10-Q 1 smhi20180611_10q.htm FORM 10-Q smhi20180331_10q.htm
 

 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 June 30, 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 August 9, 2018 was 20,441,590. 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 June 30, 2018 and December 31, 2017

1
     
   

Condensed Consolidated Statements of Loss for the Three and Six Months Ended June 30, 2018 and 2017

2
     
   

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2018 and 2017

3
       
   

Condensed Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2018

4
     
   

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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

38
     
 

Item 4.

Controls and Procedures

38
     

Part II.

Other Information

39
     
 

Item 1.

Legal Proceedings

39
       
 

Item 1A.

Risk Factors

39
       
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39
       
 

Item 3.

Default Upon Senior Securities

39
       
 

Item 4.

Mine Safety Disclosures

39
       
 

Item 5.

Other Information

39
       
 

Item 6.

Exhibits

40

 

 

 

PART I—FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

   

June 30, 2018

   

December 31, 2017

 

ASSETS

               

Current Assets:

               

Cash and cash equivalents

  $ 86,239     $ 110,234  

Restricted cash

    1,951       2,317  

Receivables:

               

Trade, net of allowance for doubtful accounts of $4,001 and $4,039 in 2018 and 2017, respectively

    57,658       45,616  

Other

    16,039       12,341  

Inventories

    3,666       3,756  

Prepaid expenses and other

    4,090       3,026  

Total current assets

    169,643       177,290  

Property and Equipment:

               

Historical cost

    1,287,855       1,179,836  

Accumulated depreciation

    (564,477 )     (560,160 )
      723,378       619,676  

Construction in progress

    82,274       70,157  

Net property and equipment

    805,652       689,833  

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

    115,424       92,169  

Construction Reserve Funds

    38,152       45,361  

Other Assets

    3,667       3,851  
    $ 1,132,538     $ 1,008,504  

LIABILITIES AND EQUITY

               

Current Liabilities:

               

Current portion of long-term debt

  $ 22,858     $ 22,858  

Accounts payable and accrued expenses

    23,774       24,024  

Due to SEACOR Holdings

    746       1,358  

Accrued wages and benefits

    4,986       5,087  

Accrued income taxes

    4,352       4,290  

Accrued capital, repair and maintenance expenditures

    24,462       19,618  

Deferred revenues

    10,227       10,104  

Other current liabilities

    12,442       11,879  

Total current liabilities

    103,847       99,218  

Long-Term Debt

    348,912       292,041  

Conversion Option Liability on Convertible Senior Notes

    21,886       6,832  

Deferred Income Taxes

    49,789       55,506  

Deferred Gains and Other Liabilities

    27,289       31,741  

Total liabilities

    551,723       485,338  

Equity:

               

SEACOR Marine Holdings Inc. stockholders’ equity:

               

Common stock, $.01 par value, 60,000,000 shares authorized; 20,441,590 and 17,675,356 shares issued in 2018 and 2017, respectively

    204       177  

Additional paid-in capital

    413,754       303,996  

Retained earnings

    150,585       216,511  
Shares held in treasury     (54 )      

Accumulated other comprehensive loss, net of tax

    (13,129 )     (12,493 )
      551,360       508,191  

Noncontrolling interests in subsidiaries

    29,455       14,975  

Total equity

    580,815       523,166  
    $ 1,132,538     $ 1,008,504  

 

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

and should be read in conjunction herewith.

 

 

 

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS

(in thousands, except share data)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2018

   

2017

   

2018

   

2017

 

Operating Revenues

  $ 60,701     $ 42,323     $ 112,422     $ 76,627  

Costs and Expenses:

                               

Operating

    48,820       44,482       89,993       77,861  

Administrative and general

    15,532       21,705       28,339       33,531  

Depreciation and amortization

    18,406       14,633       37,918       27,136  
      82,758       80,820       156,250       138,528  

Gains (Losses) on Asset Dispositions and Impairments, Net

    1,055       (6,318 )     (1,588 )     (1,499 )

Operating Loss

    (21,002 )     (44,815 )     (45,416 )     (63,400 )

Other Income (Expense):

                               

Interest income

    352       275       568       1,125  

Interest expense

    (6,489 )     (4,546 )     (12,622 )     (7,728 )

SEACOR Holdings management fees

          (1,283 )           (3,208 )

SEACOR Holdings guarantee fees

    (7 )     (75 )     (19 )     (151 )

Marketable security (losses) gains, net

          (109 )           11,629  

Derivative losses, net

    (2,668 )     (213 )     (14,184 )     (302 )

Foreign currency losses, net

    (818 )     (1,094 )     (679 )     (1,283 )

Other, net

                      (1 )
      (9,630 )     (7,045 )     (26,936 )     81  

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

    (30,632 )     (51,860 )     (72,352 )     (63,319 )

Income Tax Benefit

    (4,724 )     (13,800 )     (14,548 )     (17,222 )

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

    (25,908 )     (38,060 )     (57,804 )     (46,097 )

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

    (721 )     1,571       (513 )     2,009  

Net Loss

    (26,629 )     (36,489 )     (58,317 )     (44,088 )

Net Loss attributable to Noncontrolling Interests in Subsidiaries

    (1,605 )     (2,497 )     (4,460 )     (2,701 )

Net Loss attributable to SEACOR Marine Holdings Inc.

  $ (25,024 )   $ (33,992 )   $ (53,857 )   $ (41,387 )
                                 

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

  $ (1.25 )   $ (1.93 )   $ (3.00 )   $ (2.34 )

Basic and Diluted Weighted Average Common Shares and Warrants Outstanding:

    19,978,516       17,631,567       17,967,242       17,651,352  

 

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

and should be read in conjunction herewith.

 

 

 

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2018

   

2017

   

2018

   

2017

 

Net Loss

  $ (26,629 )   $ (36,489 )   $ (58,317 )   $ (44,088 )

Other Comprehensive Loss:

                               

Foreign currency translation (losses) gains

    (2,785 )     1,865       (873 )     2,784  

Derivative (losses) gains on cash flow hedges

    (63 )     (429 )     68       (438 )

Reclassification of derivative (losses) gains on cash flow hedges to interest expense

    (1 )     37             49  

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

    42       147       171       335  
      (2,807 )     1,620       (634 )     2,730  

Income tax benefit

    (8 )     (533 )     (35 )     (887 )
      (2,815 )     1,087       (669 )     1,843  

Comprehensive Loss

    (29,444 )     (35,402 )     (58,986 )     (42,245 )

Comprehensive Loss attributable to Noncontrolling Interests in Subsidiaries

    (1,715 )     (2,399 )     (4,493 )     (2,505 )

Comprehensive Loss attributable to SEACOR Marine Holdings Inc.

  $ (27,729 )   $ (33,003 )   $ (54,493 )   $ (39,740 )

 

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

and should be read in conjunction herewith.

 

 

 

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(in thousands)

 

   

Common Stock

   

Additional

Paid-In

Capital

   

Shares Held in 

Treasury

   

Retained

Earnings

   

Accumulated

Other

Comprehensive Loss

   

Non-

Controlling

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

    23       42,973                               42,996  

Issuance of Warrants

          62,809                               62,809  

Amortization of employee share awards

          1,896                               1,896  

Exercise of options

    1       812                               813  

Exercise of Warrants

    3             (3 )                        

Restricted stock vesting

                (51 )                       (51 )

Director share awards

          893                               893  

Acquisition of consolidated joint venture

                                  (12,037 )     (12,037 )

Issuance of noncontrolling interests

          375                         31,010       31,385  

Net loss

                      (53,857 )           (4,460 )     (58,317 )

Other comprehensive loss

                            (636 )     (33 )     (669 )

June 30, 2018

    204       413,754       (54 )     150,585       (13,129 )     29,455       580,815  

 

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

and should be read in conjunction herewith.

 

 

 

SEACOR MARINE HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

   

Six Months Ended June 30,

 
   

2018

   

2017

 

Cash Flows from Operating Activities

               

Net Loss

  $ (58,317 )   $ (44,088 )

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

               

Depreciation and amortization

    37,918       27,136  

Deferred financing costs amortization

    501       1,752  

Restricted stock amortization

    1,896       89  

Restricted stock vesting

    (51 )      

Director share awards

    893        

Debt discount amortization

    2,719       2,192  

Amortization of deferred gains against charter expense

    (4,019 )     (4,100 )

Bad debt expense

    10       579  

Loss from equipment sales, retirements or impairments

    1,588       1,499  

Gains from sale of marketable securities, net

          (11,629 )

Proceeds from sale of securities

          51,877  

Derivative losses

    14,184       302  

Cash settlement on derivative transactions, net

    (150 )     (188 )

Currency loss

    679       1,283  

Deferred income taxes

    (17,395 )     (5,560 )

Equity earnings (losses), net

    513       (2,009 )

Dividends received from equity investees

    1,324       1,642  

Changes in Operating Assets and Liabilities:

               

Accounts receivables

    (15,414 )     10,572  

Other assets

    (466 )     3,583  

Accounts payable and accrued liabilities

    (99 )     18,804  

Net cash (used in) provided by operating activities

    (33,686 )     53,736  

Cash Flows from Investing Activities:

               

Purchases of property and equipment

    (15,548 )     (28,803 )

Cash settlements on derivative transactions, net

          (324 )

Proceeds from disposition of property and equipment

    3,526       9,549  

Net change in construction reserve fund

    7,209       10,410  

Investments in and advances to 50% or less owned companies

    (25,560 )     (4,216 )

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

          7,350  

Proceeds from sale of investment in equity investees

          89  

Payments received on third party notes receivable, net

    99        

Cash assumed on consolidation of 50% or less owned companies

          1,943  

Business acquisitions, net of cash acquired

          (9,751 )

Net cash used in investing activities

    (30,274 )     (13,753 )

Cash Flows from Financing Activities:

               

Payments on long-term debt

    (35,202 )     (3,973 )

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

    18,471       3,223  

SMHI Restricted Stock

          (2,656 )

Purchase of subsidiary shares from noncontrolling interests

          (3,693 )

Proceeds from exercise of stock options and Warrants

    813        

Issuance of stock

    42,996        

Issuance of Warrants

    12,809        

Net cash provided by (used in) financing activities

    39,887       (7,099 )

Effects of Exchange Rate Changes on Cash and Cash Equivalents

    (288 )     1,127  

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

    (24,361 )     34,011  

Cash, Restricted Cash and Cash Equivalents, Beginning of Period

    112,551       118,771  

Cash, Restricted Cash and Cash Equivalents, End of Period

  $ 88,190     $ 152,782  

 

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

and should be read in conjunction herewith.

 

 

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 15).

 

 

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 15).

 

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 six months ended June 30 were as follows (in thousands):

 

    2018       2017    

Balance at beginning of period

  $ 10,104       $ 6,953    

Revenues deferred during the period

    1,673         2,337    
Revenues recognized during the period     (1,550)         —     

Balance at end of period

  $ 10,227       $ 9,290    

 

As of June 30, 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 June 30, 2018, contract liabilities of $3.2 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 June 30, 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 six months ended June 30, 2018, capitalized interest totaled $1.0 million.

 

Impairment of Long-Lived Assets. The Company performs an impairment analysis of long-lived assets used in operations, including intangible assets, when indicators of impairment are present. These indicators may include a significant decrease in the market price of a long-lived asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If the carrying values of the assets are not recoverable, as determined by the estimated undiscounted cash flows, the estimated fair value of the assets or asset groups are compared to their current carrying values and impairment charges are recorded if the carrying value exceeds fair value. The Company performs its testing on an asset or asset group basis. Generally, fair value is determined using valuation techniques, such as expected discounted cash flows or appraisals, as appropriate. During the six months ended June 30, 2018, the Company recognized $3.0 million of impairment charges primarily 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 six months ended June 30, 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 six months ended June 30, 2018, the Company's effective income tax rate of 20.1% was primarily due to taxes provided on income attributable to noncontrolling interests, foreign sourced income not subject to U.S. income taxes, foreign taxes not creditable against U.S. income taxes, and a reversal of an unrecognized tax benefit. During the six months ended June 30, 2017, the Company’s effective income tax rate of 27.2% 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 six months ended June 30 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     (4,019 )     (4,099)  
Other adjustments      (250 )     (364

)

Balance at end of period

  $ 20,737     $ 29,447  

 

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)

    (847 )     246       (601 )     (26 )     (7 )   $ (634 )

Income tax expense

          (35 )     (35 )                 (35

)

Six months Ended June 30, 2018

  $ (14,042

)

  $ 913     $ (13,129

)

  $ (1,383

)

  $ (6 )   $ (669 )

 

Loss Per Share. Basic loss per common share of the Company is computed based on the weighted average number of common shares and warrants to purchase common shares at an exercise price of $0.01 per share (“Warrants”) issued and outstanding during the relevant periods.  The Warrants are included in the basic loss per common share because the shares issuable upon exercise of the Warrants are issuable for de minimis cash consideration.  Diluted loss per common share of the Company is computed based on the weighted average number of common shares and Warrants issued and outstanding plus the effect of potentially dilutive securities through the application of the if-converted method that assumes all common shares have been issued and outstanding during the relevant periods pursuant to the conversion of the Convertible Senior Notes.  For the six months ended June 30, 2018 and 2017, diluted earnings per common share of the Company excluded 2,183,708 and 4,070,500 common shares, respectively, issuable pursuant to the Company’s Convertible Senior Notes (see Note 4) as the effect of their inclusion in the computation would be anti-dilutive.  In addition, for the six months ended June 30, 2018, diluted loss per common share of the Company excluded 196,338 shares of restricted stock and 694,691 outstanding stock options as the effect of their inclusion in the computation would be anti-dilutive.

 

New Accounting Pronouncements. On February 25, 2016, the Financial Accounting Standards Board (“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.

 

In February 2018, the FASB issued a new accounting standard which allows a reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the Tax Cuts and Jobs Act passed in December 2017.  The standard is effective for interim and annual periods beginning after December 15, 2018.  The Company does not expect the adoption of the new standard to have a material impact on its consolidated financial position or its results of operations and cash flows.

 

In June 2018, the FASB issued 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 Company does not expect the adoption of the new standard to have a material impact on its consolidated financial position or its results of operations and cash flows.

 

 

2.

EQUIPMENT ACQUISITIONS AND DISPOSITIONS

 

During the six months ended June 30, 2018, capital expenditures were $18.8 million. Equipment deliveries during the six months ended June 30, 2018 included one wind farm utility vessel, 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 six months ended June 30, 2018, the Company sold one fast support vessel and two supply vessels previously retired and removed from service, one standby safety vessel, one supply vessel and one fast support vessel, and other property and equipment for net proceeds of $2.6 million ($2.5 million in cash and $0.1 million of previously received deposits) and gains of $1.4 million.

 

 

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, took title to another five of the PSVs in the quarter ending June 30, 2018, and expects to take title to one vessel 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 six months ended June 30, 2018, the Company contributed capital of $25.6 million in cash. The remaining committed investment will be due as the remaining vessel and equipment are delivered as part of the $27.5 million commitment.  The Company is responsible for full commercial, operational, and technical management of the vessels on a worldwide basis.

 

SEACOR Grant DIS.   As of June 30, 2018, the Company estimates that SEACOR Grant DIS will be unable to meet all its liabilities, and has recorded a bad debt reserve of $0.4 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 June 30, 2018, the total amount guaranteed by the Company under this arrangement is $0.5 million.

 

 In addition, as of June 30, 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 is $1.2 million in the aggregate.  This liability is included in other long-term liabilities.

 

 

 

4.

LONG-TERM DEBT

 

Convertible Senior Notes.  On December 1, 2015, the Company issued $175.0 million in aggregate principal amount of its Convertible Senior Notes (the “Convertible Senior Notes”), at an interest rate of 3.75%, due December 1, 2022, to investment funds managed and controlled by the Carlyle Group (collectively “Carlyle”). The Convertible Senior Notes are convertible into shares of Common Stock at a conversion rate of 23.26 shares per $1,000 in principal amount of such notes, subject to certain conditions, or, into Warrants to purchase an equal number of shares of Common Stock at an exercise price of $0.01 per share in order to facilitate the Company's compliance with the provisions of the Jones Act.

 

On May 2, 2018, the Company and Carlyle entered into an exchange transaction (the “Exchange”) pursuant to which Carlyle exchanged $50 million in principal amount of the Convertible Senior Notes for Warrants to purchase 1,886,792 shares of Common Stock (to facilitate compliance with the provisions of the Jones Act) at an exercise price of $0.01 per share, subject to adjustments (the “Carlyle Warrants”), representing an implied exchange rate of approximately 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 Carlyle Warrants have a 25-year term, which commenced May 2, 2018. The Company and Carlyle also amended the $125.0 million in principal amount of Convertible Senior Notes that remained outstanding following 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 1, 2023.  Interest on the Convertible Senior Notes is payable semi-annually on June 15 and December 15 of each year.  

 

 

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 6.63%), 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 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. Scheduled principal payments begin in 2020. During the six months ending June 30, 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 six months ended June 30, 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 June 30, 2018, the Company had outstanding letters of credit of $7.9 million securing one long-term debt obligation, and $1.7 million for labor and performance guarantees.

 

 

 

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 six months ended June 30, 2018:

 

Statutory rate     21.0 %
Noncontrolling interests     (1.2 )%
Foreign earnings not subject to U.S. income tax     (3.0 )%
Foreign taxes not creditable against U.S. income tax     (2.4 )%
Unrecognized tax benefit     5.4 %

Other

    0.3 %
      20.1 %

 

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, for the six months ending June 30, 2018, the Company removed 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 June 30, 2018 were as follows (in thousands):

 

   

Derivative

Asset(1)

   

Derivative

Liability

 

Derivatives designated as hedging instruments:

               

Interest rate swap agreements (cash flow hedges)

  $ 436     $ 44 (2)
      436       44  

Derivatives not designated as hedging instruments:

               
Conversion option liability on Convertible Senior Notes           21,886  

Interest rate swap agreements

    1,104        
    $ 1,540     $ 21,930  

 

______________________

(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.

   

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 six months ended June 30, 2018. As of June 30, 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 $17.5 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 $104.0 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 $19.7 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 $17.4 million and receive a variable interest rate based on LIBOR on the amortized notional value.

 

Other Derivative Instruments. The Company recognized (losses) gains on derivative instruments not designated as hedging instruments for the six months ended June 30 as follows (in thousands):

 

   

2018

   

2017

 

Conversion option liability on Convertible Senior Notes

  $ (15,054 )   $ 145  

Forward currency exchange, option and future contracts

          (56)  

Interest rate swap agreements

    870       (391 )
    $ (14,184 )   $ (302 )

 

The conversion option liability relates to the bifurcated embedded conversion option in the Convertible Senior Notes (see Note 4 in this Quarterly Report on Form 10-Q and 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 June 30, 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 $53.1 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 $30.4 million and receive a variable interest rate based on LIBOR on the aggregate 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 June 30, 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)

  $     $ 1,541     $  

Construction reserve funds

    38,152              

LIABILITIES

                       

Derivative instruments

          44       21,886  

Level 3 Measurement.  The fair value of the conversion option liability on the Convertible Senior Notes is estimated with significant inputs that are both observable and unobservable in the market and therefore is considered a Level 3 fair value measurement. The Company used a binomial lattice model that assumes the holders will maximize their value by finding the optimal decision between redeeming at the redemption price or converting into shares of Common Stock.  This model estimates the fair value of the conversion option as the differential in the fair value of the notes including the conversion option compared with the fair value of the notes excluding the conversion option.  The significant observable inputs used in the fair value measurement include the price of Common Stock and the risk free interest rate.  The significant unobservable inputs are the estimated Company credit spread and Common Stock volatility, which were based on comparable companies in the transportation and energy industries. 

 

The estimated fair values of the Company’s other financial assets and liabilities as of June 30, 2018 were as follows (in thousands):

 

           

Estimated Fair Value

 
   

Carrying

Amount

   

Level 1

   

Level 2

   

Level 3

 

ASSETS

                               

Cash, cash equivalents and restricted cash

  $ 88,190     $ 88,190     $     $  

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

    132    

see below

                 

LIABILITIES

                               

Long-term debt, including current portion

    371,770             357,742        

 

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 balance 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 six months ended June 30, 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 six months ended June 30, 2018, the Company recognized impairment charges of $3.0 million primarily 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.

WARRANTS

 

On April 26, 2018, the Company closed a private placement of its Common Stock and Warrants to purchase its Common Stock (to facilitate compliance with Jones Act restrictions) for aggregate gross proceeds of $56,855,000 (the “PIPE Private Placement”) with certain qualified institutional buyers and other accredited investors. The PIPE Private Placement included the issuance of 2,168,586 shares of Common Stock (the “PIPE Shares”) and Warrants to purchase 674,164 shares of the Common Stock at an exercise price of $0.01 per share (the “PIPE Warrants”). The PIPE Warrants were issued to Proyectos Globales de Energia y Servicios CME, S.A. de C.V. a variable capital corporation (sociedad anónima de capital variable) incorporated and existing under the laws of the United Mexican States (“CME”) and have a 25-year term, which commenced April 26, 2018.

 

As indicated in Note 4, on May 2, 2018, the Company and Carlyle entered into the Exchange pursuant to which Carlyle exchanged $50.0 million in principal amount of the Convertible Senior Notes for the Carlyle Warrants. The Carlyle Warrants have a 25-year term, which commenced May 2, 2018. 

 

 

On May 31, 2018, Carlyle exercised Carlyle Warrants to purchase a total of 250,585 shares of Common Stock (after giving effect to the withholding of 108 shares of Common Stock as payment for the exercise price of the Warrants - see Note 14) (the “Carlyle Warrant Exercise”). Following the Carlyle Warrant Exercise, Carlyle holds Warrants to purchase 1,636,099 shares of Common Stock at an exercise price of $0.01 per share.

 

On June 8, 2018, CME exercised PIPE Warrants and paid an aggregate cash exercise price of $0.01 per share to purchase a total of 38,857 shares of Common Stock (the “CME Warrant Exercise”). Following the CME Warrant Exercise, CME holds Warrants to purchase 635,307 shares of Common Stock at an exercise price of $0.01 per share. 

 

    Weighted Average Exercise Price     Number of Warrants  
Balance as of December 31, 2017            
Warrants issued - January 1 - June 30, 2018   $ 0.01       2,560,956  
Warrants exercised - January 1 - June 30, 2018   $ 0.01       (289,550 )
Balance as of June 30, 2018   $ 0.01       2,271,406  

 

 
9.

 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 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 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.  

 

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.

 

As indicated in Note 8, on April 26, 2018, the Company closed the PIPE Private Placement for aggregate gross proceeds of $56,855,000 with certain qualified institutional buyers and other accredited investors. The PIPE Private Placement included the issuance of the PIPE Shares and the PIPE Warrants. The PIPE Shares and PIPE Warrants were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act.

 

As indicated in Notes 4 and 8, on May 2, 2018, the Company and Carlyle entered into the Exchange pursuant to which Carlyle exchanged $50.0 million in principal amount of the Convertible Senior Notes for the Carlyle Warrants. The Carlyle Warrants were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act.

 

  

10.

NONCONTROLLING INTERESTS IN SUBSIDIARIES

 

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

 

   

Noncontrolling

Interests

   

June 30, 2018

   

December 31, 2017

 

Falcon Global Holdings

    28.0%     $ 26,967     $ 12,087  

Windcat Workboats

    12.5%       2,201       2,608  

Other

    1.8%       287       280  
            $ 29,455     $ 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 and $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%.

 

During the six months ended June 30, 2018, the net loss of Falcon Global Holdings was $14.4 million, of which $4.0 million was attributable to noncontrolling interests.

 

 Windcat Workboats. Windcat Workboats owns and operates the Company’s wind farm utility vessels that are primarily used to move personnel and supplies in the major offshore wind markets of Europe. As of June 30, 2018, the net assets of Windcat Workboats were $17.6 million. During the six months ended June 30, 2018, the net loss of Windcat Workboats was $3.3 million, of which $0.4 million was attributable to noncontrolling interests.

 

 

11.    COMMITMENTS AND CONTINGENCIES

 

As of June 30, 2018, the Company’s unfunded capital commitments were $43.3 million for two fast support vessels, three supply vessels, three wind farm utility vessels, and a conversion of one supply vessel to standby safety vessel.  Of the amount of unfunded capital commitments, $12.7 million is payable during the remainder of 2018, $21.6 million is payable during 2019 and $9.0 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 June 30, 2018 the Company has guaranteed certain performance contracts of one of its subsidiaries by setting aside £0.9 million from its available borrowing under an unsecured line of credit.  If the contract were not fulfilled, the line of credit would be drawn to fund the guarantee.

 

As of June 30, 2018, SEACOR Holdings has guaranteed $51.6 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.

 

 

12.    MULTI-EMPLOYER PENSION PLANS

 

Merchant Navy Ratings Pension Fund (“MNRPF”). The cumulative funding deficits of the MNRPF are being recovered by additional annual contributions from current employers that are subject to adjustment following the results of tri-annual actuarial valuations. Based on an actuarial valuation as of March 2017, the cumulative funding deficit of the MNRPF was $291.9 million (£221.0 million). On July 20, 2018, the Company was notified of additional contributions due and recognized in the second quarter of 2018 payroll related expenses of $1.19 million (£0.9 million) for its allocated share of the cumulative funding deficit including portions deemed uncollectible due to the non-existence or liquidation of certain former employers. These additional contributions will be invoiced in September 2018 and are payable in four annual installments beginning in October 2018. Depending upon the results of future actuarial valuations, it is possible that the plan could experience further funding deficits that will require the Company to recognize payroll related operating expenses for those periods.

 

 

13.     SHARE BASED COMPENSATION

 

Transactions in connection with the Company's 2017 Equity Incentive Plan during the six months ended June 30, 2018 were as follows:

 

Director stock awards granted     19,285  
         
Restricted stock awards granted     120,600  
         
Stock Options Activities:        
Outstanding as of December 31, 2017     613,700  
Granted     145,991  
Exercised     65,000  
Outstanding as of June 30, 2018     694,691  
         
Shares Available for future grants as of June 30, 2018     1,270,424  
 

 

14.     STOCK REPURCHASES

 

On May 14, 2018, the Company acquired for treasury 2,242 shares of Common Stock for an aggregate purchase price of $51,454 from its employees to cover their tax withholding obligations upon the lapsing of restrictions on share awards. These shares were purchased in accordance with the terms of the Company's 2017 Equity Incentive Plan and not pursuant to the repurchase authorizations granted by the Company's Board of Directors. On May 24, 2018, in connection with the net settlement of the Carlyle Warrant Exercise, the Company acquired for treasury 108 shares of Common Stock for an aggregate purchase price of $2,562 from Carlyle to cover the $0.01 exercise price of the Carlyle Warrants. (See Note 8).  

 

 

 

15.    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 June 30, 2018

                                               

Time Charter Statistics:

                                               

Average Rates Per Day

  $ 10,503     $ 9,509     $ 8,226     $ 19,127     $ 4,823     $ 7,324  

Fleet Utilization

    23 %     88 %     82 %     57 %     76 %     62 %

Fleet Available Days

    3,710       1,331       2,005       416       5,066       12,528  

Operating Revenues:

                                               

Time charter

  $ 9,052     $ 11,122     $ 13,591     $ 4,556     $ 18,505     $ 56,826  

Bareboat charter

                      1,156             1,156  

Other marine services

    1,676       350       (792 )     845       640       2,719  
      10,728       11,472       12,799       6,557       19,145       60,701  

Direct Costs and Expenses:

                                               

Operating:

                                               

Personnel

    4,636       4,314       4,069       1,219       10,495       24,733  

Repairs and maintenance

    1,529       1,663       3,576       32       2,270       9,070  

Drydocking

    910       910       72       11       1,209       3,112  

Insurance and loss reserves

    902       248       361       169       254       1,934  

Fuel, lubes and supplies

    900       900       922       349       1,051       4,122  

Other

    29       1,402       836       488       254       3,009  
      8,906       9,437       9,836       2,268       15,533       45,980  

Direct Vessel Profit

  $ 1,822     $ 2,035     $ 2,963     $ 4,289     $ 3,612       14,721  

Other Costs and Expenses:

                                               

Operating:

                                               

Leased-in equipment

  $ 1,856     $ 962     $     $     $ 22       2,840  

Administrative and general

                                            15,532  

Depreciation and amortization

  $ 5,915     $ 2,924     $ 4,311     $ 2,280     $ 2,976       18,406  
                                              36,778  

Gains on Asset Dispositions and Impairments

                                            1,055  

Operating Loss

                                          $ (21,002 )
   

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 Six Months Ended June 30, 2018

                                               

Time Charter Statistics:

                                               

Average Rates Per Day

  $ 9,740     $ 9,482     $ 8,155     $ 18,069     $ 4,984     $ 7,174  

Fleet Utilization

    20 %     89 %     74 %     52 %     72 %     58 %

Fleet Available Days

    7,760       2,591       4,137       635       10,006       25,129  

Operating Revenues:

                                               

Time charter

  $ 15,034     $ 21,916     $ 24,965     $ 5,930     $ 36,123     $ 103,968  

Bareboat charter

                      2,299             2,299  

Other marine services

    3,331       1,637       (922 )     955       1,154       6,155  
      18,365       23,553       24,043       9,184       37,277       112,422  

Direct Costs and Expenses:

                                               

Operating:

                                               

Personnel

    8,628       8,387       8,091       1,595       19,708       46,409  

Repairs and maintenance

    2,223       3,019       6,004       337       4,560       16,143  

Drydocking

    1,435       912       61       11       2,950       5,369  

Insurance and loss reserves

    1,336       466       597       236       489       3,124  

Fuel, lubes and supplies

    1,393       1,569       1,956       414       2,335       7,667  

Other

    54       2,438       2,044       548       532       5,616  
      15,069       16,791       18,753       3,141       30,574       84,328  

Direct Vessel Profit

  $ 3,296     $ 6,762     $ 5,290     $ 6,043     $ 6,703       28,094  

Other Costs and Expenses:

                                               

Operating:

                                               

Leased-in equipment

  $ 3,718     $ 1,925     $     $     $ 22       5,665  

Administrative and general

                                            28,339  

Depreciation and amortization

  $ 12,450     $ 5,731     $ 10,401     $ 3,499     $ 5,837       37,918  
                                              71,922  

Losses on Asset Dispositions and Impairment

                                            (1,588 )

Operating Loss

                                          $ (45,416 )
                                                 

As of June 30, 2018

                                               

Property and Equipment:

                                               

Historical cost

  $ 439,026     $ 184,037     $ 317,536     $ 165,145     $ 182,111     $ 1,287,855  

Accumulated depreciation

    (225,116 )     (57,909 )     (86,239 )     (58,078 )     (137,135 )     (564,477 )
    $ 213,910     $ 126,128     $ 231,297     $ 107,067     $ 44,976     $ 723,378  
   

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 June 30, 2017

                                               

Time Charter Statistics:

                                               

Average Rates Per Day

  $ 9,619     $ 10,348     $ 6,580     $     $ 4,176     $ 5,649  

Fleet Utilization

    13 %     67 %     55 %     %     90 %     56 %

Fleet Available Days

    4,063       1,123       2,067       105       5,005       12,363  

Operating Revenues:

                                               

Time charter

  $ 4,889     $ 7,786     $ 7,415     $     $ 18,713     $ 38,803  

Bareboat charter

                      1,156             1,156  

Other marine services

    1,198       215       109       162       680       2,364  
      6,087       8,001       7,524       1,318       19,393       42,323  

Direct Costs and Expenses:

                                               

Operating:

                                               

Personnel

    4,183       3,428       4,147       148       8,671       20,577  

Repairs and maintenance

    937       3,234       3,947       116       2,191       10,425  

Drydocking

    310       683       358             900       2,251  

Insurance and loss reserves

    1,205       357       353       4       207       2,126  

Fuel, lubes and supplies

    545       704       908       27       1,006       3,190  

Other

    51       871       1,061       3       237       2,223  
      7,231       9,277       10,774       298       13,212       40,792  

Direct Vessel (Loss) Profit

  $ (1,144 )   $ (1,276 )   $ (3,250 )   $ 1,020     $ 6,181       1,531  

Other Costs and Expenses:

                                               

Operating:

                                               

Leased-in equipment

  $ 2,205     $ 969     $ 516     $     $       3,690  

Administrative and general

                                            21,705  

Depreciation and amortization

  $ 5,749     $ 2,059     $ 3,979     $ 784     $ 2,062       14,633  
                                              40,028  

Losses on Asset Dispositions and Impairments