UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017              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.)
 
 
7910 Main Street, 2nd Floor
 
 
Houma, LA
 
70360
(Address of Principal Executive Offices)
 
(Zip Code)
985-876-5400
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ¨    No  ý
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý     No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “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 x
(Do not check if a smaller
reporting company)
 
Smaller reporting company  ¨
 
Emerging growth company  x

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. ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  ý
The total number of shares of common stock, par value $.01 per share, outstanding as of August 10, 2017 was 17,671,356. The Registrant has no other class of common stock outstanding.



SEACOR MARINE HOLDINGS INC.
Table of Contents

Part I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
Item 3.
 
 
 
 
Item 4.
 
 
 
Part II.
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.


i


PART I—FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS
SEACOR MARINE HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)
 
June 30,
2017
 
December 31,
2016
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
150,958

 
$
117,309

Restricted cash
1,824

 
1,462

Marketable securities
688

 
40,139

Receivables:
 
 
 
Trade, net of allowance for doubtful accounts of $5,901 and $5,359 in 2017 and 2016, respectively
43,475

 
44,830

Due from SEACOR Holdings

 
19,102

Other
11,957

 
21,316

Inventories
3,376

 
3,058

Prepaid expenses and other
3,719

 
3,349

Total current assets
215,997

 
250,565

Property and Equipment:
 
 
 
Historical cost
1,155,155

 
958,759

Accumulated depreciation
(543,822
)
 
(540,619
)
 
611,333

 
418,140

Construction in progress
90,335

 
123,801

Net property and equipment
701,668

 
541,941

Investments, at Equity, and Advances to 50% or Less Owned Companies
100,719

 
138,311

Construction Reserve Funds
67,799

 
78,209

Other Assets
6,072

 
6,093

 
$
1,092,255

 
$
1,015,119

LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Current portion of long-term debt
$
81,593

 
$
20,400

Accounts payable and accrued expenses
23,436

 
25,969

Due to SEACOR Holdings
3,519

 

Other current liabilities
47,014

 
34,647

Total current liabilities
155,562

 
81,016

Long-Term Debt
233,904

 
217,805

Conversion Option Liability on 3.75% Convertible Senior Notes
27,109

 

Deferred Income Taxes
117,332

 
124,945

Deferred Gains and Other Liabilities
39,324

 
41,198

Total liabilities
573,231

 
464,964

Equity:
 
 
 
SEACOR Marine Holdings Inc. stockholders’ equity:
 
 
 
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued nor outstanding

 

Common stock, $.01 par value, 60,000,000 shares authorized; 17,671,356 shares issued in 2017 and 2016
177

 
177

Additional paid-in capital
302,678

 
306,359

Retained earnings
208,025

 
249,412

Accumulated other comprehensive loss, net of tax
(9,690
)
 
(11,337
)
 
501,190

 
544,611

Noncontrolling interests in subsidiaries
17,834

 
5,544

Total equity
519,024

 
550,155

 
$
1,092,255

 
$
1,015,119


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

1


SEACOR MARINE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(in thousands, except share data, unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Operating Revenues
$
42,323

 
$
57,271

 
$
76,627

 
$
117,150

Costs and Expenses:
 
 
 
 
 
 
 
Operating
44,482

 
44,245

 
77,861

 
93,095

Administrative and general
21,705

 
11,929

 
33,531

 
24,327

Depreciation and amortization
14,633

 
15,254

 
27,136

 
30,092

 
80,820

 
71,428

 
138,528

 
147,514

Losses on Asset Dispositions and Impairments, Net
(6,318
)
 
(20,357
)
 
(1,499
)
 
(20,737
)
Operating Loss
(44,815
)
 
(34,514
)
 
(63,400
)
 
(51,101
)
Other Income (Expense):
 
 
 
 
 
 
 
Interest income
275

 
987

 
1,125

 
2,398

Interest expense
(4,546
)
 
(2,585
)
 
(7,728
)
 
(4,943
)
SEACOR Holdings management fees
(1,283
)
 
(1,925
)
 
(3,208
)
 
(3,850
)
SEACOR Holdings guarantee fees
(75
)
 
(31
)
 
(151
)
 
(157
)
Marketable security gains (losses), net
(109
)
 
(2,492
)
 
11,629

 
(6,077
)
Derivative gains (losses), net
(213
)
 
163

 
(302
)
 
3,061

Foreign currency losses, net
(1,094
)
 
(819
)
 
(1,283
)
 
(2,379
)
Other, net

 

 
(1
)
 
265

 
(7,045
)
 
(6,702
)
 
81

 
(11,682
)
Loss Before Income Tax Benefit and Equity in Earnings (Losses) of 50% or Less Owned Companies
(51,860
)
 
(41,216
)
 
(63,319
)
 
(62,783
)
Income Tax Benefit
(13,800
)
 
(13,742
)
 
(17,222
)
 
(20,568
)
Loss Before Equity in Earnings (Losses) of 50% or Less Owned Companies
(38,060
)
 
(27,474
)
 
(46,097
)
 
(42,215
)
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax
1,571

 
(3,315
)
 
2,009

 
(1,154
)
Net Loss
(36,489
)
 
(30,789
)
 
(44,088
)
 
(43,369
)
Net Loss attributable to Noncontrolling Interests in Subsidiaries
(2,497
)
 
(209
)
 
(2,701
)
 
(830
)
Net Loss attributable to SEACOR Marine Holdings Inc.
$
(33,992
)
 
$
(30,580
)
 
$
(41,387
)
 
$
(42,539
)
 
 
 
 
 
 
 
 
Basic and Diluted Loss Per Common Share of SEACOR Marine Holdings Inc.
$
(1.93
)
 
$
(1.73
)
 
$
(2.34
)
 
$
(2.41
)
 
 
 
 
 
 
 
 
Basic and Diluted Weighted Average Common Shares Outstanding
17,631,567

 
17,671,356

 
17,651,352

 
17,671,356











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

2


SEACOR MARINE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net Loss
$
(36,489
)
 
$
(30,789
)
 
$
(44,088
)
 
$
(43,369
)
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
Foreign currency translation gains (losses)
1,865

 
(4,069
)
 
2,784

 
(5,425
)
Derivative losses on cash flow hedges
(429
)
 
(1,820
)
 
(438
)
 
(3,605
)
Reclassification of derivative losses on cash flow hedges to interest expense
37

 

 
49

 

Reclassification of derivative losses on cash flow hedges to equity in earnings of 50% or less owned companies
147

 
1,087

 
335

 
1,295

 
1,620

 
(4,802
)
 
2,730

 
(7,735
)
Income tax (expense) benefit
(533
)
 
1,498

 
(887
)
 
2,462

 
1,087

 
(3,304
)
 
1,843

 
(5,273
)
Comprehensive Loss
(35,402
)
 
(34,093
)
 
(42,245
)
 
(48,642
)
Comprehensive Loss attributable to Noncontrolling Interests in Subsidiaries
(2,399
)
 
(730
)
 
(2,505
)
 
(1,530
)
Comprehensive Loss attributable to SEACOR Marine Holdings Inc.
$
(33,003
)
 
$
(33,363
)
 
$
(39,740
)
 
$
(47,112
)
































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

3


SEACOR MARINE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in thousands, unaudited)
 
SEACOR Marine Holdings Inc. Stockholders’ Equity
 
Non-
Controlling
Interests In
Subsidiaries
 
Total
Equity
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
December 31, 2016
$
177

 
$
306,359

 
$
249,412

 
$
(11,337
)
 
$
5,544

 
$
550,155

Distribution of SEACOR Marine restricted stock to Company personnel by SEACOR Holdings

 
(2,656
)
 

 

 

 
(2,656
)
Amortization of share awards

 
89

 

 

 

 
89

Purchase of subsidiary shares from noncontrolling interests

 
(1,114
)
 

 

 
(2,579
)
 
(3,693
)
Consolidation of 50% or less owned companies

 

 

 

 
17,374

 
17,374

Net loss

 

 
(41,387
)
 

 
(2,701
)
 
(44,088
)
Other comprehensive income

 

 

 
1,647

 
196

 
1,843

Six Months Ended June 30, 2017
$
177

 
$
302,678

 
$
208,025

 
$
(9,690
)
 
$
17,834

 
$
519,024





































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

4


SEACOR MARINE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
 
Six Months Ended June 30,
 
2017
 
2016
Net Cash Provided By (Used In) Operating Activities
$
53,736

 
$
(8,940
)
Cash Flows from Investing Activities:
 
 
 
Purchases of property and equipment
(28,803
)
 
(45,840
)
Cash settlements on derivative transactions, net
(324
)
 

Proceeds from disposition of property and equipment
9,549

 
3,139

Investments in and advances to 50% or less owned companies
(4,216
)
 
(6,194
)
Return of investments and advances from 50% or less owned companies
7,439

 

Payments received on third party notes receivable, net

 
504

Net increase in restricted cash
(362
)
 

Net decrease in construction reserve funds
10,410

 
76,710

Cash assumed on consolidation of 50% or less owned companies
1,943

 

Business acquisitions, net of cash acquired
(9,751
)
 

Net cash provided by (used in) investing activities
(14,115
)
 
28,319

Cash Flows from Financing Activities:
 
 
 
Payments on long-term debt
(3,973
)
 
(24,638
)
Proceeds from issuance of long-term debt, net of issue costs
3,223

 
22,463

Distribution of SEACOR Marine restricted stock to Company personnel by SEACOR Holdings
(2,656
)
 

Purchase of subsidiary shares from noncontrolling interests
(3,693
)
 

Distributions to noncontrolling interests

 
(205
)
Net cash used in financing activities
(7,099
)
 
(2,380
)
Effects of Exchange Rate Changes on Cash and Cash Equivalents
1,127

 
(1,115
)
Net Increase in Cash and Cash Equivalents
33,649

 
15,884

Cash and Cash Equivalents, Beginning of Period
117,309

 
150,242

Cash and Cash Equivalents, End of Period
$
150,958

 
$
166,126





















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

5


SEACOR MARINE HOLDINGS INC.
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 Company’s financial position as of June 30, 2017, its results of operations for the three and six months ended June 30, 2017 and 2016, its comprehensive loss for the three and six months ended June 30, 2017 and 2016, its changes in equity for the six months ended June 30, 2017, and its cash flows for the six months ended June 30, 2017 and 2016. The condensed consolidated financial information for the three and six months ended June 30, 2017 and 2016 has not been audited by the Company’s independent registered certified public accounting firm. 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 for the year ended December 31, 2016 included in the Information Statement filed as Exhibit 99.1 to Amendment No. 3 to the Company’s Registration Statement on Form 10, which was declared effective on May 11, 2017 (the “Registration Statement”).
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. Capitalized terms used and not specifically defined herein have the same meaning given those terms in the Registration Statement.
SEACOR Marine was previously a subsidiary of SEACOR Holdings Inc. (along with its other majority owned subsidiaries collectively referred to as “SEACOR Holdings”). On June 1, 2017, SEACOR Holdings completed a spin-off of SEACOR Marine by way of a pro rata dividend of SEACOR Marine’s common stock, par value $0.01 per share (“Common Stock”), all of which was then held by SEACOR Holdings, to SEACOR Holdings shareholders of record as of May 22, 2017 (the “Spin-off”). SEACOR Marine entered into certain agreements with SEACOR Holdings to govern SEACOR Marine’s relationship with SEACOR Holdings following the Spin-off, including a Distribution Agreement, two Transition Services Agreements, an Employee Matters Agreement and a Tax Matters Agreement. Following the Spin-off, SEACOR Marine began to operate as an independent, publicly traded company.
Revenue Recognition. The Company recognizes revenue when it is realized or realizable and earned. Revenue is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable, and collectability is reasonably assured. Revenue that does not meet these criteria is deferred until the criteria are met. Deferred revenues, included in other current liabilities in the accompanying condensed consolidated balance sheets, for the six months ended June 30 were as follows (in thousands):
 
2017
 
2016
Balance at beginning of period
$
6,953

 
$
6,953

Revenues deferred during the period
2,337

 

Balance at end of period
$
9,290

 
$
6,953

As of June 30, 2017, deferred revenues of $6.8 million related to the time charter of several offshore support vessels paid through the conveyance of an overriding royalty interest (the “Conveyance”) in developmental oil and gas producing properties operated by a customer in the U.S. Gulf of Mexico. Payments under the Conveyance, and the timing of such payments, were contingent upon production and energy sale prices. On August 17, 2012, the customer filed a voluntary petition for Chapter 11 bankruptcy. The Company is vigorously defending its interest in connection with the bankruptcy filing; however, payments received under the Conveyance subsequent to May 19, 2012 are subject to creditors’ claims in bankruptcy court. The Company will recognize revenues when reasonably assured of a judgment in its favor. All costs and expenses related to these charters were recognized as incurred.
As of June 30, 2017, deferred revenues of $2.3 million related to the time charter of an offshore support vessel to a customer from 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.
    

6


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 June 30, 2017, the estimated useful life (in years) of each of the Company’s major categories of new equipment was as follows:
Offshore Support Vessels:
 
Wind farm utility vessels
10
All other offshore support vessels (excluding wind farm utility)
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 six months ended June 30, 2017, capitalized interest totaled $2.3 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 discounted cash flows or appraisals, as appropriate. During the six months ended June 30, 2017, the Company recognized impairment charges of $5.7 million primarily associated with one leased-in supply vessel removed from service as it is not expected to be marketed prior to being returned to its owner.
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 that 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 six months ended June 30, 2017, the Company did not recognize any impairment charges related to its 50% or less owned companies.
Income Taxes. During the six months ended June 30, 2017, the Company’s effective income tax rate of 27.2% was primarily due to non-deductible Spin-off-related expenses reimbursed to SEACOR Holdings and losses of foreign subsidiaries not benefited. During the six months ended June 30, 2016, the Company’s effective income tax rate of 32.8% was primarily due to non-deductible expenses associated with the Company’s participation in SEACOR Holdings’ share award plans and losses of foreign subsidiaries not benefited.

7


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. 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. Deferred gain activity related to these transactions for the six months ended June 30 was as follows (in thousands):
 
2017
 
2016
Balance at beginning of period
$
33,910

 
$
43,298

Amortization of deferred gains included in operating expenses as a reduction to leased-in equipment expense
(4,099
)
 
(4,099
)
Amortization of deferred gains included in gains (losses) on asset dispositions and impairments, net

 
(36
)
Other
(364
)
 
(1,153
)
Balance at end of period
$
29,447

 
$
38,010

Accumulated Other Comprehensive Loss. The components of accumulated other comprehensive loss were as follows (in thousands):
 
SEACOR Marine Holdings Inc. Stockholders’ Equity
 
Noncontrolling Interests
 
 
Foreign
Currency
Translation
Adjustments
 
Derivative
Losses on
Cash Flow
Hedges, net
 
Total
 
Foreign
Currency
Translation
Adjustments
 
Derivative
Gains on
Cash Flow
Hedges, net
 
Other
Comprehensive
Income
December 31, 2016
$
(11,413
)
 
$
76

 
$
(11,337
)
 
$
(1,614
)
 
$
(17
)
 
 
Other comprehensive income
2,608

 
(74
)
 
2,534

 
176

 
20

 
$
2,730

Income tax expense
(913
)
 
26

 
(887
)
 

 

 
(887
)
Six Months Ended June 30, 2017
$
(9,718
)
 
$
28

 
$
(9,690
)
 
$
(1,438
)
 
$
3

 
$
1,843

Loss Per Share. Basic loss per common share of the Company is computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted loss per common share of the Company is computed based on the weighted average number of common shares issued and outstanding plus the effect of potentially dilutive securities through the application of the treasury stock and if-converted method. Dilutive securities for this purpose assumes restricted stock grants have vested and common shares have been issued pursuant to the conversion of the 3.75% Convertible Senior Notes. For the six months ended June 30, 2017 and 2016, diluted earnings per common share of SEACOR Marine excluded 4,070,500 common shares issuable pursuant to the Company’s 3.75% Convertible Senior Notes as the effect of their inclusion in the computation would be anti-dilutive. For the six months ended June 30, 2017, diluted earnings per common share of SEACOR Marine also excluded 120,693 shares of restricted stock as the effect of their inclusion in the computation would be anti-dilutive.
New Accounting Pronouncements. On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under generally accepted accounting principles in the United States. The core principal of the new standard is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. The Company will adopt the new standard on January 1, 2018 and expects to use the modified retrospective approach upon adoption. The Company is currently determining the impact, if any, the adoption of the new accounting standard will have on its consolidated financial position, results of operations or cash flows. Principal versus agent considerations of the new standard with respect to the Company’s vessel management services and pooling arrangements may result in a gross presentation of operating revenues and expenses compared with its current net presentation for results from managed and pooled third party equipment.
On February 25, 2016, the FASB issued a comprehensive new leasing standard, which improves transparency and comparability among companies by requiring lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. The new standard is effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption. Early adoption is permitted. The Company 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.

8


On August 26, 2016, the FASB issued an amendment to the accounting standard which amends or clarifies guidance on classification of certain transactions in the statement of cash flows, including classification of proceeds from the settlement of insurance claims, debt prepayments, debt extinguishment costs and contingent consideration payments after a business combination. This new standard is effective for the Company as of January 1, 2018 and early adoption is permitted. The Company has not yet determined what impact, if any, the adoption of the new standard will have on its consolidated financial position, results of operations or cash flows.
On October 24, 2016, the FASB issued a new accounting standard, which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory. The new standard is effective for interim and annual periods beginning after December 31, 2017 and requires a modified retrospective approach to adoption. The Company has not yet determined what impact, if any, the adoption of the new standard will have on its consolidated financial position, results of operations or cash flows.
On November 17, 2016, the FASB issued an amendment to the accounting standard which requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted.
2.
BUSINESS ACQUISITIONS
Sea-Cat Crewzer II. On April 28, 2017, the Company acquired a 100% controlling interest in Sea-Cat Crewzer II, which owns and operates two high-speed offshore catamarans, through the acquisition of its partners’ 50% ownership interest for $11.3 million in cash (see Note 4). The Company performed a fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in no goodwill being recorded.
Sea-Cat Crewzer. On April 28, 2017, the Company acquired a 100% controlling interest in Sea-Cat Crewzer, which owns and operates two high-speed offshore catamarans, through the acquisition of its partners’ 50% ownership interest for $4.4 million in cash (see Note 4). The Company performed a fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in no goodwill being recorded.
Purchase Price Accounting. The allocation of the purchase price for the Company’s acquisitions for the six months ended June 30, 2017 was as follows (in thousands):
Trade and other receivables
235

Other current assets
4,148

Investments, at Equity, and Advances to 50% or Less Owned Companies
(15,700
)
Property and Equipment
61,626

Accounts payable
747

Other current liabilities
(76
)
Long-Term Debt
(41,186
)
Other
(43
)
Purchase price(1)
$
9,751

______________________
(1)
Purchase price is net of cash acquired totaling $5.9 million.
3.
EQUIPMENT ACQUISITIONS AND DISPOSITIONS
During the six months ended June 30, 2017, capital expenditures and payments on fair value hedges were $29.1 million. Equipment deliveries during the six months ended June 30, 2017 included four fast support vessels.
During the six months ended June 30, 2017, the Company sold two liftboats, one supply vessel, four offshore support vessels previously retired and removed from service and other equipment for net proceeds of $10.0 million ($9.5 million in cash and $0.5 million of previously received deposits) and gains of $4.2 million.

9



4.
INVESTMENTS, AT EQUITY, AND ADVANCES TO 50% OR LESS OWNED COMPANIES
MexMar. MexMar owns and operates 15 offshore support vessels in Mexico. During the six months ended June 30, 2017, the Company and its partner each received cash capital distributions of $7.4 million from MexMar.
Falcon Global. Falcon Global was formed to construct and operate two foreign-flag liftboats. During the three months ended March 31, 2017, the Company and its partner each contributed additional capital of $0.4 million, and the Company made working capital advances of $2.0 million to Falcon Global. In March 2017, the Company’s partner declined to participate in a capital call from Falcon Global and, as a consequence, the Company obtained 100% voting control of Falcon Global in accordance with the terms of the operating agreement. The impact of consolidating Falcon Global’s net assets effective March 31, 2017 to the Company’s financial position was as follows (in thousands):
Cash
$
1,943

Marketable securities
785

Trade and other receivables
(291
)
Investments, at Equity, and Advances to 50% or Less Owned Companies
(19,374
)
Property and Equipment
96,000

Accounts payable
3,201

Other current liabilities
1,153

Long-Term Debt
58,335

Other Liabilities
(1,000
)
Noncontrolling interests in subsidiaries
17,374

Sea-Cat Crewzer II. Sea-Cat Crewzer II owns and operates two high-speed offshore catamarans. On April 28, 2017, the Company acquired a 100% controlling interest in Sea-Cat Crewzer II through the acquisition of its partners’ 50% ownership interest for $11.3 million in cash (see Note 2).
Sea-Cat Crewzer. Sea-Cat Crewzer owns and operates two high-speed offshore catamarans. On April 28, 2017, the Company acquired a 100% controlling interest in Sea-Cat Crewzer through the acquisition of its partners’ 50% ownership interest for $4.4 million in cash (see Note 2).
OSV Partners. OSV Partners owns and operates five offshore support vessels. OSV Partners is currently in non-compliance with its debt service coverage ratio and its maximum leverage ratio pursuant to its term loan facility and has received waivers from its lenders for these financial covenants through and including September 30, 2017. As of June 30, 2017, the remaining principal amount outstanding under the facility was $31.8 million. The Company has recently participated in a $6.0 million preferred equity offering of OSV Partners and invested $2.3 million ($1.8 million in June 2017 and an additional $0.5 million in August 2017) in support of the venture. The lenders to OSV Partners have no recourse to the Company for outstanding amounts under the facility, and the Company is not obligated to any future fundings to OSV Partners.
Other. The Company’s other 50% or less owned companies own and operate eight vessels. During the six months ended June 30, 2017, the Company received dividends of $1.6 million from these 50% or less owned companies.
Guarantees. The Company has guaranteed the payment of amounts owed under a vessel charter by one of its 50% or less owned companies. As of June 30, 2017, the total amount guaranteed by the Company under this arrangement was $0.8 million. In addition, as of June 30, 2017, the Company had uncalled capital commitments to two of its 50% or less owned companies totaling $1.8 million.
5.
LONG-TERM DEBT
3.75% Convertible Senior Notes. Certain features included in the 3.75% Convertible Senior Notes, including the Exchange Option and the 2018 Put Option, terminated upon the completion of the Spin-off.
Upon completion of the Spin-off, the Company bifurcated the embedded conversion option liability of $27.3 million from the 3.75% Convertible Senior Notes and recorded an additional debt discount. The adjusted unamortized debt discount and issuance costs are being amortized as additional non-cash interest expense over the remaining maturity of the debt (December 1, 2022) for an overall effective interest rate of 7.95%.

10


Falcon Global Term Loan Facility. On August 3, 2015, Falcon Global entered into a term loan facility to finance the construction of two foreign-flag liftboats. The facility consisted of two tranches: (i) a $62.5 million facility to fund the construction costs of the liftboats (“Tranche A”) and (ii) a $18.0 million facility for certain project costs (“Tranche B”). Borrowings under the facility bear interest at variable rates based on LIBOR plus a margin ranging from 2.5% to 2.9%, or an average rate of 3.97% as of June 30, 2017. The facility is secured by the liftboats and is repayable over a five year period beginning the earlier of either six months after completion of the construction of the liftboats or June 30, 2017 and matures no later than June 30, 2022. In March 2017, the Company’s partner declined to participate in a capital call from Falcon Global and, as a consequence, the Company obtained 100% voting control of Falcon Global in accordance with the terms of the operating agreement. The Company has consolidated into its financial statements Falcon Global’s debt under this facility of $58.3 million, net of issue costs of $1.0 million, effective March 31, 2017 (see Note 4). During April 2017, the Tranche B facility was canceled prior to any funding. During the three months ended June 30, 2017, Falcon Global made scheduled payments of $1.5 million under Tranche A. As of June 30, 2017, the remaining principal amount outstanding under the facility was $57.8 million and is fully guaranteed by SEACOR Marine.
Falcon Global is currently not in compliance with certain financial maintenance covenants in the facility, including its debt service coverage ratio, maximum leverage ratio and minimum liquidity covenant and has received waivers from its lenders for these financial covenants for testing periods through and including December 31, 2017. The current waiver would not apply to the testing period ended March 31, 2018. The waiver agreement requires that SEACOR Marine provide a $14.5 million subordinated working capital loan to Falcon Global with the amount being fully funded by December 31, 2017. Falcon Global has one liftboat under charter, subject to customer approval, with several prospects developing for its second liftboat. Given the uncertainties surrounding the future financial performance of the two newly delivered liftboats and Falcon Global’s ability to meet its financial covenants for the next twelve months, the Company has classified the outstanding amounts due under the term loan facility as current obligations.
Sea-Cat Crewzer II. On April 28, 2017, the Company acquired a 100% controlling interest in Sea-Cat Crewzer II through the acquisition of its partners’ 50% ownership interest (see Notes 2 and 4). Sea-Cat Crewzer II has a term loan facility that matures in 2019 which is secured by a first preferred mortgage on its vessels. The facility calls for quarterly payments of principal and interest with a balloon payment of $17.3 million due at maturity. The interest rate is fixed at 1.52%, inclusive of an interest rate swap, plus a margin ranging from 2.10% to 2.75% subject to the level of funded debt (overall rate of 4.27% as of June 30, 2017). The balance of this facility as of June 30, 2017 was $22.1 million.
Sea-Cat Crewzer. On April 28, 2017, the Company acquired a 100% controlling interest in Sea-Cat Crewzer through the acquisition of its partners’ 50% ownership interest (see Notes 2 and 4). Sea-Cat Crewzer has a term loan facility that matures in 2019 which is secured by a first preferred mortgage on its vessels. The facility calls for quarterly payments of principal and interest with a balloon payment of $15.3 million due at maturity. The interest rate is fixed at 1.52%, inclusive of an interest rate swap, plus a margin ranging from 2.10% to 2.75% subject to the level of funded debt (overall rate of 4.27% as of June 30, 2017). The balance of this facility as of June 30, 2017 was $19.6 million.
Other. During the six months ended June 30, 2017, the Company borrowed $3.4 million under the Sea-Cat Crewzer III Term Loan Facility to fund capital expenditures and made scheduled payments on other long-term debt of $2.5 million. As of June 30, 2017, the Company had $4.6 million of borrowing capacity under subsidiary facilities.
Letters of Credit. As of June 30, 2017, the Company had outstanding letters of credit totaling $16.7 million with various expiration dates through 2018 that have been issued on behalf of the Company by SEACOR Holdings. Additionally, the Company has other labor and performance guarantees of $0.9 million.

11


6.
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 as of June 30, 2017 were as follows (in thousands):
 
Derivative
Asset(1)
 
Derivative
Liability(2)
Derivatives designated as hedging instruments:
 
 
 
Forward currency exchange contracts (fair value hedges)
$

 
$
27

Interest rate swap agreements (cash flow hedges)
74

 
30

 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
Conversion option liability on 3.75% Convertible Senior Notes

 
27,109

Forward currency exchange, option and future contracts
151

 

Interest rate swap agreements

 
566

 
$
225

 
$
27,732

______________________
(1)
Included in other receivables in the accompanying condensed consolidated balance sheets.
(2)
Included in other current liabilities in the accompanying condensed consolidated balance sheets, except for the conversion option liability on the 3.75% Convertible Senior Notes.
Fair Value Hedges. From time to time, the Company may designate certain of its foreign currency exchange contracts as fair value hedges in respect of capital commitments denominated in foreign currencies. By entering into these foreign currency exchange contracts, the Company may fix a portion of its capital commitments denominated in foreign currencies in U.S. dollars to protect against currency fluctuations. As of June 30, 2017, the Company had euro denominated forward currency exchange contracts designated as fair value hedges with a U.S. dollar equivalent of $1.9 million. During the six months ended June 30, 2017, the Company recognized gains of $0.1 million on these contracts which were included as decreases to the corresponding hedged equipment included in construction in progress in the accompanying condensed consolidated balance sheets.
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 losses on derivative instruments designated as cash flow hedges of $0.4 million and $3.6 million during the six months ended June 30, 2017 and June 30, 2016, respectively. As of June 30, 2017, the interest rate swaps held by the Company and its 50% or less owned companies were as follows:
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)% on the aggregate notional value of €15.0 million ($17.1 million) and receive a variable interest rate based on EURIBOR on the aggregate notional value.
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% on the aggregate amortized notional value of $117.2 million and receive a variable interest rate based on LIBOR on the aggregate amortized notional value.
Sea-Cat Crewzer II had an interest rate swap agreement maturing in 2019 that calls for the Company to pay a fixed rate of interest of 1.52% on the amortized notional value of $22.1 million and receive a variable interest rate based on LIBOR on the amortized notional value.
Sea-Cat Crewzer had an interest rate swap agreement maturing in 2019 that calls for the Company to pay a fixed rate of interest of 1.52% on the amortized notional value of $19.6 million and receive a variable interest rate based on LIBOR on the amortized notional value.

12


Other Derivative Instruments. The Company recognized gains (losses) on derivative instruments not designated as hedging instruments for the six months ended June 30 as follows (in thousands):
 
2017
 
2016
Conversion option liability on 3.75% Convertible Senior Notes
$
145

 
$

Options on equities and equity indices

 
3,079

Forward currency exchange, option and future contracts
(56
)
 

Interest rate swap agreements
(391
)
 
(18
)
 
$
(302
)
 
$
3,061

The conversion option liability relates to the bifurcated embedded conversion option in the 3.75% Convertible Senior Notes (see Note 5).
The Company may hold positions in publicly traded equity options that convey the right or obligation to engage in a future transaction on the underlying equity security or index. Historically, the Company’s investment in equity options has primarily included positions in energy related businesses. These contracts are typically entered into to mitigate the risk of changes in market value of marketable security positions that the Company is either about to acquire, has acquired or is about to dispose.
The Company enters and settles forward currency exchange, option and future contracts with respect to various foreign currencies. As of June 30, 2017, the fair market value of the outstanding forward currency exchange, option and future contracts was an unrealized gain of $0.1 million These contracts enable the Company to buy currencies in the future at fixed exchange rates, which could offset possible consequences of changes in currency exchange rates with respect to the Company’s business conducted outside of the United States. The Company generally does not enter into contracts with forward settlement dates beyond twelve to eighteen months.
The Company and certain of its 50% or less owned companies have entered into interest rate swap agreements for the general purpose of providing protection against increases in interest rates, which might lead to higher interest costs. As of June 30, 2017, the interest rate swaps held by the Company or its 50% or less owned companies were as follows:
Falcon Global had an interest rate swap agreement maturing in 2022 that calls for the Company to pay a fixed interest rate of 2.06% on the amortized notional value of $59.4 million and receive a variable interest rate based on LIBOR on the amortized notional value.
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% on the aggregate amortized notional value of $35.5 million and receive a variable interest rate based on LIBOR on the aggregate amortized notional value.
Dynamic Offshore had an interest rate swap agreement maturing in 2018 that calls for Dynamic Offshore to pay a fixed interest rate of 1.30% on the amortized notional value of $69.1 million and receive a variable interest rate based on LIBOR on the amortized notional value.
7.
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.

13


The Company’s financial assets and liabilities as of June 30, 2017 that are measured at fair value on a recurring basis were as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
Marketable securities(1)
$
688

 
$

 
$

Derivative instruments (included in other receivables)

 
225

 

Construction reserve funds
67,799

 

 

LIABILITIES
 
 
 
 
 
Derivative instruments (included in other current liabilities)

 
623

 

Conversion option liability on 3.75% Convertible Senior Notes

 

 
27,109

____________________
(1)
Marketable security gains (losses), net include unrealized losses of $0.1 million for the six months ended June 30, 2017 related to marketable security positions held by the Company as of June 30, 2017.
The fair value of the conversion option liability on the 3.75% 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 exchanging 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 marine transportation and energy industries.
The estimated fair values of the Company’s other financial assets and liabilities as of June 30, 2017 were as follows (in thousands):
 
 
 
Estimated Fair Value
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash
$
152,782

 
$
152,782

 
$

 
$

Investments, at cost, in 50% or less owned companies (included in other assets)
132

 
see below

 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
$
315,497

 
$

 
$
283,893

 
$

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 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’s other assets and liabilities that were measured at fair value during the six months ended June 30, 2017 were as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
Investments, at equity, and advances to 50% or less owned companies
$
15,700

 
$

 
$
19,374

Investments, at equity, and advances in 50% or less owned companies. During the six months ended June 30, 2017, the Company marked its investments in Sea-Cat Crewzer and Sea-Cat Crewzer II to fair value upon the acquisition of 100% controlling interests in the companies. The fair values were determined based on the purchase price of the acquired interests.
    

14


During the six months ended June 30, 2017, the Company’s partner declined to participate in a capital call from Falcon Global and, as a consequence, the Company obtained 100% voting control of Falcon Global in accordance with the terms of the operating agreement (see Note 4). Upon the change in control, the Company marked its investment in Falcon Global to fair value. Falcon Global’s primary assets consist of two newly constructed foreign-flag liftboats. The estimated fair value of the liftboats was the primary input used by the Company in determining the fair value of its investment based on a third-party valuation using significant inputs that are unobservable in the market and therefore are considered a Level 3 fair value measurement. Due to limited market transactions, the primary valuation methodology applied by the appraisers was an estimated cost approach less economic obsolescence based on utilization and rates per day worked trending over the prior year in the Middle East region where the vessels are intended to operate.
8.
NONCONTROLLING INTERESTS IN SUBSIDIARIES
Noncontrolling interests in the Company’s consolidated subsidiaries were as follows (in thousands):
 
Noncontrolling Interests
 
June 30, 2017
 
December 31, 2016
Falcon Global
50%
 
$
14,855

 
$

Windcat Workboats
12.5%
 
2,695

 
5,266

Other
1.8%
 
284

 
278

 
 
 
 
 
$
17,834

 
$
5,544

Falcon Global. Falcon Global owns and operates two foreign-flag liftboats. In March 2017, the Company’s partner declined to participate in a capital call from Falcon Global and, as a consequence, the Company obtained 100% voting control of Falcon Global in accordance with the terms of the operating agreement and began consolidating Falcon Global’s net assets effective March 31, 2017 (see Note 4). As of June 30, 2017, the net assets of Falcon Global were $29.7 million. During the six months ended June 30, 2017, the net loss of Falcon Global was $5.0 million, of which $2.5 million was attributable to noncontrolling interests.
Windcat Workboats. Windcat Workboats owns and operates the Company’s wind farm utility vessels that are primarily used to move personnel and supplies in the major offshore wind markets of Europe. During the six months ended June 30, 2017, the Company acquired an additional 12.5% of Windcat Workboats from noncontrolling interests for $3.7 million. As of June 30, 2017, the net assets of Windcat Workboats were $21.6 million. During the six months ended June 30, 2017, the net loss of Windcat Workboats was $0.7 million, of which $0.2 million was attributable to noncontrolling interests. During the six months ended June 30, 2016, the net loss of Windcat Workboats was $3.3 million, of which $0.8 million was attributable to noncontrolling interests.
9.    RELATED PARTY TRANSACTIONS
In connection with the Spin-off, SEACOR Marine entered into certain agreements with SEACOR Holdings to govern SEACOR Marine’s relationship with SEACOR Holdings following the Spin-off, including a Distribution Agreement, two Transition Services Agreements, an Employee Matters Agreement and a Tax Matters Agreement.
Following the completion of the Spin-off, the Company is no longer charged management fees by SEACOR Holdings for their corporate costs. However, the Company continues to be supported by SEACOR Holdings for corporate services provided post Spin-off for a fixed net fee of $6.3 million per annum pursuant to the Transition Services Agreements with SEACOR Holdings. The fees incurred will decline as the services and functions provided by SEACOR Holdings are terminated and replicated within the Company. Fees incurred by the Company pursuant to the Transition Services Agreements are recognized as additional administrative and general expenses in the accompanying statements of loss.
As of June 30, 2017, SEACOR Holdings has guaranteed $107.7 million for various obligations of the Company, including: debt facility and letter of credit obligations; performance obligations under sale-leaseback arrangements; and invoiced amounts for funding deficits under the MNOPF. Pursuant to a Transition Services Agreement with SEACOR Holdings, SEACOR Holdings charges the Company a fee of 0.5% on outstanding guaranteed amounts, which declines as the guaranteed obligations are settled by the Company. The Company recognized guarantee fees in connection with its sale-leaseback arrangements of $0.2 million for the six months ended June 30, 2017 and 2016 as additional leased-in equipment operating expenses in the accompanying statements of loss. Guarantee fees paid to SEACOR Holdings for all other obligations are recognized as SEACOR Holdings guarantee fees in the accompanying statements of loss.

15


Certain officers and employees of the Company received compensation through participation in SEACOR Holdings share award plans. Pursuant to the Employee Matters Agreement with SEACOR Holdings, participating Company personnel vested in all outstanding SEACOR Holdings share awards upon the Spin-off and received SEACOR Marine restricted stock from the Spin-off distribution in connection with outstanding SEACOR Holdings restricted stock held. As a consequence, the Company paid SEACOR Holdings $9.4 million upon completion of the Spin-off, including $2.7 million for the distribution of SEACOR Marine restricted stock, which is amortized over the participants’ remaining vesting periods, and $6.7 million on the accelerated vesting of SEACOR Holdings share awards, which was immediately recognized as additional administrative and general expenses in the accompanying statements of loss.
Pursuant to one of the Transitions Services Agreements with SEACOR Holdings, the Company is obligated to reimburse SEACOR Holdings up to 50% of the severance and restructuring costs actually incurred by SEACOR Holdings as a result of the Spin-off up to, but not in excess of, $6.0 million (such that the Company shall not be obligated to pay more than $3.0 million). As of June 30, 2017, the Company has reimbursed SEACOR Holdings severance and restructuring costs of $0.7 million recognized as additional administrative and general expenses in the accompanying statements of loss.
Immediately preceding the Spin-off and pursuant to an Investment Agreement dated November 30, 2015 with the holders of the 3.75% Convertible Senior Notes, the Company reimbursed SEACOR Holdings for the final settlement of non-deductible Spin-off related expenses of $3.4 million recognized as additional administrative and general expenses in the accompanying statements of loss.
10.
COMMITMENTS AND CONTINGENCIES
As of June 30, 2017, the Company had unfunded capital commitments of $76.4 million that included six fast support vessels, three supply vessels and one wind farm utility vessel. These commitments included $15.4 million for one supply vessel that may be assumed by a third party at their option. The Company’s capital commitments by year of expected payment are as follows (in thousands):
Remainder of 2017
$
10,457

2018
50,960

2019
13,219

2020
1,800

 
$
76,436

Subsequent to June 30, 2017, the Company committed to acquire additional equipment for $12.3 million.
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.


16


11.    SEGMENT INFORMATION
The Company’s segment presentation and basis of measurement of segment profit or loss are as previously described in the Company’s Registration Statement. The following tables summarize the operating results, capital expenditures and assets of the Company’s reportable segments.
 
United States (primarily Gulf of Mexico)
$’000
 
Africa (primarily West Africa)
$’000
 
Middle East and Asia
$’000
 
Brazil, Mexico, Central and South America
$’000
 
Europe (primarily North Sea)
$’000
 
Total
$’000
For the three months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
Time charter
4,889

 
7,786

 
7,415

 

 
18,713

 
38,803

Bareboat charter

 

 

 
1,156

 

 
1,156

Other marine services
1,198

 
215

 
109

 
162

 
680

 
2,364

 
6,087

 
8,001

 
7,524

 
1,318

 
19,393

 
42,323

Direct Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating:
 
 
 
 
 
 
 
 
 
 
 
Personnel
4,183

 
3,428

 
4,147

 
148

 
8,671

 
20,577

Repairs and maintenance
937

 
3,234

 
3,947

 
116

 
2,191

 
10,425

Drydocking
310

 
683

 
358

 

 
900

 
2,251

Insurance and loss reserves
1,205

 
357

 
353

 
4

 
207

 
2,126

Fuel, lubes and supplies
545

 
704

 
908

 
27

 
1,006

 
3,190

Other
51

 
871

 
1,061

 
3

 
237

 
2,223

 
7,231

 
9,277

 
10,774

 
298

 
13,212

 
40,792

Direct Vessel Profit (Loss)
(1,144
)
 
(1,276
)
 
(3,250
)
 
1,020

 
6,181

 
1,531

Other Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating:
 
 
 
 
 
 
 
 
 
 
 
Leased-in equipment
2,205

 
969

 
516

 

 

 
3,690

Administrative and general
 
 
 
 
 
 
 
 
 
 
21,705

Depreciation and amortization
5,749

 
2,059

 
3,979

 
784

 
2,062

 
14,633

 
 
 
 
 
 
 
 
 
 
 
40,028

Losses on Asset Dispositions and Impairments, Net
 
 
 
 
 
 
 
 
 
(6,318
)
Operating Loss
 
 
 
 
 
 
 
 
 
 
(44,815
)

17


 
United States (primarily Gulf of Mexico)
$’000
 
Africa (primarily West Africa)
$’000
 
Middle East and Asia
$’000
 
Brazil, Mexico, Central and South America
$’000
 
Europe (primarily North Sea)
$’000
 
Total
$’000
For the six months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
Time charter
7,884

 
13,633

 
13,238

 

 
34,778

 
69,533

Bareboat charter

 

 

 
2,299

 

 
2,299

Other marine services
2,024

 
407

 
986

 
237

 
1,141

 
4,795

 
9,908

 
14,040

 
14,224

 
2,536

 
35,919

 
76,627

Direct Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating:
 
 
 
 
 
 
 
 
 
 
 
Personnel
7,313

 
6,036

 
7,270

 
161

 
16,588

 
37,368

Repairs and maintenance
1,674

 
3,778

 
4,523

 
120

 
3,925

 
14,020

Drydocking
883

 
1,740

 
516

 

 
2,179

 
5,318

Insurance and loss reserves
2,010

 
539

 
699

 
11

 
426

 
3,685

Fuel, lubes and supplies
855

 
1,263

 
1,432

 
27

 
1,955

 
5,532

Other
123

 
1,517

 
2,526

 
4

 
487

 
4,657

 
12,858

 
14,873

 
16,966

 
323

 
25,560

 
70,580

Direct Vessel Profit (Loss)
(2,950
)
 
(833
)
 
(2,742
)
 
2,213

 
10,359

 
6,047

Other Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating:
 
 
 
 
 
 
 
 
 
 
 
Leased-in equipment
4,416

 
1,939

 
862

 

 
64

 
7,281

Administrative and general
 
 
 
 
 
 
 
 
 
 
33,531

Depreciation and amortization
11,349

 
3,649

 
6,506

 
1,449

 
4,183

 
27,136

 
 
 
 
 
 
 
 
 
 
 
67,948

Losses on Asset Dispositions and Impairments, Net
 
 
 
 
 
 
 
 
 
(1,499
)
Operating Loss
 
 
 
 
 
 
 
 
 
 
(63,400
)
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Property and Equipment:
 
 
 
 
 
 
 
 
 
 
 
Historical cost
417,675

 
183,661

 
302,892

 
78,976

 
171,951

 
1,155,155

Accumulated depreciation
(233,758
)
 
(59,300
)
 
(83,880
)
 
(41,565
)
 
(125,319
)
 
(543,822
)
 
183,917

 
124,361

 
219,012

 
37,411

 
46,632

 
611,333


18


 
United States (primarily Gulf of Mexico)
$’000
 
Africa (primarily West Africa)
$’000
 
Middle East and Asia
$’000
 
Brazil, Mexico, Central and South America
$’000
 
Europe (primarily North Sea)
$’000
 
Total
$’000
For the three months ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
Time charter
8,726

 
8,902

 
10,554

 

 
21,052

 
49,234

Bareboat charter

 

 

 
3,045

 

 
3,045

Other marine services
1,054

 
131

 
2,641

 
498

 
668

 
4,992

 
9,780

 
9,033

 
13,195

 
3,543

 
21,720

 
57,271

Direct Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating:
 
 
 
 
 
 
 
 
 
 
 
Personnel
6,368

 
3,324

 
5,058

 
367

 
10,724

 
25,841

Repairs and maintenance
643

 
522

 
1,659

 
59

 
2,544

 
5,427

Drydocking
175

 
426

 
(284
)
 

 
1,646

 
1,963

Insurance and loss reserves
680

 
36

 
151

 
(12
)
 
248

 
1,103

Fuel, lubes and supplies
234

 
598

 
1,498

 
112

 
911

 
3,353

Other
28

 
883

 
827

 
75

 
293

 
2,106

 
8,128

 
5,789

 
8,909

 
601

 
16,366

 
39,793

Direct Vessel Profit
1,652

 
3,244

 
4,286

 
2,942

 
5,354

 
17,478

Other Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating:
 
 
 
 
 
 
 
 
 
 
 
Leased-in equipment
1,858

 
975

 
1,123

 
367

 
129

 
4,452

Administrative and general
 
 
 
 
 
 
 
 
 
 
11,929

Depreciation and amortization
7,157

 
1,615

 
3,059

 
1,200

 
2,223

 
15,254

 
 
 
 
 
 
 
 
 
 
 
31,635

Losses on Asset Dispositions and Impairments, Net
 
 
 
 
 
 
 
 
 
(20,357
)
Operating Loss
 
 
 
 
 
 
 
 
 
 
(34,514
)

19


 
United States (primarily Gulf of Mexico)
$’000
 
Africa (primarily West Africa)
$’000
 
Middle East and Asia
$’000
 
Brazil, Mexico, Central and South America
$’000
 
Europe (primarily North Sea)
$’000
 
Total
$’000
For the six months ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
Time charter
19,768

 
20,041

 
18,707

 
196

 
42,095

 
100,807

Bareboat charter

 

 

 
5,697

 

 
5,697

Other marine services
1,965

 
36

 
6,729

 
884

 
1,032

 
10,646

 
21,733

 
20,077

 
25,436

 
6,777

 
43,127

 
117,150

Direct Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating:
 
 
 
 
 
 
 
 
 
 
 
Personnel
14,130

 
6,409

 
9,236

 
1,895

 
21,729

 
53,399

Repairs and maintenance
1,402

 
1,493

 
3,493

 
207

 
5,126

 
11,721

Drydocking
217

 
584

 
1,393

 

 
3,472

 
5,666

Insurance and loss reserves
1,679

 
248

 
414

 
37

 
603

 
2,981

Fuel, lubes and supplies
747

 
974

 
2,452

 
193

 
2,084

 
6,450

Other
189

 
1,408

 
1,606

 
170

 
671

 
4,044

 
18,364

 
11,116

 
18,594

 
2,502

 
33,685

 
84,261

Direct Vessel Profit
3,369

 
8,961

 
6,842

 
4,275

 
9,442

 
32,889

Other Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating:
 
 
 
 
 
 
 
 
 
 
 
Leased-in equipment
3,720

 
1,952

 
2,299

 
734

 
129

 
8,834

Administrative and general
 
 
 
 
 
 
 
 
 
 
24,327

Depreciation and amortization
14,034

 
3,193

 
5,977

 
2,399

 
4,489

 
30,092

 
 
 
 
 
 
 
 
 
 
 
63,253

Losses on Asset Dispositions and Impairments, Net
 
 
 
 
 
 
 
 
 
(20,737
)
Operating Loss
 
 
 
 
 
 
 
 
 
 
(51,101
)
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Property and Equipment:
 
 
 
 
 
 
 
 
 
 
 
Historical cost
446,819

 
162,040

 
224,060

 
87,632

 
178,363

 
1,098,914

Accumulated depreciation
(211,585
)
 
(75,267
)
 
(95,133
)
 
(50,701
)
 
(124,223
)
 
(556,909
)
 
235,234

 
86,773

 
128,927

 
36,931

 
54,140

 
542,005

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 June 30, 2017, the Company’s investments, at equity, and advances to 50% or less owned companies in MexMar and its other 50% or less owned companies were $58.7 million and $42.0 million, respectively. Equity in earnings (losses) of 50% or less owned companies, net of tax, were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
MexMar
$
1,222

 
$
846

 
$
2,589

 
$
3,431

Other
349

 
(4,161
)
 
(580
)
 
(4,585
)
 
$
1,571

 
$
(3,315
)
 
$
2,009

 
$
(1,154
)

20


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. Certain statements discussed in this Form 10-Q as well as in other reports, materials and oral statements that the Company releases from time to time to the public constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “believe,” “plan,” “target,” “forecast” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements concern management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters. These statements are not guarantees of future performance and actual events or results may differ significantly from these statements. Actual events or results are subject to significant known and unknown risks, uncertainties and other important factors, including decreased demand and loss of revenues as a result of a decline in the price of oil and resulting decrease in capital spending by oil and gas companies, an oversupply of newly built offshore support vessels, additional safety and certification requirements for drilling activities in the U.S. Gulf of Mexico and delayed approval of applications for such activities, the possibility of U.S. government implemented moratoriums directing operators to cease certain drilling activities in the U.S. Gulf of Mexico and any extension of such moratoriums, weakening demand for the Company’s services as a result of unplanned customer suspensions, cancellations, rate reductions or non-renewals of vessel charters or failures to finalize commitments to charter vessels in response to a decline in the price of oil, an oversupply of newly built offshore support vessels, increased government legislation and regulation of the Company’s businesses could increase cost of operations, increased competition if the Jones Act and related regulations are repealed, liability, legal fees and costs in connection with the provision of emergency response services, such as the response to the oil spill as a result of the sinking of the Deepwater Horizon in April 2010, decreased demand for the Company’s services as a result of declines in the global economy, declines in valuations in the global financial markets and a lack of liquidity in the credit sectors, including, interest rate fluctuations, availability of credit, inflation rates, change in laws, trade barriers, commodity prices and currency exchange fluctuations, the cyclical nature of the oil and gas industry, activity in foreign countries and changes in foreign political, military and economic conditions, including as a result of the recent vote in the U.K. to leave the European Union, changes in foreign and domestic oil and gas exploration and production activity, safety record requirements, compliance with U.S. and foreign government laws and regulations, including environmental laws and regulations and economic sanctions, the dependence on several key customers, consolidation of the Company’s customer base, the ongoing need to replace aging vessels, industry fleet capacity, restrictions imposed by the Jones Act and related regulations on the amount of foreign ownership of the Company’s Common Stock, operational risks, effects of adverse weather conditions and seasonality, adequacy of insurance coverage, the ability to remediate the material weaknesses the Company has identified in its internal controls over financial reporting, the attraction and retention of qualified personnel by the Company, and various other matters and factors, many of which are beyond the Company’s control as well as those discussed in “Risk Factors” included in the Information Statement filed as Exhibit 99.1 to Amendment No. 3 to the Company’s Registration Statement on Form 10 and other reports filed by the Company with the SEC. It should be understood that it is not possible to predict or identify all such factors. Consequently, the preceding should not be considered to be a complete discussion of all potential risks or uncertainties. 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, except as required by law. It is advisable, however, to consult any further disclosures the Company makes on related subjects in its filings with the Securities and Exchange Commission, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (if any). These statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995.
Overview
The Company provides global marine and support transportation services to offshore oil and gas exploration, development and production facilities worldwide. The Company currently operates a diverse fleet of 182 support and specialty vessels, of which 138 are owned or leased-in, 28 are joint ventured, 13 are managed on behalf of unaffiliated third parties and three are operated under pooling arrangements. The primary users of the Company’s services are major integrated oil companies, large independent oil and gas exploration and production companies and emerging independent companies.
The Company operates its fleet in five principle 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; 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 the 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 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.

21


Offshore oil and gas market conditions deteriorated beginning in 2014 and continued to deteriorate in 2016 when oil prices hit a twelve-year low of less than $27 per barrel (on the New York Mercantile Exchange) in February 2016. This decline in oil and gas prices led to a decrease in offshore drilling and associated activity. The Company continued to experience difficult market conditions through the second quarter of 2017 but has experienced a modest improvement from seasonal maintenance and construction activity in the Middle East and U.S. Gulf of Mexico.
Low oil prices and the subsequent decline in offshore exploration have forced many operators in the industry to restructure or liquidate assets. The Company continues to closely monitor 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) weak oil and gas prices leading to lower customer exploration and drilling activity levels, and (ii) the increasing size of the global offshore support vessel fleet as 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.
The Spin-off. SEACOR Marine was previously a subsidiary of SEACOR Holdings Inc. (along with its other majority owned subsidiaries collectively referred to as “SEACOR Holdings”). On June 1, 2017, SEACOR Holdings completed a spin-off of SEACOR Marine by way of a pro rata dividend of SEACOR Marine’s common stock, par value $0.01 per share (“Common Stock”), all of which was then held by SEACOR Holdings, to SEACOR Holdings shareholders of record as of May 22, 2017 (the “Spin-off”). SEACOR Marine entered into certain agreements with SEACOR Holdings to govern SEACOR Marine’s relationship with SEACOR Holdings following the Spin-off, including a Distribution Agreement, two Transition Services Agreements, an Employee Matters Agreement and a Tax Matters Agreement. Following the Spin-off, SEACOR Marine began to operate as an independent, publicly traded company.

22


Results of Operations
The sections below provide an analysis of the Company’s results of operations for the three months (“Current Year Quarter”) and six months (“Current Six Months”) ended June 30, 2017 compared with the three months (“Prior Year Quarter”)and six months (“Prior Six Months”) ended June 30, 2016. For the periods indicated, the Company’s consolidated results of operations were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
$’000
 
%
 
$’000
 
%
 
$’000
 
%
 
$’000
 
%
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Time charter
38,803

 
92

 
49,234

 
86

 
69,533

 
91

 
100,807

 
86

Bareboat charter
1,156

 
3

 
3,045

 
5

 
2,299

 
3

 
5,697

 
5

Other marine services
2,364

 
5

 
4,992

 
9

 
4,795

 
6

 
10,646

 
9

 
42,323

 
100

 
57,271

 
100

 
76,627

 
100

 
117,150

 
100

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating: