UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018 or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-12289
SEACOR Holdings Inc.
(Exact Name of Registrant as Specified in Its Charter)
________________________________________
Delaware | 13-3542736 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | |
2200 Eller Drive, P.O. Box 13038, | ||
Fort Lauderdale, Florida | 33316 | |
(Address of Principal Executive Offices) | (Zip Code) |
954-523-2200
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
________________________________________
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 12 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 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ | Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The total number of shares of common stock, par value $.01 per share, outstanding as of April 23, 2018 was 18,174,556. The Registrant has no other class of common stock outstanding.
SEACOR HOLDINGS INC.
Table of Contents
Part I. | |||
Item 1. | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
Part II. | |||
Item 1. | |||
Item 1A. | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
Item 5. | |||
Item 6. |
i
PART I—FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
SEACOR HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data, unaudited) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 272,522 | $ | 239,246 | |||
Restricted cash | 2,982 | 2,982 | |||||
Marketable securities | 38,963 | 42,761 | |||||
Receivables: | |||||||
Trade, net of allowance for doubtful accounts of $2,752 and $2,390 in 2018 and 2017, respectively | 111,083 | 110,465 | |||||
Other | 41,061 | 33,870 | |||||
Inventories | 3,821 | 4,377 | |||||
Prepaid expenses and other | 4,572 | 6,594 | |||||
Total current assets | 475,004 | 440,295 | |||||
Property and Equipment: | |||||||
Historical cost | 1,354,989 | 1,351,741 | |||||
Accumulated depreciation | (510,418 | ) | (502,544 | ) | |||
844,571 | 849,197 | ||||||
Construction in progress | 15,528 | 28,728 | |||||
Net property and equipment | 860,099 | 877,925 | |||||
Investments, at Equity, and Advances to 50% or Less Owned Companies | 170,305 | 173,441 | |||||
Construction Reserve Funds | 36,790 | 51,339 | |||||
Goodwill | 32,807 | 32,761 | |||||
Intangible Assets, Net | 28,072 | 28,106 | |||||
Other Assets | 9,396 | 9,469 | |||||
$ | 1,612,473 | $ | 1,613,336 | ||||
LIABILITIES AND EQUITY | |||||||
Current Liabilities: | |||||||
Current portion of long-term debt | $ | 77,634 | $ | 77,842 | |||
Accounts payable and accrued expenses | 40,844 | 44,013 | |||||
Other current liabilities | 59,651 | 57,330 | |||||
Total current liabilities | 178,129 | 179,185 | |||||
Long-Term Debt | 495,863 | 501,505 | |||||
Deferred Income Taxes | 102,084 | 101,422 | |||||
Deferred Gains and Other Liabilities | 74,923 | 77,863 | |||||
Total liabilities | 850,999 | 859,975 | |||||
Equity: | |||||||
SEACOR Holdings Inc. stockholders’ equity: | |||||||
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued nor outstanding | — | — | |||||
Common stock, $.01 par value, 60,000,000 shares authorized; 38,855,188 and 38,656,505 shares issued in 2018 and 2017, respectively | 389 | 387 | |||||
Additional paid-in capital | 1,576,657 | 1,573,013 | |||||
Retained earnings | 417,302 | 419,128 | |||||
Shares held in treasury of 20,689,761 and 20,716,878 in 2018 and 2017, respectively, at cost | (1,367,433 | ) | (1,368,300 | ) | |||
Accumulated other comprehensive income (loss), net of tax | 96 | (545 | ) | ||||
627,011 | 623,683 | ||||||
Noncontrolling interests in subsidiaries | 134,463 | 129,678 | |||||
Total equity | 761,474 | 753,361 | |||||
$ | 1,612,473 | $ | 1,613,336 |
The accompanying notes are an integral part of these condensed consolidated financial statements
and should be read in conjunction herewith.
1
SEACOR HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share data, unaudited) | |||||||
Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
As Adjusted | |||||||
Operating Revenues | $ | 184,824 | $ | 136,319 | |||
Costs and Expenses: | |||||||
Operating | 131,777 | 93,117 | |||||
Administrative and general | 25,795 | 22,878 | |||||
Depreciation and amortization | 19,609 | 16,719 | |||||
177,181 | 132,714 | ||||||
Gains (Losses) on Asset Dispositions and Impairments, Net | 7,045 | (188 | ) | ||||
Operating Income | 14,688 | 3,417 | |||||
Other Income (Expense): | |||||||
Interest income | 1,856 | 2,134 | |||||
Interest expense | (8,563 | ) | (10,304 | ) | |||
Debt extinguishment losses, net | (42 | ) | — | ||||
Marketable security gains (losses), net | (3,798 | ) | 20,836 | ||||
Derivative gains, net | — | 2,830 | |||||
Foreign currency gains, net | 1,690 | 1,399 | |||||
Other, net | 283 | (420 | ) | ||||
(8,574 | ) | 16,475 | |||||
Income from Continuing Operations Before Income Tax Expense (Benefit) and Equity in Earnings (Losses) of 50% or Less Owned Companies | 6,114 | 19,892 | |||||
Income Tax Expense (Benefit) | (281 | ) | 3,896 | ||||
Income from Continuing Operations Before Equity in Earnings (Losses) of 50% or Less Owned Companies | 6,395 | 15,996 | |||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | (837 | ) | 108 | ||||
Income from Continuing Operations | 5,558 | 16,104 | |||||
Loss from Discontinued Operations, Net of Tax | — | (5,448 | ) | ||||
Net Income | 5,558 | 10,656 | |||||
Net Income attributable to Noncontrolling Interests in Subsidiaries | 4,917 | 6,573 | |||||
Net Income attributable to SEACOR Holdings Inc. | $ | 641 | $ | 4,083 | |||
Basic Earnings (Loss) Per Common Share of SEACOR Holdings Inc.: | |||||||
Continuing operations | $ | 0.04 | $ | 0.57 | |||
Discontinued operations | — | (0.33 | ) | ||||
$ | 0.04 | $ | 0.24 | ||||
Diluted Earnings (Loss) Per Common Share of SEACOR Holdings Inc.: | |||||||
Continuing operations | $ | 0.04 | $ | 0.56 | |||
Discontinued operations | — | (0.32 | ) | ||||
$ | 0.04 | $ | 0.24 | ||||
Weighted Average Common Shares Outstanding: | |||||||
Basic | 17,969,970 | 17,074,043 | |||||
Diluted | 18,178,518 | 17,363,839 |
The accompanying notes are an integral part of these condensed consolidated financial statements
and should be read in conjunction herewith.
2
SEACOR HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands, unaudited) | |||||||
Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Net Income | $ | 5,558 | $ | 10,656 | |||
Other Comprehensive Income: | |||||||
Foreign currency translation gains | 644 | 664 | |||||
Derivative losses on cash flow hedges | — | (9 | ) | ||||
Reclassification of derivative losses on cash flow hedges to interest expense | — | 12 | |||||
Reclassification of derivative losses on cash flow hedges to equity in earnings (losses) of 50% or less owned companies | — | 190 | |||||
Other | — | (7 | ) | ||||
644 | 850 | ||||||
Income tax expense | (3 | ) | (264 | ) | |||
641 | 586 | ||||||
Comprehensive Income | 6,199 | 11,242 | |||||
Comprehensive Income attributable to Noncontrolling Interests in Subsidiaries | 4,917 | 6,669 | |||||
Comprehensive Income attributable to SEACOR Holdings Inc. | $ | 1,282 | $ | 4,573 |
The accompanying notes are an integral part of these condensed consolidated financial statements
and should be read in conjunction herewith.
3
SEACOR HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in thousands, unaudited) | |||||||||||||||||||||||||||
SEACOR Holdings Inc. Stockholders’ Equity | Non- Controlling Interests In Subsidiaries | Total Equity | |||||||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Retained Earnings | Shares Held In Treasury | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||
December 31, 2017 | $ | 387 | $ | 1,573,013 | $ | 419,128 | $ | (1,368,300 | ) | $ | (545 | ) | $ | 129,678 | $ | 753,361 | |||||||||||
Impact of adoption of accounting principle | — | — | (2,467 | ) | — | — | — | (2,467 | ) | ||||||||||||||||||
December 31, 2017, As Adjusted | 387 | 1,573,013 | 416,661 | (1,368,300 | ) | (545 | ) | 129,678 | 750,894 | ||||||||||||||||||
Issuance of common stock: | |||||||||||||||||||||||||||
Employee Stock Purchase Plan | — | — | — | 867 | — | — | 867 | ||||||||||||||||||||
Exercise of stock options | 1 | 2,727 | — | — | — | — | 2,728 | ||||||||||||||||||||
Director stock awards | — | 20 | — | — | — | — | 20 | ||||||||||||||||||||
Restricted stock | 1 | (1 | ) | — | — | — | — | — | |||||||||||||||||||
Amortization of share awards | — | 898 | — | — | — | — | 898 | ||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | (132 | ) | (132 | ) | ||||||||||||||||||
Net income | — | — | 641 | — | — | 4,917 | 5,558 | ||||||||||||||||||||
Other comprehensive income | — | — | — | — | 641 | — | 641 | ||||||||||||||||||||
Three Months Ended March 31, 2018 | $ | 389 | $ | 1,576,657 | $ | 417,302 | $ | (1,367,433 | ) | $ | 96 | $ | 134,463 | $ | 761,474 |
The accompanying notes are an integral part of these consolidated financial statements
and should be read in conjunction herewith.
4
SEACOR HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited) | |||||||
Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Net Cash Provided by Operating Activities of Continuing Operations | $ | 12,907 | $ | 34,708 | |||
Cash Flows from Investing Activities of Continuing Operations: | |||||||
Purchases of property and equipment | (9,542 | ) | (66,810 | ) | |||
Proceeds from disposition of property and equipment | 15,852 | 40 | |||||
Investments in and advances to 50% or less owned companies | (900 | ) | (6,034 | ) | |||
Return of investments and advances from 50% or less owned companies | 4,772 | 2 | |||||
(Issuances of) payments received on third-party leases and notes receivable, net | 150 | (709 | ) | ||||
Withdrawals from construction reserve funds | 14,549 | 11,275 | |||||
Business acquisitions, net of cash acquired | 79 | — | |||||
Net cash provided by (used in) investing activities of continuing operations | 24,960 | (62,236 | ) | ||||
Cash Flows from Financing Activities of Continuing Operations: | |||||||
Payments on long-term debt and capital lease obligations | (8,071 | ) | (14,892 | ) | |||
Proceeds from issuance of long-term debt, net of issue costs | — | 14,000 | |||||
Common stock acquired for treasury | — | (7,569 | ) | ||||
Proceeds from share award plans | 3,595 | 6,340 | |||||
Distributions to noncontrolling interests | (132 | ) | — | ||||
Net cash used in financing activities of continuing operations | (4,608 | ) | (2,121 | ) | |||
Effects of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | 17 | 401 | |||||
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash from Continuing Operations | 33,276 | (29,248 | ) | ||||
Cash Flows from Discontinued Operations: | |||||||
Operating Activities | — | (20,407 | ) | ||||
Investing Activities | — | (1,552 | ) | ||||
Financing Activities | — | 2,217 | |||||
Effects of Exchange Rate Changes on Cash and Cash Equivalents | — | (98 | ) | ||||
Net Decrease in Cash and Cash Equivalents from Discontinued Operations | — | (19,840 | ) | ||||
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 33,276 | (49,088 | ) | ||||
Cash, Cash Equivalents and Restricted Cash, Beginning of Period | 242,228 | 258,887 | |||||
Cash, Cash Equivalents and Restricted Cash, End of Period | 275,504 | 209,799 | |||||
Restricted Cash, End of Period | 2,982 | 2,254 | |||||
Cash and Cash Equivalents, End of Period | $ | 272,522 | $ | 207,545 |
The accompanying notes are an integral part of these condensed consolidated financial statements
and should be read in conjunction herewith.
5
SEACOR HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The condensed consolidated financial information for the three months ended March 31, 2018 and 2017 has been prepared by the Company and has not been audited by its independent registered certified public accounting firm. The condensed consolidated financial statements include the accounts of SEACOR Holdings Inc. and its consolidated subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made to fairly present the Company’s financial position as of March 31, 2018, its results of operations for the three months ended March 31, 2018 and 2017, its comprehensive income for the three months ended March 31, 2018 and 2017, its changes in equity for the three months ended March 31, 2018, and its cash flows for the three months ended March 31, 2018 and 2017. Results of operations for the interim periods presented are not necessarily indicative of operating results for the full year or any future periods.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Unless the context otherwise indicates, any reference in this Quarterly Report on Form 10-Q to the “Company” refers to SEACOR Holdings Inc. and its consolidated subsidiaries and any reference in this Quarterly Report on Form 10-Q to “SEACOR” refers to SEACOR Holdings Inc. without its consolidated subsidiaries. Capitalized terms used and not specifically defined herein have the same meaning given those terms in the Company's Annual report on Form 10-K for the year ended December 31, 2017.
Adoption of New Accounting Standards. On January 1, 2018, the Company adopted Financial Accounting Standard Board (“FASB”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). As a consequence of adopting Topic 606, the Company now recognizes all of the operating revenues and expenses associated with the dry-cargo barge pools it manages along with additional operating expenses reflective of barge pool earnings attributable to third-party barge owners and not the Company in its capacity as manager. Under Topic 606, the Company determined it was a principal with respect to the third-party barge owners. Previously, the Company recognized operating revenues and expenses only for its proportionate share of the barge pools in which it participated, as it acted as an agent. All prior period results have been adjusted to reflect the retrospective adoption of Topic 606. The adoption of Topic 606 had no impact on previously reported operating income, net income or earnings per share.
On January 1, 2018, the Company adopted ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which eliminates the deferral of the tax effects of intercompany asset sales other than inventory until the transferred assets are sold to a third party or recovered through use. As a result of the adoption of the standard, the deferred tax charges previously recognized from those sales resulted in a decrease in deferred tax assets and a cumulative adjustment to retained earnings of $2.5 million in the condensed consolidated balance sheet and statement of changes in equity as of January 1, 2018.
Discontinued Operations. On June 1, 2017, the Company completed the spin-off of SEACOR Marine Holdings Inc. (“SEACOR Marine”), the company that operated SEACOR’s Offshore Marine Services business segment (the “Spin-off”), by means of a dividend of all the issued and outstanding common stock of SEACOR Marine to SEACOR’s shareholders. SEACOR Marine is an independent company whose common stock is listed on the New York Stock Exchange under the symbol “SMHI.” For all periods presented herein, the Company has reported the historical financial position, results of operations and cash flows of SEACOR Marine as discontinued operations (see Note 15).
On July 3, 2017, the Company completed the sale of its 70% interest in Illinois Corn Processing LLC (“ICP”), the company that operated SEACOR’s Illinois Corn Processing business segment. For all periods presented herein, the Company has reported the historical financial position, results of operations and cash flows of ICP as discontinued operations (see Note 15).
Revenue Recognition. Revenue is recognized when (or as) the Company transfers promised goods or services to its customers in amounts that reflect the consideration to which the company expects to be entitled to in exchange for those goods or services, which occurs when (or as) the Company satisfies its contractual obligations and transfers control of the promised goods or services to its customers. Costs to obtain or fulfill a contract are expensed as incurred.
6
Revenue from Contracts with Customers. Ocean Services primarily earns revenues from voyage charters, contracts of affreightment, harbor and ocean towing services, unit freight transportation services and technical ship management agreements with vessel owners (see Note 14). Ocean Services transfers control of the service to the customer and satisfies its performance obligation over the term of the contract, and therefore recognizes revenue over the term of the contract while related costs are expensed as incurred. Voyage charters are contracts to carry cargoes on a single voyage basis for a predetermined price, regardless of time to complete. Contracts of affreightment are contracts for cargoes that are committed on a multi-voyage basis for various periods of time, with minimum and maximum cargo tonnages specified over the period at a fixed or escalating rate per ton. Harbor and ocean towing services typically include operating harbor tugs alongside oceangoing vessels to escort them to their berth, assisting with the docking and undocking of these oceangoing vessels and escorting them back out to sea. They are contracted using prevailing port tariff terms on a per-use basis. In the unit freight trade, transportation services typically include transporting shipping containers, rail cars, project cargoes, automobiles and U.S. military vehicles and are generally contracted on a per unit basis for the specified cargo and destination, typically in accordance with a publicly available tariff rate or based on a negotiated rate when moving larger volume over an extended period. Other operations primarily include technical ship management agreements whereby Ocean Services provides technical ship management services to third-party customers for a predetermined price over a specified period of time, typically a year or more.
Inland Services primarily earns revenues from contracts of affreightment, terminal operations, fleeting operations and repair and maintenance services (see Note 14). Inland Services transfers control of the service to the customer and satisfies its performance obligation over the term of the contract, and therefore recognizes revenue over the term of the contract while related costs are expensed as incurred. Contracts of affreightment are contracts whereby customers are charged an established rate per ton to transport cargo from point-to-point. Terminal operations includes tank farms and dry bulk and container handling facilities that are marketed under contractual rates and terms driven by throughput volume. Fleeting operations includes fleeting services whereby barges are held in fleeting areas for an agreed-upon day rate and shifting services whereby harbor boats are used to pick up and drop off barges to assist in assembling tows and to move barges to and from the dock for loading and unloading at predetermined per-shift fees. Other operations primarily include a machine shop specializing in towboat and barge cleaning, repair and maintenance services that are charged on an hourly or a fixed fee basis depending on the scope and nature of the work.
Witt O’Brien’s earns revenues primarily from time and material and retainer contracts (see Note 14). Witt O’Brien’s transfers control of the service to the customer and satisfies its performance obligation over the term of the contract, and therefore recognizes revenue over the term of the contract while related costs are expensed as incurred. Time and material contracts primarily relate to emergency response, debris management or consulting services that Witt O’Brien’s performs for a predetermined fee. Retainer contracts, which are nearly all with vessel services operators and oil companies, are contracted based on agreed-upon rates.
Contract liabilities from contracts with customers arise when the Company has received consideration prior to performance and are included in other current liabilities in the accompanying condensed consolidated balance sheet. The Company’s contract liability activity for the three months ended March 31 was as follows (in thousands):
2018 | |||
Balance at beginning of period | $ | 983 | |
Revenue deferred in the current period | 6,483 | ||
Previously deferred revenue recognized in the current period | (415 | ) | |
Balance at end of period | $ | 7,051 |
Lease Revenues. The Company’s lease revenues are primarily from time charters, bareboat charters and non-vessel rental agreements that are recognized ratably over the lease term as services are provided, typically on a per day basis. Under a time charter, the Company provides a vessel to a customer for a set term and is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, the Company provides a vessel to a customer for a set term and the customer assumes responsibility for all operating expenses and risks of operation. Under a non-vessel rental agreement, the Company provides non-vessel property or equipment to a customer for a set term and the customer assumes responsibility for all operating expenses and risks of operation.
Property and Equipment. Equipment, stated at cost, is depreciated using the straight-line method over the estimated useful life of the asset to an estimated salvage value. With respect to each class of asset, the estimated useful life is based upon a newly built asset being placed into service and represents the time period beyond which it is typically not justifiable for the Company to continue to operate the asset in the same or similar manner. From time to time, the Company may acquire older assets that have already exceeded the Company’s useful life policy, in which case the Company depreciates such assets based on its best estimate of remaining useful life, typically the next survey or certification date.
7
As of March 31, 2018, the estimated useful life (in years) of each of the Company’s major categories of new equipment was as follows:
Petroleum and chemical carriers - U.S.-flag | 25 |
Harbor and offshore tugs | 25 |
Ocean liquid tank barges | 25 |
Short-sea container/RORO(1) vessels | 20 |
Dry bulk carriers - U.S.-flag | 25 |
Inland river dry-cargo and specialty barges | 20 |
Inland river liquid tank barges | 25 |
Inland river towboats and harbor boats | 25 |
Terminal and fleeting facilities | 20 |
______________________
(1) | Roll On/Roll Off. |
Equipment maintenance and repair costs including the costs of routine overhauls, dry-dockings and inspections performed on vessels and equipment are charged to operating expense as incurred. Expenditures that extend the useful life or improve the marketing and commercial characteristics of equipment as well as major renewals and improvements to other properties are capitalized.
Certain interest costs incurred during the construction of equipment are capitalized as part of the assets’ carrying values and are amortized over such assets’ estimated useful lives. During the three months ended March 31, 2018, capitalized interest totaled $0.2 million.
Impairment of Long-Lived Assets. The Company performs an impairment analysis of long-lived assets used in operations, including intangible assets, when indicators of impairment are present. These indicators may include a significant decrease in the market price of a long-lived asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If the carrying values of the assets are not recoverable, as determined by the estimated undiscounted cash flows, the estimated fair value of the assets or asset groups are compared to their current carrying value and impairment charges are recorded if the carrying value exceeds fair value. The Company performs its testing on an asset or asset group basis. The Company’s estimates of undiscounted cash flows are highly subjective and actual results may vary from the Company’s estimates due to the uncertainty regarding projected financial performance. Generally, fair value is determined using valuation techniques, such as expected discounted cash flows or appraisals, as appropriate. During the three months ended March 31, 2018, the Company did not recognize any impairment charges related to long-lived assets held for use. During the three months ended March 31, 2017, the Company recognized impairment charges of $0.4 million related to long-lived assets held for use.
Income Taxes. During the three months ended March 31, 2018, the Company’s effective income tax rate of (4.6)% was primarily due to taxes not provided on income attributable to noncontrolling interests, foreign sourced income not subject to U.S. income taxes, and income subject to the tonnage tax, partially offset by income taxes on foreign earnings that are not creditable against U.S. income taxes (see Note 6).
Deferred Gains. The Company has sold certain equipment to its 50% or less owned companies, entered into vessel sale-leaseback transactions with finance companies, and provided seller financing on sales of its equipment to third parties and its 50% or less owned companies. A portion of the gains realized from these transactions were deferred and recorded in deferred gains and other liabilities in the accompanying condensed consolidated balance sheets. Deferred gain activity related to these transactions for the three months ended March 31 was as follows (in thousands):
2018 | 2017 | ||||||
Balance at beginning of period | $ | 72,453 | $ | 82,423 | |||
Amortization of deferred gains included in operating expenses as a reduction to rental expense | (2,557 | ) | (3,626 | ) | |||
Amortization of deferred gains included in gains (losses) on asset dispositions and impairments, net | (518 | ) | (605 | ) | |||
Balance at end of period | $ | 69,378 | $ | 78,192 |
8
Accumulated Other Comprehensive Income. The components of accumulated other comprehensive income were as follows (in thousands):
SEACOR Holdings Inc. Stockholders’ Equity | Noncontrolling Interests | ||||||||||||||
Foreign Currency Translation Adjustments | Total | Foreign Currency Translation Adjustments | Other Comprehensive Income | ||||||||||||
December 31, 2017 | $ | (545 | ) | $ | (545 | ) | $ | (1,460 | ) | ||||||
Other comprehensive income | 644 | 644 | — | $ | 644 | ||||||||||
Income tax expense | (3 | ) | (3 | ) | — | (3 | ) | ||||||||
Three Months Ended March 31, 2018 | $ | 96 | $ | 96 | $ | (1,460 | ) | $ | 641 |
Earnings Per Share. Basic earnings per common share of SEACOR is computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings per common share of SEACOR is computed based on the weighted average number of common shares issued and outstanding plus the effect of potentially dilutive securities through the application of the treasury stock and if-converted methods. Dilutive securities for this purpose assumes restricted stock grants have vested, common shares have been issued pursuant to the exercise of outstanding stock options and common shares have been issued pursuant to the conversion of all outstanding convertible notes.
Computations of basic and diluted earnings per common share of SEACOR were as follows (in thousands, except share data):
Three Months Ended March 31, | ||||||||||
Net Income Attributable to SEACOR | Average O/S Shares | Per Share | ||||||||
2018 | ||||||||||
Basic Weighted Average Common Shares Outstanding | $ | 641 | 17,969,970 | $ | 0.04 | |||||
Effect of Dilutive Share Awards: | ||||||||||
Options and Restricted Stock(1) | — | 208,548 | ||||||||
Convertible Notes(2) | — | — | ||||||||
Diluted Weighted Average Common Shares Outstanding | $ | 641 | 18,178,518 | $ | 0.04 | |||||
2017 | ||||||||||
Basic Weighted Average Common Shares Outstanding | $ | 4,083 | 17,074,043 | $ | 0.24 | |||||
Effect of Dilutive Share Awards: | ||||||||||
Options and Restricted Stock(3) | — | 289,796 | ||||||||
Convertible Notes(4) | — | — | ||||||||
Diluted Weighted Average Common Shares Outstanding | $ | 4,083 | 17,363,839 | $ | 0.24 |
______________________
(1) | For the three months ended March 31, 2018, diluted earnings per common share of SEACOR excluded 503,459 of certain share awards as the effect of their inclusion in the computation would be anti-dilutive. Diluted weighted average shares outstanding are calculated based on continuing operations. |
(2) | For the three months ended March 31, 2018, diluted earnings per common share of SEACOR excluded 1,227,101 of common shares issuable pursuant to the Company’s 2.5% Convertible Senior Notes and 2,895,516 of common shares issuable pursuant to the Company’s 3.0% Convertible Senior Notes as the effect of their inclusion in the computation would be anti-dilutive. |
(3) | For the three months ended March 31, 2017, diluted earnings per common share of SEACOR excluded 903,720 of certain share awards as the effect of their inclusion in the computation would be anti-dilutive. Diluted weighted average shares outstanding are calculated based on continuing operations. |
(4) | For the three months ended March 31, 2017, diluted earnings per common share of SEACOR excluded 1,885,772, of common shares issuable pursuant to the Company’s 2.5% Convertible Senior Notes, 1,825,326 of common shares issuable pursuant to the Company’s 3.0% Convertible Senior Notes and 2,243,500 of common shares issuable pursuant to the Company’s 3.75% Subsidiary Convertible Senior Notes as the effect of their inclusion in the computation would be anti-dilutive. |
New Accounting Pronouncements. On February 25, 2016, the FASB issued a comprehensive new leasing standard, which is meant to improve transparency and comparability among companies by requiring lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. The new standard is effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption. Early adoption is permitted. The Company is in the early stages of implementation and
9
currently believes that the adoption will have a material impact on its financial statements. Specifically, the Company will be recording material right-of-use assets and lease liabilities for its equipment, office and land leases.
On January 26, 2017, the FASB issued an amendment to the accounting standard which simplified wording and removes step two of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step two of the goodwill test. The new standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2020, with early adoption permitted for interim or annual goodwill impairment tests on testing dates after January 1, 2017. The Company has not yet determined what impact, if any, the adoption of the new standard will have on its consolidated financial position, results of operations or cash flows.
2. BUSINESS ACQUISITIONS
SCA. On March 1, 2018, the Company acquired Strategic Crisis Advisors LLC (“SCA”) for $1.3 million to be paid in two installments. The purchase price includes $0.8 million in contingent consideration that is dependent upon SCA meeting predetermined revenue targets for the twelve months following the acquisition date. The Company performed a preliminary fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair value resulting in no goodwill being recorded.
Purchase Price Allocation. The allocation of the purchase price for the Company’s acquisition for the three months ended March 31, 2018 was as follows (in thousands):
Trade and other receivables | $ | 453 | |
Intangible Assets | 950 | ||
Accounts payable and other accrued liabilities(1) | (1,477 | ) | |
Other current liabilities | (5 | ) | |
Purchase price(2) | $ | (79 | ) |
______________________
(1) | Includes $1.3 million of consideration to be paid in two installments. |
(2) | Purchase price is net of cash acquired totaling $0.1 million. |
3. EQUIPMENT ACQUISITIONS AND DISPOSITIONS
During the three months ended March 31, 2018, capital expenditures were $9.5 million and primarily related to equipment ordered prior to 2018. Equipment deliveries during the three months ended March 31, 2018 included one U.S.-flag harbor tug and two foreign-flag short-sea container/RORO vessels.
During the three months ended March 31, 2018, the Company sold one U.S.-flag petroleum and chemical carrier, one U.S.-flag harbor tug, 32 dry-cargo barges, two inland river specialty barges and other equipment for net proceeds of $15.9 million and gains of $6.5 million, all of which were recognized currently. In addition, the Company recognized previously deferred gains of $0.5 million.
4. INVESTMENTS, AT EQUITY, AND ADVANCES TO 50% OR LESS OWNED COMPANIES
VA&E. VA&E primarily focuses on the global origination, trading and merchandising of sugar, pairing producers and buyers and arranging for the transportation and logistics of the product. The Company provides an uncommitted credit facility of up to $3.5 million and a subordinated loan of $3.5 million to VA&E. During the three months ended March 31, 2018, VA&E made repayments of $4.4 million and borrowed $0.9 million on the credit facility. As of March 31, 2018, the outstanding balance on the credit facility and subordinated loan was $3.6 million, inclusive of accrued and unpaid interest.
Other. The Company’s other 50% or less owned companies are primarily industrial aviation businesses in Asia. During the three months ended March 31, 2018, the Company received repayments on advances of $0.4 million. As of March 31, 2018, total advances outstanding were $2.0 million.
Subsequent to March 31, 2018, the Company disclosed that a subsidiary entered into a contract to sell its interest in Hawker Pacific Airservices Limited. The Company expects to receive approximately $70.0 million in cash at closing after estimated transaction costs.
5. LONG-TERM DEBT
SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire SEACOR common stock, par value $0.01 per share (“Common Stock”), 7.375% Senior Notes, 3.0% Convertible Senior Notes, and 2.5% Convertible Senior Notes (collectively the “Securities”) through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. As of March 31, 2018, the Company’s remaining repurchase authority for the Securities was $77.4 million.
As of March 31, 2018, the remaining principal amount outstanding of the Company’s 2.5% Convertible Senior Notes of $64.5 million is included in current liabilities as the holders may require the Company to repurchase these notes on May 31, 2018. In addition, the Company has the right to redeem the Notes at any time after May 31, 2018.
SEA-Vista Credit Facility. During the three months ended March 31, 2018, SEA-Vista made scheduled repayments of $0.8 million on the Term A-1 Loan and $1.4 million on the Term A-2 Loan. As of March 31, 2018, SEA-Vista had $55.0 million of remaining borrowing capacity under the Revolving Loan.
ISH Credit Facility. During the three months ended March 31, 2018, ISH repaid $5.7 million on the ISH Term Loan including $0.7 million of scheduled repayments. As of March 31, 2018, the ISH Credit Facility had $5.0 million of remaining borrowing capacity under the ISH Revolving Loan.
Other. During the three months ended March 31, 2018 the Company made scheduled payments on other long-term debt of $0.2 million.
Letters of Credit. As of March 31, 2018, the Company had outstanding letters of credit totaling $11.1 million with various expiration dates through 2019, including $0.7 million that have been issued on behalf of SEACOR Marine.
Guarantees. The Company has guaranteed the payments of amounts owed under certain sale-leaseback transactions, equipment financing and multi-employer pension obligations on behalf of SEACOR Marine. As of March 31, 2018, these guarantees on behalf of SEACOR Marine totaled $58.2 million and decline as payments are made on the outstanding obligations.
The Company earns a fee of 50 basis points per annum on these guarantees and outstanding letters of credit. For the three months ended March 31, 2018 and 2017, the Company earned fees of $0.1 million and $0.2 million, respectively.
6. INCOME TAXES
The following table reconciles the difference between the statutory federal income tax rate for the Company and the effective income tax rate on continuing operations for the three months ended March 31, 2018:
Statutory rate | 21.0 | % |
Income subject to tonnage tax | (6.6 | )% |
Noncontrolling interests | (16.9 | )% |
Foreign earnings not subject to U.S. income tax | (14.0 | )% |
Foreign taxes not creditable against U.S. income tax | 6.6 | % |
Subpart F income | 2.1 | % |
State taxes | 3.1 | % |
Other | 0.1 | % |
(4.6 | )% |
7. DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES
The Company recognized gains on derivative instruments not designated as hedging instruments for the three months ended March 31 as follows (in thousands):
2018 | 2017 | ||||||
Exchange option liability on subsidiary convertible senior notes | $ | — | $ | 2,628 | |||
Forward currency exchange, option and future contracts | — | 202 | |||||
$ | — | $ | 2,830 |
The exchange option liability on subsidiary convertible senior notes terminated as a consequence of the Spin-off as the notes became the sole obligation of SEACOR Marine and convertible only into the common stock of SEACOR Marine.
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The Company enters and settles forward currency exchange, option and future contracts with respect to various foreign currencies. These contracts enable the Company to buy currencies in the future at fixed exchange rates, which could offset possible consequences of changes in currency exchange rates with respect to the Company’s business conducted outside of the United States. As of March 31, 2018, there were no outstanding forward currency exchange contracts.
8. FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs derived from observable market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
The Company’s financial assets and liabilities as of March 31, 2018 that are measured at fair value on a recurring basis were as follows (in thousands):
Level 1 | Level 2 | Level 3 | |||||||||
ASSETS | |||||||||||
Marketable securities(1) | $ | 38,963 | $ | — | $ | — | |||||
Construction reserve funds | 36,790 | — | — |
______________________
(1) | Marketable security gains (losses), net include unrealized losses of $3.8 million and gains of $12.1 million for the three months ended March 31, 2018 and 2017, respectively, related to marketable security positions held by the Company as of March 31, 2018. |
The estimated fair values of the Company’s other financial assets and liabilities as of March 31, 2018 were as follows (in thousands):
Estimated Fair Value | |||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | ||||||||||||
ASSETS | |||||||||||||||
Cash, cash equivalents and restricted cash | $ | 275,504 | $ | 275,504 | $ | — | $ | — | |||||||
Investments, at cost, in 50% or less owned companies (included in other assets) | 4,300 | see below | |||||||||||||
Notes receivable from third parties (included in other receivables and other assets) | 2,507 | 922 | 1,542 | — | |||||||||||
LIABILITIES | |||||||||||||||
Long-term debt, including current portion(1) | $ | 573,497 | $ | — | $ | 590,968 | $ | — |
(1) | The estimated fair value includes the embedded conversion options on the Company’s 3.0% Convertible Senior Notes. |
The carrying value of cash, cash equivalents and restricted cash approximates fair value. The fair value of the Company’s long-term debt and notes receivable from third parties was estimated based upon quoted market prices or by using discounted cash flow analyses based on estimated current rates for similar types of arrangements. It was not practicable to estimate the fair value of certain of the Company’s investments, at cost, in 50% or less owned companies because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. Considerable judgment was required in developing certain of the estimates of fair value and, accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
9. STOCK REPURCHASES
SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire its Securities through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. As of March 31, 2018, the Company’s repurchase authority for the Securities was $77.4 million.
10. NONCONTROLLING INTERESTS IN SUBSIDIARIES
Noncontrolling interests in the Company’s consolidated subsidiaries were as follows (in thousands):
Noncontrolling Interests | March 31, 2018 | December 31, 2017 | ||||||||||
Ocean Services: | ||||||||||||
SEA-Vista | 49% | $ | 133,473 | $ | 128,550 | |||||||
Inland Services: | ||||||||||||
Other | 3.0 | % | – | 51.8% | 840 | 977 | ||||||
Other | 5.0% | 150 | 151 | |||||||||
$ | 134,463 | $ | 129,678 |
SEA-Vista. SEA-Vista owns and operates the Company’s fleet of U.S.-flag petroleum and chemical carriers used in the U.S. coastwise trade of crude oil, petroleum and specialty chemical products. As of March 31, 2018, the net assets of SEA-Vista
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were $272.4 million. During the three months ended March 31, 2018, the net income of SEA-Vista was $10.0 million, of which $4.9 million was attributable to noncontrolling interests. During the three months ended March 31, 2017, the net income of SEA-Vista was $13.1 million, of which $6.4 million was attributable to noncontrolling interests.
11. MULTI-EMPLOYER AND DEFINED BENEFIT PENSION PLANS
AMOPP. During the three months ended March 31, 2018, the Company received notification from the AMOPP that the Company’s withdrawal liability as of September 30, 2017 would have been $34.4 million based on an actuarial valuation performed as of that date. That liability may change in future years based on various factors, primarily employee census. As of March 31, 2018, the Company has no intention to withdraw from the AMOPP and no deficit amounts have been invoiced. Depending upon the results of the future actuarial valuations and the ten-year rehabilitation plan, it is possible that the AMOPP will experience further funding deficits, requiring the Company to recognize additional payroll related operating expenses in the periods invoices are received or contribution levels are increased.
12. SHARE BASED COMPENSATION
Transactions in connection with the Company’s share based compensation plans during the three months ended March 31, 2018 were as follows:
Director stock awards granted | 500 | |
Employee Stock Purchase Plan (“ESPP”) shares issued | 27,117 | |
Restricted stock awards granted | 119,100 | |
Stock Option Activities: | ||
Outstanding as of December 31, 2017 | 1,546,014 | |
Granted | 31,635 | |
Exercised | (79,083 | ) |
Outstanding as of March 31, 2018 | 1,498,566 | |
Shares available for future grants and ESPP purchases as of March 31, 2018 | 717,913 |
13. COMMITMENTS AND CONTINGENCIES
The Company's capital commitments as of March 31, 2018 by year of expected payment were as follows (in thousands):
Remainder of 2018 | 2019 | Total | |||||||||
Ocean Services | $ | 148 | $ | — | $ | 148 | |||||
Inland Services | 2,910 | 757 | 3,667 | ||||||||
$ | 3,058 | $ | 757 | $ | 3,815 |
Ocean Services’ and Inland Services’ capital commitments included other equipment and various vessel improvements. Subsequent to March 31, 2018, the Company committed to purchase one previously leased-in harbor tug and other equipment for $13.3 million.
During 2012, the Company sold National Response Corporation (“NRC”), NRC Environmental Services Inc., SEACOR Response Ltd., and certain other subsidiaries to J.F. Lehman & Company, a private equity firm (the “SES Business Transaction”).
On December 15, 2010, O’Brien’s Response Management L.L.C. (“ORM”) and NRC were named as defendants in one of the several “master complaints” filed in the overall multi-district litigation relating to the Deepwater Horizon oil spill response and clean-up in the Gulf of Mexico, which is currently pending in the U.S. District Court for the Eastern District of Louisiana (the “MDL”). The “B3” master complaint naming ORM and NRC asserted various claims on behalf of a putative class against multiple defendants concerning the clean-up activities generally and the use of dispersants specifically. Both prior to and following the filing of the aforementioned master complaint, individual civil actions naming the Company, ORM, and/or NRC alleging B3 exposure-based injuries and/or damages were consolidated with the MDL and stayed pursuant to court order. The Company has continually taken the position that all of the B3 claims asserted against it, ORM, and NRC have no merit. On February 16, 2016, all but eleven B3 claims against ORM and NRC were dismissed with prejudice (the “B3 Dismissal Order”). On August 2, 2016, the Court granted an omnibus motion for summary judgment as it concerns ORM and NRC in its entirety, dismissing the remaining
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eleven plaintiffs’ against ORM and NRC with prejudice (the “Remaining Eleven Plaintiffs’ Dismissal Order”). The deadline to appeal both of these orders has expired.
Both prior to and since the issuance of the B3 Dismissal Order and the Remaining Eleven Plaintiffs’ Dismissal Order, a number of individual actions in the MDL have been dismissed or otherwise resolved. At present, the only remaining claim is the following:
• | On April 8, 2013, the Company, ORM, and NRC were named as defendants in William and Dianna Fitzgerald v. BP Exploration et al., No. 2:13-CV-00650 (E.D. La.) (the “Fitzgerald Action”), which is a suit by a husband and wife whose son allegedly participated in the clean-up effort and became ill as a result of his exposure to oil and dispersants. While the decedent in the Fitzgerald Action’s claims against ORM and NRC were dismissed by virtue of the Remaining Eleven Plaintiffs’ Dismissal Order, the claim as against the Company remains stayed. |
Following a status conference with the Court on February 17, 2017, the Court issued several new pretrial orders in connection with the remaining claims in the MDL.
On July 18, 2017, the Court issued an order dismissing all remaining “B3” claims in the MDL with prejudice, with the exception of certain claims specifically listed on an exhibit annexed to the order (the “Master MDL B3 Dismissal Order”). Nathan Fitzgerald, the decedent in the Fitzgerald Action, was listed on the exhibit annexed to the Master MDL B3 Dismissal Order. The Court has since issued a list of those plaintiffs compliant with its previous orders and thus whose “B3” claims remain pending; the last version of this compliance list was issued on April 6, 2018 and the claim for the decadent in the Fitzgerald Action remains listed as a pending claim. The Company is unable to estimate the potential exposure, if any, resulting from this matter, to the extent it remains viable, but believes it is without merit and does not expect that it will have a material effect on its consolidated financial position, results of operations or cash flows.
On February 18, 2011, Triton Asset Leasing GmbH, Transocean Holdings LLC, Transocean Offshore Deepwater Drilling Inc., and Transocean Deepwater Inc. (collectively “Transocean”) named ORM and NRC as third-party defendants in a Rule 14(c) Third-Party Complaint in Transocean’s own Limitation of Liability Act action, which is part of the overall MDL, tendering to ORM and NRC the claims in the referenced master complaint that have already been asserted against ORM and NRC. Transocean, Cameron International Corporation (“Cameron”), Halliburton Energy Services, Inc., and M-I L.L.C. (“M-I”) also filed cross-claims against ORM and NRC for contribution and tort indemnity should they be found liable for any damages in Transocean's Limitation of Liability Act action and ORM and NRC asserted counterclaims against those same parties for identical relief. The remainder of the aforementioned cross-claims in Transocean’s limitation action remain pending, although the Company believes that the potential exposure, if any, resulting from these matters has been reduced as a result of the various developments in the MDL, including the B3 Dismissal Order and Remaining Eleven Plaintiffs’ Dismissal Order, and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
On November 16, 2012, 668 individuals who served as beach clean-up workers in Escambia County, Florida during the Deepwater Horizon oil spill response commenced a civil action in the Circuit Court for the First Judicial Circuit of Florida, in and for Escambia County, Abney et al. v. Plant Performance Services, LLC et al., No. 2012-CA-002947, in which they allege, among other things, that ORM and other defendants engaged in the contamination of Florida waters and beaches in violation of Florida Statutes Chapter 376 and injured the Plaintiffs by exposing them to dispersants during the course and scope of their employment. This case was removed to federal court and ultimately consolidated with the MDL on April 2, 2013. On April 22, 2013, a companion case to this matter was filed in the U.S. District Court for the Northern District of Florida, Abood et al. v. Plant Performance Services, LLC et al., No. 3:13-CV-00284 (N.D. Fla.), which alleges identical allegations against the same parties but names an additional 174 Plaintiffs, all of whom served as clean-up workers in various Florida counties during the Deepwater Horizon oil spill response. This case was consolidated with the MDL on May 10, 2013. By court order, both of these matters were then stayed since they were consolidated with the MDL. The names of only a very small percentage of the claimants in these two matters appear to be listed on the exhibit to the Master MDL B3 Dismissal Order and the Court has denied the other plaintiffs’ request for reconsideration, which has since been appealed. The Company believes that the original B3 Dismissal Order should reduce the potential exposure resulting from, if not bar, claims against ORM stemming from these matters and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
Separately, on March 2, 2012, the Court announced that BP Exploration and BP America Production Company (“BP America”) and (collectively “BP”) and the Plaintiffs had reached an agreement on the terms of two proposed class action settlements that will resolve, among other things, Plaintiffs’ economic loss claims and clean-up related claims against BP. Both settlements were granted final approval by the Court, all appeals have concluded, and the deadline for submitting claims with respect to both settlements has passed. Although neither the Company, ORM, nor NRC are parties to the settlement agreements, the Company, ORM, and NRC are listed as released parties on the releases accompanying both settlement agreements. Consequently, class members who did not file timely requests for exclusion are barred from pursuing economic loss, property damage, personal injury, medical monitoring, and/or other released claims against the Company, ORM, and NRC. The Company believes these settlements
13
have reduced the potential exposure in connection with the various cases relating to the Deepwater Horizon oil spill response and clean-up and continues to evaluate the settlements’ impacts on these cases.
In the ordinary course of the Company’s business, it may agree to indemnify its counterparty to an agreement. If the indemnified party makes a successful claim for indemnification, the Company would be required to reimburse that party in accordance with the terms of the indemnification agreement. Indemnification agreements generally, but not always, are subject to threshold amounts, specified claim periods and other restrictions and limitations.
In connection with the SES Business Transaction, the Company remains contingently liable for work performed in connection with the Deepwater Horizon oil spill response. Pursuant to the agreement governing the sale, the Company’s potential liability to the purchaser may not exceed the consideration received by the Company for the SES Business Transaction. The Company is currently indemnified under contractual agreements with BP for the potential liabilities relating to work performed in connection with the Deepwater Horizon oil spill response.
In the ordinary course of its business, the Company becomes involved in various other litigation matters including, among other things, claims by third parties for alleged property damages and personal injuries. Management has used estimates in determining the Company’s potential exposure to these matters and has recorded reserves in its financial statements related thereto where appropriate. It is possible that a change in the Company’s estimates of that exposure could occur, but the Company does not expect such changes in estimated costs would have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
14. SEGMENT INFORMATION
Accounting standards require public business enterprises to report information about each of their operating business segments that exceed certain quantitative thresholds or meet certain other reporting requirements. Operating business segments have been defined as components of an enterprise about which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Certain reclassifications and adjustments of prior period information have been made to conform the current period’s reportable segment presentation as a result of the Company’s presentation of discontinued operations and the adoption of Topic 606 (see Notes 1 and 15). The Company’s basis of measurement of segment profit or loss is as previously defined in the Company’s Annual report on Form 10-K for the year ended December 31, 2017. Accounting standards also require companies to disaggregate revenues from contracts with customers into categories to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
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The following tables summarize the operating results, capital expenditures and assets of the Company’s reportable segments.
Ocean Services $’000 | Inland Services $’000 | Witt O’Brien’s $’000 | Other $’000 | Corporate and Eliminations $’000 | Total $’000 | ||||||||||||
For the three months ended March 31, 2018 | |||||||||||||||||
Operating Revenues: | |||||||||||||||||
External customers | 102,384 | 55,921 | 26,403 | 116 | — | 184,824 | |||||||||||
Intersegment | — | — | 29 | — | (29 | ) | — | ||||||||||
102,384 | 55,921 | 26,432 | 116 | (29 | ) | 184,824 | |||||||||||
Costs and Expenses: | |||||||||||||||||
Operating | 65,333 | 48,181 | 18,306 | — | (43 | ) | 131,777 | ||||||||||
Administrative and general | 10,549 | 3,312 | 5,367 | 186 | 6,381 | 25,795 | |||||||||||
Depreciation and amortization | 12,645 | 6,234 | 301 | — | 429 | 19,609 | |||||||||||
88,527 | 57,727 | 23,974 | 186 | 6,767 | 177,181 | ||||||||||||
Gains on Asset Dispositions, Net | 1,883 | 5,162 | — | — | — | 7,045 | |||||||||||
Operating Income (Loss) | 15,740 | 3,356 | 2,458 | (70 | ) | (6,796 | ) | 14,688 | |||||||||
Other Income (Expense): | |||||||||||||||||
Foreign currency gains (losses), net | (51 | ) | 1,703 | 2 | — | 36 | 1,690 | ||||||||||
Other, net | 283 | — | — | — | — | 283 | |||||||||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | 315 | (2,454 | ) | 135 | 1,167 | — | (837 | ) | |||||||||
Segment Profit | 16,287 | 2,605 | 2,595 | 1,097 | |||||||||||||
Other Income (Expense) not included in Segment Profit | (10,547 | ) | |||||||||||||||
Less Equity Losses included in Segment Profit | 837 | ||||||||||||||||
Income Before Taxes, Equity Losses and Discontinued Operations | 6,114 | ||||||||||||||||
Capital Expenditures | 7,516 | 1,899 | — | — | 127 | 9,542 | |||||||||||
As of March 31, 2018 | |||||||||||||||||
Property and Equipment: | |||||||||||||||||
Historical cost | 890,040 | 433,590 | 1,227 | — | 30,132 | 1,354,989 | |||||||||||
Accumulated depreciation | (309,371 | ) | (179,152 | ) | (961 | ) | — | (20,934 | ) | (510,418 | ) | ||||||
580,669 | 254,438 | 266 | — | 9,198 | 844,571 | ||||||||||||
Construction in progress | 11,707 | 3,821 | — | — | — | 15,528 | |||||||||||
Net property and equipment | 592,376 | 258,259 | 266 | — | 9,198 | 860,099 | |||||||||||
Investments, at Equity, and Advances to 50% or Less Owned Companies | 53,620 | 64,744 | 734 | 51,207 | — | 170,305 | |||||||||||
Inventories | 1,732 | 2,039 | 50 | — | — | 3,821 | |||||||||||
Goodwill | 1,852 | 2,449 | 28,506 | — | — | 32,807 | |||||||||||
Intangible Assets | 9,961 | 10,112 | 7,999 | — | — | 28,072 | |||||||||||
Other current and long-term assets, excluding cash and near cash assets(1) | 57,593 | 54,531 | 43,563 | 1,770 | 8,655 | 166,112 | |||||||||||
Segment Assets | 717,134 | 392,134 | 81,118 | 52,977 | |||||||||||||
Cash and near cash assets(1) | 351,257 | ||||||||||||||||
Total Assets | 1,612,473 |
______________________
(1) | Cash and near cash assets includes cash, cash equivalents, restricted cash, marketable securities and construction reserve funds. |
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Ocean Services $’000 | Inland Services $’000 | Witt O’Brien’s $’000 | Other $’000 | Corporate and Eliminations $’000 | Total $’000 | ||||||||||||
For the three months ended March 31, 2018 | |||||||||||||||||
Revenues from Contracts with Customers: | |||||||||||||||||
Voyage charters | 16,501 | — | — | — | — | 16,501 | |||||||||||
Contracts of affreightment | 5,006 | 40,710 | — | — | — | 45,716 | |||||||||||
Harbor & ocean towing | 18,001 | — | — | — | — | 18,001 | |||||||||||
Unit freight | 13,384 | — | — | — | — | 13,384 | |||||||||||
Terminal operations | — | 8,561 | — | — | — | 8,561 | |||||||||||
Fleeting operations | — | 4,164 | — | — | — | 4,164 | |||||||||||
Time and material contracts | — | — | 23,625 | — | — | 23,625 | |||||||||||
Retainer contracts | — | — | 2,383 | — | — | 2,383 | |||||||||||
Other | 852 | 588 | 424 | 116 | (29 | ) | 1,951 | ||||||||||
Lease Revenues: | |||||||||||||||||
Time charter, bareboat charter and rental income | 48,640 | 1,898 | — | — | — | 50,538 | |||||||||||
102,384 | 55,921 | 26,432 | 116 | (29 | ) | 184,824 |
16
Ocean Services $’000 | Inland Services $’000 | Witt O’Brien’s $’000 | Other $’000 | Corporate and Eliminations $’000 | Total $’000 | ||||||||||||
As Adjusted | As Adjusted | ||||||||||||||||
For the three months ended March 31, 2017 | |||||||||||||||||
Operating Revenues: | |||||||||||||||||
External customers | 67,639 | 60,574 | 7,990 | 116 | — | 136,319 | |||||||||||
Intersegment | — | — | 18 | — | (18 | ) | — | ||||||||||
67,639 | 60,574 | 8,008 | 116 | (18 | ) | 136,319 | |||||||||||
Costs and Expenses: | |||||||||||||||||
Operating | 37,354 | 50,474 | 5,372 | — | (83 | ) | 93,117 | ||||||||||
Administrative and general | 7,088 | 3,792 | 3,219 | 154 | 8,625 | 22,878 | |||||||||||
Depreciation and amortization | 9,161 | 6,592 | 202 | — | 764 | 16,719 | |||||||||||
53,603 | 60,858 | 8,793 | 154 | 9,306 | 132,714 | ||||||||||||
Gains (Losses) on Asset Dispositions and Impairments, Net | (421 | ) | 233 | — | — | — | (188 | ) | |||||||||
Operating Income (Loss) | 13,615 | (51 | ) | (785 | ) | (38 | ) | (9,324 | ) | 3,417 | |||||||
Other Income (Expense): | |||||||||||||||||
Derivative gains, net | — | — | — | — | 2,830 | 2,830 | |||||||||||
Foreign currency gains (losses), net | (5 | ) | 1,368 | 10 | — | 26 | 1,399 | ||||||||||
Other, net | (362 | ) | — | — | (300 | ) | 242 | (420 | ) | ||||||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | 1,036 | (2,378 | ) | 157 | 1,293 | — | 108 | ||||||||||
Segment Profit (Loss) | 14,284 | (1,061 | ) | (618 | ) | 955 | |||||||||||
Other Income (Expense) not included in Segment Profit (Loss) | 12,666 | ||||||||||||||||
Less Equity Earnings included in Segment Profit (Loss) | (108 | ) | |||||||||||||||
Income Before Taxes, Equity Earnings and Discontinued Operations | 19,892 | ||||||||||||||||
Capital Expenditures | 52,619 | 12,819 | 35 | — | 1,337 | 66,810 | |||||||||||
As of March 31, 2017 | |||||||||||||||||
Property and Equipment: | |||||||||||||||||
Historical cost | 872,285 | 433,382 | 1,559 | — | 29,493 | 1,336,719 | |||||||||||
Accumulated depreciation | (267,163 | ) | (173,249 | ) | (1,262 | ) | — | (18,949 | ) | (460,623 | ) | ||||||
605,122 | 260,133 | 297 | — | 10,544 | 876,096 | ||||||||||||
Construction in progress | 127,734 | 12,014 | 34 | — | — | 139,782 | |||||||||||
Net property and equipment | 732,856 | 272,147 | 331 | — | 10,544 | 1,015,878 | |||||||||||
Investments, at Equity, and Advances to 50% or Less Owned Companies | 54,514 | 68,193 | 758 | 58,930 | — | 182,395 | |||||||||||
Inventories | 1,086 | 1,812 | 153 | — | — | 3,051 | |||||||||||
Goodwill | 1,852 | 2,429 | 28,506 | — | — | 32,787 | |||||||||||
Intangible Assets | — | 11,642 | 7,877 | — | — | 19,519 | |||||||||||
Other current and long-term assets, excluding cash and near cash assets(1) | 23,999 | 57,575 | 17,665 | 11,988 | 43,532 | 154,759 | |||||||||||
Segment Assets | 814,307 | 413,798 | 55,290 | 70,918 | |||||||||||||
Cash and near cash assets(1) | 371,681 | ||||||||||||||||
Discontinued Operations | 1,174,908 | ||||||||||||||||
Total Assets | 2,954,978 |
______________________
(1) | Cash and near cash assets includes cash, cash equivalents, restricted cash, marketable securities and construction reserve funds. |
17
Ocean Services $’000 | Inland Services $’000 | Witt O’Brien’s $’000 | Other $’000 | Corporate and Eliminations $’000 | Total $’000 | ||||||||||||
For the three months ended March 31, 2017 | |||||||||||||||||
Revenues from Contracts with Customers: | |||||||||||||||||
Voyage charters | 267 | — | — | — | — | 267 | |||||||||||
Contracts of affreightment | — | 45,898 | — | — | — | 45,898 | |||||||||||
Harbor & ocean towing | 17,273 | — | — | — | — | 17,273 | |||||||||||
Unit freight | 11,368 | — | — | — | — | 11,368 | |||||||||||
Terminal operations | — | 8,279 | — | — | — | 8,279 | |||||||||||
Fleeting operations | — | 3,663 | — | — | — | 3,663 | |||||||||||
Time and material contracts | — | — | 4,074 | — | — | 4,074 | |||||||||||
Retainer contracts | — | — | 2,470 | — | — | 2,470 | |||||||||||
Other | 171 | 752 | 1,464 | 116 | (18 | ) | 2,485 | ||||||||||
Lease Revenues: | |||||||||||||||||
Time charter, bareboat charter and rental income | 38,560 | 1,982 | — | — | — | 40,542 | |||||||||||
67,639 | 60,574 | 8,008 | 116 | (18 | ) | 136,319 |
18
15. DISCONTINUED OPERATIONS
The Company’s discontinued operations consist of SEACOR Marine and ICP as following the Spin-off and sale, respectively, the Company has no continuing involvement in either of these businesses (see Note 1). Summarized selected operating results of the Company’s discontinued operations were as follows (in thousands):
Three Months Ended March 31, 2017 | |||
SEACOR Marine | |||
Operating Revenues | $ | 34,304 | |
Costs and Expenses: | |||
Operating | 33,379 | ||
Administrative and general | 11,826 | ||
Depreciation and amortization | 12,503 | ||
57,708 | |||
Gains on Asset Dispositions, Net | 4,819 | ||
Operating Loss | (18,585 | ) | |
Other Income, Net | 7,126 | ||
Income Tax Benefit | (3,422 | ) | |
Equity in Earnings of 50% or Less Owned Companies, Net of Tax | 438 | ||
Net Loss | $ | (7,599 | ) |
Net Loss Attributable to Noncontrolling Interests | $ | (204 | ) |
ICP | |||
Operating Revenues | $ | 38,385 | |
Costs and Expenses: | |||
Operating | 36,101 | ||
Administrative and general | 746 | ||
Depreciation and amortization | 1,175 | ||
38,022 | |||
Operating Income | 363 | ||
Other Income, Net | 1,848 | ||
Income Tax Expense | 735 | ||
Net Income | $ | 1,476 | |
Net Income Attributable to Noncontrolling Interests | $ | 376 | |
Eliminations | |||
Operating Revenues | $ | (656 | ) |
Costs and Expenses: | |||
Operating | (728 | ) | |
Administrative and general | (23 | ) | |
(751 | ) | ||
Operating Income | 95 | ||
Other Income, Net | 943 | ||
Income Tax Expense | 363 | ||
Net Income | $ | 675 | |
Loss from Discontinued Operations, Net of Tax | $ | (5,448 | ) |
19
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements discussed in this Form 10-Q as well as in other reports, materials and oral statements that the Company releases from time to time constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “believe,” “plan,” “target,” “forecast” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements concern management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters. Forward-looking statements are inherently uncertain and subject to a variety of assumptions, risks and uncertainties that could cause actual results to differ materially from those anticipated or expected by management of the Company. These statements are not guarantees of future performance and actual events or results may differ significantly from these statements. Actual events or results are subject to significant known and unknown risks, uncertainties and other important factors, including risks relating to weakening demand for the Company’s services as a result of unplanned customer suspensions, cancellations, rate reductions or non-renewals of vessel charters or failures to finalize commitments to charter vessels, increased government legislation and regulation of the Company’s businesses that could increase the cost of operations, increased competition if the Jones Act is repealed, liability, legal fees and costs in connection with the provision of emergency response services, decreased demand for the Company’s services as a result of declines in the global economy, declines in valuations in the global financial markets and a lack of liquidity in the credit sectors, including, interest rate fluctuations, availability of credit, inflation rates, change in laws, trade barriers, commodity prices and currency exchange fluctuations, the cyclical nature of the oil and gas industry, activity in foreign countries and changes in foreign political, military and economic conditions, changes in foreign and domestic oil and gas exploration and production activity, safety record requirements related to Ocean Services, decreased demand for Ocean Services due to construction of additional refined petroleum product, natural gas or crude oil pipelines or due to decreased demand for refined petroleum products, crude oil or chemical products or a change in existing methods of delivery, compliance with U.S. and foreign government laws and regulations, including environmental laws and regulations and economic sanctions, the dependence of Ocean Services and Inland Services on several key customers, consolidation of the Company’s customer base, the ongoing need to replace aging vessels, industry fleet capacity, restrictions imposed by the Shipping Acts on the amount of foreign ownership of the Company’s Common Stock, operational risks of Ocean Services and Inland Services, effects of adverse weather conditions and seasonality, the level of grain export volume, the effect of fuel prices on barge towing costs, variability in freight rates for inland river barges, the effect of international economic and political factors on Inland Services’ operations, the ability to realize anticipated benefits from acquisitions and other strategic transactions, adequacy of insurance coverage, the attraction and retention of qualified personnel by the Company, and various other matters and factors, many of which are beyond the Company’s control as well as those discussed in Item 1A (Risk Factors) of the Company’s Annual report on Form 10-K and other reports filed by the Company with the Securities and Exchange Commission (“SEC”). It should be understood that it is not possible to predict or identify all such factors. Consequently, the preceding should not be considered to be a complete discussion of all potential risks or uncertainties. Given these risk factors, investors and analysts should not place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of the document in which they are made. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which the forward-looking statement is based, except as required by law. It is advisable, however, to consult any further disclosures the Company makes on related subjects in its filings with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (if any). These statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995.
Overview
The Company’s operations are divided into three main business segments – Ocean Transportation & Logistics Services (“Ocean Services”), Inland Transportation & Logistics Services (“Inland Services”) and Witt O’Brien’s. The Company also has activities, referred to and described under Other, that primarily include lending and leasing activities and noncontrolling investments in various other businesses.
Discontinued Operations. On June 1, 2017, the Company completed the spin-off of SEACOR Marine Holdings Inc. (“SEACOR Marine”), the company that operated SEACOR’s Offshore Marine Services business segment (the “Spin-off”), by means of a dividend of all the issued and outstanding common stock of SEACOR Marine to SEACOR’s shareholders. SEACOR Marine is now an independent company whose common stock is listed on the New York Stock Exchange under the symbol “SMHI.” The Company provides certain transition services to SEACOR Marine, including, among other things, human resource and benefit administration, information technology infrastructure, cash management and general accounting support services.
On July 3, 2017, the Company completed the sale of its 70% interest in Illinois Corn Processing LLC (“ICP”), the company that operated SEACOR’s Illinois Corn Processing business segment.
20
Historical results for all periods presented herein, present the financial position, results of operations and cash flows of SEACOR Marine and ICP as discontinued operations.
Consolidated Results of Operations
The sections below provide an analysis of the Company’s operations by business segment for the three months (“Current Year Quarter”) ended March 31, 2018 compared with the three months (“Prior Year Quarter”) ended March 31, 2017. See “Item 1. Financial Statements—Note 14. Segment Information” included in Part I of this Quarterly Report on Form 10-Q for consolidating segment tables for each period presented. Capitalized terms used and not specifically defined herein have the meaning given to those terms used in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Ocean Transportation & Logistics Services | |||||||||||
Three Months Ended March 31, | |||||||||||
2018 | 2017 | ||||||||||
$’000 | % | $’000 | % | ||||||||
Operating Revenues: | |||||||||||
United States | 82,158 | 80 | 55,207 | 82 | |||||||
Foreign | 20,226 | 20 | 12,432 | 18 | |||||||
102,384 | 100 | 67,639 | 100 | ||||||||
Costs and Expenses: | |||||||||||
Operating: | |||||||||||
Personnel | 23,300 | 23 | 14,475 | 21 | |||||||
Repairs and maintenance | 5,352 | 5 | 3,710 | 6 | |||||||
Dry-docking | 2,166 | 2 | 2,951 | 4 | |||||||
Insurance and loss reserves | 1,992 | 2 | 1,642 | 2 | |||||||
Fuel, lubes and supplies | 8,512 | 8 | 3,875 | 6 | |||||||
Leased-in equipment | 11,079 | 11 | 6,503 | 10 | |||||||
Other | 12,932 | 13 | 4,198 | 6 | |||||||
65,333 | 64 | 37,354 | 55 | ||||||||
Administrative and general | 10,549 | 10 | 7,088 | 10 | |||||||
Depreciation and amortization | 12,645 | 13 | 9,161 | 14 | |||||||
88,527 | 87 | 53,603 | 79 | ||||||||
Gains (Losses) on Asset Dispositions and Impairments, Net | 1,883 | 2 | (421 | ) | (1 | ) | |||||
Operating Income | 15,740 | 15 | 13,615 | 20 | |||||||
Other Income (Expense): | |||||||||||
Foreign currency losses, net | (51 | ) | — | (5 | ) | — | |||||
Other, net | 283 | — | (362 | ) | (1 | ) | |||||
Equity in Earnings of 50% or Less Owned Companies, Net of Tax | 315 | 1 | 1,036 | 2 | |||||||
Segment Profit(1) | 16,287 | 16 | 14,284 | 21 |
(1) | Includes amounts attributable to both SEACOR and noncontrolling interests. See “Item 1. Financial Statements—Note 10. Noncontrolling Interests in Subsidiaries” included in Part I of this Quarterly Report on Form 10-Q. |
21
Operating Revenues by Service Line. The table below sets forth, for the periods indicated, operating revenues by service line.
Three Months Ended March 31, | |||||||||
2018 | 2017 | ||||||||
$’000 | % | $’000 | % | ||||||
Operating Revenues: | |||||||||
Petroleum Transportation: | |||||||||
Time charter | 25,511 | 25 | 28,322 | 42 | |||||
Bareboat charter | 9,050 | 9 | 8,554 | 13 | |||||
Voyage charter | 5,106 | 5 | 267 | — | |||||
Harbor, ocean towing and bunkering | 21,174 | 21 | 18,957 | 28 | |||||
PCTC, liner and short-sea transportation: | |||||||||
Time charter | 10,906 | 11 | — | — | |||||
Voyage charter | 8,816 | 8 | — | — | |||||
Unit freight | 13,384 | 13 | 11,368 | 17 | |||||
Dry bulk transportation: | |||||||||
Contracts of affreightment | 5,006 | 5 | — | — | |||||
Voyage charter | 2,579 | 2 | — | — | |||||
Technical management services | 852 | 1 | 171 | — | |||||
102,384 | 100 | 67,639 | 100 |
International Shipholding Corporation Acquisition. On July 3, 2017, SEACOR acquired International Shipholding Corporation (“ISH”). Its subsidiaries include: United Ocean Services, which operated three Jones Act U.S.-flag dry bulk carriers supporting the cross-U.S. Gulf trade of fertilizer, phosphate rock, coal, and petroleum coke; Central Gulf Lines, Inc. (“CGL”); and Waterman Steamship Company (“Waterman”). CGL and Waterman are long-established U.S. based shipping lines that charter and operate vessels enrolled in the MSP. CGL time charters four U.S.-flag PCTCs to a third-party when not moving U.S. military, commercial and U.S. government-impelled cargoes.
Current Year Quarter compared with Prior Year Quarter
Operating Revenues. Operating revenues were $34.7 million higher in the Current Year Quarter compared with the Prior Year Quarter.
Operating revenues from petroleum transportation were $2.5 million higher primarily due to an increase in voyage charter revenues of $4.8 million as a result of placing one newly built U.S.-flag petroleum and chemical carrier into service during 2017 and an increase in the bareboat charter rate for one U.S.-flag petroleum and chemical carrier. These increases were partially offset by a decrease in operating revenues of $2.8 million due to the sale of one U.S.-flag petroleum and chemical carrier.
Operating revenues from harbor, ocean towing and bunkering were $2.2 million higher primarily due to an increase in harbor towing activities resulting from higher port traffic and a full quarter of operations for one U.S.-flag offshore tug on time charter and two foreign-flag harbor tugs on bareboat charter.
Operating revenues from PCTC, liner and short-sea transportation were $21.7 million higher primarily due to the addition of four PCTCs acquired in the ISH acquisition and an increase in cargo shipping demand for short-sea transportation.
Operating revenues from dry bulk transportation were $7.6 million higher due to the addition of two dry bulk carriers acquired in the ISH acquisition.
Operating Expenses. Operating expenses were $28.0 million higher in the Current Year Quarter compared with the Prior Year Quarter primarily due to placing two newly built U.S.-flag petroleum and chemical carriers into service during 2017 and the addition of the PCTCs and U.S.-flag dry bulk carriers acquired in the ISH acquisition, partially offset by lower dry-docking activity for harbor tugs.
Administrative and general. Administrative and general expenses were $3.5 million higher in the Current Year Quarter compared with the Prior Year Quarter primarily due to additional personnel costs associated with the ISH acquisition and higher legal costs.
Depreciation and amortization. Depreciation and amortization expenses were $3.5 million higher in the Current Year Quarter compared with the Prior Year Quarter primarily due to placing two newly built U.S.-flag petroleum and chemical carriers
22
into service during 2017, placing two short-sea container/RORO vessels into service at the beginning of the Current Year Quarter and the addition of the U.S.-flag dry-bulk carriers acquired in the ISH acquisition.
Gains (Losses) on Asset Dispositions and Impairments, Net. During the Current Year Quarter, the Company sold one U.S.-flag petroleum and chemical carrier, one harbor tug and other equipment for net proceeds of $5.0 million and gains of $1.9 million, all of which were recognized currently. During the Prior Year Quarter, the Company recognized an impairment charge of $0.4 million related to the cancellation of an upgrade project for one harbor tug.
Operating Income. Operating income as a percentage of operating revenues was 15% in the Current Year Quarter compared with 20% in the Prior Year Quarter. The decrease was primarily due to out-of-service time and costs associated with dry-docking one U.S.-flag dry bulk carrier acquired in the ISH acquisition and unplanned off-hire for one U.S.-flag petroleum and chemical carrier.
Equity in Earnings of 50% or Less Owned Companies, Net of Tax. During the Current Year Quarter, equity in earnings of 50% or less owned companies, net of tax, were primarily due to earnings from Trailer Bridge and KSM, partially offset by losses from the Company’s rail-ferry joint ventures (RF Vessel Holdings and Golfo de Mexico) as a consequence of planned out-of-service time and costs associated with dry-docking one rail ferry. During the Prior Year Quarter, equity in earnings of 50% or less owned companies, net of tax, were primarily due to earnings from Trailer Bridge.
Fleet Count
The composition of Ocean Services’ fleet as of March 31 was as follows:
Owned | Joint Ventured | Leased-in | Total | ||||||||
2018 | |||||||||||
Petroleum Transportation: | |||||||||||
Petroleum and chemical carriers - U.S.-flag | 7 | — | 3 | 10 | |||||||
Harbor, Ocean Towing and Bunkering: | |||||||||||
Harbor tugs - U.S.-flag | 15 | — | 8 | 23 | |||||||
Harbor tugs - Foreign-flag | 6 | 2 | — | 8 | |||||||
Offshore tug - U.S.-flag | 1 | — | — | 1 | |||||||
Ocean liquid tank barges - U.S.-flag | 5 | — | — | 5 | |||||||
Ocean liquid tank barges - Foreign-flag | — | 1 | — | 1 | |||||||
PCTC, Liner and Short-Sea Transportation: | |||||||||||
PCTC(1) - U.S.-flag | — | — | 4 | 4 | |||||||
Short-sea container/RORO(2) - Foreign-flag | 9 | — | — | 9 | |||||||
RORO(2)/Deck barges - U.S.-flag | — | 7 | — | 7 | |||||||
Rail ferries - Foreign-flag | — | 2 | — | 2 | |||||||
Dry bulk Transportation: | |||||||||||
Bulk carriers - U.S.-flag | 2 | — | — | 2 | |||||||
45 | 12 | 15 | 72 | ||||||||
2017 | |||||||||||
Petroleum Transportation: | |||||||||||
Petroleum and chemical carriers - U.S.-flag | 7 | — | 3 | 10 | |||||||
Harbor, Ocean Towing and Bunkering: | |||||||||||
Harbor tugs - U.S.-flag | 15 | — | 8 | 23 | |||||||
Harbor tugs - Foreign-flag | 4 | — | — | 4 | |||||||
Offshore tug - U.S.-flag | 1 | — | — | 1 | |||||||
Ocean liquid tank barges - U.S.-flag | 5 | — | — | 5 | |||||||
PCTC, Liner and Short-Sea Transportation: | |||||||||||
Short-sea container/RORO(2) - Foreign-flag | 7 | — | — | 7 | |||||||
RORO(2)/Deck barges - U.S.-flag | — | 7 | — | 7 | |||||||
Dry Bulk Transportation: | |||||||||||
Dry bulk articulated tug-barge - U.S.-flag | — | 1 | — | 1 | |||||||
39 | 8 | 11 | 58 |
______________________
(1) | Pure Car/Truck Carrier. |
(2) | Roll On/Roll Off. |
23
Inland Transportation & Logistics Services | |||||||||||
Three Months Ended March 31, | |||||||||||
2018 | 2017 | ||||||||||
$’000 | % | $’000 | % | ||||||||
As Adjusted | |||||||||||
Operating Revenues: | |||||||||||
United States | 53,738 | 96 | 58,370 | 96 | |||||||
Foreign | 2,183 | 4 | 2,204 | 4 | |||||||
55,921 | 100 | 60,574 | 100 | ||||||||
Costs and Expenses: | |||||||||||
Operating: | |||||||||||
Barge logistics | 34,128 | 61 | 34,409 | 57 | |||||||
Personnel | 4,616 | 8 | 4,065 | 7 | |||||||
Repairs and maintenance | 1,540 | 3 | 1,288 | 2 | |||||||
Insurance and loss reserves | 645 | 1 | 736 | 1 | |||||||
Fuel, lubes and supplies | 1,880 | 4 | 1,802 | 3 | |||||||
Leased-in equipment | 1,870 | 3 | 2,722 | 4 | |||||||
Other | 3,388 | 6 | 3,095 | 5 | |||||||
Net barge pool earnings attributable to third parties | 114 | — | 2,357 | 4 | |||||||
48,181 | 86 | 50,474 | 83 | ||||||||
Administrative and general | 3,312 | 6 | 3,792 | 6 | |||||||
Depreciation and amortization | 6,234 | 11 | 6,592 | 11 | |||||||
57,727 | 103 | 60,858 | 100 | ||||||||
Gains on Asset Dispositions, Net | 5,162 | 9 | 233 | — | |||||||
Operating Income (Loss) | 3,356 | 6 | (51 | ) | — | ||||||
Other Income: | |||||||||||
Foreign currency gains, net | 1,703 | 3 | 1,368 | 3 | |||||||
Equity in Losses of 50% or Less Owned Companies, Net of Tax | (2,454 | ) | (4 | ) | (2,378 | ) | (5 | ) | |||
Segment Profit (Loss)(1) | 2,605 | 5 | (1,061 | ) | (2 | ) |
(1) | Includes amounts attributable to both SEACOR and noncontrolling interests. See “Item 1. Financial Statements—Note 10. Noncontrolling Interests in Subsidiaries” included in Part I of this Quarterly Report on Form 10-Q. |
Adoption of Revenue Recognition Accounting Standard. On January 1, 2018, the Company adopted Financial Accounting Standard Board (“FASB”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). As a consequence of adopting Topic 606, the Company now recognizes all of the operating revenues and expenses associated with the dry-cargo barge pools it manages along with additional operating expenses reflective of barge pool earnings attributable to third-party barge owners and not the Company in its capacity as manager. Under Topic 606, the Company determined it was a principal with respect to the third-party barge owners. Previously, the Company recognized operating revenues and expenses only for its proportionate share of the barge pools in which it participated as it acted as an agent. All prior period results have been adjusted to reflect the retrospective adoption of Topic 606. The adoption of Topic 606 had no impact on previously reported operating income, net income or earnings per share. See “Item 1. Financial Statements—Note 1. Basis of Presentation and Accounting Policies ” included in Part I of this Quarterly Report on Form 10-Q.
24
Operating Revenues by Service Line. The table below sets forth, for the periods indicated, operating revenues by service line.
Three Months Ended March 31, | |||||||||
2018 | 2017 | ||||||||
$’000 | % | $’000 | % | ||||||
As Adjusted | |||||||||
Operating Revenues: | |||||||||
Dry-cargo barge pools(1) | 38,527 | 69 | 43,695 | 72 | |||||
Charter-out of dry-cargo barges | 5 | — | 608 | 1 | |||||
International liquid tank barge operations | 2,183 | 4 | 2,204 | 4 | |||||
Terminal operations | 8,979 | 16 | 8,696 | 14 | |||||
Fleeting operations | 4,805 | 9 | 4,281 | 7 | |||||
Inland river towboat operations and other activities | 1,422 | 2 | 1,090 | 2 | |||||
55,921 | 100 | 60,574 | 100 |
(1) | Operating revenues for the three months ended March 31, 2018 and 2017, include $15.4 million and $17.9 million, respectively, attributable to third-party barge owners participating in dry-cargo barge pools managed by the Company. |
Current Year Quarter compared with Prior Year Quarter
Operating Revenues. Operating revenues were $4.7 million lower in the Current Year Quarter compared with the Prior Year Quarter. Operating revenues from the dry-cargo barge pools were $5.2 million lower primarily due to lower activity levels and poor operating conditions in the Current Year Quarter caused by ice and high water resulting in longer cycle times. Operating revenues from the charter-out of dry-cargo barges were $0.6 million lower following the sale of the equipment at the beginning of the Current Year Quarter. Operating revenues from terminal operations were $0.3 million higher primarily due to increased container movements. Operating revenues from fleeting operations were $0.5 million higher primarily due to higher activity levels in the St. Louis harbor. Operating revenues from the inland river towboat operations and other activities were $0.3 million higher primarily due to placing an additional boat in service during 2017.
Operating Expenses. Operating expenses were $2.3 million lower in the Current Year Quarter compared with the Prior Year Quarter. Personnel expenses were $0.6 higher primarily due to increased personnel in fleeting and terminal operations. Leased-in equipment expense was $0.9 million lower primarily due to a decrease in bought-in-freight expense for the dry-cargo pools. Net barge pool earnings attributable to third parties were $2.2 million lower primarily due to lower earnings per day for the dry-cargo barge pools.
Gains on Asset Dispositions, Net. During the Current Year Quarter, the Company sold 32 two dry-cargo barges, two specialty barges and other equipment for net proceeds of $10.8 million and gains of $4.6 million, all of which were recognized currently. In addition, the Company recognized previously deferred gains of $0.5 million. During the Prior Year Quarter, the Company recognized losses of $0.4 million related to the total loss of a 30,000 barrel tank barge while being transported to Colombia. In addition, the Company recognized previously deferred gains of $0.6 million.
Operating Income (Loss). Excluding gains on asset dispositions, net, operating loss as a percentage of operating revenues was 3% in the Current Year Quarter compared with 0% in the Prior Year Quarter primarily due to poor operating conditions during the Current Year Quarter caused by ice and high water, which resulted in higher towing rates and longer cycle times for the dry-cargo barge pools.
Foreign currency gains, net. During the Current Year Quarter and Prior Year Quarter, foreign currency gains, net, were primarily due to the strengthening of the Colombian peso in relation to the U.S. dollar underlying certain of the Company’s intercompany lease obligations.
Equity in Losses of 50% or Less Owned Companies, Net of Tax. Equity in losses of 50% or less owned companies were $0.1 million lower in the Current Year Quarter compared with Prior Year Quarter. Equity in losses from SCFCo were lower as a result of improved operating conditions on the Parana-Paraguay river. Equity in losses from SCF Bunge Marine and Bunge-SCF Grain resulting from increased costs as a consequence of poor logistical conditions on the U.S. Inland Waterways offset the improved results from SCFCo.
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Fleet Count
The composition of Inland Services’ fleet as of March 31 was as follows:
Owned | Joint Ventured | Leased-in | Pooled or Managed | Total | ||||||||||
2018 | ||||||||||||||
Dry-cargo barges | 611 | 258 | 50 | 489 | 1,408 | |||||||||
Liquid tank barges | 20 | — | — | — | 20 | |||||||||
Specialty barges | 5 | — | — | — | 5 | |||||||||
Towboats: | ||||||||||||||
4,000 hp - 6,600 hp | 3 | 11 | 4 | — | 18 | |||||||||
3,300 hp - 3,900 hp | 1 | 2 | — | — | 3 | |||||||||
Less than 3,200 hp | 2 | — | — | — | 2 | |||||||||
Harbor boats: | ||||||||||||||
1,100 hp - 2,000 hp | 9 | — | 6 | — | 15 | |||||||||
Less than 1,100 hp | 9 | — | — | — | 9 | |||||||||
660 | 271 | 60 | 489 | 1,480 | ||||||||||
2017 | ||||||||||||||
Dry-cargo barges | 691 | 258 | — | 494 | 1,443 | |||||||||
Liquid tank barges | 18 | — | — | — | 18 | |||||||||
Specialty barges | 10 | — | — | — | 10 | |||||||||
Towboats: | ||||||||||||||
4,000 hp - 6,600 hp | 3 | 11 | 4 | — | 18 | |||||||||
3,300 hp - 3,900 hp | 1 | 2 | — | — | 3 | |||||||||
Less than 3,200 hp | 2 | — | — | — | 2 | |||||||||
Harbor boats: | ||||||||||||||
1,100 hp - 2,000 hp | 9 | — | 6 | — | 15 | |||||||||
Less than 1,100 hp | 9 | — | — | — | 9 | |||||||||
743 | 271 | 10 | 494 | 1,518 |
Witt O'Brien's | ||||||||||
Three Months Ended March 31, | ||||||||||
2018 | 2017 | |||||||||
$’000 | % | $’000 | % | |||||||
Operating Revenues: | ||||||||||
United States | 8,784 | 33 | 7,477 | 93 | ||||||
Foreign | 17,648 | 67 | 531 | 7 | ||||||
26,432 | 100 | 8,008 | 100 | |||||||
Costs and Expenses: | ||||||||||
Operating | 18,306 | 69 | 5,372 | 67 | ||||||
Administrative and general | 5,367 | 21 | 3,219 | 40 | ||||||
Depreciation and amortization | 301 | 1 | 202 | 3 | ||||||
23,974 | 91 | 8,793 | 110 | |||||||
Operating Income (Loss) | 2,458 | 9 | (785 | ) | (10 | ) | ||||
Other Income: | ||||||||||
Foreign currency gains, net | 2 | — | 10 | — | ||||||
Equity in Earnings of 50% or Less Owned Companies, Net of Tax | 135 | 1 | 157 | 2 | ||||||
Segment Profit (Loss) | 2,595 | 10 | (618 | ) | (8 | ) |
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Current Year Quarter compared with Prior Year Quarter
Operating Revenues. Operating revenues were $18.4 million higher in the Current Year Quarter compared with the Prior Year Quarter primarily due to expanded recovery projects following hurricanes Irma and Maria in the U.S. Virgin Islands.
Operating Expenses. Operating expenses were $12.9 million higher in the Current Year Quarter compared with the Prior Year Quarter primarily due to increased activities in the U.S. Virgin Islands consistent with increased operating revenues.
Administrative and general. Administrative and general expenses were $2.1 million higher in the Current Year Quarter compared with the Prior Year Quarter primarily due to increased personnel costs associated with recovery projects in the U.S. Virgin Islands.
Operating Income (Loss). Operating income as a percentage of operating revenues was 9% in the Current Year Quarter compared with operating loss as a percentage of operating revenues of 10% in the Prior Year Quarter primarily due to increased activities in the U.S. Virgin Islands.
Other
Segment profit of the Company's Other activities was as follows:
Three Months Ended March 31, | |||||
2018 | 2017 | ||||
$’000 | $’000 | ||||
Other activities(1) | 1,097 | 955 |
______________________
(1) | Includes amounts attributable to both SEACOR and noncontrolling interests. See “Item 1. Financial Statements—Note 10. Noncontrolling Interests in Subsidiaries” included in Part I of this Quarterly Report on Form 10-Q. |
Corporate and Eliminations | |||||
Three Months Ended March 31, | |||||
2018 | 2017 | ||||
$’000 | $’000 | ||||
Corporate Expenses | (6,827 | ) | (9,340 | ) | |
Eliminations | 31 | 16 | |||
Operating Loss | (6,796 | ) | (9,324 | ) | |
Other Income (Expense): | |||||
Derivative gains, net | — | 2,830 | |||
Foreign currency gains, net | 36 | 26 | |||
Other, net | — | 242 |
Corporate Expenses. Corporate expenses in the Current Year Quarter were lower primarily due to amounts charged to SEACOR Marine for transition services provided pursuant to the transition services agreement entered into in connection with the Spin-off, a reduction in audit fees, and lower compensation costs following the accelerated vesting of certain incentive share awards in December 2017 in advance of changes in the U.S. federal income tax code.
Derivative gains, net. Derivative gains, net, in the Prior Year Quarter primarily related to changes in the fair value of the exchange option liability on SEACOR Marine’s convertible senior notes. Following the Spin-off, the exchange option on SEACOR Marine’s convertible senior notes terminated as the notes became the sole obligation of SEACOR Marine and are convertible only into the common stock of SEACOR Marine.
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Other Income (Expense) not included in Segment Profit (Loss) | |||||
Three Months Ended March 31, | |||||
2018 | 2017 | ||||
$’000 | $’000 | ||||
Interest income | 1,856 | 2,134 | |||
Interest expense | (8,563 | ) | (10,304 | ) | |
Debt extinguishment losses, net | (42 | ) | — | ||
Marketable security gains (losses), net | (3,798 | ) | 20,836 | ||
(10,547 | ) | 12,666 |
Interest income. Interest income in the Current Year Quarter was lower compared with the Prior Year Quarter primarily due to lower outstanding balances of notes receivable from 50% or less owned companies and lower interest from other investments, partially offset by higher interest on cash balances.
Interest expense. Interest expense in the Current Year Quarter was lower compared with the Prior Year Quarter primarily due to the repurchase of a portion of the Company’s 2.5% Convertible Senior Notes and the pay down of a portion of the outstanding balances under the SEA-Vista Credit Facility during 2017, partially offset by lower capitalized interest.
Marketable security gains (losses), net. The Company’s most significant marketable security position is its investment in 5,200,000 shares of Dorian LPG Ltd. (“Dorian”), a publicly traded company listed on the New York Stock Exchange under the symbol “LPG.” Marketable security losses during the Current Year Quarter and marketable security gains during the Prior Year Quarter are primarily related to unrealized losses and gains, respectively, related to the Company’s investment in Dorian.
Income Taxes
During the three months ended March 31, 2018, the Company’s effective income tax rate of (4.6)% was primarily due to taxes not provided on income attributable to noncontrolling interests, foreign sourced income not subject to U.S. income taxes, and income subject to the tonnage tax, partially offset by income taxes on foreign earnings that are not creditable against U.S. income taxes.
Liquidity and Capital Resources
General
The Company’s ongoing liquidity requirements arise primarily from working capital needs, capital commitments and its obligations to repay debt. The Company may use its liquidity to fund acquisitions, repurchase shares of SEACOR common stock, par value $0.01 per share (“Common Stock”), for treasury, repurchase its outstanding notes or make other investments. Sources of liquidity are cash balances, marketable securities, construction reserve funds and cash flows from operations. From time to time, the Company may secure additional liquidity through asset sales or the issuance of debt, shares of Common Stock or common stock of its subsidiaries, preferred stock or a combination thereof.
Subsequent to March 31, 2018, the Company disclosed that a subsidiary entered into a contract to sell its interest in Hawker Pacific Airservices Limited. The Company expects to receive approximately $70.0 million in cash at closing after estimated transaction costs.
The Company's capital commitments as of March 31, 2018 by year of expected payment were as follows (in thousands):
Remainder of 2018 | 2019 | Total | |||||||||
Ocean Services | $ | 148 | $ | — | $ | 148 | |||||
Inland Services | 2,910 | 757 | 3,667 | ||||||||
$ | 3,058 | $ | 757 | $ | 3,815 |
Subsequent to March 31, 2018, the Company committed to purchase one previously leased-in harbor tug and other equipment for $13.3 million.
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As of March 31, 2018, the Company had outstanding debt of $573.5 million, net of discounts and issuance costs, and letters of credit totaling $11.1 million with various expiration dates through 2019. In addition, as of March 31, 2018, the Company has guaranteed payments of amounts owed under certain sale-leaseback transactions, equipment financing and multi-employer pension obligations on behalf of SEACOR Marine totaling $58.9 million (including $0.7 million of the letters of credit included above), which decline as payments are made on the outstanding obligations. As of March 31, 2018, the holders of the Company’s outstanding principal balances of $64.5 million for the 2.5% Convertible Senior Notes and $230.0 million for the 3.0% Convertible Senior Notes may require the Company to repurchase the notes on May 31, 2018 and November 19, 2020, respectively. The Company’s long-term debt maturities, assuming the note holders require the Company to repurchase the notes on those dates, are as follows (in thousands):
Remainder of 2018 | $ | 74,780 | |
2019 | 164,210 | ||
2020 | 351,690 | ||
2021 | 500 | ||
2022 | 503 | ||
Years subsequent to 2022 | 6,366 | ||
$ | 598,049 |
SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire its Common Stock, 7.375% Senior Notes, 3.0% Convertible Senior Notes and 2.5% Convertible Senior Notes (collectively the “Securities”) through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. As of March 31, 2018, the Company’s repurchase authority for the Securities was $77.4 million.
As of March 31, 2018, the Company held balances of cash, cash equivalents, restricted cash, marketable securities and construction reserve funds totaling $351.3 million. As of March 31, 2018, construction reserve funds of $36.8 million were classified as non-current assets in the accompanying condensed consolidated balance sheets as the Company has the intent and ability to use the funds to acquire qualifying equipment. Additionally, the Company had $60.0 million available under subsidiary credit facilities.
Summary of Cash Flows | |||||
Three Months Ended March 31, | |||||
2018 | 2017 | ||||
$’000 | $’000 | ||||
Cash flows provided by or (used in): | |||||
Operating Activities-Continuing Operations | 12,907 | 34,708 | |||
Operating Activities-Discontinued Operations | — | (20,407 | ) | ||
Investing Activities-Continuing Operations | 24,960 | (62,236 | ) | ||
Investing Activities-Discontinued Operations | — | (1,552 | ) | ||
Financing Activities-Continuing Operations | (4,608 | ) | (2,121 | ) | |
Financing Activities-Discontinued Operations | — | 2,217 | |||
Effects of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash-Continuing Operations | 17 | 401 | |||
Effects of Exchange Rate Changes on Cash and Cash Equivalents-Discontinued Operations | — | (98 | ) | ||
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 33,276 | (49,088 | ) |
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Operating Activities
Cash flows provided by continuing and discontinued operating activities decreased by $1.4 million in the Current Year Quarter compared with the Prior Year Quarter. The components of cash flows provided by (used in) operating activities during the Current Year Quarter and Prior Year Quarter were as follows:
Three Months Ended March 31, | |||||
2018 | 2017 | ||||
$’000 | $’000 | ||||
Operating income from continuing operations before depreciation, amortization and gains (losses) on asset dispositions and impairments, net | 27,252 | 20,324 | |||
Operating loss from discontinued operations before depreciation, amortization and gains (losses) on asset dispositions and impairments, net | — | (9,268 | ) | ||
Changes in operating assets and liabilities before interest and income taxes | (13,522 | ) | (52,818 | ) | |
Proceeds from sale of marketable securities | — | 51,892 | |||
Cash settlements on derivative transactions, net | — | 139 | |||
Dividends received from 50% or less owned companies | — | 750 | |||
Interest paid, excluding capitalized interest(1) | (1,416 | ) | — | ||
Income taxes paid, net | (194 | ) | (630 | ) | |
Other | 787 | 3,912 | |||
Total cash flows provided by continuing and discontinued operating activities | 12,907 | 14,301 |
_____________________
(1) | During the Current Year Quarter and Prior Year Quarter, capitalized interest paid and included in purchases of property and equipment for continuing and discontinued operations was $0.2 million and $1.0 million, respectively. |
Operating income from continuing operations before depreciation, amortization and gains (losses) on asset dispositions and impairments, net was $6.9 million higher in the Current Year Quarter compared with the Prior Year Quarter. See “Consolidated Results of Operations” included above for a discussion of the results of each of the Company’s business segments.
During the Prior Year Quarter, cash provided by operating activities of continuing and discontinued operations included $51.9 million received from the sale of marketable security long positions.
Investing Activities
During the Current Year Quarter, net cash provided by investing activities of continuing operations was $25.0 million primarily as follows:
• | Capital expenditures were $9.5 million. Equipment deliveries included one U.S.-flag harbor tug and two foreign-flag short-sea container/RORO vessels. |
• | The Company sold one U.S.-flag petroleum and chemical carrier, one U.S.-flag harbor tug, 32 dry-cargo barges, two inland river specialty barges and other equipment for net proceeds of $15.9 million. |
• | Construction reserve fund account transactions included withdrawals of $14.5 million. |
• | The Company made advances of $0.9 million to its 50% or less owned company VA&E. |
• | The Company received $4.8 million from its 50% or less owned companies, including $4.4 million from VA&E. |
During the Prior Year Quarter, net cash used in investing activities of continuing operations was $62.2 million primarily as follows:
• | Capital expenditures were $66.8 million. Equipment deliveries during the period included one U.S.-flag petroleum and chemical carrier, one U.S.-flag harbor tug and one inland river towboat. |
• | Construction reserve fund account transactions included withdrawals of $11.3 million. |
• | The Company made investments in, and advances to, 50% or less owned companies of $6.0 million, including $3.5 million to VA&E, $2.0 million to Trailer Bridge and $0.5 million in SCFCo. |
• | The Company made $0.7 million of net issuances on third-party leases and notes receivables. |
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During the Prior Year Quarter, net cash used in investing activities of discontinued operations was $1.6 million primarily as follows:
• | Offshore Marine Services used net cash of $2.2 million related to the purchase and sale of equipment. |
• | Illinois Corn Processing used net cash of $0.7 million for the purchase of equipment. |
• | Offshore Marine Services used net cash of $5.3 million from construction reserve funds. |
• | Offshore Marine Services received $4.9 million from its 50% or less owned companies. |
• | Offshore Marine Services consolidated Falcon Global and assumed cash of $1.9 million. |
Financing Activities
During the Current Year Quarter, net cash used in financing activities of continuing operations was $4.6 million. The Company:
• | repaid $2.2 million under the SEA-Vista Credit Facility; |
• | repaid $5.7 million under the ISH Credit Facility; |
• | made other scheduled payments on long-term debt and capital lease obligations of $0.2 million; and |
• | received $3.6 million from share award plans. |
During the Prior Year Quarter, net cash used in financing activities of continuing operations was $2.1 million. The Company:
• | borrowed $14.0 million and repaid $14.8 million under the SEA-Vista Credit Facility; |
• | made other scheduled payments on long-term debt and capital lease obligations of $0.1 million; |
• | acquired 110,298 shares of Common Stock for treasury for an aggregate purchase price of $7.6 million from its employees to cover their tax withholding obligations related to share award transactions. These shares were purchased in accordance with the terms of the Company’s Share Incentive Plans and not pursuant to the repurchase authorization granted by SEACOR’s Board of Directors; and |
• | received $6.3 million from share award plans. |
During the Prior Year Quarter, net cash provided by financing activities of discontinued operations was $2.2 million primarily as Offshore Marine services borrowed $3.4 million and repaid $1.2 million on long-term debt.
Short and Long-Term Liquidity Requirements
The Company anticipates it will continue to generate positive cash flows from operations and that these cash flows will be adequate to meet the Company’s working capital requirements. In support of the Company’s capital expenditure program and debt service requirements, the Company believes that a combination of cash balances on hand, cash generated from operating activities, funding under existing subsidiary financing arrangements and access to the credit and capital markets will provide sufficient liquidity to meet its obligations. The Company continually evaluates possible acquisitions and dispositions of certain businesses and assets. The Company’s sources of liquidity may be impacted by the general condition of the markets in which it operates and the broader economy as a whole, which may limit its access to the credit and capital markets on acceptable terms. Management will continue to closely monitor the Company’s liquidity and the credit and capital markets.
Off-Balance Sheet Arrangements
For a discussion of the Company's off-balance sheet arrangements, refer to “Liquidity and Capital Resources” contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. There has been no material change in the Company’s off-balance sheet arrangements during the Current Year Quarter. In addition, the Company has issued letters of credit or guaranteed the payments of amounts owed under certain sale-leaseback transactions, equipment financing and multi-employer pension obligations on behalf of SEACOR Marine. As of March 31, 2018, guarantees on behalf of SEACOR Marine totaled $58.9 million and will decline as payments are made on the outstanding obligations.
Contractual Obligations and Commercial Commitments
For a discussion of the Company's contractual obligations and commercial commitments, refer to “Liquidity and Capital Resources” contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. There has been no material change in the Company’s contractual obligations and commercial commitments during the Current Year Quarter.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
For a discussion of the Company’s exposure to market risk, refer to Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. There has been no material change in the Company’s exposure to market risk during the Current Year Quarter.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
With the participation of the Company’s principal executive officer and principal financial officer, management evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of March 31, 2018. Based on their evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2018.
The Company’s disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company in the reports it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosures. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those internal control systems
31
determined to be effective can provide only a level of reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
Except for the addition of certain controls in connection with the adoption of Financial Accounting Standard Board Topic 606, Revenue from Contracts with Customers, there were no other changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Exchange Act) that occurred during the three months ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of developments with respect to pending legal proceedings described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, see Note 13. “Commitments and Contingencies” included in Part I. Item 1. “Financial Statements” elsewhere in this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
For a discussion of the Company’s risk factors, refer to Item 1A. “Risk Factors” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes in the Company’s risk factors during the Current Year Quarter.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
(c) | This table provides information with respect to purchases by the Company of shares of its Common Stock during the Current Year Quarter: |
Period | Total Number Of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Value of Securities that may Yet be Purchased under the Plans or Programs(1) | |||||||||
Jan 1 – 31, 2018 | — | $ | — | — | $ | 77,380,819 | |||||||
February 1 – February 28, 2018 | — | $ | — | — | $ | 77,380,819 | |||||||
March 1 – March 31, 2018 | — | $ | — | — | $ | 77,380,819 |
______________________
(1) | SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire its Common Stock, 7.375% Senior Notes, 3.0% Convertible Senior Notes and 2.5% Convertible Senior Notes (collectively the “Securities”) through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. |
ITEM 3. | DEFAULT UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
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ITEM 6. | EXHIBITS |
10.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS** | XBRL Instance Document | |
101.SCH** | XBRL Taxonomy Extension Schema | |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF** | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB** | XBRL Taxonomy Extension Label Linkbase | |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. |
34
SIGNATURES
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.
SEACOR Holdings Inc. (Registrant) | ||||
DATE: | April 25, 2018 | By: | /S/ CHARLES FABRIKANT | |
Charles Fabrikant, Executive Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | ||||
DATE: | April 25, 2018 | By: | /S/ BRUCE WEINS | |
Bruce Weins, Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
35