ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
Offshore support vessels, helicopters, inland river towboats and barges, tankers, harbor and offshore towboats and RORO vessels are the principal physical properties owned by the Company and are more fully described in “Offshore Marine Services,” “Aviation Services,” “Inland River Services,” “Shipping Services” and "Alcohol Manufacturing" and in “Item 1. Business.”
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
On July 14, 2010, a group of individuals and entities purporting to represent a class commenced a civil action in the U.S. District Court for the Eastern District of Louisiana, Terry G. Robin, et al. v. Seacor Marine, L.L.C., et al., No. 2:10-cv-01986 (E.D. La.) (the “Robin Case”), in which they asserted that support vessels, including vessels owned by the Company, responding to the explosion and resulting fire that occurred aboard the semi-submersible drilling rig, the Deepwater Horizon, were negligent in their efforts to save lives and put out the fire and contributed to the sinking of the Deepwater Horizon and subsequent oil spill. The action was part of the overall multi-district litigation, In re Oil Spill by the Oil Rig “Deepwater Horizon”, MDL No. 2179 (“MDL”). The complaint sought compensatory, punitive, exemplary, and other damages. In response to this lawsuit, the Company filed petitions seeking exoneration from, or limitation of liability in relation to, any actions that may have been taken by vessels owned by the Company to extinguish the fire. On June 8, 2011, the Company moved to dismiss these claims (with the exception of one claim filed by a Company employee) on various legal grounds. On October 12, 2011, the Court granted the Company's motion to dismiss in its entirety, dismissing with prejudice all claims that had been filed against the Company in the limitation actions (with the exception of one claim filed by a Company employee that was not subject to the motion to dismiss). The Court entered final judgments in favor of the Company in the Robin Case and each of the limitation actions on November 21, 2011. On December 12, 2011, the claimants appealed each of those judgments to the Unites States Court of Appeals for the Fifth Circuit. The claimants' opening brief was submitted on May 7, 2012, and the claimants filed a reply brief on June 1, 2012. Oral argument was not requested by the Fifth Circuit. On December 13, 2012, the Fifth Circuit affirmed the judgment of the district court.
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, a subsidiary of the Company prior to the ORM Transaction. The action now is part of the overall 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. 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.
On December 15, 2010, ORM and NRC, subsidiaries of the Company prior to the ORM Transaction and SES Business Transaction, respectively, were named as defendants in one of the several consolidated “master complaints” that have been filed in the overall MDL. The 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. 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.
Subsequent to the filing of the referenced master complaint, six additional individual civil actions have been filed in 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. 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 15, 2011, ORM and NRC were named as defendants in James and Krista Pearson v. BP Exploration & Production, Inc., 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 & Production, Inc., 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 seek to adopt the allegations made in the referenced master complaint against ORM and NRC (and the other defendants). 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. Finally 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. By court order, all six of these additional individual cases have been stayed until further notice. The Company is unable to estimate the potential exposure, if any, resulting from this matter but believes it is without merit and does not expect this matter will have a material effect on the Company's consolidated financial position or its results of operations.
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, Halliburton Energy Services, Inc., and M-I L.L.C. 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 have 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 recently moved to voluntarily dismiss these cross-claims without prejudice. The Court granted Weatherford's motion on February 8, 2013. As provided 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 these matters will have a material effect on the Company's consolidated financial position or its results of operations.
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 la., 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. Plaintiffs recently filed their motion to vacate the CTO and brief in support thereof with the JPML, and responses to same are to be filed on or before February 28, 2013. The Company is unable to estimate the potential exposure, if any, resulting from this matter but believes it is without merit and does not expect this matter to have a material effect on the Company's consolidated financial position or its results of operations.
Separately, on March 2, 2012, the Court announced that BP Exploration & Production Inc. and BP America Production Company (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 on December 21, 2012, and granted final approval to the Medical Benefits Class Action Settlement on January 11, 2013. Notices of Appeal to the Fifth Circuit with respect to both class action settlements have been filed by various objectors. Although neither the Company, ORM, or NRC are parties to the settlement agreements, the Company, ORM, and NRC are listed as released parties on the releases accompanying both settlement agreements. As the releases for both settlements have been deemed valid and enforceable by the district court, if the Fifth Circuit affirms these decisions, 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. At this time, the Company expects these settlements to reduce ORM's potential exposure, if any, from some of the pending actions described above, but is currently still evaluating the settlements' impacts on these cases.
On January 29, 2013, HEPACO, LLC ("HEPACO"), served a demand for arbitration upon O'Brien's Response Management, Inc. ("ORM"), in which HEPACO claims that ORM owes HEPACO an additional fee of $20,291,178.92 under the parties' Management Services Agreement (“MSA”), dated June 1, 2010. According to HEPACO, the MSA requires ORM to pay HEPACO an additional fee of 30% of total charges paid under the MSA ("Surcharge") to compensate HEPACO for U.S. Longshoremen's and Harbor Workers' insurance or Jones Act insurance and related risks attendant to the work when contract requires labor to be performed over, adjoining and/or in water. ORM denies liability for the Surcharge, intends to vigorously defend against the claim, and has sought indemnity for any resulting judgment and related attorneys fees from BP America Production Company (“BP America”) and BP Exploration & Production Inc. (“BP Exploration”) (collectively, “BP”). ORM has advised BP that, pursuant to the Bridge Agreement HOU-WL4-3066 between BP and ORM, effective as of June 1, 2010, under which ORM managed and oversaw, for BP, subcontractors, such as HEPACO, in connection with on-shore services related to the BP Deepwater Horizon oil spill, BP ultimately is responsible for the payment of the Surcharge should HEPACO be determined to be entitled to recover it under the MSA.
ORM is defending against four collective action lawsuits, each asserting failure to pay overtime with respect to individuals who provided service on the Deepwater Horizon spill response (the “DPH FLSA Actions”) under the Fair Labor Standards Act (“FLSA”). These cases - Dennis Prejean v. O'Brien's Response Management Inc. (E.D. La., Case No.: 2:12-cv-01045) (the “Prejean 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”); Himmerite et al. v. O'Brien's Response Management Inc. et al. (E.D. La., Case No.: 2:12-cv-01533) (the “Himmerite Action”); and Chann Chavis v. O'Brien's Response Management Inc. et al. (S.D. Tx., Case No.: 4:12-cv-02045) (the “Chavis Action”) - were each brought on behalf of certain individuals who worked on the Deepwater Horizon oil spill response and who were classified as independent contractors. The Prejean, Himmerite and Singleton Actions were each filed in the United States District Court for the Eastern District of Louisiana and then subsequently consolidated with the overall MDL. The Himmerite and Singleton Actions have since been automatically stayed pending further scheduling by the Court, pursuant to the procedures in the MDL. In the Prejean Action, ORM has answered the complaint, a scheduling order has been issued, and plaintiffs have, among other things, filed a Motion for Conditional Certification, which has been stayed pending further scheduling by the Court in accordance with the procedures of the MDL. The limitations periods for potential plaintiffs to opt-in to the Prejean, Himmerite and Singleton actions have all been tolled pending further action by the Court. ORM has filed a Motion for Reconsideration of the Court's order tolling the limitations periods in these actions. The Chavis Action was filed on July 7, 2012 in the United States
District Court for the Southern District of Texas, and ORM answered the complaint in that matter. On December 20, 2012, the parties in the Chavis Action entered into a full and final settlement agreement with respect to all of the Plaintiff's individual and class claims, pending approval of the Court. The Company is unable to estimate the potential exposure, if any, resulting from any of these DPH FLSA Actions, but believes they are without merit and will continue to vigorously defend against them.
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 or its results of operations.
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, 2012 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 25, 2013, there were 229 holders of record of Common Stock.
SEACOR’s Board of Directors declared a Special Cash Dividend of $5.00 per common share payable to shareholders of record on December 17, 2012, which was paid on or about December 26, 2012. SEACOR’s Board of Directors also declared a Special Cash Dividend of $15.00 per common share payable to shareholders of record on December 14, 2010, which was paid on or about December 21, 2010. 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 revolving credit facility or 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, 2007 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”).
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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, Dockwise Ltd., 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, 2012, 2011 and 2010, the Company acquired for treasury 1,377,798, 843,400 and 1,811,700 shares of Common Stock, respectively, for an aggregate purchase price of $119.5 million, $71.3 million and $137.1 million, respectively. As of December 31, 2012, SEACOR had authorization to repurchase $30.5 million of Common Stock. Subsequent to December 31, 2012, the Company's Board of Directors increased the authorization to repurchase Common Stock to $100.0 million.
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, 2012:
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(1)
Excludes commissions of $12,410 or $0.01 per share.
(2)
Since February 1997, SEACOR’s Board of Directors has authorized the repurchase of Common Stock, certain debt or a combination thereof. From time to time thereafter, and most recently on February 26, 2013, SEACOR’s Board of Directors increased the authority to repurchase Common Stock.
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
Consolidated Results of Operations
Consolidated financial data for segment and geographic areas is reported 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 tends to be linked to the price of oil and gas and those prices tend to fluctuate based on many factors, including global economic activity and levels of reserves. 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, and requirements for maintaining interests in leases affect activity in the oil and gas industry. The cyclicality of the market is further exacerbated by the 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.
Offshore market conditions improved during 2012, primarily due to increased demand derived from offshore drilling and exploration activities. Although vessel utilization and average day rates improved in all geographic regions, they continue to be lower than 2007-2008 levels. Margins are further pressured by escalating operating costs, in particular the market for qualified and experienced crew has become more competitive resulting in higher wage rates. Operators are struggling to man reactivated vessels and to meet customer requirements for higher qualified personnel. The Company expects to see a continuation of the upward trends in activity levels and wage pressures during 2013. In international markets, the delivery of newly built vessels during 2012 has created a situation of oversupply in the North Sea, Asia, Middle East and West Africa regions, which is expected to continue during 2013.
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, 2012. Offshore Marine Services enters 2013 with an increased order book for new equipment and believes its diverse fleet and broad geographical distribution of vessels will assist in capitalizing on opportunities created by increased activity levels. The Company's strong financial position should enable Offshore Marine Services to purchase, mobilize or upgrade vessels to meet changing market conditions.
As of December 31, 2012, in addition to its existing fleet, Offshore Marine Services had new construction projects in progress including two foreign-flag, DP-3 catamarans scheduled for delivery in the first and second quarters of 2013; six U.S.-flag, DP-2 FSVs scheduled for delivery between the fourth quarter of 2013 and the fourth quarter of 2015; four U.S.-flag, DP-2 supply vessels scheduled for delivery between the third quarter of 2013 and first quarter of 2015; and four foreign-flag wind farm utility vessels scheduled for delivery throughout 2013.
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:
•
personnel (primarily wages, benefits, payroll taxes, savings plans and travel for marine personnel);
•
repairs and maintenance (primarily routine repairs and maintenance and main engine 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 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.
Results of Operations
2012 compared with 2011
Operating Revenues. Operating revenues were $143.0 million higher for the year ended December 31, 2012 compared with the year ended December 31, 2011. Results for 2012 included the contributions of the Company's wind farm utility vessels and liftboats that were acquired on December 22, 2011 and March 30, 2012, respectively. The wind farm utility vessels contributed $26.7 million of time charter revenues with an average day rate of $2,702 per day and a utilization rate of 91%. The liftboats contributed $80.4 million of operating revenues of which $74.5 million was time charter revenue with an average day rate of $19,407 per day and a utilization rate of 77%.
Excluding the contribution of the wind farm utility vessels and liftboats, time charter revenues were $42.9 million higher in 2012 compared with 2011. Overall fleet utilization was 81% compared with 72% in 2011. The number of days available for charter was 39,713 compared with 42,717 in 2011, a reduction of 3,004 days or 7%, due to net fleet dispositions. Overall average day rates were $12,032 per day compared with $11,234 per day in 2011, an increase of $798 per day or 7%. In overall terms, time charter revenues increased by $22.9 million due to improved utilization, by $26.0 million due to higher average day rates and by $0.1 million due to the impact of vessels mobilizing between geographic regions and other changes in fleet mix. Time charter revenues were $5.2 million lower due to net fleet dispositions and $0.9 million lower due to the impact of unfavorable changes in currency exchange rates.
In the U.S. Gulf of Mexico, time charter revenues were $106.0 million higher in 2012 compared with 2011 primarily due to the liftboat acquisition. Excluding the contribution of the liftboats, time charter revenues were $31.6 million higher of which $20.2 million was due to improved utilization, $13.9 million was due to higher average day rates and $2.9 million was due to the repositioning of vessels between geographic regions and other changes in fleet mix. Time charter revenues were $5.1 million lower due to the net effect of cold-stacking vessels and $0.3 million lower due to net fleet dispositions. As of December 31, 2012, the Company had two offshore support vessels cold-stacked in this region compared with four offshore support vessels as of December 31, 2011.
In Africa, time charter revenues were $6.1 million higher in 2012 compared with 2011. Time charter revenues were $4.7 million higher due to improved utilization, $1.7 million higher due to improved average day rates, and $1.1 million higher due to the repositioning of vessels between geographic regions. Time charter revenues were $1.4 million lower due to fleet dispositions.
In the Middle East, time charter revenues were $6.1 million higher in 2012 compared with 2011. Time charter revenues were $1.0 million higher due to improved utilization, $1.1 million higher due to improved average day rates, $1.6 million higher due to the repositioning of vessels between geographic regions, and $2.4 million higher due to net fleet additions.
In Brazil, Mexico and Central and South America, time charter revenues were $6.5 million lower in 2012 compared with 2011. Lower utilization, net fleet dispositions and the repositioning of vessels between geographic regions reduced time charter revenues by $4.6 million, $5.6 million and $2.3 million, respectively. Higher average day rates increased time charter revenues by $6.0 million.
In Europe, excluding the $26.7 million contribution of the wind farm utility vessels, time charter revenues were $0.6 million higher in 2012 compared with 2011. Time charter revenues were $4.0 million higher due to improved average day rates, and $2.1 million higher due to the repositioning of a vessel into the region. Lower utilization, vessel dispositions and unfavorable changes in currency exchange rates reduced time charter revenues by $1.9 million, $2.8 million and $0.8 million, respectively.
In Asia, time charter revenues were $5.1 million higher in 2012 compared with 2011. Time charter revenues were $2.0 million higher due to improved utilization, $0.9 million higher due to improved average day rates, and $2.5 million higher due to fleet additions. The repositioning of vessels between geographic regions reduced time charter revenues by $0.3 million.
Operating Expenses. Operating expenses were $80.5 million higher for the year ended December 31, 2012 compared with the year ended December 31, 2011, of which $63.8 million was attributable to fleet additions including the wind farm utility vessels and liftboats. Excluding the impact of fleet additions, operating expenses were $16.7 million higher in 2012 compared with 2011. Personnel costs were $13.9 million higher primarily due to the return to service of previously cold-stacked vessels, increased activity levels, and inflationary pressures on rates of pay; repair and maintenance expenses were $4.8 million higher, primarily due to increased activity levels in the U.S Gulf of Mexico; drydocking expenses were $8.0 million higher, primarily due to increased drydocking activity in international regions; insurance and loss reserves expense was $1.9 million lower; fuel, lubes and supplies expenses were $1.8 million higher primarily due to increased activity levels in the U.S. Gulf of Mexico; leased-in equipment expense was $3.7 million higher primarily due to an increase in vessel charter-in expense for vessels operating in the U.S. Gulf of Mexico and Africa; and brokered vessel activity was $2.8 million lower due to reduced activity in West Africa.
Administrative and General. Administrative and general expenses were $12.1 million higher for the year ended December 31, 2012 compared with the year ended December 31, 2011, of which $11.1 million was attributable to administrative and general expenses associated with the wind farm utility vessels and liftboat businesses. In addition, the acceleration of restricted stock awards from 2013 and 2014 into 2012 added incremental expenses of $3.2 million in 2012 compared with 2011; salary and benefit expense were $0.9 million lower primarily due to reductions in head count; and legal fees decreased by $0.8 million primarily due to costs incurred during the year ended December 31, 2011 associated with business acquisitions.
Depreciation. Depreciation expenses were $13.1 million higher in the year ended December 31, 2012 compared with the year ended December 31, 2011 primarily due to the addition of the liftboat and wind farm utility vessel fleets.
Gains on Asset Dispositions and Impairments, Net. During the year ended December 31, 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. During the year ended December 31, 2011, the Company sold eleven offshore support vessels and other equipment for net proceeds of $65.2 million and gains of $26.1 million, of which $13.8 million was recognized currently and $12.3 million was deferred. In addition, the Company recognized previously deferred gains of $0.9 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 9% in 2012 compared with 3% in 2011. The increase was primarily due to the contribution of the Company's liftboat fleet.
Equity in Earnings of 50% or Less Owned Companies, Net of Tax. Equity in earnings of 50% or less owned companies, net of tax, decreased by $4.0 million for the year ended December 31, 2012 compared with the year ended December 31, 2011. During 2011, Offshore Marine Services' Mexican joint venture executed a business reorganization plan and issued an additional equity interest to an unrelated third party. Subsequent to the reorganization and issuance of the additional equity interest, the Company recognized an $8.4 million gain, net of tax. Earnings from another joint venture were $2.0 million higher in 2012 primarily due to the return to service of its vessel from cold-stack upon the commencement of a long-term charter in November 2011.
2011 compared with 2010
Operating Revenues. Operating revenues were $139.1 million lower for the year ended December 31, 2011 compared with the year ended December 31, 2010.
Time charter revenues were $110.2 million lower in 2011 compared with 2010. Overall fleet utilization was 72% compared with 75% in 2010. The number of days available for charter was 42,717 compared with 48,378 in 2010, a reduction of 5,661 days or 12%, due to net fleet dispositions, including the return of one and seven vessels to leasing companies in 2011 and 2010, respectively. Overall average day rates were $11,234 per day compared with $12,499 per day in 2010, a decrease of $1,265 per day or 10%. In overall terms, time charter revenues decreased by $50.3 million due to reduced fleet utilization, $27.1 million due to lower average day rates, $26.1 million due to net fleet dispositions, and $9.1 million due to vessel mobilizations and other changes in fleet mix. In overall terms, the impact of favorable changes in currency exchange rates increased time charter revenues by $2.4 million.
In the U.S. Gulf of Mexico, time charter revenues were $114.4 million lower in 2011 compared with 2010 primarily due to softer market conditions attributable to a slowdown in the issuance of drilling permits by the BSEE in the aftermath of the Deepwater Horizon oil spill. During 2010, Offshore Marine Services had as many as 22 vessels supporting oil spill response activities, which contributed $90.3 million of time charter revenues. In overall terms, time charter revenues decreased by $43.5 million due to reduced fleet utilization, $26.2 million due to lower average day rates, $28.7 million due to vessel mobilizations, and $16.0 million due to net fleet dispositions and other changes in fleet mix. As of December 31, 2011, the Company had four vessels cold-stacked in this region compared with 13 vessels as of December 31, 2010.
In Africa, time charter revenues were $3.8 million lower in 2011 compared with 2010. Time charter revenues decreased by $7.1 million due to net fleet dispositions, $4.7 million due to out-of-service time for one vessel undergoing conversion to a safety standby configuration, and $6.1 million due to lower average day rates and decreased utilization attributable to softer market conditions. Vessels that mobilized into the region contributed time charter revenues of $14.1 million.
In the Middle East, time charter revenues were $3.7 million lower in 2011 compared with 2010. Net fleet dispositions and vessel mobilizations to other geographic regions reduced time charter revenues by $4.4 million. Higher average day rates and improved utilization increased time charter revenues by $0.7 million.
In Brazil, Mexico, Central and South America, time charter revenues were $9.1 million higher in 2011 compared with 2010. Vessels that mobilized into the region, including those chartered in from third parties, contributed time charter revenues of $13.4 million and higher average day rates increased time charter revenues by $3.2 million. Fleet dispositions and more off-hire time attributable to softer market conditions reduced time charter revenues by $4.1 million and $3.4 million, respectively.
In Europe, time charter revenues were $7.7 million higher in 2011 compared with 2010. The commencement of a new charter for a vessel, which mobilized into the region, contributed additional time charter revenues of $4.1 million. Higher average day rates and a strengthening in the pound sterling against the U.S. dollar combined to further increase time charter revenues by $5.1 million. Additional off-hire time, primarily attributable to routine maintenance and repairs, and fleet dispositions reduced time charter revenues by $1.3 million and $0.2 million, respectively.
In Asia, time charter revenues were $5.1 million lower in 2011 compared with 2010, of which $3.5 million was due to reduced fleet utilization and lower average day rates and $1.6 million was due to fleet dispositions, vessel mobilizations and other changes in fleet mix.
Revenues from brokered vessel activity were $12.0 million lower due to reduced activity in the Middle East and West Africa. Other marine services revenues were $11.0 million lower primarily due to the conclusion of services provided in connection with oil spill response activities during 2010.
Operating Expenses. Operating expenses were $40.4 million lower for the year ended December 31, 2011 compared with the year ended December 31, 2010. Operating expenses were $11.9 million lower due to net fleet dispositions, $9.0 million lower due to reduced brokered vessel activity in the Middle East and West Africa, and $7.4 million lower as a result of services provided in connection with oil spill response activities during 2010. In addition, personnel costs in 2010 included a $7.8 million expense for the Company’s share of an additional funding deficit in the United Kingdom Merchant Navy Officers’ Pension Fund and $3.3 million expense for the settlement of litigation. Drydocking expenses decreased by $6.5 million primarily due to a reduction in drydocking activity in West Africa. Leased-in equipment expenses were $2.5 million higher primarily due to the charter-in of two vessels operating in Brazil, Mexico, Central and South America, partially offset by the impact of seven vessels being returned to their owners during 2010.
Administrative and General. Administrative and general expenses were $3.6 million lower for the year ended December 31, 2011 compared with the year ended December 31, 2010. The decrease was primarily due to reduced management compensation and benefits and lower legal and professional fees.
Gains on Asset Dispositions and Impairments, Net. During the year ended December 31, 2011, the Company sold eleven offshore support vessels and other equipment for net proceeds of $65.2 million and gains of $26.1 million, of which $13.8 million was recognized currently and $12.3 million was deferred. In addition, the Company recognized previously deferred gains of $0.9 million. During the year ended December 31, 2010, the Company sold eight offshore support vessels and other equipment and received insurance proceeds related to the nationalization of one of its offshore support vessels and the total constructive loss of another offshore support vessel under construction. The Company received net proceeds of $146.5 million on the disposition of these assets, including the insurance proceeds, and had gains of $32.6 million, of which $24.0 million was recognized currently and $8.6 million was deferred. In addition, the company recognized previously deferred gains of $5.5 million in 2010.
Operating Income. Excluding the impact of gains on asset dispositions and impairments and the impact of brokered vessel activity, operating income as a percentage of operating revenues was 3% in 2011 compared with 20% in 2010. The decrease was primarily attributable to the reduction in operating revenues noted above.
Equity in Earnings of 50% or Less Owned Companies, Net of Tax. During the year ended December 31, 2011, Offshore Marine Services’ Mexican joint venture executed a business reorganization plan and issued an additional equity interest to an unrelated third party. Subsequent to the reorganization and issuance of the additional equity interest, the Company recognized an $8.4 million gain, net of tax. This gain was offset by lower results from another joint venture due to its vessel being cold-stacked at the end of 2010.
Aviation Services
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 is now an independent company whose common stock is listed on the New York Stock Exchange under the symbol "ERA." Commencing with the three months ending March 31, 2013, the Company will report the historical financial position, results of operations and cash flows of Era Group as discontinued operations.
A significant portion of Aviation Services' operations involve transportation services provided to offshore oil and gas customers. The offshore oil and gas market is highly cyclical with demand linked to the price of oil and gas, which tends to fluctuate depending on many factors, including global economic activity and levels of inventory. In addition to the price of oil and gas, the availability of acreage and local tax incentives or disincentives and requirements for maintaining interests in leases affect activity levels in the oil and gas industry. Price levels for oil and gas by themselves can cause additional fluctuations by inducing changes in consumer behavior. During the year ended December 31, 2010, the market for Aviation Services' assets in the U.S. Gulf of Mexico was disrupted by events related to the sinking of the Deepwater Horizon drilling rig. After the Deepwater Horizon incident, the U.S. Department of Interior imposed a moratorium on offshore deepwater drilling operations, which caused a dramatic decrease in demand for helicopters supporting oil and gas activities in the region. Although the moratorium has been lifted, the process of issuing permits to drill remains slow, which continues to have a negative impact on demand for helicopter services in the U.S. Gulf of Mexico.
For the last six years, Aviation Services provided transportation services to government inspectors of offshore installations, drilling rigs and platforms. As of December 31, 2012, 20 Aviation Services' helicopters were operating under this contract with customer options to increase the number up to 30 helicopters.
Brazil is among the most important markets for offshore oil and gas activity world-wide. Aviation Services committed to participate in the Brazilian market by acquiring an ownership interest in Aeroleo, a Brazilian helicopter operator, in July 2011. Aviation Services contract-leases a number of helicopters to Aeroleo but deferred recognition of the revenues as a result of difficulties experienced by Aeroleo following the cancellation or suspension of certain contracts for a number of helicopters chartered by Aeroleo to Petrobras Brazil.
Beginning in 2005, Aviation Services had begun to deploy helicopters in international markets, frequently under contract-lease arrangements to third parties. The majority of these helicopters support oil and gas activities in regions of rapidly expanding activity, such as Brazil, India and Indonesia. Aviation Services has equipment working in the North Sea, Mexico and Spain. As of December 31, 2012, Aviation Services had 49 helicopters located in foreign jurisdictions compared with 15 helicopters as of December 31, 2006. In many cases the helicopters are contracted to local helicopter operators, which often prefer to lease helicopters rather than purchase them. Contract-leasing affords Aviation Services the opportunity to access new markets without significant initial infrastructure investment and generally without ongoing operating risk.
Consistent with its diversification strategy, Aviation Services deploys a number of helicopters in support of other industries and activities, including air medical services and search and rescue services in the U.S Gulf of Mexico, which are developed on a subscription basis.
Alaska is also an important market for Aviation Services. In addition to supporting oil company activities in the Cook Inlet and along the North Slope, Aviation Services operates a Fixed Base Operation ("FBO") at Ted Stevens Anchorage International Airport, provides flightseeing tours and supports firefighting and mining operations.
The aggregate cost of Aviation Services' operations depends primarily on the size and asset mix of the fleet. Aviation Services' operating costs and expenses are grouped into the following categories:
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personnel (includes wages, benefits, payroll taxes, savings plans, subsistence and travel);
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repairs and maintenance (primarily routine activities as well as helicopter refurbishments and engine and major component overhauls that are performed in accordance with planned maintenance programs);
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insurance (the cost of hull and liability insurance premiums and loss deductibles);
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fuel;
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leased-in equipment (includes the cost of leasing helicopters and equipment); and
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other (primarily base expenses, property, sales and use taxes, communication costs, freight expenses, and other).
Aviation Services engages a number of third-party vendors to maintain the engines and certain components on some of its helicopter models under programs known as “power-by-hour” maintenance contracts. These programs require Aviation Services to pay for the maintenance service ratably over the contract period, typically based on actual flight hours. Power-by-hour providers generally bill monthly based on hours flown in the prior month, the costs being expensed as incurred. In the event Aviation Services places a helicopter in a program after a maintenance period had begun, it may be necessary to pay an initial buy-in charge based on hours flown since the previous maintenance event. This buy-in charge is normally recorded as a prepaid expense and amortized as an operating expense over the remaining power-by-hour contract period. If a helicopter is sold or otherwise removed from a program before the scheduled maintenance work is carried out, Aviation Services may be able to recover part of the Company's payments to the power-by-hour provider, in which case a reduction to operating expense is recorded when the refund is received. Aviation Services also incurs repairs and maintenance expense through vendor arrangements whereby it obtains quotes and authorizes service through a repair order process.
Aviation Services expenses all repair costs as incurred, which may result in operating expenses varying substantially when compared with a prior year or prior quarter if a disproportionate number of refurbishments or overhauls are undertaken. This variation may be exacerbated by the timing of entering or exiting third-party power-by-hour programs.
Helicopters are contract-leased to third parties under arrangements whereby the customer assumes operational responsibility, Aviation Services often provides maintenance and parts support but generally does not incur any other material operating costs. In most instances, contract-leases require clients to procure adequate insurance but Aviation Services purchases contingent hull and liability coverage to mitigate the risk of a client's coverage failing to respond. In some instances, Aviation Services provides crews and other services to support its contract-lease customers.
Results of Operations
2012 compared with 2011
Operating Revenues. Operating revenues were $14.8 million higher for the year ended December 31, 2012 compared with the year ended December 31, 2011. Operating revenues in the U.S. Gulf of Mexico were $32.4 million higher primarily due to newly delivered helicopters being placed in service, an expansion of government services support and an increase in charter revenues primarily in support of hurricane evacuations. Operating revenues from Alaska, primarily from oil and gas activities, increased by $2.4 million primarily due to an increase in charter activity and hours flown in support of firefighting contracts and the full year impact of contracts that commenced in 2011. Operating revenues from contract-leasing activities decreased by $13.4 million. Contract-leasing revenues for helicopters chartered to Aviation Service's Brazilian joint venture were $11.2 million lower primarily due to the deferral and reduction of contract-leasing revenues as a result of difficulties experienced by the joint venture in connection with a canceled contract award for four AW139 medium helicopters under contract-lease from Aviation Services. In addition, contract-leasing revenues from the Brazilian joint venture were lower due to decreased flight hours for helicopters undergoing major maintenance. Contract-leasing revenues for another customer were also lower due to the net deferral of $1.9 million due to the customer's short-term liquidity issues. Operating revenues for air medical services were $6.1 million lower primarily due to the conclusion of a long-term hospital contract, partially offset by the full-year impact of a hospital contract that was awarded during 2011.
Operating Expenses. Operating expenses were $4.5 million higher in the year ended December 31, 2012 compared with the year ended December 31, 2011. Personnel costs were $3.7 million higher primarily due to the implementation of a pilot pay scale adjustment and the addition of personnel to support increased activity in the U.S. Gulf of Mexico. Repairs and maintenance expenses were $5.8 million lower in 2012 primarily due to the recognition of $7.7 million in vendor credits and $1.4 million in maintenance credits received in connection with the end of two customer contract-leases. In addition, repairs and maintenance expenses decreased by $3.6 million due to a reduction in hours flown for Aviation Services EC225 heavy helicopters. These decreases were partially offset by a $5.3 million increase as additional helicopters were placed in power-by-hour programs and a $1.6 million increase in other repairs and maintenance costs primarily due to the timing of repairs on helicopters not covered by power-by-hour arrangements. Insurance and loss reserves were $2.3 million higher due to an increase in the overall fleet value and the recognition of a good experience credit from our hull and liability underwriters in the year ended December 31, 2011. Fuel costs were $1.9 million higher primarily due to increased flight hours in the U.S. Gulf of Mexico, in line with the increased activity discussed above. Other operating expenses were $3.0 million higher primarily due to the receipt in the year ended December 31, 2011 of $1.9 million in insurance proceeds related to hurricane damages sustained in 2005.
Administrative and General. Administrative and general expenses were $2.9 million higher in the year ended December 31, 2012 compared with the year ended December 31, 2011. Allowance for doubtful accounts were $2.8 million higher, of which $2.5 million was provided in the year ended December 31, 2012 in connection with a customer bankruptcy. The year ended December 31, 2012 also included legal and professional expenses of $2.9 million associated with a contemplated public offering. These increases were partially offset by a $3.5 million decrease in severance costs associated with changes in executive management.
Depreciation. Depreciation expenses were $0.1 million lower in the year ended December 31, 2012 compared with the year ended December 31, 2011 primarily due to a change in estimate of the useful life and salvage value of helicopters, which reduced depreciation expense in the year ended December 31, 2012, partially offset by the addition of higher cost equipment. Effective July 1, 2011, the Company changed its estimated useful life and salvage value for helicopters from 12 to 15 years and 30% to 40%, respectively, due to improvements in new helicopter models that continue to increase their long-term value and make them viable for operation over a longer period of time.
Gains on Asset Dispositions and Impairments, Net. During the year ended December 31, 2012, the Company sold or otherwise disposed of eight helicopters, helicopter components and other equipment for proceeds of $5.5 million and gains of $2.9 million. In addition, the Company recognized previously deferred gains of $0.7 million. During the year ended December 31, 2011, the Company sold ten helicopters and other equipment and received insurance proceeds related to the loss of a helicopter. The Company received net proceeds of $29.2 million on the disposition of these assets, including insurance proceeds, and had gains of $16.5 million of which $2.0 million was deferred and $14.5 million was recognized currently. In addition, the Company recognized previously deferred gains of $0.7 million.
Operating Income. Excluding gains on asset dispositions, operating income as a percentage of revenues was 10% in the year ended December 31, 2012 compared with 8% in the year ended December 31, 2011. The increase is primarily due to the recognition of vendor credits and maintenance credits in the year ended December 31, 2012.
Equity in losses of 50% or less owned companies. During the year ended December 31, 2012, Aviation Services recognized an impairment charge of $5.9 million, net of tax, on its investment in its Brazilian joint venture.
2011 compared with 2010
Operating Revenues. Operating revenues were $22.8 million higher for the year ended December 31, 2011 compared with the year ended December 31, 2010. Operating revenues in the U.S. Gulf of Mexico were $6.7 million higher primarily due to a $7.3 million increase from search and rescue activities which began in late 2010 and a $9.9 million increase from higher oil and gas related activities, including fuel billings as a result of higher prices. The increases were partially offset by a $10.5 million decrease in operating revenues for oil spill response support activities. Operating revenues in Alaska were $4.6 million lower primarily due to the temporary suspension of a contract with a major oil and gas customer whose operations are expected to resume in 2012. Operating revenues from contract-leasing activities increased by $15.2 million as additional medium and heavy helicopters were placed on international contract-leases. As of December 31, 2011, 41 aircraft were dedicated to the contract-leasing market compared with 39 as of December 31, 2010. Operating revenues from medical operations increased by $3.6 million primarily due to $1.1 million of additional revenues generated from a new hospital contract and a $2.7 million increase in activity in support of an existing patient-pay customer. Operating revenues for the FBO were $1.5 million higher primarily due to an increase in fuel sales prices.
Operating Expenses. Operating expenses were $15.5 million higher for the year ended December 31, 2011 compared with the year ended December 31, 2010. Personnel costs were $2.7 million higher as additional personnel were added to support the increased activity discussed above. Repair and maintenance costs increased by $5.6 million primarily due to enrolling additional helicopters in power-by-hour maintenance programs. Fuel costs increased by $5.0 million primarily due to an increase in the price of fuel. Other operating expenses were $2.9 million higher primarily due to an $1.9 million increase in support of search and rescue activities, which began in late 2010, a $0.4 million increase from higher air medical activities and a $2.3 million increase as a result of providing more parts and repair services to contract-leasing customers. These increases were partially offset by the receipt of $1.9 million in insurance reimbursements relating to the 2005 Hurricanes Katrina and Rita, following final settlement with the Company’s insurance carriers. In addition, insurance and loss reserves were $0.6 million lower primarily due to the receipt of a good experience credit from its hull and machinery underwriters.
Administrative and General. Administrative and general expenses were $6.1 million higher for the year ended December 31, 2011 compared with the year ended December 31, 2010 primarily due to $4.2 million in severance costs associated with a change in executive management, a $1.1 million increase in wage and benefit costs, a $0.6 million increase in information technology costs and a $0.5 million increase in costs related to international business development and joint venture activities.
Depreciation and Amortization. Depreciation and amortization expenses were $0.7 million lower for the year ended December 31, 2011 compared with the year ended December 31, 2010 primarily due to a change in estimate of the useful life and salvage value of helicopters, which reduced depreciation expense by $7.6 million, partially offset by the addition of new and higher cost equipment. Effective July 1, 2011, the Company changed its estimated useful life and salvage value for helicopters from 12
to 15 years and 30% to 40%, respectively, due to improvements in new aircraft models that continue to increase their long-term value and make them viable for operation over a longer period of time.
Gains on Asset Dispositions and Impairments, Net. During the year ended December 31, 2011, the Company sold ten helicopters and other equipment and received insurance proceeds related to the loss of a helicopter. The Company received net proceeds of $29.2 million on the disposition of these assets, including insurance proceeds, and had gains of $16.5 million of which $14.5 million was recognized currently and $2.0 million was deferred. In addition, the Company recognized previously deferred gains of $0.7 million. During the year ended December 31, 2010, the Company sold two helicopters and other equipment for net proceeds of $0.9 million and gains of $0.5 million. In addition, the Company recognized previously deferred gains of $0.6 million and recognized a loss of $0.3 million relating to the impairment of four EC120 helicopters.
Operating Income. Excluding gains on asset dispositions and impairments, operating income as a percentage of operating revenues was consistent in both periods at 8%.
Inland River Services
Historically, activity levels for grain exports and non-grain imports are the key drivers in determining freight rates. In 2012, the persistent and prolonged drought conditions had a negative impact on domestic corn production and grain export demand. The year had begun on an optimistic note with tight domestic feed grain stocks encouraging farmers to plant record corn acreage in 2012. However the drought decimated corn yields and the continuing tight domestic feed grain and oilseed stocks caused river export volumes to be 5% lower in 2012 compared with 2011 and 10% lower than the prior three year average. In the fourth quarter of 2012, corn export volumes through the port of New Orleans were the lowest in recent history at just over three million metric tons.
The drought also had a negative impact on barge and boat operations. River stages dropped to levels not seen in over 20 years leading to tow size restrictions, draft restrictions, periodic river closures and harbor delays on the Lower Mississippi River.
Conversely, the market for liquid barge transportation remained very active in 2012, driven by high refinery utilization and an increased demand for domestic crude oil, chemical and industrial movements. Approximately twenty-five percent of the U.S. 30,000 barrel liquid tank barge fleet was employed in the movement of domestic crude oil to refining complexes. This also supported demand for the remaining fleet for the movement of clean oil feedstock, blending components and finished products. The water-borne market was further strengthened by the fact that alternatives such as domestic pipelines and rail were operated at high capacity levels throughout the year.
On December 21, 2011, the Company acquired a controlling interest in Naviera Central S.A. (“Naviera”), which is a provider of inland river barge and terminal services on the Magdalena River in Colombia.
On December 31, 2011, the Company acquired certain terminal and fleeting assets and certain related affiliates from Lewis & Clark Marine, Inc. (“Lewis & Clark”). During 2012, the terminal operation in the St. Louis area experienced high volumes of deliveries for grain, grain by-products, and other agricultural and industrial products. This was primarily due to competitive pricing offered by the major rail carriers serving St. Louis compared with the Pacific Northwest and the Center Gulf Region (New Orleans-Houston) of the United States. In addition, dry cargo barge freight rates were competitive primarily due to the soft market conditions caused by the drought. These factors combined to make St. Louis a competitive delivery point for Lewis & Clark customers.
The Lewis & Clark fleeting operation also benefited from the high barge traffic to terminals in the St. Louis Harbor and higher refining activity in 2012. Barge activity through the St. Louis region has been growing significantly in recent years. The region's competitive transportation advantages both from a cost perspective and its flexibility in offering different shipping options has attracted companies to build more river terminals and upgrade existing facilities and refineries. Agricultural, industrial products, coal, crude oil and chemicals are the main commodities moving through the region.
At the end of 2012, the average age of the Inland River Services' dry cargo barge fleet was seven 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 24% 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.
The aggregate cost of Inland River Services' operations depends primarily on the size and mix of its fleet. Inland River Services' operating costs and expenses are grouped into the following categories:
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barge logistics (primarily towing, switching, fleeting and cleaning costs);
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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 repairs and maintenance on towboats, which are performed in accordance with planned maintenance programs);
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insurance and loss reserves (primarily the cost of Hull and Machinery, Protection and Indemnity and Cargo insurance premiums and loss deductibles);
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fuel, lubes and supplies;
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leased-in equipment (includes the cost of leasing equipment, including bought-in freight and towboats, from lessors under bareboat charter arrangements); and
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other (rail car logistics, property taxes and other).
Results of Operations
2012 compared with 2011
Operating Revenues. Operating revenues were $38.9 million higher for the year ended December 31, 2012 compared with the year ended December 31, 2011. Excluding the impact of the Lewis & Clark acquisition which occurred on December 31, 2011 and accounted for a $17.8 million and $15.9 million increase in fleeting and terminal operating revenues, respectively, operating revenues were $5.3 million higher. Operating revenues from the dry cargo barge pools were $0.3 million higher in 2012 compared with 2011. The dry cargo markets were negatively affected by drought conditions throughout 2012, impacting crop yields and causing river closures and restricted tow sizes. The resulting reductions in operating revenues were offset by increased non-grain tonnage movements. Operating revenues from the liquid unit tow and 10,000 barrel liquid tank barge operations were $5.5 million higher primarily due to increased demand and the deployment of additional equipment. Operating revenues from inland river towboat operations and other activities were $2.9 million higher primarily due to higher activity levels for the Company's machine shop, gear and engine, and barge and towboat repair facilities ("SCF Services") and the Company's acquisition of a controlling interest in Naviera in December 2011. These increases were partially offset by a $1.5 million reduction in operating revenues from the charter-out of dry cargo barges primarily due to the expiration of charter contracts and the return of the equipment to the dry cargo barge pools, and a $1.4 million reduction in operating revenues at the Company's high-speed multi-modal liquid terminal facility ("Gateway Terminals") primarily due to lower ethanol throughput activity.
Operating Expenses. Operating expenses were $39.1 million higher in the year ended December 31, 2012 compared with the year ended December 31, 2011. Excluding the impact of the Lewis & Clark acquisition and the Company's acquisition of Naviera, which collectively accounted for $24.3 million of the increase, operating expenses were $14.8 million higher. Barge logistics expenses were $9.9 million higher primarily due to higher towing and switching expenses as a result of low water and poor operating conditions and higher fuel prices. Operating expenses in the unit tow operation were $3.8 million higher primarily due to costs incurred for mandatory five-year United States Coast Guard inspections and related repairs, an increase in towing charter-in expense as a consequence of the additional equipment and higher repair and maintenance costs. Operating expenses were $0.6 million higher at Gateway Terminals primarily due to dredging costs incurred as a consequence of low water levels and were $0.5 million higher for inland river towboat operations primarily due to higher fuel prices.
Administrative and General. Administrative and general expenses were $4.6 million higher in the year ended December 31, 2012 compared with the year ended December 31, 2011. Excluding the impact of the Lewis & Clark acquisition and the Company's acquisition of a controlling interest in Naviera, which collectively accounted for $3.9 million of the increase, administrative and general expenses were $0.7 million higher primarily due to the acceleration of restricted stock awards from 2013 and 2014 into the current year.
Depreciation and Amortization. Depreciation and amortization expenses were $4.8 million higher in the year ended December 31, 2012 compared with the year ended December 31, 2011. Excluding the impact of the Lewis & Clark acquisition and the Company's acquisition of a controlling interest in Naviera, which collectively accounted for $3.8 million of the increase, depreciation and amortization was $1.0 million higher primarily due to additional equipment following the acquisition of a controlling interest in Soylutions LLC in July 2011.
Gains on Asset Dispositions. During the year ended December 31, 2012, the Company sold ten barges, 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. During the year ended December 31, 2011, the Company sold seven barges, one towboat and other equipment for proceeds of $5.1 million and gains of $0.2 million. 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 11% for the year ended December 31, 2012 compared with 18% for the year ended December 31, 2011. The decrease was primarily due to higher operating costs in the Company's dry cargo barge pools as a result of poor operating conditions, a reduction in activity levels at Gateway Terminals and the inclusion of losses from Naviera.
Equity in Earnings of 50% or Less Owned Companies, Net of Tax. During the year ended December 31, 2012, the Company recognized $3.3 million of equity in losses of 50% or less owned companies, net of tax, primarily from its Argentinian joint venture as a result of difficult operating conditions and provisions for uncertain insurance recoveries related to facility damage sustained in 2011. During the year ended December 31, 2011 , the Company recognized $4.1 million of equity in earnings of 50% or less owned companies, net of tax, primarily due to the recognition of a $2.3 million gain, net of tax, following the acquisition of a 100% controlling interest in Soylutions LLC.
2011 compared with 2010
Operating Revenues. Operating revenues were $26.0 million higher for the year ended December 31, 2011 compared with the year ended December 31, 2010. Operating revenues from dry cargo barge pool operations were $20.4 million higher primarily due to a larger fleet following the addition of newly constructed dry cargo barges and the addition of dry cargo barges previously included in the Seaspraie joint venture. Operating revenues from liquid unit tow operations were $3.0 million lower primarily due to lower contract rates and reduced utilization. Operating revenues from 10,000 barrel liquid tank barge operations were $6.1 million higher primarily due to the addition of barges previously included in the Seaspraie joint venture. Operating revenues from inland river towboat operations and other activities were $2.4 million higher primarily due to the commencement of towboat repair operations.
Operating Expenses. Operating expenses were $22.3 million higher for the year ended December 31, 2011 compared with the year ended December 31, 2010. The increase was primarily due to increased barge logistics expenses as a result of the larger fleet, higher fuel prices and high-water towing escalators as a result of difficult operating conditions throughout the first half of 2011 and higher repositioning costs due to delays in the commencement of the 2011 grain harvest.
Gains on Asset Dispositions. During the year ended December 31, 2011, the Company sold seven barges, one towboat and other equipment for proceeds of $5.1 million and gains of $0.2 million. In addition the Company recognized previously deferred gains of $2.8 million. During the year ended December 31, 2010, the Company sold 60 dry cargo barges to its South American joint venture and other equipment for proceeds of $25.8 million and gains of $16.5 million. In addition, the Company recognized previously deferred gains of $15.5 million, of which $12.2 million related to the Company’s acquisition of a controlling interest in its Seaspraie joint venture.
Operating Income. Excluding the impact of gains on asset dispositions, operating income as a percentage of operating revenues was 18% in 2011 compared with 20% in 2010. The decrease was primarily attributable to the increased barge logistic expenses noted above.
Equity in Earnings of 50% or Less Owned Companies, Net of Tax. During the third quarter of 2011, the Company obtained a 100% controlling interest in Soylutions LLC through the acquisition of its partner’s 50% interest. Upon the acquisition, the Company adjusted its investment in Soylutions to fair value resulting in the recognition of a gain of $2.3 million, net of tax. During the fourth quarter of 2010, the Company obtained a 100% controlling interest in Seaspraie Holdings LLC through the acquisition of its partner’s 50% interest. Upon the acquisition, the Company adjusted its investment in Seaspraie to fair value resulting in the recognition of a gain of $2.5 million, net of tax.
Shipping Services
Demand for the Company’s petroleum transportation services is dependent on several factors, including petroleum production and refining activity levels in the United States, domestic consumer and commercial consumption of petroleum products, and chemicals and competition from foreign imports of oil products. During 2006 and 2007, orders placed by industry participants for the construction of new double-hulled vessels qualified for operation in the U.S. coastwise trade created uncertainty as to whether the market would be able to absorb such additional capacity. In response to the uncertainty of both demand and supply factors and in order to secure a portion of the fleet’s future earnings, Shipping Services entered into long-term arrangements to bareboat charter-out four vessels with staggered delivery dates. The first vessel began its charter in March 2007, the second in September 2008, the third in January 2010, and the fourth in August of 2010.
As of December 31, 2012, the Company believes that third parties have contracted to build approximately two U.S.-flag tank vessels that could compete with Shipping Services’ equipment and that both of these vessels are scheduled to be delivered in 2013 It is anticipated that two U.S.-flag tank vessels will be restricted from carrying crude oil and petroleum products during 2013 under OPA 90 regulations.
The demand for harbor towing and bunkering services is affected by the volume, size and type of vessels calling within the U.S. ports where tugs are deployed. Bunkering services are provided under a long term, fixed price contract serving a single customer who markets bunkers within the Netherlands Antilles. The number of U.S.-flag harbor tugs in service is hard to ascertain. Operators continue to upgrade their fleets with new-building azimuth drive tugs to service changing customer requirements.
The demand for liner and short-sea shipping services is dependent on several factors, including the strength of the economies and thus demand for consumer and durable goods within the Caribbean.
G&G Shipping Acquisition. In April 2011, Shipping Services acquired real property, eight foreign-flag Roll-on/Roll-off (“RORO”) vessels and a 70% interest in an operating company engaged in the shipping trade between the United States, the Bahamas and the Caribbean. Effective December 31, 2012, the Company became the sole shareholder of the operating company.
Shipping 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 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;
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leased-in equipment (includes the cost of leasing tankers from lessors under bareboat charter arrangements); and
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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.
Results of Operations
2012 compared with 2011
Operating Revenues. Operating revenues were $18.7 million higher for the year ended December 31, 2012 compared with the year ended December 31, 2011. Time charter revenues for petroleum transportation were $1.7 million higher, primarily due to an increase in time charter rates for three vessels. Operating revenues for harbor towing and bunkering were $4.9 million higher primarily due to more traffic, tariff increases in certain ports and short-term charter revenues. Operating revenues for liner transportation vessels were $11.8 million higher reflecting the G&G Shipping Acquisition discussed above.
Operating Expenses. Operating expenses were $21.4 million higher for the year ended December 31, 2012 compared with the year ended December 31, 2011. Repair and maintenance expenses were $4.7 million higher primarily due to topside repairs on one U.S.-flag product tanker, increased expenses for harbor tugs and a full year of activity for the foreign-flag RORO vessels. Drydocking costs were $3.4 million higher primarily due to a regulatory drydocking for one U.S.-flag product tanker, and more drydocking activity for harbor tugs. Fuel, lubes and supplies were $3.7 million higher primarily due to a full year of activity for the foreign-flag RORO vessels. Leased-in equipment was $2.6 million higher primarily due to the requirement to charter-in third party vessels to cover tug out-of-service time due to drydockings, repositioning and repairs. Other operating expenses were $6.4 million higher primarily due to a full year of activity for the foreign-flag RORO vessels.
Administrative and General. Administrative and general expenses were $4.3 million higher for the year ended December 31, 2012 compared with the year ended December 31, 2011 primarily due to a full year of activity for G&G Shipping and the acceleration of restricted stock awards from 2013 and 2014 into the current year.
Depreciation and Amortization. Depreciation and Amortization expenses were $0.4 million higher for the year ended December 31, 2012 primarily due to a full year of activity for the assets acquired in the G&G Shipping acquisition, partially offset by a decrease in depreciation expense from the sale of the Seabulk America during 2011.
Gain on Asset Dispositions and Impairments, Net. During the year ended December 31, 2012, Shipping Services' sold one foreign-flag RORO vessel and five harbor tugs for net proceeds of $20.3 million and gains of $7.1 million, of which $3.1 million was recognized currently and $4.0 million was deferred. During the year ended December 31, 2011, Shipping Services' sold one U.S -flag product tanker and two harbor tugs for net proceeds of $11.5 million and gains of $1.4 million.
Operating Income. Excluding the impact of gains (losses) on asset dispositions and impairments, operating income as a percentage of operating revenues was 8% in 2012 compared with 14% in 2011. The reduction was primarily due to the increases in repairs and maintenance expenses, more drydocking activity and higher leased-in equipment costs noted above.
Other, net. Other, net was $7.1 million higher primarily due to a $7.0 million termination payment from a customer following the cancellation of a long-term charter.
Equity in Earnings of 50% or Less Owned Companies, Net of Tax. Equity in earnings for the year ended December 31, 2012 reflects losses incurred by the Company's short-sea shipping joint venture, an operator of U.S.-flag deck and RORO barges, partially offset by earnings from the Company's joint venture that began operating a U.S.-flag articulated tug-barge on the Great Lakes in April 2012.
2011 compared with 2010
Operating Revenues. Operating revenues were $13.7 million higher for the year ended December 31, 2011 compared with the year ended December 31, 2010. Time charter revenues for petroleum transportation were $6.7 million lower, primarily due to the change in status of one vessel from time charter to long-term bareboat charter effective August 21, 2010, partially offset by fewer off-hire days for regulatory drydockings. Bareboat charter revenues were $6.0 million higher due to the change in contract status of one vessel from time charter to long-term bareboat charter. Contract of affreightment revenues were $5.2 million lower primarily due to the lay-up of one U.S.-flag product tanker in August 2010. Operating revenues for harbor towing and bunkering were $2.9 million lower primarily due to prior year support of oil spill response activities, the charter-in of additional third-party equipment in 2010, partially offset by increases in tariff revenue for certain ports. Operating revenues for liner transportation were $22.5 million higher reflecting the G&G Shipping Acquisition discussed above.
Operating Expenses. Operating expenses were $8.5 million higher for the year ended December 31, 2011 compared with the year ended December 31, 2010. Excluding the impact of the G&G Shipping acquisition, which accounted for a $19.1 million increase, operating expenses were $10.6 million lower primarily due to the change in contract status of two time charter vessels to long-term bareboat charter, the sale of the Seabulk America and reduced drydocking activity. In 2010, two U.S.-flag product tankers underwent regulatory drydockings compared with 2011 when one U.S.-flag product tanker underwent an
underwater survey. These reductions in operating costs were partially offset by an increase in leased-in equipment expenses primarily due to the sale-leaseback of two U.S.-flag product tankers in the fourth quarter of 2010.
Administrative and General. Administrative and general expenses were $3.9 million higher for the year ended December 31, 2011 compared with the year ended December 31, 2010 primarily due to the G&G Shipping acquisition.
Depreciation and Amortization. Depreciation and Amortization expenses were $7.0 million lower for the year ended December 31, 2011 compared with the year ended December 31, 2010 primarily due to the sale-leaseback of two U.S.-flag product tankers in the fourth quarter of 2010 partially offset by an increase in depreciation expense for assets acquired in the G&G Shipping acquisition.
Gains on Asset Dispositions and Impairments, Net. During the year ended December 31, 2011, Shipping Services' sold one U.S -flag product tanker and two harbor tugs for net proceeds of $11.5 million and gains of $1.4 million. During the year ended December 31, 2010, the Company sold two U.S.-flag product tankers and one ocean liquid tank barge for net proceeds of $188.7 million and gains of $70.5 million, of which $1.2 million was recognized currently and $69.3 million was deferred. In addition, the Company recorded an impairment charge of $18.7 million to write-down the Seabulk America.
Operating Income. Excluding the impact of gains (losses) on asset dispositions and impairments, operating income as a percentage of operating revenues was 14% in 2011 compared with 9% in 2010. The increase was primarily due to the change in contract status for one U.S.-flag product tanker, a reduction in drydocking activity and the sale of the Seabulk America.
Alcohol Manufacturing
The profitability of Illinois Corn Processing ("ICP") is affected by the availability and market prices of energy and agricultural commodities and the availability and costs of transportation and logistics services, including pipeline, truck, barge, rail and ocean freight.
Results of Operations
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(1)
Alcohol Manufacturing 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, 2012, the net market exposure to corn under its contracts and its raw material and inventory balances was not material.
2012 compared with 2011
On February 1, 2012, the Company obtained a 70% controlling interest in ICP through its acquisition of a portion of its partner's interest. ICP owns and operates an alcohol manufacturing facility dedicated to the production of alcohol for beverage, industrial and fuel applications.
Other
For the years ended December 31, the operating revenues and segment profit of the Company's Other activities was as follows:
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(1)
The components of segment profit do not include interest income, which is a significant component of the Company's lending and leasing activities.
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 profit for the year ended December 31, 2012 included equity in losses of 50% or less owned companies of $9.7 million, net of tax, upon the contribution of the Company's O'Brien's Response Management Inc. ("ORM") subsidiary in exchange for an equity interest in Witt O'Brien's, LLC, a response management joint venture. 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 for the year ended December 31, 2012.
Segment profit in the years ended December 31, 2011 and 2010 was materially impacted by oil spill response activities relating to the BP Macondo well incident in the U.S. Gulf of Mexico following the sinking of the semi-submersible drilling rig Deepwater Horizon in April 2010. Emergency and Crisis Services primarily provided professional assistance, consulting services and software systems in support of incident management activities at various strategic locations in support of the oil spill response.
Agricultural Commodity Trading and Logistics. Segment loss in 2010 resulted primarily from costs incurred during the winding down of rice trading activities and market write-downs of rice inventories.
Other Activities. Segment loss in 2012 resulted primarily from 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 $8.8 million higher in 2012 compared with 2011 primarily due to the acceleration of restricted stock awards into 2012 that were scheduled to lapse in 2013 and 2014. Corporate expenses were $10.3 million lower in 2011 compared with 2010 primarily due to higher management bonus accruals in 2010, the acceleration of restricted stock awards into 2010 that were scheduled to lapse in 2011, and amounts designated for a foundation in 2010 to provide
financial support to selected charities and projects in various parts of the Southeastern United States affected by the Deepwater Horizon oil spill.
Derivative gains (losses), net. Derivative losses, net in 2012 were primarily due to losses on interest rate swaps of $3.6 million and equity index and options of $0.6 million partially offset by gains on forward exchange option and future contracts of $0.7 million and exchange traded commodity swap option and future contracts of $1.0 million. Derivative losses, net in 2011 were primarily due to losses on U.S. Treasury note, rate lock and bond future and option contracts of $28.3 million. Derivative gains, net in 2010 were primarily due to gains on U.S. Treasury note, rate lock and bond future and option contracts of $8.5 million, forward currency exchange option and future contracts of $3.8 million and equity options of $1.6 million partially offset by losses on interest rate swaps of $3.5 million.
Foreign currency gains (losses), net. Foreign currency gains, net in 2011 were primarily due to a strengthening of the U.S. dollar against the euro underlying certain of the Company’s marketable securities and cash balances. Foreign currency losses, net in 2010 were primarily due to a strengthening of the U.S. dollar against foreign currencies underlying certain of the Company’s intercompany notes receivable and cash balances.
Other Income (Expense) not included in Segment Profit
Interest income. Interest income was $4.7 million higher in 2012 compared with 2011 primarily due to interest earned on advances to the Company's 50% or less owned companies and interest from the Company's lending and leasing activities. Interest income was $4.8 million higher in 2011 compared with 2010 primarily due to higher lending and leasing activities.
Interest expense. Interest expense was $7.4 million higher in 2012 compared with 2011 primarily due to interest expense on borrowings from Era Group's senior secured revolving credit facility and 7.75% Senior Notes entered into on December 7, 2012, offset by lower interest from the Company's 5.875% Senior Notes which matured October 1, 2012. Interest expense was $2.7 million lower in 2011 compared with 2010 primarily due to higher capitalized interest.
Debt extinguishment gains, net. During 2010, the Company purchased or redeemed outstanding debt that resulted in net losses on debt extinguishments of $1.5 million. The net losses resulted primarily from the purchase of the Company’s 7.375% Senior Notes.
Marketable security gains (losses), net. 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. In 2011, marketable security losses, net were due to losses on the Company’s long marketable security positions of $13.4 million partially offset by gains on short sales of marketable securities of $5.5 million. In 2010, marketable security losses, net were due to losses on short sales of marketable securities of $5.0 million partially offset by gains on long marketable security positions of $2.8 million.
Income Taxes
The Company’s effective income tax rate in 2012, 2011 and 2010 was 41.7%, 38.0% and 37.1%, respectively.
Liquidity and Capital Resources
Overview
The Company’s ongoing liquidity requirements arise primarily from working capital needs, and its obligations to meet capital commitments and repay debt obligations. 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, cash flows from operations and borrowings under the Company’s revolving credit facilities. 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, 2012, excluding Aviation Services, the Company's unfunded capital commitments were $210.7 million and consisted of: 16 offshore support vessels for $122.6 million; an interest in a jack-up drilling rig for $30.3 million; eight inland river tank barges for $18.4 million; five inland river towboats for $15.3 million; four harbor tugs for $13.1 million; and other equipment and improvements for $11.0 million. In addition, the Company notified the lessee of its intent to purchase one harbor tug currently operating under a capital lease for $1.3 million. Of these commitments, $176.6 million is payable during 2013 with the balance payable through 2015. The Company's Aviation Services business segment's unfunded capital commitments were $134.8 million and consisted primarily of eleven helicopters for $134.4 million, of which $128.3 million may be terminated without further liability other than the payment of liquidated damages of $3.3 million. Of Aviation Services commitments, $13.8 million is payable in 2013 with the balance payable through 2016. As of December 31, 2012, the Company held balances of cash, cash equivalents, restricted cash, marketable securities, construction reserve funds and Title XI reserve funds totaling $505.3 million, of which $11.5 million was held by Aviation Services. Subsequent to December 31, 2012, the Company, excluding Aviation Services, committed to purchase additional equipment for $1.3 million, Aviation Services committed to purchase two additional helicopters for $16.6 million and one of the Company's Offshore Marine Services joint ventures secured financing for the jack-up drilling rig reducing the Company's unfunded capital commitments by $30.3 million.
As of December 31, 2012, construction reserve funds of $186.0 million were classified as non-current assets in the accompanying condensed consolidated balance sheets as the Company has the intent and ability to use the funds to acquire equipment.
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, 2012, the remaining authority under the repurchase plan was $30.5 million. Subsequent to December 31, 2012, the Company's Board of Directors increased the authorization to repurchase Common Stock to $100.0 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.
As of December 31, 2012, the Company had no outstanding borrowings under the SEACOR revolving credit facility. The remaining availability under this facility as of December 31, 2012 was $359.0 million, net of issued letters of credit of $1.0 million. In addition, the Company had other outstanding letters of credit totaling $40.0 million with various expiration dates through 2016, of which $11.3 million was offset by letters of credit issued in favor of the Company in connection with the sale of SEI.
As of December 31, 2012, Era Group had $50.0 million of outstanding borrowings under its senior secured revolving credit facility and had issued letters of credit of $0.3 million. The senior secured revolving credit facility requires Era Group to maintain a maximum leverage ratio and various other financial ratios, as defined in the senior secured credit facility. Failure to comply with these ratios is an event of default and, as a result, borrowing capacity is based on the ability to comply with these ratios. As of December 31, 2012, Era Group had remaining availability of $92.3 million based on compliance with these financial ratios.
Summary of Cash Flows
Operating Activities
Cash flows provided by operating activities decreased by $8.3 million during 2012 compared with 2011. Cash flows provided by operating activities decreased by $183.8 million during 2011 compared with 2010. The components of cash flows provided by (used in) operating activities during the years ended December 31 were as follows:
During 2012, operating income from continuing operations before depreciation and gains on asset dispositions and impairments, net increased by $16.3 million compared with 2011 primarily due to improvements in Offshore Marine Services due to increased demand derived from offshore drilling and exploration activities offset by a decline in emergency and crisis services which depend upon the number and magnitude of emergency responses each year. During 2011, operating income from continuing operations before depreciation and gains on asset dispositions and impairments, net decreased by $156.5 million compared with 2010 primarily due to the impact of the oil spill response, activities in 2010 and weakness in the offshore marine market. See “Consolidated Results of Operations” included above for a discussion of the results for each of the Company’s business segments.
During 2011, changes in operating assets and liabilities before interest and income taxes used cash flows of $44.2 million primarily due to final settlements with a customer and certain subcontractors in respect of oil spill response activities and increased working capital employed in Aviation Services and commodity trading and logistics activities. During 2010, changes in operating assets and liabilities before interest and income taxes provided cash flows of $79.7 million primarily due to the positive working capital impact of oil spill response activities, the liquidation of rice inventories in agricultural commodity trading and logistics and the reduction of working capital in Offshore Marine Services resulting from declines in activity.
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.
During 2011, cash used in operating activities included $26.5 million to purchase marketable security long positions and $90.6 million to cover marketable security short positions. During 2011, cash provided by operating activities included $95.4 million received from the sale of marketable security long positions and $82.6 million received upon entering into marketable security short positions.
During 2010, cash used in operating activities included $102.6 million to purchase marketable security long positions and $5.1 million to cover marketable security short positions. During 2010, cash provided by operating activities included $27.3 million received from the sale of marketable security long positions and $17.7 million received upon entering into marketable security short positions.
Investing Activities
During 2012, net cash used in investing activities of continuing operations was $253.4 million million primarily as follows:
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Capital expenditures were $352.3 million. Equipment deliveries included five offshore support vessels, one wind farm utility vessel, three inland river dry cargo barges, five inland river liquid tank barges, two inland river towboats and 18 helicopters.
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The Company sold property and equipment for net proceeds of $173.1 million ($119.2 million in cash, $5.0 million in cash deposits previously received and $48.9 million in seller financing). 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.
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The Company made net investments in, and advances to, 50% or less owned companies of $56.2 million including a $10.8 million loan to Era do Brazil, $20.8 million of bridge financing to Trailer Bridge and $11.0 million in advances to Avion.
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The Company received returns on investments from its 50% or less owned companies of $89.8 million 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.
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The Company received net payments on third party notes receivable of $33.7 million.
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Construction reserve fund account transactions included withdrawals of $122.7 million and deposits of $58.4 million.
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The Company acquired 18 lift boats, real property and working capital from Superior for $142.5 million.
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The Company obtained a 70% 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 provided by investing activities of discontinued operations was $107.1 million primarily as follows:
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On March 16, 2012, the Company sold the SES Business for a net sales price of $99.9 million. Net cash proceeds received during 2012 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.
During 2011, net cash used in investing activities of continuing operations was $323.9 million primarily as follows:
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Capital expenditures were $324.2 million. Equipment deliveries included three offshore support vessels, 55 inland river dry cargo barges, two inland river liquid tank barges, nine helicopters and one harbor tug. In addition, the Company acquired a controlling interest in an offshore support vessel.
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The Company sold 11 offshore support vessels, 10 helicopters, one US-flagged product tanker, one inland river towboat, one inland river liquid tank barge, six inland river dry cargo and deck barges, two harbor tugs and other equipment for net proceeds of $101.8 million, including $36.3 million in proceeds upon entering into a sale-leaseback transaction.
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The Company made investments in its 50% or less owned companies of $63.0 million.
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The Company received returns on investments from its 50% or less owned companies of $22.3 million.
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The Company made net advances on third party notes receivable of $36.2 million.
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Construction reserve fund account transactions included withdrawals of $82.5 million and deposits of $18.6 million.
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The Company acquired certain assets and liabilities of Lewis & Clark and certain related affiliates for $29.6 million.
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The Company acquired 75% of the issued and outstanding shares in Windcat Workboats Holdings Ltd. for $21.5 million. The acquired company had $3.3 million in cash at the time of acquisition.
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The Company acquired certain real property, eight foreign-flag RORO vessels and a 70% interest in an operating company engaged in the shipping trade between the United States, the Bahamas and the Caribbean for $33.5 million, which included cash consideration of $30.3 million and the contribution of a $3.2 million note receivable. The acquired company had $1.6 million in cash at the time of acquisition.
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The Company obtained a 100% controlling interest in Soylutions LLC through its acquisition of its partner’s interest for $11.9 million in cash. The acquired company had $0.2 million in cash at the time of acquisition.
During 2010, net cash provided by investing activities of continuing operations was $25.1 million primarily as follows:
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Capital expenditures were $243.4 million. Equipment deliveries included one offshore support vessel, 113 inland river dry cargo barges, 17 inland river liquid tank barges, six helicopters and one tractor tug.
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The Company sold eight offshore support vessels, two helicopters, one ocean liquid tank barge, 60 inland river dry cargo barges, two tankers and other equipment for net proceeds of $360.3 million, including $217.3 million in proceeds upon entering into sale-leaseback transactions. In addition, the Company received insurance proceeds related to the nationalization of one of its offshore support vessels and the total constructive loss of another offshore support vessel under construction.
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The Company made investments in its 50% or less owned companies of $58.6 million.
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The Company received returns on investments from its 50% or less owned companies of $15.1 million.
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The Company released $21.4 million of restricted cash and $7.0 million of Title XI reserve funds into general purpose funds primarily due to the redemption of all of the outstanding Title XI Bonds on two of the Company’s double-hull product tankers (as noted below).
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Construction reserve fund account transactions included withdrawals of $56.7 million and deposits of $97.8 million.
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The Company made net investments in leases of $15.0 million.
Financing Activities
During 2012, net cash used in financing activities of continuing operations was $260.4 million. The Company:
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purchased $5.5 million, in principal amount, of its 5.875% Senior Notes due 2012 for an aggregate purchase price of $5.7 million;
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retired at maturity $171.0 million of the remaining principal balance outstanding of its 5.875% Senior Notes due 2012 for $171.0 million;
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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;
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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;
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borrowed $115.0 million and repaid $290.0 million under the SEACOR revolving credit facility;
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borrowed $88.0 million and repaid $290.0 million under the Era Group senior secured revolving credit facility, net of issue costs;
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issued other debt of $6.6 million;
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made scheduled payments on long-term debt and capital lease obligations of $16.3 million;
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had borrowings of $0.1 million and made repayments of $0.7 million on other working capital lines;
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repaid $3.2 million of acquired debt;
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incurred net repayments on inventory financing arrangements of $14.6 million
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paid a $5.00 per share dividend on Common Stock of $100.4 million to shareholders; and
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acquired for treasury 1,377,798 shares of Common Stock for an aggregate purchase price of $119.5 million.
During 2011, net cash provided by financing activities of continuing operations was $221.0 million. The Company:
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purchased $2.2 million, in principal amount, of its 5.875% Senior Notes due 2012 for an aggregate purchase price of $2.3 million;
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had borrowings of $50.0 million under the SEACOR revolving credit facility and $248.9 million under the Era senior secured revolving credit facility, net of issue costs, and issued other debt of $2.9 million;
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repaid $22.8 million for the redemption of facility financing;
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made scheduled payments on long-term debt and capital lease obligations of $14.5 million;
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had net borrowings on inventory financing arrangements of $20.2 million;
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received $11.9 million for share award plans; and
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acquired for treasury 843,400 shares of Common Stock for an aggregate purchase price of $71.3 million.
During 2010, net cash used in financing activities of continuing operations was $506.1 million. The Company:
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paid a $15.00 per share dividend on Common Stock of $319.7 million to shareholders;
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redeemed all of the outstanding bonds on two of its double hull product tankers, in principal amount of $61.9 million, for an aggregate purchase price of $63.0 million including a make-whole premium;
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purchased $2.4 million, in principal amount, of its 5.875% Senior Notes due 2012 for an aggregate purchase price of $2.5 million;
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purchased $16.5 million, in principal amount, of its 7.375% Senior Notes due 2019 for an aggregate purchase price of $17.3 million;
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made scheduled payments on long-term debt and capital lease obligations of $10.1 million;
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issued other secured debt in an aggregate principal amount of $38.7 million;
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had net borrowings on inventory financing arrangements of $21.6 million;
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received $26.2 million from share award programs; and
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acquired for treasury 1,811,700 shares of Common Stock for an aggregate purchase price of $137.1 million.
Short and Long-Term Liquidity Requirements
Current economic conditions have continued to disrupt the credit and capital markets. To date, the Company’s liquidity has not been materially impacted by the current credit environment and management does not expect that it will be materially impacted in the near-future. 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; borrow under its revolving credit facilities; issue debt, shares of Common Stock or common stock of its subsidiaries, preferred stock; or a combination thereof.
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 joint ventures. As of December 31, 2012, the Company had the following guarantees in place:
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The Company is a guarantor of 50% of the outstanding debt for one of its domestic offshore marine joint ventures. The amount guaranteed by the Company declines as principal payments are made and will terminate when the debt is repaid. The debt matures in 2015. As of December 31, 2012, the amount of the Company’s guarantee was $12.0 million.
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The Company is a party to two international offshore marine joint ventures 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 parties to the joint ventures 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 $2.5 million, in the aggregate, as of December 31, 2012. 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, 2012, the Company’s contingent guarantee of the joint venture’s outstanding charter receivables was $2.2 million.
•
The Company guaranteed up to $0.7 million with respect to amounts owing pursuant to a vessel charter agreement between one of the Company’s domestic offshore marine joint ventures and the owner of the chartered vessel. The amount of the Company’s guarantee declines over the life of the charter and terminates in 2013.
•
The Company is guarantor of 50% of the outstanding debt for a joint venture that owns two offshore high speed catamaran crew boats. The amount of the guarantees decline as principal payments are made and will terminate when the debt is repaid. The debt matures in 2015. As of December 31, 2012, the amount of the Company’s guarantee was $9.1 million.
•
The Company is guarantor of 50% of the outstanding debt for a Shipping Services joint venture 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, 2012, the amount of the Company’s guarantee was $5.0 million.
In addition, the Company had issued performance guarantees on behalf of the SES Business prior to its sale that expire in 2013-2014. As of December 31, 2012, the amount of outstanding SES Business performance guarantees was $0.1 million.
Contractual Obligations and Commercial Commitments
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(1)
Maturities of the Company’s borrowings and interest payments pursuant to such 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, 2012 as the Company has not yet received the goods or taken title to the property.
(3)
Operating leases primarily include leases of vessels, helicopters, 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, 2012. 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.
______________________
(1)
Maturities of the Company’s borrowings and interest payments pursuant to such borrowings are based on contractual terms.
(2)
Capital purchase obligations represent commitments for the purchase of property and equipment as of December 31, 2012. Of the total unfunded capital commitments, $128.3 million may be terminated without further liability other than the payment of liquidated damages of $3.3 million. Such commitments relate to orders Aviation Services had paced for eleven new helicopters, consisting of one AW139 medium helicopter, five AW169 light-twin helicopters and five AW189 medium helicopters. These commitments are not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2012 as the Company has not yet received the goods or taken title to the property. The AW139 medium helicopter was delivered in 2013 and the AW189 helicopters are scheduled to be delivered in 2014 and 2015. Delivery dates for the AW169 light-twin helicopters have yet to be determined.
(3)
Operating leases primarily include leases of vessels, helicopters, barges, tankers and other property that have a remaining term in excess of one year.
(4)
Purchase obligations primarily include purchase orders for helicopter inventory and maintenance as of December 31, 2012. 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.
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 14, 2010, a group of individuals and entities purporting to represent a class commenced a civil action in the U.S. District Court for the Eastern District of Louisiana, Terry G. Robin, et al. v. Seacor Marine, L.L.C., et al., No. 2:10-cv-01986 (E.D. La.) (the “Robin Case”), in which they asserted that support vessels, including vessels owned by the Company, responding to the explosion and resulting fire that occurred aboard the semi-submersible drilling rig, the Deepwater Horizon, were negligent in their efforts to save lives and put out the fire and contributed to the sinking of the Deepwater Horizon and subsequent oil spill. The action was part of the overall multi-district litigation, In re Oil Spill by the Oil Rig “Deepwater Horizon”, MDL No. 2179 (“MDL”). The complaint sought compensatory, punitive, exemplary, and other damages. In response to this lawsuit, the Company filed petitions seeking exoneration from, or limitation of liability in relation to, any actions that may have been taken by vessels owned by the Company to extinguish the fire. On June 8, 2011, the Company moved to dismiss these claims (with the exception of one claim filed by a Company employee) on various legal grounds. On October 12, 2011, the Court granted the Company's motion to dismiss in its entirety, dismissing with prejudice all claims that had been filed against the Company in the limitation actions (with the exception of one claim filed by a Company employee that was not subject to the motion to dismiss). The Court entered final judgments in favor of the Company in the Robin Case and each of the limitation actions on November 21, 2011. On December 12, 2011, the claimants appealed each of those judgments to the Unites States Court of Appeals for the Fifth Circuit. The claimants' opening brief was submitted on May 7, 2012, and the claimants filed a reply brief on June 1, 2012. Oral argument was not requested by the Fifth Circuit. On December 13, 2012, the Fifth Circuit affirmed the judgment of the district court.
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, a subsidiary of the Company prior to the ORM Transaction. The action now is part of the overall 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. 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.
On December 15, 2010, ORM and NRC, subsidiaries of the Company prior to the ORM Transaction and SES Business Transaction, respectively, were named as defendants in one of the several consolidated “master complaints” that have been filed in the overall MDL. The 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. 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.
Subsequent to the filing of the referenced master complaint, six additional individual civil actions have been filed in 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. 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 15, 2011, ORM and NRC were named as defendants in James and Krista Pearson v. BP Exploration & Production, Inc., 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 & Production, Inc., 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 seek to adopt the allegations made in the referenced master complaint against ORM and NRC (and the other defendants). 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. Finally 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. By court order, all six of these additional individual cases have been stayed until further notice. The Company is unable to estimate the potential exposure, if any, resulting from this matter but believes it is without merit and does not expect this matter will have a material effect on the Company's consolidated financial position or its results of operations.
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, Halliburton Energy Services, Inc., and M-I L.L.C. 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 have 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 recently moved to voluntarily dismiss these cross-claims without prejudice. The Court granted Weatherford's motion on February 8, 2013. As provided 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 these matters will have a material effect on the Company's consolidated financial position or its results of operations.
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 la., 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. Plaintiffs recently filed their motion to vacate the CTO and brief in support thereof with the JPML, and responses to same are to be filed on or before February 28, 2013. The Company is unable to estimate the potential exposure, if any, resulting from this matter but believes it is without merit and does not expect this matter to have a material effect on the Company's consolidated financial position or its results of operations.
Separately, on March 2, 2012, the Court announced that BP Exploration & Production Inc. and BP America Production Company (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 on December 21, 2012, and granted final approval to the Medical Benefits Class Action Settlement on January 11, 2013. Notices of Appeal to the Fifth Circuit with respect to both class action settlements have been filed by various objectors. Although neither the Company, ORM, or NRC are parties to the settlement agreements, the Company, ORM, and NRC are listed as released parties on the releases accompanying both settlement agreements. As the releases for both settlements have been deemed valid and enforceable by the district court, if the Fifth Circuit affirms these decisions, 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. At this time, the Company expects these settlements to reduce ORM's potential exposure, if any, from some of the pending actions described above, but is currently still evaluating the settlements' impacts on these cases.
On January 29, 2013, HEPACO, LLC ("HEPACO"), served a demand for arbitration upon O'Brien's Response Management, Inc. ("ORM"), in which HEPACO claims that ORM owes HEPACO an additional fee of $20,291,178.92 under the parties' Management Services Agreement (“MSA”), dated June 1, 2010. According to HEPACO, the MSA requires ORM to pay HEPACO an additional fee of 30% of total charges paid under the MSA ("Surcharge") to compensate HEPACO for U.S. Longshoremen's and Harbor Workers' insurance or Jones Act insurance and related risks attendant to the work when contract requires labor to be performed over, adjoining and/or in water. ORM denies liability for the Surcharge, intends to vigorously defend against the claim, and has sought indemnity for any resulting judgment and related attorneys fees from BP America Production Company (“BP America”) and BP Exploration & Production Inc. (“BP Exploration”) (collectively, “BP”). ORM has advised BP that, pursuant to the Bridge Agreement HOU-WL4-3066 between BP and ORM, effective as of June 1, 2010, under which ORM managed and oversaw, for BP, subcontractors, such as HEPACO, in connection with on-shore services related to the BP Deepwater Horizon oil spill, BP ultimately is responsible for the payment of the Surcharge should HEPACO be determined to be entitled to recover it under the MSA.
In the course of the Company's business, it may agree to indemnify a party. 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 and the ORM 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. In the case of the SES Business Transaction, such potential liabilities may not exceed the purchase consideration received by the Company for the SES Business Transaction and in the case of the ORM Transaction are subject to a negotiated cap. The Company currently is indemnified under contractual agreements with BP.
ORM is defending against four collective action lawsuits, each asserting failure to pay overtime with respect to individuals who provided service on the Deepwater Horizon spill response (the “DPH FLSA Actions”) under the Fair Labor Standards Act (“FLSA”). These cases - Dennis Prejean v. O'Brien's Response Management Inc. (E.D. La., Case No.: 2:12-cv-01045) (the “Prejean 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”); Himmerite et al. v. O'Brien's Response Management Inc. et al. (E.D. La., Case No.: 2:12-cv-01533) (the “Himmerite Action”); and Chann Chavis v. O'Brien's Response Management Inc. et al. (S.D. Tx., Case No.: 4:12-cv-02045) (the “Chavis Action”) - were each brought on behalf of certain individuals who worked on the Deepwater Horizon oil spill response and who were classified as independent contractors. The Prejean, Himmerite and Singleton Actions were each filed in the United States District Court for the Eastern District of Louisiana and then subsequently consolidated with the overall MDL. The Himmerite and Singleton Actions have since been automatically stayed pending further scheduling by the Court, pursuant to the procedures in the MDL. In the Prejean Action, ORM has answered the complaint, a scheduling order has been issued, and plaintiffs have, among other things, filed a Motion for Conditional Certification, which has been stayed pending further scheduling by the Court in accordance with the procedures of the MDL. The limitations periods for potential plaintiffs to opt-in to the Prejean, Himmerite and Singleton actions have all been tolled pending further action by the Court. ORM has filed a Motion for Reconsideration of the Court's order tolling the limitations periods in these actions. The Chavis Action was filed on July 7, 2012 in the United States District Court for the Southern District of Texas, and ORM answered the complaint in that matter. On December 20, 2012, the parties in the Chavis Action entered into a full and final settlement agreement with respect to all of the Plaintiff's individual and class claims, pending approval of the Court. The Company is unable to estimate the potential exposure, if any, resulting from any of these DPH FLSA Actions, but believes they are without merit and will continue to vigorously defend against them.
In 2011, the Company received a Notice of Infringement (the “Notice”) from the Brazilian Federal Revenue Office. The Notice alleged the Company had imported a number of vessels into Brazil without properly completing the required importation documents and levied an assessment of $25.7 million. Of the levied assessment, $19.3 million related to managed vessels. On August 14, 2012, a decision was rendered in favor of the Company by the second Panel of Judgment of the Brazilian Federal Revenue Office and the matter is now closed.
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 or its results of operations.
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. Mr. Charles Fabrikant, the Executive Chairman of SEACOR, companies controlled by Mr. Fabrikant, 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, 2012, 2011 and 2010, Mr. Fabrikant and his affiliates earned $0.8 million, $1.1 million and $1.0 million, respectively, of net barge pool results (after payment of $0.1 million, $0.1 million and $0.1 million, respectively, in management fees to the Company). As of December 31, 2012 and 2011, the Company owed Mr. Fabrikant and his affiliates $0.4 million and $0.4 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.
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, 2012, 2011 and 2010.
Critical Accounting Policies and Estimates
General. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 this 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 recorded and 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, which govern the terms and conditions of charter.
Era Group, the Company’s Aviation Services segment prior to the Spin-off, charters the majority of its helicopters through master service agreements, subscription agreements, day-to-day charter arrangements and contract-leases. Master service agreements and subscription agreements require incremental payments above a fixed monthly fee based on hours flown. These agreements have fixed terms ranging from one month to five years and generally can be canceled upon 30-days notice. Day-to-day charter arrangements call for either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate. Services provided under contract-leases can include only the equipment, or can include the equipment, logistical and maintenance
support, insurance and personnel, or a combination thereof. Fixed monthly fee revenues are recognized ratably over the contract term. Usage or hourly based revenues are recognized as hours are flown. Aviation Services’ air medical services are provided under contracts with hospitals that typically included either a fixed monthly and hourly rate structure or a fee per completed flight. Fixed monthly revenues are recognized ratably over the month while per hour or per flight based revenues were recognized as hours were flown or flights are completed. Most contracts with hospitals are longer term, but offer either party the ability to terminate with less than six months notice. Aviation Services operates some air medical contracts pursuant to which it collects a fee per flight, either from a hospital or insurance company. With respect to flightseeing activities, Aviation Services allocates block space to cruise lines and sells seats directly to customers with revenues recognized as the services are performed. Aviation Services’ fixed based operation sells fuel on an ad-hoc basis and those sales are recognized at the time of fuel delivery. Training revenues are charged at a set rate per training course and include instructors, training materials and flight or flight simulator time, as applicable. Training revenues are recognized as services are provided.
The Company’s Inland River Services segment earns revenues primarily from voyage affreightment contracts whereby customers are charged an established rate per ton to transport cargo from point to point. 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 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 cargos on a single voyage basis regardless of time to complete. Contracts of affreightment are contracts for cargos 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. 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.
The Company's Alcohol Manufacturing segment earns revenues from the sale of alcohol, co-products and by-products. Revenues and related costs from these sales are recorded when title transfers to the buyer.
Trade Receivables. Customers of Offshore Marine Services, Shipping Services and Aviation Services are primarily major and independent oil and gas exploration and production companies. Customers of Inland River Services are primarily major agricultural and industrial companies based within the United States. Customers of the Company's Alcohol Manufacturing business segment include agricultural and industrial companies. Customers of the Company's other business activities include foreign governments and local 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 gains (losses), net. Realized and unrealized gains and losses on derivatives designated as fair value hedges are recognized as corresponding increases or decreases in the fair value of the underlying hedged item to the extent they are effective, with any ineffective portion reported in the accompanying consolidated statements of income as derivative gains (losses), net. Realized and unrealized gains and losses on derivatives designated as cash flow hedges are reported as a component of other comprehensive income 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 gains (losses), net. Realized and unrealized gains and losses on derivatives designated as cash flow hedges that are entered into by the Company’s equity method investees are also reported as a component of the Company’s other comprehensive income (loss) in proportion to the Company’s ownership percentage in the investee, 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.
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, spare parts and fuel in the Company’s Aviation Services segment, corn and high quality and fuel alcohol in the Company's alcohol manufacturing segement and sugar, rice and salt in the Company's other business activities. The Company records write-downs, as needed, to adjust the carrying amount of inventories to the lower of cost or market.
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, 2012, 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)
Effective July 1, 2011, the Company changed its estimated useful life and salvage value for helicopters from 12 to 15 years and 30% to 40%, respectively, due to improvements in new helicopter models that continue to increase their long-term value and make them viable for operation over a longer period of time.
(2)
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.
Aviation Services engages a number of third-party vendors to maintain the engines and certain components on some of its helicopter models under programs known as “power-by-hour” maintenance contracts. These programs require Aviation Services to pay for maintenance service ratably over the contract period, typically based on actual flight hours. Power-by-hour providers generally bill monthly based on hours flown in the prior month, the costs being expensed as incurred. In the event Aviation Services places a helicopter in a program after a maintenance period has begun, it may be necessary to pay an initial buy-in charge based on hours flown since the previous maintenance event. The buy-in charge is normally recorded as a pre-paid expense and amortized as an operating expense over the remaining power-by-hour contract period. If a helicopter is sold or otherwise removed from a program before the scheduled maintenance work was carried out, the Company may be able to recover part of its payments to the power-by-hour provider, in which case Aviation Services records a reduction to operating expenses when it receives the refund.
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 investee’s financial condition, the business outlook for its products and services, and its present and projected results and cash flows. When an investee 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 investees, the severity and expected duration of declines in value, and the available liquidity in the capital markets to support the continuing operations of the investees in which the Company has investments.
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 percent 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.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
The Company has entered into and settled positions in euro based forward currency exchange contracts designated as fair value hedges for capital purchase commitments in U.S. dollars. As of December 31, 2012, there were no forward currency exchange contracts designated as fair value hedges as all of the contracts matured or were dedesignated and liquidated during the year ended December 31, 2011. As of December 31, 2012, the Company had capital purchase commitments of €101.7 million ($134.4 million). An adverse change of 10% in the underlying foreign currency exchange rates would increase the U.S. dollar equivalent of these non-hedged purchase commitments by $13.4 million.
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, 2012, the outstanding forward currency exchange contracts translated into a net purchase of foreign currencies with an aggregate U.S. dollar equivalent of $8.0 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 $0.5 million, net of tax.
As of December 31, 2012, the Company maintained cash balances of €10.9 million. An adverse change of 10% in the underlying foreign currency exchange rate on euro denominated cash balances would reduce net income by $0.9 million, net of tax. Additionally, as of December 31, 2012, the Company advanced intercompany loans of £9.0 million ($13.8 million) to a United Kingdom subsidiary. A 10% weakening in the exchange rate of the pound sterling against the U.S. dollar as of December 31, 2012 would result in foreign currency losses of $0.4 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 £40.5 million ($65.8 million) are included in the Company’s consolidated balance sheets as of December 31, 2012. A 10% weakening in the exchange rate of the pound sterling against the U.S. dollar as of December 31, 2012, would increase other comprehensive loss by $4.3 million, net of tax, due to translation. In addition, the Company has long-term debt of €24.9 million (£20.2 million). A 10% weakening in the exchange rate of the Euro against the pound sterling as of December 31, 2012 would result in foreign currency losses of $2.1 million, net of tax. SEACOR also provided $12.0 million (£7.4 million) U.S. dollar denominated loans to a United Kingdom subsidiary. A 10% weakening in the exchange rate of the pound sterling against the U.S. dollar as of December 31, 2012 would result in foreign currency losses of $0.9 million, net of tax.
As of December 31, 2012, the Company held marketable securities with a fair value of $21.7 million, including $9.0 million in fixed income investments consisting of corporate debt securities, and foreign government bonds, and $12.7 million in equity securities. As of December 31, 2011, the Company held marketable securities with a fair value of $66.9 million, including $45.4 million in fixed income investments consisting of corporate debt securities, municipal bonds, and foreign government bonds, and $21.5 million in equity securities. From time to time, the Company may increase its level of investment in fixed income securities including U.S. government bonds, foreign government bonds, state and municipal bonds, and corporate notes with maturities ranging from a few months to many years. The fair value of such investments fluctuates based on market interest rates and the creditworthiness of the issuers of the securities. When making substantial investments in fixed income securities, the Company manages its risk associated with these investments by analyzing the creditworthiness of issuers and utilizing other techniques that may include maintaining a ladder of maturities. 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, 2012, would reduce income by $1.4 million, net of tax.
The Company held positions in short sales of marketable equity securities with a fair value of $8.3 million and $22.6 million as of December 31, 2012 and 2011, respectively. 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, 2012 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, 2012, the Company had an asset of $0.3 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.
Era Group Inc., a subsidiary of the Company, had $50.0 million of variable rate borrowings, based on LIBOR under the Era Group Inc. Senior Secured Revolving Credit Facility established on December 22, 2011. The borrowing rate at December 31, 2011 was 2.9%. A 10% increase in LIBOR would not result in a material amount of additional annual interest expense.
As of December 31, 2012, the Company had other variable rate debt instruments (due 2015 through 2018) totaling $55.9 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, 2012, the average interest rate on these borrowings was 3.7%.
As of December 31, 2012 the Company had interest rate swap agreements with an amortized notional value of $227.8 million. These agreements call for the Company to pay a fixed interest rate ranging from 1.67% to 3.00% and receive interest payments based on LIBOR or Euribor. As of December 31, 2012, the Company had a liability of $6.9 million having marked to market its positions in these interest rate swap agreements.
The Company enters and settles positions in various exchange and non-exchange traded commodity swap, option and future contracts. In the Company’s agricultural business, fixed price future purchase and sale contracts of sugar are included in the Company’s non-exchange traded derivative positions. The Company enters into exchange traded positions to protect these purchase and sales contracts as well as its inventory balances from market changes. As of December 31, 2012, the net market exposure to ethanol 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, 2012, these positions were not material. As of December 31, 2012, the fair value of these exchange and non-exchange commodity contracts was an asset of $6.2 million, net.
The Company enters and settles various positions in U.S. treasury notes and bonds through rate locks, futures or options on futures tied to U.S. treasury notes. The general purpose of these transactions is to provide value to the Company should the price of U.S. treasury notes and bonds decline, leading to generally higher interest rates, which might lead to higher interest costs for the Company. As of December 31, 2012, there were no positions outstanding.
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
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, 2012. 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, 2012.
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, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. During the year ended December 31, 2012, the Company implemented a newer version of its financial information technology system. This implementation was subject to thorough testing and review before and after the final implementation with no significant impact on our underlying controls over financial reporting.
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.
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, 2012, to be signed on its behalf by the undersigned, and in the capacities indicated, thereunto duly authorized.
SEACOR Holdings Inc. (Registrant)
By:
/S/ RICHARD RYAN
Richard Ryan, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: February 27, 2013
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
SEACOR Holdings Inc.’s (“SEACOR”) management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934).
Management conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2012 based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included a review of the documentation surrounding SEACOR’s financial controls, an evaluation of the design effectiveness of these controls, testing of the operating effectiveness of these controls and a conclusion on this evaluation. Although there are inherent limitations in the effectiveness of any system of internal control over financial reporting - including the possibility of the circumvention or overriding of controls - based on management’s evaluation, management has concluded that SEACOR’s internal control over financial reporting was effective as of December 31, 2012. However, because of changes in conditions, it is important to note that internal control system effectiveness may vary over time.
SEACOR’s internal control over financial reporting as of December 31, 2012 has been audited by Ernst & Young LLP, the independent registered public accounting firm that has also audited SEACOR’s consolidated financial statements included in this Annual Report on Form 10-K. Ernst & Young LLP’s report on SEACOR’s internal control over financial reporting is included elsewhere herein.
REPORT OF INDEPENDENT REGISTERED 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, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (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, 2012, 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, 2012 and 2011, 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, 2012 of SEACOR Holdings Inc. and our report dated February 27, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Certified Public Accountants
Miami, Florida
February 27, 2013
REPORT OF INDEPENDENT REGISTERED 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, 2012 and 2011, 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, 2012. 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, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, 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, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Certified Public Accountants
Miami, Florida
February 27, 2013
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 and shipping industries. The Company conducts its activities in five primary business segments: Offshore Marine Services operates a diversified fleet of offshore support vessels primarily servicing offshore oil and gas exploration, development and production facilities worldwide; Aviation Services operates and contract-leases helicopters that provide transportation services supporting offshore oil and gas activities primarily in the United States, air medical services to hospitals in the United States, and international contract-leasing activities; Inland River Services is primarily engaged in dry and liquid cargo transportation on the U.S. Inland River Waterways and the Gulf Intracoastal Waterways for a range of agricultural and industrial products; Shipping Services invests in, operates and leases a diversified fleet of U.S.-flag and foreign-flag marine transportation related assets including deep-sea cargo vessels and harbor tugs primarily servicing the U.S. coastwise petroleum trade and ships docking in the U.S. Gulf and East Coast ports, liner and short-sea transportation to and from ports in Florida, Puerto Rico, the Bahamas and 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 and technical ship management services; and Alcohol Manufacturing operates an alcohol manufacturing facility dedicated to the production of alcohol for beverage, industrial and fuel applications. The Company also has activities that are referred to and described under Other, which primarily includes its emergency and crisis services activities, its agricultural commodity trading and logistics activities, other activities, primarily lending and leasing activities, and its noncontrolling investments in various other businesses, primarily industrial aviation services businesses in Asia.
The Company's Shipping Services business segment includes activities previously reported as Marine Transportation Services and Harbor and Offshore Towing Services, which had previously been included in Other.
Previously, the Company reported its environmental activities under Environmental Services, which was conducted through SEACOR Environmental Services Inc. ("SES") and O'Brien's Response Management Inc. ("ORM"). SES included National Response Corporation ("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 (collectively the “SES Business”). On March 16, 2012, the Company sold the SES Business (the "SES Business Transaction") to J.F. Lehman & Company, a leading, middle-market private equity firm. 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 (see Note 17). On December 31, 2012, the Company contributed its interest in ORM to Witt Group Holdings, LLC in exchange for an equity interest in Witt Group Holdings, LLC (the "ORM Transaction"), which was renamed Witt O'Brien's, LLC ("Witt O'Brien's"). For all periods presented herein, the Company has reported the results of its emergency and crisis services activities through ORM under Other.
The Company also previously reported its activities involving the purchase, storage, transportation and sale of energy and agricultural commodities and its interest in a processing plant that produces beverage and industrial alcohol and fuel-grade ethanol under Commodity Trading and Logistics. On December 31, 2012, the energy commodity component of this business segment, SEACOR Energy Inc. ("SEI"), was sold 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 (See Note 17). For all periods presented herein, the Company has reported the results of its interest in a processing plant that produces beverage and industrial alcohol and fuel-grade ethanol business under Alcohol Manufacturing and the agricultural commodity component of this business segment under Other.
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 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." Commencing with the three months ending March 31, 2013, the Company will report the historical financial position, results of operations and cash flows of Era Group as discontinued operations.
Basis of Consolidation. The consolidated financial statements include the accounts of SEACOR and its majority-owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.
Noncontrolling interests are included in the consolidated balance sheets within equity separate from the Company’s equity. The Company reports consolidated net income inclusive of both the Company’s and the noncontrolling interests’ shares and, separately, the amounts of consolidated net income attributable to the Company and noncontrolling interests. If a subsidiary is deconsolidated upon a change in control, any retained noncontrolling equity investment in the former subsidiary is measured at fair value and a gain or loss is recognized in net income based on such fair value. If a noncontrolled subsidiary is consolidated upon a change in control, any previous noncontrolling 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 business ventures when it has the ability to exercise significant influence over the operating and financial policies of the ventures. Significant influence is generally deemed to exist if the Company has between 20% and 50% of the voting rights of an investee. The Company reports its investments in and advances to equity investees 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 of equity investees 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 other business ventures over which the Company does not have the ability to 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 this 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, 2012, deferred revenues included $6.6 million relating 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, are 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 continue to recognize revenues as cash is received and approved by the bankruptcy court or earlier should future collection become reasonably assured. All costs and expenses related to these charters were recognized as incurred.
As of December 31, 2012, deferred revenues included $7.0 million related to contract-lease revenues for certain helicopters leased by Aviation Services to Aeroleo Taxi Aero S/A ("Aeroleo"), its Brazilian joint venture (see Note 5). The deferral resulted from difficulties experienced by Aeroleo following one of its customer's cancellation of certain contracts for a number of AW139 helicopters under contract-lease from Aviation Services. The Company will recognize revenues as cash is received or earlier should future collectability become reasonably assured. All costs and expenses related to these contract-leases were recognized as incurred.
As of December 31, 2012, deferred revenues also included $1.9 million related to contract-lease revenues for certain helicopters leased by Aviation Services to one of its customers. The deferral resulted from the customer having its operating certificate revoked for a period of time and therefore being unable to operate. The certificate has since been reinstated but uncertainty still remains regarding the collectability of the contract-lease revenues. The Company will recognize revenues as cash is received or earlier should future collectability become reasonably assured. All costs and expenses related to these contract-leases 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 recorded and 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, which govern the terms and conditions of charter.
Era Group, the Company’s Aviation Services segment prior to the Spin-off, charters the majority of its helicopters through master service agreements, subscription agreements, day-to-day charter arrangements and contract-leases. Master service agreements and subscription agreements require incremental payments above a fixed monthly fee based on hours flown. These agreements have fixed terms ranging from one month to five years and generally can be canceled upon 30-days notice. Day-to-day charter arrangements call for either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate. Services provided under contract-leases can include only the equipment, or can include the equipment, logistical and maintenance support, insurance and personnel, or a combination thereof. Fixed monthly fee revenues are recognized ratably over the contract term. Usage or hourly based revenues are recognized as hours are flown. Aviation Services’ air medical services are provided under contracts with hospitals that typically included either a fixed monthly and hourly rate structure or a fee per completed flight. Fixed monthly revenues are recognized ratably over the month while per hour or per flight based revenues were recognized as hours were flown or flights are completed. Most contracts with hospitals are longer term, but offer either party the ability to terminate with less than six months notice. Aviation Services operates some air medical contracts pursuant to which it collects a fee per flight, either from a hospital or insurance company. With respect to flightseeing activities, Aviation Services allocates block space to cruise lines and sells seats directly to customers with revenues recognized as the services are performed. Aviation Services’ fixed based operation sells fuel on an ad-hoc basis and those sales are recognized at the time of fuel delivery. Training revenues are charged at a set rate per training course and include instructors, training materials and flight or flight simulator time, as applicable. Training revenues are recognized as services are provided.
The Company’s Inland River Services segment earns revenues primarily from voyage affreightment contracts whereby customers are charged an established rate per ton to transport cargo from point to point. 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 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 cargos 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. 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.
The Company's Alcohol Manufacturing segment earns revenues from the sale of alcohol, co-products and by-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, consisting primarily of U.S. treasury securities, primarily relates to income generated from the operations of certain of Shipping Services’ U.S.-flag double-hull product tankers (see Note 9).
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 (losses), 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 (losses), net.
Trade Receivables. Customers of Offshore Marine Services, Shipping Services and Aviation Services are primarily major and independent oil and gas exploration and production companies. Customers of Inland River Services are primarily major agricultural and industrial companies based within the United States. Customers of the Company's Alcohol Manufacturing business segment include agricultural and industrial companies. Customers of the Company's other business activities include foreign governments and local 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 gains (losses), net. Realized and unrealized gains and losses on derivatives designated as fair value hedges are recognized as corresponding increases or decreases in the fair value of the underlying hedged item to the extent they are effective, with any ineffective portion reported in the accompanying consolidated statements of income as derivative gains (losses), net. Realized and unrealized gains and losses on derivatives designated as cash flow hedges are reported as a component of other comprehensive income 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 gains (losses), net. Realized and unrealized gains and losses on derivatives designated as cash flow hedges that are entered into by the Company’s equity method investees are also reported as a component of the Company’s other comprehensive income (loss) in proportion to the Company’s ownership percentage in the investee, 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, marketable securities 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 by any 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, spare parts and fuel in the Company’s Aviation Services segment, corn and high quality and fuel alcohol in the Company's alcohol manufacturing segment and sugar, rice and salt in the Company's other business activities. 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, 2012, 2011, and 2010, the Company recorded market write-downs of $0.2 million, $0.3 million and $1.8 million.
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, 2012, 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)
Effective July 1, 2011, the Company changed its estimated useful life and salvage value for helicopters from 12 to 15 years and 30% to 40%, respectively, due to improvements in new helicopter models that continue to increase their long-term value and make them viable for operation over a longer period of time. For the six months ended December 31, 2011, the change in estimate increased operating income by $7.6 million, net income by $4.9 million and basic and diluted earnings per share of $0.23. For the year ended December 31, 2012, the change in estimate increased operating income by $18.0 million, net income by $11.7 million, and basic and diluted earnings per share by $0.57 and $0.56, respectively.
(2)
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, aviation spares, leasehold improvements, fixed-wing aircraft, vehicles and other property and equipment.
Depreciation expense totaled $168.5 million, $144.7 million and $152.2 million in 2012, 2011 and 2010, 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.
Aviation Services engages a number of third-party vendors to maintain the engines and certain components on some of its helicopter models under programs known as “power-by-hour” maintenance contracts. These programs require Aviation Services to pay for maintenance service ratably over the contract period, typically based on actual flight hours. Power-by-hour providers generally bill monthly based on hours flown in the prior month, the costs being expensed as incurred. In the event Aviation Services places a helicopter in a program after a maintenance period has begun, it may be necessary to pay an initial buy-in charge based on hours flown since the previous maintenance event. The buy-in charge is normally recorded as a pre-paid expense and amortized as an operating expense over the remaining power-by-hour contract period. If a helicopter is sold or otherwise removed from a program before the scheduled maintenance work was carried out, the Company may be able to recover part of its payments to the power-by-hour provider, in which case Aviation Services records a reduction to operating expenses when it receives the refund.
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 $5.9 million, $5.8 million and $3.6 million in 2012, 2011 and 2010, respectively.
Intangible Assets. The Company’s intangible assets primarily arose from business acquisitions (see Note 4) 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, 2012, 2011, and 2010, the Company recognized amortization expense of $5.6 million, $4.8 million and $4.9 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 2012, 2011 and 2010, the Company recognized impairment charges of $1.2 million, $0.1 million and $19.0 million, respectively, related to long-lived assets held for use.
During the year ended December 31, 2010, the Seabulk America, a Shipping Services’ U.S.-flag product tanker, had been scheduled to undergo a regulatory drydocking, a requirement for continued operation. Given the prevailing market conditions, the Company deferred the drydocking, laid-up the vessel and recognized an impairment charge of $18.7 million reducing the vessel’s carrying value to its fair value of $5.0 million. During the year ended December 31, 2011, the Company sold the Seabulk America and recognized a gain on the sale of $1.1 million. The Seabulk America had no operating revenues for the year ended December 31, 2011 and contributed operating revenues of $5.2 million for the year ended December 31, 2010.
Impairment of 50% or Less Owned Companies. The Company performs regular reviews of each investee’s financial condition, the business outlook for its products and services, and its present and projected results and cash flows. When an investee 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 investees, the severity and expected duration of declines in value, and the available liquidity in the capital markets to support the continuing operations of the investees in which the Company has investments. During the year ended December 31, 2012, the Company recognized an impairment charge of $5.9 million, net of tax, on its investment in and advances to one of Aviation Services' 50% or less owned companies (see Note 5). The Company did not recognize any impairment charges in 2011 and 2010.
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 2012, 2011 and 2010. During the year ended December 31, 2012, the Company deconsolidated $37.1 million of goodwill as a result of the ORM Transaction.
Business Combinations. The Company recognizes, with certain exceptions, 100 percent 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 4).
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 expense for deferred financing costs totaled $2.4 million, $0.5 million and $0.5 million in 2012, 2011 and 2010, respectively, and is included in interest expense in the accompanying consolidated statements of income. During the year ended December 31, 2012, the Company accelerated the amortization of $1.1 million of deferred financing costs associated with the reduction of Era Group's Senior Secured Revolving Credit Facility (see Note 9).
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.
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 to noncontrolled 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 4), 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 4), 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, helicopters 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 equipment to its noncontrolled 50% or less owned companies. For transactions occurring subsequent to the adoption of the new accounting rules, gains are deferred only to the extent of the Company's uncalled capital commitments and amortized as those commitments lapse or funded amounts are returned by the noncontrolled 50% or less owned companies. 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 equipments' 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):
______________________
(1)
For the years ended December 31, 2012, 2011 and 2010, diluted earnings per common share of SEACOR excluded 549,223, 338,920 and 281,265, respectively, of certain share awards as the effect of their inclusion in the computation would be anti-dilutive.
(2)
Excludes interest expense of $0.6 million, net of tax, and 176,609 shares related to the Company's 2.5% Convertible Senior Notes (see Note 9) as the their inclusion would be anti-dilutive.
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 as previously reported.
2.
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 (losses), net include losses of $0.9 million and $7.7 million and gains of $3.0 million for the years ended December 31, 2012, 2011 and 2010, respectively, related to marketable security positions held by the Company as of December 31, 2012. Marketable security gains (losses), net include losses of $21.1 million and gains of $2.0 million for the years ended December 31, 2011 and 2010, respectively, related to marketable security positions held by the Company as of 2011. In addition, during the years ended December 31, 2012, 2011 and 2010, the Company recorded dividend expense, net on marketable securities of $0.5 million, $0.8 million and $0.1 million, respectively and recorded interest income, net on marketable securities of $0.2 million, $2.8 million and $3.1 million, respectively.
The estimated fair value of the Company’s other financial assets and liabilities as of December 31 were as follows (in thousands).
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 other business ventures 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):
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(1)
On February 1, 2012, the Company marked its equity investment in its Illinois Corn Processing LLC ("ICP") joint venture to fair value following the acquisition of a controlling interest (see Note 5). The investment's fair value was determined based on a fair value analysis of the assets and liabilities of ICP.
(2)
On March 1, 2012, the Company wrote-off its equity investment in its Aeroleo joint venture (see Note 5).
(3)
On September 30, 2012, the Company marked its equity investment in its Era do Brazil joint venture to fair value. As the primary beneficiary, the Company has consolidated Era do Brazil in its financial statements effective September 30, 2012 (see Note 5).
(4)
During the year ended December 31, 2012, the Company recorded an impairment loss of $1.2 million to reduce the carrying value of one of its fixed-wing aircraft used in its lending and leasing activities following the conclusion of a lease.
(5)
On December 31, 2012, the Company marked its equity investment in Witt O'Brien's LLC, a response management joint venture, to fair value following the ORM Transaction (see Notes 1 and 5). The investment's fair value was determined based the Company's interest in the fair value analysis of the assets and liabilities of Witt O'Brien's.
(6)
On June 1, 2011, the Company marked its investment in its Avion Logistics Limited joint venture to fair value following the acquisition of controlling interests (see Note 5). The investments’ fair values were determined based on the Company’s purchase price of the acquired interests.
(7)
On July 29 2011, the Company marked its investment in its Soylutions LLC joint venture to fair value following the acquisition of controlling interests (see Note 5). The investments’ fair values were determined based on the Company’s purchase price of the acquired interests.
(8)
On July 1, 2011, the Company marked its investment in its Mantenimiento Express Maritimo, S.A.P.I. De C.V. joint venture to fair value following the joint venture’s sale of an additional equity interest to an unrelated third party (see Note 5). The investment’s fair value was determined based on the third party’s purchase price of the acquired interest.
(9)
During the year ended December 31, 2011, the Company recorded a gain of $0.2 million to decrease the carrying value of its exit obligations for three leased-in helicopters.
3.
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):
Fair Value Hedges. As of December 31, 2012 and 2011, there were no forward currency exchange contracts designated as fair value hedges. During the years ended December 31, 2011 and 2010, the Company utilized forward currency exchange contracts designated as fair value hedges to fix a portion of its euro-denominated capital commitments in U.S. dollars to protect against currency fluctuations.
The Company recognized gains (losses) on derivative instruments designated as fair value hedges for the years ended December 31 as follows (in thousands):
Cash Flow Hedges. As of December 31, 2012, there were no interest rate swap agreements designated as cash flow hedges. As of December 31, 2011, the Company was a party to various interest rate swap agreements with maturities ranging from 2013 to 2014 which had been designated as cash flow hedges. During the year ended December 31, 2012, the Company dedesignated $125.0 million notional value of its interest rate swaps previously designated as cash flow hedges. As of December 31, 2012, one of the Company’s Offshore Marine Services 50% or less owned companies had entered into an interest rate swap agreement maturing in 2015 that has been designated as a cash flow hedge. This instrument calls for the joint venture to pay a fixed interest rate of 1.48% on the amortized notional value of $18.2 million and receive a variable interest rate based on LIBOR on the amortized notional value. As of December 31, 2012, one of the Company’s Inland River Services 50% or less owned companies had four interest rate swap agreements with maturities ranging from 2013 to 2015 that have been designated as cash flow hedges. These instruments call for the joint venture to pay fixed rates of interest ranging from 1.53% to 4.16% on the aggregate amortized notional value of $44.0 million and receive a variable interest rate based on LIBOR on the aggregate amortized notional value. Additionally, as of December 31, 2012, one of the Company's Shipping Services 50% or less owned companies had an interest rate swap agreement maturing in 2017 that has been designated as a cash flow hedge. This instrument calls for the joint venture to pay a fixed interest rate of 2.79% on the amortized notional value of $39.5 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 and its 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 of.
The Company enters and settles forward currency exchange, option and future contracts with respect to various foreign currencies. As of December 31, 2012, the outstanding forward currency exchange contracts translated into a net purchase of foreign currencies with an aggregate U.S. dollar equivalent of $8.0 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 has entered into various interest rate swap agreements with maturities ranging from 2013 through 2018 that call for the Company to pay fixed interest rates ranging from 1.67% to 3.00% on aggregate amortized notional values of $227.8 million and receive a variable interest rate based on LIBOR or Euribor on these notional values. In addition, one of the Company’s Offshore Marine Services 50% or less owned companies has entered into an interest rate swap agreement maturing in 2014 that calls for the joint venture to pay a fixed interest rate of 3.05% on the amortized notional value of $24.4 million million and receive a variable interest rate based on LIBOR on the amortized notional value. The general purpose of these interest rate swap agreements is to provide protection against increases in interest rates, which might lead to higher interest costs for the Company or its joint venture.
The Company enters and settles positions in various exchange and non-exchange traded commodity swap, option and future contracts. The Company's alcohol manufacturing facility 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, 2012, the net market exposure to corn and sugar under these contracts was not material. 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 and Inland River Services businesses. As of December 31, 2012, these positions were not material.
The Company enters and settles various positions in U.S. Treasury notes and bonds through rate locks, futures or options on futures tied to U.S. Treasury notes. The general purpose of these transactions is to provide value to the Company should the price of U.S. Treasury notes and bonds decline, leading to generally higher interest rates, which might lead to higher interest costs for the Company. As of December 31, 2012, there were none of these types of positions outstanding.
4.
ACQUISITIONS AND DISPOSITIONS
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 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 is pending completion of a final valuation for the acquired assets and liabilities.
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 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 is pending completion of a final valuation for the acquired assets and liabilities.
ICP Acquisition. On February 1, 2012, the Company acquired a 70% controlling interest in ICP through its acquisition of a portion of its partner's interest for $9.1 million in cash (see Note 5). 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.
Lewis & Clark Acquisition. On December 31, 2011, the Company acquired certain terminal and fleeting assets from Lewis & Clark Marine, Inc. and certain related affiliates (“Lewis & Clark”) for $29.6 million. The Company performed a preliminary fair value analysis and the purchase price was allocated to the acquired assets based on their fair values resulting in no goodwill being recorded. The fair value analysis of assets and liabilities was finalized in December 2012.
Windcat Acquisition. On December 22, 2011, the Company acquired 75% of the issued and outstanding shares in Windcat Workboats Holdings Ltd. (“Windcat”) for $22.1 million (including $21.5 million in cash during 2011 and 6,374 shares of SEACOR common stock, par value $0.01 per share (“Common Stock”) valued at $0.6 million for final working capital settlement in 2012). Windcat, based in the United Kingdom and the Netherlands, is an operator of 29 wind farm utility vessels operating in the main offshore wind markets of Europe. 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 fair value analysis of assets and liabilities was finalized in December 2012.
Naviera Acquisition. On December 21, 2011, the Company acquired a 70% controlling interest in SEACOR Colombia Fluvial (MI) LLC for $1.9 million in cash. SEACOR Colombia Fluvial (MI) LLC's wholly-owned subsidiary, Naviera Central S.A. (“Naviera”), is a provider of inland river barge and terminal services in Colombia. 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 $1.0 million in goodwill being recorded. The fair value analysis of assets and liabilities was finalized in December 2012.
Soylutions Acquisition. On July 29, 2011, the Company acquired a 100% controlling interest in Soylutions LLC (“Soylutions”) through its acquisition of its partner’s interest for $11.9 million in cash (see Note 5). 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 2012.
G&G Shipping Acquisition. On April 13, 2011, the Company acquired certain real property, eight foreign- flag Roll-on/Roll-off (“RORO”) vessels and a 70% interest in an operating company engaged in the shipping trade between the United States, the Bahamas and the Caribbean. The operating company leases-in the real property and the RORO vessels from the Company. The Company’s purchase price of $33.5 million included cash consideration of $30.3 million and the contribution of a $3.2 million note receivable. 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 $0.6 million of goodwill being recorded. The fair value analysis was finalized in April 2011.
SEASPRAIE Acquisition. On July 31, 2010, the Company obtained a 100% controlling interest in Seaspraie Holdings LLC (“Seaspraie”) through the redemption of its partner’s interest through the joint venture’s distribution of financial assets and equipment. As a consequence of obtaining a controlling interest, the Company adjusted its investment in Seaspraie to fair value resulting in the recognition of a $2.5 million gain, net of tax, which is included in equity in earnings of 50% or less owned companies for the year ended December 31, 2010. In addition, the Company recognized previously deferred gains on asset sales to Seaspraie of $12.2 million. Following the change in control, the Company consolidated Seaspraie’s financial position and results of its operations.
PIER Acquisition. On December 1, 2009, the Company acquired all of the issued and outstanding shares of PIER Systems Inc. (“PIER”), a provider of crisis communication consulting services and software in the United States and abroad. The selling stockholders of PIER had the opportunity to receive additional consideration of up to $1.3 million, of which $0.7 million was accrued at acquisition, based upon certain performance measures over the period from the date of acquisition through May 2011. During the years ended December 31, 2011 and 2010, the Company paid $0.6 million and $0.2 million, respectively, of additional consideration. During the year ended December 31, 2011, the Company accrued additional contingent consideration of $0.1 million as general and administrative expenses in the accompanying consolidated financial statements. As of December 31, 2011, the Company had paid $0.8 million, in the aggregate, of additional consideration.
CBK Acquisition. On December 1, 2009, the Company acquired all of the assets of CBK, Inc., a liquid cargo servicing company, for $0.5 million in cash ($0.3 million paid in 2009 and $0.2 million paid in 2010).
SRI Acquisition. On September 7, 2007, the Company acquired all of the issued and outstanding shares of Solid Resources, Inc. and Solid Resources, LLC (collectively referred to as “SRI”), providers of environmental services in the southeastern United States. The selling stockholder of SRI has the opportunity to receive additional consideration of up to $39.5 million based upon certain performance measures over the period from the date of acquisition through September 30, 2011, which was recognized by the Company as additional cost of the acquisition when the contingency was resolved and when any additional consideration was distributable. During the year ended December 31, 2011, the Company paid $0.1 million of additional consideration in accordance with the acquisition agreement. As of December 31, 2011, the Company had paid $6.1 million, in the aggregate, of additional consideration, which was recorded as additional goodwill.
RMA Acquisition. On October 1, 2006, the Company acquired all of the issued and outstanding shares of Response Management Associates, Inc. ("RMA"), a provider of environmental consulting services. The selling stockholder of RMA had the opportunity to receive additional consideration of up to $8.5 million based upon certain performance measures over the period from the date of acquisition through September 30, 2012, which was recognized by the Company as additional cost of the acquisition when the contingency was resolved and any contingency was distributable. During the year ended December 31, 2010, the Company paid $6.4 million of additional consideration in accordance with the acquisition agreement.
Unaudited Pro Forma Information. The following unaudited pro forma information for the years ended December 31 has been prepared as if the Superior Lift Boats and ICP Acquisitions had occurred as of January 1, 2011. This pro forma information has been prepared for comparative purposes only and is not necessarily indicative of what would have occurred had the acquisitions taken place on January 1, 2011, nor does it purport to be indicative of the future operating results of the Company.
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(1)
For the year ended December 31, 2012, ICP and Superior Lift Boats contributed $188.7 million and $80.4 million, respectively, of operating revenues to the Company from the dates of their respective acquisitions.
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 $3.7 million, $5.3 million and $1.2 million in 2012, 2011 and 2010, respectively) and includes issued Common Stock valued at $0.6 million in 2012.
Equipment Additions. The Company’s capital expenditures from continuing operations were $352.3 million, $324.2 million and $243.4 million in 2012, 2011 and 2010, respectively. Major equipment placed in service for the years ended December 31 were as follows (unaudited):
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(1)
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 5).
(2)
Excludes eight foreign-flag RORO vessels acquired in the G&G Shipping Acquisition and 28 owned and one leased-in wind farm utility vessels acquired in the Windcat Acquisition.
(3)
Excludes 75 inland river dry cargo barges and 17 inland river liquid tank barges following the acquisition of a controlling interest in Seapsraie.
Equipment Dispositions. During the year ended December 31, 2012, the Company sold property and equipment for net proceeds of $173.1 million ($119.2 million in cash, $5.0 million in cash deposits previously received and $48.9 million in seller financing) and gains of $39.0 million, of which $15.8 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 these sale-leasebacks were deferred and are being amortized over the minimum lease period. The Company also financed the sale of two offshore support vessels to certain of the Company’s 50% or less owned companies for $48.9 million (see Note 5). Gains of $0.5 million from these sales were recognized currently and $7.3 million were deferred to be recognized as payments were received. In addition, the Company recognized previously deferred gains of $13.0 million.
During the year ended December 31, 2011, the Company sold property and equipment for net proceeds of $111.1 million ($96.8 million in cash, $2.5 million in cash deposits previously received, $10.6 million in seller financing and $1.2 million in an investment in a joint venture) and gains of $44.1 million, of which $29.8 million were recognized currently and $14.3 million were deferred (see Note 1). Equipment dispositions included the sale of one anchor handling towing supply vessel for $36.3 million with a leaseback term of 84 months. Gains of $7.7 million related to the sale-leaseback were deferred and are being amortized over the minimum lease period. The Company also financed the sale of one offshore support vessel and one helicopter to certain of the Company’s 50% or less owned companies for $19.1 million, in the aggregate (see Note 5). Gains of $6.6 million from these sales were deferred and will be recognized as payments are received under the terms of the financing. In addition, the
Company received $5.0 million in deposits on future property and equipment sales and recognized previously deferred gains of $4.4 million.
During the year ended December 31, 2010, the Company sold property and equipment for net proceeds of $362.7 million ($355.0 million in cash, $0.6 million in cash deposits previously received and $7.1 million in seller financing) and gains of $120.2 million, of which $42.2 million were recognized currently and $77.9 million were deferred (see Note 1). Equipment dispositions included the sale of one anchor handling towing supply vessel and two double-hull product tankers for $217.3 million, in the aggregate, with leaseback terms ranging from 60 to 158 months. Gains of $75.7 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 one crew vessel to an unrelated third party for $1.5 million and deferred gains of $1.2 million from the sale that will be recognized as payments are received under the terms of the financing. The Company sold one anchor handling towing supply vessel and 60 inland river dry cargo barges to certain of the Company’s 50% or less owned companies for $59.1 million, in the aggregate. Gains of $1.0 million from these sales were deferred as a result of uncalled capital commitments (see Note 5). In addition, the Company received $2.5 million in deposits on future property and equipment sales and recognized previously deferred gains of $21.5 million.
With respect to the sale-leaseback of the two double-hull product tankers in 2010, each tanker was sold and leased back by a wholly-owned subsidiary of the Company with minor continuing obligations attributable to SEACOR. The lease payments, lease periods and option renewal periods of the leasebacks are identical to and offset existing long-term bareboat charter-out arrangements the Company has with a customer. As a result, the future profits recognized from these two tankers will consist entirely of the amortization of the deferred gains of $69.3 million at the time of the sale-leaseback. The selling subsidiaries’ ability to meet their obligations under the leasebacks is dependent upon the offsetting bareboat charter-out arrangements with the customer.
Major equipment dispositions for the years ended December 31 were as follows (unaudited):
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(1)
Excludes one U.S.-flag articulated tug-barge contributed to SeaJon (see Note 5) and includes one light-twin helicopter previously removed from service.
(2)
Excludes four crew and one mini-supply vessel operated by Offshore Marine Service's Mexican joint venture (see Note 5) and includes one helicopter previously removed from service.
Investments, at equity, and advances to 50% or less owned companies as of December 31 were as follows (in thousands):
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(1)
The Company's ownership represents its economic interest in the joint venture.
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, 2012 and 2011, 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 $18.9 million and $16.7 million, respectively.
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 47.3% 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 and received repayments of $1.7 million on the bridge financing.
Witt O'Brien's. On December 31, 2012, the Company contributed its ownership in ORM to Witt O'Brien's in exchange for a 54.2% economic interest and a 50% controlling interest in Witt O'Brien's. As a result of a 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.
Illinois Corn Processing. On November 20, 2009, the Company and an ingredients and distillery product manufacturer formed Illinois Corn Processing LLC (“ICP”), a 50-50 joint venture to own and operate an alcohol manufacturing facility dedicated to the production of alcohol for beverage, industrial and fuel applications. The Company provided to ICP a $10.0 million term loan with a maturity in November 2014 and a $20.0 million revolving line of credit with a maturity in January 2013 subject to certain borrowing restrictions. During the year ended December 31, 2010, the Company and its joint venture partner each contributed an additional $1.0 million to acquire certain equipment. During the year ended December 31, 2010, the Company advanced $8.0 million under the term loan. During the years ended December 31, 2011 and 2010, the Company received principal repayments of $1.7 million and $2.4 million, respectively, on the term loan. During January 2012 and the years ended December 31, 2011 and 2010, the Company made net advances $0.3 million, $4.3 million and $9.1 million, respectively, 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 70% controlling interest in ICP through its acquisition of a portion of its partner’s interest for $9.1 million in cash (see Note 4). 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 in 50% or less owned companies in the accompanying consolidated statements of income.
SCFCo Holdings. SCFCo Holdings LLC (“SCFCo”) was established to operate towboats and dry cargo barges on the Parana-Paraguay Rivers and a terminal facility at Port Ibicuy, Argentina. At various times, SCFCo has agreed to expand its operations through additional capital contributions and bank financing. During the years ended December 31, 2012, 2011 and 2010, the Company contributed additional capital of $3.0 million, $0.8 million and $10.2 million, respectively, to fund SCFCo’s expansion. Additionally, during the years ended December 31, 2012, 2011 and 2010, the Company provided net temporary working capital advances of $0.3 million, $0.3 million and $2.2 million, respectively, of which $2.3 million remained outstanding as of December 31, 2012. During the year ended December 31, 2010, the Company sold 60 barges to the joint venture for proceeds of $25.8 million. The Company sold no equipment to the joint venture in 2012 and 2011.
DHC. A wholly owned subsidiary of the Company, Era DHS LLC, acquired 49% of the capital stock of Dart Helicopter Services LLC (“Dart”), a sales, marketing and parts manufacturing organization based in North America that engineers and manufactures after-market parts and equipment for sale to helicopter manufacturers and operators. During 2009, the Company provided a $0.3 million loan to Dart with a maturity of June 2012 at an annual interest rate of 5%, which is payable quarterly with principal due at maturity. On February 28, 2011, the Company made an additional investment of $5.0 million in Dart and, on July 31, 2011, contributed its ownership in Dart to Dart Holding Company Ltd. (“DHC”) in exchange for a 50% interest in DHC and a note receivable of $5.1 million. The note receivable bears an interest rate of 4.0% per annum, required quarterly principal and interest payments and matures July 31, 2023. During the years ended December 31, 2012, 2011 and 2010, the Company purchased $1.7 million, $2.3 million and $1.1 million, respectively of products from Dart and DHC. During the year ended December 31, 2010, the Company received management fees of $0.2 million. The management fees earned during the year ended December 31, 2011 were not material and none were earned during the year ended December 31, 2012.
Hawker Pacific. On December 15, 2010, the Company acquired a 32.5% interest in Hawker Pacific Airservices, Limited (“Hawker Pacific”), an aviation sales and support organization and a distributor of aviation components from some of the world’s leading manufacturers, for $25.0 million in cash. On June 1, 2011, the Company contributed its ownership in Avion Logistics Limited (“ALL”), valued at $2.0 million, to Hawker Pacific for an additional 1.7% ownership interest bringing its total ownership percentage to 34.2%. 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. The fair value analysis was completed in December 2011. 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.
MexMar. On July 1, 2011, Mantenimiento Express Maritimo, S.A.P.I. de C.V. (“MexMar”), a Mexican joint venture that operates offshore support vessels in Mexico, executed a business reorganization plan and issued an additional equity interest to an unrelated third party for $17.1 million in cash. Subsequent to the reorganization and issuance of the additional equity interest, the Company recognized an $8.4 million gain, net of tax, which is included in equity in earnings in 50% or less owned companies in the accompanying consolidated statements of income, and received $14.9 million on the net repayment of outstanding advances from MexMar. Following the reorganization the Company has a 49% interest in MexMar. During the year ended December 31, 2012, MexMar purchased two offshore support vessels from the Company and financed a portion of the vessels' mobilization costs with the Company totaling $50.0 million ($5.0 million in cash and two short-term notes totaling $45.0 million). During the year ended December 31, 2012, MexMar repaid these notes. During the year ended December 31, 2012 and 2011, the Company received $0.3 million and $0.1 million, respectively of vessel management fees from this joint venture.
Bunge-SCF Grain. On September 29, 2010, the Company formed a 50/50 joint venture Bunge-SCF Grain LLC (“Bunge-SCF”) with Bunge North America, Inc. to construct a terminal grain elevator in Fairmont City, Illinois. During the year ended December 31, 2012, the Company and its partner each made a working capital advance of $5.0 million to Bunge-SCF. During the years ended December 31, 2011 and 2010, the Company and its partner each contributed $17.3 million and $0.2 million, respectively in cash to the joint venture. In addition, beginning July 29, 2011, Bunge-SCF Grain began operating and managing the Company’s grain storage and handling facility in McLeansboro, Illinois, for which it received $1.0 million and $0.3 million in rental income for the years ended December 31, 2012, 2011, respectively.
Avion. The Company owns a 39.1% interest in Avion Pacific Limited (“Avion”), a distributor of aircraft and aircraft related parts. During the years ended December 31, 2012, 2011 and 2010, the Company made advances of $11.0 million, $9.5 million and $2.0 million, respectively, to Avion and received repayments of $15.7 million, $4.6 million and $0.9 million, respectively, from Avion on the advances. As of December 31, 2012, 2011 and 2010, the Company had outstanding loans to Avion totaling $5.0 million, $9.7 million and $4.8 million, respectively.
SeaJon. On April 22, 2010, the Company formed a 50/50 joint venture SeaJon LLC (“SeaJon”) with Great Lakes ATB, LLC. Each partner in SeaJon was party to a contract to construct an articulated tug-barge and SeaJon was established to own the completed articulated tug-barge, which will be used in the Great Lakes trade. Each partner contributed its ownership interest in the newly constructed articulated tug-barge, which began its charter during 2012, in exchange for an ownership interest in SeaJon. During the year ended December 31, 2012, SeaJon entered into a $40.0 million term loan, secured by the articulated tug-barge and the assignment of its current charter and upon funding 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.
Nautical Power. On June 23, 2003, the Company and another offshore operator formed Nautical Power, LLC (“Nautical Power”) a 50/50 joint venture to operate one offshore support vessel. Nautical Power bareboat charters the vessel from a leasing company and that charter terminates in 2013. The Company is a guarantor of its proportionate share of the charter payments and its guarantee reduces as payments are made. As of December 31, 2012, the Company’s guarantee was $0.7 million.
Dynamic Offshore Drilling. On April 4, 2011, the Company acquired a 20% interest in Dynamic Offshore Drilling Ltd. (“Dynamic”), a company established to construct and operate jack-up drilling rigs, for $10.0 million. The first jack-up drilling rig was delivered in the first quarter of 2013.
Aeroleo. On July 1, 2011, the Company acquired a 50% economic interest and a 20% voting interest in Aeroleo Taxi Aereo S/A (“Aeroleo”), a Brazilian entity that provides helicopter transport services to the Brazilian offshore oil and gas industry, for $4.8 million in cash. The Company and its partner each loaned Aeroleo $6.0 million at an interest rate of 6% per annum. On March 1, 2012, the Company recorded an impairment charge of $5.9 million, net of tax, on its investment in and advances to Aeroleo. The impairment charge resulted from difficulties experienced by Aeroleo following one of its customer's cancellation of certain contracts for a number of AW139 helicopters under contract-lease from Aviation Services. The Company leases
helicopters to Aeroleo and for the year ended December 31, 2012 and the period July 1, 2011 through December 31, 2011, the Company recognized $17.6 million and $14.0 million, respectively of operating revenues from these leases (see Note 1).
Sea-Cat Crewzer. On July 27, 2009, the Company and another offshore support vessel operator formed Sea-Cat Crewzer LLC (“Sea-Cat Crewzer”), a 50-50 joint venture to own and operate two high speed offshore catamaran crew boats. During the year ended December 31, 2010, Sea-Cat Crewzer entered into a $22.0 million term loan and upon funding distributed $9.0 million to each of its partners. The Company is a guarantor of its proportionate 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, 2012, the Company’s guarantee was $9.1 million. During the years ended December 31, 2012, 2011 and 2010, the Company received $0.7 million, $0.7 million and $0.7 million, respectively, of vessel management fees from this joint venture.
Era do Brazil. On July 1, 2011, the Company and its partner each contributed $4.8 million in cash to Era do Brazil LLC (“Era do Brazil”), a 50-50 joint venture. Era do Brazil immediately acquired a helicopter, subject to a lease to Aeroleo, from the Company for $11.5 million ($9.5 million in cash and a $2.0 million note payable). During the year ended December 31, 2012, the Company loaned $10.8 million to Era do Brazil secured by the helicopter purchased from the Company in 2011 and Era do Brazil's ownership interests. Upon receipt of the proceeds from the loan, Era do Brazil repaid the outstanding principal amount of $1.6 million remaining on the original helicopter acquisition note due to the Company and loaned $9.2 million to Aeroleo Taxi Aereo S/A ("Aeroleo") in the form of two notes, each of an equal amount. Era do Brazil then distributed the two notes due from Aeroleo to its members. As a result of these transactions, Era do Brazil is a highly leveraged entity with all its outstanding debt due to the Company. As the primary beneficiary, the Company has consolidated Era do Brazil in its financial statements effective September 30, 2012. The Company provides maintenance services to Era do Brazil and for the period January 1, 2012 through September 30, 2012 and the period July 1, 2011 through December 31, 2011, the Company recognized $0.4 million and $0.3 million, respectively, of operating revenues from these services.
SCF Bunge Marine. On August 1, 2009, the Company formed a 50/50 joint venture SCF Bunge Marine LLC (“SCF Bunge Marine”) with Bunge North America, Inc. to provide 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 operates them for SCF Bunge Marine pursuant to a time charter. The Company's obligations under the bareboat charter are guaranteed by SEACOR and its joint venture partner. Pursuant the time charter, the Company received charter fees of $40.9 million, $41.0 million and $36.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. In addition, during the years ended December 31, 2012, 2011 and 2010, SCF Bunge Marine received $42.6 million, $42.5 million and $38.1 million, respectively, for towing services provided to the Company.
C-Lift. On April 28, 2006, the Company and another offshore operator formed C-Lift LLC (“C-Lift”) a 50/50 joint venture established to construct and operate lift boats. The Company is a guarantor of its proportionate share of C-Lift’s outstanding debt and its guarantee declines as principal payments are made and will terminate when the debt is repaid. The debt matures in 2015. As of December 31, 2012, the Company’s guarantee was $12.0 million.
Soylutions. On July 29, 2011, the Company obtained a 100% controlling interest in Soylutions through its acquisition of its partner’s 50% interest for $11.9 million in cash (see Note 4). Upon the acquisition, the Company adjusted its investment in Soylutions to fair value resulting in the recognition of a gain of $2.3 million, net of tax, which is included in equity in earnings in 50% or less owned companies in the accompanying consolidated statements of income.
Avion Logistics Limited. On June 1, 2011, the Company acquired a 100% controlling interest in Avion Logistics Limited (“ALL”) through its acquisition of its partner’s 50% interest for $1.0 million in cash. Upon acquisition, the Company adjusted its investment in ALL to fair value resulting in the recognition of a gain of $0.3 million, net of tax, which is included in equity in earnings of 50% or less owned companies. Following this change in control, the Company contributed its ownership interest in ALL to Hawker Pacific for an additional 1.7% interest in Hawker Pacific.
Other. The Company has other joint ventures within its Offshore Marine Services, Aviation Services, Inland River Services and Other business segments.
The Company’s other Offshore Marine Services joint ventures operate seven vessels, six owned and one bareboat chartered-in. During the years ended December 31, 2012 and 2011 the Company made no additional capital contributions to these joint ventures. During the year ended December 31, 2010, the Company made aggregate additional capital contributions to these joint ventures of $2.7 million. Certain of these offshore marine joint ventures 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 to require the parties of these joint ventures to fund uncalled capital commitments, as defined in the joint ventures’ partnership agreements, under certain circumstances. In such event, the Company would be required to contribute its allocable share of uncalled capital, which was
$2.5 million, in the aggregate, as of December 31, 2012. During the year ended December 31, 2011, the Company sold one offshore marine vessel to one of its joint ventures for $7.6 million. 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, 2012, the Company’s contingent guarantee of outstanding charter receivables was $2.2 million. During the years ended 2012, 2011 and 2010, the Company received $0.6 million, $0.6 million and $0.3 million, respectively, of vessel management fees from these joint ventures.
The Company’s other Aviation Services joint ventures include a flight training center and a helicopter operation in Spain. During the years ended December 31, 2012, 2011 and 2010, the Company provided helicopter, management and other services totaling $0.5 million, $0.7 million and $0.6 million, respectively, and paid simulator fees of $0.8 million, $0.1 million and $0.3 million in 2012, 2011 and 2010, respectively to one of these joint ventures. During the year ended December 31, 2012, the Company received advances from one of these joint ventures of $1.2 million and during the years ended December 31, 2012, 2011 and 2010, the Company advanced $0.8 million, $1.2 million and $3.2 million, respectively to one of these joint ventures.
The Company’s other Inland River Services joint ventures operate a dry cargo vessel and a fabrication facility. During the year ended December 31, 2012, the Company received $0.4 million in distributions from one of these joint ventures and during the year ended December 31, 2010, the Company made additional capital contributions of $0.2 million in the aggregate.
The Company's other joint ventures are primarily industrial aviation businesses in Asia. During the year ended December 31, 2012, the Company received $1.2 million in distributions from one of these joint ventures.
6.
NOTES RECEIVABLE FROM OTHER BUSINESS VENTURES
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 notes receivable are typically collateralized by the underlying equipment and require periodic principal and interest payments. As of December 31, 2012 and 2011, the outstanding balance of notes receivable from other business ventures was $27.0 million and $55.8 million, respectively. For the years ended December 31, 2012, 2011 and 2010, the Company made advances on notes receivable from other business ventures of $4.1 million, $44.2 million and $9.4 million, respectively, and received repayments on notes receivable from other business ventures of $37.9 million, $8.0 million and $4.1 million, respectively. As of December 31, 2012, none of the Company’s third party notes receivable are past due or in default and the Company has made no provisions for credit losses.
7.
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 which 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, 2012 and 2011, the Company’s construction reserve funds of $186.0 million and $250.4 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):
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, 2012, cumulative undistributed net earnings of foreign subsidiaries included in the Company’s consolidated retained earnings were $132.5 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 increase 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.
During the years ended December 31, 2011 and 2010, the Company recognized an income tax benefit of $1.7 million in each year on adjustments to state tax liabilities resulting from changes in state tax apportionment factors.
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, 2012, the Company increased its valuation allowance for state net operating loss carryforwards from $4.4 million to $6.0 million.
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, 2012, 2011 and 2010, an additional net income tax benefit was recorded in stockholders’ equity of $2.0 million, $1.8 million and $4.9 million, respectively.
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):
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, commencing June 15, 2013. 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 at the initial conversion rate ("Conversion Rate") of 8.6879 if the sales price of the Common Stock for a defined period is greater than or equal to 130% of the applicable conversion price ("Conversion Price") on each trading day. 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. The Company has reserved the maximum number of shares of Common Stock needed upon conversion or 3,223,115 as of December 31, 2012. 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% if 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. Subsequent to December 31, 2012, the Conversion Rate was adjusted to 12.0015 in connection with the Spin-off of Era Group from SEACOR.
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. During the year ended December 31, 2010, the Company purchased $16.5 million, in principal amount, of its 7.375% Senior Notes for $17.3 million, resulting in a loss on debt extinguishment of $1.1 million.
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”). Interest on the 5.875% Senior Notes was payable semi-annually on April 1 and October 1 of each year. During the year ended December 31, 2012, the Company purchased $5.5 million, in principal amount, of its 5.875% Senior Note 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. During the year ended December 31, 2011, the Company purchased $2.2 million, in principal amount, of its 5.875% Senior Notes for $2.3 million, resulting in a loss on debt extinguishment of $0.1 million. During the year ended December 31, 2010 the Company purchased $2.4 million, in principal amount, of its 5.875% Senior Notes for $2.5 million, resulting in a loss on debt extinguishment of $0.1 million.
Title XI Bonds. Five double-hull product and chemical tankers were financed through the issuance of seven U.S. Government Guaranteed Ship Financing Bonds (the “Title XI Bonds” or “Title XI financing”) bearing interest at rates ranging from 6.50% to 7.54% with semi-annual principal and interest payments and maturing through June 2024. During the year ended December 31, 2010, the Company redeemed all of the outstanding bonds on two of the double-hull product and chemical tankers, in principal amount of $61.9 million, for an aggregate purchase price of $63.0 million, including a make-whole premium, resulting in a loss on debt extinguishment of $0.2 million. Following the redemption, three series of the Title XI bonds remained outstanding, one each for three double-hull product and chemical tankers (the “Title XI tankers”) owned by subsidiaries of the Company (the “Title XI companies”), each with an interest rate of 6.50%.
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, 2012 and 2011, the Title XI reserve fund account balances were $9.6 million. During the year ended December 31, 2010, $7.0 million of Title XI reserve funds were released following the redemption of the bonds, as described above.
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, 2012 and 2011, the Title XI companies held $27.3 million and $18.7 million 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, 2012, the Title XI companies had net assets of $77.7 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, 2012 of the Title XI tankers was $131.7 million.
SEACOR Revolving Credit Facility. The Company has a $360.0 million unsecured revolving credit facility that matures in November 2013. Advances under the facility are available for general corporate purposes. This facility was reduced by 10% of the maximum committed amount of $450.0 million in November 2011 and was reduced by a further 10% in November 2012. Interest on advances is charged at a rate per annum of LIBOR plus an applicable margin of 60 basis points through November 2011 and 67.5 basis points thereafter. A quarterly commitment fee is payable based on the average unfunded portion of the committed amount at the rate of 17.5 basis points through November 2011 and at the rate of 22.5 basis points thereafter. The revolving credit facility contains various restrictive covenants including interest coverage, secured debt to total capitalization, funded debt to total capitalization ratios, as well as other customary covenants, representations and warranties, funding conditions and events of default, including a cross-default as defined in the credit agreement. During the year ended December 31, 2012, the Company made net repayments of $175.0 million on the revolving credit facility. During the year ended December 31, 2011, the Company drew $50.0 million on the revolving credit facility. As of December 31, 2012, the Company had no outstanding borrowings under the revolving credit facility and the remaining availability under this facility was $359.0 million, net of issued letters of credit of $1.0 million.
Era Group Inc. 7.75% Senior Notes. On December 7, 2012, Era Group, a subsidiary of SEACOR that operates its Aviation Services business segment, issued $200.0 million aggregate principal amount of its 7.75% senior unsecured notes due December 15, 2022 (the “7.75% Era Senior Notes”) and received net proceeds of $191.9 million. The 7.75% Era Senior Notes were issued under an indenture dated as of December 7, 2012 between Era and Wells Fargo Bank, National Association, as trustee (the “Indenture”). The 7.75% Era Senior Notes were issued to qualified institutional buyers in reliance on Rule 144A and to non-U.S. persons in reliance on Regulation S of the Securities Act of 1933, as amended. Interest on the 7.75% Era Senior Notes is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2013. The 7.75% Era Senior Notes may be redeemed at any time, and from time to time on or after December 15, 2017 at the applicable redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to the redemption date. Prior to December 15, 2017, Era Group may also redeem the 7.75% Era Senior Notes, in whole or in part, at a redemption price based on a “make-whole” premium plus accrued and unpaid interest, if any, to the redemption date. In addition, at any time on or prior to December 15, 2015, Era Group
may redeem up to 35% of the 7.75% Era Senior Notes at a redemption price equal to 107.75% of their principal amount, plus accrued and unpaid interest if any, to the redemption date, using the proceeds of certain Era Group equity offerings. The Indenture contains covenants that restrict Era Group's ability to, among other things, incur additional indebtedness, pay dividends or make other distributions or repurchase or redeem its capital stock, prepay, redeem or repurchase certain debt, make loans and investments, sell assets, incur liens, enter into transactions with affiliates, enter into agreements restricting its subsidiaries' ability to pay dividends, and consolidate, merge or sell all or substantially all of their assets. In addition, upon a specified change of control trigger event or a specified asset sales, Era Group may be required to offer to repurchase the 7.75% Era Senior Notes.
In connection with the sale of the Era 7.75% Senior Notes, Era Group entered into a registration rights agreement (the “Registration Rights Agreement”), dated December 7, 2012, with the initial purchasers. Under the Registration Rights Agreement, Era Group agreed, among other things, to use its commercially reasonable efforts to cause an exchange offer registration statement to become effective within 180 days of the consummation of the Spin-off and to consummate an exchange offer within 30 days after such effectiveness or to cause a shelf registration statement covering the resale of the Senior Notes to be declared effective within specified periods. Era Group will be required to pay additional interest on the Senior Notes if it fails to timely comply with its obligations under the Registration Rights Agreement until such time as it complies.
The net proceeds of the offering were used to repay $190.0 million of borrowings outstanding under the Era Group Inc. Senior Secured Revolving Credit Facility. In connection with the issuance of the 7.75% Era Senior Notes, the borrowing capacity under the Era Group Inc. Senior Secured Revolving Credit Facility was permanently reduced from $350.0 million to $200.0 million.
ERA Group Inc. Senior Secured Revolving Credit Facility. On December 22, 2011, Era Group entered into a $350.0 million senior secured revolving credit facility that matures in December 2016 and is secured by substantially all of the tangible and intangible assets of Era Group. On December 7, 2012, upon the issuance of the 7.75% Era Senior Notes, the borrowing capacity of the senior secured revolving credit facility was permanently reduced to $200.0 million. Advances under the senior secured revolving credit facility are available for general corporate purposes and can be used to issue up to $50.0 million in letters of credit. Interest on advances are at the option of Era Group of either a “base rate” or LIBOR as defined plus an applicable margin. The “base rate” is defined as the highest of: (a) the Prime Rate, as defined; (b) the Federal Funds Effective Rate, as defined, plus 50 basis points; or (c) a daily LIBOR, as defined, plus an applicable margin. The applicable margin is based on Era Group's funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined, and ranges from 100 to 200 basis points on the “base rate” margin and 210 to 335 basis points on the LIBOR margin. The applicable margin as of December 31, 2012, was 160 basis points on the “base rate” margin and 285 basis points on the LIBOR margin. A quarterly commitment fee is payable based on the average unfunded portion of the committed amount at a rate based on Era Group’s funded debt to EBITDA, as defined, 160 and ranges from 25 to 70 basis points, and as of December 31, 2012 the commitment fee was 50 basis points. The senior secured revolving credit facility contains various restrictive covenants including interest coverage, funded debt to EBITDA, secured funded debt to EBITDA, funded debt to the fair market value of owned helicopters, fair market value of mortgaged helicopters to funded debt, fair market value of mortgaged helicopters registered in the United States to fair market value of all mortgaged helicopters, as well as other customary covenants, representations and warranties, funding conditions and events of default, all as defined in the senior secured revolving credit facility. In addition, the senior secured revolving credit facility restricted the payment of dividends on Era Group’s common stock for one year, until December 22, 2012 and, under certain conditions thereafter, may restrict the ability of Era Group to distribute dividends on its common stock. Generally, dividends may be declared and paid quarterly provided Era Group is in compliance with the various covenants of the senior secured revolving credit facility, as defined, and the dividend amount does not exceed 20% of the net income of Era Group for the previous four consecutive quarters. As of December 31, 2012, Era Group had consolidated net assets of $419.5 million, $50.0 million outstanding under the senior secured revolving credit facility at an annual rate of 2.91%, had $0.3 million of issued letters of credit, and had remaining availability of $92.3 million. During the year ended December 31, 2012, Era Group made net repayments of $202.0 million on the Senior Secured Revolving Credit Facility. During the year ended December 31, 2011, Era Group had net borrowings of $252.0 million under the Senior Secured Revolving Credit Facility.
Other. The Company has various other obligations including ship, helicopter, 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 May 2021 and, as of December 31, 2012, have interest rates ranging from 1.9% to 6.2%, and require periodic payments of interest and principal. During the years ended December 31, 2012, 2011 and 2010, proceeds from the issuance of other debt was $6.6 million, $23.2 million and $40.4 million, respectively, and repayments on other debt was $19.6 million, $31.5 million and $28.2 million, respectively.
As of December 31, 2012, the Company had other outstanding letters of credit, apart from its revolving credit facilities, totaling $40.0 million with various expiration dates through 2016, of which $11.3 million was offset by letters of credit issued in favor of the Company in connection with the sale of SEI.
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.
The Company operates certain vessels and other equipment under leases that are classified as capital leases. The future minimum lease payments under capital leases, together with the present value of the net minimum lease payments for the years ended December 31 are as follows (in thousands):
As of December 31, 2012 and 2011, the Company had $6.6 million and $10.4 million, respectively, in net book value of property and equipment subject to capital lease obligations. Amortization of assets under capital leases is included in depreciation and amortization in the accompanying consolidated statements of income.
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, 2012, 2011 and 2010, the Company acquired for treasury 1,377,798, 843,400 and 1,811,700 shares of Common Stock, respectively, for an aggregate purchase price of $119.5 million, $71.3 million and $137.1 million, respectively. As of December 31, 2012, SEACOR had authorization to repurchase $30.5 million of Common Stock. Subsequent to December 31, 2012, the Company's Board of Directors increased the authorization to repurchase Common Stock to $100.0 million.
SEACOR’s Board of Directors declared a Special Cash Dividend of $5.00 per share of Common Stock payable to stockholders of record on 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.
SEACOR’s Board of Directors also declared a Special Cash Dividend of $15.00 per share of Common Stock payable to stockholders of record on December 14, 2010. On or about December 21, 2010, the Company paid these dividends totaling $319.7 million on 21,312,130 shares of Common Stock, including dividends of $5.0 million related to 334,099 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 2010 rather than depositing amounts in escrow pending the lapsing of restrictions.
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 $3.3 million, $3.1 million and $3.0 million for the years ended December 31, 2012, 2011 and 2010, respectively.
SEACOR Deferred Compensation Plan. In 2005, the Company established a non-qualified deferred compensation plan (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, up to 100% of their cash bonus and 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 that 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, 2012 and 2011, the Company had obligations of $0.5 million and $2.3 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 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 relates to officers employed between 1978 and 2002 by SEACOR’s Stirling group of companies (which had been acquired by SEACOR in 2001) and its predecessors and its participation in the MNRPF relates to ratings employed between 1978 and 2001 by SEACOR’s Stirling group of companies (which had been acquired by SEACOR in 2001) and its predecessors. 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 further funding deficits, requiring the Company to recognize payroll related operating expenses in the periods invoices are received. The Company has one active employee participating in the MNOPF plan and none in the MNRPF plan. During the years ended December 31, 2012, 2011 and 2010, contributions to the MNOPF were not material and did not exceed 5% of total contributions to the plan in any year.
Under the direction of a court order, any deficit of the MNOPF is to be remedied through funding contributions from all participating employers. Prior to 2010, the Company was invoiced and expensed $8.9 million, representing the Company’s allocated share of the cumulative funding deficits, including portions deemed uncollectible due to the non-existence or liquidation of certain participating employers. During the year ended December 31, 2010, based on an actuarial valuation of the MNOPF in 2009, the Company was invoiced and expensed $7.8 million, representing the Company’s allocated share of an additional funding deficit based on that actuarial valuation. The preliminary results of the most recent actuarial valuation in 2012 indicated that an additional net funding deficit of $247.1 million (£152.0 million) had developed since the previous actuarial valuation in 2009 and the Company estimates its allocated share of the deficit to be $2.9 million (£1.8 million).
Based on an actuarial valuation of the MNRPF in March 2008, the Company was advised that its share of a $281.0 million (£175.0 million) accumulated funding deficit was $1.0 million (£0.6 million). The accumulated funding deficit is being recovered by additional annual contributions from current employers and is subject to adjustment following the results of future tri-annual actuarial valuations. During the year ended December 31, 2011, $0.4 million, in the aggregate, of the Company’s funding deficit had been invoiced and expensed. Based on an actuarial valuation of the MNRPF in March 2011, the Company was advised that the funding deficit had increased to $334.8 million (£217.0 million) of which the Company’s share is $0.3 million (£0.2 million). The recovery plans for the additional funding deficit are still being considered.
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”). The Company’s participation in these plans relates to certain employees of the Company’s Shipping Services business segment. In accordance with collective bargaining agreements between the Company and the American Maritime Officers (“AMO”), the latest of which expires on December 31, 2015 and the Seafarers International Union (“SIU”), the latest of which expires on September 30, 2017, the Company makes periodic contributions to the AMOPP and SPP. The contributions to the plans are expensed as incurred and are included in operating expenses in the accompanying consolidated statements of income. During the years ended December 31, 2012, 2011 and 2010,
the Company made contributions of $0.9 million, $0.9 million and $1.1 million, respectively, to the AMOPP and $1.3 million, $0.6 million and $1.3 million, respectively to the SPP. During 2012, 2011 and 2010 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, 2012, 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.
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. 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, 2010, the latest period for which an actuarial valuation is available, the Company was advised that if it chose to withdraw from the AMOPP its withdrawal liability would be $29.5 million. That liability may change in future years based on various factors, primarily employee census. As of December 31, 2012, 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 2009 and 2010 plan years, the latest period for which a report is available, as the SPP was fully funded.
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, 2012, 2011 and 2010, the Company incurred costs of $0.4 million, $0.3 million and $0.3 million, respectively, in the aggregate related to these plans, primarily from employer matching contributions.
Share Incentive Plans. SEACOR’s stockholders approved the 2007 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 2007 Share Incentive Plan superseded the 1992 Non-Qualified Stock Option Plan, the 1996 Share Incentive Plan, the 2003 Non-Employee Director Share Incentive Plan and the 2003 Share Incentive Plan (collectively, the “Share Incentive Plans”). The Compensation Committee of the Board of Directors administers the Share Incentive Plans. A total of 5,650,000 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 and the 2000 Employee Stock Purchase Plan (collectively, 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. Each of the Employee Stock Purchase Plans has a term of ten years.
Share Award Transactions. The following transactions have occurred in connection with the Company’s share based compensation plans during the years ended December 31:
During the years ended December 31, 2012, 2011 and 2010, the Company recognized $33.3 million, $21.9 million and $19.6 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, 2012, the Company had approximately $27.6 million in total unrecognized compensation costs of which $9.2 million and $8.2 million are expected to be recognized in 2013 and 2014, respectively, with the remaining balance recognized through 2017.
The weighted average values of grants under the Company’s Share Incentive Plans were $58.22, $56.57 and $53.05 for the years ended December 31, 2012, 2011 and 2010, respectively. The fair value of each option granted during the years ended December 31, 2012, 2011 and 2010 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 31.0%, 30.7% and 29.3%, respectively, (c) weighted average discount rates of 0.81%, 1.65% and 1.86%, respectively, and (d) expected lives of 5.91 years, 5.73 years and 5.90 years, respectively.
During the year ended December 31, 2012, the number of shares and the weighted average grant price of restricted stock and restricted stock unit transactions were as follows:
During the years ended December 31, 2012, 2011 and 2010, the total grant date fair value of restricted stock and restricted stock units that vested was $38.1 million, $1.6 million and $1.9 million, respectively. 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. During the year ended December 31, 2010, the Company accelerated the vesting date for all restricted stock and restricted stock units that were scheduled to vest in 2011 into 2010 resulting in additional compensation expense of $3.0 million.
During the year ended December 31, 2012, the number of shares, the weighted average grant date fair value and the weighted average exercise price on stock option transactions were as follows:
During the years ended December 31, 2012, 2011 and 2010, the aggregate intrinsic value of exercised stock options was $7.0 million, $6.8 million and $13.6 million, respectively. As of December 31, 2012, the weighted average remaining contractual term for total outstanding stock options and vested/exercisable stock options was 6.29 and 5.12 years, respectively. As of December 31, 2012, the aggregate intrinsic value of all options outstanding and all vested/exercisable options outstanding was $21.2 million and $16.0 million, respectively.
As a result of the Special Cash Dividends (see Note 11) paid during the years ended December 31, 2012 and December 31, 2010, the Company reduced the exercise prices for all outstanding stock options as of the Special Cash Dividend record dates by the dividend amounts of $5.00 and $15.00, respectively. As a result of the 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 Special Cash Dividend record dates. As the adjustments were 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. Mr. Charles Fabrikant, the Executive Chairman of SEACOR, companies controlled by Mr. Fabrikant, 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, 2012, 2011 and 2010, Mr. Fabrikant and his affiliates earned $0.8 million, $1.1 million and $1.0 million, respectively, of net barge pool results (after payment of $0.1 million, $0.1 million and $0.1 million, respectively, in management fees to the Company). As of December 31, 2012 and 2011, the Company owed Mr. Fabrikant and his affiliates $0.4 million and $0.4 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.
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, 2012, 2011 and 2010.
As of December 31, 2012, excluding Aviation Services, the Company's unfunded capital commitments were $212.0 million and consisted of: 16 offshore support vessels for $122.6 million; an interest in a jack-up drilling rig for $30.3 million; eight inland river tank barges for $18.4 million; five inland river towboats for $15.3 million; four harbor tugs for $13.1 million; and other equipment and improvements for $11.0 million. In addition, the Company notified the lessee of its intent to purchase one harbor tugs currently operating under a capital lease for $1.3 million. Of these commitments, $176.6 million is payable during 2013 with the balance payable through 2015. The Company's Aviation Services business segment's unfunded capital commitments consisted primarily of eleven helicopters for $134.8 million, of which $128.3 million may be terminated without further liability other than the payment of liquidated damages of $3.3 million. Of Aviation Services commitments, $13.8 million is payable in 2013 with the balance payable through 2016. As of December 31, 2012, the Company held balances of cash, cash equivalents, restricted cash, marketable securities, construction reserve funds and Title XI reserve funds totaling $505.3 million, of which $11.5 million was held by Aviation Services. Subsequent to December 31, 2012, the Company, excluding Aviation Services, committed to purchase additional equipment for $1.3 million, Aviation Services committed to purchase two additional helicopters for $16.6 million and one of the Company's Offshore Marine Services joint ventures secured financing for the jack-up drilling rig reducing the Company's unfunded capital commitments by $30.3 million.
Prior to the sale of the SES Business, the Company had issued performance guarantees on behalf of the SES Business that expire in 2012 through 2014. As of December 31, 2012, the amount of outstanding SES Business performance guarantees was $0.1 million.
On July 14, 2010, a group of individuals and entities purporting to represent a class commenced a civil action in the U.S. District Court for the Eastern District of Louisiana, Terry G. Robin, et al. v. Seacor Marine, L.L.C., et al., No. 2:10-cv-01986 (E.D. La.) (the “Robin Case”), in which they asserted that support vessels, including vessels owned by the Company, responding to the explosion and resulting fire that occurred aboard the semi-submersible drilling rig, the Deepwater Horizon, were negligent in their efforts to save lives and put out the fire and contributed to the sinking of the Deepwater Horizon and subsequent oil spill. The action was part of the overall multi-district litigation, In re Oil Spill by the Oil Rig “Deepwater Horizon”, MDL No. 2179 (“MDL”). The complaint sought compensatory, punitive, exemplary, and other damages. In response to this lawsuit, the Company filed petitions seeking exoneration from, or limitation of liability in relation to, any actions that may have been taken by vessels owned by the Company to extinguish the fire. On June 8, 2011, the Company moved to dismiss these claims (with the exception of one claim filed by a Company employee) on various legal grounds. On October 12, 2011, the Court granted the Company's motion to dismiss in its entirety, dismissing with prejudice all claims that had been filed against the Company in the limitation actions (with the exception of one claim filed by a Company employee that was not subject to the motion to dismiss). The Court entered final judgments in favor of the Company in the Robin Case and each of the limitation actions on November 21, 2011. On December 12, 2011, the claimants appealed each of those judgments to the Unites States Court of Appeals for the Fifth Circuit. The claimants' opening brief was submitted on May 7, 2012, and the claimants filed a reply brief on June 1, 2012. Oral argument was not requested by the Fifth Circuit. On December 13, 2012, the Fifth Circuit affirmed the judgment of the district court.
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, a subsidiary of the Company prior to the ORM Transaction. The action now is part of the overall 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. 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.
On December 15, 2010, ORM and NRC, subsidiaries of the Company prior to the ORM Transaction and SES Business Transaction, respectively, were named as defendants in one of the several consolidated “master complaints” that have been filed in the overall MDL. The 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. 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.
Subsequent to the filing of the referenced master complaint, six additional individual civil actions have been filed in 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. 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 15, 2011, ORM and NRC were named as defendants in James and Krista Pearson v. BP Exploration & Production, Inc., 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 & Production, Inc., 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 seek to adopt the allegations made in the referenced master complaint against ORM and NRC (and the other defendants). 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. Finally 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. By court order, all six of these additional individual cases have been stayed until further notice. The Company is unable to estimate the potential exposure, if any, resulting from this matter but believes it is without merit and does not expect this matter will have a material effect on the Company's consolidated financial position or its results of operations.
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, Halliburton Energy Services, Inc., and M-I L.L.C. 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 have 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 recently moved to voluntarily dismiss these cross-claims without prejudice. The Court granted Weatherford's motion on February 8, 2013. As provided 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 these matters will have a material effect on the Company's consolidated financial position or its results of operations.
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 la., 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. Plaintiffs recently filed their motion to vacate the CTO and brief in support thereof with the JPML, and responses to same are to be filed on or before February 28, 2013. The Company is unable to estimate the potential exposure, if any, resulting from this matter but believes it is without merit and does not expect this matter to have a material effect on the Company's consolidated financial position or its results of operations.
Separately, on March 2, 2012, the Court announced that BP Exploration & Production Inc. and BP America Production Company (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 on December 21, 2012, and granted final approval to the Medical Benefits Class Action Settlement on January 11, 2013. Notices of Appeal to the Fifth Circuit with respect to both class action settlements have been filed by various objectors. Although neither the Company, ORM, or NRC are parties to the settlement agreements, the Company, ORM, and NRC are listed as released parties on the releases accompanying both settlement agreements. As the releases for both settlements have been deemed valid and enforceable by the district court, if the Fifth Circuit affirms these decisions, 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. At this time, the Company expects these settlements to reduce ORM's potential exposure, if any, from some of the pending actions described above, but is currently still evaluating the settlements' impacts on these cases.
On January 29, 2013, HEPACO, LLC ("HEPACO"), served a demand for arbitration upon O'Brien's Response Management, Inc. ("ORM"), in which HEPACO claims that ORM owes HEPACO an additional fee of $20,291,178.92 under the parties' Management Services Agreement (“MSA”), dated June 1, 2010. According to HEPACO, the MSA requires ORM to pay HEPACO an additional fee of 30% of total charges paid under the MSA ("Surcharge") to compensate HEPACO for U.S. Longshoremen's and Harbor Workers' insurance or Jones Act insurance and related risks attendant to the work when contract requires labor to be performed over, adjoining and/or in water. ORM denies liability for the Surcharge, intends to vigorously defend against the claim, and has sought indemnity for any resulting judgment and related attorneys fees from BP America Production Company (“BP America”) and BP Exploration & Production Inc. (“BP Exploration”) (collectively, “BP”). ORM has advised BP that, pursuant to the Bridge Agreement HOU-WL4-3066 between BP and ORM, effective as of June 1, 2010, under which ORM managed and oversaw, for BP, subcontractors, such as HEPACO, in connection with on-shore services related to the BP Deepwater Horizon oil spill, BP ultimately is responsible for the payment of the Surcharge should HEPACO be determined to be entitled to recover it under the MSA.
In the course of the Company's business, it may agree to indemnify a party. 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 and the ORM 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. In the case of the SES Business Transaction, such potential liabilities may not exceed the purchase consideration received by the Company for the SES Business Transaction and in the case of the ORM Transaction are subject to a negotiated cap. The Company currently is indemnified under contractual agreements with BP.
ORM is defending against four collective action lawsuits, each asserting failure to pay overtime with respect to individuals who provided service on the Deepwater Horizon spill response (the “DPH FLSA Actions”) under the Fair Labor Standards Act (“FLSA”). These cases - Dennis Prejean v. O'Brien's Response Management Inc. (E.D. La., Case No.: 2:12-cv-01045) (the “Prejean 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”); Himmerite et al. v. O'Brien's Response Management Inc. et al. (E.D. La., Case No.: 2:12-cv-01533) (the “Himmerite Action”); and Chann Chavis v. O'Brien's Response Management Inc. et al. (S.D. Tx., Case No.: 4:12-cv-02045) (the “Chavis Action”) - were each brought on behalf of certain individuals who worked on the Deepwater Horizon oil spill response and who were classified as independent contractors. The Prejean, Himmerite and Singleton Actions were each filed in the United States District Court for the Eastern District of Louisiana and then subsequently consolidated with the overall MDL. The Himmerite and Singleton Actions have since been automatically stayed pending further scheduling by the Court, pursuant to the procedures in the MDL. In the Prejean Action, ORM has answered the complaint, a scheduling order has been issued, and plaintiffs have, among other things, filed a Motion for Conditional Certification, which has been stayed pending further scheduling by the Court in accordance with the procedures of the MDL. The limitations periods for potential plaintiffs to opt-in to the Prejean, Himmerite
and Singleton actions have all been tolled pending further action by the Court. ORM has filed a Motion for Reconsideration of the Court's order tolling the limitations periods in these actions. The Chavis Action was filed on July 7, 2012 in the United States District Court for the Southern District of Texas, and ORM answered the complaint in that matter. On December 20, 2012, the parties in the Chavis Action entered into a full and final settlement agreement with respect to all of the Plaintiff's individual and class claims, pending approval of the Court. The Company is unable to estimate the potential exposure, if any, resulting from any of these DPH FLSA Actions, but believes they are without merit and will continue to vigorously defend against them.
In 2011, the Company received a Notice of Infringement (the “Notice”) from the Brazilian Federal Revenue Office. The Notice alleged the Company had imported a number of vessels into Brazil without properly completing the required importation documents and levied an assessment of $25.7 million. Of the levied assessment, $19.3 million related to managed vessels. On August 14, 2012, a decision was rendered in favor of the Company by the second Panel of Judgment of the Brazilian Federal Revenue Office and the matter is now closed.
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 or its results of operations.
As of December 31, 2012, the Company leases 22 offshore support vessels, seven helicopters, two barges, two tankers, three azimuth drive 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 lease terms of the tankers, which are subject to subleases, have durations of 130 and 146 months. The lease terms of the other equipment range in duration from one to seven years. Certain of the equipment leases are the result of sale-leaseback transactions with finance companies (see Note 4) 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 2012, 2011 and 2010 was $62.0 million, $48.5 million and $51.4 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, 2012 for the Company, excluding Era Group, were as follows (in thousands):
______________________
(1)
The total minimum offsetting payments to be received under existing long-term bareboat charter-out arrangements (see Note 4).
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, 2012 for Era Group were as follows (in thousands):
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. Certain reclassifications of prior year information have been made to conform to the current year's reportable segment presentation as a result of the Company's re-segmentation (see Note 1) and its presentation of discontinued operations (see Note 17). 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, well-completion and emergencies. In addition to supporting drilling activities, Offshore Marine Services' vessels support offshore construction and maintenance work, provide accommodations for technicians and specialists, provide standby safety support and emergency response services. Offshore Marine Services also has a controlling interest in a business that owns and operates vessels primarily used to move personnel and supplies to offshore wind farms. On March 30, 2012, Offshore Marine Services acquired a fleet of lift boats, which operate in the U.S. Gulf of Mexico supporting well intervention, work-over, decommissioning and diving operations. Offshore Marine Services also offers logistics services in support of offshore oil and gas exploration, development and production operations, including shore bases, marine transport and other supply chain management services. Offshore Marine Services contributed 33%, 29% and 37% of consolidated operating revenues in 2012, 2011 and 2010, respectively.
Aviation Services. Aviation Services is one of the largest helicopter operators in the world and the longest serving helicopter transport operator in the United States, which is its primary area of operations. Aviation Services also provides helicopters and related services to third-party helicopter operators in other countries. Aviation Services' helicopters are primarily used to transport personnel to, from and between offshore installations, drilling rigs and platforms. The primary users of its helicopter services are major integrated and independent oil and gas companies and the U.S. government. In addition to serving the oil and gas industry, Aviation Services provides helicopters under contract-lease, air medical services, firefighting support and Alaska flightseeing tours, among other activities. Aviation Services provides a number of additional services through joint ventures that complement its core chartering and contract-leasing activities. It holds a 50% interest in a sales and manufacturing organization based in Canada that engineers and manufactures after-market helicopter parts and accessories for sale to helicopter manufacturers and operators, and distributes parts and accessories on behalf of other manufacturers. Aviation Services also holds a 50% interest in a training center based in Lake Charles, Louisiana, that provides instruction, flight simulator and other training to its employees, pilots working for third parties, other helicopter companies, including its competitors, and government agencies. Aviation Services contributed 17%, 20% and 17% of consolidated operating revenues in 2012, 2011 and 2010, respectively.
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 Separation 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”. Commencing with the quarter ending March 31, 2013, the Company will report the historical financial position, results of operations and cash flows of Era Group as discontinued operations.
Inland River Services. Inland River Services owns, operates, invests in and markets river transportation equipment primarily used for moving agricultural and industrial commodities, and chemical and petrochemical 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. Inland River Services owns towboats used for moving barges, fleeting operations and deck barges. Internationally, Inland River Services has interests in a transshipment terminal at the Port of Ibicuy, Argentina and operations on the Parana-Paraguay Rivers in Argentina and the Magdalena River in Colombia. In addition to its primary barge business, Inland River Services also owns, operates and invests in high-speed multi-modal terminal facilities for both dry and liquid commodities and provides a broad range of services including machine shop, gear and engine repairs, repair of barges and towboats at strategic locations on the U.S. Inland River Waterways. Inland River Services contributed 14%, 15% and 11% of consolidated operating revenues in 2012, 2011 and 2010, respectively.
Shipping Services. Shipping Services invests in, operates and leases a diversified fleet of U.S.-flag and foreign-flag marine transportation related assets including deep-sea cargo vessels and harbor tugs primarily servicing the U.S. coastwise petroleum trade and ships docking in the U.S. Gulf and East Coast ports. Additional assets and services include liner and short-sea transportation to and from ports in Florida, Puerto Rico, the Bahamas and 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 and technical ship management services. Shipping Services contributed 11%, 12% and 10% of consolidated operating revenues in 2012, 2011 and 2010, respectively.
Alcohol Manufacturing. Alcohol Manufacturing operates an alcohol manufacturing, storage and distribution facility located in Pekin, IL through its subsidiary ICP. ICP produces, stores and distributes a variety of high quality alcohol used in food, beverage, industrial and petro-chemical end markets; and fuel grade ethanol. The Company obtained a controlling interest in ICP on February 1, 2012 through the accusation of a portion of its partner's interest. Alcohol Manufacturing contributed 12% of consolidated operating revenues in 2012.
Other. The Company also has activities that are referred to and described under Other, which primarily include emergency and crisis services activities, agricultural commodity trading and logistics activities, other activities, primarily lending and leasing activities, and noncontrolling investments in various other businesses, primarily industrial aviation services businesses in Asia.
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 $184.9 million of tangible product sales and operating expenses includes $185.1 million of costs of goods sold.
(2)
Inventories for Commodity Trading and Logistics includes raw materials of $2.4 million and work in process of $1.8 million resulting from the acquisition of ICP (see Note 4).
(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)
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)
Cash and near cash assets includes cash, cash equivalents, restricted cash, marketable securities, construction reserve funds and Title XI reserve funds.
In 2012 and 2011, the Company did not earn revenues that were greater than or equal to 10% of total revenues from a single customer. In 2010, one customer (BP p.l.c.) was responsible for $286.7 million , or 18% , of consolidated operating revenues. For the years ended December 31, 2012, 2011 and 2010, approximately 34%, 46% and 28%, 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 and Aviation Services fleet. 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 sold the SES Business 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. As a result of the sale, the Company disposed of $8.0 million of goodwill. On December 31, 2012, SEACOR sold SEI 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.
For all periods presented herein, the Company has reported the historical financial position, results of operations and cash flows of the SES Business and SEI 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, 2012, 2011 and 2010
(in thousands)
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(1)
Trade receivable amounts deemed uncollectible that were removed from accounts receivable and allowance for doubtful accounts.
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.