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, 1998
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, and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
There were 12,781,783 and 2,547,064 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 August 7, 1998.
<PAGE>
HVIDE MARINE INCORPORATED
Quarter ended June 30, 1998
Index
- --------------------------------------------------------------------------------
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)................................ 1
Condensed Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1998.................................. 1
Condensed Consolidated Income Statements
for the three and six months ended June 30, 1997 and 1998............ 3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1998.............................. 4
Notes to Condensed Consolidated Financial Statements................. 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................20
Part II. Other Information
Item 1. Legal Proceedings................................................31
Item 4. Submission of Matters to a Vote of Security Holders..............31
Item 6. Exhibits and Reports on Form 8-K.................................32
Signature.................................................................33
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Hvide Marine Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 14,952 $ 22,650
Accounts receivable:
Trade, net of allowance for doubtful accounts of $1,093 and
$1,628, respectively.................................................. 36,903 67,811
Insurance claims and other.............................................. 3,234 5,494
Inventory, spare parts and supplies....................................... 8,162 14,588
Prepaid expenses.......................................................... 3,085 4,829
Deferred costs, net....................................................... 4,516 8,996
------------ -------------
Total current assets.................................................. 70,852 124,368
Property:
Construction in progress.................................................. 42,010 66,496
Vessels and improvements.................................................. 492,070 792,098
Less accumulated depreciation......................................... (45,463) (66,934)
Furniture and equipment................................................... 7,366 11,677
Less accumulated depreciation......................................... (1,625) (2,432)
------------ -------------
Net property....................................................... 494,358 800,905
Other assets:
Deferred costs, net....................................................... 9,580 21,129
Investment in affiliates.................................................. 1,627 20,530
Goodwill, net............................................................. 25,361 84,244
Deposits and other........................................................ 2,783 1,726
------------ -------------
Total other assets.................................................... 39,351 127,629
------------ -------------
Total ............................................................. $ 604,561 $ 1,052,902
============ =============
</TABLE>
See accompanying notes.
1
<PAGE>
Hvide Marine Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------- --------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current maturities of long-term debt...................................... $ 7,534 $ 29,047
Current obligations under capital leases.................................. 1,714 2,102
Accounts payable.......................................................... 17,187 15,303
Accrued interest payable.................................................. 826 9,964
Other..................................................................... 17,801 24,353
------------- --------------
Total current liabilities............................................. 45,062 80,769
Long-term liabilities:
Long-term debt, less current portion...................................... 177,573 553,959
Obligations under capital leases, less current portion.................... 10,726 19,483
Deferred income taxes..................................................... 25,649 30,934
Other..................................................................... 3,269 6,106
------------- --------------
Total long-term liabilities............................................. 217,217 610,482
------------- --------------
Total liabilities....................................................... 262,279 691,251
Company-obligated mandatorily redeemable preferred securities
issued by a subsidiary trust holding solely debentures issued
by the Company............................................................ 115,000 115,000
Minority partners' equity in subsidiaries.................................... 2,295 5,095
Commitments and contingencies
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, 12,382,435 and 12,420,654............... 12 12
Class B Common Stock--$.001 par value, authorized 5,000,000
shares, issued and outstanding, 2,906,465............................... 3 3
Additional paid-in capital................................................ 195,522 196,169
Retained earnings......................................................... 29,450 45,372
------------- --------------
Total stockholders' equity.............................................. 224,987 241,556
------------- --------------
Total stockholders' equity and minority partners' equity in
subsidiaries ......................................................... 227,282 246,651
------------- --------------
Total............................................................... $ 604,561 $ 1,052,902
============= ==============
</TABLE>
See accompanying notes.
2
<PAGE>
Hvide Marine Incorporated and Subsidiaries
Condensed Consolidated Income Statements
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1997 1998 1997 1998
------------- ----------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues.............................................. $ 46,295 $ 109,332 $ 85,947 $ 195,817
Operating Expenses:
Crew payroll and benefits.......................... 11,275 23,461 21,094 42,548
Charter hire and bond guarantee fee................ 2,386 4,837 3,889 8,466
Repairs and maintenance............................ 3,248 8,030 6,369 14,675
Insurance.......................................... 2,180 3,465 4,242 6,355
Consumables........................................ 2,947 8,502 5,132 15,231
Other.............................................. 3,150 9,448 5,591 15,691
----------- ----------- ----------- ----------
Total operating expenses......................... 25,186 57,743 46,317 102,966
Selling, general and administrative
expenses......................................... 5,947 11,222 11,052 20,296
Depreciation and amortization......................... 4,173 12,246 7,852 23,871
----------- ----------- ----------- ----------
Income from operations............................. 10,989 28,121 20,726 48,684
Interest, net......................................... 2,007 11,088 4,146 18,380
Other income (expense):
Minority interest and equity in earnings
of subsidiaries.................................. 63 (1,678) (6) (3,425)
Other.............................................. 34 (78) (152) (15)
----------- ----------- ----------- ----------
Total other income (expense)..................... 97 (1,756) (158) (3,440)
----------- ----------- ----------- ----------
Income before provision for
income taxes and extraordinary item................ 9,079 15,277 16,422 26,864
Provision for income taxes............................ 3,359 5,805 6,076 10,208
----------- ----------- ----------- ----------
Income before extraordinary item...................... 5,720 9,472 10,346 16,656
Loss on early extinguishment of debt, net
of income tax benefit of $222,
$1,252 and $413, respectively...................... 378 -- 2,132 734
----------- ----------- ----------- ----------
Net income........................................ $ 5,342 $ 9,472 $ 8,214 $ 15,922
=========== =========== =========== ==========
Earnings (loss) per common share:
Income before extraordinary item..................... $ 0.38 $ 0.62 $ 0.72 $ 1.09
Loss on early extinguishment of debt................. (0.03) -- (0.15) (0.05)
----------- ----------- ----------- ----------
Net income per common share....................... $ 0.35 $ 0.62 $ 0.57 $ 1.04
=========== =========== =========== ==========
Earnings (loss) per common share - assuming dilution:
Income before extraordinary item..................... $ 0.37 $ 0.55 $ 0.71 $ 0.97
Loss on early extinguishment of debt................. (0.02) -- (0.14) (0.04)
----------- ----------- ----------- ----------
Net income per common share - assuming dilution.... $ 0.35 $ 0.55 $ 0.57 $ 0.93
=========== =========== =========== ==========
Weighted average common shares outstanding............ 15,131 15,308 14,306 15,299
=========== =========== =========== ==========
Weighted average common and common equivalent shares
outstanding - assuming dilution .................. 15,492 19,475 14,607 19,503
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
Hvide Marine Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1998
(In thousands)
<S> <C> <C>
Operating Activities:
Net income........................................................................ $ 8,214 $ 15,922
Adjustments to reconcile net income to net cash provided by operating
activities:
Loss on early extinguishment of debt, net...................................... 2,132 734
Depreciation and amortization.................................................. 7,852 23,871
Provision for bad debts........................................................ 262 546
Loss on disposal of property................................................... 12 --
Amortization of drydocking costs............................................... 2,447 5,738
Amortization of discount on long-term debt and financing costs................. 5 555
Provision for deferred taxes................................................... 5,868 7,156
Minority partners' equity in (losses) earnings of subsidiaries, net............ (30) 52
Undistributed losses (earnings) of affiliates, net............................. 36 (366)
Other non-cash items........................................................... 276 82
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable............................................................ (8,218) (33,713)
Current and other assets....................................................... (6,667) (10,720)
Accounts payable and other liabilities......................................... (5,005) 16,089
--------- ---------
Net cash provided by operating activities.................................... 7,184 25,946
Investing Activities:
Purchase of property.............................................................. (17,743) (51,735)
Proceeds from disposal of property................................................ 1,633 --
Capital contribution to affiliates................................................ (145) (18,537)
Acquisitions, net of $2,819 and $943 escrow deposit used, respectively............ (85,305) (337,635)
--------- ---------
Net cash used in investing activities........................................ (101,560) (407,907)
Financing Activities:
Repayment of short-term borrowings, net........................................... (8,000) --
Proceeds from long-term debt...................................................... 42,210 383,700
Proceeds from issuance of senior notes, net of offering costs..................... -- 292,500
Repayments of long-term debt...................................................... (134,640) (285,801)
Payment of debt and other financing costs......................................... (630) (247)
Payment of obligations under capital leases....................................... (676) (880)
Payment of notes payable to related parties....................................... (178) --
Proceeds from issuance of common stock, net of offering costs in 1997............. 93,520 387
Proceeds from issuance of preferred securities, net of offering costs............. 111,521 --
--------- ---------
Net cash provided by financing activities...................................... 103,127 389,659
--------- ---------
Increase in cash and cash equivalents................................................ 8,751 7,698
Cash and cash equivalents at beginning of period..................................... 9,617 14,952
--------- ---------
Cash and cash equivalents at end of period........................................... $ 18,368 $ 22,650
========= =========
Supplemental schedule of noncash investing and financing activities:
Capital leases assumed in the acquisition of vessels $ -- $ 10,025
========= =========
Capital stock issued to acquire vessels........................................... $ 3,650 $ --
========= =========
Notes payable issued to acquire vessels........................................... $ 6,000 $ --
========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
HVIDE MARINE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
1. Basis of Presentation
The interim consolidated financial statements in this Report are
unaudited. In accordance with the rules and regulations of the Securities and
Exchange Commission ("Commission"), certain information and footnote disclosures
have been condensed or omitted; therefore, such financial statements should be
read in conjunction with the consolidated financial statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 ("1997 Form
10-K"). The interim consolidated financial statements in this Report reflect all
adjustments and accruals that, in the opinion of management, are necessary for a
fair presentation of the results of the interim periods presented; all such
adjustments were of a normal recurring nature. Certain amounts in the prior
periods' consolidated financial statements have been reclassified to conform to
the current periods' basis of presentation. The results of operations for the
three- and six-month interim periods ended June 30, 1998 are not necessarily
indicative of the results of operations for the fiscal year ending December 31,
1998.
2. Offerings of Equity Securities
In August 1996, the Company completed an 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 $74.8 million, after deducting
underwriting commissions and other offering expenses. A portion of the net
proceeds was used 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. In September 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, in
August 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.
In February 1997, the Company completed a second public offering (the
"Second Offering") of 4,000,000 shares of its Class A Common Stock at $24.875
per share. The net proceeds to the Company were approximately $94.3 million,
after deducting underwriting commissions and other offering expenses. Of such
amount, approximately $36.2 million was used to repay certain indebtedness. Of
the balance of approximately $58.1 million, $5.5 million was used to fund vessel
acquisitions, $20.9 million was used to fund the remainder of the purchase price
of four supply boats and one crew boat acquired in the second quarter of 1997,
$1.8 million was used to fund the purchase of one crew boat in the fourth
quarter of 1997, $6.9 million was designated to fund the refurbishment and
lengthening of two supply boats put into service during the fourth 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.
In June 1997, the Company completed a private offering (the "Private
Offering") of 2,300,000 6 1/2% Trust Convertible Preferred Securities (the
"Preferred Securities"). The Preferred Securities were
5
<PAGE>
issued by Hvide Capital Trust (the "Trust"), a 100%-owned subsidiary of the
Company. The Trust was formed for the sole purposes of issuing the Preferred
Securities and investing the proceeds from their sale in $115.0 million
principal amount of 6 1/2% Convertible Subordinated Debentures due June 15, 2012
(the "Debentures") issued by the Company. The net proceeds to the Company were
approximately $111.6 million after deducting underwriting commissions and other
offering expenses. Of such amount, approximately $94.2 million was used to repay
principal and interest outstanding under the Company's existing credit facility,
and $6.0 million was used to repay other indebtedness. The remaining $11.4
million was available for general corporate purposes.
Holders of the Preferred Securities are entitled to receive
preferential cumulative cash distributions from the Trust at an annual rate of 6
1/2% of the liquidation preference of $50 per Preferred Security, accruing from
the date of the original issuance of the Preferred Securities and payable
quarterly in arrears on January 1, April 1, July 1 and October 1 of each year,
commencing on October 1, 1997. The distribution rate and the distribution and
other payment dates for the Preferred Securities correspond to the interest rate
and interest and other payment dates for the Debentures, which are the sole
assets of the Trust.
The Preferred Securities are convertible, prior to the maturity date of
the Debentures or, in the case of Preferred Securities called for redemption,
prior to the close of business on the business day prior to the redemption date,
at the option of the holder, into shares of Class A Common Stock at the rate of
1.7544 shares of Class A Common Stock for each Preferred Security (equivalent to
a conversion price of $28.50 per share of Class A Common Stock), subject to
adjustment in certain circumstances.
3. Debt
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
---------- -----------
(Unaudited)
<S> <C> <C>
Borrowings outstanding under lines of credit $ 135,000 $ 92,000
Term Loan............................................................ -- 144,643
Senior Note.......................................................... -- 300,000
Title XI Debt........................................................ 42,162 39,431
Notes payable........................................................ 7,945 6,932
---------- -----------
185,107 583,006
Less: Current maturities............................................ (7,534) (29,047)
---------- -----------
$ 177,573 $ 553,959
========== ===========
</TABLE>
In February 1998, the Company completed an offering of $300.0 million of
senior notes (the "Senior Notes"). The net proceeds to the Company were
approximately $291.7 million, after deducting underwriting commissions and other
offering expenses. Of such amount, approximately $268.0 million was used to
repay outstanding indebtedness and approximately $23.7 million was used for
general corporate purposes. Interest on the Senior Notes accrues at the rate of
83/8% per annum, payable semi-annually in arrears commencing on August 15, 1998.
The Senior Notes mature on February 15, 2008 and are redeemable, in whole or in
part, at the option of the Company on or after February 15, 2003.
6
<PAGE>
In September 1997, the Company entered into a credit agreement (the
"Credit Agreement") that provided for a $175.0 million revolving line of credit
through September 1999, at which time availability was to decrease $6.0 million
per quarter through September 2002. In addition, in November 1997 the Company
entered into a term loan agreement (the "Term Loan Agreement") that provided for
$300.0 million of term loans to fund the cash portion of specified future
acquisitions. Advances under the Term Loan Agreement could be drawn at any time
prior to April 1998 and were to have been payable in 28 quarterly installments
from June 1998 through March 2005. Interest on borrowings under the Credit
Agreement and the Term Loan Agreement was based on one of two rates, at the
Company's election from time to time, plus a margin based on the Company's
compliance with certain financial ratios.
In February 1998, upon receipt of the proceeds from the Senior Notes,
the Company entered into an Amended and Restated Revolving Credit and Term Loan
Agreement (the "Amended Credit Agreement"), which merged the Credit Agreement
and the Term Loan Agreement and resulted in their termination. The Amended
Credit Agreement provides for a $175.0 million revolving line of credit maturing
in February 2003 and a $150.0 million term loan payable in 28 equal installments
from June 1998 through March 2005. Borrowings under the Amended Credit Agreement
are secured by Company-owned vessels, which must have an appraised value of at
least $400.0 million, and by certain other assets relating to such vessels,
including accounts receivable, spare parts, fuel and supplies. Interest on
borrowings under the Amended Credit Agreement bear interest at the same rates as
borrowings under the Credit Agreement and the Term Loan Agreement. At June 30,
1998, the Company's outstanding indebtedness under the Amended Credit Agreement
was approximately $236.6 million.
4. Income Taxes
For the six months ended June 30, 1997 and 1998, the provision for
income taxes was computed using an estimated annual effective tax rate of 37%
and 38%, respectively, adjusted principally for depreciation on vessels built
with capital construction funds.
7
<PAGE>
5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share before extraordinary item (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1997 1998 1997 1998
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary item .................. $ 5,720 $ 9,472 $ 10,346 $ 16,656
---------- ---------- ---------- ---------
Numerator for basic earnings per share--income
available to common shareholders................ 5,720 9,472 10,346 16,656
Effect of dilutive securities:
Payments on convertible preferred securities....... 39 1,159 39 2,317
---------- ---------- ---------- ---------
Numerator for diluted earnings per share --
income available to common shareholders
after assumed conversion........................... $ 5,759 $ 10,631 $ 10,385 $ 18,973
=========== =========== =========== ==========
Denominator:
Denominator for basic earnings per share --
weighted average shares............................ 15,131 15,308 14,306 15,299
Effect of dilutive securities:
Convertible preferred securities................... 133 4,035 67 4,035
Deferred compensation.............................. -- 13 -- 7
Stock options...................................... 228 119 234 162
----------- ----------- ----------- ----------
Dilutive potential common shares...................... 361 4,167 301 4,204
Denominator for diluted earnings per share--
adjusted weighted average shares and assumed
conversions........................................ 15,492 19,475 14,607 19,503
=========== =========== =========== ==========
Earnings per share before extraordinary item.......... $ 0.38 $ 0.62 $ 0.72 $ 1.09
========== ========== =========== =========
Earnings per share before extraordinary item --
assuming dilution.................................. $ 0.37 $ 0.55 $ 0.71 $ 0.97
=========== =========== =========== ==========
</TABLE>
6. Change in Useful Lives of Marine Vessels
During the second quarter of 1998, the Company conducted a global
review of its vessels and equipment. As a result of this review, the Company
changed the estimated useful lives of offshore energy support vessels. This
change increased net income by approximately $0.7 million, or $0.04 per share,
on a diluted basis, for the six months ended June 30, 1998.
7. Acquisitions
In February 1998, the Company acquired a fleet of 37 offshore energy
support vessels, operating primarily offshore West Africa and Southeast Asia,
which now operate as Seabulk Offshore Operators,
8
<PAGE>
Inc. ("SOOP"), for a purchase price of approximately $291.6 million. The
acquisition was accounted for under the purchase method and, based upon a
preliminary allocation of the purchase price, resulted in costs in excess of net
assets acquired of approximately $60.5 million, which is being amortized on a
straight-line basis over 30 years.
In March 1998, the Company acquired seven harbor tugs, two petroleum
product carriers, and a topside repair facility for a purchase price of $31.4
million.
During the first six months of 1998, the Company also acquired four
vessels under various asset purchase agreements for an aggregate consideration
of approximately $15.6 million and completed the construction of three vessels.
In May 1997, the Company acquired substantially all of the assets of an
entity, which now operates as Seabulk Offshore International, Inc. ("SOII"), in
a transaction accounted for as a purchase. The consideration, valued at $58.7
million, consisted of $49.0 million cash, the issuance of a $6.0 million note
payable and the issuance of 141,760 shares of Class A Common Stock valued by the
Company at approximately $3.7 million. The fair value of net assets acquired
approximated the purchase price paid by the Company.
In October 1997, the Company acquired 100% of the outstanding common
stock of Bay Transportation Corporation ("Bay") for $36.5 million in cash and
the assumption of approximately $20.6 million of debt. The purchase agreement
provided for additional consideration based on specified changes in the working
capital of Bay, which resulted in the payment of approximately $500,000 in
January 1998. The acquisition was accounted for under the purchase method and,
based upon a preliminary allocation of the purchase price, resulted in costs in
excess of net assets acquired of approximately $17.4 million, which is being
amortized on a straight-line basis over 37.5 years.
The operations of the acquired vessels and businesses are included in
the accompanying condensed consolidated income statements for periods subsequent
to their acquisition dates.
The Company's unaudited pro forma condensed consolidated income
statements, assuming the acquisition of SOOP had occurred on January 1, 1997,
are summarized as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1998
------------ -------------
<S> <C> <C>
Revenues............................................................ $ 113,960 $ 203,405
Income before extraordinary item.................................... 3,905 16,722
Net income.......................................................... 1,773 15,988
Diluted earnings per common share, before
extraordinary item................................................. 0.27 0.98
Diluted earnings per common share................................... 0.12 0.94
</TABLE>
This pro forma information does not purport to be indicative of the
results which may have been obtained had the acquisition been consummated at the
date assumed.
9
<PAGE>
8. Extraordinary Item
In the first six months of 1997 and 1998, the Company prepaid
approximately $126.7 million and $268.0 million, respectively, of its
outstanding debt. As a result, the Company recorded extraordinary losses of
approximately $2.1 million and $0.7 million, respectively, for the write-off of
deferred financing costs associated with the early extinguishment of debt, net
of income tax benefits of $1.3 million and $0.4 million, respectively.
9. Equity Investment in Affiliate
In June 1998, at a cost of $18.5 million, the Company increased its
equity investment in five 45,300 dwt double-hull product carriers currently
under construction from 0.8% to 50.8%. The affiliate is accounted for under the
equity method rather than being consolidated as it is management's intention to
maintain such level of interest on a temporary basis.
10. Supplemental Condensed Consolidating Financial Information (unaudited)
The $300 million Senior Notes described in Note 3 are fully and
unconditionally guaranteed on a joint and several basis by substantially all of
the Company's consolidated subsidiaries. A substantial portion of the Company's
cash flows are generated by its subsidiaries. As a result, the funds necessary
to meet the Company's obligations are provided in substantial part by
distributions or advances from its subsidiaries. Under certain circumstances,
contractual or legal restrictions, as well as the financial and operating
requirements of the Company's subsidiaries, could limit the Company's ability to
obtain cash from its subsidiaries for the purpose of meeting its obligations,
including the payments of principal and interest on the Senior Notes.
Accordingly, the following is summarized condensed consolidating financial
information for the Company, segregating the parent, the guarantor subsidiaries
(combined), the non-guarantor subsidiaries (combined) and eliminations. The
guarantor subsidiaries are wholly owned subsidiaries of the Company, and the
guarantees are full, unconditional and joint and several. Separate financial
statements of the guarantor subsidiaries are not presented because management
believes that these financial statements would not be material to investors.
10
<PAGE>
Condensed Consolidating Balance Sheet (unaudited)
(In thousands)
<TABLE>
<CAPTION>
December 31, 1997
Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents...... $ 2,510 $ 12,442 $ -- $ -- $ 14,952
Accounts receivable:
Trade, net................... 3,460 34,096 -- (653) 36,903
Insurance claims and other... 471 2,763 -- -- 3,234
Inventory, spare parts and
supplies .................... 2,498 5,671 -- (7) 8,162
Prepaid expenses............... 819 2,261 5 -- 3,085
Deferred costs (net)........... 2,300 2,216 -- -- 4,516
------------- ------------- -------------- ------------- -------------
Total current assets......... 12,058 59,449 5 (660) 70,852
Property (net)................... 89,925 403,035 3,611 (2,213) 494,358
Other assets:
Deferred costs (net)........... 2,903 2,919 3,758 -- 9,580
Due from affiliates............ 161,385 (160,779) (320) -- 286
Investments in affiliates...... 278,908 584,436 2,708 (864,425) 1,627
Goodwill (net)................. -- 25,361 -- -- 25,361
Other.......................... 1,304 1,193 118,557(1) (118,557) 2,497
------------- ------------- -------------- ------------ -------------
Total other assets........... 444,500 453,130 124,703 (982,982) 39,351
------------- ------------- -------------- ------------- -------------
Total.................... $ 546,483 $ 915,614 $ 128,319 $ (985,855) $ 604,561
============= ============= ============== ------------- =============
Liabilities and Stockholders' Equity Current liabilities:
Current maturities of long-term
debt......................... $ 6,693 $ 841 $ -- $ -- $ 7,534
Current obligations under
capital leases............... 356 1,358 -- -- 1,714
Accounts payable............... 3,046 14,141 -- -- 17,187
Other.......................... 7,063 12,272 -- (708) 18,627
------------- ------------- -------------- ------------- -------------
Total current liabilities.... 17,158 28,612 -- (708) 45,062
Long-term liabilities:
Long-term debt................. 279,507 16,623 -- (118,557) 177,573
Obligations under capital
leases...................... 4,986 5,740 -- -- 10,726
Deferred income taxes.......... 18,577 7,072 -- -- 25,649
Other.......................... 1,268 2,001 -- -- 3,269
------------- ------------- -------------- ------------- -------------
Total long-term liabilities.. 304,338 31,436 -- (118,557) 217,217
------------- ------------- -------------- ------------- -------------
Total liabilities............ 321,496 60,048 -- (119,265) 262,279
Company-obligated mandatorily
redeemable preferred securities
issued by a subsidiary trust
holding solely debentures
issued by the
Company........................ -- -- 115,000 -- 115,000
Minority partners' equity in sub-
sidiaries...................... -- -- -- 2,295 2,295
Stockholders' equity............. 224,987 855,566 13,319 (868,885) 224,987
------------- ------------- -------------- ------------- -------------
Total.................... $ 546,483 $ 915,614 $ 128,319 $ (985,855) $ 604,561
============= ============= ============== ------------- =============
</TABLE>
(1) Represents receivable of debentures by the Company held by the Trust.
11
<PAGE>
Condensed Consolidating Balance Sheet (unaudited)
(In thousands)
<TABLE>
<CAPTION>
June 30, 1998
Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents...... $ 3,263 $ 17,364 $ 2,023 $ -- $ 22,650
Accounts receivable:
Trade, net................... 6,084 60,438 1,947 (658) 67,811
Insurance claims and other... 1,192 4,285 17 -- 5,494
Inventory, spare parts and
supplies .................... 2,498 12,205 460 (575) 14,588
Prepaid expenses............... 1,956 1,065 1,808 -- 4,829
Deferred costs (net)........... 3,370 5,152 474 -- 8,996
------------- ------------- -------------- ------------- -------------
Total current assets......... 18,363 100,509 6,729 (1,233) 124,368
Property (net)................... 111,761 641,260 49,814 (1,930) 800,905
Other assets:
Deferred costs (net)........... 10,499 6,441 4,189 -- 21,129
Due from affiliates............ 170,779 (168,419) (2,196) -- 164
Investments in affiliates...... 674,226 623,556 26,239 (1,303,491) 20,530
Goodwill (net)................. -- 84,224 20 -- 84,244
Other.......................... 550 922 118,647(1) (118,557) 1,562
------------- ------------- -------------- ------------ -------------
Total other assets........... 856,054 546,724 146,899 (1,422,048) 127,629
------------- ------------- -------------- ------------- -------------
Total.................... $ 986,178 $ 1,288,493 $ 203,442 $ (1,425,211) $ 1,052,902
============= ============= ============== ============= =============
Liabilities and Stockholders' Equity Current liabilities:
Current maturities of long-term
debt......................... $ 28,198 $ 849 $ -- $ -- $ 29,047
Current obligations under capital
leases....................... 699 1,403 -- -- 2,102
Accounts payable............... 1,597 12,680 1,026 -- 15,303
Other.......................... 17,062 15,931 2,036 (712) 34,317
------------- ------------- -------------- ------------- -------------
Total current liabilities.... 47,556 30,863 3,062 (712) 80,769
Long-term liabilities:
Long-term debt................. 656,317 16,199 -- (118,557) 553,959
Obligations under capital
leases...................... 14,457 5,026 -- -- 19,483
Deferred income taxes.......... 23,862 7,072 -- -- 30,934
Other.......................... 2,430 3,676 -- -- 6,106
------------- ------------- -------------- ------------- -------------
Total long-term liabilities.. 697,066 31,973 -- (118,557) 610,482
------------- ------------- -------------- ------------- -------------
Total liabilities............ 744,622 62,836 3,062 (119,269) 691,251
Company-obligated mandatorily
redeemable preferred securities
issued by a subsidiary trust holding
solely debentures issued by the
Company........................ -- -- 115,000 -- 115,000
Minority partners' equity in sub-
sidiaries...................... -- -- -- 5,095 5,095
Stockholders' equity............. 241,556 1,225,657 85,380 (1,311,037) 241,556
------------- ------------- -------------- ------------- -------------
Total.................... $ 986,178 $ 1,288,493 $ 203,442 $ (1,425,211) $ 1,052,902
============= ============= ============== ============= =============
</TABLE>
(1) Represents primarily receivable of debentures issued by the Company held by
the Trust.
<PAGE>
Condensed Consolidating Income Statement (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997
Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 12,650 $ 46,688 $ -- $ (13,043) $ 46,295
Operating expenses:
Crew payroll and benefits...... 4,111 7,164 -- -- 11,275
Charter hire and bond
guarantee fee................ 1,048 12,982 -- (11,644) 2,386
Repairs and maintenance........ 1,296 1,952 -- -- 3,248
Insurance...................... 658 1,522 -- -- 2,180
Consumables.................... 739 2,208 -- -- 2,947
Other.......................... 627 2,529 -- (6) 3,150
------------- ------------- -------------- ------------- -------------
Total operating expenses....... 8,479 28,357 -- (11,650) 25,186
Selling, general and
administrative expenses......... 3,411 2,786 -- (250) 5,947
Depreciation and amortization.... 1,581 2,592 -- -- 4,173
Income (loss) from operations.. (821) 12,953 -- (1,143) 10,989
Interest, net.................... 1,221 828 (42) -- 2,007
Other income (expense):
Minority interest and equity
earnings of subsidiaries..... $ 10,999 $ 26,710 $ (62) $ (37,584) $ 63
Other.......................... 124 (1,233) -- 1,143 34
------------- ------------- -------------- ------------- -------------
Total other income (expense). 11,123 25,477 (62) (36,441) 97
------------- ------------- -------------- ------------- -------------
Income (loss) before provision for
income taxes and extraordinary
item.......................... 9,081 37,602 (20) (37,584) 9,079
Provision for income taxes....... 3,359 -- -- -- 3,359
------------- ------------- -------------- ------------- -------------
Income (loss) before extraordinary
item ......................... 5,722 37,602 (20) (37,584) 5,720
Loss on early extinguishment of
debt ......................... 378 -- -- -- 378
------------- ------------- -------------- ------------- -------------
Net income (loss)................ $ 5,344 $ 37,602 $ (20) $ (37,584) $ 5,342
============= ============= ============== ============= =============
</TABLE>
13
<PAGE>
Condensed Consolidating Income Statement (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 19,990 $ 121,184 $ 5,069 $ (36,911) $ 109,332
Operating expenses:
Crew payroll and benefits...... 5,635 17,076 936 (186) 23,461
Charter hire and bond guarantee
fee.......................... 827 18,346 161 (14,497) 4,837
Repairs and maintenance........ 2,356 4,335 1,339 -- 8,030
Insurance...................... 541 2,775 149 -- 3,465
Consumables.................... 1,962 6,322 372 (154) 8,502
Other.......................... 2,525 7,041 162 (280) 9,448
------------- ------------- -------------- ------------- -------------
Total operating expenses..... 13,846 55,895 3,119 (15,117) 57,743
Selling, general and administrative
expenses........................ 4,749 7,728 21 (1,276) 11,222
Depreciation and amortization.... 2,184 9,845 217 -- 12,246
------------- ------------- -------------- ------------- -------------
Income (loss) from operations.... (789) 47,716 1,712 (20,518) 28,121
Interest, net.................... 12,376 574 (1,862) -- 11,088
Other income (expense):
Minority interest and equity
earnings of subsidiaries..... $ 28,435 $ 32,708 $ (1,865) $ (60,956) $ (1,678)
Other.......................... 10 (21,603) 1,275 20,240 (78)
------------- ------------- -------------- ------------- -------------
Total other income (expense). 28,445 11,105 (590) (40,716) (1,756)
------------- ------------- -------------- ------------- -------------
Income (loss) before provision for
income taxes and extraordinary
item.......................... 15,280 58,247 2,984 (61,234) 15,277
Provision for income taxes....... 5,805 -- -- -- 5,805
------------- ------------- -------------- ------------- -------------
Income (loss) before extraordinary
item ......................... 9,475 58,247 2,984 (61,234) 9,472
Loss on early extinguishment of
debt ......................... -- -- -- -- --
------------- ------------- -------------- ------------- -------------
Net income (loss)................ $ 9,475 $ 58,247 $ 2,984 $ (61,234) $ 9,472
============= ============= ============== ============= =============
</TABLE>
14
<PAGE>
Condensed Consolidating Income Statement (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 25,374 $ 87,585 $ -- $ (27,012) $ 85,947
Operating expenses:
Crew payroll and benefits...... 7,868 13,226 -- -- 21,094
Charter hire and bond guarantee
fee.......................... 2,065 27,437 -- (25,613) 3,889
Repairs and maintenance........ 2,633 3,736 -- -- 6,369
Insurance...................... 1,253 2,989 -- -- 4,242
Consumables.................... 1,277 3,855 -- -- 5,132
Other.......................... 1,140 4,461 -- (10) 5,591
------------- ------------- -------------- ------------- -------------
Total operating expenses..... 16,236 55,704 -- (25,623) 46,317
Selling, general and administrative
expenses........................ 6,452 4,846 -- (246) 11,052
Depreciation and amortization.... 3,147 4,705 -- -- 7,852
------------- ------------- -------------- ------------- -------------
Income (loss) from operations.... (461) 22,330 -- (1,143) 20,726
Interest, net.................... 2,659 1,529 (42) -- 4,146
Other income (expense):
Minority interest and equity
earnings of subsidiaries..... $ 19,482 $ 47,546 $ (62) $ (66,972) (6)
Other.......................... 60 (1,355) -- 1,143 (152)
------------- ------------- -------------- ------------- -------------
Total other income (expense). 19,542 46,191 (62) (65,829) (158)
------------- ------------- -------------- ------------- -------------
Income (loss) before provision for
income taxes and extraordinary
item.......................... 16,422 66,992 (20) (66,972) 16,422
Provision for income taxes....... 6,076 -- -- -- 6,076
------------- ------------- -------------- ------------- -------------
Income (loss) before extraordinary
item ......................... 10,346 66,992 (20) (66,972) 10,346
Loss on early extinguishment of
debt ......................... 2,132 -- -- -- 2,132
------------- ------------- -------------- ------------- -------------
Net income (loss)................ $ 8,214 $ 66,992 $ (20) $ (66,972) $ 8,214
============= ============= ============== ============= =============
</TABLE>
15
<PAGE>
Condensed Consolidating Income Statement (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 33,359 $ 219,408 $ 6,861 $ (63,811) $ 195,817
Operating expenses:
Crew payroll and benefits...... 9,893 31,598 1,243 (186) 42,548
Charter hire and bond guarantee
fee.......................... 1,787 33,035 215 (26,571) 8,466
Repairs and maintenance........ 4,298 9,983 394 -- 14,675
Insurance...................... 1,027 5,157 171 -- 6,355
Consumables.................... 2,695 12,220 513 (197) 15,231
Other.......................... 3,019 12,728 231 (287) 15,691
------------- ------------- -------------- ------------- -------------
Total operating expenses..... 22,719 104,721 2,767 (27,241) 102,966
Selling, general and administrative
expenses........................ 9,055 13,294 551 (2,604) 20,296
Depreciation and amortization.... 3,804 19,491 576 -- 23,871
------------- ------------- -------------- ------------- -------------
Income (loss) from operations.... (2,219) 81,902 2,967 (33,966) 48,684
Interest, net.................... 21,079 1,024 (3,723) -- 18,380
Other income (expense):
Minority interest and equity
earnings of subsidiaries..... 50,139 68,783 (3,728) (118,619) (3,425)
Other.......................... 23 (31,891) (1,828) 33,681 (15)
------------- ------------- -------------- ------------- -------------
Total other income (expense). 50,162 36,892 (5,556) (84,938) (3,440)
------------- ------------- -------------- ------------- -------------
Income (loss) before provision for
income taxes and extraordinary
item.......................... 26,864 117,770 1,134 (118,904) 26,864
Provision for income taxes....... 10,208 -- -- -- 10,208
------------- ------------- -------------- ------------- -------------
Income (loss) before extraordinary
item ......................... 16,656 117,770 1,134 (118,904) 16,656
Loss on early extinguishment of
debt ......................... 734 -- -- -- 734
------------- ------------- -------------- ------------- -------------
Net income (loss)................ $ 15,922 $ 117,770 $ 1,134 $ (118,904) $ 15,922
============= ============= ============== ============= =============
</TABLE>
16
<PAGE>
Condensed Consolidating Statement of Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net Income (loss) ............................... $ 8,214 $ 66,992 $ (20) $ (66,972) $ 8,214
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Loss on extinguishment of
debt, net .................................... 2,132 -- -- -- 2,132
Depreciation and amortization ................. 3,147 4,705 -- -- 7,852
Provision for bad debts ....................... 57 205 -- -- 262
Loss on disposal of property .................. -- 12 -- -- 12
Amortization of drydocking
costs ........................................ 1,433 1,014 -- -- 2,447
Amortization discount on long-
term debt and financing costs ............... 5 -- -- -- 5
Provision for deferred taxes .................. 5,868 -- -- -- 5,868
Minority partners' equity in
earnings (losses) of subsidiaries,
net ......................................... -- -- 62 (92) (30)
Undistributed (earnings) losses
of affiliates, net .......................... (19,482) (47,546) -- 67,064 36
Other non-cash items .......................... 276 -- -- -- 276
Changes in operating assets and
liabilities, net of effect of
acquisitions:
Accounts receivable ........................... (511) (7,711) -- 4 (8,218)
Current and other assets ...................... 112,181 (6,116) (111,563) (1,169) (6,667)
Accounts payable and other
liabilities .................................. (5,115) (1,055) -- 1,165 (5,005)
--------- --------- --------- --------- ---------
Net cash provided (used) by operating
activities ................................. 108,205 10,500 (111,521) -- 7,184
Investing Activities:
Purchase of property .......................... (7,164) (10,579) -- -- (17,743)
Proceeds from disposal of property ............ -- 1,633 -- -- 1,633
Capital contribution to affiliates ............ (145) -- -- -- (145)
Acquisitions, net ............................. (85,305) -- -- -- (85,305)
--------- --------- --------- --------- ---------
Net cash used in investing
activities ................................. (92,614) (8,946) -- -- (101,560)
Financing Activities:
Repayment of short-term
borrowings, net .............................. (8,000) -- -- -- (8,000)
Proceeds from long-term debt .................. 42,210 -- -- -- 42,210
Repayments of long-term debt .................. (134,640) -- -- -- (134,640)
Payment of debt and other
financing costs .............................. (630) -- -- -- (630)
Payment of obligations under
capital leases ............................... (86) (590) -- -- (676)
Payment of notes to related parties ........... (178) -- -- -- (178)
Proceeds from issuance of common
stock, net of offering costs ................. 93,520 -- -- -- 93,520
Proceeds from issuance of preferred
securities, net of offering costs ............ -- -- 111,521 -- 111,521
--------- --------- --------- --------- ---------
Net cash (used) provided by financing
activities ................................. (7,804) (590) 111,521 -- 103,127
Increase in cash and cash equivalents ........... 7,787 964 -- -- 8,751
Cash and cash equivalents at beginning
of period ...................................... 7,238 2,379 -- -- 9,617
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of
period ......................................... $ 15,025 $ 3,343 $ -- $ -- $ 18,368
========= ========= ========= ========= =========
</TABLE>
17
<PAGE>
Condensed Consolidating Statement of Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
Guarantor Non-guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net Income (loss) .................................. $ 15,922 $ 117,770 $ 1,134 $(118,904) $ 15,922
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Loss on extinguishment of
debt, net ....................................... 734 -- -- -- 734
Depreciation and amortization .................... 3,803 19,492 576 -- 23,871
Provision for bad debts .......................... 33 513 -- -- 546
Amortization of drydocking
costs ........................................... 1,815 3,841 82 -- 5,738
Amortization discount on long-
term debt and financing costs .................. 425 -- 130 -- 555
Provision for deferred taxes ..................... 7,156 -- -- -- 7,156
Minority partners' equity in
earnings of subsidiaries, net .................. -- -- -- 52 52
Undistributed (earnings) losses
of affiliates, net ............................. (50,183) (68,745) (11) 118,573 (366)
Other non-cash items ............................. 82 -- -- -- 82
Changes in operating assets and
liabilities, net of effect of
acquisitions:
Accounts receivable .............................. (3,378) (28,437) (1,904) 6 (33,713)
Current and other assets ......................... (12,891) 2,026 (422) 567 (10,720)
Accounts payable and other
liabilities ..................................... 8,448 4,583 3,062 (4) 16,089
--------- --------- --------- --------- ---------
Net cash (used) provided by
operating activities ......................... (28,034) 51,043 2,647 290 25,946
Investing Activities:
Purchase of property ............................. (8,710) (38,588) (6,906) 2,469 (51,735)
Capital contribution to affiliates ............... (22,070) -- (23,508) 27,041 (18,537)
Acquisitions, net ................................ (331,177) (6,458) -- -- (337,635)
--------- --------- --------- --------- ---------
Net cash (used) provided by
investing activities .......................... (361,957) (45,046) (30,414) 29,510 (407,907)
Financing Activities:
Proceeds from long-term debt ..................... 383,700 -- -- -- 383,700
Proceeds from issuance of senior
notes, net of offering costs .................... 292,500 -- -- -- 292,500
Repayments of long-term debt ..................... (285,385) (416) -- -- (285,801)
Payment of debt and other
financing costs ................................. (247) -- -- -- (247)
Payment of obligations under
capital leases .................................. (211) (669) -- -- (880)
Capital contributed from partners ................ -- 10 29,790 (29,800) --
Proceeds from issuance of common
stock............................................ 387 -- -- -- 387
--------- --------- --------- --------- ---------
Net cash provided (used) by
financing activities ......................... 390,744 (1,075) 29,790 (29,800) 389,659
Increase in cash and cash equivalents .............. 753 4,922 2,023 -- 7,698
Cash and cash equivalents at beginning
of period ......................................... 2,510 12,442 -- -- 14,952
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of
period ............................................ $ 3,263 $ 17,364 $ 2,023 $ -- $ 22,650
========= ========= ========= ========= =========
</TABLE>
18
<PAGE>
11. Prospective Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
19
<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 1997 Form 10-K.
20
<PAGE>
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,
1997 1998 1997 1998
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Marine Support Services:
Offshore Energy Support........................................... $ 23,545 $ 67,533 $ 40,936 $ 123,909
Offshore & Harbor Towing.......................................... 4,754 11,824 8,485 21,291
--------- --------- --------- ---------
Marine Support Services Revenues................................ 28,299 79,357 49,421 145,200
Marine Transportation Services:
Chemical Transportation........................................... 13,740 18,563 27,943 33,830
Petroleum Product Transportation.................................. 4,256 11,412 8,583 16,787
--------- --------- --------- ---------
Marine Transportation Services.................................. 17,996 29,975 36,526 50,617
--------- --------- --------- ---------
Total Revenues........................................................ 46,295 109,332 85,947 195,817
Operating Costs:
Marine Support Services:
Offshore Energy Support........................................... 9,585 29,733 16,974 55,276
Offshore & Harbor Towing.......................................... 3,118 6,376 5,468 11,041
--------- --------- --------- ---------
Marine Support Services Operating Costs......................... 12,703 36,109 22,442 66,317
Marine Transportation Services:
Chemical Transportation........................................... 9,546 14,343 18,249 25,649
Petroleum Product Transportation.................................. 2,937 7,291 5,626 11,000
--------- --------- --------- ---------
Marine Transportation Operating Costs........................... 12,483 21,634 23,875 36,649
--------- --------- --------- ---------
Total Operating Costs................................................. 25,186 57,743 46,317 102,966
Direct Overhead Expense:
Marine Support Services:
Offshore Energy Support........................................... 1,159 3,906 1,999 6,980
Offshore & Harbor Towing.......................................... 442 1,441 816 2,599
--------- --------- --------- ---------
Marine Support Services Direct Overhead......................... 1,601 5,347 2,815 9,579
Marine Transportation Services:
Chemical Transportation........................................... 1,298 1,019 2,338 1,898
Petroleum Product Transportation.................................. 232 650 528 1,041
--------- --------- --------- ---------
Marine Transportation Direct Overhead........................... 1,530 1,669 2,866 2,939
--------- --------- --------- ---------
Total Direct Overhead................................................. 3,131 7,016 5,681 12,518
Fleet Operating EBITDA(1)
Marine Support Services:
Offshore Energy Support........................................... 12,801 33,894 21,963 61,653
Offshore & Harbor Towing.......................................... 1,194 4,007 2,201 7,651
--------- --------- --------- ---------
Marine Support Services Fleet EBITDA............................ 13,995 37,901 24,164 69,304
Marine Transportation Services:
Chemical Transportation........................................... 2,896 3,201 7,356 6,283
Petroleum Product Transportation.................................. 1,087 3,471 2,429 4,746
--------- --------- --------- ---------
Marine Transportation Fleet EBITDA.............................. 3,983 6,672 9,785 11,029
--------- --------- --------- ---------
Total Fleet EBITDA.................................................... 17,978 44,573 33,949 80,333
Corporate Overhead Expense............................................ 2,816 4,206 5,371 7,778
--------- --------- --------- ---------
EBITDA................................................................ 15,162 40,367 28,578 72,555
Depreciation and Amortization Expense................................. 4,173 12,246 7,852 23,871
--------- --------- --------- ---------
Income from Operations................................................ $ 10,989 $ 28,121 $ 20,726 $ 48,684
========= ========= ========= =========
</TABLE>
(1)EBITDA is defined as net income from continuing operations before interest
expense, income tax expense, depreciation expense, amortization expense,
minority interest and other non-operating income.
21
<PAGE>
Historical Growth
Since December 31, 1994, when the Company's fleet consisted of 66
vessels, the Company has completed the acquisition or construction of 207
vessels at an aggregate cost of approximately $725.0 million, including six
vessels that were acquired or constructed between March 1998 and June 1998 at an
aggregate cost of $31.0 million. Of the 207 vessels, 170 are offshore energy
support vessels and the balance are employed in the Company's offshore and
harbor towing operations and marine transportation services operations. The
Company believes the increased size of its vessel fleet will enable it to take
further advantage of the strong worldwide demand for marine support and
transportation services.
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.
Offshore Energy Support. 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.
Domestic Operations. 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 U.S. Gulf of Mexico and their average utilization for the periods
indicated.
<TABLE>
<CAPTION>
1997 1998
----------------------------------------- --------------------
Q1 Q2 Q3 Q4 Q1 Q2
<S> <C> <C> <C> <C> <C> <C>
Number of supply boats at end of period....... 19 21 25 26 28 29
Average supply boat day rates(1).............. $ 6,478 $ 7,176 $ 7,636 $ 8,032 $ 8,475 $ 8,214
Average supply boat utilization(2)............ 87% 90% 91% 93% 86% 80%
Number of crew boats at end of period(3)...... 39 39 39 39 39 40
Average crew boat day rates(1)(3)............. $ 1,777 $ 1,940 $ 2,119 $ 2,294 $ 2,419 $ 2,477
Average crew boat utilization(2)(3)........... 95% 93% 95% 93% 89% 91%
</TABLE>
(1) Average day rates are calculated based on vessels operating
domestically by dividing total vessel revenue by the total number of
days of vessel utilization.
(2) Utilization is based on vessels operating domestically and determined
on the basis of a 365-day year. Vessels are considered utilized when
they are generating charter revenue.
(3) Excludes utility boats.
As indicated in the above table, average supply boat day rates and
utilization rates declined in the 1998 second quarter compared to the first
quarter. This decline began in June 1998 due to the protracted decline in crude
oil prices and is expected to continue until oil prices improve. At July 30,
1998, supply boat day rates were approximately $6,000 per day as compared to
$8,214 for the second quarter.
International Operations. The Company derives substantial revenue from
international operations, primarily under dollar-denominated contracts with
major international oil companies. Foreign
23
<PAGE>
operations are conducted by the Company in nearly every major offshore
exploration and producing area throughout the world, including the North Sea,
Africa, South America, Mexico, Trinidad, the West African coast, the Arabian
Gulf countries, Egypt, India, Pakistan, Myanmar, Southeast Asia, and
occasionally the Far East. Additional international opportunities are currently
being analyzed by the Company. The diverse foreign operations represented
approximately 35% and 40% of the Company's revenue and income from operations,
respectively, for the six months ended June 30, 1998.
The following table shows rate and utilization information for foreign
operations(1):
<TABLE>
<CAPTION>
1997 1998
----------------------------------------- --------------------
Q1 Q2 Q3 Q4 Q1 Q2
<S> <C> <C> <C> <C> <C> <C>
Number of anchor handling tug/supply boats (2) -- 9 23 23 66 67
Average anchor handling tug/supply boat day
rates (2)(3)............................... $ -- $ 2,900 $ 3,162 $ 3,357 $ 5,505 $ 6,008
Average anchor handling tug/supply
boat utilization (2)(4).................... -- 66% 80% 75% 75% 77%
Number of crew/utility boats.................. -- 8 8 8 32 33
Average crew/utility boat day rates(3)........ $ -- $ 1,330 $ 1,365 $ 1,344 $ 1,549 $ 1,544
Average crew/utility boat utilization(4)...... -- 100% 93% 90% 75% 76%
</TABLE>
(1) Certain vessels have been excluded from the table above due to the
variety of vessel categories and the differences in rates associated
with similar vessel types operating in different geographic areas.
(2) Includes anchor handling tug boats.
(3) Average day rates are calculated based on vessels operating
internationally by dividing total vessel revenue by the total number of
days of vessel utilization.
(4) Utilization is based on vessels operating internationally and
determined on the basis of a 365-day year. Vessels are considered
utilized when they are generating charter revenue.
Offshore and Harbor Towing. Revenue derived from the Company's tug
operations is primarily a function of the number of tugs available to provide
services, the rates charged for their services, and the volume of vessel traffic
requiring docking and other ship-assist services. Vessel traffic, in turn, is
largely a function of the general trade activity in the region served by the
port. The Company generally has maintained five tugs in Port Everglades,
Florida; three tugs in Port Canaveral, Florida; three tugs in Mobile, Alabama;
11 tugs in Tampa, Florida; four tugs in Port Arthur, Texas; two tugs in Lake
Charles, Louisiana; and three tugs for charter on the west coast of the U.S. and
seven additional tugs available to provide offshore towing services.
Marine Transportation Services
Chemical Transportation. Generally, demand for industrial chemical
transportation services coincides with overall economic activity.
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. The current 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 Florida Power & Light Co. ("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.
24
<PAGE>
In March 1998, HMI purchased two additional petroleum product carriers
from Kirby Corporation: the HMI Defender (ex-Willamette) and HMI Trader
(ex-Concho). Both carriers are currently employed under a contract of
affreightment with CITGO Petroleum Corporation providing for the transportation
of refined products into Florida through December 1999. The FPL contract extends
through September 1998.
Overview of Operating Expenses and Capital Expenditures
The Company's operating expenses are primarily a function of fleet size
and utilization. The most significant expense categories are crew payroll and
benefits, charter hire, maintenance and repairs, fuel, and insurance. For
general information concerning these categories of operating expenses as well as
capital expenditures, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Area of Operations Overview - Overview of
Operating Expenses and Capital Expenditures" in the 1997 Form 10-K.
Results of Operations
Three months ended June 30, 1998 compared with the three months ended June 30,
1997
Revenue. Revenue increased 136% to $109.3 million for the three months
ended June 30, 1998 from $46.3 million for the three months ended June 30, 1997,
primarily due to increased revenue from the Company's offshore energy support
and offshore and harbor towing operations.
Revenue from offshore energy operations increased 187% to $67.5 million
for the three months ended June 30, 1998 from $23.5 million for the three months
ended June 30, 1997, primarily due to acquisitions and higher domestic day rates
for supply boats and crew boats resulting from increased offshore exploration
and production activity. During the 1998 period, domestic day rates for supply
boats owned, operated, or managed by the Company increased 14% over the 1997
period, while domestic day rates for crew boats owned, operated, or managed by
the Company increased 28% from the 1997 period. However, as indicated above
under "Revenue Overview - Marine Support Services - Domestic Operations,"
average supply boat day rates and utilization rates in the U.S. Gulf of Mexico
declined in the 1998 second quarter compared to the first quarter. This decline
began in June 1998 due to the protracted decline in crude oil prices and is
expected to continue until oil prices improve. At July 30, 1998, supply boat day
rates were approximately $6,000 per day as compared to $8,214 for the second
quarter.
As the Company did not have significant international operations during
the 1997 period, a period-to-period comparison of international day rates would
not be meaningful.
Offshore and harbor towing revenue increased 149% to $11.8 million for
the three months ended June 30, 1998 from $4.8 million for the three months
ended June 30, 1997, primarily due to the October 1997 acquisition of Bay
Transportation and the March 1998 acquisition of seven harbor towing vessels
from Kirby Corporation.
Revenue from chemical transportation operations increased 35% to $18.6
million for the three months ended June 30, 1998 from $13.7 million for the
three months ended June 30, 1997, primarily due to the chartering of additional
vessels.
25
<PAGE>
Petroleum product transportation revenue increased 168% to $11.4
million for the three months ended June 30, 1998 from $4.3 million for the three
months ended June 30, 1997, primarily due to the March 1998 acquisition of two
product tankers from Kirby Corporation.
Operating Expenses. Operating expenses increased 129% to $57.7 million
for the three months ended June 30, 1998 from $25.2 million for the three months
ended June 30, 1997, 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 June 30, 1998 from 54% for the three
months ended June 30, 1997 due to the increase in revenues from higher day rates
in the offshore energy segment.
Overhead Expenses. Overhead expenses increased 89% to $11.2 million for
the three months ended June 30, 1998 from $5.9 million for the three months
ended June 30, 1997, primarily due to increased staffing requirements and other
expenses due to acquisitions and the Company's resultant growth. As a percentage
of revenue, overhead expenses decreased to 10% for the three months ended June
30, 1998 from 13% for the three months ended June 30, 1997 due to a significant
increase in revenues from acquisitions with a slightly lower increase in
overhead expenses.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 193% to $12.2 million for the three months ended June 30, 1998
compared with $4.2 million for the three months ended June 30, 1997 as a result
of an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 156% to $28.1
million, or 26% of revenue, for the three months ended June 30, 1998 from $11.0
million, or 24% of revenue, for the three months ended June 30, 1997 as a result
of the factors noted above.
Net Interest Expense. Net interest expense increased 452% to $11.1
million, or 10% of revenue, for the three months ended June 30, 1998 from $2.0
million, or 4% of revenue, for the three months ended June 30, 1997, primarily
as a result of the February 1998 offering of Senior Notes and debt incurred in
connection with acquisitions.
Other Income (Expense). Other expense increased to $(1.8) million for
the three months ended June 30, 1998 from other income of $0.1 million for the
three months ended June 30, 1997, primarily due to dividend payments relating to
the Preferred Securities.
Net Income. The Company had net income of $9.5 million for the three
months ended June 30, 1998 compared to net income of $5.3 million for the three
months ended June 30, 1997, primarily as a result of the factors noted above.
Six months ended June 30, 1998 compared with the six months ended June 30, 1997
Revenue. Revenue increased 128% to $195.8 million for the six months
ended June 30, 1998 versus $85.9 million for the six months ended June 30, 1997,
primarily due to increased revenue in the Company's offshore energy support and
offshore and harbor towing operations.
Revenue from offshore energy operations increased 203% to $123.9
million for the six months ended June 30, 1998 from $40.9 million for the six
months ended June 30, 1997 primarily due to
26
<PAGE>
acquisitions and higher domestic day rates for supply boats and crew boats
resulting from increased offshore exploration and production activity. During
the 1998 period, domestic day rates for supply boats owned, operated, or managed
by the Company increased 22% from the 1997 period, while domestic day rates for
crew boats owned, operated, or managed by the Company increased 32% from the
1997 period. However, as indicated above, average supply boat day rates and
utilization rates in the U.S. Gulf of Mexico began to decline in June due to the
protracted decline in crude oil prices, and this decline is expected to continue
until oil prices improve.
As the Company did not have significant international operations during
the 1997 period, a period-to-period comparison of international day rates would
not be meaningful.
Offshore and harbor towing revenue increased 151% to $21.3 million for
the six months ended June 30, 1998 from $8.5 million for the six months ended
June 30, 1997, primarily due to the October 1997 acquisition of Bay
Transportation and the March 1998 acquisition of seven harbor towing vessels
from Kirby Corporation.
Revenue from chemical transportation operations increased 21% to $33.8
million for the six months ended June 30, 1998 from $27.9 million for the six
months ended June 30, 1997, primarily due to the chartering of additional
vessels.
Petroleum product transportation revenue increased 96% to $16.8 million
for the six months ended June 30, 1998 from $8.6 million for the six months
ended June 30, 1997, primarily due to the March 1998 acquisition of two product
tankers from Kirby Corporation.
Operating Expenses. Operating expenses increased 122% to $103.0 million
for the six months ended June 30, 1998 from $46.3 million for the six months
ended June 30, 1997, 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 six months ended June 30, 1998 from 54% for the six
months ended June 30, 1997 due to the increase in revenues from higher day rates
in the offshore energy segment.
Overhead Expenses. Overhead expenses increased 84% to $20.3 million for
the six months ended June 30, 1998 from $11.1 million for the six months ended
June 30, 1997, primarily due to increased staffing requirements and other
expenses due to acquisitions and the Company's resultant growth. As a percentage
of revenue, overhead expenses decreased to 10% for the six months ended June 30,
1998 from 13% for the six months ended June 30, 1997 due to a significant
increase in revenues from acquisitions with a slightly lower increase in
overhead expenses.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 204% to $23.9 million for the six months ended June 30, 1998
compared with $7.9 million for the six months ended June 30, 1997 as a result of
an increase in fleet size due to acquisitions.
Income from Operations. Income from operations increased 135% to $48.7
million, or 25% of revenue, for the six months ended June 30, 1998 from $20.7
million, or 24% of revenue, for the six months ended June 30, 1997 as a result
of the factors noted above.
27
<PAGE>
Net Interest Expense. Net interest expense increased 343% to $18.4
million, or 9% of revenue, for the six months ended June 30, 1998 from $4.1
million, or 5% of revenue, for the six months ended June 30, 1997, primarily as
a result of the February 1998 offering of Senior Notes and debt incurred in
connection with acquisitions.
Other Income (Expense). Other expense increased to $(3.4) million for
the six months ended June 30, 1998 from $(0.2) million for the six months ended
June 30, 1997, primarily due to dividend payments relating to the Preferred
Securities.
Net Income. The Company had net income of $15.9 million for the six
months ended June 30, 1998 compared to net income of $8.2 million for the six
months ended June 30, 1997 primarily as a result of the factors noted above.
Seasonality
The Company has experienced slight seasonality in its 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, and proceeds from
the IPO, the Second Offering, the Private Offering and the offering of Senior
Notes. The Company's outstanding indebtedness under the Amended Credit Agreement
was approximately $236.6 million at August 12, 1998. The effective interest rate
under the Amended Credit Agreement was 6.6875% at August 12, 1998. Pursuant to
the Amended Credit Agreement, the Company is required to meet certain financial
tests and is subject to certain covenants. See Note 3 of the condensed
consolidated financial statements for additional information regarding these
offerings and the terms of the Amended Credit Agreement.
In February 1998, the Company acquired a diversified fleet of 37
offshore energy support vessels operating in international waters. The purchase
price of $291.6 million was funded primarily with borrowings under the Amended
Credit Agreement and its predecessor credit facilities.
In March 1998, the Company completed the acquisition of two petroleum
product tankers and seven tugs operating in the U.S. domestic trade, a topside
repair facility and certain related assets for cash of $31.4 million. The
purchase price was funded with proceeds of the offering of Senior Notes and
borrowings under the Amended Credit Agreement.
In April 1998, the Company took delivery of two tractor tugs at a cost
of $9.1 million, one Ship Docking Module ("SDM(TM)") at a cost of $5.0 million,
and one crew boat at a cost of $2.5 million, and acquired one geophysical vessel
for $4.0 million. In May 1998, the Company took delivery of an additional
SDM(TM) at an estimated cost of $5.0 million. In July 1998, the Company
completed construction of an additional 205-foot supply boat for approximately
$9.0 million. The Company has also contracted for the construction of four
additional 205-foot supply boats for delivery in 1998 and 1999 at
28
<PAGE>
an estimated aggregate cost of $36.0 million and the construction of a
double-skin barge at an estimated cost of $1.2 million for delivery in August
1998. The Company has agreed to purchase, for an estimated aggregate cost of
$12.6 million, four newly constructed 152-foot crew boats scheduled for delivery
in 1998 and 1999. The Company is constructing four SDMs(TM) at an estimated cost
of $19.2 million, with delivery dates scheduled throughout 1999. Two tractor
tugs are being constructed for an estimated cost of $9.2 million, with
anticipated delivery dates in September 1998. During 1997, the Company formed a
joint venture with Aker Marine Contractors, Inc. ("Aker") to construct and
operate a 279-foot construction/anchor handling tug/supply vessel. The Company's
capital expenditure obligation with respect to such joint venture is currently
estimated to be approximately $21.6 million, of which $1.6 million was expended
in 1997 and $4.5 million during the first half of 1998 and $15.5 million is
expected to be spent during the remainder of 1998 and 1999. The Company intends
to fund the aggregate cost of the SDMs(TM), the crew boats, the supply boats,
the tractor tugs, the barges, and the construction/anchor handling tug/supply
vessel from available working capital, borrowings under the Amended Credit
Agreement, lease financing, or a combination of such sources.
In June 1998, at a cost of $18.5 million, the Company increased, on a
temporary basis, its stake in five 45,300 dwt double-hull product carriers
currently under construction from 0.8% to 50.8%. The aggregate cost of the five
carriers is estimated to be $250.0 million, of which a substantial portion is
expected to be financed with the proceeds of government-guaranteed Title XI ship
financing bonds issued in March 1996 or with proceeds from additional Title XI
ship financing bonds. The Company has an exclusive option to purchase the
remaining 49.2% interest in these carriers at an estimated cost of $16.5
million.
The Company's future capital needs are expected to relate primarily to debt
service obligations, maintenance and improvements of its fleet. The Company's
principal and interest payment obligations for thhe remainder of 1998 are
estimated to be approximately $38.0 million, and operating lease obligations for
the remainder of 1998 are estimated to be approximately $2.0 million. Capital
requirements for vessel maintenance and improvements, including scheduled
drydockings, are expected to be approximately $11.0 million for the remainder of
1998.
The Company believes that cash generated from operations and amounts
available under the Amended Credit Agreement will be sufficient to fund debt
service requirements, planned capital expenditures, and working capital
requirements for the foreseeable future. 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.
In view of recent declines in average supply boat day rates and
utilization rates in the U.S. Gulf of Mexico and the Company's expectation that
such declines will continue until oil prices improve (as discussed above), the
Company has curtailed or deferred certain capital and other expenditures, as
well as acquisitions, and is considering whether further curtailments and/or
deferrals are advisable. In addition, the Company has redeployed and will
continue to redeploy vessels to international markets that have not exhibited
rate declines similar to those being experienced in the U.S. Gulf of Mexico.
The Company is also evaluating whether and to what extent these
declines, should they continue, would result in the Company's inability to
comply with certain covenants in the Amended Credit Agreement. Should the
Company determine that such inability is likely to occur, it would seek to amend
or obtain waivers of such covenants; however, there can be no assurance that
such waivers or
29
<PAGE>
amendments could be obtained or that the terms on which they could be obtained
would be acceptable to the Company.
In August 1998, the Company was advised that Standard & Poor's
Corporation had downgraded its ratings of the Company's bank loans, senior
unsecured debt and the Preferred Securities. This downgrading is not expected to
have a material effect on the Company's ability to satisfy its anticipated
operational and other financing needs.
Forward-Looking Information
This Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act"). All statements other than statements of historical fact included in the
MD&A, including statements regarding the Company's operating strategy, plans,
objectives and beliefs of management for future operations, planned capital
expenditures and vessel acquisition and construction are forward-looking
statements. Although the Company believes the expectations and beliefs reflected
in such forward-looking statements are reasonable, it can give no assurance that
they will prove to have been correct.
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.
Prospective Accounting Changes
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
which is required to be adopted in years beginning after June 15, 1999. Because
of the Company's minimal use of derivatives, management does not anticipate that
the adoption of the new Statement will have a significant effect on earnings or
the financial position of the Company.
Impact of Year 2000
Some older computer programs were written using two digits rather than
four to define the applicable year. As a result, those computer programs have
time-sensitive software that recognize a date using "00" as the year 1900 rather
than the year 2000. This could cause a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company is making an assessment of its domestic computer systems
and is completing the installation of a management information system and other
applications that are warranted to be "year 2000 compliant." The Company is also
assessing the information systems at overseas locations acquired during 1997 and
believes it will have to modify or replace portions of its software so that
overseas computer systems will function properly with respect to dates in the
year 2000 and thereafter. The total
30
<PAGE>
expected cost of the new systems and applications is estimated at $3.5 million;
it is not practicable to determine the portion of this amount attributable to
make the Company's systems "year 2000 compliant."
The Company is also making an assessment of other systems and
equipment utilized in its shoreside operations and on its vessels to determine
whether they will be affected by the year 2000 issue. As the Company has not
completed this assessment, it is unable to estimate the cost of any necessary
remediation or replacement of these systems and equipment.
In addition, the Company intends to request assurances that third
parties with which it transacts business, including its suppliers and customers,
are addressing year 2000 issues in a manner that will avoid adverse effects upon
the Company's operations. As with all businesses, the Company is unable to
predict whether there will be any disruption in service provided by third
parties, such as ports and utilities, that might affect the Company's
operations. Such disruptions could have an adverse effect on the Company's
operations and its ability to provide uninterrupted service.
The Company expects to complete the above assessments and the
implementation of its new management information systems and applications by mid
1999. The timing of any necessary remediation or replacement of other systems or
equipment utilized in the Company's shoreside operations or on its vessels will
depend on various factors, including the availability of replacement components
and equipment. The Company believes that with this implementation, the year 2000
issue will not pose significant operational problems for its computer systems.
However, if this implementation is not made, or is not completed in a timely
manner, the year 2000 issue could have a material impact on the operations of
the Company.
The costs of the project and the date on which the Company believes it
will complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved; actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area and similar
uncertainties.
31
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In July 1998, a subsidiary of the Company was charged with criminal
violations of Florida statutes relating to commercial dumping and willful
pollution, as well as violation of a rule, regulation or order of the Florida
Department of Environmental Regulation (State of Florida vs. Sun State Marine
Services, Inc., Circuit Court of the Fourth Judicial Circuit in and for Clay
County, Florida). The proceeding alleges that marine repairs conducted by the
subsidiary resulted in the discharge of waste from a vessel sandblasting
operation in the St. John's River. No specific relief is sought.
This proceeding is at an early stage. However, based on information
obtained to date, the Company does not believe that the proceeding will result
in significant monetary or other sanctions.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on June 1, 1998. At the
meeting, the shareholders elected the following individuals as Class II
Directors to serve a term expiring in 2001: John H. Blankley, John J. Lee,
Walter C. Mink, and Eugene F. Sweeney. Class I and Class III Directors, whose
terms expire in 2000 and 1999, respectively, were not required to and did not
stand for election at the annual meeting. The Class I Directors are Raymond B.
Vickers, Robert Rice, and Josiah O. Low, III, and the Class III Directors are J.
Erik Hvide, Jean Fitzgerald, Gerald Farmer, and Robert B. Calhoun, Jr.
The voting results in the election of directors and the other matters
voted upon at the meeting are as follows:
Election of Directors:
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
Votes Authority Votes Authority
For Withheld For Withheld
<S> <C> <C> <C> <C>
Nominee:
John H. Blankley...................................... 10,923,440 167,265 14,964,660 --
John J. Lee........................................... 10,921,194 169,511 14,964,660 --
Walter C. Mink........................................ 10,901,779 188,926 14,964,660 --
Eugene F. Sweeney..................................... 10,922,179 168,526 14,964,660 --
</TABLE>
Other Matters:
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
Abstentions
Description of Votes Votes and Broker Votes Votes
Matter For Against Non-votes For Against
<S> <C> <C> <C> <C> <C>
Approval of amendment to the
Company's Equity Ownership
Plan............................................. 6,885,128 658,165 36,070 14,964,660 --
Ratification of appointment of Ernst &
Young LLP as the Company's
independent public accountants................... 11,052,804 22,682 15,219 14,964,660 --
</TABLE>
No broker non-votes were recorded for Class B Common Stock.
32
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
27 - Financial Data Schedule
b. Reports on Form 8-K.
None.
33
<PAGE>
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
August 14, 1998
34
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 22,650
<SECURITIES> 0
<RECEIVABLES> 69,439
<ALLOWANCES> 1,628
<INVENTORY> 14,588
<CURRENT-ASSETS> 124,368
<PP&E> 870,271
<DEPRECIATION> 69,366
<TOTAL-ASSETS> 1,052,902
<CURRENT-LIABILITIES> 80,769
<BONDS> 573,442
115,000
0
<COMMON> 15
<OTHER-SE> 241,541
<TOTAL-LIABILITY-AND-EQUITY> 1,052,902
<SALES> 0
<TOTAL-REVENUES> 195,817
<CGS> 0
<TOTAL-COSTS> 102,966
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 546
<INTEREST-EXPENSE> 18,380
<INCOME-PRETAX> 20,864
<INCOME-TAX> 10,208
<INCOME-CONTINUING> 16,656
<DISCONTINUED> 0
<EXTRAORDINARY> (734)
<CHANGES> 0
<NET-INCOME> 15,922
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 0.93
</TABLE>
