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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

ANNUAL REPORT

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

 

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

For the fiscal year ended December 31, 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)
  (I.R.S. Employer
Identification No.)
2200 Eller Drive, P.O. Box 13038,
Fort Lauderdale, Florida
  33316
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code (954) 523-2200

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, par value $.01 per share   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

 

None
(Title of Class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x  Yes    ¨  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨  Yes    x  No

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 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. x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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    x  No

The aggregate market value of the voting stock of the registrant held by non-affiliates as of June 30, 2011 was approximately $2,027,926,905 based on the closing price on the New York Stock Exchange on such date. The total number of shares of Common Stock issued and outstanding as of February 17, 2012 was 20,950,236.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement for its 2012 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission (the “Commission”) pursuant to Regulation 14A within 120 days after the end of the Registrant’s last fiscal year is incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

 


Table of Contents

SEACOR HOLDINGS INC.

FORM 10-K

TABLE OF CONTENTS

 

   PART I   
     
Item 1.    Business      1   
     
   General      1   
     
   Segment and Geographic Information      2   
     
   Offshore Marine Services      2   
     
   Aviation Services      8   
     
   Inland River Services      14   
     
   Marine Transportation Services      19   
     
   Environmental Services      21   
     
   Commodity Trading and Logistics      23   
     
   Other      24   
     
   Government Regulation      25   
     
   Industry Hazards and Insurance      33   
     
   Employees      33   
     
Item 1A.    Risk Factors      33   
     
Item 1B.    Unresolved Staff Comments      47   
     
Item 2.    Properties      47   
     
Item 3.    Legal Proceedings      47   
     
Item 4.    Mine Safety Disclosures      50   
     
   Executive Officers of the Registrant      50   
     
   PART II   
     
Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      51   
     
   Market for the Company’s Common Stock      51   
     
   Performance Graph      52   


Table of Contents
     
   Issuer Repurchases of Equity Securities      53   
     
   Issuance of Unregistered Securities      53   
     
Item 6.    Selected Financial Data      54   
     
Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      55   
     
   Overview      55   
     
   Consolidated Results of Operations      57   
     
   Liquidity and Capital Resources      85   
     
   Effects of Inflation      91   
     
   Contingencies      91   
     
   Related Party Transactions      94   
     
   Critical Accounting Policies and Estimates      95   
     
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk      99   
     
Item 8.    Financial Statements and Supplementary Data      101   
     
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      101   
     
Item 9A.    Controls and Procedures      101   
     
Item 9B.    Other Information      101   
     
   PART III   
     
Item 10.    Directors and Executive Officers and Corporate Governance      102   
     
Item 11.    Executive Compensation      102   
     
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      102   
     
Item 13.    Certain Relationships and Related Transactions, and Director Independence      102   
     
Item 14.    Principal Accountant Fees and Services      102   
     
   PART IV   
     
Item 15.    Exhibits and Financial Statement Schedules      103   


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FORWARD-LOOKING STATEMENTS

Certain statements discussed in Item 1 (Business), Item 1A (Risk Factors), Item 3 (Legal Proceedings), Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Item 7A (Quantitative and Qualitative Disclosures About Market Risk) and elsewhere in this Annual Report on Form 10-K as well as in other materials and oral statements that the Company releases from time to time to the public constitute “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 significant 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 are discussed in Item 1A (Risk Factors). In addition, these statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995. It should be understood that it is not possible to predict or identify all such factors. Consequently, the following should not be considered to be a complete discussion of all potential risks or uncertainties. The words “anticipate,” “estimate,” “expect,” “project,” “intend,” “believe,” “plan,” “target,” “forecast” 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. It is advisable, however, to consult any further disclosures the Company makes on related subjects in its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission.

PART I

 

ITEM 1. BUSINESS

General

Unless the context indicates otherwise, the terms “we,” “our,” “ours,” “us” and the “Company” refer to SEACOR Holdings Inc. and its consolidated subsidiaries. “SEACOR” refers to SEACOR Holdings Inc., incorporated in 1989 in Delaware. “Common Stock” refers to the common stock, par value $.01 per share, of SEACOR. The Company’s fiscal year ended on December 31, 2011.

The Company is in the business of owning, operating, investing in and marketing equipment, primarily to support offshore oil and gas activity, industrial aviation, and inland and coastal marine transportation industries. The Company operates a worldwide fleet of vessels and helicopters servicing oil and gas exploration, development and production facilities and U.S.-flag product tankers that transport petroleum, chemicals and crude products primarily in the U.S. domestic “coastwise” trade. In addition, the Company operates a fleet of inland river barges and towboats transporting grain, liquids and other bulk commodities on the U.S. Inland River Waterways. The Company’s environmental services segment primarily provides emergency preparedness and response services to oil, chemical, industrial and marine transportation clients, and government agencies in the United States and abroad. The Company’s commodity trading and logistics segment is an integrated business involved in the purchase, storage, transportation and sale of energy and agricultural commodities.

SEACOR’s principal executive office is located at 2200 Eller Drive, P.O. Box 13038, Fort Lauderdale, Florida 33316, and its telephone number is (954) 523-2200. SEACOR’s website address is www.seacorholdings.com. The reference to SEACOR’s website is not intended to incorporate the information on the website into this Annual Report on Form 10-K.

The Company’s Corporate Governance policies, including the Board of Directors’ Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee charters are available, free of charge, on SEACOR’s website or in print for stockholders.

 

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All of the Company’s periodic report filings with the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on SEACOR’s website, including its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports. These reports and amendments are available on SEACOR’s website as soon as reasonably practicable after the Company electronically files the reports or amendments with the SEC. They are also available at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information as to the operation of the SEC’s Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information.

Segment and Geographic Information

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, which primarily consists of Harbor and Offshore Towing Services, various other investments in joint ventures and lending and leasing activities. Financial data for segment and geographic areas is reported in Part IV “Note 16. Major Customers and Segment Information” of this Annual Report on Form 10-K.

Offshore Marine Services

Business

Offshore Marine Services operates a diverse fleet of support vessels primarily servicing offshore oil and gas exploration, development and production facilities worldwide. The vessels deliver cargo and personnel to offshore installations; handle anchors and mooring equipment required to tether rigs to the seabed; tow rigs and assist in placing them on location and moving them between regions and carry and launch equipment such as remote operated vehicles or “ROVs” used underwater in drilling, well-completion and emergencies. In addition to supporting drilling activities, Offshore Marine Services’ vessels support offshore construction and maintenance work, provide accommodations for technicians and specialists, provide standby safety support and emergency response services. On December 22, 2011, Offshore Marine Services acquired a controlling interest in a business that owns and operates vessels primarily used to move personnel and supplies to offshore wind farms. Offshore Marine Services also offers logistics services in support of offshore oil and gas exploration, development and production operations, including shore bases, marine transport and other supply chain management services. Offshore Marine Services contributed 18%, 19% and 33% of consolidated operating revenues in 2011, 2010 and 2009, respectively.

Subsequent to December 31, 2011, the Company reached an agreement to acquire 18 lift boats from Superior Energy Services, LLC and affiliates for $134.0 million plus a to be determined amount for working capital. The agreement is subject to certain conditions, including regulatory approval, and is expected to be completed prior to the end of the second quarter of 2012.

 

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Equipment and Services

The following tables identify the types of vessels that comprise Offshore Marine Services’ fleet as of December 31 for the indicated years. “Owned” are those majority owned by the Company. “Joint Ventured” are those owned by entities in which the Company does not have a controlling interest. “Leased-in” may be either vessels contracted from leasing companies to which the Company may have sold such vessels, or vessels chartered-in from other third party owners. “Pooled” are owned by entities not affiliated with Offshore Marine Services with the revenues or results of operations of these vessels being shared with the revenues or results of operations of certain vessels of similar type owned by Offshore Marine Services based upon an agreed formula. “Managed” are owned by entities not affiliated with the Company but operated by Offshore Marine Services for a fee. See Glossary of Vessel Types below for an explanation of the services they perform.

 

                                        Owned Fleet  
     Owned(1)      Joint
Ventured
     Leased-in      Pooled or
Managed
     Total      Average
Age
     U.S.-
Flag
     Foreign-
Flag
 

2011

                       

Anchor handling towing supply

     14         2         3                 19         11         12         2   

Crew

     32         7         7         3         49         12         17         15   

Mini-supply

     5         1         2                 8         11         1         4   

Standby safety

     25         1                         26         31                 25   

Supply

     10                 10         10         30         9         6         4   

Towing supply

     2         1         2                 5         9                 2   

Specialty

     3         5                 3         11         15                 3   

Wind farm utility

     28                 1                 29         3                 28   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 
     119         17         25         16         177         14         36         83   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

2010

                       

Anchor handling towing supply

     15         2         2         1         20         9         13         2   

Crew

     40         2         7         3         52         12         21         19   

Mini-supply

     5         1         3                 9         10         1         4   

Standby safety

     25         1                         26         31                 25   

Supply

     11                 7         9         27         8         7         4   

Towing supply

     4         1         2         1         8         13                 4   

Specialty

     4         5                 3         12         20                 4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 
     104         12         21         17         154         16         42         62   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

2009

                       

Anchor handling towing supply

     18         1         1         3         23         9         15         3   

Crew

     41         2         11         3         57         12         25         16   

Mini-supply

     6                 5                 11         10         3         3   

Standby safety

     24         1                         25         32                 24   

Supply

     11                 8         8         27         7         7         4   

Towing supply

     7         3         2         1         13         8                 7   

Specialty

     4         5                         9         19                 4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 
     111         12         27         15         165         15         50         61   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

(1)

Excludes one vessel acquired in 2010 but not operational until 2012.

 

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The following table indicates average fleet age of owned vessels in years as of December 31, excluding wind farm utility vessels:

 

     2011      2010      2009  

Excluding standby safety vessels

     11         12         11   

Including standby safety vessels

     17         16         15   

Glossary of Vessel Types

Anchor handling towing supply (“AHTS”) vessels are used primarily to support offshore drilling activities in the towing, positioning and mooring of drilling rigs and other marine equipment. AHTS vessels are also used to transport supplies and equipment from shore bases to offshore drilling rigs, platforms and other installations. The defining characteristics of AHTS vessels are horsepower (“bhp”), size of winch in terms of “line pull” and wire storage capacity. Offshore Marine Services’ fleet of AHTS vessels has varying capabilities and supports offshore mooring activities in water depths ranging from 300 to 8,000 feet. Most modern AHTS vessels are equipped with dynamic positioning (“DP”) systems1 to enable them to maintain a fixed position in close proximity to a rig or platform. As of December 31, 2011, of the 14 owned AHTS vessels, eight were equipped with DP-2 and two were equipped with DP.

Crew boats are used primarily to move cargo and personnel to and from offshore drilling rigs, platforms and other installations. Historically, crew boats transported people and were also used to deliver “light” cargo such as personal effects, small machinery and small quantities of fuel and water. These boats also served as field standby vessels, moving personnel between platforms and providing emergency stand-by services. Older crew boats are generally 100 to 130 feet in length and are capable of 20 knots speed in light conditions and calm seas. Vessels built since 1998, also referred to as Fast Support Vessels (“FSVs”), range from 130 to 200 feet in length and are capable of speeds between 25 and 35 knots and have enhanced cargo carrying capacities enabling them to support both drilling operations and production services. Newer FSVs support deepwater drilling and production and are equipped with DP-2, firefighting equipment and ride control systems for greater comfort and performance. As of December 31, 2011, of the 32 owned crew vessels, five were equipped with DP-2 and five were equipped with DP.

Mini-supply vessels are approximately 145 to 165 feet in length and typically carry deck cargo, liquid mud, methanol, diesel fuel and water. These vessels are typically used to support construction projects, maintenance work, certain drilling support activities and production support. In this vessel class, the new generation of vessels is also equipped with DP capability. As of December 31, 2011, of the five owned mini-supply vessels, three were equipped with DP.

Standby safety vessels typically remain on location proximate to offshore rigs and production facilities to respond to emergencies. These vessels carry special equipment to rescue personnel and are equipped to provide first aid and shelter. These vessels sometimes perform a dual role, also functioning as supply vessels.

Supply vessels and towing supply vessels are generally more than 200 feet in length and are used to deliver cargo to rigs and platforms where drilling and work-over activity is underway or to support construction work by delivering pipe to vessels performing underwater installations. Supply vessels are distinguished from other vessels by the total carrying capacity (expressed as deadweight: “dwt”), available area of clear deck space, below-deck capacity for storage of mud and cement used in the drilling process and tank storage for water and fuel oil. Larger supply vessels usually have deck fittings to assist in handling cargo and are often fitted with a

 

1  The most technologically advanced DP systems have enhanced redundancy in the vessel’s power, electrical, computer and reference systems enabling vessels to maintain accurate position-keeping even in the event of failure of one of those systems (“DP-2”) and, in some cases, additionally in the event of fire and flood (“DP-3”).

 

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crane. The ability to hold station in open water and moderately rough seas is a key factor in differentiating supply vessels. To improve station keeping ability, most modern supply vessels have DP capabilities. Accommodations are also an important feature of supply vessels. As drilling becomes more complex, supply vessels often house third-parties who are specialists in various phases of the drilling process. Towing supply vessels perform similar cargo delivery functions to those handled by supply vessels. They are, however, equipped with more powerful engines (4,000 – 8,000 bhp) and winches, giving them the added capability to perform general towing functions, buoy setting and limited anchor handling work. As of December 31, 2011, of the twelve owned supply and towing vessels, four were equipped with DP-2 and four were equipped with DP.

Specialty vessels include anchor handling tugs; lift boats; accommodation, line handling and other vessels. These vessels generally have specialized features adapting them to specific applications including offshore maintenance and construction services, freight hauling services and accommodation services.

Wind farm utility vessels are used primarily to move personnel and supplies to offshore wind farms. There are two main types of vessels; Windcats and Windspeeds. The Windcat series feature a catamaran hull with flush foredeck, providing a stable platform from which personnel can safely transfer to turbine towers, and are capable of speeds between 25 and 31 knots. The Windspeed series are rapid response vessels with a maximum speed of 38 knots, for light work during the construction and operational periods of offshore wind farms. All the wind farm utility vessels have been built since 2004.

As of December 31, 2011, in addition to its existing fleet, Offshore Marine Services had new construction projects in progress including one U.S.-flag, DP-2 AHTS vessel scheduled for delivery in the second quarter of 2012; two foreign-flag, DP-3 catamarans scheduled for delivery in the first and third quarters of 2013; two U.S.-flag, DP-2 FSVs scheduled for delivery between the first and third quarters of 2014; two foreign-flag supply vessels scheduled for delivery between the first and second quarters of 2012 and one foreign-flag wind farm utility vessel scheduled for delivery in the second quarter of 2012. Subsequent to December 31, 2011 Offshore Marine Services placed a firm order for the construction of four U.S.-flag, DP-2 supply vessels for delivery between the third quarter of 2013 and first quarter of 2015.

Markets

The demand for vessels supporting the offshore oil and gas industry is affected by the level of exploration and drilling activities, which in turn is influenced by a number of factors including:

 

   

expectations as to future oil and gas commodity prices;

 

   

customer assessments of offshore drilling prospects compared with land-based opportunities;

 

   

customer assessments of cost, geological opportunity and political stability in host countries;

 

   

worldwide demand for oil and natural gas;

 

   

the ability of The Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and pricing;

 

   

the level of production of non-OPEC countries;

 

   

the relative exchange rates for the U.S. dollar; and

 

   

various United States and international government policies regarding exploration and development of oil and gas reserves.

 

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Offshore Marine Services operates vessels in six principal geographic regions. From time to time, vessels are relocated between these regions to meet customer demand for equipment. The table below sets forth vessel types by geographic market as of December 31 for the indicated years. Offshore Marine Services sometimes participates in joint venture arrangements in certain geographical locations in order to enhance marketing capabilities and facilitate operations in certain foreign markets allowing for the expansion of its fleet and operations while diversifying risks and reducing capital outlays associated with such expansion.

 

     2011      2010      2009  

United States, primarily U.S. Gulf of Mexico:

        

Anchor handling towing supply

     12         12         12   

Crew

     24         28         31   

Mini-supply

     3         4         7   

Supply

     9         9         8   

Towing supply

     2         2         2   

Specialty

     2         2         2   
  

 

 

    

 

 

    

 

 

 
     52         57         62   
  

 

 

    

 

 

    

 

 

 

Africa, primarily West Africa:

        

Anchor handling towing supply

     5         5         3   

Crew

     8         8         11   

Mini-supply

     2                   

Supply

     3         3         5   

Towing supply

     2         3         5   

Specialty

     2         2         2   
  

 

 

    

 

 

    

 

 

 
     22         21         26   
  

 

 

    

 

 

    

 

 

 

Middle East:

        

Crew

     7         8         7   

Mini-supply

     2         4         4   

Supply

     3         3         4   

Towing supply

             2         3   

Specialty

     2         3         4   
  

 

 

    

 

 

    

 

 

 
     14         20         22   
  

 

 

    

 

 

    

 

 

 

Brazil, Mexico, Central and South America:

        

Anchor handling towing supply

     1         1         6   

Crew

     6         6         6   

Mini-supply

     1         1           

Supply

     14         11         9   

Specialty

     4         4         1   
  

 

 

    

 

 

    

 

 

 
     26         23         22   
  

 

 

    

 

 

    

 

 

 

Europe, primarily North Sea:

        

Standby safety

     26         26         25   

Wind farm utility

     29                   
  

 

 

    

 

 

    

 

 

 
     55         26         25   
  

 

 

    

 

 

    

 

 

 

Asia:

        

Anchor handling towing supply

     1         2         2   

Crew

     4         2         2   

Supply

     1         1         1   

Towing Supply

     1         1         3   

Specialty

     1         1           
  

 

 

    

 

 

    

 

 

 
     8         7         8   
  

 

 

    

 

 

    

 

 

 

Total Foreign Fleet

     125         97         103   
  

 

 

    

 

 

    

 

 

 

Total Fleet

     177         154         165   
  

 

 

    

 

 

    

 

 

 

 

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United States, primarily U.S. Gulf of Mexico. As of December 31, 2011, 52 vessels were operating in the U.S. Gulf of Mexico, including 28 owned, 18 leased-in, three joint ventured, two pooled and one managed. Offshore Marine Services’ expertise in this market is deepwater anchor handling with its fleet of AHTS vessels, and exploration and production support with its fleet of crew and mini-supply vessels. Over the last few years, the market has split between the traditional shallow water shelf and the deepwater markets. In both markets, customers focus on price once they have identified a reliable operator who can provide available vessels with suitable capabilities for the job.

Africa, primarily West Africa. As of December 31, 2011, 22 vessels were operating in West Africa, including twelve owned, three leased-in, four joint ventured, one pooled and two managed. Offshore Marine Services operates primarily in Angola and Ghana, servicing large-scale, multi-year projects for major oil companies. The other vessels in this region operate from ports in the Republic of the Congo, Gabon and Equatorial Guinea.

Middle East. As of December 31, 2011, 14 vessels were operating in the Middle East region, including eleven owned, one leased-in and two joint ventured. Offshore Marine Services’ vessels operating in this area generally support activities in Azerbaijan, Egypt and countries along the Arabian Gulf and Arabian Sea, including the United Arab Emirates, Qatar and India.

Brazil, Mexico, Central and South America. As of December 31, 2011, 17 vessels were operating in Brazil, including seven owned and ten managed, eight vessels were operating in Mexico, including one owned, two leased-in and five joint ventured. In addition, one owned vessel was operating in Trinidad & Tobago.

Europe, primarily North Sea. As of December 31, 2011, 55 vessels were operating in the North Sea, including 53 owned, one leased-in and one joint ventured. The North Sea fleet provides standby safety and supply services. Demand in the North Sea market for standby services developed in 1991 after the United Kingdom passed legislation requiring offshore operators to maintain higher specification standby safety vessels. The legislation requires a vessel to “stand by” to provide a means of evacuation and rescue for platform and rig personnel in the event of an emergency at an offshore installation. Demand for wind farm utility vessels has developed as a result of the recent growth in offshore wind turbines in the North Sea.

Asia. As of December 31, 2011, eight vessels were operating in Asia, including six owned and two joint ventured. Offshore Marine Services’ vessels operating in this area generally support exploration programs. To date, Offshore Marine Services’ largest markets in this area have been Vietnam and Indonesia.

Customers and Contractual Arrangements

The Offshore Marine Services segment earns revenues primarily from the time charter and bareboat charter of vessels to customers based upon daily rates of hire. Under a time charter, Offshore Marine Services provides a vessel to a customer and is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, Offshore Marine Services provides a vessel to a customer and the customer assumes responsibility for all operating expenses and all risk of operation. Vessel charters may range from several days to several years. In the U.S. Gulf of Mexico, time charter durations and rates are typically established in the context of master service agreements that govern the terms and conditions of charter.

Offshore Marine Services’ principal customers are major integrated oil companies, large independent oil and gas exploration and production companies and emerging independent companies. Consolidation of oil and gas companies through mergers and acquisitions over the past several years has reduced Offshore Marine Services’ customer base. In 2011, no single customer of Offshore Marine Services was responsible for 10% or more of consolidated operating revenues. The ten largest customers of Offshore Marine Services accounted for approximately 50% of Offshore Marine Services’ operating revenues. The loss of one or a few of these customers could have a material adverse effect on Offshore Marine Services’ results of operations.

 

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Table of Contents

Competitive Conditions

Each of the markets in which Offshore Marine Services operates is highly competitive. The most important competitive factors are pricing and the availability and specifications of equipment to fit customer requirements. Other important factors include service, reputation, flag preference, local marine operating conditions, the ability to provide and maintain logistical support given the complexity of a project and the cost of moving equipment from one geographical location to another.

Offshore Marine Services has numerous competitors in each of the geographical regions in which it operates, ranging from international companies that operate in many regions to smaller local companies that typically concentrate their activities in one specific region.

Risks of Foreign Operations

For the years ended December 31, 2011, 2010 and 2009, 69%, 53% and 63%, respectively, of Offshore Marine Services’ operating revenues were derived from its foreign operations.

Foreign operations are subject to inherent risks, which, if they materialize, could have a material adverse effect on Offshore Marine Services’ financial position and its results of operations. See the risk factor regarding “Risks from the Company’s International Operations” in “Item 1A. Risk Factors.”

Aviation Services

Business

Aviation Services is one of the largest helicopter operators in the world and the longest serving helicopter transport operator in the United States, which is its primary area of operation. Aviation Services is primarily engaged in transportation services to the offshore oil and gas exploration, development and production industry. Its major customers are major integrated and independent oil and gas companies and U.S. government agencies. In addition to serving the oil and gas industry, Aviation Services provides air medical services, firefighting support, flightseeing tours in Alaska, and emergency search and rescue services.

Aviation Services operates a fixed base operation (“FBO”) at Ted Stevens Anchorage International Airport and a Federal Aviation Administration (“FAA”) approved maintenance repair station in Lake Charles, Louisiana. Aviation Services has an interest in a sales and manufacturing organization based in Canada that engineers, manufactures and distributes after-market helicopter parts and accessories, and has an interest in a training center based in Lake Charles, Louisiana, that provides instruction, flight simulator and other training service.

Aviation Services contributed 12%, 9% and 14% of consolidated operating revenues in 2011, 2010 and 2009 respectively.

Aviation Services’ business is conducted through Era Group Inc., which filed a registration statement with the U.S. Securities and Exchange Commission (“SEC”) on November 23, 2011, with the intention of proceeding with an initial public offering of a portion of its shares, contingent upon, among other things, appropriate market conditions and receipt of certain approvals. Following any such offering, SEACOR would retain majority voting control over Era Group Inc. There is no assurance that an offering will be consummated. For information about the offering, refer to the most recent registration statement on Form S-1 filed by Era Group Inc. with the SEC, which can be found on the SEC’s website (www.SEC.gov).

 

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Table of Contents

Equipment and Services

The following tables identify the types of aircraft that comprise Aviation Services’ fleet as of December 31 for the indicated years. “Owned” are those majority owned by the Company. “Joint Ventured” are those owned by entities in which the Company does not have a controlling interest. “Leased-in” are those leased-in under operating leases. “Managed” are those owned by entities not affiliated with the Company but operated by Aviation Services for a fee. As of December 31, 2011, 127 aircraft were located in the United States and 48 were located in foreign jurisdictions.

 

     Owned(1)      Joint
Ventured
     Leased-in      Managed      Total      Max.
Pass.(2)
     Cruise
Speed
(mph)
     Approx.
Range
(miles)
     Average
Age(3)
(years)
 

2011

                          

Light helicopters – single engine:

                          

A119

     17         6                         23         7         161         270         5   

AS350

     32                 3                 35         5         138         361         15   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     49         6         3                 58               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Light helicopters – twin engine:

                          

A109

     7                         2         9         7         161         405         6   

BK-117

     3                 4         4         11         9         150         336         27   

BO-105

     4                                 4         4         138         276         21   

EC135

     13                 2                 15         7         138         288         4   

EC145

     3                         3         6         9         150         336         3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     30                 6         9         45               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Medium helicopters:

                          

AW139

     25         1                         26         12         173         426         3   

Bell 212

     14                                 14         11         115         299         33   

Bell 412

     6                                 6         11         138         352         30   

Sikorsky 76 A/A++

     6                 2         2         10         12         155         348         25   

Sikorsky 76 C/C++

     8                         1         9         12         161         348         5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     59         1         2         3         65               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Heavy helicopters:

                          

EC225

     7                                 7         19         162         582         3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Total Fleet

     145         7         11         12         175               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

 

(1)

Excludes one BO-105 removed from service, one EC225, two EC135s and four AW139s delivered in 2011 but not operational until 2012.

 

(2) In typical configuration for Aviation Services’ operations.

 

(3) For owned fleet.

 

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Table of Contents

 

     Owned(1)      Joint
Ventured
     Leased-in(2)      Managed      Total      Max.
Pass.(3)
     Cruise
Speed
(mph)
     Approx.
Range
(miles)
     Average
Age(4)

(years)
 

2010

                          

Light helicopters – single engine:

                          

A119

     17         6                         23         7         161         270         5   

AS350

     34                 3                 37         5         138         361         14   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     51         6         3                 60               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Light helicopters – twin engine:

                          

A109

     7                         2         9         7         161         405         4   

BK-117

     3                 4         4         11         9         150         336         26   

BO-105

     7                                 7         4         138         276         23   

EC135

     10                 2                 12         7         138         288         5   

EC145

     3                         3         6         9         150         336         2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     30                 6         9         45               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Medium helicopters:

                          

AW139

     22                                 22         12         173         426         3   

Bell 212

     15                                 15         11         115         299         32   

Bell 412

     6                                 6         11         138         352         29   

Sikorsky 76 A/A++

     6                 2         2         10         12         155         348         24   

Sikorsky 76 C/C++

     8                         1         9         12         161         348         4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     57                 2         3         62               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Heavy helicopters:

                          

S61

     3                                 3         19         138         497         41   

EC225

     6                                 6         19         162         582         2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     9                                 9               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Total Fleet

     147         6         11         12         176               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

 

(1)

Excludes one EC-120 removed from service and one A119 that was not placed into service until 2011. During 2010, one S76A and one BO-105 were removed from service and disassembled for spare parts.

 

(2) Excludes three EC-120s removed from service.

 

(3) In typical configuration for Aviation Services’ operations.

 

(4) For owned fleet.

 

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Table of Contents

 

     Owned(1)      Joint
Ventured
     Leased-in(2)      Managed      Total      Max.
Pass.(3)
     Cruise
Speed
(mph)
     Approx.
Range
(miles)
     Average
Age(4)
(years)
 

2009

                          

Light helicopters – single engine:

                          

A119

     17         6                         23         7         161         270         3   

AS350

     34                 3                 37         5         138         361         13   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     51         6         3                 60               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Light helicopters – twin engine:

                          

A109

     7                         2         9         7         161         405         4   

BK-117

     3                 4         6         13         9         150         336         25   

BO-105

     10                                 10         4         138         276         22   

EC135

     10                 2                 12         7         138         288         4   

EC145

     3                                 3         9         150         336         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     33                 6         8         47               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Medium helicopters:

                          

AW139

     18                                 18         12         173         426         2   

Bell 212

     15                                 15         11         115         299         31   

Bell 412

     6                                 6         11         138         352         28   

Sikorsky 76 A/A++

     6                 3         2         11         12         155         348         24   

Sikorsky 76 C/C++

     8                         1         9         12         161         348         3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     53                 3         3         59               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Heavy helicopters:

                          

S61

     3                                 3         19         138         497         40   

EC225

     5                                 5         19         162         582         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             
     8                                 8               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

Total Fleet

     145         6         12         11         174               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

             

 

(1)

Excludes one EC-120, one BK-117 and one BO-105 removed from service. Excludes one BK-117 that was removed from service as of December 31, 2009 disassembled for spare parts in 2010.

 

(2) Excludes three EC-120s removed from service.

 

(3) In typical configuration for Aviation Services’ operations.

 

(4) For owned fleet.

Glossary of Helicopter Types:

 

   

Heavy helicopters, which have twin engines and a typical passenger capacity of 19, are primarily used in support of the deepwater offshore oil and gas industry, frequently in harsh environments or in areas with long distances from shore, such as those in the North Sea and Australia. Heavy helicopters are also used to support search and rescue operations.

 

   

Medium helicopters, which mostly have twin engines and a typical passenger capacity of eleven to twelve, are primarily used to support the offshore oil and gas industry, search and rescue and air medical services, firefighting activities and corporate uses.

 

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Table of Contents
   

Light helicopters, which may have single or twin engines and a typical passenger capacity of four to nine, are used to support a wide range of activities, including shallow-water oil and gas exploration, development and production, the mining industry, power line and pipeline surveying, air medical services, tourism and corporate uses.

Medium and heavy helicopters fly longer distances at higher speeds, can carry heavier payloads than light helicopters and are usually equipped with sophisticated avionics permitting them to operate in more demanding weather conditions and difficult climates. Medium and heavy helicopters are most commonly used for crew changes on large offshore production facilities and drilling rigs servicing the oil and gas industry. They are the preferred helicopter in international offshore markets, where facilities tend to be larger, the drilling locations more remote, and onshore infrastructure more limited.

As of December 31, 2011, in addition to its existing fleet, Aviation Services had one Eurocopter EC225, two Eurocopter EC135s and four AgustaWestland AW139s that were delivered in 2011 and will become operational in 2012. As of December 31, 2011, Aviation Services had placed orders for twelve new helicopters, consisting of one EC225 heavy helicopter, four AW139 medium helicopters, five AgustaWestland AW169 light twin helicopters and two EC135 light twin helicopters. The EC225, the AW139s and the EC135s are scheduled to be delivered in 2012. Delivery dates for the AW169s have yet to be determined. In addition, Aviation Services had outstanding options to purchase up to an additional 15 AW139 medium helicopters. If these options are exercised, the helicopters will be delivered beginning in 2012 through 2015.

Markets

Aviation Services’ current principal markets for its transportation and search and rescue services supporting the offshore oil and gas exploration, development and production industry are in the U.S. Gulf of Mexico and Alaska. In addition, Aviation Services currently conducts international operations in support of oil and gas exploration, development and production activity, primarily in Brazil, parts of Europe, Asia and Mexico.

Demand for helicopters in support of the offshore oil and gas exploration, development and production, both in the United States and internationally, is affected by the level of offshore exploration and drilling activities, which in turn is influenced by a number of factors, including:

 

   

expectations as to future oil and gas commodity prices;

 

   

customer assessments of offshore drilling prospects compared with land-based opportunities;

 

   

customer assessments of cost, geological opportunity and political stability in host countries;

 

   

worldwide demand for oil and natural gas;

 

   

the ability of OPEC to set and maintain production levels and pricing;

 

   

the level of production of non-OPEC countries;

 

   

the relative exchange rates for the U.S. dollar; and

 

   

various United States and international government policies regarding exploration and development of oil and gas reserves.

Helicopter services to the oil and mining industries in Alaska are provided on a contract or charter basis from bases in Valdez, Anchorage, the Kenai area and Deadhorse. In addition to supporting oil company activities in the Cook Inlet and along the North Slope of Alaska, Aviation Services operates an FBO at Ted Stevens Anchorage International Airport, provides summer flightseeing tours and supports inland firefighting and mining operations. Aviation Services’ air medical services operations are primarily in the northeastern United States and Florida. In addition, Aviation Services contract-leases helicopters primarily to foreign operators in a number of locations in support of a wide variety of activities, and, in some instances, supports their operations with technical assistance, maintenance programs and sourcing of parts.

 

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Table of Contents

Seasonality

A significant portion of Aviation Services’ operating revenues and profits related to oil and gas industry activity is dependent on actual flight hours. The fall and winter months have fewer hours of daylight, particularly in Alaska and the North Sea, and flight hours are generally lower at these times. In addition, prolonged periods of adverse weather in the fall and winter months, coupled with the effect of fewer hours of daylight, can adversely impact operating results. In general, the months of December through February in the U.S. Gulf of Mexico and October through April in Alaska have more days of adverse weather conditions than the other months of the year. In the U.S. Gulf of Mexico, June through November is tropical storm season. During a tropical storm, Aviation Services is unable to operate in the area of the storm. However, flight activity may increase immediately before and after a storm due to the evacuation and return of offshore workers. The Alaska flight-seeing operation is also seasonal with activity occurring only from late May until early September. There is less seasonality in Aviation Services’ contract-leasing activities.

Customers and Contractual Arrangements

Aviation Services’ principal customers in the U.S. Gulf of Mexico are major integrated and independent exploration and production companies and U.S. government agencies, primarily The Bureau of Safety and Environmental Enforcement (“BSEE”), a division of the U.S Department of the Interior. In Alaska, Aviation Services’ principal customers are oil and gas companies, mining companies and cruise line passengers. Internationally, Aviation Services typically contract-leases helicopters to local companies that operate Aviation Services’ helicopters under their own operating certificates. These companies in turn provide helicopter transportation services to oil and gas companies and other governmental agencies.

Aviation Services charters the majority of its helicopters through master service agreements, subscription agreements, day-to-day charter arrangements and contract-leases. Master service agreements and subscription agreements typically require a fixed monthly fee plus incremental payments based on hours flown. These agreements have fixed terms ranging from one month to five years and generally may be cancelled upon 30-days notice. Day-to-day charter arrangements call for either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate with a minimum number of hours to be charged. Contract-leases generally run from two to five years with no early cancellation provisions and can include only the equipment, or can include the equipment, logistical and maintenance support, insurance and personnel, or a combination thereof. Aviation Services’ oil and gas contracts typically contain terms that limit its exposure to increases in fuel costs over a pre-agreed level. Fuel costs in excess of these levels are passed through to customers. With respect to flightseeing aircraft, block space is allocated to cruise lines and seats are sold directly to customers. Aviation Services’ fixed based operation sells fuel on an ad hoc basis. Air medical services are provided under contracts with hospitals that typically include either a fixed monthly and hourly rate structure or a fee per completed flight. Other markets include international oil and gas industry support activities, agricultural support and general aviation activities.

In 2011, no single customer of Aviation Services was responsible for 10% or more of consolidated operating revenues. The ten largest customers of Aviation Services accounted for approximately 59% of Aviation Services’ operating revenues in 2011. The loss of one or a few of its customers could have a material adverse effect on Aviation Services’ results of operations.

Competitive Conditions

The helicopter industry is highly competitive. The primary barriers to effective competitive entry include existing customer relationships, an established safety record, knowledge of site characteristics and access to appropriate facilities. Customers evaluate Aviation Services against its competitors based on a number of factors, including price; safety record; reliability of service; availability, adaptability and type of equipment; flexibility to provide incremental aircraft and different models from those primarily required and operational experience.

 

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Table of Contents

In the U.S. Gulf of Mexico, Aviation Services has many competitors, including several customers that operate their own helicopter fleets and smaller companies that offer services similar to those offered by Aviation Services. In Alaska, Aviation Services competes against a large number of operators and in Brazil, Aviation Services has several primary competitors.

In air medical services, there are several major competitors with fleets dedicated to air medical operations. Aviation Services competes against national and regional firms, and there is usually more than one competitor in each local market. In addition, Aviation Services competes against hospitals that operate their own helicopters and, in some cases, against ground ambulances.

Aviation Services’ contract-leasing business competes against financial leasing companies.

Risks of Foreign Operations

Aviation Services operates worldwide. For the years ended December 31, 2011, 2010 and 2009, 28%, 24% and 15%, respectively, of Aviation Services’ operating revenues were derived from its foreign operations.

Foreign operations are subject to inherent risks, which, if they materialize, could have a material adverse effect on Aviation Services’ financial position and its results of operations. See the risk factor regarding “Risks from the Company’s International Operations” in “Item 1A. Risk Factors.”

Inland River Services

Business

Inland River Services owns, operates, invests in and markets river transportation equipment primarily used for moving agricultural and industrial commodities, and chemical and petrochemical products, on the U.S. Inland River Waterways, primarily the Mississippi River, Illinois River, Tennessee River, Ohio River and their tributaries, and the Gulf Intracoastal Waterways. Inland River Services owns towboats used for moving barges, fleeting operations and deck barges. Internationally, Inland River Services has interests in a transshipment terminal at the Port of Ibicuy, Argentina and operations on the Parana-Paraguay Rivers in Argentina and the Magdalena River in Colombia. In addition to its primary barge business, Inland River Services also has interests in high-speed multi-modal terminal facilities and provides a broad range of services including machine shop, gear and engine repairs, repair of barges and towboats at strategic locations on the U.S. Inland River Waterways.

Inland River Services contributed 9%, 6% and 9% of consolidated operating revenues in 2011, 2010 and 2009, respectively.

 

14


Table of Contents

Equipment and Services

The following tables identify the types of equipment that comprise Inland River Services’ fleet as of December 31 for the indicated years. “Owned” are those majority owned by the Company. “Joint Ventured” are those owned by entities in which the Company does not have a controlling interest. “Leased-in” are those leased-in under operating leases. “Pooled or Managed” are owned by entities not affiliated with Inland River Services with operating revenues and voyage expenses pooled with certain barges of similar type owned by Inland River Services and the net results allocated to participants based upon the number of days the barges participate in the pool or are owned by entities not affiliated with the Company but operated by Inland River Services for a fee. For “Pooled” barges, each barge owner is responsible for the costs of insurance, maintenance and repair as well as for capital and financing costs of its own equipment in the pool.

 

     Owned(1)      Joint
Ventured
     Leased-in      Pooled or
Managed
     Total  

2011

              

Inland river dry cargo barges

     689         172         2         633         1,496   

Inland river liquid tank barges

     69                         8         77   

Inland river deck barges

     20                                 20   

Inland river towboats

     16         15                         31   

Dry cargo vessel(2)

             1                         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     794         188         2         641         1,625   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

2010

              

Inland river dry cargo barges

     634         172         2         580         1,388   

Inland river liquid tank barges

     68                 2         10         80   

Inland river deck barges

     26                                 26   

Inland river towboats

     17         15                         32   

Dry cargo vessel(2)

             1                         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     745         188         4         590         1,527   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

2009

              

Inland river dry cargo barges

     581         262         2         550         1,395   

Inland river liquid tank barges

     51         34         2                 87   

Inland river deck barges

     26                                 26   

Inland river towboats

     17         12                         29   

Dry cargo vessel(2)

             1                         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     675         309         4         550         1,538   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Excludes three dry cargo barges and two towboats delivered in 2011 but not operational until 2012.

 

(2) Argentine-flag.

 

15


Table of Contents

The table below sets forth equipment types by geographic market as of December 31 for the indicated years.

 

     2011      2010      2009  

United States:

        

Inland river dry cargo barges

     1,318         1,216         1,283   

Inland river liquid tank barges

     73         80         87   

Inland river deck barges

     20         26         26   

Inland river towboats

        

4,000 hp – 6,250 hp

     9         9         9   

3,300 hp – 3,900 hp

     1         1         1   

1,700 hp – 3,200 hp

     12         13         13   
  

 

 

    

 

 

    

 

 

 
     1,433         1,345         1,419   
  

 

 

    

 

 

    

 

 

 

South America:

        

Inland river dry cargo barges

     178         172         112   

Inland river liquid tank barges

     4                   

Inland river towboats

        

4,000 hp – 6,250 hp

     7         7         4   

1,700 hp – 3,200 hp

     2         2         2   

Dry-cargo vessel

     1         1         1   
  

 

 

    

 

 

    

 

 

 
     192         182         119   
  

 

 

    

 

 

    

 

 

 
     1,625         1,527         1,538   
  

 

 

    

 

 

    

 

 

 

As of December 31 of the indicated year, the average age (in years) of Inland River Services’ owned and joint ventured fleet was as follows:

 

     2011      2010      2009  

Dry cargo barges

     6         6         6   

Liquid tank barges – 10,000 barrel

     15         14         19   

Liquid tank barges – 30,000 barrel

     11         10         9   

Deck barges

     4         3         2   

Towboats(1)

     37         37         35   

 

(1) Towboats have been upgraded and maintained to meet or exceed current industry standards.

Inland barges are unmanned and are moved on the U.S. Inland River Waterways by towboats. The combination of a towboat and dry cargo barges is commonly referred to as a “tow.” The Inland River Services dry cargo fleet consists of hopper barges, which can be “open tops” for the transport of commodities that are not sensitive to water such as coal, aggregate and scrap, or covered for the transport of products such as grain, ores, alloys, cements and fertilizer. Each dry cargo barge in the Inland River Services’ fleet is capable of transporting approximately 1,500 to 2,000 tons (1,350 to 1,800 metric tons) of cargo. The carrying capacity of a barge at any particular time is determined by water depth in the river channels and hull depth of the barge. Adverse river conditions, such as high water resulting from excessive rainfall or low water caused by drought, can also impact operations by limiting the speed at which tows travel the U.S. Inland River Waterways, the number of barges included in tows and the quantity of cargo that is loaded in the barges.

 

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A typical dry cargo voyage begins by shifting a clean, empty barge from a fleeting location to a loading facility. The barge is then moved from the loading location and assembled into a tow before proceeding to its discharge destination. After unloading, it is shifted to a fleeting area for cleaning and service, if needed, before being placed again at a load facility. Typically, grain cargos move southbound and non-grain cargos move northbound. Generally, Inland River Services attempts to coordinate the logistical match-up of northbound and southbound movements of cargo to minimize repositioning costs.

Inland River Services’ fleet of 10,000 barrel liquid tank barges transports liquid bulk commodities such as lube oils, solvents and glycols. The operations of these barges are similar to those of the dry cargo barges described above. Inland River Services’ fleet of 30,000 barrel liquid tank barges transports refined petroleum products and black oil products and are normally chartered-out as “unit tows” consisting of two to three barges along with a towboat working in patterns prescribed by the customer. Inland River Services is responsible for providing manpower for the towboats working in such operations.

As of December 31, 2011, in addition to its existing fleet, Inland River Services had new construction projects in progress for four 30,000 barrel liquid tank barges and three 10,000 barrel liquid tank barges all scheduled for delivery in 2012.

Markets

The market for Inland River Services is driven by supply and demand economics, which impacts prices, utilization and margins achieved by Inland River Services’ assets. The relationship between supply and demand reflects many factors, including:

 

   

the level of domestic and international production of the basic agricultural products to be transported (in particular, the yield from grain harvests);

 

   

the level of domestic and international consumption of agricultural products and the effect of these levels on the volumes of products that are physically moved into the export markets;

 

   

the level of domestic and worldwide demand for iron ore, steel, steel by-products, coal, ethanol, petroleum and other bulk commodities;

 

   

the strength or weakness of the U.S. dollar; and

 

   

the cost of ocean freight and the cost of fuel.

Within the United States and international markets, other local factors also have an effect on pricing and margins, including:

 

   

the supply of barges available to move the products;

 

   

the cost of qualified wheelhouse personnel;

 

   

the ability to position the barges to maximize efficiencies and utility in moving cargos both northbound and southbound;

 

   

the cost of alternative forms of transportation (primarily rail) and capacities at export facilities;

 

   

general operating logistics on the river network including size and operating status of locks and dams;

 

   

the effect of river levels on the loading capacities of the barges in terms of draft restrictions; and

 

   

foreign and domestic laws and regulations.

Seasonality

During harsh winters the upper Mississippi River usually closes to barge traffic from mid-December to mid-March. Ice often hinders the navigation of barge traffic on the mid-Mississippi River, the Illinois River and the upper Ohio River during the same period. The volume of grain transported from the Midwest to the U.S. Gulf

 

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of Mexico, which is primarily for export, is greatest during the harvest season from mid-August through late November. The harvest season is particularly significant to Inland River Services because pricing tends to peak during these months in response to higher demand for equipment.

Customers and Contractual Arrangements

The principal customers for Inland River Services are major agricultural companies, major integrated oil companies and industrial companies. In 2011, no single customer of Inland River Services was responsible for 10% or more of consolidated operating revenues. The ten largest customers of Inland River Services accounted for approximately 69% of Inland River Services’ revenues in 2011. The loss of one or a few of its customers would be unlikely to have a material adverse effect on Inland River Services’ results of operations.

Most of Inland River Services’ dry cargo barges are employed under contracts of affreightment that can vary in duration, ranging from one voyage to several years. For longer term contracts, base rates may be adjusted in response to changes in fuel prices and operating expenses. Some longer term contracts provide for the transport of a minimum number of tons of cargo or specific transportation requirements for a particular customer. Some barges are bareboat chartered-out to third parties for a fixed payment of hire per day for the duration of the charter. These contracts tend to be longer, ranging in term from one to five years.

Inland River Services generally charges a price per ton for point to point transportation of dry bulk commodities. Customers are permitted a specified number of days to load and discharge the cargo and thereafter pay a per diem demurrage rate for extra time. From time to time, dry cargo barges may be used for storage for a period prior to delivery.

Inland River Services’ 10,000 barrel liquid tank barges are either chartered-out on term contracts ranging from one to five years or marketed on the spot market.

Inland River Services’ 30,000 barrel liquid tank barges are either marketed as unit tows under term contracts ranging from one to five years or in the spot market.

Inland River Services’ tank farm and handling facility is marketed on a tariff system driven by throughput volume.

Competitive Conditions

Generally, Inland River Services believes the primary barriers to effective competitive entry into the U.S. Inland River Waterways markets are the complexity of operations, the consolidation of the inland river towing industry and the difficulty in assembling a large enough fleet and an experienced staff to execute voyages efficiently and re-position barges effectively to optimize their use. The primary competitive factors among established operators are price, availability and reliability of barges and equipment of a suitable type and condition for a specific cargo.

Inland River Services’ main competitors are other barge lines. Railroads and liquid pipelines also compete for traffic that might otherwise move on the U.S. Inland River Waterways.

The Company believes that 67% of the domestic dry cargo fleet is controlled by five companies and 58% of the domestic liquid barge industry fleet is controlled by five companies.

Risks of Foreign Operations

Inland River Services’ foreign operations primarily consist of its joint ventures operating in foreign jurisdictions.

 

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Foreign operations are subject to inherent risks, which, if they materialize, could have a material adverse effect on Inland River Services’ financial position and its results of operations. See the risk factor regarding “Risks from the Company’s International Operations” in “Item 1A. Risk Factors.”

Marine Transportation Services

Business

Marine Transportation Services’ fleet consists of seven U.S.-flag product tankers, of which five are owned and two are leased, providing marine transportation services for petroleum products and chemicals moving in the U.S. domestic coastwise trade, and eight foreign-flag Roll-on/Roll-off (“RORO”) vessels engaged in the shipping trade between the United States, the Bahamas and the Caribbean.

Marine Transportation Services contributed 4%, 3% and 5% of consolidated operating revenues in 2011, 2010 and 2009, respectively.

Equipment and Services

The Oil Pollution Act of 1990 (“OPA 90”) prohibits vessels without double-hulls from transporting crude oil and petroleum products in U.S. coastwise transportation after certain dates based on the age and carrying capacity of the vessel. In addition, single-hulled vessels will be prohibited from transporting petroleum products in most international markets under a phase-out schedule established by the International Maritime Organization (“IMO”). The table below sets forth Marine Transportation Services’ fleet of U.S.-flag double-hull product tankers as of December 31, 2011.

 

Name of Vessel

   Capacity
in barrels
     Tonnage
in  “dwt”(1)
     OPA 90
Retirement date
     Type  

Seabulk Trader

     294,000         48,700         None         Double-hull   

Seabulk Challenge

     294,000         48,700         None         Double-hull   

California Voyager(2)

     341,000         45,000         None         Double-hull   

Oregon Voyager(2)

     341,000         45,000         None         Double-hull   

Seabulk Arctic

     340,000         46,000         None         Double-hull   

Mississippi Voyager

     340,000         46,000         None         Double-hull   

Florida Voyager

     340,000         46,000         None         Double-hull   

 

(1)

Deadweight tons or “dwt”.

 

(2) Leased-in vessel.

As of December 31, 2011, in addition to its existing fleet, Marine Transportation Services had a new construction project in progress for a U.S.-flag articulated tug/barge unit scheduled for delivery in the second quarter of 2012 that will be owned by a joint venture in which Marine Transportation Services has a 50% interest.

Markets

Petroleum Product Transportation. In the domestic energy trade, oceangoing vessels transport fuel and other petroleum products primarily from refineries and storage facilities along the coast of the U.S. Gulf of Mexico to utilities, waterfront industrial facilities and distribution facilities along the U.S. Gulf of Mexico, and the U.S. Atlantic and Pacific coasts. The number of U.S.-flag oceangoing vessels eligible to participate in the U.S. domestic trade and capable of transporting fuel or petroleum products has fluctuated in recent years as vessels have reached the end of their useful lives or have been retired due to OPA 90 requirements and newbuilds are placed into service.

 

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Chemical Transportation. In the U.S. domestic coastwise chemical transportation trade, vessels carry chemicals, primarily from chemical manufacturing plants and storage facilities along the coast of the U.S. Gulf of Mexico to industrial users in and around U.S. Atlantic and Pacific coast ports. The chemicals transported consist primarily of caustic soda, paraxylene, alkylates, toluene and lubricating oils. Some of the chemicals must be carried in vessels with specially coated or stainless steel cargo tanks and many of them are sensitive to contamination and require special cargo-handling equipment.

Cargo Liner Transportation. RORO vessels provide cargo transportation services to and from ports in Florida, the Bahamas and the Caribbean for the shipment of consumer products, building materials, less-than-container loads and project cargo services.

Customers and Contractual Arrangements

The primary purchasers of petroleum product transportation services are multinational oil and gas companies, refining companies, oil trading companies and large industrial consumers of fuel with waterfront facilities. The primary purchasers of chemical transportation services are chemical and oil companies. Both services are generally contracted on the basis of short-term or long-term time charters, voyage charters, and contracts of affreightment or other transportation agreements tailored to the shipper’s requirements. The primary purchasers of cargo liner transportation services are individuals and businesses consuming U.S. export goods in the Bahamas and Caribbean. Marine Transportation Services also provides ship management services to ship owners. In 2011, no single customer of Marine Transportation Services was responsible for 10% or more of consolidated operating revenues. The ten largest customers of Marine Transportation Services accounted for approximately 81% of its operating revenues in 2011. The loss of one or a few of these customers could have a material adverse effect on Marine Transportation Services’ results of operations.

Under a time charter, Marine Transportation Services provides a vessel to a customer and is responsible for all operating expenses, typically excluding fuel and port charges. Under a bareboat charter, Marine Transportation Services provides a vessel to a customer and the customer assumes responsibility for all operating expenses and all risk of operation. Vessel charters may range from several days to several years. Voyage contracts are contracts to carry cargos on a single voyage basis regardless of time to complete. Contracts of affreightment are contracts for cargos that are committed on a multi-voyage basis for various periods of time, with minimum and maximum cargo tonnages specified over the period at a fixed or escalating rate per ton.

Competitive Conditions

The markets in which the Marine Transportation Services fleet operates are highly competitive. Primary direct competitors are other operators of U.S.-flag ocean-going tank vessels and chemical carriers, operators of articulated tug and barge units and operators of refined product pipelines. The U.S. “Jones Act” shipping market is a trade that is not available to foreign-based competition. The most important competitive factors are pricing, vessel age and vessel availability to fit customer requirements as well as customer preference for double-hull vessels even though single hull vessels are still eligible to trade.

Risks of Foreign Operations

Marine Transportation Services’ foreign operations consist of its cargo liner transportation activities, which commenced operations in April 2011.

For the year ended December 31, 2011, 25% of Marine Transportation Services’ operating revenues were derived from its foreign operations.

Foreign operations are subject to inherent risks, which, if they materialize, could have a material adverse effect on Marine Transportation Services’ financial position and its results of operations. See the risk factor regarding “Risks from the Company’s International Operations” in “Item 1A. Risk Factors.”

 

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Environmental Services

Business

Environmental Services primarily provides emergency preparedness and response services to oil, chemical, industrial and marine transportation clients, and government agencies in the United States and abroad. In the United States, these services are generally rendered to those clients who store, transport, produce or handle petroleum and certain non-petroleum oils that are subject to the provisions of OPA 90 and various other federal, state and municipal regulations. Internationally, these services may be required by legislation and regulation of countries, international maritime conventions and environmental covenants placed on clients by their lending institutions. To a lesser extent, Environmental Services provides emergency preparedness and response services to governmental agencies arising from natural disasters and homeland security issues such as debris removal monitoring, public assistance projects, bio-terrorism, pandemic influenza and port security. Environmental Services also provides other services to oil, chemical, industrial and government clients including crisis communications, emergency preparedness and response software, hazardous waste management, standby fire-fighting, industrial and marine cleaning, salvage support, petroleum storage tank cleaning and removal, and site remediation services.

Business is conducted through SEACOR Environmental Services Inc. (“SES”) and O’Brien’s Response Management Inc. (“ORM”). SES includes National Response Corporation, one of the largest providers of oil spill response services in the United States; NRC Environmental Services Inc., a leading provider of environmental and industrial services on the West Coast of the United States; SEACOR Response Ltd., which provides oil spill and emergency response services to customers in various international markets; and certain other subsidiaries (collectively the “SES Business”). On February 7, 2012, SEACOR announced it had reached an agreement to sell the SES Business to J.F. Lehman & Company, a leading, middle-market private equity firm. The closing of the transaction is conditioned upon the buyer obtaining certain debt financing and other customary conditions. Either the Company or the buyer may terminate the stock purchase agreement if the closing has not occurred by March 31, 2012. The transaction does not include ORM, a leading provider of crisis and emergency preparedness and response services.

Environmental Services contributed 10%, 33% and 8% of consolidated operating revenues in 2011, 2010 and 2009, respectively.

Products and Services

Environmental Services employs trained personnel and maintains specialized equipment positioned in the United States and in certain locations outside the United States to respond to oil and chemical spills, other emergencies and customer projects. Environmental Services has access to a fleet of specialized vessels and barges outfitted with oil spill equipment and aircraft capable of application of chemical dispersants that are positioned on the East, Gulf and West coasts of the United States as well as in the Caribbean and Hawaii. Oil and chemical spill response equipment is also stationed in certain international locations in Africa, the Caspian and Black Sea Regions, the Far East and the Middle East. Environmental Services has established a combined network of approximately 180 independent oil spill response contractors and marine resource providers that may assist it by providing equipment and personnel.

Environmental Services offers retainer contracts to the maritime community, such as operators of tank and non-tank vessels and chemical carriers, and to owners of facilities, such as refineries, pipelines, exploration and production platforms, power plants and storage tank and transportation terminals. Retainer contracts provide customers with access to professional response management and specialized equipment necessary to respond to an oil or chemical spill emergency and facilitate compliance with regulations such as OPA 90.

Environmental Services provides a range of prevention, environmental compliance, business continuity, crisis communication, software, media, safety and security consultancy, and training services around the world to assist oil, chemical, industrial, marine transportation, financial services and government customers in the

 

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prevention of, and response to, an extensive variety of environmental emergencies on both a retained and stand-alone basis. Environmental Services assists customers in the selection and training of personnel in the use of environmental equipment and products. In addition, Environmental Services provides services to state, county and other local government agencies assisting them with preparedness, including emergency response plans, training and exercises, and response/recovery activities including, claims reimbursement from the federal government, through agencies such as the Federal Emergency Management Agency (“FEMA”) and the Federal Highway Administration. Furthermore, it provides oversight of clean-up and debris management required after hurricanes, floods and other natural disasters.

Environmental Services provides industrial and remediation services to oil, chemical, industrial and government clients. These services include hazardous waste management, standby fire-fighting, industrial and marine cleaning, salvage support, petroleum storage tank cleaning and removal, and site remediation services.

Markets

The market for contractual oil spill preparedness, response and other related training and consulting services in the United States resulted from the enactment of OPA 90. OPA 90 and several subsequent regulations promulgated by the Department of Transportation, the Environmental Protection Agency (“EPA”), the Bureau of Energy Management and the BSEE and the U.S. Coast Guard (“USCG”) require that all tank vessels operating within the 200-mile Exclusive Economic Zone of the United States and all facilities and pipelines handling oil that could have a spill affecting the navigable waters of the United States develop plans to respond to a “worst case” oil spill and ensure by contract, or other approved means, the ability to respond to such a spill.

The market for vessel security assessments, security plans, security training and exercises and other related services is for clients required to comply with the Maritime Transportation Security Act of 2002. Homeland Security services are marketed to government agencies to assist with efforts to improve emergency preparedness and response capabilities.

In the international market for oil spill response services, Environmental Services seeks to develop opportunities with governments, other agencies and international oil and gas exploration and production companies to establish and operate the necessary response capability. International crisis management and business continuity services focus on middle and senior management and are marketed to a broad range of industry sectors such as oil and gas, chemical, financial services, transportation and other industries.

The market for government services in the United States includes federal, state, county, city, and other subdivisions and agencies. Services are typically provided in association with specific funding sources, such as FEMA reimbursement, Homeland Security Grants, municipal budgets and other agency funding.

Customers and Contractual Arrangements

Environmental Services offers its services primarily to the domestic and international shipping community, major oil companies, independent exploration and production companies, pipeline and transportation companies, power generating operators, industrial companies, airports and state and local government agencies. Services are provided pursuant to contracts generally ranging from one month to ten years. In 2011, no single Environmental Services’ customer was responsible for 10%, or more, of consolidated operating revenues. The ten largest customers of Environmental Services accounted for approximately 51% of Environmental Services’ operating revenues in 2011. The loss of a single large client or a group of mid-size customers could have a material adverse effect on Environmental Services’ results of operations.

Competitive Conditions

The principal competitive factors in the environmental service business are price, customer service, reputation, experience, qualifications, availability of personnel and operating capabilities. In the United States, qualifications include USCG classification as an Oil Spill Removal Organization (“OSRO”). Environmental

 

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Services’ NRC is a USCG classified OSRO and it faces competition primarily from the Marine Spill Response Corporation, a non-profit OSRO funded by the major integrated oil companies. NRC also faces competition from other non-profit industry cooperatives and from those commercial contractors who target specific market niches in response, consulting and remediation. Internationally, competition for both oil spill response and emergency preparedness and management comes from a few private companies and regional oil industry cooperatives. Consulting and training service competitors range from small independent privately owned businesses to large engineering consulting groups and major defense contractors.

Risks of Foreign Operations

Environmental Services operates worldwide. For the years ended December 31, 2011, 2010 and 2009, 12%, 3% and 14%, respectively, of Environmental Services’ operating revenues were derived from its foreign operations.

Foreign operations are subject to inherent risks, which, if they materialize could have a material adverse effect on Environmental Services’ financial condition and its results of operations. See the risk factor regarding “Risks from the Company’s International Operations” in “Item 1A. Risk Factors.”

Commodity Trading and Logistics

Business

Commodity Trading and Logistics operates an integrated business involved in the purchase, storage, transportation and sale of energy and agricultural commodities. The principal commodities currently involved are sugar, ethanol, clean blendstocks and crude oil. Commodity Trading and Logistics contributed 45%, 28% and 28% of consolidated operating revenues in 2011, 2010 and 2009, respectively.

Products and Services

Energy. The energy group is primarily focused on the domestic merchandising and transportation of physical ethanol, clean blendstocks, heavy naphtha and crude oil. The energy group also operates, through an investment in a joint venture, a food and fuel grade processing plant which produces beverage and industrial alcohol and fuel-grade ethanol. The output of the plant is sold primarily to the energy group and its joint venture partner.

Agricultural. The agricultural group is primarily focused on the global origination, trading and merchandising of sugar, rice and industrial salt. The group’s involvement in these commodities pairs producers and buyers and arranges for the transportation and logistics of the product.

Commodity Trading and Logistics uses a variety of transportation modes to transport its products, including trucks, railcars, river barges, pipelines and ocean going vessels, which are generally leased. Commodity Trading and Logistics leverages the asset base of SEACOR’s other business units, primarily Inland River Services, including its tank farm and handling facility in Sauget, Illinois, for the transportation and storage of product.

Markets

Commodity Trading and Logistics’ activities are global and dependent upon factors that Commodity Trading and Logistics cannot control, including macro and micro economic supply and demand factors, governmental intervention or mandates, weather patterns, and the price and availability of substitute products. Commodity Trading and Logistics produces, purchases, markets and sells ethanol to customers for blending into the U.S. gasoline pool and transports clean blendstocks for export. Commodity Trading and Logistics purchases and resells crude oil primarily of Canadian origin to customers in the United States and delivers the material via pipeline and barge. With respect to sugar, Commodity Trading and Logistics’ primary markets include countries in South America, Africa, the Caribbean and the Far East.

 

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Ethanol demand is subject to overall gasoline demand and gasoline blending economics; governmental policies and mandates; the cost of production of feedstock commodities such as corn; gasoline and oil prices and freight and handling costs. The demand for the clean blendstocks depends primarily on oil and natural gas liquids prices.

The availability of agricultural commodities is affected by weather, plant diseases, governmental policies and agricultural growing patterns. Sugar demand is affected by worldwide consumption of food products, soft drinks and sweetened beverages, and by population growth, changes in per capita income and the relative prices of substitute sweeteners. It is also impacted by other macro-economic factors including the volatility of foreign currency markets.

Customers and Contractual Arrangements

Commodity Trading and Logistics sells ethanol, crude oil and blendstocks primarily to end users (gasoline refiners, blenders, and their suppliers) and other market participants and may also purchase, sell, or exchange product with other market participants to optimize logistics or hedge market exposure. The principal purchasers of Commodity Trading and Logistics’ sugar are private importers and distributors.

In 2011, one customer (Motiva Enterprises LLC) of Commodity Trading and Logistics was responsible for 10% or more of consolidated operating revenues. The ten largest customers of Commodity Trading and Logistics accounted for approximately 76% of Commodity Trading and Logistics’ operating revenues in 2011. The loss of one or a few of these customers could have a material adverse effect on Commodity Trading and Logistics’ results of operations.

Competitive Conditions

The commodity trading and logistics business is highly competitive. Major competitors for the energy group include other marketers, traders and other product suppliers. Major competitors for the agricultural group include large agribusiness, major and independent trading houses and regional or local grower cooperatives.

Risk of Foreign Operations

For the year ended December 31, 2011, 2010 and 2009, 25%, 21% and 38%, respectively, of Commodity Trading and Logistics operating revenues were derived from foreign operations.

Foreign operations are subject to inherent risks, which, if they materialize, could have a material adverse effect on Commodity Trading and Logistics’ financial condition and its results of operations. See the risk factor regarding “Risks from the Company’s International Operations” in “Item 1A. Risk Factors.”

Other

Harbor and Offshore Towing Services. As of December 31, 2011, Harbor and Offshore Towing Services operated a total of five ocean liquid tank barges and 28 vessels, of which 13 were conventional tugs, five were Azimuth Stern Drive tugs, three were Forward Azimuth Drive tugs, two were tractor tugs and five were Ship Docking Modules (“SDM™”). SDMs™ are innovative vessels designed and patented by the Company that are maneuverable, efficient and flexible and require fewer crew members than conventional harbor tugs. The tugs were operating in various ports including four in Port Everglades, Florida, four in the Port of Tampa, Florida, one in Port Canaveral, Florida, seven in Port Arthur, Texas, four in Port Mobile, Alabama, three in Lake Charles, Louisiana. In addition, four tugs and five ocean liquid tank barges were operating in St. Eustatius and one tug was operating under a bareboat charter arrangement.

As of December 31, 2011, in addition to its existing fleet, Harbor and Offshore Towing Services had a new construction project in progress for two U.S.-flag Azimuth Stern Drive harbor tugs scheduled for delivery in the first quarter of 2013.

 

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In 2011, no single customer of Harbor and Offshore Towing Services was responsible for 10% or more of consolidated operating revenues. The ten largest customers of Harbor and Offshore Towing Services accounted for approximately 51% of Harbor and Offshore Towing Services’ operating revenues in 2011. The loss of one or a few of these customers could have a material adverse effect on Harbor and Offshore Towing Services’ results of operations.

Other Joint Ventures, Leasing and Other Activities. The Company has noncontrolled equity investments in various entities including a company that designs and manufactures water treatment systems for sale or lease and industrial aviation service businesses in Asia. The Company also engages in lending and leasing activities.

Government Regulation

Regulatory Matters

The Company’s operations are subject to significant United States federal, state and local regulations, as well as international conventions and the laws of foreign jurisdictions where the Company operates its equipment or where the equipment is registered. The Company’s domestically registered vessels are subject to the jurisdiction of the USCG, the National Transportation Safety Board (“NTSB”), the U.S. Customs and Border Protection and the U.S. Maritime Administration, as well as to the rules of private industry organizations such as the American Bureau of Shipping. These agencies and organizations establish safety standards and are authorized to investigate vessels and accidents and to recommend improved maritime safety standards. Aviation Services is subject to regulations pursuant to the Federal Aviation Act of 1958, as amended (“Federal Aviation Act”), and other statutes pursuant to Federal Aviation Regulations Part 135 Air Taxi Certificate granted by the FAA. The FAA regulates flight operations and, in this respect, has jurisdiction over Aviation Services’ personnel, aircraft, ground facilities and certain technical aspects of its operations. In addition to the FAA, the NTSB is authorized to investigate aircraft accidents and to recommend improved safety standards. The Company is also subject to the Communications Act of 1934, as amended, because of the use of radio facilities in Aviation Services’ operations.

Offshore Marine Services, Marine Transportation Services and Inland River Services are subject to the U.S. cabotage laws that impose certain restrictions on the ownership and operation of vessels in the U.S. coastwise trade (i.e., trade between points in the United States), including cargo. These laws are principally contained in 46 U.S.C. § 50501 and 46 U.S.C. Chapter 551 and related regulations and are commonly referred to collectively as the “Jones Act.” Subject to limited exceptions, the Jones Act requires that vessels engaged in U.S. coastwise trade be built in the United States, registered under the U.S. flag, manned by predominantly U.S. crews, and owned and operated by U.S. citizens within the meaning of the Jones Act. For purposes of the Jones Act, a corporation, for example, must satisfy the following requirement to be deemed a U.S. citizen: (i) the corporation must be organized under the laws of the United States or of a state, territory or possession thereof; (ii) each of the chief executive officer and the chairman of the board of directors of such corporation must be a U.S. citizen; (iii) no more than a minority of the number of directors of such corporation necessary to constitute a quorum for the transaction of business can be non-U.S. citizens; and (iv) at least 75% of each class or series of stock in such corporation must be owned by U.S. citizens within the meaning of the Jones Act. Should the Company fail to comply with the U.S. citizenship requirements of the Jones Act, it would be prohibited from operating its vessels in the U.S. coastwise trade during the period of such non-compliance. In addition, the Company could be subject to fines and its vessels could be subject to seizure and forfeiture for violations of the Jones Act and the related U.S. vessel documentation laws.

To facilitate compliance with the Jones Act, SEACOR’s Restated Certificate of Incorporation: (i) limits the aggregate percentage ownership by non-U.S. citizens of any class of SEACOR’s capital stock (including Common Stock) to 22.5% of the outstanding shares of each such class to ensure that such foreign ownership will not exceed the maximum percentage permitted by applicable maritime law (presently 25%) but authorizes SEACOR’s Board of Directors, under certain circumstances, to increase the foregoing percentage to 24%; (ii) requires institution of a dual stock certification system to help determine such ownership; (iii) provides that any issuance or transfer of shares in excess of such permitted percentage shall be ineffective as against the

 

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Company and that neither the Company nor its transfer agent shall register such purported issuance or transfer of shares or be required to recognize the purported transferee or owner as a stockholder of the Company for any purpose whatsoever except to exercise the Company’s remedies; (iv) provides that any such excess shares shall not have any voting or dividend rights; (v) permits the Company to redeem any such excess shares; and (vi) permits the Board of Directors to make such determinations as reasonably may be necessary to ascertain such ownership and implement such limitations. In addition, SEACOR’s by-laws provide that the number of non-U.S. citizen directors shall not exceed a minority of the number necessary to constitute a quorum for the transaction of business and restrict any non-U.S. citizen officer from acting in the absence or disability of the Chairman of the Board of Directors, the Chief Executive Officer or the President.

Aviation Services’ helicopters operating in the United States are subject to registration and citizenship requirements under the Federal Aviation Act. This Act requires that before an aircraft may be legally operated in the United States, it must be owned by “citizens of the United States,” which, in the case of a corporation, means a corporation: (i) organized under the laws of the United States or of a state, territory or possession thereof; (ii) of which at least 75% of its voting interests are owned or controlled by persons who are U.S. “citizens” (as defined in the Federal Aviation Act and regulations promulgated thereunder); and (iii) of which the president and at least two-thirds of the board of directors and managing officers are U.S. citizens.

Marine Transportation Services, Inland River Services, Harbor and Offshore Towing Services and Offshore Marine Services operate vessels that are registered in the United States. Offshore Marine Services, Marine Transportation Services, Harbor and Offshore Towing Services, and an Inland River Services’ joint venture operate vessels registered in a number of foreign jurisdictions. Vessels registered in these jurisdictions are subject to the laws of the applicable jurisdiction as to ownership, registration, manning and safety. In addition, the vessels are subject to the requirements of a number of international conventions that are applicable to vessels depending on their jurisdiction of registration. Among the more significant of these conventions are: (i) the 1978 Protocol Relating to the International Convention for the Prevention of Pollution from Ships; (ii) the International Convention on the Safety of Life at Sea, 1974 and 1978 Protocols; and (iii) the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”). Major revisions to STCW and its associated Code entered into force on January 1, 2012 with a five-year transitional period until January 1, 2017. The Company believes that its vessels registered in foreign jurisdictions are in compliance with all applicable material regulations and have all licenses necessary to conduct their business. In addition, vessels operated as standby safety vessels in the North Sea are subject to the requirements of the Department of Transport of the United Kingdom pursuant to the United Kingdom Safety Act.

All of Marine Transportation Services’, Harbor and Offshore Towing Services’, certain of Offshore Marine Services’ vessels and all of Inland River Services’ liquid tank barges are subject to periodic inspection and survey by, and drydocking and maintenance requirements of, the USCG and/or the American Bureau of Shipping and other marine classification societies. Moreover, to ensure compliance with applicable safety regulations, the USCG is authorized to inspect vessels at will.

NRC is classified by the USCG as an Oil Spill Removal Organization (“OSRO”) for every port in the continental United States, Hawaii and the Caribbean. The OSRO classification process is strictly voluntary. However, under the Oil Pollution Act of 1990 (“OPA 90”) owners and operators of tank vessels and certain oil facilities (responsible parties) are required to prepare response plans and have contracts for the resources necessary to respond to threats of oil spills and oil spills up to a worst case scenario. As a result, classified response contractors are the primary means by which responsible parties meet their OPA 90 obligation to ensure the availability of adequate resources and personnel to respond to and recover oil spills of various types and sizes in different operating environments and geographic locations.

In addition to the USCG, the EPA, the Office of Pipeline Safety, BSEE and certain individual states regulate vessels, facilities and pipelines in accordance with the requirements of OPA 90 or under analogous state law. There is currently little uniformity among the regulations issued by these agencies.

 

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When responding to third-party oil spills, Environmental Services enjoys immunity from liability under federal law and some state laws for any spills arising from its response efforts, except in the event of death or personal injury or as a result of its gross negligence or willful misconduct. It should be noted, however, that as a result of the Deepwater Horizon incident in 2010, some gaps have been identified in this responder immunity regime and actions are being taken by the response industry to seek modifications to existing law to remedy these gaps.

Environmental Compliance

As more fully described below, all of the Company’s businesses are, to some degree, subject to federal, state, local and international laws and regulations relating to environmental protection and occupational safety and health, including laws that govern the discharge of oil and pollutants into navigable waters. Violations of these laws may result in civil and criminal penalties, fines, injunctions or other sanctions.

The Company believes that its operations are currently in compliance with all material environmental laws and regulations. It does not expect that it will be required to make capital expenditures in the near future that are material to its financial position or operations to comply with environmental laws and regulations; however, because such laws and regulations are frequently changing and may impose increasingly strict requirements, the Company cannot predict the ultimate cost of complying with these laws and regulations. The recent trend in environmental legislation and regulation is generally toward stricter standards, and it is the Company’s view that this trend is likely to continue.

OPA 90 establishes a regulatory and liability regime for the protection of the environment from oil spills. OPA 90 applies to owners and operators of facilities operating near navigable waters and owners and operators of vessels operating in U.S. waters, which include the navigable waters of the United States and the 200-mile Exclusive Economic Zone of the United States. For purposes of its liability limits and financial responsibility and response planning requirements, OPA 90 differentiates between tank vessels (which include the Company’s chemical and petroleum product vessels and liquid tank barges) and “other vessels” (which include the Company’s tugs, offshore support vessels and dry cargo barges).

Under OPA 90, owners and operators of regulated facilities and owners and operators or bareboat charterers of vessels are “responsible parties” and are jointly, severally and strictly liable for removal costs and damages arising from facility and vessel oil spills or threatened spills up to their limits of liability (unless the limits are broken as discussed below) unless the spill results solely from the act or omission of certain third parties under specified circumstances, an act of God or an act of war. In addition, Section 713 of the Coast Guard Authorization Act of 2010, enacted on October 15, 2010, amended OPA 90 to include as a responsible party the owner of oil being transported in a tank vessel with a single hull after December 31, 2010. Damages are defined broadly to include: (i) injury to natural resources and the costs of remediation thereof; (ii) injury to, or economic losses resulting from the destruction of, real and personal property; (iii) net loss by the United States government, a state or political subdivision thereof, of taxes, royalties, rents, fees and profits; (iv) lost profits or impairment of earning capacity due to property or natural resources damage; (v) net costs of providing increased or additional public services necessitated by a spill response, such as protection from fire, safety or other hazards; and (vi) loss of subsistence use of available natural resources.

Effective July 31, 2009, the OPA regulations were amended to increase the liability limits for responsible parties for non-tank vessels to $1,000 per gross ton or $854,400, whichever is greater and for tank vessels the maximum limits of liability are the greater of $3,200 per gross ton or $23,496,000. These liability limits do not apply (a) if an incident is caused by the responsible party’s violation of federal safety, construction or operating regulations or by the responsible party’s gross negligence or willful misconduct, (b) if the responsible party fails to report the incident or to provide reasonable cooperation and assistance in connection with oil removal activities as required by a responsible official or (c) if the responsible party fails to comply with an order issued under OPA 90.

 

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Under OPA 90, with certain limited exceptions, all newly-built oil tankers carrying crude oil and petroleum products in U.S. waters must have double-hulls. Existing single-hull, double-side or double-bottom tank vessels, unless retrofitted with double-hulls, must be phased out of service by January 1, 2015, depending upon the vessel’s size, age and place of discharge.

OPA 90 expanded pre-existing financial responsibility requirements and requires tank vessel owners and operators to establish and maintain with the USCG evidence of insurance or qualification as a self-insurer or other evidence of financial responsibility sufficient to meet their potential liabilities under OPA 90. Under OPA, an owner or operator of a fleet of vessels may demonstrate evidence of financial responsibility in an amount sufficient to cover the vessels in the fleet having the greatest maximum liability under OPA. The Company has satisfied USCG regulations by providing evidence of financial responsibility demonstrated by commercial insurance and self-insurance. The regulations also implement the financial responsibility requirements of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), which imposes liability for discharges of hazardous substances such as chemicals, similar to OPA, and provides compensation for cleanup, removal and natural resource damages. Liability per vessel under CERCLA is limited to the greater of $300 per gross ton or $5 million, unless the incident is caused by gross negligence, willful misconduct, or a violation of certain regulations, in which case liability is unlimited.

As a result of the Delaware River Protection Act, which was enacted by Congress in 2006, the OPA limits of liability must be adjusted not less than every three years to reflect significant increases in the Consumer Price Index.

OPA 90 amended the Clean Water Act (“CWA”), described below, to require the owner or operator of certain facilities or of a tank vessel to prepare facility or vessel response plans and to contract with oil spill removal organizations to remove, to the maximum extent practicable, a worst-case discharge. The Company has complied with these requirements. The Company expects its pollution liability insurance to cover any cost of spill removal subject to overall coverage limitations of $1.0 billion; however, a failure or refusal of the insurance carrier to provide coverage in the event of a catastrophic spill could result in material liability in excess of available insurance coverage, resulting in a material adverse effect on the Company’s business, financial position or its results of operations.

OPA 90 allows states to impose their own liability regimes with respect to oil pollution incidents occurring within their boundaries and many states have enacted legislation providing for unlimited liability for oil spills. Some states have issued regulations addressing financial responsibility and vessel and facility response planning requirements. The Company does not anticipate that state legislation or regulations will have any material impact on its operations.

In 2011, Congress failed to enact any notable oil pollution legislation. However, it is expected that Congress will take up and introduce new spill legislation in 2012 as a result of lessons learned from the Deepwater Horizon incident in 2010 now that all of the significant investigation reports were completed in 2011. If Congress passes spill legislation in 2012, the Company could be subject to greater potential liability or penalties if any of the Company’s vessels has an incident or the Company could be required to comply with other requirements thereby increasing the Company’s operating costs.

In addition to OPA 90, the following are examples of environmental laws that relate to the Company’s business and operations:

The International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto (“MARPOL”), is the main international convention covering prevention of pollution of the marine environment by vessels from operational or accidental causes. It has been updated by amendments through the years and is implemented in the United States pursuant to the Act to Prevent Pollution from Ships. MARPOL has six specific annexes and Annex I governs oil pollution.

 

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Since the 1990s, the DOJ has been aggressively enforcing U.S. criminal laws against vessel owners, operators, managers, crewmembers, shoreside personnel, and corporate officers for actions related to violations of Annex I. Prosecutions generally involve violations related to pollution prevention devices, such as the oil-water separator, and include falsifying the Oil Record Book, obstruction of justice, false statements and conspiracy. Over the past ten years, the DOJ has imposed significant criminal penalties in vessel pollution cases and the vast majority of such cases did not actually involve pollution in the United States, but rather efforts to conceal or cover up pollution that occurred elsewhere. In certain cases, responsible shipboard officers and shoreside officials have been sentenced to prison. In addition, the DOJ has required defendants to implement a comprehensive environmental compliance plan (“ECP”). If the Company is subjected to a DOJ criminal prosecution, it could face significant criminal penalties and defense costs as well as costs associated with the implementation of an ECP.

The CWA, enacted in 1972, prohibits the discharge of “pollutants,” which includes oil or hazardous substances, into navigable waters of the United States and imposes civil and criminal penalties for unauthorized discharges. The CWA complements the remedies available under OPA and CERCLA.

The CWA also established the National Pollutant Discharge Elimination System (“NPDES”) permitting program, which governs discharges of pollutants into navigable waters of the United States. Pursuant to the NPDES, EPA issued a Vessel General Permit (“VGP”), which has been in effect since February 6, 2009, covering 26 types of discharges incidental to normal vessel operations. The VGP applies to U.S. and foreign-flag commercial vessels that are at least 79 feet in length, and therefore applies to the Company’s vessels.

The VGP requires vessel owners and operators to adhere to “best management practices” to manage the 26 listed discharge streams, including ballast water, that occur normally in the operation of a vessel. Vessel owners and operators must implement various training, inspection, monitoring, recordkeeping, and reporting requirements, as well as corrective actions upon identification of each deficiency. Several states have specified significant, additional requirements in connection with state mandated CWA certifications relating to the VGP.

On February 11, 2011, the EPA and the Coast Guard entered into a Memorandum of Understanding (“MOU”) outlining the steps the agencies will take to better coordinate efforts to implement and enforce the VGP. Under the MOU, the Coast Guard will identify and report to EPA detected VGP deficiencies as a result of its normal boarding protocols for U.S.-flag and foreign-flag vessels. However, EPA retains responsibility and enforcement authority to address VGP violations. The Company has filed a Notice of Intent to be covered by the VGP for each of the Company’s ships. Failure to comply with the VGP may result in civil or criminal penalties. The current VGP expires on December 19, 2013. EPA published on December 8, 2011, a draft Vessel General Permit for public comment which will replace the current VGP. The 2013 replacement VGP could result in increased requirements that could result in increasing the Company’s operating costs.

The United States National Invasive Species Act (“NISA”) was enacted in 1996 in response to growing reports of harmful organisms being released into United States waters through ballast water taken on by vessels in foreign ports. The Coast Guard adopted regulations under NISA in July 2004 that impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering United States waters. These requirements can be met by performing mid-ocean ballast exchange, by retaining ballast water onboard the vessel, or by using environmentally sound ballast water treatment methods approved by the Coast Guard. Mid-ocean ballast exchange is the primary method for compliance with the Coast Guard regulations; alternative methods for ballast water treatment are still under development. Vessels that are unable to conduct mid-ocean ballast exchange due to voyage or safety concerns may discharge minimum amounts of ballast water, provided that they comply with recordkeeping requirements and document the reasons they could not follow the required ballast water management requirements. On August 28, 2009, the Coast Guard proposed to amend its regulations on ballast water management by establishing standards for the allowable concentration of living organisms in a vessel’s ballast water discharged in United States waters. As proposed, it would establish a two tier standard. Tier one would set the initial limits to match those set internationally by IMO in the Ballast Water Convention, which

 

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has not yet entered into force. The interim final rule to implement this proposal was sent to the Office of Management and Budget for review on November 11, 2011. Final regulations are expected to be published in the first quarter of 2012. A limited number of technologies have been approved and may enable some vessels to meet these discharge standards. The tier two standard would be more stringent and cannot be met using existing treatment technology. This second tier, as proposed, would come into effect on January 1, 2017. The interim final rule to implement this proposal was sent to the Office of Management and Budget for review on November 11, 2011. Final regulations are expected to be published in the first quarter of 2012 with an effective date in 2012. When the IMO Ballast Water Convention comes into force, certain of the Company’s vessels may be required to have a ballast water treatment system on board.

Both houses of Congress have proposed a number of bills to amend NISA but it cannot be predicted which bill, if any, will be enacted into law.

In the absence of stringent federal standards, states have enacted legislation or regulations to address invasive species through ballast water and hull cleaning management, and permitting requirements, which in many cases have also become part of the state’s VGP certification. For instance, California requires vessels to comply with state ballast water discharge and hull fouling requirements. Oceangoing vessels covered by the VGP are prohibited from discharging ballast water in Michigan waters unless the vessel meets Michigan state requirements and obtains a Michigan permit. New York requires vessels to meet ballast water treatment standards by January 1, 2012 with technology that is not available today, but has granted extensions to this deadline until August 1, 2013. Other states may proceed with the enactment of similar requirements that could increase the costs of operating in state waters.

The United States Clean Air Act (as amended by the Clean Air Act Amendments of 1977 and 1990, the “CAA”) was enacted in 1970 and required the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. The CAA also requires states to submit State Implementation Plans (“SIPs”), which are designed to attain national health-based air quality standards throughout the United States, including major metropolitan and/or industrial areas. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. The EPA and some states have each proposed more stringent regulations of air emissions from propulsion and auxiliary engineers on oceangoing vessels. For example, the California Air Resources Board of the state of California (“CARB”) has published regulations requiring oceangoing vessels visiting California ports to reduce air pollution through the use of marine distillate fuels once they sail within 24 miles of the California coastline effective July 1, 2009. CARB expanded the boundaries of where these requirements apply and began enforcing these new requirements on December 1, 2011. More stringent fuel oil requirements for marine gas oil are scheduled to go into effect on August 1, 2012.

The state of California also began on January 1, 2010, implementing regulations on a phased in basis that require vessels to either shut down their auxiliary engines while in port in California and use electrical power supplied at the dock or implement alternative means to significantly reduce emissions from the vessel’s electric power generating equipment while it is in port. Generally, a vessel will run its auxiliary engines while in port in order to power lighting, ventilation, pumps, communication and other onboard equipment. The emissions from running auxiliary engines while in port may contribute to particulate matter in the ambient air. The purpose of the regulations is to reduce the emissions from a vessel while it is in port. The cost of reducing vessel emissions while in port may be substantial if the Company determines that it cannot use or the ports will not permit the Company to use electrical power supplied at the dock. Alternatively, the ports may pass the cost of supplying electrical power at the port to us, and The Company may incur additional costs in connection with modifying the Company’s vessels to use electrical power supplied at the dock.

Annex VI of MARPOL, addressing air emissions from vessels, came into force in the United States on January 8, 2009 and requires the use of low sulfur fuels worldwide in both auxiliary and main propulsion diesel engines on vessels. By July 1, 2010, amendments to MARPOL required all diesel engines on vessels built

 

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between 1990 and 2000 to meet a Nitrous Oxide (“NOx”) standard of 17.0g-NOx/kW-hr. On January 1, 2011 the NOx standard was lowered to 14.4 g-NOx/kW-hr and on January 1, 2016 it will be further lowered to 3.4 g-NOx/kW-hr, for vessels operating in a designated Emission Control Area (“ECA”).

In addition, the current global sulfur cap of 4.5% sulfur was reduced to 3.5% effective January 1, 2012 and will be further reduced to as low as 0.5% sulfur in 2020. The recommendations made in connection with a MARPOL fuel availability study scheduled for 2018 at IMO may cause this date to slip to 2025. The current 1.0% maximum sulfur emissions permitted in designated ECAs around the world will be reduced to 0.1% sulfur on January 1, 2015. These sulfur limitations will be applied to all subsequently approved ECAs.

In addition, the EPA received approval of the IMO, in coordination with Environment Canada, to designate all waters, with certain limited exceptions, within 200 nautical miles of Hawaii and the U.S. and Canadian coasts as ECAs. The North American ECA will go into force on August 1, 2012 limiting the sulfur content in fuel that is burned as described above. Beginning in 2016, NOx after-treatment requirements become applicable in this ECA as well. Furthermore, on July 15, 2011, the IMO officially adopted amendments to MARPOL to designate certain waters around Puerto Rico and the U.S. Virgin Islands as the United States – Caribbean ECA, where stringent international emission standards will also apply to ships. For this area, the effective date of the first-phase fuel sulfur standard is January 2014, and the second phase begins in 2015. Stringent NOx engine standards begin in 2016.

With the adoption of the North American ECA, ships operating within 200 miles of the U.S. coast will be required to burn 1% sulfur content fuel oil as of August 1, 2012 (when the ECA goes into effect) and 0.1% sulfur content fuel oil as of January 1, 2015. The Company has one U.S.-flag product tanker that cannot safely burn 0.1% fuel oil without minor modification to its fuel system. EPA has received approval at IMO to exempt and has exempted steamships from the 0.1% sulfur content fuel oil requirement until 2020.

The Company’s operations occasionally generate and require the transportation, treatment and disposal of both hazardous and non-hazardous solid wastes that are subject to the requirements of the United States Resource Conservation and Recovery Act (“RCRA”) or comparable state, local or foreign requirements. From time to time the Company arranges for the disposal of hazardous waste or hazardous substances at offsite disposal facilities. With respect to the Company’s marine operations, EPA has a longstanding policy that RCRA only applies after wastes are “purposely removed” from the vessel. As a general matter, with certain exceptions, vessel owners and operators are required to determine if their wastes are hazardous, obtain a generator identification number, comply with certain standards for the proper management of hazardous wastes, and use hazardous waste manifests for shipments to disposal facilities. The degree of RCRA regulation will depend on the amount of hazardous waste a generator generates in any given month. Moreover, vessel owners and operators may be subject to more stringent state hazardous waste requirements in those states where they land hazardous wastes. If such materials are improperly disposed of by third parties that the Company contracts with, the Company may still be held liable for cleanup costs under applicable laws.

The Endangered Species Act, federal conservation regulations and comparable state laws protect species threatened with possible extinction. Protection of endangered and threatened species may include restrictions on the speed of vessels in certain ocean waters and may require the Company to change the routes of the Company’s vessels during particular periods. For example, in an effort to prevent the collision of vessels with the North Atlantic right whale, federal regulations restrict the speed of vessels to ten knots or less in certain areas along the Atlantic Coast of the United States during certain times of the year. The reduced speed and special routing along the Atlantic Coast results in the use of additional fuel, which affects the Company’s results of operations.

With regard to greenhouse gas regulation, in February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change (the “Kyoto Protocol”) entered into force. Pursuant to the Kyoto Protocol, countries that are parties to the Convention are required to implement national programs to reduce emissions of certain gases, generally referred to as greenhouse gases, which are suspected of contributing to

 

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global warming. In October 2007, the California Attorney General and a coalition of environmental groups petitioned the EPA to regulate greenhouse gas emissions from oceangoing vessels under the CAA. Any passage of climate control legislation or other regulatory initiatives in the United States that restrict emissions of greenhouse gases could entail financial impacts on the Company’s operations that cannot be predicted with certainty at this time. The issue is being heavily debated within various international regulatory bodies, such as the IMO, and climate control measures that effect shipping could also be implemented on an international basis potentially affecting the Company’s vessel operations.

The Company manages exposure to losses from the above-described laws through its efforts to use only well-maintained, well-managed and well-equipped facilities and vessels and its development of safety and environmental programs, including a maritime compliance program and its insurance program. The Company believes it will be able to accommodate reasonably foreseeable environmental regulatory changes subject to the comments above. There can be no assurance, however, that any future regulations or requirements or that any discharge or emission of pollutants by the Company will not have a material adverse effect on the Company’s business, financial position or its results of operations.

Security

Heightened awareness of security needs brought about by the events of September 11, 2001 has caused the USCG, the IMO, states and local ports to adopt heightened security procedures relating to ports and vessels.

Specifically, on November 25, 2002, the Maritime Transportation Security Act of 2002 (“MTSA”) was signed into law. To implement certain portions of MTSA, in July 2003, the Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, the IMO adopted amendments to the International Convention for the Safety of Life at Sea (“SOLAS”), known as the International Ship and Port Facilities Security Code (the “ISPS Code”), creating a new chapter dealing specifically with maritime security. The new chapter came into effect in July 2004 and imposes various detailed security obligations on vessels and port authorities. Among the various requirements under MTSA and/or the ISPS Code are:

 

   

onboard installation of automatic information systems to enhance vessel-to-vessel and vessel-to-shore communications;

 

   

onboard installation of ship security alert systems;

 

   

the development of vessel and facility security plans;

 

   

the implementation of a Transportation Worker Identification Credential program; and

 

   

compliance with flag state security certification requirements.

The Coast Guard regulations, intended to align with international maritime security standards, generally deem foreign-flag vessels to be in compliance with MTSA vessel security measures provided such vessels have onboard a valid International Ship Security Certificate that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. U.S.-flag vessels, however, must comply with all of the security measures required by MTSA, as well as SOLAS and the ISPS Code if engaged in international trade.

We believe that the Company has implemented the various security measures required by the MTSA, SOLAS and the ISPS Code in light of the new requirements. Specifically, the Company has implemented security plans and procedures for each of its U.S.-flag vessels and its terminal operation in Sauget, Illinois pursuant to rules implementing the MTSA that have been issued by the USCG. The Company’s U.S.-flag vessels subject to the requirements of ISPS, all foreign-flag vessels, and U.S.-flag vessels operating on international voyages were all in compliance with ISPS requirements effective July 1, 2004.

 

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Industry Hazards and Insurance

Vessel operations involve inherent risks associated with carrying large volumes of cargo and rendering services in a marine environment. In addition, helicopter operations are potentially hazardous and may result in incidents or accidents. Hazards include adverse weather conditions, collisions, fire and mechanical failures, which may result in death or injury to personnel, damage to equipment, loss of operating revenues, contamination of cargo, pollution and other environmental damages and increased costs. The Company maintains marine and aviation hull, liability and war risk, general liability, workers compensation and other insurance customary in the industries in which the Company operates. The Company also conducts training and safety programs to promote a safe working environment and minimize hazards.

Employees

As of December 31, 2011, the Company employed 6,043 individuals directly and indirectly through crewing or manning agreements. Substantially all indirect employees support Offshore Marine Services’ vessel operations.

As of December 31, 2011, Offshore Marine Services employed 764 seafarers in the North Sea, some of whom were members of a union under the terms of an ongoing agreement. In the United States, a total of 269 employees in Marine Transportation Services and Harbor and Offshore Towing Services are unionized under agreements that expire at varying times through August 31, 2013. Certain individuals in Environmental Services are also represented by unions.

Management considers relations with its employees to be satisfactory.

 

ITEM 1A. RISK FACTORS

Risks, Uncertainties and Other Factors That May Affect Future Results

The Company’s results of operations, financial condition and cash flow may be adversely affected by numerous risks. Carefully consider the risks described below, which represent some of the more critical risk factors that affect the Company, as well as the other information that has been provided in this Annual Report on Form 10-K. The risks described below include all known material risks faced by the Company. Additional risks not presently known may also impair the Company’s business operations.

Difficult economic conditions could materially adversely affect the Company. The success of the Company’s business is both directly and indirectly dependent upon conditions in the global financial markets and economic conditions throughout the world that are outside its control and difficult to predict. Continued uncertainty about global economic conditions may lead businesses to postpone spending in response to tighter credit and reductions in income or asset values, which may lead many lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers. These factors may also adversely affect the Company’s liquidity and financial condition (including the failure of lenders participating in the Company’s credit facility to fulfill their commitments and obligations), and the liquidity and financial condition of the Company’s customers. Tight credit conditions could limit the Company’s ability to secure additional financing, if required, due to difficulties accessing the capital markets. Factors such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws (including laws relating to taxation), trade barriers, commodity prices, currency exchange rates and controls, and national and international political circumstances (including wars, terrorist acts or security operations) can have a material negative impact on the Company’s business and investments, which could reduce its revenues and profitability. Although the Company has some ongoing exposure to credit risks on its accounts receivable balances, these risks are heightened during periods when economic conditions worsen. The Company has procedures that are designed to monitor and limit exposure to credit risk on its receivables; however, there can be no assurance that such procedures will effectively limit its credit risk and avoid losses that could have a material adverse effect on the Company’s financial position and its results of operations. Unstable economic conditions may also increase the volatility of the Company’s stock price.

 

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There are risks associated with the Company’s debt structure. The Company’s ability to meet its debt service obligations is dependent upon its future operating results, which are subject to general economic conditions, industry cycles and financial, business and other factors, many of which are beyond its control. The Company’s debt levels and the terms of its indebtedness may limit its liquidity and flexibility in obtaining additional financing and pursuing other business opportunities. In addition, the Company’s overall debt level and/or market conditions could lead the credit rating agencies to lower the Company’s corporate credit ratings, which could limit its ability to issue additional debt in amounts and/or on terms that it considers reasonable.

Demand for many of the Company’s services is impacted by the level of activity in the offshore oil and natural gas exploration, development and production industry. The level of offshore oil and natural gas exploration, development and production activity has historically been volatile and that volatility is likely to continue. The level of activity is subject to large fluctuations in response to relatively minor changes in a variety of factors that are beyond the Company’s control, including:

 

   

general economic conditions;

 

   

prevailing oil and natural gas prices and expectations about future prices and price volatility;

 

   

assessments of offshore drilling prospects compared with land-based opportunities;

 

   

the cost of exploring for, producing and delivering oil and natural gas offshore;

 

   

worldwide demand for energy, other petroleum products and chemical products;

 

   

availability and rate of discovery of new oil and natural gas reserves in offshore areas;

 

   

federal, state, local and international political and economic conditions, and policies including cabotage and local content laws;

 

   

technological advances affecting exploration, development, energy production and consumption;

 

   

weather conditions;

 

   

environmental regulation;

 

   

regulation of drilling activities and the availability of drilling permits and concessions; and

 

   

the ability of oil and natural gas companies to generate or otherwise obtain funds for capital projects.

A prolonged material downturn in oil and natural gas prices is likely to cause a substantial decline in expenditures for exploration, development and production activity, which would result in a decline in demand and lower rates for the Company’s offshore energy support services and tanker services. Moreover, for the year ended December 31, 2011, approximately 31% of Offshore Marine Services’ and 46% of Aviation Services’ operating revenues were earned in the U.S. Gulf of Mexico and are therefore dependent on levels of activity in that region, which may differ from levels of activity in other regions of the world.

Failure to maintain an acceptable safety record may have an adverse impact on the Company’s ability to retain customers. The Company’s customers consider safety and reliability a primary concern in selecting a service provider. The Company must maintain a record of safety and reliability that is acceptable to its customers. Should this not be achieved, the ability to retain current customers and attract new customers may be adversely affected.

Adverse results of legal proceedings could materially adversely affect the Company. The Company is subject to and may in the future be subject to a variety of legal proceedings and claims that arise out of the ordinary conduct of its business. Results of legal proceedings cannot be predicted with certainty. Irrespective of its merits, litigation may be both lengthy and disruptive to the Company’s operations and may cause significant expenditure and diversion of management attention. The Company may be faced with significant monetary damages or injunctive relief against it that could materially adversely affect a portion of its business operations or materially and adversely affect the Company’s financial position and its results of operations should the Company fail to prevail in certain matters.

 

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The Company may undertake one or more significant corporate transactions that may not achieve their intended results, may adversely affect the Company’s financial condition and its results of operations, and may result in additional risks to its businesses. The Company continuously evaluates the acquisition of operating businesses and assets and may in the future undertake significant transactions. Any such transaction could be material to the Company’s business and could take any number of forms, including mergers, joint ventures, investments in new lines of business and the purchase of equity interests or assets. The form of consideration for such transactions may include, among other things, cash, common stock or equity interests in the Company’s subsidiaries. The Company also evaluates the disposition of its operating businesses and assets, in whole or in part, which could take the form of asset sales, mergers or sales of equity interests in its subsidiaries (privately or through a public offering), or the spin-off of equity interests of the Company’s subsidiaries to its stockholders.

These types of significant transactions may present significant risks and uncertainties, including distraction of management from current operations, insufficient revenue to offset liabilities assumed, potential loss of significant revenue and income streams, unexpected expenses, inadequate return of capital, potential acceleration of taxes currently deferred, regulatory or compliance issues, the triggering of certain covenants in the Company’s debt instruments (including accelerated repayment) and other unidentified issues not discovered in due diligence. As a result of the risks inherent in such transactions, the Company cannot guaranty that any such transaction will ultimately result in the realization of the anticipated benefits of the transaction or that significant transactions will not have a material adverse impact on the Company’s financial condition or its results of operations. If the Company were to complete such an acquisition, disposition, investment or other strategic transaction, it may require additional debt or equity financing that could result in a significant increase in its amount of debt or the number of outstanding shares of its Common Stock.

Investment in new business strategies and initiatives present risks not originally contemplated. The Company has invested, and in the future may again invest, in new business plans or acquisitions, some of which may not be directly linked to existing business lines or activities. These activities may involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenue to offset liabilities assumed and expenses associated with the plans or acquisitions, inadequate return of capital, and unidentified issues not discovered in due diligence. Investments in these positions also may involve securities that are not very liquid. As a result of the risks inherent in new ventures, there can be no assurance that any such venture will be successful, or that new ventures will not have a material adverse impact on the Company’s financial position and its results of operations.

The Company engages in hedging activities which expose it to risks. The Company for corporate purposes and also as part of its energy trading activities, may use futures and swaps to hedge risks, such as escalation in fuel costs, agricultural materials, movements in foreign exchange rates and interest rates. The Company may also purchase inventory in larger than usual levels to lock in costs when it believes there may be large increases in the price of raw materials or other materials used in its businesses. Such purchases expose the Company to risks of meeting margin calls and drawing on its capital, counterparty risk due to failure of an exchange or institution with which it has done a swap, incurring higher costs than competitors or similar businesses that do not engage in such strategies, and losses on its investment portfolio. Such strategies can also cause earnings to be volatile.

The Company’s operations in the U.S. Gulf of Mexico have been adversely impacted by the Deepwater Horizon drilling rig accident and resulting oil spill. On April 22, 2010, the Deepwater Horizon, a semi-submersible deepwater drilling rig operating in the U.S. Gulf of Mexico, sank after an apparent blowout and fire resulting in a significant flow of hydrocarbons from the BP Macondo well (the “Deepwater Horizon/BP Macondo Well Incident”). The Company’s Offshore Marine Services and Aviation Services segments have extensive operations in the U.S. Gulf of Mexico, which, along with those of certain of its customers, may be adversely impacted by, among other factors:

 

   

the previously imposed drilling moratorium by the U.S. Department of the Interior that directed lessees and operators to cease drilling all new deepwater wells on federal leases in the U.S. Gulf of Mexico, the additional safety and certification requirements for drilling activities imposed for the approval of

 

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development and production activities and the delayed approval of applications to drill in both deep and shallow-water areas;

 

   

the suspension, stoppage or termination by customers of existing contracts and the demand by customers for new or renewed contracts in the U.S. Gulf of Mexico and other affected regions;

 

   

unplanned customer suspensions, cancellations, rate reductions or non-renewals of commitments to charter vessels and aviation equipment or failures to finalize commitments to charter vessels and aviation equipment;

 

   

new or additional government regulations or laws concerning drilling operations in the U.S. Gulf of Mexico and other regions; and

 

   

the cost or availability of relevant insurance coverage.

Any one or a combination of these factors could reduce revenues, increase operating costs and have a material adverse effect on the Company’s financial position and its results of operations.

The Company could incur liability in connection with providing spill response services. The Company may incur increased legal fees and costs in connection with providing spill and emergency response services, including the Company’s involvement in response to the Deepwater Horizon/BP Macondo Well Incident. Several of the Company’s business segments are currently defendants in litigation arising from the Deepwater Horizon/BP Macondo Well Incident and the Company expects it may be named in additional litigation regarding its response services. Although companies are generally exempt in the United States from liability under the CWA for their own actions and omissions in providing spill response services, this exemption might not apply if a company were found to have been grossly negligent or to have engaged in willful misconduct, or if it were to have failed to provide these services consistent with the National Contingency Plan or as otherwise directed under the CWA. In addition, the exemption under the federal CWA would not protect a company against liability for personal injury or wrongful death claims, or against prosecution under other federal or state laws. All of the coastal states of the United States in which the Company provides services have adopted similar exemptions, however, several inland states have not. If a court or other applicable authority were to determine that the Company does not benefit from federal or state exemptions from liability in providing emergency response services, or if the other defenses asserted by the Company and its business segments are rejected, the Company could be liable together with the local contractor and the responsible party for any resulting damages, including damages caused by others, subject to the indemnification provisions and other liability terms and conditions negotiated with its domestic clients. In the international market, the Company does not benefit from the spill response liability protection provided by the CWA and, therefore, is subject to the liability terms and conditions negotiated with its international clients, in addition to any other defenses available to the Company and its business segments. In connection with claims relating to clean-up operations following the Deepwater Horizon/BP Macondo Well Incident, the responsible party acknowledged and agreed to indemnify and defend one of the Company’s business segments pursuant and subject to certain contractual agreements.

If Congress repeals the $75.0 million cap for non-reclamation liabilities under OPA 90 or otherwise scales back the protections afforded to contractors thereunder, there may be increased exposure for remediation work and the cost for securing insurance for such work may become prohibitively expensive. Without affordable insurance and appropriate legislative regulation limiting liability, drilling, exploration, remediation and further investment in oil and gas exploration in the U.S. Gulf of Mexico may be discouraged and thus reduce the demand for the Company’s services.

Negative publicity may adversely impact the Company. Media coverage and public statements that insinuate improper actions by the Company, regardless of their factual accuracy or truthfulness, may result in negative publicity, litigation or governmental investigations by regulators. Addressing negative publicity and any resulting litigation or investigations may distract management, increase costs and divert resources. Negative publicity may have an adverse impact on the Company’s reputation and the morale of its employees, which could adversely affect the Company’s financial position and its results of operations.

 

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Increased domestic and international laws and regulations may adversely impact the Company. Changes in laws or regulations regarding offshore oil and gas exploration and development activities, including the previously imposed drilling moratorium issued by the U.S. Department of the Interior directing lessees and operators to cease drilling all new deepwater wells on federal leases in the U.S. Gulf of Mexico, may increase the cost or availability of insurance coverage and may influence decisions by customers or other industry participants that could reduce the demand for the Company’s services, which would have a negative impact on the Company’s Offshore Marine Services and Aviation Services segments.

Risks from the Company’s international operations. The Company operates vessels, leases helicopters, provides environmental services and transacts other business worldwide. Its ability to compete in the international offshore energy support market and environmental services market may be adversely affected by foreign government regulations that favor or require the awarding of contracts to local competitors, or that require foreign persons to employ citizens of, or purchase supplies from, a particular jurisdiction. Further, the Company’s foreign subsidiaries may face governmentally imposed restrictions on their ability to transfer funds to their parent company.

Activity outside the United States involves additional risks, including the possibility of:

 

   

United States embargoes or restrictive actions by U.S. and foreign governments that could limit the Company’s ability to provide services in foreign countries;

 

   

A change in, or the imposition of, withholding or other taxes on foreign income, tariffs or restrictions on foreign trade and investment;

 

   

limitations on the repatriation of earnings or currency exchange controls and import/export quotas;

 

   

local cabotage and local ownership laws and requirements;

 

   

nationalization, expropriation, asset seizure, blockades and blacklisting;

 

   

limitations in the availability, amount or terms of insurance coverage;

 

   

loss of contract rights and inability to enforce contracts;

 

   

political instability, war and civil disturbances or other risks that may limit or disrupt markets, such as terrorist attacks, piracy and kidnapping;

 

   

fluctuations in currency exchange rates, hard currency shortages and controls on currency exchange that affect demand for the Company’s services and its profitability;

 

   

potential noncompliance with a wide variety of laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), and similar non-U.S. laws and regulations, including the U.K. Bribery Act 2010;

 

   

labor strikes;

 

   

changes in general economic and political conditions; and

 

   

difficulty in staffing and managing widespread operations.

Unstable political, military and economic conditions in foreign countries where a significant proportion of Offshore Marine Services’ operations are conducted could adversely impact the Company’s business. During the year ended December 31, 2011, approximately 69% of Offshore Marine Services’ operating revenues resulted from its foreign operations. These operations are subject to risks, including potential vessel seizure, terrorist attacks, piracy, kidnapping, nationalization of assets, currency restrictions, import or export quotas and other forms of public and government regulation, all of which are beyond the Company’s control. Economic sanctions or an oil embargo, for example, could have significant impact on activity in the oil and gas industry and, correspondingly, on the Company should Offshore Marine Services operate vessels in a country subject to any sanctions or embargo, or in the surrounding region to the extent any sanctions or embargo disrupts its operations.

 

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Offshore Marine Services, Marine Transportation Services, Aviation Services and Commodity Trading and Logistics rely on several customers for a significant share of their revenues, the loss of any of which could adversely affect each of their businesses and operating results. The portion of Offshore Marine Services’, Marine Transportation Services’, Aviation Services’ and Commodity Trading and Logistics’ revenues attributable to any single customer may change over time, depending on the level of relevant activity by any such customer, the segment’s ability to meet the customer’s needs and other factors, many of which are beyond the Company’s control. The loss of any large customer or several mid-size customers could have a material and adverse effect on such segment’s or the Company’s financial position or its results of operations.

Consolidation of the Company’s customer base could adversely affect demand for its services and reduce its revenues. In recent years, oil and natural gas companies, energy companies and drilling contractors have undergone substantial consolidation and additional consolidation is possible. Consolidation results in fewer companies to charter or contract for the Company’s services. Also, merger activity among both major and independent oil and natural gas companies affects exploration, development and production activity as the consolidated companies integrate operations to increase efficiency and reduce costs. Less promising exploration and development projects of a combined company may be dropped or delayed. Such activity may result in an exploration and development budget for a combined company that is lower than the total budget of both companies before consolidation, which could adversely affect demand for the Company’s Offshore Marine Services’ vessels, Marine Transportation Services’ tankers, Aviation Services’ helicopters and Environmental Services’ products and services, thereby reducing the Company’s revenues.

The Company may be unable to maintain or replace its offshore support vessels as they age. As of December 31, 2011, the average age of the Company’s Offshore Marine Services’ vessels, excluding its standby safety and wind farm utility vessels, was approximately 11 years. The Company believes that after an offshore support vessel has been in service for approximately 20 years, the expense (which typically increases with age) necessary to satisfy required marine certification standards may not be economically justifiable. The Company may be unable to carry out drydockings of its vessels or may be limited by insufficient shipyard capacity, which could adversely affect its ability to maintain its vessels. In addition, market conditions may not justify these expenditures or enable the Company to operate its older vessels profitably during the remainder of their economic lives. There can be no assurance that the Company will be able to maintain its fleet by extending the economic life of existing vessels, or that its financial resources will be sufficient to enable it to make expenditures necessary for these purposes or to acquire or build replacement vessels.

An increase in the supply of offshore support vessels or tankers could have an adverse impact on the charter rates earned by the Company’s offshore support vessels and tankers. Expansion of the supply of the worldwide offshore support vessel fleet would increase competition in the markets in which Offshore Marine Services operates. The refurbishment of disused or “mothballed” vessels, conversion of vessels from uses other than oil and gas exploration and production support and related activities or construction of new vessels could all add vessel capacity to current worldwide levels. A significant increase in vessel capacity could lower charter rates and result in lower operating revenues. Similarly, should competitors in the domestic petroleum and chemical product tanker industry construct a significant number of new tankers or large capacity integrated or articulated tug and barge units, demand for tanker assets could be adversely affected.

If the Company does not restrict the amount of foreign ownership of its Common Stock, it could be prohibited from operating offshore support vessels, inland river vessels and barges and tankers in the United States and could be prohibited from operating helicopters, which would adversely impact its business and operating results. The Company is subject to the Jones Act, which governs, among other things, the ownership and operation of offshore support vessels, tankers and barges used to carry cargo between U.S. ports. The Jones Act requires that vessels engaged in the U.S. coastwise trade be built in the United States, registered under the U.S. flag, manned by predominantly U.S. crews, and owned and operated by U.S. citizens within the meaning of

 

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the Jones Act. The Company is also subject to regulations pursuant to the Federal Aviation Act and other statutes (“Aviation Acts”). Generally, aircraft operating in the United States must be registered in the United States. In order to register such aircraft under the Aviation Acts, the Company must be owned or controlled by U.S. citizens. Although SEACOR’s Restated Certificate of Incorporation and by-laws contain provisions intended to assure compliance with these provisions of the Jones Act and the Aviation Acts, a failure to maintain compliance would adversely affect the Company’s financial position and its results of operations and the Company would be prohibited from operating vessels in the U.S. coastwise trade and helicopters in the United States during any period in which the Company does not comply or cannot demonstrate to the satisfaction of the relevant governmental authorities the Company’s compliance with the Jones Act and the Aviation Acts. In addition, the Company could be subject to fines and its vessels could be subject to seizure and forfeiture for violations of the Jones Act and the related U.S. vessel documentation laws.

Repeal, Amendment, Suspension or Non-Enforcement of the Jones Act would result in additional competition for Offshore Marine Services, Marine Transportation Services and Inland River Services and could have a material adverse effect on the Company’s business. A substantial portion of the operations of Offshore Marine Services, Marine Transportation Services and Inland River Services are conducted in the U.S. coastwise trade. Subject to limited exceptions, the Jones Act requires that vessels engaged in U.S. coastwise trade be built in the United States, registered under the U.S. flag, manned by predominantly U.S. crews, and owned and operated by U.S. citizens within the meaning of the Jones Act. There have been attempts to repeal or amend such provisions, and such attempts are expected to continue in the future. Repeal, substantial amendment or wavier of such provisions would result in additional competition from vessels built in lower-cost foreign shipyards, owned and manned by foreign nationals with promotional foreign tax incentives and with lower wages and benefits than U.S. citizens, which could have a material adverse effect on the Company’s business, financial position and its results of operations. In addition, the Company’s advantage as a U.S.-citizen operator of Jones Act vessels could be eroded by periodic efforts and attempts by foreign interests to circumvent certain aspects of the Jones Act. If maritime cabotage services were included in the General Agreement on Trade in Services, the North American Free Trade Agreement or other international trade agreements, or if the restrictions contained in the Jones Act were otherwise altered, the shipping of maritime cargo between covered U.S. ports could be opened to foreign-flag or foreign-built vessels.

Restrictions on foreign ownership of the Company’s vessels could limit its ability to sell off any portion of its business or result in the forfeiture of its vessels. Compliance with the Jones Act requires that non-U.S. citizens own no more than 25% in the entities that directly or indirectly own the vessels that the Company operates in the U.S. coastwise trade. If the Company were to seek to sell any portion of its business that owns any of these vessels, it would have fewer potential purchasers, since some potential purchasers might be unable or unwilling to satisfy the U.S. citizenship restrictions described above. As a result, the sales price for that portion of the Company’s business may not attain the amount that could be obtained in an unregulated market. Furthermore, if at any point the Company or any of the entities that directly or indirectly own its vessels cease to satisfy the requirements to be a U.S. citizen within the meaning of the Jones Act, the Company would become ineligible to operate in the U.S. coastwise trade and may become subject to penalties and risk forfeiture of its vessels.

SEACOR’s certificate of incorporation limits the ownership of Common Stock by individuals and entities that are not U.S. citizens within the meaning of the Jones Act. These restrictions may affect the liquidity of the SEACOR’s Common Stock and may result in non-U.S. citizens being required to sell their shares at a loss or relinquish their voting, dividend and distribution rights. Under the Jones Act, at least 75% of the outstanding shares of each class or series of SEACOR’s capital stock must be owned and controlled by U.S. citizens within the meaning of the Jones Act. Certain provisions of SEACOR’s certificate of incorporation are intended to facilitate compliance with this requirement and may have an adverse effect on holders of shares of the Common Stock.

 

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Under the provisions of SEACOR’s Restated Certificate of Incorporation, the aggregate percentage of ownership by non-U.S. citizens of any class of SEACOR’s capital stock (including Common Stock) is limited to 22.5% of the outstanding shares of each such class to ensure that such foreign ownership will not exceed the maximum percentage permitted by the Jones Act, which is presently 25%. (The Restated Certificate of Incorporation authorizes SEACOR’s Board of Directors, under certain circumstances, to increase the foregoing permitted percentage to 24%.) The Restated Certificate of Incorporation further provides that any issuance or transfer of shares to non-U.S. citizens in excess of such permitted percentage shall be ineffective as against the Company and that neither the Company nor its transfer agent shall register such purported issuance or transfer of shares to non-U.S. citizens or be required to recognize the purported transferee or owner as a stockholder of the Company for any purpose whatsoever except to exercise the Company’s remedies. Any such excess shares in the hands of a non-U.S. citizen shall not have any voting or dividend rights and are subject to redemption by the Company in its discretion. The liquidity or market value of the shares of common stock may be adversely impacted by such transfer restrictions.

As a result of the above provisions, a proposed transferee of the Common Stock that is a non-U.S. citizen may not receive any return on its investment in shares it purportedly purchases or owns, as the case may be, and it may sustain a loss. The Company, in its discretion, is entitled to redeem all or any portion of such shares most recently acquired (as determined by its Board of Directors in accordance with guidelines that are set forth in its Restated Certificate of Incorporation), by non-U.S. citizens, in excess of such maximum permitted percentage for such class or series at a redemption price based on a fair market value formula that is set forth in the Company’s Restated Certificate of Incorporation, which may be paid in cash or promissory notes at the discretion of the Company. Such excess shares shall also not be accorded any voting, dividend or distribution rights until they have ceased to be excess shares, provided that they have not been already redeemed by the Company. As a result of these provisions, a purported stockholder who is a non-U.S. citizen may be required to sell its shares of Common Stock at an undesirable time or price and may not receive any return on its investment in such shares. Further, the Company may have to incur additional indebtedness, or use available cash (if any), to fund all or a portion of such redemption, in which case the Company’s financial condition may be materially weakened.

So that the Company may ensure its compliance with the Jones Act, its Restated Certificate of Incorporation permits it to require that owners of any shares of its capital stock provide confirmation of their citizenship. In the event that a person does not submit such documentation to the Company, its Restated Certificate of Incorporation provides the Company with certain remedies, including the suspension of the payment of dividends and distributions with respect to those shares into an escrow account. As a result of non-compliance with these provisions, an owner of the shares of the Company’s Common Stock may lose significant rights associated with those shares.

In addition to the risks described above, the foregoing foreign ownership restrictions could delay, defer or prevent a transaction or change in control that might involve a premium price for the Company’s Common Stock or otherwise be in the best interest of the Company’s stockholders.

If non-U.S. citizens own more than 22.5% of SEACOR’s Common Stock, the Company may not have the funds or the ability to redeem any excess shares and it could be forced to suspend its operations in the U.S. coastwise trade. SEACOR’s Restated Certificate of Incorporation contains provisions prohibiting ownership of its Common Stock by non-U.S. citizens, in the aggregate, in excess of 22.5% of such shares. In addition, the Restated Certificate of Incorporation permits the Company to redeem such excess shares. The per share redemption price may be paid, as determined by the Company’s Board of Directors, by cash or promissory notes. However, the Company may not be able to redeem such excess shares for cash because its operations may not have generated sufficient excess cash flow to fund such redemption. If, for any reason, the Company is unable to effect such a redemption when such ownership of shares by non-U.S. citizens is in excess of 25.0% of the Common Stock, or otherwise prevent non-U.S. citizens in the aggregate from owning shares in excess of 25.0% of any such class or series of the Company’s capital stock, or fail to exercise its redemption rights because it is unaware that such ownership exceeds such percentage, the Company will likely be unable to comply with the

 

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Jones Act and will likely be required by the applicable governmental authorities to suspend its operations in the U.S. coastwise trade. Any such actions by governmental authorities would have a severely detrimental impact on the Company’s financial position and its results of operations.

The Outer Continental Shelf Lands Act, as amended, provides the federal government with broad discretion in regulating the leasing of offshore resources for the production of oil and gas. Because Offshore Marine Services’ and Aviation Services’ operations rely on offshore oil and gas exploration and production, the government’s exercise of authority under the provisions of the Outer Continental Shelf Lands Act to restrict the availability of offshore oil and gas leases could have a material adverse effect on the Company’s financial position and its results of operations.

Operational risks could disrupt operations and expose the Company to liability. The operation of offshore support vessels, tankers, roll-on/roll-off vessels, inland river towboats, tugs, helicopters, oil spill response vessels and barges is subject to various risks, including catastrophic disaster, adverse weather, mechanical failure and collision. Additional risks to vessels include adverse sea conditions, capsizing, grounding, oil and hazardous substance spills and navigation errors. These risks could endanger the safety of the Company’s personnel, equipment, cargo and other property, as well as the environment. If any of these events were to occur, the Company could be held liable for resulting damages, including loss of revenues from or termination of charter contracts, higher insurance rates, and damage to the Company’s reputation and customer relationships. In addition, the affected vessels or helicopters could be removed from service and would then not be available to generate revenues.

Operational risks related to Aviation Services including, but not limited to, safety issues with respect to certain helicopter models and equipment failure could adversely impact results of operations and in some instances, expose the Company to liability. Risks relating to the operation of helicopters include harsh weather and marine conditions, mechanical failures, crashes, and collisions, which may result in personal injury, loss of life, damage to property and equipment, and the suspension or reduction of operations. The Company’s aircraft have been involved in accidents in the past, some of which have included loss of life and property damage. The Company may experience similar accidents in the future. If the Company or other operators experience incidents with helicopter models that the Company operates or contract-leases, obligating the Company to take such helicopters out of service until the cause of the incidents is rectified, the Company would lose revenue and might lose customers. In addition, safety issues experienced by a particular model of helicopter could result in customers refusing to use a particular helicopter model or a regulatory body grounding that particular helicopter model. The value of the helicopter model might also be permanently reduced in the market if the model were to be considered less desirable for future service.

Helicopter operations involve risks that may not be covered by the Company’s insurance or the Company’s insurance may be inadequate to protect it from the liabilities that could arise. The operation of helicopters inherently involves a degree of risk. Hazards include adverse weather conditions, collisions, fire and mechanical failures, which may result in death or injury to personnel, damage to equipment, loss of operating revenues, contamination of cargo, pollution and other environmental damages and increased costs. The Company also is exposed to liabilities including aviation malfunctions and crashes, FAA and foreign aviation regulation compliance, including grounding certain aircraft, and environmental compliance. The Company also may be adversely affected by accidents involving aircraft that it does not own or operate, particularly if they involve the same model of aircraft as in the Company’s fleet. The Company carries insurance, including hull and liability, liability and war risk, general liability, workers’ compensation, and other insurance customary in the industry in which it operates. The Company also conducts training and safety programs to promote a safe working environment and minimize hazards. The Company’s insurance coverage is subject to deductibles and maximum coverage amounts. The Company’s insurance policies are also subject to compliance with certain conditions, the failure of which could lead to a denial of coverage as to a particular claim or the voiding of a particular insurance policy. The amount of insurance coverage the Company is able to maintain may be inadequate to cover all potential liabilities or the total amount of insured claims and liabilities. The Company cannot assure that its existing insurance coverage can be renewed at commercially reasonable rates or that it will be possible to obtain

 

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insurance to protect against all of its operational risks and liabilities. Any material liability not covered by insurance or for which third-party indemnification is not available, would have a material adverse effect on the Company’s financial condition, results of operations and/or cash flows.

Revenues from Aviation Services are dependent on flight hours, which are subject to adverse weather conditions and seasonality. A significant portion of the Company’s revenues from Aviation Services is dependent on actual flight hours. Prolonged periods of adverse weather, storms and the effect of fewer hours of daylight adversely impact Aviation Services. Winter months generally have more days of adverse weather conditions than the other months of the year, with poor visibility, high winds, heavy precipitation and fewer daylight hours, all of which adversely affect helicopter operations. In addition, June through November is tropical storm season in the U.S. Gulf of Mexico; during tropical storms, helicopters are unable to operate in the area of a storm. In addition, many of Aviation Services’ facilities are located along the U.S. Gulf of Mexico coast, and tropical storms may cause damage to its property.

The helicopter industry is subject to intense competition. The helicopter industry is highly competitive and involves an aggressive bidding process among providers having the necessary equipment, operational experience and resources. The Company must provide safe and efficient service or risk losing customers or the termination of contracts, which could result in lost market share and have a material adverse effect on the Company’s financial position and its results of operations.

Consolidation in the aircraft parts industry could affect the service and operation of Aviation Services’ helicopters. A reduction in the number of approved parts suppliers or a consolidation in the spare parts redistribution market could interrupt or delay the supply of aircraft components, adversely affecting Aviation Services’ ability to meet service commitments to customers and could cause Aviation Services to lose opportunities with existing and future customers. Aviation Services might not be able to qualify or identify alternative suppliers in a timely fashion, or at all. Consolidations involving suppliers could further reduce the number of alternatives for Aviation Services and affect the cost of components. An increase in the cost of components could make Aviation Services less competitive and result in lower margins.

Revenues from Marine Transportation Services could be adversely affected by a decline in demand for domestic refined petroleum products, crude oil or chemical products, or a change in existing methods of delivery. A reduction in domestic consumption of refined petroleum products, crude oil or chemical products, the development of alternative methods of delivery of refined petroleum, crude oil, and a reduction in domestic refining capacity could reduce demand for the Company’s services.

Construction of additional refined petroleum product, natural gas or crude oil pipelines could have a material adverse effect on Marine Transportation Services’ revenues. Long-haul transportation of refined petroleum products, crude oil and natural gas is generally less costly by pipeline than by tanker. Existing pipeline systems are either insufficient to meet demand in, or do not reach all of, the markets served by Marine Transportation Services’ tankers. The construction and operation of new pipeline segments to the Florida market could have a material and adverse effect on Marine Transportation Services’ business.

The Company is subject to complex laws and regulations, including environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business. Increasingly stringent federal, state, local and international laws and regulations governing worker safety and health and the manning, construction and operation of vessels significantly affect the Company’s operations. Many aspects of the marine industry are subject to extensive governmental regulation by the USCG, Occupational Safety and Health Administration (“OSHA”), the National Transportation Safety Board (“NTSB”) and the U.S. Customs and Border Protection, and to regulation by port states and class society organizations, such as the American Bureau of Shipping, as well as to international regulations from international treaties, such as the Safety of Life at Sea convention administered by port states and class societies. The USCG, OSHA and NTSB set safety standards and are authorized to investigate vessel accidents and recommend improved safety standards. The U.S. Customs and Boarder Protection and USCG are authorized to inspect vessels at will.

 

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The Company’s business and operations are also subject to federal, state, local and international laws and regulations that control the discharge of oil and hazardous materials into the environment or otherwise relate to environmental protection and occupational safety and health. Compliance with such laws and regulations may require installation of costly equipment or operational changes, and the phase-out of certain product tankers. Failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of the Company’s operations. Some environmental laws impose strict and, under certain circumstances, joint and several liability for remediation of spills and releases of oil and hazardous materials and damage to natural resources, which could subject the Company to liability without regard to whether it was negligent or at fault. These laws and regulations may expose the Company to liability for the conduct of or conditions caused by others, including charterers. Moreover, these laws and regulations could change in ways that substantially increase the Company’s costs. The Company cannot be certain that existing laws, regulations or standards, as currently interpreted or reinterpreted in the future, or future laws and regulations will not have a material adverse effect on its business, results of operations and financial condition. For more information, see Item 1. “Government Regulation – Environmental Compliance.”

Emergency response revenues are subject to significant volatility. Environmental Services’ response revenues and profitability are event driven and can vary greatly from quarter-to-quarter and year-to-year based on the number and magnitude of responses.

A change in oil spill regulation could reduce demand for Environmental Services’ emergency response services. Environmental Services is dependent upon regulations promulgated under OPA 90, international conventions and, to a lesser extent, local regulations. A change in emergency regulations and/or increased competition from non-profit competitors could decrease demand for Environmental Services’ emergency response services and/or increase costs without a commensurate increase in revenue.

A relaxation of oil spill regulation or enforcement could reduce demand for Environmental Services’ emergency response services. Environmental Services is dependent upon the enforcement of regulations promulgated under OPA 90, international conventions and, to a lesser extent, local regulations. Less stringent emergency regulations or less aggressive enforcement of these regulations could decrease demand for Environmental Services’ emergency response services. There can be no assurance that oil spill regulation will not be relaxed or enforcement of existing or future regulation will not become less stringent. If this happens, the demand for Environmental Services’ emergency response services could be adversely impacted.

A change in, or revocation of, National Response Corporation’s classification as an Oil Spill Removal Organization could result in a loss of business. The National Response Corporation (“NRC”) is classified by the USCG as an Oil Spill Removal Organization (“OSRO”). The USCG classifies OSROs based on their overall ability to respond to various types and sizes of oil spills. USCG-classified OSROs have a competitive advantage over non-classified service providers because customers of a classified OSRO may cite classified OSROs in their response plans in lieu of listing their oil spill response resources in filings with the USCG. A loss of NRC’s classification or changes in the requirements for classification could eliminate or diminish NRC’s ability to provide customers with this exemption. If this happens, Environmental Services could lose customers.

Environmental Services could incur liability in connection with providing spill response services. Although Environmental Services is generally exempt in the United States from liability under the CWA for its own actions and omissions in providing spill response services, this exemption might not apply if it were found to have been grossly negligent or to have engaged in willful misconduct, or if it were to have failed to provide these services consistent with applicable regulations and directives under the CWA. In addition, the exemption under the federal CWA would not protect Environmental Services against liability for personal injury or wrongful death, or against prosecution under other federal or state laws. Although most of the states within the United States in which Environmental Services provides services have adopted similar exemptions, several states have not. If a court or other applicable authority were to determine that Environmental Services does not benefit from federal or state exemptions from liability in providing emergency response services, Environmental

 

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Services could be liable together with the local contractor and the responsible party for any resulting damages, including damages caused by others. In the international market, Environmental Services does not benefit from the spill response liability protection provided by the CWA and therefore is subject to the liability terms and conditions negotiated with its international clients.

Inland River Services could experience variation in freight rates. Freight transportation rates may fluctuate as the volume of cargo and availability of barges change. The volume of freight transported on the Inland River Waterways may vary as a result of various factors, such as global economic conditions and business cycles, domestic and international agricultural production and demand, and foreign currency exchange rates. Barge participation in the industry can also vary year-to-year and is dependent on the number of barges built and retired from service. Extended periods of high barge availability and low cargo demand could adversely impact Inland River Services.

Inland River Services’ results of operations could be adversely affected by the decline in U.S. grain exports. Inland River Services’ business is significantly affected by the volume of grain exports handled through ports in the U.S. Gulf of Mexico. Grain exports can vary due to a number of factors including crop harvest yield levels in the United States and abroad, and the demand for grain in the United States. A shortage of available grain overseas can increase demand for U.S. grain. Conversely, an abundance of grain overseas can decrease demand for U.S. grain. A decline in exports could result in excess barge capacity, which would likely lower freight rates earned by Inland River Services.

Inland River Services’ results of operations could be adversely affected by international economic and political factors. The actions of foreign governments could affect the import and export of the dry-bulk commodities typically transported by Inland River Services. Foreign trade agreements and each country’s adherence to the terms of such agreements can raise or lower demand for U.S. imports and exports of the dry-bulk commodities that Inland River Services transports. National and international boycotts and embargoes of other countries’ or U.S. imports or exports together with the raising or lowering of tariff rates could affect the demand for the transportation of cargos handled by Inland River Services. These actions or developments could have an adverse impact on Inland River Services.

Inland River Services’ results of operations are affected by seasonal activity. Inland River Services’ business is seasonal, and its quarterly revenues and profits have historically been lower in the first and second quarters of the year and higher in the third and fourth quarters, during the grain harvest.

Inland River Services’ results of operations are affected by adverse weather and river conditions. Weather patterns can affect river levels and cause ice conditions during winter months, which can hamper barge navigation. Locks and dams on river systems may be closed for maintenance or other causes, which may delay barge movements. These conditions could adversely impact Inland River Services.

The aging infrastructure on the U.S. Inland River Waterways may lead to increased costs and disruptions in Inland River Services’ operations. Many of the locks and dams on the U.S. Inland River Waterways were built early in the last century, and their age makes them costly to maintain and susceptible to unscheduled maintenance outages. Delays caused by malfunctioning locks and dams could increase Inland River Services’ operating costs and delay the delivery of cargos. Moreover, in the future, increased diesel fuel user taxes could be imposed to fund necessary infrastructure improvements, and such increases may not be recoverable by Inland River Services through pricing increases.

Inland River Services’ results of operations could be materially and adversely affected by fuel price fluctuations. For the most part, Inland River Services purchases towboat and fleeting services from third party vendors. The price of these services can rise when fuel prices escalate and could adversely impact Inland River Services’ results of operation.

 

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The Company’s insurance coverage may be inadequate to protect it from the liabilities that could arise in its businesses. Although the Company maintains insurance coverage against the risks related to its businesses, risks may arise for which the Company may not be insured. Claims covered by insurance are subject to deductibles, the aggregate amount of which could be material. Insurance policies are also subject to compliance with certain conditions, the failure of which could lead to a denial of coverage as to a particular claim or the voiding of a particular insurance policy. There also can be no assurance that existing insurance coverage can be renewed at commercially reasonable rates or that available coverage will be adequate to cover future claims. If a loss occurs that is partially or completely uninsured, the Company could be exposed to substantial liability.

The Company’s global operations are subject to certain foreign currency, interest rate, fixed-income, equity and commodity price risks. The Company is exposed to certain foreign currency, interest rate, fixed-income, equity and commodity price risks. Some of these risks may be hedged, but fluctuations could impact the Company’s financial position and its results of operations. The Company has, and anticipates that it will continue to have, contracts denominated in foreign currencies. It is often not practicable for the Company to effectively hedge the entire risk of significant changes in currency rates during a contract period. The Company’s financial position and its results of operations have been negatively impacted for certain periods and positively impacted for other periods, and may continue to be affected to a material extent by the impact of foreign currency exchange rate fluctuations. The Company’s financial position and its results of operations may also be affected by the cost of hedging activities that the Company undertakes. The Company holds a large proportion of its net assets in cash equivalents and short-term investments, including a variety of public and private debt and equity instruments. Such investments subject the Company to risks generally inherent in the capital markets. Given the relatively high proportion of the Company’s liquid assets relative to its overall size, its financial position and its results of operations may be materially affected by the results of the Company’s capital management and investment activities and the risks associated with those activities. Volatility in the financial markets and overall economic uncertainty also increase the risk that the actual amounts realized in the future on the Company’s debt and equity instruments could differ significantly from the fair values currently assigned to them. In addition, changes in interest rates may have an adverse impact on the Company’s financial position and its results of operations.

Commodity Trading and Logistics’ results of operations may be materially adversely affected by the availability, demand and price of agricultural commodities, weather, disease, government programs, and competition. The availability and price of agricultural commodities may fluctuate widely due to unpredictable factors such as weather, plantings, government programs and policies, changes in global demand resulting from population growth and changes in standards of living, and global production of similar and competitive crops. Reduced supply of agricultural commodities due to weather-related factors or other reasons could adversely affect Commodity Trading and Logistics’ profitability. Reduced supplies of agricultural commodities could limit Commodity Trading and Logistics’ ability to procure, transport, store, process, and merchandise agricultural commodities in an efficient manner. In addition, the availability and price of agricultural commodities can be affected by other factors, such as plant disease, which can result in crop failures and reduced harvests.

Commodity Trading and Logistics’ is subject to economic downturns, political instability and other risks of doing business globally, which could adversely affect operating results. Commodity Trading and Logistics conducts its business in many countries and geographic areas, and plans to expand its business in emerging market areas such as Asia, Africa and parts of the Caribbean. Both developed and emerging market areas are subject to economic downturns and emerging market areas could be subject to more volatile economic, political and market conditions. Such economic downturns and volatile conditions may have a negative impact on Commodity Trading and Logistics’ ability to execute its business strategies and on its financial position and its results of operations. Commodity Trading and Logistics’ results of operations could be affected by changes in trade, monetary and fiscal policies, laws and regulations, and other activities of governments, agencies, and similar organizations, including political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, burdensome taxes and tariffs, enforceability of legal agreements and judgments, and other trade barriers.

 

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Commodity Trading and Logistics is subject to government policies and regulations, in general, and specifically those affecting the agricultural sector and related industries, which could adversely affect its operating results. Agricultural production and trade flows are subject to government policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, incentives and import and export restrictions on agricultural commodities and commodity products, can influence the planting of certain crops, the location and size of crop production, whether unprocessed or processed commodity products are traded, the volume and types of imports and exports, the availability and competitiveness of feedstocks as raw materials, and industry profitability. In addition, international trade disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. Future government policies may adversely affect the supply of, demand for, and prices of Commodity Trading and Logistics’ products, restrict its ability to do business in its existing and target markets, and negatively impact revenues and operating results.

Commodity Trading and Logistics is subject to numerous laws and regulations globally that could adversely affect operating results. Commodity Trading and Logistics is required to comply with the numerous and broad reaching laws and regulations administered by United States federal, state, local, and foreign governmental agencies relating to, but not limited to, the sourcing, transporting, storing and merchandising of agricultural commodities and products. Any failure to comply with applicable laws and regulations could subject Commodity Trading and Logistics to administrative penalties and injunctive relief, civil remedies, including fines, injunctions, and recalls of its products.

Commodity Trading and Logistics’ risk management strategies may not be effective. Commodity Trading and Logistics’ business is affected by counterparty risk including non-performance by suppliers, vendors and counterparties, fluctuations in agricultural commodity prices, transportation costs, energy prices, interest rates, and foreign currency exchange rates. Although Commodity Trading and Logistics may engage in hedging transactions to manage these risks, such transactions may not be successful in mitigating its exposure to these fluctuations and may adversely affect operating results.

The Company’s inability to attract and retain qualified personnel could have an adverse effect on its business. Attracting and retaining skilled personnel across all of the Company’s business segments is an important factor in its future success. The market for the personnel employed is highly competitive and the Company cannot be certain that it will be successful in attracting and retaining qualified personnel in the future.

The failure to successfully complete construction or conversion of the Company’s vessels, repairs, maintenance or routine drydockings on schedule and on budget could adversely affect the Company’s financial position and its results of operations. From time to time, the Company may have a number of vessels under conversion and may plan to construct or convert other vessels in response to current and future market conditions. The Company also routinely engages shipyards to drydock vessels for regulatory compliance and to provide repair and maintenance. Construction and conversion projects and drydockings are subject to risks of delay and cost overruns, resulting from shortages of equipment, lack of shipyard availability, unforeseen engineering problems, work stoppages, weather interference, unanticipated cost increases, inability to obtain necessary certifications and approvals and shortages of materials or skilled labor. A significant delay in either construction or drydockings could have a material adverse effect on contract commitments and revenues with respect to vessels under construction, conversion or undergoing drydockings. Significant cost overruns or delays for vessels under construction, conversion or retrofit could also adversely affect the Company’s financial position and its results of operations.

A Violation of the Foreign Corrupt Practices Act may adversely affect the Company’s business and operations. In order to effectively compete in certain foreign jurisdictions, the Company seeks to establish joint ventures with local operators or strategic partners. As a U.S. corporation, the Company is subject to the regulations imposed by the FCPA, which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or maintaining business. The Company has adopted stringent procedures to enforce compliance with the FCPA, but it may be held liable for

 

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actions taken by its strategic or local partners even though these partners may not be subject to the FCPA. Any determination that the Company has violated the FCPA could have a material adverse effect on its business and results of operations.

An outbreak of any contagious disease, such as H1N1 Flu, may adversely affect the Company’s business and operations. The outbreak of diseases, such as H1N1 Flu, commonly referred to as Swine Flu, has curtailed and may curtail travel to and from certain countries, or geographic regions. Restrictions on travel to and from these countries or other regions due to additional incidences for diseases, such as Swine Flu, could have a material adverse effect on the Company’s business, financial position or its results of operations.

There are risks associated with climate change and environmental regulations. Governments around the world have, in recent years, placed increasing attention on matters affecting the environment and this could lead to new laws or regulations pertaining to climate change, carbon emissions or energy use that in turn could result in a reduction in demand for hydrocarbon-based fuel. Governments could also pass laws or regulations encouraging or mandating the use of alternative energy sources such as wind power and solar energy, which may reduce demand for oil and natural gas and therefore the services provided by the Company. Such initiatives could have a material adverse effect on the Company’s financial position and its results of operations.

Ineffective Internal Controls could impact the Company’s Business and Operating Results: The Company’s internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If the Company fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved controls, or if the Company experiences difficulties in their implementation, the Company’s business and operating results could be harmed and the company could fail to meet its financial reporting obligations.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2. PROPERTIES

Offshore support vessels, helicopters, inland river towboats and barges, and tankers are the principal physical properties owned by the Company and are more fully described in “Offshore Marine Services,” “Aviation Services,” “Inland River Services” and “Marine Transportation Services” and in “Item 1. Business.”

 

ITEM 3. LEGAL PROCEEDINGS

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 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

 

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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. On August 9, 2011, Defendants moved for certain excessive costs, expenses, and attorneys’ fees under 28 U.S.C. § 1927. That motion is fully briefed and a decision is pending. On October 11, 2011, the plaintiffs filed their opening appeal brief with the U.S. Court of Appeals for the Third Circuit. That motion is fully briefed and oral argument is calendared for March 20, 2012. 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.) (the “Robin Case”), in which they assert that support vessels, including vessels owned by the Company, responding to the explosion and resulting fire that occurred aboard the semi-submersible drilling rig, the Deepwater Horizon, were negligent in their efforts to save lives and put out the fire and contributed to the sinking of the Deepwater Horizon and subsequent oil spill. The action now is part of the overall multi-district litigation, In re Oil Spill by the Oil Rig “Deepwater Horizon”, MDL No. 2179 (“MDL”). The complaint seeks compensatory, punitive, exemplary, and other damages. In response to this lawsuit, the Company 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 imposed 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. On October 12, 2011, the Court granted the Company’s motion to dismiss in its entirety, dismissing with prejudice all claims that had been filed against the Company in the limitation actions (with the exception of one claim filed by a Company employee that was not subject to the motion to dismiss). The Court entered final judgments in favor of the Company in the Robin case and each of the limitation actions on November 21, 2011. On December 12, 2011, the claimants appealed each of those judgments to the Unites States Court of Appeals for the Fifth Circuit. A briefing schedule for the appeals has not yet been established. The Company is unable to estimate the potential exposure, if any, resulting from this matter but believes it is without merit and will continue to vigorously defend the action.

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 MDL. 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 MDL. The master complaint naming O’Brien’s and NRC asserts various claims on behalf of a putative 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 on February 28, 2011, O’Brien’s and NRC moved to dismiss all claims against them in the master complaint on legal grounds. On September 30, 2011, the Court granted in part and denied in part the motion to

 

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dismiss that O’Brien’s and NRC had filed (an amended decision was issued on October 4, 2011 that corrected several grammatical errors and non-substantive oversights in the original order). Although the Court refused to dismiss the referenced master complaint in its entirety at that time, the Court did recognize the validity of the “derivative immunity” and “implied preemption” arguments that O’Brien’s and NRC advanced and has directed O’Brien’s and NRC to (i) conduct limited discovery to develop evidence to support those arguments and (ii) then re-assert the arguments. A schedule for such limited discovery and future motion practice has been established by the Court and currently contemplates that O’Brien’s and NRC will file motions re-asserting their derivative immunity and implied preemption arguments on May 18, 2012. The Court did, however, dismiss all state-law claims and certain other claims that had been asserted in the referenced master complaint, and dismissed the claims of all plaintiffs that have failed to allege a legally-sufficient injury. Finally, the Court stated that the plaintiffs could file an amended master complaint and the plaintiffs have indicated that they intend to do so. In addition to the indemnity provided to O’Brien’s, 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 and NRC in connection with these claims in the MDL.

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 MDL. 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. The Company is unable to estimate the potential exposure, if any, resulting from this matter but believes it is without merit and does not expect this matter will have a material effect on the Company’s consolidated financial position or its results of operations.

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 MDL, 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, Halliburton Energy Services, Inc., M-I L.L.C., Weatherford U.S., L.P., and Weatherford International, Inc. have also filed cross-claims against O’Brien’s and NRC for contribution and tort indemnity should they be found liable for any damages in Transocean’s Limitation of Liability Act action and O’Brien’s and NRC have asserted counterclaims against those same parties for identical relief. As provided above, the Company is unable to estimate the potential exposure, if any, resulting from these actions but believes they are without merit and does not expect this matter will have a material effect on the Company’s consolidated financial position or its results of operations.

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

 

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

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Officers of SEACOR serve at the pleasure of the Board of Directors. The name, age and offices held by each of the executive officers of SEACOR as of December 31, 2011 were as follows:

 

Name

   Age     

Position

Charles Fabrikant

     67       Chairman of the Board and an officer and director of SEACOR and several of its subsidiaries. Effective September 2010, Mr. Fabrikant resigned as President and Chief Executive Officer of the Company and was designated Executive Chairman of the Board. Mr. Fabrikant is a Director of Diamond Offshore Drilling, Inc., a contract oil and gas driller, and Hawker Pacific Airservices, Limited, an aviation sales product support company. In addition, he is President of Fabrikant International Corporation, a privately owned corporation engaged in marine investments. Fabrikant International Corporation may be deemed an affiliate of SEACOR.

Oivind Lorentzen

     61       Chief Executive Officer since September 2010. From June 1990 to September 2010, Mr. Lorentzen was President of Northern Navigation America, Inc., an investment management and ship-owning agency company concentrating in specialized marine transportation and ship finance. Mr. Lorentzen is also a director of Genessee & Wyoming Inc., an owner of short line and regional freight railroads and a director of Blue Danube, Inc., an inland marine service provider.

Dick Fagerstal

     51       Senior Vice President, Corporate Development and Finance of SEACOR since February 2003. Mr. Fagerstal served as Treasurer from May 2000 to November 2008. From August 1997 to February 2003, he served as Vice President of Finance. In addition, Mr. Fagerstal is an officer and director of certain SEACOR subsidiaries.

Paul Robinson

     44       Senior Vice President, General Counsel and Corporate Secretary of SEACOR since November 2007. From 1999 through June 2007, Mr. Robinson held various positions at Comverse Technology, Inc., including Chief Operating Officer, Executive Vice President, General Counsel and Corporate Secretary. In addition, Mr. Robinson is an officer and director of certain SEACOR subsidiaries.

Richard Ryan

     57       Senior Vice President of SEACOR since November 2005 and, from September 2005 to November 2005, was Vice President. Mr. Ryan has been Chief Financial Officer since September 2005. From December 1996, when he joined SEACOR, until June 2002, Mr. Ryan was International Controller and, from July 2002 until becoming Chief Financial Officer, served as Managing Director of SEACOR Marine (International) Ltd. In addition, Mr. Ryan is an officer and director of certain SEACOR subsidiaries.

Matthew Cenac

     46       Vice President and Chief Accounting Officer of SEACOR since September 2005. From June 2003 to August 2005, Mr. Cenac was Corporate Controller of SEACOR. In addition, Mr. Cenac is an officer and director of certain SEACOR subsidiaries.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for the Company’s Common Stock

SEACOR’s Common Stock trades on the New York Stock Exchange (“NYSE”) under the trading symbol “CKH.” Set forth in the table below for the periods presented are the high and low sale prices for SEACOR’s Common Stock.

 

     HIGH      LOW  

Fiscal Year Ending December 31, 2012:

     

First Quarter (through February 17, 2012)

   $ 99.24       $ 85.88   

Fiscal Year Ending December 31, 2011:

     

First Quarter

   $ 113.20       $ 90.74   

Second Quarter

   $ 101.25       $ 91.17   

Third Quarter

   $ 109.50       $ 80.03   

Fourth Quarter

   $ 91.63       $ 75.04   

Fiscal Year Ending December 31, 2010:

     

First Quarter

   $ 81.79       $ 69.88   

Second Quarter

   $ 92.23       $ 67.01   

Third Quarter

   $ 88.09       $ 68.39   

Fourth Quarter

   $ 116.00       $ 82.39   

As of February 17, 2012, there were 926 holders of record of Common Stock.

SEACOR’s Board of Directors declared a Special Cash Dividend of $15.00 per common share payable to shareholders of record on December 14, 2010, which was paid on or about December 21, 2010. Any payment of future dividends will be at the discretion of SEACOR’s Board of Directors and will depend upon, among other factors, the Company’s earnings, financial condition, current and anticipated capital requirements, plans for expansion, level of indebtedness and contractual restrictions, including the provisions of the Company’s revolving credit facility or other then-existing indebtedness. The payment of future cash dividends, if any, would be made only from assets legally available.

 

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Performance Graph

Set forth in the graph below is a comparison of the cumulative total return that a hypothetical investor would have earned assuming the investment of $100 over the five-year period commencing on December 31, 2006 in (i) the Common Stock of the Company, (ii) the Standard & Poor’s 500 Stock Index (“S&P 500”) and (iii) the Simmons Offshore Transportation Services Index, an index of oil service companies published by Simmons and Company International Limited (the “Simmons Peer Index”).

 

LOGO

 

     December 31,  
     2006      2007      2008      2009      2010      2011  

Company(1)

     100         94         64         77         117         103   

S&P 500(1)

     100         105         66         84         97         99   

Simmons Peer Index(2)

     100         123         59         87         102         98   

 

(1) Assumes the reinvestment of dividends.

 

(2) Simmons Peer Index is calculated as a simple average percentage in share prices and includes the following companies: Bourbon S.A., Bristow Group Inc., PHI Inc., Tidewater Inc., GulfMark Offshore, Inc., Kirby Corporation, Hornbeck Offshore Services, Inc., Solstad Offshore ASA, Farstad Shipping ASA, DOF ASA, Dockwise Ltd., and SEACOR Holdings Inc.

 

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Issuer Repurchases of Equity Securities

SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire Common Stock, which may be acquired through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. During the years ended December 31, 2011, 2010 and 2009, the Company acquired for treasury 843,400, 1,811,700 and 606,576 shares of Common Stock, respectively, for an aggregate purchase price of $71.3 million, $137.1 million and $45.9 million, respectively. As of December 31, 2011, SEACOR had authorization to repurchase $41.8 million of Common Stock. On January 18, 2012, SEACOR’s Board of Directors increased the repurchase authority to $150.0 million.

 

Period

   Total Number of
Shares
Purchased
     Average Price Paid
Per Share(1)
     Total Number of Shares
Purchased as Part of
Publicly  Announced
Plans or Programs
     Maximum Value of
Shares that may Yet
be Purchased under
the Plans or Programs(2)
 

10/01/11 – 10/31/11

           $               $ 113,024,228   

11/01/11 – 11/30/11

     327,900       $ 82.33               $ 86,028,513   

12/01/11 – 12/31/11

     515,500       $ 85.84               $ 41,776,640   

 

(1) Excludes commissions of $42,545 or $0.05 per share.

 

(2) Since February 1997, SEACOR’s Board of Directors has authorized the repurchase of Common Stock, certain debt or a combination thereof. From time to time thereafter, and most recently on January 18, 2012, SEACOR’s Board of Directors increased the authority to repurchase Common Stock.

Sale of Unregistered Equity Securities

In preparing this Annual Report on Form 10-K, the Company discovered that it had inadvertently failed to file with the Securities and Exchange Commission a registration statement relating to shares of Common Stock issuable under the SEACOR Holdings Inc. 2009 Employee Stock Purchase Plan (the “2009 ESPP”). Consequently, the Company inadvertently sold unregistered shares to employees: 19,017 shares on August 31, 2010 at $66.54 per share ($1,265,391); 30,151 shares on February 28, 2011 at $55.46 per share ($1,672,174); and 17,225 shares on August 31, 2011 at $75.43 per share ($1,299,282). Of these, the Company believes that it is able to rely upon an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, with respect to 1,364 shares sold on August 31, 2010, 5,340 shares sold on February 28, 2011, and 201 shares sold on August 31, 2011. On February 23, 2012, the Company filed a registration statement on Form S-8 to register future transactions under the 2009 ESPP. The Company has implemented monitoring and reporting procedures to ensure that in the future the Company timely meets its registration obligations with respect to these and other employee benefit plans.

The failure to file the registration statement noted above was inadvertent, and the Company has always treated the shares issued under the 2009 ESPP as issued and outstanding for financial reporting purposes. Consequently, the unregistered transactions do not represent any additional dilution. The Company believes it has always provided the employee-participants in the plan with the same information they would have received had the registration statement been filed. Nonetheless, the Company may be subject to civil and other penalties by regulatory authorities as a result of the failure to register. Certain purchasers of shares in the unregistered transactions may have the right to rescind their purchases for an amount equal to the purchase price for the shares (or if the shares have been disposed of, to receive damages with respect to any loss on such disposition) plus interest from the date of purchase.

 

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ITEM 6. SELECTED FINANCIAL DATA

SELECTED HISTORICAL FINANCIAL INFORMATION

The following table sets forth, for the periods indicated, selected historical consolidated financial data for the Company (in thousands, except per share data). Such financial data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” included in Parts II and IV, respectively, of this Annual Report on Form 10-K.

 

     Years Ended December 31,  
     2011     2010     2009     2008     2007  

Operating Revenues:

          

Offshore Marine Services

   $ 376,788      $ 515,856      $ 562,291      $ 708,728      $ 692,418   

Aviation Services

     258,148        235,366        235,667        248,627        215,039   

Inland River Services

     187,657        161,697        155,098        144,022        121,248   

Marine Transportation Services

     93,136        76,163        92,866        114,028        116,037   

Environmental Services

     211,636        874,393        145,767        168,030        156,826   

Commodity Trading and Logistics(1)

     955,688        741,896        472,575        208,264        9,600   

Other(2)

     69,928        72,835        64,354        72,881        50,032   

Eliminations and Corporate

     (11,039     (28,838     (17,280     (8,624     (1,970
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,141,942      $ 2,649,368      $ 1,711,338      $ 1,655,956      $ 1,359,230   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

   $ 123,334      $ 408,371      $ 231,827      $ 342,689      $ 347,775   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Income (Expenses):

          

Net interest expense

   $ (27,489   $ (35,068   $ (54,577   $ (40,028   $ (11,813

Other(3)

     (42,451     176        37,764        15,265        7,860   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ (69,940   $ (34,892   $ (16,813   $ (24,763   $ (3,953
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income attributable to SEACOR Holdings Inc.

   $ 41,056      $ 244,724      $ 143,810      $ 218,543      $ 236,819   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings Per Common Share of SEACOR Holdings Inc.:

          

Basic

   $ 1.94      $ 11.43      $ 7.21      $ 10.46      $ 10.06   

Diluted

     1.91        11.25        6.57        9.25        9.04   

Statement of Cash Flows Data – provided by (used in):

          

Operating activities

   $ 206,587      $ 399,417      $ 297,618      $ 291,624      $ 386,901   

Investing activities

     (331,956     19,228        (101,700     (246,424     (109,019

Financing activities

     220,983        (506,511     (6,327     (298,460     (247,240

Effects of exchange rate changes on cash and cash equivalents

     1,959        (8,010     871        (8,603     697   

Capital Expenditures

     (332,312     (250,626     (180,024     (428,478     (537,608

Balance Sheet Data (at period end):

          

Cash and cash equivalents, restricted cash, marketable securities and Title XI and construction reserve funds

   $ 815,754      $ 853,973      $ 857,807      $ 655,803      $ 1,001,721   

Total assets

     3,928,134        3,760,389        3,723,619        3,459,654        3,566,445   

Long-term debt and capital lease obligations, less current portion

     998,518        702,920        755,328        903,374        904,595   

Total SEACOR Holdings Inc. stockholders’ equity

     1,789,607        1,787,237        1,957,262        1,630,150        1,641,940   

 

(1) Commodity Trading and Logistics commenced operations in March 2007.

 

(2) Other primarily includes the operations of Harbor and Offshore Towing Services.

 

(3) Other principally includes gains and losses from debt extinguishment, marketable security, derivative and foreign currency transactions.

 

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FORWARD-LOOKING STATEMENTS

Management’s Discussion and Analysis of Financial Condition and Results of Operations below presents the Company’s operating results for each of the three years in the period ended December 31, 2011, and its financial condition as of December 31, 2011. Except for the historical information contained herein, this Annual Report on Form 10-K and other written and oral statements that the Company makes from time to time contain forward-looking statements, which involve substantial 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 expressed or implied by such forward-looking statements. The Company has tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “believe,” “plan,” “target,” “forecast” and similar expressions in connection with any discussion of future operating or financial performance. Among the factors that could cause actual results to differ materially are those discussed in “Risks, Uncertainties and Other Factors That May Affect Future Results” in Item 1A of this Annual Report on Form 10-K. In addition, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in connection with the information presented in the Company’s consolidated financial statements and the related notes to its consolidated financial statements included in Part IV of this Annual Report on Form 10-K.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

SEACOR and its subsidiaries are in the business of owning, operating, investing in and marketing equipment, primarily in the offshore oil and gas, industrial aviation and marine transportation industries. The Company conducts its activities in six primary business segments:

Offshore Marine Services operates a diversified fleet of offshore support vessels primarily servicing offshore oil and gas exploration, development and production facilities worldwide. On December 22, 2011, Offshore Marine Services acquired a controlling interest in a European based operator of a fleet of wind farm utility vessels operating in the main offshore wind markets of Europe.

Aviation Services operates and contract-leases helicopters that provide transportation services supporting offshore oil and gas activities primarily in the United States, air medical services to hospitals in the United States, and international contract-leasing activities.

Inland River Services is primarily engaged in dry and liquid cargo transportation on the U.S. Inland River Waterways and the Gulf Intracoastal Waterways for a range of agricultural and industrial products.

Marine Transportation Services operates a fleet of U.S.-flag product tankers carrying petroleum, crude oil and chemical products in the U.S. coastwise trade and a fleet of Roll-On/Roll-Off vessels providing cargo transportation services to and from ports in Florida, the Bahamas and the Caribbean.

Environmental Services is primarily engaged in the provision of emergency preparedness and response services to oil, chemical, industrial and marine transportation clients in the United States and abroad.

Commodity Trading and Logistics is an integrated business involved in the purchase, storage, transportation and sale of agricultural and energy commodities.

Other primarily includes Harbor and Offshore Towing Services, various other investments in joint ventures, primarily providing industrial air services, and lending and leasing activities.

 

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The Company’s business segments, with the exception of Environmental Services and Commodity Trading and Logistics, are “asset related” and highly capital-intensive. Demand for the Company’s assets is cyclical in varying degrees due to fluctuations in the activity levels in the industries serviced by those assets, as well as availability of supply.

To manage capital successfully over time, the Company continually assesses its asset portfolio and pursues opportunities to realize value from its assets by shifting their operation to other markets or trading them when circumstances warrant. The Company actively leases-out and leases-in, and buys and sells equipment in the ordinary course of its business. It also designs, orders, builds, upgrades, operates or re-sells newly constructed equipment. The Company typically pursues a strategy of shedding older assets while adjusting its asset mix. The Company also leases assets to other operators and sells assets to financial lessors and leases them back for varying periods of time. The Company believes that maintaining significant liquidity is an important factor that will enable it to take advantage of opportunities as they arise.

In recent years, the Company has sought to create balance in its businesses and broaden its asset base by investing outside the oil and gas industry in barges, ships tugs and wind farm utility vessels, and by looking for opportunities to engage in logistics support for movement of agricultural and energy commodities.

The Company is exploring opportunities to extend its industrial aviation activities through investments in sales, marketing and distribution of aircraft and specialized parts and services, maintenance and repair facilities and fixed base operations. In addition, the Company continues to look to expand in the Chinese and Indian markets.

The Company believes that demand for its barges, tankers, tugs and wind farm utility vessels is, in part, linked to different factors than those that drive demand for offshore oil and gas exploration and development. In addition, for barges and tankers, contracts can sometimes be secured with longer terms than those typically available for offshore marine and helicopter services. The expectation is that over time this strategy of diversification will provide better returns on capital than could be achieved by restricting investment to one specific, highly cyclical, asset class such as vessels supporting offshore oil and gas activity. The Company believes this strategy will afford more opportunities to use capital efficiently, create greater stability of earnings and allow improved margins due to operational synergies that in turn, should yield a lower cost of capital, more sustainable cash flows and increased profitability.

Deepwater Horizon Oil Spill Response

The Company’s operating results for the years ended December 31, 2011 and 2010, were impacted by oil spill response activities relating to the BP Macondo well incident in the U.S. Gulf of Mexico following the sinking of the semi-submersible drilling rig Deepwater Horizon in April 2010 (the “Oil Spill Response”). The impact was material to operating income recorded in both years. In 2010, at the height of the Oil Spill Response, four of the Company’s business segments were actively providing support. Environmental Services provided (i) equipment and people to support clean-up activities on-shore, (ii) professional assistance, consulting services and software systems in support of incident management activities at various strategic locations, and (iii) assistance in the provision of manpower for clean-up operations throughout the region. Offshore Marine Services provided (i) vessels for a variety of functions including vessel decontamination, skimming, lightering, offshore traffic control and accommodation, and (ii) technical and video equipment on vessels engaged in the response to allow for instant tracking of assets and surveillance of operations. Aviation Services provided (i) helicopters for air support to U.S. Coast Guard observers undertaking oil spotting and assessment missions, (ii) transportation for various other officials requiring overflights to assess the response and recovery efforts, and (iii) a flight tracking system to monitor the movement of all marine and aviation assets involved in the response. Harbor and Offshore Towing Services provided tugs engaged in the decontamination of vessels transiting the region. Oil Spill Response activity has continued to significantly diminish since December 31, 2010. During 2011, the Company’s involvement primarily consisted of limited professional services provided by O’Brien’s Response Management Inc., which is part of the Company’s Environmental Services business segment.

 

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As an active participant in the Oil Spill Response, the Company has been named in individual and class action litigations involving environmental damage, business and personal injury claims that may result in financial exposure. For additional information, see “Item 3. Legal Proceedings” included in Part I of this Annual Report on Form 10-K.

In reaction to the Deepwater Horizon/BP Macondo well incident, the U.S. Department of the Interior issued an order on May 28, 2010 imposing a six month moratorium on all offshore deepwater drilling projects. A preliminary injunction was issued on June 22, 2010 blocking enforcement of the moratorium; however, the U.S. Department of Interior issued a new moratorium on July 12, 2010 which was lifted on October 12, 2010. The U.S. Department of Interior has also implemented additional safety and certification requirements for drilling activities, imposed additional requirements for the approval of development and production activities, and delayed the approval of applications to drill in both deepwater and shallow-water areas. The Company’s results, in particular those of its Offshore Marine Services and Aviation Services segments, have been adversely impacted as a consequence of reduced drilling activities in the U.S. Gulf of Mexico. For additional information, see “Item 1A. Risk Factors” included in Part I of this Annual Report on Form 10-K.

Consolidated Results of Operations

Consolidated financial data for segment and geographic areas is reported in Part IV “Note 16. Major Customers and Segment Information” of this Annual Report on Form 10-K.

Offshore Marine Services

The market for offshore oil and gas drilling has historically been cyclical. Demand tends to be linked to the price of oil and gas and those prices tend to fluctuate based on many factors, including global economic activity and levels of reserves. Price levels for oil and gas can in themselves influence demand. In addition to the price of oil and gas, the availability of acreage, local tax incentives or disincentives, and requirements for maintaining interests in leases affect activity in the oil and gas industry. The cyclicality of the market is further exacerbated by the tendency in the industry to order capital assets as demand grows, often resulting in new capacity becoming available just as demand for oil and gas is peaking and activity is about to decline.

Offshore market conditions continued to be weak during 2011. For the majority of 2011, activity in the U.S. Gulf of Mexico market continued to be significantly impacted by the aftermath of the Deepwater Horizon incident in April 2010. Revised procedures for obtaining drilling permits issued by the Bureau of Safety and Environmental Enforcement (“BSEE”), (formerly the Bureau of Ocean Energy Management) resulted in limited demand throughout the year. Although activity levels improved during the final quarter when Offshore Marine Services’ vessels and those of its competitors began returning to work, average day rates are below 2007-2008 levels. Margins are further pressured by escalating operating costs, in particular the market for qualified and experienced crew has become more competitive resulting in higher wage rates. Operators are struggling to man reactivated vessels and to meet customer requirements for higher qualified personnel. The Company expects to see a continuation of the upward trends in activity levels and wage pressures during 2012. In international markets, the delivery of newly built vessels during 2011 has created a situation of oversupply in the North Sea, Asia, Middle East and West Africa regions, which is expected to continue during 2012.

Over the last several years, Offshore Marine Services has disposed of its old generation equipment while taking delivery of new vessels specifically designed to meet the changing requirements of the market. Since December 31, 2005, the average age of the fleet, excluding standby safety and wind farm utility vessels, has been reduced from 16 years to 11 years as of December 31, 2011. Offshore Marine Services enters 2012 with an increased order book for new equipment and believes its diverse fleet and broad geographical distribution of vessels will assist in weathering the effects of an industry downturn. The Company’s strong financial position should enable Offshore Marine Services to capitalize on opportunities as they develop for purchasing, mobilizing or upgrading vessels to meet changing market conditions.

 

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As of December 31, 2011, in addition to its existing fleet, Offshore Marine Services had new construction projects in progress including one U.S.-flag, DP-2 AHTS vessel scheduled for delivery in the second quarter of 2012; two foreign-flag, DP-3 catamarans scheduled for delivery in the first and third quarters of 2013; two U.S.-flag, DP-2 FSVs scheduled for delivery between the first and third quarters of 2014; two foreign-flag supply vessels scheduled for delivery between the first and second quarters of 2012 and one foreign-flag wind farm utility vessel scheduled for delivery in the second quarter of 2012. Subsequent to December 31, 2011 Offshore Marine Services placed a firm order for the construction of four U.S.-flag, DP-2 supply vessels for delivery between the third quarter of 2013 and first quarter of 2015.

On December 22, 2011, Offshore Marine Services acquired a controlling interest in a business that owns and operates vessels primarily used to move personnel and supplies to offshore wind turbines. The Company believes this investment represents an opportunity to diversify its portfolio by providing marine services to non-oil and gas related energy development while leveraging off its existing shore-based infrastructure in Europe, which currently supports standby safety operations in the North Sea.

Subsequent to December 31, 2011, the Company reached an agreement to acquire 18 lift boats from Superior Energy Services, LLC and affiliates for $134.0 million plus a to be determined amount for working capital. The agreement is subject to certain conditions, including regulatory approval, and is expected to be completed prior to the end of the second quarter of 2012.

The number and type of vessels operated, their rates per day worked and their utilization levels are the key determinants of Offshore Marine Services’ operating results and cash flows. Unless a vessel is cold-stacked (removed from operational service), there is little reduction in daily running costs and, consequently, operating margins are most sensitive to changes in rates per day worked and utilization.

The aggregate cost of Offshore Marine Services’ operations depends primarily on the size and asset mix of the fleet. Offshore Marine Services’ operating costs and expenses are grouped into the following categories:

 

   

personnel (primarily wages, benefits, payroll taxes, savings plans and travel for marine personnel);

 

   

repairs and maintenance (primarily routine repairs and maintenance and main engine overhauls which are performed in accordance with planned maintenance programs);

 

   

drydocking (primarily the cost of regulatory drydockings performed in accordance with applicable regulations);

 

   

insurance and loss reserves (primarily the cost of Hull and Machinery and Protection and Indemnity insurance premiums and loss deductibles);

 

   

fuel, lubes and supplies;

 

   

leased-in equipment (includes the cost of leasing vessels from lessors under bareboat charter arrangements and leasing equipment employed on vessels);

 

   

brokered vessel activity (the cost of chartering-in third party vessels under time charter arrangements to fulfill a customer requirement that cannot be filled by a vessel in the Company’s fleet); and

 

   

other (communication costs, expenses incurred in mobilizing vessels between geographic regions, third party ship management fees, freight expenses, customs and importation duties, and other).

The Company expenses drydocking, engine overhaul and vessel mobilization costs as incurred. If a disproportionate number of drydockings, overhauls or mobilizations are undertaken in a particular fiscal year or quarter, operating expenses may vary significantly when compared with the prior year or prior quarter.

 

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Results of Operations

 

     2011     2010      2009  
     Amount     Percent     Amount      Percent      Amount     Percent  
     $ ’000     %     $ ’000      %      $ ’000     %  

Operating Revenues:

              

United States, primarily U.S Gulf of Mexico

     117,912        31        242,874         47         207,455        37   

Africa, primarily West Africa

     64,619        17        78,363         15         109,428        19   

Middle East

     46,590        13        51,408         10         78,205        14   

Brazil, Mexico, Central and South America

     57,659        15        49,694         10         68,244        12   

Europe, primarily North Sea

     74,663        20        66,861         13         66,956        12   

Asia

     15,345        4        26,656         5         32,003        6   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     376,788        100        515,856         100         562,291        100   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Costs and Expenses:

              

Operating:

              

Personnel

     137,529        36        152,660         30         147,717        26   

Repairs and maintenance

     38,167        10        46,698         9         51,215        9   

Drydocking

     13,806        4        20,318         4         13,615        2   

Insurance and loss reserves

     12,972        3        14,587         3         15,761        3   

Fuel, lubes and supplies

     24,825        7        24,252         4         26,084        5   

Leased-in equipment

     18,114        5        15,609         3         12,470        2   

Brokered vessel activity

     3,262        1        12,218         2         26,503        5   

Other

     20,528        5        23,245         5         16,270        3   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     269,203        71        309,587         60         309,635        55   

Administrative and general

     47,201        13        50,795         10         47,031        8   

Depreciation and amortization

     48,477        13        51,760         10         54,869        10   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     364,881        97        412,142         80         411,535        73   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Gains on Asset Dispositions and Impairments, Net

     14,661        4        29,474         6