Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019 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 1-37966
SEACOR Marine Holdings Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
47-2564547
(State or Other Jurisdiction of
Incorporation or Organization)
(IRS Employer
Identification No.)
12121 Wickchester Suite 500
Houston, TX
77079
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (346) 980-1700
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
SMHI
New York Stock Exchange (“NYSE”)
The total number of shares of common stock, par value $.01 per share, outstanding as of May 3, 2019 was 21,290,779. The Registrant has no other class of common stock outstanding.
SEACOR MARINE HOLDINGS INC.
Part I.
Financial Information
1
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018
2
Condensed Consolidated Statements of Loss for the Three Months Ended March 31 2019 and 2018
3
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018
4
Condensed Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2019
5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018
6
Notes to Condensed Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
39
Item 4.
Controls and Procedures
Part II.
Other Information
41
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Default Upon Senior Securities
42
Mine Safety Disclosures
Item 5.
Item 6.
Exhibits
43
i
PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31,
2019
December 31,
2018
ASSETS
Current Assets:
Cash and cash equivalents
$
63,855
95,195
Restricted cash
2,240
1,657
Receivables:
Trade, net of allowance for doubtful accounts of $455 and $860
in 2019 and 2018, respectively
67,900
64,125
Other
9,078
12,082
Inventories
4,139
3,443
Prepaid expenses and other
4,597
2,530
Total current assets
151,809
179,032
Property and Equipment:
Historical cost
1,294,945
1,242,733
Accumulated depreciation
(579,441
)
(561,272
715,504
681,461
Construction in progress
63,301
88,918
Net property and equipment
778,805
770,379
Right-of-Use Asset - Operating Leases
30,503
—
Investments, at Equity, and Advances to 50% or Less Owned Companies
119,520
121,773
Construction Reserve Funds
28,109
28,061
Other Assets
3,603
3,690
1,112,349
1,102,935
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of operating lease liabilities
17,918
-
Current portion of long-term debt
17,426
16,812
Accounts payable and accrued expenses
27,263
19,370
Due to SEACOR Holdings
535
452
Accrued wages and benefits
4,280
5,025
Accrued income taxes
2,650
1,917
Accrued capital, repair and maintenance expenditures
20,817
18,886
Deferred revenues
3,601
1,327
Other current liabilities
16,219
19,828
Total current liabilities
110,709
83,617
Long-Term Operating Lease Liabilities
19,851
Long-Term Debt
384,344
387,854
Conversion Option Liability on Convertible Senior Notes
6,201
5,276
Deferred Income Taxes
41,831
44,682
Deferred Gains and Other Liabilities
7,290
26,571
Total liabilities
570,226
548,000
Equity:
SEACOR Marine Holdings Inc. stockholders’ equity:
Common stock, $.01 par value, 60,000,000 shares authorized; 21,104,837 and
20,443,215 shares issued in 2019 and 2018, respectively
211
204
Additional paid-in capital
422,830
415,372
Retained earnings
111,701
126,834
Shares held in treasury of 25,558 and 4,007, respectively, at cost
(373
(91
Accumulated other comprehensive loss, net of tax
(16,812
(16,788
517,557
525,531
Noncontrolling interests in subsidiaries
24,566
29,404
Total equity
542,123
554,935
The accompanying notes are an integral part of these condensed consolidated financial statements and should be read in conjunction herewith.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS
Three Months Ended March 31,
Operating Revenues
56,249
51,721
Costs and Expenses:
Operating
44,277
38,348
Administrative and general
12,000
12,374
Lease expense
4,148
3,258
Depreciation and amortization
17,193
19,512
77,618
73,492
Gains (Losses) on Asset Dispositions and Impairments, Net
359
(2,643
Operating Loss
(21,010
(24,414
Other Income (Expense):
Interest income
357
216
Interest expense
(7,735
(6,133
SEACOR Holdings guarantee fees
(29
(12
Derivative losses, net
(925
(11,516
Foreign currency gains, net
635
139
(7,697
(17,306
Loss Before Income Tax Benefit and Equity in Earnings of 50% or Less Owned Companies
(28,707
(41,720
Income Tax Benefit
(3,831
(9,824
Loss Before Equity in Earnings of 50% or Less Owned Companies
(24,876
(31,896
Equity in (Losses) Earnings of 50% or Less Owned Companies
(3,397
208
Net Loss
(28,273
(31,688
Net Loss attributable to Noncontrolling Interests in Subsidiaries
(2,724
(2,855
Net Loss attributable to SEACOR Marine Holdings Inc.
(25,549
(28,833
Basic and Diluted Loss Per Common Share and Warrants of SEACOR Marine Holdings Inc.
(1.11
(1.64
Weighted Average Common Shares and Warrants Outstanding:
Basic and Diluted
23,090,137
17,571,490
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Three Months Ended
Other Comprehensive Loss:
Foreign currency translation gains
875
1,912
Derivative (losses) gains on cash flow hedges
(710
131
Reclassification of derivative gains on cash flow hedges to interest expense
71
Reclassification of derivative (losses) gains on cash flow hedges to equity in earnings of 50% or less owned companies
(260
129
(24
2,173
Income tax benefit
(27
2,146
Comprehensive Loss
(28,297
(29,542
Comprehensive Loss attributable to Noncontrolling Interests
in Subsidiaries
(2,778
Comprehensive Loss attributable to SEACOR Marine
Holdings Inc.
(25,573
(26,764
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Shares of Common Stock Outstanding
Common
Stock
Additional
Paid-In
Capital
Shares
Held in
Treasury
Treasury Stock
Retained Earnings
Accumulated
Comprehensive
Loss
Non-
Controlling
Interests In
Subsidiaries
Total
Equity
December 31, 2017
17,675,356
177
303,996
216,511
(12,493
14,975
523,166
Impact of adoption of new accounting standard for income tax effects
(12,069
204,442
511,097
Issuance of Common Stock
138,399
1,792
1,793
Amortization of employee share awards
(27,186
476
Acquisition of consolidated joint venture
(12,037
Issuance of noncontrolling interests
375
31,010
31,385
Net loss
Other comprehensive loss
2,069
77
March 31, 2018
17,786,569
178
306,639
175,609
(10,424
31,170
503,172
December 31, 2018
20,439,208
4,007
Impact of adoption of new accounting standard for leases
10,416
137,250
565,351
653,872
6,589
6,596
776
Exercise of options
8,750
108
Restricted stock vesting
(21,551
21,551
(282
Cancellation of employee share awards
(1,000
(15
(2,114
March 31, 2019
21,079,279
25,558
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred financing costs amortization
320
237
Option amortization
218
Restricted stock amortization
761
258
Debt discount amortization
1,373
1,494
Amortization of deferred gains against charter expense
(2,009
Bad debt expense
(404
(26
(Gain) loss from equipment sales, retirements or impairments
(359
2,643
Derivative losses
925
11,516
Cash settlement on derivative transactions, net
(75
(129
Currency gains
(635
(139
Deferred income taxes
(5,160
(11,286
Equity (earnings) losses
3,397
(208
Dividends received from equity investees
400
Changes in Operating Assets and Liabilities:
Accounts receivables
(1,686
(3,342
Other assets
(2,690
(346
Accounts payable and accrued liabilities
13,228
1,786
Net cash used in operating activities
(1,967
(11,509
Cash Flows from Investing Activities:
Purchases of property and equipment
(21,183
(8,557
Proceeds from disposition of property and equipment
552
282
Net change in construction reserve fund
(48
Investments in and advances to 50% or less owned companies
(1,951
(19,950
Return of investments and advances from 50% or less owned companies
99
Net cash used in investing activities
(22,630
(28,126
Cash Flows from Financing Activities:
Payments on long-term debt
(4,361
(28,807
Proceeds from issuance of long-term debt, net of issue costs
18,471
Purchase of subsidiary shares from noncontrolling interests
(3,392
Proceeds from exercise of stock options and Warrants
Issuance of stock
Net cash used in financing activities
(7,645
(8,543
Effects of Exchange Rate Changes on Cash and Cash Equivalents
1,485
682
Net Decrease in Cash, Cash Equivalents and Restricted Cash
(30,757
(47,496
Cash, Restricted Cash and Cash Equivalents, Beginning of Period
96,852
112,551
Cash, Restricted Cash and Cash Equivalents, End of Period
66,095
65,055
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The condensed consolidated financial statements include the accounts of SEACOR Marine Holdings Inc. and its consolidated subsidiaries (the “Company”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made to fairly present the unaudited condensed consolidated financial statements for the periods indicated. Results of operations for the interim periods presented are not necessarily indicative of operating results for the full year or any future periods.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company’s financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
Unless the context otherwise indicates, any reference in this Quarterly Report on Form 10-Q to the “Company” refers to SEACOR Marine Holdings Inc. and its consolidated subsidiaries and any reference in this Quarterly Report on Form 10-Q to “SEACOR Marine” refers to SEACOR Marine Holdings Inc. without its consolidated subsidiaries.
Recently Adopted Accounting Standards.
On February 25, 2016, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new leasing standard, ASC 842, meant to improve 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 Company adopted the new standard on January 1, 2019 and applied the transition provisions of the new standard with recognition of a cumulative-effect adjustment to the opening balance of retained earnings and therefore the Company was not required to recast previously issued financial statements. The Company elected the available practical expedients permitted under the guidance including the ability to carry forward the existing lease classification, the option to not separate lease and non-lease components in calculating the right-of-use assets and corresponding lease liabilities and to not apply the recognition requirements of Topic 842 to short-term leases (leases that have a duration of twelve months or less at lease inception). For some leases, it was not possible for the Company to determine the interest rate implicit in each of its operating leases and therefore used the Company’s incremental borrowing rate in calculating operating lease right-of-use assets and lease liabilities. The Company included renewal options that were reasonably certain of being exercised in determining the lease term. Upon adoption, the Company recorded $33.7 million of right-of-use assets, $31.9 million in lease liabilities, and a cumulative-effect adjustment to the opening balance of retained earnings of $1.7 million for certain of the Company’s equipment, office and land leases. In addition, unamortized deferred gains for four vessels previously accounted for under sale-leaseback arrangements of $8.7 million, ($11.0 million deferred gains net of $2.3 million deferred taxes), were fully recognized as an adjustment to the opening balance of retained earnings.
In February 2018, the FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). The amendments in ASU 2018-02 permit a reclassification from Accumulated Other Comprehensive Income (“AOCI”) to retained earnings for stranded tax effects resulting from the Tax Cuts & Jobs Act (“TCJA”). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. ASU 2018-02 is effective for the Company for annual and interim reporting periods beginning after December 15, 2018. For the period ending March 31, 2019, an election has not been made to reclassify the income tax effects of the TCJA from AOCI to retained earnings.
In June 2018, the FASB issued ASU 2018-07, a new accounting standard which addresses aspects of the accounting for nonemployee share-based payment transactions. The standard is effective for interim and annual periods beginning after December 15, 2018. The adoption of the new standard by the Company did not have a material impact on its consolidated financial position or its results of operations and cash flows.
Critical Accounting Policies.
Revenue Recognition. Revenue is recognized when (or as) the Company transfers promised goods or services to its customers in amounts that reflect the consideration to which the Company expects to be entitled to in exchange for those goods or services, which occurs when (or as) the Company satisfies its contractual obligations and transfers over control of the promised goods or services to its customers. Costs to obtain or fulfill a contract are expensed as incurred.
Lease Revenues. The Company’s lease revenues are primarily from time charters and bareboat charters that are recognized ratably over the lease term as services are provided, typically on a per day basis. The charterer will take the vessel on hire for a specific period of time, use the vessel to move cargo, people or equipment and will pay the Company the agreed upon rate per day. Under a time charter the Company provides a vessel to a customer for a set term and the Company is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, the Company provides a vessel to a customer for a set term and the customer assumes responsibility for all operating expenses, including fuel, and the risk of operation (see Note 14).
Revenues from Customers of Management Servicers. The Company contracts with various customers to carry out management services for vessels as agents for and on behalf of ship owners. These services include crew management, technical management, commercial management, insurance arrangements, sale and purchase of vessel, provisions and bunkering. As manager, the Company undertakes to use its best endeavors to provide the agreed management services as agents for, and on behalf of the ship owners in accordance with sound ship management practice and to protect and promote the interest of the owners in all matters relating to the provision of the agreed upon management services. The Company also contracts with various customers to carry out management services regarding engineering for vessel construction and vessel conversions. The vast majority of the ship management agreements have a duration of one to three years and are typically billed on a monthly basis. The Company satisfies its performance obligation over the term of the contract, and therefore recognizes revenue over the term of the contract while related costs are expensed as incurred (see Note 14).
Revenue that does not meet the aforementioned criteria is deferred until the criteria is met and are considered contract liabilities. Contract liabilities which are included in other current liabilities in the accompanying condensed consolidated balance sheets, for the three months ended March 31 were as follows (in thousands):
Balance at beginning of period
10,104
Revenues deferred during the period
3,409
Revenues recognized during the period
(1,135
(1,550
Balance at end of period
9,429
As of March 31, 2019, contract liabilities include $2.0 million related to the time charter of an offshore support vessel to a customer for which collection was not reasonably assured. The Company will recognize revenues when collected or when collection is reasonably assured. All costs and expenses related to this charter were recognized as incurred.
As of March 31, 2019, the Company has deferred $1.4 million received as reimbursement for upgrades of a vessel and deferred reservation fees. The amount will be recognized in revenues over time, commencing with the start of the new time charter agreement for the vessel.
8
The remaining balance of $0.2 million as of March 31, 2019 is comprised of contract liabilities to two customers for which collection is not reasonably assured.
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 based upon a newly built asset being placed into service and represents the time period beyond 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 March 31, 2019, the estimated useful life (in years) of each of the Company’s major categories of new equipment was as follows:
Offshore Support Vessels:
Crew transfer vessels
10
All other offshore support vessels (excluding crew transfer vessels)
20
Equipment maintenance and repair costs and the costs of routine overhauls, drydockings 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. During the three months ended March 31, 2019, capitalized interest totaled $0.4 million.
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 undiscounted cash flows or appraisals, as appropriate. During the three months ended March 31, 2019, the Company did not recognize any impairment charges related to its long-lived assets. During the three months ended March 31, 2018, the Company recognized $2.9 million of impairment charges related to four anchor-handling vessels removed from service and adjusted to scrap value.
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 three months ended March 31, 2019, the Company did not recognize any impairment charges related to its 50% or less owned companies. During the
9
three months ended March 31, 2018, the Company recognized impairment charges of $1.2 million related to one of its 50% or less owned companies which the Company believed was unable to meet all of its liabilities.
Income Taxes. During the three months ended March 31, 2019, the Company's effective income tax rate of 13.4% was primarily due to taxes provided on income attributable to noncontrolling interests, foreign sourced income not subject to U.S. income taxes, and foreign taxes not creditable against U.S. income taxes. During the three months ended March 31, 2018, the Company’s effective income tax rate of 23.5% was primarily due to taxes not provided on income attributable to noncontrolling interests, foreign sourced income not subject to U.S. income taxes, and a reversal of an unrecognized tax benefit.
Deferred Gains. The Company has sold certain equipment to its 50% or less owned companies, entered into vessel sale-leaseback transactions with finance companies and provided seller financing on sales of its equipment to third parties and its 50% or less owned companies. In 2018, a portion of the gains realized from these transactions were deferred and recorded in deferred gains and other liabilities in the accompanying condensed consolidated balance sheets and were amortized in operating expenses as a reduction to rental expense. The new lease accounting pronouncement which was adopted on January 1, 2019 required the recognition of unamortized gains as a cumulative-effect adjustment to the opening balance of retained earnings.
Deferred gain activity related to these transactions for the three months ended March 31 was as follows (in thousands):
11,819
25,006
Amortization of deferred gains included in operating expenses as a reduction to rental expense
Impact of adoption of new accounting standard
(11,026
Other adjustments
(25
793
22,972
Accumulated Other Comprehensive Income (Loss). The components of accumulated other comprehensive loss were as follows (in thousands):
Stockholders’ Equity
Noncontrolling Interests
Foreign
Currency
Translation
Adjustments
Derivative Income (Losses) on Cash Flow Hedges, net
Income (Loss)
(15,472
(1,316
(1,445
(11
Other comprehensive income
(loss)
(899
Three Months Ended March
31, 2019
(14,597
(2,215
Leases. The Company determines if an arrangement contains a lease at the inception of a contract. Leases with contractual terms less than twelve months are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the term of the short-term lease. Leases with contractual terms longer than twelve months are categorized as either operating or finance, with corresponding right-of-use asset and lease liability recorded on the balance sheet. Finance leases are generally those leases that substantially utilize or pay for the entire asset over its estimated life. All other leases are categorized as operating leases.
Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the present value of the fixed lease payments, using an implicit discount rate if available, or if not readily available, the Company’s incremental borrowing rate. Right-of-use assets are recognized based on the initial present value of the fixed lease payments and are tested for impairment in the same manner as long-lived assets used in operations. When options exist to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that these options will be exercised, the options are considered in determining the classification and measurement of the lease.
Loss Per Share. Basic loss per common share of the Company is computed based on the weighted average number of common shares and warrants to purchase common shares at an exercise price of $0.01 per share (“Warrants”) issued and outstanding during the relevant periods. The Warrants are included in the basic loss per common share because the shares issuable upon exercise of the Warrants are issuable for de minimis cash consideration and therefore not anti-dilutive. Diluted loss per common share of the Company is computed based on the weighted average number of common shares and Warrants issued and outstanding plus the effect of other potentially dilutive securities through the application of the if-converted method that assumes all common shares have been issued and outstanding during the relevant periods pursuant to the conversion of the Convertible Senior Notes. For the three months ended March 31, 2019 and 2018, diluted earnings per common share of the Company excluded 2,183,708 and 4,070,500 common shares, respectively, issuable pursuant to the Company’s Convertible Senior Notes (see Note 4) as the effect of their inclusion in the computation would be anti-dilutive. In addition, for the three months ended March 31, 2019 and 2018, diluted loss per common share of the Company excluded 129,080 and 94,507 shares of restricted stock, respectively, and 791,816 and 653,700 shares of stock, respectively, issuable upon exercise of outstanding stock options as the effect of their inclusion in the computation would be anti-dilutive.
New Accounting Pronouncements. In August 2018, the FASB issued ASU 2018-13, a new accounting standard which modifies the disclosure requirements related to fair value measurement. The new guidance is effective for fiscal years beginning after December 15, 2019. The effects of this standard on our financial position or reporting is not expected to be material.
In August 2018, the FASB issued ASU 2018-15, a new accounting standard which provided guidance regarding the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement). The guidance reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The standard is effective for interim and annual periods beginning after December 15, 2019. The Company is evaluating the provisions of the standard but does not expect the adoption of the new standard to have a material impact on its consolidated financial position or its results of operations and cash flows.
In June 2016, the FASB issued ASU 2016-13, an amendment to the accounting standards which replaces the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. The new standard is effective for interim periods beginning after December 15, 2019. Early adoption is permitted for annual periods beginning after December 15, 2018. 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.
Reclassification. Certain amounts in the prior year’s condensed consolidated financial statements have been reclassified to conform to the current year presentation. The reclassification had no impact on total assets, liabilities, or net loss.
11
2.
EQUIPMENT ACQUISITIONS AND DISPOSITIONS
During the three months ended March 31, 2019, capital acquisitions were $21.2 million. Equipment deliveries during the three months ended March 31, 2019 include one fast support vessel (“FSV”) and one platform supply vessel (“PSV”).
During the three months ended March 31, 2019, the Company sold one standby safety vessel and other equipment for $0.1 million cash and one vessel under construction for $4.3 million (all of which was a previously received deposit) and gains of $0.3 million. In addition, the Company received $0.4 million in deposits for future asset sales.
3.
INVESTMENTS, AT EQUITY AND ADVANCES TO 50% OR LESS OWNED COMPANIES
SEACOSCO. The Company owns an unconsolidated 50% interest in SEACOSCO Offshore LLC (“SEACOSCO”). In the quarter ended March 31, 2019, SEACOSCO took delivery of two PSVs and title to one PSV, and the Company contributed $2.0 million in capital to SEACOSCO for construction costs. In the year ended December 31, 2018, SEACOSCO took delivery of two PSVs and title to another five of the PSVs, and the Company contributed $29.6 million in capital to SEACOSCO.
Offshore Vessels Holdings. On December 28, 2018, the Company invested $4.9 million for a 49% share in Offshore Vessels Holdings S.A.P.I. de C.V. (“OVH”), an unconsolidated joint venture affiliated with Mantenimiento Express Maritimo, S.A.P.I. de C.V. (“MexMar”). The joint venture is used to invest in offshore assets or business internationally. On February 13, 2019, OVH loaned $10.0 million to Operadora Productora y Exploradora Mexicana, an affiliate of MexMar, for three years at an interest rate of 15% paid quarterly.
FRS Windcat Offshore Logistics GmbH. During the quarter ended March 31, 2019, the Company concluded the sale of one vessel under construction for $4.3 million to a wholly owned subsidiary of FRS Windcat Offshore Logistics GmbH, an unconsolidated joint venture.
Guarantees. The Company has guaranteed certain of the outstanding charter receivables of one of its managed 50% or less owned companies if a customer defaults in payment and the Company either fails to take enforcement action against the defaulting customer or fails to assign its right of recovery against the defaulting customer. As of March 31, 2019, the total amount guaranteed by the Company under this arrangement is $0.3 million.
In addition, as of March 31, 2019, two of the Company's 50% or less owned companies have bank debt secured by, among other things, a first preferred mortgage on the 50% or less owned companies’ vessels. The banks also have the authority to require the Company and its partners to fund uncalled capital commitments, as defined in the partnership agreements governing the companies. In such event, the Company would be required to contribute its allocable share of uncalled capital, which was, as of March 31, 2019, $0.8 million in the aggregate. This liability is included in other long-term liabilities.
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4.
LONG-TERM DEBT
The Company’s long-term debt obligations as March 31, 2019 and December 31, 2018 were as follows (in thousands):
SEACOR Marine Foreign Holdings Syndicated Credit Facility
123,500
126,750
Convertible Senior Notes
125,000
Falcon Global USA Term Loan Facility
109,099
Sea-Cat Crewzer III Term Loan Facility
25,366
25,989
Windcat Workboats Facilities
24,615
24,850
Falcon Global USA Revolver
15,000
SEACOR 88/888 Term Loan
11,000
BNDES Equipment Construction Finance Notes
4,795
5,284
438,375
442,972
Portion due within one year
(17,426
Debt discount
(30,631
(32,005
Issue costs
(5,974
(6,301
As of March 31, 2019, the Company is in compliance with all debt covenants and lender requirements.
Letters of Credit. As of March 31, 2019, the Company had outstanding letters of credit of $4.8 million securing one long-term debt obligation, $0.3 million securing one lease obligation and $2.5 million for labor and performance guarantees.
5.
LEASES
As of March 31, 2019, the Company leases in four anchor handling towing supply (“AHTS”) vessels, two liftboats, one FSV, one supply vessel and certain facilities and other equipment. The leases typically contain purchase and renewal options or rights of first refusal with respect to the sale or lease of the equipment. As of March 31, 2019, the remaining lease terms of the vessels have remaining durations from eight to 32 months. The lease terms of the other equipment range in duration from 10 to 333 months.
As of March 31, 2019, future minimum payments for operating leases for the remainder of 2019 and the years ended December 31 were as follows (in thousands):
Remainder of 2019
14,778
2020
13,982
2021
7,036
2022
640
2023
622
Years subsequent to 2023
4,858
41,916
Interest component
(4,147
37,769
Current portion of long-term operating lease liabilities
Long-term operating lease liabilities
For the three months ended March 31, 2019, the components of lease expense were as follows (in thousands):
Operating lease expense
3,612
Short-term lease expense (lease duration of twelve months or less at lease commencement)
536
13
For the three months ended March 31, 2019, other information related to operating leases were as follows (in thousands except weighted average data):
Operating cash flows from operating leases
4,837
Right-of-use assets obtained for operating lease liabilities
33,757
Weighted average remaining lease term, in years
4.4
Weighted average discount rate
4.1
%
6.
INCOME TAXES
The following table reconciles the difference between the statutory federal income tax rate for the Company and the effective income tax rate on continuing operations for the three months ended March 31, 2019:
Statutory rate
21.0
Noncontrolling interests
(2.1
Foreign earnings not subject to U.S. income tax
(3.4
Foreign taxes not creditable against U.S. income tax
(4.2
2.1
13.4
7.
DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES
Derivative instruments are classified as either assets or liabilities based on their individual fair values. The fair values of the Company’s derivative instruments were as follows (in thousands):
Derivative
Asset
Liability
Derivatives designated as hedging instruments:
Interest rate swap agreements (cash flow hedges)
2,295
1,659
(1
Derivatives not designated as hedging instruments:
Conversion option liability on Convertible Senior Notes
8,496
6,935
(1)Included in other current liabilities in the accompanying condensed consolidated balance sheets.
14
Cash Flow Hedges. The Company and certain of its 50% or less owned companies have interest rate swap agreements designated as cash flow hedges. By entering into these interest rate swap agreements, the Company and its 50% or less owned companies have converted the variable LIBOR or EURIBOR component of certain of their outstanding borrowings to a fixed interest rate. The Company recognized immaterial losses on derivative instruments designated as cash flow hedges during the three months ended March 31, 2019. As of March 31, 2019, the interest rate swaps held by the Company and its 50% or less owned companies were as follows:
•
Windcat Workboats Holdings Ltd. (“Windcat Workboats”) had two interest rate swap agreements maturing in 2021 that call for the Company to pay a fixed rate of interest of (0.03%) per annum on the aggregate notional value of €15.0 million (approximately $16.9 million) and receive a variable interest rate based on EURIBOR on the aggregate notional value;
SEACOR Marine Foreign Holdings Inc. (“SMFH”) had an interest rate swap agreement maturing in 2023 that calls for SMFH to pay a fixed rate of interest of 3.32% per annum on the amortized notional value of $9.5 million and receive a variable interest rate based on LIBOR on the amortized notional value;
SMFH had an interest rate swap agreement maturing in 2023 that calls for SMFH to pay a fixed rate of interest of 3.195% per annum on the amortized notional value of $52.7 million and receive a variable interest rate based on LIBOR on the amortized notional value;
SEACOR 88 LLC and SEACOR 888 LLC (collectively, “SEACOR 88/888”) have an interest rate swap agreement maturing in 2023 that calls for SEACOR 88/888 to pay a fixed rate of interest of 3.2% per annum on the amortized notional value of $5.5 million and receive a variable interest rate based on LIBOR on the amortized notional value; and
MexMar had five interest rate swap agreements with maturities in 2023 that call for MexMar to pay a fixed rate of interest ranging from 1.71% to 2.10% per annum on the aggregate amortized notional value of $94.4 million and receive a variable interest rate based on LIBOR on the aggregate amortized notional value.
Other Derivative Instruments. The Company recognized (losses) gains on derivative instruments not designated as hedging instruments for the three months ended March 31 as follows (in thousands):
(12,159
Interest rate swap agreements
643
The conversion option liability relates to the bifurcated embedded conversion option in the Convertible Senior Notes issued to investment funds managed and controlled by the Carlyle Group (See Note 8, Fair Value Measures).
The Company and certain of its 50% or less owned companies have entered into interest rate swap agreements that did not qualify as cash flow hedges for the general purpose of providing protection against increases in interest rates, which might lead to higher interest costs. As of March 31, 2019, these interest rate swaps held by the Company or its 50% or less owned companies were as follows:
SEACOR OSV Partners I LP (“OSV Partners”) had two interest rate swap agreements with maturities in 2020 that call for OSV Partners to pay a fixed rate of interest ranging from 1.89% to 2.27% per annum on the aggregate amortized notional value of $26.6 million and receive a variable interest rate based on LIBOR on the aggregate amortized notional value.
15
8.
FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs derived from observable market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
The Company’s financial assets and liabilities as of March 31, 2019 that are measured at fair value on a recurring basis were as follows (in thousands):
Level 1
Level 2
Level 3
Construction reserve funds
LIABILITIES
Derivative instruments
28,221
Level 3 Measurement. The fair value of the conversion option liability on the Convertible Senior Notes is estimated with significant inputs that are both observable and unobservable in the market and therefore is considered a Level 3 fair value measurement. The Company used a binomial lattice model that assumes the holders will maximize their value by finding the optimal decision between redeeming at the redemption price or converting into shares of Common Stock. This model estimates the fair value of the conversion option as the differential in the fair value of the notes including the conversion option compared with the fair value of the notes excluding the conversion option. The significant observable inputs used in the fair value measurement include the price of Common Stock and the risk-free interest rate. The significant unobservable inputs are the estimated Company credit spread and Common Stock volatility, which were based on comparable companies in the transportation and energy industries.
16
The estimated fair values of the Company’s other financial assets and liabilities as of March 31, 2019 were as follows (in thousands):
Estimated Fair Value
Carrying
Amount
Cash, cash equivalents and restricted cash
Investments, at cost, in 50% or less owned companies (included in other assets)
132
see below
Long-term debt, including current portion
401,770
387,937
404,666
388,949
The carrying value of cash, cash equivalents and restricted cash approximates fair value. The fair value of the Company’s long-term debt was estimated based upon quoted market prices or by using discounted cash flow analysis based on estimated current rates for similar types of arrangements. It was not practicable to estimate the fair value of certain of the Company’s investments, at cost, in 50% or less owned companies because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. Considerable judgment was required in developing certain of the estimates of fair value and, accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
The Company had no other assets and liabilities that were measured at fair value, and recognized no impairment charges, during the three months ended March 31, 2019.
9.
WARRANTS
On April 26, 2018, the Company closed a private placement of its Common Stock and Warrants to purchase its Common Stock (which were issued to certain investors in place of Common Stock to facilitate compliance with Jones Act restrictions) for aggregate gross proceeds of $56,855,000 (the “PIPE Private Placement”) with certain qualified institutional buyers and other accredited investors. The PIPE Private Placement included the issuance of 2,168,586 shares of Common Stock and Warrants to purchase 674,164 shares of the Common Stock at an exercise price of $0.01 per share (the “PIPE Warrants”). The PIPE Warrants were issued to Proyectos Globales de Energía y Servicios CME, S.A. de C.V. a variable capital corporation (sociedad anónima de capital variable) incorporated and existing under the laws of the United Mexican States (“CME”) on April 26, 2018, have a 25-year term and an exercise price of $0.01 per share. On May 2, 2018, the Company and Carlyle entered into an amendment and exchange agreement pursuant to which Carlyle exchanged $50.0 million in principal amount of the Convertible Senior Notes for warrants in order to purchase 1,886,292 shares of common stock at an exercise price of $0.01 per share (the “Exchange Warrants” and, together with the PIPE Warrants, the “Warrants”). The Exchange Warrants have a 25-year term, which commenced May 2, 2018. On May 31, 2018 and June 8, 2018, 250,693 and 38,857 of the PIPE Warrants were exercised, respectively for $0.01 per share, which left 2,271,406 Warrants outstanding as of March 31, 2019.
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10.
STOCKHOLDERS' EQUITY
The impact of adopting ASC 842 resulted in an increase of $10.4 million, net of tax, to the Company’s opening retained earnings for the current period.
On January 9, 2019, certain indirect wholly-owned subsidiaries of SEACOR Marine acquired three FSVs in exchange for the private placement of 603,872 shares of its Common Stock to domestic U.S. holders affiliated with the McCall family of Louisiana. The value of the vessels and the Common Stock was $7.8 million based on the closing price of a share of Common Stock on the NYSE on the day of the exchange. The Common Stock was issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Company has operated the acquired vessels for the past ten years under a revenue sharing pooling agreement that included four of its owned FSVs of similar specification. In accordance with its terms, this pooling agreement was terminated.
On January 25, 2019, Seabulk Overseas Transport, Inc. (“Seabulk Overseas”), a wholly-owned subsidiary of SEACOR Marine, acquired a 6.25% minority interest in Windcat Workboats that it did not previously own upon the exercise of certain put options by one of the two minority owners pursuant to the terms of a subscription and shareholders agreement, as amended (the “Subscription and Shareholders Agreement”), in exchange for consideration of £1.5 million (approximately $2.0 million) in cash. The Company acquired the other 6.25% minority interest in Windcat Workboats that the Company did not already own on March 15, 2019 in exchange for consideration of 50,000 shares of Common Stock and €1.2 million (approximately $1.4 million) in cash. The Common Stock was issued in a private placement in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act. The two acquisitions resulted in Seabulk Overseas owning (and SEACOR Marine indirectly owning) 100% of Windcat Workboats.
11.
NONCONTROLLING INTERESTS IN SUBSIDIARIES
Noncontrolling interests in the Company’s consolidated subsidiaries were as follows (in thousands):
Noncontrolling
Interests
Falcon Global Holdings
28%
24,261
26,989
Windcat Workboats
0%
(1)
2,115
1.8%
305
300
As of March 31, 2019; at December 31, 2018, noncontrolling interest was 12.5%.
Falcon Global Holdings. The Company consolidates Falcon Global Holdings LLC (“FGH”) as the Company holds 72% of the equity interest in FGH and is entitled to appoint a majority of the board of managers of FGH. During the three months ended March 31, 2019 and 2018, the net loss of FGH was $9.7 million and $9.3 million, respectively, of which $2.7 million and $2.6 million, respectively, was attributable to noncontrolling interests.
Windcat Workboats. Prior to January 25, 2019, Seabulk Overseas, a wholly owned subsidiary of the Company, owned 87% of Windcat Workboats. On January 25, 2019, Seabulk Overseas acquired a 6.25% minority interest in Windcat Workboats that it did not previously own. Seabulk Overseas acquired the remaining 6.25% interest in Windcat Workboats that the Company did not already own on March 15, 2019. For the three months ended March 31, 2018, the net loss of Windcat Workboats was $1.9 million and $0.2 million was attributed to noncontrolling interests.
18
12.
COMMITMENTS AND CONTINGENCIES
As of March 31, 2019, the Company’s unfunded capital commitments were $85.7 million for one FSV, two supply vessels, three crew transfer vessels (“CTV”) and three PSVs. Of the amount of unfunded capital commitments, $54.0 million is payable during the remainder of 2019 and $31.7 million is payable during 2020. The Company has indefinitely deferred an additional $20.2 million of orders with respect to two FSVs for which the Company had previously reported unfunded capital commitments.
As of March 31, 2019, the Company has guaranteed certain performance contracts of one of its subsidiaries by setting aside £0.9 million from its available borrowing under an unsecured line of credit. If the contract were not fulfilled, the line of credit would be drawn to fund the guarantee.
As of March 31, 2019, SEACOR Holdings Inc. (“SEACOR Holdings”) has guaranteed $36.6 million on behalf of the Company for various obligations including: performance obligations under sale-leaseback arrangements and invoiced amounts for funding deficits under the U.K. Merchant Navy Officers Pension Fund (“MNOPF”). Pursuant to a Distribution Agreement with SEACOR Holdings, SEACOR Holdings charges the Company a fee of 0.5% on outstanding guaranteed amounts, which declines as the obligations are settled by the Company.
In the normal course of its business, the Company becomes involved in various other litigation matters including, among other things, claims by third parties for alleged property damages and personal injuries. Management has used estimates in determining the Company’s potential exposure to these matters and has recorded reserves in its financial statements related thereto where appropriate. It is possible that a change in the Company’s estimates of that exposure could occur, but the Company does not expect such changes in estimated costs would have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
13.
COMMON STOCK AND RELATED MATTERS
Transactions in connection with the Company's 2017 Equity Incentive Plan during the three months ended March 31, 2019 were as follows:
Restricted Stock Activity:
Outstanding as of December 31, 2018
192,346
Vested
62,266
Forfeited
1,000
Outstanding as of March 31, 2019
129,080
Stock Option Activity:
805,566
Exercised
5,000
791,816
For the three months ended March 31, 2019, the Company acquired for treasury 21,551 shares of Common Stock for an aggregate purchase price of $281,833 from its employees to cover their tax withholding obligations upon the lapsing of restrictions on share awards. These shares were purchased in accordance with the terms of the Company's 2017 Equity Incentive Plan.
19
14.
SEGMENT INFORMATION
The Company’s segment presentation and basis of measurement of segment profit or loss are as previously described in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2018. The following tables summarize the operating results, capital expenditures and assets of the Company’s reportable segments for the periods indicated (in thousands):
United
States
(primarily
Gulf of
Mexico)
Africa
West
Africa)
Middle
East
and Asia
Latin America
Europe
North
Sea)
For the three months ended March 31, 2019
Operating Revenues:
Time charter
8,005
10,773
12,499
4,922
15,928
52,127
Bareboat charter
1,143
Other marine services
1,132
(637
228
1,621
2,979
9,137
10,136
12,727
6,700
17,549
Direct Costs and Expenses:
Operating:
Personnel
4,503
3,867
4,254
1,556
8,576
22,756
Repairs and maintenance
2,778
1,184
2,193
335
2,516
9,006
Drydocking
1,994
338
159
79
309
2,879
Insurance and loss reserves
592
213
327
135
207
1,474
Fuel, lubes and supplies
683
754
709
428
1,179
3,753
90
2,106
1,100
521
4,409
10,640
8,462
8,742
3,054
13,379
Direct Vessel (Loss) Profit
(1,503
1,674
3,985
3,646
4,170
11,972
Other Costs and Expenses:
2,897
665
362
3,931
Administrative and general (1)
12,217
5,498
2,356
4,249
1,936
3,154
33,341
Gains on Asset Dispositions, Net
As of March 31, 2019
416,559
207,167
310,297
119,699
241,223
(223,720
(59,652
(85,627
(60,444
(149,998
192,839
147,515
224,670
59,255
91,225
Total Assets (2)
330,938
160,624
266,007
128,421
133,019
1,019,009
Includes $217 facility lease expense.
(2)
Total assets by region does not include corporate assets of $93,340 as of March 31, 2019.
For the three months ended March 31, 2018
5,982
10,794
11,374
1,374
17,618
47,142
1,655
1,287
(130
110
514
3,436
7,637
12,081
11,244
2,627
18,132
3,992
4,073
4,022
376
9,213
21,676
694
1,356
2,428
2,290
7,073
525
1,741
2,257
434
236
67
235
1,190
493
669
1,034
65
1,284
3,545
25
1,036
1,208
60
278
2,607
6,163
7,354
8,917
873
15,041
Direct Vessel Profit
4,727
2,327
1,754
3,091
13,373
1,862
963
2,825
12,807
6,535
2,807
6,090
1,219
2,861
35,144
Losses on Asset Dispositions and
Impairments, Net
As of March 31, 2018
526,986
168,317
349,047
93,223
182,923
1,320,496
(236,120
(54,349
(109,601
(39,551
(140,840
(580,461
290,866
113,968
239,446
53,672
42,083
740,035
423,328
117,298
270,293
123,679
53,077
987,675
Includes $433 facility lease expense.
Total assets by region does not include corporate assets of $129,703 as of March 31, 2018.
The Company’s investments in 50% or less owned companies, which are accounted for under the equity method, also contribute to its consolidated results of operations. As of March 31, 2019 and 2018, the Company’s investments, at equity and advances to 50% or less owned companies in its other 50% or less owned companies were $119.5 million and $112.2 million, respectively. Equity in (losses) earnings of 50% or less owned companies for the three months ended March 31, 2019 and 2018 were ($3.4) million and $0.2 million, respectively.
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concern management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters and 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. [Certain of these risks, uncertainties and other important factors are discussed in Item 1A. (Risk Factors) and Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of the Company’s 2018 Annual Report]. However, it should be understood that it is not possible to identify or predict all such risks, uncertainties and factors, and others may arise from time to time. All of these forward-looking statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995. 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 Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission.
Overview
The following analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”).
The Company provides global marine and support transportation services to offshore oil, natural gas exploration and windfarm development and production facilities worldwide. As of March 31, 2019, the Company and its joint ventures operate a diverse fleet of 182 support and specialty vessels, of which 131 were owned or leased-in, 47 were joint ventured and four were managed on behalf of unaffiliated third parties. The primary users of the Company’s services are major integrated oil companies, large independent oil and natural gas exploration and production companies and emerging independent companies, as well as windfarm operations and installation contractors.
The Company’s fleet features offshore support and specialty vessels that 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; provide construction, well workover and decommissioning support; carry and launch equipment used underwater in drilling and well installation, maintenance and repair; and provide windfarm installation, maintenance and repair support. Additionally, the Company’s vessels provide accommodations for technicians and specialists, safety support and emergency response services. The Company’s fleet also features crew transfer vessels used primarily in windfarm operations.
The Company operates its fleet in five principal geographic regions: the United States, primarily in the Gulf of Mexico; Africa, primarily in West Africa; the Middle East and Asia; Brazil, Mexico, Central and South America (“Latin America”); and Europe, primarily in the North Sea. The Company’s vessels are highly mobile and regularly and routinely move between countries within a geographic region. In addition, the Company’s vessels are redeployed among its geographic regions, subject to flag restrictions, as changes in market conditions dictate. The number and type of vessels operated, their rates per day worked and their utilization levels are the key determinants of the Company’s operating results and cash flows. Unless a vessel is cold-stacked, there is little reduction in daily running costs for the vessels and, consequently, operating margins are most sensitive to changes
in rates per day worked and utilization. The Company manages its fleet utilizing a global network of shore side support, administrative and finance personnel.
Offshore oil and natural gas market conditions deteriorated beginning in the second half of 2014 and continued to deteriorate when oil prices hit a thirteen-year low of less than $27 per barrel (on the New York Mercantile Exchange) in February 2016. As of March 31, 2019, oil prices had increased from the February 2016 lows to a price of approximately $62 per barrel. While the Company has experienced what it believes is a beginning of a recovery, it continued to experience difficult market conditions through the first quarter of 2019.
Low oil prices and the subsequent decline in offshore exploration have forced many operators in the industry to restructure or liquidate assets in addition to cold-stacking and laying up vessels. The Company continues to closely monitor the reactivation of existing offshore support vessels as well as the delivery of newly built offshore support vessels to the industry-wide fleet, which is creating situations of oversupply, thereby further lowering the demand for the Company’s existing offshore support vessel fleet. A continuation of (i) low customer exploration and drilling activity levels and (ii) the increasing size of the global offshore support vessel fleet as vessels are reactivated and newly built vessels are placed into service could, in isolation or together, have a material adverse effect on the Company’s results of operations, financial position and cash flows.
As shipyards, finance parties and industry operators have been forced to restructure or liquidate assets, the Company has reviewed discreet opportunities to acquire or takeover the management of certain assets. In this industry context, the Company may from time to time deploy capital in connection with transactions that it determines enhance market coverage and/or represent a substantial discount to replacement value.
Recent Events
On January 9, 2019, certain indirect wholly-owned subsidiaries of SEACOR Marine acquired three FSVs in exchange for the private placement of 603,872 shares of its Common Stock to U.S. holders affiliated with the McCall family of Louisiana. The value of the vessels and the Common Stock was $7.8 million based on the closing price of a share of Common Stock on the NYSE on the day of the exchange. The Common Stock was issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Company has operated the acquired vessels for the past ten years under a revenue sharing pooling agreement that included four of its owned FSVs of similar specification. In accordance with its terms, this pooling agreement was terminated.
On January 16, 2019, the Company announced it had entered into definitive agreements to acquire three PSVs from COSCO Shipping Heavy Industry (Zhoushan) Co., Ltd., an affiliate of COSCO Shipping Group, the world’s largest ship owner (“COSCO”). Aggregate consideration for the vessels is approximately $46.0 million, of which 30% will be paid in cash and 70% will be paid over the next four years. Half of the cash payment was funded in the first quarter of 2019 with the balance per vessel to be paid upon physical delivery of each vessel. The Company expects the vessels to be delivered in September 2019, January 2020, and October 2020.
Prior to January 25, 2019 Seabulk Overseas, a wholly-owned subsidiary of the Company, owned 87% of Windcat Workboats. On January 25, 2019, Seabulk Overseas, acquired a 6.25% minority interest in Windcat Workboats that it did not previously own upon the exercise of certain put options by one of the two minority owners pursuant to the Subscription and Shareholders Agreement, in exchange for consideration of £1.5 million (approximately $2.0 million) in cash. Seabulk Overseas acquired the remaining 6.25% interest in Windcat Workboats that it did not already own on March 15, 2019 in exchange for consideration of 50,000 shares of Common Stock and €1.2 million (approximately $1.4 million) in cash. The Common Stock was issued in a private placement in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act. The two acquisitions resulted in Seabulk Overseas owning (and SEACOR Marine indirectly owning) 100% of Windcat Workboats. Windcat Workboats owns and operates the Company's crew transfer vessels that are primarily used to move personnel and supplies in Europe’s offshore wind markets.
23
Consolidated Results of Operations
The sections below provide an analysis of the Company's results of operations for the three months (“Current Year Quarter”) ended March 31, 2019 compared with the three months (“Prior Year Quarter”) ended March 31, 2018. For the periods indicated, the Company’s consolidated results of operations were as follows (in thousands, except statistics):
Time Charter Statistics:
Average Rates Per Day Worked (excluding crew transfer)
9,451
9,071
Average Rates Per Day
7,371
7,001
Fleet Utilization (excluding crew transfer)
62
50
Fleet Utilization
61
53
Fleet Available Days (excluding crew transfer)
8,116
9,271
Fleet Available Days
11,536
12,601
93
91
100
40
78
24
31
38
Lease expense - operating
3,258.0
137
141
(5
)%
(37
(46
Other (Expense) Income, Net
(14
(34
Loss Before Income Tax Benefit and Equity in Earnings (Losses) of 50% or Less Owned Companies
(50
(80
(7
(19
Loss Before Equity in Earnings (Losses) of 50% or Less Owned Companies
(44
(61
(6
0
(45
(55
Direct Vessel Profit. Direct vessel profit (defined as operating revenues less operating expenses excluding leased-in equipment, “DVP”) is the Company's measure of segment profitability when applied to reportable segments and a non-GAAP measure when applied to individual vessels, fleet categories or the combined fleet. DVP is a critical financial measure used by the Company to analyze and compare the operating performance of its individual vessels, fleet categories, regions and combined fleet, without regard to financing decisions (depreciation for owned vessel vs. leased expense for leased-in vessels). DVP is also useful when comparing the Company's fleet's performance against those of its competitors who may have differing fleet financing structures.
DVP by region and by vessel class has material limitations as an analytical tool in that it does not reflect all of the costs associated with the operation of the Company’s fleet and it should not be considered in isolation or used as a substitute for the Company’s results as reported under GAAP. A reconciliation of DVP by region and by vessel class to operating loss, its most comparable GAAP measure, is included in the tables below.
The following tables summarize the operating results and property and equipment for the Company’s reportable segments for the periods indicated (in thousands, except statistics):
For the Three Months Ended March 31, 2019
10,588
9,461
8,386
12,900
4,819
28
87
72
2,698
1,313
2,061
541
4,923
Gains on Asset Dispositions and Impairments
Include $217 facility lease expense.
Total assets by region does not include corporate assets, which are $93,340 as of March 31,2019.
8,775
9,455
8,072
15,272
5,164
66
69
4,050
1,260
2,132
219
4,940
Total assets by region does not include corporate assets, which are $129,703 as of March 31, 2018.
26
For additional information, the following tables summarize the world-wide operating results and property and equipment for each of the Company’s vessel classes for the periods indicated (in thousands, except statistics):
Anchor
handling
towing
supply
Fast
support
Supply
Standby
safety
Specialty
Liftboats
Crew transfer
activity
8,502
7,609
8,499
17,750
2,325
68
82
46
900
3,295
501
1,620
1,710
3,420
2,875
17,083
2,182
11,308
13,877
4,802
(658
(251
781
2,080
322
674
2,217
16,832
4,106
11,339
15,957
5,124
1,390
5,511
1,678
6,133
5,097
2,309
573
630
2,337
619
1,422
2,828
1,096
70
75
350
162
1,983
122
326
105
884
104
(135
1,102
399
947
1,005
189
2,464
1,144
240
95
444
113
(683
2,871
12,090
4,107
9,111
203
12,241
3,811
(157
(654
4,742
2,228
(203
3,716
831
1,539
352
318
1,498
224
575
5,944
128
6,053
2,031
330
197,343
434,298
81,407
124,371
25,683
329,525
75,204
27,114
(169,305
(104,524
(38,238
(99,225
(20,561
(77,938
(49,553
(20,097
28,038
329,774
43,169
25,146
5,122
251,587
25,651
7,017
27
Crew Transfer
10,322
7,746
6,454
9,058
16,068
2,305
73
30
3,780
633
1,849
3,330
2,787
15,427
3,002
13,051
8,126
4,749
1,438
(656
(18
756
429
1,447
4,225
14,771
4,127
13,091
8,882
5,178
1,397
4,756
1,956
6,938
164
3,461
2,222
782
394
2,544
445
1,554
37
1,134
825
140
480
(9
51
324
102
138
651
103
(229
153
795
991
83
668
144
1,460
719
161
417
96
(802
2,967
9,870
3,916
11,523
392
6,382
3,390
(92
Direct Vessel Profit (Loss)
1,258
4,901
1,568
(392
2,500
1,788
Leased-in equipment
1,858
342
638
(13
1,490
6,585
2,743
265
201,354
421,174
105,360
123,471
30,528
337,142
69,950
31,517
(180,906
(92,519
(54,236
(102,444
(19,586
(59,567
(44,235
(26,968
20,448
328,655
51,124
21,027
10,942
277,575
25,715
4,549
Fleet Counts. The Company's fleet count as of March 31, 2019 and December 31, 2018 was as follows:
Owned
Joint Ventured
Leased-in
Managed
AHTS
FSV
36
32
Standby safety
124
47
182
121
44
179
29
Operating Income (Loss)
United States, primarily Gulf of Mexico. For the three months ended March 31, the Company’s time charter statistics and direct vessel profit (loss) in the United States was as follows (in thousands, except statistics):
For the Three Months Ended March 31,
Rates Per Day Worked:
Anchor handling towing supply
7,153
Fast support
7,634
7,187
13,260
10,552
Overall
Utilization:
Available Days:
450
883
1,581
1,275
1,389
Operating revenues:
88
Direct operating expenses:
48
52
115
81
Current Year Quarter compared with Prior Year Quarter
Operating Revenues. Time charter revenues were $2.0 million higher in the Current Year Quarter compared with the Prior Year Quarter primarily due to the addition of six liftboats associated with the Falcon Global Holdings joint venture. Time charter revenues were $1.9 million higher for the liftboat fleet, and $0.1 million higher for FSVs. As of March 31, 2019, the Company had 16 of 32 owned and leased-in vessels (four AHTS vessels, five FSVs, six liftboats, and one specialty vessel) cold-stacked in this region compared with 33 of 43 vessels as of March 31, 2018. As of March 31, 2019, the Company had retired and removed from service six vessels (five AHTS vessels and one supply) in this region.
Direct Operating Expenses. Direct operating expenses were $4.5 million higher in the Current Year Quarter compared with the Prior Year Quarter. On an overall basis, direct operating expenses were $5.1 million higher due to net fleet acquisitions, $0.2 million higher for the active fleet and other marine services and $0.8 million lower due to the effect of cold-stacking vessels. Repairs and maintenance costs were $2.1 million higher and drydocking expenses were $1.5 million higher primarily due to net fleet additions.
Africa, primarily West Africa. For the three months ended March 31, the Company’s time charter statistics and direct vessel profit in Africa was as follows (in thousands, except statistics):
9,325
11,669
10,196
9,913
7,414
7,382
94
86
92
270
180
769
720
274
360
106
89
34
Operating Revenues. Time charter revenues were flat in the Current Year Quarter compared with the Prior Year Quarter. Time charter revenues were $0.6 million higher due to improved utilization, $0.4 million lower due to reduced average day rates and $0.2 million lower due to the repositioning of vessels between geographic regions. Other marine services were $1.9 million lower primarily due to the recognition in the Prior Year Quarter of previously deferred revenue, following receipt of cash, due to collection concerns with regard to one customer. As of March 31, 2019, the Company had one specialty vessel retired and removed from service in this region.
Direct Operating Expenses. Direct operating expenses were $1.1 million higher in the Current Year Quarter compared with the Prior Year Quarter. On an overall basis, operating costs were $1.7 million higher due to net fleet additions, $0.3 million lower for the active fleet and other changes in fleet mix and $0.3 million lower due to the repositioning of vessels between geographic regions. Other Operating Expenses were $1.1 million higher primarily due to mobilization costs.
Middle East and Asia. For the three months ended March 31, the Company’s time charter statistics and direct vessel profit in the Middle East and Asia was as follows (in thousands, except statistics):
5,892
7,629
6,111
6,584
4,147
27,150
35,700
2,025
74
1,341
1,350
183
239
98
101
33
Operating Revenues. Time charter revenues were $1.1 million higher in the Current Year Quarter compared with the Prior Year Quarter. Time charter revenues were $3.2 million higher due to improved utilization, $1.6 million lower due to a reduction in average day rates and $0.5 million lower due to net fleet dispositions. As of March 31, 2019, the Company had one of 23 owned and leased-in vessels cold-stacked in this region (one AHTS vessel) compared with one of 23 vessels as of March 31, 2018. As of March 31, 2019, the Company had one specialty vessel retired and removed from service in this region.
Direct Operating Expenses. Direct operating expenses were $0.2 million lower in the Current Year Quarter compared with the Prior Year Quarter. On an overall basis, direct operating expenses were $1.1 million higher due to the repositioning of vessels between geographic regions, $0.8 million lower for the core fleet including $0.3 million due to the effect of cold-stacking vessels, and $0.5 million lower due to net fleet dispositions.
Latin America (Brazil, Mexico, Central and South America). For the three months ended March 31, the Company’s time charter statistics and direct vessel profit in Latin America was as follows (in thousands, except statistics):
6,800
18,212
59
85
302
45
55
Operating Revenues. Time charter revenues were $3.5 million higher in the Current Year Quarter compared with the Prior Year Quarter. Time charter revenues were $2.9 million higher due to the repositioning of vessels between geographic regions, $0.5 million higher due to net fleet additions, $0.2 million higher due to improved utilization and $0.1 million lower due to reduced average day rates of the core fleet. As of March 31, 2019, the Company had one of seven owned and leased-in vessels cold-stacked in this region (one FSV) compared with one of five vessels as of March 31, 2018.
Direct Operating Expenses. Direct operating expenses were $2.2 million higher in the Current Year Quarter compared with the Prior Year Quarter, of which $1.8 million was due to the repositioning of vessels between geographic regions, and $0.4 million was due to fleet additions.
.
Europe, primarily North Sea. For the three months ended March 31, the Company’s time charter statistics and direct vessel profit in Europe was as follows (in thousands, except statistics):
For the Three Months ended March 31,
2,339
2,317
64
3,240
97
49
76
Operating Revenues. For standby safety vessels, time charter revenues were $1.7 million lower in the Current Year Quarter compared with the Prior Year Quarter. Time charter revenues were $1.9 million lower due to net fleet dispositions, $0.7 million lower due to unfavorable changes in currency exchange rates and $0.1 million lower due to reduced average day rates. Time charter revenues were $0.8 million higher due to the repositioning of vessels between geographic regions and $0.2 million higher due to improved utilization.
For CTVs, time charter revenues were $0.1 million higher. Time charter revenues were $0.5 million higher due net fleet additions, $0.2 million higher due to increased average day rates and $0.1 million higher due to the repositioning of vessels between geographic regions. Time charter revenues were $0.4 million lower due to reduced utilization and $0.3 million lower due to unfavorable changes in currency exchange rates. As of March 31, 2019, the Company had one of 36 CTVs cold stacked in this region.
Direct Operating Expenses. Direct operating expenses were $1.7 million lower in the Current Year Quarter compared to the Prior Year Quarter. On an overall basis vessel operating expenses were $1.2 million lower for vessels in active service, $1.0 million lower due to net fleet dispositions, $0.4 million higher for other marine services and $0.1 million higher due to the repositioning of vessels between geographic regions. Drydocking costs were $1.4 million lower due to the timing of drydockings.
Leased Expense. Leased-in equipment expenses for the Current Year Quarter were $1.1 million higher compared with the Prior Year Quarter, primarily due to the implementation of the new lease accounting standard, which removed the $1.9 million prior year quarter benefit of amortization of deferred gains on sale-leaseback vessels. The benefit would have been partially reduced by the impairment and removal from service of two leased-in vessels during 2018.
Administrative and general. Administrative and general expenses were $0.5 million lower for the Current Year Quarter compared with the Prior Year Quarter, primarily due to lower allowances for doubtful accounts, and lower legal and professional services.
Depreciation and amortization. Depreciation and amortization expense for the Current Year Quarter was $2.3 million lower compared with the Prior Year Quarter, primarily due to net fleet dispositions and the removal from service of five AHTS vessels.
Gains (Losses) on Asset Dispositions and Impairments, Net. During the Current Year Quarter, the Company sold one standby safety vessel and other equipment for net proceeds of $4.4 million ($0.1 million in cash and $4.3 million of previously received deposits) and a gain of $0.3 million, all of which was recognized currently. During the Prior Year Quarter, the Company recorded impairment charges of $2.9 million primarily related to the Company’s AHTS vessels. In addition, the Company sold one FSV and other equipment for net proceeds of $0.4 million and a gain of $0.2 million, all of which was recognized currently.
Other Income (Expense), Net
For the periods ended March 31, the Company’s other income (expense) was as follows (in thousands):
Interest income. Interest income in the Current Year Quarter was higher compared with the Prior Year Quarter primarily due to higher interest rates.
Interest expense. Interest expense in the Current Year Quarter compared with the Prior Year Quarter was higher primarily due to additional interest incurred on the debt facilities of SEACOR Marine Foreign Holdings and SEACOR 88/888, along with higher interest as a result of the variable nature of interest rates on debt facilities.
Derivative losses, net. Net derivative losses during the Current Year Quarter and Prior Year Quarter were primarily due to increases in the fair value of the Company’s conversion option liability embedded in the Company’s Convertible Senior Notes. The increase in the conversion option liability was primarily the result of increases in the Company’s share price and estimated credit spread.
Foreign currency gains, net. Foreign currency gains for the Current Year Quarter were primarily due to the weakening of the pound sterling in relation to the euro underlying certain of the Company’s debt balances.
For the three months ended March 31, 2019, the Company's effective income tax rate of 13.4% was primarily due to taxes provided on income attributable to noncontrolling interest, foreign sourced income not subject to U.S. income taxes, and foreign taxes not creditable against U.S. income taxes. For the three months ended March 31, 2018, the Company’s effective income tax rate of 23.5% was primarily due to taxes not provided on income attributable to noncontrolling interests, foreign sourced income not subject to U.S. income taxes, and a reversal of an unrecognized benefit.
35
Equity in Earnings (Losses) of 50% or Less Owned Companies
Equity in losses of 50% or less owned companies for the Current Year Quarter compared with the Prior Year Quarter were $3.6 million lower, due to the following changes in equity earnings (losses) (in thousands):
MexMar
109
1,432
OSV Partners
(463
(687
SEACOR Grant DIS
(1,056
Dynamic Offshore Drilling
(741
SEACOSCO
(1,641
(168
(661
479
MexMar. During the Current Year Quarter, decrease in equity earnings of $1.3 million was primarily due to reduced utilization and day rates.
Seacor Grant DIS. During the Prior Year Quarter equity losses of $1.1 million were primarily due to an impairment charge of $1.1 million, net of taxes, for an other-than-temporary decline in the fair value of the Company’s investment in Seacor Grant DIS.
SEACOSCO. During the Current Year Quarter equity losses of $1.6 million included a $0.7 million non-cash adjustment to prior year interest expense on the long-term debt of the joint venture.
Liquidity and Capital Resources
General
The Company’s ongoing liquidity requirements arise primarily from working capital needs, capital commitments and its obligations to service outstanding debt. The Company may use its liquidity to fund capital expenditures, make acquisitions or to make other investments. Sources of liquidity are cash balances, construction reserve funds and cash flows from operations. From time to time, the Company may secure additional liquidity through asset sales or the issuance of debt, shares of SEACOR Marine Common Stock or common stock of its subsidiaries, preferred stock or a combination thereof.
As of March 31, 2019, the Company had unfunded capital commitments of $85.7 million that included one FSV, two supply vessels, three CTVs and three PSVs. The Company’s capital commitments by year of expected payment are as follows (in thousands):
54,016
31,724
85,740
The Company has indefinitely deferred an additional $20.2 million of orders with respect to two fast support vessels for which the Company had previously reported unfunded capital commitments.
As of March 31, 2019, the Company had outstanding debt of $401.8 million, net of debt discount and issue costs. The Company’s contractual long-term debt maturities as of March 31, 2019, are as follows:
Actual
Remainder 2019
12,451
25,489
51,146
25,150
Years subsequent to 2022
324,140
438,376
As of March 31, 2019, the Company held balances of cash, cash equivalents, restricted cash and construction reserve funds totaling $94.2 million. As of March 31, 2019, construction reserve funds of $28.1 million were classified as non-current assets in the accompanying condensed consolidated balance sheets as the Company has the intent and ability to use the funds to acquire equipment. Additionally, the Company had $2.1 million available under subsidiary credit facilities.
Summary of Cash Flows
For the three months ended March 31, the following is a summary of the Company's cash flows (in thousands):
Cash flows provided by or (used in):
Operating Activities
Investing Activities
Financing Activities
Decrease in Cash and Cash Equivalents
Cash flows used in operating activities increased by $9.5 million in the Current Year Quarter compared with the Prior Year Quarter. The components of cash flows used in operating activities during the Current Year Quarter and Prior Year Quarter were as follows:
DVP:
United States, primarily Gulf of Mexico
Africa, primarily West Africa
Middle East and Asia
Brazil, Mexico, Central and South America
Europe, primarily North Sea
Operating, leased-in equipment (excluding amortization of deferred gains)
(5,157
(4,834
Administrative and general (excluding provisions for bad debts and amortization of share awards)
(11,860
(12,357
SEACOR Holdings management and guarantee fees
Dividends received from 50% or less owned companies
(4,674
(3,830
Changes in operating assets and liabilities before interest and income taxes
5,372
(4,938
Restricted stock vested
Cash settlements on derivative transactions, net
Interest paid, excluding capitalized interest (1)
(4,664
(2,828
Interest received
Income taxes refunded, net
1,999
Total cash flows used in operating activities
During the Current Year Quarter and the Prior Year Quarter, capitalized interest paid and included in purchases of property and equipment was $0.4 million and $0.5 million, respectively.
For a detailed discussion of the Company's financial results for the reported periods, see “Consolidated Results of Operations” included above. Changes in operating assets and liabilities before interest and income taxes are the result of the Company's working capital requirements.
During the Current Year Quarter, net cash used in investing activities was $22.6 million, primarily for the following:
capital expenditures were $21.2 million;
the Company sold one standby safety vessel and other equipment for $0.1 million cash and one vessel under construction for net proceeds of $4.3 million (all of which was a previously received deposit) and received $0.4 million in deposits for the future sale of vessels; and
the Company made investments in, and advances to, its 50% or less owned companies of $2.0 million, comprised primarily of its capital contribution in the SEACOSCO joint venture.
During the Prior Year Quarter, net cash used in investing activities was $28.1 million, primarily as a result of the following:
capital expenditures were $8.6 million;
the Company sold one fast support vessel and other equipment for net proceeds of $0.3 million ($0.4 million in cash and $0.1 million of previously received deposits); and
the Company made investments in and advances to, its 50% or less owned companies of $20.0 million for the new SEACOSCO joint venture.
During the Current Year Quarter, net cash used in financing activities was $7.6 million. The Company:
made scheduled payments on long-term debt and obligations of $4.4 million;
purchased subsidiary shares from a joint venture in which it had a noncontrolling interest for $3.4 million; and
issued Common Stock for proceeds of $0.1 million.
During the Prior Year Quarter, net cash used in financing activities was $8.5 million. The Company:
borrowed $10.0 million under the Revolving Loan Facility of Falcon Global USA LLC;
paid $15.0 million in debtor-in-possession obligations assumed from Montco Offshore Inc.;
converted €6.0 million of denominated debt into pound sterling debt, paying $7.5 million in euro debt and borrowing $8.5 million in pound sterling debt, resulting in a net increase in USD borrowings of $1.0 million;
made scheduled payments on long-term debt and capital lease obligations of $6.3 million; and
issued $1.8 million in stock in a private placement.
Short and Long-Term Liquidity Requirements
The Company believes that a combination of cash balances on hand, construction reserve funds, cash generated from operating activities, availability under existing subsidiary financing arrangements and access to the credit and capital markets will provide sufficient liquidity to meet its obligations, including to support its capital expenditures program, working capital and debt service requirements. The Company continually evaluates possible acquisitions and dispositions of certain businesses and assets. The Company’s sources of liquidity may be impacted by the general condition of the markets in which it operates and the broader economy as a whole, which may limit its access to the credit and capital markets on acceptable terms. Management will continue to closely monitor the Company’s performance and liquidity, as well as the credit and capital markets.
Off-Balance Sheet Arrangements
For a discussion of the Company’s off-balance sheet arrangements, refer to Liquidity and Capital Resources included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. There has been no material change in the Company’s off-balance sheet arrangements during the three months ended March 31, 2019.
Debt Securities and Credit Agreements
For a discussion of the Company’s debt securities and credit agreements, see “Note 4. Long-Term Debt” in the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and in “Note 7. Long-Term Debt” in the Company's audited consolidated financial statements included in its Annual Report on Form 10-K.
Contractual Obligations and Commercial Commitments
For a discussion of the Company’s contractual obligations and commercial commitments, refer to Liquidity and Capital Resources included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. There has been no material change in the Company’s contractual obligations and commercial commitments other than the adoption of ASC 842 during the three months ended March 31, 2019, see “Note 1. Basis of Presentation and Accounting Policies” and “Note 10. Stockholder Equity” in the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Contingencies
As of March 31, 2019, SEACOR Holdings has guaranteed $36.6 million on behalf of the Company for various obligations including: performance obligations under sale-leaseback arrangements and invoiced amounts for funding deficits under the MNOPF. Pursuant to a Distribution Agreement with SEACOR Holdings, SEACOR Holdings charges the Company a fee of 0.5% per annum on outstanding guaranteed amounts, which declines as the obligations are settled by the Company.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company’s exposure to market risk, refer to “Quantitative and Qualitative Disclosures About Market Risk” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. There has been no material change in the Company’s exposure to market risk during the Current Nine Months.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
With the participation of the Company’s principal executive officer and principal financial officer, management evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of March 31, 2019. Based on their evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2019.
The Company’s disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosures. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those internal control systems determined to be effective can provide only a level of reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II—OTHER INFORMATION
LEGAL PROCEEDINGS
For a description of developments with respect to pending legal proceedings described in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, see “Note 11. Commitments and Contingencies” included in Part I. Item 1. “Financial Statements” elsewhere in this Quarterly Report on Form 10-Q.
ITEM 1A.
RISK FACTORS
For a discussion of the Company’s risk factors, refer to “Risk Factors” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes in the Company’s risk factors during the Current Nine Months.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a), (b) On January 9, 2019, certain indirect wholly-owned subsidiaries of the Company entered into an asset purchase agreement with each of McCall Marine Transportation, L.L.C., Carlene McCall, L.L.C. and N.F. McCall Offshore, L.L.C. (the “Sellers” and such agreements, the “Asset Purchase Agreements”) pursuant to which the Company purchased a total of three fast support vessels (the “Asset Purchase”) in exchange for a private placement of 603,872 shares of common stock, par value $0.01 per share, of the Company (the “Consideration Shares”) that were issued to a limited number of affiliates of the Sellers (the “Seller Affiliates”) as purchase consideration. The issuance of the Consideration Shares pursuant to the Asset Purchase Agreement was made in reliance upon the exemption from registration provided under Section 4(a)(2) of the Securities Act. In determining that the issuance of the Consideration Shares qualified for an exemption under Section 4(a)(2), the Company relied on the following facts: (i) all of the Sellers and Seller Affiliates were accredited investors or qualified institutional buyers, (ii) the Company did not use any form of general solicitation or advertising to offer the common stock and (iii) the investment intent of the Seller Affiliates.
On March 15, 2019, Seabulk Overseas, a wholly-owned subsidiary of SEACOR Marine, acquired the remaining 6.25% minority interest in Windcat Workboats that it did not previously own upon the exercise by Roleen B.V. (the “Windcat Seller”) of a put option under a certain subscription and shareholders agreement, initially dated as of December 22, 2011, as amended. As partial consideration for the acquisition of such minority interest in Windcat Workboats, SEACOR Marine issued to an affiliate of Windcat Seller (“Windcat Seller Affiliate”) an aggregate of 50,000 shares of its common stock in a private placement in accordance with Section 4(a)(2) of the Securities Act, pursuant to the terms of a certain share purchase agreement with Windcat Seller. In determining that the issuance of the shares used as consideration for the acquisition of the minority interests in Windcat Workboats qualified for the exemption provided by Section 4(a)(2), the Company relied on the following facts: (i) the Windcat Seller and Windcat Seller Affiliate were accredited investors or qualified institutional buyers, (ii) the Company did not use any form of general solicitation or advertising to offer the common stock and (iii) the investment intent of the Windcat Seller or Windcat Seller Affiliate.
(c) This table provides information with respect to purchases by the Company of shares of its Common Stock during the Current Year Quarter:
Total Number of Shares Withheld (1)
Average Price per Share
Total Number of Shares Purchased as Part of a Publicly Announced Plan
Maximum Number of Shares that may be Purchased Under the Plan
January 1, 2019 to March 31, 2019
13.08
For the three months ended March 31, 2019, the Company acquired for treasury 21,551 shares of Common Stock for an aggregate purchase price of $281,833 from its employees to cover their tax withholding obligations upon the lapsing of restrictions on share awards. These shares were purchased in accordance with the terms of the Company’s 2017 Equity Incentive Plan.
DEFAULT UPON SENIOR SECURITIES
None.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
ITEM 6.
EXHIBITS
10.1
Form of Performance Restricted Stock Unit Grant Agreement under the SEACOR Marine Holdings Inc. 2017 Equity Incentive Plan
31.1
Certification by the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2
Certification by the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
Certification by the Principal Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**
XBRL Instance Document
101.SCH**
XBRL Taxonomy Extension Schema
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase
101.DEF**
XBRL Taxonomy Extension Definition Linkbase
101.LAB**
XBRL Taxonomy Extension Label Linkbase
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase
**
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SEACOR Marine Holdings Inc. (Registrant)
DATE:
May 10, 2019
By:
/s/ John Gellert
John Gellert, President,
Chief Executive Officer
(Principal Executive Officer)
/s/ Jesús Llorca
Jesús Llorca, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
/s/ Gregory S. Rossmiller
Gregory S. Rossmiller,
Senior Vice President
and Chief Accounting Officer
(Principal Accounting Officer)