Annual report pursuant to Section 13 and 15(d)

Nature Of Operations And Accounting Policies

v3.8.0.1
Nature Of Operations And Accounting Policies
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Nature Of Operations And Accounting Policies
1.
NATURE OF OPERATIONS AND ACCOUNTING POLICIES
Nature of Operations and Segmentation. SEACOR Holdings Inc. (“SEACOR”) and its subsidiaries (collectively referred to as the “Company”) are a diversified holding company with interests in domestic and international transportation and logistics and risk management consultancy. Accounting standards require public business enterprises to report information about each of their operating business segments that exceed certain quantitative thresholds or meet certain other reporting requirements. Operating business segments have been defined as a component of an enterprise about which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company has identified the following reporting segments:
Ocean Transportation & Logistics Services (“Ocean Services”). Ocean Services owns and operates a diversified fleet of marine transportation, towing and bunkering assets, including U.S. coastwise eligible vessels and vessels trading internationally. Ocean Services has a 51% controlling interest in certain subsidiaries (collectively “SEA-Vista”) that operate U.S.-flag petroleum and chemical carriers servicing the U.S. coastwise crude oil, petroleum products and chemical trades. Ocean Services has a wholly owned harbor and offshore towing subsidiary assisting deep-sea vessels docking in U.S. Gulf and East Coast ports, providing ocean towing services between U.S. ports and providing oil terminal support and bunkering operations in St. Eustatius and the Bahamas. Additional services include U.S. coastwise trading dry bulk vessels, U.S.-flag Pure Car/Truck Carriers (“PCTCs”) operating globally under the U.S. Maritime Security Program (“MSP”) and liner, short-sea, rail car and project cargo transportation and logistics solutions to and from ports in the Southeastern United States, the Caribbean (including Puerto Rico), the Bahamas and Mexico. Ocean Services also provides technical ship management services for third-party vessel owners. Ocean Services contributed 61%, 52% and 44% of consolidated operating revenues in 2017, 2016 and 2015, respectively.
Inland Transportation & Logistics Services (“Inland Services”). Inland Services markets and operates domestic river transportation equipment, and owns fleeting and high-speed multi-modal terminal locations adjacent to and along the U.S. Inland waterways, at this time primarily in the St. Louis and Memphis areas. Inland Services operates under the SCF name. SCF’s barges are primarily used for moving agricultural and industrial commodities and containers on the U.S. Inland Waterways, the Mississippi River, Illinois River, Tennessee River, Ohio River and their tributaries and the Gulf Intracoastal Waterways. Internationally, Inland Services also owns liquid tank barges that operate on the Magdalena River in Colombia. These barges primarily transport petroleum products. Inland Services also has a 50% interest in dry-cargo barge operations on the Parana-Paraguay River Waterways in Brazil, Bolivia, Paraguay, Argentina and Uruguay primarily transporting agricultural and industrial commodities. Inland Services contributed 30%, 38% and 44% of consolidated operating revenues in 2017, 2016 and 2015, respectively.
Witt O’Brien’s. Witt O’Brien’s provides resilience solutions for the public and private sectors. Witt O’Brien’s protects and enhances its customers’ enterprise value by strengthening their ability to prepare for, respond to and recover from natural and man-made disasters, including hurricanes, infectious disease, terrorism, cyber breaches, oil spills, shipping incidents and other disruptions. Witt O’Brien’s contributed 9%, 10% and 10% of consolidated operating revenues in 2017, 2016 and 2015, respectively.
Other. The Company also has activities that are referred to and described under Other, which primarily include lending and leasing activities and noncontrolling investments in various other businesses, primarily sales, storage, and maintenance support for general aviation in Asia and an agricultural commodity trading and logistics business that is primarily focused on the global origination, and trading and merchandising of sugar.
Discontinued Operations. The Company reports the historical financial position, results of operations and cash flows of disposed businesses as discontinued operations when it has no continuing interest in the business. On June 1, 2017, the Company completed the spin-off of SEACOR Marine Holdings Inc. (“SEACOR Marine”), the company that operated SEACOR’s Offshore Marine Services business segment (the “Spin-off”), by means of a dividend of all the issued and outstanding common stock of SEACOR Marine to SEACOR’s shareholders. SEACOR Marine is now an independent company whose common stock is listed on the New York Stock Exchange under the symbol “SMHI.” For all periods presented herein, the Company has reported the historical financial position, results of operations and cash flows of SEACOR Marine as discontinued operations (see Note 18).
On July 3, 2017, the Company completed the sale of its 70% interest in Illinois Corn Processing LLC (“ICP”), the company that operated SEACOR’s Illinois Corn Processing business segment. The Company received $21.0 million in cash and a note from the buyer for $32.8 million, after working capital adjustments, resulting in a gain of $10.9 million, net of tax. On September 15, 2017, the Company received payment of the outstanding balance of the note, including accrued and unpaid interest. For all periods presented herein, the Company has reported the historical financial position, results of operations and cash flows of ICP as discontinued operations (see Note 18).
Basis of Consolidation. The consolidated financial statements include the accounts of SEACOR and its controlled subsidiaries. Control is generally deemed to exist if the Company has greater than 50% of the voting rights of a subsidiary. All significant intercompany accounts and transactions are eliminated in consolidation.
Noncontrolling interests in consolidated subsidiaries are included in the consolidated balance sheets as a separate component of equity. The Company reports consolidated net income (loss) inclusive of both the Company’s and the noncontrolling interests’ share, as well as the amounts of consolidated net income (loss) attributable to each of the Company and the noncontrolling interests. If a subsidiary is deconsolidated upon a change in control, any retained noncontrolled equity investment in the former controlled subsidiary is measured at fair value and a gain or loss is recognized in net income (loss) based on such fair value. If a subsidiary is consolidated upon a change in control, any previous noncontrolled equity investment in the subsidiary is measured at fair value and a gain or loss is recognized based on such fair value.
The Company employs the equity method of accounting for investments in 50% or less owned companies that it does not control but has the ability to exercise significant influence over the operating and financial policies of the business venture. Significant influence is generally deemed to exist if the Company has between 20% and 50% of the voting rights of a business venture but may exist when the Company’s ownership percentage is less than 20%. In certain circumstances, the Company may have an economic interest in excess of 50% but may not control and consolidate the business venture. Conversely, the Company may have an economic interest less than 50% but may control and consolidate the business venture. The Company reports its investments in and advances to these business ventures in the accompanying consolidated balance sheets as investments, at equity, and advances to 50% or less owned companies. The Company reports its share of earnings or losses from investments in 50% or less owned companies in the accompanying consolidated statements of income (loss) as equity in earnings (losses) of 50% or less owned companies, net of tax.
The Company employs the cost method of accounting for investments in 50% or less owned companies it does not control or exercise significant influence. These investments in private companies are carried at cost and are adjusted only for capital distributions and other-than-temporary declines in fair value.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include those related to allowance for doubtful accounts, useful lives of property and equipment, impairments, income tax provisions and certain accrued liabilities. Actual results could differ from those estimates and those differences may be material.
Revenue Recognition. The Company recognizes revenue when it is realized or realizable and earned. Revenue is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable, and collectability is reasonably assured. Revenue that does not meet these criteria is deferred until the criteria are met.
The Company’s Ocean Services segment earns revenue from the time charter, bareboat charter and voyage charter of vessels, contracts of affreightment, ship assist services, transporting third party freight and ship management agreements with vessel owners. Under a time charter, Ocean Services provides a vessel to a customer and is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, Ocean Services provides the vessel to a customer and the customer assumes responsibility for all operating expenses and risk of operation. Revenues from time charters and bareboat charters are recognized as services are provided on a per day basis. Voyage charters are contracts to carry cargoes on a single voyage basis regardless of time to complete. Contracts of affreightment are contracts for cargoes that are committed on a multi-voyage basis for various periods of time with minimum and maximum cargo tonnages specified over the period at a fixed or escalating rate per ton. The Company’s PCTCs participate in the MSP, whereby the Company receives a stipend to offset the higher cost of U.S. crews and operating standards required for U.S.-flag vessels. Revenues from the MSP program are recognized on a per day basis. Revenues for voyage charters and contracts of affreightment are recognized over the progress of the voyage while the related costs are expensed as incurred. Ship assist services are provided by the Company’s harbor towing fleet to dock and undock vessels in various ports in the U.S. Gulf of Mexico and Atlantic Coast. Revenues from ship assist services are recognized as the services are performed. Revenues from transporting freight are recognized as third party freight is transported to various destinations, typically determined by a tariff based on weight and voyage length, which is typically less than 30 days. Ship management agreements typically provide for technical services over a specified period of time, typically a year or more. Revenues from ship management agreements are recognized ratably over the service period.
The Company’s Inland Services segment earns and recognizes revenues primarily from the time charter and bareboat charter of equipment to customers and from voyage affreightment contracts whereby customers are charged an established rate per ton to transport cargo from point-to-point. Under a time charter, Inland Services provides equipment to a customer and is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, Inland Services provides the equipment to the customer and the customer assumes responsibility for all operating expenses and risk of operation. These charters typically range from one to six years and revenues from these charters are recognized as services are provided on a per day basis. Revenues from voyage affreightment contracts are generally recognized over the progress of the voyage while the related costs are expensed as incurred. Certain of Inland Services’ barges are operated in barge pools with other barges owned by third parties from whom Inland Services earns and recognizes a management fee as the services are rendered. Pursuant to the pooling agreements, operating revenues and expenses of participating barges are combined and the net results are allocated on a pro-rata basis based on the number of barge days contributed by each participant. In addition, revenues are earned from equipment chartered to third parties and from the storage and demurrage of cargoes associated with affreightment activities. In both of these cases, revenues are recognized as services are rendered. Inland Services’ tank farm and handling facility earns revenues through rental and throughput charges. Rental revenues are recognized ratably over the rental period while throughput charges are recognized as product volume moves through the facility.
Witt O’Brien’s earns revenues primarily from emergency response and debris management incidents, retainer and consulting services. Emergency response and debris management revenues are recognized as services are provided. Revenues from short-term remediation services and longer term customer staff augmentation services for remediation and claims management are dependent on the magnitude and number of incidents. Retainer agreements with vessel and facility owners and operators generally have evergreen terms and are typically invoiced on an annual basis. Such retainer fees are generally recognized ratably over the term of the coverage period. Consulting services are performed in accordance with retainer agreements or specific contract terms. Revenues are recognized based on contractual terms, generally on a time and material basis with revenues recognized as the services are provided or on a fixed fee basis with revenues and expenses recognized upon completion of the contract or specific task.
Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of U.S treasury securities, money market instruments, time deposits and overnight investments.
Restricted Cash. Restricted cash primarily relates to cash collateral for letters of credit and banking facility requirements.
Marketable Securities. Marketable equity securities with readily determinable fair values and debt securities are reported in the accompanying consolidated balance sheets as marketable securities. These investments are stated at fair value, as determined by their market observable prices, with both realized and unrealized gains and losses reported in the accompanying consolidated statements of income (loss) as marketable security gains (losses), net. Short sales of marketable securities are stated at fair value in the accompanying consolidated balance sheets with both realized and unrealized gains and losses reported in the accompanying consolidated statements of income (loss) as marketable security gains (losses), net. Long and short marketable security positions are primarily in energy, marine, transportation and other related businesses. Marketable securities are classified as trading securities for financial reporting purposes with gains and losses reported as operating activities in the accompanying consolidated statements of cash flows.
The Company’s most significant marketable security position is its investment in 5,200,000 shares of Dorian LPG Ltd. (“Dorian”), a publicly traded company listed on the New York Stock Exchange under the symbol “LPG” (see Notes 4 and 11). Dorian’s closing share price was $8.22 and $8.21 as of December 31, 2017 and 2016, respectively. The Company’s cost basis in Dorian is $13.66 per share.
Trade Receivables. Customers of Ocean Services are primarily multinational oil companies, refining companies, oil trading companies, large industrial consumers of crude, petroleum and chemicals, trading houses, pools, major automobile manufacturers and shippers, the U.S. Government and regional power utilities. Customers of Inland Services are primarily major agricultural companies, fertilizer companies, trading companies and industrial companies. Customers of Witt O’Brien’s are primarily governments, energy companies, ship managers and owners, healthcare providers, universities and school systems. Customers of the Company’s other business activities primarily include industrial companies and distributors. All customers are granted credit on a short-term basis and related credit risks are considered minimal. The Company routinely reviews its trade receivables and makes provisions for probable doubtful accounts; however, those provisions are estimates and actual results could differ from those estimates and those differences may be material. Trade receivables are deemed uncollectible and removed from accounts receivable and the allowance for doubtful accounts when collection efforts have been exhausted.
Other Receivables. Other receivables primarily consists of income tax and insurance claim receivables. Other receivables also includes amounts due from certain of the Company’s 50% or less owned companies for working capital in excess of working capital advances, which are typically settled monthly in arrears.
Derivative Instruments. The Company accounts for derivatives through the use of a fair value concept whereby all of the Company’s derivative positions are stated at fair value in the accompanying consolidated balance sheets. Realized and unrealized gains and losses on derivatives not designated as hedges are reported in the accompanying consolidated statements of income (loss) as derivative gains (losses), net. Realized and unrealized gains and losses on derivatives designated as fair value hedges are recognized as corresponding increases or decreases in the fair value of the underlying hedged item to the extent they are effective, with any ineffective portion reported in the accompanying consolidated statements of income (loss) as derivative gains (losses), net. Realized and unrealized gains and losses on derivatives designated as cash flow hedges are reported as a component of other comprehensive income (loss) in the accompanying consolidated statements of comprehensive income (loss) to the extent they are effective and reclassified into earnings on the same line item associated with the hedged transaction and in the same period the hedged transaction affects earnings. Any ineffective portions of cash flow hedges are reported in the accompanying consolidated statements of income (loss) as derivative gains (losses), net. Realized and unrealized gains and losses on derivatives designated as cash flow hedges that are entered into by the Company’s 50% or less owned companies are also reported as a component of the Company’s other comprehensive income (loss) in proportion to the Company’s ownership percentage, with reclassifications and ineffective portions being included in equity in earnings (losses) of 50% or less owned companies, net of tax, in the accompanying consolidated statements of income (loss).
Concentrations of Credit Risk. The Company is exposed to concentrations of credit risk associated with its cash and cash equivalents, construction reserve funds and derivative instruments. The Company minimizes its credit risk relating to these positions by monitoring the financial condition of the financial institutions and counterparties involved and by primarily conducting business with large, well-established financial institutions and diversifying its counterparties. The Company does not currently anticipate nonperformance of its significant counterparties. The Company is also exposed to concentrations of credit risk relating to its receivables due from customers in the industries described above. The Company does not generally require collateral or other security to support its outstanding receivables. The Company minimizes its credit risk relating to receivables by performing ongoing credit evaluations and, to date, credit losses have not been material.
Inventories. Inventories are stated at the lower of cost (using the first-in, first-out and average cost methods) or market. Inventories consist primarily of fuel and fuel oil consumed by the Company’s vessels in its Ocean Services and Inland Services business segments. The Company records write-downs, as needed, to adjust the carrying amount of inventories to the lower of cost or market. During the years ended December 31, 2017, 2016 and 2015, the Company had no market write-downs of inventory.
Property and Equipment. Equipment, stated at cost, is depreciated using the straight line method over the estimated useful life of the asset to an estimated salvage value. With respect to each class of asset, the estimated useful life is typically based upon a newly built asset being placed into service and represents the point at which it is typically not justifiable for the Company to continue to operate the asset in the same or similar manner. From time to time, the Company may acquire older assets that have already exceeded the Company’s useful life policy, in which case the Company depreciates such assets based on its best estimate of remaining useful life, typically the next survey or certification date.
As of December 31, 2017, the estimated useful life (in years) of each of the Company’s major classes of new equipment was as follows:
Petroleum and chemical carriers - U.S.-flag
25
Harbor and offshore tugs
25
Ocean liquid tank barges
25
Short-sea container/RORO(1) vessels
20
Dry bulk carriers - U.S.-flag
25
Inland river dry-cargo and specialty barges
20
Inland river liquid tank barges
25
Inland river towboats and harbor boats
25
Terminal and fleeting facilities
20
______________________
(1)
Roll On/Roll Off.
The Company’s major classes of property and equipment as of December 31 were as follows (in thousands):
 
Historical
Cost(1)
 
Accumulated
Depreciation
 
Net Book
Value
2017
 
 
 
 
 
Ocean Services:
 
 
 
 
 
Petroleum and chemical carriers - U.S.-flag
$
652,985

 
$
(215,057
)
 
$
437,928

Harbor and offshore tugs - U.S.-flag
84,155

 
(38,984
)
 
45,171

Harbor tugs - Foreign-flag
45,338

 
(11,575
)
 
33,763

Ocean liquid tank barges - U.S.-flag
39,238

 
(13,126
)
 
26,112

Short-sea container/RORO - Foreign-flag
20,954

 
(8,178
)
 
12,776

Bulk carriers - U.S.-flag
13,000

 
(4,733
)
 
8,267

Other(2)
19,420

 
(7,875
)
 
11,545

 
875,090

 
(299,528
)
 
575,562

Inland Services:
 
 
 
 
 
Dry-cargo barges
233,734

 
(101,087
)
 
132,647

Specialty barges
10,648

 
(4,928
)
 
5,720

Liquid tank barges
21,802

 
(2,684
)
 
19,118

Towboats
44,555

 
(1,765
)
 
42,790

Harbor boats
18,158

 
(6,956
)
 
11,202

Terminal and fleeting facilities
95,926

 
(55,899
)
 
40,027

Other(2)
20,470

 
(8,254
)
 
12,216

 
445,293

 
(181,573
)
 
263,720

Witt O’Brien’s:
 
 
 
 
 
Other(2)
1,227

 
(938
)
 
289

Corporate and Eliminations:
 
 
 
 
 
Other(2)
30,131

 
(20,505
)
 
9,626

 
$
1,351,741

 
$
(502,544
)
 
$
849,197

______________________
(1)
Includes property and equipment acquired in business acquisitions at acquisition date fair value.
(2)
Includes land and buildings, leasehold improvements, fixed-wing aircraft, vehicles and other property and equipment.
 
Historical
Cost(1)
 
Accumulated
Depreciation
 
Net Book
Value
2016
 
 
 
 
 
Ocean Services:
 
 
 
 
 
Petroleum and chemical carriers - U.S.-flag
$
546,019

 
$
(189,536
)
 
$
356,483

Harbor and offshore tugs - U.S.-flag
72,877

 
(34,606
)
 
38,271

Harbor tugs - Foreign-flag
29,689

 
(9,480
)
 
20,209

Ocean liquid tank barges - U.S.-flag
39,238

 
(11,604
)
 
27,634

Short-sea container/RORO - Foreign-flag
20,954

 
(6,774
)
 
14,180

Other(2)
18,825

 
(6,004
)
 
12,821

 
727,602

 
(258,004
)
 
469,598

Inland Services:
 
 
 
 
 
Dry-cargo barges
246,237

 
(97,602
)
 
148,635

Specialty barges
12,292

 
(4,869
)
 
7,423

Liquid tank barges
16,114

 
(1,982
)
 
14,132

Towboats
14,675

 
(1,320
)
 
13,355

Harbor boats
17,338

 
(5,715
)
 
11,623

Terminal and fleeting facilities
94,913

 
(48,981
)
 
45,932

Other(2)
18,145

 
(6,658
)
 
11,487

 
419,714

 
(167,127
)
 
252,587

Witt O’Brien’s:
 
 
 
 
 
Other(2)
1,559

 
(1,244
)
 
315

Corporate and Eliminations:
 
 
 
 
 
Other(2)
29,681

 
(18,184
)
 
11,497

 
$
1,178,556

 
$
(444,559
)
 
$
733,997

______________________
(1)
Includes property and equipment acquired in business acquisitions at acquisition date fair value.
(2)
Includes land and buildings, leasehold improvements, fixed-wing aircraft, vehicles and other property and equipment.
Depreciation expense totaled $72.1 million, $60.2 million and $58.1 million in 2017, 2016 and 2015, respectively.
Equipment maintenance and repair costs and the costs of routine overhauls, dry-dockings and inspections performed on vessels and equipment are charged to operating expense as incurred. Expenditures that extend the useful life or improve the marketing and commercial characteristics of equipment as well as major renewals and improvements to other properties are capitalized.
Certain interest costs incurred during the construction of equipment are capitalized as part of the assets’ carrying values and are amortized over such assets’ estimated useful lives. Capitalized interest totaled $2.7 million, $11.5 million and $14.1 million in 2017, 2016 and 2015, respectively.
Intangible Assets. The Company’s intangible assets primarily arose from business acquisitions (see Note 2) and consist of trademarks and tradenames, customer relationships, software and technology, and acquired contractual rights. These intangible assets are amortized over their estimated useful lives ranging from two to ten years. During the years ended December 31, 2017, 2016 and 2015, the Company recognized amortization expense of $2.9 million, $2.4 million and $2.2 million, respectively.
The Company’s intangible assets by type were as follows (in thousands):
 
Trademark/
Tradenames
 
Customer
Relationships
 
Software/
Technology
 
Acquired
Contractual
Rights
 
Total
 
Gross Carrying Value
Year Ended December 31, 2015
$
4,920

 
$
22,211

 
$
1,652

 
$
2,907

 
$
31,690

Acquired intangible assets

 
1,598

 

 
5,500

 
7,098

Foreign currency translation

 

 

 
9

 
9

Impairment of intangible assets
(1,596
)
 
(7,142
)
 
(1,220
)
 

 
(9,958
)
Fully amortized intangible assets

 
(1,302
)
 
(432
)
 

 
(1,734
)
Year Ended December 31, 2016
3,324

 
15,365

 

 
8,416

 
27,105

Acquired intangible assets

 

 

 
10,957

 
10,957

Foreign currency translation

 

 

 
2

 
2

Fully amortized intangible assets

 

 

 
(1,017
)
 
(1,017
)
Year Ended December 31, 2017
$
3,324

 
$
15,365

 
$

 
$
18,358

 
$
37,047

 
 
 
 
 
 
 
 
 
 
 
Accumulated Amortization
Year Ended December 31, 2015
$
(1,316
)
 
$
(3,545
)
 
$
(288
)
 
$
(1,198
)
 
$
(6,347
)
Amortization expense
(332
)
 
(1,624
)
 
(144
)
 
(314
)
 
(2,414
)
Fully amortized intangible assets

 
1,302

 
432

 

 
1,734

Year Ended December 31, 2016
(1,648
)
 
(3,867
)
 

 
(1,512
)
 
(7,027
)
Amortization expense
(332
)
 
(1,279
)
 

 
(1,320
)
 
(2,931
)
Fully amortized intangible assets

 

 

 
1,017

 
1,017

Year Ended December 31, 2017
$
(1,980
)
 
$
(5,146
)
 
$

 
$
(1,815
)
 
$
(8,941
)
Weighted average remaining contractual life, in years
4.0

 
8.8

 
0.0

 
9.0

 
8.7


Future amortization expense of intangible assets for each of the years ended December 31 is as follows (in thousands):
2018
 
$
3,555

2019
 
3,555

2020
 
3,555

2021
 
3,571

2022
 
2,866

Years subsequent to 2022
 
11,004

 
 
$
28,106


Impairment of Long-Lived Assets. The Company performs an impairment analysis of long-lived assets used in operations, including intangible assets, when indicators of impairment are present. These indicators may include a significant decrease in the market price of a long-lived asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If the carrying values of the assets are not recoverable, as determined by the estimated undiscounted cash flows, the estimated fair value of the assets or asset groups are compared to their current carrying values and impairment charges are recorded if the carrying value exceeds fair value. The Company performs its testing on an asset or asset group basis. Generally, fair value is determined using valuation techniques, such as expected discounted cash flows or appraisals, as appropriate. During the years ended December 31, 2017 and 2016, the Company recognized impairment charges of $0.4 million and $1.1 million, respectively, related to property and equipment held for use, which is included in gains (losses) on asset dispositions and impairments, net in the accompanying consolidated statements of income (loss). During the year ended December 31, 2015, the Company did not recognize any impairment charges related to its property and equipment held for use.
In October 2016, Witt O’Brien’s announced the launch of a strategic growth program to focus on core services by eliminating non-core and lower margin businesses. Witt O’Brien’s core services include providing resilience solutions for key areas of critical infrastructure, including, but not limited to, government, energy, transportation, healthcare and education, in the United States and abroad. Witt O’Brien’s protects and enhances its customers’ enterprise value by strengthening their ability to prepare for, respond to and recover from natural and man-made disasters, including hurricanes, infectious disease, terrorism, cyber breaches, oil spills, shipping incidents and other disruptions. The operations scheduled for elimination include a governmental relations unit, the Company’s European (primarily United Kingdom) operations, software products and an insurance unit. As a consequence of the restructuring, during the year ended December 31, 2016, Witt O’Brien’s recorded impairment charges of $10.0 million to write off the carrying value of customer related intangible assets associated with the non-core service lines that were eliminated.
Impairment of 50% or Less Owned Companies. Investments in 50% or less owned companies are reviewed periodically to assess whether there is an other-than-temporary decline in the carrying value of the investment. In its evaluation, the Company considers, among other items, recent and expected financial performance and returns, impairments recorded by the investee and the capital structure of the investee. When the Company determines the estimated fair value of an investment is below carrying value and the decline is other-than-temporary, the investment is written down to its estimated fair value. Actual results may vary from the Company’s estimates due to the uncertainty regarding projected financial performance, the severity and expected duration of declines in value, and the available liquidity in the capital markets to support the continuing operations of the investee, among other factors. Although the Company believes its assumptions and estimates are reasonable, the investee’s actual performance compared with the estimates could produce different results and lead to additional impairment charges in future periods. During the year ended December 31, 2017, the Company did not recognize any impairment charges related to its 50% or less owned companies. During the years ended December 31, 2016 and 2015, the Company recognized impairment charges of $7.7 million and $21.5 million, respectively, related to its 50% or less owned companies, which are included in equity in earnings (losses) of 50% or less owned companies, net of tax in the accompanying consolidated statements of income (loss) (see Note 4).
Goodwill. Goodwill is recorded when the purchase price paid for an acquisition exceeds the fair value of net identified tangible and intangible assets acquired. As of December 31, 2017, substantially all of the Company’s goodwill is related to Witt O’Brien’s. The Company performs an annual impairment test of goodwill on October 1 of each year and further periodic tests to the extent indicators of impairment develop between annual impairment tests. The Company’s impairment review process compares the fair value of the reporting unit to its carrying value, including the goodwill, related to the reporting unit. To determine the fair value of the reporting unit, the Company may use various approaches including an asset or cost approach, market approach or income approach or any combination thereof. These approaches may require the Company to make certain estimates and assumptions including projections of future cash flows, revenues and expenses. These estimates and assumptions are reviewed each time the Company tests goodwill for impairment and are typically developed as part of the Company’s routine business planning and forecasting process. Although the Company believes its assumptions and estimates are reasonable, the Company’s actual performance against its estimates could produce different results and lead to additional impairment charges in future periods.
Based on an evaluation of the implied fair value of goodwill compared to its carrying value, during the year ended December 31, 2016, the Company recognized an impairment charge of $19.6 million to reduce the goodwill carrying value to fair value (see Note 10) and is included in gains (losses) on asset dispositions and impairments, net in the accompanying consolidated statements of income (loss). The estimated fair value of the reporting unit was based on values established by independent valuation specialists. During the years ended December 31, 2017 and 2015, the Company did not recognize any impairment charges related to its goodwill.
Business Combinations. The Company recognizes 100% of the fair value of assets acquired, liabilities assumed, and noncontrolling interests when the acquisition constitutes a change in control of the acquired entity. Shares issued in consideration for a business combination, contingent consideration arrangements and pre-acquisition loss and gain contingencies are all measured and recorded at their acquisition-date fair value. Subsequent changes to fair value of contingent consideration arrangements are generally reflected in earnings. Any in-process research and development assets acquired are capitalized as are certain acquisition-related restructuring costs if the criteria related to exit or disposal cost obligations are met as of the acquisition date. Acquisition-related transaction costs are expensed as incurred and any changes in income tax valuation allowances and tax uncertainty accruals are recorded as an adjustment to income tax expense (benefit). The operating results of entities acquired are included in the accompanying consolidated statements of income (loss) from the date of acquisition (see Note 2).
Debt Discount and Issuance Costs. Debt discounts and costs incurred in connection with the issuance of debt are amortized over the life of the related debt using the effective interest rate method for term loans and straight line method for revolving credit facilities and is included in interest expense in the accompanying consolidated statements of income (loss).
Self-insurance Liabilities. The Company maintains hull, liability and war risk, general liability, workers compensation and other insurance customary in the industries in which it operates. Certain excess and property insurance policies are obtained through SEACOR sponsored programs, with premiums charged to participating businesses based on management’s risk assessment or insured asset values. The marine hull and liability policies have significant annual aggregate deductibles that are accrued based on actual claims incurred and historical loss experience, respectively. The Company also maintains self-insured health benefit plans for its participating employees. Exposure to the health benefit plans are limited by maintaining stop-loss and aggregate liability coverage. To the extent that estimated self-insurance losses, including the accrual of annual aggregate deductibles, differ from actual losses realized, the Company’s insurance reserves could differ significantly and may result in either higher or lower insurance expense in future periods.
Income Taxes. Deferred income tax assets and liabilities have been provided in recognition of the income tax effect attributable to the book and tax basis differences of assets and liabilities reported in the accompanying consolidated financial statements. The Company does not consider the results of its foreign operations permanently reinvested and, therefore, provides U.S. income taxes on the net earnings of its foreign subsidiaries. Deferred tax assets or liabilities are provided using the enacted tax rates expected to apply to taxable income in the periods in which they are expected to be settled or realized. Interest and penalties relating to uncertain tax positions are recognized in interest expense and administrative and general, respectively, in the accompanying consolidated statements of income (loss). The Company records a valuation allowance to reduce its deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
In the normal course of business, the Company may be subject to challenges from tax authorities regarding the amount of taxes due. These challenges may alter the timing or amount of taxable income or deductions. As part of the calculation of income tax expense, the Company determines whether the benefits of its tax positions are at least more likely than not of being sustained based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained, the Company accrues the largest amount of the tax benefit that is more likely than not of being sustained. Such accruals require management to make estimates and judgments with respect to the ultimate outcome of its tax benefits and actual results could vary materially from these estimates.
Deferred Gains – Equipment Sale-Leaseback Transactions and Financed Equipment Sales. From time to time, the Company enters into equipment sale-leaseback transactions with finance companies or provides seller financing on sales of its equipment to third parties or 50% or less owned companies. A portion of the gains realized from these transactions is not immediately recognized in income and has been recorded in the accompanying consolidated balance sheets in deferred gains and other liabilities. In sale-leaseback transactions (see Note 3), gains are deferred to the extent of the present value of future minimum lease payments and are amortized as reductions to rental expense over the applicable lease terms. In financed equipment sales (see Note 3), gains are deferred to the extent that the repayment of purchase notes is dependent on the future operations of the sold equipment and are amortized based on cash received from the buyers. Deferred gain activity related to these transactions for the years ended December 31 was as follows (in thousands):
 
2017
 
2016
 
2015
Balance at beginning of year
$
74,774

 
$
83,142

 
$
95,601

Deferred gains arising from equipment sales
13,336

 
9,003

 
5,984

Amortization of deferred gains included in operating expenses as reduction to rental expense
(15,035
)
 
(15,072
)
 
(14,322
)
Amortization of deferred gains included in gains (losses) on asset dispositions and impairments, net
(602
)
 
(602
)
 
(2,454
)
Other
(5,954
)
 
(1,697
)
 
(1,667
)
Balance at end of year
$
66,519

 
$
74,774

 
$
83,142


Deferred Gains – Equipment Sales to the Company’s 50% or Less Owned Companies. A portion of the gains realized from non-financed sales of the Company’s vessels and barges to its 50% or less owned companies is not immediately recognized in income and has been recorded in the accompanying consolidated balance sheets in deferred gains and other liabilities. Effective January 1, 2009, the Company adopted new accounting rules related to the sale of its vessels and barges to its 50% or less owned companies. In most instances, these sale transactions are now considered a sale of a business in which the Company relinquishes control to its 50% or less owned companies. Subsequent to the adoption of the new accounting rules, gains are deferred only to the extent of the Company’s uncalled capital commitments and are amortized as those commitments lapse or funded amounts are returned. For transactions occurring prior to the adoption of the new accounting rules, gains were deferred and are being amortized based on the Company’s ownership interest, cash received and the applicable equipment’s useful lives. Deferred gain activity related to these transactions for the years ended December 31 was as follows (in thousands):
 
2017
 
2016
 
2015
Balance at beginning of year
$
7,649

 
$
9,468

 
$
10,240

Amortization of deferred gains included in gains (losses) on asset dispositions and impairments, net
(1,715
)
 
(1,819
)
 
(772
)
Balance at end of year
$
5,934

 
$
7,649

 
$
9,468


Stock Based Compensation. Stock based compensation is amortized to compensation expense on a straight line basis over the requisite service period of the grants using the Black-Scholes valuation model. The Company does not estimate forfeitures in its expense calculations as forfeiture history has been minor. The Company presents the excess tax benefits from the exercise of stock options as a financing cash flow in the accompanying consolidated statements of cash flows.
Foreign Currency Translation. The assets, liabilities and results of operations of certain SEACOR subsidiaries are measured using their functional currency, which is the currency of the primary foreign economic environment in which they operate. Upon consolidating these subsidiaries with SEACOR, their assets and liabilities are translated to U.S. dollars at currency exchange rates as of the balance sheet dates and their revenues and expenses are translated at the weighted average currency exchange rates during the applicable reporting periods. Translation adjustments resulting from the process of translating these subsidiaries’ financial statements are reported in other comprehensive income (loss) in the accompanying consolidated statements of comprehensive income (loss).
Accumulated Other Comprehensive Income (Loss). The components of accumulated other comprehensive income (loss) were as follows (in thousands):
 
SEACOR Holdings Inc. Stockholders’ Equity
 
Noncontrolling
Interests
 
 
 
Foreign
Currency
Translation
Adjustments
 
Derivative
Losses on
Cash Flow
Hedges, net
 
Other
 
Total
 
Foreign
Currency
Translation
Adjustments
 
Derivative
Losses on
Cash Flow
Hedges, net
 
Other
 
Other
Comprehensive
Income (Loss)
Year ended December 31, 2014
$
(3,494
)
 
$
(16
)
 
$
5

 
$
(3,505
)
 
$
(86
)
 
$

 
$
3

 
 
Other comprehensive income (loss)
(3,129
)
 
(154
)
 
29

 
(3,254
)
 
(442
)
 

 
13

 
$
(3,683
)
Income tax (expense) benefit
1,095

 
54

 
(10
)
 
1,139

 

 

 

 
1,139

Year ended December 31, 2015
(5,528
)
 
(116
)
 
24

 
(5,620
)
 
(528
)
 

 
16

 
$
(2,544
)
Other comprehensive income (loss)
(9,331
)
 
294

 
(31
)
 
(9,068
)
 
(1,085
)
 
(17
)
 
(13
)
 
$
(10,183
)
Income tax (expense) benefit
3,266

 
(103
)
 
11

 
3,174

 

 

 

 
3,174

Year ended December 31, 2016
(11,593
)
 
75

 
4

 
(11,514
)
 
(1,613
)
 
(17
)
 
3

 
$
(7,009
)
Distribution of SEACOR Marine stock to shareholders
10,031

 
94

 

 
10,125

 

 

 

 
 
Other comprehensive income (loss)
1,812

 
(260
)
 
(6
)
 
1,546

 
153

 
13

 
(5
)
 
$
1,707

Income tax (expense) benefit
(795
)
 
91

 
2

 
(702
)
 

 

 

 
(702
)
Year ended December 31, 2017
$
(545
)
 
$

 
$

 
$
(545
)
 
$
(1,460
)
 
$
(4
)
 
$
(2
)
 
$
1,005


Foreign Currency Transactions. Certain SEACOR subsidiaries enter into transactions denominated in currencies other than their functional currency. Gains and losses resulting from changes in currency exchange rates between the functional currency and the currency in which a transaction is denominated are included in foreign currency gains (losses), net in the accompanying consolidated statements of income (loss) in the period in which the currency exchange rates change.
Earnings (Loss) Per Share. Basic earnings (loss) per common share of SEACOR are computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings (loss) per common share of SEACOR are computed based on the weighted average number of common shares issued and outstanding plus the effect of potentially dilutive securities through the application of the treasury stock and if-converted methods. Dilutive securities for this purpose assumes restricted stock grants have vested, common shares have been issued pursuant to the exercise of outstanding stock options and common shares have been issued pursuant to the conversion of all outstanding convertible notes.
Computations of basic and diluted earnings (loss) per common share of SEACOR for the years ended December 31 were as follows (in thousands, except share data):
 
Net Income (Loss)
 
Average o/s Shares
 
Per Share
2017
 
 
 
 
 
Basic Weighted Average Common Shares Outstanding
$
61,643

 
17,368,081

 
$
3.55

Effect of Dilutive Securities:
 
 
 
 
 
Options and Restricted Stock(1)

 
308,012

 
 
Convertible Securities
14,346

 
5,258,065

 
 
Diluted Weighted Average Common Shares Outstanding
$
75,989

 
22,934,158

 
$
3.31

2016
 
 
 
 
 
Basic Weighted Average Common Shares Outstanding
$
(215,897
)
 
16,914,928

 
$
(12.76
)
Effect of Dilutive Securities:
 
 
 
 
 
Options and Restricted Stock(1)

 

 
 
Convertible Securities(2)(3)

 

 
 
Diluted Weighted Average Common Shares Outstanding
$
(215,897
)
 
16,914,928

 
$
(12.76
)
2015
 
 
 
 
 
Basic Weighted Average Common Shares Outstanding
$
(68,782
)
 
17,446,137

 
$
(3.94
)
Effect of Dilutive Securities:
 
 
 
 
 
Options and Restricted Stock(1)

 

 
 
Convertible Securities(2)(3)

 

 
 
Diluted Weighted Average Common Shares Outstanding
$
(68,782
)
 
17,446,137

 
$
(3.94
)

______________________
(1)
For the years ended December 31, 2017, 2016, and 2015, diluted earnings per common share of SEACOR excluded 1,924,217, 2,020,677 and 2,078,777, respectively, of certain share awards as the effect of their inclusion in the computation would be anti-dilutive.
(2)
For the years ended December 31, 2016 and 2015, diluted earnings per common share of SEACOR excluded 2,664,208 and 4,148,327 shares, respectively, issuable pursuant to the Company’s 2.5% Convertible Senior Notes (see Note 7) as the effect of their inclusion in the computation would be anti-dilutive.
(3)
For the years ended December 31, 2016 and 2015 diluted earnings per common share of SEACOR excluded 1,825,326 and 1,825,326 shares, respectively, issuable pursuant to the Company’s 3.0% Convertible Senior Notes (see Note 7) as the effect of their inclusion in the computation would be anti-dilutive.
New Accounting Pronouncements. On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under generally accepted accounting principles in the United States. The core principal of the new standard is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. The Company will adopt the new standard on January 1, 2018 and expects to use the modified retrospective approach upon adoption. The Company has determined that adopting the new accounting standard will not have a material impact on its consolidated financial position, results of operations or cash flows for any of its revenues streams, except for revenues from its dry-cargo barge pooling arrangements. The new standard requires management to use considerable judgment with respect to principal versus agent considerations as it relates to these arrangements. As a consequence, the Company is in the process of confirming with the Securities and Exchange Commission its judgments, considerations and interpretations of the new standard, which confirmation as of the date of this report remains pending. In the event that the Company is required to report the operating revenues of the dry-cargo barge pools on a gross basis, the Company’s revenues and operating expenses in future periods will be materially different, however there will be no impact to it operating income or net income. Had the Company been required to report the operating revenues of the dry-cargo barge pools on a gross basis under the new standard for each of the years ended December 31, 2017, 2016 and 2015, its revenues and operating expenses would have been $73.0 million, $83.7 million and $109.9 million higher, respectively, although there would be no change to its operating income or net income.
On February 25, 2016, the FASB issued a comprehensive new leasing standard, which improves transparency and comparability among companies by requiring lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. The new standard is effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption. Early adoption is permitted. The Company expects the adoption of the new standard will have a material impact on its consolidated financial position, results of operations and cash flows, although it has not yet determined the extent of the impact.
On August 26, 2016, the FASB issued an amendment to the accounting standard which amends or clarifies guidance on classification of certain transactions in the statement of cash flows, including classification of proceeds from the settlement of insurance claims, debt prepayments, debt extinguishment costs and contingent consideration payments after a business combination. This new standard is effective for the Company as of January 1, 2018 and early adoption is permitted. The Company does not expect the adoption of the new standard will have a material impact on its consolidated financial position, results of operations or cash flows.
On October 24, 2016, the FASB issued a new accounting standard, which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory. The new standard is effective for interim and annual periods beginning after December 31, 2017 and requires a modified retrospective approach to adoption. The Company does not expect the impact of the adoption of the new standard will have a material impact on its consolidated financial position, results of operations or cash flows.
On November 17, 2016, the FASB issued an amendment to the accounting standard which requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company has not yet determined what impact, if any, the adoption of the new standard will have on its consolidated financial position, results of operations or cash flows.
On January 5, 2017, the FASB issued an amendment to the accounting standard which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the impact of the adoption of the new standard will have a material impact on its consolidated financial position, results of operations or cash flows.
On January 26, 2017, the FASB issued an amendment to the accounting standard which simplified wording and removes step two of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step two of the goodwill test. The new standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2020, with early adoption permitted for interim or annual goodwill impairment tests on testing dates after January 1, 2017. The Company has not yet determined what impact, if any, the adoption of the new standard will have on its consolidated financial position, results of operations or cash flows.
On February 22, 2017, the FASB issued an amendment to the accounting standard which clarifies the scope of guidance on nonfinancial asset derecognition and the accounting for partial sales of nonfinancial assets. The new guidance also conforms the derecognition guidance for nonfinancial assets with the model in the new revenue standard. The new standard is effective for annual reporting periods, and interim periods within those fiscal years, beginning after December 15, 2017, and an entity is required to apply the amendments at the same time that it applies the amendments in the new revenue standard. The Company does not expect the impact of the adoption of the new standard will have a material impact on its consolidated financial position, results of operations or cash flows.