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

SEABULK INTERNATIONAL, INC.

State of Incorporation: Delaware				I.R.S. Employer I.D.: 65-0966399

Address and Telephone Number:
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days.     YES  þ  NO  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).      YES  o  NO  þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.      YES  þ  NO  o

There were 100 shares of Common Stock, par value $0.01 per share, outstanding at August 8, 2005.

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

 

 

SEABULK INTERNATIONAL, INC.
FORM 10-Q

Table of Contents

Item		Page
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)			1
Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004			1
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004			2
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004			3
Notes to Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 4. Controls and Procedures			27
Part II. Other Information
Item 1. Legal Proceedings			28
Item 2. Changes in Securities and Use of Proceeds			28
Item 3. Defaults upon Senior Securities			28
Item 4. Submission of Matters to a Vote of Security Holders			28
Item 5. Other Information			28
Item 6. Exhibits and Reports on Form 8-K			28
Signature			30
Certifications			31
Fourth Supplemental Credit Agreement
Fourth Supplemental Subsidiary Guarantee Agreement
Fifth Supplemental Credit Agreement
Fifth Supplemental Subsidiary Guarantee Agreement
Amend No. 4 to Executive Employment Agreement
Amend No. 5 to Executive Employment Agreement
Amend No. 1 to Executive Defferred Compensation Plan
Amend No.1 to Stock Option Plan for Directors
Specimen of Amend No. 2 - Non-Qualified Stock Option
Amend No1 to Amended & Restated Equity Ownership Plan
Specimen of Amend No.2 to Severance Agreement
Section 302 Certification of Principal Executive Officer
Section 302 Certification of Principal Financial Officer
Section 906 Certification of Principal Executive Officer
Section 906 Certification of Principal Financial Officer

As used in this Report, the term “Parent” means Seabulk International, Inc., and the term “Company” means the Parent and/or one or more of its consolidated subsidiaries.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Seabulk International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

		June 30,				December 31,
		2005				2004
Assets
Current assets:
Cash and cash equivalents		$	27,442			$	18,949
Restricted cash			32,258				35,681
Trade accounts receivable, net of allowance for doubtful accounts of $6,854 and $5,649 in 2005 and 2004, respectively			51,437				55,209
Other receivables			3,774				3,784
Marine operating supplies			7,668				7,868
Prepaid expenses and other			3,929				3,627
Total current assets			126,508				125,118
Vessels and equipment, net			590,943				598,793
Deferred costs, net			40,493				45,053
Other			26,318				17,824
Total assets		$	784,262			$	786,788
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	9,858			$	14,918
Current maturities of long-term debt			15,661				16,653
Current obligations under capital leases			3,354				3,708
Accrued interest			5,633				4,875
Accrued liabilities and other			33,962				35,321
Total current liabilities			68,468				75,475
Long-term debt			309,353				325,965
Senior notes			154,219				152,906
Obligations under capital leases			27,097				28,568
Other liabilities			6,150				4,879
Total liabilities			565,287				587,793
Commitments and contingencies
Stockholders’ equity:
Preferred stock, no par value-authorized 5,000; issued and outstanding, none			—				—
Common stock-$.01 par value, authorized 40,000 shares; 23,436 and 23,446 shares issued and outstanding in 2005 and 2004, respectively			234				234
Additional paid-in capital			261,799				259,843
Accumulated other comprehensive income			—				55
Unearned compensation			(1,880	)			(758	)
Accumulated deficit			(41,178	)			(60,379	)
Total stockholders’ equity			218,975				198,995
Total liabilities and stockholders’ equity		$	784,262			$	786,788

See notes to condensed consolidated financial statements.

Seabulk International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2005				2004				2005				2004
Revenue		$	96,687			$	87,203			$	192,268			$	169,737
Vessel and voyage expenses:
Crew payroll and benefits			23,072				21,697				45,672				44,278
Charter hire			4,375				3,944				9,267				7,531
Repairs and maintenance			5,760				7,974				10,405				14,172
Insurance			3,324				3,704				6,505				6,324
Fuel and consumables			7,073				7,795				14,356				14,810
Port charges and other			6,222				5,080				11,548				9,986
			49,826				50,194				97,753				97,101
General and administrative			12,041				9,323				21,609				18,748
Depreciation, amortization and drydocking			16,577				17,127				33,097				32,917
Gain on disposal of assets, net			(453	)			(1,989	)			(323	)			(1,977	)
Income from operations			18,696				12,548				40,132				22,948
Other income (expense):
Interest expense			(9,259	)			(8,375	)			(18,685	)			(16,444	)
Interest income			167				52				313				118
Minority interest in (gains) losses of subsidiaries			—				(20	)			—				58
Other, net			41				52				33				4,576
Total other expense, net			(9,051	)			(8,291	)			(18,339	)			(11,692	)
Income before provision for income taxes			9,645				4,257				21,793				11,256
Provision for income taxes			1,624				1,536				2,592				2,885
Net income		$	8,021			$	2,721			$	19,201			$	8,371
Net income per common share:
Net income per common share — basic		$	0.34			$	0.12			$	0.82			$	0.36
Net income per common share — diluted		$	0.33			$	0.12			$	0.79			$	0.35
Weighted average common shares outstanding — basic			23,366				23,261				23,347				23,255
Weighted average common shares outstanding — diluted			24,527				23,598				24,400				23,696

See notes to condensed consolidated financial statements.

Seabulk International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

		Six Months Ended
		June 30,
		2005				2004
Operating activities:
Net income		$	19,201			$	8,371
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of vessels and equipment			19,928				20,222
Expenditures for drydocking			(9,457	)			(10,473	)
Amortization of drydocking costs			13,169				12,695
Amortization of discount on long-term debt and financing costs			825				857
Amortization of unearned compensation			388				—
Provision for bad debts			1,405				1,631
Gain on disposal of assets, net			(323	)			(1,977	)
Minority interest in losses of subsidiaries			—				(58	)
Other			—				119
Changes in operating assets and liabilities:
Trade accounts and other receivables			2,377				575
Other current and long-term assets			(7,546	)			(4,172	)
Accounts payable and other liabilities			(4,387	)			(6,695	)
Net cash provided by operating activities			35,580				21,095
Investing activities:
Proceeds from disposals of assets			5,128				3,145
Purchases of vessels and equipment			(16,641	)			(83,533	)
Investment in Joint Venture			—				(240	)
Net cash used in investing activities			(11,513	)			(80,628	)
Financing activities:
Proceeds from Amended Credit Facility			—				20,000
Payments on Amended Credit Facility			(15,500	)			—
Proceeds from long-term debt			8,130				49,600
Payments of long-term debt			(4,654	)			(3,166	)
Payments of Title XI bonds			(5,580	)			(3,535	)
Payments of obligations under capital leases			(1,825	)			(1,725	)
Payments of deferred financing costs related to 2003 Senior Notes and Amended Credit Facility			—				(285	)
Payments of other deferred financing costs			(14	)			(683	)
Proceeds from exercise of stock options			446				167
Decrease in restricted cash			3,423				2,043
Net cash (used in) provided by financing activities			(15,574	)			62,416
Change in cash and cash equivalents			8,493				2,883
Cash and cash equivalents at beginning of period			18,949				7,399
Cash and cash equivalents at end of period		$	27,442			$	10,282
Supplemental schedule of non-cash investing and financing activities:
Obligation for fair market value of interest rate swap		$	1,313			$	(3,478	)

See notes to condensed consolidated financial statements.

Seabulk International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

1. Organization and Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with Article 10 of Regulation S-X. The consolidated balance sheet at December 31, 2004 has been derived from the audited financial statements at that date. The unaudited condensed consolidated financial statements and the consolidated balance sheet do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. All adjustments which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown are of a normal recurring nature and have been reflected in the unaudited condensed consolidated financial statements. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period. The information included in these unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report and the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K and Form 10-K/A Amendment No. 1 for the fiscal year ended December 31, 2004. For the six months ended June 30, 2005 and 2004, the Company’s components of comprehensive income include net income and a foreign currency forward contract for approximately $55,000 and $84,000, respectively. As of June 30, 2005, the foreign currency forward contract was expired.

2. Merger

     On March 16, 2005, SEACOR Holdings Inc., a Delaware corporation (“SEACOR”), entered into a merger agreement (the “Merger Agreement”) with Seabulk International, Inc., a Delaware corporation (“Seabulk” or the “Company”), SBLK Acquisition Corp., a Delaware corporation and a direct, wholly owned subsidiary of SEACOR (“Merger Sub”) and CORBULK LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of SEACOR (“LLC”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, the Merger Sub will merge with and into Seabulk, with Seabulk continuing as the surviving corporation and a direct, wholly owned subsidiary of SEACOR (the “Merger”). As part of the transaction, entities associated with DLJ Merchant Banking Partners III, L.P. and Carlyle/Riverstone Global Energy and Power Fund I, L.P., who collectively owned approximately 75% of Seabulk’s common shares, entered into an agreement to support the transaction.

     The merger was approved by the stockholders of the Company and SEACOR, and customary conditions, including regulatory approvals, were satisfied. The effective time and completion date of the Merger was July 1, 2005. At such time, Seabulk stockholders were entitled to receive in exchange for each issued and outstanding share of Seabulk common stock (i) $4.00 in cash and (ii) 0.2694 shares of SEACOR common stock. Based on SEACOR’s closing price of $64.30 on June 30, 2005, the Company’s stockholders received approximately $21.32 in SEACOR stock and cash for each share of the Company’s stock. The Company’s stock ceased trading at the close of business on June 30, 2005 and the Company began operating as a wholly owned subsidiary of SEACOR beginning July 1, 2005. All outstanding Seabulk stock options are being assumed by SEACOR. Each such option for Seabulk common stock is exercisable for SEACOR common stock under the exchange ratio, plus the cash component.

3. Vessel Purchases and Operations

     During the three months ended March 31, 2005, the Company took delivery of and began to operate two offshore vessels. The transaction to acquire one of the offshore vessels was a like-kind exchange of assets of equal value and was a tax-free transaction to the Company, in which the Company delivered four offshore vessels in exchange for one offshore vessel.

     Additionally, during the three months ended March 31, 2005, the Company sold two offshore vessels and exchanged a third and $550,000 for another offshore vessel and the assignment of a purchase and sale agreement. The Company subsequently sold the offshore vessel under the terms of the assigned purchase and sale agreement. The transaction was a like-kind exchange of assets of equal value and was a tax free-transaction to the Company. Proceeds from the sales of the vessels were approximately $2.3 million and the net loss on the sales of the vessels was approximately $103,000.

     During the three months ended June 30, 2005, the Company sold four offshore vessels. Proceeds from the sales of the vessels were approximately $2.9 million and the net gain on the sales of the vessels was approximately 449,000.

     Management continues to implement its initiative to sell unprofitable vessels and add newer more efficient vessels to its fleet in an effort to improve profitability and liquidity.

     In June 2005, the Company sold the Seabulk Freedom, a special purpose maintenance vessel operating in Southeast Asia to an unrelated third party (the “Buying Entity”) for the purpose of establishing a presence in the Malaysian market. The Company delivered the vessel, with a carrying value of approximately $0.7 million, as of June 30, 2005, in exchange for a $3.5 million note receivable and a ship management agreement from the Buying Entity. The ship management agreement stipulates that the Company is responsible for any operating deficits and capital improvements and calls for the note receivable plus accrued interest to be paid from the vessel revenues in excess of operating costs, management fees and commissions. The Buying Entity subsequently placed the vessel under the

Malaysia flag and began a charter in Malaysia on June 30, 2005. Based on the terms of the sale and the ship management agreement, the Company determined the Buying Entity is a variable interest entity as defined in Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R) Consolidation of Variable Interest Entities (revised December 2003) — an interpretation of ARB No. 51 (“FIN No. 46(R)”). Therefore, in accordance with FIN No. 46(R), the Company is required to consolidate the financial position and results of operations of the Buying Entity and is precluded from recording a gain on the sale of the vessel. The accompanying condensed consolidated financial statements include the financial position and results of operations of the Buying Entity in accordance with FIN No. 46(R).

     In May 2005, the Company exercised existing options at Labroy Shipbuilding and Engineering Pte. Ltd. for the construction of four additional anchor handling tug supply vessels for its international offshore fleet, bringing the total number of vessels under construction to eight. The total remaining commitment, as of June 30, 2005, for the eight vessel package is approximately $81.9 million. The vessels have various delivery dates beginning in early 2006 through early 2007.

4. Income Taxes

     The current provision for income taxes for the three and six-month periods ended June 30, 2005 and 2004 represents expected tax obligations on foreign-source revenue. For the three and six months ended June 30, 2005 and 2004, a domestic tax provision was computed using an estimated annual effective tax rate of 35%. A corresponding reduction in the valuation allowance was recorded resulting in no net domestic provision. Management has recorded a valuation allowance at June 30, 2005 and 2004 to reduce the net deferred tax assets to an amount that is likely to be realized. After application of the valuation allowance, the net deferred tax assets are zero.

5. Net Income per Common Share

     The following table sets forth the computation of basic and diluted net income per share for the periods indicated:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2005				2004				2005				2004
		(in thousands, except for per share data)
Numerator for basic and diluted net income per share:
Net income available to common shareholders		$	8,021			$	2,721			$	19,201			$	8,371
Denominator for basic net income per share-weighted average shares			23,366				23,261				23,347				23,255
Effects of dilutive securities:
Stock options			845				139				768				238
Warrants			155				159				156				159
Restricted shares			161				39				129				44
Dilutive potential common shares			1,161				337				1,053				441
Denominator for diluted net income per share-adjusted weighted average shares and assumed conversions			24,527				23,598				24,400				23,696
Net income per share — basic		$	0.34			$	0.12			$	0.82			$	0.36
Net income per share — diluted		$	0.33			$	0.12			$	0.79			$	0.35

     The weighted average diluted common shares outstanding for the three and six months ended June 30, 2004 excludes 344,000 options as these common stock equivalents are antidilutive.

6. Segment and Geographic Data

     The Company organizes its business principally into three segments. The Company does not have significant intersegment transactions. These segments and their respective operations are as follows:

Offshore Energy Support (Seabulk Offshore) — Offshore energy support includes vessels operating in U.S. and foreign locations used primarily to transport materials, supplies, equipment and personnel to drilling rigs and to support the construction, positioning and ongoing operations of oil and gas production platforms.

Marine Transportation Services (Seabulk Tankers) — Marine transportation services includes 10 U.S.-flag product tankers and two foreign-flag product tankers. The U.S.-flag oceangoing vessels are used to transport petroleum, chemicals, and crude products, primarily from chemical manufacturing plants, refineries and storage facilities along the U.S. Gulf Coast to industrial users and distribution facilities in and around the Gulf of Mexico, Atlantic and Pacific Coast ports. Certain of the vessels also transport crude oil within Alaska and among Alaska, the Pacific Coast and Hawaiian ports. One U.S.-flag vessel and the two foreign-flag vessels operate in the foreign trade.

Towing (Seabulk Towing) — Harbor and offshore towing services are provided by tugs to vessels utilizing the ports in which the tugs operate, and to vessels at sea to the extent required by offshore commercial contract opportunities and by environmental regulations, casualty or other emergencies.

     The Company evaluates performance by operating segment. Within the offshore energy support segment, the Company conducts additional performance evaluations of vessels marketed in U.S. and foreign locations. Resources are allocated based on segment profit or loss from operations, before interest and taxes.

     Revenue by segment and geographic area consists only of services provided to external customers as reported in the condensed consolidated statements of operations. Income from operations by geographic area represents net revenue less applicable costs and expenses related to that revenue.

     The following schedule presents segment and geographic information about the Company’s operations (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2005				2004				2005				2004
Revenue
Offshore energy support		$	48,843			$	41,173			$	94,190			$	80,756
Marine transportation services			37,062				36,408				75,721				69,870
Towing			10,894				9,759				22,548				19,337
Eliminations(1)			(112	)			(137	)			(191	)			(226	)
Total		$	96,687			$	87,203			$	192,268			$	169,737
Vessel and voyage expenses
Offshore energy support		$	24,887			$	25,595			$	49,216			$	50,800
Marine transportation services			18,720				18,495				36,281				35,348
Towing			6,331				6,241				12,447				11,179
Eliminations(1)			(112	)			(137	)			(191	)			(226	)
Total		$	49,826			$	50,194			$	97,753			$	97,101
Depreciation, amortization and drydocking
Offshore energy support		$	8,937			$	9,746			$	17,779			$	19,291
Marine transportation services			6,485				6,390				13,080				11,684
Towing			1,083				923				2,095				1,808
General corporate			72				68				143				134
Total		$	16,577			$	17,127			$	33,097			$	32,917
Income (loss) from operations
Offshore energy support		$	10,752			$	3,356			$	18,669			$	2,454
Marine transportation services			11,000				10,678				24,637				21,123
Towing			2,204				1,464				5,281				3,958
General corporate			(5,260	)			(2,950	)			(8,455	)			(4,587	)
Total		$	18,696			$	12,548			$	40,132			$	22,948
Net income (loss)
Offshore energy support		$	5,447			$	(964	)		$	8,147			$	(6,077	)
Marine transportation services			6,385				5,989				15,354				12,156
Towing			1,418				689				3,603				2,416
General corporate			(5,229	)			(2,993	)			(7,903	)			(124	)
Total		$	8,021			$	2,721			$	19,201			$	8,371
Geographic revenue
Americas (2)		$	62,403			$	54,489			$	123,592			$	105,170
Foreign
West Africa			21,669				21,793				42,794				44,039
Middle East			7,438				7,367				15,320				13,206
Southeast Asia			5,177				3,554				10,562				7,322
Consolidated geographic revenue		$	96,687			$	87,203			$	192,268			$	169,737

7. Commitments and Contingencies

     Under United States law, “United States persons” are prohibited from business activities and contracts in certain countries, including Sudan and Iran. Relating to the prohibitions, the Company has filed three reports with and submitted documents to the Office of Foreign Asset Control (“OFAC”) of the U.S. Department of Treasury. One of the reports was also filed with the Bureau of Export Administration of the U.S. Department of Commerce. The reports and documents related to certain limited charters with third parties involving three of the Company’s vessels which called in Sudan for several months in 1999 and January 2000, and charters with third parties involving several of the Company’s vessels which called in Iran in 1998. In March 2003, the Company received notification from OFAC that the case has been referred to its Civil Penalties Division. Should OFAC determine that these activities constituted violations of the laws or regulations, civil penalties, including fines, could be assessed against the Company and/or certain individuals who knowingly participated in such activities. The Company cannot predict the extent of such penalties; however, management does not believe the outcome of these matters will have a material impact on its financial position or results of operations.

     The Company was sued by Maritime Transport Development Corporation (“MTDC”) in January 2002 in Florida state court in Broward County alleging broker commissions due since 1998 from charters on three of its vessels, the Seabulk Magnachem, Seabulk Challenger and Seabulk Pride, under an alleged broker commission agreement. MTDC was controlled by the founders of our predecessor company. The claim allegedly continues to accrue. The amount alleged to be due is over $800,000, but is subject to offset claims and defenses by the Company. The Company is vigorously defending such charges, but the Company cannot predict the ultimate outcome.

     As of February 20, 2004, the Company switched its mutual protection and indemnity (“P&I”) marine insurance policies from Steamship Mutual (“Steamship”) to West of England Association (“West of England”). Under the Company’s P&I policies, the Company could be liable for additional premiums to cover investment losses and reserve shortfalls experienced by its marine insurance clubs; however, additional premiums can only be assessed for open policy years. Steamship and West of England close a policy year three years after the policy year has ended. Completed policy years 2002 and 2003 are still open for Steamship and policy year 2004 is open for West of England. There have been no additional premiums assessed for these policy years and the Company believes it is unlikely that additional premiums for those policy years will be assessed. The Company will record a liability for any such additional premiums if and when they are assessed and the amount can be reasonably estimated.

     In order to cover potential future additional insurance calls made by Steamship for the 2002 and 2003 policy years, the Company was required to post a letter of credit in the amount of approximately $1.9 million to support such potential additional calls as a condition of its departure from Steamship. The letter of credit will be returned if no additional insurance calls are made. Potential claims liabilities are recorded as insurance expense reserves when they become probable and can be reasonably estimated.

     P&I insurance premiums were approximately $1.7 million and $2.6 million for the three months ended June 30, 2005 and 2004, respectively. The Company’s hull and machinery insurance renewed in October 2004, and was renegotiated again in July 2005 as a consequence of the Merger with SEACOR. The hull and machinery policy years will now run from July 1 to June 30. Additionally, the Company maintains high levels of self-insurance for P&I and hull and machinery risks through the use of substantial deductibles and self-insured retentions. Also as a consequence of the Merger with SEACOR, in July 2005, the P&I coverage was split between three different P&I clubs, one of which will insure the Company’s

international offshore fleet, one will insure the Company’s domestic offshore fleet and one the Company’s tanker fleet.

     From time to time, the Company is party to personal injury and property damage claims litigation arising in the ordinary course of business. Protection and indemnity marine liability insurance covers large claims in excess of the substantial deductibles and self-insured retentions.

8. Stock-Based Compensation

     As permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), the Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”) and related interpretations in accounting for its employee stock-based transactions and has complied with the disclosure requirements of SFAS No. 123. Under APB No. 25, compensation expense is calculated at the time of option grant based upon the difference between the exercise prices of the option and the fair market value of the Company’s common stock at the date of grant recognized over the vesting period.

     The Company uses the Black-Scholes option valuation model to determine the fair value of options granted under the Company’s stock option plans. Had compensation expense for the stock option grants been determined based on the fair value at the grant date for awards consistent with the methods of SFAS No. 123, the Company’s net income would have decreased to the pro forma amounts presented below:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2005				2004				2005				2004
Net income, as reported		$	8,021			$	2,721			$	19,201			$	8,371
Stock-based compensation expense determined under the fair value method		$	(468	)		$	(194	)		$	(916	)		$	(570	)
Pro forma net income		$	7,553			$	2,527			$	18,285			$	7,801
Net income per common share:
Basic-as reported		$	0.34			$	0.12			$	0.82			$	0.36
Basic-pro forma		$	0.32			$	0.11			$	0.78			$	0.34
Diluted-as reported		$	0.33			$	0.12			$	0.79			$	0.35
Diluted-pro forma		$	0.31			$	0.11			$	0.75			$	0.33

     Effective October 14, 2004, the Company amended the stock option agreements for all of the vested and unvested awards, whereby the option exercise period was extended from 12 months to 36 months in the event of termination within two years of a change in control, as defined in the plan. In accordance with FASB Interpretation No. 44 Accounting for Certain Transactions involving Stock Compensation, the amendment to the agreements is considered a modification of the award and accordingly the intrinsic value of the option award shall be measured at the date of the modification and any intrinsic value in excess of the amount measured at the original measurement date shall be recognized as compensation cost if the separation event occurs. As of December 31, 2004 the intrinsic value in excess of the amount measured at the original measurement date was $4.1 million and, if a separation event occurred within two years of a change in control, would be recognized as compensation expense in the accompanying condensed consolidated statement of operations.

9. Recent Accounting Pronouncements

     In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”), which requires companies to expense in their consolidated statements of operations the estimated fair value of employee stock options and similar awards. The Company currently uses the intrinsic value method to value stock options, and accordingly, no compensation expense has been recognized for stock options since the Company grants stock options with exercise prices equal to or greater than the Company’s common stock market price on the date of the grant. The Company will adopt the provisions of SFAS No. 123R using the modified prospective application. Under the modified prospective application, SFAS No. 123R will apply to new awards and to awards that are outstanding on the effective date and are subsequently modified or cancelled. Compensation expense for unvested stock-based awards will be recognized over the remaining vesting period. Depending on the model used to calculate stock-based compensation expense in the future, the implementation of certain other requirements of SFAS No. 123R and additional option grants expected to be made in the future, the pro forma disclosure discussed previously may not be indicative of the stock-based compensation expense that will be recognized in the Company’s future consolidated financial statements. In April 2005, the FASB delayed the implementation of SFAS No. 123R from the next reporting period beginning after June 15, 2005 until the beginning of the Company’s next fiscal year. The Company is in the process of determining the impact adopting SFAS No. 123R will have on its consolidated financial position and consolidated results of operations.

     In December 2004, the FASB issued Statement of Financial Accounting Standard No. 153, Exchanges of Nonmonetary Assets (“SFAS No. 153”), an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (“APB No. 29”). APB No. 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of assets exchanged, however certain exceptions apply. SFAS No. 153 amends APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company’s adoption of SFAS No. 153 is not expected to have a material impact on the Company’s consolidated financial position and consolidated results of operations.

     In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154, Accounting Changes and Error Corrections (“SFAS No. 154”), a replacement of APB Opinion No. 20, Accounting Changes (“APB No. 20”) and SFAS No. 3. SFAS No. 154 eliminates the requirement in APB No. 20 to include the cumulative effect of a change in accounting principle in the income statement of the period of change. Instead, SFAS No. 154 requires that a change in accounting principle be retrospectively applied. Under retrospective application, the new accounting principle is applied as of the beginning of the first period presented as if that principle had always been used. The cumulative effect of the change is reflected in the carrying value of assets and liabilities as of the first period presented and the offsetting adjustments are recorded to opening retained earnings. Each period presented is adjusted to reflect the period-specific effects of applying the change. SFAS No. 154 is effective for accounting changes and corrections of an errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date SFAS No. 154 was issued. SFAS No. 154 does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of SFAS No. 154. The Company is in the process of determining the impact adopting SFAS No. 154 will have on its consolidated financial position and consolidated results of operations.

10. Subsequent Events

     In July 2005, the Company sold an offshore crew boat operating in the U.S. Gulf and a harbor tug operating in Port Canaveral. Proceeds from the sales of the vessels were $800,000. The loss on the sales of the vessels was approximately $60,000.

     Effective July 1, 2005, the Company merged with SEACOR and began operations as a wholly-owned subsidiary of SEACOR (see Note 2). As of July 1, 2005, the effective date of the Merger, Gerhard Kurz, Chairman, CEO and President, and Larry D. Francois, Senior Vice President and President - Seabulk Offshore, resigned from the Company and were paid severance under their respective employment agreements. As a consequence of the Merger, certain terminations, certain employment and severance agreements and the Company’s change in control severance policy in place prior to the effective date of the Merger, were triggered. Additionally, the entire slate of directors of the Company resigned as of the effective date of the Merger, pursuant to the Merger Agreement. The Company expects severance payments of approximately $4.4 million will be incurred in the third quarter.

     In addition to the severance and employee termination costs described above, the Company also expects to incur additional expenses in the third quarter as a consequence of the Merger with SEACOR including: approximately $1.3 million to expense certain costs which had been capitalized related to a public offering that the Company was considering prior to the Merger; approximately $1.9 million of unearned compensation related to the release of restrictions on previously issued restricted stock; approximately $1.5 million for investment banking fees contingent upon the completion of the Merger; and insurance premiums for director and officer coverage for approximately $1.2 million.

     In July 2005, the Company signed agreements to sell the Seabulk Trust and the Seabulk Reliant, the Company’s two foreign-flag tankers, in separate transactions. The Seabulk Trust is expected to be delivered to its buyer in August. The Seabulk Reliant is expected to be delivered to its buyer in September. Both vessels are currently operating in an international product tanker pool.

     In July 2005, the Company removed its tanker fleet and its international offshore fleet from the West of England P&I club and placed those fleets into two separate P&I insurance clubs (see Note 7).

11. Supplemental Condensed Consolidated Financial Information

     The Restricted Subsidiaries as to which financial information is included in the tables below are subsidiaries of the Company that are subject to the terms and conditions of the Indenture governing the 2003 Senior Notes. Only certain of the Restricted Subsidiaries (representing the domestic restricted subsidiaries and referred to in the Indenture as the “Guarantor Subsidiaries”), jointly and severally guarantee the 2003 Senior Notes, on a senior unsecured basis. The Non-guarantor Unrestricted Subsidiaries as to which financial information is included in the tables below are the subsidiary entities that own the five U.S.-flag double-hull product tankers which are financed by the U.S. Maritime Administration backed Title XI debt with recourse to the five tankers and the subsidiaries that own them. These entities are designated as “Non-Recourse” or “Unrestricted” subsidiaries under the Indenture and do not guarantee the 2003 Senior Notes

     Supplemental financial information for the Company and its guarantor restricted subsidiaries, non-guarantor restricted subsidiaries and non-guarantor unrestricted subsidiaries under the 2003 Senior Notes is presented below.

		Condensed Consolidating Balance Sheet
		(in thousands)
		As of June 30, 2005
						Wholly
						Owned				Non-				Non-
						Guarantor				Guarantor				Guarantor
						Restricted				Restricted				Unrestricted								Consolidated
		Parent (a)				Subsidiaries(a)				Subsidiaries				Subsidiaries				Eliminations				Total
Assets
Current assets:
Cash and cash equivalents		$	21,253			$	2,336			$	3,853			$	—			$	—			$	27,442
Restricted cash			—				—				2,756				29,502				—				32,258
Trade accounts receivable, net			(457	)			18,615				32,251				1,028				—				51,437
Other receivables			214				2,549				701				310				—				3,774
Marine operating supplies			(1,026	)			3,416				2,849				2,429				—				7,668
Prepaid expenses and other			1,856				547				1,145				381				—				3,929
Total current assets			21,840				27,463				43,555				33,650				—				126,508
Vessels and equipment, net			29,442				235,848				121,422				204,231				—				590,943
Deferred costs, net			7,435				13,591				12,381				7,086				—				40,493
Investments in affiliates			562,222				—				—				—				(562,222	)			—
Due from affiliates			—				44,508				137,482				3,855				(185,845	)			—
Other			10,606				999				1,560				13,153				—				26,318
Total assets		$	631,545			$	322,409			$	316,400			$	261,975			$	(748,067	)		$	784,262
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	154			$	3,542			$	6,162			$	—			$	—			$	9,858
Current maturities of long-term debt			2,179				7,070				875				5,537				—				15,661
Current obligations under capital leases			1,129				2,225				—				—				—				3,354
Accrued interest			4,825				151				5				652				—				5,633
Accrued liabilities and other			6,847				5,890				18,646				2,579				—				33,962
Total current liabilities			15,134				18,878				25,688				8,768				—				68,468
Long-term debt			47,022				49,738				14,742				197,851				—				309,353
Senior notes			154,219				—				—				—				—				154,219
Obligations under capital leases			9,899				17,198				—				—				—				27,097
Due to affiliates			182,671				—				—				—				(182,671	)			—
Other liabilities			3,625				557				1,922				46				—				6,150
Total liabilities			412,570				86,371				42,352				206,665				(182,671	)			565,287
Commitments and contingencies
Total stockholders’ equity			218,975				236,038				274,048				55,310				(565,396	)			218,975
Total liabilities and stockholders’ equity		$	631,545			$	322,409			$	316,400			$	261,975			$	(748,067	)		$	784,262

		Condensed Consolidating Balance Sheet
		(in thousands)
		As of December 31, 2004
						Wholly
						Owned				Non-				Non-
						Guarantor				Guarantor				Guarantor
						Restricted				Restricted				Unrestricted								Consolidated
		Parent				Subsidiaries				Subsidiaries				Subsidiaries				Eliminations				Total
Assets
Current assets:
Cash and cash equivalents		$	8,265			$	4,983			$	5,701			$	—			$	—			$	18,949
Restricted cash			—				—				2,756				32,925				—				35,681
Trade accounts receivable, net			35				17,797				32,207				5,170				—				55,209
Other receivables			1,003				2,430				204				147				—				3,784
Marine operating supplies			79				2,503				2,700				2,586				—				7,868
Due from affiliates			—				66,330				119,375				3,372				(189,077	)			—
Prepaid expenses and other			2,005				285				1,239				98				—				3,627
Total current assets			11,387				94,328				164,182				44,298				(189,077	)			125,118
Vessels and equipment, net			46,072				216,200				127,848				208,673				—				598,793
Deferred costs, net			14,546				6,625				15,438				8,444				—				45,053
Investments in affiliates			525,588				14,644				364				82,611				(623,207	)			—
Other			7,231				813				1,177				8,603				—				17,824
Total assets		$	604,824			$	332,610			$	309,009			$	352,629			$	(812,284	)		$	786,788
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	4,802			$	1,159			$	8,957			$	—			$	—			$	14,918
Current maturities of long-term debt			3,799				7,065				436				5,353				—				16,653
Current obligations under capital leases			1,093				2,615				—				—				—				3,708
Accrued interest			4,008				159				5				703								4,875
Due to affiliates			161,144				—				—				—				(161,144	)			—
Accrued liabilities and other			8,854				4,676				17,929				3,862				—				35,321
Total current liabilities			183,700				15,674				27,327				9,918				(161,144	)			75,475
Long-term debt			57,544				53,275				14,480				200,666				—				325,965
Senior notes			152,906				—				—				—				—				152,906
Obligations under capital leases			10,476				18,092				—				—				—				28,568
Due to affiliates			—				27,935				—				—				(27,935	)			—
Other liabilities			2,851				242				1,740				46				—				4,879
Total liabilities			407,477				115,218				43,547				210,630				(189,079	)			587,793
Commitments and contingencies
Total stockholders’ equity			197,347				217,392				265,462				141,999				(623,205	)			198,995
Total liabilities and stockholders’ equity		$	604,824			$	332,610			$	309,009			$	352,629			$	(812,284	)		$	786,788

		Condensed Consolidating Statement of Operations
		(in thousands)
		Three Months Ended June 30, 2005
						Wholly				Non-Wholly
						Owned				Owned				Non-				Non-
						Guarantor				Guarantor				Guarantor				Guarantor
						Restricted				Restricted				Restricted				Unrestricted								Consolidated
		Parent (b)				Subsidiaries(b)				Subsidiaries(a)				Subsidiaries				Subsidiaries				Eliminations				Total
Revenue		$	11,452			$	31,298			$	—			$	36,780			$	17,269			$	(112	)		$	96,687
Vessel and voyage expenses			7,102				17,209				—				18,274				7,353				(112	)			49,826
General and administrative			5,503				2,481				—				3,612				445				—				12,041
Depreciation, amortization and drydocking			2,130				5,156				—				6,512				2,779				—				16,577
Loss (gain) on disposal of assets, net			—				603				—				(1,056	)			—				—				(453	)
Income from operations			(3,283	)			5,849				—				9,438				6,692								18,696
Other expense, net			(317	)			(2,538	)			—				(2,511	)			(3,685	)			—				(9,051	)
Income before provision for income taxes			(3,600	)			3,311				—				6,927				3,007				—				9,645
Provision for income taxes			—				—				—				1,624				—				—				1,624
Net income		$	(3,600	)		$	3,311			$	—			$	5,303			$	3,007			$	—			$	8,021

		Condensed Consolidating Statement of Operations
		(in thousands)
		Three Months Ended June 30, 2004
						Wholly				Non-Wholly
						Owned				Owned				Non-				Non-
						Guarantor				Guarantor				Guarantor				Guarantor
						Restricted				Restricted				Restricted				Unrestricted								Consolidated
		Parent				Subsidiaries				Subsidiaries				Subsidiaries				Subsidiaries				Eliminations				Total
Revenue		$	10,377			$	21,817			$	3,769			$	32,981			$	18,396			$	(137	)		$	87,203
Vessel and voyage expenses			6,693				13,942				2,322				18,670				8,704				(137	)			50,194
General and administrative			3,150				1,967				205				3,647				354				—				9,323
Depreciation, amortization and drydocking			2,213				4,336				822				7,051				2,705				—				17,127
Gain on disposal of assets, net			—				(184	)			—				(1,805	)			—				—				(1,989	)
Income from operations			(1,679	)			1,756				420				5,418				6,633				—				12,548
Other expense, net			(93	)			(2,337	)			(357	)			(1,635	)			(3,849	)			(20	)			(8,291	)
Income before provision for income taxes			(1,772	)			(581	)			63				3,783				2,784				(20	)			4,257
Provision for income taxes			—				—				—				1,536				—				—				1,536
Net income		$	(1,772	)		$	(581	)		$	63			$	2,247			$	2,784			$	(20	)		$	2,721