Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

For the quarterly period ended March 31, 2019              or             

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

 

For the transition period from              to

Commission file number 1-37966

SEACOR Marine Holdings Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

47-2564547

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

 

 

12121 Wickchester Suite 500

 

 

Houston, TX

 

77079

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (346) 980-1700

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  

 

Accelerated filer  

 

Non-accelerated filer 

 

 

Smaller reporting company  

 

Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

   SMHI

New York Stock Exchange (“NYSE”)

 

The total number of shares of common stock, par value $.01 per share, outstanding as of May 3, 2019 was 21,290,779. The Registrant has no other class of common stock outstanding.

 

 


Table of Contents

 

 

 

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, 2019 and December 31, 2018

 

2

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Loss for the Three Months Ended March 31 2019 and 2018

 

3

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018

 

4

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2019

 

5

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

 

6

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

 

 

 

Item 2.

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

 

22

 

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

39

 

 

 

 

 

 

Part II.

 

Other Information

 

41

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

41

 

 

 

 

 

 

 

 

Item 1A.

Risk Factors

 

41

 

 

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

 

 

 

 

 

 

 

Item 3.

Default Upon Senior Securities

 

42

 

 

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

42

 

 

 

 

 

 

 

 

Item 5.

Other Information

 

42

 

 

 

 

 

 

 

 

Item 6.

Exhibits

 

43

 

 

 

i


Table of Contents

 

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1


Table of Contents

 

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,855

 

 

$

95,195

 

Restricted cash

 

 

2,240

 

 

 

1,657

 

Receivables:

 

 

 

 

 

 

 

 

Trade, net of allowance for doubtful accounts of $455 and $860

   in 2019 and 2018, respectively

 

 

67,900

 

 

 

64,125

 

Other

 

 

9,078

 

 

 

12,082

 

Inventories

 

 

4,139

 

 

 

3,443

 

Prepaid expenses and other

 

 

4,597

 

 

 

2,530

 

Total current assets

 

 

151,809

 

 

 

179,032

 

Property and Equipment:

 

 

 

 

 

 

 

 

Historical cost

 

 

1,294,945

 

 

 

1,242,733

 

Accumulated depreciation

 

 

(579,441

)

 

 

(561,272

)

 

 

 

715,504

 

 

 

681,461

 

Construction in progress

 

 

63,301

 

 

 

88,918

 

Net property and equipment

 

 

778,805

 

 

 

770,379

 

Right-of-Use Asset - Operating Leases

 

 

30,503

 

 

 

 

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

 

 

119,520

 

 

 

121,773

 

Construction Reserve Funds

 

 

28,109

 

 

 

28,061

 

Other Assets

 

 

3,603

 

 

 

3,690

 

 

 

$

1,112,349

 

 

$

1,102,935

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Current portion of operating lease liabilities

 

$

17,918

 

 

$

-

 

Current portion of long-term debt

 

 

17,426

 

 

 

16,812

 

Accounts payable and accrued expenses

 

 

27,263

 

 

 

19,370

 

Due to SEACOR Holdings

 

 

535

 

 

 

452

 

Accrued wages and benefits

 

 

4,280

 

 

 

5,025

 

Accrued income taxes

 

 

2,650

 

 

 

1,917

 

Accrued capital, repair and maintenance expenditures

 

 

20,817

 

 

 

18,886

 

Deferred revenues

 

 

3,601

 

 

 

1,327

 

Other current liabilities

 

 

16,219

 

 

 

19,828

 

Total current liabilities

 

 

110,709

 

 

 

83,617

 

Long-Term Operating Lease Liabilities

 

 

19,851

 

 

 

 

Long-Term Debt

 

 

384,344

 

 

 

387,854

 

Conversion Option Liability on Convertible Senior Notes

 

 

6,201

 

 

 

5,276

 

Deferred Income Taxes

 

 

41,831

 

 

 

44,682

 

Deferred Gains and Other Liabilities

 

 

7,290

 

 

 

26,571

 

Total liabilities

 

 

570,226

 

 

 

548,000

 

Equity:

 

 

 

 

 

 

 

 

SEACOR Marine Holdings Inc. stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $.01 par value, 60,000,000 shares authorized; 21,104,837 and

   20,443,215 shares issued in 2019 and 2018, respectively

 

 

211

 

 

 

204

 

Additional paid-in capital

 

 

422,830

 

 

 

415,372

 

Retained earnings

 

 

111,701

 

 

 

126,834

 

Shares held in treasury of 25,558 and 4,007, respectively, at cost

 

 

(373

)

 

 

(91

)

Accumulated other comprehensive loss, net of tax

 

 

(16,812

)

 

 

(16,788

)

 

 

 

517,557

 

 

 

525,531

 

Noncontrolling interests in subsidiaries

 

 

24,566

 

 

 

29,404

 

Total equity

 

 

542,123

 

 

 

554,935

 

 

 

$

1,112,349

 

 

$

1,102,935

 

 

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

2


Table of Contents

 

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS

(in thousands, except share data)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Operating Revenues

 

$

56,249

 

 

$

51,721

 

Costs and Expenses:

 

 

 

 

 

 

 

 

Operating

 

 

44,277

 

 

 

38,348

 

Administrative and general

 

 

12,000

 

 

 

12,374

 

Lease expense

 

 

4,148

 

 

 

3,258

 

Depreciation and amortization

 

 

17,193

 

 

 

19,512

 

 

 

 

77,618

 

 

 

73,492

 

Gains (Losses) on Asset Dispositions and Impairments, Net

 

 

359

 

 

 

(2,643

)

Operating Loss

 

 

(21,010

)

 

 

(24,414

)

Other Income (Expense):

 

 

 

 

 

 

 

 

Interest income

 

 

357

 

 

 

216

 

Interest expense

 

 

(7,735

)

 

 

(6,133

)

SEACOR Holdings guarantee fees

 

 

(29

)

 

 

(12

)

Derivative losses, net

 

 

(925

)

 

 

(11,516

)

Foreign currency gains, net

 

 

635

 

 

 

139

 

 

 

 

(7,697

)

 

 

(17,306

)

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

 

 

(28,707

)

 

 

(41,720

)

Income Tax Benefit

 

 

(3,831

)

 

 

(9,824

)

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

 

 

(24,876

)

 

 

(31,896

)

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

 

 

(3,397

)

 

 

208

 

Net Loss

 

 

(28,273

)

 

 

(31,688

)

Net Loss attributable to Noncontrolling Interests in Subsidiaries

 

 

(2,724

)

 

 

(2,855

)

Net Loss attributable to SEACOR Marine Holdings Inc.

 

$

(25,549

)

 

$

(28,833

)

 

 

 

 

 

 

 

 

 

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

 

$

(1.11

)

 

$

(1.64

)

Weighted Average Common Shares and Warrants Outstanding:

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

23,090,137

 

 

 

17,571,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Net Loss

 

$

(28,273

)

 

$

(31,688

)

Other Comprehensive Loss:

 

 

 

 

 

 

 

 

Foreign currency translation gains

 

 

875

 

 

 

1,912

 

Derivative (losses) gains on cash flow hedges

 

 

(710

)

 

 

131

 

Reclassification of derivative gains on cash flow hedges to interest expense

 

 

71

 

 

 

1

 

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

 

 

(260

)

 

 

129

 

 

 

 

(24

)

 

 

2,173

 

Income tax benefit

 

 

 

 

 

(27

)

 

 

 

(24

)

 

 

2,146

 

Comprehensive Loss

 

 

(28,297

)

 

 

(29,542

)

Comprehensive Loss attributable to Noncontrolling Interests

   in Subsidiaries

 

 

(2,724

)

 

 

(2,778

)

Comprehensive Loss attributable to SEACOR Marine

   Holdings Inc.

 

$

(25,573

)

 

$

(26,764

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


Table of Contents

 

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(in thousands)

 

 

 

Shares of Common Stock Outstanding

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Shares

Held in

Treasury

 

 

Treasury Stock

 

 

Retained Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Non-

Controlling

Interests In

Subsidiaries

 

 

Total

Equity

 

December 31, 2017

 

 

17,675,356

 

 

$

177

 

 

$

303,996

 

 

 

 

 

 

 

 

$

216,511

 

 

$

(12,493

)

 

$

14,975

 

 

$

523,166

 

Impact of adoption of new accounting standard for income tax effects

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,069

)

 

 

 

 

 

 

 

 

(12,069

)

December 31, 2017

 

 

17,675,356

 

 

 

177

 

 

 

303,996

 

 

 

-

 

 

 

-

 

 

 

204,442

 

 

 

(12,493

)

 

 

14,975

 

 

 

511,097

 

Issuance of Common Stock

 

 

138,399

 

 

 

1

 

 

 

1,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,793

 

Amortization of employee share awards

 

 

(27,186

)

 

 

 

 

 

476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

476

 

Acquisition of consolidated joint venture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,037

)

 

 

(12,037

)

Issuance of noncontrolling interests

 

 

 

 

 

 

 

 

375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,010

 

 

 

31,385

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,833

)

 

 

 

 

 

(2,855

)

 

 

(31,688

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,069

 

 

 

77

 

 

 

2,146

 

March 31, 2018

 

 

17,786,569

 

 

$

178

 

 

$

306,639

 

 

 

 

 

 

 

 

$

175,609

 

 

$

(10,424

)

 

$

31,170

 

 

$

503,172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

20,439,208

 

 

$

204

 

 

$

415,372

 

 

 

4,007

 

 

$

(91

)

 

$

126,834

 

 

$

(16,788

)

 

$

29,404

 

 

$

554,935

 

Impact of adoption of new accounting standard for leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,416

 

 

 

 

 

 

 

 

 

10,416

 

December 31, 2018

 

 

20,439,208

 

 

 

204

 

 

 

415,372

 

 

 

4,007

 

 

 

(91

)

 

 

137,250

 

 

 

(16,788

)

 

 

29,404

 

 

 

565,351

 

Issuance of Common Stock

 

 

653,872

 

 

 

7

 

 

 

6,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,596

 

Amortization of employee share awards

 

 

 

 

 

 

 

 

776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

776

 

Exercise of options

 

 

8,750

 

 

 

 

 

 

108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108

 

Restricted stock vesting

 

 

(21,551

)

 

 

 

 

 

 

 

 

21,551

 

 

 

(282

)

 

 

 

 

 

 

 

 

 

 

 

(282

)

Cancellation of employee share awards

 

 

(1,000

)

 

 

 

 

 

(15

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15

)

Acquisition of consolidated joint venture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,114

)

 

 

(2,114

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,549

)

 

 

 

 

 

(2,724

)

 

 

(28,273

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

(24

)

March 31, 2019

 

 

21,079,279

 

 

$

211

 

 

$

422,830

 

 

 

25,558

 

 

$

(373

)

 

$

111,701

 

 

$

(16,812

)

 

$

24,566

 

 

$

542,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net Loss

 

$

(28,273

)

 

$

(31,688

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

17,193

 

 

 

19,512

 

Deferred financing costs amortization

 

 

320

 

 

 

237

 

Option amortization

 

 

 

 

 

218

 

Restricted stock amortization

 

 

761

 

 

258

 

Restricted stock vesting

 

 

(282

)

 

 

 

Debt discount amortization

 

 

1,373

 

 

 

1,494

 

Amortization of deferred gains against charter expense

 

 

 

 

 

(2,009

)

Bad debt expense

 

 

(404

)

 

 

(26

)

(Gain) loss from equipment sales, retirements or impairments

 

 

(359

)

 

 

2,643

 

Derivative losses

 

 

925

 

 

 

11,516

 

Cash settlement on derivative transactions, net

 

 

(75

)

 

 

(129

)

Currency gains

 

 

(635

)

 

 

(139

)

Deferred income taxes

 

 

(5,160

)

 

 

(11,286

)

Equity (earnings) losses

 

 

3,397

 

 

 

(208

)

Dividends received from equity investees

 

 

400

 

 

 

 

Changes in Operating Assets and Liabilities:

 

 

 

 

 

 

 

 

Accounts receivables

 

 

(1,686

)

 

 

(3,342

)

Other assets

 

 

(2,690

)

 

 

(346

)

Accounts payable and accrued liabilities

 

 

13,228

 

 

 

1,786

 

Net cash used in operating activities

 

 

(1,967

)

 

 

(11,509

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(21,183

)

 

 

(8,557

)

Proceeds from disposition of property and equipment

 

 

552

 

 

 

282

 

Net change in construction reserve fund

 

 

(48

)

 

 

 

Investments in and advances to 50% or less owned companies

 

 

(1,951

)

 

 

(19,950

)

Return of investments and advances from 50% or less owned companies

 

 

 

 

 

99

 

Net cash used in investing activities

 

 

(22,630

)

 

 

(28,126

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Payments on long-term debt

 

 

(4,361

)

 

 

(28,807

)

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

 

 

 

 

 

18,471

 

Purchase of subsidiary shares from noncontrolling interests

 

 

(3,392

)

 

 

 

Proceeds from exercise of stock options and Warrants

 

 

108

 

 

 

 

Issuance of stock

 

 

 

 

 

1,793

 

Net cash used in financing activities

 

 

(7,645

)

 

 

(8,543

)

Effects of Exchange Rate Changes on Cash and Cash Equivalents

 

 

1,485

 

 

 

682

 

Net Decrease in Cash, Cash Equivalents and Restricted Cash

 

 

(30,757

)

 

 

(47,496

)

Cash, Restricted Cash and Cash Equivalents, Beginning of Period

 

 

96,852

 

 

 

112,551

 

Cash, Restricted Cash and Cash Equivalents, End of Period

 

$

66,095

 

 

$

65,055

 

 

 

 

 

 

 

 

 

 

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

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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, 2018.   

Unless the context otherwise indicates, any reference in this Quarterly Report on Form 10-Q to the “Company” refers to SEACOR Marine Holdings Inc. and its consolidated subsidiaries and any reference in this Quarterly Report on Form 10-Q to “SEACOR Marine” refers to SEACOR Marine Holdings Inc. without its consolidated subsidiaries. 

Recently Adopted Accounting Standards.

On February 25, 2016, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new leasing standard, ASC 842, meant to improve transparency and comparability among companies by requiring lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts.  It also requires additional disclosures about leasing arrangements.  The Company adopted the new standard on January 1, 2019 and applied the transition provisions of the new standard with recognition of a cumulative-effect adjustment to the opening balance of retained earnings and therefore the Company was not required to recast previously issued financial statements. The Company elected the available practical expedients permitted under the guidance including the ability to carry forward the existing lease classification, the option to not separate lease and non-lease components in calculating the right-of-use assets and corresponding lease liabilities and to not apply the recognition requirements of Topic 842 to short-term leases (leases that have a duration of twelve months or less at lease inception). For some leases, it was not possible for the Company to determine the interest rate implicit in each of its operating leases and therefore used the Company’s incremental borrowing rate in calculating operating lease right-of-use assets and lease liabilities.  The Company included renewal options that were reasonably certain of being exercised in determining the lease term.  Upon adoption, the Company recorded $33.7 million of right-of-use assets, $31.9 million in lease liabilities, and a cumulative-effect adjustment to the opening balance of retained earnings of $1.7 million for certain of the Company’s equipment, office and land leases.  In addition, unamortized deferred gains for four vessels previously accounted for under sale-leaseback arrangements of $8.7 million, ($11.0 million deferred gains net of $2.3 million deferred taxes), were fully recognized as an adjustment to the opening balance of retained earnings.

 

In February 2018, the FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). The amendments in ASU 2018-02 permit a reclassification from Accumulated Other Comprehensive Income (“AOCI”) to retained earnings for stranded tax effects resulting from the Tax Cuts & Jobs Act (“TCJA”). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. ASU 2018-02 is effective for the Company for annual and interim reporting periods beginning after December 15, 2018. For the period ending March 31, 2019, an election has not been made to reclassify the income tax effects of the TCJA from AOCI to retained earnings.

 

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In June 2018, the FASB issued ASU 2018-07, a new accounting standard which addresses aspects of the accounting for nonemployee share-based payment transactions.  The standard is effective for interim and annual periods beginning after December 15, 2018.  The adoption of the new standard by the Company did not have a material impact on its consolidated financial position or its results of operations and cash flows.

Critical Accounting Policies.

Revenue Recognition. Revenue is recognized when (or as) the Company transfers promised goods or services to its customers in amounts that reflect the consideration to which the Company expects to be entitled to in exchange for those goods or services, which occurs when (or as) the Company satisfies its contractual obligations and transfers over control of the promised goods or services to its customers. Costs to obtain or fulfill a contract are expensed as incurred.

Lease Revenues. The Company’s lease revenues are primarily from time charters and bareboat charters that are recognized ratably over the lease term as services are provided, typically on a per day basis. The charterer will take the vessel on hire for a specific period of time, use the vessel to move cargo, people or equipment and will pay the Company the agreed upon rate per day. Under a time charter the Company provides a vessel to a customer for a set term and the Company is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, the Company provides a vessel to a customer for a set term and the customer assumes responsibility for all operating expenses, including fuel, and the risk of operation (see Note 14).

Revenues from Customers of Management Servicers. The Company contracts with various customers to carry out management services for vessels as agents for and on behalf of ship owners.  These services include crew management, technical management, commercial management, insurance arrangements, sale and purchase of vessel, provisions and bunkering. As manager, the Company undertakes to use its best endeavors to provide the agreed management services as agents for, and on behalf of the ship owners in accordance with sound ship management practice and to protect and promote the interest of the owners in all matters relating to the provision of the agreed upon management services. The Company also contracts with various customers to carry out management services regarding engineering for vessel construction and vessel conversions. The vast majority of the ship management agreements have a duration of one to three years and are typically billed on a monthly basis. The Company satisfies its performance obligation over the term of the contract, and therefore recognizes revenue over the term of the contract while related costs are expensed as incurred (see Note 14).

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

 

 

 

2019

 

 

2018

 

Balance at beginning of period

 

$

1,327

 

 

$

10,104

 

Revenues deferred during the period

 

 

3,409

 

 

 

875

 

Revenues recognized during the period

 

 

(1,135

)

 

 

(1,550

)

Balance at end of period

 

$

3,601

 

 

$

9,429

 

 

As of March 31, 2019, contract liabilities include $2.0 million related to the time charter of an offshore support vessel to a customer for which collection was not reasonably assured. The Company will recognize revenues when collected or when collection is reasonably assured. All costs and expenses related to this charter were recognized as incurred.

As of March 31, 2019, the Company has deferred $1.4 million received as reimbursement for upgrades of a vessel and deferred reservation fees. The amount will be recognized in revenues over time, commencing with the start of the new time charter agreement for the vessel.

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The remaining balance of $0.2 million as of March 31, 2019 is comprised of contract liabilities to two customers for which collection is not reasonably assured.

Property and Equipment. Equipment, stated at cost, is depreciated using the straight-line method over the estimated useful life of the asset to an estimated salvage value. With respect to each class of asset, the estimated useful life is based upon a newly built asset being placed into service and represents the time period beyond which it is typically not justifiable for the Company to continue to operate the asset in the same or similar manner. From time to time, the Company may acquire older assets that have already exceeded the Company’s useful life policy, in which case the Company depreciates such assets based on its best estimate of remaining useful life, typically the next survey or certification date.

As of March 31, 2019, the estimated useful life (in years) of each of the Company’s major categories of new equipment was as follows:

 

Offshore Support Vessels:

 

 

Crew transfer vessels

 

10

All other offshore support vessels (excluding crew transfer vessels)

 

20

 

Equipment maintenance and repair costs and the costs of routine overhauls, drydockings and inspections performed on vessels and equipment are charged to operating expense as incurred. Expenditures that extend the useful life or improve the marketing and commercial characteristics of equipment as well as major renewals and improvements to other properties are capitalized.

 

Certain interest costs incurred during the construction of equipment are capitalized as part of the assets’ carrying values and are amortized over such assets’ estimated useful lives. During the three months ended March 31, 2019, capitalized interest totaled $0.4 million.

Impairment of Long-Lived Assets. The Company performs an impairment analysis of long-lived assets used in operations, including intangible assets, when indicators of impairment are present. These indicators may include a significant decrease in the market price of a long-lived asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If the carrying values of the assets are not recoverable, as determined by the estimated undiscounted cash flows, the estimated fair value of the assets or asset groups are compared to their current carrying values and impairment charges are recorded if the carrying value exceeds fair value. The Company performs its testing on an asset or asset group basis. Generally, fair value is determined using valuation techniques, such as expected undiscounted cash flows or appraisals, as appropriate. During the three months ended March 31, 2019, the Company did not recognize any impairment charges related to its long-lived assets.  During the three months ended March 31, 2018, the Company recognized $2.9 million of impairment charges related to four anchor-handling vessels removed from service and adjusted to scrap value.

Impairment of 50% or Less Owned Companies. Investments in 50% or less owned companies are reviewed periodically to assess whether there is an other-than-temporary decline in the carrying value of the investment. In its evaluation, the Company considers, among other items, recent and expected financial performance and returns, impairments recorded by the investee and the capital structure of the investee. When the Company determines the estimated fair value of an investment is below carrying value and the decline is other-than-temporary, the investment is written down to its estimated fair value. Actual results may vary from the Company’s estimates due to the uncertainty regarding projected financial performance, the severity and expected duration of declines in value and the available liquidity in the capital markets to support the continuing operations of the investee, among other factors. Although the Company believes its assumptions and estimates are reasonable, the investee’s actual performance compared with the estimates could produce different results and lead to additional impairment charges in future periods. During the three months ended March 31, 2019, the Company did not recognize any impairment charges related to its 50% or less owned companies.  During the

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three months ended March 31, 2018, the Company recognized impairment charges of $1.2 million related to one of its 50% or less owned companies which the Company believed was unable to meet all of its liabilities.

Income Taxes. During the three months ended March 31, 2019, the Company's effective income tax rate of 13.4% was primarily due to taxes provided on income attributable to noncontrolling interests, foreign sourced income not subject to U.S. income taxes, and foreign taxes not creditable against U.S. income taxes. During the three months ended March 31, 2018, the Company’s effective income tax rate of 23.5% was primarily due to taxes not provided on income attributable to noncontrolling interests, foreign sourced income not subject to U.S. income taxes, and a reversal of an unrecognized tax benefit.

Deferred Gains. The Company has sold certain equipment to its 50% or less owned companies, entered into vessel sale-leaseback transactions with finance companies and provided seller financing on sales of its equipment to third parties and its 50% or less owned companies. In 2018, a portion of the gains realized from these transactions were deferred and recorded in deferred gains and other liabilities in the accompanying condensed consolidated balance sheets and were amortized in operating expenses as a reduction to rental expense. The new lease accounting pronouncement which was adopted on January 1, 2019 required the recognition of unamortized gains as a cumulative-effect adjustment to the opening balance of retained earnings.

Deferred gain activity related to these transactions for the three months ended March 31 was as follows (in thousands):

 

 

 

2019

 

 

2018

 

Balance at beginning of period

 

$

11,819

 

 

$

25,006

 

Amortization of deferred gains included in operating expenses as a reduction to rental expense

 

 

 

 

 

(2,009

)

Impact of adoption of new accounting standard

 

 

(11,026

)

 

 

 

Other adjustments

 

 

 

 

 

(25

)

Balance at end of period

 

$

793

 

 

$

22,972

 

 

 

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, 2018

 

$

(15,472

)

 

$

(1,316

)

 

$

(16,788

)

 

$

(1,445

)

 

$

(11

)

 

 

 

 

Other comprehensive income

   (loss)

 

 

875

 

 

 

(899

)

 

 

(24

)

 

 

 

 

 

 

 

$

(24

)

Three Months Ended March

   31, 2019

 

$

(14,597

)

 

$

(2,215

)

 

$

(16,812

)

 

$

(1,445

)

 

$

(11

)

 

$

(24

)

 

 

Leases.  The Company determines if an arrangement contains a lease at the inception of a contract.  Leases with contractual terms less than twelve months are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the term of the short-term lease.  Leases with contractual terms longer than twelve months are categorized as either operating or finance, with corresponding right-of-use asset and lease liability recorded on the balance sheet.  Finance leases are generally those leases that substantially utilize or pay for the entire asset over its estimated life.  All other leases are categorized as operating leases.

 

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