Table of Contents

 

 

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, 2010              or             

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-12289

SEACOR Holdings Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   13-3542736

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

2200 Eller Drive, P.O. Box 13038,   33316
Fort Lauderdale, Florida   (Zip Code)
(Address of Principal Executive Offices)  

954-523-2200

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x   Accelerated filer  ¨  

Non-accelerated filer  ¨

(Do not check if a smaller

reporting company)

  Smaller reporting company  ¨

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

The total number of shares of common stock, par value $.01 per share, outstanding as of October 25, 2010 was 21,241,915. The Registrant has no other class of common stock outstanding.

 

 

 


Table of Contents

 

SEACOR HOLDINGS INC.

Table of Contents

 

Part I.    Financial Information      3   
        
   Item 1.    Financial Statements (Unaudited)      3   
        
     

Condensed Consolidated Balance Sheets as of September 30, 2010

and December 31, 2009

     3   
        
     

Condensed Consolidated Statements of Income for the

Three and Nine Months Ended September 30, 2010 and 2009

     4   
        
     

Condensed Consolidated Statement of Changes in Equity for the

Nine Months Ended September 30, 2010

     5   
        
     

Condensed Consolidated Statements of Cash Flows for the

Nine Months Ended September 30, 2010 and 2009

     6   
        
      Notes to Condensed Consolidated Financial Statements      7   
        
   Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      24   
        
   Item 3.    Quantitative and Qualitative Disclosures About Market Risk      49   
        
   Item 4.    Controls and Procedures      49   
        
Part II.    Other Information      50   
        
   Item 1A.    Risk Factors      50   
        
   Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      51   
        
   Item 6.    Exhibits      52   

 

2


Table of Contents

 

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

SEACOR HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data, unaudited)

 

     September 30,
2010
    December 31,
2009
 
ASSETS     

Current Assets:

    

Cash and cash equivalents

   $ 662,278      $ 465,904   

Restricted cash

     14,823        34,014   

Marketable securities

     103,150        68,139   

Receivables:

    

Trade, net of allowance for doubtful accounts of $3,838 and $3,608 in 2010 and 2009, respectively

     512,131        301,143   

Other

     44,550        78,689   

Inventories

     66,024        76,949   

Deferred income taxes

     3,354        3,354   

Prepaid expenses and other

     17,570        15,725   
                

Total current assets

     1,423,880        1,043,917   
                

Property and Equipment

     2,899,150        2,833,011   

Accumulated depreciation

     (850,428     (754,263
                

Net property and equipment

     2,048,722        2,078,748   
                

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

     148,334        186,814   

Construction Reserve Funds & Title XI Reserve Funds

     272,259        289,750   

Goodwill

     54,764        54,571   

Intangible Assets

     21,627        23,554   

Other Assets, net of allowance for doubtful accounts of $1,870 and $2,301 in 2010 and 2009, respectively

     52,846        46,265   
                
   $ 4,022,432      $ 3,723,619   
                
LIABILITIES AND EQUITY     

Current Liabilities:

    

Current portion of long-term debt

   $ 13,809      $ 36,436   

Current portion of capital lease obligations

     1,014        966   

Accounts payable and accrued expenses

     336,968        135,425   

Other current liabilities

     237,738        142,285   
                

Total current liabilities

     589,529        315,112   
                

Long-Term Debt

     681,268        748,704   

Capital Lease Obligations

     5,783        6,624   

Deferred Income Taxes

     586,466        575,440   

Deferred Gains and Other Liabilities

     88,130        111,848   
                

Total liabilities

     1,951,176        1,757,728   
                

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; 35,823,148 and 35,550,934 shares issued in 2010 and 2009, respectively

     358        356   

Additional paid-in capital

     1,196,445        1,182,023   

Retained earnings

     1,764,202        1,546,581   

Shares held in treasury of 14,592,224 and 12,938,108 in 2010 and 2009, respectively, at cost

     (891,887     (768,438

Accumulated other comprehensive loss:

    

Cumulative translation adjustments, net of tax

     (3,417     (3,056

Derivative losses on cash flow hedges, net of tax

     (4,151     (204
                
     2,061,550        1,957,262   

Noncontrolling interests in subsidiaries

     9,706        8,629   
                

Total equity

     2,071,256        1,965,891   
                
   $ 4,022,432      $ 3,723,619   
                
    

The accompanying notes are an integral part of these condensed consolidated financial statements

and should be read in conjunction herewith.

 

3


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SEACOR HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share data, unaudited)

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2010     2009     2010     2009  

Operating Revenues

  $ 979,833      $ 446,079      $ 2,068,984      $ 1,234,828   
                               

Costs and Expenses:

       

Operating

    683,219        327,602        1,480,266        832,145   

Administrative and general

    50,627        41,926        137,626        120,666   

Depreciation and amortization

    41,312        40,272        124,317        119,364   
                               
    775,158        409,800        1,742,209        1,072,175   
                               

Gains on Asset Dispositions and Impairments, Net

    23,896        5,783        41,953        22,528   
                               

Operating Income

    228,571        42,062        368,728        185,181   
                               

Other Income (Expense):

       

Interest income

    2,562        789        5,788        2,410   

Interest expense

    (10,274     (14,267     (33,862     (42,679

Debt extinguishment gains (losses), net

           2,787        (368     4,072   

Marketable security gains (losses), net

    (54     6,948        (3,499     14,796   

Derivative gains (losses), net

    1,648        2,328        (297     9,704   

Foreign currency gains (losses), net

    7,585        (939     (2,616     6,566   

Other, net

    10        (57     656        132   
                               
    1,477        (2,411     (34,198     (4,999
                               

Income Before Income Tax Expense and Equity In Earnings of 50% or Less Owned Companies

    230,048        39,651        334,530        180,182   

Income Tax Expense

    87,709        15,751        127,424        66,866   
                               

Income Before Equity in Earnings of 50% or Less Owned Companies

    142,339        23,900        207,106        113,316   

Equity in Earnings of 50% or Less Owned Companies, Net of Tax

    7,933        2,340        11,678        9,358   
                               

Net Income

    150,272        26,240        218,784        122,674   

Net Income (Loss) attributable to Noncontrolling Interests in Subsidiaries

    334        (42     1,163        1,090   
                               

Net Income attributable to SEACOR Holdings Inc.

  $ 149,938      $ 26,282      $ 217,621      $ 121,584   
                               

Basic Earnings Per Common Share of SEACOR Holdings Inc.

  $ 7.21      $ 1.32      $ 10.08      $ 6.13   

Diluted Earnings Per Common Share of SEACOR Holdings Inc.

  $ 7.14      $ 1.23      $ 9.99      $ 5.53   

Weighted Average Common Shares Outstanding:

       

Basic

    20,786,721        19,867,226        21,590,917        19,824,913   

Diluted

    21,000,565        23,458,195        21,785,292        23,374,644   

The accompanying notes are an integral part of these condensed consolidated financial statements

and should be read in conjunction herewith.

 

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SEACOR HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(in thousands, unaudited)

 

    SEACOR Holdings Inc. Stockholders’ Equity     Non-
Controlling
Interests In
Subsidiaries
    Total
Equity
    Comprehensive
Income
 
    Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
    Shares
Held In
Treasury
    Accumulated
Other
Comprehensive
Loss
       

December 31, 2009

  $ 356      $ 1,182,023      $ 1,546,581      $ (768,438   $ (3,260   $ 8,629      $ 1,965,891     

Issuance of common stock:

               

Employee Stock Purchase Plan

                         2,552                      2,552     

Exercise of stock options

           2,169                                    2,169     

Director stock awards

           234                                    234     

Restricted stock and restricted stock units

    2        (5            154                      151     

Purchase of treasury shares

                         (125,982                   (125,982  

Amortization of share awards

           11,844                                    11,844     

Cancellation of restricted stock

           173               (173                  

Purchase of subsidiary shares from noncontrolling interests

           7                             (46     (39  

Dividends paid to noncontrolling interests

                                       (450     (450  

Cash received from noncontrolling interests

                                       410        410     

Comprehensive income:

               

Net income

                  217,621                      1,163        218,784      $ 218,784   

Other comprehensive loss

                                (4,308            (4,308     (4,308
                                                               

Nine months ended September 30, 2010

  $ 358      $ 1,196,445      $ 1,764,202      $ (891,887   $ (7,568   $ 9,706      $ 2,071,256      $ 214,476   
                                                               

The accompanying notes are an integral part of these consolidated financial statements

and should be read in conjunction herewith.

 

5


Table of Contents

 

SEACOR HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

     Nine Months Ended
September 30,
 
     2010     2009  

Net Cash Provided by Operating Activities

   $ 416,060      $ 276,946   
                

Cash Flows from Investing Activities:

    

Purchases of property and equipment

     (173,729     (129,157

Proceeds from disposition of property and equipment

     172,993        95,033   

Cash settlements on derivative transactions, net

     (1,585     (771

Investments in and advances to 50% or less owned companies

     (41,262     (10,061

Return of investments and advances from 50% or less owned companies

     22,125        1,774   

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

            136   

Principal payments (advances) on third party notes receivable, net

     1,367        (2,031

Net decrease (increase) in restricted cash

     19,191        (8,566

Net decrease in construction reserve funds and Title XI reserve funds

     17,491        14,886   

Net increase in escrow deposits on like-kind exchanges

     (738       

Investments in leases, net

     (16,366     (1,803

Business acquisitions, net of cash acquired

     1,203        (1,955

Cash disposed on sale of subsidiary, net of cash proceeds on sale

            (154
                

Net cash provided by (used in) investing activities

     690        (42,669
                

Cash Flows from Financing Activities:

    

Payments on long-term debt and capital lease obligations

     (72,166     (222,691

Net payments on inventory financing arrangements

     (19,613     (16,789

Proceeds from issuance of long-term debt, net of offering costs

            349,297   

Common stock acquired for treasury

     (125,982       

Proceeds and tax benefits from share award plans

     4,776        2,870   

Purchase of subsidiary shares from noncontrolling interests

     (39     (1,210

Dividends paid to noncontrolling interests, net

     (40     (1,627
                

Net cash provided by (used in) financing activities

     (213,064     109,850   
                

Effects of Exchange Rate Changes on Cash and Cash Equivalents

     (7,312     476   
                

Net Increase in Cash and Cash Equivalents

     196,374        344,603   

Cash and Cash Equivalents, Beginning of Period

     465,904        275,442   
                

Cash and Cash Equivalents, End of Period

   $ 662,278      $ 620,045   
                
    

The accompanying notes are an integral part of these condensed consolidated financial statements

and should be read in conjunction herewith.

 

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Table of Contents

 

SEACOR HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Basis of Presentation and Accounting Policy

The condensed consolidated financial information for the three and nine months ended September 30, 2010 and 2009 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. In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made to present fairly the Company’s financial position as of September 30, 2010, its results of operations for the three and nine months ended September 30, 2010 and 2009, its changes in equity for the nine months ended September 30, 2010, and its cash flows for the nine months ended September 30, 2010 and 2009. 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 of America 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, 2009.

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.

Revenue Recognition. As of September 30, 2010, the Company had deferred $19.7 million of vessel charter hire scheduled to be paid through the conveyance of a limited net profit interest in developmental oil and gas producing properties owned by a customer. Of this amount, $9.5 million was deferred during the nine months ended September 30, 2010. The Company expects to defer an additional $1.5 million of vessel charter hire under this arrangement through November 2010. The customer has provided payout estimates indicating the Company will receive future payments of $3.3 million in 2010 and $17.9 million in 2011. Such payments are contingent upon future production. Production from the properties commenced in April 2010 and payments totaling $0.8 million were received and recognized as revenue during the nine months ended September 30, 2010. The Company will continue to recognize revenues as cash is received or earlier should future payments become determinable.

 

2. 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.

 

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The Company’s financial assets and liabilities as of September 30, 2010 that are measured at fair value on a recurring basis were as follows (in thousands):

 

     Level 1      Level 2      Level 3  

ASSETS

        

Marketable securities(1)

   $ 92,534       $ 10,616       $   

Derivative instruments (included in other receivables)

     721         11,214           

Construction reserve funds and Title XI reserve funds

     272,259                   

LIABILITIES

        

Short sale of marketable securities (included in other current liabilities)

     17,809                   

Derivative instruments (included in other current liabilities)

     6,494         11,998           

 

(1)

Marketable security gains (losses), net include losses of $0.1 million and gains of $0.3 million for the three months ended September 30, 2010 and 2009, respectively, related to marketable security positions held by the Company as of September 30, 2010. Marketable security gains (losses), net include losses of $1.9 million and gains of $0.1 million for the nine months ended September 30, 2010 and 2009, respectively, related to marketable security positions held by the Company as of September 30, 2010.

The estimated fair value of the Company’s other financial assets and liabilities as of September 30, 2010 were as follows (in thousands):

 

     Carrying
Amount
     Estimated
Fair Value
 

ASSETS

     

Cash, cash equivalents and restricted cash

   $ 677,101       $ 677,101   

Investments, at cost, in 50% or less owned companies (included in other assets)

     7,847         see below   

Notes receivable from other business ventures (included in other assets)

     6,504         see below   

LIABILITIES

     

Long-term debt, including current portion

     695,077         724,956   

The carrying value of cash, cash equivalents and restricted cash approximates fair value. The fair value of the Company’s long-term debt 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 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. It was not practicable to estimate the fair value of the Company’s notes receivable from other business ventures because the timing of settlement of these notes is not certain. 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.

 

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Table of Contents

 

The Company’s non-financial assets and liabilities that were measured at fair value during the nine months ended September 30, 2010 were as follows (in thousands):

 

     Level 1      Level 2      Level 3  

ASSETS

        

Investment in Seaspraie(1)

   $       $ 56,255       $   

Seabulk America (included in property and equipment)(2)

             5,000           

Investment in SES-Kazakhstan(3)

             1,000           

 

(1)

During the three months ended September 30, 2010, the Company marked its investment in its Seaspraie joint venture to fair value following the acquisition of a controlling interest (see note 4). The investment’s fair value, consisting of barges and financial assets, was primarily based on the sale of similar equipment to an unrelated third party.

 

(2) During the three months ended September 30, 2010, the Company recorded an impairment charge of $18.7 million to reduce the carrying value of one of its tankers, the Seabulk America, to its fair value (see note 5). Fair value was determined by an independent market valuation based on the sale of similar equipment.

 

(3) During the three months ended September 30, 2010, the Company marked its investment in its SES-Kazakhstan joint venture to fair value following the acquisition of a controlling interest (see note 4). The investment’s fair value was determined based on the Company’s purchase price of the non-controlling interest.

 

3. Derivative Instruments and Hedging Strategies

Derivative instruments are classified as either assets or liabilities based on their individual fair values. Derivative assets and liabilities are included in other receivables and other current liabilities, respectively, in the accompanying condensed consolidated balance sheets. The fair values of the Company’s derivative instruments as of September 30, 2010 were as follows (in thousands):

 

     Derivative
Asset
     Derivative
Liability
 

Derivatives designated as hedging instruments:

     

Forward currency exchange contracts (fair value hedges)

   $ 2,743       $ 86   

Interest rate swap agreements (cash flow hedges)

             6,810   
                 
     2,743         6,896   
                 

Derivatives not designated as hedging instruments:

     

Options on equities and equity indices

     48         2,379   

Forward currency exchange, option and future contracts

     2,367         624   

Interest rate swap agreements

             3,359   

Commodity swap, option and future contracts:

     

Exchange traded

     338         3,773   

Non-exchange traded

     6,439         1,461   

U.S. treasury notes and bond future and option contracts

               
                 
     9,192         11,596   
                 
   $ 11,935       $ 18,492   
                 

Fair Value Hedges. As of September 30, 2010, the Company has designated certain of its forward currency exchange contracts with notional values of €75.8 million as fair value hedges in respect of capital commitments denominated in euros for assets scheduled to be delivered in 2010 through 2013. By entering into these forward currency exchange contracts, the Company has fixed a portion of its euro capital commitments in U.S. dollars to protect against currency fluctuations. During the nine months ended September 30, 2010, the Company designated €68.0 million notional value of its forward currency exchange contracts as fair value hedges, in addition to €16.0 million previously so designated as of December 31, 2009. During the nine months ended September 30, 2010, the Company dedesignated €8.2 million notional value of these contracts as fair value hedges. Subsequent to September 30, 2010, forward currency exchange contracts with an aggregate notional value of €8.0 million matured.

 

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The Company recognized gains (losses) on derivative instruments designated as fair value hedges for the nine months ended September 30 as follows (in thousands):

 

     Derivative gains
(losses),  net
 
     2010     2009  

Forward currency exchange contracts, effective and ineffective portions

   $ (1,102   $ 587   

Increase (decrease) in fair value of hedged items included in property and equipment corresponding to effective portion of derivative (gains) losses

     1,011        (354
                
   $ (91   $ 233   
                
    

Cash Flow Hedges. As of September 30, 2010, the Company is a party to various interest rate swap agreements with maturities ranging from 2013 to 2014 that have been designated as cash flow hedges. These agreements call for the Company to pay fixed interest rates ranging from 2.25% to 2.85% on aggregate notional values of $125.0 million and receive a variable interest rate based on LIBOR on these notional values. During the nine months ended September 30, 2010, one of the Company’s Offshore Marine Services 50-50 joint ventures entered into an interest rate swap agreement maturing in 2015 that has been designated as a cash flow hedge. This instrument calls for the joint venture to pay a fixed interest rate of 1.48% on the amortized notional value of $21.3 million as of September 30, 2010 and receive a variable interest rate based on LIBOR on the amortized notional value. By entering into these interest rate swap agreements, the Company and its joint venture have converted the variable LIBOR component of certain of its outstanding borrowings to a fixed interest rate. During the nine months ended September 30, 2010, another of the Company’s Offshore Marine Services 50-50 joint ventures dedesignated its interest rate swap as a cash flow hedge.

The Company recognized gains (losses) on derivative instruments designated as cash flow hedges for the nine months ended September 30 as follows (in thousands):

 

     Other comprehensive
income (loss)
    Derivative gains
(losses), net
 
         2010             2009             2010              2009      

Interest rate swap agreements, effective portion

   $ (8,323   $ (1,490   $       $   

Interest rate swap agreements, ineffective portion

                   24         (255

Reclassification of derivative losses to interest expense or equity in earnings of 50% or less owned companies

     2,251        256                  
                                 
   $ (6,072   $ (1,234   $ 24       $ (255
                                 

Other Derivative Instruments. The Company recognized gains (losses) on derivative instruments not designated as hedging instruments for the nine months ended September 30 as follows (in thousands):

 

     Derivative gains
(losses), net
 
     2010     2009  

Options on equities and equity indices

   $ 1,434      $ 2,894   

Forward currency exchange, option and future contracts

     505        3,847   

Interest rate swap agreements

     (4,035     (594

Commodity swap, option and future contracts:

    

Exchange traded

     898        (55

Non-exchange traded

     3,048        3,489   

U.S. treasury notes and bond future and option contracts

     (2,080     145   
                
   $ (230   $ 9,726   
                

 

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The Company holds positions in publicly traded equity options that convey the right or obligation to engage in a future transaction on the underlying equity security or index. The Company’s investment in equity options primarily includes positions in energy, marine, transportation and other related businesses. These contracts are typically entered into to mitigate the risk of changes in market value of marketable security positions that the Company is either about to acquire, has acquired or is about to dispose of.

The Company has entered into and settled forward currency exchange, option and future contracts with respect to various foreign currencies. As of September 30, 2010, the outstanding forward currency exchange contracts translated into a net purchase of foreign currencies with an aggregate U.S. dollar equivalent of $62.0 million. These contracts enable the Company to buy currencies in the future at fixed exchange rates, which could offset possible consequences of changes in foreign exchange rates with respect to the Company’s business conducted in Europe, Africa, Mexico, Central and South America, the Middle East and Asia. The Company generally does not enter into contracts with forward settlement dates beyond twelve to eighteen months. Subsequent to September 30, 2010, forward currency exchange contracts with an aggregate U.S. dollar equivalent of $39.5 million matured and the Company entered into new forward currency exchange contracts with an aggregate U.S. dollar equivalent of $41.2 million.

The Company has entered into various interest rate swap agreements maturing in 2012 and 2013 that call for the Company to pay fixed interest rates ranging from 1.79% to 2.59% on aggregate notional values of $73.7 million and receive a variable interest rate based on LIBOR on these notional values. In addition, one of the Company’s Offshore Marine Services 50-50 joint ventures has entered into an interest rate swap agreement maturing in 2014. This instrument calls for the joint venture to pay a fixed interest rate of 3.05% on the amortized notional value of $27.6 million and receive a variable interest rate based on LIBOR on the notional value. The general purpose of these interest rate swap agreements is to provide protection against increases in interest rates, which might lead to higher interest costs for the Company or its joint venture.

The Company has entered into and settled positions in various exchange and non-exchange traded commodity swap, option and future contracts. In the Company’s commodity trading and logistics business, fixed price future purchase and sale contracts of ethanol and sugar are included in the Company’s non-exchange traded derivative positions. The Company enters into exchange traded positions to protect these purchase and sale contracts as well as its inventory balances from market changes. As of September 30, 2010, the net market exposure to ethanol and sugar under these positions was not material. The Company also enters into exchange traded positions (primarily natural gas, crude oil, gasoline, ethanol and rice) to provide value to the Company should there be a sustained decline in the price of commodities that could lead to a reduction in the market values and cash flows of the Company’s offshore marine and inland river businesses. As of September 30, 2010, these positions were not material.

The Company has entered into and settled various positions in U.S. treasury notes and bonds through futures or options on futures tied to U.S. treasury notes. The general purpose of these transactions is to provide value to the Company should the price of U.S. treasury notes and bonds decline, leading to generally higher interest rates, which might lead to higher interest costs for the Company. Subsequent to September 30, 2010, the Company entered into a one-year rate-lock agreement with a notional value of $100.0 million based on the ten-year U.S. Treasury Note.

 

4. Business Acquisitions

SES-Kazakhstan Acquisition. On August 31, 2010, the Company obtained a 100% controlling interest in SES-Borkit LLP through the acquisition of its partner’s interest for $1.0 million (cash of $0.3 million, a short-term note payable of $0.3 million and contingent consideration of $0.4 million). Upon acquisition, SES-Borkit LLP was renamed SES-Kazakhstan LLP (“SES-Kazakhstan”). The selling partner has the opportunity to receive additional consideration of up to $0.4 million based on certain performance measures over the period from the date of acquisition through August 2013. As a consequence of the acquisition of a controlling interest, the Company adjusted its investment in SES- Kazakhstan to fair value resulting in the recognition of a $0.5 million gain, net of tax, which is included in equity in earnings of 50% or less owned companies. Following the change

 

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in control, the Company consolidated SES-Kazakhstan’s financial position and its results of operations. The Company performed a preliminary fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in no goodwill being recorded. The preliminary fair value analysis is pending the completion of a final valuation for the acquired assets and liabilities.

SEASPRAIE Acquisition. On July 31, 2010, the Company obtained a 100% controlling interest in Seaspraie Holdings LLC (“Seaspraie”) through the redemption of its partner’s interest by distributing financial assets and equipment totaling $56.1 million from the joint venture. As a consequence of the acquisition of a controlling interest, the Company adjusted its investment in Seaspraie to fair value resulting in the recognition of a $2.5 million gain, net of tax, which is included in equity in earnings of 50% or less owned companies. In addition, the Company recognized previously deferred gains on asset dispositions of $12.2 million. Following the change in control, the Company consolidated Seaspraie’s financial position and its results of operations. The Company performed a fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in no goodwill being recorded.

PIER Acquisition. On December 1, 2009, the Company acquired all of the issued and outstanding shares of PIER Systems Inc. (“PIER”), a provider of crisis communication consulting services and software in the United States and abroad, for $2.3 million ($1.7 million paid in 2009 and accrued contingent consideration of $0.6 million). The selling stockholders of PIER have the opportunity to receive additional consideration of up to $1.3 million based upon certain performance measures over the period from the date of acquisition through May 2011. The Company performed a preliminary fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in no goodwill being recorded. The preliminary fair value analysis is pending the completion of a final valuation for the acquired assets and liabilities.

RMA Acquisition. On October 1, 2006, the Company acquired all of the issued and outstanding shares of Response Management Associates, Inc. (“RMA”), a provider of environmental consulting services, for $12.5 million. The selling stockholder of RMA has the opportunity to receive additional consideration of up to $8.5 million based upon certain performance measures over the period from the date of the acquisition through September 30, 2012, which will be recognized by the Company as additional cost of the acquisition when the contingency is resolved and when any additional consideration is distributable. During the nine months ended September 30, 2010, the Company paid $0.2 million of additional consideration in accordance with the acquisition agreement. As of September 30, 2010, the Company has paid $2.3 million, in the aggregate, of additional consideration, which was recorded as additional goodwill.

Purchase Price Allocation. The following table summarizes the allocation of the purchase price for the Company’s business acquisitions during the nine months ended September 30, 2010 (in thousands):

 

Accounts receivable

   $ 302   

Other current assets

     492   

Investments, at equity, in 50% or less owned companies

     (57,255

Property and equipment

     54,113   

Goodwill

     210   

Intangible assets

     1,596   

Other assets

     230   

Accounts payable and other current liabilities

     (867

Deferred income taxes

     (24
        

Purchase price(1)

   $ (1,203
        

 

(1) Purchase price is net of $1.7 million in cash acquired.

 

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5. Equipment Acquisitions, Dispositions and Depreciation and Impairment Policies

During the nine months ended September 30, 2010, capital expenditures were $173.7 million. Equipment deliveries during the period included one offshore support vessel, 113 inland river dry cargo barges, 17 liquid tank barges, three helicopters and one tractor tug.

During the nine months ended September 30, 2010, the Company sold six offshore support vessels, two helicopters, one ocean liquid tank barge, 60 dry cargo barges and other equipment. In addition, the Company received insurance proceeds related to the nationalization of one of its offshore support vessels and the total constructive loss of another offshore support vessel under construction. The Company received $173.0 million on the disposition of these assets, including the insurance proceeds, and recognized net gains of $42.0 million. Equipment dispositions included one offshore support vessel and the 60 dry cargo barges that were sold to noncontrolled joint ventures of the Company for net proceeds of $59.1 million and gains of $20.7 million.

Subsequent to September 30, 2010, the Company received net proceeds of $89.0 million upon entering into a sale leaseback transaction with a financial institution involving one of its tankers, with a carrying value of $55.9 million, that is on a long-term bareboat charter with a customer.

During the nine months ended September 30, 2010, the Company acquired two aircraft, spare engines and other equipment for $19.0 million. Upon acquisition, the assets were leased to third parties for various terms expiring through 2014. The Company has accounted for the leases as sales type leases because ownership of the assets transfers to the lessees at the end of the lease terms.

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 point at which it is typically not justifiable for the Company to continue to operate the asset in the same or similar manner. From time to time, the Company may acquire older assets that have already exceeded the Company’s useful life policy, in which case the Company depreciates such assets based on its best estimate of remaining useful life, typically the next survey or certification date.

As of September 30, 2010, the estimated useful life (in years) of each of the Company’s major categories of new equipment was as follows:

 

Offshore support vessels

     20   

U.S.-flag tankers(1)

     25   

Inland river dry cargo and deck barges

     20   

Inland river liquid tank barges

     25   

Inland river towboats

     25   

Helicopters

     12   

Harbor and offshore tugs

     25   

Ocean liquid tank barges

     25   

 

(1) Subject to Oil Pollution Act of 1990 (“OPA 90”) requirements.

The Company performs an impairment analysis of long-lived assets used in operations, including intangible assets, when indicators of impairment are present. If the carrying value of the assets is not recoverable, as determined by the estimated undiscounted cash flows, the carrying value of the assets is reduced to fair value. Generally, fair value is determined using valuation techniques, such as expected discounted cash flows or appraisals, as appropriate.

 

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The Company believes the Seabulk America is one of six vessels designed and certified to carry complicated chemical cargoes in the domestic coastwise trade. As previously reported, the Seabulk America had been scheduled to undergo a regulatory drydocking during the three months ended September 30, 2010, a requirement for continued operation. Given the prevailing market conditions, the Company deferred the drydocking, laid–up the vessel and recognized an impairment charge of $18.7 million reducing the vessel’s carrying value to its fair value of $5.0 million. The Seabulk America contributed operating revenues of $5.2 million from the beginning of the year through her lay-up in August 2010.

 

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

ICP. On November 20, 2009, the Company and an ingredients and distillery product manufacturer formed Illinois Corn Processing LLC (“ICP”), a 50-50 joint venture to own and operate an alcohol manufacturing facility dedicated to the production of alcohol for beverage, industrial and fuel applications. The Company provided a $10.0 million five-year term loan and a $20.0 million three-year revolving line of credit to ICP subject to certain borrowing restrictions. During the nine months ended September 30, 2010, the Company and its joint venture partner each contributed an additional $1.0 million to acquire equipment. During the nine months ended September 30, 2010, the Company advanced $20.9 million and received repayments of $10.0 million under the term loan and revolving line of credit. As of September 30, 2010, the outstanding balances under the term loan and revolving line of credit were $9.1 million and $4.3 million, respectively.

SCFCo. On February 20, 2007, the Company and a third party in South America formed SCFCo Holdings LLC (“SCFCo”), a 50-50 joint venture, to operate towboats and dry cargo barges on the Parana-Paraguay Rivers. During the nine months ended September 30, 2010, SCFCo agreed to further expand its operation to include three additional towboats, 60 additional dry cargo barges and make improvements to certain of its terminal operations. In order to purchase the additional equipment and make the improvements, SCFCo expanded its bank financing and each joint venture partner funded additional capital of $10.2 million and a temporary working capital advance of $3.2 million. As of September 30, 2010, $0.3 million of the temporary working capital advance remained outstanding.

Sea-Cat Crewzer. On July 27, 2009, the Company and another offshore support vessel operator formed Sea-Cat Crewzer LLC (“Sea-Cat Crewzer”), a 50-50 joint venture to own and operate two high speed offshore catamaran crew boats. During the nine months ended September 30, 2010, Sea-Cat Crewzer entered into a $22.0 million five year term loan secured by a first preferred mortgage on the two crew boats owned by Sea-Cat Crewzer. The term loan calls for quarterly principal and interest payments with a balloon payment of $15.4 million due at maturity. As a result of an interest rate swap agreement entered into with the loan provider, the term loan bears an effective fixed interest rate of 4.23%. The Company is a guarantor of 50% of Sea-Cat Crewzer’s debt. The amount of the guarantee declines as principal payments are made and will terminate when the debt is repaid. Upon funding of the term loan, Sea-Cat Crewzer distributed $9.0 million to each of its partners.

 

7. Commitments and Contingencies

The Company’s unfunded capital commitments as of September 30, 2010 consisted primarily of offshore support vessels, helicopters, an interest in a dry-bulk articulated tug-barge, inland river dry cargo barges and other equipment. These commitments totaled $279.8 million, of which $69.4 million is payable during the remainder of 2010 with the balance payable through 2013. Of the total unfunded capital commitments, $2.8 million may be terminated without further liability. Subsequent to September 30, 2010, the Company committed to purchase additional equipment for $4.1 million.

The Company has guaranteed the payment of amounts owed by one of its joint ventures under a vessel charter agreement that expires in 2011 and has guaranteed amounts owed under banking facilities by certain of its joint ventures with expirations through 2015. As of September 30, 2010, the total amount guaranteed by the Company under these arrangements was $26.9 million. Additionally, as of September 30, 2010, the Company had an uncalled capital commitment to two of its joint ventures for $2.4 million.

 

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Under United States law, “United States persons” are prohibited from business activities and contracts in certain countries, including Sudan and Iran. Relating to these prohibitions, Seabulk International, Inc., (“Seabulk”) a subsidiary of SEACOR acquired in July 2005, 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 that called in Sudan for several months in 1999 and January 2000 and charters with third parties involving several of Seabulk’s vessels that 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 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 consolidated financial position or its results of operations.

During 2006 and 2007, Marine Transportation Services (“MTS”) had two of its tankers retrofitted to a double-hull configuration in a foreign shipyard to enable each of them to continue to transport crude oil and petroleum products beyond their OPA 90 mandated retirement dates in 2011. Both vessels operate in the U.S. coastwise trade that, under the Shipping Acts, is restricted to vessels built or rebuilt in the United States. In May 2005, MTS received a determination from the U.S. Coast Guard (“USCG”), which administers the United States build requirements of the Shipping Acts, concluding the retrofit work would not constitute a foreign rebuilding and therefore would not jeopardize the tankers’ eligibility to operate in the U.S. coastwise trade. MTS completed the retrofit work in the foreign shipyard in reliance upon the USCG’s determination, which MTS believes was correct and in accord with the USCG’s long-standing regulations and interpretations. On July 9, 2007, a U.S. shipbuilders trade association and two operators of tankers in the U.S. coastwise trade (“Shipbuilders”) commenced a civil action in the U.S. District Court for the Eastern District of Virginia, Shipbuilders Council of America, Inc., et al. v. U.S. Department of Homeland Security, et al. , No. 1:07cv665 (E.D. Va.) (the “SB Trader Litigation”), in which they sought to have the court set aside the USCG’s determination and direct the USCG to revoke the coastwise license of one of the two retrofitted tankers, the Seabulk Trader. MTS intervened in the action to assist the USCG in defending its determination. On April 24, 2008, the Court issued a Memorandum Opinion granting a motion for summary judgment by Shipbuilders setting aside the USCG’s determination and remanding the matter to the USCG for further proceedings with instructions to revoke the coastwise endorsement of the Seabulk Trader. On April 30, 2008, MTS appealed the decision to the U.S. Court of Appeals for the Fourth Circuit (the “Court of Appeals”), and the lower court’s decision was stayed pending appeal, subject to certain terms (which MTS has also separately appealed). Those terms required that MTS pay to the plaintiffs 12.5% of the revenue generated by the Seabulk Trader from November 7, 2008 in the event that the Court of Appeals affirms the lower court’s decision to revoke its coastwise endorsement (the “Undertaking”). On July 2, 2008, Shipbuilders commenced a second civil action in the U.S. District Court for the Eastern District of Virginia, entitled Shipbuilders Council of America, Inc., et al. v. U.S. Department of Homeland Security, et al., No. 1:08cv680 (E.D. Va.) (the “SB Challenge Litigation”), alleging essentially identical claims as those asserted in the SB Trader Litigation against MTS’s second retrofitted tanker, the Seabulk Challenge. MTS has intervened in the SB Challenge Litigation that was stayed pending the decision of the Court of Appeals in the SB Trader Litigation. In September 2009, the Court of Appeals reversed the District Court, holding that the USCG’s interpretation was correct and that the District Court erred in requiring MTS to provide the Undertaking. On January 19, 2010, the District Court vacated its April 24, 2008 Order to the extent it directed the USCG to revoke the coastwise endorsement for the Seabulk Trader and remanded the matter to the USCG with instructions to (i) provide a fuller explanation of one aspect of its rebuild decision and (ii) consider further whether certain work relating to the vessel’s segregated ballast tanks constituted a prohibited foreign installation of required segregated ballast tanks. On August 31, 2010, the USCG issued a further determination further explaining its rebuild decision and concluding that the work relating to the vessel’s segregated ballast tanks did not constitute the installation of a required segregated ballast tank. One of the three plaintiffs in the District Court litigation urged the USCG to reach a contrary result with respect to the segregated ballast work, and it is possible that that plaintiff will ask the District Court to set aside this aspect of the USCG’s decision as well. The loss of coastwise

 

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eligibility for its two retrofitted tankers could adversely affect the Company’s financial condition and its results of operations. The aggregate carrying value of the Company’s two retrofitted tankers was $47.8 million as of September 30, 2010 and such tankers contributed operating revenues of $14.3 million during the nine months ended September 30, 2010.

Certain subsidiaries of the Company are participating employers in an industry-wide, multi-employer, defined benefit pension fund, the United Kingdom Merchant Navy Officers Pension Fund (“MNOPF”). Under the direction of a court order, any deficit of the MNOPF is to be remedied through funding contributions from all participating employers. The Company’s participation relates 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. Based on an actuarial valuation of the MNOPF in 2003, the Company was invoiced and expensed $4.4 million in 2005, representing the Company’s allocated share of a total funding deficit of $412.0 million. Subsequent to this invoice, the pension fund trustees determined that $49.0 million of the $412.0 million deficit was deemed uncollectible due to the non-existence or liquidation of certain participating employers and the Company was invoiced and expensed $0.6 million in March 2007 for its allocated share of the uncollectible deficit. Based on an actuarial valuation of the MNOPF in 2006, the Company was invoiced and expensed $3.9 million in September 2007, representing the Company’s allocated share of an additional funding deficit of $332.6 million. The results of the most recent actuarial valuation of the MNOPF in 2009 indicated that an additional net funding deficit of $645.0 million (£408.0 million) had developed since the previous actuarial valuation in 2006 and the Company estimates its allocated share of the deficit to be $7.9 million (£5.0 million). When the Company is invoiced for its share, it will recognize payroll related operating expenses in the periods invoices are received. Depending on the results of future actuarial valuations, it is possible that the MNOPF will experience further funding deficits, requiring the Company to recognize payroll related operating expenses in the periods invoices are received.

A subsidiary of the Company is a participating employer in an industry-wide, multi-employer, defined benefit pension fund, the United Kingdom Merchant Navy Ratings Pension Fund (“MNRPF”). The Company’s participation relates to ratings employed between 1978 and 2001 by SEACOR’s Stirling group of companies (which had been acquired by SEACOR in 2001) and its predecessors. Based on an actuarial valuation in March 2008, the MNRPF has an accumulated funding deficit of $320.9 million (£203.0 million). No decision has yet been reached as to how the deficit will be recovered, but the Company expects it is likely that participating employers will be invoiced for their allocated share, at which time the Company would recognize payroll related operating expenses. The Company estimates its allocated share of the uninvoiced deficit to be approximately $1.1 million (£0.7 million). Depending on the results of the most recent and future actuarial valuations, it is possible that the MNRPF will experience further funding deficits, requiring the Company to recognize payroll related operating expenses in the periods invoices are received.

On June 12, 2009, a purported civil class action was filed against SEACOR, Era Group Inc., Era Aviation, Inc., Era Helicopters LLC and two other defendants (collectively the “Defendants”) in the U.S. District Court for the District of Delaware, Superior Offshore International, Inc. v. Bristow Group Inc., et al., No. 09-CV-438 (D.Del.). SEACOR acquired Era Group Inc., Era Aviation, Inc., and Era Helicopters LLC in December 2004. The complaint alleges that the Defendants violated federal antitrust laws by conspiring with each other to raise, fix, maintain or stabilize prices for offshore helicopter services in the U.S. Gulf of Mexico during the period January 2001 to December 2005. The purported class of plaintiffs includes all direct purchasers of such services and the relief sought includes compensatory damages and treble damages. On September 14, 2010, the District Court entered an order dismissing the complaint. On September 28, 2010, the plaintiffs filed a motion for reconsideration and amendment and motion for re-argument (the “Motions”). On October 12, 2010, Defendants opposed the Motions. The District Court has yet to rule on the Motions. The Company is unable to estimate the potential exposure, if any, resulting from these claims but believes they are without merit and intends to vigorously defend the action.

On July 14, 2010, a group of individuals and entities purporting to represent a class commenced a civil action in the U.S. District Court for the Eastern District of Louisiana, Terry G. Robin, et al. v. Seacor Marine,

 

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L.L.C., et al. , No. 2:10-cv-01986 (E.D. La.), in which they assert that support vessels, including vessels owned by the Company, responding to the explosion and resulting fire that occurred aboard the semi-submersible drilling rig, the Deepwater Horizon, were negligent in their efforts to save lives and put out the fire and contributed to the sinking of the Deepwater Horizon and subsequent oil spill. The action now is part of the overall multi-district litigation, In re Oil Spill by the Oil Rig “Deepwater Horizon”, MDL No. 2179. The complaint seeks compensatory, punitive, exemplary, and other damages. The Company believes that this lawsuit brought by class action lawyers targeting emergency responders acting under the direction of the U.S. Coast Guard has no merit and will seek its dismissal.

On July 20, 2010, two individuals purporting to represent a class commenced a civil action in the Civil District Court for the Parish of Orleans in the State of Louisiana, John Wunstell, Jr. and Kelly Blanchard v. BP, et al., No. 2010-7437 (Division K) (the “Wunstell Action”), in which they assert, among other theories, that Mr. Wunstell suffered injuries as a result of his exposure to certain noxious fumes and chemicals in connection with the provision of remediation, containment and response services by O’Brien’s Response Management Inc., a subsidiary of SEACOR. The action now is part of the overall multi-district litigation, In re Oil Spill by the Oil Rig “Deepwater Horizon”, MDL No. 2179. The complaint also seeks to establish a “class-wide court-supervised medical monitoring program” for all individuals “participating in BP’s Deepwater Horizon Vessels of Opportunity Program and/or Horizon Response Program” who allegedly experience injuries similar to Mr. Wunstell. The Company believes this lawsuit has no merit and will seek its dismissal.

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

 

8. Long-Term Debt and Capital Lease Obligations

As of September 30, 2010, the Company had $125.0 million of outstanding borrowings under its revolving credit facility. The remaining availability under this facility was $323.5 million, net of issued letters of credit of $1.5 million. In addition, the Company had other outstanding letters of credit totaling $44.8 million with various expiration dates through 2014.

During the nine months ended September 30, 2010, the Company made scheduled payments on long-term debt and capital lease obligations of $6.7 million and made net payments on inventory financing arrangements of $19.6 million.

During the nine months ended September 30, 2010, the Company redeemed all of the outstanding bonds on two of the Company’s double hull product tankers, in principal amount of $61.9 million, for an aggregate purchase price of $63.0 million, including a make-whole premium, resulting in a loss on debt extinguishment of $0.2 million.

SEACOR’s Board of Directors has previously authorized the Company to purchase any or all of its 5.875% Senior Notes due 2012 and its 7.375% Senior Notes due 2019, which may be acquired through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. During the nine months ended September 30, 2010, the Company purchased $2.4 million, in principal amount, of its 5.875% Senior Notes due 2012, for an aggregate purchase price of $2.5 million, resulting in a loss on debt extinguishment of $0.2 million.

 

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9. Stock Repurchases

SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire shares of SEACOR common stock, par value $0.01 per share (“Common Stock”), which may be acquired through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. During the nine months ended September 30, 2010, the Company acquired for treasury 1,693,100 shares of Common Stock at an average price of $74.36 for an aggregate purchase price of $126.0 million. On February 18, 2010, SEACOR’s Board of Directors increased the repurchase authority up to $250.0 million and, as of September 30, 2010, the remaining authority under the repurchase plan was $124.1 million. Subsequent to September 30, 2010, the Company acquired for treasury 68,400 shares of Common Stock for an aggregate purchase price of $6.3 million.

 

10. Earnings Per Common Share of SEACOR

Basic earnings per common share of SEACOR are computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings per common share of SEACOR are computed based on the weighted average number of common shares issued and outstanding plus the effect of potentially dilutive securities through the application of the treasury stock and if-converted methods. Dilutive securities for this purpose assumes restricted stock grants have vested, common shares have been issued pursuant to the exercise of outstanding stock options and common shares have been issued pursuant to the conversion of outstanding convertible debentures. For the three and nine months ended September 30, 2010, diluted earnings per common share of SEACOR excluded 939,071 and 872,748, respectively, of certain share awards as the effect of their inclusion in the computation would have been antidilutive. For the three and nine months ended September 30, 2009, diluted earnings per common share of SEACOR excluded 715,985 and 818,364, respectively, of certain share awards as the effect of their inclusion in the computation would have been antidilutive.

Computations of basic and diluted earnings per common share of SEACOR for the three and nine months ended September 30 were as follows (in thousands, except per share data).

 

     Three Months Ended      Nine Months Ended  
     Net
Income
     Average O/S
Shares
     Per
Share
     Net
Income
     Average O/S
Shares
     Per
Share
 

2010

                 

Basic Earnings Per Common Share of SEACOR Holdings Inc.

   $ 149,938         20,787       $ 7.21       $ 217,621         21,591       $ 10.08   

Effect of Dilutive Securities, net of tax:

                 

Options and Restricted Stock

             214                    194      
                                         

Diluted Earnings Per Common Share of SEACOR Holdings Inc.

   $ 149,938         21,001       $ 7.14       $ 217,621         21,785       $ 9.99   
                                         

2009

                 

Basic Earnings Per Common Share of SEACOR Holdings Inc.

   $ 26,282         19,867       $ 1.32       $ 121,584         19,825       $ 6.13   

Effect of Dilutive Securities, net of tax:

                 

Options and Restricted Stock

             225                    165      

Convertible Securities

     2,563         3,366            7,651         3,385      
                                         

Diluted Earnings Per Common Share of SEACOR Holdings Inc.

   $ 28,845         23,458       $ 1.23       $ 129,235         23,375       $ 5.53   
                                         
                 

 

18


Table of Contents

 

11. Comprehensive Income

For the three months ended September 30, 2010 and 2009, total comprehensive income was $150.5 million and $20.3 million, respectively. For the nine months ended September 30, 2010 and 2009, total comprehensive income was $214.5 million and $124.1 million, respectively. The components of other comprehensive income (loss) and allocated income tax (expense) benefit for the three and nine months ended September 30 were as follows (in thousands):

 

    Three Months Ended     Nine Months Ended  
    Before-Tax
Amount
    Tax
(Expense)
Benefit
    After-Tax
Amount
    Before-Tax
Amount
    Tax
(Expense)
Benefit
    After-Tax
Amount
 

2010

           

Foreign currency translation adjustments

  $ 2,506      $ (877   $ 1,629      $ (556   $ 195      $ (361

Derivative losses on cash flow hedges (see Note 3)

    (2,089     731        (1,358     (6,072     2,125        (3,947
                                               

Other comprehensive income (loss)

  $ 417      $ (146   $ 271      $ (6,628   $ 2,320      $ (4,308
                                               

2009

           

Foreign currency translation adjustments

  $ (6,734   $ 2,357      $ (4,377   $ 3,492      $ (1,222   $ 2,270   

Derivative losses on cash flow hedges (see Note 3)

    (2,336     818        (1,518     (1,234     432        (802
                                               

Other comprehensive income (loss)

  $ (9,070   $ 3,175      $ (5,895   $ 2,258      $ (790   $ 1,468   
                                               

 

12. Share Based Compensation

The following transactions have occurred in connection with the Company’s share based compensation plans during the nine months ended September 30, 2010:

 

Director stock awards granted

     3,250   
        

Employee Stock Purchase Plan (“ESPP”) shares issued

     39,231   
        

Restricted stock awards granted

     229,162   
        

Restricted stock awards cancelled

     2,158   
        

Shares released from Deferred Compensation Plan

     2,206   
        

Restricted Stock Unit Activities:

  

Outstanding as of December 31, 2009

     1,070   

Granted

     63   

Converted to shares and issued to Deferred Compensation Plan

     (295
        

Outstanding as of September 30, 2010

     838   
        

Stock Option Activities:

  

Outstanding as of December 31, 2009

     1,220,601   

Granted

     189,685   

Exercised

     (39,506

Forfeited

     (6,100

Expired

     (4,325
        

Outstanding as of September 30, 2010

     1,360,355   
        

Shares available for future grants and ESPP purchases as of September 30, 2010

     1,114,966   
        

 

19


Table of Contents

 

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 is as previously described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

The following tables summarize the operating results, capital expenditures and assets of the Company’s reportable segments.

 

    Offshore
Marine
Services
$’000
    Marine
Transportation
Services

$’000
    Inland
River
Services
$’000
    Aviation
Services
$’000
    Environmental
Services

$’000
    Commodity
Trading
and
Logistics
$’000
    Other
$’000
    Corporate
and
Eliminations
$’000
    Total
$’000
 

For the three months ended September 30, 2010

                 

Operating Revenues:

                 

External customers

    150,981        18,540        38,148        67,117        468,226        216,896        19,925               979,833   

Intersegment

    9,935               3,233        19                      106        (13,293       
                                                                       
    160,916        18,540        41,381        67,136        468,226        216,896        20,031        (13,293     979,833   
                                                                       

Costs and Expenses:

                 

Operating

    79,205        8,754        26,535        37,492        329,497        204,467        10,559        (13,290     683,219   

Administrative and general

    12,378        1,087        2,898        7,274        11,508        3,716        2,803        8,963        50,627   

Depreciation and amortization

    12,758        7,320        5,415        10,889        2,249        13        2,224        444        41,312   
                                                                       
    104,341        17,161        34,848        55,655        343,254        208,196        15,586        (3,883     775,158   
                                                                       

Gains (Losses) on Asset Dispositions and Impairments, Net

    12,717        (18,677     29,445        412                             (1     23,896   
                                                                       

Operating Income (Loss)

    69,292        (17,298     35,978        11,893        124,972        8,700        4,445        (9,411     228,571   
                                                                       

Other Income (Expense):

                 

Derivative gains (losses), net

                         (29            (5,307            6,984        1,648   

Foreign currency gains (losses), net

    977        61               (81     3        190        34        6,401        7,585   

Other, net

                         50                             (40     10   

Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax

    2,300               3,522        663        533        1,042        (127            7,933   
                                                           

Segment Profit (Loss)

    72,569        (17,237     39,500        12,496        125,508        4,625        4,352       
                                                           

Other Income (Expense) not included in Segment Profit

  

              (7,766

Less Equity Earnings included in Segment Profit

  

                (7,933
                       

Income Before Taxes and Equity Earnings

  

              230,048   
                       
                 

 

20


Table of Contents

 

    Offshore
Marine
Services
$’000
    Marine
Transportation
Services

$’000
    Inland
River
Services
$’000
    Aviation
Services
$’000
    Environmental
Services

$’000
    Commodity
Trading
and
Logistics
$’000
    Other
$’000
    Corporate
and
Eliminations
$’000
    Total
$’000
 

For the nine months ended September 30, 2010

                 

Operating Revenues:

                 

External customers

    400,035        59,255        99,827        179,873        711,013        562,952        56,029               2,068,984   

Intersegment

    15,190               9,586        (29                   411        (25,158       
                                                                       
    415,225        59,255        109,413        179,844        711,013        562,952        56,440        (25,158     2,068,984   
                                                                       

Costs and Expenses:

                 

Operating

    232,980        31,101        67,636        110,059        476,942        555,213        31,493        (25,158     1,480,266   

Administrative and general

    37,758        2,962        7,577        18,756        24,070        10,251        8,441        27,811        137,626   

Depreciation and amortization

    39,481        23,336        15,249        32,064        6,331        48        6,514        1,294        124,317   
                                                                       
    310,219        57,399        90,462        160,879        507,343        565,512        46,448        3,947        1,742,209   
                                                                       

Gains (Losses) on Asset Dispositions and Impairments, Net

    27,332        (18,688     31,231        881        (53            1,203        47        41,953   
                                                                       

Operating Income (Loss)

    132,338        (16,832     50,182        19,846        203,617        (2,560     11,195        (29,058     368,728   
                                                                       

Other Income (Expense):

                 

Derivative gains (losses), net

                         (91            3,612               (3,818     (297

Foreign currency gains (losses), net

    1,776        35               (1,677     10        (557     1        (2,204     (2,616

Other, net

                  10        50               6        34        556        656   

Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax

    6,264               4,229        (54     625        7        607               11,678   
                                                           

Segment Profit (Loss)

    140,378        (16,797     54,421        18,074        204,252        508        11,837       
                                                           

Other Income (Expense) not included in Segment Profit

  

              (31,941

Less Equity Earnings included in Segment Profit

  

              (11,678
                       

Income Before Taxes and Equity Earnings

  

              334,530   
                       

Capital Expenditures

    31,909        4,233        20,547        86,079        4,176               12,602        14,183        173,729   
                                                                       

As of September 30, 2010

                 

Property and Equipment

    610,088        333,462        317,214        577,880        35,331        168        155,221        19,358        2,048,722   

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

    40,029               40,390        26,367        2,071        15,577        23,900               148,334   

Goodwill

    13,367               1,743        353        37,999               1,302               54,764   

Intangible Assets

    8,566        2,036        1,186               9,282               557               21,627   

Other current and long-term assets, excluding cash and near cash assets(1)

    169,112        3,152        47,770        78,415        248,497        80,821        43,439        25,269        696,475   
                                                           

Segment Assets

    841,162        338,650        408,303        683,015        333,180        96,566        224,419       
                                                           

Cash and near cash assets(1)

                    1,052,510   
                       

Total Assets

                    4,022,432   
                       
                 

 

(1) Cash and near cash assets include cash, cash equivalents, restricted cash, marketable securities, construction reserve funds and Title XI reserve funds.

 

21


Table of Contents

 

    Offshore
Marine
Services
$’000
    Marine
Transportation
Services

$’000
    Inland
River
Services
$’000
    Aviation
Services
$’000
    Environmental
Services

$’000
    Commodity
Trading
and
Logistics
$’000
    Other
$’000
    Corporate
and
Eliminations
$’000
    Total
$’000
 

For the three months ended September 30, 2009

                 

Operating Revenues:

                 

External customers

    128,785        21,737        31,192        64,259        33,827        150,866        15,413               446,079   

Intersegment

    1,054               3,122                             161        (4,337       
                                                                       
    129,839        21,737        34,314        64,259        33,827        150,866        15,574        (4,337     446,079   
                                                                       

Costs and Expenses:

                 

Operating

    76,982        11,420        20,144        39,659        23,206        150,983        9,544        (4,336     327,602   

Administrative and general

    13,128        953        2,443        5,624        6,090        3,705        2,378        7,605        41,926   

Depreciation and amortization

    13,608        8,003        4,785        9,706        1,846        7        2,049        268        40,272   
                                                                       
    103,718        20,376        27,372        54,989        31,142        154,695        13,971        3,537        409,800   
                                                                       

Gains (Losses) on Asset Dispositions and Impairments, Net

    3,852               813        1,062        (1            58        (1     5,783   
                                                                       

Operating Income (Loss)

    29,973        1,361        7,755        10,332        2,684        (3,829     1,661        (7,875     42,062   
                                                                       

Other Income (Expense):

                 

Derivative gains (losses), net

                         (80            1,689               719        2,328   

Foreign currency gains, net

    (1,174     7               296               177        10        (255     (939

Other, net

    14                                           (1     (70     (57

Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax

    2,322               140        (186     34               30               2,340   
                                                           

Segment Profit (Loss)

    31,135        1,368        7,895        10,362        2,718        (1,963     1,700       
                                                           

Other Income (Expense) not included in Segment Profit

  

          (3,743

Less Equity Earnings included in Segment Profit

  

                (2,340
                       

Income Before Taxes and Equity Earnings

  

                39,651   
                       
                 

 

22


Table of Contents

 

    Offshore
Marine
Services
$’000
    Marine
Transportation
Services

$’000
    Inland
River
Services
$’000
    Aviation
Services
$’000
    Environmental
Services

$’000
    Commodity
Trading
and
Logistics
$’000
    Other
$’000
    Corporate
and
Eliminations
$’000
    Total
$’000
 

For the nine months ended September 30, 2009

                 

Operating Revenues:

                 

External customers

    437,705        72,369        93,253        181,336        101,178        301,221        47,766               1,234,828   

Intersegment

    3,383               8,238        8        58               395        (12,082       
                                                                       
    441,088        72,369        101,491        181,344        101,236        301,221        48,161        (12,082     1,234,828   
                                                                       

Costs and Expenses:

                 

Operating

    237,430        39,983        57,392        117,288        70,939        292,019        29,462        (12,368     832,145   

Administrative and general

    34,261        3,079        6,627        15,424        19,297        9,012        7,211        25,755        120,666   

Depreciation and amortization

    41,099        24,001        14,601        27,482        5,339        9        5,974        859        119,364   
                                                                       
    312,790        67,063        78,620        160,194        95,575        301,040        42,647        14,246        1,072,175   
                                                                       

Gains (Losses) on Asset Dispositions and Impairments, Net

    18,659               3,470        3        11               388        (3     22,528   
                                                                       

Operating Income (Loss)

    146,957        5,306        26,341        21,153        5,672        181        5,902        (26,331     185,181   
                                                                       

Other Income (Expense):

                 

Derivative gains (losses), net

    (18                   233               3,226               6,263        9,704   

Foreign currency gains (losses), net

    670        (2            1,662        20        449        141        3,626        6,566   

Other, net

    182                                    26        (54     (22     132   

Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax

    8,093               2,014        (190     135        187        (881            9,358   
                                                           

Segment Profit

    155,884        5,304        28,355        22,858        5,827        4,069        5,108       
                                                           

Other Income (Expense) not included in Segment Profit

  

              (21,401

Less Equity Earnings included in Segment Profit

  

                (9,358
                       

Income Before Taxes and Equity Earnings

  

              180,182   
                       

Capital Expenditures

    21,062        124        7,722        65,521        4,508        3        29,310        907        129,157   
                                                                       

As of September 30, 2009

                 

Property and Equipment

    728,751        372,653        269,679        511,628        33,514        131        155,246        3,716        2,075,318   

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

    46,805               81,707        26,946        1,966               9,454               166,878   

Goodwill

    13,367               1,493        353        37,475               1,302               53,990   

Intangible Assets

    10,825        2,429        1,516               9,326               666               24,762   

Other current and long-term assets, excluding cash and near cash assets(1)

    180,555        10,565        32,354        76,476        34,771        61,253        23,992        49,656        469,622   
                                                           

Segment Assets

    980,303        385,647        386,749        615,403        117,052        61,384        190,660       
                                                           

Cash and near cash assets(1)

                    993,166   
                       

Total Assets

                    3,783,736   
                       
                 

 

(1) Cash and near cash assets include cash, cash equivalents, restricted cash, marketable securities, construction reserve funds and Title XI reserve funds.

 

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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: decreased demand and loss of revenues as a result of the recently lifted U.S. government implemented moratoriums directing operators to cease certain drilling activities (the “Moratoriums”), weakening demand for the Company’s services as a result of unplanned customer suspensions, cancellations, rate reductions or non-renewals of vessel charters and aviation equipment or failures to finalize commitments to charter vessels and aviation equipment in response to Moratoriums, increased government legislation and regulation of the Company’s businesses could increase cost of operations, increased competition if the Jones Act is repealed, liability, legal fees and costs in connection with providing spill and emergency response services, including the Company’s involvement in response to the oil spill as a result of the sinking of the Deepwater Horizon in April 2010, 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 illiquidity 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, loss of U.S. coastwise endorsement for the retro-fitted double-hull tankers, Seabulk Trader and Seabulk Challenge, if the Company is unsuccessful in litigation instructing the U.S. Coast Guard to revoke their coastwise charters, 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 Offshore Marine Services, Marine Transportation Services and Aviation Services, decreased demand for Marine Transportation Services and Harbor and Offshore Towing Services due to construction of additional refined petroleum products, 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, the dependence of Offshore Marine Services, Marine Transportation Services and Aviation Services on several customers, consolidation of the Company's customer base, the ongoing need to replace aging vessels and aircraft, industry fleet capacity, restrictions imposed by the Shipping Acts and Aviation Acts on the amount of foreign ownership of the Company's Common Stock, operational risks of Offshore Marine Services, Marine Transportation Services, Harbor and Offshore Towing Services and Aviation Services, effects of adverse weather conditions and seasonality, future phase-out of Marine Transportation Services' double-bottom tanker, dependence of spill response revenue on the number and size of spills and upon continuing government regulation in this area and Environmental Services' ability to comply with such regulation and other governmental regulation, changes in National Response Corporation's Oil Spill Removal Organization classification, liability in connection with providing spill response services, 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 Services' operations, adequacy of insurance coverage, the attraction and retention of qualified personnel by the Company and various other matters and factors, many of which are beyond the Company's control. In addition, these statements constitute the Company's cautionary statements under the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such factors. Consequently, the following should not be considered 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. 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. The forward-looking statements in this Form 10-Q should be evaluated together with the many uncertainties that affect the Company’s businesses, particularly those mentioned under “Forward-Looking Statements” in Item 7 on the Company’s Form 10-K and SEACOR’s periodic reporting on Form 8-K (if any), which are incorporated by reference.

 

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Overview

The Company’s operations are divided into six main business segments – Offshore Marine Services, Marine Transportation Services, Inland River Services, Aviation Services, Environmental Services, and Commodity Trading and Logistics. The Company also has activities that are referred to and described under Other that primarily includes Harbor and Offshore Towing Services, various other investments in joint ventures and lending and leasing activities.

Deepwater Horizon Oil Spill Response

The Company’s operating results for the three and nine months ended September 30, 2010 were significantly impacted by oil spill response activities relating to the BP Macondo well incident in the U.S. Gulf of Mexico following the sinking of the semi-submersible drilling rig Deepwater Horizon in April 2010 (the “Oil Spill Response”). At the height of the Oil Spill Response, four of the Company’s business segments were actively providing support. Environmental Services provided (i) equipment and people to support clean-up activities on-shore, (ii) professional assistance, consulting services and software systems in support of incident management activities at various strategic locations, and (iii) assistance in the provision of manpower for clean-up operations throughout the region. Offshore Marine Services provided (i) vessels for a variety of functions including vessel decontamination, skimming, lightering, offshore traffic control and accommodation, and (ii) technical and video equipment on vessels engaged in the Oil Spill Response to allow for instant tracking of assets and surveillance of operations. Aviation Services provided (i) helicopters for air support to U.S. Coast Guard observers undertaking oil spotting and assessment missions, (ii) transportation for various other officials requiring overflights to assess the Oil Spill Response and recovery efforts, and (iii) a flight tracking system to monitor the movement of all marine and aviation assets involved in the Oil Spill Response. Harbor and Offshore Towing Services provided tugs engaged in the decontamination of vessels transiting the region. Oil Spill Response activity has diminished since September 30, 2010 resulting in reduced demand for the Company’s assets and services. For additional information, see “Consolidated Results of Operations” included below.

As an active party to the Oil Spill Response, the Company has been named in individual and class action litigations involving environmental damage, business and personal injury claims that may result in financial exposure. In reaction to the Deepwater Horizon/BP Macondo well incident, the U.S. Department of the Interior issued an order on May 28, 2010 imposing a six month moratorium on all offshore deepwater drilling projects. A preliminary injunction was issued on June 22, 2010 blocking enforcement of the moratorium; however, the U.S. Department of Interior issued a new moratorium on July 12, 2010 that was lifted on October 12, 2010. The U.S. Department of Interior has also implemented additional safety and certification requirements for drilling activities, imposed additional requirements for the approval of development and production activities, and delayed the approval of applications to drill in both deepwater and shallow-water areas. The Company’s results, in particular those of its Offshore Marine Services and Aviation Services segments, could be adversely impacted as a consequence of reduced drilling activities in the U.S. Gulf of Mexico. For additional information, see “Contingencies” included below and “Item 1A. Risk Factors” included in Part II.

 

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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 nine months (“Current Nine Months”) ended September 30, 2010, compared with the three months (“Prior Year Quarter”) and nine months (“Prior Nine Months”) ended September 30, 2009. See “Item 1. Financial Statements—Note 13. Segment Information” included in Part I for consolidating segment tables for each period presented.

Offshore Marine Services

 

    For the Three  Months
Ended September 30,
    For the Nine Months
Ended September 30,
    Change
’10/’09
 
    2010     2009     2010     2009     3 Mos     9 Mos  
    $’000     %     $’000     %     $’000     %     $’000     %     %     %  

Operating Revenues:

                   

United States, primarily U.S. Gulf of Mexico

    90,722        56        37,705        29        209,733        51        165,927        38       
                                                                   

Africa, primarily West Africa

    19,541        12        26,889        21        58,125        14        85,167        19       

Middle East

    13,326        8        19,354        15        39,727        9        62,797        14       

Mexico, Central and South America

    12,396        8        19,190        15        38,110        9        53,735        12       

United Kingdom, primarily North Sea

    17,447        11        17,653        13        48,782        12        49,365        11       

Asia

    7,484        5        9,048        7        20,748        5        24,097        6       
                                                                   

Total Foreign

    70,194        44        92,134        71        205,492        49        275,161        62       
                                                                   
    160,916        100        129,839        100        415,225        100        441,088        100        24        (6
                                                                   

Costs and Expenses:

                   

Operating

    79,205        49        76,982        59        232,980        56        237,430        54       

Administrative and general

    12,378        8        13,128        10        37,758        9        34,261        8       

Depreciation and amortization

    12,758        8        13,608        11        39,481        10        41,099        9       
                                                                   
    104,341        65        103,718        80        310,219        75        312,790        71       
                                                                   

Gains on Asset Dispositions and Impairments, Net

    12,717        8        3,852        3        27,332        7        18,659        4       
                                                                   

Operating Income

    69,292        43        29,973        23        132,338        32        146,957        33        131        (10
                                                                   

Other Income (Expense):

                   

Derivative losses, net

                                              (18           

Foreign currency gains (losses), net

    977        1        (1,174     (1     1,776               670              

Other, net

                  14                             182              

Equity in Earnings of 50% or Less Owned Companies, Net of Tax

    2,300        1        2,322        2        6,264        2        8,093        2       
                                                                   

Segment Profit

    72,569        45        31,135        24        140,378        34        155,884        35        133        (10
                                                                   

 

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Operating Revenues by Type. The table below sets forth, for the periods indicated, the amount of operating revenues by type.

 

    For the Three  Months
Ended September 30,
    For the Nine Months
Ended September 30,
    Change
’10/’09
 
    2010     2009     2010     2009     3 Mos     9 Mos  
    $’000     %     $’000     %     $’000     %     $’000     %     %     %  

Operating Revenues:

                   

Time charter:

                   

United States, primarily U.S. Gulf of Mexico

    81,004        50        36,031        28        193,050        46        159,639        36        125        21   

Africa, primarily West Africa

    14,667        9        22,181        17        47,683        11        71,735        16        (34     (34

Middle East

    10,755        7        12,908        10        31,611        8        43,237        10        (17     (27

Mexico, Central and South America

    10,096        6        12,763        10        32,125        8        37,814        9        (21     (15

United Kingdom, Primarily North Sea

    17,445        11        17,663        13        48,712        12        49,138        11        (1     (1

Asia

    4,235        3        8,602        7        15,890        4        23,139        5        (51     (31
                                                                   

Total time charter

    138,202        86        110,148        85        369,071        89        384,702        87        25        (4
                                                                   

Bareboat charter

    3,277        2        1,412        1        4,771        1        7,618        2        132        (37

Brokered vessel activity

    4,488        3        8,677        7        11,912        3        25,162        6        (48     (53

Other marine services

    14,949        9        9,602        7        29,471        7        23,606        5        56        25   
                                                                   
    160,916        100        129,839        100        415,225        100        441,088        100       
                                                                   
                   

 

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Time Charter Operating Data. The table below sets forth the average rates per day worked, utilization and available days data for each group of Offshore Marine Services’ vessels operating under time charters for the periods indicated. The rate per day worked is the ratio of total time charter revenues to the aggregate number of days worked. Utilization is the ratio of aggregate number of days worked to total calendar days available for work. Available days represents the total calendar days during which owned and chartered-in vessels are operated by the Company.

 

     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
       2010         2009           2010             2009      

Rates Per Day Worked:

        

Anchor handling towing supply

   $ 41,619      $ 31,993        38,291      $ 39,091   

Crew

     6,522        7,615        6,592        7,491   

Mini-supply

     9,850        6,822        9,051        6,213   

Standby safety

     8,574        8,795        8,250        8,362   

Supply

     16,337        15,244        14,698        15,449   

Towing supply

     10,798        12,202        11,137        11,908   

Specialty

     7,330        13,038        7,258        14,008   

Overall Average Rates Per Day Worked

     13,667        11,880        13,028        12,261   

Utilization:

        

Anchor handling towing supply

     82     57     78     65

Crew

     80     60     73     70

Mini-supply

     90     54     69     63

Standby safety

     88     91     88     90

Supply

     86     66     81     76

Towing supply

     73     84     77     91

Specialty

     88     91     72     91

Overall Fleet Utilization

     83     67     77     75

Available Days:

        

Anchor handling towing supply

     1,675        1,673        5,114        4,725   

Crew

     4,542        5,796        13,569        17,892   

Mini-supply

     1,012        1,046        3,003        3,743   

Standby safety

     2,300        2,208        6,682        6,552   

Supply

     1,748        1,834        5,187        5,454   

Towing supply

     560        828        2,059        2,518   

Specialty

     275        368        969        1,220   
                                

Overall Fleet Available Days

     12,112        13,753        36,583        42,104   
                                
        

Current Year Quarter compared with Prior Year Quarter

Operating Revenues. Time charter revenues were $28.1 million higher. Overall fleet utilization was 83% compared with 67%. The number of days available for charter was 12,112 compared with 13,753, a 1,641 or 12% reduction, due to net fleet dispositions, including the return of twelve vessels to lessors. Overall average day rates

 

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were $13,667 per day compared with $11,880 per day, an increase of $1,787 per day or 15%. Improvements in utilization increased time charter revenues by $14.8 million while net fleet dispositions, the impact of vessels mobilizing between geographic regions, and other changes in fleet mix combined to reduce time charter revenues by $7.7 million. In overall terms, improvements in average day rates increased time charter revenues by $22.0 million while the impact of unfavorable changes in currency exchange rates decreased time charter revenues by $1.0 million.

In the U.S. Gulf of Mexico, time charter revenues were $45.0 million higher primarily due to higher average day rates and improved utilization as a result of demand for vessels to support the Oil Spill Response. During the Current Year Quarter, Offshore Marine Services had as many as 22 vessels supporting the Oil Spill Response. As of October 25, 2010, 15 of these vessels had been redelivered with the remaining seven expected to be redelivered shortly. Time charter revenues also improved by $6.7 million due to the contribution of two vessels that were operating under bareboat charter arrangements in another region in the Prior Year Quarter. As of September 30, 2010, seven of the Company’s vessels were cold-stacked in this region compared with 26 as of September 30, 2009.

In Africa, time charter revenues were $7.5 million lower of which $3.5 million was due to net fleet dispositions and $2.3 million was due to vessel mobilizations to other regions. The remaining difference was primarily due to a 9% reduction in average day rates and lower utilization due to softer market conditions and vessel drydockings.

In Asia, time charter revenues were $4.4 million lower of which $3.3 million was due to fleet dispositions and $0.9 million due to the mobilization of one vessel out of the region.

Other marine services revenues were $5.3 million higher primarily due to billings for the provision of technical and video equipment on vessels engaged in the Oil Spill Response to allow for tracking of assets and surveillance of operations.

Costs and Expenses. Operating expenses were $2.2 million higher primarily due to $7.3 million of incremental expenditures related to the Oil Spill Response. Net fleet dispositions reduced overall operating expenses by $3.3 million and chartered-in vessel expenses were $3.4 million lower due to reductions in brokered vessel activity.

Gains on Asset Dispositions and Impairments, net. During the Current Year Quarter, the Company sold four vessels and other equipment for net proceeds of $88.5 million and recognized gains on disposition of $12.7 million, including one offshore support vessel sold to a noncontrolled joint venture for net proceeds of $33.3 million and a gain of $4.2 million. During the Prior Year Quarter, the Company sold three vessels and other equipment for net proceeds of $21.3 million and recognized gains on dispositions of $3.9 million.

Current Nine Months compared with Prior Nine Months

Operating Revenues. Time charter revenues were $15.6 million lower. Overall fleet utilization was 77% compared with 75%. The number of days available for charter was 36,583 compared with 42,104, a 5,521 or 13% reduction, due to net fleet dispositions, including the return of twelve vessels to lessors. Overall average day rates were $13,028 per day compared with $12,261 per day, an increase of $767 per day or 6%. Improvements in utilization increased time charter revenues by $1.2 million while net fleet dispositions, the impact of vessels mobilizing between geographic regions, and other changes in fleet mix combined to reduce time charter revenues by $18.9 million. In overall terms, improvements in average day rates increased time charter revenues by $2.4 million while the impact of unfavorable changes in currency exchange rates decreased time charter revenues by $0.3 million.

In the U.S. Gulf of Mexico, time charter revenues were $33.4 million higher primarily due to higher average day rates and improved utilization as a result of demand for vessels to support the Oil Spill Response. Net fleet dispositions reduced time charter revenues by $6.4 million. Time charter revenues were also lower due to a softer market particularly for the Company’s AHTS fleet due to a reduction in rig moving activities.

 

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In Africa, time charter revenues were $24.1 million lower of which $4.8 million was due to net fleet dispositions and $8.3 million was due to vessel mobilizations to other regions. The remaining difference was primarily due to lower utilization due to softer market conditions and vessel drydockings.

In the Middle East, time charter revenues were $11.6 million lower of which $3.1 million was due to fleet dispositions, $6.1 million was due to a change in contract status for one vessel from time charter to bareboat charter, $2.5 million was due to out-of-service time for one vessel undergoing conversion to safety standby configuration and $6.7 million was due to lower average day rates and utilization reflecting softer market conditions. Vessels mobilizing from other geographic regions contributed an additional $6.8 million of time charter revenues.

In Mexico, Central and South America, time charter revenues were $5.7 million lower. Time charter revenues were $9.8 million lower due to fleet dispositions, partially offset by additional revenues contributed by one vessel that mobilized to the region at the end of the Prior Year Quarter.

In Asia, time charter revenues were $7.2 million lower of which $6.0 million was due to net fleet dispositions. The remaining difference was primarily due to an 8% reduction in average day rates and lower utilization due to softer market conditions.

Revenues from international brokered vessel activity were $13.2 million lower primarily due to reduced activity in the Middle East. Other marine services revenues were $5.9 million higher primarily due to billings for the provision of technical and video equipment on vessels engaged in the Oil Spill Response to allow for tracking of assets and surveillance of operations.

Costs and Expenses. Operating expenses were $4.5 million lower. Operating expenses were $21.6 million lower due to net fleet dispositions and the impact of vessels mobilizing to geographic regions with lower daily operating costs. The reductions were partially offset by incremental expenditures attributable to the Oil Spill Response and increased drydocking costs.

Gains on Asset Dispositions and Impairments, net. During the Current Nine Months, the Company sold six vessels and other equipment for net proceeds of $137.3 million and recognized gains on disposition of $27.3 million, including one offshore support vessel sold to a noncontrolled joint venture for net proceeds of $33.3 million and a gain of $4.2 million. During the Prior Nine Months, the Company sold 17 vessels and other equipment for net proceeds of $53.2 million and recognized gains on dispositions of $18.7 million.

 

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Fleet Count

The composition of Offshore Marine Services’ fleet as of September 30 as follows:

 

     Owned      Joint
Ventured
     Leased-in      Pooled or
Managed
     Total  

2010

              

Anchor handling towing supply

     16         2         2                 20   

Crew

     40         2         10         2         54   

Mini-supply

     6         1         5                 12   

Standby safety

     25         1                         26   

Supply

     11                 8         8         27   

Towing supply

     4         1         2         1         8   

Specialty

     4         5                 3         12   
                                            
     106         12         27         14         159   
                                            

2009

              

Anchor handling towing supply

     18         1         1         1         21   

Crew

     43         2         22         1         68   

Mini-supply

     6                 5                 11   

Standby safety

     24                                 24   

Supply

     11                 8         8         27   

Towing supply

     7         3         2         1         13   

Specialty

     4         5                         9   
                                            
     113