HELIX ENERGY SOLUTIONS GROUP INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
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þ
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended
September 30, 2017
or
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¨
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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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)
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Minnesota
(State or other jurisdiction
of incorporation or organization)
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95–3409686
(I.R.S. Employer
Identification No.)
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3505 West Sam Houston Parkway North Suite 400
Houston, Texas
(Address of principal executive offices)
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77043
(Zip Code)
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(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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
þ
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
¨
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Emerging growth company
¨
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(Do not check if a smaller reporting company)
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨
Yes
þ
No
As of
October 20, 2017
,
147,720,399
shares of common stock were outstanding.
TABLE OF CONTENTS
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PART I.
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FINANCIAL INFORMATION
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PAGE
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Item 1.
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Financial Statements:
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Item 2.
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Item 3.
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Item 4.
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PART II.
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OTHER INFORMATION
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Item 1.
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Item 2.
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Item 6.
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2
Item 1.
Financial Statements
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(in thousands)
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September 30,
2017 |
December 31,
2016 |
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(Unaudited)
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ASSETS
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|||||||
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Current assets:
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|||||||
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Cash and cash equivalents
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$
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356,889
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$
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356,647
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Accounts receivable:
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|||||||
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Trade, net of allowance for uncollectible accounts of $2,752 and $1,778, respectively
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90,480
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101,825
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Unbilled revenue and other
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45,816
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10,328
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Current deferred tax assets
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—
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16,594
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|||
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Other current assets
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38,172
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37,388
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Total current assets
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531,357
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522,782
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Property and equipment
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2,612,407
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2,450,890
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Less accumulated depreciation
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(878,248
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)
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(799,280
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)
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Property and equipment, net
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1,734,159
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1,651,610
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Other assets, net
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100,974
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72,549
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Total assets
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$
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2,366,490
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$
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2,246,941
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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$
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91,412
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$
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60,210
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Accrued liabilities
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60,761
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58,614
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Income tax payable
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1,756
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—
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Current maturities of long-term debt
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108,611
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67,571
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Total current liabilities
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262,540
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186,395
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Long-term debt
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395,345
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558,396
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Deferred tax liabilities
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154,158
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167,351
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Other non-current liabilities
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42,736
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52,985
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Total liabilities
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854,779
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965,127
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Commitments and contingencies
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Shareholders
’
equity:
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Common stock, no par, 240,000 shares authorized, 147,713 and 120,630 shares issued, respectively
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1,281,747
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1,055,934
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Retained earnings
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302,326
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322,854
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Accumulated other comprehensive loss
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(72,362
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)
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(96,974
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)
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Total shareholders
’
equity
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1,511,711
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1,281,814
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Total liabilities and shareholders
’
equity
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$
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2,366,490
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$
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2,246,941
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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)
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Three Months Ended
September 30, |
|||||||
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2017
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2016
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Net revenues
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$
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163,260
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$
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161,245
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Cost of sales
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142,119
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121,061
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Gross profit
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21,141
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40,184
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Selling, general and administrative expenses
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(16,374
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)
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(18,714
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)
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Income from operations
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4,767
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21,470
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Equity in losses of investment
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(153
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)
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(122
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)
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Net interest expense
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(3,615
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)
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(6,843
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)
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Gain on early extinguishment of long-term debt
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—
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244
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Other income (expense), net
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(551
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)
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830
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Other income (expense) – oil and gas
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303
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(468
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)
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Income before income taxes
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751
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15,111
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Income tax provision (benefit)
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(1,539
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)
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3,649
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Net income
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$
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2,290
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$
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11,462
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Earnings per share of common stock:
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Basic
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$
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0.02
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$
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0.10
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Diluted
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$
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0.02
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$
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0.10
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Weighted average common shares outstanding:
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|||||||
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Basic
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145,958
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113,680
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Diluted
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145,958
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113,680
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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 OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
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Nine Months Ended
September 30, |
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2017
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2016
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Net revenues
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$
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418,117
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$
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359,551
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Cost of sales
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379,434
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330,639
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Gross profit
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38,683
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28,912
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Loss on disposition of assets, net
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(39
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)
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—
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Selling, general and administrative expenses
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(46,532
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)
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(47,493
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)
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Loss from operations
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(7,888
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)
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(18,581
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)
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Equity in losses of investment
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(457
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)
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(366
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)
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Net interest expense
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(15,480
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)
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(25,007
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)
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Gain (loss) on early extinguishment of long-term debt
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(397
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)
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546
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Other income (expense), net
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(619
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)
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4,018
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Other income – oil and gas
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3,196
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2,500
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Loss before income taxes
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(21,645
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)
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(36,890
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)
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Income tax provision (benefit)
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(1,117
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)
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(9,858
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)
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Net loss
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$
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(20,528
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)
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$
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(27,032
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)
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Loss per share of common stock:
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Basic
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$
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(0.14
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)
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$
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(0.25
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)
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Diluted
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$
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(0.14
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)
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$
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(0.25
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)
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Weighted average common shares outstanding:
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|||||||
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Basic
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145,057
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109,135
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Diluted
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145,057
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109,135
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
|
Three Months Ended
September 30, |
|||||||
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2017
|
2016
|
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Net income
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$
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2,290
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$
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11,462
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Other comprehensive income, net of tax:
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|||||||
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Unrealized gain on hedges arising during the period
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2,297
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4,418
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Reclassification adjustments for loss on hedges included in net income
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3,383
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3,157
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Income taxes on unrealized gain on hedges
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(1,992
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)
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(2,683
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)
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Unrealized gain on hedges, net of tax
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3,688
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4,892
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Foreign currency translation gain (loss)
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5,513
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(3,611
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)
|
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Other comprehensive income, net of tax
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9,201
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1,281
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Comprehensive income
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$
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11,491
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$
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12,743
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Nine Months Ended
September 30, |
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2017
|
2016
|
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Net loss
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$
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(20,528
|
)
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$
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(27,032
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)
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|
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Other comprehensive income (loss), net of tax:
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|||||||
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Unrealized gain on hedges arising during the period
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4,141
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5,450
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Reclassification adjustments for loss on hedges included in net loss
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10,822
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9,651
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Income taxes on unrealized gain on hedges
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(5,256
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)
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(5,236
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)
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Unrealized gain on hedges, net of tax
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9,707
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9,865
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Foreign currency translation gain (loss) arising during the period
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14,905
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(24,827
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)
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Reclassification adjustment for translation loss realized upon liquidation
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—
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289
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|
|||
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Foreign currency translation gain (loss)
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14,905
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(24,538
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)
|
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Other comprehensive income (loss), net of tax
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24,612
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(14,673
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)
|
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Comprehensive income (loss)
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$
|
4,084
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$
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(41,705
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)
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands)
|
Nine Months Ended
September 30, |
|||||||
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2017
|
2016
|
||||||
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Cash flows from operating activities:
|
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Net loss
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$
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(20,528
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)
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$
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(27,032
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)
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Adjustments to reconcile net loss to net cash provided by operating activities:
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Depreciation and amortization
|
82,670
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84,846
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Amortization of debt discount
|
3,487
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4,655
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Amortization of debt issuance costs
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5,238
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6,430
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Share-based compensation
|
7,613
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4,351
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|
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Deferred income taxes
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(3,019
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)
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(6,726
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)
|
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Equity in losses of investment
|
457
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|
366
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|
|||
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Loss on disposition of assets, net
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39
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—
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|||
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(Gain) loss on early extinguishment of long-term debt
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397
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|
(546
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)
|
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Unrealized gain and ineffectiveness on derivative contracts, net
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(4,291
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)
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(9,282
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)
|
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Changes in operating assets and liabilities:
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|||||||
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Accounts receivable, net
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(21,709
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)
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(27,346
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)
|
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Other current assets
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(12,145
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)
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(10,853
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)
|
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Income tax receivable
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2,742
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20,576
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|
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Accounts payable and accrued liabilities
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30,675
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(1,794
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)
|
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Other non-current, net
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(40,303
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)
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(22,201
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)
|
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Net cash provided by operating activities
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31,323
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|
15,444
|
|
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Cash flows from investing activities:
|
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Capital expenditures
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(131,428
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)
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(79,353
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)
|
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Distribution from equity investment
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—
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1,200
|
|
|||
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Proceeds from sale of equity investment
|
—
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|
25,000
|
|
|||
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Proceeds from sale of assets
|
10,000
|
|
10,887
|
|
|||
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Net cash used in investing activities
|
(121,428
|
)
|
(42,266
|
)
|
|||
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Cash flows from financing activities:
|
|||||||
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Proceeds from term loan
|
100,000
|
|
—
|
|
|||
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Repayment of term loan
|
(193,508
|
)
|
(30,500
|
)
|
|||
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Repayment of Nordea Q5000 Loan
|
(26,786
|
)
|
(26,786
|
)
|
|||
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Repayment of MARAD Debt
|
(6,222
|
)
|
(5,926
|
)
|
|||
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Repurchase of Convertible Senior Notes due 2032
|
—
|
|
(13,400
|
)
|
|||
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Debt issuance costs
|
(3,694
|
)
|
(1,230
|
)
|
|||
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Net proceeds from issuance of common stock
|
219,504
|
|
94,538
|
|
|||
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Payments related to tax withholding for share-based compensation
|
(1,306
|
)
|
(187
|
)
|
|||
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Proceeds from issuance of ESPP shares
|
432
|
|
708
|
|
|||
|
Net cash provided by financing activities
|
88,420
|
|
17,217
|
|
|||
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Effect of exchange rate changes on cash and cash equivalents
|
1,927
|
|
(2,481
|
)
|
|||
|
Net increase (decrease) in cash and cash equivalents
|
242
|
|
(12,086
|
)
|
|||
|
Cash and cash equivalents:
|
|||||||
|
Balance, beginning of year
|
356,647
|
|
494,192
|
|
|||
|
Balance, end of period
|
$
|
356,889
|
|
$
|
482,106
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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 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 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 (“U.S. GAAP”).
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP and are consistent in all material respects with those applied in our
2016
Annual Report on Form 10-K (“
2016
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) 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- and nine-
month periods ended
September 30, 2017
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2017
. Our balance sheet as of
December 31, 2016
included herein has been derived from the audited balance sheet as of
December 31, 2016
included in our
2016
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
2016
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 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. This revenue standard was originally effective prospectively for annual reporting periods beginning after December 15, 2016, including interim periods, and was subsequently deferred by one year to annual reporting periods beginning after December 15, 2017. The FASB also issued several subsequent updates containing implementation guidance on principal versus agent considerations (gross versus net revenue presentation), identifying performance obligations and accounting for licenses of intellectual property. Additionally, these updates provide narrow-scope improvements and practical expedients as well as technical corrections and improvements to the guidance. The new revenue standard 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. Our assessment at this stage is that we do not expect the new revenue standard to have a material impact on our consolidated financial statements upon adoption. We continue working on expanded disclosure requirements and documentation of new policies, procedures and controls. We currently intend on adopting this guidance using the modified retrospective method.
In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” This ASU requires companies to classify all deferred tax assets and liabilities as non-current on the balance sheet instead of separating deferred taxes into current and non-current amounts. The requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount was not affected by this guidance. We adopted this guidance prospectively in the first quarter of 2017. Prior periods were not retrospectively adjusted.
8
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU amends the existing accounting standards for leases. The amendments are intended to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods. Early adoption is permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. We expect to adopt this guidance in the first quarter of 2019. We are currently evaluating the impact these amendments will have on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification in the statement of cash flows. Our share-based awards typically vest in the beginning of each year. The adoption of this guidance had no material impact on our consolidated financial statements for the
three- and nine-
month periods ended
September 30, 2017
.
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU replaces the current incurred loss model for measurement of credit losses on financial assets including trade receivables with a forward-looking expected loss model based on historical experience, current conditions and reasonable and supportable forecasts. The guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory.” This ASU eliminates the exception in current guidance that prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new ASU, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, “Scope of Modification Accounting.” This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require application of modification accounting. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods. Early adoption is permitted. We do not expect this ASU to have a material impact on our consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” This ASU improves the financial reporting of hedging relationships to better align risk management activities in financial statements and makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
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 maximizing production economics. We provide services primarily in deepwater in the U.S. Gulf of Mexico, North Sea, Asia Pacific and West Africa regions, and have expanded our operations into Brazil with the commencement of operations of the
Siem Helix 1
in mid-April 2017. Our “life of field” services are segregated into
three
reportable business segments: Well Intervention, Robotics and Production Facilities (Note 11).
9
Our Well Intervention segment includes our vessels and equipment used to perform well intervention services primarily in the U.S. Gulf of Mexico, North Sea and Brazil. Our Well Intervention segment also includes intervention riser systems (“IRSs”), some of which we rent out on a stand-alone basis, and subsea intervention lubricators (“SILs”). Our well intervention vessels include the
Q4000
, the
Q5000
, the
Seawell
, the
Well Enhancer
and
two
chartered vessels, the
Siem Helix 1
which is used and the
Siem Helix 2
which is to be used in connection with our contracts to provide well intervention services offshore Brazil. We also have a semi-submersible well intervention vessel under construction, the
Q7000
.
Our Robotics segment includes remotely operated vehicles (“ROVs”), trenchers and ROVDrills designed to complement offshore construction and well intervention services, and currently operates
four
chartered ROV support vessels, including the
Grand Canyon III
that went into service for us in May 2017.
Our Production Facilities segment includes the
Helix Producer I
(the
“HP I”
), a ship-shaped dynamic positioning floating production vessel, and the Helix Fast Response System (the “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. The
HP I
has been under contract since February 2013 to process production from the Phoenix field for the field operator. We currently operate under a fixed fee agreement for the
HP I
for service to the Phoenix field until at least June 1, 2023. We are party to an agreement providing various operators with access to the HFRS for well control purposes, which agreement was amended effective February 1, 2017 to reduce the retainer fee and to extend the term of the agreement by
one year
to March 31, 2019. The Production Facilities segment also includes our ownership interest in Independence Hub, LLC (“Independence Hub”) and previously included our former ownership interest in Deepwater Gateway, L.L.C. (“Deepwater Gateway”) that we sold in February 2016 (Note 5).
Other current assets consist of the following (in thousands):
|
September 30,
2017 |
December 31,
2016 |
||||||
|
Note receivable
(1)
|
$
|
—
|
|
$
|
10,000
|
|
|
|
Prepaid insurance
|
2,432
|
|
4,426
|
|
|||
|
Other prepaids
|
10,021
|
|
9,547
|
|
|||
|
Deferred costs
(2)
|
20,704
|
|
7,971
|
|
|||
|
Spare parts inventory
|
1,598
|
|
2,548
|
|
|||
|
Income tax receivable
|
—
|
|
880
|
|
|||
|
Value added tax receivable
|
2,169
|
|
1,345
|
|
|||
|
Other
|
1,248
|
|
671
|
|
|||
|
Total other current assets
|
$
|
38,172
|
|
$
|
37,388
|
|
|
|
(1)
|
Relates to the balance of the promissory note we received in connection with the sale of our former Ingleside spoolbase in January 2014. Interest on the note was payable quarterly at a rate of
6%
per annum. In June 2017, we collected the remaining
$10 million
principal balance of this note receivable as well as accrued interest.
|
|
(2)
|
Primarily reflects deferred mobilization costs associated with certain long-term contracts, which are to be amortized within 12 months from the balance sheet date.
|
10
Other assets, net consist of the following (in thousands):
|
September 30,
2017 |
December 31,
2016 |
||||||
|
Note receivable, net
(1)
|
$
|
3,129
|
|
$
|
2,827
|
|
|
|
Prepaids
|
8,112
|
|
6,418
|
|
|||
|
Deferred dry dock costs, net
|
14,260
|
|
14,766
|
|
|||
|
Deferred costs
(2)
|
57,934
|
|
30,738
|
|
|||
|
Deferred financing costs, net
(3)
|
2,814
|
|
3,745
|
|
|||
|
Charter fee deposit
(4)
|
12,544
|
|
12,544
|
|
|||
|
Other
|
2,181
|
|
1,511
|
|
|||
|
Total other assets, net
|
$
|
100,974
|
|
$
|
72,549
|
|
|
|
(1)
|
In 2016, we entered into an agreement with one of our customers to defer their payment obligations until June 30, 2018. On March 30, 2017, we entered into a new agreement with this customer in which we agreed to forgive all but
$4.3 million
of our outstanding receivables due from the customer in exchange for redeemable convertible bonds that approximated that amount. The bonds are redeemable by the customer at any time and the maturity date of the bonds is December 14, 2019. Interest at a rate of
5%
per annum is payable on the bonds annually. We received the redeemable convertible bonds in September 2017 when all aspects of the agreement were finalized. The amount at
September 30, 2017
reflected the fair value of the notes as of that date. The amount at December 31, 2016 was net of allowance of
$4.2 million
.
|
|
(2)
|
Primarily reflects deferred mobilization costs to be amortized after 12 months from the balance sheet date through the end of the applicable term of certain long-term contracts.
|
|
(3)
|
Represents unamortized debt issuance costs related to our revolving credit facility (Note 6).
|
|
(4)
|
This amount deposited with the vessel owner is to be used to reduce our final charter payments for the
Siem Helix
2
.
|
Accrued liabilities consist of the following (in thousands):
|
September 30,
2017 |
December 31,
2016 |
||||||
|
Accrued payroll and related benefits
|
$
|
29,682
|
|
$
|
20,705
|
|
|
|
Deferred revenue
|
8,664
|
|
8,911
|
|
|||
|
Accrued interest
|
2,997
|
|
3,758
|
|
|||
|
Derivative liability (Note 14)
|
9,927
|
|
18,730
|
|
|||
|
Taxes payable excluding income tax payable
|
1,209
|
|
1,214
|
|
|||
|
Other
|
8,282
|
|
5,296
|
|
|||
|
Total accrued liabilities
|
$
|
60,761
|
|
$
|
58,614
|
|
|
11
Other non-current liabilities consist of the following (in thousands):
|
September 30,
2017 |
December 31,
2016 |
||||||
|
Investee losses in excess of investment (Note 5)
|
$
|
8,845
|
|
$
|
10,238
|
|
|
|
Deferred gain on sale of property
(1)
|
5,910
|
|
5,761
|
|
|||
|
Deferred revenue
|
8,827
|
|
8,598
|
|
|||
|
Derivative liability (Note 14)
|
9,663
|
|
20,191
|
|
|||
|
Other
|
9,491
|
|
8,197
|
|
|||
|
Total other non-current liabilities
|
$
|
42,736
|
|
$
|
52,985
|
|
|
|
(1)
|
Relates to the sale and lease-back in January 2016 of our office and warehouse property located in Aberdeen, Scotland. The deferred gain is amortized over a
15
-year minimum lease term.
|
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):
|
Nine Months Ended
September 30, |
|||||||
|
2017
|
2016
|
||||||
|
Interest paid, net of interest capitalized
|
$
|
9,002
|
|
$
|
17,970
|
|
|
|
Income taxes paid
|
$
|
3,967
|
|
$
|
4,674
|
|
|
Our non-cash investing activities include property and equipment capital expenditures that are incurred but not yet paid. These non-cash capital expenditures totaled
$21.7 million
as of
September 30, 2017
and
$10.1 million
as of
December 31, 2016
.
We have a
20%
ownership interest in Independence Hub that we account for using the equity method of accounting. We previously had a
50%
ownership interest in Deepwater Gateway, which we sold in February 2016 to a subsidiary of Genesis Energy, L.P., the other
50%
owner, for
$25 million
with no resulting gain or loss. We also received a cash distribution of
$1.2 million
from Deepwater Gateway in February 2016. These equity investments are included in our Production Facilities segment.
Independence Hub owns the “Independence Hub” platform located in Mississippi Canyon Block 920 in the U.S. Gulf of Mexico in a water depth of
8,000
feet. Our share of the losses reported by Independence Hub exceeded the carrying amount of our investment by
$8.8 million
as of
September 30, 2017
and
$10.2 million
at
December 31, 2016
reflecting our share of Independence Hub’s obligations (primarily its estimated asset retirement obligations to decommission the platform), net of remaining working capital. This liability is reflected in “Other non-current liabilities” in the accompanying condensed consolidated balance sheets.
12
Note 6 —
Long-Term Debt
Scheduled maturities of our long-term debt outstanding as of
September 30, 2017
are as follows (in thousands):
|
Term
Loan
(1)
|
2022
Notes
|
2032
Notes
(2)
|
MARAD
Debt
|
Nordea
Q5000
Loan
|
Total
|
||||||||||||||||||
|
Less than one year
|
$
|
6,250
|
|
$
|
—
|
|
$
|
60,115
|
|
$
|
6,532
|
|
$
|
35,714
|
|
$
|
108,611
|
|
|||||
|
One to two years
|
11,250
|
|
—
|
|
—
|
|
6,858
|
|
35,714
|
|
53,822
|
|
|||||||||||
|
Two to three years
|
81,250
|
|
—
|
|
—
|
|
7,200
|
|
98,215
|
|
186,665
|
|
|||||||||||
|
Three to four years
|
—
|
|
—
|
|
—
|
|
7,560
|
|
—
|
|
7,560
|
|
|||||||||||
|
Four to five years
|
—
|
|
125,000
|
|
—
|
|
7,937
|
|
—
|
|
132,937
|
|
|||||||||||
|
Over five years
|
—
|
|
—
|
|
—
|
|
40,913
|
|
—
|
|
40,913
|
|
|||||||||||
|
Total debt
|
98,750
|
|
125,000
|
|
60,115
|
|
77,000
|
|
169,643
|
|
530,508
|
|
|||||||||||
|
Current maturities
|
(6,250
|
)
|
—
|
|
(60,115
|
)
|
(6,532
|
)
|
(35,714
|
)
|
(108,611
|
)
|
|||||||||||
|
Long-term debt, less current maturities
|
92,500
|
|
125,000
|
|
—
|
|
70,468
|
|
133,929
|
|
421,897
|
|
|||||||||||
|
Unamortized debt discount
(3)
|
—
|
|
(14,555
|
)
|
(1,052
|
)
|
—
|
|
—
|
|
(15,607
|
)
|
|||||||||||
|
Unamortized debt issuance costs
(4)
|
(1,815
|
)
|
(2,427
|
)
|
(92
|
)
|
(4,635
|
)
|
(1,976
|
)
|
(10,945
|
)
|
|||||||||||
|
Long-term debt
|
$
|
90,685
|
|
$
|
108,018
|
|
$
|
(1,144
|
)
|
$
|
65,833
|
|
$
|
131,953
|
|
$
|
395,345
|
|
|||||
|
(1)
|
Term Loan borrowing pursuant to the Credit Agreement (amended and restated in June 2017) matures in
June 2020
.
|
|
(2)
|
The holders of our remaining Convertible Senior Notes due 2032 may require us to repurchase the notes in
March 2018
. Accordingly, these notes are classified as current liabilities.
|
|
(3)
|
Our Convertible Senior Notes due 2022 will increase to their face amount through accretion of non-cash interest charges through
May 2022
. Our Convertible Senior Notes due 2032 will increase to their face amount through accretion of non-cash interest charges through March 2018.
|
|
(4)
|
Debt issuance costs are amortized over the term of the applicable debt agreement.
|
Below is a summary of certain components of our indebtedness:
Credit Agreement
On June 30, 2017, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with a group of lenders led by Bank of America, N.A. (“Bank of America”). The amended and restated credit facility is comprised of a
$100 million
term loan (the “Term Loan”) and a revolving credit facility (the “Revolving Credit Facility”) of up to
$150 million
(the “Revolving Loans”). The Revolving Credit Facility permits the Company to obtain letters of credit up to a sublimit of
$25 million
. Pursuant to the Credit Agreement, subject to existing lender participation and/or the participation of new lenders, and subject to standard conditions precedent, we may request aggregate commitments up to
$100 million
with respect to an increase in the Revolving Credit Facility, additional term loans, or a combination thereof. The
$100 million
proceeds from the Term Loan as well as cash on hand were used to repay the approximately
$180 million
term loan then outstanding under the credit facility prior to its June 2017 amendment and restatement. At
September 30, 2017
, we had no borrowings under the Revolving Credit Facility and our available borrowing capacity under that facility, based on the applicable leverage ratio covenant, totaled
$69.9 million
, net of
$4.0 million
of letters of credit issued under that facility.
13
The Term Loan and the Revolving Loans (together, the “Loans”), at our election, bear interest either in relation to Bank of America’s base rate or to a LIBOR rate. The Term Loan or portions thereof bearing interest at the base rate will bear interest at a per annum rate equal to the base rate plus
3.25%
. The Term Loan or portions thereof bearing interest at a LIBOR rate will bear interest per annum at the LIBOR rate selected by us plus a margin of
4.25%
. The Revolving Loans or portions thereof bearing interest at the base rate will bear interest at a per annum rate equal to the base rate plus a margin ranging from
1.75%
to
3.25%
. The Revolving Loans or portions thereof bearing interest at a LIBOR rate will bear interest per annum at the LIBOR rate selected by us plus a margin ranging from
2.75%
to
4.25%
. A letter of credit fee is payable by us equal to its applicable margin for LIBOR rate Loans times the daily amount available to be drawn under the applicable letter of credit. Margins on the Revolving Loans will vary in relation to the consolidated total leverage ratio provided for in the Credit Agreement. We also pay a fixed commitment fee of
0.50%
per annum on the unused portion of our Revolving Credit Facility.
The Term Loan principal is required to be repaid in
quarterly
installments of
5%
in the first loan year,
10%
in the second loan year and
15%
in the third loan year, with a balloon payment at maturity. 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 Credit Facility without premium or penalty, and may reborrow any amounts prepaid up to the amount of the Revolving Credit Facility. The Loans mature on
June 30, 2020
.
The Credit Agreement and the other documents entered into in connection with the Credit Agreement include terms and conditions, including covenants, which we consider customary for this type of transaction. The covenants include certain restrictions on our and our subsidiaries’ ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets, pay dividends and make capital expenditures. In addition, the Credit Agreement obligates us to meet minimum financial ratio requirements of EBITDA to interest charges (“Consolidated Interest Coverage Ratio”) and funded debt to EBITDA (“Consolidated Total Leverage Ratio”), and provided that if there are no Loans outstanding, the funded debt ratio requirement permits us to offset a certain amount of cash against the funded debt used in the calculation (“Consolidated Net Leverage Ratio”). After the initial Term Loan is repaid in full, if there are any Loans outstanding including unreimbursed draws under letters of credit issued under the Revolving Credit Facility, we are also required to ensure that the ratio of our total secured indebtedness to EBITDA (“Consolidated Secured Leverage Ratio”) does not exceed the maximum permitted ratio. The Credit Agreement also obligates us to maintain certain cash levels depending on the type of indebtedness outstanding. These financial covenant requirements are detailed as follows:
|
(a)
|
The minimum required Consolidated Interest Coverage Ratio:
|
|
Four Fiscal Quarters Ending
|
Minimum Consolidated
Interest Coverage Ratio
|
||
|
September 30, 2017 and each fiscal quarter thereafter
|
2.50
|
|
to 1.00
|
|
(b)
|
The maximum permitted Consolidated Total Leverage Ratio or Consolidated Net Leverage Ratio:
|
|
Four Fiscal Quarters Ending
|
Maximum Consolidated
Total or Net Leverage Ratio
|
||
|
September 30, 2017
|
6.00
|
|
to 1.00
|
|
December 31, 2017
|
5.75
|
|
to 1.00
|
|
March 31, 2018
|
5.50
|
|
to 1.00
|
|
June 30, 2018
|
5.25
|
|
to 1.00
|
|
September 30, 2018
|
5.00
|
|
to 1.00
|
|
December 31, 2018 through and including March 31, 2019
|
4.50
|
|
to 1.00
|
|
June 30, 2019 through and including September 30, 2019
|
4.25
|
|
to 1.00
|
|
December 31, 2019
|
4.00
|
|
to 1.00
|
|
March 31, 2020 and each fiscal quarter thereafter
|
3.50
|
|
to 1.00
|
14
|
(c)
|
The maximum permitted Consolidated Secured Leverage Ratio:
|
|
Four Fiscal Quarters Ending
|
Maximum Consolidated
Secured Leverage Ratio
|
||
|
September 30, 2017 through and including June 30, 2018
|
3.00
|
|
to 1.00
|
|
September 30, 2018 and each fiscal quarter thereafter
|
2.50
|
|
to 1.00
|
|
(d)
|
The minimum required Unrestricted Cash and Cash Equivalents:
|
|
Consolidated Total Leverage Ratio
|
Minimum Cash
(1)
|
|
|
Greater than or equal to 4.00 to 1.00
|
$100,000,000.00
|
|
|
Greater than or equal to 3.50 to 1.00 but less than 4.00 to 1.00
|
$50,000,000.00
|
|
|
Less than 3.50 to 1.00
|
$0.00
|
|
|
(1)
|
This minimum cash balance is not required to be maintained in any particular bank account or to be segregated from other cash balances in bank accounts that we use in our ordinary course of business. Because the use of this cash is not legally restricted notwithstanding this maintenance covenant, we present it on our balance sheet as cash and cash equivalents. As of
September 30, 2017
, we were required to, and did, maintain an aggregate cash balance of at least
$100 million
in complying with this covenant.
|
We may from time to time designate one or more of our foreign subsidiaries as subsidiaries which are not generally subject to the covenants in the Credit Agreement (the “Unrestricted Subsidiaries”), provided that we meet certain liquidity requirements. The debt and EBITDA of Unrestricted Subsidiaries are not included in the calculations of our financial covenants, except for the debt and EBITDA of Helix Q5000 Holdings, S.a.r.l., a wholly owned subsidiary incorporated in Luxembourg (“Q5000 Holdings”). Our obligations under the Credit Agreement are guaranteed by our domestic subsidiaries (except Cal Dive I – Title XI, Inc.) and Canyon Offshore Limited, a wholly owned Scottish subsidiary, and our obligations under the Credit Agreement and of such guarantors under their guarantee are secured by most of our assets of the parent, our domestic subsidiaries (other than Cal Dive I – Title XI, Inc.) and Canyon Offshore Limited, as well as pledges of up to two-thirds of the shares of certain foreign subsidiaries.
In June 2017, we recognized a
$0.4 million
loss to write off the unamortized debt issuance costs related to the lenders exiting from the term loan then outstanding under the credit facility prior to its June 2017 amendment and restatement, which loss is presented as “Loss on early extinguishment of long-term debt” in the accompanying consolidated statements of operations. In connection with decreases in lenders’ commitments under our revolving credit facility, in June 2017 and February 2016 we recorded interest charges of
$1.6 million
and
$2.5 million
, respectively, to accelerate the amortization of a pro-rata portion of debt issuance costs related to the lenders whose commitments were reduced.
Convertible Senior Notes Due 2022
On November 1, 2016, we completed a public offering and sale of our Convertible Senior Notes due 2022 (the “2022 Notes”) in the aggregate principal amount of
$125 million
. The net proceeds from the issuance of the 2022 Notes were
$121.7 million
after deducting the underwriter’s discounts and commissions and offering expenses. We used net proceeds from the issuance of the 2022 Notes as well as cash on hand to repurchase and retire
$125 million
in principal of the 2032 Notes (see “Convertible Senior Notes Due 2032” below) in separate, privately negotiated transactions.
15
The 2022 Notes bear interest at a rate of
4.25%
per annum, and are payable
semi-annually
in arrears on November 1 and May 1 of each year, beginning on May 1, 2017. The 2022 Notes mature on
May 1, 2022
unless earlier converted, redeemed or repurchased. During certain periods and subject to certain conditions (as described in the Indenture governing the 2022 Notes) the 2022 Notes are convertible by the holders into shares of our common stock at an initial conversion rate of 71.9748 shares of our common stock per $1,000 principal amount (which represents an initial conversion price of approximately
$13.89
per share of common stock), subject to adjustment in certain circumstances as set forth in the Indenture governing the 2022 Notes. We have the right and the intention to settle any such future conversions in cash.
Prior to November 1, 2019, the 2022 Notes are not redeemable. On or after November 1, 2019, we may redeem all or any portion of the 2022 Notes, at our option, subject to certain conditions, at a redemption price payable in cash equal to
100%
of the principal amount to be redeemed, plus accrued and unpaid interest, and a “make-whole premium” with a value equal to the present value of the remaining scheduled interest payments of the 2022 Notes to be redeemed through May 1, 2022. Holders of the 2022 Notes may require us to repurchase the notes following a “fundamental change,” as defined in the 2022 Notes documentation.
The Indenture governing the 2022 Notes contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee under the Indenture or the holders of not less than
25%
in aggregate principal amount then outstanding under the 2022 Notes may declare the entire principal amount of all the notes, and the interest accrued on such notes, if any, to be immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a principal subsidiary, the principal amount of the 2022 Notes together with any accrued and unpaid interest thereon will automatically be and become immediately due and payable.
In connection with the issuance of the 2022 Notes, we recorded a debt discount of
$16.9 million
as required under existing accounting rules. To arrive at this discount amount, we estimated the fair value of the liability component of the 2022 Notes as of October 26, 2016 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 pricing and an expected life of
5.5 years
. The effective interest rate for the 2022 Notes is
7.3%
after considering the effect of the accretion of the related debt discount that represented the equity component of the 2022 Notes at their inception. We recorded
$11.0 million
, net of tax, related to the carrying amount of the equity component of the 2022 Notes. The remaining unamortized amount of the debt discount of the 2022 Notes was
$14.6 million
at
September 30, 2017
and
$16.5 million
at
December 31, 2016
.
Convertible Senior Notes Due 2032
In March 2012, we completed a public offering and sale of our Convertible Senior Notes due 2032 (the “2032 Notes”) in the aggregate principal amount of
$200 million
,
$60 million
of which are currently outstanding. 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 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 our 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.
16
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 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 (either a Change of Control or a Termination of Trading, as those terms are defined in the Indenture governing the 2032 Notes). We elected to repurchase
$7.3 million
,
$7.6 million
and
$125 million
, respectively, in aggregate principal amount of the 2032 Notes in June, July and November of 2016, respectively. For the
three- and nine-
month periods ended
September 30, 2016
, we recognized gains related to the repurchase of the 2032 Notes of
$0.2 million
and
$0.5 million
, respectively, which are presented as “Gain on early extinguishment of long-term debt” in the accompanying consolidated statements of operations.
In connection with the issuance of the 2032 Notes we recorded a debt 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 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 pricing 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. We recorded
$22.5 million
, net of tax, related to the carrying amount of the equity component of the 2032 Notes. The remaining unamortized amount of the debt discount of the 2032 Notes was
$1.1 million
at
September 30, 2017
and
$2.6 million
at
December 31, 2016
.
MARAD Debt
This U.S. government guaranteed financing (the “MARAD Debt”), pursuant to Title XI of the Merchant Marine Act of 1936 administered by the Maritime Administration, was used to finance the construction of the
Q4000
. The MARAD Debt is collateralized by the
Q4000
and is guaranteed
50%
by us. The MARAD Debt is payable in equal
semi-annual
installments beginning in August 2002 and matures in
February 2027
, and initially bore interest at a floating rate that approximated AAA Commercial Paper yields plus 20 basis points. As required by 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, Q5000 Holdings entered into a credit agreement (the “Nordea Credit Agreement”) with a syndicated bank lending group for a term loan (the “Nordea Q5000 Loan”) in an amount of up to
$250 million
. The Nordea Q5000 Loan was funded in the amount of
$250 million
in April 2015 at the time the
Q5000
vessel was delivered to us. The parent company of Q5000 Holdings, Helix Vessel Finance S.à r.l., also a wholly owned Luxembourg subsidiary, guaranteed the Nordea Q5000 Loan. The loan is secured by the
Q5000
and its charter earnings as well as by a pledge of the shares of Q5000 Holdings. This indebtedness is non-recourse to Helix.
The Nordea Q5000 Loan bears interest at a LIBOR rate plus a margin of
2.5%
. The Nordea Q5000 Loan matures on
April 30, 2020
and is repayable in scheduled
quarterly
principal installments of
$8.9 million
with a balloon payment of
$80.4 million
at maturity. Q5000 Holdings may elect to prepay amounts outstanding under the Nordea Q5000 Loan without premium or penalty, but may not reborrow any amounts prepaid. Quarterly principal installments are subject to adjustment for any prepayments on this debt. In June 2015, we entered into various interest rate swap contracts to fix the one-month LIBOR rate on a portion of our borrowings under the Nordea Q5000 Loan (Note 14). The total notional amount of the swaps (initially
$187.5 million
) decreases in proportion to the reduction in the principal amount outstanding under our Nordea Q5000 Loan. The fixed LIBOR rates are approximately 150 basis points.
17
The Nordea Credit Agreement and related loan documents include terms and conditions, including covenants and prepayment requirements, that we consider 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 certain minimum financial requirements, including liquidity, consolidated debt service coverage and collateral maintenance.
Other
In accordance with our Credit Agreement, the 2022 Notes, 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 various leverage ratios, as well as the maintenance of minimum cash balance, net worth, working capital and debt-to-equity requirements. As of
September 30, 2017
, we were in compliance with these covenants.
The following table details the components of our net interest expense (in thousands):
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
|
Interest expense
|
$
|
8,336
|
|
$
|
10,745
|
|
$
|
30,183
|
|
$
|
34,224
|
|
|||
|
Interest income
|
(792
|
)
|
(833
|
)
|
(2,056
|
)
|
(1,713
|
)
|
|||||||
|
Capitalized interest
|
(3,929
|
)
|
(3,069
|
)
|
(12,647
|
)
|
(7,504
|
)
|
|||||||
|
Net interest expense
|
$
|
3,615
|
|
$
|
6,843
|
|
$
|
15,480
|
|
$
|
25,007
|
|
|||
We believe that our recorded deferred tax assets and liabilities are reasonable. However, tax laws and regulations are subject to interpretation and the outcomes of tax disputes are 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- and nine-
month periods ended
September 30, 2017
were
(204.9)%
and
5.2%
, respectively. The effective tax rates for the
three- and nine-
month periods ended
September 30, 2016
were
24.1%
and
26.7%
, respectively. The variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and a change in tax position related to our foreign taxes.
We continued recording income taxes using a year-to-date effective tax rate method for the
three- and nine-
month periods ended
September 30, 2017
. The use of this method was based on our expectations at
September 30, 2017
that a small change in our estimated ordinary income could result in a large change in the estimated annual effective tax rate. We will re-evaluate our use of this method each quarter until such time as a return to the annualized effective tax rate method is deemed appropriate.
18
Income taxes are provided based on the U.S. statutory rate of
35%
and at the local statutory rate for each foreign jurisdiction adjusted for items that are allowed as deductions for federal and foreign income tax reporting purposes, but not for book purposes. The primary differences between the U.S. statutory rate and our effective rate are as follows:
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||
|
U.S. statutory rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
|||
|
Foreign provision
|
(241.5
|
)
|
(10.8
|
)
|
2.8
|
|
(8.8
|
)
|
|||
|
Change in tax position
(1)
|
—
|
|
—
|
|
(29.3
|
)
|
—
|
|
|||
|
Other
|
1.6
|
|
(0.1
|
)
|
(3.3
|
)
|
0.5
|
|
|||
|
Effective rate
|
(204.9
|
)%
|
24.1
|
%
|
5.2
|
%
|
26.7
|
%
|
|||
|
(1)
|
We consider all available evidence, both positive and negative, when determining whether a valuation allowance is required against deferred tax assets. Due to weaker near term outlook and financial results primarily associated with our Robotics segment, we currently do not anticipate generating sufficient foreign source income to fully utilize our foreign tax credits prior to their expiration. We have concluded that it is more likely than not previously recorded deferred tax assets attributable to foreign tax credits will not be realized. As a result of this change in tax position, we recorded a tax charge of
$6.3 million
in June 2017, which is comprised of a
$2.8 million
valuation allowance attributable to a foreign tax credit carryforward from 2015 and a
$3.5 million
charge attributable to the decision to deduct foreign taxes related to 2016 and 2017.
|
Note 8 —
Shareholders’ Equity
On January 10, 2017, we completed an underwritten public offering (the “Offering”) of
26,450,000
shares of our common stock at a public offering price of
$8.65
per share. The net proceeds from the Offering approximated
$220 million
, after deducting underwriting discounts and commissions and estimated offering expenses. We used the net proceeds from the Offering for general corporate purposes, including debt repayment, capital expenditures, working capital and investments in our subsidiaries.
The components of Accumulated Other Comprehensive Income (Loss) (“OCI”) are as follows (in thousands):
|
September 30,
2017 |
December 31,
2016 |
||||||
|
Cumulative foreign currency translation adjustment
|
$
|
(64,048
|
)
|
$
|
(78,953
|
)
|
|
|
Unrealized loss on hedges, net
(1)
|
(8,314
|
)
|
(18,021
|
)
|
|||
|
Accumulated other comprehensive loss
|
$
|
(72,362
|
)
|
$
|
(96,974
|
)
|
|
|
(1)
|
Relates to foreign currency hedges for the
Grand Canyon
,
Grand Canyon II
and
Grand Canyon III
charters as well as interest rate swap contracts for the Nordea Q5000 Loan, and are net of deferred income taxes totaling
$4.5 million
at
September 30, 2017
and
$9.7 million
at
December 31, 2016
(Note 14).
|
19
We have shares of restricted stock issued and outstanding that are currently unvested. Holders of shares of unvested restricted stock are entitled to the same liquidation and dividend rights as the holders of our unrestricted common stock and the shares of restricted stock 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. For periods in which we have a net loss we do not use the two class method as holders of our restricted shares are not obligated to share in such losses.
The presentation of basic EPS amounts on the face of the accompanying condensed consolidated statements of operations is computed by dividing net income or loss by the weighted average shares of our common stock outstanding. 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 for the
three
-month periods ended
September 30, 2017
and
2016
are as follows (in thousands):
|
Three Months Ended
September 30, 2017 |
Three Months Ended
September 30, 2016 |
||||||||||||
|
Income
|
Shares
|
Income
|
Shares
|
||||||||||
|
Basic:
|
|||||||||||||
|
Net income
|
$
|
2,290
|
|
$
|
11,462
|
|
|||||||
|
Less: Undistributed earnings allocated to participating securities
|
(27
|
)
|
(160
|
)
|
|||||||||
|
Undistributed earnings allocated to common shares
|
$
|
2,263
|
|
145,958
|
|
$
|
11,302
|
|
113,680
|
|
|||
|
Diluted:
|
|||||||||||||
|
Undistributed earnings allocated to common shares
|
$
|
2,263
|
|
145,958
|
|
$
|
11,302
|
|
113,680
|
|
|||
|
Effect of dilutive securities:
|
|||||||||||||
|
Share-based awards other than participating securities
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
|
Undistributed earnings reallocated to participating securities
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
|
Net income
|
$
|
2,263
|
|
145,958
|
|
$
|
11,302
|
|
113,680
|
|
|||
We had net losses for the
nine
-month periods ended
September 30, 2017
and
2016
. Accordingly, our diluted EPS calculation for these periods was equivalent to our basic EPS calculation since diluted EPS excluded any assumed exercise or conversion of common stock equivalents. These common stock equivalents were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable periods. Shares that otherwise would have been included in the diluted per share calculations assuming we had earnings are as follows (in thousands):
|
Nine Months Ended
September 30, |
|||||
|
2017
|
2016
|
||||
|
Diluted shares (as reported)
|
145,057
|
|
109,135
|
|
|
|
Share-based awards
|
364
|
|
308
|
|
|
|
Total
|
145,421
|
|
109,443
|
|
|
20
In addition, the following potentially dilutive shares related to the 2022 Notes and the 2032 Notes were excluded from the diluted EPS calculation because we have the right and the intention to settle any such future conversions in cash (Note 6) (in thousands):
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||
|
2022 Notes
|
8,997
|
|
—
|
|
8,997
|
|
—
|
|
|||
|
2032 Notes
|
2,403
|
|
7,493
|
|
2,403
|
|
7,814
|
|
|||
Long-Term Incentive Stock-Based Plan
As of
September 30, 2017
, there were
2.4 million
shares of our common stock available for issuance under our long-term incentive stock-based plan, the 2005 Long-Term Incentive Plan, as amended and restated January 1, 2017 (the “2005 Incentive Plan”). During the
nine
-month period ended
September 30, 2017
, 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 3, 2017
(1)
|
671,771
|
|
$
|
8.82
|
|
33% per year over three years
|
|||||||
|
January 3, 2017
(2)
|
671,771
|
|
$
|
12.64
|
|
100% on January 1, 2020
|
|||||||
|
January 3, 2017
(3)
|
9,956
|
|
$
|
8.82
|
|
100% on January 1, 2019
|
|||||||
|
April 3, 2017
(3)
|
8,004
|
|
$
|
7.77
|
|
100% on January 1, 2019
|
|||||||
|
July 3, 2017
(3)
|
14,018
|
|
$
|
5.64
|
|
100% on January 1, 2019
|
|||||||
|
(1)
|
Reflects grants of restricted stock to our executive officers and select management employees.
|
|
(2)
|
Reflects grants of performance share units (“PSUs”) to our executive officers and select 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
. For the 2017 awards, vested PSUs can only be settled in shares of our common stock.
|
|
(3)
|
Reflects grants of restricted stock to certain independent members of our Board of Directors (the “Board”) who have made an election to take their quarterly fees in stock in lieu of cash.
|
Compensation cost for restricted stock is the product of grant date fair value of each share and the number of shares granted and is recognized over the applicable vesting periods on a straight-line basis. We elected to account for forfeitures when they occur upon the adoption of the new guidance for employee share-based payment accounting (Note 1). For the
three- and nine-
month periods ended
September 30, 2017
,
$1.7 million
and
$5.4 million
, respectively, were recognized as share-based compensation related to restricted stock. For the
three- and nine-
month periods ended
September 30, 2016
,
$1.4 million
and
$4.3 million
, respectively, were recognized as share-based compensation related to restricted stock.
21
The estimated fair value of PSUs is determined using a Monte Carlo simulation model. Compensation cost for PSUs that are accounted for as equity awards is measured based on the estimated grant date fair value and recognized over the vesting period on a straight-line basis. PSUs that are accounted for as liability awards are measured based on the estimated fair value at the balance sheet date and changes in fair value of the awards are recognized in earnings. Cumulative compensation cost for vested liability PSU awards equals the actual cash payout amount upon vesting. The 2017 awards are accounted for as equity awards whereas awards made prior to 2017 are accounted for as liability awards. For the
three- and nine-
month periods ended
September 30, 2017
,
$4.0 million
and
$5.8 million
, respectively, were recognized as share-based compensation related to PSUs. For the
three- and nine-
month periods ended
September 30, 2016
,
$2.5 million
and
$5.3 million
, respectively, were recognized as share-based compensation related to PSUs. The liability balance for unvested PSUs was
$10.2 million
at
September 30, 2017
and
$7.1 million
at
December 31, 2016
. We paid
$0.6 million
in cash to settle the 2014 grant of PSUs when they vested in January 2017.
Employee Stock Purchase Plan
We have an employee stock purchase plan (the “ESPP”). The ESPP has
1.5 million
shares authorized for issuance, of which
0.6 million
shares were available for issuance as of
September 30, 2017
. In February 2016, we suspended ESPP purchases for the January through April 2016 purchase period and indefinitely imposed a purchase limit of
130
shares per employee for subsequent purchase periods.
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 12 to our
2016
Form 10-K.
We have
three
reportable business segments: Well Intervention, Robotics and Production Facilities. Our U.S., U.K. and Brazil well intervention operating segments are aggregated into the Well Intervention business segment for financial reporting purposes. Our Well Intervention segment includes our vessels and equipment used to perform well intervention services primarily in the U.S. Gulf of Mexico, North Sea and Brazil. Our Well Intervention segment also includes IRSs, some of which we rent out on a stand-alone basis, and SILs. Our well intervention vessels include the
Q4000
, the
Q5000
, the
Seawell
, the
Well Enhancer
and the chartered
Siem Helix 1
and
Siem Helix 2
vessels. The
Siem Helix 1
commenced its operations for Petrobras in mid-April 2017. Our Robotics segment includes ROVs, trenchers and ROVDrills designed to complement offshore construction and well intervention services, and currently operates
four
chartered ROV support vessels, including the
Grand Canyon III
that went into service for us in May 2017. Our Production Facilities segment includes the
HP I
, the HFRS and our investment in Independence Hub that is accounted for under the equity method, and previously included our former ownership interest in Deepwater Gateway that we sold in February 2016 (Note 5). All material intercompany transactions between the segments have been eliminated.
22
We evaluate our performance primarily based on operating income of each reportable segment. Certain financial data by reportable segment are summarized as follows (in thousands):
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
|
Net revenues —
|
|||||||||||||||
|
Well Intervention
|
$
|
111,522
|
|
$
|
108,287
|
|
$
|
299,219
|
|
$
|
214,262
|
|
|||
|
Robotics
|
47,049
|
|
48,897
|
|
102,078
|
|
119,805
|
|
|||||||
|
Production Facilities
|
16,380
|
|
17,128
|
|
47,965
|
|
54,567
|
|
|||||||
|
Intercompany elimination
|
(11,691
|
)
|
(13,067
|
)
|
(31,145
|
)
|
(29,083
|
)
|
|||||||
|
Total
|
$
|
163,260
|
|
$
|
161,245
|
|
$
|
418,117
|
|
$
|
359,551
|
|
|||
|
Income (loss) from operations —
|
|||||||||||||||
|
Well Intervention
|
$
|
16,906
|
|
$
|
24,413
|
|
$
|
37,356
|
|
$
|
7,187
|
|
|||
|
Robotics
|
(9,365
|
)
|
(94
|
)
|
(37,313
|
)
|
(21,667
|
)
|
|||||||
|
Production Facilities
|
7,660
|
|
8,312
|
|
20,724
|
|
25,225
|
|
|||||||
|
Corporate and other
|
(10,633
|
)
|
(10,288
|
)
|
(29,296
|
)
|
(28,784
|
)
|
|||||||
|
Intercompany elimination
|
199
|
|
(873
|
)
|
641
|
|
(542
|
)
|
|||||||
|
Total
|
$
|
4,767
|
|
$
|
21,470
|
|
$
|
(7,888
|
)
|
$
|
(18,581
|
)
|
|||
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
September 30, |
Nine Months Ended
September 30, |
||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
|
Well Intervention
|
$
|
3,765
|
|
$
|
2,898
|
|
$
|
8,033
|
|
$
|
5,740
|
|
|||
|
Robotics
|
7,926
|
|
10,169
|
|
23,112
|
|
23,343
|
|
|||||||
|
Total
|
$
|
11,691
|
|
$
|
13,067
|
|
$
|
31,145
|
|
$
|
29,083
|
|
|||
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, most notably the majority of our cash and cash equivalents. The following table reflects total assets by reportable segment (in thousands):
|
September 30,
2017 |
December 31,
2016 |
||||||
|
Well Intervention
|
$
|
1,774,821
|
|
$
|
1,596,517
|
|
|
|
Robotics
|
179,777
|
|
186,901
|
|
|||
|
Production Facilities
|
141,739
|
|
158,192
|
|
|||
|
Corporate and other
|
270,153
|
|
305,331
|
|
|||
|
Total
|
$
|
2,366,490
|
|
$
|
2,246,941
|
|
|
23
Commitments
We have charter agreements for the
Grand Canyon
,
Grand Canyon II
and
Grand Canyon III
vessels for use in our robotics operations. In February 2016, we amended the charter agreements to reduce the charter rates and, in connection with those reductions, to extend the terms to October 2019 for the
Grand Canyon
, to April 2021 for the
Grand Canyon II
and to May 2023 for the
Grand Canyon III
. We also have a charter agreement for the
Deep Cygnus
that expires in March 2018.
In September 2013, we executed a contract with the same shipyard in Singapore that constructed the
Q5000
for the construction of a newbuild semi-submersible well intervention vessel, the
Q7000
, which is being built to North Sea standards. This
$346 million
shipyard contract represents the majority of the expected costs associated with the construction of the
Q7000
. Pursuant to the original contract and subsequent amendments,
20%
of the contract price was paid upon the signing of the contract in 2013,
20%
was paid in 2016,
20%
is to be paid upon issuance of the Completion Certificate, which is to be issued on or before December 31, 2017, and
40%
is to be paid upon the delivery of the vessel, which at our option can be deferred until December
30, 2018. We agreed to pay the shipyard its incremental costs in connection with the contract amendments to extend the scheduled delivery of the
Q7000
and to defer certain payment obligations. Incremental costs are capitalized as they are incurred during the construction of the vessel. At
September 30, 2017
, our total investment in the
Q7000
was
$213.6 million
, including
$138.4 million
of installment payments to the shipyard.
In February 2014, we entered into agreements with Petróleo Brasileiro S.A. (“Petrobras”) to provide well intervention services offshore Brazil, and in connection with the Petrobras agreements, we entered into charter agreements with Siem Offshore AS (“Siem”) for
two
newbuild monohull vessels, the
Siem Helix
1
and the
Siem Helix
2
. The initial term of the charter agreements with Siem is for
seven years
from the respective vessel delivery dates with options to extend. The initial term of the agreements with Petrobras is for
four years
with Petrobras’s options to extend.
The
Siem Helix
1
vessel was delivered to us and the charter term began on June 14, 2016. The vessel was accepted by Petrobras and commenced operations on April 14, 2017, at which time we agreed with Petrobras to commence operations at reduced day rates. Our day rates improved in the third quarter as we addressed most of the items identified in the vessel acceptance process. The
Siem Helix
2
was delivered to us and the charter term began on February 10, 2017. The vessel has transited to Brazil after integration and commissioning of our topside equipment onboard and is currently in the process of inspection protocol and customer equipment integration. We currently anticipate that the vessel will commence operations for Petrobras late in the fourth quarter of 2017. At
September 30, 2017
, our total investment in the topside equipment for the
two
vessels was
$304.1 million
.
Contingencies and Claims
We believe that there are currently no contingencies that would have a material adverse effect on our financial position, results of operations or cash flows.
Litigation
We are involved in various other 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 and employment-related 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
|
24
|
•
|
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 approaches 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).
|
|
(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, receivables, accounts payable, long-term debt and various derivative instruments. The carrying amount of cash and cash equivalents, trade and other current receivables as well as accounts payable approximates fair value due to the short-term nature of these instruments. The net carrying amount of our long-term note receivable also approximates its fair value. 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
September 30, 2017 Using |
|||||||||||||||||
|
Level 1
|
Level 2
(1)
|
Level 3
|
Total
|
Valuation
Approach
|
|||||||||||||
|
Assets:
|
|||||||||||||||||
|
Interest rate swaps
|
$
|
—
|
|
$
|
374
|
|
$
|
—
|
|
$
|
374
|
|
(c)
|
||||
|
Liabilities:
|
|||||||||||||||||
|
Foreign exchange contracts
|
—
|
|
19,508
|
|
—
|
|
19,508
|
|
(c)
|
||||||||
|
Interest rate swaps
|
—
|
|
82
|
|
—
|
|
82
|
|
(c)
|
||||||||
|
Total liability
|
$
|
—
|
|
$
|
19,216
|
|
$
|
—
|
|
$
|
19,216
|
|
|||||
|
Fair Value Measurements at
December 31, 2016 Using |
|||||||||||||||||
|
Level 1
|
Level 2
(1)
|
Level 3
|
Total
|
Valuation
Approach
|
|||||||||||||
|
Assets:
|
|||||||||||||||||
|
Interest rate swaps
|
$
|
—
|
|
$
|
451
|
|
$
|
—
|
|
$
|
451
|
|
(c)
|
||||
|
Liabilities:
|
|||||||||||||||||
|
Foreign exchange contracts
|
—
|
|
38,170
|
|
—
|
|
38,170
|
|
(c)
|
||||||||
|
Interest rate swaps
|
—
|
|
751
|
|
—
|
|
751
|
|
(c)
|
||||||||
|
Total net liability
|
$
|
—
|
|
$
|
38,470
|
|
$
|
—
|
|
$
|
38,470
|
|
|||||
|
(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.
|
25
The carrying values and estimated fair values of our long-term debt are as follows (in thousands):
|
September 30, 2017
|
December 31, 2016
|
||||||||||||||
|
Carrying
Value
(1)
|
Fair
Value
(2)
|
Carrying
Value
(1)
|
Fair
Value
(2)
|
||||||||||||
|
Term Loan (previously scheduled to mature June 2018)
|
$
|
—
|
|
$
|
—
|
|
$
|
192,258
|
|
$
|
192,258
|
|
|||
|
Nordea Q5000 Loan (matures April 2020)
|
169,643
|
|
168,583
|
|
196,429
|
|
192,746
|
|
|||||||
|
Term Loan (matures June 2020)
|
98,750
|
|
99,120
|
|
—
|
|
—
|
|
|||||||
|
MARAD Debt (matures February 2027)
|
77,000
|
|
83,928
|
|
83,222
|
|
92,049
|
|
|||||||
|
2022 Notes (mature May 2022)
|
125,000
|
|
123,281
|
|
125,000
|
|
130,156
|
|
|||||||
|
2032 Notes (mature March 2032)
|
60,115
|
|
60,077
|
|
60,115
|
|
59,965
|
|
|||||||
|
Total debt
|
$
|
530,508
|
|
$
|
534,989
|
|
$
|
657,024
|
|
$
|
667,174
|
|
|||
|
(1)
|
Carrying value includes current maturities and excludes the related unamortized debt discount and debt issuance costs. See Note 6 for additional disclosures on our long-term debt.
|
|
(2)
|
The estimated fair value of the 2022 Notes and the 2032 Notes was determined using Level 1 inputs under the market approach. The fair value of the Nordea Q5000 Loan, the MARAD Debt, the Term Loan maturing June 2020 and our previous term loan that was scheduled to mature June 2018 was estimated using Level 2 fair value inputs under the market approach, which 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 business is exposed to market risks 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. To reduce the impact of these risks on earnings and increase the predictability of our cash flows, from time to time we enter into certain derivative contracts, including interest rate swaps and foreign currency exchange contracts. All derivative instruments 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 derivative instruments that are designated as cash flow hedges are deferred to the extent the hedges are effective. These 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 instrument 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 derivative instruments and hedging activities, see Notes 2 and 18 to our
2016
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 variable interest rate debt. In June 2015 we entered into various interest rate swap contracts to fix the interest rate on
$187.5 million
of our Nordea Q5000 Loan (Note 6). These swap contracts, which are settled monthly, began in June 2015 and extend through April 2020. Our interest rate swap contracts qualify for cash flow hedge accounting treatment. Changes in the fair value of interest rate swaps are deferred to the extent the swaps are effective. These changes are recorded as a component of Accumulated OCI until the anticipated interest is recognized as interest expense. The ineffective portion of the interest rate swaps, 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.
26
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. We enter into foreign currency exchange contracts from time to time to stabilize expected cash outflows related to our vessel charters that are denominated in foreign currencies.
In January 2013, we entered into foreign currency exchange contracts to hedge through September 2017 our 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 associated with 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. In December 2015, we de-designated the foreign currency exchange contracts associated with the charter payment obligations for the
Grand Canyon II
and
Grand Canyon III
vessels that no longer qualified for cash flow hedge accounting treatment and we re-designated the hedging relationship between a portion of these contracts and our forecasted
Grand Canyon II
and
Grand Canyon III
charter payments of NOK
434.1 million
and NOK
185.2 million
, respectively, that were expected to remain highly probable of occurring. Unrealized losses associated with the effective portion of our foreign currency exchange contracts that qualify for hedge accounting treatment are included in our Accumulated OCI (net of tax). Reflected in “Other income (expense), net” in the accompanying condensed consolidated statements of operations are changes in unrealized losses associated with the foreign currency exchange contracts that are no longer designated as cash flow hedges. Hedge ineffectiveness also is reflected in “Other income (expense), net” in the accompanying condensed consolidated statements of operations. There were no gains or losses associated with hedge ineffectiveness for the
three- and nine-
month periods ended
September 30, 2017
and the
three
-month period ended
September 30, 2016
. For the
nine
-month period ended
September 30, 2016
, we recorded unrealized gains of
$0.1 million
related to our hedge ineffectiveness.
Quantitative Disclosures Relating to Derivative Instruments
The following table presents the balance sheet location and fair value of our derivative instruments that were designated as hedging instruments (in thousands):
|
September 30, 2017
|
December 31, 2016
|
||||||||||
|
Balance Sheet
Location
|
Fair
Value
|
Balance Sheet
Location
|
Fair
Value
|
||||||||
|
Asset Derivative Instruments:
|
|||||||||||
|
Interest rate swaps
|
Other assets, net
|
$
|
374
|
|
Other assets, net
|
$
|
451
|
|
|||
|
$
|
374
|
|
$
|
451
|
|
||||||
|
Liability Derivative Instruments:
|
|||||||||||
|
Foreign exchange contracts
|
Accrued liabilities
|
$
|
6,945
|
|
Accrued liabilities
|
$
|
14,056
|
|
|||
|
Interest rate swaps
|
Accrued liabilities
|
82
|
|
Accrued liabilities
|
751
|
|
|||||
|
Foreign exchange contracts
|
Other non-current liabilities
|
6,123
|
|
Other non-current liabilities
|
13,383
|
|
|||||
|
$
|
13,150
|
|
$
|
28,190
|
|
||||||
27
The following table presents the balance sheet location and fair value of our derivative instruments that were not designated as hedging instruments (in thousands):
|
September 30, 2017
|
December 31, 2016
|
||||||||||
|
Balance Sheet
Location
|
Fair
Value
|
Balance Sheet
Location
|
Fair
Value
|
||||||||
|
Liability Derivative Instruments:
|
|||||||||||
|
Foreign exchange contracts
|
Accrued liabilities
|
$
|
2,900
|
|
Accrued liabilities
|
$
|
3,923
|
|
|||
|
Foreign exchange contracts
|
Other non-current liabilities
|
3,540
|
|
Other non-current liabilities
|
6,808
|
|
|||||
|
$
|
6,440
|
|
$
|
10,731
|
|
||||||
The following tables present the impact that derivative instruments designated as hedging instruments had on our Accumulated OCI (net of tax) and our condensed consolidated statements of operations (in thousands). We estimate that as of
September 30, 2017
,
$4.6 million
of losses in Accumulated OCI associated with our derivative instruments is expected to be reclassified into earnings within the next 12 months.
|
Gain (Loss) Recognized in OCI on
Derivative Instruments, Net of Tax
(Effective Portion)
|
|||||||||||||||
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
|
Foreign exchange contracts
|
$
|
3,620
|
|
$
|
4,249
|
|
$
|
9,341
|
|
$
|
10,745
|
|
|||
|
Interest rate swaps
|
68
|
|
643
|
|
366
|
|
(880
|
)
|
|||||||
|
$
|
3,688
|
|
$
|
4,892
|
|
$
|
9,707
|
|
$
|
9,865
|
|
||||
|
Location of Loss Reclassified from
Accumulated OCI into Earnings
|
Loss Reclassified from
Accumulated OCI into Earnings
(Effective Portion)
|
||||||||||||||||
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||||||||
|
Foreign exchange contracts
|
Cost of sales
|
$
|
(3,288
|
)
|
$
|
(2,663
|
)
|
$
|
(10,280
|
)
|
$
|
(8,033
|
)
|
||||
|
Interest rate swaps
|
Net interest expense
|
(95
|
)
|
(494
|
)
|
(542
|
)
|
(1,618
|
)
|
||||||||
|
$
|
(3,383
|
)
|
$
|
(3,157
|
)
|
$
|
(10,822
|
)
|
$
|
(9,651
|
)
|
||||||
The following table presents the impact that derivative instruments not designated as hedging instruments had on our condensed consolidated statements of operations (in thousands):
|
Location of Gain
Recognized in Earnings on
Derivative Instruments
|
Gain Recognized in Earnings
on Derivative Instruments
|
||||||||||||||||
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||||||||
|
Foreign exchange contracts
|
Other income (expense), net
|
$
|
1,050
|
|
$
|
1,309
|
|
$
|
1,531
|
|
$
|
3,375
|
|
||||
|
$
|
1,050
|
|
$
|
1,309
|
|
$
|
1,531
|
|
$
|
3,375
|
|
||||||
28
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 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
Q7000
vessel;
|
|
•
|
statements regarding the commencement of commercial operations of the
Siem Helix
2
chartered vessel to be used in connection with our contracts to provide well intervention services offshore Brazil;
|
|
•
|
statements regarding projections of revenues, gross margin, expenses, earnings or losses, working capital, debt and liquidity, or other financial items;
|
|
•
|
statements regarding our backlog and long-term contracts and rates thereunder;
|
|
•
|
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 our trade receivables and their collectability;
|
|
•
|
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 other 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 our 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:
|
•
|
the 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;
|
|
•
|
the impact of oil and gas price fluctuations and the cyclical nature of the oil and gas industry;
|
|
•
|
the impact of any potential cancellation, deferral or modification of our work or contracts by our customers;
|
|
•
|
unexpected delays in the delivery or chartering or customer acceptance, and terms of acceptance, of new vessels for our well intervention and robotics fleet, including the
Q7000
and the
Siem Helix
2
, which is to be used to perform contracted well intervention work offshore Brazil;
|
|
•
|
the ability to continue to work through the items identified in the
Siem Helix
1
acceptance process and the timing thereof;
|
|
•
|
the impact of the imposition by our customers of rate reductions, fines and penalties with respect to our operating assets, including the
Q4000
, the
Q5000
and the
Siem Helix
1
;
|
|
•
|
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 effects of our indebtedness and our ability to reduce capital commitments;
|
|
•
|
the results of our continuing efforts to control costs and improve performance;
|
|
•
|
the success of our risk management activities;
|
|
•
|
the effects of competition;
|
29
|
•
|
the availability (or lack thereof) of capital (including any financing) to fund our business strategy and/or operations;
|
|
•
|
the impact of current and future laws and governmental regulations, including tax and accounting developments;
|
|
•
|
the impact of the vote in the U.K. to exit the European Union (the “EU”), known as Brexit, on our business, operations and financial condition, which is unknown at this time;
|
|
•
|
the effect of adverse weather conditions and/or other risks associated with marine operations;
|
|
•
|
the impact of foreign currency fluctuations;
|
|
•
|
the effectiveness of our current and future hedging activities;
|
|
•
|
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
2016
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. From time to time, we make strategic investments that expand our service capabilities or add capacity to existing services in our key operating regions. Our well intervention fleet expanded following the delivery of the
Siem Helix
2 chartered vessel in February 2017 and is expected to further expand following the completion and delivery of the
Q7000
, a newbuild semi-submersible vessel, in 2018. Chartering newer vessels with additional capabilities, including the
Grand Canyon III
chartered vessel that went into service for us in May 2017, should enable our robotics business to better serve the needs of our customers. From a longer-term perspective we also benefit by our fixed fee agreement for the
HP I
servicing the Phoenix field for the field operator until at least June 1, 2023.
In January 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 customers, combining marine support with well access and control technologies. In April 2015, we and OneSubsea agreed to jointly develop and ordered a 15,000 working p.s.i. IRS, which is expected to be completed mid-fourth quarter of 2017 for a total cost of approximately $28 million (approximately $14 million for our 50% interest). At
September 30, 2017
, our total investment in the IRS was $11.6 million. In October 2016, we and OneSubsea launched the development of our first Riserless Open-water Abandonment Module (“ROAM”) for an estimated cost of approximately $12 million (approximately $6 million for our 50% interest). At
September 30, 2017
, our total investment in the ROAM was $1.9 million. The ROAM is expected to be available to customers in the first quarter of 2018.
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 spend on operational activities as well as capital projects. The performance of our business is also largely dependent on the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, and several other factors, including:
|
•
|
worldwide economic activity, including available access to global capital and capital markets;
|
|
•
|
supply and 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;
|
30
|
•
|
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 level of excess production capacity;
|
|
•
|
the ability of oil and gas companies to generate funds or otherwise obtain external capital for capital projects 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;
|
|
•
|
potential acceleration of the development of alternative fuels;
|
|
•
|
shifts in end-customer preferences toward fuel efficiency and the use of natural gas;
|
|
•
|
weather conditions and natural disasters;
|
|
•
|
environmental and other governmental regulations; and
|
|
•
|
domestic and international tax laws, regulations and policies.
|
The significant decline in oil prices since mid-year 2014 and the resulting difficult industry environment has had a significant adverse impact on investments in oil and gas exploration and production. Many oil and gas companies have terminated or not renewed contracts for many of their contracted rigs and have drastically cut investments in exploration and production as well as other operational activities. We expect these challenging industry conditions to continue through the end of 2017 and beyond if oil and gas prices fail to increase to a level conducive to increased activity levels. Increased competition for limited offshore oil and gas projects has driven down rates that drilling rig contractors are charging for their services, which affects us, as drilling rigs historically have been the asset class used for intervention work. This rig overhang combined with lower volumes of work may affect the utilization and/or rates we can achieve for our assets. In addition, despite the upward trend in global economic growth especially in emerging markets, the current volatile and uncertain macroeconomic conditions in some countries around the world, such as Brazil and the U.K. following Brexit, may have a direct and/or indirect impact on our existing contracts and contracting opportunities and may introduce further currency volatility into our operations and/or financial results. We continue to monitor the impact of Brexit and any exit agreements as they are negotiated, but the impact from Brexit on our business and operations will depend on the outcome of tariff, tax treaties, trade, regulatory and other negotiations, as well as the impact of Brexit on macroeconomic growth and currency volatility, which are uncertain at this time.
Many oil and gas companies are increasingly focusing on optimizing production of their existing subsea wells. We believe that we have a competitive advantage in terms of performing well intervention services efficiently. Furthermore, we believe that when oil and gas companies begin to increase overall spending levels, it will likely be for production enhancement activities rather than for exploration projects. 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 prolongation of well life in oil and gas production is the primary driver of demand for our services.
Our current strategy is to be positioned for future recovery while coping with a sustained period of weak activity. This strategy is based on the following factors: (1) the need to extend the life of subsea wells is significant to the commercial viability of the wells as plug and abandonment costs are considered; (2) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling as well as extending and enhancing the commercial life of subsea wells; and (3) in past cycles, well intervention and workover have been some of the first activities to recover, and in a prolonged market downturn are important to the commercial viability of deepwater wells.
Helix Fast Response System
We developed the HFRS in 2011 as a culmination of our experience as a responder in the 2010 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. The HFRS provides industry participants with a response resource to be named in permit applications to federal and state agencies in exchange for a retainer fee. The HFRS agreements specify the day rates to be charged should the HFRS be deployed in connection with a well control incident. The agreement providing access to the HFRS was amended effective February 1, 2017 to reduce the retainer fee and to extend the term of the agreement by one year to March 31, 2019.
31
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 maximizing production economics. Our services cover the lifecycle of an offshore oil or gas field. We operate primarily in deepwater in the U.S. Gulf of Mexico, North Sea, Asia Pacific and West Africa regions, and have expanded our operations into Brazil with the commencement of operations of the
Siem Helix 1
in mid-April 2017. In addition to servicing the oil and gas market, our Robotics operations are contracted for the development of renewable energy projects (wind farms). As of
September 30, 2017
, our consolidated backlog that is supported by written agreements or contracts totaled
$1.7 billion
, of which
$135.3 million
is expected to be performed over the remainder of 2017. The substantial majority of our backlog is associated with our Well Intervention business segment. As of
September 30, 2017
, our well intervention backlog was
$1.3 billion
, including
$94.9 million
expected to be performed over the remainder of 2017. Our contract with BP to provide well intervention services with our
Q5000
semi-submersible vessel, our agreements with Petrobras to provide well intervention services offshore Brazil with the
Siem Helix 1
and
Siem Helix 2
chartered vessels, and our fixed fee agreement for the
HP I
represent approximately
87%
of our total backlog as of
September 30, 2017
. 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, renegotiated, deferred, canceled and in many cases modified while in progress, and reduced rates, fines and penalties may be imposed by our customers.
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. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with U.S. GAAP. Users of this financial information should consider the types of events and transactions that are excluded from these non-GAAP measures.
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 U.S. GAAP. We use EBITDA to monitor and facilitate 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 that 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 earnings before income taxes, net interest expense, net other income or expense, and depreciation and amortization expense. To arrive at our measure of Adjusted EBITDA, we exclude gain or loss on disposition of assets. In addition, we include realized losses from the cash settlements of our ineffective foreign currency exchange contracts, which are excluded from EBITDA as a component of net other income or expense. In the following reconciliation, we provide amounts as reflected in our accompanying condensed consolidated financial statements unless otherwise footnoted.
32
Other companies may calculate their measures of EBITDA and Adjusted EBITDA differently from the way we do, which may limit their usefulness as comparative measures. Because EBITDA and Adjusted EBITDA are not financial measures calculated in accordance with U.S. GAAP, they should not be considered in isolation or as a substitute for, but instead are supplemental to, income from operations, net income or other income data prepared in accordance with U.S. GAAP. The reconciliation of our net loss to EBITDA and Adjusted EBITDA is as follows (in thousands):
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
|
Net income (loss)
|
$
|
2,290
|
|
$
|
11,462
|
|
$
|
(20,528
|
)
|
$
|
(27,032
|
)
|
|||
|
Adjustments:
|
|||||||||||||||
|
Income tax provision (benefit)
|
(1,539
|
)
|
3,649
|
|
(1,117
|
)
|
(9,858
|
)
|
|||||||
|
Net interest expense
|
3,615
|
|
6,843
|
|
15,480
|
|
25,007
|
|
|||||||
|
(Gain) loss on early extinguishment of long-term debt
|
—
|
|
(244
|
)
|
397
|
|
(546
|
)
|
|||||||
|
Other (income) expense, net
|
551
|
|
(830
|
)
|
619
|
|
(4,018
|
)
|
|||||||
|
Depreciation and amortization
|
26,293
|
|
27,607
|
|
82,670
|
|
84,846
|
|
|||||||
|
EBITDA
|
31,210
|
|
48,487
|
|
77,521
|
|
68,399
|
|
|||||||
|
Adjustments:
|
|||||||||||||||
|
Loss on disposition of assets, net
|
—
|
|
—
|
|
39
|
|
—
|
|
|||||||
|
Realized losses from cash settlements of ineffective foreign currency exchange contracts
|
(758
|
)
|
(1,786
|
)
|
(2,759
|
)
|
(5,744
|
)
|
|||||||
|
Adjusted EBITDA
|
$
|
30,452
|
|
$
|
46,701
|
|
$
|
74,801
|
|
$
|
62,655
|
|
|||
33
Comparison of
Three
Months Ended
September 30, 2017
and
2016
The following table details various financial and operational highlights for the periods presented (dollars in thousands):
|
Three Months Ended
September 30, |
Increase/
(Decrease)
|
||||||||||
|
2017
|
2016
|
||||||||||
|
Net revenues —
|
|||||||||||
|
Well Intervention
|
$
|
111,522
|
|
$
|
108,287
|
|
$
|
3,235
|
|
||
|
Robotics
|
47,049
|
|
48,897
|
|
(1,848
|
)
|
|||||
|
Production Facilities
|
16,380
|
|
17,128
|
|
(748
|
)
|
|||||
|
Intercompany elimination
|
(11,691
|
)
|
(13,067
|
)
|
1,376
|
|
|||||
|
$
|
163,260
|
|
$
|
161,245
|
|
$
|
2,015
|
|
|||
|
Gross profit (loss) —
|
|||||||||||
|
Well Intervention
|
$
|
20,642
|
|
$
|
28,174
|
|
$
|
(7,532
|
)
|
||
|
Robotics
|
(6,991
|
)
|
4,953
|
|
(11,944
|
)
|
|||||
|
Production Facilities
|
7,780
|
|
8,413
|
|
(633
|
)
|
|||||
|
Corporate and other
|
(489
|
)
|
(483
|
)
|
(6
|
)
|
|||||
|
Intercompany elimination
|
199
|
|
(873
|
)
|
1,072
|
|
|||||
|
$
|
21,141
|
|
$
|
40,184
|
|
$
|
(19,043
|
)
|
|||
|
Gross margin —
|
|||||||||||
|
Well Intervention
|
19%
|
|
26%
|
|
|||||||
|
Robotics
|
(15)%
|
|
10%
|
|
|||||||
|
Production Facilities
|
47%
|
|
49%
|
|
|||||||
|
Total company
|
13%
|
|
25%
|
|
|||||||
|
Number of vessels or robotics assets
(1)
/ Utilization
(2)
|
|||||||||||
|
Well Intervention vessels
|
5/88%
|
|
5/76%
|
|
|||||||
|
Robotics assets
|
60/46%
|
|
60/57%
|
|
|||||||
|
Chartered robotics vessels
|
5/80%
|
|
3/81%
|
|
|||||||
|
(1)
|
Represents number of vessels or robotics 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.
|
|
(2)
|
Represents average utilization rate, which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of calendar days in the applicable period.
|
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
September 30, |
Increase/
(Decrease)
|
||||||||||
|
2017
|
2016
|
||||||||||
|
Well Intervention
|
$
|
3,765
|
|
$
|
2,898
|
|
$
|
867
|
|
||
|
Robotics
|
7,926
|
|
10,169
|
|
(2,243
|
)
|
|||||
|
$
|
11,691
|
|
$
|
13,067
|
|
$
|
(1,376
|
)
|
|||
34
Net Revenues.
Our total net revenues
increased
by
1%
for the
three
-month period ended
September 30, 2017
as compared to the same period in
2016
. Increased revenues for the
three
-month period in 2017 reflected higher revenues in our Well Intervention segment, offset in part by revenue decreases in our Robotics and Production Facilities segments.
Our Well Intervention revenues
increased
by
3%
for the
three
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting revenues generated from our well intervention operations in Brazil, offset in part by operational downtime experienced by the
Well Enhancer
in the North Sea and $15.6 million we recognized in the third quarter of 2016 associated with a work scope cancellation under a “take or pay” contract originally scheduled to be performed by the
Q4000
in late 2016. In Brazil, the
Siem Helix
1
was 96% utilized during the third quarter of 2017. Our day rates improved in the third quarter as we addressed most of the items identified in the vessel acceptance process. In the North Sea, the
Well Enhancer
was 84% utilized during the third quarter of 2017 while the vessel was 91% utilized during the same period in 2016. The
Seawell
was 97% utilized during the third quarter of 2017 as compared to being 98% utilized during the same period in 2016. In the Gulf of Mexico, the
Q5000
was 75% utilized during the third quarter of 2017 primarily due to 18 idle days during the off-hire period of the BP contract. The vessel was 84% utilized during the same period in 2016. The
Q4000
was 86% utilized during the third quarter of 2017 as compared to being 93% utilized during the same period in 2016.
Robotics revenues
decreased
by
4%
for the
three
-month period ended
September 30, 2017
as compared to the same period in
2016
. The decrease primarily reflected lower utilization of our robotics assets and accepting work at reduced rates, offset in part by the addition of the
Grand Canyon III
to our robotics fleet and 30 additional days of spot vessel utilization in the comparable quarter-over-quarter periods. Some of our ROV units have been affected by other industry participants laying up vessels or canceling work as a result of the oil and gas industry downturn.
Our Production Facilities revenues
decreased
by
4%
for the
three
-month period ended
September 30, 2017
as compared to the same period in
2016
, which reflected reduced retainer fees from the amended HFRS agreement that became effective February 1, 2017.
Gross Profit (Loss).
Our total gross profit
decreased
by
47%
for the
three
-month period ended
September 30, 2017
as compared to the same period in
2016
. The gross profit related to our Well Intervention segment
decreased
by
27%
for the
three
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting the $15.6 million in third quarter 2016 revenues associated with a take-or-pay contract.
The gross profit associated with our Robotics segment
decreased
by
241%
for the
three
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting decreased utilization for our robotics assets, accepting work with lower profit margins and increased vessel costs associated with the addition of the
Grand Canyon III
in May 2017.
The gross profit related to our Production Facilities segment
decreased
by
8%
for the
three
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting revenue decreases for the HFRS.
Selling, General and Administrative Expenses.
Our selling, general and administrative expenses
decreased
by
$2.3 million
for the
three
-month period ended
September 30, 2017
primarily attributable to a $2.7 million charge in the same period in 2016 that was associated with the provision for uncertain collection of a portion of our note receivable related to our Robotics segment.
Net Interest Expense.
Our net interest expense
decreased
by
$3.2 million
for the
three
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting a decrease in interest expense and an increase in capitalized interest. The decrease in interest expense was primarily attributable to a significant reduction in our debt levels including the $80 million principal reduction of our term loan in June 2017 (Note 6). Interest on debt used to finance capital projects is capitalized and thus reduces overall interest expense. Capitalized interest totaled
$3.9 million
for the
three
-month period ended
September 30, 2017
as compared to
$3.1 million
for the same period in
2016
.
35
Other Income (Expense), Net.
We reported other expense, net, of
$0.6 million
for the
three
-month period ended
September 30, 2017
as compared to other income, net, of
$0.8 million
for the same period in
2016
. Net other income (expense) for the
three
-month periods ended
September 30, 2017
and
2016
included foreign currency transaction losses totaling $1.6 million and $0.5 million, respectively. Also included in the comparable quarter-over-quarter periods were net gains of
$1.1 million
and
$1.3 million
, respectively, associated with our foreign currency exchange contracts that were not designated as cash flow hedges (Note 14).
Income Tax Provision (Benefit).
Income tax benefit was
$1.5 million
for the
three
-month period ended
September 30, 2017
as compared to income tax provision of
$3.6 million
for the same period in
2016
. The variance primarily reflected decreased profitability in the current year period. The effective tax rate was
(204.9)%
for the
three
-month period ended
September 30, 2017
as compared to
24.1%
for the same period in
2016
. The variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions.
Comparison of
Nine
Months Ended
September 30, 2017
and
2016
The following table details various financial and operational highlights for the periods presented (dollars in thousands):
|
Nine Months Ended
September 30, |
Increase/
(Decrease)
|
||||||||||
|
2017
|
2016
|
||||||||||
|
Net revenues —
|
|||||||||||
|
Well Intervention
|
$
|
299,219
|
|
$
|
214,262
|
|
$
|
84,957
|
|
||
|
Robotics
|
102,078
|
|
119,805
|
|
(17,727
|
)
|
|||||
|
Production Facilities
|
47,965
|
|
54,567
|
|
(6,602
|
)
|
|||||
|
Intercompany elimination
|
(31,145
|
)
|
(29,083
|
)
|
(2,062
|
)
|
|||||
|
$
|
418,117
|
|
$
|
359,551
|
|
$
|
58,566
|
|
|||
|
Gross profit (loss) —
|
|||||||||||
|
Well Intervention
|
$
|
47,757
|
|
$
|
17,195
|
|
$
|
30,562
|
|
||
|
Robotics
|
(29,376
|
)
|
(12,008
|
)
|
(17,368
|
)
|
|||||
|
Production Facilities
|
21,031
|
|
25,634
|
|
(4,603
|
)
|
|||||
|
Corporate and other
|
(1,370
|
)
|
(1,367
|
)
|
(3
|
)
|
|||||
|
Intercompany elimination
|
641
|
|
(542
|
)
|
1,183
|
|
|||||
|
$
|
38,683
|
|
$
|
28,912
|
|
$
|
9,771
|
|
|||
|
Gross margin —
|
|||||||||||
|
Well Intervention
|
16%
|
|
8%
|
|
|||||||
|
Robotics
|
(29)%
|
|
(10)%
|
|
|||||||
|
Production Facilities
|
44%
|
|
47%
|
|
|||||||
|
Total company
|
9%
|
|
8%
|
|
|||||||
|
Number of vessels or robotics assets
(1)
/ Utilization
(2)
|
|||||||||||
|
Well Intervention vessels
|
5/79%
|
|
5/52%
|
|
|||||||
|
Robotics assets
|
60/42%
|
|
60/48%
|
|
|||||||
|
Chartered robotics vessels
|
5/61%
|
|
3/63%
|
|
|||||||
|
(1)
|
Represents number of vessels or robotics 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.
|
|
(2)
|
Represents average utilization rate, which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of calendar days in the applicable period.
|
36
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):
|
Nine Months Ended
September 30, |
Increase/
(Decrease)
|
||||||||||
|
2017
|
2016
|
||||||||||
|
Well Intervention
|
$
|
8,033
|
|
$
|
5,740
|
|
$
|
2,293
|
|
||
|
Robotics
|
23,112
|
|
23,343
|
|
(231
|
)
|
|||||
|
$
|
31,145
|
|
$
|
29,083
|
|
$
|
2,062
|
|
|||
Net Revenues.
Our total net revenues
increased
by
16%
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
. Increased revenues for the
nine
-month period in 2017 reflected higher revenues in our Well Intervention segment, offset in part by revenue decreases in our Robotics and Production Facilities segments.
Our Well Intervention revenues
increased
by
40%
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting higher revenues generated from all of the well intervention vessels except for the
Q4000
. In Brazil, the
Siem Helix
1
’s financial performance has improved since it commenced services for Petrobras in mid-April 2017, achieving year-to-date utilization of 96%. In the North Sea, the
Well Enhancer
was 81% utilized during the first nine months of 2017 while the vessel was 60% utilized during the same period in 2016. The
Seawell
was 84% utilized during the first nine months of 2017 whereas it was 41% utilized during the same period in 2016. In the Gulf of Mexico, the
Q5000
was 88% utilized during the first nine months of 2017 as compared to being 56% utilized during the same period in 2016. The
Q4000
was 77% utilized during the first nine months of 2017 as compared to being 97% utilized during the same period in 2016. Additionally in the third quarter of 2016, we recognized $15.6 million associated with a work scope cancellation under a contract containing “take or pay” provisions for 42 days of work originally scheduled to be performed by the
Q4000
in late 2016.
Robotics revenues
decreased
by
15%
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
. The decrease primarily reflected lower utilization of our robotics assets and accepting work at reduced rates. Some of our ROV units have been affected by other industry participants laying up vessels or canceling work as a result of the oil and gas industry downturn.
Our Production Facilities revenues
decreased
by
12%
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
, which reflected reduced retainer fees from the amended HFRS agreement that became effective February 1, 2017 and lower revenues from the fixed fee agreement with the Phoenix field operator for the
HP I
that commenced June 1, 2016.
Gross Profit (Loss).
Our total gross profit
increased
by
34%
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
. The gross profit related to our Well Intervention segment
increased
by
178%
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting higher revenues in our North Sea region.
The gross profit associated with our Robotics segment
decreased
by
145%
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting decreased utilization for our robotics assets and accepting work with lower profit margins.
The gross profit related to our Production Facilities segment
decreased
by
18%
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting revenue decreases for the HFRS and the
HP I
.
37
Selling, General and Administrative Expenses.
Our selling, general and administrative expenses
decreased
by
$1.0 million
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
. The
nine
-month periods ended
September 30, 2017
and
2016
included charges of $1.2 million and $2.7 million, respectively, that were associated with the provision for uncertain collection of a portion of our receivables related to our Robotics segment.
Net Interest Expense.
Our net interest expense
decreased
by
$9.5 million
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting increases in interest income and capitalized interest and a decrease in interest expense. Interest income totaled
$2.1 million
for the
nine
-month period ended
September 30, 2017
as compared to
$1.7 million
for the same period in
2016
. Interest on debt used to finance capital projects is capitalized and thus reduces overall interest expense. Capitalized interest totaled
$12.6 million
for the
nine
-month period ended
September 30, 2017
as compared to
$7.5 million
for the same period in
2016
. The decrease in interest expense was primarily attributable to a significant reduction in our debt levels including the $80 million principal reduction of our term loan in June 2017. Interest expense for the
nine
-month periods ended
September 30, 2017
and
2016
also included charges of
$1.6 million
and
$2.5 million
, respectively, to accelerate the amortization of a pro-rata portion of debt issuance costs related to the lenders whose commitments in our revolving credit facility were reduced (Note 6).
Gain (Loss) on Early Extinguishment of Long-Term Debt.
The
$0.4 million
loss for the
nine
-month period ended
September 30, 2017
was associated with the write-off of the unamortized debt issuance costs related to the lenders exiting from the term loan then outstanding under the credit agreement prior to its June 2017 amendment and restatement (Note 6). The
$0.5 million
gain for the
nine
-month period ended
September 30, 2016
was associated with the repurchases totaling $14.9 million in aggregate principal amount of our 2032 Notes in June and July of 2016.
Other Income (Expense), Net.
We reported other expense, net, of
$0.6 million
for the
nine
-month period ended
September 30, 2017
as compared to other income, net, of
$4.0 million
for the same period in
2016
. Net other income (expense) for the
nine
-month periods ended
September 30, 2017
and
2016
included foreign currency transaction gains (losses) of $(2.2) million and $0.5 million, respectively. Also included in the comparable year-over-year periods were net gains of
$1.5 million
and $3.5 million, respectively, associated with our foreign currency exchange contracts primarily reflecting gains related to the contracts that were not designated as cash flow hedges (Note 14).
Income Tax Benefit.
Income tax benefit was
$1.1 million
for the
nine
-month period ended
September 30, 2017
as compared to
$9.9 million
for the same period in
2016
. The variance primarily reflected a decrease in pretax loss in the current year period as well as a tax charge attributable to a change in tax position related to our foreign taxes. The effective tax rate was
5.2%
for the
nine
-month period ended
September 30, 2017
as compared to
26.7%
for the same period in
2016
. The variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and the change in tax position related to our foreign taxes (Note 7).
38
LIQUIDITY AND CAPITAL RESOURCES
Overview
The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):
|
September 30,
2017 |
December 31,
2016 |
||||||
|
Net working capital
|
$
|
268,817
|
|
$
|
336,387
|
|
|
|
Long-term debt
(1)
|
$
|
395,345
|
|
$
|
558,396
|
|
|
|
Liquidity
(2)
|
$
|
426,741
|
|
$
|
375,504
|
|
|
|
(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 and debt issuance costs. 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
September 30, 2017
included cash and cash equivalents of
$356.9 million
(including
$100 million
of minimum cash balance required by our Credit Agreement) and
$69.9 million
of available borrowing capacity under our Revolving Credit Facility (Note 6). Our liquidity at
December 31, 2016
included cash and cash equivalents of
$356.6 million
and
$18.9 million
of available borrowing capacity under our Revolving Credit Facility.
|
The carrying amount of our long-term debt, including current maturities, net of unamortized debt discount and debt issuance costs, is as follows (in thousands):
|
September 30,
2017 |
December 31,
2016 |
||||||
|
Term Loan (previously scheduled to mature June 2018)
|
$
|
—
|
|
$
|
190,867
|
|
|
|
Nordea Q5000 Loan (matures April 2020)
|
167,667
|
|
193,879
|
|
|||
|
Term Loan (matures June 2020)
|
96,935
|
|
—
|
|
|||
|
MARAD Debt (matures February 2027)
|
72,365
|
|
78,221
|
|
|||
|
2022 Notes (mature May 2022)
(1)
|
108,018
|
|
105,697
|
|
|||
|
2032 Notes (mature March 2032)
(2)
|
58,971
|
|
57,303
|
|
|||
|
Total debt
|
$
|
503,956
|
|
$
|
625,967
|
|
|
|
(1)
|
The 2022 Notes will increase to their face amount through accretion of non-cash interest charges through May 1, 2022.
|
|
(2)
|
The 2032 Notes will increase to their face amount through accretion of non-cash interest charges through March 15, 2018, which is the first date on which the holders may require us to repurchase the notes.
|
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
|
Nine Months Ended
September 30, |
|||||||
|
2017
|
2016
|
||||||
|
Cash provided by (used in):
|
|||||||
|
Operating activities
|
$
|
31,323
|
|
$
|
15,444
|
|
|
|
Investing activities
|
$
|
(121,428
|
)
|
$
|
(42,266
|
)
|
|
|
Financing activities
|
$
|
88,420
|
|
$
|
17,217
|
|
|
39
Our current requirements for cash primarily reflect the need to fund capital spending 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 project financing, along with other debt and equity alternatives.
As a further response to the industry-wide spending reductions, 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 our cash on hand, internally generated cash flows and available borrowing capacity under our Revolving Credit Facility will be sufficient to fund our operations over at least the next 12 months.
In accordance with our Credit Agreement, the 2022 Notes, 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 various leverage ratios, as well as the maintenance of minimum cash balance, 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 Q5000 Loan) secured by the underlying asset, provided that such indebtedness is not guaranteed by us. Our 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 defined in our Credit Agreement). As of
September 30, 2017
and
December 31, 2016
, we were in compliance with all of the covenants in our long-term debt agreements.
A prolonged period of weak industry 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 fully access our Revolving Credit Facility may be impacted. At
September 30, 2017
, our available borrowing capacity under our Revolving Credit Facility, based on the applicable leverage ratio covenant, was restricted to
$69.9 million
, net of
$4.0 million
of letters of credit issued under that facility. We currently have no plans or forecasted requirements to borrow under our Revolving Credit Facility other than for issuances of letters of credit. Our ability to comply with loan agreement 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, that failure could lead to an event of default, the possible acceleration of our outstanding debt and the exercise of certain remedies by our lenders, including foreclosure against our collateral.
Subject to the terms and restrictions of the Credit Agreement, we may borrow and/or obtain letters of credit up to
$25 million
under our Revolving Credit Facility. See Note 6 for additional information relating to our long-term debt, including more information regarding our Credit Agreement, including covenants and collateral.
The 2022 Notes and the 2032 Notes can be converted into our common stock prior to their stated maturity upon certain triggering events specified in the applicable Indenture governing the notes. The holders of the remaining 2032 Notes may require us to repurchase these notes in March 2018. Accordingly, the 2032 Notes are classified as current liabilities on our consolidated balance sheet at
September 30, 2017
. No conversion triggers were met during the
nine
-month periods ended
September 30, 2017
and
2016
.
Operating Cash Flows
Total cash flows from operating activities
increased
by
$15.9 million
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
. This increase was primarily attributable to improvements in our operating results.
Investing Activities
Capital expenditures consist principally of the acquisition, construction, upgrade, modification and refurbishment of long-lived property and equipment such as dynamically positioned vessels, topside equipment and subsea systems. Significant sources (uses) of cash associated with investing activities are as follows (in thousands):
40
|
Nine Months Ended
September 30, |
|||||||
|
2017
|
2016
|
||||||
|
Capital expenditures:
|
|||||||
|
Well Intervention
|
$
|
(130,649
|
)
|
$
|
(79,147
|
)
|
|
|
Robotics
|
(691
|
)
|
(504
|
)
|
|||
|
Production Facilities
|
—
|
|
(74
|
)
|
|||
|
Other
|
(88
|
)
|
372
|
|
|||
|
Distribution from equity investment
|
—
|
|
1,200
|
|
|||
|
Proceeds from sale of equity investment
(1)
|
—
|
|
25,000
|
|
|||
|
Proceeds from sale of assets
(2)
|
10,000
|
|
10,887
|
|
|||
|
Net cash used in investing activities
|
$
|
(121,428
|
)
|
$
|
(42,266
|
)
|
|
|
(1)
|
Amount in 2016 reflected cash received from the sale of our former ownership interest in Deepwater Gateway (Note 5).
|
|
(2)
|
Amount in 2017 reflected cash received from the sale of our Ingleside spoolbase (Note 3). Amount in 2016 reflected cash received from the sale of our office and warehouse property located in Aberdeen, Scotland.
|
Capital expenditures associated with our business primarily have included payments associated with the construction of our
Q7000
vessel (see below) and the investment in the topside well intervention equipment for the
Siem Helix 1
and
Siem Helix 2
vessels chartered to perform our agreements with Petrobras (see below).
In September 2013, we executed a contract with the same shipyard in Singapore that constructed the
Q5000
for the construction of a newbuild semi-submersible well intervention vessel, the
Q7000
, which is being 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 original contract and subsequent amendments, 20% of the contract price was paid upon the signing of the contract in 2013, 20% was paid in 2016, 20% is to be paid upon issuance of the Completion Certificate, which is to be issued on or before December 31, 2017, and 40% is to be paid upon the delivery of the vessel, which at our option can be deferred until December
30, 2018. We agreed to pay the shipyard its incremental costs in connection with the contract amendments to extend the scheduled delivery of the
Q7000
and to defer certain payment obligations. At
September 30, 2017
, our total investment in the
Q7000
was
$213.6 million
, including
$138.4 million
of installment payments to the shipyard. We plan to incur approximately $77 million of costs related to the construction of the
Q7000
over the remainder of 2017.
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 Petrobras’s options to extend. In connection with the Petrobras agreements, we entered into charter agreements with Siem for two newbuild monohull vessels, the
Siem Helix 1
and the
Siem Helix 2.
The
Siem Helix 1
commenced its operations for Petrobras in mid-April 2017. We currently expect the
Siem Helix 2
to be in service for Petrobras late in the fourth quarter of 2017. We have invested
$304.1 million
as of
September 30, 2017
and plan to invest approximately $9 million in the topside equipment over the remainder of 2017.
Financing Activities
Cash flows from financing activities consist primarily of proceeds from debt and equity financing activities and repayments of our long-term debt. Total cash flows from financing activities
increased
by
$71.2 million
for the
nine
-month period ended
September 30, 2017
as compared to the same period in
2016
primarily reflecting net proceeds of approximately
$220 million
we received from our underwritten public equity offering in January 2017 (Note 8) and the
$100 million
proceeds from our Term Loan borrowings in June 2017, offset in part by early repayment of the approximately
$180 million
term loan then outstanding under the credit agreement prior to its June 2017 amendment and restatement (Note 6) and net proceeds of approximately
$95 million
we received in the
nine
-month period ended
September 30, 2016
from the sale of our common stock under at-the-market equity offering programs.
41
Outlook
We anticipate that our capital expenditures and deferred dry dock costs for
2017
will approximate $245 million. We believe that our cash on hand, internally generated cash flows and availability under our Revolving Credit Facility will provide the capital necessary to continue funding our 2017 capital spending. Our estimate of future capital expenditures may change based on various factors. We may seek to reduce the level of our planned capital expenditures given a prolonged industry downturn.
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual cash obligations as of
September 30, 2017
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
|
|||||||||||||||
|
Term Loan
|
$
|
98,750
|
|
$
|
6,250
|
|
$
|
92,500
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Nordea Q5000 Loan
|
169,643
|
|
35,714
|
|
133,929
|
|
—
|
|
—
|
|
|||||||||
|
MARAD Debt
|
77,000
|
|
6,532
|
|
14,058
|
|
15,497
|
|
40,913
|
|
|||||||||
|
2022 Notes
(2)
|
125,000
|
|
—
|
|
—
|
|
125,000
|
|
—
|
|
|||||||||
|
2032 Notes
(3)
|
60,115
|
|
60,115
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Interest related to debt
(4)
|
78,706
|
|
23,411
|
|
35,804
|
|
14,614
|
|
4,877
|
|
|||||||||
|
Property and equipment
(5)
|
262,626
|
|
113,149
|
|
149,477
|
|
—
|
|
—
|
|
|||||||||
|
Operating leases
(6)
|
694,257
|
|
140,345
|
|
250,424
|
|
207,824
|
|
95,664
|
|
|||||||||
|
Total cash obligations
|
$
|
1,566,097
|
|
$
|
385,516
|
|
$
|
676,192
|
|
$
|
362,935
|
|
$
|
141,454
|
|
||||
|
(1)
|
Excludes unsecured letters of credit outstanding at
September 30, 2017
totaling
$4.0 million
. These letters of credit support various obligations, such as contractual obligations, contract bidding and insurance activities.
|
|
(2)
|
Notes mature May 2022. The 2022 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 30th trading day (i.e., $18.06 per share). At
September 30, 2017
, the conversion trigger was not met. See Note 6 for additional information.
|
|
(3)
|
Notes mature March 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 30th trading day (i.e., $32.53 per share). At
September 30, 2017
, 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.
|
|
(4)
|
Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at
September 30, 2017
for variable rate debt.
|
|
(5)
|
Primarily reflects costs associated with our
Q7000
semi-submersible well intervention vessel currently under construction and the topside equipment for the
Siem Helix 2
chartered vessel (Note 12).
|
|
(6)
|
Operating leases include vessel charters and facility leases. At
September 30, 2017
, our vessel charter commitments totaled approximately $652.3 million, including the
Grand Canyon III
that went into service for us in May 2017, the
Siem Helix 1
, which commenced operations for Petrobras in mid-April 2017, and the
Siem Helix 2
, which we currently expect to be in service for Petrobras late in the fourth quarter of 2017.
|
42
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
2016
Form 10-K.
We are currently exposed to market risk in two areas: interest rates and foreign currency exchange rates.
Interest Rate Risk.
As of
September 30, 2017
,
$268.4 million
of our outstanding debt was subject to floating rates. The interest rate applicable to our variable rate debt may rise, thereby increasing our interest expense and related cash outlay. In June 2015 we entered into various interest rate swap contracts to fix the interest rate on $187.5 million of our Nordea Q5000 Loan. These swap contracts, which are settled monthly, began in June 2015 and extend through April 2020. The impact of interest rate 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 $1.5 million in interest expense for the
nine
-month period ended
September 30, 2017
.
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. 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. In addition, a substantial portion of our contracts provide for collections from customers in U.S. dollars. During the
nine
-month period ended
September 30, 2017
, we recognized losses of $2.2 million related to foreign currency transactions in “Other income (expense), net” in our condensed consolidated statement of operations.
Our cash flows are subject to fluctuations resulting from changes in foreign currency exchange rates. Fluctuations in exchange rates are likely to impact our results of operations and cash flows. As a result, we 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
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. In December 2015, we re-designated the hedging relationship between a portion of our foreign currency exchange contracts and our forecasted
Grand Canyon II
and
Grand Canyon III
charter payments of NOK434.1 million and NOK185.2 million, respectively, that were expected to remain highly probable of occurring (Note 14). The foreign currency exchange contracts associated with the
Grand Canyon
charter payments and the re-designated contracts associated with the
Grand Canyon II
and
Grand Canyon III
charter payments currently qualify for cash flow hedge accounting treatment. There was no foreign currency hedge ineffectiveness for the
nine
-month period ended
September 30, 2017
.
43
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 Exchange Act, as of
September 30, 2017
. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of
September 30, 2017
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
September 30, 2017
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
44
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
|
(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
(1)
|
|||||||||
|
July 1 to July 31, 2017
|
—
|
|
$
|
—
|
|
—
|
|
3,079,889
|
|
||||
|
August 1 to August 31, 2017
|
—
|
|
—
|
|
—
|
|
3,079,889
|
|
|||||
|
September 1 to September 30, 2017
|
—
|
|
—
|
|
—
|
|
3,108,697
|
|
|||||
|
—
|
|
$
|
—
|
|
—
|
|
|||||||
|
(1)
|
Under the terms of our stock repurchase program, the issuance of shares to members of our Board and to certain employees, including shares issued under the ESPP to participating employees (Note 10), increases the amount of shares available for repurchase. For additional information regarding our stock repurchase program, see Note 10 to our
2016
Form 10-K.
|
|
Exhibit Number
|
|
Description
|
|
Filed or Furnished Herewith or Incorporated by Reference from the Following Documents (Registration or File Number)
|
|
3.1
|
|
|
Exhibit 3.1 to the Current Report on Form 8-K filed on March 1, 2006 (000-22739)
|
|
|
3.2
|
|
|
Exhibit 3.1 to the Current Report on Form 8-K filed on September 28, 2006 (001-32936)
|
|
|
31.1
|
|
|
Filed herewith
|
|
|
31.2
|
|
|
Filed herewith
|
|
|
32.1
|
|
|
Furnished herewith
|
|
|
101.INS
|
|
XBRL Instance Document.
|
|
Filed herewith
|
|
101.SCH
|
|
XBRL Schema Document.
|
|
Filed herewith
|
|
101.CAL
|
|
XBRL Calculation Linkbase Document.
|
|
Filed herewith
|
|
101.PRE
|
|
XBRL Presentation Linkbase Document.
|
|
Filed herewith
|
|
101.DEF
|
|
XBRL Definition Linkbase Document.
|
|
Filed herewith
|
|
101.LAB
|
|
XBRL Label Linkbase Document.
|
|
Filed herewith
|
45
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:
|
October 24, 2017
|
By:
|
/s/ Owen Kratz
|
|
|
|
|
Owen Kratz
President and Chief Executive Officer
(Principal Executive Officer)
|
||
|
|
|
|
||
|
Date:
|
October 24, 2017
|
By:
|
/s/ Erik Staffeldt
|
|
|
|
Erik Staffeldt
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|||
46
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 Shareholders EquityNote 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