HELIX ENERGY SOLUTIONS GROUP INC
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
|
þ
|
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the quarterly period ended
March 31, 2015
or
|
¨
|
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the transition period from__________ to__________
Commission File Number 001-32936
HELIX ENERGY SOLUTIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
|
Minnesota
(State or other jurisdiction
of incorporation or organization)
|
|
95–3409686
(I.R.S. Employer
Identification No.)
|
|
|
|
|
|
3505 West Sam Houston Parkway North
Suite 400
Houston, Texas
(Address of principal executive offices)
|
|
77043
(Zip Code)
|
(281) 618–0400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ
Yes
¨
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ
Yes
¨
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
þ
|
Accelerated filer
¨
|
Non-accelerated filer
¨
|
Smaller reporting company
¨
|
|
(Do not check if a smaller reporting company)
|
|||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨
Yes
þ
No
As of
April 17, 2015
, 105,913,805 shares of common stock were outstanding.
TABLE OF CONTENTS
|
PART I.
|
|
FINANCIAL INFORMATION
|
PAGE
|
|
Item 1.
|
|
Financial Statements:
|
|
|
|
|
||
|
|
|
||
|
|
|
||
|
|
|
||
|
|
|
||
|
Item 2.
|
|
||
|
Item 3.
|
|
||
|
Item 4.
|
|
||
|
PART II.
|
|
OTHER INFORMATION
|
|
|
Item 1.
|
|
||
|
Item 2.
|
|
||
|
Item 6.
|
|
||
|
|
|
||
|
|
|
||
2
Item 1.
Financial Statements
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(in thousands)
|
March 31, 2015
|
December 31, 2014
|
||||||
|
|
(Unaudited)
|
|
|||||
|
ASSETS
|
|||||||
|
Current assets:
|
|
|
|||||
|
Cash and cash equivalents
|
$
|
415,302
|
|
$
|
476,492
|
|
|
|
Accounts receivable:
|
|
|
|
|
|||
|
Trade, net of allowance for uncollectible accounts of $5,160 and $4,735, respectively
|
108,377
|
|
104,724
|
|
|||
|
Unbilled revenue
|
39,324
|
|
28,542
|
|
|||
|
Costs in excess of billing
|
776
|
|
2,034
|
|
|||
|
Current deferred tax assets
|
23,477
|
|
31,180
|
|
|||
|
Other current assets
|
33,016
|
|
51,301
|
|
|||
|
Total current assets
|
620,272
|
|
694,273
|
|
|||
|
Property and equipment
|
2,287,411
|
|
2,241,444
|
|
|||
|
Less accumulated depreciation
|
(527,033
|
)
|
(506,060
|
)
|
|||
|
Property and equipment, net
|
1,760,378
|
|
1,735,384
|
|
|||
|
Other assets:
|
|
|
|
|
|||
|
Equity investments
|
148,147
|
|
149,623
|
|
|||
|
Goodwill
|
61,336
|
|
62,146
|
|
|||
|
Other assets, net
|
58,191
|
|
59,272
|
|
|||
|
Total assets
|
$
|
2,648,324
|
|
$
|
2,700,698
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current liabilities:
|
|
|
|
|
|||
|
Accounts payable
|
$
|
80,106
|
|
$
|
83,403
|
|
|
|
Accrued liabilities
|
70,774
|
|
104,923
|
|
|||
|
Income tax payable
|
3,333
|
|
9,143
|
|
|||
|
Current maturities of long-term debt
|
32,033
|
|
28,144
|
|
|||
|
Total current liabilities
|
186,246
|
|
225,613
|
|
|||
|
Long-term debt
|
514,265
|
|
523,228
|
|
|||
|
Deferred tax liabilities
|
247,050
|
|
260,275
|
|
|||
|
Other non-current liabilities
|
45,753
|
|
38,108
|
|
|||
|
Total liabilities
|
993,314
|
|
1,047,224
|
|
|||
|
Commitments and contingencies
|
|
|
|
|
|||
|
Shareholders
’
equity:
|
|
|
|
|
|||
|
Common stock, no par, 240,000 shares authorized, 105,904 and 105,586 shares issued, respectively
|
936,735
|
|
934,447
|
|
|||
|
Retained earnings
|
800,921
|
|
781,279
|
|
|||
|
Accumulated other comprehensive loss
|
(82,646
|
)
|
(62,252
|
)
|
|||
|
Total shareholders
’
equity
|
1,655,010
|
|
1,653,474
|
|
|||
|
Total liabilities and shareholders
’
equity
|
$
|
2,648,324
|
|
$
|
2,700,698
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands, except per share amounts)
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Net revenues
|
$
|
189,641
|
|
$
|
253,572
|
|
|
|
Cost of sales
|
154,694
|
|
177,726
|
|
|||
|
Gross profit
|
34,947
|
|
75,846
|
|
|||
|
Gain on disposition of assets, net
|
—
|
|
11,496
|
|
|||
|
Selling, general and administrative expenses
|
(12,619
|
)
|
(20,394
|
)
|
|||
|
Income from operations
|
22,328
|
|
66,948
|
|
|||
|
Equity in earnings of investments
|
21
|
|
708
|
|
|||
|
Net interest expense
|
(4,070
|
)
|
(4,483
|
)
|
|||
|
Other expense, net
|
(1,156
|
)
|
(810
|
)
|
|||
|
Other income – oil and gas
|
2,926
|
|
12,276
|
|
|||
|
Income before income taxes
|
20,049
|
|
74,639
|
|
|||
|
Income tax provision
|
407
|
|
20,417
|
|
|||
|
Net income, including noncontrolling interests
|
19,642
|
|
54,222
|
|
|||
|
Less net income applicable to noncontrolling interests
|
—
|
|
(503
|
)
|
|||
|
Net income applicable to common shareholders
|
$
|
19,642
|
|
$
|
53,719
|
|
|
|
Earnings per share of common stock:
|
|
|
|
|
|||
|
Basic
|
$
|
0.19
|
|
$
|
0.51
|
|
|
|
Diluted
|
$
|
0.19
|
|
$
|
0.51
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|||
|
Basic
|
105,290
|
|
105,126
|
|
|||
|
Diluted
|
105,290
|
|
105,375
|
|
|||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Net income, including noncontrolling interests
|
$
|
19,642
|
|
$
|
54,222
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|||
|
Unrealized gain (loss) on hedges arising during the period
|
(11,711
|
)
|
4,055
|
|
|||
|
Reclassification adjustments for loss included in net income
|
1,673
|
|
658
|
|
|||
|
Income taxes on unrealized (gain) loss on hedges
|
3,513
|
|
(1,650
|
)
|
|||
|
Unrealized gain (loss) on hedges, net of tax
|
(6,525
|
)
|
3,063
|
|
|||
|
Foreign currency translation gain (loss)
|
(13,869
|
)
|
1,347
|
|
|||
|
Other comprehensive income (loss), net of tax
|
(20,394
|
)
|
4,410
|
|
|||
|
Comprehensive income (loss)
|
(752
|
)
|
58,632
|
|
|||
|
Less comprehensive income applicable to noncontrolling interests
|
—
|
|
(503
|
)
|
|||
|
Comprehensive income (loss) applicable to common shareholders
|
$
|
(752
|
)
|
$
|
58,129
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands)
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Cash flows from operating activities:
|
|
|
|||||
|
Net income, including noncontrolling interests
|
$
|
19,642
|
|
$
|
54,222
|
|
|
|
Adjustments to reconcile net income, including noncontrolling interests, to net cash provided by (used in) operating activities:
|
|
|
|
|
|||
|
Depreciation and amortization
|
26,089
|
|
24,726
|
|
|||
|
Amortization of deferred financing costs
|
1,218
|
|
1,218
|
|
|||
|
Stock-based compensation expense
|
1,754
|
|
1,811
|
|
|||
|
Amortization of debt discount
|
1,464
|
|
1,397
|
|
|||
|
Deferred income taxes
|
(1,114
|
)
|
33,407
|
|
|||
|
Excess tax from stock-based compensation
|
(260
|
)
|
(619
|
)
|
|||
|
Gain on disposition of assets, net
|
—
|
|
(11,496
|
)
|
|||
|
Unrealized loss and ineffectiveness on derivative contracts, net
|
2,181
|
|
68
|
|
|||
|
Changes in operating assets and liabilities:
|
|
|
|
|
|||
|
Accounts receivable, net
|
(14,917
|
)
|
(5,527
|
)
|
|||
|
Other current assets
|
17,843
|
|
(7,122
|
)
|
|||
|
Income tax payable
|
(5,322
|
)
|
(26,106
|
)
|
|||
|
Accounts payable and accrued liabilities
|
(48,718
|
)
|
(14,385
|
)
|
|||
|
Other noncurrent, net
|
(2,403
|
)
|
(2,757
|
)
|
|||
|
Net cash provided by (used in) operating activities
|
(2,543
|
)
|
48,837
|
|
|||
|
Cash flows from investing activities:
|
|
|
|
|
|||
|
Capital expenditures
|
(52,524
|
)
|
(37,991
|
)
|
|||
|
Distributions from equity investments, net
|
1,379
|
|
2,092
|
|
|||
|
Proceeds from sale of assets
|
—
|
|
11,074
|
|
|||
|
Acquisition of noncontrolling interests
|
—
|
|
(20,085
|
)
|
|||
|
Net cash used in investing activities
|
(51,145
|
)
|
(44,910
|
)
|
|||
|
Cash flows from financing activities:
|
|
|
|
|
|||
|
Repayment of term loans
|
(3,750
|
)
|
(3,750
|
)
|
|||
|
Repayment of MARAD borrowings
|
(2,788
|
)
|
(2,655
|
)
|
|||
|
Distributions to noncontrolling interests
|
—
|
|
(1,018
|
)
|
|||
|
Repurchases of common stock
|
(1,026
|
)
|
(5,449
|
)
|
|||
|
Excess tax from stock-based compensation
|
260
|
|
619
|
|
|||
|
Proceeds from issuance of ESPP shares
|
1,299
|
|
942
|
|
|||
|
Net cash used in financing activities
|
(6,005
|
)
|
(11,311
|
)
|
|||
|
Effect of exchange rate changes on cash and cash equivalents
|
(1,497
|
)
|
(737
|
)
|
|||
|
Net decrease in cash and cash equivalents
|
(61,190
|
)
|
(8,121
|
)
|
|||
|
Cash and cash equivalents:
|
|
|
|
|
|||
|
Balance, beginning of year
|
476,492
|
|
478,200
|
|
|||
|
Balance, end of period
|
$
|
415,302
|
|
$
|
470,079
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying condensed consolidated financial statements include the accounts of Helix Energy Solutions Group, Inc. and its wholly and majority owned subsidiaries (collectively, “Helix” or the “Company”). Unless the context indicates otherwise, the terms “we,” “us” and “our” in this report refer collectively to Helix and its wholly and majority owned subsidiaries. All material intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements have been prepared pursuant to instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission (the “SEC”), and do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles.
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistent in all material respects with those applied in our
2014
Annual Report on Form 10-K (“
2014
Form 10-K”). The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and the related disclosures. Actual results may differ from our estimates. We have made all adjustments (which were normal recurring adjustments unless otherwise disclosed herein) that we believe are necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income (loss), and statements of cash flows, as applicable. The operating results for the
three
-month period ended
March 31, 2015
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2015
. Our balance sheet as of
December 31, 2014
included herein has been derived from the audited balance sheet as of
December 31, 2014
included in our
2014
Form 10-K. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto included in our
2014
Form 10-K.
Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes thereto to make them consistent with the current presentation format.
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU provides a single five-step approach to account for revenue arising from contracts with customers. The ASU requires an entity to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue standard is currently effective prospectively for annual reporting periods beginning after December 15, 2016, including interim periods. Early adoption is not permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption through a cumulative adjustment. We are currently evaluating which transition approach to use and the potential impact the adoption of this new standard may have on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This ASU requires that debt issuance costs related to a recognized debt liability be reported on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is effective retrospectively beginning in the first quarter of fiscal 2017 and early adoption is permitted. We are currently evaluating the impact of this new standard on our consolidated financial statements.
7
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. We seek to provide services and methodologies that we believe are critical to developing offshore reservoirs and maximizing production economics. We provide services primarily in deepwater in the Gulf of Mexico, North Sea, Asia Pacific and West Africa regions, and intend to increase our operations in offshore Brazil. Our “life of field” services are segregated into
three
reportable business segments: Well Intervention, Robotics and Production Facilities (Note 11). Our Well Intervention segment includes our vessels and equipment used to perform well intervention services primarily in the Gulf of Mexico and North Sea regions. Our well intervention vessels include the
Q4000
, the
Helix 534
, the
Seawell
, the
Well Enhancer
and the
Skandi Constructor
, which is a chartered vessel. Our Robotics segment includes remotely operated vehicles (“ROVs”), trenchers and ROVDrills designed to complement offshore construction and well intervention services, and will operate
five
chartered ROV and trencher support vessels following the delivery of the
Grand Canyon II
in late April 2015. Our Production Facilities segment includes the
Helix Producer I
vessel (
“HP I”
) as well as our equity investments in Deepwater Gateway, L.L.C. (“Deepwater Gateway”) and Independence Hub, LLC (“Independence Hub”) (Note 5). The Production Facilities segment also includes the Helix Fast Response System (“HFRS”), which provides certain operators access to our
Q4000
and
HP I
vessels in the event of a well control incident in the Gulf of Mexico.
Other current assets and other assets, net consist of the following (in thousands):
|
March 31, 2015
|
December 31, 2014
|
||||||
|
Note receivable
(1)
|
$
|
10,000
|
|
$
|
17,500
|
|
|
|
Other receivables
|
613
|
|
423
|
|
|||
|
Prepaid insurance
|
3,523
|
|
6,582
|
|
|||
|
Other prepaids
|
8,631
|
|
15,541
|
|
|||
|
Spare parts inventory
|
2,112
|
|
1,857
|
|
|||
|
Value added tax receivable
|
8,046
|
|
9,326
|
|
|||
|
Other
|
91
|
|
72
|
|
|||
|
Total other current assets
|
$
|
33,016
|
|
$
|
51,301
|
|
|
|
March 31, 2015
|
December 31, 2014
|
||||||
|
Note receivable
(1)
|
$
|
10,000
|
|
$
|
10,000
|
|
|
|
Deferred dry dock expenses, net
|
11,972
|
|
11,631
|
|
|||
|
Deferred financing costs, net (Note 6)
|
22,278
|
|
23,399
|
|
|||
|
Intangible assets with finite lives, net
|
710
|
|
696
|
|
|||
|
Charter fee deposit (Note 12)
|
12,544
|
|
12,544
|
|
|||
|
Other
|
687
|
|
1,002
|
|
|||
|
Total other assets, net
|
$
|
58,191
|
|
$
|
59,272
|
|
|
|
(1)
|
Relates to the remaining balance of the promissory note we received in connection with the sale of our Ingleside spoolbase in January 2014. Interest on the note is payable quarterly at a rate of
6%
per annum. Under the terms of the note, the remaining
$20 million
principal balance is required to be paid with a
$10 million
payment on December 31 of 2015 and 2016, respectively.
|
8
Accrued liabilities consist of the following (in thousands):
|
March 31, 2015
|
December 31, 2014
|
||||||
|
Accrued payroll and related benefits
|
$
|
28,561
|
|
$
|
61,246
|
|
|
|
Current asset retirement obligations
|
554
|
|
575
|
|
|||
|
Unearned revenue
|
7,653
|
|
11,461
|
|
|||
|
Accrued interest
|
1,952
|
|
4,221
|
|
|||
|
Derivative liability (Note 14)
|
17,491
|
|
13,222
|
|
|||
|
Taxes payable excluding income tax payable
|
6,263
|
|
6,236
|
|
|||
|
Other
|
8,300
|
|
7,962
|
|
|||
|
Total accrued liabilities
|
$
|
70,774
|
|
$
|
104,923
|
|
|
We define cash and cash equivalents as cash and all highly liquid financial instruments with original maturities of three months or less. The following table provides supplemental cash flow information (in thousands):
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Interest paid, net of interest capitalized
|
$
|
4,124
|
|
$
|
4,635
|
|
|
|
Income taxes paid
|
$
|
7,181
|
|
$
|
13,118
|
|
|
Our non-cash investing activities include accruals for property and equipment capital expenditures. These non-cash investing accruals totaled
$17.5 million
and
$14.1 million
as of
March 31, 2015
and
December 31, 2014
, respectively. Additionally, our investing activities for the
three
-month period ended
March 31, 2014
included a
$30 million
non-cash transaction related to the promissory note we received in connection with the sale of our Ingleside spoolbase in January 2014 (Note 3).
As of
March 31, 2015
, we had
two
investments that we account for using the equity method of accounting: Deepwater Gateway and Independence Hub, both of which are included in our Production Facilities segment.
Deepwater Gateway, L.L.C.
In June 2002, we, along with Enterprise Products Partners L.P. (“Enterprise”), formed Deepwater Gateway, each with a
50%
interest, to design, construct, install, own and operate a tension leg platform production hub primarily for Anadarko Petroleum Corporation’s Marco Polo
field in the Deepwater Gulf of Mexico. Our investment in Deepwater Gateway totaled
$80.1 million
and
$80.9 million
as of
March 31, 2015
and
December 31, 2014
, respectively (including net capitalized interest of
$1.2 million
at
March 31, 2015
and
December 31, 2014
, respectively).
Independence Hub, LLC.
In December 2004, we acquired a
20%
interest in Independence Hub, an affiliate of Enterprise. Independence Hub owns the “Independence Hub” platform located in Mississippi Canyon Block 920 in a water depth of
8,000
feet. Our investment in Independence Hub was
$68.0 million
and
$68.8 million
as of
March 31, 2015
and
December 31, 2014
, respectively (including capitalized interest of
$3.9 million
at
March 31, 2015
and
December 31, 2014
, respectively).
9
We received the following distributions from our equity method investments (in thousands):
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Deepwater Gateway
|
$
|
1,000
|
|
$
|
2,000
|
|
|
|
Independence Hub
|
400
|
|
800
|
|
|||
|
Total
|
$
|
1,400
|
|
$
|
2,800
|
|
|
Note 6 —
Long-Term Debt
Scheduled maturities of our long-term debt outstanding as of
March 31, 2015
are as follows (in thousands):
|
|
Term
Loan
|
MARAD
Debt
|
2032
Notes
(1)
|
Total
|
|||||||||||
|
Less than one year
|
$
|
26,250
|
|
$
|
5,783
|
|
$
|
—
|
|
$
|
32,033
|
|
|||
|
One to two years
|
30,000
|
|
6,072
|
|
—
|
|
36,072
|
|
|||||||
|
Two to three years
|
30,000
|
|
6,375
|
|
—
|
|
36,375
|
|
|||||||
|
Three to four years
|
187,500
|
|
6,693
|
|
—
|
|
194,193
|
|
|||||||
|
Four to five years
|
—
|
|
7,027
|
|
—
|
|
7,027
|
|
|||||||
|
Over five years
|
—
|
|
60,054
|
|
200,000
|
|
260,054
|
|
|||||||
|
Total debt
|
273,750
|
|
92,004
|
|
200,000
|
|
565,754
|
|
|||||||
|
Current maturities
|
(26,250
|
)
|
(5,783
|
)
|
—
|
|
(32,033
|
)
|
|||||||
|
Long-term debt, less current maturities
|
247,500
|
|
86,221
|
|
200,000
|
|
533,721
|
|
|||||||
|
Unamortized debt discount
(2)
|
—
|
|
—
|
|
(19,456
|
)
|
(19,456
|
)
|
|||||||
|
Long-term debt
|
$
|
247,500
|
|
$
|
86,221
|
|
$
|
180,544
|
|
$
|
514,265
|
|
|||
|
(1)
|
Beginning in March 2018, the holders of our Convertible Senior Notes due 2032 may require us to repurchase these notes or we may at our option elect to repurchase these notes. The notes will mature in
March 2032
.
|
|
(2)
|
Our Convertible Senior Notes due 2032 will increase to their face amount through accretion of non-cash interest charges through March 2018.
|
Included below is a summary of certain components of our indebtedness:
Credit Agreement
In June 2013, we entered into a credit agreement (the “Credit Agreement”) with a group of lenders pursuant to which we borrowed
$300 million
under the Credit Agreement’s term loan (the “Term Loan”) and, subject to the terms of the Credit Agreement, may borrow additional amounts (the “Revolving Loans”) and/or obtain letters of credit under a revolving credit facility (the “Revolving Credit Facility”) up to an outstanding amount of
$600 million
. Subject to lender participation, we may request an increase of up to
$200 million
in aggregate commitments with respect to the Revolving Credit Facility, additional term loans or a combination thereof. At
March 31, 2015
, our availability under the Revolving Credit Facility totaled
$583.7 million
, net of
$16.3 million
of letters of credit issued.
The Term Loan and the Revolving Loans (together, the “Loans”) bear interest, at our election, in relation to either the base rate established by Bank of America N.A. or to a LIBOR rate, provided that all Swing Line Loans (as defined in the Credit Agreement) will be base rate loans.
10
The Loans or portions thereof bearing interest at the base rate bear interest at a per annum rate equal to the base rate plus a margin ranging from
1.00%
to
2.00%
. The Loans or portions thereof bearing interest at a LIBOR rate bear interest at the LIBOR rate selected by us plus a margin ranging from
2.00%
to
3.00%
. A letter of credit fee is payable by us equal to our applicable margin for LIBOR rate Loans multiplied by the daily amount available to be drawn under outstanding letters of credit. Margins on the Loans will vary in relation to the consolidated coverage ratio, as provided by the Credit Agreement. We currently also pay a fixed commitment fee of
0.375%
on the unused portion of our Revolving Credit Facility. The Term Loan currently bears interest at the one-month LIBOR rate plus
2.25%
. In September 2013, we entered into various interest rate swap contracts to fix the one-month LIBOR rate on
$148.1 million
of the Term Loan. The fixed LIBOR rates are between 74 and 75 basis points.
The Term Loan is repayable in scheduled principal installments of
5%
in each of the initial two loan years (
$15 million
per year), and
10%
in each of the remaining three loan years (
$30 million
per year), payable quarterly, with a balloon payment of
$180 million
at maturity. These installment amounts are subject to adjustment for any prepayments on the Term Loan. We may elect to prepay amounts outstanding under the Term Loan without premium or penalty, but may not reborrow any amounts prepaid. We may prepay amounts outstanding under the Revolving Loans without premium or penalty, and may reborrow any amounts paid up to the amount of the Revolving Credit Facility. The Loans mature on
June 19, 2018
. In certain circumstances, we will be required to prepay the Loans.
The Credit Agreement and the other documents entered into in connection with the Credit Agreement (together, the “Loan Documents”) include terms and conditions, including covenants, which we consider customary for this type of transaction. The covenants include restrictions on our and our subsidiaries’ ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets, pay dividends and incur capital expenditures. In addition, the Credit Agreement obligates us to meet certain financial ratios, including the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio (as defined in the Credit Agreement). We have designated five of our foreign subsidiaries, and may designate any newly established foreign subsidiaries, as subsidiaries that are not generally subject to the covenants in the Credit Agreement (the “Unrestricted Subsidiaries”), provided we meet certain liquidity requirements, in which case EBITDA of the Unrestricted Subsidiaries is not included in the calculations with respect to our financial covenants. Our obligations under the Credit Agreement are guaranteed by our wholly owned domestic subsidiaries (except Cal Dive I – Title XI, Inc.) and Canyon Offshore Limited. Our obligations under the Credit Agreement, and of the guarantors under their guaranty, are secured by most of our assets and assets of the guarantors and Canyon Offshore Limited, plus pledges of up to two-thirds of the shares of certain foreign subsidiaries.
Convertible Senior Notes Due 2032
In March 2012, we completed a public offering and sale of
$200 million
in aggregate principal amount of Convertible Senior Notes due 2032 (the “2032 Notes”). The 2032 Notes bear interest at a rate of
3.25%
per annum, and are payable
semi-annually
in arrears on March 15 and September 15 of each year, beginning on September 15, 2012. The 2032 Notes will mature on
March 15, 2032
unless earlier converted, redeemed or repurchased. The 2032 Notes are convertible in certain circumstances and during certain periods at an initial conversion rate of
39.9752
shares of common stock per
$1,000
principal amount (which represents an initial conversion price of approximately
$25.02
per share of common stock), subject to adjustment in certain circumstances as set forth in the Indenture governing the 2032 Notes. We have the right and the intention to settle any such future conversions in cash.
Prior to March 20, 2018, the 2032 Notes are not redeemable. On or after March 20, 2018, we, at our option, may redeem some or all of the 2032 Notes in cash, at any time upon at least 30 days’ notice, at a price equal to
100%
of the principal amount plus accrued and unpaid interest (including contingent interest, if any) up to but excluding the redemption date. In addition, the holders of the 2032 Notes may
11
require us to purchase in cash some or all of their 2032 Notes at a repurchase price equal to 100% of the principal amount of the 2032 Notes, plus accrued and unpaid interest (including contingent interest, if any) up to but excluding the applicable repurchase date, on March 15, 2018, March 15, 2022 and March 15, 2027, or, subject to specified exceptions, at any time prior to the 2032 Notes’ maturity following a fundamental change (as defined in the Indenture governing the 2032 Notes).
In connection with the issuance of the 2032 Notes, we recorded a discount of
$35.4 million
as required under existing accounting rules. To arrive at this discount amount, we estimated the fair value of the liability component of the 2032 Notes as of the date of their issuance (March 12, 2012) using an income approach. To determine this estimated fair value, we used borrowing rates of similar market transactions involving comparable liabilities at the time of issuance and an expected life of
6.0 years
. In selecting the expected life, we selected the earliest date the holders could require us to repurchase all or a portion of the 2032 Notes (March 15, 2018). The effective interest rate for the 2032 Notes is
6.9%
after considering the effect of the accretion of the related debt discount that represented the equity component of the 2032 Notes at their inception. As of
March 31, 2015
, the carrying amount of the equity component of the 2032 Notes was
$22.5 million
.
MARAD Debt
This U.S. government guaranteed financing (the “MARAD Debt”) is pursuant to Title XI of the Merchant Marine Act of 1936 administered by the Maritime Administration, and was used to finance the construction of the
Q4000
. The MARAD Debt is payable in equal
semi-annual
installments beginning in August 2002 and matures in
February 2027
. The MARAD Debt is collateralized by the
Q4000
, is guaranteed
50%
by us, and initially bore interest at a floating rate that approximated AAA Commercial Paper yields plus 20 basis points. As provided for in the MARAD Debt agreements, in September 2005, we fixed the interest rate on the debt through the issuance of a
4.93%
fixed-rate note with the same maturity date.
Nordea Credit Agreement
In September 2014, a wholly owned subsidiary incorporated in Luxembourg, Helix Q5000 Holdings S.à r.l. (“Q5000 Holdings”), entered into a credit agreement (the “Nordea Credit Agreement”) with a syndicated bank lending group for a term loan (the “Nordea Term Loan”) in an amount of up to
$250 million
. The Nordea Term Loan will be funded at or near the time of the delivery of the
Q5000
, which is currently estimated in the second quarter of 2015. The parent company of Q5000 Holdings, Helix Vessel Finance S.à r.l., also a wholly owned Luxembourg subsidiary, has guaranteed the Nordea Term Loan. The loan will be secured by the
Q5000
and its charter earnings as well as by a pledge of the shares of Q5000 Holdings. This indebtedness is nonrecourse to Helix.
The Nordea Term Loan will bear interest at a LIBOR rate plus a margin of
2.5%
, with an undrawn fee of
0.875%
. The Nordea Term Loan matures
five years
after funding and is repayable in scheduled principal installments of
$8.9 million
, payable
quarterly
, with a balloon payment of
$80.4 million
at maturity. Installment amounts are subject to adjustment for any prepayments on this debt. Q5000 Holdings may elect to prepay amounts outstanding under the Nordea Term Loan without premium or penalty, but may not reborrow any amounts prepaid. In certain circumstances, Q5000 Holdings will be required to prepay the loan.
The Nordea Credit Agreement and the other related loan documents include terms and conditions, including covenants that are considered customary for this type of transaction. The covenants include restrictions on Q5000 Holdings’s ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets, and pay dividends. In addition, the Nordea Credit Agreement obligates Q5000 Holdings to meet minimum financial requirements, including liquidity, consolidated debt service coverage and collateral maintenance.
12
Other
In accordance with our Credit Agreement, the 2032 Notes, the MARAD Debt agreements, and the Nordea Credit Agreement, we are required to comply with certain covenants, including certain financial ratios such as a consolidated interest coverage ratio and consolidated leverage ratio, as well as the maintenance of minimum net worth, working capital and debt-to-equity requirements. As of
March 31, 2015
, we were in compliance with these covenants.
Unamortized deferred financing costs are included in “Other assets, net” in the accompanying condensed consolidated balance sheets and are amortized over the life of the respective debt agreements. The following table reflects the components of our deferred financing costs (in thousands):
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||||||
|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net
|
|||||||||||||||||
|
Term Loan (matures June 2018)
|
$
|
3,638
|
|
$
|
(1,273
|
)
|
$
|
2,365
|
|
$
|
3,638
|
|
$
|
(1,091
|
)
|
$
|
2,547
|
|
|||||
|
Revolving Credit Facility (matures June 2018)
|
13,275
|
|
(4,646
|
)
|
8,629
|
|
13,275
|
|
(3,982
|
)
|
9,293
|
|
|||||||||||
|
2032 Notes (mature March 2032)
|
3,759
|
|
(1,916
|
)
|
1,843
|
|
3,759
|
|
(1,763
|
)
|
1,996
|
|
|||||||||||
|
MARAD Debt (matures February 2027)
|
12,200
|
|
(6,345
|
)
|
5,855
|
|
12,200
|
|
(6,223
|
)
|
5,977
|
|
|||||||||||
|
Nordea Term Loan
|
3,586
|
|
—
|
|
3,586
|
|
3,586
|
|
—
|
|
3,586
|
|
|||||||||||
|
Total deferred financing costs
|
$
|
36,458
|
|
$
|
(14,180
|
)
|
$
|
22,278
|
|
$
|
36,458
|
|
$
|
(13,059
|
)
|
$
|
23,399
|
|
|||||
The following table details the components of our net interest expense (in thousands):
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Interest expense
|
$
|
8,409
|
|
$
|
8,362
|
|
|
|
Interest income
|
(650
|
)
|
(717
|
)
|
|||
|
Capitalized interest
|
(3,689
|
)
|
(3,162
|
)
|
|||
|
Net interest expense
|
$
|
4,070
|
|
$
|
4,483
|
|
|
Our estimated annual effective tax rate, adjusted for discrete tax items, is applied to interim periods’ pretax earnings. We consider the undistributed earnings of our principal non-U.S. subsidiaries to be permanently reinvested, and as such, we have not provided for any U.S. federal income taxes on these permanently reinvested earnings. We believe that our recorded assets and liabilities are reasonable; however, tax laws and regulations are subject to interpretation and tax litigation is inherently uncertain, and therefore our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.
The effective tax rates for the
three-
month periods ended
March 31, 2015
and 2014 were
2.0%
and
27.4%
, respectively. The variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions.
13
Income taxes have been provided based on the U.S. statutory rate of
35%
and at the local statutory rate for each foreign jurisdiction. The primary differences between the U.S. statutory rate and our effective rate are as follows:
|
Three Months Ended
March 31, |
|||||
|
|
2015
|
2014
|
|||
|
U.S. statutory rate
|
35.0
|
%
|
35.0
|
%
|
|
|
Foreign provision
|
(34.1
|
)
|
(8.5
|
)
|
|
|
Other
|
1.1
|
|
0.9
|
|
|
|
Effective rate
|
2.0
|
%
|
27.4
|
%
|
|
Note 8 —
Accumulated Other Comprehensive Income (Loss) (“OCI”)
The components of Accumulated OCI are as follows (in thousands):
|
March 31, 2015
|
December 31, 2014
|
||||||
|
Cumulative foreign currency translation adjustment
|
$
|
(44,030
|
)
|
$
|
(30,161
|
)
|
|
|
Unrealized loss on hedges, net
(1)
|
(38,616
|
)
|
(32,091
|
)
|
|||
|
Accumulated other comprehensive loss
|
$
|
(82,646
|
)
|
$
|
(62,252
|
)
|
|
|
(1)
|
Amounts relate to foreign currency hedges for the
Grand Canyon
, the
Grand Canyon II
and the
Grand Canyon III
charters as well as interest rate swap contracts for the Term Loan, and are net of deferred income taxes totaling
$20.8 million
at
March 31, 2015
and
$17.3 million
at
December 31, 2014
(Note 14).
|
We have shares of restricted stock issued and outstanding, which currently are unvested. Holders of such shares of unvested restricted stock are entitled to the same liquidation and dividend rights as the holders of our outstanding unrestricted common stock and the shares are thus considered participating securities. Under applicable accounting guidance, the undistributed earnings for each period are allocated based on the participation rights of both the common shareholders and holders of any participating securities as if earnings for the respective periods had been distributed. Because both the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, we are required to compute earnings per share (“EPS”) amounts under the two class method in periods in which we have earnings from continuing operations.
The presentation of basic EPS amounts on the face of the accompanying condensed consolidated statements of operations is computed by dividing the net income applicable to our common shareholders by the weighted average shares of our outstanding common stock. The calculation of diluted EPS is similar to basic EPS, except that the denominator includes dilutive common stock equivalents and the income included in the numerator excludes the effects of the impact of dilutive common stock equivalents, if any. The computations of the numerator (income) and denominator (shares) to derive the basic and diluted EPS amounts presented on the face of the accompanying condensed consolidated statements of operations are as follows (in thousands):
14
|
Three Months Ended
March 31, 2015 |
Three Months Ended
March 31, 2014 |
||||||||||||
|
|
Income
|
Shares
|
Income
|
Shares
|
|||||||||
|
Basic:
|
|
|
|
|
|||||||||
|
Net income applicable to common shareholders
|
$
|
19,642
|
|
|
$
|
53,719
|
|
|
|||||
|
Less undistributed income allocated to participating securities
|
(114
|
)
|
|
(286
|
)
|
|
|||||||
|
Undistributed income allocated to common shares
|
$
|
19,528
|
|
105,290
|
|
$
|
53,433
|
|
105,126
|
|
|||
|
Diluted:
|
|
|
|
|
|||||||||
|
Undistributed income allocated to common shares
|
$
|
19,528
|
|
105,290
|
|
$
|
53,433
|
|
105,126
|
|
|||
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|||||
|
Share-based awards other than participating securities
|
—
|
|
—
|
|
—
|
|
249
|
|
|||||
|
Undistributed income reallocated to participating securities
|
—
|
|
—
|
|
1
|
|
—
|
|
|||||
|
Net income applicable to common shareholders
|
$
|
19,528
|
|
105,290
|
|
$
|
53,434
|
|
105,375
|
|
|||
Approximately
8.0 million
of potentially dilutive shares related to the 2032 Notes were excluded from the diluted EPS calculation for the
three-
month periods ended
March 31, 2015
and
2014
because we have the right, intention and ability to settle any such future conversions in cash (Note 6).
Long-Term Incentive Stock-Based Plan
As of
March 31, 2015
, there were
5.6 million
shares of our common stock available for issuance under our active long-term incentive stock-based plan, the 2005 Long-Term Incentive Plan, as amended and restated effective May 9, 2012 (the “2005 Incentive Plan”). During the
three
-month period ended
March 31, 2015
, the following grants of share-based awards were made under the 2005 Incentive Plan:
|
Date of Grant
|
Shares
|
Grant Date Fair Value
Per Share
|
Vesting Period
|
||||||||||
|
January 2, 2015
(1)
|
289,163
|
|
$
|
21.70
|
|
33% per year over three years
|
|||||||
|
January 2, 2015
(2)
|
289,163
|
|
$
|
25.06
|
|
100% on January 1, 2018
|
|||||||
|
January 5, 2015
(3)
|
3,946
|
|
$
|
21.66
|
|
100% on January 1, 2017
|
|||||||
|
January 12, 2015
(1)
|
3,866
|
|
$
|
19.40
|
|
33% per year over three years
|
|||||||
|
January 12, 2015
(2)
|
3,866
|
|
$
|
25.06
|
|
100% on January 11, 2018
|
|||||||
|
February 1, 2015
(1)
|
2,664
|
|
$
|
18.77
|
|
33% per year over three years
|
|||||||
|
February 1, 2015
(2)
|
2,664
|
|
$
|
25.06
|
|
100% on January 31, 2018
|
|||||||
|
(1)
|
Reflects the grant of restricted stock to our executive officers and selected management employees.
|
|
(2)
|
Reflects the grant of performance share units (“PSUs”) to our executive officers and selected management employees. The PSUs provide for an award based on the performance of our common stock over a
three
-year period with the maximum amount of the award being
200%
of the original awarded PSUs and the minimum amount being
zero
. The vested PSUs may be settled in either cash or shares of our common stock at the discretion of the Compensation Committee of our Board of Directors.
|
|
(3)
|
Reflects the grant of restricted stock to certain members of our Board of Directors who have made an election to take their quarterly fees in stock in lieu of cash.
|
15
Compensation cost for restricted stock is recognized over its vesting period on a straight-line basis. For the
three-
month periods ended
March 31, 2015
and
2014
,
$1.4 million
and
$1.2 million
, respectively, were recognized as stock-based compensation expense related to restricted stock and restricted stock units.
The estimated fair value of the PSUs on grant date was determined using a Monte Carlo simulation model. Until December 2014, the PSUs were being treated as an equity award. Accordingly, compensation expense associated with the PSUs was fixed, as represented by the number of PSUs multiplied by their respective grant date fair value. The fixed amount was being amortized on a straight-line basis over the three-year vesting period. In connection with the vesting of the 2012 PSU awards (which occurred in January 2015), the decision was made by the Compensation Committee of our Board of Directors to settle these PSUs with a cash payment of
$4.5 million
rather than an equivalent number of shares of our common stock, which was the default provision of the PSU awards. Accordingly, PSUs are now accounted for as a liability plan. For the
three-
month period ended
March 31, 2015
, we recorded a
$1.0 million
reduction of previously recognized compensation cost to reflect the estimated fair value of unvested PSUs as of
March 31, 2015
. For the
three-
month period ended
March 31, 2014
,
$0.5 million
was recognized as stock-based compensation expense related to PSUs.
Long-Term Incentive Cash Plans
We have certain long-term incentive cash plans (the “LTI Cash Plans”) that provide long-term cash-based compensation to eligible employees. Cash awards historically have been both fixed sum amounts payable (for non-executive management only) as well as cash awards indexed to our common stock with the payment amount at each vesting date fluctuating based on the performance of our common stock (for both executive and non-executive management). Payment amounts under these awards are calculated based on the ratio of the average stock price during the applicable measurement period over the original base price determined by the Compensation Committee of our Board of Directors at the time of the award. Cash payments under these awards are made each year on the anniversary date of the award. Cash awards granted since 2012 have a vesting period of
three years
while those granted prior to 2012 have a vesting period of
five years
. The LTI Cash Plans are considered liability plans and as such are re-measured to fair value each reporting period with corresponding changes in the liability amount being reflected in our results of operations.
The cash awards granted under the LTI Cash Plans to our executive officers and selected management employees totaled
$8.9 million
in 2014.
No
long-term incentive cash awards were granted in 2015. For the three-month period ended
March 31, 2015
, we recorded a
$1.9 million
reduction of previously recognized compensation expense associated with the cash awards issued pursuant to the LTI Cash Plans, reflecting the effect the decrease in our stock price at the end of
March 2015
had on the value of our liability plan. For the
three-
month period ended
March 31, 2014
, total compensation expense associated with the cash awards issued pursuant to the LTI Cash Plans was
$1.7 million
. The liability balance for the cash awards issued under the LTI Cash Plans was
$2.0 million
at
March 31, 2015
and
$12.8 million
at
December 31, 2014
.
Employee Stock Purchase Plan
We also have an employee stock purchase plan (the “ESPP”). The ESPP has
1.5 million
shares authorized for issuance, of which
1.1 million
shares were available for issuance as of
March 31, 2015
. The total value of the ESPP awards is calculated using the component approach where each award is computed as the sum of
15%
of a share of non-vested stock, a call option on
85%
of a share of non-vested stock, and a put option on
15%
of a share of non-vested stock. Share-based compensation expense with respect to the ESPP was
$0.3 million
and
$0.2 million
for the
three-
month periods ended
March 31, 2015
and
2014
, respectively.
16
For more information regarding our employee benefit plans, including our long-term incentive stock-based and cash plans and our employee stock purchase plan, see Note 8 to our
2014
Form 10-K.
We have
three
reportable business segments: Well Intervention, Robotics and Production Facilities. Our Well Intervention segment includes our vessels and equipment used to perform well intervention services primarily in the Gulf of Mexico and North Sea regions. Our well intervention vessels include the
Q4000
, the
Helix 534
, the
Seawell
, the
Well Enhancer
and the
Skandi Constructor
, which is a chartered vessel. We are currently constructing
two
additional well intervention vessels, the
Q5000
and the
Q7000
. We have also contracted to charter
two
newbuild vessels, which are expected to be delivered in 2016 and used in connection with our contracts to provide well intervention services offshore Brazil. Our Robotics segment includes ROVs, trenchers and ROVDrills designed to complement offshore construction and well intervention services, and will operate
five
chartered ROV and trencher support vessels following the delivery of the
Grand Canyon II
in late April 2015. The Production Facilities segment includes the
HP I
as well as our investments in Deepwater Gateway and Independence Hub that are accounted for under the equity method. The results of our Subsea Construction segment are immaterial and thus no longer meet the threshold to be separately reported as a business segment. These results are now aggregated within “Other” for all periods presented in this Quarterly Report on Form 10-Q. All material intercompany transactions between the segments have been eliminated.
We evaluate our performance based on operating income and income before income taxes of each segment. Segment assets are comprised of all assets attributable to each reportable segment. Corporate and other includes all assets not directly identifiable with our business segments. Certain financial data by reportable segment are summarized as follows (in thousands):
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Net revenues —
|
|||||||
|
Well Intervention
|
$
|
104,051
|
|
$
|
159,700
|
|
|
|
Robotics
|
80,171
|
|
87,890
|
|
|||
|
Production Facilities
|
18,385
|
|
23,140
|
|
|||
|
Other
|
—
|
|
358
|
|
|||
|
Intercompany elimination
|
(12,966
|
)
|
(17,516
|
)
|
|||
|
Total
|
$
|
189,641
|
|
$
|
253,572
|
|
|
|
Income (loss) from operations —
|
|
|
|
|
|||
|
Well Intervention
|
$
|
14,794
|
|
$
|
48,733
|
|
|
|
Robotics
|
9,457
|
|
11,219
|
|
|||
|
Production Facilities
|
4,578
|
|
11,384
|
|
|||
|
Corporate and other
|
(6,607
|
)
|
(3,190
|
)
|
|||
|
Intercompany elimination
|
106
|
|
(1,198
|
)
|
|||
|
Total
|
$
|
22,328
|
|
$
|
66,948
|
|
|
|
Equity in earnings of equity investments
|
$
|
21
|
|
$
|
708
|
|
|
17
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties. Intercompany segment revenues are as follows (in thousands):
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Well Intervention
|
$
|
4,946
|
|
$
|
5,461
|
|
|
|
Robotics
|
8,020
|
|
12,055
|
|
|||
|
Total
|
$
|
12,966
|
|
$
|
17,516
|
|
|
Intercompany segment profits (losses) (which losses only relate to intercompany capital projects) are as follows (in thousands):
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Well Intervention
|
$
|
(86
|
)
|
$
|
(62
|
)
|
|
|
Robotics
|
24
|
|
1,304
|
|
|||
|
Production Facilities
|
(44
|
)
|
(44
|
)
|
|||
|
Total
|
$
|
(106
|
)
|
$
|
1,198
|
|
|
The following table reflects total assets by reportable segment (in thousands):
|
March 31, 2015
|
December 31, 2014
|
||||||
|
Well Intervention
|
$
|
1,486,347
|
|
$
|
1,470,349
|
|
|
|
Robotics
|
296,525
|
|
299,701
|
|
|||
|
Production Facilities
|
452,582
|
|
459,427
|
|
|||
|
Corporate and other
|
412,870
|
|
471,221
|
|
|||
|
Total
|
$
|
2,648,324
|
|
$
|
2,700,698
|
|
|
Commitments
In March 2012, we executed a contract with a shipyard in Singapore for the construction of a newbuild semi-submersible well intervention vessel, the
Q5000
. This
$386.5 million
shipyard contract represents the majority of the expected costs associated with the construction of the
Q5000
. Pursuant to the terms of this contract, payments are made in a fixed percentage of the contract price, together with any variations, on contractually scheduled dates. The vessel is expected to be delivered in the second quarter of 2015 and will subsequently transit to the Gulf of Mexico. In September 2014, we entered into the Nordea Credit Agreement to partially finance the construction of the
Q5000
and other future capital projects. The Nordea Term Loan will be funded at or near the time of the delivery of the
Q5000
(Note 6). At
March 31, 2015
, our total investment in the
Q5000
was
$359.2 million
, including
$289.4 million
of scheduled payments made to the shipyard.
18
In February 2013, we contracted to charter the
Grand Canyon II
and the
Grand Canyon III
for use in our robotics operations. The terms of the charters will be
five years
from the respective delivery dates. We will take delivery of the
Grand Canyon II
in late April 2015. The delivery of the
Grand Canyon III
has been deferred until February 2016.
In September 2013, we executed a second contract with the same shipyard in Singapore that is currently constructing the
Q5000
. This contract provides for the construction of a newbuild semi-submersible well intervention vessel, the
Q7000
, which will be built to North Sea standards. This
$346.0 million
shipyard contract represents the majority of the expected costs associated with the construction of the
Q7000
. Pursuant to the current terms of this contract,
20%
of the contract price was paid upon the signing of the contract and the remaining
80%
will be paid upon the delivery of the vessel. At
March 31, 2015
, our total investment in the
Q7000
was
$98.4 million
, including the
$69.2 million
paid to the shipyard upon signing the contract.
In February 2014, we entered into agreements with Petróleo Brasileiro S.A. (“Petrobras”) to provide well intervention services offshore Brazil. The initial term of the agreements with Petrobras is for
four years
with options to extend. In connection with the Petrobras agreements, we entered into charter agreements with Siem Offshore AS for
two
newbuild monohull vessels, both of which are expected to be in service for Petrobras in 2016. At
March 31, 2015
, our total investment in the topside equipment for the two vessels was
$61.5 million
. In November 2014, we paid a charter fee deposit of
$12.5 million
.
Contingencies and Claims
We believe that there are currently no contingencies which would have a material effect on our financial position, results of operations or cash flows.
Litigation
We are involved in various legal proceedings, some involving claims for personal injury under the General Maritime Laws of the United States and the Jones Act based on alleged negligence. In addition, from time to time we incur other claims, such as contract disputes, in the normal course of business.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value accounting rules establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
•
|
Level 1. Observable inputs such as quoted prices in active markets;
|
|
•
|
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
•
|
Level 3. Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
Assets and liabilities measured at fair value are based on one or more of three valuation techniques as follows:
|
(a)
|
Market Approach. Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
|
|
(b)
|
Cost Approach. Amount that would be required to replace the service capacity of an asset (replacement cost).
|
19
|
(c)
|
Income Approach. Techniques to convert expected future cash flows to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models).
|
Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable, long-term debt and various derivative instruments. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term nature of these instruments. The following tables provide additional information relating to other financial instruments measured at fair value on a recurring basis (in thousands):
|
Fair Value Measurements at
March 31, 2015 Using
|
|||||||||||||||||
|
Level 1
|
Level 2
(1)
|
Level 3
|
Total
|
Valuation
Technique
|
|||||||||||||
|
Assets:
|
|
|
|
|
|
||||||||||||
|
Interest rate swaps
|
$
|
—
|
|
$
|
79
|
|
$
|
—
|
|
$
|
79
|
|
(c)
|
||||
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||
|
Fair value of long-term debt
(2)
|
199,750
|
|
370,071
|
|
—
|
|
569,821
|
|
(a)
|
||||||||
|
Foreign exchange contracts
|
—
|
|
62,395
|
|
—
|
|
62,395
|
|
(c)
|
||||||||
|
Interest rate swaps
|
—
|
|
523
|
|
—
|
|
523
|
|
(c)
|
||||||||
|
Total net liability
|
$
|
199,750
|
|
$
|
432,910
|
|
$
|
—
|
|
$
|
632,660
|
|
|
||||
|
Fair Value Measurements at
December 31, 2014 Using |
|||||||||||||||||
|
Level 1
|
Level 2
(1)
|
Level 3
|
Total
|
Valuation
Technique |
|||||||||||||
|
Assets:
|
|
|
|
|
|
||||||||||||
|
Interest rate swaps
|
$
|
—
|
|
$
|
369
|
|
$
|
—
|
|
$
|
369
|
|
(c)
|
||||
|
Liabilities:
|
|
|
|
|
|
|
|||||||||||
|
Fair value of long-term debt
(2)
|
222,900
|
|
375,393
|
|
—
|
|
598,293
|
|
(a)
|
||||||||
|
Foreign exchange contracts
|
—
|
|
50,428
|
|
—
|
|
50,428
|
|
(c)
|
||||||||
|
Interest rate swaps
|
—
|
|
561
|
|
—
|
|
561
|
|
(c)
|
||||||||
|
Total net liability
|
$
|
222,900
|
|
$
|
426,013
|
|
$
|
—
|
|
$
|
648,913
|
|
|
||||
|
(1)
|
Unless otherwise indicated, the fair value of our Level 2 derivative instruments reflects our best estimate and is based upon exchange or over-the-counter quotations whenever they are available. Quoted valuations may not be available due to location differences or terms that extend beyond the period for which quotations are available. Where quotes are not available, we utilize other valuation techniques or models to estimate market values. These modeling techniques require us to make estimations of future prices, price correlation and market volatility and liquidity based on market data. Our actual results may differ from our estimates, and these differences could be positive or negative. See Note 14 for further discussion on fair value of our derivative instruments.
|
|
(2)
|
See Note 6 for additional information regarding our long-term debt. The value of our long-term debt is as follows (in thousands):
|
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||
|
|
Carrying Value
|
Fair
Value
(b)
|
Carrying Value
|
Fair
Value
(b)
|
|||||||||||
|
Term Loan (matures June 2018)
|
$
|
273,750
|
|
$
|
271,355
|
|
$
|
277,500
|
|
$
|
270,563
|
|
|||
|
2032 Notes (mature March 2032)
(a)
|
200,000
|
|
199,750
|
|
200,000
|
|
222,900
|
|
|||||||
|
MARAD Debt (matures February 2027)
|
92,004
|
|
98,716
|
|
94,792
|
|
104,830
|
|
|||||||
|
Total debt
|
$
|
565,754
|
|
$
|
569,821
|
|
$
|
572,292
|
|
$
|
598,293
|
|
|||
20
|
(a)
|
Carrying amount excludes the related unamortized debt discount of
$19.5 million
at
March 31, 2015
and
$20.9 million
at
December 31, 2014
.
|
|
(b)
|
The estimated fair value of the 2032 Notes was determined using Level 1 inputs using the market approach. The fair value of the Term Loan and the MARAD Debt was estimated using Level 2 fair value inputs under the market approach. The fair value of the Term Loan and the MARAD Debt was determined using a third party evaluation of the remaining average life and outstanding principal balance of the indebtedness as compared to other obligations in the marketplace with similar terms.
|
Our operations are exposed to market risk associated with interest rates and foreign currency exchange rates. Our risk management activities involve the use of derivative financial instruments to hedge the impact of market risk exposure related to variable interest rates and foreign currency exchange rates. All derivatives are reflected in the accompanying condensed consolidated balance sheets at fair value.
We engage solely in cash flow hedges. Hedges of cash flow exposure are entered into to hedge a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability. Changes in the fair value of derivatives that are designated as cash flow hedges are deferred to the extent that the hedges are effective. These fair value changes are recorded as a component of Accumulated OCI (a component of shareholders’ equity) until the hedged transactions occur and are recognized in earnings. The ineffective portion of changes in the fair value of cash flow hedges is recognized immediately in earnings. In addition, any change in the fair value of a derivative that does not qualify for hedge accounting is recorded in earnings in the period in which the change occurs.
For additional information regarding our accounting for derivatives, see Notes 2 and 15 to our
2014
Form 10-K.
Interest Rate Risk
From time to time, we enter into interest rate swaps to stabilize cash flows related to our long-term debt subject to variable interest rates. Changes in the fair value of an interest rate swap are deferred to the extent the swap is effective. These changes are recorded as a component of Accumulated OCI until the anticipated interest payments occur and are recognized in interest expense. The ineffective portion of the interest rate swap, if any, is recognized immediately in earnings within the line titled “Net interest expense.” The amount of ineffectiveness associated with our interest rate swap contracts was immaterial for all periods presented. In September 2013, we entered into various interest rate swap contracts to fix the interest rate on
$148.1 million
of our Term Loan (Note 6). These contracts, which are settled monthly, began in October 2013 and extend through October 2016. Our interest rate swap contracts qualify for hedge accounting treatment.
Foreign Currency Exchange Rate Risk
Because we operate in various regions in the world, we conduct a portion of our business in currencies other than the U.S. dollar. We entered into various foreign currency exchange contracts to stabilize expected cash outflows related to certain vessel charters that are denominated in Norwegian kroner.
In January 2013, we entered into foreign currency exchange contracts to hedge through September 2017 the foreign currency exposure associated with the
Grand Canyon
charter payments (
$104.6 million
) denominated in Norwegian kroner (NOK
591.3 million
). In February 2013, we entered into similar foreign currency exchange contracts to hedge our foreign currency exposure with respect to the
Grand Canyon II
and
Grand Canyon III
charter payments (
$100.4 million
and
$98.8 million
, respectively) denominated in Norwegian kroner (NOK
594.7 million
and NOK
595.0 million
, respectively), through July 2019 and February 2020, respectively.
21
Quantitative Disclosures Relating to Derivative Instruments
The following table presents the fair value and balance sheet classification of our derivative instruments that were designated as hedging instruments (in thousands):
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||
|
Balance Sheet
Location
|
Fair
Value
|
Balance Sheet
Location
|
Fair
Value
|
||||||||
|
Asset Derivatives:
|
|
|
|
|
|||||||
|
Interest rate swaps
|
Other assets, net
|
$
|
79
|
|
Other assets, net
|
$
|
369
|
|
|||
|
|
|
$
|
79
|
|
|
$
|
369
|
|
|||
|
Liability Derivatives:
|
|
|
|
|
|
|
|||||
|
Foreign exchange contracts
|
Accrued liabilities
|
$
|
16,967
|
|
Accrued liabilities
|
$
|
12,661
|
|
|||
|
Interest rate swaps
|
Accrued liabilities
|
523
|
|
Accrued liabilities
|
561
|
|
|||||
|
Foreign exchange contracts
|
Other non-current liabilities
|
45,428
|
|
Other non-current liabilities
|
37,767
|
|
|||||
|
|
|
$
|
62,918
|
|
|
$
|
50,989
|
|
|||
For the
three-
month period ended
March 31, 2015
, we recorded losses totaling
$3.4 million
in “Other expense, net” in the accompanying condensed consolidated statement of operations related to ineffectiveness associated with our foreign currency hedges with respect to the
Grand Canyon III
charter payments as a result of the deferral of the vessel’s delivery until February 2016. Ineffectiveness associated with our cash flow hedges was immaterial for the
three-
month period ended
March 31, 2014
. The following tables present the impact that derivative instruments designated as cash flow hedges had on our Accumulated OCI (net of tax) and our condensed consolidated statements of operations (in thousands). We estimate that as of
March 31, 2015
,
$9.1 million
of losses in Accumulated OCI associated with our derivatives is expected to be reclassified into earnings within the next 12 months.
|
Gain (Loss) Recognized in OCI
on Derivatives, Net of Tax
|
|||||||
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Foreign exchange contracts
|
$
|
(6,361
|
)
|
$
|
3,024
|
|
|
|
Interest rate swaps
|
(164
|
)
|
39
|
|
|||
|
|
$
|
(6,525
|
)
|
$
|
3,063
|
|
|
|
Location of Loss Reclassified from
Accumulated OCI into Earnings
|
Loss Reclassified from
Accumulated OCI into Earnings
|
||||||||
|
Three Months Ended
March 31, |
|||||||||
|
|
2015
|
2014
|
|||||||
|
Foreign exchange contracts
|
Cost of sales
|
$
|
(1,474
|
)
|
$
|
(444
|
)
|
||
|
Interest rate swaps
|
Net interest expense
|
(199
|
)
|
(214
|
)
|
||||
|
|
|
$
|
(1,673
|
)
|
$
|
(658
|
)
|
||
22
FORWARD-LOOKING STATEMENTS AND ASSUMPTIONS
This Quarterly Report on Form 10-Q contains various statements that contain forward-looking information regarding Helix Energy Solutions Group, Inc. and represent our expectations and beliefs concerning future events. This forward-looking information is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995 as set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements included herein or incorporated herein by reference that are predictive in nature, that depend upon or refer to future events or conditions, or that use terms and phrases such as “achieve,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “plan,” “project,” “propose,” “strategy,” “predict,” “envision,” “hope,” “intend,” “will,” “continue,” “may,” “potential,” “should,” “could” and similar terms and phrases are forward-looking statements. Included in forward-looking statements are, among other things:
|
•
|
statements regarding our business strategy or any other business plans, forecasts or objectives, any or all of which are subject to change;
|
|
•
|
statements regarding the construction, upgrades or acquisition of vessels or equipment and any anticipated costs related thereto, including the construction of our
Q5000
and
Q7000
vessels and the construction of two chartered vessels to be used in connection with our contracts to provide well intervention services offshore Brazil (Note 12);
|
|
•
|
statements regarding projections of revenues, gross margin, expenses, earnings or losses, working capital or other financial items;
|
|
•
|
statements regarding our backlog and long-term contracts;
|
|
•
|
statements regarding any financing transactions or arrangements, or ability to enter into such transactions;
|
|
•
|
statements regarding anticipated legislative, governmental, regulatory, administrative or other public body actions, requirements, permits or decisions;
|
|
•
|
statements regarding the collectability of our trade receivables;
|
|
•
|
statements regarding anticipated developments, industry trends, performance or industry ranking;
|
|
•
|
statements regarding general economic or political conditions, whether international, national or in the regional and local market areas in which we do business;
|
|
•
|
statements regarding our ability to retain key members of our senior management and key employees;
|
|
•
|
statements regarding the underlying assumptions related to any projection or forward-looking statement; and
|
|
•
|
any other statements that relate to non-historical or future information.
|
Although we believe that the expectations reflected in these forward-looking statements are reasonable and are based on reasonable assumptions, they do involve risks, uncertainties and other factors that could cause actual results to be materially different from those in the forward-looking statements. These factors include, among other things:
|
•
|
impact of domestic and global economic conditions and the future impact of such conditions on the oil and gas industry and the demand for our services;
|
|
•
|
impact of potential cancellation, deferral or modification of our work or contracts by our customers;
|
23
|
•
|
unexpected delays in the delivery or chartering of new vessels for our well intervention and robotics fleet, including the
Q5000
, the
Q7000
, the
Grand Canyon III
and the two newbuild chartered vessels to be used to perform contracted well intervention work in Brazil;
|
|
•
|
unexpected future capital expenditures (including the amount and nature thereof);
|
|
•
|
the effectiveness and timing of completion of our vessel upgrades and major maintenance items;
|
|
•
|
the results of our continuing efforts to control costs and improve performance;
|
|
•
|
the success of our risk management activities;
|
|
•
|
the effects of competition;
|
|
•
|
the impact of current and future laws and governmental regulations, including tax and accounting developments;
|
|
•
|
the effect of adverse weather conditions and/or other risks associated with marine operations;
|
|
•
|
the effectiveness of our current and future hedging activities;
|
|
•
|
the long-term availability (or lack thereof) of capital (including any financing) to fund our business strategy and/or operations;
|
|
•
|
the effects of our indebtedness;
|
|
•
|
the potential impact of a loss of one or more key employees; and
|
|
•
|
the impact of general, market, industry or business conditions.
|
Our actual results could differ materially from those anticipated in any forward-looking statements as a result of a variety of factors, including those described in Item 1A. “Risk Factors” in our
2014
Form 10-K. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. Forward-looking statements are only as of the date they are made, and other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements or provide reasons why actual results may differ.
Executive Summary
Business Strategy
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. We believe that focusing on these services will deliver favorable long-term financial returns. We are making strategic investments that expand our service capabilities or add capacity to existing services in our key operating regions. Our well intervention fleet will expand following the completion of the two newbuild semi-submersible vessels currently under construction, the
Q5000
and the
Q7000
, and the expected delivery in 2016 of two newbuild monohull vessels which we will charter in connection with the well intervention agreements that we entered into with Petrobras. We will take delivery of the
Grand Canyon II
in late April 2015. We will further expand our robotics operations by acquiring additional ROVs as well as chartering the
Grand Canyon III
.
On January 5, 2015, Helix, OneSubsea LLC, OneSubsea B.V., Schlumberger Technology Corporation, Schlumberger B.V. and Schlumberger Oilfield Holdings Ltd. entered into a Strategic Alliance Agreement and related agreements for the parties’ strategic alliance to design, develop, manufacture, promote, market and sell on a global basis integrated equipment and services for subsea well intervention. The alliance is expected to leverage the parties’ capabilities to provide a unique, fully integrated offering to clients, combining marine support with well access and control technologies.
24
Economic Outlook and Industry Influences
Demand for our services is primarily influenced by the condition of the oil and gas industry, and in particular, the willingness of oil and gas companies to make capital expenditures for offshore exploration, drilling and production operations. The performance of our business is also largely dependent on the prevailing market prices for oil and natural gas, which are impacted by global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, and several other factors, including but not limited to:
|
•
|
worldwide economic activity, including available access to global capital and capital markets;
|
|
•
|
demand for oil and natural gas, especially in the United States, Europe, China and India;
|
|
•
|
regional conflicts and economic and political conditions in the Middle East and other oil-producing regions;
|
|
•
|
actions taken by the Organization of Petroleum Exporting Countries;
|
|
•
|
the availability and discovery rate of new oil and natural gas reserves in offshore areas;
|
|
•
|
the exploration and production of shale oil and natural gas;
|
|
•
|
the cost of offshore exploration for and production and transportation of oil and natural gas;
|
|
•
|
the ability of oil and gas companies to generate funds or otherwise obtain external capital for exploration, development and production operations;
|
|
•
|
the sale and expiration dates of offshore leases in the United States and overseas;
|
|
•
|
technological advances affecting energy exploration production transportation and consumption;
|
|
•
|
weather conditions;
|
|
•
|
environmental and other governmental regulations; and
|
|
•
|
domestic and international tax laws, regulations and policies.
|
Global prices for oil and natural gas have declined significantly since mid-year 2014, with these price decreases accelerating during the fourth quarter of 2014 and early portion of 2015. Many analysts currently predict that prices for oil and natural gas will remain low throughout 2015. The decrease in oil and gas prices is attributable to a global supply and demand imbalance which reflects both increased production in certain countries (primarily the United States), and a general weakening of the global economy that has primarily affected Europe and Asia. In light of the sharp decline in oil and gas prices, many oil and gas companies announced substantial reductions in their planned capital spending for 2015. Any additional news suggesting weak or declining economic data could affect global equity and the oil and gas markets, which could affect normal business activities. Weaker global equity and oil and gas markets could potentially reduce investment in offshore oil and gas capital projects, which may affect rates that drilling rig contractors can charge for their services. We believe that capital would be less likely to be expended on the beginning of offshore projects, for example for exploration drilling projects, than on projects that span the life of an oil and gas field’s production. However, during periods of sustained low oil and gas prices, no one in the industry is immune to the effect of any near term planned capital spending reductions, including us. Our Well Intervention and Robotics operations are intended to service the life span of an oil and gas field as well as to provide abandonment services at the end of the life of a field as required by governmental regulations. Thus over the longer term, we believe that fundamentals for our business remain favorable as the need for continual oil and gas production is the primary driver of demand for our services.
25
In addition, we believe that the long-term industry fundamentals are positive based on the following factors: (1) long-term world demand for oil and natural gas emphasizing the need for continual production and the replacement thereof; (2) mature global production rates for offshore and subsea wells; (3) globalization of the natural gas market; (4) an increasing number of mature and small reservoirs; (5) a general long-term growth trend in offshore activity and deepwater well count; and (6) an increasing number of subsea developments.
Helix Fast Response System
We developed the HFRS as a culmination of our experience as a responder in the Macondo well control and containment efforts. The HFRS centers on two of our vessels, the
HP I
and the
Q4000
, both of which played a key role in the Macondo well control and containment efforts and are currently operating in the Gulf of Mexico. In 2011, we signed an agreement with Clean Gulf Associates (“CGA”), a non-profit industry group, allowing, in exchange for a retainer fee, the HFRS to be named as a response resource in permit applications to federal and state agencies and making the HFRS available to certain CGA participants who executed utilization agreements with us that specified the day rates to be charged should the HFRS be deployed in connection with a well control incident. The original set of agreements expired on March 31, 2013, and we entered into a new set of substantially similar agreements effective April 1, 2013 with the operators who formed HWCG LLC, a Delaware limited liability company comprised of some of the original CGA members as well as other industry participants, to perform the same functions as CGA with respect to the HFRS. HWCG LLC recently exercised a one-year option to extend the agreement with us through March 31, 2018.
RESULTS OF OPERATIONS
We have three reportable business segments: Well Intervention, Robotics and Production Facilities. All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our consolidated results of operations.
We seek to provide services and methodologies that we believe are critical to developing offshore reservoirs and maximizing production economics. We operate primarily in deepwater in the Gulf of Mexico, North Sea, Asia Pacific and West Africa regions, with services that cover the lifecycle of an offshore oil or gas field. In addition, our Robotics operations are often contracted for the development of renewable energy projects (wind farms). As of
March 31, 2015
, our consolidated backlog that is supported by written agreements or contracts totaled $2.1 billion, of which $360.0 million is expected to be performed over the remainder of 2015. The substantial majority of our backlog is associated with our Well Intervention business segment. As of
March 31, 2015
, our well intervention backlog was $1.9 billion, including $228.9 million expected to be performed over the remainder of 2015. Our five-year contract with BP to provide well intervention services with our
Q5000
semi-submersible vessel and our four-year agreements with Petrobras, both of which are scheduled to commence in 2016, represent approximately 68% of our total backlog. Backlog contracts are cancelable sometimes without penalty. In addition, if there are cancellation fees, the amount of those fees can be substantially less than the rates we would have generated had we performed the contract. Accordingly, backlog is not necessarily a reliable indicator of total annual revenues for our services as contracts may be added, deferred, canceled and in many cases modified while in progress.
26
Non-GAAP Financial Measures
A non-GAAP financial measure is generally defined by the SEC as a numerical measure of a company’s historical or future performance, financial position, or cash flows that includes or excludes amounts from the most directly comparable measure under U.S. GAAP. We measure our operating performance based on EBITDA, a non-GAAP financial measure that is commonly used but is not a recognized accounting term under GAAP. We use EBITDA to monitor and facilitate the internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, to analyze and evaluate financial and strategic planning decisions regarding future investments and acquisitions, to plan and evaluate operating budgets, and in certain cases, to report our results to the holders of our debt as required by our debt covenants. We believe our measure of EBITDA provides useful information to the public regarding our ability to service debt and fund capital expenditures and may help our investors understand our operating performance and compare our results to other companies that have different financing, capital and tax structures.
We define EBITDA as net income plus income taxes, depreciation and amortization expense, and net interest expense and other. In the following reconciliation, we provide amounts as reflected in our accompanying condensed consolidated financial statements unless otherwise footnoted. This means that these amounts are recorded at 100% even if we do not own 100% of all of our subsidiaries. Accordingly, to arrive at our measure of Adjusted EBITDA, when applicable, we deduct the noncontrolling interests related to the adjustment components of EBITDA and the gain or loss on disposition of assets.
Other companies may calculate their measures of EBITDA and Adjusted EBITDA differently than we do, which may limit their usefulness as comparative measures. Because EBITDA is not a financial measure calculated in accordance with U.S. GAAP, it should not be considered in isolation or as a substitute for net income attributable to common shareholders or cash flows from operations, but used as a supplement to these GAAP financial measures. The reconciliation of our net income to EBITDA and Adjusted EBITDA is as follows (in thousands):
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Net income applicable to common shareholders
|
$
|
19,642
|
|
$
|
53,719
|
|
|
|
Adjustments:
|
|
|
|
|
|||
|
Net income applicable to noncontrolling interests
|
—
|
|
503
|
|
|||
|
Income tax provision
|
407
|
|
20,417
|
|
|||
|
Net interest expense and other
|
5,226
|
|
5,293
|
|
|||
|
Depreciation and amortization
|
26,089
|
|
24,726
|
|
|||
|
EBITDA
|
51,364
|
|
104,658
|
|
|||
|
Adjustments:
|
|
|
|
|
|||
|
Noncontrolling interests
|
—
|
|
(661
|
)
|
|||
|
Gain on disposition of assets, net
|
—
|
|
(11,496
|
)
|
|||
|
ADJUSTED EBITDA
|
$
|
51,364
|
|
$
|
92,501
|
|
|
27
Comparison of
Three
Months Ended
March 31, 2015
and
2014
The following table details various financial and operational highlights for the periods presented (dollars in thousands):
|
Three Months Ended
March 31, |
Increase/
(Decrease)
|
||||||||||
|
|
2015
|
2014
|
|||||||||
|
Net revenues —
|
|
|
|
||||||||
|
Well Intervention
|
$
|
104,051
|
|
$
|
159,700
|
|
$
|
(55,649
|
)
|
||
|
Robotics
|
80,171
|
|
87,890
|
|
(7,719
|
)
|
|||||
|
Production Facilities
|
18,385
|
|
23,140
|
|
(4,755
|
)
|
|||||
|
Other
|
—
|
|
358
|
|
(358
|
)
|
|||||
|
Intercompany elimination
|
(12,966
|
)
|
(17,516
|
)
|
4,550
|
|
|||||
|
|
$
|
189,641
|
|
$
|
253,572
|
|
$
|
(63,931
|
)
|
||
|
Gross profit —
|
|
|
|
|
|
|
|||||
|
Well Intervention
|
$
|
18,548
|
|
$
|
52,789
|
|
$
|
(34,241
|
)
|
||
|
Robotics
|
12,690
|
|
13,345
|
|
(655
|
)
|
|||||
|
Production Facilities
|
4,769
|
|
11,536
|
|
(6,767
|
)
|
|||||
|
Corporate and other
|
(1,166
|
)
|
(626
|
)
|
(540
|
)
|
|||||
|
Intercompany elimination
|
106
|
|
(1,198
|
)
|
1,304
|
|
|||||
|
|
$
|
34,947
|
|
$
|
75,846
|
|
$
|
(40,899
|
)
|
||
|
Gross margin —
|
|
|
|
|
|
|
|||||
|
Well Intervention
|
18%
|
|
33%
|
|
|
|
|||||
|
Robotics
|
16%
|
|
15%
|
|
|
|
|||||
|
Production Facilities
|
26%
|
|
50%
|
|
|
|
|||||
|
Total company
|
18%
|
|
30%
|
|
|
|
|||||
|
Number of vessels or ROV assets
(1)
/ Utilization
(2)
|
|
|
|
|
|
|
|||||
|
Well Intervention vessels
|
4/68%
|
|
5/91%
|
|
|
|
|||||
|
ROVs
|
59/61%
|
|
56/75%
|
|
|
|
|||||
|
Robotics vessels
|
4/86%
|
|
5/80%
|
|
|
|
|||||
|
(1)
|
Represents number of vessels or ROV assets as of the end of the period excluding acquired vessels prior to their in-service dates, vessels taken out of service prior to their disposition and vessels jointly owned with a third party. The
Seawell
was excluded from the numbers for the first quarter of 2015 as it was taken out of service for the entire quarter to undergo major capital upgrades.
|
|
(2)
|
Average vessel utilization rate is calculated by dividing the total number of days the vessels or ROV assets generated revenues by the total number of calendar days in the applicable period.
|
28
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties. Intercompany segment revenues are as follows (in thousands):
|
Three Months Ended
March 31, |
Increase/
(Decrease)
|
||||||||||
|
|
2015
|
2014
|
|||||||||
|
Well Intervention
|
$
|
4,946
|
|
$
|
5,461
|
|
$
|
(515
|
)
|
||
|
Robotics
|
8,020
|
|
12,055
|
|
(4,035
|
)
|
|||||
|
|
$
|
12,966
|
|
$
|
17,516
|
|
$
|
(4,550
|
)
|
||
Intercompany segment profit (loss) is as follows (in thousands):
|
Three Months Ended
March 31, |
Increase/
(Decrease)
|
||||||||||
|
|
2015
|
2014
|
|||||||||
|
Well Intervention
|
$
|
(86
|
)
|
$
|
(62
|
)
|
$
|
(24
|
)
|
||
|
Robotics
|
24
|
|
1,304
|
|
(1,280
|
)
|
|||||
|
Production Facilities
|
(44
|
)
|
(44
|
)
|
—
|
|
|||||
|
|
$
|
(106
|
)
|
$
|
1,198
|
|
$
|
(1,304
|
)
|
||
Net Revenues.
Our total net revenues decreased by 25% for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
. The decreased revenues for the three-month period in 2015 included the adverse impact of reduced opportunities for near term work for some of our assets following the industry-wide reaction to the substantial downturn in the oil and natural gas market over the last six-to-nine months. In late 2014, two of our previously contracted projects were canceled shortly before that work was scheduled to commence. In both of these instances, we were entitled to termination fees associated with the canceled contracted work; however, the amount of such fees is substantially less than the rates we would have generated if the services were performed in accordance with the terms of the canceled contracts. One of the canceled contracts provided for a $11.6 million termination fee as compensation for the 150-day void in the
Helix 534
’s schedule caused by the contract cancellation. This termination fee was recognized in the first quarter of 2015 and received on April 6, 2015.
Our Well Intervention revenues decreased by 35% for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
primarily reflecting decreased utilization of our in-service well intervention vessels and the
Seawell
being out of service for the entire first quarter of 2015 as it undergoes certain capital upgrades intended to extend the useful life of the vessel. We currently expect the
Seawell
to return to service around mid-year 2015. In the North Sea, the
Skandi Constructor
was idle for the majority of the first quarter of 2015 as compared to being nearly fully utilized for the same period in 2014. The
Well Enhancer
was essentially fully utilized for the first quarter of 2015 while the vessel was in regulatory dry dock for 24 days in the first quarter of 2014. In the Gulf of Mexico, we attempted to arrange replacement projects to fill the 150-day void in the
Helix 534
’s schedule caused by the above-referenced contract cancellation. We were successful in filling all but 26 days in the first quarter of 2015. The
Q4000
had full utilization in both periods except for some downtime attributable to IRS system mechanical issues in January 2015. The
Q4000
is currently in dry dock undergoing its regulatory inspections and is expected to return to service in mid-May 2015. In general, we have good visibility for work over the next two quarters and we expect utilization rates to improve during that time frame. However, we still have relatively few confirmed projects for the fourth quarter of 2015.
29
Robotics revenues decreased by 9% for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
. The decrease primarily reflected lower utilization of our ROVs as some units have been affected by other industry participants laying up vessels or canceling work as a result of the oil and gas market downturn. However, utilization of our chartered ROV and trencher support vessels increased reflecting full utilization of the
Grand Canyon
for a trenching project offshore Qatar.
Our Production Facilities revenues decreased by 21% for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
, which reflected the decrease in our variable throughput fee as a result of both the decline in oil prices and the reduced production. The reduced production was the result of the Phoenix field being shut in for the majority of March 2015 for some development activities within the field and during which time the
HP I
underwent required maintenance. The Phoenix field recommenced production in late March 2015.
Gross Profit.
Our total gross profit decreased by 54% for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
. The gross profit related to our Well Intervention segment decreased by 65% for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
reflecting reduced revenues as a result of the
Seawell
being in dry dock and the
Skandi Constructor
and the
Helix 534
being idle for considerable periods of time during the first quarter of 2015 due to lack of available projects.
The gross profit associated with our Robotics segment remained flat in the comparable year-over-year periods primarily reflecting increased utilization for our ROV and trencher support vessels, partially offset by decreased utilization of our ROVs and trenching assets.
The gross profit related to our Production Facilities segment decreased by 59% for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
. The decrease primarily reflected the decrease in revenues associated with our variable throughput fee and increased maintenance costs incurred in March 2015 while the
HP I
was disconnected from the production buoy at the Phoenix field.
Gain on Disposition of Assets, Net.
The $11.5 million gain on disposition of assets for the
three
-month period ended
March 31, 2014
primarily reflected a $10.5 million gain associated with the sale of our Ingleside spoolbase in January 2014.
Selling, General and Administrative Expenses.
Our selling, general and administrative expenses decreased by $7.8 million for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
. The decrease was primarily attributable to a reduction of costs associated with our variable performance-based incentive compensation programs (Note 10).
Equity in Earnings of Investments.
Equity in earnings of investments decreased by $0.7 million for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
. The decrease primarily reflected lower revenues for both Deepwater Gateway and Independence Hub reflecting lower production at the fields being processed at each facility.
Net Interest Expense.
Our net interest expense decreased by $0.4 million for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
primarily reflecting an increase in capitalized interest. Interest on debt used to finance capital projects is capitalized and thus reduces overall interest expense. Capitalized interest totaled $3.7 million for the first quarter of
2015
as compared to $3.2 million for the first quarter of
2014
.
30
Other Expense, Net.
We reported net other expense of $1.2 million for the
three
-month period ended
March 31, 2015
as compared to $0.8 million for the same period in
2014
. These amounts primarily reflected foreign exchange fluctuations in our non-U.S. dollar functional currencies. We recorded gains of $2.4 million related to foreign currency transactions during the first quarter of
2015
as compared to losses of $0.8 million during the first quarter of
2014
. Also included in net other expense for the
three
-month period ended
March 31, 2015
were losses of $3.6 million related to our foreign currency exchange contracts. Of those losses, $3.4 million was related to ineffectiveness associated with our foreign currency hedges with respect to the
Grand Canyon III
charter payments and $0.2 million was related to the contract settlement amounts in excess of the ineffectiveness that was recorded for our
Grand Canyon II
hedges at the end of 2014.
Other Income – Oil and Gas.
Our other income – oil and gas decreased by $9.4 million for the
three
-month period ended
March 31, 2015
as compared to the same period in 2014. The decrease was primarily attributable to a $7.2 million insurance reimbursement in the first quarter of 2014 related to asset retirement work previously performed as well as the decrease in our overriding royalty interests. The reduction in the overriding royalty income is significantly affected by the decline in oil prices since the first quarter of 2014 as well as the shut-in of the Phoenix field for the majority of March 2015 as previously discussed.
Income Tax Provision.
Income taxes reflected expenses of $0.4 million in the
three
-month period ended
March 31, 2015
as compared to $20.4 million in the same period last year. The variance primarily reflected decreased profitability in the current year period. The effective tax rate of 2.0% for the
three
-month period ended
March 31, 2015
was lower than the 27.4% effective tax rate for the same period in
2014
as a result of the earnings mix between our higher and lower tax rate jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):
|
March 31, 2015
|
December 31, 2014
|
||||||
|
Net working capital
|
$
|
434,026
|
|
$
|
468,660
|
|
|
|
Long-term debt
(1)
|
$
|
514,265
|
|
$
|
523,228
|
|
|
|
Liquidity
(2)
|
$
|
999,025
|
|
$
|
1,060,092
|
|
|
|
(1)
|
Long-term debt does not include the current maturities portion of our long-term debt as that amount is included in net working capital. It is also net of unamortized debt discount on the 2032 Notes. See Note 6 for information relating to our existing debt.
|
|
(2)
|
Liquidity, as defined by us, is equal to cash and cash equivalents plus available capacity under our Revolving Credit Facility, which capacity is reduced by letters of credit drawn against the facility. Our liquidity at
March 31, 2015
included cash and cash equivalents of
$415.3 million
and
$583.7 million
of available borrowing capacity under our Revolving Credit Facility (Note 6). Our liquidity at
December 31, 2014
included cash and cash equivalents of
$476.5 million
and $583.6 million of available borrowing capacity under our Revolving Credit Facility.
|
31
The carrying amount of our long-term debt, including current maturities, is as follows (in thousands):
|
March 31, 2015
|
December 31, 2014
|
||||||
|
Term Loan (matures June 2018)
|
$
|
273,750
|
|
$
|
277,500
|
|
|
|
2032 Notes (mature March 2032)
(1)
|
180,544
|
|
179,080
|
|
|||
|
MARAD Debt (matures February 2027)
|
92,004
|
|
94,792
|
|
|||
|
Total debt
|
$
|
546,298
|
|
$
|
551,372
|
|
|
|
(1)
|
These amounts are net of the unamortized debt discount of
$19.5 million
at
March 31, 2015
and
$20.9 million
at
December 31, 2014
. The 2032 Notes will increase to their $200 million face amount through accretion of non-cash interest charges through March 15, 2018, which is the first date on which the holders of the notes may require us to repurchase the notes.
|
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Cash provided by (used in):
|
|
|
|||||
|
Operating activities
|
$
|
(2,543
|
)
|
$
|
48,837
|
|
|
|
Investing activities
|
$
|
(51,145
|
)
|
$
|
(44,910
|
)
|
|
|
Financing activities
|
$
|
(6,005
|
)
|
$
|
(11,311
|
)
|
|
Our current requirements for cash primarily reflect the need to fund capital expenditures for our current lines of business and to service our debt. Historically, we have funded our capital program with cash flows from operations, borrowings under credit facilities and use of project financing along with other debt and equity alternatives.
As a further response to the recent announcements regarding industry-wide reductions in capital spending, we remain even more focused on maintaining a strong balance sheet and adequate liquidity. Over the near term, we may seek to reduce, defer or cancel certain planned capital expenditures. We believe that internally generated cash flows, available borrowing capacity under our Revolving Credit Facility and the Nordea Credit Agreement will be sufficient to fund our operations over at least the next 12 months.
In accordance with our Credit Agreement, the 2032 Notes, the MARAD Debt agreements, and the Nordea Credit Agreement, we are required to comply with certain covenants, including certain financial ratios such as a consolidated interest coverage ratio and consolidated leverage ratio, as well as the maintenance of minimum net worth, working capital and debt-to-equity requirements. Our Credit Agreement also contains provisions that limit our ability to incur certain types of additional indebtedness. These provisions effectively prohibit us from incurring any additional secured indebtedness or indebtedness guaranteed by us. The Credit Agreement does permit us to incur certain unsecured indebtedness, and also provides for our subsidiaries to incur project financing indebtedness (such as our MARAD Debt and our Nordea Credit Agreement indebtedness) secured by the underlying asset, provided that such indebtedness is not guaranteed by us. The Credit Agreement also permits our Unrestricted Subsidiaries to incur indebtedness provided that it is not guaranteed by us or any of our Restricted Subsidiaries. As of
March 31, 2015
and
December 31, 2014
, we were in compliance with all of our debt covenants.
32
A prolonged period of weak economic activity may make it difficult to comply with our covenants and other restrictions in agreements governing our debt. Furthermore, during any period of sustained weak economic activity and reduced EBITDA, our ability to access the full available commitment of $600 million under our Revolving Credit Facility may be impacted. Our ability to comply with these covenants and other restrictions is affected by economic conditions and other events beyond our control. If we fail to comply with these covenants and other restrictions, such failure could lead to an event of default, the possible acceleration of our repayment of outstanding debt and the exercise of certain remedies by our lenders, including foreclosure against our collateral.
Subject to the terms of the Credit Agreement, we may borrow and/or obtain letters of credit up to $600 million under our Revolving Credit Facility. Subject to lender participation, we may request that aggregate commitments with respect to the Revolving Credit Facility be increased by, or additional term loans be made of, or a combination thereof, up to $200 million. See Note 6 for additional information relating to our long-term debt, including more information regarding our Credit Agreement, including covenants and collateral.
The 2032 Notes can be converted to our common stock prior to their stated maturity upon certain triggering events specified in the Indenture governing the notes. Beginning in March 15, 2018, the holders of the 2032 Notes may require us to repurchase these notes or we may at our own option elect to repurchase them. To the extent we do not have cash on hand or long-term financing secured to cover the conversion, the 2032 Notes would be classified as current liabilities in our condensed consolidated balance sheet. No conversion triggers were met during the
three
-month periods ended
March 31, 2015
and
2014
.
Operating Cash Flows
Total cash flows from operating activities decreased by $51.4 million for the
three
-month period ended
March 31, 2015
as compared to the same period in
2014
. This decrease primarily reflected decreases in income from operations and changes in working capital.
Investing Activities
Capital expenditures have consisted principally of the purchase or construction of dynamically positioned vessels, improvements and modifications to existing assets, and investments in our production facilities. Significant sources (uses) of cash associated with investing activities are as follows (in thousands):
|
Three Months Ended
March 31, |
|||||||
|
|
2015
|
2014
|
|||||
|
Capital expenditures:
|
|
|
|||||
|
Well Intervention
|
$
|
(45,797
|
)
|
$
|
(32,841
|
)
|
|
|
Robotics
|
(5,827
|
)
|
(5,767
|
)
|
|||
|
Production Facilities
|
—
|
|
(5
|
)
|
|||
|
Other
|
(900
|
)
|
622
|
|
|||
|
Distributions from equity investments, net
(1)
|
1,379
|
|
2,092
|
|
|||
|
Proceeds from sale of assets
(2)
|
—
|
|
11,074
|
|
|||
|
Acquisition of noncontrolling interests
(3)
|
—
|
|
(20,085
|
)
|
|||
|
Net cash used in investing activities
|
$
|
(51,145
|
)
|
$
|
(44,910
|
)
|
|
|
(1)
|
Distributions from equity investments are net of undistributed equity earnings from our equity investments. Gross distributions from our equity investments for the
three
-month periods ended
March 31, 2015
and
2014
were
$1.4 million
and
$2.8 million
, respectively (Note 5).
|
33
|
(2)
|
Primarily reflects cash received from the sale of our Ingleside spoolbase in January 2014.
|
|
(3)
|
Relates to the acquisition in February 2014 of our former minority partner’s noncontrolling interests in the entity that owns the
HP I
.
|
Capital expenditures associated with our business primarily include payments associated with the construction of our
Q5000
and
Q7000
vessels (see below), payments in connection with the
Seawell
refit activities in 2015 and the upgrades and modifications of the
Helix 534
in 2014, the investment in the topside well intervention equipment for the two newbuild monohull vessels that we expect to charter to perform our agreements with Petrobras (see below), and the acquisition of additional ROVs and trenchers for our robotics business.
In March 2012, we executed a contract with a shipyard in Singapore for the construction of a newbuild semi-submersible well intervention vessel, the
Q5000
. This
$386.5 million
shipyard contract represents the majority of the expected costs associated with the construction of the
Q5000
. Pursuant to the terms of this contract, payments are made in a fixed percentage of the contract price, together with any variations, on contractually scheduled dates. At
March 31, 2015
, our total investment in the
Q5000
was
$359.2 million
, including
$289.4 million
of scheduled payments made to the shipyard. We plan to incur costs of approximately $142 million on the
Q5000
over the remainder of 2015, including the last remaining shipyard milestone payment of $97.1 million. The vessel is expected to be delivered in the second quarter of 2015 and will subsequently transit to the Gulf of Mexico. The
Q5000
will commence its five-year charter contract with BP on April 1, 2016 but may work for other industry participants prior to that date. In September 2014, we entered into the Nordea Credit Agreement to partially finance the construction of the
Q5000
and other future capital projects (Note 6). The Nordea Term Loan will be funded at or near the time of the delivery of the
Q5000
.
In September 2013, we executed a second contract with the same shipyard in Singapore that is currently constructing the
Q5000
. This contract provides for the construction of a newbuild semi-submersible well intervention vessel, the
Q7000
, which will be built to North Sea standards. This
$346.0 million
million shipyard contract represents the majority of the expected costs associated with the construction of the
Q7000
. Pursuant to the current terms of this contract, 20% of the contract price was paid upon the signing of the contract and the remaining 80% will be paid upon the delivery of the vessel. We are in discussions with the shipyard to slow down the construction of the
Q7000
and delay delivery of this vessel until 2017. At
March 31, 2015
, our total investment in the
Q7000
was
$98.4 million
, including
$69.2 million
paid to the shipyard upon signing the contract. We plan to incur approximately $36 million of costs related to the construction of the
Q7000
over the remainder of 2015.
In February 2014, we entered into agreements with Petrobras to provide well intervention services offshore Brazil. The initial term of the agreements with Petrobras is for four years with options to extend. In connection with the Petrobras agreements, we entered into charter agreements with Siem Offshore AS for two newbuild monohull vessels, both of which are expected to be in service for Petrobras in 2016. Our total investment in the topside equipment for both vessels is expected to be approximately $260 million. We have invested
$61.5 million
as of
March 31, 2015
and plan to invest approximately $36 million in the topside equipment over the remainder of 2015.
Outlook
We anticipate that our capital expenditures for
2015
will total approximately $360 million. This estimate may change based on various economic factors and/or the existence of additional investment opportunities. However, we may reduce the level of our planned future capital expenditures given any prolonged economic downturn. We believe that our cash on hand, internally generated cash flows, and availability under our credit facility will provide the capital necessary to continue funding our 2015 initiatives.
34
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual cash obligations as of
March 31, 2015
and the scheduled years in which the obligations are contractually due (in thousands):
|
Total
(1)
|
Less Than
1 Year
|
1-3 Years
|
3-5 Years
|
More Than
5 Years
|
|||||||||||||||
|
2032 Notes
(2)
|
$
|
200,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
200,000
|
|
||||
|
Term Loan
(3)
|
273,750
|
|
26,250
|
|
60,000
|
|
187,500
|
|
—
|
|
|||||||||
|
MARAD debt
|
92,004
|
|
5,783
|
|
12,447
|
|
13,720
|
|
60,054
|
|
|||||||||
|
Interest related to debt
(4)
|
173,890
|
|
22,503
|
|
40,784
|
|
21,667
|
|
88,936
|
|
|||||||||
|
Property and equipment
(5)
|
496,015
|
|
204,961
|
|
291,054
|
|
—
|
|
—
|
|
|||||||||
|
Operating leases
(6)
|
1,001,250
|
|
138,770
|
|
322,802
|
|
253,187
|
|
286,491
|
|
|||||||||
|
Total cash obligations
|
$
|
2,236,909
|
|
$
|
398,267
|
|
$
|
727,087
|
|
$
|
476,074
|
|
$
|
635,481
|
|
||||
|
(1)
|
Excludes unsecured letters of credit outstanding at
March 31, 2015
totaling
$16.3 million
. These letters of credit support various obligations, such as contractual obligations, customs duties, contract bidding and insurance activities.
|
|
(2)
|
Notes mature in 2032. The 2032 Notes can be converted prior to their stated maturity if the closing price of our common stock for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter exceeds 130% of their issuance price on that 30
th
trading day (i.e., $32.53 per share). At
March 31, 2015
, the conversion trigger was not met. The first date that the holders of these notes may require us to repurchase the notes is March 15, 2018. See Note 6 for additional information.
|
|
(3)
|
Amount reflects borrowings made in July 2013. The Term Loan will mature on June 19, 2018.
|
|
(4)
|
Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at
March 31, 2015
for variable rate debt.
|
|
(5)
|
Primarily reflects the costs associated with our well intervention assets currently under construction, including our new semi-submersible well intervention vessels, the
Q5000
and the
Q7000
, and the topside equipment for the two newbuild monohull vessels that we plan to charter (Note 12).
|
|
(6)
|
Operating leases include vessel charters and facility leases. At
March 31, 2015
, our vessel charter commitments totaled approximately $1.0 billion, including three vessels that will not be delivered to us until 2016.
|
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements. We prepare these financial statements and related footnotes in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. For additional information regarding our critical accounting policies and estimates, please read our “Critical Accounting Policies and Estimates” as disclosed in our
2014
Form 10-K.
35
We are currently exposed to market risk in two areas: interest rates and foreign currency exchange rates.
Interest Rate Risk.
As of
March 31, 2015
,
$273.8 million
of our outstanding debt was subject to floating rates. The interest rate applicable to our variable rate debt may rise, increasing our interest expense and related cash outlay. To reduce the impact of this market risk, in September 2013, we entered into interest rate swap contracts to fix the interest rate on $148.1 million of our Term Loan debt. These swap contracts, which are settled monthly, began in October 2013 and extend through October 2016. The impact of market risk is estimated using a hypothetical increase in interest rates by 100 basis points for our variable rate long-term debt that is not hedged. Based on this hypothetical assumption, we would have incurred an additional $0.3 million in interest expense for the
three
-month period ended
March 31, 2015
.
Foreign Currency Exchange Rate Risk.
Because we operate in various regions around the world, we conduct a portion of our business in currencies other than the U.S. dollar (primarily with respect to our North Sea operations). As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in (i) currencies other than the U.S. dollar, which is our functional currency, or (ii) the functional currency of our subsidiaries, which is not necessarily the U.S. dollar. In order to mitigate the effects of exchange rate risk in areas outside the United States, we generally pay a portion of our expenses in local currencies and a substantial portion of our contracts provide for collections from customers in U.S. dollars. During the
three
-month period ended
March 31, 2015
, we recognized gains of $2.4 million related to foreign currency transactions in “Other expense, net” in our condensed consolidated statement of operations.
We also entered into various foreign currency exchange contracts to stabilize expected cash outflows related to certain vessel charters denominated in Norwegian kroners. In January 2013, we entered into foreign currency exchange contracts to hedge through September 2017 the foreign currency exposure associated with the
Grand Canyon
charter payments ($104.6 million) denominated in Norwegian kroner (NOK591.3 million). In February 2013, we entered into similar foreign currency exchange contracts to hedge our foreign currency exposure with respect to the
Grand Canyon II
and the
Grand Canyon III
charter payments ($100.4 million and $98.8 million, respectively) denominated in Norwegian kroner (NOK594.7 million and NOK595.0 million, respectively), through July 2019 and February 2020, respectively. These contracts currently qualify for hedge accounting treatment. For the
three
-month period ended
March 31, 2015
, we recorded losses totaling $3.6 million as a component of “Other expense, net” in our condensed consolidated statement of operations. Of those losses,
$3.4 million
was related to ineffectiveness associated with our foreign currency hedges with respect to the
Grand Canyon III
charter payments and $0.2 million was related to the contract settlement amounts in excess of the ineffectiveness that was recorded for our
Grand Canyon II
hedges at the end of 2014.
36
Item 4.
Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our 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
March 31, 2015
. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of
March 31, 2015
to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended
March 31, 2015
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
See Part I, Item 1, Note 12 to the Condensed Consolidated Financial Statements, which is incorporated herein by reference.
Issuer Purchases of Equity Securities
|
Period
|
(a)
Total number
of shares
purchased
(1)
|
(b)
Average
price paid
per share
|
(c)
Total number
of shares
purchased as
part of publicly
announced
program
|
(d)
Maximum
number of shares
that may yet be
purchased under
the program
(2)
|
|||||||||
|
January 1 to January 31, 2015
|
45,928
|
|
$
|
21.67
|
|
—
|
|
423,042
|
|
||||
|
February 1 to February 28, 2015
|
—
|
|
—
|
|
—
|
|
425,706
|
|
|||||
|
March 1 to March 31, 2015
|
—
|
|
—
|
|
—
|
|
425,706
|
|
|||||
|
|
45,928
|
|
$
|
21.67
|
|
—
|
|
|
|
||||
|
(1)
|
Includes shares delivered to the Company by employees in satisfaction of minimum withholding taxes upon vesting of restricted shares.
|
|
(2)
|
Under the terms of our stock repurchase program, the issuance of shares to members of our Board of Directors and to certain employees, including shares issued to our employees under the ESPP (Note 10), increases the amount of shares available for repurchase. For additional information regarding our stock repurchase program, see Note 10 to our
2014
Form 10-K.
|
The exhibits to this report are listed in the Exhibit Index on Page 40 hereof.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
HELIX ENERGY SOLUTIONS GROUP, INC.
(Registrant)
|
|||
|
Date:
|
April 22, 2015
|
By:
|
/s/ Owen Kratz
|
|
|
|
|
Owen Kratz
President and Chief Executive Officer
(Principal Executive Officer)
|
||
|
|
|
|
||
|
Date:
|
April 22, 2015
|
By:
|
/s/ Anthony Tripodo
|
|
|
|
Anthony Tripodo
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|||
39
INDEX TO EXHIBITS
OF
HELIX ENERGY SOLUTIONS GROUP, INC.
|
Exhibits
|
|
Description
|
|
Filed or Furnished Herewith or Incorporated by Reference from the Following Documents (Registration or File Number)
|
|
3.1
|
|
2005 Amended and Restated Articles of Incorporation, as amended, of Helix.
|
|
Exhibit 3.1 to the Current Report on Form 8-K filed on March 1, 2006 (000-22739)
|
|
3.2
|
|
Second Amended and Restated By-Laws of Helix, as amended.
|
|
Exhibit 3.1 to the Current Report on Form 8-K filed on September 28, 2006 (001-32936)
|
|
31.1
|
|
Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 by Owen Kratz, Chief Executive Officer.
|
|
Filed herewith
|
|
31.2
|
|
Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 by Anthony Tripodo, Chief Financial Officer.
|
|
Filed herewith
|
|
32.1
|
|
Certification of Helix’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes — Oxley Act of 2002.
|
|
Furnished herewith
|
|
101.INS
|
|
XBRL Instance Document.
|
|
Furnished herewith
|
|
101.SCH
|
|
XBRL Schema Document.
|
|
Furnished herewith
|
|
101.CAL
|
|
XBRL Calculation Linkbase Document.
|
|
Furnished herewith
|
|
101.PRE
|
|
XBRL Presentation Linkbase Document.
|
|
Furnished herewith
|
|
101.DEF
|
|
XBRL Definition Linkbase Document.
|
|
Furnished herewith
|
|
101.LAB
|
|
XBRL Label Linkbase Document.
|
|
Furnished herewith
|
40
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsNote 1 Basis Of Presentation and New Accounting StandardsNote 2 Company OverviewNote 3 Details Of Certain AccountsNote 4 Statement Of Cash Flow InformationNote 5 Equity InvestmentsNote 6 Long-term DebtNote 7 Income TaxesNote 8 Accumulated Other Comprehensive Income (loss) ( Oci )Note 9 Earnings Per ShareNote 10 Employee Benefit PlansNote 11 Business Segment InformationNote 12 Commitments and Contingencies and Other MattersNote 13 Fair Value MeasurementsNote 14 Derivative Instruments and Hedging ActivitiesItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 2. Management S Discussion and Analysis Of Financial Condition andItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits