SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1999
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) 523-2200
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 12,997,939 and 2,547,064 shares of Class A Common Stock, per value
$0.001 per share, and Class B Common Stock, par value $0.001 per share,
respectively, outstanding at August 9, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") should be read in conjunction with
the condensed consolidated financial statements and the related notes thereto
included elsewhere in this Report and the 1998 Form 10-K as well as the
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the 1998 Form 10-K.
The MD&A contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact, included in the MD&A are forward-looking
statements. Although the Company believes that the expectations and beliefs
reflected in such forward-looking statements are reasonable, it can give no
assurance that they will prove correct. For information regarding the risks and
uncertainties that could cause such forward-looking statements to prove
incorrect, see "Projections and Other Forward-Looking Information" in Item 1 of
the 1998 Form 10-K.
<PAGE>
Area of Operations Overview
The financial information presented below represents historical results
by major area of operations.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -------------------------------
1998 1999 1998 1999
--------------- --------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Marine support services
Offshore energy support $ 67,533 $ 39,097 $ 123,909 $ 84,835
Offshore & harbor towing 11,824 11,414 21,291 22,768
------------ ----------- ------------ ------------
79,357 50,511 145,200 107,603
Marine transportation services 29,975 27,805 50,617 52,926
------------ ----------- ------------ ------------
Total revenues 109,332 78,316 195,817 160,529
Operating expenses:
Marine support service:
Offshore energy support 29,733 27,362 55,276 57,051
Offshore & harbor towing 6,376 5,621 11,041 68,438
------------ ----------- ------------ ------------
36,109 32,903 66,317 125,489
Marine transportation services 21,634 19,413 36,649 37,483
------------ ----------- ------------ ------------
Total operating expenses 57,743 52,396 102,966 105,921
Direct overhead expense:
Marine support services:
Offshore energy support 3,906 4,237 6,980 8,517
Offshore & harbor towing 1,441 1,116 2,599 2,517
------------ ----------- ------------ ------------
5,347 5,252 9,579 11,034
Marine transportation services 1,669 932 2,939 2,366
-------------- ------------- -------------- --------------
Total direct overhead expenses 7,016 6,285 12,518 13,400
Fleet Operating EBITDA(1) Marine support services:
Offshore energy support 33,894 7,498 61,653 19,267
Offshore & harbor towing 4,007 4,677 7,651 8,864
-------------- ------------- -------------- --------------
37,901 12,175 69,304 28,131
Marine transportation services 6,672 7,460 11,029 13,077
------------ ----------- ------------ ------------
Total fleet EBITDA(1) 44,573 19,635 80,333 41,208
Corporate overhead expense 4,206 4,884 7,778 8,483
------------ ----------- ------------ ------------
EBITDA(1) 40,367 14,751 72,555 32,725
Depreciation and amortization expense 12,246 16,680 23,871 32,439
------------ ----------- ------------ ------------
Income (loss) from operations $ 28,121 $ (1,929) $ 48,684 $ 286
============ =========== ============ ============
</TABLE>
- -------------------
(1) EBITDA (net income from continuing operations before interest expense,
income tax expense, depreciation expense, amortization expense, minority
interest and other non-operating income) is frequently used by securities
analysts and is presented here to provide additional information about the
Company's operations. Fleet EBITDA is EBITDA before corporate overhead
expenses. EBITDA and fleet EBITDA are not recognized by generally accepted
accounting principles, should not be considered as alternatives to net
income as indicators of the Company's operating performance, or as
alternatives to cash flows from operations as a measure of liquidity, and
do not represent funds available for management's use. Further, the
Company's EBITDA may not be comparable to similarly named measures reported
by other companies.
<PAGE>
Revenue Overview
Marine Support Services
Revenue derived from vessels providing marine support services is
attributable to the Company=s offshore energy support fleet and its offshore and
harbor towing operations.
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, which are in turn heavily dependent upon the price of
crude oil. Further, in many areas where the Company conducts offshore energy
support operations (particularly the U.S. Gulf of Mexico), contracts for the
utilization of offshore service vessels commonly include termination provisions
with three- to five-day notice requirements and no termination penalty. As a
result, companies engaged in offshore energy support operations (including the
Company) are particularly sensitive to changes in market demand.
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>
1998 1999
----------------------------------------------- ---------------------
Q1 Q2 Q3 Q4 Q1 Q2
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Number of supply boats at end of period (1).. 28 29 27 24 21 21
Average supply boat day rates (2) ........... $ 8,475 $ 8,214 6,505 $ 5,191 $ 4,530 $ 4,049
Average supply boat utilization (3).......... 86% 80% 55% 72% 70% 69%
Number of crew boats at end of period (4).... 39 40 38 37 33 33
Average crew boat day rates (2)(4)........... $ 2,419 $ 2,477 $ 2,375 $ 2,383 $ 2,097 $ 1,864
Average crew boat utilization (3)(4)......... 89% 91% 77% 83% 69% 72%
</TABLE>
(1) The decline in the number of supply boats in the third and fourth quarters
of 1998 and first quarter of 1999 primarily reflects bareboat chartering
and the redeployment of boats to other global regions in response to
declines in utilization and day rates in the U.S. Gulf of Mexico.
(2) Average day rates are calculated based on vessels operating domestically by
dividing total vessel revenue by the total number of days of vessel
utilization.
(3) 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.
(4) Excludes utility boats. The decline in the number of crew boats in the
third and fourth quarters of 1998 and first quarter of 1999 primarily
reflects the redeployment of boats to other global regions in response to
declines in utilization and day rates in the U.S. Gulf of Mexico.
As indicated in the above table, average supply boat day rates began to
decline in the second quarter of 1998 and continued to decline for the balance
of the year and in 1999. Supply boat utilization declined sharply in the second
and third quarters of 1998, improving in the fourth quarter due to the
redeployment of idle vessels from the U.S. Gulf of Mexico to international
markets. At August 9, 1999, supply boat day rates averaged approximately $3,500
per day. The current low level of supply boat day rates is expected to continue
until energy exploration and production activities return to higher levels,
which in turn is dependent upon a sustained improvement in energy prices.
<PAGE>
At August 9, 1999, crew boat day rates averaged approximately $1,700
per day. As is the case with supply boat rates, no substantial improvement in
crew boat rates is anticipated until energy exploration and production
activities return to higher levels.
The following table shows rate and utilization information for foreign
operations:
<TABLE>
<CAPTION>
1998 1999
---------------------------------------------- ---------------------
Q1 Q2 Q3 Q4 Q1 Q2
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Number of anchor handling tug/supply boats........... 66 67 66 69 67 69
Average anchor/handling tug/supply boat day rates(1) $ 5,505 $ 6,008 5,914 $ 5,727 $ 4,817 $ 5,433
Average anchor handling tug/supply boat
utilization(1)(2)................................. 75% 77% 77% 77% 61% 49%
Number of crew/utility boats......................... 32 33 31 36 38 39
Average crew/utility boat day rates(2)............... $ 1,549 $ 1,544 $ 1,588 $ 1,616 $ 1,543 $ 1,559
Average crew/utility boat utilization(3)............. 75% 76% 72% 67% 65% 48%
</TABLE>
- --------------------
(1) Includes anchor handling tug boats.
(2) Average day rates are calculated based on vessels operating internationally
by dividing total vessel revenue by the total number of days of vessel
utilization.
(3) 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.
As indicated in the above table, foreign anchor handling tugs/supply
boats experienced stable utilization rates during 1998, moderate declines in day
rates during the second half of the year, and a sharp decline in the first
quarter of 1999 with some improvement in the second quarter. Foreign
crew/utility boats experienced a slight increase in day rates over the full
year, with declines in utilization rates during the second half in 1999. In
general, both types of operations remained steady in 1998 as compared to
declines in the comparable U.S. markets. However, foreign rates continued to
decline sharply in 1999. At August 9, 1999, day rates averaged approximately
$4,500 per day for foreign anchor handling tugs/supply boats and approximately
$1,600 for foreign crew/utility boats.
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.
Marine Transportation Services
Generally, demand for industrial petrochemical transportation services
coincides with overall economic activity.
Revenue from the Company's towboats and fuel barges has been derived
primarily from contracts of affreightment with FPL and Steuart Petroleum Co.
that require the Company to transport fuel as needed by those two customers,
with the FPL contract having a guaranteed minimum utilization. The principal
contract with FPL expired in September 1998. The Company has since entered into
a new contract, expiring in September 2002, to provide similar services to FPL
at similar rates. However, the extent of the services to be provided under the
new contract is substantially less than under the prior contract.
<PAGE>
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 1998 Form 10-K.
Beginning in the first quarter of 1999, the Company implemented a plan
to reduce operating and overhead expenses as well as capital expenditures (see
"Liquidity and Capital Resources" below). These expense reductions are not fully
reflected in the comparisons below since, (1) such reductions were implemented
during or subsequent to the 1999 first quarter and (2) expenses in the 1999
quarter increased over those of the 1998 quarter, reflecting the substantial
increase in the size of the Company.
Results of Operations
Three months ended June 30, 1999 compared with the three months ended June 30,
1998
Revenue. Revenue decreased 28% to $78.3 million for the three months
ended June 30, 1999, from $109.3 million for the three months ended June 30,
1998, primarily due to lower revenue from the Company's offshore energy support
operations.
Revenue from offshore energy operations decreased 42% for the three
months ended June 30, 1999, compared to the 1998 period, primarily due to lower
utilization and day rates for supply boats and crew boats resulting from the
decline in offshore exploration and production activity. During the 1999 period,
domestic day rates for supply boats owned, operated, or managed by the company
declined 51% from the 1998 period, while domestic day rates for crew boats
owned, operated, or managed by the Company fell 25% from the 1998 period.
Internationally, day rates for anchor handling tug/supply boats fell 10% to
$5,433 from $6,008, while day rates for crew/utility boats increased 1% from
$1,544 to $1,559.
Offshore and harbor towing revenue decreased 3% to $11.4 million for
the three months ended June 30, 1999 from $11.8 million for the three months
ended June 30, 1999, primarily due to the decline in the Company's harbor towing
operations in Mexico.
Marine transportation revenue decreased 7% to $27.8 million for the
three months ended June 30, 1999 from $30.0 million for the three months ended
June 30, 1998, primarily due to the Seabulk Magnachem's regularly scheduled
drydocking.
Operating Expenses. Operating expenses decreased 9% to $52.4 million
for the three months ended June 30, 1999 from $57.7 million for the three months
ended June 30, 1998, primarily due to decreases in crew payroll and benefits,
maintenance and repair, and supplies and consumables resulting from decreased
business activity. As a percentage of revenue, operating expenses increased to
67% for the three months ended June 30, 1999 from 53% for the three months ended
June 30, 1998, due to the decline in revenues from lower day rates in the
offshore energy segments.
<PAGE>
Overhead Expenses. Overhead expenses were unchanged at $11.2 million
for the three months ended June 30, 1999 from the three months ended June 30,
1998, primarily due to increased professional and other fees under the Credit
Facility and other fees resulting from the Company's financial condition,
partially offset by a reduction in overhead expenses. As a percentage of
revenue, overhead expenses increased to 14% for the three months ended June 30,
1999 from 10% for the three months ended June 30, 1998, due to the
above-mentioned fees and the decrease in revenues from lower day rates and
utilization in the offshore energy support segment.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 36% to $16.7 million for the three months ended June 30, 1999,
compared with $12.2 million for the three months ended June 30, 1998 as a result
of an increase in fleet size due to vessel construction in prior periods.
Income (Loss) from Operations. Operations resulted in a loss of $1.9
million for the three months ended June 30, 1999 versus income of $28.1 million,
or 26% of revenue, for the three months ended June 30, 1998 as a result of the
factors noted above.
Net Interest Expense. Net interest expense increased 53% to $17.0
million, or 22% of revenue, for the three months ended June 30, 1999 from $11.1
million, or 10% of revenue, for the three months ended June 30, 1998, primarily
as a result of debt incurred in connection with acquisitions and increased
interest on borrowings under the Credit Facility.
Other Income (Expense). Other expense increased to $16.4 million for
the three months ended June 30, 1999 from $1.8 million for the three months
ended June 30, 1998, primarily due to losses from the sale of certain assets.
Net Income (Loss). The Company had a net loss of $23.7 million for the
three months ended June 30, 1999, compared to net income of $9.5 million for the
three months ended June 30, 1998, primarily as a result of the factors noted
above.
Six months ended June 30, 1999 compared with the six months ended June 30, 1998
Revenue. Revenue decreased 18% to $160.5 million for the six months
ended June 30, 1999 from $195.8 million for the six months ended June 30, 1998,
primarily due to lower revenue from the Company's offshore energy support
operations.
Revenue from offshore energy operations fell 32% for the six months
ended June 30, 1999 compared to the 1998 period, primarily due to lower
utilization and day rates for supply boats and crew boats resulting from the
decline in offshore exploration and production activity. During the 1999 period,
domestic day rates for supply boats owned, operated, or managed by the Company
declined 49% from the 1998 period, while domestic day rates for crew boats
owned, operated, or managed by the Company fell 20% from the 1998 period.
Internationally, day rates for anchor handling tug/supply boats fell 11% to
$5,125 from $5,757, while day rates for crew/utility boats increased 0.3% from
$1,551 to $1,547.
<PAGE>
Offshore and harbor towing revenue increased 7% to $22.8 million for
the six months ended June 30, 1999 from $21.3 million for the six months ended
June 30, 1998, primarily due to the acquisition of seven harbor towing vessels
in March 1998.
Marine transportation revenue increased 5% to $52.9 million for the six
months ended June 30, 1999 from $50.6 million for the six months ended June 30,
1998, primarily due to additional revenues earned by marketing vessels owned by
third parties and the acquisition of two product carriers in March 1998.
Operating Expenses. Operating expenses increased 3% to $105.9 million
for the six months ended June 30, 1999 from $103.0 million for the six months
ended June 30, 1998, primarily due to increases in crew payroll and benefits,
maintenance and repair, and supplies and consumables resulting largely from
acquisitions completed in 1998. As a percentage of revenue, operating expenses
increased to 66% for the six months ended June 30, 1999 from 53% for six months
ended June 30, 1998 due to the increase in fleet size and the decline in
revenues from lower day rates in the offshore energy support segment.
Overhead Expenses. Overhead expenses increased 8% to $21.9 million for
the six months ended June 30, 1999 from $20.3 million for the six months ended
June 30, 1998, primarily due to increased professional and other fees under the
Credit Facility and other fees resulting from the Company's financial condition,
partially offset by a reduction in certain overhead expenses. As a percentage of
revenue, overhead expenses increased to 14% for the three months ended June 30,
1999 from 10% for the six months ended June 30, 1998 due to the decline in
revenues and the increase in fees.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased 36% to $32.4 million for the six months ended June 30, 1999
compared with $23.9 million for the six months ended June 30, 1998 as a result
of an increase in fleet size due to 1998 acquisitions and vessel construction.
Income (Loss) from Operations. Income from operations decreased 99% to
$0.3 million, or 0.2% of revenue, for the six months ended June 30, 1999 from
$48.7 million, or 25% of revenue, for the six months ended June 30, 1998 as a
result of the factors noted above.
Net Interest Expense. Net interest expense increased 69% to $31.0
million, or 19% of revenue, for the six months ended June 30, 1999 from $18.4
million, or 9% of revenue, for the six months ended June 30, 1998, primarily as
a result of debt incurred in connection with acquisitions and increased interest
on borrowings under the Credit Facility.
Other Income (Expense). Other expense increased to $19.3 million for
the six months ended June 30, 1999 from $1.7 million for the six months ended
June 30, 1998, primarily due to equity losses from the sale of certain assets.
Net Income (Loss). The Company had a net loss of $32.8 million for the
six months ended June 30, 1999 compared to net income of $15.9 million for the
six months ended June 30, 1998 primarily as a result of the factors noted above.
<PAGE>
Liquidity and Capital Resources
During the first six months of 1999, the Company generated $5.0 million
of cash from operations, primarily reflecting the net loss for the period, after
elimination of noncash items. Cash used in investing activities was
approximately $23.5 million for the period, primarily reflecting the disposal of
vessels, offset by the costs of construction of and capital improvements to
other vessels. Cash generated by financing activities was approximately $22.6
million, consisting primarily of payments under the Credit Facility, offset by
borrowings.
Background; Liquidity Concerns. As reported in the 1998 Form 10-K and
elsewhere in this Report, there has been a severe downturn in offshore oil and
gas exploration, development and production activities in the Gulf of Mexico
since mid-1998. A similar downturn began in late 1998 in international markets.
These downturns resulted primarily from a worldwide decline in oil and gas
prices and have caused substantial declines in offshore energy support vessel
day rates and utilization, adversely affecting the Company's operating results.
For supply boats operated by the Company in the Gulf of Mexico, average day
rates declined from $8,214 during the second quarter of 1998 to $4,049 in the
second quarter of 1999, and utilization declined from 80% to 69%. For anchor
handling tug/supply boats operated by the Company in foreign waters, average day
rates declined from $6,008 in the 1998 second quarter to $5,433 in the second
quarter of 1999, and utilization declined from 77% to 50%. As a result, the
Company experienced a decline in revenue from $109.3 million for the second
quarter of 1998 to $78.3 million for the second quarter of 1999 and a decline in
EBITDA from $40.4 million to $14.7 million for the same periods. The Company
reported a net loss of $23.7 million for the second quarter of 1999 (including a
loss of $14.1 million on the sale of assets) as compared to net income of $9.5
million for the 1998 quarter. See "Results of Operations" above for additional
information.
As a result of these declines, the Company has not been in compliance,
since March 31, 1999, with certain covenants contained in the Credit Facility.
The Company's bank lenders have waived the Company's noncompliance on several
occasions, most recently until August 20, 1999. However, these waivers have
resulted in the payment of additional interest and substantial fees. In
obtaining the current waiver, the Company agreed to pay interest at the rate of
7% over the "base rate" of Citibank, N.A. (for a total annual interest rate of
15.0% at July 30, 1999); however, if the Company does not repay the borrowings
under the Credit Facility by August 20, 1999, the Company will be obligated to
pay an additional 3% of interest on borrowings outstanding from July 30, 1999.
In addition, in obtaining the current waiver, the Company agreed to pay an
"extension fee" of $500,000 that will be refunded to the Company only if it
repays the borrowings under the Credit Facility by August 20, 1999. There can be
no assurance that the current waiver will be further extended, or as to the
terms of any such extension, should the Company be unable to repay its
borrowings under the Credit Facility by August 20, 1999 (see "Restructuring
Discussions" below for additional information). The Company's outstanding
indebtedness under the Credit Facility was $266.3 million at June 30, 1999 and
$241.0 million at August 9, 1999.
Further, at August 9, 1999, the Company had available cash and cash
equivalents totaling approximately $9.5 million and approximately $7.0 million
available for use under the Credit Facility. Because of its current financial
condition and the covenants in the Credit Facility and other debt instruments,
the Company does not have any additional borrowing capacity and does not expect
to have any such capacity unless the possible restructuring plan discussed below
is consummated. Once the
<PAGE>
Company uses its available cash and cash equivalents and exhausts the amount
available for use under the Credit Facility, it will be unable to meet its cash
requirements and will be required to seek protection from its creditors under
applicable bankruptcy laws. Based on current estimates, the Company anticipates
that it will exhaust its available cash and borrowing capacity in late August or
September 1999.
In addition, an interest payment of approximately $12.5 million is due
on the Senior Notes on August 16, 1999. The Company does not have sufficient
funds to make this payment. If this payment is not made by September 15, 1999
and the possible restructuring plan discussed below is not consummated, the
Company will be in default under the Senior Notes, and payment thereof could be
accelerated. This would likely have the effect of requiring the Company to seek
protection from its creditors under applicable bankruptcy laws.
Recent Actions. In June and July 1999, the Company sold eight vessels
(excluding vessels under construction) for net cash proceeds approximating $32.3
million. Under the terms of the Credit Facility, approximately $25.3 million of
these proceeds were used to permanently reduce borrowings under the Credit
Facility. The remaining $7.0 million of net cash proceeds are available to the
Company for general corporate purposes. The Company is also considering the sale
of additional assets in order to raise cash. However, it is not actively
negotiating any such sales and does not expect any sales to be completed in an
amount, or in sufficient time, to address its near-term cash requirements.
The Company has also curtailed or deferred certain capital
expenditures. Among other things, the Company has deferred certain scheduled
drydockings of vessels, consistent with safety and operational considerations,
has canceled the construction of certain vessels and has disposed of other
vessels under construction. The Company is also considering other actions to
cancel the construction and/or to dispose of the remaining three vessels
currently under construction. Such actions could result in claims against the
Company for the costs of construction and, possibly, other amounts; however, the
Company has not yet determined whether or the extent to which it may be subject
to such claims. The estimated future cost of completing the vessels currently
under construction was $13.3 million at August 9, 1999; this amount does not
reflect any actions that may be taken by the Company to cancel construction
and/or dispose of these vessels or any claims that may result from those
actions.
Further, the Company has reduced operating and overhead expenses. These
reductions are estimated to generate annual savings of $11.5 million; however,
these reductions have been substantially offset by increased interest on
borrowings under the Credit Facility, professional and other fees under the
Credit Facility, and other fees and costs resulting from the Company's financial
condition. The Company has also improved its working capital position by, among
other things, strengthening its efforts to collect receivables.
Restructuring Discussions. The Company previously reported on a
proposed offering of secured notes, the proceeds from which were to have been
used to purchase the outstanding indebtedness under the Credit Facility (see the
Parent's Current Report on Form 8-K dated July 8, 1999). At the same time, the
Company also reported that it was seeking additional means of financing and was
in discussions with respect thereto.
<PAGE>
In July 1999, the Company determined not to proceed with the above
offering. However, the Company is in active discussions with representatives of
certain major creditors concerning a possible restructuring plan in which (a)
the Company's general creditors would be paid in full; (b) the Company's
borrowings under the Credit Facility would be refinanced; (c) the holders of the
Senior Notes would exchange their Senior Notes for new debt securities and
common equity of the Company; and (d) the holders of the Trust Convertible
Preferred Securities and the Common Stock would also receive such common equity
and warrants to purchase additional common equity. Implementation of such plan
would result in substantial dilution to the Company's current stockholders. In
addition, the Company is in discussions with potential lenders regarding the
refinancing of the Credit Facility. The Company's ability to reach agreement as
to the terms of any such plan, as well as the actions contemplated by and in
connection with any such plan, are subject to numerous conditions and
uncertainties, including the need to obtain various consents from and reach
agreement with third parties (including the potential lenders referred to
above). Accordingly, there can be no assurance as to whether or when the Company
will agree on the terms of such a plan or will be in a position to implement
such a plan. In particular, the Company can give no assurance that it will be in
a position to refinance the Credit Facility by August 20, 1999 (see "Background;
Liquidity Concerns" above). Should the Company not reach agreement as to the
terms of such a plan, it will likely exhaust its available cash and borrowing
capacity in late August or September 1999 and would thereafter be subject to a
voluntary (or, possibly, an involuntary) bankruptcy proceeding. Either type of
proceeding would have a material adverse effect on the Company's operations.
Additional information regarding the Company's liquidity and related
matters is set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 1998 10-K and in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
Impact of the "Year 2000 Issue"
The "Year 2000 Issue" is the result of the use by certain computer
software of a two-digit dating convention rather than a four-digit dating
convention (i.e., "00" rather than "2000"), causing a computer or similar
technology to recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or in other errors that could cause
disruptions of normal business activities.
The Company has implemented a program designed to assess the likely
impact of the Year 2000 Issue on the Company and to develop and implement
measures designed to minimize its impact. The program covers not only the
Company's computer equipment and software systems, but also other systems
containing so-called "embedded" technology, such as alarm systems, elevators and
fax machines.
The Company's Year 2000 program has focused on the two major components
of the Company's operations - land-based systems and vessel-based systems - with
separate teams for computer operations/information systems, facilities
management, and vessel operations. Each team is implementing the program in the
following four phases:
o Assessment, including taking physical inventories of all computer-based
equipment and software, as well as digital and analog control systems;
establishing testing procedures for checking Year 2000 readiness;
carrying out those testing procedures; and communicating with
third-party suppliers and customers to determine whether and to what
extent the Company may face disruptions in supplies or services (such
as ports and utilities) provided by suppliers or cessation of
operations by customers. This phase has been completed for both
land-based and vessel-based systems.
<PAGE>
o Remediation of all land-based and vessel-based issues identified in the
assessment phase. Land-based remediation activities have been completed
and vessel-based remediation efforts have been approximately 90%
completed and are expected to be completed during the 1999 third
quarter. The Company does not anticipate any material obstacles to
completing any remaining remediation activities during the third
quarter of 1999.
o Compliance certification, including re-testing to assure that
remediation efforts have been successful. Compliance certification is
expected to be completed shortly after the completion of remediation
efforts in the 1999 third quarter.
o Maintenance, including ongoing testing and remediation. This phase
commenced during the first half of 1999 and is expected to continue
until early 2000.
The Company expects each of the above phases to be substantially
completed by the times indicated above. However, the Company cannot predict
whether or to what extent the completion of these phases may be delayed for
various reasons. Further, the completion of the Company's Year 2000 program
could be adversely affected by the unavailability of replacement components and
equipment.
The Company estimates that its total cost for new systems and equipment
and related services will approximate $8.4 million, of which approximately
$8.1 million had been expended through the first half of 1999. However, these
amounts include the costs of new systems and equipment that, while "Year 2000
compliant," were not acquired in connection with or as a result of the Year 2000
Issue. Further, these amounts do not include the Company's internal costs in
connection with the Year 2000 Issue (consisting primarily of payroll costs for
employees working on the Company's Year 2000 program), as the Company does not
separately track such costs. Consequently, it is not possible to determine the
precise amount expended by the Company directly in connection with the Year 2000
Issue. These expenditures are not expected to affect other expenditures by the
Company relating to information technology and systems.
The Company faces numerous potential risks in connection with the Year
2000 Issue. For the Company's land-based systems, these risks include the
possible loss of network integrity; failures with regard to accounting, finance
and other functions; potential damage to equipment; and possible loss of
communications. In addition, systems containing embedded technology could result
in the loss of building management control systems (including elevators, air
conditioning and generators); failure of fire and emergency and safety systems;
potential damage to equipment; and loss of power. In its vessel-based
operations, the Year 2000 Issue could result in vessel delays or stoppages;
damage to vessels and other equipment; risk of injury to crew members and
others; failure of navigation and/or communications equipment; and cargo
handling failures. It is not possible to determine whether or to what extent any
or all of these risks are likely to occur or the costs involved in any such
occurrence. However, such costs could be material.
The Company has developed a number of contingency plans to address the
Year 2000 Issue. Some of these plans will be implemented regardless of the
Company's expectations as to the likely
<PAGE>
impact of the Year 2000 Issue, while others will be implemented only if the
Company believes that it is likely to be seriously affected by the Year 2000
Issue. These contingency plans include maintaining backup systems with pre-2000
dates (including backups of all critical systems); advance testing of critical
systems; printing paper copies of all critical data; establishing emergency
response teams; and manually overriding all mechanical systems. In addition, the
Company may suspend cargo operations; instruct vessels at sea to be in open sea,
well away from shore or shallows; instruct vessels in port to remain alongside
or at anchor; insure that all ships are fully provisioned with stores and fuel;
and restrict crew changes. In addition, as 2000 approaches, the Company will
conduct safety drills, cargo handling drills, and backup vessel handling drills.
The above discussion of the Year 2000 Issue is a "Year 2000 Readiness
Disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act. However, such Act does not protect the Company against
proceedings under the federal securities laws, including enforcement proceedings
by the Commission arising out of material misstatements in and omissions from
the above discussion.
Euro Conversion Issues
On January 1, 1999, certain member nations of the European Economic and
Monetary Union ("EMU") adopted a common currency, the "Euro." For a three-year
transition period, both the Euro and individual participants' currencies will
remain in circulation; after January 1, 2002, the Euro will be the sole legal
tender for EMU countries. The adoption of the Euro affects numerous financial
systems and business applications.
While the Company does business in many countries around the world,
substantially all of such business is U.S. dollar-denominated. Thus, while the
Company is reviewing the impact of the introduction of the Euro on various
aspects of its business (including information systems, currency exchange rate
risk, taxation, contracts, competitive position and pricing), such introduction
is not expected to have a material impact on the Company.
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
Date: August 17, 1999
