ITEM 1. BUSINESS
General
Unless the context indicates otherwise, the terms “we,” “our,” “ours,” “us” and the “Company” refer to SEACOR Holdings Inc. and its consolidated subsidiaries. “SEACOR” refers to SEACOR Holdings Inc., incorporated in 1989 in Delaware. “Common Stock” refers to the common stock, par value $.01 per share, of SEACOR. The Company’s fiscal year ended on December 31, 2014.
SEACOR’s principal executive office is located at 2200 Eller Drive, P.O. Box 13038, Fort Lauderdale, Florida 33316, and its telephone number is (954) 523-2200. SEACOR’s website address is www.seacorholdings.com. The reference to SEACOR’s website is not intended to incorporate the information on the website into this Annual Report on Form 10-K.
The Company’s Corporate Governance documents, including the Board of Directors’ Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee charters are available, free of charge, on SEACOR’s website or in print for stockholders.
All of the Company’s periodic reports filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on SEACOR’s website, including its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports. These reports and amendments are available on SEACOR’s website as soon as reasonably practicable after the Company electronically files the reports or amendments with the SEC. They are also available at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information as to the operation of the SEC’s Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information.
Segment and Geographic Information
SEACOR and its subsidiaries are in the business of owning, operating, investing in and marketing equipment, primarily in the offshore oil and gas, shipping and logistics industries. The Company conducts its activities in the following reporting segments:
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Offshore Marine Services
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Inland River Services
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Shipping Services
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Illinois Corn Processing
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Other
Discontinued Operations
On March 16, 2012, the Company sold SEACOR Environmental Services Inc. ("SES") to J.F. Lehman & Company ("JFL"), a leading middle-market private equity firm (the "SES Business Transaction"). SES included National Response Corporation ("NRC"), a provider of oil spill response services in the United States; NRC Environmental Services Inc., a provider of environmental and industrial services on the West Coast of the United States; SEACOR Response Ltd., a provider of oil spill response and emergency response services to customers in international markets; and certain other subsidiaries (collectively the “SES Business”). For all periods presented herein, the Company has reported the historical financial position, results of operations and cash flows of the SES Business as discontinued operations.
On December 31, 2012, the Company sold SEACOR Energy Inc. ("SEI"), its energy commodity and logistics business, to Par Petroleum Corporation. For all periods presented herein, the Company has reported the historical financial position, results of operations and cash flows of SEI as discontinued operations.
On January 31, 2013, the Company completed the spin-off ("Spin-off") of Era Group Inc. ("Era Group"), the company that operated SEACOR's Aviation Services business segment, by means of a dividend to SEACOR's stockholders of all the issued and outstanding common stock of Era Group. Era Group filed a Registration Statement on Form 10 with the SEC that was declared effective on January 14, 2013. Prior to the Spin-off, SEACOR and Era Group entered into a Distribution Agreement and several other agreements that govern the post-Spin-off relationship between SEACOR and Era Group. Era Group is an independent company whose common stock is listed on the New York Stock Exchange under the symbol "ERA." For all periods presented herein, the Company has reported the historical financial position, results of operations and cash flows of Era Group as discontinued operations.
Offshore Marine Services
Business
Offshore Marine Services operates a diverse fleet of support vessels primarily servicing offshore oil and gas exploration, development and production facilities worldwide. The vessels deliver cargo and personnel to offshore installations; handle anchors and mooring equipment required to tether rigs to the seabed; tow rigs and assist in placing them on location and moving them between regions; and carry and launch equipment such as remote operated vehicles or “ROVs” used underwater in drilling and well installation, maintenance, and repair. In addition, Offshore Marine Services' vessels provide accommodations for technicians and specialists, and provide standby safety support and emergency response services. Offshore Marine Services also operates a fleet of lift boats in the U.S. Gulf of Mexico supporting well intervention, work-over, decommissioning and diving operations. In non-oil and gas industry activity, Offshore Marine Services operates vessels primarily used to move personnel and supplies to offshore wind farms in Europe. Offshore Marine Services contributed 40%, 45% and 40% of consolidated operating revenues in 2014, 2013 and 2012, respectively.
For a discussion of risk and economic factors that may impact Offshore Marine Services' financial position and its results of operations, see “Item 1A.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
Offshore support vessels, inland river towboats and barges, product tankers, harbor and offshore towboats and barges, RORO vessels and barges, terminals and manufacturing and servicing facilities are the principal physical properties owned by the Company and are more fully described in "Offshore Marine Services," "Inland River Services," "Shipping Services" and "Illinois Corn Processing" in "Item 1. Business."
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
On July 20, 2010, two individuals purporting to represent a class commenced a civil action in the Civil District Court for the Parish of Orleans in the State of Louisiana, John Wunstell, Jr. and Kelly Blanchard v. BP, et al., No. 2010-7437 (Division K) (the “Wunstell Action”), in which they assert, among other theories, that Mr. Wunstell suffered injuries as a result of his exposure to certain noxious fumes and chemicals in connection with the provision of remediation, containment and response services by ORM during the Deepwater Horizon oil spill response and clean-up in the U.S. Gulf of Mexico. The action now is part of the overall multi-district litigation, In re Oil Spill by the Oil Rig "Deepwater Horizon", MDL No. 2179 filed in the U.S. District Court for the Eastern District of Louisiana ("MDL"). The complaint also seeks to establish a “class-wide court-supervised medical monitoring program” for all individuals “participating in BP's Deepwater Horizon Vessels of Opportunity Program and/or Horizon Response Program” who allegedly experienced injuries similar to those of Mr. Wunstell. The Company believes this lawsuit has no merit and will continue to vigorously defend the action and pursuant to contractual agreements with the responsible party, the responsible party has agreed, subject to certain potential limitations, to indemnify and defend ORM in connection with the Wunstell
Action and claims asserted in the MDL, discussed further below. Although the Company is unable to estimate the potential exposure, if any, resulting from this matter, the Company does not expect it will have a material effect on the Company's consolidated financial position, results of operations or cash flows.
On December 15, 2010, NRC, a subsidiary of the Company prior to the SES Business Transaction, and ORM were named as defendants in one of the several consolidated “master complaints” that have been filed in the overall MDL. The "B3" master complaint naming ORM and NRC asserts various claims on behalf of a putative class against multiple defendants concerning the clean-up activities generally, and the use of dispersants specifically. By court order, the Wunstell Action has been stayed as a result of the filing of the referenced master complaint. The Company believes that the claims asserted against ORM and NRC in the master complaint have no merit and on February 28, 2011, ORM and NRC moved to dismiss all claims against them in the master complaint on legal grounds. On September 30, 2011, the Court granted in part and denied in part the motion to dismiss that ORM and NRC had filed (an amended decision was issued on October 4, 2011 that corrected several grammatical errors and non-substantive oversights in the original order). Although the Court refused to dismiss the referenced master complaint in its entirety at that time, the Court did recognize the validity of the “derivative immunity” and “implied preemption” arguments that ORM and NRC advanced and directed ORM and NRC to (i) conduct limited discovery to develop evidence to support those arguments and (ii) then re-assert the arguments. The Court did, however, dismiss all state-law claims and certain other claims that had been asserted in the referenced master complaint, and dismissed the claims of all plaintiffs that have failed to allege a legally-sufficient injury. A schedule for limited discovery and motion practice was established by the Court and, in accordance with that schedule, ORM and NRC filed for summary judgment re-asserting their derivative immunity and implied preemption arguments on May 18, 2012. Those motions were argued on July 13, 2012 and are still pending decision. On July 17, 2014, the Court issued a pretrial order that established a protocol for disclosures clarifying the basis for the “B3” claims asserted against the Clean-Up Responder Defendants, including ORM and NRC, in the MDL. Under this protocol, Plaintiffs who satisfy certain criteria and believe they have specific evidence in support of their claims, including that any Clean-Up Responder Defendant(s) failed to act pursuant to the authority and direction of the federal government in conducting Deepwater Horizon oil spill remediation and clean-up operations, must submit a sworn statement or face dismissal. Plaintiffs’ deadline to serve such sworn statements in support of their claims was September 22, 2014, with the exception of several Plaintiffs who were granted an extension until October 10, 2014. On November 14, 2014, the Clean-Up Responder Defendants and the Plaintiffs’ Steering Committee in the MDL submitted a joint report to the Court regarding claimants’ compliance with the pretrial order. In this joint report, the parties (i) explained how they complied with the notice requirements of Court’s July 17, 2014 pretrial order, (ii) noted that they had received 102 sworn statements in connection with this pretrial order, and (iii) provided the Court with an assessment of the sworn statements received. Procedures and next steps in connection with the “B3” claims will now be addressed by the Court. In addition to the indemnity provided to ORM, pursuant to contractual agreements with the responsible party, the responsible party has agreed, subject to certain potential limitations, to indemnify and defend ORM and NRC in connection with these claims in the MDL. Although the Company is unable to estimate the potential exposure, if any, resulting from this matter, the Company does not expect it will have a material effect on the Company's consolidated financial position, results of operations or cash flows.
Subsequent to the filing of the referenced master complaint, ten additional individual civil actions have been filed in or removed to the U.S. District Court for the Eastern District of Louisiana concerning the clean-up activities generally, which name the Company, ORM and/or NRC as defendants or third-party defendants and are part of the overall MDL. By court order, all of these additional individuals' cases have been stayed until further notice. On April 8, 2011, ORM was named as a defendant in Johnson Bros. Corporation of Louisiana v. BP, PLC, et al., No. 2:11-CV-00781 (E.D. La.), which is a suit by an individual business seeking damages allegedly caused by a delay on a construction project alleged to have resulted from the clean-up operations. On April 13, 2011, the Company was named as a defendant in Mason v. Seacor Marine, LLC, No. 2:11-CV-00826 (E.D. La.), an action in which plaintiff, a former employee, alleges sustaining personal injuries in connection with responding to the explosion and fire, but also in the months thereafter in connection with the clean-up of oil and dispersants while a member of the crew of the M/V Seacor Vanguard. Although the case is subject to the MDL Court’s stay of individual proceedings, the employee moved to sever his case from the MDL on July 16, 2012, which the Court denied on March 5, 2013. The employee filed a motion asking the Court to reconsider, which was denied on May 3, 2013, and the employee filed a Notice of Appeal to the U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”) on May 22, 2013. On July 24, 2013, the Company filed a motion to dismiss for lack of appellate jurisdiction, which was granted on August 16, 2013. The same company employee has also brought a claim in the M/V Seacor Vanguard vessel’s limitation action in the MDL which relates to any actions that may have been taken by vessels owned by the Company to extinguish the fire. On October 20, 2014, the Company moved for summary judgment, seeking dismissal with prejudice of all of the Company employee’s claims in the MDL in light of the Court’s prior rulings. This motion is still pending decision. On April 15, 2011, ORM and NRC were named as defendants in James and Krista Pearson v. BP Exploration & Production, Inc. ("BP Exploration"), et al., No. 2:11-CV-00863 (E.D. La.), which is a suit by a husband and wife who allegedly participated in the clean-up effort and are seeking damages for personal injury, property damage to their boat, and amounts allegedly due under contract. On April 15, 2011, ORM and NRC were named as defendants in Thomas Edward Black v. BP Exploration, et al., No. 2:11-CV-00867 (E.D. La.), which is a suit by an individual who is seeking damages for lost income because he allegedly could not find work in the fishing industry after the oil spill. On April 20, 2011, a complaint was filed in Darnell Alexander, et al. v. BP, PLC, et al., No. 2:11-CV-00951 (E.D. La.) on behalf of 117 individual plaintiffs that sought to adopt the allegations made
in the referenced master complaint against ORM and NRC (and the other defendants). Plaintiffs in this matter have since been granted leave to amend their complaint to include 410 additional individual plaintiffs. On October 3, 2012, ORM and NRC were served with a Rule 14(c) Third-Party Complaint by Jambon Supplier II, L.L.C. and Jambon Marine Holdings L.L.C. in their Limitation of Liability action, In the Matter of Jambon Supplier II, L.L.C., et al., No. 2:12-CV-00426 (E.D. La.). This Third-Party Complaint alleges that if claimant David Dinwiddie, who served as a clean-up crewmember aboard the M/V JAMBON SUPPLIER II vessel during the clean-up efforts, was injured as a result of his exposure to dispersants and chemicals during the course and scope of his employment, then said injuries were caused by the third-party defendants. On November 25, 2012, ORM was named as a defendant in Victoria Sanchez v. American Pollution Control Corp. et al., No. 2:12-CV-00164 (E.D. La.), a maritime suit filed by an individual who allegedly participated in the clean-up effort and sustained personal injuries during the course of such employment. On December 17, 2012, the Court unsealed a False Claims Act lawsuit naming ORM as a defendant, Dillon v. BP, PLC et al., No. 2:12-CV-00987 (E.D. La.), which is a suit by an individual seeking damages and penalties arising from alleged false reports and claims made to the federal government with respect to the amount of oil burned and dispersed during the clean-up. The federal government has declined to intervene in this suit. On April 8, 2013, the Company, ORM, and NRC were named as defendants in William and Dianna Fitzgerald v. BP Exploration et al., No. 2:13-CV-00650 (E.D. La.), which is a suit by a husband and wife whose son allegedly participated in the clean-up effort and became ill as a result of his exposure to oil and dispersants. Finally, on April 17, 2013, ORM was named as a defendant in Danos et al. v. BP America Production Co. et al., No. 2:13-CV-03747 (removed to E.D. La.), which is a suit by eight individuals seeking damages for dispersant exposure either as a result of their work during clean-up operations or as a result of their residence in the Gulf. The Company is unable to estimate the potential exposure, if any, resulting from these matters but believes they are without merit and does not expect that they will have a material effect on its consolidated financial position, results of operations or cash flows.
On February 18, 2011, Triton Asset Leasing GmbH, Transocean Holdings LLC, Transocean Offshore Deepwater Drilling Inc., and Transocean Deepwater Inc. (collectively “Transocean”) named ORM and NRC as third-party defendants in a Rule 14(c) Third-Party Complaint in Transocean's own Limitation of Liability Act action, which is part of the overall MDL, tendering to ORM and NRC the claims in the referenced master complaint that have already been asserted against ORM and NRC. Transocean, Cameron International Corporation ("Cameron"), Halliburton Energy Services, Inc., and M-I L.L.C. ("M-I") also filed cross-claims against ORM and NRC for contribution and tort indemnity should they be found liable for any damages in Transocean's Limitation of Liability Act action and ORM and NRC asserted counterclaims against those same parties for identical relief. Weatherford U.S., L.P. and Weatherford International, Inc. (collectively "Weatherford") had also filed cross-claims against ORM and NRC, but moved to voluntarily dismiss these cross-claims without prejudice on February 8, 2013. The Court granted Weatherford's motion that same day. Transocean's limitation action, and thus the remainder of the aforementioned cross-claims, remains pending, although the Court has found Cameron and M-I to be not liable in connection with the Deepwater Horizon incident and resultant oil spill and dismissed these parties from the MDL. As indicated above, the Company is unable to estimate the potential exposure, if any, resulting from these actions but believes they are without merit and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
On November 16, 2012, 668 individuals who served as beach clean-up workers in Escambia County, Florida during the Deepwater Horizon oil spill response commenced a civil action in the Circuit Court for the First Judicial Circuit of Florida, in and for Escambia County, Abney et al. v. Plant Performance Services, LLC et al., No. 2012-CA-002947, in which they allege, among other things, that ORM and other defendants engaged in the contamination of Florida waters and beaches in violation of Florida Statutes Chapter 376 and injured the plaintiffs by exposing them to dispersants during the course and scope of their employment. The case was removed to the U.S. District Court for the Northern District of Florida on January 13, 2013, Abney et al. v. Plant Performance Services, LLC et al., No. 3:13-CV-00024 (N.D. Fla.), and on January 16, 2013, the United States Judicial Panel on Multidistrict Litigation (“JPML”) issued a Conditional Transfer Order (“CTO”) transferring the case to the MDL, subject to any timely-filed notice of objection from the plaintiffs. Upon receipt of a notice of objection from the plaintiffs, a briefing schedule was set by the JPML, and so a stay of proceedings and suspension of deadlines was sought and obtained by the Court in the U.S. District Court for the Northern District of Florida. Following briefing before the JPML, the case was transferred to the U.S. District Court for the Eastern District of Louisiana and consolidated with the MDL on April 2, 2013. On April 22, 2013, a companion case to this matter was filed in the U.S. District Court for the Northern District of Florida, Abood et al. v. Plant Performance Services, LLC et al., No. 3:13-CV-00284 (N.D. Fla.), which alleges identical allegations against the same parties but names an additional 174 plaintiffs, all of whom served as clean-up workers in various Florida counties during the Deepwater Horizon oil spill response. A CTO was issued by the JPML on May 2, 2013, no objection was filed by the plaintiffs, and the case was transferred to the U.S. District Court for the Eastern District of Louisiana and consolidated with the MDL on May 10, 2013. By court order, both of these matters have been stayed until further notice. The Company is unable to estimate the potential exposure, if any, resulting from these matters but believes they are without merit and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
Separately, on March 2, 2012, the Court announced that BP Exploration and BP America Production Company ("BP America") (collectively "BP") and the plaintiffs had reached an agreement on the terms of two proposed class action settlements that will resolve, among other things, plaintiffs' economic loss claims and clean-up related claims against BP. The parties filed
their proposed settlement agreements on April 18, 2012 along with motions seeking preliminary approval of the settlements. The Court held a hearing on April 25, 2012 to consider those motions and preliminarily approved both settlements on May 2, 2012. A final fairness hearing took place on November 8, 2012. The Court granted final approval to the Economic and Property Damages Class Action Settlement ("E&P Settlement") on December 21, 2012, and granted final approval to the Medical Benefits Class Action Settlement ("Medical Settlement") on January 11, 2013. Both class action settlements were appealed to the Fifth Circuit. The Fifth Circuit affirmed the MDL Court's decision concerning the E&P Settlement on January 10, 2014, and also affirmed the MDL Court's decision concerning the interpretation of the E&P Settlement with respect to business economic loss claims on March 3, 2014. The appeal of the Medical Settlement, on the other hand, was voluntarily dismissed and the Medical Settlement became effective on February 12, 2014. The deadline for bringing a claim to the Medical Benefits Claims Administrator is one year from the effective date of the Settlement. Although neither the Company, ORM, nor NRC are parties to the settlement agreements, the Company, ORM, and NRC are listed as released parties on the releases accompanying both settlement agreements. Consequently, barring any further successful appeal, class members who did not file timely requests for exclusion will be barred from pursuing economic loss, property damage, personal injury, medical monitoring, and/or other released claims against the Company, ORM, and NRC. The Company believes these settlements have reduced the Company's and ORM's potential exposure, if any, from some of the pending actions described above, and continues to evaluate the settlements' impacts on these cases. The Company is unable to estimate the potential exposure, if any, resulting from these matters but believes they are without merit and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
ORM is defending against one collective action lawsuit, which asserts failure to pay overtime with respect to individuals who provided service on the Deepwater Horizon oil spill response under the Fair Labor Standards Act (“FLSA”). This case, Himmerite et al. v. O'Brien's Response Management Inc. et al. (E.D. La., Case No.: 2:12-cv-01533) (the “Himmerite Action”), was brought on behalf of certain individuals who worked on the Deepwater Horizon oil spill response and who were classified as independent contractors. On February 19, 2015, the parties reached a full and final settlement agreement with respect to all of the Plaintiffs’ claims for an undisclosed immaterial amount. The parties intend to file related documents with the Court to have the matter dismissed with prejudice in its entirety.
In a related action, Dennis Prejean v. O'Brien's Response Management Inc. (E.D. La., Case No.: 2:12-cv-01045) (the “Prejean Action”), which was also filed in the United States District Court for the Eastern District of Louisiana and in which plaintiffs alleged claims similar to those alleged in the Himmerite Action, the parties reached a full and final settlement agreement on November 6, 2014 with respect to all of the Plaintiffs’ claims for an undisclosed amount. On November 19, 2014, the Court approved the parties’ settlement and dismissed the Prejean Action with prejudice in its entirety.
In a third related action, Baylor Singleton et. al. v. O'Brien's Response Management Inc. et. al. (E.D. La., Case No.: 2:12-cv-01716) (the “Singleton Action”), which was also filed in the United States District Court for the Eastern District of Louisiana and in which plaintiffs alleged claims similar to those alleged in the Prejean and Himmerite Actions, the parties reached a full and final settlement agreement on February 13, 2014 with respect to all of the Plaintiffs' individual claims for an undisclosed amount. On April 11, 2014, the Court approved the parties’ settlement and dismissed the Singleton Action with prejudice in its entirety. The Court also ordered that the tolling order which had been entered in the Singleton Action expired as of April 11, 2014.
In the course of the Company's business, it may agree to indemnify the counterparty to an agreement. If the indemnified party makes a successful claim for indemnification, the Company would be required to reimburse that party in accordance with the terms of the indemnification agreement. Indemnification agreements generally are subject to threshold amounts, specified claim periods and other restrictions and limitations.
In connection with the SES Business Transaction, the Company remains contingently liable for certain obligations, including potential liabilities relating to work performed in connection with the Deepwater Horizon oil spill response. Pursuant to the agreement governing the sale, the Company's potential liability to the purchaser may not exceed the consideration received by the Company for the SES Business Transaction. The Company is currently indemnified under contractual agreements with BP for the potential liabilities relating to work performed in connection with the Deepwater Horizon oil spill response.
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.
ITEM 4.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Officers of SEACOR serve at the pleasure of the Board of Directors. The name, age and offices held by each of the executive officers of SEACOR as of December 31, 2014 were as follows:
PART II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for the Company’s Common Stock
SEACOR’s Common Stock trades on the New York Stock Exchange (“NYSE”) under the trading symbol “CKH.” Set forth in the table below for the periods presented are the high and low sale prices for SEACOR’s Common Stock.
As of February 24, 2015, there were 213 holders of record of Common Stock.
Any payment of future dividends will be at the discretion of SEACOR’s Board of Directors and will depend upon, among other factors, the Company’s earnings, financial condition, current and anticipated capital requirements, plans for expansion, level of indebtedness and contractual restrictions, including the provisions of the Company’s other then-existing indebtedness. The payment of future cash dividends, if any, would be made only from assets legally available.
Performance Graph
Set forth in the graph below is a comparison of the cumulative total return that a hypothetical investor would have earned assuming the investment of $100 over the five-year period commencing on December 31, 2009 in (i) the Common Stock of the Company, (ii) the Standard & Poor’s 500 Stock Index (“S&P 500”) and (iii) the Simmons Offshore Transportation Services Index, an index of oil service companies published by Simmons and Company International Limited (the “Simmons Peer Index”). The information set forth in the graph below shall be considered "furnished" but not "filed" for purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934.
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(1)
Assumes the reinvestment of dividends.
(2)
Simmons Peer Index is calculated as a simple average percentage in share prices and includes the following companies: Bourbon S.A., Bristow Group Inc., PHI Inc., Tidewater Inc., GulfMark Offshore, Inc., Kirby Corporation, Hornbeck Offshore Services, Inc., Solstad Offshore ASA, Farstad Shipping ASA, DOF ASA, and SEACOR Holdings Inc.
Issuer Repurchases of Equity Securities
SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire Common Stock, which may be acquired through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. During the years ended December 31, 2014 and 2012, the Company acquired for treasury 2,531,324 and 1,377,798 shares of Common Stock, respectively for an aggregate purchase price of $195.3 million and $119.6 million, respectively. During the year ended December 31, 2013, the Company acquired no shares of Common Stock. As of December 31, 2014, SEACOR had authorization to repurchase $150.0 million of Common Stock. In addition, during the year ended December 31, 2014, the Company acquired for treasury 26,792 shares of Common Stock for an aggregate purchase price of $2.0 million upon the exercise of certain stock options by the Company's Executive Chairman. These shares were purchased in accordance with the terms of the Company's Share Incentive Plans and not pursuant to the repurchase authorizations granted by SEACOR's Board of Directors.
This following table provides information with respect to purchases by the Company of shares of its Common Stock during the three months ended December 31, 2014:
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(1)
Since February 1997, SEACOR’s Board of Directors has authorized the repurchase of Common Stock. From time to time thereafter, SEACOR's Board of Directors have increased the authority to repurchase Common Stock and most recently increased the authority to $150.0 million on December 29, 2014.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL INFORMATION.
The following table sets forth, for the periods indicated, selected historical consolidated financial data for the Company (in thousands, except per share data). Such financial data should be read in conjunction with “Item 7.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company’s operations are divided into four main business segments - Offshore Marine Services, Inland River Services, Shipping Services, and Illinois Corn Processing. The Company also has activities that are referred to and described under Other that primarily includes emergency and crisis services, agricultural commodity trading and logistics, lending and leasing activities and noncontrolling investments in various other businesses.
The Company reports a disposed business as discontinued operations when it has no continuing interest in the business. Discontinued operations includes the historical financial position, results of operations and cash flows of the operations reported as discontinued in Part IV "Note 17. Discontinued Operations" of this Annual Report on Form 10-K.
Consolidated Results of Operations
Consolidating segment tables for each period presented below is included in Part IV “Note 16. Major Customers and Segment Information” of this Annual Report on Form 10-K.
Offshore Marine Services
The market for offshore oil and gas drilling has historically been cyclical. Demand for offshore support vessels tends to be linked to the price of oil and gas which significantly impacts Offshore Marine Services’ customer exploration and drilling activity levels. Oil and gas prices tend to fluctuate based on many factors, including global economic activity, levels of reserves and production acivity. Price levels for oil and gas can in themselves influence demand. In addition to the price of oil and gas, the availability of acreage, local tax incentives or disincentives, moratoriums and other regulatory actions, and requirements for maintaining interests in leases affect activity in the oil and gas industry. The cyclicality of the market is further exacerbated by a tendency in the industry to order capital assets as demand grows, often resulting in new capacity becoming available just as demand for oil and gas is peaking and activity is about to decline. Factors that influence the level of offshore exploration and drilling activities include:
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expectations as to future oil and gas commodity prices;
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customer assessments of offshore drilling prospects compared with land-based opportunities;
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customer assessments of cost, geological opportunity and political stability in host countries;
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worldwide demand for oil and natural gas;
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the ability of The Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and pricing;
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the level of production of non-OPEC countries;
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the relative exchange rates for the U.S. dollar; and
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various United States and international government policies regarding exploration and development of oil and gas reserves.
Offshore oil and gas market conditions deteriorated during 2014, primarily in the fourth quarter, and have continued to deteriorate through the date hereof, as offshore drilling and associated activity declined in response to lower oil and gas prices.
In the U.S. Gulf of Mexico, operating results for all vessel classes were negatively impacted as oil producing companies focused on cost reduction. Market conditions in international regions were also weaker in 2014; however, operating results were supported by positive contract coverage offsetting weak market conditions. Offshore Marine Services continues to closely monitor the delivery of newly built offshore support vessels to the industry-wide fleet, which is creating situations of oversupply thereby lowering the demand for the Company's existing offshore support vessel fleet. A continuation of weak oil and gas prices leading to lower customer exploration and drilling activity levels and the increasing size of the global offshore support vessel fleet as newly built vessels are placed into service could in isolation or together have a material adverse effect on Offshore Marine Services' results of operations, financial position and cash flows.
Over the last several years, Offshore Marine Services has disposed of its old generation equipment while taking delivery of new vessels specifically designed to meet the changing requirements of the market. Since December 31, 2005, the average age of the fleet, excluding standby safety and wind farm utility vessels, has been reduced from 16 years to 13 years as of December 31, 2014. Offshore Marine Services entered 2015 with a diverse fleet and broad geographical distribution of vessels, which should minimize trading risk during the current unstable market. The Company's strong financial position should enable Offshore Marine Services to purchase, mobilize or upgrade vessels to meet changing market conditions.
Results of Operations
The number and type of vessels operated, their rates per day worked and their utilization levels are the key determinants of Offshore Marine Services' operating results and cash flows. Unless a vessel is cold-stacked (removed from operational service), there is little reduction in daily running costs and, consequently, operating margins are most sensitive to changes in rates per day worked and utilization.
The aggregate cost of Offshore Marine Services' operations depends primarily on the size and asset mix of the fleet. Offshore Marine Services' operating costs and expenses are grouped into the following categories:
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personnel (primarily wages, benefits, payroll taxes, savings plans and travel for marine personnel);
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repairs and maintenance (primarily routine repairs and maintenance and main engine overhauls which are performed in accordance with planned maintenance programs);
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drydocking (primarily the cost of regulatory drydockings performed in accordance with applicable regulations);
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insurance and loss reserves (primarily the cost of Hull and Machinery and Protection and Indemnity insurance premiums and loss deductibles);
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fuel, lubes and supplies;
•
leased-in equipment (includes the cost of leasing vessels from lessors under bareboat charter arrangements and leasing equipment employed on vessels);
•
brokered vessel activity (the cost of chartering-in third party vessels under time charter arrangements to fulfill a customer requirement that cannot be filled by a vessel in the Company's fleet); and
•
other (communication costs, expenses incurred in mobilizing vessels between geographic regions, third party ship management fees, freight expenses, customs and importation duties, and other).
The Company expenses drydocking, engine overhaul and vessel mobilization costs as incurred. If a disproportionate number of drydockings, overhauls or mobilizations are undertaken in a particular fiscal year or quarter, operating expenses may vary significantly when compared with the prior year or prior quarter.
For the years ended December 31, the results of operations for Offshore Marine Services were as follows:
______________________
(1)
Includes amounts attributable to both SEACOR and noncontrolling interests. See Part IV "Note 11. Noncontrolling Interests in Subsidiaries" included in this Annual Report on Form 10-K.
Operating Revenues by Type. The table below sets forth, for the years indicated, operating revenues earned by type.
Time Charter Operating Data. The table below sets forth the average rates per day worked, utilization and available days data for each group of Offshore Marine Services’ vessels operating under time charters for the periods indicated. The rate per day worked is the ratio of total time charter revenues to the aggregate number of days worked. Utilization is the ratio of aggregate number of days worked to total calendar days available for work. Available days represents the total calendar days during which owned and chartered-in vessels are operated by the Company.
2014 compared with 2013
Operating Revenues. Operating revenues were $37.3 million lower in 2014 compared with 2013. Time charter revenues were $36.3 million lower in 2014 compared with 2013.
Excluding the contribution of the wind farm utility vessels, fleet utilization was 78% in 2014 compared with 81% in 2013, and average day rates were $15,275 per day in 2014 compared with $14,370 per day in 2013, an increase of $905 per day or 6%. The number of days available for charter was 39,306 in 2014 compared with 43,426 in 2013, a 4,120 day or 9% reduction.
In the U.S. Gulf of Mexico, time charter revenues were $44.0 million lower in 2014 compared with 2013. Time charter revenues were $3.2 million higher due to improved utilization, $13.9 million lower due to a decrease in average day rates, $21.8 million lower due to net fleet dispositions including the return of nine leased-in vessels to their owners during 2014, $3.2 million lower due to the effect of cold-stacking vessels and $8.3 million lower due to the repositioning of vessels between geographic regions and other changes in fleet mix. As of December 31, 2014, the Company had one vessel cold-stacked in this region compared with no vessels as of December 31, 2013.
In Africa, time charter revenues were $4.7 million higher in 2014 compared with 2013. Time charter revenues were $1.5 million higher due to improved utilization, $3.0 million higher due to fleet additions and $3.7 million higher due to the repositioning of vessels between geographic regions. Time charter revenues were $3.5 million lower due to a decrease in average day rates.
In the Middle East, time charter revenues were $6.7 million lower in 2014 compared with 2013. Time charter revenues were $4.5 million lower due to reduced utilization, $2.8 million lower due to the repositioning of vessels between geographic regions and $0.6 million higher due to improved average day rates.
In Brazil, Mexico and Central and South America, time charter revenues were $2.8 million higher in 2014 compared with 2013. Time charter revenues were $7.3 million higher due to improved utilization, $1.9 million lower due to the repositioning of vessels between geographic regions and $2.6 million lower due to a decrease in average day rates.
In Europe, excluding wind farm utility vessels, time charter revenues were $6.3 million higher in 2014 compared with 2013. Time charter revenues were $2.1 million higher due to increased average day rates and $4.2 million higher due to favorable changes in currency exchange rates. For the wind farm utility vessels, time charter revenues were $2.2 million higher. Time charter revenues were $1.9 million higher due to improved average day rates, $1.2 million higher due to favorable changes in currency exchange rate, and $1.5 million higher due to net fleet additions. Time charter revenues were $0.7 million lower due to reduced utilization and $1.7 million lower due to the repositioning of vessels between geographic regions.
In Asia, time charter revenues were $1.6 million lower in 2014 compared with 2013. Time charter revenues were $0.8 million higher due to improved average day rates and $2.4 million lower due to reduced utilization.
Operating Expenses. Operating expenses were $17.0 million lower in 2014 compared with 2013. Operating expenses were $18.0 million lower due to net fleet dispositions. In addition, drydocking expenses were $7.1 million lower primarily due to a reduction in drydocking activity in the U.S. Gulf of Mexico, West Africa, Europe and Asia and insurance and loss reserves were $2.5 million lower primarily due to fewer claims. These reductions were partially offset by an $8.3 million increase in personnel costs primarily due to higher wage and benefits costs for vessel crew and a $1.8 million increase in repairs and maintenance costs.
Administrative and General. Administrative and general expenses were $1.9 million lower for the year ended December 31, 2014 compared with the year ended December 31, 2013 primarily due to a reduction in wage and benefit costs.
Gains on Asset Dispositions. During 2014, the Company sold 14 offshore support vessels and other equipment for net proceeds of $177.3 million and gains of $48.3 million, of which $13.5 million was recognized currently and $34.8 million was deferred. In addition, the Company recognized previously deferred gains of $13.0 million. During 2013, the Company sold 19 offshore support vessels and other equipment for net proceeds of $174.1 million and gains of $40.3 million, of which $28.6 million was recognized currently and $11.7 million was deferred. In addition, the Company recognized previously deferred gains of $0.1 million.
Operating Income. Excluding the impact of gains on asset dispositions and the impact of brokered vessel activity, operating income as a percentage of operating revenues was 8% in 2014 compared with 10% in 2013. The decrease was primarily due to net fleet dispositions and weaker market conditions in the U.S. Gulf of Mexico.
Other, net. During 2014, the Company received net litigation settlement proceeds of $14.7 million from an equipment supplier relating to the May 2008 mechanical malfunction and fire onboard the SEACOR Sherman, an anchor handling towing supply vessel then under construction. Upon settlement of the litigation, the Company recognized a gain of $14.7 million.
Equity in Earnings of 50% or Less Owned Companies, Net of Tax. During 2013, the Company acquired a controlling interest in C-Lift LLC through the acquisition of its partner’s 50% interest and recognized a $4.2 million gain, net of tax, included in equity in earnings of 50% or less owned companies upon marking its investment to fair value.
2013 compared with 2012
Operating Revenues. Operating revenues were $47.4 million higher in 2013 compared with 2012. Time charter revenues were $42.4 million higher in 2013 compared with 2012. Results for 2013 included a full year’s contribution from the Company’s liftboat fleet that was acquired on March 30, 2012. During the first quarter of 2013, the liftboats contributed $20.8 million of operating revenues, of which $19.3 million was time charter revenues with an average day rate of $18,573 per day and a utilization rate of 64%.
Excluding the contribution of the wind farm utility vessels, fleet utilization was 81% in both periods and average day rates were $14,370 per day in 2013 compared with $12,816 per day in 2012, an increase of $1,554 per day, or 12%. The number of days available for charter was 43,426 in 2013 compared with 44,681 in 2012, a 1,255 day or 3% reduction.
In the U.S. Gulf of Mexico, time charter revenues were $47.3 million higher in 2013 compared with 2012, of which $19.3 million was due to the contribution of the liftboat fleet during the first quarter of 2013. Time charter revenues were $25.2 million higher due to an increase in average day rates, $12.5 million higher due to the repositioning of vessels between geographic regions, and $1.6 million higher due to net fleet additions and other changes in fleet mix. Time charter revenues were $5.8 million lower due to a decline in utilization, and $5.5 million lower due to the net effect of cold-stacking vessels, primarily two anchor handling towing supply vessels. As of December 31, 2013, the Company had no vessels cold-stacked in this region compared with two as of December 31, 2012.
In Africa, time charter revenues were $4.1 million lower in 2013 compared with 2012 primarily due to lower utilization.
In the Middle East, time charter revenues were $1.8 million higher in 2013 compared with 2012. Time charter revenues were $0.7 million higher due to improved utilization and $1.5 million higher due to increased average day rates. The repositioning of vessels between geographic regions and vessel dispositions reduced time charter revenues by $0.3 million and $0.1 million, respectively.
In Brazil, Mexico and Central and South America, time charter revenues were $3.3 million lower in 2013 compared with 2012. Time charter revenues were $4.2 million higher due to net fleet additions, $0.2 million higher due to the repositioning of vessels between geographic regions and $0.4 million higher due to increased average day rates. Lower utilization decreased time charter revenues by $8.1 million.
In Europe, excluding wind farm utility vessels, time charter revenues were $1.1 million higher in 2013 compared with 2012. Time charter revenues were $2.8 million higher due to improved average day rates. Lower utilization, vessel dispositions and unfavorable changes in currency exchange rates decreased time charter revenues by $0.1 million, $0.6 million and $1.0 million, respectively. For the wind farm utility vessels, time charter revenues were $2.5 million lower. Lower average day rates, lower utilization and unfavorable changes in currency exchange rates reduced time charter revenues for the wind farm utility vessels by $3.6 million, $0.3 million and $0.2 million, respectively. These decreases were partially offset by net fleet acquisitions, which increased time charter revenues by $1.6 million.
In Asia, time charter revenues were $2.1 million higher in 2013 compared with 2012. Time charter revenues were $0.9 million higher due to improved utilization and $3.7 million higher due to improved average day rates. Fleet dispositions reduced time charter revenues by $2.5 million.
Operating Expenses. Operating expenses were $32.4 million higher in 2013 compared with 2012, of which $16.4 million was attributable to the liftboat fleet during the first quarter of 2013. Excluding the impact of the liftboat fleet during the first quarter of 2013, operating expenses were $16.0 million higher in 2013 compared with 2012. Personnel costs were $5.5 million higher primarily due to the recognition during 2013 of a $2.7 million charge for the Company’s share of a funding deficit arising from the March 2012 actuarial valuation of the United Kingdom Merchant Navy Officers’ Pension Fund, and increased seafarer compensation costs. Repair and maintenance expenses were $5.6 million lower primarily due to decreased expenditure in Africa, the Middle East, Brazil, Mexico, Central and South America and Asia. Drydocking expenses were $14.3 million higher primarily due to an increase in drydocking activity in the U.S. Gulf of Mexico, Africa and Europe. Fuel, lube and supply expenses were $1.3 million lower primarily due to a decrease in fuel consumption related to vessels repositioning between geographic regions. Leased-in equipment expense was $7.1 million higher primarily due to the expiration of amortized deferred gains upon the extension of leases for vessels previously sold and leased back and an increase in bareboat charter expense in the Middle East. Other operating expenses were $3.7 million lower primarily due to fewer vessels repositioning between geographic regions.
Administrative and General. Administrative and general expenses were $1.0 million higher in 2013 compared with 2012 primarily due to the acquisition of the liftboat fleet on March 30, 2012.
Depreciation. Depreciation expenses were $3.9 million higher in 2013 compared with 2012 primarily due to the acquisition of the liftboat fleet on March 30, 2012.
Gains on Asset Dispositions. During 2013, the Company sold 19 offshore support vessels and other equipment for net proceeds of $174.1 million and gains of $40.3 million, of which $28.6 million was recognized currently and $11.7 million was
deferred. In addition, the Company recognized previously deferred gains of $0.1 million. During 2012, the Company sold seven offshore support vessels and other equipment for net proceeds of $126.0 million and gains of $24.5 million, of which $5.5 million was recognized currently and $19.0 million was deferred. In addition, the Company recognized previously deferred gains of $9.4 million.
Operating Income. Excluding the impact of gains on asset dispositions and the impact of brokered vessel activity, operating income as a percentage of operating revenues was 10% in 2013 compared with 9% in 2012. The increase was primarily due to improved results in the U.S. Gulf of Mexico.
Equity in Earnings of 50% or Less Owned Companies, Net of Tax. Equity in earnings of 50% or less owned companies, net of tax, was $8.3 million higher in 2013 compared with 2012. During 2013, the Company acquired a controlling interest in C-Lift LLC through the acquisition of its partner’s 50% interest and recognized a $4.2 million gain, net of tax, included in equity in earnings of 50% or less owned companies upon marking its investment to fair value. In addition, equity earnings, net of tax, in the Company’s Mexican 50% or less owned company increased by $3.3 million during 2013.
Inland River Services
The results of Inland River Services are primarily driven by its customers’ demand for inland river barge transportation equipment, which impacts prices, utilization and margins achieved. Factors that influence customer demand of equipment include:
•
the level of domestic and international production of the basic agricultural products to be transported (in particular, the yield from grain harvests);
•
the level of domestic and international consumption of agricultural products and the effect of these levels on the volumes of products that are physically moved into the export markets;
•
the level of domestic and worldwide demand for iron ore, steel, steel by-products, coal, ethanol, petroleum and other bulk commodities;
•
the strength or weakness of the U.S. dollar and its impact on the import and export markets; and
•
the cost of ocean freight and fuel.
Within the United States and international markets, other local factors also have an effect on prices, utilization and margins achieved including:
•
the supply of barges available to move the products;
•
impact of severe weather on the general operating conditions of the river network;
•
the availability of qualified wheelhouse personnel;
•
the ability to position the barges to maximize efficiencies and utility in moving cargoes both northbound and southbound;
•
the cost of alternative forms of transportation (primarily rail and pipeline) and capacities at export facilities;
•
general operating logistics on the river network including size and operating status of locks and dams;
•
the effect of river levels on the loading capacities of the barges in terms of draft restrictions;
•
the potential for epidemic like viruses that impact food stock movements on the inland waterways; and
•
foreign and domestic laws and regulations.
Historically, activity levels for grain exports and non-grain imports are the key drivers in determining domestic dry-cargo barge freight rates. In 2014, the inland river dry-cargo barge market benefited from an increase in the volume of freight moved, an improved pricing environment and generally good operating conditions. Two consecutive years with large crop yields have helped restore U.S. market share in the global grain and oilseed trade. The combined exports of corn, soybeans and wheat through the U.S. Gulf of Mexico export market increased seventeen million metric tons in 2014 over the prior year. Earnings for the dry-cargo barge fleet was also positively impacted by strong demand for non-grain imported commodities at the beginning of the harvest season, which drove freight rates higher and improved utilization during the last half of the year. The stronger demand did result in higher towing costs; however, the increases were partially offset by falling fuel prices in the fourth quarter.
At the end of 2014, the average age of Inland River Services' dry cargo barge fleet on the U.S. Inland Waterways was eight years old, which the Company believes is among the youngest fleets operating on the U.S. Inland River Waterways system. Inland River Services believes that approximately 22% of the dry cargo barge fleet operating on the U.S. Inland River Waterways is over 20 years old. Inland River Services believes the relatively young age of its dry cargo barge fleet enhances its availability
and reliability, reduces downtime for repairs and obviates, for the immediate future, the necessity of replacement capital expenditures to maintain its fleet size and revenue generating capacity.
Internationally, dry-cargo barge freight rates are driven by customer demand of equipment to move grain, iron ore and other bulk commodities and the supply of equipment to meet the demand for services. Recently, Inland River Services has experienced downward pricing pressures on freight rates as the demand for equipment to move iron ore and agricultural products has softened while additional equipment is being placed into service.
The market for domestic liquid barge transportation continued to be driven by high refinery production and domestic demand for refined products. During the second half of 2014, high volumes of product inventories and significantly reduced crude oil prices had a negative impact on unit tow barge transportation rates. Increased demand for the movement of chemicals, clean oil feedstock, blending components and finished products supported high utilization of the 10,000 barrel liquid barge fleet.
The market for international liquid barge transportation has developed in Colombia with the largest equipment customer moving to a double hull standard in the region.
During 2014, the Company’s high-speed multi-modal liquid terminal facility ("Gateway Terminals") experienced unfavorable market dynamics as limited crude oil volume into the facility identified the need for product optionality. An additional rail unloading line to accommodate ethanol was installed along with the ability to segregate tank storage enabling the facility to handle diverse products and react to changing market conditions.
During 2014, the dry bulk terminal operation in St. Louis experienced an increase in imported steel and fertilizer volumes; however, grain movements declined due to several factors: rail logistic disruptions pushed rail rates into St. Louis higher making it an uncompetitive destination for grain; and high barge freight rates on the river caused barge movements to become uncompetitive compared with direct rail shipments.
Inland River Services’ fleeting operation experienced a high level of barge traffic to terminals, high refining activity and high volumes of crude being transloaded to barges in the St. Louis harbor in the first half of 2014. The second half of 2014 saw a reduction in crude loadings as product movement shifted away from barge and rail to pipeline as a consequence of high freight rates on the river and poor rail logistics.
Results of Operations
Fleet size, equipment utilization levels from volumes of product moved and margins earned are the key determinants of Inland River Services’ operating results and cash flows. Increased demand for inland river transportation equipment generally leads to higher barge freight rates earned while higher activity levels generally leads to higher barge logistics. Adverse river conditions caused by severe weather can reduce volumes of product moved and increase barge logistics costs. Margins earned are also impacted by the success, or lack thereof, of coordinating cargo movements to minimize the repositioning logistics costs of empty barges.
The aggregate cost of Inland River Services' operations depends primarily on the size and mix of its fleet and the level of barge activity. Inland River Services' operating costs and expenses are grouped into the following categories:
•
barge logistics (primarily towing, switching, fleeting and cleaning costs);
•
personnel (primarily wages, benefits, payroll taxes, savings plans and travel for marine personnel);
•
repairs and maintenance (primarily repairs and maintenance on towboats, which are performed in accordance with planned maintenance programs);
•
insurance and loss reserves (primarily the cost of Hull and Machinery, Protection and Indemnity and Cargo insurance premiums and loss deductibles);
•
fuel, lubes and supplies;
•
leased-in equipment (includes the cost of leasing equipment, including bought-in freight and towboats); and
•
other (rail car logistics, property taxes and other).
For the years ended December 31, the results of operations for Inland River Services were as follows:
______________________
(1)
Includes amounts attributable to both SEACOR and noncontrolling interests. See Part IV "Note 11. Noncontrolling Interests in Subsidiaries" included in this Annual Report on Form 10-K.
Operating Revenues by Service Line. The following table presents, for the years indicated, operating revenues by service line.
Dry Cargo Barge Pools Operating Data. The following table presents, for the years indicated, Inland River Services’ participation in tons moved and its available barge days in the dry cargo barge pools. Available barge days represents the total calendar days during which the Company’s owned and chartered-in barges were in the pool.
2014 compared with 2013
Operating Revenues. Operating revenues were $37.5 million higher in 2014 compared with 2013. Operating revenues from the dry-cargo barge pools were $49.3 million higher primarily due to high crop yields, which increased freight rates and tons moved. In addition, favorable river conditions for most of the year allowed for improved utilization, particularly in the fourth quarter. Operating revenues from the charter-out of dry-cargo barges were $1.6 million lower primarily due to the expiration of certain charter contracts and the redeployment of the equipment into the dry-cargo barge pools. Operating revenues from the liquid unit tow operations were $2.3 million higher primarily due to higher rates in response to the continued strong demand for water-borne movements of crude oil, refined products, chemicals and blending components. Operating revenues from inland river towboat operations and other activities were $12.1 million lower primarily due to re-deploying three inland river towboats to the Company's 50% or less owned company operating on the Parana-Paraguay Waterway.
Operating Expenses. Operating expenses were $22.4 million higher in 2014 compared with 2013. Barge logistics expenses were $28.2 million higher primarily due to higher towing and switching expenses as a result of increased activity in the dry-cargo barge pools. Leased-in equipment expenses were $5.2 million lower primarily due to removing three towboats from service.
Gains on Asset Dispositions. During 2014, the Company sold 80 dry cargo barges, five inland river towboats and other equipment for net proceeds of $70.4 million and gains of $33.9 million, of which $26.2 million was recognized currently and $7.7 million was deferred. In addition, the Company recognized previously deferred gains of $3.5 million. During 2013, the Company sold 16 dry cargo barges, eight 30,000 barrel liquid tank barges and other equipment for net proceeds of $30.1 million and gains of $6.6 million, of which $3.7 million was recognized currently and $2.9 million was deferred. In addition, the Company recognized previously deferred gains of $2.9 million.
Operating Income. Excluding the impact of gains on sale of asset dispositions, operating income as a percentage of operating revenues was 13% in 2014 compared with 9% in 2013. The increase was primarily due to higher earnings from the dry-cargo barge pool operations as stated above.
Foreign currency gains (losses), net. During 2014, the Company recognized $3.0 million in foreign currency losses primarily due to the strengthening of the U.S. dollar versus the Colombian peso.
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax. During 2014, the Company recognized $6.7 million of equity in earnings of 50% or less owned companies, net of tax, primarily due to the receipt of a termination payment following a customer's cancellation of four long-term time charter contracts in the Company's Argentinian joint venture. During 2013, the Company recognized $7.6 million of equity in losses of 50% or less owned companies, net of tax, primarily from losses relating to the structural failure of a terminal facility at the Port of Ibicuy, Argentina.
2013 compared with 2012
Operating Revenues. Operating revenues were $10.9 million lower in 2013 compared with 2012. Operating revenues from the dry cargo barge pools were $15.1 million lower in 2013 compared with 2012. During 2013, the dry cargo markets were negatively affected by the drought conditions of 2012, which resulted in reduced demand for barge freight and a weaker pricing environment for most of the year. Operating revenues from the charter-out of dry cargo barges were $1.8 million lower primarily due to the expiration of certain charter contracts and the return of equipment to the dry cargo barge pools. Operating revenues from the liquid unit tow operations were $5.3 million higher primarily due to higher rates in response to the continued strong demand for water-borne movements of crude oil, refined products, chemicals and blending components. Operating revenues from 10,000 barrel liquid tank barge operations were $4.0 million higher primarily due to increased demand and the placement of additional equipment in service. Operating revenues from terminal operations were $2.9 million lower, of which $1.5 million was
due to reduced throughput at Gateway Terminals following its conversion to accommodate crude oil transfer and storage. The remaining shortfall was attributable to decreased volumes of corn and grain products through the St. Louis Harbor in 2013 primarily due to the 2012 drought. Operating revenues from fleeting operations were $1.7 million higher primarily due to increased volumes of petroleum products flowing through the St. Louis Harbor. Operating revenues from inland river towboat operations and other activities were $3.0 million lower primarily due to lower activity levels at the Company's machine shop, gear and engine, and barge and towboat repair facilities ("SCF Services") and the conclusion of a boat charter arrangement.
Operating Expenses. Operating expenses were $6.1 million lower in 2013 compared with 2012. Barge logistics expenses were $9.9 million lower primarily due to lower towing and switching expenses as a result of decreased demand for dry cargo barge freight, partially offset by increased activity in the 10,000 barrel liquid tank barge operation. Repairs and maintenance expenses were $1.6 million higher primarily due to mandatory five-year United States Coast Guard inspections and related repairs in the liquid unit tow operation. Leased-in equipment expenses were $1.6 million higher primarily due to the cost of additional equipment and leasing-in equipment that had been sold under sale and leaseback agreements.
Administrative and General. Administrative and general expenses were $0.5 million lower in 2013 compared with 2012 primarily due to the acceleration of restricted stock awards from 2013 and 2014 into 2012.
Gains on Asset Dispositions. During 2013, the Company sold 16 dry cargo barges, eight 30,000 barrel liquid tank barges and other equipment for net proceeds of $30.1 million and gains of $6.6 million, of which $3.7 million was recognized currently and $2.9 million was deferred. In addition, the Company recognized previously deferred gains of $2.9 million. During 2012, the Company sold nine dry-cargo barges, one 10,000 barrel liquid tank barge, two towboats and other equipment for net proceeds of $13.2 million and gains of $5.1 million, of which $4.9 million was recognized currently and $0.2 million was deferred. In addition, the company recognized previously deferred gains of $2.8 million.
Operating Income. Excluding the impact of gains on sale of asset dispositions, operating income as a percentage of operating revenues was 9% in 2013 compared with 11% in 2012. The decrease was primarily due to lower earnings from dry cargo barge pool operations and a reduction in throughput at Gateway Terminals as a result of the conversion to accommodate crude oil transfer and storage.
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax. During 2013, the Company recognized $7.6 million of equity in losses of 50% or less owned companies, net of tax, primarily from losses relating to the structural failure of a terminal facility at the Port of Ibicuy, Argentina. In addition, the results of the Company's grain handling and inland river towboat investments were both lower compared with the prior year due to the impact of the 2012 drought on the crop harvest and difficult river operating conditions for a portion of 2013. During 2012, the Company recognized $3.3 million of equity in losses of 50% or less owned companies, net of tax, primarily as a result of difficult operating conditions and provisions for uncertain insurance recoveries related to the structural failure of a terminal facility at the Port of Ibicuy, Argentina.
Shipping Services
Demand for the Company’s U.S.-flag petroleum transportation services is dependent on several factors including the following:
•
volume and location of domestic crude oil and petroleum production and associated refining activity levels in the United States;
•
the volume and location of domestic retail consumption of petroleum products and commercial consumption of crude oil, petroleum products and chemicals;
•
the impact of competition from domestic pipelines and railroads; and
•
the impact of competition from foreign sourced imports of crude oil, oil products and chemicals.
The number of U.S.-flag oceangoing vessels eligible to participate in the U.S. domestic trade and capable of transporting crude or petroleum products has fluctuated in recent years as vessels have reached the end of their useful lives or have been retired due to the requirements of the Oil Pollution Act of 1990 and newly built vessels are placed into service. As of December 31, 2014, the Company believes that third parties have contracted to build approximately 13 U.S.-flag tank vessels with deliveries commencing in 2015 that could compete with Shipping Services’ equipment currently in service and under construction.
The demand for gas transportation services is dependent on several factors including the available supply of VLGC's, global LPG production levels and global demand for LPG. As of December 31, 2014, the Company believes that third parties have contracted to build approximately 79 foreign-flag VLGC's with deliveries commencing in 2015 that could compete with Dorian LPG's equipment currently in service and under construction.
The demand for harbor towing services is affected by the volume, size and type of vessels calling within the U.S. ports where the Company's tugs are deployed. The number of U.S.-flag harbor tugs in service is hard to ascertain. Operators continue to upgrade their fleets with newly built, larger horsepower azimuth drive tugs to service changing customer requirements. Bunkering
services are provided under a long term, fixed price contract serving a single customer who markets bunkers throughout the Greater Antilles region.
The demand for liner and short-sea shipping services is dependent on several factors including the volume of new development projects, demand for consumer and durable goods and tourism trends within Puerto Rico, the Bahamas and the Western Caribbean.
Results of Operations
The number and type of equipment operated, their contracted rates and their utilization levels are the key determinants of Shipping Services' operating results and cash flows. Unless a vessel is removed from operational service, there is little reduction in daily running costs and, consequently, operating margins are most sensitive to changes in contractual rates and utilization.
Shipping Services’ operating costs and expenses are grouped into the following categories:
•
personnel (primarily wages, benefits, payroll taxes, savings plans and travel for marine personnel);
•
repairs and maintenance (primarily routine repairs and maintenance and overhauls which are performed in accordance with planned maintenance programs);
•
drydocking (primarily the cost of regulatory drydockings performed in accordance with applicable regulations);
•
insurance and loss reserves (primarily the cost of Hull and Machinery and Protection and Indemnity insurance premiums and loss deductibles);
•
fuel, lubes and supplies;
•
leased-in equipment (includes the cost of leasing tankers from lessors under bareboat charter arrangements); and
•
other (port charges, freight, vessel inspection costs and other).
Vessel drydockings are performed regularly in accordance with applicable regulations and the Company expenses drydocking costs as incurred. If a disproportionate number of drydockings are undertaken in a particular fiscal year or quarter, operating expenses may vary significantly when compared with a prior year or prior quarter.
For the years ended December 31, the results of operations for Shipping Services were as follows:
______________________
(1)
Includes amounts attributable to both SEACOR and noncontrolling interests. See Part IV "Note 11. Noncontrolling Interests in Subsidiaries" included in this Annual Report on Form 10-K.
Operating Revenues by Line of Service. The table below sets forth, for the years indicated, operating revenues earned by line of service.
2014 compared with 2013
Operating Revenues. Operating revenues were $20.1 million higher in 2014 compared with 2013. Time charter revenues for petroleum transportation were $11.9 million higher primarily due to an increase in the time charter rates for three vessels and fewer days out-of-service for drydocking. Operating revenues for harbor towing and bunkering were $4.5 million higher primarily
due to a 3% increase in harbor towing jobs and the placement of a tug on time charter. Operating revenues for short-sea transportation were $3.6 million higher primarily due to higher cargo shipping demand.
Operating Expenses. Operating expenses were $4.5 million lower in 2014 compared with 2013. Personnel costs were $2.7 million higher primarily due to union wage rate increases. Drydocking costs were $11.2 million lower primarily due to regulatory drydockings for two U.S.-flag product tankers during 2013 and lower drydocking activity for harbor towing and bunkering equipment during 2014. Leased-in equipment expense increased as a result of the sale and leaseback of one U.S.-flag product tanker.
Administrative and General. Administrative and general expenses were $2.4 million higher in 2014 compared with 2013 primarily due to additional personnel and higher wage and benefit costs, partially offset by lower legal fees.
Depreciation and Amortization. Depreciation and amortization expenses were $2.9 million lower primarily due to the sale and leaseback of one U.S.-flag product tanker as described above.
Gains on Asset Dispositions and Impairments, Net. During 2014, the Company sold two foreign-flag short-sea container/RORO vessels, real property and other equipment, and sold and leased back one U.S.-flag product tanker for net proceeds of $41.0 million and gains of $29.0 million, of which $0.2 million was recognized currently and $28.8 million was deferred. During 2013, the Company sold eight harbor tugs and other equipment for net proceeds of $62.2 million and gains of $15.4 million, of which $3.2 million was recognized currently and $12.2 million was deferred. In addition, the Company recognized an impairment charge of $3.0 million related to two U.S.-flag harbor tugs while under construction, which were sold and leased back upon their completion.
Operating Income. Excluding the impact of gains on asset dispositions and impairments, operating income as a percentage of operating revenues was 23% in 2014 compared with 12% in 2013. The increase was primarily due to the improvements in operating revenues and lower drydocking costs discussed above.
Other, net. During 2014, the Company expensed a $4.0 million non-refundable deposit upon the expiration of a new build construction option.
Equity in Losses of 50% or Less Owned Companies, Net of Tax. During 2014, equity in losses of 50% or less owned companies primarily includes $7.2 million of losses from Trailer Bridge, partially offset by earnings of $6.0 million from Dorian, which included a gain of $4.4 million, net of tax, following the completion of equity offerings in which the Company did not participate. During 2013, equity in losses of 50% or less owned companies primarily includes $5.2 million of losses from Trailer Bridge, partially offset by earnings of $1.5 million from Dorian, which included a gain of $1.1 million, net of tax, following the completion of equity offerings in which the Company did not participate. During 2014 and 2013, the Company recognized interest income (not a component of segment profit) of $8.8 million and $7.7 million, respectively, on notes due from Trailer Bridge.
2013 compared with 2012
Operating Revenues. Operating revenues were $14.1 million higher in 2013 compared with 2012. Time charter revenues for petroleum transportation were $9.6 million higher primarily due to an increase in time charter rates for three vessels, partially offset by increased out-of-service days for drydocking. Operating revenues for harbor towing and bunkering were $3.1 million higher primarily due to a 7% increase in harbor towing jobs. Operating revenues for short-sea transportation were $1.4 million higher primarily due to increased cargo shipping demand.
Operating Expenses. Operating expenses were $5.2 million higher in 2013 compared with 2012. Personnel costs were $1.8 million higher primarily due to union wage rate increases. Repair and maintenance costs were $1.0 million lower primarily due to the impact of topside repair costs for one U.S.-flag product tanker in 2012, partially offset by major repair costs for one harbor tug in 2013. Drydocking costs were $7.5 million higher primarily due to regulatory drydockings for two U.S.-flag product tankers and more drydocking activity for harbor towing and bunkering. Other operating expenses were $2.8 million lower primarily due to a reduction in stevedoring expenses for short-sea transportation vessels and lower mobilization costs for harbor tugs.
Administrative and General. Administrative and general expenses were $0.5 million lower in 2013 compared with 2012 primarily due to a legal settlement and associated fees in 2012, partially offset by higher wage and benefit costs.
Depreciation and Amortization. Depreciation and amortization expenses were $0.7 million higher in 2013 compared with 2012 primarily due to capital improvements to certain of the Company's bunkering and petroleum transportation equipment, the addition of one foreign-flag RORO vessel and placing one harbor tug in service prior to being sold and leased back.
Gains on Asset Dispositions and Impairments, Net. During 2013, the Company sold seven U.S.-flag harbor tugs, one foreign-flag harbor tug and other equipment for net proceeds of $62.2 million and gains of $15.4 million, of which $3.2 million was recognized currently and $12.2 million was deferred. In addition, the Company recognized an impairment charge of $3.0 million related to two U.S.-flag harbor tugs while under construction, which were sold and leased back upon their completion. During 2012, the Company sold one foreign-flag RORO vessel and three U.S.-flag harbor tugs and two foreign-flag harbor tugs for net proceeds of $20.3 million and gains of $7.1 million, of which $3.1 million was recognized and $4.0 million was deferred.
Operating Income. Excluding the impact of gains on asset dispositions and impairments, operating income as a percentage of operating revenues was 12% in 2013 compared with 8% in 2012. The increase was primarily due to the improvements in operating revenues, partially offset by higher drydocking costs noted above.
Other, net. Other, net was $6.7 million lower primarily due to a $7.0 million termination payment from a customer following the cancellation of a long-term charter in 2012.
Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax. During 2013, equity in losses of 50% or less owned companies primarily includes $5.2 million of losses from Trailer Bridge, partially offset by earnings of $1.5 million from Dorian, which included a gain of $1.1 million, net of tax, following the completion of equity offerings in which the Company did not participate. During 2012, equity in losses of 50% or less owned companies primarily includes $4.5 million of losses from Trailer Bridge. During 2013 and 2012, the Company recognized interest income (not a component of segment profit) of $7.7 million and $5.0 million, respectively, on notes due from Trailer Bridge.
Illinois Corn Processing
The results of Illinois Corn Processing ("ICP") is primarily driven by customer demand for its products in the various markets in which it operates, the availability and cost of competing alcohol and other commodity supplies and the cost of production inputs consumed in the production of alcohol.
Demand for ICP products in 2014 was strong across all markets. Volumes sold for alcohol and DDGS were higher in 2014 due to improved economic and market conditions and improved plant utilization rates. In addition, the mix of alcohol products sold in 2014 was favorable as sales of high quality and other alcohol products represented a higher percentage of total alcohol gallons sold. Finally, fuel ethanol sales prices were substantially higher relative to input costs which yielded historically high profit margins in the first half of 2014.
Demand for high quality alcohol products is dependent on several factors, including; the demand for consumer-driven products in which high quality alcohol is a component, such as food and beverage products, cleaning and laundry products, personal care products, cosmetics, and various industrial chemicals; U.S. economic conditions impacting such consumer demands; and the availability and cost of competitor products. Competition among producers is primarily based upon price, service and quality of product offered. ICP’s high quality alcohol products, typically sold at premiums to fuel ethanol, experienced strong demand throughout 2014.
Demand for other alcohol products is dependent upon several factors including the consumer demand for products overseas for which these alcohol products are used. In addition, demand is primarily impacted by factors affecting the cost competitiveness of U.S. produced alcohol compared with alcohol produced internationally. These factors include the relative cost of commodity feedstocks used to produce alcohol in the U.S. (primarily corn) and internationally (primarily sugar, small grains or molasses), as well as the relative strength of the U.S. Dollar versus foreign currencies. Also influencing demand for other alcohol products sold domestically is the relative cost of producing alcohol in the U.S. from corn compared to the cost of synthetic alcohol. ICP’s other alcohol products, also typically sold at premiums to fuel ethanol, experienced strong demand in 2014. As 2014 drew to a close, the demand outlook for these products was still developing and will primarily depend upon cost competitive factors of U.S. product versus product produced internationally.
Demand for fuel grade ethanol is dependent upon several factors including the Renewable Fuel Standard II, the federal regulatory ethanol blending mandate, which requires minimum levels of blending fuel ethanol into the U.S. gasoline supply, the cost competitiveness of U.S. produced ethanol compared to Brazilian produced ethanol, the relative cost of commodity feedstocks used to produce ethanol in the U.S. (primarily corn) and Brazil (primarily sugar), the relative strength of the U.S. Dollar versus the Brazilian real, U.S. gasoline demand, and the price of U.S. wholesale gasoline. In 2014, U.S. produced fuel ethanol was competitively priced against Brazilian ethanol, resulting in lower U.S. imports of Brazilian ethanol and higher exports of U.S. ethanol. In addition, during the first half of 2014, poor rail logistics in the U.S. led to production constraints as most domestically produced fuel ethanol moves to market by rail. As a consequence, fuel ethanol sales prices were higher relative to input costs and yielded historically high profit margins in the first half of 2014. By the fourth quarter of 2014, the industry had experienced a build-up of excess inventories as rail logistics had improved substantially, corn costs were historically low and ethanol production run rates were strong. The Company expects that U.S. fuel ethanol margins will continue to see downward pressure until supply and demand levels find a balance.
Demand for DDGS is dependent upon several factors including global demand for animal feed, global production, availability of competing animal feed products, pricing for competing animal feed products and the relative strength of the U.S. dollar against foreign currencies.
Demand for Corn Oil is dependent upon several factors including demand for biodiesel, the continued existence of a federal tax credit provided for biodiesel blending and the availability and pricing of competing oils used in biodiesel production.
The availability and cost of corn has a significant impact on ICP’s results of operations. In any single year, the availability and price of corn is subject to factors such as changes in weather conditions, plantings, governmental policies, changes in demand, and global production of similar and competitive crops. In 2014, the input cost of corn was substantially lower compared with 2013, resulting from a historically large U.S. corn crop harvest, the second consecutive year for a large harvest.
Results of Operations
The profitability of ICP is significantly affected by the volume of product sold, plant utilization rates and commodity prices, in particular the spread between the input costs of corn and natural gas that ICP purchases compared with the output prices of alcohol and distillers grains that it sells.
For the years ended December 31, the results of operations for ICP were as follows:
______________________
(1)
Results of operations are for the eleven months ended December 31, 2012. The Company obtained a controlling interest in ICP effective February 1, 2012.
(2)
ICP routinely enters into exchange traded positions (primarily corn futures) to offset its net commodity market exposure on raw material and finished goods inventory balances. As of December 31, 2014, the net market exposure to corn under its contracts and its raw material and inventory balances was not material.
(3)
Includes amounts attributable to both SEACOR and noncontrolling interests. See Part IV "Note 11. Noncontrolling Interests in Subsidiaries" included in this Annual Report on Form 10-K.
Key Production and Sales Metrics. The table below sets forth, for the periods indicated, key production and sales metrics for Illinois Corn Processing:
______________________
(1)
Key production and sales metrics are for the eleven months ended December 31, 2012. The Company obtained a controlling interest in ICP effective February 1, 2012.
2014 compared with 2013
Operating Revenues. Operating revenues were $42.6 million higher in 2014 compared with 2013. Operating revenues from alcohol sales were $37.5 million higher primarily due to higher volumes of alcohol products sold.
Segment Profit (Loss). Segment profit was $39.0 million in 2014 compared with a segment loss of $0.9 million in 2013. The improvement in segment profit was primarily due to higher sales volumes of alcohol, including higher sales volumes of high quality alcohol which generally carries higher margins, and improved fuel ethanol margins as a consequence of lower corn prices.
2013 compared with 2012
Operating Revenues. Operating revenues were $5.0 million higher in 2013 compared with the eleven months ended December 31, 2012. Operating revenues from DDGS sales were $3.6 million higher primarily due to an increase in tonnage sold.
Segment Profit (Loss). Segment loss was $0.9 million in 2013 compared with a segment profit of $2.8 million in 2012. Segment profit in 2012 included a $6.0 million gain, net of tax, arising from the Company's acquisition of a controlling interest in ICP. Excluding this gain, segment results improved by $2.3 million primarily due to improved U.S. fuel ethanol margins and increased sales of high quality alcohol.
Other
For the years ended December 31, the operating revenues and segment profit of the Company's Other activities was as follows:
______________________
(1)
Includes amounts attributable to both SEACOR and noncontrolling interests. See Part IV "Note 11. Noncontrolling Interests in Subsidiaries" included in this Annual Report on Form 10-K.
(2)
The components of segment profit do not include interest income, which is a significant component of the Company's lending and leasing activities. Other activities recognized interest income of $6.6 million, $4.8 million and $8.8 million, during the years ended December 31, 2014, 2013 and 2012, respectively, primarily related to its lending and leasing portfolio.
Emergency and Crisis Services. Operating results and operating margins for emergency and crisis services can vary materially between comparable periods depending upon the number and magnitude of emergency responses.
Segment loss in 2014 includes $8.5 million of legal costs and provisions for the settlement of certain litigation matters associated with the Deepwater Horizon oil spill. During 2014, the Company acquired a controlling interest in Witt O'Brien's LLC ("Witt O'Brien's"), a global leader in preparedness, crisis management, and disaster response and recovery, through the acquisition of its partner's equity interest. Beginning July 1, 2014, the Company has consolidated the financial position, results of operations and cash flows of Witt O'Brien's.
Segment loss in 2012 included equity in losses of 50% or less owned companies of $9.7 million, net of tax, upon the contribution of ORM in exchange for an equity interest in Witt O'Brien's. The equity in losses was primarily related to the one-time recognition of deferred tax liabilities associated with the deconsolidation of non-deductible goodwill. In addition, ORM reported operating losses from continuing operations of $4.2 million in 2012.
Agricultural Commodity Trading and Logistics. The segment loss in 2014 was primarily due to losses on a rice trade in Africa as a result of poor quality and deteriorating conditions as a consequence of the Ebola outbreak and the impairment of certain tangible and intangible assets in Brazil.
Other Activities. Segment loss in 2014 was primarily due to the impairment of one of the Company's 50% or less owned companies and the impairment of a fixed wing aircraft sold in October 2014 following its return by a leasing customer upon the
scheduled completion of the lease. Segment profit in 2013 was primarily due to gains on the sale of real property. Segment loss in 2012 was primarily due to the impairment of a fixed wing aircraft sold in December 2012 following its return by a leasing customer upon the scheduled completion of the lease.
Corporate and Eliminations
Corporate Expenses. Corporate expenses were $7.8 million higher in 2014 compared with 2013 primarily due to $5.4 million of separation payments and the acceleration of share awards following the retirement of certain executives. In addition, corporate expenses includes a $3.5 million impairment charge on a fixed wing aircraft sold in September 2014. Corporate expenses were $7.8 million lower in 2013 compared with 2012 primarily due to the acceleration of restricted stock awards into 2012 that were scheduled to lapse in 2013 and 2014, partially offset by higher management bonus awards.
Derivative losses, net. Derivative losses, net in 2013 were primarily due to losses from equity indices of $5.2 million and losses on forward exchange, option and future contracts of $1.1 million. Derivative losses, net in 2012 were primarily due to losses on interest rate swaps of $3.6 million.
Foreign currency gains (losses), net. Foreign currency losses, net in 2014 were primarily due to the strengthening of the U.S. dollar against the euro and the Norwegian kroner underlying certain of the Company's marketable securities and cash balances.
Other Income (Expense) not included in Segment Profit
Interest income. Interest income was $4.2 million higher in 2014 compared with 2013 primarily due to higher interest earned on advances to the Company's 50% or less owned companies as well as the receipt of a contingent payment on a note receivable in the Company's lending and leasing portfolio. Interest income was $1.9 million lower in 2013 compared with 2012 primarily due to a prepayment penalty received in 2012 following the early redemption of a note receivable in the Company's lending and leasing portfolio, partially offset by higher interest earned in 2013 on advances to the Company's 50% or less owned companies.
Interest expense. Interest expense was $1.0 million higher in 2014 compared with 2013 primarily due higher capitalized interest, partially offset by interest on the Company's 3.0% Convertible Senior Notes issued on November 13, 2013. Interest expense was $4.7 million higher in 2013 compared with 2012 primarily due to the issuance of the Company's 2.5% Convertible Senior Notes on December 11, 2012 and the issuance of the Company's 3.0% Convertible Senior Notes, partially offset by lower interest on the Company's 5.875% Senior Notes which matured October 1, 2012, lower interest on borrowings under the Company's revolving credit facility, which was terminated on August 9, 2013, and higher capitalized interest.
Marketable security gains (losses), net. In 2014, marketable security gains, net were due to gains on long marketable security positions of $26.9 million and gains on short marketable security positions of $1.9 million. In 2013, marketable security gains, net were due to gains on long marketable security positions of $8.2 million, partially offset by losses on short marketable security positions of $2.4 million. In 2012, marketable security gains, net were due to gains on long marketable security positions of $13.2 million, partially offset by losses on short sales of marketable securities of $0.3 million.
Income Taxes
The Company’s effective income tax rate in 2014, 2013 and 2012 was 33.8%, 39.6% and 44.3%, respectively. The effective tax rate in 2014 was primarily due to the net income attributable to noncontrolling interests. See Part IV "Note 7. Income Taxes" and "Note 11. Noncontrolling Interests in Subsidiaries" included in this Annual Report on Form 10-K.
Liquidity and Capital Resources
General
The Company’s ongoing liquidity requirements arise primarily from working capital needs, capital commitments, and its obligations to repay debt. The Company may use its liquidity to fund acquisitions, repurchase shares of SEACOR common stock, par value $0.01 per share (“Common Stock”), for treasury or to make other investments. Sources of liquidity are cash balances, marketable securities, construction reserve funds, Title XI reserve funds and cash flows from operations. From time to time, the Company may secure additional liquidity through asset sales or the issuance of debt, shares of Common Stock or common stock of its subsidiaries, preferred stock or a combination thereof.
As of December 31, 2014, the Company's unfunded capital commitments were $490.7 million and included: $184.4 million for 18 offshore support vessels; $1.6 million for two 30,000 barrel inland river liquid tank barges; $3.2 million for four inland river towboats; $230.1 million for three U.S.-flag product tankers; $56.3 million for one U.S.-flag articulated tug-barge; and $15.1 million for other equipment and improvements. Of these commitments, $247.3 million is payable during 2015; $204.0 million is payable during 2016; $34.0 million is payable during 2017; and $5.4 million is payable during 2018. Subsequent to December 31, 2014, the Company committed to purchase eight 10,000 barrel inland river liquid tank barges and other equipment for $15.1 million.
SEACOR’s Board of Directors has previously authorized the Company to purchase any or all of its 7.375% Senior Notes due 2019, which may be acquired through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. During 2014, the Company did not purchase any of its 7.375% Senior Notes due 2019. As of December 31, 2014, the aggregate outstanding principal amount of the Company's 7.375% Senior Notes due 2019 was $233.5 million.
SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire Common Stock, which may be acquired through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. As of December 31, 2014, the remaining authority under the repurchase plan was $150.0 million.
As of December 31, 2014, the Company had outstanding letters of credit totaling $40.4 million with various expiration dates through 2018 and outstanding debt of $882.9 million.
As of December 31, 2014, the Company held balances of cash, cash equivalents, restricted cash, marketable securities, construction reserve funds and Title XI reserve funds totaling $786.6 million. As of December 31, 2014, construction reserve funds of $268.4 million were classified as non-current assets in the accompanying consolidated balance sheets as the Company has the intent and ability to use the funds to acquire equipment.
Summary of Cash Flows
Operating Activities
Cash flows provided by operating activities decreased by $17.9 million during 2014 compared with 2013. Cash flows provided by operating activities decreased by $61.4 million during 2013 compared with 2012. The components of cash flows provided by (used in) operating activities during the years ended December 31 were as follows:
_____________________
(1)
During 2014, 2013 and 2012, capitalized interest paid and included in purchases of property and equipment was $17.0 million, $6.5 million and $4.3 million, respectively.
During 2014 and 2013, operating income from continuing operations before depreciation, amortization and gains on asset dispositions and impairments, net increased by $48.0 million and $33.0 million, respectively, compared with the prior year. See “Consolidated Results of Operations” included above for a discussion of the results for each of the Company’s business segments.
During 2013, operating income from discontinued operations before depreciation, amortization and gains on asset dispositions and impairments, net decreased by $70.9 million compared with 2012 as a result of the sale of the SES business on March 16, 2012, the sale of SEI on December 31, 2012 and the Spin-off of Era Group on January 31, 2013.
During 2014, cash used in operating activities included $14.3 million to purchase marketable security long positions and $1.5 million to cover marketable security short positions. During 2014, cash provided by operating activities included $6.8 million received from the sale of marketable security long positions.
During 2013, cash used in operating activities included $7.4 million to purchase marketable security long positions. During 2013, cash provided by operating activities included $12.8 million received from the sale of marketable security long positions.
During 2012, cash used in operating activities included $23.3 million to purchase marketable security long positions and $17.1 million to cover marketable security short positions. During 2012, cash provided by operating activities included $34.0 million received from the sale of marketable security long positions and $2.5 million received upon entering into marketable security short positions.
Other cash flows provided by operating activities in 2014 include litigation settlement proceeds of $14.7 million from an equipment supplier relating to the May 2008 mechanical malfunction and fire onboard the SEACOR Sherman, an anchor handling towing supply vessel then under construction. Other cash flows provided by operating activities in 2012 include adjustments associated with the non-cash acceleration of restricted stock awards into 2012 that were scheduled to lapse in 2013 and 2014.
Investing Activities
During 2014, net cash used in investing activities of continuing operations was $224.4 million primarily as follows:
•
Capital expenditures were $360.6 million, including $151.2 million of progress payments toward the construction of three U.S.-flag product tankers. Equipment deliveries included three fast support vessels, two supply vessels, two wind farm utility vessels, 65 inland river dry-cargo barges, one inland river towboat and one foreign-flag short-sea container/RORO vessel.
•
The Company sold one anchor handling towing supply vessel, seven fast support vessels, four supply vessels, one liftboat, one windfarm utility vessel, 80 inland river dry-cargo barges, five inland river towboats, one U.S.-flag product tanker, two foreign-flag short-sea container/RORO vessels and other equipment for net proceeds of $300.1 million ($254.8 million in cash and $45.3 million in seller financing).
•
The Company made investments in, and advances to, 50% or less owned companies of $90.8 million including $43.2 million to SCFCo Holdings LLC ("SCFCo"), $16.7 million to SEA-Access LLC, $0.6 million to SeaJon II LLC, $5.1 million to SEACOR OSV Partners I LP ("OSV Partners"), $4.8 million to CLEANCOR Energy Solutions LLC, $3.0 million to Avion Pacific Limited ("Avion"), $2.9 million to Mantenimiento Express Maritimo, S.A.P.I. de C.V. ("MexMar") and $2.3 million to SeaJon LLC ("SeaJon").
•
The Company received $36.3 million from its 50% or less owned companies, including $14.0 million from Sea-Cat Crewzer II LLC ("Sea-Cat Crewzer II"), $10.7 million from MexMar, $4.0 million from Avion and $3.2 million from Sea-Cat Crewzer LLC.
•
The Company made advances for $8.4 million on third party leases and notes receivable.
•
Construction reserve fund account transactions included withdrawals of $131.2 million and deposits of $147.5 million.
•
On July 11, 2014, the Company acquired a controlling interest in Witt-O'Brien's through its acquisition of its partner's 45.8% equity interest for $35.4 million.
During 2013, net cash used in investing activities of continuing operations was $130.8 million primarily as follows:
•
Capital expenditures were $195.9 million. Equipment deliveries included one supply vessel, two specialty vessels, five wind farm utility vessels, two 10,000 barrel inland river liquid tank barges, one inland river towboat, one foreign-flag short-sea container/RORO vessel and four U.S.-flag harbor tugs.
•
The Company sold five fast support vessels, one mini-supply vessel, two supply vessels, six liftboats, three specialty vessels, two wind farm utility vessels, 16 inland river dry-cargo barges, eight 30,000 barrel inland river liquid tank barges, seven U.S.-flag harbor tugs, one foreign-flag harbor tug and other property and equipment for net proceeds of $274.3 million ($263.9 million in cash and $10.4 million in seller financing).
•
The Company made investments in, and advances to, 50% or less owned companies of $171.5 million including $112.5 million in Dorian LPG Ltd., $23.9 million in Sea-Cat Crewzer II, $7.6 million in MexMar, $9.2 million in SCFCo and $4.1 million to OSV Partners.
•
The Company received $18.3 million from its 50% or less owned companies.
•
The Company received net payments of $16.4 million on third party leases and notes receivable.
•
The Company released restricted cash of $15.3 million.
•
Construction reserve fund account transactions included withdrawals of $65.5 million and deposits of $131.6 million.
•
On June 6, 2013, the Company acquired a controlling interest in C-Lift LLC through its acquisition of its partner's interest for $11.1 million, net of cash acquired.
During 2013, net cash used by investing activities of discontinued operations of $8.5 million was primarily due to Era Group's capital expenditures of $8.7 million.
During 2012, net cash used in investing activities of continuing operations was $138.6 million primarily as follows:
•
Capital expenditures were $239.4 million. Equipment deliveries during the period included two anchor handling towing supply vessels, two supply vessels, one wind farm utility vessel, one specialty vessel, three inland river dry-cargo barges, one 10,000 barrel inland river liquid tank barge, four 30,000 barrel liquid tank barges and two inland river towboats.
•
The Company sold two anchor handling towing supply vessels, two fast support vessels, two supply vessels, one standby safety vessel, nine inland river dry-cargo barges, two inland river towboats, one 10,000 barrel inland river liquid tank barge, one foreign-flag short-sea container/RORO vessel, three U.S.-flag harbor tugs, two foreign-flag harbor tugs and other equipment for net proceeds of $167.5 million ($114.0 million in cash, $48.5 million in seller financing and $5.0 million in cash deposits previously received).
•
The Company made investments in its 50% or less owned companies of $45.6 million including $20.8 million of bridge financing to Trailer Bridge, Inc., $11.0 million in advances to Avion and $5.0 million to Bunge-SCF Grain LLC.
•
The Company received $87.3 million from its 50% or less owned companies including $45.0 million of repayments on short-term notes from MexMar, $20.0 million from SeaJon as a capital distribution and $15.7 million from Avion as a repayment of advances.
•
The Company received net payments of $36.0 million on third party leases and notes receivable.
•
Construction reserve fund account transactions included withdrawals of $122.7 million and deposits of $58.4 million.
•
The Company acquired 18 lift boats, real property and working capital from Superior Energy Inc. for $142.6 million.
•
The Company obtained a controlling interest in ICP through its acquisition of a portion of its partner's interest for $9.1 million in cash.
During 2012, net cash used by investing activities of discontinued operations was $7.7 million primarily as follows:
•
The Company sold the SES Business for a net sales price of $99.9 million. Net cash proceeds received were $90.3 million.
•
On December 31, 2012, the Company sold SEI to Par Petroleum Corporation for a net sales price of $15.1 million. Net cash proceeds received during 2012 were $17.8 million.
•
Era Group's investing activities included capital expenditures of $113.0 million and $5.2 million in proceeds from the sale of 18 helicopters and other equipment.
Financing Activities
During 2014, net cash used in financing activities of continuing operations was $57.2 million. The Company:
•
made scheduled payments on long-term debt and capital leases of $14.3 million;
•
made net payments on inventory financing arrangements of $4.2 million;
•
borrowed $21.7 million and repaid $19.2 million under the Witt O'Brien's revolving credit facility;
•
issued other new term loans of $5.2 million and made payments of $1.9 million;
•
received $9.2 million from share award plans;
•
issued a noncontrolling interest in subsidiaries of the Company for $151.8 million, net of issue costs;
•
acquired for treasury 2,531,324 shares of Common Stock for an aggregate purchase price of $195.3 million; and
•
acquired for treasury 26,792 shares of Common Stock for $2.0 million upon the exercise of certain stock options by the Company's Executive Chairman. These shares were purchased in accordance with the terms of the Company's Share Incentive Plans and not pursuant to the repurchase authorizations granted by SEACOR's Board of Directors.
During 2013, net cash provided by financing activities of continuing operations was $222.6 million. The Company:
•
issued $230.0 million in principal amount of its 3.0% Convertible Senior Notes due 2028 for proceeds of $223.7 million, net of issue costs of $6.3 million;
•
made scheduled payments on long-term debt of $18.2 million;
•
had net borrowings on inventory financing arrangements of $1.5 million; and
•
received $20.0 million from share award plans.
During 2013, net cash used in financing activities of discontinued operations was $14.0 million primarily due to Era Group's cash balance distributed in the Spin-off.
During 2012, net cash used in financing activities of continuing operations was $247.5 million. The Company:
•
purchased $5.5 million, in principal amount, of its 5.875% Senior Notes due 2012 for an aggregate purchase price of $5.7 million;
•
retired at maturity $171.0 million of the remaining principal balance outstanding of its 5.875% Senior Notes due 2012 for $171.0 million;
•
issued $350.0 million in principal amount of its 2.5% Convertible Senior Notes due 2027 for proceeds of $340.6 million, net of issue costs of $9.4 million;
•
borrowed $115.0 million and repaid $290.0 million under the SEACOR revolving credit facility;
•
issued other debt of $6.6 million;
•
made scheduled payments on long-term debt and capital lease obligations of $13.6 million;
•
had borrowings of $0.1 million and made payments of $0.7 million on other working capital lines;
•
repaid $3.2 million of acquired debt;
•
made net payments on inventory financing arrangements of $14.6 million;
•
paid a $5.00 per share dividend on Common Stock of $100.4 million to shareholders; and
•
acquired for treasury 1,377,798 shares of Common Stock for an aggregate purchase price of $119.6 million.
During 2012, net cash used in financing activities of discontinued operations was $12.9 million. The Company:
•
issued $200.0 million in principal amount of the Era Group Inc. 7.75% Senior Notes due 2022 for proceeds of $191.9 million, net of issue costs of $4.7 million; and
•
borrowed $88.0 million and repaid $290.0 million under the Era Group senior secured revolving credit facility.
Short and Long-Term Liquidity Requirements
The Company anticipates it will continue to generate positive cash flows from operations and that these cash flows will be adequate to meet the Company’s working capital requirements. In support of the Company’s capital expenditure program or other liquidity requirements, the Company may: use cash balances; sell securities; utilize construction reserve funds; sell assets; enter into sale and leaseback transactions for equipment; issue debt, shares of Common Stock or common stock of its subsidiaries or preferred stock; or a combination thereof. On August 9, 2013, the Company voluntarily terminated the SEACOR revolving credit facility.
The Company’s long-term liquidity is dependent upon its ability to generate operating profits sufficient to meet its requirements for working capital, capital expenditures and a reasonable return on shareholders’ investment. The Company believes that earning such operating profits will permit it to maintain its access to favorably priced debt, equity or off-balance sheet financing arrangements. Management will continue to closely monitor the Company’s liquidity and the credit and capital markets.
Off-Balance Sheet Arrangements
On occasion, the Company and its partners will guarantee certain obligations on behalf of their 50% or less owned companies. As of December 31, 2014, the Company had the following guarantees in place:
•
The Company holds an interest in two international Offshore Marine Services' 50% or less owned companies that obtained bank debt to finance the acquisition of offshore support vessels from the Company. The debt is secured by, among other things, a first preferred mortgage on the vessels. The bank also has the authority to require the joint venture partners to fund uncalled capital commitments, as defined in the joint ventures’ partnership agreements. In such event, the Company would be required to contribute its allocable share of uncalled capital, which was $2.1 million, in the aggregate, as of December 31, 2014. The Company manages these vessels on behalf of the joint ventures and guarantees the outstanding charter receivables of one of the joint ventures 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 December 31, 2014, the Company’s contingent guarantee of the joint venture’s outstanding charter receivables was $0.6 million.
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The Company is guarantor of 50% of the outstanding debt for two Offshore Marine Services' 50% or less owned companies that own offshore high speed catamaran fast support vessels. The amount of the guarantees decline as principal payments are made and will terminate when the debt is repaid. The guarantee also includes outstanding interest payable under interest rate swap agreements. The debt and interest rate swaps mature in 2019. As of December 31, 2014, the amount of the Company’s guarantee was $26.5 million.
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The Company is guarantor of a construction contract for one Offshore Marine Services' 50% or less owned company. As of December 31, 2014 the amount of the Company's guarantee was $71.6 million.
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The Company is guarantor of 50% of the outstanding debt for one of Shipping Services 50% or less owned company that owns a U.S.-flag articulated tug-barge, up to a maximum of $5.0 million. The debt matures in 2017. As of December 31, 2014, the amount of the Company’s guarantee was $5.0 million.
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The Company issued three letters of credit totaling $23.2 million in support of one of the Company's 50% or less owned company's credit facility and certain of its performance guarantees. Subsequent to December 31, 2014, one of these letters of credit for $8.7 million was canceled.
Contractual Obligations and Commercial Commitments
The following table summarizes the Company’s contractual obligations and other commercial commitments and their aggregate maturities as of December 31, 2014 (in thousands):
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(1)
Estimated maturities and interest payments of the Company’s borrowings are based on contractual terms.
(2)
Capital purchase obligations represent commitments for the purchase of property and equipment. These commitments are not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2014 as the Company has not yet received the goods or taken title to the property.
(3)
Operating leases primarily include leases of vessels, barges, tankers and other property that have a remaining term in excess of one year.
(4)
Purchase obligations primarily include future commodity purchase commitments for the Company's agriculture commodity trading activities as of December 31, 2014. These commitments are for goods and services to be acquired in the ordinary course of business and are fulfilled by the Company’s vendors within a short period of time.
(5)
Other primarily includes deferred compensation arrangements, refundable deposits and statutorily defined severance obligations.
(6)
See “Off-Balance Sheet Arrangements” above.
Effects of Inflation
The Company’s operations expose it to the effects of inflation. In the event that inflation becomes a significant factor in the world economy, inflationary pressures could result in increased operating and financing costs.
Contingencies
On July 20, 2010, two individuals purporting to represent a class commenced a civil action in the Civil District Court for the Parish of Orleans in the State of Louisiana, John Wunstell, Jr. and Kelly Blanchard v. BP, et al., No. 2010-7437 (Division K) (the “Wunstell Action”), in which they assert, among other theories, that Mr. Wunstell suffered injuries as a result of his exposure to certain noxious fumes and chemicals in connection with the provision of remediation, containment and response services by ORM during the Deepwater Horizon oil spill response and clean-up in the U.S. Gulf of Mexico. The action now is part of the overall multi-district litigation, In re Oil Spill by the Oil Rig "Deepwater Horizon", MDL No. 2179 filed in the U.S. District Court for the Eastern District of Louisiana ("MDL"). The complaint also seeks to establish a “class-wide court-supervised medical monitoring program” for all individuals “participating in BP's Deepwater Horizon Vessels of Opportunity Program and/or Horizon Response Program” who allegedly experienced injuries similar to those of Mr. Wunstell. The Company believes this lawsuit has no merit and will continue to vigorously defend the action and pursuant to contractual agreements with the responsible party, the responsible party has agreed, subject to certain potential limitations, to indemnify and defend ORM in connection with the Wunstell Action and claims asserted in the MDL, discussed further below. Although the Company is unable to estimate the potential exposure, if any, resulting from this matter, the Company does not expect it will have a material effect on the Company's consolidated financial position, results of operations or cash flows.
On December 15, 2010, NRC, a subsidiary of the Company prior to the SES Business Transaction, and ORM were named as defendants in one of the several consolidated “master complaints” that have been filed in the overall MDL. The "B3" master complaint naming ORM and NRC asserts various claims on behalf of a putative class against multiple defendants concerning the clean-up activities generally, and the use of dispersants specifically. By court order, the Wunstell Action has been stayed as a result of the filing of the referenced master complaint. The Company believes that the claims asserted against ORM and NRC in the master complaint have no merit and on February 28, 2011, ORM and NRC moved to dismiss all claims against them in the master complaint on legal grounds. On September 30, 2011, the Court granted in part and denied in part the motion to dismiss that ORM and NRC had filed (an amended decision was issued on October 4, 2011 that corrected several grammatical errors and non-substantive oversights in the original order). Although the Court refused to dismiss the referenced master complaint in its entirety at that time, the Court did recognize the validity of the “derivative immunity” and “implied preemption” arguments that ORM and NRC advanced and directed ORM and NRC to (i) conduct limited discovery to develop evidence to support those arguments and (ii) then re-assert the arguments. The Court did, however, dismiss all state-law claims and certain other claims that had been asserted in the referenced master complaint, and dismissed the claims of all plaintiffs that have failed to allege a legally-sufficient injury. A schedule for limited discovery and motion practice was established by the Court and, in accordance with that schedule, ORM and NRC filed for summary judgment re-asserting their derivative immunity and implied preemption arguments on May 18, 2012. Those motions were argued on July 13, 2012 and are still pending decision. On July 17, 2014, the Court issued a pretrial order that established a protocol for disclosures clarifying the basis for the “B3” claims asserted against the Clean-Up Responder Defendants, including ORM and NRC, in the MDL. Under this protocol, Plaintiffs who satisfy certain criteria and believe they have specific evidence in support of their claims, including that any Clean-Up Responder Defendant(s) failed to act pursuant to the authority and direction of the federal government in conducting Deepwater Horizon oil spill remediation and clean-up operations, must submit a sworn statement or face dismissal. Plaintiffs’ deadline to serve such sworn statements in support of their claims was September 22, 2014, with the exception of several Plaintiffs who were granted an extension until October 10, 2014. On November 14, 2014, the Clean-Up Responder Defendants and the Plaintiffs’ Steering Committee in the MDL submitted a joint report to the Court regarding claimants’ compliance with the pretrial order. In this joint report, the parties (i) explained how they complied with the notice requirements of Court’s July 17, 2014 pretrial order, (ii) noted that they had received 102 sworn statements in connection with this pretrial order, and (iii) provided the Court with an assessment of the sworn statements received. Procedures and next steps in connection with the “B3” claims will now be addressed by the Court. In addition to the indemnity provided to ORM, pursuant to contractual agreements with the responsible party, the responsible party has agreed, subject to certain potential limitations, to indemnify and defend ORM and NRC in connection with these claims in the MDL. Although the Company is unable to estimate the potential exposure, if any, resulting from this matter, the Company does not expect it will have a material effect on the Company's consolidated financial position, results of operations or cash flows.
Subsequent to the filing of the referenced master complaint, ten additional individual civil actions have been filed in or removed to the U.S. District Court for the Eastern District of Louisiana concerning the clean-up activities generally, which name the Company, ORM and/or NRC as defendants or third-party defendants and are part of the overall MDL. By court order, all of these additional individuals' cases have been stayed until further notice. On April 8, 2011, ORM was named as a defendant in Johnson Bros. Corporation of Louisiana v. BP, PLC, et al., No. 2:11-CV-00781 (E.D. La.), which is a suit by an individual business seeking damages allegedly caused by a delay on a construction project alleged to have resulted from the clean-up operations. On April 13, 2011, the Company was named as a defendant in Mason v. Seacor Marine, LLC, No. 2:11-CV-00826 (E.D. La.), an action in which plaintiff, a former employee, alleges sustaining personal injuries in connection with responding to the explosion and fire, but also in the months thereafter in connection with the clean-up of oil and dispersants while a member of the crew of the M/V Seacor Vanguard. Although the case is subject to the MDL Court’s stay of individual proceedings, the employee moved to sever his case from the MDL on July 16, 2012, which the Court denied on March 5, 2013. The employee filed a motion asking the Court to reconsider, which was denied on May 3, 2013, and the employee filed a Notice of Appeal to the U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”) on May 22, 2013. On July 24, 2013, the Company filed a motion to dismiss for lack of appellate jurisdiction, which was granted on August 16, 2013. The same company employee has also brought a claim in the M/V Seacor Vanguard vessel’s limitation action in the MDL which relates to any actions that may have been taken by vessels owned by the Company to extinguish the fire. On October 20, 2014, the Company moved for summary judgment, seeking dismissal with prejudice of all of the Company employee’s claims in the MDL in light of the Court’s prior rulings. This motion is still pending decision. On April 15, 2011, ORM and NRC were named as defendants in James and Krista Pearson v. BP Exploration & Production, Inc. ("BP Exploration"), et al., No. 2:11-CV-00863 (E.D. La.), which is a suit by a husband and wife who allegedly participated in the clean-up effort and are seeking damages for personal injury, property damage to their boat, and amounts allegedly due under contract. On April 15, 2011, ORM and NRC were named as defendants in Thomas Edward Black v. BP Exploration, et al., No. 2:11-CV-00867 (E.D. La.), which is a suit by an individual who is seeking damages for lost income because he allegedly could not find work in the fishing industry after the oil spill. On April 20, 2011, a complaint was filed in Darnell Alexander, et al. v. BP, PLC, et al., No. 2:11-CV-00951 (E.D. La.) on behalf of 117 individual plaintiffs that sought to adopt the allegations made in the referenced master complaint against ORM and NRC (and the other defendants). Plaintiffs in this matter have since been granted leave to amend their complaint to include 410 additional individual plaintiffs. On October 3, 2012, ORM and NRC were served with a Rule 14(c) Third-Party Complaint by Jambon Supplier II, L.L.C. and Jambon Marine Holdings L.L.C. in their
Limitation of Liability action, In the Matter of Jambon Supplier II, L.L.C., et al., No. 2:12-CV-00426 (E.D. La.). This Third-Party Complaint alleges that if claimant David Dinwiddie, who served as a clean-up crewmember aboard the M/V JAMBON SUPPLIER II vessel during the clean-up efforts, was injured as a result of his exposure to dispersants and chemicals during the course and scope of his employment, then said injuries were caused by the third-party defendants. On November 25, 2012, ORM was named as a defendant in Victoria Sanchez v. American Pollution Control Corp. et al., No. 2:12-CV-00164 (E.D. La.), a maritime suit filed by an individual who allegedly participated in the clean-up effort and sustained personal injuries during the course of such employment. On December 17, 2012, the Court unsealed a False Claims Act lawsuit naming ORM as a defendant, Dillon v. BP, PLC et al., No. 2:12-CV-00987 (E.D. La.), which is a suit by an individual seeking damages and penalties arising from alleged false reports and claims made to the federal government with respect to the amount of oil burned and dispersed during the clean-up. The federal government has declined to intervene in this suit. On April 8, 2013, the Company, ORM, and NRC were named as defendants in William and Dianna Fitzgerald v. BP Exploration et al., No. 2:13-CV-00650 (E.D. La.), which is a suit by a husband and wife whose son allegedly participated in the clean-up effort and became ill as a result of his exposure to oil and dispersants. Finally, on April 17, 2013, ORM was named as a defendant in Danos et al. v. BP America Production Co. et al., No. 2:13-CV-03747 (removed to E.D. La.), which is a suit by eight individuals seeking damages for dispersant exposure either as a result of their work during clean-up operations or as a result of their residence in the Gulf. The Company is unable to estimate the potential exposure, if any, resulting from these matters but believes they are without merit and does not expect that they will have a material effect on its consolidated financial position, results of operations or cash flows.
On February 18, 2011, Triton Asset Leasing GmbH, Transocean Holdings LLC, Transocean Offshore Deepwater Drilling Inc., and Transocean Deepwater Inc. (collectively “Transocean”) named ORM and NRC as third-party defendants in a Rule 14(c) Third-Party Complaint in Transocean's own Limitation of Liability Act action, which is part of the overall MDL, tendering to ORM and NRC the claims in the referenced master complaint that have already been asserted against ORM and NRC. Transocean, Cameron International Corporation ("Cameron"), Halliburton Energy Services, Inc., and M-I L.L.C. ("M-I") also filed cross-claims against ORM and NRC for contribution and tort indemnity should they be found liable for any damages in Transocean's Limitation of Liability Act action and ORM and NRC asserted counterclaims against those same parties for identical relief. Weatherford U.S., L.P. and Weatherford International, Inc. (collectively "Weatherford") had also filed cross-claims against ORM and NRC, but moved to voluntarily dismiss these cross-claims without prejudice on February 8, 2013. The Court granted Weatherford's motion that same day. Transocean's limitation action, and thus the remainder of the aforementioned cross-claims, remains pending, although the Court has found Cameron and M-I to be not liable in connection with the Deepwater Horizon incident and resultant oil spill and dismissed these parties from the MDL. As indicated above, the Company is unable to estimate the potential exposure, if any, resulting from these actions but believes they are without merit and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
On November 16, 2012, 668 individuals who served as beach clean-up workers in Escambia County, Florida during the Deepwater Horizon oil spill response commenced a civil action in the Circuit Court for the First Judicial Circuit of Florida, in and for Escambia County, Abney et al. v. Plant Performance Services, LLC et al., No. 2012-CA-002947, in which they allege, among other things, that ORM and other defendants engaged in the contamination of Florida waters and beaches in violation of Florida Statutes Chapter 376 and injured the plaintiffs by exposing them to dispersants during the course and scope of their employment. The case was removed to the U.S. District Court for the Northern District of Florida on January 13, 2013, Abney et al. v. Plant Performance Services, LLC et al., No. 3:13-CV-00024 (N.D. Fla.), and on January 16, 2013, the United States Judicial Panel on Multidistrict Litigation (“JPML”) issued a Conditional Transfer Order (“CTO”) transferring the case to the MDL, subject to any timely-filed notice of objection from the plaintiffs. Upon receipt of a notice of objection from the plaintiffs, a briefing schedule was set by the JPML, and so a stay of proceedings and suspension of deadlines was sought and obtained by the Court in the U.S. District Court for the Northern District of Florida. Following briefing before the JPML, the case was transferred to the U.S. District Court for the Eastern District of Louisiana and consolidated with the MDL on April 2, 2013. On April 22, 2013, a companion case to this matter was filed in the U.S. District Court for the Northern District of Florida, Abood et al. v. Plant Performance Services, LLC et al., No. 3:13-CV-00284 (N.D. Fla.), which alleges identical allegations against the same parties but names an additional 174 plaintiffs, all of whom served as clean-up workers in various Florida counties during the Deepwater Horizon oil spill response. A CTO was issued by the JPML on May 2, 2013, no objection was filed by the plaintiffs, and the case was transferred to the U.S. District Court for the Eastern District of Louisiana and consolidated with the MDL on May 10, 2013. By court order, both of these matters have been stayed until further notice. The Company is unable to estimate the potential exposure, if any, resulting from these matters but believes they are without merit and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
Separately, on March 2, 2012, the Court announced that BP Exploration and BP America Production Company ("BP America") (collectively "BP") and the plaintiffs had reached an agreement on the terms of two proposed class action settlements that will resolve, among other things, plaintiffs' economic loss claims and clean-up related claims against BP. The parties filed their proposed settlement agreements on April 18, 2012 along with motions seeking preliminary approval of the settlements. The Court held a hearing on April 25, 2012 to consider those motions and preliminarily approved both settlements on May 2, 2012. A final fairness hearing took place on November 8, 2012. The Court granted final approval to the Economic and Property Damages
Class Action Settlement ("E&P Settlement") on December 21, 2012, and granted final approval to the Medical Benefits Class Action Settlement ("Medical Settlement") on January 11, 2013. Both class action settlements were appealed to the Fifth Circuit. The Fifth Circuit affirmed the MDL Court's decision concerning the E&P Settlement on January 10, 2014, and also affirmed the MDL Court's decision concerning the interpretation of the E&P Settlement with respect to business economic loss claims on March 3, 2014. The appeal of the Medical Settlement, on the other hand, was voluntarily dismissed and the Medical Settlement became effective on February 12, 2014. The deadline for bringing a claim to the Medical Benefits Claims Administrator is one year from the effective date of the Settlement. Although neither the Company, ORM, nor NRC are parties to the settlement agreements, the Company, ORM, and NRC are listed as released parties on the releases accompanying both settlement agreements. Consequently, barring any further successful appeal, class members who did not file timely requests for exclusion will be barred from pursuing economic loss, property damage, personal injury, medical monitoring, and/or other released claims against the Company, ORM, and NRC. The Company believes these settlements have reduced the Company's and ORM's potential exposure, if any, from some of the pending actions described above, and continues to evaluate the settlements' impacts on these cases. The Company is unable to estimate the potential exposure, if any, resulting from these matters but believes they are without merit and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
ORM is defending against one collective action lawsuit, which asserts failure to pay overtime with respect to individuals who provided service on the Deepwater Horizon oil spill response under the Fair Labor Standards Act (“FLSA”). This case, Himmerite et al. v. O'Brien's Response Management Inc. et al. (E.D. La., Case No.: 2:12-cv-01533) (the “Himmerite Action”), was brought on behalf of certain individuals who worked on the Deepwater Horizon oil spill response and who were classified as independent contractors. On February 19, 2015, the parties reached a full and final settlement agreement with respect to all of the Plaintiffs’ claims for an undisclosed immaterial amount. The parties intend to file related documents with the Court to have the matter dismissed with prejudice in its entirety.
In a related action, Dennis Prejean v. O'Brien's Response Management Inc. (E.D. La., Case No.: 2:12-cv-01045) (the “Prejean Action”), which was also filed in the United States District Court for the Eastern District of Louisiana and in which plaintiffs alleged claims similar to those alleged in the Himmerite Action, the parties reached a full and final settlement agreement on November 6, 2014 with respect to all of the Plaintiffs’ claims for an undisclosed amount. On November 19, 2014, the Court approved the parties’ settlement and dismissed the Prejean Action with prejudice in its entirety.
In a third related action, Baylor Singleton et. al. v. O'Brien's Response Management Inc. et. al. (E.D. La., Case No.: 2:12-cv-01716) (the “Singleton Action”), which was also filed in the United States District Court for the Eastern District of Louisiana and in which plaintiffs alleged claims similar to those alleged in the Prejean and Himmerite Actions, the parties reached a full and final settlement agreement on February 13, 2014 with respect to all of the Plaintiffs' individual claims for an undisclosed amount. On April 11, 2014, the Court approved the parties’ settlement and dismissed the Singleton Action with prejudice in its entirety. The Court also ordered that the tolling order which had been entered in the Singleton Action expired as of April 11, 2014.
In the course of the Company's business, it may agree to indemnify the counterparty to an agreement. If the indemnified party makes a successful claim for indemnification, the Company would be required to reimburse that party in accordance with the terms of the indemnification agreement. Indemnification agreements generally are subject to threshold amounts, specified claim periods and other restrictions and limitations.
In connection with the SES Business Transaction, the Company remains contingently liable for certain obligations, including potential liabilities relating to work performed in connection with the Deepwater Horizon oil spill response. Pursuant to the agreement governing the sale, the Company's potential liability to the purchaser may not exceed the consideration received by the Company for the SES Business Transaction. The Company is currently indemnified under contractual agreements with BP for the potential liabilities relating to work performed in connection with the Deepwater Horizon oil spill response.
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.
Certain subsidiaries of the Company are participating employers in two industry-wide, multi-employer, defined benefit pension funds in the United Kingdom: the United Kingdom Merchant Navy Officers Pension Fund (“MNOPF”) and the United Kingdom Merchant Navy Ratings Pension Fund (“MNRPF”). The Company’s participation in the MNOPF and MNRPF began with SEACOR’s acquisition of the Stirling group of companies in 2001 and relates to the current and former employment of certain officers and ratings by the Company and/or Stirling’s predecessors from 1978 through today. Both of these plans are in deficit positions and, depending upon the results of future actuarial valuations, it is possible that the plans could experience funding deficits that will require the Company to recognize payroll related operating expenses in the periods invoices are received.
Under the direction of a court order, any funding deficit of the MNOPF is to be remedied through funding contributions from all participating current and former employers. Prior to 2012, the Company was invoiced and expensed $16.7 million for its allocated share of the then cumulative funding deficits, including portions deemed uncollectible due to the non-existence or liquidation of certain former employers. During the year ended December 31, 2013, the Company was invoiced and expensed $2.7 million for its allocated share of an additional funding deficit based on an actuarial valuation of the MNOPF in 2012.
The cumulative funding deficits of the MNRPF are currently being recovered by additional annual contributions from current employers that are subject to adjustment following the results of future tri-annual actuarial valuations. Prior to 2012, the Company was invoiced and expensed $0.4 million for its allocated share of the then cumulative funding deficits. During 2013, the MNRPF’s trustee has proposed a new deficit contribution scheme, which is pending court approval, whereby any funding deficit of the MNRPF is to be remedied through funding contributions from all participating current and former employers in a manner similar to the operation of the MNOPF. Based on an actuarial valuation in 2014, the potential cumulative funding deficit of the MNRPF was $506.3 million (£325.0 million). If the court approves the new proposed contribution scheme, the MNRPF’s trustee estimates the Company’s allocated share of the cumulative funding deficit to be $6.5 million (£4.2 million), including portions deemed uncollectible due to the non-existence or liquidation of certain former employers.
Certain subsidiaries of the Company are participating employers in industry-wide, multi-employer defined benefit pension plans in the United States: the American Maritime Officers Pension Plan (EIN: 13-1936709) (the "AMOPP") and the Seafarers Pension Plan (EIN: 13-6100329) (the "SPP"). Certain subsidiaries of the Company also participates in the American Maritime Officers 401(k) Plan (EIN: 11-2978754) (the "AMO 401(k) Plan"), an industry-wide, multi-employer defined contribution plan. The Company’s participation in these plans relates to certain employees of the Company’s Shipping Services business segment.
Under federal pension law, the AMOPP was deemed in critical status for the 2009 and 2010 plan years. The AMOPP was frozen in January 2010 and a ten year rehabilitation plan was adopted by the AMOPP trustees in February 2010 whereby benefit changes and increased contributions by participating employers were expected to improve the funded status of the AMOPP. The AMOPP was replaced by the AMO 401(k) Plan. On December 28, 2012, the AMOPP was elevated to endangered status primarily as a result of favorable investment performance and the rehabilitation plan adopted by the AMOPP trustees. Based on an actuarial valuation performed as of September 30, 2013, the latest period for which an actuarial valuation is available, if the Company chose to fully withdraw from the AMOPP at that time, its withdrawal liability would have been $46.5 million. That liability may change in future years based on various factors, primarily employee census. As of December 31, 2014, the Company has no intention to withdraw from the AMOPP and no deficit amounts have been invoiced. Depending upon the results of the future actuarial valuations and the ten year rehabilitation plan, it is possible that the AMOPP will experience further funding deficits, requiring the Company to recognize additional payroll related operating expenses in the periods invoices are received or contribution levels are increased.
Related Party Transactions
The Company manages barge pools as part of its Inland River Services segment. Pursuant to the pooling agreements, operating revenues and expenses of participating barges are combined and the net results are allocated on a pro-rata basis based on the number of barge days contributed by each participant. Companies controlled by Mr. Fabrikant, the Executive Chairman of SEACOR, and trusts for the benefit of Mr. Fabrikant’s children, own barges that participate in the barge pools managed by the Company. Mr. Fabrikant and his affiliates were participants in the barge pools prior to the acquisition of SCF Marine Inc. by SEACOR in 2000. In the years ended December 31, 2014, 2013 and 2012, Mr. Fabrikant and his affiliates earned $1.7 million, $0.9 million and $0.8 million, respectively, of net barge pool results (after payment of $0.2 million, $0.2 million and $0.1 million, respectively, in management fees to the Company). As of December 31, 2014 and 2013, the Company owed Mr. Fabrikant and his affiliates $1.1 million and $0.6 million, respectively, for undistributed net barge pool results. Mr. Fabrikant and his affiliates participate in the barge pools on the same terms and conditions as other pool participants who are unrelated to the Company.
ICP manufactures and sells certain non-ethanol alcohol finished goods to the noncontrolling interest partner in ICP. During the year ended December 31, 2012, the noncontrolling interest partner operated under a marketing agreement with ICP for non-ethanol alcohol production, which expired on January 1, 2013. During the year ended December 31, 2013, ICP continued to sell non-ethanol alcohol finished goods to the noncontrolling interest partner for resale purposes and also independently sold non-ethanol alcohol finished goods directly to unrelated third party customers. During the years ended December 31, 2014, 2013 and 2012, the Company sold $36.3 million, $6.6 million and $44.8 million, respectively to the noncontrolling interest partner. As of December 31, 2014 and 2013, ICP had accounts receivable of $3.3 million and $1.8 million from the noncontrolling interest partner. The noncontrolling interest partner has payment terms comparable to other ICP customers purchasing the same types of non-ethanol alcohol finished goods.
In December 2014 and January 2015, Charles Fabrikant, Oivind Lorentzen and John Gellert invested in newly formed limited liability companies that acquired limited partnership interests in SEACOR OSV Partners I LP (“OSV”) from two limited partners of OSV that are not affiliated with the Company and wished to dispose of their interests. Messrs. Fabrikant, Lorentzen and Gellert each invested $0.2 million in the aggregate in the newly formed limited liability companies and are committed to contribute additional capital to such company if OSV calls capital from its limited partners. The additional amounts Messrs. Fabrikant, Lorentzen and Gellert are committed to contribute are not material. The aggregate interests of OSV acquired indirectly
by Messrs. Fabrikant, Lorentzen and Gellert represents 1.7% of the limited partnership interests of OSV. Certain subsidiaries of SEACOR own 30.4% of OSV’s limited partnership interests and the balance of such interests are owned by unaffiliated third parties. The general partner of OSV is a joint venture managed by a subsidiary of SEACOR and an unaffiliated third party.
Mr. Fabrikant is also a director of Diamond Offshore Drilling, Inc. (“Diamond”), which is also a customer of the Company. The total amount earned from business conducted with Diamond did not exceed $5.0 million in any of the years ended December 31, 2014, 2013 and 2012.
Messrs. Fabrikant and Lorentzen are also directors of Era Group, which is also a customer of the Company. Furthermore, following the Spin-Off, the Company has provided certain transition services to Era Group. The total amount earned from business conducted with Era, including transition services provided, did not exceed $5.0 million during the year ended December 31, 2014.
Critical Accounting Policies and Estimates
Basis of Consolidation. The consolidated financial statements include the accounts of SEACOR and its controlled subsidiaries. Control is generally deemed to exist if the Company has greater than 50% of the voting rights of a subsidiary. All significant intercompany accounts and transactions are eliminated in consolidation.
Noncontrolling interests in consolidated subsidiaries are included in the consolidated balance sheets as a separate component of equity. The Company reports consolidated net income inclusive of both the Company’s and the noncontrolling interests’ share, as well as the amounts of consolidated net income attributable to each of the Company and the noncontrolling interests. If a subsidiary is deconsolidated upon a change in control, any retained noncontrolled equity investment in the former controlled subsidiary is measured at fair value and a gain or loss is recognized in net income based on such fair value. If a subsidiary is consolidated upon a change in control, any previous noncontrolled equity investment in the subsidiary is measured at fair value and a gain or loss is recognized based on such fair value.
The Company employs the equity method of accounting for investments in 50% or less owned companies that it does not control but has the ability to exercise significant influence over the operating and financial policies of the business venture. Significant influence is generally deemed to exist if the Company has between 20% and 50% of the voting rights of a business venture but may exist when the Company's ownership percentage is less than 20%. In certain circumstances, the Company may have an economic interest in excess of 50% but may not control and consolidate the business venture. Conversely, the Company may have an economic interest less than 50% but may control and consolidate the business venture. The Company reports its investments in and advances to these business ventures in the accompanying consolidated balance sheets as investments, at equity, and advances to 50% or less owned companies. The Company reports its share of earnings or losses from investments in 50% or less owned companies in the accompanying consolidated statements of income as equity in earnings (losses) of 50% or less owned companies, net of tax.
The Company employs the cost method of accounting for investments in 50% or less owned companies it does not control or exercise significant influence. These investments in private companies are carried at cost and are adjusted only for capital distributions and other-than-temporary declines in fair value.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include those related to deferred revenues, allowance for doubtful accounts, useful lives of property and equipment, impairments, income tax provisions and certain accrued liabilities. Actual results could differ from those estimates and those differences may be material.
Revenue Recognition. The Company recognizes revenue when it is realized or realizable and earned. Revenue is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable, and collectability is reasonably assured. Revenue that does not meet these criteria is deferred until the criteria are met.
The Company’s Offshore Marine Services segment earns and recognizes revenues primarily from the time charter and bareboat charter of vessels to customers based upon daily rates of hire. Under a time charter, Offshore Marine Services provides a vessel to a customer and is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, Offshore Marine Services provides the vessel to the customer and the customer assumes responsibility for all operating expenses and risk of operation. Vessel charters may range from several days to several years. Revenues from time charters and bareboat charters are recognized as services are provided. In the U.S. Gulf of Mexico, time charter durations and rates are typically established in the context of master service agreements that govern the terms and conditions of charter.
The Company’s Inland River Services segment earns and recognizes revenues primarily from the time charter and bareboat charter of equipment to customers and from voyage affreightment contracts whereby customers are charged an established rate per ton to transport cargo from point to point. Under a time charter, Inland River Services provides equipment to a customer and
is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, Inland River Services provides the equipment to the customer and the customer assumes responsibility for all operating expenses and risk of operation. These charters typically range from one to six years and revenues from these charters are recognized as services are provided on a per day basis. Revenues from voyage affreightment contracts are generally recognized over the progress of the voyage while the related costs are expensed as incurred. Certain of Inland River Services’ barges are operated in barge pools with other barges owned by third parties from whom Inland River Services earns and recognizes a management fee as the services are rendered. Pursuant to the pooling agreements, operating revenues and expenses of participating barges are combined and the net results are allocated on a pro-rata basis based on the number of barge days contributed by each participant. In addition, revenues are earned from equipment chartered to third parties and from the storage and demurrage of cargoes associated with affreightment activities. In both of these cases, revenues are recognized as services are rendered. Inland River Services’ tank farm and handling facility earns revenues through rental and throughput charges. Rental revenues are recognized ratably over the rental period while throughput charges are recognized as product volume moves through the facility.
The Company’s Shipping Services segment earns revenue from the time charter, bareboat charter and voyage charter of vessels, contracts of affreightment, ship assist services, transporting third party freight and ship management agreements with vessel owners. Under a time charter, Shipping Services provides a vessel to a customer and is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, Shipping Services provides the vessel to a customer and the customer assumes responsibility for all operating expenses and risk of operation. Revenues from time charters and bareboat charters are recognized as services are provided. Voyage contracts are contracts to carry cargoes on a single voyage basis regardless of time to complete. Contracts of affreightment are contracts for cargoes that are committed on a multi-voyage basis for various periods of time with minimum and maximum cargo tonnages specified over the period at a fixed or escalating rate per ton. Revenues for voyage contracts and contracts of affreightment are recognized over the progress of the voyage while the related costs are expensed as incurred. Ship assist services are provided by the Company's harbor towing fleet to docking and undocking cargo vessels in various ports in the U.S. Gulf of Mexico and Atlantic Coast. Revenues from ship assist services are recognized as the services are performed. Revenues from transporting freight are recognized as third party freight is transported to various destinations, typically determined by a tariff based on weight and voyage length, which is usually one to eight days. Ship management agreements typically provide for technical services over a specified period of time, typically a year or more. Revenues from ship management agreements are recognized ratably over the service period.
ICP earns revenues from the sale of alcohol and co-products. Revenues and related costs from these sales are recorded when title transfers to the buyer.
Trade Receivables. Customers of Offshore Marine Services are primarily major integrated oil companies, large independent oil and gas exploration and production companies and emerging independent companies. Customers of Inland River Services are primarily major agricultural companies, major integrated oil companies, iron ore producers and industrial companies. Customers of Shipping Services are primarily multinational oil and gas companies, refining companies, oil trading companies and large industrial consumers of crude, petroleum and LPG. Customers of ICP are primarily alcohol trading companies, industrial manufacturers, major agricultural companies, major integrated oil companies, and manufacturers in the food, beverage and household products industries. Customers of the Company's other business activities primarily include industrial companies and distributors. All customers are granted credit on a short-term basis and related credit risks are considered minimal. The Company routinely reviews its trade receivables and makes provisions for probable doubtful accounts; however, those provisions are estimates and actual results could differ from those estimates and those differences may be material. Trade receivables are deemed uncollectible and removed from accounts receivable and the allowance for doubtful accounts when collection efforts have been exhausted.
Derivative Instruments. The Company accounts for derivatives through the use of a fair value concept whereby all of the Company’s derivative positions are stated at fair value in the accompanying consolidated balance sheets. Realized and unrealized gains and losses on derivatives not designated as hedges are reported in the accompanying consolidated statements of income as derivative losses, net. Realized and unrealized gains and losses on derivatives designated as cash flow hedges are reported as a component of other comprehensive income (loss) in the accompanying consolidated statements of comprehensive income to the extent they are effective and reclassified into earnings on the same line item associated with the hedged transaction and in the same period the hedged transaction affects earnings. Any ineffective portions of cash flow hedges are reported in the accompanying consolidated statements of income as derivative losses, net. Realized and unrealized gains and losses on derivatives designated as cash flow hedges that are entered into by the Company’s 50% or less owned companies are also reported as a component of the Company’s other comprehensive income (loss) in proportion to the Company’s ownership percentage, with reclassifications and ineffective portions being included in equity in earnings (losses) of 50% or less owned companies, net of tax, in the accompanying consolidated statements of income.
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 typically based upon a newly built asset being placed into service and represents the point at 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 December 31, 2014, the estimated useful life (in years) of each of the Company’s major classes of new equipment was as follows:
______________________
(1)
Roll on/Roll off ("RORO").
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.
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. If the carrying values of the assets are not recoverable, as determined by the estimated undiscounted cash flows, the carrying values of the assets are reduced to fair value. Generally, fair value is determined using valuation techniques, such as expected discounted cash flows or appraisals, as appropriate.
Impairment of 50% or Less Owned Companies. The Company performs regular reviews of each 50% or less owned company's financial condition, the business outlook for its products and services, and its present and projected results and cash flows. When a 50% or less owned company has experienced consistent declines in financial performance or difficulties in raising capital to continue operations, and when the Company expects the decline to be other-than-temporary, the investment is written down to fair value. Actual results may vary from estimates due to the uncertainty regarding the projected financial performance of 50% or less owned companies, the severity and expected duration of declines in value, and the available liquidity in the capital markets to support the continuing operations of the 50% or less owned company.
Goodwill. Goodwill is recorded when the purchase price paid for an acquisition exceeds the fair value of net identified tangible and intangible assets acquired. The Company performs an annual impairment test of goodwill and further periodic tests to the extent indicators of impairment develop between annual impairment tests. The Company’s impairment review process compares the fair value of the reporting unit to its carrying value, including the goodwill related to the reporting unit. To determine the fair value of the reporting unit, the Company uses a discounted future cash flow approach that uses estimates for revenues, costs and appropriate discount rates, among other things. These estimates are reviewed each time the Company tests goodwill for impairment and are typically developed as part of the Company’s routine business planning and forecasting process. While the Company believes its estimates and assumptions are reasonable, variations from those estimates could produce materially different results.
Business Combinations. The Company recognizes, with certain exceptions, 100% of the fair value of assets acquired, liabilities assumed, and noncontrolling interests when the acquisition constitutes a change in control of the acquired entity. Shares issued in consideration for a business combination, contingent consideration arrangements and pre-acquisition loss and gain contingencies are all measured and recorded at their acquisition-date fair value. Subsequent changes to fair value of contingent consideration arrangements are generally reflected in earnings. Any in-process research and development assets acquired are capitalized as are certain acquisition-related restructuring costs if the criteria related to exit or disposal cost obligations are met as of the acquisition date. Acquisition-related transaction costs are expensed as incurred and any changes in an acquirer’s existing income tax valuation allowances and tax uncertainty accruals are recorded as an adjustment to income tax expense. The operating results of entities acquired are included in the accompanying consolidated statements of income from the date of acquisition.
Income Taxes. Deferred income tax assets and liabilities have been provided in recognition of the income tax effect attributable to the book and tax basis differences of assets and liabilities reported in the accompanying consolidated financial statements. Deferred tax assets or liabilities are provided using the enacted tax rates expected to apply to taxable income in the periods in which they are expected to be settled or realized. Interest and penalties relating to uncertain tax positions are recognized in interest expense and administrative and general, respectively, in the accompanying consolidated statements of income. The Company records a valuation allowance to reduce its deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
In the normal course of business, the Company may be subject to challenges from tax authorities regarding the amount of taxes due. These challenges may alter the timing or amount of taxable income or deductions. As part of the calculation of income tax expense, the Company determines whether the benefits of its tax positions are at least more likely than not of being sustained based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained, the Company accrues the largest amount of the tax benefit that is more likely than not of being sustained. Such accruals require management to make estimates and judgments with respect to the ultimate outcome of its tax benefits and actual results could vary materially from these estimates.
Deferred Gains - Equipment Sale-Leaseback Transactions and Financed Equipment Sales. From time to time, the Company enters into equipment sale-leaseback transactions with finance companies or provides seller financing on sales of its equipment to third parties or 50% or less owned companies. A portion of the gains realized from these transactions is not immediately recognized in income and has been recorded in the accompanying consolidated balance sheets in deferred gains and other liabilities. In sale-leaseback transactions, gains are deferred to the extent of the present value of future minimum lease payments and are amortized as reductions to rental expense over the applicable lease terms. In financed equipment sales, gains are deferred to the extent that the repayment of purchase notes is dependent on the future operations of the sold equipment and are amortized based on cash received from the buyers.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
The Company enters and settles forward currency exchange, option and future contracts with respect to various foreign currencies that are not designated as fair value hedges. As of December 31, 2014, the outstanding forward currency exchange contracts translated into a net purchase of foreign currencies with an aggregate U.S. dollar equivalent of $4.2 million. These contracts enable the Company to buy currencies in the future at fixed exchange rates, which could offset possible consequences of changes in foreign exchange rates with respect to the Company’s business conducted in Europe, Africa, Brazil, Mexico, Central and South America, the Middle East and Asia. The Company generally does not enter into contracts with forward settlement dates beyond twelve to eighteen months. An adverse change of 10% in the underlying foreign currency exchange rates would reduce income by $0.3 million, net of tax.
As of December 31, 2014, a subsidiary of the Company whose functional currency is the pound sterling has long-term debt of €26.6 million (£20.7 million). A 10% strengthening in the exchange rate of the Euro against the pound sterling as of December 31, 2014 would result in foreign currency losses of $2.1 million, net of tax.
As of December 31, 2014, a subsidiary of the Company whose functional currency is the U.S. dollar had an intercompany note receivable of £5.3 million ($8.3 million). A 10% weakening in the exchange rate of the pound sterling against the U.S. dollar as of December 31, 2014 would result in foreign currency losses of $0.5 million, net of tax.
As of December 31, 2014, a subsidiary of the Company whose functional currency is the pound sterling had an intercompany note payable of $7.5 million (£4.8 million). A 10% strengthening in the exchange rate of the pound sterling against the U.S. dollar as of December 31, 2014 would result in foreign currency losses of $0.5 million, net of tax.
As of December 31, 2014, a subsidiary of the Company whose functional currency is the Colombian peso had intercompany note payable and capital lease obligations of $11.7 million (27.9 million Colombian pesos). A 10% strengthening in the exchange rate of the Colombian peso against the U.S. dollar as of December 31, 2014 would result in foreign currency losses of $0.8 million, net of tax.
The Company has foreign currency exchange risks related to its operations where its functional currency is the pound sterling, primarily related to vessel operations that are conducted from ports located in the United Kingdom. Net consolidated assets of £44.7 million ($69.6 million) are included in the Company’s consolidated balance sheets as of December 31, 2014. A 10% weakening in the exchange rate of the pound sterling against the U.S. dollar as of December 31, 2014, would increase other comprehensive loss by $4.5 million, net of tax, due to translation.
The Company has foreign currency exchange risks related to its operations where its functional currency is the Colombian peso, primarily related to barge operations that are conducted on rivers located in Colombia. Net consolidated assets of 7.9 million Colombian peso ($3.3 million) are included in the Company’s consolidated balance sheets as of December 31, 2014. A 10%
weakening in the exchange rate of the Colombian peso against the U.S. dollar as of December 31, 2014, would increase other comprehensive loss by $0.2 million, net of tax, due to translation.
As of December 31, 2014, the Company held marketable securities with a fair value of $58.0 million consisting of equity securities. The Company’s investment in equity securities primarily includes positions in energy, marine, transportation and other related businesses. A 10% decline in the value of the Company’s investments in marketable securities as of December 31, 2014 would reduce income by $3.8 million, net of tax.
As of December 31, 2014, the Company held positions in short sales of marketable equity securities with a fair value of $7.3 million. The Company’s short sales of marketable equity securities primarily include positions in energy, marine, transportation and other related businesses. A 10% increase in the value of equity securities underlying the short sale positions of the Company as of December 31, 2014 would reduce income by $0.5 million, net of tax.
The Company held positions in publicly traded equity options that may convey to the Company a right or obligation to engage in a future transaction with respect to the underlying equity security. The Company’s investment in equity options primarily includes positions in energy, marine, transportation and other related businesses. These investments have short-term maturities and their market values fluctuate based on changes in the price and volatility of the underlying security, the strike price of the option and the time to expiration. As of December 31, 2014, the Company had a liability of $0.1 million having marked to market its positions in these publicly traded equity options.
The Company’s outstanding debt is primarily in fixed interest rate instruments. Although the fair value of these debt instruments will vary with changes in interest rates, the Company’s operations are not significantly affected by interest rate fluctuations. As of December 31, 2014, the Company had variable rate debt instruments (due 2015 through 2023) totaling $48.1 million that call for the Company to pay interest based on LIBOR or Euribor plus applicable margins. The interest rates reset either monthly or quarterly. As of December 31, 2014, the average interest rate on these variable rate borrowings was 2.1%.
As of December 31, 2014, the Company had an interest rate swap agreement with an amortized notional value of $9.4 million. This agreement calls for the Company to pay a fixed interest rate of 3.0% and receive interest payments based on Euribor. As of December 31, 2014, the Company had a liability of $0.5 million having marked to market the position in this interest rate swap agreement.
The Company enters and settles positions in various exchange and non-exchange traded commodity swap, option and future contracts. ICP routinely enters into exchange traded positions (primarily corn futures) to offset its net commodity market exposure on raw material and finished goods inventory balances. Agricultural commodity trading and logistics business includes its fixed price future purchase and sale contracts of sugar in the Company’s non-exchange traded derivative positions and enters into exchange traded positions to protect these purchase and sales contracts from market changes. As of December 31, 2014, the net market exposure to corn and sugar under these positions was not material. The Company also enters into exchange traded positions (primarily natural gas, crude oil, gasoline, corn and sugar) to provide value to the Company should there be a sustained decline in the price of commodities that could lead to a reduction in the market values and cash flows of the Company’s offshore marine and inland river businesses. As of December 31, 2014, these positions were not material. As of December 31, 2014, the fair value of these exchange and non-exchange commodity contracts was an asset of $5.7 million, net.
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and related notes are included in Part IV of this Form 10-K and incorporated herein by reference.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A.
CONTROLS AND PROCEDURES
Set forth in Part IV of this Annual Report and incorporated herein by reference are: Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.
Evaluation of Disclosure Controls and Procedures
With the participation of the Company’s principal executive officer and principal financial officer, management evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of December 31, 2014. Based on their evaluation, the
Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2014.
The Company’s disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosures. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those internal control systems determined to be effective can provide only a level of reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B.
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required to be disclosed pursuant to this Item 10 is incorporated in its entirety herein by reference to the Company’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the end of the Company’s last fiscal year.
NYSE Annual Certification. The Chief Executive Officer of the Company has previously submitted to the NYSE the annual certification required by Section 303A.12(a) of the NYSE Listed Company Manual, and there were no qualifications to such certification. SEACOR Holdings Inc. has filed the certifications of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 with the SEC as exhibits to this Form 10-K.
The information required to be disclosed pursuant to this Item 11
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required to be disclosed pursuant to this Item 12 is incorporated in its entirety herein by reference to the "Security Ownership of Certain Beneficial Owners and Management" portion of the Company’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the end of the Company’s last fiscal year.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required to be disclosed pursuant to this Item 13 is incorporated in its entirety herein by reference to the "Certain Relationships and Related Transactions" portion of the Company’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the end of the Company’s last fiscal year.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required to be disclosed pursuant to this Item 14 is incorporated in its entirety herein by reference to the "Ratification or Appointment of Independent Auditors" portion of the Company’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the end of the Company’s last fiscal year.
PART IV
ITEM 15.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
Documents filed as part of this report:
1. and 2. Financial Statements and Financial Statement Schedules - See Index to Consolidated Financial Statements and Financial Statement Schedule of this Form 10-K
3. Exhibits
*
Incorporated herein by reference as indicated.
+
Management contracts or compensatory plans or arrangements required to be filed as an Exhibit pursuant to Item 15 (b) of the rules governing the preparation of this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K for the fiscal year ended December 31, 2014, to be signed on its behalf by the undersigned, and in the capacities indicated, thereunto duly authorized.
SEACOR Holdings Inc. (Registrant)
By:
/s/ MATTHEW CENAC
Matthew Cenac, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: February 26, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Except for the Financial Statement Schedule set forth above, all other required schedules have been omitted since the information is either included in the consolidated financial statements, not applicable or not required.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Because of the inherent limitations in any internal control, no matter how well designed, misstatements may occur and not be prevented or detected. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation.
Management conducted an evaluation of the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 2014 based on the framework set forth in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on its evaluation, management concluded that, as of December 31, 2014, the Company’s internal control over financial reporting is effective based on the specified criteria.
The Company’s internal control over financial reporting as of December 31, 2014 has been audited by the Company’s independent auditor, Ernst & Young LLP, a registered public accounting firm, as stated in their report herein.
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders of SEACOR Holdings Inc.
We have audited SEACOR Holdings Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). SEACOR Holdings Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, SEACOR Holdings Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of SEACOR Holdings Inc. as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2014 of SEACOR Holdings Inc. and our report dated February 26, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Boca Raton, Florida
February 26, 2015
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of SEACOR Holdings Inc.
We have audited the accompanying consolidated balance sheets of SEACOR Holdings Inc. as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SEACOR Holdings Inc. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), SEACOR Holdings Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2015, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Boca Raton, Florida
February 26, 2015
SEACOR HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
The accompanying notes are an integral part of these consolidated financial statements
and should be read in conjunction herewith.
SEACOR HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
The accompanying notes are an integral part of these consolidated financial statements
and should be read in conjunction herewith.
SEACOR HOLDINGS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
The accompanying notes are an integral part of these consolidated financial statements
and should be read in conjunction herewith.
The accompanying notes are an integral part of these consolidated financial statements
and should be read in conjunction herewith.
The accompanying notes are an integral part of these consolidated financial statements
and should be read in conjunction herewith.
SEACOR HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
NATURE OF OPERATIONS AND ACCOUNTING POLICIES
Nature of Operations and Segmentation. SEACOR Holdings Inc. (“SEACOR”) and its subsidiaries (collectively referred to as the “Company”) are in the business of owning, operating, investing in and marketing equipment, primarily in the offshore oil and gas, shipping and logistics industries. Accounting standards require public business enterprises to report information about each of their operating business segments that exceed certain quantitative thresholds or meet certain other reporting requirements. Operating business segments have been defined as a component of an enterprise about which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company has identified the following reporting segments:
Offshore Marine Services. Offshore Marine Services operates a diverse fleet of support vessels primarily servicing offshore oil and gas exploration, development and production facilities worldwide. The vessels deliver cargo and personnel to offshore installations; handle anchors and mooring equipment required to tether rigs to the seabed; tow rigs and assist in placing them on location and moving them between regions; and carry and launch equipment such as remote operated vehicles or “ROVs” used underwater in drilling and well installation, maintenance, and repair. In addition, Offshore Marine Services' vessels provide accommodations for technicians and specialists, and provide standby safety support and emergency response services. Offshore Marine Services also operates a fleet of lift boats in the U.S. Gulf of Mexico supporting well intervention, work-over, decommissioning and diving operations. In non-oil and gas industry activity, Offshore Marine Services operates vessels primarily used to move personnel and supplies to offshore wind farms in Europe. Offshore Marine Services contributed 40%, 45% and 40% of consolidated operating revenues in 2014, 2013 and 2012, respectively.
Inland River Services. Inland River Services operates river transportation equipment used for moving agricultural and industrial commodities and petroleum and chemical products on the U.S. Inland River Waterways, primarily the Mississippi River, Illinois River, Tennessee River, Ohio River and their tributaries and the Gulf Intracoastal Waterways. Internationally, Inland River Services has barge operations on the Magdalena River in Colombia and on the Parana-Paraguay River Waterways in Brazil, Bolivia, Paraguay, Argentina and Uruguay. In addition to its primary barge and towboat businesses, Inland River Services also operates and invests in high-speed multi-modal terminal facilities for both dry and liquid commodities, barge fleeting locations in various areas of the Inland Waterway System; a broad range of service facilities including machine shop, gear and engine repairs and the repair and drydocking of barges and towboats at strategic locations on the U.S. Inland River Waterways; and a transshipment terminal at the Port of Ibicuy, Argentina. Inland River Services contributed 19%, 17% and 17% of consolidated operating revenues in 2014, 2013 and 2012, respectively.
Shipping Services. Shipping Services operates a diversified fleet of U.S.-flag marine transportation related assets, including its 51% controlling interest (see Note 11) in certain of its subsidiaries (collectively “SEA-Vista”), which owns product tankers servicing the U.S. coastwise trade of crude oil, petroleum and chemical products, and including its harbor tugs servicing vessels docking in U.S. Gulf and East Coast ports. Through its 16% non-controlling interest in Dorian LPG Ltd. ("Dorian"), Shipping Services also invests in foreign-flag Very Large Gas Carriers ("VLGC's") servicing the international Liquefied Petroleum Gas (“LPG”) trade. Additional services include liner and short-sea transportation to and from ports in Florida, Puerto Rico, the Bahamas and the Western Caribbean, a terminal support and bunkering operation in St. Eustatius, a U.S.-flag articulated tug and dry-bulk barge operating on the Great Lakes, a U.S.-flag offshore tug and technical ship management services for third party vessel owners. Shipping Services contributed 16%, 16% and 14% of consolidated operating revenues in 2014, 2013 and 2012, respectively.
Illinois Corn Processing. Illinois Corn Processing, LLC ("ICP") operates a single-site alcohol manufacturing, storage and distribution facility located in Pekin, Illinois and is a leading producer of alcohol used in the food, beverage, industrial and petrochemical end-markets. As co-products of its manufacturing process, ICP additionally produces Dried Distillers Grains with Solubles ("DDGS") primarily used for animal feed ingredients and produces non-food grade Corn Oil primarily used for feedstock in biodiesel production. The Company owns a 70% interest in ICP(see Note 11). ICP contributed 18%, 16% and 14% of consolidated operating revenues in 2014, 2013 and 2012.
Other. The Company also has activities that are referred to and described under Other, which primarily include emergency and crisis services, agricultural commodity trading and logistics, lending and leasing activities and noncontrolling investments in various other businesses, primarily industrial aviation services businesses in Asia.
Discontinued Operations (see Note 17). The Company reports the historical financial position, results of operations and cash flows of disposed businesses as discontinued operations when it has no continuing interest in the business. On March 16, 2012, the Company sold National Response Corporation ("NRC"), NRC Environmental Services Inc., SEACOR Response Ltd., and certain other subsidiaries (collectively the “SES Business”) to J.F. Lehman & Company, a leading, middle-market private equity firm (the "SES Business Transaction"). On December 31, 2012, the Company sold SEACOR Energy Inc. ("SEI") to Par Petroleum Corporation. On January 31, 2013, the Company completed the spin-off ("Spin-off") of Era Group Inc. (“Era Group”)by means of a dividend to SEACOR's shareholders of all the issued and outstanding common stock of Era Group.
Basis of Consolidation. The consolidated financial statements include the accounts of SEACOR and its controlled subsidiaries. Control is generally deemed to exist if the Company has greater than 50% of the voting rights of a subsidiary. All significant intercompany accounts and transactions are eliminated in consolidation.
Noncontrolling interests in consolidated subsidiaries are included in the consolidated balance sheets as a separate component of equity. The Company reports consolidated net income inclusive of both the Company’s and the noncontrolling interests’ share, as well as the amounts of consolidated net income attributable to each of the Company and the noncontrolling interests. If a subsidiary is deconsolidated upon a change in control, any retained noncontrolled equity investment in the former controlled subsidiary is measured at fair value and a gain or loss is recognized in net income based on such fair value. If a subsidiary is consolidated upon a change in control, any previous noncontrolled equity investment in the subsidiary is measured at fair value and a gain or loss is recognized based on such fair value.
The Company employs the equity method of accounting for investments in 50% or less owned companies that it does not control but has the ability to exercise significant influence over the operating and financial policies of the business venture. Significant influence is generally deemed to exist if the Company has between 20% and 50% of the voting rights of a business venture but may exist when the Company's ownership percentage is less than 20%. In certain circumstances, the Company may have an economic interest in excess of 50% but may not control and consolidate the business venture. Conversely, the Company may have an economic interest less than 50% but may control and consolidate the business venture. The Company reports its investments in and advances to these business ventures in the accompanying consolidated balance sheets as investments, at equity, and advances to 50% or less owned companies. The Company reports its share of earnings or losses from investments in 50% or less owned companies in the accompanying consolidated statements of income as equity in earnings (losses) of 50% or less owned companies, net of tax.
The Company employs the cost method of accounting for investments in 50% or less owned companies it does not control or exercise significant influence. These investments in private companies are carried at cost and are adjusted only for capital distributions and other-than-temporary declines in fair value.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include those related to deferred revenues, allowance for doubtful accounts, useful lives of property and equipment, impairments, income tax provisions and certain accrued liabilities. Actual results could differ from those estimates and those differences may be material.
Revenue Recognition. The Company recognizes revenue when it is realized or realizable and earned. Revenue is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable, and collectability is reasonably assured. Revenue that does not meet these criteria is deferred until the criteria are met. Deferred revenues for the years ended December 31 were as follows (in thousands):
As of December 31, 2014, 2013 and 2012, deferred revenues related to the time charter of several offshore support vessels scheduled to be 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 August 17, 2012 are subject to bankruptcy court approval. The Company will recognize revenues as approved by the bankruptcy court. All costs and expenses related to these charters were recognized as incurred.
The Company’s Offshore Marine Services segment earns and recognizes revenues primarily from the time charter and bareboat charter of vessels to customers based upon daily rates of hire. Under a time charter, Offshore Marine Services provides a vessel to a customer and is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, Offshore Marine Services provides the vessel to the customer and the customer assumes responsibility for all operating expenses and risk of operation. Vessel charters may range from several days to several years. Revenues from time charters and bareboat charters are recognized as services are provided. In the U.S. Gulf of Mexico, time charter durations and rates are typically established in the context of master service agreements that govern the terms and conditions of charter.
The Company’s Inland River Services segment earns and recognizes revenues primarily from the time charter and bareboat charter of equipment to customers and from voyage affreightment contracts whereby customers are charged an established rate per ton to transport cargo from point to point. Under a time charter, Inland River Services provides equipment to a customer and is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, Inland River Services provides the equipment to the customer and the customer assumes responsibility for all operating expenses and risk of operation. These charters typically range from one to six years and revenues from these charters are recognized as services are provided on a per day basis. Revenues from voyage affreightment contracts are generally recognized over the progress of the voyage while the related costs are expensed as incurred. Certain of Inland River Services’ barges are operated in barge pools with other barges owned by third parties from whom Inland River Services earns and recognizes a management fee as the services are rendered. Pursuant to the pooling agreements, operating revenues and expenses of participating barges are combined and the net results are allocated on a pro-rata basis based on the number of barge days contributed by each participant. In addition, revenues are earned from equipment chartered to third parties and from the storage and demurrage of cargoes associated with affreightment activities. In both of these cases, revenues are recognized as services are rendered. Inland River Services’ tank farm and handling facility earns revenues through rental and throughput charges. Rental revenues are recognized ratably over the rental period while throughput charges are recognized as product volume moves through the facility.
The Company’s Shipping Services segment earns revenue from the time charter, bareboat charter and voyage charter of vessels, contracts of affreightment, ship assist services, transporting third party freight and ship management agreements with vessel owners. Under a time charter, Shipping Services provides a vessel to a customer and is responsible for all operating expenses, typically excluding fuel. Under a bareboat charter, Shipping Services provides the vessel to a customer and the customer assumes responsibility for all operating expenses and risk of operation. Revenues from time charters and bareboat charters are recognized as services are provided. Voyage contracts are contracts to carry cargoes on a single voyage basis regardless of time to complete. Contracts of affreightment are contracts for cargoes that are committed on a multi-voyage basis for various periods of time with minimum and maximum cargo tonnages specified over the period at a fixed or escalating rate per ton. Revenues for voyage contracts and contracts of affreightment are recognized over the progress of the voyage while the related costs are expensed as incurred. Ship assist services are provided by the Company's harbor towing fleet to docking and undocking cargo vessels in various ports in the U.S. Gulf of Mexico and Atlantic Coast. Revenues from ship assist services are recognized as the services are performed. Revenues from transporting freight are recognized as third party freight is transported to various destinations, typically determined by a tariff based on weight and voyage length, which is usually one to eight days. Ship management agreements typically provide for technical services over a specified period of time, typically a year or more. Revenues from ship management agreements are recognized ratably over the service period.
ICP earns revenues from the sale of alcohol and co-products. Revenues and related costs from these sales are recorded when title transfers to the buyer.
Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of U.S treasury securities, money market instruments, time deposits and overnight investments.
Restricted Cash. Restricted cash primarily relates to the income generated from the operations of certain of Shipping Services’ U.S.-flag product tankers and consists primarily of U.S. treasury securities (see Note 6).
Marketable Securities. Marketable equity securities with readily determinable fair values and debt securities are reported in the accompanying consolidated balance sheets as marketable securities. These investments are stated at fair value with both realized and unrealized gains and losses reported in the accompanying consolidated statements of income as marketable security gains, net. Short sales of marketable securities are stated at fair value in the accompanying consolidated balance sheets with both realized and unrealized gains and losses reported in the accompanying consolidated statements of income as marketable security gains, net.
Trade Receivables. Customers of Offshore Marine Services are primarily major integrated oil companies, large independent oil and gas exploration and production companies and emerging independent companies. Customers of Inland River Services are primarily major agricultural companies, major integrated oil companies, iron ore producers and industrial companies. Customers of Shipping Services are primarily multinational oil and gas companies, refining companies, oil trading companies and large industrial consumers of crude, petroleum and LPG. Customers of ICP are primarily alcohol trading companies, industrial
manufacturers, major agricultural companies, major integrated oil companies, and manufacturers in the food, beverage and household products industries. Customers of the Company's other business activities primarily include industrial companies and distributors. All customers are granted credit on a short-term basis and related credit risks are considered minimal. The Company routinely reviews its trade receivables and makes provisions for probable doubtful accounts; however, those provisions are estimates and actual results could differ from those estimates and those differences may be material. Trade receivables are deemed uncollectible and removed from accounts receivable and the allowance for doubtful accounts when collection efforts have been exhausted.
Derivative Instruments. The Company accounts for derivatives through the use of a fair value concept whereby all of the Company’s derivative positions are stated at fair value in the accompanying consolidated balance sheets. Realized and unrealized gains and losses on derivatives not designated as hedges are reported in the accompanying consolidated statements of income as derivative losses, net. Realized and unrealized gains and losses on derivatives designated as cash flow hedges are reported as a component of other comprehensive income (loss) in the accompanying consolidated statements of comprehensive income to the extent they are effective and reclassified into earnings on the same line item associated with the hedged transaction and in the same period the hedged transaction affects earnings. Any ineffective portions of cash flow hedges are reported in the accompanying consolidated statements of income as derivative losses, net. Realized and unrealized gains and losses on derivatives designated as cash flow hedges that are entered into by the Company’s 50% or less owned companies are also reported as a component of the Company’s other comprehensive income (loss) in proportion to the Company’s ownership percentage, with reclassifications and ineffective portions being included in equity in earnings (losses) of 50% or less owned companies, net of tax, in the accompanying consolidated statements of income.
Concentrations of Credit Risk. The Company is exposed to concentrations of credit risk associated with its cash and cash equivalents, restricted cash, construction and Title XI reserve funds and derivative instruments. The Company minimizes its credit risk relating to these positions by monitoring the financial condition of the financial institutions and counterparties involved and by primarily conducting business with large, well-established financial institutions and diversifying its counterparties. The Company does not currently anticipate nonperformance of its significant counterparties. The Company is also exposed to concentrations of credit risk relating to its receivables due from customers in the industries described above. The Company does not generally require collateral or other security to support its outstanding receivables. The Company minimizes its credit risk relating to receivables by performing ongoing credit evaluations and, to date, credit losses have not been material.
Inventories. Inventories are stated at the lower of cost (using the first-in, first-out and average cost methods) or market. Inventories consist primarily of fuel and fuel oil in the Company’s Offshore Marine Services, Shipping Services and Inland River Services segments. Inventories in ICP consist primarily of corn, high quality alcohol and fuel alcohol. Inventories in the Company's other business activities consist of sugar. The Company records write-downs, as needed, to adjust the carrying amount of inventories to the lower of cost or market. During the years ended December 31, 2014, 2013, and 2012, the Company recorded market write-downs of $0.4 million, $0.2 million and $0.2 million, respectively.
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 typically based upon a newly built asset being placed into service and represents the point at 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 December 31, 2014, the estimated useful life (in years) of each of the Company’s major classes of new equipment was as follows:
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(1)
Roll on/Roll off ("RORO").
The Company’s major classes of property and equipment as of December 31 were as follows (in thousands):
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(1)
Includes property and equipment acquired in business acquisitions and recorded at fair value as of the date of the acquisition.
(2)
Includes land and buildings, leasehold improvements, fixed-wing aircraft, vehicles and other property and equipment.
Depreciation expense totaled $127.6 million, $130.2 million and $126.1 million in 2014, 2013 and 2012, respectively.
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. Capitalized interest totaled $17.0 million, $6.4 million and $4.3 million in 2014, 2013 and 2012, respectively.
Intangible Assets. The Company’s intangible assets primarily arose from business acquisitions (see Note 2) and consist of non-compete agreements, trademarks and tradenames, customer relationships, software and technology, and acquired contractual rights. These intangible assets are amortized over their estimated useful lives ranging from two to ten years. During the years ended December 31, 2014, 2013, and 2012, the Company recognized amortization expense of $4.3 million, $4.3 million and $5.6 million, respectively.
The Company’s intangible assets by type were as follows (in thousands):
Future amortization expense of intangible assets for each of the years ended December 31 is as follows (in thousands):
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. If the carrying values of the assets are not recoverable, as determined by the estimated undiscounted cash flows, the carrying values of the assets are reduced to fair value. Generally, fair value is determined using valuation techniques, such as expected discounted cash flows or appraisals, as appropriate. During the years ended 2014, 2013 and 2012, the Company recognized impairment charges of $4.4 million, $3.0 million and $1.2 million, respectively, related to long-lived assets held for use.
Impairment of 50% or Less Owned Companies. The Company performs regular reviews of each 50% or less owned company's financial condition, the business outlook for its products and services, and its present and projected results and cash flows. When a 50% or less owned company has experienced consistent declines in financial performance or difficulties in raising capital to continue operations, and when the Company expects the decline to be other-than-temporary, the investment is written down to fair value. Actual results may vary from estimates due to the uncertainty regarding the projected financial performance
of 50% or less owned companies, the severity and expected duration of declines in value, and the available liquidity in the capital markets to support the continuing operations of the 50% or less owned company. During the year ended December 31, 2014, the Company recognized an impairment charge of $3.3 million related to one of its 50% or less owned companies. The Company did not recognize any impairment charges during the years ended December 31, 2013 and 2012.
Goodwill. Goodwill is recorded when the purchase price paid for an acquisition exceeds the fair value of net identified tangible and intangible assets acquired. The Company performs an annual impairment test of goodwill and further periodic tests to the extent indicators of impairment develop between annual impairment tests. The Company’s impairment review process compares the fair value of the reporting unit to its carrying value, including the goodwill related to the reporting unit. To determine the fair value of the reporting unit, the Company uses a discounted future cash flow approach that uses estimates for revenues, costs and appropriate discount rates, among other things. These estimates are reviewed each time the Company tests goodwill for impairment and are typically developed as part of the Company’s routine business planning and forecasting process. While the Company believes its estimates and assumptions are reasonable, variations from those estimates could produce materially different results. The Company did not recognize any goodwill impairments in the years ended December 31, 2014, 2013 and 2012.
Business Combinations. The Company recognizes, with certain exceptions, 100% of the fair value of assets acquired, liabilities assumed, and noncontrolling interests when the acquisition constitutes a change in control of the acquired entity. Shares issued in consideration for a business combination, contingent consideration arrangements and pre-acquisition loss and gain contingencies are all measured and recorded at their acquisition-date fair value. Subsequent changes to fair value of contingent consideration arrangements are generally reflected in earnings. Any in-process research and development assets acquired are capitalized as are certain acquisition-related restructuring costs if the criteria related to exit or disposal cost obligations are met as of the acquisition date. Acquisition-related transaction costs are expensed as incurred and any changes in an acquirer’s existing income tax valuation allowances and tax uncertainty accruals are recorded as an adjustment to income tax expense. The operating results of entities acquired are included in the accompanying consolidated statements of income from the date of acquisition (see Note 2).
Deferred Financing Costs. Deferred financing costs incurred in connection with the issuance of debt are amortized over the life of the related debt using the effective interest rate method for term loans and straight line method for revolving credit facilities. Amortization of deferred financing costs totaled $2.3 million, $1.9 million and $0.5 million for the years ended December 31, 2014, 2013 and 2012, respectively, and is included in interest expense in the accompanying consolidated statements of income.
Self-insurance Liabilities. The Company maintains hull, liability and war risk, general liability, workers compensation and other insurance customary in the industries in which it operates. Most of the insurance is obtained through SEACOR sponsored programs, with premiums charged to participating businesses based on insured asset values. Both the marine hull and liability policies have significant annual aggregate deductibles. Marine hull annual aggregate deductibles are accrued as claims are incurred by participating businesses and proportionately shared among the participating businesses. Marine liability annual aggregate deductibles are accrued based on historical loss experience and actual claims incurred. The Company also maintains self-insured health benefit plans for its participating employees. Exposure to the health benefit plans are limited by maintaining stop-loss and aggregate liability coverage. To the extent that estimated self-insurance losses, including the accrual of annual aggregate deductibles, differ from actual losses realized, the Company’s insurance reserves could differ significantly and may result in either higher or lower insurance expense in future periods.
Income Taxes. Deferred income tax assets and liabilities have been provided in recognition of the income tax effect attributable to the book and tax basis differences of assets and liabilities reported in the accompanying consolidated financial statements. Deferred tax assets or liabilities are provided using the enacted tax rates expected to apply to taxable income in the periods in which they are expected to be settled or realized. Interest and penalties relating to uncertain tax positions are recognized in interest expense and administrative and general, respectively, in the accompanying consolidated statements of income. The Company records a valuation allowance to reduce its deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
In the normal course of business, the Company may be subject to challenges from tax authorities regarding the amount of taxes due. These challenges may alter the timing or amount of taxable income or deductions. As part of the calculation of income tax expense, the Company determines whether the benefits of its tax positions are at least more likely than not of being sustained based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained, the Company accrues the largest amount of the tax benefit that is more likely than not of being sustained. Such accruals require management to make estimates and judgments with respect to the ultimate outcome of its tax benefits and actual results could vary materially from these estimates.
Deferred Gains - Equipment Sale-Leaseback Transactions and Financed Equipment Sales. From time to time, the Company enters into equipment sale-leaseback transactions with finance companies or provides seller financing on sales of its equipment to third parties or 50% or less owned companies. A portion of the gains realized from these transactions is not immediately recognized in income and has been recorded in the accompanying consolidated balance sheets in deferred gains and other liabilities. In sale-leaseback transactions (see Note 2), gains are deferred to the extent of the present value of future minimum lease payments and are amortized as reductions to rental expense over the applicable lease terms. In financed equipment sales (see Note 2), gains are deferred to the extent that the repayment of purchase notes is dependent on the future operations of the sold equipment and are amortized based on cash received from the buyers. Deferred gain activity related to these transactions for the years ended December 31 was as follows (in thousands):
Deferred Gains - Equipment Sales to the Company’s 50% or Less Owned Companies. A portion of the gains realized from non-financed sales of the Company’s vessels and barges to its 50% or less owned companies is not immediately recognized in income and has been recorded in the accompanying consolidated balance sheets in deferred gains and other liabilities. Effective January 1, 2009, the Company adopted new accounting rules related to the sale of its vessels and barges to its 50% or less owned companies. In most instances, these sale transactions are now considered a sale of a business in which the Company relinquishes control to its 50% or less owned companies. Subsequent to the adoption of the new accounting rules, gains are deferred only to the extent of the Company's uncalled capital commitments and are amortized as those commitments lapse or funded amounts are returned. For transactions occurring prior to the adoption of the new accounting rules, gains were deferred and are being amortized based on the Company's ownership interest, the Company's uncalled capital commitments, cash received and the applicable equipment's useful lives. Deferred gain activity related to these transactions for the years ended December 31 was as follows (in thousands):
Stock Based Compensation. Stock based compensation is amortized to compensation expense on a straight line basis over the requisite service period of the grants using the Black-Scholes valuation model. The Company will reconsider its use of this model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model. The Company does not estimate forfeitures in its expense calculations as forfeiture history has been minor. The Company presents the excess tax benefits from the exercise of stock options as a financing cash flow in the accompanying consolidated statements of cash flows.
Accumulated Other Comprehensive Income (Loss). The components of accumulated other comprehensive income (loss) were as follows:
Foreign Currency Translation. The assets, liabilities and results of operations of certain SEACOR subsidiaries are measured using their functional currency which is the currency of the primary foreign economic environment in which they operate. Upon consolidating these subsidiaries with SEACOR, their assets and liabilities are translated to U.S. dollars at currency exchange rates as of the balance sheet dates and their revenues and expenses are translated at the weighted average currency exchange rates during the applicable reporting periods. Translation adjustments resulting from the process of translating these subsidiaries’ financial statements are reported in other comprehensive income (loss) in the accompanying consolidated statements of comprehensive income.
Foreign Currency Transactions. Certain SEACOR subsidiaries enter into transactions denominated in currencies other than their functional currency. Gains and losses resulting from changes in currency exchange rates between the functional currency and the currency in which a transaction is denominated are included in foreign currency gains (losses), net in the accompanying consolidated statements of income in the period in which the currency exchange rates change.
Earnings Per Share. Basic earnings per common share of SEACOR are computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings per common share of SEACOR are computed based on the weighted average number of common shares issued and outstanding plus the effect of potentially dilutive securities through the application of the treasury stock and if-converted methods. Dilutive securities for this purpose assumes restricted stock grants have vested, common shares have been issued pursuant to the exercise of outstanding stock options and common shares have been issued pursuant to the conversion of all outstanding convertible notes.
Computations of basic and diluted earnings per common share of SEACOR for the years ended December 31 were as follows (in thousands, except share data):
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(1)
For the years ended December 31, 2014, 2013 and 2012, diluted earnings per common share of SEACOR excluded 407,698, 133,315 and 549,223, respectively, of certain share awards as the effect of their inclusion in the computation would be anti-dilutive.
(2)
For the years ended December 31, 2013 and 2012, diluted earnings per common share of SEACOR excluded 4,200,525 and 176,609 shares, respectively, issuable pursuant to the Company's 2.5% Convertible Senior Notes (see Note 6) as the effect of their inclusion in the computation would be anti-dilutive.
(3)
For the year ended December 31, 2013, diluted earnings per common share of SEACOR excluded 240,043 shares issuable pursuant to the Company's 3.0% Convertible Senior Notes (see Note 6) as the effect of their inclusion in the computation would be anti-dilutive.
New Accounting Pronouncement. On May 28, 2014, the Financial Accounting Standards Board issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under generally accepted accounting principles in the United States. The core principal of the new standard is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard is effective for annual and interim periods beginning after December 15, 2016 and early adoption is prohibited. The Company has not yet selected the method of adoption and determined what impact, if any, the adoption of the new standard will have on its consolidated financial position, results of operations or cash flows.
Reclassifications. Certain reclassifications of prior period information have been made to conform to the presentation of the current period information. These reclassifications had no effect on net income or cash flows as previously reported.
2.
ACQUISITIONS AND DISPOSITIONS
Witt O'Brien's. On July 11, 2014, the Company acquired a controlling interest in Witt O'Brien's, a global leader in preparedness, crisis management, and disaster response and recovery, through the acquisition of its partner's 45.8% equity interest for $35.4 million in cash (see Note 3). The Company performed a fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in $45.0 million of goodwill being recorded. The preliminary fair value analysis is pending completion of a final valuation for the acquired assets and liabilities.
C-Lift Acquisition. On June 6, 2013, the Company acquired a controlling interest in C-Lift through the acquisition of its partner's 50% interest for $13.3 million in cash. C-Lift owns and operates two liftboats in the U.S. Gulf of Mexico. The Company performed a preliminary fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in no goodwill being recorded. The preliminary fair value analysis was finalized in March of 2014.
Pantagro Acquisition. On June 25, 2012, the Company acquired a 95% controlling interest in Pantagro-Pantanal Produtos Agropecuarious Ltda. ("Pantagro") for $0.4 million ($0.2 million in cash and $0.2 million in a note payable). Pantagro is an Argentine agricultural trading company focusing primarily on salt. The Company performed a fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in no goodwill being recorded. The fair value analysis was finalized in March 2013.
Superior Lift Boats Acquisition. On March 30, 2012, the Company acquired 18 lift boats, real property and working capital from Superior Energy Inc. (“Superior”) for $142.5 million. The Company performed a fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in no goodwill being recorded. The fair value analysis was finalized in March 2013.
ICP Acquisition. On February 1, 2012, the Company acquired a controlling interest in ICP through its acquisition of a portion of its partner's interest for $9.1 million in cash, following which the Company owned 70% (see Note 3). ICP owns and operates an alcohol manufacturing facility dedicated to the production of alcohol for beverage, industrial and fuel applications. The Company performed a fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in no goodwill being recorded. The fair value analysis of assets and liabilities acquired was finalized in June 2012.
Windcat Acquisition. On December 22, 2011, the Company acquired 75% of the issued and outstanding shares in Windcat Workboats Holdings Ltd. (“Windcat”). Windcat, based in the United Kingdom and the Netherlands, is an operator of wind farm utility vessels operating in the main offshore wind markets of Europe. During the year ended December 31, 2012, the Company issued 6,374 shares of SEACOR common stock, par value $0.01 per share (“Common Stock”) valued at $0.6 million for a final working capital settlement. The Company performed a fair value analysis and the purchase price was allocated to the acquired assets and liabilities based on their fair values resulting in no goodwill being recorded. The fair value analysis of assets and liabilities was finalized in December 2012.
Purchase Price Allocation. The allocation of the purchase price for the Company’s acquisitions for the years ended December 31 was as follows (in thousands):
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(1)
Purchase price is net of cash acquired (totaling $0.4 million, $2.2 million and $3.7 million in 2014, 2013 and 2012, respectively) and excludes issued Common Stock valued at $0.6 million in 2012.
Equipment Additions. The Company’s capital expenditures from continuing operations were $360.6 million, $195.9 million and $239.4 million in 2014, 2013 and 2012, respectively. Major owned equipment placed in service for the years ended December 31 were as follows:
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(1)
Excludes two liftboats acquired in the C-Lift acquisition.
(2)
Excludes 18 liftboats acquired in the Superior Liftboat acquisition and excludes an interest in one U.S.-flagged articulated tug barge acquired and immediately contributed to SeaJon (see Note 3).
Equipment Dispositions. During the year ended December 31, 2014, the Company sold property and equipment for net proceeds of $300.1 million ($254.8 million in cash and $45.3 million in seller financing) and gains of $111.2 million, of which $39.8 million were recognized currently and $71.4 million were deferred (see Note 1). Equipment dispositions included the sale-leaseback of one anchor handling towing supply vessel, one fast support vessel, one liftboat, one U.S.-flag product tanker and other equipment for $141.8 million, with leaseback terms ranging from 10 months to 84 months. Gains of $52.0 million related to these sale-leasebacks were deferred and are being amortized over their respective minimum lease periods. The Company also financed the sale of two offshore support vessels, 20 dry-cargo barges and one inland river towboat to certain of its 50% or less owned companies (see Note 3) and real property and other equipment to an unrelated third party for $45.3 million in the aggregate. Gains of $19.4 million from these sales were deferred and will be recognized as payments are received under the terms of the financing. In addition, the Company recognized previously deferred gains of $16.5 million.
During the year ended December 31, 2013, the Company sold property and equipment for net proceeds of $274.3 million ($263.9 million in cash and $10.4 million in seller financing) and gains of $64.5 million, of which $37.6 million were recognized currently and $26.9 million were deferred (see Note 1). Equipment dispositions included the sale of one liftboat, eight 30,000 barrel liquid tank barges and seven harbor tugs for $116.3 million with leaseback terms ranging from 60 months to 120 months. Gains of $26.4 million related to these sale-leasebacks were deferred and are being amortized over their respective minimum lease periods. In addition, the Company recognized previously deferred gains of $2.9 million.
During the year ended December 31, 2012, the Company sold property and equipment for net proceeds of $167.5 million ($114.0 million in cash, $5.0 million in cash deposits previously received and $48.5 million in seller financing) and gains of $36.2 million, of which $13.0 million were recognized currently and $23.2 million were deferred (see Note 1). Equipment dispositions included the sale of two anchor handling towing supply vessels and two harbor tugs for $84.5 million with leaseback terms ranging from 48 months to 96 months. Gains of $15.7 million related to the sale-leaseback were deferred and are being amortized over their respective minimum lease periods. The Company also financed the sale of two offshore support vessels to certain of its 50% or less owned companies for $48.9 million, in the aggregate (see Note 3). Gains of $0.5 million from these sales were recognized currently and $7.3 million from these sales were deferred and will be recognized as payments are received under the terms of the financing. In addition, the Company recognized previously deferred gains of $12.2 million.
Major equipment dispositions for the years ended December 31 were as follows:
______________________
(1)
Excludes one U.S.-flag articulated tug-barge contributed to SeaJon (see Note 3).
Investments, at equity, and advances to 50% or less owned companies as of December 31 were as follows (in thousands):
______________________
(1)
The Company's ownership represents its economic interest in Dorian. The Company exercises significant influence over Dorian through its representation on Dorian's board of directors.
(2)
The Company's ownership represents its economic interest in Witt O'Brien's. The Company had a 50% voting interest prior to it acquisition of a controlling interest (see Note 2).
Combined Condensed Financials. Summarized financial information for the Company’s investments, at equity, as of and for the years ended December 31 was as follows (in thousands):
As of December 31, 2014 and 2013, cumulative undistributed net earnings of 50% or less owned companies accounted for by the equity method included in the Company’s consolidated retained earnings were $29.4 million and $23.9 million, respectively.
MexMar. Mantenimiento Express Maritimo, S.A.P.I. de C.V. (“MexMar”) owns and operates eleven offshore support vessels in Mexico. During the year ended December 31, 2014, the Company contributed capital of $2.9 million and sold two offshore support vessels for $32.0 million ($6.4 million in cash and short-term notes totaling $25.6 million of which $10.7 million was repaid in 2014). Subsequent to December 31, 2014, MexMar repaid the balance of the short-term notes. During the year ended December 31, 2013, the Company contributed capital of $5.9 million and sold one offshore support vessel for $36.4 million ($30.4 million in cash and $6.0 million in seller financing all of which was repaid in 2013). During the year ended December 31, 2012, the Company sold two offshore support vessels to MexMar and financed a portion of the vessels' mobilization costs with the Company totaling $50.0 million ($5.0 million in cash and short-term notes totaling $45.0 million all of which was repaid in 2012). During the years ended December 31, 2014, 2013 and 2012, the Company received $0.3 million, $0.3 million and $0.3 million, respectively, of vessel management fees from MexMar.
Dynamic Offshore Drilling. Dynamic Offshore Drilling Ltd. (“Dynamic”) was established to construct and operate a jack-up drilling rig that was delivered in the first quarter of 2013.
Sea-Cat Crewzer II. On January 23, 2013, the Company and another offshore support vessel operator formed Sea-Cat Crewzer II LLC (“Sea-Cat Crewzer II”) to own and operate two high speed offshore catamarans. The Company is a guarantor of its proportionate share of Sea-Cat Crewzer’s debt and the amount of the guarantee declines as principal payments are made and will terminate when the debt is repaid. As of December 31, 2014, the Company’s guarantee was $14.1 million. During the year ended December 31, 2014, the Company received distributions of $14.0 million. During the year ended December 31, 2013, the Company and its partner each contributed capital of $23.9 million in cash. Sea-Cat Crewzer II then purchased two high speed offshore catamarans from the Company for $47.3 million ($44.5 million in cash and $2.8 million in seller financing all of which was repaid in 2013). During the years ended December 31, 2014 and 2013, the Company received $0.7 million and $0.2 million, respectively, of vessel management fees from Sea-Cat Crewzer II.
OSV Partners. On August 13, 2013, the Company and Breem Transportation Services LLC formed SEACOR OSV Partners GP LLC and SEACOR OSV Partners I LP (collectively "OSV Partners") to own and operate six offshore support vessels. During the year ended December 31, 2013, OSV Partners closed on a private placement equity offering with third party limited partner members, including the Company, and secured a bank financing arrangement. During the years ended December 31, 2014 and 2013, the Company contributed capital of $5.1 million and $4.1 million, respectively, to OSV Partners. During the years ended December 31, 2014 and 2013, the Company sold two offshore support vessels for $27.7 million and one offshore support vessel for $14.5 million, respectively, to OSV Partners. In addition, during the year ended December 31, 2013, the Company provided and was repaid bridge financing of $7.6 million. During the year ended December 31, 2014 and 2013, the Company received $1.2 million and $0.2 million, respectively, of vessel management fees from OSV Partners.
Nautical Power. The Company and another offshore operator formed Nautical Power, LLC (“Nautical Power”) to operate one offshore support vessel. Nautical Power bareboat chartered the vessel from a leasing company and that charter terminated in 2013. During the year ended December 31, 2013, the Company received dividends of $5.3 million from Nautical Power.
Sea-Cat Crewzer. Sea-Cat Crewzer LLC (“Sea-Cat Crewzer”) owns and operates two high speed offshore catamarans. The Company is a guarantor of its proportionate share of Sea-Cat Crewzer’s debt and the amount of the guarantee declines as principal payments are made and will terminate when the debt is repaid. As of December 31, 2014, the Company’s guarantee was $12.5 million. During the year ended December 31, 2014, the Company received distributions of $3.2 million from Sea-Cat Crewzer. During the years ended December 31, 2014 and 2013, the Company received dividends of $3.3 million and $1.3 million, respectively, from Sea-Cat Crewzer. During the years ended December 31, 2014, 2013 and 2012, the Company received $0.7 million, $0.8 million and $0.8 million, respectively, of vessel management fees from Sea-Cat Crewzer. During the years ended December 31, 2014, 2013 and 2012, the Company paid $4.7 million, $4.8 million and $2.2 million, respectively, to Sea-Cat Crewzer to bareboat charter one of its vessels.
Other Offshore Marine Services. The Company’s other Offshore Marine Services 50% or less owned companies own and operate ten vessels. During the year ended December 31, 2014, the Company received distributions of $0.2 million, dividends of $1.0 million and repayments on advances of $0.6 million, and made additional capital contributions and advances of $4.1 million to these 50% or less owned companies. During the year ended December 31, 2013, the Company received dividends of $0.9 million and made capital contributions and advances of $2.1 million to these 50% or less owned companies. During the year ended December 31, 2012, the Company made no additional capital contributions to these 50% or less owned companies. Certain of these 50% or less owned companies obtained bank debt to finance the acquisition of offshore support vessels from the Company. Under the terms of the debt, the bank has the authority, under certain circumstances, to require the parties of these 50% or less owned companies to fund uncalled capital commitments, as defined in the 50% or less owned companies’ partnership agreements. In such an event, the Company would be required to contribute its allocable share of the uncalled capital commitments, which was $2.1 million in the aggregate as of December 31, 2014. As of December 31, 2014, the Company’s contingent guarantee of outstanding charter receivables was $0.6 million. In addition, the Company has guaranteed $71.6 million related to a construction contract for two foreign-flag liftboats entered into by one of Offshore Marine Services' 50% or less owned companies. The guarantee declines as progress payments are made by the 50% or less owned company in accordance with the contracts. During the year ended December 31, 2013, the Company sold two offshore support vessels to one of its 50% or less owned companies for $5.4 million. The Company manages certain vessels on behalf of its 50% or less owned companies and guarantees the outstanding charter receivables of one of its 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. During the years ended December 31, 2014, 2013 and 2012, the Company received $0.6 million, $0.6 million and $0.6 million, respectively, of vessel management fees from these 50% or less owned companies.
SCFCo. SCFCo Holdings LLC (“SCFCo”) was established to operate dry-cargo barges and towboats on the Parana-Paraguay Rivers and a terminal facility at Port Ibicuy, Argentina. During the years ended December 31, 2014, 2013 and 2012, the Company contributed capital of $19.7 million, $6.1 million and $3.0 million, respectively, to SCFCo. Additionally, during the years ended December 31, 2014 and 2013, the Company provided working capital advances of $23.5 million and $3.1 million, respectively and received repayments on working capital advances of $1.0 million and $1.8 million, respectively. As of December 31, 2014, $29.5 million of working capital advances remained outstanding.
Bunge-SCF Grain. Bunge-SCF Grain LLC (“Bunge-SCF Grain”) operates a terminal grain elevator in Fairmont City, Illinois. During the year ended December 31, 2014, the Company contributed capital of $2.0 million to Bunge-SCF Grain. During the years ended December 31, 2013 and 2012, the Company and its partner each made working capital advances to Bunge-SCF Grain of $2.5 million and $5.0 million, respectively. During the year ended December 31, 2013, the Company received $0.5 million of repayments of working capital advances. As of December 31, 2014, the total outstanding balance of working capital advances was $7.0 million. In addition, Bunge-SCF Grain operates and manages the Company’s grain storage and handling facility in McLeansboro, Illinois and the Company received $1.6 million, $1.0 million and $1.0 million in rental income for the years ended December 31, 2014, 2013 and 2012, respectively.
SCF Bunge Marine. SCF Bunge Marine LLC (“SCF Bunge Marine”) provides towing services on the U.S. Inland River Waterways, primarily the Mississippi River, Illinois River, Tennessee River and Ohio River. The Company bareboat charters inland river towboats from a third-party leasing company and time charters the equipment to SCF Bunge Marine. The Company's obligations under the bareboat charter are guaranteed by SEACOR and its partner in SCF Bunge Marine. Pursuant to the time charter, the Company received charter fees of $41.6 million, $40.8 million and $40.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. During the year ended December 31, 2014, the Company received dividends of $4.5 million from SCF Bunge Marine. In addition, during the years ended December 31, 2014, 2013 and 2012, SCF Bunge Marine received $46.6 million, $41.1 million and $42.6 million, respectively, for towing services provided to the Company.
Other Inland River Services. The Company’s other Inland River Services 50% or less owned companies operate a fabrication facility and operated a dry-cargo vessel. During the year ended December 31, 2014 and 2012, the Company received distributions of $2.1 million and $0.4 million from these 50% or less owned companies.
Dorian. On July 25, 2013, the Company contributed $57.0 million to Dorian in exchange for a 25% ownership interest. The contribution included $42.1 million in net cash and other consideration valued at $14.9 million that included certain progress payments made toward the construction of two VLGC's, the construction contracts for the two VLGC's, and options to construct additional VLGC's. On November 18, 2013, Dorian completed a second private placement equity offering and the Company contributed an additional $70.4 million in cash. Following the completion of the second private placement equity offering, the Company's ownership percentage was diluted to a 21.8% ownership interest and the Company recognized a $1.1 million gain, net of tax, which is included in equity in earnings (losses) of 50% or less owned companies in the accompanying consolidated statements of income. During the year ended December 31, 2014, Dorian completed three private placement equity offerings prior to becoming a publicly traded company in May of 2014. The Company did not participate in any of the offerings and as a consequence its ownership was diluted to a 16.1% ownership interest and the Company recognized a $4.4 million gain, net of tax, which is included in equity in earnings (losses) of 50% or less owned companies in the accompanying consolidated statements of income. As of December 31, 2014, the fair value of the Company's investment in Dorian based on the quoted market price of Dorian was $129.6 million. As of December 31, 2014, Dorian operates a fleet of five VLGC's and had 17 under construction.
Trailer Bridge. Trailer Bridge, Inc. (“Trailer Bridge”), an operator of U.S.-flag deck and RORO barges, offers marine transportation services between Jacksonville, Florida, San Juan, Puerto Rico and Puerto Plata, Dominican Republic. Trailer Bridge filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Florida (the “Bankruptcy Court”) on November 16, 2011. On April 2, 2012, Trailer Bridge approved and adopted a restructuring plan, which was confirmed by the Bankruptcy Court. Immediately prior to adopting the restructuring plan, the Company had outstanding marketable security positions in 9.25% Senior Secured Notes due from Trailer Bridge (“Old Notes”) and U.S. Government Guaranteed Ship Financing Bonds due from Trailer Bridge (“MARAD Bonds”). Upon the adoption and implementation of Trailer Bridge's restructuring plan, the Company exchanged its Old Notes for a new $33.1 million Secured Note due from Trailer Bridge and new common shares in Trailer Bridge, representing a 47.26% ownership interest valued at $9.9 million. As a result of the adoption and implementation of the restructuring plan, the Company reclassified $48.1 million from marketable securities to investments, at equity, and advances to 50% or less owned companies, representing its investment in the new Trailer Bridge securities valued at $43.0 million and the MARAD Bonds valued at $5.1 million. In addition, as part of the restructuring plan, the Company provided $20.8 million of bridge financing to Trailer Bridge. During the year ended December 31, 2012, the Company recognized $9.8 million of marketable security gains, net related to its investments in Trailer Bridge. During the years ended December 31, 2014, 2013 and 2012, the Company received repayments of $2.1 million, $2.1 million and $1.1 million, respectively, on the bridge financing. During the year ended December 31, 2014, the Company received $2.0 million for the time charter of a U.S.-flag harbor tug to Trailer Bridge.
SEA-Access. On November 7, 2014, the Company and Access Shipping Limited Partnership formed SEA-Access LLC ("SEA-Access") to acquire and operate the M/V Eagle Ford, a U.S.-flag 124,000 dwt crude tanker. During the year ended December 31, 2014, the Company and its partner each contributed capital of $16.7 million to SEA-Access to acquire the vessel and for working capital. The Company also provides SEA-Access with technical and commercial management services. During the year ended December 31, 2014, the Company received $0.1 million for these services.
SeaJon. SeaJon LLC (“SeaJon”) owns an articulated tug-barge operating in the Great Lakes trade. Each partner contributed its ownership interest in a newly constructed articulated tug-barge, which began its charter during 2012. During the years ended December 31, 2014 and 2013, the Company and its partner each made capital contributions of $2.3 million and $1.4 million, respectively. During the year ended December 31, 2014, SeaJon made a $5.4 million non-cash distribution of an interest in an offshore tug under reconstruction to each partner (see SeaJon II). During the year ended December 31, 2012, SeaJon entered into a $40.0 million bank term loan, secured by the articulated tug-barge and the assignment of its current charter. Upon funding, SeaJon distributed $20.0 million to each of its partners. The term loan requires monthly principal and interest payments and a balloon payment of $29.7 million due April 2017. The Company is a guarantor of its proportionate share of SeaJon's debt up to a maximum of $5.0 million.
SeaJon II. On October 1, 2014, the Company and Donjon Marine Co., Inc. formed SeaJon II LLC ("SeaJon II") to complete the reconstruction and own an offshore tug. During the year ended December 31, 2014, the Company and its partner each contributed capital of $0.6 million in cash and an interest in an offshore tug under construction valued at $5.4 million (see SeaJon).
Witt O'Brien's. On December 31, 2012, the Company contributed its interest in O'Brien's Response Management Inc. ("ORM") to Witt Group Holdings, LLC (the "ORM Transaction"), which was renamed Witt O'Brien's, LLC ("Witt O'Brien's"), in exchange for a 54.2% economic interest. Witt O'Brien's is a a global leader in preparedness, crisis management, and disaster response and recovery. As a result of the change in control, the Company recognized equity in losses of 50% or less owned companies of $9.7 million, net of tax, primarily related to the one-time recognition of deferred tax liabilities associated with the
deconsolidation of non-deductible goodwill. On July 11, 2014, the Company acquired a controlling interest in Witt-O'Brien's through the acquisition of its partners 45.8% equity interest for $35.4 million (see Note 2). During the six months ended June 30, 2014, the Company received distributions of $0.4 million and dividends of $0.4 million from Witt O'Brien's. During the year ended December 31, 2013, the Company received dividends of $2.0 million from Witt O'Brien's. During the six months ended December 31, 2014 and the year ended December 31, 2013, the Company received management fees of $0.1 million and $0.3 million from Witt O'Brien's.
Hawker Pacific. Hawker Pacific Airservices, Limited (“Hawker Pacific”) is an aviation sales and support organization and a distributor of aviation components from leading manufacturers. During the year ended December 31, 2012, the Company advanced $3.3 million to Hawker Pacific at an interest rate of 10.0% per annum, which was repaid in December 2012. As of December 31, 2014, the Company had issued three letters of credit totaling $23.2 million in support of Hawker Pacific's credit facility and certain of its performance guarantees. Subsequent to December 31, 2014, one letter of credit for $8.7 million was canceled. During the year ended December 31, 2014, the Company received management fees of $0.5 million from Hawker Pacific.
Avion. Avion Pacific Limited (“Avion”) is a distributor of aircraft and aircraft related parts. During the years ended December 31, 2014 and 2012, the Company made advances of $3.0 million and $11.0 million, respectively, to Avion. During the years ended December 31, 2014, 2013 and 2012, the Company received repayments of $4.0 million, $1.0 million and $15.7 million, respectively, from Avion on these advances. As of December 31, 2014 and 2013, the Company had outstanding loans to Avion totaling $3.0 million and $4.0 million, respectively.
Illinois Corn Processing. The Company provided ICP with a $20.0 million revolving line of credit with a maturity in January 2013 subject to certain borrowing restrictions. During January 2012, the Company made net advances $0.3 million under the revolving line of credit. In January 2012, the Company and its partner each made a capital contribution of $0.5 million. On February 1, 2012, the Company obtained a controlling interest in ICP through its acquisition of a portion of its partner’s interest for $9.1 million in cash, following which the Company owned 70% (see Note 2). Upon the acquisition, the Company adjusted its investment in ICP to fair value resulting in the recognition of a gain of $6.0 million, net of tax, which is included in equity in earnings (losses) in 50% or less owned companies in the accompanying consolidated statements of income.
Cleancor. On August 20, 2013, the Company and Balfour Investors formed CLEANCOR Energy Solutions LLC ("Cleancor") a full service solution provider delivering clean fuel to end users. During the year ended December 31, 2014, the Company contributed capital of $4.8 million to Cleancor to fund its start-up operations and provide capital for future investments.
Other. The Company's other 50% or less owned companies are primarily industrial aviation businesses in Asia. During the year ended December 31, 2014 and 2013, the Company contributed capital and made advances of $1.7 million and $0.7 million, respectively, to these 50% or less owned companies. During the years ended December 31, 2014 and 2012, the Company received distributions of $0.1 million and $1.2 million, respectively, from these 50% or less owned companies.
4.
LEASES AND NOTES RECEIVABLE FROM THIRD PARTIES
From time to time, the Company engages in lending and leasing activities involving various types of equipment. The Company recognizes interest income as payments are due, typically monthly, and expenses all costs associated with its lending and leasing activities as incurred. These leases and notes receivable are typically collateralized by the underlying equipment and require scheduled lease payments or periodic principal and interest payments. As of December 31, 2014 and 2013, the outstanding balance of leases and notes receivable from third parties was $23.6 million and $14.5 million, respectively, and is included in other long-term assets in the accompanying consolidated balance sheets. During the years ended December 31, 2014, 2013 and 2012, the Company made advances on notes receivable from third parties of $19.0 million, $20.5 million and $4.1 million, respectively, and received repayments on notes receivable from third parties of $10.0 million, $33.3 million and $36.8 million, respectively. During the years ended December 31, 2014, 2013 and 2012, the Company received net lease payments of $0.6 million, $3.6 million and $3.4 million, respectively, from third parties. As of December 31, 2014, none of the Company’s third party leases and notes receivable are past due or in default and the Company has made no provisions for credit losses.
5.
CONSTRUCTION RESERVE FUNDS
The Company has established, pursuant to Section 511 of the Merchant Marine Act, 1936, as amended, construction reserve fund accounts subject to agreements with the Maritime Administration. In accordance with this statute, the Company is permitted to deposit proceeds from the sale of certain vessels into the construction reserve fund accounts and defer the taxable gains realized from the sale of those vessels. Qualified withdrawals from the construction reserve fund accounts are only permitted for the purpose of acquiring qualified U.S.-flag vessels as defined in the statue and approved by the Maritime Administration. To the extent that sales proceeds are reinvested in replacement vessels, the carryover depreciable tax basis of the vessels originally sold is attributed to the U.S.-flag vessels acquired using such qualified withdrawals. The construction reserve funds must be
committed for expenditure within three years of the date of sale of the equipment, subject to two one-year extensions that can be granted at the discretion of the Maritime Administration, or be released for the Company’s general use as nonqualified withdrawals. For nonqualified withdrawals, the Company is obligated to pay taxes on the previously deferred gains at the prevailing statutory tax rate plus a 1.1% penalty tax and interest thereon for the period such taxes were deferred.
As of December 31, 2014 and 2013, the Company’s construction reserve funds of $268.4 million and $252.1 million, respectively, are classified as non-current assets in the accompanying consolidated balance sheets as the Company has the intent and ability to use the funds to acquire equipment. Construction reserve fund transactions for the years ended December 31 were as follows (in thousands):
The Company’s borrowings as of December 31 were as follows (in thousands):
The Company’s long-term debt maturities for the years ended December 31 are as follows (in thousands):
3.0% Convertible Senior Notes. On November 13, 2013, SEACOR completed the sale of $230.0 million aggregate principal amount of its 3.0% Convertible Senior Notes due November 15, 2028 (the “3.0% Convertible Senior Notes”). Interest on the 3.0% Convertible Senior Notes is payable semi-annually on May 15 and November 15 of each year, commencing May 15, 2014. Beginning November 15, 2020, contingent interest is payable during any subsequent semi-annual interest period if the average trading price of the 3.0% Convertible Senior Notes for a defined period is greater than or equal to $1,200 per $1,000 principal amount of the 3.0% Convertible Senior Notes. The amount of contingent interest payable for any such period will be equal to 0.45% per annum of such average trading price of the 3.0% Convertible Senior Notes. After March 31, 2014 and prior to August 15, 2028, the 3.0% Convertible Senior Notes are convertible into shares of Common Stock at the initial conversion rate ("Conversion Rate") of 7.9362 only if certain conditions are met. The Conversion Price for each note equals $1,000 divided by the Conversion Rate in effect. After August 15, 2028, holders may elect to convert at any time at the Conversion Price. The Company has reserved the maximum number of shares of Common Stock needed upon conversion, or 1,825,326 shares as of December 31, 2014. After November 19, 2018, the 3.0% Convertible Senior Notes may be redeemed, in whole or in part, at a price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption. On November 19, 2020 and November 20, 2023, the holders of the 3.0% Convertible Senior Notes may require SEACOR to purchase for cash all or part of the notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of purchase. SEACOR incurred $6.3 million of net offering costs associated with the 3.0% Convertible Senior Notes sale for net proceeds of $223.7 million.
The Company accounts separately for the liability and equity components of the 3.0% Convertible Senior Notes and the associated underwriting fees in a manner that reflects the Company's non-convertible borrowing rate. Of the total proceeds of $230.0 million received upon issuance and $6.3 million of offering costs, the Company allocated $181.5 million and $5.0 million, respectively, to the liability component and allocated $48.5 million and $1.3 million, respectively, to the equity component. The resulting debt discount and offering costs associated with the liability component is amortized as additional non-cash interest expense over the seven year period for which the debt is expected to be outstanding (November 19, 2020) for an overall effective annual interest rate of 7.4%.
2.5% Convertible Senior Notes. On December 11, 2012, SEACOR completed the sale of $350.0 million aggregate principal amount of its 2.5% Convertible Senior Notes due December 15, 2024 (the “2.5% Convertible Senior Notes”). Interest on the 2.5% Convertible Senior Notes is payable semi-annually on June 15 and December 15 of each year. Beginning December 15, 2017, contingent interest is payable during any subsequent semi-annual interest period if the average trading price of the 2.5% Convertible Senior Notes for a defined period is greater than or equal to $1,200 per $1,000 principal amount of the 2.5% Convertible Senior Notes. The amount of contingent interest payable for any such period will be equal to 0.25% per annum of such average trading price of the 2.5% Convertible Senior Notes. Prior to September 15, 2017, the 2.5% Convertible Senior Notes are convertible into shares of Common Stock the conversion rate then in effect only if certain conditions are met. The Conversion Price for each note equals $1,000 divided by the Conversion Rate in effect. After September 15, 2017, holders may elect to convert at any time at the Conversion Price. On December 14, 2012, the Conversion Rate was adjusted to 9.2089 in connection with the Company's cash dividend of $5.00 per common share. On January 31, 2013, the Conversion Rate was adjusted to 12.0015 in connection with the Spin-off of Era Group from SEACOR (see Note 17). The Company has reserved the maximum number of shares of Common Stock needed upon conversion, or 4,200,525 shares as of December 31, 2014. After December 19, 2015 and prior to December 19, 2017, the 2.5% Convertible Senior Notes may be redeemed, in whole or in part, at a price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption, plus $55 per $1,000 bond, provided the trading price of the Common Stock for a defined period exceeds 130% of the Conversion Price. After December 19, 2017, the 2.5% Convertible Senior Notes may be redeemed, in whole or in part, at a price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption, plus $55 per $1,000 bond. On December 19, 2017 and December 19, 2022, the holders of the 2.5% Convertible Senior Notes may require SEACOR to purchase for cash all or part of the notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of purchase. SEACOR incurred $9.4 million of net offering costs associated with the 2.5% Convertible Senior Notes sale for net proceeds of $340.6 million.
The Company accounts separately for the liability and equity components of the 2.5% Convertible Senior Notes and the associated underwriting fees in a manner that reflects the Company's non-convertible borrowing rate. Of the total proceeds of $350.0 million received upon issuance and $9.4 million of offering costs, the Company allocated $300.4 million and $8.1 million, respectively, to the liability component and allocated $49.6 million and $1.3 million, respectively, to the equity component. The resulting debt discount and offering costs associated with the liability component is amortized as additional non-cash interest expense over the five year period for which the debt is expected to be outstanding (December 19, 2017) for an overall effective annual interest rate of 6.5%.
7.375% Senior Notes. On September 24, 2009, SEACOR issued $250.0 million aggregate principal amount of its 7.375% Senior Notes due October 1, 2019 (the “7.375% Senior Notes”). The 7.375% Senior Notes were issued under a supplemental indenture dated as of September 24, 2009 (the “2009 Supplemental Indenture”) to the base indenture relating to SEACOR’s senior debt securities, dated as of January 10, 2001, between SEACOR and U.S. Bank National Association, as trustee. Interest on the 7.375% Senior Notes is payable semi-annually on April 1 and October 1 of each year. The 7.375% Senior Notes may be redeemed at any time, in whole or in part, at a price equal to the principal amount, plus accrued and unpaid interest to the date of redemption, plus a specified “make-whole” premium. The 2009 Supplemental Indenture contained covenants including, among others, limitations on liens and sale and leasebacks of certain Principal Properties, as defined, and certain restrictions on SEACOR consolidating with or merging into any other Person, as defined.
SEACOR’s Board of Directors has previously authorized the Company to purchase any or all of its 7.375% Senior Notes due 2019, which may be acquired through open market purchases, privately negotiated transactions or otherwise, depending on market conditions.
5.875% Senior Notes. In 2002, SEACOR sold $200.0 million aggregate principal amount of its 5.875% Senior Notes due October 1, 2012 (the “5.875% Senior Notes”). During the year ended December 31, 2012, the Company purchased $5.5 million, in principal amount, of its 5.875% Senior Notes for $5.7 million, resulting in a loss on debt extinguishment of $0.2 million. On October 1, 2012, the Company repaid the remaining outstanding principal amount of $171.0 million.
Title XI Bonds. Three double-hull product and chemical tankers (the “Title XI tankers”) owned by subsidiaries of the Company (the “Title XI companies”) were financed through the issuance of U.S. Government Guaranteed Ship Financing Bonds (the “Title XI Bonds” or “Title XI financing”) bearing interest at 6.50% with semi-annual principal and interest payments and maturing through June 2024.
A percentage of earnings attributable to each of the Title XI tankers’ operations is required to be deposited into Title XI reserve fund bank accounts. Cash held in these accounts is invested as prescribed by Title XI financing agreements. Withdrawals from these accounts are permitted for limited purposes, subject to the prior approval of the U.S. Maritime Administration. As of December 31, 2014 and 2013, the Title XI reserve fund account balances were $9.6 million.
The Title XI financing agreements contain covenants restricting cash distributions subject to certain financial tests. Failure to meet these financial tests, among other things, restricts Title XI companies from (1) distributing capital; (2) paying dividends; (3) increasing employee compensation and paying other indebtedness; (4) incurring additional indebtedness; (5) making investments and (6) acquiring fixed assets. Cash distributions (as defined in the Title XI financing agreements) from a Title XI company are prohibited until such company achieves certain levels of working capital. As of December 31, 2014 and 2013, the Title XI companies held $16.1 million and $12.2 million, respectively, in restricted cash that was limited in use for the operation of the tankers and cannot be used to fund the Company’s general working capital requirements. As of December 31, 2014, the Title XI companies had net assets of $57.5 million.
In the event of default (as defined in the Title XI financing agreements), all of the Title XI tankers, in addition to the assignment of earnings relating to those vessels and the funds on deposit in the Title XI reserve fund accounts, serve as collateral for the repayment of the Title XI Bonds. The aggregate net book value as of December 31, 2014 of the Title XI tankers was $108.0 million.
SEACOR Revolving Credit Facility. On August 9, 2013, the Company terminated its unsecured revolving credit facility that was scheduled to mature in November 2013. During the year ended December 31, 2013, the Company made net repayments of $175.0 million on the revolving credit facility. During the year ended December 31, 2012, the Company made no borrowings or repayments on the revolving credit facility.
Other. The Company has various other obligations including ship, equipment and facility mortgages, working capital lines and short term financing for certain agriculture commodity trading and logistics’ inventories. These obligations have maturities ranging from several days through August 2023, have interest rates ranging from 1.1% to 4.8% as of December 31, 2014, and require periodic payments of interest and principal. During the years ended December 31, 2014, 2013 and 2012, proceeds from the issuance of other debt was $26.9 million, $1.5 million and $6.7 million, respectively. During the years ended December 31, 2014, 2013 and 2012, repayments on other debt was $33.8 million, $9.7 million and $24.5 million, respectively.
As of December 31, 2014, the Company had outstanding letters of credit totaling $40.4 million with various expiration dates through 2018, including three totaling $23.2 million issued for the benefit of one of the Company's 50% or less owned companies (see Note 3). The letters of credit were issued in support of the 50% or less owned company's credit facility and certain performance guarantees. Subsequent to December 31, 2014, one letter of credit for $8.7 million was canceled.
Income from continuing operations before income tax expense (benefit) and equity in earnings (losses) of 50% or less owned companies derived from U.S. and foreign companies for the years ended December 31 were as follows (in thousands):
As of December 31, 2014, cumulative undistributed net earnings of foreign subsidiaries included in the Company’s consolidated retained earnings were $122.2 million.
The Company files a consolidated U.S. federal tax return. The components of income tax expense (benefit) for the years ended December 31 were as follows (in thousands):
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 years ended December 31:
During the year ended December 31, 2012, the effective rate associated with non-deductible expenses was primarily attributable to the Company's acceleration into 2012 of restricted stock originally scheduled to vest in 2013 and 2014.
During the year ended December 31, 2012, the Company utilized all available foreign tax credit carryforwards and reversed a previously established valuation allowance of $3.1 million. As of December 31, 2012, the Company had no remaining foreign tax credit carryforwards.
The Company records an additional income tax benefit or expense based on the difference between the fair market value of share awards at the time of grant and the fair market value at the time of vesting or exercise. For the years ended December 31, 2014, 2013 and 2012, an additional net income tax benefit was recorded in stockholders’ equity of $1.1 million, $1.4 million and $2.0 million, respectively.
During the year ended December 31, 2013, the Company provided for income taxes of $10.1 million relating to potential tax exposures surrounding the Spin-off of Era Group. As of December 31, 2014, the Company had combined unrecognized tax benefits on these potential tax exposures and associated accrued interest of $10.5 million, which is included in deferred gains and other liabilities in the accompanying consolidated balance sheets. If recognized, the unrecognized tax benefits would affect the effective tax rate in future periods. It is not expected that the unrecognized tax benefits will change in the next twelve months; however, changes may be recorded in future periods as the result of settlement by audit or the expiration of the statute of limitations. As of December 31, 2014, an estimate of the range of the reasonably possible outcomes cannot be made.
The components of the net deferred income tax liabilities for the years ended December 31 were as follows (in thousands):
During the year ended December 31, 2014, the Company decreased its valuation allowance primarily for state net operating loss carryforwards from $6.8 million to $4.9 million.
8.
FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs derived from observable market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
The Company’s financial assets and liabilities as of December 31 that are measured at fair value on a recurring basis were as follows (in thousands):
______________________
(1)
Marketable security gains, net include gains of $27.8 million, gains of $6.5 million and losses of $0.4 million for the years ended December 31, 2014, 2013 and 2012, respectively, related to marketable security positions held by the Company as of December 31, 2014. Marketable security gains, net include gains of $5.8 million and losses of $0.7 million for the years ended December 31, 2013 and 2012, respectively, related to marketable security positions held by the Company as of December 31, 2013.
The estimated fair value of the Company’s other financial assets and liabilities as of December 31 were as follows (in thousands):
______________________
(1)
The estimated fair value includes the conversion option on the Company's 2.5% and 3.0% Convertible Notes.
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 analyses based on estimated current rates for similar types of arrangements. It was not practicable to estimate the fair value 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. It was not practicable to estimate the fair value of the Company’s notes receivable from third parties as the overall returns are uncertain due to certain provisions for additional payments contingent upon future events. 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 non-financial assets and liabilities that were measured at fair value during the years ended December 31 were as follows (in thousands):
______________________
(1)
During the year ended December 31, 2014, the Company recognized impairment charges of $4.4 million related to two aircraft and certain tangible and intangible assets in Brazil and $3.3 million related to one of its 50% or less owned companies following the adjustment of their carrying value to fair value.
(2)
During the year ended December 31, 2014, the Company marked its equity investment in Witt O'Brien's to fair value following its acquisition of a controlling interest (see Note 2). The investment's fair value was determined based on the Company's purchase price of the acquired interest.
(3)
During the year ended December 31, 2013, the Company recognized impairment charges of $3.0 million related to two of Shipping Services' harbor tugs while under construction, which were sold and leased back upon their completion (see Note 2).
(4)
During the year ended December 31, 2013, the Company marked its equity investment in C-Lift to fair value following its acquisition of a controlling interest (see Note 2). The investment's fair value was determined based on the Company's purchase price of the acquired interest.
(5)
During the year ended December 31, 2013, the Company marked to fair value the non-cash consideration contributed to Dorian in exchange for an equity investment (see Note 3). The fair value was determined based on the value of the equity investment the Company received.
(6)
During the year ended December 31, 2013, the Company marked its equity investment in Zhuhai SEACOR/Avion Logistics Company Limited, an Asian industrial aviation company, to fair value upon the deconsolidation of the previously controlled subsidiary following the sale of a portion of the Company's ownership to a third party. The investment's fair value was determined based on the purchase price of the Company's interest sold.
9.
DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES
Derivative instruments are classified as either assets or liabilities based on their individual fair values. Derivative assets and liabilities are included in other receivables and other current liabilities, respectively, in the accompanying consolidated balance sheets. The fair values of the Company’s derivative instruments as of December 31 were as follows (in thousands):
Cash Flow Hedges. As of December 31, 2014 and 2013, the Company held no interest rate swap agreements designated as cash flow hedges. As of December 31, 2014, SCFCo had two interest rate swap agreements with maturities in 2015 that have been designated as cash flow hedges. These instruments call for this company to pay fixed rates of interest ranging from 1.53% to 1.62% on the aggregate amortized notional value of $16.9 million and receive a variable interest rate based on LIBOR on the aggregate amortized notional value. As of December 31, 2014, SeaJon had an interest rate swap agreement maturing in 2017 that has been designated as a cash flow hedge. The instrument calls for this company to pay a fixed interest rate of 2.79% on the amortized notional value of $35.0 million and receive a variable interest rate based on LIBOR on the amortized notional value. As of December 31, 2014, Sea-Cat Crewzer and Sea-Cat Crewzer II entered into interest rate swap agreements designated as cash flow hedges that mature in 2019. The first instrument calls for Sea-Cat Crewzer to pay a fixed rate of interest of 1.52% on the amortized notional value of $24.8 million and receive a variable interest rate based on LIBOR on the amortized notional value. The second instrument calls for Sea-Cat Crewzer II to pay a fixed rate of interest of 1.52% on the amortized notional value of $28.0 million and receive a variable interest rate based on LIBOR on the amortized notional value. By entering into these interest rate swap agreements, the Company's 50% or less owned companies have converted the variable LIBOR component of certain of their outstanding borrowings to a fixed interest rate.
The Company recognized gains (losses) on derivative instruments designated as cash flow hedges for the years December 31 as follows (in thousands):
Other Derivative Instruments. The Company recognized gains (losses) on derivative instruments not designated as hedging instruments for the years ended December 31 as follows (in thousands):
The Company holds positions in publicly traded equity options that convey the right or obligation to engage in a future transaction on the underlying equity security or index. The Company’s investment in equity options primarily includes positions in energy, marine, transportation and other related businesses. These contracts are typically entered into to mitigate the risk of changes in market value of marketable security positions that the Company is either about to acquire, has acquired or is about to dispose.
The Company enters and settles forward currency exchange, option and future contracts with respect to various foreign currencies. As of December 31, 2014, the outstanding forward currency exchange contracts translated into a net purchase of foreign currencies with an aggregate U.S. dollar equivalent of $4.2 million. These contracts enable the Company to buy currencies in the future at fixed exchange rates, which could offset possible consequences of changes in currency exchange rates with respect to the Company’s business conducted outside of the United States. The Company generally does not enter into contracts with forward settlement dates beyond twelve to eighteen months.
The Company and certain of its 50% or less owned companies have entered into interest rate swap agreements for the general purpose of providing protection against increases in interest rates, which might lead to higher interest costs. As of December 31, 2014, the interest rate swaps held by the Company or its 50% or less owned companies were as follows:
•
The Company has an interest rate swap agreement that matures in 2018 and calls for the Company to pay fixed interest rates of 3.00% on an amortized notional value of $9.4 million and receive a variable interest rate based on Euribor on this amortized notional values.
•
Dynamic Offshore has an interest rate swap agreement maturing in 2018 that calls for this company to pay a fixed interest rate of 1.30% on the amortized notional value of $93.4 million and receive a variable interest rate based on LIBOR on the amortized notional value.
•
OSV Partners has two interest rate swap agreements maturing in 2020 that call for this company to pay fixed interest rates ranging from 1.89% to 2.27% on the aggregate amortized notional value of $39.3 million and receive a variable interest rate based on LIBOR on the amortized notional value.
•
MexMar has four interest rate swap agreements with maturities ranging from 2020 to 2021 that call for this company to pay fixed interest rates ranging from 1.17% to 1.95% on the aggregate amortized notional value of $60.1 million and receive a variable interest rate based on LIBOR on the amortized notional value.
•
Sea-Cat Crewzer has an interest rate swap agreement maturing in 2015 that was dedesignated as a cash flow hedge in July 2014. This instrument calls for this company to pay a fixed interest rate of 1.48% on the amortized notional value of $15.4 million and receive a variable interest rate based on LIBOR on the amortized notional value.
•
Dorian has six interest rate swap agreements with maturities ranging from 2018 to 2020 that call for this company to pay fixed rates of interest ranging from 2.96% to 5.40% on the aggregate amortized notional value of $121.3 million and receive a variable interest rate based on LIBOR on the aggregate amortized notional value.
The Company enters and settles positions in various exchange and non-exchange traded commodity swap, option and future contracts. ICP enters into exchange traded positions (primarily corn) to protect its raw material and finished goods inventory balances from market changes. In the Company’s agricultural business, fixed price future purchase and sale contracts for sugar are included in the Company’s non-exchange traded derivative positions. The Company enters into exchange traded positions to protect these purchase and sale contracts as well as its inventory balances from market changes. As of December 31, 2014, the net market exposure to corn and sugar under these contracts was not material. From time to time, the Company also enters into exchange traded positions (primarily natural gas, heating oil, crude oil, gasoline, corn and sugar) to provide value to the Company should there be a sustained decline in the price of commodities that could lead to a reduction in the market values and cash flows of the Company’s Offshore Marine Services, Inland River Services and Shipping Services businesses. As of December 31, 2014, none of these types of positions were outstanding.
SEACOR’s Board of Directors previously approved a securities repurchase plan that authorizes the Company to acquire Common Stock, which may be acquired through open market purchases, privately negotiated transactions or otherwise, depending on market conditions. During the years ended December 31, 2014, and 2012, the Company acquired for treasury 2,531,324 and 1,377,798 shares of Common Stock, respectively, for an aggregate purchase price of $195.3 million and $119.6 million, respectively. During the year ended December 31, 2013, the Company acquired no shares of Common Stock for treasury. As of December 31, 2014, SEACOR had authorization to repurchase $150.0 million of Common Stock. In addition, during the year ended December 31, 2014, the Company acquired for treasury 26,792 shares of Common Stock for an aggregate purchase price of $2.0 million upon the exercise of certain stock options by the Company's Executive Chairman. These shares were purchased in accordance with the terms of the Company's Share Incentive Plans and not pursuant to the repurchase authorizations granted by SEACOR's Board of Directors.
SEACOR’s Board of Directors declared a Special Cash Dividend of $5.00 per share of Common Stock payable to stockholders of record as of December 17, 2012. On or about December 26, 2012, the Company paid these dividends totaling $100.4 million on 20,076,762 shares of Common Stock, including dividends of $0.9 million related to 171,562 outstanding restricted share awards. The Compensation Committee of SEACOR’s Board of Directors elected, at its discretion, to pay the dividend on the restricted share awards in December 2012 rather than depositing amounts in escrow pending the lapsing of restrictions.
11.
NONCONTROLLING INTERESTS IN SUBSIDIARIES
Noncontrolling interests in the Company's consolidated subsidiaries were as follows (in thousands):
Windcat Workboats. Windcat Workboats Holdings Ltd. (“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 December 31, 2014 and 2013, the net assets of Windcat Workboats were $30.1 million and $30.2 million, respectively. During the year ended December 31, 2014, the net income of Windcat Workboats was $1.9 million, of which $0.5 million was attributable to noncontrolling interests. During the year ended December 31, 2013, the net loss of Windcat Workboats was $0.9 million, of which $0.2 million was attributable to noncontrolling interests. During the year ended December 31, 2012, the net income of Windcat Workboats was $0.3 million, of which $0.1 million was attributable to noncontrolling interests.
SEA-Vista. On May 2, 2014, the Company issued a 49% noncontrolling interest to a financial investor in SEA-Vista, which owns and operates the Company's fleet of U.S.-flag product tankers used in the U.S. coastwise trade of crude oil, petroleum and specialty chemical products, for $145.7 million net of $3.2 million in issue costs. SEA-Vista also holds the Company's contracts for the construction of three 50,000 DWT (deadweight tonnage) product tankers with expected deliveries in May 2016, October 2016 and March 2017, as well as its Title XI bonds payable and reserve funds and certain other working capital. The Company has evaluated the noncontrolling interest's protective rights in SEA-Vista, its ownership interest, and the underlying terms and conditions that govern SEA-Vista's operations and determined that the Company controls SEA-Vista. As a result, the Company has consolidated the financial position, operating results and cash flows of SEA-Vista. As of December 31, 2014, the net assets of SEA-Vista were $183.0 million. From May 2, 2014 through December 31, 2014, the net income of SEA-Vista was $25.1 million, of which $12.3 million was attributable to noncontrolling interests.
Illinois Corn Processing. ICP owns and operates an alcohol manufacturing, storage and distribution facility located in Pekin, IL. As of December 31, 2014 and 2013, the net assets of ICP were $59.0 million and $38.7 million, respectively. During the year ended December 31, 2014, the net income of ICP was $38.4 million, of which $10.3 million was attributable to noncontrolling interests. During the year ended December 31, 2013, the net loss of ICP was $2.1 million, of which $1.3 million was attributable to noncontrolling interests. During the year ended December 31, 2012, the net loss of ICP was $3.4 million, of which $1.0 million was attributable to noncontrolling interests.
For the twelve months ending March 31, 2014, the noncontrolling member of ICP had invoked a plant shutdown election that is available to each LLC member under certain circumstances; however, under its member rights, the Company elected to keep the plant in operation. As a result, the earnings and losses of ICP were disproportionately allocated to its members during the plant shutdown election period. Effective April 1, 2014, the noncontrolling member of ICP withdrew its plant shutdown election.
Inland River Services. During the year ended December 31, 2014, the Company acquired the noncontrolling interest in one of its Inland River Services partnerships for $3.1 million ($2.1 million in cash and $1.0 million through the distribution of an inland river towboat to the noncontrolling interest holder).
SEACOR Savings Plan. The Company provides a defined contribution plan (the “Savings Plan”) for its eligible U.S.-based employees. The Company’s contribution to the Savings Plan is limited to 50% of an employee’s first 6% of wages invested in the Savings Plan and is subject to annual review by the Board of Directors of SEACOR. The Company’s Savings Plan costs
were $2.4 million, $2.2 million and $3.3 million for the years ended December 31, 2014, 2013 and 2012, respectively, including discontinued operations.
SEACOR Deferred Compensation Plan. In 2005, the Company established a non-qualified deferred compensation plan, as amended (the “Deferred Compensation Plan”) to provide certain highly compensated executives and non-employee directors the ability to defer receipt of up to 75% of their cash base salary and up to 100% of their cash bonus. Prior to a 2012 amendment, participants were eligible to defer up to 100% of their vested restricted stock (deferred in the form of Restricted Stock Units, as defined in the plan) for each fiscal year. Each participant’s compensation deferrals are credited to a bookkeeping account and, subject to certain restrictions, each participant may elect to have their cash deferrals in such account indexed against one or more investment options, solely for purposes of determining amounts payable under the Deferred Compensation Plan (the Company is not obligated to actually invest any deferred amounts in the selected investment options).
Participants may receive a distribution of deferred amounts, plus any earnings thereon (or less any losses), on a date specified by the participant or, if earlier, upon a separation from service or upon a change of control (as defined). All distributions to participants following a separation from service shall be in the form of a lump sum, except if such separation qualifies as “retirement” under the terms of the plan, in which case it may be paid in installments if previously elected by the participant. Distributions to “Key Employees” upon a separation from service (other than due to death) will not commence until at least 6 months after the separation from service. Participants are always 100% vested in the amounts they contribute to their Deferred Compensation Plan accounts. The Company, at its option, may contribute amounts to participants’ accounts, which may be subject to vesting requirements.
The obligations of the Company to pay deferred compensation under the Deferred Compensation Plan are general unsecured obligations of the Company and rank equally with other unsecured indebtedness of the Company that is outstanding from time to time. As of December 31, 2014 and 2013, the Company had obligations of $0.2 million and $0.6 million, respectively, related to the Deferred Compensation Plan that are included in the accompanying consolidated balance sheets as deferred gains and other liabilities. The total amount of the Company’s obligation under the Deferred Compensation Plan will vary depending upon the level of participation by participants and the amount of compensation that participants elect to defer under the plan. The duration of the Deferred Compensation Plan is indefinite (subject to the Board of Directors’ discretion to amend or terminate the plan).
MNOPF and MNRPF. Certain subsidiaries of the Company are participating employers in two industry-wide, multi-employer, defined benefit pension funds in the United Kingdom: the United Kingdom Merchant Navy Officers Pension Fund (“MNOPF”) and the United Kingdom Merchant Navy Ratings Pension Fund (“MNRPF”). The Company’s participation in the MNOPF and MNRPF began with SEACOR’s acquisition of the Stirling group of companies in 2001 and relates to the current and former employment of certain officers and ratings by the Company and/or Stirling’s predecessors from 1978 through today. Both of these plans are in deficit positions and, depending upon the results of future actuarial valuations, it is possible that the plans could experience funding deficits that will require the Company to recognize payroll related operating expenses in the periods invoices are received.
Under the direction of a court order, any funding deficit of the MNOPF is to be remedied through funding contributions from all participating current and former employers. Prior to 2012, the Company was invoiced and expensed $16.7 million for its allocated share of the then cumulative funding deficits, including portions deemed uncollectible due to the non-existence or liquidation of certain former employers. During the year ended December 31, 2013, the Company was invoiced and expensed $2.7 million for its allocated share of an additional funding deficit based on an actuarial valuation of the MNOPF in 2012.
The cumulative funding deficits of the MNRPF are currently being recovered by additional annual contributions from current employers that are subject to adjustment following the results of future tri-annual actuarial valuations. Prior to 2012, the Company was invoiced and expensed $0.4 million for its allocated share of the then cumulative funding deficits. During 2013, the MNRPF’s trustee has proposed a new deficit contribution scheme, which is pending court approval, whereby any funding deficit of the MNRPF is to be remedied through funding contributions from all participating current and former employers in a manner similar to the operation of the MNOPF. Based on an actuarial valuation in 2014, the potential cumulative funding deficit of the MNRPF was $506.3 million (£325.0 million). If the court approves the new proposed contribution scheme, the MNRPF’s trustee estimates the Company’s allocated share of the cumulative funding deficit to be $6.5 million (£4.2 million), including portions deemed uncollectible due to the non-existence or liquidation of certain former employers.
AMOPP and SPP. Certain subsidiaries of the Company are participating employers in industry-wide, multi-employer defined benefit pension plans in the United States: the American Maritime Officers Pension Plan (EIN: 13-1936709) (the "AMOPP") and the Seafarers Pension Plan (EIN: 13-6100329) (the "SPP"). Certain subsidiaries of the Company also participates in the American Maritime Officers 401(k) Plan (EIN: 11-2978754) (the "AMO 401(k) Plan"), an industry-wide, multi-employer defined contribution plan. The Company’s participation in these plans relates to certain employees of the Company’s Shipping Services business segment.
Under federal pension law, the AMOPP was deemed in critical status for the 2009 and 2010 plan years. The AMOPP was frozen in January 2010 and a ten year rehabilitation plan was adopted by the AMOPP trustees in February 2010 whereby benefit changes and increased contributions by participating employers were expected to improve the funded status of the AMOPP. The AMOPP was replaced by the AMO 401(k) Plan. On December 28, 2012, the AMOPP was elevated to endangered status primarily as a result of favorable investment performance and the rehabilitation plan adopted by the AMOPP trustees. Based on an actuarial valuation performed as of September 30, 2013, the latest period for which an actuarial valuation is available, if the Company chose to fully withdraw from the AMOPP at that time, its withdrawal liability would have been $46.5 million. That liability may change in future years based on various factors, primarily employee census. As of December 31, 2014, the Company has no intention to withdraw from the AMOPP and no deficit amounts have been invoiced. Depending upon the results of the future actuarial valuations and the ten year rehabilitation plan, it is possible that the AMOPP will experience further funding deficits, requiring the Company to recognize additional payroll related operating expenses in the periods invoices are received or contribution levels are increased.
The SPP was neither in endangered or critical status for the 2013 plan year, the latest period for which a report is available, as the SPP was fully funded.
In accordance with collective bargaining agreements between the Company and the American Maritime Officers (“AMO”), the latest of which expires on August 31, 2016, and the Seafarers International Union (“SIU”), the latest of which expires on September 30, 2017, the Company makes periodic contributions to the AMOPP, SPP and AMO 401(k) Plan. The contributions to these plans are expensed as incurred and are included in operating expenses in the accompanying consolidated statements of income. During the years ended December 31, 2014, 2013 and 2012, the Company made contributions of $1.1 million, $0.9 million and $0.9 million, respectively, to the AMOPP and $1.5 million, $1.5 million and $1.3 million, respectively to the SPP. During the years ended December 31, 2014, 2013 and 2012, none of the Company’s contributions to the AMOPP or the SPP exceeded 5% of total contributions to the plans and the Company did not pay any material surcharges. As of December 31, 2014, there is no required minimum future contribution to the AMOPP or the SPP. The Company’s obligations for future contributions are based upon the number of employees subject to the collective bargaining agreements, their rates of pay and the number of days worked.
Other Plans. Certain employees participate in other defined contribution plans in the United States and various international regions including the United Kingdom and Singapore. During the years ended December 31, 2014, 2013 and 2012, the Company incurred costs of $0.7 million, $0.5 million and $0.4 million, respectively, in the aggregate related to these plans, primarily from employer matching contributions.
Share Incentive Plans. SEACOR’s stockholders approved the 2014 Share Incentive Plan to provide for the grant of options to purchase shares of Common Stock, stock appreciation rights, restricted stock, stock awards, performance awards and restricted stock units to non-employee directors, key officers and employees of the Company. The 2014 Share Incentive Plan superseded the 2007 Share Incentive Plan, the 2003 Non-Employee Director Share Incentive Plan and the 2003 Share Incentive Plan (collectively including all predecessor plans, the “Share Incentive Plans”). The Compensation Committee of the Board of Directors administers the Share Incentive Plans. A total of 6,650,000 shares of Common Stock have been authorized for grant under the Share Incentive Plans. All shares issued pursuant to such grants are newly issued shares of Common Stock. The exercise price per share of options granted cannot be less than 100% of the fair market value of Common Stock at the date of grant under the Share Incentive Plans. Grants to date have been limited to stock awards, restricted stock, restricted stock units and options to purchase shares of Common Stock.
Restricted stock and restricted stock units typically vest from one to five years after grant and options to purchase shares of Common Stock typically vest and become exercisable from one to five years after date of grant. Options to purchase shares of Common Stock granted under the Share Incentive Plans expire no later than the tenth anniversary of the date of grant. In the event of a participant’s death, retirement, termination by the Company without cause or a change in control of the Company, as defined in the Share Incentive Plans, restricted stock and restricted stock units vest immediately and options to purchase shares of Common Stock vest and become immediately exercisable.
Employee Stock Purchase Plans. SEACOR’s stockholders approved the 2009 Employee Stock Purchase Plan with a term of ten years (collectively including all predecessor plans, the “Employee Stock Purchase Plans”) to permit the Company to offer Common Stock for purchase by eligible employees at a price equal to 85% of the lesser of (i) the fair market value of Common Stock on the first day of the offering period or (ii) the fair market value of Common Stock on the last day of the offering period. Common Stock is made available for purchase under the Employee Stock Purchase Plans for six-month offering periods. The Employee Stock Purchase Plans are intended to comply with Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”), but is not intended to be subject to Section 401(a) of the Code or the Employee Retirement Income Security Act of 1974. The Board of Directors of SEACOR may amend or terminate the Employee Stock Purchase Plans at any time; however, no increase
in the number of shares of Common Stock reserved for issuance under the Employee Stock Purchase Plans may be made without stockholder approval. A total of 600,000 shares of Common Stock have been approved for purchase under the Employee Stock Purchase Plans with all shares issued from those held in treasury.
Share Award Transactions. The following transactions have occurred in connection with the Company’s share based compensation plans during the years ended December 31:
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(1)
During the year ended December 31, 2013, the Company granted 318,012 stock options to existing option holders, net of share award settlements for Era Group employees and directors, under make-whole provisions upon the Spin-off of Era Group.
During the years ended December 31, 2014, 2013 and 2012, the Company recognized $15.3 million, $14.5 million and $33.3 million, respectively, of compensation expense related to stock awards, stock options, employee stock purchase plan purchases, restricted stock and restricted stock units (collectively referred to as “share awards”). As of December 31, 2014, the Company had approximately $31.2 million in total unrecognized compensation costs of which $11.4 million and $8.5 million are expected to be recognized in 2015 and 2016, respectively, with the remaining balance recognized through 2019.
The weighted average values of grants under the Company’s Share Incentive Plans were $53.03, $43.74 and $58.22 for the years ended December 31, 2014, 2013 and 2012, respectively. The fair value of each option granted during the years ended December 31, 2014, 2013 and 2012 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (a) no dividend yield, (b) weighted average expected volatility of 29.4%, 30.5% and 31.0%, respectively, (c) weighted average discount rates of 1.85%, 1.53% and 0.81%, respectively, and (d) expected lives of 5.92 years, 5.96 years and 5.91 years, respectively.
During the year ended December 31, 2014, the number of shares and the weighted average grant price of restricted stock transactions were as follows:
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(1)
During the year ended December 31, 2013, the weighted average grant prices of restricted stock outstanding at the time of the Spin-off were reduced based on a ratio of the relative market value of the Company's share price immediately prior to and after the effective date of the Spin-off.
During the years ended December 31, 2014, 2013 and 2012, the total grant date fair value of restricted stock and restricted stock units that vested was $3.7 million, $3.7 million and $38.1 million, respectively. During the year ended December 31, 2013, the Company recognized additional compensation expense of $3.3 million as a consequence of a partial acceleration of the vesting of restricted stock upon the Company's restricted stockholders receiving one fully vested Era share for each SEACOR restricted share held on the effective date of the Spin-off by means of a dividend. During the year ended December 31, 2012, the Company accelerated the vesting date for all restricted stock and restricted stock units that were scheduled to vest in 2013 and 2014 into 2012 resulting in additional compensation expense of $12.2 million, including discontinued operations.
During the year ended December 31, 2014, the number of shares, the weighted average grant date fair value and the weighted average exercise price on stock option transactions were as follows:
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(1)
During the year ended December 31, 2013, the weighted average grant date fair values and weighted average exercise prices of stock options outstanding at the time of the Spin-off were reduced based on a ratio of the relative market value of the Company's share price immediately prior to and after the effective date of the Spin-off.
During the years ended December 31, 2014, 2013 and 2012, the aggregate intrinsic value of exercised stock options was $5.1 million, $10.5 million and $7.0 million, respectively. As of December 31, 2014, the weighted average remaining contractual term for total outstanding stock options and vested/exercisable stock options was 5.59 and 4.18 years, respectively. As of December 31, 2014, the aggregate intrinsic value of all options outstanding and all vested/exercisable options outstanding was $21.3 million and $18.6 million, respectively.
As a result of the Spin-off during the year ended December 31, 2013, the Company reduced the exercise prices for all outstanding stock options and granted additional stock options to existing option holders based on a ratio of the relative market value of its share price immediately prior to and after the effective date of the Spin-off. As a result of these adjustments, both the aggregate intrinsic value and the ratio of the exercise price to the market price were approximately equal immediately prior to and after the effective date of the Spin-off. As these adjustments were made in accordance with the anti-dilution provisions of the Share Incentive Plans, no compensation expense was recognized for the adjustments.
As a result of the Special Cash Dividend (see Note 10) paid during the year ended December 31, 2012, the Company reduced the exercise prices for all outstanding stock options as of the Special Cash Dividend record date by the dividend amount of $5.00. As a result of this adjustment, both the aggregate intrinsic value and the ratio of the exercise price to the market price
were approximately equal immediately prior to and after the Special Cash Dividend record date. As this adjustment was made in accordance with the anti-dilution provisions of the Share Incentive Plans, no compensation expense was recognized for the adjustments.
The Company manages barge pools as part of its Inland River Services segment. Pursuant to the pooling agreements, operating revenues and expenses of participating barges are combined and the net results are allocated on a pro-rata basis based on the number of barge days contributed by each participant. Companies controlled by Mr. Fabrikant,the Executive Chairman of SEACOR, and trusts for the benefit of Mr. Fabrikant’s children, own barges that participate in the barge pools managed by the Company. Mr. Fabrikant and his affiliates were participants in the barge pools prior to the acquisition of SCF Marine Inc. by SEACOR in 2000. In the years ended December 31, 2014, 2013 and 2012, Mr. Fabrikant and his affiliates earned $1.7 million, $0.9 million and $0.8 million, respectively, of net barge pool results (after payment of $0.2 million, $0.2 million and $0.1 million, respectively, in management fees to the Company). As of December 31, 2014 and 2013, the Company owed Mr. Fabrikant and
his affiliates $1.1 million and $0.6 million, respectively, for undistributed net barge pool results. Mr. Fabrikant and his affiliates participate in the barge pools on the same terms and conditions as other pool participants who are unrelated to the Company.
ICP manufactures and sells certain non-ethanol alcohol finished goods to the noncontrolling interest partner in ICP. During the year ended December 31, 2012, the noncontrolling interest partner operated under a marketing agreement with ICP for non-ethanol alcohol production, which expired on January 1, 2013. During the year ended December 31, 2013, ICP continued to sell non-ethanol alcohol finished goods to the noncontrolling interest partner for resale purposes and also independently sold non-ethanol alcohol finished goods directly to unrelated third party customers. During the years ended December 31, 2014, 2013 and 2012, the Company sold $36.3 million, $6.6 million and $44.8 million, respectively to the noncontrolling interest partner. As of December 31, 2014 and 2013, ICP had accounts receivable of $3.3 million and $1.8 million from the noncontrolling interest partner. The noncontrolling interest partner has payment terms comparable to other ICP customers purchasing the same types of non-ethanol alcohol finished goods.
In December 2014 and January 2015, Charles Fabrikant, Oivind Lorentzen and John Gellert invested in newly formed limited liability companies that acquired limited partnership interests in SEACOR OSV Partners I LP (“OSV”) from two limited partners of OSV that are not affiliated with the Company and wished to dispose of their interests. Messrs. Fabrikant, Lorentzen and Gellert each invested $0.2 million in the aggregate in the newly formed limited liability companies and are committed to contribute additional capital to such company if OSV calls capital from its limited partners. The additional amounts Messrs. Fabrikant, Lorentzen and Gellert are committed to contribute are not material. The aggregate interests of OSV acquired indirectly by Messrs. Fabrikant, Lorentzen and Gellert represents 1.7% of the limited partnership interests of OSV. Certain subsidiaries of SEACOR own 30.4% of OSV’s limited partnership interests and the balance of such interests are owned by unaffiliated third parties. The general partner of OSV is a joint venture managed by a subsidiary of SEACOR and an unaffiliated third party.
Mr. Fabrikant is also a director of Diamond Offshore Drilling, Inc. (“Diamond”), which is also a customer of the Company. The total amount earned from business conducted with Diamond did not exceed $5.0 million in any of the years ended December 31, 2014, 2013 and 2012.
Messrs. Fabrikant and Lorentzen are also directors of Era Group, which is also a customer of the Company. Furthermore, following the Spin-Off, the Company has provided certain transition services to Era Group. The total amount earned from business conducted with Era, including transition services provided, did not exceed $5.0 million during the years ended December 31, 2014 and 2013.
As of December 31, 2014, the Company's unfunded capital commitments were $490.7 million and included: $184.4 million for 18 offshore support vessels; $1.6 million for two 30,000 barrel inland river liquid tank barges; $3.2 million for four inland river towboats; $230.1 million for three U.S.-flag product tankers; $56.3 million for one U.S.-flag articulated tug-barge; and $15.1 million for other equipment and improvements. Of these commitments, $247.3 million is payable during 2015; $204.0 million is payable during 2016; $34.0 million is payable during 2017; and $5.4 million is payable during 2018. Subsequent to December 31, 2014, the Company committed to purchase eight 10,000 barrel inland river liquid tank barges and other equipment for $15.1 million.
On July 20, 2010, two individuals purporting to represent a class commenced a civil action in the Civil District Court for the Parish of Orleans in the State of Louisiana, John Wunstell, Jr. and Kelly Blanchard v. BP, et al., No. 2010-7437 (Division K) (the “Wunstell Action”), in which they assert, among other theories, that Mr. Wunstell suffered injuries as a result of his exposure to certain noxious fumes and chemicals in connection with the provision of remediation, containment and response services by ORM during the Deepwater Horizon oil spill response and clean-up in the U.S. Gulf of Mexico. The action now is part of the overall multi-district litigation, In re Oil Spill by the Oil Rig "Deepwater Horizon", MDL No. 2179 filed in the U.S. District Court for the Eastern District of Louisiana ("MDL"). The complaint also seeks to establish a “class-wide court-supervised medical monitoring program” for all individuals “participating in BP's Deepwater Horizon Vessels of Opportunity Program and/or Horizon Response Program” who allegedly experienced injuries similar to those of Mr. Wunstell. The Company believes this lawsuit has no merit and will continue to vigorously defend the action and pursuant to contractual agreements with the responsible party, the responsible party has agreed, subject to certain potential limitations, to indemnify and defend ORM in connection with the Wunstell Action and claims asserted in the MDL, discussed further below. Although the Company is unable to estimate the potential exposure, if any, resulting from this matter, the Company does not expect it will have a material effect on the Company's consolidated financial position, results of operations or cash flows.
On December 15, 2010, NRC, a subsidiary of the Company prior to the SES Business Transaction, and ORM were named as defendants in one of the several consolidated “master complaints” that have been filed in the overall MDL. The "B3" master complaint naming ORM and NRC asserts various claims on behalf of a putative class against multiple defendants concerning the clean-up activities generally, and the use of dispersants specifically. By court order, the Wunstell Action has been stayed as a result of the filing of the referenced master complaint. The Company believes that the claims asserted against ORM and NRC in the
master complaint have no merit and on February 28, 2011, ORM and NRC moved to dismiss all claims against them in the master complaint on legal grounds. On September 30, 2011, the Court granted in part and denied in part the motion to dismiss that ORM and NRC had filed (an amended decision was issued on October 4, 2011 that corrected several grammatical errors and non-substantive oversights in the original order). Although the Court refused to dismiss the referenced master complaint in its entirety at that time, the Court did recognize the validity of the “derivative immunity” and “implied preemption” arguments that ORM and NRC advanced and directed ORM and NRC to (i) conduct limited discovery to develop evidence to support those arguments and (ii) then re-assert the arguments. The Court did, however, dismiss all state-law claims and certain other claims that had been asserted in the referenced master complaint, and dismissed the claims of all plaintiffs that have failed to allege a legally-sufficient injury. A schedule for limited discovery and motion practice was established by the Court and, in accordance with that schedule, ORM and NRC filed for summary judgment re-asserting their derivative immunity and implied preemption arguments on May 18, 2012. Those motions were argued on July 13, 2012 and are still pending decision. On July 17, 2014, the Court issued a pretrial order that established a protocol for disclosures clarifying the basis for the “B3” claims asserted against the Clean-Up Responder Defendants, including ORM and NRC, in the MDL. Under this protocol, Plaintiffs who satisfy certain criteria and believe they have specific evidence in support of their claims, including that any Clean-Up Responder Defendant(s) failed to act pursuant to the authority and direction of the federal government in conducting Deepwater Horizon oil spill remediation and clean-up operations, must submit a sworn statement or face dismissal. Plaintiffs’ deadline to serve such sworn statements in support of their claims was September 22, 2014, with the exception of several Plaintiffs who were granted an extension until October 10, 2014. On November 14, 2014, the Clean-Up Responder Defendants and the Plaintiffs’ Steering Committee in the MDL submitted a joint report to the Court regarding claimants’ compliance with the pretrial order. In this joint report, the parties (i) explained how they complied with the notice requirements of Court’s July 17, 2014 pretrial order, (ii) noted that they had received 102 sworn statements in connection with this pretrial order, and (iii) provided the Court with an assessment of the sworn statements received. Procedures and next steps in connection with the “B3” claims will now be addressed by the Court. In addition to the indemnity provided to ORM, pursuant to contractual agreements with the responsible party, the responsible party has agreed, subject to certain potential limitations, to indemnify and defend ORM and NRC in connection with these claims in the MDL. Although the Company is unable to estimate the potential exposure, if any, resulting from this matter, the Company does not expect it will have a material effect on the Company's consolidated financial position, results of operations or cash flows.
Subsequent to the filing of the referenced master complaint, ten additional individual civil actions have been filed in or removed to the U.S. District Court for the Eastern District of Louisiana concerning the clean-up activities generally, which name the Company, ORM and/or NRC as defendants or third-party defendants and are part of the overall MDL. By court order, all of these additional individuals' cases have been stayed until further notice. On April 8, 2011, ORM was named as a defendant in Johnson Bros. Corporation of Louisiana v. BP, PLC, et al., No. 2:11-CV-00781 (E.D. La.), which is a suit by an individual business seeking damages allegedly caused by a delay on a construction project alleged to have resulted from the clean-up operations. On April 13, 2011, the Company was named as a defendant in Mason v. Seacor Marine, LLC, No. 2:11-CV-00826 (E.D. La.), an action in which plaintiff, a former employee, alleges sustaining personal injuries in connection with responding to the explosion and fire, but also in the months thereafter in connection with the clean-up of oil and dispersants while a member of the crew of the M/V Seacor Vanguard. Although the case is subject to the MDL Court’s stay of individual proceedings, the employee moved to sever his case from the MDL on July 16, 2012, which the Court denied on March 5, 2013. The employee filed a motion asking the Court to reconsider, which was denied on May 3, 2013, and the employee filed a Notice of Appeal to the U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”) on May 22, 2013. On July 24, 2013, the Company filed a motion to dismiss for lack of appellate jurisdiction, which was granted on August 16, 2013. The same company employee has also brought a claim in the M/V Seacor Vanguard vessel’s limitation action in the MDL which relates to any actions that may have been taken by vessels owned by the Company to extinguish the fire. On October 20, 2014, the Company moved for summary judgment, seeking dismissal with prejudice of all of the Company employee’s claims in the MDL in light of the Court’s prior rulings. This motion is still pending decision. On April 15, 2011, ORM and NRC were named as defendants in James and Krista Pearson v. BP Exploration & Production, Inc. ("BP Exploration"), et al., No. 2:11-CV-00863 (E.D. La.), which is a suit by a husband and wife who allegedly participated in the clean-up effort and are seeking damages for personal injury, property damage to their boat, and amounts allegedly due under contract. On April 15, 2011, ORM and NRC were named as defendants in Thomas Edward Black v. BP Exploration, et al., No. 2:11-CV-00867 (E.D. La.), which is a suit by an individual who is seeking damages for lost income because he allegedly could not find work in the fishing industry after the oil spill. On April 20, 2011, a complaint was filed in Darnell Alexander, et al. v. BP, PLC, et al., No. 2:11-CV-00951 (E.D. La.) on behalf of 117 individual plaintiffs that sought to adopt the allegations made in the referenced master complaint against ORM and NRC (and the other defendants). Plaintiffs in this matter have since been granted leave to amend their complaint to include 410 additional individual plaintiffs. On October 3, 2012, ORM and NRC were served with a Rule 14(c) Third-Party Complaint by Jambon Supplier II, L.L.C. and Jambon Marine Holdings L.L.C. in their Limitation of Liability action, In the Matter of Jambon Supplier II, L.L.C., et al., No. 2:12-CV-00426 (E.D. La.). This Third-Party Complaint alleges that if claimant David Dinwiddie, who served as a clean-up crewmember aboard the M/V JAMBON SUPPLIER II vessel during the clean-up efforts, was injured as a result of his exposure to dispersants and chemicals during the course and scope of his employment, then said injuries were caused by the third-party defendants. On November 25, 2012, ORM was named as a defendant in Victoria Sanchez v. American Pollution Control Corp. et al., No. 2:12-CV-00164 (E.D. La.), a maritime suit filed
by an individual who allegedly participated in the clean-up effort and sustained personal injuries during the course of such employment. On December 17, 2012, the Court unsealed a False Claims Act lawsuit naming ORM as a defendant, Dillon v. BP, PLC et al., No. 2:12-CV-00987 (E.D. La.), which is a suit by an individual seeking damages and penalties arising from alleged false reports and claims made to the federal government with respect to the amount of oil burned and dispersed during the clean-up. The federal government has declined to intervene in this suit. On April 8, 2013, the Company, ORM, and NRC were named as defendants in William and Dianna Fitzgerald v. BP Exploration et al., No. 2:13-CV-00650 (E.D. La.), which is a suit by a husband and wife whose son allegedly participated in the clean-up effort and became ill as a result of his exposure to oil and dispersants. Finally, on April 17, 2013, ORM was named as a defendant in Danos et al. v. BP America Production Co. et al., No. 2:13-CV-03747 (removed to E.D. La.), which is a suit by eight individuals seeking damages for dispersant exposure either as a result of their work during clean-up operations or as a result of their residence in the Gulf. The Company is unable to estimate the potential exposure, if any, resulting from these matters but believes they are without merit and does not expect that they will have a material effect on its consolidated financial position, results of operations or cash flows.
On February 18, 2011, Triton Asset Leasing GmbH, Transocean Holdings LLC, Transocean Offshore Deepwater Drilling Inc., and Transocean Deepwater Inc. (collectively “Transocean”) named ORM and NRC as third-party defendants in a Rule 14(c) Third-Party Complaint in Transocean's own Limitation of Liability Act action, which is part of the overall MDL, tendering to ORM and NRC the claims in the referenced master complaint that have already been asserted against ORM and NRC. Transocean, Cameron International Corporation ("Cameron"), Halliburton Energy Services, Inc., and M-I L.L.C. ("M-I") also filed cross-claims against ORM and NRC for contribution and tort indemnity should they be found liable for any damages in Transocean's Limitation of Liability Act action and ORM and NRC asserted counterclaims against those same parties for identical relief. Weatherford U.S., L.P. and Weatherford International, Inc. (collectively "Weatherford") had also filed cross-claims against ORM and NRC, but moved to voluntarily dismiss these cross-claims without prejudice on February 8, 2013. The Court granted Weatherford's motion that same day. Transocean's limitation action, and thus the remainder of the aforementioned cross-claims, remains pending, although the Court has found Cameron and M-I to be not liable in connection with the Deepwater Horizon incident and resultant oil spill and dismissed these parties from the MDL. As indicated above, the Company is unable to estimate the potential exposure, if any, resulting from these actions but believes they are without merit and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
On November 16, 2012, 668 individuals who served as beach clean-up workers in Escambia County, Florida during the Deepwater Horizon oil spill response commenced a civil action in the Circuit Court for the First Judicial Circuit of Florida, in and for Escambia County, Abney et al. v. Plant Performance Services, LLC et al., No. 2012-CA-002947, in which they allege, among other things, that ORM and other defendants engaged in the contamination of Florida waters and beaches in violation of Florida Statutes Chapter 376 and injured the plaintiffs by exposing them to dispersants during the course and scope of their employment. The case was removed to the U.S. District Court for the Northern District of Florida on January 13, 2013, Abney et al. v. Plant Performance Services, LLC et al., No. 3:13-CV-00024 (N.D. Fla.), and on January 16, 2013, the United States Judicial Panel on Multidistrict Litigation (“JPML”) issued a Conditional Transfer Order (“CTO”) transferring the case to the MDL, subject to any timely-filed notice of objection from the plaintiffs. Upon receipt of a notice of objection from the plaintiffs, a briefing schedule was set by the JPML, and so a stay of proceedings and suspension of deadlines was sought and obtained by the Court in the U.S. District Court for the Northern District of Florida. Following briefing before the JPML, the case was transferred to the U.S. District Court for the Eastern District of Louisiana and consolidated with the MDL on April 2, 2013. On April 22, 2013, a companion case to this matter was filed in the U.S. District Court for the Northern District of Florida, Abood et al. v. Plant Performance Services, LLC et al., No. 3:13-CV-00284 (N.D. Fla.), which alleges identical allegations against the same parties but names an additional 174 plaintiffs, all of whom served as clean-up workers in various Florida counties during the Deepwater Horizon oil spill response. A CTO was issued by the JPML on May 2, 2013, no objection was filed by the plaintiffs, and the case was transferred to the U.S. District Court for the Eastern District of Louisiana and consolidated with the MDL on May 10, 2013. By court order, both of these matters have been stayed until further notice. The Company is unable to estimate the potential exposure, if any, resulting from these matters but believes they are without merit and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
Separately, on March 2, 2012, the Court announced that BP Exploration and BP America Production Company ("BP America") (collectively "BP") and the plaintiffs had reached an agreement on the terms of two proposed class action settlements that will resolve, among other things, plaintiffs' economic loss claims and clean-up related claims against BP. The parties filed their proposed settlement agreements on April 18, 2012 along with motions seeking preliminary approval of the settlements. The Court held a hearing on April 25, 2012 to consider those motions and preliminarily approved both settlements on May 2, 2012. A final fairness hearing took place on November 8, 2012. The Court granted final approval to the Economic and Property Damages Class Action Settlement ("E&P Settlement") on December 21, 2012, and granted final approval to the Medical Benefits Class Action Settlement ("Medical Settlement") on January 11, 2013. Both class action settlements were appealed to the Fifth Circuit. The Fifth Circuit affirmed the MDL Court's decision concerning the E&P Settlement on January 10, 2014, and also affirmed the MDL Court's decision concerning the interpretation of the E&P Settlement with respect to business economic loss claims on March 3, 2014. The appeal of the Medical Settlement, on the other hand, was voluntarily dismissed and the Medical Settlement became
effective on February 12, 2014. The deadline for bringing a claim to the Medical Benefits Claims Administrator is one year from the effective date of the Settlement. Although neither the Company, ORM, nor NRC are parties to the settlement agreements, the Company, ORM, and NRC are listed as released parties on the releases accompanying both settlement agreements. Consequently, barring any further successful appeal, class members who did not file timely requests for exclusion will be barred from pursuing economic loss, property damage, personal injury, medical monitoring, and/or other released claims against the Company, ORM, and NRC. The Company believes these settlements have reduced the Company's and ORM's potential exposure, if any, from some of the pending actions described above, and continues to evaluate the settlements' impacts on these cases. The Company is unable to estimate the potential exposure, if any, resulting from these matters but believes they are without merit and does not expect that these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
ORM is defending against one collective action lawsuit, which asserts failure to pay overtime with respect to individuals who provided service on the Deepwater Horizon oil spill response under the Fair Labor Standards Act (“FLSA”). This case, Himmerite et al. v. O'Brien's Response Management Inc. et al. (E.D. La., Case No.: 2:12-cv-01533) (the “Himmerite Action”), was brought on behalf of certain individuals who worked on the Deepwater Horizon oil spill response and who were classified as independent contractors. On February 19, 2015, the parties reached a full and final settlement agreement with respect to all of the Plaintiffs’ claims for an undisclosed immaterial amount. The parties intend to file related documents with the Court to have the matter dismissed with prejudice in its entirety.
In a related action, Dennis Prejean v. O'Brien's Response Management Inc. (E.D. La., Case No.: 2:12-cv-01045) (the “Prejean Action”), which was also filed in the United States District Court for the Eastern District of Louisiana and in which plaintiffs alleged claims similar to those alleged in the Himmerite Action, the parties reached a full and final settlement agreement on November 6, 2014 with respect to all of the Plaintiffs’ claims for an undisclosed amount. On November 19, 2014, the Court approved the parties’ settlement and dismissed the Prejean Action with prejudice in its entirety.
In a third related action, Baylor Singleton et. al. v. O'Brien's Response Management Inc. et. al. (E.D. La., Case No.: 2:12-cv-01716) (the “Singleton Action”), which was also filed in the United States District Court for the Eastern District of Louisiana and in which plaintiffs alleged claims similar to those alleged in the Prejean and Himmerite Actions, the parties reached a full and final settlement agreement on February 13, 2014 with respect to all of the Plaintiffs' individual claims for an undisclosed amount. On April 11, 2014, the Court approved the parties’ settlement and dismissed the Singleton Action with prejudice in its entirety. The Court also ordered that the tolling order which had been entered in the Singleton Action expired as of April 11, 2014.
In the course of the Company's business, it may agree to indemnify the counterparty to an agreement. If the indemnified party makes a successful claim for indemnification, the Company would be required to reimburse that party in accordance with the terms of the indemnification agreement. Indemnification agreements generally are subject to threshold amounts, specified claim periods and other restrictions and limitations.
In connection with the SES Business Transaction, the Company remains contingently liable for certain obligations, including potential liabilities relating to work performed in connection with the Deepwater Horizon oil spill response. Pursuant to the agreement governing the sale, the Company's potential liability to the purchaser may not exceed the consideration received by the Company for the SES Business Transaction. The Company is currently indemnified under contractual agreements with BP for the potential liabilities relating to work performed in connection with the Deepwater Horizon oil spill response.
During the twelve months ended December 31, 2014, the Company received net litigation settlement proceeds of $14.7 million from an equipment supplier relating to the May 2008 mechanical malfunction and fire onboard the SEACOR Sherman, an anchor handling towing supply vessel then under construction. Upon settlement of the litigation, the Company recognized a gain of $14.7 million, which is included in other income (expense) in the accompanying condensed consolidated statements of income.
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.
As of December 31, 2014, the Company leases 16 offshore support vessels, two dry-cargo barges, eight 30,000 barrel liquid tank barges, three U.S.-flag product tankers, nine U.S.-flag harbor tugs and certain facilities and other equipment. These leasing agreements have been classified as operating leases for financial reporting purposes and related rental fees are charged to expense over the lease terms. The leases generally contain purchase and lease renewal options or rights of first refusal with respect to the sale or lease of the equipment. The remaining lease terms of the U.S.-flag product tankers, which are subject to subleases, have durations of 93 and 109 months. The lease terms of the other equipment range in duration from one to 18 years. Certain of the equipment leases are the result of sale-leaseback transactions with finance companies (see Note 2) and certain of the gains arising from such sale-leaseback transactions have been deferred in the accompanying consolidated balance sheets and are being amortized as reductions in rental expense over the lease terms (see Note 1).
Total rental expense for the Company’s operating leases in 2014, 2013 and 2012 was $66.8 million, $70.9 million and $57.9 million, respectively. Future minimum payments in the years ended December 31 under operating leases that have a remaining term in excess of one year as of December 31, 2014 were as follows (in thousands):
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(1)
The total minimum offsetting payments to be received under existing long-term bareboat charter-out arrangements.
The following tables summarize the operating results, capital expenditures and assets of the Company’s reportable segments.
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(1)
Operating revenues includes $224.4 million of tangible product sales and operating expenses includes $175.8 million of costs of goods sold.
(2)
Inventories include raw materials of $2.2 million and work in process of $1.7 million.
(3)
Cash and near cash assets includes cash, cash equivalents, restricted cash, marketable securities, construction reserve funds and Title XI reserve funds.
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(1)
Operating revenues includes $191.6 million of tangible product sales and operating expenses includes $184.6 million of costs of goods sold.
(2)
Inventories include raw materials of $1.8 million and work in process of $1.8 million.
(3)
Cash and near cash assets includes cash, cash equivalents, restricted cash, marketable securities, construction reserve funds and Title XI reserve funds.
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(1)
Operating revenues includes $184.9 million of tangible product sales and operating expenses includes $179.7 million of costs of goods sold.
(2)
Inventories include raw materials of $2.4 million and work in process of $1.8 million.
(3)
Cash and near cash assets includes cash, cash equivalents, restricted cash, marketable securities, construction reserve funds and Title XI reserve funds.
In the years ended December 31, 2014, 2013 and 2012, the Company did not earn revenues that were greater than or equal to 10% of total revenues from a single customer. For the years ended December 31, 2014, 2013 and 2012, approximately 30%, 32% and 37%, respectively, of the Company’s operating revenues were derived from its foreign operations. The Company’s foreign revenues are primarily derived from its Offshore Marine Services fleet and certain of its Inland River and Shipping Services fleets. These assets are highly mobile and regularly and routinely move between countries within a geographical region of the world. In addition, these assets may be redeployed among the geographical regions as changes in market conditions dictate. Because of this asset mobility, revenues and long-lived assets, primarily property and equipment, in any one country are not considered material. The following represents the Company’s revenues attributed by geographical region in which services are provided to customers for the years ended December 31 (in thousands):
The Company’s long-lived assets are primarily its property and equipment that are employed in various geographical regions of the world. The following represents the Company’s property and equipment based upon the assets’ physical location as of December 31 (in thousands):
On March 16, 2012, SEACOR completed the SES Business Transaction for a net sales price of $99.9 million and recognized a gain of $18.6 million, net of tax, or $0.90 per diluted share. During the year ended December 31, 2013, the final working capital settlements were completed resulting in a $1.0 million reduction of the gain, net of tax. The SES Business included NRC, one of the largest providers of oil spill response services in the United States; NRC Environmental Services Inc., a leading provider of environmental and industrial services on the West Coast of the United States; SEACOR Response Ltd., which provides oil spill response and emergency response services to customers in international markets; and certain other subsidiaries. As a result of the sale, the Company disposed of $8.0 million of goodwill.
On December 31, 2012, SEACOR sold SEI, the Company's energy commodity and logistics business, to Par Petroleum Corporation for a net sales price of $15.1 million and recognized a gain of $7.1 million, net of tax, or $0.34 per diluted share. During the year ended December 31, 2013, the final working capital settlements were completed resulting in a $0.1 million reduction of the gain, net of tax.
On January 31, 2013, the Company completed the Spin-off of Era Group, the company that operated SEACOR's Aviation Services business segment, by means of a dividend to SEACOR's shareholders of all the issued and outstanding common stock of Era Group. Era Group filed a Registration Statement on Form 10 with the SEC, describing the Spin-off, that was declared effective on January 14, 2013. Prior to the Spin-off, SEACOR and Era Group entered into a Distribution Agreement and several other agreements that will govern the post-Spin-off relationship. Era Group is now an independent company whose common stock is listed on the New York Stock Exchange under the symbol "ERA." During the year ended December 31, 2013, the Company provided for income taxes of $10.1 million relating to potential tax exposures surrounding the Spin-off of Era Group.
For all periods presented herein, the Company has reported the historical financial position, results of operations and cash flows of the SES Business, SEI and Era Group as discontinued operations. Summarized selected operating results of the discontinued operations for the years ended December 31 were as follows (in thousands):
18.
SUPPLEMENTAL INFORMATION FOR STATEMENTS OF CASH FLOWS
Supplemental information for the years ended December 31 was as follows (in thousands):
19.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected financial information for interim quarterly periods is presented below (in thousands, except share data). Earnings per common share of SEACOR Holdings Inc. are computed independently for each of the quarters presented and the sum of the quarterly earnings per share may not necessarily equal the total for the year.
SEACOR HOLDINGS INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2014, 2013 and 2012
(in thousands)
______________________
(1)
Trade receivable amounts deemed uncollectible that were removed from accounts receivable and allowance for doubtful accounts.
(2)
For the year ended December 31, 2014, Other consisted of the accounts receivable valuation allowance of Witt O'Brien's at the time of initial consolidation. For the year ended December 31, 2012, Other consisted of the accounts receivable and inventory valuation allowances of ICP at the time of initial consolidation.
EXHIBIT INDEX
*
Incorporated herein by reference as indicated.
+
Management contracts or compensatory plans or arrangements required to be filed as an Exhibit pursuant to Item 15 (b) of the rules governing the preparation of this Annual Report on Form 10-K.