UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

 

 

x

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

For the quarterly period ended September 30, 2006              or             

 

 

 

o

 

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)

 

954-524-4200
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  x      Accelerated Filer  o      Non-Accelerated Filer  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  
o   No  x

The total number of shares of common stock, par value $.01 per share, outstanding as of November 1, 2006 was 24,477,707. The Registrant has no other class of common stock outstanding.

 

 




SEACOR HOLDINGS INC.

Table of Contents

Part I.

Financial Information

 

 

Item 1.

Financial Statements (Unaudited)

1

 

 

Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005

1

 

 

Condensed Consolidated Statements of Income for each of the Three Months and Nine Months Ended September 30, 2006 and 2005

2

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005

3

 

 

Notes to the Condensed Consolidated Financial Statements

4

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

 

Item 4.

Controls and Procedures

27

Part II.

Other Information

 

 

Item 1A.

Risk Factors

28

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

Item 5.

Other Information

28

 

Item 6.

Exhibits

29

 




 

PART I—FINANCIAL INFORMATION

ITEM 1.                    FINANCIAL STATEMENTS

SEACOR HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)

 

 

September 30,
2006

 

December 31,
2005

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

494,472

 

$

484,422

 

Restricted cash

 

47,887

 

41,187

 

Available-for-sale securities

 

24,204

 

12,595

 

Receivables:

 

 

 

 

 

Trade, net of allowance for doubtful accounts of $8,432 and $13,696 at September 30, 2006 and December 31, 2005, respectively

 

261,275

 

242,159

 

Other

 

20,765

 

18,672

 

Deferred income taxes

 

5,195

 

5,196

 

Held for sale assets

 

 

6,810

 

Inventories

 

25,266

 

21,996

 

Prepaid expenses and other

 

14,749

 

6,054

 

Total current assets

 

893,813

 

839,091

 

Investments, at Equity, and Receivables from 50% or Less Owned Companies

 

39,107

 

36,954

 

Property and Equipment

 

2,193,796

 

2,108,724

 

Less accumulated depreciation

 

(428,806

)

(349,331

)

Net property and equipment

 

1,764,990

 

1,759,393

 

Construction Reserve Funds & Title XI Reserve Funds

 

272,494

 

146,317

 

Goodwill

 

41,858

 

40,351

 

Intangible Assets

 

28,282

 

40,182

 

Other Assets

 

35,752

 

22,853

 

 

 

$

3,076,296

 

$

2,885,141

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

8,013

 

$

7,539

 

Current portion of capital lease obligations

 

2,430

 

2,966

 

Accounts payable and accrued expenses

 

77,431

 

72,719

 

Other current liabilities

 

199,998

 

164,682

 

Total current liabilities

 

287,872

 

247,906

 

Long-Term Debt

 

943,765

 

950,403

 

Capital Lease Obligations

 

20,802

 

27,232

 

Deferred Income Taxes

 

274,981

 

242,316

 

Deferred Gains and Other Liabilities

 

49,079

 

49,543

 

Minority Interest in Subsidiaries

 

6,761

 

6,436

 

Stockholders’ Equity:

 

 

 

 

 

Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued or outstanding

 

 

 

Common stock, $.01 par value, 60,000,000 shares authorized; 31,695,862 and 31,341,739 shares issued at September 30, 2006 and December 31, 2005, respectively

 

317

 

313

 

Additional paid-in capital

 

868,192

 

861,722

 

Retained earnings

 

898,021

 

721,982

 

Less 7,226,784 and 6,522,890 shares held in treasury at September 30, 2006 and December 31, 2005, respectively, at cost

 

(274,493

)

(220,814

)

Unamortized restricted stock

 

 

(3,708

)

Accumulated other comprehensive income:

 

 

 

 

 

Cumulative translation adjustments

 

378

 

(353

)

Unrealized gain on available-for-sale securities

 

621

 

2,163

 

Total stockholders’ equity

 

1,493,036

 

1,361,305

 

 

 

$

3,076,296

 

$

2,885,141

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements
and should be read in conjunction herewith.

1




 

SEACOR HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data, unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

 

$

349,361

 

$

294,869

 

$

986,262

 

$

637,885

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

Operating expenses

 

196,608

 

180,136

 

553,401

 

412,916

 

Administrative and general

 

30,880

 

31,115

 

95,238

 

68,939

 

Depreciation and amortization

 

40,977

 

46,535

 

126,555

 

83,309

 

 

 

268,465

 

257,786

 

775,194

 

565,164

 

Gains (Losses) on Asset Dispositions and Impairments, Net

 

12,054

 

(618

)

57,020

 

14,710

 

Operating Income

 

92,950

 

36,465

 

268,088

 

87,431

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest income

 

10,279

 

4,754

 

26,501

 

12,917

 

Interest expense

 

(13,307

)

(16,541

)

(40,222

)

(31,682

)

Derivative transactions gains (losses), net

 

2,813

 

(4,425

)

3,085

 

(6,193

)

Foreign currency transactions gains, net

 

650

 

2,436

 

2,026

 

6,288

 

Marketable security transactions gains (losses), net

 

4,549

 

10,388

 

(2,377

)

25,124

 

Other, net

 

117

 

891

 

740

 

1,531

 

 

 

5,101

 

(2,497

)

(10,247

)

7,985

 

Income from Continuing Operations Before Income Tax Expense, Minority Interest in (Income) Loss of Subsidiaries and Equity In Earnings of 50% or Less Owned Companies

 

98,051

 

33,968

 

257,841

 

95,416

 

Income Tax Expense

 

37,037

 

13,894

 

96,171

 

36,082

 

Income from Continuing Operations Before Minority Interest in (Income) Loss of Subsidiaries and Equity in Earnings of 50% or Less Owned Companies

 

61,014

 

20,074

 

161,670

 

59,334

 

Minority Interest in (Income) Loss of Subsidiaries

 

(451

)

223

 

(638

)

103

 

Equity in Earnings of 50% or Less Owned Companies

 

2,607

 

200

 

15,007

 

4,411

 

Income from Continuing Operations

 

63,170

 

20,497

 

176,039

 

63,848

 

Income from Discontinued Operations, Net of Tax

 

 

 

 

364

 

Net Income

 

$

63,170

 

$

20,497

 

$

176,039

 

$

64,212

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share:

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

$

2.57

 

$

0.83

 

$

7.11

 

$

3.12

 

Income from Discontinued Operations

 

 

 

 

0.01

 

Net Income

 

$

2.57

 

$

0.83

 

$

7.11

 

$

3.13

 

Diluted Earnings Per Common Share:

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

$

2.28

 

$

0.76

 

$

6.32

 

$

2.79

 

Income from Discontinued Operations

 

 

 

 

0.02

 

Net Income

 

$

2.28

 

$

0.76

 

$

6.32

 

$

2.81

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

24,575,065

 

24,788,697

 

24,742,553

 

20,486,217

 

Diluted

 

28,281,842

 

28,561,674

 

28,448,157

 

24,150,967

 

 

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 CASH FLOWS
(in thousands, unaudited)

 

 

Nine Months Ended
September 30,

 

 

 

2006

 

2005

 

 

 

 

 

 

 

Net Cash Provided by Operating Activities

 

$

235,904

 

$

107,719

 

Cash Flows from Investing Activities:

 

 

 

 

 

Purchases of property and equipment

 

(237,706

)

(178,709

)

Proceeds from disposition of property, equipment and held for sale assets

 

168,642

 

223,349

 

Purchases of securities

 

(38,949

)

(104,160

)

Proceeds from sale of securities

 

62,509

 

215,093

 

Investments in and advances to 50% or less owned companies

 

(11,403

)

(859

)

Proceeds on sale of investments in 50% or less owned companies

 

15,600

 

 

Principal payments on notes due from 50% or less owned companies

 

5,767

 

142

 

Principal payments on notes due from non-affiliate

 

873

 

7,319

 

Net increase in restricted cash

 

(6,700

)

(14,523

)

Net (increase) decrease in construction reserve funds and title XI reserve funds

 

(126,177

)

41,998

 

Cash settlements on derivative transactions, net

 

5,128

 

485

 

Investments in sales-type leases

 

(5,183

)

 

Seabulk Merger, net of cash acquired

 

 

(69,498

)

Acquisition of Era Aviation, Inc. adjustments to purchase price

 

 

4,793

 

Sale of discontinued operations

 

 

15,000

 

Other

 

(34

)

 

Net cash (used in) provided by investing activities

 

(167,633

)

140,430

 

Cash Flows from Financing Activities:

 

 

 

 

 

Payments on long-term debt and capital lease obligations

 

(28,019

)

(58,139

)

Proceeds from issuance of long term debt

 

16,499

 

64,819

 

Common stock acquired for treasury

 

(58,142

)

(6,026

)

Proceeds and tax benefits from share award plans

 

10,438

 

6,728

 

Dividends paid to minority interest holders

 

(517

)

(586

)

Cash received from minority interest holders

 

200

 

341

 

Net cash (used in) provided by financing activities

 

(59,541

)

7,137

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

1,320

 

(162

)

Net Increase in Cash and Cash Equivalents

 

10,050

 

255,124

 

Cash and Cash Equivalents, Beginning of Period

 

484,422

 

214,389

 

Cash and Cash Equivalents, End of Period

 

$

494,472

 

$

469,513

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements
and should be read in conjunction herewith.

 

3




SEACOR HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.                 Basis of Presentation

The condensed consolidated financial information for each of the three and nine months ended September 30, 2006 and 2005 has been prepared by the Company and has not been audited by its independent registered public accounting firm. The condensed consolidated financial statements include the accounts of SEACOR Holdings Inc. and its consolidated subsidiaries, which effective July 1, 2005 include Seabulk International, Inc. (“Seabulk”—see Note 2). In the opinion of management, all adjustments (consisting of normal recurring adjustments and those described in Note 2) have been made to present fairly the Company’s financial position as of September 30, 2006, its results of operations for each of the three and nine months ended September 30, 2006 and 2005 and its cash flows for the nine months ended September 30, 2006 and 2005. 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 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 fiscal year ended December 31, 2005.

Unless the context otherwise indicates, any references in this Quarterly Report on Form 10-Q to the “Company” refer to SEACOR Holdings Inc. and its consolidated subsidiaries and any references in this Quarterly Report on Form 10-Q to “SEACOR” refer to SEACOR Holdings Inc.

Certain reclassifications of prior period information have been made to conform to the presentation of the current period.

2.                 Seabulk Merger and Disposition of Held for Sale Seabulk Assets

On July 1, 2005, SEACOR completed its acquisition of Seabulk through a merger with a wholly-owned subsidiary of SEACOR (the “Seabulk Merger”). The Company’s purchase price was $525.3 million, including  6,354,642 shares of SEACOR common stock, par value $0.01 per share (“Common Stock”), 394,446 options to purchase Common Stock, 51,832 Restricted Stock Units under the SEACOR Deferred Compensation Plan, plus additional cash consideration and transaction expense of approximately $96.9 million.  The Seabulk Merger was accounted for as a purchase, with SEACOR as the acquirer in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. Accordingly, SEACOR performed a fair value analysis whereby the purchase price was allocated to the assets and liabilities of Seabulk, including certain identifiable intangible assets, based on their fair values as of July 1, 2005, with the excess of purchase price over fair value recorded as goodwill in the amount of $13.9 million.  The fair value analysis of assets and liabilities acquired in the Seabulk Merger was finalized as of July 1, 2006.

4




Changes to the allocation of purchase price during the nine months ended September 30, 2006 are summarized in the following table (in thousands):

Trade receivables

 

$

830

 

Held for sale assets

 

(705

)

Net property and equipment

 

(7,818

)

Goodwill

 

1,738

 

Intangible Assets

 

(8,808

)

Other Assets

 

10,671

 

Other current liabilities

 

1,007

 

Deferred Taxes

 

1,639

 

Adjustments to Purchase Price(1)

 

$

(1,446

)


(1)                Represents tax benefit on SEACOR restricted stock units issued in connection with the Seabulk Merger.

As part of the fair value analysis, the Company designated certain Seabulk vessels as held for sale in the aggregate amount of $123.0 million, net of drydock commitments, including two foreign-flag double-hull product tankers, one tug and 13 offshore supply vessels. During the six months ended December 31, 2005, Seabulk sold the two foreign-flag double-hull product tankers, one tug and seven offshore supply vessels for aggregate consideration of $116.5 million. No gain or loss on sale of the vessels was recognized in 2005 as the fair value of the vessels was equal to the net sales price.  During the nine months ended September 30, 2006, Seabulk sold the remaining six offshore supply vessels for aggregate consideration of $7.2 million and recognized a gain of $0.7 million.

Pro forma Information—The following pro forma information has been prepared as if the acquisition of Seabulk had occurred on January 1, 2005 (in thousands, except per share data):

 

For the Nine Months
Ended September 30,

 

 

 

2006

 

2005 Pro forma

 

Operating Revenues

 

$

986,262

 

$

830,153

 

Operating Income

 

268,088

 

97,762

 

Net Income

 

176,039

 

57,991

 

Basic Earnings Per Common Share

 

7.11

 

2.35

 

Diluted Earnings Per Common Share

 

6.32

 

2.16

 

 

This pro forma information has been prepared for informational purposes only and is not necessarily indicative of what would have occurred if the acquisition had taken place on that date, nor does it purport to be indicative of the future operating results of the Company.

3.                 Equipment Acquisitions, Dispositions and Depreciation Policy

Capital expenditures were $237.7 million in the nine months ended September 30, 2006. Equipment deliveries during the period included four offshore services vessels, 50 new dry cargo covered hopper barges, three new chemical tank barges, two deck barges and eight new helicopters.

During the nine months ended September 30, 2006, in addition to the disposition of the six Seabulk vessels that had been held for sale, the Company sold 41 offshore support vessels, three helicopters, other equipment and undelivered equipment for aggregate consideration of $161.4 million and recognized a gain of $56.3 million.

Equipment, stated at cost, is depreciated over the estimated useful lives of the assets using the straight-line method. For offshore support vessels and related equipment estimated useful lives are generally 20 years from date of build, for tankers 25 years from date of build or the required retirement date as determined by the Oil Pollution Act of 1990, for inland river dry cargo, deck and chemical tank barges 20 years from date of build, for helicopters and related equipment twelve years from date of build, for tugs used in Harbor and Offshore Towing Services 40 years from date of build, and for all other equipment two to 20 years.

5




4.                 Disposition of Joint Venture Interest and Vessel

In 1994, the Company and Grupo TMM, S.A., a Mexican corporation (“TMM”) organized a joint venture, Maritima Mexicana, S.A. de C.V. (“Marmex”) to serve the Mexican offshore market. Effective March 3, 2006, the Company sold its 40% interest in Marmex to TMM for $20.0 million recognizing an after tax gain thereon of $4.5 million and was released from its guarantees in the amount of $8.0 million with respect to vessels bareboat chartered to the joint venture. In addition, TMM purchased five offshore vessels from the Company for aggregate consideration of approximately $37.3 million (see Note 3).

During the three months ended June 30, 2006, one of the Company’s offshore marine joint ventures sold a vessel for $27.8 million. The Company’s share of the gain included in Equity in Earnings of 50% or Less Owned Companies was $4.2 million.

5.                 Construction Reserve Funds

Construction reserve fund accounts were established by the Company pursuant to Section 511 of the Merchant Marine Act, 1936, as amended. In accordance with this statute, the Company is permitted to deposit proceeds from the sale of certain vessels into the joint depository construction reserve fund accounts for the purpose of acquiring U.S. flag vessels and qualifying for the temporary deferral of taxable gains realized from the sale of vessels. Withdrawals from the construction reserve fund accounts are only permitted with the consent of the Maritime Administration.

As of September 30, 2006, construction reserve funds of $255.9 million are 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 equipment. During the nine months ended September 30, 2006, construction reserve fund account transactions included withdrawals of $10.2 million, deposits of $136.9 million and earned interest of $6.4 million.

6.                 Commitments and Contingencies

The Company’s unfunded capital commitments as of September 30, 2006 consisted primarily of marine service vessels, harbor tugs, helicopters, barges and capital improvements to certain of the existing marine transportation fleet.  Such unfunded capital commitments totaled $685.8 million, of which $151.0 million and $323.8 million is payable in 2006 and 2007, respectively, with the remaining balance payable through 2009. Of these commitments, approximately $183.8 million may be terminated without further liability other than the payment of liquidated damages of $9.8 million in the aggregate.  Subsequent to September 30, 2006, a joint venture in which the Company has a 50% interest assumed $65.6 million of the above unfunded capital commitments.

The Company has guaranteed the payment of amounts owed by one of its joint ventures under a vessel charter agreement that expires in 2011. In addition, the Company has guaranteed amounts owed by certain of its joint ventures under a banking facility and a performance guarantee. As of September 30, 2006, the total amount guaranteed by the Company was $8.4 million.

In the normal course of its business, the Company becomes involved in various litigation matters including, among other things, claims by third parties for alleged property damages, personal injuries and other matters. While the Company believes it has meritorious defenses against these claims, management has used estimates in determining the Company’s potential exposure and has recorded reserves in its financial statements related thereto where appropriate. It is possible that a change in the Company’s estimates of that exposure could occur, but the Company does not expect such changes in estimated costs will have a material effect on the Company’s financial position or results of its operations.

In June 2005, a subsidiary of SEACOR received a document subpoena from the Antitrust Division of the U.S. Department of Justice. This subpoena relates to a grand jury investigation of potential antitrust violations among providers of helicopter transportation services in the Gulf of Mexico. The Company believes that this subpoena is part of a broader industry inquiry and that the other providers also have received such subpoena. SEACOR intends to provide all information requested in response to this investigation.

6




Under United States law, “United States persons” are prohibited from business activities and contracts in certain countries, including Sudan and Iran. Relating to the prohibitions, Seabulk filed three reports with and submitted documents to the Office of Foreign Asset Control (“OFAC”) of the U.S. Department of Treasury in December 1999 and January and May 2002. One of the reports was also filed with the Bureau of Export Administration of the U.S. Department of Commerce. The reports and documents related to certain limited charters with third parties involving three Seabulk vessels which called in Sudan for several months in 1999 and January 2000 and charters with third parties involving several of Seabulk’s vessels which called in Iran in 1998. In March 2003, Seabulk received notification from OFAC that the case has been referred to its Civil Penalties Division. Should OFAC determine that these activities constituted violations of the laws or regulations, civil penalties, including fines, could be assessed against Seabulk and/or certain individuals who knowingly participated in such activity. The Company cannot predict the extent of such penalties; however, management does not believe the outcome of these matters will have a material impact on its financial position or results of operations.

Certain subsidiaries of the Company were previously participating employers in an industry-wide, multi-employer, defined benefit pension fund based in the United Kingdom: the Merchant Navy Officers Pension Fund (“MNOPF”). Under the direction of a court order, any deficit is to be remedied through future funding contributions from all participating employers. An actuarial valuation of the MNOPF determined there was a funding deficit of $412.0 million of which $4.4 million, representing the Company’s share of this deficit, was invoiced and recognized in 2005. Deficits allocable to the Company relate to officers employed between 1978 and 2002 by SEACOR’s Stirling group of companies (which had been acquired by SEACOR in 2001) and its predecessors. In March 2006, the MNOPF underwent another actuarial valuation to determine if additional contributions would be required. The Company has received notification that a draft actuarial valuation will be discussed in a meeting of participating employers in December 2006. Depending on the results of this and future actuarial valuations, it is possible that the MNOPF will issue additional invoices requiring the Company to recognize payroll related operating expenses in the period invoices are received.

7.                 Long-Term Debt

As of September 30, 2006, the Company had no outstanding borrowings under the SEACOR Revolving Credit Facility. During the three months ended March 31, 2006, the Company terminated Seabulk’s credit facility.

During the nine months ended September 30, 2006, the Company made principal payments on long-term debt and capital lease obligations of $28.0 million and received offshore vessel construction financing of $16.5 million. Payments included $10.5 million on debt assumed in a December 2005 acquisition and $9.5 million on the termination of a capital lease and the payoff of an offshore vessel note assumed in the Seabulk Merger.

On November 3, 2006, the Company replaced its existing revolving credit facility that was due to expire in February 2007 with a new unsecured revolving credit facility that is due to expire in November 2013. The amount of the new revolving credit facility is initially $300.0 million which, in the absence of a material adverse change or event of default, may be increased with Lender consent to up to $450.0 million.  The new revolving credit facility will be reduced by 10% of the maximum committed amount during its term ($300.0 million plus any agreed upon increase) at the beginning of each of the final two years of the credit agreement. As of November 3, 2006, the Company had no outstanding borrowings under the new revolving credit facility and the remaining availability under this new facility was $299.5 million, net of issued letters of credit of $0.5 million. Additionally, SEACOR had outstanding issued letters of credit apart from the new revolving credit facility totaling $42.5 million.

8.                 Stock and Debt Repurchases

During the nine months ended September 30, 2006, the Company acquired 727,180 shares of Common Stock for treasury in the amount of $58.1 million. As of September 30, 2006, repurchase authority of $42.6 million granted by the Company’s Board of Directors remained available for acquisition of additional shares of Common Stock, SEACOR’s 7.2% Senior Notes Due 2009, its 57¤8% Senior Notes due 2012, its 2.875% Convertible Debentures Due 2024 and the 9.5% senior notes of Seabulk due 2013. Securities are acquired from time to time through open market purchases, privately negotiated transactions or otherwise, depending on market conditions.

7




9.                 Earnings Per Common Share

Basic earnings per common share were computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings per common share were computed based on the weighted average number of common shares issued and outstanding plus the effect of potentially dilutive securities. In determining dilutive securities for this purpose the Company assumes, through the application of the treasury stock and if-converted methods, all restricted stock grants have vested, all common shares have been issued pursuant to the exercise of all outstanding stock options and all common shares have been issued pursuant to the conversion of all outstanding convertible notes. Diluted earnings per common share for the three months ended September 30, 2006 excluded 80,750 shares subject to stock options as the effect of their inclusion in the computation would have been antidilutive. Diluted earnings per share for the nine months ended September 30, 2006 excluded 113,750 shares subject to stock options and 18,500 shares of restricted stock as the effect of their inclusion in the computation would have been antidilutive.  Diluted earnings per common share for the three and nine months ended September 30, 2005 excluded 27,058 shares subject to stock options and 109,768 shares of restricted stock as the effect of their inclusion in the computation would have been antidilutive.

Computations of basic and diluted earnings per share for the periods presented are as follows (in thousands, except per share data):

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
 Ended September 30,

 

 

 

Net
Income

 

Average O/S
Shares

 

Per
Share

 

Net
Income

 

Average O/S
Shares

 

Per
Share

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

$

63,170

 

24,575

 

$

2.57

 

$

176,039

 

24,743

 

$

7.11

 

Effect of Dilutive Securities, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Options and Restricted Stock

 

 

289

 

 

 

 

287

 

 

 

Convertible Securities

 

1,213

 

3,418

 

 

 

3,639

 

3,418

 

 

 

Diluted Earnings Per Common Share

 

$

64,383

 

28,282

 

$

2.28

 

$

179,678

 

28,448

 

$

6.32

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

$

20,497

 

24,789

 

$

0.83

 

$

64,212

 

20,486

 

$

3.13

 

Effect of Dilutive Securities, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Options and Restricted Stock

 

 

355

 

 

 

 

247

 

 

 

Convertible Securities

 

1,211

 

3,418

 

 

 

3,619

 

3,418

 

 

 

Diluted Earnings Per Common Share

 

$

21,708

 

28,562

 

$

0.76

 

$

67,831

 

24,151

 

$

2.81

 

 

10.          Comprehensive Income

For the three months ended September 30, 2006 and 2005, total comprehensive income was $62.9 million and $12.2 million, respectively. For the nine months ended September 30, 2006 and 2005, total comprehensive income was $175.2 million and $47.8 million, respectively. Other comprehensive income consisted of gains and losses from foreign currency translation adjustments and unrealized holding gains and losses on available-for-sale securities.

11.          Share-Based Compensation

On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments (“SFAS No. 123(R)”), which is a revision of Statement of Financial Accounting Standards No. 123, Share-Based Payments. SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”) and amends Statement of Financial Accounting Standards No. 95, Statement of Cash Flows. SFAS No. 123(R) requires all share based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. SFAS No. 123(R) eliminates the alternative of using the intrinsic method of accounting provided for in APB No. 25, which generally resulted in no compensation expense recorded in the financial statements related to the grant of stock options to employees if certain conditions were met.

 

8




 

The fair value concepts were not changed significantly in SFAS No. 123(R); however, companies must choose among alternative valuation models and amortization assumptions upon adoption of the new standard. After assessing alternative valuation models and amortization assumptions, the Company has continued using both the Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period of the grants. The Company will reconsider use of this model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model. The Company has previously estimated forfeitures in its expense calculation for pro forma footnote disclosure and no change in that methodology was made upon adoption of SFAS No. 123(R).

The Company’s share-based compensation plans as described in Note 13 of the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 have not been modified during the nine months ended September 30, 2006. Effective January 1, 2006, the Company adopted SFAS No. 123(R) using the modified prospective method which requires the Company to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, prior period amounts presented herein have not been restated to reflect the adoption of SFAS No. 123(R). In accordance with SFAS No. 123(R), the Company will present the excess tax benefits from the exercise of stock options as a financing cash flow in our statements of cash flows. The impact of adopting SFAS No. 123(R) lowered net income for the three and nine months ended September 30, 2006, $0.3 million and $1.2 million, respectively. The impact of adopting SFAS No. 123(R) lowered basic earnings per common share for the three and nine months ended September 30, 2006, $0.01 and $0.05, respectively, and lowered diluted earnings per common share for the three and nine months ended September 30, 2006, $0.01 and $0.04, respectively.

During the three and nine months ended September 30, 2006, the Company recognized $1.6 million and $4.9 million, respectively, of compensation expense related to stock options, employee stock purchase plan purchases, restricted stock grants (including restricted stock units) and director stock grants. As of September 30, 2006, the Company had approximately $15.6 million in total unrecognized compensation costs of which $1.6 million and $4.8 million is expected to be recognized in 2006 and 2007, respectively, with the remaining balance recognized through 2011.

The previously disclosed pro forma effects of recognizing the estimated fair value of stock-based compensation are presented below (in thousands, except per share data):

 

 

Three Months
Ended
September 30, 2005

 

Nine Months
Ended
September 30, 2005

 

Net Income, As Reported

 

$

20,497

 

$

64,212

 

Add: Stock Based Compensation Using Intrinsic Value Method, net of tax

 

467

 

1,381

 

Less: Stock Based Compensation Using Fair Value Method, net of tax

 

(686

)

(1,894

)

Net Income, Pro Forma

 

$

20,278

 

$

63,699

 

Basic Earnings Per Common Share:

 

 

 

 

 

As Reported

 

$

0.83

 

$

3.13

 

Pro Forma

 

0.82

 

3.11

 

Diluted Earnings Per Common Share:

 

 

 

 

 

As Reported

 

$

0.76

 

$

2.81

 

Pro Forma

 

0.75

 

2.79

 

 

The weighted average value of grants under the Company’s share-based compensation plans were $48.90 and $37.50 for the nine months ended September 30, 2006 and 2005, respectively. The fair value of each option granted during the nine months ended September 30, 2006 and 2005 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (a) no dividend yield, (b) weighted average expected volatility of 25.7% and 27.6%, respectively, (c) weighted average discount rates of 4.90% and 3.98%, respectively, and (d) expected lives of five years.

 

9




 

The following transactions have occurred in connection with the Company’s share-based compensation plans during the nine months ended September 30, 2006:

 

 

Number of
Shares

 

Weighted
Average
Exercise / Grant
Price

 

Stock Option Activities:

 

 

 

 

 

Outstanding at December 31, 2005

 

919,653

 

$

37.23

 

Granted

 

152,750

 

$

81.30

 

Exercised

 

(185,598

)

$

21.08

 

Cancelled

 

(5,205

)

$

73.73

 

Outstanding at September 30, 2006

 

881,600

 

$

48.05

 

Options exercisable at September 30, 2006

 

532,032

 

$

37.99

 

Director stock awards granted

 

3,875

 

$

80.56

 

Restricted stock awards granted (including 275 restricted stock units)

 

117,920

 

$

74.58

 

Restricted stock awards cancelled

 

635

 

$

71.32

 

Employee Stock Purchase Plan shares issued

 

23,921

 

$

60.18

 

Shares available for future grant at September 30, 2006

 

672,073

 

 

 

 

During the nine months ended September 30, 2006, the Company also issued 47,005 shares of Common Stock in exchange for restricted stock units previously issued by Seabulk and assumed as part of the Seabulk Merger.

The aggregate intrinsic value of options exercised during the nine months ended September 30, 2006 was $10.4 million. As of September 30, 2006, the aggregate intrinsic value of all options outstanding, all exercisable options and all restricted stock awards outstanding was $30.4 million, $23.7 million and $14.8 million, respectively.

The following table summarizes certain information about the options outstanding at September 30, 2006 grouped into five exercise price ranges:

 

 

Exercise Price Range

 

 

 

Under
$15.01

 

$15.01
to
$30.00

 

$30.01
to
$45.00

 

$45.01
to
$60.00

 

over
$60.00

 

Options outstanding at September 30, 2006

 

35,682

 

85,949

 

393,769

 

115,400

 

250,800

 

Weighted-average exercise price

 

12.80

 

27.22

 

37.47

 

51.61

 

75.17

 

Weighted-average remaining contractual life (years)

 

2.94

 

3.07

 

5.60

 

6.35

 

9.31

 

Options exercisable at September 30, 2006

 

35,682

 

79,667

 

298,846

 

79,602

 

38,235

 

Weighted average exercise price of exercisable options

 

12.80

 

27.61

 

37.12

 

50.46

 

63.98

 

 

10




12.          New Accounting Pronouncements

On July 13, 2006 the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 applies to all tax positions related to income taxes subject to Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes. FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative effect adjustment recorded to the beginning balance of retained earnings. FIN 48 is effective for fiscal years beginning after December 15, 2006 and will be adopted by SEACOR on January 1, 2007. The Company is reviewing the new standard and has not determined the impact, if any, the adoption of FIN 48 will have on its consolidated financial position or results of operations.

On September 15, 2006 the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”).  SFAS No. 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities.  SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement and therefore should be determined based on the assumptions that market participants would use in pricing an asset or liability.  SFAS No. 157 sets out a fair value hierarchy and requires companies to disclose fair value measurements within that hierarchy.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2006 and will be adopted by SEACOR on January 1, 2007. The Company is reviewing the new standard and has not determined the impact, if any, the adoption of SFAS No. 157 will have on its consolidated financial position or results of operations.

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 a component 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 has not changed from those previously described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. Certain reclassifications of prior period information have been made to conform to the current period’s reportable segment presentation.

11




 

The following tables summarize information about the operating results for the Company’s reportable segments (in thousands):

 

 

Offshore

 

Marine

 

Inland

 

 

 

 

 

 

 

 

 

 

 

Marine

 

Transportation

 

River

 

Aviation

 

Environmental

 

 

 

 

 

 

 

Services

 

Services

 

Services

 

Services

 

Services

 

Other

 

Total

 

For the Three Months Ended September 30, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External customers

 

$

179,826

 

$

35,617

 

$

38,798

 

$

43,755

 

$

38,885

 

$

12,480

 

$

349,361

 

Intersegment

 

(139

)

 

 

44

 

 

72

 

(23

)

Operating revenues

 

179,687

 

35,617

 

38,798

 

43,799

 

38,885

 

12,552

 

349,338

 

Operating expenses

 

(89,791

)

(21,017

)

(18,563

)

(33,269

)

(26,370

)

(7,744

)

(196,754

)

Administrative and general

 

(10,118

)

(1,064

)

(1,013

)

(3,413

)

(5,931

)

(1,668

)

(23,207

)

Depreciation and amortization

 

(19,353

)

(10,159

)

(3,804

)

(5,264

)

(731

)

(1,265

)

(40,576

)

Gains on asset dispositions

 

10,168

 

 

 

1,880

 

6

 

 

12,054

 

Other income (expense), primarily foreign currency

 

(166

)

(3

)

26

 

 

(39

)

 

(182

)

Equity in earnings of 50% or less owned companies

 

1,683

 

 

 

 

374

 

550

 

2,607

 

Reportable Segment Profit

 

$

72,110

 

$

3,374

 

$

15,444

 

$

3,733

 

$

6,194

 

$

2,425

 

103,280

 

Corporate expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,910

)

Other income (expense) not included above

 

 

 

 

 

 

 

 

 

 

 

 

 

5,283

 

Equity in earnings of 50% or less owned companies

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,607

)

Segment Eliminations

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

Income before Taxes, Minority Interest and Equity Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

$

98,051

 

For the Three Months Ended September 30, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External customers

 

$

146,823

 

$

35,723

 

$

29,702

 

$

43,949

 

$

27,466

 

$

11,206

 

$

294,869

 

Intersegment

 

19

 

 

 

 

 

137

 

156

 

Operating revenues

 

146,842

 

35,723

 

29,702

 

43,949

 

27,466

 

11,343

 

295,025

 

Operating expenses

 

(82,726

)

(24,692

)

(17,203

)

(30,583

)

(17,400

)

(7,674

)

(180,278

)

Administrative and general

 

(11,290

)

(705

)

(644

)

(3,579

)

(4,546

)

(1,335

)

(22,099

)

Depreciation and amortization

 

(25,040

)

(11,663

)

(3,151

)

(4,212

)

(901

)

(1,226

)

(46,193

)

Gains (losses) on asset dispositions

 

(905

)

 

 

306

 

(19

)

 

(618

)

Other income, primarily foreign currency

 

3,288

 

 

 

 

 

17

 

26

 

3,331

 

Equity in earnings (losses) of 50% or less owned companies

 

2,051

 

 

 

 

270

 

(2,121

)

200

 

Reportable Segment Profit

 

$

32,220

 

$

(1,337

)

$

8,704

 

$

5,881

 

$

4,887

 

$

(987

)

49,368

 

Corporate expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,378

)

Other income (expense) not included above

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,828

)

Equity in earnings (losses) of 50% or less owned companies

 

 

 

 

 

 

 

 

 

 

 

 

 

(200

)

Segment Eliminations

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Income before Taxes, Minority Interest and Equity Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

$

33,968

 

 

12




 

 

 

 

Offshore

 

Marine

 

Inland

 

 

 

 

 

 

 

 

 

 

 

Marine

 

Transportation

 

River

 

Aviation

 

Environmental

 

 

 

 

 

 

 

Services

 

Services

 

Services

 

Services

 

Services

 

Other

 

Total

 

For the Nine Months Ended September 30, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External customers

 

$

507,952

 

$

110,787

 

$

109,625

 

$

116,804

 

$

103,754

 

$

37,340

 

$

986,262

 

Intersegment

 

(128

)

 

 

352

 

 

252

 

476

 

Operating revenues

 

507,824

 

110,787

 

109,625

 

117,156

 

103,754

 

37,592

 

986,738

 

Operating expenses

 

(255,992

)

(60,552

)

(52,607

)

(88,751

)

(73,223

)

(22,921

)

(554,046

)

Administrative and general

 

(33,276

)

(3,077

)

(2,658

)

(11,065

)

(15,492

)

(5,125

)

(70,693

)

Depreciation and amortization

 

(64,273

)

(30,506

)

(10,545

)

(14,109

)

(2,205

)

(3,799

)

(125,437

)

Gains (losses) on asset dispositions

 

53,209

 

 

 

4,023

 

(209

)

 

57,023

 

Other income (expense), primarily foreign currency

 

116

 

(12

)

28

 

489

 

(103

)

 

518

 

Equity in earnings (losses) of 50% or less owned companies

 

13,555

 

 

 

(5

)

737

 

720

 

15,007

 

Reportable Segment Profit

 

$

221,163

 

$

16,640

 

$

43,843

 

$

7,738

 

$

13,259

 

$

6,467

 

309,110

 

Corporate expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,514

)

Other income (expense) not included above

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,765

)

Equity in earnings (losses) of 50% or less owned companies

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,007

)

Segment Eliminations

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

Income before Taxes, Minority Interest and Equity Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

$

257,841

 

For the Nine Months Ended September 30, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External customers

 

$

311,175

 

$

35,723

 

$

82,565

 

$

98,222

 

$

98,994

 

$

11,206

 

$

637,885

 

Intersegment

 

60

 

 

 

477

 

 

137

 

674

 

Operating revenues

 

311,235

 

35,723

 

82,565

 

98,699

 

98,994

 

11,343

 

638,559

 

Operating expenses

 

(186,311

)

(24,692

)

(48,855

)

(74,642

)

(71,402

)

(7,674

)

(413,576

)

Administrative and general

 

(27,032

)

(705

)

(1,722

)

(8,018

)

(12,534

)

(1,340

)

(51,351

)

Depreciation and amortization

 

(46,660

)

(11,663

)

(8,539

)

(12,218

)

(2,539

)

(1,226

)

(82,845

)

Gains on asset dispositions

 

13,788

 

 

11

 

891

 

20

 

 

14,710

 

Other income, primarily foreign currency

 

7,118

 

 

27

 

192

 

58

 

76

 

7,471

 

Equity in earnings (losses) of 50% or less owned companies

 

4,911

 

 

 

 

930

 

(1,430

)

4,411

 

Reportable Segment Profit (Loss)

 

$

77,049

 

$

(1,337

)

$

23,487

 

$

4,904

 

$

13,527

 

$

(251

)

117,379

 

Corporate expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,082

)

Other income (expense) not included above

 

 

 

 

 

 

 

 

 

 

 

 

 

514

 

Equity in earnings (losses) of 50% or less owned companies

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,411

)

Segment Eliminations

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

Income before Taxes, Minority Interest and Equity Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

$

95,416

 

 

13




 

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. Such forward-looking statements concerning management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements discussed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: the cyclical nature of the oil and gas industry, international operations, changes in foreign political, military and economic conditions, the dependence of Offshore Marine Services, Marine Transportation Services and Aviation Services on several customers, industry fleet capacity, consolidation of our customer base, the ongoing need to replace aging vessels, restrictions imposed by the Shipping Acts and Aviation Acts on the amount of foreign ownership of the Company’s Common Stock, increased competition if the Jones Act is repealed, safety record requirements related to Offshore Marine Services and Aviation Services, changes in foreign and domestic oil and gas exploration and production activity, vessel and helicopter-related risks of Offshore Marine Services, Marine Transportation Services, Harbor and Offshore Towing Services and Aviation Services, effects of adverse weather conditions and seasonality on Aviation Services, decreased demand for our tanker and towing 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, future phase-out of our single-hull tankers, dependence of spill response revenue on the number and size of spills and upon continuing government regulation in this area and our ability to comply with such regulation and other governmental regulation, changes in NRC’s OSRO classification, liability in connection with providing spill response services, effects of adverse weather and river conditions and seasonality on inland river operations, 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 in inland river operations, adequacy of insurance coverage, compliance with government regulation, including environmental laws and regulations, currency exchange fluctuations, the attraction and retention of qualified personnel by the Company, our integration of the internal controls and procedures of Seabulk International, Inc. to continue our compliance with the Sarbanes-Oxley Act of 2002 and various other matters, many of which are beyond the Company’s control and other factors. In addition, these statements constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. The words “estimate,” “project,” “intend,” “believe,” “plan” and similar expressions are intended to identify forward-looking statements. Forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. The forward-looking statements in this Form 10-Q should be evaluated together with the many uncertainties that affect our businesses, particularly those mentioned under “Risks, Uncertainties and Other Factors That May Affect Future Results” in Item 1A of our Form 10-K and SEACOR’s periodic reporting on Form 8-K (if any), which we incorporate by reference.

14




 

Consolidated Results of Operations

The table below provides an analysis of the Company’s consolidated statements of operations for the three months (“Current Year Quarter”) and nine months (“Current Nine Months”) ended September 30, 2006 as compared to the three months (“Prior Year Quarter”) and nine months (“Prior Nine Months”) ended September 30, 2005. Additional discussions of results of operations by business segment are presented below (in thousands):

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

Percent Change

 

 

 

2006

 

2005

 

2006

 

2005

 

3 Mos

 

9 Mos

 

 

 

Amount

 

Percent

 

Amount

 

Percent

 

Amount

 

Percent

 

Amount

 

Percent

 

‘06/ ‘05

 

‘06/ ‘05

 

Operating Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offshore Marine Services

 

$

179,687

 

51

%

$

146,842

 

50

%

$

507,824

 

51

%

$

311,235

 

49

%

22

%

63

%

Marine Transportation Services

 

35,617

 

10

%

35,723

 

12

%

110,787

 

11

%

35,723

 

5

%

%

210

%

Inland River Services

 

38,798

 

11

%

29,702

 

10

%

109,625

 

11

%

82,565

 

13

%

31

%

33

%

Aviation Services

 

43,799

 

13

%

43,949

 

15

%

117,156

 

12

%

98,699

 

15

%

%

19

%

Environmental Services

 

38,885

 

11

%

27,466

 

9

%

103,754

 

11

%

98,994

 

16

%

42

%

5

%

Other and Eliminations

 

12,575

 

4

%

11,187

 

4

%

37,116

 

4

%

10,669

 

2

%

12

%

248

%

 

 

$

349,361

 

100

%

$

294,869

 

100

%

$

986,262

 

100

%

$

637,885

 

100

%

18

%

55

%

Operating Income

 

$

92,950

 

27

%

$

36,465

 

13

%

$

268,088

 

27

%

$

87,431

 

14

%

155

%

207

%

Other income (expense)

 

5,101

 

1

%

(2,497

)

(1

)%

(10,247

)

(1

)%

7,985

 

1

%

304

%

(228

)%

Income before income taxes, minority interest & equity earnings

 

98,051

 

28

 

33,968

 

12

%

257,841

 

26

%

95,416

 

15

%

189

%

170

%

Income tax expense

 

37,037

 

11

%

13,894

 

5

%

96,171

 

10

%

36,082

 

6

%

167

%

167

%

Income before minority interest & equity earnings

 

61,014

 

17

%

20,074

 

7

%

161,670

 

16

%

59,334

 

9

%

204

%

172

%

Minority interest

 

(451

)

%

223

 

%

(638

)

%

103

 

%

(302

)%

(719

)%

Equity earnings

 

2,607

 

1

%

200

 

%

15,007

 

2

%

4,411

 

1

%

1204

%

240

%

Income from continuing operations

 

63,170

 

18

%

20,497

 

7

%

176,039

 

18

%

63,848

 

10

%

208

%

176

%

Discontinued operations

 

 

 

 

%

 

 

364

 

%

N/A

 

N/A

 

Net income

 

$

63,170

 

18

%

$

20,497

 

7

%

$

176,039

 

18

%

$

64,212

 

10

%

208

%

174

%

 

Offshore Marine Services

 

 

For the Three Months
 Ended September 30,

 

For the Nine Months
 Ended September 30,

 

Percent Change

 

 

 

2006

 

2005

 

2006

 

2005

 

3 Mos

 

9 Mos

 

 

 

Amount

 

Percent

 

Amount

 

Percent

 

Amount

 

Percent

 

Amount

 

Percent

 

‘06/ ‘05

 

‘06/ ‘05

 

Operating Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

99,285

 

55

%

$

66,558

 

45

%

$

278,668

 

55

%

$

152,261

 

49

%

49

%

83

%

Africa, primarily West Africa

 

42,444

 

24

%

35,406

 

24

%

117,600

 

23

%

61,740

 

20

%

20

%

90

%

United Kingdom

 

16,348

 

9

%

14,386

 

10

%

45,165

 

9

%

46,756

 

15

%

14

%

(3

)%

Asia

 

10,198

 

6

%

12,517

 

9

%

28,936

 

6

%

19,820

 

6

%

(19

)%

46

%

Middle East

 

8,306

 

4

%

7,881

 

5

%

23,824

 

5

%

7,881

 

3

%

5

%

202

%

Latin America/Mexico

 

3,106

 

2

%

9,871

 

7

%

13,631

 

2

%

21,524

 

7

%

(69

)%

(37

)%

Other

 

 

 

223

 

 

 

 

1,253

 

 

N/A

 

N/A

 

Total Foreign

 

80,402

 

45

%

80,284

 

55

%

229,156

 

45

%

158,974

 

51

%

%

44

%

 

 

$

179,687

 

100

%

$

146,842

 

100

%

$

507,824

 

100

%

$

311,235

 

100

%

22

%

63

%

Operating Income

 

$

70,593

 

39

%

$

26,881

 

18

%

$

207,492

 

41

%

$

65,020

 

21

%

163

%

219

%

 

Operating Revenues.   Operating revenues increased $32.9 million in the Current Year Quarter compared to the Prior Year Quarter due to a 45.6% increase in average day rates, partially offset by a 12.4% reduction in available days, primarily due to net vessel dispositions.

Operating revenues increased $196.6 million in the Current Nine Months compared to the Prior Nine Months, due to a 37.8% increase in average day rates and a 22.9% increase in available days due to net vessel acquisitions primarily related to the Seabulk Merger. Operating revenues in the Current Nine Months attributable to vessels acquired in the Seabulk Merger were $152.8 million compared to $50.9 million in the Prior Nine Months.

15




 

The Company regularly buys, sells, charters and repositions vessels in an effort to align Offshore Marine Services’ fleet mix with the anticipated needs of its customers. Throughout 2006, demand for equipment has been strong in response to higher levels of exploration, production and construction activity.

Domestic Operating Revenues.   Operating revenues increased $32.7 million in the Current Year Quarter compared to the Prior Year Quarter, primarily due to a 62.5% increase in average day rates partially offset by a 6.9% reduction in available days due to net vessel dispositions.  Improvements in day rates contributed additional operating revenues of $25.9 million and a net increase in the number of vessels converted from bareboat charter to time-charter arrangements contributed an additional $6.4 million.

Operating revenues increased $126.4 million in the Current Nine Months compared to the Prior Nine Months, due to increased day rates, an increase in overall fleet size and the conversion of bareboat charter-out arrangements to time-charter contracts primarily due to vessels returning to the U.S. Gulf of Mexico following the sale of the Company’s interest in its Mexican joint venture.  The improvement in average day rates contributed additional operating revenues of $63.7 million, net vessel acquisitions contributed an additional $32.2 million and a net increase in the number of vessels converted from bareboat charter to time-charter arrangements contributed an additional $15.0 million.

International Operating Revenues.   Operating revenues in the Africa region increased $7.0 million in the Current Year Quarter compared to the Prior Year Quarter due to a 42.4% increase in average day rates and higher mobilization revenue, partially offset by a 15.0% decrease in available days, due to net vessel dispositions. Improvements in day rates contributed additional operating revenues of $10.7 million and mobilizations contributed an additional $1.0 million while net vessel dispositions resulted in a $4.1 million decrease in operating revenues. Two new builds were delivered and placed into service in the Current Year Quarter.

Operating revenues in the Africa region increased $55.9 million in the Current Nine Months compared to the Prior Nine Months.  Improvements in average day rates contributed additional operating revenues of $15.9 million, mobilization revenue contributed an additional $1.9 million and net vessel acquisitions contributed an additional $37.0 million.

Operating revenues from Standby Safety vessel operations in the United Kingdom increased $2.0 million in the Current Year Quarter compared to the Prior Year Quarter as a result of a 12.1% increase in average day rates and currency gains on day rates denominated in Pounds Sterling.

Operating revenues in the United Kingdom decreased $1.5 million in the Current Nine Months compared to the Prior Nine Months primarily due to the sale of the Company’s North Sea Anchor Handling Towing Supply vessel and Platform Supply vessel fleet in the Prior Nine Months.

Operating revenues in the Asia region decreased $2.3 million in the Current Year Quarter compared to the Prior Year Quarter.  Net fleet dispositions decreased operating revenues $3.0 million offset by a $0.8 million operating revenue increase as a result of a 10.9% increase in average day rates.

Operating revenues in the Asia region increased $9.1 million in the Current Nine Months compared to the Prior Nine Months. Net vessel acquisitions primarily related to the Seabulk Merger contributed additional operating revenues of $5.2 million and higher mobilization revenue contributed an additional $2.2 million.  Additionally, the Asia region experienced increased brokered vessel activity.

Operating revenues in the Middle East region increased $15.9 million in the Current Nine Months compared to the Prior Nine Months.  Net fleet additions related to the Seabulk Merger contributed additional operating revenues of $8.3 million and higher mobilization revenue contributed an additional $4.2 million

Operating revenues in the Latin America/Mexico region decreased $6.8 million in the Current Year Quarter compared to the Prior Year Quarter and decreased $7.9 million in the Current Nine Months compared to the Prior Nine Months, primarily due to the sale and repositioning of a number of vessels out of Mexico concurrent with the sale of the Company’s interest in its Mexican joint venture.

16




 

Operating Income.   Operating income increased $43.7 million in the Current Year Quarter compared to the Prior Year Quarter.  The increase is primarily due to higher operating revenues of $39.3 million attributable to improved average day rates and a $9.5 million increase in gains on the disposition of assets, partially offset by a $4.3 million decrease relating to the change in fleet mix.

Operating income increased $142.4 million in the Current Nine Months compared to the Prior Nine Months. The increase is primarily due to higher operating revenues of $84.0 million attributable to improved average day rates, $31.9 million of incremental operating income relating to the change in fleet mix, and a $37.8 million increase in gains on the disposition of assets

The operating income improvements for the Current Year Quarter and Current Nine Months were partially offset by higher operating expenses for crew wages, primarily in the US Gulf of Mexico, higher repair and maintenance costs, higher drydocking costs and third party management fees.

Fleet Count.   Offshore Marine Services’ fleet, comprised of owned, joint ventured, bareboat chartered-in, pooled and managed vessels, is as follows:

 

As of September 30,

 

 

 

2006

 

2005

 

Anchor handling towing supply

 

23

 

30

 

Crew

 

90

 

103

 

Mini-supply

 

29

 

29

 

Standby safety

 

27

 

27

 

Supply

 

25

 

46

 

Towing Supply

 

38

 

55

 

Other(1)

 

16

 

17

 

Overall Fleet

 

248

(2)

307

(3)


(1)                Includes anchor handling tugs, maintenance vessels and specialty vessels. Prior to the Seabulk Merger, Offshore Marine Services owned one specialty vessel in this category and partially owned a second through a joint venture.

( 2)              Includes 172 owned, 45 chartered-in, six managed and one pooled.  Joint ventures in which the Company owned a 50% or less interest owned or chartered-in 18 vessels and joint ventures in which the Company owned a majority interest owned six vessels.

( 3)              Includes 228 owned, 34 chartered-in, five managed and one pooled.  Joint ventures in which the Company owned a 50% or less interest owned or chartered-in 33 vessels and joint ventures in which the Company owned a majority interest owned six vessels.

17




Operating Data.   The table below sets forth operational data for Offshore Marine Services during the periods indicated.

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2006

 

2005

 

2006

 

2005

 

Rates Per Day Worked:(1)(2)(5)

 

 

 

 

 

 

 

 

 

Anchor handling towing supply

 

$

24,666

 

$

15,170

 

$

20,831

 

$

15,543

 

Crew

 

6,470

 

4,265

 

5,885

 

4,155

 

Mini-supply

 

7,111

 

3,621

 

6,004

 

3,377

 

Standby safety

 

9,122

 

8,135

 

8,570

 

8,197

 

Supply

 

11,965

 

8,068

 

11,356

 

8,617

 

Towing supply

 

9,580

 

6,984

 

8,764

 

7,385

 

Other(8)

 

8,743

 

6,299

 

7,900

 

6,595

 

Overall Fleet Day Rate

 

9,564

 

6,564

 

8,726

 

6,332

 

Utilization:(1)(3)(5)

 

 

 

 

 

 

 

 

 

Anchor handling towing supply

 

85

%

84

%

88

%

82

%

Crew

 

92

%

89

%

89

%

88

%

Mini-supply

 

87

%

97

%

90

%

88

%

Standby safety

 

93

%

90

%

91

%

90

%

Supply(6)

 

81

%

84

%

78

%

82

%

Towing supply(7)

 

86

%

91

%

87

%

91

%

Other(8)

 

74

%

79

%

77

%

72

%

Overall Fleet Utilization

 

88

%

88

%

87

%

87

%

Available Days:(4)

 

 

 

 

 

 

 

 

 

Anchor handling towing supply

 

1,906

 

2,208

 

6,037

 

4,686

 

Crew

 

7,959