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 March 31, 1997
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 X No
There were 11,651,610 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 May 7, 1997.
<PAGE>
HVIDE MARINE INCORPORATED
QUARTER ENDED MARCH 31, 1997
INDEX
- --------------------------------------------------------------------------------
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.............................................1
Condensed Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1997 (unaudited).....................2
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1996 and 1997 (unaudited).......4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1997 (unaudited)...............5
Notes to Condensed Consolidated Financial Statements.................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................18
Signature.................................................................18
<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 1996 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)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1996 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 9,617 $ 54,206
Accounts receivable:
Trade, net............................................................... 16,049 17,064
Insurance claims and other............................................... 1,717 1,826
Spare parts and supplies................................................... 5,517 6,931
Prepaid expenses........................................................... 1,253 1,624
Deferred costs, net........................................................ 4,173 3,857
------------ -----------
Total current assets................................................... 38,326 85,508
Property:
Construction in progress................................................... 8,041 12,455
Vessels and improvements................................................... 229,776 245,993
Less accumulated depreciation.......................................... (27,480) (30,887)
Furniture and equipment.................................................... 4,502 4,636
Less accumulated depreciation.......................................... (1,409) (1,531)
------------ -----------
Net property........................................................ 213,430 230,666
Other assets:
Deferred costs, net........................................................ 4,645 2,930
Due from affiliates........................................................ 49 209
Investment in affiliates................................................... 1,291 1,297
Goodwill, net.............................................................. 8,612 8,486
Deposits and other......................................................... 7,120 3,613
------------ -----------
Total other assets..................................................... 21,717 16,535
------------ -----------
Total assets........................................................ $ 273,473 $ 332,709
============ ===========
</TABLE>
See accompanying notes.
2
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current maturities of long-term debt......................................... $ 24,375 $ 14,267
Current obligations under capital leases..................................... 1,443 1,472
Accounts payable............................................................. 6,278 3,897
Other ................................................................... 14,934 14,149
------------- -----------
Total current liabilities............................................. 47,030 33,785
Long-term liabilities:
Long-term debt............................................................... 108,154 82,857
Notes payable to related parties............................................. 178 --
Obligations under capital leases............................................. 7,492 7,113
Deferred income taxes........................................................ 6,385 7,968
Other ................................................................... 2,245 2,482
------------- -----------
Total long-term liabilities............................................... 124,454 100,420
------------- -----------
Total liabilities......................................................... 171,484 134,205
Minority partners' equity in subsidiaries....................................... 898 910
Stockholders' equity:
Preferred Stock, $1.00 par value authorized 10,000,000 shares,
issued and outstanding, none.............................................. -- --
Class A Common Stock--$.001 par value, authorized 100,000,000
shares, issued and outstanding, 7,647,791 and 11,512,194.................. 8 12
Class B Common Stock--$.001 par value, authorized 5,000,000
shares, issued and outstanding, 3,419,577................................. 3 3
Additional paid-in capital................................................... 97,153 190,780
Retained earnings............................................................ 3,927 6,799
------------- -----------
Total stockholders' equity................................................ 101,091 197,594
------------- -----------
Total minority partners' equity in subsidiaries and
stockholders' equity.................................................. 101,989 198,504
------------- -----------
Total.............................................................. $ 273,473 $ 332,709
============= ===========
</TABLE>
See accompanying notes.
3
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1997
------------ -----------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
Revenues............................................................................ $ 20,211 $ 39,652
Operating Expenses:
Crew payroll and benefits........................................................ 5,963 9,819
Charter hire and bond guarantee fee.............................................. 1,086 1,503
Repairs and maintenance.......................................................... 1,734 3,121
Insurance........................................................................ 1,480 2,062
Consumables...................................................................... 1,131 2,185
Other............................................................................ 822 2,441
----------- ----------
Total operating expenses....................................................... 12,216 21,131
Selling, general and administrative
expenses....................................................................... 3,613 5,105
Depreciation and amortization....................................................... 1,677 3,679
----------- ----------
Income from operations........................................................... 2,705 9,737
Net interest..................................................................... 2,882 2,139
Other income (expense):
Minority interest and equity in earnings of subsidiaries......................... 154 (69)
Other............................................................................ 23 (186)
----------- ----------
Total other income............................................................. 177 (255)
----------- ----------
Income before provision for
income taxes and extraordinary item.............................................. -- 7,343
Provision for income taxes.......................................................... 35 2,717
----------- ----------
Income (loss) before extraordinary item............................................. (35) 4,626
Loss on early extinguishment of debt,
net of applicable income taxes of $1,030......................................... -- 1,754
----------- ----------
Net income (loss).............................................................. $ (35) $ 2,872
=========== ==========
Earnings (loss) per common and common equivalent share:
Income (loss) applicable to common shares
before extraordinary item........................................................ $ (0.01) $ 0.33
Loss on early extinguishment of debt................................................ -- (0.12)
----------- ----------
Net income (loss) applicable to common shares................................... $ (0.01) $ 0.21
=========== ==========
Weighted average number of common
shares and common share equivalents
outstanding...................................................................... 2,534,840 13,835,722
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Operating Activities:
Net Income (loss)................................................................. $ (35) $ 2,872
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Loss on early extinguishment of debt, net...................................... -- 1,754
Depreciation and amortization.................................................. 1,677 3,679
Provision for bad debts........................................................ 31 141
Amortization of drydocking costs............................................... 544 1,245
Amortization of discount on long-term debt..................................... 54 5
Provision for deferred taxes................................................... 35 2,612
Minority partners' equity in losses of subsidiaries, net....................... (166) 12
Undistributed losses of affiliates, net........................................ 12 56
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable............................................................ (95) (1,265)
Due from affiliates............................................................ 82 (159)
Current and other assets....................................................... (1,751) (1,396)
Accounts payable and other liabilities......................................... 3,776 (5,506)
--------- ---------
Net cash provided by operating activities.................................... 4,164 4,050
Investing Activities:
Purchase of property.............................................................. (2,035) (3,540)
Deposits for the purchase of property............................................. -- (568)
Capital contribution to affiliates................................................ (429) (62)
Acquisitions, net of $639 escrow deposit utilized in 1997......................... -- (11,719)
--------- ---------
Net cash used in investing activities........................................ (2,464) (15,889)
Financing Activities:
Proceeds from revolving line of credit, net....................................... 3,000 (8,000)
Proceeds from term loan........................................................... 2,197 3,710
Principal payments of long-term debt.............................................. (3,744) (31,772)
Payment of debt and other financing costs......................................... -- (513)
Payment of obligations under capital leases....................................... (190) (351)
Payment of notes payable to related parties....................................... -- (166)
Proceeds from issuance of common stock, net of offering costs..................... -- 93,520
--------- ---------
Net cash provided by financing activities...................................... 1,263 56,428
--------- ---------
Increase (decrease) in cash and cash equivalents..................................... 2,963 44,589
Cash and cash equivalents at beginning of period..................................... 3,050 9,617
--------- ---------
Cash and cash equivalents at end of period........................................... $ 6,013 $ 54,206
========= =========
Supplemental schedule of noncash investing and financing activities:
Capital leases assumed for the acquisition of vessels............................. $ 5,410 $ --
========= =========
Capital stock issued pursuant to employee stock purchase plan..................... $ -- $ 87
========= =========
</TABLE>
See accompanying notes.
5
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. PUBLIC OFFERING
On August 14, 1996, the Company completed the initial public offering
(the "IPO") of 7,000,000 shares of its Class A Common Stock at $12.00 per share.
The net proceeds to the Company were approximately $74,821,000, 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 IPO and for the cash portion of the purchase price of certain
acquisitions consummated subsequent to the IPO. On September 12, 1996, the
underwriters' over-allotment option was exercised, in part, 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 182,000 and 1,188,000 shares
of Class A and Class B Common Stock, respectively, in payment of certain
outstanding indebtedness.
On February 5, 1997, the Company completed a second public offering
(the "Offering") of 4,000,000 shares of its Class A Common Stock at $24.875 per
share. The net proceeds to the Company were $94,300,000, after deducting
underwriting commissions. Of such amount, approximately $10.2 million was used
to repay remaining principal of and interest on Senior Notes, approximately
$23.4 million was used to repay amounts outstanding under the Company's credit
agreement (the "Credit Facility"), and $2.6 million was used to repay other
indebtedness. Of the balance of approximately $58.1 million, as of March 31,
1997, $5.5 million had been used to fund vessel acquisitions, $22.7 million had
been designated to fund the reminder of the purchase price of four supply boats
and two crew boats to be acquired in the second quarter of 1997, $6.9 million
had been designated to fund the refurbishment and lengthening of two supply
boats expected to be put into service during the second quarter of 1997 and the
remaining $23.0 million was available for general corporate purposes and to fund
a portion of the costs of the vessels to be constructed.
2. DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1996 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
Borrowings outstanding under lines of credit......................... $ 10,647 $ --
Term Loan............................................................ 58,500 56,750
Acquisition Line..................................................... 9,700 --
Senior Note.......................................................... 9,153 --
Title XI Debt........................................................ 32,243 30,980
Notes payable........................................................ 12,286 9,394
---------- -----------
132,529 97,124
Less: Current maturities............................................ (24,375) (14,267)
---------- -----------
$ 108,154 $ 82,857
========== ===========
</TABLE>
6
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company's Credit Facility, as amended on February 3, 1997, provides
for a revolving working capital credit line of $20,000,000 through January 15,
2002 (the "Revolving Line") and a stand-by letter of credit (the "Letter of
Credit") of $5,600,000. Borrowings under the Revolving 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 and are
subject to a quarterly commitment fee of 0.50% of the unused portion of the
credit line. Borrowings outstanding under the Revolving Line totaled $8,000,000
and $0 at December 31, 1996 and March 31, 1997, respectively. 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 Revolving Line or $6,000,000.
Amounts drawn under either letter of credit are due on demand or the ultimate
maturity date of January 15, 2002. There were no amounts outstanding under the
letters of credit at December 31, 1996 or March 31, 1997.
The Credit Facility provides for a term loan (the "Term Loan") of up to
$56,750,000 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 (approximately 8.1% and 7.5% at December 31, 1996
and March 31, 1997, respectively).
The Credit Facility also provides for a $50,000,000 Acquisition Line of
Credit (the "Acquisition Line") to fund the cash portion of acquisitions.
Borrowings under the Acquisition Line are limited to the lesser of 65% of the
purchase price or a multiple of six times projected EBITDA from the acquisition,
as defined. The Acquisition Line bears 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. Principal amounts outstanding under
the Acquisition Line are due in quarterly payments beginning in January, 1998.
Borrowings outstanding under the Acquisition Line were repaid with a portion of
the proceeds from the Offering on February 5, 1997.
The terms of the Credit Facility restrict the Company or any of its
wholly owned subsidiaries from paying dividends on any class of common stock and
also 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.
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.
On September 30, 1994, and as amended on May 24, 1995, the Company
issued a $25,000,000 senior subordinated note (the "Senior Note"). The Company
received proceeds of approximately $23,072,000, net of discount of $1,928,000
which was being amortized as interest expense over the term of the Senior Note.
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
7
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
from the IPO and the exercise of the underwriters' related over-allotment
option. The remaining balance of $9,810,000 was repaid with a portion of the
proceeds of the Offering on February 5, 1997.
On August 14, 1996, the Company assumed $34,650,000 of Title XI Debt in
connection with the acquisitions of certain vessels. The Title XI Debt is
collateralized by first preferred mortgages on certain vessels and bears
interest at rates ranging from 5.4% to 10.1%. The debt is due in semi-annual
principal and interest payments through December 1, 2006. Under the terms of the
Title XI Debt, the Company is required to maintain a minimum level of working
capital, as defined, and comply with certain other financial covenants.
In connection with redemption of the outstanding preferred stock of the
predecessor company in 1994, the Company issued notes payable totaling
approximately $3,561,000 to the former stockholder. On August 14, 1996,
approximately $1,548,000 was repaid with a portion of the proceeds from the IPO.
The remaining balance of approximately $2,013,000 was repaid with a portion of
the proceeds from the Offering on February 5, 1997.
In connection with the acquisition of the outstanding common stock of
its previously unconsolidated 50%-owned affiliate, Ocean Specialty Tankers
Corporation ("OSTC"), on August 14, 1996, the Company assumed OSTC's obligations
under a $4,000,000 revolving line of credit secured by the outstanding accounts
receivables generated by three chemical tankers. The revolving line of credit
bears interest monthly at LIBOR + 1.5% (7.3% at December 31, 1996). At December
31, 1996 and March 31, 1997, $2,647,000 and $0, respectively, were outstanding
under the line of credit.
The Company made interest payments of approximately $2,503,000 and
$2,966,000 for the three months ended March 31, 1996 and 1997, respectively.
3. INCOME TAXES
For the three months ended March 31, 1996 and 1997 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
In January 1997, the Company purchased a supply boat and two tug boats
for cash of approximately $4,700,000 and $600,000, respectively.
In February 1997, the Company purchased three crew boats for cash of
approximately $5,575,000.
In February 1997, the Company purchased the outstanding common stock of
an entity for cash of approximately $1,500,000. Pursuant to the purchase
agreement, the Company assumed the entity's commitments to fund the remaining
construction costs of three crew boats currently under contract with
8
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
a shipyard. The aggregate remaining construction cost of the vessels is
approximately $5.7 million. The fair value of net assets acquired approximates
the purchase price paid by the Company.
5. EXTRAORDINARY ITEM
In February 1997, the Company repaid $33,220,000 of its outstanding
debt and amended its Credit Facility. As a result, the Company recorded
extraordinary losses of $1,754,000 for the write-off of deferred financing costs
associated with the early extinguishment of debt, net of income tax benefits of
$1,030,000.
6. SUBSEQUENT EVENTS
In April 1997, the Company purchased two supply boats and signed an
agreement to purchase one supply boat for cash of approximately $10,450,000 and
$2,800,000, respectively.
9
<PAGE>
ITEM 2. 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 1996 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 33 vessels, during 1996 and
1997 as summarized in the following table.
<TABLE>
<CAPTION>
NUMBER OF ASSETS AGGREGATE
PERIOD TRANSACTIONS ACQUIRED INVESTMENT
<S> <C> <C> <C> <C>
Offshore Energy Support........... 1996 7 12 supply boats $46.6 million(1)
11 crew boats(2)
1997 3 1 supply boat $10.3 million
3 crew boats
Offshore and Harbor Towing........ 1996 1 1 offshore tug $3.4 million
1997 1 2 harbor tugs $0.6 million
Chemical Transportation........... 1996 1 3 chemical carriers $64.7 million
</TABLE>
(1)Includes two vessels that are currently being upgraded, lengthened, and
refurbished and are expected to enter service during the second quarter of
1997. Aggregate investment includes the estimated cost of such upgrading,
lengthening, and refurbishment.
(2)Includes nine vessels acquired under capital lease obligations.
10
<PAGE>
AREA OF OPERATIONS OVERVIEW
The financial information presented below represents historical results
by major areas of operations.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1996 1997
<S> <C> <C>
Revenues:
Marine Support Services:
Offshore Energy Support..................................................... $ 7,367 $ 17,391
Offshore & Harbor Towing.................................................... 3,625 3,731
---------- ----------
Marine Support Services Revenues......................................... 10,992 21,122
Marine Transportation Services:
Chemical Transportation..................................................... 4,556 14,203
Petroleum Product Transportation............................................ 4,663 4,327
---------- ----------
Marine Transportation Services........................................... 9,219 18,530
---------- ----------
Total Revenues.................................................................. $ 20,211 $ 39,652
---------- ----------
Operating Costs:
Marine Support Services:
Offshore Energy Support..................................................... $ 4,503 $ 7,389
Offshore & Harbor Towing.................................................... 1,816 2,350
---------- ----------
Marine Support Services Operating Costs.................................. 6,319 9,739
Marine Transportation Services:
Chemical Transportation..................................................... 2,800 8,703
Petroleum Product Transportation............................................ 3,097 2,689
---------- ----------
Marine Transportation Operating Costs.................................... 5,897 11,392
---------- ----------
Total Operating Costs........................................................... $ 12,216 $ 21,131
---------- ----------
Direct Overhead Expense:
Marine Support Services:
Offshore Energy Support..................................................... $ 577 $ 840
Offshore & Harbor Towing.................................................... 352 374
---------- ----------
Marine Support Services Direct Overhead.................................. 929 1,214
Marine Transportation Services:
Chemical Transportation..................................................... 618 1,040
Petroleum Product Transportation............................................ 247 296
---------- ----------
Marine Transportation Direct Overhead.................................... 865 1,336
---------- ----------
Total Direct Overhead........................................................... $ 1,794 $ 2,550
---------- ----------
Fleet Operating EBITDA
Marine Support Services:
Offshore Energy Support..................................................... $ 2,287 $ 9,162
Offshore & Harbor Towing.................................................... 1,457 1,007
---------- ----------
Marine Support Services Fleet EBITDA..................................... 3,744 10,169
Marine Transportation Services:
Chemical Transportation..................................................... 1,138 4,460
Petroleum Product Transportation............................................ 1,319 1,342
---------- ----------
Marine Transportation Fleet EBITDA....................................... 2,457 5,802
---------- ----------
Total Fleet EBITDA.............................................................. $ 6,201 $ 15,971
---------- ----------
Corporate Overhead Expense...................................................... 1,819 2,555
---------- ----------
EBITDA ................................................................... 4,382 13,416
Depreciation and Amortization Expense........................................... 1,677 3,679
---------- ----------
Income from Operations.......................................................... $ 2,705 $ 9,737
========== ==========
</TABLE>
11
<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>
1996 1997
------------------------------------------------ ----------
Q1 Q2 Q3 Q4 Q1
<S> <C> <C> <C> <C> <C>
Number of supply boat at end of period...... 10 11 16 18 19
Average supply boat day rates(1)............ $ 3,468 $ 4,095 $ 5,034 $ 5,776 $ 6,483
Average supply boat utilization rates(2).... 92% 100% 97% 90% 86%
Number of crew boats at end of period(3).... 35 35 36 36 39
Crew boat day rates(1)(3)................... $ 1,467 $ 1,464 $ 1,528 $ 1,651 $ 1,772
Average crew boat utilization rates(2)(3)... 89% 93% 96% 96% 95%
</TABLE>
(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.
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.
MARINE TRANSPORTATION SERVICES
Chemical Transportation. Generally, demand for industrial chemical
transportation services coincides with overall 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 interest in OSTC along with three chemical
carriers owned by OMI (the "OMI Chemical Carriers"). Prior to the acquisition,
the Company's chemical transportation revenue consisted of distributions from
OSTC attributable to the Company's two chemical carriers marketed by OSTC based
upon a formula that took into account individual vessel performance
characteristics applied to OSTC's revenue (net of fuel costs, port charges, and
overhead). Since the acquisition, the Company continues to have OSTC market the
five chemical carriers and receives the revenue attributable to all five of the
vessels.
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.
12
<PAGE>
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. In the fourth quarter of 1996, the charter rate was renegotiated and
reduced by approximately 6% to reflect the lower current market rate. Revenue
from the Company's towboats and fuel barges has been derived primarily from
contracts of affreightment with Florida Power & Light Company ("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 ended March 31, 1997, the Company drydocked eight vessels, at an
aggregate cost (exclusive of lost revenue) of $278,000, compared with six
vessels drydocked at an aggregate cost of $325,000 for the three months ended
March 31, 1996. 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.
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
13
<PAGE>
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 MARCH 31, 1997 COMPARED WITH THE THREE MONTHS ENDED MARCH
31, 1996
Revenue. Revenue increased 96% to $39.7 million for the three months
ended March 31, 1997 from $20.2 million for the three months ended March 31,
1996 primarily due to increased revenue in the Company's offshore energy support
and chemical transportation operations.
Revenue from offshore energy operations increased 136% for the three
months ended March 31, 1997 primarily due to acquisitions and greater
utilization of crew boats and higher day rates for supply boats and crew boats
resulting from increased offshore exploration and production activity.
Utilization of crew boats increased to 95% for the 1997 period from 89% for the
1996 period, while utilization of supply boats decreased to 86% for the 1997
period from 92% for the 1996 period. During the 1997 period, day rates for
supply boats owned, operated, or managed by the Company increased 87% from the
1996 period, while day rates for crew boats owned, operated, or managed by the
Company increased 22% from the 1996 period.
Petroleum product transportation revenue decreased 7% to $4.3 million
for the three months ended March 31, 1997 from $4.7 million for the three months
ended March 31, 1996 primarily due to the effect of a lower day rate being
earned on the Company's product tanker, the Seabulk Challenger.
Chemical transportation revenue increased 212% to $14.2 million for the
three months ended March 31, 1997 from $4.6 million for the three months ended
March 31, 1996 primarily due to the August 1996 acquisition of the OMI Chemical
Carriers and the remaining 50% interest in OSTC.
Revenue from offshore and harbor towing operations remained relatively
stable for the three months ended March 31, 1997 compared with the three months
ended March 31, 1996.
Operating Expenses. Operating expenses increased 73% to $21.1 million
for the three months ended March 31, 1997 from $12.2 million for the three
months ended March 31, 1996 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 53% for the three months ended March 31, 1997
from 60% for the three months ended March 31, 1996.
14
<PAGE>
Overhead Expenses. Overhead expenses increased 41% to $5.1 million for
the three months ended March 31, 1997 from $3.6 million for the three months
ended March 31, 1996 primarily due to increased staffing requirements due to
acquisitions. As a percentage of revenue, overhead expenses decreased to 13% for
the three months ended March 31, 1997 from 18% for the three months ended March
31, 1996.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 119% to $3.7 million for the three months ended March 31, 1997
compared with $1.7 million for the three months ended March 31, 1996 as a result
of an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 260% to $9.7
million, or 25% of revenue, for the three months ended March 31, 1997 from $2.7
million, or 13% of revenue, for the three months ended March 31, 1996 as a
result of the factors noted above.
Net Interest Expense. Net interest expense decreased 26% to $2.1
million, or 5% of revenue, for the three months ended March 31, 1997 from $2.9
million, or 14% of revenue, for the three months ended March 31, 1996 primarily
as a result of debt retirement.
Other Income (Expense). Other income decreased to $(0.3) million for
the three months ended March 31, 1997 from $0.2 million for the three months
ended March 31, 1996.
Net Income (Loss). The Company had net income of $2.9 million for the
three months ended March 31, 1997 after incurring a net loss of $(0.04) million
for the three months ended March 31, 1996 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 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 borrowings, cash provided by operating activities, proceeds from the
August 1996 IPO and proceeds from the Offering in February 1997.
The Company's Credit Facility, as amended, currently provides for a
Term Loan of up to $56.8 million, a $20.0 million Revolving Line, a $50.0
million Acquisition Line, and a $5.6 million letter of credit. Borrowings under
the Credit Facility bear interest at the prime rate or LIBOR, at the Company's
option, plus a margin based on the Company's compliance with certain financial
ratios. At March 31, 1997, borrowings outstanding under the Credit Facility
aggregated $56.8 million consisting of $56.8 million under the term loan and no
borrowings outstandings under the Revolving Line or the Acquisition Line.
15
<PAGE>
Also in September 1994, the Company received $50.0 million in proceeds
from the issuance of Senior Notes, Junior Notes, and certain equity securities
to members of a group of investors. These proceeds, together with borrowing
under the Credit Facility, were utilized primarily to repay other indebtedness
and to fund vessel acquisitions.
In August 1996, the Company completed the IPO, which resulted in net
proceeds to the Company of approximately $76.7 million. Of such net proceeds,
approximately $34.7 million was used to fund the $35.5 million cash portion of
the $97.5 million aggregate purchase price of three chemical carriers, ten
supply boats and one crew boat (the "August 1996 Acquisitions") and
approximately $42.0 million was used to repay certain indebtedness. The balance
of the purchase price of the August 1996 Acquisitions was paid by the assumption
or incurrence of $62.0 million of debt obligations. In addition, the Company
agreed to indemnify certain affiliates of one of the sellers for certain
liabilities up to a maximum of $7.0 million. Indebtedness repaid with proceeds
from the IPO included $7.0 million under the Credit Facility, and principal
under the Junior Notes, and $4.1 million under certain notes payable to
affiliates of the Company. The $13.9 million balance of the outstanding
principal under the Junior Notes was converted into Class A Common Stock and
Class B Common Stock in September 1996. As of December 31, 1996, $10.1 million
of accrued interest and principal under the Senior Notes was outstanding.
In February 1997, the Company completed the Offering, which resulted in
net proceeds to the Company of approximately $94.3 million. Of such amount,
approximately $10.2 million was used to repay remaining principal of and
interest on the Senior Notes, approximately $23.4 million was used to repay
amounts outstanding under the Credit Facility, and $2.6 million was used to
repay other indebtedness. Of the balance of approximately $58.1 million, as of
March 31, 1997, $5.5 million had been used to fund vessel acquisitions, $22.7
million had been designated to fund the reminder of the purchase price of four
supply boats and two crew boats to be acquired in the second quarter of 1997,
$6.9 million had been designated to fund the refurbishment and lengthening of
two supply boats expected to be put into service during the second quarter of
1997 and the remaining $23.0 million was available for general corporate
purposes and is being utilized to fund a portion of the costs of the vessels
being constructed.
The Company's future capital needs are expected to relate primarily to
debt service obligations, maintenance and improvements of its fleet, and
acquisitions. The Company's outstanding indebtedness at March 31, 1997 was
approximately $105.7 million. After giving effect to repayments of an aggregate
of $41.6 million of indebtedness through March 31, 1997 with a portion of the
proceeds of the Offering, the Company's principal and interest payment
obligations for the remainder of 1997 are estimated to be approximately $11.3
million and $5.8 million, respectively, and operating lease obligations for the
remainder of 1997 are estimated to be approximately $2.1 million.
Capital requirements for vessel improvements are estimated to be
approximately $17.3 million for 1997, of which $2.0 million had been expended as
of March 31, 1997.
The Company has contracted for the construction of three Ship Docking
Modules (the "SDM(TM)s") at an estimated aggregate cost of approximately $14.5
million with delivery expected in late 1997 or early 1998. The Company is
constructing one and also considering the construction of an additional four
double-hull barges at an estimated aggregate cost of approximately $9.0 million.
The decision to proceed with the construction of these barges will be based upon
successful completion of negotiations of long-term contracts with a customer
concerning use of these vessels. These negotiations are in a preliminary
16
<PAGE>
stage and there can be no assurance that the construction of these barges will
be undertaken. The Company has contracted for the construction of one supply
boat for delivery by the end of 1997 at a cost of $7.5 million. The Company has
also agreed to purchase for an estimated aggregate cost of $15.3 million, six
newly constructed 152-foot crew boats one of which is scheduled for delivery in
the second quarter of 1997 and the remainder in 1998 and 1999. The Company
currently intends to fund the aggregate cost of these SDM(TM)s, these crew boats
and supply boat and, if built, these barges from available working capital,
borrowings under the Credit Facility, lease financing, or a combination of such
sources.
The Company has a 2.4% equity interest in five 45,300 dwt double-hull
petroleum product carriers currently under construction. The aggregate costs 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 49.2% 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 understanding or agreements with respect to
the financing that it would require if it were to exercise either or both of
these options, and there can be no assurance that such financing will be
available.
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,
plus legal fees and expenses. 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.
In May 1997, the Company's board of directors authorized the
repurchase of up to 1,000,000 shares of the Company's Class A Common Stock. The
amount of funds required to repurchase Class A Common Stock will depend upon the
actual number of shares repurchased and the market price paid by the Company for
those shares. The Company will utilize available funds to implement this stock
repurchase.
The Company believes that the remaining proceeds of the Offering, 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 future use of debt or
equity financing, will allow the Company to pursue its strategy of growth
through acquisitions. However, since 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.
17
<PAGE>
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.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
None
b. Reports on Form 8-K.
None
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
May 9, 1997
19
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