UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________
FORM 10-Q
_________________________________________________
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019 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 (IRS Employer
Incorporation or Organization) 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)
__________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $0.01 per share CKH New York Stock Exchange
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 ☒ 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 ☒ 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 ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting Emerging growth
(Do not check if a smaller company ☐ company ☐
reporting 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 ☒
The total number of shares of common stock, par value $.01 per share, outstanding as of July 19, 2019 was 18,549,972. 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) | |||||||
June 30, 2019 | December 31, 2018 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 138,757 | $ | 144,221 | |||
Restricted cash and restricted cash equivalents | 1,221 | 2,991 | |||||
Marketable securities | 39,368 | 30,316 | |||||
Receivables: | |||||||
Trade, net of allowance for doubtful accounts of $3,023 and $3,481 in 2019 and 2018, respectively | 164,964 | 171,828 | |||||
Other | 38,297 | 38,881 | |||||
Inventories | 5,293 | 4,530 | |||||
Prepaid expenses and other | 5,640 | 5,382 | |||||
Total current assets | 393,540 | 398,149 | |||||
Property and Equipment: | |||||||
Historical cost | 1,416,084 | 1,407,329 | |||||
Accumulated depreciation | (593,168 | ) | (560,819 | ) | |||
Net property and equipment | 822,916 | 846,510 | |||||
Operating Lease Right-of-Use Assets | 161,518 | — | |||||
Investments, at Equity, and Advances to 50% or Less Owned Companies | 155,645 | 156,886 | |||||
Construction Reserve Funds | 3,908 | 3,908 | |||||
Goodwill | 32,714 | 32,708 | |||||
Intangible Assets, Net | 22,773 | 24,551 | |||||
Other Assets | 10,376 | 8,312 | |||||
$ | 1,603,390 | $ | 1,471,024 | ||||
LIABILITIES AND EQUITY | |||||||
Current Liabilities: | |||||||
Current portion of long-term debt | $ | 78,301 | $ | 8,497 | |||
Current portion of long-term operating lease liabilities | 36,171 | — | |||||
Accounts payable and accrued expenses | 35,132 | 59,607 | |||||
Other current liabilities | 64,796 | 55,659 | |||||
Total current liabilities | 214,400 | 123,763 | |||||
Long-Term Debt | 234,445 | 346,128 | |||||
Long-Term Operating Lease Liabilities | 125,182 | — | |||||
Deferred Income Taxes | 99,938 | 94,420 | |||||
Deferred Gains and Other Liabilities | 20,768 | 52,871 | |||||
Total liabilities | 694,733 | 617,182 | |||||
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; 39,210,865 and 39,001,924 shares issued in 2019 and 2018, respectively | 392 | 390 | |||||
Additional paid-in capital | 1,600,838 | 1,596,642 | |||||
Retained earnings | 512,618 | 474,809 | |||||
Shares held in treasury of 20,661,083 and 20,671,627 in 2019 and 2018, respectively, at cost | (1,366,432 | ) | (1,366,773 | ) | |||
Accumulated other comprehensive loss, net of tax | (995 | ) | (914 | ) | |||
746,421 | 704,154 | ||||||
Noncontrolling interests in subsidiaries | 162,236 | 149,688 | |||||
Total equity | 908,657 | 853,842 | |||||
$ | 1,603,390 | $ | 1,471,024 |
The accompanying notes are an integral part of these condensed consolidated financial statements
and should be read in conjunction herewith.
SEACOR HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share data, unaudited) | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Operating Revenues | $ | 197,023 | $ | 216,831 | $ | 406,547 | $ | 401,655 | |||||||
Costs and Expenses: | |||||||||||||||
Operating | 142,871 | 162,168 | 289,982 | 293,945 | |||||||||||
Administrative and general | 26,714 | 24,311 | 53,460 | 50,106 | |||||||||||
Depreciation and amortization | 17,009 | 18,844 | 34,145 | 38,453 | |||||||||||
186,594 | 205,323 | 377,587 | 382,504 | ||||||||||||
Gains on Asset Dispositions, Net | 677 | 506 | 1,114 | 7,551 | |||||||||||
Operating Income | 11,106 | 12,014 | 30,074 | 26,702 | |||||||||||
Other Income (Expense): | |||||||||||||||
Interest income | 1,885 | 2,179 | 3,785 | 4,035 | |||||||||||
Interest expense | (4,903 | ) | (8,604 | ) | (10,016 | ) | (17,167 | ) | |||||||
Debt extinguishment losses, net | (503 | ) | (5,407 | ) | (1,296 | ) | (5,449 | ) | |||||||
Marketable security gains (losses), net | 13,284 | 782 | 16,352 | (3,016 | ) | ||||||||||
Foreign currency gains (losses), net | (191 | ) | (1,346 | ) | 214 | 344 | |||||||||
Other, net | 25 | 54,311 | (619 | ) | 54,594 | ||||||||||
9,597 | 41,915 | 8,420 | 33,341 | ||||||||||||
Income Before Income Tax Expense and Equity in Earnings (Losses) of 50% or Less Owned Companies | 20,703 | 53,929 | 38,494 | 60,043 | |||||||||||
Income Tax Expense | 3,390 | 9,853 | 5,595 | 9,572 | |||||||||||
Income Before Equity in Earnings (Losses) of 50% or Less Owned Companies | 17,313 | 44,076 | 32,899 | 50,471 | |||||||||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | (312 | ) | 1,931 | (2,830 | ) | 1,094 | |||||||||
Net Income | 17,001 | 46,007 | 30,069 | 51,565 | |||||||||||
Net Income Attributable to Noncontrolling Interests in Subsidiaries | 2,448 | 881 | 7,783 | 5,798 | |||||||||||
Net Income Attributable to SEACOR Holdings Inc. | $ | 14,553 | $ | 45,126 | $ | 22,286 | $ | 45,767 | |||||||
Basic Earnings Per Common Share of SEACOR Holdings Inc. | $ | 0.80 | $ | 2.50 | $ | 1.22 | $ | 2.54 | |||||||
Diluted Earnings Per Common Share of SEACOR Holdings Inc. | $ | 0.76 | $ | 2.14 | $ | 1.17 | $ | 2.32 | |||||||
Weighted Average Common Shares Outstanding: | |||||||||||||||
Basic | 18,288,879 | 18,076,944 | 18,260,876 | 18,023,752 | |||||||||||
Diluted | 19,633,523 | 22,587,543 | 19,599,990 | 22,462,300 |
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 COMPREHENSIVE INCOME (in thousands, unaudited) | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net Income | $ | 17,001 | $ | 46,007 | $ | 30,069 | $ | 51,565 | |||||||
Other Comprehensive Income (Loss): | |||||||||||||||
Foreign currency translation gains (losses) | (92 | ) | (509 | ) | (13 | ) | 135 | ||||||||
Income tax benefit (expense) | — | 28 | (68 | ) | 25 | ||||||||||
(92 | ) | (481 | ) | (81 | ) | 160 | |||||||||
Comprehensive Income | 16,909 | 45,526 | 29,988 | 51,725 | |||||||||||
Comprehensive Income Attributable to Noncontrolling Interests in Subsidiaries | 2,448 | 881 | 7,783 | 5,798 | |||||||||||
Comprehensive Income Attributable to SEACOR Holdings Inc. | $ | 14,461 | $ | 44,645 | $ | 22,205 | $ | 45,927 |
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 CHANGES IN EQUITY (in thousands, unaudited) | |||||||||||||||||||||||||||
SEACOR Holdings Inc. Stockholders’ Equity | Non- Controlling Interests In Subsidiaries | Total Equity | |||||||||||||||||||||||||
For the six months ended June 30, 2019 | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||
December 31, 2018 | $ | 390 | $ | 1,596,642 | $ | 474,809 | $ | (1,366,773 | ) | $ | (914 | ) | $ | 149,688 | $ | 853,842 | |||||||||||
Impact of adoption of accounting principle, net of tax | — | — | 15,523 | — | — | 9,836 | 25,359 | ||||||||||||||||||||
December 31, 2018, As Adjusted | 390 | 1,596,642 | 490,332 | (1,366,773 | ) | (914 | ) | 159,524 | 879,201 | ||||||||||||||||||
Issuance of common stock: | |||||||||||||||||||||||||||
Employee Stock Purchase Plan | — | — | — | 857 | — | — | 857 | ||||||||||||||||||||
Exercise of stock options | — | 1,734 | — | — | — | — | 1,734 | ||||||||||||||||||||
Director stock awards | — | 55 | — | — | — | — | 55 | ||||||||||||||||||||
Restricted stock | 2 | (2 | ) | — | — | — | — | — | |||||||||||||||||||
Purchase of conversion option in convertible debt, net of tax | — | (103 | ) | — | — | — | — | (103 | ) | ||||||||||||||||||
Purchase of treasury shares | — | — | — | (516 | ) | — | — | (516 | ) | ||||||||||||||||||
Amortization of share awards | — | 2,512 | — | — | — | — | 2,512 | ||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | (5,071 | ) | (5,071 | ) | ||||||||||||||||||
Net income | — | — | 22,286 | — | — | 7,783 | 30,069 | ||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (81 | ) | — | (81 | ) | ||||||||||||||||||
June 30, 2019 | $ | 392 | $ | 1,600,838 | $ | 512,618 | $ | (1,366,432 | ) | $ | (995 | ) | $ | 162,236 | $ | 908,657 |
SEACOR Holdings Inc. Stockholders’ Equity | Non- Controlling Interests In Subsidiaries | Total Equity | |||||||||||||||||||||||||
For the three months ended June 30, 2019 | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||
March 31, 2019 | $ | 392 | $ | 1,598,804 | $ | 498,065 | $ | (1,366,267 | ) | $ | (903 | ) | $ | 164,703 | $ | 894,794 | |||||||||||
Issuance of common stock: | |||||||||||||||||||||||||||
Exercise of stock options | — | 861 | — | — | — | — | 861 | ||||||||||||||||||||
Director stock awards | — | 22 | — | — | — | — | 22 | ||||||||||||||||||||
Purchase of conversion option in convertible debt, net of tax | — | (103 | ) | — | — | — | — | (103 | ) | ||||||||||||||||||
Purchase of treasury shares | — | — | — | (165 | ) | — | — | (165 | ) | ||||||||||||||||||
Amortization of share awards | — | 1,254 | — | — | — | — | 1,254 | ||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | (4,915 | ) | (4,915 | ) | ||||||||||||||||||
Net income | — | — | 14,553 | — | — | 2,448 | 17,001 | ||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (92 | ) | — | (92 | ) | ||||||||||||||||||
June 30, 2019 | $ | 392 | $ | 1,600,838 | $ | 512,618 | $ | (1,366,432 | ) | $ | (995 | ) | $ | 162,236 | $ | 908,657 |
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 STATEMENTS OF CHANGES IN EQUITY (in thousands, unaudited) | |||||||||||||||||||||||||||
SEACOR Holdings Inc. Stockholders’ Equity | Non- Controlling Interests In Subsidiaries | Total Equity | |||||||||||||||||||||||||
For the six months ended June 30, 2018 | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | 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 | 4,712 | — | — | — | — | 4,713 | ||||||||||||||||||||
Director stock awards | — | 73 | — | — | — | — | 73 | ||||||||||||||||||||
Restricted stock | 1 | (1 | ) | — | — | — | — | — | |||||||||||||||||||
Net issuance of conversion option on exchange of convertible debt, net of tax | — | 12,735 | — | — | — | — | 12,735 | ||||||||||||||||||||
Purchase of conversion option in convertible debt, net of tax | — | (5 | ) | — | — | — | — | (5 | ) | ||||||||||||||||||
Amortization of share awards | — | 1,848 | — | — | — | — | 1,848 | ||||||||||||||||||||
Acquisition of a subsidiary with noncontrolling interests | — | — | — | — | — | 96 | 96 | ||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | (5,110 | ) | (5,110 | ) | ||||||||||||||||||
Net income | — | — | 45,767 | — | — | 5,798 | 51,565 | ||||||||||||||||||||
Other comprehensive income | — | — | — | — | 160 | — | 160 | ||||||||||||||||||||
June 30, 2018 | $ | 389 | $ | 1,592,375 | $ | 462,428 | $ | (1,367,433 | ) | $ | (385 | ) | $ | 130,462 | $ | 817,836 |
SEACOR Holdings Inc. Stockholders’ Equity | Non- Controlling Interests In Subsidiaries | Total Equity | |||||||||||||||||||||||||
For the three months ended June 30, 2018 | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||
March 31, 2018 | 389 | 1,576,657 | 417,302 | (1,367,433 | ) | 96 | 134,463 | 761,474 | |||||||||||||||||||
Issuance of common stock: | |||||||||||||||||||||||||||
Exercise of stock options | — | 1,985 | — | — | — | — | 1,985 | ||||||||||||||||||||
Director stock awards | — | 53 | — | — | — | — | 53 | ||||||||||||||||||||
Net issuance of conversion option on exchange of convertible debt, net of tax | — | 12,735 | — | — | — | — | 12,735 | ||||||||||||||||||||
Purchase of conversion option in convertible debt, net of tax | — | (5 | ) | — | — | — | — | (5 | ) | ||||||||||||||||||
Amortization of share awards | — | 950 | — | — | — | — | 950 | ||||||||||||||||||||
Acquisition of a subsidiary with noncontrolling interests | — | — | — | — | — | 96 | 96 | ||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | (4,978 | ) | (4,978 | ) | ||||||||||||||||||
Net income | — | — | 45,126 | — | — | 881 | 46,007 | ||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (481 | ) | — | (481 | ) | ||||||||||||||||||
June 30, 2018 | $ | 389 | $ | 1,592,375 | $ | 462,428 | $ | (1,367,433 | ) | $ | (385 | ) | $ | 130,462 | $ | 817,836 |
The accompanying notes are an integral part of these condensed consolidated financial statements
and should be read in conjunction herewith.
4
SEACOR HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited) | |||||||
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
Net Cash Provided by Operating Activities | $ | 51,508 | $ | 13,115 | |||
Cash Flows from Investing Activities: | |||||||
Purchases of property and equipment | (7,750 | ) | (31,632 | ) | |||
Proceeds from disposition of property and equipment | 118 | 15,881 | |||||
Investments in and advances to 50% or less owned companies | (3,215 | ) | (8,320 | ) | |||
Return of investments and advances from 50% or less owned companies | 3,677 | 7,776 | |||||
Proceeds on sale of 50% or less owned companies | — | 78,015 | |||||
Payments received on third-party leases and notes receivable, net | 260 | 300 | |||||
Withdrawals from construction reserve funds | — | 35,197 | |||||
Business acquisitions, net of cash acquired | — | 310 | |||||
Net cash provided by (used in) investing activities | (6,910 | ) | 97,527 | ||||
Cash Flows from Financing Activities: | |||||||
Payments on long-term debt | (46,499 | ) | (30,514 | ) | |||
Payments for long-term debt issue costs | (2,197 | ) | (2,495 | ) | |||
Purchase of conversion option in convertible debt | (130 | ) | (5 | ) | |||
Common stock acquired for treasury | (516 | ) | — | ||||
Proceeds from share award plans | 2,591 | 5,580 | |||||
Distributions to noncontrolling interests | (5,071 | ) | (5,110 | ) | |||
Net cash used in financing activities | (51,822 | ) | (32,544 | ) | |||
Effects of Exchange Rate Changes on Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents | (10 | ) | 52 | ||||
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents | (7,234 | ) | 78,150 | ||||
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Beginning of Period | 147,212 | 242,228 | |||||
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period | 139,978 | 320,378 | |||||
Restricted Cash and Restricted Cash Equivalents, End of Period | 1,221 | 2,989 | |||||
Cash and Cash Equivalents, End of Period | $ | 138,757 | $ | 317,389 |
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
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, 2018.
The condensed consolidated financial information for the three and six months ended June 30, 2019 and 2018 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 June 30, 2019, its results of operations for the three and six months ended June 30, 2019 and 2018, its comprehensive income for the three and six months ended June 30, 2019 and 2018, its changes in equity for the three and six months ended June 30, 2019 and 2018, and its cash flows for the six months ended June 30, 2019 and 2018. 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, 2018.
Adoption of New Accounting Standards. On January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Topic 842, Leases (“Topic 842”) using a modified prospective approach and implemented internal controls and systems to enable the preparation of financial information upon adoption. The Company elected the available practical expedients permitted under the guidance including the option to not separate lease and nonlease components in calculating the right-of use assets and corresponding lease liabilities and to not apply the recognition requirements of Topic 842 to short-term leases (leases that have a duration of twelve months or less at lease inception). Generally, it was not possible for the Company to determine the interest rate implicit in each of its operating leases and therefore used its incremental borrowing rate in calculating operating lease right-of-use assets and lease liabilities. The Company assigned its leases to portfolios based on the remaining term at the time of adoption and applied a single rate to each portfolio of leases as the result was not materially different than using a specific discount rate for each individual lease. The Company included renewal options that were reasonably certain of being exercised in determining the lease term. Upon adoption, the Company recorded operating lease right-of-use assets and lease liabilities of $174.6 million for certain of its equipment, offices, real property and land leases (see Note 5). In addition, the Company recognized a cumulative-effect adjustment of $25.4 million, net of tax, to the opening balance of retained earnings primarily for previously deferred gains related to sale-leaseback transactions.
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 consolidated balance sheets and statements of changes in equity as of January 1, 2018.
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.
Revenue from Contracts with Customers. Ocean Services primarily earns revenues from voyage charters, contracts of affreightment, tariff based port and infrastructure services, unit freight logistics services, and technical ship management agreements with vessel owners (see Note 13). 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. Tariff based port and infrastructure 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 logistics trade, transportation services typically include transporting shipping containers, rail cars, project cargoes, automobiles and U.S. military vehicles and are generally contracted
6
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 volumes over an extended period. Managed services 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 13). 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 primarily earns revenues from time and material and retainer contracts (see Note 13). 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.
The Company’s Other business segment includes CLEANCOR Energy Solutions LLC and its subsidiaries (collectively “Cleancor”), which primarily earns revenues from the sale of liquefied natural gas (see Note 13). Under these arrangements, control of the goods are transferred to the customer and performance obligations are satisfied at a point in time, and therefore revenue is recognized upon delivery while any related costs are expensed as incurred.
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 sheets. The Company’s contract liability activity for the six months ended June 30 was as follows (in thousands):
2019 | |||
Balance at beginning of period | $ | 968 | |
Contract liabilities arising during the period | 5,443 | ||
Revenue recognized upon completion of performance obligations during the period | (700 | ) | |
Balance at end of period | $ | 5,711 |
Lease Revenues. The Company’s lease revenues are primarily from time charters, bareboat charters and non-vessel rental arrangements. The Company accounts for these leases as operating leases. The lease terms are included in the charter and rental arrangements, and the determination of whether those arrangements contain a lease generally does not require significant assumptions or judgments. The Company’s lease revenues do not include material amounts of variable payments and 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. The non-lease components included in time charter rates are typically crewing, maintenance and insurance for the vessel over the term of the lease. 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 non-vessel rental arrangements, 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. There are no non-lease components for bareboat charters and non-vessel rental arrangements.
Lease revenues are generated from owned equipment as well as equipment that is leased-in from other equipment owners or financial institutions. Lease revenues from equipment that is leased-in are included in sublease income for the Company’s lessee disclosures (see Note 5). The Company’s leases generally do not provide an option for customers to purchase the leased equipment and lessees do not provide residual value guarantees. The Company expects to derive significant benefits from its equipment following the end of the lease terms.
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
7
that have already exceeded their useful life as set forth in 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.
As of June 30, 2019, 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 |
Bulk carriers - U.S.-flag | 25 |
Harbor and offshore tugs | 25 |
Ocean liquid tank barges | 25 |
Short-sea container/RORO(1) vessels | 20 |
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.
As of June 30, 2019, the Company’s construction in progress totaling $11.7 million primarily consisted of the construction of and upgrades to inland river towboats and other Inland Services equipment, and is included in historical cost in the accompanying condensed consolidated balance sheets. 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 six months ended June 30, 2019, capitalized interest totaled $0.1 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 six months ended June 30, 2019 and 2018, the Company did not recognize any impairment charges related to long-lived assets held for use.
Impairment of 50% or Less Owned Companies. Investments in 50% or less owned companies are reviewed periodically to assess whether there is an other-than-temporary decline in the carrying value of the investment. In its evaluation, the Company considers, among other items, recent and expected financial performance and returns, impairments recorded by the investee and the capital structure of the investee. When the Company determines the estimated fair value of an investment is below carrying value and the decline is other-than-temporary, the investment is written down to its estimated fair value. Actual results may vary from the Company’s estimates due to the uncertainty regarding projected financial performance, the severity and expected duration of declines in value and the available liquidity in the capital markets to support the continuing operations of the investee, among other factors. Although the Company believes its assumptions and estimates are reasonable, the investee’s actual performance compared with the estimates could produce different results and lead to additional impairment charges in future periods. During the six months ended June 30, 2019, the Company did not recognize any impairment charges related to its 50% or less owned companies. During the six months ended June 30, 2018, the Company recognized an impairment charge of $0.1 million related to one of its 50% or less owned companies, which is included in equity in earnings of 50% or less owned companies, net of tax in the accompanying consolidated statements of income (loss).
Income Taxes. During the six months ended June 30, 2019, the Company’s effective income tax rate of 14.5% was primarily due to taxes not provided on income attributable to noncontrolling interests, foreign sourced income not subject to U.S. tax and income subject to tonnage tax, partially offset by foreign taxes not creditable against U.S. income tax (see Note 6).
8
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 six months ended June 30 was as follows (in thousands):
2019 | 2018 | ||||||
Balance at beginning of period | $ | 43,664 | $ | 72,453 | |||
Impact of adoption of accounting principle(1) | (29,207 | ) | — | ||||
Amortization of deferred gains included in operating expenses as a reduction to rental expense | — | (5,039 | ) | ||||
Amortization of deferred gains included in gains on asset dispositions | (1,001 | ) | (1,012 | ) | |||
Other | — | (1,687 | ) | ||||
Balance at end of period | $ | 13,456 | $ | 64,715 |
______________________
(1) | On January 1, 2019, the Company adopted Topic 842 and reduced deferred gains associated with sale-leaseback transactions through a beginning period retained earnings adjustment. |
Computations of basic and diluted earnings per common share of SEACOR were as follows (in thousands, except share data):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
Net Income attributable to SEACOR | Average O/S Shares | Per Share | Net Income Attributable to SEACOR | Average O/S Shares | Per Share | ||||||||||||||||
2019 | |||||||||||||||||||||
Basic Weighted Average Common Shares Outstanding | $ | 14,553 | 18,288,879 | $ | 0.80 | $ | 22,286 | 18,260,876 | $ | 1.22 | |||||||||||
Effect of Dilutive Securities: | |||||||||||||||||||||
Options and Restricted Stock(1) | — | 117,543 | — | 112,013 | |||||||||||||||||
Convertible Notes(2) | 318 | 1,227,101 | 637 | 1,227,101 | |||||||||||||||||
Diluted Weighted Average Common Shares Outstanding | $ | 14,871 | 19,633,523 | $ | 0.76 | $ | 22,923 | 19,599,990 | $ | 1.17 | |||||||||||
2018 | |||||||||||||||||||||
Basic Weighted Average Common Shares Outstanding | $ | 45,126 | 18,076,944 | $ | 2.50 | $ | 45,767 | 18,023,752 | $ | 2.54 | |||||||||||
Effect of Dilutive Securities: | |||||||||||||||||||||
Options and Restricted Stock(3) | — | 352,724 | — | 298,205 | |||||||||||||||||
Convertible Notes | 3,166 | 4,157,875 | 6,416 | 4,140,343 | |||||||||||||||||
Diluted Weighted Average Common Shares Outstanding | $ | 48,292 | 22,587,543 | $ | 2.14 | $ | 52,183 | 22,462,300 | $ | 2.32 |
______________________
(1) | For the three and six months ended June 30, 2019, diluted earnings per common share of SEACOR excluded 893,722 and 919,121, respectively, of certain share awards as the effect of their inclusion in the computation would be anti-dilutive. |
(2) | For the three and six months ended June 30, 2019, diluted earnings per common share of SEACOR excluded 958,418 and 1,129,370, respectively, of common shares issuable pursuant to the Company’s 3.0% Convertible Senior Notes and 1,553,780 and 1,553,780, respectively, of common shares pursuant to the Company’s 3.25% Convertible Senior Notes as the effect of their inclusion in the computation would be anti-dilutive. |
(3) | For the three and six months ended June 30, 2018, diluted earnings per common share of SEACOR excluded 202,838 and 272,694, respectively, of certain share awards as the effect of their inclusion in the computation would be anti-dilutive. |
New Accounting Pronouncements. On June 16, 2016, the FASB issued an amendment to the accounting standards, which replaces the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable
9
information, including forecasted information, to develop credit loss estimates. The new standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for annual periods beginning after December 15, 2018. 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.
On January 26, 2017, the FASB issued an amendment to the accounting standards, which simplified wording and removed 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. EQUIPMENT ACQUISITIONS AND DISPOSITIONS
During the six months ended June 30, 2019, capital expenditures were $7.8 million and primarily related to the acquisition of real property, upgrades to inland river towboats and the construction of other Inland Services equipment.
3. INVESTMENTS, AT EQUITY, AND ADVANCES TO 50% OR LESS OWNED COMPANIES
Trailer Bridge. Trailer Bridge is an operator of U.S.-flag deck and RORO barges and provides marine transportation services between Jacksonville, Florida, San Juan, Puerto Rico and Puerto Plata, Dominican Republic. During the six months ended June 30, 2019, the Company earned $2.0 million for the time charter of one U.S.-flag offshore tug to Trailer Bridge.
RF Vessel Holdings. RF Vessel Holdings owns two foreign-flag rail ferries. During the six months ended June 30, 2019, the Company and its partner each contributed capital of $2.7 million to RF Vessel Holdings.
KSM. KSM operates four foreign-flag harbor tugs, one foreign-flag ocean liquid tank barge and two foreign-flag specialty vessels in Freeport, Grand Bahama. During the six months ended June 30, 2019, the Company earned $0.6 million for the bareboat charter of two foreign-flag harbor tugs to KSM.
Bunge-SCF Grain. Bunge-SCF Grain operates terminal grain elevators in Illinois. During the six months ended June 30, 2019, the Company earned $0.4 million for the lease of a terminal facility to Bunge-SCF Grain.
SCF Bunge Marine. SCF Bunge Marine provides towing services on the U.S. Inland Waterways, primarily the Mississippi River, Illinois River, Tennessee River and Ohio River. During the six months ended June 30, 2019, the Company earned $3.3 million for the time charter of seven inland river towboats to SCF Bunge Marine.
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. During the six months ended June 30, 2019, the Company received capital distributions of $3.7 million from VA&E, which reduced the Company’s noncontrolling interest in VA&E to 23.8%. During the six months ended June 30, 2019, the Company advanced $0.5 million to VA&E. As of June 30, 2019, outstanding advances to VA&E were $8.2 million, inclusive of accrued and unpaid interest.
4. 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”), 3.25% Convertible 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. On June 5, 2019, SEACOR’s Board of Directors increased the Company’s repurchase authority for the Securities to $150.0 million. As of June 30, 2019, the Company’s remaining repurchase authority for the Securities was $149.8 million.
3.0% Convertible Senior Notes. During the six months ended June 30, 2019, the Company purchased $37.3 million in principal amount of its 3.0% Convertible Senior Notes for total consideration of $36.3 million. Consideration of $36.2 million was allocated to the long-term debt resulting in debt extinguishment losses of $1.3 million included in the accompanying condensed consolidated statements of income. Consideration of $0.1 million was allocated to the purchase of the conversion option embedded in the 3.0% Convertible Senior Notes as included in the accompanying condensed consolidated statements of changes in equity. The outstanding principal amount of these notes was $70.0 million as of June 30, 2019.
SEACOR Revolving Credit Facility. On March 19, 2019, the Company entered into a $125.0 million credit agreement with a syndicate of lenders that matures March 19, 2024 (the “SEACOR Revolving Credit Facility”) and is secured by a pledge
10
over all of SEACOR’s assets and certain of its subsidiaries’ assets, subject to certain exceptions. The SEACOR Revolving Credit Facility permits the Company to borrow up to $125.0 million, from time to time as revolving loans, as such amounts may increase or decrease in accordance with the terms of the Credit Agreement. The loans will bear interest at either (i) a Base Rate plus a margin ranging from 0.75% to 2.00% depending on the Company’s maximum net funded debt ratio, as determined in accordance with the SEACOR Revolving Credit Facility, or (ii) interest periods of one, two, three or six months at an annual rate equal to London Interbank Offered Rate (“LIBOR”) for the corresponding deposits of U.S. dollars, plus a margin ranging from 1.75% to 3.00% based on the Company’s maximum net funded debt ratio, as determined in accordance with the SEACOR Revolving Credit Facility. A fee of 0.5% is payable on the unused commitment quarterly. The Company incurred $2.2 million of issuance costs related to the SEACOR Revolving Credit Facility.
The SEACOR Revolving Credit Facility contains various financial and restrictive covenants including fixed charge coverage, a net funded debt ratio, a collateral coverage ratio and restrictions limiting the Company’s ability to pay dividends or make certain investments, as well as other customary covenants, representations and warranties, and events of default as set forth in the agreement. As of June 30, 2019, the Company had no outstanding borrowings or issued letters of credit under the SEACOR Revolving Credit Facility and the remaining availability under this facility was $125.0 million.
SEA-Vista Credit Facility. During the six months ended June 30, 2019, SEA-Vista repaid $6.0 million on the Revolving Loan and made scheduled payments of $1.5 million on the Term A-1 Loan and $2.5 million on the Term A-2 Loan. As of June 30, 2019, SEA-Vista had $100.0 million of remaining borrowing capacity under the Revolving Loan.
Other. During the six months ended June 30, 2019, the Company made scheduled payments on other long-term debt of $0.3 million.
Letters of Credit. As of June 30, 2019, the Company had outstanding letters of credit totaling $1.3 million with various expiration dates through 2027.
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 June 30, 2019, these guarantees on behalf of SEACOR Marine totaled $32.1 million and decline as payments are made on the outstanding obligations. The Company earns a fee of 0.5% per annum on these guarantees. For the six months ended June 30, 2019, the fees earned by the Company for these guarantees were $0.1 million.
5. OPERATING LEASES
Lessee. As of June 30, 2019, the Company leased in two U.S.-flag petroleum and chemical carriers, five U.S.-flag harbor tugs, four U.S.-flag PCTCs, 50 inland river dry-cargo barges, four inland river towboats, six inland river harbor boats and certain facilities and other equipment. The leases generally contain purchase and renewal options or rights of first refusal with respect to the sale or lease of the equipment. As of June 30, 2019, the remaining lease terms of the U.S.-flag petroleum and chemical carriers, which are subject to subleases, have remaining durations from 39 to 86 months. The lease terms of the other equipment range in duration from 6 to 201 months.
As of June 30, 2019, future minimum payments for operating leases for the remainder of 2019 and the years ended December 31 were as follows (in thousands):
Remainder of 2019 | $ | 21,539 | |
2020 | 41,435 | ||
2021 | 37,274 | ||
2022 | 27,447 | ||
2023 | 15,519 | ||
Years subsequent to 2023 | 40,611 | ||
183,825 | |||
Interest component | (22,472 | ) | |
161,353 | |||
Current portion of long-term operating lease liabilities | (36,171 | ) | |
Long-term operating lease liabilities | $ | 125,182 |
11
For the six months ended June 30, 2019, the components of lease expense were as follows (in thousands):
Operating lease expense | $ | 21,239 | |
Short-term lease expense (lease duration of twelve months or less at lease commencement) | 12,143 | ||
Sublease income | (16,786 | ) | |
$ | 16,596 |
For the six months ended June 30, 2019, other information related to operating leases was as follows (in thousands except weighted average data):
Operating cash outflows from operating leases | $ | 21,404 | |
Right-of-use assets obtained in exchange for operating lease liabilities | $ | 178,858 | |
Weighted average remaining lease term, in years | 5.5 | ||
Weighted average discount rate | 4.8 | % |
Lessor. As of June 30, 2019, lessor arrangements with remaining terms in excess of one year included the bareboat charter of three U.S.-flag petroleum and chemical carriers and two foreign-flag harbor tugs, the time charter of four U.S.-flag petroleum and chemical carriers, four U.S.-flag PCTCs, seven inland river towboats and one U.S.-flag offshore tug, and other non-vessel rental arrangements of certain property and equipment. As of June 30, 2019, future minimum lease revenues from these arrangements for the remainder of 2019 and in the years ended December 31 were as follows (in thousands):
Total Minimum Lease Revenues | Leased-in Obligations(1) | Net Minimum Lease Income | |||||||||
Remainder of 2019 | $ | 72,014 | $ | (15,992 | ) | $ | 56,022 | ||||
2020 | 137,257 | (31,595 | ) | 105,662 | |||||||
2021 | 104,792 | (29,590 | ) | 75,202 | |||||||
2022 | 54,374 | (22,812 | ) | 31,562 | |||||||
2023 | 34,674 | (11,315 | ) | 23,359 | |||||||
Years subsequent to 2023 | 87,375 | (29,884 | ) | 57,491 |
____________________
(1) | The total payments to be made under existing non-cancelable leases for the property and equipment subject to these future minimum lease revenues. |
As of June 30, 2019, the major classes of owned property and equipment earning lease revenues were as follows (in thousands):
Historical Cost | Accumulated Depreciation | Net Book Value | |||||||||
Ocean Services: | |||||||||||
Petroleum and chemical carriers - U.S.-flag | $ | 471,049 | $ | (191,734 | ) | $ | 279,315 | ||||
Harbor and offshore tugs - U.S.-flag | 21,440 | (2,427 | ) | 19,013 | |||||||
492,489 | (194,161 | ) | 298,328 | ||||||||
Inland Services: | |||||||||||
Towboats | 36,236 | (2,760 | ) | 33,476 | |||||||
$ | 528,725 | $ | (196,921 | ) | $ | 331,804 |
12
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 six months ended June 30, 2019:
Statutory rate | 21.0 | % |
Income subject to tonnage tax | (2.6 | )% |
Non-deductible expenses | 0.8 | % |
Noncontrolling interests | (4.2 | )% |
Foreign earnings not subject to U.S. income tax | (3.7 | )% |
Foreign taxes not creditable against U.S. income tax | 2.1 | % |
Subpart F income | 0.7 | % |
State taxes | 0.4 | % |
14.5 | % |
7. 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.
As of June 30, 2019, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis were as follows (in thousands):
Level 1 | Level 2 | Level 3 | |||||||||
ASSETS | |||||||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents | $ | 139,978 | $ | — | $ | — | |||||
Marketable securities(1) | 39,368 | — | — | ||||||||
Construction reserve funds | 3,908 | — | — |
______________________
(1) | Marketable security gains (losses), net include unrealized gains of $11.0 million and $0.6 million for the three months ended June 30, 2019 and 2018, respectively, related to marketable security positions held by the Company as of June 30, 2019. Marketable security gains (losses), net include unrealized gains of $13.4 million and losses of $2.4 million for the six months ended June 30, 2019 and 2018, respectively, related to marketable security positions held by the Company as of June 30, 2019. |
As of June 30, 2019, the estimated fair values of the Company’s other financial assets and liabilities were as follows (in thousands):
Estimated Fair Value | |||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | ||||||||||||
ASSETS | |||||||||||||||
Notes receivable from third parties (included in other receivables and other assets) | $ | 1,954 | $ | — | $ | 1,954 | $ | — | |||||||
Investments, at cost, in 50% or less owned companies (included in other assets) | 4,300 | see below | |||||||||||||
LIABILITIES | |||||||||||||||
Long-term debt, including current portion(1) | $ | 312,746 | $ | — | $ | 329,192 | $ | — |
(1) | The estimated fair value includes the embedded conversion options on the Company’s 3.0% Convertible Senior Notes and 3.25% Convertible Senior Notes. |
13
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.
8. 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 (see Note 4).
During the six months ended June 30, 2019, the Company acquired 3,912 shares of Common Stock for treasury for an aggregate purchase price of $0.1 million. As of June 30, 2019, the Company’s repurchase authority for the Securities was $149.8 million.
During the six months ended June 30, 2019, the Company acquired 8,121 shares of Common Stock for treasury for an aggregate purchase price of $0.4 million from its employees to cover their tax withholding obligations related to the vesting of equity awards. These shares were purchased in accordance with the terms of the Company’s Share Incentive Plans and not pursuant to the repurchase authorizations granted by SEACOR’s Board of Directors.
9. NONCONTROLLING INTERESTS IN SUBSIDIARIES
Noncontrolling interests in the Company’s consolidated subsidiaries were as follows (in thousands):
Noncontrolling Interests | June 30, 2019 | December 31, 2018 | ||||||||||
Ocean Services: | ||||||||||||
SEA-Vista | 49% | $ | 161,366 | $ | 148,665 | |||||||
Inland Services: | ||||||||||||
Other | 3.0 | % | – | 51.8% | 866 | 862 | ||||||
Other | 5.0% | 4 | 161 | |||||||||
$ | 162,236 | $ | 149,688 |
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 June 30, 2019, the net assets of SEA-Vista were $329.3 million. During the six months ended June 30, 2019, the net income of SEA-Vista was $15.9 million, of which $7.8 million was attributable to noncontrolling interests. During the six months ended June 30, 2018, the net income of SEA-Vista was $12.0 million, of which $5.9 million was attributable to noncontrolling interests.
10. MULTI-EMPLOYER AND DEFINED BENEFIT PENSION PLANS
AMOPP. During the six months ended June 30, 2019, the Company received notification from the AMOPP that the Company’s withdrawal liability, as of September 30, 2018 would have been, $28.1 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 June 30, 2019, 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.
14
11. SHARE BASED COMPENSATION
During the six months ended June 30, 2019, transactions in connection with the Company’s share based compensation plans were as follows:
Director stock awards granted | 1,125 | |
Employee Stock Purchase Plan (“ESPP”) shares issued | 22,577 | |
Restricted stock awards granted | 149,950 | |
Stock Option Activities: | ||
Outstanding as of December 31, 2018 | 1,467,391 | |
Granted | 88,975 | |
Exercised | (57,866 | ) |
Expired | (7,463 | ) |
Outstanding as of June 30, 2019 | 1,491,037 | |
Shares available for future grants and ESPP purchases as of June 30, 2019 | 629,054 |
12. COMMITMENTS AND CONTINGENCIES
As of June 30, 2019, the Company's capital commitments by year of expected payment were as follows (in thousands):
Remainder of 2019 | 2020 | Total | |||||||||
Ocean Services | $ | 1,052 | $ | 8,523 | $ | 9,575 | |||||
Inland Services | 17,047 | 875 | 17,922 | ||||||||
Other | 1,374 | — | 1,374 | ||||||||
$ | 19,473 | $ | 9,398 | $ | 28,871 |
Ocean Services' capital commitments included the Company's interest in two foreign-flag rail ferries. Inland Services’ capital commitments included two inland river towboats, other equipment and vessel and terminal improvements.
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 (the “DWH Response), 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 “B3” 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. 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 eleven plaintiffs’ claims against ORM and NRC with prejudice (the “Remaining Eleven Plaintiffs’ Dismissal Order”). The deadline to appeal both of these orders has expired. At present, there is only one remaining claim, although as noted herein it is the subject of a pending dismissal motion. Specifically, 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 Fitzgerald Action was dismissed against ORM and NRC by virtue of the Remaining Eleven Plaintiffs’ Dismissal Order, the claim against the Company remained pending. On July 18, 2019, the Company and the remaining plaintiffs filed a joint motion to dismiss all claims by such plaintiffs against the Company with prejudice.
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 “B3” master complaint that have already been asserted against ORM and NRC. Various contribution and indemnity cross-claims and counterclaims involving ORM and NRC were subsequently filed. The Company believes that the potential exposure, if any, resulting therefrom has been reduced as a result of the various developments in the MDL, including
15
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.
Separately, on March 2, 2012, the Court announced that BP Exploration and Production Inc. (“BPXP”) and BP America Production Company (“BP America,” and with BPXP, “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 and property damage claims and clean-up related claims against BP. The Company, ORM, and NRC had no involvement in negotiating or agreeing to the terms of either settlement, nor are they parties or signatories thereto. The BP settlement pertaining to personal injury claims (the “Medical Settlement”) purported to resolve the “B3” claims asserted against BP and also established a right for class members to pursue individual claims against BP (but not ORM or NRC) for “later-manifested physical conditions,” defined in the Medical Settlement to be physical conditions that were “first diagnosed” after April 16, 2012 and which are claimed to have resulted from exposure during the DWH Response. The back-end litigation-option (“BELO”) provision of the Medical Settlement has specifically-delineated procedures and limitations, should any “B3” class member seek to invoke their BELO right. For example, there are limitations on the claims and defenses that can be asserted, as well as on the issues, elements, and proofs that may be litigated at any trial and the potential recovery for any Plaintiff. Notwithstanding that the Company, ORM, and NRC are listed on the Medical Settlement’s release as to claims asserted by Plaintiffs, the Medical Settlement still permits BP to seek indemnity from any party, to the extent BP has a valid indemnity right. The Medical Settlement was approved by the Court on January 11, 2013 and made effective on February 12, 2014. As of mid-July 2019, BP has tendered approximately 2,350 claims pursuant to the Medical Settlement’s BELO provision for indemnity to ORM and approximately 225 of such claims to NRC. Recently, 219 of the claims that were tendered by BP to ORM and 18 of the claims tendered to NRC have been dismissed with prejudice. ORM and NRC have rejected all of BP’s indemnity demands relating to the Medical Settlement’s BELO provision and on February 14, 2019 commenced a legal action against BPXP and BP America with respect to same. That action, captioned O’Brien’s Response Management, L.L.C. et al. v. BP Exploration & Production Inc. et al., Case No. 2:19-CV-01418-CJB-JCW (E.D. La.) (the “Declaratory Judgment Action”), seeks declaratory relief that neither ORM nor NRC have any indemnity obligation to BP with respect to the exposure-based claims expressly contemplated by the Medical Settlement’s BELO provision, nor any contribution, in light of BP’s own actions and conduct over the past nine years (including its complete failure to even seek indemnity) and the resultant prejudice to ORM and NRC; that any indemnity or contribution rights BP may have once had with respect to these personal injury and exposure claims were extinguished once the Medical Settlement was approved by the MDL Court in 2013; and that the immunity already afforded to ORM and NRC via the B3 Dismissal Order and the Remaining Eleven Plaintiffs’ Dismissal Order operates to bar any indemnity or contribution claims against them by BP. BP answered the Complaint in the Declaratory Judgment Action on May 7, 2019 and also asserted three counterclaims against ORM and NRC. ORM and NRC moved to dismiss the majority of BP’s counterclaims on June 18, 2019 and that motion remains pending. The Court has also ordered the parties to participate in early mediation per BP’s request. Mediation proceedings are currently scheduled for July 30, 2019 and the parties continue to exchange information and dialogue in advance of those proceedings.
BP has also similarly tendered personal injury claims to ORM and NRC that are being pursued by Plaintiffs who opted out of the Medical Settlement and who are thus proceeding with their “B3” claims in their ordinary course (as opposed to pursuant to the Medical Settlement’s BELO provision). ORM and NRC have also rejected these demands.
Generally, the Company, ORM, and NRC believe that BP’s indemnity demands with respect to any “B3” claims, including those involving Medical Settlement class members invoking BELO rights and those involving Medical Settlement opt-out Plaintiffs, are untimely and improper, and intend to vigorously defend their interests. Moreover, ORM has contractual indemnity coverage for the above-referenced claims through its separate agreements with sub-contractors that worked for ORM during the DWH Response and have preserved their rights in that regard while the Declaratory Judgment Action is pending. Overall, however, the Company believes that both of BP’s settlements have reduced the potential exposure in connection with the various cases relating to the DWH Response. The Company is unable to estimate the potential exposure, if any, resulting from these claims, but does not expect that they will have a material effect on its consolidated financial position, results of operations or cash flows.
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 DWH 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 “B3” liabilities relating to the DWH Response; this indemnification is unrelated to, and thus not impacted by, the indemnification BP has demanded and discussed above.
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
16
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.
13. 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. 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, 2018. 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. The following tables summarize the operating results, capital expenditures, assets and disaggregated revenues 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 June 30, 2019 | |||||||||||||||||
Operating Revenues: | |||||||||||||||||
External customers | 109,681 | 61,455 | 23,745 | 2,142 | — | 197,023 | |||||||||||
Intersegment | — | — | 8 | — | (8 | ) | — | ||||||||||
109,681 | 61,455 | 23,753 | 2,142 | (8 | ) | 197,023 | |||||||||||
Costs and Expenses: | |||||||||||||||||
Operating | 71,230 | 54,486 | 15,691 | 1,472 | (8 | ) | 142,871 | ||||||||||
Administrative and general | 9,423 | 3,133 | 6,831 | 837 | 6,490 | 26,714 | |||||||||||
Depreciation and amortization | 10,230 | 5,699 | 209 | 493 | 378 | 17,009 | |||||||||||
90,883 | 63,318 | 22,731 | 2,802 | 6,860 | 186,594 | ||||||||||||
Gains (Losses) on Asset Dispositions, Net | 349 | 330 | — | (2 | ) | — | 677 | ||||||||||
Operating Income (Loss) | 19,147 | (1,533 | ) | 1,022 | (662 | ) | (6,868 | ) | 11,106 | ||||||||
Other Income (Expense): | |||||||||||||||||
Foreign currency gains (losses), net | 1 | (191 | ) | — | — | (1 | ) | (191 | ) | ||||||||
Other, net | 28 | — | (2 | ) | — | (1 | ) | 25 | |||||||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | 700 | (618 | ) | (128 | ) | (266 | ) | — | (312 | ) | |||||||
Segment Profit (Loss) | 19,876 | (2,342 | ) | 892 | (928 | ) | |||||||||||
Other Income (Expense) not included in Segment Profit (Loss) | 9,763 | ||||||||||||||||
Less Equity Losses included in Segment Profit (Loss) | 312 | ||||||||||||||||
Income Before Taxes and Equity Losses | 20,703 |
17
Ocean Services $’000 | Inland Services $’000 | Witt O’Brien’s $’000 | Other $’000 | Corporate and Eliminations $’000 | Total $’000 | ||||||||||||
For the six months ended June 30, 2019 | |||||||||||||||||
Operating Revenues: | |||||||||||||||||
External customers | 218,953 | 127,057 | 56,590 | 3,947 | — | 406,547 | |||||||||||
Intersegment | — | — | 106 | — | (106 | ) | — | ||||||||||
218,953 | 127,057 | 56,696 | 3,947 | (106 | ) | 406,547 | |||||||||||
Costs and Expenses: | |||||||||||||||||
Operating | 141,162 | 108,731 | 37,463 | 2,725 | (99 | ) | 289,982 | ||||||||||
Administrative and general | 19,621 | 6,489 | 13,233 | 1,676 | 12,441 | 53,460 | |||||||||||
Depreciation and amortization | 20,567 | 11,424 | 415 | 982 | 757 | 34,145 | |||||||||||
181,350 | 126,644 | 51,111 | 5,383 | 13,099 | 377,587 | ||||||||||||
Gains (Losses) on Asset Dispositions, Net | 366 | 750 | — | (2 | ) | — | 1,114 | ||||||||||
Operating Income (Loss) | 37,969 | 1,163 | 5,585 | (1,438 | ) | (13,205 | ) | 30,074 | |||||||||
Other Income (Expense): | |||||||||||||||||
Foreign currency gains (losses), net | (46 | ) | 268 | — | — | (8 | ) | 214 | |||||||||
Other, net | (623 | ) | — | (5 | ) | — | 9 | (619 | ) | ||||||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | 811 | (3,090 | ) | (195 | ) | (356 | ) | — | (2,830 | ) | |||||||
Segment Profit (Loss) | 38,111 | (1,659 | ) | 5,385 | (1,794 | ) | |||||||||||
Other Income (Expense) not included in Segment Profit (Loss) | 8,825 | ||||||||||||||||
Less Equity Losses included in Segment Profit (Loss) | 2,830 | ||||||||||||||||
Income Before Taxes and Equity Losses | 38,494 | ||||||||||||||||
Capital Expenditures | 542 | 6,860 | 40 | 308 | — | 7,750 | |||||||||||
As of June 30, 2019 | |||||||||||||||||
Property and Equipment: | |||||||||||||||||
Historical cost | 930,719 | 446,392 | 1,267 | 7,574 | 30,132 | 1,416,084 | |||||||||||
Accumulated depreciation | (361,863 | ) | (205,792 | ) | (1,079 | ) | (1,472 | ) | (22,962 | ) | (593,168 | ) | |||||
Net property and equipment | 568,856 | 240,600 | 188 | 6,102 | 7,170 | 822,916 | |||||||||||
Operating Lease Right-of-Use Assets | 122,292 | 34,791 | 877 | — | 3,558 | 161,518 | |||||||||||
Investments, at Equity, and Advances to 50% or Less Owned Companies | 77,644 | 56,504 | 280 | 21,217 | — | 155,645 | |||||||||||
Inventories | 1,494 | 2,973 | 647 | 179 | — | 5,293 | |||||||||||
Goodwill | 1,852 | 2,356 | 28,506 | — | — | 32,714 | |||||||||||
Intangible Assets | 8,301 | 8,244 | 6,228 | — | — | 22,773 | |||||||||||
Other current and long-term assets, excluding cash and near cash assets(1) | 56,598 | 49,737 | 91,993 | 3,630 | 17,319 | 219,277 | |||||||||||
Segment Assets | 837,037 | 395,205 | 128,719 | 31,128 | |||||||||||||
Cash and near cash assets(1) | 183,254 | ||||||||||||||||
Total Assets | 1,603,390 |
______________________
(1) | Cash and near cash assets includes cash, cash equivalents, restricted cash, restricted cash equivalents, marketable securities and construction reserve funds. |
18
Ocean Services $’000 | Inland Services $’000 | Witt O’Brien’s $’000 | Other $’000 | Corporate and Eliminations $’000 | Total $’000 | ||||||||||||
For the six months ended June 30, 2019 | |||||||||||||||||
Revenues from Contracts with Customers: | |||||||||||||||||
Voyage charters | 25,729 | — | — | — | — | 25,729 | |||||||||||
Contracts of affreightment | 10,647 | 94,795 | — | — | — | 105,442 | |||||||||||
Tariff | 41,962 | — | — | — | — | 41,962 | |||||||||||
Unit freight | 32,312 | — | — | — | — | 32,312 | |||||||||||
Terminal operations | — | 8,604 | — | — | — | 8,604 | |||||||||||
Fleeting operations | — | 7,967 | — | — | — | 7,967 | |||||||||||
Logistics Services | — | 8,113 | — | — | — | 8,113 | |||||||||||
Time and material contracts | — | — | 50,586 | — | — | 50,586 | |||||||||||
Retainer contracts | — | — | 4,802 | — | — | 4,802 | |||||||||||
Product sales(1) | — | — | — | 2,887 | — | 2,887 | |||||||||||
Other | 1,922 | 2,279 | 1,308 | 584 | (106 | ) | 5,987 | ||||||||||
Lease Revenues: | |||||||||||||||||
Time charter, bareboat charter and rental income | 106,381 | 5,299 | — | 476 | — | 112,156 | |||||||||||
218,953 | 127,057 | 56,696 | 3,947 | (106 | ) | 406,547 |
(1) | Costs of goods sold related to product sales was $2.4 million. |
Ocean Services $’000 | Inland Services $’000 | Witt O’Brien’s $’000 | Other $’000 | Corporate and Eliminations $’000 | Total $’000 | ||||||||||||
For the three months ended June 30, 2018 | |||||||||||||||||
Operating Revenues: | |||||||||||||||||
External customers | 105,155 | 73,409 | 37,298 | 969 | — | 216,831 | |||||||||||
Intersegment | — | — | 10 | — | (10 | ) | — | ||||||||||
105,155 | 73,409 | 37,308 | 969 | (10 | ) | 216,831 | |||||||||||
Costs and Expenses: | |||||||||||||||||
Operating | 75,044 | 62,361 | 24,399 | 392 | (28 | ) | 162,168 | ||||||||||
Administrative and general | 10,328 | 3,216 | 5,140 | 498 | 5,129 | 24,311 | |||||||||||
Depreciation and amortization | 11,620 | 6,243 | 491 | 62 | 428 | 18,844 | |||||||||||
96,992 | 71,820 | 30,030 | 952 | 5,529 | 205,323 | ||||||||||||
Gains on Asset Dispositions, Net | 3 | 503 | — | — | — | 506 | |||||||||||
Operating Income (Loss) | 8,166 | 2,092 | 7,278 | 17 | (5,539 | ) | 12,014 | ||||||||||
Other Income (Expense): | |||||||||||||||||
Foreign currency gains (losses), net | (76 | ) | (1,183 | ) | (17 | ) | 1 | (71 | ) | (1,346 | ) | ||||||
Other, net | 398 | 14 | — | 53,902 | (3 | ) | 54,311 | ||||||||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | 1,267 | 584 | (32 | ) | 112 | — | 1,931 | ||||||||||
Segment Profit | 9,755 | 1,507 | 7,229 | 54,032 | |||||||||||||
Other Income (Expense) not included in Segment Profit | (11,050 | ) | |||||||||||||||
Less Equity Earnings included in Segment Profit | (1,931 | ) | |||||||||||||||
Income Before Taxes and Equity Earnings | 53,929 |
19
Ocean Services $’000 | Inland Services $’000 | Witt O’Brien’s $’000 | Other $’000 | Corporate and Eliminations $’000 | Total $’000 | ||||||||||||
For the six months ended June 30, 2018 | |||||||||||||||||
Operating Revenues: | |||||||||||||||||
External customers | 207,539 | 129,330 | 63,701 | 1,085 | — | 401,655 | |||||||||||
Intersegment | — | — | 39 | — | (39 | ) | — | ||||||||||
207,539 | 129,330 | 63,740 | 1,085 | (39 | ) | 401,655 | |||||||||||
Costs and Expenses: | |||||||||||||||||
Operating | 140,377 | 110,542 | 42,705 | 392 | (71 | ) | 293,945 | ||||||||||
Administrative and general | 20,877 | 6,528 | 10,507 | 684 | 11,510 | 50,106 | |||||||||||
Depreciation and amortization | 24,265 | 12,477 | 792 | 62 | 857 | 38,453 | |||||||||||
185,519 | 129,547 | 54,004 | 1,138 | 12,296 | 382,504 | ||||||||||||
Gains on Asset Dispositions, Net | 1,886 | 5,665 | — | — | — | 7,551 | |||||||||||
Operating Income (Loss) | 23,906 | 5,448 | 9,736 | (53 | ) | (12,335 | ) | 26,702 | |||||||||
Other Income (Expense): | |||||||||||||||||
Foreign currency gains (losses), net | (127 | ) | 520 | (15 | ) | 1 | (35 | ) | 344 | ||||||||
Other, net | 681 | 14 | — | 53,902 | (3 | ) | 54,594 | ||||||||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | 1,582 | (1,870 | ) | 103 | 1,279 | — | 1,094 | ||||||||||
Segment Profit | 26,042 | 4,112 | 9,824 | 55,129 | |||||||||||||
Other Income (Expense) not included in Segment Profit | (21,597 | ) | |||||||||||||||
Less Equity Earnings included in Segment Profit | (1,094 | ) | |||||||||||||||
Income Before Taxes and Equity Earnings | 60,043 | ||||||||||||||||
Capital Expenditures | 28,503 | 2,917 | — | 85 | 127 | 31,632 | |||||||||||
As of June 30, 2018 | |||||||||||||||||
Property and Equipment: | |||||||||||||||||
Historical cost | 920,908 | 436,780 | 1,227 | 4,467 | 30,132 | 1,393,514 | |||||||||||
Accumulated depreciation | (320,659 | ) | (184,747 | ) | (984 | ) | (62 | ) | (21,362 | ) | (527,814 | ) | |||||
Net property and equipment | 600,249 | 252,033 | 243 | 4,405 | 8,770 | 865,700 | |||||||||||
Investments, at Equity, and Advances to 50% or Less Owned Companies | 59,527 | 64,398 | 589 | 25,644 | — | 150,158 | |||||||||||
Inventories | 2,172 | 2,208 | 152 | 158 | — | 4,690 | |||||||||||
Goodwill | 1,852 | 2,416 | 28,506 | — | — | 32,774 | |||||||||||
Intangible Assets | 9,629 | 9,738 | 7,531 | — | — | 26,898 | |||||||||||
Other current and long-term assets, excluding cash and near cash assets(1) | 56,888 | 73,980 | 61,035 | 2,789 | 4,747 | 199,439 | |||||||||||
Segment Assets | 730,317 | 404,773 | 98,056 | 32,996 | |||||||||||||
Cash and near cash assets(1) | 376,265 | ||||||||||||||||
Total Assets | 1,655,924 |
______________________
(1) | Cash and near cash assets includes cash, cash equivalents, restricted cash, restricted cash equivalents, marketable securities and construction reserve funds. |
20
Ocean Services $’000 | Inland Services $’000 | Witt O’Brien’s $’000 | Other $’000 | Corporate and Eliminations $’000 | Total $’000 | ||||||||||||
For the six months ended June 30, 2018 | |||||||||||||||||
Revenues from Contracts with Customers: | |||||||||||||||||
Voyage charters | 41,258 | — | — | — | — | 41,258 | |||||||||||
Contracts of affreightment | 7,865 | 96,303 | — | — | — | 104,168 | |||||||||||
Tariff | 36,540 | — | — | — | — | 36,540 | |||||||||||
Unit freight | 27,579 | — | — | — | — | 27,579 | |||||||||||
Terminal operations | — | 11,814 | — | — | — | 11,814 | |||||||||||
Fleeting operations | — | 8,952 | — | — | — | 8,952 | |||||||||||
Logistics Services | — | 6,214 | — | — | — | 6,214 | |||||||||||
Time and material contracts | — | — | 58,031 | — | — | 58,031 | |||||||||||
Retainer contracts | — | — | 4,742 | — | — | 4,742 | |||||||||||
Product sales(1) | — | — | — | 610 | — | 610 | |||||||||||
Other | 1,497 | 2,369 | 967 | 416 | (39 | ) | 5,210 | ||||||||||
Lease Revenues: | |||||||||||||||||
Time charter, bareboat charter and rental income | 92,800 | 3,678 | — | 59 | — | 96,537 | |||||||||||
207,539 | 129,330 | 63,740 | 1,085 | (39 | ) | 401,655 |
(1) | Costs of goods sold related to product sales was $0.3 million. |
21
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, changes in U.S. and international trade policies 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 that are referred to and described under Other that primarily includes CLEANCOR Energy Solutions LLC and its subsidiaries (collectively “Cleancor”), lending and leasing activities and noncontrolling investments in various other businesses.
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”) and six months (“Current Six Months”) ended June 30, 2019 compared with the three months (“Prior Year Quarter”) and six months (“Prior Six Months”) ended June 30, 2018. See “Item 1. Financial Statements—Note 13. 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, 2018.
22
Ocean Transportation & Logistics Services | ||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
$’000 | % | $’000 | % | $’000 | % | $’000 | % | |||||||||||||||
Operating Revenues: | ||||||||||||||||||||||
United States | 90,346 | 82 | 87,414 | 83 | 180,660 | 83 | 170,463 | 82 | ||||||||||||||
Foreign | 19,335 | 18 | 17,741 | 17 | 38,293 | 17 | 37,076 | 18 | ||||||||||||||
109,681 | 100 | 105,155 | 100 | 218,953 | 100 | 207,539 | 100 | |||||||||||||||
Costs and Expenses: | ||||||||||||||||||||||
Operating: | ||||||||||||||||||||||
Personnel | 23,729 | 22 | 22,584 | 21 | 46,911 | 21 | 45,884 | 22 | ||||||||||||||
Repairs and maintenance | 5,953 | 5 | 6,249 | 6 | 12,220 | 6 | 11,601 | 5 | ||||||||||||||
Dry-docking | 3,371 | 3 | 7,430 | 7 | 6,203 | 3 | 9,596 | 5 | ||||||||||||||
Insurance and loss reserves | 1,615 | 2 | 1,542 | 1 | 3,843 | 2 | 3,534 | 2 | ||||||||||||||
Fuel, lubes and supplies | 9,981 | 9 | 10,112 | 10 | 17,770 | 8 | 18,624 | 9 | ||||||||||||||
Leased-in equipment | 11,040 | 10 | 11,434 | 11 | 23,126 | 11 | 22,512 | 11 | ||||||||||||||
Other | 15,541 | 14 | 15,693 | 15 | 31,089 | 14 | 28,626 | 14 | ||||||||||||||
71,230 | 65 | 75,044 | 71 | 141,162 | 65 | 140,377 | 68 | |||||||||||||||
Administrative and general | 9,423 | 9 | 10,328 | 10 | 19,621 | 9 | 20,877 | 10 | ||||||||||||||
Depreciation and amortization | 10,230 | 9 | 11,620 | 11 | 20,567 | 9 | 24,265 | 11 | ||||||||||||||
90,883 | 83 | 96,992 | 92 | 181,350 | 83 | 185,519 | 89 | |||||||||||||||
Gains on Asset Dispositions | 349 | — | 3 | — | 366 | — | 1,886 | 1 | ||||||||||||||
Operating Income | 19,147 | 17 | 8,166 | 8 | 37,969 | 17 | 23,906 | 12 | ||||||||||||||
Other Income (Expense): | ||||||||||||||||||||||
Foreign currency gains (losses), net | 1 | — | (76 | ) | — | (46 | ) | — | (127 | ) | — | |||||||||||
Other, net | 28 | — | 398 | — | (623 | ) | — | 681 | — | |||||||||||||
Equity in Earnings of 50% or Less Owned Companies, Net of Tax | 700 | 1 | 1,267 | 1 | 811 | — | 1,582 | 1 | ||||||||||||||
Segment Profit(1) | 19,876 | 18 | 9,755 | 9 | 38,111 | 17 | 26,042 | 13 |
(1) | Includes amounts attributable to both SEACOR and noncontrolling interests. See “Item 1. Financial Statements—Note 9. Noncontrolling Interests in Subsidiaries” included in Part I of this Quarterly Report on Form 10-Q. |
23
Operating Revenues by Service Line. The table below sets forth, for the periods indicated, operating revenues by service line.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||
$’000 | % | $’000 | % | $’000 | % | $’000 | % | ||||||||||||
Operating Revenues: | |||||||||||||||||||
Bulk Transportation Services: | |||||||||||||||||||
Petroleum and chemical: | |||||||||||||||||||
Time charter | 25,900 | 24 | 23,706 | 23 | 56,155 | 26 | 49,217 | 24 | |||||||||||
Bareboat charter | 6,989 | 6 | 9,151 | 9 | 14,400 | 6 | 18,201 | 9 | |||||||||||
Voyage charter | 1,333 | 1 | 2,284 | 2 | 1,333 | 1 | 7,390 | 4 | |||||||||||
Dry bulk: | |||||||||||||||||||
Contracts of affreightment | 6,917 | 6 | 4,817 | 4 | 10,647 | 5 | 7,865 | 4 | |||||||||||
Voyage charter | 1,806 | 2 | 4,672 | 4 | 3,919 | 2 | 9,209 | 4 | |||||||||||
Port & Infrastructure Services: | |||||||||||||||||||
Tariff | 20,965 | 19 | 18,539 | 18 | 41,962 | 19 | 36,540 | 17 | |||||||||||
Time charter | 1,876 | 2 | 1,171 | 1 | 3,175 | 1 | 2,522 | 1 | |||||||||||
Bareboat charter | 1,588 | 1 | 1,856 | 2 | 3,370 | 2 | 3,679 | 2 | |||||||||||
Logistics Services: | |||||||||||||||||||
Time charter(1) | 11,743 | 11 | 8,276 | 8 | 29,281 | 13 | 19,181 | 9 | |||||||||||
Voyage charter | 13,277 | 12 | 15,843 | 15 | 20,477 | 9 | 24,659 | 12 | |||||||||||
Unit freight | 16,299 | 15 | 14,195 | 13 | 32,312 | 15 | 27,579 | 13 | |||||||||||
Managed services | 988 | 1 | 645 | 1 | 1,922 | 1 | 1,497 | 1 | |||||||||||
109,681 | 100 | 105,155 | 100 | 218,953 | 100 | 207,539 | 100 |
(1) | Includes MSP revenues of $4.6 million and $7.7 million for the three and six months ended June 30, 2019 and $5.0 million and $10.0 million for the three and six months ended June 30, 2018, respectively. |
Current Year Quarter compared with Prior Year Quarter
Operating Revenues. Operating revenues were $4.5 million higher.
Operating revenues from bulk transportation services were $1.7 million lower. Operating revenues from petroleum and chemical transportation were $0.9 million lower primarily due to the return of one previously leased-in U.S.-flag petroleum and chemical carrier in January 2019 partially offset by less out-of-service time for regulatory dry-dockings and repairs. Operating revenues from dry bulk transportation were $0.8 million lower primarily due to lower activities.
Operating revenues from port and infrastructure services were $2.9 million higher primarily due to higher port traffic.
Operating revenues from logistics services were $3.0 million higher primarily due to an increase in unit freight shipping demand for containers and project cargoes. The changes in time charter and voyage charter revenues for military and commercial cargo activity were the result of changes in contract status.
Operating Expenses. Operating expenses were $3.8 million lower primarily due to fewer regulatory dry-dockings in the Current Year Quarter, partially offset by higher personnel expenses primarily due to pre-negotiated rate increases under the terms of certain collective bargaining agreements.
Administrative and General. Administrative and general expenses were $0.9 million lower primarily due to lower legal and professional fees.
Depreciation and Amortization. Depreciation and amortization expenses were $1.4 million lower primarily due to the U.S.-flag bulk carriers being fully depreciated during 2018.
Gains on Asset Dispositions. During the Current Year Quarter, the Company recognized $0.3 million of previously deferred gains following the repayment of a note receivable related to the sale of real property.
Operating Income. Excluding gains on asset dispositions, operating income as a percentage of operating revenues was 17% in the Current Year Quarter compared with 8% in the Prior Year Quarter. The improvement was primarily due to higher
24
operating revenues, lower dry-docking costs and lower depreciation and amortization expenses, partially offset by higher personnel expenses.
Equity in Earnings of 50% or Less Owned Companies, Net of Tax. Equity in earnings of 50% or less owned companies, net of tax, were $0.6 million lower. Equity earnings from Trailer Bridge were $2.1 million lower primarily due to increased capacity in the Puerto Rico liner trade and a reduction in the movement of relief supplies following the 2017 hurricanes. The decrease was partially offset by an improvement in equity earnings from the Company’s rail ferry joint ventures (RF Vessel Holdings and Golfo de Mexico) as a consequence of out-of-service time and associated dry-docking costs and repair and maintenance expenses for the rail ferries in the Prior Year Quarter.
Current Six Months compared with Prior Six Months
Operating Revenues. Operating revenues were $11.4 million higher.
Operating revenues from bulk transportation services were $5.4 million lower. Operating revenues from petroleum and chemical transportation were $2.9 million lower primarily due to the return of one previously leased-in U.S.-flag petroleum and chemical carrier in January 2019 and the scrapping of another U.S.-flag petroleum and chemical carrier in the Prior Six Months. These decreases were partially offset by the return to service of one U.S.-flag petroleum and chemical carrier in the Prior Six Months following the completion of its regulatory dry-docking and a higher time charter rate in the Current Six Months for another U.S.-flag petroleum and chemical carrier. Operating revenues from dry bulk transportation were $2.5 million lower primarily due to higher off-hire time for regulatory dry-dockings and mobilization.
Operating revenues from port and infrastructure services were $5.8 million higher primarily due to higher port traffic.
Operating revenues from logistics services were $10.7 million higher primarily due to an increase in unit freight shipping demand for containers and project cargoes. The changes in time charter and voyage charter revenues for military and commercial cargo activity were the result of changes in contract status.
Operating Expenses. Operating expenses were $0.8 million higher primarily due to higher personnel expenses as a result of pre-negotiated rate increases under the terms of certain collective bargaining agreements, higher repair and maintenance expenses for U.S.-flag bulk carriers and higher voyage costs for logistics services as a consequence of the increased revenues discussed above. These increases were partially offset by lower regulatory dry-docking costs across the fleet.
Administrative and General. Administrative and general expenses were $1.3 million lower primarily due to lower legal and professional fees.
Depreciation and Amortization. Depreciation and amortization expenses were $3.7 million lower primarily due to the U.S.-flag bulk carriers being fully depreciated during 2018.
Gains on Asset Dispositions. During the Current Six Months, the Company recognized $0.3 million of previously deferred gains following the repayment of a note receivable related to the sale of real property. During the Prior Six Months, the Company sold one U.S.-flag petroleum and chemical carrier, one U.S.-flag harbor tug and other equipment for net proceeds of $5.1 million and gains of $1.9 million.
Operating Income. Excluding gains on asset dispositions, operating income as a percentage of operating revenues was 17% compared with 11%. The improvement was primarily due to higher operating revenues, lower administrative and general expenses and lower depreciation and amortization expenses.
Equity in Earnings of 50% or Less Owned Companies, Net of Tax. Equity in earnings of 50% or less owned companies, net of tax, were $0.8 million lower. Equity earnings from Trailer Bridge were $2.9 million lower primarily due to increased capacity in the Puerto Rico liner trade and a reduction in the movement of relief supplies following the 2017 hurricanes. The decrease was partially offset by an improvement in equity earnings from the Company’s rail ferry joint ventures (RF Vessel Holdings and Golfo de Mexico) as a consequence of out-of-service time and associated dry-docking costs and repair and maintenance expenses for the rail ferries in the Prior Six Months.
25
Fleet Count
The composition of Ocean Services’ fleet as of June 30 was as follows:
Owned | Leased-in | Joint Ventured | Total | ||||||||
2019 | |||||||||||
Bulk Transportation Services: | |||||||||||
Petroleum and chemical carriers - U.S.-flag | 7 | 2 | — | 9 | |||||||
Bulk carriers - U.S.-flag | 2 | — | — | 2 | |||||||
Port & Infrastructure Services: | |||||||||||
Harbor tugs - U.S.-flag | 19 | 5 | — | 24 | |||||||
Harbor tugs - Foreign-flag | 6 | — | 2 | 8 | |||||||
Offshore tugs - U.S.-flag | 1 | — | — | 1 | |||||||
Ocean liquid tank barges - U.S.-flag | 5 | — | — | 5 | |||||||
Ocean liquid tank barges - Foreign-flag | — | — | 1 | 1 | |||||||
Specialty vessel - Foreign-flag(1) | — | — | 2 | 2 | |||||||
Logistics Services: | |||||||||||
PCTC(2) - U.S.-flag | — | 4 | — | 4 | |||||||
Short-sea container/RORO(3) vessels - Foreign-flag | 9 | — | — | 9 | |||||||
RORO(3) & deck barges - U.S.-flag | — | — | 7 | 7 | |||||||
Rail ferries - Foreign-flag | — | — | 2 | 2 | |||||||
49 | 11 | 14 | 74 | ||||||||
2018 | |||||||||||
Bulk Transportation Services: | |||||||||||
Petroleum and chemical carriers - U.S.-flag | 7 | 3 | — | 10 | |||||||
Bulk carriers - U.S.-flag | 2 | — | — | 2 | |||||||
Port & Infrastructure Services: | |||||||||||
Harbor tugs - U.S.-flag | 18 | 6 | — | 24 | |||||||
Harbor tugs - Foreign-flag | 6 | — | 2 | 8 | |||||||
Offshore tugs - U.S.-flag | 1 | — | — | 1 | |||||||
Ocean liquid tank barges - U.S.-flag | 5 | — | — | 5 | |||||||
Ocean liquid tank barges - Foreign-flag | — | — | 1 | 1 | |||||||
Logistics Services: | |||||||||||
PCTC(2) - U.S.-flag | — | 4 | — | 4 | |||||||
Short-sea container/RORO(3) vessels - Foreign-flag | 9 | — | — | 9 | |||||||
RORO(3) & deck barges - U.S.-flag | — | — | 7 | 7 | |||||||
Rail ferries - Foreign-flag | — | — | 2 | 2 | |||||||
48 | 13 | 12 | 73 |
(1) | Line handling vessel |
(2) | Pure Car/Truck Carrier. |
(3) | Roll On/Roll Off. |
26
Inland Transportation & Logistics Services | |||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||
$’000 | % | $’000 | % | $’000 | % | $’000 | % | ||||||||||||||||
Operating Revenues: | |||||||||||||||||||||||
United States | 58,594 | 95 | 70,142 | 96 | 122,206 | 96 | 123,880 | 96 | |||||||||||||||
Foreign | 2,861 | 5 | 3,267 | 4 | 4,851 | 4 | 5,450 | 4 | |||||||||||||||
61,455 | 100 | 73,409 | 100 | 127,057 | 100 | 129,330 | 100 | ||||||||||||||||
Costs and Expenses: | |||||||||||||||||||||||
Operating: | |||||||||||||||||||||||
Barge logistics | 36,582 | 59 | 47,458 | 64 | 70,167 | 55 | 81,587 | 63 | |||||||||||||||
Personnel | 4,205 | 7 | 4,435 | 6 | 8,777 | 7 | 9,051 | 7 | |||||||||||||||
Repairs and maintenance | 1,624 | 3 | 1,216 | 2 | 2,838 | 2 | 2,756 | 2 | |||||||||||||||
Insurance and loss reserves | 1,059 | 2 | 597 | 1 | 2,075 | 2 | 1,243 | 1 | |||||||||||||||
Fuel, lubes and supplies | 1,872 | 3 | 1,954 | 3 | 3,683 | 3 | 3,833 | 3 | |||||||||||||||
Leased-in equipment | 3,508 | 6 | 2,151 | 3 | 7,118 | 6 | 4,020 | 3 | |||||||||||||||
Other | 4,090 | 7 | 4,471 | 6 | 8,309 | 7 | 7,859 | 6 | |||||||||||||||
Net barge pool earnings attributable to third parties | 1,546 | 2 | 79 | — | 5,764 | 4 | 193 | — | |||||||||||||||
54,486 | 89 | 62,361 | 85 | 108,731 | 86 | 110,542 | 85 | ||||||||||||||||
Administrative and general | 3,133 | 5 | 3,216 | 4 | 6,489 | 5 | 6,528 | 5 | |||||||||||||||
Depreciation and amortization | 5,699 | 9 | 6,243 | 9 | 11,424 | 9 | 12,477 | 10 | |||||||||||||||
63,318 | 103 | 71,820 | 98 | 126,644 | 100 | 129,547 | 100 | ||||||||||||||||
Gains on Asset Dispositions | 330 | — | 503 | 1 | 750 | 1 | 5,665 | 4 | |||||||||||||||
Operating Income (Loss) | (1,533 | ) | (3 | ) | 2,092 | 3 | 1,163 | 1 | 5,448 | 4 | |||||||||||||
Other Income: | |||||||||||||||||||||||
Foreign currency gains (losses), net | (191 | ) | — | (1,183 | ) | (2 | ) | 268 | — | 520 | — | ||||||||||||
Other, net | — | — | 14 | — | — | — | 14 | — | |||||||||||||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | (618 | ) | (1 | ) | 584 | 1 | (3,090 | ) | (2 | ) | (1,870 | ) | (1 | ) | |||||||||
Segment Profit (Loss)(1) | (2,342 | ) | (4 | ) | 1,507 | 2 | (1,659 | ) | (1 | ) | 4,112 | 3 |
(1) | Includes amounts attributable to both SEACOR and noncontrolling interests. See “Item 1. Financial Statements—Note 9. Noncontrolling Interests in Subsidiaries” included in Part I of this Quarterly Report on Form 10-Q. |
27
Operating Revenues by Service Line. The table below sets forth, for the periods indicated, operating revenues by service line.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||
$’000 | % | $’000 | % | $’000 | % | $’000 | % | ||||||||||||
Operating Revenues: | |||||||||||||||||||
Bulk Transportation Services: | |||||||||||||||||||
Dry-cargo barge pools(1) | 42,950 | 70 | 52,746 | 72 | 89,943 | 71 | 90,853 | 70 | |||||||||||
Charter-out of dry-cargo barges | — | — | — | — | — | — | 5 | — | |||||||||||
International liquid tank barge operations | 2,861 | 5 | 3,267 | 4 | 4,852 | 4 | 5,450 | 4 | |||||||||||
Boat, specialty barge and other operations | 1,702 | 3 | 884 | 1 | 3,338 | 3 | 1,775 | 1 | |||||||||||
Port & Infrastructure Services: | |||||||||||||||||||
Terminal operations | 3,451 | 6 | 6,485 | 9 | 9,258 | 7 | 12,649 | 10 | |||||||||||
Fleeting operations | 4,604 | 7 | 5,268 | 7 | 9,340 | 7 | 10,122 | 8 | |||||||||||
Machine shop and shipyard | 826 | 1 | 884 | 1 | 1,254 | 1 | 1,316 | 1 | |||||||||||
Logistics services | 4,575 | 7 | 3,400 | 5 | 8,113 | 6 | 6,214 | 5 | |||||||||||
Managed services | 486 | 1 | 475 | 1 | 959 | 1 | 946 | 1 | |||||||||||
61,455 | 100 | 73,409 | 100 | 127,057 | 100 | 129,330 | 100 |
(1) | Operating revenues for the three and six months ended June 30, 2019, includes $18.6 million and $38.8 million, respectively, attributable to third-party barge owners participating in dry-cargo barge pools managed by the Company. Operating revenues for the three and six months ended June 30, 2018, includes $22.4 million and $37.7 million, respectively, attributable to third-party barge owners participating in dry-cargo barge pools managed by the Company. |
Operating Revenues. Operating revenues were $12.0 million lower in the Current Year Quarter compared with the Prior Year Quarter and $2.3 million lower in the Current Six Months compared with the Prior Six Months. Operating revenues in the Current Year Quarter and Current Six Months were impacted by prolonged flooding throughout the U.S. Inland Waterways resulting in a severe disruption to bulk transportation activities.
Operating revenues from bulk transportation services were $9.4 million lower in the Current Year Quarter compared with the Prior Year Quarter and $0.1 million higher in the Current Six Months compared with the Prior Six Months. Operating revenues from the dry-cargo barge pools were $9.8 million lower in the Current Year Quarter compared with the Prior Year Quarter and $0.9 million lower in the Current Six Months compared with the Prior Six Months primarily due to the severe disruption to bulk transportation activities discussed above. Operating revenues from boat, specialty barge and other operations were $0.8 million higher in the Current Year Quarter compared with the Prior Year Quarter and $1.6 million higher in the Current Six Months compared with the Prior Six Months primarily due to the adoption of the new lease accounting standard.
Operating revenues from port and infrastructure services were $3.8 million lower in the Current Year Quarter compared with the Prior Year Quarter and $4.2 million lower in the Current Six Months compared with the Prior Six Months. The prolonged flooding closed the St. Louis harbor for 45 days during the Current Year Quarter and restricted activity at the Company's terminal and fleeting locations; the volumes handled by the Company's terminals in the St. Louis area were approximately 60% lower in the Current Year Quarter compared with the Prior Year Quarter and approximately 30% lower in the Current Six Months compared with the Prior Six Months.
Operating revenues from logistics services were $1.2 million higher in the Current Year Quarter compared with the Prior Year Quarter and $1.9 million higher in the Current Six Months compared with the Prior Six Months primarily due to an increase in container movements.
Operating Expenses. Operating expenses were $7.9 million lower in the Current Year Quarter compared with the Prior Year Quarter and $1.8 million lower in the Current Six Months compared with the Prior Six Months.
Barge logistics expenses were $10.9 million lower in the Current Year Quarter compared with the Prior Year Quarter and $11.4 million lower in the Current Six Months compared with the Prior Six Months primarily due to lower towing and switching costs as a result of the severe disruption to bulk transportation activities discussed above. Personnel expenses were $0.3 million lower in the Current Six Months compared with the Prior Six Months primarily due to lower activity levels at the Company’s terminal and fleeting locations in the St. Louis harbor resulting in lower overtime pay. Repairs and maintenance expenses were $0.4 million higher in the Current Year Quarter compared with the Prior Year Quarter primarily due to unscheduled repairs in the
28
Current Year Quarter. Insurance and loss reserves were $0.5 million higher in the Current Year Quarter compared with the Prior Year Quarter and $0.8 million higher in the Current Six Months compared with the Prior Six Months primarily due to the accrual of aggregate insurance deductibles. Leased-in equipment expenses were $1.4 million higher in the Current Year Quarter compared with the Prior Year Quarter and $3.1 million higher in the Current Six Months compared with the Prior Six Months primarily due to the adoption of the new lease accounting standard.
Depreciation and Amortization. Depreciation and amortization expenses were $0.5 million lower in the Current Year Quarter compared with the Prior Year Quarter and $1.1 million lower in the Current Six Months compared with the Prior Six Months as a result of certain liquid terminal assets being fully depreciated during 2018.
Gains on Asset Dispositions. During the Current Year Quarter, the Company recognized previously deferred gains of $0.3 million. During the Prior Year Quarter, the Company recognized previously deferred gains of $0.5 million. During the Current Six Months, the Company recognized previously deferred gains of $0.7 million. During the Prior Six Months, the Company sold 32 dry-cargo barges, two specialty barges and other equipment for net proceeds of $10.8 million and gains of $4.7 million. In addition, the Company recognized previously deferred gains of $1.0 million.
Operating Income (Loss). Excluding gains on asset dispositions, operating loss as a percentage of operating revenues was 3% in the Current Year Quarter compared with operating income as a percentage of operating revenues of 2% in the Prior Year Quarter and operating income as a percentage of operating revenues was 0% in both the Current Six Months and the Prior Six Months. Operating results in the Current Year Quarter and Current Six Months were negatively impacted by the prolonged flooding throughout the U.S. Inland Waterways resulting in a severe disruption to bulk transportation activities.
Foreign currency gains (losses), net. Foreign currency gains and losses in all periods were primarily due to movements in the exchange rate of the Colombian peso in relation to the U.S. dollar underlying certain of the Company’s intercompany lease obligations.
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax. Equity in earnings (losses) of 50% or less owned companies, net of tax, were $1.2 million lower during the Current Year Quarter compared with the Prior Year Quarter and $1.2 million lower during the Current Six Months compared with the Prior Six Months. Equity earnings from SCF Bunge Marine, the Company’s joint venture that operates towboats on the U.S. Inland Waterways, were $1.1 million lower during the Current Year Quarter compared with the Prior Year Quarter and $1.0 million lower during the Current Six Months compared to the Prior Six Months primarily due to the prolonged flooding resulting in poor operating conditions, tow size restrictions and periodic river and harbor closures.
29
Fleet Count
The composition of Inland Services’ fleet as of June 30 was as follows:
Owned | Leased-in | Joint Ventured | Pooled | Total | ||||||||||
2019 | ||||||||||||||
Bulk Transportation Services: | ||||||||||||||
Dry-cargo barges | 586 | 48 | 258 | 482 | 1,374 | |||||||||
Liquid tank barges | 20 | — | — | — | 20 | |||||||||
Specialty barges | 5 | — | — | — | 5 | |||||||||
Towboats: | ||||||||||||||
4,000 hp - 6,600 hp | 3 | 4 | 11 | — | 18 | |||||||||
3,300 hp - 3,900 hp | 1 | — | 2 | — | 3 | |||||||||
Less than 3,200 hp | 2 | — | — | — | 2 | |||||||||
Port & Infrastructure Services: | ||||||||||||||
Harbor boats: | ||||||||||||||
1,100 hp - 2,000 hp | 12 | 6 | — | — | 18 | |||||||||
Less than 1,100 hp | 6 | — | — | — | 6 | |||||||||
Logistics Services: | ||||||||||||||
Dry-cargo barges | 25 | 2 | — | 6 | 33 | |||||||||
660 | 60 | 271 | 488 | 1,479 | ||||||||||
2018 | ||||||||||||||
Bulk Transportation Services: | ||||||||||||||
Dry-cargo barges | 584 | 48 | 258 | 488 | 1,378 | |||||||||
Liquid tank barges | 20 | — | — | — | 20 | |||||||||
Specialty barges | 5 | — | — | — | 5 | |||||||||
Towboats: | ||||||||||||||
4,000 hp - 6,600 hp | 3 | 4 | 11 | — | 18 | |||||||||
3,300 hp - 3,900 hp | 1 | — | 2 | — | 3 | |||||||||
Less than 3,200 hp | 2 | — | — | — | 2 | |||||||||
Port & Infrastructure Services: | ||||||||||||||
Harbor boats: | ||||||||||||||
1,100 hp - 2,000 hp | 12 | 6 | — | — | 18 | |||||||||
Less than 1,100 hp | 6 | — | — | — | 6 | |||||||||
Logistics Services: | ||||||||||||||
Dry-cargo barges | 27 | 2 | — | 1 | 30 | |||||||||
660 | 60 | 271 | 489 | 1,480 |
30
Witt O'Brien's | |||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||
$’000 | % | $’000 | % | $’000 | % | $’000 | % | ||||||||||||||||
Operating Revenues: | |||||||||||||||||||||||
United States | 23,178 | 98 | 36,653 | 98 | 55,818 | 98 | 62,744 | 98 | |||||||||||||||
Foreign | 575 | 2 | 655 | 2 | 878 | 2 | 996 | 2 | |||||||||||||||
23,753 | 100 | 37,308 | 100 | 56,696 | 100 | 63,740 | 100 | ||||||||||||||||
Costs and Expenses: | |||||||||||||||||||||||
Operating | 15,691 | 66 | 24,399 | 65 | 37,463 | 66 | 42,705 | 67 | |||||||||||||||
Administrative and general | 6,831 | 29 | 5,140 | 14 | 13,233 | 23 | 10,507 | 17 | |||||||||||||||
Depreciation and amortization | 209 | 1 | 491 | 1 | 415 | 1 | 792 | 1 | |||||||||||||||
22,731 | 96 | 30,030 | 80 | 51,111 | 90 | 54,004 | 85 | ||||||||||||||||
Operating Income | 1,022 | 4 | 7,278 | 20 | 5,585 | 10 | 9,736 | 15 | |||||||||||||||
Other Income: | |||||||||||||||||||||||
Foreign currency losses, net | — | — | (17 | ) | — | — | — | (15 | ) | — | |||||||||||||
Other, net | (2 | ) | — | — | — | (5 | ) | — | — | — | |||||||||||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | (128 | ) | — | (32 | ) | — | (195 | ) | — | 103 | — | ||||||||||||
Segment Profit | 892 | 4 | 7,229 | 20 | 5,385 | 10 | 9,824 | 15 |
Operating Revenues. Operating revenues were $13.6 million lower in the Current Year Quarter compared with the Prior Year Quarter and $7.0 million lower in the Current Six Months compared with the Prior Six Months primarily due to successful completion of major task orders related to long-term recovery programs in Texas and the U.S. Virgin Islands, and the conclusion of disaster response work for multiple city and county governments.
Operating Expenses. Operating expenses were $8.7 million lower in the Current Year Quarter compared with the Prior Year Quarter and $5.2 million lower in the Current Six Months compared with the Prior Six Months primarily due to the completion of major recovery program task orders.
Administrative and General. Administrative and general expenses were $1.7 million higher in the Current Year Quarter compared with the Prior Year Quarter and $2.7 million higher in the Current Six Months compared with the Prior Six Months primarily due to a bad debt charge and included higher administrative and general expenses necessary to support the significant growth following the 2017 hurricanes and development of a broader range of post-disaster services.
Operating Income. Operating income as a percentage of operating revenues was 4% in the Current Year Quarter compared with 20% in the Prior Year Quarter and 10% in the Current Six Months compared with 15% in the Prior Six Months primarily due to reduced operating revenues and higher administrative and general expenses.
31
Other
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
$’000 | % | $’000 | % | $’000 | % | $’000 | % | |||||||||||||||
Operating Revenues: | ||||||||||||||||||||||
United States | 2,142 | 100 | 942 | 97 | 3,947 | 100 | 942 | 87 | ||||||||||||||
Foreign | — | — | 27 | 3 | — | — | 143 | 13 | ||||||||||||||
2,142 | 100 | 969 | 100 | 3,947 | 100 | 1,085 | 100 | |||||||||||||||
Costs and Expenses: | ||||||||||||||||||||||
Operating | 1,472 | 69 | 392 | 41 | 2,725 | 69 | 392 | 36 | ||||||||||||||
Administrative and general | 837 | 39 | 498 | 51 | 1,676 | 42 | 684 | 63 | ||||||||||||||
Depreciation and amortization | 493 | 23 | 62 | 6 | 982 | 25 | 62 | 6 | ||||||||||||||
2,802 | 131 | 952 | 98 | 5,383 | 136 | 1,138 | 105 | |||||||||||||||
Losses on Asset Dispositions | (2 | ) | — | — | — | (2 | ) | — | — | — | ||||||||||||
Operating Income (Loss) | (662 | ) | (31 | ) | 17 | 2 | (1,438 | ) | (36 | ) | (53 | ) | (5 | ) | ||||||||
Other Income: | ||||||||||||||||||||||
Foreign currency losses, net | — | — | 1 | — | — | — | 1 | — | ||||||||||||||
Other, net(2) | — | — | 53,902 | n/m | — | — | 53,902 | n/m | ||||||||||||||
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax | (266 | ) | (12 | ) | 112 | 12 | (356 | ) | (9 | ) | 1,279 | 118 | ||||||||||
Segment Profit (Loss)(1)(2) | (928 | ) | (43 | ) | 54,032 | n/m | (1,794 | ) | (45 | ) | 55,129 | n/m |
_____________________
(1) | Includes amounts attributable to both SEACOR and noncontrolling interests. See “Item 1. Financial Statements—Note 9. Noncontrolling Interests in Subsidiaries” included in Part I of this Quarterly Report on Form 10-Q. |
(2) | The balance as a percentage of operating revenues is not meaningful (“n/m”). |
Operating Activities. Operating activities in the Current Year Quarter and Current Six Months primarily consists of the business activities of Cleancor, which the Company acquired on June 1, 2018.
Other, net. Other, net in the Prior Year Quarter and Prior Six Months primarily includes a gain of $53.9 million on the sale of the Company’s 34.2% interest in Hawker Pacific on April 30, 2018.
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax. The Company’s 50% or less owned companies primarily consist of general aviation services businesses in Asia, including Hawker Pacific prior to its sale in 2018, and an agricultural commodity trading and logistics business.
Corporate and Eliminations | |||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
$’000 | $’000 | $’000 | $’000 | ||||||||
Corporate Expenses | (6,882 | ) | (5,571 | ) | (13,233 | ) | (12,398 | ) | |||
Eliminations | 14 | 32 | 28 | 63 | |||||||
Operating Loss | (6,868 | ) | (5,539 | ) | (13,205 | ) | (12,335 | ) | |||
Other Income (Expense): | |||||||||||
Foreign currency losses, net | (1 | ) | (71 | ) | (8 | ) | (35 | ) | |||
Other, net | (1 | ) | (3 | ) | 9 | (3 | ) |
Corporate Expenses. Corporate expenses were higher in the Current Year Quarter and Current Six Months primarily due to the expiration of the transition services agreement with SEACOR Marine Holdings Inc.
32
Other Income (Expense) not included in Segment Profit (Loss) | |||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
$’000 | $’000 | $’000 | $’000 | ||||||||
Interest income | 1,885 | 2,179 | 3,785 | 4,035 | |||||||
Interest expense | (4,903 | ) | (8,604 | ) | (10,016 | ) | (17,167 | ) | |||
Debt extinguishment losses, net | (503 | ) | (5,407 | ) | (1,296 | ) | (5,449 | ) | |||
Marketable security gains (losses), net | 13,284 | 782 | 16,352 | (3,016 | ) | ||||||
9,763 | (11,050 | ) | 8,825 | (21,597 | ) |
Interest expense. Interest expense in the Current Year Quarter and Current Six Months was lower compared with the Prior Year Quarter and Prior Six Months, respectively, primarily due to the redemption of the 7.375% Senior Notes in October 2018, repurchases of the 3.0% Convertible Senior Notes and a reduction of the outstanding balances under the SEA-Vista Credit Facility, partially offset by interest on the 3.25% Convertible Senior Notes issued in May 2018.
Debt extinguishment losses, net. Debt extinguishment losses, net in the Current Year Quarter and Current Six Months are the result of the purchase of $13.3 million and $37.3 million in principal amount, respectively, of the Company’s 3.0% Convertible Senior Notes for $13.1 million and $36.3 million, respectively. Debt extinguishment losses in the Prior Year Quarter and Prior Six Months are primarily related to the exchange of $117.8 million of the Company’s outstanding 3.0% Convertible Senior Notes due 2028 for a like principal amount of new 3.25% Convertible Senior Notes due 2030.
Marketable security gains (losses), net. Marketable security gains (losses), net in all periods are primarily related to the Company’s investment in Dorian LPG Ltd.
Income Taxes
During the six months ended June 30, 2019, the Company’s effective income tax rate of 14.5% was primarily due to taxes not provided on income attributable to noncontrolling interests, foreign sourced income not subject to U.S. tax and income subject to tonnage tax, partially offset by foreign taxes not creditable against U.S. income tax.
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, cash flows from operations and availability under the SEACOR Revolving Credit Facility. 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.
As of June 30, 2019, the Company's capital commitments by year of expected payment were as follows (in thousands):
Remainder of 2019 | 2020 | Total | |||||||||
Ocean Services | $ | 1,052 | $ | 8,523 | $ | 9,575 | |||||
Inland Services | 17,047 | 875 | 17,922 | ||||||||
Other | 1,374 | — | 1,374 | ||||||||
$ | 19,473 | $ | 9,398 | $ | 28,871 |
As of June 30, 2019, the Company had outstanding debt of $312.7 million, net of discounts and issuance costs, and letters of credit totaling $1.3 million with various expiration dates through 2027. In addition, as of June 30, 2019, the Company guaranteed payments on behalf of SEACOR Marine totaling $32.1 million, under certain sale-leaseback transactions, equipment financing and multi-employer pension obligations. These guarantees continue to be contingent obligations of the Company because the beneficiary of the guarantees did not release the Company from its obligations in connection with the Spin-off and decline as payments are made by SEACOR Marine on the underlying obligations. The Company earns a fee from SEACOR Marine of 0.5% per annum on the amount of the obligations under these guarantees.
33
As of June 30, 2019, the holders of the Company’s 3.0% Convertible Senior Notes ($70.0 million outstanding), 2.5% Convertible Senior Notes ($64.5 million outstanding) and 3.25% Convertible Senior Notes ($117.8 million outstanding) may require the Company to repurchase the notes on November 19, 2020, December 19, 2022 and May 15, 2025, respectively. The Company’s long-term debt maturities, assuming the holders of the aforementioned convertible senior notes require the Company to repurchase the notes on those dates, are as follows (in thousands):
Remainder of 2019 | $ | 4,152 | |
2020 | 144,707 | ||
2021 | 500 | ||
2022 | 64,958 | ||
2023 | 368 | ||
Years subsequent to 2023 | 123,780 | ||
$ | 338,465 |
SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire its Common Stock, 3.25% Convertible 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. On June 5, 2019, SEACOR’s Board of Directors increased the Company’s repurchase authority for the Securities to $150.0 million. As of June 30, 2019, the Company’s remaining repurchase authority for the Securities was $149.8 million.
As of June 30, 2019, the Company held balances of cash, cash equivalents, restricted cash, restricted cash equivalents, marketable securities and construction reserve funds totaling $183.3 million. As of June 30, 2019, construction reserve funds of $3.9 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 $125.0 million available under the SEACOR Revolving Credit Facility and $100.0 million available under a subsidiary credit facility.
Summary of Cash Flows | |||||
Six Months Ended June 30, | |||||
2019 | 2018 | ||||
$’000 | $’000 | ||||
Cash Flows provided by Operating Activities | 51,508 | 13,115 | |||
Cash Flows provided by (used in) Investing Activities | (6,910 | ) | 97,527 | ||
Cash Flows used in Financing Activities | (51,822 | ) | (32,544 | ) | |
Effects of Exchange Rate Changes on Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents | (10 | ) | 52 | ||
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents | (7,234 | ) | 78,150 |
34
Operating Activities
Cash flows provided by operating activities increased by $38.4 million in the Current Six Months compared with the Prior Six Months. The components of cash flows provided by (used in) operating activities during the Current Six Months and Prior Six Months were as follows:
Six Months Ended June 30, | |||||
2019 | 2018 | ||||
$’000 | $’000 | ||||
Operating income before depreciation, amortization and gains on asset dispositions, net | 63,105 | 57,604 | |||
Changes in operating assets and liabilities, excluding operating leases, before interest and income taxes | (12,214 | ) | (25,049 | ) | |
Purchases of marketable securities | (2,261 | ) | — | ||
Proceeds from sale of marketable securities | 9,561 | — | |||
Interest paid, excluding capitalized interest(1) | (6,731 | ) | (12,966 | ) | |
Income taxes paid, net | (6,598 | ) | (8,898 | ) | |
Other | 6,646 | 2,424 | |||
Total cash flows provided by operating activities | 51,508 | 13,115 |
_____________________
(1) | During the Current Six Months and Prior Six Months, capitalized interest paid and included in purchases of property and equipment was $0.1 million and $0.2 million, respectively. |
Operating income before depreciation, amortization and gains on asset dispositions was $5.5 million higher in the Current Six Months compared with the Prior Six Months. See “Consolidated Results of Operations” included above for a discussion of the results of each of the Company’s business segments.
Investing Activities
During the Current Six Months, net cash used in investing activities was $6.9 million primarily as follows:
• | Capital expenditures were $7.8 million related to the acquisition of real property, upgrades to inland river towboats and the construction of other Inland Services equipment. |
• | The Company made investments in and advances to 50% or less owned companies of $3.2 million including $2.7 million to RF Vessel Holdings and $0.5 million to VA&E. |
• | The Company received $3.7 million from its 50% or less owned company VA&E. |
• | The Company received payments on third-party leases and notes receivables of $0.2 million. |
During the Prior Six Months, net cash provided by investing activities was $97.5 million primarily as follows:
• | Capital expenditures were $31.6 million. Equipment deliveries included four U.S.-flag harbor tugs 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 inland river dry-cargo barges, two inland river specialty barges and other equipment for net proceeds of $15.9 million. |
• | The Company made investments in and advances to 50% or less owned companies of $8.3 million including $5.4 million to VA&E, $2.1 million to Golfo de Mexico and $0.9 million to RF Vessel Holdings. |
• | The Company received $7.8 million from its 50% or less owned companies, including $5.4 million from VA&E and $2.0 million from SCFCo. |
• | On April 30, 2018, the Company sold its interest in Hawker Pacific for $78.0 million. |
Financing Activities
During the Current Six Months, net cash used in financing activities was $51.8 million. The Company:
• | purchased $37.3 million in principal amount of its 3.0% Convertible Senior Notes for total consideration of $36.3 million, of which $36.2 million was allocated to the settlement of the long-term debt and $0.1 million was allocated to the purchase of the conversion option embedded in the 3.0% Convertible Senior Notes. |
• | incurred issuance costs of $2.2 million related to the SEACOR Revolving Credit Facility; |
• | repaid $10.0 million under the SEA-Vista Credit Facility; |
35
• | made other scheduled payments on long-term debt of $0.3 million; |
• | made distributions to noncontrolling interests of $5.1 million; |
• | acquired 3,912 shares of Common Stock for treasury for an aggregate purchase price of $0.1 million; |
• | acquired 8,121 shares of Common Stock for treasury for an aggregate purchase price of $0.4 million from its employees to cover their tax withholding obligations related to the vesting of equity awards. These shares were purchased in accordance with the terms of the Company’s Share Incentive Plans and not pursuant to the repurchase authorizations granted by SEACOR’s Board of Directors; and |
• | received $2.6 million from share award plans. |
During the Prior Six Months, net cash used in financing activities was $32.5 million. The Company:
• | purchased $1.7 million in principal amount of its 7.375% Senior Notes for $1.8 million; |
• | purchased $0.3 million in principal amount of its 3.0% Convertible Senior Notes for $0.3 million; |
• | repaid $14.5 million under the SEA-Vista Credit Facility; |
• | repaid the outstanding balance of $12.2 million on the ISH Term Loan; |
• | repaid the remaining outstanding debt balance of $1.4 million assumed in the ISH acquisition; |
• | made other scheduled payments on long-term debt of $0.3 million; |
• | incurred costs of $2.5 million related to the exchange of $117.8 million aggregate principal amount of the Company’s outstanding 3.0% Convertible Senior Notes due 2028 for a like principal amount of new 3.25% Convertible Senior Notes due 2030; |
• | paid dividends to controlling interests of $5.1 million; and |
• | received $5.6 million from share award plans. |
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 available under the SEACOR Revolving Credit Facility and existing subsidiary financing arrangements as well as 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, 2018. There has been no material change in the Company’s off-balance sheet arrangements during the Current Six Months. 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 June 30, 2019, guarantees on behalf of SEACOR Marine totaled $32.1 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, 2018. There has been no material change in the Company’s contractual obligations and commercial commitments during the Current Six Months.
36
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, 2018. There has been no material change in the Company’s exposure to market risk during the Current Six Months.
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 June 30, 2019. 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 June 30, 2019.
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 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
There were no 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 June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
37
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, 2018, see Note 12. “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, 2018. There have been no material changes in the Company’s risk factors during the Current Six Months.
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) | |||||||||
April 1 – 30, 2019 | — | $ | — | — | $ | 41,826,434 | |||||||
May 1 – 31, 2019 | — | $ | — | — | $ | 30,457,684 | |||||||
June 1 – 30, 2019 | 3,912 | $ | 42.02 | — | $ | 149,835,624 |
______________________
(1) | SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire its Common Stock, 3.0% Convertible Senior Notes, 3.25% 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. During the Current Year Quarter, the Company repurchased $13.3 million in principal amount of its 3.0% Convertible Senior Notes for $13.1 million thereby reducing repurchase authority under the plan. From time to time, SEACOR’s Board of Directors have increased the authority, most recently to $150.0 million on June 5, 2019. |
ITEM 3. | DEFAULT UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
38
ITEM 6. | EXHIBITS |
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS** | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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. |
* | Filed herewith. |
** | 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. |
39
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: | July 24, 2019 | By: | /S/ CHARLES FABRIKANT | |
Charles Fabrikant, Executive Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | ||||
DATE: | July 24, 2019 | By: | /S/ BRUCE WEINS | |
Bruce Weins, Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
40