodwill (net) 9,117 8,738
Long-term receivable (net) 831 45
Other 387 463
Total other assets 15,001 16,454
Total $ 143,683 $ 254,616
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 7,708 $ 17,108
Current obligations under capital leases 577 3,065
Accounts payable 4,905 3,197
Other 6,574 9,801
Total current liabilities 19,764 33,171
Long-term liabilities:
Long-term debt 96,014 100,533
Notes payable to related parties 1,302 177
Obligations under capital leases 3,450 13,434
Deferred income taxes 4,317 4,045
Other 4,837 4,329
Total long-term liabilities 109,920 122,518
Total liabilities 129,684 155,689
Minority partners' equity in subsidiaries 1,654 1,003
Stockholders' equity:
Preferred Stock, $1.00 par value--10,000,000 shares authorized,
no shares issued and outstatnding -- --
Class A Common Stock--$.001 par value, 100,000,000 shares
authorized, 0 and 7,647,791 shares issued and outstanding -- 8
Class B Common Stock--$.001 par value, 5,000,000 shares
authorized, 1,558,210 and 3,419,577 shares issued and outstanding 1 3
Class C Common Stock--$.001 par value, 2,500,000 shares
authorized, 976,630 and 0 shares issued and outstanding 1 --
Additional paid-in capital 6,341 97,218
Retained earnings 6,002 695
Total stockholders' equity 12,345 97,924
Total minority partners' equity in subsidiaries and
stockholders' equity 13,999 98,927
Total $ 143,683 $ 254,616
</TABLE>
3
<PAGE> 5
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1996 1995 1996
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Revenues $ 18,746 $ 30,379 $ 51,194 $ 72,130
Operating expenses:
Crew payroll and benefits 5,326 7,830 14,794 19,968
Charter hire and bond guarantee fee 953 1,161 2,967 3,386
Repairs and maintenance 1,174 2,276 3,984 5,848
Insurance 1,379 1,925 3,157 4,957
Consumables 1,210 1,704 2,476 4,196
Other 813 1,662 2,104 3,734
Total operating expenses 10,855 16,558 29,482 42,089
Selling, general and administrative expenses 3,175 4,036 9,167 11,049
Depreciation and amortization 1,590 2,688 4,691 6,115
Income from operations 3,126 7,097 7,854 12,877
Net interest 2,892 2,911 8,491 8,751
Other income (expense):
Minority interest (40) 353 153 721
Other (22) (572) (97) (522)
Total other income (expense) (62) (219) 56 199
Income (loss) before provision for income
taxes and extraordinary item 172 3,967 (581) 4,325
Provision for income taxes 0 1,484 0 1,616
Income (loss) before extraordinary items 172 2,483 (581) 2,709
Loss on extinguishment of debt net of
applicable income taxes of $1,405 --- 8,016 --- 8,016
Net income (loss) $ 172 $ (5,533) $ (581) $ (5,307)
Earnings (loss) per common share
Income (loss) before extinguishment of debt $ 0.07 $ 0.36 $ (0.23) $ 0.68
Loss on extinguishment of debt --- 1.16 --- 2.00
Net income $ 0.07 $ (0.80) $ (0.23) $ (1.32)
Weighted average number of common shares
and common share equivalents outstanding 2,534,840 6,934,648 2,534,840 4,012,148
</TABLE>
4
<PAGE> 6
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
--------------------
1995 1996
---- ----
(In thousands)
<S> <C> <C>
Operating Activities:
(Loss) before extraordinary item $ (581) $ (5,307)
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on extinguishment of debt -- 8,016
Depreciation and amortization 4,691 6,115
Provision for bad debts -- 144
Gain on disposal of property (73) --
Amortization of discount on long-term debt 147 148
Provision for (benefit from) deferred taxes -- (1,616)
Minority partners' equity in earnings (losses) of subsidiaries, net (588) (651)
Undistributed (earnings) losses of affiliates, net 449 (87)
Changes in operating assets and liabilities:
Accounts receivable (3,087) (2,459)
Due from affiliates (282) (23)
Current and other assets (3,140) 5,156
Accounts payable and other liabilities 2,535 1,602
------- --------
Net cash provided by operating activities 71 11,038
Investing Activities:
Purchase of property (3,672) (7,735)
Proceeds from disposals of property 690 21
Capital contribution to affiliates -- (602)
Acquisitions, net of $500 escrow deposit utilized in 1995 and cash
acquired of $1,722 in 1996 (2,330) (54,136)
------- -------
Net cash provided in investing activities (5,312) (62,452)
Financing Activities:
Proceeds (repayment) of lines of credit, net 6,000 (1,222)
Proceeds from term loan and acquisition facility --- 21,700
Proceeds from issuance of common stock, net of offering costs --- 76,697
Principal payments on long term debt (3,700) (41,243)
Payment of debt and other financing costs (211) (628)
Payment of notes payable to related parties --- (370)
Payment of obligations under capital leases (374) (972)
------- --------
Net cash provided by financing activities 1,715 53,962
(Decrease) Increase in cash and cash equivalents (3,526) 2,548
Cash and cash equivalents at beginning of period 6,363 3,050
------- --------
Cash and cash equivalents at end of period $ 2,837 $ 5,598
======= ========
</TABLE>
5
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. PUBLIC OFFERING
On August 14, 1996, the Company completed the initial public offering
(the "Offering") of 7,000,000 shares of its common stock at $12.00 per share.
The net proceeds to the Company were approximately $75,900,000, after deducting
underwriting commissions and other offering expenses. A portion of the net
proceeds was used primarily to repay certain indebtedness that was outstanding
prior to the Offering and for the cash portion of the purchase price of certain
acquisitions consummated subsequent to the Offering. On September 12, 1996,
the underwriters' over-allotment was exercised pursuant to which an additional
159,000 shares were issued. The net proceeds of approximately $1,774,000 were
used by the Company to repay certain outstanding indebtedness.
In addition, on August 14, 1996, the Company issued 1,370,000 shares
of common stock in payment of certain outstanding indebtedness.
2. DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
-------- --------
(Unaudited)
<S> <C> <C>
Lines of Credit $ 7,500 $ 7,433
Term Loan 46,000 60,500
Acquisition Facility -0- 4,200
Senior Note 23,200 9,021
Junior Note 17,633 -0-
Title XI Debt -0- 33,388
Notes Payable 9,389 3,099
-------- --------
103,722 117,641
Less Current Maturities (7,708) (17,108)
-------- --------
$ 96,014 $100,533
======== ========
</TABLE>
The Company's credit facility (the "Credit Facility"), as amended on
June 21, 1996, provides for a working capital credit line of $10,000,000
through January 15, 2001 (the "Line of Credit") and a stand-by letter of credit
(the "Letter of Credit") of $5,600,000. Borrowings under the Line of Credit
bear interest at the prime rate or LIBOR, at the option of the Company, plus an
applicable margin based upon the Company's compliance with certain financial
covenants (approximately 8.9% and 8.1% at December 31, 1995 and September 30,
1996, respectively), and are subject to an annual commitment fee of 0.50% of
the unused portion of the Line of Credit. Borrowings outstanding under the
Line of Credit totaled $7,500,000 and $5,500,000 at December 31, 1995 and
September 30, 1996, respectively, of which $5,500,000 is currently due.
Additionally, the Credit Facility provides for a letter of credit in an amount
equal to the greater of amounts available to be drawn under the Line of Credit
or $4,000,000. Amounts drawn under either the Letter of Credit or the Line of
Credit are due on demand or the ultimate maturity
6
<PAGE> 8
date of January 15, 2001. There were no amounts outstanding under the Letters
of Credit at December 31, 1995 or September 30, 1996.
At September 30, 1996, the Credit Facility provided for a term loan
(the "Term Loan") up to $60,500,000 payable in quarterly principal and interest
payments. Borrowings under the Term Loan bear interest at the prime rate or
LIBOR, at the option of the Company, plus an applicable margin based upon the
Company's compliance with certain financial covenants. At December 31, 1995
and September 30, 1996, the Term Loan was accruing interest at LIBOR + 3.0% and
LIBOR + 2.5%, respectively (approximately 8.9% and 8.6%, respectively).
The Credit Facility previously provided for an additional $7,500,000
working capital line of credit which was repaid with a portion of the proceeds
of the Offering and eliminated from the Credit Facility on August 14, 1996.
Additionally, the Credit Facility provides for a $19,900,000 vessel acquisition
line of credit (the "Acquisition Facility") under which $4,200,000 was drawn on
August 14, 1996. The Acquisition Facility bears interest at LIBOR + 2.5% (8.5%
at September 30, 1996) and is due January 2001.
The collateral for the Company's debt includes all Company-owned
vessels, partnership interests in Seabulk America Partnership, Ltd. and
Seabulk Transmarine Partnership, Ltd., spare parts, fuel and supplies, and
eligible accounts receivable.
The Senior Note bears interest at 12%, payable semi-annually on March
31 and September 30. On August 14, 1996 and September 12, 1996, the Company
repaid $13,490,000 and $1,700,000, respectively, of the principal balance of
the Senior Note with a portion of the proceeds of the Offering and the exercise
of the underwriters' over-allotment option. Repayment of the balance of the
Senior Note is subordinated to the claims of the Company's principal banks for
amounts outstanding under the Credit Facility.
The terms of the Credit Facility and Senior Note prohibit the Company,
or any of its wholly-owned subsidiaries, from paying dividends on any class of
common stock and restrict, among other things, the Company's ability to enter
into new commitments or borrowings over specified amounts and dispose of assets
outside of the ordinary course of business. In addition, the Company is
required to maintain a minimum level of tangible net worth, as defined, and to
prepay amounts outstanding under the Credit Facility to the extent of 50% of
excess cash flow, as defined therein.
The Junior Note bore interest at 8% compounded quarterly. The
principal sum and all accrued and unpaid interest ($2,607,000 and $0 at
December 31, 1995 and September 30, 1996, respectively) was repaid with a
portion of the proceeds of the Offering ($15,115,000) and the issuance of
shares of common stock (1,244,002).
In connection with the acquisition of the outstanding common stock of
an entity (See note 4), the Company assumed the entity's obligations under a
$4,000,000 revolving line of credit secured by the outstanding accounts
receivables generated by five chemical tankers of which $1,153,000 was
outstanding at August 14, 1996. The revolving line of credit bears interest
monthly at a rate of LIBOR plus a 150 basis point margin of the outstanding
amount. At September 30, 1996, $1,933,000 is outstanding at an interest rate
of 7.0% under the line of credit which is due on demand.
On August 14, 1996, the Company assumed approximately $34,650,000 of
Title XI Debt in connection with the acquisitions of certain vessels (See note
4). The Title XI Debt is collateralized by First Preferred Mortgages secured
by the HMI Petrochem and HMI Dynachem and bears interest at rates ranging from
5.9% to 10.1%. The debt is due in semi-annual principal and interest payments
through December 1, 2006.
The Company made interest payments of approximately $8,206,295 and
$12,953,011 for the nine months ended September 30, 1995 and 1996,
respectively.
7
<PAGE> 9
3. INCOME TAXES
For the nine months ended September 30, 1995 and 1996 the provision
for income taxes was computed using an estimated annual effective tax rate of
0% and 37%, respectively, adjusted principally for depreciation on vessels
built with capital construction funds.
4. ACQUISITIONS
On January 31, 1996, the Company acquired nine offshore crew boats
under capital lease obligations.
On August 14, 1996, the Company purchased the remaining 50% of the
outstanding common stock of an entity and acquired three chemical tankers. The
aggregate purchase price of approximately $64,650,000 consisted of
approximately $15,500,000 paid in cash with a portion of the proceeds from the
Offering and the assumption of approximately $34,650,000 in mortgage
obligations related to two of the vessels acquired, $7,000,000 under the Term
Loan and $7,500,000 under a capital lease.
On August 14, 1996, the Company purchased eight supply boats. The
aggregate purchase price of $26,075,000 was paid in cash with a portion of the
proceeds of the Offering ($18,075,000) and amounts drawn under the Term Loan
($8,000,000). The Company has agreed to indemnify certain affiliates of the
sellers against certain of one seller's liabilities due to its creditors. The
Company's maximum liability pursuant to the guarantee and indemnification is
$7,000,000.
On August 14, 1996, the Company acquired two supply boats and one crew
boat. The aggregate purchase price of $6,825,000 was paid in cash with a
portion of the proceeds of the Offering ($1,950,000), amounts drawn under the
Acquisition Facility ($4,200,000) and the issuance of notes payables
($675,000).
The operations of acquired vessels for the period subsequent to their
acquisition dates are included in the accompanying unaudited condensed
consolidated statements of operations for the nine months ended September 30,
1996.
5. EXTRAORDINARY ITEMS
On August 14, 1996, the Company utilized common stock and a portion of
the proceeds of the Offering to repay $25,000,000 and $15,190,000 of the Junior
and Senior Notes, respectively. Accordingly, the Company recorded a loss on
extinguishment of $8,016,000, net of a tax benefit of $1,405,000.
6. SUBSEQUENT EVENT
On October 25, 1996, the Company purchased a vessel for cash of
approximately $1,800,000.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of the Company's financial condition and
historical results of operations should be read in conjunction with the
condensed consolidated financial statements and the related notes thereto
included elsewhere in this report and the Company's related disclosures
previously filed with the Commission.
RECENT ACQUISITIONS
The Company's results of operations have been and will be
significantly affected by a series of acquisitions, aggregating 37 vessels,
during 1995 and 1996 as summarized by area of operation in the following table:
<TABLE>
<CAPTION>
NUMBER OF ASSETS AGGREGATE
PERIOD TRANSACTIONS ACQUIRED INVESTMENT
------ ------------ -------- ----------
<S> <C> <C> <C> <C>
Offshore Energy Support 1995 1 7 crew boats $5.9 million
1996 (1) 6 10 supply boats
11 crew boats $40.6 million
Offshore and Harbor Towing 1995 (2) 1 1 tractor tug $6.4 million
Chemical Transportation 1996 (1) 1 3 chemical $64.7 million
Petroleum Product Transportation 1995 1 5 barges $0.1 million
</TABLE>
(1) 1996 transactions include ten supply boats, one crew boat, and three
chemical carriers acquired in connection with the completion of the
Company's initial public offering in August 1996, and the pending
delivery of a crew/supply boat currently under construction scheduled
for completion in November 1996.
(2) The amount reflects the cost to build the Company's tractor tug. The
Company operates the tractor tug pursuant to an operating lease.
AREA OF OPERATIONS OVERVIEW
The following financial information represents historical results by
major areas of operations:
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<PAGE> 11
Hvide Marine Incorporated and Subsidiaries
Consolidated Segmented Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
REVENUES:
MARINE SUPPORT SERVICES:
Offshore Energy Support $ 6,234 $ 11,981 $ 16,426 $ 28,226
Offshore & Harbor Towing 2,994 $3,351 9,205 10,234
Marine Support Services Revenues 9,228 15,332 25,631 38,460
MARINE TRANSPORTATION SERVICES:
Chemical Transportation 5,172 9,968 13,728 19,230
Petroleum Product Transportation 4,346 5,079 11,835 14,440
Marine Transportation Revenues 9,518 15,047 25,563 33,670
TOTAL REVENUES $ 18,746 $ 30,379 $ 51,194 $ 72,130
OPERATING COSTS:
MARINE SUPPORT SERVICES:
Offshore Energy Support $ 3,474 $ 5,750 $ 9,413 $ 15,371
Offshore & Harbor Towing 1,635 1,712 4,269 5,417
Marine Support Services Operating Costs 5,109 7,462 13,682 20,788
MARINE TRANSPORTATION SERVICES:
Chemical Transportation 2,944 5,997 8,453 11,693
Petroleum Product Transportation 2,802 3,099 7,347 9,608
Marine Transportation Operating Costs 5,746 9,096 15,800 21,301
TOTAL OPERATING COSTS $ 10,855 $ 16,558 $ 29,482 $ 42,089
DIRECT OVERHEAD EXPENSE:
MARINE SUPPORT SERVICES:
Offshore Energy Support $ 636 $ 659 $ 1,483 $ 1,859
Offshore & Harbor Towing 281 337 733 992
Marine Support Services Direct Overhead 917 996 2,216 2,851
MARINE TRANSPORTATION SERVICES:
Chemical Transportation 342 792 1,066 1,887
Petroleum Product Transportation 192 233 524 684
Marine Transportation Direct Overhead 534 1,025 1,590 2,571
TOTAL DIRECT OVERHEAD $ 1,451 $ 2,021 $ 3,806 $ 5,422
FLEET OPERATING EBITDA (1)
MARINE SUPPORT SERVICES:
Offshore Energy Support $ 2,124 $ 5,572 $ 5,530 $ 10,996
Offshore & Harbor Towing 1,078 1,302 4,203 3,825
Marine Support Services Fleet EBITDA (1) 3,202 6,874 9,733 14,821
MARINE TRANSPORTATION SERVICES:
Chemical Transportation 1,886 3,179 4,209 5,650
Petroleum Product Transportation 1,352 1,747 3,964 4,148
Marine Transportation Fleet EBITDA (1) 3,238 4,926 8,173 9,798
TOTAL FLEET EBITDA (1) $ 6,440 $ 11,800 $ 17,906 $ 24,619
Corporate Overhead Expense 1,724 2,015 5,361 5,627
EBITDA (1) 4,716 9,785 12,545 18,992
Depreciation and Amortization Expense 1,590 2,688 4,691 6,115
INCOME FROM OPERATIONS $ 3,126 $ 7,097 $ 7,854 $ 12,877
</TABLE>
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(1) EBITDA (net income from continuing operations before interest expense,
income tax expense, depreciation expense, amortization expense, minority
interest and other non-operating income) is frequently used by securities
analysts and is presented here to provide additional information about the
Company's operations. EBITDA is not required by generally accepted accounting
principles and should not be considered as an alternative to net income, as an
indicator of the Company's operating performance or as an alternative to cash
flows from operations as a measure of liquidity. Fleet EBITDA is EBITDA before
corporate overhead expense.
REVENUE OVERVIEW
MARINE SUPPORT SERVICES
Revenue derived from vessels providing marine support services is
attributable to the Company's offshore energy support and its offshore and
harbor towing operations. Revenue derived from the Company's offshore energy
support operations is primarily a function of the size of the Company's fleet,
vessel day rates or charter rates, and fleet utilization. Rates and
utilization are primarily a function of offshore drilling exploration and
production activities.
The following table sets forth the average day rates and utilization
percentages achieved by offshore supply boats and crew boats owned or operated
by the Company in the Gulf of Mexico for the periods indicated:
<TABLE>
<CAPTION>
1995 1996
---- ----
Q1 Q2 Q3 Q4 Q1 Q2 Q3
-- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
Number of supply boats at end of period 10 10 10 10 10 11 16
Average supply boat day rates (1) $2,886 $2,843 $3,113 $3,244 $3,448 $4,080 $5,034
Average supply boat utilization (2) 71% 76% 84% 93% 92% 100% 97%
Number of crew boats at end of period (3) 26 26 26 26 35 35 36
Crew boat day rates (1) (3) $1,444 $1,412 $1,422 $1,458 $1,460 $1,466 $1,528
Average crew boat utilization (2) (3) 79% 81% 90% 91% 89% 93% 96%
</TABLE>
(1) Average day rates are calculated by dividing total vessel revenue by
the total number of days the vessel worked.
(2) Utilization percentages are calculated by dividing the fleet average
number of days worked by 365.
(3) Excludes utility boats.
Increased activity in the Gulf of Mexico since the second quarter of
1995 has been primarily attributable to improvements in seismic technology in
the oil and gas exploration industry.
MARINE TRANSPORTATION SERVICES
Revenue derived from vessels providing marine transportation services
is attributable to the Company's chemical and petroleum product transportation
operations. Generally, demand for industrial chemical transportation services
coincides with economic activity. Since 1989, revenue derived from chemical
transportation operations has been entirely attributable to the operations of
Ocean Specialty Tankers Corporation ("OSTC"), a company owned equally by OMI
Corp. ("OMI") and the Company until August 1996, when the Company acquired
from OMI three chemical carriers and its 50% interest in OSTC. The Company's
five chemical carriers are chartered to OSTC which markets them under a pooling
arrangement.
The Company's petroleum product transportation operations consist of
its product carrier, the Seabulk Challenger, and its fuel barging operating
subsidiary, Sun State Marine Services, Inc. ("Sun State"). Since entering
service in 1975, the Seabulk Challenger has derived all of its revenue from
successive voyage and time charters to Shell Oil Company. Under the current
charter, fuel and port costs are for the account of the charterer, charter hire
escalates based upon changes in the consumer price index, and charter hire is
suspended while the vessel is unavailable to transport cargo, as when it is
undergoing repairs or regularly scheduled maintenance. The charter extends to
January 2000, with the charterer retaining the right to early termination upon
the payment to the Company of a significant penalty. Revenue from Sun State's
towboat and fuel barges has been derived primarily from contracts of
affreightment with Florida Power and Light and Steuart Petroleum Co. that
require Sun State to transport fuel as needed by those two customers, with the
Florida Power and Light contract having a guaranteed minimum utilization.
11
<PAGE> 13
OVERVIEW OF OPERATING EXPENSES, DEPRECIATION AND CAPITAL EXPENDITURES
The Company's operating expenses are primarily a function of fleet
size and utilization levels. The most significant expense categories are crew
payroll and benefits, charter hire, maintenance and repair, drydocking
amortization, insurance and fuel.
The crews of the Company's chemical and product carriers are paid on a
time-for-time basis by which they receive paid leave in proportion to time
served aboard a vessel. The crews of certain tugs, towboats, and offshore
energy support vessels are paid only for days worked.
Charter hire consists primarily of payments made with respect to the
bareboat charters of the Seabulk Challenger and Seabulk Magnachem which were
acquired pursuant to leveraged lease transactions and operating lease payments
on the tractor tug Broward. The Company also pays charter hire when it
charters harbor tugs to meet requirements in excess of its own tugs'
availability.
All maintenance and repair costs of less than $5,000 for product and
chemical tankers and $3,000 for all other vessels are treated as operating
expenses. Maintenance and repair costs which exceed these thresholds are
capitalized only if they extend the life of a vessel or increase its value.
Under applicable regulations, the Company overhauls main engines and
key auxiliary equipment in accordance with a continuous planned maintenance
program. The Company's chemical and product carriers, offshore service
vessels, and its four largest tugs are required to be drydocked twice in a
five-year period for inspection and routine maintenance and repairs. The
Company's fuel barges, because they are operated in fresh water, are required
to be drydocked only twice in each ten-year period. The Company's other harbor
tugs and towboats generally are not required to be drydocked on a specific
schedule. The Company employs the deferral method of accounting to recognize
its drydocking expense. Under the deferral method, capitalized drydocking
costs are expensed over the period preceding the next scheduled drydocking.
Insurance costs consist primarily of premiums paid for (i) protection
and indemnity insurance for the Company's marine liability risks, which are
insured by a mutual insurance association of which the Company is a member and
through the commercial insurance markets; (ii) hull and machinery insurance and
other maritime-related insurance, which are provided through the commercial
marine insurance markets; and (iii) general liability and other traditional
insurances, which are provided through the commercial insurance markets.
Insurance costs, particularly costs of marine insurance, are directly related
to overall insurance market conditions and industry and individual loss
records, which vary from year to year.
In addition to variable expenses associated with vessel operations,
the Company incurs fixed charges to depreciate its marine assets. The Company
calculates depreciation based on a useful life ranging from 25 years for its
steel-hull offshore energy support vessels to 30 years for aluminum-hull
vessels, the lesser of any applicable lease term life or the Oil Pollution Act
of 1990 life for its product and chemical carriers, ten years for its fuel
barges, and 40 years for its towboats and tugs.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenue. Revenue increased 62% to $30.4 million for the three months
ended September 30, 1996 from $18.7 million for the three months ended
September 30, 1995 primarily due to increased revenue in the Company's offshore
energy support, petroleum product transportation and chemical transportation
operations.
12
<PAGE> 14
Revenue from offshore energy operations increased 92% to $12.0 million
for the three months ended September 30, 1996 from $6.2 million for the three
months ended September 30, 1995 primarily due to acquisitions and greater
utilization of and day rates for supply and crew boats resulting from increased
offshore exploration and production activity. During the 1996 period, day
rates for supply boats owned, operated, or managed by the Company increased 62%
from the 1995 period, while day rates for crew boats owned, operated, or
managed by the Company increased 7% from the 1995 period. Utilization of
supply boats increased to 97% for the 1996 period from 84% for the 1995 period,
and utilization of crew boats increased to 96% for the 1996 period from 90% for
the 1995 period.
Petroleum product transportation revenue increased 17% to $5.1 million
for the three months ended September 30, 1996 from $4.3 million for the three
months ended September 30, 1995 primarily due to increased movements of
petroleum products by the Company's towboats and barge fleet as a result of the
cold winter and higher natural gas prices.
Chemical transportation revenue increased 93% to $10.0 million for the
three months ended September 30, 1996 from $5.2 million for the three months
ended September 30, 1995 primarily due to acquisitions.
Revenue from offshore and harbor tug operations increased 12% to $3.4
million for the three months ended September 30, 1996 from $3.0 million for the
three months ended September 30, 1995 primarily as a result of increased tanker
and freighter traffic in Port Everglades. Revenue also increased in the port
of Mobile due to a tariff increase and an increase in port traffic.
Operating Expenses. Operating expenses increased 53% to $16.6 million
for the three months ended September 30, 1996 from $10.9 million for the three
months ended September 30, 1995 primarily due to increases in crew payroll and
benefits, maintenance and repair, and supplies and consumables resulting from
acquisitions and increased business activity. As a percentage of revenue,
operating expenses decreased to 55% for the three months ended September 30,
1996 from 58% for the three months ended September 30, 1995.
Overhead Expenses. Overhead expenses increased 27% to $4.0 million, or
13% of revenues, for the three months ended September 30, 1996 from $3.2
million, or 17% of revenues, for the three months ended September 30, 1995
primarily due to an increase in staffing requirements due to acquisitions.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 69% to $2.7 million for the three months ended September 30,
1996 compared with $1.6 million for the three months ended September 30, 1995
as a result of an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 127% to $7.1
million, or 23% of revenue, for the three months ended September 30, 1996 from
$3.1 million, or 17% of revenue, for the three months ended September 30, 1995
as a result of the factors noted above.
Net Interest Expense. Net interest expense remained relatively stable
at $2.9 million, or 10% of revenue, for the three months ended September 30,
1996 as compared to $2.9 million, or 15% of revenue, for the three months ended
September 30, 1995 primarily as a result of debt incurred in connection with
acquisitions.
Net Income (Loss). The Company had a net loss of $5.5 million for the
three months ended September 30, 1996 after having net income of $0.2 million
for the three months ended September 30, 1995 primarily as a result of non-
recurring charges of $8.0 million, net of a $1.4 million income tax benefit,
related to an early extinguishment of debt.
13
<PAGE> 15
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenue. Revenue increased 41% to $72.1 million for the nine months
ended September 30, 1996 from $51.2 million for the nine months ended September
30, 1995 primarily due to increased revenue in the Company's offshore energy
support, petroleum product transportation and chemical transportation
operations.
Revenue from offshore energy operations increased 72% to $28.2 million
for the nine months ended September 30, 1996 from $16.4 million for the nine
months ended September 30, 1995 primarily due to acquisitions and greater
utilization of supply and crew boats and higher day rates resulting from
increased offshore exploration and production activity. During the 1996
period, day rates for supply boats owned, operated, or managed by the Company
increased 42% from the 1995 period, and day rates for crew boats owned,
operated, or managed by the Company increased 4% from the 1995 period.
Utilization of supply boats increased to 96% for the 1996 period from 77% for
the 1995 period, and utilization of crew boats increased to 93% for the 1996
period from 83% for the 1995 period.
Petroleum product transportation revenue increased 22% to $14.4
million for the nine months ended September 30, 1996 from $11.8 million for the
nine months ended September 30, 1995 primarily due to increased movements of
product by the Company's towboats and barge fleet as a result of the cold
winter and higher natural gas prices.
Chemical Transportation revenue increased 40% to $19.2 million for the
nine months ended September 30, 1996 from $13.7 million for the nine months
ended September 30, 1995 primarily due to acquisitions.
Revenue from offshore and harbor tug operations increased 11% to $10.2
million for the nine months ended September 30, 1996 from $9.2 million for the
nine months ended September 30, 1995 primarily as a result of increased tanker
and freighter traffic in Port Everglades. Revenue also increased in the port
of Mobile due to a tariff increase and an increase in port traffic.
Operating Expenses. Operating expenses increased 43% to $42.1 million
for the nine months ended September 30, 1996 from $29.5 million for the nine
months ended September 30, 1995 primarily due to increases in crew payroll and
benefits, maintenance and repair, and supplies and consumables resulting from
acquisitions and increased business activity. As a percentage of revenue,
operating expenses remained stable at 58% for the nine months ended September
30, 1996 from 58% for the nine months ended September 30, 1995.
Overhead Expenses. Overhead expenses increased 21% to $11.0 million,
or 15% of revenues, for the nine months ended September 30, 1996 from $9.2
million, or 18% of revenues, for the nine months ended September 30, 1995
primarily due to an increase in professional fees relating to pending
litigation. Additionally, salaries and benefits increased as a result of an
increase in staffing requirements due to acquisitions.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 30% to $6.1 million for the nine months ended September 30,
1996 compared with $4.7 million for the nine months ended September 30, 1995 as
a result of an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 64% to $12.9
million, or 18% of revenue, for the nine months ended September 30, 1996 from
$7.9 million, or 15% of revenue, for the nine months ended September 30, 1995
as a result of the factors noted above.
14
<PAGE> 16
Net Interest Expense. Net interest expense increased 3% to $8.8
million, or 12% of revenue, for the nine months ended September 30, 1996 from
$8.5 million, or 17% of revenue, for the nine months ended September 30, 1995
primarily as a result of debt incurred in connection with acquisitions.
Net Income (Loss). The Company had a net loss of $5.3 million for the
nine months ended September 30, 1996 after incurring a net loss of $0.6 million
for the nine months ended September 30, 1995 primarily as a result of non-
recurring charges of $8.0 million, net of $1.4 million in income taxes, related
to an early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements historically have arisen primarily
from its working capital needs, acquisition of marine vessels, improvements to
vessels and debt service requirements.
The Company's principal sources of cash have been proceeds from
borrowings, cash provided by operating activities, and proceeds from the
initial public offering of its Class A Common Stock in August 1996. In
September 1994, the Company entered into the Credit Facility, as amended
effective August 1996, currently provides for a $60.5 million term loan, a
$10.0 million revolving line of credit, a $19.9 million vessel acquisition
credit line which decreases to $11.5 million over a four-year period, and a
$5.6 million letter of credit. Advances under the vessel acquisition credit
line may not exceed either (i) 70% of the lesser of the purchase price or
appraised value of the vessel being acquired, or (ii) a multiple of six times
the EBITDA of the acquisition. At September 30, 1996, aggregate borrowings
under the Credit Facility were $70.2 million. Also in September 1994, the
Company issued $25.0 million of Senior Notes and $25.0 million of Junior Notes
at discounts resulting in proceeds of $23.1 million and $17.5 million,
respectively. Borrowings under the Credit Facility, the Senior Notes, and the
Junior Notes were utilized primarily to repay other indebtedness and to fund
vessel acquisitions.
In August 1996, the Company completed the initial public offering of
its Class A Common Stock, which resulted in net proceeds to the Company of
approximately $75.9 million. Of such net proceeds, (i) approximately $35.6
million was used to fund part of the cash portion of the $97.5 million
aggregate purchase price of the three chemical carriers acquired from OMI, ten
offshore supply boats, and a crew boat, and (ii) approximately $40.3 million
was used to repay certain indebtedness. The aggregate purchase price of such
acquisitions was $99.7 million, consisting of approximately $37.7 million in
cash and the assumption or issuance of $62.0 million of debt obligations. The
cash portion of the purchase price not funded with proceeds from the initial
public offering was funded with general corporate funds. Indebtedness repaid
with proceeds from the Offering included $6.8 million under the Credit
Agreement, $0.6 million of accrued interest on and $13.5 million of principal
of the Senior Notes, and $15.1 million of accrued interest and principal under
the Junior Notes. The $13.9 million balance of the outstanding principal under
the Junior Notes was converted into Class A and Class B Common Stock in
September 1996. As of September 30, 1996, $9.0 million of accrued interest and
principal under the Senior Notes was outstanding.
As of September 30, 1996, the Company had, under its Credit Facility,
$60.5 million outstanding under the term loan, $4.2 million outstanding under
the vessel acquisition credit line, and $5.5 million outstanding under the line
of credit. Borrowings under the Credit Facility bear interest at prime or
LIBOR, at the Company's option, plus a margin based on the Company's compliance
with certain financial ratios.
The Company's future capital needs are expected to relate primarily to
debt service obligations, maintenance and improvement of its fleet, and
acquisitions. The Company's outstanding indebtedness at September 30, 1996,
was approximately $134.3 million. Debt service requirements from September 30
through the remainder of 1996 will include principal and interest payments of
approximately $4.0 million and $2.7 million, respectively (assuming interest
rates remain steady), and operating lease obligations for the remainder of 1996
will total approximately $0.2 million. In 1997, the Company's principal and
interest payment obligations will be approximately $14.9 and $9.8 million,
respectively, and operating
15
<PAGE> 17
lease obligations will be approximately $3.9 million.
Capital requirements for vessel maintenance and improvement are
estimated to be $12.0 million for 1996, of which $9.1 million had been recorded
as either capital expenditures or construction in progress as of September 30,
1996, and $15.0 million for 1997.
The Company has a 2.4% equity interest in five 45,300 dwt petroleum
product carriers currently under construction. The aggregate cost of the five
carriers is estimated to be $255.0 million, of which approximately $40.0
million will constitute equity investment and $215.0 million will be financed
with the proceeds of government-guaranteed Title XI ship financing bonds issued
in March 1996. Subject to certain conditions, the Company has an option,
exercisable through 2002, to purchase a 49.3% interest at a price equal to (i)
the investor's equity investment plus a stated annual return, or (ii) if
exercised after December 31, 1997, the greater of the fair market value of the
interest or the amount set forth in (i). The Company also has an option,
exercisable on January 15, 1998, to purchase an additional 23.4% interest at a
price equal to the investor's equity investment plus a stated return. Should
the Company fail to exercise the latter option, the investor has the option to
acquire 1.6% of the ownership interest from the Company for nominal
consideration. The total estimated cost of exercising the Company's options is
up to $32.0 million (assuming the options are exercised prior to January 1,
1998). The Company currently has no understandings or agreements with respect
to the financing that it would require if it were to exercise any or all of
these options, and there can be no assurance that such financing will be
available.
The Company's existing indebtedness restricts the Company's
subsidiaries from paying dividends or making other distributions to the
Company. The Company does not believe that this restriction has had or will
have a material effect upon its ability to meet its cash obligations because a
substantial portion of those obligations are payable by its subsidiaries.
The Company is the defendant in litigation in which one of the
shipyards that completed the Seabulk America is seeking additional payments
aggregating $8.5 million for its work and $10.0 million of punitive damages.
Although the Company believes the shipyard's claims are without merit and has
asserted counterclaims aggregating $5.6 million, the Company has obtained a
bank letter of credit to finance up to $5.6 million of any additional payment
that it might ultimately be required to make pursuant to this litigation.
At September 30, 1996, the Company had working capital of $0.5
million. The Company believes that cash generated from operations and amounts
available under the Credit Facility will be sufficient to fund debt service
requirements, planned capital expenditures, and working capital requirements
for the foreseeable future. The Company also believes that such resources,
together with the potential use of equity financing, will allow the Company to
pursue its strategy of growth through acquisitions. As future cash flows are
subject to a number of uncertainties, including the condition of the markets
served by the Company, there can be no assurance that these resources will
continue to be sufficient to fund the Company's cash requirements.
EFFECTS OF INFLATION AND SEASONALITY
The Company does not consider inflation a significant business risk in
the current and foreseeable future although the Company has experienced some
cost increases. In some cases, these increases have been offset by charter
hire escalation clauses.
The Company has experienced some slight seasonality in its overall
operations. The first half of the year is generally not as strong as the
second half due to lower activity in offshore energy support activity and
petroleum product transportation during the months of February, March, and
April.
16
<PAGE> 18
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, ("FASB Statement No. 121") which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
FASB Statement No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. The Company adopted FASB Statement No. 121 in
the first quarter of 1996 and the effect of adoption was not material.
17
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
27 Financial Data Schedule (for SEC use only).
2. Reports on Form 8-K
The Company's Current Report on Form 8-K dated August 14, 1996
reporting on the acquisition of certain vessels, filed with the Securities and
Exchange Commission on August 23, 1996.
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.
Hvide Marine Incorporated
By: /s/ John J. Krumenacker
-----------------------
John J. Krumenacker Controller and Chief Accounting Officer
Date: November 14, 1996
18
<PAGE> 20
FORM 10 Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number: 0 28732
HVIDE MARINE INCORPORATED
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Florida 65 0524593
Hvide Marine Incorporated
2200 Eller Drive
P.O. Box 13038
Fort Lauderdale, Florida 33316
(954) 524 4200
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 ____
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Class A Common Stock 7,647,791 shares at November 4, 1996
Class B Common Stock 3,419,577 shares at November 4, 1996
<PAGE> 21
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION...........................................................................2
ITEM 1. FINANCIAL STATEMENTS.........................................................................2
Condensed Consolidated Balance Sheets as of
September 30, 1996 (unaudited) and December 31, 1995................................................3
Condensed Consolidated Statements of Operations
for the three months and nine months ended September 30, 1996 and 1995 (unaudited)..................4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996 and 1995 (unaudited)...................................5
Notes to Condensed Consolidated Financial Statements................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION...........................................................9
PART II. OTHER INFORMATION.............................................................................18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 K............................................................18
Signature..........................................................................................18
</TABLE>
1
<PAGE> 22
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission (the "Commission"), although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and related notes contained in the
Company's 1995 consolidated financial statements previously filed with the
Commission. Other than as indicated herein, there have been no significant
changes from the financial data published in said report. In the opinion of
Management, such unaudited information reflects all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the unaudited
information shown.
Results for the three month periods ended September 30, 1996 and 1995
presented herein are not necessarily indicative of results that may be expected
for the year ending December 31, 1996.
2
<PAGE> 23
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31 September 30,
1995 1996
------------- ----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,050 $ 5,598
Accounts receivable:
Trade, net 9,602 16,232
Insurance claims and other 4,399 2,046
Due from affiliates 101 --
Spare parts and supplies 3,417 5,137
Prepaid expenses 960 181
Deferred costs (net) 2,550 4,440
--------------- ----------------
Total current assets 24,079 33,634
Property:
Construction in progress 1,387 4,250
Vessels and improvements 122,198 222,719
Less accumulated depreciation (20,585) (24,641)
Furniture and equipment 2,601 3,494
Less accumulated depreciation (998) (1,294)
--------------- ----------------
Net property 104,603 204,528
Other assets:
Deferred costs (net) 4,112 5,841
Due from affiliates 131 255
Investment in affiliates 423 1,112
Goodwill (net) 9,117 8,738
Long term receivable (net) 831 45
Other 387 463
--------------- ----------------
Total other assets 15,001 16,454
--------------- ----------------
Total $ 143,683 $ 254,616
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt $ 7,708 $ 17,108
Current obligations under capital leases 577 3,065
Accounts payable 4,905 3,197
Other 6,574 9,801
--------------- ----------------
Total current liabilities 19,764 33,171
Long term liabilities:
Long term debt 96,014 100,533
Notes payable to related parties 1,302 177
Obligations under capital leases 3,450 13,434
Deferred income taxes 4,317 4,045
Other 4,837 4,329
--------------- ----------------
Total long term liabilities 109,920 122,518
--------------- ----------------
Total liabilities 129,684 155,689
Minority partners' equity in subsidiaries 1,654 1,003
Stockholders' equity:
Preferred Stock, $1.00 par value 10,000,000 shares authorized,
no shares issued and outstanding -- --
Class A Common Stock $.001 par value, 100,000,000 shares
authorized, 0 and 7,647,791 shares issued and outstanding -- 8
Class B Common Stock $.001 par value, 5,000,000 shares
authorized, 1,558,210 and 3,419,577 shares issued and outstanding 1 3
Class C Common Stock $.001 par value, 2,500,000 shares
authorized, 976,630 and 0 shares issued and outstanding 1 --
Additional paid in capital 6,341 97,218
Retained earnings 6,002 695
--------------- ----------------
Total stockholders' equity 12,345 97,924
--------------- ----------------
Total minority partners' equity in subsidiaries and
stockholders' equity 13,999 98,927
--------------- ----------------
Total $ 143,683 $ 254,616
=============== ================
</TABLE>
3
<PAGE> 24
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- -----------------------------
1995 1996 1995 1996
------------ ------------- ----------- ------------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Revenues $ 18,746 $ 30,379 $ 51,194 $ 72,130
Operating expenses:
Crew payroll and benefits 5,326 7,830 14,794 19,968
Charter hire and bond guarantee fee 953 1,161 2,967 3,386
Repairs and maintenance 1,174 2,276 3,984 5,848
Insurance 1,379 1,925 3,157 4,957
Consumables 1,210 1,704 2,476 4,196
Other 813 1,662 2,104 3,734
------------ ------------- ----------- ------------
Total operating expenses 10,855 16,558 29,482 42,089
Selling, general and administrative expenses 3,175 4,036 9,167 11,049
Depreciation and amortization 1,590 2,688 4,691 6,115
------------ ------------- ----------- ------------
Income from operations 3,126 7,097 7,854 12,877
Net interest 2,892 2,911 8,491 8,751
Other income (expense):
Minority interest (40) 353 153 721
Other (22) (572) (97) (522)
------------ -------------- ----------- ------------
Total other income (expense) (62) (219) 56 199
------------ -------------- ----------- ------------
Income (loss) before provision for income
taxes and extraordinary item 172 3,967 (581) 4,325
Provision for income taxes 0 1,484 0 1,616
------------ -------------- ----------- ------------
Income (loss) before extraordinary items 172 2,483 (581) 2,709
Loss on extinguishment of debt net of
applicable income taxes of $1,405 -- 8,016 -- 8,016
------------ -------------- ----------- ------------
Net income (loss) $ 172 $ (5,533) $ (581) $ (5,307)
============ ============== =========== ============
Earnings (loss) per common share
Income (loss) before extinguishment of debt $ 0.07 $ 0.36 $ (0.23) $ 0.68
Loss on extinguishment of debt -- 1.16 -- 2.00
------------ -------------- ----------- ------------
Net income $ 0.07 $ (0.80) $ (0.23) $ (1.32)
============ ============== =========== ============
Weighted average number of common shares
and common share equivalents outstanding 2,534,840 6,934,648 2,534,840 4,012,148
============ ============== =========== ============
</TABLE>
4
<PAGE> 25
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
---------------------
1995 1996
---------- ----------
OPERATING ACTIVITIES: (In thousands)
<S> <C> <C>
Income (loss) before extraordinary item $ 581 $ (5,307)
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Loss on extinguishment of debt -- 8,016
Depreciation and amortization 4,691 6,115
Provision for bad debts -- 144
Amortization of discount on long term debt 147 148
Provision for (benefit from) deferred taxes 467 (1,677)
Minority partners' equity in earnings (losses ) of subsidiaries, net (535) (651)
Undistributed (earnings) losses of affiliates, net 449 (87)
Changes in operating assets and liabilities:
Accounts receivable (3,815) (2,459)
Due from affiliates (1,220) (23)
Current and other assets (3,178) 5,156
Accounts payable and other liabilities 3,560 1,602
---------- ----------
Net cash provided by operating activities 1,147 10,977
INVESTING ACTIVITIES:
Purchase of property (3,067) (7,735)
Proceeds from disposals of property 4 21
Capital contribution to affiliates -- (602)
Acquisitions, net of $500 escrow deposit utilized in 1995 and cash
acquired of $1,722 (2,444) (54,075)
---------- ----------
Net cash provided in investing activities (5,507) (62,391)
FINANCING ACTIVITIES:
Proceeds from lines of credit 6,000 (1,222)
Proceeds from term loan and acquisition facility -- 21,700
Proceeds from issuance of common stock, net of offering costs -- 76,697
Principal payments on long term debt (3,700) (41,243)
Payment of debt and other financing costs (214) (628)
Payment of notes payable to related parties -- (370)
Payment of obligations under capital leases (374) (972)
---------- ----------
Net cash provided by financing activities 1,712 53,962
(Decrease) Increase in cash and cash equivalents (2,648) 2,548
Cash and cash equivalents at beginning of period 6,363 3,050
---------- ----------
Cash and cash equivalents at end of period $ 3,715 $ 5,598
========== ==========
</TABLE>
5
<PAGE> 26
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. PUBLIC OFFERING
On August 14, 1996, the Company completed the initial public offering
(the "Offering") of 7,000,000 shares of its common stock at $12.00 per share.
The net proceeds to the Company were approximately $75,900,000, after deducting
underwriting commissions and other offering expenses. A portion of the net
proceeds was used primarily to repay certain indebtedness that was outstanding
prior to the Offering and for the cash portion of the purchase price of certain
acquisitions consummated subsequent to the Offering. On September 12, 1996, the
underwriters' over allotment was exercised pursuant to which an additional
159,000 shares were issued. The net proceeds of approximately $1,774,000 were
used by the Company to repay certain outstanding indebtedness.
In addition, on August 14, 1996, the Company issued 1,370,000 shares of
common stock in payment of certain outstanding indebtedness.
2. DEBT
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
(Unaudited)
<S> <C> <C>
Lines of Credit $7,500 $7,433
Term Loan 46,000 60,500
Acquisition Facility 0 4,200
Senior Note 23,200 9,021
Junior Note 17,633 0
Title XI Debt 0 33,388
Notes Payable 9,389 3,099
------- --------
103,722 117,818
Less Current Maturities (7,708) (17,108)
------- --------
$96,014 $100,533
======= ========
</TABLE>
The Company's credit facility (the "Credit Facility"), as amended on
June 21, 1996, provides for a working capital credit line of $10,000,000 through
January 15, 2001 (the "Line of Credit") and a stand by letter of credit (the
"Letter of Credit") of $5,600,000. Borrowings under the Line of Credit bear
interest at the prime rate or LIBOR, at the option of the Company, plus an
applicable margin based upon the Company's compliance with certain financial
covenants (approximately 8.9% and 8.1% at December 31, 1995 and September 30,
1996, respectively), and are subject to an annual commitment fee of 0.50% of the
unused portion of the Line of Credit. Borrowings outstanding under the Line of
Credit totaled $7,500,000 and $5,500,000 at December 31, 1995 and September 30,
1996, respectively, of which $5,500,000 is currently due. Additionally, the
Credit Facility provides for a letter of credit in an amount equal to the
greater of amounts available to be drawn under the Line of Credit or $4,000,000.
Amounts drawn under either the Letter of Credit or the Line of Credit are due on
demand or the ultimate maturity
6
<PAGE> 27
date of January 15, 2001. There were no amounts outstanding under the Letters of
Credit at December 31, 1995 or September 30, 1996.
At September 30, 1996, the Credit Facility provided for a term loan
(the "Term Loan") up to $60,500,000 payable in quarterly principal and interest
payments. Borrowings under the Term Loan bear interest at the prime rate or
LIBOR, at the option of the Company, plus an applicable margin based upon the
Company's compliance with certain financial covenants. At December 31, 1995 and
September 30, 1996, the Term Loan was accruing interest at LIBOR + 3.0% and
LIBOR + 2.5%, respectively (approximately 8.9% and 8.6%, respectively).
The Credit Facility previously provided for an additional $7,500,000
working capital line of credit which was repaid with a portion of the proceeds
of the Offering and eliminated from the Credit Facility on August 14, 1996.
Additionally, the Credit Facility provides for a $19,900,000 vessel acquisition
line of credit (the "Acquisition Facility") under which $4,200,000 was drawn on
August 14, 1996. The Acquisition Facility bears interest at LIBOR + 2.5% (8.5%
at September 30, 1996) and is due January 2001.
The collateral for the Company's debt includes all Company owned
vessels, partnership interests in Seabulk America Partnership, Ltd. and Seabulk
Transmarine Partnership, Ltd., spare parts, fuel and supplies, and eligible
accounts receivable.
The Senior Note bears interest at 12%, payable semi-annually on March
31 and September 30. On August 14, 1996 and September 12, 1996, the Company
repaid $13,490,000 and $1,700,000, respectively, of the principal balance of the
Senior Note with a portion of the proceeds of the Offering and the exercise of
the underwriters' over allotment option. Repayment of the balance of the Senior
Note is subordinated to the claims of the Company's principal banks for amounts
outstanding under the Credit Facility.
The terms of the Credit Facility and Senior Note prohibit the Company,
or any of its wholly owned subsidiaries, from paying dividends on any class of
common stock and restrict, among other things, the Company's ability to enter
into new commitments or borrowings over specified amounts and dispose of assets
outside of the ordinary course of business. In addition, the Company is required
to maintain a minimum level of tangible net worth, as defined, and to prepay
amounts outstanding under the Credit Facility to the extent of 50% of excess
cash flow, as defined therein.
The Junior Note bore interest at 8% compounded quarterly. The principal
sum and all accrued and unpaid interest ($2,607,000 and $0 at December 31, 1995
and September 30, 1996, respectively) was repaid with a portion of the proceeds
of the Offering ($15,115,000) and the issuance of shares of common stock
(1,244,002).
In connection with the acquisition of the outstanding common stock of
an entity (See note 4), the Company assumed the entity's obligations under a
$1,153,000 revolving line of credit secured by the outstanding accounts
receivables generated by three chemical tankers. The revolving line of credit
bears interest monthly at 7.0% of the outstanding amount. At September 30, 1996,
$1,933,000 is outstanding under the line of credit which is due on demand.
On August 14, 1996, the Company assumed approximately $34,650,000 of
Title XI Debt in connection with the acquisitions of certain vessels (See note
4). The Title XI Debt is collateralized by First Preferred Mortgages secured by
the HMI Petrochem and HMI Dynachem and bears interest at rates ranging from 5.9%
to 10.1%. The debt is due in semi-annual principal and interest payments through
December 1, 2006.
The Company made interest payments of approximately $8,206,295 and
$12,953,011 for the nine months ended September 30, 1995 and 1996, respectively.
7
<PAGE> 28
3. INCOME TAXES
For the nine months ended September 30, 1995 and 1996 the provision for
income taxes was computed using an estimated annual effective tax rate of 0% and
37%, respectively, adjusted principally for depreciation on vessels built with
capital construction funds.
4. ACQUISITIONS
On January 31, 1996, the Company acquired nine offshore crew boats
under capital lease obligations.
On August 14, 1996, the Company purchased the remaining 50% of the
outstanding common stock of an entity and acquired three chemical tankers. The
aggregate purchase price of approximately $64,650,000 consisted of approximately
$15,500,000 paid in cash with a portion of the proceeds from the Offering and
the assumption of approximately $34,650,000 in mortgage obligations related to
two of the vessels acquired, $7,000,000 under the Term Loan and $7,500,000 under
a capital lease.
On August 14, 1996, the Company purchased eight supply boats. The
aggregate purchase price of $26,075,000 was paid in cash with a portion of the
proceeds of the Offering ($18,075,000) and amounts drawn under the Term Loan
($8,000,000). The Company has agreed to indemnify certain affiliates of the
sellers against certain of one seller's liabilities due to its creditors. The
Company's maximum liability pursuant to the guarantee and indemnification is
$7,000,000.
On August 14, 1996, the Company acquired two supply boats and one crew
boat. The aggregate purchase price of $6,825,000 was paid in cash with a portion
of the proceeds of the Offering ($1,950,000), amounts drawn under the
Acquisition Facility ($4,200,000) and the issuance of notes payables ($675,000).
The operations of acquired vessels for the period subsequent to their
acquisition dates are included in the accompanying unaudited condensed
consolidated statements of operations for the nine months ended September 30,
1996.
5. EXTRAORDINARY ITEMS
On August 14, 1996, the Company utilized common stock and a portion of
the proceeds of the Offering to repay $25,000,000 and $15,190,000 of the Junior
and Senior Notes, respectively. Accordingly, the Company recorded a loss on
extinguishment of $8,016,000, net of a tax benefit of $1,405,000.
6. SUBSEQUENT EVENT
On October 25, 1996, the Company purchased a vessel for cash of
approximately $1,800,000.
8
<PAGE> 29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of the Company's financial condition and
historical results of operations should be read in conjunction with the
condensed consolidated financial statements and the related notes thereto
included elsewhere in this report and the Company's related disclosures
previously filed with the Commission.
RECENT ACQUISITIONS
The Company's results of operations have been and will be significantly
affected by a series of acquisitions, aggregating 37 vessels, during 1995 and
1996 as summarized by area of operation in the following table:
<TABLE>
<CAPTION>
NUMBER OF ASSETS AGGREGATE
PERIOD TRANSACTIONS ACQUIRED INVESTMENT
------ ------------ -------- ----------
<S> <C> <C> <C> <C>
Offshore Energy Support 1995 1 7 crew boats $5.9 million
1996 (1) 6 10 supply boats
11 crew boats $40.6 million
Offshore and Harbor Towing 1995 (2) 1 1 tractor tug $6.4 million
Chemical Transportation 1996 (1) 1 3 chemical carriers $64.7 million
Petroleum Product Transportation 1995 1 5 barges $0.1 million
</TABLE>
(1) 1996 transactions include ten supply boats, one crew boat, and three
chemical carriers acquired in connection with the completion of the
Company's initial public offering in August 1996, and the pending
delivery of a crew/supply boat currently under construction scheduled
for completion in November 1996.
(2) The amount reflects the cost to build the Company's tractor tug. The
Company operates the tractor tug pursuant to an operating lease.
AREA OF OPERATIONS OVERVIEW
The following financial information represents historical results by
major areas of operations:
9
<PAGE> 30
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED SEGMENTED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
1995 1996 1995 1996
<S> <C> <C> <C> <C>
REVENUES:
MARINE SUPPORT SERVICES:
Offshore Energy Support $ 6,234 $ 11,981 $ 16,426 $ 28,226
Offshore & Harbor Towing 2,994 $3,351 9,205 10,234
------------- -------------- -------------- --------------
Marine Support Services Revenues 9,228 15,332 25,631 38,460
MARINE TRANSPORTATION SERVICES:
Chemical Transportation 5,172 9,968 13,728 19,230
Petroleum Product Transportation 4,346 5,079 11,835 14,440
------------- -------------- -------------- --------------
Marine Transportation Revenues 9,518 15,047 25,563 33,670
------------- -------------- -------------- --------------
TOTAL REVENUES $ 18,746 $ 30,379 51,194 $ 72,130
------------- -------------- -------------- --------------
OPERATING COSTS:
MARINE SUPPORT SERVICES:
Offshore Energy Support $ 3,474 $ 5,750 $ 9,413 $ 15,371
Offshore & Harbor Towing 1,635 1,712 4,269 5,417
------------- -------------- -------------- --------------
Marine Support Services Operating Costs 5,109 7,462 13,682 20,788
MARINE TRANSPORTATION SERVICES:
Chemical Transportation 2,944 5,997 8,453 11,693
Petroleum Product Transportation 2,802 3,099 7,347 9,608
------------- -------------- -------------- --------------
Marine Transportation Operating Costs 5,746 9,096 15,800 21,301
------------- -------------- -------------- --------------
TOTAL OPERATING COSTS $ 10,855 $ 16,558 $ 29,482 $ 42,089
------------- -------------- -------------- --------------
DIRECT OVERHEAD EXPENSE:
MARINE SUPPORT SERVICES:
Offshore Energy Support $ 636 $ 659 $ 1,483 $ 1,859
Offshore & Harbor Towing 281 337 733 992
------------- -------------- -------------- --------------
Marine Support Services Direct Overhead 917 996 2,216 2,851
MARINE TRANSPORTATION SERVICES:
Chemical Transportation 342 792 1,066 1,887
Petroleum Product Transportation 192 233 524 684
------------- -------------- -------------- --------------
Marine Transportation Direct Overhead 534 1,025 1,590 2,571
------------- -------------- -------------- --------------
TOTAL DIRECT OVERHEAD $ 1,451 $ 2,021 $ 3,806 $ 5,422
------------- -------------- -------------- --------------
FLEET EBITDA (1)
MARINE SUPPORT SERVICES:
Offshore Energy Support $ 2,124 $ 5,572 $ 5,530 $ 10,996
Offshore & Harbor Towing 1,078 1,302 4,203 3,825
------------- -------------- -------------- --------------
Marine Support Services Fleet EBITDA (1) 3,202 6,874 9,733 14,821
MARINE TRANSPORTATION SERVICES:
Chemical Transportation 1,886 3,179 4,209 5,650
Petroleum Product Transportation 1,352 1,747 3,964 4,148
------------- -------------- -------------- --------------
Marine Transportation Fleet EBITDA (1) 3,238 4,926 8,173 9,798
------------- -------------- -------------- --------------
TOTAL FLEET EBITDA (1) $ 6,440 $ 11,800 $ 17,906 $ 24,619
------------- -------------- -------------- --------------
Corporate Overhead Expense 1,724 2,015 5,361 5,627
------------- -------------- -------------- --------------
EBITDA (1) 4,716 9,785 12,545 18,992
Depreciation and Amortization Expense 1,590 2,688 4,691 6,115
------------- -------------- -------------- --------------
INCOME FROM OPERATIONS $ 3,126 $ 7,097 $ 7,854 $ 12,877
============= ============== ============== ==============
</TABLE>
10
<PAGE> 31
(1) EBITDA (net income form continuing operations before interest expense,
income tax expense, depreciation expense, amortization expense, minority
interest and other non-operating income) is frequently used by securities
analysts and is presented here to provide additional information about the
Company's operations. EBITDA is not required by generally accepted accounting
principles and should not be considered as an alternative to net income, as an
indicator of the Company's operating performance or as an alternative to cash
flows from operations as a measure of liquidity. Fleet EBITDA is EBITDA before
corporate overhead expense.
REVENUE OVERVIEW
MARINE SUPPORT SERVICES
Revenue derived from vessels providing marine support services is
attributable to the Company's offshore energy support and its offshore and
harbor towing operations. Revenue derived from the Company's offshore energy
support operations is primarily a function of the size of the Company's fleet,
vessel day rates or charter rates, and fleet utilization. Rates and utilization
are primarily a function of offshore drilling exploration and production
activities.
The following table sets forth the average day rates and utilization
percentages achieved by offshore supply boats and crew boats owned or operated
by the Company in the Gulf of Mexico for the periods indicated:
<TABLE>
<CAPTION>
1995 1996
---- ----
Q1 Q2 Q3 Q4 Q1 Q2 Q3
-- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
Number of supply boats at end of period 10 10 10 10 10 11 16
Average supply boat day rates (1) $2,886 $2,843 $3,113 $3,244 $3,448 $4,080 $5,034
Average supply boat utilization (2) 71% 76% 84% 93% 92% 100% 97%
Number of crew boats at end of period (3) 26 26 26 26 35 35 36
Crew boat day rates (1) (3) $1,444 $1,412 $1,422 $1,458 $1,460 $1,466 $1,528
Average crew boat utilization (2) (3) 79% 81% 90% 91% 89% 93% 96%
</TABLE>
(1) Average day rates are calculated by dividing total vessel revenue by
the total number of days the vessel worked.
(2) Utilization percentages are calculated by dividing the fleet average
number of days worked by 365.
(3) Excludes utility boats.
Increased activity in the Gulf of Mexico since the second quarter of
1995 has been primarily attributable to improvements in seismic technology in
the oil and gas exploration industry.
MARINE TRANSPORTATION SERVICES
Revenue derived from vessels providing marine transportation services
is attributable to the Company's chemical and petroleum product transportation
operations. Generally, demand for industrial chemical transportation services
coincides with economic activity. Since 1989, revenue derived from chemical
transportation operations has been entirely attributable to the operations of
Ocean Specialty Tankers Corporation ("OSTC"), a company owned equally by OMI
Corp. ("OMI") and the Company until August 1996, when the Company acquired from
OMI three chemical carriers and its 50% interest in OSTC. The Company's five
chemical carriers are chartered to OSTC which markets them under a pooling
arrangement.
The Company's petroleum product transportation operations consist of
its product carrier, the Seabulk Challenger, and its fuel barging operating
subsidiary, Sun State Marine Services, Inc. ("Sun State"). Since entering
service in 1975, the Seabulk Challenger has derived all of its revenue from
successive voyage and time charters to Shell Oil Company. Under the current
charter, fuel and port costs are for the account of the charterer, charter hire
escalates based upon changes in the consumer price index, and charter hire is
suspended while the vessel is unavailable to transport cargo, as when it is
undergoing repairs or regularly scheduled maintenance. The charter extends to
January 2000, with the charterer retaining the right to early termination upon
the payment to the Company of a significant penalty. Revenue from Sun State's
towboat and fuel barges has been derived primarily from contracts of
affreightment with Florida Power and Light and Steuart Petroleum Co. that
require Sun State to transport fuel as needed by those two customers, with the
Florida Power and Light contract having a guaranteed minimum utilization.
11
<PAGE> 32
OVERVIEW OF OPERATING EXPENSES, DEPRECIATION AND CAPITAL EXPENDITURES
The Company's operating expenses are primarily a function of fleet size
and utilization levels. The most significant expense categories are crew payroll
and benefits, charter hire, maintenance and repair, drydocking amortization,
insurance and fuel.
The crews of the Company's chemical and product carriers are paid on a
time-for-time basis by which they receive paid leave in proportion to time
served aboard a vessel. The crews of certain tugs, towboat, and offshore energy
support vessels are paid only for days worked.
Charter hire consists primarily of payments made with respect to the
bareboat charters of the Seabulk Challenger and Seabulk Magnachem which were
acquired pursuant to leveraged lease transactions and operating lease payments
on the tractor tug Broward. The Company also pays charter hire when it charters
harbor tugs to meet requirements in excess of its own tugs' availability.
All maintenance and repair costs of less than $5,000 for product and
chemical tankers and $3,000 for all other vessels are treated as operating
expenses. Maintenance and repair costs which exceed these thresholds are
capitalized only if they extend the life of a vessel or increase its value.
Under applicable regulations, the Company overhauls main engines and
key auxiliary equipment in accordance with a continuous planned maintenance
program. The Company's chemical and product carriers, offshore service vessels,
and its four largest tugs are required to be drydocked twice in a five-year
period for inspection and routine maintenance and repairs. The Company's fuel
barges, because they are operated in fresh water, are required to be drydocked
only twice in each ten-year period. The Company's other harbor tugs and towboats
generally are not required to be drydocked on a specific schedule. The Company
employs the deferral method of accounting to recognize its drydocking expense.
Under the deferral method, capitalized drydocking costs are expensed over the
period preceding the next scheduled drydocking.
Insurance costs consist primarily of premiums paid for (i) protection
and indemnity insurance for the Company's marine liability risks, which are
insured by a mutual insurance association of which the Company is a member and
through the commercial insurance markets; (ii) hull and machinery insurance and
other maritime-related insurance, which are provided through the commercial
marine insurance markets; and (iii) general liability and other traditional
insurances, which are provided through the commercial insurance markets.
Insurance costs, particularly costs of marine insurance, are directly related to
overall insurance market conditions and industry and individual loss records,
which vary from year to year.
In addition to variable expenses associated with vessel operations, the
Company incurs fixed charges to depreciate its marine assets. The Company
calculates depreciation based on a useful life ranging from 25 years for its
steel-hull offshore energy support vessels to 30 years for aluminum-hull
vessels, the lesser of any applicable lease term life or the Oil Pollution Act
of 1990 life for its product and chemical carriers, ten years for its fuel
barges, and 40 years for its towboats and tugs.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenue. Revenue increased 62% to $30.4 million for the three months
ended September 30, 1996 from $18.7 million for the three months ended September
30, 1995 primarily due to increased revenue in the Company's offshore energy
support, petroleum product transportation and chemical transportation
operations.
12
<PAGE> 33
Revenue from offshore energy operations increased 92% to $12.0 million
for the three months ended September 30, 1996 from $6.2 million for the three
months ended September 30, 1995 primarily due to acquisitions and greater
utilization of and day rates for supply and crew boats resulting from increased
offshore exploration and production activity. During the 1996 period, day rates
for supply boats owned, operated, or managed by the Company increased 62% from
the 1995 period, while day rates for crew boats owned, operated, or managed by
the Company increased 7% from the 1995 period. Utilization of supply boats
increased to 97% for the 1996 period from 84% for the 1995 period, and
utilization of crew boats increased to 96% for the 1996 period from 90% for the
1995 period.
Petroleum product transportation revenue increased 17% to $5.1 million
for the three months ended September 30, 1996 from $4.3 million for the three
months ended September 30, 1995 primarily due to increased movements of
petroleum products by the Company's towboats and barge fleet as a result of the
cold winter and higher natural gas prices.
Chemical transportation revenue increased 93% to $10.0 million for the
three months ended September 30, 1996 from $5.2 million for the three months
ended September 30, 1995 primarily due to acquisitions.
Revenue from offshore and harbor tug operations increased 12% to $3.4
million for the three months ended September 30, 1996 from $3.0 million for the
three months ended September 30, 1995 primarily as a result of increased tanker
and freighter traffic in Port Everglades. Revenue also increased in the port of
Mobile due to a tariff increase and an increase in port traffic.
Operating Expenses. Operating expenses increased 53% to $16.6 million
for the three months ended September 30, 1996 from $10.9 million for the three
months ended September 30, 1995 primarily due to increases in crew payroll and
benefits, maintenance and repair, and supplies and consumables resulting from
acquisitions and increased business activity. As a percentage of revenue,
operating expenses decreased to 55% for the three months ended September 30,
1996 from 58% for the three months ended September 30, 1995.
Overhead Expenses. Overhead expenses increased 27% to $4.0 million, or
13% of revenues, for the three months ended September 30, 1996 from $3.2
million, or 17% of revenues, for the three months ended September 30, 1995
primarily due to an increase in staffing requirements due to acquisitions.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 69% to $2.7 million for the three months ended September 30,
1996 compared with $1.6 million for the three months ended September 30, 1995 as
a result of an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 127% to $7.1
million, or 23% of revenue, for the three months ended September 30, 1996 from
$3.1 million, or 17% of revenue, for the three months ended September 30, 1995
as a result of the factors noted above.
Net Interest Expense. Net interest expense remained relatively stable
at $2.9 million, or 10% of revenue, for the three months ended September 30,
1996 as compared to $2.9 million, or 15% of revenue, for the three months ended
September 30, 1995 primarily as a result of debt incurred in connection with
acquisitions.
Net Income (Loss). The Company had a net loss of $5.5 million for the
three months ended September 30, 1996 after having net income of $0.2 million
for the three months ended September 30, 1995 primarily as a result of
non-recurring charges of $8.0 million, net of a $1.4 million income tax benefit,
related to an early extinguishment of debt.
13
<PAGE> 34
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenue. Revenue increased 41% to $72.1 million for the nine months
ended September 30, 1996 from $51.2 million for the nine months ended September
30, 1995 primarily due to increased revenue in the Company's offshore energy
support, petroleum product transportation and chemical transportation
operations.
Revenue from offshore energy operations increased 72% to $28.2 million
for the nine months ended September 30, 1996 from $16.4 million for the nine
months ended September 30, 1995 primarily due to acquisitions and greater
utilization of supply and crew boats and higher day rates resulting from
increased offshore exploration and production activity. During the 1996 period,
day rates for supply boats owned, operated, or managed by the Company increased
42% from the 1995 period, and day rates for crew boats owned, operated, or
managed by the Company increased 4% from the 1995 period. Utilization of supply
boats increased to 96% for the 1996 period from 77% for the 1995 period, and
utilization of crew boats increased to 93% for the 1996 period from 83% for the
1995 period.
Petroleum product transportation revenue increased 22% to $14.4 million
for the nine months ended September 30, 1996 from $11.8 million for the nine
months ended September 30, 1995 primarily due to increased movements of product
by the Company's towboats and barge fleet as a result of the cold winter and
higher natural gas prices.
Chemical Transportation revenue increased 40% to $19.2 million for the
nine months ended September 30, 1996 from $13.7 million for the nine months
ended September 30, 1995 primarily due to acquisitions.
Revenue from offshore and harbor tug operations increased 11% to $10.2
million for the nine months ended September 30, 1996 from $9.2 million for the
nine months ended September 30, 1995 primarily as a result of increased tanker
and freighter traffic in Port Everglades. Revenue also increased in the port of
Mobile due to a tariff increase and an increase in port traffic.
Operating Expenses. Operating expenses increased 43% to $42.1 million
for the nine months ended September 30, 1996 from $29.5 million for the nine
months ended September 30, 1995 primarily due to increases in crew payroll and
benefits, maintenance and repair, and supplies and consumables resulting from
acquisitions and increased business activity. As a percentage of revenue,
operating expenses remained stable at 58% for the nine months ended September
30, 1996 from 58% for the nine months ended September 30, 1995.
Overhead Expenses. Overhead expenses increased 21% to $11.0 million, or
15% of revenues, for the nine months ended September 30, 1996 from $9.2 million,
or 18% of revenues, for the nine months ended September 30, 1995 primarily due
to an increase in professional fees relating to pending litigation.
Additionally, salaries and benefits increased as a result of an increase in
staffing requirements due to acquisitions.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 30% to $6.1 million for the nine months ended September 30,
1996 compared with $4.7 million for the nine months ended September 30, 1995 as
a result of an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 64% to $12.9
million, or 18% of revenue, for the nine months ended September 30, 1996 from
$7.9 million, or 15% of revenue, for the nine months ended September 30, 1995 as
a result of the factors noted above.
14
<PAGE> 35
Net Interest Expense. Net interest expense increased 3% to $8.8
million, or 12% of revenue, for the nine months ended September 30, 1996 from
$8.5 million, or 17% of revenue, for the nine months ended September 30, 1995
primarily as a result of debt incurred in connection with acquisitions.
Net Income (Loss). The Company had a net loss of $5.3 million for the
nine months ended September 30, 1996 after incurring a net loss of $0.6 million
for the nine months ended September 30, 1995 primarily as a result of
non-recurring charges of $8.0 million, net of $1.4 million in income taxes,
related to an early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements historically have arisen primarily
from its working capital needs, acquisition of marine vessels, improvements to
vessels and debt service requirements.
The Company's principal sources of cash have been proceeds from
borrowings, cash provided by operating activities, and proceeds from the initial
public offering of its Class A Common Stock in August 1996. In September 1994,
the Company entered into the Credit Facility, as amended effective August 1996,
currently provides for a $60.5 million term loan, a $10.0 million revolving line
of credit, a $19.9 million vessel acquisition credit line which decreases to
$11.5 million over a four-year period, and a $5.6 million letter of credit.
Advances under the vessel acquisition credit line may not exceed either (i) 70%
of the lesser of the purchase price or appraised value of the vessel being
acquired, or (ii) a multiple of six times the EBITDA of the acquisition. At
September 30, 1996, aggregate borrowings under the Credit Facility were $70.2
million. Also in September 1994, the Company issued $25.0 million of Senior
Notes and $25.0 million of Junior Notes at discounts resulting in proceeds of
$23.1 million and $17.5 million, respectively. Borrowings under the Credit
Facility, the Senior Notes, and the Junior Notes were utilized primarily to
repay other indebtedness and to fund vessel acquisitions.
In August 1996, the Company completed the initial public offering of
its Class A Common Stock, which resulted in net proceeds to the Company of
approximately $75.9 million. Of such net proceeds, (i) approximately $35.6
million was used to fund part of the cash portion of the $97.5 million aggregate
purchase price of the three chemical carriers acquired from OMI, ten offshore
supply boats, and a crew boat, and (ii) approximately $40.3 million was used to
repay certain indebtedness. The aggregate purchase price of such acquisitions
was $99.7 million, consisting of approximately $37.7 million in cash and the
assumption or issuance of $62.0 million of debt obligations. The cash portion of
the purchase price not funded with proceeds from the initial public offering was
funded with general corporate funds. Indebtedness repaid with proceeds from the
Offering included $6.8 million under the Credit Agreement, $0.6 million of
accrued interest on and $13.5 million of principal of the Senior Notes, and
$15.1 million of accrued interest and principal under the Junior Notes. The
$13.9 million balance of the outstanding principal under the Junior Notes was
converted into Class A and Class B Common Stock in September 1996. As of
September 30, 1996, $9.0 million of accrued interest and principal under the
Senior Notes was outstanding.
As of September 30, 1996, the Company had, under its Credit Facility,
$60.5 million outstanding under the term loan, $4.2 million outstanding under
the vessel acquisition credit line, and $5.5 million outstanding under the line
of credit. Borrowings under the Credit Facility bear interest at prime or LIBOR,
at the Company's option, plus a margin based on the Company's compliance with
certain financial ratios.
The Company's future capital needs are expected to relate primarily to
debt service obligations, maintenance and improvement of its fleet, and
acquisitions. The Company's outstanding indebtedness at September 30, 1996, was
approximately $134.3 million. Debt service requirements from September 30
through the remainder of 1996 will include principal and interest payments of
approximately $4.0 million and $2.7 million, respectively (assuming interest
rates remain steady), and operating lease obligations for the remainder of 1996
will total approximately $0.2 million. In 1997, the Company's principal and
interest payment obligations will be approximately $14.9 and $9.8 million,
respectively, and operating
15
<PAGE> 36
lease obligations will be approximately $3.9 million.
Capital requirements for vessel maintenance and improvement are
estimated to be $12.0 million for 1996, of which $9.1 million had been recorded
as either capital expenditures or construction in progress as of September 30,
1996, and $15.0 million for 1997.
The Company has a 2.4% equity interest in five 45,300 dwt petroleum
product carriers currently under construction. The aggregate cost of the five
carriers is estimated to be $255.0 million, of which approximately $40.0 million
will constitute equity investment and $215.0 million will be financed with the
proceeds of government-guaranteed Title XI ship financing bonds issued in March
1996. Subject to certain conditions, the Company has an option, exercisable
through 2002, to purchase a 49.3% interest at a price equal to (i) the
investor's equity investment plus a stated annual return, or (ii) if exercised
after December 31, 1997, the greater of the fair market value of the interest or
the amount set forth in (i). The Company also has an option, exercisable on
January 15, 1998, to purchase an additional 23.4% interest at a price equal to
the investor's equity investment plus a stated return. Should the Company fail
to exercise the latter option, the investor has the option to acquire 1.6% of
the ownership interest from the Company for nominal consideration. The total
estimated cost of exercising the Company's options is up to $32.0 million
(assuming the options are exercised prior to January 1, 1998). The Company
currently has no understandings or agreements with respect to the financing that
it would require if it were to exercise any or all of these options, and there
can be no assurance that such financing will be available.
The Company's existing indebtedness restricts the Company's
subsidiaries from paying dividends or making other distributions to the Company.
The Company does not believe that this restriction has had or will have a
material effect upon its ability to meet its cash obligations because a
substantial portion of those obligations are payable by its subsidiaries.
The Company is the defendant in litigation in which one of the
shipyards that completed the Seabulk America is seeking additional payments
aggregating $8.5 million for its work and $10.0 million of punitive damages.
Although the Company believes the shipyard's claims are without merit and has
asserted counterclaims aggregating $5.6 million, the Company has obtained a bank
letter of credit to finance up to $5.6 million of any additional payment that it
might ultimately be required to make pursuant to this litigation.
At September 30, 1996, the Company had working capital of $0.5 million.
The Company believes that cash generated from operations and amounts available
under the Credit Facility will be sufficient to fund debt service requirements,
planned capital expenditures, and working capital requirements for the
foreseeable future. The Company also believes that such resources, together with
the potential use of equity financing, will allow the Company to pursue its
strategy of growth through acquisitions. As future cash flows are subject to a
number of uncertainties, including the condition of the markets served by the
Company, there can be no assurance that these resources will continue to be
sufficient to fund the Company's cash requirements.
EFFECTS OF INFLATION AND SEASONALITY
The Company does not consider inflation a significant business risk in
the current and foreseeable future although the Company has experienced some
cost increases. In some cases, these increases have been offset by charter hire
escalation clauses.
The Company has experienced some slight seasonality in its overall
operations. The first half of the year is generally not as strong as the second
half due to lower activity in offshore energy support activity and petroleum
product transportation during the months of February, March, and April.
16
<PAGE> 37
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, ("FASB Statement No. 121") which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. FASB
Statement No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company adopted FASB Statement No. 121 in the
first quarter of 1996 and the effect of adoption was not material.
17
<PAGE> 38
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
27 Financial Data Schedule (for SEC use only)
2. Reports on Form 8-K
The Company's Current Report on Form 8-K dated August 14, 1996
reporting on the acquisition of certain vessels, filed with the Securities and
Exchange Commission on August 23, 1996.
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.
Hvide Marine Incorporated
By: /s/ John J. Krumenacker
-----------------------
John J. Krumenacker Controller and Chief Accounting Officer
Date: November 13, 1996
18
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