strength in diversity

Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes
(“FIN 48”). FIN 48 was adopted on January 1, 2008 with no material impact to the Company’s consolidated
financial position or its results of operations. 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 the Company’s
income tax provision. In accordance with SFAS No. 109, 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. From time to time, the Company enters into vessel sale and leaseback transactions and sells
vessels to business ventures in which it holds an equity ownership interest. Certain of the gains realized from
these transactions are not immediately recognized in income and have been recorded in the accompanying
consolidated balance sheets in deferred gains and other liabilities. In sale and leaseback transactions, gains are
deferred to the extent of the present value of future minimum lease payments and are amortized as reductions to
rental expense over the applicable lease terms. In business venture sale transactions, gains are deferred and
amortized based on the Company’s ownership interest, cash received from the business venture and the
applicable vessels’ depreciable lives. Deferred gain activity for the years ended December 31 is as follows (in
thousands):
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2008 2007 2006
Balance at beginning of year $109,284 $ 52,077 $ 25,725
Deferred income arising from vessel sales 10,521 81,413 37,763
Amortization of deferred gains (20,635) (13,689) (11,394)
Reduction of deferred gains on repurchased vessels — (10,357) —
Currency translation and other 34 (160) (17)
Balance at end of year $ 99,204 $109,284 $ 52,077
Stock Based Compensation. The Company accounts for stock based compensation in accordance with
SFAS No. 123(R), Share Based Payments. After assessing alternative valuation models and amortization
assumptions, the Company is using the Black-Scholes valuation model and straight-line amortization of
compensation expense over the requisite service period of the grants. 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. In accordance with SFAS No. 123(R), 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.
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 date 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 changes in
equity.
Foreign Currency Transactions. Certain SEACOR subsidiaries enter into transactions denominated in
currencies other than their functional currency. Changes in currency exchange rates between the functional
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