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 June 30, 2011            or            

 

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

For the transition period from             to            

Commission file number 1-12289

SEACOR Holdings Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   13-3542736

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

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

954-523-2200

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

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

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  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 July 22, 2011 was 21,692,899. 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 June 30, 2011
and December 31, 2010
     3   
        
      Condensed Consolidated Statements of Income for the
Three and Six Months Ended June 30, 2011 and 2010
     4   
        
      Condensed Consolidated Statement of Changes in Equity for the
Six Months Ended June 30, 2011
     5   
        
      Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2011 and 2010
     6   
        
      Notes to Condensed Consolidated Financial Statements      7   
        
   Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      26   
        
   Item 3.    Quantitative and Qualitative Disclosures About Market Risk      53   
        
   Item 4.    Controls and Procedures      53   
        
Part II.    Other Information      54   
        
   Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      54   
        
   Item 4.    Submission of Matters to a Vote of Security Holders      54   
        
   Item 6.    Exhibits      55   

 

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PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

SEACOR HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data, unaudited)

 

    June 30,
2011
    December 31,
2010
 
ASSETS    

Current Assets:

   

Cash and cash equivalents

  $ 366,813      $ 370,028   

Restricted cash

    12,976        12,651   

Marketable securities

    105,608        147,409   

Receivables:

   

Trade, net of allowance for doubtful accounts of $3,502 and $4,212 in 2011 and 2010, respectively

    321,244        450,912   

Other

    48,825        72,448   

Inventories

    87,131        67,498   

Deferred income taxes

    5,442        5,442   

Prepaid expenses and other

    24,979        18,414   
 

 

 

   

 

 

 

Total current assets

    973,018        1,144,802   
 

 

 

   

 

 

 

Property and Equipment

    2,942,637        2,803,754   

Accumulated depreciation

    (900,979     (835,032
 

 

 

   

 

 

 

Net property and equipment

    2,041,658        1,968,722   
 

 

 

   

 

 

 

Investments, at Equity, and Advances to 50% or Less Owned Companies

    210,372        182,387   

Construction Reserve Funds & Title XI Reserve Funds

    314,679        323,885   

Goodwill

    62,467        61,779   

Intangible Assets

    18,448        21,169   

Other Assets, net of allowance for doubtful accounts of $1,830 in 2011 and 2010

    85,118        57,645   
 

 

 

   

 

 

 
  $ 3,705,760      $ 3,760,389   
 

 

 

   

 

 

 
LIABILITIES AND EQUITY    

Current Liabilities:

   

Current portion of long-term debt

  $ 20,568      $ 14,618   

Current portion of capital lease obligations

    1,064        1,030   

Accounts payable and accrued expenses

    212,357        322,785   

Other current liabilities

    232,309        197,080   
 

 

 

   

 

 

 

Total current liabilities

    466,298        535,513   
 

 

 

   

 

 

 

Long-Term Debt

    690,774        697,427   

Capital Lease Obligations

    4,901        5,493   

Deferred Income Taxes

    561,477        567,880   

Deferred Gains and Other Liabilities

    146,853        156,711   
 

 

 

   

 

 

 

Total liabilities

    1,870,303        1,963,024   
 

 

 

   

 

 

 

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; 36,361,232 and 36,110,719 shares issued in 2011 and 2010, respectively

    363        361   

Additional paid-in capital

    1,239,502        1,225,296   

Retained earnings

    1,491,824        1,471,623   

Shares held in treasury of 14,682,418 and 14,711,211 in 2011 and 2010, respectively, at cost

    (901,460     (903,004

Accumulated other comprehensive loss:

   

Cumulative translation adjustments, net of tax

    (2,861     (3,995

Derivative losses on cash flow hedges, net of tax

    (3,871     (2,933

Other, net of tax

    (111     (111
 

 

 

   

 

 

 
    1,823,386        1,787,237   

Noncontrolling interests in subsidiaries

    12,071        10,128   
 

 

 

   

 

 

 

Total equity

    1,835,457        1,797,365   
 

 

 

   

 

 

 
  $ 3,705,760      $ 3,760,389   
 

 

 

   

 

 

 

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 STATEMENTS OF INCOME

(in thousands, except share data, unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2011     2010     2011     2010  

Operating Revenues

   $ 536,446      $ 694,576      $ 1,008,710      $ 1,089,151   
                                

Costs and Expenses:

        

Operating

     428,671        484,742        799,682        797,047   

Administrative and general

     45,937        46,108        92,331        86,999   

Depreciation and amortization

     41,070        41,608        81,129        83,005   
                                
     515,678        572,458        973,142        967,051   
                                

Gains on Asset Dispositions and Impairments, Net

     10,282        4,398        17,537        18,057   
                                

Operating Income

     31,050        126,516        53,105        140,157   
                                

Other Income (Expense):

        

Interest income

     3,307        1,863        7,045        3,226   

Interest expense

     (10,465     (11,264     (20,506     (23,588

Debt extinguishment losses, net

            (364     (48     (368

Marketable security losses, net

     (4,754     (5,406     (3,220     (3,445

Derivative losses, net

     (6,601     (4,721     (9,919     (1,945

Foreign currency gains (losses), net

     1,520        (7,500     6,579        (10,201

Other, net

     (56     46        (234     646   
                                
     (17,049     (27,346     (20,303     (35,675
                                

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

     14,001        99,170        32,802        104,482   

Income Tax Expense

     5,638        37,399        13,004        39,715   
                                

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

     8,363        61,771        19,798        64,767   

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

     1,004        2,876        1,038        3,745   
                                

Net Income

     9,367        64,647        20,836        68,512   

Net Income attributable to Noncontrolling Interests in Subsidiaries

     336        565        635        829   
                                

Net Income attributable to SEACOR Holdings Inc.

   $ 9,031      $ 64,082      $ 20,201      $ 67,683   
                                

Basic Earnings Per Common Share of SEACOR Holdings Inc.

   $ 0.43      $ 2.95      $ 0.96      $ 3.08   

Diluted Earnings Per Common Share of SEACOR Holdings Inc.

   $ 0.42      $ 2.93      $ 0.94      $ 3.05   

Weighted Average Common Shares Outstanding:

        

Basic

     21,166,037        21,733,003        21,135,557        21,999,905   

Diluted

     21,517,725        21,905,401        21,478,759        22,187,114   

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              
    Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
    Shares
Held In
Treasury
    Accumulated
Other
Comprehensive
Loss
    Non-
Controlling
Interests In
Subsidiaries
    Total
Equity
    Comprehensive
Income
 

December 31, 2010

  $ 361      $ 1,225,296      $ 1,471,623      $ (903,004   $ (7,039   $ 10,128      $ 1,797,365     

Issuance of common stock:

               

Employee Stock Purchase Plan

                         1,672                      1,672     

Exercise of stock options

           4,456                                    4,456     

Director stock awards

           180                                    180     

Restricted stock and restricted stock units

    2        98               1                      101     

Amortization of share awards

           9,757                                    9,757     

Cancellation of restricted stock

           129               (129                       

Dividends paid to noncontrolling interests

                                       (1,443     (1,443  

Cash received from noncontrolling interests

                                       1,040        1,040     

Acquisition of subsidiary with noncontrolling interests

                                       2,322        2,322     

Purchase of subsidiary shares from noncontrolling interests

           (414                          (735     (1,149  

Sale of subsidiary shares to noncontrolling interests

                                       124        124     

Comprehensive income:

               

Net income

                  20,201                      635        20,836      $ 20,836   

Other comprehensive income

                                196               196        196   
                                                               

Six months ended June 30, 2011

  $ 363      $ 1,239,502      $ 1,491,824      $ (901,460   $ (6,843   $ 12,071      $ 1,835,457      $ 21,032   
                                                               

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

 

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SEACOR HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

     Six Months Ended
June 30,
 
     2011     2010  

Net Cash Provided by Operating Activities

   $ 161,479      $ 153,034   
                

Cash Flows from Investing Activities:

    

Purchases of property and equipment

     (131,391     (115,001

Proceeds from disposition of property and equipment

     25,082        58,252   

Cash settlements on derivative transactions, net

     4,052        446   

Investments in and advances to 50% or less owned companies

     (26,503     (24,740

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

     5,100        10,290   

Net advances on revolving credit line to 50% or less owned companies

     (8,916     (5,450

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

     (20,323     2,786   

Net decrease (increase) in restricted cash

     (325     24,593   

Net decrease in construction reserve funds and title XI reserve funds

     9,206        62,566   

Net increase in escrow deposits on like-kind exchanges

     (3,396     (289

Repayments on (investments in) leases, net

     2,777        (17,665

Business acquisitions, net of cash acquired

     (28,696     (227
                

Net cash used in investing activities

     (173,333     (4,439
                

Cash Flows from Financing Activities:

    

Payments on long-term debt and capital lease obligations

     (7,509     (70,835

Net borrowings (payments) on inventory financing arrangements

     5,793        (19,268

Common stock acquired for treasury

            (119,985

Proceeds and tax benefits from share award plans

     6,251        2,958   

Purchase of subsidiary shares from noncontrolling interests

     (1,149     (39

Cash received from (dividends paid to) noncontrolling interests, net

     (403     185   
                

Net cash provided by (used in) financing activities

     2,983        (206,984
                

Effects of Exchange Rate Changes on Cash and Cash Equivalents

     5,656        (9,017
                

Net Decrease in Cash and Cash Equivalents

     (3,215     (67,406

Cash and Cash Equivalents, Beginning of Period

     370,028        465,904   
                

Cash and Cash Equivalents, End of Period

   $ 366,813      $ 398,498   
                

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Basis of Presentation and Accounting Policy

The condensed consolidated financial information for the three and six months ended June 30, 2011 and 2010 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 June 30, 2011, its results of operations for the three and six months ended June 30, 2011 and 2010, its changes in equity for the six months ended June 30, 2011, and its cash flows for the six months ended June 30, 2011 and 2010. Results of operations for the interim periods presented are not necessarily indicative of operating results for the full year or any future periods.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

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. The Company recognizes revenue when it is realized or realizable and earned. Revenue is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable, and collectability is reasonably assured. Revenue that does not meet these criteria is deferred until the criteria are met. Deferred revenues, included in other current liabilities, for the six months ended June 30 were as follows (in thousands):

 

     2011     2010  

Balance at beginning of period

   $ 29,322      $ 15,015   

Revenues deferred during the period

     4,351        7,782   

Revenues recognized during the period

     (10,880     (3,493
                

Balance at end of period

   $ 22,793      $ 19,304   
                

As of June 30, 2011, deferred revenues included $15.3 million relating to the time charter of several offshore support vessels operating in the U.S. Gulf of Mexico that are scheduled to be paid through the conveyance of a limited net profit interest in developmental oil and gas producing properties owned by a customer. Payments from the conveyance of the limited net profit interest, and the timing of such payments, are contingent upon production and energy sale prices. Based on the current production payout estimate, the deferred revenues are expected to be paid through mid-2012. The Company expects to defer an additional $3.6 million of vessel charter hire under this arrangement through December 2011. The Company will continue to recognize revenues as cash is received or earlier should future payments become determinable. All costs and expenses related to these charters were recognized as incurred.

As of June 30, 2011, deferred revenues also included $6.1 million related to audit provisions in certain Environmental Services’ response service contracts. The amount of revenues ultimately recognized following the completion of the billing audits or the expiration of the audit period could differ from the amounts billed and those differences may be material.

 

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Reclassifications. Certain reclassifications of prior period information have been made to conform to the presentation of the current period information. These reclassifications had no effect on net income as previously reported.

 

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.

The Company’s financial assets and liabilities as of June 30, 2011 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)

   $ 64,011       $ 41,597       $   

Derivative instruments (included in other receivables)

     7,939         8,567           

Construction reserve funds and Title XI reserve funds

     314,679                   

LIABILITIES

        

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

     74,914                   

Derivative instruments (included in other current liabilities)

     6,521         10,775           

 

(1) 

Marketable security losses, net include losses of $4.1 million and $2.9 million for the three months ended June 30, 2011 and 2010, respectively, related to marketable security positions held by the Company as of June 30, 2011. Marketable security losses, net include losses of $6.2 million and $0.8 million for the six months ended June 30, 2011 and 2010, respectively, related to marketable security positions held by the Company as of June 30, 2011.

The estimated fair value of the Company’s other financial assets and liabilities as of June 30, 2011 were as follows (in thousands):

 

     Carrying
Amount
     Estimated
Fair Value
 

ASSETS

     

Cash, cash equivalents and restricted cash

   $ 379,789       $ 379,789   

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

     8,315         see below   

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

     39,808         see below   

LIABILITIES

     

Long-term debt, including current portion

     711,342         734,294   

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

 

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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.

The Company’s non-financial assets and liabilities that were measured at fair value during the six months ended June 30, 2011 were as follows (in thousands):

 

     Level 1      Level 2      Level 3  

ASSETS

        

Investment in Avion Logistics Limited (included in Investments, at Equity, and Advances 50% or Less Owned Companies) (1)

   $       $ 1,000       $   

LIABILITIES

        

Lease Obligations for Helicopters (included in other current liabilities)(2)

                     395   

 

(1) 

During the three months ended June 30, 2011, the Company marked its investment in its Avion Logistics Limited joint venture to fair value following the acquisition of a controlling interest (see Note 6). The investment’s fair value was determined based on the Company’s purchase price of the noncontrolling interest.

 

(2) 

During the six months ended June 30, 2011, the Company recorded a gain of $0.2 million to decrease the carrying value of its exit obligations for three leased-in helicopters.

 

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 June 30, 2011 were as follows (in thousands):

 

     Derivative
Asset
     Derivative
Liability
 

Derivatives designated as hedging instruments:

     

Forward currency exchange contracts (fair value hedges)

   $ 3,005       $   

Interest rate swap agreements (cash flow hedges)

             5,566   
  

 

 

    

 

 

 
     3,005         5,566   
  

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

     

Options on equities and equity indices

     960         1,746   

Forward currency exchange, option and future contracts

     1,022         781   

Interest rate swap agreements

             3,016   

Commodity swap, option and future contracts:

     

Exchange traded

     3,987         3,565   

Non-exchange traded

     3,629         1,673   

U.S. treasury notes, rate-locks and bond future and option contracts

     3,903         949   
  

 

 

    

 

 

 
     13,501         11,730   
  

 

 

    

 

 

 
   $ 16,506       $ 17,296   
  

 

 

    

 

 

 

 

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Fair Value Hedges. As of June 30, 2011, the Company has designated certain of its forward currency exchange contracts with notional values of €50.1 million as fair value hedges in respect of capital commitments denominated in euros for assets scheduled to be delivered in 2011 through 2012. 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 six months ended June 30, 2011, the Company designated €55.1 million notional value of its forward currency exchange contracts as fair value hedges, in addition to €56.0 million previously so designated as of December 31, 2010. During the six months ended June 30, 2011, the Company dedesignated €1.4 million notional value of these contracts as fair value hedges and €59.6 million notional value matured. Subsequent to June 30, 2011, the Company dedesignated and liquidated the remaining €50.1 million notional value of these contracts.

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

 

     Derivative losses, net  
         2011             2010      

Forward currency exchange contracts, effective and ineffective portions

   $ 6,484      $ (11,503

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

     (6,522     11,441   
  

 

 

   

 

 

 
   $ (38   $ (62
  

 

 

   

 

 

 
    

Cash Flow Hedges. As of June 30, 2011, the Company is a party to various interest rate swap agreements, with maturities ranging from 2013 to 2014, which 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 London Interbank Offered Rate (“LIBOR”) on these notional values. As of June 30, 2011, one of the Company’s Offshore Marine Services 50% or less owned companies had 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 $20.3 million and receive a variable interest rate based on LIBOR on the amortized notional value. In addition, as of June 30, 2011, one of the Company’s Inland River Services 50% or less owed companies had four interest rate swap agreements with maturities ranging from 2013 to 2015 that have been designated as cash flow hedges. These instruments call for the joint venture to pay fixed rates of interest ranging from 1.53% to 4.16% on the aggregate amortized notional value of $60.1 million and receive a variable interest rate based on LIBOR on the aggregate amortized notional value. By entering into these interest rate swap agreements, the Company and its joint ventures have converted the variable LIBOR component of certain of their outstanding borrowings to a fixed interest rate.

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

 

     Other comprehensive
loss
    Derivative
losses, net
 
         2011             2010             2011             2010      

Interest rate swap agreements, effective portion

   $ (2,294   $ (5,875   $      $   

Interest rate swap agreements, ineffective portion

                   (27     (60

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

     851        1,892                 
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (1,443   $ (3,983   $ (27   $ (60
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

     Derivative losses, net  
     2011     2010  

Options on equities and equity indices

   $ 332      $ 613   

Forward currency exchange, option and future contracts

     1,812        (6,675

Interest rate swap agreements

     (1,276     (2,753

Commodity swap, option and future contracts:

    

Exchange traded

     (3,547     8,734   

Non-exchange traded

     250        338   

U.S. treasury notes, rate-locks and bond future and option contracts

     (7,425     (2,080
                
   $ (9,854   $ (1,823
                

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 June 30, 2011, the outstanding forward currency exchange contracts translated into a net purchase of foreign currencies with an aggregate U.S. dollar equivalent of $87.7 million. These contracts enable the Company to buy currencies in the future at fixed exchange rates, which could offset possible consequences of changes in currency exchange rates with respect to the Company’s business conducted outside of the United States. The Company generally does not enter into contracts with forward settlement dates beyond twelve to eighteen months. Subsequent to June 30, 2011, forward currency exchange contracts with an aggregate U.S. dollar equivalent of $3.2 million were liquidated.

The Company has entered into various interest rate swap agreements with maturities ranging from 2012 through 2015 that call for the Company to pay fixed interest rates ranging from 1.67% to 2.59% on aggregate amortized notional values of $98.6 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 $26.4 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 for 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 June 30, 2011, the net market exposure to ethanol and sugar under these contracts was not material. The Company also enters into exchange traded positions (primarily natural gas, heating oil, crude oil, gasoline, ethanol and sugar) 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 June 30, 2011, these positions were not material.

 

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The Company has entered into and settled various positions in U.S. treasury notes and bonds through rate locks, 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. As of June 30, 2011, these positions consisted primarily of treasury futures and options with a notional value of $134.6 million and a one-year rate-lock agreement with a notional value of $100.0 million. The treasury rate-lock agreement provides for a net cash settlement in October 2011 based on the then current rate on the ten-year U.S. Treasury Note versus the agreement rate of 2.845%.

 

4. Business Acquisitions

G&G Shipping Acquisition. On April 13, 2011, the Company acquired certain real property, eight foreign flag Roll-on/Roll-off (“RORO”) vessels and a 70% interest in an operating company engaged in the shipping trade between the United States, the Bahamas and the Caribbean. The operating company leases-in the real property and the RORO vessels from the Company. The Company’s purchase price of $33.5 million included cash consideration of $30.3 million and the contribution of a $3.2 million note receivable. 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 $0.6 million of goodwill being recorded. The fair value analysis was finalized in April 2011.

SES Kazakhstan Acquisition. On August 31, 2010, the Company obtained a 100% controlling interest in SES-Borkit LLP through its acquisition of its partner’s interest for $1.0 million (cash of $0.6 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. 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 completion of a final valuation for the acquired assets and liabilities. No additional consideration has been earned by the selling partner through June 30, 2011.

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. The selling stockholders of PIER had the opportunity to receive additional consideration of up to $1.3 million, of which $0.7 million was accrued at acquisition, based upon certain performance measures over the period from the date of acquisition through May 2011. During the five months ended May 31, 2011, no additional consideration was earned by the selling stockholders. As of June 30, 2011, the Company had paid $0.2 million, in the aggregate, of additional consideration and reduced its accrued contingent liability.

Rivers Edge Acquisition. On November 15, 2007, the Company acquired all of the issued and outstanding shares of Rivers Edge Services, Inc. and Kemp’s Rivers Edge Vactor Services, Inc. (collectively referred to as “Rivers Edge”), providers of remediation, demolition, and environmental services in the pacific northwestern United States. The selling stockholder of Rivers Edge has the opportunity to receive additional consideration of up to $4.8 million based upon certain performance measures over the period from the date of acquisition through December 31, 2011, which will be recognized by the Company as compensation expense in the period earned. As of June 30, 2011, no additional consideration had been earned by the selling stockholder.

SRI Acquisition. On September 7, 2007, the Company acquired all of the issued and outstanding shares of Solid Resources, Inc. and Solid Resources, LLC (collectively referred to as “SRI”), providers of environmental services in the southeastern United States. The selling stockholder of SRI has the opportunity to receive additional consideration of up to $39.5 million based upon certain performance measures over the period from the date of acquisition through September 30, 2011, 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.

 

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During the six months ended June 30, 2011, no additional consideration was earned by the selling stockholder. As of June 30, 2011, the Company had paid $6.0 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 six months ended June 30, 2011 (in thousands):

 

Receivables

   $ (3,178

Property and equipment

     33,390   

Goodwill

     606   

Other assets

     200   

Noncontrolling interests in subsidiaries

     (2,322
        

Purchase price(1)

   $ 28,696   
        

 

(1)

Purchase price is net of cash acquired of $1.6 million.

 

5. Equipment Acquisitions, Dispositions and Depreciation and Impairment Policies

During the six months ended June 30, 2011, capital expenditures were $131.4 million. Equipment deliveries during the period included one offshore support vessel, 55 inland river dry cargo barges, two liquid tank barges and five helicopters. In addition, the Company acquired a controlling interest in an offshore support vessel.

During the six months ended June 30, 2011, the Company sold five offshore support vessels, four helicopters, one inland river towboat, one harbor tug and other equipment for net proceeds of $25.1 million and gains of $19.4 million.

From time to time, the Company enters into vessel sale-leaseback transactions with finance companies, provides seller financing on sales of its vessels to third parties and sells vessels, helicopters and barges to its 50% or less owned companies. A portion of the gains realized from these transactions was not immediately recognized in income and has been recorded in the accompanying condensed consolidated balance sheets in deferred gains and other liabilities. Deferred gain activity related to these transactions for the six months ended June 30 was as follows (in thousands):

 

     2011     2010  

Balance at beginning of period

   $ 131,836      $ 93,231   

Deferred gains arising from asset sales

     4,597        1,240   

Amortization of deferred gains included in operating expenses as a reduction to rental expense

     (11,194     (8,293

Amortization of deferred gains included in gains on asset dispositions and impairments, net

     (2,461     (6,651
                

Balance at end of period

   $ 122,778      $ 79,527   
                
    

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. During the six months ended June 30, 2011, impairment charges recognized by the Company related to long-lived assets held for use were not material.

 

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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 June 30, 2011, the estimated useful life (in years) of each of the Company’s major categories of new equipment was as follows:

 

Offshore support vessels

     20   

Helicopters

     12   

Inland river dry cargo and deck barges

     20   

Inland river liquid tank barges

     25   

Inland river towboats

     25   

U.S.-flag tankers(1)

     25   

RORO vessels

     20   

Harbor and offshore tugs

     25   

Ocean liquid tank barges

     25   

 

(1) 

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

 

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

Avion Logistics Limited. On June 1, 2011, the Company acquired a 100% controlling interest in Avion Logistics Limited (“ALL”) through its acquisition of its partner’s interest for $1.0 million in cash. Upon acquisition, the Company adjusted its investment in ALL to fair value resulting in the recognition of a gain of $0.3 million, net of tax, which is included in equity in earnings of 50% or less owned companies. Following this change in control, the Company contributed its ownership interest in ALL to Hawker Pacific Airservices Limited (“Hawker Pacific”) for an additional 1.7% interest in Hawker Pacific.

Dynamic Offshore Drilling. On April 4, 2011, the Company acquired a 20% interest in Dynamic Offshore Drilling Ltd. (“Dynamic”), a company established to construct and operate jack-up drilling rigs, for $10.0 million. The first jack-up drilling rig is currently under construction in Singapore and is scheduled for delivery in the first quarter of 2013. Dynamic has an option, which must be exercised before September 2011, to build one additional jack-up drilling rig.

Dart. On February 28, 2011, the Company made an additional investment of $5.0 million in Dart Helicopter Services LLC (“Dart”), a sales, marketing and parts manufacturing organization based in North America that engineers and manufactures after-market parts and equipment for sale to helicopter manufacturers and operators. On July 31, 2011 the Company contributed its ownership in Dart, and the Company’s partner contributed its ownership in Dart along with certain other assets, into a newly formed entity in which each partner owned a 50% interest.

 

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Hawker Pacific. On December 15, 2010, the Company acquired a 32.5% interest in Hawker Pacific, an aviation sales and support organization and a distributor of aviation components, for $25.0 million in cash. In June 2011, the Company contributed its ownership in ALL to Hawker Pacific valued at $2.0 million for an additional 1.7% ownership interest bringing its total ownership percentage to 34.2%. The Company has performed a preliminary fair value analysis of Hawker Pacific as of the acquisition date and the date of its additional contribution of ALL. The excess of the purchase price over the Company’s interest in Hawker Pacific’s net assets has been initially allocated to intangible assets in the amount of $7.8 million. Finalization of the preliminary fair value analysis may result in revisions to this allocation.

Bunge-SCF Grain. On September 29, 2010, the Company and a global agribusiness and food company formed Bunge-SCF Gain, LLC (“Bunge-SCF Grain”) a 50-50 joint venture to construct and own a river grain terminal on the Mississippi River in Illinois, which is expected to be completed in 2012. During the six months ended June 30, 2011, the Company and its partner each made cash contributions of $2.5 million to the joint venture to fund construction costs.

Illinois Corn Processing. Illinois Corn Processing LLC (“ICP”), is a 50-50 joint venture that owns and operates an alcohol manufacturing facility dedicated to the production of alcohol for beverage, industrial and fuel applications. Upon ICP’s formation, the Company provided a $10.0 million term loan with a maturity in November 2014 and a $20.0 million revolving line of credit with a maturity in November 2012 subject to certain borrowing restrictions. During the six months ended June 30, 2011, the Company made net advances of $8.9 million under the revolving line of credit and received repayments of $0.9 million on the term loan. As of June 30, 2011, the outstanding balances under the term loan and revolving line of credit were $7.1 million and $18.3 million, respectively, inclusive of unpaid and accrued interest.

Avion Pacific Limited. Avion Pacific Limited (“Avion”) is a joint venture that distributes aircraft and aircraft-related parts in the Far East and China. During the six months ended June 30, 2011, the Company made advances of $5.5 million to Avion and received repayments of $4.5 million. As of June 30, 2011, the Company had outstanding loans to Avion totaling $5.8 million.

Era Training Center. Era Training Center LLC (“ETC”) is a joint venture that operates flight training devices and provides training services to the Company and third party customers. During the six months ended June 30, 2011, the Company made advances of $1.2 million to ETC. As of June 30, 2011, the Company had outstanding loans to ETC totaling $4.4 million.

Subsequent Events. On July 1, 2011, the Company acquired a 50% economic interest and a 20% voting interest in Aeroleo Taxi Aereo S/A (“Aeroleo”), a Brazilian entity that provides helicopter transport services to the Brazilian offshore oil and gas industry, for $4.8 million in cash. The Company also loaned Aeroleo $6.0 million at an interest rate of 6% per annum. The note requires monthly interest payments and matures in June 2013. Also on July 1, 2011, the Company and its partner contributed $4.8 million each to Era do Brazil LLC, a 50/50 joint venture. Era do Brazil LLC then immediately acquired a helicopter, subject to a lease to Aeroleo, from the Company for $11.5 million ($9.5 million in cash and a $2.0 million note payable). The note payable bears an interest rate of 7.0% per annum, requires 60 monthly principal and interest payments, and is secured by the aircraft and the Aeroleo lease.

 

7. Third Party Notes Receivable

From time to time, the Company engages in lending and leasing activities involving various types of equipment. During the six months ended June, 30, 2011, the Company advanced $22.4 million for two notes receivable secured by fixed wing aircraft and certain spare parts. Both notes receivable are for five years, one of which requires 59 monthly principal and interest payments and a final balloon payment, and the other requires quarterly payments of principal and interest, subject to certain prepayment provisions based on the sale of spare parts.

 

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8. Commitments and Contingencies

As of June 30, 2011, the Company’s unfunded capital commitments consisted primarily of offshore support vessels, helicopters, an interest in a dry-bulk articulated tug-barge, inland river dry cargo barges, an interest in a river grain terminal and other property and equipment. These commitments totaled $318.2 million, of which $153.0 million is payable during the remainder of 2011 with the balance payable through 2013. Of the total unfunded capital commitments, $48.2 million may be terminated without further liability other than the payment of liquidated damages of $1.4 million.

The Company has issued a performance guarantee on behalf of one of its joint ventures that expires in 2011 and the Company has guaranteed the payment of amounts owed by one of its joint ventures under a vessel charter agreement that expires in 2012. In addition, the Company has guaranteed amounts owed under banking facilities by certain of its joint ventures. As of June 30, 2011, the total amount guaranteed by the Company under these arrangements was $25.7 million. In addition, as of June 30, 2011, the Company had uncalled capital commitments to two of its joint ventures for a total of $2.6 million.

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 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 2007, representing the Company’s allocated share of an additional funding deficit of $332.6 million. Based on an actuarial valuation of the MNOPF in 2009, the Company was invoiced and expensed $7.8 million in 2010, representing the Company’s allocated share of an additional funding deficit of $636.9 million. 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 Company was advised that its share of a $281.0 million (£175.0 million) accumulated funding deficit was $1.0 million (£0.6 million). The accumulated funding deficit is being recovered by additional annual contributions from current employers and is subject to adjustment following the results of future tri-annual actuarial valuations. As of June 30, 2011, $0.2 million, in the aggregate, of the Company’s funding deficit had been invoiced and expensed. Depending on the results of the future actuarial valuations, it is possible that the MNRPF will experience further funding deficits, requiring the Company to recognize additional payroll related operating expenses in the periods invoices are received.

On June 12, 2009, a purported civil class action was filed against the Company, Era Group Inc., Era Helicopters LLC and three 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.). The Complaint alleges that the Defendants violated federal antitrust law 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. The Company believes that

 

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the claims set forth in the Complaint are without merit and intends to vigorously defend the action. On September 4, 2009, the Defendants filed a motion to dismiss the Complaint. On September 14, 2010, the Court entered an order dismissing the Complaint. On September 28, 2010, the plaintiffs filed a motion for reconsideration and amendment and a motion for re-argument (the “Motions”). On November 30, 2010, the Court granted the Motions, amended the Court’s September 14, 2010 Order to clarify that the dismissal was without prejudice, permitted the filing of an Amended Complaint, and authorized limited discovery with respect to the new allegations in the Amended Complaint. Following the completion of such limited discovery, on February 11, 2011, the Defendants filed a motion for summary judgment to dismiss the Amended Complaint with prejudice. On June 23, 2011, the Court granted summary judgment for the Defendants. On July 22, 2011, the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Third Circuit. The Company is unable to estimate the potential exposure, if any, resulting from these claims but believes they are without merit and will continue 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, 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 (“MDL”), 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. The Company also recently filed petitions seeking exoneration from, or limitation of liability in relation to, any actions that may have been taken by vessels owned by the Company to extinguish the fire. Pursuant to the Limitation of Liability Act, those petitions impose an automatic stay on the Robin case, and the court set a deadline of April 20, 2011 for individual claimants to assert claims in the limitation cases. Approximately 66 claims were submitted by the deadline in all of the limitation actions. On June 8, 2011, the Company moved to dismiss these claims (with the exception of one claim filed by a Company employee) on various legal grounds. Oral argument on the motion is scheduled for August 24, 2011.

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. (“O’Brien’s), 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. Pursuant to contractual agreements with the responsible party, the responsible party has agreed, subject to certain potential limitations, to indemnify and defend O’Brien’s in connection with the Wunstell Action and claims asserted in the MDL.

On December 15, 2010, SEACOR subsidiaries O’Brien’s and National Response Corporation (“NRC”) were named as defendants in one of the several consolidated “master complaints” that have been filed in the overall multi-district litigation, In re Oil Spill by the Oil Rig “Deepwater Horizon”, MDL No. 2179. The master complaint naming O’Brien’s and NRC asserts various claims on behalf of a punitive class against multiple defendants concerning the clean-up activities generally, and the use of dispersants specifically. By court order, the Wunstell Action has been stayed as a result of the filing of the referenced master complaint. The Company believes that the claims asserted against its subsidiaries in the master complaint have no merit and will seek dismissal of the master complaint against both O’Brien’s and NRC. In addition to the indemnity provided to O’Brien’s, pursuant to contractual agreements with the responsible party, the responsible party has agreed,

 

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subject to certain potential limitation, to indemnify and defend O’Brien’s and NRC in connection with these claims in the MDL. On February 28, 2011, O’Brien’s and NRC moved to dismiss all claims against them in the master complaint on various legal grounds. The motions were argued before the Court on May 26, 2011 and a decision on the motions is pending.

Subsequent to the filing of the referenced master complaint, four additional individual civil actions have been filed in the U.S. District Court for the Eastern District of Louisiana concerning the clean-up activities generally, which name the Company, O’Brien’s and/or NRC as defendants and are part of the overall multi-district litigation, In re Oil Spill by the Oil Rig “Deepwater Horizon”, MDL No. 2179. On April 8, 2011, O’Brien’s was named as a defendant in Johnson Bros. Corporation of Louisiana v. BP, PLC, et al., No. 2:11-cv-00781 (E.D. La.), which is a suit by an individual business seeking damages allegedly caused by a delay on a construction project alleged to have resulted from the clean-up operations. On April 15, 2011, O’Brien’s and NRC were named as defendants in James and Krista Pearson v. BP Exploration & Production, Inc., et al., No. 2:11-cv-00863 (E.D. La.), which is a suit by a husband and wife, who allegedly participated in the clean-up effort and are seeking damages for personal injury, property damage to their boat, and amounts allegedly due under contract. On April 15, 2011, O’Brien’s and NRC were named as defendants in Thomas Edward Black v. BP Exploration & Production, Inc., et al., No. 2:11-cv-00867 (E.D. La.), which is a suit by an individual who is seeking damages for lost income because he allegedly could not find work in the fishing industry after the oil spill. On April 20, 2011, a complaint was filed in Darnell Alexander, et al. v. BP, PLC, et al., No. 2:11-cv-00951 (E.D. La.) on behalf of 117 individual plaintiffs that seek to adopt the allegations made in the referenced master complaint against O’Brien’s and NRC (and the other defendants). By court order, all four of these additional individual cases have been stayed as a result of the filing of the referenced master complaint.

On February 18, 2011, Triton Asset Leasing GmbH, Transocean Holdings LLC, Transocean Offshore Deepwater Drilling Inc., and Transocean Deepwater Inc. (collectively “Transocean”) named O’Brien’s and NRC as third-party defendants in a Rule 14(c) Third-Party Complaint in Transocean’s own Limitation of Liability Act action, which is part of the overall multi-district litigation, In re Oil Spill by the Oil Rig “Deepwater Horizon”, MDL No. 2179, tendering to O’Brien’s and NRC the claims in the referenced master complaint that have already been asserted against O’Brien’s and NRC. Transocean, Cameron International Corporation, and Halliburton Energy Services, Inc. have also filed cross-claims against O’Brien’s and NRC for contribution should they be found liable for any damages in Transocean’s Limitation of Liability Act action. Furthermore, certain defendants in the Transocean limitation action asserted cross-claims against O’Brien’s and NRC for contribution and tort indemnity and O’Brien’s and NRC asserted counterclaims against those same parties for identical relief.

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 such exposure could occur, but the Company does not expect that any change in estimated exposure would have a material effect on the Company’s consolidated financial position or its results of operations.

During the year ended December 31, 2010, the Company received notice from the Internal Revenue Service of $12.6 million in proposed penalties regarding Marine Transportation Services’ informational excise tax filings for prior years. The Company intends to vigorously defend its position that the proposed penalties are erroneous and believes the resolution of this matter will not have a material effect on the Company’s consolidated financial position or its results of operations.

During the six months ended June 30, 2011, the Company received a Notice of Infringement (the “Notice”) from the Brazilian Federal Revenue Office. The Notice alleged the Company had imported a number of vessels into Brazil without properly completing the required importation documents and levied an assessment of $25.7 million. The Company intends to vigorously defend its position that the proposed assessment is erroneous and

 

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believes the resolution of this matter will not have a material effect on the Company’s consolidated financial position or its results of operations. Of the levied assessment, $19.3 million relates to managed vessels whose owner would be responsible for any potential payment.

 

9. Long-Term Debt and Capital Lease Obligations

As of June 30, 2011, 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 $45.1 million with various expiration dates through 2014.

During the six months ended June 30, 2011, the Company made scheduled payments on long-term debt and capital lease obligations of $6.5 million and made net borrowings on inventory financing arrangements of $5.8 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 six months ended June 30, 2011, the Company purchased $1.0 million, in principal amount, of its 5.875% Senior Notes due 2012, for an aggregate purchase price of $1.0 million.

 

10. 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 six months ended June 30, 2011, the Company did not acquire any Common Stock for treasury. As of June 30, 2011, the remaining authority under the repurchase plan was $113.0 million.

 

11. 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 method. Dilutive securities for this purpose assumes restricted stock grants have vested and common shares have been issued pursuant to the exercise of outstanding stock options. For the three and six months ended June 30, 2011, diluted earnings per common share of SEACOR excluded 333,819 and 254,230, respectively, of certain share awards as the effect of their inclusion in the computation would have been antidilutive. For the three and six months ended June 30, 2010, diluted earnings per common share of SEACOR excluded 894,714 and 878,807, respectively, of certain share awards as the effect of their inclusion in the computation would have been antidilutive.

A reconciliation of basic and diluted weighted average outstanding common shares of SEACOR was as follows:

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2011     2010     2011     2010  

Basic Weighted Average Common Shares Outstanding

    21,166,037        21,733,003        21,135,557        21,999,905   

Effect of Dilutive Share Awards:

       

Options and Restricted Stock

    351,688        172,398        343,202        187,209   
                               

Diluted Weighted Average Common Shares Outstanding

    21,517,725        21,905,401        21,478,759        22,187,114   
                               

 

19


Table of Contents
12. Comprehensive Income

For the three months ended June 30, 2011 and 2010, total comprehensive income was $8.2 million and $62.7 million, respectively. For the six months ended June 30, 2011 and 2010, total comprehensive income was $21.0 million and $63.9 million, respectively. The components of other comprehensive income (loss) and allocated income tax (expense) benefit for the three and six months ended June 30 were as follows (in thousands):

 

    Three Months Ended     Six Months Ended  
    Before-Tax
Amount
    Tax
(Expense)
Benefit
    Net-of-Tax
Amount
    Before-Tax
Amount
    Tax
(Expense)
Benefit
    Net-of-Tax
Amount
 

2011

           

Foreign currency translation adjustments

  $ 371      $ (130   $ 241      $ 1,745      $ (611   $ 1,134   

Derivative losses on cash flow hedges (see Note 3)

    (2,092     732        (1,360     (1,443     505        (938
                                               

Other comprehensive income (loss)

  $ (1,721   $ 602      $ (1,119   $ 302      $ (106   $ 196   
                                               

2010

           

Foreign currency translation adjustments

  $ (635   $ 223      $ (412   $ (3,062 )   $ 1,072      $ (1,990

Derivative losses on cash flow hedges (see Note 3)

    (2,407     842        (1,565     (3,983     1,394        (2,589
                                               

Other comprehensive loss

  $ (3,042   $ 1,065      $ (1,977   $ (7,045 )   $ 2,466      $ (4,579
                                               

 

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Table of Contents
13. Share Based Compensation

Transactions in connection with the Company’s share based compensation plans during the six months ended June 30, 2011 were as follows:

 

Director stock awards granted

     2,000   
        

Employee Stock Purchase Plan (“ESPP”) shares issued

     30,151   
        

Restricted stock awards granted

     182,000   
        

Restricted stock awards cancelled

     1,370   
        

Shares released from Deferred Compensation Plan

     63   
        

Restricted Stock Unit Activities:

  

Outstanding as of December 31, 2010

     531   

Granted

     650   

Converted to shares and issued to Deferred Compensation Plan

     (51
        

Outstanding as of June 30, 2011

     1,130   
        

Stock Option Activities:

  

Outstanding as of December 31, 2010

     1,130,356   

Granted

     159,575   

Exercised

     (66,462

Forfeited

       

Expired

       
        

Outstanding as of June 30, 2011

     1,223,469   
        

Shares available for future grants and ESPP purchases as of June 30, 2011

     684,712   
        

 

14. Segment Information

Accounting standards require public business enterprises to report information about each of their operating business segments that exceed certain quantitative thresholds or meet certain other reporting requirements. An operating business segment has 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, 2010.

 

21


Table of Contents

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

 

    Offshore
Marine
Services
$’000
    Aviation
Services
$’000
    Inland
River
Services
$’000
    Marine
Transportation
Services

$’000
    Environmental
Services

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

For the three months ended June 30, 2011

                 

Operating Revenues:

                 

External customers

    93,336        68,475        38,682        24,249        48,462        245,321        17,921               536,446   

Intersegment

    50        18        2,760        87        4                      (2,919       
                                                                       
    93,386        68,493        41,442        24,336        48,466        245,321        17,921        (2,919     536,446   
                                                                       

Costs and Expenses:

                 

Operating

    68,242        42,457        28,717        13,584        31,662        237,644        9,158        (2,793     428,671   

Administrative and general

    11,078        6,229        3,166        2,146        10,322        2,202        3,210        7,584        45,937   

Depreciation and amortization

    12,205        12,390        5,791        5,728        2,238        12        2,237        469        41,070   
                                                                       
    91,525        61,076        37,674        21,458        44,222        239,858        14,605        5,260        515,678   
                                                                       

Gains (Losses) on Asset Dispositions and Impairments, Net

    3,607        6,172        (22            (19            544               10,282   
                                                                       

Operating Income (Loss)

    5,468        13,589        3,746        2,878        4,225        5,463        3,860        (8,179     31,050   
                                                                       

Other Income (Expense):

                 

Derivative gains (losses), net

           (811                          828               (6,618     (6,601

Foreign currency gains (losses), net

    (408     338               6        97        (16     (24     1,527        1,520   

Other, net

                  3        56        2                      (117     (56

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

    200        1,054        666               132        (1,051     3               1,004   
                                                           

Segment Profit

    5,260        14,170        4,415        2,940        4,456        5,224        3,839       
                                                           

Other Income (Expense) not included in Segment Profit

  

              (11,912

Less Equity Earnings included in Segment Profit

  

              (1,004
                       

Income Before Taxes and Equity Earnings

  

                14,001   
                       
                 

 

22


Table of Contents
    Offshore
Marine
Services
$’000
    Aviation
Services
$’000
    Inland
River
Services
$’000
    Marine
Transportation
Services

$’000
    Environmental
Services

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

For the six months ended June 30, 2011

                 

Operating Revenues:

                 

External customers

    173,659        124,630        82,610        41,473        111,548        439,333        35,457               1,008,710   

Intersegment

    71        18        5,301        175        4                      (5,569       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    173,730        124,648        87,911        41,648        111,552        439,333        35,457        (5,569     1,008,710   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and Expenses:

                 

Operating

    131,262        75,922        56,601        22,563        75,706        424,662        18,300        (5,334     799,682   

Administrative and general

    22,848        13,249        5,863        3,563        17,873        4,862        5,830        18,243        92,331   

Depreciation and amortization

    24,738        24,309        11,413        10,706        4,469        25        4,526        943        81,129   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    178,848        113,480        73,877        36,832        98,048        429,549        28,656        13,852        973,142   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gains (Losses) on Asset Dispositions and Impairments, Net

    7,971        8,366        675               (19            544               17,537   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income (Loss)

    2,853        19,534        14,709        4,816        13,485        9,784        7,345        (19,421     53,105   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Income (Expense):

                 

Derivative losses, net

           (501                          (3,922            (5,496     (9,919

Foreign currency gains (losses), net

    317        691               22        46        (21     (23     5,547        6,579   

Other, net

                  4        56        2               (1     (295     (234

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

    935        955        410               124        (1,000     (386            1,038   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Segment Profit

    4,105        20,679        15,123        4,894        13,657        4,841        6,935       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Other Income (Expense) not included in Segment Profit

  

            (16,729

Less Equity Earnings included in Segment Profit

  

            (1,038
                 

 

 

 

Income Before Taxes and Equity Earnings

  

    32,802   
                 

 

 

 

Capital Expenditures

    33,025        50,233        33,137        8,315        4,009               1,498        1,174        131,391   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of June 30, 2011

                 

Property and Equipment

    620,146        629,619        338,289        249,818        35,388        131        148,929        19,338        2,041,658   

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

    57,697        35,341        42,378               2,351        12,929        59,676               210,372   

Goodwill

    13,367        352        1,743        606        45,097               1,302               62,467   

Intangible Assets

    6,992               908        1,732        8,342               474               18,448   

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

    134,505        88,430        44,054        5,673        84,274        125,374        63,181        27,248        572,739   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Segment Assets

    832,707        753,742        427,372        257,829        175,452        138,434        273,562       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Cash and near cash assets(1)

                    800,076   
                 

 

 

 

Total Assets

                    3,705,760   
                 

 

 

 
                 

 

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

 

23


Table of Contents
    Offshore
Marine
Services
$’000
    Aviation
Services
$’000
    Inland
River
Services
$’000
    Marine
Transportation
Services

$’000
    Environmental
Services

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

For the three months ended June 30, 2010

                 

Operating Revenues:

                 

External customers

    142,825        62,433        31,544        21,263        214,629        203,064        18,818               694,576   

Intersegment

    4,298               3,052                             151        (7,501       
                                                                       
    147,123        62,433        34,596        21,263        214,629        203,064        18,969        (7,501     694,576   
                                                                       

Costs and Expenses:

                 

Operating

    80,011        40,541        21,547        8,915        127,108        203,374        10,895        (7,649     484,742   

Administrative and general

    12,931        6,091        2,618        1,038        6,525        3,791        2,793        10,321        46,108   

Depreciation and amortization

    13,245        10,728        4,958        8,008        2,099        15        2,107        448        41,608   
                                                                       
    106,187        57,360        29,123        17,961        135,732        207,180        15,795        3,120        572,458   
                                                                       

Gains (Losses) on Asset Dispositions and Impairments, Net

    1,964        379        899        (11     (36            1,203               4,398   
                                                                       

Operating Income (Loss)

    42,900        5,452        6,372        3,291        78,861        (4,116     4,377        (10,621     126,516   
                                                                       

Other Income (Expense):

                 

Derivative gains (losses), net

           38                             4,611               (9,370     (4,721

Foreign currency gains (losses), net

    425        (1,731            (41     (23     (30     (15     (6,085     (7,500

Other, net

                                       6        34        6        46   

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

    1,713        (442     805               54        (13     759               2,876   
                                                           

Segment Profit

    45,038        3,317        7,177        3,250        78,892        458        5,155       
                                                           

Other Income (Expense) not included in Segment Profit

  

            (15,171

Less Equity Earnings included in Segment Profit

  

            (2,876
                       

Income Before Taxes and Equity Earnings

  

            99,170   
                       
                 

 

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Table of Contents
    Offshore
Marine
Services
$’000
    Aviation
Services
$’000
    Inland
River
Services
$’000
    Marine
Transportation
Services

$’000
    Environmental
Services

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

For the six months ended June 30, 2010

                 

Operating Revenues:

                 

External customers

    249,054        112,756        61,679        40,715        242,787        346,056        36,104               1,089,151   

Intersegment

    5,255        (48     6,353                             305        (11,865       
                                                                       
    254,309        112,708        68,032        40,715        242,787        346,056        36,409        (11,865     1,089,151   
                                                                       

Costs and Expenses:

                 

Operating

    153,775        72,567        41,101        22,347        147,445        350,746        20,934        (11,868     797,047   

Administrative and general

    25,380        11,482        4,679        1,875        12,562        6,535        5,638        18,848        86,999   

Depreciation and amortization

    26,723        21,175        9,834        16,016        4,082        35        4,290        850        83,005   
                                                                       
    205,878        105,224        55,614        40,238        164,089        357,316        30,862        7,830        967,051   
                                                                       

Gains (Losses) on Asset Dispositions and Impairments, Net

    14,615        469        1,786        (11     (53            1,203        48        18,057   
                                                                       

Operating Income (Loss)

    63,046        7,953        14,204        466        78,645        (11,260     6,750        (19,647     140,157   
                                                                       

Other Income (Expense):

                 

Derivative gains (losses), net

           (62                          8,919               (10,802     (1,945

Foreign currency gains (losses), net

    799        (1,596            (26     7        (747     (33     (8,605     (10,201

Other, net

                  10                      6        34        596        646   

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

    3,964        (717     707               92        (1,035     734               3,745   
                                                           

Segment Profit (Loss)

    67,809        5,578        14,921        440        78,744        (4,117     7,485       
                                                           

Other Income (Expense) not included in Segment Profit

  

            (24,175

Less Equity Earnings included in Segment Profit

  

            (3,745
                       

Income Before Taxes and Equity Earnings

  

            104,482   
                       
                 

Capital Expenditures

    15,864        62,725        18,780        99        3,543                      13,990        115,001   
                                                                       

As of June 30, 2010

                 

Property and Equipment

    672,114        576,030        277,088        349,025        36,275        181        144,814        19,609        2,075,136   

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

    34,659        25,138        93,506        7,450        2,251        13,974        24,496               201,474   

Goodwill

    13,367        353        1,743               37,888               1,302               54,653   

Intangible Assets

    9,119               1,279        2,135        8,078               584               21,195   

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

    188,349        67,975        50,156        9,541        178,894        87,624        44,536        25,797        652,872   
                                                           

Segment Assets

    917,608        669,496        423,772        368,151        263,386        101,779        215,732       
                                                           

Cash and near cash assets(1)

                    721,560   
                       

Total Assets

                    3,726,890   
                       
                 

 

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

 

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Table of Contents
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 U.S. government implemented moratoriums directing operators to cease certain drilling activities and any extension of such moratoriums (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, 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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Table of Contents

Overview

The Company’s operations are divided into six main business segments – Offshore Marine Services, Aviation Services, Inland River Services, Marine Transportation 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.

Consolidated Results of Operations

The sections below provide an analysis of the Company’s operations by business segment for the three months (“Current Year Quarter”) and six months (“Current Six Months”) ended June 30, 2011, as compared with the three months (“Prior Year Quarter”) and six months (“Prior Six Months”) ended June 30, 2010. See “Item 1. Financial Statements – Note 14. Segment Information” included in Part I for consolidating segment tables for each period presented.

Offshore Marine Services

 

    For the Three  Months
Ended June 30,
    For the Six Months
Ended June 30,
    Change
’11/’10
 
    2011     2010     2011     2010     3 Mos     6 Mos  
    $’000     %     $’000     %     $’000     %     $’000     %     %     %  

Operating Revenues:

                   

United States, primarily U.S. Gulf of Mexico

    32,842        35        79,527        54        52,003        30        119,011        47       
                                                                   

Africa, primarily West Africa

    13,254        14        19,708        13        32,721        19        38,583        15       

Middle East

    10,670        12        12,867        9        22,428        13        26,400        11       

Mexico, Central and South America

    14,336        15        13,547        9        26,245        15        25,714        10       

United Kingdom, primarily North Sea

    18,784        20        15,313        11        35,530        20        31,336        12       

Asia

    3,500        4        6,161        4        4,803        3        13,265        5       
                                                                   

Total Foreign

    60,544        65        67,596        46        121,727        70        135,298        53       
                                                                   
    93,386        100        147,123        100        173,730        100        254,309        100        (37     (32
                                                                   

Costs and Expenses:

                   

Operating

                   

Personnel

    34,216        37        35,300        24        66,668        38        72,960        28       

Repairs and maintenance

    10,610        11        14,265        10        19,361        11        24,640        10       

Drydocking

    5,305        6        6,925        5        9,968        6        13,841        5       

Insurance and loss reserves

    3,467        4        3,806        2        6,233        4        6,981        3       

Fuel, lubes and supplies

    5,534        6        6,472        4        10,699        6        11,899        5       

Leased-in equipment

    3,687        4        3,888        3        7,123        4        7,051        3       

Brokered vessel activity

    273               3,590        2        2,743        2        5,733        2       

Other

    5,150        5        5,765        4        8,467        5        10,670        4       
                                                                   
    68,242        73        80,011        54        131,262        76        153,775        60       

Administrative and general

    11,078        12        12,931        9        22,848        13        25,380        10       

Depreciation and amortization

    12,205        13        13,245        9        24,738        14        26,723        11       
                                                                   
    91,525        98        106,187        72        178,848        103        205,878        81       
                                                                   

Gains on Asset Dispositions and Impairments, Net

    3,607        4        1,964        1        7,971        5        14,615        6       
                                                                   

Operating Income

    5,468        6        42,900        29        2,853        2        63,046        25        (87     (95
                                                                   

Other Income (Expense):

                   

Foreign currency gains (losses), net

    (408            425        1        317               799              

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

    200               1,713        1        935               3,964        2       
                                                                   

Segment Profit

    5,260        6        45,038        31        4,105        2        67,809        27        (88     (94
                                                                   
                   

 

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Table of Contents

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

 

    For the Three  Months
Ended June 30,
    For the Six Months
Ended June 30,
    Change
’11/’10
 
    2011     2010     2011     2010     3 Mos     6 Mos  
    $’000     %     $’000     %     $’000     %     $’000     %     %     %  

Operating Revenues:

                   

Time charter:

                   

United States, primarily U.S. Gulf of Mexico

    30,153        32        74,319        50        47,532        27        112,046        44        (59     (58

Africa, primarily West Africa

    12,182        13        15,916        11        28,496        17        33,016        13        (23     (14

Middle East

    8,808        10        9,864        7        18,237        11        20,856        8        (11     (13

Mexico, Central and South America

    12,782        14        11,460        8        23,269        13        22,029        9        12        6   

United Kingdom, primarily North Sea

    18,735        20        15,317        10        35,431        20        31,267        12        22        13   

Asia

    3,546        4        4,718        3        4,866        3        11,654        5        (25     (58
                                                                   

Total time charter

    86,206        93        131,594        89        157,831        91        230,868        91        (34     (32
                                                                   

Bareboat charter

    209               1,243        1        416               1,494               (83     (72

Brokered vessel activity

    301               4,732        3        3,669        2        7,425        3        (94     (51

Other marine services

    6,670        7        9,554        7        11,814        7        14,522        6        (30     (19
                                                                   
    93,386        100        147,123        100        173,730        100        254,309        100       
                                                                   
                   

 

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Table of Contents

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 June 30,
    For the Six Months
Ended June 30,
 
     2011     2010     2011     2010  

Rates Per Day Worked:

        

Anchor handling towing supply

   $ 32,179      $ 40,592      $ 31,215      $ 36,524   

Crew

     6,334        6,586        6,477        6,632   

Mini-supply

     7,494        9,641        7,578        8,413   

Standby safety

     9,180        7,861        9,031        8,080   

Supply

     13,561        14,402        13,406        13,780   

Towing supply

     8,484        10,467        9,804        11,255   

Specialty

     9,351        6,187        8,077        7,220   

Overall Average Rates Per Day Worked

     11,142        13,906        10,655        12,672   

Utilization:

        

Anchor handling towing supply

     53     89     44     75

Crew

     70     72     68     70

Mini-supply

     77     61     69     58

Standby safety

     89     88     86     88

Supply

     74     78     69     78

Towing supply

     33     81     51     78

Specialty

     63     64     68     65

Overall Fleet Utilization

     71     77     68     74

Available Days:

        

Anchor handling towing supply

     1,547        1,729        3,077        3,439   

Crew

     3,933        4,527        7,803        9,027   

Mini-supply

     728        1,001        1,507        1,991   

Standby safety

     2,291        2,222        4,541        4,382   

Supply

     1,591        1,729        3,139        3,439   

Towing supply

     494        690        1,034        1,499   

Specialty

     353        334        713        694   
                                

Overall Fleet Available Days

     10,937        12,232        21,814        24,471   
                                
        

Current Year Quarter compared with Prior Year Quarter

Operating Revenues. Time charter revenues were $45.4 million lower. Overall fleet utilization was 71% compared with 77%. The number of days available for charter was 10,937 compared with 12,232, a 1,295 day or 11% reduction, due to net fleet dispositions. Overall average day rates were $11,142 per day compared with

 

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$13,906 per day, a decrease of $2,764 per day or 20%. Lower utilization decreased time charter revenues by $18.5 million. Net fleet dispositions, the impact of vessels mobilizing between geographic regions and other changes in fleet mix combined to reduce time charter revenues by $20.3. In overall terms, lower average day rates decreased time charter revenues by $8.1 million while the impact of favorable changes in currency exchange rates increased time charter revenues by $1.5 million.

In the U.S. Gulf of Mexico, time charter revenues were $44.2 million lower due to softer market conditions attributable to the ongoing slowdown in the issuance of drilling permits by the Bureau of Ocean Energy in the aftermath of the Deepwater Horizon oil spill. During the Prior Year Quarter, incremental charters in support of the oil spill response contributed $27.1 million of additional time charter revenues. During the Current Year Quarter, lower utilization and lower average day rates reduced time charter revenues by $10.8 million and $5.2 million, respectively. Vessels that mobilized out of the region, other changes in fleet mix and net fleet dispositions decreased time charter revenues by $20.7 million and a net increase in cold-stacked vessels further decreased time charter revenues by $7.5 million. As of June 30, 2011, the Company had seven vessels cold-stacked in this region compared with four as of June 30, 2010.

In West Africa, time charter revenues were $3.7 million lower, of which $3.2 million was due to reduced utilization and $0.5 million was due to lower average day rates.

In the United Kingdom, time charter revenues were $3.4 million higher, of which $2.4 million was due to improved average day rates and favorable changes in the USD/pound sterling exchange rate, and $1.0 million was due to incremental time charter revenues from a vessel that mobilized into the region.

Revenues from brokered vessel activity were $4.4 million lower due to reduced activity in West Africa and the Middle East. Other marine services revenues were $2.9 million lower primarily due to the impact in the Prior Year Quarter of technical services provided in connection with the Deepwater Horizon oil spill response.

Costs and Expenses. Operating expenses were $4.8 million lower due to net fleet dispositions, $3.2 million lower due to a larger number of vessels being held in cold-stack status during the Current Year Quarter, and $3.3 million lower due to reduced brokered vessel activity in West Africa and the Middle East.

Personnel costs were $1.2 million lower primarily due to net fleet dispositions and additional cold-stacked vessels. Repair and maintenance expenses were $3.7 million lower due to net fleet dispositions, additional cold-stacked vessels and the impact of expenditures incurred in the Prior Year Quarter related to technical services provided in support of the Deepwater Horizon oil spill response. Drydocking expenses were $1.6 million lower primarily due to reduced activity in the U.S. Gulf of Mexico, the United Kingdom and West Africa.

Gains on Asset Dispositions and Impairments, net. During the Current Year Quarter, the Company sold four offshore support vessels for net proceeds of $11.8 million and recognized current and previously deferred gains on dispositions of $3.6 million. During the Prior Year Quarter, the Company sold one offshore support vessel for net proceeds of $1.5 million and recognized current and previously deferred gains on dispositions of $2.0 million.

Current Six Months compared with Prior Six Months

Operating Revenues. Time charter revenues were $73.0 million lower. Overall fleet utilization was 68% compared with 74%. The number of days available for charter was 21,814 compared with 24,471, a 2,657 day or 11% reduction, due to net fleet dispositions. Overall average day rates were $10,655 per day compared with $12,672 per day, a decrease of $2,017 per day or 16%. Lower utilization decreased time charter revenues by $33.8 million. Net fleet dispositions, the impact of vessels mobilizing between geographic regions and other changes in fleet mix combined to reduce time charter revenues by $27.5 million. In overall terms, lower average day rates decreased time charter revenues by $13.6 million while the impact of favorable changes in currency exchange rates increased time charter revenues by $1.9 million.

 

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In the U.S. Gulf of Mexico, time charter revenues were $64.5 million lower due to softer market conditions attributable to the ongoing slowdown in the issuance of drilling permits by the Bureau of Ocean Energy in the aftermath of the Deepwater Horizon oil spill. During the Prior Six Months, incremental charters in support of the oil spill response contributed $27.1 million of additional time charter revenues. Time charter revenues were lower for all classes of vessels. During the Current Six Months, lower utilization and lower average day rates reduced time charter revenues by $19.2 million and $9.0 million, respectively. Net fleet dispositions, vessels that mobilized out of the region and other changes in fleet mix decreased time charter revenues by $24.8 million and a net increase in cold-stacked vessels further decreased time charter revenues by $11.5 million.

In West Africa, time charter revenues were $4.5 million lower, of which $3.8 million was due to reduced utilization and $1.2 million was due to lower average day rates. Net fleet dispositions, the impact of vessels mobilizing from other geographic regions and other changes in fleet mix increased time charter revenues by $0.5 million.

In the United Kingdom, time charter revenues were $4.2 million higher, of which $3.2 million was due to improved average day rates and favorable changes in the USD/pound sterling exchange rate, and $2.0 million was due to the impact of a vessel that mobilized into the region. These increases were partially offset by a $1.0 million decrease due to reduced fleet utilization.

In Asia, time charter revenues were $6.8 million lower, of which $4.9 million was due to fleet dispositions, and the impact of vessels mobilizing out of the region and other changes in fleet mix, $0.9 million was due to reduced utilization and $1.0 million was due to lower average day rates.

Revenues from brokered vessel activity were $3.8 million lower due to reduced activity in West Africa and the Middle East. Other marine services revenues were $2.7 million lower primarily due to the impact in the Prior Year Quarter of technical services provided in connection with the Deepwater Horizon oil spill response.

Costs and Expenses. Operating expenses were $8.3 million lower due to net fleet dispositions, $2.6 million lower due to the effect of vessels mobilizing between regions, $6.8 million lower due to a greater number of vessels being held in cold-stack status, and $3.0 million lower due to reduced brokered vessel activity in West Africa and the Middle East.

Personnel costs were $6.3 million lower primarily due to net fleet dispositions and additional cold-stacked vessels. Repair and maintenance expenses were $5.3 million lower due to net fleet dispositions, additional cold-stacked vessels and expenditures incurred in the Prior Year Quarter related to technical services provided in support of the Deepwater Horizon oil spill response. Drydocking expense was $3.9 million lower primarily due to reduced activity in the U.S. Gulf of Mexico, West Africa and Mexico, Central and South America. Fuel, lubes and supplies expense was $1.2 million lower primarily due to net fleet dispositions.

Gains on Asset Dispositions and Impairments, net. During the Current Six Months, the Company sold five offshore support vessels for net proceeds of $19.7 million and recognized current and previously deferred gains on dispositions of $8.0 million. During the Prior Six Months, the Company sold two vessels for net proceeds of $24.1 million and recognized current and previously deferred gains on dispositions of $14.6 million.

 

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Fleet Count

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

 

     Owned      Joint
Ventured
     Leased-in      Pooled or
Managed
     Total  

2011

              

Anchor handling towing supply

     15         2         2                 19   

Crew

     39         3         7         3         52   

Mini-supply

     6                 2                 8   

Standby safety

     25         1                         26   

Supply

     10                 9         9         28   

Towing supply

     3         1         2                 6