SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996
Commission File Number: 0-28732
HVIDE MARINE INCORPORATED
State of Incorporation: Florida I.R.S. Employer I.D. 65-0524593
2200 Eller Drive
P.O. Box 13038
Ft. 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 twelve months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes No X*
* Registration under Section 12(g) effective August 8, 1996.
There were 7,644,291 and 3,419,577 shares of Class A Common Stock, par value
$0.001 per share, and Class B Common Stock, par value $0.001 per share,
respectively, outstanding at September 18, 1996.
<PAGE>
HVIDE MARINE INCORPORATED
QUARTER ENDED JUNE 30, 1996
INDEX
- --------------------------------------------------------------------------------
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................1
Condensed Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1996 (unaudited).....................2
Condensed Consolidated Statements of Operations
for the three months and six months ended
June 30, 1995 and 1996 (unaudited).................................4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 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 Operations...........................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................19
Signature................................................................19
<PAGE>
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 interim period presented herein are not necessarily
indicative of results expected for the full year.
1
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31 JUNE 30
1995 1996
----------- --------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................. $ 3,050 $ 5,497
Accounts receivable:
Trade, net .............................. 9,602 10,211
Insurance claims and other .............. 4,399 2,951
Due from affiliate ........................ 101 --
Spare parts and supplies .................. 3,417 3,501
Prepaid expenses .......................... 960 1,486
Deferred costs (net) ...................... 2,550 2,557
--------- ---------
Total current assets .................. 24,079 26,203
Property:
Construction in progress .................. 1,387 2,506
Vessels and improvements .................. 122,198 130,848
Less accumulated depreciation ......... (20,585) (23,128)
Furniture and equipment ................... 2,601 3,198
Less accumulated depreciation ......... (998) (1,121)
--------- ---------
Net property ....................... 104,603 112,303
Other assets:
Deferred costs (net) ...................... 4,112 4,775
Due from affiliates ....................... 131 223
Investment in affiliates .................. 423 988
Goodwill (net) ............................ 9,117 8,864
Long-term receivable (net) ................ 831 915
Other ..................................... 387 463
--------- ---------
Total other assets .................... 15,001 16,228
--------- ---------
Total assets ....................... $ 143,683 $ 154,734
========= =========
See accompanying notes.
2
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31 JUNE 30
1995 1996
------------- -------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ............ $ 7,708 $ 14,108
Current obligations under capital leases ........ 577 1,340
Accounts payable ................................ 4,905 5,094
Other ........................................... 6,574 7,947
-------- --------
Total current liabilities ................ 19,764 28,489
Long-term liabilities:
Long-term debt .................................. 96,014 92,676
Notes payable to related parties ................ 1,302 1,302
Obligations under capital leases ................ 3,450 8,137
Deferred income taxes ........................... 4,317 4,292
Other ........................................... 4,837 6,018
-------- --------
Total long-term liabilities .................. 109,920 112,425
-------- --------
Total liabilities ............................ 129,684 140,914
Minority partners' equity in subsidiaries .......... 1,654 1,249
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, no shares
issued and outstanding .......................... -- --
Class B Common Stock--$.001 par value,
5,000,000 shares authorized, 1,558,210
shares issued and outstanding ................... 1 1
Class C Common Stock--$.001 par value,
2,500,000 shares authorized, 976,630
shares issued and outstanding ................... 1 1
Additional paid-in capital ......................... 6,341 6,341
Retained earnings .................................. 6,002 6,228
-------- --------
Total stockholders' equity ...................... 12,345 12,571
-------- --------
Total minority partners' equity in
subsidiaries and stockholders'
equity ...................................... 13,999 13,820
-------- --------
Total .................................... $143,683 $154,734
======== ========
See accompanying notes.
3
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------- ----------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues ......................................................... $ 16,668 $ 21,540 $ 32,448 $ 41,751
Operating Expenses:
Crew payroll and benefits ..................................... 4,887 6,175 9,468 12,138
Charter hire and bond guarantee fee ........................... 938 1,139 2,014 2,225
Repairs and maintenance ....................................... 1,435 1,838 2,810 3,572
Insurance ..................................................... 793 1,552 1,778 3,032
Consumables ................................................... 640 1,361 1,266 2,492
Other ......................................................... 633 1,250 1,291 2,072
----------- ----------- ----------- -----------
Total operating expenses .................................... 9,326 13,315 18,627 25,531
Selling, general and administrative
expenses .................................................... 3,310 3,400 5,992 7,013
Depreciation and amortization .................................... 1,622 1,750 3,101 3,427
----------- ----------- ----------- -----------
Income from operations ........................................ 2,410 3,075 4,728 5,780
Net interest .................................................. 2,883 2,958 5,599 5,840
Other income (expense):
Minority interest and equity in earnings of subsidiaries ...... 166 214 193 368
Other ......................................................... 163 27 (75) 50
----------- ----------- ----------- -----------
Total other income .......................................... 329 241 118 418
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes ................................................ (144) 358 (753) 358
Provision for income taxes .................................... -- 98 -- 132
----------- ----------- ----------- -----------
Net income (loss) ........................................... $ (144) $ 260 $ (753) $ 226
=========== =========== =========== ===========
Earnings (loss) per common share ................................. $ (0.06) $ 0.10 $ (0.30) $ 0.09
=========== =========== =========== ===========
Weighted average number of common
shares and common share equivalents
outstanding ................................................. 2,534,840 2,534,840 2,534,840 2,534,840
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
1995 1996
(IN THOUSANDS)
Operating Activities:
Net Income (loss)................................... $ (753) $ 226
Adjustments to reconcile net
income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization.................... 3,101 3,427
Provision for bad debts.......................... - 65
Loss (gain) on disposals of property............. (73) 12
Amortization of discount on long-term debt....... 90 112
Benefit from deferred taxes...................... - (25)
Minority partners' equity in losses
of subsidiaries (net).......................... (493) (405)
Undistributed losses of affiliates (net)......... 304 37
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable.............................. (2,126) 774
Due from affiliates.............................. (317) 9
Current and other assets......................... (2,543) (340)
Accounts payable and other liabilities........... 1,883 2,743
--------- ---------
Net cash provided by (used in)
operating activities.......................... (927) 6,635
Investing Activities:
Purchase of property................................ (2,346) (4,480)
Proceeds from disposals of property................. 690 8
Capital contribution to affiliates.................. -- (602)
Acquisitions, net of $500 escrow
deposit utilized in 1995......................... (2,375) --
--------- ---------
Net cash used in investing activities.......... (4,031) (5,074)
Financing Activities:
Proceeds from revolving line of credit.............. 6,000 5,000
Proceeds from term loan............................. -- 2,500
Principal payments of long-term debt................ (2,550) (4,550)
Payment of debt and other financing costs........... (34) (1,602)
Payment of obligations under capital leases......... (241) (462)
--------- ---------
Net cash provided by financing activities........ 3,175 886
--------- ---------
Increase (decrease) in cash and cash equivalents....... (1,783) 2,447
Cash and cash equivalents at beginning of period....... 6,363 3,050
--------- ---------
Cash and cash equivalents at end of period............. $ 4,580 $ 5,497
========= =========
See accompanying notes.
5
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 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 at December 31, 1995 and June 30, 1996 consisted of the
following (in thousands):
DECEMBER 31 JUNE 30
1995 1996
---------- -----------
(UNAUDITED)
Borrowings outstanding under
line of credit ........................ $ 7,500 $ 12,500
Term Loan ................................ 46,000 46,500
Senior Note .............................. 23,200 23,257
Junior Note .............................. 17,633 17,688
Notes payable ............................ 9,389 6,839
--------- ---------
103,722 106,784
Less: Current maturities ................ (7,708) (14,108)
--------- ---------
$ 96,014 $ 92,676
========= =========
The Company's Credit Facility, as amended on June 21, 1996, provides
for a working capital credit line of $10,000,000 through January 15, 2001 (the
"Original Line") and a stand-by letter of credit (the "Letter of Credit") of
$5,600,000. Borrowings under the Original Line 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
8.3% at December 31, 1995 and June 30, 1996, respectively), and are subject to
an annual commitment fee of 0.50% of the unused portion of the credit line.
Borrowings outstanding under the Original Line totaled $7,500,000 at December
31, 1995 and June 30, 1996 of which $2,500,000 is currently due and $5,000,000
is due on the ultimate maturity date of January 15, 2001. 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 Original Line or
6
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
$4,000,000. Amounts drawn under either letter of credit are due on demand or the
ultimate maturity date of January 15, 2001. There were no amounts outstanding
under the letters of credit at December 31, 1995 or June 30, 1996.
At June 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
June 30, 1996, the Term Loan was accruing interest at LIBOR + 3.0%
(approximately 8.9% and 8.4%, respectively).
The Credit Facility provides for an additional $7,500,000 working
capital line of credit. At December 31, 1995 and June 30, 1996, $0 and
$5,000,000 was outstanding under this line, 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 $25,000,000 vessel
acquisition line of credit under which no amounts were outstanding at December
31, 1995 or June 30, 1996.
The collateral for the Company's debt includes all Company-owned
vessels, outstanding common stock, partnership interests in Seabulk Tankers,
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. Subsequent to June 30, 1996, the Company repaid $15,269,000
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 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.
The Junior Note bears interest at 8% compounded quarterly. The
principal sum and all accrued and unpaid interest ($2,607,000 and $3,717,000 at
December 31, 1995 and June 30, 1996, respectively) was payable on the earlier of
the Offering or September 30, 2014. The Company repaid the Junior Note and all
accrued and unpaid interest thereon with a portion of the proceeds of the
Offering ($15,115,000 paid on August 14, 1996) and the issuance of shares of
common stock (1,244,002 shares issued on September 12, 1996).
The Company made interest payments of approximately $3,153,000 and
$5,663,000 for the six months ended June 30, 1995 and 1996, respectively.
7
<PAGE>
3. INCOME TAXES
For the six months ended June 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. The operations of these vessels for the period
subsequent to January 31, 1996 are included in the accompanying unaudited
condensed consolidated statement of operations for the six months ended June 30,
1996.
5. SUBSEQUENT EVENTS
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
$30,000,000 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.
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 for cash of $6,150,000 and the issuance of $675,000 in notes payable.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 1995 consolidated financial
statements and the related notes thereto 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 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 1 1 tractor tug $6.4 million(2)
Chemical Transportation........... 1996(1) 1 3 chemical carriers $64.7 million
Petroleum Product Transportation.. 1995 1 5 barges $0.1 million
<FN>
(1)1996 transactions include the acquisitions of ten supply boats, one crew
boat, and three chemical carriers in August 1996, and the pending acquisition
of a crew/supply boat currently under construction scheduled for completion
in October 1996.
(2)The amount reflects the Company's estimate of the cost to build its tractor
tug. The Company operates the tractor tug under an operating lease.
</FN>
</TABLE>
9
<PAGE>
AREA OF OPERATIONS OVERVIEW
The financial information presented below represents historical results
by major areas of operations.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
Revenues:
Marine Support Services:
Offshore Energy Support ............................................ $ 5,388 $ 8,878 $10,192 $16,245
Offshore Harbor Towing ............................................. 3,324 3,258 6,211 6,883
------- ------- ------- -------
Marine Support Services Revenues ................................ 8,712 12,136 16,403 23,128
Marine Transportation Services:
Chemical Transportation ............................................ 4,074 4,706 8,556 9,262
Petroleum Product Transportation ................................... 3,882 4,698 7,489 9,361
------- ------- ------- -------
Marine Transportation Services .................................. 7,956 9,404 16,045 18,623
------- ------- ------- -------
Total Revenues ......................................................... $16,668 $21,540 $32,448 $41,751
======= ======= ======= =======
Operating Costs:
Marine Support Services:
Offshore Energy Support ............................................ $ 3,047 $ 5,118 $ 5,939 $ 9,621
Offshore Harbor Towing ............................................. 1,318 1,889 2,634 3,705
------- ------- ------- -------
Marine Support Services Operating Costs ......................... 4,365 7,007 8,573 13,326
Marine Transportation Services:
Chemical Transportation ............................................ 2,806 2,896 5,509 5,696
Petroleum Product Transportation ................................... 2,155 3,412 4,545 6,509
------- ------- ------- -------
Marine Transportation Operating Costs ........................... 4,961 6,308 10,054 12,205
------- ------- ------- -------
Total Operating Costs .................................................. $ 9,326 $13,315 $18,627 $25,531
======= ======= ======= =======
Direct Overhead Expense:
Marine Support Services:
Offshore Energy Support ............................................ $ 447 $ 623 $ 847 $ 1,200
Offshore Harbor Towing ............................................. 265 303 452 655
------- ------- ------- -------
Marine Support Services Direct Overhead ......................... 712 926 1,299 1,855
Marine Transportation Services:
Chemical Transportation ............................................ 404 477 724 1,095
Petroleum Product Transportation ................................... 159 204 332 451
------- ------- ------- -------
Marine Transportation Direct Overhead ........................... 563 681 1,056 1,546
------- ------- ------- -------
Total Direct Overhead .................................................. $ 1,275 $ 1,607 $ 2,355 $ 3,401
======= ======= ======= =======
Fleet Operating Income
Marine Support Services:
Offshore Energy Support ............................................ $ 1,894 $ 3,137 $ 3,406 $ 5,424
Offshore Harbor Towing ............................................. 1,741 1,066 3,125 2,523
------- ------- ------- -------
Marine Support Services Fleet Operating Income .................. 3,635 4,203 6,531 7,947
Marine Transportation Services:
Chemical Transportation ............................................ 864 1,333 2,323 2,471
Petroleum Product Transportation ................................... 1,568 1,082 2,612 2,401
------- ------- ------- -------
Marine Transportation Fleet Operating Income .................... 2,432 2,415 4,935 4,872
------- ------- ------- -------
Total Fleet Operating Income ........................................... $ 6,067 $ 6,618 $11,466 $12,819
======= ======= ======= =======
Corporate Overhead Expense ............................................. 2,035 1,793 3,637 3,612
Depreciation and Amortization Expense .................................. 1,622 1,750 3,101 3,427
------- ------- ------- -------
Operating Income ....................................................... $ 2,410 $ 3,075 $ 4,728 $ 5,780
======= ======= ======= =======
</TABLE>
10
<PAGE>
REVENUE OVERVIEW
MARINE SUPPORT SERVICES
Revenue derived from vessels providing marine support services is
attributable to the Company's offshore energy support fleet and its offshore and
harbor towing operations. Revenue derived from the Company's offshore energy
support services 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 production and construction
activities.
The following table sets forth average day rates achieved by the
offshore supply boats and crew boats owned or operated by the Company in the
Gulf of Mexico and their average utilization for the periods indicated.
<TABLE>
<CAPTION>
1995 1996
---------------------------------------- ---------------------
Q1 Q2 Q3 Q4 Q1 Q2
<S> <C> <C> <C> <C> <C> <C>
Number of supply boat at end of period 10 10 10 10 10 11
Average supply boat day rates(1).......... $ 2,886 $ 2,843 $ 3,113 $ 3,244 $ 3,468 $ 4,080
Average supply boat utilization rates(2).. 71% 76% 84% 93% 92% 100%
Number of crew boats at end of
period(3)............................... 26 26 26 26 35 38
Crew boat day rates(1)(3)................. $ 1,444 $ 1,412 $ 1,422 $ 1,458 $ 1,460 $ 1,466
Average crew boat utilization rates(2)(3). 79% 81% 90% 91% 89% 93%
<FN>
(1) Average day rates are calculated by dividing total vessel revenue by the
total number of days the vessel worked.
(2) Utilization rates are calculated by dividing the fleet average number of
days worked by 365.
(3) Excludes utility boats.
</FN>
</TABLE>
Increased activity in the Gulf of Mexico since the second quarter of
1995 has been primarily attributable to improved technology in the seismic
industry and an approximate balance in the supply of and demand for offshore
service vessels. Deepwater activity is also currently a positive factor in the
market, and management believes further deepwater exploration and production
will likely increase demand for available vessels, resulting in higher day rates
and utilization. Domestic inventories of energy reserves are currently closer to
demand levels and, as a result, management believes that exploration and
development activity will continue at an aggressive pace in order for oil
companies to maintain inventories, thereby resulting in a more disciplined
market without the dramatic fluctuations historically experienced. As a result,
management believes the offshore energy support sector should be subject to less
market fluctuation in the future.
MARINE TRANSPORTATION SERVICES
Chemical Transportation. Generally, demand for industrial chemical
transportation services coincides with general 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 OMI's 50% interest in OSTC. The Company's two chemical
carriers, together with three chemical carriers acquired by the Company from OMI
in August 1996, have been chartered to OSTC, which has marketed the five vessels
under a pool arrangement. The Company's revenue from industrial chemical
transportation operations has consisted of distributions from OSTC based upon a
formula that takes into account individual vessel performance characteristics
applied to OSTC's revenues (net of fuel costs, port charges, and overhead).
11
<PAGE>
Following the acquisition by the Company of the chemical carriers and the
remaining 50% interest in OSTC from OMI, the Company continues to have OSTC
market the Company's five chemical carriers.
Petroleum Product Transportation. Since entering service in 1975, the
product carrier 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 the Company's
towboats and fuel barges has been derived primarily from contracts of
affreightment with FPL and Steuart Petroleum Co. that require the Company to
transport fuel as needed by those two customers, with the FPL contract having a
guaranteed minimum utilization.
OVERVIEW OF OPERATING EXPENSES 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, depreciation and amortization, charter hire, maintenance and
repairs, fuel, and insurance.
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.
The Company capitalizes expenditures exceeding $5,000 for product and
chemical tankers and $3,000 for all other vessels where the item acquired has a
useful life of three years or greater. Vessel improvements and vessel
maintenance and repair are capitalized only if they also extend the useful life
of the vessel or increase its value. The Company overhauls main engines and key
auxiliary equipment in accordance with a continuous planned maintenance program.
Under applicable regulations, 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.
These vessels are also required to undergo special surveys every five years
involving comprehensive inspection and corrective measures to insure their
structural integrity and proper functioning of their cargo and ballast piping
systems, critical machinery and equipment, and coatings. 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 harbor tugs and towboats
generally are not required to be drydocked on a specific schedule. During the
three months and six months ended June 30, 1996, the Company drydocked five and
12 vessels, respectively, at an aggregate cost (exclusive of lost revenue) of
$0.1 million and $0.2 million, respectively, compared with seven and 12 vessels
drydocked at aggregate cost of $0.3 million and $1.3 million, respectively for
the three months and six months ended June 30, 1995. Effective January 1, 1993,
the Company changed its method of accounting for drydocking costs from the
accrual method to the deferral method. Under the deferral method, capitalized
drydocking costs are expensed over the period preceding the next scheduled
drydocking. The Company believes the deferral method better matches costs with
revenue and minimizes any significant changes in estimates associated with the
accrual method. 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.
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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. The Company has entered into
mortgage financing arrangements for one of the chemical carriers acquired from
OMI. The Company also pays charter hire when it charters harbor tugs to meet
requirements in excess of its own tugs' availability. This typically occurs in
Mobile when the Company charters one or two tugs to assist with the docking or
undocking of a particular vessel.
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
insurance, which is 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED
WITH THE THREE MONTHS ENDED JUNE 30, 1995
Revenue. Revenue increased 29% to $21.5 million for the three months
ended June 30, 1996 from $16.7 million for the three months ended June 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 65% for the three
months ended June 30, 1996 primarily due to acquisitions and greater utilization
of supply and crew boats and higher day rates for supply boats resulting from
increased offshore exploration and production activity. Utilization of supply
boats increased to 100% for the 1996 period from 76% for the 1995 period, and
utilization of crew boats increased to 93% for the 1996 period from 81% for the
1995 period. During the 1996 period, day rates for supply boats owned, operated,
or managed by the Company increased 44% from the 1995 period, while day rates
for crew boats owned, operated, or managed by the Company increased 4% from the
1995 period.
Petroleum product transportation revenue increased 21% to $4.7 million
for the three months ended June 30, 1996 from $3.9 million for the three months
ended June 30, 1995 primarily due to increased movements of product by the
Company's towboat and barge fleet as a result of the cold winter and higher
natural gas prices.
Chemical transportation revenue increased 16% to $4.7 million for the
three months ended June 30, 1996 from $4.1 million for the three months ended
June 30, 1995 primarily due to fewer off-hire days.
Revenue from offshore and harbor tug operations remained relatively
stable for the three months ended June 30, 1996 compared with the three months
ended June 30, 1995.
Operating Expenses. Operating expenses increased 43% to $13.3 million
for the three months ended June 30, 1996 from $9.3 million for the three months
ended June 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
increased to 62% for the three months ended June 30, 1996 from 56% for the three
months ended June 30, 1995.
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Overhead Expenses. Overhead expenses increased 3% to $3.4 million, or
16% of revenues, for the three months ended June 30, 1996 from $3.3 million, or
20% of revenues, for the three months ended June 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 8% to $1.8 million for the three months ended June 30, 1996
compared with $1.6 million for the three months ended June 30, 1995 as a result
of an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 28% to $3.1
million, or 14% of revenue, for the three months ended June 30, 1996 from $2.4
million, or 14% of revenue, for the three months ended June 30, 1995 as a result
of the factors noted above.
Net Interest Expense. Net interest expense increased 3% to $3.0
million, or 14% of revenue, for the three months ended June 30, 1996 from $2.9
million, or 17% of revenue, for the three months ended June 30, 1995 primarily
as a result of debt incurred in connection with acquisitions.
Other Income (Expense). Other income decreased to $0.2 million for the
three months ended June 30, 1996 from other income of $0.3 million for the three
months ended June 30, 1995.
Net Income (Loss). The Company had net income of $0.3 million for the
three months ended June 30, 1996 after incurring a net loss of $0.1 million for
the three months ended June 30, 1995 primarily as a result of the factors noted
above.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH
THE SIX MONTHS ENDED JUNE 30, 1995
Revenue. Revenue increased 29% to $41.8 million for the six months
ended June 30, 1996 from $32.4 million for the six months ended June 30, 1995
primarily due to increased revenue in the Company's offshore energy support,
petroleum product transportation, and offshore and harbor tug operations.
Revenue from offshore energy operations increased 59% for the six
months ended June 30, 1996 primarily due to acquisitions and greater utilization
of supply and crew boats and higher day rates resulting from increased offshore
exploration and production activity. Utilization of supply boats increased to
96% for the 1996 period from 74% for the 1995 period, and utilization of crew
boats increased to 91% for the 1996 period from 80% for the 1995 period. During
the 1996 period, day rates for supply boats owned, operated, or managed by the
Company increased 32% from the 1995 period, and day rates for crew boats owned,
operated, or managed by the Company increased 2% from the 1995 period.
Petroleum product transportation revenue increased 25% to $9.4 million
for the six months ended June 30, 1996 from $7.5 million for the six months
ended June 30, 1995 primarily due to increased movements of product by the
Company's towboat and barge fleet as a result of the cold winter and higher
natural gas prices.
Chemical Transportation revenue increased 8% to $9.3 million for the
six months ended June 30, 1996 from $8.6 million for the six months ended June
30, 1995 primarily due to fewer off-hire days.
Revenue from offshore and harbor tug operations increased 11% to $6.9
million for the six months ended June 30, 1996 from $6.2 million for the six
months ended June 30, 1995 primarily as a result of
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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 37% to $25.5 million
for the six months ended June 30, 1996 from $18.6 million for the six months
ended June 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
increased to 61% for the six months ended June 30, 1996 from 57% for the six
months ended June 30, 1995.
Overhead Expenses. Overhead expenses increased 17% to $7.0 million, or
17% of revenues, for the six months ended June 30, 1996 from $6.0 million, or
18% of revenues, for the six months ended June 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 11% to $3.4 million for the six months ended June 30, 1996
compared with $3.1 million for the six months ended June 30, 1995 as a result of
an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 22% to $5.8
million, or 14% of revenue, for the six months ended June 30, 1996 from $4.7
million, or 15% of revenue, for the six months ended June 30, 1995 as a result
of the factors noted above.
Net Interest Expense. Net interest expense increased 4% to $5.8
million, or 14% of revenue, for the six months ended June 30, 1996 from $5.6
million, or 17% of revenue, for the six months ended June 30, 1995 primarily as
a result of debt incurred in connection with acquisitions.
Other Income (Expense). Other income increased to $0.4 million for the
six months ended June 30, 1996 from other income of $0.1 million for the six
months ended June 30, 1995 primarily due to a write-off in 1995 of prior year
repairs.
Net Income (Loss). The Company had net income of $0.2 million for the
six months ended June 30, 1996 after incurring a net loss of $0.8 million for
the six months ended June 30, 1995 primarily as a result of the factors noted
above.
SEASONALITY
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements historically have arisen primarily
from its debt service requirements, working capital needs, preferred stock
dividends, and vessel acquisitions and improvements. During 1994, the Company's
primary capital requirements included an aggregate of $54.8 million for debt
service requirements (including $50.8 million of refinancings) and a total of
$33.6 million for acquisitions. In 1995, debt service requirements totaled $15.0
million and the cash portion of acquisition costs was $2.9
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million. During the three months and six months ended June 30, 1996, debt
service requirements were $0.7 million and $4.9 million (including $2.4 million
of refinancings, respectively).
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 a credit facility (the "Credit Facility") with certain
banks which, as amended effective August 1996, currently provides for a $60.5
million term loan, $10.0 million of revolving lines of credit, a $25.0 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 EBITDA of the acquisition. At June 30, 1996, aggregate
borrowings under the Credit Facility were $59.0 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 $34.7
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; (ii) approximately $2.2 million will be used to
fund the purchase price and capitalized costs of a crew/supply boat currently
under construction; and (iii) 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 Facility, $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 August
31, 1996, $10.7 million of accrued interest and principal under the Senior Notes
was outstanding.
As of August 31, 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 $3.5 million outstanding under the lines
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 August 31, 1996, was
approximately $134.0 million. Debt service requirements from August 31 through
the remainder of 1996 will include principal and interest payments of
approximately $5.4 million and $3.7 million, respectively (assuming interest
rates remain steady), and operating lease obligations for the remainder of 1996
will total approximately $0.9 million. In 1997, the Company's principal and
interest payment obligations will be approximately $14.9 and $9.8 million,
respectively, and operating lease obligations will be approximately $3.9
million.
Capital requirements for vessel maintenance and improvement are
estimated to be $8.0 million for 1996, of which $3.3 million had been expended
as of June 30, 1996, and $10.0 million for 1997.
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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 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 June 30, 1996, the Company had a working capital deficit of $2.3
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.
EFFECT OF INFLATION
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.
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
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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.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
None
b. 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.
SIGNATURE
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
/s/ JOHN J. KRUMENACKER
- -----------------------------------------------------
John J. Krumenacker
Controller and Chief Accounting Officer
September 20, 1996
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