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, 2018              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  ☐

 

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  ☒     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 ☒

(Do not check if a smaller

reporting company)

 

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  ☒

 

The total number of shares of common stock, par value $.01 per share, outstanding as of May 9, 2018 was 20,020,155. The Registrant has no other class of common stock outstanding.

 

 

 

 

SEACOR MARINE HOLDINGS INC.

 

Table of Contents

 

 

Part I.

Financial Information

1
     
 

Item 1.

Financial Statements (Unaudited)

1
     
   

Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

1
     
   

Condensed Consolidated Statements of Loss for the Three Months Ended March 31, 2018 and 2017

2
     
   

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2018 and 2017

3
       
   

Condensed Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2018

4
     
   

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017

5
     
   

Notes to Condensed Consolidated Financial Statements

6
     
 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19
     
 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36
     
 

Item 4.

Controls and Procedures

37
     

Part II.

Other Information

38
     
 

Item 1.

Legal Proceedings

38
       
 

Item 1A.

Risk Factors

38
       
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38
       
 

Item 3.

Default Upon Senior Securities

38
       
 

Item 4.

Mine Safety Disclosures

38
       
 

Item 5.

Other Information

38
       
 

Item 6.

Exhibits

38

 

i

 
 
 

PART I—FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

   

March 31,

2018

   

December 31,

2017

 

ASSETS

               

Current Assets:

               

Cash and cash equivalents

  $ 62,738     $ 110,234  

Restricted cash

    2,316       2,317  

Receivables:

               

Trade, net of allowance for doubtful accounts of $3,858 and $4,039 in 2018 and 2017, respectively

    45,664       45,616  

Other

    17,039       12,341  

Inventories

    3,975       3,756  

Prepaid expenses and other

    3,613       3,026  

Total current assets

    135,345       177,290  

Property and Equipment:

               

Historical cost

    1,320,496       1,179,836  

Accumulated depreciation

    (580,461

)

    (560,160

)

      740,035       619,676  

Construction in progress

    80,682       70,157  

Net property and equipment

    820,717       689,833  

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

    112,219       92,169  

Construction Reserve Funds

    45,361       45,361  

Other Assets

    3,736       3,851  
    $ 1,117,378     $ 1,008,504  

LIABILITIES AND EQUITY

               

Current Liabilities:

               

Current portion of long-term debt

  $ 22,858     $ 22,858  

Accounts payable and accrued expenses

    25,551       24,024  

Due to SEACOR Holdings

    1,583       1,358  

Accrued wages and benefits

    4,958       5,087  

Accrued income taxes

    4,339       4,290  

Accrued capital, repair and maintenance expenditures

    23,818       19,618  

Deferred revenues

    9,430       10,104  

Other current liabilities

    12,820       11,879  

Total current liabilities

    105,357       99,218  

Long-Term Debt

    405,234       292,041  

Conversion Option Liability on Convertible Senior Notes

    18,991       6,832  

Deferred Income Taxes

    56,024       55,506  

Deferred Gains and Other Liabilities

    28,600       31,741  

Total liabilities

    614,206       485,338  

Equity:

               

SEACOR Marine Holdings Inc. stockholders’ equity:

               

Common stock, $.01 par value, 60,000,000 shares authorized; 17,786,569 and 17,675,356 shares issued in 2018 and 2017

    178       177  

Additional paid-in capital

    306,639       303,996  

Retained earnings

    175,609       216,511  

Accumulated other comprehensive loss, net of tax

    (10,424

)

    (12,493

)

      472,002       508,191  

Noncontrolling interests in subsidiaries

    31,170       14,975  

Total equity

    503,172       523,166  
    $ 1,117,378     $ 1,008,504  

 

The accompanying notes are an integral part of these condensed consolidated financial statements

and should be read in conjunction herewith.

 

1

Table of Contents
 

 

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS

(in thousands, except share data)

 

   

Three Months Ended March 31,

 
   

2018

   

2017

 

Operating Revenues

  $ 51,721     $ 34,304  

Costs and Expenses:

               

Operating

    41,173       33,379  

Administrative and general

    12,807       11,826  

Depreciation and amortization

    19,512       12,503  
      73,492       57,708  

Gains (Losses) on Asset Dispositions and Impairments, Net

    (2,643 )     4,819  

Operating Loss

    (24,414 )     (18,585 )

Other Income (Expense):

               

Interest income

    216       850  

Interest expense

    (6,133 )     (3,182 )

SEACOR Holdings management fees

    -       (1,925 )

SEACOR Holdings guarantee fees

    (12 )     (76 )

Marketable security gains (losses), net

    -       11,738  

Derivative gains (losses), net

    (11,516 )     (89 )

Foreign currency losses, net

    139       (189 )

Other, net

    -       (1 )
      (17,306 )     7,126  

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

    (41,720 )     (11,459 )

Income Tax Benefit

    (9,824 )     (3,422 )

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

    (31,896 )     (8,037 )

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

    208       438  

Net Loss

    (31,688 )     (7,599 )

Net Loss attributable to Noncontrolling Interests in Subsidiaries

    (2,855 )     (204 )

Net Loss attributable to SEACOR Marine Holdings Inc.

  $ (28,833 )   $ (7,395 )
                 

Basic and Diluted Loss Per Common Share of SEACOR Marine Holdings Inc.

  $ (1.64)     $ (0.42 )
                 

Basic and Diluted Weighted Average Common Shares Outstanding:

    17,571,490       17,671,356  

 

The accompanying notes are an integral part of these condensed consolidated financial statements

and should be read in conjunction herewith.

 

2

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SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

 

   

Three Months Ended March 31,

 
   

2018

   

2017

 

Net Loss

  $ (31,688 )   $ (7,599 )

Other Comprehensive Income (Loss):

               

Foreign currency translation gains (losses)

    1,912       919  

Derivative gains (losses) on cash flow hedges

    131       (9 )

Reclassification of derivative losses on cash flow hedges to interest expense

    1       12  

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

    129       188  
      2,173       1,110  

Income tax (expense) benefit

    (27 )     (354 )
      2,146       756  

Comprehensive Loss

    (29,542 )     (6,843 )

Comprehensive Loss attributable to Noncontrolling Interests in Subsidiaries

    (2,778 )     (106 )

Comprehensive Loss attributable to SEACOR Marine Holdings Inc.

  $ (26,764 )   $ (6,737 )

 

The accompanying notes are an integral part of these condensed consolidated financial statements

and should be read in conjunction herewith.

 

3

Table of Contents
 

 

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(in thousands)

 

 

    Common Stock    

Additional Paid-In Capital

   

Retained Earnings

   

Accumulated Other Comprehensive Income (Loss)

   

Noncontrolling Interests In Subsidiaries

   

Total Equity

 
                                                 

December 31, 2017

  $ 177     $ 303,996     $ 216,511     $ (12,493 )   $ 14,975     $ 523,166  

Impact of adoption of accounting principle

                (12,069 )                 (12,069 )

December 31, 2017 as adjusted

    177       303,996       204,442       (12,493 )     14,975       511,097  

Issuance of common stock

    1       1,792                         1,793  

Amortization of employee share awards

          476                         476  
Acquisition of a consolidated joint venture                             (12,037 )     (12,037 )

Issuance of non-controlling interests

          375                   31,010       31,385  

Net loss

                (28,833 )           (2,855 )     (31,688 )

Other comprehensive income

                      2,069       77       2,146  

March 31, 2018

  $ 178     $ 306,639     $ 175,609     $ (10,424 )   $ 31,170     $ 503,172  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

and should be read in conjunction herewith.

 

4

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SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

   

Three Months Ended March 31,

 
   

2018

   

2017

 

Cash Flows from Operating Activities

               

Net Loss

  $ (31,688 )   $ (7,599 )
Adjustments to reconcile net loss to net cash (used in)provided by operating activities                

Depreciation and amortization

    19,512       12,503  

Deferred financing costs amortization

    237       897  

Restricted stock amortization

    258        

Option amortization

    218        

Debt discount/(premium) amortization

    1,494       1,109  

Amortization of deferred gains against charter expense

    (2,009 )     (2,050 )

Bad debt expense (income)

    (26 )     1,559  

(Gain)/loss from equipment sales or retirements

    2,643       (4,819 )

(Gains)/losses from sale of marketable securities, net

          (11,738 )

Proceeds from sale of securities

          51,877  

Derivative (income) / losses

    11,516       89  

Cash settlement on derivative transactions, net

    (129 )     (22 )

Currency (gain) / loss

    (139 )     189  

Deferred income taxes

    (11,286 )     (4,503 )

Equity earnings, net

    (208 )     (438 )

Changes in Operating Assets and Liabilities:

               

Accounts receivables

    (3,342 )     4,909  

Other assets

    (346 )     19,025  

Accounts payable and accrued liabilities

    1,786       4,308  
Net cash (used in) provided by operating activities     (11,509 )     65,296  

Cash Flows from Investing Activities:

               

Purchases of property and equipment

    (8,557 )     (10,143 )

Cash settlements on derivative transactions, net

          (324 )

Proceeds from disposition of property and equipment

    282       8,297  

Investments in and advances to 50% or less owned companies

    (19,950 )     (2,394 )
Return of investments and advances from 50% or less owned companies     99       7,350  

Payments received on third party notes receivable, net

          1,943  

Net (increase) decrease in construction reserve funds

          (5,268 )

Net cash used in investing activities

    (28,126 )     (539 )

Cash Flows from Financing Activities:

               

Payments on long-term debt

    (28,807 )     (1,173 )

Proceeds from issuance of long-term debt, net of issue costs

    18,471       3,396  

Proceeds from issuance of Common Stock

    1,793        

Net cash (used in) provided by financing activities

    (8,543 )     2,223  

Effects of Exchange Rate Changes on Cash and Cash Equivalents

    682       269  

Net (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash

    (47,496 )     67,249  

Cash, Cash Equivalents and Restricted Cash, Beginning of Period

    112,551       118,771  

Cash, Cash Equivalents and Restricted Cash, End of Period

  $ 65,055     $ 186,020  

 

The accompanying notes are an integral part of these condensed consolidated financial statements

and should be read in conjunction herewith.

 

5

Table of Contents

 

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 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, 2017.  

 

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 Company's Annual Report on Form 10-K for the year ended December 31, 2017.

 

SEACOR Marine was previously a subsidiary of SEACOR Holdings Inc. (along with its consolidated subsidiaries, other than SEACOR Marine and its 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. Immediately following the Spin-off, SEACOR Marine began to operate as an independent, publicly traded company.

 

Recently Adopted Accounting Standards. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers (Topic 606)” to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements. The new standard supersedes current revenue recognition requirements and industry-specific guidance. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The Company adopted this new standard on January 1, 2018 using the modified retrospective approach by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of accumulated deficit. The Company implemented the necessary changes to its business processes, systems and controls to support recognition and disclosure of this ASU upon adoption. The Company's revenues are primarily based on leases or rental agreements with customers and is not addressed in the new standard. As a result, the adoption of the standard did not have a material effect on the Company's financial position, results of operations or cash flows, but did result in increased disclosures related to revenue recognition policies.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash, which requires that amounts generally described as restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. The Company adopted this new standard on January 1, 2018. Retrospective presentation was required. The adoption of the standard did not have a material effect on the Company's financial position, results of operations or cash flows. In accordance with ASU 2016-18, the Company has included restricted cash as part of the beginning-of-period and end-of-period cash balances on the condensed consolidated statement of cash flows.

 

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 primary source of the Company’s revenues is earned through time charter and bareboat agreements. Time charter and bareboat agreements are rental agreements that are recognized ratably over the lease term as the services are provided, typically on a per day basis. The charterer will take the vessel on hire for a specific period of time and uses the vessel to move cargo, people or equipment and will pay the Company a rate per day. Under a time charter, the Company provides a vessel to a customer for a set term and 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 and the risk of operation (see Note 11).

 

6

 

 

Revenues from Customers. 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 the manager, the Company undertakes to use its best endeavors to provide the agreed management services as agents for and on behalf of the 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 services hereunder. 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 span over the length of one to three years and are typically billed on a monthly basis. The Company transfers control of the service to the customer and 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 11).

 

Revenue that does not meet these criteria is deferred until the criteria is met and are considered contract liabilities. Contract liabilities, included in other current liabilities in the accompanying condensed consolidated balance sheets, for the three months ended March 31 were as follows (in thousands):

 

    2018       2017    

Balance at beginning of period

  $ 10,104       $ 6,953    

Revenues deferred during the period

    875         1,536    
Revenues recognized during the period     (1,550)         —     

Balance at end of period

  $ 9,429       $ 8,489    

 

As of March 31, 2018, contract liabilities 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 March 31, 2018, contract liabilities of $2.4 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.

 

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, 2018, 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 three months ended March 31, 2018, capitalized interest totaled $0.5 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 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.

 

7

 

 

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, 2018, the Company recognized impairment charges of $1.2 million related to one of its 50% or less owned companies which the Company believes will be unable to meet all of its liabilities.

 

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. During the three months ended March 31, 2017, the Company’s effective income tax rate of 29.9% was primarily due to losses of foreign subsidiaries not benefited.

 

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 three months ended March 31 was as follows (in thousands):

 

    2018       2017  

Balance at beginning of period

  $ 25,006       $ 33,910  
Amortization of deferred gains included in operating expenses as a reduction to rental expense     (2,009)          
Other adjustments      (25)         (2,050

)

Balance at end of period

  $ 22,972       $ 31,860  

 

Accumulated Other Comprehensive Income (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

Income (Losses) on

Cash Flow

Hedges, net

   

Total

   

Foreign

Currency

Translation

Adjustments

   

Derivative

Income (Losses) on

Cash Flow

Hedges, net

   

Other

Comprehensive

Income (Loss)

 

December 31, 2017

  $ (13,195

)

  $ 702     $ (12,493

)

  $ (1,357

)

  $ 1          

Other comprehensive income (loss)

    1,832       264       2,096       80       (3 )   $ 2,173  

Income tax expense

          (27

)

    (27

)

                (27

)

Three Months Ended March 31, 2018

  $ (11,363

)

  $ 939     $ (10,424

)

  $ (1,277

)

  $ (2 )   $ 2,146  

 

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 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 each of the three months ended March 31, 2018 and 2017, diluted earnings per common share of the Company excluded 4,070,500 common shares issuable pursuant to the Company’s Convertible Senior Notes (see Note 12) as the effect of their inclusion in the computation would be anti-dilutive.  In addition, diluted loss per common share of the Company excluded 94,507 shares of restricted stock and 653,700 outstanding stock options as the effect of their inclusion in the computation would be anti-dilutive.

 

New Accounting Pronouncements. 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 Company will adopt the new standard on January 1, 2019 and will use the modified retrospective approach upon adoption. The Company expects the adoption of the new standard will have a material impact on its consolidated financial position, results of operations and cash flows, although it has not yet determined the extent of the impact.

 

8

 

 

 

 

2.

EQUIPMENT ACQUISITIONS AND DISPOSITIONS

 

During the three months ended March 31, 2018, capital expenditures were $8.6 million. Equipment deliveries during the three months ended March 31, 2018 included six liftboats contributed from Montco Offshore, LLC (“MOI”) to certain designated wholly-owned subsidiaries of Falcon Global Holdings LLC (“FGH”) as described in Note 4 below and two platform supply vessels constructed through the SEACOSCO joint venture as described in Note 3 below. 

 

During the three months ended March 31, 2018, the Company sold one fast support vessel previously retired and removed from service, property and other equipment for net proceeds of $0.4 million ($0.3 million in cash and $0.1 million of previously received deposits) and gains of $0.2 million, all of which were recognized currently.

 

 

3.

INVESTMENTS, AT EQUITY, AND ADVANCES TO 50% OR LESS OWNED COMPANIES

 

SEACOSCO. On January 17, 2018, the Company announced the formation of SEACOSCO Offshore LLC (“SEACOSCO”), a Marshall Islands entity jointly owned by the Company and affiliates of COSCO SHIPPING GROUP (“COSCO SHIPPING”).  SEACOSCO entered into contracts for the purchase of eight Rolls-Royce designed, new construction platform supply vessels (“PSVs”) from COSCO SHIPPING HEAVY INDUSTRY (GUANGDONG) CO., LTD (the “Shipyard”), an affiliate of COSCO SHIPPING, for approximately $161.1 million, of which 70% will be financed by the Shipyard, and secured by the PSVs on a non-recourse basis to the Company.  SEACOSCO took delivery of two vessels in the quarter ending March 31, 2018, and will take title to another five of the PSVs in 2018 and one in 2019.  Thereafter, the Shipyard, at its cost, will store the PSVs at its facility for periods ranging from six to 18 months.  The Company's total committed investment for construction and working capital requirements is approximately $27.5 million for an unconsolidated 50% interest in SEACOSCO.  During the three months ended March 31, 2018, the Company and its partner each contributed additional capital of $20.0 million in cash. The remaining committed investment will be due over the next 14 months as the vessel and equipment are delivered.  The Company is responsible for full commercial, operational, and technical management of the vessels on a worldwide basis.

 

SEACOR Grant DIS.   As of March 31, 2018, the Company estimates that SEACOR Grant DIS will be unable to meet all its liabilities, and has recorded a bad debt reserve of $0.3 million against SEACOR Grant DIS's liability to the Company and an impairment charge of $1.2 million to reduce its investment carrying value to zero.

 

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, 2018, the total amount guaranteed by the Company under this arrangement was $0.4 million.

 

In addition, as of March 31, 2018, two of the Company's 50% or less owned companies have bank debt secured by, among other things, a first preferred mortgage on their 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.  In such event, the Company would be required to contribute its allocable share of uncalled capital, which was $1.4 million in the aggregate.

 

 

 

4.

LONG-TERM DEBT

 

Convertible Senior Notes.  As of March 31, 2018, the Company had issued and outstanding $175.0 million aggregate principal amount of its Convertible Senior Notes due December 1, 2022 (the “Convertible Senior Notes”) to affiliates of the Carlyle Group (collectively “Carlyle”).  Interest on the Convertible Senior Notes is payable semi-annually on June 15 and December 15 of each year.  The Convertible Senior Notes are convertible into shares of Common Stock. On May 2, 2018, certain terms of the Convertible Senior Notes were amended and the Company exchanged $50 million in principal amount of the Convertible Senior Notes for warrants to purchase shares of Common Stock (see Note 12).

 

9

 

 

MOI Joint Venture. On February 8, 2018, a wholly-owned subsidiary of the Company and MOI formed and capitalized a joint venture named Falcon Global Holdings LLC.  In connection therewith and MOI’s plan of reorganization, which was confirmed on January 18, 2018, MOI emerged from its Chapter 11 bankruptcy case. In accordance with the terms of a Joint Venture Contribution and Formation Agreement, the Company and MOI contributed certain liftboat vessels and other related assets to FGH and its designated subsidiaries, and FGH and its designated subsidiaries assumed certain operating liabilities and indebtedness associated with the liftboat vessels and related assets. On February 8, 2018, Falcon Global USA LLC (“FGUSA”), a wholly-owned subsidiary of FGH, paid $15.0 million of MOI’s debtor-in-possession obligations and entered into a $131.1 million credit agreement comprised of a $116.1 million term loan (the "FGUSA Term Loan") and a $15.0 million revolving loan facility (the "FGUSA Revolving Loan Facility") bearing interest at a variable rate (currently 6.44%), maturing in 2024, and secured by vessels owned by wholly-owned subsidiaries of FGUSA (the “FGUSA Credit Facility”). The full amount of the FGUSA Term Loan and other amounts paid by affiliates of MOI satisfied in full the amounts outstanding under MOI’s pre-petition credit facilities. The FGUSA Credit Facility, apart from a guarantee of certain interest payments and participation fees for two years after the closing of the transactions, is non-recourse to SEACOR Marine and its subsidiaries other than FGUSA. The Company performed a preliminary fair market valuation of the debt reflecting a debt discount of $10.0 million, which will be amortized over the life of the FGUSA Credit Facility. The preliminary fair market valuation is subject to revision as additional information regarding the fair market value of assets and liabilities acquired becomes available. Scheduled principal payments begin in 2020.   During the quarter ending March 31, 2018, the Company borrowed $10.0 million under the FGUSA Revolving Loan Facility for working capital purposes.  The Company consolidates 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.

 

Windcat. During the three months ended March 31, 2018, the Company converted €6.0 million denominated debt to pound sterling debt, paying off approximately $7.5 million in euro debt and borrowing approximately $8.5 million in pound sterling debt, resulting in a net increase in USD borrowings of $1.0 million to be used for future capital commitments.

 

Letters of Credit. As of March 31, 2018, the Company had outstanding letters of credit for labor and performance guarantees of $1.8 million.

 

 

 

5.

 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, 2018:

 

Statutory rate     21.0 %
Noncontrolling interests     (1.3 )%
Foreign earnings not subject to U.S. income tax     (3.7 )%
Foreign taxes not creditable against U.S. income tax     (2.0 )%
Unrecognized tax benefit     9.3 %

Other

    0.2 %
      23.5 %

 

As of December 31, 2017, the Company's net operating loss carryforwards excluded potential tax benefits of $3.9 million as a result of uncertainty regarding interpretation of the new U.S. tax legislation signed into law on December 22, 2017. Subsequent guidance has confirmed that the Company should recognize the tax benefits of $3.9 million and therefore the Company is removing the valuation allowance previously established against the net operating loss carryforwards.

 

 

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 March 31, 2018 were as follows (in thousands):

 

   

Derivative

Asset(1)

   

Derivative

Liability

 

Derivatives designated as hedging instruments:

               

Interest rate swap agreements (cash flow hedges)

  $ 408     $ 1 (2)
      408       1  

Derivatives not designated as hedging instruments:

               
Conversion option liability on Convertible Senior Notes           18,991  

Interest rate swap agreements

    862       14 (2)
    $ 1,270     $ 19,006  

 

______________________

(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.

   
10

 

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, 2018. As of March 31, 2018, 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 (approximately $18.5 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 $110.8 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 Sea-Cat Crewzer II to pay a fixed rate of interest of 1.52% on the amortized notional value of $20.3 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 Sea-Cat Crewzer to pay a fixed rate of interest of 1.52% on the amortized notional value of $18.0 million and receive a variable interest rate based on LIBOR on the amortized notional value.

 

Other Derivative Instruments. The Company recognized gains (losses) on derivative instruments not designated as hedging instruments for the three months ended March 31 as follows (in thousands):

 

   

2018

   

2017

 

Conversion option liability on Convertible Senior Notes

  $ (12,159 )   $  

Forward currency exchange, option and future contracts

          (89

)

Interest rate swap agreements

    643        
    $ (11,516 )   $ (89

)

 

The conversion option liability relates to the bifurcated embedded conversion option in the Convertible Senior Notes (see Note 7 in the Company's Annual Report on Form 10-K for the year ended December 31, 2017).

 

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 March 31, 2018, the interest rate swaps held by the Company or its 50% or less owned companies were as follows:

 

 

Falcon Global International 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 $54.7 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 $33.0 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 $64.2 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.

 

The Company’s financial assets and liabilities as of March 31, 2018 that are measured at fair value on a recurring basis were as follows (in thousands):

 

   

Level 1

   

Level 2

   

Level 3

 

ASSETS

                       

Derivative instruments (included in other receivables)

  $     $ 1,270     $  

Construction reserve funds

    45,361              

LIABILITIES

                       

Derivative instruments

          15       18,991  
11

 

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 marine transportation and energy industries. 

 

The estimated fair values of the Company’s other financial assets and liabilities as of March 31, 2018 were as follows (in thousands):

 

           

Estimated Fair Value

 
   

Carrying

Amount

   

Level 1

   

Level 2

   

Level 3

 

ASSETS

                               

Cash, cash equivalents and restricted cash

  $ 65,054     $ 65,054     $     $  

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

    132    

see below

                 

LIABILITIES

                               

Long-term debt, including current portion

    428,092             405,769        

 

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. The long-term debt includes $121.6 million, net, assumed from FGUSA. 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 three months ended March 31, 2018 were as follows (in thousands):

 

   

Level 1

   

Level 2

   

Level 3

 

ASSETS

                       
Property and equipment:                        

Anchor handling towing supply

  $     $ 2,000     $  

Liftboats

                134,775  

 

Property and equipment. During the three months ended March 31, 2018, the Company recognized impairment charges of $2.9 million associated with certain vessels (see Note 1).  The Level 2 fair values were determined based on the sales prices of similar property and equipment at scrap value. 

 

The Level 3 vessels listed above were contributed by MOI to wholly-owned subsidiaries of FGH and recorded at fair value. The Level 3 fair values were determined based on two separate third-party valuations using significant inputs that are unobservable in the market.  Due to limited market transactions, the primary valuation methodology applied by both appraisers was an estimated cost approach less economic depreciation for comparable aged vessels. The Level 3 fair value of the vessels was based on a simple average between the two appraisals.

 

The significant unobservable inputs used in the fair value measurement for the liftboats provided by the appraisers were based on i) quotes from local shipyards, ii) economic life ranging from 25 to 40 years and iii) economic obsolescence factor ranging from 45% to 50%. The calculated yearly physical depreciation was multiplied by the remaining useful life of each vessel, based on the date of build, and the residual value was added back to arrive at a base cost approach value for each vessel.

 

 

8.

 STOCKHOLDERS' EQUITY

 

On January 1, 2018, the Company adopted a new accounting standard issued by the FASB on October 24, 2016, which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory.  The impact of the adoption of the new standard resulted in a reduction of $12.1 million to the Company’s opening retained earnings.

 

On March 26, 2018, the Company issued 103,213 shares of Common Stock to an accredited investor for a total of $1.8 million in gross proceeds pursuant to a private placement in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act.

 

On February 8, 2018, the Company formed FGH, a joint venture between the Company and MOI.  In accordance with the terms of the Joint Venture Contribution and Formation Agreement, the Company and MOI contributed certain liftboat vessels and other related assets to the joint venture and assumed certain operating liabilities and indebtedness associated with the liftboat vessels and related assets.  The transaction consolidates the fifteen liftboat vessels operated by the Company and six liftboat vessels previously operated by MOI.   FGUSA, a wholly-owned subsidiary of FGH, paid $15.0 million of MOI's debtor-in-possession obligations and entered into a $131.1 million credit agreement comprised of the FGUSA Term Loan and the FGUSA Revolving Loan Facility. The Company performed a preliminary fair market valuation of the debt reflecting a debt discount of $10.0 million, which will be amortized over the life of the FGUSA Credit Facility.  The preliminary fair market valuation is subject to revision as additional information regarding the fair market value of assets and liabilities acquired becomes available. 

 

12

 

 

In April 2018, the Company participated in the Private Placement and in May 2018, the Company participated in the Exchange, each as described in note 12.

 

  

9.

NONCONTROLLING INTERESTS IN SUBSIDIARIES

 

Noncontrolling interests in the Company’s consolidated subsidiaries were as follows (in thousands):

 

   

Noncontrolling

Interests

   

March 31, 2018

   

December 31, 2017

 

Falcon Global Holdings

    28.0%     $

28,450

    $ 12,087  

Windcat Workboats

    12.5%       2,437       2,608  

Other

    1.8%       283       280  
            $ 31,170     $ 14,975  

 

Falcon Global Holdings.  The Company formed FGH, a joint venture between the Company and MOI.  The Company and MOI contributed certain liftboat vessels and other related assets to FGH and its designated subsidiaries and assumed certain operating liabilities and indebtedness associated with the liftboat vessels and related assets, including a previous joint venture (“Falcon Global International” or “FGI”) that owned and operated two liftboats.  The transaction consolidates the 15 liftboat vessels operated by the Company and six liftboat vessels previously operated by MOI.   The total capital contributed to FGH was approximately $112.5 million of which, $43.3 million was transferred from FGI, $18.8 million was contributed by MOI and recorded at fair value, with the remaining capital contributed by the Company.  As a result of the transaction, the noncontrolling interest in the joint venture held by MOI is 28.0%.

 

 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. As of March 31, 2018, the net assets of Windcat Workboats were $19.5 million. During the three months ended March 31, 2018, the net loss of Windcat Workboats was $1.9 million, of which $0.2 million was attributable to noncontrolling interests.

 

 

10.     COMMITMENTS AND CONTINGENCIES

 

As of March 31, 2018, the Company’s unfunded capital commitments were $48.8 million for two fast support vessels, three supply vessels, four wind farm utility vessels, and conversions of two supply vessels to standby safety vessels.  Of the amount of unfunded capital commitments, $18.8 million is payable during the remainder of 2018, $21.1 million is payable during 2019 and $8.9 million is payable during 2020.  The Company has indefinitely deferred an additional $20.8 million of orders with respect to two fast support vessels for which the Company had previously reported unfunded capital commitments. The delivery dates and payment of certain costs (originally scheduled for payment in 2018, 2019 and 2020) for such vessels are uncertain as the Company, at its option, may defer their construction for an indefinite period of time.  

 

As of March 31, 2018, SEACOR Holdings has guaranteed $56.5 million on behalf of the Company for various obligations including: letter of credit obligations; 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% 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

 
 

 

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 Annual Report on Form 10-K for the year ended December 31, 2017. The following tables summarize the operating results, capital expenditures and assets of the Company’s reportable segments (in thousands).

 

   

United States

(primarily

Gulf of

Mexico)

   

Africa

(primarily

West Africa)

   

Middle East

and Asia

   

Brazil,

Mexico,

Central and

South

America

   

Europe

(primarily

North Sea)

   

Total

 

For the three months ended March 31, 2018

                                               

Operating Revenues:

                                               

Time charter

  $ 5,982     $ 10,794     $ 11,374     $ 1,374     $ 17,618     $ 47,142  

Bareboat charter

                      1,143             1,143  

Other marine services

    1,655       1,287       (130)       110       514       3,436  
      7,637       12,081       11,244       2,627       18,132       51,721  

Direct Costs and Expenses:

                                               

Operating:

                                               

Personnel

    3,992       4,073       4,022       376       9,213       21,676  

Repairs and maintenance

    694       1,356       2,428       305       2,290       7,073  

Drydocking

    525       2       (11)             1,741       2,257  

Insurance and loss reserves

    434       218       236       67       235       1,190  

Fuel, lubes and supplies

    493       669       1,034       65       1,284       3,545  

Other

    25       1,036       1,208       60       278       2,607  
      6,163       7,354       8,917       873       15,041       38.348  

Direct Vessel Profit

 

  $ 1,474

 

  $ 4,727     $ 2,327     $ 1,754     $ 3,091       13,373  

Other Costs and Expenses:

                                               

Operating:

                                               

Leased-in equipment

  $ 1,862     $ 963     $     $     $       2,825  

Administrative and general

                                            12,807  

Depreciation and amortization

  $ 6,535     $ 2,807     $ 6,090     $ 1,219     $ 2,861       19,512  
                                              35,144  

Losses on Asset Dispositions, Net

                                            (2,643 )

Operating Loss

                                          $ (24,414

)

                                                 

As of March 31, 2018

                                               

Property and Equipment:

                                               

Historical cost

  $ 526,986     $ 168,317     $ 349,047     $ 93,223     $ 182,923     $ 1,320,496  

Accumulated depreciation

    (236,120

)

    (54,349

)

    (109,601

)

    (39,551

)

    (140,840

)

    (580,461

)

    $ 290,866     $ 113,968     $ 239,446     $ 53,672     $ 42,083     $ 740,035  

 

14

 

 

 

 

 

United States

(primarily

Gulf of

Mexico)

   

Africa

(primarily

West Africa)

   

Middle East

and Asia

   

Brazil,

Mexico,

Central and

South

America

   

Europe

(primarily

North Sea)

   

Total

 

For the three months ended March 31, 2017

                                               

Operating Revenues:

                                               

Time charter

  $ 2,995     $ 5,847     $ 5,823     $     $ 16,065     $ 30,730  

Bareboat charter

                      1,143             1,143  

Other marine services

    826       192       877       75       461       2,431  
      3,821       6,039       6,700       1,218       16,526       34,304  

Direct Costs and Expenses:

                                               

Operating:

                                               

Personnel

    3,130       2,608       3,123       13       7,917       16,791  

Repairs and maintenance

    737       544       576       4       1,734       3,595  

Drydocking

    573       1,057       158             1,279       3,067  

Insurance and loss reserves

    805       182       346       7       219       1,559  

Fuel, lubes and supplies

    310       559       524             949       2,342  

Other

    72       646       1,465       1       250       2,434  
      5,627       5,596       6,192       25       12,348       29,788  

Direct Vessel Profit (Loss)

  $ (1,806

)

  $ 443     $ 508     $ 1,193     $ 4,178       4,516  

Other Costs and Expenses:

                                               

Operating:

                                               

Leased-in equipment

  $ 2,211     $ 970     $ 346     $     $ 64       3,591  

Administrative and general

                                            11,826  

Depreciation and amortization

  $ 5,600     $ 1,590     $ 2,527     $ 665     $ 2,121       12,503  
                                              27,920  

Gains on Asset Dispositions, Net

                                      4,819  

Operating Loss

                                          $ (18,585

)

                                                 

As of March 31, 2017

                                               

Property and Equipment:

                                               

Historical cost

  $ 433,021     $ 157,835     $ 274,885     $ 57,744     $ 165,691     $ 1,089,176  

Accumulated depreciation

    (235,728

)

    (62,359

)

    (82,447

)

    (35,120

)

    (118,868

)

    (534,522

)

    $ 197,293     $ 95,476     $ 192,438     $ 22,624     $ 46,823     $ 554,654  

 

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, 2018, 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 $62.5 million and $47.8 million, respectively. Equity in earnings (losses) of 50% or less owned companies, net of tax for the three months ended March 31 were as follows (in thousands):

 

   

2018

   

2017

 

MexMar

  $ 1,432     $ 1,367  

Other

    (1,224)       (929

)

    $ 208     $ 438  

 

 

 

12.  SUBSEQUENT EVENT

 

On April 26, 2018, the Company issued an aggregate of 2,168,586 shares of Common Stock and warrants to purchase 674,164 shares of Common Stock, at an exercise price of $0.01 per share, in a private placement in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act (the “Private Placement”). The Company received $20.00 per share and warrant for a total of $56.9 million in gross proceeds to be used for general corporate purposes.

 

On May 2, 2018, the Company entered into an amendment and exchange agreement with Carlyle pursuant to which:

 

Carlyle exchanged $50 million in aggregate principal amount of the Convertible Senior Notes for warrants to purchase approximately 1.9 million shares of Common Stock, at an exercise price of $0.01 per share representing an exchange rate of 37.73 shares per $1,000 in principal amount of the Convertible Senior Notes (equivalent to an exchange price of $26.50 per share) (the “Exchange”) in in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act; and

 

The Company and Carlyle amended the $125.0 million in principal amount of Convertible Senior Notes that remained outstanding after the Exchange to (i) increase the interest rate from 3.75% per annum to 4.25% per annum and (ii) extend the maturity date of the Convertible Senior Notes by 12 months to December 2023.

 

15

 
 

 

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, 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, changes to the status of applicable trade treaties including as a result of the U.K.'s impending exit from 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 of the Company to maintain effective internal controls over financial reporting, in accordance with Section 404 of the Sarbanes-Oxley Act, 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 Item 1A (Risk Factors) of the Company's Annual Report on Form 10-K and other reports filed by the Company with the Securities and Exchange Commission ("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 and investors and analysts should not place undue reliance on 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, 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 SEC, 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 186 support and specialty vessels, of which 141 are owned or leased-in, 31 are joint ventured, and 14 are managed on behalf of unaffiliated third parties. 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 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; 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 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 gas market conditions deteriorated beginning in 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, 2018, oil prices had increased from the February 2016 lows to a price of approximately $65 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 2018 as oil producing companies continued to be focused on cost reductions and reductions in capital spending budgets. 

 

16

 

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 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 April 26, 2018, the Company issued an aggregate of 2,168,586 shares of Common Stock and warrants to purchase 674,164 shares of Common Stock at an exercise price of $0.01 per share to qualified institutional buyers and other accredited investors in the Private Placement in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act.  The Company received $20.00 per share and warrant for a total of $56.9 million in gross proceeds.

 

On May 2, 2018, the Company entered into an amendment and exchange agreement with Carlyle pursuant to which:

 

The Company and Carlyle exchanged $50 million in aggregate principal amount of the Convertible Senior Notes for warrants to purchase a total of approximately 1.9 million shares of Common Stock in the Exchange in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act; and

 

The Company and Carlyle amended the $125 million in principal amount of Convertible Senior Notes that remained outstanding after the Exchange to (i) increase the interest rate from 3.75% per annum to 4.25% per annum and (ii) extend the maturity date of the Convertible Senior Notes by 12 months to December 2023. 

 

The Spin-off. SEACOR Marine was previously a subsidiary of 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, all of which was then held by SEACOR Holdings, to SEACOR Holdings shareholders of record as of May 22, 2017. 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. Immediately following the Spin-off, SEACOR Marine began to operate as an independent, publicly traded company.

 

17

 
 

Consolidated Results of Operations

 

For the three months ended March 31, the Company’s consolidated results of operations were as follows (in thousands, except statistics):

 

   

2018

   

2017

 

Time Charter Statistics:

                               

Average Rates Per Day Worked (excluding wind farm)

  $ 9,071             $ 8,272          

Average Rates Per Day

  $ 7,001             $ 5,726          

Fleet Utilization (excluding wind farm)

            50 %             38 %

Fleet Utilization

            53 %             46 %

Fleet Available Days (excluding wind farm)

    9,271               8,437          

Fleet Available Days

    12,601               11,768          

Operating Revenues:

                               

Time charter

  $ 47,142       91 %   $ 30,730       90 %

Bareboat charter

    1,143       2 %     1,143       3 %

Other marine services

    3,436       7 %     2,431       7 %
      51,721       100 %     34,304       100 %

Costs and Expenses:

                               

Operating:

                               

Personnel

    21,676       42 %     16,791       49 %

Repairs and maintenance

    7,073       14 %     3,595       10 %

Drydocking

    2,257       4 %     3,067       9 %

Insurance and loss reserves

    1,190       2 %     1,559       5 %

Fuel, lubes and supplies

    3,545       7 %     2,342       7 %

Other

    2,607       5 %     2,434       7 %

Leased-in equipment

    2,825       5 %     3,591       10 %
      41,173       79 %     33,379       97 %

Administrative and general

    12,807       25 %     11,826       35 %

Depreciation and amortization

    19,512       38 %     12,503       36 %
      73,492       142 %     57,708       168 %

(Losses) Gains on Asset Dispositions and Impairments, Net

    (2,643 )     (5) %     4,819       14 %

Operating Loss

    (24,414 )     (47) %     (18,585 )     (54) %

Other Income (Expense), Net

    (17,306 )     (33) %     7,126       21 %

Loss Before Income Tax Benefit and Equity in Earnings (Losses) of 50% or Less Owned Companies

    (41,720 )     (81) %     (11,459 )     (33) %

Income Tax Benefit

    (9,824 )     (19) %     (3,422 )     (10) %

Loss Before Equity in Earnings (Losses) of 50% or Less Owned Companies

    (31,896 )     (62) %     (8,037 )     (23) %

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

    208       %     438       1 %

Net Loss

    (31,688 )     (62) %     (7,599 )     (22) %

Net Loss attributable to Noncontrolling Interests in Subsidiaries

    (2,855 )     (6) %     (204 )     %

Net Loss attributable to SEACOR Marine Holdings Inc.

  $ (28,833 )     (56) %   $ (7,395 )     (22) %

 

 

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-in 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.

 

18

 

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):

 

   

United States (primarily Gulf of Mexico)

   

Africa (primarily West Africa)

   

Middle East and Asia

   

Brazil, Mexico, Central and South America

   

Europe (primarily North Sea)

   

Total

 

For the three months ended March 31, 2018

                                               

Time Charter Statistics:

                                               

Average Rates Per Day

  $ 8,775     $ 9,455     $ 8,072     $ 15,272     $ 5,164     $ 7,001  

Fleet Utilization

    17 %     91 %     66 %     41 %     69 %     53 %

Fleet Available Days

    4,050       1,260       2,132       219       4,940       12,601  

 

Operating Revenues:

                                               

Time charter

  $ 5,982     $ 10,794     $ 11,374     $ 1,374     $ 17,618     $ 47,142  

Bareboat charter

                      1,143             1,143  

Other

    1,655       1,287       (130)       110       514       3,436  
      7,637       12,081       11,244       2,627       18,132       51,721  

Direct Costs and Expenses:

                                               

Operating:

                                               

Personnel

    3,992       4,073